Value-Added Agricultural Enterprises in Rural Development Strategies

Value-Added Agricultural Enterprises in Rural Development Strategies

Order Code RL31598
Report for Congress
Received through the CRS Web
Value-Added Agricultural Enterprises
in Rural Development Strategies
October 8, 2002
-name redacted-
Visiting Scholar in Economic Growth and Entrepreneurship
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Value-Added Agricultural Enterprises
in Rural Development Strategies
Summary
From 1910 to 1990, farmers’ share of the overall GDP of the food and fiber
system fell from 21% to 5%, while the share contributed by the agricultural input and
distribution subsectors rose from 13% to 30%. Congress is concerned about how
these and other changes in agriculture are affecting rural America and the role value-
added agricultural production might play in future rural economic development
strategies. Value-added production is a legislative concern in the 107th Congress; the
rural development title in the 2002 enacted farm bill (P.L.107-171) includes
provisions for the development of value-added agricultural enterprises. By adding
to and capturing the value in commodities grown and processed locally, proponents
of value-added production argue that farm households, rural businesses, and rural
communities will benefit through new and higher-wage employment, new markets
for agricultural commodities, and more vibrant rural and regional economies.
U.S. agriculture is also changing rapidly from a sector characterized by
production of undifferentiated bulk commodities sold in spot markets to one of
specialized markets driven by new end-user demands. As production shifts away
from commodity agriculture to product agriculture, vertically integrated agribusiness
firms are increasingly organizing production into agro-food value chains to
synchronize all stages of production from seed to supermarket. Value-added
production is a central element of agro-food value chains, and control over specific
“identity preserved”(IP) traits is basic to the development of product agriculture.
Many farmers and ranchers are beginning to consider how they might reorganize
their operations to better anticipate these changes and to participate in them, for
example, by forming “new generation” value-added cooperatives, and engaging in
increased contract relations with value chain integrators. Some producers see IP
traits and contract production as sources of new markets, lowered risks, and higher
farm and ranch incomes. Emerging opportunities for biomass-based fuels and
materials processing facilities, new food processing plants, and alternative farming
systems (e.g., organic) could create important new markets for producers. Smaller-
scale producers too may find new opportunities in regionally-branded products,
farmers markets, new specialty crops, ethnic markets, or in establishing direct
marketing links between farms and regional groceries
While capturing more of a commodity’s value at the site of primary production
can have positive impacts on some farm household incomes and farm-related
businesses, important questions arise regarding the extent to which value-added
agriculture might become a significant rural development strategy for the future.
These identified opportunities, however welcome, are unlikely to significantly alter
the diminishing role production agriculture plays in most rural economies.
Moreover, because of its comparatively low wages, low net employment generation,
and low labor-skill requirements, value-added commodity manufacturing may not
become as effective a driver of broad, sustainable rural economic development and
new competitive advantage as rural communities and advocates might hope for.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Current Congressional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Rural America’s New Competitive Environment . . . . . . . . . . . . . . . . . . . . . . . . . 5
Demographic Overview of Non-metropolitan America . . . . . . . . . . . . . . . . 6
Income and Employment Trends in Rural Areas . . . . . . . . . . . . . . . . . . . . . 10
Rural Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Agro-Food Value Chains and Value-Added Agricultural Enterprises . . . . . . . . . 13
Value-Added Manufacturing in Rural Areas . . . . . . . . . . . . . . . . . . . . . . . . 13
Agriculture in the Rural Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Agricultural Commodity Processing: The Case of Iowa . . . . . . . . . . . . . . 19
Agro-Food Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Identity Preserved Agricultural Products . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Environmental Issues in Value-Added Production . . . . . . . . . . . . . . . . . . . 26
Increased Contract Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
New Value-Added Agricultural Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Food Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Industrial Value-Added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
New Bio-Based Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Energy from Biomass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
New Value-Added Farming and Marketing Systems . . . . . . . . . . . . . . . . . 35
Summary and Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
List of Figures
Figure 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Tables
Table 1. USDA Classification of Non-metro Counties by Economic Type . . . . . 6
Table 2. USDA Classification of Non-metro Counties by Policy Type . . . . . . . . 7
Table 3. Average Annual Adult Non-Metropolitan Net Migration Rates By
Educational Level, 1997-1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. Earnings Per Non-Farm Job, 1989-1999 . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. Share of Rural Earnings by Employment Sector, 1999 . . . . . . . . . . . . . 13
Table 6. Average Non-farm Wage and Salary Earning per Job by Industry Group,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Table 7. Estimated Local Expenditures by Nonmetro Agricultural Value-Added
Manufacturing Plants, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 8: Decline in Farm Employment, 1975-1996 . . . . . . . . . . . . . . . . . . . . . . . 18
Table 9. U.S. Non-Metro Agricultural-Related Employment Change, 1975-1996
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 10. Comparison of Agricultural Supply and Value Chains . . . . . . . . . . . . 23
Table 11. Selected AARC Projects, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Value-Added Agricultural Enterprises in
Rural Development Strategies1
Introduction
Technological development and intensifying global competition are
fundamentally reshaping U.S. industrial agriculture from production of
undifferentiated bulk commodities sold in anonymous spot-markets to a production
system of segmented and specialized markets, identity-preserved (IP) commodities,
value-added food products, and a focus on the end-user. This emerging shift from
commodity agriculture to product agriculture, that is, from quantity to quality, is
likely to have important effects in many rural areas, especially where large-scale,
industrial agriculture remains a significant part of the economy, but, potentially,
where smaller-scale production also predominates. Heightened global competition
and declining profit margins in the production of undifferentiated bulk commodities
are leading some U.S. growers and ranchers to pursue efforts to add value to their
products and, in so doing, to capture a greater part of the downstream value
dominated by processing and marketing sectors. Efforts to develop and expand new
types of and uses for bulk agricultural commodities (e.g., alternative fuels,
bioplastics), alternative agricultural production systems (e.g., organic, intensive
pasture rotation), niche markets, and specialty crops are regarded by many observers
as creating new opportunities for improving the economic viability of agriculture and
rural communities.2
1This report is the second in a series of reports on rural development issues requested by
the Senate Agriculture, Nutrition, and Forestry Committee. Jean Yavis Jones, Specialist and
Head of the Agriculture and Food Policy Section, Resources, Science, and Industry
Division, was the supervising manager. This report builds on the extended discussion of the
changing relations between agriculture and rural areas in the first report. See, The Changing
Structure of Agriculture and Rural America: Emerging Opportunities and Challenges. CRS
Report RL31172, October, 2001.
2Value-added expresses the difference between the value of goods sold and the cost of
materials or supplies used in producing them. The term is applied to manufacturing
processes where raw commodities are initially processed into intermediate goods which are
then processed in further stages, adding increasing market value at each stage. In this report,
the term retains that meaning, but also refers to other processes that add or might add market
value through product differentiation. Foods grown and processed organically or in
environmentally benign ways, regionally-branded food products, hormone/antibiotic-free
livestock, processing waste products into goods, and renewable energy production can also
constitute agricultural value-added processes and products. Value-added production in
forestry and fibers is not considered in detail here, but the same logic applies to those
products as well.

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Expanding local processing of agricultural products has been a rural
development strategy for some time. For example, soybean crushing, flour and rice
milling, and beet sugar refining are long-standing value-added food manufacturing
enterprises that sited their manufacturing facilities near the raw material source. The
value-added agriculture of today is developing in the context of vertically coordinated
and integrated production systems, or agro-food value chains, that organize
production to meet the quality assurance demands of specialized consumer markets.
In such systems, IP grains (e.g., non-genetically engineered corn, high-oil corn) may
be traced from grower to first-stage processor to intermediate food processor to final
product on a grocery shelf or restaurant.3 Value-added enterprises may hold
significant income and risk diversification benefits for growers and ranchers across
a wide spectrum of agricultural production. Traditional commodity production of
high volumes at the lowest (labor) cost is characterized by low profits and the need
to constantly expand the size of the farming operation. This has had significant
effects in many rural areas as less competitive producers continue to leave farming.
Advocates of value-added production expect value-added agriculture to create the
potential for higher profit margins for producers and expanded opportunities for rural
communities in processing and marketing these products to end-users, as well as
stimulating growth and expansion of rural businesses.
Important policy issues, however, arise about the contribution these enterprises
can make to reversing the economic stagnation of many rural areas, in reducing rural
unemployment, in helping rural areas capture a larger share of national income, and
in creating new sources of rural competitive advantage for the future. While some
value-added production and marketing systems suggest new opportunities for some
rural areas, other value-added production systems may produce small employment
gains or do little more than shift jobs from one rural area to another. Farmer-owned
manufacturing facilities that process locally produced commodities, especially
commodities with high-value, IP traits, may create non-farm employment in areas
where employment is scarce as well as enhance the economic viability of local
businesses that service the new facilities. On the other hand, other facilities (e.g.,
ethanol plants, soy oil, meat packing), owned by external investors, could offer
relatively little in the way of long-term local development potential beyond
improving incomes of some farm households selling bulk commodities to the facility
or to those who find work in the manufacturing facility.
Production systems for certain value-added products may be smaller-scale
operations that avoid some of the disadvantages they currently have under traditional
industrial agricultural production. For example, value-added organic cooperatives
may be able to achieve scale efficiencies that would elude single producers. Value-
added cooperatives that can develop new alliances with consumers (e.g., farmer-
3“Identity-preserved” (IP) products are commodities with special traits that differentiate
them from other bulk commodities. IP products are traced from their site of production to
final food or feed products to ensure that they are not mixed with similar undifferentiated
commodities. By documenting the path from growing to final consumption of a food
product, IP products can command higher prices by essentially guaranteeing their
distinctiveness from non-IP products. For example, pre-packaged organic vegetables must
be able to guarantee that the vegetables are grown organically and kept separated from non-
organic vegetables.

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grocer contracts, Internet marketing) may create new entrepreneurial opportunities
for some growers and ranchers. Value-added products might also benefit from the
increased attractiveness of food products grown under some form of enhanced
environmental management system that can be branded or identified with a
particular farm or rural area. Finally, farming and ranching operations near cities and
suburban areas may be especially well-positioned to take advantage of consumer
demands by serving new markets for particular agricultural products. In each of
these cases, proponents believe that developing new value-added businesses in rural
areas that reflect emerging changes in agriculture production may represent a
successful rural economic development strategy that also preserves local farming
operations.
Scope
This report (1) provides an overview of rural America in the 1990s and some of
the socioeconomic issues facing contemporary rural areas; (2) discusses the role of
agriculture in the rural economy and implications of the value-chains beginning to
shape the contemporary structure of agriculture; and (3) assesses the characteristics
and potential of the more prominent value-added agricultural production systems as
strategies for rural economic development. Three general questions serve as an
organizing framework for the report:
! What are the major sources of change in rural economies today and what is the
role of agriculture in local economies?
! How and where might emerging changes in value-chains and value-added
agriculture affect rural development strategy in coming years?
! Could federal policies supporting value-added agricultural entrepreneurs assist
rural areas in developing broader rural income growth, employment, and new
sources of competitive advantage?
Value-added food-processing and industrial value-added manufacturing are the
two dominant categories of agricultural value-added commodity processing. The
report provides data and analysis of their potential role as a rural development
strategy and concludes that their impact on employment and income is unlikely to be
significant in most rural areas. Agricultural commodity processing represents a
declining proportion of manufacturing activity, even as value-added manufacturing
generally has tended to locate predominantly in rural areas. Large producers
currently dominate such value-added enterprises as ethanol production and
marketing, raising questions about the degree to which economic benefits might
accrue locally.
Production of specialty crops or agricultural products produced through
environmentally sound practices (e.g., organic approaches), however, may offer
some small-scale producers the opportunity to develop new marketing channels,
especially producers located near or within metropolitan areas. Such products are
value-added in the general sense that the way they are produced can add a price
premium over conventionally raised products. New markets for value-added
products could create the basis for some producers to remain in farming and

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contribute to the overall mix of economic activities that are important to sustainable
rural areas.
Significant changes in the structure of agricultural production are discussed in
the report, particularly the rise of agro-food value chains. Evidence for the increasing
coordination and integration of production, processing, and marketing through value-
chains suggests that new organizational arrangements in farm production are
developing. These developments can be seen most clearly in the increasing contract
arrangement between producer and agro-food integrator. The developing importance
of identity preserved (IP) products reinforces the development of agro-food value
chains. The report discusses these developments and suggests that few rural areas
may be able to take advantage of these structural changes, leading to further
diminution of the role of agriculture in most rural economies.
Current Congressional Interest
Less than 8% of the rural workforce is employed in farming and ranching today;
and only 1.7% of the rural population is engaged in farming as a full-time occupation.
Agriculture, however, remains the dominant vehicle through which federal rural
development policies are considered.4 Programs that enhance agricultural
producer/household income are widely regarded as enhancing general rural well-
being, although most observers recognize the connection has declined significantly.5
Congress has expressed its concern with rural communities most directly through
periodic omnibus farm bill legislation, most recently in the 2002 farm bill, the Farm
Security and Rural Investment Act (P.L.107-171).6 Of particular interest to Congress
is the role that value-added agricultural production and other innovative enterprises
might play in rural economic development strategies. Rural development titles in
both House and Senate versions of the farm bill included significant provisions for
development of value-added agricultural enterprises, including organic agricultural
development and alternative fuels production. The House version authorized $60
million for FY2002-2011 (Sec.602) and the Senate version authorized $75 million
for FY2002-2006 for value-added market development grants, with a 5% set-aside
for organic products (Sec.606). The House version also sets aside $15 million of its
value-added funding for grants to establish Agriculture Innovation Centers for
technical assistance to value-added agricultural businesses (Sec.603).
In addition to these specific farm bill provisions, the 107th Congress has also
shown legislative interest in other agricultural innovation and value-added
agricultural production:
4The 1980 Rural Development Policy Act (P.L.96-355) designated USDA as the lead agency
for coordinating rural policy; and the Department of Agriculture Reorganization Act of 1994
(P.L. 103-354) created the Office of Undersecretary of Agriculture for Rural Development
to oversee rural policy.
5A recent survey by the W.K. Kellogg Foundation found that respondents still perceive rural
America as being based on an almost completely agricultural economy. See Perceptions of
Rural America, Kellogg Foundation, December, 2001.
6For an overview of rural development provisions see, A New Farm Bill: Comparing the
House and Senate Proposals with Current Law, CRS Report RL31272, February, 2002.

