As U.S. House takes up farm bill, groups warn of hidden costs

Reuters News
Posted: Jun 14, 2013 3:05 PM
As U.S. House takes up farm bill, groups warn of hidden costs

By Charles Abbott

WASHINGTON (Reuters) - As the U.S. House of Representatives gets ready to debate a $500 billion, five-year farm bill, environmentalists and fiscal hawks warn the legislation could leave taxpayers on the hook for expensive new subsidies to growers if crop prices fall.

House Speaker John Boehner this week said he would vote for the bill, despite misgivings over dairy subsidies, and that a majority of House Republicans would support the bill.

Boehner's comments were a signal the farm bill, eight months overdue, will pass the House despite vocal opposition. On Friday, House Majority Leader Eric Cantor set debate and vote for next week.

"There is pretty strong confidence that there will be a new farm law this year," Gary Blumenthal, head of the consulting group World Perspectives, told the Reuters Global Ags Forum on Friday. "It is too large to keep kicking down the road."

Critics say the House bill, and the Senate version passed on Monday, would send subsidies up sharply if the six-year-old U.S. agricultural boom peters out and market prices fall. The House has fewer safeguards against high taxpayer costs, they said.

In a report, the Environmental Working Group said the bill would trigger up to $6.9 billion a year in crop subsidies if market prices were as little as 15 percent lower than expected.

Outlays would be 40 percent higher than under current programs, said the report, written by EWG by Nick Paulson, an agricultural economist at the University of Illinois. Costs could explode because the bill sets crop support rates too high.

Growers could plant more wheat and cotton as a way to maximize their subsidy payments if market prices fall.

It was the second warning in two days of potential high costs sown into the price guarantees of the House bill.

Crop subsidies "would balloon to as much as $18 billion or more annually" if market prices revert to their pre-boom levels, said agricultural economist Vincent Smith of Montana State University, writing for the American Enterprise Institute, a think tank. Corn and soybean prices have doubled since 2006.

"The data demonstrate the House bill ... is essentially a bait and switch proposal," said Smith. Like the Senate, it replaces the $5 billion-a-year "direct payment" - a target for reformers - with more generous programs, he said.

Still, crop subsidies, often the centerpiece of farm bills, have become secondary to the looming fight over food stamps. The Senate bill could cut them by $4 billion, mostly by tightening rules in one area, while the House would deny eligibility to an estimated 2 million people and save $20 billion over a decade.

"I've got concerns," Boehner said of the farm bill. "But doing nothing means that we get no changes in the farm program, no changes in the nutrition program and as a result, I'm going to vote for the farm bill."

The bill died in the House last year amid election-year gridlock. More than half of House Democrats signed a resolution this year opposing any cuts in food stamps, and some Republicans wants deeper cuts throughout the bill. Still, Boehner said, "I expect we'll have a majority of Republicans voting for the farm bill."

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In his report, Paulson said the House bill sets the "target price" for the major crops - corn, wheat, soybeans, rice, cotton and peanuts - so high that a relatively minor decline in prices will trigger a payment.

For example, growers would be assured of $5.50 a bushel of wheat compared with the projected five-year average to $5.71 a bushel. Wheat sold for $6.81 a bushel in Chicago on Friday, well above the farm bill target, but as recently as 2009/10 the season average U.S. price was $4.87.

The farm bill target for peanuts is 27 cents per pound, 2 cents above the projected market price. Its cotton target is 68.61 cents per pound, just below the forecast average of 70 cents. Corn, soybeans and rice had more leeway between the guarantees and likely market prices.

(Reporting by Charles Abbott, additional reporting by Richard Cowan and David Lawder; Editing by Ros Krasny and Marguerita Choy)