Lugar, Lautenberg Introduce FRESH Amendment to Farm Bill Debate

On the floor of the U.S. Senate today, Senator Lugar introduced the FRESH amendment with Senator Frank Lautenberg. Senator Lugar's statement follows:

Let me commence by thanking our distinguished Chairman, Senator Harkin and our Ranking Member, Saxby Chambliss, for their leadership. It is not an easy task to be Chairman or Ranking Member of the Agriculture Committee during a Farm Bill. Having served in both positions I know well the challenges you have both faced in putting together a bill.

Let me point out, as I have during the debate in Committee, some achievements have occurred. Both the Chairman and Ranking Member have outlined a number of these in the areas of conservation, rural development, research, nutrition and energy. I am also pleased by the effort to provide interested farmers with a revenue based program that should be an improvement over the status quo. 

However, the Farm Bill we have before us does not provide meaningful reform.  Our current farm policies, sold to the American public as a safety-net, actually hurt the family farmer.  In the name of maintaining the family farm and preserving rural communities, today’s farm programs have benefited a select few while leaving the majority of farmers without support or a safety-net. 

The History

The genesis of our current farm policies began during the Great Depression as an effort to help alleviate poverty among farmers and rural communities.  At that time, one in four Americans lived on a farm and the rural economy’s vitality was largely dependent upon farmers.  Farm programs were instituted that stifled agricultural productivity in order to raise commodity prices through a federally administered supply and demand program.  Supply control programs cost U.S. taxpayers handsomely in higher food costs and job loss and now about half of the nation’s farmers are essentially prevented from growing other crops such as fruits and vegetables.  To date, this same antiquated idea is promoted even though farm income is higher on average than other industries.

The FRESH Amendment
The FRESH Amendment: A One Page Summary

Times have changed dramatically since then.  Today, one in 75 Americans lives on a farm and only one in every 750 lives on a full-time commercial farm. Furthermore, nearly 90 percent of total farm household income comes from off-farm sources.  In response to those ongoing changes, in 1996 Congress finally recognized that farmers, not the government, could best ascertain what crops are profitable, and granted roughly half of our farmers flexibility in planting choices and began to transition away from federally controlled agriculture programs. 

But in 2002, Congress and the Bush Administration reversed these reforms and created the so-called “three legged stool” which, in addition to other farm programs, has helped to place us in violation of our WTO commitments. The Senate Agriculture Committee Farm Bill before us today perpetuates and even expands these defective policies without regard for the fact that the majority of farmers do not have a safety-net.    

The Three Legged Stool

The first leg of the stool is direct payment subsidies to specific farmers who grow certain crops. Direct payments are fixed annual taxpayer funded subsidies that are based on a farm’s historic production and a federally set payment rate.  For the five major subsidized crops, the average payment rate is roughly $15 per acre for wheat, $24 per acre for corn, $33 per acre for cotton, $11 per acre for soybeans, and $94 per acre for rice.  These subsidies were originally called transition payments.  They were meant to be a temporary bridge from supply management based subsidies to free market based agriculture.  They were never intended to be a continuing entitlement. 

Direct payment policies are particularly irresponsible because the taxpayer funded subsidies go out to farmers regardless of whether cash is flowing in or out of their farms or whether they farm at all.  Although many subsidized farmers are projected to receive record crop prices and earn record farm incomes over the next five years, the Senate Farm Bill, as agreed to by the Senate Agriculture Committee, doles out up to $26 billion in direct payments from taxpayers, much of which will go to some of the largest and wealthiest farming operations in America.  In fact, over 50 percent of these subsidies will continue to go to farmers in just seven states for a grand total of over $13.1 billion.

Some may find these statistics surprising, but this is simply a continuation of business as usual when it comes to farm subsidies.  Keep in mind that in the years 2000-2005, the farm sector received $112 billion in taxpayer subsidies, but only 43 percent of all farms received payments. This is because the majority of the payments go to just five row crops—corn, soybeans, wheat, cotton and rice.  The largest 8 percent of these farms received 58 percent of the payments.  In fact, the top 1 percent of the highest earning farmers claimed 17 percent of the crop subsidy benefits between 2003 and 2005.

