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Government payments offer saving grace for farm income

Agricultural economists offer perspective on the many layers of government support keeping farmers afloat.

On-the-ground financial positions show that farmers are still struggling in what many are calling a new normal of lower prices for the agriculture sector. While speaking at a Farm Foundation Forum on Oct. 22 in Washington, D.C., agricultural economists detailed how the government has stepped in to provide a lifeline to net farm income.

John Newton, chief economist at the American Farm Bureau Federation, said of the projected $88 billion in farm-related income in 2019, a projected $33 billion will come from the government. Federal support for farmers is up 53%, while actual farm-related income is down 14%.

Newton said farmers’ current financial position could strengthen, as the U.S. Department of Agriculture has only issued the first round of 2019 Market Facilitation Program (MFP) payments, and another $8 billion to $10 billion could be coming. In addition, farmers haven’t received much of their crop insurance payments for the year.

“When all is said and done, maybe 2019 may end up being a better year for farmers and ranchers, but only on the backs of the government,” Newton said.

Keith Coble, professor and head of the department of agricultural economics at Mississippi State University, said he spent much of his early career working with former USDA chief economist Joe Glauber on studying ad hoc disaster payments. Recent developments with crop insurance had helped the nation move away from the ad hoc requests, but Coble said there’s a new resurgence of wanting to go back to the world of ad hoc approach.

“I’ve never been a big fan of ad hoc,” Coble said. The system doesn’t necessarily work for the farms who suffered the greatest lost. “Permanent legislation has some merit and can be more timely,” he noted.

The current government support – comprised of MFP, Price Loss Coverage (PLC) or Average Crop Revenue (ARC), crop insurance and ad hoc payments – has lifted the percentage of farms with a positive farm income. However, it has also allowed the trend of the hallowing out midsize farms, as many farmers look to off-farm income to weather the current downturn.

“What we see are our largest farms continue to be more profitable. We are going to see the best farms, largest farms, using data and various technology. They are going to find a way to grow and expand at the expense of less efficient farms,” Coble said.

There is a great appetite for smaller, locally produced food, especially in organics. Coble said he expects that sector to find ways to diversify the supply chain going forward, yet he also questioned whether there are economies of scale in organic production, just as there are in conventional.

Recalling his days of teaching farm policy a decade ago, Coble said the history of farm policy is driven by technological change. Regarding the evolution and size of farms, “it’s not policy driven; it’s driven by technology,” he said. Can a highly automated data-driven farm produce organically and more cheaply than a smaller farm? He said there will still be a struggle as smaller, part-time farmers look to scale up and remain profitable.

As it pertains to the general agricultural economy, the picture isn’t overly pretty for the livestock industry, but with lower commodity prices, those producers are at least seeing lower feed prices. “This is beneficial for livestock feeding and puts the livestock sector in a brighter spot than crop commodities right now.”

TAGS: Policy
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