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The farm bill process is now clocking over three years
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In the "old" days it used to be relatively easy to get a new farm bill approved – because it spent a lot of money and the US wasn't faced with debt-related issues and major differences between key commodity groups. No longer.
Why farm bill reform is needed. US debt is headed towards $17 trillion. US net farm income (after expenses) has recently been at or near record levels. US farmer income is now above the average US citizen's income. Farmland values in many parts of the country are at or near record levels. Cash rents are at such high levels that some bankers are beginning to tell farmers they won't get new new funding if they go higher.
If you think the farm bill process has lingered, you are correct. It's now in the third year, as illustrated below, and that is slow even by the standard for this dysfunctional Congress.
Link to Congressional Research Service report on differences between the House and Senate farm bills.
Commodity group differences and some mistakes by their lobbyists have also helped muddy the farm bill waters. This is especially the case with corn and soybean groups, with their I-state-oriented focus. Early in the farm bill process, those groups aligned with the Senate approach to "shallow loss" payments, and fought features in the House farm bill approach, primarily higher target prices levels via the House Price Loss Coverage (PLC) program. Another issue cited by some soybean lobbyists is to make PLC payments on base acres rather than the House preferred planted acreage up to base acres.
Corn and soybean industry groups, at least at the national level, used to say they support the best features of the Senate and House farm bill approaches. But this time around, those groups sided early on with Senate Ag Chairwoman Debbie Stabenow (D-Mich.) and so seemingly did two universities – Ohio State University and the University of Illinois, which over the past few years have issued various reports clearly targeted to note advantages of the Senate farm bill approach over the House version. It took the Food and Agricultural Policy Research Institute (FAPRI) and Texas A&M University research to bring some balance to farm bill analysis during the current cycle.
Direct payment elimination has far different impacts for commodities. Both farm bills would eliminate direct payments, which currently pay out nearly $5 billion in annual payments no matter what prices average, and paid on base acres whereby the grower doesn't even have to plant the program crop to get those "direct" payments. From a budgetary, reformist and political nature, those payments had to be eliminated. But the elimination of such payments clearly will impact cotton, rice and peanut growers versus corn and soybean growers based on a several analytical reports looking into the matter. The elimination of direct payments means the need for an effective safety net for rice, peanuts and cotton growers, and that is where corn and soybean growers' interests in the Midwest failed to understand economics early in the farm bill process which saw the Senate farm bill's target price levels not anywhere near those of the House approach. But that all changed, at least for rice and peanuts, when Sen. Thad Cochran (R-Miss.) replaced Sen. Pat Roberts (R-Kan.) as the ranking member on the Senate Ag Committee.
The Senate's farmer "safety net" still has around 90 percent of the estimated funding for the shallow loss program/Ag Risk Coverage/Revenue assurance program. It is clear that Senate Ag panel members and key staffers want to stack the deck in favor of shallow loss over the target/reference price loss coverage program if farmers were given a choice to decide which approach they preferred. Some observers say that 90-10 "balance" is because corn and soybean grower lobbyists were embarrassed because less than 10 percent of base acres went into the last program they focused on – the ACRE (Average Crop Revenue Election) program. The shallow loss/ARC/revenue assurance proposal in the Senate bill is primarily "son of ACRE".
But in recent weeks, Senate Ag staffers have pushed for an "all-in" farmer safety net whereby farmers would qualify for both safety programs – revenue and price loss. But for that approach to be accepted, some changes, perhaps significant changes, would have to occur in both approaches. Ag staffers from both the House and Senate Ag panels have been busy lately talking with Congressional Budget Office (CBO) analysts getting various budget scores for different options. And if there is an all-in feature, will farm program opponents zero in on potential overreach?
CBO scoring is an important farm bill item because how that group scores various proposals is important relative to what eventually gets into the final bill. The key in many instances is CBO's assumptions on participation levels and commodity price forecasts. Forecasts and what eventually occurs have frequently been wide of the mark. That is why veteran farm bill watchers never get too enamored with "budget savings" estimates of farm bills. They frequently or understated or overstated depending on CBO's assumptions.
