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Senate, House Farm Bill Negotiators Reach Compromise

Peter Shinn reported on Friday at Brownfield that, “He may not have liked it, but President Bush Friday morning, without comment, signed another one-week extension of the 2002 farm law through the end of next week. On Tuesday, President Bush called on Congress to pass a one-year extension of the old farm bill.”


Dan Morgan reported in today’s Washington Post that, “House and Senate negotiators reached tentative agreement yesterday on a new $290 billion, multiyear farm bill that would add about $10.4 billion for nutrition programs while continuing to channel billions of dollars to farmers, even if prices stay at current record levels.

“Key details remain to be worked out, but lawmakers said a final deal could come next week on the bill. The government would spend $10 billion more than allocated by congressional budget committees last year. The Bush administration had proposed an increase of about $5.5 billion.”

Mr. Morgan explained that, “Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) said the agreement would include a new permanent program that guarantees aid to farmers and ranchers suffering weather-related losses, a priority of senators from Western states hit by drought…[T]he bill would reduce the tax credit for ethanol made from corn to 45 cents per gallon from 51, but the tax credit would be extended through 2010.”

The Post article also noted that, “Rising food costs gave a strong impetus to stepped-up funding for programs such as food stamps that help poor and near-poor families. Farm bill versions passed by the House and Senate last year proposed modest increases in food stamp benefits and eased standards of eligibility for the program.

“Last week, Senate negotiators offered a $9.5 billion increase over 10 years. Yesterday, they upped that offer by $800 million to $900 million, sources indicated.”

Greg Hitt reported in today’s Wall Street Journal that, “Lawmakers dickering over details of the bill zeroed in on a plan to provide for a big increase in nutrition programs, especially assistance for low-income families, congressional aides said. The planned $10.4 billion increase would be paid for by raising Customs user fees. Such fees are assessed at the border on imports from abroad.

“Negotiators also appear to have reached tentative agreement on a $1.6 billion package of tax cuts, providing a range of incentives to promote conservation and investment in farm country. The package includes a new preference to promote development of next-generation biofuels, which would be made from wood chips, switch grass and agricultural waste, instead of food grains.

“To pay for the tax cuts, lawmakers are proposing to scale back an existing tax credit that subsidizes production of corn-based ethanol, among other things.”

Mr. Hitt indicated that, “The additional funds for nutrition are expected to include new spending for domestic as well as international assistance, a nod toward concerns world-wide that the rise in food prices is fueling food shortages in the developing world. Beyond the spending on nutrition, the bill is expected to provide over $4 billion in new spending on conservation programs, a major priority of Sen. Harkin.

“With some pieces of the bill still moving, it was unclear Friday how far negotiators for the House and Senate would go to reduce subsidies for production of wheat, corn and other commodities. The White House has been insisting on deep cuts, but the original House and Senate bills made only moderate changes in subsidies.

“It is still unclear what the White House will ultimately do. President Bush has voiced a range of concerns about the farm proposal. Lawmakers hoped the decision to pay for more nutrition spending with Customs user fees would help avoid a veto fight.”

David M. Herszenhorn reported in today’s New York Times that, “Congressional negotiators said Friday that they had reached a tentative agreement on a five-year farm bill that would increase spending on food stamps and other nutrition programs while mostly maintaining existing farm subsidies at a time of record profits for farmers.

“The bill, which would cost more than $300 billion, includes an increase of $1 billion a year for food stamps and other nutrition aid, and it would make a modest cut, of about $40 million a year, to a much-criticized farm subsidy that is paid based on acreage even if it is no longer farmed.

“The deal also contains tax cuts of up to $1.8 billion, including depreciation incentives for racehorse breeders sought by the Senate Republican leader, Mitch McConnell of Kentucky. And it includes a new $3.8 billion disaster relief program for farmers, scaled back from the $5 billion proposed by the Senate.”

Mr. Herszenhorn noted that, “Senator Max Baucus, Democrat of Montana and chairman of the Senate Finance Committee, who was at the center of the tug of war over how to pay for the bill, said that the tax package was ‘basically done.’ But other Congressional aides cautioned that given the unpredictable nature of farm politics nothing would be certain until the conference committee worked out the final details and approved the package.

“Among the details still to be worked out were competing proposals to lower the adjusted gross income limits for recipients of certain farm subsidies. Negotiators said they were likely to impose tighter limits on wealthy recipients who did not earn most of their income from farming, but those who did farm for most of their earnings would mostly likely not face the lower caps.

“The Bush administration has called for much lower limits that deny subsidies to anyone with an average adjusted gross income above $200,000 a year. And while some of the last-minute maneuvering was intended to address White House concerns, it remained unclear if the administration would support it or will renew veto threats.”

The Times article also pointed out that, “Among the most criticized subsidies are the $5.2 billion a year in ‘direct payments,’ which are disbursed to farmers even now when they are reaping unprecedented earnings from strong harvests and record-high grain prices. And the proposed cut in those payments — a relatively modest $400 million over 10 years — is unlikely to quiet critics…In a nod to concerns that new federal mandates for production of corn-based ethanol are contributing to rising food prices around the world, the bill would reduce a tax credit for ethanol processors to 45 cents a gallon from 51 cents. It also includes added incentives to encourage production of cellulosic ethanol, which is made from plant matter like switchgrass rather than corn.”

Reuters writer Charles Abbott reported yesterday that, “The new U.S. farm law would reduce the tax credit for corn-based ethanol while giving nutrition programs such as food stamps a $10.4 billion increase, House and Senate negotiators said on Friday.

“‘A significant increase in nutrition is really required by what is happening in the market,’ said Senate Budget Committee Chairman Kent Conrad, one of the negotiators. ‘It is … a reflection of reality.’”

