FarmPolicy

Farm Bill: News and Opinion

Reuters writer William Schomberg reported late last week that, “Four world trade powers said on Friday they had held ‘productive’ talks on how to reach a long-delayed global free trade deal and Brazil said a breakthrough could come next month when they meet again…After a two-day meeting, ministers from the United States, the European Union, India and Brazil said in a brief statement they were still hopeful of wrapping up the World Trade Organization’s Doha round of negotiations by the end of 2007.”

I. Farm Bill: News and Opinion
II. EU – France
III. Doha
IV. Ethanol – Feed Costs

I. Farm Bill: News and Opinion

An update posted on Friday at the DTN Ag Policy Blog stated that, “Some Washington Insider contacts are beginning to hear talk of a possible two-year extension of the current farm bill, should fiscal and political realities cause the farm-bill writing process to become overly difficult. Such talk was more common last year, but died down after Democrats took control of both houses of Congress in January.”

Trail Mix: The Wall Street Journal noted today that, “Thanks to the ethanol rush, the price of a bushel of corn for months has hovered around $4 — nearly double the price of a few years ago,” and as a result, some livestock producers are now feeding their animals “trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups” (picture and quote form The Wall Street Journal Online).

The DTN update added that, “Heightened awareness of the farm bill, coupled with funding that looks to be tighter than at any time in recent memory, could make reauthorization of the 2002 farm bill so difficult that a simple extension might represent the path of least resistance. At least that’s one theory being tossed around in Washington this week.”

Also on Friday, DTN’s Chris Clayton provided a recap (link requires subscription) of the proposed conservation title draft from the House Ag Committee.

Mr. Clayton reported that, “A summary of the House proposals for key programs:

“Conservation Security Program: Created in 2002, the program, which pays farmers for implementing conservation practices on working lands, would lose $1.1 billion in funding and see no new enrollments until 2012.

“Environmental Quality Incentives Program: Under the House plan, EQIP funding could effectively double. USDA allocations over the past two years have averaged about $1 billion. The House proposal would bump that to $2 billion, if offsetting money is found. Otherwise, the plan would phase in funding increases that would put EQIP at $9 billion over five years instead of $10 billion. In language that sounds somewhat like the CSP, the plan would pay farmers an incentive payment at a rate established by the USDA secretary for performing environmental management practices, developing a nutrient management plan or implementing energy-efficient or renewable-energy systems.

“Grassland Reserve Program: Authorization would increase by 5 million acres to 7 million total, if funding is found through offsets. The GRP is an easement program that allows for protection of grassland or rangeland through long-term contracts, preventing conversion to cropland or other purposes. The program has been unable to keep up with demand for enrollment in the past several years and typically receives requests from landowners to enroll million of acres more than USDA is authorized.

“Wetlands Reserve Program: Acreage would increase by 1.5 million acres to 3.775 million acres. The program, which idles and restores wetlands, would receive an additional $1.6 billion over five years. Landowners enrolled in the WRP are allowed to continue using the land for fishing or hunting. In fiscal 2007, the program spent $227 million. The program typically has 400,000 to 500,000 acres unfunded every year.

“Conservation Reserve Program: New enrollment would be capped to a maximum of 10 percent of any lands enrolled in the Grassland Reserve Program that year. So if the GRP enrollment was 1 million new acres next year, the CRP would be limited to 100,000 new acres.

“Farm and Ranch Lands Protection Program: The program, which helps pay for land easements to keep farms in production rather than sold for other purposes, would see funding increase to $300 million a year. Over the past two years, the program has spent an average of $72 million.”

With respect to other Farm Bill legislative proposals, the Associated Press reported yesterday that, “Instead of guaranteed payments and price subsidies for certain crops, the government should help farmers ride out lean years by creating savings accounts that could be dipped into when farm income is low, Sen. Richard Lugar said.

