Why Entrepreneurial MBAs Should Look for Opportunities in the $500 Billion US Farm Bill
By Elaine Hsu, full-time MBA ‘19 candidate focusing on sustainable food systems
Why is an MBA student taking a class on the farm bill? Simply put, you can’t understand the global food system without understanding the farm bill. For entrepreneurial MBAs, learning about the farm bill is a great way to build a deeper understanding of food businesses and uncover new business opportunities.
The farm bill is a $500 billion omnibus legislation that is reauthorized by Congress every five years. The most recent iteration, a draft of which just passed out of the Senate Agriculture Committee a few weeks ago, highlights just how far it reaches – from SNAP (food stamp) requirements to crop insurance and commodity supports, from mental health resources in farming communities to environmental conservation programs. It’s so complicated that food policy expert Marion Nestle once wrote an article entitled “The Farm Bill Drove Me Insane.” Luckily for me, UC Berkeley is the kind of place that offers a graduate seminar appropriately titled “Untangling the Farm Bill.”
How we got here
The farm bill was designed to ensure a cheap and plentiful food supply for the US and protect farmers from price and protection volatility. And it has done just that. Industrial production systems are traditionally designed to produce goods cheaply and efficiently, and this is best achieved with standardization. That helps explain why 89% of US cropland is dedicated to just three crops – corn, wheat, and soy. One standard story is that we are subsidizing these crops too heavily, and we should eliminate those subsidies completely. But federal dollars are not the only reason farmers choose to produce these crops. Over the years, infrastructure around the biggest commodity crops has strengthened while infrastructure for more diversified crops has weakened. For example, there may not be a local dealer buying potatoes, or a farmer may not be able to afford multiple sets of equipment for different crops. This could be a great opportunity to build new distribution networks or develop a rental or sharing service for equipment.
Ripe with Opportunity
Increasing consumer demand for organic, healthy, and/or sustainable foods means new business opportunities to launch new products, develop technologies to streamline production, and build efficient supply chains to operate at scale. For example, domestic demand for organic far outstrips supply. Organic is 5.5% of US food sales, but less than 1% of American farmland is farmed organically. This means there are great opportunities to increase our organic production and build out supply chains and markets for organic products. The farm bill offers programs to help farmers manage the costs of transitioning from conventional to organic. However, because they can be confusing to understand and apply for and often have funding limits, the uptake on these programs have had limited effects. That could change in this newest bill and/or if a private company develops more support for farmers making the transition.
The farm bill supports research that drives higher crop yields, encourages sustainable practices, and improves our understanding of nutrition and food. Historically, private and public research spending has spurred production of corn, wheat, and soy more than other crops, but if we put more research into “specialty crops” like fruits and vegetables, we’ll be able to produce them more efficiently and inexpensively as well.
The behemoth of the farm bill is federal nutrition assistance programs, which account for roughly 80% of costs, or roughly $400 billion in the last farm bill. Companies that figure out how to provide good user experiences stand to make money while also helping low-income consumers. Many companies have figured this out, and there are currently multiple venture-backed startups that are streamlining the process for Electronic Benefits Transfer (EBT) users.
By understanding the dynamics at play in the farm bill, I began to see unrealized business opportunities. Understanding the farm bill isn’t strictly necessary to be successful in the food industry, but a strong business leader understands the forces at play in the larger environment and how that will affect their business strategy in the long run. The farm bill is a huge force in the US food system, and now is a great time to learn more. It’s a farm bill reauthorization year, and the bill is frequently in the news. If you’re wondering where to start, the links in this article are a great place, as is the syllabus for “Untangling the Farm Bill” and Politico’s Morning Agriculture Newsletter. Happy untangling.
About the Author:
Elaine Hsu is a full-time MBA student at Berkeley Haas, where she is VP Sustainability for [email protected] and is exploring sustainable food systems. She is spending the summer at California Environmental Associates, an environmental consultancy that works primarily with foundations and nonprofits. Prior to business school, she worked in inventory management at Stitch Fix, a high-growth retail tech startup, and as a management consultant in the technology space at Booz & Co. Elaine holds a B.B.A in Business Honors and Supply Chain Management and a B.A. in Plan II Honors from the University of Texas at Austin.