Alternative Uses for Crops Seen as a Remedy for Farmers

Among the biggest challenges for agricultural banks these days is figuring out a way to keep their farm customers in business.

With prices for corn, hogs, soybeans, and other commodities falling well below their five-year averages, farmers' net income in 1998 dipped for the second straight year, according to the Department of Agriculture. Net income, which peaked at $55 billion in 1996, tumbled to $44 billion last year and is projected to fall again in 1999.

"The question bankers need to be asking is, 'How do you keep some of the small farmers in the game when the rules are changing?'" says Mark Drabenstott, an economist at the Federal Reserve Bank of Kansas City.

Mr. Drabenstott, who runs the Kansas City Fed's new Center for Rural America, suggests that bankers encourage farmers to seek alternative uses for their crops. He says, for example, that soybeans could be used in drugs that reduce cholesterol or even fight cancer, while corn can be used in any number of nonfood products.

"The future of farming lies in crops that are valued as products, not as commodities,'' Mr. Drabenstott says.

In his view, bankers should be persuading farmers to team up to meet demands of the drug companies. Bankers should also be trying to position their communities as locations for factories that manufacture such products.

"What I see are islands of specialized production," Mr. Drabenstott says. "The question is, where are we going to put these islands?"

-- Alan Kline