Ag economists: Crop insurance, risk management to shape next farm bill

The soaring cost of crop insurance and the move away from direct payments to farmers in favor of risk-management measures will shape the future of the farm bill, according to Ohio State University agricultural economists who shared their perspectives with farmers and other attendees on the inaugural day of the 50th Farm Science Review in London, Ohio.

The panel featured farm policy expert Carl Zulauf and international trade and policy specialist Ian Sheldon, both from the university’s Department of Agricultural, Environmental, and Development Economics.

They were joined by Katharine Ferguson, legislative aide to U.S. Senator Sherrod Brown, who is a member of the agriculture committee. Matt Roberts, who specializes in risk management and commodity prices, moderated the panel.

The discussion focused around the likelihood that a new farm bill will not be passed by Congress before Sept. 30, when the current legislation is set to expire. Zulauf said he expects an extension to the bill will be approved, maintaining things as they are until the end of the year.

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“It’s more common than not common that the farm bill expires before another one is approved,” Zulauf said, noting this situation has become the norm in recent history. “Jan. 1, 2013, is really the date to watch for, when some of the programs (in the current legislation)would go away if there’s no new farm bill and the resolution to continue it expires.”

Plenty of incentives

Zulauf said there are a lot of incentives for the current Congress to pass a new farm bill before the end of the year, as the bills drafted by the Senate and the House of Representatives include billions in savings at a time when deficit reduction is a hot topic on Capitol Hill.

The Senate has passed a bill, which cuts $23 billion over 10 years. The House version — which shrinks the Farm Bill by as much as $36 billion over a decade — has been passed by the agriculture committee, but the full House has not yet taken up the legislation.

“It’s hard to believe this Congress will not pass a farm bill that saves money,” Zulauf said.

Whenever a new farm bill is passed and whatever it ends up costing, panelists said the issue of crop insurance and its cost will impact the future of the legislation.

“The next farm bill will be about crop insurance and the cost of crop insurance,” Zulauf said. “It costs $5 billion a year now. It’s no longer a small program. We are at that point where we will be taking a hard look at that.”

Also shaping the farm bill will be the shift from direct payments to producers and a stronger emphasis on risk management, mostly in the form of crop insurance programs to guarantee that farmers are protected when events such as this year’s drought rear their ugly heads, Zulauf said.

The form in which farmers receive payments from the government also has implications for foreign trade policy, Sheldon said. The World Trade Organization has criticized U.S. agricultural legislation for what it considers excessive subsidies that undermine fair global competition.

“Talks regarding WTO compliance are on ice right now due to the impact of the recession on the U.S. and the European crisis,” Sheldon said. “But WTO compliance will be an important issue moving forward.”

The panel also addressed the topic of the government’s ethanol mandate and its possible impact on corn availability and prices this year. There have been increased calls to divert less corn for ethanol this year by easing the U.S. ethanol mandate, which calls for 13.2 billion gallons of the biofuel to be blended into gasoline in 2013.

But Roberts said there is no evidence ethanol production will be affected even if the mandate for 2013 is waived, in part because of ethanol reserves of some 2 billion gallons currently held by the industry.