Author: Bart Fischer

If you were following farm bill developments over the past year, chances are you’ve heard a lot of chatter about the Inflation Reduction Act (IRA).  The IRA—signed into law in August 2022—provided approximately $18 billion in new, additional funding for climate-smart agriculture delivered via the existing conservation programs authorized in Title 2 of the farm bill. But, what does that have to do with the farm bill reauthorization?  As it turns out, quite a lot.

While the IRA infused $18 billion into the conservation programs, it was one-time funding. The IRA passed through Congress under a budget process known as reconciliation. While that process lowers the vote threshold in the Senate—allowing bills that might not otherwise pass to find their way through the process, typically in partisan fashion—it also requires that no spending extend beyond the 10-year budget window in the reconciliation agreement. For the IRA, that window closes in 2031. Contrast that with the farm bill, where the budget for conservation programs is assumed to continue in perpetuity.  

While the debate over the IRA has largely involved (1) quibbling over CBO’s projections of IRA spending and (2) speculating if USDA will be able to obligate the entire $18 billion by 2031, both of these arguments miss the bigger point. Absent creative thinking, the IRA funding will be a one-time flash in the pan—gone by 2031—as noted in Figure 1.  

Figure 1. Historic Conservation Spending with Estimated Spending under Current Law

Sadly, like most debates in Washington, D.C., creativity often takes a backseat. The same is true of this debate.  Much of the conversation has focused on the fringe options: (1) doing absolutely nothing, despite the caution above and (2) clawing back all of the IRA funding and using it to fund deficit reduction. We don’t see either of these as viable—or likely—options. In the remainder of this article, we explore the middle ground: options that deviate from the status quo but that could result in permanent increases to conservation funding.

As noted above, the farm bill differs from the IRA in that the budget for conservation programs in Title II of the farm bill is assumed to continue in perpetuity. The options that follow all involve reallocating the IRA funding within the context of the farm bill. It is complicated to be sure—and would require navigating arcane budget rules—but it is possible and would ensure that elevated funding levels for conservation extend beyond the life of the IRA. To illustrate the point, the gray area from Figure 1 is simply reallocated (in a nearly linear fashion) in Figure 2. A few key observations from this hypothetical reallocation: 

• This option results in additional conservation funding beyond 2031, which is not an option under status quo;

• By CBO’s estimates, the IRA will result in Title II outlays reaching a maximum of $9 billion in FY2027 (Figure 1), while the hypothetical reallocation option presented in Figure 2 would reach $9 billion by 2033; and

• Perhaps most importantly when compared to status quo, this option would result in these elevated levels in perpetuity.  In other words, rather than reaching $9 billion for a single year, it’s possible to build a Title II baseline at $9 billion per year in perpetuity.

Importantly, this example is hypothetical.  The faster USDA obligates the IRA funding, the less there is available to build long-term baseline in a farm bill. In other words, the longer this drags on, the less opportunity there is to have a long-term impact.  Regardless, while this option would trim IRA spending in the near term, it would result in permanent additional baseline to Title II of the farm bill going forward.

Figure 2. Historical Conservation Spending and Hypothetical Reallocation of IRA Dollars

Of course, Congress is under no obligation to follow the hypothetical allocation presented in Figure 2. The IRA was a one-time agreement strictly limited to $18 billion.  If policymakers agree to a solution that allows for a permanent increase in Title II spending—particularly those who were opposed to the IRA in the first place—then it stands to reason that compromise may be required.  For example, some of the gray area in Figure 2 could be allocated to fund other priorities in the farm bill.  While some may be naturally opposed to this option, it could still result in long-term investments to Title II that dwarf the IRA funding. 

Where does that leave us? Supporters of status quo (i.e., those demanding that the IRA not be brought into farm bill discussions) are guaranteeing that no more than $18 billion will be added to Title II programs for carrying out climate-smart agriculture (at least not in the near term, given the political environment that appears against more spending).  While it would require some very difficult conversations about priorities and funding levels, to us this seems to present a win-win opportunity…but only if cooler heads can prevail.

