The Food, Conservation and Energy Act of 2008 (The 2008 Farm Bill) Will Snell, University of...

The Food, Conservation and Energy Act of 2008The Food, Conservation and Energy Act of 2008(The 2008 Farm Bill)(The 2008 Farm Bill)

Will Snell, University of Kentucky

Agricultural Economics

Every farm bill debate is different ,… but this one was certainly been one of the most challenging given the economic,

political, and budget environment


Factors Affecting the Farm Bill DebateFactors Affecting the Farm Bill Debate

Current Status of the U.S. Agricultural EconomyCommodity PricesNet Farm IncomeExportsBalance Sheet

Sluggish Growth Escalating Energy/Food

Prices Credit Crisis Slumping Housing Market Volatile Stock Market Declining Dollar Cautious Consumers Recession???

Relatively High Prices Record Cash Receipts Record Net Farm Income Record Exports Strong Balance Sheet New Opportunities

Energy Pharmaceuticals Expanding Global Markets

U.S. General Economy U.S. Ag Economy

U.S. vs Ag EconomyU.S. vs Ag Economy


Prices Received by U.S. FarmersPrices Received by U.S. Farmers

8090

100110

120130140

150160

170180

2000 2001 2002 2003 2004 2005 2006 2007

Inde

x Va

lues

: 1

990

- 199

2 =

100

AllCropsLivestock

Source: NASS/USDA

Soaring export demand and of course expanded use for commodities (primarily energy) has led to historic high prices


U.S. Net Farm IncomeU.S. Net Farm Income

0102030405060708090

100

1980 1985 1990 1995 2000 2005

Billi

on D

olla

rs

Source: ERS/USDA

U.S Net Farm Income established an all time record high of $88.75 billionIn 2007 and is forecast to exceed $90 billion in 2008 – over 50% above the 10 yr avg.


80

90

100

110

120

130

140

Inde

x Va

lue

1997 = 100

U.S. Trade-Weighted U.S. Dollar Exchange RateU.S. Trade-Weighted U.S. Dollar Exchange Rate


U.S. Ag ExportsU.S. Ag Exports

0

20,000

40,000

60,000

80,000

100,000

120,000

1980 1985 1990 1995 2000 2005

Million Dollars

Source: ERS/USDA

A combination of tight foreign supplies, a declining dollar, and population/economic growth in Asia and Latin America has led an export boom for U.S. agriculture


U.S. Ag Trade BalanceU.S. Ag Trade Balance

0

5,000

10,000

15,000

20,000

25,000

30,000

1980 1985 1990 1995 2000 2005

Million Dollars

Source: ERS/USDA

A few years ago ag economists where discussing the potential of a trade deficit for the U.S. ag sector …. But while imports continue to grow, the growth has not been comparable to the growth in exports.


U.S. Farm Debt to Equity and U.S. Farm Debt to Equity and Debt to Asset RatiosDebt to Asset Ratios

0

5

10

15

20

25

30

1985 1988 1991 1994 1997 2000 2003 2006

Ratio Debt to Equity

Debt to Asset

Source: ERS/USDA

U.S. farmland prices have morethan doubled since 2000



Political and Economic Factors Political and Economic Factors Affecting the Farm Bill DebateAffecting the Farm Bill Debate

Current Status of the U.S. Agricultural EconomyCommodity PricesNet Farm IncomeExportsDebt Position

Budget Concerns

U.S. Budget Deficit/Surplus

-$500

-$400

-$300

-$200

-$100

$0

$100

$200

$300

1991 1993 1995 1997 1999 2001 2003 2005 2007

Billi

on D

olla

rs

Source: CBO

The budget baseline for the 2007 farm bill was reduced by more than 40% compared to what was spent on the 2002 farm bill



OutcomeOutcome

Reduction in traditional ag commodity support Calls for major reform in commodity programs failed

similar structure of the 2002 farm bill Greater support for food/nutrition programs,

conservation, specialty crops, and energy.


