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Study compares/contrasts farm program proposals

Study compares/contrasts farm program proposals

Economist authors study on various farm program proposals recently introduced. Tables included.

Motivated by expected deep cuts to agriculture programs by Congress’ ‘super committee,’ in recent weeks, farm/commodity groups and congressional committees have produced a steady stream of agriculture program proposals. The proposals cover a gamut of policy ideas.

For more coverage, see here and here.

Comparing and contrasting the proposals was difficult until a study (see here) was authored by Carl Zulauf, an Ohio State University economist. On Oct. 20, shortly after the American Farmland Trust-requested study was released, Zulauf spoke with Delta Farm Press about the programs’ differences and commonalities, crop insurance and “shallow loss.” Among his comments:

On how Zulauf was approached to do the study and how long it took…

“The study was due to a direct request from American Farmland Trust. If that hadn’t happened, I likely have done something similar in the course of my work for Ohio State (University).

“In terms of preparing the report, I read as much of the publically-available information from the various proposals’ authors as I could find or others sent me. I couldn’t find any public information for a couple of proposals.

“Also, on Oct. 6, the Congressional Research Service (CRS) released a report that provided descriptions of the proposals. That came out as I was writing my report. The CRS report contained some information I hadn’t seen before.”

On Zulauf’s comparison of the different reports…

“After thinking about it – and there’s quite a difference between the proposals in presentation and parameters – I had to decide what perspectives to put into the paper. The final conclusion was there had to be different perspectives or comparisons.

“The first involves the specifics of each proposal, at least as much as you can get on a single page. There’s real value in allowing people to see the proposals in a compact form. If you stretch them across pages and pages, the comparisons can be hard to follow.”

See Table 1A here.

“It turned out the proposals can be grouped into two types. That lent to compiling two tables of the specifics. The first are proposals with very specific parameters on how they’d design a farm program. Many of these are revenue-type programs but the National Farmers Union farmer-owned reserve proposal also fits here.

“Then there are the proposals that take a more general approach. For example, the proposal by American Farm Bureau, which discusses more broadly what they want the policy to do. The (Obama) administration’s proposal also leans that way.”

See Table 1B here.

“After putting those two tables together, I thought it would be useful to produce a table that looks at the current provisions or specifics of crop revenue insurance, ACRE and SURE. I didn’t want to assume everyone knows what they are – and there’s an element in the debate that refers back to existing policy. To be fully informed, you need to understand how current policy works.

See Table 2 here.

“Further, I thought ‘this is a lot of information. There’s a need to look at the big picture instead of the specifics of the proposals.’ That led to the (following) table. Certainly, more elements could be added to this table but I thought these would be of interest to readers.

See Farm Safety Net Proposals table here.

“Basically, I tried to do three comparisons that are linked: One is the specifics of the various proposals; the second is the specific parameters of current programs; the third is broader policy concepts like ‘is it a revenue program or a shallow loss program? Is it coordinated with crop insurance?’”


On Zulauf’s thoughts once his study was completed…

“I was surprised at the commonality of the proposals despite coming from widely different groups. These groups are diverse and span the context of agriculture. You’d think there would be a truly wide variety of proposals.

“The variety comes at the specifics. But when you look at the proposals from a broader perspective, the commonalities are obvious.

“Out of the 10 proposals (see Table 2), the big majority have an individual crop orientation, a multiple-year benchmark (meaning a key parameter is averaged over several years), farm losses required to receive payments, no fixed-price or revenue benchmark.

“This says that the orientation of policy in the broad scheme contains a lot of commonality.

“Another thing that struck me is these proposals are radically different from proposals you’d have heard even four years ago.

“The notion of ‘shallow loss’ – was that even mentioned (in the 2008 farm bill debate)? It was, but very little.

“Also, the notion of crop insurance being an integral part of the farm safety net. That’s an idea that was in its infancy in 2008.

“These are major changes in people’s perspectives of the farm safety net.

