Statement of The Honorable Dan Glickman, Secretary United States Department of Agriculture Before the Committee on Agriculture United States House of Representatives September 15, 1999 Introduction Mr. Chairman and Members of the Committee, thank you for allowing me to appear before you today to discuss the Administration s views on the state of the farm economy and President Clinton s call for emergency assistance for farmers. Agriculture is not sharing in the current prosperity enjoyed by most other sectors of our economy. Prices are down for nearly all major crops. Prices for some commodities have hit their lowest levels in more than two decades and stock levels are building. The Department of Agriculture (USDA) projects that the average 1999 crop corn price will be the lowest since 1987, 26% under the average of 1993-1997. USDA expects soybean prices to be the lowest since 1986, 26% under the 5 year average. Wheat, and rice prices will be 31% under their 5 year averages, according to USDA s latest estimates. USDA is prohibited from publishing projections of cotton prices but cotton prices have fallen sharply as well. In addition, USDA believes hog prices will be their lowest since 1972, 34% below the 5 year average. Cattle prices have recovered somewhat but USDA still expects that for this year they will be 6% below the 5 year average. Farmers and ranchers in some regions of the country are faced with the seemingly improbable combination of low crop yields and low prices. In Pennsylvania, for instance, corn yields are only 65% of normal due to the worst drought on record in the Mid-Atlantic region. Many livestock producers in the region were forced to reduce their herds due to a lack of adequate water or feed. Farmers in other regions were affected by natural disasters as well. As we sit here today, the Southeast coast is being threatened by what forecasters are calling one of the worst hurricanes of this century. Our hopes and thoughts are for the safety of the people in those regions, and we are following events carefully. Obviously, the effect of Hurricane Floyd could well expand the need for emergency assistance for farmers and ranchers. As difficult as conditions are, the situation today would have been worse if not for the work the Administration did last year with Congress to enact nearly $6 billion in supplemental economic and disaster payments. Government payments have been a crucial counterbalancing force to low prices, increasing from $7.5 billion in 1997, to over $12 billion last year, to a projected $16.6 billion this year. Our actions to date have only helped farmers adapt to a terrible situation, they have not changed the underlying causes of today s farm misery another year of large global production, weak foreign economic growth and regional weather disasters. Why is the Farm Economy in Crisis? Why is the farm economy in crisis? Can you lay all the blame on the 1996 farm bill? Not all of it. In large part, the crisis is being fueled by four consecutive years of record global grain production and weak export demand both of which are beyond the scope of the farm bill. USDA projects that agricultural will be only $49 billion this fiscal year after reaching a record high of nearly $60 billion in fiscal year 1996. Large global production, the Asian and Russian economic crises, and the relative strength of the dollar compared to the currencies of our competitors and customers, have all weakened US exports. The more appropriate question is: Is the farm bill doing what farm policy should to help deal with the problem and help with the recovery? Clearly the answer to that question is no. The income support payments the farm bill provides -- the so-called AMTA, for Agricultural Marketing Transition Action, payments -- are declining just at the time when farmers need the help the most. These payments are fixed; they cannot and do not respond to low prices the way counter-cyclical payments did prior to 1996. In addition, the farm bill capped the price support loan rates, so they could not respond to today slow market prices. The law also ended or suspended many of the authorities previous Secretaries of Agriculture had to manage just the kinds of problems the farm sector is now experiencing. For example, I no longer have the authority USDA had in the past to extend the term of commodity loans, meaning farmers have little choice but to dump their grain into an already dropping market. There are no programs to provide longer term storage, again, exacerbating the just-cited problem. It is time for a change. While certain provisions of the farm bill have worked and are working well, the safety net provisions are not adequate when prices are low or disasters hit. In previous years, farm bills were counter-cyclical; this farm bill is not. Congress has had to enact some form of ad hoc assistance--emergency loans, livestock assistance, income support, or disaster assistance--every year since the farm bill became law. Not only is ad hoc assistance a poor substitute for a farm policy, it is recognition that the underlying policy needs repair. We should not lurch from one emergency bill to the next. It is not good for the taxpayers and it is not good for agriculture. Short-term fixes turn out to be more expensive than carefully planned long-term programs. We need a farm policy that empowers farmers not only to survive, but to prosper. Frankly speaking, farm policy has not kept up with the times. We tend to give more support to larger producers and help producers of only a few crops. We should do a better job of