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Bart L. Fischer, and Joe Outlaw. “What’s all the Fuss about the Inflation Reduction Act?” Southern Ag Today 3(50.4). December 14, 2023. Permalink

The Congressional Budget Office (CBO) is every political budget analyst’s favorite punching bag.  Truth be told, they have an impossible job.  At its core, CBO is responsible for forecasting spending by the Federal government.^[1]  In some cases, this involves forecasting macroeconomic variables and the resulting Federal spending.  For example, CBO forecasts marketing year average prices for commodities covered by the farm bill and the resulting Price Loss Coverage (PLC) payments.  In other cases, CBO looks into its crystal ball to estimate spending that Executive Branch agencies will undertake using discretionary authority granted to them by Congress.  For example, Section 5 of the CCC Charter Act vests USDA with eight categories of specific powers ranging from supporting the prices of agricultural commodities to increasing the domestic consumption of agricultural commodities.  While some of these authorities are used to carry out programs explicitly authorized by Congress (e.g., carrying out conservation or environmental programs authorized by law), the authority has been used to deliver a number of new programs at the discretion of the Secretary. CBO’s efforts to forecast spending under the latter is the focus of this article.

From fiscal years 2012 to 2017, Congress restricted the Secretary’s discretionary use of the CCC Charter Act.^[2] Since the restriction was dropped in fiscal year 2018, both the Trump and Biden Administrations have used Section 5 of the Charter Act in a number of creative ways.  For example, in the midst of the trade war with China, the Trump Administration authorized a combined $28 billion in assistance to producers via the Market Facilitation Program (MFP).^[3]  More recently, the Biden Administration has used Section 5 to fund over $3 billion in Partnerships for Climate-Smart Commodities^[4] along with $1.2 billion for the new Regional Agricultural Promotion Program to “enable exporters to diversify into new markets and increase market share in growth markets.”^[5]

While CBO tries to reflect such spending in their regular baseline updates (for example, the January 2019 baseline explicitly listed $9.799 billion in spending for fiscal year 2019 under MFP), the baseline historically has not included an explicit (i.e., separate line item) forecast of additional spending.  That changed with the January 2020 baseline which – beyond merely reflecting significant additional spending under MFP – included a long-term forecast of $100 million per year in “Other CCC Spending” under the CCC Charter Act Authority. To CBO’s credit, it presumably was attempting to account for the likelihood that spending at the discretion of the Secretary would continue into the future – and continue it did, as noted in Figure 1.  As a result, in its May 2022 baseline, CBO increased the long-term estimate to $1 billion per year.  At this point, the main question is whether $1 billion per year is a reasonable/sufficient estimate of future spending.

Figure 1. Actual versus Projected Spending under USDA’s Discretionary Use of CCC

As noted in Figure 1, spending under Section 5 has averaged $10.7 billion over the last 6 years since Congress restored the Secretary’s full authority under the CCC Charter Act.  That is significantly higher than the $1 billion per year currently being forecasted by CBO.  Even if you consider the most recent 3 years under a different administration – while treating MFP as an outlier – spending still averages almost $4 billion per year, 4 times higher than CBO’s forecast.

While an estimate of $1 billion per year would indicate CBO is projecting a return to “normal,” reality seems to paint a different picture. By our estimates, use of Section 5 authorities of the CCC has resulted in spending in excess of $64 billion over the last 6 years. If the current administration were re-elected, it’s hard to imagine a reduction in spending for the priorities noted above, indicating that recent spending levels could become the status quo.  Further, a second Trump Administration could result in an expansion of tariffs and elevated spending under Section 5 in response. Regardless of the election outcome, recent hearings before the Select Committee on the Chinese Communist Party have indicated a significant interest in a resumption of tariffs on Chinese products.

All of this leads us to question the direction CBO will take in its Spring baseline update.  In light of recent spending and ongoing priorities, if the CBO baseline is intended to be realistic, we would anticipate a significant increase in forecasted spending under CCC Charter Act Authority.

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^[1] It likely goes without saying that this understates the scope of CBO’s duties.  For example, on a recurring basis, CBO projects Federal spending as a “baseline” against which authorizing committees consider changes (e.g., farm bill).  CBO must also estimate the budget impact of those proposed changes, a process colloquially known as “scoring.”  All of this involves CBO predicting into the future.

