"The Imperfect Evolution of U.S. Farm Policy:From Supply Controls and Government Stocks to Countercyclical Payments to Farmers" - David Orden SIG 2015 Workshop "Integrating Multi-level Governance into the Post-2015 Development Agenda: Opportunities, Trade-offs, and Implications", Nov 9-10, 2015

1. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
The Imperfect Evolution of U.S. Farm Policy:
From Supply Controls and Government Stocks to
Countercyclical Payments to Farmers
美国农业政策的演变：
从供应控制和政府库存到
反周期补贴
David Orden
Virginia Tech and IFPRI
Presented at:
IFPRI SIG 2015 Workshop
November 9, 2015
2015 China-U.S. Grain & Oilseed Forum
Beijing, October 27, 2015

2. Two Objectives of the Presentation
 To describe the policy instruments used in the United States to
move from price supports, government-held stocks and annual
land idling to various payments to farmers that distort markets
less
• Historical Evolution
• Summarize current U.S. policies in under The Agricultural
Act of 2014 (the 2014 Farm Bill), signed into law February 7
 To comment on the domestic political economy and
international governance (WTO) implications of U.S. policy
developments

3. 1960s and 1980s Intervention Policies
 U.S. farm policy has its origins in the Great Depression and
infamous “Dust Bowl” of the 1930s
 After World War II, U.S. policy relied on marketing quotas,
government-held stocks (CCC stocks), idling of land, and
export subsidies to keep market prices above legislated price
supports (“loan rates”)
 These policies were complex to manage and distorted output
markets and farmland use

4. 1960s and 1980s Intervention Policies
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
14
16
MillionAcres
BillionDollars
U.S.CCCStocksHeldandIdledAcreage 1954-1994
CCCStocksHeld SetAside LongTerm
___IdledAcreage______

5. From Policy Crises to Greater Reliance on
Payments
 Policy Instruments for Greater Market Orientation
• Buyouts (tobacco)
• Fixed Direct Payments (program crops 1996-2013)
• Within-year Crop Insurance (recent importance)
• Multi-year Countercyclical Support (evolution of traditional
programs)
• Moving-Average Revenue Guarantees (new since 2008)
 Context for the shift to Payments
• Conservation Programs (CRP)
• Demand Augmentation (Biofuels)

6. Increased Importance of Crop Insurance
0
2
4
6
8
10
12
14
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
BillionDollars
U.S. Net Insurance Payments to Farms, 1996-2014

7. From Policy Crises to Greater Reliance on
Payments
 Policy Instruments for Greater Market Orientation
• Buyouts (tobacco)
• Fixed Direct Payments (program crops 1996-2013)
• Within-year Crop Insurance (recent importance)
• Multi-year Countercyclical Support (evolution of traditional
programs)
• Moving-Average Revenue Guarantees (new since 2008)

8. Two Forms of Price Countercyclical Support
 Price-Based Deficiency Payments on Actual Output (loan rate
program)
 Price-Based Deficiency Payments on Fixed Acreage Base and
Historical Yields, even if the specific crop is not grown (“target
(reference) price” programs); target/reference price above loan
rate
• 2014 Price Loss Coverage (PLC)
 Reliance on payments put to a test when world prices fell in
1998-2003
• U.S. increased support payments but did not resort back to
annual land idling or government-held stocks

9. New Moving-Average Revenue Guarantees
 2014 Agriculture Risk Coverage (ARC)
• Benchmark revenue calculated from 5-year Olympic
averages of national crop year prices and county or farm
crop yields
• Applies to a fixed acreage base, even if the specific crop is
not grown
• Revenue benchmark moves over time: This is a key feature
of ARC
• Covers revenue decline only from 14% to 24% of
benchmark
• By April 2015, farmers chose either PLC or ARC for 2014-
2018 crop years

10. Initial Conclusions
 U.S. farm policy has moved toward greater reliance on
payments to farmers but has not ended farm support
 The movement to payments has reduced direct interventions in
output markets and farmland use
 The shift to payments requires availability of government fiscal
resources
 Future levels of U.S. support are uncertain, but countercyclical
support was reinforced in 2014 Farm Bill

