2014 Farm Bill Key Features and Lessons

February 2, 2014 09:16 PM

via a special arrangement with Informa Economics, Inc.

Dissecting the long saga of the 2014 Farm Bill

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The 2012, no 2013, no 2014 Farm Bill seemed like a long time in its making and it was. The process or lack of it sometimes eventually resulted in some significant changes and even reforms. How those turn out will likely be tested in the years ahead -- in time for the next farm bill debate.

Biggest Farm Bill Features

The biggest feature is that farmers have a choice to pick the safety-net tool that works best for them and that if prices collapse, an arbitrary limit will not force Congress to come back in and provide ad hoc relief as was the case in 1998 operating under a $50,000 pay limit. The Farm Bill provides farmers with a one-time election to choose between a revenue (Ag Risk Coverage) or target price (Price Loss Coverage) safety net.

An optional Supplemental Coverage Option (SCO) is available for those taking PLC beginning with 2015 crops – not 2014. SCO provides farmers the option to purchase county level insurance that covers part of the deductible under their individual yield and revenue loss policy. Coverage level cannot exceed the difference between 86 percent and the coverage level in the individual policy. Subsidy rate is 65 percent. SCO is not available if enrolled in ARC. Under SCO, there are no payment limits.

The 2014 Farm Bill has a higher farm program payment cap versus the 2008 Farm Bill even before one takes out SURE payments because they are no longer in place with the new bill. And, there are no specific program caps, but a $250,000 overall payment cap (combined husband & spouse) for safety net payouts – above the $80,000 cap (husband and spouse) for direct payments via the 2008 Farm Bill and an overall cap in that bill of $210,000 excluding SURE.

Direct payments are eliminated even though there is a transition payment for 2014 cotton and for 2015 for cotton in counties where the STAX program is not available.

The cotton program safety net moves from Title I to the crop insurance title – the major reason why spending on crop insurance shows a big increase. Of note: there is no payment caps under STAX because it is a crop insurance program beginning with the 2015 crop.

U.S. dairy policy is truly reformed via the Dairy Producer Margin Protection Program, a new safety net program providing indemnity payments when actual dairy margins are below margin coverage levels the producer chooses on an annual basis. The focus is to protect farm equity by guarding against low margins.

A status quo sugar policy – no changes.

Conservation: Conservation Reserve Program (CRP) maximum acres are reduced to 24 million by Fiscal Year 2018, which begins Oct. 1, 2018. The Farm Bill includes about $6 billion in savings largely by limiting EQIP (Environmental Quality Incentives Program) spending and enrollment in CRP and the Conservation Stewardship Program (CSP). The farm bill also merges 23 separate conservation programs into 13.

The farm bill cut food stamp funding by $8.645 billion, but added back $645 million for various worker/pilot programs, for a net $8 billion reduction for the program. The bill provides a $200 million increase in financing to food banks. Most of the food stamp funding savings will come by tweaking federal "heat and eat" benefits that have been exploited in recent years by several states and the District of Columbia. The farm bill also cuts SNAP funding by prohibiting USDA from spending money on television, radio and billboard ads to promote the program and on programs designed to recruit new beneficiaries. And in response to years of documented evidence of misuse and abuse of the program, USDA will need to ensure that illegal immigrants, lottery winners, college students and the dead cannot receive food stamps and that people cannot collect benefits in multiple states.

Getting A Lot But Still Voting No

To show why Congress is dysfunctional, some people bring up the announcement by Sen. Chuck Grassley (R-Iowa) that he will not vote for the farm bill due to how the measure handled payment cap language. But observers note that Grassley won three pay cap items he pushed for: a $125,000 individual overall payment limit; subject Marketing Loan Gains and Loan Deficiency Payments to a limit; and abide by the actively engaged recommendations of the General Accountability Office (GAO) report. While he did not get the sub-caps he wanted and did not get the GAO option he wanted, he got the other option which GAO offered as an equally acceptable alternative. But, overall, what he did get regarding payments cap should be enough, some say, but not in this congressional era where if you don't get everything you want, you just vote no. My way or the highway.

Crop Insurance

Crop insurance proponents mostly succeeded. Farmers, their lobbyists and farm-state lawmakers went into the lengthy farm bill debate saying "do no harm" to crop insurance and seek some improvements. That is primarily what occurred – despite efforts to blunt that goal.

