WHY YOU AND I SHOULD CARE ABOUT THE “FARM BILL”

Every five years a rather large number of “farm state” members of Congress focus on re-authorizing the government’s role in agriculture – the oldest economy in America and still one of our most reliable and least costly businesses.  It’s low cost to Americans because the costs of production are largely borne by small family businesses of varying size in every one of 50 states.  It’s reliable because, despite the vagaries of weather (as in drought), this is a huge nation which has invested in agronomics research to minimize damages.  It’s reliable because every developing country in the world has benefitted from our research, development and export capacity to build its own economies.

Today the price of food is especially critical to the health of Americans.  (link nihp.org) For more than two decades we have been engaged in a grass roots effort to improve the quality of the food we eat and drink too much of, which has come to us as “preserved ‘food” in boxes, bags and bottles.  Concerned about the food available to low income Americans via SNAP (the old school-lunch program), and to school children dependent on school nutrition programs as a healthy key to learning development.  We are also concerned about the environmental consequences of chemistry at work in our farm fields and running into our water supplies.  And we care deeply about the quality of life and access to its necessities for everyone in rural America.

Jeff Harrison is a native of Bluffton, MN. and a graduate of North Dakota State and its law school who came to Washington, D.C., to work with me on farmer/rancher public policy and now works with another of his former congressional colleagues, retired House Ag Committee chair Larry Combest (R-WestTX).  At my request, Jeff summarized the current Farm Bill that passed the Senate and seems stalled on the Tea Party side of the House.  I suggest you take time to read it, now or later, and I guarantee you will be the best informed person in your community on the only major piece of bipartisan legislation still alive in this Congress.

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The House and Senate versions of a five-year farm bill are similar in many respects.  The chambers benefited from a joint trial run at a farm bill last fall in the super committee process. 

There are many titles to the farm bill, including commodity, conservation, trade, nutrition, credit, rural development, research, forestry, energy, crop insurance, horticulture and miscellaneous titles.  Most all of these titles simply amend other federal statutes.  Readers may not know that nutrition programs account for approximately 80 percent of total farm bill spending, and that the farm bill helps finance fire stations, water and sewer systems, and even distance learning and telemedicine in small communities.     

The primary differences between the Senate and House farm bills boils down to three main issues:  (1) the total level of savings, with the Senate saving $23 billion and the House saving $35 billion, both over a 10-year period; (2) the level of nutrition cuts, specifically to SNAP, formerly known as Food Stamps, with the Senate cutting $4 billion and the House cutting $16 billion; and (3) philosophical differences on the structure of the commodity title – the title that is focused on assisting producers in times of low prices.  The first issue, the total level of savings, is mainly the byproduct of the second issue, of how much to cut SNAP.  Most of the savings from the two bills comes from the commodity and conservation titles, primarily the former.   

The Senate contends that SNAP cuts should be minimized given the current economic climate.  The Senate suggests that increased subscription and costs are largely due to high unemployment or underemployment.  The House counters that a 2 percent cut ($16 billion) is not unreasonable, especially since the cuts under both chambers’ bills are aimed at curbing abuses and closing loopholes.  The House points to the bicameral agreement last fall that included a policy change to food stamps that would have saved $8 billion had it been included in the Senate farm bill.  The House also points to significant increases in SNAP funding from 2007 to 2010.  And, finally, the House observes that the last two Democratic congresses closed loopholes in SNAP, achieving $14 billion in savings in order to shore up teacher pensions and to pay for child nutrition programs.   

This disagreement is the main obstacle to passing a farm bill in the House and to ultimately reaching a conference report with the Senate.  Many House Republicans might vote for an amendment to increase cuts to food stamps during a floor debate, causing Democratic support, which is already quite low due to the current level of food stamp cuts, to diminish even further.  Should the House succeed in passing a farm bill, Senate pressure to reduce food stamp cuts below the $16 billion level would make passage of a conference report even more difficult. 

Relative to farm policy, the debate can be summed up as follows:  (1) the Senate offers revenue programs that provide a revenue guarantee against losses that are greater than 11 percent but less than 21 percent of expected revenue.  In short, the producer has protection on a 10 percent band of expected revenue.  Because the revenue guarantee is based on the previous five years of revenue, crops with high prices and yields over this period would receive a relatively high guarantee.  Conversely, crops with low prices and yields would receive a relatively low guarantee.

 Producers would have to depend on crop insurance alone for losses greater than 21 percent.  However, crop insurance only covers production losses or, if the producer buys revenue insurance coverage, production losses and price swings within a single crop year.  In other words, multiple years of low prices would not be covered under the Senate farm bill; and (2) the House generally focuses on offering producers price-based coverage that triggers when prices fall below a certain level (that level being well below current market prices). 

The House contends that the Senate revenue programs duplicate and, therefore, undermine crop insurance by giving to farmers for free what they can and should pay for.  The House also maintains that the purpose of a farm bill is to do the one thing crop insurance is not designed to do:  address multiple years of low crop prices, something the House claims the Senate bill does not do.  The House holds that by triggering at an 11 percent loss and turning off after a 21 percent loss, the Senate farm bill manages to be both too rich, at least for some, by triggering at a level well within the standard year-to-year revenue variation for many producers, and also inadequate for all producers in time of crisis.

