FarmPolicy

June 25, 2019

“Analysis From Washington”- By Dan Morgan- Farm Bill Review

Farm Bill Review

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

I lost count of the times lawmakers used the word “reform” during this week’s final debate on the farm bill in the House and Senate.

It took House Agriculture Committee Chairman Collin Peterson (D-Minn.)–a Midwesterner with a seemingly incurable tendency to speak the honest truth–to give away the game. Except for some “minor changes,” the new farm program is “very much like the current law that we have been operating under,” he told the House on Wednesday.

That’s disappointing to those who thought the time was ripe for a new kind of farm safety net more aligned with the realities of 21st century American agriculture. What emerged instead was a farm program that invites another storm of negative editorials. The new program, like the old one, will continue to automatically channel $5 billion a year to a few hundred thousand farm households even if prices stay at record level. Such a policy won’t win broad public support and probably isn’t sustainable politically in the long run.

Even so, buried deep in this monster bill are what could be the seeds of change. A new program with the earthy acronym ACRE (for Average Crop Revenue Election) could represent the wave of the future. Starting in 2009, farmers will have an option of relinquishing some of the automatic payments and other supports in return for guarantees from the government. If their income from growing certain crops falls below what could normally be expected (state yields time the average national price for the crop), the government will make up the difference.

The provision is a pale shadow of what had been proposed by the National Corn Growers Association. In a globalized economy in which American workers increasingly have to fend for themselves, the notion of giving one privileged group a guaranteed revenue may not be an easy sell.

But ACRE is a breakthrough in several respects. It is a real safety that provides risk protection (along with crop insurance) for people who are actually farming. The current system of automatic payments is not a safety net. The checks arrive twice a year, regardless of whether weather is good or prices are high.

Some believe ACRE could be the start of a farm program overhaul that would eventually transform the current balkanized system of supports, subsidized crop insurance, price guarantees and free money into a “single payer” insurance system tailored to helping farmers manage legitimate risks.

Farm state politicians don’t have much good to say about ACRE, probably because it represents a threat to the status quo. Peterson has repeatedly disparaged it, questioning why anyone would sign up for it. But on the House floor Wednesday, he gave it a surprising, grudging nod.

“That may be the new future direction of the farm bill, depending on how it works out,” he said.

His comment was a sign of just how much Peterson has been worn down by the hard line taken by farm organizations and a few powerful senators who fought against even token cuts in the automatic cash payments to farmers.

Farmers in Peterson’s own northwest Minnesota congressional district will take home nearly $691 million in direct payments during the course of the new farm bill, according to the Environmental Work Group. Yet amid all the celebrating about the new farm bill, Peterson issued a warning to the farm bloc: “These direct payments are not a good way to do a safety net. It’s very hard to explain to our urban colleagues.”

Another section of the bill, long championed by Sen. Tom Harkin (D-Iowa) points the way to a new kind of farm policy that links federal payments to environmental improvements. In Europe, “single farm payments” that are the equivalent of the direct payments here come with environmental strings attached. The newly-named Conservation Stewardship Program edges toward that.

It creates a sizable pool of federal money –$1.1 billion to be disbursed over 10 years—that working farms could use to adopt or improve environmental practices. Thousands of farms will qualify, not just those growing staple crops. By 2018, 115 million acres – nearly a third of all farming acres — will be enrolled.

Any farm would be eligible, not just those growing staple crops. The World Trade Organization has ruled that these conservation payments don’t count against a country’s subsidy limits and can’t be challenged by trading partners. But the biggest plus may be political: the American public will support paying farmers generously if the nation is getting an environmental return.

None of that is much solace right now to critics of the current farm program.

The reformers turned out to be no match for a few powerful senators and Peterson, who protected—and added to–the hugely controversial subsidy system that Congress approved and the president ratified in 2002.

Although three quarters of the $300 billion in the bill go to nutrition, conservation, and energy programs, the politics of writing the bill is still driven by the farm program.

Under House rules, the Agriculture panel is a “minor” committee that is not required to be geographically representative. (There are six members from North Carolina and Georgia, none from New England.) The result is a panel unified behind the interests of farmers growing staple crops that collect the bulk of subsidies. This year, dairy interests did particularly well, snagging an extra $410 million to help cover rising feed costs, and imposing a 7.5 cents a pound fee on all imported dairy products to help finance domestic dairy promotion activities. The poultry industry in Virginia and Georgia beat back an attempt to deny crop insurance to Prairie Pothole farmers who plow virgin prairie lands to plant corn.

In effect, the aggies held a clinic on how to use the power of the purse to silence opposition to current farm subsidies. They heaped new money on anti-hunger groups, certain conservation programs, the biofuels industry, West Coast salmon fishermen, and even a few hundred farmers in Alaska.

Of more than 500 grass roots and advocacy groups lining up behind the farm bill, a majority were anti-hunger groups and food banks thrilled with the $10.4 billion in new money for nutrition programs. When the Bush administration sought to split the agriculture community by urging that growers of fruits and vegetables get a larger share of the pie, farm state lawmakers countered with more than $1 billion in new funds for research and marketing. In effect, the administration inadvertently created yet another lobby for the farm bill.

The bill took care of key Democratic constituencies such as low-income families on food stamps and fruit and vegetable growers in the home state of Speaker Nancy Pelosi (D-Calif.).

Pelosi’s performance came with an eye to shoring up the party’s support in rural America before the congressional elections. She disappointed those who thought she could have done more to pare back subsidies at a time of soaring farm incomes and rising food prices.

But a larger share of the blame may go to the White House. For all the Bush administration’s rhetoric about the need for more subsidy reform, it insisted on keeping or expanding the biggest subsidy of all—the $5 billion in automatic payments. That stand cost it the high ground in the end game of negotiations over the farm bill.

Had the administration agreed to a significant cut in the automatic payments—say $1 billion a year—it might have come to the table with a farm bill that used those savings for all the things the nutrition, conservation and fruits and vegetables lobbies wanted.

It could have advanced an alternative farm bill that moved in the direction of serious structural reform and still offered the interest groups what they wanted. Such an alliance might have given pause to the farm bloc. Instead, the administration chose an approach little different from what Congress was advocating.

Once it became clear the administration’s call for “reform” was hollow, Congress felt free to follow its own instincts.

By Dan Morgan

Reader Comment-

By Ferd Hoefner, Policy Director at the Sustainable Agriculture Coalition, Washington D.C.

I enjoyed reading Dan’s piece this morning. I do have profound doubts about ACRE amounting to any kind of major transformation of commodity politics and policy, but I guess time will tell. I do very much agree with the point at the end that much blame for the lack of reform (notwithstanding lots of editorials and more than a few news articles) lies at the foot of the Administration, both because, as you point out, their proposal called for increasing direct payments and they refused to ever concede on that, but also because, having gained significant leverage to influence the outcome of the bill, they never used it. At every key point in the final months they refused to negotiate, hanging payment reformers out to dry.

I wanted to point out two factual problems on the CSP comments. First, the $1.1 billion is the net increase in CSP dollars over the next 10 years. The total CSP funding over that time period is just over $12 billion. Second, while 115 million acres is about a third of cropland acres, pasture and rangeland acres are also eligible for CSP. From that perspective, it is closer to an eighth rather than a third of all eligible acres which can be enrolled given current funding levels.

It is probably reasonable to assume a higher sign-up rate in percentage terms for cropland relative to pasture and range, but it won’t get close to a third. From our perspective that is not necessarily a bad thing. The environmental standards for CSP are much higher than for conservation programs historically and much higher than EQIP today. Over time, if standards stay high and the funding remains with the program, there will be a very strong, lasting signal for positive conservation improvement. But it needs to build steadily over time. If too many acres could get in from the get go, it would mean accepting lower environmental standards in order to fill out the card.

By the way, the criteria by which USDA will determine who gets into the program in any given year is specified in the statute. There are five factors:

1. The farmer’s current level of conservation achievement related to the priority resource concerns in the area;
2. The degree to which the farmer’s proposal calls increasing conservation performance with respect to those priority resource concerns;
3. The number of priority resource concerns the farmer is willing to address to meet or exceed high standards set by USDA;
4. The extent to which the farmer is willing to address other resource concerns, in addition to the priority concerns, to meet or exceed high standards set by USDA;
5. The extent to which all of these environmental benefits are provided at least cost relative to other similarly beneficial bids.

(Note: with respect to #3 – to be eligible, the farmer must already be meeting or exceeding the high standards set by USDA for one priority resource of concern and also must agree to address a second priority resource of concern to that high standard by the end of the first 5 year contract – however, ranking criteria #3 will tend to favor farmers doing comprehensive conservation, sometimes referred to as total resource management systems).

(Also note that the farmer must enroll the entire farming operation; there is no opportunity to “cherry pick” particular fields that may have fewer problems and therefore would be easier to qualify).

I have many thoughts about how CSP in combination with other commodity and conservation program changes (and WTO green box improvements) could yield a workable long-term green payments alternative to the current hodge-podge of program and market distortions, but that is for another time….

By Ferd Hoefner
Policy Director
Sustainable Agriculture Coalition
Washington, D.C.

“Analysis from Washington”- By Dan Morgan- Farm Bill

Farm Bill

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

The House and Senate batted farm bill proposals back and forth last week, squabbling over such familiar sticking points as payment limits, disaster aid and faster depreciation for farm equipment.

The quarreling, though, seems increasingly detached from the monumental changes that are sweeping through American agriculture—from corn replacing cotton in parts of Mississippi, spring wheat contracts hitting $20 a bushel on the Minneapolis Grain Exchange, and empty grain elevators in the Dakotas.

It isn’t entirely the lawmakers’ fault that their labor has been overtaken by events. When they began work on a new farm bill two years ago, the problems were the traditional ones: stagnant commodity prices and flat farm income. Key farm state lawmakers girded themselves for a traditional battle defending traditional subsidies. They’re still waging that fight, but everything has changed, creating a new set of issues and choices.

What’s the best policy for a world in which food and fuel are competing for acres? With corn prices at or near $6 a bushel, should the U.S. be subsidizing both the ethanol industry and corn growers? Does it make sense for Congress to allocate 85 percent of the U.S. sugar market to beet and cane growers when those acres may be needed for corn and wheat? Is it possible to meet global demands for crops without sacrificing habitat, soil and even the climate?

These are big questions, but they haven’t much entered the farm bill debate, now mired in parochial battling.

The impasse has led some to suggest the unthinkable: This could be the last farm bill of its kind, and perhaps even the last farm bill.

That possibility was advanced privately last week by several serious policy analysts and former senior government officials attending Informa Economics, Inc.’s annual conference on food and agriculture policy in Arlington, Va.

Imagine, they suggested, that the current high prices are not just a blip but a permanent new condition, much like high oil prices. In that case, the commodity title of the farm bill will look increasingly irrelevant. Government price guarantees will no longer be operative at their current levels, and the billions of dollars in direct payments to farmers will become politically unsupportable. In place of the 70-year old system of supports and guarantees, Congress will impose a new safety net operated by private crop insurance companies, though still subsidized by the government.

The House Agriculture Committee’s new farm bill version unveiled last week includes an optional program for farmers providing for scaled-back government payments and other benefits, in return for insurance against both low prices and bad weather. Though backed by corn grower organizations, it gets little respect from farm bloc members.

