federal agricultural spending— goals, programs, and beneficiaries stephanie mercier november 9,...

Federal Agricultural Spending Goals, Programs, and Beneficiaries Stephanie Mercier November 9, 2011

AGree Goals AGree is a new initiative to transform food and agricultural policy over the next eight years. Our goals are to: Improve agricultural productivity and environmental performance; Enhance the availability of and access to nutritious foods; and Promote opportunities for rural communities to succeed economically. We recognize that this complex challenge requires work over the long term and cannot be solved quickly or through a single policy vehicle. AGree will take a deliberative, inclusive approach to developing policy solutions. We will use rigorous, grounded research to understand problems and define solutions. We will engage a broad array of stakeholders, from whom we will seek insights, guidance, and ideas that lead to meaningful solutions. 3

AGree Backgrounder Presentation This presentation is part of a series of background resources intended to lay the groundwork for common understanding of the complex issues and policies related to food and agricultural policy at the national and global levels. It was authored by Stephanie Mercier, former chief economist for the Senate Agriculture Committee, and does not necessarily represent the views of AGree. This piece is intended to provide a comprehensive overview of federal spending related to AGrees three core goals and an analysis of the distribution of benefits, in order to create a shared starting point and important context and analysis for discussion about the direction of food and ag policy. It also is intended to inform discussion about choices that need to be made to reduce the national deficit. We hope you find this presentation a helpful resource and background. And we hope you will join us as we seek to transform federal food and agriculture policy to meet the challenges of the future. 4

U.S. Annual Budgetary Process Starting with the Congressional Budget and Impoundment Control Act of 1974, Congress established rules to govern the federal budget process. On an annual basis, both Houses are to develop, reconcile, and adopt a budget resolution that establishes the framework for the following fiscal years budget process. The resolution is not signed by the President. Based on the budget resolution, each Appropriations Subcommittee is assigned an overall funding figure for the programs under its jurisdiction. Under Pay-go rules, each Appropriations Subcommittee is supposed to find offsets of reduced spending or increased revenue in order to fund any new program. In the current (112 th ) Congress, House majority changed their Pay-go rule to Cut-goonly spending cuts count as offsets, not new revenue. Annually funded programs are also known as discretionary programs. 5

U.S. Mandatory Programs Mandatory programs are established on a long-term basis by committees of jurisdiction, and payments are generally made to anyone who qualifies, without annual overall limitations. Largest programs in this category make up U.S. social safety net: Social Security Medicare Medicaid Domestic nutrition programs (food stamps and school lunch) Category also includes agricultural programs such as farm support and crop insurance programs Also known as entitlement programs 6

7 Components of U.S. Federal Budget, FY11

Federal Budgetary Turnaround Between 1998 and 2001, the combination of a strong economy, tax increases, and spending cuts led to the first multi-year federal budget surplus since 1949. Since 2001, we have gone from CBO projecting a 10- year surplus of $5 trillion to a 10-year deficit of $7 trillion. A combination of economic forces and policy decisions led to this turnaround. 8

Debt Ceiling Debate Debt ceiling was originally imposed in 1917 as part of the Second Liberty Bond Act, which provided funds for World War I. No other major developed country except Denmark has similar fiscal limitation. According to the Congressional Research Service, the debt ceiling was raised 74 times between 1962 and 2010, mostly without incident or political brinksmanship. The current House GOP leadership and others saw the possible breach of the debt ceiling as a prime opportunity to impose dramatic cuts on federal spending and reshape the role of the federal government. The bill was signed less than 10 hours before the deadline. 10

Budget Control Act of 2011 Legislation enacted on August 2 nd set up a two-stage process. First, it imposed caps on discretionary spending for 20122021, saving an estimated $917 billion. Second, it established Super Committee of 12 members charged with identifying additional $1.2 trillion in measures to reduce the deficit over next 10 years. All Committees (including Agriculture) will be able to make recommendations to Super Committee, due by mid-October. No explicit cuts to farm programs in first tranche, but USDA discretionary programs will be affected. 11

12 Breakdown of Federal Agricultural Spending FY07 through FY11

Data Issues for Analysis All figures cited in this section are FY07FY11 averages for individual programs and overall categories, adjusted for inflation. FY07FY10 program-level budget data drawn from Congressional Budget Justification documents prepared for appropriations committees. FY11 budget data is not available consistently at program level, since legislation was not completed until Apr. 2011. Numerous extrapolations required. Mandatory program spending for FY11 extrapolated based on partial-year data compared to similar period in FY10. Additional funding provided through the American Recovery and Reinvestment Act of 2009 (i.e., the stimulus bill) not included. Used U.S. Consumer Price Index (198284=100) (updated to 2010=100) to adjust spending totals. 13

AGree Goal #1 Improve agricultural productivity, food security, and environmental performance, at the national and global levels Relevant programs include Farm safety net programs Conservation programs Environmental programs/oversight Trade promotion programs Agricultural productivity research/extension 14

