New Farm Bill

Farm Policy has some discussion of a new farm bill from which I gather different commodity groups may head in different direction as they try to cope with budget pressures.  On the other hand, if the super-committee writes the farm bill instead of the Ag committees, it will be logistically easier to just modify current legislation.  And that would be easier for FSA to implement, rather than a return to the old days with each crop (grouping) having its own program. It will be an interesting study in interest group legislation.

Government "Waste"

Politico and other media outlets have pieces on the Gallup poll, which seems to average the guesstimates of their respondents to say that 51 percent of Federal tax dollars are wasted. Room for lots of ambiguity there: does "tax dollars" include FICA or Medicare taxes?  What is "waste"--how many of our aircraft carrier groups are "waste"?  So much ambiguity it's relatively meaningless, but it makes a good story.

As for me, if I stipulate that spending in accordance with legislation passed by Congress is not waste, my guesstimate is less than 5 percent waste, and even that is high.

How the Cost of Crop Insurance Grows

Farmdocdaily has a post on the 2012 wheat insurance.  The main paragraph:

The 2012 projected price of $8.20 is $1.01 higher than the 2011 price of $7.19. As a result, guarantees will be higher for the same coverage level in 2012 as compared for 2011. Take, for example, a 75 percent Revenue Protection (RP) policy for a unit having an Actual Production History (APH) yield of 55 bushels. In 2012, the minimum coverage level is $338 per acre (75% coverage level x 55 bushel APH x $8.20 projected price). The 2012 minimum guarantee is $41 per acre higher than the 2011 minimum guarantee of $297 per acre (75% coverage level x 55 bushel APH x $7.19 projected price). For the same APH yield and coverage level, 2012 minimum guarantees will be 14 percent higher than in 2011.

And since the government's exposure and subsidization of cots changes as the guarantees change, the possible cost to the taxpayers of wheat crop insurance is rising.

Obama's Proposals

Obama has released his deficit reduction proposals.  For agriculture he proposes to eliminate direct payments, cut crop insurance and support SURE. The following are from pages 17-19 of the plan.

Eliminate direct payments. The direct payment program provides producers fixed annual income support payments for having historically planted crops that were supported by Government programs, regardless of whether the farmer is currently producing those crops—or producing any crop, for that matter. Direct payments do not vary with prices, yields, or producers’ farm incomes. As a result, taxpayers continue to foot the bill for these payments to farmers who are experiencing record yields and prices; more than 50 percent of direct payments go to farmers with more than $100,000 in income. Economists have shown that direct payments have priced young Americans out of renting or owning the land needed to enter into farming. In a period of severe fiscal restraint, these payments are no longer defensible, and eliminating them would save the Government roughly $3 billion per year. [Note: why they don't claim the $4+ billion figure I don't know.]

Reduce subsidies to crop insurance companies. Crop insurance is a foundation of our farm safety net. Our Nation’s farmers and agricultural bankers understand the value of this effective risk management program, and currently 83 percent of eligible program crop acres are enrolled in the program. However, the program continues to be highly subsidized and costs the Government approximately $8 billion a year to run: $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsidies to the farmers. The Administration has made a continued effort to improve the crop insurance program by covering more crops, while implementing it more efficiently In 2010, the U.S. Department of Agriculture (USDA) and the crop insurance companies agreed to changes that saved $6 billion over
10 years from administrative expense reimbursement and underwriting gains while also
improving service to underserved States. The Administration believes there are additional
opportunities for streamlining of the administrative costs of the program. A USDA commissioned
study found that when compared to other private companies, crop insurance companies’ rate of return on investment (ROI) should be around 12 percent, but that it is currently expected to be 14 percent. The Administration is proposing to lower the crop insurance companies’ ROI to meet the 12 percent target, saving $2 billion over 10 years. In addition, the current cap on administrative  expenses is based on the 2010 premiums, which were among the highest ever. A more appropriate
level for the cap would be based on 2006 premiums, neutralizing the spike in commodity
prices over the last four years, but not harming the delivery system. The Administration,
therefore, proposes setting the cap at $0.9 billion adjusted annually for inflation, which
would save $3.7 billion over 10 years. Finally, the Administration proposes to price more accurately
the premium for catastrophic (CAT) coverage policies, which will slightly lower the
reimbursement to crop insurance companies. The premium for CAT coverage is fully subsidized
for the farmer, so the farmer is not impacted by the change. This change will save
$600 million over 10 years. The Administration also proposes modest changes in subsidies for producers. Today, producers only pay 40 percent of the cost of their crop insurance premium on average, with the Government paying for the remainder. This cost-share arrangement was implemented in 2000, when very few producers participated in the program and “ad-hoc” agricultural disaster assistance bills were regularly enacted. The Congress increased the subsidy for most insurance coverage by over 50 percent at the time to encourage greater participation. Today,
participation rates are 83 percent on average, and the rationale for high subsidy rates has
weakened. The proposal would shave two basis points off any coverage premium subsidy
levels that are currently offered above 50 percent, saving $2 billion over 10 years. Farmers
who have premium subsidies of 50 percent or less would not be affected.

