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Wednesday, December 19, 2012

Where is agriculture teetering on the “fiscal cliff?”



 

While the nation’s leaders continue their fiscal policy discussions and the citizenry teeters on the edge of the “fiscal cliff,” agriculture may have already fallen over the cliff.  Its fate will be determined whether it has a soft landing in a haystack or a hard landing on the ground beside the haystack.  The fall likely began when the 2008 Farm Bill expired without any Capitol Hill agreement on a replacement.  But as the nation enters a precarious period, where does agriculture find itself?

 Shortly after the election, the Farm Foundation in Washington conducted a Forum for authorities on farm policy to assess the impact of the election on agriculture.  Craig Jagger, Principal of Legis Consulting, and a former chief economist of the House Agriculture Committee and former Principal Analyst at the Congressional Budget Office, outlined the financial impact on agriculture, as well as the threat of the permanent 1938 and 1949 laws on agriculture commodity programs and prices.

Jagger’s observations indicate that during the remaining days of the lame duck Congress, the House and Senate and their respective agriculture committees have some important work.  That includes reauthorizing the 10-year financial baselines that guide agriculture program spending, which expired at the end of September.  Without extension, the Congressional Budget Office will impose a new 10 year baseline that will generally be an 8.2% across the board cut in spending…generally, but not in all cases.

 

1938 and 1949 Permanent Law

Without the funding authorization for the 10 fiscal years of agricultural programs, all of the funding would be built into a new Farm Bill and that would have difficulty getting approved and signed into law.  Additionally, the committees have to continue the suspensions of the permanent laws for dairy and commodity programs.  Without suspension, price supports and acreage allotments would go into effect as prescribed by supply-control programs as opposed to the market orientation programs of recent Farm Bills.  The most immediate impact would be a $38/cwt price support for milk, which compares to the current $18.50/cwt price.  Consumers would find alternatives where possible to avoid paying twice the price.  That would become effective January 1.  Other commodity price support programs would be implemented with the beginning of the marketing year for the new crop, which would be July for wheat and September for corn and soybeans.  Jagger says world markets would be disrupted and WTO complaints would be lodged against the US.

 

Farm Bill Proposals

While the current conflict is between overall spending and tax cut policy involving House Republicans and the White House, there are significant policy differences in the Farm Bills passed by the Democrat Senate and the Republican House Agriculture Committee.  Nutrition programs, known as SNAP, consume about 80% of the USDA budget and philosophical differences exist between the House and Senate over total spending and how the programs will be administered.  For commodity programs, the differences involve the way an agriculture safety net is woven.  That includes:

• Shallow vs. Deeper Losses and Coverage Ranges

• Price vs. Revenue

• Farm vs. County Coverage

• Fixed vs. Variable Payment thresholds

 

Savings

When those nutrition and safety net programs are analyzed for cost, the Senate proposal costs $12 billion more than the House plan over 10 fiscal years.  Much of the recent effort in agriculture has been to promote the passage of a Farm Bill as a means of cost savings.  Compared to the 2008 Farm Bill, the House proposal saves $23.6 billion over 10 years, versus the Senate proposal that saves $19.4 billion over 10 years in commodity programs.  Nearly all of that is elimination of direct payments and the counter-cyclical programs that are still in effect for commodities in the southern states.  However, the new safety net, built around crop insurance programs, actually add costs compared to the 2008 Farm Bill.  Jagger says the House spends $9.5 billion more than the 2008 crop insurance program, and the Senate spends $5 billion more. 

Both the House and Senate cut slightly more than $6 billion from conservation, but have small increases in spending for energy, research, and rural development.  With regard to the nutrition programs, the House wants to cut $16.1 billion over 10 years and the Senate proposes a $4 billion cut.

 Jagger says if the nation falls over the fiscal cliff, then the spending cuts that will be imposed would eliminate $110 billion in spending on non-exempted agriculture programs.  Those do not include nutrition programs, CRP, and crop insurance.  Those mandatory programs would be cut by 7.6% in the coming year for a total of just over $1 billion, and the discretionary programs, such as rural development and other conservation programs would be cut by 8.2% in the coming fiscal year, for a total of $1.9 billion.

 One of the major issues, according to Jagger is the need to start all over again with Farm Bill hearings and debate if the lame duck session does not pass something.  That is because a new Congress begins in January, and the legislation that has been on the table will expire.

 Summary:

Although the national headlines are focused on the total fiscal package of spending and taxes, the Farm Bill and its future are a major part of that.  Without an agreement between the House Republicans and the White House, there will not only be significant spending cuts in agricultural programs, but also a major impact on agricultural policy that will implement supply control programs and high commodity price supports.  That will go immediately into effect for dairy, but not until the new marketing year for grains.  The House and Senate Farm Bill proposals, while generally similar, do have major differences of opinion on cuts in nutrition programs and spending for crop insurance safety net programs.

Posted by Stu Ellis on 12/19 at 04:58 AM | Permalink

Comments

Thanks for making this clear!

Posted by: Sharon Squires at December 19, 2012 10:10AM

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