Farm Bill Update: Throw Out the Script, The Farm Bill Process Takes A Turn Toward A Straight Extension
Posted by: Phillip Fraas
June 27, 2007

Until last week, the only farm bill proposals on the table all called for some sort of change in the existing farm bill programs--from relatively minor changes to free up funds for new priorities (e.g. the House Agriculture Committee working draft) to major reforms that would dramatically alter the nature of the farm programs (e.g., the Kind-Lugar bill).

However, when the House Subcommittee on General Farm Commodities and Risk Management at its mark-up of the farm bill last Tuesday rejected both the Committee working draft and the Kind-Lugar proposal in favor of a straight extension of the current farm bill without any changes in the programs, the farm bill process got quite a shake up. Straight extension is now a viable third possibility for this year's farm bill.

Why would that be? There were several factors at work, some recently developed, that tipped things in favor of the votes for a straight extension at the subcommittee mark-up.

One factor that has been evident since hearings were held on the farm bill last year is that farmers by and large are relatively content with the current farm bill and are not pushing for change.

Add to that the recent collapse in the Doha Round trade negotiations. Those talks were aimed at getting agreement among World Trade Organization members for major changes in farm programs that affect international trade in food and fiber products. As talks progressed, Congress had to be prepared to change the U.S. farm programs and policies to implement what our trade negotiators might agree to. That is not the case any longer--at least for now. As this year has worn on, it became increasing clear that progress in the Doha Round might be unattainable any time soon. The failure last week of efforts among the U.S., the E.U., Brazil, and India to produce a break-through that might get Doha back on track sort of made it official. On top of that, the "fast track" trade negotiation authority needed to implement trade agreements expires on Saturday, with no immediate prospects that Congress will extend it soon.    

Also, it appears that the opposition to reducing the so-called "payment limitation" (that is, the rules governing the award of farm program payments that cap the amount of payments any one person can receive) by farmers who would be adversely affected by proposed cuts had gotten some traction. USDA had proposed substantial "payment limitation" reforms, and the House Committee draft included less ambitious, but nonetheless, real cut-backs in payments. The straight extension approved by the House Subcommittee would keep current payment limitation rules intact.   

What does a straight extension have going against it? USDA is opposed--the President has been described as "disappointed" in the subcommittee's action. Also, the public voices talking about the farm bill have argued for reform and more equitable allocation of farm program dollars.  Third, by definition, a straight extension will use up all the money in the budget base line for the farm bill. That means no funds would be available to fund new initiatives, such as bioenergy projects, a permanent disaster assistance program, and programs and assistance for fruit and vegetable producers, nor to increase funding for existing priorities, such as soil and water conservation. Fourth, Congress is dominated by urban members, especially the House of Representatives. So, farm bills, even when they have everything going for them, can be tough to pass. A straight extension bill that thumbs its nose at calls for reform will be even tougher to pass.

What are its prospects? Even with those problems, a straight extension has a chance of prevailing. Regardless of what the administration and editorial boards of newspapers might say, they don't get to vote in Congress. And, it is not impossible that money might be found to pay for new initiatives that will attract supporters to the bill. Thus, at this point, it is reasonable to put a straight extension on the list of viable farm bill options.

But, the situation changes from week to week. Who know what chances a straight extension might have a month from now. Stay tuned. 

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A Farm Bill Disagreement Surfaces: What To Do With Direct Payments?
Posted by: Phillip Fraas
June 11, 2007

A major disagreement is shaping up between the Bush Administration and Congress on a key element of the 2007 farm bill--what to do with direct payments? It is too early to tell whether this disagreement will grow into a real impediment to enacting the farm bill. If it does, right now it is hard to see the outlines of a compromise.

BACKGROUND: The heart of any farm bill is its price and income support program. The current support program under the 2002 farm bill uses both price support loans and payments to farmers. The payment part of the program is like a three-legged stool.

One leg of the stool is  "direct" payments, which are tied to a farmer's historical production base and made to the farmer without regard to what he grows in any year. They are made in the same amount every year.

Then, there are "countercyclical" payments, which are tied to what a farmer produces and which endeavor to make up the difference between low market prices and an established target price for the crop involved. They are countercyclical in nature because they provide benefits when market prices are in the trough of the typical market cycle. The amounts paid out in the form of countercyclical payments will vary tremendously from year to year, depending on where we are in the cycle. For example, right now countercyclical payments for grains and oilseeds are relatively low because market prices are high (in the case of corn, at very high levels relative to historical prices).

The third leg is the marketing loan benefit, or loan deficiency payments. With marketing loans, the farmer can take out a price support loan at a set price and, if market prices fall below that, can repay at the lower market price instead of forfeiting the crop that served as collateral for the loan. The loan deficiency payment shortcuts this process and allows the farmer to get the difference between the loan rate and market price directly without taking out a loan.

Direct payments are by far the most expense leg of the stool. USDA has projected costs for the 2002 farm bill if it is continued for the next 10 years, and estimates that direct payments would cost $52.5 billion, countercyclical payments $11.2 billion, andmarketing loans/loan deficiency payments $8.8 billion. 

Many argue that countercyclical payments and marketing loans/loan deficiency payments are "amber box" programs under World Trade Organization (WTO) rules, that is, they tend to distort trade and thus are subject to limits under the WTO Uruguay Round agreement (to which the United States is a signatory).  Direct payments, on the other hand, can be constructed in a way to avoid being considered trade distorting, that is, can be consider as a "green box" program.

THE CURRENT DISAGREEMENT: USDA, in its farm bill proposal made early this year, recommended increasing direct payments by $5.5 billion over 10 years, and decreasing countercyclical payments by $3.7 billion and marketing loans/loan deficiency payments by $4.5 billion over the same time period. Among the reasons advanced for this were that the current payment programs tend to under-compensate when yields decline and over-compensate when yields increase, and that the United States should reduce the level of its amber box programs to facilitate a new WTO agreement to further liberalize trade in agricultural products.

However, the currents have been running against the USDA position. The chairmen of both the Senate and House agriculture committees have expressed dissatisfaction with direct payments. For one thing, it is harder for supporters of agriculture in Congress to convince their urban colleagues to spend billions in payments to farmers if there is no market problem (i.e., low prices) requiring the payment. Also, Congress is restricted from spending new money on the 2007 farm bill; so if the chairmen are to fund new initiatives not included in the farm bill budget baseline, the hugh amounts of direct payments are a relatively attractive source for that funding.

Also, other than the wheat growers, none of the farm or commodity organizations are supporting an increase in direct payments. And recently, former Senate leaders Tom Daschle and Bob Dole came out with their farm bill proposal, which would eliminate direct payments entirely.

Just last week, this simmering disagreement on direct payments surfaced when Secretary of Agriculture Mike Johanns, at a meeting with commodity groups on June 5, spoke out against the trend in Congress away from direct payments to the other forms of payments. In a sort of counterpoint, two days later, on June 7,  a House Agriculture subcommittee approved a peanut support program of the 2007 farm bill that calls for incrased loan deficiency payments and lower direct payments. And, the same day, the Chairman of the House Agriculture Committee, Collin Peterson (D-Minn.) spoke out again for reducing direct payments.

WHAT WILL HAPPEN TO DIRECT PAYMENTS: Congress has the job of drafting the 2007 farm bill, not the Administration. So, it is very likely that the bill will reduce direct payments to some degree. However, the farm bill can't become law until the President signs it, so Congress can't ignore the Administration entirely. And, given the hardening of positions on this issue, it could be a roadblock to a presidential signature. At the very least, the Administration will want to negotiate across the table from the congressional agriculture leadership on this issue. Beyond that, it is too early to try to answer the ultimate question--what will happen to direct payments? We will have to revisit the matter later in the year.

