Farm Savings Ahead?

FAPRI analysis of ag bills indicate program cost reductions

MoneyTwo pending legislative bills, the Agriculture Reform, Food and Jobs Act of 2013 passed by the Senate in June; and the Federal Agriculture Reform and Risk Management Act of 2013, passed by the House in July; could save $16 billion to $18 billion over 10 years, according to an analysis by the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU).

The results were contained in a report, Impacts of Selected Provisions of the House and Senate Farm Bills, released Oct. 1.

This report also examines the possible consequences of key provisions in the two bills:

  • The elimination of the current Direct and Countercyclical Payment (DCP) and Average Crop Revenue Election (ACRE) programs, a common feature of both bills.
  • The establishment of Adverse Market Payments (AMPs), the Agriculture Risk Coverage (ARC) program, the Stacked Income Protection Plan (STAX) and the Supplemental Coverage Option (SCO) in the Senate bill.
  • The establishment of Price Loss Coverage (PLC), Revenue Loss Coverage (RLC) programs and STAX, as well as a slightly different version of SCO, in the House bill.

Models maintained by FAPRI-MU were used to estimate possible impacts of these proposed policy changes. Results were presented relative to a 2013 baseline analysis of U.S. agricultural models that assumes a continuation of existing farm policies. The analysis considered 500 possible future outcomes for agricultural commodity markets.

The two bills have much in common and the consequences of the two bills would be similar in many respects, the report states. Both bills replace a Direct Payment program that makes payments that are not tied to current prices or production levels with new programs that offer support linked to current levels of production and prices.

Average levels of federal farm program spending would be reduced under both bills, and most commodity market impacts would be relatively small.

Key results include:

  • The legislative changes reduce estimated 10-year net budgetary outlays by $18.1 billion under the Senate bill and $12.6 billion under the House bill. Estimates of the net budget savings of the same provisions by the Congressional Budget Office (CBO) are $16.4 billion for the Senate bill and $15.9 billion for the House Committee bill.
  • SCO accounts for much of the difference in the estimated costs of the two bills, as the Title I provisions are estimated to have very similar net budgetary impacts.
  • The House and Senate bills provide different projected levels of support to producers of particular commodities. For example, the House bill provides more support than the Senate bill to rice, barley and peanuts, while the Senate bill provides more support than the House bill to corn and soybeans. Area and production estimates reflect these differences in projected benefits.
  • Program benefits will be very sensitive to market conditions and producer participation decisions, as the various programs provide protection against different types of financial risk.
  • Under each bill, average net farm income would decline slightly relative to what would happen under a simple continuation of current farm programs. Impacts on consumer food prices would be very small.

Other provisions of the bills, such as changes in dairy and nutrition programs, are not examined in this report. The Conservation Reserve Program, the Renewable Fuel Standard and World Trade Organization concerns are discussed in separate sections at the end of the report.