WASHINGTON, Oct. 1, 2013 – A new farm bill analysis by the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) provides one of the first in-depth looks at how the House and Senate versions of their respective commodity titles compare.
The report became public just one day after the current farm bill extension expired on. Sept. 30 and the timetable for completion of a new bill is still uncertain. Hill staffers were briefed on the report last week, but were not given copies of the full analysis.
The FAPRI analysis of the commodity provisions shows a much wider savings gap between the two versions than a previous Congressional Budget Office analysis, with the Senate bill saving $5.5 billion more than the House version.
This report examines the possible consequences of several key provisions in the two bills: The U.S. Senate’s “Agriculture Reform, Food and Jobs Act of 2013” and the U.S. House approved “Federal Agriculture Reform and Risk Management Act of 2013”. Key changes were modeled against the FAPRI-MU models to estimate possible policy changes, compared to a continuation of existing policies, including:
1) The elimination of the current Direct and Countercyclical Payment (DCP) and Average Crop Revenue Election (ACRE) programs, a common feature of both bills.
2) The establishment of Adverse Market Payments (AMPs), the Agriculture Risk Coverage (ARC) program, the Stacked Income Protection Plan (STAX) and the Supplemental Coverage Option (SCO) in the Senate bill.
3) The establishment of Price Loss Coverage (PLC), Revenue Loss Coverage (RLC) programs and STAX, as well as a slightly different version of SCO, in the House bill.
The two bills have much in common and the consequences of the two bills would be similar in many respects, notes the FAPRI Summary, available here. But there are some key differences.
Both bills replace the 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 most commodity market impacts would be relatively small. Some key results are summarized in Table 1, which we’ve pasted below: Highlights include:
· The program changes examined in this report reduce estimated 10-year net budgetary outlays by $18.1 billion under the Senate bill and $12.6 billion under the House bill. Estimates of the net budget savings of the same provisions by the Congressional Budget Office (CBO) are $16.4 billion for the Senate bill and $15.9 billion for the House Committee bill.
· SCO accounts for much of the difference in the estimated costs of the two bills, as the Title I provisions are estimated to have very similar net budgetary impacts.
· The House and Senate bills provide different projected levels of support to producers of particular commodities. For example, the House bill provides more support than the Senate bill to rice, barley and peanuts, while the Senate bill provides more support than the House bill to corn and soybeans. Area and production estimates reflect these differences in projected benefits.
For example, compared to baseline, barley acreage would increase by 5.7 percent under the House version and decline by 0.6 percent under the Senate bill. Rice acreage would increase 2.3 percent under the House version and decline 1.2 percent under the Senate version. Peanut acreage would increase 3.7 percent under the House version and decline 0.2 percent under the Senate version. These changes could result in substantial drops in market prices.
· Program benefits will be very sensitive to market conditions and producer participation decisions, as the various programs provide protection against different types of financial risk.
· Under each bill, average net farm income would decline slightly relative to what would happen under a simple continuation of current farm programs. Impacts on consumer food prices would be very small.
Other provisions of the bills, such as the impact of potential payment limitations on commodity title participation and changes in dairy and nutrition programs, are not examined in this report. The Conservation Reserve Program, the Renewable Fuel Standard and World Trade Organization concerns are discussed in separate sections at the end of the report.
The FAPRI table indicating key results is below:
The analysis assumes that all of the new programs will be implemented for crops harvested in 2014, even though it may be difficult to do so given an uncertain future for any new legislation in the 113th Congress.
A few other highlights from the report:
Acreage impacts
The analysis points to concerns raised by some commodity groups that House provisions linking payments to planted acreage will skew planting intentions. It notes that rice, barley and peanut acreage would all likely increase under the House version of the bill, resulting in much lower market prices, compared to baseline, from 2014-2018, but government payments make up a large portion of the difference.
For example, rice sales under the House version will drop $20.37/acre compared to a $10.03/acre increase in the Senate version. But with government payments, the change is $61.37/acre higher than baseline, compared to $18.21/acre in the Senate version.
Peanut market prices will drop $70.31/acre under the House version compared to a $3.99/acre increase in the Senate version.
For barley, market prices drop $14.95/acre under the House version and drop only slightly, $0.53/acre under the Senate version – compared to baseline.
It notes that producers with a lot of base acreage relative to planted acreage will be the most affected by the loss of DCP payments. U.S. planted acreage far exceeds base acreage for soybeans, while the reverse is true for wheat, upland cotton, sorghum, barley and rice.
Relative to the Senate bill, estimated payments and acreage are greater for wheat, barley, rice and peanuts. Corn and soybean acreage is greater under the Senate bill, although corn acreage slightly exceeds baseline levels under both bills.
Budgetary impacts
“In the Senate bill, some of the savings associated with eliminating the DCP and ACRE programs is offset by the cost of the new AMP, ARC, SCO and STAX programs. The estimated 10‐year budgetary effect of the provisions examined is to reduce net outlays by $18.1 billion relative to the Baseline. Expenditures by the Commodity Credit Corporation (CCC) for traditional farm programs, AMP and ARC are reduced by a net of $28.2 billion, while crop insurance costs associated with SCO, STAX and changes in producer participation and coverage levels increase net outlays by $10.0 billion.
