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Congressional Testimony
March 29, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4920 words
HEADLINE:
TESTIMONY March 29, 2000 JIM CASPARY HOUSE AGRICULTURE FARM
POLICY REVIEW
BODY:
Statement of Jim Caspary - ICBA
House Agriculture Committee March 29, 2000 Thank you, Chairman Combest and
Congressman Stenholm for the opportunity to present the views of the Independent
Community Bankers of America (ICBA) on current and future farm policy issues.
ICBA applauds your efforts in trying to reach a consensus on what our future
farm policy should be through the hearings the committee has been conducting
this Spring. We know that reaching consensus is not an easy task. We are hopeful
that your efforts this Spring can lay the groundwork for implementing the types
of policies that will adequately assist our farm families, our rural citizens
and the Main Street businesses that depend on them. Certainly the hearings are
timely given the financial and emotional distress that many farmers are facing
and the recent farm aid packages that Congress has enacted. I am the President
of the First National Bank of Clifton, Clifton Illinois. I am also the Chairman
of ICBAs Agriculture-Rural America Committee. First National Bank of Clifton is
a small Midwestern agricultural bank with $24 million in assets that has been
serving the community of Clifton since 1902. It is located in the north central
part of Illinois where the primary agricultural commodities are corn and
soybeans. The bank owns an insurance agency which sells crop insurance and is
one of the largest providers of crop insurance in the state of Illinois. Serving
Agriculture And Rural Communities Mr. Chairman, 75 percent of ICBA member banks
are located in small communities of under 10,000 population and our members have
a long-standing interest in providing credit to American agriculture and our
rural communities. ICBA is the only national trade organization that exclusively
represents the interests of our nations community banks. Strengthening The Farm
Safety Net ICBA was an early and outspoken advocate of farm aid packages over
the past couple of years. Beginning in September of 1998, we urged Congress to
pursue a number of options that included: - income assistance for producers; -
crop insurance reform; - temporary disaster aid; - increased funding for FSAs
guaranteed loan program; - targeted expansion of the CRP; - pursuing an
aggressive trade agenda; - increased food aid donations; funding alternatives
for community banks and a number of other positive initiatives. In January of
1999 we sent to Congress a comprehensive proposal to strengthen the farm safety
net. An updated summary is attached to the end of my statement. ICBA Farm Policy
Recommendations We believe the farm income packages have been extremely
important to rural America from the standpoint of preventing an agricultural
credit crisis and helping farmers survive a very difficult period. Let me
briefly make a few recommendations that we hope the committee could explore in
the weeks and months ahead. Farm Aid Packages A Multi-Billion Dollar Farm
Assistance Package - We once again urge Congress to pass a major farm aid
package as soon as possible this year since the low price and export problems
facing our farmers are still present. We appreciate the $6 billion in income
assistance included in the House Budget Committee s FY- 2001 Budget Package and
are hopeful this package can be worked out quickly. Consider Two Years of Farm
Assistance - We urge Congress to consider providing for two years of funding to
cover next year as well in case further aid is necessary. This would allow
considerable progress to be made in writing the new farm bill in a timely manner
without the distraction of passing another farm assistance package. This would
also provide producers and their lenders with more certainty for planning
purposes. Future Farm Bill Policy Counter-cyclical Income Mechanisms - The
current farm policy does not provide sufficient aid in times when prices are
low. Future farm policy could incorporate policy tools that provide the producer
enough income protection that future farm aid packages are unnecessary. Perhaps
this should be a combination of tools. Counter-Cyclical Policy & Income
Tools could include: 1) Automatically calculated supplemental income payments.
