14, 2006: One of the accusations made against the
farm program at the time the 1996 Farm Bill was being debated
was that farmers were “farming the program”—making
production decisions based on maximizing farm program benefits,
rather than on agronomic and market factors. To overcome this
problem, the program was redesigned to give producers the
“freedom to farm” and make their decisions in
the absence of payment considerations.
It was argued that the decoupling of payments from production
decisions through the use of fixed declining transition payments
(remember AMTA?) would go a long way toward eliminating any
incentive farmers had to farm the program because the amount
received was not dependent on planting decisions. If farmers
took acreage out of production under 0-92, it seemed reasonable
to believe that under what was in effect a “0-100 program,”
they would be responding to low prices by reducing production.
It was argued that by locking in a historical number for
program acres and giving farmers planting flexibility they
could change the number of acres planted to each crop, or
to no crop, in response to price.
They did. . . and then again. . . they didn’t!
Farmers use planting flexibility to rebalance crop acreages
in response to changing prices and they love it.
They did. And, they didn’t!
Taking into account the point on the “0-100 program,”
leaving acres unplanted is unacceptable to farmers except
in rare circumstances.
The next thing the 1996 Farm Bill did (and it was included
in the 2002 legislation) was to make the non-recourse loan
rate a dead letter by fully implementing the use of Loan Deficiency
Payments (LDP) and its twin, the Marketing Loan Gain (MLG).
As we have mentioned in recent columns, eliminating the price
floor allowed prices to tumble when the tight supplies of
the 1995 crop year began to ease.
What we have now are articles and editorials in national
and local newspapers decrying farm subsidies as wasteful.
As important as they may be to help overcome the inherent
inability of aggregate crop agriculture markets to self-correct,
it is difficult to appeal for public support of farm programs
when a farmer who sells his corn for a price well above the
loan rate still collects $75,000 in LDPs.
By disconnecting the LDP/MLG collection from the sale date,
the program provided farmers, and the marketing services that
advise them, with a speculative tool that they could use to
obtain a price that is well above either the loan rate or
the season average price paid to farmers.
Once more, we have farmers (and now an added layer of new
“professional” advisors) “farming the program.”
Only, this time the stakes for the federal treasury are much
greater than they were under the pre-1996 programs.
In looking at the $2.9 billion of LDPs and MLGs paid on the
corn crop during the 2004 crop year even though the season
average corn price was above its “safety net”,
one could easily argue that the policy provisions of the 1996
and 2002 Farm Bills have taken “farming the government”
from the sandlots to the big leagues.