ME. In regards to the stalled farm bill debate, perhaps we have received a dose of clarity in farm-country philosophy.  The only remaining question iswhether it can be shaped into public policy?

BF.  What is it with the academic babble. Why not get to the heart of what you mean?
 
ME. Agri-Pulse reports from the past few weeks made it pretty clear that part of the reason for the stalled farm bill debate is the philosophical difference among farmers over the preferred form of a safety net. There are those who favor a revenue insurance only approach to replace the decoupled direct payments and there are others who favor access to a target price direct payment safety net for protection from low prices.  One wonders why a little institutional innovation and compromise might not solve the problem
 
BF. There you go again answering a question with a question.  The simplest solution is not always the one that works. In a vacuum, the simplest response might be to pass a farm bill with both revenue insurance and a target price safety net option.  And let farmers choose.  It seems logical on the surface, but there is a problem with that approach.  The recent World Trade Organization (WTO) experience suggests that unlike decoupled direct payments which are WTO "green box" compliant, a target price safety net payment system would not likely be WTO "green box" compliant.  The result would likely be another WTO challenge to U.S. farm commodity policy for distorting trade.

 

ME.  You are likely right with respect to WTO, but I was thinking the big difference between a target price payment safety net and a revenue insurance safety net is who pays the bill for the safety net.  Crop Insurance, including revenue insurance, is a cost-share approach where the producers pay part and taxpayers pay part. The cost shares can be adjusted over time depending on the fiscal circumstances in agriculture and government funding.  However under a target price safety net concept, taxpayers foot the bill.  I can see some Tea Partiers coming out of the woodwork on the latter idea, particularly those who know nothing about agriculture.
 
BF.  Exactly.  I was recently discussing farm policy with former House Ag Ranking Member Charlie Stenholm in front of an international audience in Texas and said the problem is that some farmers have a "prices, prices, prices" mentality.  They think higher prices are the only solution that solves their problem. However, it takes both prices and yields to generate revenues and profits. So a revenue target provides more safety net protection for farmers than a target price safety net concept can. In fact, a target price program is backwards. With wide spread drought, farmers with nothing to sell are in trouble. Price rises above target, no payment.  My ag policy students quickly grasp that price is irrelevant if you have nothing to sell. The opposite occurs with a great crop--farmers have something to sell, price falls below target, and payments are made when farmers already make some money.

 
ME. You are good with simple math. The most likely nuance is that some crops like rice rarely face a production problem, but sometimes face multiple years of low prices.  They naturally have a tendency to focus on target price protection, even though they could be held harmless by revenue insurance as well. The recent trend is to shift farm policy away from crop specific programs to a generic safety net program that can provide some measure of uniform treatment across all crops and commodities.
 
BF. That is why the philosophical camps tend to become regional with Southern rice, cotton, and peanut interests facing off with Northern wheat, corn, and soybean interests.  In addition, the issue spills over into the confrontational political context in Washington.  Historically with respect to agriculture, both parties put the interests of farmers first while considering the farm bill.  However, the Tea Partiers don't care for bi-partisan compromises that get Farm Bills passed. As a result, you have seen moderates abstain from the debate because they fear a primary challenge from the right financed by Tea Party backers like Koch.
 
ME. The last election demonstrated that money does not always win general elections.  Perhaps a new farm policy tool could be designed to give Southerners some of what they want but be more acceptable to Tea Partiers. Why not develop a cost share tool to fund multi-year price protection for the Southerners?  Perhaps the days are gone when Congress can pass target price programs totally paid for by government and taxpayers.  A multi-year price insurance tool or even tax-favored farmer savings account ideas from a decade ago could be funded on a cost share basis with producers and taxpayers each providing some support. Such ideas might be more appealing to Tea Partiers who supposedly oppose programs totally funded by taxpayers.
 
BF. It might be WTO compliant, but a confrontational conundrum still exists in the policy arena.  We now even have some who argue that since the Farm Bill could not muster enough votes and leadership support for passage in the lame duck session, Agriculture should keep its head down during the fiscal cliff debates this year.  As sequestration occurs, there will be attempts to shift funds to "grease the squeaky wheels" that emerge.  Last year's farm bills offered up $23 to $35 billion in cuts in return for other farm bill policy reforms. The danger is that we could end up with large cuts in farm programs and little reform as the savings identified are used up in plugging the holes.
 
ME. Adding complexity, CBO just re-estimated last year’s farm bill proposals for updated baselines and legislation passed since last year.  They now say ten-year budget savings would only be $13 to $27 billion.  It comes down to whether those calling the shots are willing to allow compromise or do they see the probable consequences without compromise as a safer approach for getting re-elected and for their party to become or remain in majority.   
 
BF. Historically, the problem has never been one where there is a lack of innovative policy tools for solving the problem or forging a compromise among the philosophical differences in agriculture. Currently the multiple fiscal cliffs are a higher political priority for Congress and there are many interests who are fine with Agricultural interests squabbling with each other.  The problem appears to be a lack of guts to do the right thing for agriculture and the nation. 

 *  Edelman is a professor of Economics at Iowa State University and Flinchbaugh is professor emeritus of Agricultural Economics at Kansas State University.

 

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