1. 2007 Farm Bill: Implications for US & Global Bio-Energy Production Vincent H. Smith Biofuels: Boom or Bust for Montana Producers Hilton Garden Inn, Bozeman November 9, 2007

2. Agricultural Policy and Biofuels Agricultural policy has impacts on the viability of bioenergy production by affecting: 1.Incentives for the production of crops used in bioenergy production (corn, oilseeds, etc.) 2.Incentives for the production of other crops and forage that are not used for bioenergy 3.Incentives for processing bio-crops into bioenergy on the farm and in commercial operations

3. Agricultural Policy in the United States is Complex By itself, the Commodity Credit Corporation manages funds for about 80 commodity and conservation programs CSREES manages dozens of research and education programs The Risk Management Agency operates hundreds of crop insurance programs A bunch of energy initiatives are now included and energy has its own title The 2007 Farm Bill will almost certainly increase the complexity of farm programs

4. The Broad Structure of Agricultural Policy in the United States 1.Energy Programs 2.Commodity Programs 3.Risk Management Programs 4.Environmental Programs 5.Trade Programs 6. Science R and D Programs

5. Energy Programs in the 2007 Farm Bill 1.Plethora of Programs 2.No major new programs (some relabeling and consolidation of existing programs). 3.Funding generally reduced in the Senate Bill and increased in the House Bill.

6. 2007 Farm Bill Energy Programs for Bioenergy Processors 1.Feed Stock Subsidy Program: a.CCC Bioenergy Program is reauthorized in both the Senate and House Bills. b.Program pays biodiesel and ethanol processors for a part of their feed stock costs. c.The program was funded at $150 million a year from 200-2006. d.The Senate Bill provides an average of $49 million a year for 2008-2012. e.The House Bill would provide $240 million a year for 2008-2012.

7. 2007 Farm Bill Energy Programs for Bioenergy Processors (cont.) 2. Biorefinery Development Program: a.Loan guarantee program for new bio-refineries. b.House Bill continues the program with annual average funding of $140 million. c.Senate Bill changes the program’s focus to cellulosic ethanol production facilities via competitive grants for up to 50 percent of project costs for pilot and demonstration facilities. d.Senate Bill funds the program at an annual average of $60 million.

8. 2007 Farm Bill Energy Programs for Farm Operations Rural Energy for America Program a.Continuation of the Renewable Energy Systems and Energy Audit and Renewable Energy Development programs. b.Provides farmer with grants to become more energy efficient using renewable energy technology and resources. c.Provides loan guarantees and grants to ag operators and small rural businesses to purchase and install renewable energy systems. d.Senate Bill includes a grant as well as a loan program and an optional production incentive program, requires that 20% of total federal funds be spent on small scale projects (less than $20,000 per project), and funds the program at an annual average of $46 million. e.The House Bill funds the program at an annual average of $100 million and caps the federal funds cost share of any loan guarantee project at 75% of its cost (instead of 50%).

9. 2007 Farm Bill Energy Research and Education Programs The Senate and House Bills continue several programs: Biofuel Energy Program: educates vehicle fleet operators and the public about the benefits of biodiesel use: funded at $2 million per year in the House and Sneate Bills. Biobased Energy Research Program: funding for bioenergy and other bio- based product research: funded at $50 million per year in the House Bill and about $37.5 million per year in the Senate Bill. Biomass Research and Development Program: Funds R & D and demonstration projects for biofuels and biobased chemical products. Funded at about $44 million per year in the House Bill and at an average of $20 million per year for 2008-2010 in the Senate Bill, with the possibility of additional annual discretionary funding in the Senate Bill of $85 million.

10. Commodity Programs: Key Elements of the 2002 Farm Bill 1.Marketing Loan/loan Deficiency Payment Programs: Price Supports for major crops. Changes in some loan rates. 2.Direct Payments: fixed and unrelated to current production decisions and, for most operations, based on farm level production in the early and mid 1980s. No change in the 2007 Bill. 3.Counter Cyclical Payments (linked to major crops): triggered by low prices and therefore not fixed, but unrelated to current production decisions because, as with direct payments, the payment basis is predetermined by historical yields. Some commodity target prices are increased in the House Bill but with no measurable incentive effects. A target revenue option based on national per acre revenues for a crop is in the House Bill but not the Senate Bill.

