by Gary Digiuseppi
Special to Arkansas Agriculture

After two years of testimony, debate and seemingly endless acrimony among the Bush administration and Congress, the House and the Senate, even between Senate committees, we finally had a new farm bill.

Then, we didn’t again.

The Case of the Missing Trade Title provided a strange ending to the saga of the Food, Conservation & Energy Act of 2008 — you’ll notice, the word “farm” doesn’t appear anywhere in the title of the farm bill.

Stanley Reed of Marianna (Lee County), Arkansas Farm Bureau president, thinks that’s appropriate.

“Only 16 percent of the expenditures actually go to production agriculture,” he points out. “It’s been mis-categorized time and time again as being an exorbitant subsidy for corporate farms. Half the money has been allocated to production agriculture that was in the previous farm bill.

“If any increase is to come in the farm bill, it’s in the nutrition and conservation areas. It’s been money taken away from the commodity and insurance titles.”

And when the bill was finally passed and sent to the White House — where the president vetoed it, the first farm bill to meet that fate in over a half-century — it lacked something else: the trade title.

It had been inadvertently left out of the printed document forwarded to the president. The House and Senate over-rode his veto; then had to vote all over again to repass the now-intact bill.

The president’s warnings, delivered first through Mike Johanns, former USDA secretary, and then through his successor Ed Schaffer, were clear. From the moment debate began in early 2007, the administration presented a lengthy series of demands — even to the point of submitting an alternative bill to Congress — and insisted the president could not support a farm bill that failed to meet those standards.

In the end, reforms adopted by the House-Senate Conference Committee were not enough to change the president’s mind.

Some of those reforms were in payment limits and means testing. Southern farmers had long used the three-entity rule to maximize program eligibility, but it was eliminated. Payments have to be directly attributed to an individual, but spouses are automatically eligible, doubling the support for a typical family farm.

Direct payments remain capped at $40,000 a person; counter-cyclical payments at $65,000. However, direct payments will be reduced by 2 percent from 2009 to 2011.

Market certificates are also gone, but marketing loan redemptions are unlimited. Jeffery Hall, associate director of national affairs for Arkansas Farm Bureau, says “to meet these requirements, our producers may have to reorganize their farming operations. With the target prices and loan rates set at such a low level and the input costs so high, producers really don’t have the safety net they need.”

The reform that got the most attention — in fact, the argument between the White House and the House and Senate Ag Committees seemed to revolve around it — was means testing.

The 2002 Farm Bill excluded from commodity programs individuals whose tax forms showed adjusted gross income (AGI) above $2.5 million. The White House demanded a $200,000 cutoff.

The conference gradually whittled it down and, as Hall says, came up with three solutions.

“They have divided those into non-farm and on-farm. The non-farm income would be limited by $500,000 or greater, and on-farm income would be $750,000 or greater,”only for direct payments,” Hall said. Those producers remain eligible for counter-cyclical payments and marketing loan redemptions.

For the first time, those with an AGI of more than $1 million a year will also be excluded from conservation programs.

“We thought it was only fair,” Hall says. “If you’re going to be means tested on commodity programs, you should be means tested on conservation programs.”

Reed expects the new limits to affect Arkansas producers, but not much.

“The impact will be probably on shifting more from crop rents to cash rents,” he says, “especially your non-farm income limits.

“Some of your landlords now participating and drawing farm program payments will not be eligible if they have more than $500,000 non-farm income.”

Dr. Eric Wailes, University of Arkansas professor of agricultural economics, says, “The direct attribution component, as well as lowering the AGI, is going to have some impact on some of the farms. But for the most part … it’s (probably) not going to have a devastating impact, at least on the bulk of the Arkansas farms.”

Wailes is currently calculating the impact of the bill’s new component on the state’s “representative farms,” theoretical entities the Cooperative Extension Service created with help from farmer panels and the Food & Agricultural Policy Institute at Texas A&M University. The farms provide characteristics common to enterprises in their region.

“It’s part of a national group of representative farms,” says Wailes, “that Texas A&M has for many years now put together in terms of intermediate-run, economic and financial viability with regard to policy options.”

