Tuesday, November 08, 2005
Where is farm policy headed?
Agriculture Secretary Mike Johanns has climbed onto a stool 22 times now, and listened to 68 hours of farmers and other agribusiness folks speak out on what they would like to see in the next Farm Bill. When the USDA listening sessions are complete there will have been one in each of 48 states. But will those thousands of comments mold the next farm bill, or will it be the result of forces beyond the farmgate?Dr. Daryll E. Ray, Institute of Agriculture, University of Tennessee, and Director, UT Agricultural Policy Analysis Center, yearns for the years of the 1996 Farm Bill when market prices were higher and government payments were lower. He says the 2002 Farm Bill brought higher subsidies, and subsequently the US drew international criticism because the resulting lower market prices lead other countries to contend that the US was dumping grain onto the world market at levels below the cost of production.
His analysis says world trade and federal budget deficits will be the driving forces in the development of US farm policy beginning in 2007. Our large outlays, which have risen above $20 billion per year, result in part from counter-cyclical payments and loan deficiency payments. While those insulate farmers from low market prices, Tennessee’s Daryll Ray says, “The issue that has to be addressed, then, is the part that recent U.S. farm policy may have played in bringing about these low prices. I would argue that the low prices are the consequence of basing farm policy on an incorrect set of assumptions about the nature of the agricultural sector, particularly crop agriculture.”
One common agricultural adage is that farmers readily learn to “farm the farm program.” That may be the reason that USDA economist Paul Westcott says counter cyclical payments may have influenced production decisions, which would be a “no-no” in the view of the folks trying to free up international trade, “…because counter-cyclical payments are linked to market prices, they may influence production decisions indirectly by reducing revenue risk associated with price variability in some situations.” Westcott’s analysis of CCP’s, which made their debut in the 2002 Farm Bill, suggests that in some price ranges they will influence planting decisions, but not in other price ranges. He concludes, “Thus, effects of counter-cyclical payments would be expected to be relatively less distortionary than coupled programs (such as marketing loans) with regard to efficiency in the marketplace in the allocation of resources. CCPs would be relatively more effective than coupled programs in terms of efficiency of domestic policy in providing support to farm income, and would be relatively less distortionary with regard to international market signals that could affect global trade.”
So who really cares what other nations think about our farm program? The issue arises in our efforts to achieve more open markets in nations that would be good customers. Currently, we are suffering from diminished market access and to pry them open, changes in our farm program will be required, says University of Illinois agricultural policy specialist Dr. Bob Thompson. His analysis agrees with Daryll Ray that the 2002 Farm Bill reversed our course, “The United States, which had led the global effort to reduce agricultural subsidies, appeared two-faced, telling the rest of the world to cut their farm subsidies while increasing its own. By allowing the bases for direct payments to be updated, the new farm bill was seen as a retreat from decoupling by the United States, its author and strongest advocate.”
Summary:
The 2007 Farm Bill will be written in an environment of trade difficulties and budget deficits, both of which have resulted from the 2002 Farm Bill. While high program supports (LDP’s & CCP”s) will be held up as “budget busters” by domestic and foreign critics, agriculture and Congress must have the will to accept change, and that may not come easily if at all.
Posted by Stu Ellis on 11/08 at 11:12 PM | Permalink