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Corn+Soybean Digest

Budget Woes Affect Ag

Some folks are fascinated by politics and government policy, while others would rather watch paint dry than hear about it. But everyone has a stake in what happens with both the current budget reconciliation process, as well as the key issues being discussed with 2007 farm policy.

Based on discussions about the upcoming farm bill at a recent Farm Foundation conference, U.S. budget projections are dismal from all accounts.

So how does that affect you? Thirty percent of an average farmer's net income for 2005 is projected to come from farm programs, according to Craig Jagger, chief economist for the House Committee on Agriculture.

“The impact of the federal budget on the farm bill is that there will be no funding increase. In fact, maintaining current funding levels will be difficult,” says Jagger.

As bleak as the financial picture looks for the 2007 farm bill, it was clear from the beginning of the discussion that there is still great concern over what could happen with the 2002 farm bill.

Budget reconciliation was supposed to have been finished in September. However, time, attention and resources were diverted to dealing with Hurricane Katrina's aftermath. So that deadline has been extended to later this month.

“Some people don't think budget reconciliation will happen this year, but there will be significant problems if we're faced with doing budget reconciliation and the 2007 farm bill in the same year,” says Jagger.

Former Congressman Charlie Stenholm, now with Olson, Frank and Weeda, points out that before Hurricane Katrina struck, $3.5 million was to be cut from programs included in the farm bill. It had previously been decided to cut half that amount from the food stamp program. As a result of the hurricane, Stenholm says cuts from food-aid programs aren't likely. The bad news, then, is that cuts will likely come directly from agriculture programs.

“Proposing that half of the cuts needed for budget reconciliation be taken out of the food stamp program doesn't mesh with reality,” says Stephanie Patrick of the American Dietetics Association, who says the program's costs have increased dramatically.

In addition, the general consensus among presenters at the meeting was that it is likely politicians will want to deal with budget reconciliation in 2005 because 2006 is an election year.

Looking Forward To 2007

“We won't have written a farm bill in an environment quite like we have today,” says Stenholm. “Last time (2002) we had a surplus. Now we're borrowing $1 trillion every 1½ years. The U.S. can't sustain its current fiscal game plan.”

The former congressman turned lobbyist doesn't see any major changes in ag policy. He says changes must evolve over time in a consensus-building process. He adds that it would be a challenge to pass a bill with revolutionary ideas.

There were several areas identified as critical to the 2007 legislation, including trade, food aid and nutrition programs, conservation, energy and rural development.

But as easy as it might be for each group to fight for its own interests, Stenholm cautions against it.

“Any time we in agriculture are divided, we're going to lose,” he says. “No one will benefit from dividing and seeking retribution.

“If we gave up 100% of subsidies, the gains politically and economically would be much greater than what we'd lose,” says Stenholm. “Someone needs to figure out how to do this.”

The farm bill must be constructed with World Trade Organization (WTO) rules taken into consideration. (See sidebar.)

“Domestic support is a key issue,” says Joseph Glauber, USDA deputy chief economist. “And the WTO talks are currently at an impasse.

“Failure to reach an agreement doesn't let us off the hook if talks break down.” he adds, saying that other countries will increasingly challenge our domestic support policies.

Issues include a proposal to change the language of the blue box, which may no longer allow the U.S. to include programs like the Counter Cyclical Program in this category. Other proposals include a cap, a reduction in de minimis levels — which could cause the U.S. to exceed its limits — and product specific Total Aggregate Measurement of Support (AMS) caps.

Nutrition And Food Aid

We need to reframe our perceptions of nutrition, says Patrick. Obesity has become a key health concern in America, and she emphasizes that more people need to realize that “nutrition is not synonymous with adequacy.”

She added that seven of 10 of the top mortality conditions are diet related, noting that farmers serve an important role in helping Americans eat healthier. “Their products are the key to longevity and well being,” Patrick says.

Nutrition programs take a sizeable chunk of farm bill funds. And because of increased attention on obesity and a greater need for food stamps in response to disasters like Hurricane Katrina, funding to that part of the package is unlikely to be reduced.

Rural Development

The farm bill doesn't focus completely on production agriculture. The bill also deals with the infrastructure of rural communities, Stenholm explains.

“Farmers need rural communities more than rural communities need farmers,” he says. “We have to find a constructive middle ground.”

He points to ethanol plants as an example of a private/public partnership that works to help rural communities economically.

“Off-farm income is important to most farmers and it's an issue that will figure highly in the debate,” says Randy Schnepf of the Congressional Research Service.


The conservation component of the farm bill will become increasingly important as the U.S. struggles to find ways to comply with WTO rules. Conservation programs are believed to be one way in which farmers can receive government payments that fit into the WTO's green box requirements.

So according to Stenholm, we need to “take a good hard look at a new direction for conservation.”

The Boxes

Domestic support in agriculture

In World Trade Organization (WTO) terminology, “boxes,” which are given the colors of traffic lights, in general identify subsidies: green (permitted), amber (slow down or be reduced) and red (forbidden).

However, the agriculture agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited. And there is a blue box for subsidies that are tied to programs that limit production.

Amber Box

Many domestic support measures considered to distort production and trade fall into the amber box.

These supports are subject to limits: “De minimis” minimal supports are allowed up to 5% of agricultural production for developed countries.

Blue Box

This is the “amber box with conditions” — conditions designed to reduce distortion. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production.

At present there are no limits on spending on blue box subsidies. But in current negotiations, some countries want to set limits or reduction commitments, while still others advocate moving these supports into the amber box.

Green Box

In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion. They have to be government funded and must not involve price support. They tend to be programs that don't target particular products and include direct income payments to farmers that aren't related to current production levels or prices.

For more information about the classifications of domestic agricultural support, visit

Source: WTO

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