Counter-cyclical is defined by Webster's as something that is opposing or designed to oppose a trend, especially that of an economic cycle. Translated into farm policy, what it means is simply government support when farmers need it the most.
In testimony before the House Agriculture Committee April 25, National Corn Growers Association President Lee Klein, of Battle Creek, Neb., stressed the importance of a counter-cyclical farm policy. Also present at the testimony were fellow corn producers Dee Vaughan of Dumas, Texas, and Brent Porteus of Coshocton, Ohio.
At the root of the group's farm policy plan is the goal of improving the safety net for farmers while maintaining many aspects of freedom-to-farm. To do this, the group proposes a commodity price-sensitive program that provides assistance to farmers when commodity prices are low and decreases subsidy levels as commodity prices become more profitable.
“Farm income shortfalls will not be resolved by one easy policy change like boosting exports or artificially shorting the market with a set-aside. We need a complete package that provides farmers opportunities in the marketplace with minimal interference in production decisions and that includes a safety net against those economic forces that are beyond producers' control. We believe the correct counter-cyclical policy can do that,” Klein says.
More research funding
Such a counter-cyclical policy, according to the National Corn Growers Association (NCGA), would include doubling the funding for agricultural research, and re-authorizing food assistance programs, the Export Credit Guarantee Program and the Market Access Program. At the heart of the group's proposal, however, is the elimination of the current marketing loan program.
According to Klein, farmers have concerns over the way the program is being implemented and many growers are unable to get their local loan rate because often the posted county price is above the local cash price. In addition, he says, growers have expressed concern regarding the inequity of LDP rates across state and county lines. “This disparity in rates results from a system where county loan rates are fixed for an entire year's crop, but loan repayment rates are subject to change, based on dynamic market price relationships as reflected in the daily (or weekly) posted county price (PCPs).
“Like Congress and other commodity associations, NCGA has vigorously debated the issue of raising the corn loan rate,” he says. “Our official policy reads, ‘NCGA will oppose any decrease in the corn loan rate’ — reflecting our internal conflict with this issue.”
Klein estimates that raising the corn loan rate would cost approximately $90 million for each 1-cent increase. “If Congress were to ‘rebalance’ the corn loan rate at, for example, $2.10 as has been suggested, the budget impact would be $1.8 billion even though the CBO baseline assumes a corn price above $2.10 for every year in the baseline. NCGA believes that merely rebalancing the loan rate levels will not address the underlying dissatisfaction with loan rates across county and state lines. In fact, rebalancing may exacerbate this and other concerns with the marketing loan.”
Rewriting farm policy
NCGA proposes replacing the current marketing assistance loan program with a counter-cyclical program made up of several key components. The proposed program would work with production flexibility contract payments set at 2002 levels, establish a target income for each commodity, establish individual eligibility based recent production history; and replace the market assistance loan program with a recourse loan. “The goal of this proposal is to provide growers financial assistance when it is needed and promote policy that is less production- and trade-distorting,” Klein says.
The group's proposal establishes an annual target income for commodities based on the average crop value during the base period and incorporates producer benefits from the marketing loan program and the market loss assistance payments. This base period average income is adjusted for each year of the farm bill by a factor that reflects projected production increases.
For each loan-eligible commodity, NCGA anticipates production adjustments for producers who sustained crop losses during the base period. Each year, crop income will be calculated using USDA production estimates and the average price during the first three months of each commodity's marketing year. For corn and other commodities with a marketing year that begins on Sept. 1, the third-month price will be the preliminary estimate as determined by the National Agricultural Statistics Service. “A three-month price allows payments to be calculated and made when they are most needed by farmers.
“We would anticipate that this would allow farmers the option of receiving these payments either prior to or after Dec. 31 or each year for optimal tax management. Whenever the national crop income is less than the target income, producers will receive a payment based on their eligible bushels,” Klein says.
“We think a farm program with this structure has many benefits: It eliminates the 30-year problem of inequity within loan rates, it's non-production distorting, non-trade distorting and provides payments when needed to those who need it,” he says. “This program will provide $31 billion more in assistance over that seven-year period than current CBO-like baseline estimates.”
The December 2000 CBO baseline projects corn prices steadily increasing over the next 10 years. It estimates an annual average of $2.18 per bushel in the 2001 marketing year, $2.37 in 2003, and $2.40 in 2005. A more real-world projection, the national corn growers group says, would put annual corn estimates at $1.86 per bushel for 2001, $2.01 for 2003, and an average of $2.24 per bushel in 2005.
NCGA proposes eliminating the marketing assistance loan program, Klein says, due to concerns about compliance under the WTO agreement and the regional disparities inherent in the current program.
Should Congress decide to keep the current program despite the concerns expressed by NCGA, the group asks that four changes be made to make it “work more equitably for growers.” The suggested changes include: allowing a grower to determine their LDP rate on any or all eligible commodities after harvest or beginning Sept. 1; continued LDP eligibility for silage, high moisture, mycotoxin-infected and damaged corn; revising the rules to give a producer the choice to have his LDP set in the county grown or marketed; and directing USDA to use the Posted County Price as the average of the two adjusted terminal price for the county.
“As export demand improves, so will corn prices,” Klein says. “NCGA will continue to seek stronger export markets by supporting trade liberalization through multilateral negotiations and by aggressively pursuing market opportunities.”
The keys to increasing export opportunities for U.S. producers, NCGA says, are the passage of trade promotion authority legislation and the re-authorization of food assistance programs; the Export Credit Guarantee Program; the Market Access Program, and the Foreign Market Development Cooperator Program.
Klein calls the “on-the-ground presence” afforded through the promotion arm of these programs vital to U.S. agriculture.
“We need to be out there on the playing field everyday, constantly marketing the U.S. advantage. We've got to listen and learn what it is our customers want and need. We must continually educate foreign buyers about the superior quality and reliability of U.S. grains. And, we have to be the people who these foreign buyers know and trust. This can't be accomplished from Washington. It's got to be done on the ground, in country, day after day. You can only build trust and lasting relationships through direct experience with your customer base,” he says.
“It is time to demonstrate a serious commitment to market development to enable U.S. producers to develop and maintain important markets,” Klein adds.
The NCGA is urging Congress to provide a $5 million increase in ARS funding for plant, animal and microbial genomics research and a $10 million increase for the USDA National Plant Germplasm System.
“While many federal agricultural programs are important to the nation's corn growers, the NCGA believes that the future of the corn industry is written in corn's genetic code and that plant genomics will give us the fundamental information necessary to revolutionize American agriculture,” Klein says. “The National Plant Genome Initiative, the National Plant Germplasm System, and the competitive USDA programs that support genomics research are critical to the long-term viability of U.S. agriculture as they will provide our growers with the tools to meet the challenges and demands of the 21st century.”
In addition, the NCGA is asking Congress to double federal investments in food and agricultural research over the next five years. This translates into roughly an increase of 15 percent per year of the research, Extension and education in USDA and other federal agencies, or about a $500 million increase per year for five years.
Calling it a “strategic and wise investment,” the commodity group says the additional funding would improve income opportunities for farmers, strengthen the competitiveness of U.S. farmers in the global marketplace, find new uses for agricultural products, enhance the protection of natural resources and insure a safe food supply.
“In hindsight, the 1996 FAIR Act provided farmers with many of the tools we were looking for, but it was shortsighted in its ability to provide a safety net that would be sufficient in times of sustained low prices,” Klein says. “We believe that our counter-cyclical proposal is the safety net that eluded us in 1996.”