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John's World
Thursday, October 25, 2007
You thought the election campaign was long...
It has occurred to me as I was unloading corn (lots of free brain time there) that while we are all buzzing about the Average Crop Revenue option, it won't kick in until 2010. Some thoughts:
Still, if ACR is the future, my attention span has been challenged already. Labels: farm bill, farm program Wednesday, September 12, 2007
Pressure from without...
Although farm interests are adamant in reserving the right to dictate their own policy to the government, an array of converging interests seem to be increasing in intensity. These factors may not have time to be fully felt for this farm bill debate, but could certainly color the nature of farm programs considerably over the next decade.
France plans to present a "radical reform" of European agricultural subsidies when it takes over the presidency of the European Union next year, President Nicolas Sarkozy said Tuesday.
Michael Pollan's bestseller, The Omnivore's Dilemma, has gotten people all riled up about farmers again. The last time this happened was when the first Farm Aid concerts reminded America that we have strong feelings about the family farm and its economic viability. The new round of farmer feelings is more directly related to issues of trade and the impact of globalization. As Pollan writes:
Brazil will ask the World Trade Organization for a formal investigation of U.S. farm subsidy programs, which it says includes payments for ethanol production, a senior Brazilian official said Wednesday. All these separate influences could be dissected on their own merits, but it appears to me to be the actions the Adam Smith's fabled invisible hand. Our farm policy impacts the whole world, and the whole world is reacting. Even our reliable domestic political "lovability" may soon be more constrained to smaller, quainter operations. Oddly enough, I think one reason global pushback is picking up steam is because their economies are more and more like ours - market responsive. Besides, it's becoming obvious farm policy isn't where we need to be. We're now clients of energy policy. The U.S.' ethanol production capacity will probably total 20.43 billion gallons as of August 2009, up sharply from 6.707 billion gallons as of August this year, due to high profit forecasts and government support, a U.S. commodity risk management consultancy firm said Wednesday. In other words we could win a skirmish on the farm program and be waylaid by the energy bill. Labels: culture, energy, farm bill, farm program, international Monday, September 10, 2007
What will payments limits accomplish?...
As the Senate rouses itself to legislative action after a summer recess, one topic of huge debate is the idea of "payment limits". But in fact, there are two different types of restrictions under consideration. First, a limit on payments to any given person. In another news conference Thursday, Grassley explained his motives for reforming the farm programs. "The idea is that when we're subsidizing farmers to the point where 10 percent of the biggest farmers get 72 percent of the benefits out of the farm program, then it's tilted toward subsidizing big farmers to get bigger. And what my legislation also does is put a $250,000 cap (on farm program payments). Now I know to Iowans that still sounds like a lot of money, but this is a compromise that we can get through, getting farmers from all over the country to back it. And get senators to back it." [More]This type of limit is based, I think, in the egalitarian ideal: "one man - one pile of money". It has appeal to those in the middle, since it would immediately place them on the same level of government favor as the largest operator - something dear to their hearts. Second, a limit on how much money you can make and still receive any payment. The current $2.5-million income cap on eligibility for farm program payments affects only a small number of farm program payment recipients each year. A reduction in the cap to $200,000 would affect a larger number of farm households but still only a small share of recipients. Based on IRS tax data for 2004, about 1.2 percent of all farm sole proprietors and about 2 percent of crop share landlords would be potentially subject to the proposed lower adjusted gross income (AGI) cap. ARMS survey data suggest a similar share of farm sole proprietors (1.1 percent) could be affected. When partnerships and farm corporations are included, about 1.5 percent of all farm operator households could be affected because a larger share of farm partnerships (2.5 percent) and farm corporations (9.7 percent) could be subject to the proposed cap. ARMS data indicate that $807 million in payments were received in 2004 by farm operators organized as proprietors, partnerships, and corporations with incomes exceeding $200,000. However, not all of these payments would be affected by a $200,000 income cap on eligibility for payments due to differences in IRS and ARMS data and changes by producers in how they manage their incomes and expenses. The study also found that farm income aver- aged $271,749 and net worth averaged over $1.86 million for farm households with AGI estimated to be over $200,000 based on the ARMS data. [More]This proposal is much more straightforward: stick it to the rich. It arises from the inherent fairness bias programmed deep within our old brains. As the distribution of income and assets is perceived to be shifting to the tiny number of uber-wealthy, even irrational retribution seems like a good idea. A brain region that curbs our natural self interest has been identified. The studies could explain how we control fairness in our society, researchers say. Humans are the only animals to act spitefully or to mete out "justice", dishing out punishment to people seen to be behaving unfairly – even if it is not in the punisher's own best interests. This tendency has been hard to explain in evolutionary terms, because it has no obvious reproductive advantage and punishing unfairness can actually lead to the punisher being harmed. Now, using a tool called the “ultimatum game”, researchers have identified the part of the brain responsible for punishing unfairness. Subjects were put into anonymous pairs, and one person in each pair was given $20 and asked to share it with the other. They could choose to offer any amount – if the second partner accepted it, they both got to keep their share. In purely economic terms, the second partner should never reject an offer, even a really low one, such as $1, as they are still $1 better off than if they rejected it. Most people offered half of the money. But in cases where only a very small share was offered, the vast majority of "receivers" spitefully rejected the offer, ensuring that neither partner got paid. [More]If you are like most of us subsidy recipients, you have been analyzing these proposals in a very personal way: "OK, how can I get around this one if I need to." Most of us won't have to yet, of course. But the obvious solution in both cases is to become more farmers. Make the wife an operator - and the kids. So one immediate outcome of payment limits of