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Battle of the baseline looms

Hog and cattle farmers are already seeing their costs rise due to booming demand for grains for ethanol. But farm organizations who will lobby for spending on commodity programs in next year's farm bill debate have found another hidden cost.

It's called the Congressional Budget Office baseline.

When Congress writes new farm legislation, the Agriculture committees' starting point is the baseline -- a projection of what the federal government would spend over the life of a new farm bill if the old one was simply continued. Because commodity prices are currently high enough that most won't trigger LDPs (loan deficiency payments) or countercyclical payments, the CBO is likely to lower the amount it projects that USDA will spend on commodity programs.

Wednesday, the American Farm Bureau Federation fired an early volley in the upcoming battle of the baseline. It sent a letter to President George W. Bush, asking that his budget request to Congress next year be for the same level of spending as what was allowed under the 2002 farm bill, with an adjustment for inflation.

"The current farm bill is popular with farmers and ranchers throughout the country," says the letter, signed by Farm Bureau president, Bob Stallman. "Continued maintenance of its structure and funding is a high priority for Farm Bureau. We have been a strong supporter of the Administration's position in the current round of global trade negotiations. Commensurate with that position, our delegates voted overwhelmingly to support extending the current farm bill's economic safety net until a successful World Trade Organization (WTO) agreement is reached that increases our producer's access to foreign markets. U.S. farmers' ability to compete in global markets will be affected greatly by the outcome of the WTO negotiations."

Technically, Congress sets the baseline, not the White House, whose Office of Management and Budget sends its own budget requests to Congress every year. But in recent years the White House has proposed cuts in some farm programs. Any time that Congress adopts one of those cuts, it has the effect of shrinking the baseline that Congress projects for farm bill spending.

As Stallman put it in his letter to the President, "We are quite concerned that if those resources are limited to the Congressional Budget Office (CBO) baseline for spending, the funding will not be sufficient to provide adequate funding for the commodity title."

The last CBO baseline was released last March. It projected spending for 2008-2013 (the potential life of any farm bill written in 2007) at $488 billion. That projection showed nutrition and conservation spending rising. Commodity program spending was projected to drop from $99 billion to $66 billion.

"CBO will release their new baseline in March 2007. We expect the increase in ethanol and biofuels production -- and the impact on corn and soybean prices -- to reduce the commodity baseline to about $57 billion over six years. This is barely more than half of the $99 billion Congress was willing to spend on commodity programs over the last six years. In turn, this reduces the commodity title portion to only 12% of total spending," Stallman said in the letter.

Farm Bureau wants to maintain commodity program spending at current levels for several reasons. First, cutting programs drastically would lower the leverage the U.S. will have to get other nations to lower tariffs on foods if World Trade Organization talks move forward. Second, farm expenses are rising.

"Last but certainly not least," Stallman added, "is the implication such a limited level of resources would have on our abilities to craft a new farm bill. While only informed speculation on our part, the stronger ethanol demand scenario discussed earlier could drive commodity program spending to less than $8 billion annually. Continuation of direct payments, marketing loans and counter-cyclical payments is imperative in the next farm bill."

Hog and cattle farmers are already seeing their costs rise due to booming demand for grains for ethanol. But farm organizations who will lobby for spending on commodity programs in next year's farm bill debate have found another hidden cost.

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