Thomas Jefferson's vision of a prosperous nation largely made up of family farms is increasingly untenable. That's one reason for the rough ride politicians had writing the latest farm bill, says Stephanie Mercier, the chief economist with the U.S. Senate Agriculture Committee.
“One of the big things that drives the farm bill is population trends of the United States, the demographics,” said Mercier at the LSU AgCenter's recent 2009 AgOutlook Conference in Baton Rouge. “The important thing to keep in mind is that during the same time we've had a 270 percent increase in U.S. population, there has been a 60 percent decline in the number of U.S. farmers. And where those farmers are located has also changed. The share of U.S. counties in which agriculture is a significant economic engine is declining.”
Mercier also pointed out the following:
In 1950, the vast majority of counties nationwide received at least 20 percent of their income from farming.
Since 1989, most such counties are located in a narrow belt between eastern Montana and the Texas panhandle.
That has a very large impact on voting and politicians' focus.
“Whereas almost every senator represents some farmers, that definitely isn't the case in the House. More than half (221 of 435) of House members represent districts with less than 1,500 farmers. And keep in mind, according to the Census of Agriculture, the definition of farming says you only have to have $1,000 of farm receipts to qualify as a farmer. Further, keep in mind that the 1,500 farmers are out of about 600,000 people in each district. That's a low threshold and even so, fewer than half the members of the House” have farmers as constituents.
That's why one must look at things other than farming when trying to put together a farm bill. “It's also fair to say, in (the latest farm bill) we saw a much bigger and wider interest — there was participation by groups that previously hadn't been involved.”
That was true of groups both inside and outside agriculture. USDA took a much greater direct interest in framing farm policy than it has in the last 20 years, “putting together not only policy proposals, but actually providing language to us.”
There was also much interest in a wider array of farm bill programs from livestock and specialty crop producers. Mercier worked on the 2002 farm bill and the specialty crop groups cared “only about two or three programs, at best. This time, they managed to form a coalition and came forward with a very distinct and compelling list of programs that was for their interest only, no one else's. Because they're an increasing influence in Washington, D.C., they managed to get a lot of what they wanted.”
Outside agriculture, “there were a lot of groups weighing in on what they thought farm programs should look like. They'd never expressed much interest previously. There was a group called the Chicago Council on Global Affairs — they tend to have a foreign policy focus. There was the American Enterprise Institute, a conservative think tank, and Oxfam U.S.A., a humanitarian NGO which has rather negative views of U.S. farm policy. The American Farmland Trust was also interested in some innovative policy approaches.”
Farm bills are the primary vehicle for producing medium-term agriculture policy in the United States. Over the history of farm bills, their lifetimes have ranged from seven years to only 18 months. For example, “the 1996 farm bill was supposed to last for seven years but proved a bit too long for the (agricultural) environment so was only a six-year bill.”
The scope of farm bills has also expanded over time. As recently as 20 years ago, farm bills were almost exclusively focused on commodities.
“There were actually separate titles for each commodity — a feed grain title, a wheat title, etc. Now, there's one commodity title with a proliferation of other issues being addressed in the farm bill. I believe there were 15 titles in (the most recent) farm bill. Part of that is because the concentration of population that cares about agriculture has shrunk over time and so we need to bring in other issue areas to ensure sufficient support to pass the farm bill.
“And even then, until this last farm bill, there was a shrinking of support for the bill. Back in the 1977 act, there was rather broad support with a margin of victory in the Senate of 63 to 8. The 2002 farm bill (vote margin) was only 64 to 35. The margin was built back up with the latest farm bill, which got around 80 votes in the Senate.
One of the complications with the new farm bill was that, because the writing process took so long, the 2002 farm bill's authority ended. After expiration on Sept. 30, 2007, “we had to supply a temporary extension of that authority. If that hadn't been done, the farm programs would have been under the permanent legislation, which dates back to 1949. There was a lot of speculation about what that would have meant for the programs, but none of us really wanted to get to that point. So there were four or five extensions from the expiration of the 2002 farm bill until the 2008 bill was finished.”
Mercier showed a bar graph illustrating the budget environment Congress was working under in March 2007. “You'll notice two sets of bars. The blue ones are what the CBO (Congressional Budget Office) is officially required to report because they operate under very restrictive rules about assumptions. It actually looks pretty good if you just look at the blue bars, which says as of 2011, we'd be back in a surplus situation. However, the reason it looks so good is, under law, the CBO is required to assume the 2001 and 2003 tax cuts would expire and we'd be back in a situation with higher capital gains taxes, higher estate taxes, and others.”
The yellow bars are the more realistic scenario, said Mercier. Those assume the tax cuts — some or all — would be extended. Yellow “also accounts for an increased debt load and also for the fact we'd have continuing expenditures for supporting American troops in Iraq and Afghanistan.”
Mercier has not constructed a similar graph for this year's budget — “I thought it would be too scary. It would look much different if it was for May 2009 instead of May 2007. For one thing, we'd have to change the scale. The bottom of this graph is a deficit of $500 million. At this point, projections are for a deficit of $1.2 trillion for fiscal 2009.”
Despite what critics of agriculture programs say, one important thing to keep in mind is farm program spending is “a really, really small portion of what is spent by the federal government. When people talk about cutting the deficit, you don't make much headway by doing things with farm programs.”
In 1940, farm programs accounted for slightly less than 4 percent of the U.S. budget. In 2008, that figure is less than 10 percent of that. It isn't so much that farm program spending has declined, says Mercier, “as it is everything else has increased.”