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! H.R. 2402, the Agricultural Producers Marketing Assistance Act, would
provide grants to assist value-added businesses by, among other provisions,
creating an Agricultural Innovation Center demonstration project to provide
technical assistance, business planning, and marketing development to start-up
firms.
! Tax credits for ethanol production are included in the Investment in Value-
Added Agriculture Act (S.907), the Value-Added Development Act for
American Agriculture (H.R.1093), and the Farmers’ Value-Added
Agricultural Investment Tax Credit Act (H.R.1094).
! Legislation to encourage business innovation includes the Entrepreneurial
Incubators Development Act of 2001 (H.R.1418), which would provide legal,
technological, and intellectual property rights assistance to small-and medium-
sized firms. The Renewable Energy from Agricultural Products (REAP) Act
(H.R.2000) would create tax credits for electricity produced from biomass and
agricultural waste; and the Renewable Fuels for Energy Security Act of 2001
(S.1006) would promote fuel development from alternative sources.
! The Working Lands Stewardship Act of 2001 (H.R.2375) would provide
grants to expand the National Organic Program to include organic farming
transition assistance and to establish an organic certification reimbursement
program. This act would also expand State marketing programs, including
set-asides for development of local and regional markets, and research for
promotion of direct farmer-to-consumer marketing.
! The Agricultural Risk Protection Act of 2000 (P.L.106-224) provides research
funding for developing genetically altered tobacco as a medicinal crop (Sec.
222) and for a corn-based ethanol research pilot plant (Sec. 226). The
legislation also provides for $15 million in competitive grants for technical
assistance and business planning for value-added agriculture product
marketing.
Rural America’s New Competitive Environment
The trends and discontinuities in the character of contemporary rural America
create policy issues that are fundamentally different from those of the past. When the
rural sector comprised the majority of the population and agriculture was the
dominant production sector, policies that improved the well-being of farmers and
ranchers were de facto rural development policies. Farm support policies enacted
during the Depression, for example, were aimed largely at reducing the significant
income gap between rural and urban populations. Rural development was generally
equated with reducing poverty.7 Today, average farm household incomes are about
17% greater than the national household average; and the average net worth of farm
7Baldwin, Sidney. Poverty and Politics: The Rise and Decline of the Farm Security
Administration. Chapel Hill: University of North Carolina Press, 1968.

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households is double that of the national household average.8 Rather than poverty
alleviation, provision of infrastructure (e.g., highways, water, sewerage, public
buildings) has come to be equated with rural development. Yet, average rural (as
opposed to farm) incomes continue their historical lag behind urban incomes even
as rural high-school graduation rates more closely resemble urban rates; poverty rates
are higher in rural areas than they are in urban areas; and the socioeconomic
economic opportunities available in many of the 2300 non-metropolitan counties in
the United States have become deeply troubling to researchers, rural development
practitioners, and policy makers.
Fragmented, piecemeal programs directed at rural areas are regarded by many
researchers as increasingly ineffective for creating the basis for new competitive
advantage in most rural areas. Other observers, especially in heavily rural and
farming-dependent states, believe that a renewed emphasis on agriculture can
become an effective rural development strategy. Sectoral emphases, whether
agriculture or manufacturing, have not produced the kinds of growth and generalized
social welfare that rural advocates had hoped for over the past 30 years. The search
for comprehensive, integrated rural development policies and strategies that might
alter this picture represents an increasingly complex political economic challenge for
policy makers and rural citizens.
Demographic Overview of Non-metropolitan America
Any discussion of rural areas or rural policy must begin with the caveat that the
great diversity characterizing rural places presents an immediate barrier to any facile
generalization about Rural America. USDA’s county typology of the 2,300 non-
metro counties in Tables 1 and 2, although the data are somewhat dated, provides
one useful approach to understanding rural diversity for descriptive and policy
purposes.
Table 1. USDA Classification of Non-metro Counties by
Economic Type
Economic Type
Definition
Number of Counties
(1989 data)
Farming-dependent
20% or more of total labor
556 (These counties had
and proprietors’ income
decreased to 312 in 1999, or
from agriculture
approximately 13% of all
non-metro counties).
Manufacturing-dependent
Greater than or equal to
506
30% of total income from
manufacturing
Mining-dependent
Greater than or equal to
146
20% of total income from
mining
8Morehart, Mitch, J. Johnson, C.E. Young, G. Pompelli. “Using farm sector as a policy
benchmark.” Agricultural Outlook, June-July, 2001.

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Economic Type
Definition
Number of Counties
(1989 data)
Government-dependent
Greater than or equal to
244
25% of total income from
government
Service-dependent
50% or more of total
323
income from service sector
employment
Non-specialized
Not classified as an
484
economically specialized
county
Source: Cook, Peggy J. and Karen L. Mizer. The Revised ERS County Typology. USDA-ERS,
November. 1994.
Note: Economic and policy types can and do overlap
Table 2. USDA Classification of Non-metro Counties by Policy
Type
Policy Type
Definition
Number of Counties
(1989 data)
Transfer-dependent
25% or more of personal
381
income from
Federal/State/local transfer
payments (weighted
average)
Retirement-destination
Population aged 60 and
190
older increased 15% or
more during 1980-1990
Persistent Poverty
20% or more of county
535
population in each of 4
Census years: 1960, 1970,
1980, 1990 with poverty-
level income
Commuting
40% or more of county’s
381
workers commuting outside
their county of residence in
1990
Federal Lands
30% of county’s land area
270
federally owned in 1987
Source: Cook, Peggy J. and Karen L. Mizer. The Revised ERS County Typology. USDA-ERS,
November. 1994.
Note: Economic and policy types can and do overlap

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Urban expansion and the
Box 1: What is Rural?
globalization of markets are key
sources of contemporary rural
Rural and non-metropolitan populations have
change. Proximity to urban
often been treated as synonymous. Metro and
areas transforms rural areas,
non-metro areas are defined by USDA on the
physically in terms of land use
basis of counties. Metro areas contain (1) core
and settlement patterns, and
counties with one or more central cities of at
socially in terms of labor
least 50,000 or with a Census Bureau-defined
markets, transportation systems,
urbanized area (and a total metro population of
and demography. Indeed, the
100,000 or more) and (2) fringe counties that
rural-urban dichotomy is
are economically tied to the core counties.
arguably even less helpful
Non-metro counties are defined as those places
analytically today in urban-
either outside the boundaries of metro areas or
adjacent areas because there is
town with populations under 50,000. Rural
such extensive flow of goods,
areas comprise places with open territory and
people, and ideas between rural
fewer than 2,500 residents. Urban areas
and urban places.9 Yet,
comprise larger places and densely settled
conventional rural development
areas around them. As the relation between
thinking and planning have
metro and non-metro areas becomes more
made a sharp distinction
complex, researchers are beginning to use
between rural and urban often
more precise categories, e.g., non-metro
without attending to other
adjacent/non-metro non-adjacent areas, rural-
important spatial and political
urban commuting codes, etc.
dimensions, for example,

regional interactions. The rural
See John B. Cromartie and Linda L. Swanson,
proportion of the population
“Census tracts more precisely define rural
still tends to be regarded largely
population and areas.”Rural Development
as a residual category, i.e.,
Perspectives, Vol. 11, 3, pp.31-39, May, 2001.
those areas that are not within a
Metropolitan Statistical Area
(MSA) as defined by the Bureau of the Census and/or the Office of Management and
Budget, or are cities and towns with populations greater than 50,000 (Box 1). Even
USDA’s Office of Rural Development uses different definitions of “rural” to
administer its programs. Business development loans, for example, can go to
communities with as many as 50,000 people; wastewater grants and loans may go
to towns smaller than 10,000; and loans to build hospitals and fire stations may be
targeted to communities of 20,000 or less. Special technical assistance grants can be
reserved for rural areas as small as 2,500.
While the U.S., as other advanced industrial economies, may be considered
“post-rural” across a broad spectrum of cultural and socioeconomic criteria,
approximately 55 million persons lived in non-metropolitan/rural areas in 2001. This
is nearly 20% of the U.S. population. This proportion has remained surprisingly
constant over the past century. After years of little or no population growth, rural and
small towns grew faster than suburban and urban areas in the 1970s. In the 1980s,
however, this trend reversed during the general recession and farm crisis, and the
9Tacoli, Cecilia. “Rural-urban interactions: A guide to the literature.” Environment and
Urbanization 10 (1): 147-166, 1998.

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number of retirees moving to rural areas declined. Non-metro population grew by
just 1.3 million, or 2.7% during the 1980s. A shift occurred again during the 1990s
with the nonmetro population growing by 3.9 million, or 7.6% from April, 1990 to
July, 1999, although growth was not as pronounced as it was in the 1970s. All non-
metro net growth in the 1990s is the product of migration; the annual rate of natural
(i.e., birth and death) as opposed to immigration growth fell by a third in non-metro
counties during the 1990s.10
Non-metro population growth was highest in the Mountain West and lowest or
non-existent in the Great Plains, Mississippi Delta, and Corn Belt. Much of this
growth stemmed from metro residents relocating to adjoining non-metro areas and
from other sources of immigration. A significant portion of contemporary rural
migration also stems from Hispanic immigrants arriving to take jobs in agriculture-
related industries such as meat product manufacturing. Non-metro counties
adjoining metro areas accounted for almost two-thirds of all non-metro growth,
increasing about 12% on average over the decade. Despite this net inflow of people
from metro areas, the rate of net migration into rural areas, which had steadily
increased during the early and mid-1990s, dropped to about 0.5% from 1997-1999.
The number of non-metro counties with decreasing population rose from 600 from
1990-1995 to 855 in 1999.11 This more recent decrease in rural migration also
occurred among college graduates, although the number of college graduates entering
rural areas was slightly higher than those graduates leaving (Table 3). Although
overall non-metro population change is not fully determined by migration for
economic reasons, many low-growth farming dependent areas that lack the
attraction of natural amenities such as those found in the Mountain West or Florida,
are unlikely to experience future population growth without new sources of non-farm
employment. Growth in many metropolitan areas, however, will also bring many
rural areas into urban labor markets with potentially important social and economic
changes for rural areas.
Table 3. Average Annual Adult Non-Metropolitan Net Migration
Rates By Educational Level, 1997-1999
Less than
High School
College
All Adults (25
High School
Degree
Graduate
years and
Degree
older)
In
2.38%
3.30%
4.40%
3.31%
Out
1.67%
2.50%
4.20%
2.20%
Net
0.71%
0.73%
0.20%
0.62%
Source: USDA-ERS calculations from Bureau of Labor Statistics, 1998 Current Population Surveys.
10Calvin Beale. “Nonmetro population growth rate recedes in a time of unprecedented
national prosperity.” Rural Conditions and Trends, 11(2), December, 2000.
11Ibid., p.29.

