Policy and regulatory uncertainty threatens the U.S.farm economy

By Larry Combest

© Copyright Agri-Pulse Communications, Inc.

The Federal Reserve Bank of Kansas City published a paper, “A Rural Rebound in 2010,” which opened:  “In 2010, rural America was at the forefront of the economic recovery.”

With jobs, the economy, and deficits on the public’s mind, Washington’s objective on U.S. farm policy must be ensuring that this paper can be fully updated at year-end by striking “2010” and inserting “2011”.

To get there, U.S. farm policy needs to take a holistic approach that focuses on how Washington can create business certainty so producers can grow the economy and jobs while feeding, clothing, and fueling the country and much of the world.

One indispensable part of this policy is to rein in EPA, which has swapped common sense and sound science for the agenda of the radical environmental crowd. 

A key factor in the competitiveness of U.S. producers is production costs and in this regard EPA is working to price American agriculture out of business.  The agency has opened no fewer than 10 fronts against U.S. producers that would significantly drive up their costs, with each front taking environmental protection from the sublime to the ridiculous. 

Ironically, by creating legal uncertainty, costs, and workload, the agenda pursued by the radical environmental crowd and EPA will force U.S. producers to get big or get out, reminding me of Bishop Fulton Sheen’s observation that radicals do not know where they are taking us but they are well on their way.

Another indispensable component to strong U.S. farm policy is for Washington to stop even the appearance of aiding and abetting the war against traditional agriculture.  Niche markets are great because they meet customer demand and enhance producer profitability.  But biotechnology and high capacity agriculture are essential to feeding the world in an efficient and environmentally responsible manner and the fostering of views to the contrary is not just unscientific, it is dangerous. Moreover, the radical environmental community’s attempts to correlate modern agriculture with obesity and poor diet are as grounded in reality as Pop Tart fields.  They know they’re barking up the wrong tree but blaming producers and farm policy rather than those responsible serves their purpose.

Sound energy policies promoting U.S. independence from foreign sources are also essential to U.S. agriculture’s competitiveness.  But, again, the radical environmental crowd happily serves as foil by its opposition to nuclear energy, clean coal, ethanol, and biodiesel, and it’s thwarting of natural gas production and even wind energy whenever a bird casualty is reported.  As with farm policy, the radical environmental crowd’s energy policy is to tear down whatever is in place.  In the past two years, not one coal-fired plant was built, biodiesel plants closed, and the advancement of other energy sources remains stalled and uncertain thanks in large part to confused signals.

Moreover, tax policies from energy to estates also need to land to provide the kind of certainty that promotes economic growth and jobs by producers and all businesses.  Certainty is vital for people who borrow more in a year than most will in a life time.  A single piece of equipment can easily run more than ½ a million bucks.  How can producers plan when there is no certainty?

On trade, too, Washington needs to be smarter.  In the WTO, is our objective to expand free markets or to pick winners and losers and establish a social policy focused on global wealth distribution in the same way Charles Krauthammer described efforts on climate?  If U.S. agriculture is going to be around to lift our national economy each time the other sectors tank, as has happened in the last two recessions, all countries must be bound to the same set of rules.  Our producers can compete against any other in the world on a level playing field.  Unfortunately, the Doha Round has been about enshrining and even exacerbating unfair advantages for foreign competitors.

Also, let’s clear the smoke created by the radical environmental crowd regarding the Farm Bill and crop insurance.  Measured in dollars, we are down to basically two risk management tools:  Direct Payments and Crop Insurance.  Crop insurance is necessary for the same reason as any other insurance.  The government is involved because, as explained by the AEI, purely private markets are “infeasible.”  Direct Payments were instituted because they limit budget exposure, comply with the WTO and don’t distort markets.  Remaining tools have little or no price tag but the U.S. economy would be in a world of hurt if the farm economy collapsed without them.  All these tools account for ¼ of 1% of the federal budget and 16% of the Department of “Agriculture’s” budget while undergirding producers who spent $250 billion to yield $310 billion in production last year. 

Still, while crop insurance is indispensable, there are serious concerns that the tools available under the Farm Bill are insufficient to avoid financial crisis under the kind of collapse agriculture has experienced in the past.  After singling out risk management tools for producers in budget cuts in ’06, ’08, and ’10, it’s time for others to step up to the plate.  Given the cyclical nature of agriculture, it would be prudent to strengthen the risk management tools for producers when they face a downturn, within available resources, and pennywise and pound foolish to weaken them.  As it is, there’s barely any farm left in the Farm Bill.

Finally, we know the radical environmental crowd does not like U.S. farm policy.  But, before policymakers give this extreme element the time of day, they ought to be instructed to provide a detailed picture of what farm policy, if any, they support.  If their objectives involve extreme notions of animal welfare and Mother Earth that are outside the mainstream, lawmakers need to know.  Lawmakers also need to understand what happens to the farm economy if that crowd has its way.          

“In sum, rural America is leading the U.S. economic recovery,” concludes the Fed’s white paper.  Will Washington have the wisdom to pursue sound U.S. farm policies to keep it that way?