Political Change & the Next Farm Bill Larry D. Sanders OCES Inservice Centra presentation 27 apr 2011 The purpose of this presentation is to consider how the next farm bill debate will unfold given the changes in Congress and the budget crisis.

US Budget Surplus/Deficit ($bil.) ? Now above 90% The federal budget deficit is at a record-level. The Dems and Repubs have proposed very different visions to resolve this situation. A review of national debt as a ratio of growth indicates we have been here before and have overcome the problems. Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html 2

Congressional Shuffle of Power… 111th Congress 112th Congress Senate 57 D 2 I 41 R House 255 D 148 R Senate 51 D 2 I 47 R House 193 D 242 R

Key Leadership Changes in House Speaker: Boehner (OH) Agriculture: Lucas (OK) Approp.: Rogers (KY) + Flake (AZ)* Energy: Upton (MI) Finance: Bachus (AL) Budget: Ryan (WI) Rules: Dreier (CA) Oversight/Govt Reform: Issa (CA) Judiciary: Smith (TX) Ways/Means: Camp (MI) The shift to the GOP in the House has brought a very different set of leaders. Speaker Boehner has never voted in favor of a farm bill. Many of the other leaders are supportive of sharp cuts in domestic programs, including ag programs. While Lucas also supports cuts, he wants the recent cuts to be considered.

2010 Midterm shuffle means changes for Ag Committees… 2009 – 2010 2011-2012 Senate Senate 12 D / 9 R 11 D / 10 R Lincoln (D-AR) Chambliss (R-GA) Stabenow, D-MI Roberts (R-KS House House 28 D / 18 R 26 R / 20 D Peterson (D-MN) Lucas (R-OK) Lucas (R-OK) Peterson (D-MN) Although the Senate remains in Dems’ leadership, there’s new leadership in the Senate Ag Committee in both the Chair and the Ranking Minority Roberts (KS). The House Ag Committee had a switch of chair & ranking leaders. Both work relatively well together. On the 46-member committee assigned to set farm policy for the next five years, there are 16 Republican freshmen elected in a surge of support to cut federal spending and regulations. In total, there are 23 committee members who have never served on the Agriculture Committee.

So, are you ready for a less rural Congress? Economic Research Service maps: Non-metro farming-dependent counties defined as those relying on farm-generated income (hired laborers wage and proprietors income) for at least 20 percent of the county’s income. 1960—center left 1989—upper left 2000—lower right

Much of farm country is losing population; Thus, representation. Outmigration and economic changes have resulted in fewer farm rural counties being represented in Congress. http://ruralcommunitybuilding.fb.org/2010/12/01/rural-population-loss-through-outmigration-ers/

For example… Senate Agriculture Committee House Agriculture Committee 11 D, 10 R 6 farmers*/ranchers House Agriculture Committee 26 R, 20 D 14 farmers*, 2 agribusiness House Appropriations Agriculture Subcommittee 7 R, 4 D 3 farmers/ranchers*, 1 agribusiness * self-identified

111th Congress: Senate 111th Congress: House 3 2 2/1 1/2 C = D = R = Both Chair C 112th Congress: House 3 2 2/1 1/2 1/1 112th Congress” Senate C C The House Ag Committee has not only shifted more GOP, but less upper midwest. The Senate Ag Committee is less southern, and no reps from southern plains. Note: ½ = 1 D and 2 R; 2/1 = 2 D and 1 R; Single Number indicates # on Committee from the state. No number indicates 1 R or 1 D

Budget Issues - States That Get More in Fed Subsidies Than Pay in Federal Taxes http://voices.washingtonpost.com/ezra-klein/2010/04/the_red_state_ripoff.html

