farm bill outlook norman l. dalsted, ph.d. professor department of agricultural and resource...
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Farm Bill OutlookNorman L. Dalsted, Ph.D.
ProfessorDepartment of Agricultural and Resource Economics
Colorado State University
Source: Dr. Brad Lubben
Policy Specialist
University of Nebraska
Lincoln, NE
Drivers of Ag Policy
Economy
Budget
Trade
Politics
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
Net Farm Income (Less Govt Pay) Government Payments
The Economic SettingU.S. Net Farm Income
and Government Payments
Source: USDA Economic Research Service
1996 Farm Bill
2002 Farm Bill
2008 Farm Bill
1985 Farm Bill
1990 Farm Bill
Data file: ag value added – nebraska and us.xlsx
Federal Budget Challenges
Source: Congressional Budget Office, March 2012
Data file: budget and economic numbers.xlsx
Federal Spending Federal Revenue0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Net Interest; $224
Defense; $673
Social Security; $754
Medicare; $485
Medicaid; $258
Other Mandatory; $604
Other Discretionary; $630
Individual Income Taxes; $1,159
Corporate Income Taxes; $251
Social Insurance Taxes; $825
Other Taxes and Receipts; $221
Borrowing; $1,172
Total Federal Spending and Revenue, FY 2012
$ B
illio
ns
Federal Budget Challenges
Source: Congressional Budget Office, March 2012
Data file: budget and economic numbers.xlsx
19701973
19761979
19821985
19881991
19941997
20002003
20062009
20122015
20182021
14%
16%
18%
20%
22%
24%
26%
Total Federal Revenues and Outlays
Pe
rce
nt
of
Gro
ss
Do
me
sti
c P
rod
uc
t
Outlays
Revenues
Average Revenues,1970 to 2009
Average Outlays,1970 to 2009
Actual Baseline Projection
Significant Tax Law Changesfor 2012 and 2013
If Congress does not act to extend certain provisions.
2012 AMT (Congress had temporarily raised exemption
levels). Levels expire and replaced with lower levels.
Tuition and Fees Deduction: eliminated Section 179: Expense up to $139,000 in 2012
(down from $500,000 in 2011). Drops to $25,000 in 2013.
Significant Tax Law Changescontinued
2013 New Tax Brackets: Currently 10, 15, 25, 28,
33, and 35 percent. Increase to 15, 28, 31, 36 and 39.6 percent
Marriage penalty: Change back to double in 2013 (enjoyed a 33% discount prior)
Estate Tax: rate increases from 35 to 55% and exemption drops from $5mm to $1mm.
Significant Tax Law Changescontinued
Capital gains: currently 0 rate for 10% & 15% tax brackets. Will apply to 15% bracket next year and rate increases 20%.
Short Sales and Foreclosures: no tax on amount of debt forgiven but expires this year (2012).
Payroll Taxes: 2% cut in social security taxes ends this year.
Significant Tax Law Changescontinued
Health Insurance Tax: Under new law an additional 0.9% in Health Insurance Tax applied to wages of $250,000 for married filing joint return, $125,000 for single filers.
Medical expenses: currently can take expenses above 75% of adjusted gross income. In 2013 rate increases to 10%.
Recommendations to the Super Committee in 2011
From the Agriculture Committee Leadership
Total spending cuts of $23 billion over 10 years from baseline
AreaProposed
Cut2012-2021 Baseline
% Cut
Commodities $15 billion $64 billion 24%
Conservation $6 billion $63 billion 10%
Nutrition (SNAP) $4 billion $700 billion 0.6%
Farm Bill Development in 2012
AreaUpdated
2013-2022 Baseline
Super Committee Proposed
Cut
Senate Proposal (S3240)
House Proposal (HR6083)
Commodities$60 billion $15 billion -$19.4 billion -$23.6 billion
Crop Insurance$89.5 billion +$5.0 billion +9.5 billion
Conservation$64 billion $6 billion -$6.4 billion -$6.1 billion
Nutrition (SNAP)
$772 billion $4 billion -$4.0 billion-$16.1 billion
Farm Bill Outlook
Commodity program safety net has evolved over time
Price support and supply control Income support tied to price and revenue Risk management
Expected future program directions Crop insurance as the foundation Revenue safety net to complement crop insurance Price safety net for as alternative? No direct payments Irrelevant marketing loan?
