A new study released by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri shows that the Price Loss Coverage (PLC) program included in the House-passed version of the farm bill, which ties high target prices to farmers’ current-year planting decisions, would skew crop production. Additionally, the study highlights the potential for high, fixed target prices coupled to current plantings to cause global market distortions, which would increase U.S. farm program vulnerability to challenges under the World Trade Organization.

“The FAPRI report shows that the disparity in the treatment of different crops under the House plan and the re-coupling of target prices to current plantings could result in distorted plantings and production,” said ASA President Danny Murphy. The report’s conclusions comparing the impacts of the House and Senate farm bills on planted acreage for various commodities are indicated in the following chart.

The study makes clear, according to ASA, that target prices need to be decoupled from current-year planting decisions under any price-based program. “The FAPRI report drives home our concern that the House PLC program could cause planting distortions by tying target price payments to planted acres,” said Murphy. “For example, the report highlights the potential for significant increases in planting and production of barley, rice and peanuts, which would push down prices. While producers of these crops would receive larger government payments, the lower prices would also decrease market receipts for peanuts by $70 per acre, rice by $20 an acre, and barley by $15 an acre as seen in the chart below.

While the report indicates that the price and revenue-based programs included in both the House and the Senate bills would likely be considered trade distorting domestic support under the WTO, it identifies the House PLC program as more likely to cause larger price declines for specific commodities and would make U.S. farm programs more vulnerable to potential WTO challenge.  Murphy stated that “these lower prices would then impact other countries that produce the same crops, potentially spurring WTO complaints similar to what we saw when Brazil successfully challenged the U.S. cotton program under the WTO.  While we didn’t like the WTO’s decision in the cotton case, legislators need to be mindful of the outcome of this case and avoid increasing the vulnerability of U.S. farm programs to potential challenges.”

A full copy of the FAPRI report can be accessed by clicking here.