The 2014 Farm Bill : A California
Agriculture Perspective
May 7, 2014
Dr. Mechel S. Paggi
Director, Center for Agricultural Business
Jordan College of Agricultural Sciences and Technology
California State University, Fresno
www.csufcab.com
USDA Rulemaking Will Be Critical
The
exact operation
of the new farm bill
depends on USDA
interpretation of the
legislative
language.
Politics of the Farm Bill Process
How the 2012 FB became the 2014 FB
2014 Farm Bill: A Timeline
Subcommittee on General Farm Commodities and Risk Management
Hearing to Review U.S. Farm Safety Net Programs in Advance of the 2012 Farm Bill
June 17, 2010 12:00 AM | Farm Bill | Hearing
April 26, 2012- The Senate Agriculture Committee passes a Farm Bill.
June 21, 2012- The Senate passes a Farm Bill.
July 12, 2012- The House Agriculture Committee passes a Farm Bill.
December 31, 2012- The Farm Bill is Extended for One Year.
May 14, 2013- The Senate Agriculture Committee passes a Farm Bill.
May 15, 2013- The House Agriculture Committee passes a Farm Bill.
June 10, 2013- The Senate passes a Farm Bill.
June 20, 2013- The Farm Bill fails on the House floor.
July 11, 2013- The House passes a “Farm Only” Farm Bill.
September 19, 2013- The House passes a nutrition bill.
January 29, 2014- The House passes a Farm Bill conference report.
February 3, 2014- The Senate passes a cloture motion on the Farm Bill conference report.
February 4, 2014- The Senate passes the Farm Bill conference report.
Politics of the Farm Bill Process
How the 2012 FB became the 2014 FB
On 6/20/2013 the House Voted 234 / 195 Against the then Federal Agriculture Reform
and Risk Management Act (The House Ag Comm. version of the Farm Bill). Big issue SNAP
funding cuts too small / too large
Politics of the Farm Bill Process
On 1/29/14 The House Agreed to Conference report and on 2/4/14, it passed the
Senate on 2/7/14 and President Obama signed the Act into law 2/7/14. The
Conference report decreased reduction in SNAP funding from $20 Billion to $8 Billion and
removed the Southerland “work requirements” .
251 Yes Votes in the House
Politics of the Farm Bill Process
Politics of the Farm Bill Process
Changes in Votes Leading to House Passage of the 2014 Farm Bill.
Process for Next Farm Bill
Likely Even More Difficult
Discussions Have Already Begun
TITLE I—COMMODITIES
TITLE II—CONSERVATION
TITLE III—TRADE
TITLE IV—NUTRITION
TITLE V—CREDIT
TITLE VI—RURAL DEVELOPMENT
TITLE VII—RESEARCH, EXTENSION, AND RELATED
MATTERS
TITLE VIII—FORESTRY
TITLE IX—ENERGY
TITLE X—HORTICULTURE
TITLE XI—CROP INSURANCE
TITLE XII—MISCELLANEOUS
397 pages
Politics of the Farm Bill Process
Agricultural Act of 2014
Spending Levels: CBO Estimates
FY 2014 – 23 Totals
Pre‐2014 policies (2008 FB continued ($972 bil.)
0.4%
6.0%
8.6%
6.3%
78.6%
Commodities
Crop ins.
Conservation
Nutrition
Other
Spending Levels: CBO Estimates
FY 2014 – 23 Totals
California Agriculture
California Agriculture Gross Cash Income
$44.7 Billion, 2012
Nursery, Green
House &
Floriculture, 7%
Other, 8%
Field Crops,
10%
Fruit and Nut
Crops, 35%
Livestock,
Poultry &
Products , 25%
Vegetable
Crops, 14%
USDA, NASS, CDFA
Focus Areas For California
Dairy, Horticulture & Crops
2012, $36.4 Billion, 81%
Focus On
Dairy
Specialty
Crops
Crops
USDA, NASS, CDFA
Major Dairy Provisions in AA2014

Existing safety net programs are repealed
 The Dairy Product Price Support Program (DPPSP), effective
immediately.
 The Milk Income Loss Contract (MILC), effective once the new
Margin Protection Program for Dairy Producers becomes
operational, or Sept. 1, 2014, whichever is earlier.
 The Dairy Export Incentive Program (DEIP), effective
immediately.
Major Dairy Provisions in AA2014