“Another thing is that only two of the 10 proposals mention retaining direct payments. And one of them would cut those payments by 50 percent. Four years ago, would you have thought a majority of farm group proposals would have eliminated direct payments?”

Anything new that the majority of proposals contain that is likely to pass?

“I study two main areas: policy and futures and options markets. I’ve discovered trying to predict outcomes in either of those areas is very difficult.

“So, I don’t think I’d look at these proposals and say ‘this is what will happen.’ That depends on the budget, on other issues. Legislators are willing to negotiate overall, or certainly most, aspects of policy.

“However, I see these proposals as a marketplace of ideas. And the market is a reasonable forecaster.

“What people are talking about is a good indicator of what might happen. But I emphasize the word ‘might.’

“From that perspective, what is the policy direction these proposals are suggesting? Taken as a group, you’d tend to say that we’re moving towards some sort of a revenue program that addresses ‘shallow’ and multi-year losses and is coordinated with crop insurance.”

Shallow loss

Is the term ‘shallow loss’ being used the same across all the proposals?

“Not to be academic, but it depends on what kind of definition you bring to ‘shallow loss.’ To my knowledge, there is no common, standard definition.

“However, at the broad level, I think they’re talking about the same thing. That is: the share of losses not covered by crop insurance. To illustrate, a common insurance coverage is 75 percent, which makes the deductible 25 percent. That 25 percent would be the ‘shallow loss.’

“A friend of mine prefers ‘uninsured loss’ instead of ‘shallow loss.’

“When you get to the proposals’ specifics, you see divergence.

“I provide a range of loss covered and it shows some significant disagreements on the specifics (see Table 1A). For example, the National Corn Grower Association’s proposal would cover losses from 5 to 15 percent. The ARRM (Aggregate Risk and Revenue Management)proposal would be at 10 to 25 percent. There’s a big difference between 5 and 25 percent – not just on the coverage a farmer would have but on the cost to the federal budget.

“One thing going on here is that these proposals come from different commodity groups. Producers of different commodities buy different levels of insurance coverage.”

More on crop insurance in the proposals…

“While some proposals provide specific suggestions (see Table 1B), most address crop insurance broadly by saying ‘we want to minimize overlap and the programs need to be coordinated. For example, we want the new shallow loss program to work in concert with crop insurance so there’s a wise use of public dollars that will be cost-effective and provide the most assistance to farmers.’

“The implication is that crop insurance is now an integral part of the farm safety net. Philosophically, that’s a major shift in farm bill discussions. There was a bit of this discussion concerning the ACRE proposal in 2008. Now, though, it’s front-and-center.”

Regional differences

Differences between plans originating in the South versus those from farther north...

“When I look at the ongoing policy discussion, I think it’s important to keep the ‘historical evolutionary time path’ in mind. Midwestern crops – corn, other feed grains, soybeans, wheat, etc. – all began to experience significant price increases around 2005. Thus, they’ve been above the traditional target prices and loan rates for longer than the crops in the South.

“So, Midwestern crop producers have had more experience – more learning, if you will – under a different price and revenue structure. That has colored the debate because they’re looking at the world through different experience. Clearly, higher and more volatile prices are part of the current picture.

“For example, if price is at the loan rate, the program is partly covering your risk of lower prices. That has to impact what type of crop insurance you buy.

“However, when price is above the target prices, the program doesn’t function in a way to help you manage risk. As a result, you’ll look at crop insurance differently.

“I think the South looks at crop insurance differently than the Midwest because they’ve had different experiences. The Midwest has had longer to deal with risk when prices are above the loan and target prices. That has to account for some of the differences – including typically lower levels of insurance coverage in the South – between the two regions.”

Anything else?

“I would like to reiterate that the paper is trying to help readers think about these proposals in a historical perspective. Hopefully it helps tell us about the broad directional shift of farm policy.

“It’s very easy to talk about the specifics of proposals. That’s understandable because that’s what determines the budget.

“But looking at it more broadly, these proposals, as a group, have a lot in common and are substantively different than the traditional farm safety net.”

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