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What do farmers want?

By JERRY HAGSTROM

While House Agriculture Committee Chairman Frank Lucas, R-Okla., and ranking member Collin Peterson, D-Minn., travel this week listening to farmers in preparation for markup of a farm bill sometime in June, a close reading of testimony delivered before a House Agriculture subcommittee last week reveals that farmers are divided commodity by commodity and region by region.

On Tuesday Lucas visited Western Growers, the nation’s largest association of fruit, vegetable and tree nut producers, in Irvine, Calif. and is now back in Oklahoma. Peterson has scheduled farm bill meetings in Crookston, Hallock, Fergus Falls, Melrose, Pipestone and Olivia, Minn.

A wide range of economists, farmers and lobbyists testified last Wednesday and Thursday before the House Agriculture General Farm Commodities and Risk Management Subcommittee. It is clear from the the arguments presented that lawmakers would have a long list of small farm bill refinements if they were to address all the issues that concern producers.

The testimony before the House Ag subcommittee demonstrated that even farm economists are split by region on whether farm subsidies should be triggered by revenue reductions or target prices.

And two of the country’s largest national farm groups — the American Farm Bureau Federation and the National Farmers Union — are not satisfied with either approach, preferring to support their own proposals that both Senate and House lawmakers have rejected.

Northern commodity groups led by corn and soybeans support the Senate farm bill’s Average Risk Coverage (ARC) proposal that would make payments to farmers to reimburse some financial losses not covered by crop insurance.

In contrast, Southern commodity groups led by rice and peanuts believe that the Average Risk Coverage proposal is inadequate and will not work for them and that a target price and countercyclical payment approach would be better.

The first hearing started off with testimony from economists that reflected the preferences in the sections of the country in which they teach.
Gary Schnitkey

Gary Schnitkey
Gary Schnitkey, a professor in the Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign, said that a revenue coverage program — like the ARC proposal in the Senate bill — “that bases its payments on revenue can provide effective coverage that will mitigate risk."

“Designed properly,” he commented, “these programs can complement protection by crop insurance and result in expenditures roughly proportional to crop value.”

But Schnitkey’s testimony also revealed why the Senate proposal has become so controversial among commodity groups, particularly those in the South.

Spending would become different, said Schnitkey, because the current direct payment rates are different from proposed ARC rates. Direct payments allowed in the 2008 farm bill were made on historic, base acres, whereas the ARC program, as it now stands, would make payments based on current planted acres.

Spending changes could be dramatic, with only soybeans showing an increase, based on Congressional Budget Office estimates, Schnitkey said:
  • Corn spending would decrease by 29 percent
  • Soybeans would increase 17 percent
  • Wheat would decrease by 64 percent
  • Upland cotton would decrease by 48 percent
  • Rice would decrease by 75 percent
  • Peanuts would decrease by 31 percent.

The CBO sent a letter and estimates to Senate Agriculture Committee Chairman Debbie Stabenow in late April.

The number of acres now planted to corn and soybeans is higher than in the past, with soybean-planted acres 53 percent higher than base acres—while wheat, cotton, rice and peanuts are projected to have lower planted acres compared to base acres, leading to lower payments.

Citing the CBO data, Schnitkey pointed out that there are differences in average direct payment rates per acre compared to projected per-acre spending under the ARC program.

Corn has an average direct payment rate of $23 per acre, soybeans of $11 per acre, wheat of $14 per acre, cotton of $32 per acre, rice of $95 per acre, and peanuts of $54 per acre. Comparing the new program to the old, rice loses $60 per acre, wheat loses $6 per acre, corn loses $5 per acre while soybeans, cotton, and peanuts have roughly the same spending per acre.

Under questioning from Peterson, Schnitkey acknowledged that if prices were low over time, benefits under the ARC program would diminish. But he also said that the use of a five-year Olympic average as the base would protect farmers from some declines. He believes cash rents would also go down if prices go down.

Joe Outlaw

Joe Outlaw
Joe Outlaw, of the Agricultural and Food Policy Center at Texas A&M University, emphasized in his testimony that the safety net should provide assistance when farmers need it. He believes a program based on payments when prices drop would do a better job of that.

Outlaw said he does not believe that the target prices in the proposal sent to the supercommittee on deficit reduction last December would skew planting decisions.

“In reality, a reference price will not drive planting decisions if the reference price is set below the cost of production, especially with the relatively high current prices,” Outlaw said.

He acknowledged that the target price program in the 1990s affected planting decisions but added he viewed the cause as being the use of base acres rather than planted acres.

Outlaw also said that the ARC program would “enable some commodities to nearly lock in a profit (for at least a few years) because ARC uses market prices in the revenue benchmark that are near their all-time high.”

Corn, soybeans, wheat and grain sorghum are projected to have five-year Olympic average prices that are above 2011 production costs, he noted.

Bob Stallman

Bob Stallman
American Farm Bureau Federation President Bob Stallman said the Senate proposal “addresses many of our priorities.” However, the Farm Bureau does not believe the Senate bill “provides equity across all commodities,” he said.

Stallman said his group is concerned ARC “does not ensure a true ‘planted acres’ approach and may effectively recreate the ‘base acres’ issues that have given rise to equity and planting distortion concerns.”

The Farm Bureau, Stallman said, is concerned that covering losses up to 90 percent could lead to fraud and abuse while, by contrast, low-level loss coverage “could be managed through the normal course of business.”

Stallman noted that farm program designs that incorporate a moving average guarantee for revenue or price and proposals for fixed support prices have been recently criticized. He noted that Farm Bureau would not support target prices because, “we have seen too many times in the past when fixed support prices discouraged adjustments to production that would have allowed markets to recover and instead contributed to chronically low market prices.”

Stallman said that Farm Bureau’s deep loss proposal “would not provide producers with payments as often as other proposals contemplated, it would provide more coverage in times of catastrophic losses when assistance is most critical.”

Roger Johnson

Roger Johnson
National Farmers Union President Roger Johnson took a very different approach.

Johnson testified that the bill passed by the Senate Agriculture Committee “contained a number of positive aspects, but one thing that it did not include was a way to deal with a long-term commodity price collapse.”

Johnson said the farm bill should include a program such as the Market-Driven Inventory System, a Farmers Union proposal which utilizes a system of farmer-owned commodity inventories, loan rates, and other policy tools to accomplish this goal.

“Alternatively, increased and balanced target prices can be designed to cushion the impact of very low commodity prices, although this approach is likely to cost more,” Johnson said.

Texas wheat and corn farmer Dee Vaughan, who is president of the Southwest Council of Agribusiness, pointed out that rice and peanut farmers have higher direct payments than those who farm the commodities he grows.

The council, which has members in Texas, New Mexico, Oklahoma, Colorado, and Kansas, wants legislators to recognize that since rice and peanut farmers have higher direct payments than corn and wheat farmers, this has affected the value of those farms, Vaughan added.

The situation, he said, “is simply reality and it should be taken into account in crafting the next farm bill.”