Bill Huffman
Director - Government Relations

The Friday Report

February 27, 2009

The big news for agriculture this week was President Obama’s proposed 2010 fiscal year budget calling for cuts in farm program spending and the elimination of direct payments to large farming entities. In just one sentence in his speech to Congress Tuesday night, President Obama reignited the fight over U.S. farm subsidies and the battle is on.

Obama’s Budget Proposal

The Obama budget proposal would cut farm program spending and alter the “safety net” approved by Congress in the 2008 Farm Bill. The proposal includes:

• A phase out over three years of direct payments to farmers with more than $500,000 in sales revenue and would cap commodity supports at $250,000, which according to the White House would save $9.8 billion over 10 years.  This would amount to about a one-fifth cut in yearly outlays that run $5.2 billion.

• Cuts to the subsidy farmers and insurers for crop insurance receive with estimated savings of $2.1 billion over five years.

• Cuts the cost-share “Market Access Program” by 20 percent and would limit future promotion efforts to generic U.S. goods, not brand-name products.

• Provides over $20 billion in loans and grants to support and expand rural development activities including small businesses, renewable energy, and telecommunications.

• Fully funds the “Special Supplemental Nutrition Program for Women, Infants and Children (WIC).

• Includes another $1 billion per year for the Child Nutrition Program.

• Supports a pilot program to help increase senior participation in the Supplemental Nutrition Assistance Program.

• Provides $61 million for five Rural Development programs:  the rural micro- entrepreneur assistance program, rural cooperative development grants, value-added producer grants, and grants to minority producers, and cooperative research agreements.

Of course, the most contentious issue will be the proposed cut to the farm subsidy program. This comes after Congress made a major overhaul of the subsidy program including new rules for eligibility, an income threshold in order to be eligible to receive a Federal farm payment and direct attribution to a social security number. As opponents to the Obama proposal begin to surface, one of their principal arguments is going to be that the 2008 Farm Bill payment rules haven’t even been finalized and that it is unfair to invoke new payment limits before the 2008 Farm Bill provisions have been in effect.

The USA Rice Federation issued a statement Wednesday that said, “The Farm Bill is less than a year old and not even fully implemented, and already contains cuts in direct payments. Moreover, the regulations to carry out the law’s strict new payment limitations and rules for eligibility, just published on December 29th, radically exceed statutory requirements and congressional intent.”

Opposition is already building to the Obama plan.  House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat, said “Now is not the time to reopen it (The Farm Bill).”  In an interview with Washington, D.C. columnist Jim Wiesemeyer and Pro Farmer News Editor Roger Bernard, Chairman Peterson was asked about President Obama’s proposal to cut payments to farms with sales over $500,000 for a 10-years savings of $9.8 billion and if this is a change in direction for Obama. Chairman Peterson said, “I have no idea and I don’t care because we’re not doing it, whatever he wants to do!”

We should also mention that House Agriculture Committee Ranking Member Frank Lucas, R-Oklahoma, sent a letter to Agriculture Secretary Tom Vilsack expressing his great concern about the Obama Administration’s position on eliminating direct payments to producers. Mr. Lucas said, “It’s clear that both Secretary Vilsack and President Obama don’t understand the problems facing our agriculture community. And, they absolutely don’t understand how important rural communities are to our economy.

Senate Agriculture Committee Ranking Republican Saxby Chambliss also expressed his dismay at the proposal to cut direct payments as have a number of other Southern members of Congress including Senators Blanche Lincoln and Mary Landrieu.

Huffman’s Analysis

First things first! We should remember that the President’s budget proposal is just a proposal. Congress is just now trying to finalize the FY 2009 appropriations for nine Federal agencies including the Agriculture Department. The FY 2009 fiscal year began last October 1st, about five months ago. It will be several months before Congress finalizes the FY 2010 budget and finishes work on the appropriations for FY 2010, beginning next October 1.  In order to implement new payment limit rules, Congress would have to include that in a “budget reconciliation” bill, a bill that would follow normal budget procedures and appropriations and a bill that likely would include proposed cuts to other entitlement programs. That is a long way down the road and there is plenty of time for the agriculture community to lobby against this proposal.

We learned a long time ago that a President’s proposed budget is just that, a proposal.  We should remember that Congress appropriates the money for the Federal government and Congress makes the rules. There are a lot of lofty goals in the President’s budget, we’ll just have to see if he has the horsepower to lead (or force) Congress to go along with his ideas. On the payment cut issue, I don’t think that is going to happen!

Obama Names Deputy Secretary of Agriculture

The Obama Administration has named a college professor to be Deputy Secretary of Agriculture. Kathleen Merrigan, a former USDA and Capitol Hill employee, is slated to be Deputy Secretary, the number two position at USDA, if she is confirmed.  The Deputy Secretary position is especially important as that person traditionally has been responsible for the many day-to-day operating decisions at the Department.

Ms. Merrigan was involved years ago in drafting defined rules for what constitutes “organic” certification and is widely regarded by the environmental, nutrition, and food safety community. She is not a “production agriculture person.”  She holds a Doctorate Degree from MIT in environmental planning and reportedly has a deep interest in environmental issues, nutrition and organic agricultural production.

We expect her confirmation hearings will be contentious now that the Obama Administration proposes to shift money from the “safety net” direct payment program to nutrition programs and because Agriculture Secretary Tom Vilsack has been quite vocal recently in speaking out about phasing out income support programs for program crops in favor of so-called green payments for carbon and green house gas reduction efforts.

There have been no other appointments at USDA for key positions including the Undersecretary positions and the Administrator of the Farm Service Agency.  There is growing concern that no one with “production agriculture” experience is being considered for a top USDA position.

The California Drought

In a press release this week, Interior Secretary Ken Salazar and Agriculture Secretary Tom Vilsack announced the creation of a Federal Drought Action Team that will work cooperatively to respond to communities facing significant drought. The release said that the Team will work with Governor Schwarzenegger’s state drought response team to minimize the social, economic, and environmental impacts of the current California drought. 

Both USDA and Interior offer a range of assistance programs that help farmers, ranchers and rural communities impacted by drought. In addition, Secretary Salazar has directed the Bureau of Reclamation to work closely with State authorities to facility water transfers for the Drought Water Bank. Specifically, Secretary Salazar has directed the Bureau of Reclamation to provide operational flexibility to convey and store water to facilitate additional transfers and exchanges that can move water to critical-need areas, and to expedite any related environmental review and compliance actions.

USDA has several assistance programs that can help farmers, ranchers and rural communities impacted by drought. Most of these programs are administered by the Farm Service Agency.

Good News

The House of Representatives this week approved the $400 billion Omnibus Appropriations Bill for FY 2009. That bill includes removal of the Bush Administration’s provisions that tightened restrictions on trade with Cuba. The Senate is expected to vote on the bill next week.

This is critically important to the U.S. rice industry as it would allow the South to sell long grain rice to Cuba, bolstering the market for Southern long grain at a time when long grain values have declined substantially.

Even though California does not sell rice into Cuba, this will be a positive development as it will focus the South on continuing to raise long grain rice for an emerging market and not shift plantings there to medium grain that will compete with our Calrose.