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Are the funds for ag and ethanol drying up?

On Tuesday of this week the House Agriculture Appropriations subcommittee approved a 2012 spending bill for agriculture with discretionary spending that would be 26% lower than in 2010, if the bill becomes law.

The $17.25 billion in spending doesn’t affect the much larger spending on mandatory programs for commodities and nutrition, which will be slightly larger than the current, 2011 fiscal year, at $108 billion. And this is just the first step on months of highly partisan, contentious negotiating which will come to a head before August. That's when the federal debt ceiling is hit, long before the House and Senate are expected to have final appropriations bills settled.

“The fiscal situation confronting our nation is of immediate importance, and hard choices simply can no longer be put off onto our children in the name of political expediency,” the Appropriations Committee Chairman, Hal Rogers (R-KY) said Tuesday.

Yet this first step makes some farm group leaders nervous as Congress gets ready to write a farm bill next year that will also be leaner than in recent memory.

Some of the biggest cuts will be to research and rural development, says Roger Johnson, president of National Farmers Union.

“We would argue this is sort of like eating your seed corn,” Johnson told Friday.

Farmers are expected to keep beating trendline yields to feed the world and grow fuel, he said, yet the House bill, which comes up for a vote before the full appropriations committee next Tuesday, will cut agricultural research spending by $580 million from 2010.

And it cuts rural development by almost a third—29.7%.  Rural development programs include the USDA’s Rural Energy for America Program, which the agency plans to use for grants and loans to install 10,000 blender pumps in the next five years. Tuesday’s vote would eliminate the program.

“The economic power is largely with the oil companies right now,” Johnson said.  

Ultimately, the Senate will have to pass its own appropriation bill after the House completes is, Johnson said. He expects the Senate to be more supportive of biofuels and to make smaller cuts to ag programs.

Johnson said he expects the House to ultimately cut all incentives for renewable energy, to allow the tax credit for ethanol to expire, and to refuse to cut tax breaks for oil companies.

Even with support for biofuels stronger in the Senate, “there is a better than even chance that will be the end result when the year is done,” Johnson said.

The House might pass its full appropriations bill sometime this summer, Johnson says, but the Senate will be much slower and their may be no agreement before the 2012 fiscal year starts in October.

That means that leaders from both the House and Senate who are now negotiating budget cuts with Vice President Joe Biden, will make decisions affecting farm programs and biofuels, Johnson said.

“This [spending] bill clearly is not going to become law before the debt ceiling has to be resolved,” Johnson said.

And there will be pressure to make cuts to farm programs in those negotiations, Johnson said, especially with the public perception that agriculture is prosperous. Newspaper editorials, including those in The New York Times and The Wall Street Journal are calling for cutting farm programs and ethanol subsidies.

All this puts pressure on members of Congress trying to write a farm bill, he added. The Senate is more likely to write a bill first, with the House waiting to start next year.

Already, farm state members of the Senate Agriculture Committee are trying to prevent deep cuts in ag spending before the 2012 Farm Bill is written.

Earlier this week, Senator Chuck Grassley (R-IA) said he’s worried about the Biden-led negotiations.

“I heard through the grapevine that 17% of the cuts (being negotiated) were going to come from agriculture,” Grassley told reporters Tuesday. “My personal view, if it’s true, is that it’s extraordinarily unfair.”

Grassley was pleased that Democrats on the Senate Ag Committee had signed a May 19 letter to President Barack Obama expressing “our serious concerns that the ongoing budget negotiations impose imprudent cuts at the expense of the real needs of rural America...”

Senator Tom Harkin, one of the Democrats on the committee, who signed the letter, told that the group isn’t opposed to making any cuts to agriculture but they want them made carefully.

Harkin said one target may be the $5 billion a year spend on direct payments.

“I think the direct payment program will be shifted somewhat,” he said, with part of the saving used to reduce the federal deficit and part to keep other ag programs going.

Senator Tim Johnson (D-SD), who isn’t on the ag committee but serves on the appropriations committee, said this week that he favors capping farm program payments to target them to family-size farms.  Grassley shares that goal.

Direct Payments are also getting a hard looks from some farm groups, including the Ohio Corn and Wheat Growers Association.

Dwayne Siekman, the group’s CEO, said his members “feel direct payments is not a tool to give the safety net they’re looking for.”

“I think really the weather we’ve been facing in Ohio this spring is almost a perfect example of what we’re hoping to get into the safety net as stronger crop insurance and revenue protection through a program like ACRE,” he said, referring to the new average crop revenue election program.

The group has is also working with Ohio State University ag economist Carl Zulauf, one of the original designers of ACRE, to come up with a better program, Siekman said.

His members are also concerned about the federal deficit, he said.

“If part of that goes to deficit reduction, we’re hearing from farmers in Ohio, that’s something they’re willing to do,” Siekman said.

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