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Iowa impact of farm bill negotiations in Washington D.C.

posted on November 1, 2013

Farmers across the country are feverishly wrapping up the 2013 harvest.  But many are keeping a watchful eye on Washington.  We'll gather our own blue ribbon Farm Bill panel with Iowa Secretary of Agriculture Bill Northey, Iowa Farm Bureau President Craig Hill and ISU Extension's Chad Hart, all on this edition of Iowa Press.

Pearson: For decades the federal Farm Bill has been a multi-year legislative juggernaut seeping its way into how farmers and ranchers operate, how nutrition programs are delivered and guiding the general direction of American agriculture in four to five year installments.  But beltway politics have put a serious damper on the outlook for a new Farm Bill.  Conference committee meetings this past week in D.C. have pumped some signs of life into the possibility of new legislation.  A new bill could reform everything from crop insurance to federal spending levels on nutrition programs.  For some Iowa perspective we've gathered our own conference committee, Iowa Secretary of Agriculture Bill Northey, a farmer himself from northwest Iowa.  Craig Hill of Milo currently serves as the President of the Iowa Farm Bureau.  And Chad Hart brings an economist's perspective from Iowa State University Extension. Gentlemen, welcome to Iowa Press.

Thank you.

Across the table, journalist Kathie Obradovich of the Des Moines Register and Radio Iowa News Director Kay Henderson.

Henderson: Let's begin with the economist.  What is the economic impact of a lack of a farm bill?

Hart: A lack of a farm bill.  Well when you're looking at the economic impact here there are direct and indirect impacts here.  As far as the direct impacts we'd be talking about the payments that go to farmers, the payments that go for conservation efforts, part of the crop insurance, the indemnity payments that flow out from that.  But you're also talking about the indirect impact of those payments.  When those are received by farmers they go out to pay for the input bills, they cover their expenses, they cover living expenses and so there's a multiplier effect that goes on with a farm bill.

Henderson: Well, is it delaying some of the loan agreements that farmers are trying to sign so that they can buy seed and fertilizer ahead of time?

Hart: It is possible that it does because when you look at that a lot of our loans are built upon the cash flow that come through the system.  And so you're used to these timings of the farm bill payments.  With those being disrupted or out of whack that is disrupting that cash flow, disrupting those loan payments.

Henderson: Gentlemen, let's have a show of hands.  Of the three of you, who thinks that there will be a farm bill passed by Congress by the end of the year?  Raise your hand if you think that --

Hill: A five year farm bill or an extension --

Henderson: A five year farm bill.  Okay, we have two.  We have one who --

Hart: I'm going to be the pessimist here.

Henderson: Why do you think -- state your reasoning for your opinion in that regard.

Hill: Well, the first reason I would have is there is a deadline.  Even though we aren't falling off the cliff today with the absence of a farm bill we will January 1.  There is legislation, permanent legislation, from 1938 and 1949 that each farm bill subsequent has amended and that permanent legislation provides for parity pricing and some effects that will not be desirable by anyone, including farmers.  And so Congress will take action before January 1 in some form or fashion.  We hope it's a five year farm bill, a reformed bill that is relevant to today and not another extension.

Obradovich: Mr. Northey, there has been some agreement between the House and Senate on these bills and one of the points of agreement seems to be that direct payments to farmers are going to be a thing of the past.  We've talked a little bit about the overall economic impact.  But how is the stoppage of direct payments to farmers going to affect the farm economy, which has been one of the more robust parts of our state's economy right now?

Northey: And so the biggest part of that positive impact has been the market and the market and good production has allowed us to be able to really grow in agriculture in this state.  What 10 years ago was a $12 billion agriculture to a $30 billion agriculture.  Direct payments are real.  They're about half a billion dollars a year in Iowa.  So they're real.  Taking those away is real but small compared to the real progress economically the state has made over the last 10 years in agriculture.  That is why all the ag folks are really supporting that going away at a time when we have decent prices.  Now, our prices are very different now than what they were a year ago but it certainly still makes sense to do that even though that is a real hit, a half a billion dollar a year hit.

Obradovich: And Mr. Hart, is that something that effects ripples through the economy in Iowa?  Or maybe not so much considering that the ag economy is good right now.

