writing the 2012 farm bill: is there any money? roman keeney 08/19/2011
TRANSCRIPT
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
l O
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?