Michael E. Salassi is an Associate Professor in the Department of Agricultural Economics and Agribusiness, Louisiana Agricultural Experiment Station, L.S.U. Agricultural Center, Baton Rouge, LA. Joseph A. Musick is Resident Director of the Rice Research Station, Louisiana Agricultural Experiment Station, L.S.U. Agricultural Center, Crowley, LA.
The debate on the 1996 farm bill represented a major rethinking of the role and scope of agricultural programs in the United States, including rice. Initial farm program proposals in the early stages of the debate focused on minor adjustments to the expiring program, the 1990 Farm Bill, which continued the market-oriented approach to farm policy contained in the 1985 Bill. These initial proposals sought to reduce federal spending on agricultural commodity programs, while at the same time keeping in place the general structure of the price support system which had existed over the preceding years. Downward adjustments in income support levels (primarily target prices) and increases in unpaid acreage were the primary areas of focus. As the debate continued into the fall of 1995, the discussion moved away from minor adjustments to the previous type of program, with minimum planting requirements and support levels tied to market prices, and centered around substantially reducing the role of the federal government in agricultural income support altogether. Congress wrote a farm bill which significantly reduced commodity spending, while at the same time addressed producer concerns regarding planting flexibility.
This paper addresses the probable impacts and implications of the 1996 Farm Bill on rice production in the southern United States. The first section of the paper identifies the location of rice production in the southern states, the region's share of U.S. acreage and production, and its position in the world market. The next section presents the provisions of the farm bill proposals as they relate to rice and the final section discusses the impacts of such a program on rice production in the southern states and what implications might be expected for producers and agribusinesses.
Rice Production in the Southern United States. Rice production in the United States is concentrated in six states, five of which are located in the southern part of the country (Table 1). Arkansas is the major rice-producing state in the U.S., annually harvesting more than one million acres of rice. In 1995, rice production in Arkansas accounted for 43 percent of total U.S. rice acreage and 41 percent of total U.S. rice production (USDA, 1995). Other southern states producing rice include Louisiana, Texas, Mississippi, and Missouri. Together, these five southern states harvested a total of 2,663,000 acres of rice, representing just over 85 percent of total U.S. harvested rice acreage, and accounting for approximately 79 percent of total U.S. rice production. Virtually all of the production of long-grain rice, the primary type of rice used for direct, whole-kernel, table consumption, is located in the southern production region. Southern states also produce approximately 40 percent of the medium-grain rice and a small fraction of the short-grain rice which is used primarily in processed foods and brewing.
Despite its small area and value relative to other field crops, rice production in the southern U.S. plays a major role in those states in which it is grown and also in the international marketplace. The United States depends on exports for over 40 percent of the total annual disappearance of rice supplies. Over the last several years, the United States has been the world's second largest rice exporter, supplying almost 20 percent of the world's rice exports over the 1989-93 period (Schnepf and Just). The United States competes primarily with Thailand and Vietnam for high-quality long-grain markets. Unlike most other rice exporting countries, the United States has a rice industry that services a large, high-valued domestic market. This generally tends to bid the price of U.S. rice well above prices of foreign rice, forcing some rice importing countries to view the United States as a residual supplier.
1996 Farm Bill Provisions for Rice. In the fall of 1995, the House and Senate Agriculture Committees each crafted new farm legislation which embodied their view of the future role of government involvement in agriculture. The House put forward the "Freedom to Farm" bill which represented a major change in farm programs compared with previous legislation. The Freedom to Farm bill proposed to pay producers of target price commodities a fixed payment per unit, which would decline over a seven-year period. Producers would have no minimum planting requirements and would be free to plant any crop on their base acreage. Payments to producers under this bill, which would not be tied to market prices, were intended to represent support payments during a transition period to a free market situation. At the end of the seven-year period, government price support activities would end and producers would be totally dependent on market prices as a source of farm income. The bill from the Senate basically represented a continuation of the current program. The target price system was maintained with deficiency payments tied to market prices. Major changes in the Senate farm bill concerning rice were an increase in unpaid flex acres and reductions in maximum deficiency payment rates.
The compromise farm bill, the Agricultural Reconciliation Act of 1995, passed by the Agriculture Conference Committee, included provisions from both of the proposed House and Senate farm bills. Passage of this bill, however, which was included together with the other federal appropriations bills, was vetoed by the President. In order to speed passage of the farm bill in time to give producers information about what farm programs will be in effect for 1996 to aid in making planting decisions, the compromise farm bill in the total federal budget appropriations bill was introduced into Congress as a separate free-standing bill under the title of The Agricultural Market Transition Program. Both the House and the Senate have passed essentially the same versions of this bill as they relate to commodity programs. The Senate added some funding to the rice program and also included additional titles for farm credit, nutrition programs, and research which were not in the House version. What the Conference Committee adopted included the broader scope of the Senate Bill. A summary of the major provisions of the compromise bill for rice enacted are listed in Table 2.
The new rice program would eliminate the target price/deficiency payment price support system which has been in effect for many years. Eligible producers would enter into a seven-year, production flexibility contract for the 1996-2002 period. Producers would receive guaranteed, direct, fixed payments on 85 percent of eligible base acreage. These payments would generally decline over the seven-year period and would not be tied to market prices. Total annual commodity spending would be set in advance and would be divided up between commodities based partly on previous payment history. The share of total commodity spending going to rice is estimated at 8.47 percent under this bill, compared to 12 to 13 percent which was paid out to rice producers over the past several years.
