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Understanding the Billions Behind the CBO Farm Bill Baseline

April 11, 2018

Mielke Barn. Photo credit: USDA.

Every spring, the Congressional Budget Office (CBO), Congress’s official budgetary scorekeeper, publishes its ten-year projection (baseline) for government spending. CBO’s baseline covers everything funded by the federal government – including farm bill spending. Published on April 9, 2018, CBO’s baseline will now be adopted as the official baseline for the 2018 Farm Bill. If the farm bill is not written and enacted into law this year, a new CBO baseline will be required next year.

The CBO score is a significant part of the farm bill process because it establishes the broad budget context within with the policies of bill can be debated. When legislators put forward a farm bill amendment that changes the cost of a program, a budget score written by CBO will be attached to it. This is CBO’s best estimate of how much that particular amendment will increase or decrease the cost of the program over the next decade.

Ten years is the long-held scoring convention that CBO uses to determine the cost of any authorization bill that directs (mandates) the government to spend money. Even though farm bill authorizations are generally for about five years, all farm bill programs are nonetheless scored and debated relative to their cost over ten years.

According to Capitol Hill sources, House Agriculture Chairman Mike Conaway (R-TX) plans to release his “mark” or draft farm bill at the end of this week, which means the House Agriculture Committee would begin consideration next week. Whether or not events unfold on that rumored timeline, the CBO’s baseline score is a critically important part of the equation, as it will serve as the touch point for all funding decisions made during this year’s farm bill debates.

Big Picture Remains the Same

While there are interesting new developments to consider in the CBO’s farm bill baseline, the big picture and potential landmine issues – nutrition assistance, crop insurance and commodity reform, and conservation programs – remain the same. The largest farm bill funding item, the Supplemental Nutrition Assistance Program (SNAP, formerly known as “food stamps”), has been declining in cost over the last several years as fewer Americans utilize the program. Crop insurance subsidies are also declining slightly, while conversely, farm commodity payments continue to escalate. Farm bill spending on conservation programs remains steady overall, though the cost of the big land retirement program (the Conservation Reserve Program) is going up.

The Big Four Over the Next Five Years

In attempting to understand CBO’s farm bill baseline, the simplest thing to do is to focus on the four big money titles – nutrition, commodities, crop insurance, and conservation – which together represent nearly 99 percent of total farm bill spending.

CBO’s new 10-year (2019-2028) prediction for those four farm bill titles alone is $856.7 billion. For the five years of the 2018 Farm Bill (2019-2023), the CBO estimate is $421.5 billion. This is more than a five percent decrease from CBO’s estimate ($444.6 billion) for the same period, when they calculated expected 10-year spending for the 2014 Farm Bill.

Assuming no changes that affect program costs are made during the writing of the 2018 Farm Bill, the expected cost over the next five years will be $23.1 billion less than the 2014 estimate for those same five years.

Why Has The Farm Bill Spending Estimate Gone Down?

First and foremost, the projected price cut can be attributed to reduced nutrition assistance costs – the estimated cost for SNAP is now nine percent ($32 billion) less than the estimate made for the 2014 Farm Bill for 2019-2023.

The cost of the highly subsidized federal crop insurance program has also declined, which can be directly attributed to declining commodity prices as the two share significant correlation. The cost of crop insurance subsidies for the next five years is down 18 percent (nearly $9 billion) as compared to CBO’s 2014 Farm Bill estimate for the same years.

Juxtaposing these reduced costs, however, is the steadily climbing cost of farm bill commodity program subsidies. The estimated cost of the major commodity program benefits has increased a staggering 121 percent – nearly $15 billion for the coming five years relative to the 2014 estimate; this increase includes a 172 percent increase projected for Price Loss Coverage payments. It would also not be unreasonable to expect that this estimate could climb even higher should talk of trade wars continue to escalate.

The other factor in the increasing commodity subsidy CBO estimate is the new cotton deal reached by Congress in the recently approved budget deal. CBO estimates that putting cotton back into the PLC program will add $3.1 billion in spending over the next decade, including $1.5 billion during the next 5-year farm bill cycle.

Separate from the above commodity subsidy calculations for grain, oilseeds, and cotton are the new CBO estimates for the improvements to the Dairy Margin Protection Program, also approved as part of the recently reached budget deal. CBO estimates the newly revised dairy program to cost $1.5 billion over the course of the next decade, with nearly $900 million of that coming during the next 5-year farm bill cycle.

Financial and technical assistance for federal conservation programs remains more or less constant between the new and the old estimate – excluding estimates for CRP. The expected cost of CRP for the next five years has increased by 6 percent, over half a billion dollars relative to the 2014 estimate.

In sum, the cost of the farm side of the farm bill has actually risen by a net of over $9 billion according to CBO’s latest projections. The total farm bill cost, however, goes down largely due to usage declines of the country’s largest food assistance program, SNAP. SNAP cost has declined by nearly $32 billion, resulting in a net $23 billion baseline project for the coming five years.

Year-to-Year Changes

The new CBO projection differs in some significant respects from the projection they made just last year. Notably, SNAP costs continue to decline even relative to what the budget estimators expected as recently as 2017 – SNAP costs in the CBO estimate for the coming five years declined by a whopping $11 billion between 201 and 2018. This is an unusually large swing in such a short period of time, and reflects the continuing effect of economic recovery and lower unemployment on the countercyclical anti-hunger program.

At the opposite end of the spectrum, CBO now estimates a nearly $3 billion further increase since last year’s estimate in the cost of PLC for grain and cotton commodity farmers. This change in scoring does not reflect commodity price changes, however, which remain relatively low. Instead, this change reflects assumptions about farm bill choices that will be made by commodity producers. For example, while the PLC estimate has jumped $3 billion in one year’s time, the Agricultural Risk Coverage (ARC) estimate has declined by over $3 billion. These changing estimates likely result from the educated guess that more farmers assume that commodity prices as unlikely to rise a great deal in the near future, and will choose the fixed government price PLC program over the market-based revenue ARC program during implementation of the 2018 Farm Bill.

Not to be left out, scores for the farm bill conservation program CRP have also changed in the last year. CBO has increased its estimate for the cost of CRP over the next five years by nearly $400 million, despite recent brakes on land price inflation. It is worthwhile to note that CRP, which pays landowners an annual rental payment for removing land from agricultural production, is the only conservation program whose estimated cost is increasing. In contrast, CBO estimates that the cost of the Conservation Stewardship Program, which provides incentives to farm in an environmentally friendly manner, are declining. CBO’s five-year projection made this year is nearly $470 million less than last year’s estimate.

For a more detailed look at the numbers behind the farm bill baseline, please see our four-part series, The Numbers Behind the Farm Bill.

Categories: Farm Bill

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