monitoring and helping farmers deal with concentration and provide stronger enforcement of antitrust laws. But most importantly, we need to help farmers change the way they deal with today s market place; we should help farmers participate in direct marketing and processing and help them get more of the consumer food dollar. Congress should pass this year crop insurance reform to help farmers better-manage their risks. It is not too early for Congress to revisit the farm bill and enact broader changes. I am prepared to work with Congress to craft a farm policy that makes sense, provides the counter-cyclical income support missing from farm bill and allows farmers to prosper in today s changing market place. For this year, as Office of Management and Budget Director Lew stated in his letter today on the fiscal year 2000 agricultural appropriations bill, the Administration supports spending to address the current financial stress in agriculture. Not only should this year s bill provide additional income and disaster relief for farmers, and it should point the way to strengthen the safety net for the longer term. If it does not, chances are another emergency spending bill will be needed next year too. Let me repeat that: That we are sitting here for the second year in a row discussing major supplements to fix the inadequacies of the 1996 farm bill signals the imperative for fixes to that bill itself, not just another patch over its shortcomings. The conditions agriculture is working through right now will take time for the sector to adjust, and there are policy changes we can make to assist with that adjustment -- we can implement them now so they are in place and farmers and ranchers can plan accordingly, or we can come back and do another ad hoc bill next year. The Administration strongly believes the former course is the wise -- for agriculture as well as taxpayers. I will now summarize the Administration s proposals for emergency farm relief: Drought and Natural Disaster Relief The Administration believes Congress should enact a continuation of the single-year portion of last year s crop loss disaster assistance program, covering 1999 crop losses so farmers would be compensated if their 1999 crop losses exceed 35 % of historic yields. The payment formula should provide greater benefits to farmers who bought insurance on eligible crops; those required to purchase crop insurance as a condition of receiving crop loss disaster assistance last year should be ineligible to receive a payment this year if they failed to do so. Both to expedite delivery of the assistance and to ensure that farmers are in fact compensated at this level, the program should financed through the Commodity Credit Corporation (CCC) rather than from a fixed appropriation. We are still refining our estimates of the damages, but currently we put them in the range of $800 million to $1.2 billion. A substantial portion of the payments, but not a majority, would go to the drought-affected regions of the Mid-Atlantic and Northeast. In some States, this is the driest growing season in history--or at least since such records have been kept. The drought is severely diminishing yields or wiping out crops for many farmers. Farmers and ranchers in other regions are suffering weather-induced crop losses too: long-term drought continues to stress crops in the interior regions of the Pacific Northwest and from the easternmost Corn Belt into New England. The 1999 California citrus crop was affected earlier this year by a late freeze in December. There is also a significant area of northern North Dakota that was flooded this year preventing crops from being planted. Congress also should authorize emergency livestock assistance to help producers who experience higher feed costs, reduced livestock production, or livestock mortality losses in weather-related disasters. These are uninsurable risks which can place extreme burdens on livestock producers. After Congress suspended USDA s permanent authorities to provide emergency livestock assistance, the Administration funded programs for two years using the Disaster Reserve, which is now depleted. In 1998, Congress provided $270 million in ad hoc livestock assistance. Emergency Farm Income Support To be sure, there is an immediate need is to provide cash assistance to mitigate low prices, falling incomes, and, in some areas, falling land values. Congress should enact a new program to target assistance to farmers of 1999 crops suffering from low prices. The Administration believes the income assistance component must address the shortcomings of the farm bill by providing counter-cyclical assistance. The centerpiece of our proposal is an income assistance program directed at those with the greatest need -- farmers suffering from low prices on this year s crops. The payments, and payment mechanism, ought to be based on that fundamental, driving fact. The income assistance should compensate for this today s low prices therefore they should be paid according to this year s actual production of the major field crops, including oilseeds, not a formula based on an artificial calculation done a decade ago. Where national net farm income from a particular crop has fallen sharply below the 5 year average, the payment rate would be calculated to make up a percentage of the shortfall. We are prepared to work with the Congress to determine an appropriate percentage. The program would be commodity-specific in that it will pay producers based on falling prices and incomes from the crops they actually plant. Payments would be