12. Financial Security for Agriculture

12.1 Introduction
Last updated: February 08, 2010

The 1996 farm bill made sweeping changes to U.S. farm policy. Many changes such as planting flexibility were good and have 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 — 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. According to the Commission on 21st Century Production Agriculture, "midway through 2000" crop prices were "at or near historic lows." 

The only relief came in the form of federal ad hoc emergency market loss payments. These payments helped sustain our nation's food and fiber and provided relief for an ailing agricultural economy. 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. However, as ad hoc distributions, they were more bandage than cure.

The economic realities and shortcomings of the 1996 farm bill led to major farm policy reforms in the 2002 farm bill. An economic safety net was designed, including marketing loans and a countercyclical program, to help offset losses due to low commodity prices. These price protection components performed as intended; providing economic assistance when most needed and saving taxpayer support in times of stronger commodity prices.

With respect to our nation's farms and ranches, NASDA's recommendations are based on the principles of fostering financial stability, maintaining planting flexibility, and providing a safety net that provides meaningful assistance to all producers.

Financial Stability: Producers need stable and predictable financial support including access to adequate credit, appropriate tax incentives, and risk management opportunities.

Planting Flexibility: Federal farm policy should maintain planting flexibility.

Safety Net: The business of agriculture is high risk. Thus, farm policy should provide producers of all commodities with reasonable protections against both financial and production losses beyond their control.

U.S. agriculture continues to experience structural changes at a breathtaking pace. Agri-business consolidation, globalization, renewable energy, and the growth of foreign trade opportunities and competition have fundamentally changed the nature of farming and farm economics. 

In the 21st century, the traditional approach to farm policy will not be enough to ensure adequate opportunities for success. The extent of global competition for U.S. producers has expanded into capital, tax burdens, labor supplies, environmental and regulatory constraints, food safety concerns, land costs, and the relative degree of access to foreign markets. In one sense, all of these factors can be viewed merely as different forms of risk to be managed.

12.2 Agricultural Credit
Last updated: February 08, 2010

The availability of competitively priced credit is critical to the success of the American agriculture and food industries. Consolidations, new financial products, and innovative credit delivery systems continue to reshape the financial services industry. Cooperation must exist among agricultural lenders to ensure the needs of agriculture are met in the 21st Century. Proposals that would distort competition in rural lending are not in the best interest of farm businesses, agricultural cooperatives, or rural communities.

Farm Credit System
Last updated: February 08, 2010

Farm Credit System — As the leading lenders to the agriculture sector, the Farm Credit System and commercial banks compete aggressively to provide the capital necessary to fuel agriculture's production, processing, and marketing costs. This competition results in lower borrowing costs and better service for farmers, ranchers, cooperatives, and eligible agribusinesses. In addition, Farm Credit's presence in the market ensures the availability of credit through the inevitable good and bad cycles of agriculture.

NASDA supports the Congressionally-established mission of the Farm Credit System, recognizes the unique nature of agriculture sector financing, and supports a nationwide system. The Farm Credit System has a mission to serve the financial needs of agriculture and rural America by providing capital, expert advice and competitive financial services and products.

NASDA supports modernizing the Farm Credit charter to enable Farm Credit institutions to finance all of production agriculture including commercial fisheries and forestry and, to purchase entire farm loans from commercial banks on a voluntary basis. Leveraging Farm Credit to provide credit to all agricultural processing companies, rural businesses, rural homeowners, and others in rural America should also be considered.

NASDA opposes any efforts to restructure the Farm Credit System to the extent that farmers would be replaced on boards of directors with commercial bankers. As a cooperative owned and controlled by its customer-members, any governance structure changes to Farm Credit institutions should require stockholder approval. NASDA supports the continued cooperative ownership of the Farm Credit System and its status as a government sponsored enterprise; and supports maintaining the Farm Credit Administration as the System’s independent regulator and the agency’s focus on Farm Credit System safety and soundness and mission fulfillment.

