Stalled Farm Bill's Effects Reviewed by Agricultural Economists

FAYETTEVILLE, Ark. – As Congress continues to struggle over a farm bill to replace the 2008 legislation due to expire Sept. 30, a farm policy analyst says there is probably a 50-50 chance that a new bill will be finished this year. If a bill isn't ready before the end of October, pressure will build to pass a temporary extension, said James Richardson, co-director of the Texas A&M University Agricultural Food and Policy Center.

Richardson and Eric Wailes, distinguished professor of agricultural economics in the University of Arkansas System Division of Agriculture, provided their reviews of the legislation's current status during an on-campus forum Friday, Sept. 27, hosted by the department of agricultural economics and agribusiness.

Expiration of the farm legislation that was first passed in 2008 would result in a 1949 farm measure becoming the policy effectively governing federal agricultural policy. If the 1949 law remained in effect by the end of the year, milk price supports would have to be raised. The House recently passed a farm bill without a provision for nutrition, which funds the food stamp program, and made it a separate bill. The Senate kept fthe nutrition program in its version of the farm bill.

“It's not a question of whether the farm bill will provide less support than the previous farm bill in 2008,” Richardson said. “There's no doubt about it. Farmers are going to lose direct payments. They're going to lose countercyclical payments.” He explained that the Senate bill puts all commodities except cotton into an agricultural risk coverage program, which would provide payments to farmers if their incomes drop. But it doesn't cover everything and has gaps.

The Senate bill provides a deficiency payment if a commodity price drops below a reference price for all crops except peanuts and rice, which have a fixed reference price, Richardson said, which would be 55 percent of a five-year moving average. “If you take 55 percent of that, your support price is going to drop very rapidly,” he said. “Fifty-five percent is a long way below where we have our target price today.”

Richardson said the current safety net for farmers is in danger because many groups who oppose it prefer “a completely free market,” noting that high prices for commodities have made it easier to oppose a safety net.

“It's very difficult to develop a farm bill with an effective safety net when prices are high,” Richardson said. “When prices are low is when you want to negotiate a farm bill if you're a farmer. If you're worried about saving the budget, you want to pass a farm bill when prices are high when we can cut everything.”

Richardson predicted that crop insurance could come under attack later because it can be addressed in legislation outside the farm bill at any time. He added that the nutrition element of the farm bill might be restored to a final bill this year.

Wailes said the House bill appears to be the better option of the two current versions, particularly as it affects commodities produced in Arkansas. The House bill has a higher reference price for rice than the Senate bill does.

“Arkansas farmers are being hit now with the loss of direct payments, which have become politically unacceptable even though from an economic perspective they are a more efficient subsidy mechanism,” Wailes said. “We're going to lose those – $240 million to the state of Arkansas. As for the shallow loss revenue and deficiency price payment programs, there are differences and we'll see where the conferees wind up on that.”

Wailes said his research team's analysis of the farm bill's supplemental coverage option for crop insurance found that it would be “a very attractive option because of the level of subsidies for crop insurance buy-up.” Farmers who buy higher insurance coverage under the supplemental coverage would be able to do so with higher subsidies than they would receive for their regular crop insurance premium.

The House and Senate versions have significant differences in payment limits on commodity support. “Payment limits are fairly important for Arkansas just because of the size and scale of farms in the Delta,” Wailes said. “Payment limits on commodity support in the Senate bill is $50,000 and on the House side $25,000. That will also be an interesting discussion in conference to see where they end up.”