Everybody Wins with Agricultural Risk Management Education

Remarks by Joseph B. Dial

Commissioner

Commodity Futures Trading Commission

United States Department of Agriculture

FORUM ON RISK MANAGEMENT EDUCATION

Kansas City, Missouri

December 16, 1996

It is indeed a pleasure for me to speak to you today. I am impressed by the number of distinguished presenters on the program and the thought provoking topics that the conference organizers have selected.

My remarks today will be divided into three parts: first, some ruminations on our involvement, yours and mine, in agricultural risk management; second, reflections on various causes and effects occurring in the new era of agriculture; and third, a little "thinking out loud" about a synergetic system for agricultural risk management education.

Our Involvement in Agricultural Risk Management

Within a few days of being sworn in as a Commissioner of the Commodity Futures Trading Commission (CFTC), I was named Chairman of the agency's Agricultural Advisory Committee (AAC). It was a responsibility I welcomed, and one I have thoroughly enjoyed.

In connection with my duties as Chairman of the AAC, I began with a two-fold goal in mind: first, to follow the directive in part 18 of the Commodity Exchange Act which among other things, directs the Commission to "assist in the development of educational and other informational materials regarding futures trading for dissemination and use among producers, market users, and the general public;" second, to use the "bully pulpit" of my office to raise the level of farmers' understanding of the economic benefits they could derive from learning how to shift their production and price risks in a prudent manner.

The first step I took toward attaining that goal was to convene "A Forum on Futures and Options Education Programs for American Farmers and Ranchers." The American Farm Bureau Federation (AFBF) provided the facilities and lunch at their national headquarters in Chicago. Dr. Bill Tierney served as moderator of the day-long conference on January 24, 1992.

Terry Francl of AFBF gave Bill and me a ride to O'Hare airport at the end of the day. During the 20-minute ride I thanked Bill for the excellent job he did. He responded by saying that the day's activities were productive, but he had participated in similar exercises and not much, if anything, ever came out of them. As I flew back to Washington that evening I made up my mind something substantive would come out of the meeting we had just concluded.

I tell that little vignette because I know many of you in this room have been laboring in the vineyards of agricultural risk management education for five, ten, fifteen years. You did so even though many farmers were less than enthusiastic about the training you offered. I suspect that producers' lack of interest in your educational efforts was a source of frustration for all of you -- as well as the fact that back then there was only limited governmental and institutional support for training in agricultural risk management.

The truth of the matter is that as long as the government would assume most of the marketing and risk management responsibilities inherent in farming, producers didn't have a compelling economic incentive to perform those tasks themselves. Now they do!

A New Era of Agriculture

When American farmers woke up on the morning of April 5, 1996, they found themselves in a new era of agriculture. The Federal Agricultural Improvement and Reform (FAIR) Act had been signed into law the day before. This piece of legislation gave producers the freedom to farm for the market and not the government. But with that freedom comes new responsibilities.

In the future, skill in production agriculture alone -- being a good farmer -- won't be enough to assure success or even survival. Agricultural operators will have to possess two core competencies in order to be profitable in the 21st century: first, an innate ability to till the soil; and second, the daily use of astute business management practices. Put another way, today's farmer will have to become tomorrow's business specialist in production agriculture.

As I mentioned before, you have, for quite some time now, been teaching the skills farmers need to become business specialists in production agriculture. However, you faced a formidable attitudinal barrier -- producers would rather be in the field or machine shop than the class room. That mind-set is rapidly changing and as a result we stand on the threshold of a unique "teachable moment."

This "teachable moment" is not a mere figment of my imagination. I respectfully submit two examples to support this theory. First, two years ago the Farm Foundation, in cooperation with the CFTC, sponsored the "Summit on Risk Management in American Agriculture." The printed proceeding of that conference clearly shows how some producers, elevators, and their bankers believed in and successfully practiced prudent risk management. So, even back in 1994, there was a growing sentiment by many shareholders in the agricultural community that learning how to shift production and price risks was economically beneficial.

The second example to support the "teachable moment" statement occurred on October 7, 1996, at the 22nd meeting of the CFTC Agricultural Advisory Committee. Seventeen presentations were made concerning risk management education programs currently in place or planned for the future by the following member organizations of the AAC: American Farm Bureau Federation, National Grange, National Farmers Union, National Farmers Organization, National Cattlemen's Beef Association, National Grain and Feed Association, National Grain Trade Council, National Council of Farmer Cooperatives, National Corn Growers Association, National Association of Wheat Growers, National Grain Sorghum Producers, National Cotton Council of America, American Soybean Association, American Cotton Shippers Association, American Bankers Association, North American Export Grain Association, and the Risk Management Agency of USDA.

