Federal debt deal will affect farmers in coming years

In the wake of the measure passed by Congress and the president to extend the debt limit and reduce the federal deficit, farm leaders are assessing its impact on the overall budget picture, specifically on programs that affect farmers and ranchers.

California Farm Bureau Federation President Paul Wenger said the passage of S. 365, the "Budget Control Act of 2011," only postpones the economic troubles that the country faces until after the 2012 election.

"Fundamentally, it does little to solve the crisis mode that we're in in this country. What they arrived at will do nothing more than just kick the can down the road until we get past the next election. There's still going to be a day of reckoning, when tough decisions will have to be made," Wenger said. "The real challenge is going to be, in a political world, can those at the helm come up with the right choices in reducing the debt, rather than creating new programs so they can get re-elected?"

The legislation approved by Congress and signed by President Obama on Aug. 2 has two phases, with the first phase allowing a debt limit expansion of up to $900 billion, while reducing federal discretionary spending by $900 billion over 10 years through spending caps. The second phase allows the president to request an additional $1.5 trillion in savings. The deal also establishes a congressional Joint Select Committee on Deficit Reduction.

According to Wenger, the tough decisions to be made in Washington must include "substantive cuts to federal expenditures," and must deal with Medicare and Social Security, to make those programs sustainable.

As for cuts to agricultural programs and other parts of the federal budget, these will be identified by the bipartisan, 12-member joint committee charged with identifying $1.5 trillion in cuts.

Wenger added that farmers and ranchers should be prepared for cuts to U.S. Department of Agriculture programs. Given the budget situation, he said everything will be up for discussion, including the USDA budget.

"But we need to make sure that dollars that still go to the agricultural industry have the broadest impact and protect all crops across this country," Wenger said.

The committee, to be named in mid-August, is expected to scrutinize farm programs, as well as other areas of the federal budget, including defense and Medicaid spending.

"California agriculture anticipates a cutback in direct payments. We're concerned about maintaining a safety net, but there's acknowledgment on the part of the California farm community that direct payments are in serious jeopardy—if not in the debt reduction effort, then in the next farm bill," said Jack King, CFBF National Affairs manager. "Whether it is this round or the next round, Congress is going to look at ag program spending with a very critical eye."

With farm support or direct payments for crops such as rice, cotton, wheat and corn under the most scrutiny, California Rice Commission President and CEO Tim Johnson said this form of farm support has historically served as an important safety net for California rice farmers.

"Over the last few farm bills, the level of support has decreased significantly, leaving the safety net very thin," Johnson said. "If direct payments are further cut, it's important that Congress develop a meaningful safety net to protect growers from downward fluctuations in price. The California Rice Commission has been evaluating programs such as ACRE (Average Crop Revenue Election) and revenue insurance as a potential solution if more cuts occur in direct payments."

In 2010, California farmers received a total farm support outlay of $187 million, down sharply from earlier years. Of that total, $147 million represented direct payments.

Portions of the U.S. Department of Agriculture budget exempt from cuts by the committee are the Supplemental Nutritional Assistance Program, other nutritional programs and the Conservation Reserve Program. King said Farm Bureau will press to maintain funding levels for key programs such as pest exclusion and agricultural research. He also stressed the need for developing a new safety net that comes in the form of risk management.

A recent round of audit hearings by the House Agriculture Committee's subcommittees reveals how farm policy will be scrutinized going forward. The goal of the audits is to gather information about which programs are most effective and which can be streamlined, and to provide committee members with a greater understanding of farm policy as they begin developing the next farm bill.

In addition, merging cuts recommended by the committee on deficit reduction with structuring the next farm bill will likely include a re-examination of the Bush-era tax cuts, Wenger said.

"The Bush tax cuts could be revisited in the near term. Those revenue enhancements have to be fair and the estate tax is not fair to agriculture," Wenger said. "We also need to protect food security and safety, and border protection."

If Congress fails to enact deficit reductions from the joint committee by the end of the year, the measure triggers the same amount in automatic spending reductions.

King said much of the success of the deficit-reduction plan will stem from the amount of growth in the overall economy.

"If we have sufficient growth in the economy, a lot more revenue will flow into the federal government, so it makes it easier to close the gap," he said. "We have to restore confidence on the part of the private sector to grow the economy and that in itself will reduce the deficit. I think it comes down to the philosophy of, is the government the solution or is it the problem?"

(Christine Souza is an assistant editor of Ag Alert. She may be contacted at csouza@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.