The Facts on the Farm Bill

June 12, 2012

Subsidies for Farmers: the 2012 Farm Bill

What’s the farm bill? Does the United States need to subsidize farmers? With the Senate set to begin debate on the farm bill this week, we answer these questions, and others.

  • Background
  • What is “The Farm Safety Net”
  • Food Stamps
  • The 2012 Farm Bill and the Proposed Agriculture Risk Coverage Plan
  • Fight Against Corporate Subsidies
  • Appendix

Background
Federal subsidies to farmers began after the Great Depression. Lawmakers then viewed safeguarding agriculture as a national security priority1. But today the U.S. debt has increased nearly 50 percent since 20092 and farm incomes are surging to record levels.3

In general, a new farm bill is passed about every five years4. The last farm bill became law in 2008 despite a presidential veto5. Certain provisions of the last farm bill expire in September 20126.

According to the nonpartisan Congressional Research Service farm bills have “steadily grown” 7 over the last few decades as coalitions with varying interests horse trade to try and get what they want in the bill. The last few farms bills have either added new crops to the subsidy list or created entirely new programs.

The Senate is set to begin debate on the 2012 farm bill on the week of June 11. According to the Congressional Budget Office, the Senate bill would save $23.6 billion over ten years (see the appendix for more information on how the farm bill saves money).8

What is “The Farm Safety Net”?
The farming industry refers to the provisions in the farm bill as the “farm safety net.” The term encompasses farm commodity price and income support programs, federal crop insurance and disaster assistance programs.9

Farm Commodity Price And Income Support Programs
The 2008 farm bill provided support for 26 farm commodities. Payments for these programs fall several categories. Two of them include:

  • Direct payments: wheat, corn, cotton, and rice, among other commodities, receive a fixed annual payment from the federal government without regard to current market prices. In other words, the payment is fixed annually and is based on the land’s past production history. These payments total about $5 billion each year.
  • Counter-cyclical payments: the same commodities that qualify for direct payments, in addition to some others, qualify for these payments, which are made if the market price is lower than the target price set in bill.10

The Senate farm bill proposal would replace these two programs with a new program called the Agriculture Risk Coverage plan, discussed below

Federal Crop Insurance
Started in 1938, the federal crop insurance subsidizes more than 100 crops for insurance premiums. Farmers purchase insurance policies, serviced through 16 private companies, which insure the farmer from certain losses. The federal government subsidizes, on average, about 60 percent of the total premium.11

Farm Disaster Assistance 
The 2008 farm bill created a $3.8 billion trust fund to cover certain farm disaster losses. This program expired on September 30, 2011.12 Between 1988 and 2008 Congress has made emergency financial assistance available to farmers and ranchers largely on an ad hoc basis – the 2008 farm bill tried to make disaster assistance more structured.13

The current Senate farm bill reauthorizes certain portions of disaster funding for livestock and tree assistance and doesn’t extend others. 14

Food Stamps
Food stamps, formally called the Supplemental Nutrition Assistance Program, provide an electronic benefits transfer card that allows low-income households to purchase food at authorized retailers. As of November 2011, there were 46 million 15 people participating in the program, which is part of the farm bill.16

Since the food stamp program is one of the most expensive parts of the farm bill, both sides of Congress are looking to cut its cost.17

The 2012 Farm Bill and the Proposed Agriculture Risk Coverage Plan
The biggest change the Senate is considering in this year’s farm bill is the elimination of direct cash payments for farmers and the counter-cyclical program. [18 In addition to these programs, the Senate farm bill would eliminate the Average Crop Revenue Election program. Unlike crop insurance, this program protects for multi-year price declines.] These changes have been proposed since it is “no longer is politically defensible given high farm incomes”18. Although the bill eliminates these programs, an entirely new government program would take their place.

Agriculture Risk Coverage Plan
The new program would cover all crops except cotton, which would get its own program.

Some say the Plan amounts to a new entitlement in addition to expanding crop insurance. Others say it isn’t enough to protect farmers in the event of a collapse in commodity prices for multiyear losses.19

  • Here is how the new program would work: if a farmer’s revenue for a covered commodity in a given year is below an 89 percent of his or her historical revenue, the farmer absorbs the first 11 percent in losses, the government pays for the next 10 percent (i.e., the shallow loss), and the remaining loss would be covered by crop insurance20.
    • In previous farm bills these shallow losses were losses “not covered by federally subsidized crop insurance but absorbed by the producer via the [insurance] policy deductible21”. In other words, this new program is a “free supplement to crop insurance to cover “shallow losses” of 11 percent to 21 percent revenue declines from five-year price averages.”22

The new program also increases subsidies for crop insurance. Depending on the type of policy, there would be subsidies of 70 to 80 percent of the crop insurance premium,23 above the current 60 percent average24.

