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Keeping Small Towns Alive in Tight Farm Times

Farm incomes are down. That means farmers and their families may have less money to spend when they buy gas, groceries, parts, or anything else on Main Street or elsewhere around their small towns. It's starting to hit those small towns hard.

Can it be fixed?

"[We] went to our favorite post office this morning. Many post offices this small have been closed, and it is a matter of time before we lose ours. I saw Cecil, who owns that '55 Chevy that looks like the one I owned in 1968 and struck up a conversation with him," says Martinsville, Ohio, farmer and crop consultant Ed Winkle. "I asked him how sales were going at his gas station/general store common here in southwest Ohio. He said it has been the worst year since he bought it some years ago. I knew that well enough to almost NOT ask him my stupid but inquisitive question because I thought that is what he would say. He verified my feelings about our local economy."

It's been a common issue in a lot of small towns around the nation even in high times for grain farmers. But now, continued lower grain market prices and resulting lower farm incomes are having an increasing impact on more than just farms. Small towns in rural America are seeing the farm income declines hitting other businesses, both large and small. Farm equipment dealers, for example, have seen sales fall to record-low levels, says Creighton University economist Ernie Goss.

"On average, bankers expect a 13.8% decline in farm-equipment sales for the next year," according to Goss' Rural Mainstreet Index report released in September. "Bankers reported they are beginning to see farm equipment dealers going out of business."

"Recent declines in crop prices will undoubtedly result in less farmer spending for equipment and consumer goods," says Jim Eckert, president of Anchor State Bank in Anchor, Illinois, in Goss' quarterly measure of rural economic conditions.

Some say that's just a start. Farmers say they're already spending less around town as part of their overall strategy to tighten their budget belts while prices stay in the basement.

"It would seem to me that new cars and trucks, kitchen remodeling, new furniture, horse trailers, snowmobiles, diners, and most retail will start hurting, if not now, within six months," says Farm Business Talk veteran adviser Jim Meade / Iowa City. "I know I've cut back spending."

Adds Farm Business Talk esteemed adviser Kay/NC: "I am looking at less-expensive Internet options, alarm monitoring, etc., mostly to eliminate aggravations with both, and an otherwise unnecessary landline for the latter. They're minor, but these things add up, too. I am pursuing more maintenance measures, not looking for much new stuff anytime soon. I do think the party is pretty much over."

Small town residents historically already spend less than their urban cousins: According to U.S. Bureau of Labor Statistics, rural households spend almost $8,000 a year, or nearly 20% of the income of a median household, less than those in urban areas. But, incomes for rural households are lower, too, though not as sharply as the difference in income levels. Small-town residents make between 3% and 8% less per year than those in urban areas, according to data from the U.S. Department of Commerce Census Bureau.

Start cutting back incomes for farmers in those rural areas, and things start to change at a quicker pace; farmers depend on a lot of services provided by local businesses, from farm machinery to groceries. And, as spending on Main Street slows, those businesses feel the hit quicker than an urban equivalent, especially at a time when many are already facing challenges from a declining general populace.

"Two years ago, I was in a local appliance store. The owner said he could really tell farmers had good profits. So could other merchants," Farm Business Talk adviser idalivered says. "I really wonder about our little local churches. I've been on our church council for at least 20 years, and we always barely made expenses -- until three years ago. Then, a surplus."

Once a downturn begins and gains some momentum, it can be difficult to stop, let alone reverse. "As the population in small cities declines and grows older, there is less consumer activity, causing a decline in retail business. Also, school districts with fewer students fuel the local economy less. It’s a vicious cycle once it starts," according to former Minnesota Association of Small Cities executive director Dave Engstrom. "The decline in retail and business activity leads to a glut of Main Street retail buildings, which drives down property values and eventually leads to a decreased tax base."

So, the problem today in small farm towns is basically fewer people now spending less money, with the latter circumstance only augmented by the recent downturn in grain prices. What can be done?

