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Farm Bill Issues; and the Agricultural Economy

Farm Bill: Background- Budget and Spending Issues

David Rogers reported last night at Politico that, “Facing a two-front war on the left and right, the House Appropriations Committee voted, 27-22, Tuesday evening to move ahead with Republican plans for cutting close to $40 billion from domestic and foreign aid spending over the last seven months of this fiscal year.

“Democrats were united in their opposition, but more important for Republicans was the loss of two of their own Western-state conservatives – Arizona Rep. Jeff Flake and Rep. Cynthia Lummis of Wyoming — who voted ‘no’ to protest the cuts being too small.”

Mr. Rogers added that, “Coming on the eve of what could be a stormy House Republican conference Wednesday morning, the back-and-forth underscores the challenge now facing the GOP as it tries to make good on its promise to roll back domestic appropriations to levels last seen at the end of the Bush administration in 2008.

“The $40 billion in cuts is a major first bite but only takes Republicans halfway to their goal. And when added defense dollars are factored into the equation, the net reduction is closer to $32 billion — a small fraction of the $1.5 trillion 2011 deficit facing Washington.”

Yesterday’s article noted that, “While the draft bill remains under wraps until Thursday, the contours of the measure have begun to take shape in recent days.

The allocations show that labor, health and education programs face some of the biggest cuts; together with transportation, community development programs and housing. And while Republicans vow to help preserve funds for frontline states like Afghanistan and Yemen, the State Department is fearful of a 7.5 percent cut from 2010 funding for its operations budget and foreign aid.”

Erik Wasson reported yesterday at The Hill’s On the Money Blog that, “Momentum appears to be building toward a grand compromise on reducing the budget deficit that could be based on recommendations from President Obama’s debt commission.

“Senate Democrats will hear a pitch for using the debt commission’s proposals on Wednesday from their leading budget hawk, who is trying to hammer home the message that both ends of Pennsylvania Avenue must get serious about slashing the nation’s rising debt.

“The presentation at the Senate Democratic retreat will come from Sen. Kent Conrad (N.D.), the chairman of the Senate Budget Committee, who dropped a reelection bid last month saying he feared it would distract him from fixing America’s fiscal condition.”

The Hill update indicated that, “In the House, Republicans on the Appropriations Committee on Tuesday formally agreed to budget ceilings that would reduce spending this year by $32 billion, as they prepared to release a continuing resolution detailing those cuts on Thursday.

But Conrad suggested on Tuesday that both parties must embrace the commission’s goals, and that proposals such as the House GOP plan are small potatoes and would do little to lower a deficit projected to reach $1.5 trillion this year.”

(Recall that the Debt Commission plan included proposed agricultural spending cuts of $1 billion annually).

More specifically with respect to agriculture, Jason Vance reported on Monday at Farm Futures Online that, “House Republicans are rolling out a plan for agency budget cuts that would decrease the budget of USDA and FDA by $3.2 billion. Senator Roy Blunt, R-Mo., Ranking Member of the Appropriations Subcommittee on Agriculture, Rural Development, and Food and Drug Administration, says his concern with the proposed cut to agriculture is the importance to look at all USDA programs, not just the support programs for farm families.

“‘I think those support programs continue to work, they continue to encourage risk taking and productivity,’ Blunt said. ‘Frankly in a marketplace that’s better than anyone expected it to be those programs are all costing less than was estimated.’

“Blunt says that Congress needs to be sure that they are delivering better results for less money everywhere, including all the programs, making sure they are not only looking at the 25% of the next Farm Bill that directly affects farm families and taking all of the cuts there.”

The Farm Futures link includes an audio replay of an interview with Sen. Blunt.

Julie Harker of Brownfield also spoke with Sen. Blunt earlier this week and reported that, “As Republicans propose steep cuts in the federal budget, Missouri GOP Senator Roy Blunt – the new ranking member of the Senate Ag Appropriations Subcommittee – tells Brownfield cuts should be considered everywhere.

“‘The chairman of that (sub)committee is Herb Kohl from Wisconson and I intend to do everything I can to work with Chairman Kohl,’ says Blunt. ‘I want to be sure we are doing the right kinds of things for American farm families.’”

The Brownfield update added that, “Blunt says nutrition funding – which could account for 75 percent of ag spending in the next Farm Bill – should not be exempt.”

Meanwhile, a news release yesterday from Kansas GOP Sen. Jerry Moran stated that, “[Sen. Moran] has been appointed to the Senate Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies. This subcommittee has responsibility for setting annual spending limits for the U.S. Department of Agriculture (USDA) and the Food and Drug Administration.

