to:                  family farm alliance members and interested parties  

from:            dan Keppen, executive Director

subject:     bush administration 2007 farm bill proposal

Earlier today, U.S. Agriculture Secretary Mike Johanns unveiled the U.S. Department of Agriculture’s (USDA) 2007 farm bill proposals. The 65 proposals correspond to the 2002 farm bill titles with additional special focus areas, including specialty crops, beginning farmers and ranchers, and socially disadvantaged producers. For more information on the details of the Administration’s proposal, go to www.usda.gov/farmbill.

I participated in a teleconference “listening session” this morning, where Agriculture Deputy Secretary Chuck Conner further discussed Secretary Johanns’ report on the Bush Administration’s farm bill proposals.  These proposals reflect the views heard during USDA’s 52 Farm Bill Forums held across the country.

We have discussed this proposal with policy officials at USDA, the U.S. Interior Department and Office of Management and Budget (OMB). The following reflects these conversations, as well as Chuck Connor’s comments from earlier today. For water-specific provisions, check out “Important New Water and Conservation Grant Programs”, below.

Overview

Deputy Secretary Conner explained that the proposals unveiled today represent the final phase of a nearly two year process. Each detailed proposal provides information about why a change is needed, the recommended solution, and relevant background information about the impacted program or policy. Collectively, the Administration’s proposed 2007 Farm Bill would allocate the bulk of the funding to food assistance programs (54%), commodity programs (26%) and conservation and forestry programs (11%).

Deputy Secretary Connor stated that the Administration's 2007 farm bill proposals represent a “reform-minded and fiscally responsible approach” to supporting America's farmers and ranchers. While the current law has served its purpose, said Connor, the time has come to move forward with a farm program that is market-oriented and considers more than commodity prices alone when determining the appropriate level of government support. The proposals increase conservation programs and focus support on renewable energy intended to help meet President Bush’s goal of reducing annual gasoline use by 20 percent in ten years.

Roots of the 2007 USDA Farm Bill Proposal

Connor explained that USDA began preparations for the 2007 farm bill in 2005 by conducting 52 Farm Bill Forums across the country. More than 4,000 comments were recorded or collected during forums and via electronic and standard mail. These comments are summarized in 41 theme papers. USDA economists, led by Dr. Keith Collins, studied the comments and authored five analysis papers. In general, American farmers and ranchers were fairly supportive of the 2002 Farm Bill, which serves as the starting point for the Administration’s proposal. However, several key concerns regarding the current Farm Bill were voiced in the Farm Bill Forums:

·         A perception that family farmers are not getting their fair share of payments;

·         IRS Section 1031 impacts on land values;

·         Inability to address drought-related impacts to crop production;

·         Trade challenges faced by producers; and

·         Commodity payment limits.

Connor reiterated Secretary Johanns’ comments from earlier in the day, where he stressed that the next Farm Bill needs to be more predictable, able to withstand challenge, and provide for a wise use of tax dollars.

The following sections provide highlights of the USDA proposals. Funding shown reflects ten-year totals.

Commodity Programs
The Administration's proposals seek to reform farm policy to make it more market-oriented, more predictable, less market distorting and better able to withstand challenge, in part by:

• Converting The Current Price-Based Countercyclical Program To A Revenue-Based Program That Is Responsive To Actual Conditions And Provides A Strong Safety Net. Under a price-based program, farmers who experience crop loss are often under-compensated while those with high production tend to be over-compensated. According to Chuck Connor, this new revenue program will factor in U.S. crop yield when determining crop payments to better target support.
• Reforming And Modernizing The Marketing Assistance Loan Program For Program Commodities. The current law provides loan rates or price floors for corn, wheat, cotton, rice, soybeans, and other major crops. These price floors are set in law at high levels which have encouraged production and resulted in lower market prices. The proposals set loan rates for each commodity at 85 percent of the 5-year Olympic average (average of last five years excluding the high and low year). USDA believes this change minimizes market distortions and encourages farmers to plant crops based on market prices instead of the level of subsidy payment.
• Tightening Payment Limits And Working To Close Payment Loopholes. Under current law, farmers use the three-entity rule to establish corporations and other entities, which allow the amount of payments received to exceed statutory limits. These proposals eliminate the three-entity rule and tie payments to an individual. This plan also sets the subsidy payment limit for individuals at a total of $360,000. Payment limits will be tightened. A different type of payment limit will be proposed, based on adjusted gross income (AGI). To receive commodity payments, producers must also meet a limit on AGI, which includes wages and other income minus farm expenses and depreciation. This plan reduces the AGI limit of $2.5 million to a new limit of $200,000. If a producer has an annual adjusted gross income of $200,000 or more, that individual would no longer be eligible for commodity payments. According to Connor, only 2-3 percent of all American tax filers have an AGI over $200,000.
• Offering program crop producers a “conservation enhanced payment option” that enables them to elect to receive an enhanced, guaranteed direct payment if they agree to meet certain conservation requirements and forgo marketing assistance loan program benefits and counter-cyclical program payments. This new program is expected to pay farmers an additional $50 million over the next ten years.
• Eliminating commodity program payments for all newly purchased land benefiting from an IRS Section 1031 tax exchange. This policy change will help mitigate an unintended consequence of the tax code by allowing the market, not the tax code, to drive land purchases and prices.

