CHALLENGES, REALITIES AND PERCEPTIONS: CHANGING PARADIGMS FOR THE U.S. FOOD AND AGRICULTURE SYSTEM Kristen Allen December 1993 EXECUTIVE SUMMARY A survey of leaders and experts in fields of relevance to the food and agriculture system highlighted six emerging trends and forces, and responses to them, that will be of major importance in determining the shape of that system in the coming decades. The six factors are as follows: Agricultural production will increasingly be influenced by public concern about environmental quality; Biotechnology will become integral to agricultural production as a means of reducing chemical input use; Vertical coordination will be increasingly common in the food and agriculture system; Agriculture will face more costly water because more clean water will be bid away by other uses; The urban and suburban portions of the population will have increasing political clout; and Policies and regulations designed to address serious threats to environmental quality will increasingly change the nature of the agricultural production system. In combination, these factors, among others, will present actors in the food and agriculture system with new challenges and opportunities over the next two decades. They are, for example, at the root of the challenge, the beginnings of which are apparent even now, to the idea that natural resource "owners" have unlimited rights of control over those resources. In the coming years this idea will likely be challenged even more, as urban and suburban residents demand larger shares of clean water and as public concern about environmental damage changes consumption, and possibly investment, patterns and gives rise to stricter controls on resource using activities. Another trend, the need add distinguishable value to agricultural commodities, offers both challenges and opportunities. The changing demographics and economic position of the consumer base are key forces driving the challenge; but we can also see potential opportunities in greater coordination of activities throughout the food and agriculture system and in the increasing application of biotechnologies in food and agricultural production. Such opportunities are not, however, without some costs and possi ble dislocations. The most immediate challenge for the food and agriculture community is to acknowledge these emerging trends and understand the forces driving them, then to begin to explore how best they might be encountered. CHALLENGES, REALITIES, AND PERCEPTIONS: CHANGING PARADIGMS FOR THE U.S. FOOD AND AGRICULTURE SYSTEM Kristen Allen Environmental quality, biotechnology, the increasing political clout of the urban/suburban population, competing demands for water, and the need to coordinate food system activities are, according to the opinions of a group of experts and leaders from within the food and agriculture system, key among the emerging forces, trends and responses that will shape that system, and the challenges that it must face, as we enter the twenty-first century. With a little generalization and simplification, we can characterize the U.S. food and agriculture system in recent decades in terms of challenges. In the 1970s, the challenge facing the system was to expand output and productivity to meet new sources of demand, especially that from other countries. In the 1980s, the challenge was to meet the competition from other countries (and to pay for the heady days of the preceding decade). In the 1990s and 2000s, the food and agriculture system may also be characterized by the challenges it faces. One of the major challenges will be to deal with the attack on the notion that natural resource "owners" in the food and agriculture system have an unquestionable right of control over those resources. A second major challenge will be to find ways in which to add distinguishable value to agricultural commodities. We can see the genesis of these new challenges in the emerging forces mentioned previously. A Survey of Opinions As an extension of a strategic planning exercise, we asked ninety experts and leaders to give us their opinions on which emerging trends and forces will likely have the greatest influence on the U.S. food and agriculture system over the next two decades. "Emerging" was defined to mean anything new to the system, but for which no well-developed trend can yet be discerned. (See Box 1 for a brief description of the study). These experts were selected to represent arange of views and perspectives on issues of relevance to food, agriculture, environmental quality, resource use and rural communities. The diversity of opinion was evidenced by the answers to and comments on the survey questions. Yet the general thrust of their responses was that the six em erging forces discussed in this report will contribute largely to the new challenges and opportunities facing the U.S. food and agriculture system over the next two decades. BOX 1:THE STUDY METHODS: A GROUP PROCESS AND MODIFIED DELPHI TECHNIQUE The study used two levels of expert panels to identify the important emerging forces that will likely affect the U.S. food and agriculture system. The first panel was a workshop group, comprised mainly of agricultural, environmental and resource economists and soil scientists who were attending professional meetings in August 1992. The workshop was held in conjunction with the annual meetings of the American Agricultural Economics Association, the Association of Environmental and Resource Economists, t he Northeastern Agricultural and Resource Economics Association and the Soil and Water Conservation Society, in Baltimore, Maryland. They responded to the question: "What will be the emerging forces, factors, and trends that will shape U.S. agriculture in the next twenty years?" The ideas generated by this panel were used as the basis for the propositions contained in a questionnaire that was sent to