A key change is the linkage of conservation compliance with crop insurance – a proposal first supported by the American Farm Bureau Federation, who later withdrew its support. But by that time its conclusion was a done deal, pushed largely by Senate Ag Chairwoman Debbie Stabenow (D-Mich.). Others say some in the crop insurance industry supported the initiative initially and that made it difficult to drop even though the House farm bill omitted it.

No AGI test. Despite efforts by some groups and lawmakers (including Sen. Dick Durbin, D-Ill.), the 2014 Farm Bill has no payment caps and/or adjusted gross income test.

Other crop insurance details of the 2014 Farm Bill:

  • Higher subsidy levels for enterprise insurance are made permanent.

  • A new revenue-minus-cost margin crop insurance contract is authorized. The initial target is rice for the 2015 crop year.

  • Several provisions encourage data sharing, with a focus on USDA agencies. One objective is to increase availability of county-based insurance products.

  • A producer may exclude a yield for a crop year in which the county planted acre yield was at least 50% below the average county yield over the previous 10 consecutive crop years.

  • Budget limitations are placed on renegotiations of the Standard Reinsurance Agreement (SRA), including budget neutrality with regard to the crop insurance programs.

  • Insurance benefits are reduced if a farm tills native sod for production of an annual crop.

  • Insurance coverage is to be offered by dryland and irrigated acres of a crop.

  • Beginning farmers and rancher are eligible for a higher subsidy rate on insurance.

  • Proposal to reduce the level of insurance subsidies for high income individuals was deleted.

  • USDA's Risk Management Agency is given a mandate to focus on developing insurance products for underserved commodities. Immediate priorities are revenue insurance for peanuts, margin insurance for rice, and a specialized irrigated policy for grain sorghum. Studies are authorized of insurance for swine and poultry catastrophic disease, poultry business interruption; and food safety. Insurance for organic crops is to offer price elections that reflect the retail or wholesale price, as appropriate. Index-based weather insurance pilot programs are a priority.

Bottom line for crop insurance: Crop insurance is improved, with the biggest improvements since the ARPA if 2000. Some fret that the linkage with conservation compliance is a warning of changes ahead. Some in the crop insurance industry seemed to be under the impression that they had to take Sen. Durbin’s adjusted gross income (AGI) study in order to avoid an AGI test, but this was not the case. AGI was knocked out of crop insurance long ago – long before this bill came to a conclusion. But with crop insurance the largest chunk of change in the farm bill after nutrition, some note crop insurance stakeholders – the industry and farmers – need to take a page from the sugar play book and unify their team. There are lingering hard feelings within the industry over how the 2008 Farm Bill and the 2010 SRA played out. Observers say those wounds need to be healed and that only happens if you build mutual respect and trust and take on a unified position. Crop insurance is in for a rocky road if that does not happen sooner rather than later. Future budget deficits and the need for more farm bill savings will focus on crop insurance as the "low-hanging fruit" that lawmakers will likely look to in the years ahead. And it could come earlier than most think if there is a budget reconciliation next year. But if divided government continues, that likely means the status quo for a while.

Brazil and the 2014 Farm Bill

Analysts say Brazil should have no grounds to continue to challenge US cotton policy because US cotton producers have zero price support under the new program, STAX. The price election for STAX is set the way the price election is under any crop insurance policy – it is a market-discovered price.

But some predict other WTO challenges ahead regarding the 2014 Farm Bill safety net programs, especially if there is any sustained periods of low to very low commodity prices. Said one farm bill analyst, "It’s hard to predict how the bill will fare when challenged by trading partners — it could well depend on the particular approaches followed by the litigants and who ends up on dispute panels. Based only on the precedent of the Brazilian cotton case, one could argue it will be tough to defend several of the new policies. I’m tempted to cite particular examples, but see no upside to doing so."

Look Back and Ahead at Lawmakers, Farm and Commodity Groups, and the White House

Overview: Players are important. Getting target prices included in the 2014 Farm Bill was largely due to insistence from House Ag Chairman Frank Lucas (R-Okla.) and Senate Ag ranking member Thad Cochran (R-Miss.). Fruit and vegetable growers garnered some impressive wins this go around, thanks in large part to Senate Ag Chairwoman Debbie Stabenow (D-Mich.). Ditto for energy-related funding levels. Sugar and dairy interests had the focus of Rep. Collin Peterson (D-Minn.). Will those lawmakers still be around, or in the same positions during the next farm bill debate? If not, who are the players? Different lawmakers, different interests.

