Farm Bill Background

Bradley D. Lubben, Ph.D.Extension Assistant Professor, Policy Specialist, and Director, North Central Risk Management Education

Center

November 10, 2014

Web information – agecon.unl.edu/agpolicy or farmbill.unl.edu

North Central Risk Management Education Center – ncrme.org

E-mail – blubben2@unl.edu

Farm Bill Timeline

• 2011• Joint Select Committee on Deficit Reduction (the “Supercommittee”)

• Senate and House Ag. Committees proposed new farm bill language, but the Supercommittee failed to reach an agreement.

• 2012• Senate farm bill adopted and House Agriculture Committee farm bill reported, but no

House consideration • 2008 Farm Bill extended through 2013

• 2013• Senate farm bill passed in June• House farm bill fails June vote

• Farm-only farm bill (minus Nutrition title) passes in July• Nutrition title passes in September

• 2014• Conference report completed in January• Farm Bill became law on February 7

The Farm Bill Setting

• Policy Drivers

• Economics

• Budget

• Trade

• Politics

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

Net Farm Income (Less Govt Pay) Government Payments

The Economic SettingU.S. Net Farm Incomeand Government Payments

Source: USDA Economic Research Service

1996 Farm Bill 2002

Farm Bill

2008 Farm Bill

1985 Farm Bill

1990 Farm Bill

Data file: ag value added – nebraska and us.xlsx

2014 Farm Bill

FAPRI’s Baseline reports confirmed a general perception we were in a period of high prices

Crop Insurance had grown by five-fold --- apparently supplanted Ad hoc programs--- Insured price risk--- Insured area yield and revenue

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20092012

0.0

50.0

100.0

150.0

200.0

250.0

300.0

U.S. Crop Insured Acres

2013 Soybean Coverage Levels

2013 Cotton Coverage Levels

Base Acres Versus Planted Acres-- became a hot button issue-- distortion versus risk protection

Crop

CBO Estimate of Base Acres

millions

CBO Estimate of Planted Acres

millions%

DifferenceCorn 84.1 90.0 7%

Soybeans 50.1 76.7 53%Wheat 73.8 52.5 -29%Cotton 18.1 10.9 -40%Rice 4.4 3.1 -31%

Peanuts 1.5 1.3 -9%

Federal Budget Challenges

Source: Congressional Budget Office, February 2014

Data file: budget and economic numbers.xlsx

Federal Spending Federal Revenue0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Net Interest; $231

Defense; $594

Social Security; $845

Medicare; $603

Medicaid; $305

Other Mandatory; $330

Other Discretionary; $576

Individual Income Taxes; $1,390

Corporate Income Taxes; $315

Social Insurance Taxes; $1,024

Other Taxes and Receipts; $237

Borrowing; $545

Total Federal Spending and Revenue, FY 2014

$ B

illio

ns

Federal Budget Challenges

Source: Congressional Budget Office, February 2014

Data file: budget and economic numbers.xlsx

19701973

19761979

19821985

19881991

19941997

20002003

20062009

20122015

20182021

202414%

16%

18%

20%

22%

24%

26%

Total Federal Revenues and Outlays

Pe

rce

nt

of

Gro

ss

Do

me

sti

c P

rod

uc

t

Outlays

Revenues

Average Revenues,1970 to 2009

Average Outlays,1970 to 2009

Actual Baseline Projection

Farm Bill Budget

AreaOriginal

2014-2023 Baseline

Senate Proposal

(S954)

House Proposal(HR1947/

3102)

Agricultural Act of 2014(HR2642)*

($ billions) (change in $ billions)

(change in$ billions)

(change in$ billions) ($ billions)

Commodities $58.8 -$17.4 -$18.7 -$14.3 $44.5

Crop Insurance $84.1 +$5.0 +$8.9 +$5.7 $89.8

Conservation $61.6 -$3.5 -$4.8 -$4.0 $57.6

Nutrition (SNAP) $764 -$3.9 -$39.0 -$8.0 $756

Other Titles $4.0 +$1.9 +1.7 +$4.1 $8.1

Total $973 -$17.9 -$51.9 -$16.5 $956

* HR 2642, the “Agricultural Act of 2014” as reported out of Conference on January 27,2014 passed the House on January 29, 2014 by a 251-166 vote, passed the Senate on February 4, 2014 by a 68-32 vote, and was signed by the President on February 7, 2014.

