U. S. lawmakers will face increasing pressure to constrain spending on farm subsidy programs after mid-term elections on Nov. 2, possibly as part of government- wide belt tightening.
At its most extreme, the budget cutting could push millions of acres back into production by slashing long-term reserves that idle 10 per cent of U. S. cropland. Or lawmakers might end the $5 billion now guaranteed annually to farmers and that equals to six per cent of net cash farm income.
The deficit-cutting mood also imperils an extension of ethanol tax breaks worth $6 billion annually and due to expire at the end of this year.
The larger the gains by Republ icans, the greater the impetus for spending cuts already on the horizon, say analysts. An ambitious Republican majority in the House could ask for the biggest cuts to mandatory programs in 15 years. A pre-election “pledge” called for cuts of $100 billion a year.
Polls show Republicans are likely to win control of the House, but not the Senate.
Farm supports are the most vulnerable of Agriculture Department programs, say farm lobbyists. Nutrition programs account for the bulk of spending but have many defenders.
The $5 billion a year in “direct payments” could be a particular target because farm groups disagree on its value.
Land reserves cost less but could be cut because stewardship programs traditionally have less support than crop subsidies when the lawmakers have to choose between the two. Corn and soybean output could rise by three per cent and wheat by seven per cent if land reserves are cut by one-third. The 2008 farm law cut Conservation Reserve enrolment by 18 per cent.
TROUBLE FOR ETHANOL
Congress has been slow to renew ethanol tax breaks – a 45-cent-a-gallon tax credit for ethanol blenders, a 54-cent-a- gallon tariff on imported ethanol and a 10-cent-a-gal lon small-producer tax credit – that expire on Dec. 31. The mid-term elections could drain support for them. A $1.01-a-gallon tax break for cellulosic ethanol expires in 2011.
Ethanol groups say they are ready to accept lower supports and aim for passage during the post-election session.
A fiscally conservative Congress also could be reluctant to renew funding that runs out in 2012 for most USDA programs to expand biofuel output and bring feedstocks such as grass and woody plants into use to make cellulosic ethanol.
It would cost $836 million for five years to renew a program that pays farmers to experiment with biomass crops. If successful, they could compete with corn, wheat and soybeans for land.
A MORE COMPLICATED FARM BILL
House and Senate Agriculture committee leaders would need to decide whether to write one bill that combines budget cuts and farm policy or to write two separate bills, which could be written in separate years as well.
Congress combined budget cuts and Farm Bills in 1990 and 1996. The 1996 law ended most federal controls over what farmers grow, a free-market policy still in effect.
The farm program assures a minimum price for grains, cotton and oilseeds, with USDA making up the difference between market prices and the support price. If returns are below targets set by law, it automatically makes additional payments.
Overall, subsidies buffer low market prices and the resulting drop in income, which could constrain purchases of chemicals, seeds and machinery and weaken land prices.
Crop subsidies are forecast for $7 billion in fiscal 2011, including $960 million in a tobacco buy out plan. Subsidies cost $17.6 billion in 2006, before crop prices soared. Land stewardship is an additional $2 billion-$ 3 billion a year.
1996 ALL OVER AGAIN
Most farm-state lawmakers like the crop-subsidy structure now in place but they will face a financial squeeze in the new Farm Bill. Money runs out for three dozen programs, including wetlands protection and for a disaster relief fund.
Crop insurance, crop subsidies and land stewardship are the three major line items. Lawmakers might pare them to free money for other uses, eliminate part or all of some programs, or rewrite the farm support system, the choice in 1996 to marry policy and limited funds.
So far, the dominant argument pits the $5-billion direct payment against an expansion of farm revenue safeguards.
NEW PEOPLE AT THE HELM
If Republicans win control of the House, Frank Lucas is likely to replace Democrat Collin Peterson of Minnesota as Agriculture Committee chairman. Lucas, from Oklahoma, says the direct payment is important in regions with harsher climates and would keep it. Peterson says funding is too tight for a status quo bill and has looked at farm program alternatives.
In the Senate, Saxby Chambliss of Georgia could become chairman if Republicans win control. Chairman Blanche Lincoln of Arkansas is in a tough reelection race. Chambliss and Lincoln prefer traditional crop subsidies.
Debbie Stabenow of Michigan could become chairman if Democrats retain a Senate majority and Lincoln is defeated. Stabenow is a supporter of fruit and vegetable growers and land stewardship programs. Conrad, an author of the disaster fund and backer of traditional subsidies, could be pressured to swap Budget for the Agriculture chair.