One of the biggest changes in the 2008 Farm Bill is the Average Crop Revenue Election (ACRE) program.

One of the administration’s many policy demands was a shift from counter-cyclical supports, which only kick in when crop prices decline, to a system based on gross returns. Theoretically, that would protect producers from both low prices and weather-related losses.

Lawmakers were reluctant to make such a radical shift and elected to make the program optional. Farmers who switch to ACRE lose 20 percent of their direct payments. Their cap on counter-cyclical payments, however, rises by the same amount their direct payments fall. Their loan rates are decreased by 30 percent.

Farmers can switch to ACRE any crop year beginning with 2009. If they do, though, they can’t return to the more familiar crop-based program. Individual farmers don’t track the program. The Farm Service Agency does. So, a farmer with more than one FSA number can enroll one farm in ACRE and leave the rest in the traditional programs.

The formula to receive payments under ACRE is complicated. There are both a “state trigger” and a “farm trigger,” and producers must reach both to qualify.

The state trigger is calculated by taking 90 percent of the five-year Olympic state yield average for that crop — leaving out the high and low years — and multiplying it by the guaranteed price for that crop. If that exceeds the farmer’s actual yield, times both the average price for the current marketing year and 70 percent of the crop’s national loan rate, the state requirement is met.

To meet the farm trigger, the farm’s own Olympic average yield, times the guaranteed price plus the producer’s share of the crop insurance premium, must exceed the producer’s actual yield, times both the national average price and 70 percent of the loan rate.

Wailes says under most scenarios, ACRE doesn’t pencil out for the Arkansas representative farms, particularly for cotton and rice operations, due to the reduced direct payment.

“We found that, for the most part — let’s say, 80 times out of 100 — the farms that we have analyzed in this preliminary report would be better off staying with the current program, and not electing to go with the ACRE program,” Wailes said.

“That said, the conclusion that I think we’re going to probably make is that it’ll be important for each farmer to really consider his own program yields, his own situation, and to really consider carefully the election of going into the ACRE program.”

Although Farm Bureau’s Hall agrees, he says, “I feel like the revenue-based program is the future of farm policy, so we’re going to have to really educate producers on what this does.

“I think if you’re heavily cotton, from the numbers that I’ve seen so far, you probably would not trigger this. If you raise soybeans or corn, it may be an option for you.”

Also for the first time, the Farm Bill includes a permanent disaster program. Lawmakers argued long and hard over whether the bill had enough funding for such a mechanism. But heavy hitters on the Senate side like Democrats Max Baucus of Montana and North Dakota’s Kent Conrad won out. Their resolve may have been strengthened by the White House, which has consistently opposed ad hoc aid for weather-stricken farmers unless the funding is offset with cuts in other programs.

Even though the permanent title is seen as being more of benefit to northern farmers, the Arkansas delegation supported it — and Wailes points out, “Certainly, there’s potential; in the ’95 and ’96 crop years, we were beset with disasters. I think it’s nice to have that facility there when it’s needed.”

The disaster program is funded at $3.85 billion. The trust created for it draws a little more than 3 percent a year from Treasury Department-collected tariffs on imports.

The program is called Supplemental Revenue Assistance Payments, or SURE. It doesn’t work like previous ad hoc disaster programs, where a farmer or rancher only has had to be in or adjacent to a federally designated disaster county. To collect, the producer also has to demonstrate a loss on his or her own operation.

The level of coverage will depend on the producer’s level of crop insurance. Those who buy only the minimum catastrophic level will be compensated at a little less than a third of their lost production.

Livestock producers are also eligible, but they have to purchase NAP, the policy for non-insurable commodities.

In essence, SURE guarantees 115 percent of insured coverage. All producers are eligible, not just those who produce basic-program row crops; payouts are capped at $100,000 per individual.

The bill adjusts loan rates and target prices for some commodities; in most cases, higher. For some crops, the rates change from one year to the next.

The target price for wheat is $3.92 a bushel in 2009 and $4.17 after. The loan rate goes to $2.75 next year, then jumps to $2.94.

