2018(?) Farm Bill Discussion - Amazon S3 · 2/8/2018  · 2015. 2017p $/BUSHEL $/POUND COTTON. Corn. Wheat. Cotton. 1973 A&CPA. Parity Era. Target Price Era. Decoupled Era. ... ARM

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2018(?) FARM BILL DISCUSSION

Jonathan CoppessGardner Agricultural Policy Program

ISPFMRA Annual Meeting (February 8, 2018)

FARM BILL HISTORICAL PERSPECTIVESPart 1.

TRADITIONAL FARM COALITION

More than 80 year policy debate and competition;

Regional disputes dominate; South vs. Midwest vs. wheat (corn & cotton & wheat).

SNAPSHOT: FARM POLICY HISTORY

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Target Price Era

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Source: USDA-NASS; average prices received by farmers in the marketing year; projected, CBO (Jan 2017)

1933 AAA

1996 FAIR Act

SNAPSHOT: FARM POLICY HISTORY AND PLANTED ACRES

• Dust Bowl response (1936)

• Soil Bank (1956)

• Target Prices (1973)

• CRP and Compliance (1985)

• Decoupling (1996)

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Key Farm Bills Corn Cotton Wheat Soybeans

FARM BILL TRENDS: SPENDING PERSPECTIVE

• Substantial increase in nutrition assistance particularly since 2008 recession; increases political pressure.

• Farm program spending was trending down until recent run of relatively low prices.

• Crop insurance trend towards replacing farm program outlays, especially after direct payments eliminated in 2014.

• Conservation program spending has witnessed a steady, incremental increase.

2014 FARM BILL REVIEW.Part 2.

FARM BILL OVERVIEW

• The Agricultural Act of 2014 is scheduled to expire with the 2018 crop and fiscal years.

• Effort to pass the current farm bill began in 2011 and took three years across two Congresses.

• The outlook for a farm bill in 2018 is complicated by a short and packed legislative calendar in a Congress struggling to legislate as mid-terms approach.

REVIEWING THE 2014 FARM BILL: SPENDING

The 2014 Farm Bill was expected to save over $16 billion (10 years);

Currently on track to spend $25 billion less than original score in its first 5 years.

REVIEWING THE 2014 FARM BILL: SNAP

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SNAP (USDA)

Avg. Participation Total Costs Most of the additional savings in the 2014 Farm Bill

comes from SNAP; reduced participation is lowering costs.

REVIEWING THE 2014 FARM BILL: SNAP

• SNAP is ‘counter-cyclical’ to larger economy; is low-income assistance to purchase food.

• With lower unemployment and improvements in wages, fewer qualify and sign up for assistance.

• USDA-ERS reports that only 36% of participants are non-disabled, non-elderly adults.

REVIEWING THE 2014 FARM BILL: FARM SPENDING

• Outlays for Title Commodities programs (ARC & PLC) is far above expectations.

• Outlays for crop insurance roughly offsets that increase; spending has been far below 2014 estimates.

• An indication that these programs work in tandem or are complimentary, not overlapping.

FARM PROGRAM REVIEW: ARC-CO

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Corn-Christian County, IL

MYA Price Reference Price Benchmark PriceCounty Yield Benchmark Yield

• Benchmark = 5-year Olympic average price & yield (drop high and low).

• Guarantee from 86% to 76% of benchmark.

• Payments on 85% of base.

• Key feature is the adjustment of price & yield components.

FARM PROGRAM REVIEW: PLC

• 2014 Farm Bill raised reference prices; deficiencies paid on 85% of base.

• Not all reference prices are the same; lack of transparency and equity.

• Peanut price trigger (not shown) has averaged 120% of MYA since 2002.

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Prices (MYA-NASS; CBO forecasts)

Corn Soybeans WheatCorn Fixed (eff.) Soybeans Fixed (eff.) Wheat Fixed (eff.)Cotton Cotton Fixed (eff.)

FARM BILL REVIEW: CROP INSURANCE

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Crop Insurance($Millions)

Loss Ratio Premium Subsidy Total Premium Indemnity Farmer Paid

• 2017 total liability was over $100b; Over 1m policies covering almost 300m acres insured.