Hart: Well, the ag economy is good and it does definitely help offset that ripple.  I mean, you're going to miss that $500 million coming in each and every year.  But typically a farm bill is a matter of trade offs.  So while we may be losing the direct payments the question is, what other programs will be put in place?  What sort of flow of funds will they create that they might offset part of that hole?

Obradovich: And Mr. Hill, what do you think is the best trade off in the farm bill for the direct payments?  What are you getting in return?

Hill: Well, we're not asking for anything in return.  Of course, crop insurance is the flagship of the farm bill.  This is something that every farmer in Iowa seeks is to have a sound crop insurance program.  But both of these versions of the farm bill, House and Senate, include the word reform.  And when you look at the commodity title, the first title of the farm bill, it repeals direct payments, it repeals countercyclical payments, it repeals the acre program and, of course, the funding for the SURE program and other programs.  We have consolidated programs, we have saved money.  And so all the titles of the comprehensive effect of this farm bill does provide a budget reduction and many of these reductions in subsidies have been requested by agriculture.

Pearson: And now we've spent a lot of time talking about the SNAP funding and how that is different between the House and the Senate versions.  On the commodity title side, are there substantial differences between the House and the Senate version?  And how is Farm Bureau reacting to that?

Hill: The commodity title does not have a whole lot of divergence between the two titles.  In fact, they're very similar.  And they'll be conferenced very easily.  Of course, the difference is nutrition title, Title IV.  The crop insurance title I think is valuable but it will be a crop insurance reform act down the road that will probably have more meeting on crop insurance eventually.

Pearson: Now one of the changes to crop insurance is the addition of the shallow loss provisions.  Dr. Hart, what impact could that have in Iowa's economy?

Hart: Well, arguably in that case there's one where you're talking about a new program that is going to have a completely different flow of funding back to Iowa than anything we've ever had before.  And it is building on top of federal crop insurance.  So when you think about the loss of the direct payments, for example, there is a loss of a fixed amount of money that we knew was coming.  SCO, the supplemental coverage option, is a new flow of funds that partially offsets that loss and it's going to come at times when we have had either a revenue or a yield loss to trigger that.  So, if you will, the political economy, it's much more easy to defend payments when there is a loss as opposed to something that is coming each and every year.

Henderson: For our viewers who are not farmers and interested in this debate on a daily basis, what is shallow loss?  Explain that.

Hart: Shallow loss is basically think like your car insurance where you sign up, you pay a premium but you have a deductible.  Say that deductible is $1000.  When you have an accident I suffer that $1000 loss first and then I receive a check from the insurance company.  Same thing with crop insurance, we have a deductible.  In this case though it is based either on a percentage of revenue or percentage of the yield I would get on my farm.  The shallow loss is that deductible loss.  And so what SCO does is it's saying I'm going to fill in part of that loss because when farmers have looked over the past five to ten years what has been, if you will, the bigger losses to them it has come when you've had disasters or losses that haven't been deep enough to trigger crop insurance but have a meaningful economic impact on the farm.

Henderson: Mr. Northey, Mike mentioned the SNAP funding.  A lot of people call it food stamps.  Since you're the politician on the panel I thought I would direct this question to you.  Do you have any idea how this divide between a $40 billion cut and a $4 billion cut is going to be bridged whereas House republicans want the larger and Senate democrats want the smaller?

Northey: You know, historically this has been done all the time.  And yes, there is a difference, $4 billion to $40 billion.  It sounds like a lot of dollars and it is.  Actually that's over 10 years so it is $400 million a year on average versus $4 billion a year on a program that is $80 billion.  So as you look at that there is a difference.  Most of us here probably could figure out a way to find a middle ground between $400 million and $4 billion on an $80 billion program.

Henderson: You said most of us here.  What about those people out in D.C.?

Northey: I don't know.  I sure hope so.  And there has been a lot of grandstanding on certainly both sides and I think neither side wants to blink first. So if we heard the right things when the committee got together, they talked about wanting to come together.  It's not that far apart if there is a desire to do that and it appears like there is.  That's why I'm hopeful, I'm not sure I'm optimistic but I'm certainly hopeful that they will come together and find a way to be able to bridge that.

Obradovich: The middle ground between SNAP program being in the farm bill and not in the -- and being separate is harder to find.  And politically what do you think -- I'll start again with Mr. Northey -- politically what is the long-term effect of separating this food and nutrition program, which appeals to the urban areas and probably more democrat controlled areas and the farm bill, which appeals more to the rural areas and frankly has a smaller delegation in Congress?

