Transcript What is the nature of specific land use problems

Status of FSRIA 02 &
Shifting to the Next Farm Bill
Lesson 5d—AGEC 3703
Larry D. Sanders
Fall 2005
Dept. of Agricultural Economics
Oklahoma State University
1
Op-Ed Reactions: Dave Barry
If you’re like most American taxpayers, you often wake
up in the middle of the night in a cold sweat and ask
yourself. “Am I doing enough to support mohair
producers?”
I am pleased to report that you are, thanks to bold action
taken recently by the United States Congress (motto:
“Hey, It’s not OUR money!”). I am referring to the
2002 Farm Security Act, which recently emerged from
the legislative process very much the way a steaming
wad of processed vegetation emerges from the digestive
tract of a cow.
2
Op-Ed Reactions: Dave Barry (continued)
Perhaps you are asking yourself: “Wait a minute! Isn’t
this kind of like, I don’t know …… welfare?”
No, it is not. Welfare is when the government gives
money to people who produce nothing. Whereas the
farm-money recipients produce something that is critical
to our nation: votes. Powerful congresspersons from
both parties, as well as President Bush, believe that if
they dump enough of your money on farm states, the
farm states will re-elect them, thus enabling them to
continue the vital work of dumping your money on the
farm states. So as we see, it’s not welfare at all! It’s
bribery. --Dave Barry
3
Issues Affecting the Development &
Implementation of the 2002 Farm Bill
 Public
& hidden agendas of Congress & President
 The disappearing budget surplus
 Compliance with WTO
 2002 election
 Agriculture split on desired goals & how to
achieve them
 Taxpayer backlash on “welfare for the wealthy”
 HAVE PRIORITIES CHANGED SINCE
9/11/01?
4
Prelude to Current Farm Bill Policy:
A Dose of Reality . . .
The 1996 farm act was called a “watershed”
(Knutson et al) because it signaled a major turning point
in the social contract between the public and farmers. The
clear intent was for the market to replace government
subsidies with profits over a phased-in seven year period.
The public perception was that the 1996 FAIR Act was to
get the government out farm programs by 2002, and there
would be no need for more farm bill programs.
“If you believe that, you believe in the tooth fairy.”
—Barry Flinchbaugh, 1996.
5
The Farm Security & Rural Investment
Act of 2002 (FSRIA)
Cost
$180 bil-200 bil if in place 10
years
Includes extra $73.5 over prev. budget
$50 bil – commodities
$17 bil – conservation
$1 bil – rural development
6
FSRIA 02
Legislative
objective:
– To get more money in the hands of producers
and landowners to allow them to be more
profitable and help maintain or improve the
environmental resources they use
Political
objective:
– Support agriculture through the bad times;
certainly through the Senate/Congressional
elections of 2002
7
An Evolving Conservation Philosophy
 Previous
programs focused on protecting
environment/natural resources & compensating
producers/landowners
 New philosophy is shifting toward working
farmland with a conservation ethic (increase from
current 7% to new 40% of program costs)
 Farmers and ranchers should manage farmland to
provide cheap, high quality food and fiber and
environmental amenities (e.g. clean air and water,
wildlife habitat, open space, sequestered carbon).
 Additional $9 bil thru 2007 authorized
8
Factors to Consider for the Coming
Policy Debates
1.
Twin deficits
–
–
2.
Perceptions
–
3.
4.
Trade
Budget
Sector vs. Commodity vs. Farm
financial performance
Global markets
Politics
–
–
Political Triangle of Ag & Budget
Policy
Farm Bill changes—when?
5. Distributional equity
6. Community Food Systems
–
WTO, local market trends, food
safety/health concerns
9
Politics: Political Triangle of Ag & Budget Policy
•New committees
•Turf battles
•Reconciliation
LEGISLATIVE
Federal Reserve
•Fight inflation
•Critical of federal deficit
•Greenspan retiring
•Bush Doctrine
•Bush Budget
•USDA
•Trade talks
•Ag groups one voice?
•Non-ag groups
•Competitors
INTEREST
GROUPS
EXECUTIVE
•Property
rights
JUDICIAL
10
Politics: 2004 Baseline Cost of Agriculture Programs
House Agriculture Committee Jurisdiction
CBO 10-Year Projections: FY 05-14 Budget Authority
CBO Sep 04 Baseline
Food Stamps
$294.2
CCC Commodity Prog
$128.9
Farmer Conservation
$48.5
Crop Insurance
$37.1
Other Nutrition
$8.0
Rsch & Inspect.
$7.5
CCC Other (Exc Conserv.)
$7.2
CCC Export Prog & Guar
$5.8
Forest Serv
$2.3
Transportation
$0.6
Comm & Rural Dev $0.5
0
50
100
150
200
250
300
350
$ Billion
11
12
Energy Price Impacts on Agriculture
 US Agriculture
is not only capital-intensive,
but fossil-fuel intensive
– Fuel for farm machinery, equipment & vehicles
(4% of farm expenses)
– Fertilizer & chemical (15% of farm expenses)
– Marketing (?)
