In case you missed it...

Paul Neiffer has a small bombshell regarding the ARC program on his blog at AgWeb.  We talked about this Wednesday night at the TP seminar and he ran some numbers to try to verify our back of the envelope thinking.

I ran some numbers for Buchanan County, Iowa based upon the county yields for the last five years and arrived at the following conclusion:

• The Olympic average yield for the last five years for the county is about 169 bpa.

• The Olympic average corn price over the last five years is $5.15 (this is for the whole US, not just the county).

• A claim would be paid if the actual revenue was less than $748.

• The maximum claim is about $75 and if the yield was 160 bpa and the average corn price was less than $4.25, then the full claim of $75 would be paid.  The average price would have to rise to almost $4.75 to have no claim.

• If the yield was 170 bpa, then a full claim would happen at about $4.10.  At about $4.40, no claim would be owed.

• If the yield rises to 180 bpa, then a full claim is allowed if the average price falls below $3.70 and no claim is allowed if the price goes over $4.15.

Let’s assume we have a Buchanan farmer with 1,000 corn base acres in 2014 and the county yield ends up at 170 bushels per acre and the final corn price for the year is $4.  In this case, he would receive the maximum $75 per acre on 850 acres (1,000 times 85%) or $63,750.  Since the payment limit is now $125,000 per person ($250,000 for married couples), the farmer will get the full amount.  In fact, the farmer, if married he could farm 4,000 acres and collect full ARC payments.  Under the old law, this most likely would be limited.  If these numbers were based on his actual yields, then the payment would be reduced to 650 acres times $75 or $48,750.  Using this coverage, the farmer could farm 6,000 acres and collect full ARC payments. [More]

It looks like this math will be roughly the same for 2015 too because of the Olympic averaging. So while I had been wondering why Heritage, AEI, etc. had been complaining about the bill cost estimates being way too low, this would seem to confirm it.

We're talking ~2.5 X DCP payments. I'm calling it a 7.3 (out of 10) boondoggle.

The catch: the payment won't be made until Oct 2015, and of course everything depends on actual prices and yields during the 2014 year. My thinking is if yields are higher, prices will be (much) lower, so this is a reasonable first guess.

Bad press...  

It's a rare feat: a legislative action that infuriates virtually all parties involved. Kind of an anti-compromise, I guess. But that is exactly what the food-free Farm Bill seems to have accomplished.

Some of the accounts I have read include Andrew Sullivan's terse dismissal:

The House Republicans just pushed through a farm bill with extremely generous farm subsidies while scrapping the usual corollary food stamp aid. It doesn’t get clearer than that. There’s no small government consistency here – just an embrace of subsidizing Big Ag and a contempt for the needy in a long, protracted growth recession. Are they trying to make themselves look like total douchebags? [[More with his links to other commentators]

But of course, he is not a real conservative anymore, having been "frummed" out like like so many.

So let's check in with say, The Heritage Foundation for their congratulations:

In fact, they made this new bill even worse—by making sneaky changes to the bill text so that some of the costliest and most indefensible programs no longer expire after five years, but live on indefinitely. This means the sugar program that drives up food prices will be harder to change, because it doesn’t automatically expire. It also means the new and radical shallow loss program that covers even minor losses for farmers will indefinitely be a part of the law. [More]

But to make it easy, Chris Clayton at DTN has assembled much of the response from the hard right.

My favorite rant (it was hard to pick) was by Derek Thompson.

The farm bill passed by the House of Representatives yesterday is pretty much a disgrace. Republicans took legislation that had historically been 80 percent food stamps and 20 percent mostly awful and antiquated agribusiness subsidies. And they passed something that is 0 percent food stamps and 100 percent mostly awful and antiquated agribusiness subsidies.
"Billions for farmers, nothing for the poor" is a stark assessment, but a fair one.

[This last link - by Matt Iglesias - was a doozy too.]

Perhaps the best analysis I saw in this midst of all the outrage is from the WaPo:

“[T]he one explanation that almost always explains support for agricultural protection,” the paper concludes, “is the electoral pressure a legislator faces, i.e., the proportion of her constituents who are farm owners or farm managers.” Other things, like lobbying or a politician’s farm background, can also matter, but they have a weaker effect.
This was unexpected. The average number of direct agricultural constituents in a House district was only about 1 or 2 percent — there simply aren’t many farmers left in the United States. But those voters care a lot about farm policy. And most other voters don’t care much about farm policy at all — and are unaware of the costs of agricultural subsidies.
In an interview, Bellemare stressed that his paper is  a work in progress — it’s not yet published — and he’s still responding to critics. For instance, it’s a bit tricky to analyze votes on the 2002 and 2008 farm bills because they contained both crop subsidies and money for food stamps. So the authors have used a variety of techniques to tease out lawmakers who are casting votes for food stamps and those who favor the actual farm subsidies.
One notable thing they’ve found recently is that lawmakers with high levels of poverty in their districts are actually less likely to favor farm subsidies. This suggests that the traditional set-up of farm bills — where food stamps are included to create an urban-rural alliance — has in fact made it much easier for the previous farm bills to pass.
“We can’t say that for certain from our results,” Bellemare says. “But it certainly seems like that coalition is a necessary condition of these bills passing.”
Of course, the House has now taken the step of splitting the farm bill in two, which could scramble the politics further in years ahead. It’s hard to draw too many hard conclusions from yesterday’s vote, since it’s a bit of a special case — the House leadership was trying different tactics to pass a massive farm bill that had already been written, and temporarily splitting food stamps and farming seemed like one way to go. [More]

Well, it's good to have some academic justification of something most of us considered obvious, but  like the other comments, few have any idea of what happens next.

In all, I think it was a monumental blunder by the House leadership and TP faction. They did not appease the far right - just the opposite. And they managed to split a sector that voted overwhelmingly red into bickering splinters.

But farmers are mistaken if they think this approbation will be confined to Congress, I suggest. The AFBF has had the right of this for some time: Keep out of the spotlight at all costs. Without food stamps to distract, the awful truth about ag spending is made transparent. This move has tarred my profession with the same brush.

And nobody - not even us - thinks we're going to work to add another food bill "later".

Really, NCGA is going to patrol the halls of Çongress to pass funding for SNAP? It's not like SNAP recipients are food consumers...no,wait...

So this is exactly what it looks like: My boys got me mine. Too bad about those other guys.

All in all, I think odds just became slightly higher for farm program cost reduction and reform as the ag lobby in Washington has lost control. And getting even there will burn more bridges than we can imagine.

Fair is fair...  

