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2007 Farm Bill: Issues Swirl

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.

Political Dynamic

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.’”

The article went on to explain that, “Space’s resistance to change highlights the struggle within the Democratic Party as the farm bill moves to center stage on Congress’s legislative agenda. Speaker Nancy Pelosi (D-Calif.) and Majority Leader Steny H. Hoyer (D-Md.) have told Agriculture Committee Chairman Collin C. Peterson (D-Minn.) that they will not support a ‘status quo’ bill.

“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.”

Later, Mr. Morgan noted that, “The tensions within the Democratic Party have strengthened the hand of the farm bloc in the House and led to frictions with the Bush administration, which has joined the effort to make changes in the safety net for farmers.”

In addition, the article indicated that, “Peterson’s draft has been criticized by fellow House Democrats representing farming interests that receive little direct help.

“Rep. Dennis Cardoza (D-Calif.), a senior member of the Agriculture Committee, complained that the bill would provide $465 million in new money over five years to support fruit and vegetable growers.

“‘That’s not even a crumb,’ he told reporters, adding that unless improvements are made the bill will face a battle on the House floor.”

Funding Issues for Fruit and Vegetable Growers

Ken Cook picked up on this last point in an update posted on Friday at the Mulch, where he noted that, “Mr. Cardoza, who chairs the (brand new) ag subcommittee with jurisdiction over [Title X], wants a fair shake for fruit and vegetable growers in this farm bill–though his marker bill fell far short in helping the burgeoning, wildly popular and (when they put their minds to it) politically potent organic segment of that market.

“Mr. Cardoza didn’t get much of anything in the mark, except for things funded with ‘reserve fund’ money, and he’s now reportedly very unhappy. So is the Specialty Crop Farm Bill Alliance, who’ve been counting on Cardoza to deliver in the committee so they can avoid the awkward choice of fighting against their agri-brethren on the House floor.”

Mr. Cook noted that, “Now Chairman Cardoza’s caught between his pledges to the fruit and vegetable world and his ambitions on their behalf (embodied in his EAT Healthy America marker bill), and being a good soldier for the committee’s traditional wagon circling exercise around the subsidy status quo.”

Tom Karst, writing on Friday at Fresh Talk, noted that, “House Ag Committee Chairman Collin Peterson briefed reporters today about the run up to full committee markup of the farm bill on July 17. Peterson indicated Rep. Dennis Cardoza, D-Calif., has been a ‘bulldog’ about finding paid-for funds for the fruit and vegetable snack program and other specialty crop priorities.”

Payment Limitations

Meanwhile, Reuters writer Christopher Doering reported on Friday that, “House speaker Nancy Pelosi wants reforms in U.S. crop subsidies including smaller payments, now capped at $360,000 a year but evaded by some large growers, the Agriculture committee chairman said on Friday.

“Collin Peterson, chairman of the committee, met with Pelosi and others, including Agriculture Secretary Mike Johanns, on Thursday, to resolve objections to his farm bill package that will be debated in committee starting Tuesday. The current farm policy expires in September.

“‘The issues (with the Speaker) are with the offsets, and plus she’d like to see some reform,’ Peterson told reporters on Friday. ‘I think the main focus of that is the payment limits and we’re discussing those things.’”

The Reuters article added that, “A spokesman for Pelosi said the two have spoken about payment limits, which she believes is necessary to reform the farm bill. Peterson met Pelosi on Thursday and was scheduled to meet her again on Friday.”

DTN Political Correspondent Jerry Hagstrom reported on Friday (link requires subscription) that, “As a symbol of reform, the farm bill must contain stricter limits on the level of farm subsidies paid to individuals, House Speaker Nancy Pelosi, D-Calif., told House Agriculture Committee Chairman Collin Peterson, D-Minn., according to Peterson.

“‘Payment limits would do the most good to show reform,’ Peterson told reporters Friday in his weekly conference call. He acknowledged that he has asked the Congressional Budget Office to estimate the cost of a proposal that would end the three-entity rule that allows farmers to get subsidies on three separate farming operations, but would not place restrictions on their gains from marketing loans.

“The proposal would also lower the $2.5 million ceiling on the adjusted gross income above which farmers cannot qualify for farm subsidies, but he did not say by how much. The proposal would also allow only a farmer and spouse to qualify for payments on an operation.”

For more background on the issue of payment limitations, FarmPolicy recommends, “Payment Limits for Farm Commodity Programs: Issues and Proposals” (A Congressional Research Service Report (CRS) by Jim Monke from March 12, 2007), which explained that, “Payment limits, which have existed since 1970, set a maximum amount of farm program payments a ‘person’ can receive (7 U.S.C. 1308). In addition, the 2002 farm bill created an income test to exclude payments to households with very high incomes. The issue was controversial for the 2002 farm bill, and remains so today. The debate usually focuses on what size farms should be supported, whether payments should be proportional to production or limited per individual, and the need to reduce spending.”

The CRS report also noted that, “The following types of payment are subject to limits:

Direct payments
Counter-cyclical payments
– Some marketing loan benefits
* marketing loan gain (MLG): repaying a loan for less than the original amount and keeping the difference as a marketing loan benefit
* loan deficiency payment (LDP): a cash payment instead of a loan

Payments not subject to limits include:
-Some marketing loan benefits
* certificate gain (similar to MLG): repaying a loan with commodity
certificates instead of cash (P.L. 106-78, § 812, exempts these from limits)
* forfeiting the commodity and keeping the cash from the loan.”

