Path Home Shows 2012 Show Archive April 2012 Show 1217 Mike Dicks Interview - Freedom to Farm

Mike Dicks Interview - Freedom to Farm

We visit with Mike Dicks, an Oklahoma State Univeristy economist, who shares some interesting insights into the rules of "unintended consequences" that occurred under the Freedom to Farm Bill.
Mike Dicks Interview - Freedom to Farm

Interviewee Mike Dicks

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USDA Farm Bill

Show Dates

Show 1217: Mike Dicks Interview - Freedom to Farm

Air date: April 22, 2012

 

Transcript

ROB MCCLENDON:  WELL THIS ISN’T THE FIRST TIME CONGRESS HAS TRIED TO REIGN IN FEDERAL SPENDING ON THE FARM BILL.  IN 1996 A SIMILAR REPUBLICAN-LED CONGRESS APPROVED A PIECE OF LEGISLATION THAT ATTEMPTED TO SAVE TAXPAYER DOLLARS BY MAKING FARM PAYMENTS MORE MARKET DRIVEN.  BUT WITHIN TWO YEARS OF THE PASSAGE OF THE FREEDOM TO FARM BILL, SEVERE WEATHER RIPPED THROUGH OUR COUNTRY’S HEARTLAND; AND CONGRESSIONAL LEADERS FOUND THEMSELVES SPENDING MORE ON DISASTER PAYMENTS THAN THEY HAD PREVIOUSLY, WITH FARM SUBSIDIES.  OSU ECONOMIST MIKE DICKS WORKED ON CRAFTING THAT PIECE OF LEGISLATION AND SHARED WITH ME SOME INTERESTING INSIGHTS INTO THE RULES OF UNINTENDED CONSEQUENCES.

ROB:  WELL MIKE, YOU WERE INVOLVED IN CRAFTING THE 1996 FARM BILL WHICH IS OFTEN REFERRED TO AS THE FREEDOM TO FARM BILL.  HAVING SEEN WHAT HAPPENED DURING THE NEXT FEW YEARS, WHAT REFLECTIONS DO YOU HAVE ON THAT AND WHAT WE’RE GOING THROUGH RIGHT NOW IN TRYING TO BRING DOWN DIRECT PAYMENTS AND PRICE OF FORAGE FOR CROPS AND THE IMPACT THAT’S GOING TO HAVE BOTH ON FARMS AND THE CONSUMER?

