Issue 28
April 2000

NAWG urges farm safety net fix triggered by price Proposal among group's farm policy resolutions for 2000

By Tracy Sayler

Federal lawmakers should shore up safety-net holes in the Federal Agricultural Improvement and Reform (FAIR) Act by including a counter-cyclical support payment that would be triggered by low prices. 

That's the recommendation by the National Association of Wheat Growers, which recently approved its farm policy resolutions for 2000.

Several counter-cyclical payment ideas are floating on Capitol Hill.  The structure of the current farm bill would remain intact under such plans, but include a counter-cyclical payment that would kick in through a trigger mechanism that would be based on variables such as net farm income, gross revenue, U.S. farm exports, or the U.S. grain stocks-to-use ratio. 

Under the NAWG's counter-cyclical plan, payment would be triggered whenever the national average price received by producers falls below a trigger price. The trigger price would be established by subtracting the current year's payment under the existing farm bill from a base price (NAWG is considering $4.30 as a starting point for discussion).  The counter-cyclical payment would be equal to the difference between the trigger price and the higher of the loan rate or the average price received.

An example of how the NAWG's counter-cyclical plan might work:

             $4.30  trigger price
            -   .63   (about the average wheat payment
             $3.67 under the current farm bill)
            - 2.56 (may be loan rate or national average price)
              $1.11  payment on same contract bushels under the current         
                         farm bill

Current law would not be altered by this proposal except for the additional triggered payment. Yearly payments under the current farm bill would remain in place, the marketing loan would remain the same, and loan deficiency payments would continue.  The additional counter-cyclical payment might be limited to each production entity by a separate payment limitation.

"In essence, this concept would guarantee producers no less than $4.30 per bushel on their contract bushels. A key difference in the NAWG's counter-cyclical payment plan as opposed to others is that it is not tied to production, only price," says Allan Skogen, president of the North Dakota Grain Growers Association and a Valley City, N.D. producer.  "We think it's important for the counter-cyclical payment to be based on price, because ultimately, that's the bottom line."

Implementing a counter-cyclical payment plan will provide the safety net support lacking in the current farm bill, NAWG leaders say, and spare Congress from making annual emergency ag relief packages.  Further, it may also simplify crop insurance reform efforts. The NAWG points out it may ease pressure to attach a price or revenue component to crop insurance, thus allowing policy makers to focus more on fixing disaster coverage holes in the current crop insurance program by improving actual production history (APH) and implementing higher, more affordable coverage levels. 

The NAWG intends to have its counter-cyclical plan evaluated by the Food and Agriculture Policy Research Institute, which analyzes farm policy trends and policy proposals. 

Plan B: market loss assistance

However, if the farm bill fix can't be attained in this campaign-shortened election year, the NAWG recommends that Congress approve a market loss assistance package similar to last year.

Efforts to fix the current farm bill may fall short this year, due to an abridged legislative calendar because of election year campaigning—there are 132 working days in Congress this year versus the usual 211 days.  That may limit farm policy legislation this year to crop insurance reform and more ad hoc assistance to offset the likelihood of poor commodity prices.

The NAWG urges that if Congress does approve a third ad hoc assistance package this year, that the market loss payment, when combined with this year's farm bill payment (58.8 cents for wheat) be at least equal in size to the combined farm bill and market loss payments in 1999. 

Ron Anderson, president of the Minnesota Association of Wheat Growers and a Hallock, Minn., producer, says matching last year's combined payment rate is going to be important, since this year's scheduled "Freedom To Farm" payment is less than last year.  The payment was 63.7 cents in 1999.

"Producers are also contending with higher fuel costs and higher interest rates on farm operating loans compared to last year, all the while facing the same dismal price outlook for the third straight year," he points out.

A combined $80,000 payment limit should apply to producers who would receive market loss payments on top of "Freedom To Farm" payments this year, the NAWG recommends.  The NAWG strongly opposes a $30,000 combined payment limitation proposed by the Clinton administration in its $11 billion, two-year safety net proposal. 

Speaking at the NAWG's recent annual meeting, U.S. Agriculture Secretary Dan Glickman stressed that the Adminis-tration's safety net package, including the $30,000 combined payment limitation, is a "starting point" for debate, and that the proposed payment limitation will be open to compromise.

Other farm policy resolutions on domestic farm policy, membership, international policy, business development, and environmental policy recommended by the NAWG in 2000 and supported by the NDGGA, MAWG, and SD Wheat Inc. will soon be posted on the NAWG's web site: www.wheatworld.org .