David Orden - The Imperfect Evolution of U.S. Farm Policy

David Orden - The Imperfect Evolution of U.S. Farm Policy

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  INTERNATIONAL FOOD POLICYRESEARCH INSTITUTE IFPRI The Imperfect Evolution of U.S. Farm Policy: From Supply Controls and Government Stocks to Countercyclical Payments to Farmers 美国农业政策的演变： 从供应控制和政府库存到 反周期补贴 David Orden Virginia Tech and IFPRI Presented at: IFPRI SIG 2015 Workshop November 9, 2015 2015 China-U.S. Grain & Oilseed Forum Beijing, October 27, 2015
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  Two Objectives ofthe Presentation  To describe the policy instruments used in the United States to move from price supports, government-held stocks and annual land idling to various payments to farmers that distort markets less • Historical Evolution • Summarize current U.S. policies in under The Agricultural Act of 2014 (the 2014 Farm Bill), signed into law February 7  To comment on the domestic political economy and international governance (WTO) implications of U.S. policy developments
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  1960s and 1980sIntervention Policies  U.S. farm policy has its origins in the Great Depression and infamous “Dust Bowl” of the 1930s  After World War II, U.S. policy relied on marketing quotas, government-held stocks (CCC stocks), idling of land, and export subsidies to keep market prices above legislated price supports (“loan rates”)  These policies were complex to manage and distorted output markets and farmland use
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  1960s and 1980sIntervention Policies 0 10 20 30 40 50 60 70 80 90 0 2 4 6 8 10 12 14 16 MillionAcres BillionDollars U.S.CCCStocksHeldandIdledAcreage 1954-1994 CCCStocksHeld SetAside LongTerm ___IdledAcreage______
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  From Policy Crisesto Greater Reliance on Payments  Policy Instruments for Greater Market Orientation • Buyouts (tobacco) • Fixed Direct Payments (program crops 1996-2013) • Within-year Crop Insurance (recent importance) • Multi-year Countercyclical Support (evolution of traditional programs) • Moving-Average Revenue Guarantees (new since 2008)  Context for the shift to Payments • Conservation Programs (CRP) • Demand Augmentation (Biofuels)
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  Increased Importance ofCrop Insurance 0 2 4 6 8 10 12 14 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 BillionDollars U.S. Net Insurance Payments to Farms, 1996-2014
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  From Policy Crisesto Greater Reliance on Payments  Policy Instruments for Greater Market Orientation • Buyouts (tobacco) • Fixed Direct Payments (program crops 1996-2013) • Within-year Crop Insurance (recent importance) • Multi-year Countercyclical Support (evolution of traditional programs) • Moving-Average Revenue Guarantees (new since 2008)
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  Two Forms ofPrice Countercyclical Support  Price-Based Deficiency Payments on Actual Output (loan rate program)  Price-Based Deficiency Payments on Fixed Acreage Base and Historical Yields, even if the specific crop is not grown (“target (reference) price” programs); target/reference price above loan rate • 2014 Price Loss Coverage (PLC)  Reliance on payments put to a test when world prices fell in 1998-2003 • U.S. increased support payments but did not resort back to annual land idling or government-held stocks
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  New Moving-Average RevenueGuarantees  2014 Agriculture Risk Coverage (ARC) • Benchmark revenue calculated from 5-year Olympic averages of national crop year prices and county or farm crop yields • Applies to a fixed acreage base, even if the specific crop is not grown • Revenue benchmark moves over time: This is a key feature of ARC • Covers revenue decline only from 14% to 24% of benchmark • By April 2015, farmers chose either PLC or ARC for 2014- 2018 crop years
