PCCA - Plains Cotton Cooperative Association Logo PCCA Commentator Magazine Masthead. Vol. 32, No. 1 | Spring 1999

House Ag Committee Set to Address Critical Issues

Editor’s Note: U.S. agriculture is facing some of the most severe economic conditions in many years, and all eyes are focused on Washington, D.C., to see what, if anything, can or will be done. Congressman Larry Combest of Lubbock, chairman of the House Agriculture Committee, recently answered several questions posed by Commentator.

Mr. Chairman, you have stated you will not re-open the 1996 farm bill. However, can the legislation be modified to better protect producers from economic conditions beyond their control and unfair competition abroad, and what modifications can Congress accept?

From the outset, I have stated the current farm bill lacks an adequate safety net. That’s exactly what I want to change. Farming is risky business and producers need progressive tools that will empower them to better manage both production and price volatility. I do not believe putting the government right back in the middle of a farmer’s business is the best way to achieve this. Instead, I will work to develop a comprehensive risk management program that will allow farmers to protect themselves in case of loss or low market prices and allow them to continue making their own business decisions. To be clear, I would call this a radical change. It will take lots of time, careful thought and hard work, but I am committed to harvesting this one. Beyond this, I want to emphasize that the House Agriculture Committee will doggedly pursue USDA to use all authority possible to aid producers. Also, when so much of our producers’ incomes rely on exports, we must insist the Clinton administration commit to strictly enforcing our current trade agreements and make fast-track trade negotiating authority a priority again.

Facilitating exports would seem to be a less costly option than some proposed solutions, but the Step 2 program expired prematurely. Do you anticipate additional funding for Step 2, and if not, what do you propose to help revive U.S. cotton exports?

Producers with whom I have spoken believe the exhaustion of Step 2 funds has affected the market price of cotton. Prior to the depletion of funds, some individuals questioned whether Step 2 was actually benefiting producers financially. Most producers, however, have concluded that additional Step 2 funding enhances merchants’ ability to offer cotton at a competitive price in the world market. For the program to benefit agriculture, both Step 2 and Step 3 must be perceived to be fair and equitable. I intend to work closely with my colleagues on the Agriculture and Appropriation Committees to ensure adequate funding is available to support this program for an additional period of time.

As of January 1, 1999, approximately 50 percent of the 1998 West Texas cotton crop remained in producers’ hands with no export market available to them, and much of this cotton seemed destined for the CCC loan program. Is there any possibility these loans could be extended beyond the 10-month period to avoid a “fire sale” and plunge in prices when the loans expire?

Any perception that the government is tampering with provisions that allow the orderly marketing of agricultural commodities will be met with resistance. Loan deficiency payments appear to have been made on more bales of cotton than those utilizing the marketing loan. Producers previously utilizing the loan deficiency mechanism could have utilized a different marketing strategy if loan extension provisions had been applicable. Changing the rules in the middle of a marketing year is always difficult, with consequences.

There has been talk among some producers of the need to raise government loan rates for cotton. Is similar talk being heard in Congress, and what good will raising loan rates do if payment limitations remain in place?

There are producers who may believe raising loan rates is the solution to the current price situation. From time to time, legislation has been offered that would raise these rates. This debate has surfaced many times in the past decade, but most groups do not believe it provides a long-term solution with respect to higher prices derived from domestic and foreign markets. Those who would argue for raising loan rates would also have to tackle the current payment limitations provisions.

You have been quoted as saying many farmers face a credit crisis. What can you and the committee do to intervene in time for producers to obtain financing for the 1999 crop?

The recent debate with respect to a disaster aid package added a heightened awareness to rural ag credit. Congress passed legislation to make 100 percent of Agricultural Market Transition payments immediately available, offer disaster aid to producers who suffered either price or production losses and restored eligibility for guaranteed and emergency loans for borrowers with past debt relief. FSA currently is implementing the Preferred Guaranteed Lender program which results from legislation I previously sponsored. To meet these challenges, the Agriculture Committee will continue to find solutions and assist in attainment of credit for farmers and ranchers.