Committee Chairman Collin Peterson told reporters last week he couldn’t imagine why many farmers would sign up for it.

Still, this year’s impasse over the farm bill may be a sign that fundamental change can’t be postponed much longer.

The agriculture committees are beginning to lose control of the debate. By refusing to consider shifting some $50 billion in direct farm payments to other priorities, the agriculture committees have had to beg money from Congress’s powerful tax and revenue committees in order to fund other priorities. Those committees are now extracting their pound of flesh.

House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) wants a $9 billion increase in food stamp spending as a condition of his help. Senate Finance Committee Chairman Max Baucus (D-Mont.) is unyielding in his demand for a $4.1 billion disaster program. He is also proposing a tax change that would give his committee jurisdiction over the nation’s principal soil and habitat conservation program.

The “aggies” may yet get the money, but only at the price of relinquishing some power.

Already, energy, environmental and agriculture policy are merging, so that the agriculture committees alone no longer control the destiny of American farmers. The newly-enacted energy bill gives the administrator of the Environmental Protection Agency huge new sway over the farm economy, including authority to waive biofuel requirements deemed to be hurting the environment or consumers.

In the new crops-for-energy economy of the Midwest, oil prices are as significant as wheat futures. And EPA’s global climate model, now in the works, could determine whether future ethanol and biodiesel plants qualify for tax credits and loan guarantees.

At the same time, the environmental policies the government chooses over the next months may have more of an impact on farm revenues than the fate of direct payments and traditional subsidies.

Pressure is increasing from many sides to fight shortages and food inflation by plowing virgin prairie and land now enrolled in the Conservation Reserve.

In the House, Congresswoman Stephanie Herseth Sandlin (D-S.D.) favors a “sod saver” program that would deny crop insurance for four years to farmers expanding into native prairie–prime habitat for pheasant and duck, and a natural grass bank for ranchers.

A bigger question is the fate of the 36 million acre Conservation Reserve, one of the premier environmental success stories of the last two decades.

Authorized acreage would shrink by more than 10 percent under Peterson’s proposal, and could fall even more unless the government raises payments to participating landowners to compete with the rents they can now get from farmers.

Pressure is mounting – from farmers, the baking industry, and agribusiness groups – to allow early withdrawal of land from the Reserve. Agriculture Secretary Ed Schaefer says he sees no need for such drastic action. But contracts on 4.5 million acres will expire next year, and many landowners are expected to return the land to commercial farming without higher payments from the government. (About a quarter of the land in the reserve now was formerly used to grow wheat, and prices of wheat are now at record levels.)

The public is entitled to a debate on the implications of the sweeping changes underway in U.S. and world agriculture. At this point, it looks as if it will have to wait.

***

Clarification: An earlier version of Dan’s article reported that the “sod saver” provision favored by Congresswoman Herseth Sandlin was not included in the new farm bill outline offered last week by Rep. Peterson. A committee spokeswoman said Monday that sod saver had been included in both the House and Senate versions of the legislation and Peterson’s proposal “makes no policy assumptions.” She added that the chairman’s “framework document contains a level of savings that presumes savings that would be achieved by the inclusion of a sod saver provision in the final conference agreement.”

Dan Morgan

“Analysis from Washington”- By Dan Morgan- Wheat

Wheat

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

The bakers of this country are hurting, and therein lies a warning about what may lie ahead for U.S. agriculture.

About 80 of them were in Washington last week, visiting congressional offices, the White House and U.S.D.A., and issuing a 3-point plan for alleviating the “current crisis” of high wheat prices and shortages.

The American Bakers Association favors slashing acreage in the Conservation Reserve Program to free more land for wheat production; waiving the just-enacted biofuel requirements if necessary to head off severe economic harm, and “giving priority to the needs of the domestic food industry” when U.S. wheat stocks drop too low.

Such a call for government intervention in the farm economy seems strangely anachronistic in today’s booming, globalized agriculture.

We’ve seen blips before. High commodity prices invariably cause a backlash from consumers, the livestock industry, advocates for the poor and importers overseas. They demand “action” from politicians to help ease prices and curb shortages. Farmers respond by increasing their crops. Soon enough the situation corrects itself and we’re back to low prices, surpluses and farmers saying, “We told you so.”

Yet what is occurring in the markets, and in American agriculture, feels different this time around. That’s why it’s important to take the bakers seriously.

Hundreds of millions of people in Asia are flooding into urban centers where they can be fed more easily by imports than by inefficient farmers in their own countries. Incomes are rising and people have the money to buy more bread, vegetable oils and meat, best supplied by global trade.

In the United States and Europe, stepped up requirements for the use of biofuels is another new factor that is building a higher floor under prices. (There was no such ethanol mandate when Congress wrote the last farm bill in 2002.)

Meanwhile, soaring oil prices are providing incentives for gasoline makers to blend cheaper domestic ethanol, quite aside from the biofuel mandates.

The result has been record commodity prices. Global stocks of edible oils – palm, rape, soy and sunflower – are at a 30-year low. Spring wheat prices topped $20 a bushel in the Minneapolis Grain Exchange. Some bakers fear the U.S. could soon run out of rye bread. U.S. supplies reportedly are tapped out, and millers are shopping in Europe for rye.

Come April and May, durum wheat growers in Arizona and California may be able to name their own price. There will be little or none left from the 2007 North American crop from which to make pasta flour.

The usual response to high prices and shortages is more production. In the early 1970s, Agriculture Secretary Earl Butz, exhorted farmers to plant “fencerow to fencerow” after Russian grain deals and severe drought sent prices soaring.

But there are limits now to what farmers can do. Yield increases have slowed, and in the case of wheat, they have lagged. Expanding acreage isn’t the obvious option it once was. Plowing idle land, or cutting forests to make way for row crops, releases vast amounts of carbon and could affect climate. As governments move toward tighter controls on carbon emissions, farming more acres may become problematic.

That’s what has begun to create pressures for a stronger government hand in agriculture after years of laissez-faire.

The recently passed energy bill took a significant step in that direction. The legislation set aggressive requirements for gasoline manufactures to blend biofuels. But it also gave EPA, in consultation with U.S.D.A. and the Energy Department, authority to waive the requirements if they would “severely harm the economy of a state, region or the U.S.” or if domestic supplies proved inadequate.

EPA presumably can’t act yet, because it is yet to write the rules for this new law. But Congress made clear it wants the government to balance biofuels needs against other interests. “Trading independence from foreign oil for dependence on foreign sources of basic food is not in the best security interests of the country,” as the statement released last week by the American Bakers Association put it.

It is more likely that Congress will use high prices to nibble at conservation programs that have set aside vast tracts of farm country for wildlife habitat.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) recently proposed an 18 percent cut in the 39.2 million acre Conservation Reserve, which pays landowners an annual rent for removing land from farming for 10 years.

The bakers support that, and they are also urging the U.S.D.A. to use its authority to waive penalties for farmers seeking an early release from their CRP contracts.

For that, the bakers have plenty of backing from agribusiness lobbies, including poultry, dairy, pork, beef, ethanol, corn sweeteners and flour, which favor increased supplies of raw materials and lower prices.

That isn’t the case with the bakers’ other proposal, which seems to imply more far-reaching supply management. It calls on USDA to “give priority to the needs of the domestic food industry” but without saying exactly how that would be done.

After Washington’s disastrous experience with export controls in the infamous 1980 embargo on grain sales to the Soviet Union, limiting sales abroad would be a desperate and unlikely move. But some kind of domestic grain reserve, perhaps modeled on the Strategic Petroleum Reserve, may not be completely implausible if inflationary pressures continue.

In most wheat growing nations and regions (except for the United States and European Union), governments view the wheat supply as too politically sensitive to leave solely to the whims of the international market. That has been evident in the current wheat shortage. Kazakhstan’s announcement last month that it was introducing export tariffs on wheat triggered a sharp jump in wheat prices worldwide, and will affect the price of bread in the United States.

Other major wheat growers, including Argentina, Russia, Ukraine and China, have taken some wheat off the world market to address supply shortfalls at home, according to a recent article in The Wall Street Journal.

“They represent a third of global wheat exports and they all restrict trade to some degree,” said Rich Feltes, senior vice president and director of commodity research at MF Global in Chicago.

That has left the United States, Canada and the EU as suppliers of last resort, and has ratcheted up prices for millers, bakers and consumers in those places.

“Our stocks here in the United States have literally been raided because of the export tariffs and controls that have been applied by government agencies in other wheat growing nations around the world,” said one wheat dealer.

Perhaps the high grain prices are just another blip, as many farmers now contend. But if they are not, the debate over managing U.S. supplies is likely to continue and intensify.

By Dan Morgan

"Analysis from Washington"- By Dan Morgan- Biofuels

Biofuels

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Picture this hypothetical situation.

It is early 2009 and corn prices edge up to near $7 a bushel as U.S. ethanol plants and Asian traders bid for grain that is scarcer than expected after a disappointing 2008 harvest.

Responding to protests from U.S. consumers, the livestock industry and Asian customers, the new administrator of the Environmental Protection Agency, a Democrat, takes decisive action.

Using her broad authority under the 2007 energy bill, she waives the requirement that gasoline blenders use 11.1 billion gallons of corn ethanol in 2009. Unpopular as the action is in the Midwest, it breaks the corn price and eases inflationary pressures that are playing havoc with the U.S. economy.

Granted, it’s unlikely. The political consequences would be far reaching. Midwest voters still haven’t forgotten, or forgiven, Jimmy Carter’s 1979 grain embargo. And such dramatic action would scare off Wall Street investors needed to underwrite Washington’s huge bet on “advanced” biodiesel fuels.

But it isn’t entirely implausible, either.

American agriculture still hasn’t fully grasped the extent to which the energy bill shifted power over the farm economy to a corner of the executive branch where “production agriculture” has limited influence. In a Democratic administration attuned to the concerns of poor urban consumers and environmental groups, moderating food prices and protecting soil, water and air could take priority over hitting the ambitious biofuels targets in the energy bill.

Most commentary on the energy bill has focused on the broad outlines of what it does to require more fuel-efficient cars and require gasoline makers to drastically increase the use of ethanol and biodiesel fuels by 2022.

But this is a bill in which the Devil is truly in the details, complex as they are.

The biofuels provisions, for example, give the EPA administrator broad authority to scrap the annual requirements for corn ethanol, biodiesel and cellulosic ethanol that now underpin high commodity prices and soaring land values across the farm belt.

“In consultation with” USDA and the Energy Department, the administrator can waive the yearly requirements if she determines they would “severely harm the economy of a state, region or the United States” or finds that domestic supplies are inadequate to hit the target.

Much of the language in the new law was proposed by the Natural Resources Defense Council, and it reflects environmental priorities as much as those of the farming community.

“The only reason the environmental community is interested in biofuels is as a way to address global warming,” said Franz Matzner, NRDC’s chief forest and public lands advocate. The result, he added, was a good bill that allows a dramatic expansion of biofuels – but only if the increase can be achieved without harming water, soil, wildlife habitat and the climate.