2008 Farm Bill2008 Farm Bill

The 2002 Farm Bill expired in September 2007 Following months/years of debate, several extensions, a

presidential veto, a Congressional override, an administrative glitch, the 2008 Farm Bill became law in June 2008

A side by side comparison of the 2008 and 2002 farm bills is available from USDA (www.ers.usda.gov/FarmBill/2008/)

The Budget PictureU.S. Farm Bill Spending by Category

2002 Farm Bill

Other – 15%Commodities – 23%

Nutrition – 62%

2008 Farm Bill

Conservation – 8%

Commodities – 11%

Nutrition – 68%

Other – 12%

Source: Brad Lubben, University of Nebraska



BackgroundBackground The titles for the 2008 Farm Bill included …

Forestry Energy Horticulture Livestock Crop Insurance Commodity Futures Taxes Miscellaneous

Commodities Conservation Trade Nutrition Credit Rural Development Research and

Extension


Safety Net ProgramsSafety Net Programs

Maintains the current safety net programs for farm bill crops consisting of:

direct payments countercyclical payments marketing loan benefits

with some adjustments in loan rates and target prices beginning in 2010.

Loan Rates

Commodity2008 Farm Bill

2007 Rate 2008 2009 2010-2012

Corn (bu) $1.95 $1.95 $1.95 $1.95

Sorghum (bu) $1.95 $1.95 $1.95 $1.95

Barley (bu) $1.85 $1.85 $1.85 $1.95

Oats (bu) $1.33 $1.33 $1.33 $1.39

Wheat (bu) $2.75 $2.75 $2.75 $2.94

Soybeans (bu) $5.00 $5.00 $5.00 $5.00


Target Prices

Commodity 2008 Farm Bill

2007 Rate 2008 2009 2010-2012

Corn (bu) $2.63 $2.63 $2.63 $2.63

Sorghum (bu) $2.57 $2.57 $2.57 $2.63

Barley (bu) $2.24 $2.24 $2.24 $2.63

Oats (bu) $1.44 $1.44 $1.44 $1.79

Wheat (bu) $3.92 $3.92 $3.92 $4.17

Soybeans (bu)

$5.80 $5.80 $5.80 $6.00


Direct Payments

Commodity2002 Farm Bill 2008 Farm Bill

2002-2007 2008-2012Corn (bu) $0.28 $0.28

Sorghum (bu) $0.35 $0.35

Barley (bu) $0.24 $0.24

Oats (bu) $0.024 $0.024

Wheat (bu) $0.52 $0.52

Soybeans (bu) $0.44 $0.44

No changes in Direct Payment Rates

But payment acres are reduced from 85% of base to 83.3% for 2009 - 2011



Optional CCP (ACRE)Optional CCP (ACRE)

Provides program crop producers with an optional one-time enrollment of a state-level revenue-based countercyclical-program called the Average Crop Revenue Election (ACRE) beginning in crop year 2009

Producers agree to a 20% reduction in direct payments and a 30% reduction in loan rates.

If selected, producer remains in the ACRE program for 2009-2012 for all program crops grown on the farm


ACRE DetailsACRE Details A producer who enrolls in the ACRE program will receive

a payment if:

The actual state revenue for an eligible program commodity is less than 90% of a state revenue guarantee AND …

The producer suffers a revenue loss

Payment will be based on 83.3% of the eligible base acres for 2009-2011 crops and 85% of base acres for 2012 with adjustments for farm yields relative to state yields


ACRE Details: Actual State Revenue and the ACRE Details: Actual State Revenue and the State Revenue GuaranteeState Revenue Guarantee

Actual state revenue: the product of the actual state average yield and the national average market price

State revenue guarantee: the product of the previous 5 year’s state average yield, excluding the high and low yields and the previous 2 year’s national average price


ACRE Details: Actual Farm Revenue vs the ACRE Details: Actual Farm Revenue vs the Farm Revenue GuaranteeFarm Revenue Guarantee

Actual farm revenue: the product of the actual farm yield and the national average market price

Farm revenue guarantee: the product of the farm’s 5-year average yield, excluding the high and low yield and the 2-year national average price plus the crop insurance premium per acre


Other ACRE DetailsOther ACRE Details

ACRE state revenue guarantee for a given crop for 2010-2012 cannot change by more than 10% from the previous crop year

Per acre ACRE payments cannot be greater than 25% of the state program guarantee for the crop.

