CoBank highlights uncertainty in commodity prices, manufacturing as hindrances to rural economy

While much of the U.S. is optimistic about the economy, CoBank notes the rural economy is governed by very different forces that create a challenging environment for farmers and ranchers. 

In the introduction to CoBank’s January 2018 report, titled, “The Year Ahead: Forces that will shape the U.S. Rural Economy in 2018,” President and CEO Tom Halverson says, “In rural America, however, economic conditions are considerably more challenging.” 

He cites persistently low commodity prices, depressed farm income, political uncertainty and costs from regulation, technical change and loss of rural population as just a few catalysts to a less-than-certain future in the farm economy. 

Rural economy

At the core of the challenges within the future for farming and ranching, CoBank Knowledge Division Vice President Dan Kowalski says, “Agriculture and other rural industries will need to remain resilient amidst structural challenges.”

Kowalski summarized rural America encompasses two-thirds of all counties, 14 percent of the nation’s population and nearly three-fourths of the land area in the U.S. 

“The amount of rural land in the U.S. has been relatively static over time, but the share of Americans living in rural areas has shifted dramatically over the past century,” he said. “As the population has changed, so have the dynamics of rural and urban economies.” 

Though rural America is thought of being fairly homogenous and reflective of a 1950s view of farming communities, Kowalski says, “The reality is rural America and its economy varies dramatically by region, prevalent industries, population density and economic opportunity.”

The industries that provide employment opportunities in rural areas, including education and health, trade and transportation, manufacture, leisure and hospitality and agriculture and mining, vary in their prevalence from community to community. 

“Also, many rural areas are dominated by one industry that leaves residents much more exposed to labor market shocks than urban areas,” Kowalski adds.

Ag influence

Further, Kowalski notes only five percent of jobs and earnings in rural America are tied directly to agriculture and mining, which includes drilling. 

“However, many of the other vital industries in rural communities are intricately connected to and supported by agriculture,” he says. “The connection between the farm economy and the rural economy has been felt in painful ways in the past year.”

Recent analyses from the U.S. Bureau of Economic Analysis showed declines in farm earnings in every state during the second quarter of 2017. The analysis went further to cite that such declines were “the leading contributor to slow earnings growth in many states.” 

The large, indirect impacts seen from the influence of agriculture are also concerning, Kowalski says, providing the state of Iowa as an example.

“In Iowa, agriculture account for only 10 percent of the state economy,” he says. “However, when supporting industries, such as equipment manufacturing and agricultural lending, are included, that figure jumps to nearly half of Iowa’s economy.”

Kowalski continues, “Because of this outsized, indirect impact, lawmakers in states like Iowa and Nebraska have become concerned that the slow agricultural economy will severely strain state budgets.” 

Manufacturing trends

Another major industry affecting rural communities, according to Kowalski, is manufacturing because the industry tends to contribute twice as much to the rural economy in terms of jobs and wages as it does the urban economy. 

“As manufacturing jobs steadily declined from their peak in the 1970s until they bottomed in 2010, rural America bore the greatest impact,” he explains.

On the upside, the manufacturing sector has seen a “quiet comeback,” increasing nearly 10 percent from their 2010 lows and nearly recovering output back to pre-recession, all-time highs. 

“Total rural employment is also rebounding from the Great Recession, albeit at a slower rate than employment in urban areas,” Kowalski said, citing, as of 2016, jobs in non-metropolitan counties were still at five percent below pre-recession peaks. 

Outmigration impacts

Kowalski looks at out-migration, particularly of young people, as a persistent challenge for rural communities.

“We see younger residents leaving to pursue job opportunities in urban areas,” he says. “In 2011, that challenge became acute when the rural population became to shrink for the first time ever.”

Today, rural populations are now roughly back to steady, he says, and factors like the ability to improve one’s livelihood offer opportunity for rural communities. 

“Rural counties, on average, offer as much opportunity to improve one’s livelihood as urban counties,” Kowalski comments, adding the caveat, “However, the variation is much wider for rural areas. Some exhibit high rates, while others come in at the back of the pack.”

Geographic location is the leading factor influencing upward mobility of non-urban communities, and in general, the Southeast is less supportive of mobility than the Great Plains, for example.

Strength in resilience

While challenges facing rural America are far from easy to solve, Kowalski says, “Rural America has demonstrated resilience during the past eight years of recovery.”

“The rural population, jobs and incomes are all trending in the right direction,” he continues. “And current efforts to improve rural broadband access offer the greatest opportunity to make a significant dent in the rural-urban economic divide.” 

Broadband access leads to improved access to education, healthcare and business opportunities and more, all of which strengthen quality of life and support economic vitality. 

Kowalski summarizes, “As access increases, so will rural America’s economic potential.”

Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.