How Much is Spent Toward Achieving Goal #1 (Productivity/Environment) On an inflation-adjusted basis, federal spending in this category has averaged $31 billion between FY07 and FY11 ($38 billion when loan program levels included). Accounts for 26 percent of overall spending on ag- related federal programs that could be identified. 98 percent of spending in this category occurs through the USDA. 15

Farm Safety Net Programs Farm Service Agency programs Direct payments ($4.8 billion) CCP/ACRE payments ($1.1 billion) Marketing loan program benefits ($1.5 billion) Farm loan programs ($4.2 billion in loan levels, $187 million in budgetary costs) Disaster assistance ($1.5 billion) Other programs and activities ($2 billion, mostly tobacco buyout, agency expenses) Federal crop insurance program, run by the USDAs Risk Management Agency ($5.4 billion) 16

17 Total Farm Support Spending, 1961-2010

Conservation/Environmental Programs Natural Resources Conservation Service programs and activities ($3.75 billion) Environmental Quality Incentives Program ($925 million) Conservation Stewardship Program ($426 million) Forest Service programs and activities ($5.4 billion) FSA programs (chiefly Conservation Reserve) ($2.23 billion) Non-USDA programs ($550 million) EPA pesticide licensing, geographic programs BLM range management Major USDA conservation programs are mandatory, but are capped either on acreage or funding basis so are not true entitlements 18

Other Activities under Goal #1 (Productivity/Environment) Agricultural productivity research USDA ($1.39 billion) NSF ($86 million, plant genome research) Trade promotion programs ($552 million, $3.6 billion in loan levels under GSM-102 export credit guarantee program) USDA, mostly Foreign Agricultural Service Biggest program is Market Access Program ($200 million) Ag-related export promotion and credit/guarantee spending at other agencies Trade Development Agency Overseas Private Investment Corporation Export-Import Bank 19

AGree Goal #2 Increase the availability of and access to nutritious food Relevant programs include: Domestic nutrition assistance programs Food safety inspection/oversight International food assistance programs Nutrition and food safety research and extension On an inflation-adjusted basis, programs associated with Goal #2 account for 65 percent of total federal agricultural spending. 21

Domestic Nutrition Programs Supplemental Nutrition Assistance Program (food stamps) ($48.4 billion) Participation has spiked since the 2008 recession Received a temporary boost in benefits in the 2009 stimulus bill (not included in average) Child nutrition programs ($15.5 billion) Mainly school lunch (31.7 million participants estimated for FY11) Women, Infants, and Children (WIC) ($6.4 billion) Other programs and administration ($490 million) 22

23 Annual SNAP Participation, 1969-2011

Nutrition and Food Safety Research and Extension Activities This category of spending occurs at a number of U.S. federal agencies USDA ($524 million, Agricultural Research Service (intramural) is the largest single source) FDA ($830 million, Center for Food Safety and Applied Nutrition) NIH ($1.3 billion, nutrition research and training) CDC ($971 million, research on chronic disease prevention, much of which is dietary-related) 24

International Food Assistance Programs Programs operated out of two agencies: the U.S. Agency for International Development and the U.S. Department of Agriculture USAID Title II Food for Peacedonation of U.S. commodities overseas for humanitarian and development purposes ($1.9 billion) (1954) Emergency Food Security Programuses cash for local procurement or food vouchers ($294 million) (2010) USDA McGovern-Doleprovides food to help bring children into schools in developing countries, especially girls ($158 million) (2002) Food for Progressprovides donated food (some share monetized) to encourage introduction and/or expansion of free enterprise into agriculture in developing countries, especially emerging economies ($196 million) (1985) Local/Regional Procurement Pilot Programestablished in the 2008 farm bill, provided $60 million to study effectiveness of LRP approach 25

26 Components of Federal Spending under Goal #2 (Nutritious Food)

AGree Goal #3 Promote opportunities for rural communities to succeed economically Relevant programs include: Rural economic development, including renewable energy projects Rural infrastructure (housing, utilities) Renewable energy research and development International agricultural development Rural development research and extension 27

Rural Economic Development Rural Development programs consist largely of competition for loans and grants for projects to help open or expand rural businesses in the United States. Major programs: Business and Industry Loans ($940 million program level) Value-added Producer Grants ($20.4 million) Rural Cooperative Development Grants ($5.5 million) Forest Service (help with the sustainable management of forest resources, create jobs through enhancing recreational activities, $538 million) NRCS (Resource Conservation and Development activities, small watershed rehabilitation, $100 million) Total across USDA agencies$3.8 billion 28

Renewable Energy Programs and Activities Most resources devoted toward developing new feed- stocks (biomass/cellulosic) for biofuels. Major programs include: DOE bio-refinery loans and grants and R&D ($205 million) USDA/RD biofuels programs ($186 million) USDA/FSA Biomass Crop Assistance Program ($150 million, added in 2008 farm bill) Biofuels projects also eligible for general RD loan and grant programs. 29

