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Proposed farm bill would hit Arkansas hard

While it’s true that Southern row-crop farmers are likely to find USDA head Mike Johanns’ farm bill proposal unpalatable, the fight is hardly over. Johanns won’t author the final draft, Eric Wailes reminded rice farmers at the Arkansas Rice Conference in Wynne, Ark.

“I view the USDA proposal as a kind of straw man,” said the University of Arkansas economist and professor. “For one thing, the USDA and Bush administration won’t be writing the new farm bill.”

However, the Bush administration has put together a comprehensive proposal with “some interesting ideas.”

Johanns claims he wants a farm bill that will be equitable, predictable and beyond challenge (for more, see He wants to move to a market-based loan rate with a maximum of the 2002 loan rate for an 85 percent moving average of market prices. He wants to increase direct payments in out years. And he wants to move to a revenue-based counter-cyclical payment program off the target price and yields based on national averages.

“From my perspective, a number of these things will have fairly significant impacts on Arkansas rice producers. One that will be very painful is what’s being proposed for payment limits. They want to lower and redefine the eligibility gaps and eliminate the three-entity rule. They also want to increase caps for direct payments and lower market and loan benefits along with counter-cyclical caps.”

Among the farm bill drivers Wailes envisions are the “three Ds”:

• Deficits

• Doha Round/trade reform

• Democrats

“Becoming pretty clear from the majority and minority parties is a strong interest to maintain the 2002 farm bill. I believe both (House Agriculture Committee Chairman) Collin Peterson, D-Minn., and (Senate Agriculture Committee Chairman) Tom Harkin, D-Iowa, are pretty consistently saying, ‘modifications will be needed, but we’ll keep the (2002 farm bill) framework intact.’”

However, this bill writing exercise is much different than what Congress faced in 2002. “Back then, we had budget surpluses. In 2007, we have significant deficits. We have also gone through a set of issues regarding the Doha round and trade reform.”

Other policy drivers are the “three Es”:

• Energy. Bio-fuels have created a new dynamic, a new baseline agricultural economy.

• Equity. “U.S. fruit and vegetable producers are now stepping up wanting a place in the debate of farm bill funding. So there’s a new issue of equity the congressional committees are facing.”

• Environment. Harkin has a “particular bent toward looking at the environmental programs. He was the author of the Conservation Security Program, so there’s (a history) with what will come from his committee.”

What does having new congressional leadership mean? “It means we’ll be more likely to maintain the existing framework and less likely to respond to the Bush administration’s proposal. But I believe the farm bill will be for five or six years rather than a one-year extension.”

As mentioned earlier, a very different fiscal environment exists now than when the last farm bill was crafted in 2002.

“The CBO (Congressional Budget Office), in its August baseline projections, shows the status quo is moving out of the deficit position. Still, over its 10-year projection, there’s a $1.8 trillion deficit.”

However, warned Wailes, that estimate excludes a number of things including the cost of wars in Afghanistan and Iraq, extensions of tax cuts and changes in the alternative minimum tax. Those things average “about $500 billion per year. That means writing the new farm bill will be a significant challenge because there’s less money available.”

In August 2006, the CBO projected the 10-year cost of the current farm bill would be $195 billion. That excluded the cost of the nutrition programs like school lunches and food stamps.

In March, the CBO will come out with a new baseline that will be used to score or determine what money is available to fund the 2007 farm bill.

“It will be interesting to see what the new CBO baseline looks like. We can guess the funding availability will be less than $19.5 billion. Primarily that’s because of improvements in the farm economy.”

On top of that, there are WTO considerations.

“The Brazilian cotton case hasn’t died or gone away. In fact, there will be a panel report out on it later this year. … The USDA did make reforms in eliminating Step 2, a big violation, according to panel findings. The panel is now following up in looking at price suppression effects from both marketing loans and counter-cyclical payments.”

And the WTO issues aren’t going away. “Depending on the rulings, Congress will have to deal with it as it writes the new farm bill. And there is renewed interest in the Doha Round as was recently (clear) at a ministerial meeting in Davos, Switzerland. It will be very difficult to reach an agreement before the expiration of the Trade Promotion Authority on July 1.”

Prospects for the Doha Round “aren’t bright. That doesn’t mean WTO won’t weigh on what’s written in the farm bill.”

What about growth in demand for agricultural products in biofuels? What might those demands mean for the policy framework in the new farm bill?

“Basically it means higher grain and oilseed prices. I spent the last two weeks working with colleagues from Iowa State University, the University of Missouri and the Food and Agriculture Policy Research Institute to develop baseline projections for the next decade.” (FAPRI is funded by Congress and used by it to evaluate farm bill proposals.)

The resulting baseline “has very strong price projections for corn (above $3) well above target prices and loan rates. It has soybean prices well above target prices and loan rates. It has relatively strong rice prices, as well.”

Getting to 13 billion-gallon ethanol production means the price environment and profitability of farming has changed.

“Some are talking about a new paradigm in agriculture. The shifting of grains and oilseeds to bioenergy means the baseline used by Congress to score the farm bill, to evaluate what money is needed, will be much lower because of higher market prices.

“Instead of that $195 billion for 10 years, Congress will have a much lower amount of money that marketing loans and counter-cyclical payments would have cost without the evolution of biofuels.”

Agriculture will also be expected to bear some responsibility in a budget reconciliation to deal with the deficit.

“That baseline, at a lower expenditure level, means there will be lower projected expenditures for commodity programs. That will make writing the new farm bill very complicated.”

There will be new players wanting a cut of the new farm bill. Commodity funds will be pressured to provide money for other titles including conservation, research and bioenergy.

“In the USDA farm bill proposal, there’s a shift of commodity program funds into these other titles. Congress will have to respond in like manner to that.”

Revenue insurance is “a major alternative that’s gained some traction in the farm bill debate. I don’t think that will lead to much, but it will be in the debate. What’s attractive about it is it isn’t product specific. It would be whole-farm revenue insurance, which is much more WTO compliant. It wouldn’t be subject solely to world price variability.”

Last summer, Wailes helped conduct a survey of about 400 Arkansas farmers. The findings showed “strong agreement across the state on bioenergy policy. (Producers) want production incentives and a reduction in dependency on non-renewable fuels.”

But there was disagreement found, as well.

“Crop producers are more supportive of the current program while livestock producers want to shift out of commodity funding. The (livestock sector) wants more funding on disasters, credit and risk management.”

There was strong agreement, however, on leaving payment limits alone.

“Some may think the USDA proposal is a good thing. But my sense is Arkansas would take a good hit. Just on the payment limits, Johanns said there would be a $1.5 billion savings. I can assure you that (the loss in) Arkansas’ payments would be a large part of that.”

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