ACRE author Zulauf: Interest rates, ethanol future and China pose systemic risks
March 07, 2011 | 12:06 PM
By JERRY HAGSTROM
TAMPA , Fla. — American agriculture faces more systemic risk than at any time since the 1970s, according to Carl Zulauf, an Ohio State University agriculture professor.
Zulauf, considered the author of the average crop revenue election program known as ACRE, said that agriculture is threatened by rising interest rates, by questions about the future of ethanol, and by the rising importance of China as an importer of U.S. agricultural products. Those risks are considered systemic because they would affect all of agriculture and are influenced by large factors outside agriculture, he said.
In a presentation here Saturday to corn, soybean, wheat and sorghum growers gathered for their annual Commodity Classic meetings, Zulauf said that interest rates, which have been low, could rise as the economy improves. He also noted that ethanol is dependent on government policy that could change and that most of the increase in agricultural exports has been going to China.
“You are tied at the hip to China,” Zulauf said. “If China catches a cold you will catch pneumonia.”
The question for the 2012 farm bill, he said, is “How do we address these systemic risks?”
But the difficulty in making improvements in the 2012 farm bill, Zulauf said, is the budget. “If you are going to come forward with a proposal for this farm bill, you’re going to have to bring money with you.”
The ACRE program that he authored could be changed to address farmers’ complaints, but improving it would not be easy, he said.
ACRE pays farmers when revenue from a crop within a state goes down, and is an alternative to the traditional program that pays farmers when the price goes down. Farmers have the option of signing up for ACRE for the remainder of the 2008 farm bill that expires in 2012. A relatively small number of farmers have been attracted to ACRE. Many are interested in it, but say that the trigger should be on a level smaller than a state. Farmers have also complained that the process of deciding whether to sign up for ACRE and signing up for it is complex.
Zulauf said it would be possible to simplify the ACRE program, but noted Congress introduced the complexity to save money.
Some farmers would like payments to be triggered by decline in revenue for a commodity within a county.
“The closer you to go the farm, the more you compete with crop insurance,” Zulauf said in response. He also noted that a county trigger could discourage farmers from complying with some conservation practices. And, he added, there’s the question of whether USDA has good quality data on crop revenue a the county level. In order to improve the data, Congress would have to provide the National Agricultural Statistics Service with more money to collect it.
One possible source of money is the direct payments that crop farmer get whether prices are high or low.
Zulauf said the question he hates answering the most is, “Why are we paying $5 billion to farmers when they have record income?”
Requiring farmers to show a loss before qualifying for direct payments could save $1 billion to $2.5 billion per year, Zulauf said, although he noted he does not have an economic model to figure that out. He said requiring a loss would make the direct payments function more like the permanent disaster program known as SURE.
TAMPA , Fla. — American agriculture faces more systemic risk than at any time since the 1970s, according to Carl Zulauf, an Ohio State University agriculture professor.
Zulauf, considered the author of the average crop revenue election program known as ACRE, said that agriculture is threatened by rising interest rates, by questions about the future of ethanol, and by the rising importance of China as an importer of U.S. agricultural products. Those risks are considered systemic because they would affect all of agriculture and are influenced by large factors outside agriculture, he said.
In a presentation here Saturday to corn, soybean, wheat and sorghum growers gathered for their annual Commodity Classic meetings, Zulauf said that interest rates, which have been low, could rise as the economy improves. He also noted that ethanol is dependent on government policy that could change and that most of the increase in agricultural exports has been going to China.
“You are tied at the hip to China,” Zulauf said. “If China catches a cold you will catch pneumonia.”
The question for the 2012 farm bill, he said, is “How do we address these systemic risks?”
But the difficulty in making improvements in the 2012 farm bill, Zulauf said, is the budget. “If you are going to come forward with a proposal for this farm bill, you’re going to have to bring money with you.”
The ACRE program that he authored could be changed to address farmers’ complaints, but improving it would not be easy, he said.
ACRE pays farmers when revenue from a crop within a state goes down, and is an alternative to the traditional program that pays farmers when the price goes down. Farmers have the option of signing up for ACRE for the remainder of the 2008 farm bill that expires in 2012. A relatively small number of farmers have been attracted to ACRE. Many are interested in it, but say that the trigger should be on a level smaller than a state. Farmers have also complained that the process of deciding whether to sign up for ACRE and signing up for it is complex.
Zulauf said it would be possible to simplify the ACRE program, but noted Congress introduced the complexity to save money.
Some farmers would like payments to be triggered by decline in revenue for a commodity within a county.
“The closer you to go the farm, the more you compete with crop insurance,” Zulauf said in response. He also noted that a county trigger could discourage farmers from complying with some conservation practices. And, he added, there’s the question of whether USDA has good quality data on crop revenue a the county level. In order to improve the data, Congress would have to provide the National Agricultural Statistics Service with more money to collect it.
One possible source of money is the direct payments that crop farmer get whether prices are high or low.
Zulauf said the question he hates answering the most is, “Why are we paying $5 billion to farmers when they have record income?”
Requiring farmers to show a loss before qualifying for direct payments could save $1 billion to $2.5 billion per year, Zulauf said, although he noted he does not have an economic model to figure that out. He said requiring a loss would make the direct payments function more like the permanent disaster program known as SURE.
