Transcript a.k.a. The 2008 Farm Bill - UK College of Agriculture

The Food, Conservation and Energy Act of 2008
(The 2008 Farm Bill)
Will Snell, University of Kentucky
Every farm bill debate is different ,…
but this one was certainly been one of the most challenging given the economic,
political, and budget environment
Agricultural Economics
Factors Affecting the Farm Bill Debate
 Current Status of the U.S. Agricultural Economy
 Commodity Prices
 Net Farm Income
 Exports
 Balance Sheet
Agricultural Economics
U.S. vs Ag Economy
U.S. General Economy
 Sluggish Growth
 Escalating Energy/Food
Prices
 Credit Crisis
 Slumping Housing Market
 Volatile Stock Market
 Declining Dollar
 Cautious Consumers
 Recession???
Agricultural Economics
U.S. Ag Economy
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Relatively High Prices
Record Cash Receipts
Record Net Farm Income
Record Exports
Strong Balance Sheet
New Opportunities
 Energy
 Pharmaceuticals
 Expanding Global Markets
Prices Received by U.S. Farmers
Soaring export demand and of course expanded use for commodities
(primarily energy) has led to historic high prices
Index Values:
1990 - 1992 = 100
180
170
160
150
All
140
130
120
Crops
Livestock
110
100
90
80
2000 2001 2002 2003 2004 2005 2006 2007
Source: NASS/USDA
Agricultural Economics
U.S. Net Farm Income
Billion Dollars
U.S Net Farm Income established an all time record high of $88.75 billion
In 2007 and is forecast to exceed $90 billion in 2008 – over 50% above the 10 yr avg.
100
90
80
70
60
50
40
30
20
10
0
1980
1985
Agricultural Economics
1990
1995
2000
2005
Source: ERS/USDA
U.S. Trade-Weighted U.S. Dollar Exchange Rate
140
1997 = 100
120
110
100
90
Agricultural Economics
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8
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7
Ja
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6
Ja
n
-0
5
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n
-0
4
Ja
n
-0
3
Ja
n
-0
2
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n
-0
1
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0
80
Ja
n
Index Value
130
U.S. Ag Exports
Million Dollars
120,000
A combination of tight foreign supplies, a declining dollar,
and population/economic growth in Asia and Latin
America has led an export boom for U.S. agriculture
100,000
80,000
60,000
40,000
20,000
0
1980
1985
Agricultural Economics
1990
1995
2000
2005
Source: ERS/USDA
U.S. Ag Trade Balance
30,000
Million Dollars
A few years ago ag economists where discussing the
potential of a trade deficit for the U.S. ag sector …. But
while imports continue to grow, the growth has not been
comparable to the growth in exports.
25,000
20,000
15,000
10,000
5,000
0
1980
1985
Agricultural Economics
1990
1995
2000
2005
Source: ERS/USDA
U.S. Farm Debt to Equity and
Debt to Asset Ratios
30
25
U.S. farmland prices have more
than doubled since 2000
Ratio
20
15
Debt to Equity
10
Debt to Asset
5
0
1985 1988 1991 1994 1997 2000 2003 2006
Agricultural Economics
Source: ERS/USDA
Political and Economic Factors
Affecting the Farm Bill Debate
 Current Status of the U.S. Agricultural Economy
 Commodity Prices
 Net Farm Income
 Exports
 Debt Position
 Budget Concerns
Agricultural Economics
U.S. Budget Deficit/Surplus
$300
$200
Billion Dollars
$100
$0
-$100
1991
1993
1995
1997
1999
2001
2003
2005
2007
-$200
-$300
-$400
-$500
The budget baseline for the 2007 farm bill was reduced by more
than 40% compared to what was spent on the 2002 farm bill
Agricultural Economics
Source: CBO
Outcome
 Reduction in traditional ag commodity support
 Calls for major reform in commodity programs failed
 similar structure of the 2002 farm bill
 Greater support for food/nutrition programs,
conservation, specialty crops, and energy.
