MANKATO, Minn. – Kevin Paap’s fields are lush, calm and quiet, with the fifth generation farm likely to experience one of its best years ever.
It seems a world away from the carnage of the war in Iraq.
But Paap worries that today’s high crop prices are lulling farmers into a false sense of security. Grain prices go in cycles, he noted. When prices fall again, the safety net that generations of American farmers have relied on might be set much lower because farm assistance had to be cut to help solve a mounting budgetary deficit, caused in part by the $10 billion US per month spent on Iraq.
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“My biggest concern is the apathy,” said Paap, who farms 1,500 acres of corn and soybeans and is president of the Minnesota Farm Bureau.
“We’re getting good prices from the market, but if we were getting $1.50 for corn rather than $3, everybody and their brother would be at farm bill meetings.”
With little fanfare, the U.S. House of Representatives passed its version of a new farm bill July 28, called the Farm, Nutrition and Bioenergy Act of 2007, a $286 billion program that will subsidize crop production and fund environmental protection, renewable energy, research, and school lunch and food stamp programs.
It sounds like a lot of money, but the crop subsidy portion has been slashed by more than 40 percent from the 2002 farm bill, and Paap worries farmers won’t realize there is less money until it’s needed.
“Things are going good now, but it wasn’t so long ago that they weren’t,” he said.
“We want to make sure we’ve got that shock absorber, that safety net, for the times when we do have problems.”
The House’s farm bill has a general structure that American farmers and farm groups love and foreigners hate. However, the reduced funding level will cheer foreign farmers and worry American producers.
The bill maintains cash payments for every acre of major crops consistently grown, cash advances that don’t always have to be paid back, minimum price supports and payments for setting aside land for environmental reasons.
The five year term of the bill runs over six fiscal years.
The budgetary baseline for these programs set by the Congressional Budget Office is $70.6 billion for the next six fiscal years, compared to $114.8 billion budgeted for the life of the 2002 farm bill. Since 2002, actual spending has totalled only about $94 billion.
For crop supports alone, the budget cap for the new bill is $42.4 billion, compared to the almost $73 billion spent in the previous bill.
The farm bill has taken only its first legislative step and the Senate has yet to present its version.
But it seems clear that whatever form it takes it will contain billions of dollars under the “commodity title,” which are payments directly tied to crop production that farmers outside the U.S. blame, in part, for chronically low grain prices that have only recently risen.
Inclusion of this direct crop support is a setback for the White House and others who wanted to wean farmers off the production-encouraging programs. Early in the farm bill discussions, U.S. president George Bush’s administration pushed for more emphasis on a revenue insurance approach similar to Canada’s, rather than paying farmers for the amount and type of crop they produced.
But most representatives and senators from the farm states of the South, Midwest and Great Plains with large areas of crops were unwilling to cut payments tied to corn, soybeans, wheat, sorghum, cotton and rice.
Farm groups heralded the House farm bill for maintaining crop production subsidies.
The American Farm Bureau called it a reasonable balance and said House agriculture committee chair Collin Peterson did an outstanding job.
Tom Buis, president of the U.S. National Farmers Union, said allocating money for farm programs faced “extreme adverse conditions,” so getting funding approved was a great success.
“As everyone knows, they’re trying to write a farm bill with far less money then we had five years ago,” Buis said.
“(Protecting) the safety net of farmers is not easy, especially given all the outside pressures, given the demands for increasing the non-commodity title programs.”
While the farm bill sounds like a program for farmers, the majority of the money goes into urban programs such as free school lunches for children and food stamps for poor people. Those programs help gain support from urban politicians and give backdoor help to U.S. farmers by stimulating demand for food.
Sometimes, like this year, farmers will not get their full allotment of budgeted subsidies because market prices are high. But in the last 20 years, U.S. farmers generally received the bulk of the money set aside in the budget.
It’s become an article of faith among many non-U.S. farmers that the subsidies help generate grain surpluses that are dumped in world markets at below the cost of production.
The Bush administration has long argued against the loan rate program and other crop production subsidies that have been accused by foreign governments and World Trade Organization panels to be trade distorting.
For example, a WTO complaint launched by Brazil has found U.S. cotton subsidies guilty of being trade distorting. Canada has also challenged U.S. crop subsidies at the WTO.
The Bush administration, some business groups and urban politicians hoped to revamp the farm subsidy system so that it wouldn’t distort production and cause trade wars, but that battle appears to be lost.
Peterson, who represents grain-growing Minnesota, stuck to his guns and drove through a slightly reformed House farm bill that retained big subsidies for the five major crops, but also threw in more than a billion dollars for fruit and vegetable producers.
Farmers in Canada and elsewhere might be bewildered by the continuing legislative commitment to supporting programs that cause WTO challenges and embarrass American trade negotiators, but for a Minnesota farmer like Paap, Peterson’s support is proof that he is a politician who looks out for his people.
“This is the first time we’ve had a chairman of the House agriculture committee from Minnesota,” Paap said with pride and relief.
But the design of a farm bill can favour one crop over another, creating distortions and disruptions in markets.
For instance, in the 2002 farm bill, American pulse growers for the first time saw their crops partly covered.
“All we got was a marketing loan program and an LDP (loan deficiency payment),” said Larry White, marketing director of the Northern Pulse Growers Association.
But that was enough to help U.S. farmers expand pulse crop acreage and compete with Canadian pulse crop exports.
It took the bloom off the price of chickpeas and other special crops that prairie farmers had turned to in a response to low wheat and canola prices, which they believed had been depressed by the farm bill subsidies.
American pulse growers are working to add more subsidies to the new farm bill.
“We want a direct payment, too,” said White.
“We don’t want to get pushed aside.”
U.S. canola growers have long complained that their acreage is less than it should be because corn and soybeans receive higher levels of subsidy.
“It’s inequitable,” said Kevin Waslaski of the Northern Canola Growers Association.
“Instead of being at a million acres, we should be at about 1.6 million in North Dakota. The whole country should be at 1.8 to two million. Now it’s barely over a million.”
Canadian canola growers probably don’t want the situation to be made more “equitable,” but others might. Waslaski said he thinks American farmers would switch out of soybeans, peas, flax, barley and wheat and into canola if the loan rate was different.
While it might sound strange to Canadian ears, Waslaski thinks boosting the canola loan rate would be closer to a free market approach than today’s situation.
“We want everything to be market driven,” he said, suggesting equivalent subsidy levels would level the playing field and not distort farmers’ planting decisions.
Not all U.S. farm subsidy policies hurt Canadian grain growers’ incomes. Large U.S. government support for ethanol and biodiesel, by way of tax breaks and content mandates, have created a giant biofuel industry whose demand for grain has driven farm commodity prices higher.
That impact is obvious to Paap, who lives near the biggest biofuel producing city in the U.S. and can see two ethanol plants from his farm.
However, he fears today’s good times – the high prices, the booming biofuel industry, the sense that farming might finally be a profitable industry again – might fade, and if they do, the safety net that farmers have become accustomed to won’t be there to catch their fall.
“Right now we’re fortunate to have some higher prices, but you have to remember that this isn’t a one year farm bill, this is a five or maybe even a seven year farm bill,” Paap said.
“Those of us who have farmed long enough know there are peaks and valleys. It’s cyclical. We need that safety net when those lower prices come.”
Paap thinks the U.S. government will be able to get away with much lower crop production subsidies because prices are good today.
He chuckled ruefully when asked whether the situation in the U.S. today is similar to that in Canada in 1996, when high crop prices helped the federal government scrap the Crow subsidy with little farmer protest.
“I don’t think the border makes any difference. It works exactly the same way over here,” he said.
