Posted by: Phillip Fraas
October 19, 2007
Topic: REPORTS ON FARM BILL STATUS--Second Half of 2007

This week, the Senate Agriculture Committee edged closer to mark-up of the 2007 farm bill when it was announced that Chairman of the Committee, Senator Tom Harkin of Iowa; Ranking Republican, Senator Saxby Chambliss of Georgia; and Committee member and Chairman of the Senate Budget Committee, Kent Conrad of North Dakota, had reached agreement in principle on the outlines of the farm bill package the Committee will take to the Senate floor. Reports are that Harkin is ready to convene the Committee next Wednesday, the 24th, to consider the package. However, within the last couple of days, a controversy over a key element of the plan--optional revenue-based counter-cyclical payments--has threatened to derail mark-up.

THE AGREEMENT: The Harkin-Chambliss-Conrad plan would keep the three all-important commodity support programs--marketing loans, counter-cyclical payments, and direct payments--in place with some adjustments in loan and payment rates. And, it would tighten up the payment limitation rules in a manner similar to the way the House-passed farm bill did.

Also similarly to the House-passed bill, it would boost spending for nutrition programs by over $4 billion thourgh 2012 and increase support for renewable energy development. It differs substantially from the House version in that it would include the new Agricultural Disaster Relief Trust Fund approved last week by the Senate Committee on Finance and provide substantial new funding for the Conservation Security Program, which is strongly supported by Chairman Harkin.

Generally, this package and the House bill appear to be close enough in overall concepts that, should the package pass the Senate, getting the the House and Senate to resolve their differences in conference isn't too daunting a prospect.

THE CONTROVERSY: One part of the Harkin-Chambliss-Conrad plan would provide farmers that option to enroll in a new revenue-based counter-cyclical payment program that is similar to a program proposed in farm legislation earlier introduced by Senators Durbin of Illinois and Brown of Ohio.

The current counter-cyclical payment program is price-based, that is, it pays grain, oilseeds, and cotton farmers if market prices fall below the target price for each protected commodity and are calculated for each farm based on assigned yields and acreages.

This payment program has been subject to criticism. As USDA explained in its farm bill proposal: "By failing to take into account actual production per acre, current counter-cyclical payments tend to under-compensate producers when [actual] yields decline and over-compensate producers when yields increase." Thus, during the debate on this farm bill, there has been a lot of interest in switching to a revenue-based counter-cyclical program, under which payments are made when revenue per acre falls below a target revenue amount. Per-acre revenue, it is argued, will more fairly compensate farmers during times of weak prices or weak yields. USDA proposed a revenue-based plan and the House included such a plan as an option for farmers in its version of the farm bill.

The particular revenue-based plan in the Harkin-Chambliss-Conrad package is called Average Crop Revenue Insurance and would be available as an option starting in 2010. It would provide farmers with payments if average per-acre revenue at the state evel falls below the target revenue figure. But, if the farmer took this option, (1) the farmer would have to forego use of non-recourse marketing loans (under which the farmer can get a loan on harvested crops and forfeit the collateral without repaying the loan if market prices are below the loan amount), and (2) the farmer's direct payment rate would be a flat $15 per acre. The Congressional Budget Office has estimated that the plan would reduce farm bill spending by up to $3.5 billion. A reduction that substantial suggests that many farmers would find the option attractive and take it. And, those savings will allow increased spending in other areas of the farm bill needed to get the bill passed.

The American Farm Bureau Federation, the National Association of Wheat Growers (NAWG), and the crop insurance industry, however, have come out in strong opposition to the plan. The Farm Bureau is concerned about the marketing loan and direct payment changes, NAWG has expressed concern about it getting us into World Trade Organization (WTO) problems, and the crop insurance industry appears to worry that it will reduce crop insurance purchases.

The Senate Agriculture Committee is very close to finally moving the farm bill forward (which the entire agricultural industry is pushing hard for in order to get the bill to the President before the end of the year), so I don't sense that these objections to the revenue-based payment plan are deal-killers. Yet, since the objectors are key farm bill players, their concerns must be dealt with--and before next week's mark-up if at all possible. Thus, it is likely committee staff will be spending a long weekend working through the objections and crafting changes to the plan to address the concerns.

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FARM BILL UPDATE--Senate Agriculture Committee Close To Mark-Up Amid Controversy Over New Protection Plan

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