Writing the 2012 Farm Bill: Is there any money?

1. Writing the 2012 Farm Bill: Is there any money? Roman Keeney 08/19/2011

2. Budget and the Farm Bill • August 1-2, 2011: House of Representatives, Senate, and President Obama approve a $2.4 trillion deficit-ceiling increase. • Cut $917 billion in spending over 10 years • Raise debt limit initially by $900 billion • Committee to find $1.5 trillion in deficit savings by year’s end • Key Events • Budget committee appointments • Election year fiscally responsible campaigns

3. Implications for 2012 Farm Bill • Mandatory vs. Discretionary Spending in Farm Bill • Mandatory Programs • Have baseline beyond expiration of 2008 farm bill, assumed to continue under current law (though programs revert to prior farm bill) • All farm commodity programs; most nutrition and conservation programs; and research, bioenergy, and rural development programs • 37 programs that are not guaranteed funds at the end of the 2008 farm bill • Estimated $9-$10 billion over five year period • Paid for from the agriculture committee’s budgetary resources • Include: forest and wetland services, WIC, domestic and international marketing assistance, and more

4. Size of the Next Farm Bill

5. Current Farm Bill Allocation *Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functions Source: USDA

6. Expected 2012 Farm Bill Outlays *Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functions Source: USDA

8. Why has the commodity share in spending changed? • Fixed direct payments are provided regardless of market outcomes or producer decisions • The farm bill has significant budget exposure on the commodity side for a number of large acreage crops • Counter-cyclical payments • Loan deficiency payments • ACRE • Strong markets have meant few outlays under these programs • Meanwhile, nutrition assistance has been expanded and the recession has made more families eligible

9. 2008 Baseline Performance • 2008 baseline under estimate of nutrition spending • (~2/3 was the CBO score share) • 2008 baseline over estimate of commodity spending • (~1/10 was the CBO score share, not including crop insurance)

11. 2013-2018 Baseline caps the next farm bill • Best-case scenario • Budget neutral farm legislation • Make use of the full baseline spending • More likely scenario: some reduction from the full baseline • “We’ve been hearing $10 billion to $48 billion in cuts to agspending.” -Sen. Charles Grassley (R-Iowa)

12. Increased spending on commodity objectives can come from… • Nutrition/SNAP • Direct Payments • Conservation • More likely any programmatic reductions contribute directly to deficit reduction • Could recalibrate CCP, LDP, ACRE at low budget/baseline costs • Budget exposure could be large

13. 2012 Farm Bill Proposals • Fiscal Commission: reduce mandatory agricultural spending by $15 billion from FY2012 to FY2020 • Reduce DP when price exceeds cost of production • Limit conservation programs • Reduce the Market Access Program (exports) • Bipartisan Debt Reduction Task Force: reduce mandatory spending by $30 billion through FY2020 • Reduce Adjusted Gross Income cap and lower max DP • Reduce crop insurance reimbursements to private insurance companies • Reduce crop insurance premium subsidies to farmers • Consolidate and cap agricultural conservation programs

14. Proposals for 2012 Farm Bill (CBO) • Obama Administration’s FY2011 budget request: reduce farm commodity programs by $2.6 billion over FY2011-FY2020 • Reduce Adjusted Gross Income cap and lower max DP • Reduce Market Access Program • Large mandatory programs are not immune to budget cuts • Farm commodity programs, conservation programs, crop insurance • Nutrition programs are ‘tougher’ to cut • Crop insurance outlays have significantly increased and have surpassed farm programs in spending

15. Reducing Direct Payments • DP majority of commodity pmts. in CBO 10-year projection • Cost about $5 billion per year, regardless of market conditions • CCP cost about $1 billion per year • WTO friendly but difficult to justify to taxpayers in a sector with strong performance and high income operators

16. Views on US Commodity Policy DISFAVOR LDP—Floor Price ACRE—Counter-cyclical Revenue External Citizenry CCP—Counter-cyclical Price DP—Fixed Transfer DISFAVOR FAVOR Domestic Citizenry

