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Monday, February 14, 2011

The USDA Budget:  What Does It Propose And Not Propose?



 

USDA unveiled its spending plan for the fiscal year that begins in October, but it has a rigorous road to travel on Capitol Hill before any appropriations bills are eventually approved.  At first glance there are only some minor changes from the last couple years.  The mandatory programs, which include Commodity Credit Corporation outlays and food and nutrition programs have risen from $96 billion in 2009 to $122 billion this fiscal year.  They are proposed at $121 billion for FY 2012.  The discretionary programs, which include most farm safety net programs, conservation, rural development, and research are proposed for another cut to $24 billion in 2012, down from $26 billion in the current year and $32 billion in FY 2009.  And the primary reduction is due to cuts in crop insurance.  Of the $145 billion total, 74% is for nutrition assistance, and 13% are for farm and commodity programs, with conservation and forestry at 7%.

USDA’s budget proposal says the cuts were the result of “difficult choices needed to address challenging times and continued investments in key priorities….Crop insurance and farm program payments are estimated to decrease as a result of anticipated continued strong commodity prices and Farm Bill provisions that affect the timing of payments. Funding for nutrition assistance programs are expected to increase to fund anticipated participation and food costs.”  The preface to the budget acknowledges the difficult financial times that many rural families are facing.  “Since the beginning of the economic slowdown, rural residents have experienced a greater decline in real income compared to other parts of the Nation. Some factors contributing to this include lower rural educational attainment, less competition for workers among rural employers, and fewer highly skilled jobs in the rural occupational mix. Given these challenges, it is not surprising that over 51 percent of rural counties lost population over the past 20 years and that a majority of farm families rely on a significant amount of off-farm income to meet their needs.”

The farm safety net, which is now a combination of direct payments and ACRE, will see funding gradually diminish as a result of higher commodity prices.  Income support programs are estimated at $8.5 billion in FY 2012, down over $500 million from the current year.  Crop insurance funding will drop from $3.9 billion to $3.2 billion due to shifts in the timing of cash flow.

The $17.1 billion that is focused on agriculture is down from $25.2 billion in FY 2012.  Most of that comes from a $7 billion decline in FSA programs and Foreign Ag Service programs.  Rural Development will lose $500 million, and other programs will have only minor changes.

1) The FSA will see proposed funding decline from $4.3 billion to $3.3 billion, with cuts in dairy price supports and disaster relief funding.  The FSA loan program which surpassed $6 billion in 2009, will be funded at $4.7 billion next year, due to the elimination for guaranteed operating loans with interest assistance.  Dedicated financial assistance for beginning and minority farmers that was at 15.9% in 2007 will be at 18.1% for 2012, following the Pigford court decision that the USDA was guilty of discrimination.

2) Commodity Credit Corporation funding that exceeded $10 billion in 2011 is proposed for $8.4 billion in 2012. 

3) The USDA is proposing reductions in the cap on direct payments and the AGI eligibility limits for receiving direct payments, which is says will affect only a small portion of farmers.  The result would be a $2.5 billion reduction in payments over 10 years.  The specific limits were not announced, but USDA said it would work with Congress on the proposals.

4) The Conservation Reserve Program would receive $2.1 billion, up from $2 billion in the current year.  The budget assumes that a sign up this year would add 4 million more acres, pushing the total to 31.9 million by the end of 2012, compared to the 32 million acre limit.  Details were not revealed, but with crop acreage expansion anticipated in 2011, the CRP expansion will be interesting to watch.

5) Personnel funding for FSA will increase, due to a planned buy-out of 504 employees in an effort to reach a 10% reduction in the workforce.

6) In crop insurance, government spending that exceeded $7 billion in the current fiscal year will be $3.2 for FY 2012.  The reduction comes from funding going to crop insurance companies.  For the current fiscal year, USDA will protect over $102 billion in crop value on 294 million acres, but that will decline to $94 billion in 2012, due to the expiration of disaster programs.  The budget also reduces the cost of CAT coverage, but only in the administration and will not change premiums paid by farmers.

7) Foreign market development which has been about $250 million the past two years will rise to $273 in the proposal for FY 2012, designed to double exports over the next 5 years to spur economic growth and more jobs.

8) The $36 billion proposed for rural development would have 73% go to rural housing assistance through loans, loan guarantees, and grants, to help families toward home ownership, and development of multi-family housing.  Rural development will also be proposed for nearly $700 million for telecommunications loans and broadband development.  Another $1.2 billion expected to be left from the 2011 budget will be recycled into the broadband development program.

9) The Food and Nutrition Service programs, which assist low income consumers with food aid assistance, will be funded with $112 billion, up from $94 billion in FY 2010.

10) In natural resources, the $6.7 billion budget will have 33% go to CRP, 20% to EQIP, and 14% to the CSP.  While the CRP has remained stable in acreage, the EQIP program has grown from 92 million acres in 2004 to more than 218 million acres for FY 2012.

11) In research the Agriculture Research Service will receive 42% of the budget, or $1.1 billion to conduct researcher in USDA labs.  The National Institute of Food and Agriculture will receive 49% of the budget, or $1.3 billion which will be allocated to research institutions which compete for the money.  Earmarked funds by Members of Congress will drop to $0, from $140 million in the past 2 years.

Summary:
The USDA budget proposal is a spending plan that attempts to address issues as seen by USDA policy makers, but must be approved by Congress, which may have other ideas.  Those could include to raise funding in certain areas and cut others.  Nevertheless, the USDA budget is more than 75% focused on food and nutrition programs, and a diminished amount will be focused on farmers in terms of a safety net.

Posted by Stu Ellis on 02/14 at 11:59 PM | Permalink

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