ME. Well Professor it looks like the 80 years of history for traditional farm programs are about to come to an end--just as you started predicting 40 years ago. Unlike the Great Depression when a fourth of the nation's population lived on farms and farm poverty was widespread, today the farm population is less than 2 percent of the nation and producers have greater incomes and wealth than the average American.
BF. Have you been asleep since 1996? The real policy changes in the farm safety-net started with "Freedom to Farm" and "decoupling of program payments from planting decisions." New Deal era concepts like price supports, acreage set-asides, and grain reserves have not been part of our policy for 15 years.
ME. Yes, but we instituted a replacement safety-net that now appears on the chopping block. Fixed-decoupled direct payments, marketing loans, ACRE and SURE were invented to facilitate enhanced global trade consistent with WTO policy while providing a safety net. A few farm bill debates are sometimes needed before changes are complete.
BF. I argue the 1996 objectives are still priorities for American farm policy. But what has changed is the debate context with respect to the general economy and federal budget picture. In the mid-1990s the general economy, federal budget, and agriculture were all relatively strong and in a fiscally sound position. Today, agriculture is relatively strong, but the general economy is relatively weak and the federal budget picture is a Disaster. As a result, agriculture looks like the fatted calf on the sacrificial altar.
ME. The relevant policy options appear to be emerging around some form of revenue insurance and/or disaster relief. It is interesting because I can recall similar debates back in the late 1970s over whether to fund disaster assistance knowing that disasters are always going to occur or whether to subsidize voluntary insurance premiums with enough incentive to encourage farmers to buy it before the crops are planted. Voluntary insurance programs will never perfectly compensate for the impacts from disasters and funding disaster relief reduces the incentive for farmers to buy insurance. Part of the issue is whether to subsidize support for a private sector insurance industry versus support for disaster relief typically provided through government agencies.
BF. At least most of the current debate is finally focused on revenue assurance in contrast to price protection. That concept took years to penetrate the minds of some thick-headed policymakers. Price protection doesn't mean much when you don't produce a program crop or when you have no harvested bushels to put under loan. Today, we seem to be debating the merits of revenue losses by state, crop reporting district, county, or individual farm. The closer we get to using farm level losses, the less likely the program will be consistent with WTO criteria. However as we get farther from using farm level losses as the payment mechanism, the compensation becomes less of a safety net match for actual farm losses.
ME. Also as more requirements are added like conservation compliances, there is less incentive for producers to voluntarily buy insurance. You have the regional loss payout distribution issues suggesting subsidies may stimulate over-production in high risk areas. Greatest odds for insurance loss payouts appear in the northern and southern plains.
BF. That may be, but the headquarters for the agricultural insurance industry are located in the corn-belt where insurance profitability appears lucrative--not due to drought--but due to the random risk of hail. Today it takes double the cash flow to operate at $6 corn and $12 beans, so risk management is even more important. You forget farmers prefer private sector tools to manage their own risks. Historically, Farm Bills were passed as farm groups worked with environmental and conservation groups who favor conservation compliance and environmental incentives. Budget deficits will limit cash incentives, so conservation compliance for revenue assurance is more likely to be on the agenda.
ME. Do we really want a national health insurance industry for agriculture? Hedging ones bets may be better than betting the farm on one revenue assurance scheme created in a cramped farm bill debate. Where are the bankers and farm credit system with their rural investment and farmer savings account concepts to add to farm assets, instead of expenses? Asset building self-help tools like farmer savings accounts and local rural business investment companies can help to diversify producer risks and invest some of the record farm income--not in higher land prices, but in new engines for economic growth and opportunity in rural America, such as next generation energy, value added bio-products, and local foods. Livestock and dairy producers could also benefit from such risk management incentive policies. Rural entrepreneurs require greater access to patient investment capital, which is a little different than metro area venture capital.
BF. Pipedream. First generation biofuel investors were mostly farmers and rural people, but that phenomenon was unique and it is unlikely to repeat itself. The next generation of biofuels will likely attract big oil and corporate capital, like BP-Dupont, Koch, Pickens, Exxon, and large international investors like the Chinese. Why? They have greater access to investment capital, hold a lot of cash, and do not necessarily depend on the U.S. government for incentive programs. A few trillion of investment capital is reportedly sitting on the sidelines until political uncertainty in Washington subsides.
ME. Feeding the world starts at home and we now have record numbers eligible for food assistance. Some farm groups are taking next steps in creating good will by supporting local food networks. Shoring up Farm Bill support for self-help food coop development programs to assist the unemployed in getting back on their feet could create win-win results, particularly in low food access areas. Historically, coops were organized to provide market access and supplies to farmers themselves when other private sector business would not provide competitive market access. Farmer coops doubled during the Great Depression. With unemployment, food assistance, and poverty at historically high levels, sharing such self-help expertise and support might help to revitalize the coalition of agriculture, consumers, environment, and rural development that generated majority support for previous Farm Bills.
* Edelman is Professor of Economics at Iowa State University and Flinchbaugh is an Emeritus Professor of Agricultural Economics at Kansas State University.