Since the 1930’s and the Great Depression about every 5-years the U.S. Congress adopts a Farm Bill. The Farm Bill contains production agriculture & food policies under the jurisdiction of the U.S. Department of Agriculture. Farm Bill titles include Commodity Programs, Conservation, Trade, Nutrition, Credit, Rural Development, Research & Extension, Forestry, Energy, Horticulture and Crop Insurance. At stake is about $100 billion annually! Simply put, the Farm Bill touches everyone, every day. All of our food, fiber and renewable fuel and energy is derived from the farm or benefits from programs administered by the U.S. Department of Agriculture. The House and Senate Committees on Agriculture are gearing up for hearings in Washington and across the U.S. to collect information that will help in crafting the next reauthorization of the Farm Bill.
Farm Bill Budget Baseline Assumptions
Below we are providing charts and analysis attempting to measure the pros and cons of the 2014 Farm Bill and its potential implications to the next Farm Bill that should be written by Congress in the upcoming 115th session. As we mentioned in a previous blog, for an easier transition that lessens impacts to farmers and the markets for which they produce, ideally, a new Farm Bill should be adopted before any new crop harvest. The earliest crop harvest in 2019 will occur in mid-to-late May of 2019 when wheat harvest begins in South Texas. Noteworthy, farmers in South Texas will begin planting this crop in the fall of 2018. Dependent upon the complexities of policies adopted in the new Farm Bill the U.S. Department of Agriculture would likely need anywhere from 9-months to 1 year to implement the provisions of a new Farm Bill. That means if the next Farm Bill were timely adopted, Congress should reauthorize farm bill programs by September 2018.
The Congressional Budget Office (CBO) is required by law to provide formal cost estimates for nearly every bill approved by a full committee of either the House or the Senate. These cost estimates are useful tools in measuring fiscal and policy outcomes of legislation adopted by Congress. CBO maintains processes that are outlined in the Congressional Budget and Impoundment Control Act of 1974. CBO does not engage in predicting legislative outcomes. The agency provides their baseline budget and economic projections by following current laws.
CBO produces baseline budget and projections each year for programs, including agriculture, so that lawmakers can measure the performance and costs of adopted legislation like the Farm Bill that is typically reauthorized every 5 years, or so. During debate on the 2014 Farm Bill, enacted into law in February 2014, CBO used a budget baseline produced in May 2013 for projecting the 10-year cost of the programs contained in the 2014 Farm Bill. It was unusual at the time to use a May baseline, but the President’s Budget was released late that year and CBO had no choice. In the charts below we use the May 2013 CBO budget baseline for farm bill programs including commodity price supports, Conservation, Crop Insurance, and SNAP to compare the budget projections with the March 2016 and January 2017 CBO budget baseline projections.
After nearly three years of implementing the 2014 Farm Bill, some programs are fiscally tracking the May 2013 baseline projections, some are not – this is not surprising. Some programs have witnessed shortcomings and unintended consequences. Other programs are performing as intended. Whatever the case the table is now being set to reauthorize another 5-year Farm Bill and with the information provided below we are attempting to help you gain an early position in the serving line. Enjoy!
According to CBO the average actual cost of total conservation programs is $4.5 billion for each FY 2014-2016. Despite the actual costs of the past three FY’s CBO anticipates an increase of $600 million beginning in FY 2017 according to their January 2017 projections. Conservation program costs increase slightly each year until 2020 when they reach about $6 billion annually and level off through 2026.
Conservation programs have been a recent target for budget reductions. In FY 2015 Congress reduced the Conservation Stewardship Program by $600 million. Those funds were redirected to pay for other federal programs. In addition, in every annual budget (except FY 2017) proposed by The Obama Administration, cuts have been proposed to farm bill funding for private lands conservation programs like Conservation Stewardship Program and Environmental Quality Incentive Program. The Trump Administration’s first budget for FY 2018 will not be submitted until April or May 2017.
During the 2014 Farm Bill, the CRP program that pays an annual rental payment in exchange for farmers removing environmentally sensitive land from agricultural production, was scaled down to save money. The CRP program witnessed its highest enrollment in 2007 when farmers enrolled nearly 37 million acres. Last fall, the CRP program was down to just over 24 million acres. It will remain at this level until a new farm bill is adopted.
