[Senate Hearing 118-477]
[From the U.S. Government Publishing Office]
S. Hrg. 118-477
COMMODITY PROGRAMS, CREDIT, AND CROP
INSURANCE_PART 2: INDUSTRY PERSPECTIVES ON
RISK MANAGEMENT AND ACCESS TO CREDIT
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HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMODITIES, RISK MANAGEMENT, AND TRADE
OF THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
May 4, 2023
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on http://www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-133 PDF WASHINGTON : 2024
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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
DEBBIE STABENOW, Michigan, Chairwoman
SHERROD BROWN, Ohio JOHN BOOZMAN, Arkansas
AMY KLOBUCHAR, Minnesota MITCH McCONNELL, Kentucky
MICHAEL F. BENNET, Colorado JOHN HOEVEN, North Dakota
KIRSTEN E. GILLIBRAND, New York JONI ERNST, Iowa
TINA SMITH, Minnesota CINDY HYDE-SMITH, Mississippi
RICHARD J. DURBIN, Illinois ROGER MARSHALL, Kansas
CORY BOOKER, New Jersey TOMMY TUBERVILLE, Alabama
BEN RAY LUJAN, New Mexico MIKE BRAUN, Indiana
RAPHAEL WARNOCK, Georgia CHARLES GRASSLEY, Iowa
PETER WELCH, Vermont JOHN THUNE, South Dakota
JOHN FETTERMAN, Pennsylvania DEB FISCHER, Nebraska
Erica Chabot, Majority Staff Director
Chu-Yuan Hwang, Majority Chief Counsel
Jessica L. Williams, Chief Clerk
Fitzhugh Elder IV, Minority Staff Director
Jackie Barber, Minority Chief Counsel
----------
Subcommittee on Commodities, Risk Management, and Trade
TINA SMITH, Minnesota, Chairwoman
KIRSTEN E. GILLIBRAND, New York CINDY HYDE-SMITH, Mississippi
RICHARD J. DURBIN, Illinois MITCH McCONNELL, Kentucky
CORY BOOKER, New Jersey JONI ERNST, Iowa
RAPHAEL WARNOCK, Georgia TOMMY TUBERVILLE, Alabama
JOHN FETTERMAN, Pennsylvania CHARLES GRASSLEY, Iowa
C O N T E N T S
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Thursday, May 4, 2023
Page
Hearing:
Commodity Programs, Credit, and Crop Insurance--Part 2: Industry
Perspectives on Risk Management and Access to Credit........... 1
----------
STATEMENTS PRESENTED BY SENATORS
Smith, Hon. Tina, U.S. Senator from the State of Minnesota....... 1
Hyde-Smith, Hon. Cindy, U.S. Senator from the State of
Mississippi.................................................... 3
WITNESSES
Barker, Gus, President and CEO, First Community Bank, Newell, IA,
Testifying on Behalf of the Independent Community Bankers of
America........................................................ 6
Morgan, Phillip D., Chief Executive Officer, Southern AgCredit,
Ridgeland, MS, Testifying on Behalf of the Farm Credit Council. 7
Wagner, Jase, President and CEO, Compeer Financial, Sun Prairie,
WI, Testifying on Behalf of the Farm Credit Council............ 9
Cole, William, Owner and Agent, Cole Agency, Batesville, MS,
Testifying on Behalf of the Crop Insurance Professionals
Association as Chairman........................................ 11
Korin, James, President, NAU Country Insurance, Ramsey, MN,
Testifying on Behalf of the American Association of Crop
Insurers....................................................... 12
Meador, Jason, Head, Rural Community Insurance Services, Zurich
North America, Anoka, MN, and Schaumburg, IL, Testifying on
Behalf of the Crop Insurance and Reinsurance Bureau............ 14
----------
APPENDIX
Prepared Statements:
Barker, Gus.................................................. 34
Morgan, Phillip D............................................ 47
Wagner, Jase................................................. 52
Cole, William................................................ 61
Korin, James................................................. 74
Meador, Jason................................................ 78
Document(s) Submitted for the Record:
Smith, Hon. Tina:
Campaign for Family Farms and the Environment, letter for
Record..................................................... 86
Aaron Johnson, Senior Program Manager, letter for the Record. 89
Campaign for Contract Agriculture Reform, letter for the
Record..................................................... 93
Question and Answer:
Barker, Gus:
Written response to questions from Hon. John Boozman......... 100
Written response to questions from Hon. Tommy Tuberville..... 100
Morgan, Phillip D.:
Written response to questions from Hon. John Boozman......... 102
Wagner, Jase:
Written response to questions from Hon. Tommy Tuberville..... 104
Cole, William:
Written response to questions from Hon. John Boozman......... 106
Written response to questions from Hon. Cory Booker.......... 107
Written response to questions from Hon. Tommy Tuberville..... 108
Written response to questions from Hon. Charles Grassley..... 109
Korin, James:
Written response to questions from Hon. John Boozman......... 110
Written response to questions from Hon. Tommy Tuberville..... 110
Written response to questions from Hon. Charles Grassley..... 111
Meador, Jason:
Written response to questions from Hon. John Boozman......... 113
Written response to questions from Hon. Tommy Tuberville..... 116
Written response to questions from Hon. Charles Grassley..... 119
COMMODITY PROGRAMS, CREDIT, AND CROP INSURANCE--PART 2: INDUSTRY
PERSPECTIVES ON RISK MANAGEMENT AND ACCESS TO CREDIT
----------
Thursday, May 4, 2023
U.S. Senate
Subcommittee on Commodities, Risk Management, and Trade
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 106, Dirksen Senate Office Building, Hon. Tina Smith,
chairwoman of the subcommittee, presiding.
Present: Senators Smith [presiding], Stabenow, Gillibrand,
Hyde-Smith, Boozman, Ernst, Tuberville, and Grassley.
Also present: Senators Klobuchar and Hoeven.
STATEMENT OF HON. TINA SMITH, U.S. SENATOR FROM THE STATE OF
MINNESOTA
Senator Smith. The Subcommittee on Commodities, Risk
Management, and Trade will come to order. Welcome to our
witnesses. Senator Hyde-Smith, thank you again to you and your
staff for working so closely together with us to organize this
hearing all this week, and I know that Chair Stabenow and
Ranking Member Boozman will be joining us at some point. I want
to thank them and the full Committee staff for their help and
support in convening these committee hearings this week. Thanks
to everyone for attending.
This morning we conclude our two-part hearing. Earlier this
week we focused on Title I of the farm bill, the commodity
title, and we had a very useful and productive discussion with
producers and farmers, as well as with the presidents of the
American Farm Bureau and the National Farmers Union. Today we
will be talking about Title X, the credit title, and Title XI,
the crop insurance title. We are going to have an opportunity
to hear directly from practitioners and implementers of crop
insurance and Farm Credit programs.
As I mentioned earlier this week, hearing directly from you
is incredibly important, as the folks that are closest to the
work you know best what is working and what we can do to make
it work better. I know that all the members of this Committee
share the goal of passing a bipartisan farm bill authorization
this year, a bill that meets the needs of American farmers and
ranchers and producers in every part of the country and a bill
that meets the moment.
Farmers, ranchers, dairy farmers, poultry and livestock
producers are at the center of our economy, our food system,
and our national security. There is nothing more important to
our country than a stable, secure, healthy food supply, and we
need to support farmers with credit and risk management tools
that help them weather the inevitable ups and downs that happen
in agriculture.
Today, although commodity prices are good, farmers face a
lot of challenges. Too many producers are struggling to cover
their operating costs, and this is especially true for small
and medium-sized farms. According to the USDA, nearly 50
percent of farms in the United States have negative farm
income. The high levels of concentration in the ag sector,
combined with supply chain disruptions has driven up input
costs, which are now outpacing commodity prices and putting
farmers, again especially small and medium-sized farmers, in a
real bind.
Climate change and extreme weather events are increasing
risks for farmers as well, as they deal with drought and floods
and wind and hail and also increased pest threats. Last of all,
global disruptions, both wars and trade disputes, add to the
uncertainty.
Farmers are creative and adaptable, but they need access to
credit to grow their operations, and they need sound risk
management options to help mitigate the losses that are out of
their control. Credit and crop insurance programs are essential
all across the country, and in my home State of Minnesota. Last
year, Minnesota farmers insured 17.8 million acres and
participated in many of RMA pilot programs and dollar liability
programs.
Over the last year, my staff and I have held, it feels like
dozens, of farm bill listening sessions across the State, and
we have heard from everyone that crop insurance needs to be
there to help secure operating loans as well as when there is
some other kind of risk that they are facing. We have also
heard that there are sometimes gaps, that not all risk
management programs are working well for smaller operations and
specialty crop farmers, especially produce farmers. Some
programs are sometimes hard to use, and a tweak here or there
could really help.
And when it comes to accessing credit through Farm Credit
institutions or community banks, smaller operations, beginning
farmers, farmers of color, and Indigenous farmers often
struggle to find a way to access that opportunity.
That is what this hearing is all about. It is an
opportunity for this subcommittee to hear directly from you
about what is working, what is not working, and what we need to
do to improve insurance and credit programs.
There are a few issues, in particular, that I am interested
in hearing about today. I am going to ask you what are your top
one or two priorities for the farm bill's credit title or crop
insurance title. I am interested to hear you talk about what we
can do to make risk management and credit programs work for
beginning farmers, smaller producers, and non-traditional
producers. I would like to hear your perspective on how
consolidation in agriculture, from everything from seed and
fertilizer to processing, affects the farmers that you are
working with.
I really look forward to hearing from all of you about
these issues and more, and I look forward to a productive
discussion.
I now turn to Senator Hyde-Smith.
STATEMENT OF HON. CINDY HYDE-SMITH, U.S. SENATOR FROM THE STATE
OF MISSISSIPPI
Senator Hyde-Smith. Well said. I could not agree more. Good
morning and thank you also for holding this very important
hearing today. I want to thank Senator Boozman, our Ranking
Member, for your interest in the Subcommittee, and I think we
will be joined by Senator Stabenow as well.
I am pleased that we are meeting again to continue the
hearing from stakeholders about their priorities for the 2023
Farm Bill. When people have asked me about the farm bill I have
said, ``Well, we flip the coin. The games have not begun yet,''
but now they have. We are at a different stage. It is clear
from the producer input we received on Tuesday, that Title I
and Title XI of the farm bill need to be protected and
strengthened.
