Admin. Proposes Farm Payment Cuts in FY 2012 Budget

February 14, 2011 10:46 AM

USDA spending would be reduced under the Obama administration's plan for Fiscal Year (FY) 2012 by a proposed reduction in direct payments, tightening of payment limits and the end of payments for cotton and peanut storage programs. In addition, as promised, the administration is proposing to restore the cuts made to the Supplemental Nutrition Assistance Program (SNAP) via the Healthy, Hungre-Free Kids Act of 2010.

Here's a summary of the proposals to reduce spending in the farm program area:

  • Reduce Direct Payment Cap. The administration say the concept would "transition the dependence of large farms and wealthy landowners on direct payments made on the basis of historical base acres to revenue from other sources including emerging markets for environmental services, the President's Budget proposes a 25% reduction in the current cap on direct payments to individuals. The 2008 Farm Bill set a limitation of $40,000 in direct payments per producer participant in the Direct and Countercyclical program and $32,000 for those who participate in the Average Crop Revenue Election (ACRE) program. The proposed adjustment will reduce the limitations to $30,000 (or $24,000 for those in the ACRE option.) These payments are made regardless of market prices, losses, or whether the land is still producing crops. Direct payments are only a modest portion of the roughly $17 billion in direct Government support already provided to farm producers through various USDA programs including farm commodity and income support payments, crop insurance benefits, disaster payments, and Conservation Reserve Program rental payments." Estimated savings over 10-years $1.5 billion.
  • Tighten Payment Eligibility. The focus again is on "wealthy" individuals, with a proposal to again adjust the limits on income to qualify for payments. "The need for more fiscal responsibility necessitates reexamination of government payments to wealthy individuals who are better able to take advantage of new market opportunities. Therefore, the Budget also proposes a three- year phased reduction in farm program average Adjusted Gross Income (AGI) eligibility limits from the current $500,000 of non-farm AGI to $250,000, and the farm AGI limit for eligibility for direct payments would be reduced from the current $750,000 set by the 2008 Farm Bill to $500,000 over a three- year period as well. These adjustments in current program limits would affect only a very small portion of the farm program participants without disturbing the foundation of the current safety net for productive family farmers." Estimated savings over 10-years $979 million.
  • Eliminate Cotton and Peanut Storage Credits. The Presidents Budget proposes to eliminate the requirement for the government to pay the storage costs of cotton and peanuts that are put under loan with USDA. "Cotton is the only commodity for which this assistance is regularly provided. Storage credits for cotton have been found to have a negative impact on the amount of cotton on the market. Because cotton storage is covered by the Government, producers may store their cotton for longer than necessary. Peanut storage credits are only provided if the crop is forfeited to the Government, therefore payments are rarely made and there is little need for storage credits." Estimated savings $1 million.
  • Crop insurance: Even with the administration taking $6 billion out of the program via the renegotiation of the Standard Reinsurance Agreement, the budget proposes to "make the amount charged for the catastrophic (CAT) coverage on crop insurance policies more closely reflect the experience of participants at this type and level of coverage. Because the premium for CAT coverage is fully subsidized for the farmer, changing what we charge for the premium will effect only the payments to the Crop Insurance Companies." Estimated savings $1.77 billion.

Besides the aforementioned reductions, the budget includes expectations for the Conservation Reserve Program (CRP) to be maintained at close to the 32 million acre cap for the program, with expectations for a 3.95 million acre general signup in 2011 and a 6.0 million acre general signup in 2012.

There are also a series of user fees proposed for several USDA agency operations, including for the Animal and Plant Health Inspection Service (APHIS), Food Safety and Inspection Service (FSIS), Grain Inspection, Packers and Stockyards Administration (GIPSA) and the Natural Resources Conservation Service (NRCS).

Key moving forward will be the reception the plan gets on the Hill. And early indidcations are it may not be as "dead on arrival" as many times budget proposals are from an administration, especially when control of one or more chambers of Congress are not in the hands of the same political party as the White House.

Plus, this is only the first step in the long budget process. And it's a process that at times has not come to a conclusion via passage of the various annual appropriations bills for a given fiscal year -- such as the current fiscal year.

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