Here & Now

Noon Wednesday with guest Kevin Bernhardt

Marisa Wojcik:

Welcome to Noon Wednesday. I’m Marisa Wojcik, multimedia journalist with Here & Now on Wisconsin Public Television. Today we’re talking about the transformation of Wisconsin’s dairy farms. Markets are changing and farmers are forced to adapt. And so joining me here today to talk about how farmers are coping with the economics of it all is Kevin Bernhardt. He’s a professor of agribusiness at UW Platteville as well as a UW Extension Farm Management Specialist and Kevin, thanks so much for being here.

Kevin Bernhardt:

It’s great to be here, especially on a beautiful day like this.

Marisa Wojcik:

It is a beautiful day today. So let’s talk about, what are the biggest challenges that farmers are facing in Wisconsin right now?

Kevin Bernhardt:

Well not only in Wisconsin but farmers across the country are facing, commodity farmers, commodities like corn, soybeans, wheat, cotton, milk, all farmers are facing low prices right now. We’ve been in this kind of low price cycle for a couple of years and most all of those commodities and it’s starting to have its impact. We had some good equity going’ in to this period but farmers are spending a lot of that balance sheet in keeping up with the low prices.

Marisa Wojcik:

And what is your role when you come in and you are trying to help farmers deal with some of these issues.

Kevin Bernhardt:

I work with farmers sometimes in an education sense. I also work with agricultural lenders and those who serve farmers as well. My particular role is in farm financial management. So how can we use the finances of the farm to determine what kind of decisions might help us in the year ahead. Whether that’s utilizing our assets better, whether that’s trying to gain efficiencies in what we’re doing, cost containment, trying to identify where those trouble spots are at. Also do some work in milk marketing particularly, or marketing in general of commodities.

Marisa Wojcik:

Are the tariffs that we are seeing being imposed internationally, are those impacting Wisconsin farmers and how are you seeing that happening on the ground here?

Kevin Bernhardt:

Yes, yes and double yes. Tariffs, no matter what industry we’re talking about, any time that a tariff is levied, that’s increasing the cost of that product to the consumers that use it. If our economics means anything, we know that if that price goes up, people are going to not buy it as much. And certainly those who are providing it are losing revenue. So that’s happened to agriculture. So the tariffs that have come in originally, put on steel, aluminum, and things like that, that actually has its impact on agriculture as well through the inputs. So you know as that combine and tractor, the steel that’s involved in that, starts to cost more, it costs more for the producer as well. But now we’re levying tariffs on soybeans and lots of other products, I think it was 80 something agricultural products if I recall by last, and about six of those are commodities. And as that tariff is levied, it increases the importer’s price, which in this case is China or Canada, that’s the importer, we rely on exports, we rely on those exports for price, and if we lose that market, our price dives. I just looked, preparing here for this talk, I looked at the markets yesterday and if you go back to around June one, May 25, somewhere in there, until today, looking at you know, mid-sized farms, 500 acres of corn or 500 acres of soybeans, 150, 200 cows, I looked at those sizes roughly, and average production, they’ve lost about $40 to $50,000 in potential revenues because of price falls. Is all that due to tariffs? Probably not. Is a significant portion due to the potential tariffs, yes.

Marisa Wojcik:

So would you recommend that farmers have to look internally at their efficiencies and other things in order to cope with these huge market fluctuations?

Kevin Bernhardt:

Well they should always do that. Even if it’s not a tariff situation, they should always be looking at that. The nature of a commodity is that price is going to be modest, price is never going to be in a huge economic gain type of price that you’re going to be able to get. So the name of the game is often cost containment and trying to become more efficient, trying to utilize those assets more, use new technologies, new practices to gain efficiencies. In a commodity business that’s always a challenge. And it’s ongoing but certainly, particularly in times of low prices.

Marisa Wojcik:

Is the 2018 Farm Bill something that can help farmers? Are there measures in there that protect farmers from going under when some of these fluctuations are happening?

Kevin Bernhardt:

There’s programs in the farm bill that might help soften the blow a little bit. Certainly the crop insurance programs that are often revenue based, so if revenue goes below a certain threshold, then there’s an indemnity payment that can be made to the producer. So those insurance type programs. In milk, there’s the Margin Protection Program, MPP, referred to as MPP. There’s Livestock Gross Margin Program, LGM. Both of those programs are designated to help soften the blow of low revenue periods as well. They all are each insurance types programs that are subsidized. So the gain that you get through the farm bill is the subsidization of those programs.

