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Federal Farm Policy - University of Minnesota 09-24-15

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Examination of the design and funding of federal agricultural policies, focusing on Farm Bill law within a context of the contemporary economic and political environment.

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Federal Farm Policy - University of Minnesota 09-24-15

  1. 1. Brad Jordahl Redlin September 24, 2015 Context and Policies
  2. 2. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  3. 3.  51 percent of total U.S. land is in agricultural use (61 percent of lower 48 states).  Urban land use is 2.7 percent.
  4. 4.  Farm numbers and sizes have changed, but not the acreage.
  5. 5.  Major commodity prices had been strong in recent farm bill periods…
  6. 6.  Crop prices do not have major effect on food prices
  7. 7.  Farm production % is up at 10.5 percent of food costs
  8. 8.  Title I Commodities  Title II Conservation  Title III Trade  Title IV Nutrition  Title V Credit  Title VI Rural Development  Title VII Research  Title VIII Forestry  Title IX Energy  Title X Horticulture  Title XI Crop Insurance  Title XII Miscellaneous  Farm Bill reauthorized every 5 years--or will revert to 1949 law.
  9. 9.  There are 3 means for delivering $ to agriculture via Farm Bill.  Commodity Subsidies, Conservation Programs, Crop Insurance.
  10. 10. USDA Nutrition Assistance ►Farm Bill: SNAP (food stamps). ►Non-Farm Bill: National School Lunch Program; Women, Infants and Children (WIC); Child and Adult Care Food Program; School Breakfast Program.
  11. 11. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  12. 12. CCP CYs 2010-12 Wheat $4.17/bu Corn $2.63/bu Grain sorghum $2.63/bu Barley $2.63/bu Oats $1.79/bu Upland cotton $0.7125/lb Long-grain rice $10.50/cwt Medium-grain rice $10.50/cwt Peanuts $495/ton Soybeans $6.00/bu Other oilseeds $12.68/cwt Loan Rate CYs 2010-12 Wheat $2.94/bu Corn $1.95/bu Grain sorghum $1.95/bu Barley $1.95/bu Oats $1.39/bu Long-grain rice $6.50/cwt Medium- grain rice $6.50/cwt Soybeans $5.00/bu Other oilseeds $10.09/cwt Upland cotton $0.52/lb ELS cotton $0.7977/lb Peanuts $355/ton  Commodity production supports paid on floor & target prices… and at a standard rate de-coupled from production. Direct Payment rate Wheat $0.52/bu Corn $0.28/bu Grain sorghum $0.35/bu Barley $0.24/bu Oats $0.024/bu Upland cotton $0.0667/lb Long-grain rice $2.35/cwt Soybeans $0.44/bu
  13. 13.  Commodity program payments made on “base acres.”  historical planted acreage registered for each farm.  may plant any* crop; payments based on “base”… Soybeans 35 acres Corn 50 acres Wheat 15 acres …and historical yield.  2014 Farm Act permits one-time option to update base (no increase in acres) and yield (2009 - 2012).  base stays with land. XYZ Farm 100 acres
  14. 14. Price Loss Coverage (PLC) • 85% base • SCO Wheat $5.50 per bushel Corn $3.70 per bushel Grain sorghum $3.95 per bushel Barley $4.95 per bushel Oats $2.40 per bushel Long-grain rice $14.00 per hundredweight Medium-grain rice $14.00 per hundredweight Soybeans $8.40 per bushel Other oilseeds $20.15 per hundredweight Loan Rate Wheat $2.94/bu Corn $1.95/bu Grain sorghum $1.95/bu Barley $1.95/bu Oats $1.39/bu Long-grain rice $6.50/cwt Medium- grain rice $6.50/cwt Soybeans $5.00/bu Other oilseeds $10.09/cwt Upland cotton $0.42/lb to $0.52/lb ELS cotton $0.7977/lb Peanuts $355/ton  2014 law maintains MAL; PLC alternative to CCP; and ARC “shallow loss.” (choose one time between PLC and ARC) Agricultural Risk Coverage (ARC) Pymts no greater than 10 percent of benchmark revenue ARC-county (85% base) avg county yield times national farm price drops below 86% of county benchmark revenue (5-year Olympic avg county yield times > 5-year Olympic avg national or reference price each year) ARC-individual (65% base) difference between 86% individual farm guarantee (the 5-year Olympic avg individual yield times > 5-year Olympic avg of national or reference price each year) and actual individual farm revenue summed across all commodities (sum all covered commodities avg revenue weighted by plantings) NOTE: CBO 2015 projection: ARC and PLC will average $4.4 billion, compared with CBO’s 2014 projection of $2.94 billion
  15. 15.  ARC explained …maybe. $4.50 x 180 = $810 x 0.86 = $696.60/acre $3.20 x 180 = $576/acre $696.60 - $576 = $120.60 x 50 acres = $6,030 x 0.85 = $5,125.50 or $102.51/acre ($810 x 0.10 = $81/acre) $81 x 50 = $4,050 ARC payment
