The Food, Conservation and Energy Act of 2008 (The 2008 Farm Bill) Will Snell, University of Kentucky

Agricultural Economics Every farm bill debate is different,… but this one was certainly been one of the most challenging given the economic, political, and budget environment

Agricultural Economics Factors Affecting the Farm Bill Debate Factors Affecting the Farm Bill Debate  Current Status of the U.S. Agricultural Economy  Commodity Prices  Net Farm Income  Exports  Balance Sheet

 Sluggish Growth  Escalating Energy/Food Prices  Credit Crisis  Slumping Housing Market  Volatile Stock Market  Declining Dollar  Cautious Consumers  Recession???  Relatively High Prices  Record Cash Receipts  Record Net Farm Income  Record Exports  Strong Balance Sheet  New Opportunities  Energy  Pharmaceuticals  Expanding Global Markets U.S. General EconomyU.S. Ag Economy U.S. vs Ag Economy Agricultural Economics

Prices Received by U.S. Farmers Source: NASS/USDA Soaring export demand and of course expanded use for commodities (primarily energy) has led to historic high prices Agricultural Economics

U.S. Net Farm Income Source: ERS/USDA U.S Net Farm Income established an all time record high of $88.75 billion In 2007 and is forecast to exceed $90 billion in 2008 – over 50% above the 10 yr avg. Agricultural Economics

1997 = 100 U.S. Trade-Weighted U.S. Dollar Exchange Rate Agricultural Economics

U.S. Ag Exports Source: ERS/USDA A combination of tight foreign supplies, a declining dollar, and population/economic growth in Asia and Latin America has led an export boom for U.S. agriculture Agricultural Economics

U.S. Ag Trade Balance Source: ERS/USDA A few years ago ag economists where discussing the potential of a trade deficit for the U.S. ag sector …. But while imports continue to grow, the growth has not been comparable to the growth in exports. Agricultural Economics

U.S. Farm Debt to Equity and Debt to Asset Ratios Source: ERS/USDA U.S. farmland prices have more than doubled since 2000 Agricultural Economics

Political and Economic Factors Affecting the Farm Bill Debate  Current Status of the U.S. Agricultural Economy  Commodity Prices  Net Farm Income  Exports  Debt Position  Budget Concerns

U.S. Budget Deficit/Surplus Source: CBO The budget baseline for the 2007 farm bill was reduced by more than 40% compared to what was spent on the 2002 farm bill Agricultural Economics

Outcome  Reduction in traditional ag commodity support  Calls for major reform in commodity programs failed  similar structure of the 2002 farm bill  Greater support for food/nutrition programs, conservation, specialty crops, and energy.

Agricultural Economics 2008 Farm Bill  The 2002 Farm Bill expired in September 2007  Following months/years of debate, several extensions, a presidential veto, a Congressional override, an administrative glitch, the 2008 Farm Bill became law in June 2008  A side by side comparison of the 2008 and 2002 farm bills is available from USDA (

The Budget Picture U.S. Farm Bill Spending by Category Other – 15% Commodities – 23% Nutrition – 62% Conservation – 8% Commodities – 11% Nutrition – 68% Other – 12% Source: Brad Lubben, University of Nebraska Agricultural Economics

Background Background  The titles for the 2008 Farm Bill included …  Forestry  Energy  Horticulture  Livestock  Crop Insurance  Commodity Futures  Taxes  Miscellaneous  Commodities  Conservation  Trade  Nutrition  Credit  Rural Development  Research and Extension

Agricultural Economics Safety Net Programs Safety Net Programs Maintains the current safety net programs for farm bill crops consisting of:  direct payments  countercyclical payments  marketing loan benefits with some adjustments in loan rates and target prices beginning in 2010.

Loan Rates Commodity 2008 Farm Bill 2007 Rate Corn (bu)$1.95 Sorghum (bu)$1.95 Barley (bu)$1.85 $1.95 Oats (bu)$1.33 $1.39 Wheat (bu)$2.75 $2.94 Soybeans (bu)$5.00 Agricultural Economics

Target Prices Commodity 2008 Farm Bill 2007 Rate Corn (bu)$2.63 Sorghum (bu)$2.57 $2.63 Barley (bu)$2.24 $2.63 Oats (bu)$1.44 $1.79 Wheat (bu)$3.92 $4.17 Soybeans (bu)$5.80 $6.00 Agricultural Economics

Direct Payments Commodity 2002 Farm Bill2008 Farm Bill Corn (bu)$0.28 Sorghum (bu)$0.35 Barley (bu)$0.24 Oats (bu) $0.024 Wheat (bu)$0.52 Soybeans (bu)$0.44 No changes in Direct Payment Rates But payment acres are reduced from 85% of base to 83.3% for Agricultural Economics

Optional CCP (ACRE) Optional CCP (ACRE)  Provides program crop producers with an optional one- time enrollment of a state-level revenue-based countercyclical-program called the Average Crop Revenue Election (ACRE) beginning in crop year 2009  Producers agree to a 20% reduction in direct payments and a 30% reduction in loan rates.  If selected, producer remains in the ACRE program for for all program crops grown on the farm

Agricultural Economics ACRE Details ACRE Details  A producer who enrolls in the ACRE program will receive a payment if:  The actual state revenue for an eligible program commodity is less than 90% of a state revenue guarantee A ND …  The producer suffers a revenue loss  Payment will be based on 83.3% of the eligible base acres for crops and 85% of base acres for 2012 with adjustments for farm yields relative to state yields

