NGFA Objects to Parts of Harkin Farm Bill

November 12, 2001

The National Grain and Feed Association (NGFA) has raised strong objections to several major sections of legislation (S. 1628) introduced by Senate Agriculture Committee Chairman Tom Harkin (D-IA) that is being used by the committee as the basis for developing the Senate's version of a new farm bill. The NGFA voiced particular concerns over the bill's provisions that would raise loan rates, increase the size of the Conservation Reserve Program and impose major restrictions on agricultural contracting under the guise of enhancing competition.

Six sections of the farm bill have been completed by the Senate Agriculture Committee: credit, energy, trade, research, forestry and rural development. The committee is to resume its consideration of other sections of the measure on Tuesday.

In a letter to all senators, the NGFA urged the Senate Agriculture Committee to reject Harkin's proposal to dramatically increase loan rates as a way to support farm income. The NGFA argued that increasing loan rates would distort plantings, tend to encourage overproduction and longer periods of low prices, and generally keep farmers dependent upon government, rather than markets, for farm income. Harkin's bill would increase loan rates significantly for all commodities except soybeans, and slash the per-bushel direct (AMTA) payments currently provided under the 1996 farm law, as well as the levels called for in the new farm bill approved in October by the House.

The NGFA said a better, more efficient way to support net farm income is to provide direct, fixed payments not tied to production or price, because they are less market distorting and contribute most directly to real net farm income. NGFA also urged the Senate Agriculture Committee to carefully evaluate the trade and asset-value-inflation impacts of higher farm income supports. The NGFA noted that more than 40% of U.S. grain and oilseed production is exported as raw, semi-processed or meat products, and that U.S. farm policies that distort trade would undermine the United States' ability to achieve a new world trade accord that dismantles trade barriers and subsidies.

NGFA also cited USDA data that show current farmland values already are inflated by 20-30% because of farm program payments. "Pumping asset values to even higher levels based upon artificial economics is not in the long-term interest of active farmers who are trying to acquire more acres to maintain economic-sized units," the NGFA said.

The NGFA recommended that the Senate limit the Conservation Reserve Program to no more than the 36.4 million acres authorized under the current farm law, rather than increasing it to 40 million acres as proposed in Harkin's bill. The NGFA noted that the CRP already amounts to more than 10 percent of U.S. planted field crop acreage, and nearly 50 percent of the total planted acreage in Canada. The association also cited the damaging impacts of the CRP on rural economies and rural communities, as well as its impact on land-price inflation.

Also, the NGFA strongly urged that the so-called "agricultural competition" section of Harkin's bill be deleted in its entirety. Among other things, this section of the bill would deem contracts to be void if they contain a compulsory arbitration clause or a clause that requires that the contract be kept confidential.

The NGFA said that legislation precluding farmers from entering into contracts that reference arbitration as the mechanism for resolving disputes would impose additional litigation risk and costs on buyers of agricultural commodities. Meanwhile, the ban on confidentiality in contracts likely would inhibit buyers from offering innovative contracts to growers.

"Contrary to its intent, if passed, the competition provisions of this legislation would drive competitive buyers away from agricultural markets, leaving farmers with fewer farming opportunities and fewer marketing vehicles for their production," the NGFA said. "In addition, margins would have to increase - the cost of which no doubt would be paid by the farmer - to compensate for the increased risk being imposed by the government."