The Food, Conservation and Energy Act of 2008 (The 2008 Farm Bill)

1. The Food, Conservation and Energy Act of 2008(The 2008 Farm Bill) Will Snell, University of Kentucky

2. Every farm bill debate is different ,… but this one was certainly been one of the most challenging given the economic, political, and budget environment Agricultural Economics

3. Factors Affecting the Farm Bill Debate • Current Status of the U.S. Agricultural Economy • Commodity Prices • Net Farm Income • Exports • Balance Sheet Agricultural Economics

4. Sluggish Growth Escalating Energy/Food Prices Credit Crisis Slumping Housing Market Volatile Stock Market Declining Dollar Cautious Consumers Recession??? Relatively High Prices Record Cash Receipts Record Net Farm Income Record Exports Strong Balance Sheet New Opportunities Energy Pharmaceuticals Expanding Global Markets U.S. vs Ag Economy U.S. General Economy U.S. Ag Economy Agricultural Economics

5. Prices Received by U.S. Farmers Soaring export demand and of course expanded use for commodities (primarily energy) has led to historic high prices Source: NASS/USDA Agricultural Economics

6. U.S. Net Farm Income U.S Net Farm Income established an all time record high of $88.75 billion In 2007 and is forecast to exceed $90 billion in 2008 – over 50% above the 10 yr avg. Agricultural Economics Source: ERS/USDA

7. U.S. Trade-Weighted U.S. Dollar Exchange Rate 1997 = 100 Agricultural Economics

8. U.S. Ag Exports A combination of tight foreign supplies, a declining dollar, and population/economic growth in Asia and Latin America has led an export boom for U.S. agriculture Agricultural Economics Source: ERS/USDA

9. U.S. Ag Trade Balance A few years ago ag economists where discussing the potential of a trade deficit for the U.S. ag sector …. But while imports continue to grow, the growth has not been comparable to the growth in exports. Agricultural Economics Source: ERS/USDA

10. U.S. Farm Debt to Equity and Debt to Asset Ratios U.S. farmland prices have more than doubled since 2000 Agricultural Economics Source: ERS/USDA

11. Political and Economic Factors Affecting the Farm Bill Debate • Current Status of the U.S. Agricultural Economy • Commodity Prices • Net Farm Income • Exports • Debt Position • Budget Concerns Agricultural Economics

12. U.S. Budget Deficit/Surplus The budget baseline for the 2007 farm bill was reduced by more than 40% compared to what was spent on the 2002 farm bill Agricultural Economics Source: CBO

13. Outcome • Reduction in traditional ag commodity support • Calls for major reform in commodity programs failed • similar structure of the 2002 farm bill • Greater support for food/nutrition programs, conservation, specialty crops, and energy. Agricultural Economics

14. 2008 Farm Bill • The 2002 Farm Bill expired in September 2007 • Following months/years of debate, several extensions, a presidential veto, a Congressional override, an administrative glitch, the 2008 Farm Bill became law in June 2008 • A side by side comparison of the 2008 and 2002 farm bills is available from USDA (www.ers.usda.gov/FarmBill/2008/) Agricultural Economics

15. The Budget PictureU.S. Farm Bill Spending by Category Commodities – 11% Commodities – 23% Other – 12% Other – 15% Conservation – 8% Nutrition – 68% Nutrition – 62% Source: Brad Lubben, University of Nebraska Agricultural Economics

16. Background • The titles for the 2008 Farm Bill included … • Commodities • Conservation • Trade • Nutrition • Credit • Rural Development • Research and Extension • Forestry • Energy • Horticulture • Livestock • Crop Insurance • Commodity Futures • Taxes • Miscellaneous Agricultural Economics

17. Safety Net Programs Maintains the current safety net programs for farm bill crops consisting of: • direct payments • countercyclical payments • marketing loan benefits with some adjustments in loan rates and target prices beginning in 2010. Agricultural Economics

18. Loan Rates Agricultural Economics

19. Target Prices Agricultural Economics

20. Direct Payments No changes in Direct Payment Rates But payment acres are reduced from 85% of base to 83.3% for 2009 - 2011 Agricultural Economics

21. Optional CCP (ACRE) • Provides program crop producers with an optional one-time enrollment of a state-level revenue-based countercyclical-program called the Average Crop Revenue Election (ACRE) beginning in crop year 2009 • Producers agree to a 20% reduction in direct payments and a 30% reduction in loan rates. • If selected, producer remains in the ACRE program for 2009-2012 for all program crops grown on the farm Agricultural Economics

22. ACRE Details • A producer who enrolls in the ACRE program will receive a payment if: • The actual state revenue for an eligible program commodity is less than 90% of a state revenue guaranteeAnd … • The producer suffers a revenue loss • Payment will be based on 83.3% of the eligible base acres for 2009-2011 crops and 85% of base acres for 2012 with adjustments for farm yields relative to state yields Agricultural Economics

23. ACRE Details: Actual State Revenue and the State Revenue Guarantee • Actual state revenue: the product of the actual state average yield and the national average market price • State revenue guarantee: the product of the previous 5 year’s state average yield, excluding the high and low yields and the previous 2 year’s national average price Agricultural Economics

