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Policy Developments
The editorial board at The Washington Post noted today that, “The contours of the [Farm Bill] debate are beginning to emerge. Rep. Collin C. Peterson (D-Minn.), chairman of the House Agriculture Committee, says that subcommittees will begin marking up a draft farm bill this week. So far, it appears that the draft will not include a transfer of money from subsidy programs into conservation projects, which many lawmakers would like to see. Mr. Peterson has also said that his committee, which critics generally regard as subsidy-friendly, will draft the legislation alone; he insisted that any tampering on the House floor ‘would be a recipe for chaos.’ This makes it likely that fundamental reform of the subsidy system will not happen.”
I. Policy Developments
II. Ethanol Issues
I. Policy Developments
A news release issued on Friday by the House Ag Committee stated that, “Preliminary discussion drafts for the energy and credit sections of the Farm Bill were released today. They are available online at: http://agriculture.house.gov/inside/legislation.html.
“The preliminary discussion drafts have been prepared in anticipation of business meetings that will be held by Subcommittees of the Agriculture Committee to consider the 2007 Farm Bill. These documents are intended for use as base text for the markup process and are subject to change prior to the relevant meeting.”
In other legislative developments, a news release issued on Thursday (with audio) by Congressman Steve Kagen (D-Wisconsin) stated that, “Congressman Steve Kagen, M.D. introduced the ‘Local Food and Farm Act’ on Thursday with fellow Congressmen Earl Blumenauer of Oregon and Nancy Boyda of Kansas.
“The ‘Local Food and Farm Act’ promotes the health and well being of all Americans — particularly school-age children and senior citizens – while also creating opportunities for local farmers and ranchers.
“‘Good health begins by eating healthy foods,’ said Congressman Kagen. ‘The Local Food and Farm Act will improve our local economy as well as our health by allowing Wisconsin family farms to serve fresh, nutritious meals to our school children and families in our communities. People all across the nation want to know their fruits, vegetables and meats are fresh and safe, and this legislation will help to make this possible.’”
Meanwhile, a press release issued by American Farmland Trust (AFT) on Friday stated that, “Legislation to better serve agriculture is a priority for Senator Charles Schumer (D-NY), and he has introduced the Farm, Nutrition, and Community Investment Act to help improve a sector that is key to his state’s economy and the health of its consumers. The Senator often reminds people how dependent they are on farms for food, and through the proposal has worked to improve on the fundamentals of the farm bill and offer innovative programs to better serve New York agriculture.”
The release added that, “The Farm, Nutrition, and Community Investment Act provides recommendations to increase funding for, and improve, conservation programs; to reform and adequately fund farmland protection efforts; and to improve and expand crop insurance, renewable energy and forestry programs. The bill includes dairy and organic policy recommendations; strengthens the nation’s food assistance programs; and supports the production, distribution and access to healthy foods in order to address the country’s hunger and healthy diet issues. In addition, the bill includes a farm profitability grants program that producers, cooperatives, research institutions and eligible entities could use for critical programs in their state or region—for instance, to develop agricultural processing facilities, provide food safety training and more.”
Recall that the American Enterprise Institute (AEI) held a conference on Thursday (“The 2007 Farm Bill & Beyond”) as part of a larger contribution to the 2007 Farm Bill debate. More specifically, AEI has posted a series of working papers relating to U.S. farm policy written by leading agricultural policy experts. To view and download these working papers, which cover a wide variety of important ag policy topics, just click here.
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In recent editorial opinion regarding U.S. farm policy, the editorial board at The Washington Post noted today that, “The contours of the [Farm Bill] debate are beginning to emerge. Rep. Collin C. Peterson (D-Minn.), chairman of the House Agriculture Committee, says that subcommittees will begin marking up a draft farm bill this week. So far, it appears that the draft will not include a transfer of money from subsidy programs into conservation projects, which many lawmakers would like to see. Mr. Peterson has also said that his committee, which critics generally regard as subsidy-friendly, will draft the legislation alone; he insisted that any tampering on the House floor ‘would be a recipe for chaos.’ [related FarmPolicy update] This makes it likely that fundamental reform of the subsidy system will not happen.
