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Budget: Agriculture and Climate Change Issues; and Peanuts

Budget- Agricultural Programs

Jackie Calmes reported in today’s New York Times that, “President Obama on Thursday unveiled nearly $17 billion in additional budget cuts for the coming fiscal year to underscore what he called an ‘ongoing’ effort to find savings at a time when the government’s costs for bailouts, health care and wars are mounting far faster.”

The Times article explained that, “The $17 billion would be saved by ending or reducing 121 federal programs.”

With respect to agriculture, Reuters writer Charles Abbott reported yesterday that, “U.S. President Barack Obama on Thursday proposed a $250,000 a year cap on farm subsidies and a phase-out of the ‘direct payment’ subsidy to large operators — ideas already rejected this year by Congress.”

Mr. Abbott added that, “Farm subsidy spending, estimated at $9.25 billion this year, would be cut by $1 billion a year under Obama’s proposals, which include a reduction in crop insurance subsidies and an end to cotton storage payments.”

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “President Barack Obama’s fiscal-year 2010 budget proposal released Thursday takes another swing at commodity-program payments by proposing a $250,000 cap on payments.

“The budget for agriculture stated the president supports a $250,000 payment limit that ‘will help ensure that payments are made only to those that need them most.’

The proposal also seeks to phase out direct payments over three years to farmers with $500,000 in sales revenue annually. This is the same proposal offered by the administration earlier this year that was roundly criticized in Congress.”

Mr. Clayton indicated that, “The president’s plan also calls for reducing premium subsidies and underwriting gains for crop insurance as well and would eliminate payments for cotton storage. Under the crop-insurance savings, the administration seeks a $2 billion cut in baseline funding over five years. If implemented, the savings would grow to $5.1 billion over 10 years, according to documents from the White House Office of Management and Budget.”

The details of the President’s budget ideas from yesterday, which were presented in a document, entitled, “Terminations, Reductions and Savings,” stated on page 74 that, “This proposal would reduce the Federal [crop insurance] subsidy to both farmers and the insurance companies in three ways: 1) reduce premium subsidies by five percentage points on all coverage levels; 2) increase the Government’s share on underwriting gains to 20 percent from 5 percent; and 3) reduce the premium on Catastrophic Crop Insurance (CAT) by 25 percent and charge a sliding scale fee for CAT coverage from $300 up $5,000 depending on the crop value. These changes are justified because the 2008 Farm Bill created several new subsidized programs in this area, and farmers and the crop insurance companies have recognized the value of crop insurance, so such a heavy subsidy is no longer needed.”

In addition, yesterday’s report stated that, “Crop insurance costs have ballooned in recent years from $2.4 billion in 2001 to a projected $7 billion in 2009. The 2010 proposal would rein in these costs by reducing the crop insurance subsidies to both the farmers and the crop insurance companies. This is reasonable given that the 2008 Farm Bill created new subsidized programs for risk management for farmers such as Supplemental Revenue Assistance (SURE) and Average Crop Revenue Election (ACRE). With these new programs, the current crop insurance program does not need to be so heavily subsidized to provide all farmers with a backstop for loss.”

Recall that back on April 22, I had the chance to speak with former USDA Chief Economist Keith Collins and Bob Parkerson, the president of National Crop Insurance Services about the federal crop insurance program.

As part of our conversation, Dr. Collins explained that the crop insurance program has become a major part of the U.S. farm safety net. To listen to this portion of the interview, just click here (MP3-1:13).

Looking at the March Congressional Budget Office (CBO) 2009 baseline, Dr. Collins noted that CBO is projecting that from 2009-2014, direct payments, counter-cyclical payments, ACRE payments and marketing loan benefits in total will average about $6.5 billion a year. But crop insurance will be paying out already this year, $8.2 billion. The perspective on the size of these programs has really changed, he said.

Note that yesterday’s executive branch budget report stated that, “These changes are justified because the 2008 Farm Bill created several new subsidized programs in this area…[and]…This is reasonable given that the 2008 Farm Bill created new subsidized programs for risk management for farmers such as Supplemental Revenue Assistance (SURE) and Average Crop Revenue Election (ACRE). With these new programs, the current crop insurance program does not need to be so heavily subsidized to provide all farmers with a backstop for loss.”

I asked Dr. Collins about the interaction of ACRE and SURE with respect to the federal crop insurance program. To listen to his explanation on ACRE and crop insurance, just click here (MP3-2:36).