either sort will likely be: more farmers (on the books, anyway). And simple economics tells us the marginal cost to create and maintain these alleged operators will be slightly less than a DCP. Payment limits will be a huge boost to a) attorneys, b) accountants, and c) "financial advisers" (a vague occupation at best). Limits will have to be brilliantly constructed to survive the onslaught of fevered minds seeking a workaround on commission. Farmers will, I believe, contort themselves to "protect the downside" and in the process make their operations more unwieldy with artificial entities and bizarre bookwork. They will also hand over most of the government proceeds to the experts who manufacture these constructs. But a few - an obnoxious few - will accept the limits in the spirit they were enacted and rise above federal control. Once beyond reach of the FSA, they will learn to operate like other businesses do - insuring their own risks and enduring the consequences of nature and decision. Those will be some scary dudes! Which leads me to my grand conclusion: Neither limit will grant much relief since they are therapy for a symptom - namely the declining number of farmers and the intense competition to stay in the game. But that is not caused by prices or subsidies nearly so much as this:  This $592,000 machine replaces lots of guys on the old farm. And it is typical of what technology is handing us to work with. While that number might produce “sticker shock” for some growers, it can be argued — as Deere marketing managers did in Cincinnati — that the machine replaces at least two other pieces of harvesting equipment and one or two tractors (at $183,019 for one of Deere’s new 9230 tractors).The problem we are facing - the rapidly decreasing need for warm bodies on the farm - is lightly affected by farm programs and mightily affected by technology. Farming is not rocket science, and hence we are watching much of our work shift to clever machines. Our problem is actually creating some value machines cannot create. Labels: farm bill, farm program, policy, technology Sunday, September 09, 2007
Fred and the farm...
So, we seem to have another candidate. One who is furiously trying to don the mantle of Ronald Reagan. He presents an interesting problem for farm subsidy fans. Fred Thompson's record on spending is generally impressive. Aside from a fondness for Tennessee pork, Thompson was a strong proponent of streamlining government and eliminating waste. When he first entered the Senate, he joined a bipartisan group in sponsoring legislation hoping to put an end to corporate welfare. In 1996, he sponsored legislation to institute a biennial budget that would allow time for the Senate to exercise oversight on the spending process. He also often voted for measures to limit spending and against costly government programs. These include: Thompson strikes me as a political opportunist determined to make the most of having no accomplishments as a public servant: You can't be against what you don't know - and Thompson is a bundle of question marks. Besides, like Ronald Reagan (the new standard of Presidential stature) he is an actor!!! OMG!! Labels: farm program, politics
Yet another reason to respect the Danes...
For a small country, Denmark has been showing remarkable leadership in the EU and the world as a whole. And it is the home to some of the world's happiest people. Now they are taking a remarkable step to consider at least, scrapping the CAP. Some Danish colleagues told me recently that the Danish Parliament on 30 May last unanimously passed a resolution requiring the Danish government to propose a strategy for how it would actively work for the elimination of EU agricultural support. The strategy should include a timeframe and plan of activities which should take into account the planned CAP Health Check in 2008 and the review of the EU budget in 2009. The strategy should be presented to Parliament before the end of 2007. [More] The entire EU is more than a little restive about their byzantine system of farm subsidies, especially after the single payment regime eroded much of the popular support by increasing the transparency of the payments. In fact, even the French are headed for a real moment of reckoning as shortly they will be net payers into the CAP rather than their historic sponge-like participation. Sometime in the next five years France, How ironic it would be if the most intensely subsidized region of agriculture would become the most reformist. Think of who the US would have to be "not as bad as" to justify our payments. A handful of Japanese rice growers? Labels: farm program, international, policy Monday, September 03, 2007
Why the "safety net" may be a tougher sale...
Farmers - or perhaps our public relations consultants - have wisely realized we need to repackage our previous versions of "victimhood".  It is relatively hard to ignore charts like this and plead for government entitlements. (But not impossible - I should note.) "We believe farm policy should support agricultural production and not some subjective and social goals," Stallman, a Texas rice farmer and president of the American Farm Bureau Federation, said after the appearance. [More]This is an interesting remark, seeing as it abandons any pretext of ag payments being deployed for reasons of fairness or humanitarian aims. In the case of corn production, it is also howlingly wrong. My $24 DCP has virtually zero effect on my 2008 crop plans - especially since I get it whether I produce any corn or not. At current prices, corn subsidies do not affect corn production, period. With per acre gross incomes in $700+ stratosphere, the DCP for corn farmers is vacation money or as we have seen, "new paint money". It appears in the face of hard-to-disguise prosperity, aid advocates are falling back on our old reliable nemesis: the EU. "We have to pay our farmers because those Germans are getting mucho dinero!" Of course, one problem with this argument is EU farmers aren't the competition. In fact, for a change, foreign competition is less of a factor, since wheat is short everywhere as the rush to fuel crops bids acres away here and abroad. Wheat has always faced strong EU competition since Northern Europe's natural advantage is cereal crops. But even wheat looks like a gold mine now. And of course, while we are fixated on the EU CAP, our strongest competitors are places like Brazil. We seem determined to fight the foe we prepared for, not the one that really exists. How very French. In fact, the only crops really, really desperate for support are cotton, rice, and sugar - a fact Mr. Stallman and the largely southern-facing AFBF understand well. However, it will take firm control of facial muscles to look an America with 47 million citizens without health insurance and argue over-indulged guys like me need a "safety net" - but not potato farmers and certainly not other citizens such as umm, non-farmers. And I think the old "all the other kids are getting a subsidy" argument may be where we are going. This will work right up until Pres. Bush gives the farm (subsidies) away at the WTO. Labels: economics, farm program, trade Sunday, August 26, 2007
I think the odds are rising...
