House Hearing on Commodity and Disaster Programs
July 28th, 2011
On Wednesday, July 27, the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management held an audit hearing to examine commodity and farm safety net programs, including crop insurance and disaster assistance. This was the eighth hearing on farm bill programs that the Committee has convened this year.
Bruce Nelson, Administrator of the Farm Service Agency (FSA) and Juan Garcia, Acting Deputy Administrator for Farm Programs at FSA, testified before the Committee.
Full Committee Chairman Frank Lucas (R-OK) provided opening remarks for the hearing. Lucas emphasized the role that commodity and farm safety net programs play in mitigating the many risks farmers encounter in the form of price swings, severe weather patterns, and other factors beyond their control.
Indeed, the majority of American farmers with cropland on their farms receive some sort of benefits through federal commodity programs according to testimony from Nelson and Garcia. Of the approximately 272 million acres of base cropland in the U.S., 220 million acres are enrolled in the direct payments program. In addition, 35 million are also enrolled in the Average Crop Revenue Election (ACRE) insurance program, leaving only 14 million acres not receiving some form of direct or insurance payment.
In light of the current fiscal crisis, attempts to cut direct payments have come closer to fruition than ever before. It is no wonder then that Subcommittee Chairman Conaway (R-TX) and Ranking Member Leonard Boswell (D-IA) were adamant in their defense of the effectiveness of commodity payment programs to the agricultural industry.
With respect to disaster programs, Garcia said that $3 billion of assistance has been issued to 200,000 farmers in the form of disaster assistance since the authorization of a permanent disaster program in the 2008 Farm Bill. These programs have experienced significant outlays as a result of recent natural disasters across the U.S. Funding for these programs will expire in September 2011, which could present serious consequences for farmers if severe weather events persist in various parts of the country past the end of the current fiscal year.
Garcia noted that one of the biggest issues with the Supplemental Revenue Assistance Payments (SURE) program is the time it takes for farmers to receive payments. In many cases, farmers have waited an entire year to receive a check from FSA. Even with that impediment and other timing and fairness issues that have swirled around the permanent disaster program, renewal of the program has been estimated to cost $18 billion over a ten year period by the Congressional Budget Office. Given the current fiscal climate, that size of program is very unlikely to be obtainable. As a result, work has been going on behind the scenes to develop a cheaper program that might stand a better chance of renewal.
The Need to Streamline Programs
Members of the Subcommittee and FSA representatives recognized the need to reform commodity, crop and revenue insurance, and disaster programs so they are more effective and less costly. In particular, Nelson noted that FSA is working on a number of key improvements including: reducing the number of improper payments made by FSA, reducing the frequency of crop reporting by farmers, improving outdated information technology systems, and modernizing programs overall. Important those types of program efficiencies may be, however, they will not save large sums of money in the context of farm bill funding deliberations.
During the question and answer period, Juan Garcia stated that FSA is also addressing the paperwork burden farmers face as a result of the Adjusted Gross Income (AGI) test set forth in the 2008 Farm Bill. Farmers who receive direct payments must now at times submit tax returns to the FSA in order to prove that their adjusted gross income is below the newly established AGI limit of $500,000 (or, in many instances, $1 million for a married couple). However, FSA is collaborating with the Internal Revenue Service (IRS) to create a data-share program that will allow verification of a farmer’s adjusted gross income via forms already submitted to the IRS. Garcia noted that this effort will also reduce the number of improper payments made to farmers who are above the AGI limit.
To date, FSA does not know how many farmers have been flagged by the IRS who have incomes above the AGI limit. Garcia noted that many farmers have improperly filled out or have yet to fill out the IRS forms, which has slowed down the new process.
Representative Austin Scott (R-GA) said that the AGI limit makes little economic sense because a farmer’s income does not always equal profit, especially when income is continuously reinvested in farm operations. NSAC’s position on AGI and other payment limitations notes a similar problem. AGI limits on commodity program eligibility can be manipulated by dividing income between spouses and among corporate entities and creates an incentive to expand farming operations by purchasing more land and bigger equipment in order to reduce adjusted gross income. NSAC strong preference is not to make certain farmers ineligible for any benefits, but to enact stronger per farm payment limits and limit payments to those individuals who are “actively engaged” in a farming operation. A bill to do just that has been introduced by Senators Chuck Grassley (R-IA) and Tim Johnson (D-SD) and was summarized in an earlier post.
Impact of Direct Payment Cuts to Conservation
Representative Reid Ribble (R-WI) asked Nelson and Garcia about the impact that cuts to direct payments would have on conservation compliance. Nelson responded that farmers who receive direct payments and who are farming on Highly Erodible Land must implement conservation practices on their land. Complete elimination of direct payments could reduce the number of farms subject to conservation compliance, though only if the farm program participant opted out of all commodity program coverage of any kind, and also did not participate in USDA credit or conservation programs. With the number of farmers served by crop and revenue insurance programs having risen so much and the cost of the subsidies for these programs now exceeding the cost of commodity programs, a key issue for the 2012 Farm Bill is the potential re-attachment of conservation compliance requirements on this growing form of production subsidies.
Planting Flexibility Provision
Ribble also asked about enrollment in the Planting Flexibility Pilot Program, which allows farmers in particular Midwest states to plant fruits and vegetables for the processing industry on their base acreage without forfeiting their right to future direct payments if they were to revert to growing commodities. Nelson reported that 75,000 acres and 150 farms are currently participating in the program. He also noted that there has been little impact on the produce industry as a result of the program.
You can read the testimony of Nelson, and see audio/video of the hearing on the House Agriculture Committee website.