Capital and Credit Needs
Last updated: February 08, 2010

Capital and Credit Needs — Both the Farm Credit System and commercial banks compete aggressively to provide capital to low risk borrowers. This practice, however, leaves behind many borrowers, who are highly leveraged, are recovering from economic or production losses, or are beginning farmers. Financial tools that assist beginning and financially distressed producers should be developed and enhanced through a combination of federal, state, and private resources.

Modern agriculture’s capital needs continue to increase and beginning farmers and ranchers often lack the equity or cash reserves necessary to enter the competitive ag sector, even as the average age of our nation’s farmers and ranchers continues to increase. NASDA supports efforts and policies that seek to retain these future generations of agricultural producers.

NASDA also supports policies that provide beginning/limited resource farmers and ranchers with access to low interest credit through state, federal and private sources. In particular, NASDA supports a definition of “substantial real estate” in the IRS Code that reflects a realistic modern farm size. NASDA also supports increasing and indexing the loan and bond limit on depreciable property in the IRS Code.

NASDA considers the capitalization of beginning farmers, and retention of entry-level, socially disadvantaged and small, existing farmers as priority capital and credit needs. Given the typical financial position of a beginning farmer, comprehensive capital must be available. Establishing a successful farm or ranch operation requires capital for land ownership or lease payments, equipment and breeding livestock, operating, marketing and risk management costs, retained ownership of grains and livestock, and living expenses.

Moreover, retention programs for socially disadvantaged, small existing and entry level farmers should be designed for producers that generate between $100,000 and $500,000 annual gross income. Retention programs should be based on some of the same foundations as beginning farmer programs; namely providing adequate financial resources at affordable rates with cross-collateralization capabilities. Farmer retention efforts should also include programs to help producers acquire marketing skills and avail themselves of value-added opportunities.

NASDA believes the FSA beginning farmer down payment program should be improved by extending the program's current loan amortization from 15 to 30 years and that all FSA loan programs be maintained with adequate funding.

USDA's Rural Development Agency should consider guaranteed loans for producers who have organized as Limited Liability Companies or other business entities for the purpose of value driven marketing programs. The Rural Development agency should not be limited, however, to "brick and mortar" assistance programs with market enhancement programs. NASDA urges the IRS tax code be changed to allow livestock feeding programs (including dairy and egg producers) to be considered as grain processing (biological processing) which would make some Rural Development programs available for value-added marketing alternatives.

Aggie Bonds
Last updated: February 08, 2010

Aggie Bonds — NASDA recommends removing "Aggie Bonds" from the individual state limits on bond volumes. This would greatly increase the opportunities for the use of Aggie Bonds for entry level and less established producers for purchases such as land, breeding, livestock, machinery, and equipment. Removing the volume cap would also help value added and agribusiness programs to acquire affordable credit. Recently Aggie Bonds have been authorized for use with environmental programs for expansion and compliance. Existing regulations do not allow Farm Service Agency (FSA) to guarantee Aggie Bonds, though the addition of Aggie Bonds to the IRS list of possible exceptions through FSA is appropriate. Indeed, there are exceptions to the code already on the books, such as the Federal Housing Administration, Veterans Administration, and Student Loan Administration.

The current $250,000 maximum bond base is insufficient, however, even in the event of other necessary reforms. Land or other purchases are often in excess of the $250,000 and lenders currently charge conventional interest rates on the balance. A larger maximum on the Aggie Bond base will provide an additional tool in agriculture financing. Changing the value limit to $250,000 to match the percentage change is a needed tool for "entry level" producers.

12.3 Agricultural Mediation Programs
Last updated: February 08, 2010

The Secretary of Agriculture was authorized to assist states in the development of USDA Certified Agricultural Mediation Programs under Section 502 of the Agricultural Credit Act of 1987.

Recognizing the efficiency and effectiveness of the Certified Agricultural Mediation Programs, Congress enacted Section 292 of the Federal Crop Insurance Reform and the Department of Agriculture Reorganization Act of 1994 which authorized the expansion of these programs to include, in addition to agricultural credit, the following areas: wetlands, rural water loan programs, grazing on national forest system lands, pesticides, compliance with farm programs including conservation programs, and other issues the Secretary deems appropriate.

