A recent Congressional Research Service report noted that, “In 2005, a World Trade Organization (WTO) challenge to U.S. farm commodity programs raised questions concerning the use of the planting flexibility restriction under existing trade commitments. Discussion on whether to extend the restriction in the next farm bill thus will have an important trade policy aspect as well as domestic market considerations.”
I. Base Acre Issues
II. Crop Insurance
I. Base Acre Issues
Philip Brasher, writing in Sunday’s Des Moines Register, reported that, “Farmers who grow federally subsidized crops such as field corn, soybeans, wheat and cotton can’t convert land to fruit or vegetable production, even for only one year, unless they permanently give up their right to collect federal payments on that acreage.
“[Iowa farmer Gary Boysen] was willing to do that on land that he owns. But to expand his fruit-and-vegetable acreage he needs to rent land, and that would mean persuading a landlord to take the acreage out of the federal farm program. That isn’t likely to happen.
“‘You can’t go on rented ground and expect the landlord to give up base acres,’ Boysen said, using the term for land enrolled in the federal farm program.” (For more information on “base acres,” just click here).
“Farmland is entitled to annual fixed payments from the government, if the acreage was traditionally used to grow grain, soybeans or cotton. The payments vary according to the type of crop and the productivity of the land. In Iowa, the annual payment for corn acreage is about $30 an acre.
“If the land is pulled out of the farm program to grow fruits and vegetables, which the government doesn’t subsidize, those payments disappear forever.”
Mr. Brasher noted that, “Iowa Agriculture Secretary Bill Northey says the planting restrictions discourage farmers from diversifying their operations.”
The Register article indicated that, “In a report issued this month, the President’s Cancer Panel called for coordinating farm and health policy to improve U.S. diets. Farm programs should be restructured to ‘incentivize/encourage increased production of fruits and vegetables,’ the panel said.
“But produce growers in California, Florida and other states are lobbying Congress to continue the prohibition on planting fruits and vegetables on farm-program acreage. They argue that it would be unfair to allow farmers in places like the Midwest to grow fruits and vegetables unless they permanently forfeit government payments.”
Although not a focus of the Register article, the planting flexibility issue has also caused problems with WTO covered agreements.
A recent Congressional Research Service report noted that, “In 2005, a World Trade Organization (WTO) challenge to U.S. farm commodity programs raised questions concerning the use of the planting flexibility restriction under existing trade commitments. Discussion on whether to extend the restriction in the next farm bill thus will have an important trade policy aspect as well as domestic market considerations.
“A number of reports have been issued since late 2006 that examine the possible effects on domestic fruit and vegetable producers of eliminating the planting restriction. These analyses suggest that the adverse effects of removing the restriction likely would be small relative to the overall industry, although there could be larger impacts on individual producers, commodities, and regions.”
A report completed by USDA’s Economic Research Service from November indicated that, “Participants in U.S. farm programs are restricted from planting and harvesting wild rice, fruit, and most vegetables (nonprogram crops) on acreage historically used for program crops (known as base acreage). However, a recent World Trade Organization challenge to U.S. programs has created pressure to eliminate planting restrictions. Although eliminating restrictions would not lead to substantial market impacts for most fruit or vegetables, the effects on individual producers could be significant. Some producers who are already producing fruit and vegetables could find that it is no longer profitable, while others could profitably move into producing these crops. Producers with base acreage are the most likely to benefit because they would no longer face payment reductions.”
The Bush administration’s Farm Bill proposal also addressed planting flexibility and tied in the WTO issue, stating that, “Under World Trade Organization (WTO) rules, direct payments can be classified as non-trade- distorting or ‘green box’ support if, among other conditions, they are not ‘related to, or based on, the type or volume of [current] production’ by the recipient. In the Brazil cotton case, the WTO ruled that direct payments provided under the 2002 farm bill could not be classified as ‘green box’ support, because of the limitations on planting flexibility that currently prohibit the planting of fruits, vegetables, and wild rice on base acres eligible for payments. The WTO reasoned that because direct payments are conditioned on the recipients’ avoiding production of certain crops after the base period, they are related to current production and thus do not meet the criteria for decoupled income support as defined in the WTO Agreement on Agriculture.
“Although the WTO rulings and recommendations in the cotton dispute were limited to particular claims made by Brazil in that case, the reasoning in Cotton would suggest that it is desirable to remove the planting flexibility limitations” (page 32).
With respect to a recommendation on this issue, the Bush administration proposal noted that, “To ensure that direct payments will be considered to be non-trade distorting green box assistance, the Administration proposes that the provision of the 2002 farm bill that limits planting flexibility on base acres to exclude fruits, vegetables, and wild rice, should be eliminated” (page 32).
Regarding the 2007 Farm Bill, Mr. Brasher’s Register article stated that, “The House-passed farm bill keeps the fruit-and-vegetable restrictions in place with one exception: Farmers in Indiana would be allowed to grow up to 10,000 acres of tomatoes without losing eligibility for federal subsidies. The farmers would give up the payments only in the years they grow the tomatoes. Two freshmen Democrats who could be vulnerable in 2008 claimed credit for the provision.”
(Other U.S. Representatives, who had been involved in this issue, were not allowed to include their districts in the planting flexibility exception included in the House proposal. For more on alternative ideas proposed by Rep. Tammy Baldwin (D-WI), Mike Pence (R-IN), Timothy Walz (D-MN), and Ray LaHood (R-IL), see this press release from March 6).
“The Senate goes to work on its version of the farm bill next month. The chairman of the Senate Agriculture Committee, Iowa Democrat Tom Harkin, is looking for a compromise on the fruit-and-vegetable issue, said spokeswoman Kate Cyrul,” the Register article said.
II. Crop Insurance
Elizabeth Williams, writing yesterday at DTN (link requires subscription) reported that, “No group wants to see its particular section of the budget cut in the new farm bill, but the crop insurance industry says Congress is being unrealistic.
“At issue is the House version of the bill that uses $5 billion from excess profits in crop insurance to offset other spending in the farm bill. Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) is more sympathetic to the insurance industry. But recently even Harkin told DTN, ‘There are some significant savings that could be made to the crop-insurance business.’
The DTN article added that, “Since 2001, crop insurance companies have received $15 billion in premium subsidies from the federal government. About $8.8 billion has been paid out to farmers for losses. The other $6.3 billion has been pocketed as underwriting gains, or profits, according to USDA data. Since last spring, the department has campaigned for cuts in subsidies for company operating expenses and for farmer premiums.
“The problem, according to crop insurance advocates, is that Congress is basing its savings estimates on profits the crop insurance industry realized in the past five years — which were the best in the history of crop insurance. ‘We had a record crop yield in 2004 and no great, widespread crop losses since then,’ said Art Barnaby, ag economics professor at Kansas State University.
“‘The GAO (Government Accountability Office) didn’t use the big loss years of 1993, 1988 or 1983 in calculating crop insurance industry profits,’ he said.
“‘We are a long-term industry,’ said Paul Horel, president of Crop Insurance Research Bureau in Overland Park, Kan. ‘Over a 20-year period, the good years need to make up for the bad years. The GAO should go back 15 to 20 years, to calculate profits in the crop insurance industry,’ Horel said. ‘It’s like farming: In a high-risk business you need to have the good years make up for the bad years.’”