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Certain aspects of new farm bill can already be assumed

Certain aspects of new farm bill can already be assumed

Regardless of when the farm bill is finished, there will be a big shift from commodity program tools for managing risks to insurance tools. Insurance tools do not have a floor. It’s not a huge problem, but it’s different from what producers and lenders are accustomed to. There will be a huge role for educators.

While a new farm bill remains in limbo until at least after the November elections, some conclusions can be made — based on the current Senate and House versions — about how the final legislation might look.

“Regardless of when the farm bill is finished, there will be a big shift from commodity program tools for managing risks to insurance tools,” says Joe Outlaw, Texas A&M University Extension economist and co-director of the Agricultural Food and Policy Center.

“Insurance tools do not have a floor. It’s not a huge problem, but it’s different from what producers and lenders are accustomed to. There will be a huge role for educators.”

Outlaw, along with other economists, discussed the farm bill during the recent Southern Region Agricultural Outlook Conference, held Sept. 24-26 in Atlanta.

Prior to the 2008 farm bill expiring on Sept. 30, the House and Senate recessed, leaving several options.

During a lame-duck session after the election, both houses of Congress could consider a full, five-year bill; a three-month extension of the 2008 law; or a one-year extension of the 2008 law. The Senate has already passed its version of a new farm bill but the House’s version never came up for a floor vote.

(For complete coverage of 2012 farm bill developments, click here).

There definitely will be a big shift from commodity programs to insurance programs, says Outlaw. “I firmly believe we’ll have limitations on insurance. It doesn’t make sense to limit the payout, but I fully expect the subsidies to be cut back. It’s a challenging time. My expectation is that they will put the farm bill within some other bill, and it’ll be done sometime after the election. I don’t see it dragging out too much farther,” he says.

The version of the farm bill approved by the House Committee on Agriculture offers choices to producers, and Outlaw believes the final legislation will have that feature.

Should be a choice

“I think there will be choice,” says Outlaw. “We work closely with the House, and it’s a No. 1 priority for them to give farmers a choice and let them pick what is best for them. I’ll think they’ll fight for that to the end, and that it’ll be in the final bill.”

Some producers will hate those choices, and some will embrace them, he says, but either way, there will be less of a safety net available to farmers.

“My concerns as a policy educator is that we have to come up with a good decision aid for producers,” says Outlaw. “I think the safety net will be substantially less. They’ll put more money in crop insurance, but crop insurance is risk-based, and if you don’t have problems you won’t get paid. Regardless of what happens, there will be less of a safety net for producers going forward. It’ll all be about money and getting the final votes to get this bill done.”

It’s a tough time, he says, to get things done in Washington, D.C., especially when it comes to deciding which elements of the farm bill take the largest cuts.

“To get more of the Tea Party House members on board, you need to make the nutrition program smaller, but then you lose people from the Democratic side if you take too much. Ultimately, I think they’ll take more money from commodity programs, says Outlaw.

For those who work with decision aids and education for producers, there’s a lot to do, he says. “It’s not going to be easy for producers to decide which farm program to sign up for. As an Extension community, we have to come together to develop decision aids.”

As far as farm bills beyond the one currently being debated, Outlaw isn’t very optimistic. “In the world of Washington and the sequestration, broader cuts are coming. In the next farm bill, I believe crop insurance will be the only safety net. I don’t see the political will there to fight for it.”

A recent report from an international organization stated that the amount of spending on farm programs in developed countries throughout the world is going down, and that’s a trend that’ll probably continue, says Keith Coble, Mississippi State University Extension economist.

“This is where we’re at, to a large extent,” said Coble at the outlook conference. “We’re likely going to be spending less on farm programs 10 years from now than we are today. That’s the trend we’re currently seeing.”

Biggest change in recent years

The biggest farm policy change in recent years, he says, has been the Renewable Fuels Standard (RFS), and it’s not even in the farm bill. “If it didn’t exist, the dynamics of this debate would be changed. It’s genius, in some respect, that the corn industry got support that doesn’t cost the budget anything,” says Coble.

Farm bill discussions are centering only on so-called “shallow-loss” programs as a substitute for the direct payment, he says. A decade ago, everyone was concerned about the WTO, but now no one cares because we’re spending less, he adds.

“The cynical side of me says we can’t defend direct payments that are not risk-related to the general public. So we’ll try to develop a program that pays every other year rather than every year. The idea was to find a way to pay out the direct payments, with a reduction, two and a half times over a five-year farm bill. It’ll work out something like that.

“People should recognize that with most of these shallow-loss programs, the best guess is that you’ll get a payment two years out of five, but it could be one year out of five over the course of the farm bill,” he says.

The process involves layering programs on top of crop insurance, says Coble.

“We’ve got shallow-loss programs that are FSA-delivered and shallow-loss programs that are crop insurance-delivered. We used to have a situation where commodity programs were price-triggered, commodity programs were yield-triggered, and we’d add on disaster payments. We kept those separate. Now, we’ve got revenue programs that look almost identical except one is delivered by FSA and one is delivered by the crop insurance industry. One is free while one has a rate, though it may be highly subsidized.”

Crop insurance programs currently don’t have payment limitations, he says, and FSA programs do have payment limitations, along with conservation compliance. That will bear watching as the debate continues, says Coble.

Southern participation in crop insurance traditionally has been low, he says. “It has been somewhat of a teachable moment in our state in the last couple of years. Producers in Mississippi have started paying attention to this program. A decade ago, there was a lot of misinformation and ambivalence, but now there’s a renewed interest.”

Producers need to remember that there is a range and premium associated with crop insurance, says Coble.

“They took the program from the Midwest, brought it to the South, and the parameters weren’t right. They’ve spent a lot of time in the past several years trying to fix some of these things, and I think they’ve gotten better, but how much better is still a question,” he says.

Coble agrees with Outlaw that educators will have a key role in a new farm bill.

“We’ve talked to people about programs and decision aids — we did it with ACRE and SURE. Those programs were just too complicated to understand, and some of the programs in these farm bill proposals are too complicated.

“Most of these shallow-loss programs are county-triggered, and farmers don’t have a good grasp of the probability of the county triggering at the time they need to trigger and at the amount they need to trigger. We need to start talking to people about the fundamentals of risk.”

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