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After months of anticipation, Secretary of Agriculture Mike Johanns finally introduced his long-awaited farm bill proposal. But it did not contain any sweeping changes, as some expected. The proposal makes deep surgical cuts to the existing structure of current farm policy. It does present a significant change to its safety net - built on a national revenue assurance countercyclical program based on both price and yield.
His proposal would save about $10 billion over the cost of the current farm bill, excluding disaster aid given over the past five years, but is $5 billion more than if the 2002 Farm Bill was extended, Johanns explains.
Demian Moore, senior policy analyst for Taxpayers for Common Sense, said, "It's unclear where the Administration's $5 billion in savings come from, adding that the 2002 Farm Bill was probably the most expensive in history." The budget watchdog group is concerned, "that in the face of record-setting prices for many cash grain crops, any type of 'revenue assurance' plan might become a taxpayer funded retirement plan for wealthy landowners."
The revenue proposal was first introduced by the National Corn Growers Association, and a topic featured in Farm Futures magazine nearly two years ago. Johanns told reporters Wednesday morning it provides a better safety net. Members of Congress and National Farmers Union President Tom Buis aren't convinced the revenue assurance program is the way to go. In essence, it would eliminate the need for disaster aid payments. However, Buis said a permanent disaster aid program better addresses disaster rather than basing payments on how people farm. House Agriculture Committee Chairman Collin Peterson is also supportive of a permanent disaster program.
Currently producers can purchase crop insurance that covers 70% of losses. Part of USDA's proposal provides supplemental gap insurance to cover the remaining 30% of losses.
Payment limits are always a divisive matter in farm bill debates. Johanns proposed a slightly different approach to limiting payments in his proposal. The USDA proposal would eliminate those with an adjusted gross income of more than $200,000 from eligibility from commodity programs -- although not from conservation programs.
Some 80,000 farm program participants would be affected by that change according to a USDA official. To close loopholes the Bush Administration will also press Congress to eliminate the three-entity rule and tie payments to an individual at a total of no more than $360,000 any participant -- although the generic certificate program, which allows for addition payments, remains in the USDA proposal.
Even large producers are unable to compete with 1031 exchange money funneling into the countryside, pushing land values and cash rents higher. Johanns proposed to eliminate commodity payments on land acquired on 1031 exchanges. This is the first idea I've heard personally on addressing 1031 exchanges. It also has the potential to significantly increase 1031 exchange purchases before the next farm bill goes into effect if the idea takes on in Congress.
Increase direct payments, decrease marketing loans
Johanns didn't call for a complete elimination of any major component of the 2002 Farm Bill. However, many of his suggestions do take a significant step away from government involvement in the market.
The USDA proposal adjusts marketing loan rates down. The current law provides loan rates or price floors for corn, wheat, cotton, rice, soybeans and other major crops. USDA says these price floors are set in law at high levels which have encouraged production and resulted in lower market prices. The new proposals set loan rates for each commodity at 85% of the 5-year Olympic average (average of last five years excluding the high and low year). This change minimizes market distortions and encourages farmers to plant crops based on market prices instead of the level of subsidy payment, USDA says.
Overall USDA called for a $5.5 billion increase in commodity direct payments. Cotton payments would increase 65%, while other commodities currently experiencing strong prices would see an increase of 7% in the third, fourth and fifth years of the bill.
Conservation boosted
Johanns proposed to increase conservation funding by $7.8 billion. However, he only suggested a $500 million increase in the popular Conservation Security Program. Senate Ag Committee Chairman Tom Harkin authored the program in 2002 and after retaking over the helm of the committee again, he will likely push for a broader-based program in the upcoming farm bill debate.
Overall the conservation title includes $7.8 billion more in total conservation funding. The Environmental Quality Incentive Program (EQIP) will experience the biggest funding jump at $4.2 billion.
If producers choose to forgo loan deficiency payments and countercyclical payments, they could have a 10% increase in direct payments to implement conservation measures.
Ten percent of all conservation funding is reserved for beginning and socially disadvantaged farmers.
Biofuels focus on research
According to the administration's proposals, they are seeking to provide $1.6 billion in new funding for renewable energy research, development and production, targeted for cellulosic ethanol, which will support $2.1 billion in guaranteed loans for cellulosic projects and includes $500 million for a bio-energy and bio-based product research initiative.
Specifically, the proposals include:
Whether this proposal goes far enough, is still unknown. Critics are already saying more needs to be done to push biofuels to the next level.
Specialty growers get $5 billion
There isn't much more of the piece to go around, but specialty growers will come out on top if Congress implements Johanns' provisions included in his proposals. To become WTO compliant, it does eliminate the fruit and vegetable planting restrictions on commodity acres.
It also targets nearly $5 billion in funding to support specialty crop producers by increasing nutrition in food assistance programs, including school meals, through the purchase of fruits and vegetables, funding specialty crop research, fighting trade barriers and expanding export markets.
Policy is one of the most important issues facing farmers today, but often the most difficult to digest. Jacqui Fatka has a passion to decode the often difficult world of agricultural policy into terms understandable for today's ag players.
Fatka joined the Farm Progress team as E-Content Editor in August 2003 after graduating from Iowa State University. Prior to full-time employment with Farm Progress, she interned at Wallaces Farmer magazine, Iowa Sen. Chuck Grassley's press office and the Iowa Pork Producers Association and freelanced for National Hog Farmer. She also worked as a public relations consultant with Iowa Industries for the Future, an effort to bring together major players in the biorenewables industry.
Currently Fatka is a staff editor at a sister publication, Feedstuffs. For Farm Futures she regularly tells the story of ongoing agricultural policy changes. Her byline can also be found on management profiles.
Fatka grew up on a grain and livestock farm near Atlantic, Iowa. She currently lives in central Ohio with her husband Eric.
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