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Senate officially begins farm bill debate

Senate officially begins farm bill debate

On a 90-8 tally the Senate voted to officially begin debate on a new farm bill Thursday morning. Amendments to the legislation –- expected to cut some $23 billion from the agriculture budget over a decade -- are expected to be offered for several weeks. Mississippi State University economist: “I think the reconciliation will be hard. But if we end up with the set of choices being proposed now, there will be a steep learning curve. I thought the last farm bill provided farmers a lot to digest. Right now, we’re headed towards something even more complex.”

On a 90-8 tally the Senate voted to officially begin debate on a new farm bill Thursday morning (June 7). Amendments to the legislation -- expected to cut some $23 billion from the agriculture budget over a decade -- are expected to be offered for several weeks.

The White House had a quick response to the vote, saying “it is critical that the Congress pass legislation that provides certainty for rural America and includes needed reforms and savings. The new farm bill should promote rural development, preserve a farm safety net, maintain strong nutrition programs, enhance conservation, honor our World Trade Organization commitments, and advance agricultural research.  In light of the nation's long-term fiscal challenge, the legislation should also contribute significantly to deficit reduction.” 

The White House said notable reforms in the Senate farm bill “include eliminating the direct payment system; tightening payment and eligibility requirements; strengthening access to healthy, affordable food; protecting emergency food aid programs and authorities; and increasing flexibility in the delivery of international food aid. The (Obama) administration supports the Senate's efforts to consolidate and streamline conservation assistance, which will reduce administrative burdens on farmers and ranchers and improve environmental outcomes. The bill's funding for bioenergy programs will enhance our energy security while supporting innovation and growth in rural economies.”

A statement from the Senate Agriculture Committee said the bill “represents significant reform of American agriculture policy. By ending four different commodity subsidy programs (direct payments, counter-cyclical payments, the SURE program and the ACRE program), the bill achieves billions in savings while strengthening responsible, market-based risk management tools that prevent farmers -- and farm jobs -- from being wiped out because of weather disaster or market volatility.”

Among those pleased with the Senate action was the National Corn Growers Association. Garry Niemeyer, NCGA president, said “The overwhelmingly positive vote on the floor reaffirms that senators understand the importance of passing the 2012 farm bill this year. … The 2012 farm bill creates the reforms needed to not only reduce the federal deficit but ensure a positive beginning for the next generation of America’s farmers.”

Many lawmakers from the South are less excited with the bill. In late April, all Southern senators on the Senate Agriculture Committee – citing worries on how the proposed legislation would treat rice and peanuts, among other problems – voted against passing the bill out of committee.

For more, see here and here.

Proponents of the Senate approach have claimed such concerns from the South are overblown. During a June 4 press conference, Michigan Sen. Debbie Stabenow, chairwoman of the Senate Agriculture Committee, pointed to a recent FAPRI analysis, which indicates “that in addition to crop insurance – which is obviously very important to the change to risk-based efforts and tools – the ARC (Agriculture Risk Coverage) program modeling shows that (it) is fair for all commodities. In fact, the ARC program would have provided substantial protection for American producers during the market collapse of the late 1990s. That’s the last multi-year, low-price period for producers. In fact, we can show that using a five-year Olympic average … would have substantially cushioned and smoothed out the private marketplace for producers…

“Interestingly, we have a report that shows ARC would have provided approximately the same level of price protection for virtually all our commodities, except for rice, which would, in fact, have received more support. When we look at concerns – and we certainly appreciate and want to be fair to all regions of the country – with the FAPRI report we actually see similar levels of price protection under ARC. The one place it’s different is with rice, which would get even more price protection.”

For more on the FAPRI report, see here.

Such absolute statements should be carefully assessed, according to Keith Coble, Mississippi State University economist, who spoke to Farm Press on June 5. “This is hard to explain to people – and I’m not sure how the studies were done, so I must be careful – but looking at rice, we know we’re at a different level of prices than 10 years ago.

“A lot of folks like to look back and ask ‘what if this program had been in effect in the past?’ That helps us understand how the program would function. I get that, it’s how we wrap our brains around complicated programs.