As for the budget picture Congress faced when beginning the 2007-08 farm bill, “there was a significant decline in what the estimated spending for U.S. farm programs would be for the next decade. That was largely because of high commodity prices as a result of the increase in demand for corn-based ethanol. That influenced not just the corn prices, but everything else and raised the crop price levels and reduced the expectation of farm program payouts. That meant, over the 10-year period, there was a decline of $30 billion in what the CBO thought we'd spend on farm programs.”
The fiscal 2008 budget resolution “is essentially the blueprint we put out yearly on spending expectations. We were given a ‘budget-neutral’ reserve fund ($20 billion over five years) that we would be able to spend in the new farm bill. That means you have permission to go to other (Senate) committees and ask for money. I refer to it as a hunting license although one of my colleagues refers to it as a license to panhandle.
“That meant we had to go to other committees. Because we worked so closely with those committees and went through a laborious process to find where their offers would come from and what they'd like to see done with (the funds), it's reasonable to say this particular instruction in the budget resolution meant at least four to six months was added to the time it took to write a farm bill. It was very painful towards the end to figure out how much money we could get, where the Finance and Ways and Means committees would get it from in a way everyone could agree with.”
Then, there was what was going on internationally. Mercier says overseas considerations didn't have as much influence on the farm bill writing as she initially expected.
“Members of Congress tend to not anticipate what they expect a future (trade) agreement might look like and won't incorporate things until it is a done deal. But, frankly, I thought the Doha round would proceed much more quickly in parallel with the farm bill process. The (trade deal) process has pretty much stalled.”
The Doha round was actually launched informally in 2001 at a meeting in the Middle East. It's been going on ever since. Key issue areas include: Agriculture, non-agricultural market access, trade in services and implementation issues carried over from the Uruguay round.
At best, most people would say the round is “on life support,” said Mercier. “That's for a combination of reasons. Consequently, though, the international (scene) had little or no influence on members of Congress when it came to putting together the (new) farm bill.”
If the trade negotiations are re-launched, trade representatives are “looking to finish it by the end of this year. Leaders are trying to narrow some of the gaps that still exist. Much of the reason for the stall is the wait for the (Obama) administration to get their people in place and develop a sense of what they want to see in this round.”
However, she believes there's a broader problem for the Doha round: too many chefs in the kitchen. “There are 153 member countries in the WTO (World Trade Organization). If you have to operate by consensus, that's very hard to achieve.”
The way things stand now, expectations for the trade deal aren't “nearly as ambitious as what farmers are hoping for. It's gone further towards tentative commitments on cutting U.S. farm support and not gone as far as many groups would like in terms of opportunities for market access in other countries. This is especially a big problem with developing countries.”
One of the things still driving the process is the case filed in 2005 by the Brazilian government to the WTO against U.S. cotton programs. So far, the Brazilians have won at every stage of the review process.
According to the WTO, the United States hasn't taken steps to be in compliance. The Brazilian government is now petitioning the WTO to authorize retaliation against U.S. interests and is seeking a very large monetary value — $4 billion, annually.
“An interesting twist is that rather than undertake retaliation by raising tariffs against U.S. products, Brazil wants the authority to cross-retaliate by withdrawing recognition of U.S. intellectual property rights like book royalties or movie rights. They want to be able to copy U.S. movies and not pay a royalty. That's a novel approach and will be interesting to see how the WTO reacts.”
Mercier met with the representatives of foreign countries after the farm bill was finished. “They weren't very happy with what we did. They think we took it in the wrong direction. I said, ‘Well, I can tell you that members of Congress aren't inclined to anticipate what, or what may not, appear in the Doha round, which may never be finished.’”
Over the years, Europeans have taken a different approach to trade deals. “They tend to their own reforms and then try to force multilateral agreements into their own parameters.”
The U.S. Congress doesn't take that approach. On these shores, politicians “prefer to be more wait-and-see. They'll do what they can to comply with current obligations but won't anticipate what changes may come in the future.
“If we do eventually get a Doha round deal, Congress will decide whether to accept it. If they do, we'll have to go back and make changes to the farm bill. But those are big ‘ifs’ in that statement and … the probability of both occurring is, perhaps, pretty low.”
USDA has yet to release tools for implementing the farm bill, “mostly because the SURE (Supplemental Revenue Assistance) program is complex and hard to figure out to administer. We're hoping that even if they don't have that ready, they'll go ahead and release rules for the other programs.”
One of the drawbacks with the way the disaster component was drafted is it requires a full year of data of prices to calculate a farmer's payment. That means if you had a loss last summer, you'll probably not get a payment until at least October or November of this year. The other programs don't have that kind of requirement.
There was also significant investment in renewable energy in the energy title of the new farm bill.
“With some pride, I'll say we foresaw there'd be a big focus on the need to move beyond corn-based ethanol and soy-based biodiesel. Most of the programs and resources in this title are devoted towards advancing us towards biomass crops and waste products to generate biofuels. Everyone recognizes there's a limitation, a ceiling, on how much corn-based ethanol can be reasonably produced in this country. If we want to make a significant dent in replacing our petroleum-based liquid fuel, we need to find other feedstock sources.”
Quite a bit was also invested in specialty crops, which was a greater focus this year than in the past.
“We put money and research into the specialty crops, provided value-added development grant increased funding and provided block grants (based on their share of specialty crops) to states to dispense as they want. There was also funding to enhance farmers markets and help them make the transition from conventional to organic production.”
Speaking just prior to Obama's budget proposal was released (and subsequently derided by many in agriculture), Mercier believes “we'll see a lot of pressure on the programs in this farm bill over the next few years. I think we'll even see that with what comes out with President Obama's budget proposal for fiscal 2010. Be prepared for an interesting next few years in terms of whether or not we can hold onto these programs.”