November 21, 2016

KEY  AG  POLICY  ISSUES  AHEAD

The highly contentious 2016 Election is now history, and we will now move forward with the new Trump Administration, as well with new leadership at USDA and in other key Federal agencies. There are many major issues that could potentially affect the agriculture industry, which still need to be addressed and resolved by Congress and the White House in the next few years.

We will now await to see who President-Elect Donald Trump will appoint to serve as Secretary of Agriculture, as well as to head the Environmental Protection Agency (EPA), along with other key agencies and departments. These appointments, as well as subsequent appointments within the agencies and at the State level, can have a big impact on how various agriculture and environmental policies are implemented and administered. The leadership of key Congressional Committees, such as the House and Senate Agriculture Committees, should remain quite similar to the last session of Congress, since both the U.S. House and Senate will continue with a Republican majority; however, there may be some changes in the membership of these Committees.

Following is some perspective on some of the key agriculture policy issues that could be under consideration during the next session of Congress, or by policy initiatives from the Trump Administration :

• The Next Farm Bill — The current Farm Bill expires after the 2018 crop year, so early development of the next Farm Bill is likely to start occurring in Congress and with agricultural leaders during the next year. There are many groups and organizations pushing for major policy changes in the next Farm Bill. As usual, the budget allocation toward the next Farm Bill will be a big part of that discussion, with some members of Congress already calling for budget cuts when the next Farm Bill is written.

One of the key ag policy discussions will include whether or not the county revenue-based Ag Risk Coverage (ARC-CO) farm program option should be continued in the next Farm Bill. The ARC-CO program has been difficult for producers to understand, and there have been wide variations in payment levels from county-to-county for the same crop. Other key Farm Bill considerations will include expanding the Conservation Reserve Program (CRP) acreage and funding for other conservation programs, restructuring the Dairy Margin Protection Program (MPP), and funding for ag research.

Spending on food and nutrition programs accounts for almost three-fourths of the Farm Bill budget, and some members of Congress would like to see major changes in the requirements and budget allocations for these programs in the next Farm Bill. In addition, some members of Congress have also proposed totally separating the food and nutrition programs from the Farm Bill, which was highly controversial in the development of the current Farm Bill.

• Crop Insurance — Another segment of the Farm Bill that is likely to come under considerable scrutiny is the Federal Crop Insurance program, with non-agriculture organizations pushing for changes to crop insurance even before the writing of the next Farm Bill. Most of the push is to lower the Federal budget for crop insurance expenditures by reducing the premium subsidy, which will increase the farm operators cost of crop insurance. There is also some push to put a cap on insurance payments to individual farmers, which could affect the whole dynamics of the crop insurance industry. In the past, Congressional ag leaders have been able to protect the crop insurance program from extreme budget reductions and changes. Crop insurance continues to be one of the main risk management tools for crop producers of all sizes, and provides added security to ag lenders that are financing farm operations.

• Trade Agreements — There was not a lot of recognition of agriculture related issues in the recent Presidential election; however, one topic that did get considerable discussion was past and potential future trade agreements. As recently as 2014, exports of agricultural products accounted for approximately one-third of the total value of U.S. ag production, including 39 percent of total ag cash receipts in Minnesota and 37 percent in Iowa. There are several pending trade agreements that need to be resolved by Congress and the White House, with the biggest of these is the Trans-Pacific Partnership (TPP) trade agreement with many Asian Countries, including Japan. There was also some discussion of re-opening and possibly revising the NAFTA trade agreement with Canada and Mexico, as well as in regards to trade agreements with China and other countries.

There does not appear to be much momentum to approve the TPP agreement during the current “lame-duck” session of Congress late in 2016, even though President Obama strongly supports TPP. Based on comments by President-Elect Trump, passing TPP in Congress and getting Presidential approval in 2017 may also be very difficult, unless some changes are made to the current TPP proposed agreement. The anti-trade sentiment that was exhibited during this past election cycle has some agriculture leaders a bit worried, due to the potential financial impact on all segments of the agriculture industry.

