- FarmPolicy - http://farmpolicy.com -

Sen. Ag. Comm. Markup- Day One

The Senate Agriculture Committee began marking up their version of the 2007 Farm Bill yesterday, and according to the Committee’s webpage, work will continue this morning at 9:00 a.m. EDT in Room 328A of the Russell Senate Office Building- live coverage will be available here.

In his opening comments at yesterday’s markup hearing, Committee Chairman Tom Harkin (D-Iowa) stated that, “This is a bipartisan bill that, I believe, will enjoy broad support on the committee. It conforms to a strict budget allocation and pay-as-you-go budget rules, yet still addresses the diverse geographical and philosophical views on our Committee in a balanced way. I would like to thank Chairman Conrad of the Budget Committee and Chairman Baucus of the Finance Committee for their help in making this possible.”

Chairman Harkin added that, “The commodities title of the proposal continues basic features of the 2002 bill, which have worked well, and it gives producers a new option, beginning in the 2010 crop year, to choose to participate in a state-level revenue protection system. The program offers producers better options for managing their farm’s risk in today’s uncertain, rapidly changing farm environment. The bill greatly increases assistance to growers of fruits, vegetables and other specialty crops.”

Committee Ranking Member, Saxby Chambliss (R-Ga.), stated in his opening comments that, “As we are all aware, the tight budget situation is the primary reason for the delay in getting a new law written. The fact we are here today with no additional money above our baseline is a testament to the hard work put in by the Members and staffs to compromise and strike a delicate balance between all the titles in the bill. Do I wish we had more resources? Yes. But we find ourselves in a very different situation compared to the last time the Congress passed a farm bill. It is ironic that the strong prices we are experiencing today in farm country would make our jobs more difficult in drafting a new law.”

One key issue in the markup session centered on the proposed Average Crop Revenue Program (ACR) that Sen. Harkin alluded to in his opening remarks; in fact, further deliberation and debate on this item was a central reason for the markup spilling over into a second day of discussions.

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “A new revenue-assurance commodity program came under intense scrutiny Wednesday as the Senate Agriculture Committee began debating the 2007 farm bill.

“Senators challenged the Average Crop Revenue Program, which is being proposed as an optional commodity program for farmers beginning in 2010. Key members of the committee expressed concerns about how the program would affect crop insurance, such as whether farmers would use the ACR instead of buying crop insurance. Other senators also had reservations about the way the program would be implemented.”

Mr. Clayton stated that, “Leading the charge in committee was Sen. Pat Roberts, R-Kan., who brought forward the amendment that led to the mark-up delay. Roberts had a series of questions about the proposal. He proposed cutting out the ability for a farmer to switch from the ACR to the traditional programs. He also wants a $60,000 cap on ACR payments. He also wants to ensure that the $15 per acre payment only goes to 85 percent of base acres, the same as the current direct payment program.”

“Policymakers and groups such as the National Corn Growers Association back the ACR and project it will become an attractive option for Midwest corn and soybean farmers. But those farmers are also among the heaviest buyers of crop insurance, so a policy change that would shift corn and soybean growers out of buying crop insurance is a fear,” the DTN article explained.

In addition, the article stated that, “Still, one issue not raised in the committee discussion is that while the ACR may make a farmer want to buy less or get out of crop insurance, the Senate Finance Committee tax package passed earlier this month requires farmers to have a minimum level of crop insurance to collect on the permanent disaster package.”

Congressional Quarterly writer Catharine Richert reported yesterday that, “An amendment that threatens to gut a carefully engineered farm subsidy slowed what initially looked like a speedy committee debate of the 2007 farm bill farm bill Wednesday.

“Senate Agriculture Chairman Tom Harkin decided to hold off on final votes on the draft legislation until Thursday, after the panel had a chance to mull an amendment by Kansas Republican Pat Roberts that would make substantial changes to Harkin’s proposed Average Crop Revenue program.”

Ms. Richert also stated that, “But the [ACR] plan immediately came under fire from some farm groups and the crop insurance industry, which said it would be prohibitive for some farmers and take business away from insurers. Advocates say farmers would actually buy up insurance coverage because it would be so inexpensive.

“Roberts’ amendment is meant to mollify the opposition. It would require farmers opting into the new program to continue participating for the life of the farm bill, reduce reimbursement responsibilities for the crop insurance industry and keep insurance premium rates where they are today, meaning crop insurers would preserve their bottom line.”

Later, the CQ article reported that, “The committee adopted by voice vote an en bloc amendment that, among other things, would allow fruits and vegetables meant for canning to be grown on farms that collect subsidies for other commodities.

“The language is a compromise for fruit and vegetable growers, who opposed changing current law that bars growers who collect federal dollars, like corn and wheat farmers, from planting fruit and vegetables on subsidized land. Harkin had proposed lifting those planting restrictions, which keep produce prices high, on land enrolled in the Average Crop Revenue program.”