“If you take the program proposed, for example, the $13 reference price for rice in ARC and apply it to historical data when prices were at $6, what does that mean? Is that really what we’re talking about today? It would take a catastrophe to get to $6 rice again.

“It’s one thing to look backwards with these programs to understand how they work. But a ‘back-cast’ is not a forecast. We’re not at $6 anymore – we’re double that.

“Looking forward, like (the Congressional Budget Office) does, provides a much different picture. All of us who analyze and forecast end up using historical data -- but that requires a lot of adjustments.”

Among Coble’s other comments:

On changing numbers and SCO (Supplemental Coverage Option)…

“In the Senate bill the ARC program has been a focal point while producers in the South aren’t terribly enamored with it.

“The cotton industry is looking at STAX, an insurance program, which is a rather dramatic proposal.

“The program that, until recently, was flying under the radar screen is SCO. As people looked at the SCO language, which had an asset called the ‘disappearing deductible,’ the original assumption was farmers would take ARC and SCO would fill the gaps in crop insurance coverage. The way it was written, you could stay out of the ARC program and participate in SCO. That disappearing deductible could have been very lucrative.

“What we’ve been dealing with in the last week is that CBO went back and looked at those numbers again. Those programs were rescored and a cap was then put on SCO. That means there’s a real 10 percent deductible on SCO.

“My understanding is SCO still has a disappearing deductible but that top 10 percent has been removed. That makes SCO less attractive – not unattractive, but less attractive. Since then, everyone has been scrambling to revise their analyses of these things.

“We’ll have a brief looking at many of the (proposed farm bill) options in the next several days.”

For more on the farm bill and crop insurance, see here.

On possibilities and confusion…

“There’s a lot of confusion currently.

“If you participate in ARC, there are different combinations in buying crop insurance and SCO. Do you buy a lower level of crop insurance? Do you buy SCO?

“Another scenario is to stay out of ARC and go only with crop insurance and SCO.

“Cotton doesn’t have the option of ARC, but has STAX. We’re looking at those options, as well.

“On the House side there’s a lot of talk about keeping a target price program. The rice and peanut industries have certainly pushed for more options.”

On common questions…

“The first question is usually ‘how do these insurance based programs function?’

“ARC, SCO or STAX all have attributes that look like ‘area revenue’ insurance products we’ve have in the past. The idea of a disappearing deductible is really confusing to people, right now.

“Cotton producers have questions about SCO versus STAX. Those function a bit differently.

“Another point of distinction that comes up frequently is that ARC would be delivered by FSA while SCO and STAX would be delivered by crop insurance. That’s a fundamental difference. As the bill was written, payment limits would apply to ARC that won’t apply to crop insurance…

“Of the options in the Senate bill, producers could probably make use of two or three programs. That makes it hard to think through and understand the proposed legislation.”

County or farm trigger?

“Another choice that producers would have to make: whether to make ARC county-triggered or farm-triggered.

“The percent of ARC payment acres with a county trigger are higher. But producers know that the county may not trigger the program when the farm would. We talk about shallow-loss programs as a risk protection for the farm. But if the county doesn’t trigger at the right time and the right amount, shallow loss programs won’t always provide good risk protection.

“I’ve seen some examples coming out of Washington that don’t make this clear enough. It isn’t intended to be deceptive but, if you don’t think about it enough, the implication is the county would trigger just when a farm needs it. Not necessarily.

“There’s also talk about area-based program on top of the farm trigger to fill the gap. What about the example of a farm that’s one of the few irrigated operations in the county? That farm won’t match up very well with the county.”

Anything else?

“The House is likely to write a bill that looks a lot different than the Senate version. … I’ve spoken with House staffers who indicate they’re more inclined towards a target price.

“I think the reconciliation will be hard. But if we end up with the set of choices being proposed now, there will be a steep learning curve.

“I thought the last farm bill provided farmers a lot to digest. Right now, we’re headed towards something even more complex.”

For more farm bill coverage, see here.

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