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Farm Payments, Doha, Ag Economy, The CAP, and New Online
Farm Payments
Philip Brasher reported yesterday at The Des Moines Register Online that, “People too rich to get farm subsidies are collecting payments anyway because of the Agriculture Department’s lax oversight, government investigators say.
“The founder of an insurance company collected more than $300,000 a year in farm subsidies from 2003 through 2006 despite exceeding a $2.5 million income eligibility limit. The part-owner of a professional sports franchise got more than $200,000 a year.
“They were among 2,702 rich individuals who collected $49 million in farm subsidies over the four-year period in apparent violation of the income limit, according to the Government Accountability Office, the watchdog arm of Congress.”
[The GAO report can be downloaded by clicking here, “Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent Payments to Individuals Who Exceed Income Eligibility Limits,” while a one page summary of the report is available here.]
Mr. Brasher added that, “The U.S. Agriculture Department’s failure to catch those violations raises concerns about its ability to enforce the tighter, more complex income limits Congress enacted in the 2008 farm bill, according to the report.
“The investigators estimated that 23,506 people who received farm subsidies in 2006 could be ineligible for payments under the new income caps, which range from $500,000 to $1 million and vary according to which farm programs are affected. The new rules increase ‘the risk that USDA will make improper payments to more individuals,’ the report said.”
The Register article noted that, “Even the USDA wasn’t allowed to see the names of the people caught by the GAO, because the study required using private tax records on file with the Internal Revenue Service.
“In a letter accompanying the report [page 29], officials with the USDA’s Farm Service Agency expressed frustration at being unable to get the names and said they needed the power ‘by whatever means necessary’ to obtain them.”
Mr. Brasher also explained that, “FSA officials blamed their failure to catch ineligible recipients on a lack of funding and an inability to use IRS records. They also said the amount of money those people collected – $49 million over four years – represented a tiny fraction of the $16 billion in farm payments the department makes annually. A total of 1.8 million people received payments from 2003 to 2006.
“The USDA samples recipients for eligibility, but it doesn’t necessarily check them for income eligibility. Instead, the USDA looks at other factors, such as the amount of payments received the previous year or whether there was a change in a farm’s ownership, the GAO said. The new farm bill requires the USDA to use statistical methods to identify ineligible recipients.”
Michael Doyle, who also reported yesterday on the GAO report, noted that, “The department’s Farm Services Agency stated in its official audit response that it ‘made the best use of the resources available’ and further stressed that the reported improper payments amounted to less than 1 percent of total crop subsidy payments.
“But the critical findings do not entirely surprise activists who tried with minimal success last year to restrain crop subsidies in the latest $286 billion farm bill. They also underscore some of the major challenges facing whoever President-elect Barack Obama taps as the new agriculture secretary.
“‘You have to have the right management team in place,’ former Agriculture Secretary Ann Veneman said in an interview Monday.
“No clear front-runner has yet appeared in the Agriculture Department sweepstakes. When the new secretary takes office, he or she will find the latest 48-page GAO report figuratively sitting atop a stack of previous audits, investigations and congressional hearing transcripts that convey a common message.”
AP writer Larry Margasak reported on this issue yesterday; his article indicated that, “There are three main types of payments: direct subsidies based on a farmer’s production history; countercyclical payments that kick in when prices are low and disappear when they recover; and a loan program that allows repayment in money or crops.
“The 2002 farm bill required an income test for the first time.
“An individual or farm entity was ineligible if average adjusted gross income exceeded $2.5 million over three years — unless 75 percent or more of that income came from farming, ranching and forestry.
“According to the report, the 2,702 recipients exceeded the $2.5 million and got less than 75 percent of their income from these activities. The payments to them totaled more than $49 million.”
Doha
Financial Times writers Alan Beattie and Naomi Mapstone reported yesterday that, “The chance of ministers meeting next month to push forward the so-called Doha round of trade talks increased yesterday after diplomats said they had made progress on setting goals for the negotiations.
“After a meeting at the World Trade Organisation in Geneva, Peter Allgeier, US representative at the WTO, said: ‘I think there is a very high probability’ of a meeting. Such a gathering would in effect be one of the very last chances to agree an outline deal in the seven-year-old talks before President George W. Bush leaves office in January.”
The FT article indicated that, “But some observers and participants stressed that stark divisions remained among different participants and lobbies in the talks. Last week, a coalition of American and European business representatives wrote to Susan Schwab, US trade representative, and Catherine Ashton, EU trade commissioner, warning against a rushed ministerial meeting that did not deliver substantial new export markets.