House members warn that, in good times, the Senate provisions would lock in profits for some producers, mainly that of corn and beans in the “I” states, while leaving other crops and regions (including corn and beans grown elsewhere) without an effective risk management tool, while failing all producers in bad times which will result in the kind of bailouts experienced in the late 1980s and 1990s. 

The Senate counters that its approach is a more market-oriented risk management tool than the House bill in that it uses actual five-year Olympic Average prices and yields to determine a revenue guarantee instead of the House approach of establishing below cost-of-production price figures to determine price protection.  The Senate maintains that if the House’s price-based support were to trigger, it may influence plantings.  The House response is that the five-year Olympic Average prices and yields for crops used in the Senate bill are far higher than the low level price figures the House uses, making the Senate proposal more likely to trigger and, thus, also more likely to skew planting decisions. 

In sum, the Senate commodity provisions would pay producers should revenue decline from currently high levels, though still relatively healthy, while the focus of the House commodity provisions is to address catastrophic price losses, requiring the producer to purchase crop insurance if he wishes to cover other losses, including the “shallow losses” the Senate is focused on.

Both the House and Senate farm bills achieve significant reform and savings, including the consolidation or elimination of more than 100 programs, and elimination or reduction in authorizations of appropriation levels beyond the cuts to mandatory (direct) spending noted in the third paragraph.  For example, both bills eliminate four of the five policies that comprise the current “farm safety net,” including Direct Payments, and 23 conservation programs are consolidated into 12.

Funding for farm policy, which today constitutes less than one-quarter of 1 percent of total federal spending, is expected to decline further upon the enactment of either bill and follows significant reductions achieved in 2006, 2008 and 2010.  According to two recent independent studies, funding for U.S. farm policy is at an all-time low while foreign subsidies and tariffs, generally much higher than U.S. support, are rising.

In contrast to past farm bills, there are no clear lines of battle.  While the media has largely portrayed the divide as regional, between north and south, the better line of divide can be described as philosophical:  what is the proper role of farm policy?  The House urges greater reliance on crop insurance and less reliance on the farm bill’s commodity title, which the House says should trigger only when prices are low over a period of years.  The Senate urges an approach that helps producers mitigate the impacts of “shallow losses,” somewhat duplicating crop insurance, but retrenches in periods of prolonged low prices.

House Agriculture Committee Chairman Frank D. Lucas (R-OK), Ranking Member Collin C. Peterson (D-MN), Subcommittee Chairman Mike Conaway (R-TX), Senate Budget Committee Chairman Kent Conrad (D-ND), Finance Committee Chairman Max Baucus (D-MT), and Intelligence Committee Ranking Member Saxby Chambliss (R-GA), as examples, either support the House approach or advocate stronger price protection than the Senate bill provides.  On the other hand, Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI), Ranking Member Pat Roberts (R-KS), Senator Mike Johanns (R-NE), Senator Sherrod Brown (D-OH), and Rep. Bob Gibbs (R-OH) prefer the revenue model to the exclusion of price protection.  The Administration has remained neutral on the design of the commodity title, instead emphasizing importance of SNAP funding.

Farm groups are expressing an equally cacophonous set of views on the direction of farm policy.  Generally, the Farm Bureau, corn, soybeans and wheat support the senate position, while Farmers Union, cotton, rice, peanuts and sorghum support the House position or at least argue for greater price protection than the Senate bill offers.  But, below the surface, with respect to the former grouping, many state affiliates and producers on the ground side with the House position.  Dairy and sugar provisions are similar under both bills.  Specialty crop producers, including producers of fruits and vegetables, stand to gain under both versions, and livestock producers are also generally pleased with the two bills.

The path forward to completing a farm bill before its expiry is unclear but it may come at the end of the year, in a lame duck session, as an offset to pay for other legislation that must be completed before Congress adjourns sine die.  Democrats see an advantage to the Senate having passed a five-year farm bill with help from some Republican senators while the House has been unable to pass its version due to the dispute over food stamps which has significantly deflated levels of Democratic support in that chamber.  Democrats believe control of the Senate may be decided by this impasse, and that the situation may also help the president in his reelection bid in states such as Iowa, Minnesota and Ohio, as well as assist Democrats in regaining some of the rural districts lost in 2010.  Republicans point to the House having passed drought relief to livestock producers not protected by crop insurance and the Senate’s refusal to take up and pass the measure before breaking for the August recess.  The House elected to pass disaster relief largely along party lines after a sufficient number of House Democrats declined to help House Republicans pass a one-year extension of current law accompanied by disaster relief. 

If one examines the composition of the House over the last 20 years, it is clear that rural districts decide the majority in the House.  Most Democrats recognize this and advance farm bills to connect with rural voters with whom they may disagree on a host of other issues, although the left flank of the Democratic caucus remains very adverse to any kind of farm policy.  Most Republicans also recognize this, although voting for food stamps without substantial cuts is a bitter pill for many to swallow.  Moreover, some philosophical purists within the GOP cannot reconcile themselves to farm policy even though providing insurance to farmers (private insurance is not feasible due to risk and cost) and helping producers deal with heavily subsidized and protected foreign competitors is not inconsistent with traditional notions of free market principles.

In sum, the farm bill under consideration has both broad policy reach and political implications.