The first hearing was held on Wednesday May 16 and included two panels, an economist panel and a farm and commodity group panel.  The second hearing was held on Thursday, May 17 and also heard from two panels that included additional producer groups and representatives from the crop insurance industry.

Producer groups invited to testify over these two days of hearing included representatives from American Farm Bureau, National Farmers Union, National Corn Growers Association, American Soybean Association, National Association of Wheat Growers, National Barley Growers Association, USA Dry Pea and Lentil Council, USA Rice Producer’s Group, Southwest Council of Agribusiness, National Cotton Council, Southern Peanut Farmers Federation, and National Sorghum Producers.

To see a complete list of witnesses from the four panels, please click here for day one or here for day two.

Members who participated over these two days of hearings include Subcommittee Chairman Conaway (R-TX-11), Ranking Member Boswell (D-IA-3), Committee Chairman Lucas (R-OK-3), Committee Ranking Member Peterson (D-MN-7), and at one point or another most of the members of the Subcommittee.

Target Prices Versus Revenue Coverage

The overarching theme that resonated throughout these hearings was that federal farm safety net programs need to be equitable across all regions of the country and need to recognize the diversity in American agriculture.  Not surprisingly, witnesses who testified on behalf of peanuts, sorghum, and rice expressed the most opposition to the new revenue-based “shallow loss” farm program established in the farm bill approved by the Senate Agriculture Committee.

The Senate Committee-passed bill replaces the current direct and counter-cyclical payment programs with a “shallow loss” program known as Agriculture Risk Coverage (ARC).  In contrast, rice, sorghum, and peanut associations and many of the Members of the House Subcommittee prefer to retain a much-modified version of the current counter-cyclical price-based program.  Like today’s counter-cyclical program, their preferred commodity program would pay farmers when prices are low, but with significantly higher government-set price protection levels and with the program re-coupled to actual production of the price-protected commodity.  This combination of revisions makes the program more trade-distorting, less market-oriented, and far more expensive than today’s counter-cyclical program.

Several Members and witnesses referred to the Senate approach pejoratively as a “one size fits all” proposal that provides a safety net only so long as commodity prices remain relatively high over a long period of time.  The concern is that if prices come down and stay down for a period of years, there will not be enough price and income protection in the more market-oriented Senate ARC approach.

The debate over the direction of the commodity subsidy system is likely to result in two different approaches in the House and Senate farm bills that will then have to be negotiated and compromised in a House-Senate conference committee later in the farm bill process.  While it is quite possible to include both programs and make them separate options  for producers to choose between, doing both within the farm bill budget constraints will necessarily mean both programs would offer less protection than would be afforded if there were a single, unified program.  Assuming the House Committee bill includes both options and assuming they stick with the same budget constraint as the Senate Committee did, the emerging House bill will present a preview of what such a dual program would look like.

Revenue Coverage Versus Crop Insurance

There was also concern among some Members and witnesses representing the crop insurance industry that the ARC proposal included in the Senate bill competes with the federal crop insurance program by offering similar coverage levels but at no cost to producers, which some contend might influence a producer’s decision in whether they purchase crop insurance, rely soley on the free Title I revenue-based program, or do both but choose lower insurance coverage options.

At least one economist testifying said in his view it was more likely that producers would do both – take the free revenue protection provided by ARC in the commodity title but also continue to choose high levels of revenue insurance protection, at highly subsidized rates, in the crop insurance title.

There is not yet a final budget scoring on the Senate Committee-passed bill, but when it does finally emerge it is expected to show at least a couple of billion dollar savings over the course of ten years based on farmers choosing somewhat lower revenue insurance coverage levels given the existence of the ARC shallow loss protection.  Given the over $90 billion the crop and revenue insurance program subsidies are expected to cost the taxpayers over the next ten years, however, a few billion dollars actually represents a fairly small displacement rate.

Payment Limits

Payment limits was a topic of much discussion throughout much of the hearing testimony and Member statements.  The Senate Committee-passed bill caps ARC payments at no more than $50,000 per farm per year, and also includes important new “actively engaged in farming” requirements that close existing loopholes that currently allow mega farms to collect many multiple times the legal payment limit.

When questioned specifically on the issue of placing payment limits on federally subsidized crop insurance premiums, it was unsurprising that the majority of farm and commodity groups, wanting to ensure continued access to unlimited subsidies for mega farms, testified in these hearings opposed to the Senate bill’s payment limits and requirements that recipients be actively engaged in farming to be eligible for the program.

Most of the witnesses also testified in opposition to any limits on crop and revenue insurance subsidies.  The Senate Committee bill, while adopting reform provisions on the commodity title side of the ledger, leaves the crop and revenue insurance side of the subsidy ledger wide open with no caps and no requirements as to who can receive the subsidies.  That inconsistency – putting caps on the smaller of the two subsides while leaving the larger subsidy wide open for abuse – will be the topic of a Senate floor amendment, and likely a House floor amendment as well.  As we have previously reported, Senators Coburn (R-OK) and Durbin (D-IL) have been vocal in their support for placing a limit on the amount of taxpayer subsidies that any one producer can receive.

Roger Johnson, head of the National Farmers Union, was the lone witness testifying in support of strict commodity and crop insurance payment limits.

Conservation Compliance

Another issue raised in the House hearings was whether or not conservation requirements should be tied to federally subsidized crop insurance premium subsidies.  To receive commodity subsidies or farm bill conservation payments, producers must comply with soil erosion prevention plans if they farm highly erodible land and must promise not to drain any wetlands on their property.  Under the original conservation provision passed by Congress as part of the 1985 Farm Bill these very basic requirements applied to the receipt of crop insurance subsidies as well, but that requirement was later removed as part of the 1996 Farm Bill.

When the panelists on the producer panel during both days of hearings were asked about this, the overwhelming response was in line with what we’ve been hearing from these groups throughout the farm bill debate – the fact that taxpayers pay for most of the farmers insurance premiums, to the tune of over $7 billion a year, does not entitle taxpayers to expect any quid pro quo with respect to conserving the natural resources.

