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Transcript

Tim Sablik: My guest today is Joseph Mengedoth, a regional economist at the Richmond Fed. Welcome to the show, Joe.

Joseph Mengedoth: Thanks for having me, Tim. Happy to be here today.

Sablik: We're going to be talking about a recent Regional Matters article that you wrote, which takes a look at the role farming plays in the Richmond Fed's Fifth District. As a reminder for our listeners, our district includes Maryland, Virginia, most of West Virginia, and North and South Carolina.

To start off, what motivated you to examine the economics of farming?

Mengedoth: When I'm out traveling across the district and I visit rural communities, people often talk about the importance of agriculture to their local economy. Oftentimes, they talk about how much value it creates. It's hard to put that in perspective sometimes. So, what I wanted to do was to look at how much agricultural goods account for across our district and look at it by county and by percentage of GDP to get a sense of "How big is that?"

Sablik: Before we dig into what that looks like in our district, can you give us a sense of what the economic contributions of farming look like on a national level?

Mengedoth: Sure. Nationally, agriculture production accounts for about 1 percent of total GDP, so it's relatively small. Similarly, farm jobs account for just over 1 percent of total employment.

Sablik: Looking at the Fifth District as a whole, how does it compare overall to the national picture?

Mengedoth: Our district looks pretty much identical, with about 1 percent of GDP and employment. On aggregate, these numbers aren't that large. But, as we'll get into in a little bit, that varies quite a lot across space.

Sablik: Farming tends to be more concentrated in rural areas, largely due to the greater availability of land. What sort of agricultural products are produced in the rural parts of the Fifth District?

Mengedoth: There is livestock production. That includes cattle, dairy, poultry, eggs, and pork. Then there is also some standard grains like wheat and corn. In our district, there are some things that are more common to the South or Southeast. That includes tobacco, cotton, peanuts. Then, of course, we have our fruits and vegetables, too. Can't forget those.

Sablik: All part of a healthy diet.

What is the economic impact of farming for the rural counties of our district?

Mengedoth: On average, rural counties in our district generate about 3 percent of their GDP from agriculture and about 4 percent of employment comes from farming. So, we're looking at three to four times the district average or the national average. But even in that, there's a lot of variation across the district.

It's very prominent in certain areas. One example is Tyrell County in North Carolina. That county has a lot of livestock production. There, total production accounts for almost 30 percent of GDP — that's the highest in our district — and it accounts for about 12 percent of total employment.

There are a few small rural counties in the Shenandoah Valley where farming is an even larger share of employment. Maybe it is less so in total value, but in [terms of] employment there are a few counties where it's upwards of 20 percent of total employment. It's significant.

Sablik: In your analysis, did you learn anything about the success of farming in the district when it comes to, say, income generated versus costs?

Mengedoth: I did find something interesting. Farming creates value. It creates jobs. It can also be expensive to operate a farm. When you look at the personal income data, which can take out the cost of operating a farm, we see some net income numbers that were negative and quite negative.

This doesn't mean that every farm is losing money or that workers are not being paid. But, in aggregate, the costs associated with farming can offset [the] income that it creates.

There are some reports that the USDA has out about this as well. They show that a typical farming household, particularly those with smaller operations, have to rely on other forms of income to generate a positive net income for their household. They also had another report that showed that larger scale farms — which they call commercial farms — do tend to generate positive income.

Sablik: Did you look at whether subsidies are involved for any of the farms that have negative income, or is that less likely to be the case for smaller farms [because] they're not going to be getting subsidies?

Mengedoth: I did not look at that. I suspect that many of these farms rely on agritourism.

Sablik: That was going to be my other guess. I wrote an article a couple years back and I visited the Richlands Dairy Farm in Blackstone, pretty close to here. They were a full-time dairy farm, but they were talking about and have since built a creamery, and they do fall festival tours. They were telling me at that time that's kind of the only way for a small family farm to survive is to do agritourism. They can't compete with the big farms.

Mengedoth: I think that's absolutely right.

Sablik: So, it sounds like for a fair number of farmers, this work is actually sort of a money losing proposition. Do you have any sense from your research why they continue to do it?

Mengedoth: In some cases, it's a family tradition. It does create jobs. It does create opportunity. Part of it is this is the family's land. This is what we do. This is what we've done. So, there's some generational aspect of farming. It's got to be a passion.

And, I think there might be even something to the fact that all of the operations and the cost to run the farm can be deducted. So, there's probably some tax benefits and savings from that.

Sablik: I dug into this question a little bit in that article that I mentioned that I wrote a few years back for the magazine, which was inspired by a paper that John Bailey Jones had written with co-authors looking at dairy farms in New York. They were exploring the same question: Why are people dairy farmers if most of them basically don't make any money? Their conclusion was that a lot of it is driven by wanting to be your own boss ... That's sort of what drives entrepreneurs generally, at least in the economics literature.

Mengedoth: The way I was thinking about it was that farming still creates a way of life, a means to live. A lot of times the farmhouse is beautiful. There's this beautiful land. So [farming] provides a way for people to stay where they are, maybe at the house that they grew up in.

Sablik: Have you gotten any sense, either from the research or from talking to your contacts in the district, how recent developments and tariffs might be affecting farmers?

Mengedoth: When I was in Loudoun County, the reason I was there was to give a presentation to an agriculture subcommittee of their economic development authority. It was a bunch of farmers and small family operations in the room. At the time, some tariffs were being talked about. It was before some things had been enacted. I asked the group how they were feeling about it.

They weren't that concerned with tariffs on their goods being exported. Most of them weren't really doing exports. But where they were concerned was overall tariffs being an upward pressure on prices. [With] consumers already being price sensitive, [tariffs] could mean that they would see less demand for their products. They also felt most of what they produced were specialty or higher quality goods. So, if customers started trading down, they might be more of a luxury item that could get cut.

Sablik: Are you planning to do any further research on this topic?

Mengedoth: Well, I'm definitely looking at other rural topics. I have been looking at population growth and migration. But I don't have anything else specifically farm related that I'm working on right now.

Unfortunately, the data series that gave us the farm employment numbers for 2022 was discontinued in 2023. That makes it a little bit challenging to do continual follow-up work on this, especially on the employment side.

On the GDP side, though, one thing that I think would be interesting to look at is how potentially new things have come into counties and create a large value that may be changing the way things look. It might look like agriculture isn't as big of a share of that local economy as it used to be. But it might be the case that it is and is still growing, but something that creates a ton of value like a data center might be obscuring the data some.

Sablik: It'll be interesting to keep a look at. Like you said, this is part of digging into the data and beyond the aggregate data and seeing what's really [happening] on a smaller level.

Mengedoth: That was something that I heard up in Loudoun County in Virginia, which technically by our definition of urban versus rural we consider urban because it's part of the D.C. MSA. But it's on the outskirts. A large portion of the county, particularly the western part of the county, is quite rural and they have a lot of agriculture. But then on the east side of the county, closer to D.C., they have a bunch of data centers. That has brought in a lot of revenue. It has been a lot of value.

Sablik: Well, Joe, thanks so much for joining me today.