By VICKI JOHNSON
Ohio Correspondent

UPPER SANDUSKY, Ohio — Crop producers must take the time to make a choice between counter-cyclical payments or the new Average Crop Revenue Election (ACRE) offered in the 2008 farm bill.

“This farm bill is designed to help farmers manage risk, not to increase farm income,” said agricultural economist Carl Zulauf, one of four speakers from The Ohio State University’s Department of Agricultural, Environmental and Developmental Economics, during a recent agricultural outlook meeting in Upper Sandusky.
The economists presented their views on likely trends facing farmers and the agricultural industry in 2009. Zulauf explained the 2008 farm bill as he understands it, including ACRE – which is based on concepts he developed – and Supplemental Revenue Assurance (SURE).

He said ACRE is a revenue program, not a price program. “Farmers are not used to thinking of farm programs as the management of risk,” he said. “They are used to thinking of farm programs from the standpoint of price.”

He showed several examples of how ACRE might pay more than the counter-cyclical program.

“You can’t approach the question from the angle of which program is going to pay more – because prices aren’t known,” he said. “You will not learn this program in 15 minutes. It’s going to take a serious investment of time.”

Zulauf said the SURE program is a new concept. “It took me three months to finally figure out this program in my mind,” he said. “This is, for all practical purposes, a supplement to buying crop insurance. What the SURE program does, is it piggybacks on crop insurance.”

He said farmers must buy insurance for all crops of economic significance, but “economic significance” has not been defined.
 “One of the incentives of SURE is to buy crop insurance, but also to buy higher levels of crop insurance (at least 75 percent),” he said. “The guarantee is intimately tied to the amount of insurance you buy.”

Zulauf said the bill tightens income rules for receiving payments. “This farm bill says that if you have more than $500,000 in average adjusted gross income for the past three years, you are denied payments. And there’s no out,” he said. In addition, direct payments are denied if adjusted gross income over the past three years exceeds $750,000.

Zulauf said his study of the bill has brought up the possibility of other farm changes. He said SURE is designed to replace ad hoc, or after the fact, disaster assistance.

“If you’re planning on the government bailing you out of a disaster situation next year, you may be out of luck,” he said. “SURE is the disaster assistance program you need to think about in the future.”
Zulauf said SURE raises questions about changes in crop rotations because single-crop producers benefit more from the program.
“I predict five to 10 years from now we’re now we’re going to be talking about SURE’s impact on crop rotation,” he said. “Rather than a 50-50 rotation, why not plant all corn one year and all beans the next?”

He also said SURE might reduce farmers’ desire to plant small-acre crops such as wheat. “It dampens the farmers’ desire for biodiversity,” he said.

Regarding ACRE, a different program from SURE, Zulauf said the manager of each individual farm must make a decision whether to enroll in ACRE or stay with the counter-cyclical program of past years.

“This is a decision you can’t ignore,” he said. “This is a decision you need to contemplate.”

Zulauf said this year is the start of a shift in thinking for legislators. “The 2008 farm bill will go down as one of the major farm bills in history,” he said. “This was a very innovative farm bill. One of the things that clearly comes out of this farm bill is it expands the scope of the farm bill.”

He said there is only one crop – hay – that doesn’t have a support program now. “It was truly a big expansion in the scope of the programs,” he said. “There is a rebalancing away from commodity programs to non-commodity programs.”

The bill concentrates 66 percent on food and nutrition programs. “Or, 70 percent, depending on how you count it,” Zulauf said. “For the first time in history, conservation programs are at 50 percent of the level of farm commodity programs.

“I really think we’ve gotten to the point where it’s inappropriate to call this the farm bill.”

Also during the outlook program, ag economist Barry Ward reviewed several budget scenarios to help farmers lessen the impact high input costs might have on farm profits in 2009. He said input costs and grain prices don’t leave much room for labor and machinery costs or land rent.

He suggested reducing fertilizer where possible and storing fuel when prices are at lower levels. Ward also suggested discussing flexible cash rent leases with landowners, which provide profit-sharing during good years and lower payments during less profitable years.

To finish the program, marketing instructor Stan Ernst said the average American spends about 10 percent of their income on food, compared to more than 25 percent in China and India.
Although it’s different for various commodities, he said the farmer, on average, gets 19 cents of every dollar spent on food, with the remainder going for processing, transportation and marketing.

December 31, 2008