Again, NFU was the exception, stating their sensible position in support of the “the reestablishment of compliance requirements for federal crop insurance eligibility so that all existing or new crop and revenue insurance or other risk management programs are subject to all conservation compliance provisions.”

Beginning Farmers

When talking about any farm program, it is easy to leave out how young and beginning farmers experience these programs differently than more established producers, and crop insurance and revenue-based commodity programs are certainly no exception.  Representative Walz (D-MN-1), who is one of the two lead sponsors of the Beginning Farmer and Rancher Opportunity Act, was one of the only members on the committee to press the panel specifically on how to address the barriers that new producers face when trying to access farm safety net programs.  A challenge with revenue-based programs is how to make it worthwhile for new producers to participate, since they lack an established production history, and therefore are protected at a lower rate than producers with an established revenue history.  Compounding the increased risk that new producers take on in the first few years when they are establishing their farming operation, most lenders either require that borrowers have crop insurance or if not still use this as an essential component in evaluating the risk of providing a loan to a new farmer.

Unfortunately, the panelists were generally unable to offer any suggestions or solutions for how to improve crop insurance programs for new producers, but did acknowledge that this continues to be an issue.

Provisions included in the Senate bill, based on an amendment by Senators Klobuchar (D-MN) and Baucus (D-MT), attempt to make it easier for beginners to be able to afford crop insurance by reducing the premiums charged for beginning farmers and improving their assigned yields.  NSAC is supportive of the intent of those Senate provisions but is encouraging Congress to further refine them as the farm bill process moves forward.

Diversified Operations

Although specialty crops are generally not included in most discussions on farm commodity programs, there were several points during these hearings where farm safety net issues related to diversified operations did come up.  Rep. Walz asked a pointed question of the producer panelists of whether or not there was room in this farm bill for planting flexibility and whole farm revenue insurance (which was included the Senate bill).  Although the specialty crop industry has been generally opposed to planting flexibility, Walz argued that it allows producers who want to diversify to respond to market signals and move some of their acres from commodities to fruits and vegetables.  Whole farm revenue insurance is another option that allows diversified producers of both commodity and non-commodity crops to participate in farm safety net program by providing revenue protection for a wide diversity of crops at the whole farm scale.

Roger Johnson was the only panelist to immediately respond on these issues, stating that whole farm revenue insurance is generally underappreciated in agriculture because we tend to think crop by crop.  In many parts of the country though, farmers plant a lot of different crops, and we need to allow farmers to plant what they think makes sense.

The NFU testimony also included another very sensible recommendation: “Crop insurance should be improved for organic producers, including ending the existing surcharge on organic policies and the full implementation of coverage levels based on organic prices.  Additionally, crop insurance products and risk management tools should be developed for specialty crop producers.”

Planting flexibility, whole farm revenue insurance, and improvements to organic crop insurance are included in the Local Farms, Food and Jobs Act.

To see a video of the hearings, or read witnesses written testimony, click here.

Taxpayers share the cost of crop and revenue insurance premiums with producers, with the taxpayer share of the premium ranging from 38 to 80 percent.  The nationwide average last year was 62 percent, with the farmer share averaging 38 percent.

In 2011 these subsidies cost the taxpayer $7.4 billion, and according to the Congressional Budget Office, under current law, the total cost to the taxpayer of the crop insurance program over the next decade, including both the premium subsidy as well as payments to the companies that sell crop insurance will be $90 billion.  The new farm bill recently reported out of the Senate Agriculture Committee increases that total cost slightly.

Senator Coburn earlier had requisitioned a U.S. Government Accountability Office report on insurance premiums that analyzed per farm subsidies and explored a scenario in which the subsidy would be capped at $40,000 per farm operation per year.  The GAO concluded, based on USDA data, that such a cap would save one billion dollars in a high premium year such as 2011.  It also found that such a cap would impact less than four percent of total crop insurance program participants, but those largest farming entities account for nearly a third of total premium subsidies.

The Coburn-Durbin letter states that “Large farms are better positioned than smaller farms to pay a higher share of premiums, according to GAO…. Moreover, the report found that not limiting premium subsidies for individual farmers and farm entities could be prohibitive for small and beginning farmers.  According to GAO’s findings, federal benefits like premium subsidies could contribute to an increase in land process, which make expanding or even entering the industry difficult for small and beginning farmers.”

The two Senators make clear in their letter that they support the federal crop insurance program, stating, “…it is critical to make good programs better to ensure they are performing as intended and are fiscally sound taxpayer investments.  Good programs should never be immune to oversight and improvement when needed.  Maintaining the integrity of crop insurance will help ensure it continues to serve as a primary safety net program for our nation’s farmers.”

NSAC’s farm bill platform contains a different variation on capping crop insurance subsidies, based on a graduated reduction in the amount of the premium subsidy as the per farm total volume of insured products increases.  We will await further details to emerge on the Coburn-Durbin effort, but will very likely support their effort to amend the program to improve its fiscal integrity and reduce its contribution to farm consolidation and economic concentration.

University of Illinois economist Gary Schnitkey recently offered some analysis and thoughts about the impact of the GAO recommendation, noting that the size of farm impacted by a dollar limit would vary by year depending on commodity prices and also vary by level of risk.  Generally speaking, in years with higher commodity prices the size of farm that hits the cap will be smaller than in years with lower commodity prices.  Schnitkey also concludes that the cap will hit high risk farms at a smaller number of acres than lower risk farms.

These are important observations, but not unreasonable outcomes from a public policy standpoint.  Nonetheless, there are a variety of ways to more finely tune subsidy limitation proposals that may yet receive consideration as the farm bill process moves forward.

NSAC Policy Associate Helen Dombalis and Farmer Jack Hedin

Earlier this week, the Union of Concerned Scientists (UCS) organized two Congressional briefings on the economic potential of local food systems and the programs and policies that are needed in the farm bill to realize this potential and to support this critically important agricultural sector.  The briefings were hosted by Senator Sherrod Brown (D-OH) and Congresswoman Chellie Pingree (D-ME-1), the lead sponsors of the Local Farms, Food, and Jobs Act (S. 1773, H.R. 3286).

