January 19, 2020

President’s Budget Proposal: Agriculture, Climate Issues, and Trade

Budget: General Overview

An update posted yesterday at CQPolitics reported that, “President Obama proposed a $3.8 trillion fiscal 2011 budget Monday that administration officials are touting as a prescription for both adding jobs to the economy and reducing deficits over the next decade [See: “Remarks by the President on the Budget,” transcript, video].

“Obama proposed $1.16 trillion in discretionary spending, not including military operations in Iraq and Afghanistan. That would be a 2.7 percent increase over the $1.13 trillion set to be spent in fiscal 2010.”

Corey Boles reported yesterday at the Real Time Economics Blog (The Wall Street Journal) that, “The Obama administration’s fiscal 2011 budget request includes a range of measures aimed at spurring job growth, from extending jobless benefits to the unemployed, investing in infrastructure and increasing loans to small business owners.

“As expected, the budget focuses heavily on the need to repair the moribund jobs market, as the White House seeks to improve the nation’s employment picture heading into the November midterm elections.”

Budget: Agriculture

With respect to the budget proposal and agriculture (general summary, complete overview, additional details) the executive branch indicated that, “The Budget proposes to limit farm subsidy payments to wealthy farmers by reducing the cap on direct payments by 25 percent and reducing the Adjusted Gross Income (AGI) payment eligibility limits for farm and non-farm income by $250,000 over three years. The Farm Bill currently precludes an individual or an entity from receiving any benefit in a year where their non-farm AGI exceeds $500,000 and precludes receipt of any direct payments when their farm AGI exceeds $750,000. This proposal would allow USDA to target payments to those who need and can benefit from them most, while at the same time preserving the safety net that protects farmers against low prices and natural disasters. The Budget also includes a proposal that will save billions of dollars by reforming how the Federal Government administers the crop insurance program. Crop insurance companies currently benefit from huge windfall profits due to the structure and terms of the Government’s contract with the companies, called the Standard Reinsurance Agreement (SRA). Through the SRA renegotiation process, which will occur in 2010, USDA will pursue reforms to the financial terms in the SRA that will allow the Department to offer the same program benefits to farmers and ranchers with significantly reduced costs—saving $8 billion over 10 years.”

Reuters writers Charles Abbott reported yesterday that, “President Barack Obama asked Congress on Monday to slash crop subsidies to ‘wealthy farmers’ and to pare federal support for crop insurance, moves estimated to save $10 billion over 10 years.

“Obama targeted those areas for large cuts last year without success. Another fight is likely this year. Agriculture Secretary Tom Vilsack offered to work with Congress to concoct a palatable package.”

“The administration plan would end crop subsidies to people with more than $250,000 adjusted gross income (AGI) from off-farm sources or more than $500,000 on-farm AGI. The caps now are $500,000 off-farm AGI and $750,000 on-farm AGI.”

Mr. Abbott noted that, “But the cuts will be a tough sell for Congress with mid-term elections looming. Senate Agriculture Committee chairman Blanche Lincoln, Arkansas Democrat, said she will oppose ‘cuts that will harm farmers, ranchers and rural communities.’

“‘It is Congress’s job to write the annual budget, and based on my conversations with House Leadership, no one is interested in making cuts to the Farm Bill after the battle we just fought to pass it a year and a half ago,’ said House Agriculture Committee chairman Collin Peterson, Minnesota Democrat.

“Roughly 30,000 people would be affected by the lower AGI ceiling, equal to 2 percent of the 1.4 million recipients of crop subsidies, said an Agriculture Department spokesman.”

“The administration also would cap the direct-payment subsidy at $30,000 a year, down from the current $40,000.”

Yesterday’s article pointed out that, “Vilsack told reporters it would be ‘an improper conclusion’ to link the $10 billion in farm subsidies and crop insurance to a proposed $10 billion increase in school lunch and other child nutrition programs. The budget is filled with cuts and increases at the line-item level, he said.”

DTN Ag Policy Editor Chris Clayton reported yesterday that, “The White House’s fiscal 2011 budget proposal released Monday would lower the cap on direct payments to individual farmers from $40,000 a year to $30,000, a 25 percent cut in direct payments for farmers at the highest end of the income scale.”

The DTN article added that, “In stating its justification for the reductions, USDA describes direct payments as ‘made to farmers based on historical production, regardless of whether they currently produce crops. They distort production and drive up the value of farm land.’”

“In its entire budget, the White House projects USDA’s mandatory spending, including money from the American Recovery and Reinvestment Act, will be $132.28 billion in FY 2011, up from $129.34 billion in 2010,” Mr. Clayton said.

Philip Brasher reported yesterday at The Des Moines Register Online that, “The White House is trying again to cut subsidies to the largest grain and cotton farmers while also proposing to slash payments to the crop insurance industry.

