Ag Policy Wrap-up - Dr. Larry Sanders, Oklahoma State University

Ag Policy Update–14 Feb 01 (Sunup Program to be aired 15 Feb)

1. We’ll continue our look at recent farm bill recommendations today. But first, let’s look at some of the recent events in Washington. What did Fed Chair Greenspan’s comments suggest for agriculture this week?

–Greenspan doesn’t think we’re in a recession right now, nor does he think we’re moving into one. Instead, he projects 2-2.5 % economic growth for 2001.

–However, he does admit concern about the weakness of the economy, making further cuts in interest rates likely.

–That suggests at least 2 key likely impacts for producers:

1. Loan rates will be going down for many producers.

2. Off-farm employment for many farm families will remain soft and may decline in the near term.

–Regarding, macroeconomic policy, he re-affirmed his support for a tax cut, although he wouldn’t commit to how much.

–He did say he also supports debt reduction as his first priority, which suggests the President’s tax cut plan may be larger than what the Fed thinks is reasonable.

–Also, he doesn’t believe any tax cut will do anything to ease recession fears.

–While the jobless rate is up slightly, retail sales improved in January.

–The trade numbers will be reported next week.

2. Ok, let’s return to the farm bill recommendations. The House Ag Committee is meeting today on the future of farm programs. Remind us how the debate was initiated within the past few weeks.

–Recall that the 1996 farm act called for a Commission on 21^st Century Agriculture to evaluate the status of agriculture and begin to make recommendations to Congress and the Administration.

–Barry Flinchbaugh, chair of the Commission, presented the report to the Senate and House Ag Committees last week.

–The Commission was composed of a broad-based representation from farm states.

–The report was based on testimony gathered in hearings around the country, public comments and analysis of data from USDA and universities.

–The Commission’s recommendations covered 6 areas: income safety net, risk management, environment, trade, special commodity policies, and small farms.

3. Last week we discussed the Commission’s recommendations for an income safety net. Let’s look in more detail today at the recommendations for risk management.

–Flinchbaugh, on behalf of the majority of the Commission, recommended the following:

1. Create an actuarially sound insurance program with coverage provided by private companies. Federal vouchers to offset the cost of insurance premiums would be provided.

2. Implement a farm & ranch risk management (FARRM) account allowing producers to save money in years of high net farm income & draw it out in low net farm income years, with taxes deferred until withdrawn.

4. What impacts are likely from such recommendations?

–An actuarially sound insurance program for farm commodities has long been sought, but remains elusive.

–Possible reasons suggest possible impacts:

1. The repetition of harm in many regions for many crops (drought, floods, pests, other) combined with the low participation rates is in part related to expectations that the federal government will come to the rescue with disaster assistance. So, such aid may have to be reduced or eliminated.

2. Likewise, low participation rates are sometimes because the premiums are perceived by producers to be too expensive. To make the program actuarially sound, rates will likely need to be increased.

3. Some commodities are produced in too few areas and or by too few producers to spread risk at an affordable level. This suggests some commodities will continue not to be covered, or dropped from coverage, or the rates will become more expensive.

5. Now another part of the risk management recommendation calls for the government to provide vouchers to producers to encourage participation by offsetting premium costs. What impacts might this cause?

–Aside from the fact that the term “vouchers” may carry some negative baggage, it’s just another way to talk about government-subsidized insurance.

–Whether or not this may be a good idea, it begs more questions than answers:

1. Will the cost of vouchers be greater than current government crop insurance subsidy programs?

2. Will the budget exposure be open-ended and in danger of breaking spending caps?

3. If capped to limit budget exposure, will Congress decide that disaster assistance need to be continued for emergencies, thus continuing a disincentive for participation?

4. What system will be used to determine voucher levels, distribution among commodities, among regions, among production practices, among various levels of risk, and so forth?

5. If insurance companies fail, will government bail out them and or the participants?

6. Will the voucher program be farm size neutral, or provide more incentives for larger operations?

–In short, the debate will need to be more focused and more information will need to be provided before likely impacts can be suggested.

–What we can say is that the recommendation likely means more cost to producers and/or more cost to government and/or less coverage and more risk to some participants.

6. Other highlights in recent ag-related policy actions:

a. Robert Zoellick was confirmed as the new US Trade Rep for the Bush Administration. Among his priorities will be:

–trade negotiating authority (fast-track)

–FTAA talks

–renewed WTO talks

–He refused to be very specific, but did support

–carousel retailation against EU

–resolving trade disputes

b. The Court decision to decide if the vote to eliminate the pork check-off is legitimate has been delayed to 16 Mar

c. Farm groups are lobbying Congress to double appropriations for ag in 2002 budget, suggesting the proposal will be about $9 billion.

d. A new Lugar-Harkin bill requires US AG to continue a high level position for ag antitrust.

–some OK legislators are asking why we don’t have this at the state AG as well.

e. Look for a change in the House Ag Committee Staff Economist on the GOP side in the next few weeks.

f. NAWG is leaking its preferences for the next farm bill.

–guaranteed base payment, similar to AMTA payment, but renamed; possibly 64 cents/bu.

–nonrecourse marketing loan with higher benefit level ($3.15 loan cap, $2.60 floor)

–countercyclical payments based on price, not income

–Their recommendations will be presented to Congressional Ag Committees in March

7. 107^th Congress:

a. Recent/Current:

–House Ag Committee business meeting (committee organization)& hearing to review of the current state of the farm economy and the economic impact of federal policy on agriculture (14 Feb)

–House Ag Committee hearing to review the future of farm programs (15 Feb)

b. Upcoming:

–No new hearings scheduled in Ag Committees

c. Congressional Calendar:

--As of 20 Feb, about 114 weekdays remain in this Congressional session.

February 16 ‑ 26 Presidents Day District Work

Period

April 1 Daylight Savings Time Begins

April 7 ‑ April 23 Spring District Work Period

April 8 Passover

April 15 Easter

May 13 Mother’s Day

May 25 ‑ June 4 Memorial Day District Work

Period

May 28 Memorial Day

June 14 Flag Day

June 17 Father’s Day

June 30 ‑ July 8 Independence Day District

Work Period

July 4 Independence Day