Apr 7, 2007

Few Gripes Come From Fruit, Vegetable Producers

President George W. Bush’s proposed 2006 budget for U.S. Department of Agriculture operations brought protests from many farm groups, but little criticism from the fruit and vegetable industries.

President Bush proposed a 5 percent, or $587 million, cut in commodity payments that would have its greatest effect on large producers of corn, cotton and rice.

Fruit and vegetable producers have received favorable treatment from government recently. The Natural Resources Conservation Service has been proactively working to funnel Environmental Quality Incentive Payments (EQIP) dollars to horticultural operations.

The EQIP program is not affected by the budget cuts.

Producers have received – if not direct payments – recognition of their potential role in curing the nation’s problems with obesity and disease and better placement of their products in the food pyramid. The proposed budget puts dollars into nutrition programs that increasingly favor fruit and vegetable consumption.

The ag budget cuts won’t do much to reduce the overall budget deficit. About $361 billion in deficit spending is built into the proposed budget, which overall totals a whopping $2.57 trillion, the cost of running the U.S. government for one year.

The Agriculture Department budget reductions would be part of a plan to halve the federal deficit by 2009. The White House estimates the deficit at $412 billion in fiscal year 2004 and a record $427 billion for the year ending next Sept. 30.

All the national general farm organizations – Farm Bureau, National Farmers Union, National Farmers Organization, Grange – and the major commodity organizations ¬– corn, soybeans, cotton, sugar, peanuts, rice, wheat, sunflowers, sorghum – joined in a coalition of 118 organizations and sent a “letter of concern” to Secretary of Agriculture Mike Johanns saying that “program reductions and/or restructurings could seriously undermine many nutrition, conservation, crop insurance and farm programs that are important to all Americans.”

The strongest vinegar came from National Farmers Union president Dave Frederickson, who said, “I think it is wrong for President Bush to try to balance the budget on the backs of rural Americans. Agricultural programs are not the cause of the record federal deficit and should not be part of the solution.”

Organizations such as the School Nutrition Association signed on to the letter but, under closer analysis, had little cause for complaint.

“No cuts were proposed in child nutrition,” the School Nutrition Association said on its Web site.

In fact, it said, funding increased by $550 million to $12.9 billion.

Defenders of Wildlife also signed the letter, but its complaint was rueful. It admitted that spending for Farm Bill conservation programs would increase over last year’s level, but said on its Web site that “the president’s budget still fails to provide the mandatory levels promised in the 2002 Farm Bill.”

Fruit and vegetable organizations were notably absent from the list of those that signed the letter. Robert Guenther, the vice president of public policy at the United Fresh Fruit and Vegetable Association, offered this analysis:

“The Bush Administration … held true to promises of budget cuts and the cost-saving elimination of some government programs, including broad cost-saving policies that affect traditional ‘major’ crop commodity production and create new user fees under the grade standards program and the Animal and Plant Health Inspection Service.

“The budget also proposes cuts to the Market Access Program, which has gained popularity within the produce industry for its positive impact on expanding trade opportunities.

“Despite such widespread cuts, the budget provides full funding for important programs such as the Technical Assistance for Specialty Crops (TASC) program, the federal School Lunch Program, and the Women, Infants, & Children nutrition program.

“United is pleased with many key agricultural provisions of this budget and will continue efforts on Capitol Hill to secure adequate financial support for programs such as the Specialty Crops Competitiveness Act that are not slated for the optimal level of funding.”

In releasing details of the budget on Feb. 7, agriculture secretary Johanns said: “The president’s agriculture budget is fiscally responsible, ensures a strong safety net for farmers and ranchers and increases resources to help those in need. The agriculture budget 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.”

Hard to analyze

The USDA budget has few hard baselines from which to analyze. Total USDA outlays increased from about $72 billion in 2004 to $94.9 billion in 2005. The new budget provides $94.6 billion, roughly the same level of spending.

The increase from 2004 to 2005 was largely due to higher Commodity Credit Corporation (CCC) outlays for commodity programs, up $13 billion. Domestic nutrition assistance increased $7 billion, primarily a result of a 10 percent increase in Food Stamp participation.

The cornerstone of the ag budget is the safety net it provides to some commodity producers. While crop prices have been low in recent years, yields have been high. Two consecutive years of exceptionally large crop harvests and very high livestock prices have benefited those farm sectors.

The combined value of production for crop and livestock commodities was expected to increase $27.6 billion in 2004, a 13 percent increase, following a $20.7 billion (10.8 percent) increase in 2003. Prices for milk in 2004 reached record levels and prices for beef, hogs, lamb and poultry products were strong.

The value of farm sector production rose $50.1 billion in just two years. By that standard, the farm economy is quite healthy. Net cash income of U.S. farmers in 2004 is forecast to exceed the 2003 record level of $68.6 billion by 13 percent.

