Direct Payment Defenders Making it Hard for Farm Bill Reformists

October 6, 2011 12:47 AM

via a special arrangement with Informa Economics, Inc.

Efforts to improve ACRE, extend and reform SURE program running into budget woes

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

Farm-state lawmakers and farm and commodity groups over the past few farm bills have been used to getting their way. But the current era of cutting and not spending more on farm and food policy, and crop insurance, has raised thorny issues.

Initial thoughts about those wanting to reform risk management programs such as ACRE have wanted to use some of the direct payment reductions if not elimination of the around $5 billion paid out annually in direct payments as a budget offset for spending more on revenue assurance and other risk management programs. Some of the cuts, those proponents said, would be used as a contribution to the Agriculture panels' contribution to budget deficit reduction.

But some high-level farm-state lawmakers, including House Agriculture Committee Chairman Frank Lucas (R-Okla.) and Sen. Pat Roberts (R-Kan.), the Ranking Member on the Senate Ag Committee, are supporters of direct payments, and are likely definitely against wholesale elimination of those payouts.

Farm policy sources stress that while direct payments are repeatedly offered up for reduction, they are the most World Trade Organization (WTO) compliant, they are bankable, and they have a different impact by crop, region and generation. Direct payment supporters also note they are integrated with other program components, so simply eliminating direct payments is not that simple – and has some significant drawbacks.

Some farm bill reformists, and for sure the Obama administration, will look to crop insurance program spending for budget offsets. That is exactly what President Obama did in offsetting the $8 billion in increased spending he recently proposed to extend the Supplemental Revenue Assistance Program (SURE).

The focus on crop insurance spending is keen because a lot of money is spent on farmer subsidy premiums, and others say, administrative and operating (A&O) costs. Thus far, no farm group or lawmaker has targeted farmer subsidies for budget cutbacks. But President Obama and USDA Secretary Tom Vilsack again targeted the crop insurance sector and the farmer sector for savings to offset the $8 billion needed to fund the SURE program in the president's recent proposals.

Sources say that the focus on crop insurance will grow in the months ahead when given the potential for indemnity payments to exceed $11 billion for 2011 crops, which would bring the crop insurance funding loss ratio to a level that crop insurance subsidy opponents will use to their advantage.

To date, $3.385 billion in indemnities have been paid out for 2011 crops with the loss ratio currently at .29 compared to 2010 indemnities of $4.233 billion with a .56 loss ratio.

For 2011 indemnities, $1.131 billion has been paid out on cotton ($1.046 billion in Texas alone), $907 million on wheat, $692.4 million on corn, $220 million on soybeans and $111 million for pasture, rangeland and forage.

Farm-state lawmakers are still not clear how many billions of dollars they will be charged with savings via the coming farm bill debate. Those agriculture leaders in Congress who say they are keeping their budget saving cards close to their vests readily admit their position will not be the final say. That will come from the Super Committee of 12 lawmakers charged with coming up with budget cuts and/or revenue totaling at least $1.2 trillion over ten years.

Lucas this week said President Obama's plan to cut farm subsidies by $33 billion is a "formula we cannot accept." Speaking at the United Fresh Produce Association's Washington public policy conference, he said farmers are aware of the need to sacrifice. "We want to do our fair share, we just don't want to do three or four times our fair share," he said. The $33 billion amount is of note because that was the level of agriculture spending cuts proposed by the Biden Commission looking at budget cuts, and is the number that House Speaker John Boehner (R-Ohio) has reportedly told Lucas will be the number his panel must cut. While farm-state lawmakers have not indicated what level they will push for ahead of an Oct. 14 deadline to report their thoughts, if any, to the Super Committee, a figure of around $15 billion has been conjectured for some time.

Further, while the farm sector is focused on the short-term budget cuts ahead, the size of the US debt means there will be an annual exercise in coming up with additional budget cuts to help get the debt matter under control. That is why the coming budget cuts for farm, conservation, crop insurance and perhaps even food and nutrition spending should be seen as a down payment for further cuts needed in the years ahead. This is why some farm-state lawmakers do not want to offer lofty spending cuts at this time, because they know what is ahead.


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






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