WASHINGTON -- Progress has stalled on legislation that would help protect agricultural lenders if farmers lose their crops.
The bill would provide a strong incentive for farmers to buy federal crop insurance, which in turn would protect banks' collateral.
The Federal Crop Insurance Reform Act of 1994 was approved by the House on Aug 25, but the bill is being held hostage to Sen. Jesse Helms, R-N.C.
Sen. Helms is keeping the legislation from the Senate floor because he wants the Department of Agriculture to reassign Karl Mertz to his post as an equal employment opportunity manager. Mr. Mertz was reassigned after making derogatory comments about homosexuals. However, Senate Agriculture Committee Chairman Patrick Leahy, D-Vt., will not give in to Sen Helms.
"We have been trying to move this over the past couple of days, but Leahy has said 'no way' "said an aide in Sen. Helm's office. "Give Dr. Mertz his job back, and this thing will fly on through."
The legislation makes government crop subsidies contingent upon farmers' carrying the basic, low-priced, federally provided protection, instead of relying upon federal ad hoc disaster relief.
"It's a top priority for us," said Kenneth A. Guenther, executive vice president at the Independent Bankers Association of America."It's a very important issue for ag lenders that crop insurance be mandated for borrowers."
Whether a farmer receives congressionally mandated funds when disaster strikes is never guaranteed, but agricultural lender John Dean said that crop failures are about as certain as death and taxes, and this fact often discourages bankers from lending to uninsured growers.
"God doesn't call me up in the morning and tell me what's going to happen, but most years you're going to have crop failures," said Mr. Dean, president of Glenwood State Bank, a $70 million-asset bank in Glenwood, Iowa.
Ad hoc disaster payments "may or may not be there when needed," agreed James Hart, president and chief executive of Hand County State Bank, a community bank in Miller, S.D. "To put it very simply, we would rather lend on a contract then a promise." Currently, when crops fail, uninsured farmers gamble that Congress will grant disaster aid to their area. However, if the ad hoc disaster funds are not handed out, "the farmer has nothing and we have nothing," Mr. Hart said.
The reform legislation makes congressional approval of ad hoc disaster relief more difficult. Federal aid is currently designated as emergency off-budget spending, but the reform package requires that any future crop disaster bills be offset by cuts in spending.
Ending federal disaster payments would create an incentive for farmers to protect themselves by purchasing insurance and in turn encourage lenders to do business even with small or marginal fanning operations.
"With this package, lenders can put a floor on their cash flow, and it puts farmers and the lender in a position that they know they will get something for the crop if it fails," Mr. Hart said.
Under the new measure, basic crop insurance coverage would cost a grower $50 a crop, up to a maximum of $100 per farmer a county. Based on average yield, the basic insurance would pay the grower 60% of the value of the crop if half the crop was lost.