1. U.S. Farm Programs and Agricultural Sustainability San Francisco, California, February 18, 2007 Daniel A. Sumner University of California Agricultural Issues Center and Department of Agricultural and Resource Economics University of California, Davis

2. Agricultural Issues Center A small research unit that considers a range of agricultural policy and economic issues –One major focus this year on the 2007 Farm Bill –Collaborations with research centers from across the United States and in China, Australia, Korea, Germany, Belgium, France, Italy and Spain, etc. –Based in Davis, but drawing on University of California people all over the state www.aic.ucdavis.edu agissues@ucdavis.edu 530-752-2320 (Laurie Treacher)

3. AAAS and Sustainability AAAS President Holdren identified four key S&T challenges for achieving sustainable well-being: “Meeting the basic needs of the poor; “Managing the competition for land, soil, water, and the net primary productivity of the planet; “Mastering the energy-economy-environment dilemma; and “Moving toward a nuclear-weapon-free world.” Agriculture and agricultural policy can clearly address the first three of these four.

4. Farm Policy Links with Agricultural and Global Sustainability in Many Ways Sustainability could be a theme for U.S. farm policy, just a “security” and “conservation” have been themes and titles of past Farm Bills and Farm Bill provisions. –Subsidized farmers want assurances of a secure and sustainable economic future –Sustainable rural communities –Secure and sustainable supplies of safe and healthy food, fiber and (now) bioenergy –Contributions to sustainable global agriculture and sustainable farm economies, especially in developing countries –A sustainable rural environment with resource conservation and contributions improving global environmental sustainability

5. Farm commodity subsidy basics Commodity subsidies continue (after >70 years) to stimulate production of grains, oilseeds and cotton and depress market prices (especially when prices would be low anyway). –By stimulating production such subsidies increase input usage and encourage expansion of program crop acreage Such subsidies benefit producers, landlords and commodity buyers to the cost of taxpayers. –Net budget costs range (inversely with market prices) from about $10 billion to $20 billion annually) Producers in other countries face lower market prices and have brought and won cases in the WTO for suppressing their markets. –Brazil won against cotton subsidies and Canada and others have not brought a case against US corn subsidies

6. Periodic US farm bills are large and complex Hundreds of pages: $$ for food stamps, rural telephones, R&D, foreign food aid, and since the 2002 Act… bioenergy Main focus is big $ for subsidy for production of grains, oilseeds, and cotton. Regulations and trade barriers support dairy, sugar, and others Most commodities get little subsidy (including 70% of California agriculture) The politics of the farm bill has tended to be dominated by interests of the five big commodities

7. Value Shares and Subsidy Outlay Shares CommodityShare of Value of Output (Varies by Year) Share of Subsidy Outlays (Varies by Year) Feed grains13%50% Soybeans9%10% Wheat4%10% Cotton3%12% Rice1%7% Dairy10%3% Meat and Poultry33%2% Horticulture25%2% Hay and other2%3%

9. FARMER TAXPAYER

11. CCP MLG/LDP Distribution of Government Support Example: Cotton Revenue per unit but not based actual production Target Price – $0.724 Loan Rate – $0.52 Fixed payment – $0.0667 } } } Do not have to produce to get payment Must produce to receive benefits from marketing loans gains or LDPs) Market Receipts Market Price Reflects payments not on full production payment acres =.85 x base acres

12. Commodity subsidy impacts on agricultural sustainability Myriad impacts: 1.Increased production and income and use of resources (land and water) that would otherwise shift to less intensive uses 2.Production of favored crops that have some negative environmental consequences (cotton and corn are heavy chemical users), but in some regions program crops offer environmental benefits relative to alternatives 3.More intensive production to achieve higher yields 4.Less production in less developed countries with income losses to poor farmers, but lower food prices for consumers 5.“Conservation compliance” limits opening new land to program crops

13. Farm conservation and environment program basics Initial focus on soil conservation, with no specific connection to environmental externalities –Programs focused on technical assistance and land retirement More recent focus on “working lands” –Cost share to undertake environmentally friendly practices and with significant technical cooperation –Payments for meeting environmentally friendly standards These programs do not effectively measure the value of environmental outcomes, rather the focus is on practices (including land idling) and some expected, although not well grounded link to ultimate environmental outcomes –The quantifiable links off-site water quality, air quality or species restoration, etc is remains poorly measured

15. USDA Conservation Program Funding ($ Millions) Type of Program FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 Technical Assistance 1,0681,2431,3701,4321,365 Financial Assistance 4946319871,3631,358 Easements 346395421 330 Stewardship Contracts 0035172220 Rental Contracts 1,7771,7841,8231,8341,900 Total 3,6854,0524,6355,2225,173

17. Red -- farms Blue -- payments Conservation payments go mostly to non-commercial farms that occupy a small share of the land that can contribute to positive environmental progress. These operations get a disproportionate share of CRP and EQIP. Commercial farms get about 58% of commodity payments and sell about 70% of farm output, they are under-represented in conservation programs Rural residences have very small shares of sales and land, but large share of conservation payments

18. Important sustainability questions for the 2007 Farm Bill Is there are feasible shift of funds from commodity programs to environmental programs? Is that the best use of such funds (rather than, say, nutrition assistance for poor children)? Is it possible to design green payment programs that are cost effective and target environmental externalities? Why should we pay farmers not to pollute rather than taxing them if they do? Is there convincing science to tie specific practices to positive or negative environmental outcomes? What is the role for broader markets for environmental property rights and pollution permits that involve agriculture?