– Energy costs as share of production costs varies
by enterprise (less than 10% for livestock, over
40% for cotton)
 Will
US ag adjust to market, or will
government protect with subsidies?
13
The Next Farm Bill: 2006? 2007? 2008?
 Current
farm bill: 6-year act (2002-2007)
 Debate for the “next” farm bill already
engaged
 Rewrite of FSRIA02 begins in 05
– Budget Reconciliation
– Appropriations
 New
“enabling” legislation in 06-07-08?
– 2006 & 2008 election anxiety may encourage a
2007 farm bill
14
FY 2005 Budget Update (continued)
 No
reductions in commodity
programs likely; just "shifts"
to get around the WTO problems
– More WTO lawsuits likely
– Some reduction in payment limits
possible, but may still have
loopholes
 Programs
like food and
nutrition, rural development,
etc., are likely to bear real
cuts.
 Green payments still not a
15
Likely Alternatives & Consequences:
Program Specific Choices
1. Lowering payment caps is likely to hurt larger
operations more than smaller farms, probably
hitting larger cotton farmers more than small to
moderate wheat farms.
2. It is still uncertain how crop insurance reform
will affect farms.
3. Cuts in conservation programs will restrict
options for producers on marginal land,
possibly encouraging a return to practices that
harm the environment.
16
Likely Alternatives & Consequences:
Program Specific Choices
4. Cuts in research funding will lead to a loss of public
sector innovation, and an acceleration to shifts toward
private sector funding. In the long run, this favors larger
farms and firms.
5. If commodity prices rise and/or the value of the dollar
increases, there will be a loss of competitiveness on
global agricultural markets at a time the Administration is
recommending cuts in export subsidies.
6. Cuts in other sectors of Federal spending–Education,
Transportation, Commerce, Health, etc.
--Because rural areas are recipients of some of this
funding, any cuts will have an adverse impact on affected
programs and rural communities, as well as forcing the
burden of aid back onto states that are already financially
strapped.
17
Congressional FY06 Budget Work (continued)
 Congressional
budget calendar
– Oct?: Conference Committee on Appropriations
» 2 of 13 completed
– 1 Oct: fy06 begins
– 18 Nov: end of first continuing resolution
– Nov/Dec?: budget reconciliation?
18
19
FY06 Appropriations Bills
 Senate
passed 22 Sep 05
– $100.158 bil ($17.348 b. is discretionary)
– $15 bil more than fy05
 House
passed 9 Jun 05
– $99.65 bil ($16.83 b. is discretionary)
– Most programs at or above fy05 spending
» Conservation down
20
Evolutionary…not Revolutionary Change?
 Near
term program changes likely to be marginal
 But, WTO restrictions likely to coincide with writing of
2007 farm bill; cuts may become dual purpose
– 20-50% cuts for WTO?
– $3-$20 billion in cuts for deficit reduction?
 Production
expenses (fuel, fertilizer, interest rates) will
rise faster than commodity prices
 Budget deficit/debt solution choices
–
–
–
–
Increase taxes
Cut spending
Grow economy
Do nothing
21
Mean Government Payments
by Farm Type, 1996-2001
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
LR
Retire
Rural Resident
Low Sales
High Sales
Large
Very Large
$765
$1,880
$1,219
$3,435
$15,339
$30,825
$42,124
$10,000
$0
1996
Limited Resource
1997
Retired
1998
Rural Resident
1999
Low Sales
2000
High Sales
Large
2001
Very Large
Source: J. Pease, “Historic Perspectives on Commodity Support”, NPPEC, St. Louis, 20
Sep 04.
22
APPENDIX
 Livestock
sector and commodity programs
23
How does the livestock sector historically fare
with government crop support programs?
 No
impact?
 Cheap, available
grain?
 Encourages marginal
resources/producers
into livestock
business?
24
Livestock Cash Receipts as Percentage of Total Cash
Receipts Compared to Government Support Levels
(1985-present)
70
60
50
Livestock (%)
40
Direct crop payments
($bil.)
30
20
10
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
19
85
0
Source: “Economic Indicators”, Amber Waves, September 2004, ERSUSDA, http://www.ers.usda.gov/AmberWaves/september04/Indicators/
25
Government Support Levels & Farm Real Estate Values
(1985-present)
25
1400
1200
20
Direct crop
payments ($ bil.)
1000
15
800
10
600
400
5
200
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
19
Linear (Direct crop
payments ($ bil.))
0
85
0
Farm real estate
values (nominal $/ac)
Source: “Agricultural Outlook Tables”, August 2004, ERS-USDA,
http://www.ers.usda.gov/publications/agoutlook/aotables/aug2004/ao0804.pdf
26
Data Suggests Government Support Does
Impact Livestock Sector
 Generally,
as government support increases,
livestock receipts tend to increase
– Related to cheap available feed?
– Related to producers looking for profit alternatives
when crop prices down?
 Increases
in government support often increase
farm land values but not as clear
 Complex issue deserving more research
27