CORONAVIRUS

Iowa's rural economy takes another hit

First were trade wars and ethanol. Then the virus struck

Brad Fowler takes pizza and other dishes in and out of the ovens April 6 at Pagliai's in Grinnell for takeout and delive
Brad Fowler takes pizza and other dishes in and out of the ovens April 6 at Pagliai’s in Grinnell for takeout and delivery. Demand for takeout and frozen pizzas remains strong, as have sales of the restaurant’s take-home ranch dressing. But owner Joey Pagliai expects sales to fall as COVID-19 cases rise. (Kelsey Kremer/The Register)
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Joey Pagliai delivers pizzas most nights along with his servers, who no longer have customers to wait on in the Grinnell family restaurant.

Demand for takeout and frozen pizzas remains strong, as have sales of the restaurant’s take-home ranch dressing, said Pagliai, who bought the 55-year-old business three years ago from his parents. But he expects sales to fall as COVID-19 cases rise.

“I’m worried that some businesses may not come back,” said Pagliai, adding he feels lucky to be continuing his Central Iowa operation. “Grinnell isn’t that big. It’s tough when someone doesn’t come back.”

Near Elgin, in Eastern Iowa, Mark Putney took a short break from checking on newborn calves to talk about the collapse of cattle prices. A year ago, cattle were selling for about 30 percent more. Midwestern senators have called for a probe into the possibility of price-fixing among giant meatpackers.

“It’s easy to get discouraged,” said Putney, who also grows corn, soybeans and alfalfa with his father-in-law. But “farmers need to be focused on their operation and how to best guide it through” the pandemic, he told the Register.

From manufacturing to farming to mom-and-pop Main Street businesses, Iowa’s rural economy faces widespread challenges as it battles through the coronavirus crisis.

“Many of the industries in rural Iowa were in trouble to start with,” said Patty Judge, a former Democratic lieutenant governor and a rural Iowa advocate.

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Among the issues that have hurt rural Iowa are trade wars that pummeled corn, soybean, pork and other commodity prices, earlier requiring $28 billion in federal farm assistance.

Also a factor are the Trump administration’s waivers that exempt small oil refineries from blending ethanol into gasoline. The ethanol industry says the waivers have crushed demand for billions of gallons of renewable fuel, much of it made from corn.

“We were teetering on the brink of disaster already,” said Judge, who farms in southeast Iowa with her husband. “This will have an impact.”

The damage began to emerge this month: Iowa’s ethanol industry said it had cut in half what plants would normally make after a coronavirus-related decline in travel caused demand for fuel to plummet. And meatpacking plants in Iowa suspended production after workers were exposed to the coronavirus, which causes the respiratory disease COVID-19. Two of the workers died.

A broader shutdown could tank prices for pigs and cattle, experts say.

“It wouldn’t take all that long, if plants needed to close, for it to have an impact on prices all through the supply chain,” said Nathan Kauffman, a vice president of the Kansas City Federal Reserve.

Praying for quick end

In a recent live Facebook event, Kim Smith pitched hand-poured candles, kitchen towels with Easter bunny appliques, and jars of honey. Her 1-year-old child occasionally let out a yell in the background.

The mother of eight hustles to sell the clothes, home decorations, sports apparel and other products from her new but now-closed store, Home Collection Forest City. Many of the goods are made in Iowa, and she feels responsible for helping the craftsmen and women who make them get through the economic downturn.

“I’m praying that this is over quickly,” Smith said.

Forest City Mayor Barney Ruiter said the public health crisis is devastating the economies of cities, whether they’re small or large.

Winnebago Industries, the iconic maker of recreational vehicles, is the town’s largest employer, with about 2,000 workers in Forest City and elsewhere in the state.

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The company’s production has mostly halted in Iowa, but some work was set to resume with a larger portion coming online in May.

Ruiter is especially worried about the small businesses that give the town of 4,100 much of its character. He said he expects many will need to tap state or federal assistance to make it through the downturn.

