The future farmers of 4-H pledge their heads to clearer thinking, their hearts to greater loyalty, their hands to larger service and their health to better living.

If there are going to be any future farmers of Oregon, their pledge might need an update: I pledge my head to clearer thinking about commodities, my heart to greater use of technology, my hands to larger service of niche markets, and my health to better living without chemicals.

Agriculture is big business in Oregon. And for a decade or more, it's been in trouble. Crop yields have been stunted by drought, and prices have been kept low by the strong U.S. dollar and cutthroat foreign competition. Cheap energy and abundant water, long an ace in the hole for the region, are gone. Food processors have closed their doors across the state, leaving farmers with no outlet for their harvest. Markets for key exports -- wheat from Eastern Oregon, apples and pears from the Columbia Gorge, raspberries from the Willamette Valley -- are threatened by low-cost overseas labor and production costs, protectionism and food safety concerns abroad, and the uncertain fate of Columbia River dredging here at home.

The crisis for our farmers is summed up in a simple line graph (see agriculture by the numbers, p. 19). It shows the dollar value of Oregon farm and ranch production rising steadily over the past 15 years, while farm income falls. Farmers are growing more every year -- with better seeds, expanded acreage, more efficient combines and cultivation practices -- and putting less in the bank come harvest time.

"You're not getting any more for your crop, labor has gone way up, so have farm equipment and chemicals," says Tom Duyck, a soft-spoken lifelong farmer who raises sweet corn, berries, wheat and grass seed on 500 acres in Forest Grove. Duyck also has a farm stand along Route 26 that catches weekend vacationers heading to the coast. "We sell berries at a dollar a pound. I get 30 cents a pound from the processor."

And there, in a nutshell, is the key to the long-term survival of Oregon agriculture. Duyck is no agrarian revolutionary. But he's found one way to command a premium price for his berries and do an end-run around traditional commodity farming -- where a farmer plants, harvests and sells his crop to a processor or other middleman at whatever price the world market sets.

But the successful future farmers of Oregon will need to do much more than simply set up a roadside farm store to squeeze more profit from what they produce.

The most innovative farmers will raise organic, sustainable, regional or ethnic foods. They'll find new outlets for their fresh produce or premium beef, going directly to consumers through urban farmers markets, high-end and gourmet food stores, restaurants, hospitals and food services. They'll produce and market value-added products such as trees and shrubs, wine, jam, cheese, chocolate-covered cherries, fruit for gift baskets, specialty livestock and poultry. And, where crop diversification is limited by dry soil and low rainfall, they'll seek out other revenue-generating uses for their land, from hunting to wind power.

One key to survival will be investment in new labor-saving technology to better compete with cheap foreign producers. "In China, they're paying their labor $29 a month with housing," says Karla Chambers of Stahlbush Island Farms in Corvallis. "My workers make that by lunchtime."

OSU agricultural economist Bill Boggess sees farms like Stahlbush that focus on niche marketing and value-added production as the wave of the future. "These farmers are going into higher-end domestic and foreign markets. They're making capital investments to replace labor and chemicals with knowledge and technology. They're pursuing product differentiation that's consumer-focused and consumer-driven. You figure out how to deliver something that not every farmer in America can, and the consumer you reach is willing to pay for it."

The challenges facing oregon's farm economy are similar to those facing other resource-based industries, such as timber and fishing. But it would be a mistake to write off agriculture as a second-string economic engine doomed to slow but steady decline.

Farming and ranching produce 9% of the state's economic output and 19% of all exports. In fact, agricultural exports rank No. 2 in dollar value after high-tech products. More than half of the tonnage that passes through the Port of Portland started out on a ranch or farm. Agriculture employs 140,000 people -- 1 in 12 Oregonians.

And while agriculture's share of the economic pie still pales in comparison to high tech, and its employment has declined with mechanization and land consolidation, it's still the primary support for many rural towns and counties.

Katy Coba, who directs the Oregon Department of Agriculture and herself grew up on a wheat farm in Pendleton, put it bluntly in a presentation to the governor's transition team early this year: "Agriculture contributes more to the Oregon gross state product than transportation, lumber and wood products, utilities, amusements and recreation, lodging, chemicals, and a host of other industries."