Marisa Wojcik:

So we are in some ways paying for the tariffs in a different way?

Kevin Bernhardt:

Yeah, you could probably make that extension. The producers are paying for the tariffs because they’re not able to export, we as a public are paying more for those tariffs as well. Perhaps through our tax dollars.

Marisa Wojcik:

Is it only an option for farmers to scale up at this point? To become large industrial sized farms? Or can small farmers still make it in this industry?

Kevin Bernhardt:

I think there’s room for all kinds of farms to make it in the industry. Agriculture’s a very dynamic place. There’s a lot of creativity, a lot of innovation that takes place at all kinds of sizes. So, yes, one model is to grow and become bigger. The margins are tight but if you have a lot more cows and a lot more acres then you’re getting your profitability out of that. That’s one avenue. But there’s other avenues as well. And they’re exciting so people are finding ways to increase their price by adding value to their product. Maybe it’s natural products or grazed, cows on grazing situations, that people are willing to pay a premium for the product. Or maybe there’s a way to lower their cost based on the kind of system that they put in place. Farmers aligning together in any kinds of situations to create some efficiencies of scale and so forth, can be other ways. Farmers are incredibly creative people and I think there’s opportunities in all sizes of farms, all types of farms out there, not just one model.

Marisa Wojcik:

How are the smaller farmers aligning together? Are they going in to like a co-op type?

Kevin Bernhardt:

Well, yeah, I mean they don’t have the volume, an individual producer doesn’t have the volume quite often if they’re a small farm, but if they’re together with other people, it’s the co-op model that’s very, it’s just as traditional in U.S. agriculture as U.S. agriculture is itself. That co-op model is still very much alive and well. Gathering several individual people’s products and being able to sell them in a bigger way, so they can gain market power through that. That’s possible through buying things as well. So producers can combine together to, oh there’s different kinds of examples. For example, maybe there’s four individual farmers, each has let’s say a hundred cows, but they have a central parlor and system that they milk them in so they can get that efficiency of scale even though they individually are a hundred cow dairy. So different things like that that they can combine and be creative.

Marisa Wojcik:

Are we seeing farms being lost because the next generation doesn’t want to take over and are we seeing farms being created because people who never came from a farming family want to start their own farm?

Kevin Bernhardt:

Yes, I think a little bit of all the above. Although you know I work in a place at UW Platteville and through UW Extension and I know our colleagues in Madison and River Falls, there’s a lot of excitement by our students to want to be able to be in the farming sector. It’s awfully, awfully difficult. It’s a big hurdle to get over, to be able to pay for the initial capital outlay that it takes to start from scratch. So that’s a limitation, if you don’t have a base to go to, either through a family member or someone who’s willing to help you get started, it’s very difficult to get that start. And of course, the students have alternatives. You know, they can go work in the industry versus being the producer themselves. There’s alternatives there that they face as well. And it takes a while to get that business going if you’re having that kind of capital outlay. There are programs that link producers who are wanting to retire and wanting to pass the farm along with younger people who want to get in to the farming industry. A lot of the states in the Midwest have those kind of linking programs. I don’t know a lot about them, I don’t work with them myself, but I do know that they’re there. And I would certainly hope that they are successful.

Marisa Wojcik:

What is Returning to the Farm?

Kevin Bernhardt:

Returning to the Farm is a program that UW Extension has put on Center for Dairy Profitability. Joy Kirkpatrick is the person who’s kind of the guru and the leader of that. It’s a unique program, it’s been going on for 10, 12 years I suppose, where multiple generations of the same family come to four days worth of workshop. And there’s lots of training on three areas, kind of, the financial parts of transition to the next generation, the legal parts of transition, tax, legalities and the type of business and how it affects that transition and communication between two or three generations that come. Most families, participants, come to either get the financial part or the tax part and the part that they say was the most valuable, was the communications part. Just getting the different families to come, the different generations to come together and communicate.

Marisa Wojcik:

How does that work specifically?

