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Farmbill Outlook Remains Unclear

BNA Article By Liz White

As Congress begins its new session, the agriculture community awaits discussion about the next farm bill, which is set to be written in 2012. Industry experts expect to be working with much less money and taking cuts to popular but controversial farm programs.

Agriculture, a major piece of legislation written every five years, has attracted attention as Congress moves toward cutting government spending and chipping away at the growing national deficit.

In 2008, Congress passed the Food, Conservation and Energy Act, which cost $289 billion and expires in 2012. With the budgetary pressures and a changing public mood toward farm programs, the government will decide what role to play in food production in the next farm bill. In the past, the U.S. Agriculture Department has been a part of operation expenses, risk management, crop insurance and federal assistance—among other programs.

“The ability for the government to be involved in all those types or ways will be under discussion,” said Dana Peterson, chief executive officer of the National Association of Wheat Growers.

New Congress Will Be Influential

After the Republicans won back the majority in the House in November, the discussion about the 2012 farm bill quickly changed.

Rep. Collin Peterson (D-Minn.), former chairman of the House Agriculture Committee, wanted to begin rewriting the farm bill in 2011. The committee had begun field hearings during the summer of 2010.

The newest chairman, Rep. Frank Lucas (R-Okla.), pushed the rewrite to 2012, leaving plenty of time for the agriculture industry to wonder what will change in the next bill.

Lucas, the third new chairman at the helm of the committee in two years, supports farm programs and is a vocal, adamant supporter of farm subsidies. He has announced the committee will spend 2011 conducting background hearings on the legislation, teaching new members about the farm bill, and holding oversight hearings of the USDA and Environmental Protection Agency.

The farm bill, which has 15 titles, encompasses farm subsidies, nutrition programs like food stamps and school lunch programs, and conservation efforts. The bill has historically garnered bipartisan support and the Agriculture Committee is more bipartisan than any other committee, Mary Kay Thatcher, director of agriculture policy for the American Farm Bureau Federation, told BNA.

Roger Johnson, president of the National Farmers Union, said members of the Agriculture committees and the leadership will have the most influence over the next farm bill.

The House committee changed from 28 Democrats and 18 Republicans to 26 Republicans to 20 Democrats in the 112th session. Sixteen of the incoming Republicans on the panel are new to Congress and most campaigned for smaller government, cuts in spending, and deficit reduction.

Agriculture policy experts think it is too early to tell if these new members will live up to their promises to limit spending or send money back to their constituents. Groups like the American Farm Bureau Federation and the National Association of Wheat Growerssupport educating these members about the farm bill and delaying the rewrite until 2012.

Challenge of Many New Members

One of the farm bill's biggest challenges will be having so many new members, Johnson told BNA. The oversight hearings Lucas plans for 2011 will give insight into the direction the farm bill might take, Sallie James, trade policy analyst for the Cato Institute, told BNA.

The hearings will be necessary because the 2008 farm bill started many new programs that have not been measured for success, Johnson said. These hearings will not be spent looking at the safety net programs, but will be focused on the newer or more obscure aspects of the legislation, he said. The new committee held its first hearing Jan. 20 to consider biotechnology regulatory approval.

The Senate Agriculture Committee may have more influence in the 2012 rewrite because it does not have as many new members, according to Johnson. Several of the returning members have helped write past farm bills.

Stabenow Takes Lead

Taking the lead on the Senate committee, Sen. Debbie Stabenow (D-Mich.) will represent Michigan's nontraditional crops like fruits and vegetables rather than the larger commodities like corn, wheat, and cotton. Stabenow might redirect money from the large commodities to specialty crops, James said.However, she is expected to be a strong ally for the farm bill, Johnson said, though probably not as supportive of subsidies as Lucas.

While Lucas and Stabenow will be influential in the rewrite, experts also look to the budget committees that will determine how much money the farm bill will have to work with. Rep. Paul Ryan (R-Wis.) took over as chairman of the Budget Committee and has been advocating spending cuts. As a member of the president's deficit commission, which suggested cutting subsidies to close the deficit gap in November, he has said he would use some of the proposals as a starting point for the budget plan.

