REMARKS BY RMA ADMINISTRATOR ELDON GOULD
U.S. Department of Agriculture
Risk Management Strategies for Beginning and Small Farmers and Ranchers Conference
Milwaukee, Wisconsin
Sep 14, 2007

Good Afternoon. I’m happy to be here to talk with you today on behalf of Secretary Johanns.

As mentioned, I spend most of my time dealing with the Federal crop insurance program. The Risk Management Agency administers the program and carries out the decisions of the Federal Crop Insurance Board of Directors.

My day-to-day efforts involve making effective crop insurance available to you and the rest of America’s farmers and ranchers. As a grain and livestock producer myself, I take that responsibility seriously and believe the Risk Management Agency makes a real difference.

In addition to crop insurance, the Risk Management Agency awards money for agricultural risk management partnership agreements throughout the United States last year. Last year, our agency awarded close to $21 million in support of the partnerships and agreements.

This money funds projects to develop new risk management tools for farmers and ranchers. Included in this funding are outreach and education opportunities for limited-resource and other traditionally underserved farmers and ranchers.

Later this month, the Secretary will announce the 2007 awards which I expect to again be just over $21 million for these same purposes. So, as I said, the Risk Management Agency is making a difference. But today, I want to discuss the upcoming Farm Bill and where we stand on it.

You saw Secretary Johanns’ taped message earlier and you can see that his focus is on working with the Congress to produce a new Farm Bill in the best interest of American agriculture.

Let me talk to you a bit about where things stand right now on the Farm Bill.

The Secretary believes—as do I—that we can get a Farm Bill done this year. And that we can get a good, strong bill out of this process.

Right now we have a House proposal and an Administration proposal and there are some important differences between them.

Soon we’ll have a Senate version, too…and then there will have to be a conference…and all the differences will have to be worked out before any bill makes its way to the President’s desk.

In the next few weeks all of us at USDA are going to be working hard to let the Senate know—as clearly as we can—what our priorities are among the issues that haven’t yet been addressed in the Farm Bill.

Senator Harkin, the chairman of the Senate Agriculture Committee, has made it clear that he has his own ideas about the direction the Farm Bill should take and we look forward to working with him.

Several of the positions he has been circulating recently—on payment limits…on a revenue-based approach to the counter-cyclical program…on supplemental crop insurance… and on reforming the marketing loan program—move in a constructive direction.

But I have to tell you the first thing on our agenda is going to be the tax increase—the $7.5 billion tax increase on foreign corporations with U.S. operations. That was added to the House bill at the last moment and fractured what had been a broadly bipartisan approach to the bill that had held up to that point.

The Secretary has made it quite clear that this is not the way we want to see farm programs funded. The agricultural community has never supported higher taxes on another industry to fund farm programs.

As Secretary Johanns has said—-this creates new opponents at a time when the agricultural community needs new friends.

In fact, the only time a tax increase has been enacted as part of a farm bill was back in 1933 when we were in the middle of the Depression. The Agricultural Adjustment Act—really the first modern farm bill—included a tax on food processors. But that was ruled unconstitutional by the United States Supreme Court.

The tax increase in the House bill has already drawn fire from both sides of the aisle in the Senate—so we are hopeful it won’t be a part of the Farm Bill that emerges from Congress later this year.

The folks who advocated this tax increase insist they need the extra money to fund additional spending on programs.

We disagree. There are other very good ways to come up with savings through reform and we outlined several of them in the Administration’s Farm Bill proposal.

Our reforms relied on real savings to help fund $5 billion in new spending on farm programs, while also staying on track with the President’s commitment to achieve a balanced budget. They deliver a very good Farm Bill.

One of our key proposals was to lower the income ceiling on eligibility for farm program payments. The House accepted the idea that these need to be lowered—it simply didn’t go far enough.

• The $1 million limit the House approved would affect only about 7,000 people.
• The Administration’s proposal to put the limit at $200,000 a year in adjusted gross income averaged over three years would affect about 38,000 people—all of whom are among the wealthiest 2 percent of Americans.
• Over the last few weeks when we’ve shown folks around the country that map of Park Avenue in Manhattan that Secretary Johanns shared with you, a lot of them have been shocked.
• Unfortunately, payments to these folks who don’t do very much farming have become symbolic of our farm program payments in the minds of many Americans.
• Farmers know these payments should not be part of the safety net they need to protect them from the real hardships of working the land. And they know it is not wise public policy to leave them in place.
• To maintain a strong safety net for farmers going forward we must have broad public support for farm programs. But to have that kind of support—the taxpayers who are footing the bill have to be certain that farm programs are helping real farmers and not funneling extra dollars to investors who don’t need them.
• This is something that we have the chance to change this year and we need to get it done.
• Doing it—-as Secretary Johanns mentioned—-will also generate $1.5 billion in savings over the life of this Farm Bill, And that’s money that can be reinvested in farm programs that support a strong safety net as well as other priorities like conservation programs, renewable energy and rural development.

We will also be urging the Senate to address the issue of beneficial interest.