For the past year, UCS has been working to shine a spotlight on the economic benefits of local and regional food systems.  Just as importantly, UCS focuses on how smart policies that support the expansion of local food systems can provide much-needed investments in rural communities, create jobs and support family farms, and help increase U.S. production of healthful food.

For example, the recent report Ensuring the Harvest found that if fruit and vegetable consumption increased to meet the USDA’s “MyPlate” dietary guidelines, local food sales could increase to as much as $14.5 billion a year and generate as many as 189,000 new jobs.

Over the course of two briefings, one each for the House and Senate, the panel of speakers delivered hard facts and figures on local food systems, real life experiences and knowledge, and the ins and outs of the Local Farms, Food, and Jobs Act (LFFJA).  The briefing was moderated by UCS’s Ricardo Salvador, Senior Scientist and Food & Environment Program Director.  The panel featured the following speakers:

Jeff O’Hara, Ph.D., Agricultural Economist, Union of Concerned Scientists
Dr. O’Hara is UCS’s leading researcher on the economics of local and regional food systems and is the author of two recent reports on local foods, Ensuring the Harvest and Market Forces.  Jeff’s presentation focused on the economic success of local and regional food systems in recent years as well as the potential for additional growth and job creation that could be aided by smart policies like those included in LFFJA.

Jack Hedin, Featherstone Farm, Rushford, Minnesota
Mr. Hedin is the owner of Featherstone Farm, a 250 acre diversified and certified organic farm located in southeast Minnesota.  The farm produces 50 varieties of fresh market fruits and vegetables for distribution to food stores, wholesalers, and Community Supported Agriculture (CSA) members throughout the region.  Jack is also an ally of NSAC and was recently in DC for a series of meetings with NSAC and House and Senate staffers.  During the briefing, Jack spoke directly to his on-farm experiences in Minnesota, the financial challenges posed to diversified and organic farmers like himself, and the need for improved credit and risk management tools to be included in the farm bill.  Specifically, Jack spoke about the need for a whole farm risk management insurance product, a provision in the farm bill recently reported out of the Senate Agriculture Committee.

Bernadine Prince, Co-Executive Director, FRESHFARM Markets; President – Board of Directors, Farmers Market Coalition
Ms. Prince is the co-founder and co-executive director of FRESHFARM Markets, which operates 11 producer-only farmers markets in the Washington metropolitan area with more than 110 farmers and producers from five states who farm more than 9,000 acres.  Bernadine is also the Board President for the Farmers Market Coalition, an NSAC member group which seeks to strengthen farmers markets’ capacity to serve farmers, consumers, and communities nationwide.  Bernadine’s briefing presentation focused on the incredible growth of farmers markets and the critical role that programs like the Farmers Market Promotion Program have played in the success and growth of local markets.

Helen Dombalis, Policy Associate, National Sustainable Agriculture Coalition
NSAC Policy Associate and lead advocate for local and regional farm and food policy, Helen delivered an overview of the key provisions, programs, and funding included in LFFJA as well a comparison to the draft farm bill that recently passed the Senate Agriculture Committee.  Click here for specific information on how local food policies and programs fared in the Senate bill.

Nearly 50 staff, members of the media, and outside stakeholders attended the two briefings.  In addition to the presentations, each briefing also featured a lively Q&A session with panelists.

For more information on UCS’s work on local food issues, recent reports, and priorities and the farm bill, please visit their website.

The panel of witnesses were chosen from both Chairman Fortenberry’s and Ranking Member Fudge’s home states of Nebraska and Ohio, along with a witness from Maryland.  The panel was comprised of a mix of bankers and producers, and included the following witnesses:

• Bob Frazee, Farm Credit Council (Maryland)
• Jeff Gerhard, Independent Community Bankers of America (Nebraska)
• Matthew Williams, American Bankers Association (Nebraska)
• Michael Walton, Tunnel Vision Hoops (Ohio)
• Justin Doerr, Beginning Farmer (Nebraska)

In his opening statement, Chairman Fortenberry stressed the importance of federal credit programs in meeting the needs of young and beginning farmers who often face difficulty obtaining commercial credit due to their lack of an established credit history.  He also mentioned that federal credit programs need to be receptive to the financial needs of producers who sell to local markets.

Ranking Member Fudge focused on the specific challenges that urban farmers face when trying to obtain credit through direct or guaranteed loan programs, and emphasized the unique perspective that these producers can bring to federal credit policies and programs.

Beginning Farmers

The specific credit needs of young and beginning farmers was a hot topic at today’s credit hearing, which is not all that surprising, given that the Chair of this subcommittee is also the leading Republican sponsor of the Beginning Farmer and Rancher Opportunity Act (H.R.3236).  The producer witness who was able to speak most directly to these issues was Justin D. Doerr – a beginning farmer and veteran from Plainview, Nebraska, who represented himself as well as  NSAC and NSAC member organization Center for Rural Affairs.

Doerr is a mixed crop and livestock farmer who rents land in Northeastern Nebraska.  He grows alfalfa, corn, and soybeans, and raises sheep, goats, and chickens.  In his testimony, Doerr told the story of the obstacles that he faced as a beginning farmer and military veteran, speaking to several programs included in the Beginning Farmer and Rancher Opportunity Act that address the credit and land access needs of new producers.

Chairman Fortenberry and beginning farmer witness, Justin D. Doerr

He spoke about his difficulty in finding affordable land to farm and his experience trying to use the Conservation Reserve Program Transition Incentives Program – a popular federal program that incentivizes retiring landowners to sell or rent their expiring CRP land to beginning farmers.  Since starting in 2010, demand for this program has grown tremendously and over 1,600 beginning farmers have used CRP TIP to access over 260,000 acres of farmland to begin or expand their farming operations.  Unfortunately, as of early this spring, all of the funding provided by the 2008 Farm Bill for this program has already been obligated, and thus, beginning farmers like Doerr, were unable to take advantage of this land access incentive program.  For this reason, NSAC is advocating for renewed but increased funding for this program in the 2012 Farm Bill.

