

AGRICULTURAL OUTLOOK                                       January 27, 1998
January-February 1998, ERS-AO-248
               Approved by the World Agricultural Outlook Board
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ASIA CRISIS LIKELY TO IMPACT U.S. AGRICULTURAL ECONOMY

U.S. Economy To Cool  in 1998
GDP growth in the U.S. is expected to slow in 1998 to 2.5 percent, following
3.8-percent growth estimated for 1997. With the labor market expected to
remain tight, slightly higher wages and high capacity utilization rates in
1998 will bump inflation up by a very small amount. Interest rates are
expected to be stable over the course of 1998. 

The Asian financial crisis will curtail growth in the U.S. rural economy in
1998 because of both weaker farm exports and increased competition in the
manufacturing sector, which will likely also slow growth in farm households'
off-farm employment. However, the expected drop in energy prices in 1998, some
declines in other raw material prices, and a strong dollar will constrain
price increases of manufactured inputs for farmers. Wage-related inputs will
likely see small increases.

The Asia Crisis & the Farm Economy
The current financial crisis in Asia inevitably raises questions about its
impact on the U.S. economy in general, and on the farm and rural economy in
particular. Although forecasts can reflect only a best guess as to how the
markets will "bottom out" until the situation stabilizes, business forecasters
have all lowered their expectations for global economic growth in 1998.

The slowdown in Asian and world economic growth and the weakening of Asian
currencies relative to the U.S. dollar will affect the U.S. rural and
agricultural sectors through a reduction in international demand for U.S.
exports and, therefore, slower U.S. economic growth. Demand for U.S. livestock
and poultry products will be lower in 1998 than had been expected before the
Asia events. U.S. agricultural exports are expected to grow more slowly in
fiscal 1998 and 1999, reaching a level 3-6 percent lower than would be
expected without the Asia events.

U.S. Farm Income: 
Below Record but Strong
While not likely to equal the record set in 1996, farm income estimates for
1997 and prospects for 1998 look quite favorable.   Net farm income is
forecast to be around $46 billion for both 1997 and 1998, above the average
for 1990-95 ($43 billion), but lower than the record $52 billion for 1996.
Export market uncertainties, triggered by the Asia crisis, will be important
in evaluating farm income prospects for 1998. The combination of strong growth
in farm asset value and a modest expansion in farm debt indicates a rising net
worth (equity) for the farm sector in 1997 and 1998.  The lower farm income
forecasts for 1997 and 1998 derive from a modest $1.6-billion decline in crop
and livestock receipts from 1996's record of $202 billion and a modest
increase in expenses. 

Americans Eating More 
Leafy Green Vegetables
Consumption of leafy green vegetables--including lettuce, endive, escarole,
cabbage, spinach, broccoli, collards, turnip greens, mustard greens, and
kale--has been trending higher over the past two decades, accounting for about
$2.5 billion (16 percent) of all farm cash receipts for vegetables in 1996, up
from 13 percent ($1.1 billion) in 1986. Lettuces of all types account for the
largest share of farm cash receipts for leafy green vegetables, amounting to
more than half in 1996.  Production of leaf and romaine varieties has jumped
40 percent from 1992 to 1996.

Per capita use of all leafy green vegetables, despite a longrun upward trend,
has remained stable during the 1990's at around 50 pounds, with the overall
numbers influenced strongly by trends for head lettuce--the leader in
consumption of leafy greens. Exports provide a key market for several leafy
greens. About 21 percent of fresh-market broccoli supplies are exported, up
from 17 percent in 1990. About 14 percent of the U.S. fresh-market spinach
supply is exported, 12 percent of leaf and romaine lettuce, and 6 percent of
head lettuce.  

U.S. Dairy Product Markets 
Restructuring
Technological advances and automation in the U.S. dairy industry have
increased productivity and improved product quality and consistency, leading
to fewer and larger farms and processing plants. Reduced transportation costs
have led to integration of local markets into regional or even national
markets, and rapid capital flows and ownership changes have altered the
objectives of marketing and distribution firms.  

The dairy sector is divided into several distinct markets, each with unique
characteristics. Cooperatives have been most important in the bulk raw milk
and manufactured product markets, while proprietary firms have gravitated
toward fluid milk processing and frozen products, as well as yogurt and
cheese.  Dairy cooperatives could change significantly as Federal programs are
reduced or eliminated. Members may expect cooperatives to expand marketing
activities and to more aggressively pursue different ways of managing supplies
and inventories.

Farmers' Use of  "Green" Practices 
Varies Widely
Farmers increasingly face pressures to convert from traditional production
systems to "green" practices that are potentially more friendly to the
environment. These practices are used for a variety of purposes, including
pest management, nutrient management, irrigation water management, and crop
residue management, and include techniques such as pest scouting; soil
testing; applying fertilizer at or after, rather than before, planting; and
conservation tillage.

Farmers' use of green practices varies widely among crops and from year to
year, but some positive trends can be identified. For example, surveys show
that no-till, a form of conservation tillage, occurred on nearly 15 percent of
land planted to crops in 1996, up from 5 percent in 1989.  Farmers have also
been improving irrigation water management by switching from gravity-flow
irrigation to pressurized sprinkler irrigation, by scheduling irrigation
according to plant needs, and by using improved gravity irrigation practices.


AG ECONOMY     

U.S. Economy 
To Cool  in 1998
GDP growth in the U.S. is expected to slow in 1998 to a more sustainable 2.5
percent, following 3.8-percent growth estimated for 1997.  With the labor
market expected to remain tight, slightly higher wages and high capacity
utilization rates in 1998 will bump inflation up.  We expect the GDP
deflator--a measure of overall inflation in the economy-- to move up 2.3
percent in 1998, from a very low 2.1 percent in 1997.  

Interest rates are expected to be relatively stable in 1998.  Short-term
interest rates are expected to be stable in part due to the expected stability
of monetary policy.  Long-term interest rates, which began 1998 at 
near-30-year lows, are expected to remain relatively unchanged in 1998.  The
dollar, which before the financial crises in Asia had been expected to
depreciate in 1998, is now expected to appreciate sharply relative to 1997. 

Robust growth in consumer, business equipment, and inventory spending led the
strong GDP growth in 1997.  Substantial gains in disposable income and
record-high consumer confidence pushed consumer spending in 1997 to its fastest
increase in the past 7 years of economic expansion.  The strong consumer
spending growth over the last 2 years stimulated inventory buildup in 1997. 
Business equipment spending has also increased, driven by strong profit
growth, new technology, the need to economize on increasingly scarce and
expensive labor, and vigorous export growth.

In 1997, more jobs were added to the economy and real compensation rose more
rapidly than in any previous year of the current expansion.  The shortage of
qualified job seekers, however, constrained job growth in late 1997.  These
hiring bottlenecks likely will persist  in 1998 because the economy, most
analysts believe, has reached full employment. 

The rural unemployment rate, which has been about the same as the urban rate
for the last 4 years, was a low 5.2 percent in 1997.  During 1997, employment
growth in rural areas trailed urban areas--rural areas added jobs at more than
a full percentage point below the rate for urban areas.  Wage and salary
growth, however, has been stronger in rural areas--4.3 percent over the 12
months ending September 1997, compared with 3.5 percent in urban areas over
the same period.  Rural earnings growth has been greater than urban over this
expansion, and rural areas have seen income inequality decline slightly in the
1990's.  

The continued shortage of qualified workers will limit job growth, slowing
growth of disposable income and, ultimately, growth of consumer spending in
1998.  As growth in spending on consumer goods slows with more sluggish job
growth in 1998, the desired inventory buildup is expected to slow.   The
serious slowdown in Asia's growth and the dollar's gain relative to the
depreciating Asian currencies and the currencies of other U.S. trading
partners will substantially slow export growth and accelerate imports  in
1998.  Business, in turn, is expected to curtail growth in equipment spending. 
This combination of events will lead to a slowing of GDP growth for 1998 to
2.5 percent. 

Asian Events Will Curb Growth
In Farm & Rural Economy
Real growth in U.S. agriculture has been more export-driven in the 1990's than
most U.S. industries.  Growth in U.S. agricultural exports to Asia has
contributed significantly to growth in U.S. agriculture.  Thus, growth in U.S.
agriculture will slow as a result of the Asian crisis.  The economies of South
Korea, Japan, and the developing Southeast Asian countries--particularly
Thailand, Malaysia, the Philippines, and Indonesia--have provided expanding
markets for U.S. field crops, meats, and specialty products.  Cuts in their
demand for U.S. agricultural products will have a strong negative effect on
U.S. agricultural export sales.  

U.S. exports will also grow much more slowly and imports will rise as the
strong dollar increases domestic prices to Asian and other customers, at the
same time world economic growth slows.  In addition,  the slowdown in U.S.
growth attributable to the Asia crisis will soften domestic demand for animal
products and put downward pressure on field crop prices.  This adds to the
price declines caused by a reduction in foreign demand.

The Asia downturn will also curtail growth in the U.S. rural economy in 1998,
because of both weaker farm exports and the effect on the manufacturing
sector.  Many rural manufactured goods compete in the domestic market with
exports from South Asia, and the strong dollar will make Asian manufacturing
exports much cheaper relative to U.S. goods.  In addition, as with farm
exports, the Asian financial crisis will cut exports of U.S. manufactured
products to Asia in 1998, while the impact on world growth from the Asian
situation will reduce global demand growth for U.S. manufactured goods.  

Manufacturing is a key employer in rural areas, where it provides
disproportionately more jobs than in urban areas.  Rural areas have been
gaining manufacturing jobs during the 1990's, even in the face of declining
manufacturing employment nationwide.  Slowed growth in manufacturing will
contribute to sluggish rural employment growth in 1998.  

Low Inflation Means 
Slow Growth in Farm Expenses 
A slight increase in inflation is expected in 1998 due to continued tight
labor markets and some increases in manufacturing capacity utilization. 
Energy prices are expected to fall modestly in 1998, and wage increases will
be small, leaving producer price inflation below 2 percent.  Consumer prices
are expected to rise 2.4 percent. 

Inflation was lower in 1997 than in 1996 despite a booming economy.  In fact,
consumer prices in 1997, minus energy and food, rose at the lowest rate in 32
years.  The dollar was strong, pressure on raw material prices was largely
absent, and in particular, energy prices fell sharply early in the year. 
Producer prices dropped for 7 straight months, resulting in a likely annual
rise of less than 0.5 percent for 1997.  Despite growing real wages, consumer
prices rose only 2.4 percent, down from 1996's modest 2.9-percent rise. 

The economy set the stage for the modest growth in farm expenses seen in 1997. 
Manufactured input prices declined, due largely to falling energy prices and
some declines in raw materials prices.  Interest expenses grew less than 2
percent, and the growth was primarily from increasing farm debt, not higher
interest rates.  Although other operating expenses, which are strongly
influenced by wage costs, outpaced the general inflation rate, these reflected
real wage increases seen throughout the economy.

The expected drop in energy prices in 1998, some declines in other raw
materials prices, and a strong dollar will constrain manufactured input price
increases.  Fertilizer prices, given a modest expected decline in natural gas
prices, may actually decline.  Wage-related inputs such as services and
contract labor will likely see small increases.  As interest rates are
expected to remain flat in 1998, nonfarm input expense growth should be
modest.  At the same time, the slower growth of the rural economy in 1998 will
likely also slow growth in farm households' off-farm employment.

Farm, Rural Interest Rates To Be 
Relatively Stable for 1998
Interest rates are expected to be stable over the course of 1998.  On a
year-over-year basis, short-term interest rates are expected to be little
changed over those of 1997.  Little change is expected in 1998 due to an
expected stable monetary policy and continued low default risk on most debt
securities and loans.  Long-term interest rates will remain about steady in
1998, near their 30-year lows seen at the beginning of the year.  On a
year-over-year basis, long-term interest rates should remain below 1997 levels.

Any changes in farm and rural lending rates will likely be smaller than any
potential  increase in interest rates in the national economy.  Three main
factors will hold down movements in farm and rural lending rates from
commercial banks.  

