USDA Budget Proposal Cuts $2.6 Billion

Payment limits seen as one way to reduce payments while still sustaining most farmers. Jacqui Fatka

Published on: Feb 7, 2005

Farmers will have to do their part in helping with the reduction of the growing federal deficit. On Monday, Secretary of Agriculture Mike Johanns stood in agreement with President Bush's proposed budgets that would impose payment limitations and cut agriculture discretionary program funding by $2.6 billion compared to 2005.

The 2006 budget proposes $19.4 billion in budget authority. About $1 billion of the savings is achieved from the one-time disaster funding in 2005, which is not continued in the 2006 budget.

In 2006, total Commodity Credit Corporation (CCC) outlays are projected to decline by about $5 billion, in part due to projected commodity-price recovery. The proposal would cut federal payments to farmers by $587 million, or about 5%. The cuts are part of a broader plan to cut $5.7 billion in farm spending over the next 10 years to help lower the federal deficit.

Budget calls for payment limitations

President Bush plans to find savings by implementing a payment limitation system. The administration would set a firm overall limit of $250,000 on subsidies, including all types of marketing loan gains as well as eliminating the three-entity-rule, Johanns says.

In 2002 the Senate approved a $275,000 payment limit introduced by Sen. Chuck Grassley, R-Iowa, but the House defeated the provisions. The payment limitations are opposed by cotton and rice producers as well as the American Farm Bureau Federation (AFBF), the largest agriculture organization representing farmers.

Sen. Tom Harkin, ranking member of the Senate Agriculture Committee member supports the payment limitations but disagrees with how it is being used in the President's budget. "If history is our guide, the president’s payment limit proposal may very well be nothing more than a decoy to divert attention from more devastating cuts to family farmers and rural Americans," Harkin says. "And given the make up of this Congress, it is unlikely payment limits will actually be enacted, forcing Congress to find the budget savings from other initiatives such as conservation, rural development, and nutrition."

The president’s proposed budget savings from tighter payment limitations are much less than the 5% across-the-board cut to mandatory commodity programs, including loan benefits and direct payments to all farmers, he adds.

Other changes include crop, dairy and crop insurance programs

Johanns says the budget also calls for reduced crop and dairy payments to farmers by 5%. It also requires the dairy price-support program to minimize expenditures. The Milk Income Loss Contract (MILC) program is budgeted to be extended for two years.

The budget also proposes changes in the current crop insurance program. 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 being proposed is expected to save approximately $140 million per year beginning in 2007. Johanns says, "This change should ensure that farmers of major commodity crops have crop insurance with a minimum coverage level that is sufficient to sustain most farmers in times of loss."

The budget proposes $3.8 billion to continue implementation of the conservation programs authorized in the 2002 Farm Bill. In dollar terms, the largest of these programs is the Conservation Reserve Program, estimated at $2 billion in 2006, more than one-half of the total. 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.

The budget proposes $376 million in USDA funding for the multi-agency Food and Agriculture Defense Initiative for budget programs and the remaining funds needed to finish construction of the National Centers for Animal Health in Ames, Iowa.

The 2006 budget proposes funding for continued testing and implementation of the National Animal Identification System. In addition, the budget provides an increase of $7.5 million for an enhanced BSE research program.

Over 100 groups sent a letter to Secretary of Agriculture Mike Johanns last week requesting that 2002 Farm Bill funding be maintained. The letter reminded the Secretary that "the agricultural appropriations bill is the only appropriations bill to have its 302 (b) allocation reduced in both of the previous two years. These reduced resources, coupled with the need to fund hurricane and other disaster assistance, have necessitated reductions in funding for many discretionary agriculture programs, as well as reductions of $4 billion in mandatory agriculture programs." To read the full letter, click HERE.