2 January 1998

Freedom to Farm could be coming our way soon

Freedom to Farm – the policy that removes price safety nets

but allows farmers to grow as much of any crop as they

want – is proving popular with US growers. In fact expect to

see something similar in the Europe in the next few years,

says Illinois-based agricultural commentator Alan Guebert

A new joke that compares US farm policy to Europes Common Agricultural Policy is making the rounds in America. It goes like this: If its noon in Chicago today, its 1987 in Brussels.

The point of the cutting remark is that whatever ag policy reform is attempted in America, Europe – and much of the world – will adopt it or a variant of it within a decade.

Which is exactly the view offered by several premier American ag policy experts when evaluating the domestic success of Freedom to Farm (F2F), the radical market-oriented ag policy adopted for US agriculture in 1996.

Sooner – not later – say four US policy economists, F2F will force most countries to scrap ag supply or production controls in favour of freer, less costly farm programmes.

"If Freedom to Farm continues to be a success both in the market and with American farmers, there is no question that other countries – especially the EU – will come around to some type of de-coupled ag policy," says Barry Flinchbaugh, a Kansas State University policy guru.

So far, explains Flinchbaugh, "Freedom to Farm has performed as predicted; the market is driving farmer decisions, not government. And because of this, the programme is enormously popular. More than 80% of farmers love it".

Hes right. Farmers do love the planting flexibility of F2F. No longer does the government tie production to a pre-set acreage in exchange for a price safety net.

Instead, direct government payments are "de-coupled" – farmers can grow whatever they want in exchange for ever-lower, government payments. In 1996 and 1997, US farmers received about £4.1bn of these "transition" payments. The annual amount nationwide will drop to about £1.2bn in 2001 and stop entirely in 2003.

But, Flinchbaugh admits, F2F has worked well in its first two years because "America has had good markets and good production. The real test will come when direct payments to farmers drop and over-production piles up surpluses and the economy goes into recession".

Should that occur, guesses the Kansas State professor, who served as F2Fs guiding light when it was pushed through Congress in 1995, many American farmers will call for "recoupling", a movement back to crop bases, target prices and

deficiency payments.

"But it wont happen," Flinchbaugh predicts. "Farmers love the flexibility of F2F; so that part of the programme will remain. If agriculture needs help three or five years from now, Congress will inject more money into transition payments those years."

The core of F2F, cropping

flexibility, is quietly changing US

agriculture in many ways, notes Ron Knutson, a respected ag policy analyst at Texas A&M University.

"It is clear Freedom to Farm is causing the maize and soyabean belt to expand west," he says. "We are adding maize and soyabean acres in the Great Plains."

That expansion inspires Knutson to expand his definition of the American Great Plains, too. He now describes the vast, traditional wheat-growing area west of the Mississippi River as extending from Texas into the wheat and barley regions of the Canadian prairie provinces.

"High Plains wheat and southern cotton acres are being replaced by maize and soyabeans," he explains. "This suggests – and I believe we will see it – more Canadian wheat and more foreign cotton will be imported to the US in the coming years as F2F cuts into both crops traditional bases."

And it spells doom for the Canadian Wheat Board, believes Knutson, as Canadian producers clamour for more and freer access to the big US market as Americas wheat acreage slips.

Luther Tweeten, Ohio State Universitys farm policy analyst, concurs. In fact, says Tweeten: "America has a clear comparative advantage on the rest of the world in maize. So we will see maize acreage climb as farmers in the Plains States and the south replace wheat and cotton with maize."

That is what Freedom to Farm is all about, Tweeten continues, comparative advantage. "No country can compete with our maize industry, and in truth, few can in soyabeans. So these two crops will expand in the near-term as wheat, cotton, tobacco, rice and sugar, crops where we do not enjoy a comparative advantage in world production, all decline under F2F."

But it is Freedom to Farms cheap government cost that will be the foremost attraction to the rest of the world, predicts Tweeten. "The European Community will be shoved into some type of de-coupling very soon," he offers, "because cheap US feed grains and soyabeans – and a cheaper, global market in wheat – drives up EU farm programme costs even as America grabs more export markets.

"Given the tremendous cost of farm programmes in Europe and the likely addition of up to a dozen new countries into the EU in the coming years, CAP will be reformed and those reforms will resemble Freedom to Farm."

Another consequence of Freedom to Farm, says Tweeten, is a regional shift in US livestock production. "As the maize-growing area shifts west and south, hogs and cattle are following. These areas have better weather, open spaces, ample labour and now they have the missing ingredient, feed, to make the shift occur."

That suggests lower costs of production for red meat producers, he notes: "Which will continue US growth in world meat export markets."

And as these shifts pop up, ag businesses will be forced to react to them, opines Mark Edelman, a policy expert at Iowa State University.

"Under the old programmes, most ag companies about knew how cheap grain would be, the loan price, or how expensive it could get, the target price. Industry could predict planted acres pretty accurately, too – the crop bases.

"Now, however, crop bases are gone, target prices are gone, and loan levels are very low. That injects as much volatility into ag business planning as it does into farming."

This new volatility, for both farmers and ag business, will fuel more direct contracting between producers and processors, guesses Edelman, as each looks for a hedge in an uncertain, gyrating global market.

"In sum, though," concludes Edelman, and his colleagues quickly agree, "farmers are better off with Freedom to Farm. So far, anyway."