Economists spar on ag policy viewsBy Larry Dreiling Las Vegas, Nev. was the setting for hedging the outcome of the 2007 farm bill during a lively debate at the recent American Bankers Association National Agricultural Bankers Conference. Across the parking lot from where many a championship boxing match is held, two lions of the ag policy and economic analysis, Dr. Luther Tweeten, chaired professor emeritus of the Department of Agriculture, Environment and Development Economics at Ohio State University and Dr. Barry Flinchbaugh, professor of agricultural economics at Kansas State University, squared off with their predictions for what a farm bill could mean for producers and ultimately rural communities served by agricultural bankers. Tweeten, for his part, said the best predictor of a future farm bill is the past. "In the short run, the mostly likely possibility is that the 2007 farm bill will look very much like the 2002 farm bill," Tweeten said. "There likely will be some modifications." Conservation program funding likely will increase under Sen. Tom Harkin, D-IA, chairman of the Senate Agriculture Committee. "The Conservation Security Program will be funded better along with perhaps several other green payment programs," Tweeten said. "Perhaps also there will be a limit on payments as well." Subsidies less important Payments to most producers will be paid in the form of a stronger revenue insurance program. "If it gets to be overfunded by the federal government, there will be a huge incentive to overproduce," Tweeten said. "That's especially true in areas that are high risk that would be better off in grass or trees. Still, there is likely to be more planting." Revenue insurance also would also eliminate most government marketing loan programs such as loan deficiency payments and countercyclical payments. There will be added incentives for production and distribution of biofuels, Tweeten said. "That's not necessarily a good thing, because the incentives are already strong," Tweeten said. "We are hearing reports about ethanol plants being paid off in a year. It's very likely we're going to overdo it. Subsidies will cause us to overdo even more." Even with the surge in corn, soybean and sugar-based crops, Tweeten said, the nation will still see only one-third of its fuel needs met by biofuels. "If the price of fuel stays up, at least $55 a barrel and even $60 would be better, there's virtually unlimited demand for biofuels," Tweeten said. "Here we have virtually elastic demand, that gives a new world for agriculture. That means subsidies and loan support programs will be less important." Disaster aid "addictive:" Tweeten called disaster relief programs "addictive" as a short-term solution for long-term problems. "These commodity programs no longer serve a public purpose," Tweeten said. "Farm households have incomes a third above that of non-farm households and that should go even higher. In the case of corn, you can lock in the price three years in advance. Instead, commodity programs reduce our national income about $6 billion a year. "They cause inefficiencies and distortions in the system. They give problems to producers abroad in low-income countries. They don't preserve family farms. They don't preserve rural communities. There are some useful things they do like conservation, but if we directed our attention to specific programs we could be far more cost effective in the way we deal with them." Tweeten also said the "liberal papers" are against farm programs. "It may be ten years down the road, maybe 30 years down the road, but if I were an ag banker I would depend on those programs being around for the indefinite future," Tweeten said. "Now is the time to end farm programs. I don't think Congress is that smart however. They never seem to miss an opportunity to miss an opportunity." Dems aren't "wing nuts" Flinchbaugh called Tweeten a great analytical theorist, then added "he doesn't know where little babies come from politically." Flinchbaugh told the 500 ag bankers in attendance that if Republicans wanted to know why they lost both house of Congress in November "all they need to do is look in the mirror. "When you have four members of Congress either in jail or waiting to go to jail you've got problems," Flinchbaugh said. "These Democrats are not left wing nuts. They are relatively moderate, some would say conservative. Either party has discovered that you and I are in the middle--and that goes for farm policy too. We are tired of wing nuts. It can be argued that Republicans fail to 'get it' and are in denial. " Flinchbaugh argued that the change meant less change in agricultural policy, with Harkin and Rep. Collin Peterson, D-MN, becoming chairs of their respective agriculture committees. "You have to look at personalities. cotton has been king for 15 years, except in 1996 when we wrote the farm bill in Kansas," Flinchbaugh said. "It's feed grains, oilseeds and not cotton or rice. Both men have a populist agenda which will be more political than economic." Less market distortion As it was when Flinchbaugh headed the U.S. Commission on 21st Century Agriculture nearly a decade ago is the same he said: What level of market distortion does U.S. agriculture want. "That's the issue of the World Trade Organization," Flinchbaugh said. "The Doha round is not dead but is in intensive care and it may not get out. While that's fine for some of us but we still have to follow the rules of the WTO. One of the rules Flinchbaugh refers is that fruits and vegetables get a piece of the action in this new farm bill. "From that we'll have to follow the good old American principle called the bribe," Flinchbaugh said. "In order to keep the decoupled payment in the green box we're going to have to bribe fruit and vegetable people so that exemptions can be removed. That will take at least $1 billion and maybe even $2 billion." From what Flinchbaugh sees neither Harkin nor Peterson have any concerns about market distortions, since countercyclical payments are "exactly backward" from what they ought to be. "It pays the farmer when he doesn't need it and doesn't pay him when he does," Flinchbaugh said. "That why you've seen these attempts to target price rather than revenue. There are proposals on the table and they are extremely complicated." Populism is in favor Commodity programs will only be slightly tweaked, Flinchbaugh said. "Wheat has gotten the shaft in commodity programs. We were going to change that in the next farm bill but now that will be tough to do although coming from Kansas I would not count out (Kansas Republicans) Sen. (Pat) Roberts or Rep. (Jerry) Moran. The populist program that now in favor and will have tons of money is the CSP. "That's Mr. Harkin's baby and as a Republican friend of mine says the only thing wrong with it is that 'it's the brainchild of that Democrat senator from Iowa.'" There is a change in philosophy about conservation programs, Flinchbaugh said, from programs for retired lands to that of working lands. One way that will work is toward energy policy. "This will take the pressure off countercyclical payments and LDPs," Flinchbaugh said. "We will raise the marketing loan, target price and decoupled fixed payments. We will fully fund the CSP. We will put $2 billion into energy. We will add $2 for fruits and vegetables. "You may ask where is the money going to come from. Did that ever slow down Democrats when it came time to spend? Democrats tax, tax, tax-spend, spend, spend. Republicans borrow, borrow, borrow-spend, spend, spend. We only moved to the other side of the aisle and we're still going to spend." Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at ldreiling@aol.com. Date: 1/3/07
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