If President Bush follows through on his tough line on health insurance for children, it leaves him less room to accommodate a farm bill he doesn't like and is strangely funded, I think. Mr. Bush comes to this fight with an understanding of how Schip has played out in the states, which is why his administration recently instituted reforms to the program that aim to restrict eligibility to those it was originally intended to serve -- the truly needy -- and not provide an incentive for middle class parents to drop their private health insurance. Moreover, he has threatened to veto federal legislation that would allow states to expand their Schip programs. I mean, think about a"legacy" of scrimping on kids and porking it out to farmers - which is how political opponents will certainly frame it. And I still think his pattern of rewarding loyalty will help him back up Sec. Johanns - who has carried the White House message faithfully - with a farm bill veto unless it contains significant reform. Labels: farm bill, farm program, policy
The dwindling power of the press...
Current farm policy and especially the non-existent reform efforts by Congress have been savaged by all sides of the mainstream media - not to mention several creeks. A typical example: It goes against the grain for farm subsidies to be handed out to the rich. But that's precisely what the House version of the next farm bill does -- it continues big handouts to wealthy farmers and landowners. It's going to be up to the Senate to get it right when Congress resumes next month.
There is no change in the big ticket item in this farm bill cycle: $26 billion in direct payments, a leftover from "freedom to farm" payment contracts begun in 1996 that will be made, regardless of crop prices, over the next 5 years. Chairman Harkin has repeatedly criticized direct payments as "hard to justify" when crop prices are high, as they are now, and farmers will be making good money (in some cases record money) in the marketplace. Regardless of your position the sheer immobility of farm policy would seem to demonstrate some powerful lessons:
[Egad - another runaway metaphor!] Labels: farm bill, farm program, media Tuesday, July 24, 2007
Payment limits in IL...
Two outstanding articles (here) (here) in the Springfield (IL) Journal-Register regarding payment limits. A sample: Nowhere in their Internet biographies do Vorreyer or Thoma say they are farmers. But they both have collected hundreds of thousands of dollars in federal farm subsidies, money that isn't supposed to go to anyone who isn't farming. You get the drift - another story of gaming the farm program. The reason I noted this was the comments section. Many were outraged at the idea of rich people getting government checks meant for deserving farmers. Also present were strongly defensive comebacks by (presumably) farmers. Their arguments in favor of continued subsidies fell into predictable categories.
To all you who say end all subsidies, have you ever tried to operate a business where all of your inputs are purchased on the retail market and sold on the wholesale market? If you have then you have farmed. If you haven't then you don't know what it is like to pay $200+ for a bag of seed corn, or $550 for a ton of fertilizer and pray that the bottom doesn't fall out of the market so that you can make all your operating and land loan payments. When you have done that then you have farmed. The big boys may be getting a little bit extra, but they have simply found a way to work the system, and anyone in business knows that if you can work the system better than your competitor then you are going to make more money, ina world where money is king.
To those of you who think that farm subsidies should be ended, remember what you wished for when over 25% of your income goes toward feeding your family. There should be a limit on payments, but this country has a cheap food policy for a reason, and that is to keep the 95% of you folks that couldn't grow a blade of grass from starving to death. A strong agriculture economy is the backbone to our country's survival.
Yesterday's farm story had its comments disabled because the bulk of the comments we were receiving violated the decency guidelines we have in place.I mention this because the power of the first two arguments - which are totally without substance - grips many in agriculture. This used to bother me until I realized those who embraced them most fervently usually were unlikely candidates for long-term professional survival. Maintaining beliefs that do not correspond to reality requires immense effort, and eventually falls short (hence, I believe the anger). We have done a great disservice to such people by allowing their fatuous disengagement with truth to go unchallenged in the name of comity. [Thanks, Chris] Labels: farm program, policy Monday, July 23, 2007
Would he?...
Might President Bush veto a farm bill if it looks like the likely House version? The Bush administration is signaling that it is prepared to veto the $300 billion farm bill that will probably come before the House of Representatives this week. Bush signed similar legislation in 2002, when his Republicans controlled the House, and he will face pressure to do so again with elections approaching next year. [More] Hokey smokes, earthlings! While I sorta wistfully imagined him doing the right thing, the reality of it is stunning. Whether the threat can sway anybody is another guess. Should he follow through, it would signal the cannon is well and truly loose about the deck for the next year and a half, and anything could happen, since he no longer cares about his own party members' political future, especially with them bailing out on Iraq. Labels: farm bill, farm program, politics Wednesday, July 18, 2007
At least I'm consistent...
