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Thursday, October 13, 2011

Farm Bill Proposals:  How Do They Compare?


As the 2011 calendar quickly disappears crunch time looms closer in Washington where the deficit reduction committee is trying to cut $1.3 trillion from the budget and the Congressional Ag committees try to compromise on a farm safety net.  Whether or not it will be funded is one question, and whether the political dichotomy will allow a compromise is another.  Nevertheless there are a number of creative proposals on the table to retain a farm safety net.

The Congressional Research Service has evaluated a dozen proposals for a 2012 Farm Bill, including plans to cut $10 to $40 billion from farm program spending over the next 10 years.  The cuts are all made in the producer side of the USDA budget, but none in the consumer side which makes up 75% of the USDA budget.  These concepts have been proposed by Members of Congress, agricultural organizations, and individual companies.  The CRS grouped the various proposals into several different categories:
1) Minor policy changes
2) Revised revenue programs
3) Enhanced crop insurance programs
4) Other
The farm safety net is generally defined as the direct and counter cyclical payment program, the ACRE and SURE programs, and crop insurance.  The Congressional Budget Office (CBO) projects the total cost of farm safety net programs in FY2011 at $13 billion ($5.6 billion for commodity programs, $5.5 billion for crop insurance, and $1.9 billion for disaster assistance).

As preparations are made for the 2012 Farm Bill, the economic environment is a flash point for opponents of farm support programs, including:

1) The budget deficit has resulted in a special budget cutting committee and agriculture is one of a few government programs which can be cut.
2) The current safety net includes direct payments, which are criticized for being issued in times of record market prices and large net farm income levels.
3) Farm programs sometimes overlap each other, such as ACRE and crop insurance which both address revenue variability.
4) Commodity programs are limited to very few commodities compared to all crops and livestock produced in the US.
5) Farm programs have been committed to align with the World Trade Organization, which have not been finalized.

Within that economic framework, a wide collection of farm program proposals have been made, some more comprehensive than others.

Minor policy changes include those by the American Farm Bureau, which continues the major safety net programs, but reduces ACRE and direct payments and eliminates the SURE disaster program.  Similarly the Obama Administration has eliminated the direct payment program, reduced funding for crop insurance and cuts $33 billion over 10 years.

Another group of proposals revise the revenue distribution within the safety net.  The Aggregate Risk and Revenue Management (ARRM) program from a bi-partisan group of Senators would make payments when yield and revenue are low as determined by crop reporting district, but would cut $20 billion over 10 years.  The REFRESH program from members of both houses of Congress would include the ARRM program, eliminate the sugar program, add a dairy security program, and expand whole farm revenue insurance, but still cut $40 billion over 10 years.  A Revenue Guarantee program would be a simplified ACRE program but also create a whole farm revenue program for row crop farms.  A fourth proposal eliminates direct payments, ACRE, and SURE, but provides payments when farm revenue is below an APH-based guarantee.

Crop insurance serves as the keystone to another series of proposals.  One proposal from a Congressman would allow a supplemental program to indemnify shallow revenue losses, and change the way APH is calculated to an Olympic format.  A proposal by a crop insurance company would guarantee a harvest based price without direct payments, ACRE and SURE, but with the help of government subsidized premiums.

Within a group of proposals that do not fit into the prior groups, is a reestablishment of the Farmer-Owned Reserve and acreage set asides, but which eliminates direct payments and modifies the marketing loan.  Another program in the miscellaneous category is a Dairy Security Act that provides a market stabilization price and creates a price margin insurance program for milk.

The 2008 Farm Bill will expire in less than a year and as Congressional Ag committees attempt to write replacement legislation, the deficit reduction committee may trump its efforts to fund a farm safety net.  Subsequently, the proposals for a 2012 Farm Bill nearly all call for significant cuts over the 10 year budget baseline.  Some eliminate current programs all together and replace them will new financial protections, yet others continue the current format, and one returns to the 1960’s with a re-establishment of the farmer owned reserve and crop set asides to manage the supply of grain.

Posted by Stu Ellis on 10/13 at 12:00 AM | Permalink

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