Briefing Report: The Federal Farm Bill and Its Implications for California

Thursday, February 21, 2013

Another monument to gridlock in Washington, D.C. is the 2012 Farm Bill that was needed to reauthorize federal agricultural programs that expired on September 30, 2012.  The U.S. Senate passed its Farm Bill in June of last year.  But the full House never voted on the bill passed by its Agriculture Committee in July.  In the end, Congress passed a one year extension of the Farm Bill, until September 30, 2013, leaving all the contentious issues unresolved. 

Many Californians heard of the “milk cliff,” which was the fear that milk prices could have risen by more than 100% if the Farm Bill did not pass, causing the reversion of federal dairy price supports to 1949 levels.  But the Farm Bill covers a multitude of programs and commodities, reaching into many areas of everyday life for all Americans, not just farmers. 

Californians would not have been affected by the price increases to milk, because we are not subject to federal milk pricing laws.  California set up its own milk pricing regulations in the 1930s because of its unique milk market.  According the California Department of Food and Agriculture:

“After California regulated dairy prices in 1935, the federal government followed two years later with a national system to provide stability in the dairy industry for farmers, processors and consumers.  At that time, California was isolated on the West Coast, far away from the major population centers of the country. Dairy markets of the era were local in nature - products were not transported long distances.  That geographic separation brought significant differences in market conditions that supported California staying out of the federal system and continuing with its own program.”

California, being the largest agricultural producer in the country, cares deeply about the federal Farm Bill.  This bill annually funds important research, conservation and even renewable energy projects in California. 

The Farm Bill was first conceived in 1933 during the Great Depression.   Back then, farmers accounted for 20 percent of the US population and agriculture made up nearly 8 percent of the Gross Domestic Product (GDP).   Today, farmers make up less than 2 percent of the US population and agriculture is less than 1 percent of the GDP.   The Farm Bill today covers numerous topics (called “titles”) including commodities, land conservation, promotion of trade, nutrition (food stamps), rural development, forestry, crop insurance, and even development of alternative energy. 

The 2008 Farm Bill approved $300 billion in spending over four years.  Of that amount, 67 percent was spent on food stamps; 15 percent on agricultural subsidies; 9 percent on conservation; and 8 percent on crop insurance.  By 2012 those percentages had shifted dramatically toward nutrition programs, with 80 percent of the $123 billion in one year spent on food stamps. 

The 2012 Farm Bill passed by the U.S. Senate was estimated to save $23 billion over the next 10 years instead of what would have been spent under the current Farm Bill.  Those savings would come from replacing four farm commodity subsidy programs with one, consolidating 23 conservation programs, and ending several sources of abuse in food stamps.  The biggest change contained in the Senate bill would come from eliminating direct payments to farmers whether they plant crops or not.  The program, which costs about $5 billion a year, has lost much of its support at a time of $1 trillion federal deficits and when farmers in general are prospering.  The new program relies more on crop insurance rather than direct subsidies, and a new program that covers smaller losses on planted crops before crop insurance kicks in.

When discussing federal spending on agriculture, cost savings is a relative term.  The spending levels estimated when farm bills are passed are routinely exceeded.  Most of the cost overruns are because of increased spending for food stamps.  According to Taxpayers for Common Sense:

“When the 2002 and 2008 Farm Bills were passed, they were projected to cost taxpayers $414 billion and $604 billion over ten years, respectively. Today, the Farm Bill’s price tag is expected to eclipse $1 trillion, a 130% increase from just a decade ago. Since reality seldom lines up with projections, the actual costs of recent bills have been even higher. For instance, the 2002 bill came in 42% over budget and the 2008 bill will be at least 50% over budget.”

What follows is a quick summary of the contents of the U.S. Senate passed 2012 Farm Bill, with commentary on the concerns expressed by California farmers. 

Trade

American farmers are highly dependent on being able to sell their products abroad, with a third of all farm income coming from exports. Therefore, the Farm Bill carries numerous provisions that help American agriculture promote their products overseas and protect them against international trade barriers.  The U.S. government must be careful, however, in providing direct assistance to farm exports due to international trade agreements.  Thus, this year’s Farm Bill reduces funding for its main export loan guarantee program from $5.5 to $4.5 billion. 

In contrast to direct government assistance, the Market Access Program combines dollars from the agriculture industry with government funds to develop new international markets for American products.  The California Farm Bureau proposes that this program, with 60% of its funding from private sources, be funded at $200 million per year. 

The Farm Bureau also supports funding of the Technical Assistance for Specialty Crops (TASC) program, which assists farmers who develop specialty crops (broadly defined as crops that are intensively cultivated plants used by people for food, for medicinal purposes, and for aesthetic gratification) to overcome technical trade barriers enacted by other countries.  These technical barriers include burdensome regulatory requirements other than direct tariffs. 

Nutrition (Food Stamps)

The authors of this year’s Farm Bill make extra effort to point out that it will “crack down” on the waste, fraud and abuse in the Supplemental Nutrition Assistance Program (SNAP), more commonly called the Food Stamp program.  Both the House and Senate committees claim to save $16 billion over the next five years.  They both claim to improve the program’s integrity and accountability while targeting the aid to only those people who truly need it.

Both bills would enact common sense reforms such as prohibiting lottery winners, and traditional college students from receiving benefits.  They also provide new funds for the U.S. Department of Agriculture to fight against food stamp trafficking activities.  But the more substantial savings will likely result from the Farm Bill’s limits on eligibility for the program.  By limiting food stamp assistance to only those families eligible for other general assistance programs, the current practice in many states of making food stamps available for just about anyone will be reduced. 

The new Farm Bill will also include a provision that improves the quality of retail stores accepting food stamps by requiring that those stores derive no more than 45 percent of their sales from liquor and tobacco products. 

Conclusion

The Farm Bill is an important piece of legislation that directs the spending of between $80 to $100 billion each year.  It contains programs that improve the production and marketing of agricultural products throughout the nation.  University research programs and state agricultural officials rely on the funds to maintain their own research, pest control, environmental compliance, and conservation programs.  The failure of Congress to enact a new bill to replace the one enacted in 2008 has put many farmers and ranchers on edge wondering if the programs they rely on will be extended beyond the current September 30, 2013 expiration date. 

California farmers and ranchers hope that the new Congress will be able to pass a new Farm Bill and provide assurance that the programs and funding they rely on will go on for at least another five years. 

For more information on this report or other Agriculture issues, contact Doug Yoakam, Senate Republican Office of Policy at 916/651-1501.