FarmPolicy

November 1, 2014

Farm Bill; Ag Economy; and Trade

Farm Bill: Policy Issues

Reuters writer Charles Abbott reported yesterday that, “U.S. farm subsidy cuts of $23 billion would be tied to the creation of a new crop subsidy system under a plan being discussed by Agriculture Committee leaders in Congress, farm lobbyists said on Thursday.

“The proposal would end the $5 billion-a-year direct payment subsidy. It would endorse a revenue-assistance program to shield growers from ‘shallow losses’ from poor yields or low market prices as the new basis for the U.S. farm program.

“Leaders of the House and Senate agriculture committees aimed to outline the plan in a letter on Friday to the congressional ‘super committee’. That 12-member panel is charged with finding $1.2 trillion in government-wide cuts.”

The article noted that, “Two lobbyists and a congressional staff worker cited $23 billion as the target for agricultural savings over a decade. Committee aides said discussions were ongoing but cautioned as of Thursday there was no firm agreement.

“With cuts all but certain, some farm groups have offered to scrap the direct payment, which is disbursed regardless of need. They would direct part of the $5 billion to deficit reduction and spend the rest on a reformed farm program. Some of the proposals would end all traditional crop subsidies.”

Mr. Abbott explained that, “If Agriculture Committee leaders go into specifics, they could say whether revenue assistance should be keyed to state, regional or farm income; if it should be a ‘whole farm’ approach or available crop by crop; if the ‘base acres’ eligible for subsidy should be revised and whether subsidies should be paid on planted or harvested area.

Each of those points could change the cost, and appeal, of the program greatly.

Farm income would drop marginally if the direct payment ended. However, an agricultural boom that began in 2006 has boosted overall farm income to record levels.”

The AP reported yesterday that, “The House and Senate agriculture committees are planning to suggest $23 billion in farm and nutrition savings over 10 years to the congressional supercommittee charged with reducing debt.

“Concerned about major cuts, the top Democrats and Republicans on the two panels have been working together to find savings. Kansas Sen. Pat Roberts, the top Republican on the Senate Agriculture Committee, confirmed the $23 billion figure Thursday.”

The AP article added that, “Another member of Congress familiar with the negotiations said the agriculture panels are likely to recommend eliminating a $5 billion-a-year farm subsidy called ‘direct payments.’ The member, who declined to be identified because of the sensitivity of the talks, said the panels are also looking at cutting nutrition programs like food stamps by about $4 billion, a fraction of its $700 billion cost over 10 years.”

Meanwhile, DTN Executive Editor Marcia Zarley Taylor reported yesterday at DTN (link requires subscription) that, “Since the 1980s, farm safety nets have largely focused on protecting farmers from low prices, not necessarily low incomes. Now a revolutionary consensus among farm groups means that a crop insurance program is emerging as the core replacement for decades of cumbersome programs involving price supports, marketing loans, direct payments and target prices.

“The shift is historic and sets the stage for helping growers adapt to highly volatile 21st century markets, said speakers at a Farm Foundation risk management briefing this week.

“‘In 1996 we began this debate on the future of farm programs,’ Ohio State University economist Carl Zulauf said. ‘Today the budget is pushing what was already occurring. The forces of farm policy are moving toward risk management.’”

Yesterday’s DTN article noted that, “Eight of the nine farm bill proposals pending in Congress build on crop insurance with a revenue program as the cornerstone of the federal farm safety net, Zulauf noted. They also link insurance to an amended Average Crop Revenue (ACRE) program for multiyear revenue drops, create coverage for shallow losses not covered by crop insurance and ditch a target-price program now out of touch with crop producers’ real cost of production.”

Ms. Taylor indicated that, “Crop insurance alone doesn’t cover all the gaps that can occur in farm revenue, Zulauf stressed. It covers only the revenue risk growers face between planting and harvest — not the risk from multi-year price plunges that periodically plague agriculture, such as the collapse of the former Soviet Union in the 1980s or the Asian financial crisis of the 1990s, both of which shocked farm exports and prices.

“‘You can’t [cover multi-year shocks] with a program guarantee that resets to market prices every year,’ Zulauf added. That’s why most plans also include some kind of supplemental payment that is triggered when farm revenues plunge far below a historical average.”

Note that the Congressional Research Service (CRS) released a report last week titled, “Farm Safety Net Proposals for the 2012 Farm Bill,”  which was written by Dennis A. Shields and Randy Schnepf.

The CRS report stated that, “Ongoing budget deliberations by the Joint Select Committee on Deficit Reduction have generated concerns that a farm bill to reauthorize farm programs expiring in 2012 may be written by budget negotiators rather than by the respective House and Senate Agriculture Committees. Various federal budget proposals have emerged that recommend lower federal spending including cuts to agriculture programs ranging from $10 billion to $40 billion over 10 years.

