Ag economists told the House Agriculture Subcommittee on General Farm Commodities and Risk Management Thursday that high input costs will likely persist even after commodity prices decline, adding that current farm bill commodity programs are not well equipped to deal with any such situation.
Ag commodity prices “are going to decline, but input prices are going to stay up for a while… they always do... and that’s going to a cost-price squeeze,” said Texas A&M Ag Economist and Co-director of the Agricultural and Food Policy Center (AFPC) Dr. Joe Outlaw. “At the end of the day, it’s not what you bring in, it’s the margin you’re left with, and I have tremendous concerns about where we’re headed right now,” said Glenn Thompson of Pennsylvania, the senior Republican on the House Agriculture Committee. “It will only take some softening of prices before producers may be underwater.”
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Economists suggested some moves they said could help make Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) better to deal with lower prices, including providing farmers with the higher payment from either program, rather than making them elect coverage from one. Updating PLC reference prices was also suggested so they can more adequately reflect the impact of higher input prices.
Another suggestion: margin coverage like what currently is in place for dairy via the Dairy Margin Coverage (DMC) program. This would account for changes in both commodity prices and input costs. The dairy margin program issues payments when feed costs are too close to milk prices. There is a $100-a-year fee for the base level of coverage. Farmers can buy higher levels of protection.
Thompson, in line to chair the committee if Republicans win a House majority in the Nov. 8 elections, asked how a margin protection plan for row crops would compare to the current crop subsidy programs, which are triggered by low market prices. “Well, clearly, the benefit is that it would take into consideration both the cost side and the revenue side,” said Outlaw. The dairy margin program needed repeated revisions, so it would be best to test the idea with a pilot project, he said. “On the cost side, fertilizer and clearly fuel and labor — and there’s a whole lot of things that would matter for a certain set of crops that might not matter for another set of crops, so we’d have to be really careful to make sure we did it balanced. But it would be worth looking at, for sure.”
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Rep. Al Lawson (D-Fla.) asked about suggestions to create a permanent disaster program. Outlaw and Joe Janzen of the University of Illinois said taxpayer-subsidized crop insurance generally was sufficient. “There’s going to be natural disasters,” said Outlaw, and it would be helpful for farmers to “understand what kind of help they might get.”
The rice grower situation was also addressed because those producers are already facing a cost squeeze because of relative flat prices as input costs surged. Outlaw urged lawmakers to consider targeted assistance to rice producers, noting that without some sort of aid soon, the U.S. could face the loss of producers and infrastructure across the rice sector.
“Most of my suggestions require additional resources that may be difficult to secure but are necessary,” said Outlaw in written testimony.
