Washington Insider -- Monday

Farm Bill Costs

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

President Pushing for Long-Term Highway Bill

President Obama might veto a short-term highway spending patch should Congress choose to go that route instead of passing a multi-year bill this month, according to Secretary of Transportation Anthony Foxx. Foxx last week said, "I think we're quickly getting to the point where the value of another extension may be less than the value of breaking the cycle" [of short-term extensions].

The secretary said he was encouraged that the Senate Environment and Public Works Committee had marked up a six-year, $278 billion highway bill that boosted funding in some areas, but he said that amount is still not enough. "The reality is it's unrealistic to expect the transportation system to perform as Americans expect it to at current funding levels," he said.

Meanwhile, the House appropriations process has come to a standstill over Republicans' continuing support for the sale and display of the Confederate battle flag at national parks and cemeteries. The highly contentious issue represents yet another impediment to a process that already was challenging.

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EPA Finds No Evidence that Speculators Manipulated Market for RINs

Trading in U.S. biofuel credits isn't being manipulated by speculators, according to new data on participants in the market issued last week by the Environmental Protection Agency. Instead, the agency found that Renewable Identification Numbers (RINs), the certificates used to track compliance with ethanol and biodiesel consumption targets, trade in a way that reflects the movement of ethanol from Midwest distilleries to blending terminals and ultimately to gasoline pumps.

The data contradict claims by some that speculators were behind a 2013 price spike in RINs and that the EPA program needed to be reformed. "The RIN holdings data show that the majority of the RINs are ultimately acquired and held by obligated parties to meet compliance obligations or to carry-over to future years," EPA said.

If, as anticipated, EPA lowers the amount of biofuels to be blended in petroleum from initial targets stipulated in in the Energy Independence and Security Act of 2007, RINs –– and who is buying and selling them –– are likely to become less of an issue for all concerned.

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Washington Insider: Farm Bill Costs

A key factor in the development of the 2014 Farm bill was its expectation of savings. On the basis of evaluations by the Congressional Budget Office, the legislation as passed promised 10 year savings of $16.5 billion from the 2008 bill baseline.

The savings were expected to come from several places, including spending for nutrition and conservation, but mainly for commodity programs, with much of the saving expected to come from the termination over 10 years of nearly $40.1 billion in annual direct payments. At the same time, the Act added a number of new safety net and crop insurance “shallow loss” programs. So, a key question is whether the legislation is likely to deliver on its promised savings.

Almost from the beginning, there were concerns about potential costs for the new main safety net programs, the price loss and risk coverage programs as well as the supplemental insurance coverage. This was because it was widely recognized that these programs depending on how crop prices shifted. The programs also were criticized on the basis that disproportionate amounts of the subsidies involved go to the wealthiest farm operators.

Now, that debate has intensified as the result of a report last week from the University of Missouri’s Food and Agriculture Policy Research Institute (FAPRI) that is attracting wide attention. It noted that the Act may cost much more than expected “because of the surprisingly strong interest in the new Agriculture Risk Coverage program.”

A major driver of the higher costs comes from popularity of ARC with corn and soybean growers, especially for the 2014, 2015 and 2016 crops. However, FAPRI acknowledged that is possible that ARC spending could decline for 2017 and 2018.

Also, FAPRI appears to be moving the goal posts. Rather than comparing performance to expectations raised during the farm bill debate, FAPRI now says that commodity subsidies and crop insurance indemnities will cost an average of $11.2 billion a year over the coming five-year period. And, it sort of approvingly notes that this is almost the same as during the period from 2004 to 2013 when the average cost of farm programs and crop insurance indemnities was $11.3 billion a year.

However, critics are pointing out that the CBO estimates when the bill was passed for costs of PLC and ARC during FY2014 to FY2023 were $13.1 billion and $14.1 billion, plus $1.7 billion for supplemental coverage — an annual average of under $3 billion, well below the $11 billion plus FAPRI now says it expects.

In addition, there are suggestions now that while the legislated cuts for nutrition and conservation spending likely will be pushed to expected levels, those for commodity programs likely will not — and, could even wipe out most or all of the saving expected from the bill.

Clearly, these new numbers are unlikely to please budget hawks who already were unhappy about the continued linkage among nutrition and commodity programs and the big subsidies included in the new commodity programs.

If these turn out to be substantially larger than previously expected — as now seems likely — that displeasure can be expected to intensify, Washington Insider believes.


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(GH/CZ)