By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.
Congresswoman Nancy Pelosi gave up her seat on the Appropriations Committee when she became Speaker of the House, but she took the panel’s legendary deal-making culture with her.
An extraordinary late-night bout of concessions to key lawmakers and groups, necessitated by an unexpected en masse defection of Republicans, rescued the farm bill.
But there could be a price to pay down the line.
Supporters of major reform of the agricultural subsidy system are the least of Pelosi’s worries.
Rep. Ron Kind’s reform proposal managed to garner only 117 votes after the bill had been loaded with funds for black farmers, the fruit and vegetable industry, food stamps, Chesapeake Bay restoration and conservation programs.
Pelosi, a closet reformer herself, voted against his amendment, but heaped praise on him after the decisive defeat. She said Kind had exercised “exceptional leadership”, and deserved credit for the fact that the bill “looks quite different than it would have without his brilliant advocacy.”
That was a subtle pitch to the reform faction to stick with the party on the final vote. Most (though not Kind) did.
The more serious threat to the handiwork of Pelosi and farm state lawmakers lies elsewhere.
For example, some on Chairman John Dingell’s Energy and Commerce Committee felt blindsided by air quality provisions in the final bill. Staffers pored through unfamiliar tomes on agricultural law after they learned late in the game that the measure contained a new provision allowing California farmers to use funds in the Environmental Quality Incentive Program to meet state and local clean air rules. EQIP has been mainly a clean water program. Air quality is firmly under the jurisdiction of Dingell, who didn’t earn his nickname “Big John” by demurring to turf raids by other committees.
The big losers in closed-door deal making that went on in Pelosi’s office until the wee hours last Thursday morning were the oil and gas industry and the crop insurance industry. Their lobbyists were caught short, but there is plenty of time for them to regroup as the bill goes to the Senate and then to a final House-Senate conference.
Both industries were hit with billions of dollars in new fees and slashed subsidies to pay for major concessions to urban liberals and the Black Caucus on nutrition programs, and settlement of discrimination claims filed by black farmers against USDA.
In the small hours, Pelosi, Congresswoman Rose DeLauro (chairwoman of the agriculture panel on House Appropriations) and Rep. James McGovern hammered out an agreement to provide $840 million for the McGovern-Dole law, which funds food for school children abroad. House Agriculture Committee Chairman Collin Peterson was not in the room, but on the phone.
To offset the costs, Pelosi agreed to further reduce the federal share of administrative costs of private crop insurance companies from 22.5 percent to 21.6 percent –saving nearly $1 billion over a decade.
No one was more surprised in the morning than Mike McLeod, a former Senate Agriculture Committee hand who now is chief counsel of the American Association of Crop Insurers. McLeod thought he had a deal to cut the payments less severely.
“The industry reluctantly supported that but we cannot support this,” said McLeod.
The industry has a bad reputation on Capitol Hill right now because of runaway profits over the last several years even as federal payments and subsidies to the industry have risen. (One amendment, which was defeated, would have cut federal payments far deeper.) But there are thousands of crop insurance agents all over the country; they are well organized; many are themselves farmers, and they will make themselves heard in coming weeks.
Pelosi had real problems, to be sure. By closing a loophole (Republicans called it a tax increase) on taxation of U.S. subsidiaries of foreign companies, Democrat leaders saved $7.5 billion over 10 years. But that left them well short of the $10.8 billion needed to update the food stamp program.
By the end of Thursday night, new fees on the oil and gas industry had been set, freeing up $6.125 billion over 10 years.
Democratic leaders agreed on new “conservation fees” on deepwater oil and gas wells in the Gulf of Mexico, and repealed royalty relief for ultra deep-water wells on the Outer Continental Shelf and Alaska. The Interior Secretary would be authorized to modiy the terms of leases in Alaska.
The final budget rejiggering got so complicated that as things now stand, the Secretary of Interior will have jurisdiction over federal payments to crop insurance companies between 2012 and 2017.
How much of this budgetary maneuvering will stand in the Senate is anybody’s guess. The top Democrat and Republican on the Senate Finance Committee, Max Baucus and Charles Grassley, are strong advocates of farm programs, but it isn’t clear whether they (and other committees of jurisdiction) will spring for the offsets engineered by Pelosi.
