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Five things to know about agriculture spending

Five things to know about agriculture spending

• Over the longer-term, Congress will need to write a new farm bill in 2012, and some programs that are authorized by the bill will face serious funding challenges. • The problem is that future spending will be based on past spending baselines.

When it comes to spending on agriculture programs, all of the wrangling over this year's federal budget is just a foretaste of bigger battles, according to one farm policy veteran.

"Congress is looking for deep budget cuts this year. Some of that is bound to come from agriculture," said Mary Kay Thatcher, director of the American Farm Bureau Federation's agriculture policy team, who has worked on several farm bills over the years. "Farm Bureau supports efforts to reduce the budget deficit and is willing to do our share to make that happen. We just want to make sure we aren't doing more than our fair share."

Over the longer-term, Congress will need to write a new farm bill in 2012, and some programs that are authorized by the bill will face serious funding challenges. "The problem is that future spending will be based on past spending baselines," Thatcher explained. "The baseline for nutrition programs has grown, but for some farm, conservation and energy programs, it will go away. If there is a baseline, there is no cost to continue. If there is no baseline, there is a cost to continue, and increasing the cost of the farm bill is not an option."

Programs expiring

The Supplemental Revenue (SURE) disaster assistance program expires Oct. 1, and the Wetlands Reserve Program and others will expire next year. Congress will have to glean money from other programs if it wants to extend them. "Just making a copy of the 2008 farm bill is not an option. The funding won't be there," Thatcher said. "The challenge will be identifying those programs that are most critical to providing a safety net for farmers and ranchers, and trying to preserve as much of that safety net as possible."

Here are five things farmers and ranchers might like to know about the current budget debate and the effort to write the new farm bill next year.

1.) For agriculture, there are really three different budget-related issues to follow: funding for this year, next year and beyond. First, Congress needs to pass a long-term "continuing resolution" to keep the government funded until the end of this fiscal year, through September. Congress is in deficit-reduction mode, and the House-passed bill would cut $60.8 billion in spending this year, including $5.21 billion, or 22 percent, in USDA spending compared to last year's appropriation. Large cuts would come from food safety, conservation, rural development and agricultural research.

Second, the 2012 budget process has begun. President Obama sent his budget proposal to Congress in mid-February. It would cut agriculture spending by $2.5 billion, but perhaps the most direct impact to farmers and ranchers would come from a proposal to lower payment limits and income limits that determine whether farmers can receive direct farm payments. The proposal is only that, a proposal, and it will be up to Congress to decide whether to pursue the idea.

Also, the budget resolution that Congress will debate this month will outline how much the appropriations subcommittees should allocate to discretionary programs under their jurisdiction. This year's budget resolution could include austere "reconciliation" instructions that would require committees to make appropriations and policy decisions to meet specific reduction targets in both mandatory (entitlement programs) and discretionary spending (subject to annual appropriations bills).

On the downside, a reconciliation bill would likely require deep cuts in programs on which farmers and ranchers depend. On the upside, the pain of reducing the federal deficit would be shared across program areas and constituencies.

Third, with a record budget deficit (nearly $1.5 trillion in 2011, according to a Congressional Budget Office forecast) and fierce competition for funds among different programs, there will be tremendous pressure to reduce the size of farm programs when Congress writes a new farm bill to authorize farm, conservation, nutrition and agricultural research programs for the next few years. If there is a budget reconciliation measure next year, it will coincide with the writing of the farm bill and could have a big impact on the size and structure of safety-net programs.

2.) Agriculture programs already represent a tiny portion of the federal budget. They are projected to be just 2 percent of total federal spending from 2011 through 2020. Take out spending for food stamps, school meals and other nutrition programs, and the agriculture piece of the pie shrinks to just about half of 1 percent (0.53 percent).

Nutrition programs getting bigger

Of the $924 billion in spending authorized by the House Agriculture Committee under current baselines, $695 billion, or 75 percent, is for nutrition programs, and that slice is getting bigger. The remainder pays for crop insurance ($83 billion, 9 percent), conservation programs ($65 billion, 7 percent), farm payments ($64 billion, 7 percent) and other programs ($17 billion, 2 percent).

3.) Of the $64 billion in commodity program spending, most (77 percent) goes to direct farm payments. That makes them important to farmers, but it also makes them a big target for lawmakers looking for budget reductions.

4.) Crop insurance has grown into the largest non-nutrition program in the farm bill, representing 36 percent of non-nutrition funding, compared to 28 percent for farm payments and marketing loans, 28 percent for conservation payments and 8 percent for other programs.

The majority (69 percent) of crop insurance funding goes for farmer premium subsidies. If direct payments are eliminated or reduced in the next farm bill, crop insurance will become even more important to some farmers, but there are regional "winners and losers" if this happens because crop insurance works better for some crops than others.

5.) Federal spending for counter-cyclical farm payments and marketing loans (provide support if prices fall below loan rates) has decreased under the current farm bill because commodity prices have been high. This has saved taxpayers money, but farmers won't get many thanks for it.

Instead, these programs, which are major supporting pillars of the farm safety net, will lose baseline and, along with direct payments, could come under attack from those who want that funding for other programs and say that farm supports are not needed in a good farm economy.

It's important to remember, however, that just two years after Congress cut back on farm safety net programs in the 1996 farm bill, an Asian economic crisis devastated U.S. farm exports, market prices collapsed and Congress had to pass emergency "economic disaster" bills to avoid a catastrophe in farm country.

Long-term forecasts for demand of agricultural commodities are good, but as any market watcher knows, forecasts are based on the way the world looks today and can be wrong. "The share of the farm bill that goes to farmers and ranchers is getting smaller," said Thatcher, "but history has shown that we need to ensure that a meaningful safety net continues."

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