House Ag Chairman Frank Lucas. He suffered a major setback last June when the House defeated the initial House farm bill. The defeat largely was due to failed strategy on the timing of the vote and on too much involvement by House Majority Leader Eric Cantor (R-Va.) regarding food stamp funding and policy reform. That gave Democratic members the cover to make a political point. The two bills (nutrition and farm bill) were eventually split and then joined back in conference with the Senate.

Inside observers say Lucas and Rep. Collin Peterson teamed up to be key supporters of existing sugar policy, and got most of what they wanted regarding crop insurance. Sources in both the House and Senate say Lucas insisted that corn and soybeans be taken care of in the House farm bill when many wanted to dump shallow loss because of some of the commodity lobbyists' behavior. While Stabenow certainly had her "wins" in some areas, contacts agree that Lucas got most of what he wanted in Title I – the farmer safety net, apparently his key focus. During the farm bill saga, some said Lucas was not going fast enough and drawing enough hard lines, or winning enough versus the Senate. But a title-by-title review shows a fairly even split between what Stabenow wanted versus Lucas and both of their ranking chairmen.

Where Lucas gave Peterson way too much oxygen, and not enough to his own political party interests, was in dairy policy, according to seasoned farm bill watchers. When a party's Speaker insists on something, that should have been enough to handle the matter far earlier in the process, rather than near the end of the debate.

Ranking member Peterson. Dubbed a "solid friend of production agriculture" and a "good-faith partner" to Lucas, he was nonetheless a bit too slow to grasp the changes necessary to dairy, triggered by House Speaker John Boehner's opposition to supply management. Boehner won but it took too long for that conclusion to be realized.

Senate Ag Chairwoman Debbie Stabenow. Focused, consistent with talking points, and making sure she got what she wanted are the items observers list as her strong points in the farm bill episode. She asked for and got initial support from the Farm Bureau for linking crop insurance to conservation compliance. She was expected to and got additional funding for fruit and vegetable growers, important to her home state. And she insisted that a way be found for funding over $800 million in ag-related energy programs. She did not get the dairy supply management language she supported, nor the features of the Ag Risk Coverage/shallow loss program initially pushed by corn and soybean lobby groups and her own staff.

By keeping off most all regulatory reform, Stabenow cut the legs out from underneath the Environmental Working Group (EWG). This, plus her handling of food stamps showing far less of a cut then House GOP members wanted, meant a unified Democratic caucus that would, if worse came to worse, only require a small band of Republicans to join them in passage.

Ranking Member Sen. Thad Cochran. His work with Stabenow produced a bill that got more votes in the Senate than last year’s package that locked out the south. The Senate is poised to pass a farm bill this week with a strong super majority. It was very clear target prices would be in the final bill when Cochran became ranking member on the Senate Ag panel.

USDA Secretary Tom Vilsack was "up to his eyeballs" trying to help broker a deal to get the farm bill done, as one observer put it. Overall, USDA is being given good marks on supplying needed analysis and suggestions during the farm bill debate. USDA's real work now begins in farm bill implementation issues – never an easy task.

House Republican leadership. This was the first farm bill ever that the GOP leadership has whipped. Whatever one thinks of the tortured path to this farm bill's victory, the House Republican leadership was decisive. They not only had to deal with the uncertainty of Democrats and the wily nature of some in their own conference, but they had to stand in the place of farm groups, many of which were either too busy fighting each other or sometimes AWOL, according to some insiders. Boehner, Cantor, House Majority Whip Kevin McCarthy (R-Calif.) and other House GOP leaders worked throughout the process to make this bill a reality.

But political parties can change. Said one farm bill analyst, "I don’t think many of us after the 1996 Farm Bill would have predicted that a future Republican House would be the strong proponent of higher target prices while a Democratic Senate would argue that payments shouldn’t be tied to current production decisions."

National farm groups. Sources from both political parties and within some farm groups say their advice for the future for national farm groups is to consult the various commodity groups on what policies they seek for their crop and attempt to synthesize these objectives into a common plan. "Be a bridge builder, a consensus-seeking organization that ties farm groups together," is how what farm bill veteran put it.

Corn and soybean lobbying. During the farm bill debate, some say corn and soybean national organizations tried to ramrod a policy designed exclusively for them through the Congress, and they failed on their initial proposal. They fought safety net payments on planted acres for a target price safety net, but initially wanted planted acres as the factor for corn and soybeans via shallow loss or Ag Risk Coverage/revenue assurance. They forced the issue so that all safety net payouts are now factored on base acres. Some conclude the groups overreached and a key safety net payment factor was changed to make the programs equitable – at the insistence of House Ag Chairman Frank Lucas (R-Okla.).

