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| Pressures Will Reshape Safety Net |
Chris Clayton DTN Ag Policy Editor
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The 2012 farm-bill debate is just beginning, but already battle lines are forming over the benefits of the current safety net versus a single, super crop-revenue assurance program.
Arkansas farmer Joe Mencer said he worries about possible changes in the farm bill that could take away direct payments. Farmers in Southern states who have cotton and rice base acres rely heavily on direct payments to support their operations. (DTN photo by Chris Clayton)There are a lot of scenarios from those who want to change farm programs -- either by restructuring payments, lowering payment caps, or getting rid of them altogether. What's different from two years ago is the national debate on government spending.
"The 900-pound gorilla certainly is the budget deficit," Rep. Tom Latham, R-Iowa, a member of the House Appropriations Committee, told the crowd at a farm-bill hearing in Des Moines last week.
With its annual release of the farm-subsidy database this week, the Environmental Working Group pointed out the rising costs of crop insurance as part of the farm safety net. Direct payments and counter-cyclical payments cost $9.3 billion in 2009, while crop insurance cost $8 billion.
"So any small decreases in subsidy payments that we've experienced, because of high crop prices, have essentially been wiped out because of increases in the cost of crop insurance that go up when crop prices go up," Craig Cox of the Environmental Working Group said earlier this week on a conference call with reporters.
While he's an ardent critic of the status quo, Cox said EWG isn't against farm programs and actually supports a safety net, depending on how it works.
"We think there is a need for a legitimate risk-management tool that helps a farmer through a bad patch," Cox said. "Our current maze of programs couldn't be farther away from what we see as a legitimate safety net."
PROGRAMS LOST THEIR WAY
New arguments have emerged that farm programs have lost their way. Critics point to the agreement just reached to stop Brazil from slapping new import duties on U.S. goods in the wake of the World Trade Organization ruling that U.S. cotton subsidies are trade-distorting. The deal reached by the Brazilians and Obama administration is that the U.S. will pay Brazilian farmers $147 million a year until Congress gets around to changing the cotton program. U.S. Sen. Richard Lugar, R-Ind., wrote President Barack Obama last week criticizing the deal, as did House reformists Rep. Jeff Flake, R-Ariz., and Rep. Ron Kind, D-Wis.
"You want a paradox, ask these people what they think of the administration's response to the Brazilian cotton case," Kind said in an interview with DTN. "What they are proposing now is a half-billion dollar new taxpayer subsidy going to Brazil cotton producers, rather than reforming our own commodity programs here, which the case requires us to do. So that's the response. Just throw money at it. The problem continues."
Kind added, "If there's ever a time that's right for new and creative and innovative thinking in farm policy, it's been the past couple of years."
But farmers and ag lenders in different parts of the country will be a hard sell for such change, especially given the lack of payout from the Average Crop Revenue Election program and its complications. Too many people rely on direct payments.
"We wouldn't be planting rice without a direct payment," said Joe Mencer, a southeast Arkansas crop farmer. "We probably wouldn't be planting cotton without a direct payment. They wouldn't cash flow."
Like other ag lenders across the country, Mark Kaufman, chief executive officer of the Delta ACA Farm Credit Services in Dermott, Ark., sees farm-program payments as collateral for an operating loan and a crucial part of the farm operation.
HELPS FINANCE ASSETS
"Since it's a contract in the direct payments, we consider it as an asset to help get financed," Kaufman said. "The margins also are so low it takes away crop options if you lose payments, because you won't be able to cash flow some crops."
In its first set of field hearings in Iowa, Idaho, California and Wyoming earlier this week, the House Agriculture Committee heard ACRE and the new disaster program don't work. Farmers like direct payments, because they are consistent. But if they had their druthers, they would like to see Congress increase the loan rate as well.
Frank Rehermann, a rice producer from Live Oak, Calif., defended the loan program as collateral for commercial lenders. But the loan rates remain low and have not kept up with the costs of production. Further, Rehermann said he had not collected a counter-cyclical payment under the new farm bill, because the price floor remains too low.
"I submit that if prices got so low that counter-cyclical payments were made, we would be in very serious trouble," Rehermann said.
An increase in the loan rate and target prices is unlikely considering both the costs and the fear of more WTO cases. House Agriculture Committee Chairman Collin Peterson, D-Minn., also said in Iowa he is determined to keep the next bill a "baseline bill," meaning he doesn't want to look to the House Ways and Means Committee for extra revenue or offsets. Recognizing the fiscal challenges, Peterson says farm programs need to be reshaped.
"Part of what we are trying to do is provide some risk-management safety net with the money that we have," he said. "I'm not sure we are going to be able to do it the way we have been doing it."
One avenue Peterson is exploring is whether to break the three-legged stool of farm supports -- direct payments, counter-cyclical payments and marketing loan program -- for each commodity.
"We've always done this thing where the programs have been the same across all of the commodities," he said. "I'm not sure that needs to be. That's kind of the way we have done things, I think, because they feel like if everybody has the same program, they kind of stick together."
Paying close attention to the debate, Farm Credit lender Kaufman said he is worried about changing farm policy into a single safety net based on revenue assurance. After all, crop insurance rates in his part of the state are so bad, even as a lender he doesn't recommend farmers buy crop insurance for cotton.
"The numbers show it's not a good business decision," he said. "If they are going to back out of the direct payments and change the crop insurance, you are going to have to have some real changes on the revenue side to protect against cost of production," Kaufman said. "They will need some major changes to the crop insurance program."
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