(thank you to USDA-NRCS and Iowa Department of Agriculture and Land Stewardship) In recent years the state of Iowa has experienced success with a new, multi-faceted program that provides financial incentives to farmers planting cover crops. Cover crop plants are small grains, legumes, brassicas and others that are planted to protect from soil erosion and nutrient loss to fields after harvest and into the spring. Cover crops may be grazed or harvested for hay or silage, but cannot be harvested for grain. Farmers in Iowa are eligible for up to $25 per acre in cost share funds if they have never used cover crops in the past. Payments are reduced to $15 per acre if they have used cover crops in the past. Farmers using no-till or strip till are eligible to receive a $10 per acre incentive if they are a first time user of this practice. Farmers using nitrapyrin nitrification inhibitor when applying fall anhydrous fertilizer receive $3 per acre if they are a first time user. Applicants are capped at 160 acres in the program. In 2015, just over 1,500 farmers participated in the program and planted a total 151,106 cover crop acres. That same year the state of Iowa contributed $2.8 million for the statewide cover crop program. This was combined with farmer contributions of $4.6 million for a program total of $7.4 million. In addition, Iowa continues to have a lot of interest in cover crops through federal programs. In 2014; 93,000 acres, in 2015; 104,000 acres, and in 2016; 103,000 acres. Tremendous partnership support for soil health and water quality concerns has helped to drive producer interest and adoption of cover crops in Iowa.
In the next farm bill debate look for groups that will advocate for Iowa’s cover crop program to expand nationwide. Perhaps more states should follow Iowa’s lead and take on more responsibility for conservation programs.
Supplemental Nutrition Assistance Program (SNAP)
Total Farm Bill spending is about $100 billion annually. The Supplemental Nutrition Assistance Program (SNAP) accounts for roughly 75% of the total. SNAP costs reflect the overall state of the U.S. economy and change according to food prices, inflation, unemployment and wages. The March 2016 CBO baseline (see chart below) when compared to the 2013 CBO baseline showed outlays for SNAP for the period FY 2014-2023 reduced by a total $30.6 billion below the levels projected during the 2014 Farm Bill debate. This trend continues in the January 2017 CBO projections — only the cost savings are deeper. For the period FY 2017-2026 CBO projects total SNAP costs declining by nearly $47 billion.
Although CBO shows SNAP with significant lower cost projections, it is meaningless in the minds of some fiscal and social conservative lawmakers. SNAP is their favorite target during Farm Bill debates and to date it doesn’t appear anything will be different in the upcoming one. Last year the conservative group Heritage Foundation published a report, Congress Should Separate Food Stamps From Agricultural Programs, stating, “In 2014, Congress almost separated the farm bill into distinct bills for food stamps and agriculture programs. They should finish the job this year.” But lawmakers would be wise and take caution and recall the fate of those taking on SNAP….
Recall that during the 2014 Farm Bill debate on June 20, 2013 the House of Representatives voted 227-198 approving an amendment crafted by Steve Southerland (R-FL) that allowed states to require food stamp beneficiaries to either be employed or actively seeking employment. Southerland’s amendment did not go through the normal committee vetting and debate on the House floor totaled 10 minutes. All, but six, Republicans supported the amendment and all Democrats, but one, opposed it. Once the amendment was added to the 2014 Farm Bill it caused significant Democrat defections and the House rejected the bill on a final vote, 195-234. House Republican leaders then began advocating for splitting the Farm Bill into two parts so that the nutrition title containing food stamp provisions could be considered separately. The lawmakers principally behind this strategy were defeated in their re-election campaigns and are no longer in Congress.
Commodity Programs Baseline Cost Projections Increasing
According to USDA, in 2015, 1.76 million farmers enrolled in the new Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs created in the 2014 Farm Bill. ARC and PLC programs provide farmers assistance only when there are year-to-year crop revenue or commodity downturns. As of January 7, 2016, ARC and PLC have provided nearly $5.2 billion in financial assistance for crop year 2014, to more than 900,000 farms across the U.S. Under the terms of the 2014 Farm Bill, the 2014 crop year ARC and PLC payments could not be made until after October 1, 2015 (in fiscal year 2016). As a result, the 2016 commodity program payments reflect an increase above the 2015 level due to this timing shift.
