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Gambling With Texas Agriculture

Agriculture is a basic resource industry that supports numerous other industries in the processing and distributing chain that ultimately leads to the consumer. In Texas, agriculture accounts for nearly 13 percent of the jobs in rural counties, compared to less than 1 percent of the jobs in metropolitan areas. (See Exhibit 14.)

But agriculture, particularly in Texas, has always been a gamble, a game for the strong that requires a tough constitution, a love for the land, and the ability to persevere in the face of adversity. A multitude of forces, most of them beyond a farmer’s control, can reduce the odds of success. Market prices, government regulations, insects and poor weather all can affect—or wipe out—potential agricultural profits. As the cowboy poet, Baxter Black, once noted “We who work the land are that wonderful combination of cleverness, belligerence and immunity to pain.”[68]

Today, farmers in Texas and throughout the U.S. increasingly speak of crisis conditions. A mid-September 1999 hearing held by the U.S. House Committee on Agriculture emphasized the challenges facing farmers. U.S. Agriculture Secretary Dan Glickman said the year’s prices for corn, rice, soybeans and wheat were likely to be from 26 to 31 percent below their five-year average; soybean and corn prices hadn’t been so low for more than a decade.[69] And this situation occurred while farmers around the country faced a variety of adverse weather conditions, from drought to hurricanes, which limited their ability to produce crops.

Farmers also face challenges from international competition, weak export demand and changing federal farm policy. The combined effect of these factors, among others, has seen federal supplemental and disaster payment assistance to farmers rise from $7.5 billion in 1997 to a 1999 total of more than $21.5 billion, according to the U.S. Department of Agriculture. Of those amounts, Texas producers received $647 million in 1997 (9% of U.S. total) and $1.9 billion in 1999 (9% of U.S. total), an increase of 194 percent. The risky nature of farming has contributed to slow growth in Texas’ rural counties, which have created jobs less than half as fast as metro areas over the last three decades. And conditions do not seem to be improving; Vernie Glasson, executive director of the Texas Farm Bureau, said, “I feel like [farming conditions] have worsened since the 1970s. As I travel the countryside, more often than not, I notice farmers working with used or worn-out equipment, and I also notice that the conditions of farmsteads are deteriorating. The largest growth [in farming] stems mainly from smaller farms worked by part-time farmers, most of which rely on off-the-farm employment to supplement their income. This is an indicator to me that agriculture isn’t prospering.”

Texas Farmsteads
Number of Farms
In 1992, Texas had 180,644 farms (defined as any place from which $1,000 or more or agricultural products were or would have been produced and sold) with 85,937, or 48 percent full-time operations. By 1997, there were 194,301 farms in Texas, of which 83,284 or 43 percent were full-time farms.[70] In short, Texas gained farms, but fewer were full-time operations.

More than three-fourths of the state’s non-metro counties and all but three metro counties—Cameron, El Paso and Hidalgo—increased the total number of farms within their boundaries between 1992 and 1997. But while 59 percent of metro counties also increased the number of full-time farms, only 30 percent of non-metro counties saw an increase in full-time farms. (See Exhibit 35.)

Exhibit 35
County Type Number of Farms
  Number of Full-Time Farms 1997 Average County Share of Full-Time Farms 1997 Average Change in Full-Time Farms 1992-1997 Counties Losing Full-Time Farms 1992-1997
Farm-Dependent 15,616 56% -5.24% 51 of 65
Non Farm-Dependent 43,262 43% -3.73% 85 of 131
Metro 24,406 37% -0.46% 22 of 58
Note: Some county data not available to avoid disclosure of confidential information regarding individuals.
Sources: Texas Agricultural Extension Service, USDA 1997 Census of Agriculture and Texas Comptroller of Public Accounts.

The more rural counties lost the greatest number of full-time farms, although these counties still retain the largest share of full-time farms in the state. Of the 65 farming-dependent counties (all of which are non-metro counties), 51 lost full-time farms.

Changing Landscape of Farms in Texas
While more land is now being farmed in Texas on more farms, the actual size of farms and number of full-time farms has decreased. As the number of full-time farms in Texas decreased so did the average size of farms. (See Exhibit 36.)

Exhibit 36
County Type Land in Farms and Size of Farms
  Land in Farms (Acres) 1997 Average Change Land in Farms Per County 1992-1997 Counties Gaining Land in 1992-1997 Average Size of Farms Per County (Acres) 1997 Average Change in Size of Farms Per County 1992-1997
Farm-Dependent 38,876,746 6,067 40 of 64 2,355 -95
Non Farm-Dependent 68,011,939 -6,804 64 of 130 2,117 -146
Metro 22,741,360 14,630 33 of 57 519 -33
Note: Some county data not available to avoid disclosure of confidential information regarding individuals.
Sources: USDA 1997 Census of Agriculture and Texas Comptroller of Public Accounts.

Between 1992 and 1997, 421,678 additional acres became farmland in Texas. Thirty-three of the 57 metropolitan counties for which data is available (all but El Paso) gained land for farms, while the other 24 lost farmland. Webb County gained the most, with 464,002 acres converted to farming, while Hays County, south of Austin, lost 164,957 acres to other uses, the largest county reduction in farmland.

Breaking Up the Farm

Pat George, Leaving the Farm
Each year, many Texas farmers quit their farms for one reason or another. Consider the case of Pat George, a Swisher County farmer for 36 years. The George family farm, near Tulia in the Texas Panhandle, produced cattle, cotton, grain sorghum and wheat on about 5,000 acres of owned and rented land.

George had been battered by a combination of drought and low commodity prices. Four of the past five years had seen drought conditions devastate the Panhandle, and when the rains did come, the cattle market went sour. George said that in 1996, “after I paid the bank I had $15 left.” As he had over the past few years, George had to dip into his savings to pay the bills at the end of his last year in the business; now he’s packed it in and made arrangements to manage a golf course.

Of the 194 non-metro counties with data available, 104 gained farmland, while 90 lost. Overall, Texas farming-dependent counties gained an average of just over 6,000 acres in farmland from 1992 to 1997, while non farming-dependent non-metro counties lost about 6,800 acres on average. Metro counties added an average of 14,630 acres during that same time period.

  • In 1992, the average farm had 725 acres but by 1997, that area had declined to 676 acres, a decrease of almost 7 percent. Only 11 of the 57 reported metro counties and 52 of the 194 non-metro counties saw larger farms over the five-year period.
  • The average metro county farm size dropped 33 acres, the average farming-dependent county farm lost 95 acres, and the average farm in non farming-dependent non-metro counties lost 146 acres.

Dr. Charles Gilliland of the Texas A&M Real Estate Center says that large agricultural holdings are being broken up to become smaller farming tracts and suburban properties. “This phenomenon of land conversion from agricultural use to urban use is likely to continue for some time,” he said.

The most rural counties have the largest average farms and were the only type of county that significantly gained in average farm size. There are some very large farms in Texas—12 counties have average farm sizes of more than 10,000 acres. Few of these large farms raise food crops—mostly feed crops, cotton, beef and sheep. Two of these large farm counties, Pecos and Presidio counties, have the largest portion of agriculture activity in vegetables, with some fruit and nut production in Presidio County.

Loving County has the largest average size of farms with 25,148 acres per farm. This West Texas county has only 14 farms and a population of just 113. Four of these large-farm counties had drops in average farm size between 1992 and 1997 of more than 1,000 acres. Winkler County lost nearly 5,000 acres in its average farm size over that period, but actually added 55,000 acres of farmland. The county also witnessed a large increase in the number of farms, from 25 in 1992 to 39 in 1997, which reduced the average size of each farm.

Texas Agriculture—a Family Tradition
Family Farming
The nature of agriculture production is changing, especially nationally. Traditional homestead farms are giving way to larger, corporate operations and to an increasing number of part-time farmers.

In Texas, however, family farms seem to be holding their own. Between 1992 and 1997, there was an 8-percent increase in the number of family-held farms—either solely owned (97 percent) or family incorporated (3 percent). During the same time period, there was a 10-percent drop in the number of non-family owned corporate farms. Farms organized as partnerships—with no differentiation between family partnerships and non-family partnerships—available—increased by slightly over 4 percent. (See Exhibit 37.)

Exhibit 37
County Type Business Structure of Farms
County Type Number of Family Farms 1997 Percent Change in Family Farms 1992-1997 Number of Partnership Farms 1997 Number of Non-Family Corporate Farms 1997 Percent Change in Non-Family Farms 1992-1997
Farm-Dependent 23,990 4.9% 3,283 140 9.3%
Non Farm-Dependent 91,466 6.6% 8,413 258 0.7%
Metro 59,752 11.8% 4,727 210 -3.0%
Note: Some county data not available to avoid disclosure of confidential information regarding individuals.
Sources: USDA 1997 Census of Agriculture and Texas Comptroller of Public Accounts.

When comparing Texas to the rest of the nation, it should be noted that the corporate farm structure might be less attractive in Texas than other areas because of the potential franchise tax liability. Only the corporate form of business in this state pays the franchise tax; sole proprietorships and partnerships do not. The non-family corporate farm represents less than 1 percent of the farms in the state.

Fifty-one Texas counties lost family farms between 1992 and 1997. Almost three-fourths of these counties lost farms overall, not just family farms. Thirty-one of these counties showed gains in partnership farms, while 16 gained in the number of non-family corporate farms. In Texas, there does not appear to be a general shift away from the traditional type of farm.

Of the 51 counties showing a reduction in family farms, 20 were farming-dependent counties. Four were metro counties, including El Paso, Cameron and Hidalgo counties, which were the same three metro counties along the border with a decrease in the number of farms between 1992 and 1997. Hidalgo witnessed the largest reduction in family farms—138 farms—and also was the largest loser in partnership farms (32) and non-family corporate farms (24). Overall, the metro counties showed the largest gain in family farms while the farming-dependent counties had the largest increase in non-family farms between 1992 and 1997.

The Struggle to Keep the Farm in the Family
In addition to market prices, government regulations, insect infestations and poor weather, farmers also must worry about the impact of estate taxes on their farms after they are gone. Texas leads the nation in total number of farms, the majority of which are family operated. Of the 194,000 farms in the state in 1997, an individual or a family owned about 88 percent. The average age of farmers in Texas was 56 in 1997.[71]

The Virtue Tax

The inheritance tax penalizes Texans’ hard work and perseverance and provides a real disincentive to continuing the family farm and ranch.

Most states as well as the federal government utilize “sin taxes” for revenue—cigarette and alcohol taxes. In conversation during one of the past state budget crunches when those taxes had been raised, the Comptroller’s Chief Revenue Estimator James LeBas was told that the State needed to start taxing virtue. After having a good laugh about this, LeBas remembered that the government already did have what could be considered a “virtue tax.” The inheritance tax, he said, was essentially a tax on the virtue of men and women. In making his point, LeBas stated that it takes virtues such as hard work, frugality, savings, investment, talent and success to build up an estate. Then, once a person has cultivated a lifetime of those virtues with an estate being all that is left to show of them once the person has passed on, the government comes in and takes more than half of what has been achieved.