11. Congressional Votes on Four Farm Bills
Act Short Title
(date enacted)
President
Party Control
Farm Bill Vote
“Yea” Votes by Party
House Senate
Federal Agriculture
Improvement and Reform
(4/4/1996)
Clinton
Republican
318 - 89
211R/106D/1I
Republican
74 - 26
52R/22D
Farm Security and Rural
Investment
(5/13/2002)
Bush
Republican
280 - 141
141R/137D/2I
Democrat
64 - 35
43D/20R/1I
Food, Conservation, and Energy
(5/22/2008)
Bush
Democrat
316 - 108
216D/100R
(veto override)
Democrat
82 - 13
45D/35R/2I
(veto override)
Agricultural Act of 2014
(2/7/2014)
Obama
Republican
251 - 166
162R/89D
Democrat
68 - 32
44D/22R/2I

12. International Governance
 There is currently little WTO discipline on the 2014 Farm Bill
• U.S. unlikely to breach its current WTO domestic support
limit
 Significant change in upland cotton program can be attributed
in part to longstanding Brazil-U.S. Cotton WTO Dispute
 termination of this WTO case is an institutional success of
2014 Farm Bill
 Enactment of 2014 farm bill makes it difficult for the U.S. to
contribute to attaining tighter support limits on a global level
in current and future WTO negotiations

13. Two Recent References
Orden, D. and C. Zulauf. 2015. “Political Economy of the 2014
Farm Bill.” American Journal of Agricultural Economics 97:5:
1299-1311 (published open access, doi: 10.1093/ajae/aav028)
http://ajae.oxfordjournals.org/content/97/5/1298.full.pdf+html
Zulauf, C. and D. Orden. “2014 Farm Bill and 2015 WTO Doha
Round Negotiations.” farmdoc daily (5): 147, University of Illinois,
August 13, 2015 (third in three-part series)
http://farmdocdaily.illinois.edu/2015/08/2014-farm-bill-and-2015-
wto-doha-round.html

14. Appendix Slides

15. Farm Programs Costs
0
10
20
30
40
50
60
70
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Percentage
U.S. Payment to Farmers as Percent of Net Farm Income,
1954-2014

16. Legislated and Market Prices
Crop Loan Rate
PLC
Reference
Price
Olympic Average U.S.
Crop Year Price
Crop Year
Market Price
2014 2014 2009-2013 2014
Barley $1.95 $4.95 $5.45 $5.30
Corn $1.95 $3.70 $5.28 $3.70
Oats $1.39 $2.40 $3.25 $3.21
Peanuts $0.1775 $0.2675 $0.2583 $0.22
Long-grain Rice $6.50 $14.00 $14.17 $11.90
Medium/short-grain Rice $6.50 $14.00 $17.87 $17.90
Sorghum $1.95 $3.95 $5.09 $4.03
Soybeans $5.00 $8.40 $12.27 $10.10
Wheat $2.94 $5.50 $6.60 $6.00
Upland Cotton $0.45-$0.52 not eligible $0.773 $0.605
Note: Prices are $ per bushel, except rice $ per 100 pounds and peanuts $ per pound

17. Estimated ARC and PLC Costs
2014 Crop Year
Crop
Base Acres
ARC PLC Total
Million Billion Dollars
Barley 5.2 $0.01 $0 $0.01
Corn 96.8 $4.1 $0 $4.1
Oats 2.1 $0.01 $0 $0.01
Peanuts 2.0 $0 $0.3 $0.3
Long-grain Rice 4.0 $0 $0.4 $0.4
Medium/short-grain Rice 0.2 $0 $0 $0
Sorghum 9.0 $0.04 $0 $0.04
Soybeans 54.5 $0.4 $0 $0.4
Wheat 63.7 $0.4 $0 $0.4
Upland Cotton NA not eligible $0
Other Crops 22.4 $0.04 $0 $0.04
TOTAL 259.9 $5.0 0.7 $5.7
Source: Schnitkey, G. and C. Zulauf. “Estimated National 2014 ARC-CO and PLC Payments.” farmdoc daily (5): 143,
University of Illinois, August 6, 2015.