WASHINGTON, Feb. 15, 2017 - The next farm bill needs to provide an adequate safety net for farmers, whose income has fallen because of lower commodity prices, House Agriculture Committee Chairman Mike Conaway said at a hearing today kicking off the 2018 farm bill process.
Conaway said Congress should “take to heart” the advice of former committee chairman Frank Lucas, R-Okla., who said during the last farm bill debate “that a safety net is supposed to be there to help farmers in bad times – not in good times.”
“Every hole in the current safety net that now requires mending is the result of our not fully heeding that wisdom,” Conaway said. “Had we followed his counsel more closely, I doubt that there would be anywhere near the current urgency in writing a new farm bill.”
Lucas chimed in near the end of the hearing to reiterate his advice – “We don’t do farm bills for the good times but we do farm bills to address the bad times” – and predicted that his colleagues would find out how difficult their task is over the next two years.
Referring to the tortuous path taken during the last farm bill negotiations, Lucas said, “It is a miracle that we have this farm bill.”
“It’s not perfect,” he acknowledged. “No legislative product is ever perfect.” But “at least … we don’t have to reinvent the wheel. We have something to work from.”
There should be plenty to work on. Conaway noted that farmers and ranchers have seen their net income drop 45 percent over the last three years, “the largest three-year drop since the start of the Great Depression.”
And economists who testified today ticked off a series of indicators showing that farmers are under increasing financial pressure – persistent low commodity prices, increasing debt-to-asset ratios, and declining land values and cash rents. But they also said that there are positive signs: Despite their decline, land values are still relatively strong and are not declining precipitously; debt-to-asset ratios are historically low; energy prices and interest rates remain low; and some commodities should see an uptick this year.
“With interest rates still low and farmland values declining relatively slowly, farm debt presents a lower risk to the sector than in the 1980s,” USDA Chief Economist Robert Johansson said. “Current data suggests interest payments on current debt relative to net farm income is about 20 percent; whereas in 1985 it exceeded 60 percent.”
Nathan Kauffman, an economist and Omaha Branch Executive for the Federal Reserve Bank of Kansas City, said that “a farm crisis on the scale of the 1980s still does not appear imminent, as farm loan delinquency rates remain low, and credit availability has generally remained strong.” But he added a caveat: “If farm income remains persistently low, if farmland values continue to decline, and if debt continues to rise, it is possible that key indicators of financial stress, such as debt-to-asset ratios, could rise to levels similar to the 1980s over a longer time horizon.”
The upshot is that this time around, economic conditions may force farmers to take a more active role in writing the farm bill. Last time around, times were good and they largely stayed out of the debate.
But during this go-round, “Producers are going to need every bit of the safety net that you can provide them,” said Joe Outlaw, a professor and extension economist at Texas A&M University. “With resources being as tight as they seem to be up here (in Washington), you’re going to have to be really imaginative to figure out how to spread that money as far as you can.”
Committee members and witnesses focused a lot of their attention on problems faced by cotton growers and dairy producers. Outlaw said the 2014 farm bill “has worked as intended for all crops except for cotton,” noting that the Stacked Income Protection Plan (STAX) “has not provided the protection producers were hoping for.”
“Not having Title 1 programs to protect from the sustained drop in cotton prices has caused severe financial difficulties only overcome by the occasional record yields,” he told the committee.
“There has to be some sort of price protection afforded to cotton producers,” Outlaw said.
Johansson noted that only 29 percent of cotton acres insured in 2015 and 27 percent of cotton acres insured in 2017 carried STAX policies.
The Margin Protection Program established for dairy producers also came in for criticism. Peterson noted that dairy producers in his state have told him, “If I’m not going to get any money out of this, I’m not going to do it.”
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“We’ve got to fine-tune this thing, figure out how to get people to participate,” he said.
Scott Brown, state agricultural extension economist at the University of Missouri, told the committee that as MPP enters its third full year, “the level of dairy farmer participation in the higher margin coverage levels has continually fallen as premium costs have exceeded anticipated MPP payments.”
Brown said that about two-thirds of U.S. milk production was enrolled in the catastrophic $4/hundredweight level of coverage. In his written testimony, he said, “That catastrophic level of coverage is a pretty low safety net with margins not falling below that level since 2009. No region of the country has shown an appetite for much buy-up beyond the $4 level.”
Speaking to the committee, he was blunter: “Four dollars is about as good a safety net as a concrete floor. It doesn’t provide much protection.”
But Brown noted that fixing the program will be a challenge because of widespread pressure to keep federal spending low.
“It is extremely difficult to construct a stronger safety net program for dairy farmers while reducing federal spending remains a priority,” he said in his testimony.
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