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Traditional Farm Bill Mission: It Is Neither Impossible Nor Changed

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Agricultural Policy Analysis Center. American Agriculture Movement Annual Convention ... GAO report is likely to curtail Payment-Limitation-'Winking' ... – PowerPoint PPT presentation

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Title: Traditional Farm Bill Mission: It Is Neither Impossible Nor Changed


1
Traditional Farm Bill Mission It Is Neither
Impossible Nor Changed
  • Daryll E. Ray
  • University of Tennessee
  • Agricultural Policy Analysis Center

American Agriculture Movement Annual
Convention Oklahoma City, Ok January 7, 2006
2
Lost Our Policy Bearings
  • Without a clue and highly impressionable
  • When it comes to farm policy, we seem not to have
    a clear idea about anything including
  • what the problem is or
  • what objectives are to be achieved
  • So we are willing to believe anything!

3
We Seem Willing to Believe that
  • Staple crops are not sufficiently important to
    have emergency reserves (oil is sufficiently
    important)
  • Less than full use of farm productive capacity is
    inefficient (SOP to not use full capacity in
    other sectorscurrently at 77 of capacity)
  • Farmers can extract billions of dollars for
    commodity programsso they do
  • Hence, commodity programs are a waste
  • do away with them or
  • pay out the money on some other basis

4
Historical Policy Components
  • Policy of Plenty Ongoing public support to
    expand agricultural productive capacity through
    research, extension and other means
  • Policy to Manage Plenty Mechanisms to manage
    productive capacity and to compensate farmers for
    consumers accrued benefits of productivity gains

5
Why Chronic Problems In Ag?
  • Technology expands output faster than population
    and exports expand demand
  • Much of this technology has been paid for by US
    taxpayers
  • The growth in supply now is being additionally
    fueled by
  • increased acreages in Brazil, etc.
  • technological advance worldwide

6
Why Chronic Problems In Ag?
  • In agriculture lower prices do not solve the
    problem
  • Little self-correction on the demand side
  • People will pay almost anything when food is
    short
  • Low prices do not induce people to eat more
  • Little self-correction on the supply side
  • Farmers tend to produce on all their acreage
  • Few alternate uses for most cropland
  • Farmers do not scrimp on the use of
    yield-determining inputs

7
What Was That Again?
  • Supply and demand characteristics of aggregate
    agriculture cause chronic price and income
    problems
  • On average supply grows faster than demand
  • Agriculture cannot right itself when capsized by
    low prices
  • (Always year-to-year random variability)

8
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For total-crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide creation in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • U.S. policy possibilities and premises

9
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide endeavor in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives The preferable (well,
    preferable in my opinion), the possible and the
    likely

10
China Net Corn Trade What We Expected
Mil. Bu.
1996 FAPRI Projections of Net Corn Trade
Corn Imports
Corn Exports
1996 FAPRI Projections
11
China Net Corn Trade What We Got
Mil. Bu.
1996 FAPRI Projections of Net Corn Trade
Corn Imports
Corn Exports
PSD Actual Net Corn Trade with 2004 Projection
12
Exports Have Not Delivered
US Domestic Demand
US Population
US Exports
Adjusted for grain exported in meat
Index of US Population, US Demand for 8 Crops and
US Exports of 8 Crops 19791.0
13
15 Crop Exports for US and Developing Competitors
US
Thousand Metric Tons
Developing Competitors
Developing competitors Argentina, Brazil, China,
India, Pakistan, Thailand, Vietnam 15 Crops
Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley,
Millet, Soybeans, Peanuts, Cottonseed, Rapeseed,
Sunflower, Copra, and Palm Kernel
14
U.S. Total Ag Exports Have Grown Slower Than
Total Ag Imports
Billion Dollars
Ag Exports
Ag Imports
15
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide endeavor in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives The preferable (well,
    preferable in my opinion), the possible and the
    likely

