The U.S. Farm Bill impacts agriculture and other matters under the United States Department of Agriculture’s scope of authority. It also has effects on immigration, trade and commerce, energy and social welfare, to name a few. To Ozarks’ farmers, the biggest impact is in direct payments, and the funding available through programs like the Environmental Quality Incentives Program (EQIP) and the Wildlife Habitat Incentives Program (WHIP).
We asked Agricultural Economist Scott Brown, with the Department of Agricultural and Applied Economics at the University of Missouri, to help us understand some of the pending consequences of the 2012 Farm Bill on Ozarks’ farmers.
1. The 2012 Farm Bill will supposedly be consolidating programs and adjusting policy to the tune of $23 billion in cuts. From where do you anticipate these cuts will come, and how will Missouri producers be affected?
The $23 billion in proposed savings discussed in the current farm bill debate is found through the elimination or reduction in direct payments that producers have received since the 2002 farm bill. These are payments that producers have received regardless of price or production. These payments originated in large part as Congress looked for ways to ensure we did not exceed our allowed level of domestic support under the last World Trade Organization (WTO) agreement. The Congressional Budget Office estimates full elimination of direct payments will save $44.6 billion over the FY13-FY22 period. In reducing or eliminating direct payments from the current safety net package for producers, farm bill crafters are looking at some new programs to employ, to strengthen the farm safety net.
2. How should, or can, ag producers hedge against this uncertainty?
We are still working through crafting the next farm bill and many issues remain unresolved. However, there is general agreement that direct payments will be reduced or eliminated. Producers should plan that these payments they have known with certainty will decline and will most likely be replaced with programs that are tied more closely to the current financial environment. There are alternatives currently being debated regarding these new or modified programs but producers should expect them to be tied to prices and/or revenue. Producers may find these approaches provide more support in lower-price or revenue environments, but less support in higher-price or revenue environments.
3. Can you explain why $23 billion in cuts was specifically on the table? It has been said these cuts specifically came in negotiations over the 2011 summer government shutdown. How did agriculture get pulled into the debate over the government shut-down?
Given the current level of U.S. federal debt and annual deficits, it will be hard to bring spending and revenue into better balance without some tough decisions being made. In mid-2011, Congress created the “Supercommittee” with the passage of the Budget Control Act of 2011 to find a way to trim $1.5 trillion over a 10-year period to help with the projected budget shortfalls. Members of the Agriculture Committees employed a proactive strategy of offering $23 billion in farm spending cuts as Agriculture’s commitment to trim federal spending. There was some speculation that cuts to agricultural spending could be even greater from the Supercommittee, so a proactive approach could allow agricultural programs to be spared from even larger cuts. Although the Supercommittee was unable to act, this $23 billon savings mark continues to remain the target as the new farm bill is debated.
4. What programs in the Farm Bill have historically impacted producers the most?
There are several programs in the current farm bill that are important to producers. Commodity programs like direct payments, counter-cyclical payments and ACRE often receive much of the attention in terms of producer impacts. The Congressional Budget Office (CBO) estimates that commodity program spending will total nearly $63 billion over the next 10 years under the current farm bill. A growing component of the producer safety net has been associated with crop insurance programs. CBO estimates that crop insurance and disaster assistance programs will total $91 billion over the next 10 years under the current farm bill, exceeding commodity program spending. Conservation remains important to producers as well, with CBO estimating conservation program spending of $64 billion over the next 10 years.
5. The Rural Energy for America Program will have to be reauthorized in the 2012 bill. If this is not reauthorized, how could this impact producers who are facing increased energy costs in production (poultry, swine)?
The REAP program provides help to eligible applicants to install renewable energy systems such as solar panels or anaerobic digesters, make energy efficiency improvements such as installing irrigation pumps or replacing ventilation systems, and conduct energy audits and feasibility studies. Many of these types of improvements will be difficult for producers to make without some assistance. Without the program, producers will put these kinds of improvements on hold unless the cost of these improvements declines or the expected energy usage benefits rise.
6. In the past, 60 percent of program dollars in the Environmental Quality Incentives Program (EQIP) were mandated to be geared toward livestock and poultry operations. Do you see any threat to this funding, and this allocation mandate? If so, what might the long-term effects be of a reduced priority for Missouri’s livestock and poultry operators?
It remains difficult to know the exact changes to the EQIP that will occur with the passage of a new farm bill. The farm bill version the Senate Agriculture Committee passed lowers EQIP funding by nearly $1 billion over the next 10 years. However, the Senate package continues the allocation of funding practices related to livestock production as at least 60 percent of the funds.
