Finally a Farm Bill … Now the Real Debate Begins
Insights from Senator Tom Harkin and Representative Collin Peterson
It has been more than two years and multiple extensions in the making, but the 2008 farm bill is finally law. And, now, the real debate is underway … how will the changes and new programs in the legislation impact farmers and how they make decisions? How will it ultimately affect your business?
The agricultural world has changed dramatically from the start of discussions in 2006 to the final agreement in 2008. Soaring demand for grains and oilseeds, increased production of and debate over biofuels, and rising land and input values are all major factors in the changing landscape for U.S. farmers.
As agrimarketers, we have to take all of these elements into account when developing our own business and growth strategies. The farm bill itself is overwhelming - $289 billion over five years, 15 titles, hundreds of pages of text, and countless opinions on what it all means. The key to assessing the impact of the new legislation is to focus on the programs and changes that most directly impact your target customers. Talk to experts. Talk to your customers.
Insights from Senator Tom Harkin and Representative Collin Peterson
Following our own advice, we turned to two of the foremost experts on the farm bill legislation to gain additional insights on the bill. Strategic Agribusiness Review posed a series of questions to Senator Tom Harkin (D-IA), Chairman of the Senate Committee on Agriculture, Nutrition and Forestry and the House-Senate Conference Committee on the Farm Bill, as well as Representative Collin Peterson (D-MN), Chairman of the House Committee on Agriculture. Here are their thoughts:
Strategic Agribusiness Review: What will U.S. farmers do differently as a result of the 2008 farm bill compared to the 2002 and earlier versions?
 Sen. Harkin: Farmers and ranchers will find a number of new opportunities in The Food, Conservation and Energy Act, which build on the successes of the 2002 bill and create a better future for agriculture, all of rural America and the nation by looking to the future with investments in conservation, energy and nutrition.
I hope that farmers will take advantage of new incentives for conservation on working lands. The need for conservation is staggering - crop production is intensifying and millions of acres of fragile, erodible land are coming out of the Conservation Reserve Program and put into production. The new farm bill helps farmers and ranchers with funds and technical assistance to conserve soil, improve water quality and boost wildlife on their land.
With rising energy costs affecting all sectors of the economy, farm bill programs offer cost sharing and loan guarantees to boost production of renewable energy and convert alternative sources of biomass to ethanol.
The farm bill is also a food bill, so we have made a historic investment in specialty crops. As a result, I believe we will see an increase in the organic production markets, increased farmers markets and more fresh fruits and vegetables in our nation's elementary schools and more farmers becoming certified in organic production.
In commodities, the bill continues basic features of the 2002 bill, which farmers have thought worked well, but it is my hope that producers take advantage of a new option with the Average Crop Revenue Election (ACRE) program. This state-level revenue protection system offers producers better options for managing risk of both yield and price declines on their farms in today's uncertain, rapidly changing farm environment.
SAR: Specialty crop farmers have historically been very minor beneficiaries of farm bill programs. That has changed this year. What impact do you see the new specialty programs having on these growers?
Sen. Harkin: The impact should be quite significant considering that this farm bill provides nearly $3 billion for specialty crops, investing more resources to address the challenges that growers of fruits, vegetables and other horticultural crops face than any previous farm bill. The federal policy we have enacted in this bill will help provide better marketing opportunities for specialty crops, both here at home and abroad, as well as protect the safety of the food supply, and stimulate consumer demand for fruits and vegetables - all of which will have a very real and positive impact on both specialty crop growers and consumers across the country.
The bill helps to combat invasive species and other threats to plant health by providing roughly $400 million for a new Pest and Disease Program, which will provide funding to state departments of agriculture that develop a cooperative agreement with USDA's Animal and Plant Health Inspection Service (APHIS).
The farm bill also addresses organic production. We know that organic agriculture, including the production of organic fruits and vegetables, is one of the fastest growing sectors of American agriculture. Nevertheless, many producers face challenges as they try to transition from conventional production to organic. Becoming certified for organic production is a long and expensive process, which is why we established and funded the National Organic Certification Cost-Share program in the previous farm bill to assist producers and handlers of agricultural products in becoming certified for organic production and processing. This time around, we not only continue this important initiative, but we also significantly increased its funding. The bill provides $22 million in mandatory funding over the next five years for the cost-share program - an increase of $17 million from the $5 million in the 2002 bill.