16
Acreage Response to Lower Prices?
Four Crop Acreage
Four Crop Price Adjusted for Coupled and
Decoupled Payments
Index (1996100)
Four Crop Price Adjusted for Coupled Payments
Four Crop Price
  • Between 1996 and 2000
  • Aggregate US corn, wheat, soybean, and cotton
    acreage changed little
  • While prices (take your pick) dropped by 40, 30
    or 22

17
Acreage Response to Lower Prices?
Four Crop Acreage
Index (1996100)
Four Crop Price
  • Since 1996 Freedom to Farm
  • Aggregate US corn, wheat, soybean, and cotton
    acreage changed little despite a wide fluctuation
    in price

18
Canada Farmland Planted
Other Oilseeds
Other Grains
Canola
Million Acres
Barley
Wheat
  • Canada reduced subsidies in 1990s
  • Eliminated grain transportation subsidies in 1995
  • Crop mix changed, total acreage remained flat

19
Australia Farmland Planted
Oilseeds
Coarse Grains
Million Acres
Wheat
  • Australia dramatically reduced wool subsidies in
    1991
  • Acreage shifted from pasture to crops
  • All the while, prices declined

20
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide creation in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives The preferable (well,
    preferable in my opinion), the possible and the
    likely

21
Worldwide Excess Capacity Will Be The Long-run
Problem
  • Dramatic yield increases in other countries
  • Cargill, Monsanto, John Deere, etc., etc., etc.
  • Acreage once in production will be brought back
    in
  • Russia, Ukraine and others
  • New Acreage
  • Brazil
  • China

22
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide creation in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives The preferable (well,
    preferable in my opinion), the possible and the
    likely

23
What Agribusinesses Want
  • Volume (paid flat per bushel rate sell inputs)
  • Low Prices (low cost of ingredients)
  • Price instability (superior information systems
    provide profit opportunities)
  • Reduced regulation of production and marketing
    practices (seller-to and buyer-from beware)
  • More market power over competitors and their
    customers/suppliers (Want everyone at a
    competitive disadvantage)

24
Monsantos Control of Crop Genetics
  • In 2004, Monsantos technology accounts for
  • 85 of all U.S. soybean acreage
  • 45 of all U.S. corn acreage
  • 76 of all U.S. cotton acreage
  • 84 of all U.S. canola acreage was genetically
    modified

Source Center for Food Safety
25
Control of U.S. Grains and Oilseeds
  • Cargill, ADM, and Zen-Noh export 81 of U.S. corn
  • ADM, Cargill, Bunge, and AGP control 80 of the
    U.S. soybean crush
  • Horizon (Cargill and CHS), ConAgra, Cargill, and
    Cereal Food Processors control 63 of flour
    milling in the U.S.

Source Mary Hendrickson
26
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide creation in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives The preferable (well,
    preferable in my opinion), the possible and the
    likely

27
The US Cant Go On Like This
  • The current farm programs are too expensive
  • Budget boogie man
  • 100s of billion of dollars of annual
    deficitsseveral trillion dollars over 10 years
  • Cuts in Farm Programs almost certain
  • GAO report is likely to curtail
    Payment-Limitation-Winking
  • WTO ruling may put LDPs and Counter-Cyclical
    Payments in jeopardy
  • Removes ability to compensate for low prices even
    less than in 1996 FB

28
Government Payments as a Percent of Net Farm
Income
29
Government Payments as a Percent of Net Farm
Income
30
Government Payments as a Percent of Net Farm
Income
31
Government Payments as a Percent of Net Farm
Income
32
Government Payments as a Percent of Net Farm
Income
33
The US Cant Go On Like This
  • Continued WTO negotiations that further neuter
    ability to set domestic farm policy in this and
    other countries
  • What is good for General Motors (multinationals)
    syndrome
  • The whole WTO process shows a complete lack of
    understanding of the unique characteristics of
    food and agriculture
  • It is a clear case of not understanding that, as
    important as economics is, it can be trumped by
    food security and other social objectives in the
    case of food and agriculture

34
My Question to US Farmers Is What Are You Going
to Do About It?
  • One alternative is passively sit by, be co-opted,
    and let others commandeer the policy agenda
  • That is exactly what producers have increasingly
    done since the mid-eighties!!!
  • Crop producers get subsidy-tarred while real
    subsidy beneficiaries (integrated livestock
    producers and other users, sellers of inputs and
    marketers of output) remain above the fray
  • Advocating unfettered free markets, promising
    export growth, or claiming a level playing field
    as farmers magic bullet, etc., aint workin.
  • And, given the realities of agriculture discussed
    so far, they hold little promise for the future.

