Obama Administration spells out proposed ag cuts

 Resize text         Printer-friendly version of this article Printer-friendly version of this article

The Obama Administration has proposed to eliminate direct payments to farmers, which it says will save the Government roughly $3 billion per year. It also proposes to reduce subsidies to crop insurance companies, saving $4.6 billion over 10 years. By better targeting conservation funding, the Administration proposes to save $2 billion over 10 years, but, even still, conservation assistance is projected to grow by $60 billion over the next decade.

Here is exactly what the Administration had to say about agriculture in the report, “Living Within Our Means and Investing in the Future," issued Monday by the Office of Management and Budget:

A strong agricultural sector is important to maintaining a strong rural economy. The Administration supports the farm and rural sectors through a number of means, includ­ing funding agricultural research programs, providing assistance to beginning and dis­advantaged farmers, pursuing trade agree­ments, and increasing funding for programs to expand U.S. agricultural exports. For the past decade, the agricultural sector has been extremely strong. Farm income has been high and continues to increase, with net farm income forecast to be $103.6 bil­lion in 2011, up $24.5 billion (31 percent) from the 2010 forecast — the highest infla­tion-adjusted value for net farm income re­corded in more than 35 years. The top five earnings years for the past three decades have occurred since 2004, attesting to the profitability of farming this decade. The Administration remains committed to a strong safety net for farmers, one that pro­tects them from revenue losses that result from low yields or price declines, and strong crop insurance programs. But there are pro­grams and places where funding is unneces­sary or too generous. To reduce the deficit, the Administration proposes to eliminate or reduce those programs, while strengthening the safety net for those that need it most. The Administration is proposing to:

Eliminate direct payments. The direct payment program provides producers fixed annual income support payments for hav­ing historically planted crops that were sup­ported by Government programs, regardless of whether the farmer is currently producing those crops—or producing any crop, for that matter. Direct payments do not vary with prices, yields, or producers’ farm incomes. As a result, taxpayers continue to foot the bill for these payments to farmers who are experi­encing record yields and prices; more than 50 percent of direct payments go to farmers with more than $100,000 in income. Economists have shown that direct payments have priced young Americans out of renting or owning the land needed to enter into farming. In a period of severe fiscal restraint, these payments are no longer defensible, and eliminating them would save the Government roughly $3 bil­lion per year.

Reduce subsidies to crop insurance companies. Crop insurance is a foundation of our farm safety net. Our Nation’s farm­ers and agricultural bankers understand the value of this effective risk management pro­gram, and currently 83 percent of eligible pro­gram crop acres are enrolled in the program. However, the program continues to be highly subsidized and costs the Government approx­imately $8 billion a year to run: $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsi­dies to the farmers. The Administration has made a continued effort to improve the crop insurance program by covering more crops, while implementing it more efficiently.

In 2010, the U.S. Department of Agriculture (USDA) and the crop insurance companies agreed to changes that saved $6 billion over 10 years from administrative expense reim­bursement and underwriting gains while also improving service to underserved States. The Administration believes there are additional opportunities for streamlining of the admin­istrative costs of the program. A USDA com­missioned study found that when compared to other private companies, crop insurance companies’ rate of return on investment (ROI) should be around 12 percent, but that it is currently expected to be 14 percent. The Administration is proposing to lower the crop insurance companies’ ROI to meet the 12 per­cent target, saving $2 billion over 10 years.

In addition, the current cap on administrative ex­penses is based on the 2010 premiums, which were among the highest ever. A more appro­priate level for the cap would be based on 2006 premiums, neutralizing the spike in commodi­ty prices over the last four years, but not harm­ing the delivery system. The Administration, therefore, proposes setting the cap at $0.9 billion adjusted annually for inflation, which would save $3.7 billion over 10 years. Finally, the Administration proposes to price more ac­curately the premium for catastrophic (CAT) coverage policies, which will slightly lower the reimbursement to crop insurance companies. The premium for CAT coverage is fully subsi­dized for the farmer, so the farmer is not im­pacted by the change. This change will save $600 million over 10 years.

The Administration also proposes modest changes in subsidies for producers. Today, pro­ducers only pay 40 percent of the cost of their crop insurance premium on average, with the Government paying for the remainder. This cost-share arrangement was implemented in 2000, when very few producers participated in the program and “ad-hoc” agricultural di­saster assistance bills were regularly enacted. The Congress increased the subsidy for most insurance coverage by over 50 percent at the time to encourage greater participation. Today, participation rates are 83 percent on average, and the rationale for high subsidy rates has weakened. The proposal would shave two ba­sis points off any coverage premium subsidy levels that are currently offered above 50 per­cent, saving $2 billion over 10 years. Farmers who have premium subsidies of 50 percent or less would not be affected.

Better target agricultural conserva­tion assistance. Farmers, ranchers, and forest landowners share a critical role in con­serving the Nation’s soil, water, and related natural resources. The Administration is very supportive of programs that create in­centives for private lands conservation and has made great strides in leveraging these resources with those of other Federal agen­cies towards greater landscape-scale con­servation; however, the dramatic increase in funding (roughly 500 percent since en­actment of the Farm Security and Rural Investments Act of 2002) has led to difficul­ties in program administration and redun­dancies among our agricultural conservation programs. At the same time, high crop prices have both strengthened market opportuni­ties to expand agricultural production on the Nation’s farmlands and decreased producer demand for certain agricultural conservation programs. These current economic realities and the ability to better target existing fund­ing for maximum environmental outcomes support a proposal to reduce the deficit while preserving the most important agricultural conservation programs. To reduce the deficit, the Administration proposes to reduce con­servation funding by $2 billion over 10 years by better targeting conservation funding to the most cost-effective and environmentally-beneficial programs and practices. Even un­der this proposal, conservation assistance is projected to grow by $60 billion over the next decade.

Extend mandatory disaster assistance. The Administration strongly supports disas­ter assistance programs that protect farm­ers in their time of greatest need. The Food, Conservation, and Energy Act of 2008 provid­ed producers with mandatory disaster assis­tance programs for the 2008 to 2011 crops. To strengthen the safety net, the Administration proposes to extend these programs, or simi­lar types of disaster assistance that are of a similar cost, for the 2012 to 2016 crops. The programs provide financial assistance to pro­ducers when they suffer actual losses in farm revenue, loss of livestock or the ability to graze their livestock, loss of trees in an orchard, and other losses due to diseases or adverse weather. To be eligible for the programs, farmers must purchase crop insurance. The Supplemental Revenue Assistance Program provides whole farm revenue coverage to farmers at a revenue level that is essentially 15 percent higher than their crop insurance guarantee. Payments are limited so that the guaranteed level cannot ex­ceed 90 percent of expected farm income in the absence of a natural disaster.

 



Comments (1) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left

ric bonewitz    
overland park, ks  |  September, 21, 2011 at 03:12 PM

I notice that the administration made no comment on whether they would seek renewal of the ethanol subsidies and tariffs or they would let them expire as scheduled.


7080 Series Self-propelled Forage Harvesters

ProDrive™ senses which axle has more traction and sends power to that axle. A new faster, more reliable spout turning ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Leads to Insight