Agriculture’s time in the spotlight: Focusing on the 2018 farm bill

As U.S. net farm income continues its decline to lows not seen in a decade, agriculture is using this spring to ready for its turn in the political spotlight. The 2014 farm bill, which supports farm incomes and agricultural risk management (among other things), is set to expire at the close of fiscal 2018 this September.

As prelude to the large undertaking of passing new farm and food legislation we have seen the Trump administration lay out its marker, calling for significant spending reductions on crop insurance as well as an overhaul of the costly ($71 billion in fiscal 2016) Supplemental Nutrition Assistance Program (SNAP).

Congress has made moves as well, securing some $800 million in additional funds for cotton and dairy producer programs in the February budget deal that ended the most recent shutdown.

{mosads}The recent flurry of activity follows a year where agriculture’s interests were benched, particularly with the Trump administration’s withdrawal from the Trans Pacific Partnership (TPP) and threats to end the North American Free Trade Agreement (NAFTA). The U.S. agriculture lobby is bristling at the U.S. withdrawal from TPP and the advantages it affords TPP participants such as Canada and Australia in protected markets such as Japan.

The mandate to renew or let expire the farm bill in a midterm election year, moves agricultural interests to the forefront and affords some leverage for pushing the broader farm agenda, including U.S. engagement in free trade negotiations. Sen. Pat Roberts (R-Kan.), committee chairman of Agriculture, Nutrition, and Forestry and Rep. Mike Conaway (R-Texas), committee chairman of Agriculture are leading the new farm bill efforts and have already dismissed the administration’s proposal embodied in its fiscal 2019 budget. But what should their agenda be in trying to boost the agriculture sector in a time of depressed farm incomes and soaring budget deficits?

With a tight budget baseline and little impetus to radically reform farm support mechanisms Congress should focus on ensuring farmers have the option to re-enroll in all program choices with full optionality.

This would include allowing farmers to newly designate base acre allocations among crops, update program yields, and reset their program participation options between the price supporting Price Loss Coverage (PLC) and revenue focused Agricultural Risk Coverage (ARC) programs. Both programs base payment levels on fixed historical acreage planting, which can be a poor match for a farm’s current market orientation.

Allowing some form of “flex base acreage” (e.g. a fixed percentage of the base acreage) that makes payments more directly related to current income would enhance the responsiveness of programs to the farm income declines seen the past five years.

With programs that directly attempt to control market supply long out of favor for their relatively high administrative cost, negative efficiency impacts, and failure to deliver reduced output and enhanced prices, this leaves the demand side as an opportunity for addressing low prices and income in agriculture. 

The farm bill authorizes U.S. agricultural trade promotion programs (Foreign Market Development, FMD; Market Access Program, MAP) that have proven successful at generating increased demand for U.S. exports. These cooperative programs between USDA and industry consistently report large returns to taxpayer investment. A recent study from Cornell University Professor Harry Kaiser (for which I was a paid consultant) estimates a 20 to 1 ratio of returns for public investment in overseas grain markets.

Public funds for FMD and MAP programs are relatively small as authorized in the farm bill (less than $0.5 billion annually) and are allocated to well targeted projects that have high potential for payoff in public and industry benefits. This implies that the programs are unlikely to scale up while maintaining high returns.

Even at smaller returns, there is plenty of room for Congress to consider ramping up funding authorizations to improve export demand and by extension the domestic benefits that flow from foreign agricultural sales. Increasing farm bill authorization would send a strong signal to U.S. agriculture about the availability of funds and spur more interest, confidence, and investment in industry led market development projects. It would also provide a small counterbalance to the threats to agricultural export demands from the current era of U.S. trade negotiations.

Even significant increases to trade promotion activity (e.g. doubling spending to match the size of E.U. efforts) would still leave a significant gap in lost export potential risked by TPP moving ahead without the U.S. and a still uncertain NAFTA negotiation. With the administration potentially softening its stance on regional trade agreements the farm bill may represent an opportunity for some cross-policy concessions that benefit agriculture on net.

The Republican-led Congress agreeing to take on some of the administration’s suggested deficit changes to crop insurance (e.g. the lucrative harvest price option insurance product), farm support eligibility, and SNAP work requirements in exchange for greater input on US trade negotiating positions might be the political solution of most promise for U.S. agriculture.

In an election year, where Republican fortunes (and by extension the Trump agenda) will be determined in prominent agricultural districts, farmers should hope to gain from the current timing of the farm bill debate. Aggressive negotiations with aligned interests and their legislative champions (e.g. conservation and environment, health and nutrition, advocacies for low income households) and broad thinking about the policy interests of agriculture, particularly the role of trade, will be needed to move the farm bill forward and ensure the best policy environment for halting the decline in agricultural incomes.

Roman Keeney, Ph.D., is an associate professor of Agricultural Economics at Purdue University and in the Center for Global Trade Analysis. He teaches and conducts research on farm and trade policy of the United States. His published research and outreach appears in leading agricultural economics journals and conference reports. Follow him on Twitter @GTAP_Purdue.