The Agriculture industry expects the first questions to be about the cost and affordability of the farm bill, said Thatcher. Lucas has said he wants President Obama to sign the legislation before the 2012 election, sometime in the late summer. The committee expects to get the budgetary figure in the spring of 2012. Agriculture policy experts do not expect the election year to conflict with work on the farm bill. “It's not like they aren't going to pass a farm bill. There has to be one,” Johnson said.

Budgetary Cuts Cloud Outlook

The farm bill has faced budgetary pressures historically, but has not suffered major cuts, according to the Cato Institute's James. Other industry experts see a difference in the 2012 outlook, predicting larger and tougher spending decreases.

“It's different this time around because of the size of the federal deficit and recognition by Americans is stronger,” said Peterson of the wheat association. Policy watchers like Peterson expect a budget reconciliation process in 2011, which would require cuts across all government departments. A reconciliation process would leave several possible cuts to the farm bill.

Every committee could be required to take a percentage cut, like 5 percent, and then the individual committees will have to figure out how to work with the cut, Thatcher said. For the farm bill, this means all programs could be required to take a percentage cut or the committee could be selective and limit specific programs, she said.

“Most farmers like the farm bill,” Thatcher said. “Leave it alone. Presumably that won't be possible.” The percentage and methodology remain murky to policy experts, but some are expecting a reconciliation process in 2011 and 2013, according to Thatcher. Agriculture will agree to take its cuts along with everyone else, but not take the biggest slash, Johnson of the National Farmers Union said. In November, the farm safety net drew attention from the president's deficit commission as a possible place for cuts when it suggested a $3 billion a year decrease in subsidies to help close the budget gap.

Heading into the 2012 rewrite, the farm bill will be in a tough fiscal situation, not just because of forced downsizing, but because about 37 programs totaling around $9.5 billion will lose their baseline funding in 2011, according to a report from the Congressional Research Service.

Negotiations on the farm bill will start with about $10 billion to $17 billion less than 2008 levels, meaning the Agriculture Committee will have to come up with that much money to reach the 2008 starting point, Johnson said. “They will begin writing with a lot less money than it took to write the current farm bill,” he said.

Bipartisan Support for Bill and Cuts

Starting below the 2008 level does not take proposed cuts into consideration. Opposing sides disagree about the climate for cuts. Some say there is bipartisan support to pass the farm bill even in tough economic years. Others claim there is bipartisan support today to cut spending regardless.

“I've never seen this much passion to cut the deficit,” said Don Carr, spokesman for the Environmental Working Group, in an interview with BNA. “And there's farm programs that are worth billions of dollars that go out without regard for need.” The political climate might not matter for the farm bill because the 2008 bill passed easily and with broad bipartisan support despite a deficit, James said.

Supporters point out the farm bill makes up about 1 percent of the total federal budget with about three-fourths going to nutrition programs. “When we talk about sufficient cuts to make a dent in the federal deficit, that's not even an eyelash.” Peterson said. “Isn't food important enough to justify an eyelash of an investment?”

In July 2010, Sens. Saxby Chambliss (R-Ga.) and Sam Brownback (R-Kan.) wrote a letter to Agriculture Secretary Tom Vilsack asking him to reduce the deficit without targeting the farmer's safety net. The senators urged cuts to discretionary spending instead. Chambliss stressed the need for more oversight instead of cuts. “It's an important piece of legislation and an important reason why consumers enjoy the lowest cost of food in the world,” Johnson said. “You can't balance the budget with the farm bill.”

Groups opposed to the subsidies, like the Environmental Working Group, think the 2012 bill will be a good time to examine government waste. While it might be too early to tell what kind of cuts the farm bill will face, experts in the area agree Congress will have to take a closer look at how the farm bill spends money. “It's always an argument about what's the most important,” Johnson said

Subsidies Top the List of Areas to Target

As the second biggest chunk of farm bill spending, the subsidies for large commodities are often singled out for cuts. The Title I programs cost about $8.3 billion a year and take up 15 percent of the bill as a whole. “Constituents love them, but the rest of America is waking up,” James said. Countercyclical payments rise when crop prices decline while direct payments are made irrespective of market prices to farmers of the major crops like corn, soybeans, wheat, cotton and sugar, according to a CRS report. The direct payment program, one of the largest budget outlays, gives about $5 billion a year to the same set of agriculture base acres landowners regardless of crop prices or whether the land is farmed, the report said.

