WASHINGTON (Dow Jones)--The Bush administration says major reform is needed for government farm subsidies, setting the stage for confrontation with those seeking to prolong the status quo when Congress gets to work in 2007 to craft the next multi-year farm bill.
Issues such as federal investment to support the expansion of corn and other bio-based ethanol production and increase conservation programs, on the other hand, are widely agreed on.
There is just too much international pressure to reform, U.S. Department of Agriculture officials say, to leave in place subsidies that may violate World Trade Organization rules.
But groups such as the American Farm Bureau Federation say if WTO members want to take more legal action, bring it on.
The U.S. lost a legal battle to Brazil in the WTO over U.S. cotton subsidies and subsequently cut its step 2 program payments, but that doesn’t mean other subsidy programs need to be impacted, AFBF President Bob Stallman said recently. “Just because the cotton case ruling came out the way it did does not mean a challenge against rice or corn or soybean (subsidies) would come out in the same manner,“ he said.
The National Association of Wheat Growers is one group looking for more federal support than its member farmers got in the 2002 farm bill and is already planning to lobby new lawmakers in the 110th Congress when it reports to work next year.
Nine days after the November election that tore control of Congress away from the Republicans, the incoming Democratic chairman of the House Agriculture Committee Collin Peterson, D-Minn., slipped into USDA headquarters for a low-key meeting with Secretary Mike Johanns. His message: Farm subsidies will remain as they are now in the next farm bill.
But Johanns has said often recently that the current 2002 farm bill isn’t fair when it comes to the distribution of subsidies. Fruit, vegetable and other specialty crop producers are ignored almost completely.
Budgeting For Commodities
In order to create programs to further support ethanol production as well as keep farm subsidies plentiful, there has to be a federal budget to support them. And concerns are widespread with lawmakers and farmers that there won’t be nearly as much money budgeted for agricultural spending next year as the 2007 farm bill is created.
Getting a sufficient budget allocation next year, Peterson predicted in December, will be the “first big hurdle.“
Sen. Tom Harkin, D-Iowa, who will take over as chairman of the Senate Agriculture Committee in January, addressed the subject recently in a press conference with USDA’s Johanns. Harkin told reporters he hopes current high farm prices won’t be used as a reason to allocate a smaller budget next year - something that could hamper farm leaders in Congress as they write the 2007 farm bill.
The U.S. government has paid out billions of dollars in subsidies to cotton, corn, soybean, milk, peanut and other producers so far during the 2002 farm bill as well as kept domestic sugar prices artificially high by controlling imports.
There are a lot of producers and lawmakers who would like to see that continue after the 2002 farm bill expires in September 2007.
The AFBF has predicted the Congressional Budget Office will reduce its next “baseline“ guide for agricultural commodity program spending “to $57 billion over six years - barely more than half of the $99 billion Congress was willing to spend on commodity programs during the past six years.“
The farm group said it was demanding that “funding for the upcoming farm bill should be at the same level as that authorized in the 2002 farm bill, with an inflation adjustment.“
Johanns, in a December interview with Dow Jones Newswires, was critical of AFBF’s demands because they ignore current estimates showing farmers don’t need some subsidies because of strong commodity prices.
Farm subsidies such as loan deficiency and counter-cyclical payments only benefit farmers in times of low prices.
Peterson predicted that there will indeed be less money available over the coming years for federal spending on farmers, but also stressed that he is more concerned about getting enough funding to help support ethanol production.
Consensus On The Importance of Ethanol
“Energy will be the engine that pulls the farm bill,“ said Harkin. “We’re going to have think of how we start moving our agricultural agenda towards energy and energy independence.“
The production of corn-based ethanol in the U.S. is booming, but lawmakers and Bush administration officials see a major transition coming when farmers will be able to sell the plant waste left behind in a corn field or crops such as switchgrass to ethanol producers.
Harkin said he believes it will be up to Congress next year to make sure that transition happens smoothly by helping finance the equipment and infrastructure needed.
“We need to lay the groundwork, the foundation, for the next 10 years of transition -- a transition to different kinds of production with different kinds of crops,“ Harkin said earlier this month.
Peterson has said he has plan he would like to incorporate into the 2007 farm bill that sets aside 5 million acres for the production of potential energy crops such as switchgrass. The idea, he said, is to pay farmers to grow the crops they wouldn’t otherwise grow to discover the best plants for ethanol production.
“We need to know in five or six years what is the best biomass feedstock ... and I don’t think we can do this in a few test plots,“ Peterson said. “If this industry is ready to take off in five or six years, we have to be able to be ready to provide the feedstocks to fuel this industry. So that’s going to be a lot of our focus in the farm bill as well.“
There are now 106 corn-based ethanol plants operation in the U.S., an additional 48 plants are under construction and seven are undergoing expansion, according to the Renewable Fuels Association. Current ethanol output is 5 billion gallons, but that’s expected to reach as much as 7 billion next year.
Saving Sugar
The U.S. sugar program needs to be fixed and the time to do that is in the 2007 farm bill, USDA’s Johanns told Dow Jones Newswires. “The sugar program is part of the farm bill debate.“
The USDA program, a barrier protecting U.S. sugar producers from foreign product with a tariff rate quota, will officially no longer stop imports from Mexico on Jan. 1, 2008, but because of recent deal between the two countries that time frame was effectively pushed up to October this year. The prospect of significant Mexican shipments has spread concern of producers being forced to forfeit their sugar to the USDA in order to survive.
Johanns said: “You have to do something with this program. How best to approach that is still a debatable issue, but I don’t believe there is anybody here in Washington that would make the case that this program continue as it is without recognizing that you could have additional sugar coming in which could lead to forfeitures. Some way, some how, we will have to deal with that.“
But Sen. Norm Coleman, R-Minn., a member of the Senate Agriculture Committee, said he believes ethanol can save producers from the prospect of forfeitures.
“I hope we look at a sugar-to-ethanol policy where it would be possible to rake some of the excess imports and put it into energy,“ Coleman said.
Source: Bill Tomson Dow Jones Newswires 202-646-0088 bill.tomson@dowjones.com