First, overall bank lending premiums--the difference between loan rates and
cost of funds--have narrowed  in recent years.  This downward movement in
premiums for business lending stems from record bank profits, competition for
financial services, and lower perceived business default risk, which have made
business lending more attractive to commercial banks.  The trend is expected
to continue in 1998.  In agricultural lending, the perceived risk in farm
lending has been curbed  by strong growth in overall farm real-estate values
in 1997 and by strong farm income in recent years.    

Second, many banks heavily involved in agricultural and rural lending are
relatively small rural banks.  These smaller banks are highly dependent on
consumer-type deposits that are not very sensitive to short-term movements in
open market rates.  Thus, most small bank deposit rates will be only slightly
affected by any potential increases in Treasury market interest rates in 1998. 


Third, commercial banks, especially smaller banks in relatively isolated
areas, determine their lending rates based in part on their average costs of
funds.  This method of pricing loans results in lower volatility for bank
lending rates and bank profits.  Farm operators and rural businesses have
benefited from this interest rate stability, especially over the last several
years.  David Torgerson (202) 694-5334, Karen Hamrick (202) 694-5426, and Paul
Sundell(202) 694-5333 dtorg@econ.ag.gov khamrick@econ.ag.gov
psundell@econ.ag.gov


COMMODITY SPOT

Leafy Greens: Foundation 
Of the Vegetable Industry 
Leafy green vegetables are arguably the foundation of the vegetable industry. 
Lettuces such as leaf and romaine are basic ingredients in vegetable-based
salads.  Iceberg lettuce supplies the main garnish for sandwiches and burgers. 
Cabbage is the basic ingredient in coleslaw, a frequent luncheon side dish and
a picnic mainstay.  And spinach is versatile enough to be a salad ingredient
as well as a plate vegetable prepared from fresh, canned, or frozen product.  

The term "leafy greens" refers to vegetables such as lettuce, cabbage, endive,
escarole, spinach, broccoli, collards, turnip greens, mustard greens, and
kale.  Consumption of leafy green vegetables has been trending higher over the
past two decades.  Leafy greens accounted for about $2.5 billion or 16 percent
of all farm cash receipts for vegetables in 1996, up from 13 percent ($1.1
billion) in 1986.  California is the leading source for fresh-market leafy
green vegetables, producing two-thirds of the U.S. total.

Most leafy green vegetables carry impressive nutritional credentials.  Leafy
greens are excellent sources of Vitamins A and C, and several other nutrients. 
Cooking or canning does not diminish and may even enhance the vitamin A
content of greens like spinach, turnip greens, and collards.  For example,
canned spinach delivers about 30 percent more of the recommended daily dietary
allowance (RDA) of Vitamin A than an equal weight of fresh spinach.  One cup
(214 grams, drained weight) of canned spinach contains more than three times
the adult male RDA of Vitamin A and half the Vitamin C.  The fact that cooking
still leaves a nutritionally potent product is important for leafy greens
because many greens are sold either in canned or frozen form or require
cooking of the raw product for optimal palatability. 

Lettuce: Leader of the Pack
Lettuces of all types account for the largest share of farm cash receipts for
leafy green vegetables, amounting to more than half in 1996.  The U.S. is the
world's second leading producer of lettuce, behind China.   

Total U.S. lettuce production in the 1990's is up about 12 percent from the
average of the 1980's.  During the past 5 years, total U.S. lettuce production
has remained constant, but this stability masks dynamic changes within the
industry--demand for iceberg or head lettuce has declined as consumption of
other lettuces has surged.  

Over 1992-96, leaf and romaine production has jumped more than 40 percent,
offsetting an 11-percent reduction in iceberg lettuce from its 1989 production
peak of 7.5 billion pounds.  Demand for romaine has been particularly strong
in the 1990's, with production jumping 74 percent since 1992 in response.  The
popularity in both the foodservice and retail markets of Caesar salad (which
features romaine) is undoubtedly a major factor behind this surge.

However, some of the shift in lettuce production and consumption patterns is
likely due to increased nutritional awareness among consumers, the success of
prepackaged salads, and a general desire for diversity in foods.  Lettuces
like leaf and romaine are higher in vitamins, minerals, and fiber than
iceberg, and fresh-cut salads offer consumers variety while reducing
preparation time.  Nevertheless, iceberg lettuce remains the top leafy green
vegetable in terms of both production and per capita use.

Per capita use of all leafy green vegetables, despite a longrun upward trend,
has remained fairly stable during the 1990's at around 50 pounds.  Influenced
strongly by iceberg lettuce trends, total per capita use of leafy greens
peaked at nearly 52 pounds in 1989, a year of very strong vegetable
consumption in general, reflecting high household disposable incomes and
strong restaurant food sales.

Americans consumed 6.2 billion pounds of iceberg lettuce in 1996.  At 23.3
pounds per capita, iceberg lettuce is second only to potatoes as the largest
fresh-market vegetable consumed in the U.S.  However, per capita use of
iceberg has declined 5.5 pounds since the 1989 peak, returning to the level of
the mid-1980's and early 1970's. 

While iceberg lettuce's star may have dimmed slightly over the last few years,
the rising stars have been leaf and romaine lettuce.  Per capita use of leaf
and romaine is up to a record-high 6.4 pounds, and the rise is expected to
continue.  Use has doubled since the last half of the 1980's.  Among the
likely factors driving consumption gains in these lettuces are the popularity
of Caesar salads, the introduction of salad mixes such as mescaline, increased
nutritional awareness among consumers, and a general desire for new tastes and
foods.  

Broccoli use surged in the late 1980's and then cooled off in the early
1990's, reaching a low point in 1993.  However, broccoli use has since picked
up and fresh-market use is now sitting at an all-time high of 4.1 pounds per
person.  Broccoli use in frozen form has also reached a record high of 2.6
pounds (fresh equivalent) per person.  The continued strong association of
broccoli with good health plus the introduction of new products like broccoli
coleslaw and various time-saving pre-cut items have undoubtedly played roles
in the resurgence of demand.  

Per capita use of fresh-market cabbage, after bottoming out in 1980, embarked
on a slow, long-term upward trend.  Per capita use during the 1990's averaged
9.1 pounds, 5 percent above the average of the 1980's.  Per capita use in 1996
was up from the previous year at 9.1 pounds, but still far below the record 27
pounds reached in the early 1920's.  Increased use during the 1990's could be
due in part to the popularity of various fresh-cut products containing
cabbage, the continued popularity of products like coleslaw, and the
increasing nutritional awareness of consumers.

Americans used about 171 million pounds of fresh spinach in 1996.  Per capita
use peaked in the early 1990's at 0.8 pound but slipped to 0.6 pound in 1996.  
The popularity of well-stocked salad bars and of spinach salad in general was
likely responsible for much of the growth in use during the early 1990's. 
However, consumers are fickle, and food fads come and go.  While fresh spinach
use is still double the level of the 1970's, it seems to have slowed a bit
during the past 3 years and is now at the same level as in the late 1980's. 

Per capita use of endive and escarole had been on a steady longrun decline
since the early 1970's.  It appears that the decline has halted during the
past few years, and use has stabilized at 0.2 pound per person.  Although most
consumers have heard of endive and escarole, these salad ingredients still
seem to suffer from their relative unfamiliarity. 

In the 1990's, grower prices for the major fresh-market leafy greens have
averaged about 26 percent of the retail prices paid by consumers.  The other
74 percent of the retail price is the marketing margin--expenses associated
with packaging, wholesaling, distributing, and retailing of the vegetables. 
Because the total retail price is dominated by several relatively stable
components such as store labor, electricity, and rent, there exists a
perception that changes in retail prices do not adequately reflect changes in
grower prices.  Retail prices do eventually follow changes in grower prices,
but the retail changes tend to be less noticeable because of the small share
of the total retail price earned by growers.

The 26-percent grower share of retail prices for leafy greens is about average
for major fresh vegetables.  For fresh tomatoes, for example, the grower share
is 28 percent, for fresh potatoes 20 percent, and for onions 32 percent.

Acreage & Sales Up
For Traditional Greens  
Nutritional awareness is likely behind the recent robust gain in acreage
planted to traditional southern greens like kale, collard greens, turnip
greens, and mustard greens.  These dark green vegetables are especially rich
in nutrients such as beta carotene, vitamins A and C, and a range of minerals. 
While USDA does not collect production and value statistics for traditional
southern greens, the census of agriculture reports that 47,000 acres of these
four leafy greens were harvested in 1992--up 14 percent from the previous
census in 1987.  Assuming no increase in this acreage since 1992, ERS
estimates suggest that the combined per capita use of these four greens is
likely close to 2 pounds today.

Georgia plants about a fourth of U.S. acreage of these specialty leafy greens,
accounting for 27 percent of collard green area, 19 percent of kale, 20
percent of turnip greens, and 18 percent of mustard greens.  Substantial
acreage is also found in California, Texas, Tennessee, and South Carolina. 

Information on market volume for these crops is limited to data on processed
products--frozen vegetable production, and canned and frozen supermarket
volume.  Data from the American Frozen Food Institute indicate that frozen
kale production has declined since the early 1980's.  However, acreage of kale
has more than doubled since 1982.  Most of the additional kale has likely
moved into the fresh market, where its popularity has risen as a salad green
and as a garnish for plates and salad bars. 

Supermarket sales of these four greens have increased during the 1990's,
according to information from Nielsen Marketing Research.  The data indicate
that supermarket volume of the processed forms of these four greens rose 30
percent between 1989 and 1996.  For canned products, retail sales volume was
up 36 percent, led by mixed greens (up 164 percent) and collard greens (up 109
percent).  For frozen greens, the sales volume rose 17 percent, led by collard
greens (up 29 percent) and kale (22 percent).  In 1996, supermarket sales of
these four frozen leafy greens totaled $14 million, while canned sales were
valued at $23 million.

The U.S. Is 
A Net Exporter
The U.S. has remained a net exporter of leafy green vegetables.  Exports of
the major fresh-market leafy greens (lettuce, cabbage, broccoli, and spinach)
were valued at $257 million in 1996, while imports totaled just $36 million.
Fresh-market broccoli was the highest valued export at $85 million, followed
closely by iceberg lettuce at $82 million and other lettuces at $58 million. 

Exports provide a key market for several leafy greens.  About 21 percent of
fresh-market broccoli supplies are now exported--up from 17 percent in 1990. 
Since 1990, the volume of fresh-market broccoli exports has grown 66 percent
to 279 million pounds.  As with most U.S. fresh vegetable exports, Canada is
the leading foreign market, taking 58 percent of the volume.  Japan follows
with 36 percent.  

Exports are also important to spinach and lettuce growers.  About 14 percent
of the U.S. fresh-market spinach supply is exported, with virtually all going
to Canada.  Exports also take 12 percent of the supplies of leaf and romaine
lettuce, 6 percent of head lettuce, and 4 percent of fresh cabbage.  Canada
receives about 80 percent of all U.S. lettuce exports, while Hong Kong and
Mexico each account for 7 percent.  Canada is also the top export market for
cabbage, but substantial volumes also move to places like Hong Kong and
Russia. 

Unlike with other major vegetables like tomatoes, bell peppers, and squash,
imports do not play a significant role in most fresh leafy green markets. 
While imports of fresh tomatoes, for example, account for 30 percent of use,
leafy green imports account for less than 2 percent of domestic use.

Leafy greens are cool-season crops, which grow best at moderate temperatures
and can withstand an occasional light frost.  Kale, in fact, becomes sweeter
following a light frost.  Thus, it is not necessary to import large volumes of
leafy vegetables to supplement winter supplies, since most can be grown in
sufficient volume year-round in the U.S. 

Fresh cabbage and lettuce are the highest valued imports at $8 million each,
followed by broccoli at $7 million.  Leafy green imports come primarily from
Mexico and Canada.  Iceberg lettuce would qualify for a "made-in-America"
award, since only half a percent of domestic consumption comes from import
sources. 

Backed by the urgings of the Federal government, industry groups,
nutritionists, and the medical community, demand for all vegetables is
expected to remain strong into the next century.  Since vegetables like
spinach, collards, kale, and broccoli are among the most nutritious foods
grown in the U.S., leafy greens will likely continue to play an important role
as Americans "strive for five" and move closer to consuming five servings or
more a day of fruits and vegetables.

