By Jeff Wilson

Bridge News

CHICAGO (B)--Economists and political observers are calling this week's proposal by the National Corn Growers Association a creative innovation in farm policy that promises to advance the debate on Capitol Hill and among other commodity group organizations as the next U.S. farm bill starts to take shape.

The NCGA supports a counter-cyclical income support program to protect growers in times of international market disruptions, or disaster situations that lower output and thus trim a farmer's ability to collect a loan deficiency payment or marketing loan gain payment from crops put under loan.

The problem with the current marketing loan program is that it has created growing dissatisfaction with inequitable payment rates relative to costs among commodities and across state and county lines.

The new income support program proposal essentially creates a safety net for producers under an income support program rather than a price support program. The problem for many producers who have been hit by weather disasters and low prices in recent years is that they did not have any bushels of production in which to increase government payments under the marketing loan assistance program.

"Our proposal establishes an annual target income for corn and other loan-eligible commodities," Lee Klein, president of the NCGA, told the House Agriculture Committee April 25.

Target income, under the NCGA plan, is based on the average crop value during a specific base period and incorporates producer benefits from the marketing loan program and the market loss assistance payments. This base period average income is then adjusted each year by a factor that will reflect projected production increases.

The NCGA suggested a base period of 1996-2000. In addition, to adjust for crop losses, NCGA would allow producers in declared disaster areas to substitute crop insurance transition yields for low yield years.

Compared with current Congressional Budget Office baseline projections, the NCGA said its program would provide $31 billion more in assistance to farmers during the seven-year period, and would remove the need for ad-hoc disaster payments.

The NCGA would replace the marketing loan program with a non-recourse loan program. This would provide producers with access to money without affecting production decisions because the producer would be required to repay the loan plus interest at the end of the nine-month loan program.

The Corn Growers' proposal is likely to faces severe opposition from some groups, analysts and economists agreed.

While the LDP and MLG payments may add $10 to $25 per acre to corn grower incomes, there are other commodity producers collecting as much as $400 per acre in loan deficiency payments, noted one industry observer.

The cotton and rice program loans are based on an entirely different price setting mechanism tied to world market prices. For corn, however, the U.S. essentially is the world market, and that has created plenty of inequity given varying loan rates and posted country prices across the U.S.

"This is a very intriguing proposal," noted Barry Flinchbaugh, agricultural economist at Kansas State University in Manhattan, KS, and chairman of the 21st Century Commission on Agriculture.

The NCGA proposal should garner some interest from lawmakers in Washington looking to decouple U.S. farm subsidy payments from the markets and production.

Clearly, overseas agricultural interests are not going to be happy if the proposal moves forward, Flinchbaugh noted.

"Australian, European and Canadian groups won't like the idea because they enjoy the benefits of high U.S. loan rates," he added. Flinchbaugh noted the 21st Century Commission report on agricultural policy earlier this year also called for a decoupling of program payments from the market.

But the Commission suggested that Congress group all eight program crops into one pool and use that total pool income as a tool for triggering government program payments. This pooling of total income would definitely face fewer legal challenges under the World Trade Organization, Flinchbaugh said.

The American Farm Bureau Federation also suggested a total income pool for determining program payments, but the triggers would be made on a commodity-by- commodity income basis.

Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University in Ames, said a counter-cyclical safety net program merely duplicates the LDP and MLG programs and crop insurance. If overall farm incomes are down on a national level, there will still be farmers with good income streams from large crops, he said.

"Payments will arrive to producers whether or not their yields are low or high," he said. He said the key to counter-cyclical programs is to take them down as close to the county level as possible.

"The lower the geography, the more the safety net is targeted," he added. But Babcock emphasized the NCGA proposal was an honest attempt at stirring the farm policy debate.

And the debate is likely to get cranked up during the next month given the self-imposed July 11 deadline set by the House Agriculture Committee to present a farm policy program to the full chamber.

"We have to get rid of the LDP program or farmers are going to continue to plant fence row to fence row to cash in on the government subsidies," added one grain analyst in Kansas City.

A prime example would be the string of record high acreage tallies for soybeans in the U.S. during the past few years, even in the face of low cash prices.

He said the current program creates little uncertainty about big program crop acreage and essentially keeps end users only looking to rare major weather events to shift away from a hand-to-mouth buying pattern.

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