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Ag policy issues for 2022

Curt Arens Corn field and wind turbines
LOOKING INTO 2022 DEBATE: Brad Lubben, Nebraska Extension policy specialist, dives into policy issues that are sure to be of interest to farmers and ranchers for 2022 and beyond.
Policy Report: Discussions on the 2023 Farm Bill should begin in the new year.

Last month’s column looking at the road ahead for agricultural policy issues in 2022 took a broad view of fundamental challenges for agriculture, and long-run policy issues that would help frame those challenges. If we take a closer look at some current policy developments, we can see how some of the same issues for the long run will have impacts right now.

The fundamental challenges for agriculture boil down to the role and expectations for commercial agriculture for global food production, local food systems targeted to consumer demand, agriculture as a provider of bioenergy and renewable energy, and agriculture as the steward of the nation’s resources and provider of agro-ecosystem goods and services. Looking at the policy landscape for 2022, we can find pending issues in each of these challenge areas.

Commercial agriculture

The success and economic viability of commercial agriculture is dependent on an effective and stable policy framework, including the role, if any, for a farm bill safety net. For now, crop producers face another annual decision on enrollment in farm programs and the choice of the Agriculture Risk Coverage or Price Loss Coverage program.

Enrollment had swung away from ARC and toward PLC under the 2018 Farm Bill as the relative protection in the safety net shifted. However, higher prices at present for most farm program commodities means the expected protection in either program is minimal, meaning the bigger part of the safety net for 2022 is in the crop insurance program with protection tied to current prices.

That is also the picture looking forward to the 2023 Farm Bill and discussions that should start in early 2022. If prices remain stronger, the existing commodity program safety net will look relatively small, raising concerns about the need for changes, particularly with rising production costs.

However, the projections for higher prices that reduce the size of the program also reduce the budget baseline available to make any changes or to shift to other priorities. That could mean that the status quo — an extension of ARC and PLC — is the most plausible commodity policy option for the next farm bill.

On the other hand, higher commodity prices mean that federal support for crop insurance increases. July 2021 budget projections from the Congressional Budget Office (CBO) pegged commodity program costs at about $6 billion per year over the next 10 years, while crop insurance programs were projected at $9.6 billion per year, reinforcing the outlook that crop insurance has become the most significant part of the federal farm income safety net. That also means crop insurance could be the primary target for any budget cuts or spending shifts in the next farm bill.

Local food systems

Local food systems have grown to serve the increasingly varied consumer demand for different food product attributes, whether tied to producers, production methods, geography, marketing channels or more.

While the growth of local food systems and consumer demand creates market opportunities for entrepreneurs and specific attributes or branded products, the same demands from consumers and interest groups can translate into costly regulations on the entire food system. Two such food policies were set to be enforced Jan. 1, creating a new operating environment or challenge for agriculture.

After legislation from 2016 and regulations published in 2018, it has been a given for some time that food labeling or disclosure standards for bioengineered foods were set to go into effect on Jan. 1, 2022. While many food processors and manufacturers were prepared well in advance for the labeling requirements, there are still issues as implementation begins.

In addition, there remain many interest and consumer groups opposed to biotechnology in general that see the official bioengineered food disclosure rules as insufficient. The groups continue to pressure policymakers and food manufacturers for further changes or promises of non-biotech products and supply chains.

Another food policy issue builds from the original passage of Proposition 2 in California in 2008 that restricted food animal production systems in the state relating to gestation crates for sows, veal crates and battery cages for laying hens.

California voters effectively extended those requirements beyond state lines through Proposition 12 in 2018. Under the 2018 mandate, not only must all production in California comply with the state regulations, but all food products sold in California also must comply with the same regulations, including those imported from other states.

While arguments remain about California’s authority to dictate production systems and certification inspections in other states, the rule was slated to go into effect Jan. 1, 2022. At a minimum, the new rules create a segregated market that sources California-bound production from more regulated and presumably more expensive production and marketing systems, while maintaining separate production, processing and marketing systems for other states and export markets.

That could end up creating much higher food prices or shortages of certain food products in California, or it could create more pressure for the more expensive production systems across the entire country, driving up food prices for all.

Bioenergy

The bioenergy policy outlook is continually shaped by what appears to be an eternal battle between the petroleum sector and the biofuels sector. With projections for potential declines in motor vehicle fuel use going forward, the petroleum sector seemingly faces an existential crisis of a declining market and a declining market share at the expense of any gains by the bioenergy sector.

Not surprisingly, the EPA announcement of renewable fuel usage requirements for 2020-22 seemingly disappointed all sides. The new requirements point to growth for biofuels usage through 2022 and reduced exemptions for refineries from compliance.

However, the published rules also retroactively lowered the mandate for 2020. The lower mandate presumably acknowledged the reduced fuel demand amid the COVID-19 pandemic, but also created an excess of credits from that year that will effectively lower the burden or need for compliance going forward.

While the primary focus of the debate is around corn-based ethanol, a bigger biofuel question going forward could be around soybean oil and other seed oil production for renewable diesel. By some estimates, the demand for renewable diesel and for sustainable aviation fuel could drive a soybean production push on par with the ethanol push for corn in the 2000s, but that market could also be dependent on further climate policy developments or regulations from Washington, D.C.

Agro-ecosystems

While agriculture is continually being asked to produce both food and fuel, it is also being asked to preserve and protect the nation’s natural resources, essentially producing environmental benefits or agro-ecosystem goods and services. Economic theory describes a potential role for markets, incentives and direct regulations in addressing environmental issues. The outlook for 2022 is full of all three approaches.

The explosion of markets for carbon credits is providing producers an opportunity to sequester carbon or reduce emissions and sell those benefits through market integrators to buyers that are regulated to reduce emissions or that are voluntarily buying credits to deliver on their own sustainability goals or pledges.

At the same time, there are still many questions to be answered about the policy directions, legal issues, economics and market structure of carbon credit programs.

The incentive approach is best illustrated by the already substantial investment in farm bill conservation programs, estimated at $5.9 billion per year over the next 10 years by the CBO.

The Build Back Better legislation recently debated in Congress had promised to essentially double that investment over the next five years with a primary focus on incentivizing climate practices. While the BBB appeared dead in the Senate at the end of 2021, the conservation provisions still appear attractive to many and could be a priority for farm bill debate if not addressed earlier.

Finally, the regulatory agenda is moving along as well, with a major headline issue focused on yet another rule to define the “Waters of the United States,” or WOTUS, after proposed rules from both the Obama administration and the Trump administration had been dispensed with through various court proceedings.

At present, the lack of a new definition means a reversion to the muddled definition based on the split opinion and varied interpretation of Supreme Court rulings from more than a decade ago. For agriculture, the challenge is both a question of the extent of federal regulatory reach as well as the uncertainty and unpredictability of an ever-changing rule.

While the above discussion highlights a few policy issues related to the different challenges for agriculture, it is certainly not an exhaustive list of policy issues for 2022. Current headlines and attention to cattle market competitiveness, trade policy, tax policy, macroeconomic policy, climate policy, and the fate of the BBB legislation will fill much of the calendar in 2022.

And that doesn’t even mention the 2022 elections, which will both constrain the available time for policy action in 2022, as well as shape the policy agenda for 2023 and beyond.

Lubben is the Extension policy specialist at the University of Nebraska-Lincoln.

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