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Writing the 2012 Farm Bill: Is there any money? Roman Keeney 08/19/2011.

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Presentation on theme: "Writing the 2012 Farm Bill: Is there any money? Roman Keeney 08/19/2011."— Presentation transcript:

1 Writing the 2012 Farm Bill: Is there any money? Roman Keeney 08/19/2011

2 Budget and the Farm Bill August 1-2, 2011: House of Representatives, Senate, and President Obama approve a $2.4 trillion deficit-ceiling increase. Cut $917 billion in spending over 10 years Raise debt limit initially by $900 billion Committee to find $1.5 trillion in deficit savings by years end Key Events Budget committee appointments Election year fiscally responsible campaigns

3 Implications for 2012 Farm Bill Mandatory vs. Discretionary Spending in Farm Bill Mandatory Programs Have baseline beyond expiration of 2008 farm bill, assumed to continue under current law (though programs revert to prior farm bill) All farm commodity programs; most nutrition and conservation programs; and research, bioenergy, and rural development programs 37 programs that are not guaranteed funds at the end of the 2008 farm bill Estimated $9-$10 billion over five year period Paid for from the agriculture committees budgetary resources Include: forest and wetland services, WIC, domestic and international marketing assistance, and more

4 Size of the Next Farm Bill

5 Current Farm Bill Allocation *Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functions Source: USDA

6 Expected 2012 Farm Bill Outlays *Includes Rural Development, Research, Food Safety, and Marketing and Regulatory functions Source: USDA

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8 Why has the commodity share in spending changed? Fixed direct payments are provided regardless of market outcomes or producer decisions The farm bill has significant budget exposure on the commodity side for a number of large acreage crops Counter-cyclical payments Loan deficiency payments ACRE Strong markets have meant few outlays under these programs Meanwhile, nutrition assistance has been expanded and the recession has made more families eligible

9 2008 Baseline Performance 2008 baseline under estimate of nutrition spending (~2/3 was the CBO score share) 2008 baseline over estimate of commodity spending (~1/10 was the CBO score share, not including crop insurance)

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11 Baseline caps the next farm bill Best-case scenario Budget neutral farm legislation Make use of the full baseline spending More likely scenario: some reduction from the full baseline Weve been hearing $10 billion to $48 billion in cuts to ag spending. -Sen. Charles Grassley (R-Iowa) TitleComm.Cons.Crop Ins. EnergyExportsFood Stamps Total [5 year] Outlay $mn/yr 6,4086,2607, ,955 88,909 [444,543]

12 Increased spending on commodity objectives can come from… Nutrition/SNAP Direct Payments Conservation More likely any programmatic reductions contribute directly to deficit reduction Could recalibrate CCP, LDP, ACRE at low budget/baseline costs Budget exposure could be large

13 2012 Farm Bill Proposals Fiscal Commission: reduce mandatory agricultural spending by $15 billion from FY2012 to FY2020 Reduce DP when price exceeds cost of production Limit conservation programs Reduce the Market Access Program (exports) Bipartisan Debt Reduction Task Force: reduce mandatory spending by $30 billion through FY2020 Reduce Adjusted Gross Income cap and lower max DP Reduce crop insurance reimbursements to private insurance companies Reduce crop insurance premium subsidies to farmers Consolidate and cap agricultural conservation programs

14 Proposals for 2012 Farm Bill (CBO) Obama Administrations FY2011 budget request: reduce farm commodity programs by $2.6 billion over FY2011-FY2020 Reduce Adjusted Gross Income cap and lower max DP Reduce Market Access Program Large mandatory programs are not immune to budget cuts Farm commodity programs, conservation programs, crop insurance Nutrition programs are tougher to cut Crop insurance outlays have significantly increased and have surpassed farm programs in spending

15 Reducing Direct Payments DP majority of commodity pmts. in CBO 10-year projection Cost about $5 billion per year, regardless of market conditions CCP cost about $1 billion per year WTO friendly but difficult to justify to taxpayers in a sector with strong performance and high income operators

