Originally published in the Daily Report for Executives on 09/26/2011.
President Obama’s plan to cut farm subsidies to help reduce the deficit has growing bipartisan support in Congress and even among some industry interests, but some farm-state lawmakers and major agriculture groups are opposed.
Obama proposed Sept. 19 to cut $33 billion in agriculture costs over 10 years in part by eliminating direct payments to farmers and reducing subsidies to crop insurance companies, as part of a larger $4.4 trillion deficit-reduction plan.
Direct payment subsidies, which total, on average, $5 billion per year, are given to farmers regardless of their crop yields or incomes. According to the administration, more than 50 percent of these subsidies go to farmers who make more than $100,000 and eliminating direct payments would save roughly $3 billion per year.
As food prices and farmers’ incomes continue to increase, legislators on both sides of the aisle have expressed support for getting rid of subsidies to farmers.
“I think the administration’s proposal and the National Cotton Council having decided to reject direct payments earlier this summer are signs that its days are numbered,” said Ferd Hoefner, policy director for the National Sustainable Agriculture Coalition, an alliance of grassroots organizations that advocates for agriculture policy reform.
Eliminating direct payments is one issue the Joint Select Committee on Deficit Reduction, or super committee, could take up as it tries to reach a deal on reducing spending by $1.2 trillion over the next decade. But, since not every super committee member has close ties to agriculture, Hoefner said he believes the committee may not get into the “nitty gritty details” of eliminating the subsidies fully.
“If they decide they cannot do a detailed job of creating a new farm bill safety net program to take the place of direct payments, they may well decide to just reduce direct payments somewhat and then leave it to the agriculture committees to deal with the replacement program during next year’s farm bill action,” Hoefner said.
Loss of ‘Safety Net’ Feared
Some, including Mark Maslyn, executive director of public policy for the American Farm Bureau, a large nonprofit farm organization, have expressed concern about the “safety net” for farmers if direct payments are eliminated.
“Direct payments have been an important part of the safety net for agriculture,” Maslyn said.
The Farm Bureau supports direct payments, and Maslyn said the subsidies help farmers with the cost of implementing state and federal regulations. Subsidies for farmers are also important, according to Maslyn, because although commodity prices are strong now, they can fluctuate over years.
“It’s important policy makers understand farm bills are written for a longer period of time and the prices farmers receive and the prices farmers pay for their inputs can go up and down,” said Maslyn. “You often hear people talk about the price of commodities but you seldom hear them talk about the price of inputs.”
Crop Insurance Controversy
Other parts of the president’s plan to reduce agriculture costs include reducing crop insurance subsidies, decreasing agriculture conservation funding, and extending disaster assistance for farmers into 2016.
Republicans and some Democrats from agriculture states have come out against the president’s plan to reduce crop insurance. House Agriculture Chairman Frank Lucas (R-Okla.), Sen. Debbie Stabenow (D-Mich.), chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry, and Rep. Collin Peterson (D-Minn.) have all said they oppose cuts to crop insurance.
The administration proposed reducing the return on investment to insurers from 14 percent to 12 percent and shaving two basis points off coverage premium subsidies that are more than 50 percent. Maslyn said Obama’s plan would make crop insurance more expensive to producers and private companies may not be able to offer the insurance if subsidy cuts are successful.
David DeGennaro, legislative analyst for the Environmental Working Group, a nonprofit that advocates for health and subsidy-shifting issues, disagrees, saying that insurance companies will still make money from the policies, just not as much.
“I think it may be true that it would be hard for crop insurance companies to offer crop insurance without federal subsidies, but we think they could bring it down to a more reasonable level,” DeGennaro said.