Beyond getting higher grain prices for your grain, there are fundamental changes that can be made to small towns to make them more sustainable from population and vitality standpoints. Things that often aren't commonly considered -- factors beyond the business sector -- are critical to keeping small towns from eroding in a time when farm incomes are slumping, says Bart Finzel, economist with University of Minnesota-Morris. They all add up to one common goal, though: Keeping residents from leaving.

"Farm consolidation and reduced diversity of farm outputs -- some resulting from economies of scale and others from farm policy -- have contributed greatly to the population loss. Also, high returns earned by highly specialized labor -- in medicine, law, and finance -- have contributed to shortages of the general practitioners so essential to small-town sustainability," he says. 

It's difficult for many small towns to keep a lot of younger residents from moving away to larger cities for employment, especially in fields like these. So, instead of simply trying to lure those young people back with economic incentives, why not instead try to create an atmosphere in small towns similar to their larger alternatives? Technology is allowing more telecommuting for rural residents, and the way property development -- commercial and residential -- takes place in the future could go a long way to stopping that exodus of young residents.

"With population decline comes decreased tax revenue and often less money from state and federal sources, especially in times of budget cuts and a shifting global economy. If the population of nonmetropolitan areas continues to decline and urban areas continue to gain population, how will small towns compete for jobs and residents in the future? Certainly, reversing negative population trends is one of the keys to continued economic growth, but it can be an overwhelming task. One possible strategy: Focus on increasing population density in small towns," says Andrew Pack, community development specialist with the Federal Reserve Bank of St. Louis, Missouri. "As people and talent are attracted to the economic opportunities, accessibility to work, entertainment, and other lifestyle factors offered by many urban areas, smaller towns may benefit by incorporating some of these same factors into their community and economic development strategies. Even some suburbs are starting to incorporate higher densities and more urban principles into their designs."

However, bumping density in small towns isn't just about getting more people closer together and closer to amenities they might access in a larger city. The greater the population density in a small town, the more apt it will be to have higher economic output and lower infrastructure costs, Pack says.

"As the world continues to become more urbanized, it’s important that small towns keep up with these changes. Increasing a small town’s density to reflect some of the positives of a more urbanized lifestyle may be important to its future success. For many towns, population decline will continue to be a problem. But if increasing density in the core of the town becomes a priority of the community’s growth plan, the town may be able to decrease some of these negative effects of population loss by building up what already exists," he says. "Population density is not just an urban measurement; it is also important to the growth of many small towns. Density can help create a stronger and more accessible downtown core, increase economic productivity, lower infrastructure costs, and help create a lifestyle that many people believe only urban areas can provide."

Is increasing population density outside of the realm of possibility for your small town? There are other strategies to improve rural economic vitality and create "high-performance communities," according to Phil Burgess, president of business thinktank The Annapolis Institute. According to a report from The Regional Institute, a nonprofit group charged with improving rural vitality through technology in Australia -- where small towns face many of the similar challenges as in the U.S., those strategies include:

  • Ensuring the rapid deployment of modern telecomputing capacity.

  • Promoting entrepreneurship.

  • Promoting job growth from within.

  • Promoting awareness, interest, and participation in the global market place.

  • Focusing on industry clusters that combine producers and suppliers and encourage local competition among producers and among suppliers.

  • Fostering interfirm collaboration.

  • Cultivating civic institutions and regional collaboration.

"Typically, communities wish to sustain their populations, to prevent outmigration - particularly of their youth, to develop a diverse economy that will ensure the community against decline, to have the capacity to provide decent jobs for those who wish to stay in the community, and to maintain an adequate level of services and quality of life for residents. Government shares these community aspirations," according to Paul Collits of The Regional Institute. "Communities need to be aware of the dimensions of change in the new economy and the need to be proactive, even in times of relative economic well-being."

Much of that change needed lies in working with younger residents to simply foster an environment where they'll want to live and work. As Ohio farmer Winkle says, "The population is aging like me, and there aren't enough of us working to operate the budget like we did 40 years ago. The farmers have had some good years, but they always operate on a low margin. This year we are operating on a negative margin at best in the grain sector."

