The wild world of agriculture economists

Source: By David Rogers, Politico   • Posted: Tuesday, October 7, 2014

It’s not quite “Have Gun, Will Travel.” But it’s a lot wilder than you might think in the small world of agriculture economists and the nation’s land-grant universities.

The ink was barely dry on the farm bill last winter when the fighting broke out between Texas A&M and the University of Illinois over a $3 million pot of money for the development of decision models to help producers make sense of the new commodity title.

And even as they lament the new “corporate” farmer, the loudest of the academic paladins enjoy their own corporate affiliations — not to mention earnings from the same federal crop insurance budget they so often lampoon.

It’s a tight enough world where good intentions can still lead to conflicts. And critics argue – especially during public debate — that it’s all the more important then to put all the cards on the table.

“Field of Schemes” was the headline-grabbing title of a 2012 paper whose authors included Barry Goodwin and Bruce Babcock, economists identified only by their respective universities: North Carolina State and Iowa State.

Left out was any reference to Goodwin’s work for Sumaria Systems Inc., a Massachusetts-based firm and contractor for the Risk Management Agency, which manages the crop insurance program. In Babcock’s case, state and federal records show that from 2000 to 2010, he had his own company, Iowa Agricultural Insurance Innovations LLC, which received hundreds of thousands of dollars from RMA for helping to devise new insurance plans for the dairy and livestock industries.

When queried about the lack of disclosure, Babcock snaps back: “Well, you could have asked me.”

“I have conflicts of interest because I get paid for developing products. I get paid for reviewing projects,” he adds candidly. “We’ve done a lot of work over the years developing the products that farmers use today.”

In the competition between Texas A&M and Illinois, Agriculture Secretary Tom Vilsack ended up splitting the baby — pretty much down the middle.

A&M’s consortium, which included the well-known Food and Agricultural Policy Research Institute, or FAPRI, at the University of Missouri, came away with about $1.35 million, far less than it had hoped.

Illinois got the remaining $1.65 million, of which more than $395,000 — almost a full quarter — went to Watts & Associates Inc., a private firm with ties to Montana State University and the National Corn Growers Association.

The Farm Service Agency, which oversaw the competition, says it was guided by review panels that couldn’t agree on a single winner. But the split decision had two immediate impacts.

First, it spread the wealth and broke A&M’s dominance after years of strong ties to Congress and a history of developing such models with USDA.

Second, it was a triumph for Vilsack’s former FSA administrator, Jonathan Coppess, who had recently joined Illinois’ faculty after serving as chief counsel to the Senate Agriculture Committee chairwoman, Debbie Stabenow (D-Mich.).

Coppess, a trained attorney who took the lead for Illinois, says his federal experience helped make the university’s package more competitive. He insists he called in no favors from his old bosses, Vilsack and Stabenow, and records show he was upfront with FSA about the role assigned to W&A.

“The law does not preclude university partners from subcontracting with other experts and organizations to deliver a quality product for farmers,” said an FSA spokesperson. But sparks flew after that decision.

The language of the farm bill specifically directs that the $3 million go to “support qualified universities or university based organizations.” W&A is neither.

At a time when research funds are in short supply, the fact that FSA allowed so much to go to one private company rankled. Independent observers say it would have been very difficult for Illinois to compete with A&M’s capacity without what W&A brought to the team.

W&A casts itself as a “solution-oriented think tank” specializing in the analysis of volatility and risk in agriculture markets. Prof. Myles Watts, a prominent economist at Montana State, is the brother of Tim Watts, W&A’s president, and serves as the chief actuary. Joseph Atwood, a second Montana State professor, is listed as W&A’s lead investigator. As the Illinois team took shape last spring, Montana State itself joined alongside W&A.

But W&A is a private entity with its own Washington lobbyist, Kenneth Ackerman, a former RMA administrator. Government records for the Federal Crop Insurance Corp. board show that W&A is one of the top RMA contractors and a big player in the obscure world of new crop insurance products developed at taxpayer expense.

In the 2008 farm bill, W&A and Ackerman won changes to require faster reimbursements by the government for these new insurance concepts. From popcorn and pumpkins to barley and oysters, the program has evolved into something of a cottage industry — dominated by a few companies and a source of outside income for university economists hired by RMA to perform peer reviews.

Again, it’s a small world requiring a rare expertise and inevitably can become a bit incestuous. A professor might work for W&A on one project, then have to judge it later on a second.

But W&A’s success has helped it build ties to the academic community and amass a wealth of farm-level detail about American agriculture. It was this data warehouse that drew Illinois’ interest. When coupled with W&A’s skills with information technology, it helped Coppess build a user-friendly system for farmers.

