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Arizona Agriculture
A Look Ahead

by Harry Ayer

A host of challenges loom rather clearly on the horizon, and will help shape the future of Arizona agriculture.

International Challenges
As trade agreements reduce barriers, Arizona agriculture will be challenged to expand and develop new markets. For example, the North American Free Trade Agreement (NAFTA) reduced barriers to our milk exports. Mexico’s expanding population and an expected increase in household income over the next decade may provide new marketing opportunities.

Trade agreements also make some U.S. markets more accessible to foreign competition. NAFTA reduces our own restrictions on fruit and vegetable imports. At the same time, it eases restrictions on capital (including new seed varieties and chemicals) moving from the United States into Mexico. These activities, combined with a favorable climate and low wage rates, suggest increased Mexican production of labor-intensive fruit and vegetable crops in the future.

The current economic turmoil of Asia and other regions notwithstanding, I expect the worldwide shift to more market-oriented economies will add to the competition. Budget problems and the rigors of the new trade agreements will likely force an expanded European Union to a more market-oriented agriculture in the future and quite possibly increase its competitiveness.

The former Soviet Union, Egypt, and China, to name a few, have moved towards more market-oriented economies and agricultural sectors. Considerable room for improvement remains, and over 10 years I expect more progress. How might our cotton market be affected as market conditions improve in these countries?

Many Latin American countries are also making the change to more market-oriented economies. The new trade association, Mercosur, illustrates this shift. Might Mexico, Argentina, and Brazil compete with our beef industry? In the long run, might our labor-intensive dairy operations face competition from Mexico, especially as NAFTA makes grain supplies available at lower prices for Mexican dairy producers?

Environmental Regulations
A 1995 Gallup Poll shows that a dominant majority of the American public strongly favors environmental improvement for agriculture, and expects more regulation of the sector, not less. In addition, international linkages between agriculture and the environment will increase regulation. For example, guidelines of the Montreal Protocol were incorporated in our 1991 Clean Air Act amendments, and subsequent regulations banned methyl bromide and freon. Finally, new detection and measurement technologies may make so-called nonpoint pollution more subject to regulation.

Industrialization of Agriculture
Through “industrialization,” farms consolidate and become more vertically integrated with other stages in the food and fiber production chains. Changes in consumer demand, production technology, and international competition drive the industrialization process. Production in the dairy, fruit, vegetable, broiler, and turkey sectors has already moved markedly in this direction.

Consumer demand and changing communication technologies promote industrialization. For example, computer systems can scan electronic bar codes on products and then analyze the retail sales data. The resulting information can be quickly passed to producers, and help avoid costly warehousing. Producers will be challenged to keep abreast of new technologies and instruments of vertical coordination.

Increased Price Risk
The Federal Agricultural Improvement and Reform Act of 1996 (FAIR) removed government programs from most farm production decisions-making agriculture more market-oriented until at least 2002. While FAIR has implications for cotton, wheat, and dairy agriculture, it does not directly affect our alfalfa, fruit, vegetable, or beef sectors.

Farm policy observers wondered how Congress might react if commodity prices tumbled. The 1998 experience gives some clues. When commodity prices fell, the government increased disaster payments, made 1999 transition payments under the FAIR act available to farmers in 1998, and added a one-time increase to transition payments.

Although the government did not revert to the old methods of subsidies, it did find a way to benefit farmers in hard times. Might this pattern continue? Or might the World Trade Organization or our own political process preclude this type of subsidy in the future? History seems to be on the side of continued subsidies, although the form changes.

New Technology
Adoption of new technology will help meet several of the challenges facing Arizona agriculture. Historically, Arizona farmers have been early adopters of new technologies, including laser leveling, drip irrigation, Bt cottons, and insect growth regulators. Informed, innovative farm managers, as well as price and yield incentives, helped spur early, widespread adoption. Progressive farm management already in place will help assure the use of new technology in the next decade.

New developments in precision implements, communication, and computer technology promise to change some farming activities. Data from precision implements will be analyzed and shared through on-line tools, permitting improved interaction between farmers and various other players in the food and fiber production system.

Satellite and computer technologies, such as the Global Positioning System and geographical information systems, will become important parts of precision farming. Using these technologies, agribusinesses will be more closely linked to the farm and provide inputs tailored to individual field and feedlot needs.

Biotechnology
Farms will also use more biotechnology. According to a recent report in Agri-Finance, some 300 genetically engineered products will soon be ready for farm use. Bt and Roundup Ready cotton provide good examples of ways that biotechnology will help meet the challenge of long-run price declines and environmental challenges. These technologies can cut input cost, raise yields, increase quality, and presumably reduce chemical impacts on the environment.

Biotechnology will also promote, and sometimes force, greater integration between producers and seed suppliers. Biotechnology and new legislation provide seed developers increased proprietary control over their seeds. As a result, seed companies may require that farmers sign a contract specifying, for example, how farmers may use or market the crop produced with the new seeds.

Farmers will often try to adopt complementary technologies, which not only increase short-run profits, but also simultaneously meet environmental goals. A number of farm technologies already illustrate this relationship, such as conservation tillage and soil nutrient testing. Precision farming will be another complementary tool.

More Vertical Integration
Like the adoption of new technologies, more vertical integration in Arizona agriculture will help meet the challenges of international competition and price risk.

The form of integration will vary and include forward contracts for produce, contracts for input use, alliances of various kinds that promote cooperation and coordination, and alternative means of ownership and control of more than one part of the food and fiber system. In some cases integration will allow farm producers to capture the gains from value-added products.

In many ways, vertical coordination reduces risk. Contracts and other strategic alliances help assure adequate input supplies at favorable prices, while guaranteeing a market and price for the firm’s produce. To successfully make cooperative agreements, farm managers may need to improve their communication and negotiation skills.

Government Actions
At the federal level, economic policies seem on track to foster low interest rates, a crucial factor for capital-intensive agriculture and a growing economy. Higher incomes will encourage demand for value-added and specialty agricultural products.

USDA research and services will help develop profitable, environmentally sound production technologies, provide needed market data for expanding world market opportunities, and promote further reductions in world trade barriers. Farm revenue assurance programs, now being piloted in some states, may be expanded to reduce price and yield risks. Research and extension activities at the federal and state levels will provide information to reduce producer risk. State government will make rules to reduce pest problems and promote the interests of Arizona agriculture in federal legislation.

Public Education and Research
Public education and research will be an important part of agriculture over the next decade as it helps create new technologies and prepare those working in agriculture to respond to the international market and increased industrialization. Continuing education at off-campus locations using new computer/communication-based technologies will increase and become more accessible to farm and agribusiness employees. The institutional structure through which we do agricultural research will continue to change, especially as both private firms and public institutions are better able to capture the benefits of new technologies through proprietary rights.

Grassroots Group Action
Grassroots collective action by farmers will also affect the next 10 years of Arizona agriculture. Example groups already in place include the Farm Bureau, the Cotton Growers, pest control districts, and marketing cooperatives.

Many goods and services can be better provided by groups than individuals. Take market development as a case in point. An individual farmer will not find it profitable to single-handedly create a cotton advertising campaign—the cost is too great. But if thousands of farmers invest in the campaign, collective gains may well outweigh advertising costs.

Collective actions could help develop new international markets, secure environmental legislation, create better management techniques, and secure government approval for new pesticides. Grassroots collectives of farmers will likely play an increasing role in issues surrounding trade regulations, international markets, and environmental regulations.