Status of 2002 U.S. Farm Bill Discussions

by Brian Doidge, Market Analyst, Ridgetown College, University of Guelph

The existing U.S. Farm Bill, the 1996 Freedom To Farm legislation, covers crops planted in the years 1996 - 2002. As a result, crops to be planted this spring are already covered by the program parameters of the existing legislation. However, Congress has been debating the next Farm Bill, the Food Security Act of 2001, since early 2001. The House of Representatives approved a 10-year, US$169 billion version of the bill last October. The Senate approved a 5-year, US$174 billion (over 10 years) version February 13. The two versions must now be reconciled into one Bill by a Congressional conference committee comprised of 14 from the House (8 Republicans, 6 Democrats) and 7 from the Senate (4 Democrats, 3 Republicans). When reconciled into one bill and adopted by Congress, the Bill is forwarded to President Bush for signature into law. Rather than reduce funding to agriculture (party line of the Harris government), or even hold the line (mantra of the Chretien government), both versions essentially enshrine the enhanced level of government direct payments to U.S. farmers (including emergency payments) of the last three years of ± US$22 billion annually.

The following table compares House and Senate provisions for the new Farm Bill with parameters from the existing 1996 Freedom To Farm legislation. A more detailed evaluation will be made when a Bill is passed.
	Freedom To Farm	HOUSE			SENATE
Total Cost	$90	$169			$174
US$ Billions	1991-2001	2002-2011			2002-2011

Period Covered	7 years 1996 - 2002	10 years 2002-2011			5 years 2001-2006

PFC/AMTA	US$/bushel		2002-03	2004/05	2006
Corn	$0.260	$0.300	$0.270	$0.135	$0.068
Barley	$0.190	$0.250	$0.200	$0.100	$0.050
Oats	$0.020	$0.025	$0.050	$0.025	$0.013
Wheat	$0.460	$0.530	$0.450	$0.225	$0.113
Soybeans	n/a	$0.420	$0.550	$0.275	$0.138
Oilseeds	n/a	$0.0074/lb	$0.010/lb	$0.005/lb	$0.0025/lb

LOAN RATE	US$/bushel
Corn	$1.89	$1.89	$2.08
Barley	$1.65	$1.65	$2.00
Oats	$1.21	$1.21	$1.50
Wheat	$2.58	$2.58	$3.00
Soybeans	$5.26	$4.92	$5.20
Oilseeds	$0.105/lb	$0.087/lb	$0.095/lb

TARGET PRICE	(1995) US$/bushel	Target Price	Safety Net Price
Corn	$2.75	$2.78	$2.35
Barley	$2.36	$2.39	$2.20
Oats	$1.45	$1.47	$1.55
Wheat	$4.00	$4.04	$3.45
Soybeans	n/a	$5.86	$5.75
Oilseeds	n/a	$0.1036/lb	n/a

As Kevin Brosch pointed out at the OCPA Annual Meeting, President Bush’s signature is virtually assured for whatever emerges from Congress because of some prior “back-room political horse trading”. Congressional support for Presidential “fast track” trade negotiating authority at WTO talks was gained (primarily because of support from southern and mid-western agricultural and agri-business interests) in return for the President’s agreement to sign a 2002 Farm Bill. This will happen despite the fact that the Administration likes neither the House nor Senate version because both increase spending on agriculture by about 88% for the decade 2002-2011 versus the period 1991-2001 (US$90 billion).

The conference committee is now attempting to reconcile the differences between the two versions. If a reconciled Bill could be hammered out before March 22 when Congress rises for the Easter recess, there is a chance it could be applied to the crops to be planted this spring. This possibility is remote, however, especially now that it appears that the cost of the Senate version of the new bill was underestimated by the Congressional Budget Office by US$6 billion.

There are several consequences resulting from this error:

• The Senate version now appears to be above the Congressional budgetary limit on new spending, which means cuts must be found in other programs to offset the overage, or the Senate version must be pared down.

• The Senate version would also push the U.S. above its WTO cap on allowable agricultural support spending ( ±US$19.1 billion Aggregate Measure of Support cap for 2002/03), making a mockery of U.S. demands for reductions in spending on the part of other jurisdictions, such as the European Union.

• It also means that this version likely would not have been passed by the Senate in the first place had it been properly costed. It was a close vote and other, less costly, alternatives were discarded in favour of the present version.

• More significantly, the job of reconciling the two versions, already $5 billion apart, is now another $6 billion harder. The odds of a reconciled Bill by March 22 that could apply to the 2002 crops are extremely poor.

• That means that the prevailing 1996 Farm Bill provisions will remain in force. This essentially guarantees, as Senator Pat Roberts, R-Kansas, said recently: “there will be a doubling of the scheduled AMTA payment, similar to last year’s emergency aid.” That will be the 6th emergency farm assistance payment made by Congress since October 1998. In other words, in 3 1/2 years, U.S. agriculture has had 6 financial crises requiring emergency bailouts!

As if to prepare the political ground for this proposed new emergency payment, on February 26, the Economic Research Service of the USDA released its Agricultural Income and Finance Summary (ERS-AIS-78) which said: “In the absence of additional emergency legislation, 21% of all commercial and intermediate-sized farm businesses are forecast to have debt repayment problems in 2002, up from 18% in 2001.” If there is a doubling of the AMTA payments, support per acre in 2001/02 would approach the same level as in 2000/01 or about $Cdn103.00/acre on the 500-acre Ontario grain and oilseed farm model used to compare income support under U.S., Quebec and Ontario safety net programs.