Soybeans’ target price is $5.80 next year and $6 in 2010. The loan rate stays at $5.

Target prices and loan rates for corn and rice remain unchanged from the last bill, although the USDA will establish separate support levels for long- and medium-grain rice.

The one commodity that will see a reduced target price is cotton. It goes from 72.4 cents to 71.25 cents.

Target prices for barley and oats are significantly higher, beginning in 2010. Lawmakers from the northern plains, led by Collin Peterson, the Minnesota Democrat who chairs the House Ag Committee, felt support prices for cereal grains were not adequate to preserve U.S. acreage.

If the recent run of record commodity prices continues, Wailes doesn’t expect farmers to make planting decisions based on government support levels.

“My sense is that they’re going to look more at the market price and relative market price relationships, in terms of where they’re going to allocate their resources.”

The bread and butter for many Arkansas farmers have been rice and cotton production, and Reed says the bill doesn’t provide much support for either of those commodities.

He’s a cotton farmer, and believes production of that crop is particularly vulnerable to the whims of the market.

“We only use about 25-30 percent of our production here in this country,” he points out, with China the biggest overseas customer. “So we’re going to be very volatile, I think, in cotton production in this country, until we can be assured that the world is going to need our production.

“It’s going to put the burden on the producers to try to lock in prices, if they’re going to stay in cotton.

“I really enjoy cotton,” Reed says, “but again, the market’s been telling us with 70 cent cotton and $15 beans and $7 corn it wants you to be a grain farmer, not a cotton farmer.”

What really worries Reed is what will happen if the $15 beans and $7 corn don’t last. The loan rates in the new bill, he says, “are based upon cost-of-production figures that are so far outdated that they’re not even around reality.

“If we have a real pushback on prices with these high production costs that we’ve got now, it’s really going to be a disaster for agriculture.”

In fact, Wailes says the cost of production has already caught up with the high crop prices.

“The energy price complex has had sort of a positive effect on the crop price side, but it’s been accompanied with the negative on the cost side, increasing and inflating costs,” Wailes said.

“So, in terms of economics at the farm level, I think the farmers are feeling optimistic about where they’re going over the next couple of years. But certainly, profitability is always a question, with the input prices moving on up.”

Wailes believes energy prices will stay historically high, and will be the driver to shift crops and other resources into alternative fuel production. That, in turn, should keep farmers from having to rely on price supports.

But he cautions, “As we look at the ’96 Farm Bill, we thought prices were going to stay high, and then in ’98, ’99, we had a collapse in the farm prices, and we had to go to ad hoc support spending.

“So, maintaining the safety net, which is what the current farm program does with the nuance for the new ACRE program, I think, is a legitimate and appropriate use of public policy.”

In 2005 and again last year, Congress mandated national use of ethanol and other renewable fuels. So, refiners have to use 9 billion gallons of renewable fuels this year, and that will rise to 36 billion gallons by 2022. Then, new technologies are expected to allow fuel production from less-costly feedstocks — and the Farm Bill addresses that with $1 billion to enhance renewable fuel production.

Hall says, “A lot of it’s going to biomass research and development, away from corn-based ethanol. So from forest biomass to crop residues, a lot of research dollars are going into creating that industry.”

On the other hand, Reed notes that the bill cuts the ethanol tax credit from 51 cents a gallon to 45.

“There’s a push to roll back the support for ethanol,” he says, “because it is having some impact on grain prices.

“The real culprit in all this is energy. If you didn’t have $140-a-barrel oil and $4 gasoline, you wouldn’t have a need for $6 or $7 corn. There just wouldn’t be the demand.

“We’ve got a lot of factors going into the high price of grain. Ethanol is a factor, but the high price of energy and consumption by China, India and other countries have really ramped up in the last few years.

“We’ve had worldwide droughts and production shortages. So, it’s been coming on for 10 years.

“We’ve had decreasing stocks for many, many years — long before ethanol became an issue.”

On the House side in particular, the Agriculture Committee had to assemble a broad coalition to overcome the president’s veto.

