Ag Industry Reaction Mixed for Budget Proposal

Given the recent success of agriculture crop and livestock prices, the Administration believes it is appropriate to adjust current levels of assistance to farmers under the 2002 Farm Bill. Although President Bush's proposal is not being well-received in the agriculture industry, it does aim to reduce subsidies, promote more efficient production decisions and extend expiring programs.

The key points of the proposal include:

• Reducing the payment limit cap for individuals to $250,000 for commodity payments, including all types of marketing loan gains, while removing the three-entity-rule.
• Basing marketing loans on historical production.
• Reducing crop and dairy payments to farmers by five percent. Payments to farmers from all commodity programs (e.g., marketing loans, direct and counter-cyclical payments) would be calculated and payments would be reduced by 5%.
• Requiring the dairy price support program to minimize expenditures.
• Imposing a sugar marketing assessment to be paid by sugar processors on all processed sugar.
• Extending the Milk Income Loss Compensation program for two years.

In Secretary of Agriculture Mike Johann's news conference, he restated several times that farmers and ranchers are practical people and understand the benefits of having a healthy economy. "There isn't any doubt that farmers and ranchers understand that their future depends on a stable national economy, an economy that provides opportunity, an economy that raises the standard of living for people-- because that's how we buy the products that they raise," he says.

However, many feel that agriculture is paying more of its fair share of pitching in to help. The federal budget for agriculture accounts for about ½ of 1% of the entire federal budget, yet provides the underpinning for industry that is 15% of the nation's GDP, the National Cotton Council (NCC) says.

Senate Ag Committee Chairman Saxby Chambliss from Georgia said last week he was willing to address the deficit by cutting agriculture funding if other departments were asked to do the same. However, he doesn't see that as the case with the proposed budget.

Cotton and rice producers would be impacted significantly by closing loopholes and instituting a lower payment limit. Mark Lange, NCC president & CEO, says payment limits "single out certain regions to make a greater sacrifice than others."

Sen. Tom Harkin, ranking member of the Senate Agriculture Committee member, says "given the make up of this Congress, it is unlikely payment limits will actually be enacted, forcing Congress to find the budget savings from other initiatives such as conservation, rural development, and nutrition."

The President is proposing to limit subsidies based on historical crop yield. Had the proposal been in effect for the 2004 crop, corn growers would have received 45% less than they did, USDA economists say. Corn may be the hardest hit because of yield increases that good growing years, such as 2004, bring. The Des Moines Register reports that under the proposed changes, producers can only claim subsidies on about 100 bushels per acre, says Iowa State economist Chris Hart.

The timing of a passed appropriations bill could be key to negotiating multilateral world trade talks. Over a hundred groups have warned USDA that cutting prices before the Doha round is competed removes our ability to effectively negotiate cuts. The National Farmers Union (NFU) President Dave Frederickson says "cuts in the safety net prior to the WTO trade negotiations will put U.S. farmers at a disadvantage in the international marketplace, further compounding our ability to compete."

Lange adds if the United States was to substantially alter programs, "what's left in the portfolio for the U.S. negotiator to achieve substantial reduction in European Union's export subsidies?"

When Johanns was asked what farmers would say about having changes made in the middle of the farm bill, he felt they'd understand that the deficit needs to be addressed if they are going to have a long-term future in agriculture for themselves and future generations. "Farmers are going to understand that our country cannot run a deficit at this level and expect anything good to come out of that over the long term. They are very, very practical people," he told reporters.

The greatest challenge for farmers and ranchers is planning ahead for the 2005 marketing year. This mid-course correction of opening the farm bill has a "tremendous destabilizing affect on U.S. agriculture" as producers are putting the pencil to marketing decisions for 2005, says Lange.

The President's budget is the first step in a long process. In the last 10 years, Congress has only passed four stand-alone agriculture appropriations bills. Many times Congress is forced to lump funding bills together. If so, the budget won't be announced until at least late 2005.

There's been a lot of talk about budget reconciliation in 2005. Congress still has the authority to do that, although this budget is seen as a step in reconciliation. It may be that Congress will not act on a separate reconciliation bill but will instead follow more closely the strict funding cuts proposed in the President's budget.

Former Ag Chairman Sen. Thad Cochran, R-Miss., says he'll never go along with Bush's proposed agricultural cuts. Cochran is the current chairman of the Senate Appropriations committee and remains influential on the ag committee. He says the budget unfairly targets cotton and rice growers in the south.