Dan Looker, writing yesterday at AgricultureOnline.com, reported that, “Keith Collins, USDA’s Chief Economist and a member of the Federal Crop Insurance Corporation board, was asked about how ACR might affect premiums. He said he wasn’t certain, but that USDA has been trying for the past five years to make rates in all areas more actuarily sound.

“‘I don’t want to leave the impression there’s going to be a large change in rates,’ Collins said at one point.

“[Sen.] Roberts wanted to know why ACR will be paid on 100% of base or planted acres, not 85%, as is the case with current programs. And he wondered if the higher coverage would violate World Trade Organization agreements.

“Collins said it would not.”

Recall that yesterday’s FarmPolicy.com update noted that the Senate proposal included language regarding loan deficiency payments (LDP’s) and the timing of posted county price payment rates and when a producer loses beneficial interest. This was also a point included in the administration’s farm bill proposal.

Sen. John Thune (R-SD) offered an amendment on this issue yesterday that would preserve the way the LDP payments currently function. The Committee adopted the amendment.

A list of all of the amendments adopted by the Committee yesterday can be viewed by clicking here.

Meanwhile, an update posted at the DTN Ag Policy Blog yesterday highlighted an amendment offered by Sen. Richard Lugar (R-Ind.) on the nutrition title.

“Lugar offered an amendment to increase nutrition spending by $1.59 billion over five years. The money would go to help raise the asset limit a family can have and still keep food-stamp eligibility — something that hasn’t been raised since 1987. Another piece of the proposal would increase the formula to calculate the minimum benefit for food stamps. Those proposals cost about $985 million.

“Another part of Lugar’s plan would boost funding for the Emergency Food Assistance Program, known as TEFAP. In this program, USDA apparently buys commodities and gives the food to states, which in turn give the products to food banks or soup kitchens. This proposal would cost about $607 million.

“Lugar had a plan to pay for this boost in nutrition spending. He wanted to offset his new spending by cutting direct payments 8.432 percent a year, or effectively $1.7 billion over five years.”

The DTN update added that, “The vast majority of the committee made a point to laud Lugar for raising such a valuable issue in the hunger debate. But the committee wasn’t having anything to do with cutting direct payments. Sen. Saxby Chambliss, R-Ga., said he had to oppose the amendment because of the offset ‘which as been achieved after a real balancing act.’ Sen. Kent Conrad, D-N.D., commended Lugar who had made an important effort ‘to help us understand the choices,’ Conrad said.”

Later, the update stated that, “Lugar, who helped create direct payments in the 1996 farm bill, said he disliked them. He even has a reform bill he will propose on the floor to get rid of direct payments. He told other senators he wanted them to vote on the record that they supported continuing direct payments to a small number of farmers over helping food-stamp recipients and people who rely on soup kitchens.”

“Lugar’s amendment lost 3 to 18 with only freshmen Democrats Sherrod Brown of Ohio and Bob Casey of Pennsylvania backing the proposal with Lugar,” the DTN update said.

With respect to larger Farm Bill reform ideas, Carolyn Lochhead reported in yesterday’s San Francisco Chronicle that, “An odd pair of senators joined Tuesday in an assault on farm programs that will put their colleagues – none more than California’s Democratic Sens. Dianne Feinstein and Barbara Boxer – in a tough spot.

“Sens. Frank Lautenberg, D-N.J., and Richard Lugar, R-Ind., proposed a rebel farm bill called the Fresh Act that would replace billions of dollars in payments to farmers of a handful of crops with an insurance program that would be available free to all farmers – including the 91 percent of California farmers who receive no federal crop subsidies.

“They estimate that California would by far be the biggest beneficiary of the changes, gaining an additional $7 billion in federal aid over five years, mainly for environmental, research, and pest and nutrition programs.

“But it would come at the expense of the state’s heavily subsidized cotton and rice farmers and the cluster of seven states in the Midwest and South that get most of the $7.5 billion that will be spent this year on subsidies for corn, cotton, rice, wheat and soybeans.”

Ms. Lochead indicated that, “Lugar said he has discussed his bill with Boxer and Feinstein.

“Both face ‘very complex groups in their state so I’ve not pressed on the issue,’ Lugar said. ‘They’re hearing from a good number of constituents who have very diverse points of view, as I understand it. How they will finally at the end of the day come out on all this, only you can divine, but they’re listening. They’re very, very knowledgeable about it.’”

Commentary regarding Farm Bill reform continues to appear. The Salt Lake Tribune editorial board opined yesterday that, “Federal agriculture subsidies are supposed to keep farmers in business when prices plummet or bad weather destroys crops. But instead, the farm bill has morphed into an entitlement program for big agribusiness that subsidizes rich investors, feeds the unhealthy American diet, distorts international trade and rapes the environment.

“Congress should put an end to this. But instead, the House passed a new five-year farm bill this summer that mostly preserves the status quo. The bill that emerged from the Senate Agriculture Committee this week is almost as larded with pork as the House bill.”