Today we will hear more about the importance of crop
insurance. Additionally, we will hear about access to credit,
which I say all the time is what makes the world go round in
our farming world. The private sector is the cornerstone in the
delivery system of crucial risk management tools and credit
options. I look forward to hearing from our witnesses who will
play vital roles in the private sector helps farmers access
these tools.
I would also like to extend an especially warm welcome to
our two Mississippians here today, Mr. Phillip Morgan of
Ridgeland, and Mr. William Cole of Batesville.
Agriculture is the largest industry in Mississippi, and
every American, whether they know it or not, has a vested
interest in agriculture because every American has to eat, the
last time I checked. Farmers face many challenges in managing
risk and securing credit. As we heard from our producers on
Tuesday, market fluctuations and rising input costs have
significantly affected the ability to run a business and to
stay afloat.
With transportation and logistics systems disrupted by
recent global crises, farmers and ranchers have faced a number
of challenges in getting our products to market. This has
resulted in significant losses for many agriculture producers
who have been unable to sell their products or are forced to
sell them at a reduced price.
Another challenge has been labor shortages. Boy, I hear
this from everyone. With many people unable or unwilling to
work, agriculture producers have been left without the
necessary labor to plant, harvest, and process their crops.
This has resulted in significant losses for many farmers, and
this is very real, as they have been unable to get their crops
to market or forced to pay significantly higher wages to
attract workers.
All of these challenges have highlighted the importance of
risk management and credit in the agriculture industry. With
increased uncertainty and volatility in the marketplace, we
must ensure our farmers and ranchers have access to the
necessary tools and resources to manage these risks
effectively.
Similarly, in light of inflation, it is more important than
ever for agriculture producers to have access to affordable and
flexible credit options. Farming is a risky business,
especially in Mississippi. Mississippi farmers are faced with
floods, tornados, and some of the worst weed and pest threats
in the entire country. This is why risk management is so
essential.
When I talk to Mississippi farmers, I am always inspired by
their resilience. Farming is not just a job for us. It is our
way of life. They want to produce more affordable food and
fiber for our country now and be able to pass down their way of
life to the next generation. Farmers have to borrow a lot of
money. They lose sleep at night, thinking about the debts they
incur to start or continue farming. In order for the American
food supply to remain abundant and for the farmers to stay in
business, credit must be accessible and it must be flexible as
well.
In order for more young people to start farming, they must
have access to credit. As this Committee considers the 2023
Farm Bill, we must remain mindful of the needs of the next
generation, not just ourselves.
Our witnesses will provide valuable insight into the
challenges and opportunities ahead for our agriculture
producers and the industry professionals who support them.
Thank you again, Chairwoman Smith, for convening this
hearing. I look forward to a productive discussion on how we
can work together to ensure that the livelihood of the American
farmer remains viable in the face of these challenges and
opportunities.
Senator Smith. Thank you so much, Senator Hyde-Smith, and I
would like to welcome to the Subcommittee our Chair, Senator
Stabenow, and also our Ranking Member, Senator Boozman. Thank
you so much for joining us.
And we will now begin with witness introductions, and I
believe that Senator Ernst is going to be introducing Mr.
Barker, your fellow Iowan.
Senator Ernst. Thank you, and I want to welcome all of our
witnesses today, but I have the honor and privilege of
introducing Mr. Gus Barker, Verlin ``Gus'' Barker. Gus serves
as President and Chief Executive Officer of First Community
Bank in Rockwell City, Pomeroy, Fonda, and Newell. Gus also
serves as Chairman of the Independent Community Bankers of
America's Rural America and Agriculture Committee, which
represents community bankers serving rural America and
agriculture across the Nation.
Over the years, Gus has been active with numerous civic and
charitable organizations. Gus grew up on a family farm in
northwest Iowa, just south of Pomeroy, and graduated from
Pomeroy Community High School. He went on to get his B.A. in
accounting from Buena Vista University and graduated from the
Graduate School of Banking in Madison, Wisconsin.
Mr. Barker is a career banker with over 46 years of
experience. As a survivor of the 1980's ag crisis, Gus has
experienced the ups and downs of agriculture's cyclic nature
firsthand. He has worked tirelessly to maintain that sacred
trust between the bank and the customer, no matter what the
economic conditions are at the time.
Gus's passion for community banking is staunchly evident as
he has consistently sought to defend the importance of
preserving the community bank model.
Thank you, Gus, for being with us today.
Thank you, Madam Chair.
Senator Smith. Thank you. Now Senator Hyde-Smith will
introduce Mr. Morgan.
Senator Hyde-Smith. I am excited to introduce Mr. Phillip
Morgan, the President and CEO of Southern AgCredit, based in
Ridgeland, Mississippi. I get a lot of mail from you. Southern
AgCredit serves farmers and ranchers in 50 Mississippi counties
and 11 parishes in Louisiana. Phillip is a certified public
accountant and has been with Southern AgCredit since 2008. He
began his career in public accounting in 1998, in Ridgeland,
providing services to small businesses and Farm Credit
institutions.
Welcome, Mr. Morgan, and I will look forward to hearing
your testimony today.
Senator Smith. Thank you. I would like to introduce Mr.
Jase Wagner, who is President and CEO of Compeer Financial. Mr.
Wagner is also representing the Farm Credit Council today.
Compeer Financial is a Farm Credit cooperative serving
agriculture and rural communities. Compeer provides financial
services throughout 144 counties in its service area, which
includes Illinois, Minnesota, and Wisconsin. Jace was named CEO
of Compeer in September 2022, and officially began that role in
just January of this year. Prior to serving as CEO, Mr. Wagner
served as Compeer's Chief Financial Officer. Jace lives in
Minneapolis with his wife and children, probably less than two
miles from where Archie and I live.
Welcome, Mr. Wagner.
Now Senator Hyde-Smith will introduce Mr. Cole.
Senator Hyde-Smith. It is also my pleasure to introduce
today Mr. William Cole from Batesville, Mississippi. William is
the Chairman of the Crop Insurance Professionals Association
and has served as a crop insurance agent for 28 years. He also
owns and operates the family farm where he grows rice and
soybeans and runs a cow-calf operation. William is the Director
of the National Cutting Horse Association and an elder in his
church. He lives in Batesville with his wife Karen and has two
adult sons.
Thank you, Mr. Cole, for being here today, and I certainly
look forward to your testimony.
Senator Smith. I would now like to introduce Mr. James
Korin, who is President of NAU Country Insurance. Mr. Korin is
representing the American Association of Crop Insurers today.
Headquartered in Ramsey, Minnesota, NAU Country is a national
leader in supporting farmers through risk management. NAU
Country is currently licensed in 48 States and employs over 750
field and office staff across the country.
Mr. Korin's background includes 22 years as CPA, and as
President of NAU he is involved with the board of directors for
National Crop Insurance Services, where he is past chair. The
American Association of Crop Insurers is active with the
Midwest Council on Agriculture.
And next we have Mr. Meador. I am saying your name
correctly?
Mr. Meador. Meador.
Senator Smith. Meador. Pardon me. Mr. Jason Meador, who is
head of Rural Community Insurance Services for Zurich North
America. Mr. Meador is representing the Crop Insurance and
Reinsurance Bureau.
Headquartered in Schaumburg, Illinois--Senator Durbin sends
his regards, by the way--Zurich North America's Rural Community
Insurance Services helps farmers manage risks by offering a
wide range of products. Through the Rural Community Insurance
Services, Zurich helps farmers in all 50 States with a network
of 3,600 agents.
Mr. Meador splits his time between Anoka, Minnesota, and
Schaumburg, Illinois, and is responsible for driving the
overall strategic direction of Zurich North America's crop
insurance business. Earlier in his career, Mr. Meador served as
a lieutenant in the United States Navy.
You will each now have five minutes for your opening
Statements. There is a clock in front of you to help you keep
track of time. Know that your full written statement will be
made part of the record.
Mr. Barker, you are recognized for your opening statement.
STATEMENT OF GUS BARKER, PRESIDENT AND CEO, FIRST COMMUNITY
BANK, NEWELL, IA,
TESTIFYING ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
Mr. Barker. Chairwoman Smith, Ranking Member Hyde-Smith,
and distinguished members, as Senators Ernst and Grassley know,
Iowa's 86,000 family farms average 350 acres. Those over
$250,000 in sales average 1,000 acres. In Iowa we are the
largest producer of corn, pork, eggs, ethanol, and biodiesel,
and we are second largest in soybeans.
Today ICBA's key principles include a well-funded safety
net and crop insurance program; we want to enhance USDA
guaranteed loan programs; and we would like to reject the Farm
Credit System's proposals to engage in non-farm lending.
Crop insurance is essential for farmers and lenders as it
allows producers to qualify for operating loans. With extremely
tight margins and incredible risk in agriculture, bank
regulators insist borrowers have crop insurance to repay their
loans. Insurance payments may not be large enough to make farms
whole, but they are enough to keep farmers intact to survive
another year. That is why community banks say whatever you do,
do not harm crop insurance.
Regarding USDA loans, farmland in my area sells for an
average of $12,000 an acre. A 1,000-acre farm costs $12
million. A 350-acre farm costs over $4 million, which is twice
what a USDA loan provides. We urge Congress to raise the
guaranteed real eState loan limits to $3.5 million on owning,
and guaranteed operating loans to $3 million, indexed to
inflation.
Now can guaranteed loans help farmers, particularly young,
beginning farmers? We worked with a struggling young family
using a guaranteed loan to restructure their debt. Since the
guarantee we have had two exams, and examiners could not
believe the progress this struggling farm made. They are now
one of our strongest customers, and without that USDA guarantee
and our local USDA officer, that family would likely not have
survived.
Today, on behalf of ICBA, I am excited to propose a new
program to speed up loan approvals with USDA called a ``USDA
Express'' program, modeled after the SBA's Express program,
which has worked very well. A 50 to 75 percent guarantee could
be used instead of USDA's 90 percent, but USDA would approve
the loans within 36 hours, because lenders would make the
credit decision, and loans could total a cap of $1 million.
Finally, we urge Congress not to expand the powers of the
Farm Credit System by sidestepping their regulators' case-by-
case approval and open the floodgate to making essential
community facility loans. USDA defines community facilities as
a public improvement operated on a nonprofit basis, but FCS
seeks to loan to facilities, whether operated on a nonprofit or
for-profit basis. These loans could be fire stations, schools,
health care facilities, housing, apartment complexes,
restaurants, sports facilities, stadiums, gas stations, and
more. This broad authority could drive community banks right
off Main Street.