We established the Farmers' Market Promotion Program (FMPP) in the 2002 farm bill, which provides targeted grants to help promote and improve farmers' markets, roadside stands, and other direct producer-to-consumer marketing opportunities for specialty crops and other agricultural products. The program has been tremendously popular with both growers and consumers, and has helped to create important markets for fresh, local, healthy foods. However, the $1 million a year that Congress has provided for this program through annual appropriations bills has not kept pace with the demand for FMPP funding. In this bill we were able to provide a $33 million boost in mandatory funding - increasing annual funding to $10 million by fiscal year 2011 - to develop and expand these critical marketing opportunities for specialty crop producers.
SAR: How does the new bill address energy and biofuels sectors?
Sen. Harkin: The bill recognizes that the future of ethanol is in advanced biofuels, specifically cellulosic ethanol. The Farm Security and Rural Investment Act of 2002 included an energy title for the very first time. Yet since that time, dramatic new energy challenges have come into focus: oil prices have more than doubled, global warming is now beyond dispute, and we have grown even more dependent on oil imports from some of the most unstable regions of the world. The energy provisions in the Food, Conservation and Energy Act of 2008 will help unleash the potential of agriculture and rural communities to supply energy to our nation.
The bill reduces incentives for corn-based ethanol and decreases the blenders credit from 51 cents to 45 cents. By supporting the commercialization of biomass crops and advanced biofuels production, the energy provisions of this bill significantly expand the economic realm of agriculture to include energy products as well as food and fiber for the nation.
SAR: New programs encourage the production of alternative crops for biofuel production. How specifically will these programs benefit growers?
 Rep. Peterson: The Farm Bill includes one program in particular which will greatly encourage the production of feedstocks for cellulosic ethanol and other biofuels -- the Biomass Crop Assistance Program. This new program provides for multi-year contracts for crop and forest producers to grow dedicated energy crops, and gives incentives for producers to harvest, store, and transport biomass to bioenergy facilities.
More generally, the Farm Bill programs will benefit everyone by taking the country into the next generation of biofuels. Funding in the research title especially will help ease the strain on food and input costs by encouraging the development and use of non-food crop feedstocks. The Farm Bill also funds loan guarantee programs to help build more plants, increases the cellulosic ethanol production tax credit, and spurs research to help discover new and better way to produce cellulosic biofuels.
SAR: The new ACRE program is a definite departure from traditional farm bill programs. What impact do you see it having over the next several years?
Sen. Harkin: In USDA's farm bill proposal, the agency called for a "counter-cyclical program that is more responsive to actual conditions by replacing current price-based payments with revenue-based payments for program crops." The ACRE program does so, using actual market prices rather than target prices, to determine revenue guarantees.
The program reflects the new realities of current market prices and demand and provides a new option for producers. Farmers have more at risk as they work to produce a crop, especially with increasing input costs. By using recent market prices and average state yields, ACRE better reflects the new realities farmers face. The program will provide a stronger safety net against price or yield declines.
In short, ACRE represents a step in the direction of reforming the traditional farm subsidy system, using a revenue-based countercyclical that uses actual market prices.
SAR: The farm economy has changed significantly since the 2002 bill. How does the 2008 version reflect the new realities of soaring demand, high commodity prices, as well as higher land values and input prices?
Rep. Peterson: With the soaring demand and high commodity prices, it's an exciting time for American farmers, but it's also a little scary as well. In drafting this bill the Congress made sure to reflect the reality that commodity prices will fall in the future. Addressing the recent changes in the marketplace, this bill rebalances the farm programs to improve equity among commodities - increasing target prices for wheat, sorghum, barley, oats, and soybeans and rebalancing the loan rates on wheat, barley, oats, oilseeds, graded wool and honey.
As for land values and input prices, the Farm Bill will have a more indirect affect through the conservation programs and renewable energy initiatives. Conservation programs will help keep land available to for farming in the future and relieve some of the pressure on farmers and ranchers to sell their land to developers. And the support for new feedstocks and increased production of biofuels in this bill will help stabilize food and energy prices by spurring greater production of renewable fuels and easing some of the burden on corn.
Putting it All Together
At Entira, we are working to understand the impact of the 2008 farm bill on U.S. agriculture, and we are developing resources to help our clients understand the impact on their business. Our readers have two opportunities to participate:
First, join us for a FREE webinar on Thursday, July 24 to discuss the new legislation. We'll highlight key elements of the bill and hear the perspective of a panel of farmers on impact to their operations.
Space is limited, so register now for this informative 90-minute event.
For managers who need more in-depth, reliable information, Entira is launching a new multi-client study. This will be the first industry research to analyze producer reaction to the new bill. In addition to expert analysis, it will include grower surveys to assess what the bill will mean to their operations and how they make decisions. As a participant in the study, you'll have an opportunity to provide input on the direction of the research. Review the prospectus or call Joy Parr Drach at 815-992-8460 to learn more.
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