“‘Agriculture is a staple of the Kansas economy and USDA plays many roles in helping to maintain agriculture’s success,’ Sen. Moran said. ‘Whether it’s research to advance the latest in agricultural technologies, loan guarantees to help rural communities build water and wastewater facilities, assistance to maintain watershed structures to protect life and property, or the administration of the farm safety net and conservation practices, the work USDA does on a daily basis matters. I look forward to the challenge of finding the proper balance that allows USDA to provide necessary services to rural America, while at the same time reducing spending to bring our expanding federal debt under control.’”

With respect to the executive branch, Agriculture Secretary Tom Vilsack touched on federal budget issues in response to a question from a reporter yesterday during a press briefing regarding a funding announcement for rural projects to create jobs. To listen to his comments regarding the budget, just click here (MP3- 2:38). The entire USDA press briefing from yesterday can be heard here.

And Gary Truitt reported yesterday at Hoosier Ag Today (HAT) Online that, “The opening rounds of the Farm Bill debate will not take place in the agriculture committees but in the budget committees; and, there is already talk of big cuts in farm program spending. House Budget Committee Chairman Paul Ryan has floated the figure of $13 billion in cuts in farm programs. Former Secretary of Agriculture Dan Glickman says farm programs will be on the chopping block, ‘With over a trillion dollar federal deficit, it is hard to say that some programs are off limits.’ But, in the same breath, he told HAT there are parts of the USDA budget that will not be cut, ‘Food assistance programs are entitlements, and I don’t see how Congress can cut programs that feed hungry people.’ In fact, over 70% of the USDA budget goes for food and nutrition assistance programs.

Glickman, who was the keynote speaker at the Purdue Ag Alumni Fish Fry, said the funding for the traditional safety net for farmers should be cut since commodity prices are at record high levels, ‘The farm programs were designed to help farmers during hard times so, if we are entering a period of higher prices, the programs should be changed.’ Glickman predicted that higher food prices will be one of the most controversial issues facing agriculture in the next few years.”

Farm Bill: House Ag Committee Chairman Frank Lucas

A House Committee on Agriculture news release from yesterday pointed out that, “In a special report for the current edition of FB News, Rep. Frank Lucas, Chairman of the House Agriculture Committee, is profiled by the American Farm Bureau Federation. In the article, Chairman Lucas highlights his background in agriculture and his legislative priorities for the committee in the 112th Congress. FB News is the official newspaper of the American Farm Bureau Federation.”

Here is one excerpt from the interview: “What’s your philosophy about direct payments and the other aspects of the farm safety net?

“My general philosophy about direct payments is that they are a significant part of the safety net we provide for producers. It is something they can rely on; it is something they can show their banker. Also, direct payments are the most WTO compliant part of the safety net. Since we’re a part of the WTO, we have to contend with that when we consider our policies. In the 2008 farm bill we added some other components to the set of tools we give producers to manage risk and I think we need to evaluate their effectiveness. The ACRE and SURE programs have had some growing pains. And, with SURE not having a baseline going into the next farm bill we would have to cut other parts of the safety net to fund that program, so I think it will come under increased scrutiny. In general, given the budget constraints, every program will be on the table for examination and every program must stand on its own merits.”

Farm Bill: Crop Insurance

Los Angeles Times writer P.J. Huffstutter reported recently that, “The federal investigator took the witness stand and described the crime scene: a sprawling field clogged with boulders, native grasses and knee-high sagebrush.

“The defendant, a California farmer, had said the site was a 200-acre wheat field. But the investigator found no tilled soil, no tractors, no plows. In fact, she testified, she found no wheat.”

The article noted that, “Such crimes are being perpetrated by farmers who fraudulently claim that weather or insects destroyed their crops to cash in on a government-backed insurance program. Some cheats never bother planting at all. Others sell their harvests in secret and then file claims for losses, collecting twice for the same crop.

“One North Carolina tomato grower, armed with a camera and a party-size bag of ice cubes, created a mock hailstorm in his fields and swindled the federal government out of $9.2 million.

These growers — along with crooked insurance agents and claims adjusters — are using the program to bilk insurance firms and the U.S. government out of millions of dollars a year, according to prosecutors, industry officials and high-tech experts who review questionable claims for the U.S. Department of Agriculture.”

The lengthy LA Times piece added that, “‘Politically, it makes sense not to care too much, because otherwise the insurance companies get hauled up to Washington and read the riot act for not using taxpayer money efficiently to help out the poor farmer,’ said Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University.

“The vast majority of U.S. farmers follow the rules, insurers and federal officials said. Bert Little, director of the data-mining group Center for Agribusiness Excellence, said that less than one-half of 1% of the farmers who take part in the program cheat the system.

“‘But that less than 1% represents a pretty big chunk of money, between $100 million to $200 million a year,’ said Little, whose Texas group is contracted by the federal government to analyze farm records in search of fraud clues.”

