-- Tentative deal reached on farm bill spending framework: A tentative accord on around $10 billion over the farm bill budget baseline was reached and will be offered to farm bill conferees late on Monday, April 28.

Staff members worked this weekend to resolve several issues. House Ag Chairman Collin Peterson (D-Minn.) said there were five pages of open issues to be resolved, but members considered one page while leaving four pages to staff members to mull over the weekend.

Peterson said, "I don't think there's any question now that we can get this done by the eighth of May." The current extension of the 2002 Farm Bill runs through May 2, so another short-term extension will be needed.

Senate Ag Chairman Tom Harkin (D-Iowa) said the “tentative agreement” was on major pieces of a bill that ensures “strong farm income security” and creates a permanent program to provide disaster relief for farmers hit by drought and bad weather. “All in all, this is a balanced agreement,” he said.

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-- Budget offsets for additional spending: The extra $10 billion in spending would be offset primarily if not totally via extending Customs user fees – the fees are assessed at the border on imports. Under federal budget rules, user fees do not count as taxes. The Bush administration has signaled it would accept that offset.

-- Small cut in direct payments: Currently, $5.2 billion are paid annually to farm program crop participants, and are not dependent on commodity prices. Although Harkin originally stated direct payments would be cut $400 million over four years, “done in a way that preserves the baseline,” according to Peterson, the Congressional Budget Office (CBO) has reportedly scored the cuts at $200 million to $250 million over four years. That suggests an interaction with the Average Crop Revenue program (ACR).

Sources inform that over the weekend, when around $150 million in additional funding was found, an effort was made to reduce the cuts for direct payments, but the extra funding went to rural development.

-- Average Crop Revenue (ACR)/ACRE program: I am told that the Congressional Budget Office (CBO) has very generously scored what is now known as ACRE -- Average Crop Revenue Election program. CBO is assuming that 15 to 20 percent of farmers will sign up for ACRE. The farmers who sign up for ACRE would be required to give up 15 to 35 percent of their direct payments and would have limited access to marketing loans. This is expected to save $1 billion to $1.6 billion. These savings will be used to raise target prices and loan rates.

The farm bill is also expected to include commodity title related timing shifts that will “save” $1.6 billion. This also would be used for increasing target prices and loan rates.

Note: One farm industry lobbyist emailed me, "Last I saw, rebalancing scored about $1.4 billion, and that was before the delay to 2010. The combined savings from ACRE and timing shifts are in the $2.6-$3.2 billion range, according to your numbers. Let's have a little clarity on what's paying for what". (I am checking on this.)

As for the implementation date, it is 2010, but supporters of it are trying to get back to 2009.

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-- Farm tax benefits package: A separate $1.4 billion to $1.7 billion tax benefits package will be in the final farm bill. The package would be totally offset via agriculture tax policy reforms, including a provision to prevent nonfarmers from using losses on agricultural investments against nonagricultural gains. Peterson said the proposal to change the limit on net operating loss carrybacks was narrowed to ensure that it would never impact farmers. While limits are still being negotiated, the Senate's original proposal would limit agricultural losses that can be claimed as a way to reduce other nonagricultural business income to $200,000 if the taxpayer receives any farm bill commodity payments. “I think we have too many absentee farmers” taking the tax advantages, Peterson said. “The people who are going to take a hit on this bill are not farmers.”

Under the tax benefits package, farmers would be able to use an optional self-employment tax provision that would make it easier for self-employed farmers and ranchers to qualify for Social Security benefits.

Some of the other tax benefit provisions include incentives for the timber and horse racing industry, Peterson noted. A $93 million horse provision would allow owners of horses held for draft, breeding, or sporting purposes to qualify for long-term capital gains treatment if the horse has been held for 24 months or longer.

House Speaker Pelosi and Rangel insisted on more nutrition funding to offset the $361 million cost of tax breaks to timber companies and owners of racehorses.

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-- Permanent ag disaster program: Sens. Kent Conrad (D-N.D.) and Max Baucus (D-Mont.) scored a big win with the inclusion of a $3.850 billion permanent disaster aid program, which was trimmed $250 million from a previous $4.1 billion proposal.

-- Nutrition spending increase is the big farm bill winner: Senate Ag Chairman Tom Harkin (D-Iowa) said 67 percent of the overall farm bill is dedicated to nutrition, adding, "We carried a heavy load for nutrition in this bill. It's not just a farm bill. This is a farm and a food and an energy bill." Cuts in some commodity programs (including the direct payment cut) will boost nutrition spending by $861 million over the initial $9.5 billion agreed to earlier, for a total of $10.361 billion. "That is really necessary given market conditions,” Conrad said of escalating food costs.

The negotiators took $685 million from Section 32, a tariff account set aside for agriculture, and planned to use $510 million for the nutrition increase and $170 million to deal with the salmon industry disaster on the West Coast.

