Dr. Jody CampicheAssistant Professor & Extension Economist

Agricultural PolicyOklahoma State University

November 8, 2011

Farm Bill Update

Larry D. Sanders

Jim Novak

“Ag policy has a very, very, long history. Current ag policy is driven by budget and politics. Reality and economic facts matter, but only in as far as it affects those who have political influence and can gain from reality and/or economics.”

J.L. Novak, Auburn University

Deficit Reduction Proposals

Farm Bill Negotiations

Conclusions

Outline

Deficit Reduction Proposals

Deficit Reduction Proposals

Budget…

Debt CommissionHouse BudgetBiden GroupGang of SixMcConnell Proposal

Simpson-Bowles President’s Deficit Commission (12/1/10)•Reduces deficits by $3.9 trillion over 9 years• $15 billion in cuts to mandatory ag programs with $10 billion to deficit reduction and $5 billion directed to extend the ag disaster relief fund

President Obama’s framework deficit reduction (4/13/11)• Framework for $4 trillion in deficit reduction over 12 years•Mentions cuts in mandatory program ag subsidies, but not specific programs or amounts

President’s 2012 Budget (CBO score released on 4/15/11)• Increases deficits by $2.8 trillion over 10 years•Cuts $2.5 billion in payments to “wealthy farmers”

Deficit Reduction Proposals

House (Ryan Budget) passed budget (4/15/11)•Reduces deficits by $1.6 trillion over 10 years•$48 billion in cuts to mandatory ag programs, with $12 billion from commodity programs, $18 billion from crop insurance, and $18 billion from conservation programs

RSC Budget Proposal (4/20/11)•Reduces mandatory spending by $1.9 trillion over 10 years•Eliminates direct payments, reduces premium subsidy for crop insurance, no new enrollment in CSP and CRP, eliminate MAP, and Wool and Mohair program

Deficit Reduction Proposals

House Democrat budget (5/25/11)• Reduces the deficit by $1.2 trillion more than the President’s

budget• $20 billion in cuts to mandatory ag programs

Biden Group (6/2011)• Farm subsidies mentioned frequently as target for cuts ranging

from $34 to $45 billion• Direct Payments and Crop Insurance will absorb most of the cuts

“Gang of Six” (7/2011)• Reduce deficits up to $4 trillion over 10 years • $11 billion in cuts to mandatory agriculture programs• No additional dollars directed to extend SURE• Ag committees to determine $11 billion in cuts • Protects SNAP

Deficit Reduction Proposals

Senator Conrad’s budget (7/20/11)•Reduces deficits by $4 trillion over 10 years•$11 billion in cuts to mandatory agriculture programs. Agriculture committees to determine $11 billion in cuts during Farm Bill

Reid Plan (7/2011)•Reduces deficits by $2.7 trillion over 10 years•$11 billion in cuts to mandatory agriculture programs by reducing the payment rate from 85% of base acres to 59% of base acres

Deficit Reduction Proposals

Farm Bill Negotiations

Farm Bill Process

Traditional process:

DC hearings, field hearings, move legislation in 2012

Not currently happening

Current Reality:

Expedited process under the context of the Budget Control Act of 2011 Changed the traditional approach to the farm bill

No time for problem framing, debate, or public input

37 Provisions/Programs in the 2008 Farm Bill No Baseline Funding after 2012

8 Energy 5 Conservation 5 Nutrition5 Hort. & Organic3 Rural Development3 Research2 Trade2 Misc.1 Farm Commodity1 Forestry1 Livestock1 Ag Disaster Assistance

FSA money to implement farm bill

WRP

GRP

Obamaproposes $33 billion in cuts to farm programs

Sen. Conrad (D-NE)Reform DCP, ACRE & disaster aid

NFUFarmer Owned Reserve

Peterson-Simpson Bipartisan Dairy bill

Lugar Farming Flexibility Act

Many Proposals . . .

National Sustainable Ag Coalition preserve conservation and hunger programs, proportional cuts

in farm programs, ending direct payments

Organic producers increase mandatory spending for organics, including research

& data collection

Rural development proponents preserve/strengthen rural programs

American Farmland Trust Strategic conservation initiatives, consolidate conservation

programs, subsidies only for a loss

Many Proposals…

Obama’s Economic Growth and Deficit Reduction Plan

$33 billion in cuts to agriculture

Eliminate Direct Payments

Crop Insurance Cut another $200 million/year from insurance companies Farmer premium subsidies for the 50% catastrophic level

would not change Subsidies on higher levels of coverage would be reduced

Conservation Cut by $200 million a year

Better targeting conservation funding to the most cost-effective and environmentally beneficial programs and practices

National Corn Growers Association ADAP

• Replace ACRE, CCP, and Direct Payments

Brown-Thune-Durbin-LugarAggregate Risk & Revenue Management

Program ARRM Replace ACRE, DCP, and SURE

No direct payments, CCP payments, or SURE

Use of harvest price instead of national avg marketing year price Payments could be made earlier