In addition to access to land, which is often the first obstacle beginning farmers face, Doerr also discussed other challenges he faced that specifically deal with financing his farming operation.

With the price of farmland skyrocketing all across the country, two important programs that Doerr mentioned in his testimony are the Down Payment Loan Program and the Beginning Farmer and Rancher Individual Account (IDA) program.  Both of these farm bill credit programs are specifically targeted to helping beginning farmers and ranchers finance the purchase of farmland or accumulate savings to use towards a down payment or other operating expense.

One provision included in the Beginning Farmer and Rancher Opportunity Act that would help beginning farmers like Doerr finance the purchase of farmland, is to give priority to joint financing programs, like the Down Payment Loan Program, which leverage federal funding with the collateral of private lenders.  The IDA program is an innovative matched savings program that has been around since the 2008 Farm Bill, but despite annual funding requests by USDA, has unfortunately never received an annual appropriation and thus has not been available as a potential resource for young farmers.  NSAC will continue to advocate for mandatory funding for the IDA program as the House takes up the farm bill reauthorization.

Other beginning farmer programs that Doerr mentioned in his testimony included FSA microloans, whole farm risk management insurance, and beginning farmer and veteran training and agricultural rehabilitation programs.

Almost every other witness on this panel discussed the specific credit needs of beginning farmers as well.  Frazee, who testified on behalf of the Farm Credit Council, spoke about their “Start Right” program, which targets lending to young, beginning, and small producers, and Williams, who was representing the American Bankers Association, said that many borrowers that private banks lend to are young, beginning, and small farmers and how important federally guaranteed credit programs are in serving their needs.

Urban Farmers and Local Food

Rep. Fudge’s witness, Michael Walton, discussed the specific challenges that non-traditional borrowers, like urban farmers and those that provide for local markets, face when trying to obtain credit.  Walton is an urban farmer from Cleveland, Ohio who runs a hoop house design, fabrication, and installation company, and is involved in urban farming ventures that have transformed vacant city lots into thriving, urban food production sites all across the city.

Although the witness from MidAtlantic Farm Credit discussed a program they are creating to meet the credit needs of urban farmers in Baltimore, MD, the other commercial lenders on the panel acknowledged that there are major challenges to fit non-traditional borrowers like Walton into their loan “boxes.”  The panelist from the American Bankers Association suggested that we need to work on designing a program that works for these borrowers, and overcomes existing obstacles, such as lack of agricultural credit expertise among urban lenders.

Crop Insurance and Credit

Unsurprisingly, crop insurance also weaved its way into today’s credit hearing, and occupied much of the question and answer period.  All three lenders – FCS, ICBA, and ABA – said they did not as a general rule require borrowers to have crop insurance but they strongly encouraged it.  They also all spoke in favor of funding for federal loan guarantees and in favor of removing the statutory term limit on how many years a bank borrower could receive a loan with a federal guarantee.  Obviously, both federal expenditures – crop insurance subsidies and loan guarantees – firm up lenders’ bottom lines.

Along those same lines, the lenders spoke out against proposals to place a cap on the size of insurance premium subsidies any one farm could receive and against linking basic conservation requirements to protect the natural resource base on which food security depends to receipt of such subsidies.  It is always troubling, though not surprising, to see the Farm Credit System and the commercial banking sector opposing sound public policies such as entitlement reform, natural resource protection, and limits on federal guarantees on bank loans.

To see a video of the hearing or download copies of the witnessess’ written testimony, click here.

To see a video of Doerr and Fortenberry following the hearing, click here.

In 1985, Congress wisely decided that basic soil and wetland protections should be a requirement for any farm receiving any type of farm subsidies.  In 1996, crop insurance subsidies were delinked from conservation requirements intended to protect highly erodible land and conserve wetlands.

The argument at the time was that crop insurance was a small program in need of much greater participation, hence the fewer requirements the better.  Since then, however, the premium subsidy has grown from less than $900 million in 1995 to a $7.3 billion subsidy in 2011 that covers over 260 million acres of farmland, with a participation rate of 80 percent for the major commodity crops.  Clearly the arguments used in 1996 to delink the programs no longer hold.

The issue for the 2012 Farm Bill is quite simple – will taxpayers be told to shell out close to $100 billion in insurance subsidies over the next decade and not even have the assurance that environmental harm and harm to our future food security will be minimized in the process?  And will farmers, who in polls and surveys overwhelmingly support the highly erodible land and wetlands conservation provisions, be denied a level playing field in which a few bad actors can destroy wetlands or allow excessive soil erosion while still taking public subsidies?

So far, the answer of the Senate Agriculture Committee sadly has been yes.  They approved a farm bill that does not even contain minimal basic conservation requirements in return for massive insurance subsidies.  But this need not be the final answer.  The full Senate will take up the bill soon, quite possibly in June, and could vote to relink conservation with crop insurance subsidies.

In our 2012 Farm Bill platform, Farming for the Future, NSAC urges Congress to reestablish this crop insurance conservation compact, thus preserving our natural resources while improving the farm safety net.  NSAC has also proposed legislation to accomplish this common sense objective.

Over the past few weeks a spate of editorials in leading farm state newspapers have decried the Senate Committee’s approval of a Farm Bill that fails to relink crop insurance to conservation compliance:

• A Des Moines Register editorial is headlined “US Aid to Farms Should Have Strings.”  The editorial finds that the Senate bill contains a potential “environmental land mine” with the shift from direct cash subsidies to crop insurance delinked from conservation compliance.  It concludes that “ . . . it is not too much to ask that all farmers who benefit [from crop insurance subsidies] should be good stewards of the land.”

• A Minnesota Star Tribune editorial agreed, criticizing the Senate Committee bill for not requiring land stewardship practices as a condition for the premium subsidy.  The Star Tribune went a step further, opining that the crop insurance subsidy itself goes over the top, because the subsidy is available without regard to income and is not capped with a payment limit.  The editorial noted this arrangement artificially increases land values and raises barriers to beginning farmers and small farmers looking to buy or rent land.

