FarmPolicy

July 29, 2014

Farm Bill: Subsidy Rules at Issue; Biofuels and Food; Post Series

Greg Hitt reported in today’s Wall Street Journal that, “Key members of the House and Senate are pushing a more aggressive plan to cut subsidies to wealthy farmers, but it isn’t clear the initiative goes far enough to avoid a showdown with the White House over the farm bill.

“The proposal, which would limit payments for farmers with incomes of more than $950,000, was swiftly criticized by a top Bush farm-policy adviser.

“Chuck Connor, deputy secretary of the Department of Agriculture, said Wednesday that the plan is ‘highly complicated’ and would do little to address President Bush’s complaints about ‘multimillionaire farmers’ receiving government payments. ‘This is not reform and does not move Congress closer to a farm bill that the president would sign,’ Mr. Connor said.”

Mr. Hitt explained that, “Under the proposal, direct payments, which provide income support, would be phased out for farmers with incomes of more than $950,000. An initial 10% cut would be made on direct payments for farmers with incomes above that level, and payments would be further ratcheted down as an individual farmer’s income rose. The limits would be on top of a planned across-the-board 2% cut in direct payments, which have totaled more than $5 billion a year since 2004.

“Significantly, the latest congressional proposal to limit payments for wealthy farmers is expected to be supported by some leading Southern lawmakers, including Georgia Sen. Saxby Chambliss, the senior Republican on the Senate Agriculture Committee.”

“The proposed cap would be on top of modest changes to the safety net now in the farm bill. Among other things, the legislation would limit the ability of farmers to manipulate current law to collect multiple payments and eliminate payments to wealthy individuals not directly involved in farming. The proposal initially would limit payments to individuals with $750,000 in nonfarm income; over three years, that limit would be tightened to $500,000,” the Journal article said.

Mr. Hitt added that, “Lawmakers have reached a tentative agreement on the outlines of the bill, and now are struggling to nail down final details before the measure heads to the House and Senate floors next week.”

DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Under the payment proposal, producers with more than $750,000 of income from non-farm sources such as salaries or stock gains would be cut off from commodity payments in 2009. That would drop back to $650,000 in 2010 and $500,000 in 2011.

“The proposal would allow a producer to earn up to $950,000 in net farm income and still be able to get commodity payments, but farmers would see 10 percent of their direct payments cut for every $100,000 in income above that $950,000 ceiling. For married couples, the AGI limit on farm income also doubles to $1.9 million.

“The current cap on adjusted gross income to collect commodity-program payments is $2.5 million, but the income cap is waived if more than 75 percent of a producer’s income comes from farm sources.

“The adjusted gross income cap would not affect countercyclical payments and loan deficiency payments. The farm bill also sticks with unlimited marketing-loan gains, which passed both the House and Senate last year.”

The DTN article indicated that, “As part of the talks, however, negotiators now have opted to increase the limit a farmer can receive in direct payments from $40,000 to $50,000. Harkin said he did not like that increase, but had agreed to it in order to get agreement on payment limits. Married farm couples would be able to double these amounts to up to $100,000.

“Senate Budget Committee Chairman Kent Conrad, D-N.D., said the payment limits would also apply to conservation programs.”

More specifically with respect to direct payments, Dan Looker, writing yesterday at AgricultureOnline, reported that, “Both current law and the Senate version of a new farm bill limit direct payments to $40,000 for single farmers and $80,000 for married farmers. The House farm bill passed last summer raised the limit to $60,000 for single farmers and $120,000 for married farmers. The agreement said to be reached yesterday puts the limits at $50,000 for single farmers and $100,000 for couples, an increase of $10,000 per person.

“‘Without a final word from the House and Senate who are negotiating with each other over those and other items, it’s not clear just what they may have settled on — nor what the details are,’ USDA press secretary Keith Williams told Agriculture Online.”

Also yesterday, Congressional Quarterly reported that, “Farm bill conferees are touting a complicated crop subsidy scheme to make sure wealthy farmers do not collect government payments.