CRS-10
Income and Employment Trends in Rural Areas
Rural earnings growth reflects a continuing national trend of rising real earnings
in both metro and non-metro labor markets. The rise in women’s earnings is the
primary component of the rural labor market increases from 1990-1997. Real weekly
average earnings in 1997 dollars for women rose 8.5%, while men’s real weekly
earnings rose by less than 1%.12 Despite the strength of the economic expansion
during the 1990s, however, over 25% of rural wage and salary workers earned full-
time-equivalent wages below the poverty level for a family of four in 1999 ($17,000).
Since the early 1990s, rural earnings growth generally has outpaced urban earnings
growth, due, in part, to the sluggish recovery from the early 1990s recession in urban
areas. Earnings among the lowest paid rural workers, however, have risen more
slowly than for the rest of the labor force even as their education levels have
increased.
In 1997, rural areas lagged behind urban areas by at least $9,000 in real per
capita income. This gap has widened since the late 1980s, exacerbated by the loss
of manufacturing jobs, which tend to pay higher wages than agriculture or rural
consumer service and recreation jobs. The rural-urban earnings gap was more than
30% greater in 1995 than it was in 1977.13 Earnings per job also remain consistently
and substantially lower in rural areas than in urban areas and the gap has steadily
increased over the past decade (Table 4).
Table 4. Earnings Per Non-Farm Job, 1989-1999
YEAR
METRO
NON-METRO
NON-METRO
AS PERCENT
OF METRO
1989
$32,206
$23,819
74.0%
1990
$32,239
$23,561
73.1%
1991
$32,264
$23,489
72.8%
1992
$33,449
$24,045
71.9%
1993
$33,346
$24,032
72.1%
1994
$33,458
$24,094
72.0%
1995
$33,469
$23,788
71.1%
1996
$33798
$23,763
70.3%
12USDA’s Economic Research Service calculations from the Current Population Survey
data, 1997.
13Rhodes, Douglas and Mitch Renkow. “Explaining rural-urban earnings differentials in
the U.S.” Paper presented at Annual Meetings of the American Agricultural Economics
Association, Salt Lake City, Utah. 1998

CRS-11
YEAR
METRO
NON-METRO
NON-METRO
AS PERCENT
OF METRO
1997
$34,502
$24,150
70.0%
1998
$35,745
$24,843
69.5%
1999
$36,684
$25,201
68.7%
Source: USDA-ERS calculations from Bureau of Economic Analysis data
Note: In constant 1999 dollars
In part, lower rural earnings may reflect the lower college graduation rates of
rural workers, although, as noted earlier, high-school completion rates have come
close to matching those of urban areas. Another possible explanation is that income
returns to education are generally lower in rural than in urban areas.14 The proportion
of low-wage employment in rural areas actually increased over the past decade.
Local officials and business elites eager to promote a “pro-business” environment can
also be very influential in determining the types of employers that locate to rural
areas. The manufacturing operations that have relocated to many rural areas, e.g.,
branch plant assembly, textiles, metal fabrication, for example, are predominantly
non-union and generally require lower-skilled workers than urban manufacturing
jobs, The fact that rural areas have also seen growth in economically vulnerable
populations, e.g., minorities and single female headed households, may also partly
explain the metro/non-metro gap in real earnings per job, although by a substantial
margin, most rural poor are not minorities.
Current low-wage employment rates in rural areas remain higher than in the late
1970s despite a better educated workforce and a very low national unemployment
rate. This may suggest that public policies that attend primarily to improving the
employability of workers in at least some rural areas may not be effective in and of
themselves. Although most low-wage workers are women, men’s share of low-wage
work in rural areas has risen over the past 20 years. Despite an increase in job
growth in late 1998, the pace of employment growth in rural areas slowed from an
average of 1.8% between 1990 and 1995 to about 1.5% in 1999.
Rural Poverty
The poverty rate for rural areas in 1999 was higher than that for urban areas
(14.3% versus 11.2%). The changing location of economic activities within the U.S.
and across international borders, technological changes, and stagnant or falling real
minimum wage rates have been especially hard on those rural areas where large
clusters of low-wage workers reside. Over 500 rural counties (23%) are defined by
the 1997 Census of Agriculture as being in “persistent poverty.” These counties had
20% or more of their populations at or below the poverty level for each of four
census years (1960-1990). Most of these persistently poor counties are in the
Southeast and Delta regions, Native American reservations, core Appalachia, and the
14Renkow, Mitch. “Income non-convergence and rural-urban income differentials: Evidence
from North Carolina” Southern Economic Journal 62, 1996.

CRS-12
lower Rio Grande Valley. Agriculture is often a significant economic sector in these
regions, but as with national trends, its role has declined. A large pool of poorly
educated residents, high proportions of minorities, and the presence of mostly low-
wage manufacturing and part-time service employment in persistently poor counties
help explain why these areas have found it very difficult to improve the livelihoods
of residents.
Few attractive employment options, poorly educated workers, substandard
housing, and inadequate public infrastructure characterize persistent poverty counties
where, in addition, the majority of limited-resource and minority farmers also reside.
Many poor rural areas have low-wage employment opportunities at best, long
distances to services and jobs and lower automobile access, little public
transportation, and lack of child care options.15 Persistently low per capita incomes
often translate into low levels of human capital investment. With little growth in
rural high-skill employment opportunities and downward pressure on wages in low-
skilled employment, many persistent-poverty counties, especially in the South,
appear to be very badly positioned to reverse these trends.16 Some observers have
also concluded that rural poverty in certain states, e.g., California, is actually being
re-created through immigration, driven, in part, by the expansion of low-wage,
immigrant intensive agriculture.17

Rural diversity is significant . Rural experiences may be highly variable
from county to county and from region to region. Highly aggregated socioeconomic
indicators can often be misleading. Average job growth, unemployment rates, and
earnings in many rural areas adjacent to metro areas are often as high as those within
metro areas. But this may be due in part to the fact that many of the jobs in adjacent
non-metro areas within commuting distance to urban areas are service related,
especially business services, or high-skilled manufacturing employment, jobs which
pay higher wages on average. Other rural areas, e.g, Native American reservations,
may have unemployment rates of up to 75% although average metro and non-metro
unemployment rates are similar (4.3% vs. 4.6% respectively in 2001).18 Rural
communities that captured some of the spillover of urban affluence did well in
the1990s, and may be able to maintain that advantage if they increase their proportion
of high-wage service sector employment. For many other rural communities,
however, especially those remote from urban areas, lacking amenities, or with a high
proportion of poorly educated working-age residents, the 1990s offered little change.
15Informal work, i.e., unrecorded labor, is often an important source of income in rural areas.
Welfare reform legislation’s work mandates do not recognize work in the informal sector.
Thus, rural residents in very poor areas are doubly burdened by the loss of welfare support
without necessarily being able to replace their lost income through employment in the
formal sector.
16Nord, Mark. “Overcoming persistent poverty – and sinking into it: income trends in
persistent poverty and other high poverty rural counties, 1989-1994.” Rural Development
Perspectives, 12(3), 1997:2-10.
17Taylor, J. Edward, Philip Martin, and Michael Fix. Poverty Amid Prosperity: Immigration
and the Changing Face of Rural California. Urban Institute, Washington, DC, 1997.
18Rates are based on civilian, non-institutional populations, 16 years and older, 2nd Quarter,
2001. Bureau of Labor Statistics.

CRS-13
Moreover, future prospects remain bleak in many of these areas unless there are
significant changes in local and regional institutions, infrastructure, and
entrepreneurial capacity.19
Agro-Food Value Chains and Value-Added
Agricultural Enterprises
Value-Added Manufacturing in Rural Areas
Preserving family farms and increasing rural household incomes through the
creation of new value-added agricultural opportunities has been a goal of policy
makers throughout much of the 20teh century. Yet, the agriculture sector has
continued to decline in importance in rural economies along with the decline in the
number of farm households. The structure of labor in non-metro areas reveals
agriculture’s declining role. Manufacturing and consumer and producer services
account for over half the share of rural earnings today (Table 5). Average non-farm
agriculturally-related employment also lags well behind average earnings for the
private sector as a whole in non-metro areas (Table 6).
Table 5. Share of Rural Earnings by Employment Sector, 1999
Employment Sector
Percentage of Rural Earnings
Consumer Services
23%
Manufacturing
21%
Public Sector
20%
Producer Services
9%
Agriculture, Forestry, Fishing
5%
Recreation
4%
Source: ERS calculations from Bureau of Labor Statistics, 1999
19Duncan, Cynthia. Worlds Apart: Why Poverty Persists in Rural America. New Haven:
Yale University Press, 1999.

CRS-14
Table 6. Average Non-farm Wage and Salary Earning per Job by
Industry Group, 1997
Industry Sector
Non-metro
Metro
Agriculture Services,
$16,633
$16,219
forestry, fishing
Mining
$39,419
$44,510
Construction
$20,969
$28,076
Manufacturing
$27,832
$35,318
Value-added
$25,345
$28,989
Routine $26,912
$31,324
technology

High-tech
$31,580
$40,524
Producer services
$24,389
$38,334
Communications
$35,463
$49,076

$19,380
$30,092
Business/professional
services
Finance and $28,486
$53,379
insurance
Transportation, utilities,
$27,167
$35,101
and wholesale trade
Recreation
$8,741
$11,263
Consumer services
$16,157
$21,459
Total private sector
$21,264
$29,105
Source: ERS calculations based on County Business Patterns enhanced data file.
If value-added agricultural production is to modify these trends in the future,
economic development specialists and policy makers will need to examine closely
the commercial potential of new products, the dynamics of plant location, and a range
of possible impacts from pursuing a value-added development strategy based on
agriculture.
Value-added manufacturing industries in all production sectors are vitally
important to rural areas. New capital investments in value-added industries, while
modest during the 1990s, were relatively more concentrated in rural than in urban

CRS-15
areas.20 While the national economy has become more service-oriented in the past
25 years, and imports now account for an increasing share of manufactured goods,
manufacturing’s share of the rural economy has remained relatively strong. Since
the early 1950s, manufacturing was regarded by economic development practitioners
and policy makers as the key source of jobs to replace those being lost in agriculture.
Import competition in the 1980s led many metropolitan manufacturing firms to
move some of their operations to rural areas to take advantage of lower labor costs,
property taxes, and land costs. This had the advantage of replacing jobs in textile and
leather goods plants that many rural areas lost to foreign locations. Today,
manufacturing is relatively more important to rural areas than to metro areas; and
more rural counties today depend on manufacturing than on agriculture-related
employment or services. Nearly 75% of manufacturing plants in the U.S. employ
500 or fewer workers, with many of the higher-wage rural manufacturing plants
being branches of larger organizations.
Manufacturing provides approximately 17% of all rural jobs, with nearly a third
of that rural manufacturing wage and salary workforce worked in value-added
industries in 1996.21 The proportion of value-added employment has remained fairly
steady during the 1990s. Value-added manufacturing generally, including that related
to agriculture, grew faster in nonmetro areas than in metro areas, although rural
value-added industries rely more on the less educated, pay lower wages, and have
higher proportions of immigrant workers than do other manufacturing industries.22
Lower education levels in value-added labor in metro regions as well suggest that
value-added industry in general is dominated by less-educated workers relative to
other manufacturing. Low real earnings growth in rural value-added industries
reflected the earnings of the rural work force as a whole during the 1990s. While
non-metro value-added workers earn less than other manufacturing workers, their
wages are significantly higher than non-metro consumer service jobs, in part, because
the latter are more likely to be part-time.23 Food processing industries account for
43% of value-added jobs and pay the lowest wages ($24,000) of value-added
manufacturing. Rural areas maintained or increased their share of jobs in almost all
farm-related value-added manufacturing sectors.
Value-added employment in general grew faster in rural areas than it did
nationally during the period 1989-1994; and farm-related value-added accounted for
much of this gain.24 With the exception of meat product and grain product
manufacturing, farm-related value-added manufacturing employment fell nationally
20Canning, Patrick. “Investment patterns indicate modest expansion by value-added
industries.” Rural Conditions and Trends, Vol.8, No. 3. March, 1998.
21Gibbs, Robert. “Value-added workers earn less, have less education than other rural
manufacturing workers.” Rural Conditions and Trends, Vol. 8, No. 3, March, 1998.
22Ibid.
23Unlike consumer services, producer services are a relatively small part of the rural
economy and they pay much less in rural than urban areas. This is particularly true of the
finance and insurance industries, where nonmetro pay is only 53% of metro pay.
24Value-added agricultural manufacturing is defined as 20% or more of farm products used
in intermediaries.

