Wed November 9, 2011
New Farm Subsidy on a Fast Track?
By Frank Morris
Kansas City, Mo. – It all comes down to the Congressional Joint Select Committee of Deficit Reduction, better known as the super committee. Leaders of the House and Senate Agriculture committees are working to write nearly all the policy normally covered in the farm bill into the deficit-cutting recommendation that the super committee has to produce this month. This debt reduction package is due to go to an up or down vote before Christmas.
So in effect, the new farm bill may be written more quickly, and more secretively than any in recent history.
Farm bills cover federal farm and nutrition policy for five years at a time and allocate hundreds of billions of dollars. Hammering them out is typically a long, sprawling, messy process.
Mary Kay Thatcher, with the American Farm Bureau Federation, said this year is different from anything she's ever seen.
"Usually you spend a year, maybe 18 months in an open transparent process," she said. "We are probably going to write a Farm Bill, if indeed we're successful, over the next few days, in about three months, and it will be written primarily by the chairman and ranking members of the House and Senate Ag committees."
There's rare bipartisan agreement within those committees on the broad parameters of the bill. It will cut agricultural spending by $23 billion. And most of the savings will come from scrapping a program called "direct payments" that had been supplying some farmers with, basically, free money, each year, regardless of crop or market conditions.
But here's where things get interesting.
Proposals discussed in recent weeks would replace those subsidies with an added layer of insurance against crop losses, or low market prices. This "shallow loss program" would be, basically free insurance, available to growers of the big row crops, to cover smaller losses that would not be covered by subsidized crop insurance.
Bruce Babcock, at Iowa State University, said it's like insurance against a deductible.
"And so if you have a car deductible, let's say $1,000, it's like having someone give you another insurance policy that covers that $1,000 deductible, he said.
Babcock said this kind of insurance insulates farmers from the market place.
"When you institute a new program that pays off if price falls, that basically is helping farmers lock in a higher price for these prices that would otherwise be available," he said. "And so if commodity prices tumble, we're likely to see farmers continue to plant these commodities, and farmers that in the past haven't planted, maybe begin to think about planting them, because they have this big guarantee from the shallow loss program."
It would be a guarantee backed up by taxpayers, not insurance companies. And because price trends are unpredictable, it's hard to figure the true cost of the shallow loss program, Babcock said.
Thatcher, with Farm Bureau, is concerned that with insurance against business losses, bigger farmers will keep getting bigger.
"In essence you are just removing the vast majority of the risk in agriculture," she said. "And we think it will make it very difficult, if not impossible for young farmers to get involved in the business."
But Gerry Niemeyer, president of the National Corn Growers Association, said the shallow loss program makes more sense than today's direct subsidies.
"This program will protect farmers only when they have a loss," he said. "You will not get a payment every year as you do with direct.
Niemeyer also pointed out that if the farm bill is worked out quickly and passed through the super committee, federal spending on agriculture will be falling fast and hard.
"We're taking a $23 billion dollar hit," he said. "Who else is stepping up to the plate to reduce their payment that they are taking in? There is nobody I'm aware of, nobody."
He added, though, that he does think agriculture would have been better off going through a normal farm bill process. For one thing, if the ag committees do not get a proposal to the super committee soon, the whole fast track may collapse.
That would be fine with Babcock, who questioned whether the shallow loss program would fly in a normal farm bill debate.
"I think going through the super committee is really a conscious choice to essentially get a farm bill through Congress that otherwise couldn't get through Congress," he said.