APCA 2012 FB Prospects, Challenges, & Options Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Nebraska Farmers Union’s 97 th Annual State Convention Grand Island, Nebraska December 4, 2010

APCA Challenging Setting for 2012 FB Debate Tight Budget –Spending capped at 2008 FB level Less if order comes down from on high (reconciliation) More only if find something else to cut (pay as you go) –Craig Jagger, House Ag Com. Econ. Says: 37 programs have no baseline budget after 2012— a $9 to $10 billion additional cost to bring back in –Wetland and Grassland Reserve Programs –SURE “permanent?” disaster program (ends after 2011) –McGovern-Dole International “School-Lunch” program –Lose about $4.5 billion in “timing shifts”

APCA Challenging Setting for 2012 FB Debate Economic Conditions (Shades of 1996) –High prices and high incomes (But it’s different this time!) Farm Bill Preferences –Keep commodity programs as in the 2008 FB –Some want to redirect “Direct Payments” –Heritage Foundation and others want to: Replace subsidies with farmer savings accounts Eliminate funding for Foreign Agriculture Service Merge and reduce funding for four of USDA’s research and outreach agencies –Some say only need global “market access”

APCA Mammoth Exports Are a Comin’ The largest farm organization and largest commodity groups say so (again) –All that is needed is complete access to growing world markets (all would be great “only if”…) Our import customers would import more and we could better compete with our export competitors Result: US exports will grow at accelerating rates providing a permanent source of farm prosperity Crop price and income programs could be eliminated

APCA Historical Reality Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops 1979=1.0 US Population US Exports US Domestic Demand

APCA US Soybean Exports Are Sure Enough Going Up Million Metric Tons US Exports

APCA But Brazil’s Exports Have Gone Up by More… Million Metric Tons Brazil Exports US Exports

APCA So the US Share of World Exports Has Dropped Precipitously Percent US Soybean Exports as % of World Exports

APCA US and Canada Wheat Exports Million Metric Tons Canada Exports US Exports

APCA US & Canada Exports as a % of World Wheat Exports Percent Canada US

APCA US Corn Exports as a Percent of World Exports Percent

APCA Would Complete Free Trade Expand the % of Output that is traded internationally? Less than most expect: FOOD IS DIFFERENT –Food is a national security issue—just like military security is to the US. So … Countries want to domestically produce as much of their food as possible Political considerations –Need to feed the population –Need to provide a living for millions in agriculture –Need an orderly exit of workers out of agriculture Suppose there had been total free access to all international markets in 2007 and 2008 –Vietnam, India, Ukraine, and scores of other countries…

APCA Our Export Competitors Can/Will Become More Formidable International supply growth—acreage –Long-run land potentially available for major crops Savannah land in Brazil (250 mil. ac. -- USDA says 350) Savannah land in Venezuela, Guyana, and Peru (200 mil. ac.) Land in former Soviet Union (100 mil. ac.) Arid land in China’s west (100 mil. ac. GMO wheat) Savannah land in Sub-Saharan Africa (300 mil. ac percent of 3.1 bil. ac. of Savannah land) International supply growth—yields –Drought/saline/disease resistant crops –Globalization of agribusiness

APCA Before We Leave Exports… Our President has set a goal of doubling the value of US exports in 5 years Our Sec. of Agr. says don’t expect that from agriculture –Wise warning—In fact, odds are that agricultural export value will drop, not increase, in the next few years –Most of the mammoth increase in the value of exports over the last 3 years came from price not volume (will prices continue to grow?)

APCA US Corn, Soybeans, and Wheat – Value and Volume of Exports Volume of Exports Value of Exports Volume of Exports Billion Dollars

APCA US Corn, Soybeans, and Wheat – Value of Exports and Farm-Gate Prices $ Per Metric Tons Value of Exports $/MT Billion Dollars

APCA Why Commodity Programs? Lower prices cause markets to automatically self-correct, right? Right! –Consumers buy more –Producers produce less –Prices recover—problem solved! But in agriculture, lower prices do not cause the same degree of reaction –Little self-correction on the demand side People do not consume significantly more food –Little self-correction on the supply side Farmers do not produce significantly less output –With little correction prices do not recover That’s Why!!

APCA Once Upon a Time… There were farm policies that provided –Floor Prices –Supply management tools –Price stabilization and reserves Over the years and especially since 1996 –All three were eliminated –Replaced with payment programs: Coupled to price and production (Deficiency Payments) and Decoupled (Direct Payments) Partially government-funded insurance schemes The 2008 FB added another revenue based insurance scheme (ACRE)

APCA Policy for All Seasons Assume the unexpected will happen –Random policy and weather events do occur—Plan for them Establishment of Grain/Oilseed/Food Reserves –Moderate impacts of random policy and weather events by providing stable supply until production recovers –Operated/overseen by a multinational commission –Store strategically purchased reserves

APCA Policy for All Seasons Keep productive capacity well ahead of demand –Public investment in yield enhancing technologies and practices Provide means to hold arable land in rotating fallow during periods of overproduction –This land could then quickly be returned to production in the case of a crisis

APCA Finally, Let’s Take a Swipe at WTO World Trade Organization does not account for the unique nature of food and agriculture –Does not understand the difference between DVD players and staple foods WTO needs to be reformulated or be replaced with an organization that recognizes the need for –Food Reserves to address the inevitable shocks to the availability and price of food –Promoting increases in worldwide productive capacity, especially each country’s domestic production –Addressing Agriculture’s inability to gauge the use of productive capacity to match demand by creating methods to overcome –Agriculture’s inability to self-correct

APCA Thank You

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