The U.S. Farm Bill: Will We Have One? Brian W. Gould Department of Agricultural and Applied Economics University of Wisconsin-Madison University 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 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 Establishes Federal agricultural, conservation and food policy objectives and programs Name changes with each renewal: Name changes with each renewal: Food, Conservation and Energy Act of 2008 Food, Conservation and Energy Act of 2008 Farm Security and Rural Investment Act of 2002 Farm Security and Rural Investment Act of 2002 Federal Agriculture Improvement and Reform (FAIR) Act of 1996 Federal Agriculture Improvement and Reform (FAIR) Act of Act expired at the end of Sept Act expired at the end of Sept Federal fiscal year: Oct. 1 – Sept. 30 Federal fiscal year: Oct. 1 – Sept. 30 Extended for one year on Dec. 29, 2012 Extended for one year on Dec. 29, 2012  Extension Expires Sept. 30,

Why Do We Have A Farm Bill? To help smooth variability in farm income To help smooth variability in farm income To encourage taking risks associated with agricultural production To encourage taking risks associated with agricultural production Farmers provide public goods Farmers provide public goods National food security National food security Land ownership = Jeffersonian democracy Land ownership = Jeffersonian democracy Wildlife habitat Wildlife habitat Environmental Amenities Environmental Amenities Incentivize stewardship by farmers Incentivize stewardship by farmers Conservation compliance rules Conservation compliance rules Income redistribution to offset rural poverty Income redistribution to offset rural poverty Social justice, moral/ethical concerns for poor Social justice, moral/ethical concerns for poor 3

The U.S. Farm Bill Overriding objectives of 2013 Farm Bill are to Overriding objectives of 2013 Farm Bill are to Reduce Federal expenditures Reduce Federal expenditures ↓ U.S. Agric. reliance on direct payments and to ↑ use of individual risk management ↓ 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 2013 Farm Bill time line House of Rep. version : Federal Agriculture Reform and Risk Management (FARM) Act of 2013 House of Rep. version : Federal Agriculture Reform and Risk Management (FARM) Act of 2013  Passed by the House Agriculture Committee: May 15 th  House rejects full Farm Bill on a , June 20 th  House passes a farm only Farm Bill on July 11 th :  Not 1 Democratic vote  Nutrition program not included in farm only version Senate version: Agriculture Reform, Food and Jobs Act of 2013 Senate version: Agriculture Reform, Food and Jobs Act of 2013  Passed by Senate Committee on Agriculture, Nutrition and Forestry: April 26 th  Passed by the Senate on a vote, June 10 th  Includes Nutrition title 5

Huge document, with lots of titles (i.e., chapters) that outline Federal agricultural programs Huge document, with lots of titles (i.e., chapters) that outline Federal agricultural programs 2002 Bill had 10 titles2008 Bill had 15 titles 2002 Bill had 10 titles2008 Bill had 15 titles 2013 (Senate version) had 13 titles 2013 (Senate version) had 13 titles  I. CommoditiesII. Conservation  III. TradeIV. Nutrition  V. CreditVI. Rural Dev.  VII. Research/Related MattersVIII. Forestry  IX. EnergyX. Horticulture  XI. Crop InsuranceXII. Miscellaneous House version the same except House version the same except No Nutrition Title   Why is this such a significant difference between the two versions? The U.S. Farm Bill 6

Farm Bill Spending 7

15.5% 8

Farm Bill Spending A majority of USDA spending goes for food and nutrition programs A majority of USDA spending goes for food and nutrition programs Food stamps, school lunch/breakfast, WIC, etc. Food stamps, school lunch/breakfast, WIC, etc. Payments to Farmers Payments to Farmers Commodity Support, Disaster Assistance, Crop Insurance and Conservation Payments Commodity Support, Disaster Assistance, Crop Insurance and Conservation Payments 2013 Budget Allocation 9

Projected 2013 Farm Bill Spending Changes ( FY) Senate reduction is 47.9% of House reduction in CBO scoring of projected budget outlays 10

House Version Senate Version Nutrition: 48% of ↓ Nutrition: 17% of ↓ Projected 2013 Farm Bill Spending Changes (Billion $, FY) 11

