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Status of FSRIA 02 & Shifting to the Next Farm Bill

Status of FSRIA 02 & Shifting to the Next Farm Bill. Lesson 5d—AGEC 3703 Larry D. Sanders Fall 2005. Dept. of Agricultural Economics Oklahoma State University. Op-Ed Reactions: Dave Barry.

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Status of FSRIA 02 & Shifting to the Next Farm Bill

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  1. Status of FSRIA 02 & Shifting to the Next Farm Bill Lesson 5d—AGEC 3703 Larry D. Sanders Fall 2005 Dept. of Agricultural Economics Oklahoma State University

  2. Op-Ed Reactions: Dave Barry If you’re like most American taxpayers, you often wake up in the middle of the night in a cold sweat and ask yourself. “Am I doing enough to support mohair producers?” I am pleased to report that you are, thanks to bold action taken recently by the United States Congress (motto: “Hey, It’s not OUR money!”). I am referring to the 2002 Farm Security Act, which recently emerged from the legislative process very much the way a steaming wad of processed vegetation emerges from the digestive tract of a cow.

  3. Op-Ed Reactions: Dave Barry (continued) Perhaps you are asking yourself: “Wait a minute! Isn’t this kind of like, I don’t know …… welfare?” No, it is not. Welfare is when the government gives money to people who produce nothing. Whereas the farm-money recipients produce something that is critical to our nation: votes. Powerful congresspersons from both parties, as well as President Bush, believe that if they dump enough of your money on farm states, the farm states will re-elect them, thus enabling them to continue the vital work of dumping your money on the farm states. So as we see, it’s not welfare at all! It’s bribery. --Dave Barry

  4. Issues Affecting the Development & Implementation of the 2002 Farm Bill • Public & hidden agendas of Congress & President • The disappearing budget surplus • Compliance with WTO • 2002 election • Agriculture split on desired goals & how to achieve them • Taxpayer backlash on “welfare for the wealthy” • HAVE PRIORITIES CHANGED SINCE 9/11/01?

  5. Prelude to Current Farm Bill Policy: A Dose of Reality . . . The 1996 farm act was called a “watershed” (Knutson et al) because it signaled a major turning point in the social contract between the public and farmers. The clear intent was for the market to replace government subsidies with profits over a phased-in seven year period. The public perception was that the 1996 FAIR Act was to get the government out farm programs by 2002, and there would be no need for more farm bill programs. “If you believe that, you believe in the tooth fairy.” —Barry Flinchbaugh, 1996.

  6. The Farm Security & Rural Investment Act of 2002 (FSRIA) • Cost $180 bil-200 bil if in place 10 years • Includes extra $73.5 over prev. budget • $50 bil – commodities • $17 bil – conservation • $1 bil – rural development

  7. FSRIA 02 • Legislative objective: • To get more money in the hands of producers and landowners to allow them to be more profitable and help maintain or improve the environmental resources they use • Political objective: • Support agriculture through the bad times; certainly through the Senate/Congressional elections of 2002

  8. An Evolving Conservation Philosophy • Previous programs focused on protecting environment/natural resources & compensating producers/landowners • New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs) • Farmers and ranchers should manage farmland to provide cheap, high quality food and fiber and environmental amenities (e.g. clean air and water, wildlife habitat, open space, sequestered carbon). • Additional $9 bil thru 2007 authorized

  9. Factors to Consider for the Coming Policy Debates • Twin deficits • Trade • Budget • Perceptions • Sector vs. Commodity vs. Farm financial performance • Global markets • Politics • Political Triangle of Ag & Budget Policy • Farm Bill changes—when? 5. Distributional equity 6. Community Food Systems • WTO, local market trends, food safety/health concerns

  10. Politics: Political Triangle of Ag & Budget Policy • New committees • Turf battles • Reconciliation Federal Reserve • Fight inflation • Critical of federal deficit • Greenspan retiring LEGISLATIVE • Bush Doctrine • Bush Budget • USDA • Trade talks • Ag groups one voice? • Non-ag groups • Competitors INTEREST GROUPS EXECUTIVE • Property rights JUDICIAL

  11. Politics: 2004 Baseline Cost of Agriculture Programs

  12. Energy Price Impacts on Agriculture • US Agriculture is not only capital-intensive, but fossil-fuel intensive • Fuel for farm machinery, equipment & vehicles (4% of farm expenses) • Fertilizer & chemical (15% of farm expenses) • Marketing (?) • Energy costs as share of production costs varies by enterprise (less than 10% for livestock, over 40% for cotton) • Will US ag adjust to market, or will government protect with subsidies?

