Rural Study Center Launched by Federal Reserve Bank

October 14, 1999

The Federal Reserve Bank of Kansas City has formed the "Center for the Study of Rural America," designed to help all rural areas of the country experience greater economic growth. Four in ten rural counties have captured nearly all the economic growth, the center's director, Mark Drabenstott, says.

Counties where growth has been greatest share three key traits, says Drabenstott. Some are next to major cities and are being "suburbanized"; others have striking scenic amenities such as mountains or lakes, and others are emerging as areas of rural commerce, providing retail, financial and health services to an ever-widening rural area.

This means the largest rural economic gains are moving to regions like the intermountain west, the Ozarks and rural counties that benefit from market access such as the counties along Interstate 80 in Nebraska or the counties next to the Kansas City metro area.

More important to rural areas than even the low crop and livestock prices is a trend Drabenstott refers to as "supply chains." Many farmers no longer grow generic commodities as they did in the past, he adds. Instead, they have signed on as "the first link in a more tightly choreographed food system."

In a supply chain, farmers no longer make independent production decisions and sell their crops at the local elevator. Rather, farmers sign a contract with a major food company to deliver precisely grown farm products on a schedule.

Once confined to chickens and vegetables, supply chains are starting to dominate hog production and are spreading to grain, says Drabenstott. In 1997, nearly 60% of all hogs were sold under some form of contract compared with less than 5% in 1980. Forty or fewer supply chains may control nearly all U.S. pork production within the next few years, he says.

Agricultural policy used to be rural policy, but a much broader approach is needed if rural areas are to achieve economic potential, Drabenstott says. Since 1950, the number of farm-dependent rural counties has plummeted from more than 2,000 to just 556 in the early 1990s. That means agricultural policy "no longer cures rural ills," he adds.

There are four issues that will be important to the nature of the rural economy in the next century, says Drabenstott: new sources of economic growth; decisions on new investments in infrastructure; market innovations to increase available equity and other forms of capital, and innovations in traditional delivery systems for public services.