Many growers, especially former tobacco growers, are looking for profitable
alternative crops.  If the industry can spur demand in other regions of the
country for the traditional leafy greens like collards and kale, more acreage
of these crops could be planted.  Future growth depends principally on
industry's effectiveness in getting the word out to consumers that leafy
greens are both tasty and nutritious.
Gary Lucier (202) 694-5253 glucier@econ.ag.gov  


COMMODITY SPOT BOX
The Varieties of Greens
Leafy green vegetables include a wide range of commodities.  Most greens are
high in vitamins A and C, and many also contain minerals such as calcium and
iron.  Many varieties need no introduction.  Others, although familiar in one
region of the country, may be virtually unknown in another.  Collard greens,
for example, are popular in the South but are not marketed widely in the
Northeast. 

Eliminating the veil of mystery surrounding some leafy greens and improving
their visibility is a major mission of the National Leafy Greens Council. 
Founded in 1974, this industry association provides market, nutritional, and
educational information to both growers and consumers. 

Following is a descriptive sampling of specialty leafy greens:

Arugula (also called rocket salad): Tender with a sharp mustard flavor;
popular as a salad green in Europe.  Considered an aphrodisiac by ancient
Romans.  In India, the seeds are crushed for oil.

Belgian endive (endive or witloof): Force-grown under cover; white pod-shaped
head with yellow-tipped leaves; mild, delicate flavor; used in salads but can
also be steamed, baked, or sauted; popular in Europe.

Bok choy (Chinese chard):  An oriental cabbage; resembles celery, with long
thick white stocks topped with shiny dark green leaves; mild flavor similar to
cabbage; good steamed and in stir-fry and soups. 

Collard greens: A traditional southern green; wide, flat, loaf-shaped dark
green leaves with a taste similar to cabbage; often slow-boiled with salt
pork, fried with bacon or salt pork, or simmered in seasoned broth.  In South
Carolina, it is considered good luck to eat collards on New Year's Day.

Escarole (Batavian endive): Crisp green heads with large loose bunches of
green ragged-edged leaves; used mostly raw in salads and salad mixes; can also
be boiled or steamed.

Kale: Another traditional southern leafy green; dark green curly leaves used
in salads (young leaves are sweeter), steamed or sauted, or added to soups
and cheese-based pies; used as garnish on plates and salad bars.

Mustard greens:  Oval-shaped leaves with scalloped edges and a sharp,
radish-like flavor; young leaves add zest to salads while mature leaves add
flavor to soups, stews, and sauts; slow cooking mellows the flavor.

Radicchio (red chicory): Red broadleaf heading form of chicory; distinctive
bittersweet flavor when raw; favored by Europeans in salads; can also be
grilled, roasted, or used as colorful garnish.

Rapini (also called broccoli raab): Slightly bitter green; stalks topped with
dark green, chard-like leaves; used in Chinese recipes and Italian pasta
dishes; cooks like broccoli. 

Swiss chard:  Has oval-shaped, glossy, crisp, dark green leaves with white
center ribs, on fleshy green or red stalks (for red chard); mild taste similar
to beets, leaves used in salads; both leaves and stalks can be steamed or
sauted.  

Turnip greens: The tops to the root crop; slightly fuzzy green leaves known
for their sharp flavor; traditionally prepared in broth flavored with ham or
salt pork.  

Watercress: Small green heart-shaped leaves clustered on long thin stalks;
peppery, spicy flavor; used most often as a garnish for salads and other
recipes.

Dandelion greens: Commercially grown varieties popular in parts of the South,
high in Vitamin A; generally less bitter and lighter green than wild plants;
can be cooked like other greens or used in salads.     


WORLD AGRICULTURE & TRADE

Events in Asia Lower Prospects 
For U.S. Farm & Rural Economy
A 15-percent depreciation of Thailand's baht on July 2, 1997 has cascaded into
a series of declines in currencies and stock prices in Asia.  The fall of the
Thai baht followed a policy decision to let the country's currency float, as
the Thai central bank had nearly depleted its financial resources to hold up
the currency's value.  The foreign exchange reserve drain was also caused by
international investors pulling out their short-term loans, because of
concerns about excessive lending to some industries and in real estate.  

The devaluations spread to other countries in Southeast Asia whose banking
sectors, like Thailand's, have systemic problems,  and whose economies also
relied heavily on short-term foreign loans.  The currency dives spotlighted
weak regulation of financial and other enterprises in Malaysia, Indonesia,
South Korea, and the Philippines, as well as Thailand.  Currencies of Japan
and Taiwan have lost value as well, but to a lesser extent than in Southeast
Asia and Korea.  

As investors pulled their money out of the problem countries in Asia and from
other potentially shaky emerging markets, they turned to U.S. government bonds
for safe investments. So the value of the dollar rose against the currencies
of other major U.S. customers and competitors, including Australia and Canada. 
The contagion has been reflected in some declines in stock markets around the
globe, as investors anticipated lower profits for some multinational
corporations.

The current financial crisis in Asia inevitably raises questions about its
impact on the U.S. economy in general,  and on the farm and rural economy in
particular.   Economic forecasters have moved from an assumption of  "minimal
effect," to concern that the crisis might dampen the economic performance for
some U.S. businesses beginning in the final quarter of 1997.  Business
forecasters have all lowered their expectations for global economic growth in
1998.  

But until the situation stabilizes, economic forecasts can only reflect a best
guess as to how the markets will "bottom out."   While currencies in Asia
continue to lose value, while the potential remains high for banking crises to
spread to other emerging economies, and while the outlook for economic growth
in Japan continues to sour, forecasters will not settle on a consensus
regarding the severity of the situation.

The Asian countries most directly affected by the crisis--Thailand, Indonesia,
Malaysia, the Philippines, and South Korea-- accounted for about 12  percent
of U.S. agricultural exports in 1997.   Taiwan and Japan, where the problems
are somewhat different, accounted for nearly 25 percent of U.S. agricultural
exports in 1997.  Steep currency devaluations in Southeast Asia and South
Korea will result in a sharp cut in their demand for imports, and in profits
of firms operating in the region.   The region's welfare will suffer from its
financial downturn, experiencing higher import prices, losses in stock
markets, weak domestic demand, and credit constraints.

Most international analysts agree that these problems will persist until
banking systems are reformed, and until other commercial operations that are
effectively bankrupt are allowed to fail.  In Thailand, as in the rest of
Southeast Asia, South Korea and to a lesser extent Japan, excessive lending
had led to overbuilding in real estate and many industrial sectors.  With the
devaluations, higher priced imports are feeding inflation, while domestic
demand plummets and loans denominated in foreign currencies become harder to
repay.  Even with the required banking and institutional reforms complete, the
affected countries will have to sharply boost exports to restore economic
growth.

The speed with which governments are able to implement the needed reforms will
vary, and the reforms will take some time to return the economies to their
previous growth rates.  In some countries, such as Thailand, many analysts
believe the IMF will speed the reforms, while in other countries, such as
Japan, the needed reforms are not yet on the horizon.   The pace of
institutional reform will determine the duration of the economic turmoil.

Current thinking has some Southeast Asian countries and Korea resuming trend
growth within 3 years; recovery for some others in the region likely will take
longer.  In contrast, Mexico's post-devaluation rebound took  just 1 year from
the 1994-95 peso crisis.  But there is a key difference between the Mexican
and Asian situations: there is no large market to absorb an increase in Asian
exports, as the U.S. did for Mexico.  

Since exports account for over 45 percent of Southeast Asia's gross domestic
product (GDP), the region's recovery requires a dramatic increase in exports. 
However, over 40 percent of developing Asia's exports have been intraregional,
as have much of its trans-border investments.  As demand throughout the region
plunges, exports will have to expand rapidly outside the region, and
investment funds will also have to come from outside.  Japan's ongoing
financial crisis and lackluster economic growth rule it out as a prime market
for Asia's exports.  Instead, the developed economies--primarily the U.S. and
the European Union--will face more and cheaper Asian imports.  And at the same
time that the steep decline in Asia's growth rates means it is no longer the
most important U.S. export market outside the North American Free Trade Area,
the region's currency depreciations raise competitive pressures on U.S.
exports in other markets as well.

U.S. Economic Growth 
To Reflect Asia Downturn
Analysts agree that the reverberations of the economic crisis in Asia on the
U.S. economy will be mixed.  With a stronger U.S. dollar and lower incomes in
Asian countries, the effect is for U.S. export growth to slow markedly and
imports to rise.  Imports to the U.S. become cheaper--a plus for consumers and
for industries that import their inputs.  And as more capital is diverted into
investments in the U.S., interest rates decline--a plus for businesses and
consumers wishing to borrow.  But the trade balance effect will dominate: the
U.S. trade deficit will rise as total exports grow much more slowly and
imports rise, pulling down U.S. economic growth, albeit by a modest amount, as
demand for U.S. products slows.   

U.S. merchandise exports to Asia account for about 30 percent of total U.S.
exports and 3.4 percent of GDP.  A 10-percent decline in  total U.S. exports
to Asia would translate into a drop in U.S. GDP growth of about half a
percent.

Any impact of the Asian currency devaluations is smaller on U.S. agricultural
exports  than on some other sectors-- forestry and fishing, textiles and
apparel, and durable manufactures, for example.  Foreign demand for most U.S.
agricultural products is less sensitive to drops in foreign incomes and
increases in domestic prices than is foreign demand for products from other
sectors.  On the import side, the U.S. will buy more products than it would
have otherwise. 

Because manufactured goods will account for much of the slowdown in U.S.
export growth and the increase in imports, any resulting declines in income
and employment growth will affect the rural economy more than urban areas. 
Manufacturing accounts for a larger share of the rural than the urban economy,
where services have become increasingly important.  Further, raw materials
prices will be under downward pressure, curbing growth in mining, another
sector important for the rural economy.  As a result, the rural economy will
see slower job growth compared with the rest of the nation in 1998.  This will
also dampen employment prospects for many farm families who increasingly rely
on off-farm income.
 
Downward Pressure on
U.S. Ag Exports & Income   
The slowdown in world economic growth due to events in Asia will affect the
U.S. agricultural sector through two channels.  One is the resulting slowdown
in U.S. economic growth; the other is the reduction in international demand
for U.S. agricultural exports.

Three components of the Asian financial crisis will influence the demand for
U.S. agricultural exports.  First is the significant loss in the value of
Asian currencies relative to the U.S. dollar, and also the strengthening of 
the U.S. dollar relative to the currencies of  major customers and competitors
in the region, such as Australia and Canada.  Second is the response of
producers and of consumers globally for the next several years to the new set
of exchange rates and changed pattern of world growth. Third is the decline in
economic growth in the region and the resulting slowdown in the region's
consumer spending.

In world markets, most agricultural commodities are priced and traded in U.S.
dollars.  A loss in a currency's value relative to the U.S. dollar has the
effect of raising the price of imported food and agricultural products.  For
example, the price of meat products on the international market (denominated
in U.S. dollars) has weakened somewhat over the past 6 months.  However, the
depreciation in the Indonesian currency relative to the dollar means that the
domestic price of imported U.S. beef to Indonesian consumers increased by
roughly 200 percent.   The much higher price to Indonesian consumers will
result in a fall in demand for the imported product. 

Asian consumers are thought to be more sensitive to price changes for
higher-valued products such as meats, horticultural products, and processed
food products than for staples such as wheat products and rice.  That is, a
significant price increase for the higher-valued imported products would spur
Asian consumers to halt consumption of the product, or to look for lower cost
alternatives, such as domestically produced chicken.  The currency/price
effect is expected to have a more significant effect on the higher-valued U.S.
agricultural exports.

There is a secondary longer term effect associated with the appreciation of
the U.S. dollar.  With some lag in timing, the higher price in local currency
terms stimulates increased production in the importing country.  A stronger
effect likely will come from competitor countries, like Australia, whose
dollar is also depreciating against the U.S. dollar.  For example, Australia
might become more competitive in the wheat and barley markets and in the beef
and cotton markets.  Thailand is likely to offer increased competition in the
Asian market for poultry parts, as it now is in sugar.