capped and large farmers should be excluded from receiving payments. Whereas our income assistance proposal is targeted to those with the greatest need the Senate plan, which doubles AMTA payments, makes no effort to target payments. Moreover, and this is a key distinction, that plan will make payments based on past production that may not have any bearing on actual production this year which is our purpose for providing assistance for low prices. Last year, Congress allowed producers to receive 100 percent of their AMTA payment at the beginning of the fiscal year. It is important that we continue to provide this flexibility to producers; Congress should make this a permanent change. The Administration also proposes to make payments to small- and medium-sized hog operations, similar to last year s SHOP I and II programs. Farm Loans The Administration also recommends funding for additional farm loans, including emergency loans. Demand for USDA loan assistance continues to increase. More and more farmers are becoming highly leveraged, with limited equity and low incomes due to the depressed economic conditions. They are turning to USDA for help. For these farmers, commercial credit sources are not available; some are unable to obtain credit elsewhere even with an USDA guarantee. Additionally, the recently increased loan limits for FSA guaranteed loan programs is increasing the demand for guaranteed loan funding. All of these factors will likely cause the demand for loan funds in FY00 to exceed what is currently requested in the President s budget and included in the House and Senate bills. To help farmers cope with crop storage problems and improve their marketing flexibility, funding should be reinstated for loans to finance construction of on-farm storage facilities. Commensurate with these projected increased loan levels, the Administration supports additional funding for USDA s State Mediation Program, above the $2 million now in the Senate bill. USDA s mediation program is a very successful and cost-effective alternative dispute resolution for farmers and their lenders. Demands on the mediation program are at their peak during times of economic crisis such as today. We should maximize use of this proven and cost-effective program to bring lenders, producers and others to the same table to discuss their problems. The Administration also urges Congress to fund fully its request for $10 million for the 2501 program. The 2501 program is designed to assist socially-disadvantaged farmers and ranchers to participate in USDA programs and be successful in their operations by providing outreach and technical assistance. Socially-disadvantaged farmers need special support and counseling during bad economic times. Crop Insurance and NAP Reform Reform of the Federal crop insurance program has been a top priority of this Administration and Congressional agricultural leaders throughout this year s legislative session. The Administration has proposed a number of measures to improve crop insurance. The major changes supported by the Administration include: raising the coverage floor for catastrophic risk protection (CAT) coverage; making higher-level coverage more affordable by increasing premium subsidies; covering multi-year disasters; speeding up the development of new policies; insuring certain livestock losses; improving the Noninsured Disaster Assistance Program (NAP) by increasing coverage and replacing the area trigger with a Secretarial or Presidential disaster designation; and providing better information and service to producers. I applaud your efforts, Mr. Chairman for sponsoring a bill that includes many of the proposals put forward by the Administration. However, the Administration disagrees with some of the provisions in your bill, including provisions changing the Federal Crop Insurance Corporation s Board of Directors structure and the lack of flexibility in the new product development and research. Your bill also fails to reform NAP as proposed by the Administration by replacing the current area trigger so that NAP would become available in counties declared eligible for emergency loans. Also, the NAP and CAT payment levels should be raised from 50/55 yield/price coverage to 60/70 coverage. We believe these differences can and should be worked out to ensure that this critical piece of legislation is signed into law this year. Last year, USDA set-aside a portion of the emergency assistance funds to buy down the crop insurance premiums for farmers who purchased higher levels of coverage and that initiative was very successful -- more than 400,000 farmers purchased new or upgraded policies. Conservation When farmers suffer, their land can too, because distress in the farm economy presents new pressure to abandon good stewardship practices. To relieve these pressures, the Administration supports eliminating the acreage enrollment cap for the Wetlands Reserve Program (WRP), increasing the annual enrollment cap to 250,000 acres, expanding the acreage enrollment cap for the Conservation Reserve Program (CRP) to 40 million acres, increasing funds for the Environmental Quality Incentives Program (EQIP), and providing the additional conservation technical assistance funds necessary to implement the increases. The WRP provides direct payments to farmers while advancing wetland protection goals. Farmers often can realize both 100% of the agricultural value of the land and generate further income by leasing wetland acreage to sporting groups. Unfortunately, demand for WRP participation far exceeds funding levels, and the