“In contrast, Sen. Richard G. Lugar (R-Ind.) [related press release] and Reps. Ron Kind (D-Wis.) [related press release], Jeff Flake (R-Ariz.), Joseph Crowley (D-N.Y.) and Dave Reichert (R-Wash.) have proposed to curtail farm subsidies [FarmPolicy summary of this bill]. The group favors setting up ‘income stabilization accounts,’ to which the government would direct money currently going into certain subsidy programs. These payments would then phase out over several years. Highly generous federal farm insurance programs would remain to protect American farmers from major problems, while money from the accounts could be withdrawn to pay for minor income fluctuations. The resulting savings — $55 billion over 10 years, according to supporters — would go into debt relief, renewable energy, environmental stewardship and neglected programs such as food stamps.
“Mr. Lugar and his allies in the House are on a sensible track, and it is critical that their ideas get a fair hearing. The farm bill can be a vehicle for investing heavily in important priorities such as rural conservation or food stamps for low-income Americans, without depleting the federal bank account or violating the Democrats’ responsible pay-go budget rules — but only if Congress is willing to make agriculture spending more rational. If the House Agriculture Committee does not move in that direction, the full House should.”
And the editorial board at the Winston-Salem Journal (North Carolina) noted on Friday that, “The Farm Bill’s subsidies have accelerated the growth of corporate farms. They dictate what crops are grown, and they aren’t necessarily the crops we need or that will be support farm families. The Farm Bill is a burden on the American taxpayer and it puts the U.S. out of compliance with international trade agreements.
“This country needs a new agricultural policy and a diverse group of congressmen are putting it together. A coalition of conservatives and liberals is supporting FARM 21, the Food and Agricultural Risk Management for the 21st Century Act. The Farm Bill is up for renewal this year.
“The main Senate sponsor is Sen. Dick Lugar, Republican of Indiana. On the House side, where farm legislation will be considered in committee next week, Rep. Jeff Flake, a conservative Arizona Republican, and Rep. Joe Crowly, a New York liberal Democrat, are teaming with others of varied political stripes on the same idea.
“The bill they are all supporting would move the United States away from today’s monstrous farm subsidies that are counterproductive. Over the next five years, subsidies would be phased out. In their place, the government would create farm ‘risk management accounts.’ According to Rep. Ron Kind, a Wisconsin Democrat, these accounts would help farmers ‘weather the ups and downs, make investments and plan for the future.’
“For the taxpayers, there’d be some $5 billion saved over the next five years and $20 billion saved by 2017. That’s real money, and the bill’s sponsors propose to direct it to other farm and food-related programs.”
On Saturday, the editorial board at the Los Angeles Times indicated that, “Congress is now negotiating the 2007 farm bill, a five-year blueprint for the nation’s agricultural supports that also includes the food stamp program. The pairing is a relic of the Depression era, when food stamps were created as a way of feeding the poor using American farmers’ surplus crops. Though that’s no longer the case, farm subsidies and food stamps still have one thing in common: Both are forms of food welfare. The difference is that while the poor and hungry are losing ground, wealthy agribusiness giants continue to hog their billions.
“The average monthly household income of the 26 million Americans who receive food stamps is $648. Two of the members of Congress taking the food stamp challenge — Reps. Jim McGovern (D-Mass.) and Jo Ann Emerson (R-Mo.) — have introduced a bill that would provide for small yearly increases in the payout and would revive benefits for some of the groups excluded in 1996. This would add about $4 billion a year to the $33-billion annual cost of the program. Such an increase could be offset by breaking the culture of dependence of a group that is genuinely getting fat off the government trough: farmers.
“The U.S. spends about $20 billion annually on agricultural subsidies, the vast majority going to large commercial operations, not family farms. These payments distort trade, heighten poverty in the Third World and raise food prices for U.S. consumers. Continuing this porkfest while the neediest Americans go hungry is more than nonsensical — it’s immoral.”
II. Ethanol Issues
On Friday, University of Illinois Agricultural Economists Darrel Good and Scott Irwin issued a report entitled, “2007 U.S Corn Production Risks: What Does History Teach Us?”.