^[2] https://crsreports.congress.gov/product/pdf/R/R44606/4

^[3] https://crsreports.congress.gov/product/pdf/IF/IF11289

^[4] https://www.usda.gov/climate-solutions/climate-smart-commodities/faqs

^[5] https://fas.usda.gov/programs/regional-agricultural-promotion-program

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Fischer, Bart L., and Joe Outlaw. “Forecasting Discretionary Spending by the Commodity Credit Corporation (CCC).“ Southern Ag Today 3(49.4). December 7, 2023. Permalink

With cotton added back to the farm safety net via the Bipartisan Budget Act of 2018, the 2018 Farm Bill largely maintained the statutory reference prices (SRPs) established in the 2014 Farm Bill. One noticeable exception was the addition of Effective Reference Prices (ERPs) in the 2018 Farm Bill at the insistence of House Republican negotiators.  As we noted in a December 2022 Southern Ag Today article, Section 1101 of the 2018 Farm Bill (P.L. 115-334) allows for the ERP for a commodity to replace the SRP if 85% of the previous five-year Olympic average of the national marketing year average price is greater than the SRP. The ERP may increase to as much as 115% of the SRP.

A recent article noted that the Congressional Budget Office (CBO) is projecting that “9 of the 19 program crops will have an ERP higher than the SRP in at least some of the years of the baseline” with those crops representing “over 90% of all base acres in the United States.”  They argue that this will result in an increase in Reference Prices “without Congress needing to do anything more than extend those [ERP] provisions.” While the article expressed surprise at “how little attention the ERP has received,” we have been reporting on it since the inception of Southern Ag Today as noted above. It seems the real purpose of this new article was to call into question the need for higher SRPs in the next farm bill, a key request of many state and national commodity organizations across the country. We believe this latest article seriously misses the mark in two key respects:

• First, while there is no question that the ERP provision is projected to result in higher Reference Prices for certain crops, it is projected to have zero impact on several other major commodities, including cotton, rice, and peanuts. While the author acknowledged this point, he simply used the absence of an increase in market prices for these other crops as a nonsensical justification for not adjusting the SRPs for these crops. As we’ve noted elsewhere (including in recent Southern Ag Today articles), sticky production costs and the prospect of lower prices are the primary justifications for increased SRPs (frankly, for all covered commodities).

• Second, while ERPs are certainly projected to provide higher levels of protection for some crops, those levels will also drop if marketing year average prices fall going forward. As a result, while CBO’s relatively flat price projections are an important factor in the debate, the much more important consideration for policymakers is how the farm safety net will fare if those projections are wrong.  To that end, we analyzed the impact of an unforeseen price drop on all 64 crop farms maintained by the Agricultural & Food Policy Center (AFPC) at Texas A&M University.  Specifically, we examined the impact of a price decrease over the next 5 years assuming that crop prices followed the same path experienced during the last downturn from 2013 to 2017. Under this scenario, 33 of the 64 crop farms maintained by AFPC would face a greater than 50% likelihood of an ending cash shortfall at the end of the baseline outlook (2028). In other words, under that scenario, 52% of the farms would have a greater than 50% chance of exhausting all cash on hand over the next 5 years and would have to debt-finance the day-to-day operations of the farm.  Bottom line: if there are any unforeseen hiccups in the market, the current farm safety net is simply NOT up to the task of mitigating losses for many farms across the country.

As we’ve noted time and again, the farm bill debate is fertile ground for those who like to sow regional discord.  Serious observers know that the farm bill must work for growers throughout the United States and not just one region of the country. If the goal is to ensure that the farm safety net can provide meaningful levels of support for producers in the event of a downturn in the farm economy, simply relying on existing Effective Reference Prices – or even modest 5-10% increases in the Statutory Reference Prices for many covered commodities – will simply prove insufficient.  Producers are operating in a higher cost environment, the Federal farm safety net needs to reflect that fact.  We are all for the swift completion of the farm bill, but given the extraordinary amount of capital that American producers are putting at risk, we continue to believe that the substance of the farm bill is far more important than the timeline.