Equity concerns. Before any House-Senate changes to the farmer safety net programs occur, a look at how the Senate-passed programs answer equity concerns among commodities is instructive.
Bottom line on equity concerns: Apart from rice and peanuts, which were given fixed reference prices, the Senate AMP would have provided no assistance for any program crop at any point during the last 80 years. Beyond that, the Senate ARC/Shallow Loss program will potentially quintuple payments to soybean growers (triple for corn growers), while leaving producers of other commodities with less than half the support.
Other key farm bill conference issues and items to note:
House Ag Chairman Frank Lucas (R-Okla.) will chair the conference. He has had a good working relationship with Rep. Collin Peterson (D-Minn.), who favors target prices and not the shallow loss payment approach of the Senate.
Dairy policy issues. Peterson favors supply management language to go along with a gross margin safety net program for dairy producers. But the House-passed farm bill soundly defeated supply management language. The Senate farm bill includes such language, and USDA Secretary Tom Vilsack, who hasn't said that much of substance regarding the farm bill has inserted himself on this issue, calling various dairy industry stakeholders to support supply management language. But Lucas as chairman will or should follow the "will of the House" and try to delete such language. Besides, House Speaker John Boehner (R-Ohio) has made his opposition to supply management very clear.
Conservation compliance linkage with crop insurance program. A major difference between the two bills is that the Senate-passed bill adds the federally funded portion of crop insurance premiums to the list of program benefits that could be lost if a producer is found to produce an agricultural commodity on highly erodible land without implementing an approved conservation plan or qualifying exemption, or converts a wetland to crop production. This prerequisite, referred to as conservation compliance, has existed since the 1985 farm bill and currently affects most USDA farm program benefits, but has excluded crop insurance since 1996. The House-passed bill offers no comparable provision. Sen. Stabenow reportedly called an American Farm Bureau Federation (Farm Bureau) lobbyist earlier this year to help garner support for this linkage. Ditto the corn growers. While Farm Bureau initially came out in favor of the linkage, its Board recently backtracked on its support. The National Corn Growers Assn. (NCGA) continued to support the linkage, continuing its aggressive support of Stabenow-pushed farm bill items. While most observers think this linkage will not be in the final farm bill conference report, veteran farm bill watchers say an effort is underway to work out a compromise that would allow farmers impacted by this language a considerable amount of time and flexibility to get into compliance. That language may also include assurances that such linkages would not be expanded to other program in future years/bills.
Base acres versus planted acres. An American Soybean Association (ASA) consultant/lobbyist has helped make this topic a controversial one. ASA has put out various statements noting their concern about paying target/price loss coverage payments on planted acres. They instead prefer a base acre concept for such payouts, ala the Senate farm bill language. The House version makes target price payments on planted up to base acres. In recent weeks, there has been a suggestion by some lobbyists to try to come up with a compromise, so staffers have been busy on this topic. One lobbyist suggested updating base acres but that could involve some big potential boosts in farm program outlays ahead, depending, again, on CBO price and program participation assumptions.
Sen. Max Baucus' (D-Mont.) "SURE" program redo. Sen. Stabenow reportedly is insisting that an on-farm safety net program be an option.
Farmer safety net compromises. Staff and negotiators are looking at alternatives to better align the House and Senate commodity titles. The House has reportedly agreed to reduce its subsidy rate for its new Supplemental Coverage Option (SCO) while increasing the minimum deductible from 10 percent to 15 percent. Under this approach, the same 15 percent deductible rule would apply as well to the Senate’s Agricultural Risk Coverage (ARC)/Shallow Loss program — which is now triggered after losses of just 12 percent. SCO offers a cheaper version of revenue insurance to help these farmers who typically don’t buy high end coverage. And it would be paired by the House with a higher target price/price loss coverage program. With any focus on the Senate's ARC, it shows a potential to double indemnify insured producers — at some levels — for the same layer of loss. As passed by the Senate, ARC would help cover losses from 88 percent to 78 percent. There is talk that the band might drop to 85 percent to 75 percent. In 2013, over 360,000 policies with an 80 percent or 85 percent coverage level were sold to producers of ARC-covered crops. The expected indemnity for the potentially overlapped insurance coverage would be approximately $300 million to $400 million. Farmers holding the high end coverage now — and thus able to benefit from this potential overlap — are corn and soybean operations.
