May 26, 2012
On April 26, the Senate Agriculture Committee approved its version of the the 2012 Farm Bill, the Agriculture Reform, Food, and Jobs Act of 2012, by a vote of 16-5. Exactly four weeks later, on May 24, the Committee actually reported the text of the bill.
It is normal for there to be a lag time between Committee action and actually reporting of the bill, as in most instances there are revisions to be added based on amendments approved in markup as well as technical corrections to be made to the text to get everything in proper order. That process might normally take about a week or ten days. However, in this instance an entire month went by not due to the normal reasons alone, but also because of a behind-the-scenes controversy that took place between the Committee and the official congressional budget scorekeepers, the Congressional Budget Office (CBO).
The Committee believed at the time the measure was voted on that the bill cost about $970 billion over the coming decade, or slightly more than $23 billion less than what would be the case if current laws were simply extended without any changes. The $23 billion savings was critical to passage of the bill, as it was the savings aimed for with respect to the 2012 Farm Bill going back to last year’s ill-fated attempt to do the farm bill a year early as part of the congressional deficit reduction Super Committee process.
Suddenly, after approving the bill thinking that $23 billion in savings over a 10-year period had been achieved, recalculations by CBO put that outcome in doubt. Several provisions and/or scoring assumptions in the commodity and crop insurance titles of the bill had to be massaged in order to have the final result reach the sought-after goal.
The single biggest item was a provision in the Crop Insurance title of the bill that authorizes a brand new Supplemental Coverage Option (SCO). The SCO provision provides a new crop insurance subsidy to farmers who want to combine their farm-based crop insurance coverage with supplemental coverage based on county-level calculations. It covers roughly the same level of potential losses as the brand new commodity title program in the Senate bill, the Agriculture Risk Coverage (ARC) payment program. It is that overlapping coverage that was at the heart of the largest of the scoring issues.
The language of the final bill now clarifies that SCO will provide a higher level of protection for non-ARC participants than it will for ARC participants. In addition to that clarification, it also appears CBO now believes the SCO option will be more attractive than may have been originally thought.
At least one difference might be the fact that in markup the Committee approved historic commodity payment limit loophole closing provisions, making for hard caps on the size of payments any one farm can receive in a given year. The bill also includes a new, lower $750,000 adjusted gross income eligibility threshold for commodity payments. The SCO option, however, like all crop insurance subsidies, are completely unlimited and uncapped with respect to subsidies and there is no income eligibility test. So even though the farmer under SCO pays for 30 percent of the premium (with the taxpayer covering the other 70 percent), for the largest farms and the wealthiest landowners and investors, it may pay to switch. That incentive to move out of the commodity title becomes even greater given that participation in commodity programs requires a commitment to basic conservation protection, while under current law and the Senate Committee bill, there are no conservation requirements whatsoever attached to the receipt of taxpayer subsidies for crop insurance.
On the day the bill passed, CBO had estimated the SCO would cost $682 million over 10 years. Now, in the final scoring table for the bill as reported, CBO says it will cost $3 billion over the same period. In contrast, CBO reduced the 10-year score for the ARC program to $28.5 billion, lower by a nearly offsetting amount. Spending for disaster payments under the Supplemental Agriculture Disaster Assistance (SURE) program for livestock was also ratcheted down by over $1 billion to $1.9 billion over 10 years.
The net result is the 10-year savings from commodity programs is now estimated at $19.8 billion, up over $2 billion since April 26, while the net 10-year added cost of the crop insurance subsidy programs are now estimated at $5.1 billion, over $2 billion more than estimated on April 26.
The crop insurance subsidy savings from the addition of the new ARC program in the commodity title are still estimated by CBO at $2.5 billion over 10 years. These savings stem from the assumption that fewer farmers will purchase the highest levels of crop insurance protection that they have to pay a portion of the premium for (though the taxpayer pays the bulk of the premium) given the existence of free coverage under ARC.
There were no changes to the budget estimates for the conservation, research, horticulture, and miscellaneous titles of the bill, and the energy title was simply updated to reflect the passage of a $800 million energy title funding amendment during markup.
Lack of a Coherent Farm Policy
The scoring controversy of the past few weeks illustrates the increasing complexity of the interplay between the heavily subsidized insurance-based approaches to a farm safety net for commodity producers and the more direct commodity subsidy approach in a era when the traditional supply management approach to commodity programs continues to be left out in the cold. In one sense, the new Senate bill reflects not so much a new farm policy as a new, confusing, and costly set of options targeted at different segments of commodity agriculture. While it eliminates direct payments and accelerates the major shift toward revenue protection rather than price protection, it does so with multiple overlapping options and subsidies.
Even within ARC, there are two separate options and payment and coverage levels, one for farm-level coverage and one for area-level coverage. The Supplemental Coverage Option is added on top as another option, one that as noted above is now looking like it could be a major new escalating cost item. Other than marketing loans, cotton moves out of the commodity title entirely and is given its own special and very highly subsidized insurance program. Peanuts is also given a new revenue-based crop insurance program, but in addition to continued coverage in the commodity title.
