With the change in political structure of Washington, the debate over the 2007 Farm Bill will have new voices, louder voices, and maybe some new theories about what to do to ensure the quality and quantity of food that Americans expect. The practical options most discussed are an extension of the current legislation to allow trade negotiations to conclude, adjust the safety net and patch any obvious holes, or create something innovative that responds to the rising market prices. With that thought in mind, let’s begin a two part focus on changes that may be expected in the 2007 Farm Bill.

Our current prices for corn (driven by increased demand), soybeans (fighting for acreage), and wheat (driven by a short supply) will probably not be seen in Washington as permanent, and that means there will be some creation of a farm program, either in 2007 or in the near future. At Iowa State University Bruce Babcock says he sees Congress with a choice of routes to take:
“1. Declare victory over low prices but keep current programs and associated target prices in place just in case this victory is short lived.
2. Keep current programs but raise target prices for all crops or for those crops that would not otherwise receive payments.
3. Change farm programs so that they provide a better financial safety net, with payments arriving when they are needed.”

If Congress looks back at what was done in parallel times, Babcock says it will find that when prices went up so did the safety net, to prevent economic distress if the market plunged, then support levels have been eroding since 1985, with emphasis on responding to signals from the marketplace. And Babcock adds, “But, especially since 1996, the overall pattern of prices and production have been largely unaffected by the billions of dollars in federal support given to corn farmers over this period. That is, if government had chosen to wean farmers from support in 1972, the U.S. Corn Belt would look mostly like it does today.”

If the 2002 Farm bill is extended, Babcock believes, “For all the domestic and international criticism aimed at the 2002 Farm bill, extension of its commodity provisions would represent a move to a free-market program regime for corn, soybeans, and wheat. The impact of the bio-fuels boom on the demand for corn should mean that market prices for all three commodities could remain above levels that trigger countercyclical and loan deficiency payments at current target prices and loan rates. Direct payments would still flow to producers, but these payments have little effect on planting decisions.”

If target prices were rebalanced, Babcock says, Soybean and wheat growers have received almost no support from countercyclical payments since this program’s inception, and corn farmers should not expect to see any support for the next few years. But rice and cotton producers likely will continue to receive both marketing loans and countercyclical payments.”

Repairing the safety net is the third choice Babcock sees, which he says results from the fact that Congress has failed to make crop insurance the central point of a farm program, and repairing other holes, “There are three such holes that could be filled: uninsured acreage, the large crop insurance deductible, and the impact of multi-year losses on crop insurance guarantees.” One of the elements to cure that ill would be Babcock’s suggestion to provide Group Risk Income Protection (GRIP) to farmers instead of disaster payments. “A farm policy that simply gave a GRIP-style policy to producers would thus provide the basis for a sound safety net that would eliminate any economic justification for disaster assistance programs.” At that point, Babcock says any farmer still feeling unprotected could obtain a crop insurance policy. “If this were done, then the one remaining safety net hole would be variations in farm yield not reflected in county yields, also called yield basis risk. This remaining risk could be largely covered by new crop insurance products offered by crop insurance companies.”

Instead of protecting a price, which could encourage overproduction and low prices, this concept would protect farm family revenue, which is acceptable to world trade negotiators, and has been adopted by the National Corn Growers Association as the keystone for its Farm Bill initiative, and has support of the American Farmland Trust and Chicago Council on Global Affairs which both participate in the Farm Bill debate.

Summary:
The coming debate on a new farm program could focus on extension of the current policy, rebalancing the safety net for various commodities, or creating a trade-friendly program that supports farm revenue without encouraging overproduction and low world prices. The latter concept would be built upon revenue insurance concepts as an alternate to periodic disaster payments, but could also be enhanced with innovative crop insurance programs.