Cotton. The US cotton program has always been a tad different (remember Step 2?). And this version of the farm bill is no exception. The cotton producer's safety net is moved out of Title I and into the crop insurance title, with a key being there are no payment caps for crop insurance payouts. Brazil's successful challenge to the US cotton program in part led to the new proposed cotton program dubbed STAX. A controversial item is that unlike the Senate farm bill, the House would pay cotton producers two years of "transition (direct) payments" to give USDA time to fully implement the program. That could be altered via any conference report.
Conservation programs and CRP. Many of the larger existing conservation programs, such as the Conservation Reserve Program (CRP), the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CSP), are reauthorized by both bills with smaller and similar conservation programs "rolled" into them. In response to reduced demand and as a budget saving measure, the largest conservation program, CRP, is reauthorized with a reduced acreage enrollment cap using a step-down approach from the current 32 million acres to 25 million by FY 2018 under the Senate bill and 24 million acres under the House farm bill. CRP also is amended to include the enrollment of grassland acres similar to the Grasslands Reserve Program (GRP), which is repealed. These grassland acres are limited to 1.5 million acres in the Senate's bill and and 2 million acres in the House bill. While CRP acres will be reduced, acres in the program continue on a net decline. Budget analysts have not answered our queries on how any savings could be achieved when the level of acres in the program is getting closer and closer to the eventual acreage limit. While USDA has not updated the specific level of acres in the CRP since August, analysis of the results of signup 45 and the level of contracts that matured at the end of September would suggest Oct. 1 CRP acres will be under 25.5 million acres potentially. And, the Oct. 1 level will be relatively static for some time -- there currently is no authority for any new CRP enrollments. As of the end of August, USDA said there were 26.9 million acres in the program.
EQIP, a program that assists producers applying conservation measures on land in production, is reauthorized by both bills with a 5% funding carve-out for wildlife habitat practices (similar to the Wildlife Habitat Incentives Program, WHIP, which is repealed). The Senate bill reduces budget authority for EQIP by a total of almost $1 billion over 10 years, while the House committee bill offers no reduction from the current $1.75 billion annually. CSP, another working lands program, is reauthorized at a reduced enrollment level under both bills: 10.348 million acres annually under S 954 and 8.695 million acres annually under HR 2642, down from 12.769 million acres annually under current law.
Description of Senate and House Farm Bill Provisions
Both the Senate and House farm bill packages cover the 2014 to 2018 time period and are similar in several respects. However, there are a few significant differences worth noting. The accompanying tables contain selected provisions of the Senate and House farm bill packages.
The primary safety net provisions in the Senate bill are a shallow loss revenue protection plan called agriculture risk coverage (ARC) combined with a reference price triggered income support program named adverse market payments (AMP), an area-wide supplemental crop insurance option referred to as the supplemental coverage option (SCO), and the stacked income protection plan for producers of upland cotton (STAX).
The Senate ARC provisions allow producers to choose between coverage at the county level or individual producer level. This is described as a one-time irrevocable decision with the county option paying on more acres than the individual level coverage option. Both county and individual coverage ARC options are eligible for SCO coverage with a coverage band from 78% down to their individual insurance coverage level. In addition, the Senate farm bill package allows producers to opt out of ARC completely. If they choose this option, producers would have AMP and the option of purchasing SCO coverage but with a wider SCO coverage band (from 90% percent down to their individual insurance coverage level rather than 78% down to their individual insurance coverage level).
The House Title I provisions offer producers a choice of price or revenue based risk protection. With this election, producers have a choice of a shallow loss revenue protection plan called revenue loss coverage (RLC) or a price loss coverage (PLC). RLC is similar to the county ARC option in the Senate farm bill with the most notable difference being how each utilize reference prices. ARC uses reference prices in the actual revenue calculation where RLC replaces prices below the reference prices with the reference price in the benchmark revenue calculation.
