FarmPolicy.com

Budget and Spending Measures on Agenda Again This Week

Last week the Senate passed their budget resolution, a significant development with respect to spending and the 2007 Farm Bill, while the House concluded work on the war supplemental, which contained nearly $4 billion in farm related disaster payments. As Congressional Quarterly noted this morning, “The two chambers switch roles this week, with the full House considering its budget resolution and the Senate debating the war supplemental.”

I. Budget / Spending Issues
II. Land Values
III. Ethanol
IV. Farm Bill Perspectives
V. Food Aid

I. Budget / Spending Issues

Last week the Senate passed their budget resolution, a significant development with respect to spending and the 2007 Farm Bill, while the House concluded work on the war supplemental, which contained nearly $4 billion in farm related disaster payments. As Congressional Quarterly noted this morning, “The two chambers switch roles this week, with the full House considering its budget resolution and the Senate debating the war supplemental.”

Jerry Hagstrom, writing this morning at the AgWeek webpage, reported that, “[Sen. Byron Dorgan (D-ND)] said he considers the political climate for disaster aid to be more positive since the Democrats control Congress. He noted that the last two times disaster aid has come up, it died in the conference between the House and the Senate, with the Republican House leadership deferring to President Bush’s opposition to it, but that this time, there will be provisions in both bills. ‘This has been a long-running saga,’ Dorgan noted.”

In addition, Mr. Hagstrom pointed out that, “One of the most important differences between the House and the Senate versions is over the extension of the [Milk Income Loss Contract Program] MILC program, which is set to expire Aug. 31.

“The Senate Appropriations Committee approved an extension of the Milk Income Loss Contract program offered by Sen. Patrick Leahy, D-Vt., and Senate Agriculture Appropriations Subcommittee Chairman Herb Kohl, D-Wis. Kohl said the program has provided $414 million to Wisconsin dairy farmers when milk prices dropped to record lows since its implementation in 2002.

“The House version extends the MILC program for 13 months at a cost of
$283 million, but the extension is as a discretionary program, which means that it would not be in the baseline for the new farm bill. The Senate version extends the program for only one month, until Sept. 30, at a cost of only $31 million, but as mandatory spending. Kohl said the extension would coincide with the duration of other farm programs that will be considered as part of the new farm bill this year and ‘will also build the cost of the dairy program into the baseline budget for the next farm bill.’”

Meanwhile, with respect to the budgetary issue, a recent Congressional Research Service (CRS) report by Jim Monke, entitled, “Farm Commodity Policy: Programs and Issues for Congress,” (March 8, 2007) pointed out that, “As with all areas of the federal budget, the farm bill faces spending constraints imposed by Congress. Recent federal deficits have raised concern over the ability or willingness to fund farm programs.

“In March 2007, the Congressional Budget Office released a multi-year baseline estimate of spending (which assumes the current farm bill continues under expected economic conditions). Due to rapid increases in the futures market price of corn and other commodities since the summer of 2006, the March 2007 baseline for the commodity programs decreased to $74.6 billion for the FY2008-FY2017 period, down by $34 billion (-31%) compared with March 2006 baseline. The ‘smaller pie’ does not reduce the ability to continue current programs, but baseline price forecasts affect how legislative proposals are scored against the baseline.

“The March 2007 CBO baseline will become the starting point for the budget allocation for the new farm bill. In March 2007, the Budget Committees are expected to allocate a specific multi-year amount to the Agriculture Committees for the new farm bill, factoring in baseline estimates, political considerations, and requests for additional funding. Once given the new allocation, the Agriculture Committees may craft changes in policy to fit the new farm bill within its budget” (page 4).

A 31% reduction in commodity spending projections and “pay-as-you-go” spending requirements will have a significant impact on drafting policy since legislators will be forced to compete for scarce resources to fund Farm Bill proposals.

As the CRS report noted, the “rapid increases in the futures market price of corn and other commodities since the summer of 2006” has been an important development with respect to the reduction in federal resources available for the 2007 Farm Bill.

The U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) will release their “Prospective Plantings” report this Friday, which will provide additional insight into the sustainability of the higher than average market price of corn and soybeans.