The president’s proposed 2011 budget would at the same time increase spending on school lunches and other child nutrition programs by $10 billion over 10 years — the equivalent amount of the cut in farm subsidies and crop insurance. 

“Congress last year refused to approve a cut in farm subsidies to fund child nutrition; farmers protested that the proposal unfairly pitted them against hungry kids. Agriculture Secretary Tom Vilsack argued today that the latest proposals have nothing to do with each other.”

Bill Tomson reported yesterday at The Wall Street Journal Online that, “The Obama administration foreshadowed the desire to cut farm subsidies a year ago when USDA Secretary Tom Vilsack announced he wanted to take a look at changing how payments are made to farmers.

“Budget officials said government payments would be cut by about $2.5 billion over 10 years from the proposed subsidy reductions.

“The Obama administration is counting on more cost cuts in fiscal year 2011 from overhauling the way the USDA subsidized the crop-insurance industry. The USDA is in the midst of that overhaul after unveiling the first draft of its proposal for a new Federal Crop Insurance Program in December.”

Budget: Crop Insurance and the Standard Reinsurance Agreement

On Friday January 29, spoke with former USDA Chief Economist Keith Collins and Bob Parkerson, the president of National Crop Insurance Services about the federal crop insurance program. Specifically, the conversation focused on the current renegotiation of the Standard Reinsurance Agreement (SRA) that is underway between the crop industry and the USDA’s Risk Management Agency (RMA).

RMA released its initial SRA draft proposal in early December, while the industry submitted its counter draft proposal earlier this month.

For more detail on crop insurance, and the cuts that the crop insurance program sustained in the 2008 Farm Bill, see Monday’s report, which contained audio excerpts from the discussion with Dr. Collins and Mr. Parkerson. Yesterday’s report also included background on last year’s executive branch budget proposal, which also included proposed cuts to the crop insurance program, as well as general background on the Standard Reinsurance Agreement.

In our conversation from Friday, Dr. Collins also addressed some of the specific aspects of the RMA SRA proposal and described the crop industry’s perspective on some of these points. To listen to this analysis, just click here (4:54).

The crop industry’s counter draft proposal also included an interesting attachment that contained a legal memorandum discussing in detail whether or not RMA has a legal basis for cutting administrative and operating expenses (at page 35 of the draft proposal).

FarmPolicy inquired about this issue on Friday and Bob Parkerson provided additional perspective. To listen, just click here (3:03).

As the SRA negotiations move forward (a second SRA draft from RMA is anticipated in mid-February), the role of crop insurance as a variable in the farm safety net is likely to increase in the future, even as the administration seeks to scale back funding for the program.

Jerry Hagstrom reported on January 26 at DTN that, ““[House Agriculture Committee Chairman Collin Peterson (D-Minn.)] said he believes that crop insurance may be the centerpiece of that safety net at some point in the future, saying, ‘Down the road the safety net may be primarily crop insurance. We need to cover every crop grown in this country.’”

Meanwhile, Jared A. Favole and Alicia Mundy reported yesterday at The Wall Street Journal Online that, “Food companies and drug makers could face more than $250 million in new fees under a proposal included in the Food and Drug Administration budget Monday by the Obama administration.

“The fees would be used to review applications for generic drugs, improve inspections of food facilities and cover the costs of reinspecting drug manufacturing plants.

“The fees would have to be enacted by Congress before they could be collected, and the idea faces opposition from the food industry. Presidents have proposed such fees before without success.”

Budget: Climate Issues

Beyond agricultural programs, Reuters writers Jeff Mason and Timothy Gardner reported yesterday that, “The White House on Monday dropped prospects for revenue from a climate cap-and-trade system opposed by many lawmakers, but its proposed budget still called for a ‘market-based’ policy to fight climate change.

“Last year the administration forecast revenues of $646 billion for 2012-2019 from a program in which the output of greenhouse gas would be capped and polluters would be forced to buy, and could later trade, emissions permits.

“‘Unlike last year, we do not show an assumed amount of cap-and-trade revenue since the exact nature of the legislation remains in flux,’ an administration official told Reuters.”

Ian Talley reported yesterday at The Wall Street Journal Online that, “The Obama Administration proposed giving the Environmental Protection Agency an additional $47 billion in its 2011 budget to fund plans to regulate greenhouse gases such as carbon dioxide.

“The administration said $4 million would pay for a new rule requiring firms to report their emissions and $43 million would go toward new regulatory initiatives the EPA is preparing.

In the absence of legislation from Congress to cut greenhouse gases, the agency is drafting rules to regulate emitters across the economy.”

