January 29, 2020

The Budget and Agriculture: Details and Reactions

Categories: Audio /Budget


Kara Rowland, writing yesterday at The Washington Times Online, reported that, “Top Democrats and Republicans are already shooting down President Obama’s plan to cut farm subsidies, dealing a blow to one of the cost-savings promises he laid out in his congressional address Tuesday night.

“‘We’ll have to see what specifically the president is talking about, but we just finished the farm bill last year, and I don’t think we’ll open it up,’ said Rep. Collin C. Peterson, Minnesota Democrat and chairman of the House Agriculture Committee.

“Likewise, the ranking Republican on the Senate Agriculture, Nutrition and Forestry Committee, said the farm bill, which lasts for five years, ‘should not be changed midstream.’

“‘I believe it is premature to make any sweeping changes to the makeup of the farm safety net before we have even had the chance to implement the current farm bill,’ said Sen. Saxby Chambliss of Georgia.”

The Washington Times article added that, “The ranking Republican on the House Agriculture Committee, Rep. Frank D. Lucas of Oklahoma, said Mr. Obama didn’t seem to understand the agribusiness programs he was talking about.

“‘With the president last night [Tuesday] calling for, in essence, what he referred to payments to big agribusiness – I’m not sure he really appreciates or understands the definition of that phrase,’ Mr. Lucas said, noting that direct payments go to entities that own farms and grow crops, not conglomerates that process them. ‘If he’s referring to other things, then that’s not the direct payment program.’

He said Mr. Obama’s comments build on a speech earlier this month by Agriculture Secretary Tom Vilsack in which the former Iowa governor urged farmers not to rely on direct payments.”

Yesterday’s article indicated that, “A spokesman for the U.S. Department of Agriculture would not comment on Mr. Vilsack’s position on direct payments, and the White House declined to comment on Mr. Obama’s plan, saying the details will be released Thursday in his budget.”

Budget Details Emerge

Lori Montgomery, writing in today’s Washington Post, reported that, “President Obama delivered to Congress yesterday a $3.6 trillion spending plan that would finance vast new investments in health care, energy independence and education by raising taxes on the oil and gas industry, hedge fund managers, multinational corporations and nearly 3 million of the nation’s top earners.”

In comments made yesterday regarding the administration’s budget proposal, President Obama stated that, “In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go. For too long, our budget has not told the whole truth about how precious tax dollars are spent. Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home; it’s not how your government should run its budgets, either. We need to be honest with ourselves about what costs are being racked up — because that’s how we’ll come to grips with the hard choices that lie ahead. And there are some hard choices that lie ahead.”

More specifically, the administration released this summary of agriculture related spending yesterday, which noted that the spending proposal, “Reflects the President’s commitment to fiscal responsibility by reducing direct payments to the largest farmers, reducing crop insurance subsidies, eliminating cotton storage credits, eliminating funding for the Resource Conservation and Development program, and reducing program funding for overseas brand promotion.”

The summary added that, “As part of an effort to transition large farms from direct payments provided to owners of base acres to increased income from revenue derived from emerging markets for environmental services, the President’s Budget phases out direct payments over three years to farmers with sales revenue of more than $500,000 Annually. Presently, direct payments are made to even large producers regardless of crop prices, losses, or whether the land is still under production. The program was introduced in the 1996 Farm Bill as a temporary payment scheduled to expire, but was included in the 2002 and 2008 Farm Bills. The President wants to maintain a strong safety net for farm families and beginning farmers while encouraging fiscal responsibility. Large farmers are well positioned to replace those payments with alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat. USDA will increase its research and analytical capabilities and conduct Government-wide coordination activities to encourage the establishment of markets for these ecosystem services.”

In a separate briefing yesterday on the budget proposal, Peter Orszag, the Director of the Office of Management and Budget (OMB), provided a simple overview of this part of the ag related budget. To listen to his comments, just click here (MP3- about thirty seconds).

An abbreviated overview of the ag related budget proposals from yesterday can be viewed in this two page summary. And this document, which provided a variety summary tables relating to the budget proposal, contained a table overview for agriculture on page 124 which can be viewed in isolation by clicking here.

Additional detail, context and analysis with respect to agriculture and yesterday’s federal budget proposal surfaced in the media.

The AP reported yesterday that, “Nutrition would get a boost under this budget, with $1 billion more each year to improve child nutrition programs and enhance the nutritional quality of school meals. Obama also would direct more money to loans and grants for renewable fuels production.”

And this AP story stated that, “Obama’s budget would break from the five-year farm bill that Congress enacted last year, with his support. He proposes eliminating what are known as direct payments — subsidies that are paid to farmers regardless of crop prices or crop yield — for producers with higher sales revenues.

“Under Obama’s request, agriculture programs would receive $26 billion, almost a 9 percent increase over the 2009 budget year. That does not include the recent economic stimulus or entitlement spending for food stamp programs.”

