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Trade Disputes
PAT WEST HOF F ( W EST HO F F P@ MISSO U RI.ED U)
N AT IONA L P R ESS FOUN DAT ION, KAN SAS CI T Y
S E PTEMBER 2 6 , 2 0 1 8
Agenda
• A brief history of farm programs and some context
• The farm bill
• What’s in the current legislation?
• The 2018 (or 2019 or ??) farm bill debate
• Trade disputes
• Effects on trade and U.S. agriculture
• Administration’s trade mitigation package
Policy response: 1933 Agricultural Adjustment Act and other New Deal
legislation
◦ Set policy goal of what became known as parity pricing: prices of 1909-14, adjusted for
inflation
◦ Means included voluntary acreage reduction and government purchases
◦ Targeted 7 “basic commodities”: wheat, corn, cotton, tobacco, rice, hogs and milk
◦ Vestiges of this legislation still exist today, such as 9-month commodity loan program
0
20
60
80
40
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902
Corn
1906
1910
1914
1918
1922
Wheat
1926
1930
1934
1938
1942
Cotton
1946
1950
1954
1958
1962
1966
1970
Soybeans
1974
1978
1982
U.S. area harvested, 1866-2014
1986
1990
1994
1998
2002
2006
2010
2014
Two key recent farm bills
1996 farm bill
◦ New Republican Congress sought deregulation, lower federal spending
◦ Farm bill eliminated annual acreage set asides and many other planting restrictions
◦ Farmers received a fixed payment each year, tied to what was grown previously, but
not to what they planted this year or to commodity prices
◦ Was to last for 1996-2002, with disagreement about what would follow
2014 farm bill
◦ Eliminated the fixed payments created in 1996
◦ Replaced with new programs that make payments only when prices or revenues are
below trigger levels (more later on these programs)
◦ But like 1996 bill, ties payments to historical “base” acreage, not this year’s plantings
Source: CBO
estimates,
June 29, 2017
SNAP participation and average benefits
(fiscal years)
Average participation Average benefit levels
60 160
140
50
(https://www.fns.usd
30 80 a.gov/pd/supplement
al-nutrition-
assistance-program-
60
20 snap)
40
10
20
0 0
2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017
A few crop insurance basics
Purely private insurance against hail and other specific risks has long been
available
Federally subsidized “multi-peril crop insurance” (MPCI)
◦ Good against wide range of natural disasters
◦ Covers many crops—not just corn and soybeans, but apples, tomatoes, walnuts…
◦ Offered through private insurers
◦ Government pays large part (~63%) of premium
◦ Crop insurance companies get a subsidy to deliver the product
◦ They can also make underwriting gains, which I can explain if you need a nap
Main types of crop insurance
Until 1990s, crop insurance only covered yield losses
◦ Payments occurred if actual yields were sufficiently below a normal yield for a farm
◦ For example, 75% policy would pay if yields dropped at least 25% from normal level
12 (http://www.rma.usd
a.gov/data/sob.html)
10 data as of 9/3/18.
8 Net indemnity
6 payments =
indemnity payments
4 for losses minus
producer-paid
2 premiums.
0
2010 2011 2012 2013 2014 2015 2016 2017
Gentry Sullivan
Adair Knox
Lewis
Holt Grundy
Andrew Daviess
DeKalb Linn Macon
Shelby Marion
Livingston
Clinton
Caldwell
Chariton
Randolph
Monroe
Ralls Source: Map by FAPRI-MU analyst Peter Zimmel,
Buchanan Carroll Pike
Platte
Clay
Ray
Audrain
based on FSA-reported data, Oct. 2017
Saline Howard
Boone Lincoln
Lafayette Montgomery
Jackson
Callaway
Cooper
Johnson Pettis Warren St. Charles
Cass St. Louis
Maries Gasconade
$0
Dade
Webster Wright
Greene Shannon
Jasper Wayne
Scott
$1 - $20
Lawrence Bollinger
Stoddard
Christian Douglas Howell Carter
Newton
Mississippi
$21 - $40
Stone Butler
Barry Oregon
Ripley
Taney Ozark
McDonald
$41 - $60
New Madrid
Dunklin
Pemiscot
$61 - $80
Insufficient data
Other commodity programs
Dairy: insurance-like program that makes payments when the margin between
milk and feed prices is small
Sugar: Price supports, import restrictions (U.S. price is above world market)
Note that except for dairy, commodity programs are for major field crops—no
basic commodity program for cattle, hogs, chickens, nor for fruits and vegetables
Those “other commodities” do qualify for some other programs
◦ Crop insurance covers many (not all) fruits and vegetables
◦ Disaster programs are available for livestock producers
◦ Marketing support and research programs available for many commodities
Billion dollars
• $12.6 billion of U.S. soybeans (58% of total) 15
10
• $3.2 billion of U.S. cotton, sorghum, corn,
wheat, rice, and other program crops (15%)
5
Thus, much of the effect will be to rearrange global soybean trade patterns
Note that these estimates were prepared in May based on information available at that time.
