Commentary: Sugar, "ACRE" aspects of farm bill hailed by producers, may be costly
May 24, 2008
by Ron Sterk
The Administration-opposed, seemingly veto-proof farm bill that was approved by the House and Senate a few days ago includes favorable language for select farmer groups that may costly to the U.S. government and ultimately to consumers. Two such aspects of the bill, the Average Crop Revenue Election (ACRE) and the revised sugar program especially bring cost-concerns to light.
The ACRE program allows producers of certain crops beginning in 2009 to enroll in a state level revenue counter-cyclical program that guarantees revenue based on acres planted equal to 90% of the product of a state average yield factor times the national season average price for the previous two years in exchange for a 20% reduction in direct payments and a 30% reduction in loan rates.
If it sounds complicated, like the entire farm bill, it is. Basically, the new bill adds a yield-loss aspect to payments that previously were based on price. Supporters argue the new provisions are more market-based and provide a security net for farmers that would not have received payments for more regional losses under the old farm bill. Opponents see it as possibly paying out more.
The farm bill also increases price support loan rates for sugar, effectively raising the "floor" price under domestic sugar, which some see as an invitation to produce more.
Sugar producers also may benefit from language in the new farm bill that requires the U.S.D.A. to buy excess sugar and sell it for use in the production of ethanol. Opponents see this aspect of the bill as potentially very expensive for the U.S.D.A., especially considering the open border that allows Mexico free access to sell excess sugar into the U.S. that could displace domestic production. The Administration has maintained that the sugar program outlined in the previous farm bill became unworkable when free trade opened with Mexico, but the new bill in effect enhances the old version of the program and makes it difficult to operate the program at "no cost," which it is supposed to do.
The Bush Administration opposes the Congress-approved version of the farm bill in part because it sees the bill as too expensive, especially at a time when high commodity prices could result in substantial savings in government payouts. Some aspects of the bill are opposed because the Administration says it is counter to World Trade Organization rules under which the U.S. is obligated.
The significance of U.S. agricultural production in feeding the world cannot be underestimated and there certainly needs to be some type of security for farmers who must invest heavily to produce abundantly. At the same time the market must also be allowed to do its job and all business carries an inherent amount of risk. It would appear that the latest farm bill is tipped in favor of price support, seen as subsidies by some, rather than allowing open markets to work, which may prove extremely costly.