Projected 2013 Farm Bill Spending Changes (Billion $ FY) 12

Crop Insurance Versus Commodity Program Costs 13

Direct Government Payments ( ) 14

Distribution of Producer Payments 15

Government Payments As A Share of Farm Net Cash Income: < 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? Where does it go from here? Possible paths for legislation to follow: Possible paths for legislation to follow:  Grant a 2 nd 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. 9 th Congress is in recess until Sep. 9 th Only 9 scheduled session dates in Sept. once they return Only 9 scheduled session dates in Sept. once they return Members are only scheduled to be in town for 30 days during Oct-Dec Members are only scheduled to be in town for 30 days during Oct-Dec Most of this time will occur in Oct. Most of this time will occur in Oct. 20 The U.S. Farm Bill

The House and Senate versions The House and Senate versions Eliminates existing Federal dairy policies Eliminates 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 grains Replaces these programs with: Replaces 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 Farm Bill Dairy Sub-Title

The 2012 Farm Bill proposes to eliminate the following programs: The 2012 Farm Bill proposes to eliminate the following programs: Dairy Export Incentive Program (DEIP) Dairy Export Incentive Program (DEIP) Dairy Product Support Program (DPSP) Dairy Product Support Program (DPSP)  Been in effect in some form since 1947 Milk Income Loss Program (MILC) Milk Income Loss Program (MILC)  Similar to a Target Price Deficiency payment for grains Farm Bill Dairy Sub-Title

DPMPP Objective: Reduce margin volatility DPMPP Objective: Reduce margin volatility Little room for contract flexibility: Little room for contract flexibility:  Same assumed feed ration for all producers  All feed is assumed purchased by all producers Margin is the difference between Margin is the difference between U.S. average All-Milk price U.S. average All-Milk price Cost of program-specific ration ($/cwt milk) Cost of program-specific ration ($/cwt milk)  Two-month average (e.g., Jan-Feb, Mar-Apr, etc.)  Re-evaluated 6 times per year Farm Bill Dairy Sub-Title

DPMPP dairy ration includes DPMPP dairy ration includes Feed required by milking herd Feed required by milking herd Also feed required by Also feed required by  Heifers  Hospital  Dry cows Ration Definition Ration Definition % Composition (by weight) % Composition (by weight) Corn: 58.8% SBM: 14.4% Alfalfa: 26.8% Ration Weight (lbs) Ration Weight (lbs) Corn: 60.1 SBM: 14.7 Alfalfa: Farm Bill Dairy Sub-Title

25 Basic Margin Insurance: Basic Margin Insurance: $4.00 Base Margin $0 cost $4.00 Base Margin $0 cost Indemnity = difference between average actual margin for consecutive 2-month period and $4.00 Indemnity = difference between average actual margin for consecutive 2-month period and $4.00 Maximum indemnity of $4.00 Maximum indemnity of $4.00 Coverage is the lesser of Coverage 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 Growth option for base is possible 2012 Farm Bill Dairy Sub-Title

26 Supplemental Margin Insurance: Supplemental Margin Insurance: Can cover 25% to 90% of base 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 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: Coverage is the purchased coverage % times the lesser of: Annual production history divided by 6 or Annual production history divided by 6 or Actual amount of milk marketed over the consecutive 2-month period Actual amount of milk marketed over the consecutive 2-month period 2012 Farm Bill Dairy Sub-Title

DPMPP coverage levels and premiums: ≤ 4 Mil. Lbs. produced, $/cwt DPMPP coverage levels and premiums: ≤ 4 Mil. Lbs. produced, $/cwt 27 Coverage Level Premium Net Coverage Farm Bill Dairy Sub-Title

28 Coverage Level HouseSenate Premium Net Coverage Premium Farm Bill Dairy Sub-Title DPMPP coverage levels and premiums, House and Senate, > 4 Mil. Lbs. produced ($/cwt) DPMPP coverage levels and premiums, House and Senate, > 4 Mil. Lbs. produced ($/cwt)

Under the Senate version to enroll in the DPMPP the producer must enroll in the Dairy Market Stabilization Program (DMSP) 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 DPMPP Uses same margin evaluations as in DPMPP Producers required to ↓ milk marketings depending on recent margin history Producers required to ↓ milk marketings depending on recent margin history Form of supply management Form of supply management Farm Bill Dairy Sub-Title

Under DMSP: Under DMSP: During month in which payment reductions are in effect each handler will reduce payments to participating farms 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 ↓ -----$ $4.00$ $5.00$ Farm Bill Dairy Sub-Title

No Suggested FMMO (Pricing) reform in the House version No Suggested FMMO (Pricing) reform in the House version Repeals the FMMO Review Commission Repeals the FMMO Review Commission Under Senate version: 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 Farm Bill Dairy Sub-Title

32 Contact Information  The Univ. of Wisconsin Understanding Dairy Markets website:  Brian W. Gould (608)