Whats in Store for the Next Farm Bill

1
Whats in Store for the Next Farm Bill?

• Andrew M. Novakovic
• The E.V. Baker Professor of Agricultural
  Economics
• Presented to the
• Agribusiness Outlook Conference
• December 2005

2
Outline

• Why do lawmakers and elected officials care about
  agriculture? Are these factors changing?
• What policy elements have been shaping
  agriculture and its trends?
• MTN multilateral trade negotiations
• US policy
• Policy in other countries
• Special concerns for New York?

3
Why Do We Care About Agriculture, or Do We?

• Number of farmers is insignificant, although
  political power is disproportionately large
• Economic scope of production agriculture is small
  but not trivial
• Economic scope of the food and fiber sectors is
  large
• Food security is not a trivial concern
• Food prices/expenditures are important

4
Why Do We Care About Agriculture, or Do We?

• Various value systems have been suggested for why
  we maintain an extensive system of economic
  support for ag
• However, a fundamental issue is whether we are
• fixing something that is broken (market
  failure) e.g. FMMO, countercyclical payments
• or
• simply giving money to farmers (welfare, income
  redistribution) e.g. direct payments

Which one do you want to be a part of?
5
Agricultural Policy To Support Prices or Not
Support Prices

• The Support of Farm Incomes, primarily through
  the support of agricultural product prices, has
  been a national policy goal since the
  Agricultural Adjustment Act of 1933.
• With US production booming and European
  agricultures recovery, levels of support and the
  creativity in developing support mechanisms hit a
  new high in the late 1950s.
• Like the income tax code, agricultural programs
  became increasingly complex through the 1970s
• The 1980s boomed for much of crop agriculture but
  was a period of excess followed by painful
  adjustment for dairy

Then what?
6
Agricultural Policy Lets Support Prices

• 1990 Farm Bill - back to the future
• Target Price -Deficiency Payment
• Crop Loans
• Marketing Loans
• Production controls

P
Demand
Supply
TP
LR
qs
Domestic crop markets
7
Agricultural Policy Lets Not Support Prices

• 1996 - Freedom to Farm
• Concept
• Markets are strong
• We have a high baseline (planned spending without
  change in policy) for ag budget, lets use it to
• phase out subsidies and supports over the life of
  the bill and be blissfully free market by 2000

8
Agricultural Policy Lets Not Support Prices

• 1996 - Freedom to Farm
• Tools
• No ARPs (no longer a supply control)
• No Target Price (no deficiency payments)
• Continued marketing loan for cotton rice
• Created marketing loan for wheat, soybean, and
  feed grains
• Created a (new) direct payment Agricultural
  Market Transition Assistance gt convert price
  support to cash, reduce amount of cash annually
  from high to low to nothing in the next farm bill
  (added MILC for dairy farmers)
• Farmers had to remain ag land owners but could
  receive payment regardless of what they did or
  did not produce

9
The Economic Setting of the 1996 Farm Bill
(Debated in 95)
World recession
High prices in 93, 94 and part of 95
2 weeks after signing 96 Bill prices started
falling
10
Agricultural Policy Lets Not Support Prices

• 1996 - Freedom to Farm
• What Really Happened
• Farmers liked the Freedom part
• Farmers liked the cash payment part
• Farmers liked the cash payment part more
• Farmers never believed that supports would
  actually terminate - if agriculture gets in
  trouble, they will have to bail us out because
  they cant afford not to (food security)
• Cash payments enabled high production at low
  prices
• Low prices for 6 years enable the resumption of
  price supports

me too-dairy is an afterthought
11
Agricultural Policy How Much and What Kind Can
We Afford?