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Farm Bill Update--Drafting Begins
Posted by: Phillip Fraas
May 29, 2007

HOUSE AGRICULTURE COMMITTEE MARK-UPS: The drafting of the 2007 farm bill got off to a good start last week when two subcommittees of the House Committee on Agriculture held mark-up sessions on the titles of the farm bill under their jurisdiction. The Subcommittee on Conservation, Credit, Energy, and Research, chaired by Cong. Tim Holden (D.-Pa.), reported out the farm bill titles on--naturally--conservation, credit, energy, and research. The Subcommittee on Livestock, Dairy, and Poultry, chaired by Cong. Leonard Boswell (D.-Iowa), reported out the dairy title and several livestock provisions, including a proposed tightening of country-of-origin labeling (COOL) rules.

While some tough decisions, like funding issues, were bumped up to the full Committee for consideration, nonetheless, last week's mark-ups yielded substantial progress as a large chunk of the farm bill was vetted and preliminarily approved.

Look for the House Agriculture Committee to press ahead with mark-ups by its other four subcommittees within the next three weeks. The Committee's time frame for action is so tight because, if it wants to take the farm bill to the floor in July as planned, it will want to complete full committee mark-up in just four weeks--during the week of June 18.

MILC AND DISASTER ASSISTANCE IN SUPPLEMENTAL: A looming problem for the farm bill has been resolved. Until a few days ago, the popular Milk Income Loss Contracts (or MILC) program had been set to expire at the end of August, and thus fall outside the budget baseline for the farm bill, which is calculated on the basis of which programs are in existence on September 30. By not being in the baseline, if Congress wanted to extend MILC in the farm bill, it would have to come up with over $1 billion in new money.  That problem went away with the recent enactment of the Iraq supplemental appropriations bill, which included money to extend the program for five years. The supplemental also included a agricultural disaster aid package that will cost about $3 billion. With that relief headed to farmers, they will not be looking to Congress to include the money in the new farm bill.

HARKIN PUSHES FOR NEW CONSERVATION EFFORT: On the Senate side last week, Senator Tom Harkin (D-Iowa), chairman of the Committee on Agriculture, Nutrition, and Forestry focused on the conservation title of the farm bill, making the case to reporters for his new Comprehensive Stewardship Incentives Program (CSIP). This program will combine the Conservation Security Program (which Harkin fought hard to get in the 2002 farm bill), the Environmental Quality Incentives Program (the biggest working lands conservation program in terms of dollars actually spent), and the Wildlife Habitat Incentives Program into one program, to give farmers the benefit of "one-stop shopping" for farmers seeking conservation assistance.  Because the combined program will increase spending, the issue, once again, is where to find the money to fund it. The answer at this point is far from clear.  

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Farm Bill Update--House Energy Title
Posted by: Phillip Fraas
May 21, 2007

Late last Friday afternoon, the House Committee on Agriculture released its draft consensus proposal for the energy title of the 2007 farm bill. The proposal--the Committee's "preliminary discussion draft"-- is available online at  http://agriculture.house.gov/inside/legislation.html.

The Committee's proposal, which focuses on promoting the production of biobased energy much like the Administration's farm bill energy proposal, will extend many current programs authorized by the 2002 farm bill to 2112, and add a new one.

The proposal also would  provide additional money for the programs, but put a condition on funding acknowledging the lack of funds it really has available for spending on the energy title. For the most part, the 2002 farm bill did not directly provide funding for the energy title, making the baseline for this farm bill's energy title effectively zero; and the just-completed congressional budget resolution requires the Agriculture Committee to stick to the 2002 farm bill baseline in drafting the new farm bill. Thus, in several instances, the proposal contains language providing that funding will be contingent on ways being found to reduce spending  or raise revenue in other areas so as to offset, or make "budget neutral," the new spending.

The propsal will extend to 2112--

--the Federal procurement requirement emphasizing acquisition of biobased products;

the biorefinery and biofuel production development program (adding authority and contingent funding for $2 billion in loan guarantees);

--the biodiesel fuel education program;

--the renewable energy systems and energy efficiency improvements program (providing contingent funding for $500 million for the program);

--the program that provides payments to bioenergy producers to acquire agricultural and related feedstocks (providing $1.5 billion in contingent funding);

--the research, extension, and education programs on biobased energy technologies and products; and 

--the Biomass Research and Development Act grant program. (providing $500 million in contingent funding). The Act was originally enacted in 2000, and the Committee's proposal effectively re-enacts it as part of the 2002 farm bill.

The new programs or provisions included in the proposal are--

--a forest bioenergy research program, with contingent funding of $15 million a year; 

--establishment of an Energy Council within the Department of Agriculture to coordinate its energy policy and consult with other departments and agencies;

 authority for feasibility studies of dedicated ethanol pipelines

Left open is a section entitled "Biomass Energy Transition Reserve."

The House Agriculture Subcommittee on Conservation, Credit, Energy,and Research is scheduled to mark-up and vote on this proposal tomorrow.

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Farm Bill Update: House Agriculture Committee Kicks Off Drafting Process
Posted by: Phillip Fraas
May 17, 2007

Today, members of the House Committee on Agriculture met with reporters to announce the kick-off of the farm bill drafting process in the Committee. Chairman Collin Peterson (D-Minn.) was accompanied at the session by the ranking Republican on the Committee, Bob Goodlatte (R-Va.), and a dozen other committee leaders of both parties.

Chairman Peterson announced that the first committee mark-up meeting will be next Tuesday, May 22, at 10AM, when the Subcommittee on Conservation, Credit, Energy, and Research ("CCER") convenes to mark up the four titles of the farm bill represented in the name of the subcommittee.

Peterson also disclosed that he would not release a unilateral "chairman's mark" with just his ideas on what should go into the new farm bill. Rather, he said, the subcommittees would put out consensus marks on the provisions of the farm bill over which they have jurisdiction, as part of an effort to make the farm bill process inclusive, open, and bipartisan. The language of the CCER Subcommittee consensus should be available later today or tomorrow.

Peterson alluded to the budget problem the committee faces in marking up the farm bill. The only new money that will be available to address issues that have surfaced since the passage of the current farm bill in 2002 is the $20 billion agriculture "reserve fund," a mechanism proposed by the congressional budget committees that will allow the agriculture committees to spend up to $20 billion in excess of the farm bill base line. The problem for the Committee is that "reserve fund" spending will be subject to congressional "pay-go" rules, which require that any new spending be offset by spending reductions or revenue increases elsewhere in the budget. Peterson said that the committee expects to dip into the reserve fund, but has not yet arrived at appropriate offsets to meet pay-go requirements. He also held out hope that the congressional budget resolution to be finalized within a week or so might include some new money for the farm bill.

Goodlatte, along with Tim Holden (D-Pa.) and Frank Lucas (R-Okla.), Chairman and ranking Republican on the CCER Subcommittee, respectively, also spoke at the event. Goodlatte stressed that the Committee would be drafting the farm bill on a bipartisan basis, noting that farm policy does not tend to polarize along party lines and that most farm bills are bipartisan products.

There was a fair amount of discussion about next week's mark-up at the CCER Subcommittee. What I took away from that discussion is as follows:

--Conservation title: The main issue is money to fund the currently authorized conservation programs. Also, a battle might be brewing with the Senate over funding of the Conservation Security Program (CSP). The Senate wants more; the House is not inclined to provide much funding at all. Also, the House committee might want to shift money into the Wetland Reserve Program (WRP).  

