The White House plan to reduce $1.5 trillion from the budget begins with agriculture. The 18 pages that deal with program cuts are part of 80 pages of job creation, tax reform and budget cuts issued Monday as Congress begins its effort to do the same. But after a 145-word preamble about the need to cut spending and make reforms that have not been done “for years,” it all begins with the “Agriculture Sector.”
The budget-cutting plan (pdf) begins by paying compliments to agriculture and the fact that “A strong agricultural sector is important to maintaining a strong rural economy.” It says that farm and rural sectors are supported through programs that fund “agricultural research programs, providing assistance to beginning and disadvantaged farmers, pursuing trade agreements and increasing funding for programs to expand U.S. agricultural exports.” But the plan says farm income is high, and while “The administration remains committed to a strong safety net for farmers…there are programs and places where funding is unnecessary or too generous.” At that juncture the plan details cuts to direct payments, crop insurance and conservation, with an added four-year extension to disaster program assistance, as long as farmers have crop insurance and disaster payments do not exceed expected income.
Direct payments
Direct payments are totally eliminated in the White House proposal. It says they do not vary with yield, and that is why the program was established, because the world trade organization complained that prior programs promoted crop production and depressed prices in developing countries. The White House plan places blame on the direct payment program for difficulties sustained by beginning farmers, “have priced young Americans out of renting or owning the land needed to enter into farming. In a period of severe fiscal restraint, these payments are no longer defensible, and eliminating them would save the Government roughly $3 billion per year.”
Crop insurance, which received $6 billion in cuts in 2010, will be getting another $8.3 billion in cuts under the White House proposal. While the plan says crop insurance “is a foundation for our farm safety net,” the plan says it costs the government $8 billion/year to run. (Keep in mind that the budget cuts being proposed would be over a 10-year period.) While the plan says crop insurance companies agreed to changes that saved $6 billion over 10 years, the administration believes there are additional opportunities for streamlining the administrative costs of the program.
There will be a $2 billion cut to the return on investment allowed for crop insurance companies. There will be a $900 million cap on administrative expenses that will save $3.7 billion, and changes to the CAT program will save $600 million. The White House plan proposed to reverse the Congressional action that reduced the premium cost to farmers in an effort to increase participation. It says participation averages about 83% so high premium subsidies are no longer needed, and it will reduce the subsidy level for the higher coverages of crop insurance to save $2 billion/year.
Conservation assistance will also be cut by $2 billion, but curiously the plan says federal support for conservation will increase by $60 billion over the next 10 years. The budget cutting document says “The Administration is very supportive of programs that create incentives for private lands conservation and has made great strides in leveraging these resources with those of other Federal agencies towards greater landscape-scale conservation; however, the dramatic increase in funding (roughly 500% since enactment of the Farm Security and Rural Investments Act of 2002) has led to difficulties in program administration and redundancies among our agricultural conservation programs.” The plan says high crop prices have reduced producer demand for certain agricultural programs. Subsequently, “the administration plans to make the budget cuts by better targeting funding to the most cost effective and environmentally beneficial programs and practices.”
Mandatory disaster assistance will be extended through 2016, but to be eligible, farmers must purchase crop insurance, and it reworks the SURE program, which was developed as the permanent disaster program in the 2008 Farm Bill. The White House plan says SURE provides financial assistance at levels that are 15% higher than crop insurance; it is proposing a change to limit payments that do not exceed 90% of expected farm income in the absence of a natural disaster.
While producer programs consume about 20% of the USDA budget, they will be the only ones cut. There were no cuts proposed to public food aid programs or other parts to the USDA budget.
Summary
The White House has proposed an extensive budget-cutting program that attempts to reduce the deficit. Agriculture spending will be cut by $13.3 billion. The direct payment program will be eliminated. Crop insurance programs will be cut by $8.3 billion and another $2 billion will be taken from conservation spending, all of which will be over a 10-year period. Additionally the permanent disaster program will be reduced to ensure participants do not profit from it.
Read the article at farmgateblog.com.