Effects of Government Shutdown and Farm Bill Expiration on Food and Agriculture Industry

The shutdown of the federal government for the first time since 1996, initiated at 12:00 a.m. on Tuesday, October 1, 2013, by the expiration of FY 2013 appropriations, brought on a wave of uncertainty for citizens and businesses across the nation. The food and agriculture industry is no exception.

This industry was doubly affected, however, with the simultaneous expiration of the Farm Bill, on the same day. This combination of events stands to impact to varying degrees both food production and safety in the short- and long-term.

The following is a summary of the most significant effects of these two funding lapses on the agencies most involved in the food and agriculture industry:

FDA

• FDA oversees roughly 85 percent of the nation's food supply. Forty-five percent of its workforce (roughly 6,600 personnel), including food inspectors, is furloughed due to the government shutdown (the Farm Bill expiration did not contribute to these furloughs). Nearly all furloughs are on the food side of the agency. The drug side of FDA continues to operate based on industry fee revenue carried over from the previous fiscal year.
• Unlike the USDA, FDA doesn't require onsite inspectors for food facilities to operate, so companies with facilities regulated by FDA, like produce and seafood, will not need to close their doors. If the shutdown continues for an extended period of time, a backlog of audits could create problems for inspectors, and facilities due for inspection, upon their return to work.
• An extended delay could also have an effect on the implementation of the Food Safety Modernization Act (FSMA) – upcoming public meetings on recently-released proposed rules could be canceled and the lack of staff at FDA and the Office of Management and Budget (OMB) could delay the regulatory review process.
• According to the FDA contingency plan, the agency will "continue select vital activities including maintaining critical consumer protection to handle emergencies, high-risk recalls, civil and criminal investigations, import entry review, and other critical public health issues." These activities will be done with skeleton staff, however, meaning no foodborne outbreak tracing, inspection of food imports, lab research nor publishing of guidance documents.
• FDA acknowledged in its shutdown contingency plan, however, that it would have to cease food safety activities such as routine establishment inspections, some compliance and enforcement activities, monitoring of imports, notification programs (e.g., food contact substances, infant formula), and the majority of the laboratory research necessary to inform public health decision-making.

USDA

• The USDA oversees roughly 15 percent of the nation's food supply, including meat, poultry and processed eggs. The government shutdown and Farm Bill expiration both affect USDA.
• While some staff have been furloughed, 87 percent are still on the job, including most of the Food Safety and Inspection Service (FSIS). Considered essential, FSIS inspectors will continue on-site inspections and the food facilities they oversee can continue to operate.
• Although the legislation expired on September 30, many Farm Bill programs are funded through the end of the year. The first major effects would not be felt until January 1, 2014, when the law automatically reverts to 1940s-era agriculture policies.
• Despite the Farm Bill expiration, major programs, including direct payments and crop insurance, will continue because those are authorized under permanent law and not subject to annual appropriations. Due to the shutdown, however, Farm Service Agency (FSA) offices are closed, making it more difficult for farmers to process loans and payments.
• Also due to the Farm Bill expiration, funding expired for a host of conservation programs, including the Chesapeake Bay Watershed Program, Conservation Reserve Program (CRP), Grassland Reserve Program (GRP), Healthy Forest Reserve Program and Wetlands Reserve Program (WRP). This means that payments for these programs will not be sent until appropriations to fund the government are made.
• In addition, some export promotion programs expired. These include the Market Access Program (MAP), Foreign Market Development Program (FMDP), export credit guarantees, facilities credit guarantees, dairy export subsidies and technical assistance for specialty crops. Key reports published by the Agricultural Marketing Service (AMS) that producers rely on for critical marketing decisions also will not be published due to the government shutdown, which is especially harmful for producers of grain and livestock.

CDC
 

• The CDC plays a role in tracking and tracing food illness outbreaks. Due to the government shutdown, the CDC will have a significantly reduced capacity to respond to outbreak investigations, process laboratory samples or maintain the agency's 24/7 emergency operations center.
• The agency will also not conduct multi-state outbreak investigations or support state investigations. Additionally, it will be unable to support the annual influenza program that facilitates outbreak detection and linking across state boundaries during flu season.

Conclusion

The government shutdown and Farm Bill expiration are notable, to be sure. The effects will be different for producers and processors, and will vary depending on industry sector. For the time being, most food facilities can continue operating and payments for most farm programs will continue, but key marketing decisions will have to be made "blind" by producers. Things will become more complicated if the shutdown persists, as workloads will pile up for regulators the longer the shutdown lasts.

Congress is currently moving towards Farm Bill conference negotiations. The Senate re-appointed its conferees and the House is close to naming theirs. A key sign will be whether House Republicans appoint conferees primarily from the House Agriculture Committee or whether members outside of that committee are appointed. If the former, then the likelihood for conference negotiations to produce a final bill that can pass both chambers is greater. If not, the chances for ideology and partisan squabbles to delay an agreement are increased.

Farm Bills in recent years have been passed after the typical five year mark, dating all the way back to 1996. The last Farm Bill, set for reauthorization by September 30, 2012, was extended until September 30, 2013, in the deal struck to avert the fiscal cliff earlier this year. The likelihood of another extension, whether for several months or a year, increases the longer Congress delays conference negotiations.

As the government shutdown bleeds into the timeframe in which Congress must vote to raise the debt ceiling, it becomes increasingly likely that lawmakers and the Obama Administration will work on a single agreement that solves both issues. This most likely means an elongated government shutdown period. We will continue to learn more as October 17, 2013 – the date by which Treasury Secretary Jack Lew has indicated the debt ceiling will need to be raised – draws closer.