FCS proposal only requires a single non-FCS lender to
participate. That could be a large megabank or a large credit
union implementing a national program with no local bank
involvement. An Illinois banker commented the past three years
their bank funded the school district for buses, hospital for
infrastructure, Economic Development Corporation for building a
daycare facility for 185 kids. They used leading arrangements,
USDA Rural Development guarantees, local financial
institutions, and the Federal Home Loan Bank of Des Moines.
These funding sources, plus the municipal bond market, were
fully sufficient to fund all of those projects.
A Virginia banker Stated, ``Community banks fund these
projects. The bank loaned to every single community facility in
the area. The community facility's lending space is full of
lenders who step up, in a bid process, typically, to finance
these projects daily across the United States.'' Now will FCS
pay taxes on these loans, as the bank community does?
FCS also is aggressively using tax-advantaged, cash
management accounts to undermine the deposit base of community
banks. Driving community banks out of rural America by
leveraging GSE tax and funding privileges, decimating loan
portfolios, and pilfering customers and deposits is akin to
taking a wrecking ball to the economic vitality of our small,
rural communities.
Thank you.
[The prepared statement of Mr. Barker can be found on page
34 in the appendix.]
Senator Smith. Thank you.
Mr. Morgan.
STATEMENT OF PHILLIP D. MORGAN, CHIEF EXECUTIVE OFFICER,
SOUTHERN AGCREDIT, RIDGELAND, MS
TESTIFYING ON BEHALF OF THE FARM CREDIT COUNCIL
Mr. Morgan. Thank you. Madam Chair, Ranking Member Hyde-
Smith, and other distinguished members of the Subcommittee,
thank you for your hearing this morning. My name is Phillip
Morgan. I am the President and Chief Executive Officer of
Southern AgCredit, based in Ridgeland, Mississippi.
Southern AgCredit provides financing and other services to
over 4,200 farmers, ranchers, and rural home buyers in 50
central and southern Mississippi counties and 11 parishes in
northwest Louisiana. Southern AgCredit is a member of the Farm
Credit System, created by Congress in 1916, and charged with a
mission to support rural communities and agriculture with
reliable, consistent credit and financial services, today and
tomorrow.
As a cooperative, we are owned by our customers and exist
to support their farms and ranches. As the owners, our
customers share in the success of their cooperative. Last year,
Southern AgCredit returned a record $11.9 million in cash
patronage dividends to our customer owners. In the past five
years, Southern AgCredit returned $53.5 million in cash
patronage dividends to its customers. The remainder of our
income was retained as capital in the co-op to support more
lending to customers.
The future of American agriculture and rural areas depends
on a new generation of farmers and ranchers. We are committed
to meeting the needs of young, beginning, and small farmers.
Our years of experience in rural lending provide the expertise
needed to finance young, beginning, and small farmers. Through
flexible loan terms and working closely with other
organizations and government agencies, including USDA's Farm
Service Agency, we tailor loans to fit the unique situation of
these producers.
Last year, 23 percent of the loans made by Southern
AgCredit went to young farmers and ranchers, 61 percent went to
beginning farmers and ranchers, 75 percent went to small
farmers and ranchers. Overall, 59 percent of our loans
outstanding are to beginning farmers.
The future of agriculture requires a diverse set of voices
leading our industry. We are proud to partner and provide
scholarships to Alcorn State University and Jackson State
University, two historically Black colleges and universities in
our area. Scholarships are offered to full-time HBCU students
studying agriculture, business, or a combination of both.
Southern AgCredit recently hosted two summer interns from
Alcorn State as part of the Farm Credit's Launching Leaders
program. In addition to their regular wages, Farm Credit awards
a $3,500 stipend to an HBCU student or recent graduate hired to
intern at a Farm Credit institution. Our goal is to attract
more HBCU students interested in careers in the agriculture
industry.
Presently, farmers and ranchers in our area face elevated
operating costs in all commodities. Inflated expense from seed,
fertilizer, fuel, feed, technology, equipment, interest, and
energy are tightening margins for our producers. A shortage of
available workers also continues to create farm wage inflation.
Agriculture producers in Mississippi and Louisiana need a
strong farm bill, including a robust farm safety net to manage
the ongoing risks presented by weather, markets, supply chain
pressure, rising input prices, and declining profit margins.
Crop insurance remains the key part of the farm safety net,
and we strongly support efforts to improve this program.
Livestock Risk Protection for Feeder Cattle is a USDA
insurance program widely used in our area for the protection of
declining cattle market prices.
We work closely with the Farm Service Agency and its loan
guarantee program. These guarantees help us to work with
customers who face difficulties with their operations and
provide an opportunity for young and beginning farmers. FSA
loan limits have not kept pace with current prices. We strongly
support increasing these limits in the 2023 Farm Bill.
The construction cost of a modern poultry house in
Mississippi and Louisiana is up 37.5 percent from those built
three years ago. Today's young and beginning poultry farming
family would need at least six poultry houses to earn a $75,000
annual living. Six poultry houses have a total price tag of
$3.3 million, not including the cost of the land or other
necessary improvements or equipment. FSA guarantee limits are
less than two-thirds of the capital requirement for this size
poultry farm. Young, beginning farmers almost always require an
FSA guarantee to mitigate credit risks.
Important credit-related recommendations are detailed in my
written statement for the Subcommittee to consider as it
reviews the farm bill's credit title.
Thank you very much, Madam Chair and Ranking Member Hyde-
Smith, for allowing me to testify today.
[The prepared statement of Mr. Morgan can be found on page
47 in the appendix.]
Senator Smith. Thank you so much, Mr. Morgan.
Mr. Wagner.
STATEMENT OF JASE WAGNER, PRESIDENT AND CEO, COMPEER FINANCIAL,
SUN PRAIRIE, WI,
TESTIFYING ON BEHALF OF THE FARM CREDIT COUNCIL
Mr. Wagner. Good morning, Madam Chair and members of the
Subcommittee. The good news is there is a lot going on
positively in rural America today. I would like to use this
time to talk about how we make it even better.
Our vision is to help enrich ag and rural America through
teamwork and action. My name is Jase Wagner. I am the Chief
Executive Officer of Compeer Financial. Compeer is a member of
the Farm Credit System. We provide loans, leases, and other
financing products as well as crop insurance and financial
services, primarily in the Midwest. We are farmer led and
farmer owned.
Today's hearing offers a timely look at risk management
products and credit availability in agriculture as Congress
prepares for a farm bill. Let's start with the positives and
then we can talk about ways to improve our actions.
First, Federal risk management programs are well-suited to
their purpose. Our crop and livestock insurance programs are
inclusive and consistent. They create stability and certainty
in an uncertain world. Good risk management equals good access
to credit. Those two are inextricably linked. We should
strongly support continuation of the crop insurance programs,
but as my wife tells me often, ``You are not perfect.'' Many on
this panel will have great ideas. Let's use them.
Another positive is access to capital for underserved
communities. This is expanding quickly. We cited several
examples in our written testimony, and they include significant
investment into underserved communities and young, beginning
farmers by Compeer and others in the ag lending market.
Additional teamwork and ideas are needed to best support these
sets of clients.
Now let's talk about the opportunities to further enrich ag
in rural America. Credit is available across a wide spectrum of
providers--public programs like USDA and FSA, State programs,
private providers like community banks, Farm Credit, Farmer
Mac, and insurance providers--and also non-traditional
providers like ag retailers, investment funds, and other
participants. Together these providers, along with the Senate
Ag Committee, are part of the rural capital team. This is an
essential team to best support agriculture long term. Together
we can help America thrive.
Access to traditional agriculture credit is stable, but it
is still full of holes. Too many of our young and underserved
farmers fall through the gaps before they can become stable,
long-term farmers. Traditional ag credit is plentiful for
traditional, well-served farmers. Young and beginning need more
help.
FSA loan programs are effective but need to be updated and
streamlined to best support producers, and in particular,
small, young, and beginning farmers whose needs and financial
structures are changing. Succession planning is a real issue.
We need FSA to be adaptable to that issue.
Serving in the traditional ag market is a team sport. All
of us on this panel contributed in some way. Public and private
partnerships, as well as private-to-private partnerships
demonstrate what is possible when the rural capital team works
together.
If we take a broader view and look at a broader credit
availability across the country, beyond senior debt we have
rural business investment companies. They provide equity
capital to small businesses. They are an essential part. Fast
Ag, based in Windom, Minnesota, is an RBIC junior capital
recipient, who has grown to over 50 full-time employees and
distributes products globally. Midwest Ag, an RBIC, partners
closely with CEO and owner, Cody Fast. Cody could not
accomplish his goals with the support of RBICs. Let us continue
to build on that success and break down artificial barriers to
help that happen.
As we talk with ag producers and people like Cody, the pain
points they tell us about, beyond inflation and capital, are
finding a work force, basic health care availability, and the
ability to earn off-farm income for other members of the
family. Senator Smith highlighted those in her statement.
Essential community facilities provide basic health care,
public safety, and daycare to help solve these problems. Our
research suggests the need for capital in this area is bigger
than the existing private and public capital available today.
Notably, several members of the rural capital team are not
present or engaged. We believe creating further access to this
capital through clarification of existing authorities can help
create the partnerships that have proven so helpful in ag.
Let's work on this together. When we do it right, everybody
wins.
More generally, breaking down artificial barriers to
capital should be a goal of the Committee. We see examples of
that from this Committee across the work that you are doing in
the bills that you are introducing. We support those. Compeer
is invested in ag and rural America, and we know you are, too.
Please take action, and together we can further enrich ag and
rural America which supports our clients and all members of the
rural capital team.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Wagner can be found on page
52 in the appendix.]
Senator Smith. Thank you so much, Mr. Wagner.
Mr. Cole.
STATEMENT OF WILLIAM COLE, OWNER AND AGENT, COLE AGENCY,
BATESVILLE, MS,
TESTIFYING ON BEHALF OF THE CROP INSURANCE PROFESSIONALS ASSOCIATION AS
CHAIRMAN
Mr. Cole. Thank you, Chairwoman Smith and Ranking Member
Hyde-Smith, for the opportunity to testify before this
Subcommittee today. My name is William Cole. I am a crop
insurance agent from Batesville, Mississippi, and my family and
I grow corn and soybeans and have a small cow-calf operation.
I serve as the Chairman of the Crop Insurance Professionals
Association, or CIPA. It is an association of premier crop
insurance agents wring policies all over the country. As
agents, we are very proud to be the primary financial advisors
of our farmer and rancher customers. We not only advise farm
and ranch families on crop insurance coverage options tailored
to their individual operations, but we run a full suite of USDA
programs including the commodity title choices ad hoc programs
along with private risk management products, including wind and
hail coverage.
