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Domestic ag support left out of Ukrainian package

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Presidential supplemental request of $500 million said to be a starting point for Congress.

The White House recently proposed a $500 million proposal to boost commodity production as one piece of a $33 billion funding request to Congress to address global food shortages from Russia’s war in Ukraine. However, the bill that advanced in the House and waiting for final approval in the Senate does not have the additional funds.

The initial proposal asked for $100 million to be used to provide a $10-per-acre crop insurance premium discount to farmers who plant soybeans following a winter wheat crop in 2023, while $400 million would fund a two-year increase in loan rates to incentivize production of wheat, rice and edible oilseeds. 

But many economists questioned the proposal, and as such Congress did not include the $500 million in the nearly $40 billion package that’s expected to advance early next week.

“We have been working closely with the other three corners of the Agriculture Committees to evaluate options as it relates to the impacts of the war in Ukraine, and we will continue that work,” House Agriculture Committee Chairman David Scott, D-Ga., said in a statement ahead of the House vote May 10. “We were not able to come to agreement on steps that need to be taken at this point in the U.S. growing season in time for this supplemental request.”

The following day Secretary of Agriculture Tom Vilsack joined President Joe Biden on an Illinois farm to tout a regulatory change to expand crop insurance on double-cropped acres in areas in another effort to encourage additional plantings. Biden announced that USDA will extend double crop insurance coverage to nearly 700 additional counties, to encourage farmers to raise wheat without relying on them to substitute crops or cultivate more ground. Nearly 2,000 counties will have access to double crop insurance.

According to USDA National Agricultural Statistics Service data with American Soybean Association calculations, there were 4.4 million acres of double crop soybeans in 2021, explains ASA economist Scott Gerlt in an analysis of the proposal. He utilized FAPRI-MU equations to see whether the $10 crop insurance premium incentive could indeed encourage more production.

“Single crop soybean and wheat acres would decline slightly, so the net for those two crops would be an increase of 35,000 planted acres of total soybeans and 37,000 acres of total wheat (spring and winter). Actual acres used in ag production would increase by 2,000 acres while total plantings would increase by 50,000 acres,” Gerlt explains.

University of Illinois and Ohio State University economists recently penned in a farmdoc Daily paper on the proposal, explains in 2021, there were 2.5 million double-crop soybeans insured, representing 2.8% of the 89.7 million acres of soybeans insured.  The five largest double-crop soybean states were Kansas (609,000 acres), Illinois (397,000 acres), Kentucky (380,000 acres), Missouri (285,000 acres), and Tennessee (282,000 acres). 

Farmers in counties without a designation as a “following another crop” (FAC) for double-crop soybeans have the option to not insure the FAC soybeans or obtain a written agreement permitting the purchase of crop insurance for double-crop soybeans. The farmdoc paper explains in this situation, farmers may opt to not purchase insurance on the double-crop soybeans, especially if they do not already have a crop history of double-crop soybeans. Without a yield history, transitional yields (T-yields) would be used in guarantee yield calculations, and use of T-yields typically result in very low guarantee yields.

The farmdoc paper adds that the market is already providing a substantial incentive to increase plantings even without the $10 crop insurance premium reduction. Farmer adaptation will depend on expected relative profitability, and they found that a Central Illinois farmer could get higher operator and land return from winter wheat planted in fall 2022 plus double-crop soybeans planted in spring 2023, as compared to growing full season soybeans or corn in 2023.

“A transition to more double-crop acres would increase production of both wheat and soybeans, but the $10 per acre crop insurance incentive is minimal compared to the net returns the market is currently offering, particularly when the cost and availability of purchasing crop insurance on double-crop soybeans is considered,” the authors write. “Is the proposed budget for this proposal better spent in a way that could more effectively increase production?”

They also note although a precedent exists with the premium incentive for planting cover crops, an important policy question exists: “Should the crop insurance program be used for policy initiatives not directly related to farm risk?”

During a Senate agricultural appropriations committee hearing where Vilsack testified, Sen. Jerry Moran, R-Kan., asked the secretary why sorghum wasn’t included as a crop that could be planted behind wheat. “Why does the administration only propose incentivizing soybeans and not other food crops?” Moran asks.

Vilsack responded the President’s proposal was a “conversation starter” and added there’s “no reason why we could include [sorghum] and we should.”

USDA has taken some initial steps to expand crop insurance coverage without the written agreements on double-crop wheat to soybeans. But Congress most likely will continuing to evaluate creative ways to help encourage additional production if the market is unable to do so.

However, the National Sustainable Agriculture Coalition warned that history may not serve future farmers well in helping after wars. 

“U.S. farmers have stepped up to fill a war-induced vacuum in global food production before, but short-term economic booms often devolve into drawn-out busts. Demand for U.S. food exports reached an all-time high in the aftermath of World War I to feed a war-torn Europe, but U.S. farmers experienced a 75% fall in commodity prices due to market oversaturation as the continent’s food production capacity was restored. Millions of farms foreclosed,” NASC writes in a recent blog, Plans to Boost Commodity Production of House of Cards.

Farmers received federal incentives in the 1970s to fulfill a grain contract with the Soviet Union. But this ended with the worst farm crisis when the embargo went into effect and farmers no longer had a market for their excess production. This 1980s farm crisis was also compounded by an oil embargo, which inflated the costs for farm equipment and fuel, NASC adds.

“These historic events are not necessarily harbingers in 2022, but they do serve as a reminder that past concentrated US initiatives to boost commodity exports to war-torn countries have yielded unintended, and profoundly damaging, long-term consequences for our producers at home,” NASC states.

TAGS: Farm Policy
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