COLUMBIA, MO., August 17, 2012 – Although the farm bills approved by the U.S. Senate and the House Agriculture Committee have much in common, the House Committee bill provides substantially more support to producers of some commodities, including wheat, rice, barley and peanuts. Production of those crops would be greater under the House Committee bill than under the Senate bill, while corn and soybean production would be greater under the Senate bill than under the House Committee bill, according to a new analysis by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.
The U.S. Senate approved the “Agriculture Reform, Food and Jobs Act of 2012” on June 21, 2012, and the U.S. House Committee on Agriculture approved the “Federal Agriculture Reform and Risk Management Act of 2012” on July 12, 2012. Models maintained by the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) were used to estimate possible impacts of these proposed policy changes.
The FAPRI report focuses on the possible consequences of several key commodity program provisions in the two bills. For example, both bills replace a Direct Payment program that makes payments that are not tied to current prices or production levels with new programs that offer support linked to current levels of production and prices. Average levels of federal farm program spending would be reduced under both bills, and FAPRI says that most commodity market impacts would be relatively small, as long as all commodity prices stay relatively high.
“Eliminating the DCP and ACRE programs reduces producer income and results in a modest reduction in the area planted to major crops. In the Senate bill, this effect is offset by the effects of the new ARC, STAX and SCO provisions,” FAPRI notes. “These programs only provide benefits to producers who attempt to grow a crop, so one dollar of benefits under those programs has a larger effect on production decisions than does a dollar of DCP payments, which are not tied to current production levels. Even though net spending on ARC, STAX and SCO is less than the DCP and ACRE program payments they replace, total planted acreage is marginally greater under the Senate bill than in the baseline.
“Because the Senate bill distributes program benefits differently than under current law, the bill does not affect production of each commodity in the same way. Corn and upland cotton acreage expands at the expense of other crops. Average ARC, SCO and STAX benefits per acre are greater for corn and cotton than for other crops,” according to the FAPRI report.
Because of cross-commodity effects, this is also true for soybeans, wheat and sorghum, even though they experience a slight reduction in production, FAPRI points out. “For peanuts and rice, the decline in production is strong enough and cross-commodity effects are weak enough that prices increase slightly under the Senate bill relative to the baseline.
In the House Committee bill, average projected program benefits for several crops exceed those in the Senate bill, and the total acreage devoted to production of grains, oilseeds and upland cotton also increases. Relative to the Senate bill, estimated payments and acreage are significantly greater for wheat, barley, rice and peanuts. Corn and soybean acreage is less than under the Senate bill, although corn acreage slightly exceeds baseline levels.”
The estimated changes in acreage and production under the House Committee bill result in corresponding changes in average market prices. Barley, rice and peanut prices all decline significantly from Baseline levels in response to increased production. For corn, soybeans and wheat, average prices are within 1 percent of Baseline levels, but average peanut prices are 4 percent lower.
Although overall impacts will be sensitive to market prices and program participation, most of the average impacts on production and prices under either bill are fairly small. One reason is that average payments under ARC, PLC, RLC, STAX and SCO are small relative to market receipts, notes FAPRI.
“However, the averages mask cases where these program changes could have larger impacts. For example, if prices fall sharply for one crop, producers may expect large payments for that crop and produce more of the crop than in the absence of the program. Small average acreage shifts may obscure larger opposing shifts in acreage under different market circumstances,” notes FAPRI.
Under each bill, FAPRI estimates that average net farm income and agricultural real estate values would decline slightly relative to what would happen under a simple continuation of current farm programs. Impacts on consumer food prices would also be very small.
To view the full report, click: http://www.fapri.missouri.edu/outreach/publications/2012/FAPRI_MU_Report_05_12.pdf.
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