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

The Setting for the Next Farm Bill

The Economic Setting

The Budget Setting

The Trade Setting

The Political Setting

The Economic SettingU.S. Net Farm Income

and Government Payments

Source: USDA Economic Research Service

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1970 1975 1980 1985 1990 1995 2000 2005

Bil

lio

ns

Net Farm Income (Less Govt Pay) Government Payments

The Budget SettingDeficits Are Not the Only Factor

Source: Congressional Budget Office and other historical sources

-500

-400

-300

-200

-100

0

100

200

1965 1970 1973 1977 1981 1985 1990 1996 2002 2007

Farm Bill Cycle Year

$ B

illio

n

-5

-4

-3

-2

-1

0

1

2

% o

f G

DP

Budget Balance - $ Billion (left) Budget Balance - % of GDP (right)

Federal Farm Spending on Commodities, Conservation,

and Trade

Source: CBO

0

20

40

60

80

100

120

$ B

illi

on

s

Projected 2002-2007 Est. Actual 2002-2007 Projected 2008-2013

The Trade SettingWTO or not WTO?

WTO negotiations

Domestic supports Export competition Market access

No WTO negotiations

WTO dispute settlement• Brazil-US cotton case• Canada-US

consultation on corn• Brazil-US complaint

on domestic supports

The Political Setting

More players at the table

Conservation interests want a larger share of money

Nutrition and food assistance are key to the Farm Bill coalition

Rural development and energy are looking for funding

Issues and Alternatives

Commodity programs Crops Dairy Sugar

Payment limits Specialty crops Conservation Energy

2007 Farm Bill

Commodity Programs

Farm Income Safety Net

Three-part safety net Marketing loans and loan deficiency payments

• Income support tied to price and production Counter-cyclical payments

• Income support tied to price and historic production base

Direct payment• Fixed payment tied to legislated rate and

historic production base

Farm Bill Producer SurveyExisting Program Funding Priorities

2.0

2.5

3.0

3.5

4.0

4.5

5.0

DP CCP ML/LDP LivestockComm

LandRetirement

WorkingLands

Preser-vation

Insurance Ag Credit DisasterAssistance

Av

era

ge

Sc

ore

Small Medium Large Composite

5-part safety net

Note: Average scores by size category (1 = least important, 5 = most important).

Status QuoThe Safety Net May Not Be Much Net

Source: USDA and FAPRI

Corn Program Payments

-

0.25

0.50

0.75

1.00

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Marketing Year

$/B

ush

el

Direct Payment LDP+CCP (7/02) LDP+CCP (3/07)

House Farm Bill Counter-Cyclical Payment Options

Price PCCP Rate = Target Price - Direct Payment Rate - Max

(Loan Rate, Market Price) Farm PCCP = PCCP Rate * Farm Base Acres * Farm

CCP Yield * 85%

Revenue National RCCP Rate = Target Revenue - National

Average Yield * Max (Loan Rate, Market Price)) / National Average CCP Yield

Farm RCCP = National RCCP Rate * Farm Base Acres * Farm CCP Yield * 85%

Durbin-Brown Revenue Counter-Cyclical Payment

Guarantee State DB-RCCP Guarantee = Expected State Yield * 3-

Year Average Revenue Insurance Pre-Plant Price * 90%

Payment 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%

The Farm Income Safety Net“A Multiplicity of Confused Concepts”

Production

Revenue

Price

National LevelArea LevelFarm LevelScope of Risk Protection

ML/LDP PCCP

APH GRP

DB-RCCP

RA/IP GRIPAGR

CAT

SELP

CDP

RA-HPO/CRC

DP

Hedging

RCCP

Dairy and SugarHouse Legislation

Dairy Maintains price support program and shifts support from

milk to cheese, butter, and nonfat dry milk Maintains Milk Income Loss Contract

Sugar Maintains support program and increases loan rate Ensures domestic market share for domestic production