Continued programs
The Dairy Forward Pricing Program — allows non-cooperative buyers of milk
who are regulated under federal milk marketing orders to offer farmers forward
pricing on Class II, III, or IV milk, instead of paying the minimum federal order
blend price for pooled milk.
The Dairy Indemnity Program — provides payments to dairy producers in the
unlikely event that a public regulatory agency directs them to remove their raw
milk from the commercial market because it has been contaminated by pesticides,
nuclear radiation or fallout, or toxic substances and chemical residues other than
pesticides. Payments are made to manufacturers of dairy products only for
products removed from the market because of pesticide contamination.
Major Dairy Provisions in AA2014
New programs
 The Margin Protection Program for Dairy Producers (MPP) — a voluntary
program that pays participating farmers an indemnity when a national
benchmark for milk income over feed costs (the actual dairy production
margin or ADPM) falls below an insured level that can vary over a per cwt.
Range $4 - $8. May cover 25% to 90% of Actual Production History. There
is a $100 annual administration fee to enroll in the program.
 The Dairy Product Donation Program (DPDP) — a program that requires
the secretary of agriculture to immediately procure and distribute certain
dairy products when the ADPM falls below the lowest margin level specified
for the MPP. These products would be targeted for use in domestic, lowincome family, food assistance programs.
National Program Margin Calculation

All Milk Price less Feed Cost



The average cost of feed for a dairy operation required to produce
a Cwt. of milk, determined in accordance with the following formula:
[1.0728 x price of corn/bu.] + [0.00735 x price of soybean
meal/ton] + [0.0137 x price of alfalfa hay/ton].
Milk, corn and alfalfa prices reported in Agricultural Prices; soybean
meal price is Central Illinois, USDA/AMS
The calculation required by this subsection shall be made as
soon as practicable using the full-month price of the applicable
reference month.


A lag in information, the January all milk price released at the end of
February
It will take USDA time to process payments
MILC and the New Margin Program Compared
Coverage Level
Coverage Quantity
Payments
Premiums
New Margin Program
Pick $4 to $8 in $0.50
increments
Pick 25% to 90% in
5% increments
MILC
Feed Adjusted $16.94
minus Boston Class I
34% or 45% applied
to price difference
above
Capped – 2.985
Production history
million pounds or 2.4
adjusted by US milk
million pounds
production growth
Depends on coverage None
level
Dairy Herds: In 2011, there were 9.2 million cows living on 51,481 dairy farms in the U.S. That
is 22,619 fewer herds than there were in 2002. The average herd size is 179 milk cows. The
majority of the dairy farmers exiting the industry milk 99 or fewer cows. The total number of
dairy farms decreased 3.1% from 2010 to 2011. CA Avg. 1,026 cows
http://thedairymom.blogspot.com/2013/03/does-dairy-size-matter.html
Milk Production: The average U.S. cow produced 21,345 lbs (2,482 gallons) of milk in 2011. The
16,700 dairy farms with a herd size of 100 or more milk cows produced 86.4% of the U.S. milk.
The 34,781 dairies milking 99 or fewer cows produced 13.6% of the total U.S. milk.
CA Avg. 23,457 lbs. / cow
http://thedairymom.blogspot.com/2013/03/does-dairy-size-matter.html
California Milk Production
California Cows, Milk and Milk per Cow, 1980-2013(Indices)
320
CA number of cows index
CA milk per cow index
CA milk production index
300
280
260
240
220
2013: Milk production = 41 bil. lbs.
1980:
Milk production = 14 bil. lbs
Milk cows = 895 thou.
Milk per cow = 15,153 lbs/year
2013: Milk cows = 1.8 mil.
200
180
160
140
120
2013: Milk per cow = 23,175 lbs/year
100
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
Rest of United States Cows, Milk and Milk per Cow,
1980-2013 (Indices)
200
Rest of US number of cows index
2013: Milk per cow = 21,515 lbs/year
Rest of US milk per cow index
180
Rest of US milk production index
160
140
1980:
Milk per cow = 11,596 lbs./year
Milk production = 115 bil lbs
Milk cows = 10 mil.
2013: Milk production= 160 bil lbs
120
100
80
2013: Milk cows = 7.4 mil
60
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
California Milk Production by County
Margin Level Update
Edairy.fcstone.com, 2/5/14
http://www.futurefordairy.com/program-details
Compare The Added Cost For Each
$0.50 Of Additional Margin Protection
$0.54 increase in premium
For $0.50 more margin coverage
(6 mos.)
1,770,657 / 100 = 17.706 * .09 = $1,594 ( Does not include $100 Enrollment)
1,967,397 * .90 = 1,770,657 / 6 = 295,110/100 =2,950 cwt bi-monthly
$6.50 – $4.59 = $1.91 * 2,950 = $5,635
∑=$25,254 - $1,594 = $23,660
Hoard’s Webinar – Best Margin Level
6
$8.00
7
17
$6.50 - $7.50
21
27
$5.50 - $6.50
39
39
$4.00 - $5.50
20
11
$4
14
0
5
10
15
20
25
Percentage
> 4 million pounds
< 4 million
30
35
40
45
How Much Risk Can Your Operation
Afford? Or Will your Banker Allow?
Coverage Level
$8.00
$6.00
$4.00
25%
60%
Coverage Quantity
90%
http://farmdocdaily.illinois.edu/2014/05/2014-farm-bill-mpp-dairy-dashboard.html
Dairy Product Donation Program