the second expert panel. This second panel included most of the workshop participants plus sixty-one ot her individuals, invited to participate on the basis of their recognized expertise in and leadership on issues of relevance to the food and agriculture system and their breadth of view of the system in general. end Box 1 BOX 2: THREE WAYS TO LOOK AT SIGNIFICANCE Survey participants were asked to complete a questionnaire containing a total of fifty-eight propositions. For each proposition, participants were asked to assign an impact score-- ie. how large an effect the factor described by the proposition would ha ve on the food and agriculture system, whenever it occurred--, and to place it in a time-frame--ie. how soon the factor would become important for the food and agriculture system. The participants were also asked to identify the five propositions that t hey deemed would be most important, among all these emerging factors, for the U.S. food and agriculture system over the next two decades and to rank those five propositions, relative to each other. A high impact ranking may or may not go together with a high importance ranking. For example, the impact on the U.S. food and agriculture system of complete failure of all crops in Europe would be very large, but as the probability of such an event occurring is small, it might not be ranked as very important. Timing may also influence perceived importance. Factors deemed to be more imminent may be viewed as more important than others that are expected to have a greater impact on the system but in the more distant future. While the three aspects (impact, timing and overall importance) are related, each tells a slightly different story. Taking all three aspects together helps us to build a more multifaceted picture of how these emerging trends, forces and responses might shape the food and agriculture system. end Box 2. SIX EMERGING CHARACTERISTICS IN THE EVER-CHANGING PARADIGM... In the opinion of the survey group, four trends or forces and two responses to trends will feature prominently in characterizing the U.S. food and agriculture system of the early twenty-first century. These six emerging characteristics can be summarized as follows: Agricultural production will increasingly be influenced by public concern about environmental quality; Biotechnology will become integral to agricultural production as a means for reducing chemical input use; Vertical coordination will be increasingly common in the food and agriculture system; Agriculture will face more costly water because more clean water will be bid away by other uses; The urban and suburban portions of the population will have increasing political clout; and Policies and regulations designed to address serious threats to environmental quality will increasingly change the nature of the agricultural production system. All of these trends were ranked by the survey participants as being in the top ten in terms of overall importance and expected impact (see Box 2 for a discussion of the measures used) and were expected to begin to have an effect on the U.S. food and agri culture system within the next five to ten years (or sooner in some instances). These six forces will not, of course, be the only factors important in shaping the food and agriculture system. Many of the forces that are important now will continue to shape the system. World trade in agricultural products, federal deficits, macroeconomic policies, technological developments and changing consumer preferences are among those continuing forces. ...AND THEIR IMPLICATIONS FOR THE U.S. FOOD AND AGRICULTURE SYSTEM Within these six emerging characteristics we can see the seeds of the challenges referred to earlier: One is that, increasingly, the notions of ownership, property, and use rights will be called into question. Players within the food and agriculture sys tem, whether they are farmers, executives of agribusiness firms, food retailers, legislators, land holders, or restauranteurs will witness challenges to some of their control over their activities. Another is that there will be a strong drive to add valu e to and make distinguishable, agricultural commodities. Producers, processors and marketers will increasingly see opportunities in the form of niche markets, where products that are distinguishable from the basic commodities--for example, brand name mea ts and produce, "small farmer" dairy products, low cholesterol eggs--can be sold at premium prices. The Rise of Affluent, Politically Correct, Urban/Suburban Income Earners One of the driving forces over the next twenty years will certainly be demographics. Since the 1920s the U.S. population has been more urban and suburban than rural. With the stabilization of population distribution over the past two or three decades, the urban/suburban segmant is beginning to realize its strength and will gain political clout. Their interests--as consumers, voters, homeowners, taxpayers, urban workers, and rural leisure seekers--will be increasingly attended by businesses and policy makers. Their concerns about environmental quality will influence the food and agriculture system in various ways. They will press for political and legislative decisions aimed at allaying their fears about real and perceived contamination of food and water from agricultural chemicals. They will seek state and local ordinances to protect their families, themselves, their property, and their playgrounds from some of the externalities of agricultural production--waste products, by- products, noise and visual pollution. In the marketplace, we can already see sellers of food and other agricultural goods catering to their increasingly specific demands, borne of high incomes, health consciousness, and political correctness. Another challenge for the food and agriculture system that arises from this demographic shift is that much of the general