Effects of government shutdown would ripple through agriculture to consumers

Mary Hightower, University of Arkansas System Division of Agriculture

September 30, 2023

Editors Note: Congress did pass a six week extension to current federal government funding on Sept. 30th.

LITTLE ROCK — A government shutdown could remove price and revenue safety nets for farmers and mean higher food prices for consumers, said Ryan Loy, extension economist for the University of Arkansas System Division of Agriculture.

Funding for the federal government runs out Sept. 30 unless Congress passes a continuing resolution or finds some other means to keep funds flowing. If the government shuts down, so too would progress toward the next Farm Bill. The Farm Bill has provisions with two sets of expiration dates: Sept. 30, and Dec. 31.

“When a government shutdown happens, non-essential activity just goes out the window,” Loy said. “If there’s a shutdown, then that includes the Farm Service Agency, Natural Resource Conservation Service and the Rural Development Centers.

“If you’re a farmer trying to sign up for programs, those agencies are not going to hold sign-ups,” he said.

Another effect is that two key agencies, Bureau of Labor Statistics and the National Agricultural Statistics Service, will also be closed and won’t be collecting statistics. That spells trouble in several ways. Without updated information from the BLS, the Federal Reserve can’t take informed action.

If NASS isn’t “going to do acreage reporting, that means they’re not going to give you payments, because nobody’s going to be there to work,” Loy said. The shutdown would halt funding for Agriculture Risk and Price Loss Coverage programs, known as ARC and PLC. These programs provide protection to farmers in the event of substantial revenue or commodity price drops. No funding means no payments to farmers.

SNAP, Crop insurance protected
If the government shuts down, participants in the Supplemental Nutrition Assistance Program, or SNAP, and those who have crop insurance, won’t be affected. SNAP includes WIC, the Women, Infants and Children program.

“SNAP was authorized under the 2008 Food and Nutrition Act so lack of a Farm Bill won’t affect it,” Loy said, “Crop insurance was subsidized through the Federal Crop Insurance Act, so the crop insurance folks are going to be OK.”

Back to 1938 and 1949
Should the Farm Bill not go forward, farm commodity programs would lapse back to what’s referred to as “permanent law,” comprised of provisions from the 1938 and 1949 farm bills that never expire. Farm Bills passed since then have language that suspends the outdated provisions.

According to the Congressional Research Service, “permanent law would support dairy, wheat, rice, cotton, and corn but would not support soybeans, peanuts, and sugar, among other commodities. If the permanent law suspension were to expire, the U.S. Department of Agriculture would be required to implement permanent law, which is likely more expensive to the government and consumers than the current farm bill.”

“The big commodities that it will affect are cotton, milk and wheat,” Loy said, “So food prices will skyrocket in stores.”

Government shutdown could affect Fed’s decision-making

The Federal Reserve declined to increase interest rates this week, but any decision to change the interest rate in November may be nixed if the federal government shuts down, said Ryan Loy, extension economist for the University of Arkansas System Division of Agriculture.

Fed Chairman Jerome Powell on Sept. 20 left open the possibility of an interest rate hike in November or early in 2024, Loy said.

“Come November, they’ll probably raise it, and then the question is whether they’ll raise it again in January,” Loy said, adding that in Wednesday’s updates, “Powell signaled there would be “two ‘quarter’ reductions sometime between Q1 and Q2 next year.”

The Fed Open Market Committee members “looked at their economic projections and said, there’s evidence of inflation, but at the same time consumers are purchasing and our economy is still robust,” Loy said. “Powell did say that he thinks that robust spending’s a good thing. People are going out and buying things, but it shows the rate hikes haven’t had as much of an impact as they thought.”

Loy said Powell is still focused on a “soft landing” for the economy, mindful of the lessons of the “Great Recession” of 2008 and the difficult times of the 1980s.

However, the robust consumer spending may be coming at a cost. According to the Federal Reserve Bank of New York, consumer debt is also on the rise. The New York Fed said that in the second quarter of 2023, total household debt grew $16 billion to reach $17.06 trillion. Credit card balances rose $45 billion to a high of $1.03 trillion.

What if there’s a shutdown?

The laws authorizing spending to keep the federal government running will expire Sept. 30. If Congress fails to pass a continuing resolution, or find another means to keep the funds flowing, the federal government will close.

“When a government shutdown happens, nonessential activity just goes out the window, and that includes data collection and dissemination,” Loy said. “Workers at the Bureau of Labor Statistics, and those sorts of agencies, are going to be told to go home.”

The problem is that the data collected by BLS “is how the Fed bases its monetary policy,” he said.

“If there’s a shutdown for a month and they come to the November meeting, there’s no data then to even decide if a rate hike is necessary,” Loy said. “Powell is going to err on the side of caution and say, something like, ‘if I don’t have any data by that time, then we’re not going to just raise it arbitrarily.’

“Without data, you don’t really know where the economy’s heading for at least a month,” Loy said.

So, why can’t the Fed fund BLS to collect data during the shutdown?

“I even asked this question myself yesterday. In 2019 they had this problem when they shut it down for just a few weeks,” Loy said. While struggling with the debt ceiling problem, “the Fed actually tried to fund these agencies to collect the data so they wouldn’t run into this problem. But was told it was against the will of Congress.”

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