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Pressure mounts to pass farm bill

Farm Bill Now coalition forms. How farm bill proposals would work for Arkansas rice producers.

Currently on their August break, lawmakers – particularly those in the House -- have been getting an earful from rural constituents about their inability to pass a new farm bill.

On August 22, the pressure on Congress was only ratcheted up with the formation of Farm Bill Now, a broad coalition of 39 farm, commodity, livestock, energy, and financial groups. Among those participating: the National Cotton Council, the USA Rice Federation, National Corn Growers Association, American Soybean Association, the American Farm Bureau Federation, and National Farmers Union.

“Calling the farm bill the ‘farm bill’ suggests its impact is limited only to farms and to the rural areas to which they are so closely tied,” said a statement released by the coalition. “It’s really a jobs bill. A food bill. A conservation bill. A research bill. An energy bill. A trade bill. In other words, it’s a bill that affects every American.”

For more on the coalition, see here.

And it is imperative that Congress get the farm bill recipe right. With an economy that remains in low gear, farm states are especially vulnerable to the intricacies of the legislation.

For just one example consider the impact of removing direct payments – a sure goner from whatever farm bill is eventually crafted – from the farm-reliant economy of Arkansas.

“For the state of Arkansas, it’s a loss of $240 million (in direct payments),” says Eric Wailes, an agricultural economist at the University of Arkansas. “That has impacts on employment, off-farm impacts and more. Our estimates of the impacts are conditioned by how much of the payment loss is reflected in reductions of household consumption expenditures and farm investments. If the entire amount is applied to reduced household consumption, job losses are as high as 2,023, lost wages of $71.6 million and value added to the state economy declines by $131.8 million. State and local taxes would be $15.4 million less.”

In recent months, Wailes and colleagues have crunched the numbers and studied the program proposals in the House and Senate farm bills. With Arkansas the leading rice-producing state in the nation, they have paid special attention to that crop.

Interviewed by Farm Press in late August, Wailes had the following comments:

On the House’s Price Loss Coverage (PLC) and Supplemental Coverage Option (SCO) compared to the Senate’s Agricultural Risk Coverage (ARC) program…

“The bottom line is that the PLC proposal is very important for rice producers. In terms of providing a safety net it’s not comparable with either RLC or ARC. The level of support given a market price downturn are so much better.”

For more, see page 2 here.  

“That said, these are the average payment estimates based on when you actually get a payment. Remember, these are probabilistic payments. They aren’t guaranteed like direct payments. (Some of the other analyses) don’t point out the probability of farmers actually receiving these payments.

Here (see slide 16) we have a side-by-side comparison of the (proposed programs) for a Stuttgart farm. With ARC, the Stuttgart farm would get an average support payment of $18 per acre – but only 40 percent of the time would the payment be greater than zero.

“On the other hand, with PLC, when a payment is made that farm, on average, would receive $89 per acre. However, it would only get a payment greater than zero for 77 percent of the time.

“The $89 per acre is the average over five years for the 500 iterations we ran for that farm.

“It’s critically important for farmers to understand (the chances of actually receiving a payment) so they aren’t deluded into thinking this is an equivalent substitute for direct payments. Based on some of the questions I’ve received, it seems some think, ‘My goodness, this is better than the direct payments.’

“No, it’s not better than direct payments, which were certain. With direct payments they received payments on 85 percent of their program acreage or 83.3 percent, depending on the year, with 100 percent probability. Those payments were a certainty regardless of the price level.

“With (PLC), one only gets a payment when the market price is below $14 (per hundredweight). Basically, what we found is that for 77 percent of the time the market price is less than $14 and there will be an estimated PLC payment.

“The guarantee for rice with ARC is $13.”

More on ARC here.

Soybeans, shallow loss, SCO

On irrigated soybeans…

“The reference price for soybeans isn’t particularly good (under PLC). Neither is the ARC payment. Soybeans don’t get much in these scenarios, but that reflects that baseline market price projections are relatively stronger.”

On shallow loss…

“These numbers show that shallow loss is really not a serious problem for soybeans.

“However, shallow loss is an important problem for rice. Rice prices are made overseas and they’re volatile.

“Having a price guarantee is important for rice farmers because there is not an attractive crop insurance product that can provide stability on the revenue side and deal with the cost uncertainty of rice farming.”

On the SCO potential to impact the Mid-South…

“It looks to me that SCO makes sense for rice producers.

“Under the House farm bill if you’re enrolled in RLC, however one isn’t qualified for SCO. That’s another knock against enrolling in the county RLC program and provides more incentive to enroll in the PLC program.

“Fortunately, in the House bill, you have the discretion by commodity, by crop, to enroll in either the PLC or RLC.

“For Arkansas, the House (options) provide a much better safety net mechanism. When market price is above $14, most producers are going to be comfortable covering costs.

“Rice farmers will begin to get into financial trouble when prices drop below $14, though. That’s particularly true when $90 per acre of direct payments have been removed.

“Bankers are very concerned about this and they understand that the PLC is not a certainty.”

Philosophical differences

On philosophical differences between the House and Senate approaches…

“On the Commodity Title the philosophical difference is flex versus fixed safety net support.

“The flex approach is reflected in the Senate bill. The ARC isn’t useful particularly if you have multi-year price declines. That’s because as prices drop, the support mechanism declines because the ARC revenue guarantee is based on a moving average.

“The House, basically, through reference prices, retains the fixed price safety net mechanism – at least on the revenue side.

“Philosophically, both (bills) are moving toward more reliance on risk management and using crop insurance but there are significant differences in how they address shallow loss.

“The Senate bill says, ‘We’ll go with the market. If the market says prices will be lower then our support will be lower.’

“The United States is a price-maker on corn and soybeans – so for those commodities maybe that makes some sense. But when we’re relying on the world market to set our prices in rice and peanuts, we’re much more vulnerable to the volatilities that arise.

“Regarding the Commodity Title, I assume there will some accommodation on the Senate side for southern crops more than (the farm bill it passed) reflected. Where those reference prices will end up, who knows?”

On the Nutrition Title…

“I think the Nutrition Title is where the big donnybrook will be (in conference). The House wants a $16 billion cut versus the Senate’s $4 billion – a significant difference.

“The big issue is that a segment of the House majority wants even more than the $33 billion cut from the House farm bill versus urban congressmen who are adamant in minimizing the cuts to the Nutrition Title.

“It will be a real struggle, I think, to even get a House farm bill. Never mind moving to reconcile two bills. It is going to be very difficult for House leadership to gather the votes to pass a farm bill this year. I don’t think they can – otherwise, they’d have done it in August.

“And as we move closer to the election, there’s less incentive. They won’t want to create divisiveness in their party. And if they win big in November, there’d be even greater reluctance to do anything in the lame duck session.

“It’s a pretty dismal outlook and Congress should be embarrassed. Both the farm bills were passed through the agriculture committees in a bipartisan manner. It’s a very sad commentary on the whole political environment that the House can’t get something done.”

Full farm bill coverage here.

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