Better target agricultural conservation  assistance. Farmers, ranchers, and forest landowners share a critical role in conserving the Nation’s soil, water, and related natural resources. The Administration is very supportive of programs that create incentives for private lands conservation and
has made great strides in leveraging these resources with those of other Federal agencies
towards greater landscape-scale conservation; however, the dramatic increase
in funding (roughly 500 percent since enactment of the Farm Security and Rural
Investments Act of 2002) has led to difficulties in program administration and redundancies
among our agricultural conservation programs. At the same time, high crop prices
have both strengthened market opportunities to expand agricultural production on the
Nation’s farmlands and decreased producer  demand for certain agricultural conservation
programs. These current economic realities and the ability to better target existing funding
for maximum environmental outcomes support a proposal to reduce the deficit while
preserving the most important agricultural conservation programs. To reduce the deficit,
the Administration proposes to reduce conservation funding by $2 billion over 10 years
by better targeting conservation funding to the most cost-effective and environmentallybeneficial
programs and practices. Even under this proposal, conservation assistance is
projected to grow by $60 billion over the next decade.

Extend mandatory disaster assistance.
The Administration strongly supports disaster assistance programs that protect farmers
in their time of greatest need. The Food, Conservation, and Energy Act of 2008 provided
producers with mandatory disaster assistance programs for the 2008 to 2011 crops. To
strengthen the safety net, the Administration proposes to extend these programs, or similar types of disaster assistance that are of a similar cost, for the 2012 to 2016 crops. The programs provide financial assistance to producers when they suffer actual losses in farm
revenue, loss of livestock or the ability to graze their livestock, loss of trees in an orchard, and
other losses due to diseases or adverse weather. To be eligible for the programs, farmers must
purchase crop insurance. The Supplemental Revenue Assistance Program provides whole
farm revenue coverage to farmers at a revenue level that is essentially 15 percent higher than
their crop insurance guarantee. Payments are limited so that the guaranteed level cannot exceed
90 percent of expected farm income in the absence of a natural disaster

A Question of Taxes

From Illinois farmdocdaily, comes this observation, based on their surveys of farmer's accounts, comparing 2001-5 with 2006-10:

It would seem that to add over $100,000 in net farm income while adding just under $6,000 in income and social security taxes doesn’t quite add up! We know that tax rates…even at their lowest…are not at the 6% level. What gives?

 The writer goes on to offer some possibilities, some of which amount to farmers deferring tax liabilities down the road, and warns of a possible day of reckoning (my words, not his). 

I hate to be cynical about the hardworking people in American's heartland, the truest of all Americans, but it might just be that one or two of the farmers is indulging in that oldest of American pastimes, the pursuit of which led directly to our Revolution: fudging on one's taxes.

I'm sure no one in Congress is going to suggest adding one or two auditors to the IRS as a partial fix to the budget.

(To be fair, I should note my understanding of federal tax laws as they apply to farmers is very close to zero.)

One question: if farmers have to pay self-employed SS taxes of 13.3 percent on income less than $102K, shouldn't one expect to see more than $19000 social security and income taxes paid on over $200,000 income? What are the limits to deferring income?

Charles Kenny Takes on the Food Movement

He writes in Foreign Policy in favor of efficiency and against locavores, supporting GM crops and importing food from the Third World over growing out of season crops in the Northern Hemisphere.

Increasing Government Productivity?

Matt Yglesias has this post saying the era of big government ended in the 70's, including a graphic showing the ratio of government workers to private sector workers. 

That says to me there either was a great increase in government productivity since 1975 or there was an unheralded decline in the scope of the federal government.  I don't see any other alternatives.  So, Tea partiers, which one is it?

The Way Congress Works

Congress believes in setting tough requirements, until they start to affect your constituents.  Then it's Katy bar the door as your stalward representatives run for the exits--from Farm Policy

“Some Vermont farmers affected by Tropical Storm Irene are ineligible for U.S. Department of Agriculture disaster assistance because they did not have crop insurance when the storm hit, a requirement under current law. The Welch/Gibson Bill (H.R. 2905) would temporarily waive this requirement, allowing farmers access to USDA assistance. Farmers taking advantage of the waiver would be required to purchase crop insurance.”

Organic Agriculture Is Profitable

I've been skeptical of organic agriculture's promises, so it's only fair I should highlight this piece from the Agronomy people, reporting on a long term U of Minnesota (my dad's alma mater--go gophers) study. It finds that organic agriculture is more profitable than conventional over an 18-year period.  However:

What gave organic production the edge wasn’t higher crop yields, however; instead it was organic price premiums. In their absence, the net return from a 2-yr, conventional corn-soybean rotation averaged $342 per acre, compared to $267/ac for a 4-yr organic rotation (corn-soybean-oat/alfalfa-alfalfa), and $273/ac for its 4-yr conventional counterpart. When a full organic premium was applied, though, the average net return from organic production rose to $538/ac, significantly outperforming the conventional systems both in terms of profitability and risk. And organic production was still more profitable when the price premium was reduced by 50%.

Cost of production was also lower, because herbicides cost more than organic weed control methods.

Repeal the Law

This Federal Computer Week article says the Census Bureau is willing to talk about repealing the portion of the law which prevents them from making public their database of addresses.

And this subsequent article says Census is backing off.   They may save it for a second term, if there is one.