Monday, February 13, 2012

President's Budget Proposal Calls for Significant USDA Program Changes

The President's budget proposal released this morning (February 13) calls for significant mandatory and discretionary spending reductions across numerous U.S. Department of Agriculture (USDA) programs, and proposes to eliminate some programs entirely. At the agency-wide level, the budget would provide $23.9 billion in fiscal year 2013 discretionary funding to support USDA programs, a decrease of $3.2 billion from the fiscal year 2010 enacted level. Significant changes proposed in the budget include the gradual elimination of a Federal direct-payment subsidy program, reduction in Federal subsidies for crop and income insurance, and cuts to natural resource conservation programs.

Direct Payments

Farm Bill Title 1 direct payment provisions supply producers fixed annual income assistance for having historically planted crops that were supported by Government programs, regardless of whether the farmer is currently producing those or any other crops. As proposed in its previous three budget plans, the Obama Administration recommends eliminating direct payments to farmers. Although spending for direct payment subsidies would increase by $516 million (20 percent) to $12.1 billion in fiscal year 2013, over a ten year period they would be eliminated, saving a total of $22.7 billion through fiscal year 2022. Although Congressional leaders in both the House and Senate Agriculture Committees agree that the direct payment title will need to be significantly changed and direct payments reduced in the next iteration of the Farm Bill, the Administration’s proposed cuts are deeper than either panel has proposed in the past.

Federal Crop Insurance
With the likely significant reduction or elimination of direct commodity payments on the horizon, the Federal crop insurance program is seen by many as a vital “safety net” for the nation’s farms, and crop insurance management and funding will be key areas of discussion as the next Farm Bill is deliberated in Congress this year.

Crop insurance program delivery is a joint effort between the Federal government and the private insurance industry. Insurance is available to protect against agricultural production losses due to unavoidable causes such as drought, excessive moisture, hail, wind, hurricane, tornado, lightning and insects. In addition to these causes, revenue insurance programs are available to protect against loss of revenue stemming from low prices, poor yields or a combination of both. The Risk Management Agency (RMA) pursues initiatives (such as private insurance company subsidies) that make higher levels of crop insurance protection more affordable to farmers and producers. The fiscal year 2013 budget requests $9.4 billion for Federal crop insurance, an increase of $5.9 billion above the 2012 enacted level of $3.5 billion. However, the Administration proposes a significant reduction of Federal subsidies paid to crop insurance companies over ten years (realizing a total savings of $7.6 billion). The reduction would reduce government spending by $1.2 billion through fiscal year 2022 by lowering the return on investment that subsidized crop-insurance companies can collect from approximately 14 percent to about 12 percent. The budget would also lower the cap on administrative expenses that the government pays to insurance companies, saving approximately $2.9 billion over ten years.

Conservation Programs
The 2008 Farm Bill reauthorized a number of USDA's popular conservation programs, administered by the Farm Service Agency (FSA) and the Natural Resources Conservation Service (NRCS) through a variety of cost-sharing, monitoring, easement, financial assistance, and technical assistance mechanisms. The conservation programs help farmers, ranchers and landowners adopt and maintain systems that provide numerous conservation benefits, including protecting water quality, reducing soil erosion, protecting and enhancing wildlife habitat and wetlands, conserving water, and sequestering carbon.

Overall, the Administration proposes spending $827 million in discretionary funding toward conservation, a decrease from $898 million actually appropriated in fiscal year 2011 and from an estimated $851 million that will be spent in fiscal year 2012.

The budget plan also calls for cuts to Farm Bill mandatory spending for conservation with over $1 billion in permanent rescissions. The budget proposes “to reduce conservation funding by $1.8 billion over 10 years by better targeting conservation funding to the most cost-effective and environmentally-beneficial programs and practices.” Three conservation programs targeted for notable reductions are the Conservation Stewardship Program, cut by $977 million over the next ten years (by capping enrollment at 30 million acres; a permanent reduction of almost 760,000 acres), the Environmental Quality Incentives Program (cut by $100 million in fiscal year 2013), and both the Grasslands and Wetlands Reserve Programs (GRP and WRP). Both of the latter programs are effectively eliminated, since the authority for each expires at the end of the current fiscal year, unless they are reauthorized in the next Farm Bill.

In addition to those and other specific Farm Bill conservation programs, NRCS provides technical assistance to a variety of stakeholders, including agricultural producers, private landowners, conservation districts, Tribes and other organizations, in order to provide them with the knowledge and conservation tools they need to conserve, maintain and improve natural resources. The 2013 budget requests $728.8 million for NRCS technical assistance; a slight decrease ($0.6 million) from the fiscal year 2012 enacted level.

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