Agriculture, parts of rural Minnesota may avoid recession

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Nearly 30 years ago, when the national and Minnesota economies found themselves heading towards a recession, a character with both money and a sense of humor put up a billboard in Fargo that read: “North Dakota Refuses to Participate in the Recession.”

That brought the desired chuckles for motorists crossing the Red River of the North. It also proved premature. A mild recession and a severe agricultural financial crisis would later visit the state.

That billboard could go up again. It would also be an accurate greeting for motorists visiting large areas of rural Minnesota. The recession threatening most of America would need to run long, and deep, before it spills over on the agriculture and energy sectors.

“When I look at the economy of my home area, I just don’t see much of an immediate threat,” said economist Ed Lotterman, originally from Chandler in southwest Minnesota. “It (the recession) could pass right over us.”

Agriculture is extremely profitable right now. Commodity prices for most farm crops are at all-time highs or near record highs, even when adjusted for inflation. On top of that, the western tier counties of Minnesota are also riding an energy boom, with construction of windmills and electrical generating equipment cresting glacial ridges on the heels of major ethanol plant construction.

Despite a generally upbeat rural outlook, there are industries scattered about Minnesota that are vulnerable to current recession trends, warns Lotterman, who teaches economics at Augsburg College and writes on the subject for the St. Paul Pioneer Press and Idaho Statesman newspapers. For instance, Schwans Foods in Marshall is especially energy dependant as it processes, freezes and makes home delivery of food products. It also has exposure to the weakening economy on the market side as urban consumers tighten spending.

Ultimately, higher land costs will join inflated energy and input costs to spill over on farmers, circling back to take the profits out of agricultural production. But that’s down the road – at least a year out. For now, the Bush administration and Congress are looking for quick fixes to stimulate the economy.

Of the four main sectors of the rural Minnesota economy, only agriculture and its energy/ethanol component appear to be immune to the national economic slump. Forest industries’ lumber sector is already feeling the impact of a 14 percent reduction in residential construction, and paper production is subject to business conditions going forward. Ore production is vulnerable to American industrial demand.

Only tourism’s impact is questionable. Upper Midwest consumers have stayed and played closer to home in past economic downturns, thus passing around tourism dollars rather than traveling to far off resorts.

How the current economy plays out on rural Minnesota becomes even more uncertain when measured against North Dakota.

Larry Leistritz, an applied economist at North Dakota State University in Fargo, said the strong agricultural economy, the continuing lignite coal and electricity production in North Dakota, and a rush to develop that state’s western oil resources has North Dakota’s economy “as strong as its ever been.”

Unemployment is minimal, or about half the 4.9 percent recorded in Minnesota for December. Anecdotal information suggests that farmers are busy buying new and bigger equipment with substantially higher 2007 farm incomes. And since none of North Dakota’s financial institutions are large, multi-state money center banks, none are showing problems with the so-called “sub-prime” lending and housing mortgage crisis that is threatening American finance houses.

What this shows is that large parts of rural American will wait out the current recession fears to see where it goes. It should serve as a reminder to advocates of quick-fix schemes that messing with tax codes and other tools are hard to target to where the needs are, or where they may do the most good.

On top of that, there is another lesson from past economic cycles that Leistritz and other economic observers have spotted about rural America. Small towns have as many problems with good times as with bad.

Higher farm incomes lead to bigger farm machinery. That leads to larger farms and lesser rural retail sales, prompting more consolidation of population and economic activity into larger cities and urban centers.

Recalling the late 1970s and early 1980s, Leistritz said NDSU researchers have found that in 1980, the amount of economic activity in sales of goods and services was evenly split between the four largest North Dakota cities and the rest of the state.

Now, he said, about four-fifths of all such commerce is accounted for by the cities of Fargo, Grand Forks, Bismarck and Minot.

That should give us all pause, on both sides of the Red River of the North.

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