Farm bill conference issues
It is easy to focus on the differences between the House and Senate Title 1 farm safety net programs. However, both offer a target price program and both contain a revenue program. They differ on whether the revenue program is an option to the target price program or is available to all farms. They differ on whether reference prices are fixed or variable for most crops. They differ on the use of historical base acres or planted acres. These differences are not trivial but are also surmountable.
A diverse set of differences exist between the House and Senate farm bills. However, many of the differences concern the farm safety net. These differences can largely be grouped into two categories.
One category contains issues that reflect a broad debate over what society should expect from farms in return for the public subsidies it provides. This set of issues includes payment limits, limits on crop insurance subsidies, and conservation compliance.
The second category contains issues that revolve around the determination of assistance levels for the farm safety net. In this farm bill debate, these issues are largely about multiple-year assistance. Some of the issues arise because the U.S. has decided not to enact annual supply control constraints for most crop safety net programs. The one exception is sugar. The vote by the House to remove the supply control provision in the proposed dairy margin program is consistent with the current situation for crop support programs, excluding sugar.
The lack of an annual supply control program means that any fixed program parameter can end up distorting the market and thus farmers' production decisions. In contrast, an annual supply control program provides the government with a mechanism for limiting production when policy distortions increase U.S. production. For example, target prices or revenue will distort production when prices or revenues are below the target levels for an extended time. Farms will produce for the target, not the market. Such a situation opens up the U.S. farm safety net to lawsuits at the World Trade Organization (WTO). This situation arose with respect to the U.S. cotton program. Specifically, fixed U.S. cotton price support targets became out of step with the market, leading to the successful Brazilian cotton case at the WTO and by extension to the major redesign of cotton programs contained in both the House and Senate farm bills. In summary, the U.S. has effectively two policy options if it wants to establish target levels: it can have targets that move with the market or it can use fixed targets but include some form of supply control to limit costs and farm production distortions when the market is below the fixed target. U.S. farm policy has struggled with accepting this situation. It will be interesting to see how the farm bill conference committee addresses it.
For additional discussion on the state of the farm bill debate, see "2013 Farm Bill Update - July 2013" by Carl Zulauf and Gary Schnitkey, available here. The Senate farm bill is available here while the House farm bill is available here.