Earlier this month, President Obama released his proposed federal budget for fiscal year (FY) 2011, which begins on Oct. 1, 2010. The proposed federal budget is $3.8 trillion, which will allow the federal deficit to reach a record $1.6 trillion in the current fiscal year, before dropping to an estimated $1.3 trillion in 2011. To deal with the rising budget deficit, the proposed federal budget would freeze domestic spending on most federal programs except for defense, education, social security, Medicare, Medicaid and other targeted programs, many of which are the fastest rising expenditures in the federal budget. The proposed 2011 federal budget continues some major budget additions from 2010, including funding for an expanded college student loan program, major health care reform and proposed climate-change legislation.

Overall, the proposed federal budget for FY 2011 included some funding increases for the agriculture department; however, most of those increases were for food and nutrition programs, which comprise a large majority of the USDA annual budget. The proposed federal budget called for decreased funding for some popular federal farm programs, including:

  • Reducing the maximum level of direct payments for farm programs by 25% to a new maximum level of $30,000/individual, as compared to the current maximum of $40,000.
  • An $8 billion cut in federal support to the federal crop insurance program, which will lead to higher crop insurance premiums for farm operators.
  • Lower maximum adjusted gross income (AGI) eligibility requirements to receive farm program payments to a maximum of $250,000/year AGI for off-farm income sources, and $500,000 per year AGI from farm income sources. The current AGI limits are $500,000 for off-farm, and $750,000 from farm sources, which were lowered considerably in the 2008 Farm Bill from previous income levels.
  • The proposed federal budget earmarks $53 million in new funds to develop overseas export markets; however, the budget would cut $40 million from the Market Access Program, a popular current program through which USDA supports other trade groups to support exports of agricultural products.
  • The proposed Federal budget for FY 2011 would also result in cuts to some popular conservation programs, such as the Environmental Quality Incentives Program (EQIP) which would be cut by 25%, or $1.2 billion, and the Conservation Security Program.

Of course, the proposed federal budget for FY 2011 must be approved by Congress before it becomes law and is enacted, including any of the proposed cuts to Federal farm programs in the proposed USDA budget. Some of the leadership in the U.S. Senate and House Agriculture Committees have been opposed to these cuts, feeling that the budget for farm program spending was addressed in the 2008 Farm Bill, and will be addressed again the next farm bill in 2012. Estimates are that the 2008 Farm Bill contained approximately $4 billion in cuts for spending on federal farm programs.

“Actively Engaged” Rule Clarification
USDA has clarified that all partners in a legal farm corporation or partnership do not have to personally meet the USDA “actively engaged” labor or management requirements to be eligible for federal farm program payments, provided that at least one partner meets those requirements. Many family farms have business arrangements that allow more that one family member to be eligible for farm program payments. This will likely be a major issue during discussions for the next farm bill.

USDA Changes Animal ID System
USDA recently announced it will discontinue efforts to develop a National Animal Identification System (NAIS), which has been in an implementation phase for several years. The purpose of NAIS was to improve the traceability of animal diseases and food-borne illnesses, as well as animal genetics, in the U.S. USDA will continue to improve animal traceability through a lower-cost, more flexible animal identification program administered through the states. USDA will primarily be involved in animal movement across state lines and interstate commerce transactions. This change in NAIS will likely be welcomed by most livestock producer groups in the U.S., which were very concerned about the costs of fully implementing the NAIS system. Most state agriculture departments have very good policies and procedures in place to adequately monitor the spread of animal diseases and to manage localized outbreaks of food-borne illnesses.

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.