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In the mid-1990s, researchers with the USDA's Economic Research Service (USDA-ERS) began using the term "rural rebound" to describe demographic changes in non-metropolitan areas of the United States. It is defined as a shift in the U.S. population to counties outside of metropolitan areas, reversing the exodus of rural populations towards urban centers.

Revitalizing Rural Communities

The growth in non-metro areas does not mean a return to the traditional family farm but a revitalization of rural communities adjacent to sub-metropolitan areas. Income from agribusiness, in many cases, is no longer the anchor in most rural communities. Rather, the need for essential services, such as food and health care, increases along with the population, while opportunities for businesses providing these services generate employment opportunities.

Despite the transition away from a production agriculture concentric economy, the farmer still plays an important role in many rural communities, requiring services, implements and inputs for his operations. Farmers may also find the opportunity for full-time, off-farm jobs located near their farmsteads.

The need for off-farm employment is a reality of 21st-century farming that cannot be ignored when considering the rural rebound. According to the USDA, the reliance on farm income as the primary source of income has decreased, as illustrated in the accompanying chart. In 1999, more than 90 percent of the income of farm families was earned through off-farm employment. Roughly 50 percent of all farm operators were also employed away from the farm, with 80 percent of this group holding a full-time job. In fact, the rural rebound may allow farmers the ability to remain on the farm by providing a second income.

Investment In The Rebound

From a capital markets perspective, the potential for follow-on investment capital into the rural sector will take place only if the rural rebound is sustainable beyond the near-term. However, there are opportunities for investors prepared to explore this sector. Potential investments include specialty retailers serving the rural population; current public market participants confirm that retailers in this sector can achieve positive shareholder returns in a down economy.

Growth in rural areas also creates opportunities for retail/ service centers providing gasoline, banking, bakery, restaurant and grocery items in a single location. When local banks and retailers exited rural communities in the 1980s, a chasm in retail and service businesses defined the landscape. This gap has created opportunities for retailers and distributors to transcend the traditional retail growth model of consolidation and globalization.

With a reliable pool of lower-wage workers, a high percentage of high school graduates and a lower cost of living, companies in many fields, including agribusiness, are also revitalizing certain sectors. Areas in the Midwest and rural West have become attractive to manufacturing and consumer service employers, with companies locating near cost-effective, yet highly skilled workforces.

Wall Street Versus Main Street

Despite the opportunities, mainstream Wall Street continues to ignore the opportunities in rural economies. For companies prepared to spend time and effort conducting research in the middle market and high-growth areas of the rural sector, the outlook is bright with a likelihood of financial and strategic rewards. Developing investment will require acknowledgement of the significance of the rural rebound by government and private sectors alike, creating a sustainable investment model for protecting the rural landscape from a lethal reversal of the opportunities created by the rural revitalization.

Tom Steen is managing partner for Cybus Capital Markets, Des Moines, Iowa.

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