17. Public Opinion on Commodity Support • Public opinion survey (2009) • Subsidies given on a regular basis regardless of good/bad year? • 40 percent favor when asked about small farms • 15 percent favor when asked about large farms • Payments in bad years are much more favored • NY Times Editorial Board (2009) • “…indefensible program of direct payments…”

19. Views on Reducing Direct Payments/Ag Spending • “We have to expect that agriculture will have to contribute … to deficit reduction” -Sen. Kent Conrad (D-N. Dak), chairman of the Senate budget committee • “The department is prepared to do as much as we can with fewer resources, but there is no doubt that cuts will have a real impact on American agriculture and on American people. There will be pain, and everyone will have to sacrifice something.” -Agriculture Secretary Tom Vilsack

20. Views (cont.) • “If you’re a farmer like me, you’re going to expect less. Something’s going to go away. The direct payments are going to go away.” -Rep. Tim Huelskamp (R-KS) • “There’s no sacred cows anymore…The bottom line is, ag should be cut like everything else, but no more than anything else. I think direct payments will be done away with.” -Sen. Charles E. Grassley (R-Iowa) • "In times of record-high prices [the government is] still handing out money like this, it's just politically not possible, feasible or popular these days” -Anthony Bush, National Corn Growers Association. • “We shouldn’t be giving corporate farms, these large agribusiness companies, subsidies. I strongly believe that.” -Rep. Paul D. Ryan (R-WI), chairman of the House Budget Committee

21. Alternate Views on Direct Payments • “We’ve been hearing $10 billion to $48 billion in cuts to ag spending,’ he said. ‘Farmers are ready to do their part, but agshould not take the disproportionate amount of cuts.” - Sen. Charles Grassley (R-Iowa) • “You can cut agriculture all day long and twice on Sunday and it won’t move the needle on debt and deficits….Washington cannot balance its books on a policy that makes up just one-quarter of 1 percent of the total federal budget.” - Congressman Mike Conaway (R-Texas) • “U.S. farm supports account for less than 1.0 percent of the federal budget.” - Jack Roney, American Sugar Alliance

22. Farm Operator Views • “I’m sure they’re going to go away. It’s all giveaways — any entitlement program is a giveaway,” said Don Paxson, 72, who farms corn and wheat and said he received about $8,000 this year in subsidies. • “We need to wean them off everything — any income from the government. It’s all a welfare state,” said Carl Quint, 56, another farmer who stands to lose money. • A third farmer, Williard Riggs, 86, shrugged and said: “They’ve got to cut somewhere.”

23. Will there be direct payments in the next farm bill? • Almost certainly in some form • Less lucrative at least toward the end of the legislation (phase down/out) • Address additional objectives • Conservation Security Program style service payments or stringent compliance guidelines • More likely if there are conservation spending cuts • Payment limits and means testing will be the key reform that generates projected budget savings • How difficult they are to organize/manage around will be the key for realized savings.

24. Will there be a 2012 Farm Bill? • Highly unlikely • Heated election year means that the rural bipartisan coalition that normally writes farm bills will not be available • 2008 farm bill passage facilitated by Republicans trying to be progressive • Hearings to date have not generated momentum • Budget negotiations were nonspecific about agriculture • Direct payment quotes seem like lip service. • If deficit spending is high on the agenda, the cost/benefit doesn’t make the agriculture bill a priority. Extend with a promise to cut in 2013.

25. Closing: Evaluating Farm Bill Discourse • Be leery of $ numbers in agricultural policy discourse • “$5 billion in direct payments to mostly wealthy farmers…” • Is this more or less than wealthy non-farmers receive from the government? • Is it an effective means of supporting the agric. sector? • “Agricultural subsidies are X billion $ in a Y trillion $ economy…” • Is low cost “good” or just lowering the probability of notice? • What’s the best alternative use of the money?