The one idea for farm bill reform I had thought least likely to survive seems to be the one most in play. Given my keen political instincts and personal record (0-for-4 in contested elections), I should have seen this not coming. Or something like that. Anyhoo, the idea of real payment limits suddenly has leapt to the forefront as "proof" of sincere reform. Some specifics:
Oh, we are going to take stern action with a handful of millionaires. All seriousness aside, the idea of any payment limitation language at all is a surprise to me, and perhaps an open invitation for floor amendments - they wouldn't have to change the language, just tweak the numbers. Meanwhile the Senate may have some ideas of their own. Grassley has been working with Sen. Byron Dorgan, D-N.D., on an effort to institute payment limitations in farm commodity programs.It cannot be easy trying to make foolproof plans to provide for every little problem on my farm all the way from Washington. It's amazing how much effort they are putting into it. And how little it may matter in the long run. Labels: farm bill, farm program, policy, politics Sunday, July 15, 2007
Farm policy reform panic time...
Farm policy reform advocates are sensing the battle has been lost, I think - or at least going badly. The varied pleas for change are taking on a note of desperation. The House Agriculture Committee recommendations for Title I commodity subsidies extend the outdated, broken system of the past - moving policy in the wrong direction and making it worse. Congress cannot accurately forecast prices and loan rates for the life of the next farm bill. [MoreGeorge Will weighs in (somewhat wistfully, I think): Agriculture policy -- another manifestation of the welfare state, another contributor to another faction's entitlement mentality -- involves a perennial conundrum of welfare, corporate as well as individual: How do you break an addiction to government without breaking the addicted? If Lugar and like-minded legislators can accomplish their aims, their achievement will be comparable to the welfare reform of 1996 -- the fecund year of the short-lived Freedom to Farm Act. As Lugar again puts his hand to the plow, attempting to plow under a New Deal remnant, wish him well. [More]Note this stunning statistic that Big 8 growers ignore when arguing for farm policy status quo. The specialty-crops industry accounts for nearly half of all the cash-crop receipts in agriculture. With 119 members of Congress supporting our initiative, we believe that congressional leaders and members of the House Agriculture Committee should roll up their sleeves and enact policy geared toward the 21st century. [More] If there is any positive sign for reform, it could be with Speaker Pelosi and payment limits. A spokesman for Pelosi said the two have spoken about payment limits, which she believes is necessary to reform the farm bill. Peterson met Pelosi on Thursday and was scheduled to meet her again on Friday. [More]Still, it looks to me like simply by foot-dragging, proponents of the status quo can force extension of our current policy. Just like immigration. Labels: farm bill, farm program, policy Wednesday, June 27, 2007
Getting along...
International reaction to our farm bill debate and the ag subsidy roadblock at the WTO is ramping up. The two issues seem to have merged in the international press. Australia (BTW, one of our few allies in Iraq, remember): The 2007 Farm Bill is critical to Australia's interests because US subsidies to wheat, cotton sugar and dairy farmers have the potential to distort prices of some of our major agricultural commodities. Canada: The White House and key members of Congress had been pushing for major reforms aimed at cutting overall subsidies, capping payouts to millionaire farmers and generally bringing the regime into line with international trade rules.California (OK, it's technically not a foreign country, but it's close): Gov. Arnold Schwarzenegger is urging Congress not to forget their fruits and vegetables as they write a new federal Farm Bill. As Congress marches on to make the US the Land of the Corn via ethanol mandates, it strikes me as an excellent opportunity to try to give a little ground on our farm subsidies. If you haven't noticed, America is very slowly drifting into an isolated position in the world community. It was one story when we dominated every vital economic statistic, but that is hardly the case now. Crimony, if you can't get along with Canada, who's left to be friends with? Labels: farm bill, farm program, international, trade Tuesday, June 26, 2007
Check it out on your vacation to Washington DC...
If you visit our capital this summer, take some time to at drive by the Dept. of Agriculture building. It is an enormous edifice and offers a hint of the massive bureaucracy that is sustained by our complex farm policy.  Then consider this idea to umm, downsize this behemoth. The table shows that these reforms would eliminate 90 percent of the USDA’s budget, saving federal taxpayers $80 billion annually, or about $696 per U.S. household. Under the proposal, the USDA would retain responsibility for animal and plant health inspections, food safety, grain and packing inspections, and conservation activities.  [Click on for larger image]I know, I know. Still, it's a thought. Labels: farm program, politics Sunday, June 24, 2007
The end of civilization as we know it...
The possibility of a different kind of farm program has moved some legislators to near hysteria. "It's a threat to rural America. It's a threat to every consumer - a threat to the nutrition of the whole, entire world," said Rep. Frank Lucas, R-Okla. Oh, puleeze - pretty much the rest of the universe knows subsidized commodity prices have little effect on food prices. In fact, the NCGA is bragging about it. In fairness, milk and sugar prices could be significantly lower without current policy, but obviously Rep. Lucas is unaware of how those programs work. The idea my $24/A payment controls my destiny is embarrassingly ludicrous. Seems to me we're consolidating pretty vigorously even as we speak under current policy. And the pennies worth of grain in cereal is dwarfed by say, the latest advertising campaign. Do the math, for Pete's sake. Labels: farm program, policy, politics Wednesday, June 20, 2007
Some you win, some you lose, and some...
