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Big Cuts Coming In Farm Safety Net?
Every time the National Farmers Union board meets, the state presidents each get a few minutes to report on the top issues in their area, a collective checking of the pulse of the farm sector nationwide.
“Pretty much the entirety” of the discussion is the agricultural slump, says NFU president Roger Johnson. “There is deepening concern about the economic outlook.”
Market prices are down steeply from their peaks during the commodity boom that ended in 2013. USDA says net farm income will stabilize this year after a long tumble, landing at one half of the record set four years ago. Ag bankers are charging higher interest rates and setting longer repayment periods on farm loans in the face of rising – but still historically low – delinquency rates on farm loans, according to the Federal Reserve. The outlook is dreary for any great improvement in commodity prices in the near term.
“Because of low commodity prices, many of America’s farmers and ranchers are struggling,” Farm Bureau president Zippy Duvall wrote in a midsummer letter to lawmakers. U.S. farm groups are in chorus with NFU and Farm Bureau in calling for a strong safety net in the 2018 farm bill – in both crop supports and crop insurance.
The leaders of the Senate and House Agriculture Committees are sympathetic. ”Farmers and ranchers are hurting right now, and the farm bill is an essential tool that helps weather the storm,” said House Chairman Michael Conaway at a California listening session.
Senate Chairman Roberts said with the ag sector in flux, “it is important the role of the government be a partner – not an adversary – to farmers and ranchers.”
Although the 2018 farm bill is expected to focus more on revisions than a wholesale overhaul of the 2014 law, a handful of salient issues demand resolution. The dairy and cotton programs may be the most prominent. The bill could be affected by outside issues such as NAFTA renegotiation, a fall drive for tax reform, President Trump’s infrastructure package, and deficit control.
There’s never enough money – for a farm bill or much else it seems – in Washington. Land stewardship groups argue that conservation took bigger cuts proportionally than other programs in the 2014 farm bill, and they want the money restored in the new farm bill. Even the minor tweaks requested to programs in other parts of the bill carry a price tag. “It won’t be easy to meet all the needs,” said a farm lobbyist.
Here are five major topics that folks who are either watching or helping with the construction of the next Farm Bill are working on in farmers’ interests.
Most farm policy experts believe the next farm bill will have a commodity title that continues an ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage).
Also a certainty: Farmers will have a chance to choose between ARC and PLC again. A stampede from ARC to PLC on corn and wheat is likely.
The Congressional Budget Office, which estimates the costs of farm programs to the government, expects a big change. In the federal fiscal year of 2018, about 93% of corn acres will still be locked in to the county-level ARC program under the old farm bill, CBO projects. The following year, it expects 82% to be in PLC. Wheat acres in PLC would almost double, from 42.5% currently to 82% in 2019.
The reference price that triggers PLC payments for corn is $3.70 a bushel, making PLC payments likely. The soybean reference price is $8.40, making a shift to PLC with beans less likely. In fact, CBO looks for about a 50/50 split between ARC and PLC on beans.
”That doesn’t tie Congress’ hands at all, but these are very informed people and those are the assumptions they’re making,” Ohio State University economist Carl Zulauf says of the CBO.
Since Congress is expected to retain ARC and PLC, farm groups say the 2018 farm bill must give producers their first chance since 2015 to switch programs.
“Farmers must be allowed to reelect and reenroll on a crop-by-crop basis,” said eight of the largest farm groups in a joint statement.
“We’re hearing a lot of pressure to raise some of the reference prices for PLC,” says the NFU’s Johnson. The Farm Bureau suggested a 5% increase.
The Corn Growers group says ARC “has worked as designed to provide producer sufficient protection against the risks of falling prices and significant crop losses.” But the revenue program has created plenty of turmoil due to the occasional wide county-to-county disparity in payments, which led to complaints of inequitable treatment of farmers near county lines. The Corn Growers group says payments should be based on the location of a farm, rather than yields in a farmer’s FSA “administrative county.” The Soybean Growers organization says “yield data from RMA should be used, where available, rather than the current policy of using NASS data.”
Both grower groups asked Congress to strengthen ARC to make it more attractive in a low-price era. “Adjusting the ARC benchmark revenue guarantee or lengthening the year span for the Olympic average price could improve the choice given producers between these two programs,” said Kevin Scott, of South Dakota, a Soybean Growers board member. ARC uses a five-year Olympic average. A longer time span could reach back to the high prices of the commodity boom.
The 2018 farm bill, like its 2014 predecessor, could allow growers to update their crop bases.
The top goal for farm groups is defending the current crop insurance program in the next farm bill. Already it’s under bombardment.
