Pay to Play, the government plans to have you pay them to do their job when you need something from them.
The ag economy relies on government funded/supported roads, railways, ports and locks, and dams to get the product to the end user. A proposal to spend money on Infrastructure should be as interesting to a farm producer as the farm bill. Like all ideas, the devil is always in the details. In the latest proposal from the White House, they want to spend $200 billion on federal funded projects over the next ten years (with 25% of that number targeted to rural areas) it appears to be a pay as you go proposal.
The initial review of the plan looks to come from tolls and fees on the users of the improved infrastructure. Fear not, those costs will be passed along to the end consumer. Additionally, the plan will rely on the participation of state and local governments paying in to the projects bottom line. In some cases, they will have to fund 90% of the project and match funds to the federal dollars. Those funds are projected to come from property taxes, sales taxes, and user fees. The problem with this concept is that stressed local governments with razor thin budgets will simply forego the attempt to secure the match grant, while the areas that are economically strong will harvest those grants far easier.
Where state and local governments are not involved, the plan looks to the private sector. Specifically, the plan anticipates private industry maintaining river waterways including, locks and dams.
Farm Bill Talk
The latest proposals on the anticipated farm bill show that crop insurance copays by the producer will increase (but still having the government pay over ½ of the insurance premium) and industries that rely upon USDA services, like meat inspection, will face increased user fees for the government to do its job. Additionally, cuts in conservation program technical assistance aid are projected. The cuts and caps on copays are aimed at farm operators whose adjusted gross income is above $500,000. Using numbers from 2013, that would be about 2% of farmers effected.
Crop insurance subsidies are not necessarily a bad thing, as crop insurance in advance of a disaster is far easier to administer in the time of a disaster than the ad hoc disaster relief bills of the 1980s that used to be passed after an ag disaster like a drought. Those “after the cat is out of the bag” programs are harder to manage, implement, and enforce than standing programs.
Tax Law Changes
The tax law updates are already being examined for loop holes and advantages, as they should be. One giant loop hole appears to be the 20% credit off the gross sales made to a cooperative of ag products. While the initial revelation was made with assertions that the language was hasty and not the intended result and would be corrected, no correction has been made.
The effect of granting a credit based off where a commodity is sold will have an impact on the market. While this in an over simplification, if a seller of goods realizes that 20 cents of every dollar is not taxable when they sell at the coop, and it is taxable if they sell directly to a private processor like ADM, BUNGE, or the ethanol plant, the choice seems pretty clear.
The projection is that the cooperatives will be overloaded with willing sellers, so they will lower their asking price to curb sales to match storage and capacity to sell, while the processors will move their price to adjust for the taxation discount. That is good theory in an economics exam final, but its application in the country side is suspect. I think lobbyists for the cooperative industry and the processor industry will both be hard at work to keep the status quo, or they will make the change to avoid the preferential treatment.