1996 Farm Bill1996 Farm BillTitles

I Agricultural Market Transition ActSubtitle A Title, Purpose, and Definitions

B Production Flexibility Contracts C Nonrecourse Marketing Assistance Loans

and Loan Deficiency Payments D Other Commodities

- Dairy, Peanuts, Sugar E Administration F Permanent Price Support Authority G Commission on 21st Century Prod. Ag. H Miscellaneous Commodity Provisions

II Agricultural TradeIII ConservationIV Nutrition AssistanceV Agricultural PromotionVI CreditVII Rural DevelopmentVIII Research, Extension, and EducationIX Miscellaneous Major shift from coupled

(deficiency payments) to decoupled support (AMTA/PFC payments)

Decoupled payments were referred to as AMTA and PFC payments

• Federal Agriculture Improvement and Reform Act of 1996

• Generally referred to as “Freedom to Farm”• As with other farm bills, 1996 farm bill was an

amendment to permanent legislation (1949 farm bill)

• 7 year farm bill beginning in 1996 and ending in 2002

• Major change in commodity programs relative to previous 22 years (starting with 1973 farm bill)–

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OverviewOverview

• Eliminated Target Prices–

• Eliminated• Eliminated

Commodity ProvisionsCommodity Provisions

• Initiated decoupled payments–

• Provided full planting flexibility on previous crop acreage bases– –

Commodity ProvisionsCommodity Provisions

• Continued nonrecourse marketing assistance loans and loan deficiency payments –

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Commodity ProvisionsCommodity Provisions

Contract Payments by Fiscal Contract Payments by Fiscal YearYear

(million $)1996 1997 1998 1999 2000 2001 2002 Total

5,570 5,385 5,800 5,603 5,130 4,130 4,008 35,626

Allocation of Payments by Crop

Crop Percent Corn 46.22 Grain sorghum 5.11 Barley 2.16 Oats 0.15 Wheat 26.26 Upland cotton 11.63 Rice 8.47 TOTAL 100.00

• Fixed payments$40,000

• Marketing loan gainsor Loan Deficiency Payments$75,000– Can use marketing certificates

• Continues 3-entity rule

Payment LimitationsPayment Limitations

1996 Farm Bill 1996 Farm Bill (Debated in (Debated in ’95)’95)

High prices in ’93, ’94 and part of ‘95

World recession

2 weeks after signed ’96 Bill prices started falling

S

D

TPP

LR

Direct PaymentDirect Payment

Direct Payment

AMTA: Ag Market Transition Act

AMTA = Payment Rate * Base * Pay Yield * .85

1995 Outlook Reality 1996

Peq

qseq

S

D1

Loan rate Peq

qs

S

D reduced by world recession

Marketing Loan rate

Loan rate was to be a safety net

1996 Farm Bill Removed 1996 Farm Bill Removed ARPARP

No more ARP, kept the CRP, released land back to production

Full capacity, freedom to plant “any” crop

P1

P2

Pexp

Q exp

TD

Q

S with ARP

S with no ARP

q2

ARP => 10% idling of base acres is required to qualify for TP & loan benefits.

1996 Farm Bill Removed 1996 Farm Bill Removed TPTP

Target Price: Congress set TP & provided for a Deficiency Pmt.

D

P

Peq1

qs

TP

S after ARP

A

Q/yr

No production incentive from the target priceProduction declines, price rises

Peq2

Practice QuizPractice Quiz

1. List and describe the purpose of three policy tools used in the 1990 farm bill.

2. Evaluate this statement. “The U.S. went from a nonrecourse loan to a marketing loan program to save money.”