Smaller farms that qualify in the current system and that could benefit from additional support did not do as well.  Two-thirds of recipient farms received less than $10,000, accounting for only 7 percent of their gross cash farm income. Minority farmers fared even worse with only 8 percent of minority farmers even receiving federal farm subsidies. 

Furthermore, half of the federal crop subsidies paid between 2003 and 2005 went to only 19 congressional districts (out of 435).

Each one of these statistics illustrates that our direct payment system is inequitable and in conflict with claims you will hear on the Senate Floor that our current farm policies are a safety-net for the family farmer.

The second leg of the stool is “countercyclical payments,” or having the taxpayer pay farmers when prices fall below a congressionally set price.   The third leg is a marketing loan program that allows farmers to put their crop up as collateral to receive operating capitol.  However, provisions allow farmers to go ahead and sell the crop and re-pay the government at a lower rate, leaving taxpayers to make up the difference. 

Because these two programs do not appropriately correspond with market forces, they have the effect of creating artificial markets for crops, even when markets do not exist.  Yet neither program provides any help to farmers when they arguably need it most, during disasters such as drought.  Of greater concern, these programs have been ruled to violate our trade agreements, but this new Farm Bill actually increases target prices for at least five crops, loan rates for seven crops, and adds a number of new subsidized crops.

Trade

Some Senators may wonder why we should be concerned that we are in violation of our World Trade Organization (WTO) commitments.  They might think that this situation is simply limited to agriculture or specific crops with little impact on our overall economy.  Others might even suggest that we are better off building up more barriers to trade; that this Farm Bill is about American farmers not farmers in Brazil or elsewhere.  However, if Senators look further down the line they will see that our WTO violations could cost the United States billions in revenue, intellectual property, and lost trade opportunities.  Failure to move toward compliance will invite retaliatory tariffs that legally can be directed at any U.S. industry.

In fact, this is happening now.  Brazil will soon have the authority to retaliate in kind against U.S. products, whether they be agricultural products or intellectual property, due to our unwillingness to fix our farm policies.  It is unclear if Brazil will follow through with these threats, but what is clear is that the WTO has repeatedly found the U.S. Cotton Program to be in violation of our commitments.  As a result, a host of challenges to other agricultural commodities have ensued including a case brought forth by Brazil and Canada in November that targets all of our commodity programs. 

Upon the initial findings by the WTO, Congress did repeal some cotton related programs found to violate these agreements, namely the Step 2 program, which was a program that used taxpayer money to pay companies to use U.S. cotton. However, the Farm Bill we are currently considering makes virtually no attempt to bring the rest of the cotton program into compliance. 

The FRESH Amendment
The FRESH Amendment: A One Page Summary

The Administration earlier this year put forth a number of policy changes that they argue would have fixed our trade problems with the WTO, including a revenue based counter-cyclical program, marketing loans that respond to market prices, and eliminating planting restrictions for fruits and vegetables.  None of these proposals were incorporated into either the House of Representatives Farm Bill or the Farm Bill before us today.

In fact, this Farm Bill significantly increases the likelihood that other programs will be further challenged by the WTO.  Specifically, the WTO found that countercyclical payments and marketing loans are trade distorting and that direct payments, argued to be trade neutral, are a trade violation as long as planting restrictions are retained.  Astonishingly, the Farm Bill increases payments made under these trade distorting programs almost across the board, further exacerbating our trade situation. 

In the midst of all this, the U.S. Department of Agriculture’s Chief Economist projects that exports of agricultural products for this year are likely to reach $79 billion – nearly 30 percent of all farm cash receipts in 2007. Nearly 40 percent of soybeans, half of wheat, and over 90 percent of cotton produced in the U.S. this year will be exported. Clearly trade and our trading partners are important to American farmers now and will continue to be in the future.

U.S. action to comply with the WTO ruling against cotton subsidies, as well as U.S. policy regarding subsidies in general, will be closely monitored by the world’s exporters.  Should the WTO determine that other U.S. farm subsidy programs, as challenged by Brazil and Canada, do not comply with WTO rules, the potential for retaliation by other countries is immeasurable. 

Disaster

The Farm Bill before us today establishes a new permanent disaster trust fund at the Department of the Treasury to provide an additional $5 billion in spending for commodity crop farmers.  Our amendment does not touch this provision nor any of the other provisions related to the Finance Committee package.

