Economic Outlook and the Farm Bill – What Now? Craig Infanger Agricultural Economics Economic Subject Matter Training 1/18/12

Any discussion of 2012 & the Farm Bill must begin with the… Only one member from an Ag Committee

Yes, they kicked the can down the road. But why is this important to understanding the 2012 Farm Bill?

Had the process ‘worked’, we would have had a Farm Bill last Christmas!

A ‘mini’ farm bill, completed in secret with no chance for amendments or changes.

What now? The Budget Control Act process failed, automatic budget cuts begin in 2013  “sequestration”.

What now? The Budget Control Act process failed, automatic budget cuts begin in 2013  “sequestration”. ● Spending reductions calculated for each year, divided equally between defense and nondefense spending; ● Several federal budget items ‘exempt’: Social Security, Veteran’s programs, interest on debt, Medicaid, Federal retirement & a host of “other programs”. ● Food stamps, most nutrition programs, CRP contracts(?) will be exempt

What now? The Budget Control Act process failed, automatic budget cuts begin in 2013  “sequestration”. Sequestration = $15-$16 Billion reduction in USDA budget = ~7.8% across-the board cuts beginning January 2013

Sequestration and the Farm Safety Net Farm Safety Net remains in tact  ball tossed back to the Ag Committees to write a Farm Bill under severe budget pressure.

As we consider the 2012 Farm Bill, let’s remind ourselves… What is a ‘Farm Bill’? What is the Farm Bill ‘process’ now? What can we reasonably expect from the emerging situation?

O.K., what is a ‘farm bill’?

“…is a collection of new laws and amendments to longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service)

O.K., what is a ‘farm bill’? “…is a collection of new laws and amendments to longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service) Meaning what?

O.K., what is a ‘farm bill’? “…is a collection of new laws and amendments to longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service) Permanent law: Ag Adjustment Act of 1938 (PL ); the Agricultural Act of 1949 (PL ); the CCC Charter Act of 1948 (PL ). All farm bills are amendments to ‘permanent law’ + new laws

Farm bills are omnibus collections of provisions… Title I – Commodities Title II – Conservation Title III – Trade & Food Aid Title IV – Nutrition Title V – Farm Credit Title VI – Rural Development Title VII – Research & Extension Title VIII – Forestry Title IX – Bioenergy Title X – Hort & Organic Agr Title XI – Livestock Title XII – Crop Insurance Title XIII – CFTC Title XIV – Miscellaneous Title XV – Trade & Disaster Asst.

So let’s remind ourselves… What is a ‘Farm Bill’? What is the Farm Bill ‘process’ now? What is the Farm Bill ‘process’ now? What can we reasonably expect from the emerging situation?

The Farm Bill Process “It’s a slow curve ball.” 3-4 years, minimum 2012 Farm Bill?

The Farm Bill Process 1938/1948/

Supercommittee process was a ‘quick pitch’ 2012 Farm Bill? The Budget Control Act of 2011

The Farm Bill Process Remember: Farm bills need political coalitions 3-4 years, minimum 2012 Farm Bill?

Farm bills are omnibus collections of provisions… Title IV – Nutrition ($38B) Title I – Commodities ($8.3B) Title II – Conservation ($4.8B) Title XII – Crop Insurance ($4.4B) Title XIV – Miscellaneous ($1.3B) Title XV – Trade & Disaster ($1.0B) Title III – Trade & Food Aid Title V – Farm Credit Title VI – Rural Development Title VII – Research & Extension Title VIII – Forestry Title IX – Bioenergy Title X – Hort & Organic Agr Title XI – Livestock Title XIII – CFTC Annual Average Cost: $57B Rounding error?

USDA Total Outlays for FY12: $145Billion

Every farm bill passed with coalition votes… Poverty groups Nutrition organizations Farm organizations All the major commodity organizations Agribusiness interests Horticulture & organic ag groups Trade and export groups Environmental and conservation groups Science, research and education groups

Every farm bill passed with coalition votes… Poverty groups Nutrition organizations Farm organizations All the major commodity organizations Agribusiness interests Horticulture & organic ag groups Trade and export groups Environmental and conservation groups Science, research and education groups Ask yourself: How many members of Congress have significant agriculture in their District v. how many have significant numbers of families on food stamps and subsidized or free school lunch?

Every farm bill passed with coalition votes… Poverty groups Nutrition organizations Farm organizations All the major commodity organizations Agribusiness interests Horticulture & organic ag groups Trade and export groups Environmental and conservation groups Science, research and education groups Remember a few key numbers: 2,200,000 farms (85,000) 2,200,000 farms (85,000) 46,000,000 on food stamps (805,000) 46,000,000 on food stamps (805,000) 31,000,000 children get free/subsidized school lunches 31,000,000 children get free/subsidized school lunches 51,000,000 = rural population 51,000,000 = rural population 257,000,000 = urban population 257,000,000 = urban population

The Farm Bill Process The process is driven by consequences of reversion to permanent law. 3-4 years, minimum 2012 Farm Bill?

O.K., what is a ‘farm bill’? “…is a collection of new laws and amendments to longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service) Permanent law: Ag Adjustment Act of 1938 (PL ); the Agricultural Act of 1949 (PL ); the CCC Charter Act of 1948 (PL ). All farm bills are amendments to ‘permanent law’ + new laws

Parity Prices and Minimum Support Provisions of Permanent Legislation Commodity USDA Parity Price * Support Provisions Wheat $15.60 Acreage allotments; loans at 75% of parity Corn 9.88 Loans at 50% of parity Milk Purchases of milk/butterfat at 75-90% parity Soybeans No provision. Burley Tobacco 5.54 No provision. *As of January, 2011 (NASS, Ag Prices)

Clear moral to the story: Congress cannot allow reversion to Permanent Law. Something will get done in 2012 or 2013.

