Combination of New and Proven Policies Provides Right Mix
The commodity program structure in the House Agriculture Committee bill is an innovative blend of full planting flexibility and fixed, decoupled payments from the 1996 FAIR Act combined with the addition of counter-cyclical payments triggered when prices fall below levels necessary to sustain a viable commercial agricultural base.
- This combination of fixed, decoupled payments and counter-cyclical payments provides critical financial underpinnings to a responsive, flexible U.S. agriculture.
With the maintenance of full planting flexibility – and no mandatory supply management -- the House bill ensures that the huge investment in infrastructure in the United States will be maintained; that agricultural production can respond quickly to shifts in demand and market need; and that low cost, high quality food and fiber continue to be available to the U.S. consumer.
The Committee has utilized mechanisms that are well understood, predictable and that result in minimal market distortions while providing essential support to U.S. commodity production and related activities.
- Fixed, decoupled payments provide predictable financial assistance using a mechanism that is favored within the World Trade Organization agreements. This important aspect of the program’s construction ensures compliance with existing trade agreements.
- Decoupled counter-cyclical payments also minimizes market distortions and program costs while dramatically improving the safety net available to producers.
- By creating a new, innovative decoupled counter-cyclical program, the Committee has provided cost effective legislation while minimizing distortions in the market.
- If the counter-cyclical program were tied directly to annual plantings, costs
would rise dramatically; international agreements would be compromised; and there would likely need to be substantial reductions in either loan rates, fixed payments or target prices to avoid over-spending.
Cotton producers support a price-triggered counter-cyclical support program as included in the House Agriculture Committee’s bill.
- The deterioration in farm income the last three years ensures that any program designed to provide support based on historical farm income or revenue will fall far short of the kind of safety net that is needed by U.S. producers.
These innovative income support programs are combined with the non-recourse loan program to protect producers in times of very low prices.
- The marketing loan program has been a central component of U.S. agricultural policy since 1985 because it works.
- Producers receive a loan secured by the value of the commodity that enables them to meet their short-term obligations while lengthening their opportunities to price their commodity more favorably in the marketplace.
The marketing loan better enables producers to meet short-term obligations and yet compete effectively in the international marketplace.