As Philip Brasher noted in yesterday’s Des Moines Register, “The U.S. Agriculture Department report, based on a survey of farmers, will likely show that growers are going to plant more acres to corn this year than they have since Harry Truman was president – and significantly fewer acres to cotton, soybeans, wheat and other crops.

“Analysts are estimating that farmers could plant nearly 89 million acres to corn this spring, 10 million more than last year. Farmers haven’t planted even 85 million acres since 1949.

“With normal yields, that extra corn acreage should be sufficient to keep up with the booming demand for grain to make fuel ethanol, as well as supply the domestic and international markets for feed and food.”

However, Mr. Brasher did go on to discuss the alternative, “But what if yields aren’t normal, either this year or in coming years?”

Concluding, the Register article stated that, “Bob Stallman, president of the American Farm Bureau Federation, no doubt spoke for many farmers when he predicted that they will eventually increase production so much that prices will fall: ‘American agricultural producers, given high prices, will produce themselves into low prices every time.’”

For a more detailed look at the “Prospective Plantings” report, which focuses particularly on the NASS office in Iowa, see, “Iowa office feeds data into key crop outlook,” which was written by Jerry Perkins and was also published in yesterday’s Des Moines Register.

II. Land Values

Meanwhile, robust market prices for some program crops continue to enhance the value of agricultural land.

The Associated Press reported yesterday that, “Soaring demand for ethanol hasn’t just driven up corn prices — it’s also boosted the value of Indiana farmland more than 15 percent in the past year.

“In just the last quarter of 2006, a survey by Federal Reserve Bank of Chicago found that the value of good-quality farmland shot up 5 percent in much of Indiana and four other key Corn Belt states.

“During 2006, an average acre of Indiana farmland rose in value by 15.6 percent. That’s its biggest annual jump in at least two decades, according to a preliminary estimate by the U.S. Department of Agriculture.”

The AP article noted that, “Prices for land are up because corn, the main row crop grown on U.S. farmland, has risen 60 percent in value in the past year, to $3.32 a bushel last month. That’s due to growing demand for corn from fuel-producing ethanol plants.”

III. Ethanol

On the topic of ethanol, David Tilman and Jason Hill, penned an opinion piece entitled, “Corn Can’t Solve Our Problem,” which was published in yesterday’s Washington Post.

There, the authors stated that, “Some biofuels, if properly produced, do have the potential to provide climate-friendly energy, but where and how can we grow them? Our most fertile lands are already dedicated to food production. As demand for both food and energy increases, competition for fertile lands could raise food prices enough to drive the poorer third of the globe into malnourishment. The destruction of rainforests and other ecosystems to make new farmland would threaten the continued existence of countless animal and plant species and would increase the amount of climate-changing carbon dioxide in the atmosphere.

“Finding and implementing solutions to the food, fuel and environment conflict is one of the greatest challenges facing humanity. But solutions will be neither adopted nor sought until we understand the interlinked problems we face.

“Fossil fuel use has pushed atmospheric carbon dioxide higher than at any time during the past half-million years. The global population has increased threefold in the past century and will increase by half again, to 9 billion people, by 2050. Global food and fossil energy consumption are on trajectories to double by 2050.

“Biofuels, such as ethanol made from corn, have the potential to provide us with cleaner energy. But because of how corn ethanol currently is made, only about 20 percent of each gallon is ‘new’ energy. That is because it takes a lot of ‘old’ fossil energy to make it: diesel to run tractors, natural gas to make fertilizer and, of course, fuel to run the refineries that convert corn to ethanol.”

The editorial also noted that, “There are biofuel crops that can be grown with much less energy and chemicals than the food crops we currently use for biofuels. And they can be grown on our less fertile land, especially land that has been degraded by farming. This would decrease competition between food and biofuel. The United States has about 60 million acres of such land — in the Conservation Reserve Program, road edge rights-of-way and abandoned farmlands.

“In a 10-year experiment reported in Science magazine in December, we explored how much bioenergy could be produced by 18 different native prairie plant species grown on highly degraded and infertile soil. We planted 172 plots in central Minnesota with various combinations of these species, randomly chosen. We found, on this highly degraded land, that the plots planted with mixtures of many native prairie perennial species yielded 238 percent more bioenergy than those planted with single species. High plant diversity led to high productivity, and little fertilizer or chemical weed or pest killers was required.

