Infrastructure

US farmers, as a whole, are thought to strongly support free trade. That is likely because the US is a powerhouse when it comes to exporting agriculture products. It is often cited that US farmers have a competitive advantage due to more fertile soil and government subsides (such as government provided crop insurance).

However, infrastructure is the most critical input to US agriculture competitiveness. Our broad view of infrastructure includes government funded infrastructure like roads and ports, private infrastructure like processing plants, and also human capital and know how.

“You didn’t build that”

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business – you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

-Barack Obama

While former President Barack Obama was much maligned for the quote above, he is not incorrect in stressing the importance of the US infrastructure and system. His fault was making the leap from building roads and bridges to implying that the government was responsible for all the success in America, and therefore we should presumably increase its size and pay higher taxes. That debate is for another blog.

Government provided infrastructure, though, is critical to the success and value of farmland. Without access to processing and then to end consumers, farmland is much less valuable. While it is often stated that the world is running out of arable land, there are many fertile regions, such as in Brazil, that are very fertile and prime for growing crops. However, due to a lack of infrastructure the cost to get the product to market makes farming infeasible.

Just a few years ago China started heavily investing in its railroad system because as one economist put it, it was cheaper to transport coal from West Virginia to Beijing then from Western China.

However, private infrastructure is also critical. It is not just roads and ports that one needs, but also equipment and processing. It is easier to start growing in an area where there is access to processing plants and equipment dealers. Even large operations usually share processing facilities.

Network Effects

Most importantly though, are people. What competitive advantage does Silicon Valley have? It is expensive to live there are California has high taxes. Instead it is the network of people who are established there and know how to run technology companies or have the skills necessary to work in technology companies. Sharing knowledge, skills and labor is a huge competitive advantage.

US farms are among the most productive in the world because knowledge has built up for centuries. Land rights have been secure and the farms have on average been prosperous. This has led to a build up of know how, and also has made US farms comfortable to invest in order to increase their productivity.