In late 2016, the nonpartisan Congressional Budget Office suggested cutting subsidies for farmers’ insurance premiums from the current 62% average to 40%, as well as lowering support for insurers. In May, President Donald Trump’s 2018 budget proposal offered different cuts: eliminating the popular harvest price option, limiting the premium subsidy to $40,000, and ending all premium subsidies to people with adjusted gross income above $500,000. Last summer, the Government Accountability Office (GAO) of Congress recommended that USDA negotiate a lower rate of return for crop insurers.
None of this has happened. The House and Senate Agriculture Committees that write the next farm bill will resist such changes, believes Roger Johnson, president of National Farmers Union. “I think there will be very strong support on both Agriculture Committees for crop insurance,” he says.
The risk comes when the bills are debated in the full House and Senate. “In both houses, almost certainly there will be amendments from the floor,” Johnson says. He worries that the recent GAO report will make it easier for members of Congress to vote for amendments that cut crop insurance.
Kansas State University economist Art Barnaby labored through the summer to show just how Trump budget cuts would hit crop insurance. Ending the harvest price option makes crop insurance less appealing in Corn Belt states, he says. The number of insured acres needed to bump against the $40,000 limit on premium subsidies isn’t that much. “When you’re going to hit the limit with 1,500 to 2,000 acres, that’s your commercial size farm,” he says. (Barnaby’s county-by-county estimate of acres needed to hit the limit is on AgManager.info. Click on the crop insurance page.)
Illinois is a state with some of the highest participation in crop insurance. Most of the time, including the first three years of the current farm bill from 2014 through 2016, farmers there paid more in premiums than they got in indemnities, says Adam Nielsen, director of national legislation and policy development for the Illinois Farm Bureau. The exception was the drought of 2012, when crop insurance paid more than $3.5 billion on crop losses. “Everybody still remembers 2012 quite vividly,” Nielsen says.
Barnaby says most of those 2012 payments in Illinois were made due to the harvest price option, which covered the rising prices of insured crops that suffered drought losses.
Nielsen agrees with Barnaby about the risks of changes sought by crop insurance critics.
“All of that has the potential to drive good black dirt out of the program and increase premiums for everybody else,” Nielsen says.
The insurance-like Margin Protection Program (MPP) for dairy farmers is one of the failures of the 2014 farm law, working so poorly that USDA is allowing producers to opt out of its final year.
MPP was intended to shield dairy farmers from low milk prices or high feed costs by making a payment when the spread between milk revenue and feed costs narrowed. “The way the program was enacted...does not meet the needs of America’s dairy farmers today,” said the National Milk Producers Federation. The feed-cost formula was weakened during farm bill negotiations as a cost-cutting measure, says NMPF. House Speaker John Boehner refused to allow supply controls in the farm bill.
“I guarantee if Congress alters the MPP so that it more accurately reflects the actual costs of production for businesses like mine, participation in the program will increase,” NMPF officer Ken Nobis said during a Senate Ag hearing. The 10% cut in the feed formula should be restored, he suggested. Some dairy-state lawmakers say a regional feed price formula would give a fairer result than the national formula now in use.
The dairy industry also would lower the premiums that producers must pay for higher levels of coverage. At the moment, dairy farmers almost uniformly buy catastrophic coverage, for $100 a year, because they believe buy-up coverage isn’t worth the price. A more generous feed-cost formula and lower premiums could be very costly to USDA.
Dairy and cotton (the other clunker of 2014) are the political odd couple for the new farm bill. Their producers have little in common, but both groups pursue potentially expensive revisions to USDA programs. Both have Senate backers who would use arcane budget rules to create more fiscal leeway for cotton and dairy in the farm bill without squeezing other commodities. As a practical matter, their fate in the farm bill may depend on the other’s success.
Aside from MPP, dairy groups are interested in expanding insurance coverage for producers. “We farmers want access to as many tools as possible,” said Noblis.
The farm bill has an Energy Title, which isn’t nearly as important to biofuels as a 2007 energy law that makes oil companies blend ethanol into gasoline.
But the Energy Title has helped the struggling cellulosic ethanol industry with programs like the Biomass Crop Assistance Program (BCAP), which pays farmers growing cellulosic crops up to $20 a ton for two years.
Scott Irwin, a University of Illinois economist who follows the ethanol industry, says, “I would not be surprised at all by a push to use more of our energy title funds to help the domestic ethanol industry.”
That could be a heavy lift.
