The global economic slowdown may not affect agriculture as severely as it does other industries, but farm families are feeling the pinch with commodity markets and production inputs.
“The quicker a successful economic stimulus program is put in place the quicker commodity markets and input prices will stabilize,” says Jose Pena, Texas Extension economist-management, in Uvalde. “Finding a solution to this economic crisis is no easy task,” Pena says. “The economic complexities are too technical. The International Monetary fund recently described the situation as ‘the largest financial shock since the Great Depression.’ A return to economic stability will be essential to help businesses, especially businesses in the agricultural sector, to manage financial risk.”
Pena says tighter credit may not have as serious an effect on agriculture as it does on other industries. “Rural banks appear to have funds available to finance agriculture,” he says. “But the financial crisis probably will dictate that agricultural lenders require more financial information and loan application documentation from borrowers, especially in terms of details on how they secure loans.”
Energy policies supported by the Obama administration may benefit agriculture, he says. “Energy (policy) is a top priority to help reduce reliance on foreign oil,” Pena says. Policy will include developing alternative and renewable energy programs, including biofuels and wind energy. Research funding for those and other programs will favor agriculture. “These programs should help provide stability to energy costs, which have a big impact on agriculture.”
Global warming issues also may be part of a “viable energy policy and would force those who pollute to purchase emission permits. Creation of carbon credits may mean that agriculture may finally be able to sell carbon credits.”
Immigration reform is more likely to happen under the Obama administration and that could have “a big impact on agriculture labor,” Pena says. Reform in immigration could stabilize labor markets and allow “supply demand forces to drive labor markets, opening the labor market for a significant segment of labor, which now operates underground.”
Pena says the new administration has made it clear “they favor open markets. New trade agreements may include certain requirements for labor and environmental standards, but this does not necessarily imply creation of trade protection policies. Trade embargoes, such as bans on trade with Cuba, likely will be reviewed under the new administration.”
He says removal of some embargoes could favor agriculture.
Tax policies will favor most farmers, Pena says. “According to the Internal Revenue Service, less than 5 percent of U.S. farmers earn more than $250,000 in adjusted gross income (AGI), the new administration’s proposed plan to cut taxes for tax payers with up to $250,000 in AGI will save taxes for most farmers.”
Pena says a Brookings Institute Tax Policy Center study indicated that the Obama administration’s tax package would save about $900 a year for 80 percent of the households (AGI less than $118,000).
Improvements in health care programs also could help farm families, he says, and “provide stability to agricultural labor as the agricultural sector has generally not been able to afford health care for the labor force.”
He says the 2008 farm law fell short of providing an adequate safety net for farmers, especially as production costs have increased. “The new administration made it clear that U.S. agriculture needs a safety net,” Pena says.
Budget cuts may limit farm program funds, but Pena says any new safety net programs should “be aligned with current costs of production.”
He says regulations typically find scant support in farm country, but congressional efforts to regulate commodity market trading may be an exception. Congress has passed legislation that strengthens trader position limits and increases reporting requirements to prevent excessive speculative trading (HR 6604, the commodity markets Transparency Act of 2008).
“Candidate Obama called for additional oversight on speculative trading, so President Obama likely will support efforts such as HR 6604. It appears that the administration plans to address market distorting practices,” Pena says.