AFF Sentinel Vol.5#19

Farm Bill May Yet Emerge, But Fundamental Issues Ignored

The Senate and House again passed one-week extensions of the 2002 Farm Bill Thursday and President Bush is expected to sign.

Some of the excruciating pace has involved the House Ways & Means committee and the Senate Finance committee thrashing out tax and finance issues. We've noticed that proposed "solutions" include both tax credits and tax cuts, as well as increased user fees. That gives the politicians the opportunity to say they supported or opposed either one, depending on their audience. Public negotiation sessions have involved everyone blaming everyone else for holding up progress.

A key goal has been finding money for increased nutrition (food stamp) spending. With an election coming, Congress is trying to find ways to assuage the effects of higher food and fuel prices on poor voters.

Of course, Congress does not acknowledge it's own large part in causing the prices we're suffering. There's been little discussion of freeing up budget money by dealing with ethanol problems. The total effect of the ethanol tax credit to blenders and the tariff on imported ethanol is a major factor in higher food and fuel prices. With the stock of major ethanol companies in the doldrums, ethanol in oversupply and more plants coming, investors are watching closely to see if Congress reduces credits.

Livestock producers need some easing of the pressure on feed costs. But lawmakers have failed to discern that the time to encourage research and early adoption of ethanol is long past. By failing to take action before, they now have thousands of investors, workers and farmers involved in an industry operating on a subsidized, partially false economy on one side, causing artificially high prices for livestock producers, food processors and consumers on the other side. Sounds like an extension all right -- an extension of the subsidized, false economy we've been operating for crops since the Dirty Thirties.

This is a perfect example of the government getting involved beyond where it had any business, without the expertise or the nimbleness to manage the situation but substantial power to damage taxpayers and the economy. Congress, through the clumsy device of a five-year Farm Bill, is no management team for any industry in a fast-changing environment. It has already mandated increasing pain through increased ethanol use and cellulosic ethanol production, the latter unproven technologically or economically on a commercial scale. Government has not learned its lesson from mandating and subsidizing ethanol before it was proven beneficial and the economic implications understood.

President Bush has been unhappy with this Farm Bill because he wants "reform" -- payment limitations. Much Senate and House floor debate grandstanding on the Farm Bill consisted of decrying a relatively small percentage of farm operations - mostly cotton operations - getting millions in payments.

But there was little discussion of the size and scale necessary for efficient production and the increasing needs for capital in modern production agriculture. It's popular to decry famous people or "Manhattan farmers" getting payments. But there are two separate questions here: 1) should anyone be getting farm crop payments from the government (taxpayers) and 2) should the sources of farm capital - unlike other businesses - be limited to those people living on the farm?

Should brothers or sisters have to live on the farm in order to provide some of the capital to run it? Do we require retailers or their investors to all live above their store? Should all the shareholders in a factory be required to live on the factory grounds? Are we going to penalize agriculture by not allowing "city folk" involvement? How much production efficiency should we forfeit and how much higher food prices are we willing to pay in order to restrict participation and investment in agriculture?

There has been no real effort in this Farm Bill to transition to a market-based economy for crops or discuss the even more difficult transition necessary for rural communities.

Some discussion of getting a portion of needed budget savings from very small cuts in commodity direct payment programs has been reported. But with record commodity prices, direct payments of over $5 billion are still scheduled.

Friday the conferees made significant progress and are expected to work through the weekend. Votes on key livestock provisions will be held until the end of negotiating, perhaps early in the week.