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Published November 07, 2011, 05:31 AM

Farm policy foundation requires focus, thought

FARGO, N.D. — Pop quiz: The upcoming farm bill is authorized over five years but budget-scored over 10 years. The farm bill is slated for cuts, but how big will the hit be? a.) $11 billion b.) $23 billion, c.) $33 billion, d) $48 billion? $127 billion from programs in the “farm bill.” Answer: Who knows?

By: Mikkel Pates, Agweek

FARGO, N.D. — Pop quiz: The upcoming farm bill is authorized over five years but budget-scored over 10 years. The farm bill is slated for cuts, but how big will the hit be? a.) $11 billion b.) $23 billion, c.) $33 billion, d) $48 billion? $127 billion from programs in the “farm bill.”

Answer: Who knows?

Each of these figures has been seriously proposed and sometimes disposed by the administration, or by congressional entities, in one congressional house or the other. The upper-range figures all still are in play.

Sen. Kent Conrad, D-N.D., who co-hosts of conference on the farm bill topic Nov. 7 to 8 in Fargo, already is working industriously behind the scenes to get a “reasonable” budget for agriculture. But — whatever the final cut is — he’s also is seeking the biggest bang for the buck in terms of “safety net” protection. He invites farmer and others in agriculture to attend the conference, considering meetings such as this as laying a “foundation” for farm bill effectiveness.

This kind of policy conference is partly about hearing experts’ ideas about farm policy, but is as much about vetting ideas that Conrad and others have been working on, even as farmers have been distracted with their own operations.

Conrad says he and his top staffers are coming up with “different options to meet different budget realities.” He isn’t willing to say what those ranges would be because we don’t want to be “bidding against ourselves.” The options simply would be “scalable” with support at different levels of federal funding.

More than ever before, the “driver” for the farm bill is the need to cut spending in a Congress where conservative Republicans demand it. In late October and early November — while farmers in our neck of the woods were the busiest with their fall harvests — leaders in the U.S. House and Senate agriculture committees were focused on trying to promote a farm program with $23 billion in cuts, including a small adjustment to nutrition programs.

This bipartisan ag coalition includes Rep. Collin Peterson, the minority leader on the House Agriculture Committee. The four have offered to provide a program with those kinds of cuts that the Select Committee on the Deficit might accept. The Joint Select Committee on Budget Reduction (the so-called supercommittee) might accept that, increase it and then the Select Committee’s work would have to be accepted or rejected by Congress.

If that committee isn’t successful at selling the whole package to Congress, it’s likely the Office of Management and Budget will employ a sequestration plan — cutting programs across-the-board, but also with certain areas with legal protections. Some nutrition programs are protected, for example.

The longer it takes to complete a farm bill, the bigger it becomes as a target for budget cutters, especially if the task moves beyond the presidential and congressional election of 2012.

Political bedfellows

Beyond the budget struggle, there is a policy struggle.

Practically speaking, Conrad will be the region’s primary player in farm policy. He played a key role in writing two previous farm bills in 2008 and 2002. Conrad’s team includes Jim Miller, a former third-ranked officer in the U.S. Department of Agriculture. Miller has fresh ties at USDA and important Budget Committee staff experience. Scott Stofferahn, Conrad’s state staff chief, is a former farmer and is a former state executive director for USDA’s Farm Service Agency, and worked on previous farm bills.

Sen. John Hoeven, R-N.D., had some exposure to federal farm policy as a governor, but is likely to follow Conrad’s lead on significant issues. Similarly, Rep. Rick Berg, R-N.D., has made no significant agricultural policy moves apart from Conrad’s, but has focused on cutting regulations that affect farmers.

Conrad says working on the farm bill this time will be “much more difficult” for him than in the past because of political changes since the 2008 farm bill. Chiefly, Rep. Collin Peterson, D-Minn., now is the senior Democrat on the Agriculture Committee, but no longer the chairman. Peterson is the opposite number for Chairman Rep. Frank Lucas, R-Okla., whose Southern constituency doesn’t always have the same goals as Upper Midwest states such as North Dakota, South Dakota and Minnesota.

Also, Conrad doesn’t have allies in former Rep. Earl Pomeroy, D-N.D., who was the House Ways and Means Committee representative in farm bill negotiations and was defeated in the last election, or former Sen. Byron Dorgan, D-N.D., who was a key member of the Appropriations Committee.

On the plus side, Conrad is dealing with a U.S. Department of Agriculture in the hands of his own party.

“I find the secretary of agriculture (Tom Vilsack) very good,” Conrad says. “I find that he is very smart, very grounded in production agriculture. He’s a former governor of Iowa and he completely gets it.”

Revenue assurance

Conrad’s key policy initiative for traditional crop farmers is described as a “revenue assurance plan,” an insurance product to add to crop insurance. Crop insurance covers large losses for farmers.

“We need another tool to cover the shallow losses, a loss of 10 to 20 percent, caused either by a drop in prices, a drop in production or quality damage,” Conrad says.

This kind of plan would replace disaster programs, and to replace some of the elements in the safety net in traditional farm program and to replace some of the revenue assurance that’s in the existing law that he acknowledges is not very effective.