Though we are not compensated for services beyond advising
on crop insurance, we go beyond our mission area to help our
producers because we love agriculture, care about our American
farmer and rancher customers. They are what Federal crop
insurance, and we, as agents, are all about.
The stakes today for agriculture could not be higher. In
recent years, farm and ranch families have had to weather
retaliatory Chinese terrorists, pandemic impacts on supply
chains and markets, a string of severe and often chronic
natural disasters, and high inflation and other factors driving
up costs of production.
Through all of them, Federal crop insurance has been not
only the cornerstone of the farm safety net but arguably the
only safety net for producers, given that the commodity title
has really lost its relevance to producers because support
levels are set based on 2012 costs of production, and so much
has changed in 12 years. I believe that farmers and ranchers
are truly grateful that the farm bill discussions have focused
substantially on strengthening the safety net that undergirds
the whole agricultural economy.
Relative to crop insurance, I think it is extremely
important to note that the coverage does not just help farmers
recover after a natural disaster. It means so much more than
that. Yes, indemnities are a measure of support, but the
biggest value to crop insurance is the $200 million liability
protection that is in force. This is the element of crop
insurance that allows farmers and ranchers to obtain credit,
invest in their operations, to better market their crops, and
to avoid the kind of asset base ending that contributed to the
1980's farm financial crisis. Imagine a world you live in
without something as basic as insurance, and that is where farm
and ranch families would be without Federal crop insurance. As
vital as crop insurance is to farmers and ranchers, I submit
that it is also good for the taxpayer. Farmers and ranchers
have real skin in the game, paying some $6.7 billion in
premiums alone last year.
As you begin the important work of crafting the 2023 Farm
Bill, we would respectfully suggest ways to strengthen the
safety net in ways that are both meaningful to producers and
taxpayers. First, let us work to narrow the deductibles that
farmers and ranchers face to increase participation at higher
levels to avoid ad hoc disaster programs.
Second, surge RMA, private sector developers, and producer
groups to work in a concerted way to use current legal
authorities, including R&D and the 508(h) submission process,
to help ensure that crop insurance works effectively for all
producers, regions, and commodities. This, too, will help avoid
expensive ad hoc programs.
Finally, let us correct the serious and unsustainable flaws
in our A&O system to ensure that agents and loss adjusters can
continue to provide the excellent service that is one of the
core pillars of Federal crop insurance.
As Congress noted in the Omnibus Bill last fall, USDA has
the legal authority to provide annual inflation adjustment and
equitable relief for specialty crop policies without opening
the SRA, and the Department must exercise this authority. From
1938 to 1980, crop insurance struggled, but in 1980, when crop
insurance was turned over to the private sector, it began to
take off and became the vital program to farmers and ranchers
that it is today. Fixing this A&O issue is critically important
for the infrastructure, companies, adjusters, and agents that
will support this vital program to meet the needs of the
producers in the future.
Thank you again for the opportunity to testify before you
today. I cover more issues in greater detail in my written
testimony, and I am certainly happy to answer all of your
questions on these issues. On behalf of CIPA, we are grateful
for all that you do for the hardworking ranch and farm families
across this country who feed, clothe, fuel the Nation and so
much of the world in a manner that is truly unrivaled in
history. Thank you.
[The prepared statement of Mr. Cole can be found on page 61
in the appendix.]
Senator Smith. Thank you, Mr. Cole.
Mr. Korin.
STATEMENT OF JAMES KORIN, PRESIDENT, NAU COUNTRY INSURANCE,
RAMSEY, MN,
TESTIFYING ON BEHALF OF THE AMERICAN ASSOCIATION OF CROP INSURERS
Mr. Korin. Chairwoman Smith, Ranking Member Hyde-Smith,
also Chairwoman Stabenow and the members of the Subcommittee on
Commodities, Risk Management, and Trade, thank you for the
opportunity to testify on Federal crop insurance and the vital
role it plays in America today.
My name is James Korin. I am the President of NAU Country
Insurance Company, insuring nearly $45 billion of liability on
behalf of America's farmers and ranchers. I am speaking today
on behalf of my company and the American Association of Crop
Insurers, a trade association with membership that includes
companies, agents, reinsurers, and others involved in the
marketing and servicing of Federal crop insurance.
I am truly honored to be here today, and I am thankful for
the support you have provided America's farm and ranch
families, and in turn the rural communities in which they live.
Without crop insurance, many rural communities across our great
nation would not exist as they do today.
NAU's roots go back to the beginning of crop insurance,
when they company's founder, James Deal, working with Congress
and the Carter Administration, helped craft and pass the
Federal Crop Insurance Act of 1980. Today, crop insurance
covers over 90 percent of production agriculture in America.
Crop insurance succeeds through the tenets of flexibility,
affordability, and availability. On flexibility, last year
farmers paid nearly $7 billion in premiums to purchase both
individual and group-rated coverages they felt fit their
operation and risk management needs. Farmers have a
considerable amount of flexibility in tailoring coverage that
best fits their operation, and while this variety adds
complexity, it is essential to ensure the program is available
to all.
On affordability, without the safety net for our farmers
and ranchers, grocery shelves could quickly empty after a bad
growing season across America's heartland. Through the public-
private partnership that is Federal crop insurance, farmers can
better afford coverages they need. In addition, farmers
shoulder a significant share of premiums, offsetting costs to
the taxpayer, ensuring crop insurance can survive and expand.
On availability, private sector delivery and capital are
key components to the success of crop insurance. NAU and our
competitors invest billions of dollars in rural communities,
shouldering the costs of operating crop insurance in its
entirety. In addition, we put billions of dollars of capital at
risk annually. For this actuarily sound program to stay viable
it is important that the formula provides enough return to
cover our costs and a reasonable, long-term rate of return on
the billions of dollars of capital we invest.
Despite the effectiveness of crop insurance, opportunities
do exist for improvement. No. 1, the crop insurance industry
continues to work with producers and commodity groups to
enhance and/or expand coverages for crops on all producers.
With higher participation, we can reduce the need for ad hoc
assistance in case of a disasters. Importantly, investing in
crop insurance is more efficient for taxpayers and provides a
level of security to our farmers that ad hoc programs simply do
not.
No. 2, crop insurance has been operating on administrative
reimbursements that have been stagnant since 2015. This has
occurred during a time of significant inflation in every aspect
of our business. Discussions are taking place regarding an
inflationary improvement that would help keep our program
strong for the American farmer.
No. 2, the American farmer has already embraced many
environmentally friendly practices, too many to mention in my
short time with you today. While we believe further adoption of
carbon-sequestering farming practices will help guide a better
future for farming, we caution that non-market incentives
should come from separately funded initiatives that do not
detract from the current crop insurance program.
In closing, I want to leave you with a reflection that I
heard several years ago while attending a meeting of an
Australian group called Thankful for Farmers. The program
developer said, and I paraphrase, ``The typical person may
occasionally need a doctor, or an attorney once or twice in a
lifetime, but that same person, three times a day, every single
day, needs a farmer.''
I am proud to be part of a program that supports such a
noble and important cause. I appreciate the support the
industry has had from Member of Congress on both sides of the
aisle, and with your support we have created a public-private
partnership that helps protect the American farmer and truly is
the envy of the world.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Korin can be found on page
74 in the appendix.]
Senator Smith. Thank you so much, Mr. Korin.
Mr. Meador.
STATEMENT OF JASON MEADOR, HEAD, RURAL COMMUNITY INSURANCE
SERVICES, ZURICH NORTH AMERICA, ANOKA, MN, AND SCHAUMBURG, IL
TESTIFYING ON BEHALF OF THE CROP INSURANCE AND REINSURANCE BUREAU
Mr. Meador. Chairwoman Smith, Ranking Member Hyde-Smith,
Chairwoman Stabenow, Ranking Member Boozman, and members of the
Subcommittee, thank you for allowing me the opportunity to
testify today on the importance of crop insurance and the vital
role it plays providing risk management for farmers and
ranchers.
My name is Jason Meador. I am the head of Rural Community
Insurance Services, one of 14 approved insurance providers that
sell crop insurance to farmers and ranchers across the country.
Our company has a national footprint, with more than 1,400
employees across the United States, partnering with over 3,500
agents, and protecting more than 100,000 farmers.
I believe that crop insurance is the best tool available to
farmers to manage the risks they face and to protect their
livelihoods. Crop insurance provides a rapid response when
losses occur. Private companies are typically able to deliver
indemnity payments to farmers in fewer than 30 days after
completing loss adjustment.
Additionally, private sector delivery of crop insurance
allows farmers to choose the company and local agent that best
meets their needs. Crop insurance is inclusive. Our industry
protects farmers of all types and sizes, covers over 130
different commodities, including the major row crops, specialty
and organic crops, as well as dairy and livestock.
The crop insurance program functions as a ``three-legged
stool'' where risk is shared by farmers, private sector
companies, and the American taxpayer. Farmers pay premiums and
are billed to purchase crop insurance and must meet a
deductible before indemnity payments are made. Private
insurance companies deliver the program and bear a portion of
the risk. The Federal Government discounts premium, making crop
insurance affordable for more farmers, and bears a portion of
the risk with private insurance companies. The result is crop
insurance being affordable and accessible for a wide range of
farmers and ranchers.
Crop insurance is flexible. Farmers can tailor their
coverage to fit their specific needs, and if a farmer or
commodity organization does not believe there is an existing
policy that works for them, those farmers can utilize the
508(h) process to develop a product that does. To this end,
more than 40 policies have come to farmers through the 508(h)
process over the last 20 years. Crop insurance successfully
meets the needs of hundreds of thousands of farmers today, and
we believe can address additional challenges going forward.
With that as an overview, I would like to address three
topics as we look ahead to the 2023 Farm Bill--climate and crop
insurance, disaster assistance, and the 508(h) process.
First, as the Committee continues to evaluate the
intersection between agriculture and climate change, it is
important to note that a farmer's first line of defense against
climate change is crop insurance. As weather patterns change,
having a strong insurance product is critical for farmers.
Additionally, there are studies that show that farmers who
purchase crop insurance are more likely to undertake climate-
smart agricultural practices.
As this Committee looks ahead to the farm bill, I would
like to share the criteria by which we evaluate proposals in
this area. First, the intersection between climate-smart
agriculture and crop insurance must maintain the actuarial
soundness of the program. This is what maintains the program's
integrity. Second, intersections between climate and crop
insurance should be incentive based, not mandated. Finally, new
climate initiatives should be funded on their own terms. Money
from the crop insurance program should not be used.