35
My Question to US Farmers Is What Are You Going
to Do About It?
  • One alternative is passively sit by, be co-opted,
    and let others commandeer the policy agenda
  • That is exactly what producers have increasingly
    done since the mid-eighties!!!
  • Crop producers get subsidy-tarred while real
    subsidy beneficiaries (integrated livestock
    producers and other users, sellers of inputs and
    marketers of output) remain above the fray
  • Advocating unfettered free markets, promising
    export growth, or claiming a level playing field
    as farmers magic bullet, etc., aint workin.
  • And, given the realities of agriculture discussed
    so far, they hold little promise for the future.

36
My Question to US Farmers Is What Are You Going
to Do About It?
  • Must be a mindset change
  • Producers and farm and commodity organizations
    must refuse to carry water
  • Must design policies based on the realities not
    hope or wishful thinking
  • Must be willing to energetically embrace other
    groups that genuinely share identical or
    complementary objectives
  • Work as hard to become independent as we have
    worked to become subservient in the past

37
My Question to US Farmers Is What Are You Going
to Do About It?
  • Did I mention that there must be a mindset
    change?
  • Everything should be on the table. Take nothing
    for granted.
  • Previous programs DNA testing (seeing what
    happens when most of them are eliminated) have
    exonerated most of the failed programs of the
    past
  • In all cases, do not contradict or ignore any of
    the realities when developing policy

38
From My Perspective
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely freemarket
    self-correction is a fantasy
  • Emerging agricultural powerhouses Excess
    capacity will be a worldwide creation in the
    future
  • Farmers version of the Concentration game Buy
    inputs from few suppliers and sell output to few
    buyers
  • Current US farm programs are not sustainable
  • US policy alternatives and premises

39
Some Policy Options
  • Continue the Exports/Trade Liberalization Will
    Save Us Course
  • Switch to Green Payments based on
    Conservation/Environmental/ Rural Development
    Considerations
  • Insurance/Farm Savings Accounts
  • Policy to Address Crop Agricultures
    Long-Standing Problem

40
Policy-Option Premise Check
  • Export Markets/Global Trade
  • Mechanism
  • eliminate all price floors
  • use the bully-pulpit to generate high- export
    expectations
  • extend trade liberalization
  • Apparent Premises
  • Export markets are very price responsive
  • Competing exporters will reduce production in the
    face of low prices
  • Importing countries prefer to import rather than
    produce it themselves
  • US agriculture will be a major beneficiary of
    trade liberalization

41
Policy-Option Premise Check
  • Eliminate all payments
  • Mechanism Cut all payments
  • Apparent Premises
  • Commodity programs address no problem
  • Payments have created low world prices
  • Implications
  • Then why are coffee prices so low? The U.S. has
    no coffee subsidies
  • Or bananas, or cacao or any of a number of
    tropical crops

42
Intensify Free Markets in Developed Countries
Percent
  • In 2020, worldwide
  • Corn price increases by less than 3 over
    baseline
  • Wheat price increases by less than 1 over
    baseline
  • Rice price increases by less than 2 over baseline

IFPRI IMPACT
43
Policy-Option Premise Check
  • Insurance/Farm Saving Accounts
  • Mechanism
  • Government subsidies to commercial insurers or
    provides tax breaks for farmer savings accounts
  • Apparent Premises
  • Low prices are a random event and seldom occur in
    a string of years
  • Growth in supply and demand are equal
  • Possible Implications
  • Income protection ratchets down
  • Land prices would go down
  • Supplemental payments from Congress would
    skyrocket