As the chart below shows for the period FY 2016-2026 in all but four years the anticipated costs of the commodity price support program costs are projected to exceed those previous assumptions made in May 2013 and March 2016. When comparing CBO’s latest budget assumptions to those in March 2016 total costs for the same period increase from $60.7 billion to $65.4 billion.
The reason for the increase showcases the counter-cyclical nature of farm programs where program benefits occur in response to declines in the farm economy. U.S. net farm income has dropped $52 billion since 2013, “the steepest decline in farm income on record,” according to Dr. Bob Young, Chief Economist and Deputy Director for Public Policy for the American Farm Bureau Federation. USDA ERS recently released their Farm Sector Income Forecast where they said, “The outlook for farm sector well-being is often viewed from the perspective of year-to-year profits. Relative to 2016 levels, farm sector profitability measures forecast for 2017 range from nearly flat to declining.”
Cotton growers and milk producers are unhappy with an inadequate safety net provided in the 2014 Farm Bill. The chart below for projected upland cotton outlays show the decline in support. In their FY 2017 Budget Summary USDA points out that “final counter-cyclical and ACRE payments available under the 2008 Farm Bill are reflect in the 2015 commodity program payments and disappear in 2016. In addition, 2015 commodity program payments for Upland Cotton reflected about $500 million in payments for the 2014 crop year under the Cotton Transition Assistance Payment (CTAP) program for upland cotton. CTAP was authorized in the 2014 Farm Bill to provide payments to growers of upland cotton as they transition from direct payments to the new Stacked Income Protection Plan (STAX) for producers of upland cotton. STAX will be effective for the 2015 and subsequent crop years and will be administered by the Risk Management Agency.” In June 2016 USDA announced a new Cotton Ginning Cost-Share programs that will provide up to $300 million in cost share payments to cotton producers. This one-time cost share program provides payments based on a cotton producers 2015 reported acreage. CBO’s January 2017 baseline reflects an increase of over $300 million in FY 2016 for cotton program outlays. However, for the period FY 2017-2026 support for cotton producers wanes below the CBO March 2016 projections.
For milk producers, the Margin Protection Program (MPP) in the 2014 Farm Bill provides insurance based on the average actual dairy production margin that is derived from the difference between the all-milk price and average feed cost. Payments to producers occur when the margin falls below $4.00 per hundredweight (cwt) for a 2-month period. Payments apply to the operation’s production history with adjustments each year that reflect national average milk production increases. All milk producers are eligible to participate. Producers pay a $100 administrative fee if they select a coverage level at the minimum margin, or $4.00 per cwt of milk. Producers can buy a higher level of coverage, up to $8.00 per cwt if desired. The program is scheduled to expire on December 31, 2018. Since the beginning of the MPP participation has not reached expectations. In 2015, 55% of milk producers throughout the U.S. enrolled in MPP. Of those, 56% elected a coverage level above $4.00 per cwt. Also since the beginning of the program milk prices have declined and margins dropped along with them. However, milk producers have received little-to-no benefits from the MPP because margins did not fall low enough to trigger support. Only those milk producers electing the highest level of coverage, $8.00 per cwt received payments. In August 2016 USDA announced that milk producers “enrolled in the 2016 MPP-Dairy program will receive approximately $11.2 million this month. The announcement meant that “dairy producers who enrolled at the $6 through $8 margin trigger coverage level will receive payments.” Also, USDA has made improvements to MPP and producers will now receive coverage on 90% of their production history. The enrollment period for calendar year 2017 just ended on September 30, 2016. The CBO baseline numbers for January 2017 reflect that the changes USDA recently made have positively impacted MPP participation.
Within the first three years of implementation and with the exceptions of cotton and dairy, the 2014 Farm Bill is operating in its traditional counter-cyclical fashion, providing support to U.S. farmers amidst significant commodity market price declines.
