ME. Well professor, the Senate Committee on Agriculture, Nutrition and Forestry has passed a new bi-partisan farm bill. Chairwoman, Debbie Stabenow, a Democrat from Michigan, and Pat Roberts ranking minority from Kansas have proven at least one committee can work together and get something done across party lines with the reporting out of the "2012 Farm, Food, and Jobs Bill".
BF. Yes, but is important to note that this is just the first step in what is typically a long process. It is an election year and in a Congress that is the most dysfunctional in my lifetime. Stabenow and Roberts have been around long enough to know the long history of bi-partisan support and interest in farm legislation. The relevant interests have been consulted, the Members have been consulted, the context has been examined and re-examined several times, and the time is ticking before current programs expire, in which case farm policy reverts to the 70-plus year-old permanent farm law and all hell breaks loose.
ME. According to the Senate Ag Committee News website the initial version of the bill was to reduce the budget deficit by 23 billion over the life of the proposal. That was the same number in budget cuts that the Ag Committee Chairs of the House and Senate and their Ranking Members recommended to the failed Congressional Super-Committee last Fall. It recognizes a changed post-recession economy and federal budget picture. The first axe to fall was on decoupled direct payments that were instituted in the 1996 Freedom to Farm Act. Since you helped to draft that legislation, what do you think about that?
BF. In the long run it is a mistake, but it is a sign of the times. At least they did not go back to the old target price program which pays farmers when they do not need it and does not pay them when they do need it. However, the House committee is talking about this. Some of the House members refuse to understand the basic economics of farm programs. They still have the "price, price, price" mentality instead of revenue. We still have to pay attention to WTO compliance, but the U.S. agriculture economy is relatively strong with record farm incomes, while much of the rest of the domestic economy is still recovering from the recession and unemployment still remains high. With the growth of demand emanating from energy markets and exports, the important consideration from most of agriculture is to make sure that an adequate safety net is in place for when localized losses occur due to crop failure, livestock losses or when the agricultural economy tanks. That's what the Senate Committee bill does. It creates a new Average Risk Coverage (ARC) program to replace the previous ACRE program. The SURE supplemental disaster program was also eliminated for crops, but continued for livestock.
ME. According to the Agri-Pulse Document Summary of last week, the ARC program would have two tiers. During 2013 - 2017, producers must make a one-time, irrevocable election to receive either individual coverage or county coverage (in counties with sufficient data) that is applicable to all acres. Eligible crops are wheat, corn, grain sorghum, barley, oats, long grain rice, medium grain rice, pulse crops, soybeans, other oilseeds and peanuts. Payments would be made when the actual crop revenue for the covered commodity in any one year is less than the agricultural risk coverage guarantee. The ARC guarantee is 89% of the benchmark revenue and the last minute Committee wrangling increased the payment rates from 60% to 65% at the farm level and from 75% to 80% at the County level. It is what's called a shallow loss program?
BF. It is only part of the picture and there are moving parts as the proposal moves forward. There would be additional coverage available to farmers through Crop Insurance incentives and they are covered in a separate Farm Bill title. In addition, it was interesting to note nonrecourse marketing loans were authorized to keep a basement floor under markets and there was no change in loan rate parameters. Most analysts don't expect markets to decline back to low price levels, but agriculture has a history of finding the historic lows periodically. Farmers have collectively had a tendency to over-produce relative to the commercial market demand. Never say never.
ME. Conservation compliance requirements are imposed on those who participate in the ARC Program. However the authorized size of the Conservation Reserve Program (CRP) is reduced from 32 million acres to 25 million acres by 2017. Also 23 Conservation programs are consolidated down to 13 programs, which include a revamped Conservation Stewardship Program (CSP), Environmental Quality Incentives Program (EQUIP), an Agricultural Conservation Easement Program, and a Regional Conservation Partnership Program. The latter program provides opportunity for several watershed and basin efforts from recent years to continue to develop partnerships with farmer networks that influence the quality of water resources that are in common.
BE. We aggies tend to forget that this is really a food bill. The bulk of the spending is for food and nutrition programs while at the same time the bulk of the cuts come from farm programs. Another part that does not get as much play is the energy title which the Conrad-Lugar amendment added mandatory funding.
ME. The Nutrition Programs are reauthorized, but there was some tightening of the program eligibility requirements. Politically, it is difficult to cut food programs when there is high unemployment. Renewable energy is an alternative to imported oil that has strong domestic economic multipliers, particularly for Agriculture and rural America. Reauthorization for most of the Rural Development programs remain in tact, but without any mandatory money. It is interesting to note that one exception may be the Specialty Crop Block Grant Program (SCBGP) which receives a mandatory funding increase
from $55 million to $70 million per year. Much of that funding goes to
emerging local food system development networks and farmer's markets, which an area that has seen rapid expansion during the past couple of decades.
The Credit programs are reauthorized with a focus on beginning farmer programs.
BF. It pays to have the chairwoman from your state. The rice folks from Arkansas are now learning the hard way by having replaced the former chairwoman with a freshman. The Research Title is reauthorized. One new idea here is a new tax-exempt Foundation for Food and Agriculture Research, a public/private foundation to solicit private donations to enhance research for meeting global food demands. Longer term, this may become important for the U.S. in sustaining our competitive advantage in food and renewable energy production. As public sector resources become insuffient for funding research, this institution would potentially cultivate more investment in research from a multitude of private and public sector resources.
ME. A recent media release, says China plans to invest $48 billion annually over the decade in agricultural research as part of their economic development efforts to feed a growing population with rising incomes.
Public agricultural research spending in the U.S. averages $2.5 billion per year. So even if the private sector adds two times that amount, a strategic question emerges about whether the U.S. is willing to remain globally competitive as the leader in deploying new agricultural technologies.
* Edelman is a professor of Economics at Iowa State University and Flinchbaugh is an emeritus professor of Agricultural Economics at Kansas State University.
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