Kevin Bernhardt:

Well there’s a lot of exercises that we will have throughout that four days. So we’ll have something on finances, or we’ll have something on taxes, or we’ll have some kind of communication exercise, training, education followed by a hands-on exercise that they will do. So I’ll give you an example of one, we split the generations apart, so somebody will take the young group, somebody will take the mom and dad group, if there’s a grandparent group somebody will take them, we’ll even split mom and dad sometimes when we do this. And we’ll go through a, I’m going to miss some of the words, needs, wants, something something exercise where we ask, you know, what’s your need and we’ll have the group, we’ll have a facilitated discussion. What do you want? Out of this future farm and so forth. We as facilitators will record what the responses are, bring that back to the large group and share it with everybody. So it’s a great way for the kids to tell the mom and dad things that they would normally be fearful of telling them.

Marisa Wojcik:

Sure.

Kevin Bernhardt:

And a way for mom and dad to do the same thing back to the kids or even mom against dad.

Marisa Wojcik:

Sounds like farm therapy happening here.

Kevin Bernhardt:

Oh it is kind of, it kind of is, it’s sort of farm therapy, yeah. But that communication piece is highly, people really like that.

Marisa Wojcik:

It’s important.

Kevin Bernhardt:

It’s really important to them and quite often that’s the hurdle that they’re facing is communication. Versus legalities and finances and tax. You know the numbers can be figured out quite often, it’s that communication piece that has to be figured out first.

Marisa Wojcik:

So are we going to see farms in Wisconsin getting bigger and bigger and bigger? Where is the room for the little guy and the little guy is no longer called commodity farming, right?

Kevin Bernhardt:

Oh yeah, I mean there’s still commodity farming at the small size too. But the original answer to your question I think is yes. You know, farm size, we can go back generations to when we had 40 acres and a mule or 20 acres and a mule and we continuously had less and less farms and the individual size of farms has gotten larger and larger. That’s been an ongoing thing forever. I don’t think that’s going to change any time soon. I think we will continue to see that on average. Now the one that is kind of exciting though is it used to be a very normal distribution, if you will. So the mountain shape distribution. There was one kind of average sized farm and very few smaller ones, very few larger ones. Now you see more of the extreme ends. So you’ll see some very very large farms. 5000 acres, 10,000 acres for a grain farm. 5000 cows, 6000, 8000, 9000 cows for a dairy, very large ones, not many, but very large. But you’re also seeing this group of very small farms in terms of units building up as well. You know, a 40 acre farm, a 10 acre farm but they’re growing something that’s very value added, very direct to the consumer. Vegetables, or CSA type of activities and so forth. It’s a very different business model. It has its risks, it has its opportunities just like any other business model. And some make it work, some don’t but you see that kind of, that type of farm I think you see growing, happening more and more too.

Marisa Wojcik:

And you’re seeing lenders willing to put money in to those farms as well?

Kevin Bernhardt:

Yeah, I mean they face the same challenge as any other customer coming in to the bank. They have to prove that they’re loan can be collateralized, they have to prove the profitability that will create repayment for that loan. All those same things take place. They may have a, sometimes perhaps more of a challenge, because they may have to teach the lender, so to speak, if the lender’s used to working with commodity farms strictly, there may be some education that needs to go there or a little bit more effort to make sure they see the profitability available and the risk management that they’re putting in to place, et cetera.

Marisa Wojcik:

But we’re seeing more and more restaurants promoting farm to table practices, and people wanting to know where their vegetables are coming from locally. And is that part of the rise in these small, value-added farms?

Kevin Bernhardt:

Got to have demand. If there’s going to be supply, you got to have demand.

Marisa Wojcik:

Sure.

Kevin Bernhardt:

So those two have coincided, right? They’ve come together. As that demand has taken place, that provides the opportunity for some of these different kinds of business models to take place. I’ll also say too though that there’s a need for both. Some people argue with me on that. But I think there’s a need for that commodity farmer that can kick out a lot of product, to feed the world so to speak. And there’s the need for that business model that supplies the kind of product that an individual customer base wants.

Marisa Wojcik:

Kevin thanks so much for being here and talking with us about this.

Kevin Bernhardt:

Absolutely, thank you.

Marisa Wojcik:

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