We appreciate Congressmens Stenholms efforts in developing a supplemental income
payment program based on a five-year gross revenue. 2) A special fund that is
part of the multi-year budget that can be drawn down or paid out to producers
when prices are low. This would remove farm policy from the crisis mentality
that can develop both in Congress and in the farm community when prices fall
precipitously or remain depressed for several years. 3) Broad Access to Revenue
Insurance products - Ensuring farmers have access to adequate revenue insurance
tools at affordable rates to provide an option of insuring their income across a
wide variety of crops throughout the U.S. This would help farmers manage their
risks better. There may be a significant number of ideas to consider in this
realm that could better protect farm income during low price periods while not
infringing upon the planting flexibility that current farm policy allows. We
will continue to explore these and other ideas. Modernize the Conservation
Reserve Program We believe the CRP program needs to be modernized. We urge
consideration of an acreage level of between 40 to 50 million acres. Since this
would be a slight increase above current authority, the additional acres should
be targeted to ensure that not too much land is set aside in any one particular
area. In addition, we urge congress to provide producers with more choices in
regards to length of contract periods. Retiring land for 10 year periods may
simply be too long to remove land from production. Providing the option for 3 or
5 year contracts would be consistent with providing producers with greater
flexibility that matches their farming needs. Increase Funding & Options for
the FSA Guaranteed Loan Program We have witnessed a dramatic increase in the
demand for FSA guaranteed loan funds as lenders have sought greater protections
due to the low prices and as the size of the loans guaranteed has increased. It
is important to ensure that this program operates smoothly without interruptions
so that farmers can have access to credit to meet their planting needs rather
than be told there is no more money because the government underestimated the
demand. Allowing funds to remain available until expended, rather than be lost
at the end of the budget year, will be helpful this year. The downside of this
approach is that it is still dependent on the government appropriating
sufficient funds. We have made three suggestions to improve the program on our
attached summary including providing long-term contingency funds in times of
severe financial distress. ICBAs Agriculture/Rural America committee is
developing further recommendations for this program which we plan to submit in
the future to assist with rewriting these authorities in the farm bill. Raising
Deposit Insurance To Increase Funding Options Mr. Chairman many community banks
across the nation have witnessed an erosion of their deposit base as young
people leave rural areas and older citizens pass away and have their estates
redistributed to their heirs who often do not live in rural areas. It would be
especially beneficial for rural community banks to double the current deposit
insurance level to $200,000 and index it to inflation. Deposit insurance levels
were last raised in 1980 - twenty years ago - the longest period in the history
of the FDIC that we have gone without raising the coverage limit. If deposit
insurance had been indexed to inflation in 1980, the current protection level
would be $197,000. Raising the level would not substantially elevate the risk
exposure of the insurance funds, which now hold almost $40 billion in reserves.
A higher guarantee would help community banks attract more funds and better
compete against large banks which have more options with which to access
lendable funds. The end result would be more loanable funds to American citizens
and this would be especially important in rural areas as we move forward into a
new century. Pursue An Aggressive U.S. Trade Policy Mr. Chairman we are
concerned with the falling value of U.S. exports since so many of our acres are
grown for export markets. Certainly the Asian crisis has hurt U.S. agriculture
enormously. But we are also concerned with statistics that show the U.S. market
share in agricultural trade has fallen from 24 percent in 1981 to 18 percent
today. Despite the fact that world trade in agriculture doubled between 1981 and
1998. Certainly we need to pursue a broad trade agenda. Congress should act
quickly this year by passing Permanent Normal Trade Relations
(PNTR) status for China. The bilateral agreement between our
two governments appears to offer significant market access opportunity for U.S.
farmers to a nation that has a quarter of the worlds population. And because
GATT and WTO agreements were developed as rules for trade among market
economies, Chinas eventual membership in the WTO also affords the U.S. an
opportunity to help China move toward Democracy and market oriented economic
principles while benefiting U.S. farmers. We also urge support for establishment
of a permanent Chief Agricultural Negotiator in the Office of the USTR as
contained in HR 434, the Trade and Development Act, which is now in conference.
