or sold. Now that some of these cowherds have been reduced or sold, the cowcalf operator finds himself in the following situation: (a) the existing Emergency Federal Assistance Feed Program is of limited or no value to him; (b) he had to sell his livestock at a time when prices were truly depressed; (c) if he wishes to rebuild his herd for years to come, he will have to repurchase cows or heifers and in a market which is, by most economists' estimates, expected to be a higher priced market. In either case, he cannot expect to have a positive cash flow until some time in the fall of 1979, when he has calves for sale from his rebuilt herd. It appears appropriate to consider the following two new programs for ranchers in this situation. These two programs may be considered separately or in combination. Disaster payments might be made available to producers in this situation. Disaster payments have been part of the agricultural commodity legislation since the 1973 Agricultural and Consumer Protection Act. This Act makes disaster payments available for certain crops when natural disasters prevent producers from planting or from harvesting at least two thirds of their normal production. The rate of payment for disaster protection is the larger of the deficiency payment rate or one third of the target price. Such a program could, in modified form, be made available on an emergency basis for cattle producers. A (not mutually exclusive) second alternative would be to provide payments to producers who had to liquidate breeding stock in order to rebuild their cowherds. Such direct payments would be equivalent to a fraction of or up to 100 percent of the difference between the purchase price of the replacement cows and the price of the cows sold as a result of drought conditions. 96-776 77-9 8 4. Development of More Farsighted Drought and Disaster Assistance Programs On the one hand, it may not be the most opportune time to suggest the development of a farsighted and more comprehensive drought and disaster assistance program when very immediate and pressing problems are at hand. On the other hand, this might be one of the times most receptive to such a suggestion. More specifically, one cannot help but wonder that most of the programs seem to be developed on an ad hoc basis, although we all know that the drought situation was critical in parts of Northern California last year and in the states of Minnesota and North and South Dakota during the past two years. We do not share the opinion that measures to mitigate drought impacts are highly commodity specific, highly regional, and highly circumstantial. Instead, we are of the opinion that well thought out assistance and emergency measures would have broad applicability across the board. In particular, we believe that two major measures, such as cash flow and capital maintenance programs (the disaster payments mentioned above would fall into this category) combined with capital restitution programs (the direct payments to rebuild a cowherd mentioned above would fall in this category) would have substantial validity across commodities and regions. The advantage would be that such measures would be in place, would be understood by the respective agencies administering the programs, and would thus be available immediately and effectively both to permit ranchers to make intelligent management decisions as well as to provide assistance when it is indeed needed (and not later). It is furthermore our opinion that such broad measures on a stand-by basis could be developed so that they are easily understood and therefore easily administered. conservative. 5. Possible Community Problems We are confident that the aforementioned estimates of the impact of the drought on the total economy of Oregon are real and that the estimates are At this point in time, the rate of property tax payment for the support of community services seems to be about normal. Nevertheless, there is clearly some concern in some Eastern Oregon communities about the ability to collect property taxes at the same normal rate next year. If this concern is justified, there may be need for having available assistance programs for communities so that they may carry on with a reasonable level of community services. We suggest that loans with reduced or no interest rates be considered as a possibility for those communities. In summary and in conclusion, it is very clear that the situation in some drought areas in Oregon is very serious, not only for the agricultural producer but also for the communities in which they live. It is also clear that effects of the drought will be with some of these producers and communities for at least one if not two more years, even if normal weather will prevail from here on out. The suggestions I have made for improving existing alternatives to mitigate the drought impact or for the establishment and introduction of additional alternatives are modest. Most importantly, however, these suggestions are not designed to reduce all the risk inherent in the agricultural production process. Attempts to reduce all the risks would be unrealistic and, as I know the agricultural producer, not desired by him. Furthermore, the suggestions offered are not designed to guarantee that even the most inefficient producer be enabled to stay in business. Such suggestions would not be in the best interest of society and the consumer and, again, I don't believe that such protection is what the agricultural producer wants. On the other hand, the suggestions do imply that both the consumer in general and the surrounding communities help carry some of the more disasterous risks inherent in the agricultural production process. As we pointed out earlier, the effects of the drought do not only affect the agricultural producer but have considerable impact on the surrounding communities and the State's economy as a whole. Thus, this participation in bearing some of the more disasterous risks as well as the participation in future economically more bountiful years is not only socially justifiable but socially desirable. 11 Ludwig M. Eisgruber and Resource Economics Oregon State University I am sorry I will not be able to testify for the Select Committee hearings on drought to be held the 16th and 17th of August, 1977. Prior commitments make my attendance impossible; however, I would like to submit the following for the hearing record. Our bank is one of the largest agricultural lenders in the United As you are aware, the past several years have been very difficult for farmers and ranchers and certainly the drought of 1976-77 has further complicated the matter. Farmers' margins have been narrowing for several years, and at the present time are almost non-existent--and in many cases showing a deficit. Production costs continue to rise, while commodity prices decline. Wheat harvest in eastern Oregon this year will range from average |