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April 2001, Volume 7, Number 2

Farm Income, Commodities

US net farm income was about $45 billion in 2000, and is expected to drop to $40 billion in 2001; the federal government provided $22 billion in support to farmers in 2000. In 2001, net farm income is projected to be about $36 billion, and government subsidies and payments may total $32 billion. Net farm income peaked at $55 billion in 1996, and was $43 billion in 1980

The US has 950 million acres of farm land worth an average of $1,050 in January 2000, which means that $1 billion in assets generates gross revenues of $200 million, and net farm income of $46 billion, or less than a five percent return in an industry marked by weather and other risks.

There are about two million US farms. The smaller 85 percent of US farms- 1.6 million farms each selling less than $100,000 worth of farm products a year-collectively account for 12 percent of US farm output. The largest three percent of farms- about 67,000- account for 57 percent of farm sales, and have average sales of $3 million a year. About 85 percent of the income of farm households comes from nonfarm sources, making farming for most farm operators more of a lifestyle than a business.

US farm exports were $50 billion in 2000, and farm imports were $39 billion, generating one of the smallest farm trade surpluses in years. About $28 billion of US farm exports in 2000 were FVH commodities. US farmers allege that the EU provides $15 billion a year to fruit and vegetable producers, including $2.5 billion for olive oil and $2.2 billion for apples, limiting US FVH exports.

Farm prices were generally low in 2000, which encouraged some farmers to contract with processors to lock in prices. In 1997, about one-third of crops and livestock produced, and 40 percent of fruit and vegetables, were grown under contract. Agriculture Secretary Ann Veneman says that the Bush administration wants to open up new markets overseas to help increase US commodity prices. The World Trade Organization agreed to begin negotiations in May 2001 on freer trade in agricultural goods.

California exported goods worth $130 billion in 2000, led by $38 billion each of industrial machinery and computer equipment. California's farm exports were about $6 billion in 1999, led by almonds worth $620 million, wine worth $500 million, and cotton worth $430 million. Table grapes and milk exports ($310 million each) were followed by processed tomatoes, $220 million, and rice and raisins, $190 million each. Over half of the cotton and almonds produced in California are exported, compared to about 10 percent of the lettuce.

The United States and the European Union reached an agreement on bananas in April 2001 that had dragged on for nine years, and led the US to impose tariffs on a range of European luxury goods. The EU argued that it had to give preferential access to former colonies in the Caribbean and Africa who had higher production costs then Latin American subsidiaries of US firms such as Chiquita and Dole, but the World Trade Organization twice disagreed.

The EU agreed to a transition period of modified quotas and tariffs on banana imports lasting until 2006, when all quotas are to be lifted.

Taxes. Republicans have pledged to eliminate the estate-of-death tax, which is 43 to 55 percent of the value of estates over $1.35 million. One of the major reasons for eliminating estate taxes is to protect family farms, but few such farms pay estate taxes. The IRS says that 6,216 taxable estates in 1999 included agricultural land and equipment, and their average value was $440,000; farmers are allowed to leave up to $4.1 million worth of assets to their heirs without paying taxes, provided the land is farmed for 10 more years.

Iowa farmers have an average net worth of $1.2 million, and the American Farm Bureau has made repeal of the estate tax its top legislative priority.

Wine Grapes. California vineyards produced four million tons of grapes in 2000 worth an average of $502 a ton. Red wine grapes were worth an average of $626 a ton, and white wine grapes an average of $497 a ton- raisin grapes were worth an average of $125 a ton for green grapes and table grapes $119 a ton.

Average prices for Cabernet Sauvignon were $1,103 a ton, and Chardonnay $928 a ton. Prices for Napa wine grapes averaged $2,468 a ton, and in Sonoma an average of $2,034 a ton. Prices for Central Valley wine grapes were generally down- Fresno-area wine grapes were worth an average of $206 a ton. Wineries paid grape growers a record $1.9 billion, for an average of $576 a ton.

Southern San Joaquin Valley, which produced two-thirds of the state's wine grapes, sent almost half of these wine grapes to be made into grape concentrate, which sent concentrate prices down from $276 a ton in 1999 to $124 in 2000. Some 30,000 to 50,000 tons of wine grapes were not harvested in 2000 because of low prices.

With 130,000 acres of non-bearing wine grapes, and 40,000 acres expected to come into production and produce an additional 200,000 tons of wine grapes in 2001, growers of mass-quality wine grapes are being advised to mechanize to keep their operations viable. Most wine grapes are mechanically harvested; growers are being advised to also prune mechanically and take other steps to reduce production costs.

Raisins. The raisin industry remained in turmoil in mid-January 2001, with a glut of raisins forcing growers and packers to use an arbitrator to set a price for the 2000 crop, and some growers calling for the removal of up to 155,000 tons of the anticipated 2001 crop- farmers would receive payments for bulldozing or pruning their vines so they would produce no or few raisins. The 2000 raisin crop was the largest ever-427,000 tons.

The sale of US-grown raisins in the US peaked at 230,000 tons in 1988.

In February 2001, California's Congressional delegation asked USDA to buy 30,000 tons of raisins for the school-lunch program.

Growers receive one price for raisins sold to US consumers and exported, and a lower price for raisins that are placed in a reserve pool and sold to food processors and others. For the 1999 crop, raisin growers received about $1,400 a ton for 85 percent of their crop; for the 2000 crop, growers are expected to receive about $850 for 50 percent of their crop.

In February 2001, USDA agreed to a 96,532-ton "diversion program," meaning that growers would be paid to remove this many tons from the expected 2001 crop. In anticipation of reducing production, 118 raisin growers offered to bulldoze their vineyards for payments, and 1,415 offered to prune their grapes so they would not produce a crop in 2001- a total 67,000 acres were offered for removal or extreme pruning.

There are about 5,500 raisin growers and 200,000 acres of raisin grapes in the Fresno area, suggesting that about one-fourth of the growers and one-third of the acreage would go out of production in exchange for payments. At least 50 percent of the 40,000 to 50,000 harvest workers employed for six weeks in August-September each year are not authorized to be in the US.

In March 2001, California raisin growers voted to continue a three-year-old state marketing order that raises $5 to $6 million a year to promote raisins in the United States, Mexico and Canada for another five years.

Table Grapes. California's 600 table grape growers export about 85 million, 22-pound boxes, or 30 percent of annual production.

Garlic. Spice World is the second-largest garlic producer in the US, with 1,500 acres and a peak 1,000 seasonal workers in the San Joaquin Valley.

Tomatoes. California produced a record 12 million tons of processing tomatoes in 1999 from 327,000 acres, and the price was the highest in years, $58 a ton. In 2000, production fell to 10.3 million tons from 279,000 acres, and the price fell to $52 a ton. In 2001, production is expected to fall further, to nine million tons, and prices to fall to $48 a ton.

John Welty,

Anthony Depalma, "U.S. and Europeans Agree on Deal to End Banana Trade War," New York Times, April 12, 2001. David Cay Johnston, "Focus on Farms Masks Estate Tax Confusion," New York Times, April 8, 2001. "Rising costs will cause 20 % drop in farm income, group says," New York Times, February 15, 2001. Dennis Pollock, "Raisin output will shrivel by 96,532 tons," Fresno Bee, February 6, 2001.