Remembering Ralph Hofstad: The Importance of Human Resources

Researchers and journalists meet people along the way who they admire for what they’ve done, and really like for personality reasons. It is precious when the admiring and liking come together in the same person.

I was reminded of that while researching a recent article that looked at the enormity of Minnesota’s food and agriculture industries, how that ties in with academia and builds a cluster of strength in our state economy, and how a Land O’Lakes investment in the University of Minnesota will keep building this strength.

Ralph Hofstad, a former president at Land O’Lakes and a charismatic farm leader for all of agriculture, died on Aug. 25 at age 90. Patrick Kennedy offered a particularly good obituary in the Star Tribune.

I have two especially fun memories of Ralph that should be shared. They reveal how interconnected our food and agriculture industries are, like the clustering of tech companies in Silicon Valley, and how dependent on academia we are for developing human resources, also like Silicon Valley.

In the one instance, former Pillsbury Co. executives William Spoor and Win Wallin called on Hotstad, offering an “expenses paid vacation” to the south of France. “You won’t need to pack a bathing suit,” Hofstad recalled being warned. “You will only be meeting with farmers.”

Pillsbury was exploring ways to introduce its Green Giant line of vegetables into Europe. A good-size vegetable cooperative in southern France was a logical partner and could start producing something new to most of Europe—sweet corn.

Hofstad went and met with local farmers and co-op officials. I remember Hofstad saying, “They were right. I didn’t get to the beach.”

This was a case of a major consumer food company accessing nearby talent from a dairy cooperative to explore a possible business tie that would have been in the interests of the Minnesota economy. That is precisely the interchange of knowledge and talent we constantly hear about in northern California.

A second memory is offered here for everyone involved with cooperatives or engaged with teaching at Minnesota business schools and schools of management.

Once when Land O’Lakes had an especially profitable year, a reporter from a major Wall Street business publication flew in and inquired if the cooperative was considering “going public.” During an interview for a book I was writing, Hofstad said he asked, “What do you mean by “going public?’ We are public. Our dairy farmers own us and they’ve invested a lot in us.”

Compounding the problem, the reporter then asked, “But what good are you if the public can’t invest in you?”

Here’s the lesson for business professors:

Hofstad said, “You know, Lee. You really need a good management team around you if you want to run a cooperative. I had a few there that day. They restrained me. I didn’t go up over the table and slug the guy.”

These memories explain why I really liked Ralph Hofstad. And why about 300,000 farmers did, too.

Posted in Economic Development | Related Topics: Agriculture  Co-ops 

An Agency for All Seasons

For a region like Minnesota's Iron Range, economic diversity has always been a challenge. In response to this reality, the state created an entity in 1941 to tackle the needs and economic issues of an area that is so tethered to one engine: The Iron Range Resources and Rehabilitation Board (IRRRB).

The current IRRRB Commissioner is Iron Range native, Tony Sertich. Commissioner Sertich, as the head of the IRRRB, is a member of the Governor’s Cabinet and oversees an agency whose sole purpose is to help promote an economic future for the region that is both sustainable and diversified.

As mentioned in my previous blog post, the IRRRB is funded by a portion of the taconite tonnage tax on ore taken out of the ground in the region. In 2013, the board approved a fiscal budget of $31.2 million dollars. While attracting larger employers of more sustainable industries is something the IRRRB actively works to achieve, the board also uses dollars for a myriad of other purposes.

One way it aids the region is through its Infrastructure Grant Program. Communities use these funds to maintain municipal water and sewer systems, demolish outdated and dilapidated properties to expand commercial and housing opportunities and to update the energy needs of the area through conservation and installation of renewable energy systems.

In 2011, Commissioner Sertich led the creation of the Local Business Loan Guarantee Program. The program is a new model that works to help local, small businesses gain access to capital through loans at local banks that are guaranteed with IRRRB funding. Businesses apply at their local financial institutions. The maximum amount for a loan is $75,000. As of June, the program has invested more than $1 million a month in loan support for local business and has made more than $44 million in business investments over the past two years.