In addition to program structure, the emerging bill is a bundle of contradictions with respect to subsidy caps and conservation requirements. For the smaller of the two subsidy programs, there are hard caps on the total value of subsidies any one farm can receive annually, there is an income eligibility test, and very basic conservation requirement with respect to soil erosion and wetland protection apply. For the larger of the two subsidy programs, none of these apply. This results from, among other things, the complete lack of clearly identified policy goals.
All of this would be complicated enough by itself, but as the headlines and hearings of the past several weeks amply demonstrate, before this farm bill is finished, it will very likely get more complicated still. The House Agriculture Committee leadership has made it clear that, while they will not eliminate the ARC revenue-based payment program option, they will insist on retaining a Counter Cyclical Payment (CCP) price-based program option. Their new CCP option, however, unlike the current CCP program, will feature much higher government-set target prices for each commodity and will also cease to be decoupled from farmers’ production decisions. Under the emerging House Committee program, the CCP option, like the ARC option, payments will be based on how much of the basic commodities (corn, soybeans, wheat, cotton, rice, etc.) one actually grows each year.
As we have previously pointed out, this change to “planted” acres eliminates land currently planted to forages, green manures, alternative crops, and pasture from commodity program coverage and returns farm program policy to the era when commodity programs include no options for environmentally vital resource-conserving crop rotations. The very first farm programs of the original farm bills of the New Deal era were predicated on achieving a balance between resource-conserving and resource-depleting crops through rotations. While not nearly as explicit as the original commodity programs, since 1990 there has been at least some degree of flexibility to pursue long-term sustainability goals without losing payment coverage. That revival will apparently come to an end whenever the new farm bill goes into effect.
Assuming the House Committee stays on the course its leadership has set out, and assuming the Senate Committee bill stays more or less intact as the full Senate considers it, and assuming further that this dueling scenario sets up a House-Senate conference agreement that gives everyone a little bit of everything, the result will be more like a commodity and insurance grab bag of options than anything that might qualify as a coherent farm program policy.
That may be, as the saying goes, the best that can be accomplished under current circumstances. If so, one would hope that if nothing else, it would spur a major re-evaluation and thorough overhaul between now and the next farm bill to create something that might begin to approximate a goal-driven, fairer, less costly, more rationale, less environmentally damaging, more economic opportunity-creating, and less market distorting approach then where it appears the current process will end up.
The Senate Committee-approved bill, according to the final CBO budget scoring, would cost $969 billion over the next decade. The vast majority of that amount — an estimated $768 billion or 79 percent — is for the Supplemental Nutrition Assistance Program (SNAP, sometimes still referred to as the food stamp program).
The Senate bill proposes to save $4.5 billion over 10 years from SNAP by eliminating automatic eligibility for the NSAP heating and cooling utility allowance for households receiving less than $10 a year in Low-Income Home Energy Energy Assistance Program (LIHEAP). The CBO estimates this provision will result in approximately 500,000 households receiving on average $90 less per month in SNAP benefits.
It is widely expected that the House Agriculture Committee’s version of the farm bill will attempt to slice SNAP spending by something closer to $15 billion over the next 10 years. This potential $10 billion difference over nutrition spending could easily doom chances for passage of a farm bill by September 30, the date when the current farm bill expires and an extension bill would have to be passed and signed into law if a new farm bill is not ready for the President’s signature.
Moving to commodity subsidies, the Senate Committee bill would spend $138 billion over the coming decade, or an average of about $14 billion a year. That amount would be about $15 billion less over the coming decade than would be the case if current law were simply extended. Of the total, insurance subsidies would exceed commodity payment subsidies by a greater than 2:1 ratio, an average of $9.5 billion a year to an average of $4.3 billion a year. The total for the commodity and insurance programs represents 14 percent of estimated total farm bill spending and the total budget cut in this area represents a 9.6 percent cut from baseline levels.
Farm Bill conservation program spending would equal almost $58 billion over the coming decade under the terms of the Senate Committee bill according to CBO estimates. This amount represents a $6.4 billion cut relative to a continuation of current law. The total represents six percent of total estimated farm bill spending and the total proposed budget cut represents a 10 percent cut from baseline levels, or slightly more than the cut proposed for commodity and insurance subsidies.
Within the top three conservation programs, the Conservation Reserve Program would suffer a 16 percent cut, the Conservation Stewardship Program would suffer an 11 percent cut, and the Environmental Quality Incentives Program (as merged under the Senate bill with the Wildlife Habitat Incentives Program) would suffer a 9.6 percent cut. The new Agriculture Conservation Easement program (an amalgam of the current Wetlands Reserve, Grassland Reserve, and Farmland Protection Program) would cost $809 million more over the next decade than the current baseline (from the three predecessor programs)of just over $3 billion.
The energy title of the Senate Committee bill would cost $1.5 billion, a mix of roughly $800 million in new spending and $700 million in existing ongoing spending.
For an analysis of the Senate Committee bill funding levels for the high priority NSAC programs in the current farm bill for beginning and minority farmers, rural economic development, and organic and local food, see our earlier blog post on the subject. In a nutshell, funding levels for rural development are nil, completely left out of the Senate Committee bill, while funding for beginning and minority farmer programs are hurting badly. The news is somewhat better on the organic and local food front, though further improvements will hopefully be made in all three areas when the bill is on the Senate floor.