What is in this article?:
- Farm policy crucial for the bad times
- Reference price design
- Among all the unanswered questions about the farm bill, one thing is certain: Farmers will get a direct payment on eligible crops.
Reference price design
A reference price, a floor, in support programs is designed to keep farmers on the farm during times of low prices. Currently, the House version of the farm bill includes a reference price; the Senate version does not. Based on that and other differences, including difference in adjusted gross income limits, Outlaw says, the House version would work best for southern producers.
“The Senate version was designed mostly for Midwest farmers, who have less production risk and can afford to buy up more crop insurance coverage.”
Outlaw also commented on the Stacked Insurance Protection Plan (STAX), developed by the National Cotton Council. The program would be insurance-based and he points out that cotton, because of rulings against the industry in the Brazil Case, is giving up substantial support to bring the program into WTO compliance. STAX would be subsidized 80 percent by the program, with 20 percent paid by the grower.
A reference price included in STAX could mean as much as $27,000 to moderate-sized cotton farms (2,000 acres) during periods of low price years. Its value to larger farms would be greater.
Analysis of the STAX program shows that it will work, he says. “It’s an insurance program, so it will not pay every year.”
The reference price and the 80 percent subsidy could be in jeopardy in an expected budget-cutting frenzy, Outlaw says. “The insurance subsidy, overall, has attracted a lot of attention. And Brazil doesn’t like the reference price for cotton.”
When a farm bill is finally done, he says, the farm safety net will be “less than before and the direct payment will be gone. The direct payment was something a farmer could take to the bank — it was a banker’s best friend. Farmers could sign the direct payment over to the bank. An insurance program is different.”
But insurance programs appear to be the direction in which farm bill negations are heading, and likely will be the primary safety net for farmers in the future, he says.