Transcript Slide 1

Dr. Jody Campiche
Assistant Professor & Extension Economist
Agricultural Policy
Oklahoma State University
November 4, 2011
Larry D. Sanders
Jim Novak
“Ag policy has a very, very, long history.
Current ag policy is driven by budget
and politics. Reality and economic
facts matter, but only in as far as it
affects those who have political
influence and can gain from reality
and/or economics.”
J.L. Novak, Auburn University
 Background
 Realities
 Budget Developments
 Budget Control Act of 2011
 Farm Bill Negotiations
 Conclusions
Background
Frank Lucas (R-OK)
Chairman
Collin Peterson (D-MN)
Ranking Member
 Does not include:
 school lunch and other child nutrition (Senate
Agriculture Committee has jurisdiction)
 taxes (including ethanol-related tax credits)
 trade law
 climate change (or other environmental programs)
Realities
New Membership
House Committee On Agriculture
112th Congress
Northern Mariana Islands
Source: Congressional Research Service
Agriculture Program Audit Hearings: June – Sept 2011
 Crop Insurance
 Specialty Crops
 Conservation
 Foreign Ag and Food Aid
 Farm Loans
 Energy and Forestry
 Nutrition
 Commodity Programs and SURE
 USDA Research Programs
 USDA Dairy Programs
 USDA Rural Development Programs
Budget
Gross Federal Debt
1940-2016E
25,000,000
In Millions of Dollars
20,000,000
15,000,000
10,000,000
Source: OMB
2015E
2011E
2007
2003
1999
1995
1991
1987
1983
1979
1976
1972
1968
1964
1960
1956
1952
1948
1944
0
1940
5,000,000
Agriculture & Nutrition Outlays 1962-2010
Agriculture’s
Share
(Non-Nutrition)
Budget Developments
Deficit Reduction Proposals
Budget…
 Debt Commission
 House Budget
 Biden Group
 Gang of Six
 McConnell Proposal
Simpson-Bowles President’s Deficit Commission (12/1/10)
• Reduces deficits by $3.9 trillion over 9 years
• $15 billion in cuts to mandatory ag programs with $10 billion to
deficit reduction and $5 billion directed to extend the ag
disaster relief fund
President Obama’s framework deficit reduction (4/13/11)
• Framework for $4 trillion in deficit reduction over 12 years
• Mentions cuts in mandatory program ag subsidies, but not
specific programs or amounts
President’s 2012 Budget (CBO score released on 4/15/11)
• Increases deficits by $2.8 trillion over 10 years
• Cuts $2.5 billion in payments to “wealthy farmers”
House (Ryan Budget) passed budget (4/15/11)
• Reduces deficits by $1.6 trillion over 10 years
• $48 billion in cuts to mandatory ag programs, with
$12 billion from commodity programs, $18 billion
from crop insurance, and $18 billion from
conservation programs
RSC Budget Proposal (4/20/11)
• Reduces mandatory spending by $1.9 trillion over 10
years
• Eliminates direct payments, reduces premium
subsidy for crop insurance, no new enrollment in
CSP and CRP, eliminate MAP, and Wool and Mohair
program
House Democrat budget (5/25/11)
• Reduces the deficit by $1.2 trillion more than the President’s budget
• $20 billion in cuts to mandatory ag programs
Biden Group (6/2011)
• Farm subsidies mentioned frequently as target for cuts ranging from
$34 to $45 billion
• Direct Payments and Crop Insurance will absorb most of the cuts
“Gang of Six” (7/2011)
• Reduce deficits up to $4 trillion over 10 years
• $11 billion in cuts to mandatory agriculture programs
• No additional dollars directed to extend SURE
• Ag committees to determine $11 billion in cuts
• Protects SNAP
Senator Conrad’s budget (7/20/11)
• Reduces deficits by $4 trillion over 10 years.
• $11 billion in cuts to mandatory agriculture
programs. Agriculture committees to determine
$11 billion in cuts during Farm Bill.
Reid Plan (7/2011)
• Reduces deficits by $2.7 trillion over 10 years.
• $11 billion in cuts to mandatory agriculture
programs by reducing the payment rate from
85% of base acres to 59% of base acres.
Budget Control Act of 2011
 Passed House on August 1, 2011 and became Public
Law 112-25 on August 2, 2011
 Authorized increases in the debt limit of at least $2.1
trillion dollars
 Established caps on the amount of money that could
be spent through the annual appropriations process
for the next 10 years
 CBO estimates will reduce federal spending by $917
billion
 Created a Joint Select Committee on Deficit
Reduction (i.e. the ‘Super Committee’)
 Develop a bill to reduce the federal deficit by at least
another $1.5 trillion over the 10 year period ending in
FY2021
 If the super committee proposal is not enacted by
January 15, 2012, the BCA established an automatic
spending reduction process that includes sequestration
 Across-the-board spending cuts are applied to government
programs in order to meet a budgetary goal
 About 200 programs are exempt from sequestration
 House and Senate must vote on a balanced budget
amendment
Republicans
House
Camp (Michigan)
Hensarling (Texas)
Upton (Michigan)
Senate
Toomey (Pennsylvania)
Kyl (Arizona)
Portman (Ohio)
