AGEC 429: EXAM 2
What happened with the 2008 farm bill?
- It continued programs from the 2002 farm bill - it gave farmers the option of ACRE and DCP which weren't really good - Have one chance to choose one or the other and it's irrevocable ACRE: was bad for texans DCP: basically continuation of '02 programs
What is the most you can protect of your crops?
85%
What is ARP and reverse slippage?
Acreage reduction program(set-aside program): - Supply control mechanism - USDA analzes the market without ARP and if price is too low, they implement it If a farmer takes out 10% of his farming acreage (likely his worst 10%), the remaining acreage will be farmed more intensely. so there may a 10% reduction in acreage, but only 6% decrease in production. The slippage is the 4% difference.
What is carrot and stick?
Carrot = target price + loans - provided for TP deficiency pmts - 10% idling of base acres required to qualify for benefits Stick = ARP (acreage reduction program) - used as supply control mechanism If farmers wanted a higher level of income they'd have to set aside land
What was the reason for the "coverage gap" in the 1990s farm bill?
Technology was the reason the actual yield was increasing as much as it did. Due to historical yield farmers had and the farm problem in the 80s, the pay yield was much lower than the actual yield farmers had. The difference between your actual yields and your pay yields is called the coverage gap. The government fixed the coverage gap by allowing farmers to update their base and yield.
T/F: The CCC is the USDA bank
True
Evaluate this statement: "the base program was put in place to allow people to produce whatever they wanted in the market"
true
Agricultural Adjustment Act (AAA) of 1933
"the foundation of farm policy" it is the root of most of the current policies we have today - declared unconstitutional but 1938 act fixed the legal problem
What happens when the farm bill is passed?
- Its not uncommon for the farm bill to be passed after the fiscal year has ended for that bill - Only 2 have been passed before - Midwest (breadbasket of US) doesn't start planting until around May, so they try to have it passed before people start planting.
What does Price Loss Coverage (PLC) do?
Covers losses in income due to covered commodity price declines below established reference prices.
What is EQIP?
Environmental Quality Incentives Program(most popular): told congress to split 50/50 b/w livestock and crops - Funded at $130 million in FY 1996 and $200 million per year thereafter •Funds to be split evenly between crops and livestock -Large livestock operations ineligible for cost sharing for animal waste management •5 to 10 year contracts •Payments limited to $10,000 per year and to $50,000 over the duration of the contract
How is PLC dissimilar to deficiency and CCP payments?
Reference prices are partially decoupled in '14 and completely coupled in '96
T/F: Cotton was not a covered commodity in the 2014 Farm bill
True
What is base acres and farm program yields?
- A farm's base acreage and program yield are historical averages of crop production, and are used to calculate certain government payments. - For purposes of this class, base acres and program yields were initially frozen in 1985. This means that farmer support payments were determined by what they had planted prior to 1985. If a farmer wanted safety net protection from the government they had to plant the crops they had base acres for. - Program yields were not allowed to increase as yields increased with technology
Why is there a fight between ARC and PLC?
- ARC from midwest: shallow los protection (little pmts often), also revenue protection - PLC from South: Income support that will protect you from the reference price all the way down to the loan, only price protection
What happened in the New Deal era (1929-1954)?
- Agricultural Adjustment Act of 1933: Most of current policies we have today have their roots in this act. It is foundation of all farm policy ("root"). used to stimulate economy out of depression - New deal farm programs led to large-scale govt interventions in marketplace on behalf of farmers - Ag Act of 1949 is important because it is last one that didnt have expiration date. - Soil Conservation Service (now NRCS) established in 1935.
Flexible Price Supports (1954-1970)
- Basically a price floor - Ag Act of 1956 establish soil bank - Goal was to adjust supply by taking land out of production - Acreage reserve-short term - Conservation reserve-long term
Crop Insurance
- Began in 1938 - Solely government-run (wasn't a lot of incentive to sell it bc they already had jobs to do), now public-private partnership - Initially just covered crop yield losses but now also includes revenue coverage and a lot more - Started as program crop only... now fruits and veggies and livestock and dairy - Administered by USDA-Risk Management Agency (RMA) - Agricultural Risk
Program Yields
- COuld replace any of the 1998-2001 yields with 75% of the county average for that year - Using 75% of 1998-01 county average yield per harvested acres to replace any yield - All crops on a farm were required to use the same method for determining yields
Partially Decoupled Direct Payments (1996-2005)
- Capitalization of payments - Farmers got it whether they planted or not
Tell me about 1990s farm bill
- Congress set Target prices which gave support to deficiency payments - Target prices are coupled to price AND production (sold at certain price and need to produce certain amount to get payments)
Bipartisan Budget Act of 2018
- Crucial to get cotton back into farm bill - Brought cotton back in as a covered commodity in the form of seed cotton - Allowed them to get into a no new money farm bill - 2018 (so they didn't have to take it from another commodity and start a war) For Dairy: - Premiums were reduced on the first 5 million pounds of production - eliminated cap on livestock expenditures for crop insurance Disaster Programs: - Created WHIP - Eliminated spending cap on emergency assistance for livestock, honeybees, and fisheries
What policy tools are counter-cyclical?
