A key issue framing debate on the 2012 Farm Bill is whether farm supports should be market oriented or fixed by Congress. The issue is most clearly seen in the debate over target prices fixed by Congress vs. a shallow loss program, such as ACRE, with assistance levels tied to market revenue. Similar debates have occurred throughout the history of U.S. farm policy. This article first reviews these historical debates, often referred to at the time as a debate over flexible vs. fixed farm supports. An explanation is then proposed for why the U.S. has consistently chosen flexibility and market orientation. The article then discusses the 2012 Farm Bill debate.
At 3 key points in the history of U.S. policy, debate occurred over fixed supports.
- In the late 1940s debate began over whether to continue high, fixed price supports implemented during World War II. The debate was resolved by replacing a high fixed rate with a rate that could vary within a range and somewhat by crop. In addition, the formula used to determine what were called parity support prices was changed from using a benchmark fixed at the 1910-1914 period to a benchmark that moved with the most recent 10 years. As a result of these 2 policy decisions, support rates declined. Corn’s loan rate was $1.06 in 1960 vs. $1.60 in 1952 while wheat’s loan rate was $1.78 in 1960 vs. $2.40 in 1952.
- Despite lower prices from the flexible parity system, stocks continued to build due to rapid yield increases. For example, U.S. wheat stocks carried into the year exceeded U.S. production every year from 1959 through 1963. The debate over how to control stocks and their costs centered on 2 options: (1) high price supports with high mandatory acreage controls and (2) lower price supports with voluntary acreage controls. The debate was resolved when the Agricultural Act of 1964 and the Food and Agriculture Act of 1965 extended the lower price, voluntary acreage control program that had evolved for corn since World War II to wheat and cotton.
- Large surpluses emerged in the early 1980s due to large crops around the world and slower economic growth. Because the U.S. had raised support prices during the boom period of the 1970s, support rates now exceeded market prices. Once again, in the Food Security Act of 1985, the U.S. chose to reduce price supports. Also, the Secretary of Agriculture was allowed to customize acreage set-asides for each crop within a range established by Congress. For example, set-asides for the 1987 crops ranged from 20% for corn (feed grains) to 35% for rice.