You can't say that the Bush administration “pulled any punches” in announcing its budget proposal to cut agricultural spending by $587 million in fiscal 2006, in part, by capping farm program payments at $250,000 per farmer per year.

Agriculture Secretary Mike Johanns, in office less than a month, dealt with questions such as whether the proposal meant the administration was changing the rules on farmers “in the middle of the game” and “why it decided to take on payment limits” head on.

“Farmers are going to understand that our country cannot run a deficit at this level and expect anything good to come out of that over the long term,” said Johanns. “Farmers will understand that we have to deal with the deficit if they are going to have a long-term future in agriculture — not only for their generation but for the next generation.”

Under the president's proposal for agriculture, Congress will be asked to lower the payment limit cap for individuals to $250,000 for commodity payments, including all types of marketing loan gains, eliminating the three-entity rule, and basing marketing loans on historical production.

The budget also proposes reducing direct payments to row crop farmers and dairy payments by 5 percent; requiring the dairy price-support program to minimize expenditures; and extending the Milk Income Loss Contract program for two years. It would also impose a sugar marketing assessment to be paid by sugar processors on all processed sugar.

Administration sources said the plan would make 15 percent of crop output ineligible for “non-recourse” loans, long a marketing tool of farmers who can forfeit the loan collateral to the government if prices do not rise sufficiently to warrant redeeming it from the loan.

Asked why, when the administration could reduce spending in any number of ways, it chose to make cuts by lowering the payment limits, Johanns said the administration was attempting to spread the pain of deficit reduction.

“If this budget sends a signal about anything it's that everybody is going to be a part of this initiative,” he said. “As I studied this budget, what impressed me about it was just simply the effort to make choices that were maybe difficult choices but they were the right choices in terms of that message that we all have to be a part of the deficit reduction process.”

Under the three-entity rule, farmers were able to receive maximum payments of $360,000 for themselves and through participation in two other entities. Reducing the limit to $250,000 is expected to fall hardest on cotton and rice producers, who have higher input costs for their major crops

Johanns said 2006 CCC outlays are projected to decline by about $5 billion, in part due to projected commodity-price recovery. Further, the administration's proposal to reform farm support programs will account for savings of about $587 million in CCC outlays. Over a 10-year period, these reforms are expected to save nearly $5.7 billion

Congressional opposition to the proposals was muted, although Senate Appropriations Committee Chairman Thad Cochran of Mississippi earlier promised to “work as hard as I can to prevent any changes to the 2002 farm bill.”

Sen. Chuck Hagel, R-Neb., called the proposal “long overdue,” and said he would work to pass the lower payment limits.

Johanns said he does not believe reducing farm programs payments would have a negative impact on the U.S. government's bargaining position in the Doha Round of World Trade Organization negotiations. Some opponents of spending cuts have said they would send the wrong signal in the middle of efforts to change world trading rules.

“The person most equipped is Ambassador Robert Zoellick because he's involved in that on a day-to-day basis,” said Johanns. “But I really don't see this having a negative impact on the negotiations of the Doha Round. My belief is that strengthening our economy is always a good thing, and that's exactly how I see this budget.”

The administration proposal would also save about $140 million on federal crop insurance subsidies by tying the receipt of direct payments from farm programs to the purchase of crop insurance and changes in fees, premium rates and delivery expenses beginning in 2007.

“Net outlays for crop insurance have grown nearly 50 percent between 2001 and 2004 with the implementation of the crop insurance reforms of 2000,” said Johanns. “At the same time, producers have continued to receive disaster payments through ad hoc disaster programs.

“The president's budget includes proposals to enhance crop insurance coverage, and reduce costs to deliver the program, so that crop insurance will provide coverage that is sufficient to sustain most farmers in times of loss.”

In a press briefing after the White House announced the president's fiscal 2006 budget proposals, Johanns defended the USDA portion of the budget as meeting the Agriculture Department's most important priorities, while exercising fiscal discipline to help meet the president's deficit reduction goals.

“The president's agriculture budget is fiscally responsible, insures a strong safety net for farmers and ranchers and increases resources to help those in need,” said Johanns. “It provides funds to protect America's food supply and agriculture systems, improve nutrition and health, conserve and enhance our natural resources and enhance economic opportunities for agricultural producers.”

Johanns said that total USDA outlays increased from about $72 billion in 2004 to $94.9 billion in 2005 and are projected to remain at roughly that level in 2006 at $94.6 billion. Most of the 2004 increase came from higher CCC outlays for commodity programs ($13 billion) and domestic nutrition assistance ($7 billion).

“The higher 2005 CCC outlays reflect higher loan deficiency and other crop payments due to lower crop prices and disaster payments,” he said. “Outlays for CCC are estimated to decline by about $5 billion between 2005, which included outlays from disaster supplemental funds, and 2006.”

The president's budget proposes $3.8 billion to continue implementation of the conservation programs authorized in the 2002 farm bill, including $2 billion for the Conservation Reserve Program. It would also provide $72 million in additional resources to extend the Conservation Security Program into about 200 additional watersheds in 2006. The remainder of the $3.8 billion will support enrollment of an additional 25 million acres in conservation programs, largely in EQIP.

The budget also proposes $376 million in USDA funding for the multi-agency Food and Agriculture Defense Initiative, which is funded at nearly $600 million government-wide. This initiative, which is aimed at shielding the public from bioterrorism threats, would receive $317 million for programs and $59 million to complete construction of the National Centers for Animal Health in Ames, Iowa.

Funding for programs reflects a $140 million increase above 2005, including: $37 million in increases to strengthen the Food Emergency Response Network and the Regional Diagnostic Network to insure the capacity to respond quickly to food emergencies and plant and animal diseases; $35 million in increases for research to develop the means to quickly identify pathogens, develop improved vaccines and better understand the genes that provide disease resistance; and $51 million in funds to enhance surveillance and monitoring activities to quickly detect pest and disease threats.

The 2006 budget proposes funding for continued testing and implementation of the National Animal Identification System and an increase of $7.5 million for an enhanced BSE research program. “The additional research funding is directed to increasing our scientific understanding of the disease and developing the technology needed by regulatory agencies to establish science-based policies and control programs,” said Johanns.


e-mail: flaws@primediabusiness.com