Farm Bill: Something for Everyone
But critics say new U.S. policy sends wrong message to the world.
Compiled by staff
Published: Jul 14, 2008
Critics have called the new farm bill far from perfect, but legislators and commodity groups stated it offers the most significant reform in years.
By the time the acrimonious debate over the 2007-turned-2008 Farm Bill came to a conclusion, Congress extended the status quo despite rising commodity prices and added on a few goodies besides.
The 5-year, $285 billion bill (officially titled Food, Conservation & Energy Act) increased overall spending $20 billion over the projected cost if the 2002 Farm Bill were extended. Because of that increased spending, the Senate and House Agriculture Committees called on the House Ways and Means Committee, the Senate Budget Committee and the Senate Finance Committee to come up with extra funds. In the end, nearly $10 billion of the increase spending was found by budget gimmicks, sun-setting popular programs that will never really be terminated and new tax provisions.
Biggest changes
The commodity title keeps the present market loan, LDP and countercyclical payment structure for grains, oilseeds and cotton the same. Marketing loan rates and target prices were increased for barley, oats and wheat. Target prices were also increased for sorghum and soybeans, but lowered slightly for upland cotton. Direct payment rates are not changed but the payment is on 83.3% (not 85%) of base acres in 2009-11 to come up with budget savings.
The major change in the commodity title is for an option to switch the safety net from a CCP trigger from market price to a state-level revenue assurance program, known as Average Crop Revenue Election (ACRE). Payments are based on 5-year average state yields and 2-year national average prices. Upon electing for the program, participants take a 20% cut in direct payments and a 30% cut in loan rates.
The program begins in 2009 and producers would have to stay in the program for the remainder of the farm bill. Robert Thompson, University of Illinois ag policy expert, says the program could become even more attractive after two years of high national prices.
For corn, soybeans, wheat, sorghum, barley, oats and sunflowers, average ACRE payments exceed the traditional program payments foregone. It is expected most producers in states where those are the dominant crops to participate in the program, while southern states would continue participating in traditional farm programs. (See figure)
In years when prices decline sharply from recent levels, ACRE payments may be several billion dollars, according to a new analysis from the University of Missouri's Food and Agricultural Policy Research Institute (FAPRI). In contrast, when prices are rising, ACRE payments may be less than the traditional program payments that participating producers agree to forego.
Payment limitations will be tightened for a few, but the overall impact will be minor compared to previous attempts and despite the Administration's protests. The bill closes the three-entity rule which limits the ability to evade payment limits. It also requires a social security number for direct attribution.
The bill puts a hard cap on non-farm income of $500,000. If farm income is greater than $750,000, producers lose direct payments. The total payment cap on direct payments is $40,000 and countercyclical payments at $60,000. For ACRE participants, the direct payment cap is set at $32,000 and countercyclical payments at $73,000.
Conservation got a boost in this bill, although it also comes under new payment limitations as well. The Conservation Reserve Program was extended, but reduced from 37 million acres to 32 million acres. The former Conservation Security Program, now named the Conservation Stewardship Program, was expanded to $1.1 billion per year for working land conservation. Environmental Quality Incentives Program (EQIP) also received an additional $3.4 billion.
For the first time ever, a permanent disaster fund of $3.7 billion acts as an "entitlement program for a few states that have higher than average yield variability," Thompson says. He added the disaster aid is redundant with the current revenue assurance alternative.
WTO wreckage
The Administration vetoed the bill for many reasons -- one because it puts a larger litigation bull's eye on the backs of U.S. farmers. The farm bill moves domestic policy in the opposite direction from what has been advocated in previous world trade discussions.
On three counts it sends the wrong message, Thompson says. It moves money from green box (unlimited support that is non-trade distorting) to amber box (capped, most-trade distorting subsidies) by changing loan rates and target prices and reducing the decoupled direct payments. The ACRE program also has a huge upside potential and payments would be amber box, he adds.
The legislation also fails to respond to a 2004 WTO cotton ruling. Two major calls of action in the case required an end to the Step 2 cotton program and eliminating the fruits and vegetables exclusion on acres which receive government payments. Both fixes were conveniently left out of the farm bill.
The bill also sweetens the sugar program, making the bill more protectionist toward U.S. sugar interests.
Thompson says it will be 2011 before the current Doha round of trade negotiations gets back on track. A new administration won't appoint anyone at the U.S. Trade Representative until late into 2009. Then another election year rolls around in 2010.
If Democrats take over the White House, a protectionist tone would likely prevail and stifle freer trade, Thompson adds. "The country is in such an inward looking protectionist attitude today it's hard to see this round of trade negotiations moving very far to reform."
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