If Agriculture Secretary Mike Johanns was the devious sort, you might wonder about the administration's proposal to increase direct payments for cotton and not for other crops in the first year of the new farm bill.
But if you give him the benefit of the doubt — and most people would — you would not think Johanns might be trying to pit cotton against other commodities for more than a moment.
In proposals announced in Washington and in Tunica, Miss., and Des Moines, Iowa, Jan. 31, Johanns wants to revise the marketing loan by basing rates on a five-year Olympic average and capping them at the levels of the House-approved version of the 2002 farm bill.
The marketing loan for cotton would drop from 52 cents to 45.7 cents. For corn, the rate could fall from $1.95 to $1.89 per bushel. Johanns proposes to take the savings — about $5 billion, he says — and increase direct payments.
Because cotton prices have been relatively low in recent years while corn, soybean and wheat have been relatively high, Johanns would increase the direct payment for cotton from the current law's 6.67 cents per pound to 11.08 cents per pound in 2008-09.
Direct payments for the other program crops would not increase at all or only slightly in the first two years. In 2010, corn would go from 28 to 30 cents per bushel, soybeans from 44 to 50 cents, wheat from 52 to 56 cents, rice from $2.35 to $2.52 per hundredweight and peanuts from $36 to $38.61 per ton.
Johanns' logic for reducing marketing loan rates and increasing direct payments is that the latter fall into the “green box,” the category of farm subsidies not limited by WTO rules. Marketing loan and other so-called “trade-distorting” benefits fall into the “amber box,” which for U.S. farmers are capped at $19.1 billion.
Increased direct payments might sound appealing, but any decrease in loan rates reduces the ability of cotton growers to obtain financing, resulting in either “a smaller loan or no loan at all,” according to one Mid-South agricultural economist.
The other fly in the ointment is direct payments typically get passed on to the land through higher land prices or higher cash rents. Landowners have also been known to cancel rental agreements and take the entire payment.
In a follow-up interview after his speech in Tunica, we asked Johanns what he would offer rice farmers who might feel prices haven't been much?
Johanns said rice farmers' direct payments would go up in the farm bill's third year. “The other thing is that the new revenue-based counter-cyclical payment would help them when they have weather problems. And everyone will benefit from the biofuels and conservation provisions.”
He also wanted to tell one young farmer who talked to him in Tunica that the law defines beginning farmers as anyone who has been farming for 10 years. And he thanked the farmers in Tunica. “They were great.”