AgJournal | March 4, 2002
The odds are one in three that the U.S. Secretary of Agriculture would have to take action to reduce farm program spending during the first year of either the Senate or House farm bills, according to the Food and Agricultural Policy Research Institute (FAPRI). The probability of this type of action, which would be dictated by World Trade Organization (WTO) requirements, would decrease by the end of the next decade. FAPRI, a think tank of agricultural economists at land-grant universities, presented a comparison of both farm bills, now headed to conference committee in the U.S. Congress, to the Senate and House agricultural committee staffs March 4, 2002. The Senate bill would increase spending by $63.5 billion over projected spending under the current farm bill for the next 10 years, compared to $59.8 billion in the House version. FAPRI numbers on net spending vary from previous estimates from the Congressional Budget Office.
The CBO projected increases of $61.4 billion for the House bill and $59.9 billion for the Senate bill. The FAPRI analysis considers only the commodity and conservation titles of both farm bills. The economists report the Senate bill results in higher government costs in the first two years, 2002 and 2003, but the House bill spends more than the Senate in seven of the next eight years. In the end, both bills have similar impact on average annual net farm income over the next 10 years. The House bill increases the annual income by an average of $4.4 billion over the baseline, while the Senate bill increases it $4.1 billion annually. Both versions increase acres planted to major crops, with the Senate bill increasing plantings slightly more. The biggest increases come in wheat and feed grains such as corn and grain sorghum. New payment limits in the Senate bill aimed at large farms would have bigger effects on cotton and rice producers than on producers of other crops. The result could be a shift out of those crops into oilseeds or feed grains, where that is an option. Overall, both bills support basic farm commodities in similar ways, including fixed payments and marketing loans. Both also add = countercyclical payments for times of low prices. Both bills allow updating farm acreage bases, used in payment calculations. The Senate version also allows updating yields. Another difference is that the House provides payments on only 85 percent of the producer's base. The Senate bill pays on 100 percent of = the base acres.
"Between the shift toward paying on 100 percent versus 85 percent of the base area and the move to update yields, the Senate package is clearly designed to pay on more units of production than does the House bill," says Gary Adams, director of crop program analysis at FAPRI. In countercyclical payments the Senate bill covers more units of production, but the coverage provides protection at price levels noticeably below the House target prices on several crops. "This is an important difference between the House and Senate provisions," Adams says. Also, under rules for calculating countercyclical paymens in the Senate bill, there are no payments in the first two years of the farm bill. The Senate version relies more heavily on market loans, which require planting and harvesting a crop. This returns government support to a more coupled system than the current farm bill.
Both the House and Senate bills increase government spending significantly on conservation. According to a CBO report, the House bill increases conservation outlays by $12.6 billion over 10 years compared to an extension of the current farm bill. The corresponding increase in the Senate bill is $20 billion. Both bills increase acreage in the Conservation Reserve and Wetland Reserve programs as well as creating a new Grasslands Reserve. In addition, the Senate creates a Conservation Security Program that pays farmers for environmental practices on working lands, a program without a spending cap. The CBO estimates that could cost almost $1 billion by 2011. In aggregate, the FAPRI analysis shows Commodity Credit Corporation outlays to total $170.2 billion under the House bill and $173.95 billion under the Senate version. "While this is a significant amount of money, it does reflect a difference of only 2 percent between the two bills," says Pat Westhoff, director of international programs at FAPRI at the University of Missouri. "Given all of the assumptions and approximations, the two options are nearly identical. The FAPRI analysis concludes: "Before getting into a discussion on the differences in farm income estimates, one should pay careful attention to the similarities.
Over the 10-year period, the difference in net farm income is an average of only $290 million out of $47.3 billion." That difference is probably within the margin of error, it added. A major difference between the bills is in conservation. The Senate spends $6.6 billion more on conservation than does the House. "Those payments will go to improving the farm income picture, but in a much different fashion than commodity program spending," according to the report. "Increased commodity spending goes directly into added farm income. Conservation spending, must be earned by changing practices, investing in new technology, or forgoing revenue in order to improve the environment."
AgJournal reports on how weather, government policy and cultural dynamics around the world affect agricultural trade.
Copyright c 2002 CountryRoads NetworkAgJournal:
