Washington Insider-- Thursday

Update on Family Farms

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

US, Chinese Talks Falter in WTO Farm Subsidy Spat

U.S. and Chinese trade officials were unable to resolve their disagreements over the Obama administration's allegations that Beijing provided more than $100 billion in "illegal" government subsidies for producing rice, wheat and corn.

The U.S. now plans to ask the World Trade Organization (WTO) to initiate an investigation into the matter at a December 16 meeting of the WTO's dispute settlement body (DSB), per a document filed by the DSB.

The U.S. will argue that China violated the terms of its 2001 accession agreement to the WTO and provided trade-distorting domestic support in excess of its WTO commitments, the Office of the U.S. Trade Representative (USTR) said. China's schedule of commitments limits its domestic agriculture support, both aggregate and product-specific, to 8.5% of the annual value of production of each commodity.

If the U.S. succeeds, the dispute could force China to reduce its agricultural subsidies or face retaliatory trade tariffs worth tens of billions of dollars.

President-elect Donald Trump, some observers noted, could use the ongoing U.S. case against China's agricultural subsidies as an early opportunity to boost pressure on Beijing at the WTO because the WTO would not likely begin its inquiry into the matter until 2017 after Trump takes office. The WTO is out of session from December 23 to January 2.

The WTO process includes a set of rules and procedures and provides a forum for resolving trade disputes between WTO member countries. China is widely expected to block the initial request for the establishment of a panel, but it may not reject a second one, which could come ahead of the DSB's first meeting in January.

USDA Loan Funding Language Part of CR Bill

It was just a matter of time before lawmakers answered calls from USDA and several farm groups to give USDA more authority over the funding of loan programs. Language to accomplish that is part of the continuing resolution (CR) measure that will pay the government's bill through April 28.

The funding will ensure that USDA can offer credit to all producers during the winter and spring, when demand for loans peaks, and avoid a repeat of what happened in Fiscal 2016, when the department ran out of money for direct and guaranteed operating loans, causing an application backlog. USDA managed to clear the backlog by using funds made available at the end of September, when Congress passed the current CR, which expires Friday.

Farm groups warned lawmakers that without the new authority, USDA was likely to run out of funding before the end of the new CR. But the spending bill is likely the last measure Congress will clear before adjourning this Congress. The House hopes to pass the bill on Thursday and the Senate on Friday.

Last week, 13 farm and lending groups sent a letter to leaders of the House and Senate Appropriations agriculture subcommittees requesting the provision. It was widely expected that Congress would deliver such language.

Washington Insider: Update on Family Farms

USDA often releases what it regards as non-controversial but self-congratulatory reports when administrations turn over, especially when that occurs just ahead of farm bill debates. So, USDA's new retrospective on U.S. farm structure might be accused of falling into that category.

These reports often are intended to counter myths about the sector that often reflect the fact that most voters nowadays have little immediate contact with farms or farming.

The topic of the current report is family farms, and it is clearly organized to counter any "corporate" image. It is one of a long series prepared by the Department's Economic Research Service on the topic and is being fairly widely read.

For example, Food Safety News picked up the report and notes its main conclusion: "agriculture in America remains overwhelmingly dominated by family farms." It also emphasizes a less-appreciated aspect of the sector, and that is that largest share of farms, 72% it states, are quite independent of government programs.

This report is fairly brief and highly statistical, and focused heavily on several farm categories that it describes in detail. Family farms, it says, "include 99% of U.S. farms that account for 89% of farm production."

The report notes that all family farms are not small, and that larger farms are increasingly important and produce "the largest share of farm production," while continuing as mostly "family operations." At the same time, it says that food and fiber production has shifted to farms with gross cash farm income of $1 million or more since 1991, but are still is organized mainly as family operations. Even those organized as nonfamily corporations generally have no more than 10 stockholders, ERS says.

It also observes that farm households in general "are neither low-income nor low-wealth." For each type of farm household, both median household income and wealth are above the median for all U.S. households.

The report also focuses briefly on the different programs, and concludes that the Conservation Reserve Program is highly unusual since it targets environmentally sensitive cropland and its payments largely go to "retirement, off-farm occupation, and low-sales farms." And, Federal crop insurance indemnities are roughly proportional to cropland and midsize and large farms received 69% of those payments in 2015.

At the upper end of the size scale, the report also notes that some farms are very large and that these are increasingly important. For example, since 1991, those with sales of $5 million or more have increased their share of production to from 13% to 23% in 2015. It also notes that mid-range farms with between $1 million to nearly $4.99 million in sales increased to 29%, up from 19%.

Small farms play an outsize role in several areas, the report emphasizes. They managed about 48% of the land under production as of 2015, as well as a large share of the production of poultry and eggs, mostly under contact. And, they account for some 52% of the hay production.

Well, it is likely that the coming farm bill debate will be much different than the last one when the farm economy was performing a good bit better than many other sectors and program advocates had to struggle to justify why expensive safety net programs were needed. This time, commodity prices and farm income have been falling and producers are urging the development of more effective safety net programs.

However, opposition to farm spending is based on many things, including the sector's image as dominated by "factory farms" and corporations. Those myths likely to be trotted out again as the debate proceeds. Not so, says USDA, and that's true.

Still, some of the other common charges will be revived, including the "wealthy farmer" image. This report sort of tiptoes around that issue, concluding that there are many "types" of farm households that "are neither low-income nor low-wealth—and that for "each type of farm household, both median household income and wealth are above the median for all U.S. households."

So, the farm bill debate almost certainly likely will have social component again this time around, although the sector's economic situation likely will be less of a challenge to interpret. As always, this year's fight will be long and controversial and require close watching by producers, Washington Insider believes.

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