  13. The Next Farm Bill: 2006? 2007? 2008? • Current farm bill: 6-year act (2002-2007) • Debate for the “next” farm bill already engaged • Rewrite of FSRIA02 begins in 05 • Budget Reconciliation • Appropriations • New “enabling” legislation in 06-07-08? • 2006 & 2008 election anxiety may encourage a 2007 farm bill

  14. FY 2005 Budget Update (continued) • No reductions in commodity programs likely; just "shifts" to get around the WTO problems • More WTO lawsuits likely • Some reduction in payment limits possible, but may still have loopholes • Programs like food and nutrition, rural development, etc., are likely to bear real cuts. • Green payments still not a supportable alternative to commodity payments • CSP—current increase • This battle not yet resolved • Look for much of reduction to come on “paper”

  15. Likely Alternatives & Consequences: Program Specific Choices • Lowering payment caps is likely to hurt larger operations more than smaller farms, probably hitting larger cotton farmers more than small to moderate wheat farms. • It is still uncertain how crop insurance reform will affect farms. • Cuts in conservation programs will restrict options for producers on marginal land, possibly encouraging a return to practices that harm the environment.

  16. Likely Alternatives & Consequences: Program Specific Choices • Cuts in research funding will lead to a loss of public sector innovation, and an acceleration to shifts toward private sector funding. In the long run, this favors larger farms and firms. • If commodity prices rise and/or the value of the dollar increases, there will be a loss of competitiveness on global agricultural markets at a time the Administration is recommending cuts in export subsidies. • Cuts in other sectors of Federal spending–Education, Transportation, Commerce, Health, etc. --Because rural areas are recipients of some of this funding, any cuts will have an adverse impact on affected programs and rural communities, as well as forcing the burden of aid back onto states that are already financially strapped.

  17. Congressional FY06 Budget Work (continued) • Congressional budget calendar • Oct?: Conference Committee on Appropriations • 2 of 13 completed • 1 Oct: fy06 begins • 18 Nov: end of first continuing resolution • Nov/Dec?: budget reconciliation?

  18. FY06 Appropriations Bills • Senate passed 22 Sep 05 • $100.158 bil ($17.348 b. is discretionary) • $15 bil more than fy05 • House passed 9 Jun 05 • $99.65 bil ($16.83 b. is discretionary) • Most programs at or above fy05 spending • Conservation down

  19. Evolutionary…not Revolutionary Change? • Near term program changes likely to be marginal • But, WTO restrictions likely to coincide with writing of 2007 farm bill; cuts may become dual purpose • 20-50% cuts for WTO? • $3-$20 billion in cuts for deficit reduction? • Production expenses (fuel, fertilizer, interest rates) will rise faster than commodity prices • Budget deficit/debt solution choices • Increase taxes • Cut spending • Grow economy • Do nothing

  20. Mean Government Payments by Farm Type, 1996-2001 LR $765 Retire $1,880 Rural Resident $1,219 Low Sales $3,435 High Sales $15,339 Large $30,825 Very Large $42,124 Source: J. Pease, “Historic Perspectives on Commodity Support”, NPPEC, St. Louis, 20 Sep 04.

  21. APPENDIX • Livestock sector and commodity programs

  22. How does the livestock sector historically fare with government crop support programs? • No impact? • Cheap, available grain? • Encourages marginal resources/producers into livestock business?

  23. Livestock Cash Receipts as Percentage of Total Cash Receipts Compared to Government Support Levels (1985-present) Source: “Economic Indicators”, Amber Waves, September 2004, ERS-USDA, http://www.ers.usda.gov/AmberWaves/september04/Indicators/

  24. Government Support Levels & Farm Real Estate Values (1985-present) Source: “Agricultural Outlook Tables”, August 2004, ERS-USDA, http://www.ers.usda.gov/publications/agoutlook/aotables/aug2004/ao0804.pdf

  25. Data Suggests Government Support Does Impact Livestock Sector • Generally, as government support increases, livestock receipts tend to increase • Related to cheap available feed? • Related to producers looking for profit alternatives when crop prices down? • Increases in government support often increase farm land values but not as clear • Complex issue deserving more research

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