The law, for example, gives EPA the job of establishing, within one year, the greenhouse gas baseline against which all new biofuels will be measured. Ethanol from corn won’t count unless EPA determines that growing, transporting and refining it emits 20 percent less carbon dioxide than a like quantity of gasoline. EPA must also consider “indirect” effects, such as carbon releases from cultivating virgin land or forest to replace corn diverted to fuel.

The Renewable Fuels Association signed off on this because most corn ethanol plants won’t have to meet that standard. The energy bill “grandfathers” 143 existing refineries and 64 new plants or additions under construction. Those plants will have a yearly capacity of 13.4 billion gallons, just shy of the 15 billion gallon ceiling set in the energy law.

However, future coal-fired refineries now on the drawing board probably won’t qualify, according to congressional aides familiar with the energy law. And refineries producing a new generation of cellulosic biofuels could face a much tougher challenge reaching the law’s 16 billion gallon requirement by 2022, according to industry experts.

These plants will qualify for generous federal loan guarantees and credits, but their ethanol won’t count against the requirement unless EPA finds that it is reducing greenhouse gases by 60 percent below the EPA baseline. (EPA can reduce that to 50 percent but no lower.)

Unless ethanol or other renewables count against the mandates in the energy law, refiners would have less incentive to purchase the product.

The details still have to be worked out, but all this gives EPA serious power over the farm economy, now heavily dependent on strong demand from the burgeoning biofuels industry. In effect, EPA now has principal responsibility for managing the demand for major crops. Indirectly, how it uses that authority will guide farmers’ decisions on plantings, a role once played by USDA.

A “crunch” could be coming sooner than we expect, according to Purdue University economist Wallace E. Tyner.

New ethanol refineries now rapidly coming on line guarantee an explosive growth in the demand for corn this year, he notes. He predicts production of at least 11 billion gallons of corn ethanol, up sharply from last year.

It will take some 25 million acres to grow enough corn to make that amount of ethanol, Tyner estimates. That is nearly 5 million more acres than were needed last year. But corn acreage this year is estimated to be down by three million acres. That explains why corn prices remain very high. How much higher they will go if the 2008 harvest is short is anybody’s guess.

Federal tinkering with the commodity markets seems out of the question in the next few months because EPA hasn’t yet written rules implementing the 2007 law—and this is an election year.

But with the ink on the new biofuels law signed in December still wet, it is already getting a second, closer look in Congress.

Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee, held a hearing in February to air concerns about the biofuels title which he said “some have suggested is flawed.”

Environmental lobbyists involved in writing the legislation made sure that biomass from public lands and national forests were put off limits to biofuel refineries that convert timber, brush and woodchips into cellulosic ethanol. Protecting public lands from raids by the biofuels industry was key to environmental support, said NRDC’s Matzner.

But Bingaman and Rep. Stephanie Herseth Sandlin (D-S.D.) want to reopen that issue. Herseth Sandlin’s congressional district encompasses the Black Hills National Forest.

Matzner said her bill would “remove all the safeguards that keep the energy bill from incentivizing the wholesale loss of our national forests…Her bill is saying we don’t want to have any safeguards.”

Congressional aides give Herseth Sandlin little chance of amending the energy bill anytime soon. It could only be done with the approval of Rep. John Dingell (D-Mich.), all-powerful chairman of the House Energy and Commerce Committee and czar of all clean air legislation.

But the conflict isn’t likely to go away as agriculture and forestry interests focus more closely on the extent to which Dingell, Bingaman and EPA now hold sway over their economic future.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Secretary Schafer

Secretary Schafer

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Democratic Sen. Kent Conrad (D-N.D.) was in a hurry to get millionaire businessman and former North Dakota Gov. Ed Schafer sworn into office Monday in time to bask in the pomp of sitting with the Cabinet at the State of the Union address.

It wasn’t just the close family ties. (Schafer is Conrad’s former brother-in-law and Schafer’s dad once offered to help Conrad with his college costs.) Conrad’s helping hand—resulting in Schafer’s hurry-up Senate confirmation by “unanimous consent” rather than by roll-call vote following debate—was political and strategic.

Farm bloc lawmakers urgently need more “flexibility” from the Bush administration in ending the impasse over a new farm bill and they hope Schafer will provide it.

More than a few of them welcomed President Bush’s decision to shove aside Acting Secretary Chuck Conner, deemed “very, very inflexible” by Conrad, and select an old political pal.

Supporters of the straight-talking Conner hoped Bush would name him secretary as a reward for the major role he has played in the drafting of the farm bill. Conner himself was bitterly disappointed.

As a former congressional staffer with long experience in Washington, Conner has been respectful of Congress—but also unawed. As the administration’s point man on farm policy, he has repeatedly warned that the White House will veto the new farm bill unless Congress toughens payment limits and removes new taxes on business now in the House and Senate-passed versions.

Schafer told senators at his Agriculture Committee hearing last week that he would champion national needs rather than state needs in his new role. But he promised to try to “narrow the gap between the legislative and executive branch.” Conrad suggested that his long-time friend could act as a kind of intermediary.

Schafer has already demonstrated some give. On his second full day in office, he called in a small group of reporters and hinted the administration might be willing to soften its position on payment limits.

The secretary said he was “not sure the administration’s positions on farm subsidy dollar limits and a ban on subsidies to farmers who make more than $200,000 in adjusted gross income should be final,” according to DTN.

Schafer is a Republican with ties to real estate, wireless communications, and consulting businesses in his home state.

Conrad is a Democrat. But in North Dakota’s tribal politics, members of both parties unite to protect the interests of the state’s Air Force bases, ranchers and farmers, and party labels don’t mean that much. As governor, Schafer fought as hard as any Democrat to get federal drought and “disaster” relief for North Dakota farmers.

In theory, the Bush administration has unprecedented leverage this year to influence the final shape of the farm bill. Typically, a White House threat to veto a farm bill is an idle one because so many Republicans stand ready to override the veto of such a popular measure.

That isn’t the case, though, with a farm bill vetoed because it contains “new taxes,” anathema to Republicans in an election year. Most House Republicans voted against the farm bill in July because it included revenue provisions. Democrats said they were merely closing loopholes, but GOP lawmakers protested they were new taxes.

Yet if Congress bows to the administration and strips out tax provisions and a host of budget gimmicks, there won’t be sufficient money to fund initiatives in nutrition, bioenergy, soil and water conservation, or new indirect aid for fruit and vegetable growers.

Without those add-ons, enthusiasm for a bill that continues or increases traditional farm programs in times of high commodity prices could wane fast in both bodies.

Right now, the House, Senate and administration are far apart. None of the plans they have put forward come close to meeting the budget limits without a resort to gimmickry or “new revenues.”

The administration’s farm bill, proposed a year ago, itself runs $8.5 billion above the amount allowed under budget rules, according to the Congressional Budget Office.

That is less than the respective $12.9 billion and $11.6 billion overruns for the House and Senate bills, according to CBO.

But the administration plan contains only a miniscule amount of new money for food stamps and child nutrition. To get the bill through the House, Democrats added $11.4 billion in extra spending for those priorities over the next decade. The new money—a signature accomplishment of the Democratic leadership—pays for increasing the standard deduction and raising the minimum food stamp benefit.

The Senate bill mandates similar steps, but uses a budget trick—pretending Congress will allow the new benefits to lapse after five years—to make its legislation appear less costly.

Even so, Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) criticized the administration yesterday for refusing to offer compromises that could make everyone happy.

“I don’t know what the president’s game is,” he told reporters, noting that Bush “ratcheted up” the veto threat in his State of the Union message Monday night when he threatened to veto any legislation that raised taxes.

“The ‘my way or the highway’ stance of the White House is not helpful,” he said.

Meanwhile, time is becoming a factor.

Congress last year extended the old farm bill until March 15 to allow time to negotiate a compromise. That date could be extended again if an agreement seems near, but at that point negotiators might have to work with a new set of budget numbers.

CBO’s just-updated 10-year projections for commodity programs show their cost declining from the $75.6 billion seen as likely a year ago, to only $66.6 billion. That is mainly because CBO is predicting commodity prices will be higher than was thought a year ago, resulting in a further decline in government price guarantees and supports.

Once Congress votes to accept these projections—possibly in late March—farm bill negotiators will have even less ability to shift subsidy money to other priorities because they will have less money to play with in the commodity baseline.

One irony of the congressional budget system is that the current record high commodity prices serve to protect the existing web of price supports and price guarantees. Even if Congress slashes those rainy day subsidies, CBO won’t credit savings, since CBO sees prices staying well above the existing subsidy floor most of the time. This leaves Congress with little budgetary incentive to make reforms.

(CBO projects that of the $66 billion in commodity costs between fiscal 2008 and 2017, only about $16 billion will go to traditional price supports and guarantees related to what farmers grow. The other $50 billion is accounted for by income support, known as direct payments, that goes to farmers automatically, regardless of prices.)

CBO’s new projections see federal crop insurance subsidies rising sharply, by as much as $14 billion over 10 years. (As farm prices rise, so do insurance premiums that are subsidized by USDA.) Congress could cut the subsidies and capture funds with which to pay for other priorities. But crop insurance subsidies have already been cut in the House and Senate-passed farm bills, and it isn’t clear how much more pain Congress is willing to inflict on the industry.

If the current farm bill expires without an extension, farm programs would automatically revert to those mandated in the 1949 law, a distant era when there were millions of working farms and horses still pulled some plows. Milk prices would immediately double and farmers might be required to idle cropland despite the present booming demand for commodities to supply people, livestock, export markets, and biodiesel plants.

All that in an election year when the government is fighting to stimulate economic growth and provide more help for the poor.

The Democratic chairmen of the House and Senate agricultural committees both insisted this week that there was a serious possibility of defaulting to the 1949 law unless the administration compromises.

Most think such a turn of events is highly implausible.

“It’s a game of chicken,” said a congressional staffer.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Average Crop Revenue

Average Crop Revenue

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

The farm bill approved by the Senate Agriculture Committee last week was a disappointment to those who thought this was the year for dramatic reforms.

But credit the committee for one thing. The inclusion of the Average Crop Revenue plan, even in scaled down form, was a significant event. In concept at least, the ACR is bold, even radical. It may point the way out of the current tangled farm subsidy system, toward a farm program that could win long-term public support.

In effect, the ACR is a step toward a “single payer” approach to protecting farmers from the risks of bad weather and falling prices. Over time it could lead to the dismantling of the current crazy-quilt of farm programs, sporadic disaster aid, and subsidized private crop insurance. In place of that hodge-podge would come a single government-run safety net tailored to supporting farmers in times of true economic adversity.

The modified proposal put forward by Sen. Pat Roberts (R-Kansas), and adopted by the committee, fell well short of that. But even it contains some striking philosophical breaks with the past.

For those farmers choosing to insure their incomes through ACR, there would be no more “non-recourse” loans, the basic pillar of the farm program for seven decades. ACR participants would also be ineligible for “target price” guarantees, a staple of the farm program since the 1960s. Even direct payments, the key innovation of the 1996 Freedom to Farm legislation, would begin to wither away.

That such an option could be approved by the Vatican of U.S. agriculture, the Senate Agriculture Committee, is worthy of note.

