Thursday, February 26, 2009

Is Obama Seeding Change In Agriculture Finance Policy, Or Just Shaking Down The Money Tree?

Obama Agri-vations: Guest blogger Tom Laskawy parses The President's pledge to de-pork the multi-trillion-dollar deficit...

President Obama caused a minor explosion in the foodpol blogosphere when he said during Tuesday's non-State of The Union Address that "in this budget, we will...end direct payments to large agribusinesses that don't need them." Needless to say, much speculation has since ensued.

Was Bam talking about ending the subsidy program outright? Capping the amount of subsidies that farmers can receive? Some previously secret plan to do battle with Big Ag?

The confusion is understandable. The government actually has a number of ways of paying farmers for doing (and not doing) various things - including commodity price supports, so-called "counter-cyclical payments," payments for land conservation as well as something specifically referred to as "direct payments" - all of which get lumped into the term "subsidies." For the record, if you really want all the details on the direct payment program, you can see theUSDA's description (though why would you want to?). And the confusion doesn't end there. Spokesmen from two different farm groups both agreed via this Reuters article that "direct payments" could also be taken to mean any cash payment to farmers of any kind.

But I seriously doubt that the President will be attacking subsidies in general, at least any time soon. First of all, even if Bam and Secretary of Agriculture Tom Vilsack wanted to embark on serious subsidy reform, it would be all but impossible. Like many large and complex programs, agricultural subsidies aren't "re-authorized" by Congress every year - the Farm Bill runs on approximately a five-year cycle and was just re-authorized in 2008. Though its official name is the Food, Conservation, and Energy Act of 2008, you will see it referred to as "the 2008 Farm Bill" at least until 2012 when it is due to be renewed. Meanwhile, the re-authorization process is controlled by the House and Senate Agriculture committees. There is no way that the President, no matter how popular he may be, could force those committees to revisit these programs outside the five-year cycle (and if there is a way, I'd love to know it).

So what the heck was Bam talking about in the non-State of The Union Address? I'm pretty sure he was referring to this element of the 2008 Farm Bill:

The 2008 Farm Bill reduced the limit for adjusted gross income from $2.5 million to a three-year average of $500,000 of non-farm income. After three years of non-farm income averaging above $500,000, a farmer or entity would lose eligibility for commodity or disaster payments. To qualify for direct payments, farmers or farm entities must also have a three-year average adjusted-gross income of $750,000 or less in farm income.

Before you get all weepy for those farmers who make $755,000 and thus won't qualify, note that the limit is doubled if you're married. Even so, the old direct payment limit was much higher. It's also worth noting that the Senate version of the 2008 Farm Bill tried (and failed) to set the direct payment income limit at $250,000 - the level Obama claims to ultimately want.

The sticky wicket over this new provision has to do with exactly how you set eligibility within those limits (including whether the new limits will apply to 2009's crop year). And that is up to the USDA to determine by issuing a rule on how the program will work. It's been a - shall we say - contentious rulemaking process. Indeed, there's been such a firestorm that Vilsack was forced to extend the public comment period for the rule. Needless to say, neither industry lobbyists nor Senators are lacking for suggestions. (In pic: Senator Saxby Chambliss (R-Georgia), a subisdy enthusiast)

Just finalizing this one rule is enough of a fight on its own. The President was at minimum indicating a restrictive, loophole-free rule on eligibility for the direct payments program. The only hint we get of future plans comes buried in the 10-year budget proposal that outlines government spending priorities through 2020 (well beyond the end of a potential second term, it should be noted). According to Politico, Obama wants to reduce that $750,000 income limit to $500,000 come 2012, generating a modest savings. Not exactly earth-shattering. But even so, the only thing he can bank on with that little tweak is a battle royale.

Update: The budget document just released confirms that the President was referring specifically to the "direct payments" program. The good news: Bam wants to eliminate direct payment for farmers with SALES greater than $500,000. That will affect a lot more farmers than using income as the basis for a limit. But before you start cheering, know that the administration fully expects the lost subsidy will be replaced by "alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat." So no worries, Big Ag! The money will continue to flow.

*Tom Laskawy blogs on food and the environment at Beyond Green and Grist.

Related: *Barton Folsom, Jr., the Charles Kline Professor in History and Management at Hillsdale College, gives a quick recap of how American agriculture became nationalized; download the pdf here. Originally published in The Freeman: Ideas on Liberty in 2006. Food for thought, and we don't mean Obama cookies.

*Click here for The Farm Bill Debate, an April 2008 Bill Moyers Journal with excellent coverage, including international, environmental and food aid impact. In the same link you'll find Cash Cows and Cowboy Starter Kits, which details Washington Post reporters following the trail of wasted billions that have gone from Washington to American farmers.

*Image at top of post is Colorado artist Manick Sorcar's Seeds of Hope, an Obama portrait created with lentils, fennel seeds, cumin, barley, orange peel, and other seeds, via The Obama Art Report.