Some Surprising Changes and Assumptions in Updated CBO Farm Bill Projections

08:25AM Apr 15, 2014
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via a special arrangement with Informa Economics, Inc.

Biggest CBO changes involve food stamp projections

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Congressional Budget Office (CBO) analysts admittedly have a hard task – trying to make a nearly thousand-page farm bill costing nearly $1 trillion make sense, and do some longer-term spending projections to boot.

There may be far more liberals in the nation's capital, but at CBO they tend to be conservative sometimes when trying to gauge participation in various programs, including new versions of farm programs called ARC and PLC – the first being revenue (shallow loss) and the other being target price protection.

While CBO did not release their initial participation assumptions by safety net program, some of the increase in projected spending on PLC may very well be due to CBO projecting less participation in ARC. While some point to declining prices as the reason for the change in PLC and ARC spending estimates, changing participation assumptions (i.e. a move away from ARC) is an even bigger determinant. It seems that CBO may very well be anticipating the ACRE-effect we saw in response to the 2008 Farm Bill: if prices start to soften, the shallow-loss protection that is capped at 10 percent of revenue starts to look less attractive.

A $3 billion difference. Regardless, spending on ARC and PLC from 2014-2023 was projected to be $27.2 billion when the bill passed (relative to the May 2013 CBO baseline). That number has been revised to $24.3 billion — a further reduction of $2.9 billion above-and-beyond what was achieved in the farm bill process. CBO responds that that a significant part of that decrease is due to incorporating their estimates of future sequestration, but that only accounts for about two-thirds of the additional reductions that CBO projects. Of note, participation assumptions and changes in market conditions would account for the remainder. CBO sources confirmed that at least some of the other reductions came from changes to the Supply/Demand and price situation plus other "technical" changes.

But the biggest changes come in CBO projections for food stamps/SNAP. Curiously, the May 2013 CBO baseline (the baseline under which the 2014 Farm Bill was negotiated) showed an estimated $764 billion in spending on SNAP from 2014-2023. The farm bill laid claim to reducing that amount by $8 billion over the same time period. Now, CBO is estimating that spending from 2014-2023 will account for $735 billion in savings, almost $30 billion less than they estimated in May 2013. Between changes brought on by the farm bill and changing market conditions, CBO has revised their estimates down by almost four times the amount of savings they granted during the farm bill conference! 

CBO comments. On nutrition programs and the Supplemental Nutrition Assistance Program (SNAP) in particular, CBO said, “Technical revisions have decreased projected outlays for SNAP over the 2015–2024 period by about $24 billion (3 percent). The most significant of those revisions is a change in CBO’s estimate of the average monthly SNAP benefit per person; CBO lowered that estimate on the basis of updated data from the Department of Agriculture.”

Regarding the eventual ARC/PLC participation rates, it will be interesting to see the finally tallies. Corn and soybean growers from key Midwest states have already heard the line, “Take the money and run,” relative to the 2014 crops if they choose ARC because based on most price projections, they could get a hefty ARC payout for corn and soybeans – but not so via PLC for 2014. But the failed ACRE program of the 2008 Farm Bill was also hyped before the numbers came in very low – much to the chagrin of corn and soybean groups who pushed that program hard. The 2014 Farm Bill brought what some dub “Son of ACRE” because of the shallow loss payment feature of ARC. But again, others say the shallow-loss protection that is capped at 10 percent of revenue starts to look less attractive if prices start to wilt and stay low.

One CBO observer said, “The CBO April 2014 Baseline includes both updated Supply/Demand/Price projections over the period 2014-2024, and the provisions of the 2014 Farm Bill. However, CBO did not re-estimate the farm bill under the new baseline. What CBO included as the legislative change was the same score as used from the May 2013 Baseline, with an extrapolation for 2024 (since the May 2013 Baseline only went through 20123). The rest of the changes were technical (updated S&U/prices/etc.). So, if you were looking for a new score for the farm bill under the April baseline, you won’t find it. All you will find is an estimate of CCC spending, incorporating both updated prices/etc and provisions of the 2014 Farm Bill.”

Bottom line: CBO's cost estimates show they are projecting higher average prices than some others are for most crops in most years. The safety net participation assumptions can always be second-guessed, but actual sign-up will depend on the market situation, final program rules, and a myriad of other factors that are not known at this time.

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