But in the past decade, cheap and nimble foreign competitors have gone full-bore into crop markets that Pacific Northwest producers used to comfortably dominate. Berries from Chile, apple products from China, wheat from the Ukraine are flooding world markets and undercutting Oregon-grown crops.

And Oregon producers are losing their access to markets because of the disappearance of crucial middlemen in the flow of food from field to market. The region has lost 17 food processing facilities in just the past five years to bankruptcy and consolidation -- including plants operated by Agripac, Chiquita and Smuckers (which will close its Woodburn facility early next year). The winnowing of food processors, particularly severe in the Willamette Valley, has left many Oregon farmers with no outlet for the most valuable crops they can produce -- fruits and vegetables that need to be processed quickly after harvest.

As a result, thousands of acres of prime cropland have turned over to lower-value crops such as hay and grass seed. From 1997 to 2001, the Willamette Valley lost more than 50,000 acres of row crops -- vegetables such as sweet corn, snap beans, peas, broccoli and the like. Consider that sweet corn brings in $650 per acre. Wheat in the Willamette Valley delivers just $340 per acre at the current market price. A similar phenomenon has occurred with strawberries, which have suffered from low prices and high labor costs. Strawberry planting in the state was down from 5,115 acres in 1997 to just 3,315 acres in 2001.

Bill and Karla Chambers of Stahlbush Island Farms in Corvallis are part of a growing trend of producers reinventing the agricultural wheel. As traditional row crops become less profitable and are squeezed out, these farmers are turning to higher value-added crops, direct-to-consumer marketing, vertical integration of growing and processing, and high-tech equipment to gain a competitive advantage.

Chambers grew up on her family's

117-year-old wheat farm in Sherman County and now serves on the board of the San Francisco Federal Reserve Bank's Portland branch, so she knows more than a bit about agricultural finance.

"If you're in a commodity these days," she says, "the world market looks tough. You work your tail off 365 days a year, and then some new producer, some new country, comes in and undercuts your price. You need a marketing advantage, a premium, something that differentiates your product or your quality."

As we bump along in Chambers' late-model pickup truck on the way to look at some new tractors, we pass sheep grazing in a fallow field planted with cover crops. A key to obtaining sustainable and organic certification (see below) for the farm's premium-priced produce is the use of such nitrogen-replenishing plantings to replace man-made fertilizers and herbicides. Chambers points to an osprey nest atop a pole across the field. The absence of chemicals, abundant vegetation and wetlands along the nearby Willamette River have led to an explosion of wildlife on the farm, she believes.

We climb out of the pickup and Chambers points with irrepressible pride to unbelievably straight rows etched like a digital image across the fields. They've been cut by new global positioning satellite-guided tractors introduced by her husband, Bill, who has invented a host of labor-saving, ergonomic cultivation and harvesting tools as well.

"We traded in nine tractors and bought four," she says. "We're putting three times as many hours on them. They're going 24/7 at double the speed. It's all computerized, so it's taken the human error out." Plus, the ultra-straight rows make hoeing and harvesting a breeze.

"We're trying to minimize and eliminate as many inputs as we possibly can," she says. "Efficiency is the key. The old Soviet bloc, China -- they're all going gangbusters. We don't have a competitive advantage when it comes to labor, land, water, power. So it'll have to be our technology that'll give us the edge."

Another key innovation of the 2,200-acre Stahlbush operation, which is big by Valley standards, is the addition of a modern processing and marketing operation that serves other organic producers in the region. Chambers travels the world -- she visits Japan and other Asian countries regularly -- promoting her brands, checking out the competition, learning what her customers want.

"We've been profitable, and one of the reasons is we've tried to take a lot of the risk out of agriculture," she says. "I don't grow something if there's not a market for the product. And we've structurally changed the nature of our business.

It used to be, you'd be a farmer or a processor. We're a vertically integrated farmer/processor."