For the Iron Range, the IRRRB truly is an agency for all seasons. Its reinvestment programs for local communities and businesses are invaluable for future bottom up growth. Even though attracting large employers is still a major concern for an area looking to find an identity to compliment mining, it is important that economic policy remain true to the vitality of local business. The IRRRB is successfully doing both.

Posted in Economic Development | Related Topics: mining 

The Economic Weight of Mining

Up in the beautiful realm of Northeastern Minnesota, there is a region aptly known as the Iron Range. The name comes from the ore that is abundantly in the ground: taconite. This precious rock is used to make steel, and on the Range, there not only is a lot of it, but it is an amazingly pure grade.

To call the mining industry the region’s most important economic sector would be vastly understating all that it does to make the lives of those who live there better. Taconite supports high wage union jobs, funds agencies that promote economic development through business grants, supports schools and higher education throughout the state, and aids residents in property tax relief. It facilitates all of this development through one simple tax.

In 1964, the Minnesota Legislature passed the Taconite Tax Act. The act created a statute that relieved the mining companies in the area of property tax obligations for the land they operate on in return for a tonnage tax paid for all ore taken out of the ground. In 2014, the amount of the tax was set at $2.56 per ton of ore. According to the Minnesota Department of Revenue, more than $102 million was collected in 2012. Out of that revenue, nearly $14 million went to cities and townships, nearly $16 million went to local school districts, over $14 million went counties, $16 million went to property tax relief, and $30 million went to the Iron Range Resource and Rehabilitation Board.

The economic impact of the mining industry to the Iron Range beyond tax revenue also cannot be ignored. According to  the Labovitz School of Business and Economics at the University of Minnesota Duluth, mining accounts for more than 11,200 jobs directly and indirectly in the state and adds billions of dollars to the regional economy.

In a time for our state when nonferrous mining is such a divisive political issue, it is important to remember why so many people have trouble dismissing its expansion. The issue of precious metal mining is one of huge importance and carries with it some very real risks to the environment if not implemented safely. It's also wise for us to survey all that mining has done for our state so we can understand both sides of the debate more clearly. For Iron Rangers, mining isn’t simply a business sector, it puts food on their tables, promotes all types of business and funds all levels of education. In short, it is a way of life.

Posted in Economic Development | Related Topics: Job Growth  Rural Minnesota  mining 

Meeting Needs of an Aging Population Increases Access for All

Between now and 2045, the number of Minnesota adults aged 65 or older is expected to skyrocket. By 2030, more than 1 in 5 Minnesotans will be considered older adults, according to data from Minnesota Compass and the Wilder Foundation.

Minnesota's aging population: Prepare for lift off
Source: Minnesota Compass

This trend is not limited to the state. Nationwide, the number of adults aged 65-74 will nearly double from 21.7 million in 2010 to 38.6 million in 2030. And as the older adult population continues to grow, it also grows in political significance. Meeting the needs of aging adults offers Minnesota an opportunity to invest in transportation and housing solutions that will increase community access for all ages.

Median income levels of older households remain nearly $20,000 below the Minnesota average. In 2012, one third of adults aged 50+ paid more than 30 percent of their income for housing. The JCHS reports that older, severely-cost-burdened households spend 43 percent less on food and 59 percent less on healthcare than similar households who live in housing they can afford. And nationwide, 600,000 people ages 70 and over stop driving. A recent ranking by USA.com suggests that the Twin Cities region has the second lowest population density of the nation’s 25 metropolitan areas, which means people have to travel farther and longer to get what they need. Older adults are often more cost-burdened and isolated than any other age group, but local policy solutions can meet these needs. 

Offering more diverse and affordable housing options located near amenities—or near transportation to amenities—can lessen the cost burden older adults face. Many want to live in homes they already occupy, so providing subsidies for remodeling housing with disability accessibility features could be a crucial step. Expanded transportation options near these affordable homes would increase the mobility of older adults, making it easier for them to access health care, the grocery store, and their family. Easy transportation options could enable older adults to stay in the workforce, increasing their income and lessening their cost burden. 