Reuters news reported yesterday that, “Cuts to U.S. farm payments will be directed at farmers and ranchers with large incomes and big sales, and could affect 3 percent of farmers in the United States, Agriculture Secretary Tom Vilsack said on Thursday

“‘These are farms for the most part that receive a disproportionate amount of direct payments, and I think over a period of time, the president believes … that those need to be adjusted,’ said Vilsack, who declined to provide specific details about farm spending changes proposed in the Obama administration’s budget.”

[Background Note: “Federal farm programs do not explicitly target payments to farms of a certain size or net income level, although caps may apply to the size of the program payment a farm or an individual farmer can receive. Nevertheless, large farms are more likely to receive farm program payments and, as a group, they receive the bulk of payments simply because most payments are paid per acre.” (Robert Hoppe. “The Importance of Farm Program Payments to Farm Households.” Amber Waves. June 2007)].

Andrew Martin reported in today’s New York Times that, “The president is recommending that direct payments to farmers — those not contingent on crop prices — be phased out for those with sales revenue of more than $500,000 a year, a proposal that would save $9.8 billion over a decade. More than 116,000 farms, out of 2.2 million total, had at least that level of sales in 2007. The president would also cap payments at $250,000 a year.

“The president’s budget also calls for an end to government payment for storage of cotton under loan to the Department of Agriculture and a reduction in spending on overseas market promotion programs, particularly those that promote specific brands.

The Department of Agriculture is expected to spend $8.8 billion on farm subsidies in 2009, of which about $5 billion are so-called direct payments [related graph]. For years, some Midwest lawmakers and even President George W. Bush tried to curb the largest payments but have succeeded at only modest reforms.”

Philip Brasher reported yesterday at The Des Moines Register Online that, “President Barack Obama wants to end direct payments to farmers who have more than $500,000 in sales, which would cut off thousands of Iowa producers, and use the savings for child nutrition programs.

The president’s budget, released Thursday, also seeks to cut subsidies for farmers’ crop insurance premiums and cut payments to the insurance companies that sell the coverage.”

Mr. Brasher noted that, “The cut in direct payments could affect the farms that are responsible for the bulk of Iowa’s crop production. Nearly 9,500 Iowa farms reported sales of more than $500,000 including, including 4,213 with revenue over $1 million. Those million-dollar operations alone counted for about half the state’s farm revenue that year.”

“The reductions in spending for crop insurance would save another $5.2 billion over 10 years,” the Register article said.

Lavonne Kuykendal
reported yesterday at The Wall Street Journal Online that, “Insurers that administer the U.S. Agriculture Department’s crop insurance program will see their federal paycheck cut by $5.2 billion over the next decade, as the Obama administration looks to cut waste.”

The Journal article explained that, “‘Over the last several years, subsidies for crop insurance companies have grown rapidly without improving program coverage or customer service for farmers,’ the budget proposal released Thursday said. ‘Current subsidy levels exceed what is necessary to encourage farmer participation and they do not constitute a sound value to taxpayers.’

“The program’s budget will be cut by $429 million in 2011, with annual cuts totaling $2.1 billion by 2014, and a total of $5.2 billion by 2019.”

Tom Steever reported yesterday at Brownfield that, “President Obama’s 2010 budget proposal would, over three years, phase out direct payments to producers with annual revenue exceeding a half-million dollars. A statement issued by the White House says large farmers are well positioned to replace those payments with alternate sources of income from emerging markets for environmental services. On the other hand, American Farm Bureau Congressional Relations Director Tara Smith says $500,000 in annual sales is not that much.

“‘If you look at soybean farm, for example, that has $500,000 in sales, by the time you take out cost of production, that farmer actually only nets only $36,000.’”

Joseph Morton reported in today’s Omaha World-Herald that, “According to 2007 data from the National Agricultural Statistics Service, Iowa has 9,478 farms with sales of more than $500,000 and Nebraska has 5,921. It’s not clear how many of those farms now receive the direct payments, which are not tied to crop production or prices.”

Reaction to the Agricultural Spending Provisions in the Budget

Naftali Bendavid reported in today’s Wall Street Journal that, “Democrats on Capitol Hill welcomed President Obama’s budget as a long-awaited reordering of the government’s priorities. Republicans expressed dismay for much the same reason.

“But even some Democrats expressed unease with some of the president’s sweeping proposals, which include calls for higher taxes on affluent Americans and businesses, a new form of energy tax and big cuts to some long-favored programs. Mr. Obama’s budget reflects his vow to change the way Washington works, but some changes can have powerful opponents.”

The Journal article stated that, “Democratic Sen. Kent Conrad, who chairs the Senate Budget Committee and represents a rural state in North Dakota, voiced concern about proposed cuts in agricultural programs, saying a fifth of the farmers in his state would suffer significant losses.

“‘Cuts in agriculture are pretty sensitive,’ Mr. Conrad said, suggesting he would push for smaller trims. ‘I will support some cuts in agriculture, but we just passed a farm bill and it’s paid for.’”