“The prairie ‘hay’ harvested from these plots can be used to create high-value energy sources. For instance, it can be mixed with coal and burned for electricity generation. It can be ‘gasified,’ then chemically combined to make ethanol or synthetic gasoline. Or it can be burned in a turbine engine to make electricity. A technique that is undergoing rapid development involves bioengineering enzymes that digest parts of plants (the cellulose) into sugars that are then fermented into ethanol.”

In conclusion, the item stated that, “Biofuels, if used properly, can help us balance our need for food, energy and a habitable and sustainable environment. To help this happen, though, we need a national biofuels policy that favors our best options. We must determine the carbon impacts of each method of making these fuels, then mandate fuel blending that achieves a prescribed greenhouse gas reduction. We have the knowledge and technology to start solving these problems.”

IV. Farm Bill Perspectives

U.S. Rep. Ron Kind (D-Wis) noted in an opinion piece published in yesterday’s Milwaukee Journal Sentinel that, “Current farm policies also do too little to reward farmers who share the cost of cleaner air, cleaner water, wildlife habitat and a stable climate. More than half of America’s land is managed by farmers, and agriculture is having an increasingly significant impact on the environment.”

Rep. Kind added that, “That’s why I recently introduced the Healthy Farms, Foods and Fuels Act of 2007. This bill, which has the support of 74 representatives from both sides of the aisle – including Wisconsin Reps. Gwen Moore, Tammy Baldwin and Tom Petri – would double conservation spending to address our conservation backlog; provide cleaner air, water and wildlife habitat; and provide consumers with greater access to healthy foods over the life of the next farm bill.

“The farm policies that made sense in the 1930s or the 1980s make little sense in a global economy and a world facing huge energy, health and environmental challenges. A decade ago, farmers could not have imagined a world in which 20% of our gasoline would be made from products farmers can produce.”

Recall however the budget discussion above: legislative action to double conservation spending, or increase spending on any number of other proposals, will certainly be a challenge given the lower budget baseline the Agriculture Committee will have to work within. “Pay-as-you-go” spending rules will also make the task of increasing budgetary outlays difficult.

Connie Tipton, the President and CEO of the International Dairy Foods Association, penned a letter to the editor that was published in Saturday’s Washington Post (“A Fresher Dairy Policy”).

In part, the letter stated that, “Global trade negotiations are stalled largely because of U.S. and European farm subsidies. Dairy is the largest contributor to trade-distorting farm subsidies, representing one-third of U.S. expenditures that the World Trade Organization deems unfair.

“It doesn’t have to be that way. In this farm bill, Congress should redirect dairy expenditures to payments that comply with WTO rules while encouraging market development and benefiting the environment. Dairy farmers also need the same financial risk-management tools available to other American farmers: freedom to make sales contracts without government restrictions and access to revenue-insurance policies.

“Simply cutting agricultural subsidies, including those to dairy, is not the answer. A strong U.S. dairy industry benefits everyone. That’s why we encourage Congress to redirect dairy’s trade-distorting programs to fresher, trade-friendly ideas.”

V. Food Aid

The Associated Press reported yesterday that, “Republican Congresswoman Jo Ann Emerson is pushing to increase funding for an international food aid and education program that has seen a dramatic drop in financial support in recent years.

“The American Soybean Association says the program operated by the U.S. Department of Agriculture helps poor children, soybean farmers and America’s image abroad. It has fed more than 26 million children in 41 countries, supplies food for schools and teaches families about nutrition.

“Emerson, who co-chairs the Congressional Hunger Caucus, has seen firsthand how such programs can help the world’s poor.”

The AP article added that, “The Rainbow Network aid program mirrors the McGovern-Dole program started by Congress in 2000 that Emerson says is underfunded.

“The program, named for former Sens. George McGovern and Bob Dole, was allocated $300 million in 2000, but now gets only $100 million (€75 million).

“Legislation Emerson filed last week seeks to lock in mandatory funding minimums for the program. The bill calls for an additional $40 million (€30 million) each year so the program can return to $300 million (€225 million) by 2012.

“The program also benefits soybean producers. The Agriculture Department buys soy products in the U.S. for the overseas program.”

-Keith Good

 Email This Post Posted by Keith Good • March, 26, 2007 • 5:06 am