population will have little understanding of where food comes from and the complexities of the food production system. This lack of understanding may result in unrealistic demands, such as for food with certain quality, safety, nutritional and convenience attributes, produced, processed and packaged in an environmentally benign manner, and offerred for sale at low prices. Urban and suburban income earners may also tend to romanticize farming and farm lifestyles. Some will seek rural living experiences, either as permanent or vacation options. At the same time, as urban and suburban voters, they may have diminishing symp athy for direct subsidies to agricultural production--seeking instead to shift those subsidies to the income, health, education and other needs of the larger population--, and for the indirect subsidies that agriculture has enjoyed, especially those for land and water. To compound the challenge further, especially in areas close to urban centers, urban income earners seeking rural experiences, may compete directly with farmers for land, but also vehemently oppose any efforts to subdivide current or forme r farmland for housing developments. Competing demands for productive resources will not be limited to agricultural land on urban fringes. Already in the western United States we see considerable competition for water, and in other areas competition for clean, uncontaminated water. Pressure to reduce or remove subsidies for agricultural water, combined with effective competing demands for that water may simply price much agricultural water, especially that used to irrigate low-valued crops, out of reach of many agricultural producers. Rising Concern About Environmental Quality The changing demographic structure is among the factors contributing to the emerging force ranked as most important by the survey group: that agricultural production will increasingly be influenced by public concern about environmental quality. Food and agricultural producers and processors have already egun to feel the effects of this concern. Producers are facing tighter environmental regulations, including restrictions on some practices and uses of specific inputs. These constraints may signal the need for further changes in management decisions and techniques in the future. And the specter of potential liability may bring more parties into the decision making process. Concern about environmental quality is not, however, limited to individuals outside the agricultural system. Many of the changes in farming and processing practices may be self initiated. Farmers, concerned about the effects of some practices on their own, their families, and their farms' health may voluntarily change their practices. Food processors may see advantages in changing practices in terms of insurance premiums and worker health. Investors may increasingly incorporate concerns about environ mental impacts into their investment decisions. Such shifts may signal changes in attitudes, away from a focus solely on individual returns and more toward an acceptance of responsibility for communities and future generations, but they may also signal changes in the way benefits and costs are assessed. Individuals and groups making changes in their practices may have decided that the long run benefits outweigh the short run costs. One of the resulting challenges for the food and agriculture system will be to continue to produce, process and market its products within a potentially ever-expanding web of market-expressed consumer concerns, environmentally-aimed federal policies and regulations, and locally-imposed zoning ordinances. At the same time, the costs of some inputs may increase--water, land and chemicals for example--and options for disposing of waste products may diminish or become considerably more expensive. High cost producers and processors may be squeezed out. The cost of food and other agricultural products may more closely reflect all the costs of producing, processing and marketing them. And the competitive position of U.S. agricultural products in world markets may change, at least in the short term, if food and agriculture systems in other countries do not undergo similar readjustments. Responding to the Challenges Among the six emerging characteristics listed above, two are more responses to, or means for dealing with, forces rather than forces in and of themselves. The emergence of commercially viable, publicly acceptable biotechnologies may provide one means by which producers and processors can make adjustments in their activities necessitated by consumer demands, public pressures, policies and regulations. Another means of responding to some of these pressures is vertical coordination. Such coordination can range from relatively informal agreements or formal contracts among individuals and firms to a high degree of integration and concentrated asset ownership. And, as discussed below, there may be a synergy in these responses. Biotechnology represents one possible means for addressing both environmental quality concerns and the drive to add value to basically similar commodities. The basic idea of bio-engineering is not new. Plant and animal breeders and geneticists have practiced selection and supression of certain traits for may years. But recent advances in genetic engineering have opened new frontiers that will potentially allow producers to select specific genotypes, not just phenotypes. Within the next twenty years, genetic engineering techniques may enhance resistence to diseases and pests in plants and animals, reducing the need for externally applied or administered d rugs or pesticides. With greater understanding of genetic make-up, and the technical ability to alter it, we may see greater precision possible in agricultural production that may, ultimately, reduce the amount of other production inputs required for any given