News
Stormy Weather for 2012 Farm Bill
by Mark Parker
“Farming looks mighty easy when your plow’s a pencil and you’re a thousand miles from the corn field.” President Dwight D. Eisenhower, 1956
The seeds of the 2012 Farm Bill will be sown into a harsh environment as budgetary and partisanship storm fronts clash, putting farmers smack-dab in the middle.
With good commodity prices and mounting federal debt, the buzz is that it’s time to completely overhaul or drastically cut farm programs.
Farm policy expert Barry Flinchbaugh has heard it all before: “I’ve been involved with every farm bill since 1968 and I’ve heard that every time,” the Kansas State University economist says. “I don’t see a complete overhaul or the elimination of farm programs. Cuts, yes. But I believe there will be a safety net — even if there are bigger holes in it.”
If you want to know where those cuts will come from, University of Nebraska Ag Economist Brad Lubben suggests you follow the money. Although the biggest slice of the current farm bill pie is domestic food assistance— nearly 80 percent of the total —the pieces directly affecting farmers are commodity programs in the $6 billion ballpark, about $8 billion for crop insurance and conservation incentives growing toward $4 billion per year.
“For farmers, that’s where the money is,” Lubben observes, “and all of those areas are spending targets. The 2010 mid-term elections changed the rules of the game. The mood is definitely cut, cut, cut.”
Lubben notes that House Budget Committee Chairman Paul Ryan’s budget proposal calls for roughly $30 billion in cuts to farm programs over 10 years, aimed at commodity, crop insurance and conservation programs. President Obama’s proposed cuts are much less but the targets are pretty much the same. Neither proposal is binding but they are blueprints and it seems clear the House and Senate ag committees will have fewer dollars to parcel out. Furthermore, budget reconciliation could force the hand of the ag committees, limiting the total price tag of the 2012 farm bill. And, the committees begin already short on funding just to keep the current set of programs going in the next farm bill.
“How they prioritize those dollars will be the key for farmers,” Lubben adds.
With high inputs, high prices and high volatility, the government’s investment in crop insurance is undeniably important to farmers right now. Arguments are being made now, however, that the other parts of the farm safety net — direct and counter-cyclical payments — are no longer necessary in light of relatively high commodity prices. Flinchbaugh calls that point-of-view near-sighted:
“There is a drunken optimism out there that assumes commodity prices will remain high forever,” he says, “but you can’t back that up if you have any sense of history. Farm income support programs will be scrutinized, but the fact remains that when prices fall below the cost of production — and they most certainly will — farmers need some sort of safety net. We’d better keep those support payments in the program because we’ll need them down the road.”
Flinchbaugh says there has been some discussion of deregulating crop insurance and acknowledges that a totally effective crop insurance system would eliminate the need for decoupled payments. That, however, is extremely difficult to design, he says, and he looks for the 2012 bill to be similar to 2008, albeit leaner.
“There will be some tweaking — and some cuts — but I don’t see a change in the fundamentals of farm policy,” Flinchbaugh says. “The government is not going to get out of agriculture. Food security is too vitally important for that — domestically and globally.
The K-State economist says there’s plenty of ag savvy among the people who will ultimately write the bill. In the House, Ag Committee Chairman Frank Lucas (D-Okla.) and Ranking Member Collin Peterson (D-Minn.) are both old hands at farm policy and have expressed concern over maintaining a safety net. Senate Ag Committee Chairwoman Debbie Stabenow (D-Wisc.) is newer to the game but is working closely with Ranking Member Pat Roberts (R-Kan.), a major player in recent farm legislation. And while various interest groups will have their own agendas, Flinchbaugh believes commodity groups will present a fairly united front.
“There will be conflicts, of course,” he says, “but we’ll have better agreement across commodities than in the past. They finally understand what a small minority they are and they know the system better. And, there’s more equality today among the commodities. At one time, cotton ruled but the powerbase is much more even now.”
But don’t expect smooth sailing. In addition to the budget constraints, 2012 is a presidential election year and that may stall passage.
“Don’t be surprised if we don’t get a farm bill passed before the election,” Flinchbaugh says. “It will likely happen in the lame duck session or even in early 2013 which will mean that current law will have to be extended until a new bill passes. If they do nothing and allow the 2008 law to expire, we revert to the permanent legislation, which is the 1938 Agricultural Adjustment Act and the Agricultural Act of 1949. That’s not an option. Something has to give and it will.”
While nearly everyone agrees that budget cuts are essential to slow the runaway train of federal debt, both economists point out that even dramatic slashes in farm spending will have little practical effect. Flinchbaugh, in fact, calls it a “cruel hoax” to attempt to balance the budget without addressing the “big four” —Social Security, Medicare, Medicaid and Defense.
According to the House Committee on Agriculture, crop insurance accounts for 0.19 percent of federal spending while conservation and commodity programs are each about 0.15 percent.
And, Flinchbaugh observes, farm program costs are already down about two-thirds since 2000. “If we could get every other sector of the economy to do that, we’d have a budget surplus,” he points out.
Lubben advises that all of this farm bill uncertainty calls for proactive management. “Farmers need to ask themselves what their exposure is to lower direct payments and more expensive crop insurance,” he suggests. “They may find that they need to adjust their management strategies, particularly in terms of risk management. Reductions in program payments to farmers will take away from their cash flow. Ultimately, that could show up in land prices and rental rates.”
“And,” he concludes, “farmers may want to consider what kind of influential role they can play in the public policy arena so they can have a voice in this 2012 farm bill discussion.”
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