While I am no fan of the cynicism, gerrymandering, and class-warring of Tea Party congressmen, if they can pull this off, they deserve credit for moving farm policy toward something saner and more equitable.

Not only does the House intend to split the bill, but they also took aim at rooting out the "permanent farm law" from 1939 and 1948. This is no small ambition.

The bill would also repeal laws from the 1930s and 1940s, essentially eliminating all old farm policy which some conservatives like. 
Farm-state lawmakers have kept those laws on the books so there would be incentive to pass new farm bills and avoid expiration, but the threat of outdated policies kicking in has been a headache for farmers who worry they can’t depend on Congress to create new laws or extend more recent versions of the law.
Repealing those decades-old laws could mean that Congress would have little incentive to create new farm bills, however, and could make many farm programs permanent. [More]

[Note: I dispute the last sentence, and could find no justification for that prediction]

But what I continue to consider the greater point is too much of agriculture has placed their future in the hands of hard-to-predict politicians. This is a major farm business plan blunder, because it introduces unpredictable, illogical catastrophic failures and broad economic dislocations.

My list of most vulnerable in ag:

1. Sugar - without our protectionist program I doubt we would have much production here (as they are finding out in Europe as well)
2. Dairy - the idea milk can't be produced in free markets is learned nonsense. In fact, we'd better start finding ways to do so.
3. Cotton - I suppose alternative crops could get cheap enough to make cotton viable without subsidies, but that's a long shot, IMHO.
4. Rice - we're not even close to global competitiveness most years.
5. Corn - Although slipping down the list, the ethanol mandate loss would be a knee-buckling development. While the industry may have outgrown it, and energy economics may support its use, until we stop holding a gun to the public's heads, we won't know how to plan.

To top it all off, while all eyes are on Washington, agriculture continues to be slow to respond to climate change. I think there is a naive belief magic seed will appear from Monstanto, et al. in time to cope with extremes of heat, drought, and rain. I'm actually coming to the other conclusion - that new genetics offer rising risks for different environmental conditions. The green snap problem seems to be a new side effect of modern genetics and guess which way storm intensitygoing.

At any rate, whatever the outcome, this narrow escape with from loss of government goodies should shake the faith in this cornerstone of our ag business. Trusting Washington seems an odd thing to do for people who despise and distrust government. 

Tell me again...  

Why we farmers are so angry about SNAP that we're risking shooting the horse we ride into battle for our subsidies.

At the third stop, a high school football player pleaded for extra milk; at the fourth, teenagers fired rifles at cans up the road; at the fifth, always the most crowded, kids, parents and dogs waited in the shade under the trailer park’s only tree.

“Finally!” one of them said as the bus pulled in. He was a 12-year-old boy, shirtless and muddy with half of a cigarette tucked behind his ear, and he barged onto the bus and grabbed his lunch. “Bologna again?” he asked, studying his sandwich.

“I’ll take yours then,” another boy said, grabbing for his bag.

“No fighting,” Anderson said, as she handed out 15 meals and walked toward the back of the bus, where a young mother in a tank top and pink slippers was sitting with her 2-year-old son. The mother opened the toddler’s fruit cup and, a minute later, the little boy stood up on his seat, laughed and tossed the fruit cup out the school bus window.

“How dare you?” the mother said, turning to the toddler, slapping his bottom hard enough for the bus to go quiet, then pulling her arm back to slap him again.

“It’s okay,” Anderson said, hurriedly reaching into another bag for a replacement cup of fruit, breaking the rule about seconds.

“It is not okay with me!” the mother said. She turned back to her son, who was wailing, and yanked him back into his seat. “Sit on your butt,” she said. “What did I tell you about wasting?”

Anderson watched the mother for a few seconds and wondered if this would be one of the times when she needed to call child protective services to make a report. It had happened three times on buses already in the past two weeks, once for possible child abuse and twice for possible neglect. Stress, anger, desperation — these were behaviors she had been told to anticipate on the bus at a time when a record 10 percent of children live in homes unable to provide adequate, nutritious food. “Low-income families are being pushed to the very edge,” one of her training manuals had warned. But now Bible walked back from his driver’s seat and put his hand on the young mother’s shoulder. “It’s hot. We’re hungry. Nobody is in a good mood,” he said. “So I’d like to tell a joke. Have you heard that this bus has 2050 air conditioning? That means 20 windows down and 50 miles an hour.”

The mother appeased him with a smile. The 2-year-old went back to eating his sandwich. The meal ended, and the bus emptied out.

“We got them through it,” Bible said.

“Thank goodness,” Anderson said.

“Fifteen minutes and 750 calories,” Bible said.

“And again tomorrow,” Anderson said. [More about rural hunger that you maybe didn't know]

The program is an outreach by USDA to get to the 1 in 4 children living in hunger. 

Yeah, we need that money for our "painful shallow losses"...

SNAP answer

The SNAP answer...  

One of the farm-bill killers was the last minute Southerland amendment.

At 12:14 p.m., the House opened debate on an amendment introduced by Florida Republican Steve Southerland that would have allowed states to increase work requirements for citizens to receive food stamps. Shortly after, Cantor spoke on the floor in support of the amendment. While there were more than 100 amendments debated over the two days of deliberations, Southerland’s amendment was the first and only that prompted Cantor to take to the floor.
At 1:22 p.m., the Southerland amendment was approved in a near-party-line vote, 227 to 198. Only one Democrat went for the amendment, and only six Republicans went against. It was a partisan poison pill, the last amendment of the day. And it was enough to kill the measure.
At 1:54 p.m., the Federal Agriculture Reform and Risk Management Act, colloquially known as the farm bill, was defeated 234 to 195, with 24 Democrats backing the legislation and 62 Republicans voting against it. It was the last in a series of embarrassing defeats for the House Republican leadership, who have struggled for three years to corral the conservative wing of their conference.
After the vote, Minnesota Representative Collin Peterson, the senior Democrat on the House Agriculture Committee, said, ”The farm bill failed to pass the House today because the House Republicans could not control the extreme right wing of their party.” When asked if the Southerland amendment was specifically what sunk the bill, Liz Friedlander, a spokeswoman for Peterson, told TIME: “I think that’s fair to say.”[More]

“We were over 40 and we ended up…at 24,” Peterson told the Hill.[More]
Speculation aboundson Cantor's motive, and I certainly have no insights. It doesn't look like something your No. 2 man should do unless he's itching to be No. 1, though.
 Indeed, the 24 Democratic votes were a clear drop from the 40 that Minnesota Rep. Collin Peterson, the Democratic floor manager, had predicted.
“I did have more Democrats,” Peterson told reporters after the vote. He said the “last straw” had been a Cantor-backed amendment that opened the door to states imposing more work requirements on able-bodied food stamp recipients.
Cantor sought to shift the blame back to Minority Leader Nancy Pelosi, accusing the California Democrat of choosing “partisanship over progress.” And Republican aides insisted that Peterson should not have been surprised by the work amendment.
But after all the frustration of the past year, Cantor’s sudden prominence — coming down to speak after being otherwise silent — infuriated those close to Agriculture Committee Chairman Frank Lucas (R-Okla.). And this all played out in an atmosphere in which Lucas had been working — with some success — to try to stem the Democratic bleeding on the nutrition issue. [More]

This is all water under the dam, so to speak.But what I found hilarious was this effort to explain how to make SNAP a work-tested entitlement.

