I want to thank you, Mr. Chairman, for holding this hearing on this important topic.  Now, more than a year after the 1996 Farm Bill was signed into law, is a very good time to review what the new policy environment has meant for American farmers.  In particular, we hope that today’s witnesses will help us to examine the implications of price volatility for farmers from two perspectives:  has the new set of policies significantly increased farmers’ exposure to price shifts in the market, and has price volatility become more or less prevalent in today’s increasingly global marketplace.

The 1996 Farm Bill has many good features, including planting flexibility, and seems to perform reasonably well in markets with strong prices. The record farm income in 1996 was boosted by $5.2 billion in AMTA payments, more than $4.5 billion higher than payments would have been under previous legislation. However, it has not yet been tested in an environment with low prices, and it is not clear that farmers have adequate tools to respond to such a situation. For instance, if corn prices were to drop to $2.00/bushel, farmers would experience a per bushel revenue decline of nearly 30 percent, without any added payments.

In the past, U.S. farm policy represented an implicit tradeoff between producers and consumers/taxpayers.  Producers would maintain excess capacity for agriculture that would assure a reliable and low-cost food supply for domestic consumers, and producers would be compensated by the provision of a set of programs designed to cushion against fluctuations in prices and farm income.  If that relationship has now been weakened, then the other side of the equation, that of a secure and low-priced food supply, may come under some pressure as well.

If the potential for price volatility is realized, then American farmers are not the only ones who would be affected.  The American consumer has benefited considerably from past policies, and would be averse to seeing the 11 percent share of disposable income they currently spend on food increase as a result of greater price volatility.  The costs of this new policy, as yet undetermined, may spread to a greater share of the American people than we first imagined.