The Senate AMP provision included with either the county or producer level ARC coverage is similar to the countercyclical payment (CCP) program in the 2002 and 2008 Farm Bills. The main difference is payment trigger levels are based on 55 percent of the moving 5-year Olympic average of market prices for most covered commodities.
The most important difference between PLC and the current CCP program is that the PLC option pays on planted acres with a whole farm base limitation rather than being paid on base acres. Producers choosing PLC have an option to update their payment yields to 90% of the average yield per planted acre for the 2008-2012 crop years.
The crop insurance provisions in the House bill are similar to the Senate in that SCO and STAX are offered. However, the two bills offer significantly different coverage levels for SCO (Table 4). Also, producers choosing the House RLC option would not be eligible for SCO coverage. SCO and STAX benefits are not limited in the Senate or House. Both the Senate and House allow cotton producers the choice between STAX and SCO coverage.
Payment limitation provisions are similar in the Senate and House bills. The Senate bill has a $50,000 payment limitation on combined ARC and AMP benefits while the House farm bill package has a $50,000 combined limitation on PLC and RLC.
Both the Senate and House combine non-farm and farm sources of adjusted gross income (AGI) to form one overall AGI limitation with the Senate at $750,000 and the House at $950,000.
Other budget gimmicks. In the past, Congress has "adjusted" the timing of government payments to garner some budget "savings". A current example cited by frustrated farmers is that they now have to pay their crop insurance premiums earlier than in the past, before they garner harvest returns to help pay for those premium payments. Unlike his predecessors, Rep. Lucas won’t be able to paper over differences by tapping additional money and spreading it around. To give someone money, he will have to take money from someone else. But veteran farm bill watchers say never underestimate the degree of ingenuity relative to finding ways to "offset" budget expenditures.
Food aid reform. What is reform to some, is a step backwards to others. While some "reform" could be included, most sources signal there will be no major reforms in the final conference report.
Food stamp/SNAP funding cuts. This is the issue that will eventually decide whether or not there will be a new farm bill, and if so, when. The House farm bill includes cuts of $39 billion over ten years, whereas the Senate bill has only $4 billion. The wide difference is why some to many farm bill watches predict there will not be a way to bridge the food stamp funding difference. Two key unknowns arethe final level of cuts, and whether or not any worker requirement language is included, and if so, whether such language will not lead to the majority or all of the House Democrats to reject the language. Meanwhile, Rep. Steny Hoyer (D-Md.) said that "there's room for a bipartisan bill," but noted that hinges on the willingness of GOP leaders to bend toward the middle. "There is no Democrat who is going to vote for a $40 billion cut in the Supplemental Nutrition Assistance Program, period," Hoyer said during his weekly press conference. "Nor, I think, does any rational Republican think that that is the case."
Crop insurance. One of the early farm bill goals was to "do no harm to crop insurance." The Senate farm bill has language that would reduce the premium subsidy on buyup policy based on adjusted gross income. Similar language is not included in the House farm bill. Projected crop insurance expenditures by the government/taxpayers are the second largest item among farm bill spending, and this is why crop insurance spending will increasingly come under focus by some groups who say they want to "reform" government spending and farm policy.
Specialty crop provisions. Stabenow has repeatedly pushed better crop insurance provisions and other assistant to specialty crop producers, and those are expended to be included in any final conference report.
Energy program funding via farm bill. The Senate bill includes some $800 million for such programs whereas the House does not. Sen. Stabenow and some key staffers have been pushing for such funding in a final farm bill conference report. But what has to be altered to get such funding?
Country-of-origin labeling (COOL). There is "placeholder" language in the House farm bill which, if in the final conference report, could significantly impact COOL provisions currently in place.
