Agricultural Policy in Transition:What’s Next? October 28, 2009 National Press Club Washington, DC
CAP Prospects Michel Petit Professor, InstitutAgronomiqueMéditerranéen de Montpellier email@example.com
ANALYTICAL FRAMEWORK THE ‘NEW POLITICAL ECONOMY’ LONG TERM ECONOMIC FORCES INSTITUTIONAL ARRANGEMENTS
THREE ‘HISTORIC’ LTEF:WHAT PERSPECTIVES? SUPPORT TO FARMERS’ INCOME BUDGET CONCERNS PRESSURES FROM TRADING PARTNERS
INSTITUTIONAL ARRANGEMENTS EUROPEAN COMMISSION PROPOSED Commission in process of renewal EUROPEAN PARLIAMENT ADVISED Impact of Lisbontreaty? COUNCIL OF MINISTERS DECIDED
NEW SOCIETAL CONCERNS ENVIRONMENT, FOOD SAFETY, ANIMAL WELFARE? RURAL LANDSCAPES AND SCENERY, RURAL DEVELOPMENT TWO PILLARS IN THE PAST
A changing political context and new concerns for the future CAP Elena Saraceno Former advisor in the Bureau of European Advisors of the European Commission, Rural development expert for the European Network of Rural Development firstname.lastname@example.org
Contents A changing political context New concerns, shifting priorities So, what is likely to happen (a personal view)?
A changing political context: a growing internal pressure for reform The budget review story (unfinished) The full and wide ranging review of the CAP: a modest start with the Health Check Limited financial resources (<1% GDP) + needs of “new challenges” (EU’s global role, security, climate change, energy supply) Member States: 3 groups, the reformers (UK,DK,SW,NL,CZ); the status quo; more CAP (CEEC countries) The more “flexible” position of farmer’s organizations: a propensity for keeping the core business (food)
Changing political context: the innovations introduced by the Lisbon Treaty Explicit stated objective of territorial cohesion (but is RD a problem of cohesion?) Co-decision procedure between the Council and the European Parliament on the CAP budget Qualified majority voting on CAP decision-making (no more unanimity = veto power)
Changing political context: the financial crisis and the CAP Impact on agriculture less severe than for other sectors, good price perspectives Impact on rural areas mixed: Two opposite visions: delayed crisis vs. rural areas as middle class green safety net
Changing political context: evolving transatlantic relationship A wider club of nations (G-20) with new coalitions and shifting power towards BRICs Softer, less strategic transatlantic relationships Delay of WTO negotiations: breakdown of traditional terms of trade between food and manufacture /services producers, restructuring of trade flows Implies stronger external pressure to abandon protectionism,from the real world
New concerns, shifting priorities (1) Climate change and environmental public goods Reorientation of Fischler reform approach: payments for public goods questioned by farmers (high food prices), quality producers, new MS; favored in marginal areas (not the point) Climate change issues (new challenge) require new approach, where farmers have to contract for providing specific services (far from indefinite subsidy logic) Biodiversity, carbon sequestration, water, energy, even land management are larger than farm issues, new ways of looking at it
New concerns, shifting priorities (2) Who will take care of wider (territorial) rural development? Linkages with farming stronger in developing regions (agricultural policy) Linkages with non-farm sectors, urban, stronger in older developed areas (regional policy) key question of coordination of policies
New concerns, shifting priorities (3) Food security is back not as a problem for the EU (high income), justified by need to maintain productive capacity Linked to issue of “food miles” (climate change) and higher standards Related to scare created by 2007 food crisis Justifies maintenance of minimum safety net (income support different from the past)
So, what is likely to happen? CAP reform bottlenecks are political not technical, a drastic step is not in the making Going back to the core business of producing food, with a much wider perspective A revised environmental agenda Some form of safety net (what rationale?) Better coordinated delivery systemsfor RD Less money (who will get less?)
U.S. agricultural policy in transition: Farmincome, budgets and institutions Patrick Westhoff University of Missouri email@example.com
U.S.net farm income declines in 2009 from near-record levels Source: USDA, August 2009. The 2009 estimate is the lowest since 2002.
Crop and livestock receipts fall more than production costs in 2009 Source: USDA, August 2009.
Lower milk prices one of many causes for lower 2009 farm income Source: USDA, October 2009
So far, policy response to lower farm income has been muted Appropriations bill provided additional $350 million for dairy On top of existing programs that buy dairy products, make payments to dairy farmers But support modest relative to $11 billion drop in milk sales Other programs have automatic stabilizers Revenue-based crop insurance indemnities up If prices low enough, crop farmers qualify for marketing loans, countercyclical payments
Projected U.S. prices are above levels that trigger “traditional” payments Source: FAPRI-MU baseline update, Aug. 2009. Note: “Payment trigger” is the price that would result in countercyclical payments.