Americans have been paying the estate tax—also known as the inheritance or “death” tax—since it was created in 1916. Due largely to rising land values, some farm families have been paying what’s become a disproportionate share of the tax than other Americans even though Congress has attempted to ease the burden on agriculture. Oftentimes, a large part of a farmer’s estate value is tied to their business holdings, such as land and equipment.[72]

Ross Korves, deputy chief economist for the American Farm Bureau Federation (AFBF) said that land accounts for about 80 percent of farm and ranch assets. This leaves those who inherit farms or ranches more susceptible to paying estate taxes than most others because according to Korves, “farmers and ranchers often hold land for 30 years or more and are hit with taxes on inflated gains in value, not real gains. The cumulative effect of this is that farmers often live poor and die rich... (getting) hit with estate taxes that they had not anticipated.”[73]

The estate tax has been criticized by agricultural organizations, which argue that it makes it difficult for farmers to transfer the farm from one generation to the next because it sometimes makes it necessary for farm families to sell their business holdings, such as land and equipment, to pay the tax.[74]

The tax, which in most instances must be paid before any distributions to the heirs of the estate, is a one-time tax on the total value of the estate with the exception of a credited amount, known as the unified tax credit. The tax rate can equal 55 percent of the taxable estate and must be paid on any amount exceeding the credit, which is currently $675,000 and will increase annually through 2006 when it will reach $1 million.[75]

A portion of the amount is credited to the state from which it is paid. In 1999 and 2000, Texas received estate tax payments of $256 million and $278.5 million respectively from the IRS.[76]

According to a report by the USDA Economic Research Service, the federal Taxpayer Relief Act of 1997 provided several measures to ease the tax burden on farmers and other small business owners. Among the tax-reducing measures provided were new tax credits for families with children, education and retirement incentives and lower capital gains taxes.

Additional measures allowed farmers to defer tax payment from one year to the next without penalty on assets sold due to forced liquidation in bad year, i.e. drought or other disaster. This deferment means they won’t pay higher capital gains taxes. Farmers may average their income (including the sale of all assets but land) over future years to keep from paying higher tax rates in less profitable years.

Steps taken in earlier years to ease the impact of the estate tax on farmers included special use valuations, which allow for the appraisal of farmland at its production value rather than market value, and allows farmers’ heirs to pay the estate tax in installments over a 14-year period (most estates must pay the tax within 9 months of death).

In addition to the tax credit mentioned above, the law created an additional $675,000 exemption on the value of the business for farmers and other family businesses. However, the total combined credit and exemption allowed under law is $1.3 million.[77] According to Pat Wolff, senior director of governmental relations for the AFBF, the law doesn’t go far enough. She says one of the Farm Bureau’s key tax priorities is calling for an end to the estate tax.

Many members of Congress also are advocating a repeal of the tax. Beneficial alternatives to eliminating the tax according to the AFBF include additional exemptions. AFBF economist, Ross Korves, estimated that increasing the exemption to $2 million would cover 95 to 98 percent of producers, and a $5 million exemption would likely nearly eliminate the tax for everyone who produces food and fiber.

In the meantime, farmers and ranchers must prepare their estates accordingly. According to an AFBF analysis of how many farmers and ranchers could have to pay estate taxes in the U.S., the total could be anywhere from 10 to 15 percent depending on increases in land values.[78]

Taking Chances with a Major Industry
Agriculture and the Gross State Product
The broadest gauge of economic impact is gross state product (GSP), a measure that places a dollar value on the amount each industry or activity increases the size of the state’s economy. By the GSP yardstick, the real output of Texas farms and agricultural services rose by more than 75 percent from $3.7 billion to $6.4 billion between 1977 and 1996 (adjusted for inflation, in “real” 1992 dollars).

Farming represents 1.4 percent of Texas’ GSP. However, when agriculture-related industries are taken into consideration with food processing, agricultural services, lumber and wood, textiles and paper included, that figure more than doubles, totaling 3.5 percent and representing a contribution of more than $24.3 billion to the state’s economy in 1999. And these figures do not include the multiplying effect that both direct farm income and farm-dependent manufacturing have on retail activity and service jobs in the state.

When considering the GSP it is important to note that the GSP numbers are presented in real terms, which are 1992 dollars. In many cases, agricultural indicators, such as commodity cash receipts are presented in actual dollars. So, for example, $13.4 billion in cash receipts for crops and livestock in 2000 would equate to only $11.65 billion in real 1992 dollars.

Further and more importantly, though cash receipts for crops and livestock are considered in agricultural GSP, only the profit portion is counted. If a farmer receives $100,000 for his crops, only the difference between what he receives and what it cost him to produce the crops is counted in agricultural GSP. Further skewing agriculture’s contribution to the economy, from the GSP viewpoint, the farmer’s business expenditures would be counted in other industries, such as retail trade, wholesale trade, etc., so once again, only the retailer’s profit (from selling the seeds, tractors, etc.) would be counted.

To clarify this, consider how GSP would be counted from producing a car. Counting only the profit at each sale keeps things from being counted multiple times. The gross state product from producing and selling a car would not count the total sales price of all the parts bought by the assembler, all the money paid by the dealer to the assembler, and all the final price paid by the car buyer to the dealer as one sale. By counting only the profit each time through cycle of sales, the total GSP for the car roughly equals the price paid by the end-user.

As was mentioned above, GSP does not factor multipliers. The multiplier, which is about three times the industry sales in most cases, is used to account for all the intermediate sales which GSP is careful not to count more than once. The multiplier in agriculture accounts for all the money spent by the farmer to buy seed, feed, fertilizer, machinery, and all the cash paid to the farmer for his produce, and even what the retailer and farmer then go to buy with the money from these sales—such as houses, haircuts, food, etc.—for a year. This is why the multiplied effect is much greater than actual sales.[79]

Additional Economic Force of Agriculture
Although the GSP from agriculture is impressive, these numbers actually understate the economic contribution of the agriculture industry for two reasons. First, many farms and ranches are family-owned and operated, so wages are not paid and that value is not reflected in GSP. Second, the economic contributions of sales of agriculture-related products such as farm implements and equipment, seed, fertilizer and the other items used in the agricultural process are buried in the retail trade and wholesale trade sectors.

One cannot look at the economic impact of the agriculture industry only on a statewide basis—it depends a lot on location. The U.S. Department of Agriculture has classified 65 counties, one-fourth of all Texas counties, as economically farming-dependent.[80] In fact, 149 counties in the state rely on farming for 10 percent or more of their employment base, and it accounts for more than one-fourth of all employment in 44 Texas counties. In Borden County, over one-half percent of the 1998 county employment base came from farming, the highest percentage among the state’s counties.[81] (See Exhibit 38.)

Exhibit 38
Farming-dependent Counties Defined by ERS
Armstrong Floyd Lipscomb
Bailey Foard Lynn
Baylor Franklin Mc Mullen
Borden Gaines Madison
Briscoe Glasscock Martin
Camp Goliad Mason
Castro Gonzales Menard
Clay Hale Mills
Cochran Hall Moore
Coleman Hansford Motley
Collingsworth Hardeman Oldham
Comanche Hartley Parmer
Concho Haskell Real
Crockett Hudspeth Reeves
Crosby Jackson Roberts
Dallam Kent Sherman
Deaf Smith King Stonewall
Delta Kinney Swisher
Dickens Knox Terrell
Donley Lamb Throckmorton
Edwards La Salle Wheeler
Fisher   Willacy
Sources: USDA Economic Research Service and Texas Comptroller of Public Accounts.

Agriculture dominates many areas of Texas. According to the Texas Agricultural Extension Service, of the 168 million acres of land within Texas’ borders, 131.5 million—nearly 78 percent—are used to produce agricultural products that were worth $14.6 billion in 1999. Crops accounted for $5.6 billion or 41 percent of the total, while livestock—beef and dairy cattle, sheep, goats, hogs, and chickens represented 49 percent or $7.3 billion. Other agricultural commodities and activities such as timber, hunting, and horses contributed another 10 percent or $1.7 billion.

Statewide Agriculture
A landscape as vast and varied as Texas’ supports a variety of agricultural activities. The Panhandle produces the majority of the state’s wheat, corn, cotton and beef. Texas’ top four agricultural counties in terms of sales—Castro, Deaf Smith, Parmer, and Erath counties—are home to major livestock operations.[82] The poultry industry is concentrated primarily in east Texas.

The Lufkin-Nacogdoches area supplies the vast majority of the state’s commercial timber. San Angelo is the center for Texas’ goat and sheep industry, while the Killeen-Temple-Waco area (Stephenville) is the state’s largest milk producer. Coastal Texas is the state’s rice bowl, while South Texas is the citrus capital and largest vegetable producer.

Crop Production
The production of various food and feed crops is a mainstay for hundreds of small Texas towns that rely on agriculture to maintain related businesses such as gins, mills and equipment dealerships. Leading Texas commodities include cattle, cotton, nursery products, milk, poultry, corn and wheat. [83] (See Exhibits 39 and 40.)

Exhibit 39
Texas Crop Production
Crop Production Unit Year Texas Production (Thousands) U.S. Production (Thousands) Percent of U.S. Production Texas Growth 1998-1999
Corn (grain) Bushel 1998 185,000 9,758,685 2%  
    1999 228,330 9,437,337 2% 23%
Cotton (upland) Lb.:Bale 1998 3,600 13,476 27%  
    1999 5,050 16,257 31% 40%
Hay (all) Ton 1998 6,870 151,780 5%  
    1999 13,135 159,077 8% 91%
Oats Bushel 1998 6,890 165,981 4%  
    1999 4,840 146,218 3% -30%
Peanuts Pound 1998 917,900 3,963,440 23%  
    1999 924,000 3,870,200 24% 1%
Rice Lb:CWT 1998 15,846 188,051 8%  
    1999 15,550 210,458 7% -2%
Sorghum (grain) Lb:CWT 1998 59,248 291,162 20%  
    1999 104,076 333,293 31% 76%
Winter Wheat Bushel 1998 136,500 1,880,733 7%  
    1999 122,400 1,699,989 7% -10%
Sources: Texas Agricultural Statistics Service, National Agricultural Statistics Service and Texas Comptroller of Public Accounts.

Exhibit 40
Top Ten Non-Metro Texas Crop-Producing Counties
County 1999 Crop Value Food Grains Feed Crops Cotton Oil Crops* Vegetable Crops Fruit and Nuts Misc. Crops
Gaines County $163,505,000 1.4% 0.7% 65.2% 30.5% 2.0% 0.1% 0.1%
Wharton County $129,943,700 16.1% 15.4% 28.2% 1.1% 0.4% 0.0% 38.7%
Hale County $124,394,200 2.1% 14.7% 77.7% 2.3% 2.1% 0.1% 0.9%
Lamb County $109,263,500 1.1% 18.0% 72.9% 2.4% 1.3% 0.1% 3.4%
Parmer County $96,993,000 9.3% 31.7% 32.1% 1.4% 23.1% 0.2% 2.2%
Cherokee County $92,670,400 0.0% 9.1% 0.0% 0.1% 1.4% 0.2% 89.3%
Hartley County $87,688,000 6.8% 90.5% 0.0% 0.2% 0.8% 0.0% 1.8%
Castro County $86,048,110 6.3% 75.1% 17.4% 0.3% 0.8% 0.0% 0.0%
Matagorda County $85,588,000 22.7% 8.0% 36.4% 2.4% 0.2% 1.2% 29.0%
Dallam County $80,583,000 5.7% 76.6% 0.0% 0.3% 16.2% 0.0% 1.2%
* Oil crops are flaxseed, peanuts, sesame, soybeans, and sunflowers grown to produce oils.
Sources: Texas Agricultural Extension Service and Texas Comptroller of Public Accounts.

