Farm program reformers not giving up, consider strategies

by Jay Sjerven
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WASHINGTON — While the House Committee on Agriculture last week hammered out details of what seemed destined to be "status quo" legislation to succeed the farm bill expiring Sept. 30, farm program reformers in the House and Senate pondered strategies to move forward their alternative farm bill, the Food and Agriculture Risk Management for the 21st Century, or Farm-21. The reform bill would phase out during the next seven years bedrock commodity support programs, including counter-cyclical payments, the non-recourse marketing loan program as well as direct payments. A farm safety net would continue in the form of risk management accounts to which an increasing proportion of declining direct payments would be applied.

Farm-21 was crafted by Senator Richard G. Lugar of Indiana and Representatives Ron Kind of Wisconsin, Jeff Flake of Arizona, Joseph Crowley of New York and Dave Reichert of Washington.

Senator Lugar especially has been a longtime champion of reforming U.S. farm programs. Senator Lugar was chairman of the Senate Committee on Agriculture, Nutrition and Forestry when the last great run at market-oriented reform was made, the Federal Agriculture Improvement and Reform Act of 1996. FAIR sought to sever the link between income support payments and farm prices by providing for seven annual fixed but declining "production flexibility payments," whereby participating producers received government payments largely independent of farm prices.

These direct payments, as they are now known, were envisioned to end after the seven-year term of FAIR. But Congress, after authorizing several emergency appropriations for agriculture during the FAIR years because of declining farm prices, retreated from reform in enacting the current farm bill, the Farm Security and Rural

Investment Act of 2002, which fixed and extended direct payments to producers of program crops and continued the marketing loan program, while establishing counter-cyclical payments that essentially guaranteed producers received congressionally set target prices for a designated portion of their historical production of a program crop in years when prices dipped below the targets.

Farm-21 resurrected the efforts for reform. It would end counter-cyclical payments after 2008, in Senator Lugar’s version, and after 2009 in the House bill. Counter-cyclical payments would be made only to program crop producers whose annual adjusted gross income was below $200,000.

Direct payments would decline over the term of Farm-21. The House version provided for producers of program crops to receive a payment in fiscal 2008 equating to 65% of their current direct payment as set under the 2002 farm bill. Producers would receive a payment equating to 45% of their 2002 farm bill payment in 2009, 25% in 2010, 20% in 2011 and 10% in 2012 through 2014. Farm-21 advocates in the House envisioned direct payments to end after 2014. Senator Lugar’s version would end direct payments after 2013.

Farm-21 would require the Secretary of Agriculture to offer to enter into risk management account contracts with farm operators. In the case the farm operator is a producer of program crops eligible for direct payments, 50% of the direct payments of a producer in fiscal years 2008 and 2009 would be deposited in the farmer’s risk management account. Seventy-five per cent of the direct payment would be deposited in the R.M.A. of the producer in fiscal years 2010 and 2011, and 100% of the direct payment would be deposited in the R.M.A. in 2012. Money held in R.M.A.s would not be taxed, and producers would be able deposit into the account their own money up to $8,000 a year, just as they would with a traditional I.R.A.

Farmers of non-program crops would be allowed to open R.M.A.s, but there would be no government contribution, as their crops are not eligible for subsidies.

Withdrawals from R.M.A.s would be allowed in a year when a farmer’s gross revenue is less than 95% of his or her five-year average

adjusted gross revenue. The withdrawal would be the amount required to bring the farmer’s gross revenue to 95% of the five-year average. Withdrawals also would be allowed for the purchase of revenue or crop insurance or to protect the solvency of the farm. Also, up to 10% of the balance may be withdrawn to enable the producer to invest in rural enterprises that contribute to the agricultural economy, though this option could be used no more

than once in any five-year period.

The current non-recourse marketing loan program, under which a producer has the option of either repaying a nine-month loan issued by the Commodity Credit Corp. or forfeiting his crop held as collateral for the loan, would be replaced by a recourse loan program, where no crop would be forfeited to the government.

Restrictions on planting specialty crops on program crop base acres would be lifted in order to comply with the recent World Trade Organization decision in favor of Brazil on U.S. domestic cotton subsidies and programs.

Dairy farmers under Farm-21 would receive a transition payment equal to 90% of their historic milk income loss program (MILC) payments. One-half of the annual payment would be deposited in the producer’s R.M.A., while the other half would be made immediately available to the farmer. The milk price support program would be eliminated.

Farm-21 also would eliminate the sugar price support program and lift prohibitive barriers to sugar imports.

Farm-21 advocates claimed the bill would save $20 billion over five years and $55 billion over 10 years. Some of the savings would be reinvested in other programs under the umbrella of the farm bill, including conservation, energy, rural development, specialty crops and domestic and international nutrition programs. The prospects of increased investments in these areas have won for Farm-21 support from an array of conservation and public nutrition advocates. The bill’s goal of weaning production agriculture from government subsidies has attracted support from groups propounding fiscal conservatism.

"The time has never been better to reform our farm and food policies," Representative Kind said. "Commodity prices are high, farm income is stable and the debt-to-asset ratio in farm country is the lowest it has ever been. Plus, government mandates on biofuels have created a new market for our farmers’ products that seems to be here to stay, helping to maintain good market prices."

Senator Lugar in introducing his bill said, "The current farm subsidy system is inequitable, inefficient and disconnected from the core goal of maintaining a family farm safety net. It is also self-perpetuating in that it stimulates overproduction and stagnant prices that produce calls for greater government support. I believe that what we need is a true safety net that would embrace all farmers, avoid incentives to overproduce commodities when market signals do not exist, and lower costs for taxpayers."

A spokeswoman for Representative Kind said Farm-21 likely will be offered as an amendment when the farm bill is considered by the full House.

Andy Fisher, speaking on behalf of Senator Lugar, indicated the senator would offer his bill as an amendment when the Senate agriculture committee begins its mark up. Senator Lugar is a member of the committee. Should Farm-21 fail in committee, Senator Lugar likely will offer the legislation as an amendment once the full Senate begins its deliberations over the farm bill.

This article can also be found in the digital edition of Food Business News, July 24, 2007, starting on Page 35. Click here to search that archive.

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