MIKE DICKS:  I THINK THE MOST IMPORTANT COMPARISONS ARE THE TWO PERIODS.  AND THE ’96 PERIOD AND THE CURRENT PERIOD WAS, AND BOTH TIME FRAMES WERE KIND OF AT A CROSSROADS.  AND IN ’96 WE WERE ABOUT TO TRANSITION FROM SUPPLY MANAGEMENT, EXCESS CAPACITY MANAGEMENT, OF THE PREVIOUS FOUR OR FIVE DECADES INTO THIS, LET THE MARKET WORK MENTALITY, WHERE WE’RE NO LONGER GOING TO MANAGE THE SUPPLY.  AND THAT’S IMPORTANT BECAUSE, THE SUPPLY MANAGEMENT PROGRAMS LED TO LOWER PRICES OF COMMODITIES.  AND THAT WAS VERY HELPFUL TO CONSUMERS.  AND BECAUSE OF THOSE LOWER PRICES, THEN WE WERE FORCED TO SUBSIDIZE THE PRODUCERS.  AND A LOT OF PEOPLE DIDN’T GET THAT INTRICACY.  SO WHEN WE GOT RID OF THE SUPPLY MANAGEMENT PROGRAMS, RIGHT?  INITIALLY, WE HAD A LOT OF THIS EXCESS CAPACITY SIT IN THE MARKET.  AND OF COURSE THAT STIMULATED THINGS LIKE THE ETHANOL PRODUCTION, THE ETHANOL INDUSTRY, AND ET CETRA, AND WE HAD A VERY HARD TIME WITH THAT FROM ’96 UNTIL 2002, 2003.  AND OF COURSE AS YOU KNOW, THE EXPENDITURES IN DISASTER ASSISTANCE AND ALL THESE OTHER PROGRAMS EXCEEDED WHAT WOULD HAVE HAPPENED HAD WE KEPT THE PREVIOUS FARM BILL THROUGH THAT PERIOD.  BUT NOW WE’RE SORT OF BEYOND THAT.  WE’RE, APPARENTLY WE’RE NEVER GOING TO GO BACK TO THE CAPACITY MANAGEMENT TYPE OF PROGRAMS.  WE’RE MORE INTO THE LET THE MARKET WORK.  AND WE HAVE, BECAUSE OF WHAT HAPPENED IN 2002 AND HAVING A GOOD BUDGET AND THE NEED OF ASSISTANCE FOR SOME FARMERS WE’VE KIND OF REVERTED BACK A LITTLE BIT, BUT WITHOUT THE SUPPLY MANAGEMENT PROGRAMS STILL PROVIDING THE SUBSIDIES.  AND SOME OF THOSE THINGS NOW ARE ON THE CHOPPING BLOCK.  SOME OF THOSE SUBSIDIES ARE ON THE CHOPPING BLOCK.  AND I THINK WHAT A LOT OF PRODUCERS SEE IS THAT THE BOTTOM LINE IS, IS THAT ONE OF THE THINGS THAT THEY NEED TO HAVE IN ORDER TO MANAGE THEIR AGRICULTURE OPERATIONS IS THEY NEED TO HAVE SOME SORT OF WAY OF MANAGING RISK.  AND I THINK EVERY BUSINESS NEEDS THAT; AND MOST BUSINESSES HAVE SOME SORT OF AFFORDABLE INSURANCE OR ARE LARGE ENOUGH TO SELF-INSURE.  SO IN AGRICULTURE, THAT’S A REAL PROBLEM.  AND THE REASON THAT’S A PROBLEM IS BECAUSE THEY CAN’T CONTROL THEIR ENVIRONMENT, AND HAVE THAT WEATHER.  AND THAT MAKES IT EVEN MORE DIFFICULT BECAUSE THE WEATHER IS MUCH MORE VARIABLE IN SOME PARTS OF THE COUNTRY THAN OTHERS.  AND SO IN THE CORN BELT, FOR EVERY DOLLAR THAT YOU PAY IN AS PREMIUMS, THE INSURANCE COMPANIES PAY OUT ABOUT 40 CENTS, 50 CENTS, IN INDEMNITIES.  BUT OUT HERE THAT COULD BE ANYWHERE FROM A DOLLAR PREMIUMS TO PAY OUT A DOLLAR SEVENTY, A DOLLAR EIGHTY, UP TO TWO DOLLARS AND FIFTY CENTS.  AND SO, YOU KNOW, IN ORDER TO HAVE THAT INSURANCE PROGRAM, SOMEHOW THE INSURANCE COMPANY HAS TO COME UP WITH THAT EXTRA AMOUNT OF MONEY.  AND THAT RISK PROTECTION NOW IS GOING TO BE, WHAT, IS WHAT WE’RE LOOKING AT FOR THIS NEXT FARM BILL.  HOW DO WE GO ABOUT DOING THAT?  HOW DO WE MAKE SURE THAT THOSE FARMERS HAVE A WAY OF PAYING OFF THEIR OPERATING LOANS, IF THEY DON’T HAVE A CROP BEING HARVESTED?

ROB:  SO, COULD A MARKET EVOLVE, OR COULD A SYSTEM EVOLVE WHERE IT’S MORE EXPENSIVE TO FARM IN THIS PART OF THE COUNTRY THAN IN OTHER PARTS OF THE COUNTRY?