You don't even score. The battle to reform farm policy may turn out to be little more than a tantrum. Gosh, it was exciting for a while. Imagine treating farmers like grownups! Even the White House got caught up in it. But we were just fooling ourselves. A House ag subcommittee just brought us back to reality. The panel, a subcommittee of the House Agriculture Committee, brought each of several proposals for change to the farm bill to a vote before rejecting them, sending a strong message to those pushing for major changes to farm legislation. They include the Bush administration and a bipartisan coalition led by Representative Ron Kind, Democrat of Wisconsin.Extending the current farm bill is easier, of course and will allow those of us who have been winners to continue current trends. We could know the outcome soon enough for 2008 cash rent bids, and without any meaningful payment limits, we can guess what that market will look like. While there may be some minor drama on the House floor, or even the Senate, I'm sensing a political waxing here. The effort to persuade for rational treatment of our profession by our government is just one of a number of lost causes I have supported. Like the metric system. I'm also cashing my checks with a slightly clearer conscience. (Not really - but it sounds tough, doesn't it?) Labels: farm bill, farm program, policy, politics Tuesday, June 12, 2007
Inquiring minds want to know...
It's kinda like Googling yourself for farmers. Look up your entry in the EWG database. Regardless of your position on subsidies, this is impressive computer work. And to date, even the most vehement payment boosters have found no grounds to claim the EWG results are inaccurate. In fact, their database work informs the farm bill debate. (As opposed to having NASS or ERS generate numbers 5 years later) I like the map feature, although it reinforces something I noticed a few years ago. Not too many farmers live around me. Lots of farmland - just not many resident tillers in my area. Maybe it's me. Labels: farm bill, farm program, policy Saturday, June 09, 2007
No wonder she was crying...
Observers close to the action at Paris Hilton's court appearance were struck by her tearful denunciation of the action of the House Subcommittee on Specialty crops ignoring calls for reform to farm payments. The draft also reauthorizes the peanut program, including an extension of the 2002 Farm Bill's direct and counter-cyclical payment and loan provisions for peanut farmers. The loan rate would be increased from $355 per ton to $375 per ton and payments acres would be lowered from 85% of base acres to 74%. (Well, they were pretty sure that was what she was wailing about.) I shed a tear as well. Given this development, the Pelosi position suddenly becomes more interesting. Labels: farm bill, farm program, policy, politics Wednesday, June 06, 2007
The sausage recipe...
Interesting commentary on how the farm bill process might develop. “So this is a huge deal. If Pelosi blocks amendments on the bill, it is very possible that reforms suppported by the majority of the House will not be in the House version of the farm bill because votes will never be allowed. This would be a subversion of democracy- one committee being allowed to write an enormously important piece of legislation without regard to the desires of the rest of the House. In effect, this means that the citizens represented by Ag Committee members will get to write the farm bill- and to hell with everyone else.As I have said before, Pres. Bush (remember him?) is still a wild card, and could actually be a powerful reformer ally - regardless of whose side of the aisle they are on. The question is would reformers vote to sustain a veto? With Rep. Peterson apparently aiming for equal dissatisfaction as a goal, the mechanism seems to be in place for achieving this lofty ambition. Labels: farm bill, farm program, policy, politics Monday, June 04, 2007
One emerging theme...
As I read the op-ed columns and lobbying group papers on the farm bill debate one theme is fairly consistent and we all saw it coming. One problem with the farm bill has been its historical lack of balance. For example, only 39 percent of all U.S. farmers and ranchers received crop subsidies in 2005. These farm-bill subsidies support the growing of commodities such as corn and soybeans, but have little support for fruits and vegetables. Say what you will about the Environmental Working Group, but the power of one guy (yup - that's all) armed with a decent computer, good database skills, and well-run website is formidable. Subsidy proponents simply have been unable to counter these exposed numbers, especially when they contrast significantly with the traditional rhetoric of farm payments. The maldistribution of government money also plays well for those who argue about local producers being short-changed. There's growing demand to change how the subsidies are allocated. Some say it's unfair that commodity growers receive nearly all the money. And there's a push to spend more money helping farmers solve environmental problems and less on direct payments to individuals. [More]Moreover, the breadth of the coverage and interest in the new farm bill seems greater. Opinions are popping up in places that never cared much before. Each year the federal government makes payments worth millions to farmers across the country -- many of whom are massive corporations, not the average family farmer, like Maine farmers. These subsidies promote inefficiency and encourage growers to "game" the system in order to qualify for larger subsidies. [More]This means there could be fewer easily-traded-for votes from urban legislators than in the past. When you don't have many farmers in your district/state, why not swap a farm bill "aye" for a vote that will impact your constituents? That type of thinking may not be as easy to come by anymore. Pressure groups have arguably lowered the "disinterest" in farm payments, I think. The bottom line - if the forces at work in the farm bill debate cannot alter the path of this juggernaut legislation, it could be as close to as close to permanent as the Constitution. But as I mentioned in this week's USFR commentary, a number of small changes (slightly lower payment cap, wider distribution, less market-distorting, etc.) could essentially make our farm program an afterthought for industrial producers in the booming grain business. This Death of a Thousand Cuts is starting to look like the optimal outcome to me. Labels: farm bill, farm program, politics Tuesday, May 22, 2007
The farmer buyout trend gains momentum...
While the US is contemplating various buyout schemes to end ag subsidies, we may just be part of a global movement. The EU Commission wants to offer wine-growers cash incentives to voluntarily take land out of grape production. After cries of protest, she this week cut the proposed scheme from 400,000 hectares to 200,000 hectares. [More]This idea: Big-Money-Now, just might work. After all they are dangling the incentives in front of Baby Boomers - arguably the most selfish generation in history. Regardless, I think a pattern is being molded for farm policy. And I'm not so sure it is misguided. Labels: farm program, international, policy
Another buyout...
