Ag’s Aging Infrastructure: Capital Needed to Modernize, Expand07/06/2016
Agriculture’s decaying infrastructure is, in part, a victim of its own success. Improved yield potential for corn, wheat, soybeans, sorghum, and other commodities has decreased an aging infrastructure’s ability to accept and transport commodities efficiently.
Adding to the bottleneck, volatile commodity prices and the escalating costs of refurbishing or replacing worn-out or obsolete equipment, are hindering the ability of small or cooperative ag commodity storage, processing, and transportation facilities to make much-needed improvements or to expand to accommodate increased traffic.
Grain handling facilities and transportation infrastructure to move grain to those facilities are in dire need of upgrades, says David Gibson, executive director of the Texas Corn Producers Board at Lubbock.
“Agricultural facilities that handle our grain are aging across Texas,” he says. “Few new facilities have been built over the past several years, except near some of the unit train sites in Texas — where the 100-car trains that bring grain from the Midwest into our state are handled.
“Harvest congestion is a growing concern at existing, aging facilities in several areas of Texas. Some were built to handle much smaller trucks, and have a low unloading capacity. These facilities were built when harvest equipment was much smaller, and a longer harvest period was the norm. With today’s larger combines, grains are harvested at a faster pace and harvest is completed in much less time. Many farmers in these areas are either installing on-farm storage or adding to the capacity of their storage.”
A STICKING POINT
Steve Verett, executive director of Plains Cotton Growers, Inc., also at Lubbock, says transportation is a sticking point for cotton.
“From our perspective, the most pressing infrastructure issues are aging and deteriorating farm-to-market roads and state highways,” he says. “Bridges in other parts of the state that aren’t in shape to accommodate today’s trucks and loads also are a concern.”
The issue is so pressing, he says, that a recent Texas Ag Forum focused on transportation issues and included speakers from both the Texas Department of Transportation and the Texas Transportation Institute at Texas A&M.
A Texas AgriLife press release following the forum offered more detail.
“We’ve got a real bottleneck from the field to the marketplace,” said Wayne Cleveland, executive director of the Texas Sorghum Producers at Salado. “Our county road system is broken. When’s the last time you saw a new county road built? Even basic repairs are hard to come by.”
Rail transit is also under scrutiny due to border security issues, because railcars hauling grain and other commodities face the danger of getting hijacked, Cleveland says. “It’s causing a diversion in markets based on fear.”
Many commodity representatives at the meeting said they support an increase in federal gross weight limits to 91,000 pounds, and using six-axle trailers. They say this would allow for increased amounts of field-harvested commodities, such as sorghum, as well as beef cattle, to be transported in a more timely, efficient manner. “We need that extra axle,” Cleveland says.
Josh Winegarner, director of government relations for the Texas Cattle Feeders Association in Amarillo, says some competing cattle feeding states have changed weight limits. “This allows them to haul more cattle and puts us at a competitive disadvantage. If we could add another axle, it would distribute weight more evenly, with fewer trucks on the road.”
Gibson agrees that transportation corridors across the state are deteriorating much faster than repairs are made. It’s an important issue to farmers and ranchers across the region. “Transportation is critical to corn farmers across Texas and the U.S.,” he says. “The farm-to-market road network in Texas is in need of significant maintenance and repairs.
“Once envied by neighboring states, the combination of lack of funding and the need to build more transportation infrastructure for a growing state population has left such roads in a deteriorated state. Because of this decreased maintenance, repairs are needed on many of the roads our farmers use to move corn to the market.”
Luis Ribera, AgriLife Extension economist at College Station and director of the Center for North American Studies, said during the Ag Forum that major truck traffic continues to increase all along Interstate 35. Specifically, truck traffic has more than tripled in recent years, with more than 3.8 million trucks crossing into Mexico.
“There are a lot of reasons to use Interstate 35; it’s a truck company’s best option to move product,” he says. With potential trade expansion with Cuba and other export countries, port activity in Texas will inevitably increase, Ribera says. “As a result, we’re going to see more and more truck traffic on other Texas interstates like I-45 and I-10.”
NEED IS ‘MASSIVE’
“The need for overhauling agriculture’s infrastructure is massive,” says Brad Clark, CEO of Agspring, a holding company that focuses on midstream grain, oilseed, and specialty crop handling, processing, and logistics.