In 1999, Texas ranked among the top ten states in its total production of 13 crops.[84] That year Texas produced more than 20 percent of the nation’s upland cotton, peanuts and grain sorghum crops.[85]

Texas has been the leading cotton-producing state since 1878, and many of Texas’ largest cities can trace their beginnings directly to King Cotton.[86] Recent droughts, moreover, have increased the popularity of cotton as a crop, due to its relatively low water requirements. About 4.8 million acres of the 6.3 million planted acres of cotton were harvested in 2000, compared to about 4.1 million acres of the 5.7 million acres planted in 1996.[87]

A Cattle State
Texas ranks first among states in its cattle inventory, with about 14 million head. The value of Texas’ livestock production exceeds its total crop production. About 350,000 of Texas’ cattle total are dairy cows, and dairy products constitute the state’s fifth-largest commodity group, contributing an average of 6.4 percent of the state’s commodity receipts in 1998.[88] (See Exhibit 41.)

Exhibit 41
Top Ten Non-Metro Texas Livestock-Producing Counties
County 1999 Livestock Value Poultry Milk Beef Other Meats
Castro County $638,334,840 0.0% 0.1% 99.1% 0.8%
Deaf Smith County $347,583,000 0.0% 1.4% 98.5% 0.0%
Erath County $271,857,500 0.0% 90.6% 9.1% 0.2%
Parmer County $234,383,000 0.0% 0.0% 99.9% 0.1%
Ochiltree County $220,550,000 0.0% 0.0% 71.4% 28.6%
Hopkins County $184,262,000 10.5% 45.6% 43.9% 0.1%
Gonzales County $161,365,000 70.3% 0.0% 29.6% 0.1%
Shelby County $158,486,000 91.9% 0.3% 7.9% 0.0%
Nacogdoches County $155,607,600 84.4% 2.1% 13.2% 0.3%
Lamb County $154,781,700 0.0% 11.5% 86.6% 1.9%
Note: Livestock products, including honey, mohair and wool were less than 1 percent of agricultural production in these counties.
Sources: Texas Agricultural Extension Service and Texas Comptroller of Public Accounts.

Every county in the state produces cattle. In 2000, the Texas Agricultural Statistics Service (TASS) estimated that Texas cattle were worth an average $560 per head.[89]

Cattle market cycles are sensitive to weather conditions. When rainfall and grass are plentiful, ranchers are more likely to increase their herds, keeping mother cows and yearling heifers (immature female cattle) as breeding stock and selling their remaining calves either as breeding stock or to feedlots, where they are fattened for slaughter.

In drought periods, by contrast, ranchers find that conditions are less able to support large grazing herds and begin culling, or selling excess cattle. When pasture conditions become critically dry, ranchers try to sell their breeding stock as well, resulting in a flooded market and falling prices.

Forestry and Timber
Texas timber production became a billion-dollar industry for the first time in 1996 and topped this mark again in 1999. The annual value of timber delivered to sawmills rose about 42 percent between 1992 and 1999. The health of the timber industry also can be measured by the rise in the annual log harvest. In 1992, Texas timber companies produced about 1.25 billion board feet of lumber. By 1999, the total had jumped to more than 1.51 billion board feet—enough to construct and finish about 95,400 2,000-square-feet homes.[90] (See Exhibit 42.)

Exhibit 42
Top Ten Texas Timber-Producing Counties
Top Ten Counties Stumpage Value of Harvest (millions) Delivered Value of Harvest (millions)
Jasper County $39.1 $65.8
Montgomery County $39.0 $64.0
Polk County $37.3 $63.5
Newton County $37.1 $62.3
Angelina County $33.8 $61.9
Nacogdoches County $27.8 $47.8
Liberty County $26.7 $47.5
Shelby County $26.7 $44.8
Cass County $21.0 $42.5
Sabine County $25.8 $41.6
Note: The stumpage value is the agreed upon price the landowner receives from the purchaser for the right to cut and remove trees and/or logs from an area of land. The delivered value is the price paid by lumber mills in exchange for logs upon delivery to the mill.
Sources: Texas Forest Service and Texas Comptroller of Public Accounts.

The U.S. Department of Commerce, which tracks lumber production throughout the nation, ranked Texas among the nation’s top producers.[91] Softwood, mostly Southern yellow pine, is Texas’ primary wood product. Yellow pine, which is used to make two-by-fours and other products, is a primary structural component for most residential housing, including single-family homes and two- and three-story apartment buildings.

According to the Texas Forest Service, 38 East Texas counties produce significant amounts of timber, and all had timber harvests worth more than $1 million in 1999. Five counties had harvests valued at more than $60 million that year. In 1999, Jasper County was the state’s top producer, with an annual timber harvest worth more than $65.8 million.

Other Commodities
Texas’ fruit and nut production has enjoyed impressive gains in cash receipts over the last decade. Fruit and nut commodities in Texas include citrus fruits, peaches, pecans, plums, blackberries, blueberries and grapes. Some of these crops, however, have skyrocketed in value, growing from almost nothing to multi-million dollar businesses in the last decade.

Miscellaneous crops—a category defined by the Texas Agricultural Extension Service (TAEX) as including crops such as alfalfa, cloverseed, sugar cane and sugar beets, and nursery plants—was among the top commodity groups over the last decade, with their sales rising by 88 percent. (See Exhibit 43.)

Exhibit 43
Growth in Texas Commodity Sales 1990-1999
Type Agricultural Commodity 1990 Texas Agricultural Cash Receipts ($000) 1999 Texas Agricultural Cash Receipts ($000) Percent Change
Ag Related* $829,050 $1,658,480 100%
Cotton $1,695,937 $1,417,038 -16%
Feed Crops $1,244,456 $1,601,471 29%
Food Grains $499,523 $467,257 -6%
Fruits and Nuts $98,483 $153,987 56%
Vegetable Crops $386,072 $430,866 12%
Oil Crops $232,851 $260,846 12%
Misc. Crops** $669,543 $1,255,676 88%
Beef $5,287,962 $5,291,460 0%
Milk $770,784 $799,244 4%
Sheep, Goats, Hogs $186,318 $257,424 38%
Poultry $773,121 $937,575 21%
*Includes: aquaculture, fishing, furs and pelts, horses, hunting, recreation, timber, Christmas trees, and exotic animals.
**Includes: alfalfa, castors, cloverseed, cowpeas, guar, nursery, sugar cane, sugar beets, vetch seed.
Sources: Texas Agricultural Extension Service and Texas Comptroller of Public Accounts.

Ironically, because of its large nursery production, Harris County—the most urban county—is also among the counties with the highest agriculture cash receipts in Texas—totaling about $194 million in crops in 1999—due to almost $170 million in nursery crops.[92]

Equally vibrant has been agriculture-related commodities, in which TAEX includes aquaculture, fishing, furs and pelts, horses, hunting, recreation, Christmas tree farming, exotic animals and timber operations (stumpage value, see Exhibit 42). Total cash receipts for the group increased 100 percent between 1990 and 1999, more than $829 million, to $1.7 billion. Of the total, timber sales (stumpage value) topped $788 million; hunting and horses produced about $291 million and $241 million respectively.

Texas’ Green Thumb

Almost everyone familiar with Texas knows of the state’s affinity for yellow roses, but it appears that roses and all kinds of other nursery plants are just starting to come into full bloom. The nursery industry has recently become a billion dollar business in the state, and the growth trend doesn’t seem to have reached its peak.

According to the Texas Agricultural Extension Service (TAEX), nursery is the one commodity that has experienced gains in cash receipts every year since 1991, gaining even during the droughts of 1996 and 1998, when most other agricultural commodities suffered.[93]

A wide variety of plants make up the nursery industry in the state. According to a 1997 publication of the Texas Association of Nurserymen, Inc.—now the Texas Nursery and Landscape Association—bedding plants were the most commonly produced plant in Texas, followed by tropical foliage and container-grown shrubs. Combined, these three plant categories accounted for more than 70 percent of total greenhouse and nursery production.[94]

Though almost half of the 254 Texas counties reported cash receipts for nursery crops in 1999, 67 percent of the state’s cash receipts from nursery came from 10 counties. Of those, the top five—Harris, Fort Bend, Dallas, Smith and Cherokee—accounted for 48 percent, or $535 million, in 1999. It is interesting to note that four of the top ten nursery counties in the state—including the top three—are in the state’s largest of urban areas.[95]

Nursery farms can be found in almost every size Texas county that is listed on the USDA scale. Marilynn Goode of the Texas Nursery and Landscape Association emphasized the distinction of nursery due to its location in both rural and urban areas by calling it a “crossover industry.”

Dr. Charles Hall, professor and extension economist at TAEX, says that the reason that so much of the industry is concentrated closer to the state’s larger metropolitan areas is that is where the majority of the customers are. In the industry, “just in time” delivery is very important and oftentimes it is not cost effective to ship the stock long distances. Hence, it pays for growers to locate closer to their customers.

Jobs in the industry have increased since 1994, when the industry employed about 16,300 people. In 1998, the number rose by 13 percent to about 18,400 people. These jobs were divided among various industry sectors including ornamental and nursery products, lawn and garden services, flowers and florists’ supplies, and retail nurseries and garden stores. In 1998, these sectors paid about $336 million in total wages (not including lawn and garden services, which cannot be released due to privacy considerations). As indicated earlier in this report, employment in landscaping is part of the agricultural services industry, which has shown the largest industry growth in Texas.

Since 1994, when Texas nursery crops were valued at $792 million (“farm gate” value--the price the farmer receives for the commodities they market and does not include transportation or processing costs), cash receipts rose by more than 41 percent to $1.12 billion in 1999.[96] At the retail level, gross sales of nursery products are on the rise. Total reported gross sales for all sectors of the industry grew from just over $3.2 billion in 1994 to more than $3.9 billion in 1998. Dr. Hall said that based on the optimism at the grower and retail levels, industry growth should continue.

Jobs in Agriculture
About 176,000 Texas farm and ranch workers are self-employed, according to the Texas Agricultural Statistics Service (TASS); an estimated 24,000 of the total are unpaid family members. In all, TASS reported 247,000 Texans worked 15 hours or more on farms and ranches in the state in October 1998.[97] (See Exhibit 44.)

Exhibit 44
Farm Employment by County Type
County Type Farm Employment 1970 Farm Employment 1998 Farm Employment Change 1970-1998 Total Employment Change 1970-1998 Farm Share of Total Employment 1970
Farm-Dependent 72,007 48,686 -32.4% 15.7% 36.4%
Non Farm-Dependent 130,418 141,790 8.7% 69.6% 17.1%
Metro 88,167 90,191 2.3% 148.6% 2.2%
Sources: Bureau of Economic Analysis and Texas Comptroller of Public Accounts.

The Texas Workforce Commission (TWC) also compiles reports on agricultural employment for the agricultural workers who receive unemployment benefits. This workforce includes workers in the agricultural production of crops, agricultural production of livestock, agricultural services, forestry and fishing, hunting and trapping. Covered employment (which does not include self-employed sole proprietors) in these areas reached 112,000 in 1998, up 30 percent from 1988.

