The reaction of the nation's major farm organizations was swift after the Senate passed a payment limit amendment that many say will be devastating to the farmers its sponsors say they want to protect.

The farm bill amendment authored by Sens. Charles Grassley, a Republican from Iowa, and Byron Dorgan, a Democrat from North Dakota, would not only reduce payments to many family but also threatens the non-recourse loan, according to spokesmen for the organizations.

“We are very disappointed with this turn of events,” said Tim Hume, president of the National Corn Growers Association, which counts many of its members from Sen. Grassley's home state of Iowa. “With the passage of this amendment, NCGA feels the passage of an acceptable farm bill is becoming less of a reality.”

Hume's comments were echoed by James Echols, chairman of the National Cotton Council, speaking on the eve of the group's annual meeting in Dallas.

“The vote shows a serious lack of understanding about commercial agriculture,” Echols said. “This amendment dramatically changes the impact the Agriculture Committee bill will have on America's farmers and ranchers. The National Cotton Council will have to evaluate its options concerning the bill.”

Echols praised the efforts of Sen. Blanche Lincoln, an Arkansas Democrat, who argued forcefully that the Grassley/Dorgan amendment would cripple agriculture.

‘Worse off’

“Our initial estimates reflect what Senator Lincoln feared,” Echols said. “It appears that the average American cotton producer would be worse off under the Senate bill with this amendment than under current law. It seems clear that many Senators did not understand how this amendment destroys the nonrecourse loan — a farm program mainstay for more than 30 years. The Grassley/Dorgan amendment effectively removes this last, viable safety net for America's farmers.”

Echols also commended Senators Zell Miller of Georgia, Thad Cochran of Mississippi, Mary Landrieu of Louisiana and Tim Hutchinson of Arkansas for their strong statements of support for commercial agriculture during the two-hour debate over the amendment.

A NCC analysis indicates that the Grassley amendment puts such severe limitations on marketing loan gains and fixed and counter-cyclical payments that production financing will be out of the question for most farmers across the southern tier of the United States, Echols said. With current commodity prices, many farms cannot cash flow, even with current restrictions on payments.

“It is unfortunate that the Senate has used payment limits to essentially gut an otherwise good farm bill,” Echols noted. “The result is a unilateral disarmament of our farmers just ahead of resumption of another round of World Trade Organization (WTO) talks. If these provisions survive in a final farm bill, our negotiators will have little hope of convincing the rest of the world to reduce farm subsidies.

“It has been our contention that farm subsidy reductions should be done under the auspices of the WTO and in a way that is fair and equitable for American agriculture — not at their expense.”

At the heart of the issue is why and how farmers receive the payments, said Kyle McCann, associate commodity director for the Farm Bureau who was in Washington Thursday when the vote was taken.

McCann said increased farm payments are not based on any actions taken by farmers directly, but rather, record low world market prices for crops with high input costs. He said farmers who have increased the size of their operations to become more productive and efficient also would be penalized under such a program.

Larger payouts

“You've got cotton and rice prices trading roughly 40 percent below the loan rate on the world market,” McCann said. “That difference is paid up through LDPs, (loan deficiency payments) which can result in larger payouts for individual farms.

“There are a couple of issues here driving these payments,” McCann said. “The first is that world market prices are so low across the board for grains that the difference between the loan rate and the market price is, and has been large. Second, fixed payments, such as Agricultural Market Transition Act, or AMTA, payments provided for in the 1996 farm bill, are added into the equation, which also accounts for larger payments.”

McCann said the loan rate itself is high, due in part to the expense in making the crop to begin with.

“These are high input crops and the loan rate is set requisite to the cost of producing these crops,” he said. “Equipment, fuel costs, fertilizer and other chemical costs and other factors are figured into the loan rate, which widens the gap even further.”

Louisiana Commissioner of Agriculture and Forestry Bob Odom agreed.

“The size of our family farms has been growing over the years to meet existing national and international competitive challenges,” Odom said. “The direction Congress is taking at the moment will penalize farmers with larger acreage. That flies in the face of reality, not only in Louisiana but across the country.”

The cap also would impact the heart and soul of the family farm, namely how spouses are treated under such programs.

“The plan would act as a marriage penalty,” said Jim Monroe, assistant to the Farm Bureau president. “If this plan is part of the final farm bill, it might be better if spouses divorced to make better use of the payment cap.”

Avenues of failure

The cap would penalize married farm couples because only one member of such a farm partnership would be eligible for the full amount under the proposed cap. Spouses are treated as equal partners under the current farm bill.

The jeopardy the farm bill is facing could come in two potential avenues of failure, to obtain cloture or simple failure in an open vote on the farm bill itself, according to Anderson.

“Before Christmas, we were working with a very narrow margin, one that could not obtain cloture for the bill, even though it might have gotten passage,” Anderson said. “As it stands now, they're handling the bill one amendment at a time. We need to bring some clear input into this situation so that all farmers are protected and the integrity of the farm bill as whole remains intact.”

e-mail: flaws@primediabusiness.com