Meanwhile, the business community is unhappy with the action taken against U.S. subsidiaries, arguing that it would deter foreign investment and cost jobs. And the final product does nothing to move forward the Doha Round of global trade negotiations in which business has a stake.
The Business Roundtable and the U.S. Chamber of Commerce won’t be convinced to support the farm bill by improvements in the food stamp program or more money to protect fragile grasslands. They want to see cotton subsidies cut, in order to get Doha moving again.
Dow Jones writer Tom Sellen reported on Friday that, “The National Cotton Council [NCC] said Friday that if press reports are true that the World Trade Organization has largely ruled against the U.S. in a claim by Brazil that Washington has failed to eliminate illegal subsidies to cotton growers, the finding would be ‘contrary to the facts in the world cotton market’ and ‘unsupportable.’” (Click here to view the entire NCC release).
Mr. Sellen added that, “The U.S. has already taken actions to scrap subsidies by eliminating the government’s Step 2 program, which has had a significant impact on U.S. cotton and cotton producers, the NCC said in a press release.
“As a result, U.S. cotton planted acreage is down 28% in 2007, U.S. exports have declined significantly and production is predicted to be only around 17 million bales, the lowest since 2002.
“‘It cannot be credibly argued that any payments under domestic support programs are causing any country serious prejudice in 2007 – the first year of their operation without the Step 2 program,’ the NCC said.”
Carolyn Lochhead, writing in Saturday’s San Francisco Chronicle, reported that, “The five-year, $286 billion farm bill that passed the House on Friday angered Bay Area food and environmental advocates who hoped to make the farm bill into a food bill, but they now turn their aim to the Senate to try to shift billions of dollars in crop subsidies to conservation, organics and local farm markets.”
The article added that, “Back home, progressives lashed out at the speaker, saying her reforms would lavish $1 billion on 13,000 California rice growers over the next three years — 10 times more than the $100 million allocated for conservation in the state.”
As attention turns to the Senate, U.S. Senator Dick Durbin of Illinois and others will play a pivotal role (FarmPolicy Photo).
Later, Ms. Lochhead explained that, “At a time of near record prices, reformers argued that lowering crop payments to wealthy landowners and agribusinesses would curb these distortions and free up money for conservation and food programs that would benefit more farmers and improve the health of Americans.
“They are turning their effort to the Senate, where the Agriculture Committee, as in the House, is dominated by those who support the status quo that benefits subsidized crops. But its chairman, Iowa Democrat Tom Harkin, is friendlier to conservation and nutrition programs than his House counterpart, Democratic Rep. Collin Peterson of Minnesota, and supports tougher payment limits.
Dan Morgan, writing in today’s Washington Post, reported that, “The House yesterday passed a far-reaching new farm bill that preserves the existing system of subsidies for commercial farmers and adds billions of dollars for conservation, nutrition and new agricultural sectors.
“Passage of the 741-page bill by a vote of 231 to 191, after partisan battling unusual for farm legislation, was a major achievement for the new Democratic leadership.
“With most Republicans opposing the five-year bill over a tax issue, House Speaker Nancy Pelosi (D-Calif.) hammered out a compromise that held together a shaky majority of Democratic farm-state lawmakers committed to the entrenched farm subsidy system, together with urban liberals and reformers seeking sweeping changes.”
After detailing some of the specifics of the legislation, Mr. Morgan noted that, “Nonetheless, major hurdles remain before the massive legislation becomes law.”
The Post article stated that, “Rep. Robert W. Goodlatte (Va.), the ranking Republican on the House Agriculture Committee, accused Democrats of ‘poisoning the well’ by adding the tax provision to what had been a bipartisan farm bill. Business lobbies, including the National Association of Manufacturers, warned that the action could discourage foreign investment and cost jobs.
“Democrats said the provision merely closes a loophole that allows a limited number of U.S. subsidiaries of foreign companies to avoid taxes. Aides said it is aimed at companies headquartered in tax havens such as Bermuda, with which the United States has no tax treaty. Subsidiaries avoid a tax bite by funneling earnings through European countries that have reciprocal tax-reduction arrangements with the United States.”