Targeting target prices. Some say the problem was not that corn and beans had a policy that they wanted for their crops, but that they did not adequately consider other crops or even some producers of corn and beans who did not believe that the national groups' favored policy (shallow loss/Ag Risk Coverage) would work for them. Seasoned farm bill analysts recall that farmers in the past got good farm bills from respecting each other, talking to each other, arriving at mutually agreed upon consensus policy, and then circling the wagons.

One farm bill veteran, regarding the 2014 Farm Bill, said, "The reason we got a farm bill is because lawmakers simply stopped listening and began working out the compromises that the farm groups should have worked out before the debate began. Some criticize Congress for not being able to legislate because they cannot compromise any longer. That is good advice for farm groups and organizations to follow as well."

Cotton, rice, peanuts, sugar, sorghum, and barley. Capitol Hill sources say congratulations are in order for those groups, not just for getting what they wanted, but how they went about it. "Chivalry is not dead," said one observer.

Sugar. Many observers think sugar lobbyists are the best because they work as if it is a new farm bill each year.

The reasons why. The reasons sugar got a straight extension of their current policy despite the challenges of a flooded market this past year, which resulted in some costs to the taxpayer for the first time in a decade, is because:

  1. they are 100 percent united in their interfacing with Congress, the Administration, the press, and fellow farm organizations;

  2. they work the Congress each year as if there were a farm bill being considered in that year;

  3. they are politically engaged; and

  4. both in Washington and on the ground (grassroots), they are solid.

National Milk Producers Federation (NMPF). While a major and much-needed change to dairy policy is in the farm bill, the group convinced itself and apparently some others, including Rep. Peterson, that they were going to roll the House Speaker. They did so based on math, and on vote-counting that took place before the House Speaker drew the line. This caused Rep. Peterson to fall into the same error. When it was clear supply management would not be in the final bill, Peterson helped make the necessary adjustments, but then NPPF reportedly came back to the table and helped mess up what some said was a decent alternative worked up by Capitol Hill and USDA. This caused dairy policy guru Sen. Patrick Leahy (D-Vt.) to have to venture in again. Dairy policy landed about as well as it could at the last minute thanks to Lucas, Stabenow, Leahy, and Vilsack, sources inform. Although DSA (Dairy Stabilization Act) was billed as a proposal that united the industry, no unified policy has been so criticized by those within an industry behind the scenes, contacts said.

– Livestock groups and meat industry. R-CALF and the National Farmers Union are happy about the farm bill in this area. That says a lot. They got wanted they wanted, mostly stopping things from happening relative to country-of-origin labeling, poultry marketing regulations and defeating the "King amendment." Those livestock and meat industry groups seeking changes had their way initially in the House. But those groups have a history of not being unified when it counts, and offering conflicting suggestions to key farm bill lawmakers at the 11th Hour. The groups waited until the last possible moment to demand 100 percent of what they wanted, and then when it did not and probably could not happen, the groups pulled out all the stops to defeat a farm bill that does not include a livestock title (as they requested) but does include about $4 billion in livestock disaster assistance including losses in 2012 and 2013. Said one analyst, "In so many ways those groups are an impressive and organized group, admirable even. But in this instance, they sort of went berserk."

– University analyses. While universities released farm bill proposal analyses that helped dissect and put perspective on the most important farm bill topics, some university analysts "cherry picked" what they wanted in competing House and Senate farm bill and as a result, distorted the situation. But Ag Committee staffers knew the spin they were being spun, and discounted those reports.

Who Controls White House Important

Republican presidents and their key officials usually get more interested in farm programs and farm bills than do Democratic administrations. So the fate of the 2016 presidential election will be watched carefully as to who enters the White House and if it is a Republican, what agriculture-oriented members join the new team in Washington.

USDA is important on farm bill implementation. Are they farmer-friendly? If not, Congress usually jumps in to "instruct" USDA otherwise. As for 2016 elections, the team at USDA will eventually help the new Congress in working up what is needed for farm policy, including crop insurance, during annual budgets, and in the formulation of another new farm bill.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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Spell Check

2/3/2014 03:28 AM

  Jim, Good analysis! Can you break down the cuts to EQUIP and CSP? Dan Branton


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