MIKE:  THAT’S QUITE POSSIBLE.  I MEAN, THERE’S A LOT OF PROBLEMS AS YOU WORK THROUGH THIS.  IT’S THE INITIAL AND LONG-RUN KIND OF PROBLEMS.  YOU COULD THINK ABOUT IT AS SAYING, OKAY, LET’S LET, ON A PUBLIC POLICY PERSPECTIVE YOU COULD SAY LET’S LET THE INSURANCE COMPANIES DEAL WITH THE RISK OF INSURANCE.  AND WHICH MEANS THAT, THE RATES HERE MIGHT GO UP BY 200%, 250%.  AND THE RATES MAY GO DOWN IN THE CORN BELT.  WELL IF THAT HAPPENS, AND THOSE RATES GO UP SUCH THAT THEY EITHER CAN’T AFFORD INSURANCE, OR CAN’T STAY IN BUSINESS BECAUSE OF IT, THAT MEANS SOME OF THAT CROP THEN WILL COME OUT WHICH MEANS CROP PRICES WILL GO UP.  FOLLOW ME?  AND AGAIN, SO THOSE THINGS, SOMEWHERE THERE’S AN EQUALIBRIUM IN THERE, SOMEWHERE WE HAVE TO GET TO A POINT WHERE WE’RE STILL PRODUCING ENOUGH FOOD.  AND THE ONLY WAY THAT WE CAN DO THAT IS IF FARMERS HAVE THE ABILITY TO MAKE MONEY IN ORDER TO PRODUCE THAT FOOD.

ROB:  DO LAWMAKERS, OR THEIR LEGISLATIVE STAFFS, DO THEY RUN THE RISK OF DESIGNING A FARM BILL IN RESPONSE TO THE LOBBYING OF, I WILL CALL IT, BIG AG, VERSUS SMALL CONSUMER?

MIKE:  YOU KNOW, THAT’S AN INTERESTING, I MEAN OF COURSE THERE’S A LOT OF LOBBYISTS, AND THE AG LOBBY IS TRYING TO DO WHAT’S IN THE BEST INTEREST OF AGRICULTURE, AND OF COURSE THEY OUGHT TO.  IS SOMEBODY LOBBYING FOR THE CONSUMER?  I DON’T THINK SO.  BUT WHAT I FIND IS THERE’S A LOT OF PEOPLE THAT HAVE AN IDEA ABOUT WHAT, THE WAY AG POLICY SHOULD BE, AND THEY’RE LOBBYING FOR THAT.  AND I THINK A LOT OF THE PEOPLE THAT LOBBY TO GET RID OF THE PROGRAMS THAT THEY GOT RID OF DIDN’T UNDERSTAND WHAT THEY WERE DOING AND HOW THAT WOULD DISMANTLE, AND WHAT THAT WOULD MEAN IN TERMS OF PRICE VOLATILITY AND HIGHER PRICES.  AND I THINK IF THEY GO BACK AND LOOK AT THAT AND ANALYZE WHAT HAPPENED, THEY’LL SEE THAT, THAT IS EXACTLY THE CASE, IS THAT WHEN WE GOT RID OF THE PROGRAMS, THE GOVERNMENT PROGRAMS THAT MANAGED THE EXCESS CAPACITY AND MADE SURE WE HAD PLENTY OF EXCESS CAPACITY AND BECAUSE OF THAT NEEDED TO SUBSIDIZE THE PRODUCER’S BACK; THAT WAS A PRETTY EFFECTIVE PROGRAM FOR CONSUMERS, BUT NOT SUCH A GREAT PROGRAM FOR FARMERS.  AND SEE NOW WE’VE KIND OF TURNED IT AROUND AND FARMERS ARE ACTUALLY GETTING A PRETTY GOOD SHARE BECAUSE THEY GET PROTECTION ON A DOWNSIDE PRICE AND THEY DON’T NEED IT ON THE UPSIDE.  BUT THE CONSUMERS NEED IT ON THE UPSIDE, AND IT’S NOT THERE ANYMORE.  SO WE’RE NOT DOING ANYTHING ABOUT THOSE UPSIDE PRICES.   SO, I THINK THERE’S A LOT OF LOBBYING GOING ON, OBVIOUSLY.  BUT I’M NOT SURE THAT THERE’S REALLY ANYBODY THAT’S LOBBYING IN THE INTEREST OF FOOD POLICY TO MAKE SURE THAT PEOPLE, LIKE IN SIERRA LEONE, AND SOME OF THESE REALLY POOR COUNTRIES, ARE ABLE TO HAVE FOOD WHEN THERE’S WORLD SHORTAGES BECAUSE OF WEATHER PROBLEMS IN ANY PARTICULAR YEAR.