• 2002 Farm Bill - Major Crops (grains oilseeds)
• New Target Price - Counter Cyclical Payments
  (CCP)
• Pay according to old base crops, but produce what
  you like
• Low market triggers a payment
• More or less actual production does not alter
  payment
• Continued Marketing Loan and Marketing Loan Gain,
  with updated Base Acres and Yields but with
  payment acres limited to 85 (I.e., update makes
  sense to farmers, limit makes sense to government
• DP Base .85 DP yield DP Rate
• CCP Rate TP DP rate (max of price or
  loan), 0
• CCP Base 0.85 CCP yield CCP Rate
• Direct Payment - just take some money

Dairy still an afterthought -- MILC
12
Why Did We Do What We Did in 2002?

• Farmers were right we arent ready yet to
  ignore short-term, low farm prices (stifling
  other ideas for general farm support - revenue
  insurance, green payments, etc)
• The Uruguay Round Agreement and anticipated Doha
  has some bright handwriting on the wall we have
  to reduce blatant commodity price supports,
  somehow

13
Agricultures Fickle Relationship to MTN

• Overarching MTN/GATT Approach
• Gradually eliminate tariffs
• Convert non-tariff barriers to equivalent tariff
  (tariffication)
• Increase market access
• Agriculture
• Sensitive area, not seriously broached until
  Kennedy Round (Europe doesnt want it either)
• Exporters seek freer trade
• Importers hold back as long as possible
• Some momentum during Tokyo Round
• Nothing significant until Uruguay Round
• Now the horse is out of the barn

14
MTN Where Weve Just Been

• Uruguay Round Objectives
• Market Access
• Replace Quotas with Tariffs
• Reduce tariffs
• Reduce trade distorting export subsidies and
  domestic interventions
• Objectives were substantially met

15
The Big Boxes of WTO

• Green box
• Not trade distorting (direct, decoupled
  payments,conservation payts)
• Blue box
• Minimally distorting because production is
  controlled (EUs CAP, our hope for Counter
  Cyclical)
• Amber box
• Trade distorting - subsidies tied to either price
  or production (where most of US programs are
  placed, although we are helped by the de minimis
  rule, e.g. Direct payments as 5 of value of all
  agriculture)
• Red Box
• Subsidies that must be stopped (empty box)

16
Why Classification Matters

• The classification of the new countercyclical
  program in the non-commodity-specific portion of
  the amber box helped the U.S. in meeting the
  domestic support limits (de minimis rule)
• Expenditures from programs in the
  non-commodity-specific category are compared
  against the value of all agricultural production
  in the country (as opposed to crop value for
  commodity-specific programs)
• Given U.S. agricultural production values of 200
  billion, the non-commodity-specific amber box can
  hold up to 10 billion in support before reaching
  the de minimis mark and counting against the
  domestic support limit
• Putting anything new in Amber is tough
• We want to get our CCP in Blue

17
Why Classification Matters

• The calculation of subsidies is probably not what
  you would think
• Dairy occupies about 1/4 of US Amber box because
  of poor choices we made in how costs of program
  are calculated.
• US offers to reduce subsidies really mean to
  lower the ceiling allowed in the current WTO.
  Thus if our ceiling is 100 and but we actually
  only spend 40, then an offer to cut the ceiling
  by 50 doesnt really mean much
• Our competitors can do the arithmetic just as
  well as we can
• Getting Counter Cyclical into Blue would be a
  huge help and is a US priority

18
MTN Where Were Going

• Doha Round Objectives and Status
• More of the same, in terms of objectives
• Market access Substantially reduce tariffs and
  increase quantities in TRQs
• Export competition Eliminate export subsidies,
  variable export taxes, and exclusive import
  rights by state trading importers
• Domestic support Substantially reduce amber box
  subsidies and simplify into exempt and nonexempt

19
MTN What does it mean for US agricultural
policy?

• Influencing domestic support policies is part of
  the trade policy agenda
• Changes in EU put them on a higher moral ground
  for domestic supports, although vulnerable on
  access, the ball is more in our court w.r.t.
  supports
• President talks big
• Congress in denial
• WTO Cotton Decision looms large
• Developing countries Rich countries need to give
  up A LOT MORE
• gtTrade negotiations and the US budget will
  likely define what is feasible for the next US
  Farm bill.

