September 14, 2005

While the current farm bill is not set to expire until 2007, work is already beginning on legislation that will set agricultural programs through 2012. 

Farm organizations, leaders, lobby groups and policymakers are discussing the comprehensive legislation which impacts farmers, agribusinesses, the environment, rural communities and consumers. Agriculture Secretary Mike Johanns is hosting a series of open forums to receive comments on the farm bill, one of which was held recently in Louisville.

Historically, Kentucky has not been a major beneficiary of government payments under the farm bill, said Will Snell, an agricultural economist with the University of Kentucky College of Agriculture. While ranking fourth in the number of farms and about 20th in agricultural sales, Kentucky typically is about 30th in terms of government payments.

Since 1980, government payments have accounted for 11.8 percent of Kentucky’s net farm income, compared to nearly 27 percent of U.S. net farm income coming from federal agricultural payments.

These statistics reflect the type of farming in Kentucky, where the average farm size is about a third of the national average, Snell said. The state’s top four agricultural enterprises – equine, cattle, poultry and tobacco – have typically received limited direct benefits from farm bill legislation, other than for emergency disaster payments.

In the past, most government payments were devoted to crops. But the 2002 farm bill increased conservation-related payments, which benefits Kentucky. During the tenure of the 2002 farm bill, about a quarter of Kentucky’s government payments have been conservation-related compared to less than 15 percent nationally and about 11 percent during the 1996 farm bill.

Given that conservation payments are viewed as acceptable within international trade negotiations, conservation programs could expand relative to commodity programs in the next farm bill, Snell said. A continued push to adopt risk management tools as means to support agricultural income without violating international trade agreements and reducing U.S. taxpayer assistance to federal farm programs is also likely.

In addition to international trade issues, financial conditions in agriculture as well as the federal deficit will factor into the debate, Snell said. 

In recent years, U.S. agriculture has seen record net farm income, expanding exports and improved debt positions. However, lower commodity prices and drought conditions in parts of the country will likely cause farm cash receipts to fall in 2005. Plus, higher energy costs, among other factors, will elevate production costs for this year. Nevertheless, 2005 U.S. net farm income, accounting for cash receipts, production costs and government payments, is expected to remain relatively high by historical levels.

While policymakers will be closely monitoring the financial well-being of farmers, they will be paying even greater attention to the federal budget situation, Snell said. The 2002 farm bill was debated in a time of federal budget surpluses. However, today’s budget deficit will constrain future funding for farm programs, where government payments are projected to increase to more than $21.4 billion in 2005, compared to an average of $14 billion during the previous 10 years. The total U.S. Department of Agriculture budget is about $100 billion.

Much needed recovery efforts for victims of Hurricane Katrina will also affect the overall budget situation.


Editor: Laura Skillman 270-365-7541 ext. 278

Contact: Will Snell, 859-257-7288