Two new crop insurance programs were introduced in the 2014 Farm Bill, the Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX) for upland cotton. Both provide supplemental coverage to already existing crop insurance coverage. SCO is available to farmers enrolled in commodity programs ARC or PLC and covers a wide range of crops. STAX was created only for upland cotton producers. STAX provides coverage for a portion of the expected revenue for your production area — most often your area will be your county. Both SCO and STAX were offered for the first time on the 2015 crop.
The chart below shows the comparison between CBO projections for the 10-year cost of the cotton STAX program at the time of enacting the 2014 Farm Bill, the March 2016 and January 2017 CBO budget baselines. In April 2014 CBO projected the 10-year total cost of the STAX program at $3.1 billion. After the first year of the program in 2015, out of the total 7.9 million harvested acres of cotton, less than one-third of cotton acres, or 2.5 million acres were covered by STAX. With such low participation the March 2016 CBO projections showed the STAX program 10-year total cost (FY 2017-2026) at $1.4 billion. The January 2017 CBO projections show the continuing decline of the STAX program with a 10-year total cost at just under $792 million.
The latest data from USDA’s Risk Management Agency (RMA) also reflect low particiaption numbers among cotton producers in the STAX and SCO program. Moreover, USDA-RMA made beneficial changes to STAX for 2016 including the cottonseed rider and ability to choose percent of STAX coverage on either irrigated or non-irrigated acres. But those changes did not substantively increase participation level.
|# Policies Sold||
|STAX RP w/ HPE||
|SCO RP w/ HPE||
Randy Schnepf, Specialist in Agricultural Policy for the Congressional Research Service completed a Report on September 27, 2016 on the Peanut Program and future issues. Schnepf points out, “..the United States is expected to be the fourth largest producer and third largest exporter of peanuts in the world in 2016. In addition to its prominent role in international markets, U.S. peanut production and marketing is an important activity in several states located in the southeastern and southwestern United States.” As the chart below shows at the time of writing the 2014 Farm Bill it was projected that payments to peanut farmers would average $105 million annually for the period FY 2015-2024. That held true for FY’s 2014 and 2015. However, the January 2017 CBO projections show that actual peanut program payments were $313 million. CBO projects average annual peanut program costs of about $528 million over the period FY 2017-2026.
In the CRS Report, Schnepf says, “…most analysts expect substantial peanut program outlays in the future under both the PLC program and the marketing assistance loan program, as well as from storage and handling costs associated with peanut loan forfeitures. On average over the same period 88% of the total payments to peanut producers were from the PLC program. Schnepf also points out, “In February 2016, USDA projected annual average peanut program costs at $800 million for FY2016-FY2019. However, record U.S. peanut exports during the 2015/16 crop year, coupled with record domestic use, have substantially reduced domestic peanut stocks and have likely dampened the outlook for program costs in FY2016. Going forward (FY2017-FY2019), outlays will depend on producer behavior and market conditions. As a point of reference, the annual market value of U.S. peanut production over the past 30 years has been primarily in the range of $0.8 billion to $1.2 billion.”
The 2014 Farm Bill modified Federal Crop Insurance (FCIC) programs and authorized new programs that are administered by the U.S. Department of Agriculture’s Risk Management Agency (RMA). It provides farmers with more risk management options and makes crop insurance products more affordable for beginning farmers. Crop insurance products were also created for organic and specialty crop producers.
When comparing the CBO January 2017 cost projections with the projections made in May 2013 and March 2016 CBO shows significant cost reductions in FY’s 2016 and 2017. Program costs are estimated to rise beginning in FY 2018 but CBO lowers their expectations of how much program costs will rise for the period FY 2018-2026.
The January 2017 CBO cost projections for FCIC premium subsidies show a continuing decrease through crop year 2017. Premium subsidies begin rising in crop year 2018 and rise slightly through crop year 2026.
