September Legislative Report

Unresolved Budget Issues Stifle Farm Bill Progress

As Congress returns from its August recess, all eyes will be on the progress (or lack thereof) made by the bipartisan Joint Committee on Deficit Reduction.  Under the debt ceiling and deficit reduction deal that was struck prior to the August recess, the panel mush find between $1.2 trillion and $1.5 trillion worth of savings avoid triggering automatic spending reductions that would have major impacts on a number of programs – including defense spending and Medicare.  The representative on the Joint Committee considered to have a solid background in agriculture is Senator Max Baucus (D – MT) but he and his colleagues will have their work cut out for them as they try to broker a deal that will satisfy the diverse factions within the United States Senate and the House of Representatives.

Although the Joint Committee is tasked with producing a plan by late November, the outlook for a successful outcome are viewed by many to be grim, at best.  As such, the agriculture sector should prepare for sequestration.  According to House Agriculture Committee Ranking Member Collin Peterson (D – MN) between 5% and 9% of agriculture spending falls under sequestration – with big ticket items such as food stamps and the Conservation Reserve Program (CRP) being exempt from reductions, thereby leaving a host of other programs to absorb the mandatory cuts that are on the horizon.

The looming shadow of sequestration has resulted in a general consensus that there is no sense in working on a farm bill as long as the budget issues remain unresolved.  How much below the current baseline will the Senate and House Agriculture committee have to write the next farm bill? Will the new reality be $10 billion, $15 billion, $20 billion or something in between? What will happen to the 37 programs in the current farm bill that don’t have a baseline? What is the fate of direct payments? What new programs will be authorized and which constituencies will most benefit?  These are but a few of the questions that will have to be answered in the months ahead.

For a variety of reasons it is likely the Senate will move first on the 2012 Farm Bill – not least of which is the electoral challenge facing Senate Agriculture Committee Chairman Debbie Stabenow (D – MI).  Much like her predecessor, former Senator Blanche Lincoln (D – AR), Senator Stabenow must attempt to demonstrate to her constituency that there is inherent value in leading a major committee.  However, the biggest challenge may not be moving the next farm bill out of the Senate or House Agriculture committees but on the floor of each chamber – particularly in the House.  Depending on the rules of debate adopted by the House Rules Committee, there will almost certainly be the opportunity for members from sides of the aisle who do not support agriculture programs to offer amendments that could result in weakening final legislation.

The fiscal “Gordian Knot” of the federal debt cannot be unraveled via reductions in discretionary spending.  Until Congress engages in a meaningful way to address the mandatory programs such as Medicare, Medicaid and Social Security the fiscal imbalance will continue unabated.  No amount of reductions in agriculture spending will address the pressure on the federal budget brought about by these three entitlement programs.

Dairy Reform Proposals Continue to Emerge

Although budgetary issues continue to garner the spotlight, the issue of federal dairy reform remains “in play” for those seeking to address issues of price volatility in the dairy sector.  In addition to the well-publicized National Milk Producers Federation (NMPF) proposal, other organizations have been advancing policy initiatives.

A strong margin insurance product covering the difference between the cost of feed and the price of milk continues at the heart of almost every dairy proposal.  However, how it should be structured and delivered remains an issue.  Whereas the NMPF proposal calls for the insurance program to be administered by the Farm Service Agency (FSA), at least one proposal allows for the delivery mechanism to be through approved private insurance providers.   In addition, producers would be allowed to buy up their levels of coverage during the term of the 2012 Farm Bill, with premiums and catastrophic risks calculated on a sliding scale based on pounds of milk produced.  All producers would be covered for the first 4 million pounds of milk, with the option to purchase coverage for additional production. Furthermore, producers would be required to opt out of the program at the beginning of the Farm Bill sign-up period, with new producers having 6 months to opt out, buy in or buy up during the term of the farm bill.

Last, but not least, the producer premium structure for the margin insurance program should not provide a reverse incentive for producers to purchase higher levels of coverage.  Under this proposal, funding for the producer premium subsidy would come from a reallocation of funding via elimination of the MILC and Dairy Product Price Support (DPPS) programs.  Given current budgetary restraints, there is an emerging consensus amongst certain stakeholders that these two programs could be eliminated provided a strong margin insurance program for dairy is adopted.

Absent from the NMPF proposal (but not forgotten by the dairy industry) is the option of Dairy Savings Accounts which should include a tax deferred account for dairy producers to be utilized at their discretion, a simplified structure that is simple and easy to understand – a “money in, money out” concept, and the option for matches for the dairy savings accounts from the industry or other sources.