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Fischer, Bart L., and Joe Outlaw. “Reference Prices: Setting the Record Straight.“ Southern Ag Today 3(41.4). October 12, 2023. Permalink

The Stacked Income Protection Plan (STAX) was first offered to cotton producers in 2015.  Along with the Supplemental Coverage Option (SCO), STAX is one of the area-wide plans of insurance that are designed to help a grower cover a portion of their underlying crop insurance deductible.  Unlike the underlying Multi-Peril Crop Insurance (MPCI) policies, both STAX and SCO trigger indemnities based solely on area-wide losses (i.e., only if the entire county triggers a loss). Both STAX and SCO are taking on newfound importance in the 2023 Farm Bill debate, as improvements to both could serve to reduce the need for ad hoc disaster assistance.  Currently STAX is still only available to cotton producers whereas SCO is widely available across the country.

In our travels around the country over the last several months, we’ve often been asked about the future of policies like STAX and SCO, and we’ve repeatedly been told that they are simply too expensive. That wasn’t too surprising to us in the case of SCO, because the premium support is just 65%. On the other hand, we were considerably more surprised in the case of STAX because the premium support is 80% – growers must pay just 20% of the premium. Consequently, in this article, we take a closer look at STAX premiums across the country for the 2023 crop year.

In the maps that follow, we present STAX premium rates (dollars of premium per dollar of liability) for the 2023 crop year assuming a coverage band ranging from 70% to 90% with a 120% protection factor (resulting in the maximum level of coverage of 24%). STAX was also assumed to include the harvest price (i.e., the guarantee can increase at harvest if prices increase during the growing season). Figure 1 illustrates dryland STAX premiums and Figure 2 illustrates irrigated STAX premiums.  

As noted in the maps, there is significant variability in premium rates both within and across states, ranging from 28.83% to 81.87% for dryland and 26.7% to 75.82% for irrigated. The highest rate (81.7%) is for dryland cotton production in Bee County, TX. In other words, if the maximum indemnity possible is $1,000 per acre, RMA is charging $817 per acre to insure the crop!  If premiums are actuarily fair, this implies that RMA expects the average indemnity over time to be $817. In reality, indemnities have been zero in Bee County seven of the eight years since STAX was first introduced.  Even with an 80% premium subsidy, the coverage is cost prohibitive.   Neighboring San Patricio County has had a very similar indemnity experience (one indemnity in eight years), and they faced a 72.69% premium rate in 2023. On close examination of the maps, it’s clear that almost every state faces situations where there is considerable variability in rates between neighboring counties.

Congress may very well choose to provide additional premium support for area-wide policies in the 2023 Farm Bill. Arguably, buying additional area-wide coverage would make considerably more sense than giving away free deductible coverage via ad hoc assistance after disaster strikes. But, the additional premium support is only effective if the underlying premiums being charged by RMA are reasonable and rational and not otherwise pricing producers out of the market for area-wide insurance, a point Congress may wish to explore as they continue their work on the next farm bill.

Figure 1:  2023 Dryland STAX Premium Rates by County

Figure 2:  2023 Irrigated STAX Premium Rates by County

Fischer, Bart L., Joe Outlaw, and Henry L. Bryant. “Crop Insurance Rating: the Curious Case of STAX.” Southern Ag Today 3(37.4). September 14, 2023. Permalink

Over the past 15 years, several states have passed laws regarding the amount of space that specific types of farm animals must be given. One such law – California’s Proposition 12 –imposes certain animal welfare requirements such as pen size and space on pork sold in California. These requirements apply not only to California producers but also to anyone selling products into the California market.^[1] Proposition 12 was challenged in both state and federal court, and on May 11, 2023, the Supreme Court issued its opinion in National Pork Producers Council v. Ross, ultimately upholding California’s Proposition 12.^[2] This raises the inevitable question of what impact, if any, the ruling will have on farm bill deliberations. To help address this question, we provide an overview of the historic federal legislative response to Proposition 12 and initiatives like it over the past decade.

Several of the early federal legislative attempts to push back on these state initiatives came from former Rep. Steve King (R-IA-4).  