  • The Congressional Budget Office estimated the new program would cost $19.8 billion less than current law.25
  • Some agricultural economists have predicted the new program could cost more than what we are spending now,26 as much as $3 billion a year more.27

Fight Against Corporate Subsidies
As the bill heads to the floor, Sens. Tom Coburn (R-OK) and Dick Durbin (D-IL) have joined forces to target some farm crop insurance subsidies, arguing that because they operate without any income cap limit, they benefit large corporations. In 2011, for example, one large corporation received a subsidy of $2.2 million.28

Conclusion
During a time of serious budget challenges, Americans deserve an honest debate on the farm bill. At a time of trillion dollar deficits, is the farm bill necessary to keep America’s food supply safe? Or are we just lining the pocket of big corporations?

Appendix
Mandatory vs. Discretionary Spending and its Impact on the Farm Bill

As we’ve discussed many times before, there are two major ways Congress can spends money: discretionary spending and mandatory spending. And to really understand the mechanics of the farm bill, it is critical to understand this concept.

  • Discretionary spending is spending that occurs through yearly appropriations acts29. This generally includes things like defense spending since Congress must fund defense spending each year, on or before the start of a new fiscal year (October 1).
    • In general, funding provided through annual appropriations acts are considered to be nonpermanent legislation. In other words, these yearly appropriations laws only apply for one fiscal year.30
  • Mandatory spending is spending that is “controlled by laws other than appropriations acts.” Programs like Social Security, Medicare, and farm commodity programs, among others, represent mandatory spending.31
    • For mandatory spending, Congress sets eligibility requirements and benefit formulas. If a recipient meets the requirements, the spending generally happens automatically.32
    • In the case of farm commodity programs, Congress originally created these programs with three permanent laws passed in 1938, 1948, and 1949. However, previous farm bills have modified the eligibility requirements and benefit formulas for commodity programs—but generally only does so for a five-year period33. In other words, the farm bill may temporarily alter (generally for five years) the mandatory spending eligibility requirements and benefit formulas for commodity programs.
      • As a point of reference, the biggest mandatory spending program included in the farm bill is the Supplemental Nutrition Assistance Program, formerly known as food stamps, which represent 78 percent of the farm bill’s mandatory spending, according to the most recent estimates. Likewise, commodity programs represent about six percent of the farm bill’s mandatory spending.34

Why is this so important? Since a large portion of the farm bill represents mandatory spending, it significantly impacts how the nonpartisan Congressional Budget Office (CBO) determines how much the legislation will cost (i.e., the “score” of the bill). For example, the CBO estimated the latest draft of the Senate farm bill would save $23.6 billion over ten years35. These savings come from CBO’s estimate of the Senate’s farm bill provisions for the next five years against the estimated cost of the mandatory programs over ten years.

To view this document as a .pdf, click here.

 