Under this new system, those able-bodied poor who needed public assistance and showed up at their local welfare office before 9 am would be assured a work assignment for 8 hours that day.  They would be paid at the end of the day the minimum wage for that work in cash.  If they needed more, they could come back the next day and work again.  This is only for the able-bodied poor.  The disabled who could not work would be served by other programs designed for them, which can provide generous assistance on top of Social Security disability payments without requiring work.
The local welfare office would attempt to place those seeking assistance in a private sector job, like private temp agencies do all across America every work day.  Indeed, ideally the local welfare offices would be contracted out to private temp agencies, which would be paid a fee based on successful placements of those seeking assistance in private sector jobs.  But all those who showed up needing assistance would receive some 8 hour work assignment for the day paying the minimum wage, even if it was just to spend the day cleaning up the local public parks.
Those who needed child care while they work would bring their kids with them to an on-site child care facility.  All other public assistance for the able-bodied would be provided only in return for those who showed up for work in these job assignments.  That would include Medicaid vouchers for private health insurance for those who showed up for enough days of work each month to qualify. [More].

Does anyone notice the slight problems with the above program changes?

• Isn't this potentially a 1930's scale work project like the CCC? The problem is not solely making people work, but finding any jobs for unskilled laborers. If the default is "cleaning parks" who will get people to the parks supervise, run the payroll, etc.? What will this government monstrosity cost?
• Try to make this plan work in rural America, where most SNAP recipients now live. How many offices would this require?
• Finally, won't the USDA suddenly become the largest day-care provider in the country overnight? Liberals have been arguing for this for decades, and here a hard right commentator reaches the same conclusion.
• Does this guy even know how SNAP works?

Now I realize this whole pipe dream could simply be an effort to make getting food stamps so hard people don't bother. You make all these hurdles and don't fund any of the appropriations needed to make it work. I'm pretty sure, however, that the eventual court case would force the spending, just like ADA made all those ramps get installed.

I thought I had posted about this, but it turns out it was a USFR commentary, so bear with the repetition:

Last week during the news we has a report about the growing cost of the Supplemental Nutrition Assistance Program - SNAP - which used to be called food stamps.The video we used to illustrate the the story was of shoppers checking out using SNAP cards. While the video was essentially accurate, the shoppers were all African-American. During the week I did some research and discovered such images may inadvertently perpetuate inaccurate stereotypes. The most likely SNAP recipient is not an adult African American - it is a white child under 18. Children receive just under 50% of all benefits . Whites account for 43%, African Americans 33% and hispanics 19%. The growth of the program cost is largely due to growth in those eligible - a result of the recession and wage stagnation. Even so, the cost could be much higher as only about 3/4 of those who qualify participate in the program. Only 10% of SNAP recipients receive cash welfare payments, and the average duration of benefits is 9 months. Most surprising to me was that in the last few years rural use of SNAP has exceeded urban participation rates - the percentage of those eligible who sign up. These numbers and images matter because this year the ag budget will be fiercely debated between ag programs and food assistance. When farmers realize SNAP cutbacks will impact kids in their local scholl, not just adults in the city, they might decide to split those dollars differently.

It is also germane, I think, to point out the fraud rate for SNAP is significantly below the rate for crop insurance and farm payments. And it bears repeating: economists have found changes in eligibility have been a small factor in the expansion compared to the recession and job losses. More importantly, SNAP costs will decline as unemployment improves, just like it was designed to do.

Republicans don't show any evidence we know what we're doing on this topic other than pandering to the ill-informed right, but a good first start would be to add some actual knowledge to our decision-making process. If we do, we might find SNAP far down our list of wasteful programs - and certainly below farm subsidies.

I suppose I have to...  

Post about the farm bill. Like you - and I think every other observer - I have been reduced to an open-mouthed bystander by the actions in Washington. Strangely enough, I am cheering on the unorthodox thinking and actions of the hard right of the GOP to see if we can really, really wreck this train for good.

My key conclusions so far:

• The best summary of the flaming wreck was in Politico, IMHO.

Looking back, it was a remarkable moment not just for the tone-deaf judgment of the House GOP leadership but because the Republicans voting “no” had gotten their way so often in the debate.
A POLITICO review of the voting tallies shows that most of the 62 had voted successfully for $20.5 billion in food stamp savings, capped total federal dollars for the farm safety net, imposed new payment limits on what large farms can get and blocked a new milk supply program favored by most dairy co-ops.
They failed to end the sugar program. And oddly enough, many lined up — without luck — against doing something to battle the collapse of the nation’s bee population.
But on two reform issues — crop insurance and international food aid — a solid majority of this same Republican bloc sent a strong message of support that amounted to a real breakthrough politically. If a farm bill is to be resurrected, these two bipartisan votes are fertile ground for compromise. [More]

• The decision by Sen Reid to play hardball ups the ante further. 

The Republican-controlled U.S. House of Representatives needs to solve its farm bill impasse by enacting the Senate's bipartisan bill, Majority Leader Harry Reid said on Monday, warning that the Democrat-run Senate will not extend current law again.
The House defeated its own farm bill last week - the first time such a bill has failed in a House vote - and analysts have said a short-term extension of the 2008 farm law would be the easiest solution.
On the Senate floor, Reid said "the Senate will not pass another temporary farm bill extension." [More]

• What was Cantor thinking?? Furthermore, who is Paul Ryan kidding?? If you vote "No", YOU are the reason it failed.

