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.

            Rep. Pingree and Russell Libby

Chairwoman Jean Schmidt (R-OH) opened the hearing by stating, “In order for us to reauthorize and craft responsible farm programs, it is our duty and responsibility to ensure that every dollar spent is a wise dollar spent.   Investing wisely in specialty crops and ensuring that nutrition programs are being administered effectively is critical at this time.”

Schmidt highlighted the Specialty Crop Research Initiative (SCRI) because it has no baseline funding going forward.  She cited SCRI as a “critical element” of specialty crops, and one that promotes health– “A diet with more specialty crops is more nutritious.”

Congresswoman Chellie Pingree (D-ME) echoed the interrelated nature of nutrition and specialty crops as both “important links in ensuring that all families have the option of putting fresh and good food on their tables.”  According to Pingree, thinking about how to link nutrition programs to farmers involves expanding local markets.

“When farmers sell to local markets, they get to keep a bigger share of the dollar.  It’s a win for farmers and it’s a win for our families,” said Pingree.

The first panel included five witnesses involved in production and packing of specialty crops.  As a whole, members of the panel stressed the importance of both SCRI and the Specialty Crop Block Grant Program (SCBPG) which fund food safety, education, research, and marketing efforts that advance the competitiveness of specialty crops.  Several witnesses, asked for changes or more funding for the program.  Jerry Lee, the Environmental Services Manager of Monrovia Growers, suggested the Committee “support your Senate counterparts’ efforts to expand funding for this program and allow the opportunity for multi-state proposals.”

Russell Libby, the Executive Director of Maine Organic Farmers and Gardeners Association, was the only one of the first panelists to discuss organic specialty crops.  Libby also referenced the Senate farm bill, asking the House to consider funding the National Organic Certification Cost Share at the level included in the Senate bill.  He warned that without the program “farmers here at home will opt not to certify, and organic companies will have to source from overseas instead of from American farmers to meet strong consumer demand.”

Libby also asked to expand organic production through a more efficient National Organic Program, through streamlined inclusion in programs such as the Environmental Quality Incentives Program and the Conservation Stewardship Program, and through the development of a workable organic crop insurance program.

During the question and answer portion of the hearing, Rep. Pingree inquired about  potential barriers to farmers, especially those concerning beginning and organic farmers and farmers selling into local markets.  Generally panelists agreed that farmers needed access to capital to aggregate product and scale up supply networks.

During his round of questioning, Rep. Jim McGovern (D-MA) pointed out that cutting nutrition assistance programs also meant cutting benefits for farmers.  Phil Blalock, the Executive Director of the National Association of Farmers Market Nutrition Programs, made a similar point in the second panel.  He discussed the role the Farmers Market Nutrition Program and the Senior Farmers Market Nutrition Program play in supporting agriculture, explaining that these programs “increase income to small family farmers by increasing use and awareness of farmers markets.”

See that photo below?  It’s of Mississippi farmers John and Ora Carpenter, meeting with Representative Alan Nunnelee’s office this spring here in Washington, DC.  The Carpenters shared stories about how their farm is an integral part of their community, and how federal programs have helped them expand their business and grow a diverse array of crops that they sell across the region.

That’s democracy in action – engaged citizens who care about their communities and their family-owned farm businesses speaking up for what matters in the 2012 Farm Bill.  And while not everyone can fly to DC to speak up in person, everyone can speak up!

The 2012 Farm Bill is marching onward – and Congress still needs to hear from you!  Just a few weeks ago, grassroots voices helped achieve some victories for sustainable agriculture in the Senate’s version of the bill, but our work is far from over.  Right now, the House is at work on its version, and it’s crucial that these legislators know what matters to you.

Will you take five minutes today to tell the House what you want to see in the farm bill?

Maybe it’s support for critical conservation programs that protect our natural resources, or for initiatives that will launch the next generation of farmers and ranchers.  Your thoughts – and your stories – matter.  Tell the House Agriculture Committee that you want a 2012 Farm Bill that expands opportunities for family farmers to produce good food, sustain the environment, and contribute to vibrant communities!

It takes just a few minutes to submit your comments, and we’ll get you started with a few ideas here.  Don’t delay – the deadline for comments is May 20.
Thank you for all that you do,

The National Sustainable Agriculture Coalition Grassroots Team

P.S.  In the meantime – have you signed on as a citizen endorser of Farming for the Future, our 2012 Food & Farm Bill platform?  Sign on today!

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.

The funding is intended to complement, rather than duplicate, funding available under the NRCS Mississippi River Basin Initiative and Chesapeake Bay Watershed Initiative and the multi-agency Great Lakes Restoration Initiative.

NRCS State Conservationists, in consultation with State Technical Committees and state environmental agencies, were authorized to choose from one to seven watersheds within their state for inclusion within the Initiative.  The Initiative focuses on watersheds categorized as 12-digit hydrological units under the U.S. Geological Survey’s hydrological unit code (HUC) system.  Generally, these 12-digit watersheds range from 10,000 acres to 40,000 acres.

