A A P P C C A A Will Alcohol Will Alcohol “Inebriate” Discussion “Inebriate” Discussion of the 2007 Farm Bill? of the 2007 Farm Bill? Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Minnesota Crop Insurance Conference Morton, MN September 19, 2007
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Will Alcohol “Inebriate” Discussion of the 2007 Farm Bill?
Will Alcohol “Inebriate” Discussion of the 2007 Farm Bill?. Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center. Minnesota Crop Insurance Conference Morton, MN September 19, 2007. Introduction. Are high crop prices the future? - PowerPoint PPT Presentation
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AAPPCCAA
Will Alcohol “Inebriate” Will Alcohol “Inebriate” Discussion of the 2007 Discussion of the 2007
Farm Bill?Farm Bill?
Daryll E. RayUniversity of Tennessee
Agricultural Policy Analysis Center
Minnesota Crop Insurance ConferenceMorton, MN
September 19, 2007
AAPPCCAA
IntroductionIntroduction
• Are high crop prices the future?
• Does it matter? Even if prices collapse, self-correction happens, right?
• What’s the deal with exports? Are exports going to make crop agriculture prosperous or not?
• WTO implications of export situation
• Why do we have farm programs?
• 2007 or 2008 or 2009 Farm Bill
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In Times of Exploding Demand
–The current program will work
–Any farm program will work
–NO program at all will work
• The key question is:Are high prices the future?
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Are High Prices the Future?Are High Prices the Future?
• The 2007 USDA Baseline projects:
– Corn demand for ethanol• 3.4 billion bushels for 2007—double 2005
• 3.7 billion bushels in 2008 (AFBF says 4.9)
– Over 10 years, baseline prices are north of $3/bu – closer to $4 most years
– Very low corn stock levels by historical standards
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Logical ImplicationsLogical Implications
• Subsidies for program crops would:
– Largely be replaced by market receipts
– Cease to be a budgetary problem for the US Federal Government• Could even transition the direct (AMTA)
payments like Congress’ 1996 intentions
– Cease to be a stumbling block in trade negotiations
Implications for WTOImplications for WTO• WTO negotiations drastically limit the ability to set
domestic farm policy in this and other countries
– Seems as if it subscribes to the “What is good for General Motors (multinationals)…” syndrome
– To me:
• The whole WTO process shows a complete lack of understanding of the unique characteristics of food and agriculture
• Food security and other social objectives often trump economic considerations in the case of food and agriculture
• Multinationals may benefit but maybe not major-crop farmers
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““We” Seem Willing to Believe that:We” Seem Willing to Believe that:
• Staple crops are not sufficiently important to have emergency reserves(oil is sufficiently important)
• Less than full use of farm productive capacity is inefficient (SOP to not to use full capacity in other sectors—currently at 77% of capacity)
• Farmers can extract billions of dollars for commodity programs—so they do
• Hence, commodity programs are a waste– do away with them or– pay out the money on some other basis
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What for, Farm Programs? What for, Farm Programs? • To address self-correction problems• Not to enrich agribusinesses• Not to provide cheap feed to livestock
integrators• Not to dump commodities on international
markets• Not to crash commodity prices in
developing countries• Not to be a mark for entrepreneurs to pull
government money through loopholes
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Complete This Phrase• A commodity policy should…
– Be realistic about the way aggregate agricultural markets work
– Take into account consumer behavior– Take into account producer behavior– Recognize limited ability of exports to
rebalance aggregate agricultural markets
– Recognize demand growth seldom outstrips supply growth for long
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Decoupled/Direct Payments• Examine these using the test I have
suggested:– Direct payments—
• Do not affect consumer behavior• Do not result in increased exports• Do not result in fewer planted acres when
prices are low• Are paid out even when farm prices and
income are high• Same is paid when prices are in the tank
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Policy DirectionsPolicy Directions• Do the Exports/Trade Liberalization Will Save Us
Course – Or All We Really Need is Market Access
• Switch to Green Payments based on Conservation/Environmental/ Rural Development Considerations