“The budget situation is only going to get worse,” said Joe Shultz, senior economist for the U.S. Senate Committee of Agriculture Nutrition and Forestry, to attendees at the Ohio Grain Farmers Symposium back in mid-December. “There are going to be some real challenges as agriculture programs are targeted for cuts.”
As commodity prices have risen, input prices have followed. Farmers have enjoyed profitability in these times of high prices, but a drop in commodity prices could mean huge losses for every sector of agriculture due to the higher level of costs associated with production. The success of the current farm bill, along with crop insurance, provides protection for farm businesses in the case of plummeting prices or weather disasters.
“I see highly volatile prices in the markets. Folks that don’t understand agriculture don’t understand this risk,” Shultz said. “We know there will come a time when prices will dip and we’ll have lower prices with continued high input prices.”
In the current good times for agriculture, farm policy has proven its efficacy. The U.S. Department of Agriculture just announced that, during the current strong farm economy, government payments have dropped significantly -- the farm bill is doing what it is supposed to do. The amount paid directly to agricultural producers is expected to total $10.6 billion in 2011, a 14.4% decrease from the estimate of $12.4 billion paid out in 2010. If the estimates are correct, this would be the lowest amount paid to producers since 1997.
The largest decreases in payments are expected in disaster relief payments and Average Crop Election Program (ACRE) payments. This good news for taxpayers and the budget is a very timely announcement in terms of the farm bill debates, but the political wave from this announcement may not be much more than a ripple in Washington’s sea of budgetary woes.
“This is how the programs are supposed to work, they pay when farmers need help. They don’t pay when they don’t,” said Adam Sharp, with the Ohio Farm Bureau Federation. “It should matter, but likely won’t matter much politically.”
Instead, agriculture is probably facing a disproportionate share of federal budget cuts because things are going well for agriculture right now. Such funding cuts could weaken the success of these programs and the safety net for producers that may be more important than ever with the high risk, high volatility months and years ahead.
In addition, as more scrutiny is being placed on environmental concerns, water quality and land use issues, the conservation programs included in the farm bill will also take on increased importance. In Ohio there are ample headlines about Grand Lake St. Marys and Lake Erie. Improvements in these and other watersheds depend upon the implementation of state and federal conservation programs through the farm bill.
With this in mind, all of agriculture needs to encourage Congress to move forward with cuts that are equitable for agriculture in what will become an increasingly challenging farm bill amid the budget crunch.
“You need to tell members of Congress that we need to move forward right now because we all risk losing if we can’t move forward together,” Shultz said. “We are at a pivotal moment in farm policy right now. We are seeing a shift towards risk management and that means the work is hard.”
And that may mean that the wheels of agriculture need to start squeaking a bit louder.