Agricultural Economics
2008 Farm Bill
 The 2002 Farm Bill expired in September 2007
 Following months/years of debate, several extensions, a
presidential veto, a Congressional override, an
administrative glitch, the 2008 Farm Bill became law in
June 2008
 A side by side comparison of the 2008 and 2002 farm bills
is available from USDA
(www.ers.usda.gov/FarmBill/2008/)
Agricultural Economics
The Budget Picture
U.S. Farm Bill Spending by Category
2002 Farm Bill
Other – 15%
2008 Farm Bill
Commodities – 23%
Other – 12%
Commodities – 11%
Conservation – 8%
Nutrition – 68%
Nutrition – 62%
Source: Brad Lubben, University of Nebraska
Agricultural Economics
Background
 The titles for the 2008 Farm Bill included …
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Commodities
Conservation
Trade
Nutrition
Credit
Rural Development
Research and
Extension
Agricultural Economics
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Forestry
Energy
Horticulture
Livestock
Crop Insurance
Commodity Futures
Taxes
Miscellaneous
Safety Net Programs
Maintains the current safety net programs for
farm bill crops consisting of:
 direct payments
 countercyclical payments
 marketing loan benefits
with some adjustments in loan rates and target prices
beginning in 2010.
Agricultural Economics
Loan Rates
2008 Farm Bill
Commodity
2007 Rate
2008
2009
2010-2012
Corn (bu)
$1.95
$1.95
$1.95
$1.95
Sorghum (bu)
$1.95
$1.95
$1.95
$1.95
Barley (bu)
$1.85
$1.85
$1.85
$1.95
Oats (bu)
$1.33
$1.33
$1.33
$1.39
Wheat (bu)
$2.75
$2.75
$2.75
$2.94
Soybeans (bu)
$5.00
$5.00
$5.00
$5.00
Agricultural Economics
Target Prices
2008 Farm Bill
Commodity
2007 Rate
2008
2009
2010-2012
Corn (bu)
$2.63
$2.63
$2.63
$2.63
Sorghum (bu)
$2.57
$2.57
$2.57
$2.63
Barley (bu)
$2.24
$2.24
$2.24
$2.63
Oats (bu)
$1.44
$1.44
$1.44
$1.79
Wheat (bu)
$3.92
$3.92
$3.92
$4.17
Soybeans (bu)
$5.80
$5.80
$5.80
$6.00
Agricultural Economics
Direct Payments
2002 Farm Bill
Commodity
2008 Farm Bill
2002-2007
2008-2012
Corn (bu)
$0.28
$0.28
Sorghum (bu)
$0.35
$0.35
Barley (bu)
$0.24
$0.24
Oats (bu)
$0.024
$0.024
Wheat (bu)
$0.52
$0.52
Soybeans (bu)
$0.44
$0.44
No changes in Direct Payment Rates
But payment acres are reduced from 85% of base to 83.3% for 2009 - 2011
Agricultural Economics
Optional CCP (ACRE)
 Provides program crop producers with an optional onetime enrollment of a state-level revenue-based
countercyclical-program called the Average Crop Revenue
Election (ACRE) beginning in crop year 2009
 Producers agree to a 20% reduction in direct payments
and a 30% reduction in loan rates.
 If selected, producer remains in the ACRE program for
2009-2012 for all program crops grown on the farm
Agricultural Economics
ACRE Details
 A producer who enrolls in the ACRE program will receive
a payment if:
 The actual state revenue for an eligible program
commodity is less than 90% of a state revenue
guarantee AND …
The producer suffers a revenue loss
 Payment will be based on 83.3% of the eligible base acres
for 2009-2011 crops and 85% of base acres for 2012 with
adjustments for farm yields relative to state yields
Agricultural Economics
ACRE Details: Actual State Revenue and the
State Revenue Guarantee
 Actual state revenue: the product of the actual state
average yield and the national average market price
 State revenue guarantee: the product of the previous 5
year’s state average yield, excluding the high and low
yields and the previous 2 year’s national average price
Agricultural Economics
ACRE Details: Actual Farm Revenue vs the
Farm Revenue Guarantee
 Actual farm revenue: the product of the
actual farm yield and the national average
market price
 Farm revenue guarantee: the product of the
farm’s 5-year average yield, excluding the high
and low yield and the 2-year national average
price plus the crop insurance premium per
acre
Agricultural Economics
Other ACRE Details
 ACRE state revenue guarantee for a given crop for 20102012 cannot change by more than 10% from the previous
crop year
 Per acre ACRE payments cannot be greater than 25% of
the state program guarantee for the crop.