“Bill negotiators are hoping that new caps based on both agriculture-related and other income will help win over President Bush, who is hesitant to sign a bill that continues to dole out dollars to ‘millionaire farmers,’ as he said in a news conference Tuesday.”

The CQ item indicated that, “The planned limits in the new five-year farm bill are complex. Farmers who have more than $750,000 a year in non-farm income would no longer be eligible for crop subsidies in 2009. The income ceiling would drop to $650,000 in 2010 and $500,000 in 2011. That cap is intended to prevent so-called hobby farmers from collecting subsidies — people who own farmland registered with the Agriculture Department but make their money through another profession or investments.

“Different caps would apply to agriculture-related income. Farmers who make less than $950,000 a year from agriculture would still be able to collect federal dollars. But for every $100,000 a year they make above that amount, they would lose 10 percent of their direct payments, which farmers get no matter what crop prices are like.”

A Reuters news article which was posted yesterday at DTN (link requires subscription), reported that, “The lawmakers writing the new U.S. farm law said on Wednesday they would allow bigger ‘direct’ subsidies to big farmers but growers would lose access to the payments when their incomes hit $1.95 million.

“House and Senate negotiators adopted several initiatives in response to White House pressure for farm-program reform. One change would bar land stewardship payments to people with an adjusted gross income above $500,000 a year.”

The Reuters article explained that, “Negotiators said they decided during private meetings to let grain, cotton and soybean farmers collect up to $50,000 a year — a 25 percent increase — in direct payments, which are guaranteed annually. The limit now is $40,000 per farmer. It can be doubled because spouses are eligible for support.

“Direct payments would be scaled back, by 10 percent for each $100,000 in additional earnings, when farm income tops $950,000 a year. Senate Agriculture Committee Chairman Tom Harkin said payments would end at $1.95 million income.

“At present, the cutoff for access to crop subsidy and land stewardship programs is $2.5 million AGI, with no limit if more than 75 percent of income is from agricultural sources.”

The Reuters article noted that, “[House Agriculture Committee chairman Collin Peterson (D-Minn.)] said he was losing patience with last-minute White House demands for change in the farm bill…‘I think they would be committing suicide to veto this bill,’ said Peterson. ‘I think we have a good chance’ to override a veto.”

Peter Shinn reported yesterday at Brownfield that, “As of Wednesday afternoon, the Bush administration appeared no closer to embracing the farm bill currently being considered by Congress. Deputy U.S. Ag Secretary Chuck Conner issued a statement lambasting the two-tiered approach to farm program payment limits, an approach hailed as ‘real reform’ by Chambliss, Harkin, Peterson and [House Ag Committee Ranking Member Bob Goodlatte (R-Virginia)].

“‘This plan would result in continuation of farm subsidy payments to individuals with extremely high incomes,’ Conner said in the statement. ‘This is not reform and does not move Congress closer to a Farm Bill that the President would sign.’

“As for farm bill timing, Peterson and Harkin both agreed another two week extension of the 2002 farm bill will be necessary after the current one-week extension expires on Friday. If things proceed as anticipated from that point, a new farm bill would be on the President’s desk for his signature or veto no later than May 16th.”

Philip Brasher reported yesterday at The Des Moines Register Online that, “The Bush administration rejected as insufficient a congressional plan to overhaul eligibility rules for crop subsidies.

“A deal reached by congressional negotiators on the farm bill would increase the amount of fixed annual subsidies a grower could get by 25 percent.

“The agreement also would allow a wealthy farmer to have up to $950,000 a year in farm income and $500,000 in non-farm earnings and still qualify for the full amount of those fixed payments.

“Under the deal, the annual limit on how much farmers could collect in payments each year would rise from $40,000 to $50,000 for an individual. A couple could receive up to $100,000 a year, lawmakers said.”

David Rogers, in an article posted today at Politico.com, offered more perspective on legislative and executive branch dynamics, stating that, “Trying to close the books on a new farm bill, Congress and the White House are bumping up against the uncomfortable fact that President Bush twice last year vetoed health care bills for working families who earn far less than most farmers getting subsidies.