20

• Latest
• 30 November 2005
• Truth or consequences Why the EU and the USA
  must reform their subsidies, or pay the price
  Oxfam Briefing Paper 81
• The USA and the EU are currently blocking a deal
  to make trade fair in the Doha Development Round.
  In the wake of findings by the WTO that US cotton
  subsidies and EU sugar subsidies are illegal,
  this paper presents powerful new research
  detailing a slew of other rich country subsidies
  of 13bn that are also on the wrong side of the
  law. In addition to the strong moral imperative
  for the trade superpowers to radically reform the
  way they subsidise agriculture, there is a also a
  legal requirement for change. The choice lies
  with the USA and the EU either they face
  manifold legal actions that will force reform on
  a piecemeal basis, or they negotiate reform
  upfront in the Doha trade round.

• Experience of the real issues confronting poor
  people is linked to high-level research and
  analysis and lobbying. Oxfam aims these efforts
  at changing international policies and practices
  in ways which would ensure that poor people have
  the rights, opportunities and resources they need
  to improve and control their lives.

Pushing hard on rich countries to eliminate ag
supports
21
Not much here

• USDA announces Conservation Security Program
  (CDP) sign-up in 220 watersheds nationwide
  March 28, 2005 to May 27, 2005
• Additional CSP information is available from the
  USDA's Natural Resources Conservation Service
  (NRCS)
• USDA announces 6 Million for New Initiative for
  Limited Resource Farmers March 15, 2005
• USDA releases New Conservation Technical
  Assistance Policy February 15, 2005
• More eGovernment solutions through an electronic
  Customer Statement. The Customer Statement will
  be a focal point for providing agricultural
  producers access to their USDA information and
  facilitating online business with USDA

• Resources
• Continually updated Questions and Answers on the
  2002 Farm Bill by USDA
• Updated county loan rates provided by USDA
• Find Loan Deficiency Payments Rates
• Glossary of Farm Bill terms provided by the
  Economic Research Service at USDA
• Summaries of the Farm Security and Rural
  Investment act of 2002
• Short Summary
• Comprehensive Summary
• Review the full bill text of the Farm Security
  and Rural Investment Act of 2002
• Information by Farm Bill Title Provided by the
  USDA

22
Not much here

• Senate Vote No Paylimit Change
• 53 Senators back Chairman Chambliss against
  changes to program eligibility rules for farmers
  receiving commodity farm payments
• Official CBO details on Ag Budget
• Payment Limits Chambliss in Senate debate
• direct payments cut to 20,000
• payment to producers actively farming)
• Chambliss On Agriculture
• Chairman Chambliss discusses the agriculture
  budget's fair share with agriculture reporters.
• Agriculture's Budget share set by Senate-House at
  3 billion in deficit reduction over 5 years.
  Agriculture Committee Senators can now work with
  a more realistic budget amount to reduce spending
  equitably among the commodity support,
  conservation and nutrition programs, said
  Chambliss.
• More in April 28 news release
• Entrusting the American food supply to the
  reliability of the American farmer.
• Farm Bill Budgeted and delivering support
• Chairman Chambliss outlines Committee work, the
  ag budget, and trade issues in Feb 4 session with
  reporters.
• The 2002 Farm Bill

• Resources
• Soybean Rust -
• Prevention, tracking, fighting this fungus on
  soybean crops.
• USDA Soybean Rust website
• Agricultural Glossary - University of Arkansas
  Division of Agriculture - www.NationalAgLawCenter.
  org
• Glossary of farm bill terms by USDA's Economic
  Research Service
• 24-Hour Service for checking application status,
  and verify USDA information about your operation.
  USDA's Customer Statement
• Complete most forms on USDA's E-file site.
• Farm Bill answers for producers - continually
  updated on USDA's web site.
• Disaster help for producers - calculating crop
  loss payments, new USDA information
• Disaster Declarations - Details available to
  state and county level