National Crop Insurance Services (NCIS) recently provided comments on the LA Times article. The comments are based on letters submitted to the editor of the Los Angeles Times by Dallas Smith, former Deputy Under Secretary of USDA, and Keith Collins, former USDA Chief Economist and a crop insurance industry consultant, as well as other material.

In part, the NCIS comments indicated that, “Beginning with its sensationalist headline, the Los Angeles Times misrepresents the occurrence of fraud in the Federal crop insurance program. The article fails to tell the success story that private insurers and their licensed agents now provide coverage on $80 billion of America’s agricultural production.

The industry shares the Times’ disdain for fraud, and has implemented effective and unprecedented measures to deter and identify false claims. The program has been a pioneer in the use of data mining, utilizes the large field staff of the Farm Service Agency to spot check questionable operations, employs over 4,700 certified crop loss adjusters and conducts numerous claim reviews. These measures have driven the incidence of program abuse far below other lines of property and casualty insurance.

“The Times reports, without evidence, ‘a wave of scams sprouting across the nation.’ Six cases are mentioned. One case, in California, was uncovered by USDA in 2001. Another case mentioned, in North Carolina, was uncovered in 2000. Many measures to prevent fraud and abuse have been implemented since these old cases were first discovered. Moreover, the Times fails to note that 13.3 million crop insurance policies have been sold since 2000.”

The NCIS comments added that, “Again without evidence, the Times and Professor Bruce Babcock simply assert that companies have little incentive to fight fraud. To Babcock, it ‘makes sense.’ In reality, the companies take on substantial risk and making unwarranted payments reduces industry profitability. The companies, along with their large, professional loss adjuster workforce, have every incentive not to make unmerited payments. The crop insurance industry, in partnership with USDA, has zero tolerance for fraud, and is making every effort to root it out and protect America’s farmers and taxpayers.”

Agricultural Economy

Barry Shlachter reported last week at the Fort Worth Star Telegram Online that, “Agricultural producers rode high in 2010, experiencing a 34 percent rise in farm income, and U.S. farms and ranches will likely see another year of ‘strong’ revenues, Agriculture Secretary Tom Vilsack predicted during a wide-ranging interview Friday.

“Vilsack attributed the good showing to exports of grains and meat, with an increasingly affluent China possibly edging out Canada this year as the biggest foreign market.

The agricultural export sector was one of the few bright spots for the U.S. economy last year, he noted, then predicted: ‘And we will have a record agricultural trade surplus this year of $41 billion — up from $4 billion five years ago.’”

The article added that, “As for the shrinking U.S. cattle herd, the ag secretary predicted that it would rebound with sufficient economic incentives. If there’s enough opportunity, people will grow their herds, he said.

Vilsack seemed more concerned with the shrinking number of small-scale American farmers and ranchers. He expressed hope that programs to spread Internet bandwidth in rural areas and to create innovative market opportunities will revitalize the family farm.”

Ian Berry reported in today’s Wall Street Journal that, “U.S. wheat futures surged to a fresh 30-month high as the United Nations food agency warned that severe drought in China could further strain supplies.

“Soft red winter wheat for March delivery ended up 15.5 cents, or 2%, at $8.7425 a bushel at the Chicago Board of Trade. It touched $8.8075 a bushel earlier in the day. Hard red winter wheat at the Kansas City Board of Trade and hard red spring wheat at the Minneapolis Grain Exchange posted similar gains, with March KCBT wheat ending at $9.72 and MGEX wheat closing at $10.095.”

Caroline Henshaw reported in today’s Wall Street Journal that, “The cost of feeding millions of starving people increased markedly in 2010 as rising grain prices pushed up the cost of staple foods, data from the World Food Program showed Tuesday.

“Figures seen ahead of the release of the WFP’s annual report show that while the United Nations’ food-relief agency bought 22% more food last year than in 2009, the amount it spent rose 30% to $1.25 billion.

Wheat purchases, which account for 39% of supplies, cost 59% more last year as the organization struggled to feed people displaced by devastating floods in Pakistan. The average cost of a metric ton of wheat rose to $246 in 2010 compared with $218 a year earlier.”

The Journal article explained that, “Food inflation has also been blamed for sparking unrest in North Africa, which toppled Tunisia’s long-standing president and left around 300 people dead after antigovernment protests turned violent in Egypt.

“‘When there is an increase in international prices it does increase local prices, so our capacity to help people is reduced,’ said Abeer Etefa, the WFP’s senior spokeswoman in Cairo. Egypt is the world’s leading wheat importer, providing subsidized bread for 80% of the population at a cost of around $4 billion a year, or 1.8% of gross domestic product. The WFP is working with the government to fortify the nutritional content of cheap bread supplies for the millions that rely on it for their staple diet.

“Other governments have also been taking steps to keep a lid on food inflation.”

Keith Good