WASHINGTON, Feb. 4, 2015 – Higher-than-forecast costs of commodity programs in the new farm bill could attract the attention of congressional budget cutters if Republicans pursue broad reductions in federal spending.
Republicans on the House and Senate Agriculture committees would prefer cutting the Supplemental Nutrition Assistance Program rather than farm payments, but they’ll pay a political price if they do. Democrats, including the Senate Agriculture Committee’s ranking member, Debbie Stabenow, will point to the increased cost of commodity subsidies.
Because of sharp drops in prices for grain and other crops, the cost of the farm bill’s commodity programs are expected to total more than $20 billion from fiscal 2016 to 2018, according to the Congressional Budget Office’s latest forecast, up from the $14 billion forecast in April 2014.
If Republicans “want to open up the entire farm bill we can go back and do that but we’re not just going to look at food for children and families and seniors,” Stabenow told Agri-Pulse.
“There’s certainly been much more spending in other parts of the farm bill in terms of unexpected increases than there has been in nutrition,” Stabenow said. “Nutrition is actually going down with the improvement in the economy.”
Much of the forecast increase in farm payments is in two new programs, including the Price Loss Coverage program, which PLC triggers payments when commodity prices are below levels, or “reference” prices, set by the farm bill.
PLC payments are expected to hit $4.1 billion in 2017 alone, compared to the $2.4 billion projected CBO’s April forecast.
Corn will account for much of the increased cost. CBO estimates that PLC payments on corn will total $1.6 billion in 2016 and nearly $2 billion in 2017.
When CBO prepared the 2014 forecast, it was projected that the average price of corn would rise from $3.50 a bushel on the 2014 crop to $4 for the 2015 marketing year and stay between $4 and $5 in the ensuing years. CBO now estimates that the average price will drop to $3.50 this year and stay below $4 until 2019. The PLC reference price that triggers subsidies is $3.70 per bushel.
The cost of a second new program, Agriculture Risk Coverage, has also risen. But ARC’s costs, unlike PLC’s, should decline sharply over time because of the way the program is structured. ARC payments are triggered when revenue for a crop falls below the previous five-year average.
With commodity prices expected to remain at a lower level for the next several years, ARC payments will fall as the lower price levels are calculated into the average. For farmers who select coverage on a county, rather than individual farm basis, and that is expected to be the vast majority of growers, ARC payments are now expected to total $6.3 billion for fiscal 2016 through 2018, up from the $3.7 billion previously estimated for those years. (Farmers won’t receive their first payments under ARC until fiscal 2016.)
The cost of SNAP, formerly known as food stamps, also has risen slightly since the April 2014 forecast but it is still on the decline. CBO now estimates it will cost $78 billion in fiscal 2015 and gradually drop below $74 billion by 2020 even with the inflationary increases in benefits. The April 2014 forecast put the program at $76.4 billion this year and drop below $72 billion by 2020.
South Dakota Sen. John Thune, the Senate GOP conference chairman, says Republican leaders are still trying to decide what kind of cuts they want to try to make with the budget process. “I just hear a lot of speculation,” he said.
Their goal is to have budget resolutions passed through the House and Senate in April laying out the blueprint for what cuts they want to make. The resolutions would require congressional committees, possibly including the House and Senate Agriculture committees, to recommend specific recommendations. Those cuts would then be folded into a budget reconciliation measure for the House and Senate to consider.
Thune said he hopes agriculture programs would be exempt from any cuts, but expressed concern that commodity programs could “catch some attention.” He said he worried about that “when we passed the farm bill with the high reference prices, if commodity prices dropped.”
The two Agriculture committee chairmen aren’t saying yet what they would cut. The chairman of the House panel, Mike Conaway, R-Texas, wouldn’t rule out taking some money from farm programs, although he said the administration’s proposal to trim the crop insurance program by $16 billion over 10 years was dead on arrival. “We may have to look at everything,” Conaway said, while noting that SNAP costs far more than the commodity programs. “We’ll be as fair as we can to as many people as we can.”
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