Agricultural Policy Issues Make Some Progress

December 5, 2018

PAER-2018-16

Author: Roman Keeney, Professor of Agricultural Economics

Headed into 2018 three policy areas stood out as crit- ical developments with potential to significantly impact the farm economy – international trade negotiations, immigration reform policy, and replacement of the 2014 Farm Bill. The 2018 calendar year saw significant political activity on all three issues, though only the Farm Bill replacement seemed to be firmly resolved.

In our 2018 PAER Outlook article on farm policy we identified some objectives that new farm policy could pursue within the relatively tight budget constraints for farm support (p. 6). Those items focused on giving farmers flexibility to update their program participation to match changing activities of their farm. With all commodity support programs in the 2014 Farm Bill being counter-cyclical (i.e. payments increase as markets falter) it makes little sense from an income safety net perspective to lock farmers into a five-year payment program that may poorly match farm activities as annual planting adjustments take place.

As 2018 closes, all signs point to the 2018 Farm Bill passage that will provide ample opportunity for farmers to update how programs work for them dur- ing the 2019 to 2023 crop years. The key changes to commodity support policy featured in the conference report that was delivered for passage include:

  • Maintaining PLC (Price Loss Coverage) and ARC (Agricultural Risk Coverage) program options with farmers given opportunity to move base acres between programs.
  • Yields calculated in the ARC program are no longer required to be calculated at the county level for the largest counties, producing a more repre- sentative measure of yield.
  • PLC reference prices keep their statutory basis from the 2014 Farm Bill (e.g. $3.70 for corn) but may be adjusted upward by as much as 15% using an Olympic average formula for the previous five years.
  • Marketing loan guarantee prices are increased significantly (10 – 25%) from their 2014 Farm Bill levels.
  • Removes the federal ban on hemp production.

This set of changes fit into a Farm Bill that is other- wise very similar to its immediate predecessor, including a nutrition title that is expected to continue to ac- count for 80% of total Farm Bill spending. SNAP eligibility requirements that were prioritized in the House of Representatives version of the Farm Bill and anticipated to significantly reduce participation were largely excised from the conference report that was voted on by the full House and Senate. Efforts in the Senate to curb eligibility for farm subsidy payments were soundly rejected as the final form of the legislation offers an expansion of recipients with an interest in the farm operation. Finally, the legislation passed in the Senate and House keeps crop insurance programs fully intact, heeding agricultural interests’ ‘do not disturb’ demands for this component of the farm safety net.

In agricultural trade, a replacement agreement for NAFTA has been negotiated and the U.S. has in- creased engagements with China on de-escalating the trade war that has limited Chinese imports of U.S. soybeans and depressed U.S. prices. An appropriate question to ask is how the new Farm Bill might insulate U.S. farmers from market volatility linked to any new trade actions. Increased price sup- port (marketing loan rates and reference prices for PLC/ARC) certainly provide stronger income protection against any international market effects that depress U.S. producer prices. The Farm Bill also in- creases farmer options for setting their payment parameters, allows the domestic hemp market to develop, and promotes U.S. exports to new markets through market promotion programs. These all provide a counter to potential negative impacts of the U.S. engaging in tariff protection to try and lower trade deficits.

Trade assistance payments for agriculture were enacted in 2018 but were not adopted as a formal mechanism in the Farm Bill due to the budget requirements that constrain Farm Bill spending. This means that the largest direct policy for mitigating farm income losses due to trade will continue to work on an ad hoc basis, leaving farmers uncertain on whether any assistance might be forthcoming. From agriculture’s perspective, it is imperative that trade disputes with North American and Asian trade partners come to a quick resolution to guarantee the market access that has fostered U.S. agricultural exports. A new divided government with the Democratic Party controlling the House of Representatives represents a wild card in pursuing the administration’s trade agenda and finalizing any trade deals.

The effect of a divided Congress may be most evident in immigration policy, with a Democratic congress able to extract some policy concessions that favor undocumented immigrants in the U.S. workforce, a significant source of U.S. agricultural labor. Immigration reform has proved elusive for better than a decade and attempts to reach a resolution have proven costly in advancing other legislation, including a failed Farm Bill vote in the middle of 2018 when agreement to vote on an immigration reform package couldn’t be reached. A Democratic congress that prioritizes the economic policy concerns of immigration reform may have some success if economic growth suffers in 2019, though the beginning of a presidential election cycle would seem to indicate continued difficulties in reaching broad agreement that could ease labor short- ages and uncertainties for agriculture.

In 2019, the policy fortunes of agriculture will be largely determined by accomplishments that move away from trade protection and instead increase market access for U.S. exports. This is a tenuous position for agricultural interests, as the Farm Bill is often seen as the concession made to agriculture for any negative impacts arising from an industrial focused trade policy, even though the 2018 case shows the Farm Bill has limited ability to offset any damages.

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