- Direct payments - PLC payments - PFC payments
Why didn't producers like choice?
- Even though they were given options to increase flexibility, they didn't like it because they could choose wrong and get upset. - They didn't have anyone to blame for making the wrong decision about which option to choose.
Base Acres (most important to farmers) and Program Yields
- Historical averages of crop production are used to calculate certain government payments - Froze in 1985 - Support payments were determined by what they had planted prior to 1985 - If you wanted to get help from the government, you had to plant your base - Farmers complained because they had no flexibility in the market to plant what was getting good prices at the time if it wasn't their base commodity - Program yields were not allowed to increase as yields increased with technology
ARPA (Agricultural Risk Protection Act of 2000)
- Hugely important - They increased the subsidies for all the different levels of protection - Made it much cheaper for producers to buy the same level of protection, or give the same level of money and have increased protection - Made it more popular to get insurance
Environmental Quality Incentives Program (EQIP)
- Introduced in the bill - Most popular conservation program - Gave a chance for livestock producers to say they needed to get $ too so funds were to be split evenly between crops and livestock - Payments limited to $10,000 at beginning and rose to $50,000 through the duration of the bill - Still with us today In '02: funding increased 6 fold bc it was so popular that they ran out of money
Marketing loans
- Nonrecourse loan on a crop - Producers take a loan at the CCC loan rate & repay the loan at the lower of the CCC loan rate or market price - In 1990 only authorized for cotton and rice - Approved for grains but never used
Why do people plant wheat and not insure it?
- People often use wheat as a cover crop for soil - It costs almost nothing to plant and lose - People insure the crops that cost them money
What is a nonrecourse loan?
- Price floor - slight difference in the way the loan worked - government has no authority to come take your farm because they accept your crop as pmt for the loan (helpful if the market price drops for the crop)
How are supplemental coverage option (SCO) and STAX different?
- SCO paid subsidies of 65% (you pay 35%), while STAX had 80% govt subsidy (you pay 20%) - SCO covers everything as long as you have insurance, STAX only covers cotton
STAX vs ARC/PLC
- STAX wasn't what the industry thought it would be. It wasn't enough support - Reason was that it was determined by the future market and prices started falling so they didn't get much protection - Beginning with the 2019 crop year, a farm shall not be eligible for STAX for upland cotton for a crop year for which the farm is enrolled in coverage for seed cotton under PLC or ARC
Crop Policy tools in 1990?
- Target prices: gave support to deficiency payments. To be effective, TP always greater than point where S=D - Nonrecourse loan: basically a price floor - Marketing loan rate(hated): price will not stay at floor but will go below it until it reached market prices - Set-aside: you had to set aside a part of farm in order to receive payments on what you planted - Deficiency payments (by program crop): DP = Target price(TP) - higher of {loan rate(LR) or market price (MP)} x [crop base acreage x (1-ARP%)] x farm program yield
What are Counter-cyclical payments?
