The farm bill as a social contract
By James D. Ritchie

What began largely as rural agricultural policy is now awash with global implications. Look for a complicated solution.

Regular as the seasons for the past 73 years, renewal of U.S. farm policy is being challenged by an odd-bedfellows coalition from all ends of the political spectrum: conservatives, liberals, environmentalists, trade groups.

The current law (the 2002 Farm Security and Rural Investment Act) is due to expire in September 2007. This year, the program will distribute agricultural supports worth about $21 billion. But the legislation has been under attack for all of its 4-year life by environmental groups, budget hawks, foreign trading partners and some farmers who feel excluded from major programs.

Since the New Deal (the first farm bill was signed into law in May 1933), the federal government has provided varying degrees of commodity price and farm income support. And that first farm law had its critics as well. But from the beginning, agriculture and the rural community have figured prominently in our national history. Our first several Presidents—most notably Washington and Jefferson—voiced their interest in agriculture and its value to society. Our founding documents established a national agricultural policy, especially allowing the simple private ownership of land. Military activity on the frontier, to suppress Indian tribes, was farm policy of a sort, in that it protected pioneer farmers and farming.

Farming and farm policy have changed dramatically in the past 200-plus years, and throughout, the American non-farm public, through its elected legislators, has demanded that farm resources be used productively and be protected from deterioration. For example, the Homestead Act made land available (free or nearly free) to settlers. However, homesteaders had to make minimum improvements on the land to “prove up” their claims and earn title to the property.

In fact, from the beginning, U.S. farm policy has implied a sort of social contract between farmers and society at large. In a way, farm programs can be seen as contractual agreements between society and farmers—and a contract requires that both parties benefit from the agreement. In return for price and income support for farmers, society in general has expected a reliable supply of food and fiber and protection of production resources.

In the past half-century or so, the urban majority has dictated more and more terms that are not strictly related to production agriculture: food programs for low-income families, limits on the size of payments to farmers, tax policy, resource conservation, environmental protection and others.

Also, the state of the nation’s fiscal health bears heavily on the kind of farm legislation Congress writes. Since the debate on a new farm bill usually occurs in the year preceding the bill’s passage, it’s interesting to look back at the budget status for those years. Nine farm bills have been passed since 1965, and Washington was using black ink in only the years preceding passage of legislation for 1970 and 2002. The biggest budget surplus ($128 billion) in those nearly 40 years came in 2001, the year the current law (one of the more lucrative for agriculture) was being debated. As debate heats up on a 2007 farm bill, the federal budget is $300-billion-plus in the red, and the Bush Administration has called for cuts to agriculture over the next 5 years.

More recently, foreign trade has become a major influence on U.S. farm policy and promises to remain so for the indefinite future. Trade agreements and the dictates of the World Trade Organization have a huge effect on U.S. farm prosperity, and this part of the social contract is still largely unresolved.

For the past several months, representatives of the 149 WTO member-nations have tried to reach agreement in the Doha round of talks. U.S. negotiators have proposed significant cuts in farm commodity supports and tariffs, providing other trading partners—especially Europe—make similar reductions. The U.S. farm program itself comes under heavy fire from some countries, for “trade distorting” features such as direct and counter-cyclical payments that are linked to production. Brazil earlier mounted a challenge to the U.S. cotton program, which was upheld by the WTO.

Meanwhile, hearings and debates are underway on a 2007 farm bill, although no WTO agreement has been reached. The Administration, including USDA secretary Mike Johanns, wants a complete overhaul of U.S. farm policy. But many agricultural leaders and farm-state legislators believe it would be futile to craft a new farm bill with features that might be overturned by a WTO deal. In May, U.S. Senators Jim Talent (R-Mo) and Blanche Lincoln (D-Ark) submitted a plan (S.B. 2696) to extend the 2002 law intact until after a WTO agreement is inked. They and other legislators say it would be a mistake to make wholesale changes in America’s 5-year farm policy while international trade negotiations are still underway. Deals made in the Doha round could very well require a new farm bill.

“If we don’t get a trade agreement, I favor extending the current law for a couple of reasons,” said Charles Kruse, president, Missouri Farm Bureau Federation. “For one thing, if we pass a new farm bill before the Doha round is completed, we’ll likely have to re-do it before long. For another, the Europeans hate our farm policy, which leads me to believe it’s a good law and extending it would put a lot of pressure on the Europeans to get serious about trade reform.

“We cannot afford to start dismantling our price supports until foreign markets open up more,” he added. “WTO is the only game in town, but U.S. farmers and ranchers shouldn’t be the only ones who are putting chips in the pot.”

Kruse and other farm leaders support a strong safety net under U.S. agriculture. Higher energy and fertilizer prices cut net farm incomes drastically; we use nitrogen fertilizer to produce nearly everything we grow. Higher production costs hit all farmers in 2005, but producers who saw yields reduced below normal took a substantial whack in the net-income pocket. Corn growers in drought-stricken Missouri and western Illinois, for example, suffered yields 35 to 40 bushels below a year earlier.

But farm program payments provided a relatively strong floor; since corn prices were low at harvest, loan deficiency payment income was higher than the year before. The 2005 market year price averaged low enough that counter-cyclical payments kicked in also. Farm program payments in 2005 made up nearly 20 percent of gross farm income, compared with program payments in 2004 that were only 13 percent of gross farm returns.

If neither a new farm bill nor legislation extending the current law is enacted by September 2007, U.S. farm policy would revert to most of the provisions in the 1949 agricultural law.

“That would radically change U.S. farm policy,” said Pat Westhoff, policy analyst with Food and Agriculture Policy Research Institute at the University of Missouri.

“The threat of reverting to the 1949 law serves as sort of a hammer over the Congress, to force them to do something, and they will do something,” said Westhoff.

The 1949 law would actually increase commodity support levels—to nearly twice current levels for some crops. But soybeans were not even a program crop back then, and many of the conservation provisions that have been added to farm legislation since 1949 would no longer exist.

“Nobody wants a return to the 1949 law,” said Westhoff. “Right now, trade negotiations are bogged down, but things can change in short order. The way things stand now, if I were handicapping whether we get an extension of the 2002 farm law or an entirely new law, I’d bet on a short-term extension of the existing legislation. But this is an election year: it’s risky to try to guess what Congress may do.”