Recall that yesterday’s FarmPolicy update indicated that, “Farm-state Republicans had been lining up with Democrats to defend the bipartisan bill but changed course when notified that a proposed increase in nutrition programs would be funded partly by tightening the rules on U.S.-based foreign companies that avoid U.S. taxes by using offshore havens” (Dan Morgan. “On Eve of Vote, Farm Bill Draws Threat of a Veto.” The Washington Post. 7.26).
Likewise, DTN Political Correspondent Jerry Hagstrom and DTN Staff Reporter Chris Clayton DTN noted on Wednesday (link requires subscription) that, “The Bush administration threatened Wednesday to veto the 2007 farm bill, in part, over Democrats’ plans to pay for a $4 billion increase in the food-stamp program over five years through a tax measure Democrats said was closing a loophole, but Republicans argued was a tax increase.”
Since September 2006, the market price of corn and soybeans has climbed significantly, and many agricultural observers point to the increased demand for renewable energy as a leading cause of the upward trend in prices.
Although a welcome development for some producers, recall that Congressional Budget Office projections of current programs establish the amount of money available to lawmakers for crafting agricultural policy. As projected price-triggered budgetary outlays decrease, and Congress functions under pay-as-you-go spending rules, options for adding new spending for the 2007 Farm Bill has been a persistent issue throughout this year’s farm policy debate.
“Representative Ron Kind spoke about farm policy on Wednesday. With him were representatives of public-interest groups and religious groups” (Photo and caption from The New York Times Online).
Back in February, Des Moines Register writer Jerry Perkins noted that, “High commodity prices will give authors of the next farm bill their stiffest challenge, the chairman of the House Agriculture Committee said Wednesday at the National Ethanol Conference.
“U.S. Rep. Collin Peterson, D-Minn., told the 2,000 attendees at the ethanol conference that projected spending in the 2007 farm bill would be about 45 percent less because of Congressional Budget Office projections for high corn, soybean and other crop prices.
“Those projections will guide how much money will be available for the next five-year farm bill.”
A news release issued yesterday by the House Ag Committee stated that, “Today, House Agriculture Committee Chairman Collin Peterson, along with Agriculture Committee Ranking Member Bob Goodlatte, members of the Committee, other members of Congress, and farmers and ranchers from around the country, demonstrated broad-based support for the 2007 Farm Bill as it heads to the House floor.”
Carolyn Lochhead, writing in Saturday’s San Francisco Chronicle, reported that, “House Speaker Nancy Pelosi signed off Friday on a five-year farm bill that would keep multibillion-dollar subsidies flowing to cotton, corn and a handful of other crops, deeply disappointing Bay Area food and environmental activists who had hoped that Congress might shift federal farm policy this year to combat obesity, air and water pollution and industrial farming.
“Pelosi, a San Francisco Democrat, hailed as reform legislation that would grant subsidies to farmers earning up to $1 million — five times more than the cap sought by the Bush administration — while increasing actual payments to farmers. The bill comes during the most prosperous era American agriculture has seen in decades as crop prices and farm income approach or set record highs.”
By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.
Near 10 o’clock Thursday night, members of the House Agriculture Committee rose and gave themselves a round of applause. Empty water bottles and bags of Virginia peanuts littered desks. Home-bound planes had long since departed. But they had a farm bill.
That result had not been a certainty 48 hours earlier. Dozens of issues were unsettled, and there was a larger question: Could a parochial group of farm-bloc lawmakers write a bill with enough of a reform imprint to satisfy the Democratic leadership?
The sausage-making progressed slowly on the third floor of the Longworth building. Iowa Democrat Boswell had an amendment to preserve historic barns; Texas Republican Michael Conaway wanted to include goat meat in country-of-origin labeling rules. “They’re sensitive animals and don’t like to be left out,” he joked.
Behind closed doors off to the side, deals were hammered out on payment limits, milk forward contracting and the labeling of hamburger meat made from foreign-born cows. Mingling almost anonymously in the throng outside was a boot-clad Charlie Stenholm, top Democrat on the committee in 2001 and now a consultant for the cotton industry. Somewhere off stage was Larry Combest, a lobbyist for rice, corn, cotton, sugar and crop insurance interests. Committee Chairman Collin Peterson (D-Minn.) kept announcing he’d consulted him.