Separating the Asia fallout from other events occurring in world agricultural
commodity markets is difficult.  This fiscal year, large coarse grain crops in
China, Eastern Europe, and Ukraine are displacing U.S. exports.  And Canada
and Australia's large wheat crops, as well as their more competitive
currencies, are exerting large impacts on the wheat trade.

Empirically based theoretical models can control for some of these other
factors, to arrive at a picture "with other things being equal."  With such a
tool, tempered by analysts' judgement, USDA's Economic Research Service (ERS)
found, for example, that U.S. exports of red meat and poultry are likely to
drop 5-6 percent in fiscal 1998 and 1999, with more impact on red meats as
Australia's beef gains market share. These estimates are relative to what U.S.
exports would have been had the Asian economies maintained their fast-paced
growth.  

U.S. exports of horticultural products will be down about 4 percent.  The
decline in grain exports is likely to be about 2 percent in fiscal 1998, as
consumer demand for these commodities is  less sensitive to changes in price
or incomes.  However, the effect on grains and other bulk commodities likely
will be greater than 2 percent in future years, when producers and consumers
globally have time to adjust to the new price and economic growth patterns
that result from the Asia situation. 

Overall, the Asia situation likely means that U.S. agricultural exports will
be down about 3-6 percent  in fiscal 1998 and 1999 from what the level would
have been without the Asia crisis. All these estimates incorporate  ERS's
"best guess" as to when the Asian economies will turn around, based on events
through late December.

Lower GDP growth in Asia implies lower global demand for U.S. products and
services. So U.S. economic growth,  disposable income, and consumer
expenditures will be less than otherwise expected.  As a result, U.S. business
demand for labor will soften, and wages will rise more slowly than expected
earlier.  Among agricultural products at the domestic retail level, this
downward pressure on U.S. incomes primarily affects livestock and poultry
products.  Consumer demand for these products will be lower in 1998 than had
been expected. 

Slower paced retail demand for meat products leads to lower retail prices,
which in turn lead to lower farm prices.  Farm prices for livestock and
poultry will be lower than otherwise as a result.  But international factors
will reduce the price of feed, so the profit picture is not going to change
much for livestock producers. As a result, livestock and poultry producers
will leave their output close to what it would have been without the events in
Asia. 

Slower growth in demand for U.S. agricultural products in general leads to
downward pressure on U.S. net farm income.  USDA forecasts that net cash
income in 1998 will be about the same as in 1997, at $54.5 billion, down 2-3
percent, adjusted for inflation.  The "Asian financial flu" is among the
factors affecting farm income prospects this year. 
Greg Gajewski (202) 694-5321 and Suchada Langley (202) 694-5227, with other
ERS analysts gajewski@econ.ag.gov slangley@econ.ag.gov


FARM FINANCE

U.S. Farm Income Outlook:
Down From Record but Strong
While not likely to equal the record set in 1996, farm income estimates for
1997 and prospects for 1998 look quite favorable, despite an expected small
decline in real terms.  The farm income record set in 1996 was the result of
good, though not record, production of major field crops and above-average
prices, which remained strong even after harvest.  This set of circumstances
is unlikely to repeat itself in 1997 and 1998, even though cash receipts will
remain relatively high.  

The lower farm income forecasts for 1997 and 1998 derive from the small
declines in expected receipts from 1996 and a modest increase in expenses. 
Expectations for 1998 can change, of course, as weather patterns, output, and
market and export conditions unfold over the year.  Uncertainty regarding the
export market, triggered by the unstable economic situation in Asia, will be
particularly important in evaluating farm income prospects for 1998.

Net value added, the economic returns to all providers of resources to
production agriculture--farm employees, landlords, lenders, and the farm
operator--is expected to be around $89 billion in both 1997 and 1998.  Net
value added is a measure of the farm sector's contribution to the national
economy.  Compared with the average for the first half of the 1990's ($79
billion), production agriculture's addition to the national economy in 1997
and 1998 is projected to be relatively strong, though less than the $95
billion achieved in 1996.  

Net cash income, the return to farm operators from sales and other cash income
minus out-of-pocket expenses, is expected to be about $54.5 billion in 1997
and 1998.  Although slightly better than the average for 1990-95 ($53
billion), net cash income will be less than the nearly $60-billion record
achieved in 1996.  Net cash income, historically less variable than other farm
sector income measures, is the best indicator to gauge the funds available
from farming for family living expenses and retirement of debt.  

When changes in farm inventories and noncash income and expenses are included,
net farm income is forecast to be around $46 billion for both 1997 and 1998. 
This figure is also above the average for first half of the 1990's ($43
billion), but lower than the record $52 billion for 1996.

Cash Receipts Expected Down Modestly
The 1997 estimate for crop and livestock receipts, based on production and
price observations during the calendar year, is for a modest $1.6-billion
decline from 1996's record of $202 billion.  Farm marketings for 1998, given
present crop and livestock production and price expectations, are projected to
be about $201 billion.  Lower expected cash receipts for 1997 and 1998 largely
reflect the expectation of smaller crop returns.  In contrast, livestock
receipts are expected to increase for 1998.  The upward direction of livestock
receipts, beginning in 1996, is a reversal of the downward trend from 1993 to
1995.

Corn receipts in 1997 are expected to fall by around $3 billion from 1996's
$21.6 billion--average 1997 monthly corn prices were well below 1996 levels. 
Smaller exports have also contributed to the lower corn receipts in 1997.  The
value of exports to Asia, accounting for almost two-thirds of the corn exports
in 1996, ran about 33 percent lower through the third quarter of 1997.  A
slightly larger 1998 corn crop, and prices similar to 1997, would yield corn
receipts close to 1997's estimate of $18.4 billion.  A smaller 1998 harvest
might boost prices later in the year, but a considerable share of 1998 corn
receipts will already have been derived from corn produced in 1997 and sold in
the first half of calendar 1998.   

Wheat receipts fell about $1 billion in 1997 from 1996's almost $10 billion. 
Production of wheat in 1997 was the highest since 1990, and as a consequence,
prices were pressured downward by abundant supplies.  Exports could not absorb
the additional 1997 production, as overseas sales were down by 25 percent in
quantity and 40 percent in value through the first three quarters of 1997,
compared with the same period in 1996.  Despite some improvement indicated in
the fourth quarter, total 1997 wheat exports will fall short of the $6.2
billion achieved in 1996.  With an average or better crop and increased stocks
from 1997's large harvest, wheat prices and receipts may be expected to be
lower in 1998.

Increased soybean receipts prevented total crop receipt forecasts from
declining further in 1997 and are expected to add stability in 1998.  Soybeans
are projected to earn close to $2 billion more in 1997 than the record $16.2
billion in sales obtained in 1996.  The 1997 increase follows the upward trend
of soybean receipts throughout the 1990's and reflects the largest acreage
ever planted to soybeans--70 million.  

Yet even with the larger crop in 1997, prices remained fairly strong after the
harvest.  Undoubtedly, a vigorous export market contributed to the increase in
soybean receipts for 1997, projected to be the third best export year on
record.   A return to average output and slower international trade in 1998
could lead to a modest drop in soybean receipts.  Weather and acreage planted
in the U.S., Argentina, and Brazil, coupled with changing demand in export
markets, are key factors that could affect soybean markets in 1998.

Livestock receipts in 1997 should be about equal to the $93 billion attained
in 1996 and be even modestly higher in 1998, due mainly to higher beef cattle
prices.  Even so, projected cattle and calf receipts will not recover to 1993
levels.  Hog production  is expected to be at least as high in 1997 as in
1996, and still greater in 1998.  Even with lower expected prices, hog
receipts in 1997 and 1998 are likely to remain roughly $12 billion, the level
achieved in 1996.  Smaller anticipated pork exports to Asian markets are a
factor in lower projected pork prices.

Federal Payments & Exports Decline, 
Expenses Rise
Already a relatively small portion of cash income (3.3 percent in 1996),
direct government payments are expected to begin declining in 1998.  In 1997,
payments represented a mix of funds from former commodity programs and
disbursements based on production flexibility contracts as provided for in the
1996 Farm Act.  Payments received in 1998 will be governed wholly by the new
legislation, and total government payments will begin to follow the declining
levels allocated for production flexibility contract payments through the year
2002. 

Throughout the 1990's, the earnings of U.S. farmers have been sustained and
augmented by  growth in exports.  In late 1997, the international economic
forces underlying these high levels of export sales deteriorated, with the
likely consequence that the growth prospects for U.S. exports in 1998 have
been dampened.  Recent devaluations of Asian currencies translate into
declining effective demand from Asia for exports from countries supplying
agricultural products--U.S., Australia, Brazil, and Canada, among others.  The
slackening demand will increase the competition among exporting countries for
the remaining markets, putting downward pressure on export prices.

In the 1980's, U.S. agricultural products became more competitive in import
markets around the world.  The developing Southeast Asian economies, South
Korea, and Japan have been growth markets for U.S. field crops, meats, and
specialty products.  U.S. exports will grow more slowly in 1998 as the
domestic price to Asian customers rises due to a strong dollar and slowing
income growth in Asian countries.  Moreover, the near-term Asian growth
slowdown has spilled over to non-Asian countries, slowing world growth and
further decreasing demand for U.S. farm exports.

Total farm production expenses are estimated to have increased 2.7 percent
($4.8 billion) in 1997, the smallest rise since total expenses decreased
slightly in 1992.  From 1993 through 1996, total production expenses rose
$6.7-$7.6 billion (4-5 percent) each year.  During 1994-96, the increased
outlays occurred despite drops in feeder livestock and poultry purchases by
producers of about $1 billion each year.  In 1997, the largest proportion of
the rise in total production costs is due to an increase in livestock and
poultry purchases.

In 1998, in response to slightly lower planted acreage and a fall in the
number of cattle on feed, total outlays are forecast down around $600 million,
an amount equal to around 0.3 percent.  The relatively small increase in
forecast prices paid for production items, interest, taxes, and wages--less
than 1 percent--will be an important factor in 1998.

Farm Assets, Debt, & Equity 
To Continue Rising 
The value of U.S. farm business assets will significantly exceed the $1
trillion mark in 1997 and is expected to continue growing in 1998.  The value
of farm real estate, the largest share of the sector's assets, increased 5.9
percent during 1997 and is expected to grow by 5 percent in 1998.  Farm
business debt is expected to grow a little over 3 percent in both 1997 and
1998.  The combination of strong growth in the value of farm assets and a
modest expansion in farm debt indicates a rising net worth (equity) for the
farm sector in 1997 and 1998.

Increased variability in net returns to farm assets under the new, more
market-oriented 1996 Farm Act could affect future farmland values.  With
decoupling, more of the price and financial risk is transferred from the
Federal government to the individual producer.   Farmland prices will also
continue to adjust to account for expected lower government payments.  Both
the additional risk assumed by producers and the reduction in revenue from
government payments will be factored into what purchasers are prepared to pay
for farmland in the future.  However, the effects of nonagricultural factors,
such as urban pressure on farmland values, could mitigate the expected slower
growth.

Farm business debt is estimated to have reached $162 billion by the end of
1997, up from $156 billion in 1996, and to rise another 3 percent in 1998. 
Rising debt levels do not signal pending financial distress in the farm
sector.  Despite the increase in debt, farm business balance sheets have shown
steady improvement throughout the 1990's.  Debt-to-asset ratios have improved,
as the 16-percent increase in farm business debt from 1992 through 1997 has
been more than offset by the 25-percent rise in the value of farm business
assets.  

The value of farm real estate has risen by a third from 1992 through the end
of 1997, while farm mortgage balances have increased less than 12 percent.  As
a result, the degree to which U.S. farmland is leveraged has declined
substantially, providing most producers with added equity to cushion the
impact of short-term declines in income.   Nevertheless, a 9-percent decline
in sectorwide net cash income in 1997 will not be evenly distributed across
all U.S. farm operations, and producers specializing in wheat, corn, other
grains, and dairy will likely face relatively greater income reductions in
1998.

Farmers are expected to use their available credit lines more fully in 1998,
as evidenced by the rise in debt repayment capacity utilization.  For farm
operators, income available for debt service can be used to determine the
maximum loan payments a farmer could make.  Given current market interest
rates and an established repayment period, the maximum debt a farmer could
carry with the maximum loan payment can be determined.

