EXECUTIVE SUMMARY



Session; The 1996 Farm Bill

13


returns under the FAIR remain above those for the 1990 bill until 2002,
even though the FAIR program’s payments get smaller with time. By
2004, projected net returns are almost identical under each policy.

[Daryll Ray - cont.]


For the FAIR’S duration, however, farmers are likely to receive
about $11 billion more in combined returns to corn, grain sorghum,
oats, barley, wheat, soybeans and cotton production. Net income for the
entire agricultural sector could be about $9.4 billion higher than it
would have been under a 1990 bill extension.

APAC’s projections are based in part on relatively conservative
export assumptions. Agricultural exports recently have been the subject
of a great deal of optimism. Many believe export sales will soon take
off and create a new age for the U.S. farmer. The numbers available
today, however, suggest an export-driven agricultural boom is unlikely.

For example, projections indicate com export value will decline
through 1999. Even with an increase in Chinese corn imports later on,
U.S. export value may not return to 1995 levels by 2004.

In addition, cotton exports will continue at about one-third of their
1994-95 value through 2004.

Annual changes in exports are shaped primarily by importers’ or
competitors’ production shortfalls, as well as by changes in competi-
tors’ trade policies, credit arrangements and exchange rates.

An example of the second factor is emerging as the European
Community (EC) positions itself to end wheat export subsidies by the
end of the century. Even without subsidies, the EC is likely to be com-
petitive and increase its market share by the time the FAIR expires.

Still, if the United States can hold its share constant after 1999,
domestic wheat prices may recover to nearly $4 a bushel by 2006.

What does all this mean for policy educators?

The new bill gives farmers nearly complete planting flexibility, so
they can adjust planting decisions in response to conditions in export
and domestic markets. The bill keeps Conservation Reserve Program
land as a resource to meet sudden increases in demand for crop
production—although targeting the CRP to exclude more productive
lands diminishes the program's usefulness for this purpose.

On the negative side, the FAIR does not provide buffer stocks, and
its Production Flexibility Payments are not tied to the fortunes of
agriculture. The lack of buffer stocks and of price∕income supports will
allow large commodity price swings, as we’ve seen this year.

Increased price volatility also increases farmer and lender risk.

This combination of effects is an opportunity for agricultural
economists to help farmers Ieam better ways to manage risk. The
duration of the FAIR also will be a period when public policy
educators can be an important voice of reason, cautioning farmers
against extrapolating today’s returns into blind optimism for the future.



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