State of the Union

American agriculture comes face to face with 21st century challenges.

There are approximately 2.13 million farms and ranches in America today, about one-third the number scattered across America's rural landscape in 1935. Although smaller in number, these operations are producing billions of pounds of food for the American table, $445 billion of which goes into the foodservice sector, according to 2003 figures from the U.S.D.A. Economic Research Service. While continuing to feed our country and much of the world, American agriculture is currently facing some unique 21st century challenges and issues.

Local sourcing is making significant inroads into farm production and foodservice purchasing. Many restaurateurs prefer buying local, seasonal produce over organic for its superior flavor and appearance. Locally raised lambs, chickens, pigs and other livestock are also gaining in popularity, especially among operators searching for heritage breeds or certified humane animals. Farmstead cheeses, honey and other artisanal agricultural products are often sourced locally as well.

A survey from the Produce Marketing Association found that sustainability and concern for the environment is another reason this movement is growing. Consumer feedback indicates that the "green" label has the potential to become more of a selling point than certified organic.

Bob Young, chief economist with the American Farm Bureau Federation, sees the trend continuing. "There's a greater willingness on the part of producers to enter into direct contracting with restaurants and get them exactly what they want," he says. "And this isn't limited to small family farms. The large, mainline suppliers are sitting down with operators, too."

Organics are a growing force in agricultural production. With the passage of national organic standards by the USDA in 2000, all agricultural products labeled "organic" must be certified by an accredited agency and comply with the U.S. organic law. Although the certification process adds to the cost of production, farmers who participate are getting higher prices and finding a larger market for their goods.

U.S. sales of organic food and beverages have grown from $1 billion in 1990 to an estimated $14.5 billion in 2005. Foodservice now has a dedicated organic distributor, United Natural Foods, making it easier for operators to do one-stop shopping for organic products. Looking ahead to 2025, the Organic Trade Association sees consumer purchases of organics continuing to grow but at a slower pace. However, the group notes two relevant trends for foodservice buyers: increased U.S. acreage devoted to organic crops and livestock and increased sales of organic products to restaurants. An NRA study reveals that 48% of fine-dining operators and 39% in the casual segment are buying or asking for organic.

Flavor is another area being studied. "Taste" is by far the No.1 reason consumers give for choosing fresh produce, says the Produce Marketing Association. So there's an increasing emphasis on developing flavor in fruits and vegetables during their growth phase and in achieving flavor consistency from one crop to the next. "Many operators prefer heirloom produce from a flavor standpoint, but it's about balancing that flavor with an extended shelf life," says Lorna Christie, senior VP at the PMA. "The industry has a much higher understanding of this." Items like the Scarlet Red tomato illustrate this new direction.

Health and nutrition research on fruits, vegetables, grains, nuts, oils and meats is going strong, attracting commodity groups and manufacturers who are looking to market their products to health-conscious consumers. Positive results can directly boost farmers' or ranchers' profits. For example, the FDA approved a health claim in 2003 stating that scientific evidence suggested that a daily intake of 1.5 ounces of most nuts may reduce the risk of heart disease. Since then, almond consumption has almost doubled to 1 pound per person and restaurant usage of all nuts is up 7 percentage points. And the push for heart-healthy trans-free oils is boosting canola and sunflower seed production. "More than ever before, medical issues are driving what farmers are producing," says Dean Sonnenberg, a sunflower grower.

"There's lots of scientific information yet to be uncovered," says AFBF's Bob Young. "Why not do the research and get an edge?"

Technology is upgrading the supply chain by improving shelf life, traceability and food security. In the produce industry, controlled atmosphere packaging for whole and fresh-cut vegetables and fruits eliminates the perishability problems suppliers used to face. Coming down the pike is eco-frendlier packaging made from corn. And trucks are now equipped with systems that allow the driver to gauge and control the temperature of the cargo by looking in the rearview mirror.

On the traceability and security sides, the PMA is trying to institute a Global Trade Item Number (GTIN) system on produce shipments so every piece can be tracked. Right now, scannable RFID (Radio Frequency Identification) tags affixed to cases and pallets of produce are getting more attention. "RFID is very costly and is not being used efficiently at the item level," says Gary Fleming, VP of industry standards for the PMA. "GTIN technology will rely on one set of standards, taking traceability to the next level. It can give you really good information at different checkpoints in the supply chain, automatically locating misplaced cases in the warehouse, monitoring freshness and detecting spoilage." Pilot projects are now going on to test the hardware and software.

China has the potential to become a major player in the world agricultural arena, a development that is a dual-edged sword for American farmers. "China is both an opportunity and a threat," says PMA's Lorna Christie. Her projection positions China as the largest economy in the world by 2030, with a population that will make it a huge import market. Wheat, corn, oil seeds (such as soybeans) and meats are the American commodities China is buying now and will continue to buy, Bob Young of the Farm Bureau predicts.

Fruits and vegetables may be another story. While Chinese agriculture is still very segmented and there are serious supply chain issues, labor is cheap enough that a couple of crops are being produced for export now. Christie says there's enough broccoli and garlic being exported from China that U.S. farmers had to cut back on production because they were losing money. "There's a significant drop in prices producers will get when China enters a market," she adds. However, China is still way behind the U.S. in pesticide use, water purification and other food safety issues.