Congress returned to session this week with the Farm Bill top of mind and high on its agenda. Thus far in 2013, the series of financial crises that have warranted the attention of Congress and the administration - sequestration, continuing appropriations for FY 2013, the debt ceiling - have pushed back until now the Agriculture Committees’ consideration of the Farm Bill. The Senate Agriculture Committee announced today that it will conduct markup of its bill on Tuesday, May 14, and the House Agriculture Committee has scheduled its markup for May 15. Senate Majority Leader Harry Reid (D-NV) has stated publicly that the Senate will conduct debate and votes on the Farm Bill in May and House Majority Leader Eric Cantor (R-VA) said on Friday that the Farm Bill will be brought to the floor sometime during the summer.

The end of the 112th Congress was a tumultuous time for the Farm Bill. The 2008 bill expired on September 30, 2012, without extension or reauthorization. Despite its expiration, the lights did not go out at USDA and most programs continued due to funding that went beyond September 30. However, many feared severe disruption to the industry if Congress did not act by January 1, 2013, at which time funding for the Milk Income Loss Contract (MILC) program would end.

Prompted to act before the start of the new year to avoid the so-called “dairy cliff,” House and Senate Agriculture Committee leaders submitted to leadership in both chambers a template for including Farm Bill reauthorization in the deal being struck to avoid the “fiscal cliff” - the fiscal crisis created by the simultaneous expiration of the Bush-era tax cuts and across-the board cuts to the federal budget known as “sequestration.” When that deal passed on January 2, 2013, it included a one-year (actually, just until the end of FY2013) extension of the 2008 Farm Bill programs that expired on September 30, 2012. The extension did not include programs whose funding had expired prior to that date.

So, the 113th Congress began with the same Farm Bill challenges facing them as when the 112th ended. The most contentious policy items are dairy, the farm safety net, and cuts to the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. In addition, there are challenges relating to animal welfare, the level of savings each bill will achieve, and potential cuts to crop insurance. None of these issues have been ironed out completely, although there have been some altered proposals from key legislators and farm organizations.

Dairy

The new dairy provisions, nearly identical in both the House and Senate bills, would usher in new margin-protection programs to replace current price-protection programs. The proposed bills would establish the Dairy Producer Margin Protection Program (DPMPP) to replace the MILC program, the Dairy Product Price Support Program and the Dairy Export Incentive Program. It would also create the Dairy Market Stabilization Program (DMSP), a voluntary program that would set a production threshold which, once triggered, would withhold payments to producers for a portion of the milk they ship that is above their individual production base. The latter is sometimes referred to as supply management.

These new programs stem from the Dairy Security Act, authored by House Agriculture Committee Ranking Member Collin Peterson (D-MN), and backed by the National Milk Producers Federation (National Milk). Its provisions were included in both the House and Senate Farm Bills and were likely a key reason the Farm Bill was not reauthorized last year. No small factor is the opposition that House Speaker John Boehner (R-OH) has repeatedly verbalized - he refers to the market stabilization portion as “Soviet-style.” The International Dairy Foods Association - the primary opponent of the market stabilization provision - and National Milk have shown no signs of wavering from their respective stances and we are likely to see the same provisions in the bills released by the House and Senate in the coming days.

In the Senate, Sen. Kirsten Gillibrand (D-NY) proposed legislation exempting certain producers from the DSMP, but it does not appear to have gained traction as a compromise measure. It is unknown whether she will offer her proposal as a compromise amendment during Senate committee markup.

Reps. Bob Goodlatte (R-VA) and David Scott (D-GA) introduced an amendment in the House, with the strong backing of the International Dairy Food Association (IDFA) which would repeal only the DMSP from the new programs. The vote failed during committee markup in 2012, but the two sponsors have announced their intention to reintroduce the amendment during markup on May 15. Although it is likely to fail, it highlights a key barrier to consensus - and perhaps passage - on this key portion of the bill.

Farm Safety Net

Both the House and Senate bills would eliminate direct payments and use the savings to bolster crop insurance. The Senate bill did away with counter-cyclical payments and the Average Crop Revenue Election (ACRE) program. In their place, it established the Supplemental Coverage Option (SCO) and the Agriculture Risk Coverage (ARC) program, margin protection programs that would provide “shallow loss coverage” to producers, in addition to their crop insurance coverage, up to a maximum of 89% of the producer’s risk.

The House bill, on the other hand, gives the producer a choice between new programs called Revenue Loss Coverage (RLC), a modified version of the revenue-based SCO, or Price Loss Coverage (PLC), price-based coverage which uses target rates to determine payment levels. House Agriculture Committee Chairman Frank Lucas (R-OK) has stated that his Committee’s farm safety net provisions will remain intact.

