President’s Deficit Plan: Agricultural Provisions- Additional Analysis
Reuters writer Charles Abbott pointed out earlier this week that, “President Barack Obama on Monday proposed to end a ‘direct payment’ subsidy that gives $5 billion a year to farmers regardless of need, as part of his larger effort to reduce the federal budget deficit.
“Direct payments, created in 1996 as a temporary measure, will be the largest farm subsidy this year and terminating them would be a dramatic re-shaping of the U.S. farm program.”
The Reuters article noted that, “‘While direct payments may be impacted, we are going to find a way to have a safety net in place,’ said Agriculture Secretary Tom Vilsack to the National Restaurant Association.
“The government pays roughly 60 percent of the premium for crop insurance. The White House would reduce the subsidy by two basis points on policies with a federal subsidy above 50 percent, for savings estimated at $2 billion.”
Mr. Abbott explained that, “The White House also would lower the rate of return to insurers to 12 percent, from the current 14 percent, to save $2 billion. It would cap administrative expenses at $900 million a year, adjusted for inflation, to save $3.7 billion, and set the premium for catastrophic coverage more accurately, saving $600 million.
“Senate Budget Committee chairman Kent Conrad said Obama asked ‘for larger agriculture cuts than are necessary or appropriate’ and could impair drafting of the 2012 farm law.
“Without the direct payment, the budget for farm supports would be half or less than current spending.”
Philip Brasher reported on Monday at The Des Moines Register Online that, “The fixed direct payments that Obama wants to eliminate have come under increased criticism as commodity prices have skyrocketed in recent years. Farmers and landowners receive the same amount of money each year, no matter how well or how poorly their operations are doing.
“Some farm groups, including the corn growers, are working on proposals to end the payments and use some of the money to expand other programs that would award payments only in years when farm revenue is down.”
Mr. Brasher pointed out that, “The cuts to crop insurance and increases in farmer premiums would come on top of $6 billion in cuts that the administration forced on the companies and agents last year.”
“The industry blasted the proposal, however. ‘Crop insurance has been smashed, kicked around, beat up already by the administration. This is pretty shocking,’ said Bob Skow, CEO of the Independent Insurance Agents of Iowa.
“The insurance system ‘needs to be improved. It doesn’t need to have the financial viability tanked from underneath it,’ said Mike McLeod, executive director of the American Association of Crop Insurers, a trade group.”
Jim Spencer reported yesterday at the Minneapolis Star-Tribune Online that, “The White House says reductions in government support for crop insurance can save another $830 million a year.
“‘The agriculture piece is certainly larger than people expected,’ said Sam Willett, public policy director of the National Corn Growers Association. But what distinguishes Obama’s proposal from earlier calls to end farm subsidies is the ‘compressed period of time’ in which big decisions must be made, Willett said.”
Yesterday’s article indicated that, “Rep. Collin Peterson, a Democrat who represents Minnesota’s farm-rich Seventh Congressional District, said farmers are being asked to do more than their share. Peterson predicts that companies will stop offering crop insurance policies if the cuts go through.
“‘I’m very opposed to cutting more from crop insurance,’ he said. ‘We took $12 billion out of it already [in the 2008 farm bill].’
“Still, Peterson said he understands the president’s proposal to eliminate direct payments. ‘I’ve been telling people for years that they are not defensible,’ he said.”
Mr. Spencer added that, “Crop insurance companies enjoy an annual return on investment of roughly 14 percent because of taxpayer subsidies, the White House said. Obama’s plan cuts that return to 12 percent per year. It also requires farmers to pay higher crop insurance premiums if the government now pays more than 50 percent of their premiums. Nationally, the White House says the average U.S. farmer pays only 40 percent of his or her crop insurance premiums, with taxpayers picking up the balance.
“While all that may be true, Peterson said the president’s proposal puts farmers in a strange predicament: They would suffer fewer program losses if the supercommittee gridlocked and the automatic cuts took effect.”
