An immediate implication is that, similar to the 1991 Farm Bill, the 2012 Farm Bill is entwined with a national debate over budget priorities and the federal debt. The U.S. House, in particular Republican House members, will have to decide the size of cuts they want from nutrition programs and the farm safety net. These cuts must then be negotiated with the U.S. Senate.

Most experts believe that both spending cuts and tax increases will be needed to solve the longer-term federal debt problem. In such a grand bargain, tax breaks used by farmers, such as expensing and accelerated depreciation, as well as spending on crop insurance may be curtailed.

The underlying problem is occurring at the same time that the U.S. is redefining its safety net, specifically the expansion of medical coverage to all Americans. The funding needs for this redefinition is a point of disagreement. However, if funding needs are on the high side, then spending on other safety net programs could be curtailed as we rebalance spending on the various safety net programs. Such rebalancing could include the farm safety net, as well as other changes that may affect farmers, including an increase in the age of eligibility for Social Security and Medicare.

While speculative, resolution of the U.S. competitiveness problem could rest upon reducing energy costs, in particular from developing the large U.S. (and world) reserves of shale gas and oil. Lower gas and oil prices will benefit farms on the input side but likely dampen demand for biofuels. Animal producers will generally benefit while the impact on crop producers will depend on the relative rates of decline in input and output prices. A softening, maybe end, of this period of farm prosperity could potentially result.

Last, while the exact amount is not known, there is a limit to how much public debt the U.S. can accumulate. If the U.S. exceeds this limit, U.S. interest rates will increase, the U.S. dollar will depreciate, and large cuts in U.S. government spending will be required. This is not a situation in which U.S. agriculture is likely to flourish. However, the U.S. has time to avoid these longer-term outcomes. Let's hope it finds the will to do so.


Read this article at farmdocDaily.


This post is a slightly revised version of "Agriculture and the "fiscal cliff": Part 1," published on November 16, 2012 at Ohio's County Journal website.