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2007 Farm Bill: 2007 Farm Bill: AgriculturalAgricultural

Policy ConsiderationsPolicy Considerations

Burley Stabilization CorporationBoard Meeting

Knoxville, TN

January 15, 2007

Kelly TillerKelly Tiller

Agricultural Policy Analysis Center - The University of Tennessee - 310 Morgan Hall - Knoxville, TN 37996www.agpolicy.org - phone: (865) 974-7407 - fax: (865) 974-7298

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Potential Farm Policy DriversPotential Farm Policy Drivers

• Federal budget constraints

• Trade policy negotiations / suits

• Current ag economy / situation

• Farm program payment distribution

• Balance of power in Congress

• Energy prices / renewable energy

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Budget ConstraintsBudget Constraints

• Very different budget situation than in 2002– Got $79 billion ABOVE the baseline in ‘02 Farm Bill

– Not likely to maintain this level, get the same dollars authorized

• Even if Congress doesn’t cut, it won’t increase, affects how the pie is sliced– Divisive for the ag sector

– But maybe not as bad as 2012, 2017 ??

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U.S. Federal Deficit/SurplusU.S. Federal Deficit/Surplus

-500

-400

-300

-200

-100

0

100

200

300

1965 1970 1975 1980 1985 1990 1995 2000 2005

US

Deficit/S

urp

lus,

bill

ion $

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U.S. Public DebtU.S. Public Debt

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1965 1970 1975 1980 1985 1990 1995 2000 2005

US

Public

Debt,

bill

ion $

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Projected Government Projected Government PaymentsPayments

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Implications of a Dead DohaImplications of a Dead Doha

• Dead? Or on life support?– Administration still pushing, may offer further concessions– Blame is shared, successful conclusion difficult even if the U.S. concedes

more

• Commodity programs likely to be challenged under current Uruguay Round agreement– Likely challenge to EU tobacco subsidies

• Increases probability of bilateral trade deals– Through June 2007

• Trade promotion authority unlikely to be granted again before 2008 elections– And probably not after 2008 either

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Future “Current” SituationFuture “Current” Situation

• What matters most is the situation At The Time the bill is written

• Crop prices very high, likely to persist– Up from historical lows, reduces “costs” of continuation – Driven largely by non-ag demands (ethanol)– Export prospects (China) improving ??

• Costs of production high– Especially energy-related costs– Interest rates higher

• Labor/immigration policy pressures

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Distribution of SubsidiesDistribution of Subsidies

• Renewed push for payment limits– Necessary to hold down costs– Some reform necessary for damage control

• Pressure to shift funds from program crops to specialty crops while reducing overall spending

– 39% of farms receive government payments (Source: ERS, 2006)

– 10% of farms receive nearly 75% of payments (Source: EWG, 2005)

• Pressure to shift payment basis from production to conservation– Influenced by WTO commitments

• Pressure to reduce the impacts of subsidies on land values and cash rents (transfers to landowners)

– Since 2000, Illinois farm real estate values have increased 68%• 1994-1999: increased between 4.2% and 9%• 2000-2003: increased between 1.3% and 3.4%• 7.4% in 2004, 27.6% in 2005, 14.1% in 2006

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Shifting Committee ControlShifting Committee Control

• Generally, more of the same– More likely to have strict payment limits

• Same size pie, greater redistribution– Expanded appropriations for conservation programs

– More appropriations for bioenergy and alternative fuels

• Strategic food reserve more likely

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A Billion Tons of BiomassA Billion Tons of Biomass

• Sustainable annual supply of 1.3 billion dry tons

• 932 M dry tons from agriculture

– Crop residues (446)– Perennial crops (377)– Grains to biofuels (87)– Process residues (87)

• 368 M dry tons from forests (forest residue only)

– Manufacturing residue (145)– Logging debris (64)– Fuel reduction treatments (60)– Fuelwood (54)– Urban wood waste (47) Perlack, R.D., et al. 2005. Biomass as Feedstock for a Bioenergy and Bioproducts

Industry: The Technical Feasibility of a Billion-Ton Annual Supply.

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SummarySummary

• Not a dramatic shift from ’02 Farm Bill

• Less generous program overall

• More emphasis on conservation-based “green” payments

• Broader distribution of payments among commodities

• More emphasis on ag-energy title

• Potentially a strategic reserve program

• Both dairy and sugar programs will need to be carefully addressed

• Compliance with WTO and Budget Reconciliation will be factors

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Implications for TobaccoImplications for Tobacco

• Not much

• May be new programs for which tobacco farmers will be eligible– Farm revenue safety net (insurance-type)– Expanded conservation/green programs

• May level the playing field some compared to traditional program crops– Tobacco will look more attractive, cotton-corn-soybeans-peanuts less

attractive

• May be opportunities to address post-buyout tobacco concerns through specialty crops provisions

• May be increased competition in the Southeast from energy crops

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