Mexico has become a very important market for U.S. cotton. What can you and the committee do to ensure this relationship continues, and can you address issues such as banking to help our Mexican customers more easily obtain letters of credit to purchase U.S. cotton?

For fiscal year 1999, USDA has authorized $1.25 billion in credit guarantees for sales of U.S. ag commodities to Mexico. Of that, almost $100 million in applications for sales of U.S. cotton to Mexico have been processed. The credit guarantee in Mexico is operated through the private sector, and USDA has approved 20 foreign banks for this program. Other banks that meet USDA criteria can be added. The committee will pay close attention to the operation of all USDA export programs including the credit guarantee programs that help U.S. exporters sell ag products around the world.

If the ultimate solution to the current crisis is increased federal spending, will we be forced to return to acreage reduction programs?

Judging from the general comments made to me by ag groups around the country, there currently is little consensus that producers would be economically protected from a forced return to policies contained in prior farm legislation. Planting flexibility has afforded producers the option of reacting to market conditions, technological innovations and conditions affecting an individual operation. FY99 expenditures were substantial compared to the previous years covered under the current farm bill. Most of that cost came from the disaster relief package passed by Congress and activity related to marketing gains and loan deficiency payments. While I am pleased the additional infusion of farm income temporarily assisted cash flow delinquencies and afforded producers the opportunity to continue their operations, I recognize that future income infusions should be directed toward the long term health of agriculture. Certainly, I find no benefit to changes in farm programs that bring back acreage reduction schemes.

Can producers count on continued federal assistance with boll weevil eradication efforts?

The alliance formed between producers, state government and federal entities is the most efficient mechanism to deal with local concerns. Each eradication zone has unique needs that are best addressed by local involvement and control. The magnitude of the eradication effort and the economic consequences to rural America for failing to successfully control this pest requires federal participation. While the increase in funds available for emergency boll weevil eradication loans passed by Congress last year are assumed in the President’s budget, I was disappointed to see that the administration has recommended an 81 percent decrease in funds available for the Animal and Plant Health Inspection Service’s boll weevil eradication program. I fully understand the value of these programs and will work to ensure adequate funding is available and that programs are administered in the most effective manner possible. Working together with eradication efforts through federal guaranteed loans, state incentives and producer assessments ensures a local say in finding a successful remedy. I have been assured that the economic resources jointly provided by all participants will be sufficient to support a coordinated eradication effort.

Many new and exciting products are cost prohibitive for many farmers who are asking if Congress can take some action to assist the suppliers so they do not have to recoup their research and development costs so quickly through high technology fees. What, if anything, can Congress do in this regard?

Under current law, biotechnology companies receive a research and experimentation tax credit for the amount invested over and above a baseline, which is their individual average investment in research and development (R&D) between 1984 and 1988. While expansion of the R&D tax credit is certainly a policy worth considering, the more fundamental issue is how our international trading partners and some of our domestic regulatory agencies limit access and use of biotech seed varieties. The arbitrary limits on the number of producers using biotech varieties contributes to the high cost of this technology. We will maintain pressure on our trading partners to adhere to our agreements. Also, the House Agriculture Committee will continue to insist the Clinton administration base domestic policy on good science, not on uninformed demagoguery.

You have said Freedom to Farm has cost almost twice as much in the first three years as if we had kept our old farm policy in place. How much of this is due to Federal Crop Insurance, and has Federal Crop Insurance proven to be far more costly than most members of Congress envisioned?

Crop insurance has not contributed to any excessive agricultural expenditure over the past two years. In fact, the loss ratio for crop insurance has been less than the statutory requirement. I am at the forefront as a tremendous momentum builds to address the safety net deficiencies of current programs. I believe that together we can develop a program that meets the safety net needs of production agriculture and livestock producers while containing the costs.