• An editorial in the Lincoln, Nebraska Star Journal applauded the state’s Senators Mike Johanns and Ben Nelson for supporting a “Sodsaver” provision to help preserve native grasslands.  But it also criticized the Senate bill for falling to include requirements and enforcement measure to discourage farming on highly erodible land.  Without these restrictions, the editorial concludes that “ . . . the crop insurance program has the potential to turn into a boondoggle for taxpayers and a disaster for conservation.”

• The Sioux City Iowa Journal ran a guest editorial written by Brad Redlin, National Agricultural Program Director with the Izaak Walton League of America, and Jerry Peckumn, an Iowa farmer who is also board chairman of Iowa Rivers Revival.  They call for reestablishment of the existing and logical covenant between taxpayers and producers that is represented by the conservation compliance linkage to crop subsidies, including crop insurance.  This linkage can save taxpayer dollars, protect natural resources, and improve conservation outcomes.

Many others also support the position of these editorials that crop insurance subsidies should be relinked to highly erodible land and wetland conservation compliance requirements.  Earlier this year, four letters were delivered to the Agriculture Committees in support of relinking crop insurance to conservation — one from two former U.S. Secretaries of Agriculture, one from four former Chiefs of the Natural Resources Conservation Service, a third from 15 national conservation organizations including NSAC, and a fourth from 90 water groups including the American Water Works Association, National Association of Clean Water Agencies, Association of State Drinking Water Administrators, National Association of Water Companies.

For more information on this issue, see the NSAC fact sheet on conservation compliance and our summary of the Senate Farm Bill’s conservation and commodity and crop insurance provisions. 

Commodity Title

The main storyline of the commodity title emerging from Senate Agriculture Committee markup of the 2012 Farm Bill is the elimination of direct payments and counter-cyclical payments and the creation of a new replacement program to be known as Agriculture Risk Coverage (ARC) payments.  ARC builds on and replaces the Average Crop Revenue Election (ACRE) program option from the last farm bill.  ARC would cover wheat, corn, sorghum, barley, oats, rice, soybeans, other oilseeds, pulse crops (dry peas, lentils, chickpeas), peanuts, and possibly popcorn.

The marketing loan program would continue without change, including the possibility of the government making loan deficiency payments if prices should fall to  low levels.

Cotton would be given its own special program known as Stacked Income Protection Plan (or STAX).  Just prior to markup, a target or reference price for cotton and an acreage cap were both removed from the plan.

The Committee bill does not include the National Farmers Union proposal for a new type of farmer-owned grain reserve they call the Market Driven Inventory System.

ARC Basics

ARC payments guarantee 89 percent of the moving multi-year average revenue benchmark.  Within ARC, there are two coverage options.  The producer may choose county coverage or individual farm coverage.  The choice is made one time and will lock the producer into the coverage level chosen for five years.  Those choosing county average coverage will get paid on 80 percent of their planted acres, while those choosing the more expensive individual farm coverage will get paid on 65 percent of their planted acres.   The 65 and 80 percent coverage levels came by way of an expensive amendment proposed by Senator Baucus (D-MT) during markup which raised the original levels by five percent.

For rice and peanuts only, rather than calculating from a moving average market price, the bill includes a price prescribed in statute below which coverage cannot fall, making coverage for rice and peanuts somewhat of a hybrid between ARC and the current counter-cyclical payment program with its fixed, statutory price protections.  The rice and peanut reference prices were added to the bill in the days immediately before markup.

Unlike direct payments, which were paid as a fixed amount regardless of whether prices or farm revenue was high or low and regardless of whether the crop was planted or not, ARC payments will be made when revenues (price times yield) fall below a moving market average.  Also unlike direct payments, which were paid on historic “base” acres, ARC will pay based on actual planted acres.

Flexibility

Among other things, these changes mean that the new payments will no longer be considered “green box” or fully trade compliant under international trade rules as was the case with direct payments.  At home, the changes also mean that farmers who have utilized current commodity “flexibility” rules to convert crop base acres to grass-based agriculture or to use a portion of base acres for non-program crops in order to implement resource-conserving crop rotations, will now be left with no commodity program benefits for land they “flexed” and on which until now have received direct payments.

While the farmers who adopted resource-conserving crop rotations will no longer receive any payments on the forage, cover, and green manure crops in their rotations, the Senate Committee bill does include such “flexed” acres in the definition of land eligible for the new ARC program.  ARC acres cannot exceed average acres planted to program crops in 2009-2012, except that acres that were flexed into non-program crops for rotation purposes or that were left fallow to conserve moisture may be included in the average.  Thus those who flexed acres into resource-conserving crop rotations are not penalized under the new program in terms of total program crop acres.  However, they only receive ARC support if that land in the future is planted to the program crop.

The clear incentive under the new program, based as it is on actually planted acres, will be to grow nothing but program crops supported by the new ARC program.  While provision was made to count acres that were flexed for rotation purposes as eligible acres under ARC, no provision was made for payments or any type of transition plan for producers who used flex provisions to improve their conservation and environmental performance.  Those farmers are left high and dry unless they convert their resource-conserving crops into resource-depleting program crops.

With respect to a different flexibility issue, the current planting flexibility restrictions prohibiting fruits and vegetables from being planted on program cropland (under most circumstances) will also no longer apply under ARC.  Should a producer want to use a portion of his or her former program base acres for vegetable production, there is now no penalty under the Senate Committee bill.  In previous farm bill debates, a variety of proposals to allow farmers to plant specialty crops on program base acres provided they would forgo any payment were met with fierce resistance from the specialty crop industry and were rejected.  In contrast, under the Senate Committee-passed bill, there is in essence an unlimited flex potential for fruit and vegetable production.

Payment Caps

ARC payments are limited to $50,000 per year for single farmers and $100,000 a year for married farmers, with the exception of peanut farmers who, if they grow peanuts as well as another program crop may receive up to $100,000 per year ($200,000 if married).  These limits are higher than the existing direct payment caps of $40,000/$80,000 but lower than the existing counter-cyclical payment caps of $65,000/$130,000 (each of which is doubled in the case of peanuts).

