HOUSE AG COMMITTEE HEARING
OVERVIEW
For questions on the note below, please contact Scott Parsons or Edmund Perry at (202) 547-3035.
Today, the House Agriculture Committee Subcommittee on Commodity Exchanges, Energy, and Credit held a hearing entitled “A 2022 Review of the Farm Bill: Economic Perspectives on Title I Commodities and Title XI Crop Insurances.” The witnesses in the hearing were:
- Joseph Janzen, Professor, University of Illinois Urbans-Champaign
- Robert Craven, Associate Director, Center for Farm Financial Management
- Ronald Rainey, Assistant Vice President, University of Arkansas Division of Agriculture
- Joe Outlaw, Professor, Texas A&M University
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways from both panels, followed by summaries of opening statements and witness testimonies and a summary of the Q&A portion of the hearing.
Key Takeaways
The following is a summary of some of the topics explored in today’s hearing. Each is discussed in further detail in the Discussion section below.
- Subcommittee Chairman Cheri Bustos (D-IL) and Ranking Member Austin Scott (R-GA) both expressed concerns over the rising input prices, namely fertilizer, and the impact these are having on agriculture producers. They noted that, despite high commodity prices, producers are struggling to make profits due to these costs.
- Committee Ranking Member GT Thompson (R-PA) said that the USDA should consider using margin-based metrics instead of price-based markets for the USDA’s assistance programs so that they can help producers in times when prices are high but profits are limited.
- Thompson said that he is concerned that production costs and input prices will remain high even as commodity supplies rise to meet demand and commodity prices begin to fall.
SUMMARY
Opening Statements and Testimony
Chairman Cheri Bustos (D-IL)
Farmers around the country are currently faced with tough climate conditions. Since 2018, farmers have faced economic hardships due to a trade war with China, marketing and supply change disruptions due to COVID, and extreme volatility in the commodity and input markets cause by Putin’s invasion of Ukraine. Many farmers are struggling with the price and production of fertilizer.
Ranking Member Austin Scott (R-GA)
All Americans are feeling the impact of inflation, but the farming economy is the most vulnerable to these impacts. Ag commodities are fetching high prices, but input costs are skyrocketing, negating any potential profits. I am frustrated with this administrations tone deafness on these issues, as they push electric vehicles and urban farming and ignore real farmers. Fuel prices are out of control, and farmers cannot keep up. The EPA’s crop protection tools are being eroded by this administration.
Committee Ranking Member GT Thompson (R-PA)
Title I support programs have spent far less than expected since the passage of the 2018 Farm Bill. These programs spending less may seem like a good sign as it means commodity prices are high, but it does not represent profitability due to rising production costs. We must consider necessary reforms to Farm Bill programs.
Joseph Janzen, Professor, University of Illinois Urbans-Champaign
Our expectations for commodity prices are integral to making sound recommendations for farm policy. Supply chain issues due to the war in Ukraine combined with inventory reduction over the past four years, weather challenges globally, and strong demand from importers around the world are all serious factors for commodity prices. Farmers face challenges with weather and high input prices; however, higher prices for corn, soybean, and wheat will improve revenue in 2022
Since 2018, Title I programs have become less necessary as ad hoc assistance programs have helped farmers through crises. Targeting programs to encourage U.S. production when prices are high runs counter to the purpose of Title I programs. In many ways, there is a limited role for farm policy, especially Title I programs to address issues relating to the war in Ukraine.
Robert Craven, Associate Director, Center for Farm Financial Management
We are seeing farmers begin to realize an increase in farm income and net profits over the last two years. Due to the pandemic, there has been a large increase in ad hoc payments for farmers which have filled in the gaps from ongoing programs inability to meet unprecedented market events.
Crop farms have improved their liquidity over the past three years, which helps them better respond to immediate financial challenges. Our data shows that traditional commodity programs have not provided major support to help farmers react to challenges. Instead, ad hoc government payments have been critical in 2020 and 2021.
Ronald Rainey, Assistant Vice President, University of Arkansas Division of Agriculture
Growing challenges with inflation and supply chain issues will reduce 2022 net farm income, especially as input costs for fertilizer and fuel go up. The number of insurance programs have increased over the past years, but there are still large gaps in coverage. Even where new programs are available, but farmers still lack an understanding of how these programs can aid them. There has been a large increase in ad hoc payments for farmers which have filled in the gaps from ongoing programs inability to meet unprecedented market events.