The Trade SettingWTO or not WTO?• WTO negotiations

• Doha Round• Started in 2001• Negotiations at a

stalemate in 2014

• Domestic supports• Export competition• Market access

• No WTO negotiations

• WTO dispute settlement• Brazil-US cotton case

• Complaint in 2002• Final agreement in 2014

• Canada and Mexico-U.S. COOL Rules

• Complaint in 2008• Noncompliance ruling in

Oct 2014• Action pending

• Bilateral and regional trade negotiations and implementation

• TTIP• TPP

The Political SettingThe Policy Development Process

Source: Schweikhardt, 2007

The Political SettingThe Policy Development Process

Source: Schweikhardt, 2007

The Splintering into Commodity “Teams”Teams Commodities Preferred Policy Motive

Revenue-ers Corn and Soybeans

Shallow Loss Revenue (County ARC)

Negative price-yield correlation, Buying high levels of crop insurance coverage, liked Olympic average price

Traditionalists Rice, Peanuts Southern wheat

Price targets (PLC)

Rice has mostly price and input cost risk, peanuts are highly contracted, buy lower crop insurance coverage

Bold Movers Cotton STAX WTO, Recognized Title 11 was golden and Title 1 controversial

The other white crop

Milk Dairy margin/supply control

Wanted ‘pseudo-insurance’ (insurance with legislated premiums)

Big County Crowd

Mountain State wheat

Individual ARC Perceived county triggered programs will not work in large counties

Wallflowers Sugar Status quo It is good to not score at CBO

The Non-commodity “Teams”Teams Preferred Policy MotiveEnvironmental Dealers

Conservation compliance

Pragmatic get your foot in the door on insurance

Environmental No-dealers

Reduce Title 1 and 11

Throw a bomb in the room

The Tea Party-Heritage faction

Reduce Title 1 and 11

Throw a bomb in the room

The traditional “Foodie”

Support SNAP, WIC, School Lunch

Assist the poor

The Neo-Foodie Local food, GMOs, specialty crops, animal welfare

Assist the up-scale consumer

The 2014 Farm BillMore than Just the Farm

• Research, Extension, and Related Matters

• Forestry• Energy• Horticulture• Crop Insurance• Miscellaneous

• Commodities• Conservation• Trade• Nutrition• Credit• Rural Development

Copyright FPC International

Farm Bill Budget

AreaOriginal

2014-2023 Baseline

Senate Proposal

(S954)

House Proposal(HR1947/

3102)

Agricultural Act of 2014(HR2642)*

($ billions) (change in $ billions)

(change in$ billions)

(change in$ billions) ($ billions)

Commodities $58.8 -$17.4 -$18.7 -$14.3 $44.5

Crop Insurance $84.1 +$5.0 +$8.9 +$5.7 $89.8

Conservation $61.6 -$3.5 -$4.8 -$4.0 $57.6

Nutrition (SNAP) $764 -$3.9 -$39.0 -$8.0 $756

Other Titles $4.0 +$1.9 +1.7 +$4.1 $8.1

Total $973 -$17.9 -$51.9 -$16.5 $956

* HR 2642, the “Agricultural Act of 2014” as reported out of Conference on January 27,2014 passed the House on January 29, 2014 by a 251-166 vote, passed the Senate on February 4, 2014 by a 68-32 vote, and was signed by the President on February 7, 2014.

So what do lower prices do to these Baselines?

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 20240

2000

4000

6000

8000

10000

12000

14000

16000

2007-2013 CBO Actual and April 2014 Projected Out-lays

Crop Ins Title I

Year

Mill

ion

$

Lower Insurance Cost

Higher Title I Cost

Farm Bill Directions

• Farm income safety net has evolved over time• Price support and supply control• Income support tied to price and revenue• Risk management

• Future program components• Crop insurance as the foundation• Revenue safety net or price safety net• Underlying marketing loan• Supplemental crop insurance• Disaster assistance• No direct payments

Farm Bill Details and Decisions• Commodity programs

• ARC-IC vs. ARC-CO vs. PLC

• Base acreage update• Payment yield update• Dairy margin protection

• Crop insurance• SCO• STAX

• Disaster assistance

• Conservation• CRP enrollment/expiration• Voluntary programs• Conservation compliance

for crop insurance• Sodsaver provisions for the

Northern Plains states

• Other programs• Rural development• Horticulture/specialty

crops• Beginning farmer programs