The political impossibility of ending farm subsidies - despite the impeccable logic - has caused more payment opponents to consider a buyout. Unfortunately the very political power that keeps farmers on the government payroll means that an outright and overnight end to farm programs is unlikely without "financial inducement." An up-front buyout of existing trade barriers and farm subsidies, based on (but less than) the present discounted value of seven years of expected payments—5 years representing the approximate tenure of a farm bill, plus two bonus years—might do the trick. Based on current spending projections, that could cost somewhere in the vicinity of $75 billion.The psychological scheme here is we farmers will opt for money now and to heck with the future. While I can entertain that strategy as plausible, it only seems likely if producers are convinced the subsidies are going to end anyway. There is the tough idea to swallow. Repealing the permanent farm legislation is required for this option to be credible. [I'll try to post more on this plan from The Cato Institute after it is released Wednesday.] Labels: farm bill, farm program Wednesday, April 25, 2007
If you build subsidies, they will come...
The [lamentable] bulletproof nature of farm subsidies has attracted the interest of more than a few very bright minds lately. Since our quintennial chance to alter this flow of entitlement is at hand, the $20B or so of federal moolah has sparked some innovative thinking. Citigroup proposes to provide subsidy recipients an alternative to the fixed DPs, CCPs and marketing loans (see Existing Programs, p. 12). The choice will be voluntary. Recipients would receive a fixed settlement amount to forego future payments. Recipients and U.S. taxpayers will benefitCitigroup has devised an idea they are already marketing in the EU (more on that later). Basically put, it seems to me like a structured settlement similar to lottery winners and lawsuit beneficiaries. After the tobacco buyout I was struck by the possibilities for buying out feedgrain/cotton/oilseed subsidies. But as the Citigroup author pointed out, the problem with the tobacco settlement as a prototype for other buyouts was, lacking a separate source of funding like the tobacco trust many would consider it too generous. Obviously, he was not thinking from the farmer perspective. (We have no words that mean "too generous") That is why, despite calculations showing how the US government will save money with a scheme like this, it won't get past too many rural Senators UNLESS fiscal constraints actually become a factor. No, seriously, it could happen. And Sanjaya could win a Grammy. The farm lobby has consistently shown the ability to override any government funding constraints. We learned that from Freedom to Farm. Regrettably, in order to hold back efforts to reverse the hard-won agriculture program reforms, both sides--Republicans as well as Democrats--wound up in a bidding war. Although the actual economic loss due to 1998 weather-related disasters was less than $1.5 billion, the Republicans proposed $4.2 billion in "emergency disaster relief." Ostensibly, part of the reason for this generosity was to make up for lost export markets. Eventually, to fend off Democrats' efforts to reopen the farm law and return to the old supply-control policies, Republicans upped the ante to nearly $7 billion. [More]My conversation with the author also contained an interesting moment when he pointed out how many landowners are well, old. He offered a statistic something like 73% of all landowners are over "60" (70, 55, ? - my note-taking is not great). There followed a significant pause - I think the implication was that older people would be likely to opt for up-front money versus variable subsidies. (Never underestimate the size of the industry building to deal with Boomer-geezers and wealth.) Well, as someone within spitting range of 60, I think they overestimate both the flexibility and motivation for farm landowners. My experience is landowners like the predictability and simplicity of farm ownership, as opposed to any other asset -even money. My estimate is land is flowing into increasingly stronger hands, especially as it appreciates in value. In short, there aren't that many clueless, declining prime farmland owners. Consider this point (page 3):
And as for helping young farmers, this proposal will do little. That phrase is routinely included to add glamor. To be sure there are fewer young farmers, but the more logical reason is: we don't need them. The fact that younger people are backed up looking for an entry opportunity illustrates we don't have a recruiting problem, we have a technology addiction. This solution will do little to alter our demographic profile, IMHO. Other questions leap to mind:
I'm betting my farm's future on that assumption. And the fact that, as far as I know, only 6-7 (you never know about Larry) farmers agree with my opposition to subsidies. Does Citigroup have a good idea? Absolutely. Buying out subsidy recipients is what passes for political courage these days. Does it have a prayer? Absolutely not. Updated 4/28 - Thanks for the corrections. Labels: economics, farm bill, farm program Tuesday, April 24, 2007
People, people! Think what you're saying...
OK, as I have frequently mentioned, subsidized commodity prices have negligible impact on food prices. It seems the NCGA agrees. NCGA’s analysis of the monthly Consumer Price Index (CPI) reports show almost no relationship between the corn prices and food prices. “The food index rose 0.3% in March, following larger increases earlier this year. Grocery store foods also rose less in March, largely reflecting a downturn in the index for fruits and vegetables.” [More] [My emphasis] Tell me again. How does our alleged "cheap food policy" work again? Labels: farm program, food Friday, April 20, 2007
Are milk prices headed up?...
