Get documents about "Penn
Document Sample
Sparks Companies, Inc.
The Road to the 2002 Farm
Bill: Implications for Dairy
J. B. Penn
Presented to
Cornell University
Program on Dairy Markets & Policy
Orlando, Florida
November 27, 2000
Presentation Overview
I. Policy/Political Situation Perspective
II. Political/Economic Disconnect - Real or Not?
III. The Dairy Sector: Is It Different?
IV. Summary Observations
I. Policy/Political Situation - A Perspective
The Setting: Grain Production/Consumption
1900
1850
1800
1750
million tons
1700
1650
1600
1550
1500
1450
1400
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Production Consumption
• Consumption persistently outpaces production - 7 of 10 years
World Grain Stocks and
Stocks/Use
320 24
22
280
mil metric tons
S/U ratio (%)
20
240
18
200
16
160
14
120 12
1990 1991 1992 1993 1994 1995 1996
Stocks S/U ratio
Cents Per Bushel
100
150
200
250
300
350
400
450
500
550
1/2/90
5/22/90
10/10/90
3/1/91
7/22/91
12/9/91
5/1/92
9/21/92
2/9/93
6/30/93
11/17/93
4/11/94
8/30/94
1/19/95
6/9/95
10/27/95
3/19/96
Nearby Corn Futures
8/7/96
12/26/96
5/16/97
10/6/97
2/26/98
7/17/98
12/4/98
4/28/99
Supply Response - Market Performance - 1990s
Cents Per Bushel
200
300
400
500
600
700
800
1/2/90
5/23/90
10/12/90
3/6/91
7/26/91
12/16/91
5/7/92
9/28/92
2/18/93
7/12/93
11/30/93
4/22/94
9/14/94
2/3/95
6/27/95
11/15/95
Nearby Wheat Futures
4/9/96
8/28/96
1/20/97
6/11/97
10/30/97
Market Performance - 1990s
3/25/98
8/14/98
1/6/99
5/28/99
Cents Per Bushel
400
500
600
700
800
900
1000
1/2/90
5/24/90
10/16/90
3/11/91
8/1/91
12/23/91
5/19/92
10/9/92
3/4/93
7/27/93
12/16/93
5/12/94
10/4/94
2/27/95
7/20/95
12/11/95
5/3/96
Nearby Soybean Futures
9/25/96
2/18/97
7/11/97
Market Performance - 1990s
12/2/97
4/28/98
9/18/98
2/11/99
7/7/99
Cents Per Pound
100
110
120
130
40
50
60
70
80
90
1/2/90
5/18/90
10/5/90
2/27/91
7/16/91
11/29/91
4/20/92
9/3/92
1/22/93
6/10/93
10/26/93
3/16/94
8/3/94
12/20/94
5/9/95
9/26/95
Nearby Cotton Futures
2/14/96
7/2/96
11/18/96
4/10/97
Market Performance - 1990s
10/24/97
3/18/98
8/4/98
12/21/98
5/11/99
World Wheat Production Vs. Trend
625,000
600,000
575,000
'000 metric tons
550,000
525,000
500,000
475,000
450,000
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
Production
Production 1986-99 Trend
1986 to 1999 Trend
World Corn Production Vs. Trend
650,000
600,000
550,000
'000 metric tons
500,000
450,000
400,000
350,000
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
Production
Production 1986-99 Trend
1986 to 1999 Trend
World Soybean Production Vs. Trend
170,000
160,000
150,000
140,000
'000 metric tons
130,000
120,000
110,000
100,000
90,000
80,000
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
Production 1986 to 1999 Trend
Wheat: Production Deviation
From Trend
(million metric tons) Source (%)
1993-95 1996-98 Area Yield
World -67.4 32.9 82 18
USA -2.9 -0.6
ROW 64.5 33.5 91 9
Corn: Production Deviation
From Trend
(million metric tons) Source (%)
1993-95 1996-98 Area Yield
World -56.9 39.3 36 64
USA -42.5 19.9 39 61
ROW -14.4 19.3 37 63
Soybeans: Production Deviation
From Trend
(million metric tons) Source (%)
1993-95 1996-98 Area Yield
World -10.5 13.2 60 40
USA -8.5 7.1 107
ROW -2.0 6.1 19 81
The Key Markets - US Agricultural Exports
1992 1996 1999 2000
mil $
World 43,071 60,349 49,102 50,500
EU-15 7,491 9,003 6,960 5,900
North America 8,721 11,557 12,632 13,800
South America 1,344 2,567 3,618 2,850
Central America 586 1,005 1,209 1,250
FSU 2,243 1,745 816 1,400
Asia 17,454 27,784 20,447 19,900
E. Europe 317 417 190 200
ROW 4,915 6,271 3,230 5,200
Share of world total (%)
World 100.0 100.0 100.0 100.0
EU-15 17.4 14.9 14.2 11.7
North America 20.2 19.2 25.7 27.3
South America 3.1 4.3 7.4 5.6
Central America 1.4 1.7 2.5 2.5
FSU 5.2 2.9 1.7 2.8
Asia 40.5 46.0 41.6 39.4
E. Europe 0.7 0.7 0.4 0.4
ROW 11.4 10.4 6.6 10.3
World Grain Production/Consumption
1900
1800
