AAPPCCAA

New Directions for Agricultural New Directions for Agricultural PolicyPolicy

Daryll E. RayUniversity of Tennessee

Agricultural Policy Analysis Center

Farm Bureau Farm Policy ForumWashington D.C.

April 15, 2011

AAPPCCAA

Long-Term and Shorter-Long-Term and Shorter-Term ConsiderationsTerm Considerations

• Long-term: Past, present, and future configurations of U.S. agricultural production– Food/fuel to exports back to food/fuel?

• Shorter-term: Safety net rhetoric vs reality– Direct payments and revenue insurance

– Etc.

AAPPCCAA

Configurations of U.S. Configurations of U.S. AgricultureAgriculture

• At one time, configured to produce fuel as well as food/feed/fiber– Firewood– Oats, hay, pasture for “horsepower”– Part of a very diversified agriculture

• Crop rotations• Livestock on nearly every farm• Provided own weed/pest/plant nutrient measures• Even for years after gasoline replaced oats as a

horsepower fuel, farms continued diversified

AAPPCCAA

Configurations of U.S. Configurations of U.S. AgricultureAgriculture

• Export-driven production configuration last part of the 20th century– Crop exports exploded in the 1970s– U.S gobbled-up those 1970s exports – Production configuration moved to

• Specialized crop production (corn/soybeans)• Livestock on few farms (one specie if any)

– Exports fell and leveled off in 1980s• Revamped policies to “get back our rightful

share of exports”

AAPPCCAA

Configurations of U.S. Configurations of U.S. AgricultureAgriculture

• One vision for the future is a return to a fuel/food/feed/fiber configuration of US agricultural production that– Better utilizes agriculture’s resource base to

simultaneously• Produce an expanded share of the U.S.’s motor

fuel needs• While continuing to fully supply domestic and

export quantities of food/feed/fiber

– Improves soil quality and productivity

AAPPCCAA

Back to the Future?Back to the Future?• Only in the sense of general categories of

output– 21st century technologies– 21st century soil and environmental considerations

• Michigan State University researchers provide one visual comparison of– Today’s configuration of US agriculture– And an example of a future energy/food/feed/fiber

agriculture

AAPPCCAA

AAPPCCAA

AAPPCCAA

Assumes…Assumes…• Continued investments

– Ethanol delivery infrastructure– Flexible fuel vehicles– Fermentation/enzyme technologies– Commercial development of synergetic

animal feed/ethanol technologies that improve digestibility and availability of protein

• Additional acreages of cellulosic biomass crops, including perennials such as switchgrass or Miscanthus

AAPPCCAA

Some Net ImpactsSome Net Impacts• Improved soil quality/productivity

– Increases soil organic matter– Promotes diversity of organisms– Reduces erosion and water retention– Increases sequestered carbon– Additional crop diversity and revenue sources for crop

farmers

• Reduces need for imported oil– Improves balance of payments– Reduces need to defend interests in Middle East

AAPPCCAA

That’s nice but what That’s nice but what about the present??about the present??

• Well, it seems we have it all backwards– What is least important right now is receiving the most

attention• Agriculture does not need direct payments or insurance that

ensures extraordinary profits• Safety net? Safety net for what??

– While continuing needs are being ignored or marginalized

• Nutrition/conservation/energy independence• Protecting farmers when priced are low• Protecting availability/prices for users

AAPPCCAA

Safety Net for What?Safety Net for What?

• Direct payments…– Are paid even though prices are well north of

all costs– Are an embarrassment whether in rural cafes

or visiting our city cousins– And yet there are demands to continue them

in the next farm bill• Why? Well, because otherwise there would be

virtually no “baseline” money for farm programs (also some special circumstances for rice and cotton)

• Not because they make sense as a safety net (they don’t, of course—totally inadequate when prices collapse)

AAPPCCAA

Safety Net for What?Safety Net for What?

• Revenue insurance products…– Receiving considerable attention– Protect farmers “pure” profits when prices are

really high—could cost tens of billions to do so– When (not if) prices fall and remain below the

cost of production, revenue insurance products “guarantee” a percentage of those below-cost prices (these guaranteed prices could be well below variable costs)

– A safety net that plummets along with prices??

AAPPCCAA

Is a Safety Net Needed?Is a Safety Net Needed?

• Yes, even with the “future configuration of agricultural production”

– Agriculture would still need a safety net

• Low prices in agriculture do not self-correct in a timely fashion (low prices do no cause farmers to idle fields nor consumers to eat 5 meals per day)

• What if U.S. exports were unleashed with a WTO-like free-trade agreement?

AAPPCCAA

US and World exports of Barley, Corn, Oats, US and World exports of Barley, Corn, Oats, Milled Rice, and Wheat, 1980-2010Milled Rice, and Wheat, 1980-2010

Mill

ion

Met

ric

To

ns

World Exports of 5 Grains

US Exports of 5 Grains

AAPPCCAA

US and World Exports of Barley, Corn, Oats, US and World Exports of Barley, Corn, Oats, Milled Rice, and Wheat, 1980-2010 - PercentageMilled Rice, and Wheat, 1980-2010 - Percentage

Per

cen

t

US 5 Grains Exports as % of World

AAPPCCAA

US and World exports of 5 Grains and US and World exports of 5 Grains and Soybeans, 1980-2010Soybeans, 1980-2010

Mill

ion

Met

ric

To

ns

World Exports of 5 Grains and Soybeans

US Exports of 5 Grains and Soybeans

AAPPCCAA

US and World exports of 5 grains and soybeans, US and World exports of 5 grains and soybeans, 1980-2010 - Percentage1980-2010 - Percentage

Per

cen

t

US 5 Grains and Soybean Exports as % of World

AAPPCCAA

So the US Share of World Exports So the US Share of World Exports Has Dropped Precipitously Has Dropped Precipitously

Per

cen

t

US Soybean Exports as % of World Exports

AAPPCCAA

Policy for All SeasonsPolicy for All Seasons• A policy that

– Protects farmers during “hard times”– Not piles on during the “good times”

• A policy that– Helps ensure supply availability for domestic

and export markets (random policy and weather events will occur—plan for them)

• A policy that– Provides long-term sustained funding for

conservation/environmental/energy/rural development/research

AAPPCCAA

Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519

www.agpolicy.org

Thank YouThank You

AAPPCCAA

To receive an electronic version of our weekly ag policy column send an email to: dray@utk.edurequesting to be added to APAC’s Policy Pennings listserv

Weekly Policy ColumnWeekly Policy Column