Rural Infrastructure Rural Housing Service$11 billion loan levels, $1.7 billion budgetary cost Single, multi-unit housing Farm labor housing Community facilities Rural Utility Service$8.5 billion loan levels, $720 million budgetary cost Electricity Telecom/Broadband Water/Sewage Could not break out spending on rural roads, bridges 30

International Agricultural Development Activities across numerous U.S. government agencies. Funding has seen big upswing in last few years after food crisis of 2007/08 ($1.44 billion) Agencies involved: USAID (Feed the Future) ($571 million) Millennium Challenge Corporation ($651 million) USDA ($62 million) Contributions to multilateral institutions ($151 million) 31

32 Components of Federal Spending under Goal #3 (Rural Economy)

34 Who Benefits from U.S. Agricultural Spending? Evaluation of Selected Programs

Direct Payments Eligibility: Farmers can receive payments if they cultivate land that was part of the farm support programs in the early 1980spays off of fixed base, fixed yields, does not require growing specific crop Demographics According to ARMS database, 3 largest farm classes (large, very large, and nonfamily) accounted for 74 percent of all direct payments in 2007-09, with only 12 percent of all farms Among 3 small farm classes (retirement, residential/lifestyle, farming-low sales) only 14 percent collected any direct payments in 2007-09 As long as farm support payments are directly linked to crop production, either past or current, will get similar distributional results. 35

Federal Crop Insurance Program Program provides subsidized, actuarially sound yield or revenue insurance to farmers. available to cover more than 100 crops limited livestock revenue coverage requires farmers to engage in good farming practices for covered crops no other restrictions (payment limits, etc.) In 2009, 16% of respondents to USDAs ARMS survey indicated they had insured acres under program 50-63% of farmers in economic class categories with $100K or more in sales participated in program Much lower participation (less than 20%) for farms with less than $50K in sales Between regions, highest participation in Northern Plains states (43%) and lowest in Appalachia (7.5%) 37

38 Acres Insured by State, 2009 0 District of Columbia 0 Guam 0 Puerto Rico 0 Virgin Islands 1 Rhode Island 7 Alaska 9 New Hampshire 23 Connecticut 28 Massachusetts 28 Hawaii 47 West Virginia 49 Nevada 72 Vermont 125 Maine 155 Utah 160 New Jersey 345 Delaware 355 Arizona 552 New Mexico 863 New York 886 Maryland 1059 Oregon 1119 Virginia 1119 Pennsylvania 1135 South Carolina 1254 Alabama 1267 Florida 2126 Idaho 2372 Tennessee 2406 Kentucky 2526 Georgia 2611 Washington 2722 Louisiana 3414 Mississippi 3481 North Carolina 3930 California 3940 Michigan 4578 Arkansas 4728 Wisconsin 4889 Wyoming 5060 Oklahoma 5737 Colorado 6224 Ohio 7776 Missouri 8229 Indiana 14171 Montana 15349 Nebraska 15710 South Dakota 16931 Kansas 16954 Minnesota 17391 Illinois 21048 Iowa 24212 North Dakota 35404 Texas Thousands 0 to 23 23 to 155 155 to 1059 1059 to 2372 2372 to 3930 3930 to 6224 6224 to 16954 16954 to 35405 No data

Farm Service Agency Direct Loan Program FSA lends directly to farmers with acceptable credit history but unable to get loans elsewhere. Can be used to pay for: Annual purchase of variable inputs, such as seeds and fertilizer (operating loans) or Farmland or farm structures-purchase or repair (ownership loans). Cannot exceed $300K annually in either category Less than 2% of respondents in 2009 ARMS used program Highest participation among full-time farmers with sales greater than $250K, but still less than 10% Among regions, highest participation in Lake States (only 3.5%) Why so low? Many farmers use USDA guaranteed loan program through local banks or deal with commercial lenders entirely outside of USDA program With improved farm prices and income in recent years, more farmers have sufficient cash flow to self-finance operating expenses 39

Land Retirement Programs The Conservation Reserve is the largest conservation program aimed at idling highly erodible farmland for 10- 15 years (capped at 32 million acres). All farmland is eligible, but it must meet a threshold of providing environmental benefits to be accepted in bid system. According to the 2009 ERS ARMS database, 16% of all farms surveyed participated in a land retirement program, with average annual payment of about $5,100. Participation is fairly uniform across farm size categories, with highest of 20% for farms with receipts between $250K-$500K and lowest at 15% for farms with receipts less than $100K. 40

Working Lands Programs The Environmental Quality Incentives Program (EQIP) is the largest of the working lands programs and is available to farmers to assist in adoption of conservation practices on their operations. Under law, 60% goes to livestock farms. (total of $1.2 billion in 2010) Cost share is required, money is allocated at state level. Under 2009 ARMS, 3% of all farmers received payments from one of the working lands programs, with average payment of $9,400. Participation in programs was highest among largest farm class (about 12%), lowest for farms with receipts

federal agricultural spending— goals, programs, and beneficiaries stephanie mercier november 9,...

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