The 106th Congress reauthorized the Certified Agricultural Mediation Program through 2005 by enacting Section 306 of the Grain Standards and Warehouse Improvement Act of 2000. The legislation also clarified the use of federal mediation grants for financial advisory and counseling services for parties requesting mediation. The program is currently authorized through 2010 and is administered by the Farm Service Agency Outreach Program.

NASDA believes that funding of State Certified Agricultural Mediation Programs is as important as ever. As federal budget constraints continue to reduce funds for numerous agricultural programs, there will be fewer dollars available for farm families. These reductions will increase levels of frustration, anger, and fear experienced by these families whose resources are already stretched, creating additional demands for a positive alternative to resolving disputes with the USDA. In addition, federal mediation funding levels have been inadequate to meet the demands of the increasing number of state programs.

NASDA supports the expansion of state mediation programs and urges the Secretary to authorize all agricultural disputes approved by individual state mediation programs as eligible under the USDA grant program.

NASDA supports the expeditious issuance of regulations requiring USDA agencies to offer mediation in cases where adverse decisions are made, and to attend and participate in mediation if requested by producers or USDA customers. Regulations should also include a definition of mediation which provides maximum state program flexibility as intended by Congress. Confidentiality of the mediation process should be maintained. For audit/evaluation purposes, NASDA believes that auditors, including the Office of Inspector General, be limited to using confidential mediation information only for the purpose of verifying the appropriate expenditures of funds used for mediation and/or evaluating the effectiveness of the program. Confidential mediation information obtained through such audits/evaluations should not be used for any other purpose unless all mediation participants consent to it.

12.4 Farm Service Agency
Last updated: February 08, 2010

FSA Loan Eligibility
Last updated: February 08, 2010

FSA Loan Eligibility — Statutory term limits restrict borrower eligibility for Farm Service Agency (FSA) direct or guaranteed loans regardless of borrowers' ability to obtain other credit. Limitations also restrict borrowers receiving debt write-down to direct or guaranteed annual operating loans. NASDA believes FSA borrowers should be assisted and encouraged to graduate to commercial credit as quickly as possible. However, eligibility should not be determined by arbitrary term limits. NASDA also believes that FSA borrowers who previously filed for bankruptcy should remain eligible for direct and guaranteed operating loans, provided they are current on their loans under their original or revised plan of operation.

FSA may offset government payments to any borrower who is 30 or more days delinquent on loan payments. FSA may offset regardless of payment assignments to other lenders, or whether the borrower has applied for FSA loan servicing. NASDA believes FSA should recognize prior assignments of government payments, and release the proceeds as agreed to in the plan of operation. Further, FSA should not have offset authority until FSA loan servicing actions have been concluded.

FSA Emergency Loans
Last updated: February 08, 2010

FSA Emergency Loans — Emergency loans are provided to help cover production and physical losses in counties declared as disaster areas by the President or the Secretary of Agriculture. Generally, producer eligibility is triggered by a qualifying physical loss, or a production loss of at least 30 percent in any essential farm or ranch enterprise. Producers are only eligible for an emergency loan if they cannot obtain commercial credit. The loan limit is 100 percent of actual loss with a maximum loan amount of $500,000. Unfortunately, the emergency loan program has been an effective tool for only a few farmers because substantial assistance is needed to truly recover losses.

NASDA urges the creation of a new emergency loan program, similar to assistance provided to small businesses, that provides measurable assistance to agricultural producers in disaster situations. The program should contain appropriate loan amount caps with broadened eligibility to assist producers not currently eligible under current emergency loan requirements. Further, NASDA recommends the program's review process for loan approval determinations be simplified.

FSA Direct and Guaranteed Loan Programs
Last updated: February 08, 2010

FSA Direct and Guaranteed Loan Programs — The FSA guaranteed loan program has proven to be cost effective in reducing federal budget outlays. However, some rural areas have a shortage of commercial lending institutions that are interested in production agricultural lending.  In such areas, the FSA Loan Guarantee program is of little value and leaves many producers dependent on FSA direct loans to finance their operations. NASDA urges continuation of and adequate funding for FSA direct loan programs. In keeping with the mission of FSA lending, NASDA also urges that FSA guaranteed loan limits remain capped at reasonable levels.

