March 16, 2007

Higher crop prices, international trade negotiations, the federal budget deficit and new congressional leadership are all factors in the farm bill discussions now underway.

Agricultural economists from the University of Nebraska-Lincoln and Kansas State University traveled both states the last few weeks for a series of briefings on the emerging development of legislation that will shape federal farm policy for the next few years. The debate comes at a time when the federal budget deficit may limit available funds or force tradeoffs in farm programs.

"However, all but two farm bills have been developed in the wake of a budget deficit in the past 40 years," said Brad Lubben, UNL extension public policy specialist at a recent Cozad forum. "In addition, the current deficit represents only 1.9 percent of the nation's GDP and is much lower in real terms or constant dollars than the deficit at the time of most farm bill debates since the mid-1970s."

Also, "due to higher crop prices and future projections, the current farm programs are actually costing less than expected," Lubben said. "This reduced spending does not technically count as savings to be allocated elsewhere, but it does change the political climate in which federal budget decisions will be made."

International trade agreements could play a role in U.S. farm policy, too. Current World Trade Organization discussions — known as the Doha round — are at a stalemate, but even under existing trade agreements, U.S. farm programs could be subjected to repeated challenges from trading partners.For example, under a WTO agreement, Brazil filed suit against the United States claiming total subsidies on U.S. cotton exceeded the allowed limits. The WTO found in favor of Brazil and ruled the U.S. must change certain cotton programs or face retaliatory damages of several billion dollars.

"There are implications for U.S. farm programs," Lubben said. As Congress develops new farm legislation, it must consider ramifications of such rulings. Troy Dumler, Kansas State University extension agricultural economist, said the five most common justifications for farm programs "are not always as valid as they may seem at first."

The most popular justifications for farm programs, he said, are: saving the family farm, supporting rural communities, maintaining a cheap food supply, maintaining the environment and competing with subsidizing countries and large agribusiness.

Dumler said his analysis shows subsidies often have unintended consequences that "mitigate their intended purposes" and as time goes by the "programs become outdated and ineffective." The noble goals of farm subsidies often have limited effect.

The question Dumler says should be asked in light of his analysis is not "should we eliminate farm subsidies, but rather are there farm policy options that would better serve U.S. agriculture, taxpayers, and consumers?"

This background on farm programs helps to set the stage for the major farm policy options now being discussed in Congress. Those options include the existing farm income safety net, an alternative revenue-based safety net, and more funding for conservation and energy programs as an alternative to commodity programs. All of the information on the background and options for the new farm bill presented at the Cozad forum is available on-line for viewing at http://webvideo.unl.edu, or at http//www.agecon.unl.edu.

Dan Moser
IANR News Service