This will establish a permanent advocate and specialist on behalf of U.S.
agricultural interests in a position responsible for enforcing trade agreements
relating to U.S. agriculture. We would also like to see the World Trade
Organization open its dispute settlement process by allowing more public
transparency to instill greater public confidence in WTO decisions. Crop
Insurance Legislation & Future Review We compliment Congress on the fine
crop insurance bills that are now moving to conference. These bills will make
crop insurance more affordable to producers and should attract greater
participation, helping us to move away from the need to pass ad hoc disaster
bills beginning with the 2001 crops. Obviously it will be important how the
regulations are written and implemented and we urge very close Congressional
monitoring of how the new program functions so that any necessary changes can be
made. Crop Insurance Legislation Conference Considerations As the House and
Senate begins the process of reconciling the two crop insurance bills we make
the following recommendations. Since the subsidy rates differ between the two
bills, we recommend that the subsidy rates be highest at the higher levels of
coverage and lowest at the lowest levels of coverage to encourage producers to
buy higher protection levels. We also urge members to remove the controversial
Association marketing provision which seems to discriminate against commercial
lenders and crop insurance agents. We believe crop insurance reform legislation
should treat all insurance providers equally. We are also concerned about
requiring FSA staff to conduct insurance audits. We note that FSA staff is
already stretched quite thin and this is particularly evident in the guaranteed
loan program where many lenders complain the county office staff is too
overworked. And we encourage conferees to adopt the language pertaining to
release of the $40 million for CRC durum producers. Beyond Farm Policy A
Troubling Report From the FDIC The recent FDIC Regional Outlook report for
Kansas City examined some of the challenges confronting FDIC-insured
institutions serving rural communities. Emerging trends suggest that if rural
areas continue to lose population, many banks and thrifts may eventually be
located in counties with population bases that will make it difficult to
maintain infrastructure and public services. The FDIC report noted that
population continues to decline in a significant number of rural counties. In
addition, in over 20 percent of these rural counties the exodus rate is
accelerating. Insured institutions in these counties have reported slower loan
and deposit growth, higher concentrations of agricultural loans, and a greater
reliance on nontraditional funding sources, such as Federal Home Loan Bank
borrowings, than institutions in counties with growing populations. Integrating
Broad Rural Development Policy Clearly Mr. Chairman, farmers and citizens in our
rural communities are affected by more than just farm policy. For example, there
are a number of tax initiatives that would benefit farmers and rural lenders as
we have referenced in our one-page summary. In addition, we need to focus more
attention on closing the so-called digital divide that can often limit internet
access in rural areas. We should explore options to look at improving rural
access to capital through commercial lenders including for rural entrepreneurs.
And we need to ensure adequate health-care choices exist for rural citizens. We
encourage this committee, which can have such a positive influence on the
quality of life of our rural citizens, to also explore how to better answer some
of these broader challenges that lie beyond the scope of farm policy.
Legislation that not only addresses farm policy, but a number of other rural
needs as well, could be concurrently through Congress at the time the next farm
bill is written. We have often heard there were other solutions in addition to
farm policy that were expected to be passed to complement the 1996 Farm Bill. We
urge efforts to orchestrate a legislative push for a broad rural agenda at the
time the next farm policy is written. Summary Mr. Chairman, we appreciate the
committees efforts on behalf of American agriculture and believe your continuing
series of hearings on farm policy solutions will be helpful. Agriculture is
undergoing dramatic changes and it is important to consider how farmers and
those they interact with can best adapt to these changes in a way that is
beneficial to a vibrant rural economy. We hope the recommendations presented
today will help provide a useful starting point in reaching a consensus on
future farm policy changes. And we hope efforts will be made to pursue a broad
policy mix to benefit our rural economies for many years to come. ICBA and its
Agriculture/Rural America committee stands ready to help you grapple with these
issues and meet the challenges that confront us. Thank you for this opportunity
to present our views.
LOAD-DATE: March 31, 2000, Friday