“In particular, business leaders have demanded that so-called sectorals, which will open up manufacturing sectors to international competition, be agreed with the big emerging markets including India and China.
“But Kamal Nath, the Indian trade minister, who is campaigning for state elections in his home state of Madhya Pradesh, said developing countries would not be bounced into making such agreements. ‘I support a ministerial if there is a real attempt by the developed countries to make concessions,’ he told the Financial Times. ‘If they insist on trying to lock in sectorals I don’t see that possibility.’”
Reuters writer Laura MacInnis reported yesterday that, “Trade officials at the WTO said that although the WTO’s 153 member states remain at odds in several parts of the Doha talks, there was growing consensus over the need for ministers to meet and seek a deal in the key areas of agriculture and industry.”
The article explained that, “WTO Director-General Pascal Lamy did not recommend a date for a ministerial meeting in his Sunday discussions with about 30 key ambassadors, participants in those talks said.
“But trade officials said the high-level meeting would almost definitely occur in mid-December, after WTO talks mediators have the chance to revise negotiating texts that would form the basis of a deal on cuts to trade-hampering tariffs and subsidies.
“‘The window we have is not that big,’ one official said.”
Ag Economy
An Oxford Analytica item posted yesterday at Forbes.com stated that, “Agricultural policy is one of the least likely candidates for the ‘change agenda’ president-elect Barack Obama has promised to implement. The 2008 farm bill extends well beyond Obama’s first term, and he supported that legislation.”
However, the item added that, “The 2008 farm bill was passed before the full impact of the financial crisis was apparent. Booming commodity prices promised record farm incomes and low anticipated program expenditures. The Doha round of global trade talks was collapsing; in any case, it would have had little impact if prices remained high. Sustained growth in emerging markets, particularly in Asia, gave farmers favorable export prospects regardless of the trade policies followed by those countries.
“All these assumptions on which the Farm Bill was premised are now in question. Moreover, the strain on federal budgets caused by the rescue packages for financial institutions could well lead to pressure for agricultural spending and subsidies to be reined in.”
More specifically with respect to recent changes in the agricultural economy, Dan Piller reported in Sunday’s Des Moines Register that, “Fueled by strong farm profits and increased demand by ethanol producers, land prices have doubled from an inflation-adjusted $2,281 per acre a decade ago to more than $4,500 per acre by last summer.
“‘What we’re probably seeing now is a plateauing, rather than a fallback in land prices,’ said Michael Duffy of Iowa State University, who assembles a widely followed land price survey released each December. ‘When people say prices are down, it probably is relative to what they expected two or three months ago.’
“The Federal Reserve Bank of Chicago reports that land values in Iowa surged by an average of 17.2 percent in the 12 months through October. But since July, the increase cooled to 2 percent. The bank reports that respondents to its surveys ‘favored agricultural land values to level off in the fourth quarter of 2008.’”
And Joe Barrett reported in today’s Wall Street Journal that, “Volatile global commodities markets have King Cotton on the run in the Mississippi Delta.
“Farmers like Brad Cobb have started to plant other crops, even though his family has raised cotton in the region’s rich soil since the Civil War. The crop grows very well in the warm climate, while others, such as corn, can be tricky. ‘It’s the crop that pulls you through the droughts and the floods and the storms,’ Mr. Cobb says.
“But over the past two years, cotton prices haven’t kept pace with the surging prices of grains like corn and soybeans — as well as farming supplies like fertilizer and diesel fuel. Mr. Cobb and his family, who were farming cotton exclusively on about 13,000 acres in 2006, switched to other crops on all but 5,000 acres over the last two years. Next year, he expects to cut his cotton crop by an additional 25%.”
The Journal article added that, “The story is the same across Mississippi. Farmers harvested a historically low 360,000 acres of cotton this fall, down from 1.2 million acres just two years ago — the steepest drop of any big cotton-producing state. Nationally, farmers harvested 7.8 million acres of cotton, down from 12.7 million in 2006.
“On Monday, economists at the U.S. Department of Agriculture predicted that global demand for cotton would drop 3% for the 12 months through July 2009, as China and other big textile makers are hit by the global economic slowdown.”
A summary item posted yesterday at the USDA’s Economic Research Service webpage also noted that, “The global cotton outlook for 2008/09 (August/July marketing year) has changed considerably given the recent economic developments from around the world. Consumer demand for cotton products has slowed, impacting cotton mill use and trade for many countries.”