Conservation Programs

According to Chuck Connor, the strong conservation title is a “cornerstone” of the 2007 Administration Farm Bill proposal. This is “the future of American agriculture”, he said. Key features of the Administration’s proposal, which will include an additional $7.8 billion to protect natural resources through conservation programs, include:

• Increasing The Acreage Limit On The Wetlands Reserve Program From 2.3 to 3.5 million acres. With this increase to the acreage cap, a total of 250,000 acres will be made available for enrollment annually.
• Consolidating Cost-Share Programs Into The Environmental Quality Incentives Program (EQIP) And Creating A Regional Water Enhancement Program With An Additional $4.2 Billion In Funding. This newly designed EQIP program will increase the simplicity and accessibility of conservation programs and provide program flexibility that increases environmental benefits. The new water program will focus on cooperative approaches to enhancing water quality on a regional scale. This program will fill a void in the Federal government's conservation delivery system by facilitating a cost-share program to coordinate large-scale water conservation projects.
• Continuing The Conservation Reserve Program At The Current Acreage Limit And Focusing Program Benefits On Lands That Provide The Greatest Environmental Benefit. This plan also gives priority to whole-field enrollment for lands utilized for biomass production for energy.
• Consolidating existing programs under a newly-designed Environmental Quality Incentives Program (EQIP). Existing programs, including the Environmental Quality Incentives Program, Wildlife Habitat Incentives Program, Agricultural Management Assistance Program, Forest Land Enhancement Program, Ground and Surface Water Conservation Program, and the Klamath Basin Program, provide financial assistance to customers through cost-share and incentives for working lands. The new Farm Bill proposal would simplify and streamline these activities, reduce redundancies, and produce more cost-effective environmental benefits.

Important New Water and Conservation Grant Programs

Chuck Connor specifically discussed growing concerns about competition over Western water between agriculture, urban areas, and environmental interests. “Farmers cannot be left holding the bag,” he said. Towards that end, the USDA Farm Bill proposal would create a new Regional Water Enhancement Program (RWEP) that focuses on cooperative approaches to enhancing water quantity and/or quality on a regional scale. The RWEP would invest mandatory funding of $175 million to producers annually to address an important missing component in the federal government's conservation delivery system-large-scale, coordinated water conservation projects. This new program would:

·         Coordinate and competitively fund large-scale (watershed or irrigation district level) water conservation projects

·         Target working agricultural landscapes, including crop, pasture, grazing, and orchard lands

·         Focus on one to two key water quantity/quality objectives per area

·         Include performance incentives to encourage a high percentage of producer participation in a project area and achieve cooperative conservation outcomes

·         Establish interim performance targets that must be achieved in order to renew project funding.

This new program in tandem with multiple conservation tools (including farmland management practices, easement purchases, and ecosystem restoration assistance) would provide flexibility to cooperative conservation partners to achieve improved water quantity and quality goals. According to OMB sources, the challenges of the Klamath Basin were a driving force behind this concept.

Additionally, a more robust Conservation Innovation Grants (CIG) program, funded at $100 million annually (currently funded at $20 million), would provide opportunities to stimulate the development of innovative practices, accelerate development of market-based models, result in emphasis and creativity in addressing regional resource concerns (i.e., Klamath Basin and San Joaquin Valley), and find tools to assist small-scale producers. Grants would be used for technology transfer and farmer-to-farmer workshops and demonstrations of conservation success. These activities will encourage producers to further adopt innovative conservation practices.

Renewable Energy Programs

The Administration's Farm Bill proposals include more than $1.6 billion in new renewable energy funding and targets programs to cellulosic ethanol projects. These proposals advance renewable energy and build upon Farm Bill energy programs by:

• Providing $500 Million For A Bioenergy and Biobased Product Research Initiative. Advances in technology play an important role in the future of renewable energy. Our scientists, farmers and entrepreneurs must coordinate efforts to continue improvements in crop yields and work to reduce the cost of producing alternative fuels.
• Providing $500 Million For Renewable Energy Systems And Efficiency Improvements Grants Program. This program supports small alternative energy and energy efficiency projects that directly help farmers, ranchers and rural small businesses.
• Providing $210 Million To Support An Estimated $2.1 Billion In Loan Guarantees For Cellulosic Ethanol Projects In Rural Areas. This program will advance the development of cellulosic ethanol production.
• Enhancing the Conservation Reserve Program (CRP) by adding a biomass reserve program to give priority for whole-field enrollment of lands producing biomass for energy production.

