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conern was inflation (listed by 84 percent of respondents). Three of the other four major problems they identified as impacting their farming operations were:

These results give very strong evidence as to the importance rural America places upon the very issues under consideration by this committee.

In conclusion, a few recommendations:

(1)

(2)

The "required" minimum interest rate on contracts should be at some
fraction of Federal Land Bank interest rates--perhaps two-thirds.

Those requirements should be based on some moving average (3-5 years)
and be either self-adjusting or be announced annually.

(3) The minimum interest rate suggested under section 482 should be the same as that required under section 483. (This would help eliminate confusion and the appearance that there is some "special punishment" intended for related entities who appear to violate the "arms length" specification.)

(4) The four major concerns of rural America identified above can all best be handled by congressional actions that will help bring inflation under control.

Relative to (4), it is a sad commentary on government when, at the same time states such as Iowa, Louisiana, Minnesota, North Dakota, Oklahoma and Texas are spending tax dollars to lower the effective interest rates on contracts, the Federal government is taking action that will increase these same interest rates. Legislation similar to the Minnesota Family Farm Security Act is under consideration in a dozen other states. In fact, similar legislation has recently been introduced at the national level. Called the "Beginning Farmers Assistance Act" (HR 2977), its purpose is to make available $250 million in loan guarantees to those states which offer special loan programs to beginning farmers. The use of tax dollars in two different programs that are at cross purposes with each other is not prudent fiscal management.

Finally, those who are responsible for the decision on the appropriate interest rate to suggest on land contracts might consider the word of admonition in the last verse in the 22nd chapter of Proverbs--"He who oppresses the poor to increase his own wealth, or gives to the rich will only come to want". (Prov. 22.16)

Government hopes to increase its wealth from the larger tax take.
Beginning farmers are usually relatively poor, these are the ones
who will have to pay more interest as the required rate is increased
Current land owners are the relatively rich because of recent
inflation levels--these are the ones who will get the higher
interest payments

1960 61

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 1980

1 Annually averaged Moody's Seasoned Aaa bond yields.

2 Rate of change of three-year moving average of GNP deflator placed on last year.

Note: 1980 data are averages of first two quarters.

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GRAPH 2. The impact of an increasing inflation rate and interest rate on the cash flow deficit inherent in a farm land purchase.

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Table 1.

30-year net cash flows per acre on $2,400 land expected to net $85 the first year and 7 percent more each year thereafter.