DTN Political Correspondent Jerry Hagstrom reported yesterday that, “President Barack Obama’s call to extend the farm disaster aid programs championed by Senate Finance Committee Chairman Max Baucus, D-Mont., and Senate Budget Committee Chairman Kent Conrad, D-N.D., was the most noteworthy element in the agriculture package the White House released Monday as part of the president’s jobs and deficit-reduction proposal, several lobbyists said, although Republican farm leaders on Capitol Hill disagreed.”
The DTN article noted that, “But the plan would extend the Supplemental Revenue Assistance Program, or SURE, through 2016, which would cost about $8 billion over that time. SURE pays when there are whole farm losses, but requires that farmers buy crop insurance to collect up to a $100,000 payment. Yet, SURE has been criticized over the lag time between when a disaster happens and when a farmer could be paid.
“Agriculture Secretary Tom Vilsack noted that the disaster programs are not funded for the fiscal year that begins Oct. 1 and said, ‘Those programs are extremely important in the countryside as witnessed by the number of disasters’ this year.”
Mr. Hagstrom added that, “Senate Budget Committee Chairman Debbie Stabenow, D-Mich., said in a statement early Tuesday that her committee should make the cuts and seemed to disagree with the administration’s decision to cut conservation spending. ‘Agriculture will do its fair share in helping to reduce the deficit, but as I’ve always said, decisions on where those cuts come from should be made by the Agriculture Committee, where we constantly receive input from farmers and others in the agriculture community,’ Stabenow said. ‘Farmers across the country have made it very clear that maintaining crop insurance and responsible risk management tools are critical, especially as droughts, floods and devastating storms have battered farms across the country. We have also heard that conservation is a major priority, as producers across the nation rely on important programs to sustain the integrity of their farmland and operations. We can strengthen farmers’ top priorities and help America’s agriculture industry create jobs while providing real and credible reforms to reduce the deficit.’”
President’s Deficit Plan: Perspective from Sec. Vilsack
Secretary of Agriculture Tom Vilsack was a guest on yesterday’s AgriTalk radio program with Mike Adams, where the two discussed the President’s deficit measure in some detail.
During the conversation, Mr. Adams asked, “But in your revision of crop insurance just recently, I thought part of that was the savings that came about that you were able to apply towards deficit reduction. It seemed to me that had already been done, and now we’re hearing it has to be done again.”
Sec. Vilsack replied by saying, “Well, we did do that, roughly $4 billion of savings, but $2 billion of…the total amount was $6 billion. Two billion dollars of that savings went into CRP and conservation programs, and so the question is this ought not to affect producers. This is impacting and affecting insurance companies. And the question is whether or not they can get by with a 12% return on their investment, which most people would, I’m sure, in this economy, take. Right now they’re getting a 14% return.
“So it’s a question of how we’re going to basically get to the number that we have to get to in order to avoid the trigger that will result in across the board cuts that will impact crop insurance, it’ll impact conservation, it’ll impact other farm programs and other assistance programs through USDA.”
In a separate exchange, Mr. Adams noted that, “Well, it sounds like there may be a difference of opinion or at least room for debate here on what is considered a good safety net. Is that going to be the discussion now moving forward then?
Sec. Vilsack stated that, “Well, I don’t know that there’s that much of a disagreement. I think people recognize and appreciate that there probably need to be changes in the direct payment system. I think several commodity groups have suggested that. At least the Cotton Council has suggested an elimination and others have suggested substantial changes in the program.
“I think there is a recognition of the importance of crop insurance, and clearly with a 12% return on investment, crop insurance companies can still make money and still have a viable program. And the president’s calling for a continuation of disaster programs.
“Look, how difficult would it be if you were a producer who, on October 2, was faced with a tornado or hurricane or a flood or some natural disaster that basically wiped out a crop or wiped out your capacity to have a crop, and you basically, if you’d had it two days earlier, you’d be fine, in the sense that there’s at least a disaster program in place. I mean, I think it’s important the president called for a continuation and extension of those disaster programs.”