TWC’s definition of agricultural services includes soil preparation services, crop services, veterinary services, non-veterinary services, farm labor and management services and landscape and horticultural services.[98] Agricultural services are benefiting from the same rapid growth affecting the entire Texas service sector. Employment in agricultural services rose by almost 19,000 jobs or 43 percent between 1988 and 1998, to a total of nearly 60,000.

Working on the Farm
Growth in various agriculture-related sectors has not been mirrored by trends in actual farm employment. In Texas’ 65 farming-dependent counties between 1970 and 1998, farm employment dropped by over 23,000 or nearly one-third, while total employment rose 15.7 percent. Farming’s share of employment in these counties fell by forty percent, from more than 36 percent of total employment in 1970 to 21.3 percent in 1998.[99]

All but nine of the state’s 65 farming-dependent counties, or 86 percent, lost farm workers over the last twenty eight years.

While these counties lost farm workers, however, they added jobs in all other major economic sectors. Net employment in the 65 counties increased by 31,000 jobs between 1970 and 1998. (See Exhibit 45.)

Exhibit 45
Employment in Farming-dependent Counties, 1970-1998
Sector Jobs Added 1970-1998 Percent Change
Services 13,721 52.0%
Government 13,142 56.5%
Manufacturing 9,194 105.8%
Agricultural Services 7,507 147.6%
Finance, Insurance & Real Estate 3,079 40.6%
Retail Trade 2,647 9.8%
Wholesale Trade 1,732 25.6%
Construction 1,218 15.1%
Mining 1,110 19.9%
Transportation 754 9.5%
Sources: Bureau of Economic Analysis and Texas Comptroller of Public Accounts.

Technology has eliminated a number of “middleman” jobs in agriculture. For instance, the Internet and online information services allow many buyers and sellers to obtain the information they need to transact business without the help of a broker or wholesaler. Wholesale jobs in grain, livestock, raw materials and farm supplies fell by 5 percent or 1,000 jobs since 1988.

The Wood-based Economy
Forestry is not a particularly labor-intensive industry, even when compared to other agricultural pursuits. Actual employment in Texas forestry—the actual growing of timber—is fairly small, with fewer than 1,000 jobs in 1998. These include jobs in timber planting (68 percent); forest services such as fire prevention, fire-fighting and forest ranger positions (29 percent); and forest nurseries and products (3 percent).[100]

Spin-off employment from timber, however, is much larger. A wide variety of industries use and sell almost everything harvested from the forest. Many Texas pines deemed unsuitable for lumber use, for example, are harvested to manufacture plywood and other veneer products; even wood shavings and sawdust are commercially valuable.

Texas industries related to timber include the manufacture of lumber and wood products, (including logging operations and saw mills), paper and allied products and furniture and fixtures. Forestry and these related wood-based industries combined provide around 97,000 Texas jobs and earned nearly $9.7 billion in 1998 gross sales. In all, forestry and timber-related industries added 22,000 jobs between 1988 and 1998.

Agricultural Productivity
Productivity in agriculture is the “relationship between the quantity of inputs... employed and the quantity of output produced. An increase in productivity means that more outputs can be produced from the same inputs or that the same outputs are produced with fewer inputs.”[101]

Agricultural inputs include everything a farmer must use to produce a crop or raise livestock. According to USDA-ERS, inputs include labor, real estate, equipment, energy, fertilizer, pesticides, feed and seed, livestock and inventory. The output is the tangible items produced from the production process and includes food crops, feed crops, oil crops, sugar, cotton and cottonseed, vegetables and melons, fruit and nuts, meat animals, dairy products and poultry and eggs.[102]

The USDA-ERS measures annual farm productivity based on outputs and inputs, and compares these to devise farm productivity indicators. According to Eldon Ball, USDA-ERS agricultural economist, Texas is losing farm worker jobs while “increasing productivity through improved technology and efficiency. Today’s farmers simply are better educated in their craft and have better tools than in the past.” Texas’ total agricultural productivity rose by more than 1.46 percent annually between 1960 and 1996 (the most recent data available).

This situation is not limited to Texas. According to Ball, agricultural productivity has risen throughout the country at almost 2 percent annually since 1948. Manufacturing, by contrast, averaged a 1.2 percent annual growth rate in productivity over the same period, a performance considered relatively high.[103]

The recent increases in fuel prices have forced many farmers to reduce other inputs this year so they can stabilize their overall costs. One economist at Ohio State University recently estimated that farmers may have to spend more than $40 an acre to plant their crops this year, as opposed to the average $26 an acre they spent last year. One farmer added that he will have to reduce his workforce during planting season to make up for the higher fuel prices.[104]

Recent increases in prices of natural gas have also created problems for the agricultural sector, as for many other industries throughout the country. The Texas Farm Bureau has reported that the decline of nitrogen fertilizer production is directly attributable to the increase in natural gas prices. The high cost of natural gas, which has increased almost 500 percent in just over a year, is noted to be the cause of nitrogen fertilizer production stoppages, reduced supply and swelling prices. The Farm Bureau noted that corn, cotton and wheat farmers will respectively pay an additional $20, $13 and $10 per acre for fertilizer in the coming growing season.[105]

A 1998 USDA-ERS report, Ag Productivity Continues Healthy Growth, outlines key components affecting productivity in agriculture. Among them are research and development, both public and private, which produces higher-yield crops, more effective fertilizers, and the like; the agricultural extension system, such as Texas A&M’s Agricultural Extension Service, which educates farmers on better production practices; the educational levels of the workforce; and infrastructure, such as effective farm-to-market road systems.[106]

Food processing
As was mentioned earlier in this report Texas is a leader in the production of many crops and livestock commodities. However, though Texas has the raw materials, the state continues to lag behind other states in some processing sectors, including those in which Texas produces the greatest amount of raw materials. For instance, while Texas leads the nation in production and supply of almost every livestock category, the state trails several other states in red meat production.

In 1999 Texas produced about 4.9 billion pounds of red meat. This placed Texas in fourth place nationally behind Nebraska (6.9 billion pounds), Iowa (6.3 billion pounds), and Kansas (6.2 billion pounds).[107]

It is important for states to retain as much of their raw farm product as possible for in-state processing because a large portion of the price the consumer pays at the grocery store for food items ends up in the hands of the people who get the food to market after it is produced. According to the USDA, in 1997 farmers received 21¢ out of every dollar that consumers spent on domestically produced foods, the remainder went to those involved in getting the food to market and was divided amongst the processors, transporters, wholesalers, and retailers.[108]

The farm-to-retail price spread, the cost involved in getting food to the dinner plate after it leaves the farm, has increased in each of the 30 years prior to 1997 according to the latest available data. According to the USDA, the farm value percentage of the retail price of food varies according to the type of product, be they crop products or livestock products. The livestock producer generally gets a bigger share of the retail dollar than the crop producer since less processing is involved in getting the products to market.[109]

Texas food-processing industries range from meat packers to canneries to vegetable oil mills. In 1998, 1,208 businesses with more than 99,400 employees were involved in food processing in Texas. According to a 1996 U.S. Bureau of the Census estimate, Texas ranked third in the nation in percentage of employees in food processing and second in the value of its shipments which were worth $284 billion that year.

The largest sector of Texas’ food processing is the meat processing industry, which grossed more than $2 billion in sales and employed more than 34,000 people in 1998. Texas also employs thousands of people in the dairy, grain, and fats and oils processing industries; each industry employed more than 4,900, 6,800, and 2,400 people in 1998, respectively.

Other industries in food processing include canned and frozen foods, bakery products, sugar, beverages and other miscellaneous processing. Combined, these industries employed almost 51,000 people in 1998. According to the Census Bureau, 1996 food and kindred products shipments were valued at $29.5 billion and made up about 10 percent of the total shipped value of all Texas manufacturing products that year. This figure also represented 6.4 percent of the total value of U.S. food and kindred product shipments that year. In Texas, the shipped value of food and kindred products manufacturing was less than only three other groups including chemicals and allied products ($57 billion), petroleum and coal products ($48 billion) and industrial machinery and equipment ($33 billion).[110]

Adding Value to Texas Produce
According to the USDA, adding value to crops and livestock through various means—such as direct marketing or organic farming—instead of simply selling them as a raw material has become a popular approach to bringing rural economies back to life. This concept is known as value-added agriculture. In fact, job growth in value-added agriculture has grown or remained steady in most farm-related areas where value-added manufacturing exists, including areas with overall declining employment.

It is estimated that 20 percent or more of all manufacturing inputs are obtained from farm or forest products, so it makes sense that the more an agricultural producer can do to enhance whatever raw material he produces and to move it further up the production chain toward the end product, the more profitable it can be for him and his community. The agricultural production chain includes the farm, manufacturing, wholesale, transportation and retail/food service; all are links to getting a food product from field to the dinner table, and all receive a share of the consumer dollar.[111]Texas ranks second in the country in adding value to its agricultural products through the production of goods and services, however there is plenty of room for growth. In 1999, Texas farmers and ranchers added almost $7 billion, or about 8 percent of the U.S. total for the value-added manufacturing, to the value of their produce through means that varied as much as their products and their individual goals and imaginations.[112]

By adding value to a crop, through direct marketing or another means of creating value for produce, a farmer can capture a higher percentage of the amount consumers spend on food and clothing. Means of adding value to a crop vary as much as do the crops that a given farmer can produce. For example, an angora goat rancher might find it more profitable to use the mohair from his livestock to manufacture blankets or socks than store it and hope mohair prices go up, or to sell it on the open market as a raw material. Likewise, a vegetable producer may find that he could make more money by growing organic produce and selling to a targeted group who prefers this type of product and is willing to pay more for it, or the producer could sell his own produce by opening a farmers market.

In fact, this type of value-added marketing—farmers markets—has increased dramatically since the mid-90’s. The USDA reported a record number of farmers markets operating in the U.S. in 2000—almost 3,000 in all. This represented an overall increase of 63 percent since 1994. According to the USDA, about 80 farmers markets operate in Texas on a seasonal or year round basis.[113]

Though there has been some improvement in the area of adding value to agricultural products, Texas has not lived up to its potential in this area. Texas processes only around 11 percent of what it produces, compared to an average of about 15 percent in other states. This leaves a significant amount of potential for economic growth since it is estimated that for every percentage point of growth in agricultural processing, one billion dollars is added to the economy.[114]

The Texas Department of Agriculture (TDA) in cooperation with the Texas Department of Economic Development (TDED) has worked to promote Texas agricultural products through the agency’s Go Texan program. Through Go Texan, TDA markets Texas grown food, fiber, wine and horticulture under a trademark logo created by the agency. This logo is used by about 120 associate program members—retailers, commodity boards and trade associations—around the state.[115]

On the other end, TDA also partners with those who produce and sell Texas grown food, horticulture, fiber and wine products in an effort to help them market their products—this group consists of growers, processors, farmers and ranchers. To date, almost 800 members that produce and sell food products, about 100 members that sell horticulture products, almost 200 members that sell fiber products and more than 100 members that sell wine products are involved with the program. The program also provides a database that is used to assist domestic and international sales of Texas agricultural products.[116]

Through the program TDA hopes to bring brand recognition to Texas grown products. The agency cites examples of this being effective in other markets; comparisons of effective marketing campaigns include “plain old orange juice” to Florida orange juice, potatoes to Idaho potatoes, and coffee to Colombian coffee.[117]

In addition to the TDA marketing program, the agency offers loan programs under the Texas Agricultural Finance Authority (TAFA) to assist those involved with Texas agriculture diversify their agricultural operations through business expansion and creation, with the hope that they will capture a bigger share of the market. Loan programs under TAFA that are especially applicable to the creation and expansion of value-added business are the Loan Guaranty Program, the Linked Deposit Program and the Direct Loan Program.[118]

Through TDA programs like Go Texan, financing under TAFA and individual marketing strategies, such as alternative crops, direct marketing, farmer ownership of processing facilities and producing farm products with a higher intrinsic value, Texas agricultural producers can continue to make strides in adding value to their crops.