Throughout these presentations there was a common message: with the passage of the FAIR Act there is now a compelling economic reason for farmers to learn how to shift their risks. And there definitely is a changed perspective about the need for education in this discipline. Therein lies the challenge for both the public and private sectors.

The Congress has set the course for public sector participation in this particular educational process. Section 192 of the FAIR Act directed the Secretary of Agriculture, in consultation with CFTC, to "provide such education in management of the financial risks inherent in the production and marketing of agricultural commodities as the Secretary considers appropriate."

The Cooperative State Research, Education, and Extension Service (CSREES) initiated this Forum on Risk Management Education in response to that mandate. Likewise, the CFTC and the Risk Management Agency (RMA) of USDA are participating in this program because of Section 192.

The private sector attendees at this conference represent farmers, elevators, bankers, crop insurance agents, and the futures industry. With this nucleus representing a cast of thousands, how in the world will we ever harness all those separate special interest groups into a comprehensive risk planning effort?

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Thinking out loud" about a synergetic system for agricultural risk management education.

In this final segment of my presentation let me address that question by doing a little "thinking out loud" about a synergetic system for agricultural risk management education.

Even though I have already identified most of the stakeholders in this educational system, at least the ones here today, bear with me one more time. They are: producers, elevators, bankers, crop insurance agents, futures industry people, educators, and government. Obviously, the producers are the consumers to whom all the other groups are offering this product, i.e., agricultural risk management education.

The first thing we need to do is strike while the iron is hot! We have a "teachable moment" -- let's go for it! Use the educational tools and structure that are available today, don't wait for the program we hope to develop. We can always use the Section 192 model when it becomes available.

Next, the best things in life are free, but everything else has to be produced and promoted if the consumer is going to use it. We have the educational product, but we need to promote it. How are we going to get all of the aforementioned special interest groups to agree on one promotional theme, while at the same time motivate the producer to use an educational product? How about, "Everybody wins with agricultural risk management education?" If that won't work for you, then come up with one that will. We need a unifying theme for what we are trying to do -- that's the easy part.

Now comes the fun part, allowing each one of our special interest groups to remain as a separate profit center, so they can continue to compete with the other groups, while at the same time unifying them into a synergetic system that will promote one product -- agricultural risk management education.

There is plenty of room for left brain creative thinking in order to accomplish that Herculean task. One way would be as follows: take a single sheet of paper, fold it twice and we have the beginning of a pamphlet; on the front side, in bold headlines we print, "Everybody Wins with Agricultural Risk Management Education." Open the pamphlet and there will be copy that says why. On the remaining folds explain that the banker, crop insurance agent, futures industry person, elevator operator, agribusiness firm, farmers' association, all have information at their place of business concerning agricultural risk management education programs.

By working together to establish an information clearing house, while at the same time promoting the educational product the individual parts and the system as a whole would both benefit. The message contained in this promotional piece should be configured to work in public service announcements on radio/TV, on the Internet and in print media.

If free enterprise is still alive and well in this country, and I certainly believe it is, businesses that are part of the system I have described will realize they have a vested interest in establishing linkages with their counterparts. Together they can offer their customer, i.e., the farmer, a comprehensive risk management program. In my opinion, that would be better for the farmer when compared to the fragmented services approach presently being used.

Conclusion

In closing let me "think out loud" about the product itself. Is it a program that is usable and used by farmers? For example, is it written in "farmerese" not "legalese" nor "academicianese" -- no magnificent econometric models, just basic terms? Is it sprinkled liberally with analogies farmers are familiar with? Does it have lots of simulations the producer can work through anytime, anywhere he/she has the time to do it? Is there a 1-800-number voice mail arrangement and/or a computer modem connection allowing them to communicate with their instructor and their open learning classmates? Can the producer control the pace and direction of learning? Or does he/she have to attend classes at a certain time in a specific location? A setting that intimidates some adult learners because they are afraid their questions may be considered "dumb" or they won't be able to complete a problem the first time through. Can the program be down loaded from the Internet? Is it available on CD-ROM, floppy disc, video tape, audio tape, and in hard copy?

Finally, will the agricultural risk management education programs of tomorrow be in tune with the new era of agriculture. Will public and private sector institutions design these programs as tools farmers will use to shift production and price risks with a goal of securing revenue and building net worth over time? Or will the focus be on various strategies used to predict the weather and out guess the market in the hope of enhancing prices?

You may already have the answers to all these questions. If you do, that's great. Anyway, it never hurts to ask. Like World War II hero, General George Patton once said, "If everyone thinks alike, then no one is really thinking."