In a normal election year with normal rainfall and normal crops, debating the role of government is a philosophical exercise: Farm Bureau (less) versus Farmers Union (more).
The drought has changed all that. Livestock disaster assistance, ethanol mandates, regulated component prices and the 2012 farm bill have become hotly contested issues.
Catherine Merlo’s stories "Nowhere to Turn" and "California in Turmoil" are stark reminders of how vulnerable the dairy industry is to weather, energy policy and end-product commodity pricing. Two of these are the direct result of government regulation; even the weather is tangentially related to government policy on climate change.
Government, at the very least, needs to offer livestock disaster assistance. Congress needs to do so before the end of this fiscal year, Sept. 30. Without disaster assistance, lenders are reticent to offer operating money to dairies whose equity has not yet recovered from 2009. Even more dairies will be forced to sell out.
Ethanol mandates need to be waived as well. A study by Purdue University ag economists suggests that if oil remains below $100 per barrel and the Environmental Protection Agency (EPA) waives the mandates, corn prices could fall modestly—perhaps by as much as $1.30 per bushel.
Apart from an all-out waiver, the middle ground would be for EPA to waive the "other advanced" Renewable Fuels Standard (RFS) mandate, which is 750 million gallons of ethanol in 2013. Sugarcane is included in this category and could then be credited to the conventional RFS category (and sugarcane ethanol imports would likely increase as well).
"The sum of the other advanced mandate plus carry-forward RINs [renewable identifcation numbers] could potentially be about 1.2 billion bushels of corn," say the Purdue economists. "That represents about 24% of the effective corn mandate, which is roughly the size of the projected corn crop shortfall."
Increasing regulated milk prices is a thornier issue. California producers asked their Department of Food and Agriculture to bring 4b minimum cheese prices in line with Federal Order Class III prices. Karen Ross, California Secretary of Ag, increased prices by a dime, but then denied a petition for a larger increase.
There’s also a grassroots petition drive to increase federally regulated milk prices. But futures prices suggest milk will be $20-plus through the end of this year and well into 2013.
Pushing prices higher, unfortunately, means even fewer dairy products are consumed. That, in a vicious circle, negates the benefit of higher regulated prices.
Finally, there’s the farm bill. Economists, processors and some producers point out that if the proposed Dairy Security Act were in place today, the market stabilization component would be activated. That seems odd at a time when milk production is already slowing and prices are rising.
Rep. Bob Goodlatte’s (R-Va.) amendment—which would provide margin insurance on 80% of a producer’s yearly production, annual sign-up for supplemental insurance and no market stabilization program—is a potential grand compromise. It should be considered.
So what role should government play? Less is more, but none is not an option.
- September 2012