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2007 Farm Bill Preview Panel

 

Opening Statement

 

John Dittrich

 Senior Policy Analyst

American Corn Growers Association

 

 

Nebraska Farmers Union

Annual Convention

 

 December 9, 2005

 

 

 

Grand Island, Nebraska

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Good afternoon everyone.  It’s a pleasure to be here at our Nebraska Farmers Union annual convention once again. It’s also an honor to be on this panel with two great representatives of National Farmers Union.  Tom Buis and John Stencel have never lost sight of whom they represent, those of us in production agriculture.

 

The panel today is titled “Preview of the 2007 Farm Bill”.  I surely do not know at this point what the future holds for us, though I can and will conjecture. 

 

I do know that based on the facts, current policy is failing US agriculture.  I do know that current US leadership on global agricultural issues is contributing to the pain and turmoil currently felt by farmers in both industrialized and developing countries, though not for the reasons some strident critics of US farm policy articulate.

 

Finally, I do know that the US has the leadership ability to pursue and implement domestic and international agricultural policies that will be a win for US agriculture and at the same time will alleviate the pain and turmoil felt by production agriculture outside our borders.

 

Our time is short today for our panel.  In order to stimulate discussion and dialogue between the panelists and our audience, I would like to quickly summarize my thoughts around three primary areas.  These are:

 

  1. A review of the failings and successes of current US farm policy.
  2. A review of the current prevailing views of our next farm bill, from both supporters and critics of our current farm bill.
  3. A review of what the next farm bill could be, if the terms of debate are changed.

 

Failures and Successes of Current US Farm Policy

 

I have lived through the 1985, 1990, 1996, and 2002 farm bills as an analyst, advocate and farmer.  Therefore, I clearly remember the positive outcomes supporters of these farm bills claimed as they pursued a 20-year progression away from traditional farm programs, culminating in the subsidy driven policies of today.  These outcomes included:

 

  1. Increased US farm exports.
  2. A decreased government presence in agriculture.
  3. Decreased government spending on agriculture.
  4. Increased farm and rural income.
  5. Increased flexibility in planting decisions made by farmers.

 

While the 2002 farm bill made some significant improvements to the 1996 farm bill, current policy clearly receives a failing grade.  Farm export volume in the major export commodities has remained static or has fallen since the early 1980’s.   Most tellingly, our agricultural balance of trade is predicted to be only three billion dollars this year, down from an inflation adjusted average trade surplus of over 40 billion dollars during the years 1980 to 1984.

 

Producers of the major commodities are now more dependent on extraordinarily complex farm programs than they have ever been.  This year farm program spending is projected top 22 billion dollars, and could possibly be much more.  I believe the national average government payments per acre for corn farmers could top $100 per acre for the 2005 crop. Amazingly, for each farmer, these payments will be based on three different yields, and three different subsidy levels. In comparison, from 1980 to 1984, corn farmers received approximately $20 per acre in inflation adjusted government payments, and from 1975 to 1979 received approximately $1.00 per acre.

 

In the area of farm and rural income, we are clearly worse off.  In spite of government payments just described, the gross income per pound or bushel from government payment and farm price will be below the national average cost of production in 2005, and the situation will worsen again in 2006 due to increased costs associated with energy.  Total per bushel or pound income support, the “safety net” has declined or remained unchanged each year since 1985 in spite of huge increases in production costs since that time.

 

Only in the area of planting flexibility would I give current policy a passing grade.  We have indeed achieved broad planting flexibility. However, while farmers can and do make shifts of crop mixtures, total production of basic commodities are not falling in response to market signals.  In spite of low prices and declining and often non-existent net incomes, planted acreage in the US has not fallen.  And in spite of severe drought in the east in 2005, we raised the second largest corn crop in history and burdensome surpluses continue unabated.

 

Yet in spite of the obvious failures of the policy direction we have taken, there is little call for a general rethinking of policy.  Supporters of current farm programs have a “stay the course” mentality, while some critics of current US farm policy simply cry for a gutting of all farm programs in the US and the EU, with no suggestions for alternative policy.

 

In general, it is my opinion that supporters, and many critics, of the status quo have for too long received faulty, unbalanced, and incomplete analysis or “intelligence” about how agriculture has actually responded to our 20-year experiment in US farm and trade policy, and how global agriculture is likely to respond to elimination or reduction of subsidies.

 

 

Prevailing Views of the Next Farm Bill, Supporters and Critics

 

Clearly, the 2007 farm bill will be determined by US and global politics, and the status of WTO trade negotiations.

 

However, without a rethinking of the complete basis of current policy, the 2007 farm bill debate will revolve around supporters of the status quo, the reality of exploding federal budget deficits, WTO rules, and criticism of US farm programs by developing country interests and allied extreme deregulation ideologues.

 

With the current political leadership, the likely final outcome evolving from the interaction of these conflicting forces is a 2007 farm bill much like the 2002 farm bill, but with subsidy levels reduced.  The reduced subsidy level will partially satisfy critics of our farm bill, and satisfy US trade negotiators, who have already offered a 60% reduction in US subsidy levels. 