--Credit title: Wasn't discussed.

--Energy title: Holden said the subcommittee would be unveiling a robust energy proposal; and Peterson indicated that the Committee will be able to spend some new money in this title, using for pay-go purposes increases in revenues under a bill passed by the House early this year that created offsets for new energy programs.

--Research title: Don't expect much if any new money for agricultural research, extension, and teaching programs.

Peterson also used the occasion to sketch out the Committee schedule as he sees it now. The next subcommittee to mark up will be the Subcommittee on Livestock, Dairy, and Poultry, scheduled to kick off on Thursday, May 24. It's subcommittee consensus language should be available very early next week. The other four subcommittees of the Agriculture Committee will start their mark-ups after Congress returns from the Memorial Day recess on June 2. Peterson expects the subcommittees to complete work, and the full committee to begin its consideration of what the subcommittees will have come up with, later in June, with the goal to finish all committee work by the end of June.

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Farm Bill Update: The Cruel Budget Calculus
Posted by: Phillip Fraas
May 11, 2007

It increasingly looks as if budget constraints will become one of the major factors dictating the shape of the 2007  farm bill.

Congress is expected to finalize the budget and spending caps for fiscal year 2008 andthe four succeeding years within the next few weeks (or less). However, so far, there have been no indications that new money will be made available in the budget for the farm bill. If so, the writers of the farm bill will be faced with a cruel calculus of having to take money from some existing programs if they want to beef up spending in others.

On the one side, here are some of the things Congress wants new money for, each of which could cost in the billions over the five or six-year term of the 2007 farm bill:

• a permanent disaster assistance program.
• development of alternative energy production, including ethanol and other renewable fuels.
• soil and water conservation.
• specialty crop benefits: increased research and market development efforts; more nutrition program purchases of fruits and vegetables etc.

On the other side, here are some programs that might be vulnerable to being cut:

• direct support payments to farmers. These cost more than $5 billion a year on average, and the chairmen of both the Senate and House Agriculture Committees have let it be known that they are not supporters of direct payments (in contrast to countercyclical payments and loan deficiency payments, the other two mainstays of the farm income support that is the heart of the farm bill).
• crop insurance (currently, USDA subsidizes crop insurance to farmers to the tune of over $5 billion a year). USDA's farm bill proposal recommends taking about $250 million a year on average out of the program; and there have been critical news reports and a congressional oversight hearing questioning waste in the program. On the other hand, farm-state members of Congress tend to be strong supporters of crop insurance, and will try to protect the program against any effort to gut it.

Beyond these two items, nothing comes to mind immediately among current programs as a likely source of money for new farm bill spending. 

Then's there is a new wild card: MILC. Those initials stand for Milk Income Loss Contract, and the MILC program makes direct payments to dairy farmers when milk prices are low. Currently, the MILC program is slated to expire on August 31 of this year. Because it runs out prior to the expiration of the 2002 farm bill (which for dairy is September 30, 2007), the MILC program is not included in the spending baseline for the new farm bill. So, as things stand now, if MILC is to be included in the new farm bill as many in the dairy industry want, it will likely mean over $1 billion in new spending.

Some in Congress worried about the budgetary problems with a MILC extension are now making a major push to get the program into the farm bill baseline by extending it for one month--to September 30--at a relatively minor cost of $31 million. Such a proposal was included in the Iraq/disaster assistance spending bill the President recently vetoed and in the new disaster assistance spending bill the House passed yesterday. The problem is that the White House already is on record as objecting to the disaster legislation and, specifically, to the short extension of MILC to squeeze it into the baseline. If MILC doesn't make it into the baseline, there will be one more big ticket spending item that money would have to be found for.

It seems. then, that the nearer we are getting to action on the farm bill, the budget constraints are making the decision-making for members of Congress more difficult. And, as the limitations on funds become more clearcut, it will become correspondingly tougher for the proponents of the programs that need new money to plead their cases to the legislators.

NOTE: It looks as if the first farm bill mark-ups will begin in the House the week of May 20. At this time, though, the chairmen's marks still have not been released.

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Farm Bill Update:: Report On Recent Developments
Posted by: Phillip Fraas
April 30, 2007

HEARINGS: Both the Senate and House agriculture committees have been busy in recent days holding hearings to build a record before they begin writing the 2007 farm bill.

Last week, the House Committee on Agriculture held hearings on issues related to the commodity title (which is the heart of the farm bill) and on the milk marketing order program, and the week before that on conservation programs, organic farming, and the livestock industry. Next week, the committee will tackle crop insurance and the rural broadband communication network.

The Senate Committee on Agriculture, Nutrition, and Forestry had three days of hearings last week on the commodity title programs, concentration in agriculture, organic farming, and other farm bill topics. This week and next, the committee will hold hearings on conservation issues, rural and agricultural energy, and rural development.

CHAIRMEN'S MARKS AND MARK-UP SCHEDULE

It is reported that Chairman Peterson of the House Agriculture Committee is still pushing to get his mark out in May, but that it won't necessarily be a detailed proposal drafted as legislative language. It might look more like a concept paper covering the major farm bill issues. Once the chairman's mark is released, likely the committee will move immediately to mark-up, starting with subcommittee mark-up sessions.

One possible hold-up for the House is the wait for the final numbers in the congressional budget resolution for FY 2008 and the four succeeding years. The budget resolution is in conference between the Senate and House, and Chairman Peterson is still working to get some additional funding for the farm bill. Right now, the resolution only includes funding sufficient to pay for current farm bill prgrams if they were extended without change. Peterson--and others--would like to see more funds to pay for new agricultural energy programs to assist meet the President's energy independence goals and for other new farm bill priorities such as increased conservation spending, a permanent disaster assistance program, and assistance to fruit and vegetable farmers.

On the Senate side, it increasingly looks like mark-up will be in June; and still no word on what sort of mark-up document will be used.

DIRECT PAYMENTS UNDER SCRUTINY AS THE COMMITTEES DEAL WITH BUDGET PRESSURES

In recent days, both Chairman Peterson and Chairman Harkin of the Senate Agriculture Committee have let known that they are not strong backers of the direct payment program. That program is one of the three main pillars of support for the row crop farm bill beneficiaries--wheat, feed grains, oilseeds, cotton, and rice. The other two important programs are the counter-cyclical payments and marketing loan benefits.

The chairmen's comments can be read as their signaling that they might be prepared to reduce the level of spending in direct payments below the current program base line to free up money for other programs they want to make part of this farm bill.

According to USDA's summary of the farm bill base line, direct payments on average over the next ten years will cost a little over $5 billion a year. The other two pillars of farm support take up only a little over $2 billion a year over the same time period. USDA, by the way, contrary to the chairmen's views, would would like to see direct payments increased and the other two programs decreased.

Direct payment money, if shifted, most likely would be allocated to pay for a new disaster assistance program or for increased conservation spending. 

That's it for now; but I will continue to keep you posted on additional farm bill developments as the committees move toward mark-up and beyond.

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Farm Bill Update: The Agriculture Committees Are Almost At The Starting Gate
Posted by: Phillip Fraas
April 25, 2007

The Senate and House Agriculture Committees are still pushing to begin mark-up of the farm bill soon, in May in the House, perhaps June for the Senate; and before then likely the chairmen of the committees will come up with is referred to as "chairmen's marks" to facilitate the committee mark-up process.

