Let the Budget Games Begin

While Congress and the White House are sparring over how to prevent a government shutdown, the cuts are just in the billions. But a deficit needs cuts in the trillions, and that is exactly what the House budget leader hopes to do.

House Budget Committee Chair Paul Ryan, R-Wis., took the first stab this week at how exactly the new Republican leadership in the chamber wants to reduce federal spending. He proposed $6.2 trillion in federal spending cuts over the next 10 years.

For agriculture, these cuts represent 20% of the funding baseline for agricultural programs over the next 10 years. It includes reductions in key U.S. Department of Agriculture programs over the same period: $30 billion from commodity supports and market development, $18 billion from conservation programs and $125 billion from the Supplemental Nutrition Assistance Program (SNAP). The cuts would reduce federal agricultural spending from $22 billion this year to $16 billion to $17 billion a year, starting in 2014.

"With crop prices – and deficits – hitting new highs, it is time to adjust support to this industry to reflect economic realities," said Ryan. He noted that the top five earning years for farmers in the last 35 years have occurred in the last decade while at the same time "numerous overlapping government programs exist to provide income support to farmers."

Ag groups have made sure their voice has been heard in recent budget discussions that they're willing to do their part and accept budgetary cuts, but would not support disproportionate cuts. And the proposal from Ryan does not single agriculture out but instead makes proportional cuts for agriculture compared to other areas of the federal budget, the National Corn Growers Association (NCGA) said in a statement.

At the center of the cuts is a slash in direct payments and crop insurance reform. It seems agricultural groups are beginning to come around to the notion that direct payments will be cut.

Earlier this year the Iowa Farm Bureau Federation called for cutting the direct payments and shifting the money into programs that would better protect farmers in bad years. NCGA, the commodity group behind the revenue-assurance program (ACRE) in the last farm bill, has also voiced support for investigating transitioning direct payments into programs that allow for producers to better manage risk.

Growers in the South have been less than supportive of the idea of transitioning away from direct payments. Southern producers contend direct payments help support the highly cost intensive crops of the south including rice and cotton.

The National Farmers Union (NFU) called Ryan's proposal "short-sighted" noting that higher prices are usually followed by lower prices. NFU members have called for a reallocation of funds from direct payment programs to other components of the safety net that provide assistance only in times of need. "Crop insurance, which has already absorbed steep cuts, should be at the center of the next farm bill, along with permanent disaster programs, countercyclical programs and supply management," NFU president Roger Johnson said.

These cuts come on top of $6 billion in cuts resulting from the renegotiation of the Standard Reinsurance Agreement in 2010, which ag groups and House Agriculture Committee leaders want to make sure is recognized. In a letter to Ryan in March, the House Ag Committee leaders wrote that those cuts relative to 2011 alone will result in more savings than original because of what appeared to be record crop insurance sales this spring. In addition, from fiscal years 2003 to 2010, the Appropriations Committee cut $7.5 billion in mandatory agriculture spending, although these cuts did not go towards deficit reduction.

House Agriculture Committee Chairman Frank Lucas, (R., Okla.) said he may not agree with every proposed cut, but the nation is "well past the point where trillion-dollar deficits can be ignored."

Lucas also called attention to the fact that while Ryan and President Obama have made suggestions on the 2012 budget, they're only suggestions. "At the end of the day, members of the House Agriculture Committee and I will write the next farm bill," Lucas said.