Of this $5 billion, it is estimated that nearly half of the money will be given to farmers in counties designated as disaster counties by the President, and the other half will go to crop insurance companies as a subsidy to administer higher levels of crop insurance coverage.  The idea of a permanent disaster program may have merit, especially when you consider that Congress has passed legislation to fund ad hoc disaster payment assistance nearly every year for the last twenty years.  But we should ask ourselves, if the current expensive Farm Bill is failing to provide a safety-net to farmers when these devastating events do happen, then what is the purpose of the Farm Bill?  Why do we need a new program administered by a separate federal agency to fulfill what most Americans believe is the core purpose of the legislation before us?  We should fix the root problem, namely that the current subsidy system does not work and wastes taxpayer dollars. 

Farm Consolidation

If you are now a farm landowner in America, it is highly probable that your land will increase in value. Why? Because a landowning farmer or agriculture business can count upon receiving substantially more money through subsidies. As a result, you are able to leverage your land and crops to expand. 

If you are one of hundreds of thousands of farmers in this country who rent land as opposed to owning land, you face a very tough set of circumstances. Your rents are likely to go up each year as the value of the land goes up. Worse still, if you are a young farmer who hopes someday to own land, then your prospects diminish year by year.

As a result, there are young members of farm families who are hopeful that with the reduction or repeal of Federal estate taxes, that they might inherit the land. Other young people who are interested in farming are simply out of luck as it is too difficult to get into the business. So, as a result, it is predictable that the average age of farmers in this country will continue to increase, as it has been increasing in recent decades. Consider the fact that 6 percent of farmers are younger than 35, while 26 percent are over 65. 

Furthermore, elderly farmers who may be land rich but cash poor will be more inclined to sell their farms as their retirement “nest egg.”  The most likely buyer of that farm is an owner of a larger farm who is in a position to expand thanks to government subsidies.

In spite of all of the rhetoric and all of the attempts to talk about perpetuating the small family farm, or even the medium-sized farms, the facts are that consolidation is increasing, and this bill will perpetuate this cycle.

I want to emphasize this point because it reflects the inequity of this entire bill.  Our farm policies transfer a great deal of money from ordinary taxpayers to a few farmers.  If this transfer from the many to the few produced a stable farm economy with prospects for greater trade success, perhaps one could argue that this approach is more justified. Further, these policies could be justified if they truly did support the lower to middle class farmer and reduced the number of farm consolidations.  I am arguing that our policies promote the exact opposite.

The FRESH Act Solution

For all of these reasons, Senator Frank Lautenberg and I, along with Senators Hatch, Reed, Menendez, Cardin, Collins, Domenici, McCain, and Whitehouse, are introducing an amendment today that would provide a true safety-net for all farmers, regardless of what they grow or where they live.   For the first time, each farmer would receive – at no cost to them – either expanded county-based crop insurance policies that would cover 85 percent of expected crop revenue, or 80 percent of a farm’s five year average adjusted gross revenue.   These subsidized insurance tools already exist, but our reforms would make them more effective and universally used, while controlling administrative costs.  Farmers would also be able to purchase insurance to cover the remainder of their revenue and yields. 

The 85 percent county level policy simply looks at the expected revenue annually in each county in the U.S. for crops like corn, soybeans, wheat, cotton, and rice but can be expanded under this bill to any commodity so long as adequate market information is available to satisfy actuarial concerns.  The USDA uses prices from the futures market in late February and multiplies them by past county average crop yields collected by the National Agricultural Statistics Service, which keeps detailed data on virtually every agricultural product produced in the United States. This creates a target price that adjusts either up or down each year to market conditions and yield trends.  Farmers would receive a safety-net payment when the actual county revenue for a crop they are growing falls below 85 percent of the target revenue.  This program ensures that the only incentive to grow a crop is the market, not federally set prices under the farm policies before the Senate today.

The FRESH Amendment
The FRESH Amendment: A One Page Summary

For example, in Marion County, Indiana, where my farm is located, expected yields for corn in 2006 were 146 bushels an acre; the future price for corn in late February 2006 was $2.59 a bushel. So, target revenue for corn was $378 an acre. After the harvest, USDA found that actual corn yields in Marion County were 140 bushels an acre and that harvest prices were $3.03 a bushel, producing average revenue of $424 an acre. Actual revenue exceeded target revenue so that no additional subsidies were paid to corn farmers in Marion County in 2006.