44
Policy-Option Premise Check
  • Conservation/Environmental/Rural Development
  • Mechanism Shift commodity payments to various
    kinds of conservation, environmental or rural
    development activities
  • Apparent Premises
  • Commodity programs address no problem
  • Better to have a broader group of farmers receive
    the money to achieve important (read real)
    objectives
  • Farmers believe environmental degradation is a
    central concern and or WTO rules
  • Payments in one form are as good as another
  • Implications
  • Does not address the long-standing market
    characteristics of aggregate crop agriculture
  • Could win a Farm Bill battle but loose the
    credibility war

45
Impact of Non-Renewal of CRP Contracts
  • Issue of non-renewal of CRP acreage has been
    raised
  • Some opposed to any government agriculture
    programs
  • Cost savings becomes the rationale
  • What would be the impact of non-renewal?
  • Asked to do a study

46
Impact of Non-Renewal of CRP Contracts
  • Without CRP contract renewal over 16 million
    acres return to crop production by 2014

47
Impact of Non-Renewal of CRP Contracts
  • Without CRP contract renewal grain growing areas
    would experience a severe decline in market
    returns, 2014

48
Impact of Non-Renewal of CRP Contracts
  • Without CRP contract renewal government payments
    increase significantly, 2014

49
Impact of Non-Renewal of CRP Contracts
  • Preliminary results
  • Changes in costs over ten years
  • Save 11.1 billion
  • Net government cost of 42.2 billion because of
    lower prices
  • Changes in crop prices
  • Corn Down 40
  • Wheat Down 80
  • Soybeans Down 90

50
From My Perspective
  • Farm Bill needs to address
  • Unique characteristics of crop agriculture that
    result in chronic price/ income problems
  • Variation in production due to weather and
    disease
  • Trade issues like dumping
  • Environmental and conservation issues
  • Rural development beyond agriculture

51
From My Perspective
  • The 2007 Farm Bill needs to include provisions
    for
  • Buffer stocks to provide a reserve supply of
    grains and seeds in the case of a severe
    production shortfall
  • In most recent years we have not had adequate
    supplies to meet the needs of consumers in the
    case of a production shortfall of 30 or more

52
From My Perspective
  • The 2007 Farm Bill needs to include provisions
    for
  • Supply Management to manage acreage utilization
    in the same way that other industries manage
    their capacity
  • Stocks program to ensure orderly marketing
    process
  • Both these provide a means of dealing with supply
    and demand inelasticity

53
From My Perspective
  • The 2007 Farm Bill needs to include provisions
    for
  • Bioenergy production to manage acreage
    utilization without heavy dependence on idling
    acreage
  • Keep the land in production so that we dont pay
    farmers not to farm
  • Provide a needed energy source not unlike the
    horsepower of times past

54
From My Perspective
  • Merge Ag and Energy Policy
  • Biofuels recycle atmospheric, not fossil, carbon
  • Look at crops not in food equation NOT
    internationally traded
  • Switchgrass (as an illustrative example only)
  • Perennial
  • Reduced inputs
  • Multi-year setaside
  • Burned in boilers for electricity
  • Converted to ethanol
  • Less costly than present ag programs

55
From My Perspective
  • Long term solutions to chronic price and income
    problems need to include
  • International supply management to manage supply
    on a global scale
  • At the present US supply management can benefit
    farmers everywhere in the world
  • As countries like Brazil and other developing
    export competitors continue to increase their
    capacity they will need to be a part of an
    effective supply management program

56
What Was That Again?
  • Crop exports did not deliverwill not deliver
  • For crop agriculture, timely free- market
    self-correction is a fantasy
  • Excess capacity is crop agricultures future
    peppered with periods of production-shortfalls
  • Carrying water for agribusinesses typically works
    against farmers best interests
  • Current farm programs are not sustainable

57
Thank You
58
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