In terms of meeting these criteria, we believe the 508(h)
process, when used as intended, can enhance the intersection
between climate and crop insurance. We have seen recent
examples of this process at work with the approval of both the
Sprinkler Irrigated Rice Endorsement and Split-Application
Nitrogen Endorsement.
My second topic is crop insurance and disaster assistance.
The last several years have seen a drastic increase in ad hoc
disaster payments. It is only prudent for this body to be
looking at the next farm bill for ways to plug these gaps in
the safety net. We ask that you consider crop insurance as a
primary tool. We know we cannot solve every problem that exists
in agriculture, but crop insurance has a track record of
delivering assistance to farmers in a predictable and timely
fashion.
Regarding disaster proposals, we discourage the creation of
any disaster program that would disincentivize farmers from
purchasing crop insurance or that would directly compete with
existing crop insurance products, and we would oppose the
creation of any disaster package that is funded by cuts in crop
insurance.
Finally, regarding the 508(h) new product development
process, we are interested in working with Congress to ensure
industry engagement during new product development and rollout.
Our goal is to have a functional process that will bring
innovation to farmers, and for the process to be consistent
with the sound business practices that ensure we continue to be
good stewards of the taxpayer dollar.
In the past, companies have been faced with implementing
new crop insurance products over a compressed time period, with
no advanced evaluation or input on the product and possible
implementation hurdles. The result is that some new product
launches have not been as successful as we would like. For the
sake of our farmers, we want to see successful product launches
in the future that meet their changing needs.
In conclusion, I would like to thank the Subcommittee for
your continued support of crop insurance and for your
willingness to seek the perspective of the crop insurance
industry. We stand ready to work with each of you as we head
into the next farm bill. Thank you.
[The prepared statement of Mr. Meador can be found on page
78 in the appendix.]
Senator Smith. Thank you so much to all of our panelists.
We will now begin a round of questions from the Senators. Each
Senator will have about 5 minutes, and I will defer my first
questions to Chair Stabenow.
Senator Stabenow. Well thank you very much, Chairwoman
Smith and Ranking Member Hyde-Smith. Always wonderful to be
here with my Ranking Member, Senator Boozman. I appreciate you
allowing me to go ahead. I am juggling two committees, as all
of us do at various times this morning.
First I have to say welcome to all of you, and the good
news is overwhelming we hear that crop insurance is the No. 1
risk management tool for farmers. You are doing a good job of
whoever you are talking to. It is overwhelmingly what we hear,
and I happen to agree with that as well.
Throughout my time on the Committee I have been extremely
supportive of crop insurance and have worked really hard to
expand it. Certainly for us in Michigan, specialty crop
insurance has been really important over the years. In 2014, I
created a Whole Farm Revenue Protection Plan, which has been a
key option for diversified producers, so I would like to start
with that. Mr. Cole, I would like to ask you to dive in a
little bit deeper on the question of how we go about this type
of insurance. You talked about how the workload relative to
specialty crop policies generally has increased dramatically,
and noted your organization has specific suggestions to help
simplify coverage and make it more accessible.
Could you talk about the workload connected in selling
Whole Farm policies, and if the workload affects what type of
policies that agents are selling and any suggestions that you
would have for simplifying that process.
Mr. Cole. Yes, Senator. As you know, I am from Mississippi,
so we do not have a lot of specialty crops in our area.
Senator Stabenow. You have got a lot of catfish.
Mr. Cole. That is right. Through our association, my fellow
agents that are in specialty crops, really work hard, and the
unique thing about crop insurance is through the 508(h) process
anyone that has a good plan or proposal can submit it and it
goes through the process. It is continuously evolving and
improving in the specialty crop area, and we are reaching out
to more crops. As these guys have noted, there are more crops
being insured, more programs being added every year.
Recently--this has been a big success--they improved the
hurricane assistance in the coastal areas to include tropical
storm coverage, and that has been a big help. That is a new
issue that we have had, or a new program that we have had that
has been added.
One thing on the Whole Farm, especially in your area of
specialty crops, that has really been embraced, and some of our
agents that we have been talking to have noted that the
coverage cap on WFRP might need to be removed or raised
substantially to include the bigger specialty crop operations,
which, in turn, would lower the cost and the rates for a lot of
the specialty crop areas.
Senator Stabenow. Thank you very much.
I want to ask a broader question now because I am very
confident that we are going to be able to work together on this
Committee and be able to move forward a bipartisan farm bill
that works for those across the country. My bigger worry right
now is just the economic environment in which we are in, with
all of the discussion about default and so on.
We heard that the Fed Reserve Chair, Jerome Powell, said
yesterday no one should assume that the Fed can really protect
the economy and financial systems and our reputation globally
from the damage that a U.S. default might inflict. We should
not even be talking about a world in which the U.S. does not
pay its bills.
Mr. Wagner, Mr. Morgan, and Mr. Barker, could you talk a
little bit about the implications to farmers and our ag credit
system generally, in terms of interest rates and credit
availability, if, in fact, the Federal Government were to
default on its debts?
Mr. Morgan. Sure. Thank you, Senator. As far as interest
rates, the rapid rise in interest rates over the last 12 months
will impact every operator that we have. Any operator we have
with an annual operating loan, whether that be cattle, whether
that be row crops, right now is facing interest rates that are
more than two times where they were at the beginning of last
year.
We also have a number of long-term real estate loans that
will be repriced this year as their original pricing expires
and there is an opportunity to reprice their loan. They will be
facing much higher interest rate costs. In some cases, we will
have a number of producers that will face both higher operating
line costs plus real eState interest rate costs.
Through that Farm Credit remains very well-positioned to be
able to weather that adversity with those borrowers as we
continue.
Senator Stabenow. Thank you. Mr. Barker?
Mr. Barker. Yes. Senator, that is a big topic for as well.
Our friends in the Farm Credit System have a better funding
source than we do, using the bond market, where ours is the
local savings and CD rates that we have to pay.
We are proposing a new bill. We have an acronym of ACRE.
Some of you may have heard that. We have been on Capitol Hill
promoting that. What we are asking for is that the interest on
all rural ag real estate loans and home loans in towns of 2,500
or less be tax exempt. We have calculated that could mean the
difference of 1.5 to 2.5 percent lower rates for our folks, and
that is another tool that we would love to use for beginning
farmers and our lower-income families in our towns.
Senator Stabenow. Mr. Wagner, did you want to respond?
Mr. Wagner. I will take a little bit different tact. I
think the risk-free rate, which is what is driving our
borrowing costs, impacts farmers every day. The higher that
goes, the more they are impacted, and it tends to compound
because that drives other risk-free rates in borrowing for
other parts of ag as well--cost of fertilizer, cost of seed,
all of those things are impacted by that risk-free rate. The
higher that goes, the harder it gets, and that is something we
are actively trying to work against, as I am sure you are as
well.
Senator Stabenow. We are. Is it fair to say no one thinks
that the U.S. defaulting is a good idea for farmers and
ranchers? Okay.
Thank you, Madam Chair.
Senator Smith. Thank you very much, Chair Stabenow. Senator
Hyde-Smith.
Senator Hyde-Smith. Thank you very much, and my question is
to Mr. Morgan. Can you please expand on the importance of crop
insurance and livestock risk protection to your borrowers?
Mr. Morgan. Thank you, Senator, for the question. First of
all, Farm Credit strongly supports the crop insurance program,
and every year that our row crop farmers, go in and they plant
their seed, and they grow whatever the commodity is, they are
risking the full equity or material equity of their farm in
that crop. Without that crop insurance, any one year that they
have a disaster or a disease or a market issue, that crop
insurance will cover them and assure that they will be able to
continue the next year to plant that same crop.
The livestock risk protection is well-used in our area,
very popular. Farmers use that. Cattle producers use that to
hedge against a decline in market prices, which also is very
important to us as a lender.
Senator Hyde-Smith. Thank you. Mr. Cole, you have a pretty
unique perspective here as both a crop insurance agent and a
producer. What are some of the unique challenges faced by
producers in the mid-South, and how does crop insurance meet
those challenges specifically to the mid-South?
Mr. Cole. As you well know, we are blessed with the amount
of rainfall. Sometimes we are overly blessed with the amount of
rainfall. Our crop insurance customers are primarily worried
about flood damage, planting a crop and then losing the crop.
We are constantly working with whatever their crop mix, because
as you well know, in the mid-South, we could rotate three to
four crops on the same farm. We have to sit down, depending on
what the market drives, and work with our farmers every year to
custom tailor the best coverage for them, where their loans
with these guys would be collateralized to an amount where
everybody is protected.
Senator Hyde-Smith. Yes, they say 55 inches annual, but I
think we may have to go up on that one.
Mr. Cole. Yes, ma'am.
Senator Hyde-Smith. Mr. Meador, one reason it is critical
to preserve access to risk management tools in this farm bill
is that these tools help preserve family farms for the next
generation, which I think is so critically important. I am
pretty passionate about getting young people involved in both
hands-on farming and industry-type jobs like yours. Please
share more about the RCIS apprenticeship program, which I think
is so interesting.
Mr. Meador. Thank you, Senator. RCIS, as part of Zurich has
an apprenticeship program for young adults or people returning
from the military, so you could be a high school graduate, a
military veteran, or shucks, somebody that wants to change
careers. We have a program where you can come join RCIS and you
are able to get an agriculture degree from Northeast Iowa
Community College. We pay for the degree. While you get that
degree you work part-time for us, doing a job, getting exposure
to fields such as underwriting, claims handling, finance or
marketing.
Then after your two years, you have a full-time job working
for RCIS. We require you to work for us for one year, and
hopefully many, many years beyond that. It does allow a path
for new people to come into the industry, young people, diverse
people. It is a wide range that we are really looking for.
This year we are hiring 18 individuals across the United
States in different locations, in many different fields. That
is really our focus, to bring people into the industry.
Senator Hyde-Smith. I just really want to commend you for
that. Thank you so much.
Mr. Meador. Thank you.
Senator Smith. Thank you so much.
I want to dive in a little bit into some of the comments
that several of you made about the work we need to do to make
these risk management tools more readily available, work better
for small farmers, beginning farmers. Mr. Wagner, could you
just go into a little bit more detail? You talked about some of
the examples that you have about the work that Compeer does, to
think about how we can help to overcome some of the hurdles
that young farmers and beginning farmers face, and what you
have seen that works.
Mr. Wagner. We are actively involved in this area. I think
there are a couple of things that I would say are required.
