The Hagstrom Report

Agriculture News As It Happens

Obama proposal extends farm disaster aid; crop insurance cuts draw fire


President Barack Obama’s call to extend the farm disaster aid programs championed by Senate Finance Committee Chairman Max Baucus, D-Mont., and Senate Budget Committee Chairman Kent Conrad, D-N.D., was the most noteworthy element in the agriculture package the White House released Monday as part of the president’s jobs and deficit reduction proposal, several lobbyists said, although Republican farm leaders on Capitol Hill disagreed.

The proposal was sent to the congressional super committee that is supposed to come up with a deficit reduction plan

“I am very impressed” by the inclusion of disaster aid, said one lobbyist who asked not to be identified. “Those two [Baucus, who is a member of the supercommittee, and Conrad] are very resolute. It underscores the importance of perseverance.”

Baucus and Conrad insisted on the disaster aid programs in the 2008 farm bill, but could not find enough money to fund them for the five-year length of the bill, and so they will end on Sept. 30.

National Farmers Union President Roger Johnson said he was “pleased” to see the disaster aid provision in the bill, and added that he had just returned from a trip to Pennsylvania where farmers were talking about the importance of disaster aid after this year’s hurricanes and flooding.

The proposal would also make a total of $33 billion in cuts in the direct payments, crop insurance administration and premium subsidies and conservation programs.

House Agriculture Committee Chairman Frank Lucas, R-Okla., and Senate Agriculture ranking member Pat Roberts, R-Kansas, issued a joint statement.

“The president’s policy priorities reveal a lack of knowledge of production agriculture and fail to recognize how wholesale changes to farm policy would impact the people who feed us,” the statement said.’

“For example, cutting $8 billion from the crop insurance program puts the entire program at risk. We have heard again and again from producers that crop insurance is the best risk management tool available. In jeopardizing this program, the president turns a deaf ear to America’s farmers,” the statement said.

“Meanwhile, SURE [the biggest disaster program] has not worked as intended for most crops, but the president proposes extending it.," the statement from Lucas and Roberts said. "The president only proposes a $2 billion cut, roughly 3 percent, to conservation despite his claim that conservation spending has increased 500 percent through the years. And, the president does nothing to address waste, fraud, abuse, and other integrity issues within nutrition programs, which account for 80 percent of USDA spending. Ultimately, cuts to agriculture must reflect its diversity across the country, respect the challenges producers face, and preserve the tools necessary for food production."

An Obama administration official noted that House Budget Committee Chairman Paul Ryan, R-Wis., had proposed many of the same agriculture cuts that Obama has proposed, but also added big cuts in the food stamp program and proposed turning it over to the states as a capped block grant.

Neither Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., nor House Agriculture ranking member Collin Peterson, D-Minn., issued a statement.

Agriculture Secretary Tom Vilsack noted today that the disaster programs are not funded for the fiscal year that begins Oct. 1 and said, “Those programs are extremely important in the countryside. as witnessed by the number of disasters [this year].”

For full coverage of Vilsack’s speech to the National Restaurant Association, see separate story.

While the White House said that cuts to the direct payments program and the crop insurance program would total $33 billion, it did not say how much it expects the disaster aid to cost, and gave Congress leeway in how to construct the program.

“To strengthen the safety net, the administration proposes to extend these programs, or similar types of disaster assistance that are of a similar cost, for the 2012 to 2016 crops,” the White House document said.

Most of the disaster aid programs are entitlements, meaning that the cost can only be estimated. Previous estimates over a 10-year period have been as low as $6 billion to $9 billion, but the Congressional Budget Office estimated earlier this year that extending the programs for another 10 years would cost $15 billion to $18 billion, Reuters reported.

Johnson, like other lobbyists, said he was “surprised and a little disappointed” at the depth of the cuts to farm programs. Although Farmers Union has never favored direct payments, Johnson has noted that its members in southern states like the program. He said he found the crop insurance cuts “troubling.”

Noting that the agricultural economy has been good in recent years, the White House said cutting “unnecessary direct payments” that crop farmers get whether prices are high or low would save $3 billion per year over 10 years.

But the program now costs $4.8 billion per year, and it is unclear exactly how the White House was suggesting the cuts be made or whether it would partially continue.

The White House noted more than 50 percent of direct payments go to farmers with more than $100,000 in income, leading some to a view that the payments would be cut for farmers who make more than that.