Rep. Paul Ryan, R-Wis., didn’t vote for the farm bill last Thursday, but he put the bill’s defeat squarely in the hands of the Democrats.
“Personally…I didn’t support the farm bill,” he told Morning Joe hosts Joe Scarborough and Mika Brzezinski on Monday.
“Do you agree something dysfunctional happened?” Brzezinski asked, referring to the bill’s 234 to 195 defeat.
“The Democrats promised 40 votes, and they didn’t deliver the votes they had promised,” Ryan responded. “Our leaders brought the bill to the floor based upon the commitment that Democrats from the agricultural districts made, and then during consideration of this bill on the floor they reneged on the commitment of the 40 votes they promised and the bill went down.” [More]

This isn't going to sell. Farmers can actually count, you know. The 16 votes the Dems failed to deliver would not have made up for the "R" defections under our current math rules.

• I have seen multiple calls to split food stamps and farm stuff, and the odds of that happening may not be zero anymore. If it happens it will end farm programs as we know them.
• There was a surprisingly close vote on amending the sugar program, another thing I never thought I'd live to see. That program could be in big trouble.
• The dairy industry is in deep turmoil with no way out I can see. With E-85 getting a breath of life from the Supremes and dairy reform's starring role in the House failure, passing much of anything new looks extremely unlikely.
• On the bright side, hemp finally got some love from Congress.

Miraculously, despite last-minute lobbying against it from the DEA, the amendment passed by a vote of 225-200. In light of repeated failures of bills that would legalize industrial hemp production more broadly–one fizzled as an amendment to the Senate farm bill, and a House proposal has been moldering in a subcommittee since April–that’s the most significant sign of progress on the federal level that hemp advocates have ever seen.
It might have a second life sooner than the rest of the House Farm Bill. Polis wants to take that sign of goodwill and tack it on to “any other bill that is germane,” such as Agriculture appropriations, or on its own as a standalone bill. “When you have a Congressional majority on any issue, there are a variety of ways you can move forward,” Polis says. [More]

• For my industry - media - the outcome could not be better. We'll be nattering on about this nonsense ad nauseum. And despite the farm bill lobbying costs exceeding health reform, we've just signed up for another treatment.

Why? In its recent report on lobbying leading up the the 2008 farm bill, Food & Water Watch sketches out an answer: Agribusiness interests have essentially bought the farm bill legislative process. FWW found that the 2008 bill drew $173.5 million worth of lobbying—topped only by the Dodd-Frank financial reform bill's $250 million in terms of lobbying frenzy over major legislation. Even the 2010 healthcare-reform act, which drew the ardent interest of the pharmaceutical, health-insurance, and hospital industries, only inspired $120 million in lobbying cash. [More]

That was the 2008 bill, folks, so I'm confident with a little more incompetence this farm bill can overtake Dodd-Frank for the all-time title.

Talking about the future, I am baffled. But because it will affect my local competitors just as much as me, I won't lose much sleep. We sometimes forget that is our biggest challenge, and one Washington can't help with.

Crap in the Farm Bill: Exhibit C - F...  

The Natural Stone Checkoff. 

I don't have an issue with refundable checkoffs for any industry, but the Farm Bill? The fact this is included is indicative of how Congress views it as the Mother of All Pork Handouts.

And speaking of pork...

Pork and poultry producers are exposed to trade and food safety disruptions to their export markets, which contributes to the importance of addressing the issue of catastrophic losses. Klobuchar included a provision in the Senate-passed Farm Bill that would require a feasibility study for insuring swine producers against catastrophic losses, and she also cosponsored a provision that would require a feasibility study for insuring turkey and chicken producers against catastrophic losses. [More]

I dunno.  The more larded up this thing gets, the lower the chances of passge, I think.

With Koch-money fueled threats of Tea Party primary opponents, many Republican House members will be picking their way through a minefield.

Finally, another Southern effort to support a commodity that market forces don't.

Crop insurance and price-support plans hold the most risk for bigger federal spending, Smith said. Along with revenue guarantees for peanuts and cotton, the bill includes the catfish provision as well as the consideration of catastrophic-loss plans for poultry and swine and regular policies for alfalfa and sugarcane.
Temperate japonica rice used in sushi would be added as a crop eligible for price supports. The new program is justified because direct payments to rice farmers would be eliminated in the bill, said Charley Mathews Jr., who raises 600 acres of the rice variety near Marysville, California, about 40 miles north of Sacramento. [More]

So, add alfalfa to the list - which just keeps growing. Cattlemen could be the last holdouts.

Of course, this is all Obama's fault, according to some.

Crap in the Farm Bill: Exhibit A...  

Of course to my mind, it is pretty much all crap, but there are some real stinkers in the likely outcome from conference committee.

Fearful of anything that even looks like Dodd-Frank, House Republicans want to block a modest federal rule giving farmers and ranchers a greater say on salary increases for senior officers in the banks and co-ops that make up the Farm Credit System.
The rule itself is quite limited and was adopted last October on a bipartisan basis by the three-member board of the Farm Credit Administration, which oversees the nearly century-old FCS network of government sponsored lending institutions.

As shareholders in those associations, farmers and ranchers would be guaranteed a “say-on-pay” vote if compensation for the top corporate officers jumped by 15 percent or more in a single year. But that vote would be non-binding and only advisory.

Nonetheless, the rule has been met by strong opposition from the well-connected Farm Credit Council, the Washington-based trade organization representing the lenders in the farm credit network. And it echoes enough of the 2010 Dodd-Frank financial reforms that Rep. Robert Aderholt (R-Ala.) has drawn a sharp line in his draft 2014 budget for the Agriculture Department and related agencies like FCA.
The $19.5 billion measure, which quickly cleared Aderholt’s Appropriations agriculture panel Wednesday morning, specifically denies funding for the FCA to implement the “say-on-pay” rule. Thus far, most debate has focused on controversial cuts from food aid proposed by the same bill. But the FCA issue is sure to draw more attention when the full Appropriations Committee takes up the measure, likely next week.

[More]

The say-on-pay measure was prompted by stunning salaries being awarded to CEO's in the FCS as it rides the ag boom wave. The bipartisan Farm Credit Administration board thought a mere advisory referendum would be a gentle indicator that captive boards needed some restraint, and they heard plenty from FCS employees.  And after all, isn't that what Farm Credit is becoming all about now?

From the Farm Credit Bank of Texas 2012 Annual Report:

 

[Click to embiggen]

Partly I blame/credit the demise of earmarks for the inclusion of such blatant special interest give-aways. That's how tidbits like this used to be handled.

But Farm Credit competes with my local bank with a huge advantage. They are a GSE - Government Sponsored Enterprise. They have the implied backing of the US when they sell their bonds and, as we found out in the 80's, the almost guaranteed assurance of a bailout when they screw up. Perhaps given those circumstances, they would be foolish not to take advantage in the era of "me first". Still, to go to the barricades to prevent an advisory referendum?