It looked like Gucci Gulch — without the Gucci. Broad-shouldered farm lobbyists conferred in groups on the status of their provisions. There was at least one Stetson, but not an alligator briefcase in sight.
When it was over, Peterson had a bill he said, was “popular with the leadership” and could survive the gauntlet of the House floor.
He may well be right, though Wisconsin Democrat Ron Kind, leader of the reform effort, promised the battle was just beginning. Speaker Nancy Pelosi blessed Peterson’s bill as a step in the right direction. Despite reservations from the cotton industry about changes in payment limits, the farm bloc will join lobbyists for the fruit and vegetable (blessed with $1.8 billion in new money) to protect the legislation on the floor.
Still, Kind is right on one thing: The bill is not in its final form “by any stretch of the imagination.”
These are some of the big hurdles ahead.
BIG BUSINESS AND THE WTO. In the hubbub surrounding the markup, few noticed some important news: The U.S. business community came out for reduced agricultural subsidies.
In a letter to House and Senate leaders, it called on Congress to “enact long-needed reforms” in farm policy that will “create a dynamic opportunity for U.S. trade negotiators to increase the pressure on our trading partners to offer substantial new market access opportunities that would benefit American farmers, manufacturers and services providers.”
It was signed by several of the biggest guns in corporate America, including the Business Roundtable (representing Fortune 500 giants), U.S. Chamber of Commerce, National Retail Federation, National Association of Manufacturers and Information Technology Industry Council.
(Other groups, such as the Motion Picture Association, headed by former Agriculture Secretary Dan Glickman, declined to join the effort.)
All of these groups have a huge stake in the Non-Agricultural Market Access (NAMA) talks on global trade, known as the Doha Round.
The high tech sector needs countries such as India to lower its tariffs so it can sell more computers, chips, fiber optic cable and computer screens to the exploding markets of the developing world.
But nothing will happen in NAMA without a deal on agriculture first. Developing countries insist that the U.S. and the European Union create a level playing for their farmers by reducing farm subsidies and tariffs. Business has now signaled that its patience with U.S. agriculture is limited.
“This is a big deal for us,” said James Ratchford of the Information Technology Industry Council. “We don’t want to be slamming another industry sector, but we’re getting to the point where something has to change.”
U.S. negotiators have offered to cut Overall Trade Distorting Support (OTDS) to agriculture to $17 billion a year. That’s less than an initial offer, but not enough, according to India and Brazil. WTO officials, in an effort to end the impasse, last week came back with a suggestion that a deal could be had if the United States cut its OTDS to $13-16.4 billion. (OTDS includes countercyclical payments, market loan gains, subsidies on crop insurance premiums, and the sugar and dairy programs.)
But even Senate Agriculture Chairman Tom Harkin of Iowa – a trade moderate who has repeatedly reminded farm groups that the U.S. has treaty obligations under the WTO – said the proposal “would face a difficult road” in the U.S. Congress.
Ironically, the U.S. OTDS is currently running well below the range proposed by the WTO, thanks to high commodity prices. But the farm bloc in Congress has adamantly opposed further concessions.
Still, Congress can’t ignore the WTO. Existing U.S. farm program are facing serious legal challenges for allegedly violating limits set by the Uruguay Round of trade talks. Canada is challenging the whole gamut of subsidies, and the WTO could rule this week on whether the U.S. government has complied with a 2005 WTO ruling that U.S. cotton subsidies were illegal under the Uruguay Round.
If the U.S. is found not to have complied, Brazil could be authorized to retaliate against U.S. products, such as pharmaceuticals.
The current farm bill ignores the WTO problem, and may make it worse. A little noticed $1.2 billion provision would protect the cane and beet industries from shrinking in the face of unrestricted Mexican sugar imports that are allowed under the North American Free Trade Agreement, starting Jan. 1. USDA would be required to purchase sugar volumes equivalent to the Mexican imports at prevailing prices and sell the sugar at a loss to ethanol plants. In effect, beet and cane growers would be assured of keeping their market share and acreage allowances even as imports rose.
Price guarantees for wheat and soybeans—deemed trade distorting by WTO—would rise. Another trade distorting provision—banning the planting of fruits and vegetables on acreage qualifying for direct payments—is continued.