Drying Up
Drought can be the bane of every farmer or rancher’s existence. The persistent statewide drought of recent years harmed many crops, reducing 1998’s total cash receipts by more than $2.1 billion. Losses to cotton alone were valued at $659 million, while corn experienced a loss of $255 million according to the Texas Agricultural Extension Service.[119]

Many farmers and ranchers began the 2000 growing season feeling uncomfortable about the potential for that year’s crop because the year began with much of the state already in need of rain. Unfortunately, their premonitions proved correct as yet again, they were hit with crop losses due to drought.

The trend began in previous drought years of 1996 and 1998. Statewide, the 1996 drought lasted 10 months, from November 1995 until August 1996. Another five-month statewide drought arrived in March of 1998 and lasted until rain finally came that fall.[120]

In those years combined, the Texas Agricultural Extension Service estimated that the total direct impact of those droughts on farmers and ranchers reached about $4.2 billion and the statewide economic impact totaled $10.7 billion.[121] That direct hit on the agricultural industry is bigger than the drop in the annual value of the state’s crude oil production from the 1998 oil price plunge.

Although the crop years following 1996 and 1998 produced better crops than their predecessors, it was not enough to soften the blow created by the drought combined with other factors such as lower-than-average prices and higher input costs. Moreover, not enough time elapsed between droughts to allow many agricultural producers to recover.

Drought affects both crop and livestock producers by forcing them to pay higher costs during the drought when income already is vanishing, often leaving them with no other choice than to go out of business.

A 1998 Federal Reserve report quoted a banker from North Central Texas who said, “1997-98 was a lean year for local producers. Drought conditions severely limited yields. Poor yields and depressed prices have been the reasons given by a number of producers for quitting farming.”[122]

The drought trend of recent years continued through much of 2000. The fall of 1999 and the winter of 2000 were extremely dry. The Extension Service tracked drought losses throughout 2000 and estimated producer losses reached almost $1.1 billion. Cotton farmers were once again hit hardest with losses totaling $485 million—wheat losses totaled $153 million, forage losses totaled $134 million, and additional costs of feeding and providing cattle with water cost $105 million. Losses to grain sorghum, corn and other crops rounded out the drought damage.[123]

The agricultural losses were bad enough to merit a disaster declaration for the entire state in December of 2000. The designation enables Texas farmers and ranchers to apply for low-interest loans made available by the USDA Farm Service Agency and the Texas Department of Agriculture.

The Governor’s Drought Preparedness Council reports that at the beginning of 2001, the state as a whole was in the best shape water-wise that it had been in since 1998, and there is reason for optimism in looking toward the future. Thanks to a more normal weather pattern, the 2000-2001 winter was cold and wet, bringing an end to the dry and warm winters of recent years that have been attributed to episodes of weather patterns called El Nino and La Nina, created by either warm or cold prevailing water temperatures in the Pacific. The Council has reported that the drought which has lasted the better part of five years throughout the state is now over thanks to widespread and heavy rainfall. The reservoirs that still remain low in the western and southern parts of the state are expected to rise in the spring, which offers promise of heavy rains.

This is excellent news for agriculture and wildlife concerns in the state. The optimistic outlook for high moisture levels in crop fields and cattle pastures should be welcome by farmers and ranchers throughout the state as expectations were low at the beginning of the crop year because many farmers weren’t able to plant wheat or oat crops due to lack of rain. Wildlife had also taken a hit from the recent drought with reports of fish hatcheries closing, shrimp catches being at record lows and greatly reduced wildlife populations.[124]

As Good as Gold
Water is a precious commodity everywhere, but in Texas the value of water has been accentuated by water shortages due to drought and an ever-growing population, the demand of which has threatened water reserves throughout the state. Water users include farmers and ranchers, municipalities, manufacturers, power generating utilities and mining companies.

Addressing the issue of future water needs for Texas has been a daunting task, but one that has been vigorously pursued by leaders throughout the state including the Texas Legislature, the Texas Water Development Board and other state agencies, as well as hundreds of members of regional water planning groups.

In meeting the challenge of ensuring water for future generations of Texans, the 1997 Legislature enacted a comprehensive water plan for the state. The plan called for a process by which regional groups would qualify and quantify the water needs of their respective areas. The plans were for the groups to address how to conserve water supplies, meet future water supply needs and prepare for response to future droughts in their respective areas of the state.[125]

The groups, officially known as Regional Water Planning Groups (RWPGs), were designated to consider not just their individual areas but also any surrounding areas that shared water. The regional groups were created with river basins, aquifer delineations, water utility development patterns, socioeconomic characteristics, existing regional water planning areas, political subdivisions boundaries and public comments in mind. The Texas Water Development Board had various roles in implementation of the planning process including funding, oversight and data collection.

The RWPGs—whose members include representatives of interest groups including counties, municipalities, industries, agriculture, environmental groups, small businesses, utilities, river authorities, water districts and water utilities—were charged with describing their region, considering existing plans, estimating future demands for water through 2050, and planning and recommending ways to provide sufficient water to satisfy needs.[126]

Since inception, all 16 RWPGs have formally submitted adopted regional water plans to the Texas Water Development Board for incorporation into a state plan that will be completed in January 2002. Water demand through 2050 has been forecast for all cities with populations of 500 or more. Key findings in the TWDB summary report reflect a steadily increasing Texas population that is expected to almost double by 2050. The growing population will increase demand for water in the state by almost 20 percent. This estimate was made with conservation efforts and improved efficiency of water use in mind. The report also noted that agriculture has historically demanded the most water—accounting for about 59 percent of state demand in 2000—but that will become less true by 2050 when agriculture will only demand 45 percent of the water and non-agricultural entities, such as municipalities and manufacturers will increase their water demands. Mining and livestock demand for water were noted to be the only categories of water use in the state whose need for water supplies would not change in the next 50 years. The mining and livestock sectors will demand only one and two percent respectively of the state water supply each year through 2050, if all goes according to plan.[127]

Metro/Rural Demand
Water demand in the state’s 196 rural counties decreased from 9.1 million acre feet (one acre foot = 325,851 gallons) per year to 8.7 million acre feet, a decline of about 4.5 percent between 1990 and 2000. Overall, the biggest rural water user, agricultural irrigation decreased total water demand by 10 percent during this period. The next largest water user, rural municipalities, increased water demand by 22 percent. In 1990, rural municipalities demanded only 5.4 percent of the water, whereas irrigators demanded about 85 percent of rural water use. In 2000, municipal demand for water increased to 6.9 percent, while irrigation demand dropped to just under 80 percent.

There were seven rural counties in the state with municipal water demand of more than 10,000 acre feet in 2000, and there were six rural counties with irrigation demand exceeding 300,000 acre feet that year.

Total municipal water demand in Texas rural counties in 2000 was 598,073 acre feet. The rural county with the most municipal demand for water in 2000 was Val Verde County, which had a 1999 population of 44,188. Val Verde’s municipal water demand in 2000 was 15,194 acre feet. The other counties that rounded out the top seven municipal users included Nacogdoches, Angelina, Lamar, Walker, Cherokee and Anderson. It is important to note that while Val Verde had the highest municipal water demand, it did not have the highest rural county population—that distinction goes to Starr County, with a 1999 population of more than 56,500. Starr County municipal water demand in 2000 was 9,264 acre feet. (See Exhibit 46.)

Exhibit 46
Top Ten Counties: Rural Municipal Water demand
County 1990 Municipal Water Demand (acre feet) 2000 Municipal Water Demand (acre feet) 2000 Gallons Per Capita 1990 Municipal Share of Water 2000 Municipal Share of Water 1990 Total Water Demand (acre feet) 2000 Total Water Demand (acre feet)
Val Verde 10,158 15,194 112,044 79% 86% 12,786 17,742
Nacogdoches 10,118 13,614 79,009 78% 70% 12,973 19,335
Angelina 9,108 10,640 44,686 24% 26% 37,467 41,304
Lamar 10,692 10,609 75,070 50% 31% 21,290 34,156
Walker 8,249 10,521 62,346 86% 90% 9,542 11,674
Cherokee 6,405 10,378 77,467 46% 52% 14,026 20,011
Anderson 8,442 10,206 63,699 77% 77% 10,966 13,233
Starr 6,126 9,264 53,355 11% 16% 53,399 57,144
Howard 7,100 8,689 89,353 55% 48% 12,826 17,985
Kerr 5,821 8,601 64,825 81% 85% 7,154 10,156
State Total 3,196,775 4,232,056 68,799 20.30% 25.00% 15,729,687 16,919,370
Sources: Texas Water Development Board and Texas Comptroller of Public Accounts.

Total irrigation water demand in Texas rural counties in 2000 was 6.9 million acre feet, down 10.1 percent from 1990 demand. The rural county with the top irrigation water demand in 2000 was Dallam County, which irrigated 245,550 acres of cropland in 1997. Dallam County irrigation demand in 2000 was 386,403 acre feet of water. Other counties rounding out the top six irrigation demand in 2000 were Hale, Gaines, Parmer, Wharton and Castro. (See Exhibit 47.)

Exhibit 47
Top Ten Counties: Rural Irrigation Water demand
County 1990 Irrigation Water Demand (acre feet) 2000 Irrigation Water Demand (acre feet) 1997 Irrigated Cropland 1990 Irrigation Share of Water 2000 Irrigation Share of Water 1990 Total Water Demand (acre feet) 2000 Total Water Demand (acre feet)
Dallam 327,651 386,403 245,550 99% 98% 330,832 394,935
Hale 461,931 365,594 310,315 98% 97% 470,842 375,913
Gaines 392,950 355,323 233,513 98% 96% 400,064 368,695
Parmer 475,000 324,951 216,451 98% 97% 483,548 335,265
Wharton 319,209 308,543 91,209 97% 96% 330,082 319,873
Castro 351,189 306,596 226,795 98% 96% 358,310 318,894
Lamb 351,050 288,370 218,235 95% 92% 369,285 312,503
Deaf Smith 285,459 251,112 168,890 95% 94% 299,361 266,320
Hartley 174,900 202,232 125,946 98% 97% 178,618 207,479
Moore 365,758 200,579 120,437 96% 93% 380,161 216,560
State Totals 10,123,335 9,686,983 5,484,663 64% 57% 15,729,687 16,919,370
Sources: Texas Water Development Board, U.S. Department of Agriculture, and Texas Comptroller of Public Accounts.

In the 58 metro counties, both municipal and irrigation needs placed the largest demands on water in 2000. Municipal demand represented 44 percent of water use, while irrigation demand was 34 percent of metro water. Total water demand in Texas metro counties that year was 8.2 million acre feet, up almost 25 percent from 1990 when it was about 6.6 million acre feet.