First, you have to be engaged in that work. We have a dedicated
team, our Emerging Markets team, that is dedicated to that. Sai
Thao and Paul Dietmann lead Compeer's Emerging Market team, and
do a great job of working in the communities. You have focus.
You have to then build trust. These communities do not just
accept you and say, ``Give me your money.'' They want to work
in a sustainable fashion. You have to build trust, sharing
knowledge, talking about the programs, helping get them
networked around the country and with these programs to help
them understand what is possible. We have to have commitment.
You have to continue to show up, and you have to continue to do
that.
I think what it comes down to at the end of the day is
flexible programs, so it is incumbent upon capital providers to
have the flexibility to adjust to those communities and work
through those issues to try and find ways to support them.
Reggie, who is our producer in the written testimony, did
not have much of a credit balance, did not have much of a
credit history. We were able to work with him, get him started.
He brought others into the community, and they are operating a
regenerative poultry farm near the Twin Cities. It is a great
story. It is an example of how you can get introduced, you can
build trust, you can create flexible programs, and now they are
off and running, and we hope that they continue to succeed as a
traditional farmer, where they have more access to capital.
Senator Smith. I think you mentioned something about how we
need to make sure that FSA has the flexibilities as we are
looking at this big generational transition in farms. Could you
just talk a little bit more about what you think that ought to
look like?
Mr. Wagner. Absolutely. There are specific items within the
FSA programs which require kind of an owner-operator issue.
When you have extended families, these operations often times
have multiple kids. I am from a family of three, so you get
that. How do you pass that land on and maintain somebody on the
farm? There are many different ways that farmers are choosing
to do that, but oftentimes many of those legal structures they
are selecting force them out of the FSA programs.
It is really about structuring something that is flexible
for the new age around liability protection with LLCs and
partnerships, but also just that flexibility around family and
partnerships in those programs and not having it be kind of one
farmer, one piece of land. I think that is where the
flexibility really is needed, and I think we can do that pretty
easily and still stay within the intent of the original
programs.
Senator Smith. Thanks so much.
Mr. Korin, I want to followup a bit on a question, and you
are welcome to respond to this as well, but followup on a
question that Senator Stabenow was asking about Whole Farm
insurance. That Whole Farm revenue protection is nearly a
decade old. I think that USDA's Risk Management Agency has been
championing this. We are seeing that there is still some work
to do there, and I have heard that because of administrative
requirements and some of the financial information required it
just can be sort of burdensome.
Could you just talk a bit about that and anything you think
we ought to be doing to make that work better?
Mr. Korin. Yes. Thank you, Senator, and we appreciate the
work that the Committee did to get Whole Farm active. One of
the tenets of crop insurance is to make sure we get the pool as
large as we can so we can spread risk and get everybody in the
program, benefiting all, and in some of the specialty crop
areas there was a need, especially in the Northwest and in the
Northeast parts of the country, where specialty crops like
apples and grapes and things like that are grown, there was a
need for additional coverage. Because it does not apply itself
to the normal APH kind of coverage that is in crop insurance,
Whole Farm did make a push to get more people in the program,
and for that it was successful.
I think last year we wrote, as an industry, about $125
million of coverage on Whole Farm. I can tell you that this
year, with the changes that we worked with RMA to put into
place with regards to the micro Whole Farm and some of those
things, we are already over that number.
I looked at our own book of business, and from last year to
this year we are up 18 percent on Whole Farm.
It is maybe slow to grow, but it fills a void that we
needed in crop insurance, and I think it is working, Senator.
Senator Smith. Thank you so much. Senator Ernst.
Senator Ernst. Thank you, Madam Chair and Ranking Member,
and thanks again to the witnesses for being here today. Gus,
Mr. Barker, thanks for being here. In your testimony you did do
a very nice job of describing how productive Iowa farmers are,
but you did also, in your remarks, mention the high cost of
land in Iowa. That makes it particularly difficult for our
young and beginning farmers, and small farmers.
There was a 2022 study from Iowa State University that gave
the land value. It was called the Land Value Survey, and it
gave the cost of an average price per acre of Iowa farmland.
The average was around $11,000 or so per acre, but it ranged up
to $30,000 for a high, up in northwest Iowa. I know you are
familiar with some of those costs.
According to the most recent USDA census data, which came
out in 2019, and I have heard this before, but the average age
of an Iowa farmer is just over 57 years old. My sister and her
husband are those average Iowa farmers right there.
Mr. Barker, from your experience how can we better help and
incentivize young and beginning farmers so that they start and
stay in agriculture? We get a lot of these young people. They
will start in farming, but they find that they cannot often
stay in farming.
Are there special financing terms or other unique programs
that are being offered to keep these young people in
agriculture?
Mr. Barker. You know, we use a variety of programs,
Senator. We have used a partnership with USDA where they
provide a down payment and we provide the funding for a
purchase of hog facilities, and the young man is willing to
work. They have to be willing to work. It is not something you
can just sit in the office and manage. They have got to be
willing to do that.
We use the programs that have the guarantees. We feel the
new USDA Express program would fill a niche. Some of the
opportunities my young farmers have had come up are under a
deadline, because there are multiple people willing to pay the
price, and for a young farmer who applies for a USDA loan, they
do not come through very fast. If that is delayed, that seller
is going to go somewhere else where he knows he can get the
money fast.
Senator Ernst. And Gus, if I could interrupt there, just so
folks know, how long does it typically take for that process?
Mr. Barker. We estimate 60 days, minimum, to get that done.
In a worst-case situation, at times when funding is low, it
could be six months. It is really a pretty tough time. The
paperwork is intimidating, so if the lender can use their own
forms, have a 36-hour turnaround, that young person has the
best shot of getting something purchased for them. Not
everybody has family members that are willing to help.
The State of Iowa does have a program, that may be tailored
at the Federal level, that gives a tax break to the seller of
the farm to the young farmer. For a five-year term they get a
tax break on their income taxes, a tax credit, and that has
worked well for some of the beginning farmers in Iowa.
Senator Ernst. Yes, that is good. Thank you. Mr. Wagner,
how about you?
Mr. Wagner. We like the Express program, by the way. I
think that is a great idea. It is something that we would
definitely support.
I think where we look at it is we do a lot of different
structuring around young and beginning farmers. Down payment
assistance tailored the cash-flows to the right thing. More
broadly we want to provide off-farm income opportunities for
the partner or the spouse who is working in that rural
community, and if we can do that and have that off-farm income
and contribute to them getting on their feet as full-time
farmers, then as their operation grows they can come back and
be full-time.
It is a whole look. Much of the farm income around the
country is off-farm, and we need that support and that strong
rural community in order to help those producers start and stay
on that farm, as you said. It is a key item to look at it
holistically versus just on the farmer aspect, because that is
just not broad enough.
You cannot get started the way it is with ag today, and the
prices that we have to pay. It has to be kind of a collective
working hard and working, you know, and two jobs or one job to
try and make that work, that is quite often the solution. I
think that is something we are producing. We are trying to
support that growth in those rural communities as well as
providing specific programs for young and beginning farmers.
Senator Ernst. Yes. Thank you both very much. I think it is
important that folks out there in non-ag country understand how
difficult it is to really get into farming and to be able to
thrive in farming. Thank you very much. I appreciate that.
Thank you, Madam Chair.
Senator Smith. Thank you, Senator Ernst. Senator
Tuberville.
Senator Tuberville. Thank you, gentlemen, for being here
today and helping with this all-important farm bill that we are
getting ready to attack. I guess that is the way we would call
it.
As we heard during Tuesday's hearing, protecting the farm
safety net is the top priority for commodity groups across the
country. For this farm bill, crop insurance programs represent
only seven percent of the total $1.5 trillion package. We
cannot have an effective and functional safety net without
stabilized crop insurance coverage for our producers. It is not
going to happen.
Also, we must ensure our producers have access to capital
and risk management tools to weather rising input costs and
skyrocketing prices for farmland and equipment.
Mr. Wagner and Mr. Morgan, I hear from Alabama poultry
producers about the rising cost of poultry houses. Four houses
can cost up to $2.5 million, or more. In your testimony, you
mentioned the need to increase FSA-guaranteed loans. What is
the appropriate level of FSA-guaranteed loan limits?
Mr. Morgan. Thank you, Senator. Farm Credit is asking for
an increase of up to $3.5 million for ownership, and up to $3
million for operating. In my statement I indicated a similar
example of what it takes for a poultry farmer to make $75,000.
According to the U.S. Census Bureau, household median income
for the last two years has been about $70,000. For a poultry
producer, they have got to go in and make a $3.3 million
investment in order to achieve the same level of median income.
An increase in the guarantee amount, which is currently a
little over $2 million, would significantly cover the cost of
those houses, and be an entry point for so many young,
beginning, and small farmers.
If I could, in Mississippi and Louisiana, we have a
concentration of integrators in poultry houses and great
opportunity there. That is just a really key item for us with
this farm bill.
Senator Tuberville. Thank you. Mr. Wagner, have you got
anything to add?
Mr. Wagner. Just quickly, a broader perspective. When you
have an ownership loan and an operating loan and those two
things combine, that limit still applies. I think where we have
young, beginning farmers who may have some help on the land
loan, may not have that same help on the operating loan. That
limit is real, and as the cost of inputs and the cost of land
move up, as Senator Ernst indicated, you run into those limits
really fast. Updating is important.
Senator Tuberville. Thank you. Mr. Barker, thanks for
wearing the appropriate blue and orange tie today, by the way.
I was co-sponsor of ECORA last Congress and look forward to
support ACRE this Congress. Mr. Barker, can you share with the
Committee how ACRE could allow community banks like yours to
better serve rural communities in your market?
Mr. Barker. It is a lower interest rate. With those
interest income tax-free to the bank we could pass that on to
our borrowers. Any cost savings that we could provide those
beginning farmers is essential. We cannot control the input
costs or anything else. The only thing we can control is the
interest, and that is one way we could do that, by having that
interest tax-free to the bank on the ag side of things. Also in
my markets, my towns are all under 2,500 people, and the
housing situation is very, very difficult there. It would
really benefit my folks who have very limited means of income
in making a purchase and affording the houses, rather than the
double and triple interest rates they see now.
Senator Tuberville. Thank you.
Mr. Cole, Mr. Korin, or Mr. Meador, to any of you working
in the crop insurance industry, as you know, half of the 14
approved insurance providers have parent companies that are
owned by foreign entities. I know that some AIPs have
subsidiaries in China. Do Chinese entities have significant
ownership stakes in any AIPs or their parent companies?