“CBO estimated that the same set of program changes would reduce net outlays by $16.4 billion. FAPRI‐ MU’s estimated net savings of the Title I changes considered in this analysis is greater than that estimated by CBO because of lower estimated costs for ARC and AMP. This is partially offset by larger FAPRI‐MU estimated costs for the changes in crop insurance programs.
“In the House bill, the new PLC, RLC, STAX and SCO provisions offset some of the savings from eliminating the DCP and ACRE programs. The estimated 10‐year budgetary effect of the provisions examined is to reduce net outlays by $12.6 billion relative to the Baseline. Expenditures by the Commodity Credit Corporation (CCC) for traditional farm programs, PLC and RLC are reduced by a net of $27.8 billion, while crop insurance costs associated with SCO, STAX and changes in producer participation and coverage levels increase net outlays by $15.2 billion.
“The CBO estimate for the same set of policy changes was a net outlay reduction of $15.9 billion. FAPRI‐ MU estimates larger net savings from the Title I changes considered in this analysis, but estimated a much higher cost for SCO. CBO estimated the 10‐year cost of SCO at $3.9 billion, compared to $9.8 billion in this analysis. Differences in assumed participation rates account for part of the difference in SCO costs.”
Farm income
“In the Senate bill, annual government payments are $2.70 billion less than in the Baseline. Crop insurance net indemnities increase by $0.79 billion, as indemnities increase by $1.16 billion while producer‐paid premiums increase by $0.37 billion. Thus, annual program‐related support (government payments plus crop insurance net indemnities) falls by an average of $1.91 billion relative to the Baseline.
“Small changes in production and prices result in small changes in crop and livestock receipts, feed costs and other production costs. Reduced government support slightly reduces the demand for land, so rental payments to nonoperator landlords decline by $0.20 billion. The net effect of all these changes is a $2.10 billion reduction in annual net farm income compared to the Baseline.
“In the House bill, annual government payments decline by an estimated $2.85 billion relative to the Baseline and a slightly larger decline than in the Senate bill. Because of differences in SCO provisions and program participation, total crop insurance indemnities increase by an average of $1.79 billion each year relative to the Baseline, while producer‐paid premiums increase by $0.59 billion. Crop insurance net indemnities increase by an annual average of $1.20 billion relative to the Baseline and $0.43 billion relative to the Senate bill, and annual program‐related support (government payments plus crop insurance net indemnities) falls by an average of $1.65 billion relative to the Baseline.
County may be better than field level
“In the Senate bill, producers must choose whether to participate in the county or individual version of the ARC program. The comparison suggests that the county-based ARC would provide greater payments to average producers – even though many producers may choose the individual-based version of ARC to better insure against farm-specific risks. ARC and SCO with a 10 percent deductible provide similar levels of expected net benefits for most crops, but many are likely to choose ARC over SCO to avoid paying the required SCO premium.
“Under the House Bill, producers must decide for each crop whether to remain with the PLC (default) or participate in the RLC. In addition, PLC participants can also choose to participate in SCO.
“For corn and soybeans, expected RLC payments exceed expected PLC payments. However, PLC provides greater protection against a sharp-long-term decline in crop prices. PLC participants can also benefit from SCO and the combined PLC and SCO benefits exceed expected RLC payments, even before considering SCO effects. Considering these and other factors, the analysis assumes that 60 percent of corn and soybean producers would opt for PLC, with higher PLC participation for other crops and up to 99 percent for peanuts and rice.
According to the analysis, actual participation rates in each program could trigger wide swings in government investments and perhaps lead to lower participation in traditional crop insurance.
“A simple comparison of benefits suggests that almost all PCL participants would benefit from purchasing SCO, given the 65 percent premium subsidy. Experience with other crop insurance products, however, suggests many producers will choose to reduce out-of-pocket cost by purchasing lower levels of coverage that would maximize net indemnities (indemnities minute producer-paid premiums in the long run. This analysis assumes half of PLC participants purchase SCO.
“Under both bills, budgetary impact and other effects are very sensitive to producer participation. For example, SCO fiscal costs could easily be billions of dollars great or smaller over the next ten years, depending on participation.
WTO concerns
“In both the House and Senate bills, eliminating the Direct Payment program and creating the ARC, AMP, PLC, RLC, STAX and SCO programs results in the replacement of a program the U.S. declares to be a green box program with programs that appear likely to be considered amber box support, at least under current WTO accounting rules. All else equal, this would make it more likely that this country might exceed its commitments to limit amber box spending.
“Offsetting this impact may be the proposed changes in dairy policy. Without speculating how new dairy policies might be classified for WTO purposes, the elimination of the dairy product price support program appears likely to result in a sharp reduction in amber box support.
The report notes that, “given URAA accounting rules, preliminary estimates suggest that the United States would be unlikely to exceed its commitment to limit amber box spending under either bill.”
But then the report notes that trade disputes can arise even when amber box support measures do not exceed WTO commitment levels – potentially calling out programs that reduce market prices for rice and peanuts.
“As occurred in the cotton case brought to the WTO by Brazil, countries can challenge U.S. policies on the grounds that they increase production or exports and thereby lower prices in world markets.”
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For more on the FAPRI report, click: http://www.fapri.missouri.edu/outreach/publications/2013/FAPRI_MU_Report_06_13.pdf
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