Dr. Jody Campiche Assistant Professor & Extension Economist Agricultural Policy Oklahoma State University November 4, 2011 Larry D. Sanders Jim Novak

“Ag policy has a very, very, long history. Current ag policy is driven by budget and politics. Reality and economic facts matter, but only in as far as it affects those who have political influence and can gain from reality and/or economics.” J.L. Novak, Auburn University

 Background  Realities  Budget Developments  Budget Control Act of 2011  Farm Bill Negotiations  Conclusions

Background

Collin Peterson (D-MN) Ranking Member Frank Lucas (R-OK) Chairman

Does not include: school lunch and other child nutrition (Senate Agriculture Committee has jurisdiction) taxes (including ethanol-related tax credits) trade law climate change (or other environmental programs)

Realities

New Membership House Committee On Agriculture 112th Congress Northern Mariana Islands Source: Congressional Research Service

Agriculture Program Audit Hearings: June – Sept 2011  Crop Insurance  Specialty Crops  Conservation  Foreign Ag and Food Aid  Farm Loans  Energy and Forestry  Nutrition  Commodity Programs and SURE  USDA Research Programs  USDA Dairy Programs  USDA Rural Development Programs

Budget Gross Federal Debt E Source: OMB In Millions of Dollars

Agriculture & Nutrition Outlays

Agriculture’s Share (Non-Nutrition)

Budget Developments

Deficit Reduction Proposals Budget…  Debt Commission  House Budget  Biden Group  Gang of Six  McConnell Proposal

 Simpson-Bowles President’s Deficit Commission (12/1/10) Reduces deficits by $3.9 trillion over 9 years $15 billion in cuts to mandatory ag programs with $10 billion to deficit reduction and $5 billion directed to extend the ag disaster relief fund  President Obama’s framework deficit reduction (4/13/11) Framework for $4 trillion in deficit reduction over 12 years Mentions cuts in mandatory program ag subsidies, but not specific programs or amounts  President’s 2012 Budget (CBO score released on 4/15/11) Increases deficits by $2.8 trillion over 10 years Cuts $2.5 billion in payments to “wealthy farmers”

 House (Ryan Budget) passed budget (4/15/11) Reduces deficits by $1.6 trillion over 10 years $48 billion in cuts to mandatory ag programs, with $12 billion from commodity programs, $18 billion from crop insurance, and $18 billion from conservation programs  RSC Budget Proposal (4/20/11) Reduces mandatory spending by $1.9 trillion over 10 years Eliminates direct payments, reduces premium subsidy for crop insurance, no new enrollment in CSP and CRP, eliminate MAP, and Wool and Mohair program

 House Democrat budget (5/25/11) Reduces the deficit by $1.2 trillion more than the President’s budget $20 billion in cuts to mandatory ag programs  Biden Group (6/2011) Farm subsidies mentioned frequently as target for cuts ranging from $34 to $45 billion Direct Payments and Crop Insurance will absorb most of the cuts  “Gang of Six” (7/2011) Reduce deficits up to $4 trillion over 10 years $11 billion in cuts to mandatory agriculture programs No additional dollars directed to extend SURE Ag committees to determine $11 billion in cuts Protects SNAP

 Senator Conrad’s budget (7/20/11) Reduces deficits by $4 trillion over 10 years. $11 billion in cuts to mandatory agriculture programs. Agriculture committees to determine $11 billion in cuts during Farm Bill.  Reid Plan (7/2011) Reduces deficits by $2.7 trillion over 10 years. $11 billion in cuts to mandatory agriculture programs by reducing the payment rate from 85% of base acres to 59% of base acres.

Budget Control Act of 2011

 Passed House on August 1, 2011 and became Public Law on August 2, 2011  Authorized increases in the debt limit of at least $2.1 trillion dollars  Established caps on the amount of money that could be spent through the annual appropriations process for the next 10 years  CBO estimates will reduce federal spending by $917 billion

 Created a Joint Select Committee on Deficit Reduction (i.e. the ‘Super Committee’)  Develop a bill to reduce the federal deficit by at least another $1.5 trillion over the 10 year period ending in FY2021  If the super committee proposal is not enacted by January 15, 2012, the BCA established an automatic spending reduction process that includes sequestration  Across-the-board spending cuts are applied to government programs in order to meet a budgetary goal  About 200 programs are exempt from sequestration  House and Senate must vote on a balanced budget amendment