By contrast, corn farmers in Baca County, Colorado experienced poor weather.  Expected yields were 161 bushels an acre and the future price for corn was $2.59 a bushel, so expected revenue was $418 an acre.  After the harvest, USDA found that actual yields were much lower at 116 bushels an acre and even though the harvest prices of $3.03 a bushel were higher than expected, the actual average revenue was $350 an acre. Since actual revenue was 83 percent of target revenue, corn farmers in Baca County would have received $5.30 per acre under the safety net, or the difference between actual revenue in that county and the 85 percent guarantee.

The other choice would allow farmers to protect against adverse change in their own historic average revenues.  This program looks at the whole farm, recognizing the same risks exist for an apple orchard as the soybean field on the same farm.  A farm’s five year average adjusted revenue is calculated using annual tax forms.  The adjusted revenue is essentially a farm’s overall revenue minus expenses as indicated on their tax forms.  When a farm's adjusted revenue falls below 80 percent of that five year average, a safety-net payment makes up the difference.  This program is currently operating as a pilot program in a number of states but has been limited to the amount of revenue that can be covered for some agricultural products such as livestock and forest products.  Our bill expands the program nation wide and allows the USDA to include more agricultural products.  It also requires the USDA to minimize double payments under situations where farmers may also have products covered by remaining farm support programs, namely the sugar program and the Milk Income Loss Program.
    
In addition, this bill creates optional Risk Management Accounts that would be available to every farmer and rancher and would work in concert with crop and revenue insurance.   Producers who are eligible for Direct Payments would receive transition payments, phased out over the next five years, which would be deposited into their accounts. They would then be eligible to withdraw from their available balance to supplement their income in years when their gross revenue falls below 95 percent of their rolling 5-year average gross revenue.  They could invest in a rural enterprise, purchase additional revenue or crop insurance, or upon retirement, utilize it as a farmer retirement account.  These accounts provide farmers who are generally asset rich and cash poor greater incentive to save for the future, and will help maintain family farms by providing retirement benefits without forcing a liquidation of farm assets.

New Investments

The FRESH Act amendment is important because savings from these reforms will allow us to provide an additional $6.1 billion more than the underlying bill in new investments to assist farmers with conservation practices, encourage rural development, develop renewable energy, expand access to healthy foods for children and consumers, and assist more hungry Americans. 

Conservation

Our amendment provides an additional $1 billion for important environmental and conservation programs.  I am pleased that we were able to expand and improve USDA’s voluntary conservation incentives programs, which provide financial and technical assistance to farmers, ranchers and forest landowners who offer to take steps to prevent soil erosion and improve water quality, air quality and wildlife habitat. 

Since 2003, roughly two-thirds of farmers seeking assistance through USDA conservation programs have been rejected due to insufficient funding.  Most of these conservation programs are cost-share programs.  That means that farmers are offering to put their own money into environmental improvements from which the public benefits.  We are missing an opportunity to utilize private dollars to produce environmental benefits such as cleaner water and cleaner air when we underfund cost-share conservation programs.

One of the most popular of these programs, the Environmental Quality Incentives Program (EQIP), has had an application backlog that has averaged $1.6 billion a year over the past four years.  Yet the Farm Bill before us provides no increase in funding for this popular conservation program. 

The current Farm Bill also provides no increase in funding for the Farmland Protection Program.  This program is critical because in many areas our working farms and ranches are under tremendous development pressures.  From 1992-1997, this country lost more than six million acres of agricultural land – an area the size of Maryland – to development.  And yet this bill doesn’t provide the funding needed to assist state and local governments and private land trusts in the important work they do to conserve our nation’s farmland.

Increasing funding for the Farm Bill’s conservation programs also provides another way to make our farm policies more equitable.  All producers can be eligible to participate in conservation programs, regardless of what they grow or where they grow it.  By contrast, only producers of a handful of commodity crops can participate in commodity programs.

Rural Development

While discussion of commodity policy dominates much of the Farm Bill debate and discretionary funding, production agriculture remains a comparatively small and shrinking part of the rural economy. 

