FarmPolicy

September 23, 2014

Farm Bill; Ag Economy; and, Budget Issues

Farm Bill- Policy Issues

Ed O’Keefe reported in today’s Washington Post that, “House and Senate negotiators plan to meet again this week in hopes of finishing another complicated piece of legislation before a critical, fast-approaching deadline.

“In this case it is the farm bill, an omnibus measure that sets federal agricultural policy and spending on food aid.”

Mr. O’Keefe indicated that, “On Monday, Senate Agriculture Committee Chairman Debbie Stabenow (D-Mich.) didn’t rule out packaging a farm bill with other must-pass legislation.

“‘I’m taking this one step at a time. That’s how we’ve gotten as far as we’ve gotten,’ she said in an interview. ‘I believe this can be done by the end of this year if there’s the political will to do it.’”

Today’s article added that, “Stabenow and the lead Republican on her committee, Sen. Thad Cochran (R-Miss.), plan to cut short their two-week Senate recess and return to Washington to meet with [House Ag Committee Chairman Frank Lucas (R., Okla.)] and other House negotiators Wednesday. They hope to complete a bill by next week, according to aides familiar with the talks.

“‘I think we’ve got all the elements. We just need to get people to agree,’ said Sen. John Hoeven (R-N.D.), a senior member of the negotiating group.

“Hoeven said Monday that most of the disagreement still focuses on funding for the Supplemental Nutrition Assistance Program, more widely known as food stamps. Almost 48 million Americans were using the program this summer, according to the Agriculture Department, up from about 46.2 million two years ago.”

More specifically on nutrition issues, Robin Harding reported yesterday at The Financial Times Online that, “America’s most important welfare programme is at the centre of a political tug-of-war as a leading think tank called for reforms to strengthen food stamps, including a 30 cent rebate for every dollar spent on fruit and vegetables.

Diane Schanzenbach, author of a report published on Monday by the Hamilton Project, said that random controlled trials showed a subsidy for fresh food could boost consumption by 25 per cent among low-income households, with significant health benefits.

“But the recommendation shows the extent of policy divisions on food stamps – received by one in eight US households – as Democrats try to strengthen them at a time of high unemployment while Republicans balk at their ballooning cost.”

The FT article noted that, “Ms Schanzenbach said that food stamps are ‘really one of the most robust and well-designed’ of welfare programmes but argued that SNAP is out of date in several ways. For example, prices for fresh fruit and vegetables have trebled in the past 30 years, while prices for sugar and sweets have only doubled so there are ever stronger incentives for SNAP recipients to eat an unhealthy diet. She said that a trial in Massachusetts had shown big increases in consumption of fresh food when there was a built in subsidy.

“‘I think that the findings from the randomised controlled trials were compelling enough that we should consider rolling this out,’ she said. Doing so would cost $824m a year but Ms Schanzenbach said this could be partly paid for by scrapping some of the $388m a year spent on nutrition advice in SNAP.

“‘We spend quite a lot of money right now on nutrition education programmes and there’s not a lot of evidence that they work,’ she said.”

Meanwhile, Bloomberg writer Alan Bjerga reported this week that, “Nicole Blakey says she can’t stand watching other people buy junk food with the government-issued food-stamp debit cards she’s used to raise three children while earning $9 an hour at a dry cleaner.

“‘It makes me sick when you see people at the store, and they have 12-packs of pop,’ the 37-year-old Columbus, Ohio, resident, said in a telephone interview. Taxpayers ‘would probably be more supportive of the program’ if people weren’t allowed to buy unhealthy items, she said.

“That view is being defied by an unusual alliance of food producers, the U.S. Department of Agriculture, libertarians and advocates for the poor who are thwarting efforts to require recipients to buy healthy items with their food stamp benefits as Congress debates reauthorizing the law that governs the program.”

The Bloomberg article noted that, “Obesity ‘is a complex health condition that affects Americans of all income levels,’ said Chris Gindlesperger, public affairs director for the American Beverage Association, a trade group in Washington that includes Coca-Cola Co. and opposes restricting food purchases under food stamps. Targeting struggling families that rely on food stamps, he said ‘will not make America healthier or reduce government spending.’”

Mr. Bjerga explained that, “Food stamps can’t be used to buy alcohol or tobacco or household supplies, pet foods and hot meals, while snacks and high-calorie energy drinks are permitted. Recipients spent as much as $2.1 billion a year on sugar-sweetened beverages and were more likely to buy sugary sodas than recipients of other government food aid who had to pay for such goods out of their own pockets, a Yale University study found last year.”

The Bloomberg article also noted that, “Separating foods deemed unhealthy from other products would be a nightmare, involving the government in debates over whether higher-sugar, lower-sodium Post Foods LLC Shredded Wheat is healthier than low-sugar, high-sodium varieties, U.S. Agriculture Secretary Tom Vilsack said in an interview last month.