In addition, Secretary of Agriculture Johanns recently indicated that USDA will soon have its farm bill proposals in the form of legislative language. It can be expected that some senior members of House and Senate friendly to USDA or its farm bill proposals will introduce bills incorporating the USDA legislative language; so that could be in the mix within the next few weeks as well.   

When the chairman's marks come out and the mark-ups begin, the farm bill race will be on. 

THE MARK-UP TIMING AND IMPACT

The Chairman of the Senate Committee on Agriculture, Nutrition, and Forestry, Tom Harkin (Dem.-Iowa), and the Chairman of the House Committee on Agriculture, Collin Peterson (Dem.-Minn.), have to begin mark-up in May or June in order to have a fair chance of meeting their self-imposed deadline for finishing the farm bill this year.

They want to finish the bill this year because the current farm programs expire with the 2007 crops, and the chairmen would like farmers and agribusinesses to have as much time as possible to adjust to any changes in farm policy that might be made by the farm bill before the first 2008 crops are planted early next year.

The House of Representatives web site states that Congress will adjourn for the year in late October. Backing off from that date, Congress needs to have floor debate on the farm bill before the August recess (set to begin August 3). That would allow time in September and October for the House and Senate to resolve their differences on the legislation. And, for floor debate to occur in July, the agriculture committees have to mark-up the legislation in May and June.

What is mark-up and why is it important? A mark-up is a business meeting of a congressional committee, or series of meetings, to consider proposed legislation. At the mark-up, staff describes what is in the bill;  the members offer and vote on amendments, and then the committee votes up or down on reporting the amended bill to the full House or Senate with a recommendation that it be passed.

The mark-up is the nitty-gritty stage of the legislative process in which a bill is technically vetted, controversies are spotted and debated, and the amount of spending under the bill is decided. And, the farm bill mark-up will be time-consuming and could take weeks to complete. This is so because the farm bill is big: it not only sets price and income support policy, but it contains titles on international trade, soil and water conservation, nutrition assistance, farm credit, and other important USDA programs. Also, the House Agriculture Committee is planning on having its subcommittees mark up the portions of the farm bill within their jurisdiction before the full committee considers the legislation.

Most farm bill issues are fairly technical and not of great interest to most of the country. So, the Senate and House leadership likely will be agreeable to what the committees come up with in the mark-up process, as long as they stay within the budget strictures.

Of course, there always will be a few farm bill issues that can't be put to bed entirely in committee mark-up and have to be debated anew during floor debate. Possible examples are country-of-origin food labeling requirements or other food safety proposals; increases or decreases in food stamp benefits; or how much to spend for new programs to foster the development of ethanol production from cellulosic feed stocks in order to help meet the Nation's energy independence goals.

THE CHAIRMAN'S MARK

The agriculture committees need something to work off of when marking up legislation. It would be cumbersome and time-consuming for the committees to review every farm bill legislative proposal and have to pick and choose among them. It facilitates the process for the chairman of the committee to provide a chairman's mark, that is, a draft farm bill that covers all the important issues.

The mark could be nothing more complicated that a simple restatement of the current law provisions of the farm bill; but, by the same token, or it could be a proposal to radically change the farm programs. The latter happened in 1996 when the Chairman of the House Agriculture Committee introduced the "Freedom to Farm" legislation that wiped the existing farm programs of the books and proposed entirely new statutes. It is very unlikely that the USDA proposal will be the chairman's mark.

I expect the chairman's marks this time around likely will be somewhere close to just restating existing law, for the most common comment made at the many farm bill hearings and listening sessions held over the past year or so was that the current farm programs are working relatively okay and there is no need for radical changes.

Of course, we should look for some new proposals in the chairman's marks. There wasn't a big energy title in the 2002 farm bill, but there likely will be one this time around; so the chairman's marks might have a number of innovative energy proposals. Likewise, the chairmen might want to fine-tune or reshape the existing programs they include in their mark. I wouldn't be surprised, for example, if the chairmen propose to shift emphasis and money among existing programs, taking from some current programs and adding to conservation or disaster assistance programs. 

The chairman's mark is of critical importance to the groups and organizations lobbying on farm bill issues. If  a group's proposal is included in the chairman's mark, it have a substantial leg up in making sure its proposal is in the bill sent to the President for his signature. If the group's proposal is not included in the mark, the group has an uphill battle of finding a champion in Congress to offer the proposal as an amendment, and then lobbying many members of Congress to ensure they have a majority when the amendment is voted on. No small tasks, especially if the proposal is at all controversial.

Beyond that, the chairman's mark tends to set the direction and boundaries of the farm bill debate. It offers a glimpse of what the farm bill ultimately will look like.

Thus, I will be keeping my eyes peeled for what is in the chairmen's marks and posting what I find at this blog site. 

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The Nutrition Title Of The Farm Bill Begins To Take Shape
Posted by: Phillip Fraas
April 06, 2007

When USDA released its farm bill proposals on January 31, it included a number of recommendations regarding the nutrition title of the legislation. Also, it is increasingly clear that Congress likely will not allocate new money for the 2007 farm bill. Both these developments give us the first outlines of what the farm bill's nutrition title might ultimately look like when all is said and done.

BACKGROUND

When Congress started passing "farm bills" decades ago, they were just that--bills to extend or change the farm commodity price and income support programs. Since 1972, however, they have included additional titles (as in "title I," "title II," etc.) and, since 1977, have all included nutrition titles.

In fact, the nutrition programs, primarily the food stamp program, now take up a large part of the money allocated to the farm bill. USDA, in its proposal, did a projection of the farm bill baseline, that is, the amount that will be spent on farm bill programs over the next 10 years if current programs are extended without change. Its estimate is that the food stamp and other nutrition programs it has proposals for would cost $438 billion over that period, which is roughly 70% of the total estimated cost of $619 billion for all its farm bill programs. 

That is not to say that all that spending on nutrition programs neglects farmers and agriculture. The reason the farm bill has a nutrition title is that farmers clearly are secondary beneficiaries of the nutrition programs. Essentially all of the money allocated for participation in the food stamp program, for example, must be spent on things farmers produce--food.

In passing, it should be noted that reauthorization of two major nutrition programs--school lunch and WIC (the nutrition program targeting women, infants, and children) is not done in the farm bill. Traditionally, these programs have been developed, amended, and renewed in separate legislation that, in the House of Representatives, is handled by both the Committee on Agriculture and the Committee on Education and Labor (the latter having a major role in the legislative process). Having said that, the USDA farm bill proposal does include several school lunch program proposals.

USDA'S NUTRITION PROPOSALS

USDA proposes several changes in the operation of the food stamp program. Some changes would increase spending, others would reduce it; but as a whole the USDA proposals are essentially budget-neutral--they would reduce nutrition program spending by just $66 million over 10 years, according to USDA's own estimates.

USDA would increase access to the food stamp program (a means-tested program), and by extension spending under the program, by excluding retirement and college savings accounts, and combat-related military pay, and by eliminating the cap on deductions from income for dependent care costs, when determining eligibility to participate in the program. It would reduce food stamp spending by narrowing categorical eligibility to persons receiving Temporary Assistance for Needy Family (TANF) benefits or supplemental security (SSI) assistance under the Social Security program, and by reforming food stamp administration to increase program integrity.

USDA also would change the program name from "food stamps" to "food and nutrition" since the program hasn't used stamps or coupons for decades. Now, participants use what amount to food debit cards. And, it would allocate $100 million to grants for food stamp demonstration projects targeted at reducing the rising rates of obesity in the United States.

Among its other proposals, USDA recommends additional spending of $500 million over 10 years for the purchase of fresh fruits and vegetables for the school lunch and breakfast programs.