product. Genetic engineering may open other doors also. In the not too distant future, specific desired traits--such as leaness in meat, firmness in vine- ripened tomatoes, drought tolerance in plants--may be engineered directly rather than selected, somewhat imp recisely, over several generations. As consumers demand greater specificity in their purchases, producers, processors and marketers are already responding, but in order to do so they must know much more about their products and the practices and processes used to produce them. Only by knowing the origins of the ingredients in their products can sellers be sure that they can back up the claims on their packages. And in this increasingly litigious society, knowing the veracity of one's claims will be important. A greater degree of coordin ation than currently exists may offer sellers a form of insurance. Coordination of activities within the food and agriculture system is not a new concept. Prices are a coordinating mechanism. Contracts between producers and certain buyers or sellers are common. Even the federal price support program is a type of contract bewteen farmers and the goverment. Some segments of the system have a greater degree of coordination than others; a large portion of U.S. broiler chicken production, for example, is highly integrated now. Over the next two decades, vertical coordin ation, to varying degrees, will likely become increasingly common within the food and agriculture system as a means for spreading and sharing risk, ensuring supplies of inputs and markets for outputs and, in general, for coping with the myriad of changes that will be occurring. That biotechnology and increasing vertical coordination represent potential responses to some of the challenges facing the food and agriculture system should not overshadow the fact that both continue to attract considerable concern, in the agricultural community and among the general public. Greater reliance on genetically engineered organisms and increasing vertical coordination would, almost certainly, offer gains for some individuals and organizations and losses for others. Neither the gains nor the losses can be ignored. THE GRADUAL FORMATION OF NEW PERCEPTIONS A society's self perception changes only slowly. Today's new trends will be, or will influence, tomorrow's characteristics, but today's self image is often based on yesterday's characteristics. We can see many examples of this lag in perceptions in the U.S. food and agriculture system. Popular culture often romanticizes farming, as an unhurried, independent, almost self-sufficient way of life. Yet those individuals closest to it realize full well that Old MacDonald is now just as likely to have a com puter, a fax machine and a direct line to a stock broker on that farm as a duck, a horse and a sheep. Farming is as much a business as is a die casting shop or a corner service station and as such it depends heavily on being integrated with the rest of the economy. While much of the population still equates farming, agriculture and rural areas, in reality agricultural activities are not confined to farm boundaries, and rural areas increasingly depend on activities other than farming for their vitality. Agricultural policies are still viewed, and referred to, by many people as farm policies, yet the most recent "farm bill" covered such issues as food stamps, trade, conservation, forestry, research, marketing and improvement of the agricultural economy, as well as the commodity programs. Thus will our perception of the food and agriculture system in the years to come be based on today's realities. But the challenges of tomorrow will arise from the trends and forces we just now see emerging. This report synthesizes ideas and opinions from leading agriculturalists, predominantly, but not exclusively, in the United States, that were gathered during 1992 - 1993. It seeks to stimulate interest in and thinking about the food and agriculture syst em of tomorrow. It does not attempt to present projections, official or unofficial, for the U.S. food and agriculture system. Nor is it intended to give a forecast of future agricultural sector performance or predict specific events. Rather, it seeks t o provide a context, by identifying general trends and forces, within which future performance will occur. These general trends may spawn any number of individual events in different locations or for different parts of the system. Perhaps the broadest i nterpretation of the results is that, over the next twenty years, there will be several major forces that will give a general shape to the food and agriculture system and many other forces that will influence the system differently over time, and across regions and segments. Many of the ideas and issues presented herein will not be new to practitioners in the food and agriculture system. Many of them, and their implications for the food and agriculture system, have been much discussed and analyzed, and some are controversia l or contentious. This report attempts to present these emerging factors objectively. For better or worse, they will shape and influence the U.S. food and agriculture system over the next twenty years. What is needed now is further investigation, particularly of the combined, synergistic effects of the forces and trends. They signal challenges to production, processing, marketing, teaching, research, extension, and policy and regulation setting in and for the food and agricultural system. Understanding the genesis of these challenges is a first step toward encountering them successfully. ABOUT THE PROJECT, ACKNOWLEDGEMENTS, AND FURTHER INFORMATION Kristen Allen is a Research Fellow in the Department of Agricultural and Applied Economics at the University of Minnesota. The work on this project was done while she was an Associate at the Rural Development Institute, University of Wisconsin--River