Dr. Jody Campiche Assistant Professor & Extension Economist Agricultural Policy Oklahoma State University November 8, 2011 Larry D. Sanders Jim Novak

“Ag policy has a very, very, long history. Current ag policy is driven by budget and politics. Reality and economic facts matter, but only in as far as it affects those who have political influence and can gain from reality and/or economics.” J.L. Novak, Auburn University

 Deficit Reduction Proposals  Farm Bill Negotiations  Conclusions

Deficit Reduction Proposals

Budget…  Debt Commission  House Budget  Biden Group  Gang of Six  McConnell Proposal

 Simpson-Bowles President’s Deficit Commission (12/1/10) Reduces deficits by $3.9 trillion over 9 years $15 billion in cuts to mandatory ag programs with $10 billion to deficit reduction and $5 billion directed to extend the ag disaster relief fund  President Obama’s framework deficit reduction (4/13/11) Framework for $4 trillion in deficit reduction over 12 years Mentions cuts in mandatory program ag subsidies, but not specific programs or amounts  President’s 2012 Budget (CBO score released on 4/15/11) Increases deficits by $2.8 trillion over 10 years Cuts $2.5 billion in payments to “wealthy farmers”

 House (Ryan Budget) passed budget (4/15/11) Reduces deficits by $1.6 trillion over 10 years $48 billion in cuts to mandatory ag programs, with $12 billion from commodity programs, $18 billion from crop insurance, and $18 billion from conservation programs  RSC Budget Proposal (4/20/11) Reduces mandatory spending by $1.9 trillion over 10 years Eliminates direct payments, reduces premium subsidy for crop insurance, no new enrollment in CSP and CRP, eliminate MAP, and Wool and Mohair program

 House Democrat budget (5/25/11) Reduces the deficit by $1.2 trillion more than the President’s budget $20 billion in cuts to mandatory ag programs  Biden Group (6/2011) Farm subsidies mentioned frequently as target for cuts ranging from $34 to $45 billion Direct Payments and Crop Insurance will absorb most of the cuts  “Gang of Six” (7/2011) Reduce deficits up to $4 trillion over 10 years $11 billion in cuts to mandatory agriculture programs No additional dollars directed to extend SURE Ag committees to determine $11 billion in cuts Protects SNAP

 Senator Conrad’s budget (7/20/11) Reduces deficits by $4 trillion over 10 years $11 billion in cuts to mandatory agriculture programs. Agriculture committees to determine $11 billion in cuts during Farm Bill  Reid Plan (7/2011) Reduces deficits by $2.7 trillion over 10 years $11 billion in cuts to mandatory agriculture programs by reducing the payment rate from 85% of base acres to 59% of base acres

Farm Bill Negotiations

Farm Bill Process  Traditional process:  DC hearings, field hearings, move legislation in 2012  Not currently happening  Current Reality:  Expedited process under the context of the Budget Control Act of 2011  Changed the traditional approach to the farm bill  No time for problem framing, debate, or public input

8 Energy 5 Conservation 5 Nutrition 5 Hort. & Organic 3 Rural Development 3 Research 2 Trade 2 Misc. 1 Farm Commodity 1 Forestry 1 Livestock 1 Ag Disaster Assistance  FSA money to implement farm bill  WRP  GRP

Obama proposes $33 billion in cuts to farm programs Sen. Conrad (D-NE) Reform DCP, ACRE & disaster aid NFU Farmer Owned Reserve Peterson-Simpson Bipartisan Dairy bill Lugar Farming Flexibility Act

National Sustainable Ag Coalition preserve conservation and hunger programs, proportional cuts in farm programs, ending direct payments Organic producers increase mandatory spending for organics, including research & data collection Rural development proponents preserve/strengthen rural programs American Farmland Trust Strategic conservation initiatives, consolidate conservation programs, subsidies only for a loss

$33 billion in cuts to agriculture Eliminate Direct Payments Crop Insurance Cut another $200 million/year from insurance companies Farmer premium subsidies for the 50% catastrophic level would not change Subsidies on higher levels of coverage would be reduced Conservation Cut by $200 million a year Better targeting conservation funding to the most cost-effective and environmentally beneficial programs and practices