THE VIEW FROM CAPITOL HILL

Neither the Senate nor House Committee on Agriculture has developed its own farm bill proposal yet, so we can't at this time compare the USDA proposals to what those committees are thinking on the nutrition title. We'll have a better sense on that when the chairmen of the committees make known their farm bill recommendations in May.

What is already apparent on Capitol Hill, however, is that likely the farm bill nutrition title will not get additional money for improvements to the food stamp and other programs beyond the amounts already allocated to them under the baseline. What the committees are wrestling with now, and will continue to do so as the year progresses, is to decide which meritorious nutrition program changes don't cost or save money, so thus can be included in the farm bill, and which ones are so necessary that they should be included in the bill, even if money has to be taken from other programs to pay for them.

Some of the USDA proposals are being favorably received. For example, Senator Chambliss, the ranking Republican on the Senate Agriculture Committee, has introduced legislation (S. 591, cosponsored by Committee Chairman Harkin) with a provision similar to USDA's proposal to exclude retirement and college savings accounts in determining food stamp eligibility. But, as one staffer put it, the question is not whether there is disagreement on how to improve the food stamp program, the question is where to find the money for the improvements.

Another theme I am hearing is not to expect major nutrition program changes this year. It is reported that the food stamp program right now is operating at historically low error and fraud rates, and Congress is not being called on to make major "fixes" to the program. Look, instead, for incremental changes--if not those recommended by USDA, something like them. And, as I have heard over and over again, look for spending to remain close to the baseline.

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The Farm Bill Budget Picture Gets Clearer; Supplemental Appropriation Could Affect The Farm Bill Process
Posted by: Phillip Fraas
March 31, 2007

THE BUDGET PICTURE

Late this week, the House of Representatives joined the Senate in passing a budget resolution governing federal spending and taxes for 2008 and the four succeeding fiscal years.  (Notwithstanding the resolution's five-year length, the budget process is an annual event, with fresh takes on the five-year projections made each year.)

The House budget proposal looks very similar to the Senate's when it comes to funding for the farm bill. Neither resolution will provide direct authority for new farm bill spending beyond the current programs baseline amount. The House, like the Senate however, did authorize the establishment of a "reserve fund" that the Agriculture Committee could tap as needed to craft the farm bill--the House reserve is set at $20 billion while the Senate's is $15 billion. An important caveat must be applied to both: spending from the reserve is still subject to the congressional "pay go" rules, that is, if spending is increased above the baseline, it must be offset by reduced spending elsewhere or by increased revenues.

 In effect, the creation of the budget reserve is like a credit card company increasing your spending limit. You can buy more, but you will have to "offset" those purchases, i.e., you have to pay the money back. 

The House and Senate Budget Committees will now meet in conference to resolve the differences between their resolutions, and submit their conference report to both houses for final approval. If all goes as scheduled, that process will take place over the next few weeks.

However the conference report ends up, the bottom line is that the Agriculture Committees likely will be limited to the current services baseline in funding a new farm bill. So, if any member wants to change a farm bill program in a way that increases its spending, he will have to take money from some other farm bill program. Farm bill lobby groups might end up having to spend as much time guarding their current programs from poaching as in seeking enhancements to their programs.

SUPPLEMENTAL APPROPRIATION

Moving through Congress now is a fiscal year 2007 supplemental appropriation bill to provide added funds for the Iraq war. Both houses have passed the measure, and it too will now go to conference committee for resolution of House-Senate differences.

 The bill include riders to the bill to provide disaster assistance funds for farmers and extend the MILC program, a farm bill measure which provides payments to dairy farmers when milk prices are low. There is a good chance that, once the dispute between the President and Congress on the Iraq pull-out deadline is resolved and the supplemental becomes law, the disaster assistance and MILC provisions will be in there, which will alter the course of the farm bill debate.

Currently, the MILC program expires at the end of the eleventh month of fiscal year 2007, that is, on August 31. Because it does not run to the end of the fiscal year, under congressional budget scoring protocols, MILC is not included in the farm bill baseline. So, as it stands now, if Congress wanted to extend MILC for five years in the new farm bill, it would have to find spending or revenue offsets of about $1.2 billion to avoid violating the "pay go" rule. To avoid this, a provision was included in the Senate supplemental to extend the program for one month, at an estimated cost of $31 million--a small cost indeed for getting the $1.2 billion cost of a farm bill extension into baseline. The House took a different approach, extending the program for an entire year, and switching the program from the farm bill to another baseline.

It's hard to say which version will prevail in conference. The two authors of the MILC amendments both will be key members of the conference committee--House Appropriations Committee chairman David Obey (Dem.-Wisc.) and Senator Pat Leahy (Dem.-Vt.), and both will energetically advocate their approach.

The supplemental also includes about $4 billion in emergency spending for recent farm disaster losses. If substantial disaster emergency funding stays in the bill, that might take pressure off the Agriculture Committees to fund that assistance in the farm bill and, by extension, will change the tenor of the farm bill debate on long-term reform of the disaster payment programs. The Chairman of the House Agriculture Committee, Collin Peterson (Dem.-Minn.), has spoken forcefully about the need to replace ad hoc annual disaster payment appropriations with a permanent program and, no doubt, will give serious consideration to including the permanent program authority in the farm bill. But, if this year's disaster needs are already met when Congress drafts the farm bill, there won't be the leverage created by immediate need to build support for adding disaster payments legislation. That's not a huge problem, but it does change the atmosphere in which permanent disaster payment reform will be discussed.

NOTE: Look for a discussion of the nutrition program provisions of the farm bill in my next posting.

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The Agriculture Committees Begin Work Crafting The Farm Bill
Posted by: Phillip Fraas
March 16, 2007

Most of Congress's work in crafting a new farm bill will be done by Senate and House Agriculture Committees. These two committees get handed all the work because the farm bill issues tend to be highly technical requiring specialized expertise. The rest of Congress, to a large degree, depends on the 21 Senators and 46 representatives who sit on those committees to come up with farm programs that will best serve the national interests.

The two committees have gotten off to a good start this year in developing the new farm bill. They are holding hearings, it seems like, every other day; and they have already submitted their requests for budget authority to fund what goes into the bill. Further, the committee chairmen recently sketched out an ambitious work schedule for the year.

BUDGET AUTHORITY STILL UP IN THE AIR: As noted in my last blog posting, the shape of the new farm bill will be dictated, to a considerable degree, by how much spending authority Congress allocates to the Agriculture Committees. The committees have submitted their requests to the Budget Committees and now  eagerly await their verdicts as what the Budget Committees recommend likely will be approved by the full membership of the two houses.

The House Budget Committee is expected to release its recommendations next week. On the Senate side, the Chairman of the Budget Committee, Kent Conrad (Dem.--N.D.) earlier this week recommended that a "budget-neutral" reserve fund of $15 billion be allocated to the Agriculture Committee for the farm bill in addition to the baseline amount (which is the amount farm programs would spend in the future if current programs are continued without change). "Budget neutral" means that the Agriculture Committee could tap the reserve to increase farm bill spending, but to do so would have to reduce spending in other areas so that there is no net increase in government spending overall.

While I haven't seen the Congressional Budget Office's five-year baseline for the farm bill, USDA calculates a baseline of about $61 billion a year for the next ten years. USDA, by the way, recommends an increase in spending of about $5 billion over the baseline for those ten years. And, today, The Washington Post, in an editorial, urged the Budget Committees not to approve any more than that $5 billion increase.

