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Farm Bill Cuts Likely

Written by: Kent Thiesse

Balancing the Federal budget and making budget reductions has been receiving major attention in recent months. Major developments have included the debt ceiling /deficit reduction bill passed by Congress this past Summer, and the current 12-member Congressional super committee that was named to develop an adjustment plan for the federal budget deficit. If the Super Committee can not reach an agreement, the Administration will be authorized to make across-the board cuts in nearly all Federal programs.

As Congress and others look for places to cut the Federal budget, USDA spending that is authorized under the Farm Bill is often mentioned. The current Farm Bill, which was titled the “Food, Conservation, and Energy Act of 2008”, will govern farm commodity, conservation, food and nutrition, and other USDA administered programs through September 30, 2012, which will be the final crop year under the current Farm Bill. Funding allocations under the current Farm Bill are based on a ten year cycle (2008-2017).

Currently, the Supplemental Nutrition Assistance Program (SNAP), which includes food stamps, the school lunch program, women, infants and children (WIC) nutrition program, etc., accounts for nearly 75 percent of all USDA annual spending. Federal spending on farm commodity programs, including dairy, crop insurance support, conservation programs, and other farm-related programs is approximately 18 percent of the total annual USDA budget. The other 8 percent of annual USDA spending is for all other programs, including ag research, rural development, energy, and forestry.

The next Farm Bill that governs all USDA programs will likely be written by Congress in the next 12-15 months, with a “large shadow” being cast by the ongoing efforts to reduce the Federal budget deficit. Everyone from congressional leaders to presidential candidates, from farm organizations to consumer groups, or from environmentalists to the taxpayer groups, are offering ideas and suggestions for the next Farm Bill, and future USDA spending.

When it comes to reducing USDA spending for farm programs, the most commonly mentioned proposal is to cut or eliminate direct payments to farm operators. Direct payments became part of government farm programs with the so-called “Freedom-to-Farm” Farm Bill in 1996. The direct payments were to replace the more “open-ended” farm program payments, which existed prior to the 1996 legislation. Direct payments are “fixed” payments per crop base acre, and are paid to eligible farm operators each year, regardless of the actual crop yields or crop prices. The direct payment levels and formulas have been modified slightly by the 2002 and 2008 Farm Bills.

Total federal spending for the current fiscal year for direct and ACRE payments is estimated at just under $5.0 billion. Total farm program payments to producers for 2011, including dairy and livestock payments, are estimated at $10.2 billion, which is down nearly 18 percent from 2010 spending levels, and is the lowest USDA outlay for farm program payments since 1997. There is a big difference in the amount of direct payments that producers receive for various farm crops. Southern rice producers receive an average of $96.00 per crop base acre and cotton growers receive approximately $34.00 per base acre in direct payments annually, compared to an average of about $24.00 per acre for Midwest corn and soybean producers. Farm operators in the South received an average 30-40 percent of their net income in 2010 from farm program payments, while Midwest farmers averaged less than 20 percent of net income from those payments.

 Most farm operators, ag lenders, and ag organizations are quite adamant about maintaining support for the federal crop insurance program, which is utilized as a “safety-net” by over 90 percent of Midwest corn and soybean producers to guard against reduced crop revenues. The federal government subsidizes crop insurance to keep insurance premium levels more affordable for farm operators. The programs have been expanded in recent years to offer similar “safety-net” programs to livestock producers. In 2010, Congress cut approximately $6 billion in expected future crop insurance expenditures. Federal expenditures on crop insurance vary from year-to-year depending on total losses in a given year, and will likely be higher for the 2011 crop year than in recent years. Some members of Congress are calling for further reductions in federal support for crop insurance, and for farm operators to pay higher premiums for upgraded crop revenue insurance coverage.

 The best-known popular federal conservation program is the Conservation Reserve Program (CRP), which allows land owners to place environmentally-sensitive farm land into long-term land set-aside program. CRP participants receive annual CRP rental payments on the farm land that is idled. For fiscal year 2011, there are currently slightly less than 31.2 million acres under some type of CRP contract in the U.S., resulting in a total budget outlay of approximately $1.85 billion. Current CRP contracts will expire on 4.4 million acres on September 30, 2011, with another 6.5 million acres set to expire in 2012, and 3.3 million acres in 2013. Some see reducing the total acres in CRP, along with more restrictions on acres that are eligible for CRP, as a way to reduce federal spending; however, a strong CRP program will likely be maintained in the future.

The current Federal budget actions taken by Congress will be the first step in the development of the next Farm Bill. There will likely be numerous proposals made to Congress by farm organizations and other groups in the coming months relative to development of the next farm Bill. There has been a strong push by some groups to eliminate the current direct payments, and to divert those funds to support a re-designed revenue-based program that works together with crop insurance. It is a good time to take part in the policy development process of various organizations to have input into policy ideas for the next Farm Bill.