The initial proposal by Sen. Tom Harkin (D-Iowa), modeled on one supported by the National Corn Growers Association and key senators from corn states, went even further, striking not just at the philosophical roots of traditional farm programs but also encroaching on the territory of the private insurance industry.

For the first time the government would take on part of the role now played by the private insurers, paying farmers when statewide crop revenues fell below a norm for whatever reason, be it falling prices or bad weather.

Participating farmers would end up paying lower insurance premiums to private companies since the government would be taking on more of the risk. Reduced federal subsidies to the private companies would, in turn, produce savings the government could use to finance payouts to farmers with losses.

Furious lobbying by the crop insurance industry kept those provisions out of the compromise version.

Still, Sen. Saxby Chambliss (R-Ga.), the committee’s top Republican and defender of traditional programs that help southern crops, praised Harkin for “moving us in a direction that hopefully one day will lead to a change in how we do business.”

There are still plenty of reservations inside and outside the Beltway.

In the view of Tom Buis, president of the National Farmers Union, the big weakness of ACR is that payouts to farmers wouldn’t be based on local conditions, but on a formula pegged to a whole state’s crop revenues.

Because conditions can vary so widely within a state – even from town to town – farmers want risk coverage based on local conditions, Buis said. The tried and true commodity loan program fills that bill nicely and few farmers will give it up, he said.

Under ACR, he warned, a drought stricken farmer in western Kansas might get no help if high prices and bin-busting crops in the eastern half of the state pushed the state’s average returns above the floor for ACR payouts.

But what is driving ACR in the Senate now isn’t so much a desire to write good policy as budget considerations.

A decisive factor for including it was an estimate by the Congressional Budget Office that tens of thousands of farmers will sign up, saving the federal government more than $3 billion over the next five years. Senators on the Agriculture Committee were able to assign those savings to nutrition and conservation programs, buttressing support for the overall farm bill when the measure goes to the floor.

“Money drove this,” said a lobbyist who participated in some of the backroom discussions but asked not to be identified.

Buis for one is skeptical that many farmers will opt for ACR. But so far, CBO has stood by its score.

Whether ACR will survive or even be expanded when the farm bill goes to the Senate floor is anybody’s guess.

But even diehard defenders of the farm program acknowledge current policy can’t be sustained indefinitely. It is a bewildering mix of overlapping subsidies that include price support loans, price guarantees, automatic cash payments and subsidized crop insurance. The Senate farm bill will contain yet another component, a $5.1 billion disaster trust fund that Harkin says will benefit mainly a handful of low rainfall states.

Crop insurance subsidies and direct payments alone cost the government around $10 billion a year.

The thinking of those supporting ACR is that the government could use that money to fashion a simpler, less costly, common sense safety net by combining these programs, and eliminating the many loopholes. That’s a “new way of doing business” the American public might well support.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Senate Debate

Senate Debate

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Senate Agriculture Committee Tom Harkin (D-Iowa) is a nice guy. A liberal populist, he fights for good causes and often wins battles on behalf of the disabled, women, workers and the hungry.

But is he too nice to get what he wants from the bruising struggle taking place behind the scenes in the Senate over the next farm bill?

In 2001 and 2002, when Harkin also chaired the committee, Majority Leader Tom Daschle (D-S.D.) and Kent Conrad (D-N.D.) grabbed control of the legislation and put their stamp on it.

Conrad often acted as if he was chairman, meeting with House Agriculture Committee chief Larry Combest (R-Texas) and cutting deals.

This time around, Conrad is once again a blur of activity, working with the committee’s ranking Republican, Saxby Chambliss (Ga.), and with Senate Finance Committee Chairman Max Baucus (D-Mont.) to line up support for a farm bill title setting aside big money for farmers hit with crop failures or weather-related disasters.

Harkin doesn’t like Conrad’s proposal, which is aimed especially (though not exclusively) at North Dakota farmers who get an average of less than 20 inches of rainfall annually and—predictably enough—repeatedly lose crops and pastureland due to drought.

Harkin wants a broader safety net that would help farmers when farm income in a state falls below the norm for whatever reason—bad weather, weak markets, a collapse in the ethanol boom. His plan, he argues, would help more farmers than Conrad’s, even in the parched northern plains.

But Conrad is a relentless political operator who never quits. And that’s the pity. Harkin is an idea man with a progressive vision of where U.S. agriculture is going and what the farm bill should look like. But as the weeks drag on and Senate work on the farm bill is delayed, he seems increasingly hemmed in by Conrad’s aggressive tactics and the real politik of Senate dealing making.

He acknowledged as much Tuesday in one of his regular teleconferences with reporters. While he still held out hopes for what he said would be “very modest” reforms of the basic subsidy programs, he twice noted that he was limited by “the art of the possible,” i.e., he can’t move a bill out of his committee without votes from hardline advocates of traditional subsidies.

Harkin’s subdued tone contrasts with his excitement and energy as he embarked on the farm bill process earlier this year. Then he suggested it was “an ideal time to do some reform and reorganize our priorities.” The farm bill passed in July by the House continued existing subsidies for another five years. “A very narrow view of agricultural policy,” was Harkin’s description of it.

That was then. This is now, after many closed-door sessions on Capitol Hill with lobbyists for commodity groups and farm organizations. Rough drafts of Harkin’s legislation don’t look that different from the House bill.

Harkin has often said that the money budgeted for the farm bill is insufficient to finance the innovative conservation, nutrition, energy and research programs that are his top priority.

But that is only because one very large pot, the $25 billion set aside for “direct payments” to growers of program crops over the next five years, is politically untouchable.

Direct payments are an entitlement that goes to farmers regardless of prices, yields, weather or incomes. They were a key piece of the 1996 “Freedom to Farm” law, billed as a “transition” to a more market-oriented agriculture.

It’s been a long transition. The House bill would keep direct payments at the same level for another five years. Corn growers, prospering in the corn ethanol boom, would receive $10.5 billion. (Government budget analysts predict that strong corn prices will continue; ethanol plants are currently offering more than $3 a bushel for the 2008 corn crop.)

Harkin has never been a fan of direct payments and would like to steer the money to conservation programs or a redesigned safety net that would be deployed in low-income years. Direct payments, he recognizes, are not a safety net (farmers get them when their returns are high or low). And since the payments are predictable from year to year, landlords “capture” them in the rents they charge for farmland.

When I reached Harkin in Iowa last week, the day after his annual “steak fry,” he told me: “How in heck can you justify direct payments when they’re making so much money? You can’t. With all the demands to plant corn for ethanol year after year, the need for conservation is greater than ever. There’s a greater need for bumper strips and soil conserving practices and crop rotation. That’s a better use of the money. I think the support for direct payments is dwindling–but you can’t just pull the rug out.”

Key Midwest senators in both parties, including Dick Durbin (D-Ill.) and Richard Lugar (R-Ind.), favor phasing out or scrapping direct payments. Durbin said in an interview he would support shifting some of the funds to a revamped safety net plan. Lugar would terminate traditional farm programs altogether. The proposals might find considerable Senate support, but first the bill has to get to the floor.

But in the committee, Harkin faces the political power of southern crops benefiting substantially from the direct payment system. Rice “base” pays about $100 an acre, peanuts $45 and cotton $35. That compares to $25 for corn, $15 for wheat and $7 for canola.

So Harkin finds himself wedged between Conrad, who wants the disaster provision, and Chambliss, advocate for southern agriculture. Unable to tap into direct payments to finance his priorities, he can only hope that the Finance Committee—where Conrad is the number three Democrat—can steer some cash toward him.

Harkin won’t criticize Conrad for his single-minded push for the disaster provision. “The Conrad staff has consistently met with mine,” he said. “The problem is how to squeeze a size 12 foot into a size 10 shoe. Kent’s as frustrated as I am.”

That’s what makes the Iowa senator such a nice guy.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Speaker Pelosi

Speaker Pelosi

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Congresswoman Nancy Pelosi gave up her seat on the Appropriations Committee when she became Speaker of the House, but she took the panel’s legendary deal-making culture with her.

An extraordinary late-night bout of concessions to key lawmakers and groups, necessitated by an unexpected en masse defection of Republicans, rescued the farm bill.

But there could be a price to pay down the line.

Supporters of major reform of the agricultural subsidy system are the least of Pelosi’s worries.

Rep. Ron Kind’s reform proposal managed to garner only 117 votes after the bill had been loaded with funds for black farmers, the fruit and vegetable industry, food stamps, Chesapeake Bay restoration and conservation programs.

Pelosi, a closet reformer herself, voted against his amendment, but heaped praise on him after the decisive defeat. She said Kind had exercised “exceptional leadership”, and deserved credit for the fact that the bill “looks quite different than it would have without his brilliant advocacy.”

That was a subtle pitch to the reform faction to stick with the party on the final vote. Most (though not Kind) did.

The more serious threat to the handiwork of Pelosi and farm state lawmakers lies elsewhere.

For example, some on Chairman John Dingell’s Energy and Commerce Committee felt blindsided by air quality provisions in the final bill. Staffers pored through unfamiliar tomes on agricultural law after they learned late in the game that the measure contained a new provision allowing California farmers to use funds in the Environmental Quality Incentive Program to meet state and local clean air rules. EQIP has been mainly a clean water program. Air quality is firmly under the jurisdiction of Dingell, who didn’t earn his nickname “Big John” by demurring to turf raids by other committees.

The big losers in closed-door deal making that went on in Pelosi’s office until the wee hours last Thursday morning were the oil and gas industry and the crop insurance industry. Their lobbyists were caught short, but there is plenty of time for them to regroup as the bill goes to the Senate and then to a final House-Senate conference.

Both industries were hit with billions of dollars in new fees and slashed subsidies to pay for major concessions to urban liberals and the Black Caucus on nutrition programs, and settlement of discrimination claims filed by black farmers against USDA.

In the small hours, Pelosi, Congresswoman Rose DeLauro (chairwoman of the agriculture panel on House Appropriations) and Rep. James McGovern hammered out an agreement to provide $840 million for the McGovern-Dole law, which funds food for school children abroad. House Agriculture Committee Chairman Collin Peterson was not in the room, but on the phone.

To offset the costs, Pelosi agreed to further reduce the federal share of administrative costs of private crop insurance companies from 22.5 percent to 21.6 percent –saving nearly $1 billion over a decade.

No one was more surprised in the morning than Mike McLeod, a former Senate Agriculture Committee hand who now is chief counsel of the American Association of Crop Insurers. McLeod thought he had a deal to cut the payments less severely.

“The industry reluctantly supported that but we cannot support this,” said McLeod.

The industry has a bad reputation on Capitol Hill right now because of runaway profits over the last several years even as federal payments and subsidies to the industry have risen. (One amendment, which was defeated, would have cut federal payments far deeper.) But there are thousands of crop insurance agents all over the country; they are well organized; many are themselves farmers, and they will make themselves heard in coming weeks.

Pelosi had real problems, to be sure. By closing a loophole (Republicans called it a tax increase) on taxation of U.S. subsidiaries of foreign companies, Democrat leaders saved $7.5 billion over 10 years. But that left them well short of the $10.8 billion needed to update the food stamp program.

By the end of Thursday night, new fees on the oil and gas industry had been set, freeing up $6.125 billion over 10 years.

