Issue Brief: Farm Budget

August 3, 2011

Issue Summary:

The National Journal recently reported about the ongoing budget discussions on Capitol Hill:

Fiscal watchdogs and lawmakers from both parties have painted the clash as an opportunity to make a significant step toward shifting the country off its unsustainable path, but a deal that doesn’t address revenue and entitlements, which would likely have to move together, could be the worst of both worlds fiscally: a basket of low-hanging fruit that doesn’t bring a real solution any closer and makes the next round of talks even harder by leaving negotiators with only the most difficult issues to discuss.

Unfortunately, U.S. farm policy may be the “low-hanging fruit that doesn’t bring a real solution any closer.” And it’s been harvested over and over again.

Just last year, agriculture may well have been the only sector cut in the name of deficit reduction with $6 billion in cuts to crop insurance—a number that some believe will actually be closer to $8 billion when all is said and done.  This was on top of the $7.4 billion reduction to farm policy funding during the 2008 farm bill and $2.5 in cuts in the 2006 reconciliation.

Today, farm policy funding represents just one-quarter of 1 percent of the federal budget, and some are worried that farm policy has already been cut to the point that it won’t be adequate to handle the kinds of crises that hit farmers in the 1980s and 1990s.

As Larry Combest, the former chairman of the House Agriculture and Intelligence Committees recently told the New York Times: “Against all the misrepresentations about farm policy, I have some sobering news: if the bottom falls out on agriculture, existing farm policy is already too weakened to prevent a crisis.”

That is sobering news indeed considering the dual reports coming from the Federal Reserve this year.  The Fed concluded that, thanks to agriculture, “rural America is leading the U.S. economic recovery” as it did in the last recession. But the Fed also warned that farm debt has risen “the fastest since the prelude to the 1980s farm debt crisis,” underscoring the fragility of the current situation and the potential that another market bubble may be emerging.

Policy Overview:

Farm policy has two components to it.  The first part is federal crop insurance, which exists today because multiple peril insurance is not viable in the private market.  The second part consists of the tools in the farm bill that help producers deal with volatile global markets caused, in part, by high foreign subsidies and tariffs that other countries have made clear they will not give up.

Farm policy is structured so most features only kick in when needed most—when prices sharply plunge or natural disasters strike.  That’s a big reason why farm policy has come in under budget in recent years, where many, though not all, producers experienced stronger prices and production.   In fact, from 2007 to 2011, farm policy trimmed taxpayer spending 31 percent when compared to the same four-year period a decade earlier.

Even in potentially expensive times of disaster, such as the massive flooding and severe droughts seen this year, Congress constructed farm policy in a way that private insurance companies, not taxpayers, are on the hook for covering much of the loss.

A strong farm policy has become particularly important in today’s tight credit market.  Farmers need large operating loans to cash-flow their businesses, yet following the real estate collapse of 2008, credit has been harder and harder to obtain.  Most banks today require crop insurance coverage and make loans only with the confidence that farm policy will operate as a low-level backstop if the bottom falls out.

With the world on course to host 9 billion people by 2050, farmers will need to produce more food in the next few decades than they have in the past 10,000 years combined.  Unfortunately, continued cuts to farm policy would make this an even steeper uphill climb.  That’s because America depends on a thin green line of full-time farmers to produce the bulk of the country’s food and fiber, and without a strong farm policy in place, this thin green line would get much thinner.

Farm Policy Facts:

  • Only 16 percent of funding in the farm bill goes to farm policies.
  • Roughly 80 percent of farm bill-related funding goes to food and nutrition programs like food stamps, not to farmers.
  • U.S. farm policy costs Americans just 2.3 cents per meal or 6.9 cents a day.
  • The U.S. ranks near the very bottom among nations in providing subsidies and tariffs.  What is provided to U.S. producers is to help level the playing field.
  • Agriculture employs 14 percent of the U.S. workforce, or about 21 million people.
  • Agriculture is one of the few U.S. business sectors to boast a trade surplus, exporting $116 billion in farm goods in 2010.
  • According to a 2008 USDA study, agricultural exports generated 920,000 full-time jobs, including 608,000 in the nonfarm sector.
  • Americans spend just 9.5 percent of their income on food—less than any other country.
  • U.S. farms sold $369 billion in goods in 2010—that’s bigger than the GDPs of nearly 200 countries.
  • According to a recent study by Harris Interactive, 95 percent of Americans believe it is important to produce food domestically.
  • 97 percent of U.S. farms are run by families, farmer partnerships, or farmer-owned cooperatives.
  • Agricultural land provides habitat for 75 percent of the nation’s wildlife.
  • About 46 percent of the country is farmland—that’s an area more than ten times the size of California and greater than twice the size of Alaska.

Opponents of Farm Policy:

Opponents of farm policy tend to fall in one of three camps—organizations seeking to cut farm policy funding to use the money for their own priorities; so-called “think tanks” that many suspect are front organizations for groups with a stake in legislation and an agenda; people with an extreme view of animal welfare and a misguided belief that modern agriculture is harmful to health and the environment despite the fact that, as the late Nobel Laureate Dr. Norman Borlaug noted, modern agriculture is decisive in protecting both.

What They’re Saying:

“While our members support efforts to bring down the deficit and debt in an orderly and comprehensive manner, we cannot in good faith support deficit reduction efforts that target U.S. farmers and ranchers and rural America for disproportionately large cuts to the small percentage of the mandatory budget devoted to supporting agriculture. Accordingly, we will oppose any cuts to farm policy that are proposed outside the context of a comprehensive agreement involving all federal spending that seriously addresses the fiscal crisis our nation faces.”

–A letter to the White House signed by more than 130 farm organizations

“The work of the Agriculture Committee, including reauthorizing the farm bill in 2012, affects every American; ensuring that our farmers and ranchers have the tools they need to produce an abundant and affordable food and fiber supply is as important to our country as national defense.”

–House Agriculture Committee Chairman Frank Lucas (R-OK)

“I am fully committed to a strong safety net. There is no question that we have serious budget pressures, and so we will need to find creative solutions to help our growers manage risk. The safety net might look a little different than it does now, but we can’t have family businesses going under because of a few days of bad weather.”

–Senate Agriculture Committee Chair Debbie Stabenow (D-MI)

“As Congress continues to consider ways to tighten its budgetary belt, North Dakota’s agriculture producers are prepared to do their part. “But because our need for a safe and healthy food supply is not diminished, nor is our work toward achieving greater energy independence, North Dakota’s and the nation’s producers cannot be made to shoulder a disproportionate share of the burden.”

–Senate Budget Committee Chairman Kent Conrad (D-ND)

“Some folks question the need for a Farm Bill with commodity prices where they are today. I don’t have to tell this crowd that prices can fall much more quickly than they rise. Without an adequate safety net many producers will struggle to secure operating loans and lines of credit to cover input and equipment costs. We need those producers to stay in business if we’re going to meet this global challenge.”

–Senate Agriculture Committee Ranking Member Pat Roberts (R-KS)

Useful Links:

Farm Policy Facts (www.farmpolicyfacts.org)

American Needs a Strong Farm Policy (http://www.thehandthatfeedsus.org/press_kit.cfm)