The Farm Security and Rural Investment Act of 2002 2002 Farm Bill Education Conference Kansas City, Missouri May 20-21, 2002 Gary Adams Scott Brown University of Missouri University of Missouri

Recent Analysis by FAPRI FAPRI has conducted an analysis of the impacts of the Farm Security and Rural Investment Act (FSRIA) of 2002. Incorporates only provisions from Titles I and II. As with earlier analysis, effects are measured relative to a baseline set of projections prepared in early 2001. Over the next few weeks, FAPRI intends to conduct an updated analysis of the bill that will incorporate more current market information.

Methodology of the Analysis FAPRI has analyzed the impacts of the new bill in “stochastic framework” By that, we mean that both the FAIR Act and the new bill have been analyzed under 500 possible outcomes for the future. Each of the possible “futures” incorporates variability for key exogenous variables. The variability is based on observed historical distributions and correlations. Results address how the bills compare at the mean but also can look at the distribution of outcomes for key indicators.

Changes to the Dairy Program Makes permanent $9.90/cwt Milk Price Support Program Establishes a 3 year 10 month National Dairy Program Federal payment each month equal to 45 percent of the difference between $16.94/cwt and the Boston Class I price. Payments are made on up to 2.4 million pounds of production for a producer annually (Roughly 125 cows). Revenue effects combination of payments and price declines Structure of dairy industry determines how individual states will fare.

Eligible Milk Production, by State U.S. Milk Production Eligible – 58%

U.S. Milk Revenue under FSRIA, 2002-2005 Milk Price Baseline FSRIA $13.27 $13.00 $0.52 = $0.89 *58% $12.75

CDF of 2003 Dairy Payment Rate

Updating Crop Base Acreage & Yields Estimates are based on county data. Decision to update based on expected program benefits where each county is treated as a farm.

Estimates for Base Acreage & Program Yields 2002 AMTA FSRIA Base Fixed Payment Yields CCP Yields Million Acres Units per Acre Wheat 78.4 74.8 34.6 36.3 Corn 81.4 79.8 102.9 118.3 Sorghum 13.5 12.4 57.0 59.2 Barley 11.1 10.1 47.4 49.0 Oats 6.7 5.2 50.1 51.1 Cotton 16.4 17.2 610.6 627.6 Rice 4.2 48.1 52.3 Soybeans NA 64.1 32.5 37.1 Sunflowers 1.6 11.0 13.4 Total 211.7 269.4

Structure of Crop Payments Target Price Not Tied To Prod Fixed Payment Counter-Cyclical Payment Loan Rate Loan Deficiency Payment Prod Req.

Distribution of the Increase in Crop Payments

Impacts on Planted Area and Prices (Preliminary FAPRI estimates) 2003 Area change from baseline 2003 Price change from baseline Corn +1.15 mil acres -$0.06/bu. Soybeans -1.17 mil acres +$0.08/bu. Wheat +1.10 mil acres -$0.05/bu. Cotton +0.10 mil acres -0.3 cents/lb. 9-crop total +1.96 mil acres

Impacts on Crop Returns (Preliminary FAPRI estimates) Additional payments increase the returns for all crops. For this year’s crop, the increases range from 5% to 15% above the FAIR Act. 2002 Crop (Change from Baseline) Wheat $/bu 0.48 Corn 0.22 Soybeans 0.30 Cotton $/lb 0.09 Rice $/cwt 1.13 Sorghum 0.35 Barley 0.18 Oats

Distribution of 2002 Corn Gross Returns, Market + Gov’t Payments

Impacts on Government Costs (Change from Baseline, Fiscal Yr)

Impacts on Net Farm Income (Change from Baseline, Calendar Yr)

Effects on Government Costs and Net Farm Income

Distribution of FY03 Gov’t Outlays

WTO De Minimis Rules For the U.S., a five percent rule is applied for de minimis. For product-specific support, like loan gains, payments are compared to 5% of the value of production for the product. For non-product-specific support, like Counter Cyclical Payments and Crop Insurance, support compared to 5% of the total value of U.S. ag. production

De minimis exemption for Historical Example Year Value of U.S. Ag. De minimis exemption for non-spec. support ($ billion) 1996 218 10.9 1997 216 10.8 1998 191 9.5 1999

AMS and the New Farm Bill

Dairy price support Dairy Pmnts Sugar

WTO Compliance of the New Farm Bill Given trend yield and price projections, the new farm bill is projected to be compliant with domestic support limitations FAPRI analysis of the new farm bill put the probability of exceeding the WTO limit in the 2002 marketing year at 19.3% For this analysis, the counter-cyclical program has been classified as an non-commodity-specific amber box program

Final Thoughts Big increase in spending vs. current law, but not vs. actual spending of last 4 years Marginal impacts on production and prices relative to the FAIR Act Currently, we are in the process of updating projections incorporating the new bill and recent market information