Senate Played a Shell Game with New Farm Bill
Business + Economy

Senate Played a Shell Game with New Farm Bill

iStockphoto/Anthony Brown

There was quite a bit of backslapping and self-congratulations on the Senate floor Thursday following the overwhelming passage of new farm legislation that will cost taxpayers nearly $1 trillion over the coming decade. Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., engaged in the time honored tradition of cloaking the lawmakers’ handiwork in the mantle of “significant reform,” and indeed there were some important breakthroughs.

But in their desire to satisfy important farm states and rural constituents in the run-up to a crucial fall election, the Senate passed up a golden opportunity to make more serious cuts in spending and to create a new kind of safety net for farmers more aligned with the realities of 21st Century agriculture.

RELATED: Senate Votes to End Millionaire Farm Subsidies

The bipartisan farm bill, approved 64 to 35, will eliminate the $5 billion a year in direct payments to producers of corn, wheat, soybeans and other crops, an enormously costly and wasteful program that over the years showered farmers and land owners with subsidies, whether or not they actually grew the crops. The legislation will also streamline Agriculture Department bureaucracy by consolidating 23 conservation programs into 13, and it will crack down on fraud and abuse in the federal food stamp program, which accounts for a startling 80 percent of agriculture related spending.

Overall, the Senate-passed bill would reduce spending by $23 billion below what it would otherwise be under current law over the next ten years.  Nonetheless, overall government farm spending will continue to grow, and will be 60 percent more in the coming decade than under the old law.  Congress is trying to slow the rate of growth through cost cutting, including about $4.5 billion from the massive food stamp program

“It cuts subsidies, it cuts the deficit and it creates jobs,” Stabenow said following the Senate action. Sen. Pat Roberts of Kansas, the ranking Republican on the Agriculture Committee, said passage of the bill “shows what can happen if we break the logjam of partisanship and work together to get something done.”

Whether the House can do any better when it begins work on its version of the legislation next month remains to be seen. For now, it looks as if the farm lobby will pretty much be able to preserve the status quo.

Few doubt that farming is a tough, hard business with lots of risks and uncertainties, ranging from unpredictable weather and high fuel costs to the vagaries of global farm prices and demands. But at a time when the federal government appears headed for a fiscal cliff and struggles with more than a trillion dollar a year deficit, many budget experts and advocacy groups say the nation can no longer afford a gold-plated agriculture program that takes virtually most of the risk out of farming.

While the overall economy is struggling to recover from the Great Recession, agribusiness is doing well and food prices are up. Net farm income this year will total an estimated $98 billion, and it nearly doubled between 2001 and 2011. Moreover, farm businesses exported nearly $140 billion worth of products, exceeding imports of agricultural products by more than $37 billion.
Yet the bill only cuts a mere 2.3 percent over the coming decade according to the Congressional Budget Office baseline, and less than the $30 billion reduction requested by President Obama. The bill’s $969 billion overall price tag is 60 percent larger than the cost of the last farm legislation passed four years ago.

While eliminating the direct payments to farmers and farmland owners in the new bill, the Senate shifted some of those savings to the already highly subsidized federal crop insurance program, which was created to protect farmers against drought and flooding or precipitous drops in crop prices.

In a sense, the senators were playing a shell game, moving around billions from one overly generous subsidy program to another to help make farming virtually risk free for a relatively small universe of farmers. Currently the government subsidizes about 62 percent of the crop insurance premiums, and the policies typically guarantee 75 to 85 percent of a farmer’s revenues. Not a bad deal. The CBO estimates this program will cost more than $90 billion over the next decade, a $5 billion increase.

“Obviously, getting rid of the direct payments is a significant change,” said Steve Ellis, the vice president of Taxpayers for Common Sense, a budget watchdog group. “The problem is that instead of giving that back to taxpayers … any of that good was then erased by essentially plowing most of that cash” into safety net programs.

“And now we are at the point where we don’t even know exactly how these programs are all going to interact – particularly if crop prices fall from their near record high right now, we are going to be stuck with a lot of costly provisions,” Ellis told The Fiscal Times.

RELATED:  Food Stamp Fraud: Tough New Crackdown

The new Senate legislation greatly increases the government’s role in farm risk management against catastrophic losses. A new “shallow loss” program will force taxpayers to make payments to agricultural producers who suffer as little as a 10 percent loss of anticipated revenue. The bill also creates new entitlement programs, such as Agricultural Risk Coverage and Crop Insurance Supplemental Coverage Option. 

Sen. Amy Klobuchar, D-Minn., boasted of winning support for a provision that would help beginning farmers and ranchers access the crop insurance program by reducing the cost of insurance by 10 percent and eliminating administrative fees for these producers for five years.

One bit of good news: For the first time, participants in the program will be subject to payment limits based on their income. Moreover, recipients will have to follow soil and water conservation requirements, as they would have to do in taking part in other farm programs.

The new payment cap will apply to farmers reporting $750,000 or more in annual adjusted gross income. Twenty-six farm operations received more than $1 million in crop insurance subsidies last year, according to a recent report by the Environmental Working Group.

While the Senate deserves credit for capping subsidy benefits little apparently was done to crack down on the widespread fraud in the program. According to CNBC, none of the proposals considered by the Senate to expand the crop insurance program would add new measures to combat fraud, even though government auditors have repeatedly warned that the Department of Agriculture is not doing enough to deal with crop insurance fraud.

In one classic case, a southern farmer with properties in North Carolina, South Carolina and Tennessee pleaded guilty to two conspiracy counts in 2005 after authorities found he had directed his workers to scatter ice cubes and mothballs in one of his tomato fields in Cocke County, Tenn. He then sent in the pictures to prove his plants had been damaged by a “hailstorm.”

The switch from direct payments to the revenue loss subsidy was welcomed by Northern and Midwestern corn and soybean farmers but strongly opposed by Southern rice and peanut growers, according to the Associated Press. They traditionally have relied more on direct payments and targeted prices and want to keep parts of those subsidies. The House is expected to be more sympathetic to the Southerners.

While overhauling the farm subsidy system, the Senate left alone the sugar program that for some 80 years has protected beet and sugarcane growers and sugar refiners by controlling prices and limiting imports. Consumer groups and food and beverage companies oppose the program. They say it drives up costs and leads to confectioners relocating overseas.

Critics also complained of a tilt in the Senate farm bill towards crops like corn and soybean, which are often processed into junk food ingredients. “At a time when one in three American children is overweight or obese, taxpayers should not spend billions subsidizing additives like high fructose syrup,” said Nasima Hossain of U.S. PIRG, a consumer public interest group.