Price loss coverage program would skew crop production, ASA says

By Derrick Cain

© Copyright Agri-Pulse Communications, Inc.



ST. LOUIS, Oct. 4, 2013 - A recent Food and Agricultural Policy Research Institute (FAPRI) study found that the Price Loss Coverage (PLC) program in the House-passed farm bill, which would tie target prices to farmers' current-year planting decisions, would skew crop production, according to the American Soybean Association (ASA).

ASA said the study looks at the potential for fixed target prices coupled to current plantings to cause global market distortions, including challenges under the World Trade Organization (WTO).

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“The FAPRI report shows that the disparity in the treatment of different crops under the House plan and the re-coupling of target prices to current plantings could result in distorted plantings and production,” said ASA President Danny Murphy.

ASA said the study “makes clear” that target prices should be decoupled from current-year planting decisions under any price-based program.

“The FAPRI report drives home our concern that the House PLC program could cause planting distortions by tying target price payments to planted acres,” Murphy said. “For example, the report highlights the potential for significant increases in planting and production of barley, rice and peanuts, which would push down prices.”

Murphy said while producers of those crops would receive larger government payments, lower prices also would decrease market receipts for peanuts by $70 per acre, rice by $20 an acre, and barley by $15 an acre.

While the report indicates that the price and revenue-based programs included in both the House and the Senate farm bills would likely be considered trade distorting domestic support under the WTO, it identified the House PLC program as more likely to cause larger price declines for specific commodities and would make U.S. farm programs more vulnerable to potential WTO challenge, ASA said.

“These lower prices would then impact other countries that produce the same crops, potentially spurring WTO complaints similar to what we saw when Brazil successfully challenged the U.S. cotton program under the WTO,” Murphy said.

Several business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Foreign Trade Council, have asked House and Senate Agriculture Committee leaders to guard against a WTO challenge and the potential for retaliation.

The groups said both the Senate's Adverse Market Payments (AMP) program and House's PLC counter-cyclical programs, “run the substantial risk of violating obligations the United States has undertaken as a signatory of the WTO agreements.”

In support of the PLC provisions, the National Farmers Union (NFU) has asked Congress not to amend the language.

NFU President Roger Johnson sent a letter in June to House Agriculture Committee Chairman Frank Lucas, R-Okla., and ranking member Collin Peterson, D-Minn., praising the program.

“The Price Loss Coverage (PLC) option in particular is under repeated and unwarranted attack from members of Congress, the administration, and some outside interests who seem to have forgotten the conditions of the late 1990s after the failure of ‘Freedom to Farm' policies that eliminated farm safety net protection against extremely low market prices,” Johnson said.

NFU argues that modifying PLC to establish a reference price based on a five-year Olympic average price, as some have suggested, would weaken the safety net as multiple years of lower prices would decrease the support prices to very low levels.

“PLC in its current form sets fixed reference prices well below the cost of production so as to provide some help in very tough times but not guarantee profits,” Johnson said.

The full FAPRI study can be viewed here.

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