  1. CQ House Action Reports. 110-7. Subscription required. http://cq.com/doc/har- 2838059?wr=bGFldXRDRDVoeHB2SzhPM0NoV3kxZw
  2. Calculation from Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits, 1789 – 2017. http://www.whitehouse.gov/omb/budget/Historicals
  3. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. 6. http://www.fas.org/sgp/crs/misc/R42040.pdf
  4. Congressional Research Service. What is the “Farm Bill?” January 3, 2011. P. Summary. http://www.nationalaglawcenter.org/assets/crs/RS22131.pdf
  5. CQ House Action Reports. 110-7. Subscription required. http://cq.com/doc/har- 2838059?wr=bGFldXRDRDVoeHB2SzhPM0NoV3kxZw
  6. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. Summary. http://www.fas.org/sgp/crs/misc/R42040.pdf
  7. Congressional Research Service. Previewing the Next Farm Bill. February 15, 2012. P. Summary. http://www.nationalaglawcenter.org/assets/crs/R42357.pdf
  8. CQ Today. CBO Confirms Savings in Senate Panel’s Farm Bill. May 25, 2012. http://cq.com/doc/news- 4094779?wr=bGFldXRDRDVoeHJ0TzROMHNOd2Mwdw
  9. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. Summary. http://www.fas.org/sgp/crs/misc/R42040.pdf
  10. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. 3 – 4, 6. http://www.fas.org/sgp/crs/misc/R42040.pdf
  11. Congressional Research Service. Federal Crop Insurance. December 13, 2010. P. Summary. http://www.nationalaglawcenter.org/assets/crs/R40532.pdf 
  12. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. 3. http://www.fas.org/sgp/crs/misc/R42040.pdf
  13. Congressional Research Service. Agricultural Disaster Assistance. October 25, 2010. P. Summary. http://www.fas.org/sgp/crs/misc/RS21212.pdf
  14. Congressional Research Service Senate Agriculture Committee’s 2012 Farm Bill. May 30, 2012. P. 2. http://www.nationalaglawcenter.org/assets/crs/R42552.pdf
  15. Congressional Research Service. The Supplemental Nutrition Assistance Program: Categorical Eligibility. March 2, 2012. P. Summary. http://www.fas.org/sgp/crs/misc/R42054.pdf
  16. Congressional Research Service. Senate Agriculture Committee’s 2012 Farm Bill. May 30, 2012. P. 3 – 4. http://www.nationalaglawcenter.org/assets/crs/R42552.pdf
  17. NationalJournal Daily. Saving the Farm Bill. May 21, 2012. http://nationaljournal.com/member/daily/saving-the-farm-bill- 20120521?mrefid=site_search
  18. Politico. Farm Bill Savings would be $23.6 billion, CBO Says. May 25, 2012. http://www.politico.com/news/stories/0512/76770.html
  19. CQ Today. House Farm Bill Likely to Put Spotlight on Crop Insurance. May 17, 2012. http://cq.com/doc/news- 4088451?wr=bGFldXRDRDVoeHEwZExsbDZDSnFZdwp
  20. Congressional Research Service. Senate Agriculture Committee’s 2012 Farm Bill. May 30, 2012. P. 1. http://www.nationalaglawcenter.org/assets/crs/R42552.pdf
  21. Congressional Research Service. Farm Safety Net Proposals in the 112th Congress. April 18, 2012. P. Summary. http://www.fas.org/sgp/crs/misc/R42040.pdf
  22. CQToday. Rice-Peanut Fight May Spill Onto Senate Floor. June 1, 2012. http://cq.com/doc/news- 4097984?wr=bGFldXRDRDVoeG9RaGZSc2RNSE9nUQ
  23. Congressional Research Service. Senate Agriculture Committee’s 2012 Farm Bill. May 30, 2012. P. 7. http://www.nationalaglawcenter.org/assets/crs/R42552.pdf
  24. Congressional Research Service. Federal Crop Insurance: Background and Issues. December 13, 2010. P. Summary. http://www.nationalaglawcenter.org/assets/crs/R40532.pdf
  25. CQ Today. CBO Confirms Savings in Senate Panel’s Farm Bill. May 25, 2012. http://cq.com/doc/news- 4094779?wr=bGFldXRDRDVoeHJ0TzROMHNOd2Mwdw
  26. AEI. Field of Schemes. May 30, 2012. http://www.aei.org/article/economics/fiscal-policy/field-of-schemes-the-taxpayer-and- economic-welfare-costs-of-shallow-loss-farming-programs
  27. CQToday. Economists Predict Senate Farm Bill Could Mean Higher Costs for Taxpayers. May 30, 2012. http://cq.com/doc/news- 4096158wr=bGFldXRDRDVoeG9valJsaUVUNmU2Zw
  28. Senators Coburn and Durbin Letter. May 8, 2012. http://sustainableagriculture.net/wp- content/uploads/2012/05/DurbinCoburnLtr5.8.20121.pdf
  29. Congressional Research Service. Reductions in Mandatory Agriculture Program Spending. May 19, 2010. http://www.nationalaglawcenter.org/assets/crs/R41245.pdf
  30. 31 U.S.C. 1301. http://uscode.house.gov/download/pls/31C13.txt
  31. Congressional Research Service. Reductions in Mandatory Agriculture Program Spending. May 19, 2010. http://www.nationalaglawcenter.org/assets/crs/R41245.pdf
  32. Congressional Research Service. Reductions in Mandatory Agriculture Program Spending. May 19, 2010. http://www.nationalaglawcenter.org/assets/crs/R41245.pdf
  33. Congressional Research Service. Farm Commodity Programs. December 13, 2004. http://www.nationalaglawcenter.org/assets/crs/RS21779.pdf
  34. Congressional Research Service. Budget Issues Shaping a 2012 Farm Bill. April 17, 2012. http://www.fas.org/sgp/crs/misc/R42484.pdf
  35. CQ Today. CBO Confirms Savings in Senate Panel’s Farm Bill. May 25, 2012. http://cq.com/doc/news- 4094779?wr=bGFldXRDRDVoeHJ0TzROMHNOd2Mwdw

Leave a Reply

Your email address will not be published. Required fields are marked *