Perhaps the most controversial component of the NMPF proposal has been that organization’s support for a Dairy Market Stabilization Program.  According to Capitol Hill sources, this provision is the lynchpin in allowing for the overall NMPF plan to be acceptable in a budgetary context.  However, there are stakeholders within the dairy sector that believe that the policy provisions (as outlined above) will reduce market volatility and negate the need for a supply management type program.

Regulatory Relief on House Agenda for Remainder of 112th Congress

In a recent memo to House GOP members, House Republican Leader Eric Cantor (R – VA) outlined a plan for the House majority to tackle regulations that are seen as stifling job growth.  According to Mr. Cantor, the targeted regulations are “the types of costly bureaucratic handcuffs that Washington has imposed upon business people who want to create jobs.”

According to Agri-Pulse, the agenda includes at least two regulations that viewed as onerous for agriculture.  In early 2012 he hopes to move legislation authored by Representative Kristi (R – SD) that would bar the Environmental Protection Agency (EPA) from “revising any national ambient air quality standard applicable to coarse particulate matter and limiting federal regulation of dust where it is already regulated” by a state.  In addition, Mr. Cantor has targeted the EPA’s upcoming new source performance standards aimed at curbing greenhouse gas emissions.  The rapid pace of the proposed rules continues to cause concern as to their impact on new and existing oil, natural gas and coal-fired power plants – as well as oil refineries.

Historical Perspective: The Farm Security and Rural Investment Act of 2002

 On May 13, 2002 President Bush signed The Farm Security and Rural Investment Act of 2002, otherwise known by the acronym FSRI.  In an effort to stem the tide of unbudgeted ad hoc assistance that had been required over the previous four years, the six year farm bill was a compromise between the House of Representatives and the Senate and authorized $51.7 billion in new budget authority over six years. It increased farm program spending by approximately $83 billion over ten years – funding that was in addition to the existing baseline of $183 billion over the same period.  Due to concerns that the 2002 farm bill would violate trade agreements the Secretary of Agriculture was authorized to adjust subsidies to stay within the amount allowed the U.S. under World Trade Organization (WTO) agreements.

 At the time it was expected that the United States Department of Agriculture’s Farm Service Agency (FSA) would implement approximately 80% of the bill and an emphasis was placed on customer-service and education, as well as working with University Extension agents. Additional funding was included to enhance FSA staffing levels for implementation activities.

 Under the 2002 legislation crop subsidies were increased, conservation funding was enhanced by 80% over previous levels and a new countercyclical payment structure was created for both crop and dairy producers.  Marketing loans and loan deficiency payments were established for lentils, dry peas and small chickpeas and payment limits under the commodity title were reduced from those originally included in the 1996 farm bill.  For the first time the farm bill contained a separate Energy Title, with provisions to promote the use of renewable energy also contained in the Research, Rural Development and Conservation Titles.  In addition, FSA State Directors were provided discretion in dealing with some program violations.  After concurrence with the Department of Agriculture’s Office of General Counsel they were given the authority to waive the penalty for violations in cases where repayment amounts were $20,000 or less.

 Also of special interest was a provision authorizing the formation of Rural Business Investment Companies (RBICs).  Farm Credit System (FCS) institutions were specifically authorized to establish or invest in RBICs which are vehicles designed to channel venture capital investments to smaller enterprises primarily located in rural areas.

 This is not to say that the FSRI Act was without controversy.  During the course of the House/Senate negotiations a number of key provisions were either removed or altered which drew the ire of some members and stakeholder groups.  Environmental groups complained that the spending increase for conservation were not enough.  In addition, they objected to changes in the Environmental Quality Incentives Program (EQIP) that allowed larger livestock operations to access funds to comply with new environmental rules.  Trading partners of the U.S. raised concerns that the higher subsidies would lead to trade disputes.  Some in the Midwest were angry that the Senate’s ban on packer ownership of livestock was removed.  A Senate provision that would have relaxed restrictions on sales of food and medicine to Cuba was also deleted, as was a pilot program authorizing Farm Savings Accounts.

However, the 2002 farm bill retained some aspects of the bill it replaced, the Federal Agriculture Improvement Act of 1996 (P.L. 104-127), including planting flexibility, guaranteed fixed payments, and marketing loan deficiency payments (LDPs).  The bill also retained the marketing loan program at increased loan rates for all crops except soybeans.  All production was eligible for the marketing loan.




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