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The 2012 2013 2014 U.S. Farm Bill: Will We Have One?

The 2012 2013 2014 U.S. Farm Bill: Will We Have One?. Brian W. Gould Department of Agricultural and Applied Economics University of Wisconsin-Madison University of Wisconsin Extension August 29, 2013. The U.S. Farm Bill.

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The 2012 2013 2014 U.S. Farm Bill: Will We Have One?

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  1. The 2012 2013 2014 U.S. Farm Bill: Will We Have One? Brian W. Gould Department of Agricultural and Applied Economics University of Wisconsin-Madison University of Wisconsin Extension August 29, 2013

  2. The U.S. Farm Bill • Every 5 years, the U.S. Congress passes what is referred to as the Farm Bill • Establishes Federal agricultural, conservation and food policy objectives and programs • Name changes with each renewal: • Food, Conservation and Energy Act of 2008 • Farm Security and Rural Investment Act of 2002 • Federal Agriculture Improvement and Reform (FAIR) Act of 1996 • 2008 Act expired at the end of Sept. 2012 • Federal fiscal year: Oct. 1 – Sept. 30 • Extended for one year on Dec. 29, 2012 • Extension Expires Sept. 30, 2013 2

  3. Why Do We Have A Farm Bill? • To help smooth variability in farm income • To encourage taking risks associated with agricultural production • Farmers provide public goods • National food security • Land ownership = Jeffersonian democracy • Wildlife habitat • Environmental Amenities • Incentivize stewardship by farmers • Conservation compliance rules • Income redistribution to offset rural poverty • Social justice, moral/ethical concerns for poor 3

  4. The U.S. Farm Bill • Overriding objectives of 2013 Farm Bill are to • Reduce Federal expenditures • ↓ U.S. Agric. reliance on direct payments and to ↑ use of individual risk management 4

  5. The U.S. Farm Bill • 2013 Farm Bill time line • House of Rep. version : Federal Agriculture Reform and Risk Management (FARM) Act of 2013 • Passed by the House Agriculture Committee: May 15th • House rejects full Farm Bill on a 195-234, June 20th • House passes a farm only Farm Bill on July 11th: 216-208 • Not 1 Democratic vote • Nutrition program not included in farm only version • Senate version: Agriculture Reform, Food and Jobs Act of 2013 • Passed by Senate Committee on Agriculture, Nutrition and Forestry: April 26th • Passed by the Senate on a 66-27 vote, June 10th • Includes Nutrition title 5

  6. The U.S. Farm Bill • Huge document, with lots of titles (i.e., chapters) that outline Federal agricultural programs • 2002 Bill had 10 titles 2008 Bill had 15 titles • 2013 (Senate version) had 13 titles • I. Commodities II. Conservation • III. Trade IV. Nutrition • V. Credit VI. Rural Dev. • VII. Research/Related Matters VIII. Forestry • IX. Energy X. Horticulture • XI. Crop Insurance XII. Miscellaneous • House version the same except No Nutrition Title • Why is this such a significant difference between the two versions? 6

  7. Farm Bill Spending 7

  8. Farm Bill Spending 15.5% 8

  9. Farm Bill Spending • A majority of USDA spending goes for food and nutrition programs • Food stamps, school lunch/breakfast, WIC, etc. • Payments to Farmers • Commodity Support, Disaster Assistance, Crop Insurance and Conservation Payments 2013 Budget Allocation 9

  10. Projected 2013 Farm Bill Spending Changes(2015-2019 FY) Senate reduction is 47.9% of House reduction in CBO scoring of projected budget outlays 10

  11. Projected 2013 Farm Bill Spending Changes(Billion $, 2015-2019 FY) House Version Senate Version Nutrition: 48% of ↓ Nutrition: 17% of ↓ 11

  12. Projected 2013 Farm Bill Spending Changes(Billion $ 2015-2019 FY) 12

  13. Crop Insurance Versus Commodity Program Costs 13

  14. Direct Government Payments(1950-2011) 14

  15. Distribution of Producer Payments 15

  16. Government Payments As A Share of FarmNet Cash Income: 2007-2009 < 20% 20-29% 30-49% 50%+ 16

  17. Average Government Payment per Farm by Farm Type Rural residence: Small farms whose operators are retired/reported a nonfarm occupation as primary Intermediate farm: Small family farms whose operators report farming as primary occupation Commercial farm: Large-scale farms with gross annual sales of $250,000 or more 17

