As the new Congress begins to settle in, the agriculture committees of both Houses are expected to begin the initial preparations for writing the next farm bill.
While outgoing Chairman Colin Peterson had already begun the first steps, Rep. Frank Lucas, new chairman of the House Agriculture Committee, is expected to take a more measured approach, not starting on the new law until closer to 2012.
Lucas, an Oklahoma Republican, is expected to try to maintain as much of the 2008 farm bill as possible. But observers are saying a convergence of current economic realities and changes in party alignments will force Congress to take a hard look at farm programs.
“Many of the winners in last fall’s elections ran on reducing federal spending and downsizing the federal government,” says Bruce Babcock, professor of economics at Iowa State University and one of the authors of the average crop revenue election or ACRE program in the 2008 farm bill.
“When they begin looking at the $5 billion a year in direct payments that are flowing to farmers who are receiving record prices for their crops, the $7 billion flowing to crop insurance companies over the last two years and the $2.6 billion flowing to cotton farmers from programs that violate our trade commitments, those will be inviting targets.”
Some farm groups may also be having second thoughts about traditional farm programs given the incessant criticism from the likes of the Environmental Working Group and Oxfam International, a British charity organization that has accused U.S. cotton producers of “impoverishing” African farmers.
One example is last fall’s vote by the Iowa Farm Bureau Federation to end support of direct payments to U.S. row crop producers. Analysts like Babcock, director of the Center for Agricultural and Rural Development at Iowa State, believe such actions are a sign of things to come.
“Why not take direct payments and turn them into a program that only pays out when something bad happens?” he said. “Why not do this rather than have something that puts a target on farmers’ backs?”
Direct payments are from legislation filled with good intentions. Originally called Agricultural Market Transition Act payments, they were designed to provide “Green Box” income support not subject to World Trade Organization limits and to help transition farmers to lower support levels.
“But we are no longer in danger of exceeding WTO limits on trade-distorting support, and we are long past any transition period,” says Babcock, who received his bachelor’s and master’s degrees from the University of California at Davis and his doctorate at UC-Berkeley. “Furthermore, farm profits have been high since 2003.”
Despite the good intentions, most farm groups believed the AMTA or direct payments fell short of providing the safety net farmers needed during the exchange rate and weather crises of the late 1990s.
As a result, Congress included counter-cyclical payments modeled along the lines of the target price-deficiency payments of the 1985 and 1990 laws in the 2002 farm bill. But those, too, proved inadequate for groups such as the National Corn Growers Association which lobbied hard for a revenue insurance provision in 2007.
The ACRE program in 2008 was a compromise between those who believed that farm program payments should be targeted at revenue rather than price and those farmers, mostly from the South, opposed to replacing counter-cyclical payments with crop-insurance-based programs.
“The usefulness and acceptance by farmers of ACRE has been limited because of budget and political considerations,” says Babcock. “ACRE covers only 83.3 percent of planted acres rather than 100 percent. This makes it less suitable as a replacement for crop insurance.
“In addition, farmers who choose ACRE give up 20 percent of direct payments. Crop insurance industry leaders also believed ACRE would reduce farmer participation in crop insurance and their compensation from taxpayers. Thus there was no integration of ACRE with crop insurance and ACRE insured state revenue rather than country revenue.”
The latter, Babcock said, would make the program much more effective in protecting farmers against specific weather losses. Switching from a state ACRE to a county ACRE program could cost about what the federal government is spending on direct payments, depending on the coverage level.
“The projected total cost of a 90-percent program for the program crops is $3.78 billion; increasing the coverage level to 95 percent would increase projected annual costs to $5.4 billion,” says Babcock.
For more on Babcock’s analysis, see Costs and Benefits of Moving to a County ACRE Program.