Just spare me the pious sermons about service to agriculture and humanity, etc. FCS is proving no different than any other player in in our increasingly parasitical financial industry.

But as I lift up more of these hidden rentier schemes, keep in mind this is the farm bill (some) farmers are demanding. They'll deserve the consequences, as well.

This is unexpected?...  

Ag Secretary Vilsack's blunt criticism of rural voter political tactics received a lot of headlines in the press.

Exit polls conducted for The Associated Press and television networks found that rural voters accounted for just 14 percent of the turnout in last month’s election, with 61 percent of them supporting Republican Mitt Romney and 37 percent backing President Barack Obama. Two-thirds of those rural voters said the government is doing too many things better left to businesses and individuals.

Vilsack criticized farmers who have embraced wedge issues such as regulation, citing the uproar over the idea that the Environmental Protection Agency was going to start regulating farm dust after the Obama administration said repeatedly it had no so such intention.

In his Washington speech, he also cited criticism of a proposed Labor Department regulation, later dropped, that was intended to keep younger children away from the most dangerous farm jobs, and criticism of egg producers for dealing with the Humane Society on increasing the space that hens have in their coops. Livestock producers fearing they will be the next target of animal rights advocates have tried to undo that agreement. [More][My emphasis]

I'll grant that Visack is not a charmer at his most congenial, but while his assertion has some validity, I suspect the larger problem is the intense gerrymandering that has created rural districts so heavily Red that representatives can get away with anything secure in the knowledge that ideology will trigger an automatic response in the voting booth.

Democrats have been packed into three uncompetitive seats around Philadelphia, an uncompetitive seat in the Lehigh Valley, and a safe seat in Pittsburgh. The state's suburbs, exurbs, and rural areas have been rigged to be just outside the range where Democrats might win them. [More]

Note also the cognitive dissonance in demanding a new farm bill with an indisputably lavish safety net for grain producers and the emphasized statement above. If I were a rural legislator in a blood-red district all I would fear is an even redder primary opponent. The irony here is the far, far right is the biggest threat to farm subsidies.

 

Better let your breath out...  

Like many observers, the addition of fiscal hawk Paul Ryan to the Republican ticket strikes me as bad news for those hoping for a farm bill anywhere close to the dream of a full safety hammock net:

If the president is for it, House leaders are going to be even more entrenched against it. Moreover, passing a farm bill would highlight lawmakers approving a measure that the Republican vice presidential nominee has strongly criticized in the past and unsuccessfully tried to change by demanding further program cuts. They simply can't pass a bill that would appear to be an affront to one of their own now running on the presidential ticket.

In his budget plan, "The Path to Prosperity," Ryan stated that lawmakers should reduce or eliminate direct payments, which was considered a foregone conclusion. But, like President Obama's budget proposal, Ryan also sought in his plan to "reform the open-ended nature of the government support for crop insurance, so that agricultural producers assume the same kind of responsibility for managing risk that other businesses do."

The "record-breaking prosperity of American farmers and farm communities" demand re-examining federal farm programs "to ensure that taxpayers aren't funding support for a sector that is more than capable of thriving on its own," Ryan stated. [More]

Chris has this nailed, I think. The first quoted sentence is the important one. I can see Obama moving from farm indifference to admiration for a new political chip by taking up the farm bill cause in stark contrast to Ryan's longstanding opposition. And Republicans simply cannot even hint at agreeing with this president on anything, at least not before the election is over.

It's not like the measure was sailing along anyway, and with increasing stridency from the Tea Party and right-wing think tanks, all bets are off on all parts of the bill.

In fact, my strongest inclination is that a combination of whopping crop insurance payouts by the government, budget cuts, and chickens like ethanol (which has always been controversial) coming home to roost, the next farm program could be so meager most farmers will opt out due to a very low benefit/hassle ratio.

In the process, we may find ourselves oddly happier and more in control of our farms and futures.

Tea regret...  

I have been mildly amazed at the anti-government ferocity in rural America, even while we were cashing many forms of government checks. I still think the majority of the virulent anti-Obama hatred (and that is a reluctant assessment) arises from who he is rather than his policies.

In fact, anyone could have seen how this would play out. With the Ryan budget, it has suddenly become undeniable.

It must have been a lot of fun to show up at meetings in the summer of 2010 and bash your sitting congressman or senator. No one knows how many video clips were shot of Tea Party members shouting down members of the U.S. House and Senate, some of whom had put their careers on the line for farmers.

Now the chickens are coming home to roost, so to speak, and, for the first time in decades farmers are faced with the very real possibility of not having a new farm bill or much chance of an extension of the current legislation when the 2008 law expires later this year.

By now, most of you have seen reports of the new federal budget proposed by Wisconsin Republican Paul Ryan, chairman of the House Budget Committee. The proposal would cut $33 billion from federal farm programs or about $10 billion more than the House and Senate Agriculture Committees proposed last fall.

Unlike previous years, this time the House of Representatives is filled with freshman members who have little or no sense of the purpose of farm programs or the stability they provide to agriculture. All most of them know is they think they have a mandate to cut federal spending. [More]

The curious thing for me is I am not alarmed by budget cuts to ag, so don't have a dog in this hunt, so to speak. But the Ryan budget is rapidly becoming the Republican budget, and as he is forced to fill in details, you can hear the gasps.

Of course, it is impossible to know what tax expenditures Ryan plans to eliminate; we can only guess. But it is worth knowing that just the top 6 tax expenditures account for more than half of the dollar cost of all tax expenditures. These include the exclusion for health insurance and the deduction for mortgage interest. Among those not in the top 6 are the deduction for charitable contributions and the deduction for state and local taxes.

In other words, it will be impossible to achieve Ryan’s revenue target without pretty much wiping the slate clean of every tax preference except for a handful of the most popular ones. This may be worth doing, but will be very difficult. The Tax Reform Act of 1986 reduced tax expenditures by about 2.7 of GDP, according to the TPC. If it could be duplicated, that would only get Ryan to his absolute minimum level of revenues as a share of GDP. Getting to the upper end of his target range would require a tax reform one third larger.