“Lugar, R-Ind., said most of the billions of dollars in farm aid distributed each year has gone to large corporate farm operations, not small family farms.”

The AP article added that, “But their idea has met a lukewarm reception from the chairmen of the committees that will rewrite farm legislation this year… [However,] the savings account idea has garnered some support outside Congress, from entities as wide-ranging as the Environmental Working Group and the conservative Cato Institute.”

“‘We find ourselves working with conservative organizations much more and more closely than before and find ourselves with much less in common with any farm groups,’ said Ken Cook, president of the Environmental Working Group.

“Cato Institute policy analyst Sallie James said Lugar’s approach ‘is the best one out there.’”

However, the article did note that, “But despite the pressures from non-farm groups, any dramatic shakeup in the status quo is unlikely, said Mark McMinimy, who analyzes the agriculture industry sector for Stanford Washington Research.

“‘The bias going into the farm bill debate is to not rock the boat,’ he said. ‘Farmers have told their members of Congress and the Department of Agriculture that they’re generally happy with the current policy.’”

In editorial perspective regarding the future direction of U.S. farm policy, the editorial board at the Minneapolis Star-Tribune noted in today’s paper that, “For as long as anyone can remember, fair-minded reformers in Washington have been trying to wean American farmers from government subsidies, design a more sensible rural safety net and let market signals, rather than federal regulations, guide the nation’s food supply.

“Last week a big, bipartisan group of lawmakers introduced a remarkable bill to do just that. It even saves money for taxpayers and speeds up the development of renewable biofuels. The Food & Agriculture Risk Management Act is a radical break from past farm policy, and it sidesteps the normal process for writing agriculture legislation. But it points farm policy in exactly the right direction, and if it doesn’t exert some influence on the big farm bill that Congress will write this summer, then the process will be a failure.

“At the heart of the ‘Farm21’ bill is a dramatic overhaul of the farm safety net. The government’s three big payment streams would be gradually phased down and converted to ‘risk-management accounts,’ held and managed by farmers to cushion themselves against the annual swings of commodity markets.”

The editorial added that, “What’s interesting is that the bill’s chief sponsors come from the heart of farm country. The Senate author is Republican Richard Lugar of Indiana, where corn is king. A lead House sponsor is Democrat Ron Kind from the great farm state of Wisconsin. They’re not anti-farmer. They just want government money spent fairly and wisely. ‘Too many farmers are producing for the government paycheck, not for the marketplace,’ Kind said in an interview last week.”

Bruce Gardner, writing on Thursday at the National Review Online, indicated that, “Defenders of the farm subsidy-programs argue that if these transfers were ended, agricultural production and commodity markets would be devastated. For example, Bob Stallman, president of the American Farm Bureau Federation, recently cautioned against significant change, saying, ‘You have to be careful or you can have very destructive effects in farm country.’ But research indicates that, deprived of subsidies, farm country would not change significantly. The main effects would be reductions in the value of cropland to which the payments are tied.

“Now, it has been argued that reductions in cropland values would cause financial distress among farmers and rural communities. But this is very unlikely. As noted already, most farmers either do not receive subsidies (e.g., livestock producers or farmers who grow fruits and vegetables) or they are doing well enough financially that they can weather the loss of subsidies. As for the impact on rural communities, land prices have risen far more over just the past four years than the decline that an end to commodity-program payments would cause.

“Consider the case of Iowa, where commodity-program payments are as important as anywhere in the country. From 2002-2006, Iowa received $1.3 billion in payments annually. The average value of farmland in Iowa in 2006 is estimated at $3,200 per acre, after increases of over ten percent annually during the last five years. This puts the total state value of farmland at $102 billion. Thus, even with a high rate of capitalization of the payments, an end to commodity programs would generate a loss in the neighborhood of a single recent year’s gains in land values.

“America’s commodity programs make no sense as industrial policy for an ailing industry or a welfare policy for a needy population. An enviable economic situation today — with low unemployment low, steady growth, as well as robust commodity markets — make this a singularly appropriate time for plowing under these obsolete policies.”