If Big Business is serious about pushing back, it could inject an interesting new element into the farm bill debate.
THE WAYS AND MEANS AND FINANCE COMMITTEES. The budget to pay for the farm bill is held together with baling wire, and could come apart.
Peterson’s bill would spend more money over the next 10 years than is allowed by budget rules. So he has to depend on the kindness of strangers to fully fund his bill. Pelosi has directed Ways and Means Committee Chairman Charles Rangel to come up with $4 billion to pay for increased funding for nutrition programs. This fix will require the approval of House Rules Committee Chairman Louise Slaughter, representing a major apple growing district in New York State.
House Agriculture Committee Republicans, led by Virginia’s Bob Goodlatte, made clear Thursday that they won’t support a bill that relies on a tax increase, if it comes to that. Democratic critics of farm subsidies on Ways and Means, such as Kind, object to helping Peterson pay for a bill that leaves subsidies virtually unchanged.
It isn’t clear whether the Senate Finance Committee will go along with the House’s funding gambit.
Budget “gimmickry” (the word used by Agriculture Secretary Mike Johanns), could also draw fire from fiscal conservatives. According to USDA, the bill relies on budget devices such as the timing of farm payments and crop insurance subsidies in 2017 to “save” more than $1 billion. But those savings are only on paper because the bill will come due soon after the farm bill expires.
THE U.S. SENATE. Harkin has sung a very different tune than Peterson all through the spring and summer. “We need new ideas,” he has said. “It’s an ideal time to do some reform and reorganize our priorities,” he told reporters on June 21. “We can’t let a minority segment drive this whole bill.”
Harkin has kept his plans close to his vest, though he has hinted he wants to make changes in the automatic allowance that farmers get based on their planting history, and shift more resources to conservation.
“I want to do a good bill, a reform bill, and we’ll see what happens in September,” he said.
Under the Constitution, the Senate has an equal say with the House on legislation. Stay tuned.
The House Ag Committee issued a press release today, which stated that, “The House Agriculture Committee today passed a new Farm Bill that makes historic investments in conservation, nutrition and renewable energy while maintaining a strong safety net for America’s farmers and ranchers. Additionally, for the first time, the 2007 Farm Bill provides substantial funding for the fruit and vegetable industry.”
The House Ag Committee meets again today (webpage schedule) to consider the provisions of H.R. 2419, the 2007 Farm Bill. The hearing begins at 10:00 am Eastern in 1300 Longworth, and live audio and video will be available here.
In a prelude to yesterday’s Committee activity, DTN Political Correspondent Jerry Hagstrom reported yesterday morning (link requires subscription) that, “[House Ag Committee Chairman Collin Peterson (D-Minn.)] told reporters that everything he has tried to put into the five-year bill has now been funded except for his proposed disaster aid program, which would cost $5 billion, and additional conservation programs that would cost $200 million. One of the still-unfunded conservation items is to add 4 million acres to the grasslands reserve program, which he said is a personal priority for House Speaker Pelosi.
“The $4 billion for nutrition programs including food stamps will come from the Ways and Means Committee while the $2.5 billion for renewable energy will come from the House-passed bill that cut oil company tax breaks and royalties, Peterson said. The Agriculture committee will markup the nutrition and energy sections of the bill and the House Rules Committee will ‘marry’ the provisions with the money from the other committees before the bill goes to the floor, he said.”
The House Ag Committee meets again today to consider the provisions of H.R. 2419, the 2007 Farm Bill. The hearing begins at 10:00 am Eastern in 1300 Longworth, and live audio and video will be available here.
The notice stated that, “The document is intended for use during the markup process and is subject to change prior to the meeting.”
Dow Jones writer Bill Tomson reported yesterday that, “Support is growing in the U.S. House of Representatives for Agriculture Committee Chairman Collin Peterson’s plan to reform U.S. farm policy after last-minute efforts to secure funding for key initiatives, he told reporters Tuesday.
“There are still farm sectors disappointed with subsidy cuts in Peterson’s 2007 farm bill proposal, and Bush administration officials continue to complain there are not enough changes to existing policy.
Today, the House Ag Committee begins to consider the provisions of H.R. 2419, the 2007 Farm Bill. The hearing begins at 1:00 pm Eastern in 1300 Longworth, and live audio and video will be available here.