program will likely soon hit a congressionally imposed acreage cap soon if no action is taken The Administration also supports an increase in the acreage enrollment limit for the CRP program from 36.4 million to 40 million acres. The increase would also re-establish the original 1985 enrollment goal of 40 million acres providing additional enrollment opportunities for many land owners and operators with environmentally sensitive lands to participate in the program who would otherwise be excluded. If the cap is not increased, we will have to accept far fewer acres next year, even though a large amount of acreage may be offered given current commodity prices. USDA could end up rejecting up to 70 percent of all offers next year. The EQIP was created in the 1996 farm bill with an annual mandatory spending level of $200 million. EQIP is essential to ensuring that small producers get the support they need to prevent agricultural runoff from polluting our nation s water resources. Livestock producers, in particular, are being asked to assume the increased costs and management at the very time that prices have plummeted. EQIP can not only ease the burden, but was established in part for the express purpose of helping producers comply with environmental regulations. The Administration s FY00 budget proposed to increase EQIP by $100 to $300 million over the current authorization of $200 million annually. The current appropriations bill would cut this to $174 million and we believe additional amounts are vitally important. Trade In addition to the other steps we are advocating, the Administration believes expanding exports should be a critical element of the Federal government s response to the farm crisis. Increasing our export expansion activities will help bring markets into balance sooner, thus hastening the recovery of the farm economy, therefore the Administration is renewing its request for authority to roll forward unused EEP balances to future years or use some of those funds for food aid or other export assistance activities. In addition, the Administration supports restoring funding for the cotton "Step 2" program. This program increases US cotton sales and keeps US textile mills competitive with foreign mills. Funding for Step 2 was exhausted in December 1998 far sooner than anticipated. Additional funding for Step 2 will help revitalize the U.S. cotton industry which is facing the second lowest export sales in two decades. Funding Step 2 would have the added effect of reducing the likelihood of triggering additional cotton imports. Dairy The 1996 farm bill terminates the dairy price support program at the end of this calendar year, even though all of the remaining commodity programs authorized under the 1996 farm bill. The Administration supports extending the dairy price support program. Terminating the dairy price support program at end of this year likely would be disruptive to the industry. The support program has been in existence for half a century and is particularly important in balancing the market and supporting the price of nonfat dry milk. CCC Borrowing Authority and Program Delivery Issues Delivery of an emergency program is dependent upon the availability of staff resources to conduct signups, issue checks, provide technical assistance, and enforce program rules and regulations. This requires that the Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS) be funded at a level commensurate with these responsibilities. The FSA needs additional funds beyond those included in the current appropriations bill to implement this year s emergency aid. In addition, funding is required to assure that the FSA s computer systems continue to function. Historically, funds for FSA computer support have been provided through the CCC, but in the 1996 farm bill, Congress capped the use of CCC funds for this purpose and funds within the cap have now been exhausted. This means that there are no funds to develop software, repair broken equipment, or take other actions necessary to assure that these systems continue to run. Additional funds are is required in FY 2000 for this purpose. This could be achieved either by returning the cap on CCC expenditures for computer support to its original level or appropriating additional funds through FSA. For NRCS, basic levels of technical assistance to farmers have historically been provided through appropriations, while the 1996 farm bill provides that additional technical assistance required to support CRP and the WRP is provided by CCC. To respond to the current emergency situation, the NRCS requires additional funding to deliver the additional acres we propose be authorized for the CRP and WRP. Finally, additional CCC borrowing authority will be needed. We are dangerously close to using up all current authority. Current projections are that CCC will exhaust its borrowing authority early in the next fiscal year. It is especially crucial that the final agricultural appropriations bill include the Senate language providing an indefinite appropriation to reimburse CCC for its net realized losses. This is consistent with the President s budget request. The House language would provide only $14.65 billion for CCC and it is now evident that the House estimate of net realized losses is insufficient, providing only enough funding for about 2 '/2 months in the new fiscal year. Conclusion Mr. Chairman, I believe the steps I have outlined today offer a credible, appropriate response to the farm crisis. That concludes my statement. I look forward to answering your questions. Thank you.