At the same time, W&A’s ties to the corn lobby — including an analysis of House and Senate options during the tense final farm bill deliberations last year — threw salt on the wound for A&M.

Indeed, the competition only added to the narrative that A&M paid a political price for the fact that its early work for Congress put it at odds with Senate proponents of a new revenue protection program — one backed by corn and some of the same faculty in the Illinois consortium.

All sides are now playing nice after the public release of the decision models last week by Vilsack.

“We’re pretty proud of what we have put together,” said Prof. Joe Outlaw, who helps to lead the Agricultural and Food Policy Center at Texas A&M. Together with FAPRI, this A&M team headed up a larger coalition of land-grant schools around the South, Midwest and California — a consortium calling itself the National Association of Agricultural Food Policy.

The Illinois-led consortium — 11 universities plus W&A — took on the title: National Coalition for Producer Education. While getting more money, it also assumed more responsibilities and seeks to be a one-stop shop for dairy, fruit and vegetable growers as well as major row crops like corn.

Both sides had approached the competition as a “winner takes all” proposition, requiring universities to place their bets on one team.

Michigan State, with its expertise in specialty crops and location in Stabenow’s home state, had added value and was courted by Illinois and Texas A&M alike.

Outlaw had had running personal discussions with Michigan State Prof. David Schweikhardt beginning early in the farm bill debate. But these were never quite finalized, and when the train left the station, Michigan State was on board with Illinois.

Part of this was Coppess, who brought his own ties as Stabenow’s counsel during the farm bill. Most important, perhaps, was J. Roy Black, a Michigan State professor with expertise on specialty crops and crop insurance — and someone who had both worked in the past with W&A and shared Montana roots and a friendship with Tim Watts.

Because of budget limitations, the dairy piece of the A&M-FAPRI model also dropped out. And here too, Illinois fell into a bit of luck because of farm bill-faculty connections.

John Newton, a former fellow with the Senate Agriculture panel and graduate student at Ohio State, had recently arrived at Illinois as a new assistant professor. This helped provide a link to a standing group of dairy economists at other universities, including Wisconsin, Minnesota and Cornell.

Coppess’ ambition now is that the new computer site can be combined with an existing web outreach program at Illinois known as farmdocDAILY. “We believe the finished product speaks for itself,” he said. “Our combined effort has produced a user-friendly, simple web application to help farmers with the decisions required by the farm bill.”

But behind this truce, the academic warfare that surrounded the farm bill debate was exceptional. Looking back, two big drivers stand out.

The first — and more publicized — was the increased role played by Washington groups like the American Enterprise Institute and the Environmental Working Group that found the outside funding to hire professors like Babcock and Goodwin to write a barrage of advocacy papers critical of farm programs.

The “Field of Schemes” paper was just one part of AEI’s “American Boondoggle” series on the farm bill, for example. Vincent Smith, a visiting scholar and economist from Montana State, took the lead in the campaign. And AEI confirms that it was financed in part from an earlier $2.5 million grant from a California estate, whose executor told POLITICO separately that he was hoping to promote more “informed debate” over agricultural policy.

Conservative groups like the Heritage Foundation, which had a second agenda of attacking food stamp spending in the same farm bill, built on this dissent. Together, these voices grew louder in Washington even as regional newspapers — long the backbone of the farm press — had closed their bureaus and ever more agriculture reporting moved into industry newsletters outside the public domain.

The end result was often more colorful than informative. There was a tendency to map out worst-case scenarios that captured headlines but also added to the confusion.

Babcock was the most adept, a skilled debater with an eye for the limelight and a good punch line. He says he regrets one remark: that farmers were “laughing all the way to the bank” to collect their crop insurance payments during the drought of 2012. But he remains unapologetic for going on national television that summer with Stephen Colbert. The comedian greeted him as “Dr. Babcock,” and Babcock cheerfully endorsed Colbert’s quip that crop insurance had become “Obamacare” for the parched corn.

In an interview, Babcock argues that he has truly tried to be open about his financial interests — if only to show his credentials as an entrepreneur and expert in the crop insurance world.

He points to a recent appearance before crop insurance agents in Minnesota, where he devoted an early slide to disclosure. Babcock also forwards a 2007 academic paper that includes a footnote citing his role in developing crop insurance.

But when it comes to a more general audience — in the heat of the farm bill debate — a review of Babcock’s advocacy papers doesn’t show the same level of disclosure.

For example a 2013 paper he wrote for EWG is highly critical of the profits earned by farmers from “Cadillac” revenue insurance plans. But there’s nothing to match what he shared with professional audiences about his background in the same arena.

Babcock’s response is that any conflict means less in these cases since he is arguing against his own financial interest.

