Economist: Consider the Basics for Farm Bill 2012

Purdue ag economist says Congress has to focus on three things - Brazil, the baseline and the budget - for the next program.

Published on: Dec 7, 2010

It seems like just yesterday that a new farm bill was laid at farmers' feet, but policymakers have work to do next year on the 2012 document. And while a fair share of hearings have already been held on the shape of the new program, at least one ag economist is offering his take on what to watch out for as negotiations begin.

Roman Keeney, Purdue University ag economist, notes that when the new Congress takes up the next farm bill farmers will see focus on three major areas: Brazil, budget and baseline.

In 2009, the World Trade Organization allowed Brazil to impose sanctions against the United States after ruling that U.S. cotton subsidies were illegal under the current WTO framework. A last-minute deal had the U.S. sending Brazil $147.3 million in annual support for that country's cotton production - yes we're subsidizing Brazilian cotton.

"That deal is a temporary resolution to the WTO case that Brazil won against U.S. cotton subsidy programs several years ago," Keeney said. "The major issue in resolving the WTO case is for the U.S. to bring its policy into compliance in the 2012 farm bill."

While sending support to Brazil is not an economic stress, Keeney says it brings attention to ag spending at a time when the budget deficit is a major concern. The federal budget deficit was a significant factor in the November elections. "When you consider both the moderate impact of the recession on U.S. agriculture and the negative views of crop subsidies by those struggling to weather the economic downturn in the non-farm may be difficult for Congress to justify writing new farm legislation without reduced spending," Keeney says.

He notes price levels have been high enough that ag subsidy spending has been at a minimum for the past three years. Annual direct payments that do not adjust with market conditions are the majority of subsidy spending and that's where lawmakers will focus on cuts to provide savings with the new farm bill.

While ag has successfully avoided budget cuts in the past, Keeney notes that even adopting a minimal baseline may not be enough. The changeover in the House will pressure Congress to cut costs.