Democratic leaders agreed on new “conservation fees” on deepwater oil and gas wells in the Gulf of Mexico, and repealed royalty relief for ultra deep-water wells on the Outer Continental Shelf and Alaska. The Interior Secretary would be authorized to modiy the terms of leases in Alaska.

The final budget rejiggering got so complicated that as things now stand, the Secretary of Interior will have jurisdiction over federal payments to crop insurance companies between 2012 and 2017.

How much of this budgetary maneuvering will stand in the Senate is anybody’s guess. The top Democrat and Republican on the Senate Finance Committee, Max Baucus and Charles Grassley, are strong advocates of farm programs, but it isn’t clear whether they (and other committees of jurisdiction) will spring for the offsets engineered by Pelosi.

Meanwhile, the business community is unhappy with the action taken against U.S. subsidiaries, arguing that it would deter foreign investment and cost jobs. And the final product does nothing to move forward the Doha Round of global trade negotiations in which business has a stake.

The Business Roundtable and the U.S. Chamber of Commerce won’t be convinced to support the farm bill by improvements in the food stamp program or more money to protect fragile grasslands. They want to see cotton subsidies cut, in order to get Doha moving again.

The farm bill has a ways to go.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Farm Bill Markup

Farm Bill Markup

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Near 10 o’clock Thursday night, members of the House Agriculture Committee rose and gave themselves a round of applause. Empty water bottles and bags of Virginia peanuts littered desks. Home-bound planes had long since departed. But they had a farm bill.

That result had not been a certainty 48 hours earlier. Dozens of issues were unsettled, and there was a larger question: Could a parochial group of farm-bloc lawmakers write a bill with enough of a reform imprint to satisfy the Democratic leadership?

The sausage-making progressed slowly on the third floor of the Longworth building. Iowa Democrat Boswell had an amendment to preserve historic barns; Texas Republican Michael Conaway wanted to include goat meat in country-of-origin labeling rules. “They’re sensitive animals and don’t like to be left out,” he joked.

Behind closed doors off to the side, deals were hammered out on payment limits, milk forward contracting and the labeling of hamburger meat made from foreign-born cows. Mingling almost anonymously in the throng outside was a boot-clad Charlie Stenholm, top Democrat on the committee in 2001 and now a consultant for the cotton industry. Somewhere off stage was Larry Combest, a lobbyist for rice, corn, cotton, sugar and crop insurance interests. Committee Chairman Collin Peterson (D-Minn.) kept announcing he’d consulted him.

It looked like Gucci Gulch — without the Gucci. Broad-shouldered farm lobbyists conferred in groups on the status of their provisions. There was at least one Stetson, but not an alligator briefcase in sight.

When it was over, Peterson had a bill he said, was “popular with the leadership” and could survive the gauntlet of the House floor.

He may well be right, though Wisconsin Democrat Ron Kind, leader of the reform effort, promised the battle was just beginning. Speaker Nancy Pelosi blessed Peterson’s bill as a step in the right direction. Despite reservations from the cotton industry about changes in payment limits, the farm bloc will join lobbyists for the fruit and vegetable (blessed with $1.8 billion in new money) to protect the legislation on the floor.

Still, Kind is right on one thing: The bill is not in its final form “by any stretch of the imagination.”

These are some of the big hurdles ahead.

BIG BUSINESS AND THE WTO. In the hubbub surrounding the markup, few noticed some important news: The U.S. business community came out for reduced agricultural subsidies.

In a letter to House and Senate leaders, it called on Congress to “enact long-needed reforms” in farm policy that will “create a dynamic opportunity for U.S. trade negotiators to increase the pressure on our trading partners to offer substantial new market access opportunities that would benefit American farmers, manufacturers and services providers.”

It was signed by several of the biggest guns in corporate America, including the Business Roundtable (representing Fortune 500 giants), U.S. Chamber of Commerce, National Retail Federation, National Association of Manufacturers and Information Technology Industry Council.

(Other groups, such as the Motion Picture Association, headed by former Agriculture Secretary Dan Glickman, declined to join the effort.)

All of these groups have a huge stake in the Non-Agricultural Market Access (NAMA) talks on global trade, known as the Doha Round.

The high tech sector needs countries such as India to lower its tariffs so it can sell more computers, chips, fiber optic cable and computer screens to the exploding markets of the developing world.

But nothing will happen in NAMA without a deal on agriculture first. Developing countries insist that the U.S. and the European Union create a level playing for their farmers by reducing farm subsidies and tariffs. Business has now signaled that its patience with U.S. agriculture is limited.

“This is a big deal for us,” said James Ratchford of the Information Technology Industry Council. “We don’t want to be slamming another industry sector, but we’re getting to the point where something has to change.”

U.S. negotiators have offered to cut Overall Trade Distorting Support (OTDS) to agriculture to $17 billion a year. That’s less than an initial offer, but not enough, according to India and Brazil. WTO officials, in an effort to end the impasse, last week came back with a suggestion that a deal could be had if the United States cut its OTDS to $13-16.4 billion. (OTDS includes countercyclical payments, market loan gains, subsidies on crop insurance premiums, and the sugar and dairy programs.)

But even Senate Agriculture Chairman Tom Harkin of Iowa – a trade moderate who has repeatedly reminded farm groups that the U.S. has treaty obligations under the WTO – said the proposal “would face a difficult road” in the U.S. Congress.

Ironically, the U.S. OTDS is currently running well below the range proposed by the WTO, thanks to high commodity prices. But the farm bloc in Congress has adamantly opposed further concessions.

Still, Congress can’t ignore the WTO. Existing U.S. farm program are facing serious legal challenges for allegedly violating limits set by the Uruguay Round of trade talks. Canada is challenging the whole gamut of subsidies, and the WTO could rule this week on whether the U.S. government has complied with a 2005 WTO ruling that U.S. cotton subsidies were illegal under the Uruguay Round.

If the U.S. is found not to have complied, Brazil could be authorized to retaliate against U.S. products, such as pharmaceuticals.

The current farm bill ignores the WTO problem, and may make it worse. A little noticed $1.2 billion provision would protect the cane and beet industries from shrinking in the face of unrestricted Mexican sugar imports that are allowed under the North American Free Trade Agreement, starting Jan. 1. USDA would be required to purchase sugar volumes equivalent to the Mexican imports at prevailing prices and sell the sugar at a loss to ethanol plants. In effect, beet and cane growers would be assured of keeping their market share and acreage allowances even as imports rose.

Price guarantees for wheat and soybeans—deemed trade distorting by WTO—would rise. Another trade distorting provision—banning the planting of fruits and vegetables on acreage qualifying for direct payments—is continued.

If Big Business is serious about pushing back, it could inject an interesting new element into the farm bill debate.

THE WAYS AND MEANS AND FINANCE COMMITTEES. The budget to pay for the farm bill is held together with baling wire, and could come apart.

Peterson’s bill would spend more money over the next 10 years than is allowed by budget rules. So he has to depend on the kindness of strangers to fully fund his bill. Pelosi has directed Ways and Means Committee Chairman Charles Rangel to come up with $4 billion to pay for increased funding for nutrition programs. This fix will require the approval of House Rules Committee Chairman Louise Slaughter, representing a major apple growing district in New York State.

House Agriculture Committee Republicans, led by Virginia’s Bob Goodlatte, made clear Thursday that they won’t support a bill that relies on a tax increase, if it comes to that. Democratic critics of farm subsidies on Ways and Means, such as Kind, object to helping Peterson pay for a bill that leaves subsidies virtually unchanged.

It isn’t clear whether the Senate Finance Committee will go along with the House’s funding gambit.

Budget “gimmickry” (the word used by Agriculture Secretary Mike Johanns), could also draw fire from fiscal conservatives. According to USDA, the bill relies on budget devices such as the timing of farm payments and crop insurance subsidies in 2017 to “save” more than $1 billion. But those savings are only on paper because the bill will come due soon after the farm bill expires.

THE U.S. SENATE. Harkin has sung a very different tune than Peterson all through the spring and summer. “We need new ideas,” he has said. “It’s an ideal time to do some reform and reorganize our priorities,” he told reporters on June 21. “We can’t let a minority segment drive this whole bill.”

Harkin has kept his plans close to his vest, though he has hinted he wants to make changes in the automatic allowance that farmers get based on their planting history, and shift more resources to conservation.

“I want to do a good bill, a reform bill, and we’ll see what happens in September,” he said.

Under the Constitution, the Senate has an equal say with the House on legislation. Stay tuned.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Trade

Trade

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Officials from a new Paris-based group called the World Organization for Agriculture were in Washington last week promoting a heretical idea:

The Doha round of trade talks, they contend, is the wrong place to address global agricultural issues.

That’s because, in the view of the group, agriculture is “unique.” Markets for farm goods don’t follow the same rules as those for manufactured products. So protectionism and government support—the chief targets of trade negotiators—may be essential in nurturing farmers in poor countries. Next year, the organization promises to unveil a more nuanced and comprehensive economic model of the influences affecting world agricultural prices, factoring in new data on everything from exchange rates to rural road systems. Then it will invite governments to establish “equilibrium prices” for commodities worldwide by “consensus.”

In the age of globalization, the ideas of the World Organization for Agriculture seem decidedly retro. You have to wonder whether it isn’t just a stalking horse for big French agriculture, which is famously resistant to the European Union’s market-oriented reforms. Despite it name, all the top officials are French. Its president, Pierre Pagesse, grows vegetables on 250 acres and heads Limagrain, an agricultural cooperative that is the world’s fourth largest seed company.

But with the continuing failure of global trade talks, this may be a moment for governments committed to a “development” agenda to pause and consider other approaches.

There’s no question that freer trade has brought the world its greatest period of prosperity. Under the Generalized System of Preferences, created in 1974, 131 developing countries export some 5,000 products to the United States duty free.

The goal of the current talks, christened the “development” round, was to add a significant agricultural dimension to this global system of freer trade in order to help the poorest of the poor.

Credible economists, and groups with an interest in improving the conditions of the rural poor, are convinced that breaking down tariff barriers and reducing lavish government support for wealthy farmers in the United States and Europe can yield significant dividends for poor farmers.

A new study prepared for Oxfam by a group of well-regarded economists concludes that the complete removal of U.S. cotton subsidies would raise the world price of cotton by 6 to 14 percent, increasing the prices received by West African cotton farmers and boosting their household income by 2 to 6 percent. Oxfam supports reduced U.S. domestic farm subsidies in a new farm bill as a means to breathe life back into the deadlocked talks.

Oxfam has an uphill battle on its hands.

The politics of an agricultural deal has proven far tougher than many expected. The “development” goal has faded into the background, replaced by brass knuckles lobbying by national agricultural interests on all sides.

In the United States, farmers are enjoying booming demand from the biofuels industry and China, and don’t feel an urgent need to cut a deal that would open up new export markets. Last week Sen. Byron Dorgan (D-N.D.) cheered the fact that President Bush’s trade promotion authority—allowing him to submit trade deals that are not subject to amendments by Congress– was expiring July 1. “Good riddance,” he said.

Commenting on the Doha trade talks, House Agriculture Committee Chairman Collin Peterson has stated emphatically, “We don’t see anything being put forward that’s good for [U.S.] agriculture at this point.”