In response, Members of Congress, the Administration, and a number of farm groups have put forward proposals to reduce government expenditures on farm subsidies and revise farm programs. Many of these farm program proposals were unveiled in September 2011 as the Joint Select Committee on Deficit Reduction began its deliberations on government-wide budget cuts. The proposals discussed here might be a starting point for developing the next installment of farm programs when the 2008 farm bill expires in 2012. Other ideas have also been proposed but are not discussed here because of duplication or due to insufficient information at time of publication.”

In addition, University of Illinois Agricultural Economist Nick Paulson provided a more detailed look at crop insurance and safety net program issues yesterday at the farmdocdaily blog: “More on Price Risk Protection of Government Programs and Crop Insurance.”

Dr. Paulson explained that, “In the October 4th post, Gary Schnitkey pointed out the difference in the intra-year price risk protection offered by crop revenue insurance programs and risk that may persist over multiple crop years due to price declines relative to historical averages. In the figure from that post, Schnitkey highlighted two eras – the mid-80s and 1998-2002 – as two periods where insurance price guarantees (base prices) would have been below the 5-year average price level. This indicates periods of potential financial stress where crop revenue insurance coverage might have been considered inadequate.

“Today, I take another look at this issue by comparing the timing and magnitude of insurance period price changes for corn to price changes in the marketing year average (MYA) corn price relative to historical levels. Specifically, I compare the deviations of the final harvest price from the base/guarantee price for crop revenue insurance to deviations of the actual MYA price from the 2-year rolling average. The latter provides a measure of the price protection offered through the ACRE program.”

In an interesting side note regarding policy developments, as the U.S. tackles important changes to domestic agricultural programs, recall that a significant U.S. competitor, the European Union is also in the process of reviewing its Common Agricultural Policy (CAP) program.

An update posted yesterday at FarmPolicy.com took a closer look at recent CAP policy ideas in the EU, “European Union- Common Agricultural Policy (CAP) Developments.”

In other U.S. policy news, a release yesterday from USDA stated that, “A new USDA study shows that farmers using combinations of erosion-control and nutrient-management practices on cultivated cropland are reducing losses of sediment, nitrogen and phosphorous from farm fields and decreasing the movement of these materials to the Great Lakes and their associated waterways.”

And Clayton Yeutter, in a column posted this week at The Hill Online, pointed out the importance of regulatory reform as a policy variable that could have a positive impact on the agricultural sector: “Reform the farm bill, agricultural regulation at the same time.”

 

Farm Bill: Budget Developments

The “Washington Insider” section of DTN reported yesterday (link requires subscription) that, “The Senate this week is expected to begin consideration of the fiscal 2012 appropriations bill for USDA, the Food and Drug Administration, Commodity Futures Trading Commission and related agencies.

“The proposal was approved by the House (217-203) on June 16 and by the Senate Appropriations Committee on Sept. 7. It would provide 16% more discretionary spending for agriculture programs than the House version of the legislation. Including mandatory funding, the Senate version would total $136.6 billion, compared with the $125.5 billion overall figure in the House-passed measure.”

And an update posted yesterday at the National Sustainable Agriculture Coalition Blog (“Agriculture Spending Coming Into Focus in Next Few Days”) stated that, “The Senate may begin consideration of the agricultural appropriations bill on the floor today, even while the House and Senate authorizing committee readies their letter, due tomorrow, to the Joint Select Committee on Deficit Reduction detailing proposed cuts to farm bill mandatory spending.

“According to published reports, the size of the proposed 10-year cut to farm bill programs is in the neighborhood of $23 billion, or about half way in between the higher amount proposed by the President and the lower amount that would result from the ‘sequestration’ process that will kick in if the deficit reduction measure to be voted on by Christmas fails to pass.

The appropriations measure — which may go to the floor today but will not be finished until next week — includes a nearly $200 million reduction below the already very low fiscal year 2011 funding level.  On top of that overall cut to discretionary farm, food and rural spending, the bill also cuts 12 percent or nearly $700 million from mandatory farm bill conservation program spending.  The companion House-passed measure cuts the farm bill programs by over $1 billion.  Appropriators raid farm bill accounts through legislative riders and often rely on this mechanism whenever the allocation given to them to fund the programs under their jurisdiction is shorted.”

Josiah Ryan reported yesterday at The Hill’s Floor Action Blog that, “Majority Leader Harry Reid (D-Nev.) announced on Thursday night that the Senate would take up a legislative vehicle, H.R. 2112, to carry Agriculture, Commerce, Justice and Science, and Transportation appropriations bills on Monday afternoon.”

In a related article yesterday, Politico writer David Rogers documented a controversial provision in the agriculture spending measure regarding the school lunch program, potatoes and Sen. Susan Collins (R-Maine), “Potato wars: An eye for an eye.”