“The Agriculture Department has rejected requests from Minnesota and New York City to impose dietary restrictions on food stamps used in those jurisdictions, saying the proposals were too broad and unworkable.”

Mr. Bjerga pointed out that, “The USDA already limits food choices in other initiatives. The Women, Infants & Children program commonly called WIC, which served 8.9 million people cost $6.8 billion in the 2012 fiscal year, has strict dietary guidelines. The federal school lunch program, which last year served free or reduced-price meals to 32 million children, implemented new rules in 2012 to cut calories and combat childhood obesity.

“Those initiatives are different in that they’re geared toward children, said Barbara Laraia, a nutrition professor at the University of California Berkeley. ‘You have a captive audience in those programs, while the SNAP program is a cash transfer,’ she said. Government rules have only a limited effect on diet in any case, she said. ‘It’s hard to motivate people to eat differently,’ she said.”

And Ramsey Cox reported yesterday at The Hill’s Floor Action Blog that, “Some Senate Democrats have renewed their calls for increases in food assistance, especially during the holiday season.

“Sens. John Rockefeller (D-W.Va.) and Bob Casey (D-Pa.) said they would increase their efforts to restore cuts made to the Emergency Food Assistance Program (TEFAP) and Supplemental Nutrition Assistance Program (SNAP), also known as food stamps.”

Also yesterday, USDA’s Economic Research Service (ERS) released a report titled, “Trends in Infant Formula Rebate Contracts: Implications for the WIC Program.”

A summary of the ERS report indicated that, “The U.S. Department of Agriculture’s (USDA) Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides participating infants with free infant formula. WIC is the major purchaser of infant formula in the United States; well over half of all formula is purchased with WIC benefits. To reduce costs, WIC requires its State agencies to operate a cost-containment system for procuring infant formula. Typically, WIC State agencies obtain substantial discounts in the form of rebates from the infant formula manufacturers for each can of formula purchased through the program. In exchange for the rebate, a manufacturer is given an exclusive right to provide its infant formula to WIC participants in the State. Contracts are competitively awarded to the manufacturer offering the WIC State agency the lowest net price (as determined by the manufacturer’s wholesale price minus the rebate).

WIC is a discretionary grant program funded annually by appropriations law. The number of participants who can be served within a fixed budget depends heavily on the program’s food package costs, which in turn are significantly affected by rebates and the cost of infant formula. A previous [ERS] study found that net prices paid by nearly all WIC State agencies were increasing. The report cautioned that if real net prices continued to increase, rising formula costs under newly negotiated contracts could constrain WIC’s ability to serve all eligible applicants.”

The report summary noted that, “Among the 46 WIC State agencies that awarded new rebate contracts after December 2008, nearly all paid lower net prices in their current contracts (in effect in February 2013) than in their previous contracts after adjusting for inflation. Across the 46 WIC State agencies, real net price decreased by an average 43 percent (or 23 cents per 26 ounces of reconstituted fluid), allaying concerns about increasing real net prices. With lower net prices, combined with declining WIC purchases of infant formula, WIC State agencies paid $107 million less for formula in their new contracts over the course of a year.”

In other Farm Bill news, an update yesterday from Sen. Chuck Grassley (R., Iowa) noted that, “On the farm side of the spending ledger, I’m championing payment caps that limit how much individual farmers may receive per year.  I’m also working to maintain support for closing a loophole that exploits the taxpaying public.  Currently, general partnerships and joint ventures may qualify for farm payments using ‘active personal management’ guidelines that allow hundreds of millions of tax dollars to flow though this loophole.  The provisions I authored would allow only one off-farm manager to address the abusive practice of multiple non-farming individuals receiving payments without having a significant role in farm management.  It’s time to put teeth into the law to keep our farm safety net defensible in an era that calls for serious belt-tightening across-the-board.”

An update yesterday at KFYO radio (Lubbock, Tex.) Online noted: “Regarding Farm Bill progress, [Rep. Randy Neugebauer (R., Tex.)] said, ‘We’re kind of starting to run out of rope here with Congress on the House side.’ He observed that there have been attempts to ‘iron out’ some issues to get the discussion going forward.”

AP writer Henry Jackson reported earlier this week that, “‘Three things — farm bill, farm bill and farm bill,’ Democratic Sen. Heidi Heitkamp said, when asked what she would be focused on for the rest of the year.”

Mr. Jackson pointed out that, “[Sen. Heitkamp] said she is most focused on the farm bill because ‘there are consequences from the first of the year,’ if Congress can’t pass a bill. She also said she is worried about a dairy program that could expire by year’s end.

“Republican Sen. John Hoeven, who is on the committee negotiating a compromise between House and Senate versions of the farm bill, said that the farm bill will be his primary focus, too.

“Both lawmakers said they hope for agreement and passage before the end of the year.”

