Carl Zulauf, Professor,
Department of Agricultural, Environmental and Development Economics
The Ohio State University
This article was reprinted with permission from the March/April 2012 issue of U.S. Canola Digest magazine (www.uscanola.com).
Background: A draft farm bill was written for potential submission to the Budget Reduction Super Committee as part of the ongoing debate over the federal budget deficit. The Super Committee process failed to reach consensus and the draft farm bill has never been officially released to the public. The farm bill now reverts to its normal process, but with at least broad outlines of a draft bill negotiated between several members of the House and Senate farm bill leadership. This paper provides a brief summary of widely-reported parts of the existing farm bill draft. The summary focuses on broad themes. The paper then briefly addresses implications of a return to the normal process and selected questions and issues.
Summary of Draft Farm Bill
It is widely-reported that the draft bill reduced spending on the farm safety net by $23 billion over 10 years, relative to baseline spending. The safety net includes farm programs and crop insurance. Savings largely came from eliminating the direct payment program.
A revised revenue shallow loss program was adopted in place of the ACRE program. Farms continue to have the choice of either a shallow loss revenue program or a price support program. The marketing loan program remains.
No cuts were made in farm insurance subsidies. A stand-alone revenue insurance program was created for cotton. A supplemental county revenue insurance program was added.
A revenue margin program was created for dairy. The margin is based on the difference between the price of milk and cost of feed.
Spending on conservation programs were cut, with a primary source of savings being a reduction in the maximum number of acres allowed in the Conservation Reserve Program. Some conservation programs were consolidated. The Environmental Quality Incentives Program and Conservation Security Program remain.
Spending on nutrition programs was reduced slightly. No major changes were made in the broad structure of nutrition programs although changes in some rules and regulations were proposed.
While not part of the farm bill, the ethanol and biodiesel blender credit and the ethanol import tariffs expired on December 31, 2011.
Returning to a Normal Farm Bill Process
The normal farm bill process is for the House and Senate Agriculture Committees to separately debate and draft, by majority vote, a bill. The bill is then debated and amended on the floor of each respective legislative chamber. Usually a conference committee convenes to compromise differences between the two bills.
In contrast to the normal process, the farm bill drafted for the Super Committee was written by a few Senators and Representatives. This does not mean the views of others were not considered, but it is reasonable to speculate that it is unlikely the full Agriculture Committees, as well as the House and Senate floors, agree with a farm bill drafted by only a few members.
A key factor framing future debate will be the size of the budget cut that the Agriculture Committees will have to address as their part of the cuts triggered by the Super Committee’s failure to report a substitute set of budget cuts. The larger these cuts, especially relative to the cuts assumed in drafting the Super Committee farm bill, the more likely will substantive changes be needed in the draft bill.
It also matters how the budget cut instructions, if any, are phrased. Specifically, will the Agriculture Committees be given a budget cut but then allowed to choose which programs to cut and in what years to make the cuts? Or, will the Agriculture Committees be given cuts for specific programs for specific years.
It is difficult to overstate the importance of the size, wording, and timing of the budget cuts.
Questions and Issues
Congress could decide to postpone enacting a farm bill in 2012. Supporters of this view note the difficulty this Congress has had in reaching compromises and the upcoming general elections. However, history suggests skepticism regarding postponement. While some farm bills since 1980 have been late, none have been postponed.
A key question framing debate over the farm safety net is how best to provide supplemental risk management protection over and above existing crop insurance coverage. Crop insurance subsidies are largely taken as given in the current farm bill debate. Discussion is focused on spending for other safety net programs. Insurance subsidies could become an issue if budget cuts exceed the cuts used in drafting the Super Committee farm bill.
Underlying this issue are questions about how much and what type of risk should individual farmers bear. These questions are not receiving as much attention, but are keys to deciding the eventual farm safety net. In particular, there are competing views between fixed, statutorily set target prices and a market oriented risk management policy designed to protect producers’ revenue.
Another key question is, how to handle so-called multiple year risks in a fair and fiscally responsible manner. Crop insurance addresses yield and revenue risks that occur between planting and harvest. It does not address multiple-year declines in revenue due to unexpected changes in markets or policy. Examples of multiple-year declines are the so-called grain demand collapse of the early 1980s and Asian financial crisis of the late 1990s.
Two issues are likely to have a stronger presence in the normal farm bill process. They are, tighter limits on payments to farms and whether conservation compliance should be required for all farm safety net programs, including crop insurance. Both are major concerns for many non-farm groups. Respectively, they are viewed as ways to make programs fairer for smaller farms, and as ways to sustain environmental gains as spending on conservation programs are cut. These are issues that make many farmers uncomfortable. However, they are part of the broader debates that occur when the farm bill is viewed as a social contract between the farm and non-farm sectors to improve all segments of the U.S.