Designing the Next Farm Bill

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Less than three years ago, in fall 2008, we started implementation of the Food, Conservation, and Energy Act of 2008,more commonly known as the 2008 Farm Bill. Now, early in 2011, serious discussions are beginning about the next farm bill, set to be enacted in 2012. Since the initiation of the 2008 Farm Bill, Tom Vilsack became the new U.S. Secretary of Agriculture and will be responsible for giving primary leadership to the development of the next farm bill. Following the 2010 election, there are also changes in the leadership and membership on the U.S. Senate and House Agriculture Committees for 2011 and 2012. These congressional committees will be responsible for crafting the next farm bill, which could result in some changes of policy direction.

The current farm bill will govern farm commodity and other USDA administered programs for five years (2008-2012), ending with the 2012 crop year. Funding allocations under the current farm bill are based on a 10-year cycle (2008-2017). There are a total of 15 titles in the 2008 Farm Bill, ranging from commodity and conservation programs, to nutrition and rural development programs. Farm bills are very encompassing, affecting all programs that are administered by USDA, many of which have an impact on a large percentage of the U.S. population, beyond just farm operators or rural families.

Most of the national media attention regarding a farm bill is usually focused on programs and spending related to the Commodity Title of the farm bill, which governs most USDA farm-related programs and payments. However, spending under the 2008 Farm Bill on programs in the Commodity Title are estimated to be less than 15% of the approximately $289 billion in total farm bill spending (2008-2012). By comparison, spending on Food and Nutrition programs in the current farm bill will utilize nearly 75% of the total farm bill spending. Conservation programs were allocated about 7% of farm bill spending, while all other programs under the farm bill will receive less than 4% of the total Farm Bill spending.

 

Direct Payments Under Review

Direct payments – fixed payments per crop base acre – are paid to eligible farm operators each year, regardless of the actual crop yields or crop prices. They were first enacted as part of the 1996 Farm Bill, the so-called “Freedom-to-Farm” legislation. The direct payment levels and formulas have been modified slightly by the 2002 and 2008 Farm Bills. Corn producers get the biggest percentage of the approximately $5.2 billion annually in total direct payments by USDA, due to more corn acres nationwide; however, rice and cotton producers receive the highest direct payments per crop base acre. There is an annual payment limit of $40,000/individual for total direct payments, and the 2008 Farm Bill eliminated many of the loopholes that were previously available for individuals to bypass the payment limits.

Many groups and organizations have called for the elimination of direct payments in the 2012 Farm Bill, which is a concept that has been endorsed by some farm organizations. Many feel that the approximately $5.2 billion/year in total federal budget savings that could be achieved by eliminating all direct payments, could then be redirected to enhance an improved crop revenue insurance program, as a safety net for farm operations. This would result in annual savings in the federal budget each year, and some feel would more target any federal support to farm operators who most need it when they incur crop losses and financial losses.

The concept of the Average Crop Revenue Election (ACRE) program, enacted in the 2008 Farm Bill, was a step in the direction of providing an alternative to direct payments. In order to participate in ACRE, and to receive potential revenue-basedACRE payments, farm operators had to forfeit 20% of their annual direct payments. However, participation in the ACRE program by U.S. farmers in 2009 and 2010 has been very low due to relatively high grain prices and a lack of understanding of the rather complex ACRE program calculations.

It should be noted that there are also several farm organizations, and many members of the U.S. Congress, opposed to the total elimination of direct payments. This is especially true in the southern states, where farm operators argue that direct payments are a necessary risk-management tool for rice and cotton producers, in order to keep those crops competitive with other crops. Direct payments are also generally viewed more favorably by foreign countries in World Trade Organization negotiations than are the revenue-based type government farm programs, such as ACRE.

 

Bottom Line

While we are just beginning discussions on the next farm bill – which is not likely to be finalized until sometime in 2012 – some things are becoming obvious. The first obvious point: The rapidly growing federal budget deficit will likely put a lot of pressure toward reducing total expenditures for farm bill programs. The large need for increased funding for food and nutrition programs, rural development and other programs, along with the current strong grain prices, will likely lead to funding cuts for farm commodity programs, and possibly for conservation programs. These potential cuts could possibly include reductions or elimination of direct payments to producers. Farm organizations and commodity groups are quite divided on the importance of direct payments in the next bill, and as part of future farm program payments, so it will be very interesting to follow the development of the Commodity Title in the next farm bill.

 

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.

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