Under FSA Instruction 1951-S, required loan servicing actions are offered to producers who become delinquent on FSA direct loans. FSA guaranteed loans provide a substantial safety net for commercial lenders and even though 1951-S loan servicing is available to guaranteed lenders, they are not required to utilize the servicing options before loan liquidation. NASDA recommends an incentive, such as a higher percentage guarantee, be offered to commercial lenders who agree to service delinquent guaranteed loans according to 1951-S.

FSA Interest Assistance Program
Last updated: February 08, 2010

FSA Interest Assistance Program — Interest assistance is provided on guaranteed loans if cash flow projections indicate the necessity for a feasible repayment schedule. The program is a valuable tool. However, program funding is often inadequate. NASDA recommends that following the year end analysis of the farm/ranch operation, only the actual amount of assistance required for repayment be provided. Any interest assistance obligated but not distributed should be retained by the program and added to the next fiscal year's appropriation. NASDA also recommends a higher level of interest assistance be provided to beginning farmers demonstrating the need for additional assistance.Interest assistance is provided on guaranteed loans if cash flow projections indicate the necessity for a feasible repayment schedule.  For producers needing interest assistance, the program is a valuable tool.  However, funding for interest assistance is often limited.  NASDA urges that guaranteed loan interest assistance be reeâ€evaluated following the year end analysis of the farm/ranch operation and that only the actual amount of needed assistance be provided.

Any interest assistance obligated but not distributed should be added to the next fiscal year's appropriation. It is also urged that a higher level of interest assistance be provided to beginning farmers demonstrating the need for assistance.

12.5 Tax Provisions Affecting Agriculture
Last updated: February 08, 2010

The economic future of our nation's agriculture depends on the ability of new generations to enter farming and ranching. The barriers faced by the next generation are significant, and merit immediate attention by policy makers. NASDA supports tax incentives and capital gains exclusion for selling to first time farm/ranch buyers.

As a means to enable producers to survive periods of low profitability, farm savings accounts should be created to level out income flows. NASDA recommends Congress establish Farm Savings and Retirement Accounts as a necessary management tool for U.S. farmers and ranchers.

American farmers and ranchers incur significant costs in providing medical insurance coverage for themselves, their families, and employees. NASDA recommends that Congress provide a 100% income tax medical deduction for farmers and ranchers, including all health insurance premiums and medical surgery for self, immediate family, dependents and employees. Prescriptions, Medicare and medical supplies should also be tax deductible.

NASDA also supports elimination of the self-employment tax on income from rent of farmland, including CRP rents. Further, NASDA recommends that farmers who have gross income of $2,400 or less be able to report $1,600 as net earnings from farm self-employment.

12.6 Farm Income and Production Stability
Last updated: February 08, 2010

Agriculture is changing at an increasingly rapid pace. Consequently, the need for improved, comprehensive risk management programs is an ongoing work in progress. Risk management encompasses education, marketing, and primarily crop insurance programs. Risk management tools must be flexible, comprehensive, versatile, simplified, and readily available to producers. Crop/Livestock insurance and disaster programs must complement one another to ensure adequate coverage for producers, with risk management programs serving as the first line of defense. As farmers are exposed to unpredictable and unusual risks, it is essential that a crop insurance/risk management plan cover, at a minimum, the input cost of production to a producer.

Disaster assistance should always be an option in the face of national crisis, but it must be provided in an ongoing, consistent, and predictable manner to be fully effective. Permanent disaster assistance should be provided for in farm policy rather than on an ad hoc basis. Disaster assistance should be relative to the cost of production with payment eligibility determined by participation in a federally sanctioned program, where available.

In addition, the federal government should provide a commodity safety net in a manner that minimizes production distortion. Major, sustained low market price losses cannot be compensated by an actuarially sound insurance program. Commodity price and income protection must be provided by separate farm policy.

