The Next Farm Bill: Alternatives and Impacts

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The Next Farm BillAlternatives and Impacts

• Joe L. Outlaw
• Professor and Extension Economist
• Co-Director, AFPC
• Ag 2007 Forecast
• Statesboro, Georgia
• February 20, 2007

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Presentation Outline

• A Little About My Background and AFPC
• Long-term Outlook Under Current Policy
• WTOs Relation to the Farm Bill
• Administration Proposal
• Preliminary Results
• Renewable Energy
• 2007 Farm Bill
• Conclusions

Farm Bill
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Agricultural and Food Policy Center (AFPC)

• Mission
• Established in 1983 as a joint activity of
• Texas Agricultural Experiment Station
• Texas Cooperative Extension
• Texas AM University
• To conduct analyses of the impacts of government
  policy proposals and/or implementation procedures
  on
• Farmers
• Agribusinesses
• Taxpayers
• Consumers
• Primary constituency agricultural committees of
  the U.S. Congress
• Primary role to serve as a barometer for
  agriculture

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Agricultural and Food Policy Center (AFPC)

• Educational Programs and Publications
• 1985 - 2002 Farm Bill Analyses
• Base and Yield Analyzer (BYA)(GA connection)
• National and International Reputation
• Farm level policy analysis incorporating risk
• FLIPSIM farm level simulation policy analysis
  model
• Crop, livestock, and dairy policy
• Environmental/resource policy
• Tax policy

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Representative Farms and Ranches
Dairy
Wheat
Wheat
Dairy
Wheat
Wheat
Feed Grain
Cattle
Dairy
Cattle
Dairy
Cattle
Dairy
Dairy
Cattle
Feed Grain
Cattle
Rice
Feed Grain
Cattle
Feed Grain
Feed Grain
Wheat
Wheat
Feed Grain
Cotton
Cattle
Dairy
Cattle
Wheat
Rice
Cotton
Dairy
Cattle
Feed Grain
Rice
Cotton
Cotton
Cotton
Feed Grain
Rice
Cotton
Rice
Cotton
Dairy
Cattle
Cotton
Cotton
Dairy
Cotton
Cotton
Cotton
Dairy
Camilla
Rice
Feed Grain
Cotton
Dairy
Dairy
Feed Grain
Rice
Feed Grain
Rice
Cattle
Cattle
Cotton
Cotton
Dairy
Cotton
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FY 2006 Budget Outlays
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FAPRI January 2007 Baseline Market Price, Loan
Rate, and Target Price for Corn, 1998-2011
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FAPRI January 2007 Baseline Market Price, Loan
Rate, and Target Price for Sorghum, 1998-2011
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FAPRI January 2007 Baseline Market Price, Loan
Rate, and Target Price for Wheat, 1998-2011
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FAPRI January 2007 Baseline Market Price, Loan
Rate, and Target Price for Cotton, 1998-2011
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FAPRI January 2007 Baseline Market Price, Loan
Rate, and Target Price for Rice, 1998-2011
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FAPRI January 2007 Baseline Market Price for
Steers and Cull Cows, 1998-2011
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FAPRI January 2007 Baseline Market Price for U.S.
All Milk, 1998-2011
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So What Does This Mean for the New Farm Bill?

• CBO March 2007 Baseline not likely to have
  significant commodity program expenditures for
  LDPs and CCPs
• In the Baseline Scoring world, current policy
  projected out 10 years is the score
• High prices for most commodities mean very little
  payments
• Livestock production is going to see higher feed
  costs

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March 2006 CBO Baseline of Government Payments to
All Program Crops, 2007-2016 (Mil. )
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AFPC Projection of How CBO Might Score Government
Payments to All Program Crops, 2007-2016 (Mil. )
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So What Does This Mean for the New Farm Bill?

• What kind of policy can you change to with very
  little money being spent that is going to be
  better?
• In the policy world, the primary way you make
  someone better off is strengthen the safety net
  more potential support

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WTOs Relation to the Farm Bill

• New WTO panel will likely rule early this summer
  so any changes required may be taken up as real
  Farm Bill work will be just beginning
• May be told to more fully comply
• Canadas request for consultations on the corn
  program
• Primarily for pressure
• Biggest impact at this point likely over
  trade-offs with Administration needed to gain
  extension of TPA
• Rumors are flying that agreement is near again!

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What Weve Learned Since 2002

• While the current farm program has served its
  purpose for the last several years, it is time to
  move on and craft a new, better farm bill. To
  create such we need to look at the success and
  failures of the current farm bill with a goal of
  improving upon this bill.
• - Kenneth from TX

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Administrations Proposal

• Commodity Programs (WTO)
• Revise Marketing Loan Rates
• 5 yr Olympic average of market price
• LDP based on day lose beneficial interest
• Increase direct payments by 5.5 billion
• Primarily cotton and rice
• Replace CCP with nationally based Revenue
  Assurance
• Continue MILC (lower payments) and DPSP (no
  Baseline for MILC and left PS for WTO)
• Continue sugar program (left for WTO to fix)
• No peanut storage payments
• Payment limits (save 1.5 billion - somehow)
• Eliminate 3 entity rule
• New limits (110,000 each DP and CCP and 140,000
  LDP)
• Eliminate separate limit for peanuts, honey, wool
  and mohair
• Means test (200,000 Adj Gross Income down from
  2.5 million)

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Administrations Proposal

• Eliminate commodity program payments on land
  acquired through a 1031 tax exchange
• Conservation Programs
• Provide conservation enhanced payment option
• Option to replace commodity support payments with
  enhanced direct payments for conservation
  commitments
• Proposed increased direct payment plus 10 percent
• Consolidate existing cost-share programs into a
  newly designed Environmental Quality Incentives
  Program (EQIP)
• Streamline working lands easement programs into
  one Private Lands Protection Program
• Increase funding for the Conservation Security
  Program by 500 million