Communities that meet the needs of older adults help everybody out. Housing and transportation are cost burdens that much of the population faces, regardless of whether they have grey hair. Rather than being a burden to society, accommodations for older adults can lead to innovative solutions to transforming the accessibility of Minnesota’s cities.    

Posted in Economic Development | Related Topics: Public Transportation  Rural Minnesota  Housing Market  Senior Issues 

Workers Share of Corporate Income Falls

Corporate income goes to either one of two places: employees or corporate owners. According to a new report from the Economic Policy Institute, workers’ share of corporate income in 2013 fell to its lowest point in over sixty years—a further indicator of mounting wage and income inequality.

The employee versus owner share of corporate income can swing significantly over short periods of time, with the owner share falling sharply during a recession and growing rapidly during a recovery; changes in tax law can also have a short-term effect. However, the overall trend in the employee share of corporate income since 2000 has been downward, falling from approximately 82 percent in 2000 to 73 percent in 2014.

The downward drift in the employee share of corporate income corresponds with the decline in median household income, which from 1999 to 2012 declined by 11.2 percent nationally and 9.3 percent in Minnesota after adjusting for inflation, based on data from Minnesota Compass. (Since 2010, Minnesota’s median household income has increased slightly, while national median household income has continued to decline.)

The declining share of corporate income going to workers is yet another indicator of a trend that continues to be the greatest economic challenge of modern times: growing income inequality and shrinking median income. These trends undermine the great engine of the state and national economies: consumer demand driven by the purchasing power of middle-income families. So long as the share of income accruing to working households continues to erode, robust and sustainable long-term job and economic growth will remain illusory.

Posted in Economic Development | Related Topics: Corporate Business  Workers' Rights 

Student Debt, Evidence of Impacts, Piling Up

While working on the accompanying article linking student debt to slow economic recovery, we turned to friends at Minnesota Housing Partnership to learn what they were finding.

Sarah Strain, research and communications intern at MHP, pulled together research and links that might be helpful for anyone doing similar research going forward. For that reason, we offer the following links from both MHP and Minnesota 2020 as reference points and encourage others to delve more deeply into this rapidly growing economic crisis.

A good starting point is a Washington Post article using Goldman Sachs research about student debt holding back home purchases.

Two Wall Street Journal articles provide similar evidence and analysis. In one, surveys showed about 27 percent of mortgages were denied because of student debt. Another article quotes Harvard and former National Economic Council economist Larry Summers as saying student debt is holding back both housing and broader economic recovery.

Market Watch, meanwhile, deduced graduates with student debts needed one-third more income, or $8,969, than debt-free millennials to own a home.

Good research data gleaned from Federal Reserve studies are offered by Beth Akers and Matthew M. Chingos at Brookings Institution. Among their troubling findings is that one-fourth of increased student debt results from more education—graduate degrees—that are assumed to be important for America to continue progress.

A good summary of above findings was offered by Lisa Prevost in the New York Times in which home buying declines by the 25-34 age group is well below drops for other cohorts after the housing crash.

Bringing all this close to home in Minnesota, the Institute for College Access & Success has solid research on both national and state data findings through 2012. Start here for an overview on Quick Facts About Student Debt. State data are available on the related Project on Student Debt site.

Posted in Economic Development | Related Topics: Higher Education  Personal Finance 

VIDEO: Fast Food Workers Strike

The "Fight for $15" campaign came to Minneapolis today as workers joined in the national movement asking for at least $15 an hour and union rights. CTUL (Centro de Trabajadores Unidos en Lucha) organized today's actions calling for better wages and the right to form a union without retaliation.

Minnesota 2020's Briana Johnson was on site at the McDonald's in Uptown where she heard from organizers and workers who were on strike.

