As part of our annual Agricultural Symposium, we dove into the real-world application of the research through stories like this. Learn more about the Symposium.
By Su Bacon
Busy countryside grain elevators are a familiar sight during harvest in the Midwest as farmers haul crops from their fields to distant storage bins.
But that landscape is changing. Those rural elevators are beginning to disappear. Rather than storing their harvested crops off site, producers are increasingly keeping the grain on the farm.
“We are seeing more and more farmers putting up their own grain bins,” said Seth Post, regional general manager for the Southwest Region of Consolidated Grain and Barge (CGB) Enterprises, a global grain and transportation firm. “We have had to adjust our approach as to how we handle the crops they produce,” Post said.
Making such adjustments in one sector of the economy because of increased productivity in another sector is a “productivity spillover,” said Sergio H. Lence.
Lence, a professor and Marlin Cole Chair of International Agricultural Economics in the Department of Economics at Iowa State University, has studied productivity spillovers along the agricultural supply chain. His paper with Alejandro Plastina, “An Empirical Investigation of Productivity Spillovers along the Agriculture Supply Chain,” is being presented at the Federal Reserve Bank of Kansas City’s annual Agricultural Symposium.
Lence investigated linkages between the agriculture sector and 62 other sectors of the U.S. economy, including industries involved in the complex agricultural supply chain such as rail and truck transportation and including food services and drinking establishments.
“Knowing the ways in which agricultural productivity affects, and is affected by, productivity in other sectors of the economy seems critical in designing better policies aimed at enhancing growth,” Lence said.
Productivity is the reason on-farm grain bins are being built. As farms have become bigger due to consolidation, “the farmer has gotten more efficient in growing and harvesting a crop and the size and scopes of their operations have grown,” Post said.
CGB turned its attention away from its countryside elevators to improving efficiency at export terminals where farmers with on-site bins take their crops directly.
In fact, the terminals have become so efficient that during harvest a grain terminal in Enid, Oklahoma, handles 700 to 800 trucks a day.
The process also has become streamlined for individual farmers who previously had to wait in long lines to weigh, unload and get a receipt.
“It used to be a laborious process,” Post said. “But now, thanks to automation, the farmer never gets out of the truck.”
For CGB and the farmer, the spillover was positive. But spillovers also can have negative effects.
“Nobody thinks about the supply chain until it doesn’t work,” said Heidi Schweizer, assistant professor and extension specialist at North Carolina State University.
For example, supply chains were caught unprepared by the panic-buying of toilet paper and meat in the early stages of the COVID-19 pandemic. Supply simply wasn’t adequate for the unexpected surge in demand.
Additional delays were brought about by truck driver shortages, closed truck stops and other pandemic-related disruptions. Delays affecting truckers, in turn, affect those waiting on their deliveries.
“Every day a perishable product is on a truck is one day less on the grocer’s shelf,” Schweizer said.
Risk, a measure of the supply chain, depends upon the product.
“There’s a lot more concern about risk with perishable products than with corn and soybeans,” Schweizer said.
Because they need to be moved quickly, perishable products are transported by truck.
Agriculture depends heavily on highways. Schweizer cited a 2018 USDA report that showed 80% of all agricultural commodities traveled by highway.
Highway safety, congestion, infrastructure condition and roadway reliability are all factors influencing the speed at which commodities move from the field to a final destination.
Being less perishable than fresh produce, corn and soybeans can travel by rail although they may begin their journey on a truck.
“An American farmer’s access to global markets depends upon the efficiency of the rail, roads and waterways within the U.S.,” Post said.
As farmers have become more productive, the need to update infrastructure to handle the increase is crucial.
Considering that some 520 million bushels go directly to export through the inland river system, “our aging and in some cases, outdated lock systems continue to be a focal point for us,” Post said.
With the widening of the Panama Canal to handle larger vessels and the continued interest in adding capacity in the Gulf, “Our ability to keep up with the farmer and the exporter will make improvements to this infrastructure critical in years to come.”
The Kansas City Fed is a leader on topics related to the agricultural economy within the Federal Reserve System. Our work provides insights on agricultural and rural economies for our seven-state region of the Tenth Federal Reserve District and nationally. One way is through the Kansas City Fed's Agricultural Symposium, which explores topics of current and emerging significance to agriculture. Learn more.
PDFAn Empirical Investigation of Productivity Spillovers along the Agricultural Supply Chain By Sergio H. Lence and Alejandro Plastina
Changes to productivity on the farm could have implications for productivity in other segments of the economy. Identifying these productivity linkages can help reveal synergies between agriculture and other industries in an effort to promote economic growth or to dampen negative spillovers that may also occur.