Joe Outlaw, Professor, Texas A&M University, Agriculture Food Policy Center Director
Most producers are struggling with high input prices due to inflation. Net cash farming saw significant ad hoc program support. Title 1 and Title 11 programs have provided necessary support over my career. Farmers should be able to receive the benefits of Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) and choose with program works best for them. Federal crop insurance is the primary safety net tool for U.S. producers. The upcoming Farm Bill should address the shortcomings that ad hoc assistance was designed to address.
Discussion
Bustos (D-IL): What is an appropriate metric to evaluate how the safety net should be structured? Janzen: This should be based on commodity prices. We need to decide what the season average price should be, and then decide whether to use PLC or ARC; Outlaw: We should focus on prices and input costs and tailor programs to margin. the current cost of production demonstrates that we need to cover a good portion of cost for farmers through Farm Bill programs. We know prices will decline, but input prices will remain high; Rainey: We need to focus on margins, not just price.
Bustos (D-IL): What sort of considerations are farmers making to accommodate high input prices? Janzen: There is tremendous uncertainty, and the capital required for farmers to meet rising production costs is massive. The key consideration should be what losses have occurred that have not yet been realized.
Scott (R-GA): If farmers cannot afford the inputs that provide necessary nutrients, are you concerned actual production will be less than currently anticipated? Outlaw: That is very concerning. Farmers are struggling to get the inputs they need, such as fertilizer.
O’Halleran (D-AZ): How are producers in drought-stricken areas doing? Are crop insurance programs helping farmers experiencing drought? Outlaw: Ad hoc assistance programs have been important for farmers dealing with weather issues, but there will continue to be challenges.
Thompson (R-PA): How could margin-based program support farms as opposed to a price-based program alone? Commodity prices can drop overnight but it is difficult to see input prices falling enough to meet these prices. How long can we expect bullish commodity markets, or is this the new normal? Outlaw: Margin-based programs take into consideration both the cost and revenue side. I would recommend a pilot margin-based program for certain commodities; Janzen: Prices will remain elevated for the 2023 crop. The biggest factor in lowering input prices is resolving the war in Ukraine; Craven: We have seen in previous years that it can take several years for input prices to fall back down to palatable levels.
Lawson (D-FL): What can Congress do to fill in gaps in crop insurance and encourage insurance companies to diversify their portfolio? Should Congress consider a permanent disaster assistance program? Will it help current Title 1 and Title 11 programs? Rainey: Insurance companies catering to large-scale producers will not take the time to learn about specialty crop issues; Lawson (D-FL): Outlaw: If we are finding it necessary to offer large amounts of ad hoc payments every year, it would be helpful to have a plan in place so producers know what will happen if there are disasters; Janzen: The issue with a standing disaster assistance program is that it is challenging to foresee what will be defined as a disaster.
Crawford (R-GA): How are the rice farms doing right now? What should Congress do to help the rice industry? Outlaw: The only farms that will not see profits this year are rice farms. There are trade distortions from other countries, as well as other issues that impact the rice industry that don’t affect others. We need to hold other countries accountable to our trade negotiations, and hopefully there will be a bill that adds assistance specifically for rice producers. We could use the formulas for the Coronavirus Food Assistance Program CFAP to get money to rice producers.
Allen (R-GA): How can we better protect farmers dealing with all the unprecedented market events? Are there any projections for what supply and demand could look like moving forward? Outlaw: Margin protection for crop producers are complicated but are vital to maintain the viability of American ag producers. Input prices will eventually go down even if the war in Ukraine is not resolved. There were other issues that were driving up prices even before the war, and those will get satisfied.
Mann (R-KS): What changes should we make to crop assistance programs in this next farm bill? What is the value of risk management products available to livestock producers? Outlaw: Crop insurance for specialty crops needs to be looked into and adjusted.
Mann (R-KS): What would be the impact of eliminating stepped-up basis? Outlaw: Elimination of stepped-up basis would drastically harm large scale ag producers. This would have an impact on the vast majority of all farmers.
Rouzer (R-NC): What are the pros and cons to reinstituting the direct payment program from the 2002 farm bill? Outlaw: Farmers benefited from these direct payments. The public opinion of giving farmers money when the economy was going well stopped those payments, so it would need to be tailored to only be used when farmers need it most; Janzen: Demand for assistance is different at different times. We should not provide assistance when demand for assistance is low; Craven: Direct payments would not have responded well to the issues we have seen in the past few years.