As Congress incubates another farm bill...Will the safety net remain intact?

A new landscape for farm legislation

Farm legislation is on the front burner now in Washington, as Congress debates the 2012 farm bill. This is the omnibus law that will set U.S. farm and food policy for the next five years, and has been a regular legislative feature since the 1930s.

Maybe we should back up a few weeks to sort of set the stage. Back in November, the bipartisan Select Congressional Deficit Reduction Committee (the so-called “Super Committee”) was supposed to unveil its plan to chop $1.2 trillion from the federal debt over the next 10 years. In anticipation of what they saw as deep cuts by the Super Committee, the chairmen of the House and Senate Ag Committees put together a proposed Ag Bill that would have trimmed $25 billion from agriculture’s budget and planned to submit this to the Super Committee.

“The proposed bill [by Senate and House ag committee chairmen] would have eliminated direct payments, as well as ACRE and SURE,” said Troy Dumler, Kansas State University economist who keeps an eye on farm policy. “The proposed enhanced target price feature was not popular with many members, nor with many commodity groups.”

However, the goal of the chairmen—Sen. Debbie Stabenow, (D-Mich.) and Rep. Frank Lucas (R-Okla.)—was to draft a farm bill and a 10-year funding baseline before the Super Committee came out with a budget that would be even harder to live with. The whole thing became moot in late November, when the Super Committee unraveled without recommending anything.

“We will continue the process of reauthorizing the farm bill in coming months, and will do so with the same bipartisan spirit that has historically defined the work of our committees,” said Rep. Lucas, following the announcement that the Super Committee had failed to reach an agreement.

So, the five-year bill will be drafted in the usual ponderous manner, with public hearings in both Washington and out here in the country. The goal of Congress is to have a new farm bill hammered out by Memorial Day. But, given history, that may not happen. The 2008 legislation was supposed to be the 2007 farm bill (that’s when the law was due to be renewed), however, it dragged along until mid-year 2008.

(Incidentally, why do most of us continue to call it a farm bill, even after the legislation has been enacted into law? Old habits are hard to break.)
“There are increasing odds that the legislation may move along sooner rather than later,” said Dumler.

Still, Congress has a lot to consider in crafting a farm bill. For one thing, commodity programs account for only 15 percent of the money in the bill. Nutrition and food aid (such as the food stamp program, now called the Supplemental Nutrition Assistance Program, or SNAP) consume about 70 percent of the budget. Given the economy in general, it is doubtful that food aid will be cut much, if at all.

Also, at the behest of fruit and vegetable growers, the 2008 law for the first time included a “horticulture” title, covering fruits, vegetables and other specialty crops. There is considerable clamor for this feature to be expanded in the 2012 bill. Fans of healthier eating and “green” everything would like to see more emphasis on these areas.
The far-reaching nature of the legislation—and the money involved—typically create conflicting interests for some features in a farm bill. Or, sometimes, what is not in the bill fans even fiercer competition for the dollars.
If Congress does not meet its late-May deadline, it won’t be for a shortage of patterns to go by. Nearly a dozen proposals for a 2012 farm bill have been submitted, some more wide-ranging than others. Here are the authors of the major proposals:
•    American Soybean Association
•    National Corn Growers
•    National Cotton Council
•    American Farm Bureau Federation
•    National Farmers Union
•    Crop insurance companies
•    Senator Conrad
•    Rep. Neugebauer
•    Senators Brown, Durbin, Lugar and Thune

The Obama Administration
Most of these proposals feature reducing risk with some combination of put options and crop revenue insurance. And, most would require farms to actually have a loss before they receive assistance; in other words, farmers would not receive payments unless they have a financial loss.
The proposals vary quite a bit on the geography of risk indemnities. Most crop insurance policies pay for losses at the individual farm level, whereas programs like ACRE pay for shortfalls at the state level. SURE payments are computed after crop insurance and ACRE are calculated. The proposal by Sens. Brown, et al. (called ARRM or Aggregate Revenue and Risk Management) would compromise, by making payments at the crop reporting district level (usually regions of 8 to 12 counties).
“Whether payments are paid on a state, region or individual farm basis no doubt will be widely discussed as farm bill negotiations proceed,” said Dumler.

One proposal makes a big departure from the others. The National Farmers Union outlined a “retro” framework that would revive the farmer-owned reserve (FOR) of a generation or more ago.  Under this idea, grain would be sealed in on-farm storage and could only be redeemed and sold when the market price reached 160 percent or more of the loan price.

But don’t snort too much at this horse-and-buggy notion. Daryll Ray, University of Tennessee farm policy specialist, put the pencil to the FOR concept. Ray looked at the 13-year period from 1998 to 2010 and found that corn prices averaged higher under FOR than with recent farm bills, and cost the U.S. treasury less. Other major crops performed in similar fashion. Ray’s analysis eliminated direct payments, loan deficiency payments, market loan gains and generic certificates (except for cotton).
There will still be a farm safety net of some sort with the 2012 farm bill, but it may be much different from what we’re familiar with.

“Whatever Congress comes up with, direct payments may have a bleak future,” said Dumler.