Farm employment has fallen from just over 14 percent of total employment in 1969 to 6 percent in 2005.  The number of counties with farm employment accounting for 20 percent or more of total employment has shrunk dramatically from 1,148 in 1969 to 348 in 2005.  Furthermore, only one in 75 Americans lives on a farm today, and nearly 90 percent of total farm household income comes from off-farm sources. 

Despite this fundamental shift, the 2002 Farm Bill committed 69 percent of total spending to commodity payments, plus another 13 percent to conservation payments.  In all, four-fifths of total funding went to a select few farmers, while only 0.7 percent went to rural development initiatives aimed at boosting rural economies. 

We now have evidence which suggests that direct payments to farmers have little positive impact on rural economies.  A recent study revealed that most payment-dependent counties did not even match the national average in terms of job growth from 1992 to 2002.  In fact, many experienced losses during that time. 

Furthermore, most of these payment-dependent counties experienced population losses during that same ten year period.  Such job and population loss figures suggest that our current system of support for rural communities, which relies on subsidies like direct payments, does not work. 

Energy

I am also pleased that the amendment we are offering expands agricultural markets and decreases oil dependency by dramatically increasing research and development efforts for cellulosic ethanol and other renewable fuels, and expanding clean renewable energy opportunities to all of our rural areas.  This is an area of considerable interest to the Chairman who has been a stalwart supporter.

Today’s growth in ethanol production is creating jobs and bringing new sources of revenue into our communities.  Because of our energy demands, we are witness to a palpable sense of optimism in rural communities for economic growth in areas that have stagnated under the current Farm Bill.  Failure to give clear and strong government commitment in the Farm Bill to developing biofuels from diverse feedstocks has unnecessarily confined new markets to Midwestern states rich in corn.  Spreading the economic benefits of biofuels production nation-wide will require breakthroughs in technologies and agricultural techniques to make more fuels from farm, municipal, and industrial wastes available from coast to coast.  Strong support in the Farm Bill will help galvanize private investment and bring jobs across the country.

Yet the opportunity before us involves more than economic growth.  Dramatic advancements in biofuels will help build a more secure and self-reliant America by reducing our dependence on foreign oil.  Global competition for oil continues to grow as demand soars and oil-rich states tighten their control over supplies. Already, we have witnessed Russia cut its exports to selected countries for political gain, and the governments of Iran and Venezuela have threatened to do the same. Each year, Americans spend hundreds of billions of dollars to import oil. Some of that money enriches authoritarian governments that suppress their own people and work against the United States. Meanwhile, oil infrastructure is being targeted by terrorists. In today’s tight oil market even a small disruption in oil supplies could cause shortages and send prices much higher than the $90-plus per barrel prices Americans have paid in recent weeks. 

Biofuels will not make America completely independent of energy imports, but they can strengthen our leverage over oil-rich regimes hostile to the United States, give greater freedom to our policy options in the Middle East, help protect our economy, and foster rural development.

Reaping the economic and energy security benefits of biofuels and other rural, renewable energy requires breakthroughs in research and incentives for infrastructure development.  Our amendment provides an additional one half billion to transform renewable energy’s opportunity into reality.

Nutrition

During the mark-up in the Agriculture Committee, I offered an amendment to increase nutrition funding in the Farm Bill by about $1.6 billion through cuts to direct payments.  Unfortunately, my amendment was defeated 17-4.  However, the amendment sparked constructive, bi-partisan debate on the importance of strong funding for the nutrition programs that provide a safety-net for people across our country who are on the cusp of poverty.  I am thankful to Senators Harkin and Chambliss for taking that discussion seriously, and as a result, using the savings generated from a Committee change to the underlying bill to provide additional funding for the nutrition title of this Farm Bill.

But even as I applaud the efforts of Agriculture Committee members for their attention to nutrition programs, I have serious concerns that the nutrition program in this bill is essentially only authorized for five years.   At the end of the five years, funding for nutrition programs drop dramatically.  In 2012, we would then be faced with having to manipulate the budget to find additional funding for these programs or vulnerable Americans would lose this much needed assistance.  This is because the Agriculture bill before us is “front-loading” spending during the first five years and then virtually zeroing out nutrition spending for years six through ten so that the bill will come out budget neutral, on paper, but will cost taxpayers handsomely in reality.  This is just one of many budgetary tricks performed so that the scoring works out favorably without regard to the practical application of such maneuvers.

