The Fight for FAV
June 21, 2007
U.S. and Northarvest dry bean leaders are optimistic about the dry bean industrys number one farm bill priority retention of the fruit and vegetable (FAV) planting restriction for non-program crops (including dry beans) on program crop acres. Particularly in light of the stalled World Trade Organization ag negotiations.
The FAV provision is a carryover of the 2002 Farm Bill, stemming from the 1995 Freedom to Farm Act. The planting flexibility provision permits any commodity to be grown on contract acreage, except fruits and vegetables, including dry edible beans and potatoes. Some exceptions are made for fruits and vegetables, with an acre-for-acre loss of payment.
There were some concerns that continuing the FAV provision in the new farm bill may be challenged as trade distorting in the WTO since it restricts the planting of certain crops on direct payment acreage, critics claim, it thus influences production decisions.
However, the U.S. dry bean industry asserts that there is no determinative ruling about planting restrictions within the WTO. How rules applying to the farm bill concur within the context of the WTO is further muddled by the impasse of the current Doha Round of negotiations.
Its an impasse that doesnt look to be resolved soon. A dozen national farm and commodity groups sent a letter to the Bush Administration in early June, urging the President to remain firmly in support of the U.S. proposal that reductions in domestic support for U.S. agriculture must be met by commensurate gains in market access and reductions in trade-distorting policies by trading partners. The groups reminded U.S. negotiators that the agriculture community will not support deeper cuts than already proposed.
Mike Beltz, a Hillsboro, N.D., dry bean grower and vice chair of the U.S. Dry Bean Councils agricultural issues/government affairs committee, says that while the FAV planting restriction has been beneficial to all non-program and specialty crops in the Northern Plains, it is most important to dry bean growers, since dry beans are typically grown in rotations with or in areas where major program crops are grown.
Further, unlike other non-program crops or specialty crops, there are very few, if any, economic barriers to entry in converting program crop acres to dry bean production. Other non-program or specialty crops, most of which are perishable, typically require high levels of investment in equipment to plant, maintain, harvest, and store the crop, along with technical expertise, marketing channels, and specialized labor needs. Such economic barriers to entry do not exist with dry bean production. Any existing farmer with equipment to plant and harvest grains, such as soybeans and corn, can use the same equipment to plant, tend and harvest dry beans.
Eliminating the planting restriction would disadvantage the historical dry bean grower by subsidizing a likely new significant level of dry bean production on program acres, the U.S. dry bean industry asserts. Further, stripping the farm bill of the FAV provision would permit unfair competition from subsidized program crop acreage against unsubsidized non-program crop acreage, and would likely result in a severe disruption of the present delicate supply/demand balance and the present open and competitive market for dry beans.
Key farm state lawmakers are aware of and are supportive of maintaining the FAV provision, says Beltz, including House Ag Committee Chair Collin Peterson.House Agriculture Chairman Collin Peterson of Minnesota addresses members of the media alongside Ranking Member Bob Goodlatte of Virginia at a May 17, 2007, press conference to kick off the Farm Bill drafting process. The current farm bill was written in 2002, and many of the provisions in that bill will expire in September of 2007. Updates on establishing a new farm bill can be found on the House Ag Committees web site, http://agriculture.house.gov.
Other specialty crops support preserving FAV
It helps that the dry bean industry isnt alone in its fight to maintain the FAV provision other specialty crops are concerned too, including the potato, fruit, and vegetable industries. Over a dozen state and national specialty crop groups commissioned the market research firm, Informa Economics, to analyze the effect of removing planting restrictions on program crop base.
Given the inelastic demand conditions that tend to characterize most specialty crop markets, even modest increases in supply can have proportionately much larger impacts on prices and total revenues, concluded authors of the Informa analysis, completed in February.
For all specialty crops, even small changes in supply given the small acreage already devoted to specialty crop production could have large market impacts. With over 220 million acres of land currently enrolled in the Direct and Counter-Cyclical program, if only 1% of this land shifted to specialty crops, it would translate into a more than 20% increase in specialty crop acreage.
The Informa analysis found that removal of the planting restrictions is expected to attract about 1.03 million acres into production of specialty crops. While this accounts for less than one half of 1 percent of the total program crop acreage base, it represents a 10% increase in total specialty crop acreage. The 15 states where the greatest expansion of acreage is expected alone account for about 88% of the new specialty crop acreage.
Informa concluded that the greatest potential for new specialty crop acreage is in California, reflecting the already large and diverse specialty crop industry that resides there. However, the states with the largest percentage increase in specialty crop area include Idaho and Colorado. Especially in Idaho, this represents almost entirely new potato acreage.
With the possible exception of Illinois, there is little specialty crop acreage expansion expected in most Corn Belt states, reflecting the competitive dominance of program crops in these areas and limited existing acreage and infrastructure for specialty crops.
Using conservative methods, Informa found that the estimated increase in supply would reduce the revenues of existing specialty crop producers by slightly over $3.1 billion per year, relative to levels with the planting restrictions remaining in place. This represents solely a decline in revenue to existing producers of specialty crops, and does not consider the increases in specialty crop revenues expected by those program crop producers expected to enter the industry or expand existing specialty crop production.
USDA analysis on dry beans
A USDA analysis projects that if planting restrictions in the U.S. farm program were eliminated, program participants would expand dry edible bean plantings by about 83,000 acres. Non-participants would reduce dry bean plantings by 56,000 acres, leaving a net increase of about 27,000 acres.
The price of dry edible beans would subsequently decline, reducing gross returns per acre, while prices and gross returns per acre would rise slightly for other crops. Dry beans are unique for two reasons, the authors of the USDA analysis wrote: 1) they have more area devoted to them than area for any other fruit and vegetables, and 2) many producers could easily expand production because they already have the experience and equipment needed to produce dry beans.
The USDA authors say several points emerge clearly from their analysis:
" Eliminating planting restrictions induces a shift in planting of dry edible beans. Dry bean acreage would expand for program participants and decline for non-participants.
" A net increase in dry bean acreage would push down the average return per acre. Plantings of other crops simultaneously would decline slightly, and prices would increase slightly.
" Program participants would not necessarily gain market revenue from the policy change. Price declines for dry beans would negate some of the potential gain from planting flexibility. The effect on non-participants would also be ambiguous, with losses in revenue from dry beans offset (in part) by gains in revenue from other crops.
The USDA Economic Research Report (No. ERR-30, 54 pp, Nov 2006) can be found online at www.ers.usda.gov/publications/err30.
In the event that the U.S. FAV would be eliminated, the dry bean industry (and likely other specialty crops) would seek some sort of offsetting direct economic compensation to dry bean producers with a proven history of production. But industry leaders hope it doesnt come to that.
Theres no sure thing when it comes to politics, says Beltz, but there seems to be a sense that we can maintain the fruit and vegetable provision.