-- Conservation/environment programs: The bill provides an additional $4 billion for conservation programs, including $1.1 billion for the Conservation Security Program (CSP), which is renamed the Conservation Stewardship Program, which Harkin said would expand the program from 16 million to 80 million acres by the year 2012. Also, an additional $700 million is being carried forward .

Notes: The conservation program increase is really $6.5 billion because of savings as a result of a lower maximum acreage level for the Conservation Reserve Program (CRP), which saved $2.5 billion. Also, the House farm bill's provision that would have allowed early outs from CRP without penalties is not in the framework agreement.

The CRP Transition Option program is included at a cost of $50 million over 10 years. THis would allow landowners taking land out of CRP to sell or rent it to beginning and minority farmers in return for additional CRP payments.

A sodsaver provision is included and it would prohibit crop insurance subsidies on newly broken out native sod.

Other funding levels:

* $1.3 billion for the Wetlands Reserve Program
* $300 million for the Grasslands Reserve Program
* $2.4 billion for the Environmental Quality Incentives Program (EQIP)
* $562 million for the Farm and Ranch Land Protection Program
* $372 million for the Chesapeake Bay Program

-- House Ways and Means Chairman Charlie Rangel (D-N.Y.) got what he wanted: Peterson said the framework agreement provides $361 million for three of Rangel's priorities: (1) funding for a pilot program for international food aid -- the decision about which programs will be funded with the international food aid money has not been finalized yet; (2) money for the Caribbean Basin Initiative (a program that provides trade preferences) -- Rangel's district has a high concentration of people of Caribbean descent; and (3) the Haitian Hemispheric Opportunity via the Partnership Encouragement (HOPE) Act. Peterson mentioned that more funds for TEFAP was another priority for Rangel that will get some extra money

The Senate Finance Committee pledged to help Rangel find other offsets for the Trade Adjustment Assistance (TAA) program, which congressional leadership has on their must-pass list this year.

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-- Specialty Crops: Overall, the specialty crop title would receive $1.35 billion.

-- Rebalancing: The new farm bill would raise the target prices and loan rates for some crops beginning in 2010. For example, the soybean target price would go to $6.05 per bushel, up from the current target of $5.80.

-- Marketing loan/loan deficiency payments (LDPs): Sources say that the status quo will remain for farmers calculating their LDPs, however, USDA would be given flexibility to adjust the process in situations like what occurred post-Katrina. The Bush administration previously pushed hard for language that stated a farmer would have to lose beneficial interest in the crop before calculating LDPs.

-- Sugar: The bill would raise the sugar loan rate three-quarters of a cent beginning in 2010, and changes the overall allotment quota to be a minimum of 85 percent of domestic consumption (previously was a set amount). It also includes a sugar-to-ethanol program.

-- Dairy: Full and confirmed details are not available at this time, but sources say the framework agreement cuts the import assessment to 7.5 cents/cwt -- half the level U.S. producers pay via an assessment for promotion. Also, an effort is under way behind the scenes to alter the Milk Income Loss Contract (MILC) program to take into account feed costs -- the previous funding level for the program is the same, but the policy may be modified somewhat, sources advise. .

-- Pay cap provisions: Peterson said negotiators are “close” to resolving adjusted gross income (AGI) limits on eligibility for commodity programs. “I think we have a panel agreement on AGI, but we're still having a discussion over the weekend about the details,” Peterson said. He noted that the AGI limits will apply only to nonfarm income, saying that “payment limits we're doing will affect non-farmers.”

Importantly, Peterson said discussion continues on how to structure the payment limits and how to phase in a cap. He said a graduated phase-in made the most sense.

Direct payment cap: Conferees agreed to the current law and the Senate farm bill's $80,000 direct payment limit, rejecting the House farm bill's increase in the limit to $120,000.

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-- Renewable energy: The farm bill will include the following key renewable fuel provisions:

* Ethanol blender credit reduced: To help offset the farm tax benefits package, the farm bill will lower the current 51-cent ethanol blender tax credit by six cents, to 45 cents.

* Ethanol import duty extended through 2010: The current 54-cent ethanol import tariff would be extended through 2010 – it currently is set to expire Dec. 31, 2008. Sen. Chuck Grassley (R-Iowa) previously indicated the import duty would be reduced by the same amount (6 cents) as the cut in the blender ethanol credit, but I am trying to confirm this.

* A big payment shift to cellulosic ethanol: Peterson noted one of the key elements of the new farm bill will be a shift from corn-based ethanol to cellulosic ethanol. As previously noted, the ethanol blender credit was reduced 6 cents, to 45 cents. The cellulosic ethanol credit would be $1.01 per gallon. Peterson said that House Speaker Nancy Pelosi (D-Calif.) “got a huge win out of this,” calling the shift from corn to cellulosic ethanol her important issue. “This is what the country wants,” Peterson said, referring to development of the cellulosic ethanol industry.

Note: The farm bill will not include a one-year extension of the biodiesel tax incentive program, which is due to expire at the end of 2008. One of the reasons for the exclusion is the cost of the extension was raised to $537 million, in part due to the energy bill signed into law last December which included a biodiesel mandate. The Senate Finance Committee is expected to include the tax extension in a tax extenders bill, but the timing and fate of the tax extenders bill is murky.