FAPRI-MU projects slow recovery in U.S. net farm income Source: FAPRI-MU baseline update, Aug. 2009. Note the 2009 estimate is slightly above USDA’s.
CBO projects large budget deficits even if tax cuts expire on schedule Previous record deficit Extending 2001 and 2003 tax cuts would make 2013 deficit $264 billion larger than this Source: CBO, August 2009. Actual was $1.4 trillion
Nutrition programs accounted for most FY 2009 USDA spending Source: Monthly Treasury Statement, September 2009, fiscal 2009 total: $114 billion
U.S. farm program spending varies, depends on commodity prices Note: Net CCC outlays include spending on direct payments, marketing loans, countercyclical payments and other basic farm programs
Direct payments & crop insurance dominate projected spending Source: FAPRI-MU 2009 stochastic baseline, March 2009. *The baseline assumed much higher ACRE participation rates than now appear likely. If actual participation rates are lower, ACRE payments will be smaller and direct payments larger. Still, it seems likely that crop insurance net indemnities will exceed direct payments over this period.
Congress has critical part in farm policy 2008 farm bill shows predominant role Congress can play in U.S. farm policy
In House, only a few members represent rural districts
In Senate, North Dakota has same number of Senators as California
Changes in taxpayer costs due to 2008 farm billFY 2008-17 total, billion dollars, CBO estimates* *Estimates reflect changes from a baseline that continued 2002 farm bill provisions indefinitely
House and Senate play different roles in farm policy debates House Legislation must be acceptable to urban/suburban members A few Members with deep interest A simple majority wins Senate Larger share of Members with some interest Filibuster rule critical—60 votes to do most things that are controversial
New leadership in Senate Agriculture Committee matters Sen. Lincoln (D-AR) new Chair, after Sen. Harkin (D-IA) took over another committee Arkansas and Iowa are different places, with different types of agriculture, different politics Sen. Lincoln more likely to defend current farm policies, less likely to support climate change bill Chair can help set agenda and can more easily block measures she opposes But Chair’s power has limits in Committee with many independent, powerful actors
Budget legislation could be a way around filibuster rule If there is a major deficit reduction effort, probably done in “budget reconciliation” Bill cannot be filibustered: 50 votes + VP wins Committees are charged with achieving particular level of mandatory spending cuts If meet those budgetary targets, very difficult to amend bill on floor Can give majority on Ag. Committee significant powers to make otherwise difficult changes
Looking ahead Next farm bill could be as late as 2012 or 2013 But farm income, budget could result in some changes far sooner As in past, starting point for discussion will be status quo Those who benefit from current policies will defend positions Those seeking new directions will face challenges, especially in a constrained budget environment
U.S. Agricultural Policy in Transition Neil Conklin Farm Foundation
The Changing Agenda Beyond our borders—The future of the world trading system The changing social contract with agriculture Changing institutions the Executive Branch The States
Beyond our Borders Declining ag sector support for trade liberalization A whiff of protectionism. Where do we go beyond the recession? Concern about failure of trading system to stabilize food price situation in 2007-08 Beyond tariffs, export subsidies and domestic supports: The changing policy agenda creates significant challenges for the global trading system. International institutions appear ill-suited to dealing with emerging issues as we renegotiate the social contract with agriculture.
Washington Post October 25, 2009 Growing season Galvanized by the local food movement, 20-somethings are turning to small farms to make a fresh start Back where virus started, new scrutiny of pig farming
Alternative Visions for the Future of Agriculture Large commercial farms driven by science and technology connected to consumers through global supply chains Small scale sustainable farms connected to consumers through local food networks. Increasingly the political question being posed is which vision will prevail
Agriculture’s Social Contract The 20th Century Contract (maintained by sectoral solidarity) Sectoral support Sectoral Sovereignty “...I can imagine a future in which farmers and farm organizations may be able to protect their existing policy privileges only by weakening their solidarity with farm input supply industries in favor of strengthening ties with consumers and environmentalists, from outside the agricultural sector.” Rob Paarleberg 1991
Energy and Climate Change the Big Drivers Energy and agriculture Economic linkages—both supply and demand 2005 and 2007 energy acts arguably more important for agriculture than 2008 Farm Bill Climate change policy critical Impacts on input costs Impacts on commodity prices Prospect for revenues from carbon offsets Political prospects Agriculture is divided Can sectoral solidarity be rebuilt?????
The New Policy Agenda Energy and climate change Food safety Obesity Animal production and human health Animal welfare Water (quality and quantity) Local food systems Food security and global agricultural development Research, technology and productivity
Changing Institutions Executive Branch Shift from production centric to a food centric view of the world Rising importance of agencies beyond USDA EPA HHS DOE Agricultural issues on the White House radar Greater role for States “laboratories for policy” Animal welfare Climate change The new “social contract” will not be a federal one.
Agricultural Policy in Transition:What’s Next? Questions?