• On July 11, 2012, at the House Agriculture Committee markup of the 2012 Farm Bill (H.R. 6083), King offered an amendment (Amendment No. 45) that was ultimately adopted as Sec. 12308 in H.R. 6083. The amendment prohibited a state or local government from imposing a standard or condition on the production or manufacture of any agricultural product sold or offered for sale in interstate commerce if the production or manufacture occurs in another State and the standard or condition is in addition to Federal standards and the laws of the State and locality in which production or manufacture occurs. Ultimately, that bill expired at the end of the Congress.

• On May 15, 2013, at the House Agriculture Committee markup of the 2013 Farm Bill (H.R. 1947), King again offered his amendment (Amendment No. 71) that was ultimately adopted as Sec. 12314 in H.R. 1947 and as Sec. 11312 in H.R. 2642, the version of the 2013 Farm Bill that passed the House and was sent to conference with the Senate. Ultimately, the provision was dropped by the conference committee and was not included in the final version of the 2014 Farm Bill.

• Rep. King introduced his amendment as the Protect Interstate Commerce Act in 2015 (H.R. 687) and 2017 (H.R. 3599). In 2018, he reintroduced the act as the Protect Interstate Commerce Act of 2018 (H.R. 4879), this time also including a private right of action to challenge state or local regulations relating to agricultural goods sold in interstate commerce.

• On April 18, 2018, at the House Agriculture Committee markup of the 2018 Farm Bill (H.R. 2), King again offered his amendment, including the private right of action from H.R. 4879.  The amendment passed on voice vote and was adopted in H.R. 2 as Sec. 11701 (prohibition against interference by State and local governments with production or manufacture of items in other States) and Sec. 11702 (federal cause of action to challenge State regulation of interstate commerce).  The provision was ultimately included in the House-passed version of the 2018 Farm Bill but again was dropped by the conference committee and was not included in the final version of the 2018 Farm Bill.

• On January 8, 2019, King again introduced the Protecting Interstate Commerce Act (H.R. 272), yet again including the private right of action provision.  

Rep. King was ultimately defeated in the June 2020 Republican primary.  Following his defeat, others have picked up the mantle.  

• On August 5, 2021, Sen. Roger Marshall (R-KS) and several other Senate co-sponsors introduced the Exposing Agricultural Trade Suppression (EATS) Act (S. 2619). On August 10, 2021, Rep. Ashley Hinson (R-IA-1) and several other House co-sponsors introduced the House companion (H.R. 4999).  Both closely track the Protecting Interstate Commerce Act.

• Following the Supreme Court’s ruling, Senator Marshall and others again introduced the EATS Act, this time as the Ending Agricultural Trade Suppression (EATS) Act (S. 2019).  Substantively, the bill would again (1) prohibit interference by state and local governments with production of items in other states and (2) provide a private right of action to challenge state regulation of interstate commerce.

While these legislative efforts over the past 10 years attempted to challenge the patchwork of state laws, they were largely dismissed while numerous legal challenges were making their way through the courts.  While Dr. Tiffany Dowell Lashmet recently noted that others may lodge additional challenges seeking to prove that Proposition 12 does impose a substantial burden, the Supreme Court’s recent ruling makes it hard to imagine a scenario where this issue is not front and center in the upcoming farm bill debates.  In fact, key leaders in the House have identified finding a solution as a priority.  This time around, “let’s wait and see how the Supreme Court rules” will no longer be a reason for kicking the can down the road.

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^[1] Rumley, Elizabeth. “U.S. Supreme Court to Hear Proposition 12 Case“. Southern Ag Today 2(29.5). July 15, 2022.

^[2] Lashmet, Tiffany. “United States Supreme Court Upholds Proposition 12.” Southern Ag Today 3(20.5). May 19, 2023.

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^[1] Rumley, Elizabeth. “U.S. Supreme Court to Hear Proposition 12 Case“. Southern Ag Today 2(29.5). July 15, 2022.

^[2] Lashmet, Tiffany. “United States Supreme Court Upholds Proposition 12.” Southern Ag Today 3(20.5). May 19, 2023.

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Fischer, Bart L., and Joe Outlaw. “How will Proposition 12 Ruling Impact the Farm Bill?” Southern Ag Today 3(27.4). July 6, 2023. Permalink