  18. Government Payments as a % of Gross Cash Income By Farm Size 18

  19. The U.S. Farm Bill • Where does it go from here? • Possible paths for legislation to follow: • Grant a 2nd 1 year extension • Let 2012 Farm Bill expire → Permanent 1949 legislation defines agricultural policy • Refer to House/Senate Conference Committee to work out Bill differences: • Adopt Senate version as the working document: Add Nutrition Title back into Farm Bill • Keep Senate proposed funding cuts (unlikely) • Funding cuts somewhere between House vs. Senate version (likely) • Drop Nutrition Title from Senate version (unlikely) 19

  20. The U.S. Farm Bill • Congress is in recess until Sep. 9th • Only 9 scheduled session dates in Sept. once they return • Members are only scheduled to be in town for 30 days during Oct-Dec • Most of this time will occur in Oct. 20

  21. 2013 Farm Bill Dairy Sub-Title • The House and Senate versions • Eliminates existing Federal dairy policies • Dairy Export Incentive Program (DEIP) • Dairy Product Price Support Program (DPPSP) • In effect in some form since 1947 • Milk Income Loss Program (MILC) • Similar to Target Price Deficiency payment for grains • Replaces these programs with: • A voluntary Dairy Producer Margin Protection Program (DPMPP) in Senate and House versions • A voluntary Dairy Market Stabilization Program (DMSP) in Senate version 21

  22. 2012 Farm Bill Dairy Sub-Title • The 2012 Farm Bill proposes to eliminate the following programs: • Dairy Export Incentive Program (DEIP) • Dairy Product Support Program (DPSP) • Been in effect in some form since 1947 • Milk Income Loss Program (MILC) • Similar to a Target Price Deficiency payment for grains 22

  23. 2012 Farm Bill Dairy Sub-Title • DPMPP Objective: Reduce margin volatility • Little room for contract flexibility: • Same assumed feed ration for all producers • All feed is assumed purchased by all producers • Margin is the difference between • U.S. average All-Milk price • Cost of program-specific ration ($/cwt milk) • Two-month average (e.g., Jan-Feb, Mar-Apr, etc.) • Re-evaluated 6 times per year 23

  24. 2012 Farm Bill Dairy Sub-Title • DPMPP dairy ration includes • Feed required by milking herd • Also feed required by • Heifers • Hospital • Dry cows • Ration Definition • % Composition (by weight) • Corn: 58.8% SBM: 14.4% Alfalfa: 26.8% • Ration Weight (lbs) • Corn: 60.1 SBM: 14.7 Alfalfa: 27.4 24

  25. 2012 Farm Bill Dairy Sub-Title • Basic Margin Insurance: • $4.00 Base Margin Insurance @ $0 cost • Indemnity = difference between average actual margin for consecutive 2-month period and $4.00 • Maximum indemnity of $4.00 • Coverage is the lesser of • 80% of production history divided by 6 or • Actual quantity of milk marketed during consecutive 2-month period • Growth option for base is possible 25

  26. 2012 Farm Bill Dairy Sub-Title • Supplemental Margin Insurance: • Can cover 25% to 90% of base • Indemnity is the difference between the target and the higher of the actual average 2 month margin or $4.00 • Coverage is the purchased coverage % times the lesser of: • Annual production history divided by 6 or • Actual amount of milk marketed over the consecutive 2-month period 26

  27. 2012 Farm Bill Dairy Sub-Title • DPMPP coverage levels and premiums: ≤ 4 Mil. Lbs. produced, $/cwt 27

  28. 2012 Farm Bill Dairy Sub-Title • DPMPP coverage levels and premiums, House and Senate, > 4 Mil. Lbs. produced ($/cwt) 28

  29. 2012 Farm Bill Dairy Sub-Title • Under the Senate version to enroll in the DPMPP the producer mustenroll in the Dairy Market Stabilization Program (DMSP) • Uses same margin evaluations as in DPMPP • Producers required to ↓ milk marketings depending on recent margin history • Form of supply management 29

  30. 2012 Farm Bill Dairy Sub-Title • Under DMSP: • During month in which payment reductions are in effect each handler will reduce payments to participating farms 30

  31. 2012 Farm Bill Dairy Sub-Title • No Suggested FMMO (Pricing) reform in the House version • Repeals the FMMO Review Commission • Under Senate version: • Not later than 120 days after the date of enactment of this Act, the Secretary shall issue a request for the submission by interested persons of preliminary proposals for replacement of the Class III milk product pricing formula • May include competitive pay price formula 31

  32. Contact Information • The Univ. of Wisconsin Understanding Dairy Markets website:http://future.aae.wisc.edu • Brian W. Gould • (608) 263-3212 • bwgould@wisc.edu

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