In part, Dr. Collins cited general research in this area and noted that the research indicates that, “ACRE and crop insurance are two different concepts, they address two different risk profiles and they encouraged farmers not to think about substituting crop insurance with the ACRE program.” He added that crop insurance and ACRE serve two different functions and that the existence of ACRE will not discourage the sales of crop insurance in any meaningful way.

And in our April 22 interview we also discussed the interaction of SURE with federal crop insurance. To listen to this portion of the conversation, just click here (MP3-2:15).

Meanwhile, details of yesterday’s budget document on payment limits to “high income farmers” were detailed on page 85; and, the details on proposed reductions on direct payments were highlighted on page 86.

On page 118, yesterday’s executive branch budget document stated that, “The Budget includes a Department of Agriculture (USDA) and Internal Revenue Service (IRS) agreement to increase compliance with farmer income eligibility tests by verifying that only eligible individuals are receiving farm commodity payments. Under the new agreement, those seeking assistance will have to sign a document giving the IRS permission to verify their eligibility. Just like any program with income eligibility tests, the Federal Government has a responsibility to verify that only eligible individuals are receiving benefits. The joint USDA-IRS effort is a step toward better and more targeted verification activities that will reduce erroneous payments.”

An overall “fact sheet” regarding agricultural spending and the President’s budget can be viewed here.

Lori Montgomery and Amy Goldstein reported in today’s Washington Post that, “President Obama’s modest proposal to slice $17 billion from 121 government programs quickly ran into a buzz saw of opposition on Capitol Hill yesterday, as an array of Democratic lawmakers vowed to fight White House efforts to deprive their favorite initiatives of federal funds…Rep. Mike Ross (D-Ark.) said he would oppose ‘any cuts’ in agriculture subsidies because ‘farmers and farm families depend on this federal assistance.’”

And House Agriculture Committee Ranking Member Frank Lucas indicated in a news release from yesterday that, “Today, Ranking Member Frank Lucas criticized the details of President Obama’s FY2010 budget because it includes more than $16 billion in cuts to production agriculture.

“‘It is not enough for President Obama to promote a cap and tax program that would just hammer rural America with a higher cost of living, now he’s revealed the details of a budget that demonstrates a complete lack of understanding of agriculture economics and disregards the promises made in the 2008 Farm Bill, which has not even been fully implemented. The worst example of his budget proposal is eliminating $9 billion in direct payments for those who have more than $500,000 in annual sales, not profits. It’s the wrong policy track and it will only hurt our family-run farms all across rural America,’ said Ranking Member Frank Lucas.”

However, a news release issued yesterday by the Washington, D.C. based Environmental Working Group stated that, “Making good on his promise to find savings in the federal budget, president Obama announced several proposed cuts today that could help reform a broken farm subsidy system. The most promising proposal centers on a total payment limit of $250,000 per person, down from the current $750,000 per person and $1.5 million per farm couple limit set in the 2008 farm bill.

“Current farm programs represent gross inequity in payment distribution. Nearly 90% of all federal farm payments go to only five favored crops that include corn, wheat, cotton, soybeans, and rice, while fresh fruits, vegetables and organic agriculture receive little.”

Budget- Climate Change

Keith Johnson noted yesterday at the Environmental Capital Blog (The Wall Street Journal) that, “The Obama administration’s budget nibbles around the edges of what was proposed in February—trimming $17 billion out of the $3.5 trillion budget—but when it comes to energy pretty much sticks to the script.”

Mr. Johnson stated that, “Getting back to the question of money – and in particular revenue from a cap-and-trade program. President Obama earmarked $646 billion (at least) from cap-and-trade for clean-energy investment and tax rebates. But that assumed that 100% of the carbon-emissions permits would be sold to industry.

“The House is struggling to muster enough support for its climate and energy bill, and compromises appear to be in order. Bloomberg reported today that the House Energy and Commerce Committee is mulling giving away to industry more than half the emissions permits.”

Since the agricultural sector is generally regarded as generating substantially less greenhouse gas emissions than it sequesters, the permit sales issue becomes rather important. Permit sales would presumably be the potential revenue source that would cause the agricultural sector to be a “net winner” with respect to potential climate change legislation.

