US farm bill update

THE DRAMA OF NEW YEAR’S DAY

Update to this story below.

THE WAIT FOR a US farm bill may finally be nearing an end, though how Congress will muster the votes to renew farm programs is still unclear. Farm bills historically passed with strong bipartisan support from a coalition of farm groups and food program interests, but budget battles and Tea Party tactics have put traditional farm bill allies on the defensive.

As a result, US growers have been operating under a temporary extension of the last farm bill – an extension that technically expired in September. In Congress, the Senate has passed a farm bill, and the House agriculture committee has completed its bill, but differences between the House and Senate will be hard to resolve.
   
The greatest sticking point is food aid, which constitutes 67% of US farm spending.  The Senate cut $4.5 billion from food stamps over 10 years, a level that can probably be achieved through administrative adjustments, while the House would cut $39 billion over 10 years, effectively gutting the current system.

Meanwhile, some Tea Party hardliners are working in the name of deficit reduction to scuttle any farm bill compromise, and Congressman Paul Ryan, who chairs the House Budget Committee, wants to cut $140 billion from the farm bill, most of it from food aid. That is a cut Senate Majority Leader Harry Reid will not accept. So in the face of those challenges, how can a farm bill pass?  There are several options.

ANOTHER EXTENSION?
As it did last year, Congress can extend the last farm bill for another year, but that is unlikely. An extension would boot the debate into an election year (when Congress finds it harder to pass major legislation) and anger both farm constituents who want some certainty about support programs and budget hawks who want big cuts in farm spending.

Finally, the Obama administration is urging Congress to act on the farm bill by January 1. Taking a harder line with congressional opponents, US  Agriculture Secretary Tom Vilsack has said the administration will not accept an extension.

A BUDGET PACKAGE DEAL?
Under the most recent budget agreement, Congress has committed to produce a budget plan by December 13 and enact it by mid-January, and some analysts suggest a farm bill could be wrapped into a budget pact.

The latest word, however, is that a major budget pact is becoming less and less likely – and the deadlines are “soft” deadlines that don’t carry immediate or compelling penalties. Even if Congress includes the farm bill in such a package by mid-January, it will not solve a special problem inherent in US farm law.

NEW YEAR’S DAY DRAMA?
That special problem is the permanent farm program from 1949, which will automatically take effect on January 1 unless new legislation overrides it. Under permanent law, an old target price system could mean wildly unstable markets. US milk prices, for example, could explode from the current $3.65 per gallon to $6 to $8 – an effect already being called the “dairy cliff.”

The “dairy cliff” is the force strong enough to force farm bill action; but there’s an additional complication if the farm bill passes without being synchronized with the budget debate.

If the farm bill passes with a modest cut in food assistance spending, and budget negotiators later require deep cuts in total farm bill spending, the agriculture committees could be forced to cut farm subsidies much more aggressively. There is considerable agreement already that direct payments to farmers will be cut, but major farm groups want some of the cuts to offset more funding for the crop insurance program.

At present, the administration’s farm proposal will cut $30 billion over 10 years by eliminating direct payments and cutting crop insurance funding. The House committee’s approach calls for a $35 billion cut in farm supports, but conservative leaders like Senator Jim DeMint threaten “no farm bill” unless supports are cut by at least $40 billion – and at that level of cuts, there is no money to reallocate to crop insurance or to support new entitlements.

There is also pressure from powerful groups outside agriculture to cut farm spending.  For example, deeper cuts in farm spending can be used to offset upcoming cuts in defense spending.
   
Beyond budgets, the House farm bill includes another critical change.  It will replace 1938 and 1949 permanent farm law by making the 2013 farm law permanent – a step that could change the whole dynamic of future farm bill debates.

January 1 should tell where the farm bill is finally headed.  You can be sure US farmers will be watching. •

UPDATE**
Dust settles on US Farm Bill renewal
The United States Congress missed a January 1 deadline, but in an unusual bipartisan vote approved a five-year farm bill that was signed into law on February 7. It authorizes nearly $1 trillion in spending over the next ten years, about 75% of which will be for food and nutrition programs. Roughly 15% of spending will go to commodity supports and the remaining 10% will fund conservation, research, market development, and risk management for specialty crops.

COMMODITY PROGRAMS
As expected, the 2014 Farm Bill eliminates the direct payment program, except for cotton, saving $5 billion per year. It also ends counter-cyclical payments, the ACRE program, and Supplemental Revenue Assistance Payments, for a total savings estimated at $16 billion. Instead, producers of program crops like corn, soybeans, and wheat can choose to participate either in Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC).

The PLC option is similar to the old US target price program, making payments to farmers when market prices fall below a “reference price,” set for the duration of the 2014 bill at $3.70 per bushel for corn, $8.40 for soybeans, and $5.50 for wheat. Beginning next year, growers who choose the PLC option will also be able to buy Supplemental Coverage Option insurance that will deliver an additional payment when losses exceed 14% of normal levels.

ARC, in contrast, covers price and yield losses, making payments when county-level revenue for a crop or a whole farm’s revenue is below the ARC guarantee for the year (farmers decide whether to use whole farm revenue or a crop-by crop benchmark). ARC results in protecting from 76% to 86% of historical revenue. Farmer-purchased crop insurance is expected to cover deeper losses.

CROP INSURANCE
The US government pays about $1.4 billion annually to subsidize crop insurance, covering 62% of farmers’ crop insurance premiums. The bill increases government spending on crop insurance programs by $7 billion over the decade.

LIVESTOCK
The new law includes a major overhaul of dairy support programs and provisions to aid livestock farmers during disasters. The new Dairy Production Margin Protection Program will be based on the difference between dairymen’s feed costs and the price of milk. Congress approved permanent authorization for a Livestock Indemnity Program to cover weather-related losses and a Livestock Forage Program for losses due to drought or fire. Livestock groups were unhappy, however, about Congress’ decision to retain country-of-origin labeling (COOL) for meat and meat products.

NUTRITION
The hottest issue in the Farm Bill debate has been food aid. The Senate initially targeted $4.5 billion in cuts over ten years, while the House of Representatives wanted $39 billion in cuts. In the end, food and nutrition program spending was reduced by $8 billion, a level that triggered fierce criticism from hunger advocates.

WTO COMPLIANCE
One unresolved question is whether the restructuring of commodity programs complies with World Trade Organization agreements. The US Chamber of Commerce has warned that the PLC and ARC programs and add-ons to crop insurance may be considered trade-distorting. •