• Rising Health Care Costs — Rising health care costs are a major concern for farm families and other rural families across the country, including in Minnesota and Iowa. Some families have seen health insurance premiums rise 50-100 percent in the past couple of years, with individual farm families and sole small business owners now paying $30,000 to $40,000 per year or more for health care premiums, if they are even able to find adequate health care coverage. Mandated health insurance premium costs are a major issue in many rural areas of the U.S., both from a health care and financial standpoint. President-Elect Trump and many members of Congress have pledged to address these issues in 2017.

• WOTUS and Other Environmental Issues — Many members of Congress and farm operators have become increasingly concerned with the enhanced environmental regulations that have been administratively enacted by Environmental Protection agency (EPA). Many of the proposed regulations could potentially have a direct impact on the future of production agriculture in some areas of the U.S. The current item that is garnering considerable attention is the proposal by EPA to expand the definitions and regulatory controls under Clean Water Act related to the “Waters of the U.S.” (WOTUS). Some agriculture analysts feel that if the WOTUS provisions are fully enacted, it could greatly restrict future crop and livestock production in portions of the U.S. Expect the new Trump Administration and the next session of Congress to be quite active on the WOTUS issue, as well as on other proposed or recently enacted EPA regulations.

• Climate Change — The current Administration has been involved in discussions and negotiation, both within the U.S. and with foreign countries, regarding the issue of climate change. Many of the proposed ideas involve implementing measures to reduce the man-induced impacts of a changing climate, several of which ultimately could have a major impact on the agriculture industry. There has been some disagreement among experts as to whether the economic implications for agriculture would be more positive or negative, or could possibly remain neutral.

Congress has been reluctant to take much action relative to climate change, due to uncertainty regarding the scientific evidence, as well as the uncertainty regarding economic implications of the proposed climate change initiatives. It is not totally clear where the Trump Administration will stand on climate change initiatives; however, expect any climate change measures to move through Congress in a very “cautious” manner. Some of the climate change initiatives could potentially get rolled into discussions on the next Farm Bill, or as part of trade negotiations.

• Renewable Energy — The Trump Administration and Congress will need to decide what future direction the U.S. takes regarding the mandated use of renewable fuels through the Renewable Fuels Standards (RFS), and other incentives for renewable fuels, such as tax credits, etc. While there is generally considerable support for development of alternative energy sources, Congress and many organizations have become quite divided on the RFS and other mandated energy programs. Ethanol production, which is covered by the RFS, has a major economic impact for farm operators and on the overall rural economy, especially in the Midwest.

• Immigration Reform — The immigration issue continues to be a major issue in many portions of the U.S., and has a lot of political and economic ramifications. Many industries, including the agriculture industry, could be significantly impacted by any major immigration reform legislation. Both production agriculture and the ag processing industry are heavily reliant on an immigrant workforce. Newly added restrictions in getting needed workers into some areas of the U.S. could greatly affect the rural economy in those locations, including many areas of the Midwest. If Congress does not act on immigration reform, it is possible that the new Administration could issue some executive orders relative to the issue.

• Farm Financial Stress — Low profitability in both crop and livestock production in the past couple of years has increased financial stress for farm families in many areas of the U.S., including Minnesota, Iowa, and other Midwestern States. Many ag experts expect this trend to continue into 2017 and 2018. Some ag leaders are questioning if current farm risk management tools and Federal “safety net” programs are adequate to protect farm operators from financial collapse during these downturn periods. Expect this to be a major point discussion by ag leaders with the new Administration, as well as with Congressional leaders in the coming months. The financial health of the production ag sector is also likely to impact discussions and hearings related to a new Farm Bill.

The fact that President-Elect Donald Trump who has very limited political background or connections adds to the intrigue surrounding some of the key ag policy issues that are likely to be addressed in the next couple of years. However, it is important to remember that President-Elect Trump has probably dealt with many of these same issues in his business ventures in the past few years, so he likely has some working knowledge and background on the issues. It is also important to remember, that a President and the Administration have limits on what regulations or policies can be enacted without Congressional approval. The leadership in the U.S. House and Senate is not likely to change significantly in 2017, and even though the Republicans have a small majority in both houses of Congress, there is no guarantee that major legislation will be passed easily.

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and

Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone — (507) 381-7960);

E-mail — kent.thiesse@minnstarbank.com)