Top-ten reasons to start over on the farm bill
by Daryll E. Ray, University of Tennessee at Knoxville
The commodity portion of the new farm bill is destined to be a Super Freedom-to-Farm since it will basically take the 1996 legislation and wrap it with a method to automatically pay “emergency payments.” Even though farmers despise the price and market income results of the 1996 legislation, the collective legislative response seems to be: “Let’s do it again.” Do we really think the results will be different the second time around? Maybe, we should just start over. For the sake of discussion, what would be the top reasons for reconsidering farm legislation? My top-ten list would be:
By shaping farm policy to
cause large direct payments, farmers are being portrayed by editorial writers
and conservative think-tanks as politically-powerful, money-grubbing corporate
welfare cheats.
Since Farm policy is now
a money game, anybody and everybody producing a food or fiber product wants to
play, even for those products for which the market or existing price and
income stabilization methods perform satisfactorily over time.
Current commodity policy
is not a farm policy it is an agribusiness policy Why? Because farm policy
approaches could generate current or higher income levels without spending
tens of billions of dollars annually in direct payments. But to allow
agribusiness to a) maximize sales of fertilizer, seed, and chemical and to b)
maximize volumes processed and transported requires fence-row-to-fence-row
production; which means unnecessarily depressed prices; which means
unnecessarily low market incomes; which means large government payments but it
is agribusiness that gets the ‘increased’ income, not farmers.
The cost of the new farm
bill is almost assuredly seriously underestimated. The export assumptions
underlying the cost estimates for the 2002 bill are very optimistic. In fact,
the carnage has already begun. It is expected that farm subsidies will be
billions of dollars higher this crop year because of “slow” exports-that’s
billions of dollars that will not be available for funding future years of the
new legislation according to the original protocol for funding a new bill. We
estimate that the new legislation could easily cost $100 billion more that
its $170 billion projected cost if crop exports simply follow the trend of
the last 20 years.
Export worship continues
to underpin the current commodity policy direction. Farmers want to believe
and agribusinesses fan the obsession while politicians, journalists, and
economists provide rationalizations as to why exports have not grown as
promised. This has been going-on for about a quarter of a century. The
latest excuse-which undoubtedly is a true explanation for most products the
high value of the dollar. But if you look at the data in the case of soybeans
and corn, no pattern of competitor exports related to relative exchange rates
is apparent. For all exchange rate configurations, our competitors export
every bushel produced that they do not need domestically, period.
There is no recognition
that, when crop prices capsize, market demand does not provide a rigging to
raise them back up again. In crop agriculture, a drop in price does not cause
the quantity demanded to increase enough to sufficiently draw down inventories
and cause prices to bounce back.
There is also no
recognition that market response on the supply side is of no help in the
search for a cure for low prices. Farmer Jones-or his replacement, should
farmer Jones go bankrupt-will plant his crop acreage to something. That’s why
discussions about whether loan rates should be changed a few cents for this
crop or that are akin to rearranging deck chairs on the Titanic. Viewed from
the standpoint of total acreage cropped, raising or lowering loan rates a few
pennies ain’t going to matter much; cropland acreage will be planted to one
crop or another, depressing all prices. Same is true for the existence or
lack thereof of decoupled, “emergency” or other government payments.
While belief in market
self-correction via supply and demand response to depressed prices may have
been a reason to embrace the 1996 legislation, why would we want to take that
dog out to hunt again this time around?
In addition to providing
no price floor, commodity prices can soar to unexplored heights. With no real
buffer stocks and super-low U.S. yields for a year or two, crop price levels
could go so high and feed availability could drop so low that major domestic
livestock-feed demanders and export customers would scurry to find long term
non-U.S. suppliers of corn and soybean meal. This is a not far-fetched
possibility. We will have a 25 to 30 percent yield shortfall sometime. If
that happened now, prices could go to levels we have never experienced. In
addition, to the response by traditional demanders of feed, how do you think
China, Argentina and Brazil will react? Prospective legislation needs buffer
stock policy, if no other reason appeals, to preserve existing and especially
long-term export markets.
In addition to no authority to create buffer stocks, the Secretary of agriculture also has no levers to affect the level of output. The Secretary needs both these authorities if farmers are to once again receive their net income from the market place rather that from the mailbox. Starting over would not be the worst thing in the world. The reality is that most farmers have already made their planting decision, so there is no hurry on that account. With a little extra time and the pressures of a deficit budget, it is possible that Congress might find a more cost efficient way to provide for a stable farm sector that continues to provide an adequate safe supply of food at reasonable prices and still be environmentally responsible.
Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture , University of Tennessee, and is the Director of the UT’s Agricultural Policy Analysis Center. (865) 974-7407; Fax: (865) 974-7298; dray@utk.edu; http://www.agpolicy.org.