In a more broad based article regarding the Midwest economic outlook, Amy Merrick reported late last week at The Wall Street Journal Online that, “State and local governments across the Midwest are cutting back on sheriffs’ costs, programs for the poor and even a popular blues festival, as the region’s once-thriving economy hits the skids.”
The Journal article added that, “Two pillars of the economy in recent years, booming farms and export-driven manufacturing, have eroded. Midwest manufacturing output plunged 7.4% in September from a year earlier, worse than the 4.8% decrease in output nationally, according to the Federal Reserve Bank of Chicago. Farmers are being squeezed by still-elevated fertilizer and feed costs, and falling prices for crops and livestock. Ethanol makers are in financial straits, with VeraSun Energy Corp. seeking bankruptcy-court protection and posting a $476 million third-quarter loss Wednesday.”
Meanwhile, Lori Montgomery reported in yesterday’s Washington Post that, “Facing an increasingly ominous economic outlook, President-elect Barack Obama and other Democrats are rapidly ratcheting up plans for a massive fiscal stimulus program that could total as much as $700 billion over the next two years.”
Brad Swenson, writing on Saturday at the Bemidji Pioneer Online (Minnesota), reported that, “Any new economic stimulus must include rural America, both of Minnesota’s U.S. senators told a farm group here Friday night.
“Sens. Norm Coleman, a Republican, and Amy Klobuchar, a Democrat, said investments need to be made in rural communities that will continue to suffer decline otherwise.”
The article added that, “Today is the most challenging economic times Coleman’s seen in his life, he said. But part of meeting that challenge will be in keeping commitments to renewable fuels, biofuels, ethanol and research.”
In a related article regarding the economics of biofuels, Brian Baskin reported in today’s Wall Street Journal that, “The price of the contract for light, sweet crude for January delivery rose $4.57, or 9.2%, to settle at $54.50 a barrel on the New York Mercantile Exchange.
“Analysts and traders differed as to whether the move marked the start of a new chapter for an oil market that has traded consistently lower the past four months and fell 12% last week over fears the economic downturn was deepening.”
New York Times writer Elisabeth Rosenthal discussed the impact the economic slump could have on alternative energy development in an article from today’s paper. In part, the piece noted that, “The United Nations says that 40 percent of the world’s power generating capacity has to be replaced in the next 5 to 10 years. Six months ago, high oil prices, easy credit and political pressure led many governments to promote biofuels, wind farms and nuclear projects and phase out fossil fuel plants. But the logic of spending more on such plants has at least partly evaporated.”
The CAP
Writing yesterday at her blog, European Commissioner for Agriculture and Rural Development Mariann Fischer Boel stated that, “The Health Check will build on the major reforms of the last few years to make sure that the CAP is really delivering what we need in an EU of 27 Member States and in today’s global context.
“I’m convinced that it will help EU farmers to be more responsive to market signals – while also giving them the right kind of support. And it will give us better tools for handling developing challenges like climate change.
For example:
“We’re pushing ahead with ‘decoupling’ direct income support payments to farmers – in other words, cutting the link between these payments and production. Most payments will be fully decoupled by 2013, giving farmers even greater freedom to produce what the market is asking for.”
The final Health Check compromise text is available for download here, at the CAP Health Check Blog.
In editorial opinion regarding the CAP Health Check, financial bailouts and the food crisis, Jack Thurston noted yesterday at The Wall Street Journal Europe Online that, “Since 1992, the European Union has been moving — albeit at a glacial pace — toward a more market-oriented model. Last week, in a review of the Common Agricultural Policy, EU members took only a few more baby steps in this direction. The skeptics prevented more sweeping reforms, seizing on the recent volatility in global food prices as evidence of the failure of markets. The evidence, though, points in the opposite direction.”
New Online
For more information on the future of the CAP, see this new webpage: “CAP2020: Debating the Future of the Common Agricultural Policy.”
A news release about the new webpage noted that, “CAP2020 will provide a platform for informed commentary, analysis and debate on the issues surrounding the future of the Common Agricultural Policy (CAP) and what the future focus for agricultural support in Europe should be.
“Following the conclusion of the Health Check of the European Union’s Common Agricultural Policy (CAP) this week, attention is turning to the EU Budget Review and the future of the CAP post 2013. This is the next window of opportunity to reform Europe’s agricultural policy. The modest outcome to the Health Check underlines the need for a vigorous debate on the future of public support to farmers in Europe.”
Also, Des Moines Register writers Philip Brasher and Dan Piller have teamed up to present a new blog entitled, “Green Fields.” The blog, which is updated regularly, provides “news and notes from the world of agriculture and alternative energy.”
Keith Good