Transition payments for rice over the 1996 to 2002 period in the bill are projected at $2.75, $2.71, $2.91, $2.81, $2.58, $2.09, and $2.03 per hundredweight over the seven-year period. Rice payment rates in the original Conference Committee vetoed bill were $1.52, $2.66, $2.86, $2.77, $2.53, $2.04, and $1.98 per hundredweight. This compares with a maximum deficiency payment rate of $4.21 per hundredweight under the 1985 and 1990 farm bills.
The transition payments would be based on established program yields and would be paid on 85 percent of eligible base acreage. Nonrecourse loans for commodities were retained from the previous farm program. Maximum loan rates over the life of the bill were established at 1995 levels ($6.50/cwt for rice). Marketing loan provisions for rice were extended from previous legislation with repayment at world prices or 70 percent of loan, if world market prices are below the loan rate. Producers would be free to plant any program crop, oilseed crop, or industrial or experimental crop on their paid base acreage and could plant in excess of their base. Planting of fruits and vegetables would be prohibited on payment acres. Haying and grazing was permitted as a flex crop. All acreage reduction (set-aside) programs would be eliminated. Current payment limitations would be reduced from $50,000 to $40,000 per entity, although the three-entity provisions of the current farm program were retained. The bill extends provisions limiting marketing loan gains and loan deficiency payments to $75,000 per person per year.
Impacts and Implications. The 1996 Farm Bill represents a reduction in the level of price support for rice planted on paid program acreage. With production costs currently ranging from $9.50 to over $11.00 per hundredweight across the southern rice production region, some reduction in rice acreage will likely occur, in the short term, as marginal land is taken out of rice production and shifted to more profitable uses. This planted acreage reduction could be significant in some areas of the southern rice production region. Alternative uses of rice land will vary across the region with the Mississippi River Delta area having the greatest flexibility. Rice farms in this region could shift land rather easily into production of cotton, corn, or soybeans, since many rice farms are already producing these crops. Rice farms in southwest Louisiana and Texas, areas with the highest rice production costs per unit of output, are rather limited in their production alternatives. Soybeans and cattle are the primary production alternatives in these areas.
One of the major differences in this farm bill, compared to previous legislation, is the decoupled payment provision. Under this provision, rice producers would be provided direct payments on 85 percent of their rice base acreage and these payments would be based on their established rice program yields. Rice producers would not have to plant their rice base acreage in rice in order to receive these payments. This provision allows rice producers to increase payments per planted acre of rice, in periods of low market prices, by reducing the percent of base planted in rice. This could reduce planted rice acreage in some areas of the southern production region, particularly in areas with high production costs or low program yields.
Over the long term, under reduced price supports for rice, acreage planted to rice in the southern region could decline further without an increase in the average level of domestic rough rice market prices and/or an increase in the average yield per harvested acre. Rough rice prices across the five rice-producing states in the South have averaged in the $6.00 to $8.00 per hundredweight range over the past 15 years (Setia, et al). In order to cover total production costs from the market alone, rough rice prices would have to average in the $10.00 to $11.00 per hundredweight range. With production costs per acre continuing to rise, costs per unit of output have also risen as rice yields in the southern states have remained relatively stable over the past ten years. The introduction and widespread adoption of higher yielding, semi-dwarf varieties of rice in the early 1980's increased average yield levels substantially. However, over the past ten years, state-level average rice yields have changed little, ranging from 46 cwt. per acre in Louisiana to 58 cwt. per acre in Texas. Rice producers in the southern region will have to decrease production costs per unit of output in order to remain competitive. This means reducing production costs per acre and increasing yields.
With the reductions in federal supports for rice contained in the 1996 Farm Bill and modest rises in market prices, some reduction in rice acreage could occur over the next several years. Arkansas, having relatively lower production costs compared with other rice-producing states, will probably remain the major producer of rice in the United States. However, because significant areas of Arkansas have substantial flex opportunities to corn and soybeans, their acreage can be expected to decline. Land planted to rice in the Mississippi River delta areas of Arkansas, Louisiana, and Mississippi could face increased competition from cotton and soybeans if market prices for these commodities remain strong. Unless rice farms in southwest Louisiana and Texas can reduce their production costs per unit significantly, through higher yields or alternative production practices, some acreage in these areas could be taken out of rice production, despite limited production alternatives.
This new farm bill could have an impact on rental arrangements between tenants and landlords, particularly for share rent situations. Typical share rental arrangements which have existed for many years could change due to the decoupled payment structure as well as the reduced level of price support. There could be less cash renting because of the requirement that the tenant must receive the transition payment in the cash rent situation. As a result, tenants could more easily hit the payment limit than under a crop share arrangement.
The 1996 Farm Bill, which gives producers greater planting flexibility while at the same time lowering commodity support levels, could have a significant impact on the relationship between rice producers and rice mills in terms of price negotiation. Under previous farm legislation, producers had to plant rice to be eligible for price support payments. Sales of rice by producers to mills, in some areas, were negotiated after harvest, and the relatively large supplies of rice available tended to hold down prices somewhat. Under the new farm bill, rice producers receive decoupled payments with no minimum planting requirement. This may force rice mills to offer somewhat higher prices to producers, early in the season, in order to insure adequate supplies of rough rice to meet their market requirements. Use of the futures market could also increase as rice producers seek to minimize their price risk and stabilize farm income.
Schnepf, Randall D., and Bryan Just, Rice: Background for 1995 Farm Legislation, U.S.
Department of Agriculture, Economic Research Service, Agricultural Economic Report Number 713, April, 1995.
Setia, Parveen, Nathan Childs, Eric Wailes, and Janet Livezey, The U.S. Rice Industry, U.S. Department of Agriculture, Economic Research Service, Agricultural Economic Report Number 700, September, 1994.
U.S. Department of Agriculture, Rice Situation and Outlook Yearbook, Economic Research Service, RCS-1995, November, 1995.