Chuck Connor also discussed “ecosystem credits” as they apply to the carbon trading issue, which he called “the wave of the future”. This program would provide assistance to farmers from private sector industries to pay for good environmental practices that offset industrial impacts.

Trade

The Administration's Farm Bill proposals would increase trade programs by nearly $400 million to continue the creation, expansion and maintenance of agricultural exports by increasing the Market Access Program by $250 million. This initiative allows partnerships between USDA and non-profit domestic agricultural trade associations to share the costs of overseas marketing and promotional activities such as consumer promotions and market research. Other funding would support trade efforts to expand exports, fight trade barriers, and increase involvement in world trade standard-setting bodies.

Nutrition Program

The USDA proposals target nearly $5 billion in funding to support specialty crop producers by increasing nutrition in food assistance programs, including school meals, through the purchase of fruits and vegetables, funding specialty crop research, fighting trade barriers and expanding export markets. Connelly characterized this as “modest changes to a program that is working well”. Targeted programs would:

• Provide $1 Billion For Research Programs Targeted To Specialty Crops. This initiative will include fundamental work in plant breeding, genetics and genomics to improve crop characteristics such as product appearance, environmental responses and tolerances, nutrient management and pest management.
• Provide $3.2 Billion to Improve Nutrition Assistance Programs By Purchasing More Fruits And Vegetables. This funding will support efforts by schools and other participants to offer meals based on the most recent Dietary Guidelines for Americans by increasing the availability of fruits and vegetables to students participating in the National School Lunch and Breakfast Programs and to participants in other nutrition assistance programs. Also, $100 million in grants will be provided to address obesity in low income regions.
• Simplify, modernize, and rename the Food Stamp Program to improve access for the working poor, better meet the needs of recipients and States, and strengthen program integrity

Rural Programs

The USDA proposals build upon existing rural development programs. The Bush plan includes $1.6 billion in guaranteed loans to complete the rehabilitation of more than 1,200 current Rural Critical Access Hospitals. It also includes $500 million to reduce the backlog of rural infrastructure projects such as water and waste disposal loans and grants. Elsewhere, the agricultural credit program would be modified to emphasize providing more loans to young starting farmers and ranchers. According to Connor, “beginning and socially disadvantaged” farmers will be treated with priority. The Administration’s proposal would support socially disadvantaged farmers and ranchers by reserving a percentage of conservation assistance funds and providing more access to loans for down payments, land purchasing and farm operating loans.

Other Programs

Chuck Connor also touched briefly on some other topics:

·         Ag Research, where Connor says we are “lagging in investment”. The USDA proposal would provide $1 billion for specialty crop research and $500 million for new fuels.

·         Forestry – the focus in the Administration proposal is on using wood for energy and providing incentives for private forest owners.

·         Crop insurance program - Disaster relief would be strengthened by establishing a revenue-based counter-cyclical program, providing gap coverage in crop insurance, linking crop insurance participation to farm program participation, and creating a new emergency landscape restoration program.

·         Organic Agriculture, which represents a fast growing sector of American agriculture, is addressed in a strong section of the bill, with emphasis on more research and certification matters.

Summary / Next Steps

The Administration's 2007 farm bill proposals would spend approximately $10 billion less than the 2002 farm bill spent over the past five years (excluding ad-hoc disaster assistance). These proposals would provide approximately $5 billion more than the projected spending if the 2002 farm bill were extended.

The Administration has urged the agricultural community to give them your feedback on its proposal. Chuck Connor concluded his speech today with a request to “look at the whole picture, priorities, and vision for where we need to be in order to have a healthy and vibrant farm economy.”

The complete USDA proposals are available at www.usda.gov/farmbill. Also posted on USDA's website are the Farm Bill Forum transcripts, farm bill comments submitted by the public, theme papers summarizing the comments and USDA analysis papers.

Family Farm Alliance engagement in Farm Bill negotiations will be a key topic of discussion at the upcoming Annual Meeting and Conference in Las Vegas on February 21-23, 2007. For more information on this event, check out http://www.familyfarmalliance.org/docs/Registration_Mailer%204page.pdf

If you have any questions about this memo, please do not hesitate to contact me at this e-mail address: dankeppen@clearwire.net.

Thank you.