1. Status of FSRIA 02 & Shifting to the Next Farm Bill
Lesson 5d—AGEC 3703
Larry D. Sanders
Fall 2005
Dept. of Agricultural Economics Oklahoma State University

2. Op-Ed Reactions: Dave Barry
If you’re like most American taxpayers, you often wake up in the middle of the night in a cold sweat and ask yourself. “Am I doing enough to support mohair producers?”
I am pleased to report that you are, thanks to bold action taken recently by the United States Congress (motto: “Hey, It’s not OUR money!”). I am referring to the 2002 Farm Security Act, which recently emerged from the legislative process very much the way a steaming wad of processed vegetation emerges from the digestive tract of a cow.

3. Op-Ed Reactions: Dave Barry (continued)
Perhaps you are asking yourself: “Wait a minute! Isn’t this kind of like, I don’t know …… welfare?”
No, it is not. Welfare is when the government gives money to people who produce nothing. Whereas the farm-money recipients produce something that is critical to our nation: votes. Powerful congresspersons from both parties, as well as President Bush, believe that if they dump enough of your money on farm states, the farm states will re-elect them, thus enabling them to continue the vital work of dumping your money on the farm states. So as we see, it’s not welfare at all! It’s bribery. --Dave Barry

4. Issues Affecting the Development & Implementation of the 2002 Farm Bill
Public & hidden agendas of Congress & President
The disappearing budget surplus
Compliance with WTO
2002 election
Agriculture split on desired goals & how to achieve them
Taxpayer backlash on “welfare for the wealthy”
HAVE PRIORITIES CHANGED SINCE 9/11/01?

5. Prelude to Current Farm Bill Policy: A Dose of Reality . . .
The 1996 farm act was called a “watershed” (Knutson et al) because it signaled a major turning point in the social contract between the public and farmers. The clear intent was for the market to replace government subsidies with profits over a phased-in seven year period. The public perception was that the 1996 FAIR Act was to get the government out farm programs by 2002, and there would be no need for more farm bill programs.
“If you believe that, you believe in the tooth fairy.”
—Barry Flinchbaugh, 1996.

6. The Farm Security & Rural Investment Act of 2002 (FSRIA)
Cost $180 bil-200 bil if in place 10 years
Includes extra $73.5 over prev. budget
$50 bil – commodities
$17 bil – conservation
$1 bil – rural development

7. Legislative objective:
FSRIA 02
Legislative objective:
To get more money in the hands of producers and landowners to allow them to be more profitable and help maintain or improve the environmental resources they use
Political objective:
Support agriculture through the bad times; certainly through the Senate/Congressional elections of 2002

8. An Evolving Conservation Philosophy
Previous programs focused on protecting environment/natural resources & compensating producers/landowners
New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs)
Farmers and ranchers should manage farmland to provide cheap, high quality food and fiber and environmental amenities (e.g. clean air and water, wildlife habitat, open space, sequestered carbon).
Additional $9 bil thru 2007 authorized

9. Factors to Consider for the Coming Policy Debates
Twin deficits
Trade
Budget
Perceptions
Sector vs. Commodity vs. Farm financial performance
Global markets
Politics
Political Triangle of Ag & Budget Policy
Farm Bill changes—when?
5. Distributional equity
6. Community Food Systems
WTO, local market trends, food safety/health concerns

10. Politics: Political Triangle of Ag & Budget Policy
New committees
Turf battles
Reconciliation
Federal Reserve
Fight inflation
Critical of federal deficit
Greenspan retiring
LEGISLATIVE
Bush Doctrine
Bush Budget
USDA
Trade talks
Ag groups one voice?
Non-ag groups
Competitors
INTEREST
GROUPS
EXECUTIVE
Property rights
JUDICIAL

11. Politics: 2004 Baseline Cost of Agriculture Programs

13. Energy Price Impacts on Agriculture
US Agriculture is not only capital-intensive, but fossil-fuel intensive
Fuel for farm machinery, equipment & vehicles (4% of farm expenses)
Fertilizer & chemical (15% of farm expenses)
Marketing (?)
Energy costs as share of production costs varies by enterprise (less than 10% for livestock, over 40% for cotton)
Will US ag adjust to market, or will government protect with subsidies?

