As discussion develops on writing a 2012 Farm Bill and in reducing federal budget deficits, there may be talk of cutting farm subsidies.
“Defenders of current farm programs can point out that farm program spending is a tiny share of federal expenditures,” says Pat Westhoff, director of the Food and Agriculture Policy Research Institute (FAPRI.) “Eliminating all farm programs would hardly make a dent in the budget deficit.”
First, for comparison, look at the deficit. For fiscal year 2010, the year that ended on Sept. 30, the federal budget deficit was $1.3 trillion. Most estimates show a budget deficit in excess of a trillion dollars again in the current fiscal year.
The net outlays in Fiscal Year 2010, now mid-year, for the USDA Commodity Credit Corporation totaled $11 billion. The CCC funds most farm commodity programs and the conservation reserve. Adding in crop insurance, disaster programs, and other conservation programs brings the farm-related spending to about $20 billion a year.
For perspective, a trillion dollars is $1,000 billion. How did the budget get out of balance? In the preceding years the deficit ballooned from 2007 to 2009, the individual income tax collection dropped $249 billion and corporate tax collection dropped $215 billion.
On the deficit side, spending on entitlements (Social Security, Medicare and Medicaid) payment increased $220 billion. Defense spending increased $109 billion. Nondefense discretionary spending went up $88 billion. All other federal outlays, including the Troubled Asset Relief Program, or TARP, increased spending by $274 billion.
The only component that did not contribute to the deficit was net interest paid on federal debt. With low interest rates, that dropped $50 billion.
“It is hard to guess where spending cuts might be made,” Westhoff says. “It seems likely, however, that an effort will be made to further reduce USDA spending.”
Even if USDA’s budget is not cut in 2011, farm program spending will be under a lot of scrutiny when the next farm bill is debated. Congress may begin to consider new farm legislation before many current farm programs are set to expire in 2012.
Westhoff points out some of the current spending projections from the CBO. The Farm Bill is usually written taking into account budgetary implications over the next ten years. The projections for the next decade under a simple extension of current farm programs could be: $63 billion for farm commodity programs, $76 billion for crop insurance and $64 billion on conservation.
Food programs are part of the USDA budget. That includes, for the decade, $685 billion for Supplemental Nutrition Assistance Program (SNAP) formerly known as food stamps and $222 billion on child nutrition, including school lunches, but not counting WIC (Women, Infant, and Children) programs.
“Each of these programs will have strong defenders, so it is far from obvious where cuts would be made, if the decision is made to reduce USDA spending,” Westhoff says.
Farm interest groups might point to cutting SNAP benefits, rather than farm programs. “Others will see things differently,” Westhoff adds.
There would not even be likely agreement among farm groups on what to cut in farm programs. “There are likely to be major differences within the farm community,” Westhoff says.
Federal spending on the direct payment program, which makes fixed annual payments to producers, exceeds spending on all the other traditional commodity programs combined. Already, some have said they could accept a cut in direct payments, if money was added to crop insurance and other risk management programs.
However some producers, cotton and rice, for example, get more support from direct payments than from crop insurance. “They are likely to oppose cuts to direct payments,” Westhoff says.
The new Congress will face challenges and a learning curve in deciding where budget balancing efforts will be made. However, budget concerns will affect the debate for the next Farm Bill and other farm policy choices for years to come,” Westhoff says.
FAPRI, a part of the University of Missouri College of Agriculture, Food and Natural Resources, provides economic analysis of proposed changes in farm policy for the U.S. Congress.
Source: University of Missouri