Crop/Livestock Insurance
Last updated: February 08, 2010

Crop/Livestock Insurance — Crop and livestock insurance coverage must be meaningful and comprehensive. At the same time, premiums must not be cost prohibitive for producers. Non-insured Crop Disaster Assistance Program (NAP) insurance coverage should be improved with buy-up coverage available for additional premiums. The buy-up level for NAP should be capped at 65% of yield and 65% of price. NAP coverage for grazing must be improved to be commensurate with similar coverage on annual planted crops.

Beginning farmers without a production history should be allowed to use historical county level production data or the actual production data applying to that land. USDA should offer beginning farmers a higher subsidy on the crop insurance premium as an incentive to enter the agriculture industry.

Current federal policies give producers more flexibility in making production decisions. However, many specialty, alternative and non-traditional crops are still ineligible for crop insurance coverage. USDA should accelerate the development of appropriate risk management tools for fruits and vegetables, nursery, vineyard, seed, citrus, tree crops, livestock, aquaculture, milk, and new oil crops like camelina. Additional premium subsidies should be provided since no countercyclical assistance program exists for these crops and livestock.

Innovative and good farming practices involving numerous crop rotations should be encouraged through crop insurance. During establishment of an individual actual production history, improved substitute yields should be available to new producers of crops if the crops are already proven suitable for the region.

Organic producers lack effective financial protection through current crop insurance price elections. USDA should base crop insurance price elections for organic crops on organic rather than conventional commodity prices.

Crop and livestock insurance must provide meaningful coverage and provide incentives for farmers to purchase the insurance. Premium subsidies should be higher for higher levels of coverage and lower for lower levels of coverage encouraging producers to carry more coverage. Any natural disaster assistance provided ad hoc or through a permanent disaster program should be contingent upon participation in the crop insurance or noninsured assistance programs. Disaster assistance must not be a disincentive to purchasing crop insurance; rather the two programs should complement one another.

Additional elements of a crop insurance program to consider are cost of production insurance, whole farm revenue insurance and long-term reserve accounts. A cost of production insurance policy would allow producers to insure a percentage of actual production costs. Cost of production insurance could be expanded to all commodities and possibly become a preferable base insurance program. Whole farm revenue insurance would allow producers to purchase insurance guaranteeing a certain percentage of revenue for the whole farm. It would provide protection against unavoidable losses of production and low prices. Long-term reserve accounts are a way for farmers to save, on a tax-deferred basis, during good times for poorer years.

NASDA believes that farm policy and/or a plan of insurance must provide quality loss adjustment coverage. A properly designed permanent disaster assistance program based on whole-farm revenue would compensate for quality price losses in the "revenue to count" calculation. For inventoried commodities requiring sampling, samples should be taken and analyzed by a grain grader licensed under the authority of the United States Grain Standards Act or the United States Warehouse Act or the Uniform Grain and Rice Storage Agreement, or by a laboratory approved by the USDA Risk Management Agency.

Disaster Situations
Last updated: February 08, 2010

Disaster Situations — Farmers do not have access to the same types of federal assistance as other businesses following a natural disaster. Farm Service Agency emergency loans are provided to help cover production and physical losses in counties declared as disaster areas by the President or the Secretary of Agriculture. Unfortunately, the emergency loan program has not been an effective tool for most farmers. The emergency loan program should be revised as described under Policy Section 12.4.

When a federal natural disaster has been declared, we recommend that the Federal Emergency Management Agency (FEMA) be given the authority to make grants immediately available to agricultural producers in order for them to make emergency repairs. NASDA urges the USDA to designate Section 32 funds for natural disasters that would be available for immediate dispersion. Agricultural producers need an immediate response to a natural disaster to remain in business.

In addition, farmers should be eligible for low interest loans from the Small Business Administration and other appropriate agencies for assistance following the disaster.

Disaster situations in agriculture are inevitable. The challenge for lawmakers and the federal government is to develop a program or plan to lessen the impact of such disasters. However, until crop insurance/risk management programs are established that are capable of totally replacing ad hoc disaster assistance, producers and the federal government should have a consistent way of coping with disasters through a permanent disaster assistance program. Federal disaster assistance should not undermine the intent of crop insurance programs.