In part, this report noted that, “From May to October each year, the corn market typically finds direction from the prospective size of the U.S. corn crop. Expectation about crop size starts with the USDA’s March Prospective Plantings report, changes with the USDA weekly reports of planting progress and crop conditions and the June Acreage report, and culminates with the USDA monthly production forecasts beginning in August. Corn prices are especially sensitive to the prospective size of the U.S. crop in years when stocks are relatively low and/or in years of robust demand for corn. During those periods, a substantial shortfall in production would be very disruptive to the corn market, require significant adjustments by end users, and have the potential to increase food prices. Instances of substantial shortfalls in the size of the U.S. crop when stocks were low and demand was strong have been rare (1974 and 1995), but years with the potential for such an occurrence have been more numerous. The current year is one of those years. Market participants are highly sensitive to prospective crop size and corn prices have been quite volatile early in the 2007 production cycle. It may be very helpful, then, to provide an early assessment of potential U. S. corn production in 2007 and the likely impact on corn prices and the implications for market participants and policy makers.”
After a more detailed look at historic corn production data and a more in-depth analysis of expectations of crop size and actual production levels, as well as other related issues, the authors stated that, “An important public policy question, then, is, with an extreme shortfall in production, would the market be allowed to allocate the crop among users or would such a shortfall in corn production induce government intervention? The norm from past experience with rationing has been to allow the market to allocate the crop, with the largest adjustments taking place in the livestock sector. However, there has been one exception. Short supplies and high soybean prices in 1973 resulted in an embargo on U.S. exports. Such an embargo on corn exports might be considered following a large shortfall in production, but the potential negative impact on longer-term trade relationships would make an embargo a very unpopular alternative. The financial implications of high corn prices for livestock producers might evoke intervention in the allocation of supplies between domestic livestock producers and processors of corn.
“At this stage of the 2007 growing season, there is certainly no indication of a substantial shortfall in U.S. corn production, nor are we predicting such an outcome. Discussion of market and policy implications of such a shortfall, then, may appear to be premature, unrealistic, or even alarmist. It is important to recognize, however, that the worst-case scenarios for corn production in 2007 (shortfalls exceeding 20 percent) were not analyzed. History indicates that shortfalls in production as large as 30 or 40 percent, though unlikely, are possible. The focus of the analysis here is not to forecast crop size, but to draw attention to the implications of crop size. Market participants and policy makers should be particularly aware of the consequences of a large shortfall in 2007 corn production. Market participants can develop plans to manage a shortfall in production and policy makers can consider appropriate responses to a significant shortfall. Developing policy responses in advance of the problem would allow input from market participants, provide for fair and reasoned policies, and allow for smoother implementation of the policies if needed. Even if a shortfall is avoided in 2007, the risk will continue for at least the next couple of years given the current low level of inventories, the current incentives for expansion of ethanol production, the lack of alternative feed stocks for ethanol production, and the need to continue to increase U.S corn acreage.
“The current situation in the corn market may have other policy implications. Corn prices are expected to remain generally high and extremely volatile for an extended period of time. The combination of a low level of stocks and an increasing portion of corn consumption occurring in the ethanol sector, where demand is relatively price insensitive, suggests that prices will be extremely responsive to small changes in U.S. and world production prospects or changes in demand for corn in any other sector. Prices of other commodities will also be influenced as the market attempts to allocate production resources, primarily land, among the various crops. Provisions of the new ‘farm bill’ are expected to reflect this changing environment of high and volatile crop prices. In addition, careful consideration of potential market impact should be given to policies encouraging additional bio-fuels production. Other considerations might include provision for a corn reserve in years of large production to provide a buffer for a future shortfall in production.”
Also on Friday, USDA’s Economic Research Service (ERS) released a report entitled, “Ethanol Expansion in the United States: How Will the Agricultural Sector Adjust?” which was written by Paul Westcott.
A summary of the ERS report stated that, “A large expansion in ethanol production is underway in the United States. Cellulosic sources of feedstocks for ethanol production hold some promise for the future, but the primary feedstock in the United States currently is corn. Market adjustments to this increased demand extend well beyond the corn sector to supply and demand for other crops, such as soybeans and cotton, as well as to U.S. livestock industries. USDA’s long-term projections, augmented by farmers’ planting intentions for 2007, are used to illustrate anticipated changes in the agricultural sector.”
Also note that the ERS has developed a bioenergy webpage. To view this new page, which contains recent publications and other multi-media tools regarding agriculture and bioenergy, just click here.
A RECAP OF MORE REPORTS, ARTICLES AND EDITORIALS RELATING TO ETHANOL is available in a brief FarmPolicy.com update from Sunday morning; just click here to review this short post.
Keith Good