Farm debt repayment capacity utilization (actual debt expressed as a
percentage of maximum feasible debt) measures the extent to which farmers are
using the amount of debt their incomes could support.  In 1998, farmers are
expected to use over 57 percent of the debt that could be supported by their
current incomes.  Use of debt repayment capacity rose from 45 percent in 1993
to 56 percent in 1995.  Despite the 1996 rise in farm business debt, high net
cash income levels and lower interest rates resulted in a drop in the use of
debt repayment capacity to 49 percent.  The effects of expected favorable
interest rates throughout 1997 and 1998 will not be sufficient to offset the
combined effects of rising debt and lower net cash income. 

Farm business equity is expected to continue rising in 1998 as farm asset
values rise more rapidly than farm debt.  In current dollars, $1.132 trillion
in assets minus $168 billion in farm debt yields a sector net worth of nearly
$964 billion.  Farm business equity by the end of 1998 is expected to be
almost $90 billion more than in 1996, and over $300 billion greater than in
1985.

Indicators used to measure the solvency of the farm sector remain favorable
for 1997 and 1998.  The debt-to-asset ratio indicates the relative dependence
of farm businesses on debt and their ability to use additional credit without
impairing their risk-bearing ability.  The lower the debt-to-asset ratio, the
greater the overall financial solvency of the farm sector.  The debt-to-asset
ratio is forecast to be 14.8 percent in 1998, compared with 15.0 percent
expected in 1997.  Over the last decade, this ratio declined steadily from 23
percent in 1985 to 15.6 percent in 1995.

Current income rates of return on farm assets and equity, indicators of the
profitability of farm sector investments, remained near 1996 levels in 1997. 
Total returns on farm business assets, including capital gains, declined from
6.5 percent in 1996 to an estimated 5.7 percent in 1997, with 3.7-percent
growth in current income and 2-percent growth in capital gains.  The lower
farm income forecast for 1998, combined with a continued rise in farm sector
asset and equity values, suggests slightly lower rates of return on farm
assets and equity.  Total returns on farm business assets are forecast at 5.2
percent in 1998, reflecting both the lower expected returns to farm assets
from current income and somewhat slower appreciation in farm asset values.
Jim Ryan (202) 694-5586 and Dave Peacock (202) 694-5582
jimryan@econ.ag.gov
dpeacock@econ.ag.gov


FARM FINANCE BOX
Off-Farm Income Aids 
Farm Households
Most farm households rely heavily on off-farm income because their farms are
too small to support a family.  Since the official definition of a farm
requires an operation to have only $1,000 worth of agricultural sales to
qualify, many rural households are classified as farm households, despite very
low or negative net farm earnings.  Limited sales typically result from only
modest resources being devoted to farming or from a low return on farm assets.

Data from the 1996 Agricultural Resource Management Study (ARMS) indicate
that, on average, farm operator households received only 16 percent of their
income from farming.  Their household income from both farm and off-farm
sources, however, averaged $50,361, similar to the $47,123 average for all
U.S. households.  The ARMS replaced the Farm Costs and Returns Survey (FCRS),
which also reported a similar low percentage of earnings from farming between
1988 and 1995.  Data from an earlier USDA farm household income series
indicates off-farm income has been at least 50 percent of income for farm
households, as a group, since the early 1960's.  

Dependence on farming for household income varies with farm size, as measured
by farm sales.  For example, households operating commercial farms (sales of
at least $50,000) received 55 percent of their income in 1996 from farming,
and net earnings from farming activities averaged $40,623.   Their total
household income averaged $74,519, or 58 percent more than the average for all
U.S. households.  These households, however, accounted for only about 26
percent of all farm households.

Households operating noncommercial farms (sales less than $50,000), which made
up 74 percent of all farm households in 1996, relied on off-farm sources for
virtually all of their income.  On average, farms with less than $50,000 in
sales lost money farming, but received $45,418 in off-farm income.  Wages and
salaries were the largest component of their off-farm income and accounted for
61 percent of their total off-farm income.  Because of off-farm income, the
total average household income for this group of farmers was on a par with the
average for all U.S. households.

Lower average operator household income forecast for 1997 and 1998 is not
significantly different from 1996.  Any forecast decline in earnings from
farming, however, would be expected to have the greatest effect on households
operating commercial farms. Households operating noncommercial farms will
continue to rely heavily on off-farm income, particularly wages and salaries,
for their livelihood.

Earnings of the operator household from farming activities is not a complete
measure of economic well-being provided by the farm.  For example, a farm-owned
dwelling represents a contribution to household income because it frees
up cash that would otherwise be spent on housing.  Households with
noncommercial farms may also focus on an economic benefit from farming other
than cash income:  accumulating wealth by increasing farm assets and equity.
Earnings from farming activities do not necessarily reflect the large net
worth--the difference between assets and liabilities--of many farm operator
households.  

Real estate accounted for most (69  percent) of the assets of farms held by
operator households.  Real estate made up a larger share of the assets of
noncommercial farms (79 percent) than commercial farms (61 percent),
reflecting commercial farmers' greater propensity to rent land and their
likelihood of holding other assets such as equipment, machinery, and
inventories. 

The farm accounted for most of the net worth of both commercial and
noncommercial farm households in 1996, and not surprisingly, net worth was
substantially more for households with commercial farms ($713,800) than for
their counterparts with noncommercial farms ($297,400).  Households with
commercial farms had a net worth close to the average for all U.S.
self-employed households ($731,500) and above the average for all U.S.
households in 1995, the most recent year for which data are available for all
U.S. households.  Operator households with noncommercial farms had a smaller
net worth than the average for all self-employed households, but their average
net worth was still above the average for all U.S. households.

Noncommercial farm households may consider living a farm lifestyle more
important than either wealth accumulation or farm income.  In response to
questions in the 1995 Farm Costs and Returns Survey, about 57 percent of
operators of noncommercial farms rated a rural lifestyle as very important,
well above the 31 percent who rated increasing the equity and assets of the
farm as very important and the 29 percent who rated as very important that the
farm provide adequate income without off-farm work.  
Robert A. Hoppe (202) 694-5572 and Penni Korb (202) 694-5575
rhoppe@econ.ag.gov 
pkorb@econ.ag.gov


FOOD & MARKETING

U.S. Dairy Product 
Markets Restructuring
The U.S. dairy industry has been changing at all levels in the last 50 years. 
Once heavily dependent on human labor, most dairy farming activities,
including milking, are now mechanized.  Farms with 100 cows were large in
1950.  Today, those with 5,000 head are not uncommon, especially in the West. 
On-farm milk storage and milk assembly have shifted from 40-quart cans picked
up at the farm by the processor's truck to bulk tank storage pumped into tank
trucks (most operated or hired by dairy cooperatives) for delivery to
processing or manufacturing sites. 

Technological developments have also brought about changes in processing and
distribution.  Large-scale processing and manufacturing plants are more
common.  Over half of all milk was delivered to the home in quart bottles in
1950; today, that share is only 2 percent--most milk is now sold through
supermarkets in gallon jugs.  Retail sales of cheese, butter, ice cream,
yogurt, and other dairy products are now mostly branded products sold though
supermarkets. 

Four common themes of change run through all levels of the dairy industry. 
First, technological advances have improved raw milk and dairy product quality
and consistency, leading to larger economies of plant size and fewer
opportunities for product differentiation.  Second, economies of size on the
farm and in plants have been facilitated by automation.  Third, reduced
transportation costs have led to integration of local markets into regional or
even national markets.  Finally, rapid capital flows and ownership changes have
altered the objectives of dairy marketing and distribution firms.  Investment
decisions on the farm seem to be based less on prior experience in the industry
than on new factors such as investment opportunities, market pressures to
expand production, and recognition of the declining role of government in the
industry.

Milk Production & Pricing
Have Been Changing
Changes in milk production and pricing in the last 30 years have changed the
face of the dairy industry.  Both aggregate production and milk per cow have
increased since 1970.  Farm numbers have declined and herd size has increased,
but ownership and production remain firmly in the hands of individuals and
families.  Most large corporate farms are family-owned and operated.

Production growth in the Southern Plains, Mountain, and Pacific regions has
led to changes in the regional pattern of production.  Readily available land,
good climate, ample supplies of high-quality forages, lower production costs,
growing markets, both local and more distant, for fluid milk and other dairy
products, and relatively stable prices combined to make these western areas
fast-growing milk production centers.

The consequent growth of milk supplies in Idaho, California, New Mexico, and
Washington has stimulated construction of large modern dairy product
manufacturing plants, as well as rehabilitation of older plants.  Cheese and
associated dry whey production in the region has grown especially rapidly,
though production of butter and nonfat dry milk remains important.  Both
cooperatives (e.g., Darigold) and proprietary firms (e.g., Leprino) have built
or purchased additional cheese capacity in the West.  The trend toward milk
production for manufactured product markets will likely continue, since fluid
markets, though they continue to grow, are more than amply supplied.

For 50 years, Federal price supports have been the backbone of the pricing
system for milk and dairy products.  The method for determining the support
level has changed over the years, however, and fixed support prices have
declined since 1995 to the point that they have little effect.  The milk
support price will decline until it reaches $9.90 per cwt in 1999.  After
1999, some support for prices will continue to come from Dairy Export
Incentive Program (DEIP) activity.

Previously, the support price underpinned the entire price structure for bulk
milk sold directly by farmers or cooperatives.  USDA's Commodity Credit
Corporation (CCC) stood ready to buy as much butter, nonfat dry milk, and
Cheddar cheese as manufacturers wanted to sell at specified prices.  These
prices were designed to return the support price to the farmer.  The price
support program thus provided a floor under wholesale milk product prices and
the price of milk used to manufacture these products, and indirectly provided
support for all milk in all uses.

Milk and dairy product prices have been more volatile in recent years.  The
1980's saw large government expenditures for support as surplus milk
production grew.  As the surplus of the 1980's was brought under control,
however, industry participants found themselves operating in a much-changed
environment characterized by reduced manufacturing flexibility and cheese
price premiums for Midwestern plants, two situations related to the growing
mismatch between regional milk supplies and required manufacturing plant
capacities.  

Two other factors contributing to the changed industry environment were the
destabilizing effects of subsidized and some commercial exports, and a
tendency to carry stocks insufficient to avoid seasonal price swings
dramatically larger than storage costs.  The industry appears to be moving
toward correcting these structural disequilibria, so prices may become less
volatile than very recently, although they will probably remain more variable
than in the past.

Firms in the Milk Business 
Consolidating
Dairy cooperatives and private companies supply both fluid milk and
manufactured dairy products.  The number of suppliers has declined over time,
and the market shares of cooperatives vs. private companies have shifted. 
About 86 percent of the milk sold to plants and dealers in 1994 was handled by
cooperatives, up from 76 percent in 1973.  This trend is expected to continue. 
 As of January 1, 1998, four of the larger cooperatives became one,
representing producers throughout the country.  This single cooperative, Dairy
Farmers of America, will market just over 20 percent of all U.S. milk.

From the 1930's to the 1970's, eight large, specialized proprietary dairy
companies dominated the marketing of fluid milk and manufactured dairy
products, shaping the structure of the industry and the nature of competition. 
Since then, corporate restructuring through mergers, acquisitions, and
divestitures has put all eight firms out of the dairy business.  Large foreign
companies increased their share of U.S. dairy processing 11 percentage points
from 1950 to 1994 partly by purchasing U.S. firms. Currently, most large
corporations in the dairy industry are concentrating on core businesses in
branded products--cheese, yogurt, and premium and superpremium ice creams.

Dairy cooperatives grew into larger regional entities in the 1960's and 1970's
as a result of mergers.  Some dairy cooperatives confine their activities to
bargaining for the sale and price of milk to processors.  Others process milk
and/or manufacture dairy products.  In 1992, about 68 percent of dairy
cooperatives could be considered bargaining-only. 

