Iowa is facing a $3 billion budget shortfall as its farmers struggle to pay for crop subsidies that are worth more than $1 billion per year.
In a move that is likely to exacerbate already-fraught tensions between the state and dairy farmers, Iowa’s Republican-controlled Legislature passed a bill Thursday that would end subsidies for Iowa’s 1,400 dairy farms, or roughly 2% of its total farm payroll.
The state’s dairy subsidies, which have helped Iowa produce more than 4 million cows per year and account for more than 10% of the state’s $17 billion annual dairy industry, have been a source of frustration for Iowa farmers.
The state’s Farm Bureau has estimated that the cost of milk production is $1.3 billion, while the Iowa Farm Bureau says the cost is $900 million.
“It is a shame that Iowa is trying to force the industry to go into a bankruptcy court to help pay for dairy subsidies,” said Mike Johnson, a member of the Iowa Dairy Growers Association, which represents the state dairy industry.
“That is a great opportunity for the industry, but Iowa has a very strong record of not going into bankruptcy.”
Iowa Governor Kim Reynolds, a Democrat, has said that the subsidies should be ended and she is exploring ways to provide financial assistance to Iowa dairy farmers.
“Iowa is the most important state in the country when it comes to dairy farmers and their livelihoods, but the state has been struggling for years to get the budget and debt to the point where we have a financial crisis,” Reynolds told reporters Thursday.
The farm bill passed by the state legislature would give Iowa farmers a one-time $1 million grant for each cow they produce in 2017 and $100,000 grant for every cow produced in 2018.
It also would grant farmers one year of guaranteed income in the form of a $1,000 lump sum payment for the first year of production and another year of income in addition to the current grant.
“The $1 Million Grant is a big deal.
It will give Iowa dairy growers a financial cushion to withstand the tough economic times,” said Julie Koster, director of Iowa Farm Bankruptcy Advocacy.
“It will help them continue to get back on their feet and grow and to make the farm system more sustainable.”
The new bill also would make the payments to dairy producers permanent and would reduce the amount of cash farm bankroll available to dairy farms by half in 2019.
The legislation is also expected to help ease some of the financial strains on Iowa’s farming industry.
The Farm Bureau estimates that farm debt for Iowa agriculture has more than doubled since 1990, with more than 50% of Iowa’s farm loans coming from debt held by the dairy industry alone.
“This is a win-win,” said Koster.
“Farmers are being helped out by the Legislature.
The bill will help farm debt relief.”
The Farm Bureau said the $1M grant would be the largest in state history and that Iowa dairy farms could reap up to $2.8 million in additional revenue through the grants.
But it said it would be difficult to administer the new program as the state would have to start afresh with the new funding.
The agency estimates that about 7.5 million dairy farmers would have been eligible to apply for the grant.
The Farm Bankrupted Dairy Act, which passed the state House on Thursday, also aims to provide additional financial aid to dairy farming families through the state farm bank, which has been in the minority since 2009 when Congress slashed the loan programs that supported dairy farmers financially.
The legislation would also extend the loans for dairy farmers up to 30 years and provide an additional $100 million for dairy farming and other farm-related purposes.
Iowa farmers and dairy industry representatives said the farm bank would not be able to continue to operate at current levels of assistance.
“We will continue to be in a state of emergency,” said Erik Wigler, director and chief executive of the Farm Bankrolled Dairy Association.
“We are in a financial disaster.”