Must be operational no later than 120 days after the margin
program begins
When the margin is less than $4.00 for the two preceding months,
this feature becomes operational
Secretary purchases dairy products at prevailing market prices
and distributes to public and private nonprofits assisting lowincome households
This program suspended:




After three months of operation
Margins move above $4.00
Margins between $3.00 and $4.00 AND U.S. prices exceed world
prices by more than 5%
Margins less than $3.00 AND U.S. prices exceed world prices by more
than 7%
Agricultural Act of 2014 includes an overall increase of
55% over 2008 Farm Bill funding levels for
Horticulture Related Programs
Highlights* Include Research
• State Block Grant Program,
• Specialty Crops Research Initiative,
While Maintaining Funding For Market Promotion
• Market Access Program
• Foreign Market Development Program
• Technical Assistance for Specialty Crops
* Additional areas include funding for promotion of
farmers markets and organic production, market information, etc.
The Message is Everywhere
There Are Other
Obvious Drivers for Promoting
Vegetable and Fruit Consumption
Specialty Crop Block Grants
Originally the Specialty Crops Competitiveness Act of 2004
Amended in the 2008 Farm Bill
Provided $55 Million Annually in Block Grants to the States
To Support projects in Marketing, Research,
Pest Management, Food Safety, etc.
Funding Increased to $72.5 Million Annually FY 2014 – 17
Increased to $85 Million in 2018 and beyond.
CALIFORNIA AGRICULTURE LEADS THE NATION IN
FUNDING FOR SPECIALTY CROPS
State receives more than $18 million in 2013
Market enhancement, agriculture education, nutrition, and research proposals were solicited
and selected through a competitive process. The 64 projects funded under the 2013 SCBGP
reflect the diversity of California’s specialty crops across the state. This year they include, but
are not limited to: creating economic opportunities for specialty crop producers through
market development activities that focus on local, regional, or international markets;
development of effective agri-tourism associations to enhance rural tourism and promote
specialty crops; food safety benefits and training programs; growing community food systems
in underserved neighborhoods; online irrigation nitrogen management tool for cool season
vegetables; and research to mitigate impacts of invasive pests.
http://www.cdfa.ca.gov/Specialty_Crop_Competitiveness_Grants/FFY2013.html
Grant awards range from $50,000 to $400,000 for two (2) years, nine (9) months and cannot be expended
before October 1, 2014, or after June 30, 2017.
Specialty Crop Block Grants
California 2014
$ 19,761,117.56
30%
Specialty Crop Research Initiative
Competitive grants based on scientific peer review conducted by
a panel of subject matter experts and a USDA review and ranking
for merit, relevance, and impact conducted by a panel of specialty
crop industry representatives.
In 2008 Farm Bill Mandatory CCC Funding $50 Million Annually
In 2014 $80 Million annually in Mandatory CCC Funding
With $25 Million of the funds set aside for
Emergency Citrus Disease Research
Examples of SCRI Funded Projects
Rear and release
psyllids as biological
control agents - an
economical and
2012
feasible mid-term
solution for
huanglongbing (HLB)
disease
--Developing
sustainable pollination
2012
strategies for U.S.
specialty crops
--Understanding the
global virus
distribution in tomato
and development of
2012
translation genomic
tolls to accelerate
breeding for
resistance
Citrus Research and
Development Foundation
Turpen
$9,000,000
citrusrdf.org
Michigan State University
Isaacs
$1,697,671
www.aspire4bees.org
USDA-ARS
Ling
$1,335,515
Trade Enhancement Provisions
Market Access Program (Section 3102)
MAP is reauthorized at $200 million annually through 2018.
Foreign Market Development Program (Section 3103)
FMD is reauthorized at $34.5 million annually through 2018.
Technical Assistance for Specialty Crops (Section 3205)
Reauthorized for mandatory funding of $9 million annually from
2011 through 2018. Amended to read “technical barriers to trade”
rather than “related barriers to trade” in the statute purpose
section to allow the program to better address barriers to trade.
Trade Initiatives Important to Export
Oriented Industry
Market Access Program
(MAP)
Cost-share assistance to eligible U.S. organizations
for activities such as consumer advertising, public
