Farmers face squeeze in proposed subsidy cuts
WASHINGTON (AP) — A program that puts billions of dollars in the pockets of farmers whether or not they plant a crop may disappear with hardly a protest from farm groups and the politicians who look out for their interests.
The Senate is expected to begin debate this week on a five-year farm and food aid bill that would save $9.3 billion by ending direct payments to farmers and replacing them with subsidized insurance programs for when the weather turns bad or prices go south.
The details are still to be worked out. But there's rare agreement that fixed annual subsidies of $5 billion a year for farmers are no longer feasible in this age of tight budgets and when farmers in general are enjoying record prosperity.
About 80 percent of the bill's half-trillion-dollar cost over the next five years represents nutrition programs, primarily food stamps now going to some 46 million people. About $100 billion would be devoted to crop subsidies and other farm programs.
The Senate Agriculture, Nutrition and Forestry Committee last month approved a bill that would save $23 billion over the next decade by ending direct payments and consolidating other programs. The bill would strengthen the subsidized crop insurance program and create a program to compensate farmers for smaller, or "shallow," revenue losses, based on a five-year average, for acres actually planted.
Getting a bill to the president's desk will be a challenge. Most of the bill's spending is on the Supplemental Nutrition Assistance Program, or food stamps, at an annual cost now of about $75 billion. The Republican-led House is looking for greater cuts to this program than the Democratic Senate will accept.
The House also is more sympathetic to Southern rice and peanut farmers who say that shallow loss program hurts them. They want to keep some form of target price subsidy.
The current farm bill expires at the end of September.
But the Senate bill, and presumably the yet-to-be-written House counterpart, "makes clear that the era of direct payments is over," said Democratic Sen. Debbie Stabenow of Michigan, who heads the Senate committee. She said the Senate bill "represents the most significant reform in American agriculture policy in decades."
The White House, which also is pushing for the end of direct payments, says more than 50 percent of the subsidies go to farmers making more than $100,000 in income.
Direct payments are only one of several ways the government ensures that farmers are protected from falling prices or weather disasters. The Congressional Research Service estimates that under current law, the government will spend $5.7 billion a year on commodity programs, including direct payments, along with $1.5 billion a year on disaster aid and $9 billion a year to subsidize crop insurance.
The Agriculture Department says that in 2011 the government paid farmers about $10.6 billion, including about $3.6 billion for conservation programs, some 10 percent of the farm sector's record-high net cash income of $108.7 billion
According to the Environmental Working Group, in the 1995-2010 period, the top 10 percent of payment recipients received an average $30,751 a year while the bottom 80 percent got $587 a year.
Direct payments were initially supposed to be a "market transition" device after the 1996 farm bill eliminated other price supports. But those payments became entrenched when farm prices dropped in the next few years and farmers went through a rough period.
Farmers are now willing to give up direct payments because of their increasing reliance on crop insurance. Insured acres have risen from 45 million in 1981 to 265 million in 2011, to the point where 83 percent of the nation's farmed acreage is covered by government-subsidized insurance programs.
The government chips in for an average 62 percent of the farmer's premiums, which supporters insist is different from a direct subsidy because the premiums go into a risk pool to pay for future losses.
The proposed shallow risk program would cap annual payments at $100,000 for a married couple and restricts it to farmers with adjusted gross incomes of less than $750,000. But there are no such caps on the insurance program, drawing criticism from some small government groups. The Senate bill, said Taxpayers for Common Sense, "does nothing to rein in the exploding costs of taxpayer subsidized crop insurance."
The Congressional Budget Office estimated that the government could save $1 billion a year by reducing the premium subsidy by 10 percentage points. The Government Accountability Office says it could save an additional $1 billion if individual farmer subsidies were capped at $40,000 a year.
The GAO said that in 2011 the average value of premium subsidies was $8,312 per farmer, and that one corporation that insured nursery crops in three counties in one state cost the government $2.2 million in premium subsidies and $816,000 in administrative expenses.
Agriculture Secretary Tom Vilsack has suggested lowering the premium subsidy rate, reducing insurance company returns on investment and cutting payments to farm insurance agents from $1,000 a policy to $900 to save money.
Farm groups argue that higher premiums would result in farmers insuring fewer acres and exposing taxpayers to more special disaster aid in bad times. The American Farm Bureau Federation opposes any changes in current farm bill payment limitations and means-testing provisions.
"Simply stated, payment limits bite hardest when commodity prices are lowest," the federation's president, Bob Stallman, said at a recent House hearing.