There is no good explanation for why payment caps should double based on marital status; it is simply a carryover from previous law.  Elimination of the doubling allowance would improve program fairness and also increase budgetary savings.  The same goes for the extra special doubling for peanuts.

The Committee bill includes an amendment put forth by Sen. Chuck Grassley (R-IA) and backed by NSAC to limit the currently unlimited number of “managers” a farm can have, each of whom is eligible for payments up to the cap, to a single farm manager per farm operation.  Under current law and its wide open “management” loophole, mega farms collect multiple times the payment cap through passive investors, landowners, and relatives and employees who are counted as farm managers.  Under the new language, one manager that is not doing actual farm labor can qualify, but only if they are the only person qualifying the farm, they are only qualifying a single farm, and they are not in combination with others qualifying multiple “farms” that are operating with the same equipment, labor or management.

This is a different approach to payment limit reform than the approach in the Grassley-Johnson Rural America Preservation Act marker bill (S. 2217), but one that should be nearly as effective.  NSAC support for the farm bill will hinge in part on whether this provision remains intact.

The Committee bill fails to provide any limit on marketing loans, marketing loan gains, or loan deficiency payments.  If prices fall dramatically and these payments kick back in, there will be no limit at all on the amount of benefits any one farm can receive in any given year.

With the new STAX program for cotton, which moves cotton production incentive support funding from the commodity title to the crop insurance title, cotton will no longer have any payment limit whatsoever.  Subsidies for cotton alone will be made without limit on every last acre a corporation or general partnership can lay their hands on.  The only commodity title program left with relevance to cotton will be marketing loans, which also have no cap under the Senate Committee bill.

As with STAX, the Committee bill fails to provide any caps or limitations on crop insurance premium subsidies for any commodity.  Under the proposal, as under current law, the taxpayer is called on to pay the majority of the farmers’ premiums on every last acre and every last bushel, bale, or pound of commodity, regardless of the size of the farm or the wealth of the beneficiary.

AGI

The Committee bill combines the current separate farm and non-farm adjusted gross income (AGI) thresholds for participation in commodity programs (but not crop insurance programs) at $750,000 AGI (based on a three-year average).  For most married couples, this would double to $1.5 million AGI.  Adjusted gross income, especially amongst wealthy taxpayers, can be manipulated from year to year to avoid eligibility limits such as these, including through the purchase of additional farmland, herds, equipment and related costs that get deducted as part of the adjustment of income process.

Conservation Requirements

The Senate Committee bill applies the Highly Erodible Land and Wetlands conservation requirements to the new ARC program and continues it for the marketing loan programs.  The bill also prohibits commodity program benefits on land that is native sod or for which the producer cannot substantiate that the ground has ever been tilled.  This latter “sodsaver” principle was partially applied with respect to crop insurance subsidies, but the former HEL and wetland requirements were not attached to crop insurance subsidies.  NSAC supports the Senate sodsaver compromise, but strongly opposes the refusal to extend HEL and wetlands conservation requirements to insurance subsidies.  Read more on this subject in our earlier post.

Commodity and Crop Insurance Funding

According to Congressional Budget Office estimates of the Committee bill, the totality of the changes made to the commodity title will save $17.6 billion over the course of the next decade relative to what would have been spent if current law continued without any changes.  Whether or not any actual savings occur will depend entirely on the accuracy of the CBO predictions of what commodity prices and yields will be over the course of those ten years.  Often in the past, the CBO estimate of commodity title costs have been considerably less than the actual cost of the program when viewed in hindsight.

To create a fair assessment of costs, the commodity title cost estimates must be combined with the crop insurance title cost estimates.  Crop insurance subsidies are now larger than commodity subsidies and will remain so.  CBO estimates that crop insurance will now cost the taxpayer over $9 billion a year, versus under $5 billion a year for commodity and disaster payments.

The CBO estimate for the crop insurance title includes a new $3.2 billion 10-year cost for the new cotton STAX program, a new $239 million 10-year cost for a special new peanut revenue insurance option, and a new nearly $700 million 10-year cost for a new supplemental coverage option for all crops to cover up to 85 percent of individual yield or 95 percent of area yield.  CBO also estimates the insurance title will save $2.5 billion over 10 years as participation in the new ARC program on the commodity side drives producers to lower their insurance coverage.  The net effect is a projected 10-year additional cost of $2.75 billion for the new crop insurance title.

Putting both sets of subsidy programs together, the combined project 10-year savings for the commodity and crop insurance titles is $14.9 billion, or less than a 10 percent reduction relative to a hypothetical continuation of current law.

Whole Farm Revenue Insurance

NSAC has been championing whole farm revenue insurance for diversified farms throughout the recent farm bill debate.  This was a key provision included in the Local Farms, Food, and Jobs Act (S.1773, H.R.3286).  We applaud Chairwoman Debbie Stabenow (D-MI) for including this provision in the new farm bill reported out of Committee.

As was the case with the draft farm bill prepared last fall for the ill-fated congressional super committee process, the crop insurance title of the Senate Committee bill includes a directive to the Federal Crop Insurance Corporation to develop a whole farm risk management insurance plan that would allow diversified crop and livestock farmers to qualify for insurance that would pay an indemnity if actual gross farm revenue fell below 85 percent of average gross farm revenue.

The Corporation is encouraged to provide for diversification-based enhanced benefits to reflect the important risk management benefits that accrue from crop and enterprise diversification.  The Corporation is also encouraged to include coverage for the value of packing and packaging that is required to move the crop off the farm.

This new insurance product would not replace the existing Adjusted Gross Revenue (AGR) and AGR-Lite products, but it does improve on them and may ultimately replace them as a product of choice, especially as the expectation is that the new Whole Farm Risk Management Insurance would be available nationwide, rather than in just certain states and certain counties.

The one change that was made to the provision between last fall and Senate markup was the addition of a $1.5 million liability limit.  This is a considerably lower limit than is the case for AGR though similar to the one for AGR-Lite.

