Economics, Taxes and Spending

The farm bill: Where are we now

Photo Credit: Valerie Everett (CC BY-SA-2.0)

Photo Credit: Valerie Everett (CC BY-SA-2.0)

The House and Senate Agricultural Committee Leadership–Frank Lucas (R-OK), Colin Petersen (D-MN), Debbie Stabenow (D-MI), and Pat Roberts (R-KS)–must be feeling a little like Oliver Hardy when he and Stan Laurel found themselves in yet another catastrophic situation, about to be run down by a fast moving train. Their sentiments towards House Republicans and Democrats, many of whom are seriously concerned about budget deficits, the national debt, and spending on wasteful programs, are likely very much along the lines of “Well, here’s another nice mess you’ve got us into!” The “mess”: the agricultural committees want to kick as many subsidies as possible to farmers, and mainly to large and relatively wealthy farmers, but many representatives who are not on the House Agricultural committee are concerned about wasteful spending and unusually willing to interfere in the Committee’s business.

So here is the current state of play with respect to a 2012 farm bill. Everything is up in the air. A disaster aid program for livestock producers, originally linked to a simple one year reauthorization of the current farm bill passed in 2008, will be voted on today by the House (the bill is called the Agricultural Disaster Act of 2012). The legislation involves reauthorizing funding for four livestock-oriented “standing disaster” programs for which funding expired in October of 2011. The cost of these programs is likely to be relatively modest, somewhere between $200 million and $300 million, and will compensate farmers with livestock (mainly cattle) for lost forage and abnormally high rates of animal deaths. The budget baseline plan is to pay for the programs through offsets in spending reductions on two conservation programs and perhaps a very small reduction in direct payments (about a half percent).

The Disaster Aid Bill seems likely to pass even though Senator Stabenow has expressed unhappiness that cherry growers in Michigan will not benefit from the bill and Representative Petersen has said he is only going to vote for it to help out his good colleague Representative Lucas. He dislikes the disaster bill because it doesn’t help crop producers and reduces the likelihood of a floor vote on the House Committee’s farm bill. As many observers and legislators have noted, however, Mr. Petersen’s concern for crop producers may be misplaced, as most farmers in the cornbelt are likely to be so heavily compensated for drought losses through heavily subsidized crop insurance policies that, on a per acre basis, they will actually receive more money than they expected to get when they planted their crops.

In terms of new farm legislation, we are left with the Senate bill, which went through the committee and survived a floor vote in May, and the House bill, which has gone through committee but not yet survived a floor vote. The House bill faces a substantial challenge, not least because it contains a new dairy program that has been described as creating soviet style farming by the Speaker of the House. Representative Boehner’s view is not unreasonable; the House dairy program would discourage dairy farms from becoming more efficient and would protect inefficient operations from market forces.

The House and Senate bills have very different farm subsidy provisions, but both are potentially very expensive, and the House bill perhaps more so than the Senate bill. The House bill put forward by the agricultural committee, strongly endorsed by Representatives Lucas and Petersen, has a bait and switch “Price Loss Coverage” program that could involve taxpayer outlays in some years that are more than twice the $5 billion currently being on the Direct Payments program, which would be ended “to reduce the budget deficit.” It is also exceptionally generous to rice and peanut producers, who complained that they would not get enough subsidies from the Senate bill.

The Senate bill has a “bait and switch” shallow loss program that could lead to subsidies that are about 40 percent higher than current spending on Direct Payments and is relatively more favorable to corn, soybeans, and wheat producers than to rice and peanut growers. Both the Senate and House initiatives give a healthy handout to cotton producers through a special insurance program just for them called the STAX program in which taxpayers would fund 80 percent of any premiums.

Right now, the House Agricultural Committee’s proposed bill is meeting strong resistance from both sides of the aisle, partly because many members view proposed cuts to food stamp and other nutrition programs as too small and others view them as too large. Moreover, the proposed subsidy programs for farmers, about 80 percent of which would go to the largest farms and wealthiest farm households, are also viewed as wasteful and unreasonable by representatives from both parties.

Last week, the House leadership, faced with a situation in which the votes for the agricultural committee’s House bill were just not there, ran the idea of a one year extension of the current (2008) farm bill, with additional funding for the livestock disaster programs, up the legislative flag pole, where it fell flat, largely because, for once, the agricultural lobbies united in condemning the idea. On the surface, why the agricultural lobbies oppose reauthorization is somewhat puzzling, as the CBO score for farm subsidies is higher for the current bill than the either the Senate or the House versions of a 2012 farm bill. However, they are likely concerned that a post-election Congress will be serious about deficit reduction, in which case a reauthorized, politically toxic $5 billion direct payments program that is widely viewed as welfare for the well-off would be transparently low hanging fruit for a budget cut.

So, right now there is no House Farm bill that is acceptable to a majority of representatives. In addition, the House and Senate bills have very different farm subsidy programs, and propose very different cuts to nutrition programs (smaller in the Senate and larger in the House bill). And both bills have farm subsidy provisions that could be very expensive for taxpayers while mainly benefiting large and wealthy farm households. At the same time, the House and Senate Committees and the farm lobbies would all like to see a new farm bill before the end of September, because they fear that a post-election farm bill really would mean substantial cuts to farm subsidies. From a taxpayer’s perspective and in terms of economic welfare, however, not for the first time Congressional inaction that would delay the development of new farm bill legislation until after November 6 would probably be a good thing.

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