Sizing up Obama's Mini Farm Bill Proposals

September 20, 2011 10:59 AM
 

via a special arrangement with Informa Economics, Inc.

Where's the money for revenue-based farmer safety net?


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

 

Without much analysis of how a proposed $33.248 billion in net cuts to existing farm programs would impact the farmer safety net, the Obama administration on Monday released farm bill stakeholders' worst nightmare: cuts that either match or slightly exceed what the Biden Commission was focusing on.

The Obama administration has now proposed a mini farm bill of its own. It is not comprehensive, but the proposed $30.8 billion cuts that would effectively eliminate direct payments (as producers would scurry to the ACRE program), another $8.3 billion of reductions for the crop insurance sector, a $2.1 billion whack at conservation, and a move to actually spend $8 billion for the SURE program (likely to gain some support from key lawmakers like Senate Finance Chairman Max Baucus (D-Mont.) and Senate Budget Chairman Kent Conrad (D-N.D.), has all the markings of the Office of Management and Budget (OMB) all over it.

A policy disaster move for crop insurance. The one major item of bipartisan support going into the writing of a new farm bill is that the current crop insurance program works and is seen by many farmers as the best safety net to build farm policy around. Yet President Obama offers more of the same – slowly sucking the life out of the program.

FSA moving to take over crop insurance? Some observers inside and outside of government inform that the long-term Obama plan is to eventually make the crop insurance program a total government program by bringing the delivery of the policies into the Farm Service Agency (FSA). Such suggestions have been made before but most thought those belonged in the conspiratorial category. That assessment is now being reassessed.

Some FSA staffers inside and outside Washington apparently fret that their jobs could be on the line in the years ahead, what with the need to have fewer county FSA offices, and the rise of computerizing farm program information.

The Obama administration now has a clear track record and trend of going back and finding more and more cuts to crop insurance. With the need ahead to find additional program budget cuts, many believe they will not stop trying to cut more out of crop insurance. In 2010, USDA negotiated $6 billion in savings over the next 10 years from the private insurance companies that write and sell the policies. Of that money, $4 billion is slated to go to deficit reduction.

As for the $8 billion President Obama wants to actually spend on a farm program, SURE, there are likely behind-the-scenes action on this one, too, sources advise. The SURE program has a budget baseline problem going into the farm bill debate, and would need $16 billion in additional spending for a 10-year baseline (thus the $8 billion cost for Obama's five-year extension).

This SURE funding was not just an OMB and USDA suggestion to Obama and others at the White House, contacts inform. It likely had some congressional supporters wooing into the ears of White House brass.

 

As for direct payments, the $30.8 billion cut would eliminate the program under the assumption that farmers would scurry to the ACRE program for participation, thus causing payments for that program to soar and limiting the impact of killing direct payments to "just" $30.8 billion. Farm bill watchers note that there should be an aggressive debate regarding eliminating direct payments, but if so, they believe some of the savings should go to improving the farmer safety net – perhaps based on current proposals from the National Corn Growers Association and the National Cotton Council. Instead, the Obama plan put in $8 billion to extend the lack-of-baseline SURE program for five years.

SURE has its proponents, but also a lot of opponents who say any program payments arrive way too late and do not serve as an effective farmer safety net.

As for USDA's involvement in the Obama plan, it will be interesting to hear Secretary Vilsack's comments about crop insurance. To date, Vilsack has been an avid supporter of anything Obama announces, and most expect this to be the case this time as well.

The political implications of what some call a "hatchet approach to farm policy" could be significant. Some election-year watchers say any House, Senate or presidential race that depends on winning a close contest in key rural states will be confronted with the recommendations released by the president.

Bottom line: The draconian nature of Obama's plan puts no money in improving revenue-based safety net products. Its $8 billion earmarked for SURE does not address farmer complaints that SURE is supported by a very small percentage of farmers, and pays out in a much delayed fashion. Some farm and commodity groups have withheld their negative opinions opinions about the program because they don't want to offend SURE's supporters, who include Sens. Conrad and Baucus. Call that reluctance an $8 billion mistake.

Farm bill writers will now actually have wide latitude to write the next omnibus farm bill. Their funding cuts will likely be below the Obama cut total.

And, this just may increase the odds that the coming farm bill will, indeed, be part of whatever bill comes out of the Super Committee.

Revealing figures: Subtracting the $1.15 trillion in troop removal savings from Afghanistan and Iraq, and $1.5 trillion in tax-related initiatives in the Obama plan, that leaves around $600 billion in savings from all government program spending. Of that total, for just three programs (direct payments, crop insurance and conservation), the Obama plan (net cut of $33.248 billion) would amount to around 5.5 percent of all of total government savings. In a government with a budget of around $3.6 trillion, the three farm programs cost around 0.4 percent of total federal spending. This is why farm policy stakeholders say the Obama proposals relative to agriculture are not fair and balanced.

 

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