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Administrations Proposal

• Fruit and Vegetable Programs
• Eliminate planting restriction
• Provide 2.75 billion in Section 32 funds to
  purchase fruits and vegetables for food
  assistance programs
• Provide 500 million to increase the purchase of
  fruits and vegetables in school meals
• Provide a 250 million increase for the Market
  Access Program targeted for non-program
  commodities

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Administrations Proposal

• Allow for gap coverage in crop insurance
• Energy Programs
• Provide 1.6 billion in new funding for renewable
  energy research, development and production
• Target cellulosic ethanol production
• Support 2.1 billion in loan guarantees for
  cellulosic projects and 150 million in grants

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AGI Means Test for Farm Payments

• Analyzed 64 representative crop farms over
  2008-2014 assuming continue 2002 farm bill
• 17 of 19 feedgrain farms lose payments
• Average of 77,750 lost payments
• 8 of 10 wheat farms lose payments
• Average of 33,830 lost payments
• 16 of 20 cotton farms lose payments
• Average of 87,730 lost payments
• 4 of 15 rice farms lose payments
• Average of 41,270 lost payments

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Preliminary Look at the Administrations Proposal
for RA

• National Target Revenue calculated
• NTR (TP-DPrate) (2002-06 Olympic Average
  Yield)
• Actual Target Revenue calculated
• ATR Actual Yield MaxMarket Price, Loan Rate
• Revenue Assurance Payment (RAP) is paid if ATR lt
  NTR
• RAP paid per base acre is
• RAP (NTR ATR) / (CCP Pymt Yield0.85)

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Preliminary Results

• Results are presented as cumulative probability
  distributions for the NTR, ATR, CCPs and RAP
  (revenue assurance payments) in 2008
• Probabilities of CCPs and RAPs in 2008 are
  reported, as well.
• CCPs are calculated using the formula in the 2002
  Farm Bill
• Difference between RAP and CCP estimate the per
  acre difference in payments per base acre

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Interpretation of the Results

• The NTR is a constant (black line)
• The ATR (red line) is a random variable as it
  includes risk from yield and price
• The RAPs (blue line)
• The CCP (green line)

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Administrations Proposal

• Has never really been seriously considered in the
  past
• Predicted to be DOA
• Didnt happen
• Is it going to be adopted?
• Wont happen

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Renewable Energy

• Policy Stimulates Plant Development
• Extend tax provisions beyond scheduled expiration
• 0.51/gallon ethanol tax credit
• 1.00/gallon subsidy for biodiesel from virgin
  vegetable oil
• 0.54/gallon ethanol import tariff
• Renewable Fuel Standard
• 7.5 billion gallons of ethanol and biodiesel
  combined by 2012
• Increase RFS to 35 billion gallons by 2017
• Congress wont be able to help themselves
• Good chance it will be higher
• Other legislation could have a greater impact
• Example Floor on oil prices (Lugar)

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Dry Mill Returns and Operating Costs

• After record net operating returns in 2005/06,
  returns decline
• Given this there is projected slowing of growth
  path for ethanol production

Source FAPRI January 2007 Baseline
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U.S. Corn Use
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U.S. Average Corn and Soybean Expected Net
Returns
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FAPRI U.S. Crop Acreage Projections
May be a livestock support program developed if
a lot of corn acres arent added
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U.S. Soybean Oil Price
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U.S. Vegetable Oil Prices
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Getting the Farm Bill Completed is Like.
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2007 Farm Bill

• Only an Idiot Would Guess at Outcome soHere
  Goes
• Less than 25 chance of having major changes in
  the structure of commodity programs
• Ag committee leadership comfortable with
  structure
• ButPay Go will make it more difficult given
• Wants permanent disaster assistance (will cost
  big )
• 05/06 disaster program
• CSP expansion
• MILC
• FV funding
• Renewable fuels

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2007 Farm Bill

• What About Revenue Plans?
• Not getting any indication from staffers that
  these plans are getting serious consideration
  from Congress
• Who would administer?
• More likely that Farm Bill could be written on
  the floor of the House or Senate (ex. Kind
  Amendment)

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2007 Farm Bill

• The next bill almost certainly will have
• More emphasis on renewable fuel research and
  development, production, and distribution
• Some tightening of payment limitations if it
  happens will be for budget reasons
• More emphasis on fruits and vegetables including
  market development assistance
• More funding of conservation programs
• To the extent these are achieved funds will
  have to come from somewhere (commodity programs)
  which will have a relatively small Baseline
• Budget committee will TRY to add a few billion to
  Baseline

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Conclusions

• It is all about the Baseline
• Cant change too much from current programs with
  limited money to spend and make everyone better
  off
• Dont forget FV and energy spending has to come
  from somewhere
• Bottom line
• Very likely to have much the same programs in
  2007 FB not because thats what everyone wants
  but.. because there is not much money to spend on
  anything else
• And a whole new group of leaders with pet
  projects

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Thank youJoe Outlawjoutlaw_at_tamu.edu979-845-59
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Index of Prices Paid for Fuel, 1998-2006 with
FAPRI Projections, 2007-2011
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Index of Prices Paid for Fertilizer, 1998-2006
with FAPRI Projections, 2007-2011
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Overall Economic Viability of Representative
Farms,2006 and 2011
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Farms
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Feed Grain
Wheat
Cotton
Rice
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Overall Economic Viability of Representative
Dairies and Ranches,2006 and 2011
Farms
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Dairies
Ranches
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