The budget surely will be a problem for the Agriculture Committees because the farm bill baseline simply is not big enough to accommodate all the programs recommended for inclusion in it. This is not a newly-minted problem peculiar to this year. Except in times of budget surplus, as in 2002, the Agriculture Committees have always had to fight tooth and nail for increases in farm spending. There is no surplus this year, so no one expects the Budget Committees to allocate substantial increases for the farm bill, or either house to waive budget points of order against farm bill spending in excess of the baseline.

FARM BILL SCHEDULE: Based on my discussions with people on Capitol Hill, it looks like the farm bill schedule will be as follows: Committee mark-up in June; floor debate and conference consideration in July; staff work drafting the conference report in August, and final passage in September.

If Congress adheres to those timelines, it will be the first time the farm bill will have been finished that early since 1977. For farm bills since,completion in late December has been the norm, and on occasion the debate has run over well into the following year.

The September deadline is important because farmers need to know what the price and income support rules are going to be well in advance of spring 2008 planting. Further, many other farm bill programs not tied to planting expire or need renewal by the end of this fiscal year, which is September 30. So, there is plenty of motivation for the chairmen of the two committees to meet their planned schedule.

DEVELOPING ISSUES: Increasingly, it looks as if the Agriculture Committees will not simply renew the existing the farm programs without change. As noted above, there are too many new players at the table whose needs must be accommodated with a budget that has no wiggle room for new programs. For example,

• the Committees have to deal with the need to fund increased biofuel research and development;
  
• a new permanent disaster assistance program could be considered;
  
• the needs of fruit and vegetable growers are on the front burner; and
  
• there are relatively new mandatory spending programs for rural development and research that seek additional funding.

Turning from budget issues, look too for an effort to be made to add a competition package to the farm bill to limit agribusiness consolidation.

Assuming committee mark-ups occur as scheduled in June, there will be intense jockeying among lobbyists in April and May to get their messages on the issues to the committees. In short, it looks like things will be busy from here on out.

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The Congressional Budget Process Begins; Its Effect On the Farm Bill--Yet To Be Determined--Will Be Significant
Posted by: Phillip Fraas
March 06, 2007

Early last month, Congress received the President's budget proposals for fiscal year 2008, which begins October 1 of this year; and the package is now being examined by the congressional budget committees, which have the task of putting together the congressional budget resolution for fiscal 2008 spending. This budget resolution will contain spending instructions that will affect the way the new farm bill is drafted.

THE CONGRESSIONAL BUDGET PROCESS: Here's how the congressional budget process works. The budget committees are now holding hearings and receiving the recommendations from the other committees that actually draft spending legislation. Then, the budget committees mark-up a "concurrent resolution" on the fiscal 2008 budget later this month or early April.

The concurrent resolution is not like appropriations bills or the farm bill, which actually authorize Executive Branch agencies to spend money. The concurrent resolution is just an internal document within Congress that sets limits on later spending legislation such as appropriations or the farm bill. Further, the resolution doesn't spell out precisely how much money to allocate to each piece of legislation. It just tells the committees with spending jurisdiction how much can be spent in each budget category, and leaves it to them to craft programs that meet the budget limits it imposes.

Once the budget committees come up with a proposal, the House and Senate vote on it and then meet in conference to resolve any differences they have on the resolution. Once conference is completed, the final version of the resolution is supposed to be presented for approval by both houses no later than April 15. Typically, Congress doesn't quite meet that deadline. As often than not, however, Congess does complete its work on the budget by mid May.  

THE BUDGET FOR THE FARM BILL: The President's February budget package included his recommendations for funding the new farm bill. And, just last Thursday, March 1, the House Committee on Agriculture submitted its recommendations to the House Committee on the Budget for fiscal 2008 agricultural spending legislation, including the farm bill. The Senate Committee on Agriculture, Nutrition, and Forestry can be expected to take similar action very soon.

The President's budget proposed a modest increase in spending over the current "baseline," which is the amount that budget experts estimate will be spent in the future if the current farm bill programs continue without change. The President's budget projects the 10-year baseline for the farm bill (for fiscal years 2008 through 2117) at $619 billion, and would increase that number by $5 billion if its farm bill proposals become law.

The biggest part of the farm bill spending by far is for nutrition programs, primarily food stamps. USDA projects the 10-year cost of the farm bill nutrition programs to be $436 billion.

By contrast, spending on the farm income and price support programs during this period is projected by USDA to be $75 billion, and USDA proposes cutting those programs by $4.5 billion. And, of importance to those with a direct interest in the farm bill programs, the USDA proposal would shift money among these programs--reducing spending on marketing loans and counter-cyclical payments, cutting spending further by tightening payment limits, and then funneling some of the savings into increased direct payments.

Last week's budget recommendations of the House Agriculture Committee released to the public did not include specific dollar recommendations. But, the four-page letter signed by both the Chairman and Ranking Republican did make clear the Committee's preference for just extending the the current farm bill programs without change. Also, it asks the House Budget Committee for an increase in its spending authority over the baseline to accommodate additional funding requested by the Administration in such areas as renewable energy, MILC payments, support for fruit and vegetable producers, and expanded soil and water conservation efforts.   

Assuming that the Senate Agriculture Committee seeks similar additional budget resources too (which is likely), the stage will be set for the budget committees to act on how much money the new farm bill should get. Given that the budget committees will be faced with the daunting task of reducing budget deficits, it will be no easy task for them to find the extra money the agriculture committees will want. If they do, the farm bill process will be much easier than if they keep the current baseline or even reduce it. If the latter happens, the agriculture committees will have to make tough farm bill choices: Money for renewable energy or for conservation? New funding for fruit and vegetable producers, or in the alternative keeping the current protection these growers have from grain and cotton growers who receive farm bill benefits planting their crops? The list of tough choices could go on and on.

 All the agriculture committees can do now is wait for the budget resolution to pass. Then, they can start working on the farm bill knowing how much they can spend. Then, they will know whether they are going to have a long hot summer or not. Stay tuned.   

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More on USDA's Farm Bill Proposal: It Gets Through Hearings Still In Play ButWith Some Nicks
Posted by: Phillip Fraas
February 19, 2007

Last Wednesday, Secretary of Agriculture MIke Johanns presented the USDA farm bill proposal to the House Committee on Agriculture. This follows a similar presentation he made to the Senate Committee on Agriculture, Nutrition, and Forestry the week prior (and discussed in this blog's February 12 entry).

As was the case with the Senate event, last week's House hearing produced no real fireworks. There was some questioning of specific elements of the USDA proposal, but overall the committee members didn't signal that they were going to ignore it completely as they go forward in crafting the bill. One senses that the USDA proposal has survived its first test under fire.

To the extent, however, that the USDA proposal seeks new directions in farm policy, it still has yet to be fully tested. That won't happen until the committees begin drafting and marking up their own versions of the farm bill.Then, the "proof of the pudding" will be whether any of the USDA reform proposals actually make it into the farm bill pudding as an ingredient. At this point, it is too early to tell whether that will happen.

 Among specific parts of the USDA proposal that members of the House Agriculture Committee took issue with were: its payment limitation reforms, its revenue-based countercyclical payments proposal, and the MILC program changes it recommends. Not directily addressed in the USDA farm bill but also discussed at the hearing were the possible value of establishing a permanent disaster assistance program and the need to address the shock to the livestock sector that increased costs of feed are having and might have in the future as more feed grains go into ethanol production. To a large extent, the Senate Agriculture Committee raised similar concerns. [By the way, some of these matters are relatively arcane--e.g., revenue-based counter-cyclical payments, or the MILC program--so feel free to e-mail me if you have questions about the specifics.] 

