Congress has been back less than a week, but the process is moving
very fast now, driven by the calendar and need to pass legisaltion running
the whole government, not to mention welfare reform, etc, in the next few
weeks. People interested in agriculture should be aware of the enormous
changes about to be adopted. In my 20 years of watching and participating
in the Washington policy process I have never seen such a profound
sea-change arise so quickly or quietly. It has been hard to read the tea
leaves re what will come out of this farmbill cycle; there was for awhile
even some reason for optimism (i.e. the excellent bi-partisan conservation
bill that Lugar and Leahy co-authored, S. 854 [which has been torpedoed by
wildlife groups in the name of conserving their government subsidized
habitat, which has been a good thing for sure]). The tea leaves are
clearing up now -- the supporters of conventional ag are on a roll;
they feel they have it won (I think they are right), they are ready
now for "pay-back" to those interests who they feel have been
unhelpful over the last 10 years (guess who), and the kinds of
retributions they are thinking about (and probably will pull off)
will shock many people, but heh, as folks say in Washington, they won
and to the winner go the spolis. So I thought people might be
interested in a sneak preview of the politics of (sus?)agriculture and the
House Ag com. chair Pat Roberts has pulled a rabbit out of a
hat. Six weeks ago he was in serious jeopardy of having little or
nothing on the table to go to conference with re commodity programs --
his number 1 (2,3,4,5,6...priority). Then his staff came up with the
idea of the Freedom to Farm Act, which he floated before the August
recess. It picked up steam very fast, and now is virutally certain of
passing in some form, and I predict Roberts and the House will prevail in
conference over the do-nothing Senate bill Cochrane has authored.
FAPRI has now completed, and thoroughly briefed Washington on the
economic impacts of the Roberts Freedom to Farm bill (FF). The bill
will save the required $11 billion over 7 years -- the level of savings
FAPRI was told to lock in. The rest of ag cuts -- some $2.5 billion --
will come from export enahncement program cuts (about $1.5 billion),
other commodities (dairy, sugar), conservation, research and other USDA
FAPRI assumes loan rates at 70% of moving 5 year averages, and
excepts prices to never get even close -- so essentailly no budget
exposure through the loan program; its all direct payments.
FF payments would be fully decoupled; payments go with/to who
controls the land. The person owning/renting the ground can do anything
or nothing and get the payment. So, the program is the functional
equivalent of 0-100% and 100% flexibility combined. ARPs and acreage
bases would be ended (and CFSA field level staff can be cut 2/3 according
to some extimates).
Commodity program spending patterns by crop would equal historical
patterns --37% corn; 28% wheat; 17% cotton; 12% rice and so on. Payment
levels/patterns to farmers would be determined similarly (historical
pattern) -- everyone would get their same relative share of what farmers
have gotten in recent years. All existing inequities would be locked in;
no money would be freed up to provide cons., cost-share or other
assistance to those who chose not to milk the programs in the past.
FF is called transparent in that farmers will be fully exposed --
i.e. not insultated by deficiency payments -- to price fluctuations.
Their net income will go to record levels when prices strong, because they
will get the full upward increment from market plus their full payment
from government (hence recent interest in many farm groups of getting some
tax-shelter benefits back into place). On down-side, they will get hit
the same way when prices fall, the safety net of loan rates is about 15
feet below where virtually any farmer in America would go broke after a
few years, unless they are very wealthy.
FAPRI analysts call soybeans "the crop of choice to move to..."
as farmers try to decide what to do with their land. Expect the biggest
shift out of rice and into: 1) cotton, 2) soybeans, 3) grass, wildlife
habitat IF S. 854 is passed more or less intact and the commodity
interests do not exceed in gutting the conservation account, as they are
clearly trying to do (to lessen the cuts in direct payments). FAPRI
projects soybean prices will go down as a result 18-20 cents per bushel.
Between now and 2002, payments per farm in the program will fall
about 60% in order to assure the budget savings. This estimate is highly
volatile; Roberts and aggies will try to free up money from everywhere --
particularly nutrition and conservation -- to reduce this percentage.
They will no doubt exceed to a considerable extent in the current
political climate, and with the help of the Clinton admin. which has
called for much smaller cuts, presumably to break the historic lock of
repub. on farm belt states. (Lots of luck Mr. Glickman et all). As
things stand now I bet that the farmbill will provide for less than 40%
reduction in average payments between now and 2002. Anyone interested in
other USDA functions should pay attention, because the $25 billion or so
over 7 years needed to reduce the cuts in direct payments will come out of
other USDA budget functions, period. Pat Roberts has not been given the
keys to the Treasury -- just to South Ag (and apparently most everyone
working on fiscal priorities in the administration). P.S. This is big
time POLITICS OF AGRICULTURE AND THE AMERICAN FOOD SYSTEM -- hope the
folks in Oregon will spend some time reflecting on the state of affairs.
I don't have time to go over the rest of the FF details -- ask for
FAPRI's report, which is very good -- but will try to post more details
on my sus-ag budget policy web page (www.hillnet.com/farmbill/). Also,
AFT is releasing Monday, Sept. 12, a major report assessing all pending
farm bill proposals, written by John Schnittker and Ford Runge. It
describes the FF act, Cochrane's bill, Schumer-Zimmer, etc, and has
projections of economic impacts. I will post it by day's end Monday.