14. Current farm bill: 6-year act (2002-2007)
The Next Farm Bill: 2006? 2007? 2008?
Current farm bill: 6-year act ( )
Debate for the “next” farm bill already engaged
Rewrite of FSRIA02 begins in 05
Budget Reconciliation
Appropriations
New “enabling” legislation in ?
2006 & 2008 election anxiety may encourage a 2007 farm bill

15. FY 2005 Budget Update (continued)
No reductions in commodity programs likely; just "shifts" to get around the WTO problems
More WTO lawsuits likely
Some reduction in payment limits possible, but may still have loopholes
Programs like food and nutrition, rural development, etc., are likely to bear real cuts.
Green payments still not a supportable alternative to commodity payments
CSP—current increase
This battle not yet resolved
Look for much of reduction to come on “paper”

16. Likely Alternatives & Consequences: Program Specific Choices
Lowering payment caps is likely to hurt larger operations more than smaller farms, probably hitting larger cotton farmers more than small to moderate wheat farms.
It is still uncertain how crop insurance reform will affect farms.
Cuts in conservation programs will restrict options for producers on marginal land, possibly encouraging a return to practices that harm the environment.

17. Likely Alternatives & Consequences: Program Specific Choices
Cuts in research funding will lead to a loss of public sector innovation, and an acceleration to shifts toward private sector funding. In the long run, this favors larger farms and firms.
If commodity prices rise and/or the value of the dollar increases, there will be a loss of competitiveness on global agricultural markets at a time the Administration is recommending cuts in export subsidies.
Cuts in other sectors of Federal spending–Education, Transportation, Commerce, Health, etc.
--Because rural areas are recipients of some of this funding, any cuts will have an adverse impact on affected programs and rural communities, as well as forcing the burden of aid back onto states that are already financially strapped.

18. Congressional FY06 Budget Work (continued)
Congressional budget calendar
Oct?: Conference Committee on Appropriations
2 of 13 completed
1 Oct: fy06 begins
18 Nov: end of first continuing resolution
Nov/Dec?: budget reconciliation?

20. FY06 Appropriations Bills
Senate passed 22 Sep 05
$ bil ($ b. is discretionary)
$15 bil more than fy05
House passed 9 Jun 05
$99.65 bil ($16.83 b. is discretionary)
Most programs at or above fy05 spending
Conservation down

21. Evolutionary…not Revolutionary Change?
Near term program changes likely to be marginal
But, WTO restrictions likely to coincide with writing of 2007 farm bill; cuts may become dual purpose
20-50% cuts for WTO?
$3-$20 billion in cuts for deficit reduction?
Production expenses (fuel, fertilizer, interest rates) will rise faster than commodity prices
Budget deficit/debt solution choices
Increase taxes
Cut spending
Grow economy
Do nothing

22. Mean Government Payments by Farm Type, 1996-2001
LR $765
Retire $1,880
Rural Resident $1,219
Low Sales $3,435
High Sales $15,339
Large $30,825
Very Large $42,124
Government payments form a significant portion of income of families that depend substantially on the farm, but the size of average payment being received by farms with very high sales again makes it hard to argue for more support.
These are all direct government payments from ARMS survey. Types are Limited Resource, Retired Operator, Rural Resident, primarily farming low sales (<$100K), primarily farming high sales( K), Large ($ K), and Very Large (>$500K). For LR, average government payments are 40 times the NFI. Retirement farms only 39%, Rural resident farms 102%. For low sales, high sales, and large family farms, respectively, government payments are 65%, 52%, and 49% of NFI. The average $42K government payments of very large (>$500K sales) family farms is only 19% of NFI.
Source: J. Pease, “Historic Perspectives on Commodity Support”, NPPEC, St. Louis, 20 Sep 04.

23. APPENDIX
Livestock sector and commodity programs

24. How does the livestock sector historically fare with government crop support programs?
No impact?
Cheap, available grain?
Encourages marginal resources/producers into livestock business?

25. Livestock Cash Receipts as Percentage of Total Cash Receipts Compared to Government Support Levels (1985-present)
Source: “Economic Indicators”, Amber Waves, September 2004, ERS-USDA,

26. Government Support Levels & Farm Real Estate Values (1985-present)
Source: “Agricultural Outlook Tables”, August 2004, ERS-USDA,

27. Data Suggests Government Support Does Impact Livestock Sector
Generally, as government support increases, livestock receipts tend to increase
Related to cheap available feed?
Related to producers looking for profit alternatives when crop prices down?
Increases in government support often increase farm land values but not as clear
Complex issue deserving more research