Disillusionment with the Doha process doesn’t seem limited to rich countries.

Shri Kamal Nath, India’s Minister of Commerce and Industry, and a key player in the trade talks, was generally diplomatic in his comments to journalists, scholars, lobbyists and officials during a visit to Washington last week. But Nath, who represents not only India but the G-22 group of developing nations, said “the U.S. had problems addressing [our] sensitivities.. [U.S. negotiators] wanted to know what they would be paid for stopping doing what they were doing.”

Selfish national interests inevitably come into play in a trade negotiation, but listening to Nath I began to wonder whether the impasse went beyond politics. In the agricultural talks, Nath represents hundreds of millions of subsistence farmers whose physical survival depends on crops, prices and weather. Across the table are U.S. negotiators representing a few hundred thousand commercial farmers cushioned by subsidies that have endured for seven decades. Brazil speaks for developing countries, but 100,000 acre soybean farms and mechanized sugar plantations presumably would derive as much or more benefits from a trade deal as the small farmers who play a minor role in the trading system.

Can the best-intentioned trade negotiators, circumscribed by the narrow rules of the World Trade Organization, create a just system for such different worlds? Some big issues affecting agriculture are beyond the purview of the trade talks, and not on the table. Those include such “subsidies” as the 51 cents a gallon tax credit for ethanol in the United States, and the ready supply of illegal farm labor available to the U.S dairy, fruit and vegetable industries.

Bertrand Munier, chief economist of the World Organization for Agriculture, sees freer trade bringing only limited benefits—and possible disadvantages–to poor farmers. An African maize farmer who lacks a paved road to the nearest market cannot take advantage of higher corn prices brought about by soaring demand for biofuels. In that case, aid has to come before trade.

Munier, who has studied at Yale and Princeton, argues that domestic support and protection, not liberalized trade, is what creates a strong agricultural sector and a thriving class of farmers.

Only when Europe and the United States began heavily supporting their farmers after the Depression did yields of staple crops such as wheat begin to rise rapidly, Pagasse said. Supports and protections were the key to these agricultural success stories, he argues, because they supported farmers’ income, enabling them to withstand the huge price fluctuations. If Detroit produced tomatoes instead of cars, Munier suggested, it too would need a bigger helping hand from government. That’s because, historically, the price of tomatoes is much more volatile than that of Chevrolets.

I have no doubt that a good economist could shred such revisionist views, but the World Organization for Agriculture isn’t alone in proposing a broader debate.

In his new book, “The Bottom Billion,” Paul Collier, director of the Center for the Study of African Economies at Oxford University, argues that trade deals are not a sufficient answer to rural poverty. Cutting tariffs across the board can help the most efficient, low-cost producers (such as Asian manufacturers) and penalize the poorest, unless their products receive special protections, preferences, and exemptions, Collier argues.

This is complicated stuff. With so little progress in the Doha talks, it can’t hurt to at least ponder approaches to development that don’t run through Geneva.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- House Debate

House Debate

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) has spent his 16-year House career working closely with Republicans. He’s against abortion, gun control and gay marriage, and often votes with the GOP. He once pulled the car of Republican Katherine Harris out of a snow bank in Aspen, Colo., before she became famous as a Florida election supervisor in 2000.

Even so, the chairman reacted like a red-blooded partisan last week when Bob Goodlatte (R-Va.), the committee’s ranking Republican, suggested that Democratic leaders were “cutting” farm programs and “turning their backs on rural America.”

“It doesn’t do anybody any good to point fingers, that’s what the American people are fed up with,” said Peterson, who gave examples of how the White House and the Republican Congress had made cuts in farm spending between 2001 and 2006.

As Goodlatte well knows, there has been no “cut” in funding for farm programs under the Democrats. What has changed is the American farm economy. Congressional Budget Office estimates of future subsidies are down sharply, due to soaring farm prices. Under budget rules, this means that programs in a new farm bill have to stay within those spending estimates. But that isn’t a cut. On Tuesday, a key House Agriculture subcommittee proved that by voting unanimously for a 5-year extension of the current farm program, considered by critics to be one of the most generous ever. There were no complaints from the Congressional Budget Office.

It’s understandable that the usually easy-going Peterson is a bit touchy. As the House Agriculture Committee gets ready to draft a final version of a farm bill next month, political pressures on him are mounting from all directions. He can satisfy one group—but that only rankles another.

The big winner Tuesday was cotton, which once again demonstrated its political muscle. A committee “discussion draft” would have eliminated government storage payments and—under some readings—exposed growers to more stringent payment limits. The panel’s decision to simply extend the farm program dropped those changes. Cotton-state lawmakers then added new concessions for shippers and millers, including a 4 cent a pound trade adjustment payment to help spinners and millers upgrade their plants.

“Cotton was actually in the room working on it,” said Peterson. “Without southern support you can’t pass a farm bill.”

But a bill that satisfies all cotton’s desires may not be passable, either.

Peterson has stated previously that going to the floor without changes in payment limits was “not sustainable.”

Over in the Senate, Agriculture Committee Chairman Tom Harkin put it bluntly: “What happened will never pass on the House floor.” He called the action “a very narrow view of agricultural policy,” driven by a “minority segment” of the farm community.

Corn and wheat interests don’t favor continuing the status quo, as the Tuesday action would do.

The National Corn Growers Association advocates a new kind of safety net that would protect farmers from swings in their incomes, rather than the ups and downs of prices. Wheat growers feel they’ve been shortchanged by the current program, and Harkin, for one doesn’t disagree. “Supports for rice and cotton have been alot lot better than for other crops,” he said.

Then there is the threat of a floor fight that could take matters out of the hands of the committee, turning it over to a rabble of lawmakers responding to the concerns of environmentalists, ranchers, fruit and vegetable growers, and the rural and urban poor.

In 2001, the two top Democrats, Speaker Nancy Pelosi and Majority Leader Steny H. Hoyer both voted for an amendment that would have shifted funds from big farmers to conservation programs. That measure received 200 votes and gave the Agriculture Committee a genuine scare. This time around, Rep. Ron Kind (D-Wisc.) is leading a coalition in support of a bill, known as Farm 21, that would phase out subsidies altogether.

This week, half the members of the California congressional delegation wrote Peterson and Goodlatte, asking for a revised farm bill that would provide more funding for “organic, family and beginning farmers,” and for new programs to protect the environment and preserve farmland.

But it might be a mistake to overestimate the strength of the reformers.

Thursday’s collapse of G-4 negotiations on a new global trade agreement only serves to reduce pressure on the committee to steer clear of trade-distorting subsidies. Presumably, it will give Peterson a freer hand to cut the annual allowances, known as direct payments, that the World Trade Organization views as acceptable. Those funds could then be redirected to other popular farm subsidies to lock in more backing for the bill among various farm groups.

Her 2001 vote notwithstanding, is Pelosi an advocate of farm program reform? That isn’t clear as yet.

Her top priority now is protecting the class of Democratic freshmen elected in 2006, many of whom come from swing districts in farm country. All four freshmen among the 10 Democrats voted on Tuesday to extend the existing farm program, and against Kind’s reform. Within the whole farm bill, Pelosi’s top priority isn’t reforming the farm program, but securing funding for energy programs and nutrition.

The committee has already moved to do that. One subcommittee has approved more than $2 billion in loan guarantees and credits for biofuels research and new plants producing cellulosic ethanol. Another panel has proposed adding $5 billion for nutrition programs over five years—a key to winning the backing of the black and Hispanic caucuses. America’s Second Harvest, an anti-hunger group, called the action “hope for millions of hungry Americans.”

A wild card is the fruit and vegetable industry, centered in California and Florida, states with lots of votes in the House. To curry favor with the industry, the committee is proposing new funds for research, and Peterson has ruled out any change in the rule that bars the growing of fruits and vegetables on land that qualifies grain and cotton farmers for direct payments. Lifting the ban, the industry fears, would create competition and drive down prices.

The ban isn’t popular in the grain belt, and the panel gave two freshmen Democrats a high profile moment to represent their constituents. Minnesota Democrat Tim Walz’s proposal to ease the ban was defeated. But the subcommittee went along with a pilot program proposed by Brad Ellsworth of Indiana, allowing the planting of 10,000 acres of tomatoes to supply a processing plant near his district.

On the face of it, Peterson’s statement this week that the full committee would probably end up approving the existing farm program law “with some tweaks” may seem astonishing. U.S. agriculture is changing fast, driven by the biofuels revolution, new environmental concerns, and the global economy. Peterson himself acknowledges that southern agriculture must change: “We probably should be producing less cotton,” he said.

But he is determined to protect “my farmers.”

In the final analysis, all the good ideas for reform and change come down to this: Do they have 218 votes on the House floor? Or does Peterson?

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- Europe

Europe

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

A few days of travel in Europe isn’t enough to decode the enormous complexities facing negotiators seeking a transatlantic deal on agricultural subsidies and tariffs as part of the Doha trade talks.

But some impressions stand out after a whirlwind journalistic tour of European agriculture organized by the German Marshall Fund of the United States.

From all the stories about stalled negotiations and mutual U.S. and European criticism, one would think the two sides were far apart. Yet I was struck more by the similarity of the challenges faced by American and European farmers.

On both sides of the Atlantic, the forces of globalization, environmentalism and the information revolution are relentlessly eating away at the creaky government structures that have underpinned and protected agriculture for decades. More and more, the market rules.

During a week of travel in Poland, Belgium, the Netherlands and France we heard about French corn farmers investing in foie gras production in Canada as a springboard to the U.S. market. We met a 25-year-old Dutch dairyman, fluent in American slang, who thinks rigid European milk quotas hurt his ability to compete for global customers. And we visited a large-scale grain farmer east of Paris who is planting crops that can be turned into biodiesel fuel at a refinery sprouting up nearby.

As in the United States, it seemed to me that many of the European farmers we met were ahead of the politicians, farm organizations and trade officials in recognizing that change – perhaps radical change – is inevitable.

That’s not to say there still isn’t plenty of protectionism and feather bedding in the European Union. In 2003, the EU adopted a major reform of the Common Agriculture Policy (the “CAP”) that shifted billions of Euros away from traditional price guarantees on crops to something called “single farm payments,” a fixed annual cash allowance similar to the “production flexibility” payments adopted by Congress in 1996. In return, European farmers had to adhere to practices safeguarding the landscape, food safety and animal welfare.

Significant as this was, the devil was in the details. The farming sector still claims more than 40 percent of the European Union’s budget. Government can still step in – “intervene” — if prices fall too low, and farmers must idle 10 percent of their land annually—a restriction abandoned by the U.S. Congress in 1996.

Complicated as the U.S. subsidy system is, the EU system merits the overworked word “Byzantine.” Consider, for example, this paragraph from the Organization for Economic Cooperation and Development’s analysis of the new CAP:

“For the beef sector, Member States may retain up to 100 percent of the slaughter premium for calves and up to 100 percent of the present suckler cow premium and up to 40 percent of the slaughter premium, or up to 100 percent of the slaughter premium, or alternatively, up to 75 percent of the special male premium.”