Younger residents may value certain things -- shopping, entertainment -- more plentiful in larger towns. Finzel says it's important to show younger residents that what smaller towns lack in amenities like these, they make up for in other areas whose value may not be clear until later in life.

"Students from urban areas take 24-hour shopping, a Walmart or Target, a cinema multiplex, and a variety of dining opportunities for granted. Moreover, as their family ties to rural areas have lessened with each generation, their knowledge of small places and their ability to imagine a life without urban amenities have diminished," Finzel says of the students attending his university in the small Minnesota town of Morris. "After a time, urban students who stick it out find that those in small towns make the most of their limited menu of options: Friends cook for one another and create their own entertainment; problems are solved by coming together, rather than making a phone call to a service provider; goods and services are provided by local sole proprietors, barter or not at all. Students learn that nothing can be taken for granted in a small community. Doing for oneself and one’s community is necessary. A sense of shared responsibility is cultivated."

This is no easy task, though; a report from The Regional Institute's Paul Collits shows local and regional policy can help. In general, preventing outmigration, attracting more young residents, and creating new economic activity to adapt to the needs of those younger residents -- all critical steps to take to prevent small town erosion when the economy's less than rosy -- can be accomplished through policies that:

  • Encourage new industry, like applied scientific research and other professions that can utilize telecommuting.

  • Establish "business enterprise centers" and other local groups that can help foster entrepreneurship and subsequent business development.

  • Place younger residents in leadership positions via training and education in "relevant courses for local economic development practitioners."

  • Connect local business development leaders with those in similar positions in larger communities and cities via technology.

"Small towns' policy must be part of an integrated approach to regional development. While small towns have difficult problems, the 'community' is but one level at which government resources need to be directed. And governments correctly are concerned about the position of nonmetropolitan regions broadly in relation to the cities which have been so favored by globalization and by their own policies," Collits says. "From an economic perspective, a necessary part of the approach to encouraging nonmetropolitan development must continue to be the focus on growth nodes rather than places in decline. There will always be difficult choices for governments in deciding how to apportion resources between the two."

In the small towns in farm country, one way to foster this sort of "nonmetropolitan development" could lie in something far from the latest telecommuting technology. Local food systems may stray from the norm when it comes to modern food production, but restoring infrastructure for such systems could go a long way to fostering a rural resurgence. The federal government in the U.S. offers incentives for the establishment of programs to "establish enterprises that process, distribute, aggregate, store, and market foods produced either in-state or transported less than 400 miles from the origin of the product."

And, according to a report from USDA Business and Industry division director Carolyn Parker, the financial incentives -- ranging from 70% to 80% of total costs up to $10 million -- are for more than just creating a local market. It's something that can ultimately lead to a local marketplace touching all parts of the process.

"Loans may be used for business conversion, enlargement, modernization, purchase and development of land, buildings, facilities, purchase of equipment, machinery, supplies, inventory, and similar purposes, and may also be used for business acquisitions when the loan will keep a business from closing, prevent the loss of employment, or expand job opportunities," according to Parker's report.

Ultimately, moving forward with supports like these -- whether targeted at private industry or at municipalities for small-town community infrastructure -- should be done with caution, Finzel says.

"Although small-town decline is partially the result of limited opportunities, farm programs added to population loss by supporting a limited number of commodities and contributing to larger farms, fewer farmers and less-viable small towns. Other structural issues, such as health insurance being far more expensive for small firms than for large firms, have also contributed to out-migration," he says. "Regarding small-town support, providing assistance to the relatively small economic entities that are the backbone of small towns -- rural hospitals, micro enterprise, community banks, cooperatives, small farms benefiting from the local food movement -- will be most successful. Regulatory reform and subsidies directed at very small firms in the federal health care reform bill should also enable small firms -- and small towns -- to retain talented employees who might have migrated to larger firms with a better health insurance plan."

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