This week, members of the U.S. congressional supercommittee failed to agree on $1.2 trillion in spending cuts, phased in over 10 years, in an effort to reduce the federal budget deficit. The supercommittee’s failure to come up with a bipartisan reduction plan triggered automatic cuts, which include an estimated $15 billion in spending cuts to agriculture beginning January 2013.
While details are still scarce, most of the cuts to agriculture will be made to Title I crop programs. Food stamps and the Conservation Reserve Program are exempt from the automatic cuts.
Automatic cuts to agriculture, however, may never go into effect if Congress passes the 2012 farm bill before the current farm bill expires in September 2012.
Bipartisan leaders of both the House and Senate Agriculture Committees had agreed to recommend $23 billion in spending reductions to the supercommittee, with $15 billion coming from Title I crop programs and the rest from other crop programs and the Conservation Reserve Program.
"We are now back at the beginning of the farm fill process," says Pam Johnson, first vice president of the National Corn Growers Association and a corn grower in Floyd, Iowa. Johnson says that corn growers are ready to take cuts from the direct payments that they receive each year as long as the new farm bill ensures effective and affordable crop insurance and a revenue-based safety net program. Commodity groups want to reallocate some funds from the baseline program to a new revenue-based program that compliments crop insurance.
Agricultural trade groups representing 70% of the nation’s field crops sent a joint letter to the agriculture committees on Nov. 15 detailing a joint approach to cutting spending moving forward.
"A producer would have to suffer a loss before receiving any payment," says Rob Joslin, chair of the American Soybean Association (ASA), chair of the ASA farm bill task force, and a soybean grower from Sidney, Ohio. "While direct payments are obviously the most WTO–compliant program, they have come under attack. We need to have a defensible program, and we didn’t think we could maintain public support for direct payments in the next farm bill. It was not an easy position to take."
Under a revenue-based program, compensation for losses that exceed a certain level would be made only as they are incurred, as opposed to the current direct payment program, under which growers receive payments regardless of whether they produce a crop or incur a loss.
This safety net would be based on a formula that uses average prices and average yields for the prior five-year period. "You throw out the high and you throw out the low and use the average of the other three years," Johnson notes. When revenue losses exceed 10% for nonirrigated crops or 5% for irrigated crops, payments would be triggered.
"I’m disappointed as a corn grower and I’m certainly disappointed as an American citizen that the supercommittee failed to come up with a solution," Johnson says.
Now that the supercommittee has failed to come up with a plan, the risk for agriculture is that the 2012 farm bill could include cuts in excess of the $23 billion recommended by the agriculture committees and might not include the revenue-based program supported by the field crop trade groups.
The concern is that instead of a revenue-based program, a target price-based system tied to production (or recoupled), which has the support of some commodities including cotton, could be enacted.
"The suggestion has also been made that individual program crops should have their own programs," the ASA wrote in a letter to the ag committees in late September. "This idea does not account for the fact that, when the value of a program is tied to the production of a specific crop, it will directly impact production decisions, both for that crop and for others that a producer grows. For this reason, current farm programs are available to producers of all program crops."
One positive outcome of the supercommittee’s failure to act is that there will be time for proper analysis to be done on a new recoupled target price program, Joslin says.