Bloomberg writer Kim Chipman reported yesterday that, “Obama’s EPA spending plan for fiscal 2011 is down from an estimated $10.3 billion in the current year, according to the budget blueprint released today by the administration. About half of the funds would be used for clean-water programs, helping states curb pollution and combating climate change.

“The EPA budget would provide $43 million in new money for efforts by the agency and states to control greenhouse-gas pollution. Obama, who prefers to tackle global warming by legislation, is preparing to do so through the EPA if lawmakers fail to pass a measure, Carol Browner, the president’s top environmental aide, has said.”

Yesterday’s Bloomberg article added that, “Senator Lisa Murkowski, an Alaska Republican, is leading an effort in Congress to block the EPA from regulating greenhouse gases. Democrats Blanche Lincoln of Arkansas, Mary Landrieu of Louisiana and Ben Nelson of Nebraska said last week they backed Murkowski’s motion to overturn the Obama administration’s finding that the gases are a threat to public health and should be regulated.”

In related news, Washington Post writer Juliet Eilperin reported yesterday at The Post Carbon Blog that, “ is launching a series of hard-hitting ads this week targeting the three Senate Democrats–Blanche Lincoln (Ark.), Mary Landrieu (La.) and Ben Nelson (Neb.)–who’ve co-sponsored Sen. Lisa Murkowski’s (R-Alaska) resolution blocking the Environmental Protection Agency from regulating greenhouse gases under the Clean Air Act.”

Budget: Trade

Reuters writer Roberta Rampton reported yesterday that, “U.S. farm exporters are relieved that trade has finally made it on to President Barack Obama’s agenda, although his new goal to double U.S. exports in five years might be a little too much to hope for.

“After a year when farm exporters wondered aloud whether the administration even had a trade policy, Obama linked export growth to job growth. He also promised an initiative to address deep distrust many American hold toward trade pacts, viewed as sapping manufacturing jobs from the United States.

“‘My hope is that we can move forward with some of these trade agreements having built some confidence … among the American people that trade is going to be reciprocal, that it is not just going to be a one-way street,’ Obama said on Friday.”

Yesterday’s article added that, “Obama on Monday proposed a 20 percent budget increase to the Commerce Department’s International Trade Administration to $534 million to launch the export drive.

“The Agriculture Department budget included $54 million to develop foreign markets and work to remove trade barriers. That spending would be offset in part by a $40 million cut in a program to boost sales of high-value U.S. farm goods overseas.

Commerce Secretary Gary Locke is expected to give more details this week about how the administration plans to double exports, a pledge Obama made in his state of the union speech.”

The Reuters article pointed out that, “The presidential goal won’t necessarily include a target of doubling farm exports, Agriculture Secretary Tom Vilsack said.

Obama ‘wasn’t suggesting, by referring to agriculture, that there was going to be doubling of ag exports,’ Vilsack said.”

Ms. Rampton also noted that, “For agricultural exports, demand will increase as world economies recover, lifting prices, said Jim Grueff, a former trade negotiator with the U.S. Agriculture Department.

“‘What we always talk about are the huge, affluent middle classes. If those start to come back, I would say there’s some possibility (to double farm exports), but I would not say it’s probable,’ said Grueff, managing partner of Decision Leaders.”

Last week, Nebraska GOP Sen. Mike Johanns indicated in a news release that, “[Sen. Johanns] led a bipartisan effort in support of pledges President Obama made in his State of the Union address to increase American exports and strengthen trade relationships abroad. In a letter sent to the President on Friday, Sen. Johanns and 17 cosigners, including Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.), expressed their commitment to help the President meet the goals of doubling American exports over the next five years and ratifying pending trade agreements with Colombia, Panama, and South Korea.

“‘I was very pleased to hear President Obama state his support for increasing exports and expanding trade during the State of the Union address,’ Johanns said. ‘With unemployment at 10 percent, we should be pursuing every possible avenue to promote good opportunities for job growth and business investment. Our businesses, farmers, and ranchers produce the highest quality products in the world and deserve an opportunity to compete on a level playing field.’”

And a news release issued yesterday by the American Farm Bureau Federation stated that, “Combined, the Colombia, Panama and Korea free trade agreements represent almost $3 billion in increased U.S. agricultural exports. Congressional action to approve those agreements would help set an aggressive trade agenda that is important to the U.S. economy and the creation of American jobs, AFBF President Bob Stallman today told leaders of the House and Senate Agriculture committees.

“In a letter to the chairmen and ranking members of both committees, Stallman said approving the trade agreements would be a great way to answer President Obama’s call in his State of the Union address for doubling U.S. exports over the next five years. Stallman, last week, sent a similar letter to members of the Senate Finance Committee and the House Ways and Means Committee.”

Keith Good

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