In part, yesterday’s article stated that, “With a combined 43 million school breakfasts and lunches served daily, the National Potato Council, the industry lobby, is up in arms at losing its almost unchecked access to the biggest single restaurant in town for many localities — and a big influence on tastes to come… The battle lines will be drawn Monday when the Senate is slated to take up an otherwise noncontroversial $19.78 billion agriculture and rural development bill, which includes funding for the Food and Nutrition Service within the department.”

 

Farm Bill: Supercommittee Developments

Reuters writer Richard Cowan reported yesterday that, “A special committee of Congress, struggling to find bipartisan consensus on ways to cut the federal budget, is not getting much help from colleagues who have been asked for their ideas to shrink deficits.

“The regular committees of Congress have until Friday to submit recommendations to the ‘super committee’ that is in charge of identifying at least $1.2 trillion in savings over a decade through spending cuts and/or revenue increases.

But Republicans and Democrats on most of the congressional committees have failed to come together on budget cuts, leaving the super committee with a laundry list of partisan suggestions.”

Russell Berman reported yesterday at The Hill Online that, “The supercommittee on deficit reduction may have to play some numbers games to significantly exceed the $1.5 trillion in deficit reduction it is charged with finding, Speaker John Boehner (R-Ohio) suggested Thursday.

“Boehner met with members of the deficit panel Wednesday, and on Thursday he offered little indication that the secretive committee has made significant progress toward its goal.”

Jonathan Allen reported yesterday at Politico that, “Fearing deep cuts in federal support to their states, several Democratic governors set up a series of meetings Thursday to lobby supercommittee members and White House officials.

“Maryland Gov. Martin O’Malley, the chairman of the Democratic Governors Association, and Govs. Mark Dayton of Minnesota and Christine Gregoire of Washington met separately with the Senate Democratic supercommittee members and the House Democratic supercommittee members in the Capitol. Gov. Deval Patrick of Massachusetts, a close ally of President Barack Obama, was expected to join the calls by telephone. Later in the day, the governors had scheduled a meeting with White House Chief of Staff Bill Daley.”

An update posted yesterday at The Committee For a Responsible Federal Budget Online stated that, “With only a day left for Committees to send recommendations to the Super Committee, the House Democrats decided to take an omnibus approach. Letters from ranking members of all 16 committees have sent letters in one package, with an overall letter from Minority Leader Nancy Pelosi (D-CA). These letters are more a laundry list of recommendations than a coherent fiscal plan, so providing a topline savings number would be difficult.”

And Sarah Gonzalez reported yesterday at Agri-Pulse Online that, “A letter signed by 127 Democratic members of Congress encourages the Joint Select Committee on Deficit Reduction to protect anti-hunger programs in their budget cutting decisions.”

Kansas GOP Senator Jerry Moran was a guest on yesterday’s AgriTalk radio program with Mike Adams.  In addition to commenting on the just passed Free Trade Agreements, Sen. Moran also spoke to the issue of the Farm Bill, spending and the supercommittee.  To listen to a brief portion of this conversation yesterday with Sen. Moran and Mike Adams, just click here (MP3- 1:52).

 

Agricultural Economy

USDA’s Economic Research Service (ERS) released a report yesterday titled, “Estimating the Substitution of Distillers’ Grains for Corn and Soybean Meal in the U.S. Feed Complex.”   ERS noted that, “Corn-based dry-mill ethanol production and its coproducts – notably distillers’ dried grains with soluble (DDGS) – have surged in recent years. The report estimates the potential substitution of DDGS for corn and soybean meal in livestock feeding and the impact of substitution upon the U.S. feed complex.”

 

Trade- China

The AP reported today that, “China has made one of its biggest-ever purchases of corn on overseas markets, buying 900,000 metric tons of American corn and showing that growing Chinese demand will play an ever larger role in global grain prices.”

However, Jeffrey Sparshott and Tom Barkley reported in today’s Wall Street Journal that, “The U.S. trade deficit with China hit a new record in August, which is likely to be seized upon by those in Congress who want to punish the Asian nation for its currency policies.”

Reuters writers Doug Palmer and Glenn Somerville reported yesterday that, “The Obama administration, under fire for not taking a harder line on China over its currency, appears set to move against the Asia export powerhouse on other fronts as next year’s U.S. elections approach.

The United States is likely to launch fresh challenges against China at the World Trade Organization, probably stoking tensions between the world’s two biggest economies.”

And Pete Kasperowicz reported yesterday at The Hill’s Floor action blog that, “Rep. Joe Donnelly (D-Ind.) on Thursday pleaded with House Republican leaders to allow a vote on a bill aimed at retaliating against China’s currency policy, which many argue is aimed at purposefully keeping the yuan undervalued to gain a trade advantage… Later in the morning, Reps. Kathy Hochul (D-N.Y.) and David Price (D-N.C.) also called for the GOP to call up the bill.”

Keith Good

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