Competing Demands Influence 2018 Farm Bill Development01/09/2018
The farm bill debate has already started in farm shops and in Congress. With a tough agricultural economy and the fear of rising federal budget deficits after the recently signed tax bill, tensions will be running high on both sides of spending decisions.
“I think there is every reason to believe that we will do a farm bill next year, certainly at least an extension and the odds are that it will be re-written. The current tone is for limited change in all farm bill titles. A constrained budget is the key reason,” said Carl Zulauf, with the Department of Agricultural, Environmental and Development Economics at Ohio State University. “It will depend on how things evolve from here. I think there is a lot of political momentum and economic momentum for a new farm bill. It probably won’t get done until close to the election if not after, but I do expect us to get a new farm bill. Remember, we do have to have a new one in place by the 2019 crop year because this one ends with the 2018 crop year.”
The new tax legislation signed by President Trump late in 2017 could have farm bill implications.
“My gut tells me that it will affect the farm bill,” Zulauf said. “The new tax law will affect the farm bill in a couple of ways. The biggest one is that this seems like it will increase the budget deficit. Not so much for the 2018 farm bill, but if we find the deficit is really going to increase that will create pressure to cut any type of program. Farm bills historically have not done particularly well when there is pressure to cut budget deficits. The 2018 farm bill could be affected by the fear of budget deficits and they may be willing to put less money in the farm bill than they would otherwise. Because of that, the tax legislation has the potential to have significant impacts on the current farm bill and farm bills down the road.”
As always, the writers of the next farm bill will have to carefully balance the needs of each sector of a widely divergent U.S. agriculture.
“We have two major commodities that feel the farm bill has left them behind: one is dairy and the other is cotton. Dairy has no baseline. It is not a program that is being used. The dairy industry itself is very fractured and doesn’t seem to know which way to go. When you don’t have the sector agreeing and you don’t have a baseline for it, you have a real problem,” Zulauf said. “If changes are made for dairy or cotton via the farm bill, a difficult question is, ‘Who pays the nontrivial costs?’ A second potential path may emerge: use the FY 2018 appropriation bill to change cotton and dairy policy. This path could potentially temper the cost issue by increasing the farm bill’s budget baseline.”
The Conservation Reserve Program (CRP) will likely be another area of debate in the next farm bill.
“There is broad discussion about what to do about CRP. Should the 24 million acre cap be increased? I am regularly hearing discussion about expanding CRP to 30 million acres, but it would cost more money. I think we could expand CRP and the additional acres would need to have more of a water quality component to them,” Zulauf said. “One of the next farm bills is when we will really get serious about what we are going to do about water quality. I don’t think we will go much further without policy addressing water quality in some major way.”
In terms of corn, soybeans and wheat, the current challenging market prices will certainly be part of farm bill decisions.
“I personally am not convinced that we have hit bottom. The tenor of the debate is basically flat prices. For corn and soybeans, the reference prices are right around those flat prices for corn and soybeans in the Price Loss Coverage (PLC) program and a shift to PLC is expected,” Zulauf said. “The Agricultural Risk Coverage (ARC) program is a revenue decline or low revenue program — less than 86% of a moving five year average. PLC is a low price program with the prices set by Congress. One is established by the market; one is established by the forecast of Congress. Please understand that these are not the same and if you pick the wrong program you’re not going to get the same payments. Debate is likely on updating ARC to reflect change in markets and to make it more competitive with PLC.”
Possibilities in the new farm bill may also include the option to put 50% of a farm’s base acres in ARC and 50% in PLC and a mandatory base acre update to save money.
“The only way I can come up with a bunch of money is a mandatory base acre update. We have a disconnect between base and planted acres. If you update these you have significant savings that you could use to adjust PLC and ACR,” Zulauf said. “It is not enough to propose something, you’ve got to propose where to get the money from at the same time. A mandatory update of base acres is a way to do that.”
This farm bill may include stricter payment limits and a reduction in federal spending on crop insurance as well.
“The Risk Management Agency has done a good job of creating fair crop insurance premiums in the farm bill. Farmers clearly value crop insurance and lenders clearly value crop insurance,” Zulauf said. “But there is a lot of discussion with the non-farm actors about the need to adjust spending on crop insurance. And by adjust, I mean reduce. This is not likely to happen in this farm bill except by technical means and adjustments. Farm groups have been very vocal that this is their top priority and members of Congress listen to that. I don’t think we’ll see major cuts this time, but the pressure is building from farm bill to farm bill.
“If we decide that we are going to make major cuts in crop insurance, it will have to come from farm premiums. Farmers now pay around 38% of the cost of the premiums and that will have to go up if we make major cuts. Maybe farmers will be paying 40% to 45% of the cost for a small increase. How high should crop insurance subsidies be? There is no basis for why the current subsidy is 62% other than it was just the budget. That could make you vulnerable. Maybe not this farm bill, but I think in the next farm bill we will have a very robust discussion on what is the appropriate premium subsidy for farmers.”
Food assistance programs, which make up a large percentage of the total farm bill costs, will also be under scrutiny.
“The House Republicans really want to cut the Supplemental Nutrition Assistance Program (SNAP) but the Senate will resist this big time. Some new money could come from that,” Zulauf said. “SNAP expenditures are really coming down already due to lower unemployment.”
Though there are many details to be worked out in the coming months, if Congress takes no action, commodity programs will revert to 1938 and 1949 laws that support prices far above current prices for some commodities, milk in particular — plenty of incentive to finalize a farm bill in 2018.
Source: Matt Reese, Ohio’s Country Journal