In September, USDA projected total Chinese imports of 94 million tons, total U.S. exports of 60 million
tons, total Brazilian and Paraguayan exports of 81 million tons, and total Argentine exports of 8 million
tons. This suggests larger imports by the rest of the world than shown here.
Billion dollars
10
80
8
60
6
40
4
2 20
0 0
2010 2012 2014 2016 2018 2020 2022 2010 2012 2014 2016 2018 2020 2022
Total payments Nominal 2017 dollars
Source: USDA and FAPRI baseline update, Aug./Sep. 2018. Note: stochastic estimates would show higher mean
payments, as there is a chance prices could fall low enough to trigger large PLC payments, for example.
FAPRI-MU team:
◦ Julian Binfield
◦ Sera Chiuchiarelli
◦ Deepayan Debnath
◦ Scott Gerlt
◦ Hoa Hoang
◦ Lauren Jackson
◦ Willi Meyers
◦ Byung Min Soon
◦ Wyatt Thompson
◦ Jarrett Whistance This material is based upon work supported by the U.S. Department of Agriculture, Office of the Chief
◦ Peter Zimmel Economist, under Agreement #58-0111-17-015, and the USDA National Institute of Food and Agriculture, Hatch
project number MO-HASS0024.
Any opinion, findings, conclusions, or recommendations expressed in this publication are those of the authors
and do not necessarily reflect the view of the U.S. Department of Agriculture nor the University of Missouri.
Soybeans 39
0 10 20 30 40 50 60 70 80
Main types of crop insurance
Until 1990s, crop insurance only covered yield losses
◦ Payments occurred if actual yields were sufficiently below a normal yield for a farm
Things to note
◦ Reference price and loan rate are set by law
◦ National season average price is based on sales between Sep. 1 and Aug. 31 for corn and
soybeans
◦ Base acreage and PLC yield are fixed for 2014-2018 crops
Potential PLC payments: Soybeans
Soybean PLC payments Soybean prices
◦ Occur if national season-average prices are 16
less than the $8.40/bu. reference price
14
At FAPRI projected prices:
◦ No payments occur (but 2018/19 is close 12
4 Sources:
Agricultural Act of
2 2014, FAPRI-MU
Aug. 2018
baseline update
0
2012 2014 2016 2018
2017 ARC-CO calculation example
Boone Co., MO corn
Max of (national County yield Revenue
avg. farm price,
reference price) Final figures for
2017/18 are not
2012/13 $6.89 83
available, but
2013/14 $4.46 129 likely to be
2014/15 $3.70 188 around
$3.40/bu.
2015/16 $3.70 ($3.61) 123
national price
2016/17 $3.70 ($3.36) 172 and 170 bu./a.
Olympic average $3.95 141 county yield, so
no payments
2016/17 benchmark revenue $557
will occur in
86% of benchmark $479 Boone Co.
1st option triggering payments $3.40 <141 <$479
2nd option triggering payments <$2.82 170 <$479
Conservation programs in the farm bill
Conservation reserve program pays farmers to idle land for 10-years or more
◦ About 23 million acres in the CRP today, avg. rental rate of $77/acre
◦ Farm I grew up on is currently in the CRP, used for hunting
Environmental Quality Incentive Program pays for environmental improvements
◦ Shares costs with producers for approved practices
Conservation Stewardship Program rewards environmental stewardship
◦ Payments for complying with conservation plan
Agricultural Conservation Easements cover variety of purposes
◦ Wetland and farmland easements to stop development
Total costs of farm bill conservation programs: around $6 billion/year
NAFTA renegotiation
◦ Discussions with Mexico have reached tentative conclusion
◦ Canada talks continue, with dairy a major sticking point
◦ Supply management and import restrictions keep Canadian milk prices well above U.S. prices (dairy is
rare exception to rule of no tariffs among NAFTA partners)
◦ U.S. is especially unhappy with Canada’s “Class 7” milk pricing, which reduced U.S. exports to Canada of
some products not previously restricted
Source: USDA Foreign Agricultural Service, GATS data base, accessed Sep. 18, 2018.
Other major U.S. exports to Mexico include soybeans, pork and dairy products
Important trade with Canada includes U.S. exports of vegetables & fruit and imports of snack foods
Sources: Taheripour and Tyner and Zheng, et al. articles were both published in Choices
(http://www.choicesmagazine.org/). The FAPRI-MU analysis was provided to policy makers, but not
previously discussed in public. The approach is based in part on the dissertation work of Tracy Davids.
2018 crop value 40.4 51.9 92.3 2018 crop value 2.32 1.57 3.89
2018 initial MFP 3.7 0.1 3.7 2018 initial MFP 0.21 0.00 0.21
payment payment
2018 crop value 44.1 52.0 96.0 2018 crop value 2.53 1.57 4.10
+ initial MFP + initial MFP
Source: Author estimates. Crop values based on Sept. 2018 USDA estimates of crop production and
marketing year average prices. MFP payment estimates are based on this formula:
Initial MFP payment = Payment rate * Production * 0.5 * 0.95. The 0.5 reflects the plan to make initial
payments on 50% of production; the 95% is a rough adjustment for payment limitations.