ACRE payments are calculated on planted, not base or harvested acres, and

Total number of eligible planted acres for all crops on a given farm cannot exceed the farm’s total base acres.

Average Crop Revenue Average Crop Revenue ElectionElection

State ACRE Guarantee = 90%* 5-Year Olympic State Avg. Yield *2-year Natl. Average Mkt. Yr. Price Restricted to < 10% change/year

>

AND

>

THENFarm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres *

[ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] *

MIN[ (State ACRE Guarantee – Actual State Revenue) OR State ACRE Guarantee * 25%]

Actual State Revenue =Actual State Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR70% Loan Rate]

Actual Farm Revenue =Actual Farm’s Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR70% Loan Rate]

Farm ACRE Benchmark =Farm's 5-Year Olympic Avg. Yield *2-year Natl. Average Mkt. Yr. Price + Ins Premium

Note: All Yields are Planted Acre Yields Source: Joe Outlaw, Texas A@M


ACRE CalculatorACRE Calculator

www.card.iastate.edu/ag_risk_tools/acre/

Payment LimitationsPayment Limitations

Denies direct payments to any producer whose average (previous three years) adjusted gross farm income exceeds $750,000 annually

Eliminates all farm program payments to any individual with an average adjusted gross non-farm income exceeding $500,000.

Individual program caps Direct Payments (DP)- $40,000, (ACRE, $40K less 20% drop in DP) Countercyclical Payments (CCP) -- $65,000 (ACRE, $65K plus 20% drop in DP Marketing Loan Program – No cap

Eliminates the three entity rule (but spouses eligible for separate payment) and requires direct attribution of payments to individuals, not partnerships or corporations.

Eliminates payments for any farm with less than 10 base acres, unless limited resource or socially disadvantaged


Disaster AssistanceDisaster Assistance

Establishes a permanent whole-farm revenue disaster assistance program called the Supplemental Revenue Assurance Program (SURE)

Additional disaster programs for: livestock forageorchard and nursery tree producers.


Dairy ProgramDairy Program

Modifies the dairy price support program by directly supporting the price of dairy products

Increases the payment rate on the Milk Income Loss Contract (MILC) program (whose payment would take into consideration the cost of feed),

Extends the Dairy Export Incentives Program (DEIP).


Conservation ProgramsConservation Programs

Increases conservation program spending by nearly $8 billion

Authorizes 32 million acres (vs current 39 million acres) to be enrolled in the Conservation Reserve Program (CRP) from 2010 -2012

Extends most other conservation programs with expanded funding of $3.4 billion for the Environmental Quality Incentives Program (EQIP)

Provides over $1 billion in new funding for the revamped Conservation Security Program (CSP) to enroll nearly 13 million acres annually


EnergyEnergy

Increases funding for biofuels research and infrastructure, with increased emphasis on cellulosic and on-farm adoption of improved energy efficiency systems.

Reduces the blenders tax credit for corn ethanol from 51 cents to 45 cents per gallon

Creates a $1.01 per gallon tax credit for cellulosic biofuels

Extends the duty on ethanol imported for fuel use.


Livestock ProvisionsLivestock Provisions

Implements mandatory country of origin (COOL) labeling for meats and produce

Increases market access for small, state inspected meat processing plants

Provides better protection for livestock producers entering into contracts cancellation allowances, clear disclosure of large capital investments requiredoutlines producer arbitration options,allows producers to petition for local court jurisdiction if

litigation arises over contract disputes.


Rural DevelopmentRural Development

Provides funding for a wide variety of economic development programs such as:water, energy, and health programs,loan guarantees to support value-added ag

enterprises, and broadband internet expansion to enhance

rural economies.


HorticultureHorticulture

Reauthorizes funding for states to receive block grants and other programs to support marketing, research, education, and pest/disease management for specialty crops.

Additional grants available to support local farmers markets, other direct marketing ventures, and agritourism.

Increased emphasis and funding for enhanced market information, certification, and regulation for organic food production.


Other IssuesOther Issues

Improves programs for extending credit to beginning farmers and increases farm ownership and operating loan limits.

Revises tax laws to allow race horses to be depreciated over three years.

Prohibits closure or relocation of FSA offices for two years


For more information …For more information …

www.ers.usda.gov/FarmBill/2008/

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