The next five-year farm bill might be judged by what happens to commodity prices over the same period, according to a Purdue University agricultural economist.
Even then, the federal legislation will be perceived differently in different quarters.
Part of whether you think something is better or not depends upon where you sit, Purdue’s Otto Doering said last week in a telephone interview.
The Senate and House versions of the farm bill would transform the way the federal government subsidizes farmers to protect them against poor yields and commodity price drops. Both bills would eliminate direct payments to farmers in favor of expanding subsidized crop insurance programs.
As crop prices have soared in recent years, direct payments became to some extent politically untenable, Doering said. The public had some logic in thinking, Why should we be sending money to farmers, whatever it is, when prices are at all-time highs and farm incomes are at all-time highs?’
And so Congress proposes replacing direct payments with what Doering called a suite of insurance alternatives, including Agriculture Risk Coverage. Also known as shallow loss, this program would have the government compensate farmers if their profits fall below a certain percentage – 88 percent in the Senate bill, 85 percent in the House version – of their most recent five-year average.
But if crop prices drop drastically over the life of the farm bill, Doering said, the federal payouts to farmers would be massive – very, very, very large expenditures.
Doering spoke a day before the Republican House voted on its farm bill, and he had doubts about whether it would pass. Sure enough, the bill failed in a 234-195 vote.
The Senate approved its version June 10. The 2008 farm bill expired last year but was extended by Congress until Sept. 30.
Relying on God
The Congressional Budget Office projects that the elimination of direct payments will cut $46 billion in federal spending over 10 years. Congressional Research Service estimates the current farm bill would spend a combined $143 billion on crop insurance and commodity supports in that time, the Senate bill would spend $130 billion and the House bill $133 billion.
Roanoke-area farmer Jerry Osterholt said he supports the move from direct payments to subsidies on premiums paid to private insurers. He has participated in both systems.
People don’t think about it, but we’ve got a heck of a lot invested out there. You’re relying on Mother Nature and God to make things right for you, he said.
With the terrible yields last year, the saving grace was the price was good. You don’t have anything to sell, but the price is good, said Osterholt, who grows 300 acres of corn and soybeans and is a member of the board for the Indiana Soybean Alliance.
Crop insurance advocates, including the Indiana Farm Bureau, contend it spreads the financial risk among farmers, insurers and taxpayers.
Megan Ritter, the farm bureau’s public policy director, compared crop insurance with home and auto insurance, saying it protects farmers when they need it most.
It’s a risk-management tool in the pure definition of a risk-management tool, she said.
Critics claim that subsidized crop insurance encourages farmers to take more risks by planting in flood-, drought- or erosion-prone areas. The Senate farm bill contains conservation compliance provisions, but the House bill did not.
All the farmers I know are more concerned about their land than anything else, Osterholt said. Farmers really care for the land, and they will pass it from generation to generation.
Taxpayers pay more
Sen. Joe Donnelly, D-Ind., voted in favor of the Senate farm bill and said last week he favors the switch from direct payments to crop insurance premium subsidies.
From what we’ve seen, this is much more of a free-market solution than what has been followed before, he said in a telephone interview.
And this is also something that the farmers have asked for. This is something that Indiana’s ag community has said is the way they want to go, so I want to support them in that effort, he said.
The Senate bill would limit commodity subsidies to $50,000 a year for each farmer and prohibit subsidies for individual farmers with more than $750,000 in adjusted gross income.
An amendment to the House bill to reduce the income threshold to $250,000 was defeated Thursday.
Rep. Marlin Stutzman, R-3rd, who voted against the both the House bill and the subsidy cap amendment, recently endorsed limiting insurance subsidies.
A subsidy makes it easier to go out and buy insurance that you don’t need, Stutzman, a LaGrange County farmer, told reporters in a June 13 conference call. It’s going to cost taxpayers more. So I think that a cap is a reasonable thing to do.
A spokesman for the conservative Hertiage Foundation noted in the same call that a taxpayer’s share of insurance subsidies has grown from 37 percent to 62 percent since 2000.
Daren Bakst, agriculture policy research fellow for Heritage, said even without direct payments, the House bill would add new programs that could wind up being even costlier than the programs they would be eliminating.