In a news briefing with reporters yesterday, OMB Director Peter Orszag was asked by a reporter about the revenue stream from cap and trade and wanted to confirm that the administration still expected to garner the $650 billion that was estimated in the February budget outline, which means a 100% auction of permits. Mr. Orszag responded that, “[Y]ou should anticipate no changes in our climate proposals.” To listen to this exchange from yesterday, just click here (MP3-0:40).

Among the many concerns regarding potential cap and trade legislation is the oversight of a market were the trading of the permits can take place.

A Dow Jones news article from yesterday reported that, “A California fraud case is stoking lawmakers’ fears about the ability of the federal government to oversee a budding greenhouse gas market.

“Congress is drafting legislation that would cap emissions of heat-trapping gases from a broad swath of the economy and create a market in permits to emit what some officials have said may be valued at several trillion dollars.

However, a string of Wall Street bamboozlements and the contribution of banks and hedge funds to the financial crisis are making some officials worried that developing a carbon market may simply create a new opportunity for consumers to be swindled on a grand scale.”

And a separate Dow Jones article from this week reported that, “New federal greenhouse gas emission regulation could expose a raft of smaller emitters to litigation, a nominee for a key post in the Environmental Protection Agency told lawmakers Thursday.

“The potential for smaller emitters to be regulated under the Clean Air Act is one reason why business groups warn that EPA regulation of greenhouse gases could create a cascade of legal and regulatory challenges across a much broader array of sectors. The Obama administration has said that isn’t their intent.”

The article added that, “Many legal experts say that based on clear Clean Air Act statutes, however, regulations could be applied to any facility that emits more than 100-250 tons a year, including hospitals, schools and farms. Taken in aggregate, farm animals are major greenhouse gas sources because of methane and nitrous oxide emissions from flatulence, belching and manure. Buildings often emit greenhouse gases from internal heating or cooling units.

“‘It is a myth … EPA will regulate cows, Dunkin Donuts, Pizza Huts, your lawnmower and baby bottles,’ EPA Administrator Lisa Jackson said earlier this year, dismissing concerns raised by groups such as the Chamber and the National Association of Manufacturers.

But in responses to a senator’s questioning, Ms. McCarthy acknowledged that legal suits could be brought against small emitters.”

Meanwhile, Mike Soraghan reported on Wednesday at The Hill Online that, “Democratic centrists are pressing House Speaker Nancy Pelosi to set aside a flagging climate change bill to focus on what they think is a more achievable goal: overhauling the nation’s healthcare system.

“But those close to Pelosi (D-Calif.) say she is charging forward on cap-and-trade legislation, despite the potential defections of Democrats who represent states with industries that would be adversely affected by the bill.

“Pelosi views the bill’s troubles as predictable and solvable aspects of the legislative process.”

Peanuts

A news release issued yesterday by the Georgia Peanut Commission stated that, “Despite the market issues faced by U.S. peanut producers, the salmonella recall and an oversupply of peanuts, U.S. government purchases of peanut butter have declined by 63 percent since peak purchases in 1992. The Georgia Peanut Commission is requesting assistance on behalf of Georgia’s 4,500 peanut growers and urging USDA to purchase peanut butter in the government feeding program.

“The commission sent a letter on May 7 to Agriculture Secretary Tom Vilsack requesting USDA to purchase peanut butter in the government feeding program. Earlier this year Sec. Vilsack announced increased purchases of dry milk, turkey, pork, lamb and walnuts.”

The letter, which was signed by peanut grower groups from all regions, stated that, “The U.S. peanut industry in the last few months has been faced with unprecedented market issues due to the salmonella problem the Food and Drug Administration identified at the Peanut Corporation (PCA) of America’s facilities.

“The PCA salmonella problem, coupled with the largest peanut crop in U.S. history in 2008, has created a worst case scenario for U.S. peanut producers. Peanut growers in Florida have begun planting for the 2009 crop with no contracts in place. The industry does not anticipate this to change for the 2009 crop year and could potentially bleed into the 2010 crop with increasing stocks.

“Despite the market issues faced by U.S. peanut producers, the salmonella problem and an oversupply, U.S. government purchases of peanut butter continue to decline. Since the U.S. Department of Agriculture (USDA) peak peanut butter purchases in the early 1990’s of over 80,000,000 pounds of peanut butter, purchases have diminished to less than half of that amount. (American Peanut Council Attachment)

The letter also noted that, “These purchases would not only increase product demand, but would also show government confidence in peanut products in the wake of the PCA salmonella problem.”

Keith Good