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2012 Farm Bill: What’s the Prognosis?

Tuesday, January 4, 2011
filed under: Marketing/Risk Management

By John Gordley

In the wake of the congressional mid-term elections, farmers and agribusinesses may wonder what the Republican takeover of the House of Representatives means for spending on federal agriculture programs and prospects for the 2012 farm bill. The short answer is that supporters of the farm income safety net will face strong efforts to reduce agriculture spending and to eliminate current programs. It is important for agricultural groups to take these realities into account as they develop priorities for the 112th Congress.

The Mid-Term Elections

The November 2 elections saw Republicans win 63 Democratic seats in the House. Two-thirds of the Democrats who lost were from rural districts, including one-half of the conservative Blue Dogs and 15 of the 28 Democratic members on the House Agriculture Committee.

The Democratic caucus is now heavily populated by liberals from the east and west coasts, who re-elected former Speaker Pelosi as Minority Leader by a three-to-one margin. If the House Agriculture Committee remains at 46 members, Democrats will need to find up to eight replacements, some of whom will come from urban districts. The ability of farm state Democrats, including Ranking Member Collin Peterson, to maintain support within their caucus for agriculture priorities will be severely curtailed.

House Republicans will add 88 new members, mostly conservatives and other candidates supported by the Tea Party movement. Comprising over one-third of their 242-member caucus, these freshmen will press House leaders to advance measures that reduce deficit spending, balance the federal budget and scale back the size of government, including repeal of health care reform. They and their supporters believe the elections sent a message to the Republican Party that it is on probation, and that its leaders and other members will be judged on their willingness to support and ability to deliver on this agenda. Facing possible further challenges from Tea Party activists in the 2012 elections, the House agenda will take a much more conservative direction in the next two years.

In the Senate, the six-seat loss to Republicans means that the remaining 53 Democrats will have no chance of blocking filibusters of their priority legislation by invoking cloture, which requires 60 votes. With another 23 members up for re-election in 2012, vulnerable Democrats may cross the aisle and vote with Republicans on deficit reduction and other conservative priorities. Republican leverage on the legislative agenda will make it difficult for President Obama to build a working relationship with the new Congress, leading to continued gridlock and possible presidential vetoes.

Prospects for Ag Program Cuts

Even before debate on the 2012 farm bill moves forward, agriculture programs face a series of challenges that could further reduce the spending baseline that the Congressional Budget Office (CBO) will set in March 2012, which will be used to “score” the cost of program changes. Republican leaders stated during the campaign that they would look to reduce appropriations spending in FY 2011 by $100 billion during the “lame duck” session. They have also talked about freezing spending for these programs at FY 2008 levels for FY 2012, which would sharply reduce current outlays for nutrition and agricultural research programs. Any reallocation of funds to maintain nutrition spending would need to come from other agriculture programs. There has also been talk about an across-the-board rescission in current-year spending for all “non-essential” programs, including agriculture.

Finally, the co-chairmen of the President’s Debt Commission initially included in their first proposal $15 billion in agricultural program cuts, including Direct Payments, “other subsidies,” the Conservation Stewardship Program (CSP) and the Market Access Program (MAP). The final draft shifted a third of these cuts to fund a standing disaster program so that farm outlays would instead be reduced overall by $10 billion. While the required 14 of the commission’s 18 members did not reach agreement on a deficit and debt reduction plan, these suggested cuts are likely to resurface next year in other proposals.

Outlook for the 2012 Farm Bill

Against this backdrop, organizations that support farm safety net programs face the twin challenges of protecting the current agriculture spending baseline while developing farm policies that can be defended against further cuts during development of the 2012 farm bill.

This process is complicated by the fact that the current CBO baseline includes an average of only $7.4 billion per year in Title 1 (farm program) spending, compared to $13.3 billion prior to the 2002 farm bill and $8.4 billion before the 2008 farm bill. Based on forecasts for higher-than-average farm prices in the next two years, CBO may further reduce the agriculture baseline. Moreover, CBO policy in “scoring” program changes is to err on the high side. Any increase in projected spending under a new or existing program would need to be offset by an equivalent reduction in another program.

The “bulls-eye” for deficit reduction among farm programs is Direct Payments, which total $5.2 billion per year, or about 74% of the Title 1 baseline. DPs were already controversial in the 2008 farm bill debate, and will be more so since commodity prices subsequently rose and have remained high.

The other target for spending cuts is crop insurance, which is authorized separately from the farm bill. Higher farm prices and premiums have driven CBO’s estimated cost of crop insurance to an average $8 billion per year over the next 10 years. The Administration already cut outlays by $6 billion over 10 years under this year’s Supplemental Reinsurance Agreement (SRA), and crop insurance is certain to come under further budget pressure next year.

Some observers, including outgoing Chairman Peterson, have compared the current outlook to the situation prior to the 1996 farm bill. In 1995 a new Republican majority in the House imposed sharp spending reductions on domestic programs, including agriculture. With farm prices at historically high levels, then-Chairman Pat Roberts accommodated these cuts under Freedom to Farm, which restructured the farm safety net by replacing counter-cyclical support with higher but declining fixed payments that were expected to terminate after seven years.

Peterson recently said that Speaker-to-be Boehner, who supported Freedom to Farm, might propose a similar elimination of counter-cyclical programs as part of the House’s deficit reduction plans. It should be remembered, however, that farm prices plummeted three years after the 1996 farm bill was enacted, and that Congress was forced to step in with supplemental payments that eventually became an ongoing program in the form of Direct Payments.

Most farm organizations anticipate a struggle to defend current farm programs rather than advance ideas for new ones. The exceptions at this early stage include the National Corn Growers Association (NCGA), which is looking to improve the Average Crop Revenue Election (ACRE) program, and the dairy industry, which is expected to propose replacing price supports with a gross margin insurance program.

Interest in using Direct Payments to strengthen other programs and broadening crop insurance to cover whole farms, which were promoted in early 2010 by then-Chairman Peterson, are less likely to go forward under incoming Chairman Lucas, who strongly supports Direct Payments. However, the American Soybean Association, the National Association of Wheat Growers and NCGA are looking at modifications to crop insurance that would broaden its appeal in regions where it is currently not popular.

John Gordley & Associates represent a number of commodity groups, including the National Sunflower Association, in Washington D.C.
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