The Rural Energy for America Program (REAP) was used by former Secretary of Agriculture Tom Vilsack to help rural co-op gas stations put in blender pumps to sell levels of ethanol above 10%. Then members of Congress from oil states killed that use of REAP funds. Vilsack found other monies from the commodity credit corporation to keep blender pump assistance going, says Monte Shaw, executive director of the Iowa Renewable Fuels Association.
This time around, “I am certain there will be an effort by some of the oil-state folks to put language in the farm bill that will not allow any money to be used for infrastructure,” Shaw says.
He’s right. Last July, Representative Andy Biggs (R-AZ) introduced the Farewell to Unnecessary Energy Lifelines (FUEL) Reform Act of 2017. It would repeal the entire Energy Title.
Farm Bill Funding Costs
Farm-state lawmakers, after a long-shot request last spring for additional money for the farm bill, may write the 2018 farm bill with no new funding. That would mean a tight squeeze for farm supports, given the desire to tweak ARC/PLC and to make the cotton and dairy programs more attractive to producers. “We are going to have to be judicious with scarce resources,” said Senate Agriculture Chairman Pat Roberts at a farm policy summit in Kansas. “We must ask tough questions and reexamine programs to determine their effectiveness.”
They may get some breathing room if Congress follows through on a Senate appropriations bill that would boost cotton and dairy programs this year. The bill would have the indirect effect of enlarging somewhat the farm bill baseline for those programs, which have low enrollment. The cotton and dairy industries have suggested revisions that could cost a combined $2 billion annually. The CBO estimates commodity supports will cost around $8 billion this year.
On the other hand, the House budget panel proposed $10 billion in cuts in USDA mandatory spending programs over the next decade. The cuts are aimed at food stamps, rather than commodities and would be fairly negligible for a farm bill that could total $900 billion for 10 years. They set a tone against farm bill increases, however.
The Senate and House Agriculture Committees “don’t really know the figure at which they have to operate at this point,” says economist Vince Smith of Montana State University. The budget and appropriations tussles could persist for months. The GOP goal of overhauling the tax code, to to provide tax cuts, could affect the farm bill fund, too.
In setting crop insurance and commodity programs as their top priorities for the farm bill, ag groups said additional funding was needed “to address the significant reductions in farm prices and income incurred since 2013.”
While the Farm Belt debates details of the safety net, for most lawmakers the farm bill is a much broader piece of legislation, including international food aid, ag research and food stamps, the largest U.S. public nutrition program, and accounting for three quarters of the pricetag for the farm bill. The Democratic leader on the House Agriculture Committee, Collin Peterson of Minnesota, says food stamps may be the biggest hurdle to passage of the bill because fiscal conservatives want cuts of at least $10 billion – and possibly much more – in the program.
“Singling out (food stamps) will kill the farm bill,” warned Peterson. The House defeated a farm bill for the first time in June 2013 when Tea Party-influenced conservatives demanded the largest cuts – $40 billion – in food stamps in a generation. It took months for Congress to stitch the pieces together for what became the 2014 farm law, enacted 16 months after the 2008 law expired.
To succeed in Congress, farm bills need the support of farm groups, conservationists, and the antihunger community to persuade urban and rural lawmakers to vote for it. Conservative think tanks such as the Heritage Foundation are in league with some environmental groups to roll back farm supports in the name of deficit reduction and government efficiency.
The House and Senate Agriculture Committee leaders, Representatives Michael Conaway of Texas and Pat Roberts of Kansas, say their goal is passage by year’s end in each chamber of a farm bill, if possible.
"Even if action slips into early 2018, it will “give us the time...to make those hard, difficult decisions we will have to make to get this thing done on time,” said Conaway. Once the House and Senate pass their versions of the farm bill, a bicameral committee of negotiators will draft a final, compromise bill. “I am driven to get it done, renewed, before (the 2014 law) expires” next September 30, says Conaway.
Congress has not passed a farm bill on time since 1990, resorting to short-term, often-repeated extensions to prevent the underlying 1949 agriculture law from coming into play, with its unrealistically high support prices and production controls.
“I’m always pessimistic about farm bills,” said Iowa Senator Charles Grassley, because Congress has lots of issues demanding attention and limited time to act on them. Asked if the 2018 farm bill will be delivered on time, he replied, “The more time farmers have to prepare for 2019 crops, the better.”
Steve Johnson, an Extension farm management specialist with Iowa State University, is among the skeptics about fast passage of a farm bill. He looks for it after the 2018 elections.
“I think the midterm elections and the budget are headwinds at 30 mph,” he says.
Chuck Abbott, Dan Looker, and Mike McGinnis contributed to this article.