Did ARC Proponents Misread Dr. Zulauf’s Analysis?

via a special arrangement with Informa Economics, Inc.

Target prices vs ARC debate continues

In recent days, the Senate Ag Committee press secretary Ben Becker (link) and the National Corn Growers Association (link) have cited a recent paper (link) by Ohio State University economist Dr. Carl Zulauf as saying the Senate-proposed Agriculture Risk Coverage (ARC) program would have protected farmers during the late 1990s slump, including rice producers.

But some farm policy analysts interviewed said they do not believe the Senate Ag Committee or NCGA realized when they issued releases endorsing the Zulauf analysis that Dr. Zulauf used a 5-Year Olympic Average Price at 89 percent as a target price. Unlike ARC, the analysts said, Zulauf did not use revenue but he used price; he did not use a 10 percent revenue band that is part of ARC but instead assumed his approach would cover deep price losses all the way down to the bottom. In other words, one analyst said, “he was talking about target prices.”

If one applied the ARC 10 percent revenue band with a 65 percent or 80 percent factor, the “price protection” payment that Dr. Zulauf shows would nearly disappear, the analysts concluded. The “price protection” payments could only be made in the amounts Dr. Zulauf shows if a producer got the entire difference between the target price and the actual price on all the acres, “which is certainly not the case under ARC,” one analyst said, adding, “In other words, it’s a target price payment, not an ARC payment. Whoops!”

Still, while Dr. Zulauf does correct one problem with the ARC, it does not correct all, the analysts noted. As he says in his paper, “The 5-year moving average does move lower over time to reflect lower prices, so it provides assistance only for a limited period of time.”

One observer said, “If the Senate took Dr. Zulauf’s approach, it would go a good distance in fixing the serious defects of their program but not all the way.”

The following are questions being raised:

1. Does the Senate Ag Committee and NCGA release endorsement of the Zulauf paper change their attitude towards target prices? Both groups in the recent past have not supported target prices being included in the new farm bill.

2. Isn’t Dr. Zulauf discussing price protection based on 89 percent of the 5 year Olympic Average (OA), not revenue?

3. Isn’t Dr. Zulauf omitting the narrow 10 percent band included in ARC and instead assuming the protection would go all the way down to the bottom?

4. Isn’t Dr. Zulauf excluding the .65 or .80 factor on payments which are included in ARC?

5. Would Senate Ag Chairwoman Debbie Stabenow (D-Mich.) propose and the NCGA endorse an amendment on the floor to adopt what Dr. Zulauf is proposing in his analysis? Wouldn’t this be a way to address at least some of the concerns about the Senate bill?

6. Wouldn’t the concept in Dr. Zulauf’s paper be a partial solution to a recognized problem with the Senate bill?

Comments: I contacted NCGA and Ben Becker to give them an opportunity to respond. To date they have not done so.