24. ACRE Details: Actual Farm Revenue vs the Farm Revenue Guarantee • Actual farm revenue: the product of the actual farm yield and the national average market price • Farm revenue guarantee: the product of the farm’s 5-year average yield, excluding the high and low yield and the 2-year national average price plus the crop insurance premium per acre Agricultural Economics

25. Other ACRE Details • ACRE state revenue guarantee for a given crop for 2010-2012 cannot change by more than 10% from the previous crop year • Per acre ACRE payments cannot be greater than 25% of the state program guarantee for the crop. • ACRE payments are calculated on planted, not base or harvested acres, and • Total number of eligible planted acres for all crops on a given farm cannot exceed the farm’s total base acres. Agricultural Economics

26. Average Crop Revenue Election State ACRE Guarantee = 90% *5-Year Olympic State Avg. Yield* 2-year Natl. Average Mkt. Yr. Price Restricted to < 10% change/year Actual State Revenue = Actual State Planted Acre Yield* MAX[ Natl. Average Mkt. Yr. PriceOR 70% Loan Rate] > And Farm ACRE Benchmark = Farm's 5-Year Olympic Avg. Yield* 2-year Natl. Average Mkt. Yr. Price + Ins Premium Actual Farm Revenue = Actual Farm’s Planted Acre Yield* MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] > Then Farm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres * [ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] * MIN[ (State ACRE Guarantee–Actual State Revenue) ORState ACRE Guarantee* 25%] Source: Joe Outlaw, Texas A@M Note: All Yields are Planted Acre Yields

27. ACRE Calculator www.card.iastate.edu/ag_risk_tools/acre/ Agricultural Economics

28. Payment Limitations • Denies direct payments to any producer whose average (previous three years) adjusted gross farm income exceeds $750,000 annually • Eliminates all farm program payments to any individual with an average adjusted gross non-farm income exceeding $500,000. • Individual program caps • Direct Payments (DP)- $40,000, (ACRE, $40K less 20% drop in DP) • Countercyclical Payments (CCP) -- $65,000 (ACRE, $65K plus 20% drop in DP • Marketing Loan Program – No cap • Eliminates the three entity rule (but spouses eligible for separate payment) and requires direct attribution of payments to individuals, not partnerships or corporations. • Eliminates payments for any farm with less than 10 base acres, unless limited resource or socially disadvantaged

29. Disaster Assistance • Establishes a permanent whole-farm revenue disaster assistance program called the Supplemental Revenue Assurance Program (SURE) • Additional disaster programs for: • livestock • forage • orchard and nursery tree producers. Agricultural Economics

30. Dairy Program • Modifies the dairy price support program by directly supporting the price of dairy products • Increases the payment rate on the Milk Income Loss Contract (MILC) program (whose payment would take into consideration the cost of feed), • Extends the Dairy Export Incentives Program (DEIP). Agricultural Economics

31. Conservation Programs • Increases conservation program spending by nearly $8 billion • Authorizes 32 million acres (vs current 39 million acres) to be enrolled in the Conservation Reserve Program (CRP) from 2010 -2012 • Extends most other conservation programs with expanded funding of $3.4 billion for the Environmental Quality Incentives Program (EQIP) • Provides over $1 billion in new funding for the revamped Conservation Security Program (CSP) to enroll nearly 13 million acres annually Agricultural Economics

32. Energy • Increases funding for biofuels research and infrastructure, with increased emphasis on cellulosic and on-farm adoption of improved energy efficiency systems. • Reduces the blenders tax credit for corn ethanol from 51 cents to 45 cents per gallon • Creates a $1.01 per gallon tax credit for cellulosic biofuels • Extends the duty on ethanol imported for fuel use. Agricultural Economics

33. Livestock Provisions • Implements mandatory country of origin (COOL) labeling for meats and produce • Increases market access for small, state inspected meat processing plants • Provides better protection for livestock producers entering into contracts • cancellation allowances, • clear disclosure of large capital investments required • outlines producer arbitration options, • allows producers to petition for local court jurisdiction if litigation arises over contract disputes. Agricultural Economics

34. Rural Development • Provides funding for a wide variety of economic development programs such as: • water, energy, and health programs, • loan guarantees to support value-added ag enterprises, • and broadband internet expansion to enhance rural economies. Agricultural Economics

35. Horticulture • Reauthorizes funding for states to receive block grants and other programs to support marketing, research, education, and pest/disease management for specialty crops. • Additional grants available to support local farmers markets, other direct marketing ventures, and agritourism. • Increased emphasis and funding for enhanced market information, certification, and regulation for organic food production. Agricultural Economics

36. Other Issues • Improves programs for extending credit to beginning farmers and increases farm ownership and operating loan limits. • Revises tax laws to allow race horses to be depreciated over three years. • Prohibits closure or relocation of FSA offices for two years Agricultural Economics

37. For more information … www.ers.usda.gov/FarmBill/2008/ Agricultural Economics