Ag Policy Fundamentals vs Pragmatists
By Mark Edelman and Barry Flinchbaugh
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ME. Ok a few weeks ago, the Senate passed the "Agricultural Reform, Food and Jobs" bill in bi-partisan fashion to reduce the deficit by $23 billion over ten years. The very next week, Southern colleagues were complaining in House hearings that revenue insurance provisions were too lucrative for the corn, soybeans and wheat. And, a Conservation Compliance amendment passed to the surprise of the agriculture coalition. What's that all about?
BF. Well the South had their chance at writing the Senate farm bill, but Arkansas voted out former Senate Ag Committee Chair Blanch Lincoln. So the Senate version automatically has a more northern flavor with Michigan Senator Debbie Stabenow as Chair. The Senate Committee has 21 members and is dominated by representation from Midwestern and Southern states, with some members from the Northeast. Ranking Senator Pat Roberts from Kansas has farm bill drafting experience as a former House Ag Committee Chair before he moved to the Senate. The Senate Ag Committee has no Members from states farther west than Colorado or Montana. Stabenow and Roberts have shown the world how democracy should work. They are great Senators who are already being badmouthed by the "wing-nuts" in their political parties. If only the rest of our elected officials had the guts to compromise like Stabenow and Roberts.
ME. On July 5th, the House Ag Committee Chair released his "FARRM" bill mark called the "Federal Agricultural Reform and Risk Management Act. "It proposes to cut the deficit by $35 billion over ten years, rather than$23 billion like the Senate. Does the difference in titles reflect emphasis? Both apparently want "Agricultural Reform" but the Senate added "Food and Jobs" to the title and the House added "Risk Management." Perhaps the biggest contrast in content is the House Chairman¹s mark includes a target price-based program delivered by the Farm Service Agency in the farm safety net. This is in addition to public-private sector crop insurance partnership similar to that which has been included in the Senate approved bill. In the House Chairman's mark, producers are to make a choice on which approach they favor over the life of the five year farm bill.
BF. It is interesting and somewhat counter to what some analysts might expect. The Senate with a Democratic majority is relying more heavily on a crop insurance "public-private partnership" safety net. In contrast, the House with a Republican majority apparently will favor a system that has the crop insurance public-private partnership but also relies on a traditional public agency approach and target price safety net program.
ME. The House Agriculture Committee has 46 Members, led by Chairman Frank Lucas of Oklahoma-a Southern state. The Ranking Member is Collin Peterson of Minnesota, who also presided as Chair over a previous farm bill. Both are from states with variable weather where producers may have traditionally relied more on government programs.
BF. Regional interests in agriculture do differ some, but colleague Art Barnaby, who I view as the top expert in the country on crop insurance, suggests the differences in revenue risks from yields and prices regionally may be more imagined and philosophical. Relatively, rice may have more price risk and less yield risk. But that should not be an issue with other crops because they face both price and yield risk. So revenue losses and insurance instruments can be measured, adjusted, and treated in a similar fashion across commodities and regions. It appears that some interests believe they might be able to extract more out of the bill if they had individual target prices set for each commodity-like the "good ole days." This could denigrate into more infighting among agricultural interests, and result in less total safety net spending, since deficit reduction is a priority.
ME. It could also be that some producer interests want more levers to pull if things go wrong. There has been rising uncertainty about the health of the global economy. Under one scenario we could see a major drought and record high prices in which some farmers have little to sell. On the other hand, surpluses could reappear with good crops and the biofuel blend wall. If a global recession also cuts demand for commodities, then we could possibly see deep, multi-year price declines. Having a redundant safety net managed by the Farm Service Agency in addition to the crop insurance public-private partnership provides a choice of risk management strategies for producers.
BF. If farmers do not have anything to sell they are in deep trouble and with record high prices. A target price program is like putting a gelding in the pasture with the mares. Some of us just refuse to give up on the false price, price mentality. Producer choice does not mean double coverage. Also in this same debate, we have one extreme that wants to go home saying they got more budget cuts than expected and the other wants to go home saying they reduced payments to the big farmers. Efforts to means test and/or increase crop insurance premiums on higher coverages for really big farmers might backfire, according to Barnaby, as farmers can reorganize and subdivide into smaller farms or switch back to basic CAT coverage which does not require farmer premiums. Alternatively for example, limiting the government support on CAT premiums to 2/3s of full costs would require all producers to uniformly pay a minimum portion of premium costs. So quick fix ideas can sometimes have unintended consequences, unless analyzed from a larger picture.
ME. Remember the historical farm block discussions about agricultural interests being more successful when they compromised within the agriculture coalition before they brought proposals forth to Congress. Ag in-fighting makes passing the farm bill more difficult. With the House subject to Tea Party inclinations for spending cuts, the longer that agricultural interests fight over details among themselves, the odds increase for further spending cuts. Or worse yet if a stalemate develops, Congress has been known to “kick the can down the road” by passing a one year extension to avoid reverting to permanent legislation. That would mean making decisions next year when the federal fiscal picture will be even tighter.
BF. Chairman Lucas and Ranking Member Peterson both have demonstrated in the past that they are very capable leaders--who can count votes. I am sure if there is a way to negotiate the perils of internal Committee preferences while addressing the priorities of the broader chamber, they will figure out how to get it done. Because of the current global and agricultural economic climate, the challenges have never been greater. With Fall elections looming, the political risks are high, but the economic uncertainty risks are also high for agriculture and all Americans.
* Edelman is a Professor of Economics at Iowa State University and Flinchbaugh is Professor Emeritus of Agricultural Economics at Kansas State University.
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