Learn How Public Policies Affect Agriculture

December 31, 2013

3 Min Read
Learn How Public Policies Affect Agriculture

A Purdue University agricultural economist is producing a series of publications to help farmers, policymakers and taxpayers better understand changing U.S. agricultural policy and develop informed opinions about them.

The Purdue Extension free publications under the series title of “APEX,” an acronym for Ag Policy Explained, will delve into public policy issues and how they affect the agricultural economy.

“Readers want to know the system and mechanisms, but they are turning to Extension to find an explanation for how it all works together so that they can not only be better managers of resources, but also become better informed students of agricultural policy,” says Roman Keeney, who is leading the project and is an author.

The first publication, The End of the Direct Payment Era in U.S. Farm Policy, explains why direct payments to farmers likely will end with enactment of a new five-year farm bill and how the elimination might affect the agricultural economy as other support programs are created.

Initial topics of the other publications also will focus on farm bill issues, including agricultural risk and policy, farm bill budget and baseline, farm bill eligibility and payment limits. The series later will cover other policy topics of importance to agriculture such as immigration, renewable fuels, animal welfare and local issues.

Keeney notes in The End of the Direct Payment Era that the idea of eliminating direct payments – government subsidies provided to farmers regardless of need – has near unanimous support among lawmakers as they now debate a new farm bill.

“Direct payments are no longer politically sustainable as part of the agricultural safety net,” Keeney writes in the publication.

Keeney gives the origin of direct payments, which began in 1996 to replace a set of farm programs and were initially intended to end in 2002. But the concept of direct payments as “transitional” was abandoned in 2002, and farmers have continued to receive such payments totaling $5 billion annually.

“When agricultural incomes were considerably lower in the 2002-2008 period, the idea of providing $5 billion worth of agricultural income support via fixed annual payments had enough political support to be maintained,” Keeney explains. “Since 2008, while most of the U.S. economy has been strongly affected by recession and a slow recovery, agricultural incomes have soared, setting historical highs in recent years. The prospect of continuing to make direct payments during this period of prosperity no longer has any political champions.”

Meanwhile, Keeney says, rising farm prices and incomes of the past five years have meant few payments to farmers from other support programs that help farmers facing low prices or incomes, leaving the $5 billion in direct payments as a target for helping to reduce the nation's deficit.

Because deficit reduction is calculated against a 10-year projection of government spending, Keeney observes it would seem that elimination of direct payments would provide about $50 billion toward reducing the deficit. But he says that might not be the case because the House and Senate want to put $15 billion to $30 billion of that savings toward new farm subsidies. The new subsidies could end up costing even more than $50 billion, depending on circumstances.

“The set of programs replacing direct payments will vary depending on what happens with prices, yields and participation choices that are unknown at the time of enactment,” he says. “Because of this feature, under sustained declines in farm revenues, new farm subsidy spending could actually increase dramatically over the 10-year period rather than decline.”

All of the publications in the series will be available online at Purdue Extension’s The Education Store at www.the-education-store.com. The End of the Direct Payment Era can be found by searching for publication number EC-774-W or by the name of the publication.



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