LARRY D. SANDERS OCES INSERVICE CENTRA PRESENTATION 27 APR 2011 Political Change & the Next Farm Bill

2 Source: US Bureau of Economic Analysis, 2009 ( US Budget Surplus/Deficit ($bil.) ? Now above 90%

111 th Congress 112 th Congress Senate  57 D  2 I  41 R House  255 D  148 R Senate  51 D  2 I  47 R House  193 D  242 R 3 Congressional Shuffle of Power…

Key Leadership Changes in House 4 Speaker: Boehner (OH) Agriculture: Lucas (OK) Approp.: Rogers (KY) + Flake (AZ)* Energy: Upton (MI) Finance: Bachus (AL) Budget: Ryan (WI) Rules: Dreier (CA) Oversight/Govt Reform: Issa (CA) Judiciary: Smith (TX) Ways/Means: Camp (MI)

2010 Midterm shuffle means changes for Ag Committees… 2009 – Senate 12 D / 9 R 11 D / 10 R Lincoln (D-AR) Chambliss (R-GA) Stabenow, D-MI Roberts (R-KSHouse 28 D / 18 R26 R / 20 D Peterson (D-MN) Lucas (R-OK) Lucas (R-OK) Peterson (D-MN) 5

6 So, are you ready for a less rural Congress?

7 Much of farm country is losing population; Thus, representation.

For example… Senate Agriculture Committee  11 D, 10 R  6 farmers*/ranchers House Agriculture Committee  26 R, 20 D  14 farmers*, 2 agribusiness House Appropriations Agriculture Subcommittee  7 R, 4 D  3 farmers/ranchers*, 1 agribusiness * self-identified 8

112 th Congress: House 3 2 2/1 1/ th Congress: House / /2 = D = R = Both Chair C C C Note: ½ = 1 D and 2 R; 2/1 = 2 D and 1 R; Single Number indicates # on Committee from the state. No number indicates 1 R or 1 D 111 th Congress: Senate 1/1 112 th Congress” Senate C

Budget Issues - States That Get More in Fed Subsidies Than Pay in Federal Taxes off.html 10

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Map: _congress/index.html 3: Lucas $3.37 bil. (wheat) 1: Sullivan $34.7 mil. (wheat) 2: Boren $310 mil. (dis.) 4: Cole $615 mil. (wheat) 5: Fallin/ Lankford $29.5 mil. (wheat) Farm Subsidies: OK: $5.01 bil. (wheat) Data: EWG/USDA 12

Senate Ag Committee House Ag Committee Dems/Repubs want to protect funding, but at odds w/full Senate Chair Stabenow favors specialty crops & food programs Ranking Member Roberts favors commodity programs Chair wants to move “at own pace” 2012? Later? Dems/Repubs want to protect funding, but at odds w/full House Chair Lucas & Ranking Member Peterson favor commodity & risk management programs Chair wants economy & budget to improve first, but hopes for 2012 farm bill 13 Farm bill debate begins to take shape

Lucas frames the farm bill issues… Mar 2011 letter to Ryan “Promote policies & risk management tools that will keep American agriculture & rural communities strong & our citizens healthy & safe” Budget reductions of past 7 yrs should count  SRA adjustment $6 b. or greater to baseline  Mandatory spending cuts $7.5 b.  Actual spending declined 28% SNAP a better target for cuts Don’t assume high farm prices are here to stay Timeline:  2011: regulation oversight; prep for 2012 farm bill (hearings & policy inventory  2012: writing the bill (assuming economy & budget improved)

House Ag Committee Dems Rap House GOP 2012 Budget Apr 2011 House votes in favor of Ryan budget $ b. in ag program cuts over 10 yrs  $127 b. cut in food stamp/nutrition programs  $30 b. cut in commodity programs  $20 b. cut in other ag programs Senate unlikely to support; but could become rule for House budget actions 23% cut for ag; 14% cut for other programs “2012 House Budget Resolution is a non-starter”  “nearly impossible to write 2012 farm bill”

