1. APCA Traditional Farm Bill Mission: It Is Neither Impossible Nor Changed Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center American Agriculture Movement Annual Convention Oklahoma City, Ok January 7, 2006

2. APCA Lost Our Policy Bearings Without a clue and highly impressionable –When it comes to farm policy, we seem not to have a clear idea about anything including: what the “problem” is or what objectives are to be achieved –So we are willing to believe anything!

3. APCA We Seem Willing to Believe that: Staple crops are not sufficiently important to have emergency reserves (oil is sufficiently important) Less than full use of farm productive capacity is inefficient (SOP to not use full capacity in other sectors—currently at 77% of capacity) Farmers can extract billions of dollars for commodity programs—so they do Hence, commodity programs are a waste –do away with them or –pay out the money on some other basis

4. APCA Historical Policy Components Policy of Plenty: Ongoing public support to expand agricultural productive capacity through research, extension and other means Policy to Manage Plenty: Mechanisms to manage productive capacity and to compensate farmers for consumers’ accrued benefits of productivity gains

5. APCA Why Chronic Problems In Ag? Technology expands output faster than population and exports expand demand –Much of this technology has been paid for by US taxpayers The growth in supply now is being additionally fueled by –increased acreages in Brazil, etc. –technological advance worldwide

6. APCA Why Chronic Problems In Ag? In agriculture lower prices do not solve the problem Little self-correction on the demand side –People will pay almost anything when food is short –Low prices do not induce people to eat more Little self-correction on the supply side –Farmers tend to produce on all their acreage –Few alternate uses for most cropland –Farmers do not scrimp on the use of yield- determining inputs

7. APCA What Was That Again? Supply and demand characteristics of aggregate agriculture cause chronic price and income problems –On average supply grows faster than demand –Agriculture cannot right itself when capsized by low prices –(Always year-to-year random variability)

8. APCA From My Perspective… Crop exports did not deliver—will not deliver For total-crop agriculture, timely free—market self- correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide creation in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable U.S. policy possibilities and premises

9. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide endeavor in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives: The preferable (well, preferable in my opinion), the possible and the likely

10. APCA China Net Corn Trade China Net Corn Trade What We Expected: 1996 FAPRI Projections of Net Corn Trade Corn Exports Corn Imports Mil. Bu. 1996 FAPRI Projections

11. APCA China Net Corn Trade China Net Corn Trade What We Got: 1996 FAPRI Projections of Net Corn Trade PS&D Actual Net Corn Trade with 2004 Projection Corn Exports Corn Imports Mil. Bu.

12. APCA Exports Have Not Delivered Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops 1979=1.0 US Population US Exports US Domestic Demand *Adjusted for grain exported in meat

13. APCA 15 Crop Exports for US and Developing Competitors Developing competitors: Argentina, Brazil, China, India, Pakistan, Thailand, Vietnam 15 Crops: Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley, Millet, Soybeans, Peanuts, Cottonseed, Rapeseed, Sunflower, Copra, and Palm Kernel Thousand Metric Tons US Developing Competitors

14. APCA U.S. Total Ag Exports Have Grown Slower Than Total Ag Imports Ag Exports Ag Imports Billion Dollars

15. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide endeavor in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives: The preferable (well, preferable in my opinion), the possible and the likely

16. APCA Acreage Response to Lower Prices? Index (1996=100) Four Crop Acreage Four Crop Price Adjusted for Coupled and Decoupled Payments Four Crop Price Adjusted for Coupled Payments Four Crop Price Between 1996 and 2000 Aggregate US corn, wheat, soybean, and cotton acreage changed little While “prices” (take your pick) dropped by 40, 30 or 22%

17. APCA Acreage Response to Lower Prices? Index (1996=100) Four Crop Acreage Four Crop Price Since 1996 “Freedom to Farm” Aggregate US corn, wheat, soybean, and cotton acreage changed little despite a wide fluctuation in price

18. APCA Canada: Farmland Planted Million Acres Wheat Barley Canola Other Grains Other Oilseeds Canada reduced subsidies in 1990s Eliminated grain transportation subsidies in 1995 Crop mix changed, total acreage remained flat

19. APCA Australia: Farmland Planted Million Acres Wheat Coarse Grains Oilseeds Australia dramatically reduced wool subsidies in 1991 Acreage shifted from pasture to crops All the while, prices declined

20. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide creation in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives: The preferable (well, preferable in my opinion), the possible and the likely

21. APCA Worldwide Excess Capacity Will Be The Long-run Problem Dramatic yield increases in other countries –Cargill, Monsanto, John Deere, etc., etc., etc. Acreage once in production will be brought back in –Russia, Ukraine and others New Acreage –Brazil –China

22. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide creation in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives: The preferable (well, preferable in my opinion), the possible and the likely

23. APCA What Agribusinesses Want Volume (paid flat per bushel rate; sell inputs) Low Prices (low cost of ingredients) Price instability (superior information systems provide profit opportunities) Reduced regulation of production and marketing practices (seller-to and buyer-from beware) More market power over competitors and their customers/suppliers (Want everyone at a competitive disadvantage)

24. APCA Monsanto’s Control of Crop Genetics In 2004, Monsanto’s technology accounts for: –85% of all U.S. soybean acreage –45% of all U.S. corn acreage –76% of all U.S. cotton acreage 84% of all U.S. canola acreage was genetically modified Source: Center for Food Safety

25. APCA Control of U.S. Grains and Oilseeds Cargill, ADM, and Zen-Noh export 81% of U.S. corn ADM, Cargill, Bunge, and AGP control 80% of the U.S. soybean crush Horizon (Cargill and CHS), ConAgra, Cargill, and Cereal Food Processors control 63% of flour milling in the U.S. Source: Mary Hendrickson

26. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide creation in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives: The preferable (well, preferable in my opinion), the possible and the likely

27. APCA The US Can’t Go On Like This… The current farm programs are too expensive –Budget boogie man 100s of billion of dollars of annual deficits—several trillion dollars over 10 years Cuts in Farm Programs almost certain GAO report is likely to curtail Payment- Limitation-“Winking” WTO ruling may put LDPs and Counter- Cyclical Payments in jeopardy –Removes ability to compensate for low prices even less than in 1996 FB

28. APCA Government Payments as a Percent of Net Farm Income

29. APCA

30. APCA

31. APCA

32. APCA

33. APCA The US Can’t Go On Like This… Continued WTO negotiations that further neuter ability to set domestic farm policy in this and other countries –What is good for General Motors (multinationals)… syndrome –The whole WTO process shows a complete lack of understanding of the unique characteristics of food and agriculture –It is a clear case of not understanding that, as important as economics is, it can be trumped by food security and other social objectives in the case of food and agriculture

34. APCA My Question to US Farmers Is: What Are You Going to Do About It? One alternative is passively sit by, be co-opted, and let others commandeer the policy agenda –That is exactly what producers have increasingly done since the mid-eighties!!! –Crop producers get subsidy-tarred while real subsidy beneficiaries (integrated livestock producers and other users, sellers of inputs and marketers of output) remain above the fray –Advocating unfettered free markets, promising export growth, or claiming a level playing field as farmers’ magic bullet, etc., ain’t workin. –And, given the realities of agriculture discussed so far, they hold little promise for the future.

35. APCA My Question to US Farmers Is: What Are You Going to Do About It? One alternative is passively sit by, be co-opted, and let others commandeer the policy agenda –That is exactly what producers have increasingly done since the mid-eighties!!! –Crop producers get subsidy-tarred while real subsidy beneficiaries (integrated livestock producers and other users, sellers of inputs and marketers of output) remain above the fray –Advocating unfettered free markets, promising export growth, or claiming a level playing field as farmers’ magic bullet, etc., ain’t workin. –And, given the realities of agriculture discussed so far, they hold little promise for the future.

36. APCA My Question to US Farmers Is: What Are You Going to Do About It? Must be a mindset change –Producers and farm and commodity organizations must refuse to carry water –Must design policies based on “the realities” not hope or wishful thinking –Must be willing to energetically embrace other groups that genuinely share identical or complementary objectives –Work as hard to become independent as we have “worked” to become subservient in the past

37. APCA My Question to US Farmers Is: What Are You Going to Do About It? Did I mention that there must be a mindset change? Everything should be on the table. Take nothing for granted. –Previous programs: DNA testing (seeing what happens when most of them are eliminated) have exonerated most of the “failed programs of the past” –In all cases, do not contradict or ignore any of “the realities” when developing policy

38. APCA From My Perspective… Crop exports did not deliver—will not deliver For crop agriculture, timely free—market self-correction is a fantasy Emerging agricultural powerhouses: Excess capacity will be a worldwide creation in the future Farmers version of the “Concentration” game: Buy inputs from few suppliers and sell output to few buyers Current US farm programs are not sustainable US policy alternatives and premises

39. APCA Some Policy Options Continue the Exports/Trade Liberalization Will Save Us Course Switch to Green Payments based on Conservation/Environmental/ Rural Development Considerations Insurance/Farm Savings Accounts Policy to Address Crop Agriculture’s Long- Standing Problem