Understanding Shallow Loss Coverage vs. Safety Net Coverage
Shallow Loss Coverage Safety Net Coverage
Market Receipts
Market Price * Yield
Crop Ins Guarantee
Exp Revenue
Avg Revenue
Producer Loss
Crop Ins Indemnity
Shallow Loss Coverage
Market Receipts
Market Price * Yield
Crop Ins Guarantee
Exp Revenue
Avg Revenue
Producer Loss
Crop Ins IndemnitySafety Net Guarantee
Safety Net Coverage
Farm Bill Safety Net Proposal Comparison
Component Senate Proposal (S3240) House Proposal (HR6083)
Guarantee Farm revenue County revenue County revenue National price
Benchmark
5-yr Oly average yield x 5-yr Oly average national price*
5-yr Oly average yield x 5-yr Oly average national price*
5-yr Oly average yield x 5-yr Oly average national price
Fixed reference pricesCorn = $3.70Soy = $8.40Wheat = $5.50
Payment trigger Revenue<89% of benchmark
Revenue<89% of benchmark
Revenue<85% of benchmark
National price< reference price
Payment coverage
79 - 89% of benchmark
79 - 89% of benchmark
75 - 85% of benchmark
Loan rate -reference price
Payment rate65% of planted acres (45% of prevent-plant)
80% of planted acres (45% of prevent-plant)
85% of planted acres (30% of prevent-plant)
CCP yield x 85% of planted acres (30% of prevent-plant)
Loan rate Same as 2008: Corn = $1.95, Soybeans = $5.00, Wheat = $2.94
* Minimum benchmark reference price for peanuts ($530/ton) and rice ($13.00/cwt)
Additional Safety Net Proposals – Crop Insurance
Crop insurance Supplemental Coverage Option (SCO)
• Shallow-loss area-based coverage available on top of individual insurance
Stacked Income Protection Plan (STAX) supplemental revenue coverage for cotton
• Shift from commodity program to crop insurance for cotton to address WTO issues
• But, a minimum price of $0.6861/pound in House proposal Other proposed provisions
• Organic price• Enterprise units
– permanent authorization– Irrigated vs. dryland split
• Premium subsidy reduction on native sod converted to crop production
Safety Net ComparisonExpected Program Payments plus Changes in
Crop Insurance Net Indemnities
ARC/RLC/PLC plusChanges in Crop Insurance
SenateARC/STAX/SCO
HousePLC/RLC/STAX/SCO
$/acre
Corn $21.05 $17.23
Soybeans 10.35 8.61
Wheat 7.79 13.61
Upland Cotton 39.73 40.89
Sorghum 6.60 7.24
Rice 16.88 94.30
Barley 7.76 28.28
Peanuts 15.45 85.62
Source: FAPRI, University of Missouri. Report #05-12, August 2012.
Additional Comments Existing federal safety net is already overly
generous. (60% subsidy of crop insurance premiums)
Increased from $200 million in 1991 to 5.4 billion in 2009.
Also disaster assistance is available with extreme crop failure (due to weather).
Record net farm income in 2012—expected 11 billion in federal subsidies. - net income closed to $100 billion to $122 billion.
Shallow Loss Program
Shallow loss would significantly reduce risk and provide an income guarantee.
Congressional Budget Office estimates spending would reach 28.5 billion over 10 years. ($3.2 billion per year).
If prices fall to the average levels observed in 1996-2011—expenditures could reach $50 to $75 billion over 10 years
Issues
1) Taxpayer subsidies so heavily mitigate farmers’ risk as they lack any incentive to make prudent decisions.
2) Could violate WTO rules as payments are tied to production. (e.g. cotton objections by Brazil)
3) Benefits primarily to large operations.
Additional Safety Net Proposals – Disaster Assistance
Livestock Indemnity Program (LIP) Coverage for mortality losses above normal due to disaster
conditions Livestock Forage Disaster Program (LFP)
Coverage for livestock producers for forage losses due to drought conditions
Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish (ELAP)
Coverage for producers due to disaster losses including weather, disease, etc.
Tree Assistance Program (TAP) Coverage for orchardists and nursery growers for tree, bush, and
vine losses due to natural disaster
Farm Bill Outlook Potential compromise and safety net
implications Revenue vs. price safety net option No direct payments Existing loan rates Expanded role for crop insurance Re-authorized disaster assistance
Farm Bill Outlook Conservation
Consolidation of programs – 23 into 13 Conservation Reserve Program
• Cap cut to 25 million acres by FY2017 Agricultural Conservation Easement Program
• WRP, FPP, GRP combined• Authorized with expanded budget in Senate bill
Working Lands Programs• CSP and EQIP (WHIP merged into EQIP)• Reauthorized with reduced budget growth
Conservation compliance• Proposed delayed linkage to crop insurance in
Senate bill
Farm Bill Outlook Timing
No farm bill in September or October• No consideration of full bill in House• Disaster assistance bill for 2012 and 3-month
extension likely before September 30 expiration of current farm bill
Full farm bill finished later• Negotiations on-going• Final bill in late 2012 attached to must-have
legislation?• Delay into 2013 with more temporary extensions,
more potential budget challenges, and a new Congress?
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