With respect to a “certificate gain,” which is not subject to limits, a separate CRS report by Jim Monke (“Marketing Loans, Loan Deficiency Payments, and Commodity Certificates” (2004)), explained that, “In October 1999, Congress amended the 1996 farm bill to allow commodity certificates to be issued to repay loans (P.L. 106-78, sec. 812). It also exempted the use of certificates from payment limitations on marketing loan gains. In February 2000, the Secretary of Agriculture implemented the certificate program. The use of certificates to repay marketing loans continues under the 2002 farm bill.

“The overall use of certificates grew dramatically from $635 million in FY2000 to $3.9 billion in FY2003. Some of the increase is due to greater loan volume because of low prices, but certificate use primarily has grown relative to cash repayments.

“Cotton and, to a lesser degree, rice dominate the activity in certificates, and accounted for 71% of certificates issued in FY2000, growing to more than 99% in FY2003-04. Only in FY2000, the first year for such certificates, did feed grains, soybeans, or wheat have a noticeable share of the certificate volume.”

This CRS report added that, “Certain critics of farm subsidies believe that high payment limits and unlimited commodity certificates are inconsistent with targeting federal assistance to family farms, and that such assistance for very large farms encourages their growth at the expense of smaller farms. They are critical of farm subsidies without any test of financial need.

“Proponents of certificates argue against any change in the use of certificates and oppose any effort to tighten payment limitations. They assert that commodity payments are tied to production and that every acre should be eligible for payments regardless of the size of operation. To do otherwise, they contend, would be to punish efficiency and productivity.”

“Reform” Proposals

In other Farm Bill news, Philip Brasher reported in yesterday’s Des Moines Register that, “Agriculture Secretary Mike Johanns on Friday attacked the farm bill being developed in the Democratic-controlled House as a ‘step backward.’

“In a 2-page letter to the House Agriculture Committee late Friday, Johanns said that the draft bill ‘lacks real reform’ and would worsen the market-distorting aspects of existing farm policy by raising subsidy rates.

“He also faulted the legislation for continuing subsidies to wealthy farmers and failing to fund increases in bioenergy programs and food stamps.”

Mr. Brasher also stated that, “A leading critic of current farm policy, Rep. Ron Kind, D-Wis., has proposed phasing out the existing farm subsidies. He may make other proposals, however, when the full House takes up the farm bill, said spokeswoman Anne Lupardus.”

With respect to Rep. Kind’s Farm 21 plan, Jerry McReynolds, the Secretary-Treasurer of the
National Association of Wheat Growers (NAWG), noted on Friday that, “This year, more folks than ever are interested in shaping the safety net that allows agricultural producers like me to stay in business.

“In 2002, an alternative farm bill proposed by Rep. Ron Kind (D-Wis.) received 200 votes. Kind is back this year with an even more destructive so-called ‘reform’ bill, introduced with Rep. Jeff Flake (R-Ariz.)”

The NAWG item added that, “The Wall Street Journal, editorializing for the Kind proposal, said risk management accounts as proposed in the bill ‘would be insurance policies that farmers could draw upon in years when their incomes fall unexpectedly.’

“Crop loss because of weather problems like the kind we have experienced recently are unexpected and just uncontrollable. Weather is one of the risks inherent in farming, and the influence of weather is one of the things that makes farming unique. That’s why farmers need a workable, equitable safety net, one that takes into account the realities on the ground rather than assuming growers with million-dollar input bills can scrimp a little more to save for hard times or that high prices will last forever.

“Lawmakers who might support Kind-Flake must recognize that an industry that provides 25 million American jobs, 17 percent of the American GDP and $3.5 trillion per year in economic activity has value – all that in addition to providing a safe, domestic food supply. A real safety net will allow America’s agricultural producers to continue doing what they do best: providing the most affordable and abundant food supply in the world to our citizenry. Kind will not work in farm country.”

In a related article, Robert Pore, writing yesterday at the Grand Island Independent Online, reported that, “As the House is expected to mark up its version of the farm bill soon, Rep. Adrian Smith, R-Neb., said it’s important that the House Agriculture Committee controls the agenda.

“Smith, who is a member of the Agriculture Committee, said the panel will mark up its farm bill proposal instead of the House leadership.

“‘This is a very bipartisan issue. If we are not careful, I truly believe that there are enough critics in the House of agriculture that we may see some amendments adopted in the full House that we may live to regret,’ he said. ‘We don’t want something that’s not good for production agriculture.’”

The article added that, “One of the main farm bill issues Smith said he hears about from his constituents in Nebraska’s 3rd Congressional District is crop insurance.

“A proposal Smith said he is concerned about would take more than $1 billion from the crop insurance program and put it toward wetland conservation and restoration.

“‘I think it’s unfortunate that is being proposed,’ Smith said.”

New and Beginning Farmers

A press release issued last week by Rep. Adrian Smith (R-Nebraska) stated that, “Congressman Adrian Smith (R-NE) today introduced the Farmland Relief Act, legislation designed to combat the rapid increase in agriculture land values. Such increases in recent years have caused hurdles to landownership, especially for beginning farmers and ranchers.

“Section 1031 of the U.S. tax code allows farmers and other business property owners to defer capital gains taxes on the sale of property by purchasing similar ‘like-kind’ property within 45 days.

“This relatively brief timeline often forces sellers to rush to find replacement property in order to qualify for the tax deferral. This, in turn, can lead to aggressive bidding and particularly higher prices for rural land. As land values continue to accelerate, young farmers and ranchers are often outbid by recent sellers hurrying to avoid huge capital gains taxes on recently sold property.”

The release added that, “‘Land prices continue to be one of the toughest hurdles for young people entering agriculture. By extending the time period, as my legislation does, sellers would not be forced to pay more to make the quick sale, and rural land would not be overvalued by eager buyers creating a false market,’ Smith said.”

Keith Good