Farm Bill Hearing: Varied Views on Future Farm Policy

May 13, 2010 07:00 PM

Roger Bernard, Farm Journal Policy & Washington Editor

What direction will U.S. farm policy take in the next farm bill? To listen to the academics and economists who descended on the House Ag Committee, there are a host of pathways this legislation should take. But it remains to be seen at this early stage of the game which pathway lawmakers will follow.

House Ag Committee Chairman Collin Peterson (D-Minn.) said his plan in inviting these experts to testify was to "shake things up." Clearly some of the testimony delivered by these eight individuals did just that. But of those testifying, only one opted to focus mostly on one of the major factors that will affect the writing of the next farm bill -- the budget.

Some handed out harsh criticism of the current program, including Iowa State University's Bruce Babcock. He labeled the combination of the current program of the Direct and Counter-cyclical Payment (DCP) and Average Crop Revenue Election (ACRE) program along with subsidized crop insurance as basically a waste of taxpayer dollars.

He also raised the question of why ACRE is currently offered at the same time as crop insurance and suggested several changes for the ACRE program. Specifically, he recommended that ACRE be moved to a "county-level program," that the coverage be boosted to 100% of planted acres and that there should be no farm-level yield reporting. He also called for the average price of the first five months of the marketing year to be used to calculate ACRE benefits. "The many advantages to these changes include that it could be easily administered by FSA, it would provide a large degree of protection against farm-level revenue declines and it would avoid providing the kind of services that the private sector is better suited to deliver," Babcock concluded.

"At a minimum, it would make sense for existing crop insurance policies to be modified to account for county ACRE payments," Babcock stated. "Such a move could easily result in cost savings in excess of $4 billion per year."

He also recommended that payment limits either be scrapped or be applied across the board to all farm programs, including crop insurance. "After all, the crop insurance industry would not exist without federal support, and the magnitude of taxpayer subsidies flowing through the crop insurance program to large farmers is often much greater than in other programs," he said.

Neil Hamilton of Drake University suggested that a focus be put on creating a national "New Farmer Corps to create public service opportunities in the food and agriculture sector." He said such an effort would build on the "farm-to-school marketing program authored by the Committee."

He called for expansion of efforts like the Rural Development Value-Added Producer Grants and the Local and Regional Food Enterprise opportunity in the Business and Industry Loan Program and the Conservation Stewardship Program.

Scott Brown, with the Food and Agricultural Policy Research Institute (FAPRI), focused most of his attention on the livestock sector and stepped lawmakers through the factors affecting the sector that are truly beyond their control, such as the downturn in the U.S. economy, noting that the first-quarter 2009 GDP shrunk to a level not seen since the early 1980s.

He said the situation also included a rise in operating costs for livestock producers, noting that milk producers saw "production operating costs rise by 15% in 2007 followed by an additional 22% rise in 2008. These back-to-back increases are the two largest experienced since 1980. The next closest was the 1988 drought increase of 12%."

Brown offered this perspective: "Milk production operating costs rose by 24% over 16 years from 1990 to 2005. However, in just the past four years, 2006 to 2009, milk production costs have increased an additional 28%."

The biological lag in production response can and has exaggerated this variability, Brown said. "If the objective of future policy is to reduce variability in producer income, both components of this equation must be examined."

As for a whole-farm insurance option that has been mentioned, Brown said such an option or a similar option "looks promising in addressing many of these concerns. It remains to be seen the exact program operation and parameters of these kinds of policy proposals, as there will certainly be tradeoffs between overall program costs versus the degree of volatility reduction offered to producers."

Daryll Ray of the University of Tennessee noted that current programs -- and revenue insurance programs in particular -- "fail on all counts" when it comes to protecting crop farmers when production exceeds demand for extended periods. "And there is no help for livestock producers, other grain users including ethanol producers, and the nutritionally vulnerable when prices explode," he noted.

He criticized the historical focus on exports as a way to help bolster incomes for U.S. agriculture, noting that U.S. market share has continued to decline for a number of crops. He called for the restoration of a grain reserve, but said rules for such a program would need to be set in advance and be transparent to avoid the cost and price distortion concerns that have been lodged against such efforts in the past. He also said that current farm program costs "have been far in excess" of what would have happened with traditional supply management programs.

Otto Doering of Purdue University reminded lawmakers that the historical nature of farm programs was designed to increase farmer incomes and to encourage better land use and more efficient production. "We need to remember that the level of farm income was critical in the 1930s (roughly 40% of urban incomes) and that farm family income is now larger than urban family income," he noted. "The goal of income parity has been achieved. Volatility should be the more important concern today."

As for the much-called-for concept of a safety net for farmers, Doering said, "A safety net is not only the set of counter-cyclical payments based largely on crop prices, but this tool also must be in balance with crop insurance and disaster payments."

He said that a "poorly designed or undisciplined approach" that does not take into account the three legs of the current safety net [program payments, insurance and disaster payments] hurts the public perception of agriculture, may be more costly than it needs to be, and can invite moral hazard."

Doering also outlined a backing for conservation programs and included a nod to biofuels production. He pointed out the food-versus-fuel arguments that arose as prices increased, with many touting cellulosic ethanol as a way to avoid these types of fluctuations and address conservation issues related to taking land that shouldn't be in production and using it to produce corn for ethanol production. He cautioned, however, that cellulosic ethanol production "does not remove the land base concern."

As for the budget impact on the new farm bill, Harvard's Robert Paarlberg waded into the issue, saying the ag committees and farm interests in Congress "want an expensive business-as-usual farm bill" if they can get it. This is in part done by drafting a bill that unifies all farmers by "providing something for everyone." While this does keep "partisan paralysis" to a minimum, Paarlberg says it builds costs for taxpayers.

Pointing out the U.S. deficit and debt situation, Paarlberg said "it will be more difficult to hide the high costs of a business-as-usual 2012 farm bill."

In another hot-button area -- obesity, Paarlberg refuted the claim by many that our current structure of farm programs has made our nation more obese. "Farm subsidies do not cause obesity," he stated, blaming it instead on a lack of physical activity and increased calorie consumption.

He also said that farm programs don't make corn cheaper for livestock producers, noting the amount that farm programs lower corn prices "is more than offset by federal subsidies and mandates for corn-based ethanol, which drive up the price of corn, and also soybeans."

Given the current budget climate, Paarlberg suggested the following:

  • Spend less than the budget baseline.
  • Make caloric soda ineligible for purchase under the Supplemental Nutrition Assistance Program (SNAP), as he argues soda is not a food.
  • Continue moving away from product-specific farm support instruments such as counter-cyclical and loan deficiency payments. These distort production and trade. Replace these traditional instruments with whole-farm revenue insurance.
  • Commit a larger share of farm bill resources to rural public goods and agricultural research.

So what does all this mean? It means that as with any farm bill, there are a host of opinions out there on just what direction U.S. farm policy needs to head in the future. This process is starting early and that's a good thing, especially given that the last two omnibus farm bills have had "adjusted" deadlines -- the 2008 farm bill was in reality to be the 2007 farm bill, and the 2002 farm bill was enacted into law a year ahead of time.

The testimony that the House Ag Committee is collecting as it holds a series of field hearings will provide the fodder for yet another round of omnibus farm legislation. But several factors stand ready to affect the final outcome, especially our nation's growing federal budget deficit.


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