Metro counties with the greatest municipal demand included Harris (656,756 acre feet), Dallas (538,746 acre feet), Tarrant (308,195 acre feet), Bexar (306,064 acre feet), Travis (177, 264 acre feet) and El Paso (131,184 acre feet). Total municipal demand in Texas metro counties in 2000 was more than 3.5 million acre feet. No metro counties reduced their municipal water demand during the decade, while 11 rural counties did. (See Exhibit 48.)

Exhibit 48
Top Ten Counties: Metro Municipal Water demand
County 1990 Municipal Water Demand (acre feet) 2000 Municipal Water Demand (acre feet) 2000 Gallons Per Capita 1990 Municipal Share of Water 2000 Municipal Share of Water 1990 Total Water Demand (acre feet) 2000 Total Water Demand (acre feet)
Harris 491,852 656,756 65,839 55% 61% 889,590 1,079,530
Dallas 436,359 538,746 85,132 90% 91% 483,283 594,937
Tarrant 226,706 308,195 72,644 80% 81% 285,049 379,205
Bexar 225,626 306,064 72,645 74% 76% 303,917 405,322
Travis 114,970 177,264 79,450 89% 83% 129,393 214,472
El Paso 123,009 131,184 60,900 37% 39% 333,373 333,787
Collin 57,478 123,370 88,040 92% 96% 62,349 129,015
Hidalgo 70,605 109,821 66,900 9% 11% 790,903 969,387
Denton 46,806 87,258 70,366 94% 97% 49,768 90,209
Nueces 76,521 79,386 81,999 66% 61% 116,031 130,814
State Total 3,196,775 4,232,056 68,799 20.30% 25.00% 15,729,687 16,919,370
Sources: Texas Water Development Board and Texas Comptroller of Public Accounts.

Metro counties with the greatest irrigation demand included Hidalgo (849,696 acre feet—more than double the top rural county), Cameron (438,485 acre feet), Jefferson (259,495 acre feet), El Paso (179,842 acre feet), Lubbock (158,078 acre feet) and Brazoria (131,207 acre feet). Total irrigation demand in Texas metro counties in 2000 was 2.8 million acre feet. (See Exhibit 49.)

Exhibit 49
Top Ten Counties: Metro Irrigation Water demand
County 1990 Irrigation Water Demand (acre feet) 2000 Irrigation Water Demand (acre feet) 1997 Irrigated Cropland 1990 Irrigation Share of Water 2000 Irrigation Share of Water 1990 Total Water Demand (acre feet) 2000 Total Water Demand (acre feet)
Hidalgo 713,903 849,696 185,330 90% 88% 790,903 969,387
Cameron 391,500 438,485 108,990 88% 86% 446,425 511,707
Jefferson 210,599 259,495 31,895 54% 56% 388,349 465,104
El Paso 190,761 179,842 41,447 57% 54% 333,373 333,787
Lubbock 230,717 158,078 212,168 83% 76% 278,320 207,897
Brazoria 113,389 131,207 29,596 33% 33% 342,328 396,906
Chambers 130,724 128,452 24,894 88% 84% 149,256 152,165
Tom Green 43,539 120,102 217,069 65% 79% 66,522 151,209
Liberty 112,295 109,905 14,092 93% 81% 120,427 135,858
Midland 26,026 66,574 12,223 51% 67% 50,921 99,856
State Total 10,123,335 9,686,983 5,484,663 64% 57% 15,729,687 16,919,370
Sources: Texas Water Development Board, U.S. Department of Agriculture, and Texas Comptroller of Public Accounts.

The 16 water districts in the state contain varying numbers of farming dependent counties. Some, such as the Llano Estacado District in and around Lubbock, contain as many as 15 counties; others, such as the East Texas District don’t contain any. Likewise, mining (oil and gas) dependent counties vary by district as well with the most being in the Region F District (13)—which is in and around Midland and Odessa—and most of the other districts having very few or none. (See Exhibit 50 and Exhibit 51.)

Exhibit 50
Water Districts Farming- and Mining-dependent Counties
Water District 1989 Farming Dependent Counties 1989 Mining Dependent Counties
Panhandle 13 1
Region B 5 0
Region C 0 2
North East Texas 3 1
Far West Texas 2 1
Region F 9 13
Brazos G 7 2
Region H 1 0
East Texas 0 1
Plateau 3 0
Lower Colorado 1 0
South Central Texas 3 1
Rio Grande 1 1
Coast Bend 1 3
Llano Estacado 15 4
Lavaca 1 0
State Total 65 30
Sources: Texas Water Development Board, U.S. Department of Agriculture, and Texas Comptroller of Public Accounts.

Exhibit 52
Top Five Water Districts Land in Farms
Water District 1999 Agriculture Cash Receipts 1997 Land In Farms (acres) 1997 Number of Full-Time Farms
Region F $540,631,570 23,600,488 5,510
Brazos G $1,704,789,780 17,011,957 16,261
Panhandle $1,676,468,030 12,039,645 3,779
Llano Estacado $2,977,131,150 11,591,338 7,198
Far West Texas $241,649,540 11,175,215 571
Sources: Texas Water Development Board, U.S. Department of Agriculture, and Texas Comptroller of Public Accounts.

Water Conservation Practices
Throughout the state, from the Texas Legislature, to government agencies, to municipalities and farms, water conservation has become a priority. Some studies suggest areas of the state could run out of sources for water in as few as five years.[128] These concerns have led to various conservation practices, such as more efficient crop irrigation systems and the planting of drought resistant crops, that could produce millions of additional acre feet of water each year.

In their recently completed water plan, the region planners for the area in and around Midland, Odessa and San Angelo reported that if all farmers in the region implemented irrigation technologies by 2020, the region could cut irrigation needs in half by 2050. That is a substantial savings, since irrigated agriculture is by far the biggest water user in the region, accounting for 75 percent of total demand, or 650,000 of the total 882,000 acre feet of water used in the region in 2000.[129] An acre foot (AF) of water is the equivalent of 325,861 gallons, which is enough to cover a football field with a foot of water.[130]

Irrigation technology has been utilized by Texas farmers for about 20 years. Newer irrigation technologies can produce water savings of 20 percent or more in a given year. Though the newer systems are more expensive, they often pay for themselves in relatively short periods of time through reduced operating costs which are the result of more efficient systems. The different types of systems include Low Energy Precision Application (LEPA), which applies small amounts of water near the plant to reduce evaporation and wind losses; surge flow irrigation, which applies water more uniformly throughout the field; drip irrigation, which emits water directly to the plant; and underground pipelines, which eliminate evaporation losses.[131]

Additionally, farmers now have easy access to a great deal of information about the weather through internet, fax and email. Networks known as PET, or potential evapotranspiration, provide up-to-the-minute data to farmers on air and soil temperatures, solar radiation, rainfall, growing degree days, wind speed and direction, and water needs for specific crops. Access to this type of information could save substantial amounts of water.[132]

Another way farmers are conserving water is by planting drought resistant crops and making use of soil additives that can alter the way a plant grows and increase water use efficiency. Other water management strategies include: brush control; weather modification, which is the practice of seeding potential rain-producing clouds with silver iodide (via airplane) to increase the efficiency of precipitation production in the cloud; wastewater reuse, an alternative, drought-proof resource that is available when high-quality water is not needed, such as for irrigation and fire protection; recharge enhancement, or the process in which surface water is directed to permeable soils to increase ground water recharge; and desalination, or the removal of salts from ground and surface water. Of these practices, brush control is currently undergoing a great deal of study by state agencies.[133]

Brush Control
Brush control has been identified as a preferred management strategy to increase groundwater recharge and stream flows. No accurate estimate on the economic benefits of brush control exists. However, the benefits of brush control can be seen in the addition to water supply where removal projects have taken place. In a given year, brush in Texas uses two-thirds the amount of water that humans do. Just a few mesquite or cedar trees can consume more than 20 to 30 gallons of water per day.[134]

State brush management efforts date back to 1954 when the Texas Parks and Wildlife Department undertook various projects on 6,500 acres in Kerr County. In 1985, the Legislature established a cost-share program to be managed by the Texas State Soil and Water Conservation Board (TSSWCB). Once again, in 1997 the Legislature noted the benefit of brush management in the newly adopted state water plan and provided the Texas Water Development Board (TWDB) with $16.4 million to finance water-related projects as well as authorizing the issuance of $50 million in state participation bonds. The Legislature also initiated a study to assess the feasibility of controlling brush in the North Concho River Watershed, a 950,000 acre area encompassing Coke, Glasscock, Howard, Sterling and Tom Green counties.[135]

More recently, the 1999 Legislature appropriated $1 million to conduct similar studies for rivers and aquifers including the Canadian River, Wichita River, Upper Colorado River, Middle Concho River, Nueces River, Frio River, Perdernales River and the Edwards Aquifer. At the same time, the Legislature appropriated a two-year budget of $7 million for a cost-share brush control project in the North Concho River Watershed and an additional $333,000 for monitoring and evaluation to be carried out by the Upper Colorado River Authority with assistance from Texas A&M University.[136]

The North Concho River Watershed was reported to have more than 130 million mesquite trees and 100 million juniper (cedar) trees. Once completed, the project has the potential to increase water yield in the river by 33,000 acre feet a year. Presently, the city of San Angelo purchases water from Lake Ivie at a cost of $160 per acre foot. This project will drop that cost to $53 per acre foot, less than one-third, according to a study by the Texas Agricultural Experiment Station—Blackland Research Center.[137]

To date, 95 contracts for brush removal have been approved for the North Concho project. Once completed, almost 185,000 acres of brush will have been removed from these contracted acres and the total cost of the project will be more than $9.5 million. The State will pay approximately 73 percent of this cost, or $6.9 million, and the landowners will pay about $2.5 million.[138]

In an effort to keep the cost of the project as low as possible, Johnny Oswald, project manager for the North Concho brush control effort, said that many state agencies have lent a helping hand. With TSSWCB coordinating the effort, the Texas Department of Criminal Justice has provided up to 30 inmates at a time to remove about 5,000 acres of re-growth juniper in the area since early 1999. The landowners provide the gas, supplies and food for the inmates and TPWD has provided the transportation. Additional tools and guidance have been provided by the Upper Colorado River Authority.

Reservoir Development
Capturing water in new reservoirs is also a potential source of water development for the state. This is a somewhat controversial issue and is limited in potential benefit. However, according to a report by the TWDB, “the era of major dam building is over, and all but a few of the suitable sites have been built ... Dependable supply from conventional sources such as lakes, rivers and wells is already 75 to 80 percent developed.”[139] Still, there may be some opportunity for further development in some areas of the state.