Getting a state grant could be tough, though. The state said earlier this month it had received 14,000 applications for grants for relief amid the coronavirus pandemic, totaling $148 million. It originally planned to allocate $4 million but has upped that to $24 million.

Small businesses also can tap low-interest and forgivable loans through the federal government’s $2 trillion stimulus package. Iowa will snag a $1.25 billion grant from that program, and Gov. Kim Reynolds said she’s awaiting guidance on how it can be used.

Smith, of Home Collection Forest City, is torn. She’s bootstrapped her business without debt and hates the idea of taking on more. But she added: “I’ll do what I have to do to get through this.”

In Grinnell, Pagliai said his banker had already sent him information about a couple of programs that could help him. The young owner said he’s thankful he hadn’t yet begun investing heavily in equipment in a building he hopes will one day be used to more broadly manufacture frozen pizzas.

“I think times are going to get harder,” Pagliai said.

Rural retail eroding

Mike Lipsman, a partner at Strategic Economics in West Des Moines, said he wouldn’t be surprised if rural Iowa lost as many as half its shops and other retail businesses to stresses caused by the pandemic shutdown.

“I doubt a lot of those people have much money in savings” to help them get through shutdowns, Lipsman said, adding that it could be hard for businesses to find new owners.

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For years, small-town shops have dwindled, competing first with Walmart and other big-box retailers and now Amazon and other online giants.

“Rural retail has been eroding for decades,” said David Swenson, an economist at Iowa State University.

Iowa’s efforts to provide grants to small businesses will be crucial to those getting help, Swenson said. But with 73,000 Iowa businesses that have 25 or fewer workers, the demand is likely to be “magnitudes greater” than what the state can offer, he said.

Chad Hart, an ISU agriculture economist, said small businesses already have taken a big risk, just opening and operating in rural Iowa.

“COVID-19 throws a bunch of additional risk on them, and for some, it will be too much.”

A growing chorus is calling for another round of financial assistance for farmers.

Hart said that’s a big issue in rural Iowa, where much of the economy remains tied to agriculture from seed production to farm equipment manufacturing and meat processing. The income that farms and the farm-related industry generate supports Main Street businesses like restaurants, bars and hardware stores.

Kauffman, the Federal Reserve vice president, said lenders are carefully watching the price of commodities, especially prices for cattle, hogs and dairy.

“There’s been broad declines in most of those markets. and a lot of volatility,” he said.

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Already, dairy producers in Wisconsin, New York and elsewhere are dumping milk in the wake of canceled orders from now-closed restaurants, schools and other food service businesses.

Mitch Schulte, the Iowa State Dairy Association’s executive director, said he wasn’t aware of any Iowa dairy farmers dumping milk. But processors and co-ops are “evaluating the situation on a daily basis,” he said, “and in some cases, that may mean disposing of milk that doesn’t have a home.”

The American Farm Bureau Federation says the pandemic’s impact on agriculture is widespread. The hit to ethanol has pushed corn prices down 15 percent since mid-January, and soybean prices are down 10 percent.

Ethanol is “a significant risk for Iowa,” Kauffman said. Industry officials say at least seven Iowa ethanol and two biodiesel plants have temporarily shuttered. Many other plants have slowed production.

That’s bad news for corn growers, who sell about half their crop to ethanol producers each year.

Maintaining the rural workforce is another area of vulnerability, Swenson said.

While most of the positive coronavirus cases have been in metro areas, cases are spreading into rural Iowa, threatening workers at production plants across the state. About half of the state’s factory jobs are in rural Iowa.

Dermot Hayes, an ISU agriculture economist, said fear about lost meat processing capacity is part of the reason why beef and pork prices have plummeted.

Depending on the timing, more plant closures “could have a devastating impact on prices,” Hayes said.

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Judge, also a former state agriculture secretary, hopes the federal government quickly rolls out assistance to families, farmers and small businesses.

“We want a rural economy to come back to when this is over,” she said. “We want to make sure that mom-and-pop businesses are able to weather through this.”

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