March 3, 2000

Economic studies relying on representative farms as models indicate U.S. farmers are in for a bumpy ride through the year 2004.

During the recent Texas Farm Bureau Leadership Conference at College Station, Dr. Ed Smith, Extension economist, painted a grim picture for agriculture in the short term.

"Many farms will not survive. The vast majority of those are crop farms. This is the worst our forward looking crop outlook has been—not just for small farms, but across the board," said Smith.

Agriculture is expected to be a $40 billion business in 2000, but Smith said the statistical average for the farms is deceiving.

"Aggregate numbers sometimes lie. Averages are not important. It’s the risks around those averages, the disperson, that counts," he said. "Net farm income held up our baseline out to 2004-2005 year. Certainly, in crop case, relatively low prices through 2004. Cows will be in an up cycle, hogs will be up, and milk fairly stable. Dairies will be doing better, benefitting from cheap feed grains."

Smith noted that a great deal is at stake for farmers and consumers as the farm policy debate ensues.

"Our policy has been abundant, affordable food. In the past, the American people have said, ‘Let agriculture err on the surplus side, not the deficit side.’ We’ve had cheap food since the late 1930s. The reality is, you have to move surplus food to other countries. If we did not have export markets, 40 percent of our production capacity would not be needed."

Therefore, to maintain dispersed agriculture, subsidies based on production and enhanced exports are needed. Smith noted, however, that opponents of farmer income supports have recently couched the debate in a "welfare"context. What are the other options policywise?

"We could maintain the status quo through 2002. If prices remain low, I don’t think we’ll maintain through 2002 crop year," he said. "I don’t know if an actuarily-based insurance program can ever work in this dispersed agriculture we’ve built up. The ‘counter-cyclical’ increase loan rates, which go per unit of production and maintain the marketing loan program to move into export markets, would work, but the cost is high.We could target subsidies to production. The problem with that is if we go to the people not farming anymore we get a black eye. Then there’s supply management. With our price level, we’ve either got to have more demand, or cut back production—or let Mother Nature do it for us."

Smith said there is strong anti-set-aside sentiment, but it has to be discussed as a way to curtail production. He also mentioned the possibility of increasing Conservation Reserve Program (CRP) acreage or allowing shorter term CRP.

"It would take a congressional change to do the set-aside. Democrats in the Midwest have proposed raising the loan rates with a tradeoff of reduced plantings," he reported.

Smith expects the status quo to continue for 2000-2001.

"If prices hold, we expect to see an emergency assistance program with the same basic characteristics as the last one, but it may target production instead of AMPTA. There could be some crop insurance enhancement," he predicted.

Smith foresees policymakers maintaining flexibility and perhaps increasing CRP.

He posed the question, "After 2002, will we have a farm program?" Then he answered it.

"Government is never going to get totally out of agriculture. It’s too important to our system," he said.

Smith emphasized that projections were based on simulations and underscored the importance of every producer examining his or her own unique operation for risk.