Included in the RWPG’s regional recommendations for additional water supplies was the creation of seven major (greater than 5,000 acre feet of storage capacity) and 10 minor new reservoirs. The new reservoirs would cost the state $4.41 billion to build, representing 26 percent of the $16.95 billion in capital costs to implement all water management strategies designed to meet the needs for additional water supplies in the next 50 years. All of the proposed major reservoirs are located in the northeastern and eastern half of the state, with the exception of one to be located in Brownsville.[140] The purpose of the proposed sitings for these new reservoirs was to create the most opportunity for capture and transfer of water due to higher levels moisture in these areas than other areas of the state.[141]

Water Rights
As water becomes more precious, many Texas landowners are finding that leasing their lands for water rights can provide more income than agriculture. In a 1998 report by the Federal Reserve Bank of Dallas, a Texas banker was quoted saying, “Farm prospects are bleak for next year because of the weakest commodity prices in years. Purchases by out-of-area individuals principally interested in future water sales for nonagricultural purposes have inflated irrigated land values.”[142]

While Texas is the only state in the nation allowing anyone to pump as much groundwater as they can capture (a right upheld by the Texas Supreme Court in May 1999), many landowners are maximizing the value of their land by selling or leasing it for groundwater pumpage, surface water rights, or both.

Some landowners, seeing the relative value of traditional crop and livestock harvests decline, are dazzled by the sums of money offered by municipal and private water groups. Groundwater wells, particularly those drilled outside of a groundwater conservation district, are not subject to spacing or pumping requirements, and even conservation districts seem reluctant to require strict adherence to such requirements.[143]

Water Reallocation
Both surface water and ground water can be sold or leased, either as a commodity or as a temporary or permanent right to use. Various terms for the marketing of rights include water ranching, where cities purchase land that sits atop aquifers and oftentimes lease it back to dry-land farmers while the cities pump the aquifer water; internal transfers, which are sales that occur within water districts and river authorities; and permit exchanges, which are the transfer of surface water rights from one entity to another.[144]

The price of water depends on several factors: availability, whether the transaction is a sale or a lease, whether the future right is involved, whether the water is above or below ground, where the water is in relation to where it is needed, how reliable transportation is, what type of transportation is involved (i.e. so-called “run of the river” rights, pipeline, aqueduct or truck) and the water’s intended use.

Surface water sales and leases are a common occurrence, at generally modest prices. For example, in 1999, approximately 120 Rio Grande Valley farmers, municipalities and mining (primarily oil and gas exploration) companies purchased more than 45,000 acre feet of water from the Rio Grande River at $0 - $100 per acre foot. The same year, El Paso Water Utilities leased water from local irrigators for $20 per acre foot, plus a one-time fee of $1,000. The cities of Boerne and Fair Oaks Ranch leased water from the Guadalupe River for $61 per acre foot. In the largest transaction of 1999, the Lower Colorado River Authority leased 325,000 acre feet to the City of Austin for $100 million, or $308 per acre foot.

Ground water sales command a premium because the sales generally involve a future right. For example, in 1999 the City of Amarillo bought the groundwater rights to 72,000 acres of land from Panhandle area ranchers for $200 to $275 per acre foot. The San Antonio Water Systems (SAWS) bought, at $700 per acre foot, over 11,000 acre feet of water from the Edwards aquifer. SAWS also leased the pumping rights for over 3,000 acre feet of Edwards aquifer water for $75 to $80 per acre foot. The City of Scherz bought 30,000 acre feet of water from the Edwards aquifer for $4.5 million, or $150 per acre foot.[145]

The International Marketplace: Global Competition
Global trade is increasingly crucial to Texas farmers; the Texas Farm Bureau ranks it as more important to the prosperity of farming than government aid. According to the bureau’s executive director, the most important step needed is to “get a handle on trade and work to level the playing field in the global market. The government must work to open fair markets for our producers and sufficiently regulate agricultural imports into the U.S.”

In testimony before the U.S. Trade Representatives Office in Dallas in late June 1999, then Texas Farm Bureau President Bob Stallman emphasized the importance of foreign agricultural markets: “Greater access to international markets is vital to influencing the growth of the agricultural economy in America.”[146] Stallman is now the president of the American Farm Bureau Federation.[147]

Multilateral trade negotiations have reshaped agriculture around the world in recent years. Also known as the General Agreement on Tariffs and Trade (GATT), the Uruguay Round Agreement on Agriculture (URAA) is one of the most notable. URAA provisions, agreed upon in 1994 by 111 countries, established a new set of trade rules for agriculture.[148] Nations join the multilateral trade negotiations for increased access to foreign markets under fair trading rules.

The Economic Research Service has reported that expanded trade has benefited U.S. agriculture. Statistics show that between 1992 and 1996, U.S. agricultural exports increased by more than $17 billion annually. Despite the success of our expanding agricultural market, however, there are still some problems.

Even with the implementation of tariff protections, tariffs are still too high for U.S. agriculture. ERS reports that the average non-agricultural worldwide tariff is 4 percent, compared to 40 percent for agricultural tariffs. Another issue hindering trade is that some commodities, such as dairy products and sugar, have been left outside the reform process and remain highly protected in most countries. Additionally, the ERS reports that “as traditional import barriers are reduced or eliminated, technical barriers, such as requirements regarding labeling... quality, and inspection requirements, comprise non-tariff barriers that have a significant impact on trade.”

Increasing the size of the market should create more and more opportunity for farmers because America is already the leading exporter of agricultural products. With the country’s available resources and technological advances, the U.S. should be poised to take advantage of new markets as soon as they open.[149]

Future Looking Brighter
American agriculture has already begun to reap benefits from the North American Free Trade Agreement (NAFTA). Under NAFTA, all trade barriers between the U.S. and its neighbors to the north and south were eliminated. In 1998, Texas exported agricultural and forest products worth an estimated $3 billion, placing Texas fourth among the 50 states.[150]

As two of the U.S.’ biggest trade partners, Canada and Mexico have imported record amounts of farm and food products from the U.S. since NAFTA’s inception. Canada imported $7 billion worth of U.S. agricultural goods in 1998, 89 percent more than the 1990 value. Mexico imported $5.9 billion worth of U.S. agricultural products in 1998, almost $900 million more than the previous year, making it the fourth record in five years under NAFTA.[151]

More recently, the U.S. has entered into a trade agreement with China, a market of more than one billion people in one of the world’s largest economies. U.S. agricultural exports to China are expected to increase dramatically as a result of the April 1999 Agreement on U.S.-China Agricultural Cooperation.[152] Texas producers are likely to see increased exports of cotton, beef, feed grains, and solid wood.[153]

This agreement also could mean large benefits for the U.S. agriculture export market, including significant tariff cuts, which by 2004 will reduce the average agricultural tariff in China to an average rate of 17.5 percent from a high of 31 percent. Other benefits stemming from the agreement include:

  • Immediate elimination of China’s tariff rate quota system for commodities including barley, peanut oil, sunflower seed oil, cottonseed oil, and a phase out for soybean oil. (Note: when a quota system is not in place for a particular commodity, the U.S. can export an unlimited amount of that commodity.)
  • The right to import and distribute products without going through a state-trading enterprise or middleman.
  • China also has agreed to eliminating health standard restrictions on commodity imports that are not based on scientific evidence.[154]

Federal Assistance
The federal government began directly intervening in the nation’s agricultural economy during the 1930s to support farm incomes, which had plummeted along with agricultural prices.[155] By supporting higher farm prices, the government not only raised farm income but also slowed the migration of farm workers to depressed urban areas. In addition to providing price support for various crops, the government offered producers financial incentives to adopt practices to control the supply of commodities, encourage soil conservation and promote farm planning.[156]

Texas farmers received an annual average of $305 million in federal assistance during the 1970s, $880 million during the 1980s, and $974 million in the 1990s before the current federal farm legislation took affect in 1996.[157] In 1999 and 2000, the government paid $2 billion and $1.7 billion to Texas farmers respectively.[158] The 1999 payments were equal to 13 percent of Texas’ total agricultural cash receipts that year.[159]

The federal Farm Service Agency through the Commodity Credit Corporation (CCC) makes non-recourse loans available to eligible farmers, using the value of their stored crop as collateral. If market prices rise to levels higher than those on which the loan is based, the farmer may sell the commodity and simply repay the loan.

If market prices fall below loan levels, the farmer may forfeit or deliver the commodity to the government to meet the loan obligation in full. In effect, the crop value on which the non-recourse loan is based becomes the floor price for the commodity. Until the 1996 farm bill, this system of loans and deficiency payments—designed to protect the crop farmer against market price fluctuations—generated most of the farm subsidy payments in Texas.

For the most part, government support for livestock has been limited to emergency feed programs and mohair and wool price supports, which the government began phasing out in 1995. Since then, goats have been raised more for their meat value than for their fiber.

In 1996, the federal government revised the farm program through the Federal Agriculture Improvement and Reform Act of 1996 (FAIR), which is designed to allow farmers more freedom in what and how much they plant, while phasing out government price supports.

Certain loans are available to farmers, as are production flexibility contract (PFC) payments. PFC payments are based on the amount of acreage farmers have under contract with USDA and the amount of federal funds available.[160] These payments are intended to ease the federal government’s departure from its old farm support system. To be eligible for PFC payments farmers were given the opportunity to enroll in a one-time sign up in 1996 when the payments began, and they can collect payments based on their crop contract acreage through 2002 when the program is scheduled to end.

In Texas, farmers have received more than $2 billion in PFC payments since 1996. According to USDA, about 83,900 Texas farmers received $445 million in PFC payments and 40,400 farmers received $278 million in loan deficiency payments (LDP) in 2000.[161] LDPs, another form of direct government payment to farmers, are the equivalent of payments that farmers receive if they do not obtain non-recourse loans through the CCC. PFC payments in 1998 were supplemented by Marketing Loss Assistance payments, which were created by an emergency federal appropriation to crop producers for losses due to low market prices.[162] In 1999 and 2000, the Farm Service Agency spent $471 million and $467 million, respectively, in Texas on Marketing Loss Assistance.[163]

In addition to PFC payments, loan deficiency payments, and marketing loss assistance payments, federal government spending includes programs for conservation and disaster loss assistance. The Conservation Reserve Program (CRP) is a voluntary federal program that allows farmers to collect rental payments from the government on their land in exchange for planting cover crops, such as grass and trees to encourage long-term soil protection for 10 or 15 years. Only landowners who own land that is determined to be highly erodible are eligible for the program.[164] More than 4 million acres of Texas cropland is currently enrolled in CRP.[165] (See Exhibit 53.)

Exhibit 53
Top Ten Counties: Conservation Reserve Program in Texas
County Number of CRP Contracts Total Acres Average Rental Rate Total Program Dollars
Deaf Smith County 578 183,164.9 $38.08 $6,974,919
Gaines County 51 198,596.9 $32.21 $6,396,806
Lamb County 94 145,683.8 $37.10 $5,404,869
Hale County 125 121,966.5 $37.95 $4,628,629
Floyd County 792 118,940.6 $38.66 $4,598,244
Swisher County 599 125,368.2 $35.75 $4,481,913
Hockley County 788 115,992.5 $38.10 $4,419,314
Bailey County 610 133,227.7 $33.03 $4,400,511
Terry County 792 118,036.1 $35.65 $4,207,987
Dallam County 379 122,745.8 $34.09 $4,184,404
Sources: USDAFarm Service Agency, Producer Payments Reporting System and Texas Comptroller of Public Accounts

In return for annual CRP payments, landowners must practice erosion control, such as planting grass waterways (grassy channels designed to handle runoff from large storms) or salt-tolerant vegetation; building riparian buffers (strips of trees or woody plants adjacent to water that prevent erosion and provide wildlife habitat); or enhancing shallow-water areas for wildlife.[166] Last year, the CRP paid $148.6 million in cost shares, incentives and annual rental payments to Texas landowners.[167]

More than two-thirds of Texas counties participate in CRP. Rental rates average as much as $56.71 per acre in San Patricio County, to as low as $19 per acre in Leon County. The average rate for the state is $34.22. Deaf Smith County, with more than 183,000 acres in the program, received the most money from CRP of any county in the state in 2000—$7 million. Gaines, Lamb, Hale and Floyd counties rounded out the top five, with each taking in at least $4.5 million that year.[168]

In recent years, farmers have struggled with record-breaking droughts in Texas, which have spurred many Texas farmers and ranchers to apply for disaster assistance. The disaster assistance programs include the Noninsured Crop Loss Assistance Program (NAP), the Livestock Assistance Program (LAP) and the recently introduced Crop Loss Disaster Assistance Program (CLDAP).