But the budget cutting effort that Vice President Joe Biden chaired is rumored to have assumed that if farmers did not get the direct payments they would sign up for the average crop revenue election program known as ACRE, which would result in an increase in the cost of that program and less savings.

Environmental Working Group President Kenneth Cook, who has long campaigned against the direct payments, applauded the move, saying, “Environmental Working Group has been raising objections to automatic farm payments regardless of crop prices for nearly two decades.”

Cook did not mention the other provisions in the bill, but a spokeswoman said in an email, “We do not support cuts to conservation funding.”

The proposal would cut $2 billion from conservation programs over 10 years, which most lobbyists said they expected would come from decreasing the number of acres in the Conservation Reserve Program, a land idling program popular with environmentalists and hunters. Farmers have shown less inclination to sign up for that program since commodity prices and land rents have risen.

Ferd Hoefner, a lobbyist with the National Sustainable Agriculture Coalition, said he did not consider the $2 billion cut in conservation to be of much importance because the administration has proposed cuts to conservation programs each year. He said he wondered if the administration wants the $2 billion cut in addition to the cuts it has proposed in the appropriations process.

Hoefner, who contends that farm subsidies to large producers make it harder for small producers to stay in business, said that even though the administration proposed cutting direct payments, he was disappointed that the president did not fulfill a campaign promise to strive hard to impose stricter payment limits on farmers.

The cuts to crop insurance generated the strongest criticism. The White House noted that “crop insurance is a foundation of our farm safety net” and that 83 percent of majority commodity crop acres are now enrolled in the program. But the administration also noted that the cost of the program has risen to approximately $8 billion per year, with $2.3 billion going to private insurance companies to administer and underwrite the program and $5.7 billion going in premium subsidies to farmers.

The administration noted that the companies had agreed to accept $6 billion in cuts to administrative expenses and underwriting gains over 10 years in a renegotiation of the standard insurance agreement in 2010, but said, “there are additional opportunities for streamlining of the administrative costs of the program.”

A USDA-commissioned study found that when compared to other private companies, crop insurance companies’ rate of return on investment should be around 12 percent, the administration noted, but that it is currently expected to be 14 percent. The administration proposed lowering the rate of return to 12 percent, saving $2 billion over 10 years.

It also proposed capping the administrative expenses at $0.9 billion over 10 years, saving $3.7 billion; slightly lowering the reimbursement for catastrophic coverage, saving $600 million, and shaving two basis points off the premiums on which the government pays more than 50 percent of the cost of the premium, saving $2 billion. Total savings from crop insurance would be $8.3 billion, the administration says.

Tom Zacharias, president of National Crop Insurance Services, a research group supporting the companies, spoke out against the proposal.

“The plan is devastating to those in agriculture, particularly in a year that has seen extremely volatile commodity prices and weather events — from droughts in Texas and Oklahoma to floods in the Northeast and Midwest,” Zacharias said. “The White House calls for further streamlining of the Federal Crop Insurance Program, which has already contributed more than $4 billion towards deficit reduction, and $12 billion overall in spending reductions since 2008. Congress needs to evaluate the economic impact of weakening the primary safety net on which farmers and our rural economy can rely.”

Congress and the administration made those cuts partly because farmers concluded that the companies and crop insurance agents were making a lot of money as commodity prices went up and crop insurance premiums and commissions followed.

National Corn Growers Association President Bart Schott’s statement was an indication that farmers are still more concerned about cuts to premium subsidies than cuts to the companies and agents.

“While NCGA agrees the fiscal challenges before us require even greater efficiency in the delivery of farm safety net programs, we are deeply concerned by proposals that would directly undermine a farmer's ability to purchase adequate insurance coverage at a time of heightened volatility in commodity markets,” Schott said.

The prospects for the president’s overall proposal and the agriculture cuts are unclear on Capitol Hill. One lobbyist said that the size of the agriculture cuts may ultimately depend on whether the super committee decides to try to trim the deficit by the Obama administration’s proposed $3 trillion, or sticks to the $1.5 trillion, or cannot reach agreement and allows a sequestration program of $1.2 trillion in deficit reduction to take place over 10 years.

If the total amount to be saved is only $1.2 to $1.5 trillion — 40 to 50 percent of the $3 trillion agriculture’s “fair share” would drop to $13 to $15 billion, much smaller than the $33 billion the administration has proposed, the lobbyist said.