Disaster assistance should be designed in a fashion that does not cause disincentives to purchase buy-up insurance coverage or NAP policies. Limits should be established to prevent producers from receiving more in crop sales, insurance indemnities, and disaster assistance than would be expected in a normal production year. However, producers must not be financially penalized for carrying higher insurance coverage. Disaster assistance eligibility should be premised on carrying buy-up insurance if available, excluding participation in pilot insurance programs.

Eligibility for disaster assistance should be triggered by evidence of producer loss based upon total farm revenue. Disaster assistance should focus on the gap between expected farm revenue (including insurance indemnities) and the farm's insurance guarantee.

NASDA supports planning for emergencies involving states, together with any legislative changes. In the event of a federally declared disaster under which the Robert T. Stafford Disaster Relief and Emergency Assistance Act is invoked, NASDA recommends that the USDA be required to deploy disaster liaisons to coordinate appropriate resources within USDA and with other agencies. 

NASDA believes the USDA and the United States Congress should review the effectiveness of risk management tools and explore all options to provide farmers with improved risk management tools. Better coordination between the USDA and other federal, state, and local agencies is needed in developing a more inter-related program of risk management and disaster assistance for U.S. producers to deal with localized disasters.

Providing A Safety Net For Producers
Last updated: February 08, 2010

Providing a Safety Net for Producers — NASDA's ideas are built on the principle that the most effective agricultural policy is one that allows today's producers to manage all the risks they face in order to maximize their opportunities for profitability. U.S. farm policy should not guarantee that every farmer makes a profit; it should, however, provide all farmers and ranchers an adequate safety net and a range of tools to manage risk, in all its forms, to ensure that good producers are not put out of business due to arbitrary forces beyond their control.

A price/income safety net is a necessity for the agriculture industry in today's global competitive markets. NASDA supports efforts to increase baseline agricultural spending in order to provide a reliable and effective safety net. However, we recognize that the U.S. must balance such support with its obligation under the WTO's spending classifications.

NASDA believes that maintaining the marketing loan and countercyclical programs is necessary not only for the economic stability of domestic producers, but to demonstrate to our trading partners that the U.S. is serious about using all the tools available under the World Trade Organization (WTO) to maintain U.S. market share. Planting flexibility must also be retained that allows producers to plant crops they believe will provide the greatest return.

Despite several reform and improvement efforts, the crop insurance program has been unable to provide adequate production loss protection from natural disasters, particularly the first losses not covered by insurance. The continued need for federal ad hoc production disaster programs confirms the shortcomings of the crop insurance program. NASDA believes a permanent disaster program which complements crop insurance should be a fundamental component of the farm policy safety net.

Dairy Policy
Last updated: February 08, 2010

Dairy Policy—The dairy sector of the agriculture industry is critical to the economical and nutritional health of this nation. NASDA actively supports policies which continue to provide a market safety net for U.S. dairy producers. Dairy policy must continue to be flexible and available to producers as markets continue to vary greatly year to year. Milk prices should reflect local value rather than national price. The market price of farm milk should be determined by its local availability and marketing demand per classification of use. Dairy producers should be responsible only for the marketing/transportation costs associated with their milk as are other farm commodity producers.

The establishment of a dairy industry security reserve fund would help to protect American dairy producers from losses resulting from bankruptcy of a processor/handler. This fund could be funded through assessments on processors not to exceed two cents per hundredweight. Producers who suffer a loss because of the bankruptcy of their processor/handler could make a claim against the fund for unpaid milk shipments to that handler.

Currently, the issue of dairy producer security is left to each individual state; however, only about half of the states have dairy producer security laws. NASDA believes that the absence of adequate protection in many states, together with the confusion that is created for processors who have operations in several states with a variety of different producer security laws, requires that this problem be resolved at the federal level.

NASDA supports continuation of the Milk Income Loss Contracts (MILC) program, with adjustments to double the per farm production cap and establish flexibility to encourage multi-family or multi-generational dairy farm operations.