Federal appropriations for agriculture in 1999 created CLDAP with $1.5 billion for emergency financial assistance to farmers who suffered disaster-related losses to their crops in 1998 and an additional $875 million for those who suffered multi-year losses (three or more crop years between 1994 and 1998). In addition, the program provided $400 million in incentive payments to farmers to purchase higher levels of crop insurance for their 1999 crops. Payments were limited to $80,000 per person and covered all crops whether or not they were insured at the time of disaster.[169] In all, more than 49,500 producers in the state shared $461.4 million in CLDAP assistance in 1999.[170]

The Non-insured Crop Loss Assistance Program provides crop-loss assistance to farmers for crops such as fruits and vegetables, which are not insurable in most areas of the state. And the Livestock Assistance Program provides direct payments to livestock producers who suffered disaster-related grazing losses in 1998.[171]

Continuing the trend of disaster programs, the 2000 Appropriations Act included a federally funded Crop Disaster Program (CDP), which provided about $1.4 billion to farmers nationwide who had suffered crop losses due to natural disasters in 1999.[172] This program has paid about 300 Texas farmers $1.8 million in late 1999 and more than $190 million to about 32,300 Texas farmers in 2000.[173] (See Exhibit 54.)

Exhibit 54
Federal Supplemental and Disaster Relief Payments to Texas Farmers, 1996-2000
Program Name 1996 Payments (millions) 1997 Payments (millions) 1998 Payments (millions) 1999 Payments (millions) 2000 Payments (millions)
LDP ** N/A N/A $84.5 $326.2 $278.0
PFC *** $547.3 $489.5 $771.2 * $887.6* $912.4
CRP **** $154.5 $154.1 $131.9 $142.2 $148.6
NAP ***** $4.5 $3.5 $3.3 $9.7 $1.1
All others $56.7 $0.2 $10.2 $595.9 $306.5
Total payments $763.0 $647.0 $1,001.0 $1,961.0 $1,646.0
*IncludesMarketing Loss Assistance payments
**LDP: Loan Deficiency payments
***PFC: Production Flexibility Contracts
****CRP: Conservation Reserve Program
*****NAP: Noninsured Crop Loss Assistance Program
Note: totals may not add due to rounding.
N/A: not available.
Sources: USDA Farm Service Agency, Producer Payments Reporting System and Texas Comptroller of Public Accounts.

As mentioned earlier, farmers still can’t rely on today’s marketplace for profitability, and disastrous weather patterns can lead to increased concerns over crop insurance. FAIR forced farmers to insure themselves through the private sector, but many farmers have been unable to obtain crop insurance due to the cost of premiums in high-risk areas or their inability to obtain insurance for their particular crops.

Congress passed the Agriculture Risk Protection Act of 2000—the third farm relief bill in as many years—in May of 2000, which was signed into law the following month. The package will provide over $15 billion in assistance to U.S. farmers. The majority of the money, $8.2 billion, will be spent on the federal crop insurance program over the next five years.[174] This will allow farmers to purchase crop insurance—which can be bought at levels ranging between 50 percent and 85 percent of their average production level—at lower costs due to higher premium discounts that will be provided as a result of the legislation. The remaining funding will go toward improving the compliance and integrity of the insurance program, research and pilot programs, and program administration.[175]

It is too early to predict what shape future federal farm legislation will take after the current federal farm bill expires in 2002. In any event, regardless of trends in recent federal legislation, the federal government is unlikely to stop supporting agriculture anytime soon.

State Tax Incentives for Agriculture
Texas agricultural producers receive tax savings from the state in the form of sales and use tax exemptions and special property tax appraisals for agriculture, timber and wildlife management. Combined, these tax incentives result in more than $1 billion in savings annually for those in agriculture.

Starting in 1961, many agricultural items have been exempted from the sales and use tax. Among the exempt items are horses, mules and other work animals; feed for farm and ranch animals and for animals held for sale; certain seeds and annual plants; chemicals used on a farm or ranch in production; machinery and equipment used on a farm or ranch to build roads or water facilities; items used to produce, process, pack or market agricultural products; underground irrigation equipment; and ice used for commercial fishing boats.

In 1999, timber items have been granted similar exemptions. Exemptions for items used in the production of timber such as seedlings, certain chemicals, and machinery and equipment are now being phased in. The transition will begin in October 2001, and these items will be completely exempt from taxation by 2008. Projections for sales and use tax savings for timber items rise considerably during that time period. Beginning in 2001, projections for timber sales tax exemptions total $2.6 million, but by 2006 savings will increase to $13.7 million, an increase of 427 percent.

Additionally, agricultural producers receive exemptions from certain agribusiness items such as bins or cages used as containers in transporting fruit, vegetables or poultry from the farm to a location where the items are processed, packaged or marketed. Likewise, motor vehicles including a farm machine, trailer or semi-trailer used primarily for farming or ranching are not subject to the motor vehicle sales tax; and refunds are made for gasoline sales tax paid for fuel used in tractors or similar agriculture equipment operated on areas other than public roads.[176]

Since 1966, agricultural land has been subject to a special appraisal designed to keep land in agriculture production rather than forcing farmers and ranchers to sell due to the increasingly high market value of their land as the state became more urbanized. The special appraisal allows agricultural land to be appraised at its production value rather than its market value and saves Texas farmers and ranchers more than $1 billion every year. The 1966 law was quite restrictive in the beginning, allowing the special appraisals to only family or individual farmers whose primary source of income came from agriculture. A 1978 amendment eased this restriction and expanded eligibility to everyone who owned land used for agriculture or timber production.[177] In 2000, property tax savings on the more than 137 million acres of agricultural land in the state were valued at almost $1.4 billion. The market value of this land was appraised at $77.8 billion, whereas the productivity value was appraised at $9.5 billion.

Timberland and agricultural land in wildlife management use receive appraisals similar to the appraisal for agricultural land. In 2000, these appraisals saved Texas landowners more than $75 million for timberland, and $8.9 million for wildlife management use. Respective market value of Texas timber land and land managed for wildlife was $6 billion and $459 million, whereas the respective productivity value for the land was $2.2 billion and $16.4 million.

Total combined tax savings in 2000 from agriculture, wildlife and timber appraisals, combined with all agriculture related sales tax exemptions and refunds totaled $1.45 billion. (See Exhibits 55 and 56.)

Exhibit 55
Property Tax Savings, 1997 to 2000
Year County Average Tax Rate/$100 School Average Tax Rate/$100 Acres Market Value Productivity Value Tax Savings
1997 0.4888 1.4076 136,048,611 $65,912,756,481 $9,764,255,966 $1,064,777,704
1998 0.4983 1.4506 136,290,311 $68,624,759,480 $9,746,154,078 $1,147,485,141
1999 0.5231 1.4517 136,289,117 $72,444,077,920 $9,870,187,649 $1,235,709,185
2000 0.5231* 1.4742 137,274,294 $77,783,692,242 $9,456,512,759 $1,364,698,756
Wildlife Management
1997 0.4888 1.4076 93,932 $53,637,552 $7,277,424 $879,155
1998 0.4983 1.4506 108,618 $137,734,057 $9,410,223 $2,500,903
1999 0.5231 1.4517 176,798 $228,368,763 $10,719,735 $4,298,133
2000 0.5231* 1.4742 278,229 $459,329,006 $16,382,540 $8,846,970
1997 0.4888 1.4076 7,484,188 $5,809,437,551 $2,123,830,083 $69,892,386
1998 0.4983 1.4506 7,459,660 $5,876,486,049 $2,150,737,976 $72,611,104
1999 0.5231 1.4517 7,491,322 $5,984,713,035 $2,322,704,340 $72,317,348
2000 0.5231* 1.4742 7,387,881 $5,993,754,486 $2,233,856,697 $75,096,439
*The 2000 average tax rate will not be available until late summer 2001.
Source: Texas Comptroller of Public Accounts.

Exhibit 56
Estimated Sales and Use Tax Savings
Exemption (in millions) 1999 2000 2001 2002 2003 2004 2005 2006
Agricultural feed, seed and fertilizer $214 $222 $230 $232 $234 $239 $245 $251
Livestock for food $11 $12 $12 $12 $13 $13 $13 $13
Agricultural machinery and equipment $48 $50 $52 $53 $53 $54 $55 $57
Horses, mules and work animals $8 $8 $8 $9 $9 $9 $9 $9
Commercial fishing ice $0 $0 $0 $0 $0 $0 $0 $0
Timber operations (equipment) $2 $3 $3 $5 $7 $9 $11 $14
Agricultural gas and electricity $12 $12 $14 $13 $13 $13 $13 $13
Agribusiness (agricultural containers) $0 $0 $0 $0 $0 $0 $0 $0
Motor vehicle sales tax exemptions (farm use) NA NA $22 $22 $23 $23 $24 $24
Gasoline Refunds (agricultural use) NA NA $13 $13 $13 $14 $14 $15
Total $293 $302 $342 $347 $352 $360 $370 $382
Source: Texas Comptroller of Public Accounts.

The Payoff: Farm Income
Texas farm income has shown all the volatility inherent in a commodity market over the last three decades, reaching a low of just under $700 million in 1980 and climbing to a high of nearly $4 billion in 1993. In constant dollars—“real” income—farm income, however, declined between 1969 and 1998. The Texas farmer is worse off today than he was 29 years ago because the buying power of his income has dropped by forty percent. (See Exhibit 57.)

Many variables determine whether or not a farming operation is profitable: how much physical crop or livestock production is realized, the amount and costs of production expenses, the value of inventory changes, the market price for output at the time of sale and the level of government support payments.

In 1996, the worst year for farm income between 1990-1998, annual county farm income was negative in 137 counties, with losses ranging as high as $12.4 million in Freestone County. Of the 137 counties showing farm losses, 117 had losses of more than $1 million. Twenty four counties showed farm losses every year from 1994 to 1998, while 7 counties have shown negative farm income every year this decade.

During this same time frame, some counties still had substantial farm incomes, even in 1996. Three counties with large beef operations or drought-resistant cotton crops had farm incomes of over $100 million that year.

Even for these counties, farm income can vary from year to year. There are many Texas counties where farm income switches from positive to negative each year. Scurry County has roughly one-half of its farm cash receipts from cotton, feed crops and food grains and one-half from livestock, mostly beef and milk. Scurry County had its farm income range from more than $7.8 million in 1992, down to a loss of $9.8 million in 1996, back up to over $1.4 million in 1997 and back down to more than $7.8 million in 1998. How many people could stay in a career for very long if their paychecks followed this unpredictable pattern? (See Exhibit 58.)