23

• Spotlights
• "The 2007 Farm Bill will affect America's entire
  agricultural community, so I believe our entire
  agricultural community should have a say in the
  process. I welcome input from across the nation
  about what is working and what we can do to
  improve farm policy." - Mike Johanns, Secretary
  of Agriculture
• Comment on the 2007 Farm Bill
• USDA provides its customers with a form to submit
  feedback on a series of questions related to the
  2007 Farm Bill.
• Transcript Of The Washington State Farm Bill
  Forum With Agriculture Secretary Mike Johanns And
  Moderator Bob Hoff, Northwest Ag Information
  Network Cheney, Washington - November 3, 2005
• Transcript Of The Montana Farm Bill Listening
  Session With Deputy Secretary Of Agriculture
  Chuck Conner, Senator Max Baucus, Senator Conrad
  Burns And Governor Brian Schweitzer With
  Moderator Taylor Brown, Northern Ag Network The
  Museum Of The Rockies Bozeman, Montana - November
  4, 2005
• Transcript of Rhode Island Farm Bill Forum With
  Mark Rey USDA Under Secretary For Natural
  Resources And The Environment, And Moderator
  Peter Augus, Narragansett, Rhode Island, October
  14, 2005
• Transcript Of New Hampshire Farm Bill Forum With
  USDA Under Secretary For Rural Development Tom
  Dorr And Moderator Fred Kocher Manchester, New
  Hampshire, October 25, 2005
• Last Modified 11/22/2005
• Farm Bill Events Calendar

• Related Topics
• Latest Farm Bill News and Transcripts
• Farm Bill Events Calendar
• Farm Bill 2007 Official Comments
• Farm Bill 2007 Official Comments En Español
• Farm Bill Photo Gallery
• Federal Register Notice - PDF

Quite a bit here
24
Not ready for change yet

• Priority Issues
• Farm Policy Issues
• o Protect the Integrity of the 2002
  Farm Bill
• o BSE Regulation
• o Animal ID Implementation
• International Trade Issues
• o Increasing Agricultural Exports
• o WTO Action in 2005
• Energy and Transportation Issues
• o Reauthorization of Water Resources
  Devt Act and Trans. Bill
• o Energy Legislation
• Tax Issues
• o Capital Gains Tax Cut
• o Permanent Elimination of Death Taxes
• o Replacement / Reform of the U.S. Tax
  Code

• Current Farm Bureau Issues
• Legislative Priorities
• Legislative Priorities 109th Congress
• The following list of priority issues for the
  109th Congress were adopted by AFBF Board of
  Directors on January 12, 2005.
• The Public Policy Agenda publication with
  information regarding each issue will be
  available to you soon. If you have any questions
  regarding the priority issues please contact
  Lauren DeKosky, Director, Legislative Services,
  laurend_at_fb.org, [phone].

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Eager for change to more general and green
support

• 2007 Farm Policy Reform Creating Healthy Farms,
  Healthy Food and a Healthy World
• U.S. farm policy, once vital to American
  prosperity, no longer meets the needs of most
  farmers and ranchers, the land or the public.
  American Farmland Trust has embarked on a
  campaign to change this outdated policy. The time
  is right. We are at a threshold moment where, for
  the first time in 70 years, we can create a
  program that saves our best land, supports
  healthy farming and produces healthy food. The
  taxpayersand American agriculturedeserve no
  less.
• You can help by supporting policies that
• Reward and encourage stewardship
• Provide a real safety net for all farmers
  and help them manage risk
• Encourage entrepreneurial innovation and
  new markets and
• Expand consumer access to nutritious, safe
  food.
• Farm Policy Must Reads
• Keith Weller/USDAMarket Based Approach to
  Conservation
• History and Outlook for Conservation Programs
• The Financial Health of Farm Households

• Our Policy Work
• 2007 Farm Policy Reform
• The Case for Reform
• Policy Options
• Action Plan
• Reform in Action
• Take Action
• Voices for Change
• Sign up for E-news or the U.S. Farm Policy Update
  to receive the latest information about farm and
  ranch land conservation and U.S. farm policy.