“Income eligibility was a central issue in those veto fights as Bush opposed a bipartisan effort to expand the State Children’s Health Insurance Program up the poverty ladder. By contrast, at a time of high commodity prices and food shortages, the government continues to distribute about $5.2 billion in annual direct payments to individuals regardless of personal income or current production on their farmland.”

The Politico article added that, “Mindful of the inequities, the White House is proposing to cut off subsidies to anyone with an adjusted gross income — after deductions — of $500,000 or more. House-Senate negotiators have moved toward this goal in the case of non-farmers, but a plan outlined Wednesday doesn’t begin to phase out direct payments to active farmers until their adjusted gross incomes exceed $950,000. 
Even then, the phaseout is so slow that a producer could have an income of almost $1.95 million before all direct payments would be cut off.

“In comparison, last year’s debate over health care for the children of working-class families revolved around much stricter income caps.”

After drawing some interesting parallels between the health care for children debate and the current Farm Bill, Mr. Rogers indicated that, “But for the White House, the income limit has always been a signature issue in shaping a new farm bill, and the SCHIP history makes it harder for the president to back down.”

Meanwhile, Associated Press writer Mary Clare Jalonick reported yesterday that, “Most people call it a farm bill. But it’s really more of a food bill.

“That’s even more true this year as negotiators, spurred by House Speaker Nancy Pelosi and other urban lawmakers, move dollars from crop subsidies to food stamps and other programs for feeding the needy.

“Suddenly, higher food prices for consumers are a more urgent political issue as the November election approaches than government payments to farmers who are doing pretty well on their own now.”

Some similar themes regarding the urban nature of the Farm Bill and Speaker Pelosi’s involvement were alluded to in a conversation yesterday regarding the Farm Bill negotiations on the AgriTalk Radio Program with Mike Adams.

To listen to an audio clip from yesterday’s AgriTalk program, where host Mike Adams interviewed U.S. Rep. Jerry Moran (R-Kansas), who provided an overview of the Farm Bill talks, just click here (MP3-7:21).

Biofuels and Food

At The Washington Post Online yesterday, “Economics professor Bruce Babcock, director of the Center for Agriculture and Rural Development at Iowa State University,” held an interactive chat “to explain how high ethanol prices are impacting farmers individually and the world as a whole as less and less of the nation’s farmland is used for growing food crops.”

One interesting exchange in the chat (full transcript available here) went like this: “Brooklyn, N.Y.: A great concern of developing countries for many years has been the unfair corn and wheat subsidies given to farmers by America and the E.U., which has a direct effect on the costs and the growth of farming in these regions. What would be the effect on the market if we finally did away with these subsides, which is just another form of corporate welfare?

“Bruce Babcock: My research on this issue suggests that elimination of U.S. crop subsidies of the form that are provided for in the Farm Bill would have no significant impact on U.S. agriculture. In fact, if we had never had the subsidies then U.S. agriculture would look almost identical to what we have today. Biofuels subsidies, however, have affected U.S. agriculture in a major way. Elimination of the commodity title in the about-to-be-passed farm bill would not adversely affect U.S. agriculture.”

Jim Snyder and Manu Raju reported yesterday at The Hill Online that, “Sharply rising food prices may force Congress to reconsider the fivefold increase in ethanol production it mandated just four months ago, some lawmakers say.

“Few members appear willing to call for the outright repeal of the Renewable Fuels Standard (RFS), which requires that 36 billion gallons of ethanol be produced by 2022. Of that, 15 billon gallons would come from corn.

“But the new concerns represent a significant turn for a policy issue that was embraced by both congressional Democrats and President Bush as a way to boost rural economies and domestic energy security.”

Also on the bifouels- food price issue, a press release issued yesterday by the American Farm Bureau Federation (AFBF) stated that, “Rising food costs in the United States and overseas are receiving a great deal of attention, and a range of complex factors are behind this relatively new phenomenon, according to American Farm Bureau Federation President Bob Stallman. He said ethanol is ‘not the culprit that American consumers are being led to believe,’ and he stressed that renewable fuel and affordable food can coexist.”

