Assessing the Pulse of the Next Farm Bill Debate-Part 107/31/2017
Overview: Assessing the Pulse of the Next Farm Bill
Historical Overview: Since 1933 the Farm Bill has been the preeminent federal social contract between U.S. society at large and the U.S. rural sector. Began almost exclusively to provide economic assistance to economically impoverished farm families, it has evolved into a multifaceted social contract touching almost every American, both rural and urban. It includes nutrition, commodity, and crop insurance titles that provide safety nets to low-income households, crop farms, and livestock farms. Goals such as environmental quality, research and extension, rural development, trade expansion, and bioenergy production are also promoted.
Budget Overview: A common presumption is that a tight budgetary environment will make negotiations on the next farm bill difficult. However, a tight budget can also facilitate negotiations by encouraging policy actors to work together, often to protect desired, existing programs. Moreover, budget developments are positive. The 2014 commodity and crop insurance programs are costing less than Congressional Budget Office forecasts, and an improving economy is reducing spending on SNAP (Supplemental Nutrition Assistance Program) and other nutrition programs. Nutrition programs make up over 70% of Farm Bill spending. In addition, the on-going, post-2014 farm bill debate over cotton and dairy policy may be resolved via the appropriations process, offering a potentially larger budget baseline for commodity programs. In short, the budget may end up being less of a constraint than has been largely portrayed in the run up to the farm bill debate.
Issues Overview: The next farm bill is being framed by (1) lower farm prices and revenue than when the 2014 Farm Bill was written, (2) a 2016 election underscored by a disaffected American rural sector, and (3) President Trump’s focus on trade as a front-line issue. Point 1 implies that redistribution of spending from farm safety net programs to other farm bill titles is unlikely. Point 2 implies programs targeted to the non-farm rural sector could be a defining feature of this farm bill, particularly given that the next farm bill likely will be written in an election year. While the President’s perspective on trade has caused concern, American agriculture has come to embrace a refocus on trade expansion given a mature domestic market for food and a bioenergy market that appears to have less potential than when the last three farm bills were written. The refocus on trade is also prompting discussions on the role of research and extension, particularly as it pertains to productivity.
Summary: All farm bills are a portfolio of past and new programs and issues. The blend varies by farm bill. This farm bill looks to tilt toward continuation or limited modification of past programs and issues covered. However, an intriguing set of new issues or new perspectives on past issues also exist. We hope the 11 one-page summaries of farm bill topics that comprise the rest of this farmdoc daily post provide you with insights into the next installment of the most important social contract between the U.S. and its rural communities.
Issues Summary: Crop Insurance
Policy Setting: Crop insurance has grown in significance as the emphasis of farm bills has moved from providing income support for farmers to providing risk management. Contributing to the growth and significance of the Federal program have been introductions of revenue insurance products, increases in coverage levels, introductions of policies for more crops, introduction of whole farm and livestock policies, and increases in Federal support for premiums. Many farmers view crop insurance as the most important risk management program offered by the Federal government. According to Congressional Budget Office projections, Federal expenditures on crop insurance will average $7.7 billion annually from 2018 to 2027, compared with $6.2 billion for commodity title programs and $6.0 billion for conservation programs (Coppess, et al.).
Farm Bill Issues: Previous farm bills modified the crop insurance program by enhancing risk coverages offered or decreasing the cost of the crop insurance program to farmers. For example, the 2014 farm bill introduced cotton STAX, Supplemental Coverage Option (SCO), and Yield Exclusion (Schnitkey and Zulauf). It is difficult to anticipate whether new provisions will be debated in the next farm bill.
Because of the size of Federal expenditures, the crop insurance program could face pressures in a budget cutting environment. Reductions to specific provisions of the crop insurance program could be proposed such as reducing subsidies for the harvest price option, reducing subsidies for high coverage levels, and reducing provisions that increase guarantees (i.e., size of transition yields or existence of Yield Exclusion). Each of these specific provisions have differential impacts on crops and regions and, as such, will face regional opposition. For example, reducing subsidies on harvest price option and high coverage levels would have a higher impact on corn and soybeans in the Midwest. Reducing provisions that increase guarantees would have a higher impact on higher yield risk areas such as the Great Plains. Another option for reducing expenditures is an across the board cut in premium support, which would impact all regions and crops (Schnitkey and Zulauf).
Amendments to previous farm bills – none of which passed – would have introduced means testing to crop insurance. Commodity title programs are subject to means testing, providing a further rational for means testing of crop insurance. President Trump’s budget introduced a $40,000 limit on premium support per individual and an Adjusted Gross Income test. Similar amendments likely will introduced in the upcoming farm bill.
Under the 2014 farm bill, conservation compliance was introduced for the first time to the crop insurance program. As crop insurance has become more important relative to commodity title programs, conservation and environmental groups have focused more attention on the crop insurance title.
What to Watch: (1) New proposals for enhancing risk protection offered by crop insurance, (2) Proposals to reduce expenditures on crop insurance, (3) Proposals to introduce means testing and (4) Proposals to incorporate more conservation provisions into crop insurance.
Source: Carl Zulauf, Gary Schnitkey, and David Orden, Farmdocdaily