million metric tons
1700
1600
1500
1400
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999f
Production Consumption
• Production exceeded consumption (96-98) - close in „99
• Stocks rebuilding
World Grain Stocks and Stocks/Use Ratio
400 25
350
20
300
250
S/U ratio (%)
15
million tons
200
10
150
100
5
50
0 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Stocks S/U ratio
Policy/Political Situation - A
Perspective
• Agriculture policy has become a partisan
political pawn
• Traces to 1998 elections - Democrats‟ efforts to
regain House (12 seat margin)
• Campaign continued in 1999, 2000
• Ad hoc subsidies
1998 $5.97 b ($200m to dairy)
1999 $9.3 b ($125m)
2000 $7.1 b
$2.5 b ($442 m)
Policy/Political Situation - A
Perspective
• US agriculture supply response the result of:
– Marketing loans (guaranteed prices)
– Ad hoc subsidies
– Farm structure today
II. Political/Economic Disconnect -
Real or Not?
• Perception abounds that agriculture sector is
in recession or depression
– Popular press
– Politicians
• Economic indicators show continued
expansion
– Acreage/output increases
– Land prices/rents move higher
bil. dollars
0
10
20
30
40
50
60
1990
1991
1992
1993
Farm Receipts
1994
1995
1996
Farm Income
1997
Government Payments
1998
1999
2000e
Balance Sheet Remains Solid
Ann. % change
1997 1998 1999 2000f 1998-99 1999-00
Assets
Real Estate 808.2 841.8 866.2 887.0 2.9 2.4
Non Real Estate 243.1 242.8 248.5 243.9 2.3 -1.9
Total Farm Assets 1,051.3 1,084.6 1,114.7 1,130.9 2.8 1.5
Liabilities
Real Estate 85.4 89.6 94.2 95.5 5.1 1.4
Non Real Estate 80.1 83.1 82.2 81.0 -1.1 -1.5
Total Farm Debt 165.5 172.7 176.4 176.5 2.1 0.1
Equity 885.8 911.9 938.3 954.4 2.9 1.7
Debt-Equity Ratio 18.7 18.9 18.8 18.5 -0.7 -1.6
Debt-Asset Ratio 15.7 15.9 15.8 15.6 -0.6 -1.4
Political/Economic Disconnect - Real
or Not?
• The explanation - highly significant to next
farm bill deliberations
• Much of the explanation lies in the structure
of today‟s farm sector
157,000
“Commercial” Farms
Sales over $250,000
8% of All Farms – 72% of Sales
Avg. Sales = $906,817
Avg. Net Worth = $1.4 Million
Non-Farm Income = 26%
189,417
“Transition” Farms
Sales $100,000 to $250,000
10% of All Farms – 15% of Sales
Avg. Sales = $159,137
Avg. Net Worth = $0.7 Million
Non-Farm Income = 57%
1.57 Million
“Non-Farm” Farms
Sales under $100,000
82% of All Farms – 13% of Sales
Avg. Sales = $15,800
Avg. Net Worth = $0.3 Million
Non-Farm Income = 99%
Source: 1997 Census of Agriculture and ERS, USDA
Commercial Farms
• Commercial farm segment (70%)
– Large/more market power - can negotiate price
– More technologically advanced - require more
highly technical/specialized services
– More likely to by-pass local distribution system
for products - if services available, or will provide
themselves
– Fragment coop membership base - unable to meet
of small number of large members - But, if not,
big members leave, jeopardizing coop
sustainability
Transition Farms
• Mid-size (transition) farms (14%)
– Needs different than commercial farms
– Likely under more stress
– Struggling to achieve size economies essential to
survival - or will be consolidated
Non-Farm Farms
• Non-farm farms (16%)
– Different economic base - not farm connected
– Different product requirements, uses
Commercial Farms
Commercial farms (vs. average vs. small)
• Greatly improved productivity during 1990s
– Unit costs Significantly lower
– Price differential Significantly higher
– Margins Much wider
Corn: Reported Cash Price vs. Price
Realized by Farmer
1996 1997 1998 1999 2000(f)
$/bu
Cash Price 2.71 2.43 1.94 1.90 1.75
Fair Act Payment 0.28 0.27 0.27 0.27 0.25
Supplemental 0.27 0.27 0.27
Marketing Loan 0.10 0.21 0.26
Total Realized Price 2.99 2.70 2.58 2.65 2.53
Aggressive Marketing* 0.30 0.30 0.30 0.30 0.30
Grand Total 3.29 3.00 2.88 2.95 2.83
* Typical price advantage realized by farmers using aggressive
marketing strategies.
