farmgate: Farm Program Payments, Payment Limits, And Crop Insurance Subsidies? Will They Drop?
In an effort to reduce federal spending the Obama administration has proposed cuts in Direct Payments, lower payment limitations, and a reduction of the level of federal subsidy in crop insurance premiums. The proposals are part of the annual appropriation process, and need Congressional approval before the start of the 2010 Fiscal Year on October 1. The administration says it will save $16 billion over 10 years, and is not an attempt to re-open the Farm Bill. Will such a proposal impact you?
Agricultural organizations have expressed opposition to the plan, which may go to the Congressional budget committees, instead of the agriculture committees. If the budget committees endorse the plan, then the House and Senate Agriculture Committees will have to go along with it, or find savings somewhere else in the USDA budget says the Congressional Research Service (CRS). CRS has issued a briefing paper to Congress on the details of the proposal.
The President’s budget address last month specifically mentioned termination of direct payments, to what he called, “large agribusinesses that don’t need them.” His statements mirrored those of his predecessor who also called for reduced farm program payments and reduction of payment limits. The lightening rod issue of the handful of proposals seems to be the elimination of direct payments to farms with more than $500,000 in sales. CRS analyst Jim Monke says there are some Members of Congress who have spoken out against the proposal in part or in whole. Opponents will indicate that someone with $500,000 in sales may not be guaranteed any profitability in times of high production expenses.
CRS says the FY 2010 budget indicates that most of the $16 billion removed from farm safety net programs be used to offset a nearly $10 billion increase in child nutrition. CRS says the concept faces an uphill fight, since change would have to be sanctioned at some point by the Congressional ag committees, and if they feel it is an attempt to “re-open” the Farm Bill, they are not obligated to do so. But any continued effort to reduce farm spending would be modified before it becomes reality.
The four proposals of the administration to reduce farm spending call for elimination of the cotton storage program, and three others that have consequences in the Cornbelt:
1) The prohibition of direct payments to farmers with over $500,000 in sales would revise the payment limit rules and impact 8,159 farms in Iowa, 6,484 in Illinois, 5,299 in Minnesota, 5,069 in Nebraska, 3,559 in Indiana, 3,409 in North Dakota, 3,356 in Kansas, and 2,905 in Wisconsin. More than 76,000 farms would be affected according to 2007 statistics.
2) The move to tighten payment limits would put a $250,000 cap on total subsidies, which would impact marketing loan benefits, and tighten the amount of direct and counter-cyclical payments that could be received. The current law has a $210,000 limit for direct and counter-cyclical payments, but no limits on marketing loan proceeds.
3) The administration does not indicate how much reduction it proposes in crop insurance premium subsidies, but savings could also come from the compensation to crop insurance companies as well as commissions to crop insurance agents.
The CRS analysis indicates the $500,000 in sales eligibility limit would be on top of the present eligibility limits for FSA program participation. The CRS analyst indicates that farms with gross sales of $500,000 or more may have very little profit or even a loss. However, the recent highs in the grain market pushed more farms over the threshold. In the prior 9 years, only 3-4% of farms would gross more than $500,000 per year, but in the past two years the number has increased to 5.5%. It is expected to fall this year with lower prices, and if a net income threshold is used, it will fall even further because of the cost of production.
CRS says there were 76,500 farms in 2007 receiving government payments and having sales over $500,000. While 116,000 farms had more than $500,000 in gross sales, many of them were large fruit, vegetable, or livestock farms that did not receive subsidy payments. Because farms in the heart of the Cornbelt (IA, IL, MN, NE) are in both categories, CRS estimates that 17%-21% of corn and soybean farms would be impacted by the proposal.
Summary:
The administration proposal to reduce spending on agricultural program supports is focused at farms with more than $500,000 in gross sales, and proposed a total payment limit of $250,000, in addition to lower subsidies for crop insurance premiums. The plan is expected to be met with opposition in Congress and from farm organizations, but Congressional committees may be forced to either adopt parts of the plan or find other savings in USDA appropriations. The impact of the proposal will hit the heart of the Cornbelt and maybe as many as one in five corn and soybean farms.
Posted by Stu Ellis on March 24, 2009 12:18 AM to farmgate