Organic Crop Insurance

The Local Farms, Food, and Jobs Act also contains two improvements to crop insurance for organic producers.  Organic producers currently face the double penalty of being forced to pay a five percent surcharge for insurance coverage and then, should disaster strike, being forced to accept conventional prices rather than the usually higher organic price in the calculation of indemnity payments.  The 2008 Farm Bill directed the Department to make progress on correcting these biases, and some limited progress has been made, but for the bulk of organic crops the situation remains unchanged.

Unfortunately, the Senate Committee bill does not make any progress on this front.   For more on organic farming provisions in the new Senate bill, read our earlier post.

Overall, the bill that was reported out of Committee last Thursday supports key pieces of the suite of unique programs that serve the organic sector.  Most of the organic provisions included in the draft bill presented by Chairwoman Debbie Stabenow (D-MI and Ranking Member Pat Roberts (R-KS) we reported on early last week remained unchanged in the package that the Committee approved.  Several organic amendments were filed before the markup, and two of them were included in the bill passed out of Committee.

Overview of Organic Provisions

The bill reported out of Committee maintains the mandatory funding levels included in the Chairwoman’s mark for organic programs.  Funding for national organic certification cost-share remained at $11.5 million per year, for the Organic Agriculture Research and Extension Initiative (OREI) at $16 million per year, and for the Organic Production and Market Data Initiatives (ODI) at $5 million over the life of the bill.  The bill also provided $5 million in mandatory funding for technology upgrades at the National Organic Program (NOP).

The modifications to OREI priorities and to ODI that we reported on last week remained in the bill, and the no-cost policy changes to the Environmental Quality Incentives Program organic provision that NSAC supported sadly were not made.

Organic Crop Insurance

The mark did not include changes to make crop insurance more appropriate for organic farmers, and Sen. Casey (D-PA) filed an amendment to make these changes.  Sen. Casey’s amendment would have eliminated for all crops the unjustified premium surcharge that organic farmers pay for coverage of all but a dozen organic crops, and would have directed the Risk Management Agency to develop and publish a complete organic price series.

Although the amendment was filed, and these changes were included in the Senate’s version of the 2008 Farm Bill, the Committee did not vote on the amendment and it was not included in the approved bill.

National Organic Program Enforcement

Sen. Leahy (D-VT) championed an amendment to improve NOP’s enforcement authority that was included in the revised bill provided to the Committee by the Chair and Ranking Member on April 25 and remained in the bill reported out of Committee.  With an increased focus on enforcement of organic standards at the U.S. Department of Agriculture, NOP has identified areas of needed authority to improve organic enforcement.  Sen. Leahy’s amendment grants NOP stronger enforcement authority.

Specifically, Sen. Leahy’s amendment requires organic producers, handlers, and certifying agents to submit records – that will be kept confidential – associated with organic certification at the Secretary’s request, and requires those records to be kept for 5 years for most people participating in organic, and 10 years for certifiers.  The amendment allows the Secretary to carry out an investigation to verify the accuracy of the information provided, and provides USDA with authority to subpoena the records.  Through the amendment, the Secretary can also issue an order to stop the sale of a product misrepresented as organic, and suspend and revoke organic certification.  The amendment also outlines an appeals process, and provides a penalty for a person that violates an order or revocation.

Organic Research and Promotion Program

Sen. Casey also championed an organic check-off amendment.  The amendment would have provided USDA with the authority to issue an organic commodity promotion order; would have allowed organic producers that currently participate in conventional check-off programs the ability to choose whether to participate in the conventional commodity check-off or an organic check-off if one is created; and would have clarified that an organic-only producer can choose to be exempt from a conventional check-off.  The Organic Trade Association is the lead stakeholder advocating for these changes.

A much modified version of the amendment was included in the revised draft bill issued April 25 and in the bill reported out of Committee.  The bill requires USDA to submit a report to Congress that describes what the Secretary is doing to ensure that check-off activities reflect the priorities of all members in a check-off, and assesses the feasibility of creating an organic check-off.

With much of the rhetoric and substance of the new, in-the-making 2012 Farm Bill revolving around the rapidly growing and expensive crop insurance title, major corresponding attention has been given by the conservation community to the relationship between insurance subsidies and conservation.  Two campaigns have been launched, one to restore highly erodible land and wetland conservation requirements in return for the taxpayer paying the majority of farmers’ insurance premiums and one to prevent subsidizing the destruction of prime grasslands.

Sodsaver

We are thrilled to report that the Senate Agriculture Committee’s version of the Farm Bill, as passed out of Committee on April 26, includes a nationwide Sodsaver provision to protect native prairie across the country.  The Sodsaver provision was originally filed as an amendment on April 23 by Republican Senators John Thune (R-SD), Mike Johanns (R-NE) and Democratic Senator Sherrod Brown (D-OH) and subsequently was accepted into the revised draft bill presented by Chairwoman Debbie Stabenow (D-MI) and Ranking Member Pat Roberts (R-KS) on April 25.  NSAC commends these Senators for their commitment to conserving our most valuable natural resources.

While the Sodsaver provision in the Senate bill does not, as we had proposed, deny all crop insurance subsidies on newly broken out land, it does provide for a 50 percent point reduction in the subsidy.  It also includes two important provisions that prevent people from gaming the system to increase their revenue insurance coverage at the expense of taxpayers and the environment.  One keeps the newly broken out land isolated from other crop acres the producer may have when calculating insurable yields. The other requires the operator to take a percentage of the county average yield until being able to show a multi-year yield history.

The Thune amendment to the Senate bill also prohibits commodity program benefits from being earned on newly broken out land.

Bringing native lands into production reduces available grazing land, increases long-term costs due to erosion and nutrient loss, and ultimately leads to lower water quality, reduced flood mitigation capacity and lost outdoor recreation activities.

This is not the first time that a national Sodsaver provision was included in the Senate Agriculture Committee’s version of the farm bill.  A full-fledged Sodsaver provision to prohibit crop insurance subsidies, disaster assistance, and other farm program payments on land that is broken from native sod was successfully included with broad support in both the House and Senate versions of the 2008 Farm Bill, but was dismantled in conference and became a voluntary project that never got off the ground.  NSAC strongly supports the new provision and will work to see it is included in the final 2012 Farm Bill.