11. Commodity Programs: Changes in the 2007 Farm Bill 1.Marketing Loan/loan Deficiency Payment Programs: Price Supports for a few major crops would be increased in both the house and senate bills 2.The president has threatened to veto the bill if loan rates are increased.

12. Proposed Changes to Selected Loan Rates CropOld (2002) New (2007 Senate) New (2007 House) Wheat (bu)$2.75$2.94 Corn (bu)$1.95 Barley (bu)$1.85$1.95$1.90 Soybeans (cwt)$5.00 Other Oilseeds (cwt) $9.30$10.09$10.70 Oats (bu)$1.33$1.39$1.46

13. Proposed Changes to Selected Target Prices CropOld (2002) New (2007 Senate) New (2007 House) Wheat (bu)$3.92$4.20$4.15 Corn (bu)$2.63 2.63 Barley (bu)$2.24 $2.74 Soybeans (cwt)$5.80$6.00$6.10 Other Oilseeds (cwt) $10.10$12.74$11.50 Oats (bu)$1.44$1.83$1.50

14. Commodity Programs: Changes in the 2007 Farm Bill (cont.) 2.New Average Crop Revenue (ACR) Program for Program Commodities (Senate Bill) Fixed per acre payment of $15 per acre on a predetermined area (lesser of the farm’s base acres or average area planted to those corps over the period 2002 to 2007) Difference between 90 percent of per acre estimated annual average state revenue and actual average state revenue for each crop (when the latter is smaller than the former) multiplied by the ratio of the farm’s proven crop insurance yield (APH yield) to the state yield. If a farm chooses this program, the farm cannot receive direct and countercyclical payments, and cannot participate in the loan rate program.

15. Risk Management Programs: Changes in the 2007 Farm Bill Crop Insurance programs will be continued. They are already available in several Montana counties for most oilseed crops. Senate Bill includes a requirement that a pilot crop insurance program be developed for Camelina by the USDA Risk Management Agency. Senate Bill would require a NAP program be made available for Camelina until the pilot crop insurance program is developed.

16. Conservation Programs 1.Land Retirement Programs 2.Working Lands Programs

17. Conservation Land Retirement Programs 1.Conservation Reserve Program: Both the House and Senate Bills renew and expand eligible lands for this program. 2.Wetlands Reserve Program: Both the House and Senate Bills renew and expand the program, with average annual funding of about $480 million 3.Grassland Reserve Program: Senate Bill expands this program (which funds conservation easement to maintain grassland) with annual average funding of $60 for the program over a four year period.

18. Conservation Working Lands Programs 1.Conservation Security Program: Both the House and Senate renew the program, which provides incentives for farms and ranches to adopt conservation practices. The Senate Bill expands funding and the amount of land to be enrolled in the program. The House Bill caps enrollment at current levels. 2.Environmental Quality Incentives Program: Both the House and Senate Bills renew and expand the program, which provides cost share funds for farm/ranch investments that improve environmental quality. The Senate Bill expands scope to provide fund for farmers transitioning to organic production.

19. The Take Away Message 1.The Farm Bill maintains but does not substantially expand subsidy programs that encourage bioenergy production. 2.The Rural Energy for America Program does potentially provide subsidies for on- farm bio-energy production through cost share grants. 3.Congressional proposals to change the loan rate component of the commodity programs provided some improved incentives for minor oilseed production, but President Bush has threatened to veto a farm bill that includes those proposals. 4.A USDA RMA crop insurance program will likely be developed for Camelina over the next year or so, and in the meantime a NAP program will likely be offered by the USDA FSA. 5.Overall, by itself, the 2007 Farm Bill seems unlikely to introduce changes in farm policy that will substantially alter the policy environment in which U.S. bioenergy producers make their decisions.