Senate debate of the farm bill proposal created by the Ag Committee has been boisterous; featuring a dichotomy of voices that one might believe the senators were re-creating the battle over states’ rights. Yes, the farm bill that has frequently melded the nation because of the desire to eat and feed the poor and hungry has become a battleground of south versus north. But why?
The 2012 Farm Bill will be approved, eventually, without direct payments that have been a part of the past two Farm Bills. However, the Senate attempt to replace the financial safety net was focused on the management of risk, and not on any type of crop support or financial transfer program. Consequently, the need to cut the federal budget has translated into cuts for crop producers which southern farmers find inequitable and quite distasteful.
University of Illinois agricultural economist Gary Schnitkey writes in his newsletter about the differences in financial support from one crop to the next. He says, “Financial reductions occurred because political conditions lead to a spending reduction in baseline agricultural spending.” But he said not all crops shared equally in the changes, from the 2008 Farm Bill to the Senate proposal for 2012. Soybeans had a 14% increase, but that was the only commodity that saw an increase in support. Corn support declined 30%, wheat is down 67%, cotton down 48%, rice is down 75%, and peanuts by 57%.
Replacing Direct Payments
With direct payments in the prior Farm Bills being made on base acres, payments were allocated on how much acreage was in a farming operation. The Agriculture Risk Coverage plan in the Senate proposal makes payments available on planted acres up to a limit, based on financial protection an individual farmer would select. Farm-level protection would limit the eligible acres more than county-level protection in the Senate proposal being debated, says Schnitkey. And he adds, “Crops that have lost acres over time and now have lower planted acres than base acres will lose more under the 2012 Farm Bill and vice versa.”
The changes in support levels are a function of the increase in planted acres, compared to base acres says Schnitkey, and planted acres for soybeans are 57% more than base acres, but for corn the margin is only 7%. However, when it comes to other crops, they have decreases in planted acres compared to base acres: 40% for cotton, 9% for peanuts, and 31% for rice. As a result they are losing more opportunity for financial support under a risk management plan, which is the nature of the legislation. Schnitkey says it will be difficult to have a Farm Bill with a risk management focus and still maintain the historical proportion of payments across crops. If higher payments were given to wheat, cotton and rice, Schnitkey says it would have unintended impacts on planting decisions in the future.
Significant Impact Hits Home
Currently rice producers are receiving nearly $100 per acre under the direct payment program, and Schnitkey says they will have to make adjustments under terms of the Senate bill, if it is adopted as is. But in a larger sense, he says, “These direct payments likely have become built into farmland rents and prices. Hence, loss of these payments likely will lead to adjustments in land markets, which will not occur instantaneously, but will occur with lagged relationships over time. Dealing with this issue presents policy challenges.”
Debate on the Senate’s version of the Farm Bill could end as early as today (Thursday, June 14), and if the Ag Risk Coverage safety net becomes the primary farm support tool in the 2012 Farm Bill, it will have significant changes, particularly for southern farmers. Their safety net in the past two farm bills has been keyed off base acres, but that would change to a risk management protection and financial support would substantially diminish. If the support in the past has been built into land values, the loss of that support will have a significant impact on land values and local economies in southern states, where impacted commodities are primarily produced.
Source: FarmGate blog