Looks like it. Nonetheless, my guess is the milk program will be the most impregnable to any meaningful change, given the power of the participants. (Thinking about it, a payment cap change might have significant impact.) Hein Hettinga, who owns a small Arizona dairy farm, took on big business and lost. Hettinga was competing for retail sales against Arizona's largest milk company, Shamrock Foods. Hettinga chose not to participate in the federal government program and the United Dairymen of Arizona (UDA) complained that he was affecting the USDA price-setting formula causing lower returns for other dairies. The UDA cooperative handles 85% of the state's milk. Powerful lobbyists paid off some politicians to have a law passed, which in effect, required Hettinga's Sarah Farms to participate in the program. He now has to pay his competitors $400,000 a year to stay in business - a sum that cripples his operation. According to some activists who claim sarcastically, this is why we need socialism - to keep big companies big and keep the little guy down. Hettinga has filed a federal lawsuit, alleging that the so-called Milk Regulatory Equity Act of 2005 is unconstitutional. [More]Which is why I am not optimistic about the future for small producers, except perhaps agrarian/organic/raw farmers who can connect directly to the consumer. The tricky thing there is we really don't know how large or wealthy that sector of milk buyers is. Or whether that nascent supply chain will be shut down by nervous conventional milk producers. Labels: dairy, farm program Wednesday, April 11, 2007
NH3 effects...
Applying anhydrous ammonia is a job few farmers relish, and most would gladly drop like hot rock if an alternative were available. The reasons are simple: it's dangerous, hard to handle, requires special equipment, and involves constant timing with your supplier to be efficient. Unfortunately, NH3 is a superior source of nitrogen - the stuff of life (or at least, yields) for corn. But there is a subtler side to NH3, I think. Because it is such a pain for humans to handle, we often drift into thinking it must be equally hard on the soil. This correlation is exploited by organic or other detractors via anthropomorphizing the soil. It is a common and seemingly natural tendency for humans to perceive inanimate objects as having human characteristics, although few believe this to be of significance. Common examples of this tendency include naming cars or begging machines to work. In 1953, the U.S. government began assigning hurricanes names; initially the names were feminine, and shortly thereafter masculine names were introduced. The fact that that dirt contains living organisms is not news, of course. Extending this liveliness to the particles of soil is easily done in our minds. The result is when ammonia stings our noses, we sympathize with the field we are fertilizing. After all, there is no worse label than a "harsh chemical". Not much objective evidence to support this lovely picture, however. Indeed after using NH3 and other fertilizers for decades, yields are trending up, not down. Due to the chemistry of anhydrous ammonia, the injection band initially is toxic to plant growth because of high pH. In a relatively short period of time after injection into the soil the ammonia is converted to nitrate and the pH of the injection band decreases. Nitrate is the primary form of nitrogen used by corn from the soil. At this point the corn plant can use the fertilizer and provide higher yields. [More]Much of the allure of agrarian agriculture is the elevation of clay particles to some kind of life-form. Because life (plants) spring from it, it is an easy step to take. In the process, however, we attach limitations and rules that may or may not apply. The soil is "exhausted", we say, as if dirt feels weariness. We talk of soil "health". Qualities we find pleasing, like sponginess or rich odors are designated as signs of soil "health". Moreover, as we develop more and more abstruse technologies, the idea of soil as simple and uncomplicated is a relief. But I'm convinced we are fooling ourselves. I don't think we have any idea what the "carrying capacity" for good farmland is, for example. All we know is how much yield we have been able to achieve to date. I think we will look back on 200-bushel corn with the amusement we now use for pre-hybrid corn yields. And people then will mutter about exhausting the soil, I expect. But soil is not human, and not even alive. And the effort to make this fantasy true is our generation's form of idol-worship, maybe. Labels: farm program, farmland, technology Wednesday, March 28, 2007
Good news! No, wait...
The National Corn Growers have released a report showing corn prices don't have much effect on food prices. According to the report, if current corn prices recede back to historical levels because of a significant increase in production this year, there would be little or no impact on consumer food prices. The paper concludes that if corn prices remain at the $3.50-4 per bushel range for several years, consumers might experience marginal food inflation for some grocery items. Whew - at least consumers can't blame corn prices for food price inflation. On the other hand, if corn prices have little effect on food prices, then what is the point of subsidies to corn farmers from the consumer point of view? Could "affordable" food be result of an efficient market and not goverment help? Also note the report assumes prices drop back to "historic levels". That's not what farmers are hoping for, I don't think. Labels: farm program, food Sunday, March 25, 2007
The fixed-payment funnel...
Like cattle down the loading chute, American farmers are cheerfully being herded to a WTO-compliant (Green Box) "fixed-payment" subsidy. This will prove to be the last gasp, I think, for ag subsidies here. At least, subsidies that affect how we do our job. Why? Because fixed payments, however generous, will simply become "rent-stamps" for the real power brokers: landowners. Or they will become income streams that can be sold. And if you don't believe me, check out what the single payment system has done in Europe. The EU pays £60 billion a year in farm subsidies, which were originally aimed at boosting production, but last year farmers were given — free — the automatic right to subsidies, known as the single farm payment entitlement, in return for reducing production. They were also given the right to trade the subsidy entitlements between themselves, but the legislation is so loose that in practice anyone can officially qualify as a farmer. [More]My current thought is farmers will rejoice at the thought of Social-Security-like checks showing up annually per acre. Especially if told by Congress the total is above the baseline. Then when the viatical industry gets a whiff of this windfall, the results are pretty easy to predict. That's the beginning of the end. I can't wait. Labels: farm program, trade Wednesday, February 21, 2007
It's a trick, I tell you...
