Farm Bill and other rural affairs

The latest (March 2007) newsletter from the Center for Rural Affairs has several good articles, mostly in response to the proposed Farm Bill and the President’s proposed federal budget now before Congress. [Note: once the next newsletter comes out, the link to this one will change and you’ll be able to find it through their newsletter archives.] And as usual, the “Corporate Farming Notes” are worth following. Some examples:

Legislative groundwork is underway to include a broad competition title in the farm bill

On February 15, Senator Tom Harkin (D-IA) introduced legislation to foster competition in livestock markets that serve family farmers and ranchers. The bill lays the foundation for a competition title in the 2007 farm bill. Unfortunately, no stampede of senators is beating a path to Senator Harkin’s door to co-sponsor the bill, despite the fact that during the election cycle they made a lot of hay with rhetoric about “standing up for family farmers and ranchers.”

Let us give credit where credit is due, however. Senator Max Baucus (D-MT) quickly became a co-sponsor of Senator Harkin’s competition bill. And Senator Chuck Grassley (R-IA) has announced his intent to reintroduce legislation banning meatpacker ownership of livestock.

Harkin’s bill calls for fair treatment of producers who labor under contracts with packers and processors, will define what constitutes an undue price preference when packers deal unfairly with small and mid-sized farmers and ranchers, and will establish a special counsel’s office for enforcement of competition policy within USDA. Anyone who can’t muster the political will to support these provisions should not claim they stand with family farmers and ranchers.

The American Meat Institute and the National Cattlemen’s Beef Association are exerting pressure on Congress to oppose these reforms. But recently the Center for Rural Affairs joined 211 farm, faith, and rural organizations in calling for a competition title, with these provisions, in the farm bill.

Family farm and ranch livestock production has been decimated in the five years since a conference committee tossed aside the hard-fought competition reforms won on the Senate floor in 2002. Without action now, in another five years far fewer farmers and ranchers will be around to fight for….

World Trade Organization Negotiations Loom over 2007 Farm Bill
Dismantling farm programs piece-by-piece is a possibility as legal challenges mount — including programs that help rural America

The looming specter of the World Trade Organization (WTO) haunts the debate over the 2007 farm bill. Our farm bill programs are subject to legal challenge through the WTO that could dismantle the farm safety net.

Already a case brought by Brazil has resulted in the WTO declaring major parts of our cotton programs illegal. Right now, there is a process underway that will determine exactly how Brazil will retaliate if Congress does not fully comply with the WTO ruling.

The economic measures that Brazil may use to retaliate are not limited to the agriculture sector — we may well see increased Brazilian tariffs on nonagricultural items from the United States, or even see Brazil ignore U.S. patents on other products. This could cause the producers of affected goods to bring serious pressure against continued cotton subsidies.

There is a moral element to the issue. U.S. cotton programs have driven small African farmers into poverty and hunger by stimulating over production and depressing world prices. That is not the case for wheat, where production-based payments have not been triggered since passage of the last farm bill. And it is certainly not now the case for corn, where the weight of U.S. policy is to raise world prices by stimulating corn-based ethanol production.

Direct payments are generally regarded as the most WTO-friendly. Based on farms’ historic production rather than current production, they are made regardless of market prices. But unless direct payments are aggressively targeted to small and medium-size farms, these payments are most likely to be capitalized into land costs, especially when prices are high. That benefits landowners rather than farm operators.

Even direct payments have a feature that the WTO has ruled illegal — land on which direct payments are made may not be planted with fruits or vegetables.

Now that’s curious. I’d never heard of that. Why would subsidies to grains and fiber crops be okay, but to fruits and vegetables not? In a world where obesity and diet-related disease is becoming more common than starvation and related malnutrition, wouldn’t promotion of vegetables be valuable? Anyhow, back to the CFRA.

…If the WTO outlaws payments that have contributed to consolidation and concentration in agriculture, we should stand up and cheer. But if the WTO attempts to outlaw programs and payments that help rural America, support small and mid-sized farms, preservation of natural resources, and opportunity for all of rural America, we must fight.