The AFBF release stated that, “Farm Bureau analysis of the costs of food production and marketing shows petroleum-based energy is the primary factor driving domestic food prices. Forty-four percent of rising food costs is due to energy costs, according to AFBF.”

Meanwhile, an audio interview with Renewable Fuels Association President Bob Dinneen was posted yesterday at The Ethanol Report Blog. In part, Mr. Dinneen “talks about the angst felt by ethanol producers seeing their product maligned in the media and why the Texas governor’s request for a waiver of the Renewable Fuels Standard is misguided. Dinneen also says the industry can support a decrease in the blender’s tax credit being discussed by farm bill negotiators and he points out that transportation costs are driving the food aid crisis.”

To listen to the interview (6:45), just click here.

The topic of biofuels and food also came up yesterday in a press briefing with Sen. Chuck Grassley (R-Iowa); to listen to an audio excerpt on this issue from Sen. Grassley, just click here (MP3-5:27).

And an update posted yesterday at The Corn Commentary Blog pointed out that at the National Press Club yesterday- “Former Agriculture Secretary John Block, National Corn Growers CEO Rick Tolman, National Farmers Union president Tom Buis and Renewable Fuels Association CEO Bob Dinneen gave opening statements about the facts on food price increases and entertained about 40 minutes of questions from reporters present and on the phone. They covered nearly every topic on the food and fuel waterfront and gave highly informative answers to probing and intelligent questions from the press.”

A complete audio replay of this event is available here.

With respect to food prices and the EU, Andrew Bounds reported yesterday at The Financial Times Online that, “Only about two-thirds of the rise in food prices in Europe can be attributed to increases in the cost of ingredients, the European Commission said yesterday.

“Mariann Fischer Boel, the agriculture commissioner, released figures showing that the cost of many staples had gone up by more than the value of basic commodities used to make them.

“Bread increased 10 per cent between February 2007 and 2008, while the near-doubling of the price of wheat should have led to only a 3 per cent rise, the Commission said. ‘Energy, transport and labour costs have risen. But it is possible that somewhere along the food chain someone may be doing well out of this. We are not drawing conclusions; we are just presenting facts.’”

Along these lines, David Kesmodel, Lauren Etter and Aaron O. Patrick reported in yesterday’s Wall Street Journal that, “At a time when parts of the world are facing food riots, Big Agriculture is dealing with a different sort of challenge: huge profits… The robust profits are emerging against the backdrop of a food crisis some experts say is the worst in three decades.”

Yesterday’s Journal article added that, “Patricia Woertz, the company’s [Archer Daniels Midland (ADM)] CEO, said she empathizes with consumers who are paying more for food, but she directed the blame at gasoline prices that force up food transportation costs, rather than the use of crops for biofuels, saying that the food-versus-fuel debate is ‘misguided.’ On a conference call with analysts, Ms. Woertz responded to suggestions that U.S. policies encouraging the production of ethanol should be reconsidered. ‘Retreat from biofuels is wrong, it’s foolish,’ she said. ADM is one of the nation’s largest ethanol producers.”

Post Series, “Global Food Crisis” Continues

Jane Black reported in today’s Washington Post that, “Since March 2007, according to the Bureau of Labor Statistics, the price of eggs has jumped 35 percent. A gallon of milk is up 23 percent. A loaf of white bread has climbed 16 percent. And a pound of ground chuck is up 8 percent. Overall, U.S. food prices in 2008 are expected to rise 4 to 5 percent, about double the increases of recent years. And while the total rise is far less drastic than elsewhere around the world, the sharp hike for staples means everyone is feeling the pinch.

“‘We are in shocking new territory,’ said Todd Hale, senior vice president of consumer shopping and insights at Nielsen Consumer Panel Services. ‘With the exception of the very affluent, everyone is looking to save by altering where they shop, how they shop and the brands they buy.’”

***

Gary McWilliams and David Kesmodel
reported in today’s Wall Street Journal that, “Even as rising food prices have triggered protests in developing countries, Americans are rediscovering the economic virtues of a well-stocked food pantry and storage freezer, and embracing discount and wholesale retailers for cut-rate meals.”

Keith Good

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