CRS-16
between 1989-1994. During this period, however, farm-related value-added
employment increased 8.5% in non-metro areas. Other manufacturing employment
in non-metro areas increased by only 1.2%. While the number of farm-related value-
added establishments increased by over 4% from 1989-1994, other non-metro
manufacturing establishments increased by 13.3%.25 The influx of Hispanic workers
into some rural areas in the 1990s can, in part, be explained by the expansion of the
value-added meat production sector.
The meat production manufacturing sector led employment growth among farm
value-added industries; Hispanic employees were a significant source of these
workers as the meat packing industry has left the urban Midwest and Northeast for
lower cost nonunion labor in the rural South and Great Plains.26 Meat packing plants
also seem to have an impact on local economies beyond the packing facility itself
through the strength of their backward linkages in the local and regional economy.
Plants in value-added industries generally are more likely than other manufacturing
enterprises to purchase materials locally because they are material-intensive
operations. Although estimating income multipliers is a very inexact exercise where
final estimates can vary enormously depending on model assumptions, food
processing plants appear to have among the highest spending locally per job, even
though earnings in food processing jobs are the lowest of all manufacturing
subsectors. Table 7, based on data from a USDA survey, indicates that an important
local economic stimulus derives from value-added food manufacturing.
Table 7. Estimated Local Expenditures by Nonmetro Agricultural
Value-Added Manufacturing Plants, 1995
Industry
Local
Salaries and
Jobs (number)
Local spending
purchases
Wages
per job ($)
(millions $)
(millions $)
Meat packing
$32.5
$7.6
370
$108,500
Poultry
$15.4
$7.0
467
$48,100
processing
Dairy products
$12.7
$1.9
91
$160,600
Preserved fruits
$12.8
$3.8
229
$72,500
and vegetables
Grain mill
$4.4
$1.2
53
$105,200
products
Bakery products
$0.6
$4.6
208
$24,900
25 Gale, Fred. “Most value-added manufacturing increased its attachment to rual areas during
1989-1994." Rural Conditions and Trends, Vol. 8, No. 3, March, 1998
26Ibid.

CRS-17
Sugar and
$10.1
$4.3
236
$60,900
confectionary
Fats and oils
$25.7
$2.1
86
$323,600
Beverages
$3.4
$2.1
88
$62,700
Source: Estimates by USDA-ERS; 1995 data, not adjusted for inflation. Local purchases, wages,
and numbers of jobs are from the 1996 Rural Manufacturing Survey; material expenditures and
non-production worker salaries are from the 1995 Annual Survey of Manufactures.
Agriculture in the Rural Economy
As an important source of rural jobs and income, agriculture’s role has declined
significantly over the past 60 years. In rural areas today, less than 8% of the
workforce is employed in farming and agricultural services (e.g., landscaping,
horticultural services, veterinary services, soil preparation and crop services). Most
household income for most farm families now comes from off-farm sources; only
about 13% of farm households receive more than 80% of their household income
from farming.27 While the extent of dependency as measured by jobs in the food and
fiber system varies significantly by region, only 1.7% of rural residents identify
farming as their primary occupation. Net farm income today amounts to only 2-3%
of total non-metro personal income. In only one state, South Dakota, does agriculture
account for at least 10% of gross state production, while ranking only 45th among
states in food and fiber employment.
As is the case within metro areas, the service sector is the largest source of jobs
in rural areas today. Farming-dependent counties (those where 20% or more of labor
and proprietors’ income is derived from farming) dwindled to approximately 300
counties by the mid-1990s, mostly in the Western Corn Belt, Great Plains, and parts
of the Southeast and Northwest, down from 556 counties in 1989. During the 1990s,
farm-dependent counties also saw continued population losses and economic growth
rates below the average for all rural counties.
As a share of the national economy, farming, and agriculture more broadly,
continues its long-term path of decline. Farm employment fell for non-metro areas
in all U.S. regions, declining on average by nearly 27% from 1975 to 1996 (Table 8).
Moreover, in some rural areas (e.g., North Dakota, South Dakota, Iowa), farm
employment losses were greater than job gains in farm-related employment.
27Mishra, Ashok and Mitchell Morehart. “Farm families’ savings: Findings from the ARMS
Survey.” Agricultural Outlook, April, 2002.

CRS-18
Table 8: Decline in Farm Employment, 1975-1996
REGION
NUMBER OF
PERCENT CHANGE,
FARMING JOBS LOST,
1975-1996
1975-1996 (1)
Total U.S. Non-Metro
666,783
-26.9
Appalachia
115,117
-30.9
Corn Belt
169,926
-32.1
Delta States
75,475
-38.3
Lake States
73,094
-28.0
Mountain 18,540
-12.6
Northeast
28,567
-26.1
Northern Plains
68,904
-25.3
Pacific
3,861
-3.6
Southeast 87,868
-43.2
Southern Plains
23,187
-8.7
Source: USDA-ERS calculations based on Department of Commerce data
(1) Includes farm proprietor, wage and salaried farmworkers
The Bureau of Labor Statistics projects a 0.1% decline per year in agriculture
employment between 1998 and 2008, which includes a 13% decline in employment
of farmers, the largest projected decline of any occupation.28 Employment of farm
workers is projected to decline 6.6%. Employment growth in food and kindred
products manufacturing is projected to rise only about 2% between 1998 and 2008
with most growth in meat products.29 Non-farm employment, on the other hand, is
projected to grow 14% between 1998 and 2008, mostly in the service sector.
Employment in the agricultural output sector, e.g., processing, marketing, and
distribution, is expected to grow somewhat, but at a slower rate than that of most
other industries.
Over the past 30 years, geographic concentration of fewer and larger farms,
declining employment opportunities, and associated population decline have left
many small communities across the country simply non-viable. In many rural areas,
the loss of farm jobs has not been accompanied by creation of enough new non-farm
jobs to retain rural populations. Although jobs in farming have declined steadily for
some time, jobs in food retail and wholesale sectors have grown. Agricultural
28Allison Thomson. “Industry Output and Employment Projections to 2008.” Monthly Labor
Review, November, 1999.
29Ibid.

CRS-19
wholesale and retail trade have provided most of the new farm-related jobs in non-
metro areas over the past two decades. Continued growth in these sectors, however,
depends on population growth and an expanding consumer market. Food retail and
wholesale activities tend to locate close to consumer markets, so much of the
observed national growth in agriculture-related employment may have occurred in
non-metro areas near urbanized areas. Farm-dependent counties, located largely in
states with populations too sparse to support strong retail growth, have gained
relatively few of these jobs (Table 9).
Table 9. U.S. Non-Metro Agricultural-Related Employment
Change, 1975-1996
INDUSTRIAL
NUMBER OF JOBS
PERCENT CHANGE,
SECTOR
1975-1996
Farming
-666,783
-26.9
Forestry, fisheries, and
100,868
114.0
agricultural services (1)
Agricultural Inputs
-28,083
-11.7
Processing and
-100,179
-8.3
Marketing
Wholesale and Retail
1,310,566
94.7
Trade
Indirect Agribusiness (2)
35,977
34.5
Source: USDA-ERS
(1) Most agricultural service increases were in veterinarian and crop services
(2)Chemical and fertilizer mining, food products machinery, miscellaneous textile products, paper and
pulpwood products
Agricultural Commodity Processing: The Case of Iowa
Research on the structure of traditional value-added agricultural industries is
useful in assessing the contribution this sector plays in states and regions where
agriculture is prominent in the economy. It may also suggest the role value-added
production might play in rural areas in the future inasmuch as these industries will
provide a base on which to expand value-added production or to develop new kinds
of production. To take one illustrative example, value-added agriculture already has
a strong presence in Iowa, a major farm state. Increasing value-added production
has, more recently, become a central objective within Iowa’s economic development
strategy.30 Iowa agricultural producers and officials have expressed the
30 This section draws heavily from an input-output analysis of agricultural processing
industries in Iowa. While limitations of single case studies should be borne in mind, case
studies do serve to highlight broad characteristics that may be salient in other areas as well.
See Eathington, Liesl, D. Swenson, D. Otto. “Employment growth in Iowa’s agricultural
(continued...)

CRS-20
understandable hopes that value-added agricultural production will provide high-
wage jobs and more off-farm employment, create new sources of farm income for
small farming operations, and make the state more attractive to job seekers.
Agricultural commodity processing (ACP) industries manufacture raw
commodities into value-added food and industrial products, some of which are
intermediate processed commodities that become the inputs to other human and
animal food products. While a complete list of ACP industries would also include
leather and leather products and chemicals and chemical products, 95% of Iowa’s
employment in ACP industries is in 35 food and kindred products industries, e.g.,
meat and dairy processing, grain and soybean processing, frozen foods, bakery
products, animal feeds, and soft drinks. Meat processing (e.g., packing plants,
sausage and prepared meat production, slaughtering and processing) represented
more than 50% of all Iowa food processing jobs in 1998. Grain processing, e.g.,
flour and other grain milling, cereal breakfast food, wet corn milling, and prepared
animal feed, represented just over 20% of all food processing jobs in 1998.
Between 1992 and 1998, food and kindred products industries together
accounted for about 20% of all manufacturing jobs in the state, but less than 4% of
all non-farm jobs in the state. Two other measures for comparing ACP economic
outcomes to the rest of the Iowa economy are (1) industrial output and (2) value-
added. Figure 1 compares these two measures in the ACP industries to those in
agriculture and agricultural service industries, and other manufacturing sectors. The
ACP provided the least employment and value-added production of all
manufacturing industries in the state in 1997. Industrial output from ACP and
agriculture generally was between one-half and one-third that of employment, output,
and value-added for all other manufacturing industries. Not only did ACP industries
contribute less to Iowa’s economy relative to other manufacturing industries, they are
growing more slowly than other manufacturing sectors. ACP industries grew at a
rate only slightly more than a third of the manufacturing sector’s average growth rate
between 1992 to 1998. Employment grew by 14.5% in the manufacturing sector as
a whole; it grew only 5.5% in the ACP industries. While 4,900 new ACP jobs were
added to Iowa’s economy from 1992-1998, these gains were offset by the loss of
2,100 jobs in contracting ACP industries, leaving a net growth in ACP employment
in Iowa of 2,800 new jobs. Meat processing industries added 350 new jobs between
1992 and 1998; but there was a net loss of 800 jobs in grain and soybean processing,
mostly occurring in the animal feed industry.
The national trends noted in Table 7 above are equally evident in Iowa.
Between 1992 and 1998, employment in Iowa’s ACP industries fell from 22% to
30(...continued)
commodity processing industries, 1992-1998.” Department of Economics, Iowa State
University, 2000. Web location: www.econ.iastate.edu/research/webpapers/NDN0081.doc.

CRS-21
20% of total manufacturing employment. Not only did total employment in ACP
industries fall, the distribution and concentration of ACP employment also varied.
Figure 1
Most ACP jobs were located in Iowa’s 10 metro counties, with 11,100 jobs in the 11
urban counties and 17,500 in the state’s 60 smaller urban counties. Iowa’s rural
counties, i.e., those outside metro areas or in towns with less than 50,000 in
habitants, had just under 2,400 ACP jobs in 1998.
One of value-added agriculture’s hoped-for results is improved non-farm rural
employment. But most Iowa ACP industries are slow-growing or declining. Slow
employment growth rates as well as plant location preferences in ACP industries
suggest that these industries may be limited in the amount of future employment and
economic growth they can reasonably be expected to generate within Iowa’s rural
areas. The authors of a recent Iowa study of agricultural processing concluded that
“...agricultural commodity processing industries have an undeniably important role
in (Iowa’s) economic activity. However, expectations about their promise for Iowa’s
economic future have been growing far more rapidly than the industries
themselves.”31
31Ibid., p. 29.