Republicans House Camp (Michigan) Hensarling (Texas) Upton (Michigan) Senate Toomey (Pennsylvania) Kyl (Arizona) Portman (Ohio)

Democrats House Clyburn (South Carolina) Becerra (California) Van Hollen (Maryland) Senate Murray (Washington) Kerry (Massachusetts) Baucus (Montana)

1 Nov Self-imposed, late deadline for farm bill cut details from SAC & HAC 21 Nov Deadline for CBO to provide SC with scoring for all proposals 23 Nov Deadline for SC to provide Congress with package for cuts 23 Dec Deadline for Congress to vote on SC package 2 Jan Deadline for congress to vote on SC package

Farm Bill Negotiations

Farm Bill Process  Traditional process:  DC hearings, field hearings, move legislation in 2012  Not currently happening  Current Reality:  Expedited process under the context of the Budget Control Act of 2011  Changed the traditional approach to the farm bill  No time for problem framing, debate, or public input

Obama proposes $33 billion in cuts to farm programs Sen. Conrad (D-NE) Reform DCP, ACRE & disaster aid National Corn Growers ADAP to replace ACRE, CCP, and Direct Payments Brown-Thune-Lugar-Durbin ARRM to replace ACRE, DCP, and SURE

National Cotton Growers STAX NFU Farmer Owned Reserve Peterson-Simpson Bipartisan Dairy bill Lugar Farming Flexibility Act

National Sustainable Ag Coalition preserve conservation and hunger programs, proportional cuts in farm programs, ending direct payments Organic producers increase mandatory spending for organics, including research & data collection Rural development proponents preserve/strengthen rural programs American Farmland Trust Strategic conservation initiatives, consolidate conservation programs, subsidies only for a loss

Farm Bill Process – Main Ideas  Direct Payments repeatedly offered up for reductions Most WTO compliant and have a differential impact by crop, region, and generation Integrated with other program components simply eliminating Direct Payments has significant drawbacks, but they are likely gone…

Farm Bill Process – Main Ideas  With extreme drought and flooding, crop insurance is as important as ever  ACRE is too complicated  The Supplemental Revenue Assistance Payments (SURE) Program, along with 36 other programs, does not have baseline going forward  SURE likely gone

Shallow Loss Revenue Program Recognize diversity in operations across the state Different buy up levels of crop insurance Different risk profiles for different crops Issues with the loss threshold Corn and soybeans have more shallow losses This can trigger payments often on many acres Eats up the baseline Can’t design one program to benefit everyone

AGI limits are a major issue Cotton payment program is also a major issue Hesitant to have a separate program for cotton, but it is being considered… STAX is still on the table May not solve WTO issues Payments from this program are mostly from RMA Get around payment limits and AGI threshold Programs for other crops are subject to this

Crop Insurance seems to be safe for now Other disaster programs (LFP, LIP, etc…) will probably be continued to the drought issue Conservation will see reductions Fighting to protect EQIP Reductions in CSP Reductions in CRP (lower acreage cap) Nutrition will be cut but will not really take as much of a hit as commodity programs…

Main Goal of Chairman Lucas for the 2012 Farm Bill  Wants producers to have a choice to best address their risk needs  Currently working on a package but many details need to be worked out…

Options 1) Revenue Guarantee Program (modification of ACRE ) 2) Counter-Cyclical Program coupled with a shallow loss program Increase current target prices near the cost of production Option to purchase additional area based deductible coverage (similar to GRIP) 3) Possibly a cotton program Producers would be able to enroll by crop (instead of by farm)

Started with 2009 crop year Based on state and farm revenue shortfall using national average marketing year price If both are not triggered the producer will not get paid Producers enrolling in ACRE receive: No CCP payments Direct payments reduced by 20% Marketing loans reduced by 30%

 Payment made on planted acres (up the # of base acres)  Producer may not get a payment even if state eligible  State ACRE payment guarantee can’t increase/decrease by more than 10% from previous year

Conclusions

 2012 Farm bill is coming together  Risk management is a key priority  Still have many details to work out…

Jody Campiche Assistant Professor & Extension Economist Ag Policy 528 Ag Hall Stillwater, OK

Expecting a significant reduction in direct payments and possibly CCP payments New revenue based insurance program to replace payment-based farm bill provisions Area-wide revenue product delivered through crop insurance Protect against shallow losses Ride on top of existing crop insurance Modified marketing loan to satisfy Brazil WTO case