Posted in Economic Development | Related Topics: Economic Growth  Minimum Wage  Union  Workers' Rights 

Commodity Markets Flip-Flop on Consumers, Rural Minnesotans

For several years running, livestock producers struggled with production costs as everything from droughts in cattle country to high feed costs in dairy, pork and poultry areas made producing profits a big challenge for farmers and ranchers.

Consumers with a taste for certain foods were whipsawed as well when producers cut back on production and sold off herds in response to either lack of pastures and feed or to lower operating losses.

Meanwhile, grain and oilseed farmers have had record years of profits from selling corn, soybeans, wheat and some specialty crops. Household budgets were pinched, and government feeding programs and nonprofit food shelves have struggled keeping up with demand for services and assistance.

This blog won’t tell people involved with agriculture and food anything they don’t already know. Instead, it is intended to remind other Minnesotans that a big flip-flop has occurred in the agricultural economy that still makes accessing proper foods difficult for lower income Minnesota families.

Simply put, prices for meats—especially beef—have skyrocketed from shortages and the cost of all high-protein foods are high. This takes meat off tables in some households. At the same time, profits from raising major Minnesota field commodities are disappearing with each trading day at the nation’s commodity exchanges.

In time, lower commodity prices that translate into lower feed costs will prompt farmers and ranchers to rebuild herds. Be forewarned: barring other unforeseen circumstances, rebuilding of meat supplies will take from 18 months to three years with poultry being the quick turnaround and substitute for other meats along the way.

Having watched commodity markets oveer the years, let’s say consumers and people involved with the Minnesota food and ag economy should be ready to receive conflicting news about food, household budgets and the broader economy as we close out 2014 and move into a new year.

It has already started. While meat prices were climbing to new highs, the Labor Department reported this past month that overall consumer prices grew at the lowest rate since February. The Los Angeles Times article on the CPI noted lower energy costs offset higher prices for food and shelter. That dropped the CPI measure of inflation to just 0.1 percent in July from 0.3 percent in June.

Such a low inflation rate is helping the Federal Reserve maintain its expansionary monetary policies to keep America on the path of recovery from the Great Recession. But that’s the big numbers picture. Here’s what it means in Minnesota:
Some farmers who were losing money in recent years will be making heaps of money this year and in 2015. Some farmers who socked away record earnings from grain and oilseed production in recent years may be dipping into reserves to cover production losses.

And all this is meaningless to the quarter of Minnesota’s population with the lowest household incomes. Accessing food and shelter will continue to be a huge problem no matter how the segments of the CPI change from month to month.
 

Posted in Economic Development | Related Topics: Agriculture  Economic Growth 

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From Alky-Gas to Gasohol to Ethanol. Now Comes Biobutanol

Research scientists and environmentalists constantly remind us that biofuels production is a work in progress, that better systems and technology are needed, and that there must be better uses of land resources to make biofuels in the future.

Won't disagree. But it is also important to note that progress takes time and we are seeing progress.

The Biofuels Digest industry magazine this past week reported Butamax Advanced Biofuels and Highwater Ethanol have begun production of biobutanol at Highwater's Lamberton plant in southwest Minnesota.

The highly technical article also notes the retrofitted Lamberton plant uses "a novel" corn oil separation technology that delivers 50 percent higher yields than other existing technologies. That represents here and now progress.

Meanwhile, a Washington, D.C.-based writer working on a political history book has shared with me a newsletter sent constituents in April 1934 by a first-term Illinois congressman, Everett Dirksen, that showed what he was doing to promote the concept of what was then called "alky-gas."

In it, Dirksen informed the folks back home that the idea wasn't all that new. A quick hit noted, "Rapid expansion of the possibilities of alcohol as a motor fuel in England, Germany, Sweden, Czecho-Slovakia, Australia, and other countries, now running into hundred millions of gallons."

The sentence looks a little awkward today. But then, Dirksen had his college studies at the University of Minnesota Law School interrupted by World War I. He is best remembered today, however, for being an eloquent and humorous speaker and, as Senate Republican leader, for helping Sen. Hubert Humphrey, D-Minn., and others find the votes needed to end filibusters and pass major civil rights legislation.