40. APCA Policy-Option Premise Check Export Markets/Global Trade –Mechanism: eliminate all price floors use the bully-pulpit to generate high- export expectations extend trade liberalization –Apparent Premises: Export markets are very price responsive Competing exporters will reduce production in the face of low prices Importing countries prefer to import rather than produce it themselves US agriculture will be a major beneficiary of trade liberalization

41. APCA Policy-Option Premise Check Eliminate all payments –Mechanism: Cut all payments –Apparent Premises: Commodity programs address no problem Payments have created low world prices –Implications Then why are coffee prices so low? The U.S. has no coffee subsidies Or bananas, or cacao or any of a number of tropical crops

42. APCA Intensify Free Markets in Developed Countries IFPRI IMPACT Percent In 2020, worldwide Corn price increases by less than 3% over baseline Wheat price increases by less than 1% over baseline Rice price increases by less than 2% over baseline

43. APCA Policy-Option Premise Check Insurance/Farm Saving Accounts –Mechanism: Government subsidies to commercial insurers or provides tax breaks for farmer savings accounts –Apparent Premises: Low prices are a random event and seldom occur in a string of years Growth in supply and demand are equal –Possible Implications: Income protection ratchets down Land prices would go down Supplemental payments from Congress would skyrocket

44. APCA Policy-Option Premise Check Conservation/Environmental/Rural Development –Mechanism: Shift commodity payments to various kinds of conservation, environmental or rural development activities –Apparent Premises: Commodity programs address no problem Better to have a broader group of farmers receive the money to achieve important (read real) objectives Farmers believe environmental degradation is a central concern and or WTO rules Payments in one form are as good as another –Implications Does not address the long-standing market characteristics of aggregate crop agriculture Could win a Farm Bill battle but loose the credibility war

45. APCA Impact of Non-Renewal of CRP Contracts Issue of non-renewal of CRP acreage has been raised –Some opposed to any government agriculture programs –Cost savings becomes the rationale What would be the impact of non- renewal? Asked to do a study

46. APCA Impact of Non-Renewal of CRP Contracts Without CRP contract renewal over 16 million acres return to crop production by 2014

47. APCA Impact of Non-Renewal of CRP Contracts Without CRP contract renewal grain growing areas would experience a severe decline in market returns, 2014

48. APCA Impact of Non-Renewal of CRP Contracts Without CRP contract renewal government payments increase significantly, 2014

49. APCA Impact of Non-Renewal of CRP Contracts Preliminary results Changes in costs over ten years –Save $11.1 billion –Net government cost of $42.2 billion because of lower prices Changes in crop prices –Corn: Down 40¢ –Wheat: Down 80¢ –Soybeans: Down 90¢

50. APCA From My Perspective… Farm Bill needs to address: –Unique characteristics of crop agriculture that result in chronic price/ income problems –Variation in production due to weather and disease –Trade issues like dumping –Environmental and conservation issues –Rural development beyond agriculture

51. APCA From My Perspective… The 2007 Farm Bill needs to include provisions for: –Buffer stocks to provide a reserve supply of grains and seeds in the case of a severe production shortfall –In most recent years we have not had adequate supplies to meet the needs of consumers in the case of a production shortfall of 30% or more

52. APCA From My Perspective… The 2007 Farm Bill needs to include provisions for: –Supply Management to manage acreage utilization in the same way that other industries manage their capacity –Stocks program to ensure orderly marketing process –Both these provide a means of dealing with supply and demand inelasticity

53. APCA From My Perspective… The 2007 Farm Bill needs to include provisions for: –Bioenergy production to manage acreage utilization without heavy dependence on idling acreage –Keep the land in production so that we don’t pay farmers not to farm –Provide a needed energy source not unlike the horsepower of times past

54. APCA From My Perspective… Merge Ag and Energy Policy –Biofuels recycle atmospheric, not fossil, carbon –Look at crops not in food equation & NOT internationally traded –Switchgrass (as an illustrative example only) Perennial Reduced inputs Multi-year setaside Burned in boilers for electricity Converted to ethanol Less costly than present ag programs

55. APCA From My Perspective… Long term solutions to chronic price and income problems need to include: –International supply management to manage supply on a global scale –At the present US supply management can benefit farmers everywhere in the world –As countries like Brazil and other developing export competitors continue to increase their capacity they will need to be a part of an effective supply management program

56. APCA What Was That Again? Crop exports did not deliver—will not deliver For crop agriculture, timely free- market self- correction is a fantasy Excess capacity is crop agriculture’s future peppered with periods of production-shortfalls Carrying water for agribusinesses typically works against farmers’ best interests Current farm programs are not sustainable

57. APCA Thank You

58. APCA To receive an electronic version of our weekly ag policy column send an email to: dray@utk.edu requesting to be added to APAC’s Policy Pennings listserv Weekly Policy Column