Fal ls. The work was supported with funding from a cooperative agreement between the Economic Research Service of the U.S. Department of Agriculture and the University of Wisconsin--River Falls, the U.S. Environmental Protection Agency and the Rural Developm ent Institute. All funders are most gratefully acknowledged. While the contents of this brochure are based on a workshop and survey and the input of all participants is also gratefully acknowledged, the way in which the responses were interpreted is the responsibility of the author. Special thanks also go to Kitty Reichelderfer- Smith, David Rejeski, and James Stewart, for their faith in the project, to Courtney Harold, for many hours of computer work, and to David Trechter, for many constructive comments. Further information on the project may be obtained from Kristen Allen at 612-625-7019. This report and others associated with the project are accessible via computer from U.S. EPA Gophernet/Gopherserver (futures.wic.epa.gov) or by contacting D. Rejeski, 202-260-6523. APPENDIX A: QUESTIONNAIRE PROPOSITIONS, LISTED IN ORDER OF IMPORTANCE (numbers refer to question number) 27a. Agricultural production will increasingly be influenced by environmental quality concerns. 9b. Biotechnology will be integral to agricultural production by enhancing production efficiency. 29a.Biotechnology will be integral to agricultural production by enabling reduction in use of some chemicals. 1c. Farms will be more vertically coordinated. 21b. Water for agriculture will be more costly because it will increasingly be bid away for non-agricultural uses. 25. Diet/health links will change food demand, decreasing demand for staples, especially meat. 21a. Water for agriculture will be more costly beause of water shortages. 8. Urban/suburban consumers will have more political clout. 28c. Agricultural production will be influenced by environmental quality policies & regulations. 1b. Farms will be significantlyly more specialized. 27b. Agricultural production will increasingly be influenced by concern about special entities. 33. Public will demand assurance of some level of food quality & "safety." 21c. Water for agriculture will cost more because of successful challenges to agricultural water subsidies. 31. Policiess & regulations on agricultural practices will raise agricultural production costs & decrease supply. 15. Agricultural/economic policies will be more harmonized among nations. 28b. Agricultural production will be influenced by farmer interest in alternative farming methods. 28a. Agricultural production will be influenced by the rise of "green" consumers. 35. Public support for special treatment for agriculture will be difficult to sustain. 34. Agriculture will be viewed as just another sector of the economy. 1a. Farms will be significantly larger. 36. Farm programs will shift away from price intervention toward income maintenance. 27c. Agricultural production will increasingly be influenced by concern about loss of biological diversity. 9. Strength of traditional agricultural lobby groups will decline. 20. Colleges of agricultural & publicly funded research & extension will lack funding & support. 2. Farming will be seen as one of many stages in food/fiber industry. 5. Professional farm managers & managment techniques will be common. 39. Formation of trading blocs will stimulate protectionist action among continents. 24b. Agriculture will be a source of energy products. 10. Congressional agricultural committees will lose control over agricultural & related policies. 40. Property rights issues will increasingly affect agriculture. 7a. Education & information sharing systems will be common in agriculture. 41a. The aging U.S. population will affect agricultural production. 41b. The aging U.S. population will influence agricultural product consumption. 22a. Supply of agricultural land & products will be constrained by environmental degradation. 19a. Input supply & food marketing firms will be more concentrated. 23. Climate change & environmental degradation will constrain agricultural production. 13. New, public & private entities will assume some U.S. Department of Agriculture functions. 24a. Need to reduce energy inputs will influence agricultural production & processing. 19b. Input supply & food marketing firms will have a larger share of processing & trade. 7b. Education & information sharing systems will be common in rural areas. 18. Decisions on health, food safety, & environmental quality will be negotiated among multiple stake holders. 11. U.S. Department of Agriculture will decline in size & scope. 12. U.S. Department of Agriculture's emphasis will shift away from marketing & risk reduction, & more toward rural issues. 17. Scientific community will lose public credibility on health/environmental/ food safety issues. 6a. High performance computers will be common in the food & agricultural system. 4. "Corporate" control of agricultural resources will be common. 22c. Supply of agricultural land & products will be constrained as land prices are bid up. 16a. Multinational corporations will play a greater role in economic coordination & policies. 26. Food demand changes--more variety will be sought. 3. Number of "small," owner-operated farms will decline. 37. Information technologies will be increasingly important in agriculture. 30. Consumer skepticism toward genetically engineered foods will decline. 22b. Supply of agricultural land, & products, will be constrained by competition from urban & suburban spread. 16b. International organizationss will play a greater role in economic coordination & policies. 14. A "Competitive Council on Agriculture" will be established. 6b. High performance computers will be common in rural areas. 32. A national environmental strategy will require coordination across agencies. 38. New fertilizer technologies, using human & animal wastes, will be developed.