“We need investment in infrastructure,” he says. “Yields keep going up, and those crops have to go somewhere. Infrastructure — grain elevators, storage facilities, transportation corridors, bridges, barge loaders, and other necessary parts of the commodity pipeline — needs to expand and modernize.”
A laundry list of reasons account for the increasing strain on ag infrastructure, Clark says. “Things wear out. Most people do a good job of keeping equipment running; they upgrade and repair. But the time comes when machinery needs to be replaced.”
The conundrum is finding the wherewithal to finance those needed repairs, expansions, and upgrades.
Succession from one generation to another is a factor in many rural communities, Clark says, when no one is available to take over a family business, and no one is willing to buy the operation.
Cooperatives also face issues of increased costs of operation and no ready source of capital to refurbish or expand. Tapping co-op members for additional funding is rarely an option.
In some areas, increased volume, especially at harvest, creates backlogs at receiving points, which impede the flow of commodities to areas where demand is high.
“It’s a domino effect,” Clark says. “A bottleneck at a local elevator prevents farmers from bringing in grain, and also hampers transportation of that grain to rail lines, river barges, or coastal ports for export. Costs mount — and profits shrink.”
In good production years, producers and elevator operators face local market gluts. “Infrastructure must be designed to handle those gluts,” Clark says. “The system must be flexible and have ready access to the pipeline in order to move commodities where they need to go.”
At times, corn from Louisiana is needed in Iowa for ethanol plants. The grain has to get from the field to an elevator to a barge loader on the Mississippi for shipment north. A glitch anywhere along that transportation corridor adds costs and threatens production at the ethanol plant.
The problem is no surprise, especially to any farmer, elevator operator, barge loader, or facility in need of grain, or weighed down with too much grain and needing to move it along. The problem, Clark says, is for small companies and farmer-owned co-ops to find the capital to invest in modernizing, expanding, or merging facilities.
Agspring and similar firms work with companies to find solutions. “There are plenty of companies, co-ops, and rural communities that need assistance,” he says. Unlike large grain companies, facilities in farm country often are family-owned or are co-ops.
The agricultural midstream sector — comprising the originating, handling, processing, and logistics of grain, oilseeds, feed, and specialty crops — remains undercapitalized, highly fragmented, and in need of modernization, Clark says.
“Agspring represents a new avenue for value creation for companies that want to grow and compete, while remaining rooted in their local communities. We believe in an approach that is not only smart from an investor perspective, but matches the desires and expectations of the farmer and local operator. We strive to upgrade the infrastructure for growth, but maintain the reliable, proven local presence and people.”
Agspring acquires a local operation, but the local identity is preserved and enhanced. With access to capital, the operation can make the investments necessary to grow and compete, while not jeopardizing its daily operations.
USDA may work with, or through, private enterprises to improve rural infrastructure. Last year, Secretary of Agriculture Tom Vilsack announced a program to help fund rural infrastructure projects. The U.S. Rural Infrastructure Opportunity Fund, a public-private partnership between CoBank, Capitol Peak Asset Management (CPAM) and the U.S. Department of Agriculture expands public-private partnerships. USDA facilitated the investment of nearly $161 million in private capital for 22 critical water and community facilities projects in 14 states, augmenting the impact of USDA’s own investments.
“The fund and USDA’s other public-private partnership efforts help to facilitate private investment in rural businesses and infrastructure projects and maximize USDA’s own record investments in rural America,” said Vilsack, who also chairs the White House Rural Council.
“USDA and other agencies invest in infrastructure through a variety of federal initiatives, but our resources are finite and there are backlogs of projects in many parts of the economy,” he said in a release announcing the fund last summer.
“Efforts like the fund help encourage substantial private investment in even more projects that help to grow the rural economy and support rural communities, where people want to live, work, and raise their families.”
The needs are many and varied, including strong, secure infrastructure, such as roads and bridges, but also water projects, internet access, and community facilities like hospitals and schools.
Agricultural infrastructure is an important aspect of rural economies. Texas A&M AgriLife Extension Director Doug Steele made that point at a recent field day, saying, “A strong rural Texas depends on a strong agriculture.” And without adequate infrastructure, a strong agricultural economy is hampered.
It’s the same in rural communities across the nation. If rural — and agricultural — infrastructure is allowed to decline, the ability of rural communities to move products to market is compromised, growth is stymied, and small towns and communities dry up.
Source: Ron Smith, Southwest Farm Press