When lawmakers unveil a bipartisan compromise on a new five-year farm bill this month, they likely will trumpet a major change in policy: ending the long-established and much-maligned system of direct payments to farmers.
Abolishing the unpopular program, in which payments have been made regardless of crop prices—and sometimes even to people who grow nothing—is a rare point of accord among Democrats and Republicans in both the House and Senate. The idea, lawmakers say, is to require farmers to put more "skin in the game" in shouldering the risks associated with agriculture.
But the emerging compromise, which would replace direct payments with beefed-up crop insurance and other protections for farmers, has already triggered criticism from outside groups who say it won't radically reduce the amount of risk the federal government assumes in the agriculture industry.
"It's moonshine by another name," said Scott Faber, vice president of government affairs at the Environmental Working Group, an organization that opposes the subsidies because of environmental and other concerns. "We're replacing a discredited subsidy with a soon-to-be discredited subsidy."
These concerns have largely been overshadowed so far by the louder and more partisan debate over other provisions in the bill, particularly funding for food stamps, where there is opposition from both ends of the political spectrum.
Negotiators say they are trying to modernize the system by balancing the needs of farmers with the interests of taxpayers. "With direct payments farmers get a check, but with crop insurance farmers get a bill, and that change will save taxpayers billions of dollars," said Ben Becker, Democratic spokesman for the Senate Agriculture Committee. But the early concerns illustrate the challenges lawmakers will face as they try to build support for any new program of subsidies.
The new bill is expected to be built around a new kind of farm support system, including strengthened crop insurance, a new supplemental program to help with out-of-pocket losses not covered by insurance, and additional assistance to farmers when their revenue or crop prices drop below a certain level.
The approach marks a shift in policy away from the direct-payment regime, which has its roots in the 1996 farm bill. The almost $5 billion the government doles out each year, regardless of crop prices or rising farm incomes, has become one of the most vilified aspects of farm policy—especially after a year when the Agriculture Department says farm income likely hit its highest level in four decades.
The new assembly of support programs is expected to save tens of billions of dollars, though new cost estimates from the Congressional Budget Office haven't been publicly released.
Mr. Faber and others question whether the new suite of programs will transfer enough risk to farmers and say it could end up being more expensive if more farmers than expected enroll in the new crop-insurance programs or prices fall for a sustained period.
Under the current crop-insurance program, which is projected to cost taxpayers $84 billion over 10 years, the federal government subsidized nearly 63% of the average premium in 2012. With the new supplemental crop insurance, which would help cover out-of-pocket losses, the U.S. would subsidize 65% of premiums.
Private companies sell the plans, but the government reimburses them for some administrative and operating costs.
Some economists believe the high subsidies give farmers an incentive to enroll in the cushiest plans, though they caution it is hard to predict how many farmers will sign up for new programs. "If the federal government is still picking up close to 70% of your insurance, that still isolates the farmer from a lot of risk," said Christine Harbin Hanson, federal affairs manager at Americans for Prosperity, a conservative group working in an unusual alliance with both right-leaning and environmental associations to try to overhaul agriculture policy.
Interest groups are also watching how the negotiators deal with other protections for farmers. Some lawmakers had hoped to calculate payments for certain subsidies based on the actual number of acres a farmer planted in a given year.
But industry groups and trade experts worried that could motivate some farmers to plant more of certain crops to take advantage of the subsidies, driving down prices and potentially triggering a trade dispute that could hurt U.S. exports. In the new bill, lawmakers are expected to tie payments to an updated measure of a farm's historic plantings.
Whether these changes will shift the financial burden away from the taxpayer will depend on a number of factors, experts say. Early estimates are that the new approach will save billions of dollars. But the new system would be more sensitive to market-price swings, weather, how many farmers sign up and details of how the programs are structured in the final bill.
"We know how much money we're going to save from getting rid of direct payments," said Andrew Novakovic, an agricultural economics professor at Cornell University. "But we don't how much money we're going to spend."
Source - http://online.wsj.com/