Farm bill end zone. Will any conference report be voted on separately, or hitch a ride on another must-pass bill such as the FY 2014 budget compromise, debt limit, continuing resolution, etc? At a meeting between President Obama and Senate Republicans earlier this month, Sen. Bob Corker (R-Tenn.) asked whether Obama would be willing to accept a budget deal without new revenues, one that instead includes some cuts to entitlement programs that the president had previously endorsed. Officials at the meeting said Obama was open to that approach if it came in a very narrow deal to replace part of the sequester cuts, though he acknowledged that congressional Democrats might not agree. White House officials are expected to reject any cuts to entitlement benefits in a deal that doesn't raise revenue, but the White House has been more willing to consider cuts in other entitlement programs -- such as agriculture subsidies -- as a swap for easing the sequester cuts. But Rep. Peterson said he is not keen to wrap farm policy into the broad budget conference and said he is "absolutely opposed to that." Some congressional sources say Boehner prefers a separate farm bill vote, apparently to provide some of his arch-conservative Republicans a chance to vote against the bill if it doesn't get near the hefty food stamp cuts in the bill that passed the House chamber recently. A separate vote would also allow farm-state lawmakers to show they want to vote in favor of a new farm bill. If a separate vote occurs, the strategy to pass it on the House floor especially will likely need more than a few Democratic votes in favor of it and likely a majority of Republican votes, despite conservative opposition. But this, again, assumes House Democrats will sign off on any food stamp funding/language agreement. Of note, a key ally of Boehner, Iowa Republican Tom Latham, says he thinks the food stamp funding issue can be settled with cuts of $8 billion to $10 billion, far below the $39 billion reduction in the House bill (HR 2642). Latham, according to Congressional Quarterly, indicated that the GOP leadership won't require the conference report to be supported by a majority of Republicans. "It's not my determination, but I know he [Boehner] is pushing very hard to get it completed and to get it finally done, finalized, get rid of it," Latham said.
Odds for another 2008 Farm Bill extension are murky because if that would be proposed, some conservative Republicans in the Senate have indicated they will insist that direct payments be eliminated. But if that were to occur, Rep. Peterson said that would be a new farm bill, and not an extension, and he and a lot of other Democratic members would not support such a development. Others say that any extension could "simply" be attached to another must-pass measure giving lawmakers "cover" to get it through Congress.
Do not rule out the farm bill process going into 2014. The major press is beginning to note that without a new farm bill in place before 2014, milk prices could go to $8 per gallon as the move to permanent legislation would dramatically impact dairy policy. USDA would likely need some time in early 2014 to implement "permanent" legislation that has no basis to reality, giving lawmakers enough time to seek a farm bill consensus.
Comments: Farm bill watchers likely forget that the 2008 version should have been a harbinger of things to come – two vetoes, mock markups, new money found on the House floor in the Rules Committee. The 2002 Farm Bill was the last time it was relatively easy to pass a new farm bill when there was $80 billion in new money and a budget chairman (Nussle) from Iowa.
The above report omits any discussion of one of if not the most innovative items in the House (but not the Senate) farm bill: a change in the "permanent law" area. Under the House farm bill, the new Title I would become the new permanent law. That is every bit as significant as virtually anything else especially what it means for agriculture policy moving forward. Southern based crops and sugar support or should support the House in this area. Farm Bureau, NFU, and the national groups for corn and soybeans like the status quo whereby just the threat of going to sky-high support levels, especially for dairy, blackmail Congress into acting on a new farm bill. But imagine if the 2013 title I becomes permanent law. Then perhaps we could start focusing on titles that truly have been empty freight cars attached to this omnibus farm legislation locomotive. There was a separate research bill in 1997. A separate crop insurance bill in 2000. Why can’t we do that again? Take the pressure off and allow for more thorough policy examination and debate over things that some feel truly matter to the future of American agriculture, especially research and crop insurance. If the House commodity title becomes permanent law, some think it takes a lot of pressure off this quinquennial exercise. But some are becoming a fan of smaller bills much like the GOP did with more targeted appropriations measures during the shutdown. Why does Congress do mega bills? Mega bills breed unseemly negotiations and attempt to masquerade serious policy concerns and questions that might be exposed to more vigorous debate and better outcomes if they weren’t tucked into 1000-plus page bills.
NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.