When Hurricane Katrina struck in 2005, a gap we have in the current law cost taxpayers almost $3 billion for loan deficiency payments to farmers, when, in most cases, no real losses were suffered.

• This happened because producers have an option. They can lock in their marketing loans when market prices for their crop drop—-as many did just after Hurricane Katrina when grain shipments down the Mississippi River were disrupted—-but they can wait to sell those crops until the market price is higher, because there is no requirement to link the loan and the sale.
• This was all perfectly legal. But we don’t think large payouts in the absence of real losses should be a part of the safety net for farmers. The Administration’s proposal would require that producers who lock in a marketing loan give up beneficial ownership of their crop at the same time.
• Producers will still get the benefit of the price support provided by the loan rate, but not of the “pick-your-price” option that can produce large payouts in the absence of actual losses.

We have also proposed important reforms in the area of marketing loan rates and in the counter-cyclical program.

With the counter-cyclical program, we believe the safety net for farmers will be strengthened by using revenues instead of prices as the basis for program payments.

The current system offers no protection to farmers in years when prices for their crops are high but their yields are low because of drought or other damage.

The House version of the Farm Bill offers farmers the option of choosing a revenue-based counter-cyclical program. While this is a step forward, we believe the revenue-based model should be adopted across the board.

As for marketing loans, we believe these should be linked more closely to what is actually happening in the marketplace—instead of a number set down in a statute.

This is also an area which has been singled out by our trading partners as one of the most trade-distorting forms of support we provide for farmers.

The criticism is that fixed loan rates can easily end up higher than prevailing market prices and are trade-distorting because they give farmers an incentive to plant more of a crop than the market can bear.

• Our proposals would set loan rates at 85 percent of the market price for eligible crops—-averaged over five years—-and would leave target prices at the level set in the 2002 Farm Bill.
• These changes would save $3.2 billion over the life of this Farm Bill.
• Unfortunately, the House version of the Farm Bill moved in the opposite direction by raising loan rates for 14 of 25 eligible crops and target prices for 12 of 17 eligible crops.
• We believe our proposal would help take the bull’s-eye off the back of the American farmer while the House bill puts a bigger one right back on there.

There were some other very important things left out of the House version of the Farm Bill that we believe should be included in the final version of the bill.

One is funding for the backlog of infrastructure projects that need to be taken care of in our rural areas and another is for the rehabilitation and reconstruction of hundreds of rural critical access hospitals.

The Administration proposal called for $500 million in new funding to improve water and waste disposal systems, emergency medical services, broadband access and telemedicine in our rural areas.

We also proposed a $1.6 billion loan guarantee program to bring all of the rural critical access hospitals that need modernization up to date so they can provide first class medical care.

Having assured access to quality medical care is as important to the quality of life in our rural areas as in any other part of the country and we plan to do all that we can to make sure these needs are funded.

Now let me also say a word about my favorite topic—risk management.

At the last minute, an amendment that Congressman Neugebauer had offered to allow USDA to offer farmers area-based supplemental crop insurance was stripped out of the House Farm Bill.

We believe this continues to be a very important new tool to add to the risk management kit, and one that will afford producers a much higher level of protection when they are struck by a regional disaster.

And it can be particularly valuable to beginning and socially disadvantaged farmers who may be operating on profit margins that can be wiped out by the deductible levels on standard crop insurance policies.

Doing more to help beginning and socially disadvantaged farmers get on their feet at a time when values for farm land are setting new records around the country was one of our top goals as we put together the Administration’s Farm Bill proposals.

The House version of the bill has taken some important steps in that direction. It raised the lending limits on direct and operating loans to $300,000, increased the set-aside of guaranteed ownership loans for beginning and socially disadvantaged farmers from 25 percent to 40 percent and restored priority to socially disadvantaged farmers whenever USDA sells or leases property.

We continue to believe that more can and should be done in this area and we will be urging Congress to make that happen before this Farm Bill process is over.

Before wrapping up, I would like to shift gears and say a word about a new financial risk management tool that is being developed for Native Americans.

I am pleased to tell you that RMA and your Cooperative Extension Service are working together to produce a Native American Tax Guide. When completed, this guide will discuss and explain for individual Native Americans that have income derived from the land—-the options and consequences regarding Federal income tax reporting issues and methods.

The tax laws pertaining to individual Native Americans who derive income from the land is complex and poorly understood.

This problem exists in large part because the taxability of farm or ranch income often depends on the legal character of the individual’s rights to use the land to generate income.

Unfortunately, Native Americans who do not have complete and accurate tax returns, particularly Schedule F, may be excluded from participating in some USDA programs.

The “tax guide” is intended for use by a wide audience. It is intended to reach Tribal members and their advisors—-as well as tax preparers, banking officials and educational organizations.

We believe it will help open the door to greater participation by Native Americans in USDA programs.

Thank you for your attention. I hope you will consider what I have told you, and what the Secretary said in his message, about the Farm Bill you deserve.

I would ask you to get the word out to your communities and your organizations that the Secretary has a clear vision for the new Farm Bill. We need your help to make it happen.

Thank you.