Farm bill: A method behind madness?

Depending on how you look at it, the 2002 farm bill is either a much-needed shot in the arm to a financially stressed farming community or one of the biggest boondoggles in recent history. The new legislation, which increases agricultural spending by almost $83 billion within the next decade, also includes funding for commodities not included under previous farm bills.

The bill has drawn both praise and condemnation in Congress, even though it passed with bipartisan support in both houses. Tennessee Republican Senator Fred Thompson condemns the new legislation as “a grab bag of regional special interests,” while Senate Democratic Majority Leader Tom Daschle defends the bill as an honest attempt to boost farm income and revitalize rural communities.

Whatever the case, the Farm Security and Rural Investment Act, as the 2002 farm bill is officially called, is likely to be remembered as one of the most controversial farm bills in U.S. history. Still, despite all the criticism, could there be some method behind all of the madness associated with the 2002 farm bill? Some experts think so.

While conceding the new legislation is “perhaps too generous,” compared with previous farm bills, Jim Novak, an Alabama Cooperative Extension System economist, believes the bill is a legitimate attempt to correct some of the problems associated with the previous farm bill, passed in 1996.

Under the 1996 farm bill, Congress set out to eliminate farm payments entirely, Novak says. In fact, under the 1996 bill, farmers were to be weaned off farm subsidies associated with earlier farm bills. Instead, they received so-called de-coupled payments, direct payments not tied to farm production levels.

“The conventional wisdom at the time was that export markets would save us and that just opening up to free trade would fix all of the problems associated with U.S. farming,” he says.

The approach, Novak says, was fraught with problems. “The export market failed us,” he says. “If you know anything about supply and demand, you know that producing more of something than the market will support forces prices down.”

“Ordinarily, that would send a signal to farmers to switch to more profitable crops or to quit producing. However, decoupled program payments and disaster assistance payments made since 1996, helped confound price signals.”

Under the 1996 farm bill, Novak says, “farmers ended up producing surpluses in the midst of a worldwide glut of farm products” — a problem made even worse by the Asian economic crisis, which also affected U.S. farm exports.

As a result, commodity prices plummeted and, with it, farm incomes.

While retaining the old decoupled payments associated with the 1996 bill, the new farm bill attempts to boost farm incomes through counter-cyclical payments, which are triggered whenever farm prices fall below pre-determined levels. What these counter-cyclical payments provide, Novak says, is a safety net that enables farmers to avoid steep drops in farm income associated with the 1996 farm bill. “Under the new farm bill, counter-cyclical payments will continue to be made as long as commodity prices are low,” Novak says. “But when these prices begin rising again, the counter-cyclical payments are phased out and the market takes over.”

Nevertheless, counter-cyclical payments remain one of the most controversial aspects of the new bill. But while conceding the new bill is far from perfect, Novak believes any alternative bill likely would have contained some form of price supports. “I really think the old farm programs, for all their problems, worked better when they were coupled with production set-aside requirements,” he says. “Yes, in the past, we have paid farmers not to produce, but there was a reason: It kept prices from going down the drain by restricting production.”

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