ROB:  YEAH, AND EXPLAIN THAT TO OUR AUDIENCE, THAT THE IMPACT THAT FOOD PRICES HAVE AROUND THE WORLD COMPARED TO WHERE WE MAY FEEL A LITTLE BIT OF A HICCUP, THEY FEEL IT MUCH MORE DRAMATICALLY.

MIKE:  WELL, YOU KNOW, AGAIN WHEN YOU LOOK AT SIERRA LEONE AND YOU, SAY ABOUT 85% OF A AVERAGE PERSON’S DISPOSABLE INCOME GOES TO FOOD, AND THEY ONLY HAVE ABOUT 35-TO-50 FOOD ITEMS DURING THE YEAR TO CHOOSE FROM, ALRIGHT, IT’S A PRETTY LIMITED SET.  AND THEN WHEN THAT COMMODITY, AND THE TWO BIGGEST COMMODITIES THAT THEY EAT OVER THERE WOULD BE RICE AND BREAD, THOSE ARE IMPORTED COMMODITIES.  AND IF YOU DOUBLE THE PRICE AND YOU’RE ALREADY SPENDING 85% OF YOUR DISPOSABLE INCOME, YOUR ONLY OPTION IS TO EAT LESS.

ROB:  SO, KNOWING WHAT YOU KNOW FROM HAVING TAKEN PART IN THE 1996 WRITING OF THAT FARM BILL, WHAT WOULD BE YOUR BEST ADVICE TO OUR NATION’S LAWMAKERS?

MIKE:  WELL, I THINK YOU KNOW, I MEAN THAT’S A GOOD QUESTION, AND IT’S A QUESTION THAT OUGHT TO BE ASKED A LOT IS, WHAT SHOLD WE DO?  AND HOW SHOULD WE LOOK AT IT?  AND OF COURSE THE ECONOMISTS ANSWER IS ALWAYS GOING TO BE, TELL ME WHAT YOUR OBJECTIVE IS; WHAT DO YOU WANT TO ACHIEVE WITH THE FARM BILL; DO YOU WANT TO ACHIEVE STEADY  AND STABLE PRICES FOR THE CONSUMER; DO YOU WANT TO PROTECT THE FARMER; DO YOU WANT TO PROTECT THE ENVIRONMENT?  LIST OUT WHAT THOSE THINGS ARE.  THAT’S THE FIRST SCENARIO, AND THAT’S VERY RARELY DONE.  TELL US WHAT THE OBJECTIVE IS, AND THEN ASK SOME PEOPLE THAT KNOW, THAT HAVE BEEN STUDYING THESE THINGS, THE AG POLICY PEOPLE, ASK THEM TO RUN SOME SCENARIOS.  TELL US WHAT THE TRADE-OFFS ARE.  WHAT’S THE TRADE OFF BETWEEN DOING THINGS FOR THE ENVIRONMENT AND PRODUCTION AND FOOD PRICES?  WHAT’S THE DIFFERENT, WHAT’S THE TRADE OFF IN TRYING TO MAINTAIN THAT STABLE PRICE IN FARMERS’ INCOMES?  LET US KNOW WHAT THOSE ARE, AND WE CAN PROVIDE THOSE.  IT IS THE LAWMAKER’S DECISION TO DO THAT.  THE LAWMAKER IS VERY, VERY MUCH INTERESTED IN EQUITY, HOW THINGS, HOW INCOME GETS MOVED AROUND, AND WHO GETS WHAT SHARE OF WHAT.  THAT’S THEIR JOB.  THE ECONOMISTS ROLE IS KIND OF EFFICIENCY.  HOW DO WE DO THINGS THE BEST WAY?  SO, YOU TELL US WHAT YOU WANT, AND THEN LET US TELL YOU HOW TO BEST GET IT.

ROB:  ALL RIGHT.  MIKE DICKS IS WITH OKLAHOMA STATE UNIVERSITY.