Mark Martin, president of the North Dakota Grain Growers Association, noted in an item posted recently at the Bismarck Tribune (North Dakota) that, “The current commodity title of the Farm Bill, which has cost less than one-third of 1 percent of the federal budget, is a safety net that provides farmers with direct payments to ensure farm stability and loan deficiency payments and countercyclical payments to provide support should commodity market prices fall below set target prices.

“Virtually every Farm Bill proposal now before Congress would drastically cut direct payments in the next Farm Bill. Direct payments to North Dakota farms amount to $225 million per year, leading to almost a billion dollars of economic activity annually in our state. The direct payment program is also the only farm safety net program wheat growers have been able to take advantage of over the term of the 2002 Farm Bill, even during times of disaster and total crop loss.

“Giving up these predictable, World Trade Organization-compliant and market-friendly payments for other priorities is simply not acceptable. There are many areas of agricultural policy that need to be addressed, but federal funding for issues like disaster assistance and biofuels production should never come at the expense of farm stability.”

International Food & Agricultural Trade Policy Council (IPC) Chief Executive Charlotte Hebebrand, writing recently at the Trading Ideas Blog, developed the topic of direct payments in more detail (“A Good Way to Support the US Rural Sector”).

Specifically, Ms. Hebebrand noted that, “Given this year’s budget limitations, there is a great deal more wrangling over how funds should be distributed among the 2007 farm bill’s different titles. The biggest showdown is likely to be among those supporting a status quo for Title I commodity funding and those who would like to spend more money on programs such as conservation and second generation biofuels research programs. Direct payments have lately also been brought into the discussion, among others by Sen. Harkin, who has been reported in the media to suggest that the 2007 farm bill may want to scale back on direct payments because they are hard to justify in times of high prices and because they may not be WTO compatible given their planting restrictions. Reducing direct payments may also be attractive to those who would like to see minimal changes to Title I.

“Direct payments fall into the category of ‘decoupled payments,’ which are provided to farmers regardless of what specific crops they choose to produce. In Europe, the so-called Single Farm Payment has become the major instrument for supporting agricultural producers, and it has been an effective tool in weaning farmers off trade distorting, ‘coupled’ payments. Although the reforms of the Common Agricultural Policy are complex, this switch towards direct payments is the most important element of the reforms. In the US, direct payments were introduced in the 1996 Freedom to Farm Act, for the same rationale. To be eligible, EU farmers must satisfy ‘cross compliance’ requirements, which can be summed as good, sustainable agricultural practices. Although the system is still relatively new, it appears to be well accepted both by European producers and the European public as a whole. It remains to be seen how US producers and the US public will ultimately come to view this concept. Although direct payments fit – in WTO terms – in the category of domestic support that is non- or minimally trade distorting, it may be that in the US political context they will not be an acceptable means of supporting agricultural producers.

“But what is most important both in terms of the farm bill and the Doha Negotiations, is to keep in mind that Green Box entails more than direct payments, as conservation and research programs are also ‘decoupled’ payments, on which no spending ceilings exist. So, wherever the US debate on direct payments may end up, what matters most is that the US move towards greater use of decoupled support to farmers – this can include direct payments AND a range of other measures. In other words, it would be regrettable if direct payments were reduced so as to shift money to conservation and research programs, if this would mean Title I programs remain untouched. What this would do in essence is keep the same pot of money for decoupled support and do nothing to move the US away from trade-distorting forms of domestic support. What is needed is to decrease coupled support; this would not only help bring about a Doha Round conclusion, but make US domestic support more equitable and productive for the agricultural and rural sector as a whole.”

II. EU – France

Reuters writer Jeff Mason reported on Friday that, “The European Union must adapt now to global warming by targeting subsidies for affected farmers and preparing to relocate some ports and coastal settlements, a draft EU report says.

