LARRY D. SANDERS

OCES INSERVICECENTRA PRESENTATION

27 APR 2011

Political Change & the Next Farm Bill

2Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html

US Budget Surplus/Deficit ($bil.)19

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

09 201

201

201

-1800-1600-1400-1200-1000-800-600-400-200

0200400

-330

-225-177

-151-50

70124

232 268

-157.8

-374 -413-331

-314-162

-1173

-1588 -1537

-1550

-1300

?

Now above 90%

111th Congress 112th Congress

Senate 57 D 2 I 41 R

House 255 D 148 R

Senate 51 D 2 I 47 R

House 193 D 242 R

3

Congressional Shuffle of Power…

Key Leadership Changes in House4

Speaker: Boehner (OH)Agriculture: Lucas (OK)Approp.: Rogers (KY) + Flake (AZ)*Energy: Upton (MI)Finance: Bachus (AL)Budget: Ryan (WI)Rules: Dreier (CA)Oversight/Govt Reform: Issa (CA)Judiciary: Smith (TX)Ways/Means: Camp (MI)

5

2010 Midterm shuffle means changes for Ag Committees…

2009 – 2010 2011-2012Senate Senate 12 D / 9 R 11 D / 10 R

Lincoln (D-AR) Chambliss (R-GA) Stabenow, D-MI Roberts (R-KS

House House28 D / 18 R 26 R / 20 D

Peterson (D-MN) Lucas (R-OK) Lucas (R-OK) Peterson (D-MN)

6

So, are you ready for a less ruralCongress?

7http://ruralcommunitybuilding.fb.org/2010/12/01/rural-population-loss-through-outmigration-ers/

Much of farm country is losing population; Thus, representation.

For example…

Senate Agriculture Committee 11 D, 10 R

6 farmers*/ranchersHouse Agriculture Committee

26 R, 20 D 14 farmers*, 2 agribusiness

House Appropriations Agriculture Subcommittee 7 R, 4 D

3 farmers/ranchers*, 1 agribusiness

* self-identified

8

112th

Congress:House

3

2

2/1

1/2

2

1/23

2

111th Congress: House

3

2

22/12

22

2

1/2 = D= R= Both

Chair

C

C

C

Note: ½ = 1 D and 2 R; 2/1 = 2 D and 1 R; Single Number indicates # on Committee from the state. No number indicates 1 R or 1 D

111th

Congress:Senate

1/1

1/1

1/1

112th

Congress”Senate

C

10

Budget Issues - States That Get More in Fed Subsidies Than Pay in Federal Taxes

http://voices.washingtonpost.com/ezra-klein/2010/04/the_red_state_ripoff.html

11

12Map:http://www.cccarto.com/congress/ok_congress/index.html

3: Lucas$3.37 bil.(wheat)

1: Sullivan$34.7 mil.(wheat)

2: Boren$310 mil.(dis.)

4: Cole$615 mil.(wheat)

5: Fallin/ Lankford$29.5 mil.(wheat)

Farm Subsidies: 1995-2009OK: $5.01 bil.

(wheat)

Data: EWG/USDA

13

Senate Ag Committee House Ag Committee

Dems/Repubs want to protect funding, but at odds w/full Senate

Chair Stabenow favors specialty crops & food programs

Ranking Member Roberts favors commodity programs

Chair wants to move “at own pace” 2012? Later?

Dems/Repubs want to protect funding, but at odds w/full House

Chair Lucas & Ranking Member Peterson favor commodity & risk management programs

Chair wants economy & budget to improve first, but hopes for 2012 farm bill

Farm bill debate begins to take shape

14

Lucas frames the farm bill issues…

15 Mar 2011 letter to Ryan“Promote policies & risk management tools that will

keep American agriculture & rural communities strong & our citizens healthy & safe”

Budget reductions of past 7 yrs should count SRA adjustment $6 b. or greater to baseline Mandatory spending cuts $7.5 b. Actual spending declined 28%

SNAP a better target for cutsDon’t assume high farm prices are here to stayTimeline:

2011: regulation oversight; prep for 2012 farm bill (hearings & policy inventory

2012: writing the bill (assuming economy & budget improved)

15

House Ag Committee Dems Rap House GOP 2012 Budget

15 Apr 2011 House votes in favor of Ryan budget$177.86 b. in ag program cuts over 10 yrs

$127 b. cut in food stamp/nutrition programs $30 b. cut in commodity programs $20 b. cut in other ag programs

Senate unlikely to support; but could become rule for House budget actions

23% cut for ag; 14% cut for other programs“2012 House Budget Resolution is a non-starter”

