1. Legislative Outlook—Budget, WTO, & U.S. Farm Policy Presented by Chip Conley Democratic Economist House Agriculture Committee

2. Budget Outlook Budget situation and outlook has determined outlook for farm policy. Federal deficits from 1981 to 1995 have led to cuts in agriculture spending in deficit reduction legislation.

3. Budget Outlook Federal surpluses in 1998 through 2001 have provided funding for emergency market loss and crop loss assistance and the Agricultural Risk Protection Act. 2001 projected 10-year federal surplus of $5.6 trillion provided $79 billion additional funding to write 2002 Farm Bill, along with $1.3 trillion tax cut.

4. Congressional Budget Process Annual multi-year budget plan: Current year’s revenue and outlays under current law. Projections of current law revenue and outlays over 5-10 years—the CBO Baseline. Changes to revenue and spending requiring changes in law. Together become The Budget Resolution. Developed by Budget Committees, passed by both Houses.

5. Congressional Budget Process Projected revenues, outlays and changes are allocated to committees. Discretionary to Appropriations Committees. Mandatory to Authorizing Committees. Changes can increase Committee spending (2002 Farm Bill), Or enforce reduced spending— Reconciliation Process.

6. Budget Reconciliation Sharing the Pain of Cutting Federal Spending on Mandatory Programs to Reduce the Deficit. Mandatory Programs for Agriculture: Cut $173M in 2006, $3B over 2006-10. Mandatory Programs for Agriculture: Cut $173M in 2006, $3B over 2006-10. Under the jurisdiction of the House Ag CommitteeUnder the jurisdiction of the House Ag Committee Typically multi-year programs such as under the farm billTypically multi-year programs such as under the farm bill Food stamps, commodity program, and conservation program funding are major mandatory spending categories.Food stamps, commodity program, and conservation program funding are major mandatory spending categories.

7. Budget Reconciliation in Practice: What Changes Count as Savings? Budget Reconciliation in Practice: What Changes Count as Savings? n For commodity programs, underlying parameters need to be changed to achieve savings (e.g. target prices, loan rates.) Remember offsetting interactions between variables. For commodity programs, underlying parameters need to be changed to achieve savings (e.g. target prices, loan rates.) Remember offsetting interactions between variables. For some conservations programs, savings are achieved by cutting funding levels. For some conservations programs, savings are achieved by cutting funding levels. Only legislated changes count. No credit is given for lower-than- expected costs from changes in market conditions or USDA implementation decisions different than expected. Only legislated changes count. No credit is given for lower-than- expected costs from changes in market conditions or USDA implementation decisions different than expected. Cuts must be prospective—e.g., fewer future contracts. Current signed long-term contracts cannot be cancelled to get savings. Cuts must be prospective—e.g., fewer future contracts. Current signed long-term contracts cannot be cancelled to get savings. CBO generally does not score savings for enforcement activities. CBO generally does not score savings for enforcement activities.

8. CBO’s March, 2005 Baseline Shows $300 Billion in the 5-Year Costs of House Ag Committee Mandatory Spending Programs ($60 Billion Annual Average). Food Stamps Are 53% of the Total.

9. Costs of Programs for Different Commodities Vary Depending on a Variety of Factors. (CBO March 2005 Baseline)

10. Projected Surplus/Deficit(-) CBO March 2005 Baseline

11. 2006 Congressional Budget Resolution, $ Billion Fiscal Year 20062006-15 Tax Cuts -18-106 Entitlement Cuts 130 Iraq Supp 2005 & 2006 -62-99 Net Discretionary Change -244 Additional Debt Service -3-36 Total-84-167

12. Projected Surplus/Deficit(-) Resulting Deficit w/CBR

13. Budget Outlook, $ Billion Fiscal Year 20062006-15 CBO 2005 March Baseline March Baseline-298-980 Cong. Budget Resolution 2006-10 Resolution 2006-10-84-167 Extend CBR 2011-15 0-1,519 Resulting Deficit -383-2,666