Northey: You know, I think for this bill to get passed they're going to be back together again.  I think what we saw was a temporary solution to get it to conference, to allow it to come out of the House.  Now, one of the questions come to be is, if it gets put together in a conference committee can it pass both chambers?  And we don't know that for sure.  But I think it has to be together.  I think both need to pass, both need each other to be able to pass and so I think it has to come together even though a handful of folks would take about it being separated.

Obradovich: And Mr. Hill, do you agree that those two parts need to be together for the long-term?

Hill: Absolutely.  I agree with Secretary Northey.  They need to be reunited.  They never should have been severed in the first place.  Food and agriculture are intimately linked.  This is a food and agricultural bill.  And they need to be tied and I hope they will be and our advice to the conferees would be to reunite the two provisions.

Obradovich: And what is the economic impact, Mr. Hart, if cutting significantly the food nutrition support program from the federal government?

Hart: Well, when you look at it the debate really is centering on how much is considered fraud and waste versus how much is controlling program costs?  And so as you look at how the different camps are playing this out they're trying to figure out what that proper balance is.  And cut here, just like the cut in direct payments, has a direct impact on individual consumers and on the, if you will, the local economy in that respect.  One of the things we're watching right now is that food stamps are actually going through a cut today.  There's a reduction of about, over the next three years I think it's $11 billion.  And one of the chips I saw played at the conference committee was the discussion of maybe counting that cut, keeping it permanent and including that as part of the bringing together of the numbers between the House and Senate.

Henderson: Mr. Hill, let's keep talking about math.  There are people who don't understand why wealthy farmers and people like former basketball star Scottie Pippen are getting federal farm payments.  Does the Farm Bureau support the payment cap limitation?

Hill: We have policy that allows for all producers, regardless of size, to be involved in programs.  We think it's rather essential that if programs are going to be available they should be accessible by everyone regardless of size.  Now, there are some extreme cases that have been publicized and, of course, you have to enforceable legislation, enforceable in the way that those dramatic types of events don't occur and also fair.  But the scale of farm is getting very large and we are actually developing programs around production, not around people.  And so when you tie programs to production, those that produce more, the most will actually receive the most benefits.

Henderson: Mr. Northey, one of the proposals on the table would limit payments to those who make an adjusted gross income of $750,000 a year.  How many Iowa farmers would fit in that category?

Northey: You know, probably not a lot.  As we looked at payment limits that are out there right now in tightening those we see not that many Iowans that are affected that way.  Now, everybody would be affected because they've got to provide the paperwork to prove that they're not one of those.  And every time you put another regulation into the farm bill trying to cut pieces off you end up causing groups of families, maybe a family of six or seven folks that together are part of a corporation that therefore hit it even though their individual portion are much lower than that.  So there's a lot of permutations in how these folks are structured out there.  Payment limits have been supported to put those into crop insurance and that is the new proposal, would be a completely different mechanism that causes a lot of concern by folks in agriculture.

Obradovich: And what about concerns related to conservation?  Especially as you talk about paying, direct payments being phased out, conservation has continued to be something where farmers can have income.  What do you think is the future, though, of paying farmers to conserve?  Is that something you see continuing to be part of the conversation?

Northey: Yeah, I think it's very -- the conservation programs that the federal government brings are very, very important.  Certainly we work with them at a state level as well.  So they are cut a little bit, again, in this program or in this farm bill versus previous farm bills.  There's certainly conversations too about compliance, about whether that would be tied to some sort of payments.  Historically they have been to direct payments.  And we see very few violations.  I think we'd see very few folks do something that would cause a violation whether they were tied to crop insurance or not.  I think the nervousness always is on those is do those requirements change over time?  We go from just conservation concerns around erosion to conservation concerns around nutrients or other kinds of creeping regulatory framework that is hung on the farm bill trying to get farmers to do other things.

Obradovich: You've said at a news conference at the Governor's Office this week that 90% of farmers are doing some sort of conservation.  If federal payments dwindled or stopped do you think -- what percentage of those would just stop conserving?  Or would most of them continue because they know it's good for the land?

