“We’re in lean times and things are going to get less generous.”
Over the next few years, as farmers and agricultural observers reflect on how the 2013 farm bill ultimately played out, perhaps this quote by economist Jim Novak will best express it.
One thing is certain: This thinking is reflected in the Senate Ag Committee version of the farm bill, which passed by a 16 to 5 vote in committee, according to Novak, an Alabama Cooperative Extension System agricultural economist and Auburn University professor of agricultural economics.
The bill, which would reduce farm program spending over the next decade, will likely be presented to the full Senate within the next few weeks.
Looming federal budget deficits and a desire on the part of many policymakers and trade advocates to remove U.S. farming from the criticism generated by Brazil and other developing countries over price supports are reflected throughout the Senate Ag Committee version of the farm bill, he says.
The U.S. safety net — at least as it is reflected in Committee version — is not being replaced insomuch as it is rewoven, Novak says.
Average Crop Revenue Election (ACRE) as well as direct and counter-cyclical payments would be repealed beginning with the 2013 crop year and replaced with an Agricultural Risk Coverage (ARC), which would essentially function as a revenue protection program for covered commodities.
“ARC could be considered a shallow-loss revenue protection program covering individual commodities for a farm operation,” Novak says.
Based on data compiled by Carl Zulauf, an agricultural economics professor at Ohio State University, losses covered by ARC would be between 11 and 21 percent of a benchmark revenue, Novak says.
Senate version summary
If the Senate Ag Committee version could be summed up in a few words, Novak says it is a bill that emphasizes a risk-management approach to farm policy that also provides some protection against revenue loss.
Commodities covered by ARC as outlined in the legislation include wheat, corn, grain sorghum, barley, oats, long-grain rice, medium-grain rice, pulse crops, soybeans, other oilseeds and peanuts.
Upland cotton would be covered under a separate Stacked Income Protection plan in this version rather than ARC. Extra-long staple (ELS) cotton would be covered by a non-recourse loan program.
Under ARC, producers would be offered the choice of two options. “Option 1 bases ARC payments on individual average farm revenue, while option 2 would base ARC payments on county average revenue,” Novak says.
“These selections are binding regardless of the covered commodity planted and applicable to all the acres under what the legislation describes as the operational control of the producer.”
Reorganizing the farm to receive multiple ARC payments would be prohibited under the Senate Ag Committee version.
In addition, acres no longer under producer’s operational control will be excluded from coverage, Novak says.
If some version of the Senate Ag bill ultimately is passed and direct payments are ended, Novak says this will translate into a changed set of dynamics from the perspective of farmers.
“Direct payments have essentially meant money in the bank for eligible producers during the growing season,” Novak says, “and this will essentially translate into less liquidity for those producers during a critical time of year.”
During periods when producers enjoyed good commodity prices, such as the last couple of years, liquidity issues have not been as pressing a concern for producers, Novak says.
“We’ve had a couple of pretty good years,” he says. “The problem will be if we get into a couple of bad years.
“The history of farming has demonstrated time and again that those years do occur.”
Likewise, while producers are receiving higher commodity prices, energy and other input costs are also rising rapidly — and this may be the reason why liquidity, which has enabled producers to cover costs during critical periods, will emerge as a concern.
(In an earlier article, James Novak pointed out there are deep divisions in the Senate farm bill proposal. Read those comments at Deep divisions reflected in farm bill debate. You might also be interested in other comments from Novak as farm bill details began to emerge. For that, click here).