  16. 16. Price Loss Coverage and Agriculture Risk Coverage - planting provisions -  Previous policy (multiple farm bills) lost acre-to-acre DP and penalized market value of vegetables.  PLC and ARC enrollment permits fruit, vegetables, and wild rice on up to 15% of registered farm base acres. non-base acres base acres no penalty <15% base acres: no penalty >15% base acres: payment acres reduction acre-for- acre exceding15% (NOTE: 35% individual ARC)
  17. 17.  Associated programs offered in 2015. Supplemental Coverage Option (SCO) • eligible if enroll in PLC and purchase federal Crop Insurance • provides coverage based on county average yield or revenue • subsidies pay 65 percent of premiums • pays from 86% down to level of federal crop Insurance coverage purchased • not subject to payment limitations or adjusted gross income (AGI) eligibility limits.* Stacked Income Protection Plan (STAX) • county/area revenue insurance policies to cotton producers • in place of coverage for cotton under PLC and ARC • STAX policies can supplement federal crop insurance, or be stand-alone • pays from 90% down to level of insurance coverage, or maximum of 70% • subsidies pay 80 percent of premiums • not subject to payment limitations or adjusted gross income (AGI) eligibility limits.* * Payment limit $125,000 for PLC, ARC and MAL combined (double for spouse) AGI eligibility limit of $900,000 (3-year average)
  18. 18. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  19. 19.  Conservation Title contains a suite of programs.  Programs meet different goals and utilize different methods. Wetlands Reserve Program, Farmland Protection Program, and Grassland Reserve Program (easement) consolidated into: Agricultural Conservation Easement Program (ACEP) Agricultural Water Enhancement Program, Chesapeake Bay Watershed Program, Cooperative Conservation Partnership Initiative, Great Lakes Basin Program are consolidated into: Regional Conservation Partnership Program (RCPP) Wildlife Habitat Incentive Program is merged into: Environmental Quality Incentives Program (5% dedicated wildlife) Grassland Reserve Program (rental) will be through: Conservation Reserve Program (grassland up to 2 million acres)
  20. 20.  Working lands conservation is dominant.
  21. 21. Conservation Compliance Highly Erodible Land (HEL) Compliance, Sodbuster, Wetland Conservation (Swampbuster)  Public provides financial support via USDA payments.  Recipients protect soil and wetlands for the public.  Penalties are reduction or loss of farm program payments for draining existing wetlands or not maintaining soil protections. Ducks Unlimited photo NRCS photoNRCS photo
  22. 22.  Conservation CHIMPS.  Farm Bills set mandatory spending levels; appropriators nonetheless do otherwise.
  23. 23. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  24. 24.  Federal Crop Insurance is subsidized for producers and insurance companies.  National average is 62% of premium is paid by subsidy, often even higher.  Crop Insurance exempted from compliance in 1996 Farm Bill. Reinstated in 2014.
  25. 25.  Subsidized risk reduction, without compliance checks and balances, can incent unintended consequences:  Producers “left” the farm program to avoid compliance.  Producers may take risks with land or practices.
  26. 26.  Participation in Crop insurance is high across major commodities.  Premium subsidies, Revenue policies have been growing rapidly.
  27. 27.  Revenue insurance is dominant with high coverage levels.
  28. 28.  Fundamental crop insurance formula: ((Yield * Coverage) * price) * acres = Insured Revenue Yield – Actual Production History (APH) minimum 4 yrs, maximum 10 yrs Coverage – percentage of yield/APH insured like a deductible, select from sequence 50% - 85% Price – generally, higher of spring/harvest price average futures prices Feb or Oct Acres – acres planted to insured crop optional “units,” e.g. all acres of one crop in county
  29. 29. Approved Projected Price: $5.65 Approved Harvest Price: $4.39
  30. 30.  Crop Insurance dominant in Farm Bill policy and budget.  2014 again saw near/record production & yield for major crops.  Extended low-price cycle is challenge to revenue insurance.  Climate change is challenge to APH (provisions already enacted).
  31. 31.  Crop Insurance is lynch pin of Farm Bill for farmers.  2014 Farm Act asks complex questions of farmers.  And 2014 Farm Act continues to provide conservation options.
  32. 32. www.iwla.org/farmbill Brad Jordahl Redlin bjredlin@gmail.com 651.270.0564 www.sustainableagriculture.net Context and Policies www.ers.usda.gov/ www.fsa.usda.gov/FSA/

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