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Ag economists offer analyses of new farm bill and process

In mid-May, with the farm bill still unfinished and President Bush promising to veto the latest version, several prominent agriculture economists gave the new legislative proposals a quick study. Their verdict: the bag is mixed.

“I think it's important to have a disaster component to the bill,” said Daryll Ray with the Agricultural Policy Analysis Center, University of Tennessee, in early May.

“We'll always have disasters. I'm for a program if it can be written in a way that really focuses on those in a disaster rather than say, ‘we're going to double direct payment rates,’ or something where everyone gets the help whether or not they've experienced a problem. I'm encouraged by that but hope the regulations are such that people that really need the funding, get it.”

Ray — a long-time advocate of payments to farmers — is less enthusiastic about direct payments in times of high commodity prices. “I think we've gone backwards in our policy initiatives. That's been true since the mid-1990s. We don't seem to know what our objective is anymore.”

Ray believes farm policy should promote excess capacity. “We should always have more production than we need. Then, policy should help gauge that production to meet the demands actually there at the time, at a price that makes sense. We could build stocks up when prices are low and those will be available in situations like we currently have.

“True, we're promoting increased production all the time. But we've taken away the instruments that help us regulate it and make it really work. Now, we kind of hope for the best and if prices tank, we just backfill with money. Why not sop up some excess production and put it in reserve so when needed, we have it?”

Neil Harl, Iowa State University Charles S. Curtis Distinguished Professor in Agriculture, has long-favored farm payment limitations and is pleased that it appears the three-entity rule has been eliminated. But he isn't as vociferous as other payment opponents.

“Usually I'm in favor of payment limits, but one of the proposals — the one the White House came up with that would limit payments for those with an adjusted gross income of $200,000 — would have unintended consequences. So, it's good that figure has been raised some.”

The problem with the $200,000 limit is it would heavily hit landlords, says Harl. Many landlords are under crop-share leases.

“The one thing we don't need right now is to make life more difficult for beginning farmers. If the cap is lowered too much, the landlords would shift to cash rent and put the risk entirely on the tenants. That's why I've argued rather forcefully that wouldn't be a good idea.”

Asked why the Bush administration is so willing to run up huge deficits elsewhere and yet holds the line with agriculture, the economists aren't confident of an answer. Ray agrees the situation is rather mysterious, “especially in an election year.”

Ray points to the Bush administration's nationwide USDA farm bill tour and two years spent “putting together a proposal of policy directions they wanted to go. Now, they're very disappointed that hasn't worked out.”

Regardless of the administration's reasoning, “in this day and age, with the risk and size of farms that are required to stay afloat, you must be careful with what kind of lids are put on payments.” Even so, “it's surely a good idea to (target payments to) non-farmers who are, essentially, pulling off the cream but not really helping agriculture. On the other hand, you can't screw it down too tight.”

Harl says three things are going on at the White House. First, when President Bush signed the “fairly expensive” 2002 farm bill, “he got a lot of criticism for it from the non-agriculture side of the fence. I think that affected him.

“The second factor is Bush is trying to build a legacy in his last months in office. One of the things that he's being pilloried on — from both sides of the aisle, including arch-conservatives — is he's allowed the deficit to balloon to record proportions. And he has.”

The farm bill, says Harl, is little more than “a token, but it's his effort to shore up his standing in history. I think that need is more significant to him than we might think.”

The third factor involves international trade. Bush's trade team “complained bitterly after the 2002 farm bill that it was very difficult to negotiate and make progress in international trade due to bloated subsidies U.S. producers received.”

Has the White House ever been more involved in crafting a farm bill? “I've watched this scene for decades,” says Harl. “At the age of four, I can remember my father and grandfather (taking sides on farm bill legislation) in the 1930s. This is the first time I can recall the White House intervening so much.”

Ray isn't saddened by the farm bill debate, but its shallowness. “We're not getting much enlightening debate, in my opinion. Politicians often say it should be this, or that but there's no deep discussion about the reasons behind the numbers. That's probably not surprising in a policy debate, but it's disturbing.”

The new farm bill's allocation of more funds to nutrition “is understandable under the circumstances,” says Harl. “There is genuine concern about food prices worldwide. Both the United Nations and USAID have requested additional funding for food aid. There probably will be more such requests through non-governmental organizations and others.”

The drop in the ethanol subsidy from 51 cents to 45 cents is “also appropriate under the circumstances. However, I'm a bit concerned about the continuation of the tariff on imported ethanol for several years. We know that sugarcane-based ethanol is the more efficient, lowest cost way to produce ethanol at present. The wise thing would have been to phase down that import tariff.”

Asked about the world food situation, Ray said, “We've allowed the global stocks of food to decline below what they should be. Part of the reason for that is that before, when stocks were low, prices rose. “Now, though, with the loan deficiency payment set-up, the relationships we used to have between stock levels and prices don't work any more. Prices dip lower than they used to.”

Apply that to the international situation “and it isn't long before stocks come down to levels that, when there's any sort of disruption, cause prices to skyrocket.”

On rice specifically, Ray said there's been a drop in U.S. production due to Freedom to Farm. However, “the major problem is we let rice stocks get so low.”

And ethanol can't be blamed for rice shortages. “Rice isn't used for ethanol and, while there is some in the South, not many rice acres are suitable for corn production.

“So talking about food riots due to rice and wheat — and piggybacking ethanol and/or increased per capita incomes in China and India as the chief reasons — makes no sense to me. Those issues aren't joined.”

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