WASHINGTON, D.C., May 25, 2017 – With financial pressures increasing for farmers, programs to help them – and rural America in general – should not be on the chopping block, Senate Agriculture Committee members said at a hearing today.
“Farmers, ranchers, and rural families understand fiscal responsibility,” said Committee Chairman Pat Roberts, R-Kan. “But now is not the time for additional cuts. We need to review what is working and what is not working.”
The hearing took place just three days after the release of the Trump administration’s fiscal 2018 budget proposal, which would cut farm bill programs by $38 billion – not including nutrition assistance – and establish new restrictions on crop insurance, such as a $40,000 cap on premium subsidies. It also would cut spending on the Supplemental Nutrition Assistance Program by $193 billion over 10 years and eliminate both the Food for Peace program and the McGovern-Dole International Food for Education and Child Nutrition Program.
“Time and time again, agriculture has been asked to do more with less,” Roberts said. “I would remind everyone in this room that the last farm bill voluntarily cut spending. And, the previous crop insurance contract negotiation cut $6 billion from the program on top of a previous $6 billion cut from the 2008 farm bill.”
“Ag,” he said, “has already given at the store.”
Ranking member Debbie Stabenow, D-Mich., was not reluctant to go after the Trump budget, saying that cuts to crop insurance “would take away a crucial part of the farm safety net at a time when it’s needed most. The budget also calls for sharp cuts to the family safety net, gutting SNAP by nearly 30 percent. Proposed closings of USDA offices would reduce customer service for our agricultural producers, and make their tough jobs even harder. Elimination of specialty crop and market access programs weaken our farmers’ ability to recover from price slumps or pest and disease issues.”
And when Sen. Heidi Heitkamp, D-N.D., asked the witnesses at the hearing whether anyone wanted to defend the notion that the Trump budget would increase farm income, she was met with dead silence.
Those witnesses included chief USDA economist Robert Johansson, Federal Reserve Bank of Kansas City economist Nathan Kauffman, ag retailer Alec Sheffer of Agri-AFC in Montgomery, Ala., and Prof. Bruce Weber, director of the Rural Studies Program at Oregon State.
Johansson and Kauffman said the farm economy is not in great shape, but conditions are not as bad as they were during the farm crisis of the 1980s.
“Returns to farming are expected to remain flat over the coming decade, having already declined sharply from recent highs,” Johansson said. “The net effect over time is difficult to forecast, but certainly we might expect consolidation in some farm sectors in certain regions and movement of the most leveraged operators out of farming.”
“The continuing strength of farmland values has kept farm assets high, but we have seen land values and cash rents recently declining,” he added. “Evidence suggests moderate declines in land values will continue into 2017. As a result, we are seeing an increase in debt to asset ratios, though in aggregate that is rising slowly and still remains low by historic standards.”
“Farm budgets are expected to tighten into the 2017-2018 season,” Johansson said. “However, with flat commodity prices and an expectation of more normal yields, unlike the records we saw last year, we expect to see financial conditions continuing to tighten.”
The news isn’t all bad, however. Speaking “more broadly,” Johansson said that “the outlook for the U.S. and global economy is positive for U.S. agriculture, which points to an improved trading outlook for U.S. producers. Prospects for the world economy have stabilized in the last one and a half years – growth in China has steadied, commodity prices have stopped falling, and economic policies are promoting growth.”
He also said that although debt-to-asset ratios are expected to increase from the 2015 level of 12 percent to 14 percent this year, “Assets buoyed by strong land values would have to drop by almost 50 percent to boost debt-to-asset ratios to levels seen in the 1980s.”
Kauffman said the U.S. farm economy “is in the midst of a prolonged downturn, and financial stress in the farm sector has risen gradually over the past few years.” There have been some “recent signs of stabilization in some areas,” but farm income “has continued to decline overall due to persistently low agricultural commodity prices and elevated production costs.”
“Alongside the reductions in farm income the past four years, agricultural credit conditions have weakened steadily and farm real estate values have trended lower,” he said. “In general, I expect these downward trends to continue in the near term as global supplies are likely to continue to weigh on agricultural commodity prices and profit margins.”
Stabenow was sharply critical of cuts to USDA Rural Development programs, as well as Agriculture Secretary Sonny Perdue’s recent proposal to eliminate the position of Under Secretary for Rural Development.
“The combination of devastating budget cuts to critical services and the planned elimination of the Under Secretary for Rural Development sends a powerful message that this White House is not concerned with the needs of America’s small towns and rural communities,” she said.
Weber emphasized the economic importance to rural communities of RD programs. “We find that counties that received more in USDA Rural Development business and economic development loans during 2000-2009 had lower poverty rates in 2009, controlling for initial poverty rates and other economic and demographic factors that affect poverty,” he said.
Rural Development programs “provide both consistent funding and an infrastructure that allows regional development approaches to succeed,” he said. “There isn’t another agency in the federal government that could do that.”
Without an under secretary for rural development, Weber said “the focus that is needed for rural communities would disappear.”
He also noted the importance of the SNAP program to the farm economy. “The SNAP program provides demand for farm products as well as providing a safety net for vulnerable people,” he said. The program “is a significant boost for rural economies,” he said, citing USDA Economic Research Service data that suggests $1 billion in SNAP payments “generates over $100 million in farm income and over 3,300 farm jobs.”
Committee members and witnesses focused on the importance of crop insurance, trade, and ag research to the farm economy.
Farmers are producing more, but they need more markets for that increased production, Johansson said, mentioning the potential for increased trade in dairy, poultry and eggs to North American Free Trade Agreement partners Mexico and Canada. The Trump administration has said it plans to renegotiate NAFTA.
On crop insurance, Johansson said that data should be available this summer showing what is now “conventional wisdom” – that farmers with higher coverage levels are probably able to receive better loan terms. He also noted that four of the top 10 insured commodities are specialty crops, as USDA continues to expand its crop insurance offerings.
Sheffer stressed the need for regulatory reform and infrastructure improvements, including expansion of rural broadband.
“Roads, bridges, ports, and lock and dam systems all play crucial roles in our delivery of important farm inputs like seed, fertilizer, and equipment,” he told the committee. “Additionally, expansion of broadband infrastructure throughout rural America is sorely needed. From precision agriculture technology to rural healthcare needs, a greater and more robust broadband network will mean more effective, efficient, and safer farm communities.”
He also said that research by land-grant institutions is critical for growers who need assistance with cropping decisions.