Thursday, April 24, 2014

Giant Views

Lobbying for a Better Farm Bill

Farm bills come and farm bills go, but over the past nine years the agricultural lobby has generally done better rather than worse out of the public purse when major commodity programs have been up for review. The 2012 Farm Bill will be very different, for one simple reason: the current U.S. government debt crisis. Congress will have less money to spend on programs and, like many who benefit from government subsidies, farmers will almost certainly have to make do with less. But how much less?

In July, the “gang of six” senators proposed a cut of US$1 billion a year in total farm subsidies in their deficit reduction plan. The Senate majority leader endorsed that proposal, but since then, things have changed. The 12 members of the new bipartisan joint House and Senate Deficit Reduction Panel have now been appointed and, at least on the Democrat side, the Senate appointees have a history of being strongly committed to maintaining medical and social security program funding. Most House members have very small farm-based constituencies. Therefore, it seems likely that agricultural subsidies will be reduced by more than $1 billion. The question is, how much bigger will the hit be, and which programs will bear the brunt of the cuts?

The seed industry has a stake in this debate. If programs that encourage farmers to plant more land to crops are curtailed, there may be significant consequences for seed producers. If programs favoring some crops over other crops are abolished, farmers may change the mix of crops they raise, and the effects may be widespread.

At the present time, these sorts of policy changes seem unlikely. Currently, the federal government provides farmers with about $5 billion a year through direct payments that effectively are not tied to current production decisions for major row crops. Direct payments, heavily criticized because they are seen as gifts from tax payers to farmers and landowners, are widely viewed by farm lobbies and policy makers as the subsidies most likely to be curtailed. Even if all $5 billion worth of those payments were discontinued, farmers’ incentives for planting crops would not change in any measurable way.

If the budget axe falls on other policies, one likely candidate for cuts is the SURE crop disaster aid program. At the time of writing, no funds have been included for SURE in the baseline for the 2012 federal fiscal year. SURE payments are based on the shortfalls in a farm’s revenues from all the crops the operation plants; therefore, the program’s impact on the mix of crops planted seems to have been relatively modest. Cancelling or reducing the program, currently estimated at $1.6 billion a year, is also not likely to have much effect either on total land use or the mix of crops that farmers grow.

The Conservation Reserve Program, through which the government pays farmers to replace about 31 million acres of crop land for conservation practices at a current annual cost of about $1.9 billion, is a policy some in the seed industry may prefer to see discontinued. However, this is one program that currently appears to be sacrosanct because it serves the needs and goals of the farming and hunting communities, as well as the broader environmental community. 

Instead, funding for working lands programs such as the Conservation Stewardship Program, which pays farmers to adopt or continue environmentally-friendly practices while still raising crops, is more likely to be cut because some of the program’s environmental goals could be achieved through regulation. Moreover, commentators question the effectiveness of paying farmers to continue practices they have already voluntarily adopted.

While substantial changes in current farm bill programs are likely, especially with respect to funding, at this point the implications for the seed industry appear to be relatively small. All that would change if, in a wild card event, the renewable fuel mandate was to be discontinued as part of the 2012 Farm Bill initiative. In that case, corn and other feed and food grain prices would drop significantly, with important implications for crop planting and production. What does seem clear, from the perspective of the seed industry, is that during the next 18 months the debate over ethanol and renewable fuels policy may be more important than the debate over farm bill programs.

Vincent H. Smith, Professor, Department of Agricultural Economics and Economics, Montana State University

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