In short, looking only at the tax side of Ryan’s plan, he is anticipating enactment of an extraordinarily ambitious tax reform on top of the most ambitious budget cutting effort ever enacted. He would sharply cut outlays for every major program except Social Security and national defense. Every governmental function one can think of would be virtually abolished except for Medicare, Social Security and defense. A key reason for the severity of these cuts, of course, is that Ryan would cut taxes at the same time he is cutting spending. To achieve balance with lower than projected revenues requires even larger cuts in spending. [More]

The harsh rhetoric of the last 3 years hasn't left the majority of farmers much room to maneuver on policy. These are THEIR representatives, whom they sent to Washington to mandate concealed carry, shut down the Fed, obstruct any compromise, and spot Muslims under every bush. And they may be about to send some more.

What did they expect?

There is some parallel here with raising pit bulls, but I won't go there.

Our new "insurance" infatuation...  

May be a forbidden love. While every ag group seems to have their own farm bill proposal, I think it is safe to say they mostly boil down to this: you can have the direct payments, just guarantee these whopping profits we've been making the last few years.

Of course, subsidizing a lavish crop insurance system could actually raise farm program costs if prices slide, but we'd have the moral high ground for once when prices are acceptable to our new expectations. In fact, farmers don't generally have a good handle on crop insurance costs.

With direct payments at risk, the agriculture industry last year began pressing for more federal support for crop insurance. It’s already one of the fastest-growing benefits for the agriculture industry, with subsidies for insurance premiums rising to more than $7 billion in 2011 from a little more than a $1 billion in 2000.  [More]

 But there is a slight problem. To my thinking, these are clearly counter-cyclical payments, and therefore market distorting. If prices can drop and you don't feel pain, you're not getting a real market signal about how much of what you're growing buyers want.

Guess who else thinks this way: our arch WTO nemesis, Brazil.

In a move that is liable to ruffle a few feathers in Washington, Brazil's government has sent letters to the agricultural committees of both the U.S. Senate and House of Representatives, reminding them that leading proposals for a new farm bill actually increase subsidies and therefore could break World Trade Organization rules.

The message is clear: Brazil is willing to challenge the U.S. in Geneva if the new legislation increases market-distorting subsidies, just as it successfully did in the case of cotton subsidies seven years ago.

Back in October, Roberto Azevedo, Brazil's ambassador to the U.S., visited Washington and met with Debbie Stabenow, chairwoman of the Senate Agriculture Committee, and Frank Lucas, chairman of the House Agriculture Committee where he first voiced Brazil's concerns. They also talked about how the new bill could settle Brazil's claim over cotton subsidies -- the U.S. pays $147 million a year to Brazilian cotton farmers as a means of avoiding wider trade retaliation.

The unusual measure of communicating directly with a foreign legislature was taken after analysis of three farm bill proposals, from the National Cotton Council (NCC), from the American Farm Bureau Federation and from four senators, all of which increased market distortions, said Azevedo.

Among the issues raised was that government-subsidized crop insurance could also be considered market distorting under WTO rules and that none of the proposals significantly altered the GSM-102 export credit guarantee program, which the WTO has also condemned. [Apologies for the liberal exerpt from here]

I think they have a case, and they certainly have handed our farm schemes a few setbacks [e.g. cotton]. The reason is also pretty simple. No matter how it is packaged, US farmers want a federal risk protection program. But when the possibility of painful losses is eliminated by insurance or target prices or whatever, we don't react to the market. No matter how that risk is mitigated, it is de facto distorting.

In addition, our wishful proposals are going to cost too much. There is simply no way to provide the kind of "safety hammock" we want for less than we are spending now, unless fewer farmers/crops split the pot.

Somehow, I doubt that will fly.

I await our collective "Plan B", although we may have to have the WTO make us do the hard work.

First!...  

Like those obnoxious comment trolls who try to be the first to comment, I'm calling first. A reader remarked he had heard nothing about "shallow loss" payments being amber box payments for WTO purposes, as I remarked on Sunday.

Yesterday the USDA backed up my analysis.

Meanwhile, USDA Chief Economist Joe Glauber said Tuesday that most of the programs under consideration would be likely to be categorized as trade-distorting under WTO rules.

The "shallow loss" revenue program would probably be categorized as a product-specific trade distorting subsidy in the amber box, disaster aid would be non-product specific in the amber box, direct payments linked to the cost of production would be amber box and the new dairy program could be categorized as green or amber or put in the mid-distorting blue box depending on how it is finally constructed, Glauber said. [More]

This pig just found an acorn.

Why I'm not talking much about...  

The SECRET FARM BILL NEGOTIATIONS. This near-farcical drama has been portrayed as circumventing the legislative process (a fair charge, IMHO), probably futile, generating an even more complicated program, and anti-small farms.

I have followed the leaks and speculation, but there are some good reasons why I think it will be a waste of time.

1. The proposals I have seen smell like Yellow Box payments WTO-wise.

These green box subsidies have to be government-funded, not by charging consumers higher prices, and must not involve price support. They tend to be programs that are not directed at particular products and include direct income supports for farmers that are decoupled from current production levels and/or prices. [More]

The "shallow loss" idea definitely is linked to current production, it seems to me. And for farmers who carped about feet-dragging on the FTA"s to turn around and deliberately invite WTO sanctions would be breathtakingly counterproductive.

2. The CBO will not score it as generously as the writers imagine. While we never have been able to predict what a farm bill will cost - and always underestimate badly - one reason many farmers are interested is because an insurance-type outcome could make the safety net a true hammock. This doesn't happen unless we siphon more off the treasury, not less. I don't think the CBO will share the Gang  of 4 budget smoke-and-mirrors optimism.

3. The AFBF is not amused. I think the sprawling farm organization senses a whacking loss of clout should corn, soy and cotton advocates push the shallow-loss idea through.

The American Farm Bureau Federation also has sent a letter to members of the House and Senate agriculture committees questioning the development of any farm bill proposal that covers "shallow losses." Several proposals effectively involve gap coverage that would protect farmers' income up to 90% levels. Effectively, a farmer buys crop insurance at 75% protection levels, and the shallow plan would cover anywhere from 10-15%, depending on the proposal.
Farm Bureau said "a shallow loss program is a drastic departure from any previous farm policy design" and that "our biggest concern is that by reducing the risk of shallow losses, farmers may be encouraged to take on more risk than they would in response to market signals alone."
Farm Bureau said creating a shallow loss program would increase moral hazard because "insured individuals may engage in riskier behavior with only a $250 deductible, they may drive faster or in more extreme weather conditions than if they purchased a high deductible policy." See link below.
Farm Bureau's choice of a comparison led one commodity lobbyist to ask, "What are they drinking or smoking over there?" The letter puts Farm Bureau at odds with cotton, corn and soybean groups that have all proposed new crop programs. [More]

4. Finally, I am not optimistic the Super-Committee will get a package done. The big stick was supposed to be draconian cuts to defense, but those are either less alarming to many in Congress than previously imagined or seen as avoidable with legislative sleight of hand or by just ignoring them. In addition, letting the Bush Tax Cuts expire would be the single easiest way to address the budget deficit. There is no big win for getting a deal, looks to me.