Comparing the January 2017 CBO baseline projections with March 2016 show projections for the average premium subsidy rate over crop years 2016-2026 falling from 62.4% to 56.9%, saving about $1.5 billion over the period. Crop insurance indemnity payments to farmers were significantly lower than anticipated in crop years 2014, 2015 and 2016. Even with a trend of lower indemnities over the past three FY’s, CBO projections return to high levels in crop years 2017-2020 and level off from there. For crop years 2016-2026 CBO projects indemnities totaling just over $104 billion. That’s about $7 billion below the March 2016 projection. The average annual indemnity for period is $9.4 billion.
Over crop years 2016-2026 CBO anticipates U.S. farmers on average receiving $6.2 billion in annual crop insurance premium subsidies and $9.5 billion in indemnities, totaling $15.7 billion annually.
The January 2017 CBO baseline clearly shows some positive changes occurring to the federal crop insurance program. The question remains is it enough? Some continue to argue that throughout the years changes to the federal crop insurance programs have made it harder to distinguish it from a real risk management plan and a farm subsidy program. That means it will remain a target in the upcoming Farm Bill debate. Recall, that in a two-year budget deal enacted in November 2015 administration officials and congressional leadership tucked away a $3 billion, 10-year cut to the crop insurance program. Those provisions would require a renegotiation of the FCIC’s Standard Reinsurance Agreement (SRA) with crop insurance companies and cap insurance company’s rate of return to 8.9% instead of the current 14.5%. After a rebuke of the provisions from farm-state lawmakers, the provisions were repealed in highway legislation that passed in December 2015.
The 2014 Farm Bill reauthorized and expanded existing programs and added some new programs to support the specialty crop industry and organic sector. Main provisions of Title X, Horticulture focus on policies dealing with marketing and promotion, the National Organic Program, pest and disease prevention, food safety and local foods.
During the 2014 Farm Bill debate overall mandatory program spending for specialty crops and organic agriculture was estimated at an average $773 million per year for the period FY 2014-2018. While the programs benefit these sectors greatly the overall spending amounts are a small portion relative to spending levels for other Farm Bill titles.
CBO does not maintain a budget baseline score by provision for Title X compared to the January 2017 baseline. All provisions in Title X have specified amounts and thus the Budget Authority estimates remain the same. Below is a chart showing Title X outlays by program.
Perfect Storm Brewing: Policies and Available Funding
The sobering reality to the crafting of the 2018 Farm Bill is that it all comes down to money and what little remains available in the agriculture budget baseline. Exacerbating this is the overall U.S. fiscal condition and a $20 trillion national debt.
Moreover, a perfect storm is brewing that includes all types of conflicting fiscal and policy issues, politics and priorities, like: rising costs of current programs, enhancing inadequate programs and proposing new programs for the upcoming Farm Bill. Consider:
- Commodity and crop insurance program costs are rising, certain to draw the attention of congressional budget hawks.
- In their February 2016 Agricultural Projections to 2025 USDA acknowledged that total direct Government payments are projected to increase to more than $13 billion in 2016 and 2017, largely reflecting lower crop prices that push up payments under the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. On October 4, 2016 USDA announced that about 1.7 million farms enrolled in either the ARC or PLC programs will begin receiving more than $7 billion in payments to assist producers for a market downturn during the 2015 crop year.
- Cotton growers and milk producers are unhappy with an inadequate safety net provided in the 2014 Farm Bill. Since additional funds for the new Farm Bill are highly unlikely, funds to construct a better safety net for cotton and dairy programs must be redirected from other federal programs (perhaps another Farm Bill program).
- Scientific breakthroughs occurring that address biological conditions in agriculture are exciting. But biological programs for agriculture are woefully underfunded for the growing, global, trade-reliant U.S. agriculture industry. For instance, in U.S. plant health one detection of khapra beetle, one of the world’s most destructive pests of grain products and seeds, can lead to trade restrictions from non-Khapra beetle countries that will likely enforce quarantine restrictions on U.S. export commodities. An example in animal health is Foot-and-Mouth Disease (FMD), a severe, highly contagious viral disease. The FMD virus causes illness in cows, pigs, sheep, goats, deer, and other animals with divided hooves. Plum Island, New York is the location of the Plum Island Animal Disease Center of the U.S. Department of Agriculture. Currently Plum Island maintains a limited number of strains of vaccines for Foot-and-Mouth Disease (FMD). There are 23 known FMD strains around the world. If the U.S. were to detect a single FMD case it will likely stop international trade completely for a period of time. It is estimated that vaccine makers would need hundreds of millions of dollars to ramp up production and distribute the adequate amount of vaccines needed – an estimated 10 million doses needed for the ﬁrst two weeks of an outbreak and 40 million doses needed subsequently.