Dairy Product Markets 
Are Distinct 
The dairy sector is divided into several distinct markets, including bulk raw
milk, bulk natural cheese, processed cheese, butter, packaged fluid milk
products, frozen desserts, and ingredients (dry milk products).  Each market
has unique characteristics and participants. Although several firms are active
in multiple markets, no one firm is involved in all markets. Cooperatives have
been most important in the manufactured product markets, while proprietary
firms have gravitated toward fluid milk processing and frozen products, as
well as yogurt and cheese.  Branded consumer dairy products--including cheese,
ice cream, yogurt, frozen yogurt, and sour cream--are made primarily by
proprietary companies. These companies have spearheaded product development,
much of which emphasizes low fat content.

Fluid milk processing has changed dramatically during the last 40 years as
participation in the business by large dairy companies, supermarket chains,
convenience stores, and dairy cooperatives has changed.  Fluid milk processing
has changed from an emphasis on service to an emphasis on efficiency and
minimizing costs.  Beverage milk is sold as a set of homogeneous commodity
lines--whole milk, 2% milk, 1% milk, and skim--so lower cost is the only
competitive element.  As a result of increasing efficiencies, fluid milk plant
numbers fell from almost 10,000 in 1940 to 460 in 1996, accompanied by an
increase in average volume processed from 1.2 million to 128.3 million product
pounds.  Plant and company numbers will almost certainly decline further.

Each market participant has contributed in its own way to the evolution of the
fluid milk processing business.  Until the 1950 s, home delivery of fluid milk
prevailed, although supermarket and dairy store sales were increasing rapidly. 
Fluid milk processors were numerous in most markets, and competition generally
deferred to the going price structure.  All market participants recognized the
repercussions of destructive competition.

However, the markets could not always assimilate changes taking place in the
structure of the fluid milk business, and price wars commonly marked such
adjustments.  Current competitive conditions in fluid processing rest on the
nearly wholesale switch from home delivery to supermarket sales.  With
centralized buying by chains and retailer groups, the pricing policies of
supermarket chains selling their own brand are now the major determinant of
milk prices.  As more chains retire captive plants with too much capacity or
outdated technology, their incentive to maintain margins and profits using
foods they manufacture themselves will weaken.

As in the fluid industry, plant numbers in the manufactured product markets
have declined while average volume produced or sold has increased. Pricing of
all manufactured dairy products, except for frozen products, generally
involves formula pricing: buyers and sellers use a quoted reference price,
commonly from an exchange such as the Chicago Mercantile Exchange, and then
make various adjustments to establish prices.  In recent years, this pricing
method has come under fire as a result of allegations of price manipulation on
the now defunct National Cheese Exchange. Frozen products tend to be priced
more closely to "what the market will bear," partly because of increased
demand for superpremium ice creams and nonfat products.

Among nonfluid dairy products, cooperatives dominate the butter and ingredient
markets.  The butter-powder industry, as it was known in the 1950's and
1960's, no longer exists.  Throughout that period, surplus milk, especially
Grade B but some Grade A as well, flowed almost exclusively to butter-powder
plants.  Organizations such as Land O'Lakes made some butter and powder in
separate plants that were part of an organized system, with the milk separated
at the butter plant and the skim milk moved to a powder plant.  Since then,
surplus whole milk has gradually disappeared, with separate surpluses of
butterfat and skim milk arising at different points in the dairy marketing
system.

As lowfat milks replaced much whole milk, cream sales declined and the fat
content of fluid products shrank.  Butterfat use in fluid milk products fell
below the butterfat content of milk coming into fluid milk plants.  The
surplus went first to ice cream manufacture, as many ice cream operations were
integrated or nearby.  Any remaining fat was made into butter.  Cheese plants
manufacturing part-skim Mozzarella, American, and other cheeses also had a
cream surplus, which often went to butter production.  However, there was no
skim surplus to be moved to powder plants. 

Butter production today is predominantly in the hands of cooperatives.  In
1994 Land O' Lakes marketed almost all of the branded consumer butter
--136 million of the total 140 million pounds.  Store brands account for almost
half the butter sold in supermarkets, while almost one-third of all butter sold
goes to restaurants.  Butter production has changed from serving as an outlet
for surplus butterfat to requiring active pursuit of butterfat to meet
customer demand.

Dry and bulk condensed milk products, which are used almost entirely as
ingredients in other dairy and nondairy food products, are made mostly by
cooperatives and sold in competitive markets. Changes in the nonfat dry milk,
casein, and whey product markets during the last 30 years have been dramatic. 
Around 1960, the bakery market was by far the most important ingredient use
for nonfat dry milk.  Whey replaced nonfat dry milk as bakers found that a
"baker's mixture" composed of dry whey, sodium caseinate, and mineral salts
worked better and cost less than nonfat dry milk, particularly in the emerging
continuous-mix process of bread baking.  In prepared dry mixes for cakes,
rolls, and related products and in confectionery, the use of milk ingredients
increased, although whey products have been increasingly substituted for
nonfat dry milk.

The use of nonfat dry milk and whey in manufactured dairy products has
increased, mainly in frozen desserts, processed cheese foods and spreads, and
cottage cheese.  Whey is being substituted for nonfat dry milk in frozen
desserts and processed cheese foods and spreads.  Processed meat products,
once a significant outlet for nonfat dry milk, use much less. A small portion
of that decline was taken up by casein, whey, yeast proteins, and single
-cell proteins.

The natural cheese market is shared--43 percent cooperatives, 57 percent
proprietary firms in 1992.  American cheese, which can be sold to the CCC
under the Federal price support program, is produced mostly by cooperatives
--71 percent in 1992--and largely by the big cooperatives.  Proprietary
companies supply the largest proportion of Italian cheese--74 percent in 1992. 
About half of the natural cheese goes to the "industrial" market and is used
in processed cheese and in frozen pizzas and other manufactured food products. 


Most of the natural cheese used in products is produced by cooperatives under
long-term agreements.  The major cooperative cheesemakers include AMPI, Mid-Am,
and Land O'Lakes. (Mid-Am and part of AMPI have become part of Dairy
Farmers of America.)  AMPI produces natural cheese and was Kraft's largest
supplier in the early 1990's.  It also produces unbranded processed cheese
from its own natural cheese.  Mid-Am produces Italian, American, and packaged
cheese and buys cheese to meet its sales commitments.  It produces shredded
Cheddar cheese for Taco Bell and large quantities of Mozzarella for pizza. 
Land O'Lakes is a supplier of bulk cheese to Kraft and Schreiber and produces
branded natural, processed, and shredded products.

Kraft and Borden are the major sellers of branded processed cheese.  (Borden
recently sold its cheese business, including the label, to Mid-Am.)  During
1988-93, about 45 percent of all processed cheese sold at retail carried the
Kraft brand name; Borden had about 8 percent of the retail market in 1992. 
Both companies purchase cheese to meet their needs--Kraft buys 60 percent of
the cheese it uses.  Although 75 percent of Kraft's sales are through retail
stores, Kraft plays an important role in other segments of the cheese market. 

Food service buys a substantial share of cheese for pizzas, cheeseburgers,
tacos, and salad bars.  Most is produced by large firms, both cooperative and
proprietary, under long-term contracts with fast-food and restaurant chains or
their suppliers.  The firms supplying the foodservice industry are mostly
different companies from those in the branded food markets. 

Private firms dominate the frozen products market. Ice cream was primarily a
soda fountain product until the 1930's.  The growth of supermarkets and the
appearance of specialty ice cream stores transformed ice cream merchandising. 
Retail sales rapidly shifted to supermarkets after the introduction of
prepackaged half-gallon containers in the late 1940's.  The specialty ice
cream stores that became common in the 1950's and 1960's sold relatively
high-priced ice cream with different characteristics (higher butterfat content,
a
different texture, a wider selection of flavors) than the ice creams available
in supermarkets.  Borden introduced the first nationally distributed premium
ice cream--Lady Borden.

Premium ice cream accounted for 42 percent of supermarket sales of ice cream
in 1994.  Superpremium ice creams, essentially created in 1959 with the
introduction of Haagen Dazs, accounted for an additional 13 percent of sales. 
Superpremiums have national or regional distribution, mostly through
supermarkets, but the volume in most markets does not justify operating an ice
cream plant.  Most often, distribution is by another ice cream or frozen food
firm under contract, and production may be contracted to the distributor as
well.

Frozen products, yogurt, and cheese are the only dairy products that have
attracted large publicly traded companies in recent years.  Many of the large
companies involved in frozen products (mainly ice cream) are foreign-owned. 
In 1988, Pillsbury, which had acquired Haagen Dazs in 1983, was in turn bought
by Grand Metropolitan plc, a British firm.  As a result, Haagen Dazs achieved
worldwide distribution.  Unilever, a British-Dutch company that has long owned
Good Humor, purchased Kraft's ice cream division in 1993.  At the time,
Kraft's Breyer's brand was the largest selling brand of ice cream.  Kraft
retained their Frusen Gladje superpremium line.  The large ice cream
manufacturers are consolidating manufacturing operations in fewer locations
and establishing distribution depots--sometimes using closed ice cream plants.

The Future of U.S.
Dairy Product Markets
What does the future hold for dairy markets?  Dairy farmers, who supply a
relatively standardized raw material to processors, will have few
opportunities to market differentiated, identity-preserved products, except
perhaps organic or non-bST milk.  With a bulk commodity, the chief opportunity
for individual farmers to earn premiums will be for volume and quality, and
for components of value to dairy product manufacturers as ingredients, such as
protein or butterfat. With more volatile markets, returns to producers will
largely depend on the bargaining power of cooperatives.

Dairy cooperatives could face a significant change in role as public dairy
programs are either reduced or eliminated.  Members may expect efforts to
reduce price volatility, set production quotas to limit milk production,
manage product supplies and inventories, and expand marketing activities
related to sales.  However, as cooperatives have grown, their membership has
become more diverse, meaning member satisfaction may be more elusive.  The
outcome of the merger of four large, essentially regional cooperatives into
one large, national cooperative, Dairy Farmers of America, may offer some
insights on how to secure satisfaction for a diverse membership. 

Proprietary firms will continue to emphasize production and marketing of
branded consumer products, much as in the recent past.  They will, however,
face a different business environment with the formation of Dairy Farmers of
America, which as a large national cooperative has diverse marketing and
production facilities, some overlapping the proprietary firms' holdings.  It
is likely that mergers and acquisitions will continue to play a role in the
future of proprietary dairy firms.
Don Blayney (202) 694-5171 and Alden Manchester (202) 694-5179
dblayney@econ.ag.gov 
manchest@econ.ag.gov


SPECIAL ARTICLE

Farmers' Use of  "Green" Practices 
Varies Widely
Farmers increasingly face economic and societal pressures to convert from
traditional or conventional production systems to "green" practices that are
potentially friendlier to the environment.  "Green" practices are known
variously as improved practices, best management practices, conservation
practices, water quality practices, environmentally friendly practices, and in
some settings, sustainable and organic practices.  

Such practices may be applied at various stages of production management. 
Farmers frequently use more than one green practice, and some may potentially
contribute to multiple environmental goals.  Which techniques are actually
friendlier to the environment depends on where, when, and how they are
applied, and on climatic factors in a given year. 

Farmers are the primary decisionmakers on how they will combine land, water,
commercial inputs, labor, and their management skills into systems and
practices that produce food and fiber.  To sustain production over time,
farmers must make a profit and preserve their resource and financial assets. 
At the same time, society at large wants not only food and fiber at reasonable
prices, but also products that are safe to consume and aesthetically pleasing,
and production systems that preserve or even enhance the environment.  The
often competing goals and pressures are reflected not only in the inputs made
available for production, but also in the methods of combining and managing
the inputs.

USDA's Economic Research Service recently released information on farmers' use
of some key green practices in Agricultural Resources and Environmental
Indicators: 1996-97.  Relying mostly on USDA's Cropping Practices and Chemical
Use surveys conducted annually from 1990 to 1995 for major field crops, and
biennially for selected fruits and vegetables, the report reveals that
farmers' use of green practices varies widely among crops and from year to
year.  While few obvious trends could yet be identified, the data provide some
measure of the extent of green practices in use compared with traditional or
conventional practices.