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-- Country-of-origin labeling (COOL): The farm bill contains language that makes implementation of COOL more flexible for both producers and the meat industry.

-- White House reaction: White House spokesman Scott Stanzel declined to comment on the framework agreement, saying Bush administration officials had not seen the entire package.

Goodlatte's position? Importantly, I have been told that key House GOP conferee Bob Goodlatte (R-Va.), ranking member on the House Ag Committee, has NOT signed off on the spending framework package. Goodlatte believes there are several key issues that have not been worked out yet and until those items are worked out and everyone is on board, things are not finished yet.

Here is an email reportedly sent by Goodlatte and/or his staff to other Republicans on the farm bill conference:

Greetings fellow Republican Press Secretaries and Ag LAs, You have no doubt seen everyone from the AP to Reuters to CQ reporting that a farm bill "deal" has been reached by the principals. A deal is an agreement on all aspects of an particular subject that all parties involved have signed off on. Today's meeting did not produce that kind of deal; what it did produce was a set of ideas and parameters that will be used by the staff to move forward with finalizing this bill. Nothing is set in stone and there are just as many moving parts as there have ever been with an equal number of players that are involved in signing off on a farm bill. Surely you will be getting questions from the press about whether or not your boss supports this deal. I recommend explaining that calling this as a deal is not a proper characterization. It's very much in flux and there are a lot of reports out there about what is in and what is out. As you know, just b/c it's in the news does not mean it is accurate, so I urge you to be cautious in issuing statements based on news reports. We will try to provide you with information it is made available to us. In the meantime, here's what I'm telling reporters: a deal is when everything is worked out and everybody has agreed to it. There are still key components of this process that have not been decided and other players still need to be brought into the process. I haven't seen anything on paper (b/c it doesn't yet exist). My advice:  keep your powder dry if you can.

And, Rep. Jim McCrery (R-La.), ranking member on the House Ways and Means Committee, has not signed off on the offsets and tax provisions agreed to by the panel's chairman, Rep. Rangel.

Also, another well-respected House Ag Committee member, Rep. Jerry Moran (R-Kan.), said the following in a statement:

“While I am pleased that progress is being made on completing the farm bill, I have serious concerns with the direction of the farm bill framework. “We will know more over the course of the next several days as to what the preliminary framework means, but from what I can tell, the priorities in this farm bill certainly do not reflect those of farmers and ranchers. Funding is being redirected out of programs that support producers and into non-agricultural programs. This is further evidence of movement in a direction that is less friendly to farmers in Kansas and the small towns they live in. “While I am very supportive of nutrition programs, the funding cannot come at such a tremendous cost to the programs that help farmers and ranchers produce the food and fiber that feeds and clothes all Americans. The framework that is being advanced proposes to cut funding for crop insurance and safety net programs like direct payments. Meanwhile the funding that remains for the commodity title of the farm bill goes to less effective safety net programs that are more trade and market distorting. “As a member of the conference committee, we are expected to meet early next week. I have gone to work to try to improve the farm bill for the benefit of American agriculture and will work hard to see we can still get that accomplished.”

Spending issue? While the farm bill boosts spending $10 billion above the budget baseline, the Bush administration had proposed an increase of about $5.5 billion.

Other issues awaiting White House commentary: In previous veto threat statements, the administration noted the lack of sufficient farm policy reform, the spending level, and budget gimmickry as grounds for a veto. The administration's primary veto threat that no new taxes be in the farm bill should no longer be an issue, as the additional funding was offset by customs user fees, which are not labeled as a tax increase.

In the spending area, the administration called for additional funding for nutrition, conservation and renewable energy – and Congress delivered, especially for nutrition.

Regarding farm policy reforms, the crop insurance industry faces multibillion-dollar cuts; and the pay cap language is still being worked out. The farm bill will at least make a token move toward a revenue assurance option. And the administration will get some flexibility regarding the calculation of LDPs in extraordinary situations like what occurred after the Katrina hurricane.

However, Bush administration officials for months have stressed that with additional farm bill spending above the budget baseline comes the need for additional farm policy reform. The question is whether Congress will deliver enough reform to get President Bush's backing for the additional $10 billion above the budget baseline.

Bush administration officials will focus in part on the pay cap issue. The administration had called for much tougher limits that would apply to anyone whose three-year average AGI was $200,000 or more annually. But under the "tentative" deal, the government would eventually limit payments to high-earning "nonfarmers" -- people who make only a small portion if any of their income from farming. But it would not impose any income limits on wealthy farmers whose nonfarm income did not exceed a specified amount (they are reportedly looking at a figure of $500,000). If this is the final farm bill language on this controversial issue, it will be interesting to see the Bush administration's response.

The higher loan and/or target prices for some commodities, even though they begin in 2010, was cited several times as a step backward by Bush administration officials.