Time to Put-up or Shut-up: Bipartisan Hypocrisy on Payment Limits

Democratic congressional candidates scour the countryside for votes by proclaiming themselves the champion of the family farmer and little guy. Now they control both houses of Congress. It’s time to put up or shut up by addressing the long festering need for farm program payment limitations.

Rural politicians of both parties have long waxed eloquent about saving family farms while passing farm programs that subsidize their demise. The hypocrisy has been bipartisan.

Northern representatives have generally given lip service to limits on mega farm payments, while southerners have opposed them in deference to large cotton and rice interests. In the end, enough payment limitation supporters have given in for big farm interests to win. In conceding, they typically justify unlimited payments as an evil necessary to maintain the farm coalition and get more money sooner for farm payments.

That is a profound mistake. The root cause of family farm decline is not insufficient government payments. The root problem is that both markets and government policy are biased toward bigness. In a pure market economy, the playing field is not level. Those with an initial advantage use it to bid land and assets away from those starting from a lesser position. And the big have economic power to gain price advantages.

The solution is to balance markets with countervailing government policies that offset the natural tendency to concentration of wealth and economic power. Without that, free enterprise ultimately consumes itself as wealth concentrates in a few hands, and there is no free enterprise.

But today, government policy reinforces, rather than offsets, the tendency toward economic concentration. Unlimited farm programs are the premier example. They are destroying family farming.

That will change only when elected leaders demonstrate the spine to fight as hard for payment limitations as large cotton and rice interests fight against them — to block action on a farm bill until the issue is addressed….

Administration’s 2007 Farm Bill Proposal Critique
The Bush administration has released its proposal for the farm bill, including some disappointments as well as some valuable nuggets.

Payment Limitations

There is less than meets the eye. The press coverage focused on the proposal to deny farm payments to anyone with more than $200,000 adjusted gross income.

It won’t work. Large farms would easily create sufficient deductions to reduce their taxable income to less than $200,000 and keep the subsidies flowing. They would reinvest a portion of income in expansion, generating large depreciation, interest, and prepaid expense deductions to accomplish that.

The proposal may therefore have the opposite of its intended effect. It would create even greater farm program incentives for farm consolidation by dictating that mega farms either keep growing or lose all farm payments. Most will expand, if the alternative is leaving hundreds of thousands of dollars of farm payments on the table.

The proposal would also have unintended impacts on farmland rents. High income crop share landlords would be denied farm payments under the plan. Thus, they would convert to cash rents and indirectly capture the farm payment through higher rent. Cash rents are generally less advantageous for family farms, especially beginning farmers with limited capital.

A far better approach is to place an effective limit on farm payments. But on that issue, the administration would go backward. Its proposal would raise the limit on direct payments, the only payments that will be made for the foreseeable future on most commodities.

The direct payment limit would be increased to at least $110,000, from a paper limit of $40,000 and effective limit of $80,000 under current law. The administration would eliminate the three entity rule that allows farms to get around payment limits by forming three corporations. But it would apparently allow large farms to use the spouse rule to receive double the proposed $110,000 limit. The resulting effective limit of $220,000 would be nearly three times the current effective limit of $80,000….

Biofuels and Energy

The administration’s proposal is focused on research to speed the development of cellulosic ethanol — the one biofuel option with the potential to displace a substantial portion of our national gasoline consumption.

Ultimately, the administration proposals are most notable for what they lack — a strategy to maximize the benefits and minimize the negatives of biofuels development. There is nothing in these proposals to encourage local ownership and control, factors critical in ensuring that farmers and rural areas fully benefit from biofuel development.

Nor is there a strategy to ensure biofuel feedstocks are produced in an environmentally sustainable manner. The conservation impacts of cellulosic production depend on how the feed stock is produced. If the research is focused on biofuel production from crop residue and we remove all residue from cropland, the soil will be degraded and erosion will increase.

In contrast, production from mixed grass prairies or production from limited removal of crop residues could have environmental benefits. Those factors must be considered upfront in prioritizing alternative approaches for research funding. As we move toward the future, strong, effective public policy will be needed to ensure that these challenges are met and the enormous promise of renewable energy realized….