U.S. Department of Agriculture (USDA) Secretary Mike Johanns kicked off a potentially difficult fight with members of Congress on a 2007 farm bill yesterday by offering administration proposals that would alter all of the main support programs for U.S. crops.
Johanns said the proposals would be about $10 billion less than the cost so far of the 2002 farm bill, which has been heavily criticized internationally for raising U.S. farm subsidies. At the same time, he emphasized that USDA was keeping the basic concepts of the 2002 farm bill, which the administration at one time had threatened to veto.
In calling for changes to the main U.S. farm-support programs, the administration could be stepping into a fight not only with the new Democratic chairmen of the Senate and House agriculture committees, but with one of its longtime allies, the American Farm Bureau Federation (AFBF).
AFBF has adopted policy calling for concepts from the 2002 farm bill to be extended into a new farm bill. In a Jan. 31 statement, AFBF President Bob Stallman said the group would study the administration’s proposal, which he said would add to the congressional debate. At the same time, Stallman reiterated that AFBF members from across the country have “repeatedly and strongly emphasized the need to keep the 2007 farm bill consistent and very similar to the concepts in [current law].”
AFBF also opposes payment limitation and income-means testing, which are key parts of the proposals unveiled by Johanns. Some of the $10 billion in savings would come from a proposal to eliminate subsidies for taxpayers with adjusted gross incomes of more than $200,000.
This is a reduction from the current limit of $2.5 million and would save about $1.5 billion, Johanns said at a press conference. He emphasized that the payment limit would only cut off support for the top 2.3 percent of U.S. taxpayers, according to data from the Internal Revenue Service. However, AFBF has estimated that 78,000 farmers would be affected.
The income limitation would be imposed on farm income and non-farm income, which would prevent subsidies from being granted to movie stars and others whose wealth primarily comes from non-farm sources.
Deputy USDA Secretary Chuck Connor acknowledged USDA will face difficulties in selling its proposals to commodity groups by stating that “change is always difficult.” However, he insisted the administration’s proposals overall would lead to a better, more equitable farm program.
“There is no practical means by which you can argue that this is not a better safety net,” Connor said.
However, a veteran agriculture lobbyist predicted USDA’s proposals would not have a major effect on the next farm bill. “I don’t think it’s dead on arrival, but everyone has said for months that Congress will write a farm bill, and [it] will,” the lobbyist said.
Groups that support specific parts of USDA’s proposal are likely to pick up those ideas and move forward, and in that way the proposals could have some impact on the next farm bill, the lobbyist said.
One of the most controversial parts of USDA’s proposal is its call for lower marketing loan payments that are intended to provide a “safety net” for producers when prices drop. USDA’s proposal said this is intended to prevent farmers from gaming the system by holding their crops when prices are low and selling them later in the year when prices rise in order to increase their marketing loan payments.
Johanns also proposed de-linking a second payment program from prices so that farmers would no longer receive greater payments simply because prices for their commodities fall far below target levels set in the farm bill. Johanns instead proposed linking so-called countercyclical payments to a farm’s annual revenue, which is a concept that has been advanced by corn growers.
USDA’s proposal said the current program overcompensated producers who had large yields but faced low prices, while under-compensating farmers who were not able to harvest crops because of poor weather conditions or other factors. Farmers can only receive counter-cyclical payments if they are able to sell their crops.
The changes to the marketing loan and counter-cyclical payments could also make it easier for the administration to conclude a World Trade Organization (WTO) agreement by giving it more flexibility to reduce limits on U.S. trade-distorting support.
With some of these savings, USDA proposes increases for the third main U.S. support program, known as direct payments. In its proposal, USDA emphasized that this could help U.S. cotton producers, who in contrast to producers of corn and other U.S. commodities are expected to see lower prices in coming years. Direct payments for cotton producers would rise by 66 percent in the first year of the program, a USDA official said.
USDA also proposed the elimination of a provision preventing producers of fruits and vegetables from receiving direct payments, which would help the U.S. comply with a WTO decision that found U.S. subsidies had injured Brazilian producers. The change would also give the U.S. more flexibility to accept subsidy reductions in the current round of WTO talks, since direct payments would not count toward U.S. limits on trade-distorting subsidies under WTO rules.
However, this policy would again run against the wishes of commodity groups and AFBF, which have argued that the U.S. should not change its farm-bill policies until a WTO agreement is reached. Doing otherwise reduces U.S. leverage in the talks, AFBF has argued.
Fruit and vegetable growers have opposed the elimination of the planting prohibition. However, Johanns also proposed significant increases in funding for growers of specialty crops intended to win their support. For example, he proposes a $500 million increase in funding to purchase fruits and vegetables for school meals. The plan also includes new programs intended to help exporters of those crops deal with trade barriers.