House set to begin on farm billLaura
|House set to begin on farm bill
By: David Rogers
June 16, 2013 10:57 PM EDT
|The House opens debate Tuesday on a new five-year farm bill with Republicans encouraged by their vote count but faced with continued infighting among commodity groups over the shape of future subsidies.To the surprise of many, the powerful corn and soybean lobbies are backing a Midwest floor challenge to the new price-loss program crafted by the House Agriculture Committee, which is already struggling to win what’s expected to be a close vote on final passage.Adding salt to the wound was Friday’s release of a paid-for academic paper commissioned by the Environmental Working Group but also rooted in the Midwest and highly critical of the same price-loss program — most important to Southern producers.
EWG and the National Corn Growers Association laughed off any suggestion that they were operating in tandem. But the one-two punch infuriated aides to Agriculture Chairman Frank Lucas (R-Okla.).
More broadly, it highlights two features of this farm bill cycle: a destructive South-Midwest divide among Republicans and the outsize impact of a small stable of academics hired to punch holes in the current system.
Corn and soybeans are plainly hoping to increase their leverage going into conference with the Senate. But in doing so, they could make it harder for Lucas to get there in the first place.
In a letter last Thursday to House members, the two lobbies boasted that as much as $10 billion could be saved by effectively gutting the proposed price-loss program. Toward this end, they are backing a floor amendment filed Friday by Reps. Bob Gibbs (R-Ohio) and Ron Kind (D-Wis.) that changes how the target prices are set and what acreage will be used to calculate payments if markets collapse.
Left out of the corn and beans letter is any mention of the fact that the same two commodities stand to gain richly from a far more expensive “shallow-loss” subsidy program in the Senate bill. With much of agriculture holding hands just to get across the House floor, the hardball tactics are risky.
“They have every right to do this, but it is clearly not constructive,” Randy Russell, a veteran agriculture lobbyist, told POLITICO. “Many in the ag industry — including ourselves — are working very hard trying to get sufficient votes to pass the bill on the House floor. They are focused on an issue which fractures the coalition.”
Indeed, the stakes for farm groups are huge this week after being kicked to the curb by the Republican leadership for much of the past year.
Floor amendments must be filed by Monday afternoon with the House Rules Committee, which will meet Monday and Tuesday to deal with the giant 629-page bill. Monday’s meeting is to lay the groundwork for general debate the next day. Tuesday will dictate the amendment process and what promises to be a series of knockdown fights Wednesday and Thursday.
Rep. Collin Peterson (D-Minn.), who will manage the bill with Lucas, sounded upbeat Saturday. “In the end, I think we will be fine,” he told POLITICO. But if the farm bill collapses, it’s very unlikely that Congress will again approve a broad extension of current law as it did last winter.
Crop insurance and nutrition programs would survive because of separate authorizations. But there’s broad consensus that commodity programs could be lost given the appetite for spending reductions.
Mindful of this, the House bill promises an estimated $39.7 billion in 10-year savings through cuts from food stamps and farm programs. Like the Senate, it does away with direct cash payments, which have been the mainstay of the commodity title since 1996. And the fight now is over how to reinvest some of those dollars in a revised safety net.
Lucas and Peterson lean heavily toward the old model of promising farmers some marginal help if markets fall below set target prices.
These targets, or so-called reference prices, have been substantially upgraded to reflect the boom of recent years. They are sure to be scaled back in talks with the Senate but invite criticism that any savings will disappear quickly if markets fall.
The EWG paper Friday seeks to make this point and projects that a 15 percent price drop in all commodities will lead to big cost overruns. The report fueled an alarm-sounding press release from the Washington-based nonprofit, saying the House bill could cost nearly $20 billion more over the next 10 years than the “discredited” system it is meant to replace.
“Income Support Proposal in House Farm Bill Is Far More Generous than Current Law,” reads the headline. “Even modest drops in prices will generate billions in subsidy payments,” said Craig Cox, EWG’s senior vice president for agriculture and natural resources.
The paper’s author, Nicholas Paulson, is an assistant professor at the University of Illinois whose training was at Iowa State University with economist Bruce Babcock, a regular contributor of similar EWG reports. Babcock also writes for the American Enterprise Institute, which enjoys a substantial endowment from a California foundation to fund such research. Highly quotable, he has become something of a media star, appearing on Stephen Colbert’s show last summer and famously agreeing with his host’s quip that crop insurance is “Obamacare for corn.”
At one level, these EWG and AEI papers provide a well of new data and are designed to be provocative so as to encourage lawmakers and the press to take a second look at the cost of farm programs. But as their influence has grown, critics argue that it has become a cottage industry and too often the hired-professors overstate at the expense of their academic discipline.
Paulson’s paper illustrates some of the perils. His 15 percent drop is from a baseline for crop prices that runs below the Congressional Budget Office’s numbers for corn and wheat. When compared with current markets, the disparity grows. So much, in fact, that the seemingly modest 15 percent price drop could be more than double what it appears.
For example, Paulson’s baseline assumes a $5.40 per bushel price of wheat in 2014. That compares with $5.84 per bushel in CBO’s baseline. And a June government report predicted wheat prices will range between $6.25 and $7.55 per bushel.
The pattern repeats itself in the case of corn. Paulson’s baseline for 2014 is $4.10 per bushel. That’s 8 percent less than CBO’s number and compares with government projections of corn prices between $4.40 to $5.20 per bushel.
Paulson would argue that over time, these discrepancies narrow. But what gets lost in the discussion is how much these cost estimates are really a function of probability statistics.
CBO, for example, uses a technique known as “stochastic scoring” under which an expected or average crop price is set and then the likely distribution of prices around that mean is used to estimate costs. Those estimates take into account low probability events but also assign each a weight according to the likelihood of them occurring.
“There is nothing wrong with picking a low price and estimating a cost. It is a good way to scare people,” said one veteran agriculture economist of the EWG report. “But it is not an expected value. It is a low probability event that does not take into account the counterbalancing effect of high price, equally low probability events.”
Paulson was candid on this point when questioned by POLITICO. He said there is a less than “one-in-four” chance that corn prices will drop to a level where the new House program will cost taxpayers more than direct payments to those producers. And since his baseline consistently shows corn prices above the $3.70 per bushel target price in the House bill, Paulson said there is a better than 50 percent chance that the price-loss program will cost “zero dollars” when it comes to corn.
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