APCA 2007 Farm Bill: Agricultural Policy Considerations Burley Stabilization Corporation Board Meeting Knoxville, TN January 15, 2007 Kelly Tiller Agricultural Policy Analysis Center - The University of Tennessee Morgan Hall - Knoxville, TN phone: (865) fax: (865)

APCA Potential Farm Policy Drivers Federal budget constraints Trade policy negotiations / suits Current ag economy / situation Farm program payment distribution Balance of power in Congress Energy prices / renewable energy

APCA Budget Constraints Very different budget situation than in 2002 –Got $79 billion ABOVE the baseline in ‘02 Farm Bill –Not likely to maintain this level, get the same dollars authorized Even if Congress doesn’t cut, it won’t increase, affects how the pie is sliced –Divisive for the ag sector –But maybe not as bad as 2012, 2017 ??

APCA U.S. Federal Deficit/Surplus

APCA U.S. Public Debt

APCA Projected Government Payments

APCA Implications of a Dead Doha Dead? Or on life support? –Administration still pushing, may offer further concessions –Blame is shared, successful conclusion difficult even if the U.S. concedes more Commodity programs likely to be challenged under current Uruguay Round agreement –Likely challenge to EU tobacco subsidies Increases probability of bilateral trade deals –Through June 2007 Trade promotion authority unlikely to be granted again before 2008 elections –And probably not after 2008 either

APCA Future “Current” Situation What matters most is the situation At The Time the bill is written Crop prices very high, likely to persist –Up from historical lows, reduces “costs” of continuation –Driven largely by non-ag demands (ethanol) –Export prospects (China) improving ?? Costs of production high –Especially energy-related costs –Interest rates higher Labor/immigration policy pressures

APCA Distribution of Subsidies Renewed push for payment limits –Necessary to hold down costs –Some reform necessary for damage control Pressure to shift funds from program crops to specialty crops while reducing overall spending –39% of farms receive government payments (Source: ERS, 2006) –10% of farms receive nearly 75% of payments (Source: EWG, 2005) Pressure to shift payment basis from production to conservation –Influenced by WTO commitments Pressure to reduce the impacts of subsidies on land values and cash rents (transfers to landowners) –Since 2000, Illinois farm real estate values have increased 68% : increased between 4.2% and 9% : increased between 1.3% and 3.4% 7.4% in 2004, 27.6% in 2005, 14.1% in 2006

APCA Shifting Committee Control Generally, more of the same –More likely to have strict payment limits Same size pie, greater redistribution –Expanded appropriations for conservation programs –More appropriations for bioenergy and alternative fuels Strategic food reserve more likely

APCA A Billion Tons of Biomass Sustainable annual supply of 1.3 billion dry tons 932 M dry tons from agriculture –Crop residues (446) –Perennial crops (377) –Grains to biofuels (87) –Process residues (87) 368 M dry tons from forests (forest residue only) –Manufacturing residue (145) –Logging debris (64) –Fuel reduction treatments (60) –Fuelwood (54) –Urban wood waste (47) Perlack, R.D., et al Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply.

APCASummary Not a dramatic shift from ’02 Farm Bill Less generous program overall More emphasis on conservation-based “green” payments Broader distribution of payments among commodities More emphasis on ag-energy title Potentially a strategic reserve program Both dairy and sugar programs will need to be carefully addressed Compliance with WTO and Budget Reconciliation will be factors

APCA Implications for Tobacco Not much May be new programs for which tobacco farmers will be eligible –Farm revenue safety net (insurance-type) –Expanded conservation/green programs May level the playing field some compared to traditional program crops –Tobacco will look more attractive, cotton-corn-soybeans-peanuts less attractive May be opportunities to address post-buyout tobacco concerns through specialty crops provisions May be increased competition in the Southeast from energy crops

APCAwww.agpolicy.org