Economists Discuss Farm Policy Amid Falling Crop Prices

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(INDIAN WELLS, Calif.)—The U.S. Department of Agriculture, last week, warned that farm incomes would again fall in 2016 because of low commodity prices, continuing a troubling trend in recent years. Top agricultural economists echoed that sentiment yesterday and explained how this reality underscores the importance of farm policy.

“It’s pretty tough sledding out there right now for grain producers,” Washington State University economist Randy Fortenbery said during a panel discussion at an annual meeting hosted by National Crop Insurance Services and the American Association of Crop Insurers. “If you look forward, I think the tough times will extend beyond 2016.”

Fortenbery explained that the high value of the dollar and commodity surpluses around the globe are making things particularly difficult for U.S. agriculture. He also encouraged farmers to “think about risk management” as a way to weather these tough times.

Joe Outlaw with Texas A&M University agreed. “Producers need to spend their money wisely and fine tune their crop insurance protection as much as possible,” he said.

“We are fortunate in this country to have crop insurance and a farm safety net,” Outlaw continued, adding that such policies are essential right now since “prices are below the cost of production for everybody.”

And while low commodity prices harm farmers and rural economies, there are some silver linings when it comes to crop insurance. Because the value of the insured crop is falling, that means insurance premiums are falling as well, which could help lower farmers’ bills and reduce government cost.

Mechel Paggi with California State University, Fresno, explained that this has implications on the international front, too. The 2014 Farm Bill made crop insurance the centerpiece of U.S. farm policy, he said, and as such it will be scrutinized by the World Trade Organization to ensure compliance with international rules.

“U.S. farm policy is coming in well under the support caps agreed to by the WTO,” he said. “With crop insurance costs going down, it would be harder to argue that current policy is a hindrance to foreign trade.”

Furthermore, Paggi noted that existing research shows very weak linkage between crop insurance and producer planting decisions – a key indicator used by WTO when examining countries’ farm policies.