Innovative farming strategies like this are taking root across Oregon. Gathering Together Farm in Corvallis is adding new market channels for their organic produce, which include selling at the Portland Farmers Market, co-owning a vegetarian restaurant, going direct to consumers through community-sponsored agriculture and operating a farm store.

Second-generation berry farmer Larry Thompson in Boring, who's been recognized by the USDA for his innovation, has eliminated all pesticide and fungicide use and is now producing primarily for consumers who come to him -- either for pick-your-own or to visit his family's farm stores. Thompson moved out of supplying grocery stores a decade ago, and he's had much more control over pricing and quality ever since. He consistently makes a modest profit -- whether commodity prices are low or high.

East of the Cascades the trend's taking hold at Oregon Country Beef. The ranching cooperative has developed a line of hormone- and antibiotic-free beef that's marketed through natural food stores and restaurants throughout the West. Revenues are growing 20% a year.

Oregon Country Beef co-founder Connie Hatfield says instead of being at the mercy of fluctuating world beef prices, "our cattle is priced on cost of production, return on investment and reasonable profit." That's allowed 40 ranch families to stay in the black as other ranchers struggle. "I'm proud that anyone has come out of commodity agriculture to produce something the consumer wants, so the money can come back to us and we can stay on the land," she says.

Bear Creek Corp. of Medford, meanwhile, long ago perfected the value-added equation in Oregon agriculture, and continues to expand its niche of marketing fruit-filled Harry and David gift baskets through catalog, Web and retail sales around the world. They're now the largest employer in Southern Oregon with over $500 million in sales and 3,350 acres of premium peaches and pears under cultivation. This "food-as-gift" strategy is one that's being explored by cherry farmers in the Columbia Gorge and Willamette Valley, and a host of mom-and-pop operations across the state that make jam, cheese, sauces and baked goods.

Larry Lev, an agricultural economist at OSU, has a term for all this: "relationship-based selling," in which producers offer "a higher quality and a direct link to the customer who favors loyalty to specific farmers and a preference for localism." Producers aren't as vulnerable to low-cost foreign competition because they have more control over pricing. And Oregon consumers are supporting the effort by buying local. "We've doubled the number of farmers markets -- to 60 -- in the last six years," says Lev. "This used to be the quaint recreation of backyard gardeners. Now people are making real money."

Lev readily concedes the limits of the market, though. "New Seasons Market isn't going to replace Fred Meyer, and the farmers market isn't going to save agriculture. But more than a handful of farmers will be saved. It's perhaps 5% of the market now. It could be 15% in 20 years."

Probably the most far-reaching trend in Oregon agriculture is the move away from food crops altogether toward nursery and greenhouse products, and grapes for wine, especially in the fertile Willamette Valley. A key reason is the rising value of land. Even with urban growth boundaries and Oregon's right-to-farm laws, land inevitably becomes more valuable over time due to population and development pressures. Crops have to produce more value to support rising land values.

"The only commodity these days that's making real money is nursery crops," says Norm Goetze, whose family has been farming in Washington County since the 1870s. Nursery products are now the state's top-grossing agricultural commodity, with Clackamas County leading the state in production. The nursery industry is likely to continue expanding in the Willamette Valley in coming years.

At the spring meeting of the Oregon Wheat Commission at the old Albers Mill building in Portland, the talk centers on rainfall and yields, world wheat prices and competition from China and other foreign producers.

"Out by my house I'll be happy to get 20 bushels an acre," says Ken Grieb, a self-effacing, middle-aged farmer who is president of the Oregon Wheat Growers League and farms 4,400 drought-stricken acres in Morrow County. Average wheat yield on the dry hills of Eastern Oregon is more than double what Grieb expects this year.

Wheat farmer Tom McCoy is more upbeat about conditions on his 3,000-acre spread in Sherman County. "We've had normal rainfall. It looks amazingly good given where we were back in December. This year will be better."

Looking at the worried faces of these sun-baked and wind-blasted wheat commissioners -- many of whom would already be retired in any other profession -- it's hard to imagine anyone could be upbeat about the future. But even Grieb is. "If you're farming, you always believe next year's going to be better," he says.