Even in the midst of a go-go farm economy that is seeing near-record commodity prices, it is vital to install enough of a safety net that would allow farmers to survive if key components in revenue should collapse. Those include price drops, quality losses or production declines and combinations thereof.

That issue is more important because of the risks associated with exploding capital needs.

“Any banker will tell you that, without crop insurance, they’re not going to get credit,” Conrad says.

Conrad strongly advocates basing these programs on specific “whole farm” outcomes and not having programs be triggered by national yields, state yields, multi-county (National Agricultural Statistics Service crop reporting districts) or even county levels.

The Average Crop Revenue Election was unpopular in part because it was complicated and in part because it was triggered by state yield levels, says Stofferahn, who is based in Fargo, N.D. Some groups want to establish new programs that would pay out based on yield levels within multi-county (crop reporting) districts.

Shallow vulnerabilities

Farmers would be covered for shallow losses by the permanent program and would buy crop insurance for catastrophic losses, Conrad says.

“The best thinkers in agriculture are moving in this direction,” Conrad says. “It makes policy sense and makes sense for taxpayers.”

Conrad is interested only in benefits only on a farm basis, Stofferahn says.

That was a lesson learned in new programs in the last farm bill, in that the programs “mean something” to a farmer. Focusing making payments based on “whole farm” revenue instead of commodity-specific revenue also makes the payments less vulnerable to attack from foreign competitors because of World Trade Organization rules.

“We’re also looking at a modified SURE (Supplemental Revenue Assistance Payment Program) — simpler, but maybe not quite as generous,” Stofferahn says. “It would be focused on the farm and would use crop insurance as the base for protection, and try to move up the timing of the payments so they’d occur earlier in a year instead of having to wait.” The U.S. Department of Agriculture in the George Bush administration requested a delay in SURE payments for up to one year after harvest, pending calculations of average market prices, but that could change.

Farmers in the field in recent years often confide they’d gladly take cuts in the “direct payment” part of the farm support system. That’s understandable when those payments have come in the middle of good times for agriculture. A $10-per-acre payment, for example, is less significant when crop costs have increased to $300 an acre.

These direct payments are a remnant of late 1990s policies that were designed to “decouple” U.S. farm supports from producing certain crops, so that payments would comply with World Trade Organization goals to bring down farm subsidies worldwide.

“Organize and educate,” Conrad advises farmers who want to make an impact on farm policy and their own futures. “Speak with one voice.”

He says many newcomers in Congress don’t know much about production agriculture. Some who serve on agriculture committees don’t have backgrounds in agricultural economics.

He says one of the key things he keeps in mind is that the Europeans are the No. 1 competitor for U.S. agricultural production and spend four to five times as much per unit of production as the U.S. government in supporting their farmers.

“Those competitors will ‘buy’ these markets from us,” he says. “That’s their strategy and their plan.”

Conrad says conferences such as the one in Fargo provide the “intellectual foundation” for farm bill proposals.

“That’s what we did for the last farm bill. It’s the real thinking about how something works or doesn’t work, how it can be improved and how it can be paid for. There has to be a foundation on which an agreement is built.”

Among the areas of special regional importance:

n Sugar policies and labor disputes: American Crystal Sugar Co. of Moorhead, Minn., is in the fourth month of a labor lock-out, a high-profile impasse that some warn could have an impact on passing sugar provisions in the 2012 farm bill. But while Crystal is the largest beet sugar producer in the United States and is one of the largest sugar-marketing entities in the country, most of the industry is not in labor disputes, so the cumulative effect is unclear. Sugar policy is operated at a zero-cost, but has perennial philosophical opponents who think the supply management and import limitations keep sugar at higher prices than a free market.

Conrad says the labor dispute “creates headaches” for sugar proponents. It is unclear whether one labor dispute in one sugar region could affect the 2012 sugar policies. Warns Conrad: “I think the company needs to think long and hard about the consequences, about all of the implications of their strategy.”

n Ethanol’s political profile: There are ethanol provisions in the farm bill discussion, but the bigger impact is in separate energy legislation that sets renewable fuel standards for the nation. About 40 percent of the U.S. corn crop goes into making ethanol for fuel (as well as cattle feed byproducts). Since the 2008 farm bill was developed, the biofuel idea has lost some of its luster because of energy efficiency and food vs. fuel concerns, but the underlying supports still are there. North Dakota corn-fed ethanol producers are not as close to large corn acreages, but have some cost advantages because they are coal-fired. Sen. Amy Klobuchar, D-Minn., who represents a state that was on the vanguard of ethanol production and support in the 1980s, is a key player on that.

“Collin (Peterson, D-Minn.) has done really terrific work in agriculture,” Conrad says. “We owe him a debt of gratitude because he’s really the glue that holds a lot of this together.”

n Conservation compliance links: If farmers withdraw from farm support program participation, it is unclear whether they will continue to comply with federal conservation requirements. Some have suggested the federal government link conservation compliance requirements to crop insurance participation. Congress has been lukewarm on this idea, but understand the concern.

“If people are considering walking away from the farm program, it’s not going to be easy to do that,” Stofferahn says. “You can’t say (for example) that if you’ve drained wetlands last year that you can fix them and get them back.”

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