In the 1970s the nature of the agriculture business seemed to change. A tractor that cost $5,000 in 1960 went for $100,000 in the improved and bigger versions that were being sold in 1980. Fertilizer that went for $86 per ton in 1960 went for $179 in 1981. Land prices kept rising until North Dakota farms that had sold for $100 an acre in the early '60s went for the $500 an acre some farmers paid in 1980, a higher price than the land could ever pay back. A farmer had to produce more just to stay even.
Eight years ago the Haugebergs owned 830 acres, but it didn't seem to be enough. Then-Secretary of Agriculture Earl Butz went on the national circuit in the mid-1970s to encourage farmers to plant fence post to fence post so the country would have something to export. Although the Haugebergs had held back on expansion because they hadn't wanted the extra risk and the increased investment in equipment that expansion would require, they decided in 1975 that they couldn't afford to hold back any longer and arranged to rent more land to cultivate, an additional 1,700 acres by 1982.
For the first few years it looked as if they had made the right decision. Greater volume did increase their income and spread their risk over a wider geographical area. They joined the ranks of the producers who were making 20% profits per year after taxes.
Then interest rates shot up in 1979, a two-year drought decreased yields, President Carter laid down his 1980 embargo on shipping grain to the USSR, and Mexico crashed in 1982, deflating the market for vegetable oil. Profits of 20% quickly turned into losses. And farmers found themselves with million-dollar debt loads and no income to pay off any of it. Some went broke, and others remortgaged the assets they had worked for all their life, just to hang on. Although the Haugebergs found their income drastically reduced, they were better off than some of their neighbors who had expanded more rapidly and borrowed to buy land.
Still, the Haugeberg's position was far from good, and what they are hearing this morning at the Holiday Inn is not particularly reassuring.
They are greeted with a rousing "Good morning" from a tall, Ivy League-ish consultant in a blue shirt and tie who goes on to recite a humorous poem called "Sad Reflections of a Cow on Artificial Insemination." After a couple more funny stories he tells them to write in the "Planning Notebook" on the table in front of each chair: "How can I run a profitable business in an unpredictable, complex, rapidly changing environment?" The answer, he says, is "systems," management systems or planning and control. Farmers are still using "horse-and-buggy controls," he explains, and as a result, 40,000 farmers a year are giving up their farms. He introduces himself as Bill Van Dusen, president of the Management Center for Agribusiness in Denver. He says he has been in the agricultural consulting business, saving farms, for 16 years. Van Dusen calls up his associate, Roy Ferguson, president of RCF Ltd., a management consulting firm in Tulsa. He is a shorter man, with rectangular black-framed glasses, who isn't smiling.
After laying out his experience as an international consultant in fields that range from equipment manufacturing to food processing to livestock and poultry breeding, Ferguson starts talking about the state of U.S. agriculture. The state, as he sees it for the folks in North Dakota, isn't good. He says it is farmers like the ones sitting in front of him who are in trouble: the highly leveraged, aggressive producers; the star borrowers of two or three years ago; the leaders of the 1970s; the pillars of the community who borrowed to buy land to take advantage of efficiencies of scale offered by larger tractors and volume buying, and in some cases selling.
"I seldom see an inefficient producer, yet the problems are not low prices and high interest rates," says Ferguson. He takes off his glasses and points the stem at his listeners. In 1982, for the first time in U.S. history, he intones, farmers cleared less ($19 billion) than they paid out in interest ($21 billion.) Only 3.5% to 4% of all farmers were delinquent on their loans as of January 1983. But since those in trouble are the larger producers, farmers representing 25% to 35% of the total U.S. productive capacity can't see if it will pay to stay in business. Total farm equity is shrinking, from $520 billion in 1980 to $459 billion at the close of 1982, to a projected $410 billion by the end of 1983. And the farmers in Minot can see it happening on their farms. Land that they owned free and clear when they were in their thirties is now leveraged 80%, and they are now in their late forties. After decades of hard work, they are sliding backwards.
From 1978 through 1982, agricultural expenses rose 61% faster than sales, and debt rose 178% faster than sales. From 1970 to 1981, interest expenditures increased 600%. Interest payments ate up 16% of total expenses for 1982.
Much of this, Ferguson points out, is the result of a giant land pyramid that has been building for a decade, "and when you get to the point of any pyramid," he says, "it hurts."
Then he gets to the crux of the message he and Van Dusen are preaching to the agricultural community across the country -- to cattlemen in Boise, to dairymen in the state of Washington, to crop farmers in Indiana, Illinois, and Kentucky: "People are looking for political and technical answers for business and financial issues. We are not going to farm our way out of trouble. We are not going to regulate our way out of trouble. We are not going to dream our way out of trouble. Life used to be simpler. I know it sounds silly, but it was."
The assets of Ferguson's typical client have risen 200% to 500% in the last five years -- and agriculture has fundamentally changed. But Mom and Pop and the land-grant colleges haven't changed with it.