In our amendment, nutrition programs would not end.  In fact, we increase funding for these important programs by $2 billion over the underlying Farm Bill and make these funding increases permanent.  We cannot and should not build a safety-net with holes.

Budget Discipline

This leads me to another benefit of our reform proposal.  Our amendment provides critical funding for each of these priorities and yet pays for itself from the existing agricultural budget passed by Congress without employing deceptive budgetary maneuvers.  In fact, our bill will save taxpayers $4 billion.  

Unfortunately, this is not the case with the underlying bill and if you take a thorough look, you realize just how precarious that bill’s budget situation truly is.  In fact, the Bush Administration’s Statement of Administrative Policy highlighted a number of budget gimmicks used to make the Farm Bill pay-go compliant, at least on paper.    

The FRESH Act amendment is fully paid for, fiscally responsible and provides a framework for growth for farmers and rural communities.  Furthermore, the long-term budgetary savings from our proposal will allow for us to make considerable investments in key priority areas.

Choices and Priorities

There is an inappropriate political assumption that agriculture policy is impenetrable for consumers, taxpayers, the poor, and the vast majority of Americans who are being asked to pay for subsidies, while getting little in return.  Even if only a small number of farmers in a state raise a program crop or one of the protected specialty crops like milk, sugar, or peanuts, their focused advocacy somehow has more political influence than the broader well-being of consumers and taxpayers.  In short, those who benefit from current agriculture programs are virtually the only participants in the debate.

This fact is probably best illustrated by the fact that one of the most contentious debates on this bill has been whether farmers with income of over $1 million, after farm expenses have been paid, should continue to receive subsidies. I have even seen media reports that indicate that if a payment limitation amendment were passed, the Farm Bill could be filibustered.  Keep in mind that the median household income for Americans for 2006 was $48,200 and the average income of a Food Stamp recipient is less than $10,000.

There is also an ongoing reluctance to consider change.  Members will say, “Farming is conservative by nature. You can’t demand too much change.”  In 2002, I offered a similar type of reform proposal and opponents argued that the proposal was “too new, too radical, and required too much change.” 

You will hear that same baseless argument today.  When is the time for reform?  When will we fix this broken system?  When will we act on the clear evidence before us?

As Senators, we clearly must understand our responsibility. Whether we understand all the complexities of our current farm programs, we know where the money goes. The bulk of the money in the underlying Farm Bill goes to a very few farmers--a very few. That has been clear throughout. This is not a great humanitarian effort.  This does not save the family farmer, the low-income farmer, or even the middle-income farmer.

This bill is about making choices.  And it is incredible to me that with all of the budgetary pressures that we are facing to fund critical needs such as providing better health insurance coverage for Americans, protecting Social Security and pension savings, improving education, increasing border security, and providing our men and women in the Armed Forces with appropriate pay and equipment that we would consider a bill which enriches so few individuals.

I believe that this year’s Farm Bill debate is a good time to begin changing these dynamics. 

This year an unconventional alliance of conservation, humanitarian, business and taxpayer advocate groups has entered the fray with success in framing the issue and building support for the FRESH Act. They represent the broadest ever political support for change.

Newspapers in at least 41 states have written editorials in support of changing our farm programs to a fair, trade compliant and fiscally responsible system. I have distributed these articles to my colleagues.

Perhaps more importantly, there has never been a better time for farmers to change.  Thanks to strong foreign and domestic demand for energy crops, net farm income is forecast to be $87 billion, up $28 billion from 2006 and $30 billion above the average for the previous ten years and setting a new record for new farm income.

As a result, average farm household income is projected to be almost $87,000 in 2007, up 8 percent from 2006, 15 percent above the five-year average between 2002 and 2006, and well above median U.S. household income. Farm revenue may be high today, but this will not always be the case.  It is critical that we have an appropriate safety-net in place to assist these farmers during times of need.

Agriculture policy is too important for rural America and the economic and budgetary health of our country to continue the current misguided path.  Our amendment provides a much more equitable approach, produces higher net farm income for farmers, increases farm exports, avoids stimulating over-production, and gives more emphasis to environmental, nutritional, energy security and research concerns.  More importantly, this proposal will protect the family farmer through a strong safety-net and encourage rural development in a fiscally responsible and trade compliant manner.