Agricultural Economics ACRE Details: Actual State Revenue and the State Revenue Guarantee ACRE Details: Actual State Revenue and the State Revenue Guarantee  Actual state revenue: the product of the actual state average yield and the national average market price  State revenue guarantee: the product of the previous 5 year’s state average yield, excluding the high and low yields and the previous 2 year’s national average price

Agricultural Economics ACRE Details: Actual Farm Revenue vs the Farm Revenue Guarantee ACRE Details: Actual Farm Revenue vs the Farm Revenue Guarantee  Actual farm revenue: the product of the actual farm yield and the national average market price  Farm revenue guarantee: the product of the farm’s 5-year average yield, excluding the high and low yield and the 2-year national average price plus the crop insurance premium per acre

Agricultural Economics Other ACRE Details Other ACRE Details  ACRE state revenue guarantee for a given crop for cannot change by more than 10% from the previous crop year  Per acre ACRE payments cannot be greater than 25% of the state program guarantee for the crop.  ACRE payments are calculated on planted, not base or harvested acres, and  Total number of eligible planted acres for all crops on a given farm cannot exceed the farm’s total base acres.

Average Crop Revenue Election State ACRE Guarantee = 90% * 5-Year Olympic State Avg. Yield * 2-year Natl. Average Mkt. Yr. Price Restricted to < 10% change/year > A ND > T HEN Farm Payment = (0.85 in 2012) * Actual Planted or Considered Planted Acres * [ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] * MIN[ (State ACRE Guarantee – Actual State Revenue) OR State ACRE Guarantee * 25%] Actual State Revenue = Actual State Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] Actual Farm Revenue = Actual Farm’s Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] Farm ACRE Benchmark = Farm's 5-Year Olympic Avg. Yield * 2-year Natl. Average Mkt. Yr. Price + Ins Premium Note: All Yields are Planted Acre Yields Source: Joe Outlaw, Texas

Agricultural Economics ACRE Calculator ACRE Calculator

Payment Limitations Payment Limitations  Denies direct payments to any producer whose average (previous three years) adjusted gross farm income exceeds $750,000 annually  Eliminates all farm program payments to any individual with an average adjusted gross non-farm income exceeding $500,000.  Individual program caps  Direct Payments (DP)- $40,000, (ACRE, $40K less 20% drop in DP)  Countercyclical Payments (CCP) -- $65,000 (ACRE, $65K plus 20% drop in DP  Marketing Loan Program – No cap  Eliminates the three entity rule (but spouses eligible for separate payment) and requires direct attribution of payments to individuals, not partnerships or corporations.  Eliminates payments for any farm with less than 10 base acres, unless limited resource or socially disadvantaged

Agricultural Economics Disaster Assistance Disaster Assistance  Establishes a permanent whole-farm revenue disaster assistance program called the Supplemental Revenue Assurance Program (SURE)  Additional disaster programs for:  livestock  forage  orchard and nursery tree producers.

Agricultural Economics Dairy Program Dairy Program  Modifies the dairy price support program by directly supporting the price of dairy products  Increases the payment rate on the Milk Income Loss Contract (MILC) program (whose payment would take into consideration the cost of feed),  Extends the Dairy Export Incentives Program (DEIP).

Agricultural Economics Conservation Programs Conservation Programs  Increases conservation program spending by nearly $8 billion  Authorizes 32 million acres (vs current 39 million acres) to be enrolled in the Conservation Reserve Program (CRP) from  Extends most other conservation programs with expanded funding of $3.4 billion for the Environmental Quality Incentives Program (EQIP)  Provides over $1 billion in new funding for the revamped Conservation Security Program (CSP) to enroll nearly 13 million acres annually

Agricultural Economics Energy Energy  Increases funding for biofuels research and infrastructure, with increased emphasis on cellulosic and on-farm adoption of improved energy efficiency systems.  Reduces the blenders tax credit for corn ethanol from 51 cents to 45 cents per gallon  Creates a $1.01 per gallon tax credit for cellulosic biofuels  Extends the duty on ethanol imported for fuel use.

Agricultural Economics Livestock Provisions Livestock Provisions  Implements mandatory country of origin (COOL) labeling for meats and produce  Increases market access for small, state inspected meat processing plants  Provides better protection for livestock producers entering into contracts  cancellation allowances,  clear disclosure of large capital investments required  outlines producer arbitration options,  allows producers to petition for local court jurisdiction if litigation arises over contract disputes.

Agricultural Economics Rural Development Rural Development  Provides funding for a wide variety of economic development programs such as:  water, energy, and health programs,  loan guarantees to support value-added ag enterprises,  and broadband internet expansion to enhance rural economies.

Agricultural Economics Horticulture Horticulture  Reauthorizes funding for states to receive block grants and other programs to support marketing, research, education, and pest/disease management for specialty crops.  Additional grants available to support local farmers markets, other direct marketing ventures, and agritourism.  Increased emphasis and funding for enhanced market information, certification, and regulation for organic food production.

Agricultural Economics Other Issues Other Issues  Improves programs for extending credit to beginning farmers and increases farm ownership and operating loan limits.  Revises tax laws to allow race horses to be depreciated over three years.  Prohibits closure or relocation of FSA offices for two years

Agricultural Economics For more information …