NASDA supports continuation of Cooperatives Working Together (CWT), the self-help program administered by the National Milk Producers Federation and maintaining states' right to create multi-state marketing agreements in order to enhance milk prices within their regions. 

NASDA also supports creation of a revenue insurance pilot program to provide comprehensive and adequate revenue insurance for dairy producers that is cost effective with payments triggered by price levels which enhance the viability of small-scale dairy farms.

Education
Last updated: February 08, 2010

Education—Education is an important component of any risk management plan. The USDA should educate producers and lenders about risk management strategies. Education must extend beyond basic crop insurance/risk management programs. Education should provide basic management training, financial management accounting/bookkeeping, human resources, organizational development, and domestic and international marketing. Educational forums should be positioned as incentives for obtaining lower crop insurance premiums from the federal government.

The Risk Management Agency's dairy options pilot program concept should be expanded to other traded commodities. By combining crop insurance and risk management tools, farmers can develop a total risk management plan. This approach enables a farmer to move into a more market-oriented world.

Small and Disadvantaged Farmers
Last updated: February 08, 2010

Small and Disadvantaged Farmers—A 1997 USDA report on "Civil Rights and Small Farmers" concluded that small and disadvantaged farmers were being neglected by USDA assistance services, and instead, these services were directed to larger farm operations. The National Commission on Small Farms, in 1998, sent to USDA a report on small farms in the United States. The report was the product of considerable discussion and deliberation based upon extensive testimony, both oral and written, from across the country. NASDA recognizes the significance of the report and adds that American agriculture depends on its diversity of crops and cultures to thrive and grow. NASDA supports policies and programs that recognize American agriculture excels because of its cultural diversity that encourage the sustainability of small farms. NASDA further recommends increased awareness of the needs of limited resource producers.

Intergenerational Farm Transfers
Last updated: February 08, 2010

Intergenerational Farm Transfers—The economic future of our nation's agriculture depends on the ability of a new generation to enter farming.

Retirement and succession planning are of considerable importance to farm households and tools should be available to farmers and ranchers to make decisions that enhance their own futures as well as the future of agriculture.

NASDA believes new business succession and farmland tenure models must be developed. These models must be regionally appropriate and respond to the unique needs of both beginning and retiring farmers and ranchers. Models should also recognize farms that produce energy, such as dairy farms with manure digesters.

NASDA supports tax incentives and capital gains exclusion for selling to first time farm/ranch buyers. NASDA also supports USDA grants to state departments of agriculture to provide assistance /guidance to transition farms and farming operations from current ownership to the next generation of family farms.

Farm Viability Programs
Last updated: February 08, 2010

Farm Viability Programs—National farm viability policy can and should be relevant to all operations, from the maple sugar producer in New England to the shellfisheries off our nation's coasts, from the tree and shrub production regions in the Northwest to the citrus groves of the South. Farm viability programs administered by states and supported by the federal government must recognize all sectors of the industry are important. They must acknowledge all of agriculture needs to grow to sustain the versatility and diversity of the industry.

In doing so, these programs will nurture a culture of innovation and entrepreneurship that will result in the creation of new markets, both close to home and abroad, and the development and improvement of new and existing products. This will create a stream of new ideas and actions that will help us to achieve the three goals that all states have for their agriculture sustaining working farmland, improving farm profitability and preparing new and next-generation farmers to carry on. Ultimately, success in all these efforts will lead us to our goal of strengthening all agricultural sectors.

These types of investments have proven successful for agriculture in the past. For example, the emphasis on biofuels has boosted the grain industry, while the success of farmers markets has helped strengthen the connection between farms and the people who depend on them for healthy, nutritious foods. These investments also must focus on retaining agricultural and rural youth in next-generation businesses, attracting new, non-traditional residents to farming, pursuing new capital, and meeting the demand for fresh products that support healthy diets. While these are important projects, providing cost-share dollars to states that have established farmland viability programs would allow USDA Rural Development to more closely fulfill its mission of facilitating economic development in rural areas.

In short, agriculture faces the need to continue to reinvent itself, adapt to new market opportunities, and capitalize on emerging trends, all while remaining relevant to its core customers.