relations, point-of-sale demonstrations, participation
in trade fairs and exhibits, market research and
technical assistance.
MAP funds are used for generic marketing and
promotion, participants must contribute a minimum
10-percent match. For promotion of branded
products, a dollar-for-dollar match is required.
MAP Funding Allocations - FY 2013
TOTAL
CA Benefits,$94.6 Million, 54%
Cotton Council International
U.S. Meat Export Federation
Western U.S. Agricultural Trade Association
U.S. Grains Council
Wine Institute
U.S. Wheat Associates
USA Poultry and Egg Export Council
Blue Diamond Growers/Almond Board of California
U.S. Dairy Export Council
California Walnut Commission
California Table Grape Commission
$172,732,770
$17,426,331
$14,745,842
$8,184,708
$7,155,338
$6,973,231
$5,859,064
$4,823,347
$4,730,517
$4,688,104
$3,722,211
$2,794,281
Raisin Administrative Committee
$2,637,698
California Prune Board
$2,587,412
USA Rice Federation/U.S. Rice Producers Association
Sunkist Growers, Inc.
California Agricultural Export Council
$2,460,205
$1,839,131
$1,181,191
American Pistachio Growers/Cal-Pure Pistachios Inc.
$1,117,932
California Pear Advisory Board
California Cling Peach Board
California Grape and Tree Fruit League
California Fresh Tomato Growers/Florida Tomato
Committee
$564,186
$442,787
$350,000
$324,991
Foreign Market Development Cooperator
(Cooperator) Program
Project agreements with eligible nonprofit U.S. trade organizations
to share the costs of certain overseas marketing and promotion
activities that are intended to create, expand, or maintain foreign
markets for U.S. agricultural commodities and products.
Participants in the Cooperator program, must be a nonprofit
U.S. agricultural trade organization and contribute at least
50 percent of the value of resources provided by FAS for
activities conducted under the project agreement.
FAS does not provide brand promotion assistance to
Cooperators under this program.
Foreign Market Development Program (FMD)
TOTAL
U.S. Wheat Associates
American Soybean Association
Cotton Council International
U.S. Grains Council
American Hardwood Export Council, APA-The
Engineered Wood Association, Softwood Export
Council, Southern Forest Products Association
USA Rice Federation
USA Poultry and Egg Export Council
U.S. Meat Export Federation
National Renderers Association
U.S. Livestock Genetics Export, Inc.
U.S. Dairy Export Council
American Peanut Council
Almond Board of California
National Sunflower Association
American Seed Trade Association
Leather Industries of America
Cranberry Marketing Committee
USA Dry Pea and Lentil Council
American Sheep Industry Association
U.S. Dry Bean Council
U.S. Hide, Skin and Leather Association
North American Millers Association
National Hay Association
$25,405,929
$4,146,134
$4,145,418
$3,529,886
$3,277,058
$2,787,327
$1,414,415
$1,171,375
$1,106,364
$708,762
$556,832
$526,852
$507,562
$240,825
$212,376
$203,333
$190,149
$160,550
$154,271
$131,810
$103,916
$83,212
$38,325
$9,177
Technical Assistance to Specialty Crops
programs address SPS or related technical
Barriers to exports of U.S. specialty crops
• Examples of eligible TASC program activities are preclearance
export programs, export protocol and work plan support, technical
seminars and workshops, study tours, field surveys, pest and plant
disease mitigation research, and pesticide maximum residue limits
(MRL) database development. The TASC program is intended to
benefit the representative industry as a whole rather than a specific
company or branded product.
• A Specific example of this is the Almond Board of California’s use of
TASC program funds in 2012 to demonstrate to European Union (EU)
regulators the almond mycotoxin inspection program, which
persuaded the EU to reduce import inspection rates on California
almonds.
2014 Farm Bill
Policy Changes for Crop Producers
Brief Review Details are Very Important

No more direct payments

No more countercyclical payments

No more ACRE payments (Average Crop Revenue Election)

Must choose between PLC and ARC



Price loss coverage (payments when prices fall below a trigger)
Agriculture risk coverage (payments when per-acre revenues
fall below a trigger)
A new crop insurance option for PLC participants (SCO)
Price Loss Coverage (PLC)

Like countercyclical payments in some respects
Makes payments when prices fall below a trigger
 Payments tied to base acreage and program yields
 These do NOT depend on current production choices