16 Views on US Commodity Policy Domestic Citizenry External Citizenry DISFAVOR FAVOR LDPFloor Price ACRECounter-cyclical Revenue CCPCounter-cyclical Price DPFixed Transfer

17 Public Opinion on Commodity Support Public opinion survey (2009) Subsidies given on a regular basis regardless of good/bad year? 40 percent favor when asked about small farms 15 percent favor when asked about large farms Payments in bad years are much more favored NY Times Editorial Board (2009) …indefensible program of direct payments…

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19 Views on Reducing Direct Payments/Ag Spending We have to expect that agriculture will have to contribute … to deficit reduction -Sen. Kent Conrad (D-N. Dak), chairman of the Senate budget committee The department is prepared to do as much as we can with fewer resources, but there is no doubt that cuts will have a real impact on American agriculture and on American people. There will be pain, and everyone will have to sacrifice something. -Agriculture Secretary Tom Vilsack

20 Views (cont.) If youre a farmer like me, youre going to expect less. Somethings going to go away. The direct payments are going to go away. -Rep. Tim Huelskamp (R-KS) Theres no sacred cows anymore…The bottom line is, ag should be cut like everything else, but no more than anything else. I think direct payments will be done away with. -Sen. Charles E. Grassley (R-Iowa) "In times of record-high prices [the government is] still handing out money like this, it's just politically not possible, feasible or popular these days -Anthony Bush, National Corn Growers Association. We shouldnt be giving corporate farms, these large agribusiness companies, subsidies. I strongly believe that. -Rep. Paul D. Ryan (R-WI), chairman of the House Budget Committee

21 Alternate Views on Direct Payments Weve been hearing $10 billion to $48 billion in cuts to ag spending, he said. Farmers are ready to do their part, but ag should not take the disproportionate amount of cuts. - Sen. Charles Grassley (R-Iowa) You can cut agriculture all day long and twice on Sunday and it wont move the needle on debt and deficits….Washington cannot balance its books on a policy that makes up just one-quarter of 1 percent of the total federal budget. - Congressman Mike Conaway (R-Texas) U.S. farm supports account for less than 1.0 percent of the federal budget. - Jack Roney, American Sugar Alliance

22 Farm Operator Views Im sure theyre going to go away. Its all giveaways any entitlement program is a giveaway, said Don Paxson, 72, who farms corn and wheat and said he received about $8,000 this year in subsidies. We need to wean them off everything any income from the government. Its all a welfare state, said Carl Quint, 56, another farmer who stands to lose money. A third farmer, Williard Riggs, 86, shrugged and said: Theyve got to cut somewhere.

23 Will there be direct payments in the next farm bill? Almost certainly in some form Less lucrative at least toward the end of the legislation (phase down/out) Address additional objectives Conservation Security Program style service payments or stringent compliance guidelines More likely if there are conservation spending cuts Payment limits and means testing will be the key reform that generates projected budget savings How difficult they are to organize/manage around will be the key for realized savings.

24 Will there be a 2012 Farm Bill? Highly unlikely Heated election year means that the rural bipartisan coalition that normally writes farm bills will not be available 2008 farm bill passage facilitated by Republicans trying to be progressive Hearings to date have not generated momentum Budget negotiations were nonspecific about agriculture Direct payment quotes seem like lip service. If deficit spending is high on the agenda, the cost/benefit doesnt make the agriculture bill a priority. Extend with a promise to cut in 2013.

25 Closing: Evaluating Farm Bill Discourse Be leery of $ numbers in agricultural policy discourse $5 billion in direct payments to mostly wealthy farmers… Is this more or less than wealthy non-farmers receive from the government? Is it an effective means of supporting the agric. sector? Agricultural subsidies are X billion $ in a Y trillion $ economy… Is low cost good or just lowering the probability of notice? Whats the best alternative use of the money?


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