“The paper, drawn up by the European Commission and obtained by Reuters, lays out a series of strategies to deal with rising temperatures even as the 27-nation bloc tries to halt the climate trend by cutting greenhouse gas emissions.”

The article indicated that, “[The draft report] said climate change should be integrated into the bloc’s agriculture subsidies program, dubbed the Common Agricultural Policy (CAP), which, at about 44 billion euros ($59.4 billion), accounts for nearly half of the EU’s overall annual budget.

“‘The CAP income support should help to alleviate the impact of climate change on income fluctuations, which will become increasingly higher,’ it said.

“‘During future reviews and reforms of the CAP ways should be found of using existing support to help European agriculture and rural development take the necessary adaptation measures.’

“It said climate change will require changes in land use, production methods, and farm structures.”

Meanwhile, with respect to France, an editorial posted today at The Wall Street Journal Online stated that, “Nicolas Sarkozy promised rupture and ouverture. Now the new French President is moving fast, per those catch phrases, to ‘break’ with old ways of doing things and ‘open up’ government.

“His cabinet, unveiled Friday, shows how much his election two weeks ago has shaken up France’s political system.”

The editorial indicated that, “The appointment of Christine Lagarde to Agriculture may be good for the Doha trade negotiations. A former Chicago-based head of a major U.S. law firm, and previously in charge of France’s external trade relations, Ms. Lagarde is a good negotiator who’s not wedded to farm interests. She’ll have to stand up to them to get the Doha round back on track.”

And David Gauthier-Villars reported in Friday’s Wall Street Journal that, “In a sign that France may change its controversial approach to agricultural issues, former trade minister and free-trade advocate Christine Lagarde was named agriculture minister. Under Mr. Chirac, France refused to let the European Union reduce its longstanding subsidies for agriculture.”

III. Doha

Reuters writer William Schomberg reported on Friday that, “Four world trade powers said on Friday they had held ‘productive’ talks on how to reach a long-delayed global free trade deal and Brazil said a breakthrough could come next month when they meet again.

“After a two-day meeting, ministers from the United States, the European Union, India and Brazil said in a brief statement they were still hopeful of wrapping up the World Trade Organization’s Doha round of negotiations by the end of 2007.

“Brazilian Foreign Minister Celso Amorim said the so-called G4 group would resume their search for a breakthrough at a new, longer meeting on June 19-22, possibly stretching into June 23.”

IV. Ethanol – Feed Costs

Lauren Etter reported in today’s Wall Street Journal that, “Thanks to the ethanol rush, the price of a bushel of corn for months has hovered around $4 — nearly double the price of a few years ago. That has prompted livestock groups like the National Cattlemen’s Beef Association and the National Chicken Council to call for an end to federal ethanol subsidies, including a 51-cent-per-gallon tax credit offered to companies that blend gasoline with ethanol. For now, livestock must pay up or make do with alternatives.”

“[Alfred ] Smith says he’s paying about $63 to feed a single pig for five or six months before it goes to market — up 13% from last year. His costs would be even higher if he didn’t augment his feed with trail mix, which he says helps him save on average about $8 a ton on feed. This year, Mr. Smith has bought enough trail mix to feed about 5,000 hogs, and that will save him about $40,000.”

“Besides trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups. Some farmers mix chocolate powder with cereal and feed it to baby pigs. ‘It’s kind of like getting Cocoa Puffs,’ says David Funderburke, a livestock nutritionist at Cape Fear Consulting in Warsaw, N.C., who helps Mr. Smith and other farmers formulate healthy diets for livestock.

“California farmers are feeding farm animals grape-skins from vineyards and lemon-pulp from citrus groves. Cattle ranchers in spud-rich Idaho are buying truckloads of uncooked french fries, Tater Tots and hash browns,” the Journal said.

Keith Good

Posted by Keith Good • May, 21, 2007 • 5:06 am