Mr. Abbott explained that, “House Speaker Nancy Pelosi and New York Democrat Charles Rangel, chairman of the House tax committee, insisted on more nutrition funding to offset the $361 million cost of tax breaks to timber companies and owners of racehorses.

“The 51-cent-a-gallon tax credit for corn-based ethanol would drop to 45 cents, House Agriculture Committee Chairman Collin Peterson, said in describing the ongoing discussions. The Minnesota Democrat said a tax credit would be created for ethanol derived from cellulose, found in grasses, woody plants and crop debris.

“‘This is what the country wants,’ Peterson said, referring to development of cellulosic ethanol. Livestock groups say rapid growth of the corn-based ethanol industry is driving up feed costs and rippling through to higher grocery prices.”

The Reuters article also stated that, “With approval of the timber and racehorse tax breaks, negotiators will have to cut about $1 billion from commodity supports, up from the earlier goal of $730 million.

“Still to be decided were tighter rules on crop subsidies and whether to increase crop subsidy rates for wheat and soybeans.

“A small cut might be made in the so-called direct payments that guarantee $5.2 billion a year to grain, cotton and soybean growers, a small-farm advocate said.”

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “As the national news focused on increased food costs that have led some stores to ration some commodities such as rice, the lawmakers focused on the boost in spending and work on nutrition programs. Lawmakers will be able to tout the bill as a response to rising food costs and as a way to help ensure fewer Americans go hungry.

“‘The one thing that is in this bill that people ought to know about is we carried a heavy load for nutrition,’ said Senate Agriculture Committee Chairman Tom Harkin, D-Iowa. ‘Food stamps and groups out there, we carried a heavy load on this one … It’s not just a farm bill. It is a farm, and a food and an energy bill.’”

Mr. Clayton noted that, “Most major policies on direct payments, counter-cyclical programs, loan-deficiency payments and crop insurance do not change. Minor cuts in direct payments are expected, but it has not been defined how those cuts will be implemented or who they will affect.”

The DTN article indicated that, “To appease the Bush administration, Congress also will give the U.S. Secretary of Agriculture disaster authority to prevent farmers from locking in loan-deficiency payments during major marketing disasters, such as when prices collapsed in the aftermath of Hurricane Katrina. This still allows farmers, under normal marketing conditions, to lock in a loan-deficiency payment and hold their grain to sell at a later date.

“Peterson said he believes there is a general agreement between himself and southern lawmakers such as Senate Agriculture Committee Ranking Member Saxby Chambliss, R-Ga., over capping income eligibility for commodity program payments. Under the proposal, farmers could have unlimited farm income and still qualify for commodity program payments, but non-farm income such as salaries, stock gains or other business revenue would count against an income cap. Such a cap would also be phased in rather than a simple, hard cut-off level, Peterson said.

“From Peterson’s perspective, an income cap based on non-farm income is better than focusing on farm revenue, he said, because it doesn’t penalize larger farmers. Peterson said an income cap on larger farmers would only translate into one more pressure point leading to higher food prices.

“‘The government should not be deciding how big a farm should be,’ Peterson said.”

In a separate DTN article from yesterday (“Ethanol Credit Cut as Part of Farm Bill Tax Deal”- link requires subscription), Chris Clayton reported that, “As part of the effort to shift from corn-based ethanol to cellulosic, congressional leaders negotiating tax credits in the farm bill have agreed to cut the ethanol blenders credit for corn-based ethanol from 51 cents a gallon to 45 cents, a 6-cent reduction in the credit, negotiators said Friday.”

Later, Mr. Clayton noted that, “[House Agriculture Committee Chairman Collin Peterson, D-N.D.] said the ethanol provisions will show Congress wants to shift away from corn-based ethanol and look at spurring development of cellulosic ethanol production. Those provisions were supported by House Speaker Nancy Pelosi, D-Calif.

“‘This is a huge win, ironically, for the speaker,’ Peterson said. ‘This is what the country wants, to move away from corn.’”

(FarmPolicy.com Note: Recall that Reuters writer Tom Doggett reported on Tuesday, January 15, 2008 (“Lawmaker says cellulosic ethanol a decade away”) that, “It will be at least a decade before technological breakthroughs allow ethanol fuel to be produced commercially from farm and forest waste like wood chips, switchgrass and corn stalks, the chairman of the House Agriculture Committee said on Tuesday.”

Mr. Doggett noted that, “‘I think we are 10 years away,’ said Peterson, speaking at the Reuters Global Agriculture and Biofuel Summit.

“‘I really think the more I look at this whole cellulosic issue, there is a lot bigger problem to overcome here than people realize in terms of the feedstocks. We have a lot of work to do in that regard,’ he said. ‘I’m not sure cellulosic ethanol will ever get off the ground.’”)

Meanwhile, Philip Brasher reported yesterday at The Des Moines Register Online that, “Grain and cotton growers, however, successfully fought off a significant cut in the $5 billion in fixed annual payments that they received. Under the deal, those payments would be cut by just $400 million over a 10-year period.

“Iowa farmers and landowners receive nearly $500 million annually in fixed payments.”

Mr. Brasher noted that, “Harkin preserved $1.1 billion in funding for the Conservation Security Program, which would expand the program from 16 million to 80 million acres.

“The program provides payments to farmers for practices that reduce erosion.”

Associated Press writer Julie Hirschfeld Davis reported yesterday that, “The tentative deal includes a $3.8 billion disaster package, trimmed from the $4 billion farm-state lawmakers had initially sought.

“‘It’s just a trim … just a nick, we feel,’ said Sen. Max Baucus, D-Mont., ‘The program is there, and that’s the important thing.’”

Keith Good