and mandates use of “surplus” imports for ethanol production

2007 Farm Bill

Payment Limits

Commodity Program Payment Limits

House legislation Eliminate the 3-entity rule and apply direct attribution of

payments to individuals Marketing loan

• Eliminate certificates• Eliminate $75,000 limit on MLG/LDP

Direct payments• Raise limit from $40,000 to $60,000

Counter-cyclical payments • Maintain limit at $65,000

Spouses eligible for second limit

Eligibility for Commodity and Conservation Programs

Current rules $2.5 million AGI limit unless at least 3/4 from

agriculture House legislation

$1 million AGI limit with no exception $500 thousand limit unless at least 2/3 form

agriculture USDA proposal

$200 thousand AGI cap with no exception

2007 Farm Bill

Specialty Crops

Specialty CropsHouse Legislation

New “Horticulture and Organic Agriculture” title and funding State block grants - $365 million Additional Section 32 fruit, vegetable, and nut purchases - $991 million Pest and disease management - $200 million Organic certification cost-share - $20 million Farmers market assistance - $35 million

Increases in other related programs Conservation Innovation Grant Program (Conservation) Market Access Program (Trade) School fruit and vegetable program (Nutrition) Specialty Crop Research Initiative and Organic Agriculture Research and

Extension Initiatives (Research)

No change in fruit and vegetable planting restriction Exception for pilot program of 10,000 acres for processing tomatoes in Indiana

2007 Farm Bill

Conservation

Farm Bill Producer SurveyExisting Program Funding Priorities

2.0

2.5

3.0

3.5

4.0

4.5

5.0

DP CCP ML/LDP LivestockComm

LandRetirement

WorkingLands

Preser-vation

Insurance Ag Credit DisasterAssistance

Av

era

ge

Sc

ore

Small Medium Large Composite

Note: Average scores by size category (1 = least important, 5 = most important).

Conservation Programs

Working lands programs CSP EQIP

Retirement programs CRP WRP

Preservation programs FRPP GRP

Copyright NRCS

Copyright NRCS

Conservation Programs

House legislation Maintains CRP and expands WRP Expands EQIP and other working land

programs, but tables CSP until 2012 Expands FRPP and GRP Expands CIG for air quality

Senate expectations Significant expansion of CSP under

Comprehensive Stewardship Incentives Program

CRP Expiring AcreageBefore and After USDA Extension Offer (Tentative)

Source: USDA Farm Service Agency

Conservation Reserve Program

Source: USDA Farm Service Agency

Conservation Security ProgramUnlimited Promise, Limited Experience

Source: USDA Natural Resource Conservation Service

2007 Farm Bill

Energy

Farm Bill Producer SurveyGoals for the Farm Bill

4.084.19

3.98 4.03

4.29

4.02

4.32 4.32

3.854.04 4.10

4.34

3.87

4.134.09

4.32

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Farm Income

Risk Reduction

Compet-itiveness

Small/BeginFarm

NaturalResources

RuralEconomy

FoodSupply

RenewableEnergy

Av

era

ge

Sc

ore

Composite NE Composite

Note: Average scores for composite results across size categories (1 = least important, 5 = most important).

Energy ProgramsHouse Legislation

Expanded “Energy” title and funding Biobased product procurement Loan guarantee programs

• Biorefinery development• Renewable energy and energy efficiency

Biomass research and development Bioenergy incentives

• Incentive payments to biofuels producers• No incentives for corn-starch-based ethanol

Biomass Energy Reserve Increases in other related programs

Bioenergy and Biobased Products Research Initiative (Research)

U.S. Ethanol Production and Policy Timeline

0

1000

2000

3000

4000

5000

6000

7000

8000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Mill

ion

Ga

llon

s

Ethanol Production Renewable Fuels Standard

Source: Renewable Fuels Association

Summary and Outlook

Drivers Economic setting Budget setting Trade setting Political setting

Key issues Farm Bill timing Farm income safety net

design WTO commitments Future of CRP and CSP Energy policy

Ag econ information – www.agecon.unl.edu

Farm Bill information – www.agecon.unl.edu/farmbill.html

USDA program information – www.usda.gov