December 3, 2001

Both Farm Bill Proposals Would Raise Net Income

Both of the farm bill proposals currently under discussion in Congress would provide substantially higher net farm income than continuation of the Federal Agricultural Improvement and Reform (FAIR) act passed in 1996, according to a study by the Center for Agricultural Policy and Trade Studies at North Dakota State University.

Richard D. Taylor, research associate, and Won W. Koo, director of the policy and trade center analyzed two farm bill proposals, one passed by the House Committee on Agriculture, the other being considered by the Senate.

The House bill, H.R. 2646, provides a continuation of planting flexibility, fixed payments and a commodity marketing loan program. It includes a countercyclical feature that is tied to market prices but not to current production.

The Senate proposal would raise loan rates for commodities, continue fixed payments, add a countercylical payment and allow producers to update base acres and payment yields for determining payments.

According to Taylor, both proposals offer similar results, but the House version provides higher average income for the life of the proposal for all size farms. Under the House bill, large size farms would average $6,859 higher net farm income per year, or about 6.6 percent, than with the Senate proposal. Medium size farms would average $2,195 or about 3.7 percent more. Small farms would be virtually the same under both proposals, $7 higher under the House bill.

There are some regional differences within North Dakota in the two proposals, Taylor says. In the Red River Valley and south central regions, the Senate proposal provides higher net farm income than the House bill. However, in the north central and western regions the House bill provides higher net farm income.

The main reason for this, says Taylor, is the differing crop mix in the various regions. The Red River Valley and south central regions produce more corn and soybeans, the north central region produces wheat, sunflowers and canola and the west produces mostly wheat and barley. The ability to update the yield base under the Senate proposal is a large advantage to corn producers. Average corn yields have increased from about 62 bushels per acre in the early 1980s to about 112 bushels per acre. Other crop yields have increased but not to the same extent.

The analysis is based on the Food and Agricultural Policy Research Institute’s (FAPRI) price forecasts for commodities. If commodity prices increase faster than FAPRI estimate, the House bill should provide more support, because more governmental support is in the form of direct payments under that proposal, Taylor says. If prices should lag behind FAPRI estimates the Senate proposal should provide higher support because of its higher loan rates.

For a copy of the report, "Economic Analysis of the U.S. House of Representatives Farm Bill and Senate Agriculture Committee Farm Bill Proposal," contact Carol Jensen, P.O. Box 5636, Fargo, ND 58105-5636, phone (701) 232-7441, Fax (701) 231-7400 or e-mail cjensen@ndsuext.nodak.edu .

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Source: Richard Taylor, (701) 231-7990, staylor@ndsuext.nodak.edu
Editor: Gary Moran, (701) 231-7865, gmoran@ndsuext.nodak.edu

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