Philip Brasher reported yesterday at the Green Fields Blog (Des Moines Register) that, “Agriculture Secretary Tom Vilsack says the crop insurance industry should be able to live with the additional cuts in their government subsidies that the White House has proposed.
“The administration cut the industry’s subsidies by $6 billion and is proposing an additional $5.7 billion in cuts as part of a deficit-reduction plan. The companies’ return on investment would be trimmed from 14 percent to 12 percent under the proposal.
“A 12-percent return ‘is what will sustain the industry,’ Vilsack told reporters today. ‘The reality of what we face today is that we’re faced with an unprecedented need to get our fiscal house in order. That’s going to require shared sacrifice.’”
Meanwhile, an update posted yesterday at the National Sustainable Agriculture Coalition (NSAC) Blog stated that, “The National Sustainable Agriculture Coalition urged the congressional deficit reduction or super committee today to take a policy and reform-oriented approach to reducing total farm bill spending while renewing investments in underfunded areas including new farmers, rural development, conservation, renewable energy, agricultural research, and new market development.
“The NSAC letter to the Committee urged them to resist further cuts to farm conservation beyond the $2 billion Congress has already cut since the 2008 Farm Bill, to place hard caps on farm commodity and crop and revenue insurance subsidies, to end subsidies for the conversion of prime grasslands, to renew funding for critical mandatory farm bill programs that have no secured baselines after the end of the current farm bill cycle in 2012, and to protect anti-hunger programs from cuts.
“A more detailed nine page document accompanies the letter and includes the full scope of the NSAC farm bill budget proposal.”
Tom Steever reported yesterday at Brownfield that, “Senator Charles Grassley is concerned about farm spending cuts proposed as part of President Obama’s $3 trillion deficit reduction recommendations to the bipartisan congressional ‘supercommittee.’ The Iowa GOP lawmaker says the cuts hit agriculture at a time of weather woes not seen in many years.
“Senator Grassley said Tuesday, however, that this can be viewed as an opportunity for the Senate Agriculture Committee to have input in the deficit reduction process.
“‘I think that we can put our stamp of approval on something and give it to the supercommittee,’ said Senator Grassley, during a conference call. ‘Now, they can ignore it, but I don’t think they’d be too smart in ignoring it as long we’re helping them get to their [savings] goal.’”
In news regarding the supercommittee, Reuters writers Richard Cowan and Donna Smith reported yesterday that, “If location means anything, the congressional ‘super committee’ trying to attack the United States’ budget ills appears to be isolating itself from public scrutiny so that it can start thinking big thoughts.
“For its second closed-door meeting in a week, the 12 Democrats and Republicans searching for at least $1.2 trillion in savings are gathering in a secluded location — the Library of Congress across the street from the Capitol.
“Those who try to read congressional tea leaves conclude one thing: The super committee is seeking solitude so that members can focus on the task at hand — producing a credible plan to cut huge U.S. budget deficits by Nov. 23.”
And Jake Sherman reported yesterday at Politico that, “Political leaders, across the board, keep pressuring the deficit-cutting supercommittee to ‘go big’ and aim for trillions in deficit reduction, but they keep saying ‘no’ to anything that would actually accomplish that goal.
“Speaker John Boehner of Ohio and other Republican leaders have vowed to reject a penny of tax increases. President Barack Obama says Medicare benefits are untouchable if Republicans won’t raise taxes on the rich. Defense hawks — including Democrats like Defense Secretary Leon Panetta — are concerned about Pentagon spending levels.
“What could be left on the table for actual cuts is nondefense discretionary programs — only about 18 percent of federal spending — that already were raided by the government shutdown debate of the spring and the debt-limit deal in August. It sets up an almost impossible task — wring the bulk of $1.4 trillion in savings out of small slivers of the federal budget — while avoiding once again the hard decisions that address how the United States got into this debt crisis in the first place.”