Still, the challenges that Oregon's wheat producers face are truly daunting, even if yields and prices turn better this year or next.

"There's cutthroat competition out there," says Andrew Ross, a native of Australia who works as a crop scientist at OSU. "Our soft white wheat is the best in the world. But Canada and Australia do a great job of marketing their wheat too."

Now, he says, just as world wheat prices have started to recover from years of decline, new trouble has arrived. "Nontraditional suppliers from the Black Sea are underselling everyone, flooding the market with low-quality wheat. There's just no way of telling how it'll pan out."

With that kind of competition, it's unlikely that Oregon producers will ever get the kind of sustained high price they need to do better than struggle along year to year. Without crop insurance and federal subsidy payments that can amount to as much as half of a farmer's net income, many would not survive.

"If we expect to have a wheat industry in the future, we have to differentiate because we can't compete with China on price due to our labor costs," says ODA director Coba. "Any way we can distinguish our wheat in terms of how it's raised, specific protein content, adding value in ways China cannot, will help us."

Oregon's best new marketing opportunity is to segregate some of our wheat from the bulk commodity that's shipped to Asia, and market it aggressively, promoting the specific flatbread-baking and noodle-boiling characteristics that Asian mills want. Scientists at the Portland-based Wheat Marketing Center have been making good progress on this. But it could be years before Oregon farmers adopt the more costly growing, harvesting and storing techniques to segregate their crop.

In Eastern Oregon, meanwhile, an effort is afoot to develop a value-added market for Oregon wheat by incorporating wheat from Gilliam County in baked goods that could command a premium price at local food stores and farmers markets.

Bill Boggess at OSU doesn't anticipate a big impact from such efforts at local niche marketing. "No one is going to drive out to Wasco," he says, "buy Tom McCoy's locally grown wheat, take it home and grind it to bake bread."

McCoy agrees, predicting that there'll be change only at the margins of his business, with farmers installing windmills; introducing new wheat strains to withstand drought and pests; offering their land for hunting, fishing and agri-tourism; and buying bigger combines to save on labor. "Even if wheat prices stay low, wheat farming will continue. There's nothing else to do with the land."

Oregon agriculture has its troubles. But so do other economic sectors that are beset by fierce foreign competition. While farm income and employment may be on a slow downward trend, agriculture's contribution to the gross state product has remained relatively stable over the years, going from 5.4% in 1977 to 4.1% in 2000. Lumber and wood products, on the other hand, has plummeted from 11.5% in 1977, to just 2.4% in 2000.

"Our agriculture is so diverse, we're able to balance out the ups and downs," says Coba. "That diversity is our strength."

Preliminary reports show agricultural revenue was up in 2002, after falling slightly in 2001. The U.S. dollar has recently fallen, helping exports. Some key commodity crops are showing strength again. The grass seed market has finally worked itself through a three-year period of high surpluses and low prices. And wheat, which has hovered around $3.00 to $3.50 per bushel since 1997, is now about $4.30 per bushel, considered the break-even point for farmers.

Still, Boggess predicts, wheat farmers will struggle for the forseeable future. "Eastern Oregon will be involved in wheat and cattle into the indefinite future, even though they'll be about to go bankrupt into the indefinite future."

In the Willamette Valley more

dramatic change is likely as the most innovative producers adapt to land use pressures and the furious pace of the global marketplace.

Doug Tunnell, owner of Brick House Vineyards in Yamhill County, is convinced the future for Oregon agriculture lies in value-added farm production. But to him, it's more than just a marketing strategy.

"It's not enough to set up a farmers market along the road and then offer the same produce that's available in the nearest Fred Meyer," he says. "It must be truly unique. This means taking the long-term interests of the land and the people who farm it to heart. The only way to do this is to scale back on the agricultural chemicals. They homogenize flavors. They make a tomato grown in a hothouse indistinguishable from one grown in the soil outside Canby or Aurora or Monroe.

"We are gifted with a completely unique agricultural gem here in the Willamette Valley," Tunnell says. "We need to let this gem speak out in the produce we grow."

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Copyright 2003 Oregon Business magazine