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Farm Bill Debate and Prospects for 2012
Roman KeeneyFarm Policy Study Group
December 13, 2011
Overview
• Update on budget and farm bill process
• Prospects for having a farm bill in 2012
• Near term outlook
Update
• Joint Committee on Deficit Reduction–Deadline of November 23 not met– Failure triggers ‘sequestration’• Across the board cuts to defense and
domestic • 50% of $1.2 trillion from each side
Update (cont.)
• House and Senate Agricultural Committees provided a deficit reduction proposal to the joint committee– $23 billion reduction over 10 years
• Ag committees heavily criticized for the closed door process
• Numerous other proposals for specific and not so specific farm bill contributions to deficit reform
Update (cont.)
• Stabenow (D-Mich)– Citing strong public opposition to
direct payments– Premise: Use $4.8 billion in annual
direct payments to meet deficit reduction and reform farm programs
–Objective: Improve risk management• Crop insurance• Shallow loss
Update (cont.)
• Outcome–Not clear what is in the Ag committee
submission to the Supercommittee
• Assumption– Completely eliminate direct payments
• LDP, CCP
–Use some savings for shallow loss program• Revision of ACRE
Update (cont.)
• Shallow Loss–Moving average revenue program
• Features– Payments are larger when revenue
is further from recent history• Price and yield protection
– Triggered by farm and area losses– Limited to amounts not typically
covered by crop insurance
Update (cont.)
• Start over or pick up where they left off?
• Senate and House Ag Committees begin work in the new year–Hearings in late January or early
February–Markup in the early spring– Some are looking at a Memorial Day
completion
Discussion Points: Farm Bill 2012?
• Reasons for optimism on a 2012 Bill– Committee has spent considerable
time on farm bill• An early vote could miss the worst of
election year standoffs
–Broad agreement in• Opposition to direct payments• Promotion of shallow loss programs
Farm Bill 2012?
• Reasons for pessimism on a 2012 Bill
– Everything is magnified in an election year
–Broad agreement is all they really had• The toughest issues in Farm Bills are regional
and rural-urban as opposed to Conservative-Liberal
–What is the baseline that can be spent?
Scenario
• Managing a firm requiring a payroll reduction that must be enacted quickly:–Option 1: Workforce reduction to
the percentage savings required–Option 2: Cut salaries to achieve the
percentage savings required–Option 3: Fire everyone and hire
new staff at the new payroll target
Ag Committee
• If you imagine that your managerial division of the company is having its strongest historical performance that is akin to the scenario faced by the ag committee
Ag Committee
• Facts– Short timeline to develop a less costly
policy– Strong sector performance under
current policy framework– A nearly stable baseline of spending
under the current policy framework
• Decision– Completely overhaul the policy
framework
Ag Policy Web
AG POLICY
COMMODITY POLICY
Environmental Policy
Food/Nutrition
Policy
Rural Policy
Energy Policy
Trade Policy
Tax Policy
2011 Ag Outlook Update / Ag Policy / 8.20.2010
Farm Bill 2012:Direct Payments vs Shallow Loss
• Direct Payments Looking Backward1What were direct payments meant to be?2How have direct payments been used by
farmers/landowners?3How have direct payments affected
agricultural markets?4What contribution have direct payments
made to current prosperity in agriculture?5Who is defending direct payments as a
policy and what reasons are they offering?
Farm Bill 2012:Direct Payments vs Shallow Loss
• Shallow Loss Looking Forward1What are shallow loss pmts. (SLP) meant
to be?2How will SLP’s be used by
farmers/landowners?3How will SLP’s affect agricultural
markets?4What contribution will SLP’s make to
sustained prosperity in agriculture?5Who is promoting SLP’s as a policy and
what reasons do they offer?
Why choose overhaul?
• Presumably the answers for direct payments are better known than shallow loss given the 15 year history.
• Shallow loss programs will have larger budget exposure.
