Impacting future budget negotiations (and the writing of the 2012 Farm Bill) is a report released last month by the Government Accounting Office (GAO). Senator Tom Coburn (R-OK) requested the report which researched the federal budget for opportunities to reduce potential duplication and streamline government programs, save tax dollars, and enhance revenue.
Bi-partisan Support for GAO’s Report
Currently, GAO’s Report is receiving bi-partisan support in the Senate. Senate Majority Leader Harry Reid (D-NV) called the report “constructive” and “a step in the right direction.” Senator Claire McCaskill (D-MO) said the report was “a road map as we move forward in our negotiations about ways we can cut back without penalizing middle-class families.”
The report highlighted that reducing some farm program payments could result in savings from $80 million to $5 billion annually. “Reducing or eliminating direct payments to farmers—particularly those to large farming operations—could achieve cost savings of as much as $5 billion annually.”
Moreover the report highlighted an example from July 2007 when USDA paid $1.1 billion in direct payments to more than 170,000 deceased individuals (estates), and in April 2004 USDA provided direct payments to people who may have had only limited involvement in farming because the agency lacks sufficient management controls. GAO acknowledged USDA has taken some actions in response to their recommendations, but significant challenges remain.
Real Estate Market Deja Vu
This latest GAO report further highlights the compounding challenges recently raised that federal farm programs like direct government payments to producers are artificially contributing to a potential bubble in farmland values across the U.S. Farmland values have been pushed up by several factors including higher crop prices for corn, wheat and soybeans and lower interest rates. The value of agricultural land depends largely on its expected future earnings from production. Because government payments contribute to farm income, they indirectly support farmland values.
In testimony last month before the US Senate Agriculture Committee, Thomas Hoenig, President of the Federal Reserve Bank of Kansas City (KCFRB), warned that if a situation develops where interest rates rise and crop prices fall, U.S. farmers face an enormous risk that could lead to farmland values dropping by one-third.
During a speech to the Risk Management Association in October 2010, Sheila Bair, Chairman of the Federal Deposit Insurance Corp., said it was important to monitor U.S. farmland values for signs of instability like the price bubbles in the housing and stock markets that burst with disastrous consequences for many investors. “Farmland values remain 58 percent above their 2000 levels in inflation-adjusted terms.” Further, “A sharp decline in farmland prices similar to the early 1980’s could have a severe adverse impact on the nation’s 1,579 farm banks.” It should be noted that Bair was among the first government officials to pinpoint potential problems with sub-prime loans.
Direct Payments in the Cross-Hairs
Last fall, The White House Commission on Fiscal Responsibility and Reform recommended direct payment cuts. The Commission proposal recommended $15 billion in gross reductions in mandatory agriculture programs over the period FY 2012 to FY 2020. It was proposed that $10 billion of the savings be dedicated to deficit reduction and $5 billion be redirected to extending the Agriculture disaster fund program to mitigate the need for future ad hoc disaster funding.
The Commission recommended that the savings be obtained from mandatory agriculture programs, including: 1. direct payments when prices exceed the cost of production or other reductions in subsidies; 2. limits on conservation programs such as the Conservation Stewardship Program (CSP) and Environmental Quality Incentive Program (EQIP); and 3. reduced funding for the Market Access Program.
Even among the agriculture lobby there seems to be “chinks in the armor” of solidarity supporting direct payments. As an example, during their fall policy development meeting, the 153,000+ member Iowa Farm Bureau voted to eliminate direct payments.
The debate over $5 billion in annual direct payments is mainly regional as producers in the midwest and south are the major recipients of such payments. However, some Corn Belt producers believe the $5 billion would be better spent for the Average Crop Revenue Election (ACRE) program that provides more targeted benefits that are calculated on a crop-by-crop basis at the state level. If actual state revenue falls below the state revenue guarantee, then all farmers who have signed up for ACRE may be eligible for payments.
Other groups are also working on ideas for wiser uses of these funds.
Cansler Consulting & The Farm Bill
As an agricultural lobbying firm, Cansler Consulting is well versed in the intricacies of the 2012 Farm Bill and all the factors and agendas involved. If your organization needs its interests protected during this time of decision, please contact us today at (202) 714-2822 for a consultation today to see how we can help your organization build support where it needs it most.