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Beware unintended consequences in developing farm programs

A cotton farmer who plants corn on his base acres this spring could receive $94 more per acre than a corn grower who plants corn. It's one of the ironies of Freedom to Farm, the 1996 law widely supported by corn and wheat and labeled “Freedom to Fail” by cotton and rice producers.

With corn prices forecast by USDA to average above $3 per bushel in 2006-07, corn growers will not receive a counter-cyclical payment. The failure to receive a CCP payment most years under the 2002 farm bill has been a big factor in corn farmers' desire to rewrite the law.

Cotton farmers will receive a counter-cyclical payment of 13.7 cents per pound on their program yield for 2006-07. If you multiply 13.7 cents by a yield average of 615 pounds of lint per acre, you get $84 per acre. (For payment purposes, yields are frozen at 1985 levels.)

Cotton farmers will also receive a direct payment that averages about $10 per acre more than received by corn farmers, according to the agricultural economic baseline prepared by the Food and Agricultural Policy Research Institute.

Rice farmers who plant corn on their base acres will also receive more revenue, although in a slightly different form. No counter-cyclical payment is expected for rice in 2006-07, but producers receive direct payments of $96.22 per acre, on average, according to the FAPRI baseline.

In 2007-08, the baseline projects a rice counter-cyclical payment of $18.04 per acre, providing rice farmers with about $90 more per acre gross revenue than corn growers.

“The decoupled payment to me is the big factor that will show up in the farm bill debate,” said Abner Womack, FAPRI's director, in an interview at the Institute's offices near the University of Missouri-Columbia campus. “A cotton farmer will still get a direct payment and a counter-cyclical payment for cotton, even if he grows corn.”

We don't think Sens. Richard Lugar, R-Ind., and Pat Roberts, R-Kan., had that in mind when they championed Freedom to Farm in 1996. But farm bills have a history of producing unintended consequences.

Womack said farmers should be concerned about those because of the pressures on lawmakers to write a WTO-compliant farm bill. Some have talked about more decoupled payments to accomplish that goal.

“Congress has to be careful when it's writing the law,” he said. “The higher you make the decoupled component the more you provide an incentive for the landowner to take the payment and not allow anyone to farm his land.”

High corn futures and government payments aren't the only reason cotton farmers reportedly are switching record acres to corn. Many growers have become disenchanted with what they see as a lack of responsiveness by the cotton market to reduced acres in the United States and other regions.

But the lopsided payments for cotton will likely become another sticking point when the ag committees sit down to write the next farm bill.

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