Northey: I really believe most would continue.  And, in fact, an awful lot of those that are doing it are doing it well beyond anything that is required and often aren't even required.  In fact, the way the program works right now if you have highly erodible land you're required to have a farm plan and perform according to that.  We have a lot of land in Iowa that is not highly erodible, well beyond, way lower than 90% of the land is highly erodible.  So we have a lot of folks doing things voluntarily now that I think would continue to do the same things.  They want to keep that soil in place whether it is $3000 an acre land or $15,000 an acre land.

Pearson: Secretary Northey, a follow up.  You mentioned the Department of Agriculture in Iowa does partner with the federal government on some of these conservation measures.  Are there any programs that you're worried about should the farm bill not get passed?  Is there anything you're planning that is on hold until we get some sort of concrete action out of Washington?

Northey: Well, certainly some of those conservation programs are very important.  The Mississippi River Basin initiative is important.  Equip program helps cost share cover crops and do other kinds of practice work out there.  There are several of those conservation programs and what this bill actually does is takes about 20 different conservation programs, put it into two or three, it provides some more flexibility, a few less dollars but probably if the bill would go through as it is outlined, as there has been really basic agreement between the House and the Senate so far, I think we'd get most of what we needed.  Now, the lack of a bill means we don't have anything at all and so that would be a real problem.  Right in the midst of fall when we'd be doing some of that work we don't have a bill, that's a missed opportunity definitely.

Pearson: Creates some uncertainty.

Northey: It does, absolutely.

Pearson: And that’s something that I think this discussion has revolved around.  For the last two years we've been trying to write this farm bill and as we look at this industry, Craig you mentioned costs continue to rise, the dollar figures involved in farming are tremendous nowadays.  For somebody looking to either get into this industry, whether it be a beginning farmer or somebody returning to a farm or an older farmer looking to retire or transition, what is your advice on dealing with these uncertainties?  How do you handle high crop prices, high ground prices and this changing environmental structure?  Craig, I'd like to start with you.

Hill: It comes down to volatility. Volatility in the marketplace, volatility with weather.  So risk management is essential.  So farmers always look to crop insurance to provide that safety net so their banker has a level of comfort and lends money appropriately to their operation.  They have the security of knowing their entire living is on an annual basis, of course, with a crop.  And so you're betting not only the hundreds of thousand dollars of inputs you put in, the loan repayment on your machinery and your land, but your family's living.  And so the crop insurance program is absolutely important. Beginning farmers, I think we have some beginning farmer loan programs and some very innovative ideas that will be in this farm bill that will help improve the opportunities for beginning farmers.  So another reason it is needed.

Pearson: And anything in particular with the Iowa Department of Ag to assist folks in making these transitions?

Northey: You know, certainly we have beginning farmer loan programs. FSA, part of USDA, has some beginning farmer loan programs as well.  In Iowa we have the tax credit for new and beginning farmers, those that rent farmland to new and beginning farmers get a tax credit as well.  So there's several different options there.  It's important to manage that operation and there's a lot of risk.  You have a 1,000 acre farm and you have $700 in inputs, you've got three-quarters of a million dollars you're putting out there every year besides the machinery and everything else that went together to put that in the ground.  So there's a lot of risk to managing that.  Most of our young farmers are growing into an existing operation.  They're sometimes working off the farm and farming a little.  It's going to take them, often, several decades to build to the kind of commercial size operation they look across the fence and see somebody in their 50s running.

Pearson: That's right.  And Chad, now your specialty is in risk management and helping make these adjustments.  How widespread is the use of crop insurance in Iowa?  Are we looking at 100%?

Hart: No, we're not looking at 100% but 92%, 93% of all corn and soybeans produced in this state are covered by crop insurance.  And one of the key features about crop insurance is it's not actually part of the farm bill.  There are provisions about crop insurance in the farm bill but crop insurance itself is its own separate legislation and it was permanent legislation.  So it never expires.  And so as far as that piece of the risk management portfolio, that we know we always have.  Farm bill or no, crop insurance is there.  Now, some things may change about it but it's always there.  And as you look at it, crop insurance has been the way a lot of farmers, whether you're beginning or established, that is the first line of defense in risk management.

Henderson: Gentlemen, let us shift gears and talk about the state gas tax.  Mr. Northey, it appears that the Iowa DOT has drawn up a list of recommendations, one of which would be to do away with the tax break farmers get on their diesel fuel.  It's called red dye fuel and if they did away with that the state would reap $38 million according to the estimate.  Is that something the farm community supports?

