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Agricultural Policy Highlights and Lowlights

Agricultural Policy Highlights and Lowlights

There have definitely been some interesting moves on the farm policy front since the first land grant universities were founded.

1862: Honest Abe (Abraham Lincoln) helped usher in the first land grant universities, established the USDA and implemented the Homestead Act and gave us the many 160 acre parcels that helped farmers get their start.

1916-1922: Federal government established agricultural credit programs, began to regulate agricultural marketing and supported agricultural cooperatives.

1920s: Congress and the president gave the agriculture industry a big "no" in cries for support after the collapse of farm prices after World War 1. Aggies haven't taken an astounding "no" from Congress since.

1930s: The first 100 days of the New Deal established the main commodity programs of the United States. The Agricultural Adjustment Act (AAA) of 1933 created supply controls, price supports and income supports to attempt to correct for the collapse of commodity prices and farm incomes. It faced a Supreme Court challenge at the time, and had to be dealt with in 1935 and again in 1938 to fix the constitutionality issues. If you like crop insurance, it actually has been around since the 1938 AAA. The first mandatory price supports were also added at this time.

1940s: Despite the massive government intervention, it took World War II to bring cash farm income back to the (already depressed) 1929 level. The Agricultural Act of 1949, along with the AAA of 1938, remains the "permanent" farm legislation. If Congress fails to pass new legislation before the 2008 Act expires, provisions revert back to the 1949 legislation.

1950s: A debate about the level of farm price support and surpluses heats up. In 1954, the Agricultural Act re-establishes flexible price supports and authorizes commodity set-asides. Rural development also begins to take on new emphasis.

1960s: By 1960 about 60 million acres were idled under annual commodity program set-asides or diversions and several million acres were idled under long-term land bank programs. This decade we started to use our surpluses to feed the hungry at home and abroad. It brought the first Food Stamp Act and attention to child nutritional needs.

1970s: The commodity price boom of the early 1970s and again in the late 1970s eliminated government stocks and allowed a brief period of low stocks and full production. One mishap of farm policy occurred during the Ford Administration when disaster payments were given if a piece of land was farmed for a couple of years, but had a bad crop. The program was expected to cost $350-$400 million over the life of the farm bill, but instead cost $300 million in the first year. Poor land was bought for $50-$100 in Colorado for example, after two miserable wheat crops, the disaster payment base was set and it could be sold for $300-$400/acre.

1980s: When prices collapsed again in the early 1980s, massive stock accumulation, deficiency payments, export subsidies, and land idling again took hold. Some analysts blamed price supports outpacing inflation for triggering massive stocks accumulations. Some of the first major reforms came in the Food Security Act in 1985 which lowered government farm supports. The 1985 Act reduced price supports and created discretion in applications of price supports, which slowed the accumulation of government stocks. Marketing loans, introduced for rice and cotton, specified that farmers repay loans at low market-based prices rather than forfeit the crop to the government. The 1985 Act relaxed planting requirements as a condition for government payments. These moves helped allow farmers better respond to markets and improved the export competitiveness of U.S. commodity producers. The Conservation Reserve Program was also introduced in 1985 with 30 million acres. The 1985 bill also introduce conservation compliance, which linked eligibility for payments to meeting conservation goals.

1990: The Food, Agriculture, Conservation, and Trade Act of 1990, and the Omnibus Reconciliation Act that accompanied it, continued the policy path established in 1985. Budget and policy concerns led to lower payments, lower price supports, and more planting flexibility. The 1990 legislation mandated marketing loans for oilseeds and reauthorized marketing loans for wheat and feed grains. When implemented in 1993, the marketing loans for these crops had no significant budget impact because crop prices were well above the loan rates. But this whet the appetite for more, even when prices were higher.

1996: In an era of high prices in 1995-96, reform was ripe. Although reported as a phase-out of farm programs, the 1996 Farm Bill consolidated and reinforced changes in crop programs by further moderating planting requirements, eliminating price supports and government stockpiles of program crops, and eliminating annual land set-asides. It also brought a new cost share program for environmental improvements, the Environmental Quality Improvement Program (EQIP). From 1999 through 2001, the contracted direct payments were doubled to offset low program crop prices. As a consequence of low prices, which caused marketing loan benefits to kick in as well, commodity subsidies jumped from about $4.6 billion in fiscal year 1996 to $19.2 billion in fiscal year 1999 and to $32.2 billion in fiscal year 2000.

2002: Failed promises of the 1996 reform and the latest World Trade Organization round, paired with low farm prices and budget surpluses set the stage for more government help for farmers. The 2002 Farm Bill created the new countercyclical program payments, which are tied to specific crop prices. In a further reversal of the spirit of the 1995 bill, the latest installment extended direct and countercyclical payments to additional crops, including soybeans and other oilseeds. Finally, the 2002 version allowed producers to update their historical acreage and yield information used for the direct and countercyclical payments.

2008: Despite tight budgetary times, the ag industry was able to find an additional $10 billion over baseline spending for the 2008 Farm Bill. The crop insurance program was rolled into the bill as its income generated for the government helped offset other increases. Direct payments were staunchly defended and remained. High price scenarios left countercyclical payments in the picture, but unlikely to matter. Two new programs piloted - Average Revenue Crop Election  (ACRE) program and the Supplemental Revenue Assistance Payments (SURE) - were designed to help eliminate the need for disaster payments and improve risk protection. ACRE participation has been less than notable.

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