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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