The upcoming debate over the next U.S. farm bill has a lot of people trying to figure out what has worked in present and previous farm bills and what changes should be made for the future.
I read with great interest the testimony of Carl Zulauf, Francis B. McCormick Professor of Agricultural Marketing and Policy, Ohio State University, before the House Committee on Agriculture (http://agriculture.house.gov/hearings/statements.html).
Zulauf suggests that some changes should be made in the way farm income support and risk management programs are administered.
That’s debatable. One of his assertions is that farmers’ household incomes have recently averaged above median American household incomes, and therefore, consumers will not support programs that maintain farmers’ incomes at such a high level.
I could argue that farmers take a lot more financial and physical risks than the average American worker, and should, therefore be compensated for this risk.
I could also argue that consumers should be willing to pay a little something to ensure the continuation of the cheapest, highest quality, most plentiful, safest food supply in the world. How much is that worth?
Watch for more debate on this issue as debate heats up on how best to ensure stability in agriculture and food supplies for the future.
Dairy policy. Another issue that will be thoroughly debated over the next several months will be U.S. dairy policy. The changing structure of the U.S. dairy industry could have an effect on dairy policy legislation in the new farm bill.
USDA economists James J. Miller and Don P. Blayney, in a Dairy Backgrounder (http://usda.mannlib.cornell.edu/reports/erssor/livestock/ldp-mbb/2006/ldpm14501.pdf), discuss changes in consumer demand, shifts in the location and structure of milk production and other dynamics that are changing the dairy industry and which have changed the context for dairy policies of the future.
Blayney and Miller assert that consumer demand is a key economic force that molds the U.S. dairy industry, but other forces are also at work.
They say that farm price and income support programs and policies, agricultural trade policies and programs, and environmental issues also affect the location and structure of dairy farms.
Strong forces. These forces, combined with farm-level forces such as reductions in production costs due to adoption of new technology, increasing productivity of herds due to better nutrition and advances in genetics, even the location of processing facilities, can have a dramatic effect on where dairy farms are located.
You might find the opinions (and premises these opinions are based upon) of such economists to be difficult to read, let alone understand (I know I do), but these are the people who are trying to figure out what works and what doesn’t when it comes to new farm bill legislation.
They work very hard to present data and conclusions to legislators so they can make intelligent decisions.
The forces that work together to influence the dairy industry are extremely complex, but you should at least try to understand the basics. That way you can intelligently communicate your wishes or opinions to your elected representatives and your cooperative or milk handler about new proposals.
Policies. Commodity-specific policies and programs have historically been the core of farm legislation. The new farm legislation will be structured in a time when budget concerns are very important. Total funding level or procedures of existing policies could be changed.
The milk price support program and the operation of the Commodity Credit Corporation will come under scrutiny.
Direct countercyclical payments and milk income loss contract (MILC) payments can serve as a safety net for dairy farmers. The 2002 Farm Act established a national milk income loss contract (MILC) program to provide this safety net.
Direct payments allow the relative prices of dairy products to adjust freely and control accumulation of stocks of dairy products. Although the payment rate and the price level that triggers the payments are important considerations, the targeting of payments is sometimes the most difficult issue to work out.
The limit on the amount of milk for which a producer could receive MILC payments was set at 2.4 million pounds per fiscal year (Oct. 1 through Sept. 30).
Small, large farms. Only about one fourth of 2004 milk production was produced on farms small enough to receive benefits on all their milk if payments were made every month.
Large farms may actually be hurt by such a direct payment program if output increases by small farms result in lower prices that more than offset the payments large farms receive.
How about the effects on international trade negotiations? Benefits directly linked to current production are generally considered to be trade-distorting and are therefore contributing to the U.S.’s aggregate measure of support (AMS).
Agreement. Under the Uruguay Round Agreement on Agriculture (URAA) procedures, the dairy contribution (from the milk price support program) to the U.S. AMS is calculated as milk production times the difference between the U.S. per cwt support price and an international market price during the base period, 1986-1988.
Because the base-period international price is fixed at $7.25 per cwt. – well below the current milk support price – these procedures can result in a large contribution to the AMS. Even if or when the current international price is above the U.S. support price.
Unless the calculation procedure is renegotiated, the milk price support program’s effect on the AMS will continue to be a problem, both for U.S. producers and trade negotiators.
Stay informed. It would be a good idea for you to keep informed about farm bill hearings and legislative discussions.
When the time comes for House and Senate negotiations on the new legislation, be sure to call your Representative and Senators to make sure they know your opinions and desires.
(The author is an agricultural extension educator in Columbiana County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)
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