- They were initiated in '02 - Only coupled to price - Not the same as TP/deficiency pmts from '90 - Wont know for sure what total pmt will be until end of marketing year (this is roughly a year after harvest)
Cotton losing the WTO case
- They were left with the STAX policy - Cotton farmers tend to be bigger than other farms so they didn't like the pmt limits (why they moved their money to crop insurance)
U.S. Commodity Policy
- Title I of the Farm Bill - Select list of crops that have support, used to be called program crops, but now called "covered commodities" - Its not all crops
2014 Farm Bill
- Took a long time to get this bill done, several reasons: 1. Beginning of planting for most of the world was February when the farm bill was passed, and prices were relatively good so there weren't a lot of desperate please from farmers to get it passed 2. There was very little experience on the ag committees (especially in the house, 11 out of 46 members had experience) 3. There was opposition from both parties about the bill - producers didn't like having to make a choice between PLC and ARC - Repealed direct pmts, CCP, and ACRE - Replaced with ARC (shallow loss) and PLC (deep loss, similar to CCP) - First pmt made for either choice was after September 20th 2015 for the 2014 crop - Ended up being South vs Midwest deal - Cotton based acres were now generic base acres
2002 Farm Bill
- Tried to fix all the issues with the '96 bill with this one - Commodity provisions similar to '96 bill - Renamed AMTA/PFC payments to "direct payments" (decoupled/AMTA/PFC/direct pmts all the same thing) - Added in target prices again (for CCPs) - COntinued marketing loan gains/LDPs - NO production controls - Initiated CCPs - Major changes to soybeans and peanuts (now similar to other program crops) - Required Country-of-Origin Labeling (COOL) for meat, fish, produce and peanuts by 2004 (only could be labeled by US if born, raised, and slaughtered there) (finally started in 2008) - Added AGI (adjusted gross income limitation) means testing to be eligible for program benefits (Scottie Pippen Rule) (to keep from giving benefits to individuals who don't need it)
1996 Farm Bill
- Was REVOLUTIONARY (only one) - Strengths: Freedom to farm (breaks link of having to produce a certain crop to receive payments) Failure: Didn't provide enough support so it had to be replaced asap - Major shift from coupled (deficiency pmts) to decoupled support (AMTA/PFC pmts) - Was supposed to transition us from helping farmers at all (93-95 were good years, so they thought there wouldnt be anymore bad years) - Eliminated TPs, supply mgmt (ARPs), and acreage bases
why would some crops update basis and others not?
-Historically, wheat was a huge crop in this country and they've been going down because prices aren't as good but they established those basis a long time ago for wheat. -#1 reason, wheat got $10 for decoupled payments while others got double so that's a good reason to switch -Used to plant 500 wheat and 500 corn but now 500 rice and 500 corn -Want to move basis to what youre planting so you get help for what youre planting. Don't want to screw over any people that are planting crops youre not
What are the 3 reasons ACRE wasn't good for Texans?
1. It was a two trigger program that required a state loss and a personal or farm level trigger for loss. - you could get wiped out and your state not trigger and you wouldn't get anything (Texas has a lot of production variability) 2. If chosen, there was a 30% loan rate reduction 3. There was a 20% direct payment reduction
What are the three acts that make up the three legged stool?
1. Morrill Act (1862): Donated public lands to the several states and territories which may provide colleges for benefit of Ag and Mechanic arts 2. Hatch Act (1887): Established Ag experiment stations (research) 3. Smith-Lever Act (1914): Set up the extension system to communicate new technologies from the USDA directly to farmers.
When were the farm bills made?
1985, 1990, 1996, 2002, 2009, 2014, 2018
Which farm bill eliminated production controls?
1996
What is the only farm bill that started off with a lot of extra money?
2002
What was difference between target price program in 90 bill and 02' bill?
90 is coupled in price and production, 02 decoupled in production and coupled in price
if an ARP of 5% is in place for cotton, which of the following HAS to be true? A. this refers to a 1996 farm bill policy B. there will be a slippage C. commodity prices will be higher without the ARP D. all of the above E. none of the above
All of the above
What is ACRE?
Average Crop Revenue Election: - a state level gross revenue protection plan for each covered commodity and peanuts - The secretary shall make an ACRE pmt on a farm for each crop year if: 1. The actual state revenue for the crop is less than the ACRE program guarantee for the crop 2. The actual farm revenue for the crop is less than the farm ACRE benchmark revenue - Producers have to determine whether the loss in guaranteed support is made up by potential gain with ACRE.
What is the farm problem? starting in the 1980s
Basically one of unstable farm prices and, therefore, unstable farm income: - Due to inelasticity of supply and demand - Due to shifts in international demand - Due to weather - Due to fixity of ag resources - Due to bad government policy decisions
What is the CCC?
Commodity Credit Corporation: - A federally owned and operated corporation within the USDA created to stabilize and support agricultural prices and farm income by making loans and payments to producers, purchasing commodities, and engaging in various other operations. - Handles all money transactions for agricultural price and income support and related programs. - The USDA bank CCC basically gets funded by congress and is USDAs bank or credit card
Why is crop insurance not enough of a safety net for farmers?
Crop insurance is risk management. Farmers only get a portion of their investment back, theyd rather have a crop than insurance.
In the 2014 farm bill, why did crop insurance go up?
Crop insurance went up because we had more products available and its how we fixed cotton. We created STAX program for cotton so we had to put more money into the crop insurance part of the bill.
Farm Credit Administration (FCA) June 1933
Emergency and long-term credit programs
T/F: The 1993 agricultural adjustment act was last farm bill enacted without an expiration date
False
T/F: The 2002 farm bill was the first time bases and yields could be updated since their creation in the mid-1970s.
