APCA 2012 Farm Bill and Other Issues Harwood Schaffer University of Tennessee Agricultural Policy Analysis Center Texas Farmers Union Dallas, Texas January 29, 2011

APCA Texas Agriculture 2009 All Livestock 63.9% All Crops 36.1%

APCA Government Payments Only for crops 1996 Farm Bill was designed to “wean farmers off of government payments” From , in Texas, Government Payments were 45.7% of net crop income From , in Texas, Government Payments were 61.7% of net crop income And that does not count the amount that goes to insurance companies

APCA Government Payments Despite their goals in “Freedom to Farm,” we are more dependent on government payments for than we ever were! Only now the government program does not ensure us a minimum price that is close to our cost of production

APCA Crop Prices The futures price of a pound of cotton in 2005 ranged from 46¢ to 56 ¢ In 2010 the futures price of a pound of cotton ranged from 62 ¢ to $1.50 They tell us that crop prices are on a new plateau since late 2006 With $1+ cotton, how many acres do you think are going to be planted next year? Are we on a new plateau? Or is it just a butte with a steep downside?

APCA 2012 Farm Bill With high prices the baseline will be low There are a large number of programs that do not have a baseline because of budget tricks used in 1998 Some tricks have also reduced the food stamp side of the agriculture budget The new budget rules put in place are draconian so a savings in one place cannot be used to fund something else

APCA 2012 Farm bill We have a Republican controlled House of Representatives who do not believe government has a role in agriculture They are focused on deficit reduction to exclusion of everything else They see the Farm Bill as a good place to save money

APCA 2012 Farm Bill Parallels to 1996 –It is dangerous to write a farm bill in a time of high commodity prices –We have Republican dominated House with a weakened President who wants to be bipartisan –We are living in a time of high deficits –Agribusiness voices are heard more clearly in the halls of Congress that the voices of ordinary farmers –We risk getting an Agribusiness Bill

APCA 2012 Farm Bill In a time of high commodity prices a poor farm bill, any farm bill or no farm bill at all will work just fine But let the prices slip and it is “Katie bar the door”

APCA The 1970s and Today A spike in farm commodity prices A rapid increase in the cost of production The promise of ever growing exports The specter of world hunger By the late 1970s we saw tractorcades in Washington DC

APCA 1980s and Today Food and Water Watch told us that farm foreclosures are becoming a serious problem As farm family members lose their jobs in this economy, the farm income is not enough to pay the bills It is even happening to large farmers The USDA response: It is not as bad as the 1980s so we don’t have to be worried about it.

APCA Patents of GMOs Dozens are due to expire in the next five or so years What will happen to them? Will generic RR1 seeds become available? One farm organization wants the industry to set the rules Isn’t that like hiring the fox to guard the henhouse?

APCA Patents and GMOs Will farmers be forced to switch to more expensive second generation technology or will the be able to save seeds? Who maintains the trade registrations? Do the competitors have access to the data or is it proprietary? One of the expectations is that patents make their knowledge available in exchange for parent protection

APCA Global Warming Roles for farmers in mitigating the changes –Reduce practices that contribute to greenhouse gases – switch to conservation tillage –Engage in soil building which sequesters carbon in the soil in the form of organic matter –Maintain soil cover –Reduce use of fossil fuels

APCA Global Warming Be prepared for extreme events –Look at recent events in Australia and Rio –What we called 100 year floods will happen more often –Long droughts will happen more often –The average rainfall may change only a little –Your soil is your first protection against both of these possibilities – build it

APCA Lost Our Policy Bearings We have forgotten why we have commodity programs –Don’t know the problem –Let alone the objective Many say: Agriculture has the power to “milk” the government, so it does! Thus, the consensus among many is: –Do away with them; they are a waste –Move the money to some other ag use

APCA Why Commodity Policy? Agriculture does not behave like our Econ 101 teachers said it would –Inherent variability – weather and pests are not problem in non-farm/non-food industries –The total food/agricultural market lacks quick response to even sharp declines in prices

APCA It’s Lack of Price Responsiveness, Stu… Lower prices cause markets to automatically 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

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 Current U.S. Policy Can Cause Economic Crises (can and has) When supply outruns demand: –U.S. Commodity prices plummet –U.S. grain farmers become wards of the state –U.S. livestock producers, other grain users and farm input suppliers are subsidized –Low grain prices are triggered internationally –Many countries, especially developing countries, are unable to neutralize impacts of low prices –U.S. accused of dumping

APCA Current U.S. Policy Can Cause Economic Crises (can and has, cont.) When demand outstrips supply: –Short-Run Crop prices explode Livestock/dairy producers go bankrupt Food prices increase at alarming rates Countries hoard rather than export Additional millions become undernourished/starve in developing countries –Long-Run High prices bring big resources into ag production worldwide Prices crash again

APCA Promises Promises You say that supply catches up with demand (and it doesn’t usually take long). Then you say that supply growth tends to exceed demand growth. But, but, but… What about all that talk… About the coming population explosion and Double-digit growth in per capita incomes in Asia, India...

APCA It’s Easy to Underestimate Supply Growth Let’ begin with the US: –Investment in yield enhancing technology (300 bu./ac on best land in a few years?— national average a decade or two later??) –Gradual conversion to cellulosic feedstocks for ethanol production –Conversion of Conservation Reserve Program Acreage and hay/pasture land to crop production

APCA It’s Easy to Underestimate Supply Growth International supply growth—yield –Development and adoption of drought/saline/disease resistant crops –Globalization of agribusiness: Near universal access to the new technologies world-wide Narrowing of technology and yield differentials between the developed and developing world

APCA It’s Easy to Under Estimate Supply Growth 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) Supply growth has always caught and then surpassed demand growth (and it does not take long)

APCA The Need for Food Reserves Supply-Driven Disruptions –Crop-related weather - sporadic –Natural disaster - occasional –Political instability – chronic Demand-Driven Disruptions –Unanticipated surge in demand –Usually only three or so per century Can occur in conjunction with supply disruptions Result –Severe price bubble

APCA Our Recent Experience (2008) Demand surge (ethanol) –Coupled with wheat shortfall in Australia and Eastern Europe and other cereal shortfalls –Prices of storable agricultural commodities tripled Moderately increased food prices in global North Added 250 million to the 800 million already facing chronic hunger –Results Food riots in over 25 countries Protection of national food supplies via tariffs, taxes and embargoes

APCA This Wasn’t Supposed to Happen Commercials argued they would provide reserves –Government “interference” not needed Not to worry –Freer trade ensures availability from one country or another Neither assertion true –Commercials have no incentive to hold stocks –Supply disruptions can affect more than one supplier (country) in a given year Countries view food as a national security issue

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