Highly Erodible Land and Wetland Conservation

While the Senate bill does reattach attach highly erodible land and wetland conservation requirements to Title 1 commodity payments, conservation program payments, and federal loan programs, we are disappointed to report that it does not do so for the largest of all farm payment categories, federal crop insurance subsidies.

This is an increasingly important piece of the conservation toolbox, as federal crop insurance subsidies continue to grow, soil continues to erode on 100 million acres at unsustainable levels, and wetlands continue to be lost.  Federal crop insurance, which incentivizes agricultural production on marginal lands, is perfectly suited for highly erodible land and wetland conservation measures.  Reattaching conservation requirements to insurance subsidies is a commonsense move that we intend to pursue on the Senate floor and in the House.

To read more about highly erodible land and wetland conservation compliance, visit our blog posts on three recent letters, one from former U.S. Secretaries of Agriculture, one from former Chiefs of the Natural Resources Conservation Service, and one from 15 national organizations, all delivered to the Senate Agriculture Committee.

Farm policy has historically disregarded whether domestic crop production is aligned with dietary recommendations.  Given that healthy foods are under consumed in the United States, there is an urgent need to change this policy.

The latest report from the Union of Concerned Scientists, Ensuring the Harvest, identifies policies to help farmers who are growing healthy food using sustainable practices.  These policies include removing fruit and vegetable planting restrictions, making improvements to crop insurance policies, and supporting greater credit accessibility.

Implementing these recommendations will increase jobs and incomes in rural economies.  Although the U.S. Department of Agriculture (USDA) has important programs that support farmers selling in local markets, the attention directed to developing a safety net for these farmers has been completely inadequate in Farm Bill deliberations to date.

USDA administers and subsidizes a crop insurance program because farmers are exposed to considerable risk from weather and market shocks.  A catch-22 exists because the USDA only develops crop-specific policies for crops that are widely planted with extensive market data.  As a consequence, the crop insurance program is oriented towards extensively subsidized commodity crops.  Crop insurance is unavailable for many farmers growing an array of fruits, vegetables, other healthy crops, as well as raising livestock on the same farm.

The Ensuring the Harvest report describes how USDA can rectify this by offering whole farm revenue insurance on a national basis.  A strength of whole farm revenue insurance is that it provides coverage for any type of crop or livestock.  This provides incentives for farmers to grow healthy crops in regions without a crop-specific policy.  Also, one comprehensive policy is cheaper for farmers to purchase (and taxpayers to subsidize) relative to multiple crop-specific policies when the premium reflects that farmers are already undertaking risk-mitigating practices.  For example, growing multiple crops helps a farm self-insure against pest outbreaks or price declines that impact a single crop.

While USDA has developed pilot whole-farm-revenue insurance policies, farmers must incur high transaction costs to buy the policy, and it is only available in select regions.  USDA should offer farmers a suite of options to value their crops to make the existing policy easier for farmers to purchase.  In addition to submitting tax records, which is the current procedure, farmers should also be allowed to use contract prices and pricing indexes that USDA could develop with data from their existing market surveys.  This would further make the standards for purchasing crop insurance more equitable among different types of farmers.

In order to implement whole farm revenue insurance in regions where data is sparse, USDA should develop insurance policies with administratively-determined premiums at the outset.  USDA can use the resulting data they collect over time to subsequently calculate premiums more accurately.

Crop insurance will further help these farms obtain financing since its purchase also protects lenders.  This is a priority because farmers on smaller farms undertaking less conventional farming practices already experience challenges with obtaining an operating loan relative to other farmers.

Some economic development organizations are becoming actively engaged in financing healthy food farms.  However, USDA could do more to broker the flow of capital to these farms by educating and engaging lenders seeking such opportunities.  In addition, systematic evaluations are needed of USDA farmer outreach programs and financing conditions for local food farmers.

We have been hearing over and over again that this Farm Bill should be renamed the “Jobs Bill.”  The Local Farms, Food, and Jobs Act will implement the proposals contained in our report and offers the one of the best opportunities to support farmers growing healthy crops.

If you have not yet urged your representatives to support the Local Farms, Food, and Jobs Act, you can do so on the UCS Action Center today.

This letter comes nearly one month after two former U.S. Secretaries of Agriculture delivered their own letter asking the Agriculture Committees to do the same thing.  In addition to the Agriculture Secretaries’ letter, 15 national organizations also delivered a letter this month in support of reattaching conservation compliance requirements to federal crop insurance subsidies.

The letter, sent by former NRCS Chiefs William Richards (1990-1993), Paul Johnson (1994-1997), Bruce Knight (2002-2006), and Arlen Lancaster (2006-2009), urges the leaders of the House and Senate Agriculture Committee “to make sure conservation compliance provisions cover all income support, including eligibility for crop and revenue insurance premium subsidies.”

Visit the NSAC website to learn more about the effort to reattach highly erodible land and wetland conservation compliance requirements to federal crop insurance subsidies in the 2012 Farm Bill.  You can also download the NSAC fact sheet on conservation compliance here.

We now know that re-attaching these highly erodible land and wetland conservation requirements to burgeoning crop insurance subsidies were not included in the Commodity Title of Senate Agriculture Committee Chairwoman Debbie Stabenow’s (D-MI) and Ranking Member Pat Roberts (R-KS) farm bill mark.  We also know that no amendment has been filed to be offered in the markup of the new farm bill in the Senate Agriculture Committee this week.

This is truly a lost opportunity to preserve natural resources for future generations.  In our networks there is overwhelming farmer support for a stronger and comprehensive conservation compliance regime.  This is therefore a major priority for NSAC and we will continue to work hard to ensure that the nine billion dollar a year taxpayer investment in crop insurance on behalf of farmers comes with at least some basic, modest conservation requirements in return.

We will alert readers to opportunities to support this conservation compact when the bill moves to the Senate floor.