Rice production and farm policy The United States government, operating through the US Department of Agriculture (USDA) and its agencies, promotes several farm policy objectives, including price support and income protection. The roots of the enabling legislation date back to the Agricultural Adjustment Act of 1933, which continues in essence as the Farm Bill. The Bill's objectives and methods for achieving those objectives change with each new version of the Farm Bill, which is updated every five years. The program consists of loans, direct payments, and government-assisted sales. Because the farm Bill has been re-enacted every five years, it is subject to debate over its objectives, mechanisms, and cost. More complete information on this complex law can be obtained from the Farm Services Agency (FSA) a USDA agency that manages the program. The 1996 Farm Bill made several important changes that ultimately will reduce subsidy income and promote market based farm decisions. The major change was to eliminate the direct subsidy payment and replace it with a "decoupled contract payment" which is predetermined and will expire at the end of seven years, in 2002 (Table 2). These payments go directly to the landowner whether or not the land is farmed. Farmers are free to plant rice, nonprogram crops, excepting fruits and vegetables, or no crop at all, and still collect the contract payment up to specified limits. The impact of this change is to reduce government sources of income which are expected to be replaced from the marketplace and to decouple decisions about how much acreage and which crop to plant from program payments. The extent to which the market will replace lost government income will be important in determining the long-term economic prospects for the California rice industry.
The program retains the 'nonrecourse loan' provisions, which enables a farmer to borrow money from the government, using his crop as collateral. When and if a higher price market is found for the rice, the crop can be redeemed by paying back the loan, without interest. The rice loan rate is fixed at $6.50 per hundredweight (cwt = 100 lb. of rice) for the entire seven years of the program, but includes price adjustments for grain type and quality so that an average loan rate for California medium grain rice is approximately $6.10/cwt. The repayment rate is equal to the loan rate or the world market price, whichever is lower. This has the effect of preventing the government from accumulating large stocks of rice because it enables the rice to move into world markets at prices below the loan rate.
The farm program affects farm structure (acreage, number of farmers, farm size), land values, crops grown, crop prices, farm income, and profitability. A large portion of business management in rice is devoted to working with the farm program to maximize the grower's benefits under the law. With so much importance invested in the program, it is vital that rice farmers and landowners fully understand its requirements and benefits and the annual changes in farm policy.
Costs and profitabilityCurrently, all costs for producing rice in California are estimated at about $800/acre, which requires an 8,500 lb/acre yield or higher for producers to break even on expenses. Land rents are estimated at about $180-250/acre, and have not yet responded to changes in the farm program. The price of competing crops (grain, safflower) is down which has the effect of bidding up rice rents because it creates demand for rice land. Rice yields per acre fell in 1995 and 1996, leaving many growers concerned that yields will fall below the economic break-even point. Possible factors that may contribute to a permanent yield decline in California include:
The 1996 farm program immediately reduced the rice subsidy and will eventually eliminate it entirely. Price is projected to rise on a normal year to about $9-10/cwt of rough rice, or about $1.00 to $2.00/cwt above the loan price. This creates a current income problem and a more severe long-term concern: Will the market make up the difference?
Factors that favor the long-term profitability of California rice are an expected increase in sales of California rice to Northeast Asia, (as a result of GATT) and a projected increase in domestic consumption (Figure 6). Finally, the farm bill is also expected to impact Southern rice production, thereby increasing California's market share.
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