Economic titans address farm bill

By Larry Dreiling

It was informally billed as a "clash of the titans," with a defending champion taking on a talented challenger on the outlook for the 2007 farm bill.

The scene was Milwaukee, WI, and the National Agricultural Bankers Conference, sponsored by the American Bankers Association.

The defending champ was Dr. Barry Flinchbaugh, professor of agricultural economics at Kansas State University. The challenger was Dr. Daryll Ray, professor of agricultural economics and business, holder of the Blasingame Chair of Excellence in Agricultural Policy and director of the Agricultural Policy Analysis Center at the University of Tennessee.

The referee for this "clash of the titans" was Dr. David Kohl, professor emeritus of agricultural and applied economics at Virginia Tech. Flinchbaugh returned to the conference after offering winning arguments on farm policy at last year's conference.

As challenger, Ray offered the contention that it really didn't matter if there is a farm bill or not, so long as demand for agricultural products grow.

"Food is like insulin to a diabetic. If you are diabetic, you'll pay whatever it costs for insulin. Drop the price by 90 percent and you'll buy more of it," Ray said.

"Food isn't quite that elastic, but it's close. In the self-correction that works for most items like clothes or houses, you're trying to get as much of those items as you can. It doesn't work that way for food. When food prices go down, farmers will continue to produce. Does that happen in other industries? No, there's a tendency to cut back.

"Even when a farmer goes bankrupt, another farmer takes over the other guy's land and is likely more efficient," he said.

Self-correction slow

The self-correction that occurs in most other sectors of the economy doesn't happen as quickly in agriculture, Ray said.

"Over a ten-year period maybe self-correction happens, but in the time it takes to pay off a farm operating loan, it doesn't. This is why we have farm programs," Ray said. "If you want to talk about alternative farm programs, ask yourself this question: How does it address the lack of economic self-correction in agriculture?"

Lots of folks believe that farm policy began in 1933 when a few minds said agricultural programs should be done away with, Ray said.

"Government programs shift the supply and demand curves, critics said, so get rid of them," Ray said. "I ask those folks a couple of questions: Would you be willing to give up your ag experiment station in your home state? How about Extension? Anything that shifts the supply and demand curves that is publicly financed is a market intervention. The farm bill is a lot more than commodity programs."

Ray left the more than 500 bankers in attendance with this statement.

"In times of exploding demand any farm bill will work. No farm bill will work, too," Ray said.

Knockout punch

It only took Flinchbaugh one line to keep his title as undisputed champion of agricultural economic policy debates.

"Daryll's probably less politically naïve than Luther, I guess," Flinchbaugh said. "Why do we need a farm bill? I agree with Daryll that we have a farm bill because we can do it. I also have to remind him that where would U.S. agriculture be without 27 percent of its products being exported."

There isn't a worse time to debate a farm bill than right now, Flinchbaugh said.

"I like to do farm bills when times are tough, then The New York Times and The Wall Street Journal get it. Obviously they aren't getting it now," Flinchbaugh said. "We're also debating a farm bill with a dysfunctional Congress and the most mean-spirited radical partisanship I've seen in my lifetime."

Because of this dysfunctionality, Flinchbaugh said he has renewed respect for the chairman of the House Agriculture Committee, Rep. Colin Peterson, D-MN, since Flinchbaugh said he believed Peterson would do everything the National Farmers Union told him.

"He scared the hell out them but he didn't do that," Flinchbaugh said of Peterson. "He was told he wouldn't get a farm bill done before summer recess and he did it. It's a decent bill and it will work."

Signing data predicted

Flinchbaugh said the Senate should complete its work on the farm bill before Thanksgiving recess. The president will sign the new farm bill Dec. 31, 2007.

"I've been studying farm bills since 1968 and I've been hearing the same crap every cycle since," Flinchbaugh said. "There won't be any money for a farm bill. This is the last farm bill. We're going reform and overhaul the system. You hear that when you have so-called record deficits. Once again we have the money. The bill is well funded."

Flinchbaugh also took off after the national media who have again criticized farm payments.

"I read this all the time in The Wall Street Journal, the National Enquirer of the business world, that 10 percent of farmers get 70 percent of the payments. These payments go to wealthy farmers who don't need them. That's just pure crap."

The way farmers are defined by the U.S. Department of Agriculture creates this impression, Flinchbaugh said, since any producer who makes $1,000 in annual sales is considered a farmer.

"If you use that utterly stupid definition of a farmer you will get that 10 percent of the farmers make 70 percent of the production. If you use the real definition of an American farmer there are about 300,000 of them left. They are truly family farms and they get the payments."

Market distortion

Instead of arguing over who gets farm payments, Flinchbaugh says Congress should debate how much market distortion should be allowed.

"The decoupled direct payment is a bird in the hand," Flinchbaugh said. "It is a section of every farm's income. It pays down loans. It works, if we can just get that through to the consumer."

Flinchbaugh criticized marketing loans as "absolutely worthless" and counter-cyclical payments are "exactly 100 percent backward" since they don't pay farmers when they don't have a crop to sell.

"(Congress) must have been drunk when they did this," Flinchbaugh said. "There's a drought all over the country, we don't have anything to sell. Prices are high, above the target price, so we don't get a payment. We're in trouble."

Flinchbaugh, who was chairman of the Commission on 21st Century Production Agriculture, said during the debate over the 2002 farm bill he told Senate Agriculture Committee chairman Tom Harkin of Iowa to consider a market-based payment scheme rather than a price-based plan.

"Senator Harkin chewed my butt royally about how stupid that idea was," Flinchbaugh said. "Seven years later he's finally figured it out, because now he's very supportive of an average crop revenue focus. That's the real revolution in ag commodity funding. We will finally establish the principles of a true farm safety net. You need to have direct payment along with a counter-cyclical targeted revenue plan."

ACR acceptance

Flinchbaugh predicts once the bill goes through conference and signed by the president, more farmers will opt for the ACR plan.

"It's not rocket science. It's a revenue plan, not a price plan. Some of the critics argue this will be the last bill, but it will happen again. What the critics don't understand is that the farm lobby is extremely focused and they do it because they can. It takes just a handful of members of Congress from each party to pass a farm bill.

"The commodity group has its least members ever these days yet has been one of the most extremely effective lobby groups at keeping themselves intact. It doesn't hurt that the chairman of the House ag committee comes from sugar beet country."

Despite the dysfunctional Congress, it is a testament to the committees that there is a new farm bill, Flinchbaugh said.

"It will focus on farm income. It will enhance conservation payments to working lands," Flinchbaugh said.

"It will be very good to cellulosic ethanol. There's $5 billion allocated in several different departments of government to advance cellulosic ethanol. I've never seen so much money thrown at one subject than biofuels. It's important not just for economic development, but also for national security. To the Pentagon, nothing is more important. Money is not an object at the Pentagon."

Flinchbaugh, now 65 years old, said he's worked through six farm bill debates. He admits he's been slowed some due to nagging injury from a traffic accident over a year ago that has him walking with a cane.

"I think I've finally figured out a way to slow down the aging process," Flinchbaugh said. "Just put it through Congress."

Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at ldreiling@aol.com.

11/19/07

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11/26/07
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Date: 11/19/07

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