Tri-State Neighbor: South Dakota Farm Newspaper

The March 15 deadline has come and gone without the passage of a new farm bill, beginning with the 2008 crop year.

Late in 2007, Congress passed a resolution extending funding for the 2002 farm bill through March 15, 2008. Congress still has not been able to finalize an agreement on a new farm bill, and has passed another extension of the 2002 farm bill through April 18.

The U.S. House and Senate Conference Committee has yet to meet to develop a compromise version of the new farm bill, based on the new farm bill legislation that was passed by the U.S. House in July 2007, and by the U.S. Senate in December 2007. In fact, as of this writing, the House has yet to name the members of the Farm Bill Conference Committee, while the Senate Conference Committee members were named a few weeks ago. The Bush administration continues to threaten a veto of the new farm bill if it does not meet their provisions and criteria.

Congress appears somewhat closer to reaching a final version of a new farm bill now than they were a few weeks ago; however, there are still some very difficult issues to be resolved before a new farm bill is finalized.

Funding challenges

Since the beginning of discussions on the new farm bill the main obstacle in reaching resolution on the new legislation has been where to find additional funding for needed new programs and initiatives, without seriously impacting the commodity title programs and other popular farm bill programs.

The “pay-as-you-go” legislation adapted by Congress to address the federal budget deficit requires Congress to offset any potential spending increases on federal programs with either budget reductions in other programs or enhanced revenues through tax increases and other sources.

The key aspects of funding for a new farm bill that must be agreed upon by the U.S. House, the U.S. Senate and the Bush administration are:

€The level of funding for the new farm bill. The U.S. House, U.S. Senate and administration officials have discussed a potential agreement at approximately $10 billion over the current farm bill baseline funding, which has been reduced in the past several weeks. A few months ago, it was estimated that the House was about $14 billion over baseline funding, and the Senate was $20 billion over baseline funding. The baseline funding for the new farm bill is approximately $280 billion over five years, and $597 billion over 10 years.

€Where will the budget offsets come from to allow for the additional $10-$12 billion in funding for the new farm bill? This may be the biggest hang-up in finalizing a new farm bill because there has been no uniform agreement by leaders in either the House or Senate on how to resolve this issue. In addition, the Bush administration has been very firm with a veto threat if the budget offsets include any tax increases, adjustments in tax compliance or budget shifting maneuvers. This means that there will have to be some cuts or adjustments in funding for some current programs to reach the budget targets for enhanced funding in the new farm bill. It has been very difficult for Congress to reach compromise on where this extra funding should come from.

€Allocation of new farm bill funding by title. Both the U.S. House and U.S. Senate versions of the new farm bill contain 10 titles, compared to nine titles in the 2002 farm bill. The added title in the proposed new farm bill is for energy, which would include new funding for many new initiatives and incentives for renewable energy, including ethanol, biodiesel and wind energy. Much of the added funding in the new farm bill is for food and nutrition programs, including food stamps. There are also some increases in funding proposed for Conservation and Rural Development programs, as well as the potential addition of a permanent disaster program.

Funding for most programs under the commodity title of the farm bill would either be maintained or reduced under most funding proposals for the new farm bill.

There has not been agreement at this point among the Congressional leadership on a final funding allocation proposal among the various titles of a new farm bill.

Likely farm bill provisions

If and when an agreement is reached among the various leaders in Congress, as well as the Bush administration, it appears likely that most provisions that will be included in the commodity title of a new farm bill will be very similar to the current farm bill. However, here are a few provisions in the new farm bill related to program payments, CCC loans and LDPs, and payment limits to keep an eye on:

€Both the House and Senate farm bill proposed that all direct payment rates for corn, soybeans and wheat would stay the same as current rates, that the corn target price and loan rates for corn and soybeans would stay the same, and that wheat and soybean target price and the wheat loan rate would receive small increases. However, the Bush administration opposes any increases to current crop target prices or CCC loan rates, so it is possible that Congress could back away from proposed increases, and even reduce direct payment rates in order to create some budget savings in the proposed new farm bill.

€There seems to be some agreement on an AGI limit of $500,000 to be eligible for farm program payments in the new farm bill. Yet to be resolved is whether the lower AGI limits will be phased-in, and if there will be exemptions to the AGI limit based on the percentage of income derived from farming, such as currently exists.

€Average Crop Revenue (ACR) Program. There will likely be some type of revenue-based (price and yield) counter-cyclical payment option included in the new farm bill, as an alternative to the current price-based CCPs. Most observers feel that the final provision in the new farm bill will probably resemble the ACR proposal in the Senate farm bill. It will likely not be implemented until the 2009 or 2010 crop year, and will likely be a voluntary program alternative for producers.

€Permanent disaster program. There is some agreement on establishing a permanent disaster program rather than having to wait for Congress to pass an ad hoc disaster program a year or two after the actual crop loss took place. However, how to pay for the proposal is at issue. The Senate allocated new funding of more than $5 billion to implement the program, while others have suggested a voluntary program, which would be partially funded through fees paid by producers.

Possible new farm bill provisions to keep a watch on

€Elimination of LDPs and CCC marketing loans. Under the Senate farm bill, all CCC commodity loans would be switched to recourse loans, which would require principal and interest repayment, for any producers who choose the new ACR farm program option. This would eliminate CCC loan repayment at the daily PCP and would eliminate potential LDPs.

€Changes in LDP requirements and calculations. One proposed change would be that a producer could only claim an LDP when the producer loses beneficial interest in the grain (when the grain is actually sold and delivered), rather than on any date an LDP is available. The other proposed change would be to base LDPs and CCC loan repayments on monthly posted county prices, rather than the current daily PCPs. If enacted, these changes could negatively impact producers in years of low grain prices, such as the 2005 crop year.

€Removal of planting restrictions on fruit and vegetable acres. This proposal is supported by the Bush administration, many members of Congress, as well as Midwest canning crop producers and processors. Removing this restriction would make the new farm bill more WTO-friendly and would likely assure that the WTO would count direct payments as non-restricted green-box payments.

€Final agreements on programs in the conservation title of the new farm bill. The Conservation Reserve Program (CRP) will be continued, but at what level (current maximum is 39.2 million acres), and what changes might be added as far as usage of future CRP acres to produce cellulosic ethanol. Will the new farm bill increase funding to expand the Conservation Security Program (CSP)? Consolidation of the EQIP program and other cost-share programs is possible, as well as efforts to make those programs more user-friendly.

€Will conservation payments to land owners (CRP, WRP, etc.) be included in any new AGI payment limits? The House farm bill included conservation payments in proposed AGI limits, while Senate farm bill did not. Many of the so-called non-farming individuals with high AGI levels that receive government farm program payments receive a significant amount of conservation payments.

€Implementation of the country-of-origin labeling (COOL) requirements. The final language in the new farm bill related to COOL implementation and timelines will have an impact on livestock producers, and anyone involved in the importing or exporting of food-related products.

€Potential changes in Section 1031 Land Exchanges.

The Senate farm bill would make all land acquired through a Section 1031 land exchange ineligible for future farm program payments. This provision was not in the House farm bill, but is still being considered.