Mr. Meador. I will take that one, Senator. At RCIS, Rural
Community Insurance Services, our parent company is Zurich.
Zurich is a Swiss-based company. Just a little bit of
background on who Zurich is and what our role is with RCIS.
Zurich purchased RCIS in 2016. Prior to the purchase in 2016,
Zurich was a reinsurance partner with RCIS going back to 1998,
so providing capital to RCIS to be able to support crop
insurance in American agriculture.
If I go back further, Zurich in North America has been
doing business in the United States going back to 1912,
providing insurance for many infrastructure projects over time,
everything from the Hoover Dam, Chesapeake Bay Bridge, and the
update to LaGuardia Airport. There is a lot of capital that
comes from Zurich globally to be able to support North America.
From a business perspective, broadly, globally, roughly 90
percent of Zurich's property and casualty business is in North
America and Europe, so Western economies. When I look at the
life business there is not as much in North America, but it is
more in Latin America. Asia-Pacific makes up only about 10
percent of the business or a little bit less. Major markets
there are Australia and Japan. We do not do business in China.
The one caveat to the China question--so we do not have
subsidiaries in China, to answer your question very directly--
the one caveat to China is we do insure multinational
companies. If they have business in China, we carry our
insurance through an international program to give them
protection while they are doing business in China, but we do
not do it directly in China.
Senator Tuberville. Thank you. Thank you, Madam Chair.
Senator Smith. Thank you, Senator Tuberville. Senator
Gillibrand.
Senator Gillibrand. Thank you, Madam Chairwoman. Over the
past few months we have seen three of the four largest bank
failures in American history. Quick action by regulators in the
private sector have allowed for stabilization to a point, but
it is clear that Congress must act with some banking reform to
guarantee long-term economic stability in the banking sector or
risk similar future events.
For all the panelists, do these banking disruptions pose a
risk to our rural lenders and rural creditors?
Mr. Barker. Well, from our standpoint in rural Iowa, and in
talking to my ag committee, which is scattered across the
United States, we have not seen an impact. Those megabanks were
not typical bank management, and we just feel there needs to be
a distinguished line drawn in the sand between the risk of
those megabanks who are investing in far-out ways of doing
business compared to what the community bank model has always
been. It has been stable. It has survived everything from world
wars to the ag crisis and survived that bank model. We just
feel that we are stable. We have not seen withdrawals of major
deposits or anything like that. We just think there needs to be
risk-based fees to those big places. We should not have to be
tagged on to paying for those failures of those people. We get
monitored----
Senator Gillibrand. Can I just interrupt you for a second?
I am not concerned about the large banks right now. I am
concerned about community banks, regional banks, smaller banks.
Specifically--and maybe it is not happened to you in Iowa--for
the other panelists, have you seen capital flight to larger
institutions? Are you concerned with the rising interest rates,
that it will destabilize your regional banks or your community
banks or your partners? Because we have data and information
that they have not reached stability. It started at Silicon
Valley Bank, but then it went to regional banks in New York, it
went back to a regional bank in California, now all these
regional banks are having a reduction in their stock price, as
much as 50 percent loss.
There is enormous instability in the regional banking
system today because of interest rates and because of
misaligned investments. You may have had very prudent
investments, and you may be extremely stable, and there are
many banks like that I know in New York as well. For the rest
of you, have you seen any flight of capital? Are you worried
about misalignment with interest rates, and are you seeing any
impacts that affect your business?
Go ahead, Mr. Morgan.
Mr. Morgan. Yes. Thank you, Senator. I mean, community
banks are an integral part of our small towns and rural
communities in Mississippi. Of course, any time there is
discussion of a credit crunch, whether it is ag or non-ag, that
bothers all of us.
I will say that there is conversation among our communities
regarding those concerns. I cannot necessarily speak to them
because I am in Farm Credit, but I can tell you that Farm
Credit is well positioned right now, well capitalized, and does
not have the same concerns, and we are well positioned to
continue to support local agriculture.
Senator Gillibrand. Thank you. Mr. Wagner?
Mr. Wagner. The impact is real. When you have contagion
like you have, I think you start to see increase in spreads.
People require more for the risk that is being taken. Farm
Credit is part of that. Our GSE spreads have expanded because
of that, which is costing our farmers money. We are trying to
do what we can to move through that.
I would say the impact is not real acute right now. It is
around the edges, newer producers coming in, newer loans that
are being funded. It is something we are actively watching. We
are working with our district bank, AgriBank, to monitor their
risk and understand what is going on there so that we can
protect what is going on.
I think what you are seeing more broadly, initially, is
everyone talking about risk, and when everyone is talking about
risk you tend to get more conservative. It is immediately
impactful to your young, beginning farmers.
Senator Gillibrand. For the rest of you three, has it
increased your costs? Has it increased the cost of access to
capital? How is it impacting your customers? Mr. Cole?
Mr. Cole. Yes. Our customers were able to secure, for the
most part, without any issues, production loans for this year.
Now it is just apparent that the high rates are going to have a
severe impact, especially with the cost of production just
dramatically rising. It is going to be an issue. There is no
doubt.
Senator Gillibrand. Mr. Korin?
Mr. Korin. Yes, Senator, there is no doubt the change in
the banking industry has impacted capital, and as such, for
example, this year our reinsurance costs are up probably 40
percent. You see it more in property and casualty because the
crop industry has better performance. Everyone was hit with
that this year. We are seeing our cost of capital really go up.
Mr. Meador. Yes, I agree with Jim on the reinsurance costs.
From our perspective, being part of a large, multinational
company, I do have access to broader capital, so it probably
impacts me a little bit less given what we actually do.
The other point that I want to make, from a banking versus
insurance sector, is in the insurance sector, our investments
were focused on assets matching liabilities, so some of the
liquidity issues that banks have, insurance companies naturally
do not have, given how we manage our business. I just wanted to
make sure that point is out there as well.
Senator Gillibrand. Thank you, Madam Chairwoman. Thank you,
witnesses.
Senator Smith. Thank you, Senator Gillibrand. Senator
Boozman.
Senator Boozman. Thank you, Madam Chair, and we do
appreciate you all so much. I apologize for running in and out.
We have all got about three or four hearings. In fact, I was
with the NIH and folks like that. I am trying to get a question
in there about the high rate of suicide amongst the ag
community and what we are doing to try and focus on that and do
a little bit better job.
Mr. Wagner, a theme we have heard come up more than once in
testimony is how producers are getting squeezed by higher
costs, due in part to persistently high inflation, interest
rates, cost of production has increased. How important is it
that we ensure farmers and ranchers have access to a level of
credit needed to keep pace with the current inflationary
environment? I would add, how important it is, especially to
make sure that our risk management tools, crop insurance, all
of the other risk management tools are up to date in this
really generational inflation rate, generational high interest
rate, generational high input costs. The list just goes on and
on.
Mr. Wagner. It is very important that farmers have that
access to capital. As we talked about, that rural capital team
is important, so building up and having access to many
different options across the spectrum is very important to help
alleviate some of those issues that you have with specific
sectors, specific groups that may have problems as inflation
moves up.
I think we are very focused on trying to also adapt the
programs. We have not had significant inflation since the
1980's, and many of the programs and structures were not set up
with those in mind. I think this is a great opportunity to
relook at some of those options and provide that flexibility,
up and possibly down, as you see things move over time. Things
like FSA loan limits, as we look at crop insurance and some of
the things that are moving around within those products as
well.
We want to serve our farmers. We want to serve them in the
best way, and flexibility is oftentimes the best way to adjust
to rapidly changing markets like inflation and input costs.
Senator Boozman. Very good. Thank you, Mr. Wagner.
Mr. Morgan, over the past several years the debt-to-asset
and debt-to-equity ratios have increased while working capital
is expected to decrease by more than 10 percent in 2023,
according to USDA forecasts. Meanwhile land values have
continued to climb, and farm incomes are set to decrease by
double digits. While these statistics do not rise to the level
of the 1980's farm debt crisis, what can we do to minimize the
risk of returning to that type of environment?
Mr. Morgan. Thank you, Senator. As we see growers and
producers, as we see their balance sheets begin to decline, as
we see that the equity begins to deteriorate based on high
costs and declining margins and so forth, it is just critical
that we continue to have the safety net in the farm bill, that
those producers are, in some ways, assured that that safety net
is there, that they are going to be able to continue. As that
equity declines, so does the risk of a smaller loss causing a
greater issue in the future.
I would also say for entry-level farmers, for our young,
beginning, and small farmers, they need a guarantee that there
is going to be a living there, that they can earn as they
continue to see the risks increase in agriculture.
Senator Boozman. As lenders, Mr. Barker, Mr. Morgan,
whoever, do you see increased scrutiny by the bank examiners
with the banking system a little bit shaky right now? You are
seeing these balance sheets, and then again, you are having to
be a little, you know, scrutinize things a little bit more
because of the nature of the beast with the farm economy. Do
you see people scrutinizing you more as a result, and that
making it even that much more difficult, and another reason
that we make sure that our safety nets are in place and up to
date?
Mr. Barker. We have always been scrutinized pretty heavily,
Senator.
Senator Boozman. You do not know that you can have any
more.
Mr. Barker. Yes, I do not know that there has ever been a
lull in my banking career, but I did survive the 1980's, so I
guess that is an accomplishment. I just finished a State exam,
one of the best exams I ever had. Our files are up to date, we
have our lenders that are trained, and our customers are well
positioned. They have had some very good years, and we hope to
keep that sustained, even though I am in the severe drought
area of the State of Iowa. We worry about that every year, and
the last couple of years we did not think we would have a crop,
and we had such timely rains that it made a big difference. We
had the safety net, and that is a question we get asked on
every customer from the examiners, do they have Federal crop
insurance? As long as we can tell them yes, they feel much more
comfort in that.
Senator Boozman. Good. Thank you, Madam Chair.
Senator Smith. Thank you, Senator Boozman. My colleague
from North Dakota, Senator Hoeven.
Senator Hoeven. Thank you, Madam Chairman. Thanks to both
of you, you and the Ranking Member, for holding this hearing.
Thanks to our witnesses.
For Mr. Barker, in the 2018 Farm Bill I worked to increase
loan limits for both FSA direct and the guaranteed loans, and I
am looking to work on that again in the 2023 Farm Bill. Do you
believe that the current FSA loan limits provide producers with
adequate access to credit relative to their cost of the
production?
