1. 1 5a. WHAT IS DOMESTIC FARM POLICY & HOW DOES IT WORK? Larry D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State University

2. 2 INTRODUCTION u Purpose: –to become aware of domestic farm policy tools u Learning Objectives: 1. Become aware of historical evolution of US ag policy 2. Become aware of major objectives of US ag policy 3. Understand major components/tools for domestic farm policy 4. Understand recent commodity provisions, how they are intended to work, & their implementation 5. Become aware of alternatives & consequences in recent farm bills & the future of domestic ag policy.

3. 3 TODAY’S FARM POLICY GOALS u INCREASE PROFITABILITY u SUPPORT & STABILIZE FARM PRICE & INCOME u ADJUST TO MARKET NEEDS u INCREASE GLOBAL COMPETITIVENESS u MAINTAIN & IMPROVE RESOURCE CONSERVATION & PRESERVATION u SUSTAIN FARMS AND THE FARM SECTOR

4. 4 HISTORICAL PERSPECTIVE OF FARM POLICY u SETTLEMENT PERIOD (1776-1929) u NEW DEAL (1929-1959) u PRICE SUPPORTS (1959-1970) u MARKET ORIENTATION (1970s) u FARM CRISIS/ADJUSTMENT (1980s) u BUDGET DRIVEN POLICY (1990s) u INCOME SUPPORT & MANAGE INSTABILITY (Current)

5. 5 DOMESTIC FARM POLICY PRICE & INCOME PRODUCTION CONTROL STOCKS MANAGEMENT DISASTER ASSISTANCE FAMILY & COMMUNITY

6. 6 PRICE & INCOME POLICY u GOAL: Support Returns to Farmers u OPTIONS: Free MarketPrice Supports Target PricesFarm Income Insurance Marketing LoanBase Buyout Payment LimitsPIK DecouplingTargeting CooperativesMarketing Orders FlexibilityMarketing News Service Countercyclical payments Green payments

7. 7 STOCKS MANAGEMENT u GOAL:Provide price stability & food security u OPTIONS: Free Market CCC Stocks Farmer-Owned Reserve

8. 8 PRODUCTION CONTROL POLICY u GOAL: Adjust production to market ends (stability) u OPTIONS : Free MarketAllotments & Quotas Land Retirement & Diversion --Soil Bank --PIK --CRP --Set-aside (ARP) Termination/Buyout Marketing News ServiceMarketing Orders

9. 9 DISASTER ASSISTANCE POLICY u GOAL:Stabilizing & supporting farm income after disasters u OPTIONS: Free Market Disaster Payments All-Risk Crop Insurance Emergency Loans

10. 10 FAMILY & COMMUNITY POLICY u GOAL:Maintaining/improving family/ community stability & growth u OPTIONS: Free MarketPrice Supports Target PricesARP Employment/training Programs Alternative Economic Support Programs Credit Technology (public/private) Infrastructure Support

11. 11 1990 “FARM ACT” u Dual Statutory Structure –Food, Agriculture, Conservation & Trade Act of 1990 (FACTA 90) »25 Titles –Agricultural Reconciliation Act of 1990 (ARA 90) u $55+ billion spent on commodity programs 1991-1995

12. 12 1990 Farm Policy Goals/Mechanisms Reduce Budget Deficit Become More Competitive Improve Environment Cut Payment Acres Planting Flexibility Market- Oriented Loan Rates Ag Resources Conservation Program Export Support Programs

13. 13 Farm Program Outlays Planned Outlays:

14. 14 Federal Agriculture Improvement & Reform Act (FAIR) OF 1996 u 7-YEARS (1996-2002) u Phasedown govt. support 2/fixed payments u Eliminates –Target Prices & Deficiency Payments –Acreage Reduction Program –Mandatory Crop Insurance u Establishes Market Transition Payments

15. 15 FAIR (con’t) u Increases Planting Flex u Phasedown milk support price to $9.90 in 1999; replace w/recourse loan in 2000 u Cap CRP at 36.4 mil. Ac.; EQIP, other programs approved u Fund for Rural America u Food Stamp/Nutrition reauthorized for 2 years.

16. 16 1996 Far Act Success or Failure u 7-yrs. To efficiency for Crop producers? 2002: No u 4 yrs. For efficiency for Dairy Producers? 2002: No u Near total flexibility 2002: Yes; very popular u More volatility in Feed Price & Supply 2002: Yes u Continued support for export markets 2002: Yes, but questionable support

17. 17 2002 Farm Act: Forward and Reverse? u Concerns of profitability, stability, rural development and the environment u Farm/Commodity Groups and Congressional Reps who had favored market orientation in 1996 reversed course & took the lead in promoting an expanded role for the Federal government & government funding u Defacto admission that the free market was not what they really wanted?

18. 18 The Future of U.S. Agriculture: Factors & Constraints INPUTS --Natural --Capital --Human --Social SUPPLY --Production --Processing --Distribution --Import --Technology DEMAND --Tastes/Pref. --Income --Employment --Population --Domestic --Export --Domestic OUTPUTS --Stability --Economic Growth --Environment Commodity Energy Res. & Dev. Environment Trade Immigration Transportation Education Consumer Foreign Rural Development Monetary Fiscal Technology Land

19. 19 Summary u Domestic farm policy continues to evolve, based on farm problems & objectives at each time in history u Recent farm acts focused on: – deficit reduction –becoming more competitive –enhancing environment u 1996 farm bill, driven by budget & market focus, planned to significantly reduce government support over 7 years u In fact, govt support broke all records u 2002 farm bill poised to sustain high levels of federal spending for agriculture

20. 20 Assignments u 22-29 Sep: Read K 7, L5a