In other policy developments, former House Ag Committee Chairman Larry Combest penned an Op-Ed that was posted yesterday at The Hill’s Congress Blog. The opinion piece, titled, “Continue America’s no-cost sweet success story,” focused on sugar policy.
Reuters writer Doug Palmer reported yesterday that, “U.S. Senate Democrats banded together on Tuesday to reject a Republican amendment that would give President Barack Obama ‘trade promotion authority’ to negotiate new market-opening agreements.
“Senate Republican leader Mitch McConnell offered the measure because he said it was vital for U.S. job creation.”
The article noted that, “The measure failed on a vote of 55-45.
“Obama has not asked for trade promotion authority, which expired in 2007 and also is known as ‘fast track’ because it puts trade pacts on a quick path to congressional approval.
“An administration official said Obama will seek the authority ‘at an appropriate time,’ but pursuing the measure now would slow down action on South Korea, Colombia and Panama trade deals expected to go to Congress in coming weeks.”
James Politi reported today at the Financial Times Online that, “The US is bringing a case against Chinain the World Trade Organisation to challenge the Asian nation’s imposition of trade remedies against American poultry exports, a move that could heighten economic tensions between the two countries.
“The move was announced on Tuesday by the Obama administration, which charged that since China set the antidumping and countervailing duties against US chicken parts last September, American exports of those products had tumbled by 90 per cent, adversely affecting 300,000 producers and workers in the supply chain.”
A news release yesterday from Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) indicated that, “[Sen. Stabenow] today applauded the U.S. Trade Representative’s filing of a case before the World Trade Organization against China for imposing unfair duties on American chicken products – a move that Stabenow said could protect up to 300,000 American jobs. The filing is the latest in a series of enforcement steps the U.S. has taken to hold China accountable for reneging on its WTO commitments.
“‘China has repeatedly broken its commitments as a fair trading partner under international trade rules,’ Chairwoman Stabenow said. ‘These unfair practices have serious and devastating implications for the U.S. economy and American agriculture. I applaud the U.S. Trade Representative for pursuing action against China’s latest illegal violations, and urge aggressive follow-through to ensure that American agriculture – which is 16 million jobs strong – continues growing, creating jobs and boosting the U.S. economy.’
“According to the U.S. Trade Representative’s office, the United States is requesting dispute settlement consultations – the first step in a WTO dispute – to challenge China’s imposition of antidumping and countervailing duties against imports of U.S. chicken ‘broiler products,’ which are both chicken products that are not cut into pieces, as well as various cuts and pieces. Through this case, the United States is addressing its concerns that China’s duties are inconsistent with WTO rules. Under WTO rules, parties that do not resolve a matter through consultations within 60 days may request the establishment of a WTO dispute settlement panel.
“The U.S. Trade Representative’s office said that before the imposition of these duties, the United States was China’s largest chicken broiler products supplier with over 600,000 metric tons of broiler products exported in 2009. Since the duties have come into force, U.S. exports to China are down 90 percent. According to industry sources, if these duties are not lifted, the U.S. poultry industry will have lost approximately $1 billion in sales to China by the end of this year alone.”
A news release yesterday from the House Agriculture Committee stated that, “This week during The Ag Minute [MP3], Chairman Frank Lucas discusses the importance of transparent economic analysis in federal rulemaking. A year has gone by since a group of lawmakers sent a letter to U.S. Secretary of Agriculture Tom Vilsack requesting a public report on the costs and benefits of the proposed Grain Inspection, Packers and Stockyards Administration (GIPSA) rule. Last week, Cass Sunstein, the administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget, agreed that public analysis is important. During a hearing before the House Committee on Oversight and Government Reform, Sunstein said that ‘it is fundamentally important for economic analyses to be available for public review.’ The administration has yet to complete and release such an analysis, however.”