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

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

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

Size of the Next Farm Bill

Current Farm Bill Allocation

Nu-tri-tion

Assis-tance79%

Con-serva-tion and

Forestry5%

Farm and Commodi-

tiy Pro-

grams15%

All Other*1%

2011 Outlays

*Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functionsSource: USDA

Expected 2012 Farm Bill Outlays

Nu-tri-tion

Assis-tance74%

Con-serva-tion and

Forestry7%

Farm and Commodi-

tiy Pro-

grams13%

All Other*6%

2012 Outlays

*Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functionsSource: USDA

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120%

5%

10%

15%

20%

25%

30%

35%

Commodity Payments as Pct. Of Farm Bill Spend-ing

Perc

en

tag

e o

f T

ota

l F

arm

Bil

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utl

ays

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

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)

1995 1997 1999 2001 2003 2005 2007 2009 20110.00

2.00

4.00

6.00

8.00

10.00

12.00

Corn Prices

doll

ars

per

bush

el

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 ag spending.”

-Sen. Charles Grassley (R-Iowa)Title Com

m.Cons. Crop

Ins.Energ

yExpor

tsFood Stam

ps

Total[5

year]

2013-17

Outlay$mn/

yr

6,408 6,260 7,840 101 345 67,95588,909

[444,543]

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

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

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

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

Views on US Commodity Policy

Domestic Citizenry

Exte

rnal

Cit

izen

ry

DISFAVOR

DISFAVOR

FAVOR

LDP—Floor Price

ACRE—Counter-cyclical Revenue

CCP—Counter-cyclical Price

DP—Fixed Transfer

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…”

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

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

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 ag should 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

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.”

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.

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.

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?