The ascension of Sen. Thad Cochran (R-MS), a southerner, to Ranking Member of the Senate Agriculture Committee, replacing Sen. Pat Roberts (R-KS), a Midwesterner, is an indication that change may come to the farm safety net provisions proposed in the Senate bill. Complaints against the provisions were that the new policies - the ARC and SCO, especially - accompanied by the elimination of direct payments, benefited Midwestern producers to the detriment than southern producers. Generally, southern agriculture supports direct payments because their value is greater to southern farmers, because of the crops they grow, than they are to Midwestern farmers. Southern farmers preferred the proposal by Chairman Lucas, where target payments were kept as the benchmark for payments to producers, effectively maintaining the counter-cyclical payment the Senate eradicated. The Senate bill may reflect changes to its farm safety net provisions, likely prompted by Sen. Cochran, that more closely resemble those in the House bill.

Some farm organizations - notably, the American Soybean Association (ASA) and the American Farm Bureau Federation - have adjusted their positions on the farm safety net from last year. ASA, previously a supporter of the “shallow loss coverage” proposal, announced that it would support updating and extending the current Counter-Cyclical Program and continue to support the SCO as a complement to federal crop insurance. The Farm Bureau, which previously supported catastrophic loss coverage over shallow loss coverage, now supports protection against smaller revenue losses, including a stacked income protection program, bolstered crop insurance, and counter-cyclical payments and marketing loans. Both organizations support eradicating direct payments.

Most stakeholders and lawmakers continue to support crop insurance, however. While some have argued that federal crop insurance subsidies drive up the cost of the program, most attacks to the increase in crop insurance expenditures - which have increased as a result of the record payout following last year’s devastating drought - have been successfully fended off by producers and their lawmakers strongly emphasizing its importance. Lawmakers are also debating whether to tie crop insurance subsidies to compliance with conservation programs, a concept the Senate Farm Bill included but the House bill did not.

During last year’s Farm Bill consideration, Sen. Tom Coburn (R-OK) introduced an amendment during floor debate to reduce by 15 percentage points the level of federal premium support for producers with an Adjusted Gross Income (AGI) over $750,000 for all buy-up policies beyond catastrophic coverage. This amendment passed and is likely to be included in the base text of this year’s bill, in order to provide cover against further changes to the crop insurance program.

Remaining Challenges

In addition to those key challenges for the 2013 Farm Bill, the amount of money with which to write the legislation has decreased from last year. Earlier this year, the Congressional Budget Office (CBO) released a report that projected less savings from the proposed Farm Bill proposals than was projected last year. Whereas the House and Senate Agriculture Committees’ 2012 proposals were expected to save $35.1 billion and $23.1 billion, respectively, the CBO report reduced those numbers to $26.6 billion and $13.1 billion.

The CBO report also calculated that the new farm safety net programs would cost more. The report said the Senate’s ARC program would cost more due to higher commodity prices and the resulting upward pressure on revenue guarantees, and that costs for the House version of the SCO would be increased due to favorable enrollment terms for producers. Chairman Lucas has stated that his Committee’s 2013 proposal would save $38 billion, $20 billion of which would come from cuts to the SNAP program and the rest coming mainly from the farm safety net and conservation provisions. It is unknown how much the new Senate bill is projected to save.

Finally, the controversial agreement reached between the Humane Society of the United States (HSUS) and the United Egg Producers (UEP) on altering the standards for raising egg-laying chickens - including enlarging their cages - may come up again in the form of an amendment during the Committee markup of floor debate. Last year, Sen. Dianne Feinstein (D-CA) introduced an amendment during floor consideration which would have codified the HSUS-UEP agreement, although it failed. She may introduce a similar amendment this year. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI), who had been considering introducing an amendment during Committee markup, stated recently that she would not, a likely response to pressure from stakeholder organizations such as the National Pork Producers Council and the National Cattlemen’s Beef Association, who say that such an amendment would set a bad precedent for their respective industries.

Although a litany of challenges faces lawmakers on the Farm Bill, there is a palpable desire to see the legislation reauthorized this year. There is speculation that Congress may punt again and simply extend it for another year, given its propensity to take such action on important legislation. But there are plenty of people on Capitol Hill and elsewhere who would like to avoid this, not least of whom include the leadership of the House and Senate Agriculture Committees. Even Speaker Boehner and Majority Leader Reid have expressed a desire to reauthorize the Farm Bill.

Importantly, key staff and legislators say that the focus this time around will be less on policy, which has largely been worked out, and more on working to secure the votes to pass the legislation. This may involve conceding on certain areas - SNAP cuts and dairy policy come to mind - in order for the legislation to pass in two very different chambers that are controlled by opposing political parties with vastly different ideologies on such legislation. The next few weeks will be very telling for American agriculture.