ND Department of Agriculture Comments, Speeches and Testimony
Written Testimony of Roger Johnson, North Dakota Commissioner of Agriculture to National Commission on Small Farms
September 22, 1997
Introduction
Secretary Glickman, Chairman Volkmer, and members of the National Committee on Small Farms, my name is Roger Johnson and I am the North Dakota Commissioner of Agriculture. Thank you for allowing me the opportunity to submit written testimony regarding the issues surrounding the viability of small farms in North Dakota.
In the Civil Rights Action Team Report which bore this Commission's inception, Secretary Glickman underscored Abraham Lincoln's thoughts over 130 years ago, that the goal for USDA is to become "the people's department," serving all of the people.
Another President also shed some important light on the role of USDA. In 1907, Theodore Roosevelt said, "But great as its services have been in the past, the Department of Agriculture has a still large field of usefulness ahead.....It is time to adopt in addition a new point of view. Hereafter another great task before the National Department of Agriculture...must be to foster agriculture for its social results, or in other words, to assist in bringing about the best kind of life on the farm for the sake of producing the best kind of men....How can the life of the farm family be made less solitary, fuller of opportunity, freer from drudgery, more comfortable, happier, and more attractive?...How can a compelling desire to live on the farm be aroused in the children that are born on the farm? All of these questions are of vital importance not only to the farmer, but to the whole nation; and the Department of Agriculture must do its share in answering them."
I suspect that if Theodore Roosevelt were alive today he would ask another question: How can we assure the vitality of our rural communities and the future of our family farmers? That is the question I hope your Commission attempts to answer.
Agriculture and North Dakota
North Dakota has faced significant challenges during the past fifteen years. Beginning in the early 1980's, the farm economy in our state suffered an extreme blow. Farmers, small businesses, and entire rural towns disappeared because of the toxic mix of low farm income, high cost inputs, large farm debt, and declining real estate values. And just when it looked as if the farm economy was beginning to rebound, the droughts of 1988, 1989, and 1990 scorched the farms and communities of the state. The net result was the displacement of many rural people.
Life on the prairie can be tough, and it takes tough and caring people to live here. This past year has been another incredibly difficult year for North Dakota farmers and ranchers. As a result of the harsh winter blizzards and devastating spring flooding, more than 123,000 head of livestock died; and close to 1 million acres of prime farmland went unplanted. Agriculture, North Dakota's number one industry, suffered the largest blow of any sector of the state's economy as a result of these natural disasters. Farmers and ranchers not only experienced livestock and crop production losses but also suffered damage to farm buildings, machinery and stored crops. Direct losses to farmers and ranchers totaled more than $250 million, with estimated additional indirect losses expected to reach $600 million.
Even with the level of adversity that producers face today, farming and ranching continues to be a driving industry in North Dakota. Agriculture is North Dakota's number one industry, supporting 38% of the state's economic base and employing 25% of our residents. North Dakota agricultural production generated more than $3.8 billion in cash receipts last year alone.
North Dakota is the nation's number one producer of many commodities including wheat, durum, barley, sunflowers, pinto beans and flaxseed. North Dakota has achieved these national rankings without being dominated by large, concentrated farming operations. Most farming operations in the state are small to mid-size operations.
Production is increasing; the number of producers is not. We've lost 1/3 of our farmers in North Dakota age 35 and younger during the most recent five year period for which statistics are available (1987-92). The only age groups of farmers to significantly increase in number were those age 70 and older. I am deeply concerned about the steady erosion of the farm population, particularly as the statistics demonstrate a gradual aging of the population. The trend we've seen over the past few years not only shows the number of farms decreasing but also the size of farms increasing to an average size of 1300 acres.
North Dakota has worked hard to bring forth initiatives that will help to rebuild our agricultural economy. Many of the programs that have been developed are offered through the Bank of North Dakota.
Bank of North Dakota
The Bank of North Dakota (BND) is the only state-owned bank in the nation. Founded over seventy- five years ago as part of a populist political revolution in North Dakota, led by the Nonpartisan League, the Bank continues to fulfill its commitment as the state's "development bank."
Today the Bank of North Dakota is almost a billion dollar institution. BND returned earnings of more than $23.4 million in 1996 and is projected to add $50 million into North Dakota's general fund during the next biennium. Through participation loans, BND and local financial institutions have injected one-half billion dollars into North Dakota's economy during the past three years.
AGPACE
AGPACE was implemented in July of 1991 to provide rural balance to the key rural development loan program known as the PACE program. AGPACE is a source of low interest financing to on-farm businesses and non-traditional agriculture ventures. The program offers farmers the opportunity to add to their income through new business opportunities and non-traditional agriculture (e.g. elk, carrots, flowers, raspberries, strawberries, etc.) by lowering their interest rates. The AGPACE program has been very useful to farmers and farm families because it encourages diversification through individual farm operations, which provides job opportunities and income stabilization. To date, AGPACE loans have been made to 121 new or expanding nontraditional agricultural related businesses in rural North Dakota. AGPACE has been instrumental in providing incentives to expand bison production. In fact, bison no longer fall into the category of non-traditional livestock in our state. Presently, bison are considered traditional livestock in North Dakota.
