Agricultural and Food Policy
 Agri Outlook Radio
Number 202
Policy/Farm Act: The 2008 Farm Bill’s Impact on U.S. Rice Producers – Complete Version – Published in Mid-South Farmer (10:37 minutes)
Audio/Video Script:
Robert Coats, Ph.D.
Extension Economist and Professor
University of Arkansas, Division of Agriculture
This is Robert Coats Extension Economist University of Arkansas Division of
Agriculture.
The New Farm Bill’s Impact on U.S. Rice Producers
The 2008 farm bill coupled with the domestic and global inflationary economic
setting and the trend toward increasingly open global trade has significantly
increased our rice producers’ exposure to risk and uncertainty, but it is giving
our producers an expanding world of opportunity. At the same time they must
focus on managing their exposure to risk and uncertainty in order to capitalize
on opportunity.
In the commodity title of the farm bill U.S. rice producers were able to maintain
traditional farm government program policy mechanisms of marketing loans, loan
deficiency payments/marketing loan gains, counter-cyclical payments, and target
prices. They were less successful in limiting payment limit reductions.
The excessive payment limit reductions which don’t start until the 2009
period, I believe, has more negative than positive consequences to the
advancement of commercial rice production. If policymakers truly want to advance
the global movement toward increasingly open markets and free trade, then they
need to nurture commercial rice and cotton producers, not constrain their
ability to compete.
The thought back in 2004 and early 2005 as the farm bill debate began was
traditional farm policy mechanisms had historically provided rice farmers with a
reasonable safety net and a continuation of traditional policy mechanisms even
though they were not indexed, seemed the best policy compromise. It’s easy to
forget just how many wanted a major departure away from traditional farm policy.
The problem with traditional farm policy mechanisms is they are not indexed
to take into account the highly inflationary domestic and global economic
setting that emerged in a dynamic way since the farm bill debate began. Our rice
producers 2008 cost of production are up a good 100% over 2002. Since no one
anticipated the radical increase in production costs and rising commodity
prices, these traditional policy mechanisms remain at 2002 farm bill levels
without being adjusted for inflation. Obviously, U.S. rice producers’ 2008 per
acre safety net relative to their cost of production are drastically reduced
when compared to their 2002 per acre safety net.
Regarding the rice target price, the 2002 farm bill had one rice target price
an all rice target price of $10.50 per cwt. The 2008 farm bill designates two
rice target prices. The first is a long grain target price and the second is a
medium/short grain target price. The long grain and the medium/short grain
target price are set at $10.50 per cwt. This adjustment in the rice target price
enhances fairness between long grain and medium/short grain producers when
counter-cyclical payments are made. For several years long grain rice producers
would have received higher counter-cyclical payments if a distinction had been
made because the medium grain farm market price was significantly higher than
the long grain farm market price. The majority of medium grain rice is produced
in California.
Considering the rice direct payment, the 2008 farm bill continues the rice
direct payment begun under the 2002 farm bill. The direct payment rate of $2.35
per cwt is unchanged, but the rate is now designated for long grain and
medium grain rice and not for just all rice as under the 2002 farm bill.
Distinguishing between long and medium grain rice is also part of the
change to allow calculation of a fair counter-cyclical payment when the rice
producers’ farm market price for long grain and medium grain differs.
There is another difference in the calculation of the total direct payment
for 2009-2011. For 2008 the calculation of the total direct payment for
producers on a farm is unchanged and is 85 percent of the farm’s base acreage
times the farm’s direct payment yield times the direct payment rate. For the
2009-2011 periods, the farm’s base acreage percentage changes from 85 to 83.3
percent. For 2012, the farm’s base acreage percentage reverts back to 85
percent. The reduction in percentage of base acres during 2009-2011 allows
needed farm bill savings. The return to 85 percent in 2012 is designed to
preserve farm base payment acres in the next farm bill debate.
The total possible rice direct payment for a producer on a farm equals 85
percent of the farm’s base acres for 2008 and 2012 (83.3 percent for 2009-2011
of the farm’s base acres) times the farm’s direct payment yield times the
counter-cyclical payment rate.
Looking at counter-cyclical payments these payments were continued from the
2002 farm bill. It provides support counter to the cycle of market prices as
part of a “safety net” in the event of low deflationary global rice prices. The
rice counter-cyclical payment is only issued if the effective rice price is
below the rice target price.
The rice counter-cyclical payment rate is the amount by which the rice target
exceeds the effective price. The effective rice price equals the direct payment
rate plus the higher of: first, the national average market price received by
producers during the marketing year; or second, the national loan rate for the
commodity. The long grain and medium/short grain target price is $10.50 per cwt,
the loan rate is $6.50 per cwt, and the direct payment is $2.35 per cwt.
Subtracting the long grain or medium/short grain loan rate ($6.50 per cwt) and
direct payment ($2.35 per cwt) from the target price ($10.50 per cwt) then gives
you the maximum possible per unit counter-cyclical payment of $1.65 per cwt.
The total possible rice counter cyclical payment for a producer on a farm
equals 85% of the farm’s base acres times the farm’s counter-cyclical payment
yield times the counter-cyclical payment rate.
An alternative to the traditional counter-cyclical payment for rice producers
was established in the 2008 farm bill. It is called the Average Crop Revenue
Election (ACRE) program. This program does not start until 2009. It is probably
best to limit comments on this program until the final regulations are written
later this year.
Further information on the direct and counter-cyclical program payment can be
found in the Farm Service Agency’s
Fact Sheet on this subject.
2002 farm bill payment limits for direct payments, counter-cyclical payments,
and loan deficiency payments remain in place for 2008 along with the 3-entity
rule, but will change significantly for 2009-2012.
The farm bill’s impact on U.S. rice producers will be determined by the
strength or weakness in the global economy and by fairness or lack of fairness
in the global trade talks. Time and time again during the farm bill debate
Senators and Representatives from rice and cotton states presented their
concerns that the loss of global economic momentum could cause commodity prices
to tumble, and stressed the limitations of the 2008 farm bill safety net
compared to the strength of the 2002 farm bill safety net.
This has been Robert Coats Extension Economist University of Arkansas
Division of Agriculture.
Back to Agricultural and
Food Policy Radio
|