CRS-22
Agro-Food Value Chains
Long-standing trends toward fewer, larger, and more specialized commercial
farms and ranches in the U.S. (horizontal integration) are well documented. Not only
have these trends been observed for many years, recent data suggest they may be
accelerating as pressures increase from global competitors and as new agricultural
technologies continue to reinforce the substitution of capital for labor. Some
researchers have argued that current trends are leading to a farm structure where
10,000 acre corn farms may soon become the economically efficient size unit for that
commodity.32 Rapid and increasing consolidation and coordination and deepening
vertical integration in agriculture are indicators of a more fundamental restructuring
occurring in the global food and fiber system today. A growing share of commodity
producers, mostly within animal production currently, are joining supply chains.33
A supply chain is a tightly organized production system formed by agribusiness firms
that, in its most coordinated form, could potentially link each step of food production
from proprietary genetic material to the grocery shelf. Broiler production is the
exemplar of this trend. Approximately 40 firms now contract to produce 97% of all
broilers. These trends are appearing increasingly in pork production and are
beginning in cash grains.
A distinguishing characteristic of supply chains is their reliance on contractual
agreements, licenses, joint ventures, integrated ownership, and other business
arrangements with different segments of the agro-food system. These alliances with
producers may permit contracting firms to by-pass more traditional commodity
markets. To better insulate themselves from price volatility and dwindling markets,
many commodity producers are abandoning their independent operations and
adopting contract commodity production and marketing arrangements with
agribusiness firms. According to the USDA’s Economic Research Service, about
35% of the total value of U.S. agricultural production in 1998 was produced under
some form of contractual arrangement.34 Over half of large family farms are
involved in some form of contracting and these farms accounted for over 66% of the
total value of commodities under contract.35 Over 90% of the total value of contract
production was in 10 commodity groups: soybeans, corn, fruit, vegetable, nursery,
cotton, cattle, hogs, poultry, and dairy.
The growth of supply chains has implications for many rural areas because of
their potential for creating geographically specific production sectors in agriculture
that some observers have characterized as a hub, spoke, and wedge cluster.36 For
32National Corn Growers Association. Changes in the Evolution of Corn Belt Agriculture.
February, 2002
33Drabenstott, Mark. “Rural America in a new century.” Main Street Economist, Federal
Reserve Bank of Kansas City, October, 1999.
34 USDA. Agricultural Resource Management Study, 1998
35Ibid.
36Drabenstott, Mark and L.G. Meeker. “Consolidation in U.S. agriculture: The new rural
(continued...)

CRS-23
example, a livestock-processing plant located at a hub is built near livestock-feeding
operations. These feeding operations are supplied by mills drawing their grain and
oilseed through transportation and communication spokes connecting crop
production "wedges" in the periphery. Few clusters may be needed to supply the
demand. Many farming areas that might wish to become a “hub” may not be able to
assemble the necessary capital and managerial services to do so. While the Great
Plains has certain social and environmental characteristics that might make the region
compatible with large-scale animal operations (e.g., sparse populations), it is likely
that only a few hubs will be economically feasible under supply chain arrangements.
Other countries, e.g., Canada, may also become increasingly competitive as supply
hubs. Some industry observers believe that under a supply chain arrangement, for
example, 50 or fewer pork producers and 12 state-of-the-art packing plants could, in
the near future, supply the entire U.S. pork market.37 Peripheral farms will continue
their trend toward larger and fewer units and will require less and less labor and other
local inputs. Integrated ownership of a supply hub could displace resources from
traditional farms and rural areas.38
Commodity supply chains are evolving into integrated agro-food value chains.
Value chains are linked networks of agribusiness firms and actors managing each
phase from production to consumption. Value chains, in contrast to supply chains,
are consumer driven and more closely integrate production, processing, marketing,
and distribution (Table 10). With increased proprietary control over new
technologies, agribusiness firms are developing the means to exercise greater control
over each phase of the food production process by synchronizing every stage from
tillage to table. Of central importance to a value chain is the capacity to assure
quality and traceability throughout the chain by identity-preserved (IP) production for
specific end-users.
Table 10. Comparison of Agricultural Supply and Value Chains
SUPPLY CHAINS
VALUE CHAINS
Producer oriented
Consumer oriented
Supply driven
Demand driven
Focus on quantity
Focus on quality
Focus on cost
Focus on value
36(...continued)
landscape and public policy.” Economic Review, Kansas City Federal Reserve, October,
1999.
37 Benjamin, G. “Industrialization in hog production: implications for midwest agriculture.”
Economic Perspectives, Federal Reserve Bank of Chicago, 1997
38Opposition to these industrialization trends is also widespread because concentration and
consolidation in the agro-food industry continues to be regarded as a significant threat to the
survival of small, family farms. See Heffernan, William. Consolidation in the Food and
Agriculture System. Report to the National Farmers Union. February, 1999.

CRS-24
SUPPLY CHAINS
VALUE CHAINS
Anonymous sourcing
Identity preserved
Bulk volume management
Small volume management
Many independent decisions
Few cascading decisions
Open to many producers
Closed to most producers
Identity Preserved Agricultural Products
A s a c o o r d i n a t e d
Box 2: Identity Preservation Food
production system, agro-food
Products
value chains manage the
sequence of value-adding
The restaurant TGI Friday features Meyer
activities from raw commodity
Natural Angus beef at its restaurants. These
to end use. During the shift to
cattle are raised without hormones or
m a s s p r o d u c t i o n a n d
antibiotics and are not fed with feed containing
distribution in the late 19th
animal by-products. A single-source of origin
century, processing and
permits monitoring from field to restaurant.
packaging became the means by
which manufacturers branded
Value-enhanced grains (VEG) include white
their products to differentiate
corn, food-grade yellow corn, and waxy corn.
them from other similar mass
Frito Lay contracts with producers for white
produced items. The current
corn to make its Fritos Corn Chips. The
evolution of value chains is
company tracks the processed corn through all
moving the importance of
stages on a bag-by-bag basis.
identifying and tracing the
ingredients that go into food
See: Martinez, Steve and David E. Davis, Farm
products to the upstream raw
Business Practices Coordinate Production with
commodity producer. Identity
Consumer Preferences. FoodReview, 25, 1,
preservation (IP) of agricultural
Spring, 2002.
products, e.g., non-genetically
e n g i n e e r e d o r o r g a n i c
commodities, can confer value premiums by assuring the end user that such grains
are traced through each stage of food production (Box 2). Nominally
undifferentiated corn and soybeans have, for example, enough naturally occurring
variability to potentially justify 10-30 cents-per bushel value differentials.39 This
premium, however, is less than the expected costs of special trait preservation, which
is likely to mean that most of these grains will still be handled as bulk grains in the
system. Research has suggested that grains of high-value (more than 50 cents per
bushel) justify the costs of non-traditional IP tracing and handling methods such as
39Hurburgh, Charles R. Jr. Initiation of end-user specific grain marketing in Iowa elevators.
MATRIC Working Paper 97-MWP 2, Center for Agriculture and Rural Development, Iowa
State University, 1997.

CRS-25
segregation through testing and monitoring shipments throughout the value chain.40
Trade Issues. Because many consumers today have greater choice over
where their food comes from and how it is produced, value chains give agribusiness
the organizational structure both for creating new markets and for meeting the
demands of these consumers. Specialty-driven product markets will require
sophisticated means of traceability and special handling. For example, genetically
engineered product tracing and labeling are becoming an increasingly important
factor in exporting not only raw commodities, but also animal feeds and food
products. Taiwan, Australia/New Zealand, Japan, South Korea, and China each have
or will have within the year, mandatory genetically engineered product labeling laws
specifying minimum tolerances. Under such regulatory regimes, documenting the
source of a commodity from seed to food product will become a critical factor in
agro-food trade. Genetically engineered seed with valuable output traits sought by
particular end users will also require similar IP tracing and handling. This will mean
the need to control the planting, tilling, harvesting, storage, processing, and
distribution to target the end user willing to pay a premium over other similar
products for the assurance of knowing where the product came from, how it was
grown, and how it was processed.41
With IP production, producers and processors will need to better understand
particular markets, e.g., seed, food, processing, or export, because each market may
demand different characteristics. For example, a premium market in a distinctive
variety of soybean for the Japanese tofu market requires that contract growers and
handlers of these soybeans segregate their product to avoid any co-mingling with
other soybeans. This means that an upstream grower must be able to provide
documented assurances to the handler and processor that all the soybeans in a
shipment contain the desired trait or do not contain other undesirable traits from the
end users’ perspective. Similarly, new European Union rules that set very strict
limits on dioxin in food, feed, or feed material suggest that farmers may find IP
production an increasingly necessary part of their marketing strategy. The recent
StarLink episode, where a genetically engineered variety of corn not approved for
human consumption found its way into food products, would have been much less
likely to occur under a well-integrated agro-food value chain. The substantial costs
of that co-mingling error underscore the rising importance of controlled production
and tracing integrated through an agro-food value chain.
Grain attribute testing, tracking, and auditing systems organized by value-chains
for new end uses are being established. These developments may create new
opportunities for growth of specialized agricultural services and equipment. Rural
areas could become sites of new businesses serving the needs of upstream value
chain participants. For example, approximately 22% of grain elevators currently
segregate genetically engineered corn and soybean varieties. Some elevators are now
40Ibid.
41For example, field tests are currently underway for a genetically engineered corn variety
that produces gastric lipase enzyme useful in treating digestive disorders in cystic fibrosis
sufferers.

CRS-26
dedicating equipment and facilities to specific crops to avoid any chance of co-
mingling with other varieties. Such practices may become as common for grain
farmers as highly specified contracts have become for broiler production, suggesting
the creation of extensive custom grain farming opportunities in the future.
Environmental Issues in Value-Added Production
Farms operating as part of a value chain may find that some form of
environmental certification could become a significant value-added component of
production. Agriculture is under intense pressures to improve its environmental
performance. Environmental management systems (EMS) and associated eco-
labeling or branding of products are becoming significant aspects of value-added
production. While EMSs are not new, they could take on significantly greater
importance in the future as IP production gains market share. For over 20 years,
Germany has had the Umweltziechen logo for products with positive environmental
features; Japan has the Eco Mark Program; Holland, the Milieuker logo to identify
products as less environmentally damaging compared to most similar products; and
the “Nordic Swan” label is the world’s first multi-national eco-labeling scheme.42
In addition to these eco-labels, there is an international organic certification system
as well as dozens of regional organic certification programs in the U.S. Other labels
denoting a product as produced by a particular EMS, e.g., integrated pest
management, low-input, or “sustainable” are finding increased market visibility.
Concerns about animal welfare are also likely to become reflected in IP systems.43
More recently, the International Organization for Standardization (ISO)
introduced the ISO 14001 system to produce a set of standards for quality
management to insure customer service. ISO 14001 is not an EMS per se, only the
leading model for developing such a system. An EMS is a structured planning
approach for a business to manage its environmental impacts; ISO 14001 is the
“shell” in which such a plan may be developed. It is also could provide a framework
for addressing many aspects of quality assurance such as reducing food-borne
illnesses or documenting how livestock are raised and slaughtered. Like its
predecessor ISO 9000, ISO 14001 is increasingly viewed as a prerequisite for doing
business in a global economy where assurances of quality, perceived or real, are
becoming necessary business requirements. There are indicators that agriculture is
42In 2002, Canada initiated two programs aimed at further developing environmentally
responsible farming practices. Under the first program, eligible Canadian farmers will
receive C$100 million over the next four years to help them implement environmental farm
plans. The second program will make C$54.5 million available over six years to give
Canadian producers better access to minor use and reduced-risk pesticides, thus helping
increase their international competitiveness.
43U.S. supermarket and fast food industries introduced in 2002 the first comprehensive
guidelines for the humane treatment of farm animals, recommending that farmers curtail
such practices as starving hens to make them lay more eggs, housing pregnant pigs in crates
so small they cannot fully lie down, and slaughtering some animals before they are fully
unconscious.

CRS-27
moving to embrace ISO 14001. Trade groups are actively pursuing quality assurance
programs with EMS components. The American Soybean Association has joined
other commodity groups such as the National Pork Council in developing such
initiatives. Drawing on models used by Denmark and other countries, the Wisconsin
Milk Marketing Board is also evaluating the benefits of ISO 14001 certification.
Increased Contract Production
Agribusiness firms with control over proprietary product lines may come to rely
exclusively on contract production and marketing in the future. Production of crops
with particular output traits, e.g., traits affecting human food nutritional quality,
processing characteristics, or animal feed quality, may be done on a contract basis
between a few individual farming operations and those owning or licensing the
proprietary crop. A value chain integrator for a new line of tomato products, for
example, could hold a license for a genetically engineered tomato variety with
elevated levels of lycopene (an anti-cancer agent). The value chain integrator starts
the IP process by contracting with particular farming operations that grow the tomato
under highly controlled conditions, e.g., particular soils, watering schedules, growth
innoculants, among others. The processor, in turn, must segregate the tomatoes and
ship them along to canners or food processors who use the particular tomatoes in
other value-added products which are then tested to verify their contents so that they
may be labeled and sold at a premium. The market for these traits is not unlimited.
The proprietary owners of the genetically engineered products are likely to require
very specific growing, cultivating, harvesting, and processing conditions in order to
assure the price premiums for these products. Such requirements make contracting
with a few specialty growers with custom farming operations a highly desirable
arrangement for value chain integrators.44
Value chain developments could make some form of contract production a
necessity for many producers. As integration of the agro-food value chains deepens,
however, fewer producers would be needed. Only those with contracts may find
ready markets for their products. Because firms could find it costly and unwieldy to
contract with many producers, those farmers and ranchers who become part of value
chains may find that significant aspects of their status as independent commodity
producers may become the price for being able to continue producing. As value
chains expand, producers who sell undifferentiated commodities could find that
today’s spot markets for their commodities simply no longer exist. Producers might
also bear greater risk in maintaining quality and delivery schedules in exchange for
some pricing reliability and a ready market for their product. These characteristics
exist today in the broiler industry and increasingly in the pork industry. They could
diffuse globally to grains, soybeans, livestock, fruits, and vegetables in the not-too-
distant future.
44 Environmental management systems and the value of organic, eco-labeling, and other IP
product development could also make “precision agriculture” in custom farming an
increasingly important component in value chain management. See CRS Report RL30630,
Precision Agriculture and Site-Specific Management: Current Status and Emerging Policy
Issues.