Hard copies can be obtained from AFT/Washington -- 202-659-5170.
But will pass along two other aspects of the FAPRI analysis --
* they looked at 8 representative farms for each commodity, and
assessed the impact of the FF act as well as 30% flex. The bottom-line
-- in most crops, the majority of farms would have "negative net worth"
(i.e. be broke) by the year 2002, or soon thereafter.
* the downward impact on net income is much greater on mid-size
farms, and much less on large farms, who are less relaint on gov't
payments. FAPRI findings support the view of many that the FF act will
finance the consolidation of control over land in commodity program
regions within a decade or so.
The FF act will be passed in some form. Farmers will have to
decide what to do with all their land. This will free them up to alter
their farming systems to: 1) become more specialized and large scale, 2)
diversify rotations to take advantage of agronomic/pest management
benefits, 3) switch to next highest income crop, 4) move toward a
conserving use. The evidence since the 1990 farmbill, which moved in he
flex direction, is clear -- farmers are going to plant more cotton,
soybeans, corn, and other major commodities, in the hope of covering more
ground with their equipment and lowering per unit production expenses.
In conjunction with the reforms/roll-backs in compliance that are also
expected, we have unfolding a repeat of the late 1960s, early 1970s
scenario that Earl Butz brought American ag -- fence row to fence row
planting. My interest in the structure of ag as a graduate student was
sparked by a cover story in Time magazine on the changes Butz's policies
were bringing about. How many remember the prophetic headline and
tagline which went something like this -- [tagline, upper left
corner, small type: "Major Shifts Underway in U.S. Ag Policy, and the
Message is..."; main headline, big type: "Get Big or Get Out".
But this time, the return to fence row to fence row will unfold in
an ag sector fully reliant on hot forms of commercial
fertilizer and pesticides (Willie's point re insecticides is misleading;
American ag's relaince on pesticides has never been higher and is clearly
rising ,despite shift to low-dose herb. amd insect. that result in fewewr
pounds being applied). Sideline -- appraently a major chunk of the
600,00 acres of the CRP (2% of contracts) that came out under the "early
out" provisions were mold-board plowed. Any bets on how long the 10-year
increase in soil organic matter and soil quality will last? Should a
public who has invested over $20 billion in the CRP care? Or was the CRP
just "Soil-Bank II", the sequel, on a multi-billion budget instead of a
few hundred million?
So, FF act must be carefully analyzed IN CONJUNCTION WITH likely
changes in the compliance provisions and environmental policy. Here the
news goes from remarkable to astounding.
Sen. Dole, Grassley and Craig are about to introduce the "Resource
Enhancement Act of 1995" -- the bill's title is a telling statement
regarding the role of the truth in Washington policy-making these days.
This bill largely undoes the gains in conservation since the 1985 act, and
would certainly assure that the USDA stands in the way of no farmer
wanting to do almost anything imagineable to his or her land (and water,
etc). Fortuneatley, very few farmers would even consider doing some of
the things this bill would make it very difficult for USDA to intervene
In short, it redefines wetlands in a way which will substantially
reduce the acreage protected (and make the degree of protection rather
meaningless from an environmental point of view) -- I have not
seen final language and can not say by how much, but I bet by two-thirds.
It guts conservation compliance -- allows farmers to self-certify
plan changes, and makes it much harder for USDA to do anything when a
clear violation occurs; and of course with program benefit cuts coming,
ag sector leaders will argue for and get at least a proportional
roll-back of the obligations called for.
CRP details are not available -- but apparently they will
constrain re-enrollment contract price reductions to 80% of current
rates; too small a drop to maximize the reach of the CRP. My analysis of
the CRP proposals of the American Farmland Trust show that average rental
rates in the Plains states, and some other states, can EASILY be brought
down 35%, and still give producers in those regions an excellent deal.
The only reason not to is to lock in the windfall profit the CRP has been
for farmers in one region of the country for another 10 years, i.e.
business as usual. If you got it keep it. If somebody comes along and
shows you are getting more than your share, smile politely and then
figure out how to make their arguments go away (or make them go away).
Another challenge for the Oregon politics of sus. ag meeting -- what is the
binding constraint holding farmers back from road to sus. ag: is it
knowledge, research, etc, or is it something else? Might be useful to
know in trying to allocate scarce resources to leverage change. Change
will not occur just because it is right and works and makes farmers
more money and saves the country tax dollars and protects the
environment. That is not good enough.
The first round, repub.-leadership "deal" on the farmbill has to
be struck in next 14 days or so. House Ag starts markup next Tuesday.
They say they will do a research and conservation title after the budget
bills, which makes sense. Everyone expects the reforms in the House re
conservation and environment to be more extreme than the Senate, so read
the Dole, Grassley and Craig bill as the least extreme version of what is
likely to happen. Then the process moves to the full House and Senate
where chances for real reforms are slim given the enormous stakes in
other parts of the reconcialiation bill. Then the veto, and the Admin.
(maybe) gets into the game. The best chance to ward off major roll-backs
is for USDA and Lugar/Leahy to insist on steps forward on conservation as
the price for the "reform" of commodity programs.
I will try to post developments from time to time; much more
detail appears in my sus ag/budget web page. Also, I have posted all the
substantive soil quality contributions over the last 2 months that
started with the exchange between Dennis Avery and I.