Agriculture Secretary Mike Johanns says the Bush administration's farm bill proposals would provide a “strong safety net” for farmers who don't exceed an average $200,000 in adjusted gross income per year over a three-year period.
But a new study by Texas Tech University's Cotton Economics Research Institute says net farm income for cotton producers would fall 15 percent during the first year if the administration's farm bill language became law and continue to dip the next four, averaging an 11 percent decline over the five years.
And that's before CERI researchers try to factor in such “unknown” variables as new payment limit rules and the Bush administration's proposed extra assistance for beginning farmers.
According to the CERI computer forecasting model, some of the major effects of the administration proposals:
Direct payments would go up.
The CCC loan rate would go down.
Changes to the counter-cyclical program would result in lower payments.
And, finally, the overall market price for cotton would go up.
The latter is expected to occur because of the reduction in overall acreage that would result from the loss of government support under the administration proposal. In addition, the returns of other competing crops are predicted to be relatively high.
“Acreage declines are marginal, about 2.5 percent over a five-year period,” said Samarendu Mohanty, an agricultural economist and associate director of the institute. “There's a big shift initially, and then smaller as farmers adapt.”
CERI researchers said the big question is whether market prices will go up enough to compensate for the losses in government support for cotton, and the answer is no.
“We lose more in government support than we gain in increased market returns, and so cotton farmers are worse off by 11 percent over a five-year period,” said Mark Welch, a research scientist with CERI.
The Texas Tech World Fiber Model baseline projections are based on assumptions of normal weather patterns and current farm policies, along with estimated economic fundamentals such as population and income growth, and prices for crops that would compete with cotton.
Besides reducing the adjusted gross income limit for farm program eligibility from $2.5 million to $200,000, the administration is recommending that Congress eliminate the three-entity rule that allows some farmers to participate in payments in more than one farming operation.
Because of the difficulty in gauging the impact of such a change, Texas Tech researchers did not include the three-entity rule elimination factor in the computer model nor did they attempt to calculate the impact of providing more assistance to beginning farmers.
The administration also wants to adjust the limits for direct payments, counter-cyclical payments and marketing loan gains within the overall $360,000 payment limit and some officials have discussed eliminating the use of generic commodity certificates.
Secretary Johanns announced April 25 that USDA has begun writing legislative language for the farm bill at the request of several congressmen he said had expressed interest in the administration's proposals.
The Tech researchers said the cotton world price during this five-year period would rise slightly, in part, due to the small drop in U.S. production. If U.S. production acreage falls — even slightly — it will have a ripple effect on the world market.
Cotton Economics Research Institute agricultural economists provide cotton economic analyses for policymakers and others interested in agricultural economy. The group conducts economic research on all aspects of cotton production, marketing, trade and processing.
A copy of the briefing paper, which was written by Texas Tech's Suwen Pan, Mark Welch, Mohamadou Fadiga and Samarendu Mohanty, can be found at www.ceri.ttu.edu/policy.