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  Initial Conclusions  U.S.farm policy has moved toward greater reliance on payments to farmers but has not ended farm support  The movement to payments has reduced direct interventions in output markets and farmland use  The shift to payments requires availability of government fiscal resources  Future levels of U.S. support are uncertain, but countercyclical support was reinforced in 2014 Farm Bill
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  Congressional Votes onFour Farm Bills Act Short Title (date enacted) President Party Control Farm Bill Vote “Yea” Votes by Party House Senate Federal Agriculture Improvement and Reform (4/4/1996) Clinton Republican 318 - 89 211R/106D/1I Republican 74 - 26 52R/22D Farm Security and Rural Investment (5/13/2002) Bush Republican 280 - 141 141R/137D/2I Democrat 64 - 35 43D/20R/1I Food, Conservation, and Energy (5/22/2008) Bush Democrat 316 - 108 216D/100R (veto override) Democrat 82 - 13 45D/35R/2I (veto override) Agricultural Act of 2014 (2/7/2014) Obama Republican 251 - 166 162R/89D Democrat 68 - 32 44D/22R/2I
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  International Governance  Thereis currently little WTO discipline on the 2014 Farm Bill • U.S. unlikely to breach its current WTO domestic support limit  Significant change in upland cotton program can be attributed in part to longstanding Brazil-U.S. Cotton WTO Dispute  termination of this WTO case is an institutional success of 2014 Farm Bill  Enactment of 2014 farm bill makes it difficult for the U.S. to contribute to attaining tighter support limits on a global level in current and future WTO negotiations
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  Two Recent References Orden,D. and C. Zulauf. 2015. “Political Economy of the 2014 Farm Bill.” American Journal of Agricultural Economics 97:5: 1299-1311 (published open access, doi: 10.1093/ajae/aav028) http://ajae.oxfordjournals.org/content/97/5/1298.full.pdf+html Zulauf, C. and D. Orden. “2014 Farm Bill and 2015 WTO Doha Round Negotiations.” farmdoc daily (5): 147, University of Illinois, August 13, 2015 (third in three-part series) http://farmdocdaily.illinois.edu/2015/08/2014-farm-bill-and-2015- wto-doha-round.html
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  Appendix Slides
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  Farm Programs Costs 0 10 20 30 40 50 60 70 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Percentage U.S.Payment to Farmers as Percent of Net Farm Income, 1954-2014
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  Legislated and MarketPrices Crop Loan Rate PLC Reference Price Olympic Average U.S. Crop Year Price Crop Year Market Price 2014 2014 2009-2013 2014 Barley $1.95 $4.95 $5.45 $5.30 Corn $1.95 $3.70 $5.28 $3.70 Oats $1.39 $2.40 $3.25 $3.21 Peanuts $0.1775 $0.2675 $0.2583 $0.22 Long-grain Rice $6.50 $14.00 $14.17 $11.90 Medium/short-grain Rice $6.50 $14.00 $17.87 $17.90 Sorghum $1.95 $3.95 $5.09 $4.03 Soybeans $5.00 $8.40 $12.27 $10.10 Wheat $2.94 $5.50 $6.60 $6.00 Upland Cotton $0.45-$0.52 not eligible $0.773 $0.605 Note: Prices are $ per bushel, except rice $ per 100 pounds and peanuts $ per pound
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  Estimated ARC andPLC Costs 2014 Crop Year Crop Base Acres ARC PLC Total Million Billion Dollars Barley 5.2 $0.01 $0 $0.01 Corn 96.8 $4.1 $0 $4.1 Oats 2.1 $0.01 $0 $0.01 Peanuts 2.0 $0 $0.3 $0.3 Long-grain Rice 4.0 $0 $0.4 $0.4 Medium/short-grain Rice 0.2 $0 $0 $0 Sorghum 9.0 $0.04 $0 $0.04 Soybeans 54.5 $0.4 $0 $0.4 Wheat 63.7 $0.4 $0 $0.4 Upland Cotton NA not eligible $0 Other Crops 22.4 $0.04 $0 $0.04 TOTAL 259.9 $5.0 0.7 $5.7 Source: Schnitkey, G. and C. Zulauf. “Estimated National 2014 ARC-CO and PLC Payments.” farmdoc daily (5): 143, University of Illinois, August 6, 2015.