Will politics derail Farm Bill?

Chad Hart

Federal farm policy has a massive impact on the agricultural industry, including its financial mechanisms, and there are good odds on a comprehensive 2018 farm bill being passed and signed. The last bill was enacted in 2014, and as a new one takes shape, many players are lobbying to influence its policies, including community banks.

The Independent Community Bankers of America released a white paper in March spelling out its wish list for a new farm bill. Commodity programs and crop insurance, enhancement of the USDA loan programs, sustainment of the rural development programs, reform of the farm credit system, regulatory relief and incentives for young farmers top the list.

Mark Scanlan, senior vice president of agriculture and rural policy at ICBA, said leadership in the House and Senate ag committees is ready to mark up a bill and get it to the floor for a vote before summer.

“You could say the odds right now are 50-50,” Scanlan predicted. “The closer we get to an election those odds might change.”

Chad Hart, agriculture economist and assistant professor at Iowa State University, said community bankers focused on agriculture have a lot riding on the new bill.

“When you look at the farm bill it is arguably the one major piece of legislation that is targeted at rural communities and agriculture specifically,” Hart said.

But the big bill’s long reach extends across a number of political minefields that might make passage a challenge. The bill influences other domestic policies beyond farming, and some of these could derail a bill. A large portion of the bill’s funding is tagged for food programs like SNAP, formerly known as food stamps. “The overarching goal of the bill is nutrition, while only a part of it is farm payments,” Hart said.

There are also elements of rural infrastructure, things like broadband internet support. Ag research and trade are also part of the bill. Hart said key policies that concern community banks tend not to become the politically charged elements of the bill.

The ag industry would like to see enhanced crop insurance protection within the farm bill, but with politics at a fever pitch and budget pressures, costly add-ons jeopardize a bill. “It’s likely we’ll see a farm bill that is probably a little smaller than the current one, in terms of funding,” Hart said. “This will limit its scope. And since it’s even more difficult to get something new through, I think we’ll mostly see a continuation of the 2014 bill. Hopefully some tweaks will improve the efficiency of current programs, but I doubt there will be broad changes.”

President Trump has made international trade policy a hot issue. Agriculture has not specifically been on the President’s radar, but the ag industry was put on alert when steel and aluminum import tariffs were announced. Hart said disruption in trade extended to agricultural commodities could stress the system that keeps money flowing through rural areas.

“In the agricultural press there is a lot of concern that trade policy changes are going to lead to less agricultural trade throughout the world at a time when agricultural trade is looking to continue unabated,” Hart said. “If things tighten up, that only makes financial support at the community level more critical.
“What we’ve found is, as trade barriers are lowered, it tends to mean better markets and incomes for farming communities,” Hart said. “Trade tends to support the countries that are high-volume and low-cost producers. The U.S. is definitely a high-volume, low-cost producer. So lower trade barriers means better markets. Agriculture is one industry that has been in favor of more open trade deals.”

But in April, China imposed tariffs on 128 U.S. products, including a 15 percent tax on fruits, nuts and wine, and a 25 percent tax on pork. Iowa is the largest pork producing state in the country. Hart said pork futures immediately hit bottom after China’s announcement, which doesn’t bode well for pork producers. “China is a big market for U.S. pork,” Hart said. “In any given year it’s somewhere between the second and sixth biggest market. These tariffs retard that trade. You could argue international trade had been the big driver in growth for U.S. pork and now that’s in jeopardy.”

The challenge in finding a trade balance that works got significantly harder this spring. Since the United States tends to import more than it exports, the Trump administration wants to achieve more balance. But other countries are now doing the same.