When did agriculture and the fuels industry drop the "alky-gas" name, asks researcher Nick Kominus who found the Dirksen newsletter. Don't know. Well before my time. I do recall Agriculture Secretary Bob Berlgand calling it "gasohol" when USDA was researching its potential uses in the 1970s.

Along the way, the more scientifically descriptive name ethanol came into accepted use. There is a march of time that now brings us up to biobutanol.

Beyond the renewable fuels links to Minnesota, Kominus found Dirksen used his constituent newsletter to do mini-profiles of the so-called "brain trusters" at the USDA who were instrumental in shaping FDR's New Deal and depression-fighting programs. Brain truster No. 2, profiled in the April 21, 1934 newsletter, was Dr. Mordecai Ezekiel, a Virginia native who had a master's degree from the University of Minnesota and a Ph.D. from the Brookings Graduate School of Washington, D.C. His textbook, Methods of Correlation Analysis, was widely used in agricultural economics courses and sharpened analytical skills from Minnesota to the brain-trusters holded up at USDA.

Posted in Economic Development | Related Topics: Economic Growth  Public Transportation 

A New Take on “Food for Fuel”

Usually when you hear the phrase “food for fuel,” it is used in reference to processing corn, sugar cane, and other staples into biofuel such as ethanol and biodisel. But there is a new situation developing that gives fresh spin on this phrase: displacing food for shale oil.

There is no question that the shale gas and oil boom has been a boon for the United States. A study out of Purdue University estimates that, without the shale revolution, U.S. GDP for the years 2008-2035 would be 3.5 percent lower. Additionally, shale oil has helped moderate the volatility of the global oil market and lowered our energy import dependence, while the growth in natural gas production has driven down prices, leading to a shift away from dirtier coal in favor of increased natural gas capacity

In states rich with shale oil and gas, the benefits of developing these resources have been the most tangible. Just across the border in North Dakota, development of the Bakken oil fields are largely credited with an 11 percent growth in the state’s GDP from 2011-2012, soaring real estate prices, and the lowest unemployment rate in the nation, 2.8 percent.

These figures make it seem like the economic impact of the shale revolution has been good for all, directly or indirectly from trickle down effects.

Perhaps not.

More reports are surfacing that, to the contrary, shale oil is actually crowding out other important commodities (and personal travel) by congesting rail lines and displacing shipments of coal and grain. Rail currently carries around 11 percent of U.S. oil, a figure that is expected to continue to increase through the rest of 2014. As of last week, BNSF, the largest regional railway, had over 1,000 rail cars set to deliver grain and other goods waiting to be shipped. According to a study out of North Dakota State University, these delays could cost North Dakota farmers $67 million over the winter months, and another $95 million if they are unable to move any remaining inventory after that.

As my colleague Conrad pointed out in a blog post earlier this month, farmers here at home are facing the same headache. A study from the University of Minnesota estimates that corn and soy growers lost over $70 million nearly $19 million, respectively, between March and May due to rail delays. Local businesses are taking a hit as well: General Mills reported last March that it had lost around 2 months’ worth of production; Cargill reported lower earnings due to higher rail transport costs.

Rail companies are responding to the overload of rail freight, greatly increasing spending on capital assets and boosting their payrolls. Despite this, backlogs of rail shipments are likely to persist as oil production ramps up. One solution, of course, could be more pipelines. But pipeline projects, even those with approval or that are close to gaining approval from the Federal Energy Regulatory Comission, are still years away from operation. In the meantime, state legislatures and likely, the Federal Government, will need to examine options for balanced growth that doesn’t bolster one commodity at the expense of others.

As a nation, we have an insatiable hunger for oil and gas to power that economy. But displacing food with fuel should be an unacceptable tradeoff.
 

Posted in Economic Development | Related Topics: Business Growth  Energy  Environment 

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