• RMA must run the program on an ‘actuarially sound’ basis (1.0 loss ratio).

• Good crops = less indemnities, lower loss ratio.

LOOKING AHEAD: FARM BILL IN 2018?Part 3.

CBO BASELINE WILL BE KEY FACTOR.

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CBO June 2017 Baseline

Crop Insurance Conservation Total Title 1

Budget rules create “zero sum” effort in Congress & committees.

Increases in baseline for program or title requires offsets elsewhere in the baseline (program, crop or title).

CBO estimates spending for 10 years based on existing policy to set the baseline.

Expected that March 2018 baseline will control the farm bill debate.

ARC & PLC IN THE BASELINE

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Outlays: CBO, June 2017 Baseline ($ millions)

PLC ARC-CO Crop Insurance Conservation Total Title 1

• Notable shift in Title I baseline from ARC to PLC.

• CBO assumes 82% of corn base takes PLC; low expectation for ARC payments (5-year moving average prices).

• Corn is the largest crop; program decisions and reference price has biggest baseline impact.

PRESSURE ON CROP INSURANCE?• At roughly $6b per year,

premium discount is a target.

• Admin./Heritage: save over $30b by capping discount, eliminating harvest price, AGI.

• Flake-Shaheen, save $24b from harvest price, rate of return and capping premium subsidies/AGI. $750k AGI passed

Senate 2012 and 2013 (66 and 59

votes, respectively)House narrowly

defeated crop insurance reform amendment 2013 (208 to 217)

CONSERVATION QUESTIONS

Current discussions indicate an interest in expanding CRP; acres reduced to 24m in 2014 Farm Bill.

Expanding CRP acres would require offsets, possibly working lands.

Indications that CSP/working lands will be impacted; nutrient loss challenge?

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CBO June 2017 Baseline

CRP CSP EQIP Crop Insurance Conservation Total Title 1

FARM PROGRAM ISSUE: COTTONSEED & DAIRY

• Cotton removed in 2014 because of WTO dispute with Brazil.

• Budget deal adds ‘seed cotton’ to farm programs in disaster supplemental; impacts on farm bill?

• May require up to $4 billion in additional baseline to cover; unless added by appropriations.

• Dairy: seeking fixes to Margin Protection Program; feed cost calculation; premium; cost unknown.

EXPORTS AND AG ECONOMY

• 20% of U.S. ag production; 50% of soybeans, wheat and rice; 75% of cotton.

• China + Canada + Mexico = 46% of U.S. ag exports

• Importance of NAFTA; trade agreements.

IMPACTS OF TRUMP TRADE ‘POLICY’

• Pulls U.S. out of Trans-Pacific Partnership (TPP); July 2017 Japan leads other 11 nations to revive without U.S.

• Threatens NAFTA; Mexico & border wall; $2.6b in corn shipped to Mexico, 2016.

• April 2017: Mexico exploring corn trade with Brazil and Mexico; threatens boycott…

• China: studying responses (solar panel tariff), including soybeans and sorghum…

THE SNAP QUESTION & POLITICS.

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SNAP-CBO Baseline (actual and 2017 Projections)

Participation Outlays

Saved commodities in 1964; combined in 1973 for coalition.

Billions spent each year on food, which indirectly benefits farmers.

Farm policy and SNAP have common opponents.

Controversial fight over SNAP in 2013 led to farm bill’s defeat on House floor (195-234); what damage would a repeat cause?

CONCLUSION: MAJOR STUMBLING BLOCKS

Spending: Tax bill added $1.5 trillion to deficit; will Congress focus on entitlement spending reductions (again)? Watch out for budget reconciliation…

Legislative calendar: appropriations (continuing resolutions); immigration; infrastructure; tax bill fixes (cooperatives?); and more…

Mid-term Elections: will shorten the legislative calendar and magnify partisanship/politics (if that is possible).

Farm Bill Politics: issues of cotton, dairy and CRP in a zero-sum baseline (regional politics); potential to be consumed by a SNAP fight.

THANK YOU…QUESTIONS?

Jonathan CoppessGardner Agricultural Policy ProgramUniversity of I llinois

[email protected]