 ACRE payments are calculated on planted, not base or
harvested acres, and
 Total number of eligible planted acres for all crops on a
given farm cannot exceed the farm’s total base acres.
Agricultural Economics
Average Crop Revenue Election
State ACRE Guarantee = 90%
* 5-Year Olympic State Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price
>
Restricted to < 10% change/year
Actual State Revenue =
Actual State Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
AND
Farm ACRE Benchmark =
Farm's 5-Year Olympic Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price + Ins Premium
>
Actual Farm Revenue =
Actual Farm’s Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
THEN
Farm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres *
[ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] *
MIN[ (State ACRE Guarantee – Actual State Revenue) OR State ACRE Guarantee * 25%]
Note: All Yields are Planted Acre Yields
Source: Joe Outlaw, Texas A@M
ACRE Calculator
www.card.iastate.edu/ag_risk_tools/acre/
Agricultural Economics
Payment Limitations
 Denies direct payments to any producer whose average (previous
three years) adjusted gross farm income exceeds $750,000 annually
 Eliminates all farm program payments to any individual with an
average adjusted gross non-farm income exceeding $500,000.
 Individual program caps
 Direct Payments (DP)- $40,000, (ACRE, $40K less 20% drop in DP)
 Countercyclical Payments (CCP) -- $65,000 (ACRE, $65K plus 20% drop in DP
 Marketing Loan Program – No cap
 Eliminates the three entity rule (but spouses eligible for separate
payment) and requires direct attribution of payments to individuals,
not partnerships or corporations.
 Eliminates payments for any farm with less than 10 base acres,
unless limited resource or socially disadvantaged
Disaster Assistance
 Establishes a permanent whole-farm revenue
disaster assistance program called the Supplemental
Revenue Assurance Program (SURE)
 Additional disaster programs for:
 livestock
 forage
 orchard and nursery tree producers.
Agricultural Economics
Dairy Program
 Modifies the dairy price support program by directly
supporting the price of dairy products
 Increases the payment rate on the Milk Income Loss
Contract (MILC) program (whose payment would take into
consideration the cost of feed),
 Extends the Dairy Export Incentives Program (DEIP).
Agricultural Economics
Conservation Programs
 Increases conservation program spending by nearly $8
billion
 Authorizes 32 million acres (vs current 39 million acres) to
be enrolled in the Conservation Reserve Program (CRP)
from 2010 -2012
 Extends most other conservation programs with
expanded funding of $3.4 billion for the Environmental
Quality Incentives Program (EQIP)
 Provides over $1 billion in new funding for the revamped
Conservation Security Program (CSP) to enroll nearly 13
million acres annually
Agricultural Economics
Energy
 Increases funding for biofuels research and
infrastructure, with increased emphasis on cellulosic
and on-farm adoption of improved energy efficiency
systems.
 Reduces the blenders tax credit for corn ethanol
from 51 cents to 45 cents per gallon
 Creates a $1.01 per gallon tax credit for cellulosic
biofuels
 Extends the duty on ethanol imported for fuel use.
Agricultural Economics
Livestock Provisions
 Implements mandatory country of origin (COOL)
labeling for meats and produce
 Increases market access for small, state inspected
meat processing plants
 Provides better protection for livestock producers
entering into contracts
 cancellation allowances,
 clear disclosure of large capital investments required
 outlines producer arbitration options,
 allows producers to petition for local court jurisdiction if
litigation arises over contract disputes.
Agricultural Economics
Rural Development
 Provides funding for a wide variety of
economic development programs such as:
water, energy, and health programs,
loan guarantees to support value-added ag
enterprises,
and broadband internet expansion to enhance
rural economies.
Agricultural Economics
Horticulture
 Reauthorizes funding for states to receive block
grants and other programs to support marketing,
research, education, and pest/disease management
for specialty crops.
 Additional grants available to support local farmers
markets, other direct marketing ventures, and
agritourism.
 Increased emphasis and funding for enhanced
market information, certification, and regulation for
organic food production.
Agricultural Economics
Other Issues
 Improves programs for extending credit to beginning
farmers and increases farm ownership and operating
loan limits.
 Revises tax laws to allow race horses to be depreciated
over three years.
 Prohibits closure or relocation of FSA offices for two
years
Agricultural Economics
For more information …
www.ers.usda.gov/FarmBill/2008/
Agricultural Economics