Mr. Barker. Actually, Senator, our opinion is no, that they
need to be adjusted upward. The price land and inputs have just
skyrocketed for us, and we are proposing $3.5 million for the
ownership and $3 million limit on the operating line for USDA
guarantees. We feel we could live with that, but we would like
it indexed to inflation to keep up in the future. I think some
of my colleagues also mentioned those same numbers.
Senator Hoeven. Does anybody disagree that the cost of
production agriculture has gone up and we need to increase
those loan limits? Just if you disagree, say so. Otherwise I
will figure you all agree, because it is obviously that is the
case. Okay.
Then to Mr. Cole, Mr. Korin, and Mr. Meador, what would it
mean to your producers if crop insurance were weakened? In
fact, don't we need to continue to strengthen it? Is it not, in
fact, our producers' No. 1 risk management tool?
Mr. Cole. Yes, thank you, Senator. I would submit that it
is the only viable risk management tool that our farmers have
today. It is so important to our small, rural communities, not
just the farmers relying on it, these lenders here rely on it
heavily, the tractor dealerships, the seed and chemical
dealerships. It is the underpinning of all of our rural
communities, to a certain extent.
Mr. Korin. Yes, Senator, the higher input costs have
definitely put the risk at a higher level in rural America, and
our farmers invest more to get their crop in the ground. You
know, in your area we have seen a flight to higher coverages
through ECO, SCO, some of those plans. The reason is that the
margins are tight on the farm. Input costs are expensive, and
farmers cannot afford a year where they cannot pay their bills.
Senator Hoeven. Yes, and you make a really important point
there. You know, as they get up to higher levels of coverage it
gets prohibitively expensive. What can we do to enable them to
get those higher levels of coverage, as well as what role can
supplemental coverage options and enhanced coverage options
play? Thank you for bringing that up.
Mr. Korin. We, three years back, NAU piloted or sponsored
the EDO product, which is a 95 to 86 cover, and we did that
through the 508(h) program. When we see the need, you know, I
think as an industry we need to go and see if we can get that
coverage expanded.
Unfortunately, with ECO, when we went through the process
there was a statutory cap on how much subsidy or premium
support the government could provide, and it would be helpful
to get that increased, similar to STAX and the FCO. That would
help a lot.
To be honest with you, I think just about everybody up
here, in their opening comments, said that it is more efficient
for taxpayers to put money into the crop insurance program,
where the farmer is shouldering some of the cost. I think it is
prudent to look at those ideas and see if we can get there.
Senator Hoeven. Really good point. Thanks for making it.
Mr. Meador. I agree with everything Mr. Cole and Mr. Korin
said. Crop insurance is the No. 1 risk management tool for
farmers and ranchers, to be able to support their loans or
their livelihood and stability in agriculture going forward. I
think it is critically important.
I will echo a little bit of what Mr. Korin said around the
508(h) process and being able to bring new and different
products to enhance the program. That is really what growers
would be looking for. He brought up a great example that allows
for coverage at a slightly lower cost. ECO/SCO allows them to
get a bit higher coverage, moving from your specific farm to an
area-based coverage plan. Those types of things can be done. I
would also highlight things like index products. When we talked
earlier about the hurricane insurance protection, wind index
product, the program just added tropical storm coverage this
February. Those types of things give additional coverage.
I would be remiss not to echo again the point on premium
discounts. Premium discounts for some of these products as you
get to higher levels of coverage do potentially make it cost-
prohibitive for some growers to be able to get that. If you are
able to increase it, that will or should be able to help
address some of the ad hoc disaster assistance that has been
needed over the past several years.
Senator Hoeven. Thank you. Mr. Cole, I want to ask you
about the A&O reimbursement for insurance companies that
provide Federal crop insurance. USDA has the authority to
provide inflationary adjustments. They have not done that since
2015. They did it before. That authority did not magically
disappear. They have it.
Mr. Cole. Yes, sir.
Senator Hoeven. Talk to me about why they need to use it
and provide an inflationary increase for the insurance. We just
got done talking about crop insurance being the No. 1 risk
management tool for our producers out there. They need a
network of insurance companies out there across rural America,
a lot of them small companies, that are willing to provide
service to them, right, people that actually know the farmer or
rancher they are dealing with, right?
Mr. Cole. Yes, sir. Yes, sir. I 100 percent agree. First, I
want to start by thanking you and your colleagues for
bipartisan support in the Omnibus that actually Stated just
what you said. The Department does have the authority to
implement the A&O inflation indexing without opening the SRA.
As you well know, crop insurance program is extremely
complicated, and we have very skilled workers that deal with
this, and our agencies, most agencies provide benefits--health
insurance, retirement accounts.
The problem that, especially in the specialty crop areas,
it is very complicated. We work very hard every year to add
more coverage, add more policies, but it is very risky
proposition to not be able to pay those employees. As we are
adding to the program, we run the risk of not being able to
provide the service to that program.
Yes, I 100 percent agree. We have got to urge the
Department to add indexing on the A&O. Thank you, sir.
Senator Hoeven. Thank you. Thank you, Madam Chair. Sorry
for going over my time.
Senator Smith. No. No worries. Thank you, Senator Hoeven.
We have now completed our first round of questions by the
panel. I believe that Senator Ernst has one more question, and
I have one more question, then I think we will be done.
I want to just open it up to the panel and get at something
that several of you have referred to, which is how important
these risk management tools, crop insurance and other risk
management tools, certainly they are important to farmers and
producers, but they are also really important to rural
communities, you know, more broadly. Strong agriculture equals
strong rural communities equals just more opportunity, flat
out, in small towns and rural places.
Would anybody like to comment about how you are partnering
with rural communities to support local economic development
growth?
Mr. Barker. Well, I am in some pretty small communities, so
the bank is the majority of the economic development there.
Whatever we do impacts our community directly. The next thing
we have would be a grain elevator, and maybe a small
convenience store. One of my communities was lucky enough to
have a grocery store built by a regional chain, and that serves
every community within a 30-mile radius now.
It is a devastating thing not having the agriculture
community around, and they support everything we have.
Senator Smith. It is people.
Mr. Barker. It is, and at the gas stations you are going to
see 15 or 20 pickup trucks every morning, for coffee and
comparing notes on what they know and do not know.
Senator Smith. That sounds familiar. Mr. Wagner?
Mr. Wagner. The rural community is obviously a big part of
where we are at. We are doing some specific things around rural
vitality. This is a new initiative for me, as a CEO, and for
Compeer. We are adding extra oomph to this. We are building
networks.
We are working with a group called CEDA, which is locally,
to build networks around small businesses to, one, identify
what they need, two, to try and work regionally versus locally.
We believe that is really an important factor for us is to work
regionally. Then bring capital. We are providing capital to
these groups to get started. We are providing low-interest
loans to try and help them do what they can do to work within
those communities to build those. We are also being a voice. We
are here talking about rural communities and how we can help
them.
Between those three things we believe we are really focused
on driving that rural vitality. Further, we would love to
support rural health care. We are building hospitals. We are
building senior care facilities through case-by-case approval.
We would really like to streamline that process and utilize
that existing authority more fully.
Senator Smith. Thank you very much. Thank you. I will turn
to Senator Ernst.
Senator Ernst. Thank you, Madam Chair. For our lenders that
are here, in my home State of Iowa, our turkey and our egg
producers have been hit hard by avian influenza, and I think we
all vividly remember 2015, when it swept through many of our
States. That was my first year in the Senate, and it left a
lasting impression.
As you know, once that flock is infected, that farmer
producer has to depopulate the entire flock. Thankfully the
USDA does have an indemnification program. The farmer has a
loss for income that was expected in outlying years from that
flock.
Mr. Wagner, why don't we start with you. Those poultry and
livestock producers are very focused on foreign animal
diseases. We had the avian influenza. God forbid if we ever
have an African swine fever episode. They are focused on those
foreign animal diseases, so the preparedness and the
biosecurity that comes with that. Can you walk through what
you, as a lender, can do for those producers, when the avian
influenza or another foreign animal disease strikes?
Mr. Wagner. Yes. Thank you, Senator, for the question. It
is unfortunately happening more often, and so our plan is we
increase the voice of the customer. Spend time on their farm
trying to understand that individual situation. Every one seems
to be a little bit different, and each producer is in a
different situation when that arrives. Between working with the
USDA and those programs and the insurance providers that they
may have, we try and find ways to structure the cash-flows to
keep that farmer farming out into the future.
It is a consistent thing that Farm Credit does. We work
with our borrowers. We try and engage with their cash-flows and
their opportunities. We look for other programs that may be
able to support that, and work with them to keep them farming
over time.
Typically they have been able to recover, and that has been
a really positive sign of both the work of this Committee and
the support that we have from the government, but also just the
support they have from those communities. They will oftentimes
have neighbors and friends help them out as you go through that
process. That is something we like to see and have a network to
build around.
Senator Ernst. Thank you. Anything different, Mr. Barker or
Mr. Morgan?
Mr. Morgan. Thank you, Senator. I would just say that
whether it is avian flu disaster, whether it is tornados,
whether it is anything that would knock out the cash-flow of
that borrower, we have the tools and the availability to move
that timing around of when they can get cash-flow back and when
they can make their payment.
Senator Ernst. Thank you.
Mr. Barker. Same thing with us. We make use of any tool we
have. It may or may not involve USDA-guaranteed programs, but
usually they have to restructure and stretch some payments out
over a number of years.
Senator Ernst. Yes. Something always to be aware of. Thank
you very much, Madam Chair.
Senator Smith. Thank you so much, Senator Ernst, and I
really appreciate you bringing up avian influenza. It is an
issue that affects both of our States so intensively, yes,
probably all of our States. Exactly. Thank you.
Colleagues, does anybody else have any other questions that
you would like to ask?
In that case I want to thank our witnesses again for being
here today and for providing testimony, and thank you again to
Senator Hyde-Smith and to your staff for working with us on
these committees this week. Thanks to Ranking Member Boozman
and Chair Stabenow for joining our Committee hearing this
morning.
You know, we mentioned several times that the Ag Committee
is lucky to work in a space where there is strong
bipartisanship. We are not as partisan as in some other spaces,
and I hope that this hearing this week, all of the hearings
that we did this week, will help to inform us as we build a
bipartisan farm bill that meets the needs of farmers and
ranchers and small towns and rural places all across the
country.
For Senators who wish to submit questions for the record,
these questions are due one week from today, which will be
Thursday, May 11th. For our witnesses, you will have two weeks
to respond to any questions for the record.
Thank you again, and with that this hearing is adjourned.
[Whereupon, at 11:40 a.m., the hearing was adjourned.]
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