Bill Huffman
Director - Governmental Affairs

May 9, 2008

The long arduous process of getting a new Farm Bill ready for a final vote before the House and Senate is nearly over. Key negotiators reached agreement late Wednesday on the few remaining outstanding issues and announced that the “Conference Report” was done. In an unusual twist, the Conference Report is being sent to the members of the Conference Committee for signature rather than having a full fledged Conference Committee meeting, which means that all of what is in the final bill was negotiated by a few select members of Congress leaving most of the named conferees out of the loop.

Floor votes on the final conference report, which cannot be amended, are likely next Wednesday. Details of the final bill await scores from the Congressional Budget Office (CBO). We have been told that the final conference report will be posted Monday on the websites of the House and Senate Agriculture Committees. The nearly $300 billion Farm Bill conference report appears to have strong bipartisan support. C-SPAN carried a live report Thursday at which all the key players (Senators Harkin, Chambliss, Conrad, Blanche Lincoln, Max Baucus, Debbie Stabenow and Congressmen Collin Peterson, Bob Goodlatte, Charley Rangel, and Earl Pomeroy,) spoke offering their views of the agreement, which were all positive.

The Deal

The last issue to be settled was a change to the Adjusted Gross Income (AGI) threshold. The Conference Report places a “hard cap” on farm income of $750,000. Anyone exceeding that limit will lose their “direct payment”. The report places a “hard cap” on non-farm income of $500,000 and anyone exceeding that threshold would lose all Title 1 benefits, i.e., the direct payment, the counter-cyclical payment, and any loan deficiency payment. This non-farm income AGI limit will be based on a 3-year rolling average at the insistence of Senator Charles Grassley, R-Iowa. USDA says that approximately 1,200 farm program participants will be affected by these new AGI rules, saving about $620 million over the 5-year life of the bill. There is also reportedly a $1.0 million AGI cap for conservation payments, but again we have not seen this language.

Producer payment limits were changed from what we understood they would be a week ago. This was the result of CBO scoring. The final Conference Report provides the following:

• $40,000 payment limit on direct payments.
• $65,000 on counter-cyclical payments.
• No limit on marketing loan benefits.
• Direct attribution to a social security number.
• The 3-entity rule is eliminated.
• There will be new language on spousal eligibility.
• New “actively engaged” rules will be adopted.
• $6.50 loan rate for all classes of rice.

There will be no change on beneficial interest or LDPs for rice, cotton or peanuts.

As we reported last week, there will be about 2% decrease in the paid acreage, from 85% of base acreage to 83.2% of base acreage. The total package is being scored by CBO and this may change slightly, but is not expected to be more than a 2% cut in paid acreage.

For rice, the only change in the program from current law is the elimination of the 3-entity rule, the reduction in the payment acres from 85% of base to 83.2% of base and growers will be subject to the new AGI threshold. We understand the reduction of payment acres may be only for three years, but we haven’t seen the language yet so that is not cast in concrete. If true, in the fourth and fifth years of the 5-year bill, payment acreage would return to 85%.

The $300 billion bill includes $1.4 billion in new fully offset tax incentives that Senators said were needed to secure the necessary votes for Senate passage. The offset for these new farm-related tax credits is a provision “limiting the net operating loss carry back for Schedule F to $200,000 on a business’s non-agricultural income if they receive commodity payments.” This results from the efforts of Senator Grassley and Senator Conrad. We haven’t seen this language, but were told this is in the bill.

The Bad News

Before the ink was dry on the Conference Report, the Bush Administration issued a statement that said the President will veto the Farm Bill. Agriculture Secretary Ed Schaefer said, “For a year and a half, the Administration has consistently been clear that Congress needs to move forward with a good farm bill the President can sign. They have failed to do so”.

Secretary Schaefer and Deputy Secretary Chuck Connor held a press conference at 12 noon today at USDA denouncing the bill. Senator Kent Conrad, D-North Dakota held a press conference at 1:30 this afternoon. to rebut the Administration’s comments. The bantering back and forth has begun and is expected to continue for the next two weeks as the Administration tries to convince their conservative Republican friends and urban members of Congress that this is a bad bill and the conferees supporting the bill try to defend and promote the bill as good public policy in anticipation of a vote sometime after Memorial Day to override the President’s veto.

The Good News

Before Secretary Schaefer issued his statement, Senator Saxby Chambliss, R-Georgia said, “I have told the White House that I will work to override the President’s veto”. House Agriculture Committee ranking Republican Bob Goodlatte of Virginia called the bill fiscally responsible and said it has broad bipartisan support. Goodlatte said he intended to support the bill unless he found something objectionable in the Conference Report, once he receives the entire 2000 plus page document later today. He further said, “There is very, very strong support on both sides of the aisle, but it has not been whipped”, meaning that the political operatives, the House whips, have not put the pressure on members to support the bill.

Analysis

My instincts tell me that President Bush is going to lose this fight. But a fight it will be! In a conference call this morning with Lesher, Russell & Barron, the governmental affairs advisors and lobbyists for the California Rice Commission, we learned that the next two weeks will be a “battle royal” between the White House and Congress with the Republican members of Congress holding the cards as to whether or not the 2008 Farm Bill veto by President Bush is to be overridden. I can’t help but believe that no member of Congress, especially those in rural areas wants to go home without a Farm Bill in an election year. Remember, President Bush is not up for reelection, but every member of the House of Representatives is up for reelection and one-third of the members of the Senate are also up for reelection.

We should also remember that there is over $10.4 billion of new money in this bill for nutrition, which should bring favorable votes from liberal urban members of Congress, there is about $3.5 billion new money for specialty crops (fruits, vegetables and nuts), there’s more money for conservation programs, there’s money in the bill for bio-mass energy programs, and there is substantial reform in the conference report on payment rules and program participation eligibility.

I should caution everyone, however, that until the final document is released on Monday on the websites of the House and Senate Agriculture Committees, it is probably prudent to restrain our optimism just in the event someone stuck something in the bill that just simply “stinks” and is unacceptable to conferees and members of Congress.

We will keep you informed of the final vote as that becomes available. The House is expected to vote on the bill next Wednesday with the Senate to follow shortly.

The USA Rice Federation, the California Rice Commission and Farmers’ Rice Cooperative believe this is “about the best possible bill” for our industry and will be supporting its adoption by sending letters to key members of Congress encouraging their support for the bill.

Good News for FRC

The rice industry was informed this week that the Food and Drug Administration (FDA) has approved extending the existing “whole grain health claim” to brown rice. This means that brown rice has now joined the ranks of other recognized healthy foods whose labels may bear the official unqualified whole grain health claim. That claim simply says, “Diets rich in whole grain foods and other plant foods and low in total fat, saturated fat and cholesterol may reduce the risk of heart disease and some cancers”.

Ken Cox of the FRC marketing department, who is a member of the USA Rice Federation’s Domestic Rice Policy Committee, has been a leading advocate of the “whole grain” health claim for brown rice. Congratulations to Ken and the USA Rice Federation staff for making this happen!

This designation should be a major benefit in FRC’s effort to increase the quick cooking brown rice program and for FRC’s industrial business.