But different in many ways, including


Formula is simpler—payment rate is just the difference between
reference price and the higher of the season-average farm price
and the loan rate
New “reference prices” are far higher than old target prices
Reference and Target Prices
2008 farm bill
Target prices
2014 farm bill
Reference prices
Wheat/bu.
$4.17
$5.50
Corn/bu
$2.63
$3.70
Soybeans/bu.
$6.00
$8.40
Sorghum/bu.
$2.63
$3.95
71.25 cents
None*
Long-grain rice/cwt
$10.50
$14.00
Japonica rice/cwt
$10.50
$16.10
Upland cotton/lb.
*Upland cotton is not eligible for PLC (or ARC) benefits under
the 2014 farm bill. Instead, it has a special crop insurance
program: STAX.
Agriculture Risk Coverage (ARC)

Like ACRE in some respects
Makes payments when per-acre revenues fall below a
trigger
 Trigger depends on moving averages of market prices and
yields


But different in many ways, including
Paid on base acreage, not planted
 Tied to county or farm yields, not state
 Covers losses of 14-24% (ACRE was 10-35%)

Revenue-based Option for Farm Support

Agriculture Risk Coverage

Payments if per-acre revenues fall below 86% of benchmark

Benchmark:


County : 5-yr. Olympic avg. national price * 5-yr. Olympic avg. county yield
Farm: 5-yr Olympic average of the weighted per-acre revenues

Maximum payment: 10% of benchmark (covers range of 76%86% of normal revenue

Paid on 85% (county yield option) or 65% (farm yield option) of
base acres
Avg. Corn ARC and PLC payments
(Dollars per base acre for participating producers)
Olympic Avg. Effect of Declining Prices
30
27
25
25
24
26
25
25
21
20
16
15
14
13
10
5
0
2014/15
2015/16
2016/17
ARC
PLC
2017/18
2018/19
Assumed participation rates
March 2014 FAPRI-MU baseline
PLC
ARC
Corn
50%
50%
Soybeans
40%
60%
Wheat
70%
30%
Sorghum
80%
20%
Rice
90%
10%
Peanuts
90%
10%


Participation rates based
on comparison of
expected payments and
judgment
Actual rates will differ,
perhaps by a lot
Final program rules
 Changing market
circumstances
 Producer perceptions

Declining Price Expectations and Stable Yields
Suggest PLC ?
Crop Insurance in the Farm Bill
• Relinked to Conservation
Compliance for First Time since 1996
• On Average Premiums are subsidized 60%;
• About 80 Percent of corn, wheat, soybean
and cotton acres are covered by some form of
federally subsidized crop insurance.
Crop Insurance in the Farm Bill
Specialty Crops
Support For New Programs
Development
And Pilot Programs
Average Participation Rate
For Insurable Commodities About
75%
Crop Insurance in the Farm Bill

Most existing policies retained
New Programs
 Supplemental coverage option, planted acreage
Area policy
 65% premium subsidy


STAX
Area policy for cotton only, planted upland cotton acreage
 80% premium subsidy

New Insurance Option SCO

Supplemental coverage option (SCO)






On top of regular individual coverage (must have
individual policy)
Area-based insurance for range between 86% and
individual coverage level
Currently understood to operate like individual plan
65% subsidized
Only available for crops not in ARC or STAX
Starts in 2015
SCO
SCO – 14% deductible, ( 86% of revenue)
SCO – 65% subsidy
SCO
Individual Income
14%
Deductible
86% - IC%
Individual
Coverage
%
SCO
SCO Example
SCO payment as a share of expected county revenue Max 86%
Individual coverage level
County % loss (14% D)
50%
70%
80%
85%
10%
0
0
0
0
15%
1%
1%
1%
1%
25% *
11%
11%
6%
1%
50%
36%
16%
6%
1%
75%
36%
16%
6%
1%
• County Revenue 75% of expected SCO Max Coverage 86 -75 = 11%
Payment Rate Depends on County Loss not Individual
Payment Limitations
Commodity program payments are subject to a
$125,000 limit across all programs (PLC/ARC and
marketing loan gains/LDPs) per entity, in addition
to a $900,000 adjusted gross income limit for
payment eligibility. Crop insurance programs, such
as SCO, do not currently face payment limitations.
The Devil or Angels are in the Details





Program Details Await USDA Rulemaking
All Decisions will be Specific to the Individual Farm
Commodity Specific / Area Specific
Much More Homework to be Done
Much More Educational Programing Will Take Place
Thank You For Inviting Me
Questions/Comments
Follow Up
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