So my bottom line: this is most likely just farm media filler and political blithering for use in upcoming campaigns in farm states.

Reportless on the farm...  

Even as confidence in NASS reports falters, budget cuts could be adding to the woes of the agency. So much so that smaller commodities may have to count themselves, so to speak.

In light of funding reductions in fiscal year (FY) 2011 and the likelihood of additional reductions in FY 2012, NASS conducted deliberate reviews of all programs against mission- and user-based criteria, aimed at finding cost savings and forward-thinking business efficiencies so that key timely, accurate and useful data remains available in service to agriculture. As a result, the agency is discontinuing or reducing a wide range of agricultural survey programs. The decision to eliminate or reduce these reports was not made lightly, but it was nevertheless necessary, given the funding situation. Because of the timing of the agency’s survey work during the coming year, these decisions are necessary now. These programs are:

• Annual Reports on Farm Numbers, Land in Farms and Livestock Operations - Eliminate
• Catfish and Trout Reports – Eliminate all
• Annual Floriculture Report - Eliminate
• January Sheep and Goat Report - Eliminate
• Chemical Use Reports – Reduce frequency of commodity coverage
• July Cattle Report - Eliminate
• Distiller Co-Products for Feed Survey - Cancel
• Annual Bee and Honey Report - Eliminate
• Annual Hops Production Report - Eliminate
• Monthly Potato Stocks Report – Reduce from monthly to quarterly
• Annual Mink Report – Eliminate
• Fruit and Vegetable in-season forecast and estimates– Reduce from monthly and quarterly to annual report
• Nursery Report – Eliminate
• Rice Stocks June and September reports - Eliminate but continue January, March and August reports

Recognizing the importance of NASS’s data products and services to U.S. agriculture, NASS will make available similar data either less frequently or within the every 5-year Census of Agriculture. The next census will be conducted beginning January 2013 to reflect activities in the 2012 calendar year. [More]

The irony here is these may be the more accurate of all the reports the agency does. But it also presages what could happen to even major commodities.

The most interesting aspect of this announcement is if it will come true.

Many of the reports being cut today, including those on mink, catfish, trout, flowers and honey, were eliminated during an earlier round of budget tightening in 1982. A year later, most of the reports were restored by Congress because of appeals from farm groups.

William E. Kibler, the administrator of the statistics service at the time, said the experience showed how hard it was to eliminate a government program, no matter how small the constituency.

“The commodity organizations out there are pretty strong,” he said. “These congressmen up on the Hill say, ‘$50,000 is not much, let’s give it to them.’ ”[More]

Coupling this with the apparent ineffectiveness of the AFBF influence during the "secret" farm bill debate, and one begins to wonder if the vaunted ag lobby isn't losing steam. At the least, it would appear commodity organizations like the NCGA have taken over the helm.

This sounds familiar...

What is the biggest battle in Congress right now? Maybe not what you think.

The fees Chung pays are a tiny fraction of Wall Street’s swipe fee windfall; banks take in a combined $48 billion a year from these “interchange” fees on debit and credit cards, according to analysts at The Nilson Report. That money comes out of the pockets of consumers as well as merchants, as stores pass on whatever costs they can to their customers.Major retailers -- the Walmarts, Home Depots and the Targets of the world -- complain that card fees are one of their biggest annual expenses, and they’ve entered into a Capitol Hill battle royale against card companies to roll back the lucrative fee regime. Last year’s financial reform bill ordered the Federal Reserve to crack down on debit card swipe fees, a $16 billion pool of money from which $8 billion flows to just 10 banks. As a concession to Wall Street, credit card fees were left unscathed.But the clock never ticks down to zero in Washington: one year’s law is the next year’s repeal target. Politicians, showered with cash from card companies and giant retailers alike, have been moving back and forth between camps, paid handsomely for their shifting allegiances.The swipe fee spat is generating huge business for K Street: A full 118 ex-government officials and aides are currently registered to lobby on behalf of banks in the fee fight, according to data compiled for this story by the Sunlight Foundation, a nonpartisan research group. Retailers have signed up at least 124 revolving-door lobbyists. And at least one lobbyist has switched sides during the melee. Republican Thomas Shipman of Cornerstone Government Affairs registered to lobby for the merchant’s leading player, Walmart, in 2010, only to move over to Visa in 2011. (The firm’s executive vice president, Fred Clark, says that while Cornerstone is registered to lobby for Visa on “electronic payments,” the shop told the card company it wouldn’t lobby on interchange fees specifically, because of the appearance of a conflict of interest. He also says that while Shipman was registered to lobby on behalf of Walmart in 2010, he never specifically lobbied on the interchange issue.) [More of an informative post]

This lobbying free-for-all has some of the identical characteristics of many ag issues and could be a vague forecast of their fates in Congress.

This is such a classic case of how things work on Capitol Hill. The issue itself is (a) pretty much unknown to the average voter and (b) worth absolute mountains of money to a very small, very influential segment of American industry, namely big banks and big retailers. This makes it the perfect lobbying issue: banks and retailers are highly motivated to spend mind-boggling sums of money on this, while voters barely even know this fight is going on.The whole piece is worth a read when you have a few free minutes. When you're done (or maybe before you start), you should also read this short post from Adam Levitin that explains the actual technical issue with swipe fees aside from the fact that one group of millionaires is fighting a different group of millionaires over how to split up billions of dollars. It explains the policy piece of the story that Carter and Grim don't. [More]

I think it more likely farm subsidies will be thrown into a larger budget/deficit compromise somewhere along the line, and our vaunted lobby may meet with less success than they have with previous farm bills. Also I wonder if many of the issues, such as ethanol tax credits wont even be around by the time that compromise is hammered out. The rhetoric is getting pretty heated as corn prices soar and planting progress doesn't.

