The farm bill debate is underway amid a struggling rural economy.
By Mark Scanlan
It doesn’t seem all that long ago since Congress passed the last farm bill, but the gears are already turning on the next one. The Agriculture Act of 2014—the latest farm bill reauthorization—expires in September 2018, and the House and Senate agriculture committees have already begun holding discussions and formal hearings.
A strong farm bill provides stability for the volatile farm sector and incorporates important policies, such as price-support programs, crop insurance and loan guarantee programs. As a result, it is a top concern for many community banks. More than 3,000 community banks have agriculture portfolios of at least $5 million.
As the new farm bill takes shape amid a crisis in the agricultural economy, ICBA is focused on ensuring it allows community banks to continue working with their farm and ranch customers amid low commodity prices and other challenges facing rural America.
Getting up to speed
ICBA supported the 2014 farm bill because of its long-term framework and pro-community bank provisions. Despite substantial reforms implemented in the face of budgetary constraints, the act provided a safety net for major commodities, significantly enhanced crop and revenue insurance programs to better support producers’ risk-management strategies, and helped ensure farmers’ and ranchers’ ability to repay bank loans.
The bill also removed term limits on USDA-guaranteed farm operating loans, which restrict the number of years producers can obtain a loan for their annual production expenses. This achievement was a hard-fought victory for the banking industry and strongly supported by ICBA. Finally, the act did not include any expanded lending powers for Farm Credit System entities.
These provisions reflect core ICBA agricultural policy priorities. Crop insurance is a successful public-private program that is critical to the ability of farmers and ranchers to survive weather disasters and repay their farm loans. In 2015, 1.2 million policies were sold to protect more than 120 different crops covering 285 million acres with an insured value of more than $100 billion. ICBA is again working to protect the crop insurance program from cuts or adverse changes that would discourage participation or undermine private-sector delivery.
Additionally, USDA farm loan guarantee programs help community banks manage lending risks to farmers and ranchers who would otherwise be unable to obtain commercial credit. These programs—which are fully or nearly fully self-funding—allow community banks to lend to higher-risk borrowers with a guarantee of 90 percent repayment.
For the next farm bill, ICBA supports removing volume caps to significantly raise the total amount of USDA-guaranteed farm loans that can be made to meet the needs of family farmers and ranchers. ICBA will also urge Congress to increase the loan limits for guaranteed loans contingent on adequate funding provided through the appropriations process if additional funding is needed.
Unlike the last farm bill, the 2018 bill will be written in an era of low prices and increasing financial stress among many bankers’ farm customers.
ICBA will also fight any attempt to reimpose term limits on guaranteed loans, as decisions on whether farmers and ranchers need these loans are best made between producers and their lenders.
Meanwhile, the farm bill provides billions of dollars through various programs, including commodity-support programs such as Price Loss Coverage and Ag Risk Coverage, that circulate through the farm sector and rural communities. The new farm bill must provide a robust commodity safety net. Congress will undoubtedly look at enhancing the dairy program and the cotton programs, but other programs may need a stronger safety net as well.
Sowing the seeds
Unlike the last farm bill, which was written in an era of high farm prices, the 2018 bill will be written in an era of low prices and increasing financial stress among many bankers’ farm customers. The USDA’s Economic Research Service has forecast a 50 percent drop in net farm income since 2013 due to a collapse in commodity prices and is projecting an 8.7 percent decline in net farm income this year. Farm asset values are forecast to decline by 1.1 percent in 2017, and farm debt is forecast to increase by 5.2 percent. Farm sector equity, the net measure of assets and debt, is forecast down by $51.2 billion.
House Agriculture Committee chairman Michael Conaway (R-Texas) has warned of the potential for an economic crisis in the heartland. Meanwhile, Senate Agriculture Committee chairman Pat Roberts (R-Kan.) acknowledged in a field hearing in his home state that this farm bill journey will not be like the last one. While there will again be budgetary pressure in the face of a $19 trillion national debt, Roberts said, the debate will allow policymakers to take a fresh look at the agriculture safety net, regulatory burdens and the core mission of USDA programs. To head off the potential for budget cuts amid these conditions, Conaway’s committee has urged the House Budget Committee to bear in mind the estimated $104 billion in savings from the current farm bill, which is four times the projection when it passed.
However, if the congressional budget committees significantly reduce the budget baseline for the 2018 farm bill, it will be extremely difficult to write the next one given the many competing demands for funding by various interest groups. Nutrition programs, which represent about 76 percent of the overall farm bill’s costs, have been reduced by more than $80 billion under initial projections, largely due to fewer people being eligible as the economy has improved. Nutrition programs will once again represent a major battleground in writing a new farm bill.
In addition, spending on crop insurance represents 42 percent of the farm bill budget if nutrition programs are not included. There will once again be several amendments offered to cut crop insurance funds to reduce subsidies of producers’ premiums and reimbursements of crop insurance agents.
ICBA has urged policymakers to oppose cuts to crop insurance. In a joint letter to agriculture secretary nominee Sonny Perdue, the Office of Management and Budget, and congressional budget and appropriations committees, the coalition said the crop insurance program provides flexible products and is based on market principles. The letter notes that crop insurance is more than $20 billion under budget from 2014 projections and should not be forced to withstand further cuts.
Under a new administration and Congress, there are many open questions about how the farm bill debate will proceed. But farm-state lawmakers have demonstrated a clear focus on advancing a bill that is mindful of both budgetary constraints and severe economic problems in rural America.
While the Sept. 30, 2018, expiration date on the 2014 act might sound like there is plenty of time for Congress to act, farm bills are rarely passed easily or on time. Through it all, ICBA will be at the table to advocate policies that support community bank agricultural lending to farmers and ranchers, sound rural development programs and economic rejuvenation in rural America.
Mark Scanlan (email@example.com) is ICBA senior vice president of agriculture and rural policy.