Ag economist says 2007 farm bill will differ from past legislation

COLUMBUS – The 2007 farm bill will be different from its predecessors, according to agricultural economist Carl Zulauf.
Three powerful issues have entered the picture: the inclusion of insurance in the farm bill debate, fairness to landowners and management of World Trade Organization ‘boxes.’ Each will have a serious impact on the upcoming legislation, Zulauf said.
Zulauf, a professor of agricultural marketing and policy at Ohio State University, presented his views on the 2007 farm bill Jan. 27 at the Ohio Farm Bureau Federation Trends and Issues Conference. The event kicked off the Farm Bureau’s two-year Commodity Advisory Committee program.
Spending shift. Zulauf began his presentation by explaining how spending has shifted toward crop insurance and risk management. However, most people believe the spending increase has been in conservation.
“If you were to talk to anybody in agriculture they would sit around and say that spending on conservation programs has grown dramatically over the last 10-15 years,” he said. “In a sense they would be right, but in a sense they would be wrong.”
“Only in the 2002 farm bill did we go higher than we were in the 1960s in conservation program spending.”
Zulauf said the significance of this change is profound.
“We are now spending about $2.3 to 2.5 billion a year on crop insurance,” he said.
He added about one-fourth of the money spent on farm programs is spent solely on ad hoc disaster assistance and crop insurance.
Prior to 1973, almost no funding went toward risk management. The upcoming farm bill will be the first where farm insurance has cost more than $1 billion a year.
“Historically, crop insurance has been handled outside the farm bill,” Zulauf said, but with the increasing size of the program, it will be impossible to ignore.
Benefits both. The increase in spending on farm income and risk management programs benefits farmers and landowners, Zulauf said. Landowners benefit through higher land prices and rents and farmers through help in managing risk and higher cash flow.
However, when farm program spending decreases, landowners suffer from the declining land prices and rent, but farmers may not be as deeply affected because the lower rent prices might offset other losses.
Zulauf said if farm programs are cut, policy makers will have to decide if the remaining payment funds should be directed to landowners or farmers.
The buyout of farm program payments is another hot topic.
“If we buy out these programs, the issue becomes who gets the money,” Zulauf said, adding he feels landowners should receive part of any buyout since farm supports are capitalized partly into land prices.
The only question is the landowners’ share.
I ncreased influence. The World Trade Organization will have a larger impact on the 2007 farm bill than it did on the 1996 and 2002 farm bills, according to Zulauf. This can be attributed to increased spending on farm programs in the 2002 farm bill and increasing yields, he said.
The World Trade Organization uses colored boxes to define the degree of trade distortion a program has. The green box contains programs that minimally distort trade. The amber box contains programs that distort production and trade. The blue box contains programs that distort trade, but require farmers to limit production. The red box contains policies that must be eliminated.
Bigger influence. Management of these boxes will be more important than efficiency and fairness considerations, Zulauf said, and measurement of trade distortion for individual commodities needs to be revised.
From 1997-2005, the area harvested of principal crops declined from 318 million acres to 305 million acres, despite $51 billion in payments to farmers that were tied to production. Zulauf said cuts on such farm payments will continue this trend and new approaches to manage downsizing are needed.
Regional differences. Zulauf also discussed the differential support levels between southern crops and Midwest crops, saying it is a difficult subject, but one that agriculture must address if it wishes to move forward.
“If you look at price support spending relative to cash receipts, it’s running about 50 (half) to two-thirds of the value of rice and cotton,” Zulauf said, adding sugar is around 58 percent.
“This is a warning sign that if we cut the support to southern crops, their survival is literally on the board,” Zulauf said. “If you look at the Midwestern crops, 10, 15, 20 percent, what that tells me is that if we cut the support, if we eliminated it tomorrow, there might be pain, but you could survive.”
Zulauf said the reason Midwestern farmers could adjust to support cuts is because most of the adjustment would come in asset values, not farming.
“So most of that 10-15 percent would be translated into lower land prices. If you don’t have debt, you can survive that,” he said.
Looking for answers. Zulauf said he hopes there are no cuts above 10 percent because U.S. agriculture is not ready to deal with them.
Policy makers should look at different programs for different parts of the country, he said, adding the South should return to production control programs, which should be in the blue box, not the amber box.
Although conventional wisdom leads people to believe the 2007 farm bill will be similar to the current bill, Zulauf said he expects changes as a result of the new players involved in shaping the legislation. Conservation groups, fruit and vegetable growers, and crop insurance lobbyists are a few of the actors who will play an important role in giving the 2007 farm bill a new face.
(Reporter Janelle Skrinjar welcomes feedback by phone at 800-837-3419, ext. 22, or by e-mail at jskrinjar@farmanddairy.com.)