14. Projected Surplus/Deficit(-) Resulting Deficit w/ CBR Extended

15. Expected Additions to Deficit Omitted Items, $ Billion Fiscal Year 20062006-15 Further Cost of Iraq War -18-334 AMT Repair 0-612 Additional Debt Service -0-224 Resulting Deficit -401-3,827

16. Magnitude of Future Deficit Reduction, $ Billion Fiscal Year 200420052004-13 Resulting Deficit -412-398-3,776 House-passed Budget 2003 -324-230-1,021 Reconciliation-88-168-2,775

17. Comparison to 2004 House Budget $ Billion Fiscal Year 20042004-13 Reconciliation-88-2,775 House-passed Reconciliation ‘03 -7-259 Multiple of House-passed 1311

18. Comparison to 2004 Budget Reduction for Ag, $ Billion Fiscal Year 20042004-13 House-passed Ag Reconciliation ‘03 -0.6-18.6 Agriculture’s share of Reconciliation 9%7% Future Agriculture Reconciliation -8-193

19. Projected Surplus/Deficit(-) Resulting Deficit w/Omitted Items

20. Policy Implications How to reduce farm program spending. WTO compliance by category (Amber, Blue, Green boxes). Fruit and vegetables, specialty crops, planting prohibition.

21. Policy Implications: How to Reduce Ag Spending Farm Commodity Programs are now direct payment programs. Few efficiencies to be gained as in 1990 Flex Acres 15% reduction in deficiency payments. Reductions likely to be in commodity (A/B/G), conservation direct payments (Green), crop insurance premium subsidies (de minimis).

22. CCC Outlays by Payment Type

23. Policy Implications: WTO Dimension Policymakers must consider trade negotiation proposals in deficit reduction. Previous US proposal to reduce AMS to 5% of value of Ag production implied Amber Box limit of $9.5B, 50% less than $19.1B. Current “Substantial Reduction” is suggested to mean 40-50% reduction. Amount TBN. Dairy and sugar pose major challenge: small budget impact, significant AMS impact.

24. Commodity Program Costs 1999-01 Avg

25. Meeting WTO Agreement Dairy and Sugar must be considered in AMS reduction, if not budget reduction. These are not just Market Access issues. Cutting AMS will have disproportionate impact on farm income vs. budget cuts. How reductions are made has broad policy implications.

26. Specialty Crop Issues WTO panel ruled Direct Payments may not be Green Box because of fruit and vegetable planting prohibition. Specialty crop interests seek CCC funds in Ose-Dooley bill, mostly Green box. Likely accommodation in next farm bill. Shifting funds from program crops to specialty crops while reducing overall spending.

27. Budget Reconciliation Instructions Have Been Frequent In 17 of the 25 years since 1980, budget resolutions have included reconciliation instructions to reduce spending, increase taxes, increase spending or reduce taxes. In 17 of the 25 years since 1980, budget resolutions have included reconciliation instructions to reduce spending, increase taxes, increase spending or reduce taxes. 1995: most recent year that agriculture was instructed to cut spending (reconciliation bill was vetoed). Other years with reconciliation instructions for agriculture: 1993, 1990, 1989, 1987, 1985, 1983, 1981. 2003 and 2004 House versions of the Budget Resolution included reconciliation cuts for agriculture but cuts were dropped in conference. 2003 and 2004 House versions of the Budget Resolution included reconciliation cuts for agriculture but cuts were dropped in conference.

28. Summing Up Deficit reduction pressure will likely continue for several years, continued cuts in agriculture programs, similar to 1981 to 1995. Policymakers must be mindful of how cuts are effected to reflect current WTO commitments and how a new agreement may reduce domestic supports, perhaps 40-50%.

29. Summing Up Price support levels (Amber) likely to be cut the most, CCP’s (Blue) some, Direct payments (Green) less. Dairy and sugar programs will need to be addressed carefully. Specialty crops and planting prohibitions will likely need to be addressed.