1. The 2007 Farm Bill: Status Quo or Status Shifted? Bradley D. Lubben Extension Public Policy Specialist University of Nebraska-Lincoln Ag econ information – www.agecon.unl.edu Farm Bill information – www.agecon.unl.edu/farmbill.html USDA program information – www.usda.gov

2. The Setting for the Next Farm Bill u The Economic Setting u The Budget Setting u The Trade Setting u The Political Setting

3. The Economic Setting U.S. Net Farm Income and Government Payments Source: USDA Economic Research Service

4. The Budget Setting Deficits Are Not the Only Factor Source: Congressional Budget Office and other historical sources

5. Federal Farm Spending on Commodities, Conservation, and Trade Source: CBO

6. The Trade Setting WTO or not WTO? u WTO negotiations l Domestic supports l Export competition l Market access u No WTO negotiations l WTO dispute settlement Brazil-US cotton case Canada-US consultation on corn Brazil-US complaint on domestic supports

7. The Political Setting u More players at the table l Conservation interests want a larger share of money l Nutrition and food assistance are key to the Farm Bill coalition l Rural development and energy are looking for funding

8. Issues and Alternatives u Commodity programs l Crops l Dairy l Sugar u Payment limits u Specialty crops u Conservation u Energy

9. 2007 Farm Bill Commodity Programs

10. Farm Income Safety Net u Three-part safety net l Marketing loans and loan deficiency payments Income support tied to price and production l Counter-cyclical payments Income support tied to price and historic production base l Direct payment Fixed payment tied to legislated rate and historic production base

11. Farm Bill Producer Survey Existing Program Funding Priorities 5-part safety net Note: Average scores by size category (1 = least important, 5 = most important).

12. Status Quo The Safety Net May Not Be Much Net Source: USDA and FAPRI

13. House Farm Bill Counter- Cyclical Payment Options u Price l PCCP Rate = Target Price - Direct Payment Rate - Max (Loan Rate, Market Price) l Farm PCCP = PCCP Rate * Farm Base Acres * Farm CCP Yield * 85% u Revenue l National RCCP Rate = Target Revenue - National Average Yield * Max (Loan Rate, Market Price)) / National Average CCP Yield l Farm RCCP =National RCCP Rate * Farm Base Acres * Farm CCP Yield * 85%

14. Durbin-Brown Revenue Counter-Cyclical Payment u Guarantee l State DB-RCCP Guarantee = Expected State Yield * 3- Year Average Revenue Insurance Pre-Plant Price * 90% u Payment l Farm DB-RCCP Payment = State DB-RCCP Guarantee - (State Average Yield per Planted Acre * Revenue Insurance Harvest Price)* Planted Acres * (Farm APH / Expected State Yield) * 90%

15. The Farm Income Safety Net “A Multiplicity of Confused Concepts” Production Revenue Price National LevelArea LevelFarm Level Scope of Risk Protection ML/LDPPCCP APHGRP DB-RCCP RA/IPGRIPAGR CAT SELP CDP RA-HPO/CRC DP Hedging RCCP

16. Dairy and Sugar House Legislation u Dairy l Maintains price support program and shifts support from milk to cheese, butter, and nonfat dry milk l Maintains Milk Income Loss Contract u Sugar l Maintains support program and increases loan rate l Ensures domestic market share for domestic production and mandates use of “surplus” imports for ethanol production

17. 2007 Farm Bill Payment Limits

18. Commodity Program Payment Limits u House legislation l Eliminate the 3-entity rule and apply direct attribution of payments to individuals l Marketing loan Eliminate certificates Eliminate $75,000 limit on MLG/LDP l Direct payments Raise limit from $40,000 to $60,000 l Counter-cyclical payments Maintain limit at $65,000 l Spouses eligible for second limit

19. Eligibility for Commodity and Conservation Programs u Current rules l $2.5 million AGI limit unless at least 3/4 from agriculture u House legislation l $1 million AGI limit with no exception l $500 thousand limit unless at least 2/3 form agriculture u USDA proposal l $200 thousand AGI cap with no exception

20. 2007 Farm Bill Specialty Crops

21. Specialty Crops House Legislation u New “Horticulture and Organic Agriculture” title and funding l State block grants - $365 million l Additional Section 32 fruit, vegetable, and nut purchases - $991 million l Pest and disease management - $200 million l Organic certification cost-share - $20 million l Farmers market assistance - $35 million u Increases in other related programs l Conservation Innovation Grant Program (Conservation) l Market Access Program (Trade) l School fruit and vegetable program (Nutrition) l Specialty Crop Research Initiative and Organic Agriculture Research and Extension Initiatives (Research) u No change in fruit and vegetable planting restriction l Exception for pilot program of 10,000 acres for processing tomatoes in Indiana

22. 2007 Farm Bill Conservation

23. Farm Bill Producer Survey Existing Program Funding Priorities Note: Average scores by size category (1 = least important, 5 = most important).

24. Conservation Programs u Working lands programs l CSP l EQIP u Retirement programs l CRP l WRP u Preservation programs l FRPP l GRP Copyright NRCS

25. Conservation Programs u House legislation l Maintains CRP and expands WRP l Expands EQIP and other working land programs, but tables CSP until 2012 l Expands FRPP and GRP l Expands CIG for air quality u Senate expectations l Significant expansion of CSP under Comprehensive Stewardship Incentives Program

26. CRP Expiring Acreage Before and After USDA Extension Offer (Tentative) Source: USDA Farm Service Agency

27. Conservation Reserve Program Source: USDA Farm Service Agency

28. Conservation Security Program Unlimited Promise, Limited Experience Source: USDA Natural Resource Conservation Service

29. 2007 Farm Bill Energy

30. Farm Bill Producer Survey Goals for the Farm Bill Note: Average scores for composite results across size categories (1 = least important, 5 = most important).

31. Energy Programs House Legislation u Expanded “Energy” title and funding l Biobased product procurement l Loan guarantee programs Biorefinery development Renewable energy and energy efficiency l Biomass research and development l Bioenergy incentives Incentive payments to biofuels producers No incentives for corn-starch-based ethanol l Biomass Energy Reserve u Increases in other related programs l Bioenergy and Biobased Products Research Initiative (Research)

32. U.S. Ethanol Production and Policy Timeline Source: Renewable Fuels Association

33. Summary and Outlook u Drivers l Economic setting l Budget setting l Trade setting l Political setting u Key issues l Farm Bill timing l Farm income safety net design l WTO commitments l Future of CRP and CSP l Energy policy Ag econ information – www.agecon.unl.edu Farm Bill information – www.agecon.unl.edu/farmbill.html USDA program information – www.usda.gov