August 26, 2016

What to Expect in the Run Up to a New Farm Bill

Current farm legislation, outlined in the 2014 U.S. Farm Bill, runs through the 2018 crop year. Congressional consideration of a new farm bill will begin with hearings in 2017, but the process will likely be a challenging one. Many factors will affect the timing and the final outcome of new legislation, and members of the agricultural community should be aware of the political considerations that could shape the future of the farm economy.

Lagging Farm Economy, the Federal Budget and Legislative Uncertainty

Due to the downturn in the farm economy, some members of Congress, including House Agriculture Committee Senior Democrat Collin Peterson, are pushing to take up and approve a farm bill a year early—in 2017 rather than 2018.

Prices for major agricultural commodities are down 40-50 percent from the record highs of several years ago. Net farm income has fallen from more than $123 billion in 2013 to an expected $55 billion for 2016. U.S. Department of Agriculture analysts and most market observers believe lower prices and incomes will generally continue for the next several years. USDA analysts projects federal outlays for farm commodity programs—not including expenses through Federal Crop Insurance Corporation (FCIC) programs —to rise from about $5 billion in fiscal year 2015 to more than $13 billion in fiscal years 2016 and 2017, with a very gradual reduction in 2018 and beyond as farm prices and incomes very slowly recover.

As growers deal with a challenging market, Congress faces both internal and external pressure to address rising deficits in the federal budget. The waiver of the federal debt limit, stipulated in the 2015 Budget Act, expires March 17, 2017. By then, the national debt will total about $20 trillion, having roughly doubled in the last eight years. Experts forecast that the deficit will exceed $500 billion per year in the coming years, meaning the national debt will grow by a half-trillion dollars annually—assuming there is no economic recession. Presidential candidates Donald Trump and Hillary Clinton have not spoken much about the growing deficit and debt, but in the spring of 2017, Congress must either continue to waive the debt limit or reset it to a higher level for the federal government to continue operating. This could result in a new budget agreement with new taxes and spending cuts, including a budget reconciliation process to cut spending.

If a budget reconciliation process takes place in 2017 or 2018, it would very likely include cuts—or changes—to farm commodity programs and other agricultural programs before the 2014 Farm Bill expires. So while some growers are asking for an early farm bill to increase grower income support, there will likely be political pressure to change farm programs to limit federal farm spending.

Adding further uncertainty, some members of Congress have argued that farm commodity and conservation legislation should no longer be considered alongside the Supplemental Nutrition Assistance Program (SNAP)—formerly the Food Stamp Program—which accounts for about 80 percent of Farm Bill spending. This would be a major blow to the prospects of passing new farm legislation, as members of Congress from suburban and urban areas will be less inclined to approve farm commodity and other programs as stand-alone legislation.

As Costs Rise, What Will Congress Do With the FCIC?

Additionally, the FCIC carried out through private insurance companies and agents has become a much more important part of the income safety net for farmers. Federal program cost, including premium subsidies, the federal share of administrative costs, the federal share of indemnity losses, etc., exceeded $8 billion in 2015. Reduced commodity prices and farm incomes—even without a major weather disaster—could result in growing outlays under the FCIC over the next few years.

The FCIC has already become a major target for budget cuts in Congress. The 2015 Budget Act included $3 billion of reductions in federal reimbursement of costs to the private companies. The cuts were quickly reversed when all of U.S. agriculture protested, but the FCIC will continue to be a major target to reduce spending.

In a new farm bill, there is very likely to be competition between the various commodity groups for spending resources. Federal support for dairy and cotton producers has significantly declined under new programs adopted in the 2014 Farm Bill, while there have been greater than expected outlays for grains and oilseeds, driving total commodity program costs to levels more than twice those projected when Congress approved the 2014 Farm Bill.

What’s Next?

Taking all of these factors into account, developing legislation to replace the 2014 Farm Bill will be a challenging and contentious process. Commodity prices and farm incomes have fallen to much lower levels. Government spending for crop years 2014-2016 will exceed original projections by many billions, giving Congress plenty of reason to err on the side of caution before approving new spending. Farmers, commodity groups and other stakeholders should monitor the political developments closely as they vie for favorable results in the next farm bill.

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