November Legislative Report

Intricate Dance of Crafting Farm Policy Continues

As the old saying goes, “nature abhors a vacuum.”  The same can be said for politics and the crafting of public policy, as members of the Senate and House agriculture committees – as well as agricultural organizations – await details of a proposal that will have significant ramifications for the 2012 Farm Bill.  In an effort to retain control of agriculture’s policy destiny, last month the leadership of the Senate and House agriculture committees pledged to submit to the Joint Select Committee on Deficit Reduction (aka “The Super Committee”) a package with at least $23 billion in savings over ten years.  Specifics where initially slated to be sent to the Super Committee by November 1, 2011 but that timeline has slipped as members continue to negotiate a number of sensitive policy issues.

The lack of a written proposal, however, has not tempered the enthusiasm of members and stakeholders from sharing their opinions as to the direction farm bill policy should take.  Regional and sector-specific differences have also resumed their traditional role in the policy debate, as key members of congress and those they represent strive to ensure their voices are heard.  For example, at a time when almost every other program within the farm bill is slated to see reductions, Senate Agriculture Committee Chairman Debbie Stabenow (D – MI) continued to advocate for an additional $1 billion for specialty crops – an important segment of Michigan’s agricultural sector.

Although there appears to be general agreement amongst committee leadership on a handful of farm bill titles, even those will not be without controversy.  For example, proposed dairy provisions are likely to remain highly controversial.  A margin insurance program will essentially be funded via elimination of the Milk Income Loss Contract (MILC) and Dairy Product Price Support (DPPS) programs and a market stabilization/supply management component will be part of the overall package.

Not all titles, as currently constituted, are likely to “make the cut”.  For example, sources have indicated that the Livestock Title (Title XI) is likely to be eliminated but that programs providing disaster assistance to the livestock sector will be retained elsewhere in the bill.  It is also likely that the Energy Title (Title IX) will also see major revisions, with at some programs being reauthorized (e.g. the Biomass Crop Assistance Program) but not funded.

The Conservation Title (Title II) will also see major revisions, with reductions for both land retirement and working lands.  A cap for the Conservation Reserve Program (CRP) is likely to be lowered from the current 32 million acres to approximately 25 million acres and a number of Natural Resource Conservation Service (NRCS) program will be consolidated and streamlined into groups – perhaps four or five – that focus on their respective functions.

Most notably, it appears as though the nutrition title, which accounts for ¾ of farm bill spending, will again emerge essentially unscathed.  According to Capitol Hill sources, policymakers have decided not to tackle the politically sensitive spending engendered by nutrition programs.  Instead, it is likely these programs will be reduced by $4 billion via reductions in administrative costs.

As is usually the case, great scrutiny has been allocated to proposed revisions to the Commodity Title (Title I), with a number of options having emerged, including at least one version of a revenue guarantee program and countercyclical payments based on higher target prices for key commodities that would be coupled with a shallow-loss program.  Target prices would be established in relation to operating costs, with payments tied to planted acres rather than being decoupled.  In order to retain direct payments, they would henceforth be tied to a price trigger mechanism.

According to Agri-Pulse, one of the commodity title options under consideration would set target prices for wheat at $5.50/bushel and rice at $14.00/cwt., which would be a significant increase from the current target prices for counter-cyclical payments of $4.17.bu for wheat and $10.50/cwt., respectively.  Although target prices for corn and soybeans have yet to be released, the issue of equity and potential market distortions has emerged.  Growers of these crops have expressed concern that market distortions could result when market prices are at or below the target prices that would be implemented as part of a “recoupled” program.  They also note that operating costs are not a determinate of crop prices.  Therefore, weighting such costs in the setting of target prices would likely result in negative impacts vis a vis corn and soybean production.

For organizations such as the American Farm Bureau Federation (AFBF), there are concerns regarding shallow revenue loss programs that would be coupled with crop insurance but would not address a broad systemic failure.  There is also concern related to multiple program options that have been proposed for program crops – options that the AFBF views as a major step in the wrong direction when it comes to developing a policy blueprint for agriculture. The organizations continues to advocate for a strong safety net that does not engender more World Trade Organization (WTO) problems for the United States or that favors one commodity over another, thereby impacting planting decisions.

As members and farm organizations fill the rhetorical vacuum, one thing is certain.  The pending November 23rd deadline for the Super Committee to forward a comprehensive deficit reduction proposal will be the ultimate determinate in what cards agriculture and rural interests have to play in determining the best path forward.

Both Sides of Deficit Reduction Committee Seek the “High Ground”

As noted on numerous occasions, the fate of the 2012 farm bill is intertwined with the work currently being undertaken by the Joint Select Committee on Deficit Reduction.  With little more than a week remaining to craft a “grand compromise, the impasse over a comprehensive agreement continues and all indications are that committee negotiations will continue until the last feasible moment.  By law the “Super Committee” can produce a plan of any amount but, at the very least, it must provide a framework of $1.2 trillion over ten years to avoid a sequester that would result in approximately $500 billion in defense reductions, as well as deep reductions to domestic programs.

It is unlikely the committee will be granted an extension beyond November 23rd deadline for issuing a deficit reduction package to the full Congress and both sides have been engaging in efforts to position themselves as the rational ones in the debate.

Balancing revenue enhancements, spending reductions and entitlement reform have proven to be every bit the high-wire act that was envisioned when the “Super Committee” was formed.

Last week (and over the weekend) both Democrats and Republicans of the “Super Committee” issued the most partisan statements seen to date.  As reported by Roll Call, a $1.2 trillion plan floated by Senator Pat Toomey (R-PA) was attacked for not being a “serious” effort to raise revenue, even though it contained $500 billion in revenue enhancement – including $250 billion in tax code reform.  Conversely, Republicans countered that Democrats were not conceding enough on entitlements – even though their plan included reductions of $350 billion in Medicare and $50 billion in Medicaid.

According to Capitol Hill sources, there appears to be two paths that might lead the “Super Committee” forward.  They could choose to forward a larger plan that significantly addresses entitlements and revenues or a modest plan that barely touches either.

There are differing views as to what would be the best scenario for agriculture.  According to Senator Kent Conrad (D-ND), it is best interest of the agriculture community for a Farm Bill to be agreed upon this year – provided it is a defensible, well-crafted policy rather than simply put together to meet a deadline.  Others believe that agriculture would be better off under sequestration, where a number of programs would be exempt.  Regardless of which side is right, it is clear that the next Farm Bill will be transformational rather than transitional.

Copyright © 2011 RDL & Associates, LLC.  All rights reserved.

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