Opposition to the subsidies note that producers of specialty crops like fruits and vegetables receive little or no direct government support through commodity programs and must rely on crop insurance or disaster assistance. Yet consumers usually don't see rising costs in these areas or shortages on the grocery aisles, James said.

News reports about millionaires or people who do not farm getting money from the government have attracted attention to the area, James said. The majority of the farms that get direct payments—about 76 percent—have sales of $250,000 or more, according to the USDA. In 2006, 65 percent of farms with over $1 million in profits received direct payments.

“No other kind of small business gets this kind of government assistance,” James said. For farm groups like the National Association of Wheat Growers, however, direct payments were a top legislative priority in 2008 because the subsidies are predictable, reliable, and the most trade-friendly. Wheat is one of the few commodities grown across the country and can be grown on a wide range of soil types, meaning can be riskier than other commodities, Peterson said.

“The dependability of direct payments for farmers in risky areas was a strong point,” she said. “And I don't know that that has changed in the last five years.” Direct payments give assistance to farmers for the large commodities and to the richest farmers, making the payments inequitable, Carr said. The farm bill should create a true safety net for farmers in need and across all crops, he said. Limiting farm subsidies could hurt the overall rural economy, Peterson said. Farmers buy the majority of their crop needs in the local community, putting money back into the area continuously.

Chairman Lucas has been a vocal supporter of direct payments, so it is unlikely that there would be many decreases in the Title I funding, Johnson from the National Farmers Union said.

Administration Sends Conflicting Message on Subsidies

Those in the agriculture community will wait for President Obama to release his budget recommendations within the next few months to help determine what kind of support the administration might have for the farm bill and what actions he might take when a final bill reaches his desk in 2012.

In April 2009, Obama's budget had strict limits for farm subsidies to save $9.7 billion. His plan would have prohibited direct payments to farms with gross receipts over $500,000. Opposing groups claimed this plan did not account for real profits, and the plan was met with bipartisan opposition.

Obama is “pretty good on this stuff,” James said, noting Obama has advocated for lower payments and lower limits on farm income for eligible recipients. The president has said the administration would incorporate the debt commission's ideas in the next budget.

Agriculture Secretary Vilsack told farmers at the American Farm Bureau Federation's annual meeting Jan. 10 that the safety nets are about rural economies and communities and helping families. Farmers need to make sure people understand that the farm bill makes food cheaper for all Americans and increases access to food, he said in his speech. “When you're dealing with having to reduce deficits, we're going to have to make difficult choices,” Vilsack said. “We're going to have a conversation about the safety net, and there's no question we need a safety net.”

In terms of reducing the deficit, Vilsack pointed to the USDA cutting about $4 billion from crop insurance to add to deficit reduction in summer 2010. “USDA didn't have to wait for the deficit commission. We stepped up, and we stepped up in a significant way,” Vilsack told reporters in a conference call in November. During the same call, he pledged to make sure there is an “adequate safety net for America's farm families, ranch families and growers.”

Direct Payments ‘Tough to Defend’ in Good Years

Opposition to direct payments and other subsidies often point to the booming agriculture economy to criticize payments that come regardless of a farmer's returns. Net farm income was up in 2010 about 31 percent from 2009 to $81.6 billion, according to the USDA Economic Research Service. The industry broke 26 percent over the 10-year average from 2000-2009, which was $64.8 billion. “They've seen the five highest years and projections are that it will remain high,” Carr said. “If we can't wean the wealthiest farmers off now, we never will.” Supporters, however, note that the farm bill is a five-year piece of legislation and farming can be a risky business. “Next year, we could be difficult times and very much need that safety net,” Thatcher of the AFBF said.

Peterson, from the wheat association, said the market cannot support a year-to-year look at revenues to determine government support. “The budget can't take thatmuch variability,” she said. “Farmers have to deal with highs and lows.” With farm groups enjoying the current farm bill and others asking for large cuts in government spending, the 2012 rewrite of the farm bill will require tough choices, experts said.

“If the American public gets energized about where their food comes from, we could see some dramatic change,” Carr said. “If it gets left up to the [Agriculture] Committee, we wont’ see much change.”