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	Issue 25 January 2000


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	Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.


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	Copyright Prairie Grains Magazine January 2000

Wheat leaders look at farm policy options for 2000

By Tracy Sayler

With the $8.7 billion federal farm assistance package inked in the books for 1999, leaders of the National Association of Wheat Growers are already looking at farm policy scenarios in 2000 and beyond.

Representatives of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, and South Dakota Wheat Inc. joined leaders of other wheat-producing states recently in Denver for a two-day policy discussion involving researchers of the Food and Agriculture Policy Research Institute. FAPRI (www.fapri.missouri.edu , or www.fapri.org) is a national farm policy "think tank" that federal and international policy makers often turn to for analysis of farm policy trends and new policy proposals. FAPRI research is enhanced through collaboration with universities across the United States, including North Dakota State University.

FAPRI had a comparative analysis of "Freedom To Farm" compared to the old Farm Bill: One will definitely be better than the other at certain periods. Farmers made out better with the new bill in 1996 and 97, but would have been better off the last two years under with the old bill. Over the seven-year bill, however, the two bills compare about the same.

FAPRI co-director Abner Womack, says F2F does illustrate that policy can make a difference: "It unmasked the market in ways we've never seen it before." Womack says programs before F2F provided a buffer, and "with this kind of farm program, you just don't have brakes" on either side of prices, highs or lows, because the government isn't controlling stocks.

He says the following were consequences of the previous farm bill: prices bound by loan and farmer-owned-reserve release; counter-cyclical payments; and controls over land and grain stocks.

The following are consequences of the current bill: Minimal government influence on price swings, and a stronger likelihood of large price swings in either direction; farmers are better off under F2F in high price years, but as illustrated by grain prices the past two years, get stung badly with no counter-cyclical mechanism.

Future farm policy

The FAPRI researchers also briefed NAWG leaders on several policy proposals by federal lawmakers looking at ways to fix safety net holes in domestic farm policy.

One proposal is "Flex Fallow." This policy idea would have producers idling land in exchange for higher loan rates. FAPRI's analysis suggests the idea would be attractive for producers in the near-term. However, incentives would decline as prices strengthen longer term. There may be other negative implications as well: it would have less income affect on wheat producers than other crops; it may have a negative effect on U.S. export markets, and it may not be legal under international trade rules.

FAPRI also presented a preliminary analysis on a Supplemental Income Proposal. Under the plan, payments would be made when the current year's national gross revenue falls below some percentage of the 5-year moving average of national gross revenue. FAPRI's preliminary analysis indicates that such a proposal would have benefited producers in an extremely poor income year like 1999, but would be difficult to trigger otherwise.

The FAPRI info provided useful in the subsequent discussion on NAWG's suggestions for future policy. Board members discussed policy preferences and it appears that there is little support for a farmer-owned reserve or land-idling programs, with the exception of a short-term CRP or being allowed to plant other allowed crops on land that would be idled. Key reason: NAWG leaders point out that supply control programs implemented in the 1980s failed to improve prices significantly, and merely shifted U.S. grain marketshare around the world to other competitors.

However, NAWG leaders do favor a counter-cyclical payment that would be triggered by price. Here's how it might work:

How a counter cyclical payment might work

$4.00 trigger price

- .60 (about the avg wht pymt under F2F)

$3.40

-2.75 (may be loan rate or national avg price)

= $ .65 cent pymt on same contract bushels of F2F

Current farm bill not altered, with the exception of
additional triggered pymt based on FSA program yields. System of marketing loans and loan deficiency pymts remain in place.

The 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 production flexibility payment rate from a base price, say $4.00 (since this was the "target price" of the old farm bill, and a price standard that would be acceptable to policy makers). The payment rate would be equal to the difference between the trigger price and the higher of the loan rate or the average price received. This payment might be limited to each production entity by a separate $50,000 payment limitation.

Current law is not altered by this proposal except for the additional triggered payment. The AMTA payments would stay in place (perhaps using an average of the payments over the life of F2F), the marketing loan remains the same, and LDPs continue.

"In essence what this does is guarantee producers no less than $4.00 per bushel on their contract bushels. Remember these are not tied to production—only price," says Randy Johnson, executive director of the Montana Grain Growers Association, which will consider such a plan in its farm policy resolutions for 2000, as will other wheat-producing states.

Since other groups also favor a counter-cyclical concept, this type of plan may also be easier to present to lawmakers. Implementing this concept may also simplify crop insurance reform efforts. It would 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 program.

Official NAWG policy and recommendations won't come about until the NAWG's annual meeting in early February. Still, NAWG leaders have a preliminary policy path in place: Keep the basic structure of F2F in place, but add a counter-cyclical payment that is triggered by price. Fix crop insurance by improving actual production history (APH) and implementing higher, more affordable coverage levels. This will provide the market and disaster support lacking in F2F, and spare Congress from making annual emergency ag relief packages.