The Farm Bill Process Let’s all remember that ALL farm bills are a product of the times. 3-4 years, minimum 2012 Farm Bill?

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness… Charles Dickens, A Tale of Two Cities

U.S. Agricultural Trade Exports boom to record-high levels Billion $ Source: USDA, ERS; fiscal year ending 9/30; f=forecast; * = record *

U.S. Net Farm Income Net Farm Income rebounds strongly from 2009 drop Source: USDA, ERS 10-year average: $67 B $104B +65%

Are we in a land price bubble?

Owensboro, KY 12/17/11

But the general economic environment that will a key motivating force for the Administration and the Congress in 2012.

Wall Street Journal, 11/23/11

I don’t think anyone fully understands yet how much damage was done to the U.S. economy by the events of September Daniel Henninger WSJ

Bailout + Credit Programs + Stimulus = $10T!

$15,181,000,000,000

Slow economic growth -- ~2.5% GDP growth 2012 Jobless recovery – official unemployment rate 8.5%, effective = 14% Change in Payroll Employment  needs to remain > 200K/mo Sign of improving consumer confidence, business confidence Wall Street worries about Euro Zone – Greece/Italy/France

So… Debt + Slow Recovery + Election Year = Environment Framing the 2012 Farm Bill

So let’s remind ourselves… What is a ‘Farm Bill’? What is the Farm Bill process ‘now’? What can we reasonably expect from the emerging situation? What can we reasonably expect from the emerging situation?

Supercommittee process provides a rich list of clues about what may be in a 2012 Farm Bill 2012 Farm Bill? The Budget Control Act of 2011

Title I – Production agriculture Title II – Conservation Title III – Trade Title IV – Nutrition Title V – Credit Title VI – Rural development Title VII – Research Title VIII – Forestry Title IX – Energy Title X – Specialty crops Title XI – Production agriculture

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. “ Can you look people in the eye when you’re selling $7 corn and say, ‘We need direct payments.’ ? Wayne Wood, Michigan Farm Bureau

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. --new crops, changes to APH --stand alone revenue protection program for cotton producers “It’s become very, very clear to me that crop insurance really is the new safety net. And it’s a system that is working. Farmers pay premiums…So they have skin in the game. The federal government provides support…And probably most importantly, crop insurance is actually tied to a loss. You don’t get a payment just because you farm. ” Senator Mike Johanns, NB

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Ag Risk Coverage – new risk management/revenue protection program -- marketing loans maintained --target prices raised for program crops

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Ag Risk Coverage – new risk management/revenue protection program -- marketing loans maintained --target prices raised for program crops --expanded revenue protection based on yield or price loss (shallow loss program?) --commodity divided programs: cotton v. corn/beans/wheat v. rice/peanuts/sorghum -- “We are not rowing in the same direction…” Chairman Lucas

American Farm Bureau v. commodity groups

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program to replace the dairy price support program, the milk income loss contract, and dairy export incentive.

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. --no millionaires? --$105,000 limit under Ag Risk Coverage

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. 6.Conservation Reserve Program capped at 25 million (?) acres, return to targeting highly erodible, sensitive acres.

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. 6.Conservation Reserve Program = new cap. 7.EQIP and CSP continued but constrained. -- greater focus on wildlife habitat -- funding under new budget constraints?

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. 6.Conservation Reserve Program = new cap. 7.EQIP and CSP continued but constrained. 8.Expiring, unfunded programs? expiring programs, not included in the baseline spending. What happens?

37 Programs Expiring, FY12($10 billion) Wetlands Reserve Program Grasslands Reserve Program CRP-Transition Incentives Program Value-Added Producer Grants Rural Micro-Enterprise Assistance Organic Data Initiative National Organic Certification Cost Share Farmers Market Promotion Program Organic Agriculture Research and Extension Program Specialty Crop Research Initiative Outreach and Assistance for Minority Farmers Beginning Farmer and Rancher Development Program Rural Energy for America Program Biomass Crop Assistance Program Plus a bunch of other line-item programs….

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. 6.Conservation Reserve Program = new cap. 7.EQIP and CSP continued but constrained. 8.Expiring, unfunded programs? 9.Structure similar to 2008 Farm Bill even with big budget pressure?

Title I – Production agriculture Title II – Conservation Title III – Trade Title IV – Nutrition Title V – Credit Title VI – Rural development Title VII – Research Title VIII – Forestry Title IX – Energy Title X – Specialty crops Title XI – Production agriculture

Top 10 Features in the 2012 Farm Bill? 1.Direct payments likely gone. 2.Crop insurance will be expanded. 3.Some kind of new risk management program. 4.New dairy program. 5.Change to payment limits. 6.Conservation Reserve Program = new cap. 7.EQIP and CSP continued but constrained. 8.Expiring, unfunded programs? 9.Structure similar to 2008 Farm Bill? 10.Lottery winners will not get food stamps!

The coming months will be very interesting for all of us… Farm Bill?

Senate Ag Committee hearings

President’s budget; Budget Committee process

Senate Ag Committee hearings President’s budget; Budget Committee process Five month window of opportunity for a farm bill?

Senate Ag Committee hearings President’s budget; Budget Committee process Campaign!! Five month window of opportunity for a farm bill?

Election Day Lame Duck Pres./Congress? Sequestration on Jan. 1, 2013

The Farm Bill Process 3-4 years, minimum 2012 Farm Bill? 2013?