26

• Farm Bill Information
• Loan/LDP Issues and the Marketing of Upland
  Cotton 11/18/05
• Farm Law Changes, Tighter Payment Limits Would
  Harm Arizona and Western Agriculture 11/10/05
• NCC Grateful for Senators Payment Limitations
  Opposition 11/03/05
• Farm Family Letter 11/03/05
• In a letter to Senate Agriculture, Nutrition and
  Forestry Committee Chairman Chambliss (R-GA) and
  Senate Budget Committee Chairman Gregg (R-NH),
  NCC producer members from across the Cotton Belt
  expressed deep concern over the continued efforts
  to dismantle the current farm bill that has
  served production agriculture so well.
• Farm Law Changes, Tighter Payment Limits Would
  Harm Georgia and U.S. Agriculture 10/21/05
• Farm Law Changes, Tighter Payment Limits Would
  Harm Texas and U.S. Agriculture 10/06/05
• Joint Letter Regarding FY06 Agriculture
  Appropriations Measure 09/20/05
• The NCC joined commodity groups and others in a
  letter to Sen. Thad Cochran, chairman of the
  Committee on Appropriations, and Sen. Robert
  Bennett, chairman of the Subcommittee on
  Agriculture, Rural Development and Related
  Agencies, asking that as they and their
  colleagues develop the FY06 agriculture
  appropriations measure -- they reject any
  provisions which would substantially alter the
  current farm law. (members only)
• NCC Engaged in Preserving Farm Law Integrity and
  Addressing Major Trade Issues 09/14/05

Denial Resistance

• Latest News (excerpt)
• November 2005
• Letter to Sens. Gregg, Chambliss Regarding 2006
  Budget Reconciliation 11/01/2005
• The NCC joined other agricultural groups on a
  letter to Sens. Gregg, Chambliss regarding the
  2006 Budget Reconciliation and strongly encourage
  rejection of any amendments which would
  substantially alter the fundamental policies and
  delicate balance and allocation of financial
  resources embodied in the Farm Security and Rural
  Investment Act of 2002.
• STATEMENT - On The U.S. Proposal For WTO
  Agricultural Negotiations 10/12/2005
• Reacting to the latest agricultural proposal by
  the USTR, as outlined on its web site, NCC
  Chairman Woods Eastland said that the proposals
  represent a very aggressive stance by the United
  States in the Doha Negotiations and would require
  significant cuts in U.S. farm programs if agreed
  to by the Members of the World Trade Organization
  (WTO) and the U.S. Congress.
• September 2005
• Brazil Cotton Case and the WTO 09/30/2005
• NCC President/CEO Mark Lange addressed the
  International Cotton Association meeting in
  Liverpool regarding the Brazil cotton case and
  the WTO.

27
3 Huge Factors Will Shape the Next Farm Bill

• BUDGET (spend less)
• huge federal deficit
• Ag Ctes have to obey budget
• House willing to sacrifice Food Stamps over
  commodities
• WTO (change what you do)
• Pressure to reduce domestic support and increase
  access
• Restrictions on what can be done (e.g., not trade
  distorting)
• WHAT INDUSTRY WANTS
• Minimal change
• Level
• form

28
Can Agriculture Survive?

• US Agricultural Price and Income Supports arent
  going to survive the next 20 years or less
• US Agriculture will,
• although it will look different
• US agriculture has a long term comparative
  advantage

29
Thanks for your attention.

• Take it away, Jerry