Here at the ND Ag Expo in Grand Forks the conversations have flowed almost inevitably from "things are pretty good, I guess" to "how long can it last though?" We seemed to be determined to put a cloud in front of this silver lining. Still the gossip was flowing and rated ex-cell-ent! Some choice "I-heard-from-this-guy" morsels. (Believe at your own risk):
And don't tell me men don't gossip: Men gossip as much as women. The study found that men gossip at least as much as women, especially on their mobiles. Thirty-three percent of men indulge in mobile gossip every day or almost every day, compared with twenty-six percent of women. Men gossip for just as long and about the same subjects as women, but tend to talk more about themselves. The study did find a sex difference in 'gossip partners', with men more likely to gossip with work colleagues, partners and female friends, while women gossip more with same-sex friends and family. Male and female gossip also sounds different, as women use more animated tones, more detail and more feedback. More about mobile phones and gossip. Labels: culture, farm program, production Thursday, February 01, 2007
And the answer is...
I appreciate the thoughtful and civil comments regarding the "1031 recommendation" in the Bush farm bill proposals. I thought, "What would Milton Friedman do?" and came to these suggestions.
Labels: farm program, farmland, taxes Wednesday, January 31, 2007
I'll bet Realtors love this idea...
Buried in the farm bill proposals from the administration is an interesting wrinkle on 1031 farmland exchanges: Recommendation In Brief [My emphasis] I'm going to ponder this in my heart of hearts and spout off later. Feel free to jump in first. Labels: farm program, farmland Sunday, January 28, 2007
Actually, failure is an option...
There is a popular theme in modern political rhetoric that by denying bad outcomes we can command success. This could be the reason so many things have become "unacceptable." In the first nine months of this year, Bush declared more than twice as many events or outcomes "unacceptable" or "not acceptable" as he did in all of 2005, and nearly four times as many as he did in 2004. He is, in fact, at a presidential career high in denouncing events he considers intolerable. They number 37 so far this year, as opposed to five in 2003, 18 in 2002 and 14 in 2001. [More]Of course, after a few news cycles, events are accepted. There is no alternative. Another similar locker-room mantra is "Failure is not an option". Of course it is - and frequently the most likely. Those who do not acknowledge it simply pass on the chance to glean data and refine the next attempt. Anyhoo, it is suddenly occurring to free traders that the Doha round is really, really in trouble, and even worse, it might matter. The administration seems less likely to be able to influence Congress with each passing day, and the steam behind free trade has been largely squandered. What has gone overlooked by many opponents of lower trade barriers is the status quo will not be the result if the Doha round stays dead or becomes even deader.
The peace clause is very important to agriculture, and without its protection agriculture is fair game for a long, expensive legal wrangle. (Which, of course is good news if you are a trade attorney). Recently, it looks like this means ethanol could become a litigation target as well. Like the Step 2 cotton program repeal, guys in really nice suits could rewrite farm policy via the courts while legislators and negotiators fume. Regardless, the moribund trade talks are restarting with conflicting but persistent signals that the US may be willing to use ethanol to reshape US ag subsidies into a more WTO-compliant form.
We've heard predictions before, but as events unfold, policies that were unthinkable with corn at $2 are less repugnant at $4. Crimony, everything looks better with $4 corn. I'd say it was very acceptable.Labels: ethanol, farm program, policy, trade Sunday, December 03, 2006
Deep inside we're all subsidy serfs...
It seems the competition from Chinese produce growers has tempted the US industry to turn to the Dark Side. But now, in the face of tough new competition primarily from China, even these proud groups are buckling. Produce farmers, their hands newly outstretched, have joined forces for the first time, forming a lobby group intended to pressure politicians over the farm bill to be debated in Congress in January.Sadly, it may not save them. But by using the power of California in Congress, they may just save us older recipients by diluting our payments. Also, as the dollar continues to drop versus the yuan, what excuse will we use? Labels: dollar, farm program Wednesday, November 15, 2006
Waste and fraud (yawn)...
No doubt howls of feigned outrage will erupt over recent USDA admissions of fraudulent payments to farmers. WASHINGTON - The Agriculture Department on Wednesday acknowledged making improper payments to farmers worth more than $2.8 billion last year. [More]We don't do outrage well any more, so it will soon pass. But the point most people will miss is what level of fraud is tolerable. Oh sure, we could all rant on and demand ZERO, but you really wouldn't want a system that was that good, trust me. The administrative costs would spiral out of control. The only way to have zero waste is to have zero payments. Hmmm... I think the government should be able to handle money only slightly worse than the average citizen. After all that's who works for the government, right? And after spending all day counting up "my profits and my costs", I would have been satisfied with an 11% waste figure this year. Replanting 200 acres was a waste, so was one herbicide I used and two highly-touted hybrids. I could have saved on fuel as well. And on and on... My point is we need realistic expectations. Farm payments are found money, so all kinds of schemes will sprout in farmer minds to get more than what they have coming. You know that and I know that and little kids in the schoolyard know that. Moreover, by Iraq or Katrina* standards the USDA is in the minor leagues. So the next time a politician yelps about government waste, ask him what percentage it should be. If he/she says zero, you'll know he/she is clueless. [Thanks, Aaron] (*Strangely about 11% waste again - maybe a law of nature?) Labels: farm program US Farm Report host John Phipps surfs the Web so you don't have to...
About Me
Jan and I farm 1700 acres near Chrisman, IL. I have also written humor and commentary for Farm Journal and Top Producer for 13 years. Please visit my website (www.johnwphipps.com) to learn about my speaking services for your group's next meeting. ARCHIVES
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