12.7 Producer Security
Last updated: February 08, 2010

Warehouse Regulation
Last updated: February 08, 2010

Warehouse Regulation—States are very concerned about the final rules to the U.S. Warehouse Act of 2000 which were published in the Federal Register by USDA on August 5, 2002. These final rules were released without opportunity for comment on the language that was added in subsection(c), Part 735.1 which reads, "Compliance with state laws relating to the warehousing, grading, weighing, storing, merchandising or other similar activities is not required with respect to activities engaged in by a warehouse operator in a warehouse subject to a license issued in accordance with this part." The U.S. Warehouse Act should not preempt state authority to provide protection to producers doing business with federally licensed warehouses. The USWA should not preempt state warehouse laws governing grain merchandising and producer grain purchase obligations. NASDA believes that the USDA does not have exclusive authority to regulate merchandising related activities of grain warehouses licensed under USWA. Appropriate legislative action to amend the U.S. Warehouse Act should be pursued.

Mandatory state warehouse programs have been established in many states to both adequately serve agricultural commodities and to protect farmers from suffering financially if a warehouse experiences inventory shortages or financial insolvency. The voluntary federal warehouse program also serves agricultural commodities, but lacks many protections for farmers.

All warehouses that store agricultural commodities for the public are licensed either by the USDA via the United States Warehouse Act (USWA) or by the respective state in which the warehouse operates.

Further, 23 states also regulate the merchandising of grain through grain dealer laws. These state programs serve the agricultural community well in terms of cost efficiencies and regulatory oversight.

USDA has never regulated the merchandising of grain. The USDA has taken the position that the USWA covers the merchandising of agricultural commodities and that the industry is not required to follow state law. States are very concerned about the USDA's interpretation that the federal law supersedes state law in the area of merchandising. This interpretation could not only lead to zero protection for farmers who merchandise agricultural commodities at a warehouse licensed under the USWA, but also put in jeopardy state programs where commodity producers have chosen to pay into indemnity funds for their own protection.

NASDA believes that the USDA should cooperate with the state departments of agriculture in the regulation of agricultural commodities' warehouse activities to provide producers with the best protection possible while subjecting the industry to the minimum amount of regulatory oversight. A cooperative agreement between the state(s) and the USDA would benefit the producer, the industry, and the taxpayers.

NASDA urges the administration and the U.S. Congress to direct the USDA to collaborate with state agencies and to recognize the states authority to license and regulate grain dealer and merchandising activities of federally licensed grain warehouses and examine all agricultural warehouses within their states irrespective of their license status under the U.S. Warehouse Act.

12.8 Financing For Agricultural Cooperatives
Last updated: February 08, 2010

Farmer-owned cooperatives are an important and integral part of American agriculture. For decades, cooperatives have provided many necessary services and products to farmers and have been a critical tool for farm profitability. In the current global economic environment, however, agricultural cooperatives face many new challenges. One major challenge is access to equity capital needed to modernize and expand as well as to capitalize on new market opportunities.

In an effort to better finance and capitalize their businesses, farmers and cooperatives are looking at various business models and structures that were not contemplated just a few years ago. Because of dated eligibility requirements established under federal law, cooperatives that adopt new business structures may no longer be able to borrow from CoBank, which has been the primary source of credit for farmer cooperatives for more than 70 years.

NASDA supports legislation that provides greater flexibility for farmer cooperatives to maintain their eligibility for CoBank financing. Such legislation should: 

• Clarify that entities with both a producer and investor class of membership are eligible for CoBank financing, provided the producer class holds at least 50 percent of the voting control and operates on a cooperative basis. 

• Permit agricultural cooperatives organized consistent with revised state laws to continue to be eligible for CoBank financing. 

• Allow cooperative customers that are adopting new business structures to continue to be eligible for CoBank financing as long as the customer maintains at least 50 percent farmer ownership or control. 

• Provide that cooperatives that are existing CoBank customers, but which restructure in a manner that would make them ineligible for CoBank financing (fails to meet 50 percent farmer ownership control criteria) can remain eligible for a five-year transition period while the cooperative establishes new lending relationships.