1. The Farm Security and Rural Investment Act of 2002
2002 Farm Bill Education Conference
Kansas City, Missouri
May 20-21, 2002
Gary Adams Scott Brown
University of Missouri University of Missouri

2. Recent Analysis by FAPRI
FAPRI has conducted an analysis of the impacts of the Farm Security and Rural Investment Act (FSRIA) of 2002.
Incorporates only provisions from Titles I and II.
As with earlier analysis, effects are measured relative to a baseline set of projections prepared in early 2001.
Over the next few weeks, FAPRI intends to conduct an updated analysis of the bill that will incorporate more current market information.

3. Methodology of the Analysis
FAPRI has analyzed the impacts of the new bill in “stochastic framework”
By that, we mean that both the FAIR Act and the new bill have been analyzed under 500 possible outcomes for the future. Each of the possible “futures” incorporates variability for key exogenous variables. The variability is based on observed historical distributions and correlations.
Results address how the bills compare at the mean but also can look at the distribution of outcomes for key indicators.

4. Changes to the Dairy Program
Makes permanent $9.90/cwt Milk Price Support Program
Establishes a 3 year 10 month National Dairy Program
Federal payment each month equal to 45 percent of the difference between $16.94/cwt and the Boston Class I price.
Payments are made on up to 2.4 million pounds of production for a producer annually (Roughly 125 cows).
Revenue effects combination of payments and price declines
Structure of dairy industry determines how individual states will fare.

5. Eligible Milk Production, by State
U.S. Milk Production Eligible – 58%

6. U.S. Milk Revenue under FSRIA, 2002-2005
Milk Price
Baseline
FSRIA
$13.27
$13.00
$0.52 = $0.89 *58%
$12.75

7. CDF of 2003 Dairy Payment Rate

8. Updating Crop Base Acreage & Yields
Estimates are based on county data.
Decision to update based on expected program benefits where each county is treated as a farm.

9. Estimates for Base Acreage & Program Yields
2002 AMTA
FSRIA Base
Fixed Payment Yields
CCP Yields
Million Acres
Units per Acre
Wheat
78.4
74.8
34.6
36.3
Corn
81.4
79.8
102.9
118.3
Sorghum
13.5
12.4
57.0
59.2
Barley
11.1
10.1
47.4
49.0
Oats
6.7
5.2
50.1
51.1
Cotton
16.4
17.2
610.6
627.6
Rice
4.2
48.1
52.3
Soybeans NA
64.1
32.5
37.1
Sunflowers
1.6
11.0
13.4
Total
211.7
269.4

10. Structure of Crop Payments
Target Price
Not
Tied To
Prod
Fixed Payment
Counter-Cyclical
Payment
Loan Rate
Loan Deficiency
Payment
Prod
Req.

11. Distribution of the Increase in Crop Payments

12. Impacts on Planted Area and Prices (Preliminary FAPRI estimates)
2003 Area change from baseline
2003 Price change from baseline
Corn
+1.15 mil acres
-$0.06/bu.
Soybeans
-1.17 mil acres
+$0.08/bu.
Wheat
+1.10 mil acres
-$0.05/bu.
Cotton
+0.10 mil acres
-0.3 cents/lb.
9-crop total
+1.96 mil acres

13. Impacts on Crop Returns (Preliminary FAPRI estimates)
Additional payments increase the returns for all crops.
For this year’s crop, the increases range from 5% to 15% above the FAIR Act.
2002 Crop
(Change from Baseline)
Wheat
$/bu
0.48
Corn
0.22
Soybeans
0.30
Cotton
$/lb
0.09
Rice
$/cwt
1.13
Sorghum
0.35
Barley
0.18
Oats

14. Distribution of 2002 Corn Gross Returns, Market + Gov’t Payments

15. Impacts on Government Costs (Change from Baseline, Fiscal Yr)

16. Impacts on Net Farm Income (Change from Baseline, Calendar Yr)

17. Effects on Government Costs and Net Farm Income

18. Distribution of FY03 Gov’t Outlays

19. WTO De Minimis Rules
For the U.S., a five percent rule is applied for de minimis.
For product-specific support, like loan gains, payments are compared to 5% of the value of production for the product.
For non-product-specific support, like Counter Cyclical Payments and Crop Insurance, support compared to 5% of the total value of U.S. ag. production

20. De minimis exemption for
Historical Example
Year
Value of U.S. Ag.
De minimis exemption for
non-spec. support
($ billion)
1996
218
10.9
1997
216
10.8
1998
191
9.5
1999

21. AMS and the New Farm Bill

22. Dairy price
support
Dairy
Pmnts
Sugar

23. WTO Compliance of the New Farm Bill
Given trend yield and price projections, the new farm bill is projected to be compliant with domestic support limitations
FAPRI analysis of the new farm bill put the probability of exceeding the WTO limit in the 2002 marketing year at 19.3%
For this analysis, the counter-cyclical program has been classified as an non-commodity-specific amber box program

24. Final Thoughts
Big increase in spending vs. current law, but not vs. actual spending of last 4 years
Marginal impacts on production and prices relative to the FAIR Act
Currently, we are in the process of updating projections incorporating the new bill and recent market information