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Everything up in air

The Sept. 11 terrorist attacks in New York and Washington have cast a pall of uncertainty over current farm bill negotiations, significantly reducing the chances of Congress striking a deal by year's end.

“The terrorist attacks have put everything up in the air,” says Ed Smith, Extension economist with the Agricultural and Food Policy Center at Texas A&M University. “The attacks have slowed down things in the U.S. House and Senate, and ag appropriations have been pushed back. Back in August, there was about a 50-50 probability of getting something in hand by the first week in February. Now, those chances are considerably less. I don't think we'll get anything in time for the 2002 crops.”

Smith presented an update on the farm bill at the recent Southern Region Agricultural Outlook Conference in Atlanta. In reviewing agriculture's current financial state and how it affects debate over the farm bill, “everything looks good” inside the Washington Beltway, he says.

“We have record net farm income. Yet, when we analyze the situation, we see chronic liquidity problems. We see severe cash-flow problems when we look at our crop farms, including wheat, feed grains, cotton, rice and oilseeds. Conditions, however, are not as bad for livestock and dairy producers,” notes the economist.

Comparisons made

From a solvency standpoint, he adds, farmers are not in as bad a condition as they were in during the 1980s. “Solvency issues are not as bad due to ad hoc emergency spending and lower debt service. Farmers are carrying lower debt loads and interest rates are substantially lower,” says Smith.

Many people, he says, don't want to believe there are severe cash-flow problems in agriculture. “They look at the numbers, such as the record net farm income of $55 billion. But this statistic doesn't take into account the distributional aspects of U.S. agriculture — it assumes that all of agriculture is owned by one sector,” he says.

Turning to the farm bill proposal put forth by the House agriculture committee, Smith says it clearly is part of a bipartisan strategy led by U.S. Reps. Combest and Stenholm, both of Texas.

“These majority and minority leaders are from adjacent districts in Texas, and they have a clientele group that basically is identical. They work very well together. They may play ‘good cop, bad cop’ on occasion, but they have the same constituency groups, and they're going by the same game plan,” says Smith.

Political strategy

The House agriculture committee followed a good political strategy in developing the farm bill proposal, he says. The committee talked to stakeholders and asked them what was wrong with current farm policy, he adds.

“They went out two years ago, talking to farmers at 19 or 20 field hearings. Farmers talked about their liquidity problems, and they described the pressures they were under. The committee built a coalition among the various groups and developed a bill based on what was told to them by the stakeholders.”

Farmers told the committee they wanted to maintain flexibility, maintain export competitiveness, maintain the WTO commitment and incorporate a better safety net that'll reduce the need for ad hoc assistance, says Smith.

“Farmers want to maintain the flexibility found in the 1996 farm bill. They also want to maintain export competitiveness, not only through export promotion and enhancement, but primarily through the market loan program. They want to maintain the WTO commitment, but they want their attorneys to look for the gray areas and to plead their case in the international courts.”

Biggest negative

The biggest negative farmers saw in the 1996 farm bill was the inability to plan for the future, says Smith. “They want a better planning mechanism than ad-hoc emergency disaster assistance. Congress has helped agriculture with such assistance in the past four years, but it doesn't give farmers the ability to plan and properly manage their farm operations. They want better assurance whenever they go to the bank for refinancing.”

The agriculture committee's proposal — H.R. 2646 — maintains flexibility, using basically the same rules as the 1996 farm bill, he says. Also, it maintains export competitiveness, retains marketing loans, maintains fixed payments, allows base updates, adds counter-cyclical target price program for income support and extends through 2011.

Many people are asking, says Smith, how much money is available for spending on agriculture. The budget resolution, as passed by the House and Senate, states that $79 billion can be spent over the 2001-2011 period, he says. Of this money, $5.5 billion was to be spent for 2001, $7.35 billion for 2002 and $66.1 billion for 2003-2011.

“The $5.5 billion for 2001 already has been spent — those checks have been mailed. My guess is that you're likely to see the $7.35 billion spent fairly soon, maybe by the end of this year or in early January.

“In the budget resolution, the additional $66.1 billion can be spent only if the projections for the surplus are greater than the Social Security/Medicare surplus or ‘lockbox.’ The Congressional Budget Office (CBO) already has said that we will be dipping into the lockbox to the tune of about $9 billion. This raised a lot of questions over whether the farm bill debate had been stopped by this projection of extra spending.

“Politically, it would have been very difficult for the Republican or Democratic leadership to step forward and propose further spending to bust the lockbox. But that's no longer an issue. When $40 billion was approved because of the terrorist attack, the lockbox was busted open. This was a very bipartisan agreement, so the lockbox is no longer an issue.”

But these most recent developments, says Smith, don't insure that the House committee's proposal will sail unchanged though the full House and Senate. Discussion continues, he says, over who should get the money that is spent on agriculture.

A Sept. 10 Associated Press article, he continues, stated that 63 percent of the money spent on agriculture went to the top 10 percent of producers. The implication, says Smith, is that the money isn't well spent.

“Considering the structure of agriculture, you'd expect those payments to go to the top 10 percent. But this publicity is building a case that commercial-sized agriculture doesn't need government help; that there are better ways of spending this money if the objective is to help farm families and small- and medium-sized farms.

“But for 150 years, our program has not been built up as a welfare program. So who will get the money? Will it continue to be based on per unit of production, or should it go to individual farmers?”

Committee report

The House committee, says Smith, has said that we'll continue to do what we've been doing for 150 years in terms of farm policy. The Senate, however, continues to discuss the issue.

Part of the current “cheap food policy,” says Smith, is that agriculture is maintained in the 48 contiguous states. Infrastructures have been built to support agriculture throughout the United States, but all of this was built on “non-market” signals, he says.

“If we go to a free-market emphasis, some regions of the country will be at a disadvantage compared to other regions. And some in the Senate leadership believe this is how it should be.”

Other issues likely to be debated before an agreement is reached include flexibility versus inventory management or supply management, says Smith.

“Farmers told the House committee they didn't want inventory management - they wanted to maintain flexibility. But it's not a dead issue on the Senate side.”

There also will be more debate over the export competitiveness and marketing loan issues, he says.


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