Strong Farm Policy = Lender Confidence, Economic Recovery

June 17, 2011

When Congress takes up the next farm bill, there will be a lot more at stake than just the future of farmers and ranchers. Economic recovery for the nation as a whole, which is being underpinned by rural lenders and farmers’ buying power, also will be on the table.

At the end of last year, a Federal Reserve Bank of Kansas City white paper read, “In 2010, rural America was at the forefront of the economic recovery.”

U.S. Secretary of Agriculture Tom Vilsack told Congress this year that this success story was fueled by record farm exports, a “consistently strong” farm income and elevated commodity prices, which helped farmers invest in technologies and equipment to improve efficiency.

More than 21 million U.S. jobs are rooted in the industry, and hundreds of billions are tied to food and fiber production. Farmers spent $250 billion last year to yield $310 billion in goods, and that doesn’t take into account jobs and revenue created by processing and packaging goods and getting them to market.

To put this into perspective, farm-gate production last year was bigger than the economies of New Zealand, Portugal, Finland, Denmark, or Thailand. Even The Wall Street Journal, which some would criticize for being out of touch with the farming community, took notice: “Growers’ improved lot is rippling out to other industries.”

Will the trend continue? Will a strong economy in the heartland continue to spread to big cities and the coasts, where unemployment and foreclosures continue to act as anchors?

That’s hard to predict, since farming remains one of the world’s riskiest and most unpredictable professions. Just look at recent weather anomalies, from freezes in Florida to flooding in the Midwest and drought in the Plains, and the crop damage nature brings.

There are financial risks, too. Commodity markets have swung wildly as storms affected crop production and speculators entered futures markets hoping for big paydays.

The Federal Reserve warned, in a follow-up to its good-news post: “Farmers have significantly increased their debt level the fastest increase since the prelude to the 1980s farm debt crisis. If farm financial conditions were to deteriorate rapidly, no producer would be immune to rising financial stress.”

Of course, there are some notable differences between today and the early 1980s. Lenders never have been more careful, growers have never been so skilled in running their businesses and farm policies are in place to help growers manage risks. That brings us back to Congress, and the coming debate on the 2012 farm bill.

Lenders will be watching the outcome closely. We need certainty, and in a risky business, farm policy provides some semblance of certainty. We know how important a strong farm policy is to farmers’ ability to repay loans. We know how important farmers’ operating capital is to growing the crops needed to fuel America’s recovery.

Take sugar policy. It runs at no cost to taxpayers, but without it banks would be unlikely to provide the loans that sugar growers and sugar processors need to produce a commodity that feeds millions, supports 146,000 jobs, and pumps $10 billion into the economy.

Attempts to gut no-cost sugar policy and other farm bill components only would cloud one of the few financial bright spots America has. These attempts to stall rural economies are shortsighted and show a lack of understanding of the complex role food production plays in society.

Here’s hoping lawmakers choose wisely.

About the author: Kevin Wedgworth is a lender at the Bank of Belle Glade, specializing in agriculture and agriculture-related industries. He is the grandson of George Wedgworth, president of the Sugar Cane Growers Cooperative of Florida.

This article first appeared in the Palm Beach Post on June 16, 2011.