NRCS has posted a map  and a list of the selected watersheds on its website.  In addition, many of the NRCS State Conservationists have posted announcements with details on the Initiative and state maps of the watersheds on their websites.

Farmers and ranchers in the selected watersheds can begin submitting applications for Initiative funding on May 18 with their NRCS State Conservationist or at a USDA service center.  The application period closes on June 15.   NRCS will select applications through a competitive process and began awarding contracts this summer.

Additional funding for on-farm conservation work may be available in some states from state environmental agencies through the EPA Section 319 grant program or other sources and from conservation organizations.

NRCS Chief Dave White also indicated during a teleconference for the announcement that NRCS would work with federal and state agencies, including among others the U.S. Geological Survey and the U.S. Environmental Protection Agency, to monitor the environmental outcomes of the Initiative.

The Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, provides benefits to recipients through an Electronic Benefit Transfer (EBT) card.  With the transition from paper to electronic benefits in the mid-1990s, SNAP purchases at farmers markets declined due to a lack of equipment and technology to accept and process these electronic benefits.

The USDA funding, made available by Congress through the Fiscal Year 2012 agriculture appropriations bill, will work to reverse this trend and boost SNAP sales at local food outlets.  While there are over 7,100 farmers markets in the U.S., a mere 1,500 of these currently have the capacity to accept EBT.

On a press call, USDA Deputy Secretary Kathleen Merrigan explained that the philanthropic community and organizations like NSAC member Fair Food Network and NSAC partner Wholesome Wave are largely to thank for the available EBT technology at some markets.

In looking at the limited capacity to process EBT at farmers markets, Merrigan said that she asked herself “Why couldn’t it be all of them?”  USDA estimates that the $4 million will significantly expand this number, hopefully adding 4,000 additional markets to the list of those accepting EBT.

The funding will be distributed to States and weighted more heavily towards States lacking large numbers of EBT-capable markets.  It will then be up to the discretion of the States to administer the funding.

Later this year through a Federal Register notice USDA will announce a period during which the Agency will accept public comments on disbursements of these funds in future years.

NSAC strongly advocates for expanding EBT access at farmers markets and other direct producer-to-consumer marketing outlets such as community supported agriculture programs (CSAs) and farm stands.  Not only does ensuring EBT capability expand access to healthy, fresh food for low-income Americans but it also bolsters economic development.  When farmers sell directly to consumers, they are able to retain a larger share of the dollar that can then be reinvested in the local community.

The Local Farms, Food, and Jobs Act contains key EBT provisions aimed for inclusion in the final 2012 Farm Bill.  NSAC supports inclusion of all of the provisions of this bill in the 2012 Farm Bill.  We will be alerting members and readers to opportunities to work for this goal as the farm bill moves to the Senate floor and to the House Agriculture Committee, both of which may happen in June.

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. 

The discretionary spending adjustment would temporarily bring the House spending level in line with the Senate level and with the levels agreed upon by both chambers in the Budget Control Act of 2011.  This leaves open the possibility that the House Appropriations Committee will re-issue its allocations to each appropriations subcommittee, including the Agriculture Appropriations Subcommittee.

The allocations determine how much each appropriations subcommittee can spend on its respective funding bill for the year.  The House Appropriations Committee’s current allocation for the agriculture appropriations bill is $19.4 billion, which is $1.4 billion below the Senate allocation.

The adjustment also means that the Subcommittee will now have the option to produce a FY 2013 appropriations bill that more closely parallels the Senate bill, which was written to Budget Control Act levels and which the Committee passed on April 26.

The modification was included as part of the Sequester Replacement Act, which, combined with a budget reconciliation package, would stop most of the $109 billion in automatic cuts set to occur in FY 2013 (known as the “sequester”) and replace them with $300 billion in cuts over 10 years.

The House Budget Committee today passed both the Sequester Replacement Act and the reconciliation package with a party-line vote.  The full House is expected to pass both bills before the end of this week.  However, neither is likely to become law, as both would have to be approved by the Senate and the President.

As a reminder, the reconciliation package includes $33 billion in cuts to the Supplemental Nutrition Assistance Program.  While this measure will die after House passage later this week, the basic sentiment of increasing cuts to the SNAP program will be debated anew as part of House Agriculture Committee markup of the 2012 Farm Bill.  House markup could happen in late June.

We were pleased to report late last month that the Senate annual agricultural funding bill includes funding increases to several critical programs, including the Sustainable Agriculture Research and Education program and the Value-Added Producer Grants program, both of which are NSAC appropriations priorities.  The bill also steers clear of cutting the Conservation Stewardship Program.  Our work moving forward will be to ensure that the House Agriculture Appropriations Subcommittee produces a FY 2013 funding bill that builds upon these improvements.

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.