Less restrictive signature requirements Only owner signature required

Eligibility trigger by CRD instead of state

Payment not limited to base acres

Can opt in/out each year

Expecting a significant reduction in direct payments and possibly CCP payments

New revenue based insurance program to replace payment-based farm bill provisionsArea-wide revenue product delivered through crop

insurance Protect against shallow lossesRide on top of existing crop insurance

Modified marketing loan to satisfy Brazil WTO case

National Cotton Council Stacked Income Protection Plan

STAX

Farm Bill Process – Main Ideas Save/strengthen crop insurance / risk management options

Marketing Loan ( keep or eliminate)

Stronger CCP or no CCP

Direct Payments (reduced or eliminate)

Eliminate CSP along with WRP and GRP conservation programs

Reform ACRE

SURE (keep or eliminate)

Farm Bill Process – Main Ideas

Direct Payments repeatedly offered up for reductions

• Most WTO compliant and have a differential impact by crop, region, and generation

• Integrated with other program components

• simply eliminating Direct Payments has significant drawbacks, but they are likely gone…

Leading contender: modification of ACRE

May or may not replace CCP totally

May also be coupled with reduced DP (if DP not totally eliminated)

Several proposals for changing the ACRE program under the 2012 bill

Farm Bill Process – Main Ideas

Paid on a state-level trigger

Based on state and farm revenue shortfall using national average marketing year price

• If both are not triggered the producer will not get paid

Producers enrolling in ACRE receive:• No CCP payments• Direct payments reduced by 20%• Marketing loans reduced by 30%

ACRE Refresher

Payment made on planted acres (up the # of base acres)

Producer may not get a payment even if state eligible

State ACRE payment guarantee can’t increase/decrease by more than 10% from previous year

Payment made at end of marketing year

ACRE Refresher

Shallow Loss Revenue ProgramRecognize diversity in operations across the

stateDifferent buy up levels of crop insuranceDifferent risk profiles for different crops

Issues with the loss thresholdCorn and soybeans have more shallow losses

This can trigger payments often on many acresEats up the baseline

Can’t design one program to benefit everyone

Farm Bill Process – Main Ideas

Farm Bill Process – Main Ideas

With extreme drought and flooding, crop insurance is as important as ever

ACRE is too complicatedThe Supplemental Revenue Assistance

Payments (SURE) Program, along with 36 other programs, does not have baseline going forwardSURE likely gone

AGI limits are a major issue

Cotton payment program is also a major issueHesitant to have a separate program for cotton, but

it is being considered…

STAX is still on the tableMay not solve WTO issuesPayments from this program are mostly from RMA

Get around payment limits and AGI thresholdPrograms for other crops are subject to this

Farm Bill Process – Main Ideas

Crop Insurance seems to be safe for now

Other disaster programs (LFP, LIP, etc…) will probably be continued to the drought issue

Conservation will see reductionsFighting to protect EQIPReductions in CSPReductions in CRP (lower acreage cap)

Nutrition will be cut but will not really take as much of a hit as commodity programs…

Farm Bill Process – Main Ideas

Main Goal of Chairman Lucas for the 2012 Farm Bill

Wants producers to have a choice to best address their risk needs

Currently working on a package but many details need to be worked out…

Commodity Program Options

1) Revenue Guarantee Program (modification of ACRE)

2) Counter-Cyclical Program - increase current target pricesa. Basic program – free participationb. Expanded program - option to purchase additional area

based deductible coverage (similar to GRIP)

3) Possibly a cotton program

Producers would be able to enroll by crop (instead of by farm)

2012 Farm Bill – Latest Developments

May be close to finalizing a farm bill proposal to send to the super committee

$23 billion cut in agriculture programs over 10 years as part of the effort to cut the federal deficit Ag committee leaders told the super committee

that such a cut would required rewriting farm programs

Planned to send detailed proposal by Nov. 1 Missed this deadline

2012 Farm Bill – Latest Developments

Coalition of 27 House members has sent the super committee leaders a letter urging them not to consider the proposal

Goes beyond its mandate of deficit reduction and authorizes new, complicated agriculture programs that have not been the subject to congressional review

Super Committee should find efficiencies within existing programs

If the ag committees believe that these cuts will require a fundamental redesign of ag programs, those committees can and should move legislation through regular order

2012 Farm Bill – Latest Developments

Conclusions

Conclusions

2012 Farm bill is coming together

Risk management is a key priority

Still have many details to work out…

We still don’t know what the super committee will decide…

Jody CampicheAssistant Professor & Extension Economist

Ag Policy528 Ag Hall

Stillwater, OKjody.campiche@okstate.edu

405-744-9811

Questions?