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Gray: A 'New Normal' for Agriculture

by Steve Grinczel

Published: Friday, July 31, 2020

Until the mountain of dust being kicked up by the COVID-19 pandemic settles, no one knows exactly what the agricultural landscape in Indiana and beyond will look like in the coming weeks, months and years.

Allan Gray is convinced, however, that it can't help but be fundamentally different.

The executive director of Purdue University's Center for Food and Agricultural Business provided his vision of how farmers, processors, the government and consumers may interact and impact each other going forward during a Zoom webinar hosted last Thursday by the Indiana Corn Growers Assn. and the Indiana Soybean Alliance.

The 90-plus-minute presentation itself was an outgrowth of the prevailing safety-first attitude that resulted in the cancelation of the annual ICGA/ISA Ag Policy Summit scheduled for July 28 at the Hendricks County Fairgrounds.

"We would not have even remotely considered this (webinar) as a possibility a year ago," Gray remarked to ICGA/ISA Senior Director of Industry Affairs Steve Howell. "One thing I'm certain about is tomorrow is not yesterday.

"Where we're headed in the future just won't be anywhere near what it was yesterday in any way, shape or form for most of the way we think about living."

Gray extrapolated his "Driving Toward the Next Normal" strategic forecast from the transformative events occurring during what's been described as the world undergoing "10 years of change in less than six months."

"We're going to have to get used to this new normal," he said.

Gray recounted how in the days following the conclusion of spring break, Purdue went from holding classes in person to conducting them online.

"In one week, just like that we did it," he said. "Did we do it great? No, but we made it happen and I think we can say that about a lot of our organizations. We invented ways to figure out how to make things happen and we've done fairly well with it."

Farmers can relate to the sea change taking place at the local level by the way they've been engaging their Extension specialists remotely—not unlike doctors treating patients via tele-medicine. A burgeoning contact-free economy is showing itself with the way people are buying groceries online and ordering restaurant meals they consume at home.

Meanwhile, deglobalization appears inevitable.

A strategic planner who has advised agri-businesses for more than 20 years, Gray stresses the importance of being prepared for what might happen instead of trying to predict what the future may be.

"We know right now mostly we're about survival but we also need to be thinking, 'Well OK, after we get past this survival piece, what's the day after look like, what's that new normal going to be?'" Gray said. "What are the drivers that will change the way the world happens around us?"

Gray presented the 75 webinar attendees with charts created by the World Trade Organization depicting the time it could take the global economy to return to 2019 levels: a V-shaped recovery of two years, a U-shaped recovery of three years and an L-shaped recovery of six years.

In a pop-up poll, most of the attendees thought the U-shape recovery was most probable but 25 percent of the group thought the dire L-shaped recovery was the most realistic outcome.

"I don't know which one it's going to be, but we would behoove ourselves to be preparing for all three of those possibilities and that's not an easy thing to do," Gray said. "How do you prepare your farm business, your agri-business to manage through these different types of possibilities with respect to recovery from this pandemic?"

Gray envisions what he called "shocks," such as lettuce producers seeing demand for their product drop by 80 percent in two weeks, and then come back by 80 percent three weeks later, continuing "over the next couple years," he said.

Lower prices and tighter margins were having a negative impact on farmers' bottom lines even before the pandemic because of growing stockpiles, Gray said. Not even the terrible river flooding of 2018 or the wet spring of 2019 affected supply in a way that would result in higher prices.

Because COVID has caused an overall reduction in demand—think restaurant orders and more people eating smaller portions at home—Gray has a bearish market outlook for the foreseeable future.

"If we can't get that sort of substantial increase in demand to happen, it's going to take some time to work off all these stocks, right?" he said. "From an overall farm-income perspective, the pandemic's going to have a strong negative impact—I don't know how it can't.

"I don't want to be doom and gloom, but we're not going back to 100 percent of the activity we saw at the end of 2019 with people driving their cars."

Consequently, as gasoline consumption remains far below normal, the demand for ethanol, which Gray said was in a bad spot before the pandemic, is not going up anytime soon.

On the other hand, production expenses related to fertilizer and fuel costs should decrease. And history indicates, Gray said, strong government support is probably going to continue, regardless of which party is in control.

"One of the things that seems to hold on, with respect to across-the-aisle agreement, often is supporting farmers," Gray said. "Whether you have Republicans in control or Democrats in control, they tend to move toward saying, 'OK the government needs to step in when the farmer is in need.'

"I think good or bad, depending on how you want to look at it, most of us would say we'd rather farm the market than farm the government, but this may be the place where we are for now."

The problem with government aid is it will inevitably result in a quid pro quo.

"We're not headed for more government intervention," Gray said. "We absolutely, clearly, with no argument, have more government intervention and that has some real implications for us moving forward. (In) agriculture, we're as happy to reach out for the help as anybody else is, and we should recognize if we do that—and I'm not saying it's not needed, it's not a judgment—to think that those are going to come and not have strings attached to them is highly unlikely.

"From a broad-picture perspective, asking for handouts with the left hand and hoping nobody pays attention with what we're doing with the right hand, and let us do our own thing with it, seems like an unlikely thing to me. We just want to make sure that we're paying attention."

The pandemic has exposed weaknesses in the agricultural business structure, in particular with the shutdowns to consolidated meatpacking facilities in Indiana and across the nation.

The globalization, free-market gold rush of the 1990s and early 2000s was coming to an end before the pandemic and crisis has already caused protectionist reactions around the world. American food buyers were ahead of the curve by supporting the farm-to-table movement.

"Now consumers are really thinking even more about this idea of local food, but why?" Gray said. "One is geographic proximity—fewer steps between the farm and the table. (And) even if we have production capacity interruption in one place, it's a small amount as opposed to if you have one company who produces 40-percent of the meat."

There is also a growing sentiment for spending income locally to support nearby businesses.

The caveat to local supply activity is "cost will go up," Gray said. "If we're going to shift from a globalized world to a deglobalized world, we're going to increase food costs at the margins and people who are at the margins won't be able to afford food and that (trade-off) doesn't get talked about enough."

There are also workforce issues in agriculture, which Gray said is still hiring at a robust rate, related to high unemployment and immigration.

"For those of us in our operation who rely heavily on migrant workers, this could be a big challenge," Gray said. "When we have large unemployment in the U.S. there's more pressure to hold out people from outside coming in, under the guise that we need those jobs for our people.

"But those of us in this industry know that our people won't do those jobs. Frankly, I don't see somebody losing their job in a restaurant who's going to go milk cows. That assumes some sort of level labor mobility that just doesn't exist. With this kind of unemployment, we're going to make immigration and migrant-worker movement even more difficult, not less difficult, for sure. And we have to be prepared for that in our industry."

And yet, Gray appeared confident that solutions to the problems borne from a pandemic will be solved.

"It's really kind of fascinating and it's sort of forcing us to have a pace and scale of innovation that's quite higher than we've ever seen before in our society as a whole," he said. "We're showing some resiliency as a human race."

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