 

However, these reduced subsidy levels are likely to have little or any impact on US commodity production.  Therefore, farm prices will remain extremely low in most years. 

 

According to a recent report by Daniel Sumner, the director of the University of California Agricultural Issues Center, US subsidies depress, world corn, wheat and rice prices by 4 to 10%.  Mr. Sumner, who interestingly worked as a consultant for the Brazilian government when challenging US cotton subsidies, therefore optimistically insinuates that world prices would rise 4 to 10% if all subsidies were eliminated. 

 

The 2003 University of Tennessee report “Rethinking US Agricultural Policy” documents modeling of the complete elimination of developed country subsidies by the International Food Policy Research Institute.  Their modeling under this total subsidy elimination scenario projected a 1% to 3% increase in global commodity prices over baseline, after 20 years!

 

Do development agencies like Oxfam International seriously believe that a 1% to 10% increase in world commodity prices from their current disastrously low levels will have any significant impact on poor farmers in developing countries?  Do US trade negotiators believe that a 1% to 10% increase in US farm prices will make up for the elimination of subsidies?

 

Clearly, if the prevailing view of the next farm bill materializes, there will be few winners in developing or industrialized countries.

 

What The Next Farm Bill Could Be

 

If we are to see positive change in US farm policy, the terms of the debate must be changed, and a rethinking of our current agricultural policies must occur.

 

Policy makers worldwide must come to grips with the uniqueness of food and agricultural production.  Food is a daily necessity, and unforeseen disruptions in any countries’ food supply cannot be tolerated. Supply and demand for food is extremely inelastic.  Therefore, without policy intervention, it is extremely difficult for market forces alone to balance supply and demand in a manner that brings profitable farm prices to producers.  Producers are at a natural disadvantage to buyers, because there are so many sellers, and so few buyers.

 

If policy makers were to come to grips with these realities, our next farm bill could and should be based on the following core principles:

 

  1. Price and income support should be provided in a simplified manner to producers, with heavy emphasis on market price support rather than subsidy.  Income support should be targeted to family producers.
  2. Supply regulating mechanisms should be part of a price support system, but supply regulating initiatives should be designed to substitute renewable energy production for commodity production in lieu of land setasides.
  3.  Free stocks management provisions should be provided that allow producers to voluntarily withhold burdensome free stocks from the market in times of oversupply, while maintaining adequate emergency commodity reserves for consumers and the renewable energy industries.
  4. A strong competition title should be instituted, which promotes healthy and new competition in the agricultural marketplace.  This will enhance the functioning of the farm bill, and will allow market forces to be of greater benefit to producers and consumers.
  5. A livestock title should be included, which provides specific non-subsidy benefits to family livestock producers. These measures should encourage disbursed and decentralized livestock production and processing.
  6. Conservation measures that provide incentives for producers to practice good conservation should be instituted or enhanced.  These measures should complement the renewable energy and supply regulating provisions of the farm bill.
  7. The US farm bill should become a vehicle for new international trade negotiations in agriculture, which are separate and distinct from non-agricultural negotiations. Such negotiations should be focused on international cooperation that lifts living standards for poor farmers in developing countries, while maintaining healthy family farm production in the industrialized nations. 

 

The framework of such a farm bill lies embedded within the policy statements of the American Corn Growers Association, National Farmers Union, the Organization for Competitive Markets, and the many other grassroots organizations that truly represent producers.

 

Independent academics from across the country must be enlisted to help in designing and analyzing the framework of such a farm bill.  The groundwork for such a farm bill has been laid in the University of Tennessee’s research report “Rethinking US Agricultural Policy, Changing Course to Secure Farmer Livelihoods worldwide”. 

 

In order for such a farm bill to become reality, balanced and objective analysis of past farm policy must percolate through Congress. Optimistic projections made in the past must be compared to actual results. Analysts and government agencies whose projections have consistently proven to be wrong must be held accountable, and their future performance be held suspect. Analysis that has been tainted by conflicts of interest must be identified. 

 

In summary, Congress must solicit and receive new, balanced analysis and intelligence regarding global farm and food policy. 

 

Developing country advocates such as Oxfam must pursue the same balanced analysis and intelligence, and pay more attention to analysis that has already been provided by their own research initiatives.  They must modify their simplistic call for the simple elimination of subsidies, and provide thoughtful proposals that do not divide farmers worldwide, but bind them together to achieve global gains for all.  Farmers in both developing and developed countries should reject simplistic calls for subsidy elimination that do not provide policy alternatives that recognize the uniqueness of food and agricultural production.

 

If these things occur, and the terms of debate are changed, then it is possible to begin incremental steps toward a new direction in our next farm bill.  It is critical that this occur, because it is clear our next farm bill has deep implications for not only US farmers, but for US foreign policy goals, US and global energy concerns, and US and global food security.