The 2012 2013 2014 U.S. Farm Bill: Will We Have One?

The 2012 2013 2014 U.S. Farm Bill: Will We Have One?

Brian W. GouldDepartment of Agricultural and Applied Economics

University of Wisconsin-MadisonUniversity of Wisconsin Extension

August 29, 2013

The U.S. Farm Bill• Every 5 years, the U.S. Congress passes

what is referred to as the Farm Bill Establishes Federal agricultural, conservation

and food policy objectives and programs • Name changes with each renewal:

Food, Conservation and Energy Act of 2008 Farm Security and Rural Investment Act of

2002Federal Agriculture Improvement and Reform

(FAIR) Act of 1996• 2008 Act expired at the end of Sept. 2012

Federal fiscal year: Oct. 1 – Sept. 30Extended for one year on Dec. 29, 2012

Extension Expires Sept. 30, 20132

Why Do We Have A Farm Bill?• To help smooth variability in farm income

To encourage taking risks associated with agricultural production

• Farmers provide public goodsNational food securityLand ownership = Jeffersonian democracyWildlife habitatEnvironmental Amenities

• Incentivize stewardship by farmersConservation compliance rules

• Income redistribution to offset rural povertySocial justice, moral/ethical concerns for poor

3

The U.S. Farm Bill•Overriding objectives of 2013 Farm Bill

are toReduce Federal expenditures↓ U.S. Agric. reliance on direct payments

and to ↑ use of individual risk management

4

The U.S. Farm Bill• 2013 Farm Bill time line

House of Rep. version : Federal Agriculture Reform and Risk Management (FARM) Act of 2013 Passed by the House Agriculture Committee: May 15th

House rejects full Farm Bill on a 195-234, June 20th

House passes a farm only Farm Bill on July 11th: 216-208 Not 1 Democratic voteNutrition program not included in farm only version

Senate version: Agriculture Reform, Food and Jobs Act of 2013Passed by Senate Committee on Agriculture, Nutrition and

Forestry: April 26th

Passed by the Senate on a 66-27 vote, June 10th

Includes Nutrition title

5

• Huge document, with lots of titles (i.e., chapters) that outline Federal agricultural programs 2002 Bill had 10 titles 2008 Bill had 15 titles2013 (Senate version) had 13 titles

I. Commodities II. Conservation III. Trade IV. NutritionV. Credit VI. Rural Dev.VII. Research/Related Matters VIII. Forestry IX. Energy X. HorticultureXI. Crop Insurance XII. Miscellaneous

House version the same except No Nutrition TitleWhy is this such a significant difference between the

two versions?

The U.S. Farm Bill

6

Farm Bill Spending

7

Farm Bill Spending

15.5%

8

Farm Bill Spending• A majority of USDA spending goes for food and

nutrition programsFood stamps, school lunch/breakfast, WIC, etc.

• Payments to FarmersCommodity Support, Disaster Assistance, Crop Insurance

and Conservation Payments

6%

16%

6%72%

All Other

Farm & CommodityProg.

Conservation &Forestry

Nutrition

2013 Budget Allocation

9

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0House Senate

Bill

ion

$

Projected 2013 Farm Bill Spending Changes(2015-2019 FY)

Senate reduction is 47.9% of House reduction in CBO scoring of projected budget outlays

10

House Version Senate VersionNutrition: 48% of ↓ Nutrition: 17% of ↓

Projected 2013 Farm Bill Spending Changes(Billion $, 2015-2019 FY)

-$10,893

-$1,068

-$11,049

Commodity Conservation Nutrition

-$9,723

-$706

-$2,061

Commodity Conservation Nutrition

11

Projected 2013 Farm Bill Spending Changes(Billion $ 2015-2019 FY)

-20

-15

-10

-5

0

5

HouseSenate

12

Crop Insurance Versus Commodity Program Costs

13

Direct Government Payments(1950-2011)

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000

Nominal $Real $

14

Distribution of Producer Payments

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fixed Payments

Payments aFunction ofCrop Prices

Conservation

Other

15

Government Payments As A Share of FarmNet Cash Income: 2007-2009

< 20%20-29%

30-49%

50%+

16

Average Government Payment per Farm by Farm Type

Rural residence: Small farms whose operators are retired/reported a nonfarm occupation as primary

Intermediate farm: Small family farms whose operators report farming as primary occupation

Commercial farm: Large-scale farms with gross annual sales of $250,000 or more

17

Government Payments as a % of Gross Cash Income By Farm Size

18

• Where does it go from here?Possible paths for legislation to follow:

Grant a 2nd 1 year extension Let 2012 Farm Bill expire → Permanent

1949 legislation defines agricultural policy Refer to House/Senate Conference

Committee to work out Bill differences: Adopt Senate version as the working document:

Add Nutrition Title back into Farm Bill Keep Senate proposed funding cuts (unlikely) Funding cuts somewhere between House vs. Senate

version (likely) Drop Nutrition Title from Senate version

(unlikely)19

The U.S. Farm Bill

• Congress is in recess until Sep. 9th • Only 9 scheduled session dates in

Sept. once they return • Members are only scheduled to be in

town for 30 days during Oct-Dec Most of this time will occur in

Oct.