Yesterday, the “Washington Insider” section of DTN stated (link requires subscription) that, “Trade policy has received very little attention in the ongoing farm bill debate, but that could change if Brazil decides to retaliate against U.S. exports in the cotton case dispute early this month. A meeting of a special inter-ministerial group in Brazil was expected Nov. 27. Its purpose was to consider options concerning the monetary value, method and timing of imposing trade retaliation against the United States, as well as which sectors would be affected. Now that meeting has been delayed until Dec. 10 but it is still expected to decide to go forward with the penalties at that time.

“The precipitating factor is the U.S. decision not to pay the monthly $12.25 million it promised Brazil as part of an interim settlement to a dispute over U.S. cotton subsidies that the World Trade Organization found to be illegal in 2004.”

The DTN item added that, “Under the interim 2010 deal the United States agreed to pay the Brazil Cotton Institute –– a special organization devoted to bolstering Brazilian cotton production –– a total of $147 million annually if Brazil would hold off on the retaliation authorized by the WTO. The settlement was temporary, for the period until Congress passed a farm bill that complied with the WTO rule.

“In August, USDA stopped the payments citing a lack of authority under the sequestration. The payments in fiscal 2014, which began in October, already were at risk because they didn’t appear in the administration’s budget. ‘I have neither the authority nor the money to make any payment in October or thereafter,’ Vilsack said.

“Brazil’s foreign minister, Antonio Patriota, said earlier this year that he could not rule out retaliation if the United States stopped paying Brazil the monthly compensation for controversial cotton subsidies.”

Meanwhile, in a column in today’s Wall Street Journal, Adrienne Rose Johnson noted that, “The Agriculture Department recently awarded more than $5 million in grants to local food projects as part of its larger ‘Know Your Farmer, Know Your Food’ program. The program encourages Americans to eat locally, in the belief that local foods will stimulate economic development and promote healthy eating habits.”

The column noted that, “Recent studies, however, have found that local foods are often neither better for the environment nor for the poor. Shipping produce from across the world often emits less greenhouse gases than the same local produce grown with more resource-intensive methods.

“Corn grown in vast farms in Iowa and shipped to Alaska will always be more cost-effective and environmentally sound than corn grown in a small greenhouse in Anchorage, for example. According to a 2008 Carnegie Mellon University study, more than 80% of emissions occur before food even leaves the farm. Contrary to the ‘food miles’ perspective, the study found that transportation contributes little to overall environmental impact.”

 

Agricultural Economy

The USDA’s Economic Research Service released its Outlook for U.S. Trade yesterday, which indicated that, “USDA has revised its forecasts for fiscal 2014 agricultural trade. Exports are now expected to fall $3.9 billion from fiscal 2013’s record, to $137 billion. Imports are expected to rise $5.7 billion from fiscal 2013, to a new record: $110 billion. Compared with the last forecast in August, the new forecast for exports is $2 billion higher, and the forecast for imports is $3.5 billion lower.”

And Marcia Zarley Taylor reported yesterday at the DTN Minding’s Ag Business Blog that, “Call the last eight years of profits in agriculture a Golden Era if you wish, but I also consider them the Golden Era of Borrowers. To be honest, near-zero interest rates have been a fantasyland for capital intensive businesses like agriculture that rely on credit to retool technology. They’ve also greased the way for many beginners to enter agriculture and for large scale operations to expand.

“As I interviewed Farm Credit Mid-America’s CEO Bill Johnson about his upcoming speech at the DTN-Progressive Farmer Ag Summit next week, he reminded farmers to examine what ‘normal’ interest rates are (see chart for some clues).  That’s a good exercise as you stress test your financials and consider how the credit cycle–combined with lower commodity prices–might doubly shock your business going forward. He says the very best businesses spend time looking out five years and take precautions now to bolster their positions later.

“‘We’re still very upbeat about the future, but the cycle is changing. We will be facing shorter economic cycles and much more volatility than in the past,’ said Farm Credit Mid-America’s Johnson.”

 

Budget

Manu Raju and Jake Sherman reported yesterday at Politico that, “House and Senate negotiators are pushing to finalize a small-scale deal to set spending levels and replace sequester cuts for the next two years, a potential respite in the bitter budget wars consuming Congress.

“The two congressional budget leaders — Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.) — are considering a plan that would give relief to some of the domestic and defense programs most burdened by the sequester through 2015 by replacing those cuts with budgetary savings in other areas, according to sources familiar with the negotiations. New revenue through fee increases — not tax hikes — is likely.

The emerging plan also would attempt to find a middle ground between overall federal spending levels sought by Ryan and Murray in their respective budget plans. Under one proposal still under consideration, overall discretionary spending levels would be set in the $1 trillion range for 2014, sources say. That’s an uptick from the $967 billion spending level under the Budget Control Act but lower than the $1.058 trillion level initially sought by Senate Democrats.”

Keith Good

Comments are closed.