And that is only the broad EU policy on beef. As the language suggests, each of the 27 EU countries can determine the pace of implementation and add their own individual tweaks to create an even more confusing crazy quilt of subsidies and regulations. Is it any wonder that U.S. and European trade negotiators have trouble “aligning” their policies?

Yet it is easy to miss the forest for the trees. The same big policy shifts are underway in Europe and the United States. One way or the other, the old subsidy system based on government-set floor prices for commodities is being replaced by a new 21st century system of hefty incentives for expanding biofuels production, along with a “transition” in which farmers get government checks in return for good stewardship of the land.

How long the transition will take to a system that is fully keyed to the market is anybody’s guess, but the officials and farmers we talked to in Europe seemed resigned to many subsidies ending in 2013, when the reformed CAP expires.

For French farmers, “there has been a change in mentality,” said Damien Caze, director of maritime fisheries and aquaculture at France’s Ministry of Agriculture. “They go to the States; they go abroad; they speak English. They see an end” to the old protections.

Will the subsidies really end in 2013, we asked Philippe Bernard, who runs a French John Deere dealership.

“If the Americans stop subsidizing their agriculture we will stop,” he replied.

In fact, there could be deeper reforms next year, when the EU does a mid-course review of the 2003 policy. The review comes as Congress itself is under pressure to write a new multi-year farm bill by Oct. 1 that takes account of new environmental, trade and energy factors.

Old ways die hard, and some farmers expressed uneasiness about the pace of change. The direct payments, Caze acknowledged, are not popular because they are viewed as “an invention of Brussels,” headquarters of the EU. Some even hanker for the American safety net that allows a farmer to take out a loan after harvest on the crop he has grown, at a fixed support price.

“That’s the most logical system for me,” said Francois-Xavier Letang, 32, who farms a 2500 acre spread of wheat, sugar beets, canola and potatoes not far from the medieval walled city of Provins, once ruled by the Duke of Champagne. He has 10 tractors and 10 employees.

Letang is heavily subsidized, to the tune of about $400,000 a year in direct payments.

But in other ways, he personifies the new breed of businessman-farmer who is skillfully exploiting the EU reforms almost without realizing it.

By French standards, Letang is big, and risks being resented by locals as a “capitalist.” Size offends those for whom a landscape dotted with small farms is as much a part of French culture as 3,000 varieties of cheese.

When a farmer gets too big, joked Patrick Messerlin, a professor of economics at the famed Sciences Po university in Paris, people “start looking at the guillotine and saying we missed someone.”

But if Letang was worried about his head, he didn’t show it. A decade ago, he could grow wheat at a government-subsidized price and not worry much about markets. Now he has stopped growing barley “because of the market,” and raises potatoes under contract to a French fry processor. Recent EU cuts in subsidies for sugar beets is driving out inefficient producers in Italy, said Messerlin, enabling efficient farmers such as Letang to capitalize.

Five years ago he started raising canola, a weedy looking plant whose seeds can be processed into diesel fuel. This year he planted 250 acres. His farmers’ cooperative has a stake in the new, nearby biofuels plant.

Suddenly, Letang is keeping close tabs on fuel prices.

As in the United States, the biofuels explosion has drawn Europe’s once prosperous, but sleepy agriculture into the go-go global energy market. There may be no turning back, given the incentives. EU and French rules allow Letang to plant biofuels on the 10 percent of his acreage otherwise set aside for conservation. And, he said, he gets a check from Brussels if he plants additional acreage in a biofuels crop.

Given the similar forces shaping European and U.S. “production” agriculture, why is it so difficult for transatlantic negotiators to cut a deal?

The answer is politics.

One of the first visitors French President Nicolas Sarkozy received after his election last month was the president of a French farm organization. A few days later, his new agriculture minister, Christine Lagarde, told European trade negotiators in Brussels that Europe should make no further concessions unless the United States made the first move.

In many ways, the European negotiators have a tough row to hoe. There are only a few hundred thousand farms in the United States in which the owners depend mainly on farming for their living. In Europe there are millions. In some countries, such as Poland, the structure of agriculture resembles that of the United States in the 1930s, an era in which the farm vote still swung elections. In France, hundreds of small town mayors come from a farming background. The survival of their communities can depend on saving the few small farmers who sustain the local grocery and school.

EU and European governments recognize the need to shift money from the conventional subsidies that are not really needed by efficient commercial farmers such as Letang, to the kind of rural economic assistance that could help a Polish farmer with seven cows. But the big farmers like being subsidized, even as they conquer markets.

So: It’s the politics, stupid. U.S. lawmakers serving on the agriculture committees should understand that.

By Dan Morgan

“Analysis from Washington”- By Dan Morgan- CBO and the Farm Bill

CBO and the Farm Bill

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Lots of important ideas were brought forward during the House Agriculture Committee’s first day of drafting a new five-year farm bill this week.

Dennis Cardoza (D-Calif.), representing California’s dusty Central Valley, proposed spending $305 million to help farmers meet federal air quality requirements. USDA already helps farmers comply with water quality rules through EQIP, the Environmental Quality Incentives Program, so why not air quality regulations?

Stephanie Herseth Sandlin (D-S.D.), citing environmental concerns about the plowing of virgin prairie to grow biofuel crops, thought the committee should consider a “sodsaver provision” to protect sensitive lands.

Tim Walz (D-Minn.) proposed incentive payments to landowners who rent or sell land to beginning farmers.

But for most of the day, subcommittee chairman Tim Holden (D-Pa.) acted the part of a benevolent parent with a tight family budget. One after another, the ideas were turned aside by Holden, who said there was just no money to pay for them at this stage of writing the farm bill.

Unless the Democratic leadership frees up an additional $20 billion for the farm bill, farm bloc lawmakers say, it will be hard to finance innovative new programs.

But is the committee’s bank account really so meager? Or are the claims of penury mainly smoke and mirrors?

Under budget rules, the committee actually has $152 billion more to spend over the next 10 years than it did when it wrote the last farm bill in 2002. That’s a 25 percent increase. And contrary to what some senior lawmakers have implied, nobody has mandated any “cuts” in the sacred Title I commodity programs, which provide direct payments, protection against low prices, and other subsidies for farmers.

In fact, budget rules give the committee all the money it needs to continue these programs just as they are now, even though the current version of Title I was lambasted by editorial writers and fiscal conservatives in Congress in 2002 for being unduly generous.

It’s often hard to tell that listening to senior committee members and representatives of farm organizations. When the budget for the farm bill was being drawn up in April, Chairman Collin Peterson (D-Minn.) told reporters, “We’ve given up $60 billion in the commodity title and we’re asking for $20 billion back.. and we think we’re justified.” Since then ranking member Bob Goodlatte (R-Va.) has complained that the committee was not given a “reasonable” budget to work with.

Tom Buis, president of the National Farmers Unioin, has complained about “significantly diminished resources.” It has become a mantra—and some would say, a canard.

Neither Buis or Peterson are liars. I’ve met Peterson’s dad, a retired farmer who still shows up at 5:30 a.m. for breakfast with other old-timers at a cafe off Highway 10 in Moorhead. Dad Peterson raised his son to respect the good Minnesota virtues of honesty and straight dealing.

But the budget system gives politicians plenty of room to take liberties with reality. When Peterson talks about “giving up” $60 billion, he isn’t talking about real money, but only the projections that the Congressional Budget Office made in March about what USDA will spend on subsidies over the next 10 years if current programs continue unchanged.

Because booming demand for corn to make ethanol makes it likely prices will stay high for some time, CBO predicted in March that subsidies would fall sharply. CBO’s estimate of $80 billion in the next decade is $60 billion less than what CBO predicted would be spent going into the last farm bill.

What Peterson doesn’t say is that if prices again fall through the floor, USDA would pay out billions more than CBO is predicting now. The payments go out automatically, based on formulas, and Congress can’t control them once the programs are written into law.

The significance of this is that the ag committees could free considerable sums for new innovations by rewriting the Title 1 programs that were heavily criticized in 2002. Not doing so isn’t a result of limited resources, but of political choice.

Peterson has promised “reforms” in these programs, but has also insisted that he won’t allow any of the savings to be shifted to other areas of the farm bill, such as biofuels or conservation. In the Senate, however, committee chairman Tom Harkin (D-Iowa) said this week that he has no such rule.

“We need reforms of payment limits, and direct payments,” he said. “I don’t believe just because we’ve been doing something for 40 years that we ought to keep doing it that way.” Harkin said there may be “new commodities” that should qualify for subsidies, such as speciality crops or organic foods.

In the House, however, the insistence on protecting spending on traditional farm proglrams has created strains throughout. Some are eyeing the food stamp program as a possible source of funds for new biofuels and conservation initiatives.

CBO estimates that spending on food stamps over the next decade will grow to $565 billion—a 46 percent increase over projections made five years ago. The reason is that 7.6 million more people will be eligible. Peterson said he hoped to talk to Rep. Charles B. Rangel (D-N.Y.), chairman of the Ways and Means Committee and a passionate advocate for the food stamp program, to see if he can “find us some offsets.”

What committee leaders seldom mention is that budget rules have boosted the funding available to other, lesser known farm programs. CBO, for example, has projected that USDA will spend $66 billion over the next decade on the Section 32 program, a little known fund under the direct control of the secretary of agriculture. That is an increase of more than 50 percent over the previous five years.

Section 32 gives the secretary of agriculture almost unlimited discretion to use a portion of annual customs duties to boost farm income. Secretaries have used it to help ranchers after droughts, purchase fruits and vegetables when prices are depressed, and supply school lunch programs.

Section 32 has been described as “everybody else’s farm program,” since it benefits farmers and ranchers who aren’t covered by the traditional subsidy system. Shifting funds from Secton 32 could face political and legal challenges. But Congress writes the laws.

Since there is little will to shift money out of existing programs to finance new initiatives, farm state lawmakers are counting on being able to spend an additional $20 billion from a special “reserve fund.” The hitch is that none of that money can be spent without offsets—cuts in other programs, or tax increases.

Peterson is counting on using $5 billion of the savings in an energy bill enacted by the House earlier this year as one offset. That bill contained $14 billion in total savings from new taxes on oil company profits and offshore drillling leases. But othe committees besides Peterson’s are angling to use those savings as offsets in their bills. In any case, the “offset” could turn out to be ephemeral since the Senate has not passed the bill.

By Dan Morgan

"Analysis from Washington"- By Dan Morgan- Direct Payments

Direct Payments

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Remember “Show me the money!” the line from “Jerry Maguire,” the 1996 film starring Tom Cruise as a sports agent undergoing a midlife crisis?

These days it’s a refrain heard by House Agriculture Committee Chairman Collin Peterson (D-Minn.) as he readies his proposal for a new multi-year farm bill.

Peterson needs to put enough money in the bill to satisfy a host of interests: fruit and vegetable growers, environmentalists, and advocates for nutrition programs, rural development and biofuels research. If these groups can’t live with the bill his committee writes they could try to rewrite it on the House floor. That would be a “recipe for chaos,” the chairman told reporters last week.

But where can he find the dollars to stave off an embarrassing challenge to his leadership? The congressional budget committees give him a fixed pot to work with, based on what they estimate is needed to continue existing programs. That leaves Peterson playing a zero sum game: Under new budget rules imposed by the Democrats, if he wants to add money one place he has to take it from somewhere else.

