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Government shutdown in second week

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By Larry Dreiling

The closing of non-essential parts of the U.S. government continued into its second week as of press time.

The shutdown came just as the current farm bill expired. While farm payments remain intact for fall crops currently being harvested, the Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC, is being threatened with termination. It provides supplemental food, health care referrals and nutrition education for pregnant women, mothers and their children.

Crop insurance, funded under a permanent authorization, is mostly unaffected, but offices of the U.S. Department of Agriculture empowered to assist farmers with that program and other efforts like conservation are closed.

In a news conference at the White House Oct. 8, President Barack Obama wondered aloud why Republicans would not vote to reopen the government to allow further budget negotiations—including negotiations for a short-term extension of the debt ceiling. “You’ve got farmers who are waiting for loans. Right now those loans cannot be processed. The Republican Party says it’s the party that looks out for farmers. I happen to disagree,” Obama said.

“I think…farmers have done real good under my administration. But having said that, why would you keep the government shut down and those farmers not getting their loans while we’re having the discussions that you just talked about?”

The expiration of the law won’t have an impact until the end of the year, when some dairy supports end and milk prices are expected to rise sharply.

Congress has been debating the new farm bill for more than two years, but a resolution to that debate through a House-Senate conference on each chamber’s farm bill proposals has now likely taken a back seat to reopening the government.

While the Senate has appointed conferees, the House has not, although Politico reported last week that House Speaker John Boehner has privately said he will finally appoint House conferees.

As that was going on, the University of Missouri’s Food and Agricultural Policy Research Institute, or FAPRI, released its analysis of the House and Senate bills.

Alongside the Congressional Budget Office and the U.S. Department of Agriculture, FAPRI brings to the table a respected economic model to measure the impact of target prices set by lawmakers. It’s a farm bill player in its own right and the 30-page report contains a wealth of data important to the debate.

The report examines the possible consequences of several key provisions in the two bills:

1. The elimination of the current Direct and Countercyclical Payment and Average Crop Revenue Election programs, a common feature of both bills.

2. The establishment of Adverse Market Payments, the Agriculture Risk Coverage program, the Stacked Income Protection Plan and the Supplemental Coverage Option in the Senate bill.

3. The establishment of Price Loss Coverage, Revenue Loss Coverage programs and STAX, as well as a slightly different version of SCO, in the House bill.

The program changes examined in this report reduce estimated 10-year net budgetary outlays by $18.1 billion under the Senate bill and $12.6 billion under the House bill. Estimates of the net budget savings of the same provisions by the Congressional Budget Office are $16.4 billion for the Senate bill and $15.9 billion for the House Committee bill.

SCO accounts for much of the difference in the estimated costs of the two bills, as the Title I provisions are estimated to have very similar net budgetary impacts.

The House and Senate bills provide different projected levels of support to producers of particular commodities. For example, the House bill provides more support than the Senate bill to rice, barley and peanuts, while the Senate bill provides more support than the House bill to corn and soybeans. Area and production estimates reflect these differences in projected benefits.

Program benefits will be very sensitive to market conditions and producer participation decisions, as the various programs provide protection against different types of financial risk.

Under each bill, average net farm income would decline slightly relative to what would happen under a simple continuation of current farm programs. Impacts on consumer food prices would be very small.

FAPRI also examined the impact of changes in the Conservation Reserve Program under a 2013 farm bill.

Under 2008 farm bill policies in the baseline, the cap on enrollment in CRP is 32 million acres. Actual enrollment during the 2013 crop year was about 27 million acres, so the cap is not currently binding. In the January 2013 FAPRI-MU baseline, CRP enrollment rebuilds to almost 31 million acres.

With lower grain and oilseed prices starting in 2013-2014 relative to the very high prices of 2011-2012 and 2012-2013, producers may be more interested in enrolling acres in the CRP, and USDA could choose to be more aggressive in trying to encourage enrollment, the FAPRI report said.

Based on the most recent sign-up for CRP, it now appears that 2014 CRP enrollment will be significantly below the levels assumed in the January 2013 FAPRI-MU baseline. What will happen in subsequent years is not known, even if the current CRP cap were maintained.

Both the House and Senate bills would restrict CRP enrollment. The House would eventually place a 24-million-acre cap on CRP enrollment, and would include in the cap a new grassland option of 2 million acres to replace the rental agreement option provided under the current law in the Grasslands Reserve Program. The Senate bill would set the cap at 25 million acres, and would also include 1.5 million acres under the grassland enrollment option in the total.

Relative to the baseline, both bills would have a significant impact on CRP enrollment. In the House bill, the reduction in CRP enrollment averages almost 5 million acres over 2014-2018.

This would result in an increase in planted area for all the major crops, with the largest proportional increases in crops grown in regions where CRP enrollment is currently the greatest. The overall increase in area planted, however, is much smaller than the reduction in the size of the CRP. Much of the land leaving the CRP may be devoted to pastureland and forage crops instead of grains, oilseeds or cotton.

Furthermore, the resulting reduction in crop prices could result in some other marginal acres exiting production of the major program crops. Thus, the net increase in planted area for 12 major crops is just 1.6 million acres, the FAPRI report said.

This increase in production results in lower prices for all the major crops, with corn, wheat and soybean prices all declining by a little over 1 percent relative to the baseline. Those price impacts, though small, may be larger than the average impact on prices caused by the major commodity program and crop insurance changes examined in the report.

Under the Senate bill, the cap is greater so the effect on CRP and planted acreage and on prices for major crops are all smaller.

FAPRI also looked at the impacts on World Trade Organization accounting rules and found that eliminating the direct payment program and creating the ARC, AMP, PLC, RLC, STAX and SCO programs results in the replacement of a program the U.S. declares to be a green box program with programs that appear likely to be considered amber box support, at least under current WTO accounting rules. All else equal, this would make it more likely that this country might exceed its commitments to limit amber box spending.

Offsetting this impact may be the proposed changes in dairy policy. Without speculating how new dairy policies might be classified for WTO purposes, the elimination of the dairy product price support program appears likely to result in a sharp reduction in amber box support.

Given Uruguay Round accounting rules, preliminary estimates suggest that the U.S. would be unlikely to exceed its commitment to limit amber box spending under either bill.

Trade negotiations could eventually lead to a new WTO agreement that would further restrict agricultural support programs. Under proposals tabled in 2008, for example, the allowed level of U.S. amber box support would be sharply reduced from the current cap.

Perhaps even more importantly, limitations would be placed on the allowed level of amber box support provided to particular crops. Preliminary analysis suggests that the proposed House and Senate bills could frequently result in support to particular commodities in excess of the proposed commodity-specific caps. The proposed caps on overall amber box spending and a measure referred to as the level of “overall trade-distorting support” could also be exceeded under some circumstances, the FAPRI report said.

To view the full FAPRI report, visit fapri.missouri.edu.

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

Date: 10/14/2013



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