 In passing, it should be noted that, at the House hearing, Secretary Johanns stated that cellulosic production of ethanol will be a reality within 5 years.  

House Committee Chairman Peterson engaged in a discussion with the Secretary about the USDA budget proposal, and much I read these days suggests that how the agriculture committees fare in the budget battles will have a lot to do with how the farm bill ultimately looks. I will explore this aspect of the farm bill process a little later, when we get closer to congressional action on the fiscal year 2008 budget.

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More On USDA's Farm Bill Proposal: Reform-Minded But Moderate
Posted by: Phillip Fraas
February 12, 2007

USDA's lengthy farm bill proposal released on January 31 pursues several major reforms: Moving the farm support payment programs away from price-based support toward decoupled income support; toughening program payment limits; and eliminating program abuses of the types highlighted in a series of articles run by The Washington Post in recent months. USDA, however, does not completely rewrite the farm support playbook entirely. Rather, it proposes to continue the structure of the current farm bill to a large degree.

Perhaps as a result of the moderate tone of the package he was presenting, Secretary of Agriculture Johanns had what almost could be considered a love fest at the Senate Agriculture Committee hearing on February 7, which was the first airing of the USDA proposal before Congress. The objections to what senators didn't like weren't strident, and the atmosphere in general was cordial.Maybe a good sign that the USDA proposal will get thorough consideration as Congress begins drafting the farm bill.

Following are some thoughts on specific aspects of the USDA bill:

• The legislation would increase the use of "direct payments" not tied to--or "decoupled" from--how much the farmer is producing, while decreasing "counter-cyclical payments" and "marketing loan payments," which are tied to production. It is no coincidence that the direct payments can be considered "green box" payments for World Trade Organization (WTO) purposes (green is good because those programs are not considered trade-distorting), while many argue that the counter-cyclical and marketing loan payments belong in the "amber box" (bad because trade-distorting). By emphasizing green box programs, USDA signals its continued commitment to achieving agricultural trade reform in the Doha Round trade negotiations. Of course, if the Doha Round is to bear fruit, the United States might have to reduce amber box payments even more than USDA has proposed so far; but if so, the USDA farm bill proposal sets up a framework for doing so--all it would take is changing the numbers.
• The USDA proposal will tackle what some consider excessive farm program payments by toughening the rules on who can get payments, and how much they can get.  It will reduce the adjusted gross income a person can have any year and still qualify to get the payments--from $2.5 million to $200 thousand. And, it will change arcane payment limit rules dealing with the "three-entity" limitation and the contribution of management to qualify for program payments. I anticipate it will be tough for USDA to win on this issue. Certainly, look for a good fight on it.
• While USDA is considered a major player in the Administration's energy independence initiative discussed by the President in the State of the Union address a couple of weeks ago, the USDA farm bill proposal doesn't pump in huge amounts of new resources for the effort. In fact, some in Congress argue that the proposal doesn't increase funding for biomass energy development efforts at all. I would look for Congress to add resources to USDA's energy programl.
• A proposal bound to be controversial would allow recipients of direct payments to plant program acres in fruits, vegetables, or wild rice. USDA believes this is needed keep these payments in the WTO green box, but current producers of these commodities will not welcome the competition from program participants looking to maximize income from their land and the farm bill programs.

Some winners and losers under the USDA proposal

Winners: Supporters of the existing sugar and dairy programs, which would be extended without much change (which is what producers want), even though they are considered high-cost amber box programs. Also winning, reformers who want to eliminate waste and abuse in the farm programs.

Losers: Farmland values, which have been steadily rising in recent years. The bill takes dead aim at excessive increases in value by toughening the payment limit rules and excluding from payments owners of land purchased in an Internal Revenue Code sec. 1031 exchange (under which owners of high-priced farm land being converted to urbanization can defer taxes on their profit by using the proceeds to buy other farmland farther away from the city). Cotton will lose its so-called "step 1" and "step 3" programs designed to keep U.S. cotton competitive in the world markets; but no one should be surprised as these moves are mandated by a recent WTO ruling.    

Budget considerations

USDA estimates that its proposed program changes will increase farm bill outlays by $500 million a year over the next 10 years. Interestingly enough, however, if the current farm bill is just extended without change, commodity program outlays will take a big dip from $21 billion in fiscal year 2005 to just $12 billion in fiscal year 2008. Why? The increased use of corn for ethanol is providing real strength to market prices for corn and related commodities, and so the amount of payments made to combat low prices is shrinking drastically. USDA's $500 million annual increase will be measured off of this reduced budget projection. So, even with the increase, projected farm bill costs under the USDA proposal are substantially less than actual program costs of just a couple of years ago.

What's next

Look for more farm bill hearings, and for members of Congress to start coming out with their own proposals, either modifying what USDA has proposed or advancing different approaches to updating the farm programs.

And, look for additional postings at this blog site to report on these developments. Next posting: How the House Agriculture Committee reacts to the USDA proposal.

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USDA's Farm Bill Proposal: Much Detail, Some Controversy, and First Off the Mark
Posted by: Phillip Fraas
February 05, 2007

On January 31, Secretary of Agriculture Mike Johanns released the Bush Administration's proposals for the 2007 farm bill. The package is very detailed--almost 200 pages long--and contains some provisions bound to generate controversy in Congress. What with its detail and its early release, the USDA plan is bound to steal the spotlight for the next few weeks, before alternative proposals begin surfacing from within Congress itself.

Like just about any farm proposal coming out of a Republican administration, it is tilted toward increasing the market orientation of the farm programs; and it appears to have been intended as well to send a signal to our trading partners that the Bush Administration is prepared to reduce U.S. trade-distorting agricultural subsidies. Further, it addresses some of the criticism leveled at the farm programs by a series of articles in the Washington Post in recent months (which have been chronicled in this blog). But for all that, and with just a few exceptions, it is a fairly middle-of-the-road proposal, certainly not as radical a departure from existing programs as the "freedom to farm" bill enacted by Congress in 1996.

The reaction to the USDA package so far has been muted. The EU has stated that the subsidy cuts are not amibitious enough; but I have not seen any comments from Congress or interested ag groups savaging it. 

How much of what USDA proposes will Congress adopt? It is too early to tell, though it can be expected that members of Congress will embrace--and likely consider adding to--the USDA bioenergy and resource conservation proposals. For now, the USDA proposals will become the focus of farm bill discussions. The Senate Committee on Agriculture, Nutrition, and Forestry has already scheduled a hearing on them for Wednesday, February 7.

I will follow-up in a couple of days with more details on the USDA package, and discuss where the controversies are (advance hint: look at its payment limitation and price/income support mechanisms), what it will cost if enacted, who its winners and losers are, and so on. In the mean time, the President releases the Administration's fiscal year 2008 budget proposal today, which no doubt will incorporate the USDA farm bill assumptions. I will let you know if there are any surprises there as well.  

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USDA Set to Release Farm Bill Proposal on Wednesday
Posted by: Phillip Fraas
January 29, 2007

I received a reliable report today that USDA will release its 2007 farm bill proposals on Wednesday, January 31. This is much earlier than Secretary Johanns had hinted in earlier statements, when he had suggested it would be mid to late February at the earliest.

 It might not be coincidental that, over the last weekend, the Doha Round negotiators announced the resumption of negotiations in a last-ditch effort to break the stalemate in those trade talks and that (in connection with that development) President Bush is expected this week to ask Congress to extend his "fast track" trade negotiating authority, set to expire on June 30. The fast track extension is believed critical to allow the Doha Round negotiations to proceed beyond March.