Replace ACRE, CCP, and Direct Payments

Replace ACRE, DCP, and SURE No direct payments, CCP payments, or SURE Use of harvest price instead of national avg marketing year price Payments could be made earlier Less restrictive signature requirements Only owner signature required Eligibility trigger by CRD instead of state Payment not limited to base acres Can opt in/out each year

Expecting a significant reduction in direct payments and possibly CCP payments New revenue based insurance program to replace payment-based farm bill provisions Area-wide revenue product delivered through crop insurance Protect against shallow losses Ride on top of existing crop insurance Modified marketing loan to satisfy Brazil WTO case

Save/strengthen crop insurance / risk management options Marketing Loan ( keep or eliminate) Stronger CCP or no CCP Direct Payments (reduced or eliminate) Eliminate CSP along with WRP and GRP conservation programs Reform ACRE SURE (keep or eliminate)

Farm Bill Process – Main Ideas  Direct Payments repeatedly offered up for reductions Most WTO compliant and have a differential impact by crop, region, and generation Integrated with other program components simply eliminating Direct Payments has significant drawbacks, but they are likely gone…

Leading contender: modification of ACRE May or may not replace CCP totally May also be coupled with reduced DP (if DP not totally eliminated) Several proposals for changing the ACRE program under the 2012 bill

Paid on a state-level trigger Based on state and farm revenue shortfall using national average marketing year price If both are not triggered the producer will not get paid Producers enrolling in ACRE receive: No CCP payments Direct payments reduced by 20% Marketing loans reduced by 30%

 Payment made on planted acres (up the # of base acres)  Producer may not get a payment even if state eligible  State ACRE payment guarantee can’t increase/decrease by more than 10% from previous year  Payment made at end of marketing year

Shallow Loss Revenue Program Recognize diversity in operations across the state Different buy up levels of crop insurance Different risk profiles for different crops Issues with the loss threshold Corn and soybeans have more shallow losses This can trigger payments often on many acres Eats up the baseline Can’t design one program to benefit everyone

Farm Bill Process – Main Ideas  With extreme drought and flooding, crop insurance is as important as ever  ACRE is too complicated  The Supplemental Revenue Assistance Payments (SURE) Program, along with 36 other programs, does not have baseline going forward  SURE likely gone

AGI limits are a major issue Cotton payment program is also a major issue Hesitant to have a separate program for cotton, but it is being considered… STAX is still on the table May not solve WTO issues Payments from this program are mostly from RMA Get around payment limits and AGI threshold Programs for other crops are subject to this

Crop Insurance seems to be safe for now Other disaster programs (LFP, LIP, etc…) will probably be continued to the drought issue Conservation will see reductions Fighting to protect EQIP Reductions in CSP Reductions in CRP (lower acreage cap) Nutrition will be cut but will not really take as much of a hit as commodity programs…

Main Goal of Chairman Lucas for the 2012 Farm Bill  Wants producers to have a choice to best address their risk needs  Currently working on a package but many details need to be worked out…

Commodity Program Options 1) Revenue Guarantee Program (modification of ACRE ) 2) Counter-Cyclical Program - increase current target prices a. Basic program – free participation b. Expanded program - o ption to purchase additional area based deductible coverage (similar to GRIP) 3) Possibly a cotton program Producers would be able to enroll by crop (instead of by farm)

May be close to finalizing a farm bill proposal to send to the super committee $23 billion cut in agriculture programs over 10 years as part of the effort to cut the federal deficit Ag committee leaders told the super committee that such a cut would required rewriting farm programs Planned to send detailed proposal by Nov. 1 Missed this deadline

Coalition of 27 House members has sent the super committee leaders a letter urging them not to consider the proposal Goes beyond its mandate of deficit reduction and authorizes new, complicated agriculture programs that have not been the subject to congressional review Super Committee should find efficiencies within existing programs If the ag committees believe that these cuts will require a fundamental redesign of ag programs, those committees can and should move legislation through regular order

Conclusions

 2012 Farm bill is coming together  Risk management is a key priority  Still have many details to work out…  We still don’t know what the super committee will decide…

Jody Campiche Assistant Professor & Extension Economist Ag Policy 528 Ag Hall Stillwater, OK