The 2008 farm bill debate was packed with claims that funding would be tight and the resulting legislation would be crafted to reflect the reality of diminishing U.S. treasure.
Early debate on the next farm bill is being built upon the same rhetorical foundation, although the funding priorities being pushed — rural development pushed by the Obama administration and crop insurance/commodity program reforms by politicians and advocacy groups — have changed.
This was evident during a two-panel, May 13 House Agriculture Committee hearing (squeezed in between numerous field hearings around the country with testimony from agricultural economists and professors.
(For a report on the testimony from one of those field hearings click here).
“I’ve been a fairly strong advocate of reforming the crop insurance program,” said Texas Rep. Randy Neugebauer. “Back home, when I talk to my producers, it isn’t working for them even though we’re investing a substantial amount of resources.” One proposed remedy “is to convert the whole crop insurance program to a county program. … Would that be a revenue program? Yield-based?”
It could be either yield-based or revenue-based, replied Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University.
“The yield-based would work pretty well because we have futures and options markets out there that allow most crop farmers to manage their price risk. It’s difficult to manage their yield risk.
“The reason I suggest the first layer of coverage would be at the county level rather than the underlying farm level is because a lot of the risk is represented at the county level. A lot of the farm-level risk is represented by movements in the county yield.
“County yields are very easy to calculate. The National Agriculture Statistics Service does them every year. So, the administrative costs of that are far lower.
“And I think a lot of farmers would find they wouldn’t need supplemental coverage.”
One problem with a revenue-based program is that “when the price is very high, you’re providing a tremendous amount of coverage,” said Babcock. “So, even if the price moves from a ‘very high’ level to a ‘good’ level you could still be on the hook for lots and lots of payments.”
Regarding the revenue program, “one of the things I heard from my area is that bankers wouldn’t let (growers) sign up because it wasn’t a guaranteed thing,” said Minnesota Rep. Collin Peterson, chairman of the committee. “They wanted to hang on to the loan because they knew what it was.
“It seems to me we could craft revenue (legislation) so it has some kind of guarantee with it. I would ask you to help us figure out how to do that. I think we need to go with a county average.”
Darryl Ray, economist/director of the Agriculture Policy Analysis Center at the University of Tennessee, urged the committee while writing the next farm bill, not to be lulled into thinking “$3 to $4 prices for corn — and corresponding prices in other crops — are going to be the future. I’m not convinced. One of the things we need to do when looking at policy, is how it affects all the stakeholders at the extremes when we have extremely high and extremely low prices. Because if history has taught us anything it’s that we will have both.”
For proof, just look to the last decade,” said Ray. “In 1998 through 2001, we had extremely low prices and, of course, prices exploded about 10 years later.
“I want to talk about some of the specific types of programs and how they might react to those extremes. There’s a lot that can be said positively about the ACRE program. But when prices are very high, the ACRE program does the best job of providing benefits to farmers. Therefore, it would cost taxpayers potentially a considerable amount of money.”
On the bottom side, “I’d argue we don’t have the same protection with ACRE. If prices fall … the safety net drops with the prices. At some point, there would be very little, or no, protection, at all.
“In some cases, ACRE is a ‘revenue smoother’ over time. It’s not a consistent provider of counter-cyclical protection. We need to take that into account.”
Ray pointed to some analyses — “some of which look at the current price picture and others look at averages from 1980 on” — that tend to indicate ACRE would be beneficial to farmers. “But what I’d want to look at is how it would have performed in 1998 through 2001, with low prices.
Exports were also on Ray’s list of talking points. “One of the reasons we’ve gone to the payment-type programs in agriculture is because of the export-centric narrative. We believe the supply management and price-support programs we once had were preventing us from keeping our customers. And if we lowered the price, they’d run right back.
“The other aspect is there are a lot of folks saying that population growth and income growth across the world will make agriculture prosperous and that will happen anytime now. But over the last 20 years it hasn’t happened. In fact, if you take the total tonnage of the three major crops (wheat, corn and soybeans), we’re actually exporting the same amount today that we did in 1980. And, as a percentage of production, it’s been going down.”
Ray made four additional points:
• Don’t think that exports “will save us.”
• Excess capacity is likely to return.
• It is possible to see lower prices again — “like $2 corn. There’s nothing to stop it and we don’t have the kind of protections in place that we’ve had in the past. If conditions are right, it could indeed happen.”
• It is “unreasonable” to believe that complete freedom of trade in the world would allow the scuttling of farm programs. “That kind of activity would change the nature and structure of agriculture.”
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