"Green" Practices for Pest Management . . .
Most farmers currently rely on pesticides to control the insects, diseases,
and weeds that cause significant yield and quality losses to U.S. crops.  Two
general management systems utilizing green practices can be employed in pest
management.  Integrated pest management (IPM) combines efficient use of
chemical pesticides with cultural, biological, and other nonchemical methods
aimed at controlling pests economically while minimizing danger to human
health and environmental quality.  Ecologically based pest management focuses
primarily on nonchemical methods.

Scientists have developed pest scouting, economic thresholds, and other
pesticide-efficiency techniques to help producers determine when to make
pesticide applications, which pesticides to use, and how much to use.  The
techniques of pest scouting and economic thresholds are widespread in
specialty crop production.   Scouting involves checking a field for the
presence, density, and developmental stage of weeds, insects, or diseases. 
Economic thresholds are pest population levels that, if left untreated, would
likely result in reductions in revenue that exceed treatment costs.  Growers
use these threshold levels, developed primarily by land-grant university
scientists, to determine when pesticide applications are economically
justified.  

Nearly two-thirds of fruit and nut acreage and nearly three-quarters of
vegetable acres were scouted for insects in 1991-92, mostly by chemical
dealers, crop consultants, and other professionals.  Potato growers reported
that 85 percent of their acreage was scouted in 1993, and thresholds were used
in making insecticide application decisions on nearly three-fourths of their
acreage.  

Growers of two-thirds to three-fourths of corn and soybeans over the period
1990-95 reported scouting, mostly by themselves or a family member, and use of
thresholds.  Insect pests cause large economic losses in cotton production,
and entomologists have been developing thresholds for these pests for several
decades.  Nearly 90 percent of cotton acreage was scouted in 1990-95--40
percent by commercial scouting services.

Another pesticide-efficiency technique is the application of herbicides in
bands or strips, rather than broadcast over the field.  This technique, which
can reduce per-acre application rates, was practiced on about one-third of
cotton acres during 1990-95, but on only 4-9 percent of corn and soybeans and
1-4 percent of fall potatoes.  Applying herbicides only after planting and
weed emergence, a technique which can leave lower herbicide residues in the
soil, was used on 52-72 percent of fall potatoes during those years; 20
percent or more of corn, soybeans, and wheat; but just 10 percent or less of
cotton acres.

Biological methods for managing pests include the use of pheromones,
pest-resistant varieties, and beneficial organisms such as Bacillus
thuringiensis (Bt) and pest predators and parasites.  In the early 1990's,
fruit and nut growers used pheromone traps on 37 percent of the surveyed
acreage, pest-resistant varieties on 22 percent, and beneficial insects on 19
percent.  Use of these practices on vegetables was much lower at 3-7 percent. 
However, 46-75 percent of organic vegetable growers used at least one of these
practices.  Foliar application of  Bt, a microbial substance that kills certain
insects, ranged from 1 percent of corn acres to 9 percent of cotton and over 50
percent of some specific fruits and vegetables in 1994-95.

Bioengineered insect-resistant varieties of corn, cotton, and potatoes were
approved for commercial production in 1994-96.  Bt-enhanced seed was used on 3
percent of corn acreage in 1995.  Results are being closely monitored because
of concerns that widespread use of bioengineered Bt varieties will accelerate
development of pest resistance to foliar Bt treatments. 

A number of cultural production techniques and practices can be effective in
managing crop pests.  These include crop rotations, mechanical cultivation for
weed control, alterations in planting and harvesting dates, trap crops,
sanitation procedures, irrigation techniques, soil fertilization, physical
barriers, border sprays, and habitat provision for natural enemies of crop
pests.  

Use of crop rotations, one of the most important of the current cultural
techniques, varies among crops and production regions.  Most corn, soybeans,
wheat, and potatoes are grown in some kind of rotation.  In contrast, less
than one-third of cotton acres is grown in a rotation; cotton's high 
per-acre returns provide incentive for continuous planting.  Corn production
has provided an example of the effectiveness of crop rotation in reducing
pesticide use--only 11 percent of producers rotating corn with other crops in
the early 1990's used insecticides, compared with 46 percent of those who
planted corn 2 years in succession. 

Weed control through cultivation is widely practiced for row crops, mostly in
conjunction with herbicide use.  Almost all of the potato and cotton acreage
received cultivations in 1995, versus only 66 percent of corn and 41 percent
of soybean acreages.  Field sanitation (removing or destroying plant materials
that encourage pests) is widely used on fruit and nut crops, with 60 percent
of all fruit and nut acreage under this practice in the early 1990's. 
Adjusted planting dates to avoid high insect periods were used as a cultural
control by over half of organic vegetable growers and on 15 percent of the
surveyed area in vegetables.  Water management (for maintaining healthy plants
or suffocating insects) was used by 44 percent of certified organic vegetable
producers, and on 31 percent of all fruit and nut crop acreage.

Research continues on new cultural techniques such as solarization heating the
soil to kill crop pests.  However, most cultural practices do not involve a
marketable product, and research and development depends almost entirely on
public-sector funding.  In addition, while cultural practices may be effective
for controlling pests, reducing pesticide use, and lowering input costs, these
techniques require a knowledgeable producer and increased management. 
     
. . . & for Nutrient Management 
Nutrients applied to soil, which are essential for ensuring adequate crop
yields and profitability, have long been associated with surface water and
ground water contamination.  Improved nutrient management practices attempt to
foster crop yields and profitability while minimizing the loss of nutrients
into the environment.  Improved practices exist for each of the steps in
nutrient management: assessing nutrient needs, product selection, timing
nutrient application, nutrient placement, and cropping management.  The
efficacy of each practice is strongly influenced by field conditions,
operators' management knowledge and skill, economic factors, and weather. 

Assessing nutrient needs.  Most acreage of major crops receives commercial
fertilizer each year.  Farmers following conventional practices often apply
fertilizer at rates based on optimistic yield goals and may not take into
account the nutrients already available in the soil.   Improved nutrient
management requires more information about the available nutrients in order to
avoid over- or underapplication.  

Soil tests for available nutrients can help improve nutrient management,
although many farmers do not conduct annual tests of their fields.  Over
1990-95, use of soil testing ranged from over 80 percent of potato acres in
major producing states to about one-fifth of wheat acres.  Soil testing of
corn, soybean, and cotton acres ranged from 25 to 41 percent.  The extent of
soil testing of these crops varied from year to year.  During the 1990-95
period, soil testing increased on lands being planted to wheat and cotton.  

Testing of plant tissues for nutrient deficiency during the growing season
allows farmers to apply fertilizers initially at low rates based on realistic
or average yield expectations, and then to detect and correct any deficiency
in nutrients that might result from rapid plant growth under
better-than-average growing conditions.   In 1994, the only year in which data
were collected on tissue testing, farmers used the practice on 61 percent of
potato acres and 12 percent of cotton acres,  primarily to determine nitrogen
deficiency.  No data were collected for other crops. 

Improved nutrient management should account for nutrients provided by other
sources.  Up to 17 percent of the acreage in major crops received manure
application in 1990-95.  Analysis of the nutrient content of manure allows
farmers to factor this in when determining additional nutrient needs from
other sources.  Data for 1994 and 1995 indicate that manure analysis occurred
on 30-40 percent of cotton and potato acres receiving manure, but on only 6-12
percent of corn and wheat acres receiving manure.  

Previously planted legumes provided nutrients to about half of the corn acres
and up to one-fifth of the potatoes in the major growing states during
1990-95.  On about half of the corn acres with previous legumes, and most of
the potatoes, farmers reported either soil testing or giving credit for the
legumes in determining commercial nutrient needs.  

Nutrient product selection.  Nitrogen stabilizers or inhibitors (urease
inhibitors and nitrification inhibitors) delay the transformation of nitrogen
fertilizer from ammonia into nitrate and help time the nitrate supply to peak
plant demand.  The potential for economic benefit from nitrification
inhibitors is greatest where soils are poorly or excessively drained, no-till
cultivation is used, nitrogen is applied in the fall, crops require a large
amount of nitrogen fertilizer, or excessively wet soil conditions prevent the
application of nitrogen during the growing season.  The practice is not widely
used.  During 1990-95, farmers used nitrogen inhibitors on 5-10 percent of
corn acres, and on even less of the area in cotton, fall potatoes, and winter
wheat.

Timing nutrient applications.  In addition to assessing nutrient needs, timing
applications to the biological needs of a crop leaves less nitrogen available
for leaching, runoff, denitrification, and other losses, potentially reducing
the total amount applied.  For example, corn requires most of its nitrogen
supply in midsummer.  If nitrogen is applied either in the fall or early
spring before planting, it is more readily lost to the environment than if
applied at or after planting, and farmers often apply a larger amount to make
up for the anticipated loss. 

Economic considerations can lead farmers to apply nitrogen during fall and
spring rather than during the growing season.  Uncertain weather conditions
may shorten the window in which fertilizer can be applied during the growing
season, increasing the risk of yield loss from inadequate nitrogen
availability.  Farmers' opportunity cost of labor and application arrangements
may be significantly higher during the late spring and growing season, when
labor and machinery demands are at a peak, than during the fall, when most
farmers experience a relatively slack period.  Fertilizer pricing patterns
(lower in the fall than spring) also tend to encourage fall application. 

Nevertheless, during 1990-95, growers of corn, cotton, and potatoes generally
avoided applying fertilizer in the fall on about two-thirds or more of the
acres, and in the spring before planting on about half of the acres.

Nutrient placement.  For the major crops surveyed in the Cropping Practices
Survey,  broadcasting--spreading fertilizer across the whole field--was the
dominant method of applying fertilizers.  Broadcasting has a relatively low
field application cost, but broadcast nitrogen is more susceptible to loss to
the environment.  In contrast, banded applications--including injection,
knifed-in, or side dressing--place nitrogen fertilizer closer to the seed or
plant for increased crop uptake and reduced leaching and volatilization. 
Moreover, banded applications can result in higher yields.  While the per-acre
operation cost of injection applications is higher than the per-acre operation
cost of broadcast applications, the overall cost is generally lower because of
lower fertilizer expenses.  During 1990-95, banding was practiced on one-fifth
of the cotton and winter wheat acreage, and 40-51 percent of the acres in corn
and fall potatoes.       

Precision farming, also referred to as site-specific farming, is a promising
new technology for improving nutrient placement.   Precision farming divides
whole fields into small areas and uses a variable-rate fertilizer spreader and
a satellite-guided global positioning system (GPS) to apply the exact amount
of nutrient needed at each area to achieve the expected yield.  Assessments
are underway on how precision farming affects yield, fertilizer use,
farm-level profitability, and the environment. 

Crop selection and management.  Rotating nitrogen-using crops with a
nitrogen-fixing legume crop can reduce the need for commercial fertilizer. 
Legume crops at the early stage of growth absorb residual nitrogen in the soil
and reduce nitrate leaching.  In addition, crops in rotation reduce soil
insect problems, improve plant health, and increase nitrogen uptake
efficiency.  Most potatoes, three-fourths of corn, and 49-61 percent of winter
wheat acres were grown in rotations during 1990-95.

Planting cover crops--such as small grains or hairy vetch--between crop
seasons can improve soil fertility and texture, absorb residual nitrogen
during dormant seasons, and reduce nutrient loss to the environment.  Because
planting cover crops contributes little to current profits, few farmers use
the practice.

"Green" Management of 
Irrigation Water . . .
Improving the management of irrigation water can protect the environment by,
for example, increasing stream flow and by reducing nutrient losses and soil
erosion.  Excessive irrigation water applications can carry nutrients and
other pollutants into offsite water systems and can increase nitrogen
leaching, reducing nutrient concentration in the soil and lowering plant
uptake.  Too little irrigation water, on the other hand, can stunt plant
growth, reducing crop nutrient uptake and increasing residual nutrient levels
susceptible to storm runoff.  

Farmers have been improving irrigation water management by switching from
gravity-flow irrigation to pressurized sprinkler irrigation, by scheduling
irrigation according to plant needs, and by using improved gravity irrigation
practices.  The cost of irrigation improvements can be substantial, but for
many farmers the economic benefits from higher yields and savings on water,
labor, and nutrient expenses offset the cost.