Party Voting predominance = f(literacy, public health, privately insured, education level, firearm violence, fed program receipts/tax payments)  And  Fed program receipts/tax payments = … The South gets the redistribution of federal tax money because it seems least capable of helping itself out. It has: The lowest per capita percent of high school diplomas. The fewest college degrees per capita.   The highest rates of adult illiteracy, and often their illiteracy rate exceeds their unemployment rate. For example, in Mississippi, adult illiteracy is 16 percent and unemployment is 11.5 percent. Illiteracy in Alabama is 15 percent and unemployment is 11 percent. This means that Southern states have many adults working who can't read beyond the 5th-grade level. Thus: The highest poverty rates and the lowest average household income in the nation. The highest percentages of citizens without health insurance, yet most likely to call health care reform "socialism." The most unhealthy region in the nation, leading in obesity, smoking, hypertension, diabetes, cancer deaths per 100,000 while managing to exercise the least. The most violent region in the country being a majority of the top 18 states in deaths by firearms. (Louisiana: 19.5 firearm deaths per 100,000. Mississippi: 17.3 deaths per 100,000, etc., as opposed to New York with 5.1 per 100,000 or Massachusetts with 3.1 per 100,000 etc.) With 35 percent of the population, the South has created only 17 percent of the nation's patents over the last 25 years. California alone, with 10 percent of the national population, has nearly 20 percent of the patents over the last 25 years. Louisiana is a special welfare case having a long-established dysfunctional dependence on the oil industry in its economy, its politics and in its winking willingness to debase the environment, combining to create an oil-based modern plantation mentality. They attack the federal government on the national news every day for being slow or for failing to act to "restore our way of life" after the BP disaster, as if American taxpayers are morally obligated to maintain the oil plantation to which Louisianans' sold out long ago. Now some Southern public office holders and seekers from Tennessee to Texas are directly or indirectly talking about secession, and this has many others wondering if that is a threat or a promise. Redistribution of wealth? The South appears to be on the dole, and things there have a way of never managing to get any better. Perhaps our Southern brethren should stand up for their outspoken beliefs and send the money back. Or perhaps they should consider jumping on the streetcar named get serious. http://www.ritholtz.com/blog/2009/11/fed-tax-sentspent-by-state/

Farm Subsidies: 1995-2009 OK: $5.01 bil. (wheat) 3: Lucas $3.37 bil. (wheat) 1: Sullivan $34.7 mil. (wheat) 2: Boren $310 mil. (dis.) 4: Cole $615 mil. (wheat) 5: Fallin/ Lankford $29.5 mil. (wheat) Map:http://www.cccarto.com/congress/ok_congress/index.html Data: EWG/USDA

Farm bill debate begins to take shape Senate Ag Committee House Ag Committee Dems/Repubs want to protect funding, but at odds w/full Senate Chair Stabenow favors specialty crops & food programs Ranking Member Roberts favors commodity programs Chair wants to move “at own pace” 2012? Later? Dems/Repubs want to protect funding, but at odds w/full House Chair Lucas & Ranking Member Peterson favor commodity & risk management programs Chair wants economy & budget to improve first, but hopes for 2012 farm bill

Lucas frames the farm bill issues… 15 Mar 2011 letter to Ryan “Promote policies & risk management tools that will keep American agriculture & rural communities strong & our citizens healthy & safe” Budget reductions of past 7 yrs should count SRA adjustment $6 b. or greater to baseline Mandatory spending cuts $7.5 b. Actual spending declined 28% SNAP a better target for cuts Don’t assume high farm prices are here to stay Timeline: 2011: regulation oversight; prep for 2012 farm bill (hearings & policy inventory 2012: writing the bill (assuming economy & budget improved)

House Ag Committee Dems Rap House GOP 2012 Budget 15 Apr 2011 House votes in favor of Ryan budget $177.86 b. in ag program cuts over 10 yrs $127 b. cut in food stamp/nutrition programs $30 b. cut in commodity programs $20 b. cut in other ag programs Senate unlikely to support; but could become rule for House budget actions 23% cut for ag; 14% cut for other programs “2012 House Budget Resolution is a non-starter” “nearly impossible to write 2012 farm bill”

House Ag Cmte spending over 10 yrs (& % of all Fed spending) … Total: $924 b. (2.15%) Nutrition: $624 b. (1.62%) Crop ins: $83 b. (0.19%) Conservation: $65 b. (0.15%) Commodity: $64 b. (0.15%) Other: $17 b. (0.04%) Note: Craig Jagger, Chief Economist, House Ag Committee

Stabenow frames issues on Senate side… “proceed on its own schedule…”; “the toughest fb to write since the first one…”; more experience than House Hearings already in process Re-examine direct payments Expand crop insurance to cover more crops Continue sugar program Continue specialty crops program (research, marketing, state block grants) Support bio-fuels but may be changed Supports coop extension Congress should consider cuts/reductions made over past several yrs

? 2012: farm bill year most likely 38: # of programs w/o baseline World Food Prices Land-grant funding Cotton Case “Farm “ Bill, or “Food” Bill Environment for production International Food Aid gone? Derivative support Renewable Energy Agency Budget Cuts Farm Bill Issues (2012-38-9-6) ? Commodity vs. Other ($9 b.?) 2012: farm bill year most likely 38: # of programs w/o baseline 9: minimum $9 bil. needed from other programs to keep commodity programs 6: minimum $6 bil. likely needed to satisfy PAYGO rules if budget reconciliation occurs Immigrant labor Protection? Livestock Relief Disaster Assistance? SURE gone? DP gone? EPA Challenged Federal Budget Deficit & Debt 18 18

