President's Budget Proposal Has Modest Effects on Farmers

Last week, the Food and Agriculture Policy Research Institute (FAPRI) released its analysis of the President's budget proposal for agriculture spending.

The President's budget proposal for FY2006 included several cuts to agriculture programs. The following is a summary of some of FAPRI's analysis.

• The 5% cut in payments would have only modest effects on supply, demand, and prices for major commodities, but would reduce government farm program outlays by $3.1 billion over fiscal years 2006-2010 and net farm income by $2.2 billion over calendar years 2006-2010.

• The loan limitation would have more noticeable effects on agricultural markets, especially in years with large crops and low prices. The loan limitation would result in slightly lower production and higher prices for cotton and rice. Average effects on production and prices of other crops are less than 1%.

• The loan limitation would reduce government farm program outlays by $7.2 billion over fiscal years 2006-2010 and net farm income by $5.5 billion over calendar years 2006-2010.

• Combining the 5% cut in payments with the loan limitation would reduce government farm program outlays by $9.8 billion over fiscal years 2006-2010 and net farm income by $7.4 billion over calendar years 2006-2010. Interactive effects of the two policies make these estimates slightly smaller than the sum of the effects of the two policies considered separately.

• The Office of Management and Budget (OMB) estimated that these and other proposals in the President's budget would reduce spending on mandatory agricultural programs by $4.0 billion over fiscal years 2006-2010. Corresponding estimates by the Congressional Budget Office (CBO) and FAPRI are $7.5 billion and $9.5 billion, respectively.