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Cost of Grassley in Arkansas: One state's farmers would lose $382 million

A study by University of Arkansas economists says a 2002 farm bill that retains the Grassley-Dorgan payment limits amendment could cost Arkansas farmers up to $382 million a year in farm program payments.

Even without the Grassley-Dorgan amendment, a farm bill containing the Senate commodity title provisions would mean Arkansas growers would receive $247 million less in government payments than under the House-passed farm bill, according to economists with the University's Division of Agriculture.

The study seems to contradict the Congressional Budget Office, which estimates the total savings from the more restrictive payment limits under the Grassley-Dorgan amendment at only $1.3 billion for the entire United States. The study's authors said they believe the Grassley amendment would have a similar impact on other Mid-South states.

“The study certainly shows us exactly what I knew — that our Southern states and our Southern producers are disproportionately hit by the payment-limitation proposals,” said Sen. Blanche Lincoln of Arkansas, who requested the study.

Sen. Lincoln, whose family owns a cotton, rice, soybeans and wheat farm in Phillips County, Ark., led the opposition in the debate on the Grassley-Dorgan amendment on the Senate floor. She later voted against the Senate bill, saying it “unfairly attacks Arkansas' farmers and ranchers.”

According to the University of Arkansas analysis, the Grassley-Dorgan amendment would affect nearly 1,600 farms in Arkansas, including about 40 percent of the state's cotton and rice farms.

By the time it rippled through the Arkansas ag economy, the impact of the payment limits amendment would reach $621 million, they said, at a time when the state's agricultural sector is already reeling from the poor farm economy.

“Depressed market prices since 1997 have reduced Arkansas net farm income without government support by nearly 60 percent,” said Eric Wailes, one of the team of economists who worked on the project. “Government price and income supports have only partially sustained net incomes as total net farm incomes have declined by 22 percent since 1996.”

Had the Grassley-Dorgan payment limits been in effect during that time, net farm income would have been lower by an additional 20 to 25 percent, said Wailes. (Economists Mark Cochran, Tony Windham, Frank Fuller, Bruce Ahrendsen and Wayne Miller also contributed to the analysis.)

The authors note that the bill passed by the House last October has a limit of $125,000 for an individual entity and $250,000 under the 3-entity rule/spouse allowance. It retains the current $150,000 limit on marketing loan benefits and does not count the use of generic marketing certificates against the $150,000 limit.

The Grassley-Dorgan amendment in the bill passed by the Senate on Feb. 13 limits direct and counter-cyclical payments to $75,000 per single entity and $125,000 with the $50,000 allowance for a spouse who participates in the farming operation. It does away with the 3-entity rule and eliminates payments for producers whose total incomes exceed a certain level.

It also puts a $150,000 limit on marketing loan benefits and requires that gains from marketing certificates apply to the $150,000 limit, thus negating their usefulness.

The economists said two features of the Grassley-Dorgan amendment would impact Arkansas farm payments:

  • The $75,000 limit on direct and counter-cyclical payments for a single farmer would cost the state's growers $93 million to $152 million.

  • The loss of generic marketing certificates would result in a loss of $156 million.

“Without any payment limits, total direct and counter-cyclical payments for Arkansas farms would total $408.5 million under the House bill vs. $428.1 billion under the Senate's,” they said.

Under the House bill, use of marketing certificates is not charged against the limit on marketing loan benefits, and total payments could reach $546.2 million at current loan deficiency payment rates, they said.

“Under the Senate bill at current LDP rates, the application of marketing certificates against the $150,000 limit reduces the payments from $546.2 million to $390.3 million, a loss of $155.9 million,” the economists said.

They note that USDA's Economic Research Service does not provide net farm income forecasts for individual states. However, ERS figures show that Arkansas' actual net farm income has declined from $2.021 billion in 1996 to $1.578 billion in 2000, a 22 percent decline.

That decline would have been much more severe had it not been for government payments, they said.

“Without government payments, Arkansas net farm income would have fallen from $1.659 billion in 1996 to $677 million in 2000, a 60 percent drop. Much of this decline has been due to depressed prices for program crops.”

Cochran, who heads the department of agricultural economics and agribusiness at the university, said farmers across the South have been hit hard by falling prices since the passage of the Federal Agricultural Improvement and Reform Act in 1996.

“A comparison of the percent of farms with negative net cash incomes by region shows farms in the Mississippi Portal, which includes Arkansas row crop farms, are most seriously affected by this decline,” he said.

“The Economic Research Service forecasts that 48 percent of the farms in the region will have negative net cash income in 2002, more than any other region in the United States.”

To obtain a copy of the University of Arkansas Department of Agricultural Economics and Agribusiness Cooperative Extension Service analysis, visit the website:

[email protected]

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