June 3, 2008

LEXINGTON, Ky., (May 28, 2008) – After much debate, a presidential veto, a printing snafu and a Congressional override, 14 of the 15 titles of the Food, Conservation and Energy Act of 2008 (commonly known as the farm bill) became law May 22. A section dealing with trade policy and international food aid never made it to the Oval Office, having been accidentally deleted during the printing process. Despite the missing section, both chambers of Congress preceded with the override vote. All of Kentucky’s U.S. representatives and both senators voted to override the veto. Legislators will address the trade title when they return from the Memorial Day recess in early June. William Snell, agricultural economist in the University of Kentucky College of Agriculture, said that the farm structure of this year’s bill, with or without the missing section, is not radically different from the 2002 farm bill. As in the past, legislators earmarked the majority of funds in the $289 billion bill for food assistance and nutrition programs. There are, however, a few changes in the new legislation. “This farm bill does provide more funding for conservation and energy programs, along with paying more attention to specialty crops, such as fruits and vegetables,” he said. Specialty crops are high input, high value crops, UK Agricultural Economist Tim Woods said. “In the big scheme of things, they tend to get pushed out onto the margin compared to some of the other general commodity type items, like beef cattle or grains or even dairy,” he said. Producers in California and Florida, where specialty crops are a large part of the agricultural economy, made a push to get additional federal funding to help develop those industries. The farm bill emphasizes resources for market development, better insurance programs, improved support for the land grant institutions that are providing some of the background research and variety development packaging. The resources are dispensed in proportion to the specialty crops revenue that each state generates. The volume of specialty crop production in states such as California and Florida dwarfs Kentucky’s production. “When it comes down to implications for states like Kentucky, where our specialty crops are a much smaller segment of our agriculture, the amount of money that we’ll wind up getting out of a program like this is just a small sliver,” Woods said. However, he thinks that factors such as how the bigger producers set aside land, handle labor issues, and get political support behind some of the other challenges they face will ultimately spill over to help some Kentucky producers. In other areas, the 2008 farm bill modifies payouts to large commodity producers. Commodity programs will see a $40 billion cut over the next five years. The legislation denies payments for farmers with an adjusted gross farm income exceeding $750,000 annually and eliminates all farm program payments to any non-farmer whose adjusted gross farm income exceeds $500,000. However, a husband and wife would be able to apply their own individual payment limit, which effectively raises the commodity program limit for farming families to $1.5 million annually. Beginning in 2009, commodity crop producers will have an optional state level revenue based program called the Average Crop Revenue Election, ACRE. The idea behind the plan is to move commodity support toward a market-based support system. Snell is not sure how farmers will respond to this. “It does provide some farmers with another option, and depending on its success, it may be the future direction of commodity risk management programs,” he said. There is concern at the U.S. Department of Agriculture that the program’s costs could be exorbitant, since state revenue guarantee levels would be based on 2007 and 2008 record-setting market prices. The bill maintains the current safety net program, which consists of direct payments, countercyclical payments and marketing loan benefits with some adjustments in loan rates and target prices beginning in 2010. One change in the new bill is the elimination of the three-entity rule. Under the 2002 farm bill a farmer could receive limit program payments on one farm, plus an additional 50 percent of the maximum on two additional farms. Snell said some viewed this three-entity rule as double dipping, since it basically allowed farmers to double program payments if they were farming multiple entities. He said the elimination of the three-entity rule was pretty much a foregone conclusion early in the debate process. The new bill requires direct attribution of payments to individuals, not to partnerships or corporations. Of particular interest to many Kentucky farmers is the section that eliminates payments for any farm with less than 10 acres of base. This may not amount to many dollars lost, said Snell, but due to the state’s large number of small farms, this has the potential to affect many Kentucky farmers. Kentucky’s equine industry will benefit from a provision revising tax laws, allowing depreciation of horses after three years of age. The 2008 farm bill includes four new label categories for meat under the Mandatory Country of Origin Labeling law. The proposed concept is that American consumers have more confidence in the American system of production and inspection. Thus, consumers could view meat with a U.S. country-of-origin label more favorably. But Lee Meyer, UK agricultural economist said, in some niches, there are other countries that might have a product that could compete with American meat. He gave New Zealand beef and lamb as an example. “It will be interesting to see how consumers respond,” he said. “My personal feeling is it’s a consumer right-to-know issue.” Despite some changes, the 2008 farm bill will not add significantly to Kentucky’s agricultural economy. Tobacco buyout payments, which are not a component of the farm bill or funded by taxpayers, will continue to comprise the bulk of government farm payments to Kentucky farms, Snell said. “The only significant farm bill dollars that will make it into Kentucky in the near term are conservation dollars,” he said. “In fact, we have seen an increase in conservation program payments relative to commodity payments since the 2002 and 1996 farm bills.” In other areas, he said fruit and vegetable producers might be able to take advantage of programs designed to educate and promote locally grown specialty crops. And in an era of rising food prices, expanded nutrition programs and funding will be a benefit to low income consumers. Those programs will also provide more access to fruits and vegetables in schools.

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