Mike Dorning reported in today’s Los Angeles Times that, “A proposal to cut government subsidies to large farms puts President Obama at odds with some of the most powerful interests within the farm lobby, which fought off President George W. Bush’s similar efforts even when Republicans controlled Congress.”

A news release issued yesterday by the National Cotton Council stated that, “The National Cotton Council said today that the proposed program changes included in President Obama’s FY10 budget for USDA fail to recognize the work recently completed by Congress on the Food, Conservation, and Energy Act of 2008.

“The NCC emphasized that after a lengthy and arduous debate, the current farm law, which is still being implemented, introduced significant commodity program changes while maintaining an important safety net for production agriculture, and enhanced conservation and nutrition programs.”

Jerry Hagstrom and Chris Clayton reported yesterday at DTN that, “Leaders of corn, soybean and wheat groups meeting Thursday just outside Dallas, Texas, at the Commodity Classic convention said they would oppose the recommended cuts in direct payments. Leaders of those groups also said they were concerned about comments made by Obama and Vilsack that were critical of farmers receiving direct payments.”

The DTN article also noted that, “John Thaemert, past president of the National Association of Wheat Growers, and a grower from Sylvan Grove, Kan., said he wasn’t too concerned about the Obama administration proposal, especially given comments from House Agriculture Committee Chairman Collin Peterson, D-Minn., and Senate Agriculture Committee ranking member Saxby Chambliss, R-Ga., opposing any notion of reopening the farm bill.”

More specifically, in a statement from yesterday Sen. Chambliss explained that, “Efforts to cut direct payments and make other sweeping changes to current farm policy will only inject additional uncertainty into the farm economy and will be met with my strong opposition. Our focus should be on offering producers the certainty they expect and work with the agriculture community at the appropriate time to make any changes in the current farm safety net. I believe it is unwise to completely alter the makeup of this farm safety net before we have the opportunity to assess the effects of the reforms included in the 2008 farm bill.”

A news release from Nebraska GOP Senator Mike Johanns noted yesterday that, “Senator Johanns is a supporter of reforming payment limits, just as he was as Secretary of Agriculture and as a candidate for U.S. Senate. However, he believes payment limits should be applied as an absolute cap on dollars received from all commodity programs or the limits should be tied to Adjusted Gross Income. This proposal gives no consideration to the level of need for a safety net. A farm with $500,000 gross sales might also have $600,000 in input, production and transportation costs. Basing a government payment cut-off on income after expenses (AGI) remains true to the safety net concept.”

Senator Tom Harkin (D-Iowa), the Chairman of the Senate Ag Committee noted yesterday that, “The proposal for increased nutrition funding is a critically needed and justified investment in better diets and nutrition for America’s children, which can lead to lifelong better health and wellness. This investment goes hand-in-hand with and is integral to the president’s call for health care reform because it is a key prevention strategy.

“On various other proposals, I will have to take a further look at the details as they are unveiled. The savings from crop insurance appear large based on all the analysis and work during the farm bill debate on the crop insurance program’s budget, premium subsidies to farmers, and compensation to companies and local agents.”

A news release issued yesterday by the House Agriculture Committee Republicans included this comment from Ranking Member Frank Lucas, “At a time when the USDA recently reported that U.S. net farm income is down 20% from last year, I find it hard to believe that this is the time the administration has chosen to take $10 billion out of the only stable form of support our producers can count on in a difficult economy. This proposal is ill-timed, ill-conceived, and completely out of touch with the realities of production agriculture.”

Meanwhile, a news release issued yesterday by Representative Ron Kind (D-Wis.) noted that, “Rep. Kind also commended the Administration for keeping its pledge to reduce wasteful agriculture subsidies. The budget phases down direct payments over three years by reducing the income cap of $750,000 ($1.5 million for couples) down to $500,000. It also reduces crop insurance subsidies and eliminates payments to cotton producers for storing USDA-purchased cotton (a subsidy given to no other commodity).

“‘I am encouraged that President Obama has held true to his pledge to root out waste in agriculture programs,’ Rep. Kind said. ‘These commonsense reforms will reduce taxpayer subsidies to large agribusinesses and wealthy individuals while still maintaining a vital safety net for farmers during these tough economic times.’”

And Ferd Hoefner, Policy Director for the National Sustainable Agriculture Coalition indicated yesterday that, “We are encouraged that the President in his budget proposal is addressing the critical issue of redirecting commodity production subsidies used by mega farms to drive small and mid-sized operations out of business and prevent new farmers from entering agriculture.

“The Coalition continues to strongly support the comprehensive payment limitation reform proposal of Senators Byron Dorgan and Chuck Grassley, which includes a $250,000 hard cap on total payments per year and closes the existing loopholes which invite continued abuse of the program. It is our hope the President’s proposal will mirror these two central features of comprehensive payment limitation reform.

The Coalition also strongly supports a shift of resources from direct payment production incentives to payments for environmental enhancement through programs such as the Conservation Stewardship Program and to rural and agricultural economic development initiatives.”

Keith Good

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