Senate Ag Panel Hearing Cites Need to Reform Support Programs

March 16, 2012 12:00 AM

via a special arrangement with Informa Economics, Inc.

Stabenow: 'Era of direct payments is dead'

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

All government programs should have a shelf life and that appears to be the fate of the around $4.8 billion paid annually in direct payments. Senate Ag Committee Chairwoman Debbie Stabenow, during a hearing Thursday on risk management programs and the new farm bill, said her panel must deliver new crop support programs that are "effective and defensible."

"The era of direct payments is dead," Stabenow noted, but acknowledged the challenge ahead in finding the right mix of programs for different crops that meet commodity group interests and reforms that are taxpayer defensible in an era of budget austerity.

Farm programs should not impact farmers' decisions about what to grow, Ag panel members were told by a group of panelists testifying. Others noted the need to make it easier for young people to enter agriculture, while others noted that any farm program reforms must comply with existing trade rules to avoid challenges from trading partners.

As was widely expected, many farm group officials agreed that crop insurance should be the focus of risk management programs included in the omnibus bill ahead. Witnesses strongly opposed any additional cuts to crop insurance, notably those proposed in February by President Obama. Several witnesses said the $6 billion cut in crop insurance over 10 years negotiated in 2010 was ample enough for a budget deficit contribution.

Stabenow said that farm policy should focus on risk management that helps producers who have suffered a loss on the crops they actually grow. "I have heard again and again from farmers and ranchers across the country that crop insurance is the most important risk management tool," Stabenow said. "It is absolutely imperative that we get these policies right."

Sen. Mike Johanns (R-Neb.) noted that farmers overwhelmingly support crop insurance, but added some concern about commodity revenue programs and the relationship with the crop insurance program. A revenue program could cause farmers to change decisions regarding crop insurance coverage, he said. "Farmers tell me crop insurance is working, please protect it," Johanns said. "All of the ideas about plussing it up, or adding to it, I think add a real risk to crop insurance. I think you can end up taking a very good product that farmers have learned to work with ... and you might disrupt that balance."

But not all of the witnesses raved about the crop insurance program. Rice growers pointedly said the program has not been as useful as a risk management tool for them. Rice is an irrigated crop so in times of drought a farmer is unlikely to lose a crop, but will incur additional costs in pumping water into the fields. While crop insurance changes one day may work for rice growers, some rice industry stakeholders said ending direct payments and target prices would hurt rice growers. Sen. John Boozman (R-Ark.) told his colleagues to "keep it [direct payments, target prides] on the table."

Not all of the panel members agreed. Johanns said target prices "are a bad idea" because the payments can lead farmers to raise crops based on the federal return rather than market prices.

Bob Stallman, President of the American Farm Bureau Federation, testified that a change needs to be made in the way the government approaches providing a safety net for farmers. "Continuation of a multi-legged stool remains the best approach for providing a fair and effective safety net," Stallman said. "This should consist of a strong crop insurance program, continuation of the current marketing loan provisions and a catastrophic revenue loss program." Stallman said the reality is that the public will no longer support direct payments to farmers, "The challenge we all face is how to draft a Farm Bill that provides a strong, consistently viable, safety net that protects farmers against crippling revenue declines, whether caused by falling markets or Mother Nature, while at the same time remaining cognizant of budget deficit challenges and changing public sentiment."

Steve Wellman, president of the American Soybean Association (ASA), said that maintaining planting flexibility remains a big issue for soybean growers. He was critical of the draft farm bill proposal last fall to raise target prices. ASA backs a revenue-based program that would support the crop insurance program. Payments would only come when actual losses occur, but ASA does not think the program would distort crop production.

The National Association of Wheat Growers supports a revenue program modeled on the current farm bill’s ACRE and SURE programs, the group’s president, Erik Younggren said.

Pam Johnson, president-elect of the National Corn Growers Association, said her group wants to build on the concept of the ACRE program from the last farm bill and that it likes the aggregate risk and revenue management (ARRM) proposal introduced last fall by Sens. John Thune (R-S.D.), Sherrod Brown (D-Ohio), Dick Durbin (D-Ill.) and Dick Lugar (R-Ind.).

The coming farm bill proposal is expected to look similar to a draft plan pushed by panel leaders last fall, but failed to get approved when the Super Committee process failed to deliver on a debt reduction plan. The plan included a three-tier structure with target prices, a revenue protection plan (Ag Risk Coverage) linked to crop insurance and a separate plan for the cotton industry (STAX) to help it to satisfy a trade challenge by Brazil over past subsidies.

The U.S. cotton industry believes a revenue insurance program that supplements existing insurance products would provide an important and affordable tool, especially given the weather uncertainties and risks that farmers face. Recalling last year's variable weather, National Cotton Council Chairman Chuck Coley told the Ag Committee that they have to have access to crop insurance, risk management tools and even emergency assistance programs to survive and recover from these natural disasters. "The availability of effective risk management tools like crop insurance is important even in so-called normal years because cotton producers need to recover a portion of lost revenues if their crop is damaged after they have invested in the inputs, technology and equipment necessary to produce and market a crop," Coley said. "In those areas where cotton growers have not had access to adequate coverage we want to continue to work -- to improve and increase the products that are available to our growers." The NCC's risk management program proposal, Coley said, makes a significant change in the cotton program structure, but, a necessary one. He said the risk management program has been estimated to significantly reduce outlays compared to previous years and is at least a 30 percent spending reduction compared to extending the existing cotton program.

Sen. Pat Roberts (R-Kan.), Ranking Member of the Ag panel, said there is a myth that if direct payments were eliminated, conservation compliance would just disappear. Instead, he said, it would be applied to other commodity programs, disaster programs and other conservation program eligibility.

As for the agenda ahead, Roberts said the draft plan last fall is not their final guide for cuts to agriculture. Thursday’s hearing was the final farm bill hearing scheduled by the Senate Ag Committee. Stabenow said her panel will begin discussions on the farm bill and that a markup could be set soon, but she provided no specific date.

Comments: Anyone thinking direct payments are still going to survive should recite the key line from the hearing made by Stabenow: "The era of direct payments is dead." As for the next steps, Roberts remarks were interesting when he said last fall's farm bill draft ideas, which he openly has some problems with, would not be the panel's final guide. Regarding farm bill issues, rice and cotton growers made their regional differences known. In the cast of rice, I just wish more panel members would have stuck around to hear them. At least they can watch the video of the hearing as so many of us did for prudent time management. It took several hours to again say what is clearly needed: reform farm programs in a defensible manner that is budget prudent and yet serves as an effective safety net in times of significant losses.


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






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