False
T/F: When return falls, resources quickly move out of agriculture
False
Why was it crucial to pass the bipartisan budget act of 2018?
It got cotton back in the farm bill before actually passing the 2018 bill. If cotton wasnt back in budget, they wouldve taken money from another commodity and upset them.
What does skin in the game refer to?
It refers to a farmer having to pay a premium (money) for crop insurance (ARPA) - you've given something to receive protection. - Ad hoc payments are typically disaster related where farmers receive payment based on if they were effected
What is a farm bill?
It tells USDA what to do, how to do it, who to do it for, and for how long. - Ex. provide food assistance with food stamps to poor for the period 2008 to 2012
Is agricultural policy evolutionary or revolutionary?
It tends to be evolutionary. The only time it was thought to be revolutionary is the '96 farm bill. -Once policy tools or programs get adopted, they last for a while because farmers resist change -adjustments are often costly -wealth is affected (capitalization) -fear of the unknown
Why is crop insurance part of the three legged stool of the safety net for producers?
Leg 1: Nonrecourse Marketing Loan Leg 2: Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) Leg 3: Crop Insurance - its all that producers need but it cannot be the only thing - because it may not cover everything that you lose during a bad year.
List farm bills and whether they are coupled (1970-1996) or decoupled
Marketing loan gains (MLGs): 1990, 1996, 2002, 2008, 2014 coupled to price and production Price loss coverage (PLC): 2014 coupled to price Agriculture Market Transition Act (AMTA), Production flexibility contract (PFC), and Direct payments: 1996, 2002, 2008 decoupled Average crop revenue election (ACRE): 2008 coupled to price Counter-cyclical payments (CCPs): 2002, 2008 coupled to price Agriculture risk coverage (ARC): 2014 coupled to price Target prices/deficiency payments: 1990 coupled to price and production
If a target price and an effective nonrecourse marketing loan program are in effect for corn which of the following HAS to be true? A. There will be an effective price floor in place B. There will be CCC purchases C. There will be never be deficiency payments paid to producers D. All of the above E. None of the above
None of the above
What do we call program crops today?
Program crops is the old way of saying what we call coverage commodities today.
In the 1990 farm bill, how does ARP move on the graph?
Supply does not shift parallel, but rotates backwards, creating a pie shaped shift. -with ARP, if govt says they're setting aside 5%, production will only go down 2% because producers will set aside the land with worst production (flooding, low soil fertility, etc.) -Producers farm the land they use more intensely now
What is seed cotton?
Term that people in the industry use for ungined upland cotton that includes lint and cottonseed.
What is the watershed change in policy direction?
The 1996 farm bill: -Created decoupled AMTA or PFC payments - Substantial departure from what we have done in the past -Eliminated Target Prices •Income support now provided by PFC payments -What did landlord do? They jacked up rent with decoupled payments -If youre landlord working with rice growers, a lot of rice landlords said, "hey you've been giving me $20/acre to plant your crops and I could've jacked up prices but youd complain so im gonna cut you off and just take $100/acre." This cut huge portion of rice production off.
Why is it effective to get congress to act on passing farm bills?
The 49 bill is effective at getting the new bill passed because if the new bill doesn't pass, then we revert to the '49 bill, which would allow commodities to have the same purchasing power as they did in 1910-1914 (Parity prices), and it would be way too expensive for the government to maintain that today, and nobody wants that to happen.
How is PLC similar to deficiency and CCP payments?
They all 3 have a government specified level of revenue protection (two target prices & one reference price) -- both use formula to calculate income support pmts
What has changed over time about farm bills?
They are more complex than they one were (i.e. the number of printed pages increased over time)
Requirements for making payments to producers
They established base acres and program yields to determine those
What are the two kinds of producers?
Those who want to maximize their government payments and those who want to manage risks
T/F: In Ag policy, policy tools are often reused but given different names
True
T/F: In the 2014 Farm Bill, the only major title that saw a decrease in funding was crop insurance
True
T/F: Participation in the ACRE program was not high among Texas producers.
True
T/F: The ACRE program had a dual state-level and producer-level trigger that had to be met before farmers received a payment
True
1990 Farm Bill
Was the last bill with individual chapters for each commodity & the last one to contain supply mgmt provisions (supply controls) - Used: TP, nonrecourse loan, marketing loan (introduced), ARP(acreage reduction program)
If a farm bill cant get done by the end of fiscal year, Why cant a farm bill get pushed in far?
because people wanted to know what the policy was prior to planting
What does the saying "The cure for high prices is high prices and the cure for low prices is low prices" mean?
means high prices increase production which raises supply and lowers prices and vice versa for low prices.