CRS-28
Not all producers welcome these changes. Some farmers and ranchers are
deeply concerned about the implications of these changes in production and
marketing. Their concerns range from questions about the viability of smaller family
farms under highly integrated production and marketing systems to questions about
the increased power that agro-food value chains could have in shaping farmer and
rancher options in the future. Anti-trust issues and related concerns over
concentration in various agricultural sectors, e.g., livestock, have becoming
increasingly important public policy issues over the past several years. Particular
concerns have included the transparency of production contracts, the power of
producers to contest terms in court, and the levels of market competition in some
commodities.
New Value-Added Agricultural Enterprises
Retaining locally produced capital and increasing the recirculation of money in
local and regional economies are key development strategies. Value-added
production is regarded by many observers as a way to keep more value of a
commodity within a local economy and, thereby, stimulate economic growth and
development. Much of the current discussion of value-added agriculture and rural
development focuses on two general categories: (1) value-added food products that
offer or are perceived to offer higher quality, better nutrition, or greater convenience;
and (2) industrial, non-food value-added products derived from grains, oil seeds, or
non-traditional plants. These two general categories have potentially different
implications for rural communities.
Food Processing
Food processing is a very competitive, global business requiring constant
product differentiation and innovation. High value-added food products that offer
greater quality, or different nutritional factors, or increased convenience for
consumers also tend to be labor intensive and to require more skilled workers,
especially in product development and marketing. Value-added specialty food
processing, however, uses relatively small quantities of agricultural inputs and thus
has less of an impact on agricultural prices or profitability. Small innovative firms
may be particularly capable of developing this type of production for both domestic
and international markets. For example, value-added production of food produced
through organic systems or regionally branded items are examples of enhanced
economic value for which consumers are apparently willing to pay a premium over
similar but undifferentiated products. Packaging such products in microwaveable
pouches, for example, could create further value based on the convenience of the
product over traditionally processed frozen or canned products.
Available data on the local impact of value-added agricultural production tends
to take existing commodity processing data and project the future importance of the
sector to a state or regional economy. The example of Iowa discussed above is one
of the better examples of this type of analysis. The operating lives of the more
recently established facilities have probably not been long enough to draw valid
conclusions; and there are relatively few examples of the socioeconomic impact of
value-added production in the research literature. Some plants that began in the early
1990s are still operating and in some cases have expanded. For example, the

CRS-29
American Italian Pasta Company has begun construction on a new pasta plant in
Tolleson, Arizona, that initially will have an annual capacity of 100 million pounds,
and later may be expanded to 200 to 300 million pounds. The company is the largest
U.S. pasta producer and currently operates plants in Excelsior Springs, Missouri,
Columbia, South Carolina, Kenosha, Wisconsin, and Verolanuova, Italy.
While this pasta plant expansion might be considered a positive outcome for
many durum wheat producers, an important question is whether other areas can
duplicate such success, especially rural areas.45 These pasta plants are also located
in or very near metro areas. Would a new farmer-owned pasta coop in rural Illinois
be economically feasible? How much more demand exists for pasta in the next
decade? It is the long-term picture that is most relevant to creating new rural
development opportunities. A facility enjoying strong growth and profits today must
eventually be able to survive on average growth and average profits. Whether that
will happen or whether a single facility can survive is difficult to predict.
An important factor for sustained economic development, however, may be
whether value-added agricultural facilities can generate a regional economics of
agglomeration or clustering of other facilities and supporting industries. The
presence of a value-added agricultural plant that can attract other businesses would
suggest a potentially much greater economic impact than a single plant. There is
some evidence that this can happen. A wet milling ethanol plant operated by Cargill
in Eddyville, Iowa has attracted at least two additional plants that use output from the
ethanol plant. One plant produces lysine which is used as an additive for animal
feeds. The other plant manufactures monosodium glutamate. Informal analysis has
suggested that the three plants have provided economic stimulus to the Southeastern
Iowa economy, mostly from the increased corn sales and the local multipliers from
plant jobs. Similarly, the Dakota Value Capture Cooperative is planning a $65
million integrated beef, biogas generator, and ethanol complex north of Pierre, South
Dakota that could create new opportunities in this predominantly farming region.
Industrial Value-Added
Industrial value-added agricultural production uses a considerably larger volume
of agricultural commodities than does value-added food production and may increase
commodity prices over a wider area supplying agricultural manufacturing facilities.
Value-added industrial production of agricultural commodities, however, tends to be
capital intensive, and may employ fewer, and lower-skilled, workers relative to the
investment needed or the value of the output. Corn-derived ethanol as a gasoline
blending ingredient is one of the best known and most widely promoted example of
an industrial value-added business, but a variety of other bio-based industrial
products are also possible, e.g., starch, corn gluten, soy ink, bio-plastics.
45Congressional testimony in April, 2002 from a representative of the North American
Millers Association revealed that while U.S. durum wheat farmers have outpaced domestic
durum wheat demand in all but one of the last 10 years, they are, nonetheless, unable to
produce the amount or quality of durum wheat demanded by U.S. pasta manufacturers. The
result has been increased imports of Canadian durum wheat to supply this value-added
market. Sparks Policy Report, April 24, 2002.

CRS-30
New Bio-Based Products. In its 1987 report to then-Secretary of
Agriculture, John Block, the New Farm and Forest Products Task Force
recommended the development and commercialization of new agricultural
products.46 Their report called for a 25-year effort that would use 150 million acres
of farmland, generate 750,000 jobs, increase farm income by $30 billion, and add
$100 billion in national economic activity. The legislative result was the Alternative
Agricultural Research and Commercialization Act of 1990 designed to assist the
development and commercialization of new nonfood and nonfeed products derived
from agricultural and forestry commodities. Under the 1996 farm bill (P.L.106-627),
AARC became a wholly owned government corporation. Preference was to be given
to projects which benefitted rural communities and helped commercialize
environmentally sound products. Table 11 lists examples of AARC projects.
Table 11. Selected AARC Projects, 1993
Project
Raw Material
Concentrated acid hydrolysis
Switchgrass or grain sorghum
commercialization
Specialty fibers from Hesperaloe
Hesperaloe (a new fiber crop)
species
Bioplastic cotton
Cotton
Wheat gluten and wheat starch based
Wheat
adhesives, films, coatings, and food
packaging containers.
Newstone.
Soybean flour and recycled newsprint
Kenaf/recycled fibers newsprint
Kenaf
Waste Pulp to Straw
Annual ryegrass straw
Ethanol based windshield washer
Corn
solvent
Accelerated research and development
Soybeans and beef tallow
of biodiesel fuel
Bio-form, a concrete release agent
Rapeseed
Starch-encapsulated pest control
Corn
formulations
Industrial coatings from soybean oil
Soybeans
Source: U.S. Congress, Subcommittee on Rural Economy and Family Farming, Committee on
Small Business, U.S. Senate, 103rd Congress, 1st Session, July 14, 1993.
46The New Farm and Forest Products Task Force. New Farm and Forest Products.
Responses to the Challenges And Opportunities Facing American Agriculture. June, 1987.

CRS-31
Although the AARC was organized largely to develop innovative ways of using
commodity surpluses, it was essentially a value-added research and demonstration
project oriented toward improving rural well-being. Authorization for the AARC,
however, was repealed with the new farm bill (P.L.107-171) and the program is
currently closing out the remaining portfolio of projects. Because AARC projects
were co-sponsored with private industry, some of the above projects are ongoing
while others have ended. Primary data on local employment created by these projects
or how these projects may have contributed to rural community development are
unavailable. During FY2000 Appropriations hearings, however, the Executive
Director of the AARC testified that the AARC’s return-on-investment was
considerably ahead of its projected schedule after 7 years and that AARC-funded
enterprises had produced an estimated 7,500 direct and indirect jobs in rural areas.47
Soybean-derived products represent a large, well-established, and growing
market. There are thousands of products on the market that contain soybeans. Rural
areas in the Midwest may be well-positioned to participate in this sector of industrial
value-added production, although one study concluded that a move to soybean-based
ink by all the newspapers in the U.S. would result in, on average, only four new
farming units per county for the Farm Belt states.48 There may also be opportunities
for farmer-owned value-added enterprises in new soybean processing operations.
There is, however, little technological innovation within this mature sector. The
industry is also currently dominated by large, well-established firms, e.g, Cargill.
Other industrial crops include guayule, a source of natural rubber, and jojoba,
a desert shrub whose seed produces an oil used in cosmetics, ointments, and
lubricants. Approximately 40,000 acres of jojoba were planted in the 1970s when
a ban on sperm whale oil was initiated. While no estimate of jobs in jojoba
processing are available, over 500 workers were estimated to be employed in the
production of jojoba seed.49 Kenaf, a reedy crop that grows 10-12 feet holds promise
as a new source of insulation material for reducing road noise in cars and trucks.

ERS estimated the creation of about 40 new jobs from an estimated $10 million
in sales for crambe, a contract-grown oil seed used for various industrial processes,
especially plastics. Crambe was commercialized in the 1990s through the efforts of
a team of farmers, agribusiness people, and scientists to develop a reliable domestic
supply of erucic acid.50 In 1990, North Dakota farmers teamed up with National Sun
Industries (NSI) and North Dakota State University (NDSU) to produce about 2,200
47Statement of Robert E. Armstrong. Hearings before the Subcommittee on Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies, Committee on
Appropriations, House of Representatives, March 17, 1999.
48Barkley, David L. and P.N. Wilson. “Is alternative agriculture a viable rural development
strategy?” Growth and Change, 23, 2, 1992.
49Wilson, Paul. “Nontraditional agriculture: an economic development alternative.” in
David L. Barkley (ed) Economic Adaptation: Alternatives for Non-Metropolitan Areas.
Westview Press, 1993.
50Erucic acid has an established market in erucamide, a preferred slip and antiblock agent
for polyolefin films.

CRS-32
acres of crambe, and within four years that team had nearly 59,000 acres of crambe
under cultivation. NSI crushed the seed in their Enderlin, North Dakota, mill and
marketed the oil and the coproduct, defatted seed meal. Concurrently, the High
Erucic Acid Development Effort (HEADE) team sponsored and conducted
production, breeding, processing, product development, and marketing research,
including critical feeding experiments at NDSU that affirmed the efficacy of using
crambe meal in cattle feed.51
In April, 2002, Cargill and Dow Chemical opened a new $300 million
bioplastics plant just outside Omaha, Nebraska, that will use up to 40,000 bushels
daily of locally supplied corn as feedstock. The plant ferments corn starches to make
lactic acid, whose molecules are then chained together to make biodegradable
polymers, or plastic. The finished product resembles a ball the size of a marble or
smaller that can be used by Cargill Dow customers to produce items ranging from the
plastic film used on sleeves of golf balls or drinking cups to clothing, such as shirts,
jackets and sweaters. The plant is expected to employ about 100 workers when it is
at full capacity. Cargill and Dow will also be spending about $250 million over the
next few years on commercial development, product technology development, and
developments of technology to enable the conversion of biomass (such as corn stalks,
wheat straw, grasses, and other agricultural waste products) to plastic. While no
commercial applications are yet complete in the U.S., several are underway in
Europe.
Researchers are also using advances in biotechnology to modify plants to
produce industrial products and pharmaceuticals. Examples of products currently
under development include: proteins and enzymes for diagnostic, therapeutic and
manufacturing purposes; modified fatty acids and oils for paints and manufacturing;
and specialty substances.52 One potential research avenue currently being explored
is using bacteria engineered to make polymers that closely resemble natural fibers.
Biotechnology researchers are also developing ways to use biotechnology for
environmental preservation and remediation. Other research is directed at enhancing
plants’ natural ability to absorb and store toxic and hazardous substances. Other
promising biotechnology research includes using genetically modified plants to
produce vaccines for human and animal illnesses ranging from colon cancer to
diarrhea to tooth decay. Some of the plants used to develop vaccines include corn,
spinach, tobacco, lettuce, tomato, soybeans and potatoes.53 Charles Hurburgh, a
specialist in grain quality at Iowa State University, predicts that 40% of the corn and
soybeans grown in the United States will eventually contain a genetically engineered
51Kenneth D. Carlson, John C. Gardner, Vernon L. Anderson, and James J. Hanzel.
“Crambe: New Crop Success”. Pages 306-322. In: J. Janick (ed.), Progress in new crops.
ASHS Press, Alexandria, Va.. 1996.
52The Scripps Research Institute was granted a patent in July, 2002 for a genetically
modified corn plant that has been spliced with a herpes-fighting human gene. Epicyte
Pharmaceutical, which holds exclusive commercial rights to the patent, and its corporate
partner, Dow Chemical Company, hope to extract the herpes-fighting antibody from the corn
and turn it into a topical gel.
53See Harvest on the Horizon: Future Uses of Agricultural Biotechnology. Report by the
Pew Initiative on Food and Biotechnology, Washington, D.C., 2001