Co-op Equity Loan Program
One of the newest efforts offered through BND is the Co-op Equity Loan Program. This program gives farmers and ranchers a greater opportunity to invest in value-added cooperative ventures by offering a loan up to $10,000 from BND, with backing from their local bank, to buy shares in new co-ops. The interest rate is below prime, and repayment can be up to 10 years. Extra low payments for the first three years will enable more and more farmers and ranchers to become involved. It will also help provide much needed equity in new and emerging cooperatives. This program has been copied by the St. Paul Bank for Cooperatives and is now available in other Midwestern states through Federal Land Bank Associations.
First Time Farmer Program
The newest program offered to farmers at BND is the First Time Farmer Program which was passed into law by the 1997 North Dakota state legislature. The First Time Farmer Program uses federally tax exempt bond financing (commonly known as Aggie bonds or private activity bonds) to reduce a beginning farmer's interest rate for farm improvements or capital purchases, including farmland; buildings; and other depreciable property including machinery, equipment and breeding livestock.
The First Time Farmer Program defines a beginning farmer as someone who has not previously directly or indirectly owned farmland valued at more than $125,000 and has not owned farmland in excess of 30% of the median farm size for that county.
These provisions are identical to recent changes in federal law which permit relatives to use the program as long as the sale is for fair market value and the seller does not retain a financial interest in the farming operation for which the bond proceeds are used.
The bonds may be used between a borrower and a lender for a direct purchase or between a buyer and a seller for a contract purchase. The lender or contract seller is able to charge the borrower a reduced interest rate because the interest earned is tax exempt to the seller or lender. Rates and terms are arranged between the buyer and seller or between the borrower and lender.
Farmer Retention Efforts
An additional focus on rebuilding was an initiative to attempt to stabilize existing farmer numbers. State funding has been provided to the Agricultural Mediation Service to provide financial and management assistance to existing farmers, so that they can remain in business. This program has provided assistance to over 8,000 farmers and ranchers during its existence. Recent evaluations of the program by both the State Auditor's Office and North Dakota State University researchers have shown extraordinary support of these efforts by both lenders and farmers.
APUC
In 1991, North Dakota implemented a program known as the Cooperative Marketing program made available through the Agricultural Products Utilization Commission (APUC). Grant funds provided by APUC have been key in helping groups of farmers with feasibility studies, business plans, organizing expenses, and legal and accounting services during the start-up process of value-added agriculture projects. This grant program allows farmers to properly plan, organize and capitalize these new value-added projects and to ensure that they have a possible chance of success. In addition, federal funds through USDA-Rural Development have leveraged these state dollars.
Since 1993, USDA-RD funds were granted to APUC, leveraged with state dollars, and used to fund more than 160 projects. An economic impact study of eleven of these funded projects indicated that the investment by the state of North Dakota (through APUC grants) created businesses/industries which directly add $84,510,000 to the state's annual economy. In addition to the direct monetary contribution to the state's economy, the presence of these eleven businesses/industries resulted in the production of secondary jobs and commerce resulting in $160,317,000 being added to the state's economy each year. The study also estimates that state taxes generated by secondary employement alone is $3,580,000 annually. From this study, it is evident that the state's return on investment for these eleven APUC funded projects is 97 to 1 for direct dollars producer per state (APUC) dollar invested.
Recommendations
The federal government must work to form partnerships with agricultural states in order to ensure that the small and mid-size family farmers stay on the land and continue to produce our nation's food supply.
Future USDA programs must be targeted to benefit the small and mid-size family farms. Programs in the past have had a blanket effect on agriculture. In order to keep our family farmers on the land, we must develop and implement programs that do not favor only the large farm.
USDA needs to address the lack of profitability family farmers face today. Our family farmers and ranchers are some of the best money managers around. Unfortunately, they are continually faced with high input costs, high machinery costs and low prices for their product. Family farmers will not be able or willing to continually produce the nation's food supply without the ability to turn a profit that provides enough money to pay for family living expenses.
Farmer risk management tools need to be expanded to provide greater protection at affordable costs for our family farmers. Income protection programs must provide opportunities for family farmers to adequately cover all crops (both traditional and minor use) so incentives for change can exist. Additionally, livestock risk management programs should also be considered.
Agricultural research needs to be targeted to benefit the small and mid-size family farmer. Current research has provided many new opportunities to increase production and farm size. We need to focus research in ways that helps small and mid-size family farmers to better utilize their skills and fosters productivity without demanding huge capital investments and expansion.
The Future of Agriculture
All of the programs and recommendations that I have described in my testimony are necessary tools for any rural area of the country that is interested in keeping farmers on the land and rural communities thriving. Many of these programs and recommendations also deserve the attention of USDA and other states that might find them useful. But these tools alone are not enough. We need to do more in our state and across this country.
In North Dakota, we are doing more. The dialogue has begun throughout North Dakota, with the question being: Where do we go from here in agriculture? I plan to facilitate ongoing discussions with all of the agricultural interests throughout state on the future of agriculture.
As the 20th century draws to a close, an uncertain future lies ahead for America's family farms. The trends are not encouraging. Farmers continue to struggle with volatile commodity pricing, high input costs and high transportation costs. Many family farmers and ranchers are getting out of the business of farming because they cannot earn enough net income to put food on the table.
As the Commission begins the process of reviewing the testimony, recommendations and viewpoints that have been brought before you, please keep in mind the words of Abraham Lincoln and Theodore Roosevelt. Family farms need a targeted effort from USDA to survive. North Dakota has realized the importance of its family farmers and ranchers; America should do the same.
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