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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