No clear choices surface in U.S. farm bill debate

By Mike Duffy
Associate director

The 1996 Federal Agriculture Improvement and Reform (FAIR) Act, the current U.S. farm legislation, is set to expire next year and the debate over the new farm bill has begun in earnest. Many options are available, but at this time no one plan has surfaced as a clear favorite for a majority of the parties involved.

In March, Leopold Center director Fred Kirschenmann and I testified before the Senate agricultural subcommittee that is considering the new legislation. The director's testimony focused on research issues for the farm bill, while I discussed the current situation in Iowa and presented some suggestions for the new bill. The testimony is posted at the Leopold Center web site, or can be obtained by contacting the Center.

Farmers depend on payments
The outcome of the debate will significantly influence all of agriculture. During the 1990s, almost one-fourth (23 percent) of the net farm income for U.S. agriculture came from direct government payments. Since the passage of the current farm bill, government payments have averaged 26 percent of the farm sector's cash income (based on 1996 through 2001 estimates).

These figures are for the entire United States. Data from individual states show an even greater reliance on government payments. In Iowa, for example, government payments have averaged 55 percent of the net farm income during the 1990s. Direct government payments to Iowa averaged $905 million each year from 1990 to 1999.

Such heavy reliance on government subsidies indicates that the farm bill and its replacement have a significant impact on the financial health not just of farmers, but rural communities and states in general. Major agricultural interests and commodity groups have stated their positions, but are inconsistent in some cases. The compromises that will surely be necessary have not yet begun.

Possible alternatives
The first course would be to simply let the current legislation expire and not enact anything in its place. This is highly unlikely. The FAIR Act contains a provision stating that if no new farm bill is passed, the country would revert back to the 1949 permanent agricultural legislation. Under the 1949 bill, costs of programs would soar and the nature of programs would change considerably.

Another possibility is that Congress would repeal the 1949 legislation. This, too, is not probable. Such a dramatic change would require considerable coalition-building, not likely given the current makeup of the U.S. Senate.

Numerous other options and alternatives have been suggested and are being examined. A major feature of many alternatives is some type of counter-cyclical payment, under which farmers would receive higher payments when prices are low and lower payments when prices recover. Additional variations on this cyclical payment theme are being considered.

There also is strong support for an increase in conservation incentive payments, the so-called "green payments." Again, this option has many versions, the predominant one being the proposed Conservation Security Act. This program would have three tiers of payments to farmers, with each tier characterized by an increasing level of farm practices that protect the environment and natural resources. Farmers would be allowed to choose any level of participation. Farmers who do not participate would not receive any payments.

Reinstating the farmer-owned grain reserve also has been discussed, as have different set-aside programs. Under one scheme, farmers would be given the option to set aside acres and receive payments based on the level of land set-aside they chose. This program would be voluntary, and there would be no payments if a farmer opts out of the program.

Some people favor enhancing current programs by adjusting crop and revenue insurance premiums and the level of coverage. Other groups also want to consider increasing trade enhancements and subsidizing alternative crops, especially crops used for production of energy.

FAIR Act questions remain
Many other possibilities exist, each with advantages and disadvantages. Regardless of what programs are passed, there is almost universal support for avoiding a return to a set-aside program. The 1996 FAIR Act, also known as "Freedom to Farm," gave farmers flexibility to plant any crop.

A concern about retaining the FAIR Act is cost. When first enacted, FAIR was billed as legislation that would be a transition to a free market farm policy in the United States. Farmers could plant what they wanted and the movement of the market would dictate which crops were produced. New insurance schemes were introduced and payments to farmers were set at a decreasing level until, at the end of the FAIR Act, payments would be reduced to nothing.

What has happened, however, has not been a gradual removal of the government from agricultural production. There are no set-asides or grain reserves, but the cost of funding the FAIR Act has soared with low commodity prices. Costs have increased at a considerably higher rate than anticipated. Passing a farm bill to reduce the government's cost is a top priority for many people, but the sentiment still exists that the market should dictate plantings and will probably influence the outcome of the 2002 farm bill debate.

A minimum wage for farmers?
In my testimony before the Senate Agricultural Committee, I proposed a simple plan that would replace all current payment programs with a wage program. The idea is to protect the return to labor by supporting farmers, not by supporting commodities. This proposal would establish a wage rate for farming operations. Farmers would be paid based on the number of units (acres, litters, cows, or whatever measure selected) they produced at a standard amount of labor per unit, multiplied by the wage rate. Payments would be capped at full-time employment levels.

Space does not permit me to go into all the details of such a proposal but it would satisfy several complaints levied against the current legislation. This plan also would allow total "freedom to farm." Farmers could plant whatever they wanted, market the output however they wanted, and know exactly what level of support they would receive. There would be no set-aside programs, loan deficiency payments or any of the other currently used support mechanisms.

Under this proposal, farmers would receive a fair wage for their labor. Their financial return would depend on their management skills in making the right production decisions. Farmers would receive payments based only on the hours they worked and produced, and only up to full-time employment rates.

An important outcome
Farmers must pay close attention to the current farm bill debate because their future could literally depend on its outcome. Farmers must make themselves and their wishes known to the policymakers. Trade-offs are inevitable, and without knowing people's opinions, it will be hard to reach an acceptable compromise.