2007 farm bill

The 2007 Farm Bill: More of the Same or a New Path? : The 2007 Farm Bill: More of the Same or a New Path? Bruce A. Babcock Center for Agricultural and Rural Development www.card.iastate.edu presented at the Iowa Corn Growers Meeting in Missouri Valley, January 11, 2006


Three Key Forces at Work : Three Key Forces at Work Inertia: Nothing is broke so why change? Budget: “Surpluses as far as the eye can see” to “Deficits as far as the eye can see” WTO: New limits on amber and blue box spending would require change


Presentation Overview : Presentation Overview Review current set of programs How they work Measure value they provide to corn farmers Show their impact on farm revenue risk Impact of a tight budget Are we using federal policy dollars wisely? Impact of smaller spending boxes Would a change in policy be a good strategic move?


Structure of Program Paymentsfor Corn : Structure of Program Payments for Corn Target Price Direct Payment Loan Rate Counter-Cyclical Payment Loan Deficiency Payment Prod Req. $2.63 $0.28 $2.35 $1.95 Regardless Of Market Only if price is here “Effective” Target Price


Other fun facts : Other fun facts CCP payment bushels 1531 mbu for corn 257 mbu for soybeans DP payment bushels 1456 mbu for corn 238 mbu for soybeans Average Iowa production from 2000-04 1892 mbu of corn 439 mbu Ratio of payment bushels to average production Corn: 81% for CCP and 77% for DP Soybeans: 58% for CCP and 52% for DP


Current State of Affairs : Current State of Affairs Why change? USDA Secretary Johanns says change is needed. Budget hawks say change is needed to save money Our trading partners say change is needed because our policy depresses world prices Midwest senators say payment limits should be put into place


“Traffic Light” Analogy : “Traffic Light” Analogy Red Light -- “Stop” Subsidizing Amber Light -- “Slow Down” Subsidies Green Light -- “Go” on as Before


Uruguay Round Agreement:“Traffic Light” turns into “Boxes” : Uruguay Round Agreement: “Traffic Light” turns into “Boxes” No Red Light supports. Amber Box contains controlled supports. Green box remains. U.S. & EU create a Blue Box.


The Agreement: : Reduction in Total Aggregate Measure of Support (AMS) or Amber Box Total AMS is All Government Support in Favor of Agricultural Producers Minus Green Box Expenditures Blue Box Expenditures De Minimis Expenditures The Agreement:


Requirements to be “Green” : Requirements to be “Green” Payments may not be related to current prices. Payments may not be related to current production. Recipients cannot be required to produce anything to receive a payment.


Slide18 : The Famous Boxes De minimis Payments


Cotton Ruling Upsets US Compliance : Cotton Ruling Upsets US Compliance Brazil brought a complaint about US cotton subsidies to the WTO panel. Old WTO agreement held countries harmless if amber box spending was below the cap, and Crop specific spending was below the base period spending (peace clause) WTO panel ruled that cotton spending exceeded the base period, and


WTO Cotton Finding : WTO Cotton Finding Brazilian cotton producers were harmed by U.S. subsidies Export subsidies (step 2) should be immediately ended LDPs lowered world prices, causing harm to Brazilian cotton farmers AMTA and DPs “do not fully conform” to Green Box guidelines because of restrictions on fruit and vegetable production.


Expenditures on Current Safety Net : Expenditures on Current Safety Net


The U.S. Doha Proposal : The U.S. Doha Proposal Blue Box capped at 2.5% of value of production CCP’s would fall in this box Amber Box capped at $7.64 billion instead of $19.1 billion LDPs would fall in amber box as well as dairy and sugar programs


Impact of the U.S. Proposal : Impact of the U.S. Proposal Using historical analysis* Corn loan rate would drop from $1.95 to $1.77 Corn target price would drop from $2.63 to $2.37 Corn effective target price would drop from $2.35 to $2.09 Using forward looking analysis** Corn loan rate $1.74 Corn effective target price $2.17 *Babcock and Hart. “How Much “Safety” Is Available under the U.S. Proposal to the WTO?” CARD Briefing Paper 05-BP 48 November 2005. **Potential Impacts on U.S. Agriculture of the U.S. October 2005 WTO Proposal FAPRI-UMC Report #16-05 December 15, 2005.


To Summarize : To Summarize Budget cuts or WTO agreements will mean change in US farm policy Choice could face agriculture: Keep same programs with lower support prices but perhaps expanded direct payments? Opt for new programs?


Alternative Programs : Alternative Programs Conservation Payments Move to a revenue counter-cyclical payment program Would cost less for by reducing “over-payments” Would reduce importance of crop insurance programs Would be able to deliver higher average payments while meeting WTO constraints