• Farmers have rejected the option to enter shallow loss (foregoing 20% of direct pmts) for four years
• It must be political…
Policy Instrument Continuum
• Decoupling/Coupling– The degree to which policies are
linked to current producer decisions–When payments are linked to
current decisions (yield or area planted) or current prices they are coupled
Fully Decoupled
Fully Coupled
Commodity Policy Instruments(Simple)
• Loan Deficiency Payment– Price Floor• Application varies across commodities• Rice and cotton loan rates are notably
high
• (Fixed) Direct Payments– Lump Sum Transfer• Based on historical production• Fixed yield and area defined as payment
basis
Commodity Policy Instruments(Complicated)
• Counter Cyclical Payment– Target price policy on historical
production• Payments not tied to current farmer
action• Prices fall, more money into agriculture
• Average Crop Revenue Election (ACRE)–Recent price and yield information
establish a crop-specific target revenue• Shortfalls trigger a payment
Views on U.S. Commodity Policy
Domestic Citizenry
Exte
rnal
Cit
izen
ry
DISFAVOR
DISFAVOR
FAVOR
LDP—Floor Price
ACRE—Counter-cyclical Revenue
CCP—Counter-cyclical Price
DP—Fixed Transfer
Public Views on Agric. SupportDirect Payments
• Recent public opinion survey– Subsidies given on a regular basis
regardless of good/bad year?• 40 percent favor when asked about small farms• 15 percent favor when asked about large farms
– Payments in bad years are much more highly favored
• Common editorial quote– “…indefensible program of direct
payments…”
External Views on Agric. SupportWTO Classification System
Amber Box Trade distorting agricultural support▪ Coupled payments that influence current
output and may depress world pricesBlue Box
Trade distorting agricultural support▪ Tied to land retirement which diminishes the
over-supply effectGreen Box
Minimally distorting policies▪ Decoupled commodity payments▪ Environmental/Conservation payments
Politics of Agric. SupportFixed Direct Payments
• These payments were instituted in 1996–Wean agriculture off of government
programs– Culmination of a 10-15 year evolution of
decoupling U.S. farm subsidies
• Direct payments have proven resilient– Certain money to farmers
• Multitude of selling points (recall the web)
• Exempt from WTO disciplines
Farm Bill: Outlook
• Political pecking order…• Dependent on deficit reduction• Lots of interest in avoiding the automatic
across the board cuts– Eric Cantor (R-Va)
• Leading a bipartisan effort to rescale the automatic spending reductions on the defense side attaching measures to end of year tax and spending bills
– White House position• Veto bills that circumvent the automatic reductions
unless they are part of deficit reduction legislation
Outlook (cont.)
• Recently– Payroll tax holiday extension
• Federal non-military pay freeze• Federal workforce reduction• Means testing for social programs• Surtax on wealthy incomes
• The spending on the tax holiday extension and any other similar bills must be offset
Outlook (cont.)
• Members of the House and Senate Agriculture Committees outlined $23 billion in reductions– Someone is likely to propose using those
to keep some other bill deficit neutral– The Ag committee leadership is
increasingly open to this idea if• They can lock in their budget at baseline less
the $23 billion
Outlook (cont.)
• House and Senate Committees $23 billion– This is at the low end for reduced Farm
Bill spending– Tea-Party/Freedom Works/Dick Armey
• End all agricultural subsidies
– House Budget Committee Chairman• Paul Ryan (R-Wisc)• $30 billion over ten years
– Obama Deficit Plan• $33 billion over ten years
Farm Bill 2012:Discussion
• Direct Payments Looking Backward1What were direct payments meant to be?2How have direct payments been used by
farmers/landowners?3How have direct payments affected
agricultural markets?4What contribution have direct payments
made to current prosperity in agriculture?5Who is defending direct payments as a
policy and what reasons are they offering?
Farm Bill 2012:Discussion
• Shallow Loss Looking Forward1What are shallow loss pmts. (SLP) meant
to be?2How will SLP’s be used by
farmers/landowners?3How will SLP’s affect agricultural
markets?4What contribution will SLP’s make to
sustained prosperity in agriculture?5Who is promoting SLP’s as a policy and
what reasons do they offer?
Gardner writing in 1992
Farm policy started in the 1930s to address the farm income problem Stable demand and low prices
“The farm income ‘problem’ has been solved…”
The role of policy in solving it has been small Education, diversification to off-farm work
and investments, etc.
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