Congress Warned of Farm Income Drop

Story Filed: Tuesday, February 13, 2001 7:13 PM EST

WASHINGTON (AP) -- As if low crop prices weren't tough enough, the nation's farm economy is now being battered by soaring costs for energy and fertilizer, Congress was told Tuesday.

Net farm income is likely to drop 20 percent, or $9 billion, over the next two years unless there is a fresh outpouring of federal aid, according to the congressionally funded Food and Agricultural Policy Research Institute, based at the University of Missouri.

The cost of fuel that farmers need for tractors, combines and irrigation equipment jumped 31 percent last year. Prices may drop slightly in coming months, but growers are expected to be hit this year with a 33 percent increase in fertilizer costs, the report said. Nitrogen fertilizer is made from natural gas.

``It's not only low prices, it's high production costs that are squeezing farmers,'' said Bruce Babcock, an Iowa State University economist.

Nebraska farmer Keith Dittrich said he expects to pay about $67 an acre to irrigate his corn this year, compared to $37 an acre in 2000. Fertilizer costs are running $40 an acre, up from $25 last year.

Meanwhile, the price of corn has averaged under $2 a bushel without a significant increase for several years.

``You keep looking for ways to find better efficiencies in your operation, but there's a limit to that,'' Dittrich said. ``It's to the point where there is no place to cut.''

The financial squeeze isn't just in the Midwest. Cotton farms in California and Texas that rely heavily on irrigation are likely to be among the hardest hit over the next few years, according to an analysis by Texas A&M University. Rice farms of all sizes are likely to lose money, too. Wheat and soybean farmers, whose fertilizer and fuel costs are generally lower, would do a little better.

A 2,000-acre cotton farm in California is expected to have $1.05 in costs for every $1 in income over the next five years.

Cattle producers are in the best shape, in part because of rising beef consumption and the low grain prices, which result in lower feed costs.

Crop prices plummeted in the late 1990s because of lagging exports and heavy worldwide production, and Congress responded by passing multibillion-dollar packages of supplemental assistance in each of the past three years. Last year, farmers received $8 billion in emergency aid.

Lawmakers are virtually certain to pass another large bailout this year, and they're starting hearings this month on a long-term overhaul of farm policy that includes proposals for a new system for subsidizing growers when crop income is down.

Sen. Pat Roberts, R-Kan., warned recently that farmers faced a ``economic and energy power keg'' because of the rising production costs. Agriculture Secretary Ann Veneman has endorsed the idea of another emergency aid package this year but hasn't said how much money will be needed.

The report released Tuesday estimates net farm income will drop from $45.4 billion last year to $39.6 billion in 2001 and $36.3 billion in 2002 before starting to turn around in the following years as commodity prices rise.

Farm income peaked at $55 billion in 1996.

Government payments have been soaring since then, topping $22 billion last year, triple what they were in 1996.

``What the payments have done is help them (farmers) maintain their position,'' said James Richardson, a Texas A&M economist. ``Some have lost ground but most have maintained their position.''

Roberts and other farm state lawmakers also want to protect farmers from more taxes. At issue are conflicting court rulings over whether farmers must pay self-employment taxes on income from the federal Conservation Reserve Program, which distributes $1.4 billion to more than 290,000 farmers who take environmentally sensitive acreage out of production.

``Now is not the time to add another tax burden on our struggling farmers,'' said Roberts, one of several sponsors of a measure blocking the additional taxes.

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-- Martin Thompson (mthom1927@aol.com), February 13, 2001