What is in this article?:
- 7 Questions About the Farm Bill
- Question 2: Will the programs focus on across-year or on within-year protection?
- Question 3: Will the across-year programs focus on price or revenue protection?
- Question 4: Will the support levels for across-year programs react to changes in market conditions?
- Question 5: Will the program use historical or planted acres to indemnify producers?
- Question 6: How much overlap will be allowed between farm bill programs and crop insurance?
- Question 7: Does a farm have to have a loss to trigger payments?
Designs of the farm bill programs will largely answer the following seven questions. In some cases, these are contentious issues across regions and across crops. For example, some may want a revenue program while others desire a target price program. Hence, resolution of these issues likely will require compromise, perhaps leading to unclear answers. It is highly unlikely that any party to the farm bill negotiations will receive all their desired answers to the above questions and will therefore have to choose which of these questions are more important to them.
Question 4: Will the support levels for across-year programs react to changes in market conditions?
The revenue programs in last year's farm bill drafts had support levels that reacted to the market. The revenue support targets were set using the product of a moving average of historical prices and historical yields. In contrast, the target price proposals in last year's House Agricultural Committee Farm Bill did not react to the market. The target prices were set at levels fixed for the life of the farm bill.
Most target price programs have not had market-moving targets built into the program. However, it is possible to build a target price program that would react to the market. Rather than having legislated fixed prices, target prices could be set using an average of previous prices that move over time. Lower market prices would lower the target price while higher market prices would increase the target price.
Reacting to the market implies certain characteristics. Of particular importance, a period of low prices that persist for several years will result in lower payments during later years of the low price cycle. Conversely a program that does not react to the market will have similar payments in the first and later years of the low-price cycle. These differences have important international trade implications. In the first situation, U.S. agriculture adjusts while in the second situation all of the adjustment is borne by foreign countries. The latter situation increases the likelihood of U.S. programs being sued at the World Trade Organization.
To summarize, arguments for adjustments are that farmers need to react to new market conditions and declining payments from a commodity program give farmers' time to react. Arguments against market-oriented targets are that adverse conditions cause pain whether the adjustments occur during the early or later years of changes in market conditions.