“I’ve been primarily known for my criticism of the crop insurance program: the subsidies, not the program, the subsidies,” Babcock said. “If you look at my crass financial interests, my interests are boosted by the subsidies because the demand for the products that I designed goes up with the subsidies.”

Goodwin, who ducked an initial request for comment, was reluctant to discuss his outside corporate work, saying he didn’t see the relevance to his work for AEI.

“Ninety-five percent of the people, who read [‘Field of Schemes’] know what I do,” Goodwin insisted. “It’s a small world. I’ve talked to Bruce. Whatever I do is objective. And like Bruce told you, in this case, it might hurt our self-interests, like getting research funding from USDA.”

The second, bigger and less visible reason for the revved-up academic sparring goes to divisions inside agriculture itself.

From the outset, a central tenet in the farm bill debate was that the old system of direct cash payments — subsidies that went out to landowners even when no crop was planted — had to end.

This change brought to the surface divisions dating back to the 1930s and aggravated by the ethanol-driven boom in Midwest corn and soybean prices that had left Southern crops further and further behind.

The result was a battle — both of regions and ideas — with different academic camps lining up on opposite sides.

Even the training of the two chief economists for the agriculture committees in Congress captured some of this. Bart Fischer in the House studied at Oklahoma State and later Texas A&M. Joe Shultz for the Senate is a product of Ohio State and Cornell, both part of the Illinois coalition.

One school of thought, embraced by the South, argued that enough farm data has been collected so it is possible to construct a rational system of price supports that could cover a percentage of a farmer’s production costs without distorting markets.

After all the controversy over direct payments going to non-farmers, the House Agriculture panel believed that the most honest approach was to subsidize only those crops which had been actually planted — so long as the total acres were capped at what a farmer’s historical base had been.

This did not sit well with Midwest corn and bean interests, which had greatly expanded beyond their base and were distrustful of the government setting any prices for fear of market distortions and trade complaints.

Instead, this camp, which found champions in the Senate, advocated not a price but a revenue approach that would supplement crop insurance and be keyed to a rolling five-year average of the commodity markets.

The seeds had been planted in the so-called ACRE program in the 2008 farm bill — an approach most often identified with ag economists at Ohio State and Illinois. Texas A&M and FAPRI, under contract to provide analysis to the House and Senate Agriculture leadership, found themselves sometimes caught in the middle. And fairly or not, Outlaw was pegged by the Senate as leaning to the House.

Testifying in the House, Outlaw had presented numbers showing that the Senate initial revenue protection bill in 2012 would “nearly guarantee a profit” for corn, wheat and soybeans but fail to even cover production costs for rice. “Each commodity ought to have the opportunity to stay in business if there is a loss,” Outlaw said. “And the way the Senate plan is crafted right now, I can’t say that they can.”

At the same time, a FAPRI analysis showed that some of the reference prices set for Southern crops like peanuts in the House bill were so high that the subsidies because inefficient. Increased production would drive down market prices under the FAPRI model, forcing the government to pay still more to bring producers back up to the target level.

Ultimately, the House-Senate divisions over the commodity title consumed so much energy that Congress missed the chance to make even a modest across-the-board cut in the costly premium subsidies attached to crop insurance.

But it’s here that the history of the so-called 508 (h) program for new crop insurance products makes for an interesting footnote to the whole intersection of agriculture economists and the farm bill.

Begun in 2000, the concept had been promoted by Republicans who were frustrated by the pace with which RMA was expanding crop insurance and wanted to give private companies more room to run. RMA was stripped of its authority to do such research, and instead that task was left to academics and private firms like W&A to come up with new approaches sought by trade associations.

In truth, the biggest row crops were already protected, and the challenge was to invent new ways to extend this coverage to smaller crops that are still part of the fabric of the nation’s food supply.

“In Washington, we don’t talk about cottonseed, we talk about cotton,” said Jay Truitt, a lobbyist representing W&A. “Producers outside Washington feel forgotten forever, and the government is still behind the marketplace.”

Yet that marketplace is inevitably small. The premiums earned are a fraction of the business RMA does elsewhere, and critics question the public cost.

At a meeting last month, the FCIC board approved reimbursements of over $1.33 million for such plans for fiscal 2014. W&A’s own estimates show it has received about $2.3 million itself since 2008 for 10 submissions that run from peppers to malt barley and specialty corn.

Other big corporate players include Texas-based AgForce Inc. and AgriLogic Consulting LLC, as well as Crop Insurance Systems Inc., led by Robert Cerda, a veteran of RMA.

Now the pendulum may be swinging again.

In the new farm bill, Stabenow restored RMA’s authority to get back into the game itself — to begin research and development of policies to help “underserved commodities” W&A opposed.