CRS-33
value-added trait for a specific end use, although it is by no means certain that these
agronomic traits will necessarily create benefits to farmers.54
Energy from Biomass. The benefits of bioenergy were recognized in the
Biomass Research and Development Act HR 2559 (Title III of the Agricultural Risk
Protection Act of 2000, P.L.106-224) and Executive Order 13134 (Developing and
Promoting Biobased Industry and Bioenergy) which set the goal of tripling the use
of biofuels and biobased products by 2010.55 The NAS Report on Bio-Based
Industry stated, “While there may be some potential for biobased industries to
increase job opportunities, there are insufficient data to make accurate predictions of
the impacts of biobased industries on future employment trends.”56 Assuming a
multiplier based on the ratio of sales to total employment in the chemical industries,
the NAS researchers estimated the creation of one million jobs. These would not be
net jobs, however, inasmuch as current petrochemical jobs would be replaced.
Perhaps the most widely touted value-added enterprise is milling of wheat,
barley, or corn for ethanol. Ethanol is the most visible product, but other by-products
and co-products are also possible. Wet milling of corn for ethanol can also produce
starches, corn-oil, amino acids, high-protein animal feeds, and commercial-grade
carbon dioxide as valuable by-products or co-products of ethanol production. Farmer
coops around the country have begun such projects to compete with ethanol,
especially since California banned MTBE, the only commercially available gasoline
oxygenate.57 Farmer-owned coops have also gained market share in ethanol. A
National Farmer’s Union study recently showed that ADM and Cargill had only
about 49% of the ethanol market, down from 67% in 1999. The Value-Added
Development Act for American Agriculture (H.R.1093), and the Farmers’ Value-
Added Agricultural Investment Tax Credit Act (H.R.1094), both passed in the 107th
Congress, would enhance the investment attractiveness of value-added ethanol
plants. Other pending legislation would provide tax credit provisions specifically for
ethanol production (S.907). Because of the current price disadvantages between
ethanol and gasoline, tax subsidies are essential to ethanol production. Authorization
for the current federal tax subsidy for ethanol is scheduled to expire in 2008.
To estimate employment gains, the Renewable Fuels Association has used the
figure of 3 plant workers for each million gallons of ethanol produced annually.
Assuming a tripling by 2012 of the current 2 billion gallons annually of production
capacity, that would mean approximately 18,000 new direct jobs in ethanol
production by 2012. A 1997 report on ethanol production estimated the creation of
54Hillyer, Gregg. “Biotech offers U.S. farmers promises and problems.” AgBioForum, 2,
2, 1999; Coaldrake, Karen, “Trait enthusiasm does not guarantee on-farm profits.”
AgBioForum, 2,2, 1999,
55See Ames, Jeremy and Carol Werner, "Revitalizing the Farm Economy via Renewable
Energy Development," BioCycle, October, 2001.
56National Academy of Sciences. Biobased Industrial Products: Research and
Commercialization Priorities. 2000
57For a review of ethanol, see Yacobucci, Brent D. and (name redacted), Fuel Ethanol:
Background and Public Policy Issues. CRS Report RL3069, February, 2002.

CRS-34
nearly 200,000 direct and
Box 3: Hypothetical Economic Impact of
indirect jobs throughout the
Future Ethanol Plants
U.S. economy.58 This outcome
assumes the continuation of a
Results of a study found that building and
federal tax subsidy for gasohol,
operating a 40 MGY ethanol plant could:
a mixture of ethanol and
gasoline. Several states as well
! Provide a one-time boost of $142
have tax subsidies for gasohol
million to the local economy during
(e.g., Wisconsin, Minnesota)
construction;
that further contribute to the
! Expand the local economic base by
attractiveness of developing
$110.2 million each year through
ethanol plants. Perhaps the
direct spending of $52 million;
biggest questions of ethanol
! Create 41 full-time plant jobs and 694
p r o d u c t i o n as a l o c a l
jobs throughout the entire economy;
development strategy is where
! Increase local price of corn by 5-10
the plants will locate and
cents per bushel;
whether scale economies will
! Increase household income for the
favor a few large plants in a few
community by $19.6 million annually;
communities or many small
! Boost state and local sales tax receipts
plants in many communities. A
by an average of $1.2 million
more recent study for the
depending on local rates;
Renewable Fuels Association,
! Provide an average of 13.3% annual
for example, used a hypothetical
return on investment over 10 years to
40 million gallon per year
a farmer investing $20,000 in an
(MGY) plant to estimate
ethanol facility.
regional activity and concluded
that the impact would be
Source:, John Urbanchuk, AUS Consultants and
significant. (Box 3).
Jeff Kapell of SJH & Company, Ethanol and the
Local Community. Report for the Renewable
In addition to corn for
Fuels Association, June, 2002
ethanol production, other
feedstocks may also be used.
Waste products such as corn stover and other biomass may also become feedstocks
for ethanol production. Whey from cheese making, for example, is the feedstock in
a Wisconsin ethanol plant. Another Wisconsin company also plans to construct an
ethanol plant at a dairy farm that will produce ethanol from cow manure. It will
supply a high yield anaerobic digester technology that collects animal waste for
fermentation. The mixture of methane or biogas collected is further processed in an
alcohol conversion unit and distilled into different mixes of fuel grade ethanol.59
58Evans, Michael K. The Economic Impact of the Demand for Ethanol. Report prepared for
the Midwestern Governor’s Conference, February, 1997.
59The Internal Revenue Service approved a renewable energy production credit for 2002 of
1.8 cents per kilowatt hour on the sale of electricity produced from wind energy, closed-loop
biomass and poultry waste resources.

CRS-35
New Value-Added Farming and Marketing Systems
The traditional economic measure of bulk commodity production efficiency is
the cost per unit of production, that is, yield per unit of capital. The lower the cost,
the higher the production efficiency. With thin profit margins in bulk commodity
production, this has meant that ever larger-sized farms contributed to increased
efficiencies as capital (in the form of agricultural technology) substituted for labor.
Value-added farming systems, however, may alter that metric to income per acre, not
yield per acre. Five acres of organic apples requiring intensive labor and selling for
premium prices in the Japanese market may have equal or greater value than 25 acres
of conventionally raised apples. Similarly, a smaller number of pasture-raised cattle,
hogs, or poultry may command a higher price per pound than livestock raised in
conventional feedlot and battery methods. Value-added farming systems producing
products raised under alternative farming systems are able to command a premium
price over other undifferentiated products. The organic market, for example, has
been growing at approximately 20% for the past several years in the United States,
Japan, and Europe.60 While such rates may not be sustainable over the long-term,
they do suggest a burgeoning market that value-added producers may target.61
Farmers markets, especially within urban areas, have grown significantly over
the past 20 years as consumers perceive locally grown produce as more desirable in
a variety of ways. The number of farmers' markets in the Washington, D.C. area, for
example, has increased dramatically over the past decade. Maryland saw an
increase from 20 markets in 1990 to 72 in 2002. Virginia had 69 farmers markets
in 2002, about eight more than in 2001. Washington has about 12 markets within the
city limits. Locally grown, organic produce has become an important value-added
product, especially for smaller producers in this market. While farmers markets
account for only about 2% of total at-home food sales, supermarkets also have
recognized the changing attitudes of their consumers and have tried to compete by
introducing more organic foods in their aisles. Seventy percent of shoppers report
their primary store sells natural or organic foods, according to the Food Marketing
Institute. A survey of 1,000 adults for organic food company Walnut Acres
conducted by Roper Starch Worldwide, found that 61% of consumers who buy
organic products report that food safety is a major reason for doing so.62 Such
consumer demand for value-added products suggests that these markets may hold
considerable opportunity for value-added producers in the future, especially if greater
marketing support is provided. The 2002 farm bill, P.L.107-171, for example, sets
60The U.S. exported $40 million in organic products to the U.K. and $40-$60 million to
Japan in 2000. Exports to the EU are growing at 15% annually; exports to Japan have
grown between 30 and 50% a year between 1995 and 2000. When the United States fully
implements its national organic standards in late 2002, exports of organic products could
increase substantially. See Organic Trade Association, Export Study for U.S. Organic
Products to Asia and Europe, 2001.
61The 2002 farm bill (P.L.107-171) provides financial assistance to farmers who wish to get
their operations certified as organic. The legislation also earmarks federal support ($15
million over five years) for research into organic production.
62Gardyn, Rebecca. “What’s cooking?” American Demographics., March, 2002.

CRS-36
aside 15% (approximately $36 million from 2002 to 2007) of its value-added
provision for support of organic marketing.
In Upstate New York, a
Box 4: Entrepreneurial Opportunities for
S m a l l R u m i n a n t M e a t
Small -Scale Producers
Marketing project team at
C o r n el l U n i v ers i t y h a s
Several reports by universities and small-farm
identified new ethnic markets
advocacy groups participating in the USDA
that are not served by
funded North Central Initiative for Small Farm
conventional producers. Halal
Profitability offer hope for small-scale
slaughter and distribution
producers who are unable to compete with
facilities, live animal markets,
low-cost producers of major commodities but
Italian butcher shops, a gourmet
could find profitable niches and marketing
processor and distributor, and a
avenues that offer new opportunities. Some of
Kosher processor have each
the examples apply only to farms close to
p r o v i d e d v a l u e - a d d e d
metropolitan areas but others have general
opportunities to regional
application. The initiative is a four-state,
producers. Producers in other
multi-institutional effort designed to improve
rural areas, especially those near
profitability and competitiveness of small and
major cities, many find similar
mid-sized farms through research, outreach
value-added opportunities based
and education. It brings together farmers, food
on alternative production
and social scientists, marketers, extension
systems and niche markets
educators and economists and others who
(Box 4).
attempt to identify, adapt and apply strategies
that work. Coordinated by the University of
Nebraska Center for Applied Rural Innovation,
it also involves Iowa State, Missouri and
Wisconsin land-grant universities, the Center
for Rural Affairs, Practical Farmers of Iowa
and the Michael Fields Agricultural Institute in
Wisconsin. Eighteen case studies are profiled
at http://www.farmprofitability.org/case.htm
Summary and Assessment
The appeal of value-added agricultural production as a rural development
strategy is not new. More than 60 years ago, Congress created the USDA Regional
Utilization Centers to develop new products from agricultural commodities and to
provide market-driven assistance to America's farmers.63 In 1955, True D. Morse,
President Eisenhower’s Under Secretary for Agriculture, began the federal
government’s post-war rural development program with an investigation into the
63Authorization for the four regional laboratories was provided in the Agricultural
Adjustment Act of 1938. An important influence in the authorization was the chemurgy
movement, especially the Chemurgy Council which was formed in 1935. “Chemurgy”
refers to the development of new industrial products from organic raw materials, especially
farm products.