Democrats
House
Clyburn (South Carolina)
Becerra (California)
Van Hollen (Maryland)
Senate
Murray (Washington)
Kerry (Massachusetts)
Baucus (Montana)
 1 Nov
 Self-imposed, late deadline for farm bill cut details from
SAC & HAC
 21 Nov
 Deadline for CBO to provide SC with scoring for all
proposals
 23 Nov
 Deadline for SC to provide Congress with package for
cuts
 23 Dec
 Deadline for Congress to vote on SC package
 2 Jan
 Deadline for congress to vote on SC package
Farm Bill Negotiations
Farm Bill Process
 Traditional process:
 DC hearings, field hearings, move legislation
in 2012
 Not currently happening
 Current Reality:
 Expedited process under the context of the
Budget Control Act of 2011
 Changed the traditional approach to the farm bill
 No time for problem framing, debate, or public input
 Obama
 proposes $33 billion in cuts to farm programs
 Sen. Conrad (D-NE)
 Reform DCP, ACRE & disaster aid
 National Corn Growers
 ADAP to replace ACRE, CCP, and Direct Payments
 Brown-Thune-Lugar-Durbin
 ARRM to replace ACRE, DCP, and SURE
 National Cotton Growers
 STAX
 NFU
 Farmer Owned Reserve
 Peterson-Simpson
 Bipartisan Dairy bill
 Lugar
 Farming Flexibility Act
 National Sustainable Ag Coalition
 preserve conservation and hunger programs, proportional cuts in
farm programs, ending direct payments
 Organic producers
 increase mandatory spending for organics, including research &
data collection
 Rural development proponents
 preserve/strengthen rural programs
 American Farmland Trust
 Strategic conservation initiatives, consolidate conservation
programs, subsidies only for a loss
Farm Bill Process – Main Ideas
 Direct Payments repeatedly offered up for reductions
•
Most WTO compliant and have a differential impact by crop,
region, and generation
•
Integrated with other program components
•
simply eliminating Direct Payments has significant
drawbacks, but they are likely gone…
Farm Bill Process – Main Ideas
 With extreme drought and flooding, crop
insurance is as important as ever
 ACRE is too complicated
 The Supplemental Revenue Assistance Payments
(SURE) Program, along with 36 other programs,
does not have baseline going forward
 SURE likely gone
 Shallow Loss Revenue Program
 Recognize diversity in operations across the state
 Different buy up levels of crop insurance
 Different risk profiles for different crops
 Issues with the loss threshold
 Corn and soybeans have more shallow losses
 This can trigger payments often on many acres
 Eats up the baseline
 Can’t design one program to benefit everyone
 AGI limits are a major issue
 Cotton payment program is also a major issue
 Hesitant to have a separate program for cotton, but it is being
considered…
 STAX is still on the table
 May not solve WTO issues
 Payments from this program are mostly from RMA
 Get around payment limits and AGI threshold
 Programs for other crops are subject to this
 Crop Insurance seems to be safe for now
 Other disaster programs (LFP, LIP, etc…) will probably be
continued to the drought issue
 Conservation will see reductions
 Fighting to protect EQIP
 Reductions in CSP
 Reductions in CRP (lower acreage cap)
 Nutrition will be cut but will not really take as much of a hit
as commodity programs…
Main Goal of Chairman Lucas
for the 2012 Farm Bill
 Wants producers to have a choice to best address
their risk needs
 Currently working on a package but many
details need to be worked out…
Options
1) Revenue Guarantee Program (modification of ACRE)
2) Counter-Cyclical Program coupled with a shallow loss
program
 Increase current target prices near the cost of production
 Option to purchase additional area based deductible
coverage (similar to GRIP)
3) Possibly a cotton program
Producers would be able to enroll by crop (instead of by farm)

Started with 2009 crop year

Based on state and farm revenue shortfall using
national average marketing year price
•
If both are not triggered the producer will not get paid
Producers enrolling in ACRE receive:

•
•
•
No CCP payments
Direct payments reduced by 20%
Marketing loans reduced by 30%

Payment made on planted acres (up the # of
base acres)

Producer may not get a payment even if state
eligible

State ACRE payment guarantee can’t
increase/decrease by more than 10% from
previous year
Conclusions
Conclusions
2012 Farm bill is coming together
Risk management is a key priority
Still have many details to work out…
Jody Campiche
Assistant Professor & Extension Economist
Ag Policy
528 Ag Hall
Stillwater, OK
[email protected]
405-744-9811
 Expecting a significant reduction in direct payments
and possibly CCP payments
 New revenue based insurance program to replace
payment-based farm bill provisions
 Area-wide revenue product delivered through crop
insurance
 Protect against shallow losses
 Ride on top of existing crop insurance
 Modified marketing loan to satisfy Brazil WTO case