The opinion item added that, “We are happy to report, however, that Utah’s Sen. Orrin Hatch has signed on to the one bill [the FRESH Act] we’ve seen that would actually plow under the old mess and plant something new. It would eliminate direct payments – which are not based on current crop production or prices – and replace them with crop insurance for all farmers.”

Meanwhile, Wall Street Journal writer David Rogers provided an interesting recap of the Farm Bill debate in today’s paper.

“The background is the remarkable rise in corn prices, spurred by ethanol demand, a success story that has cut off corn producers from most of the subsidies dictated by the current price-support system. ‘The only way they are going to get money is to change the payment mechanism,’ one administration official said, and this has sparked interest in alternative approaches that put less emphasis on price, per se, and more on revenue,” the Journal article said.

(For more background on the relationship of biofuels, commodity prices, budget allocations and the Farm Bill debate, see “The Impact of Renewable Energy on the U.S. Farm Policy Debate,” which was published in May).

Mr. Rogers stated that, “The Senate bill proposes such a program, known as Average Crop Revenue, which could be elected by farmers beginning in 2010. The complicated formula seeks to guarantee revenue roughly equivalent to 90% of a farm’s average of the previous three years. As currently drafted, it appears most beneficial to corn and soybean producers in the central Midwest.

“To the extent revenue is protected, crop insurance premiums are predicted to fall. And since crop insurance is heavily subsidized, any savings will also accrue to the government.

“ACR received a major boost when the Congressional Budget Office concluded that so many farmers will sign up, especially in corn-rich states such as Iowa, Indiana and Illinois, that Washington could save as much as $3.8 billion over five years.”

Concluding, Mr. Rogers explained that, “Selling the idea, Mr. Litterer [Ron Litterer, an Iowa-based farmer and the National Corn Growers president] admits, is a lot easier since corn prices jumped to highs of $4 a bushel or twice the guaranteed $1.95 per-bushel price support in loans from the government. With a softening in the ethanol market, corn has fallen back to the range of $3.34 per bushel, but that’s still 70 cents more than the threshold for triggering countercyclical payments.

“To qualify for ACR, a farmer would submit to tougher loan rules, and direct-payment subsidies, a legacy of the 1990’s, would be capped at $15 an acre — about $8 to $10 less than many corn growers receive today.

“Proponents argue that the reduction in premiums will offset these losses, and a stronger floor will be established for the revenue now enjoyed because of demand for alternative fuels.

“For example, based on the experience of the past three years, ACR appears to establish a revenue floor for corn of at least 40 cents per bushel higher than what the countercyclical program promises today.”

***

In related news regarding the “ethanol boom,” Scott Patterson reported in today’s Wall Street Journal that, “Shares of the Saskatoon, Saskatchewan, fertilizer maker [Potash Corp of Saskatchewan] have more than doubled this year, mostly because of the ethanol-driven agriculture boom. As the price of corn, an ethanol ingredient, soared early this year, farmers rushed to cash in. That resulted in one of the biggest corn crops on record and huge demand — and rising prices — for fertilizers like potash.

“That is why analysts expect Potash to post third-quarter net income of 80 cents a share today, up 82% from last year.

“Other ethanol-related investments, such as farm-equipment maker Deere, also have rallied.

“The ethanol producers themselves, such as VeraSun Energy, have struggled. Though corn prices shot up, ethanol prices sagged amid a glut of the alternative fuel, squeezing producers’ profit margins. Plans for several new ethanol plants have been scrapped. VeraSun shares are down 34% this year.”

The Journal article also included this observation, “One intangible: the 2008 U.S. presidential election. As long as oil prices stay high, candidates are sure to talk about boosting investments in alternative fuels. Such rhetoric could stoke the fire under the ethanol boom.”

The Wall Street Journal editorial board published an opinion item in today’s paper on energy policy, which included the following tidbit on corn /ethanol issues, “In any case, as we’re all discovering with corn-based ethanol, renewables have their own problems, both substantive and political…[S]olar requires acres and acres of real estate. There’s plenty of land for solar arrays in the middle of the country, or at least there was before the land was turned over to grow corn for heavily subsidized ethanol. And, by the way, using farmland for energy means using less to grow food — which means higher prices at the kitchen table, or more food imports, or both. The House Members who voted for this must figure all of this will be some other Congress’s problem.”

In news regarding food prices, Financial Times writer Neil Buckley reported recently that, “Russia is introducing Soviet-style price controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration’s popularity ahead of parliamentary polls in December.

“The country’s biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.”

For an excellent audio recap of this development in Russia, see this eight-minute segment that aired yesterday on the BBC’s “Europe Today” program.

The FT article added that, “Russia’s move is the latest sign of surging agricultural prices becoming an international political issue. Big retailers will limit their mark-up on those goods to 10 per cent.

“China has also agreed to food price controls; Egypt, Jordan, Bangladesh and Morocco are increasing subsidies or cutting import tariffs to lower domestic prices. Rich countries are not im­mune: Italian consumer groups organised a pasta boycott last month in a protest over prices.”

Keith Good