FARM PROGRAMS AND THE BUDGET: “small” as compared to …

FARM PROGRAMS AND THE BUDGET: “big” as compared to … * * Commodity, Crop Insurance & Conservation

The next farm bill… 2012? 2013? There will be cuts to programs There will be reform of programs DP, ACRE, CRP, RD at risk Contentious: SNAP, specialty crops, disaster aid

2008 ERS Report Nutrition now closer to 74% because of ARRA

Net Farm Income & Direct Government Payments (1991-2011f) FCEA 2008 FSRIA 2002 $ Billion $94.7 b. $84.1 b. Even without govt support, NFI is way above the decade of the 1990s. Some can look at this & think that govt support is no longer necessary for agriculture. DP this year with high prices supports these critics. However, the cure for high prices is high prices: High prices will bring more resources into production, raising output, driving prices down, resulting in less stability. It’s only a matter of time. $10.6 b. 23 23

US Crop Subsidies 2003-2005

Look for this to be a key issue as Congress talks about funding ag and trade, as well as renewable energy.  Be prepared for crises in 3d world hungry countries.  We’ll probably revisit the food vs. fuel debate.  Also, the debate about whether the trend for food prices is no longer down or just at a new and higher level that may be longterm down will likely intensify.  What’s it mean for attempts for conservation? Does it increase the value of water used in ag production? What about the certain debate over shifting fed funds from food nutrition programs to farm programs to deal w/budget cuts? – the term “food prices” is very confusing and misleading. As in this article, sometimes the word “food Prices” is actually used to mean “commodity prices.” At other times, the term “food prices” is used to mean retail prices paid by consumers. I recently did a review of literature of the analysis of the 2006-08 price spike, and the differernce between those two meanings is enormous (no surprise to those who understand marketing margins, but nonetheless vastly confusing to the reader or policymaker). Thus, it was common to see “analysts say biofuel causes 40 percent increase in food prices” right alongside “analysts say ethanol causes 3 percent increase in food prices”. Both were, in their own context, correct – but both were referring to vastly different things.  The entire debate was hopelessly confused. Thus, in my view we should be very careful to talk about (a) “agricultural commodity prices” when, as in this graph, we are talking about raw commodities and (b) “retail grocery prices” when we are talking about consumer prices at the grocery store.   http://www.businessinsider.com/chart-of-the-day-un-food-price-index-2010-12

Options for the next Farm Bill (odds vary) Status Quo: (not likely) Phase out (not likely) Enhance all/most programs (not likely) No reform: Reduce existing programs w/some enhanced; net change less $ (possible) Reform: shift $ to alt. focus; net change less $ (possible) Risk Management

THE ACRE/DCP DEBATE Why was sign-up for ACRE so low in 2009-11? Too complicated? Didn’t “breakeven”? Landowners? Other? What is the purpose of farm programs? Income distribution? Risk management? Oklahoma payments: ACRE: $95 mil. SURE: $4.97 mil. DP: $128 to $131 mil. CCP: $$13.76 mil.

Advantage: ACRE Advantage: Leans ACRE Advantage: DCP “Low” yield “High” yield “Low” price Advantage: ACRE 1. Entire DP, but no CCP until MP < TP - DP 2. ACRE payment possible if MP > TP or MP < TP. 3. No yield risk protection for DCP, but possibly for ACRE 1. Entire DP, but no CCP until MP < TP - DP 2. ACRE payment possible if MP > TP or MP < TP. “High” price Advantage: Leans ACRE 2. No yield risk protection for DCP, but possibly for ACRE 3. DP loss likely < ACRE Advantage: DCP 1. No ACRE Payment 2. No CCP 3. Entire DP

OTHER THOUGHTS ABOUT THE ACRE/DCP DEBATE The “lumpy payments” problem If ACRE is a risk management tool, do payment limits defeat its effectiveness for risk management? The budget cost/risk protection tradeoff Lower level trigger means higher budget cost The “luxury of choice” problem Was ACRE too much to explain to landlords?

Is a farm safety net necessary & affordable? Do externalities exist? How do we consider moral hazard? How are priorities for public spending determined? Do we manage to protect number of farms, production capacity, farm income, rural economic health, or natural resource protection?

Thanks for your attention! Larry D. Sanders larry.sanders@okstate.edu 405-744-9834   Now, finally a computer error message I can understand