House Ag Cmte spending over 10 yrs (& % of all Fed spending) … Total: $924 b. (2.15%) Nutrition: $624 b. (1.62%) Crop ins: $83 b. (0.19%) Conservation: $65 b. (0.15%) Commodity: $64 b. (0.15%) Other: $17 b. (0.04%) Note: Craig Jagger, Chief Economist, House Ag Committee 16

Stabenow frames issues on Senate side… 17 “proceed on its own schedule…”; “the toughest fb to write since the first one…”; more experience than House Hearings already in process Re-examine direct payments Expand crop insurance to cover more crops Continue sugar program Continue specialty crops program (research, marketing, state block grants) Support bio-fuels but may be changed Supports coop extension Congress should consider cuts/reductions made over past several yrs

Farm Bill Issues ( ) 18 Derivative supportAgency Budget Cuts Commodity vs. Other ($9 b.?) Federal Budget Deficit & Debt EPA Challenged SURE gone? DP gone? Disaster Assistance? Immigrant labor Protection? Renewable Energy Environment for production Cotton Case International Food Aid gone? Land-grant funding “Farm “ Bill, or “Food” Bill Livestock Relief ? World Food Prices

FARM PROGRAMS AND THE BUDGET: “small” as compared to …

FARM PROGRAMS AND THE BUDGET: “big” as compared to … * * Commodity, Crop Insurance & Conservation

The next farm bill… ? 2013? 2. There will be cuts to programs 3. There will be reform of programs 4. DP, ACRE, CRP, RD at risk 5. Contentious: SNAP, specialty crops, disaster aid 21

ERS Report Nutrition now closer to 74% because of ARRA

Net Farm Income & Direct Government Payments ( f) 23 $ Billion FSRIA 2002 $94.7 b. $10.6 b. $84.1 b. FCEA 2008

US Crop Subsidies

25 the-day-un-food-price-index

Options for the next Farm Bill (odds vary) Status Quo: (not likely) Phase out (not likely) Enhance all/most programs (not likely) Risk Management Reform: shift $ to alt. focus; net change less $ (possible) No reform: Reduce existing programs w/some enhanced; net change less $ (possible) 26

THE ACRE/DCP DEBATE Why was sign-up for ACRE so low in ?  Too complicated? Didn’t “breakeven”?  Landowners? Other? What is the purpose of farm programs?  Income distribution?  Risk management? Oklahoma payments:  ACRE:$95 mil.  SURE:$4.97 mil.  DP:$128 to $131 mil.  CCP:$$13.76 mil.

“Low” yield“High” yield “Low” price Advantage: ACRE 1. Entire DP, but no CCP until MP < TP - DP 2. ACRE payment possible if MP > TP or MP < TP. 3. No yield risk protection for DCP, but possibly for ACRE Advantage: ACRE 1. Entire DP, but no CCP until MP < TP - DP 2. ACRE payment possible if MP > TP or MP < TP. “High” price Advantage: Leans ACRE 1. Entire DP, but no CCP 2. No yield risk protection for DCP, but possibly for ACRE 3. DP loss likely < ACRE Advantage: DCP 1. No ACRE Payment 2. No CCP 3. Entire DP

OTHER THOUGHTS ABOUT THE ACRE/DCP DEBATE The “lumpy payments” problem  If ACRE is a risk management tool, do payment limits defeat its effectiveness for risk management? The budget cost/risk protection tradeoff  Lower level trigger means higher budget cost The “luxury of choice” problem  Was ACRE too much to explain to landlords? 29

Is a farm safety net necessary & affordable? 30 Do externalities exist? How do we consider moral hazard? How are priorities for public spending determined? Do we manage to protect number of farms, production capacity, farm income, rural economic health, or natural resource protection?

Thanks for your attention! Larry D. Sanders u u Now, finally a computer error message I can understand 31