CRS-37
problems of low-income farmers and nonfarm rural populations.64 Among his
recommendations for improving rural welfare was creating new rural industries and
improving the efficiency of industries processing and marketing farm products.
Because many food processing facilities were located near farming areas at that time,
a major concern was increasing the supply of commodities, hence the need to
improve local primary production. Marginal agricultural production dominated the
poorest rural areas then. It was understandable that efforts to improve the efficiencies
of that sector through farmer education, technical assistance, extension, among other
activities, were desirable for laying a foundation for emerging manufacturing and
industrial employment.
Today, however, there is no shortage of commodities. Food manufacturing
facilities, with the exception of meat products manufacturing, grain processing, and
some fruit and vegetable processing, are more likely to be located in metropolitan
areas close to the consumer markets and to other inputs rather than where raw
material supplies exist. Also, the role of agriculture in most rural areas has declined.
In only about a fifth of non-metro counties does agriculture account for 10% or more
of labor and proprietor income today; and in only 312 of those counties does it rise
to 20% or more. These counties are located predominantly in the Great Plains,
Western Corn Belt, the Southeast, and parts of the Northwest and are significant
producers of bulk grains, soybeans, rice, and cotton, crops supported by federal farm
payments. Although farm households have higher average incomes than non-farm
households, manufacturing and service sector jobs now predominate in these
counties. Rural manufacturing employment, while relatively high-waged, also tends
to be lower skilled; and rural service sector employment is predominantly low-waged
personal services. Counties where agriculture is significant are also likely to continue
to decline in number as farms within these counties decline and the average size of
the remaining ones increase. These 312 counties have also lagged behind other rural
counties in creating new jobs in the 1990s. Little on the horizon suggests these
general trends will not continue into the future.
More recent legislation has attempted to broaden the opportunities for value-
added agricultural enterprises as a strategy for rural development. The 1985 Farm
Security Act (P.L.99-198) contained provisions for entrepreneurial farm businesses
and developing alternative fuels based on biomass. The Food, Agriculture,
Conservation, and Trade Act of 1990 (P.L.101-624) included provisions for Rural
Technology Grants to assist the development and commercialization of new
agricultural products and processes. The Federal Agricultural Improvement and
Revitalization Act of 1996 (P.L.106-127) also identified value-added agricultural
processing as a target of Rural Cooperative Development Grants. The 2002 farm bill,
the Farm Security and Rural Investment Act of 2002 (P.L.107-171) makes value-
added agriculture a major aspect of its rural development title. While individual
successes can be identified, a review of the overall record of value-added agricultural
enterprises as a significant generator of rural jobs, income, and community
development suggests that such operations may become an important future source
of stable rural employment and income in only a few areas. Most rural areas will
need to look beyond agriculture and agricultural value-added production to create
new sources of competitive advantage.
64 USDA. Development of Agriculture’s Human Resources, 1955.

CRS-38
The same may be said more specifically for food processing facilities. Many
food producers do not use raw farm commodities as feed-stocks but instead use semi-
processed commodities, e.g., oil, meal, milk concentrates. These facilities also
generally choose urban locations rather than rural areas to gain access to distribution
networks and suppliers of other inputs. A recent USDA estimate concluded that if
all urban food manufacturers suddenly relocated to rural areas, it would increase rural
employment only by about 4%.65 Bureau of Labor Statistics employment projections
predict little job growth in the food processing sector, approximately 2% from 2002-
2008, mostly in meat products manufacturing. This growth rate is significantly lower
than the 14% growth rate projected for all industry from 2002-2008. Food
processing, moreover, pays the lowest wages of all non-metro value-added industries;
and hourly wages among production workers in meat product plants are the lowest
of all food processing segments.
Food processing is also a fiercely competitive business, with the introduction
of thousands of new products each year.66 Only a third to a fifth of these products
survive in the market for any length of time.67 Food processing enterprises may be
more labor intensive than, for example, ethanol plants or soybean processing
facilities, but the likelihood that small food processors can successfully compete
with better capitalized, globally competitive food processors, and survive over the
short term, does not seem high. Over 77% of new food products are duplicates of the
same product by a different manufacturer with only about 15% considered
“classically innovative.” Six percent of new food introductions are simply line
extensions, e.g., a different size container.68
While small-to-medium sized firms introduced approximately 86% of new food
products, half of all food processing establishments employ 20 or fewer workers.
Were a small processing facility to achieve a degree of economic success, it could be
acquired by a larger food processing and marketing company. Were the existing
facility to be expanded at its original site, employment might be sustained and
perhaps increased. But, an acquiring firm may as likely decide to move production
to an existing facility closer to consumer markets, i.e., metropolitan areas. A small-
scale food processing operation relying on seasonal products, e.g., fruits, and part-
time labor, may offer some degree of expanded income opportunities, but as sources
of sustained rural employment and development, such enterprises are unlikely to
weather the mid-term. If such firms share the fate of the majority of small start-up
businesses, most new small food processing operations are unlikely to have even 5-
year survival rates.
The total number of farms and the share of agriculture-related income in the
rural economy continue to decline. Most agricultural value-added enterprises, while
65Gale, Fred and Maureen Kilkenny. “Agriculture’s role shrinks as the service economy
expands.” Rural Conditions and Trends, Vol.10, 2, July, 2000,
66New food products in the United States increased to nearly 17,000 in 1995, but declined
to slightly over 9,000 by 2000. See J. Michael Harris, “Food product introductions continue
to decline in 2000.” FoodReview, 25,1, Spring, 2002.
67Ibid.
68Ibid.

CRS-39
not unimportant to income gains for particular farm households, seem unlikely to
provide the basis for substantive development of related or supportive businesses in
rural areas. The larger, more capital intensive manufacturing enterprises, e.g.,
ethanol production or soybean processing, do not provide large numbers of jobs nor
do they seem likely to generate significant growth of other businesses. If the
enterprise is owned by a new-generation agricultural cooperative, whose members
also own supply contracts, their markets for bulk commodities may be enhanced.
The local economic picture may be different if, on the other hand, the enterprise is
owned by external investors, e.g, large corporations like Archer Daniels Midland or
Cargill, which currently dominate ethanol and soybean processing and distribution.
Even with expanded market share from farmer cooperatives, however, ethanol, corn
starch, soy oil, soy meal, and other semi-processed goods are essentially
undifferentiated, bulk commodities made from undifferentiated, bulk commodities.
Farmer cooperatives that supply and/or own smaller-scale, custom meat
processing and packing facilities may provide new opportunities for some ranchers.
Pastured-livestock raising and hormone/antibiotic-free animal production systems are
increasingly sought by consumers here and abroad as the negative effects of highly
industrialized production become more widely perceived. The same is true for eggs
and value-added egg products, whole milk, and dairy products. These products may
present possibilities for value-added entrepreneurs through regional branding or
direct marketing, e.g., farmers markets or Community Supported Agricultural
programs.69 Custom meat packing and dairy facilities to serve these markets have
potential to improve the incomes of producers, especially those developing new
marketing channels within metro areas. But here, as well, the question arises whether
incremental income improvements for some farm households can be translated into
more generalized economic growth and regional development where most residents
currently have little or nothing to do with the agricultural production sector.
Communities that become supply chain hubs through supporting a meat packing
and processing facility or bulk commodity processor may become regional centers
for value-added agricultural jobs. Incomes provided by these facilities can have a
positive impact on the local and regional economy. Some rural areas that have
sought to become large industrial agricultural production sites, however, have found
that the cost of creating such jobs can be greater than the value of the income stream
from the jobs.70 Growth in transportation and storage-related employment could
accompany an agricultural supply chain hub. Whether such enterprises might also
generate net jobs in other agriculturally-related businesses and services is unknown.
Related business support services could find that locating near such facilities is
desirable. On the other hand, the location of business support services could continue
its trend toward metropolitan locations.
New specialty crops and organic production each suggests some positive income
benefit to individual growers who can develop new products and successfully service
69Community Supported Agriculture programs involve local residents or local organizations
contracting with local producers for a share of a producer’s farm output.
70North Central Regional Center for Rural Development. Bringing Home the Bacon: The
Myth of the Role of Corporate Hog Farming in Rural Revitalization. Report to the Kerr
Center for Sustainable Agriculture. 1999.

CRS-40
niche markets and, in time, grow niches into larger markets. Federal support for
these alternative crop and farming systems could help make agricultural enterprises
more viable in some areas. Manufacturing facilities for extracting new bioengineered
plant or animal products may also become a future growth area. Such operations, to
the extent that they require new types of agriculture-related labor skills, could
increase job opportunities for some local residents, although the extent to which such
operations might become substantive sources of rural growth is entirely speculative.
If production capital and income from these operations circulate largely within the
local area, the local profit picture can improve. If production occurs under supply
contracts where the contractor provides most of the inputs, however, less capital may
circulate locally. Value-added agricultural operations located within metro regions
or within commuting distance to metro areas could benefit from these markets.
Farms located in such areas, however, are also more likely to be within more
diversified economies and to generate jobs and income that contribute only a small
share of the rural economy. In more remote rural areas, the Internet may offer
marketing possibilities to some producers. The employment and income-generating
aspects of such operations, though, do not suggest they will become significant
sources of rural development.
The logic of supply/value chains opens the potential for small-scale value-added
producers to achieve more competitive scale economies by connecting small-scale
processors or niche market producer to equally small-scale IP raw material producers.
For example, organic fruit producer cooperatives and IP bulk commodity producers,
e.g., non-genetically engineered corn and soybeans, or hormone-free beef, might
supply branded food processors with raw materials. With the market for both organic
and convenient foods growing, large food processors are likely to want stable,
consistent supplies of IP commodities for their production. Agricultural cooperatives
engaged in organic or “environmentally friendly” production techniques, especially
those near urban and suburban consumers, might also supply regional food markets,
including retail outlets such as restaurants and grocery outlets.
Consistency and reliability in supply and quality of product are significant
hurdles for any value-added producer. Agro-food value chains are designed to
increase such consistency and reliability. New generation cooperatives that can
develop and manage the links in a value chain may benefit from this emerging
development in the organization of production. Modification and improvement to
local and regional transportation infrastructure to complement value chain agriculture
may also become necessary. Existing rail and water infrastructure, for example, is
based largely on the requirements of traditional agriculture, that is, the movement of
undifferentiated bulk grains to market. Small-scale niche producers may require new
technologies that can better support IP shipping and handling.71 Entrepreneurs able
to master the links along the value chain could create new opportunities for
themselves as well as creating a viable agricultural sector within a more diversified
regional economy.
From a policy perspective, it is perhaps helpful to distinguish between value-
added and non-traditional agricultural production as potentially useful business
71Robert Heuer. “Where’s agriculture’s transportation agenda?” Ag Lender Magazine,
April, 2001.

CRS-41
management strategies, risk diversification tools, or enhanced income sources, and
value-added agricultural production as a more general rural economic development
strategy. Low labor costs and access to raw commodities in rural areas will continue
to be attractive to some value-added processors. For some farmers in some locations,
capturing more value in their farm crop through an ethanol plant or from their durum
wheat through a pasta plant can also make important contributions to household
income and provide opportunities for new manufacturing employment in rural areas.
Investing in alternative production systems such as organic agriculture, or
intensively-grazed livestock, or developing new markets for regionally branded
products might also contribute to maintaining agriculture in some areas or on farms
that are not able to compete on the industrial logic of ever-lower unit production
costs.
Job diversification in many areas dominated by agriculture is limited. Most
rural areas are increasingly tied to urban, suburban, and global systems in complex
ways that steadily shrink agriculture’s role in the rural economy relative to other
sectors. Agriculture is becoming a more technologically sophisticated and
knowledge-based industry with closer ties to metropolitan areas. Some job seekers
and entrepreneurs may find rural value-added agricultural production attractive for
other than monetary reasons, e.g., living in a rural area. But most rural job seekers
will continue to find areas with more diversified economies more attractive for
employment. Rural areas with diversified economies will be better positioned to
develop new growth opportunities in the future.
Agriculture, however, will remain an important if diminished part of many rural
economies. Value-added agriculture can very likely improve local opportunities in
some areas where non-farm jobs are scarce or nonexistent. Where viable local
opportunities can be identified and developed, they should probably be encouraged
and supported. Enhanced federal investment in research and demonstration could be
targeted to better ensure that farmers, entrepreneurs, and rural communities are well-
positioned to benefit from value-added production and new uses from new crops.
Efforts to support smaller-scale farming opportunities can also contribute to the
overall stability of many rural economies. But as a new engine of rural development
in the sense of creating a significant source of stable, well-paying local jobs,
generating the basis for expanded local and regional development, and improving the
general welfare of most rural citizens and rural communities, value-added agriculture
production shows promise in comparatively few places.
Value-added agriculture as a significant programmatic vehicle for rural
development suffers from the fundamental weakness of viewing rural policy issues
largely through the lens of agriculture, and more specifically, through farming. With
over 90% of today’s rural population unconnected to farming and with most income
for most farm households originating in off-farm sources, farming or new
agriculturally-related businesses appear unlikely to stem the trend of declining
employment opportunities in many rural areas, especially remote, farming-dependent
counties. Traditional farming and modern agribusiness increasingly consist of two
separate socioeconomic enterprises, the former connected closely to place, the latter
increasingly independent of any particular location. While it is substantially true that
agriculture will remain an important factor in many regional economies, what
benefits farm-household income alone no longer addresses the many issues facing
rural America as a whole. Renewed effort to build on rural America’s old

CRS-42
competitive advantages in agriculture and low-skill manufacturing, rather than
creating new competitive advantages in emerging sectors, is likely to be a marginal
strategy at best for sustaining most rural areas over the long-term.

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