Commodity programs cut

Given this success, Johanns said, the administration believed it was appropriate to adjust current levels of assistance to farmers under the 2002 Farm Bill ¬– and that brought the protest.

The administration proposed several changes that require legislation to amend the Farm Bill. These would:

• Reduce the payment limit cap for individuals from $360,000 to $250,000 for commodity payments.

• Base marketing loans on historical production.

• Reduce crop and dairy payments to farmers by 5 percent. Payments to farmers from all commodity programs (e.g., marketing loans, direct and counter-cyclical payments) would be calculated and payments would be reduced by 5 percent.

• Impose a sugar marketing assessment to be paid by sugar processors.

• Require the dairy price support program to minimize expenditures. However, it would extend the Milk Income Loss Compensation program for two more years.

Crop insurance

Net outlays for crop insurance grew nearly 50 percent after implementation of crop insurance reforms in 2000. At the same time, producers have continued to receive disaster payments through ad hoc disaster programs ¬– which crop insurance was supposed to eliminate. The budget includes proposals to enhance crop insurance coverage to where it will provide sufficient coverage.

Proposals include a higher minimum coverage level, tying the receipt of direct payments to purchase of crop insurance and changes in fees, premium rates and delivery expenses. The combination of changes is expected to save approximately $140 million per year beginning in 2007.

Nutrition assistance

Participation in the department’s three major nutrition assistance programs – Women, Infants and Children (WIC), Food Stamps and School Lunch – show continued increases from 2004 to 2006. The budget fully funds the expected requirements for these programs.

WIC covered a projected record 8.5 million participants in 2005. The budget proposes $5.6 billion to support this level and a $125 million contingency fund should costs increase beyond current estimates.

Food Stamp participation increases about 10 percent each year. The budget includes resources to fully fund estimated Food Stamp participation and a $3 billion contingency fund should actual costs exceed the estimated level.

School Lunch participation is estimated to reach 29.8 million children each day.

USDA programs also help feed those in need around the world. The budget proposes $100 million for the McGovern-Dole International Food for Education and Child Nutrition Program, an increase of 15 percent from 2005. This funding level will support nutrition assistance for 2.6 million women and children.

Conservation programs

The budget proposes $3.8 billion to continue implementation of conservation programs authorized in the 2002 Farm Bill. The largest is the Conservation Reserve Program, estimated at $2 billion in 2006. Also within that total, $72 million in additional resources are provided to extend the Conservation Security Program into about 200 additional watersheds in 2006. Funding in the budget will support enrollment of an additional 25 million acres in conservation programs, largely in EQIP.

Food, ag defense

The budget 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 began in 2004. USDA’s budget proposes $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 the Food Emergency Response Network and the Regional Diagnostic Network to build capacity to respond to food emergencies and plant and animal diseases; $35 million in increases for research to develop ways to quickly identify pathogens, develop improved vaccines and better understand genes that provide disease resistance; and $51 million in funds to enhance surveillance and monitoring activities to detect pest and disease threats.

BSE activities

After the discovery Dec. 23, 2003, of a cow with bovine spongiform encephalopathy in the United States, an enhanced BSE surveillance program was implemented in June 2004. Funds were also provided in 2004 to begin to implement a National Animal Identification System. The 2006 budget proposes funding for continued testing and for implementation of the ID system. In addition, the budget provides an increase of $7.5 million for BSE research.

Among other programs, the proposed USDA budget also includes loan funds to help companies bring broadband technology to rural areas and funding to modernize computer technology at USDA offices across the United States.

No crop shift expected

Whenever the federal government considers cutting subsidy payments for growers of program crops, the question that arises is: Will that encourage them to shift to fruits and vegetables?

The answer this year is no, said David Schweikhardt, a policy analyst in agricultural economics at Michigan State University.

First, he said, the cuts proposed in president’s budget for USDA, about 5 percent across the board, are not large enough to shift the profitability balance to where crop producers would like horticultural crops better.

Second, the largest of the proposed cuts don’t apply to ordinary farmers. The president has proposed cutting the payment limit from $360,000 to $250,000 per farm. While that could save millions, it doesn’t impact any but the largest farms. It doesn’t change the choices for the average farmer.

Third, Schweikhardt said, it’s not clear these cuts will actually get made.

“I was shocked by the number of people who voted for Bush who are now upset by his proposed budget cuts,” he said.

At a county level, the U.S. political map is red; rural areas overwhelmingly supported Bush in the election last November.

“That’s not what they voted for,” Schweikhardt said of the proposed ag budget cuts. “The better Bush does on Social Security, the worse his changes on the farm bill cuts.”

Bush is asking for support to change Social Security and he may have to trade something to get it. That could be the proposed cuts in farm payments, Schweikhardt said.