Northey: Well, I think the Governor and certainly the DOT director is out asking folks about that in lots of other proposals.  I haven't seen that list and haven't seen how it is outlined and certainly the Governor has reiterated that these are potential proposals that would come.  The reason those are not taxed is the vast bulk of that fuel is used in a farm off a road and so therefore that equipment doesn't spend time on the road like the other gas taxpayers do.  There is a great desire in agriculture to make sure that we rebuild some of that infrastructure that has fallen down out there.  And agriculture is impacted by that.  They do think it should be user fee so it should be paid for by those that are using the roads, not those that are operating in the fields.  But we'll see what kinds of other options are out there.

Henderson: Mr. Hill, the Farm Bureau has been pushing legislators to pass the gas tax because of the state of the roads in rural Iowa.  Will you ask legislators to relook at raising it by a dime?

Hill: Well, certainly the need is there and we have described the need for several years.  A deterioration of our roads and our infrastructure is going to have an economic impact on the state of Iowa.  So, you know, we look for appropriate taxation, what has a correlation to usage and the fuel tax, of course, has that highest correlation.  Out-of-state users will pay about 15% of the bill.  When I take my semi-load of grain to town I'm going to pay at the rate of 4 miles per gallon rather than a Prius that is at 40 miles per gallon.  It is correlated perfectly to usage.  To deny the exemption for off road use for a farmer to think that when they're tilling or working the fields or harvesting their crops they're paying a road tax is quite unfair.  There will be a percentage, maybe it's a very small percentage of two or three percent that we consume going down the roads.  But not a fair way of assessing a tax.

Obradovich: What, Mr. Hart, is the cost do you think to farmers and rural residents of having deteriorating roads?  Shouldn't that cost be subtracted from what we consider the cost is for taxes or other things to maintain these roads?

Hart: Well, that's the -- I think you're seeing agriculture looking at the roads and saying, we recognize that our revenues are made by being able to move our product to the markets on those roads and that's why you're seeing this discussion today where agriculture is sort of lining up behind a gas tax, behind road initiatives.  Where I've heard most of it is they would say, we would support the tax as long as we know it is specifically going into transportation infrastructure.

Obradovich: I just kind of wonder though, when we talk about off road use, they may not be putting the wear and tear on the roads but we may not need as many roads in rural Iowa as we do now if it weren't for farmers needing to have that farm to market.  So maybe there is a little bit more cost share there than you might suggest.

Hart: Well, I think that is sort of true but I think that's also why you're seeing groups that hadn't supported these taxes say 15, 20 years ago, now lining up going, we recognize that that's a big part of our revenue, that's a big part of state revenue and that we're willing to share in the cost to maintain that infrastructure.

Henderson: What did you want to add?

Hill: In addition, the road use tax fund is a very proper way of paying for these roads and so we support the road use tax fund.  But in addition to that, property taxes pay for roads and Iowa farmers are paying about $150 million a year toward roads through property taxes.  So the funding source is coming from a multitude of places.  We think appropriately it should go to the road use tax fund.

Henderson: Mr. Northey, about ten seconds for you to answer this.  But you earlier this year decided not to run for the United States Senate and instead seek re-election as State Ag Secretary.  Is your future in state politics rather than federal politics?

Northey: Well, for now it is, absolutely.  I'm running again for Secretary of Ag.  I hope my future is in state politics.  We'll let the voters decide next year.

Henderson: Would you ever consider running for the Senate?

Northey: I don't know.  I don't know.  The future will take care of itself.  We'll see.  Right now I need to do the job that the folks have hired me to do and I look forward to running again for Secretary of Ag.

Pearson: Thank you gentlemen.  Dean Borg will be back in this chair next week with another edition of Iowa Press and he will welcome USDA Secretary Tom Vilsack for an update on these and other issues.  Agriculture Secretary Vilsack next weekend, same times, 7:30 Friday night and noon on Sunday.  I'm Mike Pearson.  Thanks for joining us today.

Tags: agriculture Bill Northey Chad Hart Craig Hill Farm Bill government Iowa Iowa Farm Bureau Iowa State University Extension news politics Secretary of Agriculture Washington D.C.