That’s why the chairman, along with some other influential groups, are eying a potential pot of gold: the more than $5 billion a year in automatic, annual allowances that goes to farmers on land growing staple crops.

These “direct payments” were the centerpiece of the 1996 farm bill, nicknamed Freedom to Farm. In return for giving up government payments when prices dipped below a target, farmers could plant what they wanted—or plant nothing at all – and still claim an annual allowance tied to what their land had produced in the past.

The “transition” payments declined over the first five years, and many assumed they would fade away. But in 2002, Congress increased them even as it restored the target price system.

Direct payments, according to USDA studies, have contributed to rising land prices. On rented farmland, landlords raise rents to “capture” the direct payments. Last year, some owners of “rice base” in Texas and along the Gulf Coast collected up to $100 an acre without planting a seed. Sen. Tom Harkin (D_Iowa) fumed publicly this month that such handouts cannot be justified to taxpayers.

Farm groups respond, justifiably, that the Texas rice situation is an anomaly. But Peterson has a much bigger concern. How will it look to taxpayers in a couple of years if Midwest corn farmers, flush from years of high, ethanol-driven corn prices, continue to collect the same old Freedom to Farm allowance of more than $20 an acre?

Peterson has a reputation as one of Congress’s staunchest defenders of traditional farm programs. But he’s also a conservative “Blue Dog” Democrat, a hawk on budget and deficit issues.

“Where do farmers get the idea that they are entitled to money from the government?” Peterson asked last week when I buttonholed him just off the House floor. Peterson, a farm state congressman, wants a strong safety net to catch farmers when weather or prices turn against them. But Peterson, the Blue Dog, is not for a gravy train.

By cutting back direct payments and tightening restrictions on who gets them, Peterson could free money for other priorities, such as a permanent program to cover weather losses. He could be more generous to fruit and vegetable growers in Texas, California and Florida. And he could fund biofuels research, a top priority of the Democratic leadership. That, in turn, could help get Speaker Nancy Pelosi (D-Calif.) behind the House Agriculture Committee’s bill if and when reform groups challenge it on the floor.

The National Farmers Union has already targeted direct payments. It favors replacing them with a permanent disaster program and a new kind of government safety net tied to prices and production costs.

“Direct payments are a legacy of Freedom to Farm that didn’t work,” said Tom Buis, NFU president. “They don’t give enough in times of need, and they are hard to defend when prices are high.”

Buis says that the NFU plan would save $2-3 billion a year and still provide a better safety net than exists now.

Other reform proposals would also eliminate direct payments over time.

Last week, Rep. Ron Kind (D-Wisc.) and Sen. Richard Lugar (R-Ind.) offered a plan that would do away with all subsidies, saving $20 billion in five years. Direct payments would decline, and end after five years. The direct payments would be deposited in individual Risk Management Accounts (RMAs), and the money could be used to purchase crop insurance, cover losses in bad years, or invest in conservation measures. Commodity price supports, including those for milk, would also end.

The assertion that subsidies are saving the family farm is a “bogus claim,” said Lugar. A Kind proposal to redirect billions of dollars from big commercial farms to conservation programs garnered 200 votes in 2001, but Peterson was cool to it.

“It doesn’t sound like something a whole lot of members of the agriculture committee would have an interest in,” he told reporters during a weekly teleconference.

Even so, pressures are strong on Peterson to write a more balanced bill. Reformers say 185 House members are cosponsoring various bills that would radically change the subsidy program and redirect the funds to other causes, spreading the benefits of the farm bill more widely.

Citigroup, the multinational banking giant, has also entered the fray with a far-reaching plan for a voluntary buy out of farmers’ direct payments. It figures the plan would save $18.9 billion in the next 10 years if half of those eligible signed up.

The plan assumes Congress won’t have the political will to simply end direct payments. But by offering a lump sum up front – or smaller guaranteed payments over 5 to 25 years – the program would fade out of existence. Citigroup would finance the buyout by selling bonds in the private market.

Citigroup officials hope to win support from key legislators such as Minority Leader John Boehner (R-Ohio), a long-time skeptic about farm subsidies.

Peterson said the idea was interesting, but added, “There’s no way something like that would be done by private enterprise.”

“To consider a revolutionary idea like that at this stage of the game is tough,” he added.

During a teleconference with reporters, Peterson stressed that he was trying to work with everyone. But he said, “In the end, it’s going to be members of the agriculture committee that write this bill.”

Meanwhile, proposals for reforming the subsidy program keep piling up in Congress, raising concerns on the House Agriculture Committee about a floor battle.

“Not even everyone on the agriculture committee understands the farm programs and how they fit together,” the chairman told me last week. “Can you imagine what would happen if you turn it over to the floor?”

By Dan Morgan

“Analysis from Washington"- by Dan Morgan- Peanuts

“Analysis from Washington”- by Dan Morgan

In conjunction with expanding FarmPolicy.com viewership, FarmPolicy will also be broadening the amount of information available to readers.

In addition to the daily news summaries, starting today, FarmPolicy.com will also be featuring a new farm policy analysis section, entitled, “Analysis from Washington”- by Dan Morgan.

On Thursday, May 3, 2007, The German Marshall Fund of the United States (GMF) announced that, Dan Morgan, a long time staffer with the Washington Post, who is now a special correspondent for the paper, has joined GMF as a Transatlantic Fellow. Dan will work with GMF’s Economic Policy program conducting transatlantic comparative research on agriculture, with particular emphasis on the U.S. Farm Bill and the EU’s Common Agriculture Policy.

Dan’s analysis at FarmPolicy.com will be posted on a semi-regular basis and will provide readers with additional information that will assist them in assessing and gauging the political dynamics of the farm policy debate in Washington.

Dan’s updates will be available exclusively at FarmPolicy.com (homepage, Email and RSS feed).

***

The first installment of Dan’s “Analysis from Washington” is available below.

Peanuts

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Southern crops have been well taken care of in Washington in recent years, but political conditions inside the Beltway appear to be getting more difficult for them just as Congress takes up a new farm bill.

To the disappointment of Georgia lawmakers, House and Senate negotiators recently scrapped a $74 million House proposal to have taxpayers cover the costs of handling and storing the 2007 peanut crop. The provision never made it into the Iraq war supplemental spending bill and could be dead.

Meanwhile, cotton interests are worried about the Bush administration’s decision not to include warehouse storage costs for the crop in its 2008 budget. The Mississippi Farm Bureau Federation and the Delta Council have asked Congress for help, the Delta Farm Press reported.

Such setbacks are at the margins. But they do suggest the waning political influence of Dixie on agricultural policy, even as eastern dairymen, Midwest and Great Plains corn and wheat interests, and Connecticut vegetable growers enjoy new strength as a result of last fall’s election.

The peanut story is a case in point. Southern growers were solidly behind the House-approved plan to have USDA paying the costs of storing the new crop, even though most of the payments go directly to several huge warehousing companies, including Archer Daniels Midland and its Swiss partner, not to peanut growers. In the House, the provision had bipartisan backing from Reps. Jack Kingston (R-Ga.), Sanford Bishop (D-Ga.), and Alan Boyd (D-Fla.), whose peanut farm qualified for a $270,000 buyout payment in 2002, according to USDA records.

President Bush took aim at the provision in a radio address, citing it as an example of a domestic spending earmark that had no place in legislation financing the Iraq war.

But it was Sen. Robert C. Byrd (D-W.Va.), not Bush, who did in the provision.

In 2005, Sen. Saxby Chambliss (Ga.), the Republican chairman of the Agriculture Committee, reached across the aisle to help Sen. Patrick Leahy (D-Vt.) get an extension of the Milk Income Loss Contract (MILC) program, a top priority of eastern dairymen.

This year, when Chambliss needed help for peanuts, Leahy, a member of the appropriations committee drafting the Iraq supplemental, was ready to return the favor. But Byrd, who chairs the Appropriations Committee, said no.

The ostensible reason, according to his staff, was Byrd’s wish to keep the Iraq bill relatively free of veto bait for Bush. But that didn’t stop him from allowing an extension of the MILC program to be tacked onto the bill. For complicated budget technicalities, that provision could be worth hundreds of millions of dollars to the milk industry in a new farm bill, assuming it stays in the revamped supplemental bill on which Congress is now at work.

Congress also approved $3.4 billion in other aid for agriculture, most of it destined to drought-affected farmers in the upper and western Great Plains.

Senate Democrats shed few tears for the peanut provision, with which Chambliss is closely identified. Many of them have never forgiven the Georgia Republican for the no-holds-barred campaign he waged to defeat Georgia Democrat Max Cleland in 2002.

It is hard to imagine such a setback for peanut interests just a few years ago.

When the current farm bill was written in 2001 and 2002, lawmakers representing southern crops—peanuts, cotton and rice—were in key spots. Two Texans from adjoining peanut growing districts—Rep. Larry Combest (R) and Charles Stenholm (D)—were chairman and ranking member of the House Agriculture Committee.

Chambliss, then still in the House, and Alabama’s Rep. Terry Everett (R-Ala.) worked with them to shape landmark peanut legislation that provided a billion dollar buyout for existing quota holders and set up a lucrative new taxpayer-funded program for remaining growers at a cost of about $1.5 billion since 2002. (In a unique twist, peanut growers could exceed the limit on government payments if they were also growing other crops.)

Now, Combest and Stenholm are no longer in Congress, and the recent election relegated Chambliss to ranking member on Senate Agriculture.

“I did think peanuts should have been treated equally with other commodities” in the Iraq bill, Chambliss told me. “But they weren’t.”

MILC’s success, meanwhile, was all but assured by last fall’s voting. Democratic control of Congress installed two lawmakers from Wisconsin at the helm of key appropriations panels: David Obey, chairman of House Appropriations, and Herbert Kohl, chairman of the agriculture subcommittee on Senate Appropriations.

Clearly, elections matter.

The November upheaval shifted the political center of gravity in farm policy northward, to Democratic lawmakers who hold no particular brief for southern crops. In the House, Agriculture Committee Chairman Collin Peterson (D-Minn.) hails from a Red River Valley farming district dominated by sugar beets, corn, wheat and soybeans.

Senate Agriculture Committee Chairman Tom Harkin, an Iowan, is a long-time supporter of stricter payment limits to farmers, anathema to southern lawmakers in both parties.

In the House, the chairmanship of the House Appropriations agriculture subcommittee changed hands from a Texan with close ties to cattle feeders to Connecticut’s Rosa L. DeLauro, who wants to unblock regulations that would require labeling of imported meat.

Last week, DeLauro signaled that she intends to make her voice heard in the drafting of a new farm bill, even though she doesn’t sit on the Agriculture Committee.

She and Rep. Wayne Gilchrist (D-Md.) unveiled a detailed farm bill proposal with a strongly regional slant. DeLauro made clear she wanted to help eastern farmers who traditionally receive relatively little help from USDA programs. Her plan would strengthen nutrition and conservation programs, and benefit eastern farmers by expanding the use of fruits and vegetables in school lunch programs. There was nothing in her press release about peanuts.

Agriculture Committee Chairman Peterson said DeLauro and others had “good ideas,” and he promised to work with her to fold some of them into the farm bill.

By Dan Morgan