Schafer: 'ACRE Pricing Decision is Far More Than Following Congressional Intent'

September 17, 2008 07:00 PM
 

via a special arrangement with Informa Economics, Inc.

USDA Secretary and Deputy Secretary discuss key farm program decision ahead


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


USDA Secretary Ed Schafer and Deputy Secretary Chuck Conner made it clear to me that the upcoming decision on which crop price years are used to establish the Average Crop Revenue Election (ACRE) program "is not just following congressional intent, it is a very important budget and farm policy decision."

First, some background. During the 2008 Farm Bill debate, the Congressional Budget Office (CBO) scored ACRE as saving $500 million over ten years. CBO used the March 2007 budget baseline and assumed an ACRE guarantee price for corn of $3.27, assuming the average of 2008 and 2007-crop price years.

But ACRE scoring shows a far different result when looking at more recent prices and the August 2008 budget baseline, according to the Bush administration officials, who detailed the following::

Using the average of 2007 and 2008 crop price years...
... Corn Price Guarantee of $4.88
... Soybean Price Guarantee of $10.63

Using the average of 2006 and 2007 crop price years...
...Corn Price Guarantee of $3.65
... Soybean Price Guarantee of $8.22

USDA estimates that using the 2007 and 2008 price years, ACRE payments would be $10 billion over five years. "Was that the intent of Congress?" USDA Secretary Ed Schafer asked. "If so, then lawmakers are saying they don't care about budget deficits!"

"This has major, dramatic budget implications," Schafer added. "And this is not just whether or not USDA is following the intent of Congress."

"This is also a major farm policy decision," said Deputy Secretary Chuck Conner. "Are we going to base a farm program on record-breaking grain prices? And recall that under ACRE, adjustments in the price guarantee cannot exceed 10 percent annually. So that is why the initial ACRE price guarantee is very important."

But different figures were compiled by the Majority Staff of the Senate Ag Committee, using the price projections for 2007 and 2008 from the most recent CBO baseline to calculate the revenue guarantees for Iowa corn and soybeans. The figures show that the years used in the calculation will make a significant difference to whether the ACRE program will be a viable option for farmers next year.

 
Average
Yield
2-year
Average Price
Revenue Guarantee
Iowa Corn
Using 2006 and 2007 prices
166.1 bu/acre
$ 3.70/bu
$ 552.52/acre
Using 2007 and 2008 prices
166.1 bu/acre
$ 5.02/bu
$ 750.44/acre
Difference
$197.92/acre
 
Average
Yield
2-year
Average Price
Revenue Guarantee
Iowa Soybeans
Using 2006 and 2007 prices
50.1
bu/acre
$ 8.29/bu
$373.87/acre
Using 2007 and 2008 prices
50.1
bu/acre
$11.34/bu
$511.20/acre
Difference     $137.33/acre

Comments: What's going on here? Congressional contacts say that it is "a real reach" for the Bush administration to even think they can use the average of 2006 and 2007 crop prices for the ACRE guarantee calculation for the 2009 crop.

"Any ACRE payments for 2009 crops would not be paid until Oct. 2010, so what's the issue here?" one contact asked. "Farmers will not know the price guarantee when they sign up for the program, and USDA will not have the season average prices for 2008 crops until the fall of 2009, but again, any payments under the program are not made until Oct. 2010 anyway. But it is a major decision as to which crop year price averages are used."

A law suit ahead? Some say any USDA decision to use a 2006 and 2007, and not 2007 and 2008 price average may well result in a class action law suit. "Farmers would complain that USDA is not following the law," one contact said.

Can a legislative clarification settle this matter? This is far from clear because some say if language is pushed to alter any USDA announcement using 2006 and 2007 price years, budget offsets may be needed for the additional spending using the higher price year average of 2007 and 2008.

When will USDA announce the ACRE decision? I am told "relatively soon." If the decision is made to use the average of 2006 and 2007 prices, coming proposed rules for the program would reflect that key program parameter and even if a new White House team wants to change that decision, proposed rules would have to be modified and opened for further comment -- thus this could take some time.

Asked to respond to Schafer's and Conner's comments regarding ACRES costs and farm policy, a congressional contact said, "The Bush administration lost the farm bill veto fight by overwhelming numbers. And, USDA complained about the potential cost of ACRE before the veto override vote was taken, but they lost that debate. Let's move on."

As for higher budget spending estimates for ACRE now versus when the farm bill was debated, one ACRE proponent said, "Does that mean that following the 2002 Farm Bill, USDA should have still spent the money CBO said was going to be spent for farm programs, but did not because of higher commodity prices?"


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


 

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