Gravity-flow irrigation has been decreasing in most regions, and sprinkler
irrigation increasing.  Sprinkler systems now irrigate nearly half of total
irrigated area, up from 37 percent in 1979.  Nearly two-thirds of sprinkler
systems were center pivot in 1994, up from less than one-half in 1979, giving
farmers even greater control of water applications.  In addition, more
irrigators are using soil moisture sensing devices to determine when water is
needed--10 percent in 1994, up from 8 percent in 1984--as well as commercial
irrigation scheduling, up to 5 percent in 1994 from 1984's 3 percent.

An emerging technology with potential to achieve optimal plant moisture is
low-flow irrigation, a pressurized method in which water is applied in small,
controlled quantities near or below ground level.  Field application
efficiency of 95 percent or greater (water loss of 5 percent or less) can be
achieved under low-flow systems, although proper design and management are
required to avoid crop moisture stress and soil-salinity accumulation.
Low-flow irrigation systems including drip, trickle, and micro-sprinklers are
used on 4 percent of irrigated cropland acreage, up more than fourfold since
1979.  Low-flow systems are used most commonly for production of vegetables
and for perennial crops such as in orchards and vineyards, although
experimentation and limited commercial applications on some row and field
crops are occurring.

. . . & Crop Residue
Potential long-term environmental benefits of "green" management of crop
residue include reduced erosion and surface runoff, cleaner surface runoff,
higher soil moisture and water infiltration, improved soil organic matter and
long-term productivity, and improved air quality through reduced release of
carbon gases.  Practices for managing residue from the previous crop include
removing it, burning it, incorporating it into the soil, or leaving it on the
soil surface.  While farmers once took pride in clean-tilled fields free of
surface residue, increasingly they are using tillage practices that leave 15
percent or higher residue cover on the soil surface after planting. 

Conservation tillage leaves 30 percent or more of the soil surface covered by
crop residue after planting, and reduced tillage leaves 15-30 percent residue
coverage.  In 1996, farmers practiced conservation tillage on over 35 percent
of planted acres, up from 26 percent in 1990, and reduced tillage on about 26
percent.  Use of conservation tillage has been growing, and conventional
tillage decreasing, primarily because of farmers' expanded use of no-till, a
form of conservation tillage that leaves the soil undisturbed from harvest to
planting except for nutrient injections.  No-till use occurred on nearly 15
percent of land planted to crops in 1996, up from 5 percent in 1989.  The
highest relative use of no-till was on corn and soybean acreage, with the most
rapid expansion occurring for soybeans.  Use of no-till on wheat and other
small grains is more limited but steadily expanding. 

Farmers planting crops on highly erodible lands are required by USDA's
Conservation Compliance Program to have an implemented conservation plan to
protect soil from erosion.  In addition, farmers generally wish to preserve
the fertility of their soils.   These factors have stimulated greater use of
conservation tillage on highly erodible lands than on less erodible lands. 
But on many soils and in many field situations, conservation tillage also
results in lower costs--requiring fewer trips over the field--while maintaining
or increasing yields.

While crop residue management is environmentally friendly in terms of sediment
reduction, whether it is also friendly in terms of pesticide use and loss to
the environment remains under study.  Both the quantity and mix of pesticides
used under different tillage practices need to be examined, as well as the
movement offsite of residuals in water or attached to sediment.

Farmers' use of green practices is being promoted in various conservation and
water quality programs and through expanded information dissemination by
government agencies, universities, and equipment manufacturers.  Improvements
are also being made in applicability and economic feasibility of many green
practices. 

While use of green practices has varied from year to year and by crop and
area, some positive trends are becoming apparent.  Starting in 1996, data
gathering began on practices used with major field crops, as part of USDA's
new Agricultural Resource Management Study (ARMS).  As additional years of
data are compiled and analyzed, trends may become apparent for more of these
practices.
Richard Magleby (202) 694-5615, with Marcel Aillery, Noel Gollehon, Catherine
Greene, Wen-yuan Huang, Merritt Padgitt, and Carmen Sandretto
rmagleby@econ.ag.govSPECIAL ARTICLE BOX 1

Major Sources of Data on Farmers' 
Use of "Green" Practices
The Agricultural Resource Management Study (ARMS), developed from combining
USDA's Cropping Practices Survey (CPS) and Farm Costs and Returns Survey
(FCRS), was conducted by the National Agricultural Statistics Service (NASS)
for the first time in 1996.  The ARMS poses questions about agricultural
resource use and costs,  farm sector financial conditions, and farm production
practices, including Integrated Pest Management (IPM), on major field crops.

Chemical Use surveys, part of USDA's Pesticide Data Program (PDP), were
initially funded under the 1989 President's Food Safety Initiative.  The
objective is to improve the pesticide data base by establishing pesticide
residue monitoring activities and by expanding pesticide use surveys.  Fruit
and vegetable crops are the primary target of the survey program, with
even-year surveys to cover vegetables and odd-year surveys to cover fruits and
nuts. In each year, certain commodities are targeted in order to obtain more
comprehensive information on management practices and costs for those
commodities. A significant emphasis has been placed on collecting data on IPM
and on organic production. 

Cropping Practices surveys (CPS) and predecessor surveys were conducted
annually by NASS from 1964 through 1995, and merged into the ARMS in 1996. 
The CPS collected annual data on fertilizer and pesticide use, tillage
systems, crop sequence, and data on other inputs and cultural practices. 
Fertilizer information has been reported from these surveys since 1964.  In
the mid-1980's, pesticide use, tillage operations, and prior crop questions
were added to the survey.  IPM and nutrient management questions were included
in the 1990's.  The final 1995 CPS gathered data on  corn, cotton, soybeans,
wheat, and potatoes and represented about 182 million acres, including acreage
in major producing states and accounting for 70-90 percent of total U.S.
acreage for these crops.  Due to changing information requirements and
funding, the number of surveyed crops and states varied from year to year.
The Crop Residue Management (CRM) Survey is conducted annually by the
Conservation Technology Information Center (CTIC), a division of the National
Association of Conservation Districts, to provide state and national
statistics on adoption of alternative crop residue management systems for all
U.S. planted cropland.  The CRM survey provides estimates on five different
tillage systems: no-till, mulch till, ridge till (30 percent or more residue);
reduced till (15-30 percent residue); and conventional till (less than 15
percent residue).  A panel of local directors of USDA program agencies and
others knowledgeable about local residue management practices complete the
survey each summer as a group effort.  These local judgments are summarized to
provide state, regional, and national estimates.  Several states also conduct
physical surveys of crop residue levels for validation of the panel-derived
estimates.

The Farm and Ranch Irrigation Survey (FRIS) is a follow-on survey to the U.S.
census of agriculture.   The FRIS, conducted in 1979, 1984, 1988, and 1994,
has followed the last four agriculture censuses,  The survey is based on a
sample of producers reporting irrigation use in the census, excluding
irrigation in Alaska and Hawaii and on horticultural specialty, institutional,
experimental, research, and Indian reservation farms.  Data are collected on
irrigation water sources, costs, application technologies and frequency, crop
yields, water conservation activities, and water management practices,
covering from 17 to, most recently, 24 crops.

SPECIAL ARTICLE BOX--2
Glossary of "Green" Practices Terminology

Pest Management

Pest scouting involves checking a field for the presence, population levels,
activity, size and/or density of  weeds, insects, or diseases.  A variety of
methods can be used to scout a field.  Insect pests, for example, can be
scouted by using sweep nets, leaf counts, plant counts, soil samples, and
general observation.  Economic thresholds are levels of pest population that,
if left untreated, would result in reductions in revenue that exceed treatment
costs.  The use of economic thresholds in making pesticide treatment decisions
requires information on pest infestation levels from scouting.
Application of herbicides and fertilizers in bands or strips spreads
herbicides over, or next to, each row of plants in a fields.  Banding
herbicides often requires row cultivation to control weeds in the row middles. 
Banded applications of fertilizer reduce loss of nutrients            .
Applying herbicides only after planting and weed emergence (post-emergence) is
considered more environmentally sound.  Post-emergence herbicides have little
or no soil residual activity, unlike pre-emergence herbicides.
Bacillus thuringiensis (Bt) is a bacterium used to control numerous larva,
caterpillar, and insect pests in agriculture; Bacillus thuringiensis var.
kurstaki and Bacillus thuringiensis var. aizawai are commonly used strains. 
Bt is most often applied directly to the leaves of plants, but some new
varieties of corn contain natural genes and bioengineered genes produced from
the soil bacteria Bt to give them host plant resistance to certain insect
pests. Pheromones, biochemical agents that attract insects and modify their
behavior, are used in traps or lures to draw insects away from plants in the
field. Beneficial organisms are pest predators and parasites that are used to
control crop pests and weeds.  Crop rotation involves alternating the crops
grown in a field on an annual basis, which interrupts the life cycle of insect
pests by placing them in a non-host habitat.  Weed control through cultivation,
or tillage can destroy pests in a variety of ways, for example, by directly
destroying weeds and volunteer crop plants in and around the field.  Field
sanitation procedures remove or destroy crops and plant material that is
diseased, provide overwintering pest habitat, or encourage pest problems in
other ways.  Adjusted planting dates can be used to avoid periods of heavy pest
infestations.  Delayed planting of fall wheat seedlings may help avoid damage
from the Hessian fly, for example.

Nutrient Management

Soil and plant tissue testing provides information about the nutrient levels
in the soil or plant tissue and can help farmers avoid overapplicatrion of
fertilizer and nutrient loss.  Nitrogen stabilizers or inhibitors delay the
transformation of nitrogen fertilizer from ammonia to nitrate and help match
the timing of nitrate supply with peak plant demand.  Precision farming is a
technology that divides whole fields into small areas and uses a variable-rate
fertilizer spreader and a global positioning system to apply the exact amount
of nutrient needed at a specific location.
Cover crops planted between crop seasons can prevent the buildup of residual
nitrogen and reduce nutrient loss by minimizing soil erosion.  Rotating
nitrogen-using crops with legumes adds nutrients to the soil and can be used
as a nutrient management technique, reducing the need for manufactured
fertilizer applications.

Irrigation Management

Water management can be used as a pest management technique either directly,
by suffocating insects, or indirectly, by changing the overall health of the
plant. Water management may also be important in nutrient management by
reducing nutrient loss into the environment.  Irrigation systems are one form
of water management.  Types of irrigation systems include:  Gravity-flow
irrigation is a system that relies on gravity alone to distribute water across
the field.  Pressurized sprinkler irrigation uses pressure to spray water over
the field surface, usually from above-ground piping.
  
Low-flow irrigation, including drip, trickle, and micro-sprinkler
systems, is a form of pressurized system in which water is applied in small,
controlled quantities near or below ground water.

Crop Residue Management

Reduced tillage includes tillage types that leave 15-30 percent residue cover
after planting, or 500-1,000 pounds per acre of small grain residue equivalent
throughout the critical wind erosion period. Weed control is accomplished with
herbicides and/or cultivation.  Conservation tillage includes any tillage and
planting system that maintains at least 30 percent of the soil surface covered
by residue after planting to reduce soil erosion by water.  Where soil erosion
by wind is the primary concern, any system that maintains at least 1,000 pounds
per acre of flat, small grain residue equivalent on the surface throughout the
critical wind erosion period. Types of conservation tillage include:  No-till,
in which the soil is left undisturbed from harvest to planting except for
nutrient injection.  Planting or drilling is accomplished in a narrow seedbed
or slot created by coulters, row cleaners, disk openers, in-row chisels, or
roto-tillers. Weed control is accomplished primarily with herbicides.
Cultivation may be used for emergency weed control.  Ridge-till, in which the
soil is left undisturbed from harvest to planting except for nutrient
injection.  Planting is completed in a seedbed prepared on ridges with sweeps,
disk openers, coulters, or row cleaners.  Residue is left on the surface
between ridges. Weed control is accomplished with herbicides and/or
cultivation.  Ridges are rebuilt during cultivation.  Mulch-till, in which the
soil is disturbed prior to planting.  Tillage tools such as chisels, field
cultivators, disks, sweeps, or blades are used.  Weed control is accomplished
with herbicides and/or cultivation.

END_OF_FILE