Lawmakers exceeded the baseline budget by $10.4 billion and to satisfy urban members, plunged virtually the entire increase into food stamps and other human nutrition programs.

To gain the support of agricultural interests outside of row-crop country, Congress initiated a bevy of programs for fruit and vegetable growers.

Hall says there’s $230 million in mandatory funding for production research; $33 million to develop and expand farmer’s markets; $22 million to boost organic production; and a whopping $500 million in block grants for states to promote their own specialty-crop industries.

A new livestock title also sets new protections for contract producers, and the bill includes a new dairy program — and sets up an old program that never got off the ground.

The Mandatory Country of Origin Labeling (MCOOL) program was created in the 2002 Farm Bill and scheduled to take effect in late 2004. Congress postponed it twice, however. In this year’s USDA spending bill, Congress directed the postponements to end and the USDA to prepare to implement MCOOL.

The rules were revised in the ’08 Farm Bill. Although still greeted skeptically by some livestock, meatpacking and retail interests, the new rules are still less onerous than those of the earlier law.

Livestock and poultry producers must keep records of the immediate previous sources of their animals and birds for one year; regular business records or producer affidavits will do. (Poultry was not part of the 2002 law, but the industry asked that it be added.)

There are three different labels for fresh cuts of meat:

• One for meat from animals born, raised and slaughtered in the United States.

• One when the process is all foreign.

• A “mixed origin” label for all the rest.

Ground meat labels will list all the meat’s possible origins, much as processed foods show all possible vegetable oils that may be used in their preparation.

Contract producers can no longer be compelled to settle grievances via arbitration instead of through the courts. If a contract does have an arbitration provision, it also has to disclose the producer’s right to refuse arbitration.

The law also includes a USDA study of whether buyers discriminate against smaller swine and poultry producers, and a requirement that the USDA annually report on enforcement actions under the Packers & Stockyards Act.

For dairy, the ’08 Farm Bill extends the Milk Income Loss Contract Program through 2012. It’ll cover 45 percent of the shortfall between $16.94 a hundredweight and the Boston Class I milk price.

In addition, it’ll adjust the $16.94 price for any month when the national average monthly cost of dairy rations exceeds $7.35 a hundredweight.

The bill also reestablishes the Dairy Forward Pricing Program that allows producers to enter into forward contracts with milk handlers voluntarily — and it makes the Federal Milk Marketing Order System more responsive to the market

The farm bill also boosts conservation programs, most notably the former Conservation Security Program. Created by the ’02 Farm Bill to reward farmers for advanced land stewardship practices. Congress renamed the CSP the “Conservation Stewardship Program” and funded it for a 12 million-acre-plus enrollment through 2012.

There’s also a 27-percent increase in the Environmental Quality Incentives Program, of which 60 percent remains committed to practices on livestock operations.

The bill also includes a new way to determine payments for conservation practices, based on costs associated with adopting a practice and revenue the producer foregoes. Moreover, conservation practices a farm adopts to gain organic certification are now eligible.

The farm bill caps EQIP payments. No single grower can receive more than $300,000 over six years, although the secretary of agriculture can waive the limit for special projects on environmentally sensitive lands.

The Wetlands Reserve Program, popular in Arkansas, also got a boost that will allow enrollment of an additional 3 million acres. On the other hand, the bill limits the venerable Conservation Reserve to 32 million acres by 2010, 7.2 million below the ’02 Farm Bill maximum.

However, a new pilot program enrolls wetland and buffer acres in the CRP, and one of its sections allows land previously devoted to commercial pond-raised aquaculture in 2002–2007. Arkansas Farm Bureau members were instrumental in getting this written into the bill.

Reed sums it all up:

“We don’t know where all this is going to shake out. Right now, this year, things look pretty good, but we pass a farm bill for the long term and not the short term — and I think we’ve got very short-term objectives in this farm bill that may not be applicable if current economic conditions change.

“If we have a real pullback in prices, I think there’ll be a real cry from the ag community to go back and, at least, put loan rates at production costs.

“It’s not the best Farm Bill I’d hoped for, but probably under the circumstances, it’s the best we’re going to get.”