Political/Economic Disconnect - Real
or Not?
• Calls into question “one size fits all” approach
• Makes “unintended consequences” more a
factor
• Yet:
– Little attention given to fundamental questions:
Programs for what? For whom?
• Rather:
– Discussion and proposals are on mechanics and
labels - how to transfer subsidies to farm sector -
what to call them
III. The Dairy Sector
• Important food product
• Enormous in size
– $20.3 billion sales 2000
– compared with $18.3 for corn
• National in scope
– Milk in every state -- even Alaska
• Rapid productivity growth
– milk/cow up 1.9% per year in 1990s
– among most rapid in agriculture
Dairy Policies Complex
• Government intervenes eight ways
1. Price supports for manufactured milk
2. Market orders with minimum fluid milk prices
3. Northeast Dairy Compact, a “super market order”
4. Import limits for cheese under the WTO
5. Export subsidies under the DEIP program
6. Checkoff program for market development/research
7. California, special state program
8. Ad hoc payments for dairy producers
The Dairy Sector
• Policies/economics of last two decades
– Rapidly stimulated growth of large dairies
• Led to sharp industry splits
– Traditional producers in Upper Midwest, Northeast
– New, large producers in California, West
– Constrained export market growth, in spite of subsidies
– Intervened heavily 1978-86 at huge cost
– Cut back effective support levels after 1986
– Shifted interventions away from direct purchases
– Modest trade policy progress in NAFTA, Uruguay Round
– Mapped dairy reforms in 1996 FAIR Act
Key Result: Industry Consolidation
• Entire value chain consolidating quickly
– Milk Producers
• 1994
– 39% of milk produced on farms with 200+ cows
– 149,000 dairy farms nationally
– Largest size category reported was 200+
• 1999
– 51% of milk produced on farms with 200+ cows
– 111,000 dairy farms nationally
– Largest size category reported was 2000+
• Average size of operation increased 29% from „94 - „99 to
82 cows/herd
• Demographically, the age distribution of dairy farmers is
drifting older - and regional differences
Regional Proportion of Milk Cows
Re giona l Proportion of M ilk C ow s
40%
35%
O th e r
30%
Up p e r M id we s t
25%
East
20%
W est
15%
10%
2000 f
1980
1990
82
84
86
88
92
94
96
98
Today: 1996 Reforms on Hold
• Consolidated market orders (33 to 11)
– But, Congress nullified the USDA minimum
price reforms it had mandated
– And, it extended life of manufactured milk
price supports
– And, it extended Northeast Dairy Compact
• Where do we go from here?
International Competition
Intense
• Canada - Supply controlled industry
– Continually pushing policies to export
• EU - Enormous interventions,
– Continued high internal supports
– Import barriers
– Large subsidized exports
• New Zealand
– World‟s most efficient producer
– Minimal government intervention
US Dairy Policies - Highly
Interventionist
• Huge impact on industry
– PSE
• OECD says policies provide 57% of revenue in 1999
• Only sugar greater intervention (68%)
• Average PSE for US is 24%
– CSE
• OECD estimates at - 48%
• -78% for sugar
• US average CSE is -2%
The Dairy Sector
• Little different from farm sector generally
• Wide disparity in size/cost/profitability
• Domestic programs - foreign market
competitiveness at odds
• Again - raises fundamental questions about
objective and beneficiaries
– Programs for what?
– For whom?
IV. Summary Observations
• Agriculture policy a political pawn - likely
will continue - no “natural opponents”
• Introducing analytical information much
more difficult
• Need more attention to basic questions
• Do we need a dairy policy?
– For what purpose?
– To serve whom?
Sparks Companies, Inc.
The Road to the 2002 Farm
Bill: Implications for Dairy
J. B. Penn
Presented to
Cornell University
Program on Dairy Markets & Policy
Orlando, Florida
November 27, 2000
Related docs
Other docs by niusheng11