Indications all along have been that USDA's farm bill proposal might be tied to the Administration's Doha Round efforts. Thus, the tricky part of this new scenario is what USDA might propose on Wednesday with respect to countercyclical and direct payments, and other "amber box" subsidy programs, under the current farm bill. One current bone of contention holding up progress at Doha is how much the United States is prepared to cut back these programs to get a deal.

It is hard to conceive USDA putting a farm bill proposal on the table that makes substantial reductions in these programs without first having gotten market access commitments from the E.U. and the developing  countries in return; and so far no one is reporting any breakthrough in that regard. Does that mean the Administration is abandoning a farm bill-Doha linkage? Stay tuned.   

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Among the First Out of the Gate . . .
Posted by: Phillip Fraas
January 16, 2007

Now that the new 110th Congress has begun work, we can expect to see key members of the congressional agriculture committees begin describing what the new farm bill might look like. In addition, early to mid January is the busiest time of the year for the annual meetings of the big national farm organizations at which congressional leaders are invited to speak. This confluence of events has led to a couple early declarations of intentions regarding the farm bill that are worth passing on.

THE HOUSE AGRICULTURE CHAIRMAN SPEAKS OUT: The new chairman of the House Committee on Agriculture, Collin Peterson (Dem.-MN), spoke at the annual convention of the American Farm Bureau Federation earlier this month. He told the Farm Bureau members that his committee would not wait to see if the Doha Round trade negotiations might restart in earnest before it begins drafting the farm bill. Further, he indicated he is opposed to eliminating a provision in the current farm bill (that prohibits fruit and vegetable growers from receiving direct payments) in order to avoid a World Trade Organization (WTO) challenge to the U.S. subsidy programs. More on the Doha Round and the possible WTO challenge in the paragraph following the next.

He also said that his committee's farm bill proposal will look very similar to the current 2002 farm bill programs. Also, he would like to set up a permanent disaster assistance program to farmers, and hopes there is money available for the development of renewable energy/ethanol programs. However, he pointed out that the agriculture committee will have to wait until the congressional budget estimates come out in March to get a better sense of whether there will be money available for such ambitious new programs.

[A note on Doha and the WTO: President Bush and EU Commission President Jose Barroso, at their bilateral summit on January 8, committed to have their staff negotiators begin work to come to a solution to resolve the US-EU differences on agricultural trade in the Doha Round trade negotiations. So, while many believe (and are reasonable in doing so) that Doha is dead for this year, there remains a small possibility that a breakthrough might be reached within the next few weeks that would impel Congress to extend the President's "fast track" negotiating authority, which expires at midyear. Doing so would allow Doha negotiations go forward to fruition as early as this year and might force the congressional agriculture committees to consider Doha proposals in crafting a new farm bill. As to the WTO challenge to the U.S. farm bill programs, last year Brazil won a WTO challenge to the U.S. cotton program that is still having ramifications for the farm bill even after the U.S. agreed to fix the export subsidy program that was the main impetus for Brazil's WTO challenge. The wording of  the WTO decision in favor of Brazil has drawn into question the compatibility with United States WTO obligations of a minor, but key, element of U.S. price support policies--the prohibition against fruit and vegetable growers from receiving direct farm bill payments. Some want to fix this WTO problem in the new farm bill, while others, such as Chairman Peterson, are wary that doing so could undermine support for the farm bill among fruit and vegetable growers--who fear that, without the prohibition, grain, oilseed, and cotton growers might be encouraged to start growing their commodities in competition with them. On a different front, Canada recently announced it would pursue WTO remedies for the trade distortions--and adverse impact on its corn growers--allegedly caused by this U.S. program feature and others, but encouraged the U.S. to use the farm bill process to address its concerns. While the Canadian challenge is unlikely to have much direct affect on the farm bill debate, it highlights how WTO considerations could yet be a major part of the farm bill calculus. ]  

THE FARM BUREAU WANTS TO CONTINUE CURRENT FARM BILL POLICIIES: At its convention, the membership of the Farm Bureau (which is probably the most influential general-membership farm organization) approved a policy that calls for a new full-term farm bill that simply extends 2002 farm bill programs. In doing so, it puts the Farm Bureau on the side of many in Congress, including the Democratic farm leadership, who favor an extension of current programs against Secretary of Agriculture Johanns who has recommended substantial changes in the programs. The new Farm Bureau policy switchs gears considerably from last year, when the organization called for just a one-year extension of the 2002 farm bill to allow time for Doha negotiations to be completed.

P.S. The Washington Post, in an editorial published on January 8, called for a complete overhaul of the federal farm subsidy system, expressing its belief that the current programs distort the markets to push smaller farmers out of business. The Post cited the series of articles it had run in 2006 (and described in this blog) in explaining its position.

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Straws in the Wind--Part II
Posted by: Phillip Fraas
January 04, 2007

Congress just begins its new session today so it is too early to look for developments on Capitol Hill regarding the new Farm Bill Congress will draft this year. It is not, however, too early to note and pass on reports of developments elsewhere that could influence the development of the Farm Bill.

 CORN AND SOYBEAN PRICES: Yesterday in the futures markets, even after sharp declines, March corn was trading at $3.70 a bushel, and January soybeans were going for $6.69 a bushel. If these bullish prices hold up (and it is hard to imagine a drastic decline as long as demand factors like ethanol production don't flag), the effect on the development of the Farm Bill might be considerable.

Both commodities have been responsible for a good portion of farm bill outlays in the past; but with market prices higher, the need for the outlays lessens. The result: less budget pressure to change current programs substantially. Also, the high prices for corn have to scare the heck out of livestock and poultry producers; and consumer groups will be concerned about possible increases in food prices as the higher input costs are passed along. Thus, also, look for the agriculture committees to think about ways to ensure that the demands of ethanol producers don't result in a permanently short market for corn.

MORE FROM THE WASHINGTON POST: I first mentioned last October the series of articles The Washington Post was doing on farm policy. The Post is still at it, publishing two additional parts of its series last month: December 21, 2006 "The myth of the small farmer (federal subsidies turn farms into big business)"; December 22, 2006 "The fight over the farm bill (powerful interests ally to restructure agriculture subsidies)".   

Given that the thrust of the Post series is to question the worth and cost of the current Farm Bill programs, it will be interesting to see how the defenders of agricultural programs in Congress respond to these implicit attacks on the Farm Bill, and whether the series will become part of the fabric of the 2007 Farm Bill drafting process. As to the latter, I think it is too early to tell; but if the Post series starts being circulated and quoted, look for tougher sledding for Farm Bill partisans during the congressional floor debate on the legislation later this year (especially in the House where there are many congressmen whose districts have no rural components and thus have no constituent pressure to vote for farm programs).

 FARM BILL FOOD FIGHT?: There was another e coli outbreak associated with green vegetables in December, this time involving iceberg lettuce or green onions in the Northeast; and this development got a lot of press. Thus, I suspect the safety of our food supply has become an issue on many people's minds right now.

The Administration and the food industry are working hard to deal with the problem, with recent reports that new handling and processing standards for vegetables will be promulgated in March. If those standards don't mollify the concerns of food safety advocacy groups in Washington and if the worst happens and there is yet another food poisoning outbreak, look to the possibility that the fight over strengthening Federal food safety rules laps over into and perhaps reshapes the Farm Bill debate. There are a lot of ifs for such a scenario to occur, and traditionally food safety issues have not been part of the Farm Bill debate; so it is not something that needs focusing on now, just kept an eye on.

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