Unfavorable Circumstances: Part 2
In my last column we focused on the question posed to me concerning the biggest threat to being a low cost producer in the global market. This was identified as continued appreciation of land values.
The next factor is a combination of attributes. For commodity producers in the high government payment zones, it would be the 2007 Farm Bill, along with high input costs. Concerning government supports, let's put the U.S. in perspective with other regions of the world. Supports are 17 percent of gross farm revenue in the U.S. Contrast this to Canada at 22 percent, the European Union at 34 percent, Brazil at 3 percent and New Zealand and Australia at 2 percent and 3 percent respectively. Thus, emerging regions of competition have a cost or revenue benefit to the U.S.
For those commercial producers with high debt loads on variable interest rates, this could be the leading factor, along with increasing input costs, which increase variable costs. However, these also influence other regions depending on currency values and special incentives given by the governments or agribusiness firms.
For those that depend on migrant labor, the pending immigration reform is a looming threat to the cost structure. Some estimates indicate the increased cost could range from 10-20 percent. What are some other wild cards you are facing? Let me know.