20

The U.S. Farm Bill

• The House and Senate versionsEliminates existing Federal dairy policies

Dairy Export Incentive Program (DEIP) Dairy Product Price Support Program (DPPSP)

In effect in some form since 1947 Milk Income Loss Program (MILC)

Similar to Target Price Deficiency payment for grainsReplaces these programs with:

A voluntary Dairy Producer Margin Protection Program (DPMPP) in Senate and House versions

A voluntary Dairy Market Stabilization Program (DMSP) in Senate version

21

2013 Farm Bill Dairy Sub-Title

• The 2012 Farm Bill proposes to eliminate the following programs:Dairy Export Incentive Program (DEIP)Dairy Product Support Program (DPSP)

Been in effect in some form since 1947Milk Income Loss Program (MILC)

Similar to a Target Price Deficiency payment for grains

22


•DPMPP Objective: Reduce margin volatilityLittle room for contract flexibility:

Same assumed feed ration for all producers All feed is assumed purchased by all producers

Margin is the difference between U.S. average All-Milk price Cost of program-specific ration ($/cwt milk)

Two-month average (e.g., Jan-Feb, Mar-Apr, etc.) Re-evaluated 6 times per year

23


• DPMPP dairy ration includesFeed required by milking herdAlso feed required by

Heifers Hospital Dry cows

• Ration Definition % Composition (by weight)

Corn: 58.8% SBM: 14.4% Alfalfa: 26.8%Ration Weight (lbs)

Corn: 60.1 SBM: 14.7 Alfalfa: 27.4

24


25

• Basic Margin Insurance:$4.00 Base Margin Insurance @ $0 cost Indemnity = difference between average actual

margin for consecutive 2-month period and $4.00

Maximum indemnity of $4.00Coverage is the lesser of

80% of production history divided by 6 or Actual quantity of milk marketed during

consecutive 2-month period Growth option for base is possible


26

• Supplemental Margin Insurance:Can cover 25% to 90% of base Indemnity is the difference between the target

and the higher of the actual average 2 month margin or $4.00

Coverage is the purchased coverage % times the lesser of:•Annual production history divided by 6 or•Actual amount of milk marketed over the

consecutive 2-month period


• DPMPP coverage levels and premiums: ≤ 4 Mil. Lbs. produced, $/cwt

27

Coverage Level Premium Net

Coverage4.00 0.00 4.004.50 0.01 4.495.00 0.02 4.985.50 0.035 5.4656.00 0.045 5.9556.50 0.09 6.417.00 0.40 6.607.50 0.60 6.908.00 0.95 7.05


28

Coverage Level

House Senate

Premium Net Coverage Premium Net

Coverage4.00 0.030 3.970 0.00 4.0004.50 0.045 4.455 0.02 4.4805.00 0.066 4.934 0.04 4.9605.50 0.110 5.390 0.10 5.4006.00 0.185 5.815 0.15 5.8506.50 0.290 6.210 0.29 6.2107.00 0.380 6.620 0.62 6.3807.50 0.830 6.670 0.83 6.6708.00 1.06 6.940 1.06 6.940


• DPMPP coverage levels and premiums, House and Senate, > 4 Mil. Lbs. produced ($/cwt)

• Under the Senate version to enroll in the DPMPP the producer must enroll in the Dairy Market Stabilization Program (DMSP)Uses same margin evaluations as in DPMPPProducers required to ↓ milk marketings depending

on recent margin historyForm of supply management

29


• Under DMSP:During month in which payment

reductions are in effect each handler will reduce payments to participating farms

30

Lower Margin

Upper Margin

# of Months to

Trigger DMSP

Reduced By The Lower Of

% DMSP Base ↓

Max % Current ↓

----- $4.00 1 4 8$4.00 $5.00 2 3 7$5.00 $6.00 2 2 6


• No Suggested FMMO (Pricing) reform in the House version Repeals the FMMO Review Commission

• Under Senate version:Not later than 120 days after the date of enactment of this Act, the Secretary shall issue a request for the submission by interested persons of preliminary proposals for replacement of the Class III milk product pricing formula May include competitive pay price formula

31


32

Contact Information

The Univ. of Wisconsin Understanding Dairy Markets website: http://future.aae.wisc.edu

Brian W. Gould(608) [email protected]

Documents

The 2012 2013 2014 U.S. Farm Bill: Will We Have One?