- According to U.S. Senate Majority Leader Mitch McConnell (R-KY) “the politics of trade have become rather toxic.” President Trump is focusing U.S. trade policies toward multiple bilateral trade deals. U.S. agriculture is reliant and economically sensitive to trade. And, to date no one has surfaced with policy ideas and strategies to convince us how past and pending trade deals will be made better, especially with the U.S. in a leveraged position of being a debtor nation to some of our most important trading partners. According to the U.S. Treasury, the largest foreign holders of U.S. debt are Mainland China (7.2%) and Japan (7.0%). According to USDA Economic Research Service, agricultural sales to China were nearly $26 billion in 2013. Japan is the fourth-largest market for U.S. agriculture, accounting for $12.1 billion.
- On September 26, 2016 Ranking Member of the US Senate Agriculture Committee Debbie Stabenow (D-MI) announced her support for a new Farm Bill program for urban agriculture totaling $46 million per year.
- Yet to be answered is how will the next Farm Bill expedite and support advancing technologies like CRISPR that improves production of corn and soybeans by making them more resistant to disease and drought and breeding vegetables more resistant to viruses and fungi.
The next Farm Bill will be written in a political cycle where Class I Senator’s terms end at the end of the 115th Congress on January 3, 2019. A total 23 Democrat incumbents, 2 Independent incumbents and 8 Republican incumbents in the U.S. Senate will be defending their seats. Of the 9 Democrats serving on the Senate Agriculture Committee, 7 are up for re-election including Ranking Member Debbie Stabenow, Michigan, Sherrod Brown, Ohio, Amy Klobuchar, Minnesota, Joe Donnelly, Indiana, Kirsten Gillibrand, New York, Heidi Heitkamp, North Dakota, and Robert Casey, Pennsylvania. Other Democrat incumbents up for re-election are from top agricultural states including: California, Missouri, Montana and Wisconsin are up as well. There are no Republican incumbents serving on the Senate Agriculture Committee that are up for re-election. However, Republican incumbents up for re-election are from top agricultural states including: Mississippi, Nebraska, Tennessee, Texas, Utah and Wyoming.
It is estimated that 26 members (15 Republicans and 11 Democrats) serving on the U.S. House Committee on Agriculture in the 115th Congress were involved in the negotiations and writing of the 2014 Farm Bill – that’s nearly 60% of returning veterans! These veteran members coupled with the 12 new Members that have a wealth of experience in agriculture will help in producing good policies for the 2018 Farm Bill. Chairman Conaway (R-TX) and Ranking Member Peterson (D-MN) will remain in their leadership capacity on the committee through the upcoming Farm Bill debate.
Outside fiscal conservative groups are gaining traction as they hone their advocacy efforts in a timelier fashion. Those groups include, American Enterprise Institute (AEI), Americans For Prosperity and Heritage Foundation. In February 2016 AEI conducted their Mid-Term Review of the 2014 Farm Bill and acknowledge “the latest CBO analysis projects that it (2014 Farm Bill) will exceed original cost estimates.” Other groups opposing Farm Bill programs include the Environmental Working Group.
As briefly outlined above, farm bills are always challenging. Fortunately, for U.S. agriculture there are many Members of Congress and stakeholders who hold a genuine interest in seeing that responsible, cost effective, scientific and technology-driven farm policies are adopted in a bipartisan manner.
There is a lot of work to accomplish. In 2017 the U.S. Senate has scheduled 181 legislative days. The U.S. House has scheduled 145. This is the most legislative days scheduled since 2009. Given this, and knowing that the House and Senate schedule is likely to be more constrained in 2018 (an election year), there could be between 280 and 300 legislative days prior to the current Farm Bill expiration.