Financial Security for Agriculture
The agricultural economy is in a tenuous economic position. Were it not for near record federal government assistance over the past three years, much of U.S. agriculture would be in financial straits not seen since the Dust Bowl era. According to the Commission on 21st Century Production Agriculture, “midway through 2000” saw many crop prices “at or near historic lows.” Coupled with a strong dollar that has crippled exports — and benefited our export competitors — U.S. farmers and ranchers have been squeezed in an economic vise with no market relief for nearly three years in a row.
The only relief has come from ad hoc emergency market loss payments from the federal government. These payments have helped sustain our nation’s food and fiber production through this economic drought. According to the USDA, direct government payments accounted for three-fourths of net cash income for major field crops in 1999 and two-thirds in 2000. But these payments were ad hoc distributions; while they provided the necessary relief for an ailing agricultural economy they were more bandage than cure.
The 1996 farm bill made sweeping changes to U.S. farm policy; many were good and as such achieved their desired impact. However, broad economic trends — from the Asian economic collapse to the dot-com stock market run-up and subsequent implosion, to the energy price spike of 2000 — have all had effects on farm finances and commodity prices that were certainly outside the vision of the policy makers who crafted the 1996 farm bill. It is the task of policy makers in crafting the farm bill, therefore, to devise a federal farm policy that provides an adequate “safety net” for producers.
The goal: To ensure that sound, well-managed farm operations are not arbitrarily put out of business by extraneous forces beyond their control.
With respect to the financial viability of our nation’s farms and ranches, NASDA’s recommendations are based on the following four principles: fostering financial stability, maintaining planting flexibility, providing a safety net that provides meaningful assistance to all producers, and encouraging good environmental stewardship.
Financial Stability: Producers are in need of a predictable support mechanism that will allow them to receive a reasonable income, even when prices are inadequate to do so. This financial stability is important to consumers and taxpayers, as well as to producers, and is best achieved through a program that provides assistance which is counter cyclical to the market.
Planting Flexibility: One of the features of the 1996 farm bill which is of greatest benefit to producers is the planting flexibility. The farm bill should retain that provision.
Loss Protection: So many factors are out of the control of even the best farm managers. Thus, the farm bill should provide a way for producers of all commodities to limit their losses to no more than 10 percent of their cost of production through a cost of production insurance program.
Environmental Stewardship: The farm bill must consider the financial burdens of environmental compliance and therefore provide incentives and cost sharing opportunities to responsible producers who employ environmentally sound on-farm management practices.
Providing a sound and secure financial system is important for agricultural producers who face times of uncertainty. Farmers need tools in which to ensure financial security and to withstand uncertain times. Educating farmers about risk management will be a growing area of importance.