Ag Policy, Lecture 16

1
Ag Policy, Lecture 16

• 2002 Farm Bill
• Political Stage
• Development
• Provision
• Issues today

2
Making the 2002 Farm Bill

• Leading up to the 2002 Farm Bill
• Budget surplus predicted for next 10 years
• Farm prices were low with an outlook for slight
  increases
• Ad hoc Disaster payments had been made each of
  past 4 years
• Many believed Freedom to Farm wasnt working
  and we needed to strengthen the safety net

3
Making the 2002 Farm Bill

• What is meant by safety net
• Some said bring back the safety net
• Some said strengthen the safety net
• Who was more correct?

4
January 2001 Outlook for Grain Prices
5
A Major Rationale for Extra Funding for the 2002
Farm Bill Was to Eliminate Emergency Ad Hoc
Market-Loss Payments Enacted Due to Low Prices in
Prior Years
6
Estimated Costs of Commodity Group
ProposalsSubstantially Exceeded Additional Funds
Made Available for the 2002 Farm Bill
7
The Budget Reality Projected Federal budget
surpluses that facilitated extra funding for the
2002 farm bill disappeared by 2003

8
Making the 2002 Farm Bill

• Players
• House Mr. Combest Chair and Mr. Stenholm
  Ranking Minority Member of Ag Committee
• Both 20 year veterans of the House and
  Agriculture
• Both from Texas
• Both probably had more interest in Texas
  agriculture than party politics
• Senate Mr. Lugar Chair and Mr. Harkin Ranking
  Minority
• Chairmanship switched in May 2001
• Senate was probably more worried about control
  and party politics than any specific legislation

9
Making the 2002 Farm Bill

• House started the process in late 2000
• Called for Interest Group hearings under specific
  rules
• Interest groups were scheduled month in advance
• Corn, Soybean, Cotton, Rice, Wheat, Farm Bureau,
  National Farmers Union, etc.
• Testimony could not be whining as usual
• Testimony had to include the following
• State a position,
• Specify what they wanted,
• Analyze the impacts on domestic and international
  markets,
• Impacts on WTO ratings.
• Interest Group Hearings started in February 01

10
Making the 2002 Farm Bill

• House Ag Committee debates started early
• May 01 -- House Ag Committee had narrowed
  options down to three alternative program options
• June/July -- Analysis of three options
• August 01 -- House Ag Committee sent a bill to
  the floor.
• Sept 01 -- Passed by full House in September
  2001
• Senate Ag committee had not started the process

11
Making the 2002 Farm Bill

• Senate drafted a Harkin led bill around
  conservation plans and down played the
  traditional price and income supports
• Feb 02 -- Senate finally gets a bill to the
  floor.
• AFPC analyzed Senate bill in February and
  side-by-side comparison of the two bills in March

12
Making the 2002 Farm Bill

• Senate bill had budget problems with conservation
  spending.
• CBO made a 6 Billion error scoring the Senate
  bill
• Put Senate at a disadvantage in Conference
  Committee
• Senate conceded on conservation spending goals
• April 02 -- Conference committee compromise bill
  mostly resembled the House version.
• May 02 President Bush signed the bill

13
2002 Farm Bill Provisions

• Continue Marketing Loan
• Continue AMTA, Now called Direct Payments
• Still no production controls
• New Target Price called Counter-Cyclical Payment
  (CCP)
• Allowed for an update of Base acres and Farm
  Program Yields
• Conservation Security Program

14
2002 Farm Bill Provisions

• Allowed for an update of Base acres
• One time update in 2002
• Based on 1998-2001 average acres planted
• One decision for your entire farm
• Allowed for an update of Farm Program Yields
• Only if you updated Base Acres
• Decision applied to all your crops
• Only applied to CCP, Direct payments still made
  based on 1985 yields
• Seven Possible Update Options

15
2002 Farm Bill Provisions

• New Target Price called Counter-Cyclical Payment
  (CCP)
• CCP rate TP - Direct Pay rate max(price,LR)
• CCP CCP Rate Base acre CCP yield 0.85

16
2002 Farm Bill Provisions

• Where would you rather get your price subsidy?
• CCP or Loan Gain?
• The answer is not as simple as what can be shown
  in this picture.
• Remember Loan gains are coupled to production
• And CCP is decoupled from production

S
TP
Deficiency Payments
LR
Loan Gains or Benefits
MP
D
Q/yr
QS QD
17
2002 Farm Bill Provisions

• Most of the feed grains lobbied for higher loan
  rates
• Cotton lobbied to stay at 0.52 loan rate
• Factors
• Specifics of the payments
• Production risk
• Technology advancements

S
TP
Deficiency Payments
LR
Loan Gains or Benefits
MP
D
Q/yr
QS QD
18
2002 Farm Bill Provisions

• Conservation Security Program
• Authorized in 2002 Farm Bill
• Has struggled with implementation and funding
  ever since
• May be implemented this summer
• Concept was to pay for Conservation and/or
  Improving Quality of soil, water, air, energy,
  plant animal life

19
2002 Farm Bill Provisions

• Coupled or Decoupled programs?

20
What has Happened Since Farm Bill Signed May 2002?

• Federal budget deficit took away the surplus
• Budget problems pressure Congress to amend the
  bill

21
Congressional Budgets

• Entitlement (Mandatory) Programs
• Most farm program provisions
• Under jurisdiction of the Ag Committees
• Budgets are estimated cost of providing benefits
  to participating, eligible recipients
• Multi-year funding provided in budget when law is
  passed
• Annual appropriations are not necessary
• Appropriated Programs
• Under jurisdiction of the appropriations
  committee
• Funded annually

22
Congressional Budget Office

• The CBO Baseline
• 10-year projected federal budget
• Assumes current laws and policies continue
  throughout
• Incorporates current and projected market
  conditions, economic trends, and USDA
  implementation decisions
• CBO scores (cost estimate) proposed legislation
  by comparing
• Projected federal costs if proposal becomes law
  and
• Projected federal costs in baseline
• Bills are often re-worked to achieve a desired
  score

23
Congressional Budgets

• Budget Resolution
• Congress annual multi-year budget plan
• CBO Baseline plus any changes authorized in the
  resolution
• Budget Reconciliation
• Instructions given to authorizing committees on
  their share of spending cuts to achieve an
  overall federal budget reduction
• Savings must be relative to the current baseline

24
Lecture 16, Wrap up

• Can you answer these?
• What is a safety net?
• Can you calculate a CCP rate, given all the
  information (target price, market price, loan
  rate, direct payment rate)?
• In developing the 2002 farm bill which won out,
  bipartisanship or party politics? What happened?
• Can you rank the 2002 farm bill provisions in
  terms of how coupled/decoupled? What
  characteristics make a program coupled or
  decoupled?
• What is the difference between an entitlement
  program and an appropriated program?
• What is the CBO Baseline? What does it mean for
  CBO to score a bill?
• What is the difference in budget resolution and
  budget reconciliation?