Committee Examines New LDP Proposal, USDA Secretary Testifies

Jun 16, 1999

Members of the U.S. House Committee on Agriculture questioned USDA Secretary Dan Glickman on whether his proposed change to a  national uniform LDP rate will do more harm than good, if enacted.  Producers' management decisions have included the possibility of collecting Loan Deficiency Payments (LDPs), which are now adjusted to cost factors at the local level and vary from county-to-county.  Wednesday's hearing examined concerns for what appear to be differences among producers between LDPs calculated locally, and those they would receive under Secretary Glickman's proposed national rate.

In the views of Chairman Larry Combest (R-TX) and Vice Chairman Bill Barrett (R-NE), a sweeping change in LDP rates must be fully examined for winners and losers.   Combest summarized concerns about how the proposal: fits within the purposes of the marketing loan program; its potential effects on harvest time prices in some areas; its effect on forfeitures for the 1999 crop year and what it does not do to correct underlying loan rate inequities.

"Farmers would far and away prefer their income to come from the marketplace and not from LDPs," said Combest.  "But when economic conditions are as difficult as they are today and completely out of our producers' control, there can be no dispute that loan deficiency payments and marketing loan gains are absolutely vital to the stability of our nation's agricultural producers."

"However," Combest told Glickman, "from what we understand about your proposal at this point, we see it creating windfalls for some producers in the form of higher LDPs than last year, while at the same time, creating disadvantages for other producers in the form of lower LDPs than last year."

"As we examine the national LDP proposal, a number of advantages appear.  It is possible that the uniform rate may be more equitable for farmers.  Also, the harvest distortion of Posted County Prices would no longer exist," said Barrett.  "However, a number of issues concern me at this time.  A problem that might result from a uniform rate is that it would be decoupled from the current cash market prices.  This decoupling would necessitate our farmers re-thinking their marketing strategies since the local cash price relationship may no longer exist."

LDPs, have become an increasingly important commodity program of direct payments to producers in times of low market prices. In 1998, LDP payments and marketing loan gains totaled nearly $3 billion dollars, while 1999 payments are projected to be as high as $5 billion.  By comparison, total transition payments to producers in fiscal year 1999 were about $5.6 billion.