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Will flush Treasury help agriculture?

With the U.S. Treasury sitting on a mountain of surplus cash - at least before tax cuts and congressional pork barreling dig into it - there is at least a modicum of hope for restoring spending for agricultural programs.

Farm program spending reached record levels in 1999 and 2000 due to low commodity prices, National Cotton Council Director of Economic Services Mark Lange said at the organization's annual meeting at San Diego, Calif.

"Unfortunately, the additional spending authorized by Congress over the past three years was accomplished through increased appropriations, which do not add to future estimates of farm spending from a baseline standpoint," he says. "The price situation for U.S. agricultural commodities clearly demonstrates the need for additional support. U.S. futures market commodity values are not materially different than for the past three years."

The Congressional Budget Office (CBO) uses current farm legislation to guide its expectations of future farm programs and their cost, Lane points out. "Because the additional spending in recent years came from annual appropriations rather than changes in farm legislation, the supplemental ATMA payments, oilseed spending, and cottonseed programs are not projected as future program spending by the CBO."

So, while spending on agriculture in 1999 and 2000 exceeded $20 billion when emergency appropriations were added, the baseline for agriculture programs in the FAIR act drops to only $9 billion by 2003. This, according to CBO projections, would put continued program spending at the last level of the ATMA payments, or about $4 billion, and marketing loan provisions at a cost of about $3.5 billion, with the remainder going to tobacco, dairy, peanuts, and other programs.

Further, Lange notes, the baseline is predicated on strengthening of commodity prices through the remainder of this decade and a continuing decline in marketing loan outlays.

"Therefore, without any increase in the baseline spending, new farm legislation would be developed presuming that only about $5 billion per year is available for the major program crops, plus dairy, peanuts, and tobacco, and no changes in marketing loan provisions."

All this, against a background of unprecedented Treasury surpluses, sets the stage for the agricultural policy debate in Congress that will lead, it is hoped, to a new farm bill by the time the current seven-year law expires at the end of 2002.

But although the U.S. went into 2001 on the heels of an "astonishing" 39 consecutive quarters of economic expansion, including some of the strongest fiscal periods of anytime in the country's history, Lange says the state of the economy for the rest of this year is one of anxiety.

The roller coaster stock market "has reduced the perceived wealth of most Americans and rising energy prices have brought new concerns about our economic security." The USDA is estimating net farm income for 2001 at the lowest level since 1995.

While some economic forecasters "find fertile ground in planting seeds of recession fears," he says, the U.S. economy has the capacity to sustain a 2.5 percent to 3.5 percent growth in Gross Domestic Product while coping with higher energy prices and stock market volatility. "Our economy isn't recession-proof, but the pressures thus far aren't sufficient to point to declines in real GDP." Employment and business expansion have continued strong, and inflation for 2000 was a modest 3.4 percent.

The biggest kick in the pocketbook has been in the energy sector, with natural gas prices almost tripling during the past year, and crude oil and diesel rising sharply. "If these price increases are maintained, the cost of producing cotton will rise substantially in 2001," Lange warned.

With a federal "on budget" surplus of perhaps $2.3 trillion by 2010, lawmakers will be faced with allocating it to debt reduction, tax cuts, or spending increases. "The long run economic impact of these choices is considerable," Lange says. "All the alternatives have trade-offs, with which policymakers must grapple.

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