So what's the solution? First, Mr. Pope says, get rid of the ethanol subsidies and the tariff. "I am in competition with the government and the oil industry," he says. "It's not fair." Smithfield's economists estimate corn prices would fall by a dollar a bushel if ethanol blending wasn't subsidized. "Even the announcement that it is going away would see the price of corn go down, which would translate very quickly into reduced meat prices in the meat case," he says. Imagine what would happen if the mandate and tariff were eliminated, too.He also advocates lifting regulatory and tax burdens on business. "I fundamentally don't understand the logic of corporate income taxes," he tells me. "If I have a 35% tax, all I do is take that 35% tax and I transfer it into the price of bacon and the price of pork chops."Then there's the challenge of opening up export markets, which Mr. Pope sees as a long-term opportunity for U.S. agriculture. "This is a land-rich country, with rich soils, with the right kind of temperatures and the right kind of cultivation practices," he says. "We can raise livestock and compete with anybody in the world. That's how we can help the balance of payments." (Smithfield has European operations but has had a hard time cracking Asia, and especially China. "It's easy to invest," Mr. Pope says, but "it's hard to make money" there thanks to rampant intellectual-property rights violations and other hazards.)While Mr. Pope waits to see how the politics of ethanol and trade play out, he's not standing still. He's assigned one of his senior executives the task of figuring out what else Smithfield could possibly feed hogs, other than corn. Could Mr. Pope have envisioned setting up such an enterprise a few years ago? "Absolutely not" he says. "It's me trying to change our business model to adapt to the realities that I have to live in."Mr. Pope says the "losers" here "are the consumer, who's going to have to pay more for the product, and the livestock farmer who's going to have to buy high-priced grain that he can't afford because he's stretching his own lines of credit. The hog farmer . . . is in jeopardy of simply going out of business 'cause he doesn't have the cash liquidity to even pay for the corn to pay for the input to raise the hog. It's a dynamic that we can't sustain." [More]

I am reluctant to say "this time will be different", but that is my read on the situation. Farm lobbyists will be working in a much larger tidal pull than we have seen, and whatever you think about the Tea Party (and for me that's not much) they have stampeded the Republican party to near hysteria over ideological absolutes. Farm subsidies look like a much bigger target to a much larger opposing force. 

The Department of Food Stamps and Ag...

Farmers have always loudly pointed out how much of the USDA budget does not go to farmers, but those crocodile tears have long been discounted, since old ladies on the street know the farm program wouldn't make it past the first House subcommittee without some reason for urban Congressman to give hoot.

As economists are looking for the "biggest bang" for the stimulus buck - AKA "the multiplier" - guess what pops up at the top of the list?      

      
Tax Cuts   
 Nonrefundable Lump-Sum Tax Rebate 1.02  
 Refundable Lump-Sum Tax Rebate 1.26  
     
 Temporary Tax Cuts   
  Payroll Tax Holiday 1.29  
  Across the Board Tax Cut 1.03  
  Accelerated Depreciation 0.27  
     
 Permanent Tax Cuts   
  Extend Alternative Minimum Tax Patch 0.48  
  Make Bush Income Tax Cuts Permanent 0.29  
  Make Dividend and Capital Gains Tax Cuts Permanent 0.37  
  Cut Corporate Tax Rate 0.30  
     
Spending Increases   
 Extend Unemployment Insurance Benefits 1.64  
 Temporarily Increase Food Stamps 1.73  
 Issue General Aid to State Governments 1.36  
 Increase Infrastructure Spending 1.59  
     
      Source: Moody's Economy.com 

Of course, these estimates are highly debatable.

The catch here is that when you’re dealing with giant numbers, these multiplier estimates are going to break down. Food stamps gives you great bang for your buck. But just because $1 billion in increased food stamp spending might generate $1.7 billion in GDP doesn’t mean we could spend $1 trillion in extra food stamps and generate $1.7 trillion in extra GDP—there are only so many poor people and they can only eat so much! Much the same is true with infrastructure spending. The general idea of spending-side stimulus is to put idle assets to work doing things. We have a fair number of idle people. But to build new infrastructure you machines and so forth and we only have so many on hand. And of course you need the right people—the guys who got laid off from Lehman Brothers aren’t the engineers we need to build the Purple Line. [More]

In addition, the idea of two-decimal place accuracy is amusing, but the power of stats like this in the current environment could result in an even more lopsided ag budget split.  A significant increase in food stamp spending looks inevitable to me.

Is this bad news? I don't think so, since it could help to slow the erosion of demand for meats and other higher end foodstuffs. Lord knows we need all the feed demand we can get now.

The bigger hope is the size of the food stamp budget will make it susceptible to reform efforts to move it to say, HHS, consolidating all welfare payments together.


Except ours, of course.

High prices => fewer farmers...

One of the ironies of our farm policy and the folk-economics of our profession is the enduring belief that farmers leave the profession because of low prices. Like all seemingly obvious observations, it is simple to grasp and easy to equate to low pay for employees. But that may not be the largest factor. Not even on the other side of the world.

It's not because of threats to the farm business far from it. Farms are getting bigger and their ownership is consolidating among a shrinking number of major players.

The trend towards mega-farms is already creating some huge, farm-based business empires and attracting the attention of corporate investors keen to taste some cream from the dairy industry's profits.

The biggest dairy farm businesses, such as those controlled by Fonterra director Colin Armer and Timaru-based accountant Allan Hubbard, own thousands of hectares of prime dairy land around the country and are likely to have annual revenues approaching $100 million, placing them among the ranks of this country's biggest businesses.

Consolidation of farm ownership in fewer hands has been happening for many years but is gathering pace as high dairy prices help push up the value of land and smaller farmers decide to sell their family farms to their bigger and more prosperous neighbours.

The result for the dairy industry is that the big are getting bigger and the small players are leaving.

"I think the business model is actually changing," van der Heyden said.

"I think this is a general business trend. The businesses need to grow and their scale gets bigger and bigger."

Fonterra processes about 95% of the milk produced in this country and the trend shows up in the shrinking number of its farmer shareholders, even as the volume of milk it is processing continues to increase.

In 2003 Fonterra had 12,600 suppliers, but that has since declined to 10,500.

Asked where that trend could end up, van der Heyden said: "No one knows. But I think in the next 10 to 15 years you are probably going to have 4000 to 5000 [dairy] farmers in New Zealand." [More]

It has been my experience that our farm policy does little to help smaller producers stay in the business, and given the example above in New Zealand, our farm policy is producing the same results as virtually no policy. The Kiwis don't subsidize their agriculture.

The recent passage of the much-maligned new farm bill will continue to provide evidence of this failure. By sending subsidies regardless of size or wealth, no shelter from consolidation is built in.

This is not necessarily a bad thing, but it is far from the policy advertised and we could have gotten the same result for little or no taxpayer money, as NZ demonstrates.

[Is it me, or does the picture look photoshopped? That is the strangest topography I've ever seen in a pasture, but then again, it's one reason I would love to visit New Zealand.]