As the debate begins, recall some general political considerations that were noted in an article from Saturday’s Washington Post. In part, the Post article stated that, “A coalition of Democratic-leaning environmental organizations, anti-poverty groups and church organizations are pushing to redirect some subsidies to conservation, wetlands preservation, rural development and nutrition. But top Democrats are reluctant to push too hard for changes that could put at risk Democratic freshmen from ‘red’ states, which backed President Bush’s reelection in 2004 and where the farm vote is still a factor in close elections.”
Reuters writer Laura MacInnis reported on Saturday that, “World Trade Organization (WTO) mediators will unveil proposals next week that could chart the path to Doha round success or spell the end for the pact that promised to lift millions of people out of poverty…In their papers, to be released on Monday or Tuesday, the chairmen of WTO’s agriculture and industrial goods talks are expected to propose ranges of cuts to those hotly contested subsidies and tariffs, inside which countries may be able to reach the consensus needed for a deal…Initial reactions to the papers will be critical to the future of the Doha round, which WTO director-general Pascal Lamy has been pushing to wrap up in 2007 to avoid spilling into US and Indian elections.”
I. Farm Bill
I. Farm Bill
DTN Political Correspondent Jerry Hagstrom reported on Friday (link requires subscription) that, “Increasing talk among Republicans on Capitol Hill about extending the current farm bill may be a plot to keep a Congress controlled by Democrats from passing a farm bill, House Agriculture Committee Chairman Collin Peterson, D-Minn., told reporters Thursday.
“Reacting to public and private statements by Republicans that they think Congress is more likely to extend the 2002 farm bill than rewrite it, Peterson said, ‘Maybe there’s a bigger strategy. The Republicans don’t want anything [to pass] in the Congress.’”
As the House Ag Committee sets to work this week to consider provisions of H.R. 2419, the 2007 Farm Bill, a variety of issues are garnering attention and focus. Some of these include the political dynamic of renewing the omnibus farm law, funding issues for fruit and vegetable growers, payment limitation concerns, “reform” proposals, as well as issues associated with new and beginning farmers.
Dan Morgan, writing in yesterday’s Washington Post, reported that, “When freshman Ohio Democrat Zack Space replaced veteran Republican Rep. Robert W. Ney after the 2006 elections, groups lobbying for a major revamping of farm subsidy programs were elated.
“House Democrats, with their base in urban areas and coastal regions, were not beholden to programs weighted toward large commercial farmers in the grain and cotton belts. And Space’s eastern Ohio district of small and medium-size farms was far down the list of those receiving government farm payments.
“But, as the House Agriculture Committee prepares to take up a new five-year farm bill on Tuesday, Space, one of nine freshmen Democrats on the panel, is opposing major changes in the traditional price and income support programs that in 2006 paid farmers $19 billion.
“‘I’m not in the reform camp,’ he said. ‘I’m with the farmers back home who are generally satisfied with the commodity program we have now.’”
Reuters writer Missy Ryan reported today that, “The Bush administration brushed aside a new challenge at the World Trade Organization this week, avowing its support for farm subsidies even as another country argues they violate global trade rules…Brazil launched a new challenge on Wednesday at the WTO against U.S. farm subsidies, which it believes distort trade and have stacked up to exceed WTO limits on subsidy spending…We think our programs have been WTO-compliant. We’ll stick with that,’ said Dave Salmonsen, a trade analyst at the American Farm Bureau Federation, the largest U.S. farm group.”
I. Farm Bill
I. Farm Bill
Reuters writer Christopher Doering reported yesterday that, “The farm bill, awaiting a vote in the House Agriculture Committee, does not go far enough to reform U.S. farm policy, Agriculture Secretary Mike Johanns said on Thursday.
“‘It’s not reform….that’s pretty straightforward,’ Johanns told reporters shortly before going to Capitol Hill to meet Collin Peterson, chairman of the House Agriculture Committee.
“The committee proposal, written at Peterson’s direction, is a slightly different version of the 2002 farm bill and unless it is revised, the ‘need for reform’ could be addressed during floor debate, said Johanns.
“‘I do think if there is no reform…it’s an invitation to try to solve the issues on the floor of the House,’ he said.”