“nearly impossible to write 2012 farm bill”

16

House Ag Cmte spending over 10 yrs (& % of all Fed spending) …

Total: $924 b. (2.15%)Nutrition: $624 b. (1.62%)Crop ins: $83 b. (0.19%)Conservation: $65 b. (0.15%)Commodity: $64 b. (0.15%)Other: $17 b. (0.04%)

Note: Craig Jagger, Chief Economist, House Ag Committee

17

Stabenow frames issues on Senate side…

“proceed on its own schedule…”; “the toughest fb to write since the first one…”; more experience than House

Hearings already in processRe-examine direct paymentsExpand crop insurance to cover more cropsContinue sugar programContinue specialty crops program (research, marketing,

state block grants)Support bio-fuels but may be changedSupports coop extensionCongress should consider cuts/reductions made over

past several yrs

Farm Bill Issues

(2012-38-9-6)

1818

Derivative support

Agency Budget Cuts

Commodity vs. Other($9 b.?)

Federal Budget Deficit & Debt

EPA ChallengedSURE gone?

DP gone?Disaster Assistance?

Immigrant laborProtection?

Renewable Energy

Environment forproduction

Cotton Case

International Food Aid gone?

Land-grant funding “Farm “ Bill, or

“Food” Bill

Livestock Relief

?

World Food Prices

FARM PROGRAMS AND THE BUDGET:“small” as compared to …

2012 Federal Budget (Billion Dollars)

Mandatory, 2,079DOD/DHS/VA,

850

Interest, 340

Other, 490

FARM PROGRAMS AND THE BUDGET:“big” as compared to …

2011 Budget Breakdown (Billion Dollars)

0 5 10 15 20 25 30 35

SBA

FAA

FBI

EPA

Commerce

Interior

Labor (no UIB)

Farm Programs

Energy

Justice

*

* Commodity, Crop Insurance & Conservation

21

The next farm bill…

1. 2012? 2013?2. There will be cuts to programs3. There will be reform of programs4. DP, ACRE, CRP, RD at risk5. Contentious: SNAP, specialty crops,

disaster aid

22

2008 ERS Report

Nutrition now closer to 74% because of ARRA

Net Farm Income & Direct Government Payments (1991-2011f)

020406080

100

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

net farm income

govt payments

NFI-G

23

23

$ BillionFSRIA 2002

$94.7 b.

$10.6 b.

$84.1 b.

FCEA 2008

24

US Crop Subsidies 2003-2005

25http://www.businessinsider.com/chart-of-the-day-un-food-price-index-2010-12

26

Options for the next Farm Bill (odds vary)

Status Quo:(not

likely)

Phase out (not

likely)

Enhance all/most

programs (not likely)

Risk Management

Reform: shift $ to alt. focus; net change less $ (possible)

No reform: Reduce existing

programs w/some

enhanced; net change

less $ (possible)

THE ACRE/DCP DEBATE

Why was sign-up for ACRE so low in 2009-11? Too complicated? Didn’t “breakeven”? Landowners? Other?

What is the purpose of farm programs? Income distribution? Risk management?

Oklahoma payments: ACRE: $95 mil. SURE: $4.97 mil. DP: $128 to $131 mil. CCP: $$13.76 mil.

“Low” yield “High” yield

“Low” price Advantage: ACRE1. Entire DP, but no CCPuntil MP < TP - DP2. ACRE payment possibleif MP > TP or MP < TP.3. No yield risk protection forDCP, but possibly for ACRE

Advantage: ACRE1. Entire DP, but no CCP until MP < TP - DP2. ACRE payment possible if MP > TP or MP < TP.

“High” price Advantage: Leans ACRE1. Entire DP, but no CCP2. No yield risk protection for DCP, but possibly for ACRE3. DP loss likely < ACRE

Advantage: DCP1. No ACRE Payment2. No CCP3. Entire DP

OTHER THOUGHTS ABOUT THE ACRE/DCP DEBATE

The “lumpy payments” problemIf ACRE is a risk management tool, do payment limits defeat its effectiveness for risk management?

The budget cost/risk protection tradeoffLower level trigger means higher budget cost

The “luxury of choice” problemWas ACRE too much to explain to landlords?

29

30

Is a farm safety net necessary & affordable?

Do externalities exist?How do we consider moral hazard?How are priorities for public spending determined?

Do we manage to protect number of farms, production capacity, farm income, rural economic health, or natural resource protection?

31

Thanks for your attention!

Larry D. Sanderslarry.sanders@okstate.

edu405-744-9834

Now, finally a computer error message I can understand