Farm Bill Budget and Costs: 2002 vs. 2007

Order Code RS22694 Updated January 29, 2008 Farm Bill Budget and Costs: 2002 vs. 2007 Ralph M. Chite Specialist in Agricultural Policy Resources, Science, and Industry Division Summary Since many provisions of the current omnibus farm bill (P.L. 107-171, the Farm Security and Rural Investment Act of 2002) expire soon, the 110th Congress is in the process of considering a new farm bill. Unlike the 2002 farm bill, which was crafted at a time of large budget surpluses, the current farm bill debate is being driven in part by relatively large budget deficits and growing demands for fiscal constraint. Questions frequently asked about farm bill spending are: What is the estimated cost of the expiring 2002 farm bill? How much more or less has actually been spent on the 2002 farm bill than what was estimated at the time of enactment? What is the estimated cost of the House- and Senate-passed versions of the 2007 farm bill (H.R. 2419)? This report answers these questions in terms of the actual expenditures on current major farm bill programs, and projections of the Congressional Budget Office (CBO) for spending under current law and in the House- and Senate-passed 2007 farm bills. The Cost of the 2002 Farm Bill The total six-year (FY2002-FY2007) cost of the major provisions of the 2002 farm bill was $270.2 billion, or an average of $45.0 billion per year. Of this amount, $178.2 billion, or nearly two-thirds, was for the food stamp program, while $92.1 billion was for the three major categories of farm support: farm commodity programs, conservation, and trade. (See Table 1.) All of these programs are defined as mandatory spending, which means that eligibility is determined by their authorizing statute (the 2002 farm bill), and any person or business that meets the eligibility requirements is entitled to the benefits authorized by the law.1 1 Mandatory farm bill spending for research, rural development, and energy are relatively small and are not included in this report. The farm bill also authorizes appropriations for many U.S. Department of Agriculture (USDA) discretionary programs. Spending for these programs is ultimately determined in annual appropriations bills, not by the farm bill, and is not part of this analysis. CRS-2 Table 1. Actual Cost of Major Provisions of the 2002 Farm Bill (outlays in million $) Farm Subtotal, Grand Total, Commodity Farm Food Farm Support Programs Conservation Exports Support Stamps and Food Stamps FY2002 13,164 2,286 416 15,866 22,069 37,935 FY2003 12,125 2,758 503 15,386 25,325 40,711 FY2004 8,021 2,729 13 10,763 28,621 39,384 FY2005 14,120 3,443 223 17,786 32,614 50,400 FY2006 16,903 3,420 231 20,554 34,620 55,174 FY2007 8,027 3,475 219 11,721 34,885 46,606 Total, 6-yr cost 72,360 18,111 1,605 92,076 178,134 270,210 Annual Average 12,060 3,019 268 15,346 29,689 45,035 Source: Compiled by CRS, using actual spending data from USDA and CBO for FY2002-FY2007. Of the six-year spending of $92.1 billion for total farm support (commodities, conservation, and trade), $72.4 billion (79%) was for the farm commodity programs. The commodity programs support the incomes of farmers producing grains, oilseeds, cotton, peanuts, sugar, and milk. Commodity-related spending depends substantially on farm market prices and so can vary widely from year to year. Although farm commodity spending has averaged $12.1 billion per year since FY2002, actual annual spending ranged from a high of $16.9 billion in FY2006 to lows of $8.0 billion in both FY2004 and FY2007. The other major category of farm support in the 2002 farm bill is conservation. Several mandatory conservation programs compensate farmers for retiring environmentally fragile land (primarily the Conservation Reserve Program and the Wetlands Reserve Program) and for instituting resource stewardship practices (e.g., the Environmental Quality Incentives Program and the Conservation Security Program), among other things. All of the mandatory conservation programs accounted for $18.1 billion over the six-year life of the 2002 farm bill, or an average of $3.0 billion per year. Spending for the mandatory conservation programs is less volatile and more predictable than the commodity programs, since most of the conservation programs receive a fixed authorized level of spending (or maximum acreage enrollment). The 2002 farm bill also contains funding authority for several mandatory agricultural export programs (including the Market Access Program, Export Enhancement Program, Export Donations, and the Foreign Market Development Cooperator Program). Total estimated six-year spending (FY2002-FY2007) for these programs is $1.6 billion, an average of $268 million per year. CRS-3 Table 2. Cost of the 2002 Farm Bill: Actual Cost vs. CBO Estimate at Time of Enactment (outlays in million $) Annual Average, FY2002-FY2007 2002 CBO Estimate Farm Commodities Actual Cost 6-Year Total 2002 CBO Estimate Actual Cost Amount actual spending was over (+) or under (-) 2002 CBO Estimate 15,697 12,060 94,185 72,360 (-) 21,825 3,132 3,019 18,794 18,111 (-) 683 296 268 1,775 1,605 (-) 170 Subtotal, Farm Spending 19,125 15,346 114,754 92,076 (-) 22,678 Food Stamps 24,898 29,689 149,387 178,134 (+) 28,747 Grand Total, Farm Spending & Food Stamps 44,023 45,039 264,141 270,210 (+) 6,069 Conservation Exports Source: Compiled by CRS. The “2002 CBO Estimate” represents the March 2002 CBO baseline combined with the CBO estimate for new spending in the 2002 farm bill. The “actual cost” is actual USDA spending for FY2002-FY2007 from Table 1. 2002 Farm Bill Costs: Actual Cost vs. 2002 Estimates Each year, the Congressional Budget Office (CBO) issues a baseline budget for all federal spending under current law over a multi-year period. Projected spending in the baseline represents CBO’s estimate at a particular point in time of what federal spending and revenues likely would be under current law if no policy changes were made over the projected period. The baseline serves as a benchmark or starting point for future budget analyses. Whenever new legislation (such as a farm bill) is introduced that affects federal mandatory spending, its impact is measured by CBO as a difference from the baseline. When the 2002 farm bill was enacted in May 2002, CBO estimated that the six-year cost (FY2002-FY2007) of the major farm support programs (commodities, conservation, and trade) would be $114.75 billion, or an average of $19.1 billion per year (see Table 2, above). Actual spending for these programs over the six-year life of the 2002 farm bill was $92.1 billion (an average of $15.3 billion per year), or a total of $22.7 billion below the 2002 CBO estimate. Almost all of the difference between the 2002 CBO estimate and actual spending was accounted for within the farm commodity support programs, as stronger than expected commodity market prices (particularly for corn) reduced the need for counter-cyclical payments. Conversely, actual food stamp spending over the six-year period was significantly higher than originally projected in 2002 ($178 billion actual vs. $149 billion estimated in 2002), as program participation rates exceeded earlier estimates. When farm spending is combined with food stamp spending, the actual six-year cost of the major provisions of the 2002 farm bill ($270.2 billion) is relatively close to the 2002 CBO estimate ($264.1 billion). As part of the budgetary nature of mandatory programs, whenever actual spending is below the original cost estimate, this does not create savings that can be used to either reduce the deficit or finance future spending. Likewise, if actual spending turns out to be above the original budget estimate, no budgetary offsets are required. CRS-4 CBO’s March 2007 Baseline Budget Estimate Table 3, below, summarizes CBO’s most recent (March 2007) baseline budget estimate for the major mandatory USDA programs. It is CBO’s estimate of future spending under current law (the 2002 farm bill) for these programs over the next five years (the expected span of the next farm bill) given generally expected economic and market conditions. CBO projects that total farm support (commodities, conservation, and trade) spending under current law over the next five years will be $59.8 billion, which is about $16.4 billion less than the amount actually spent over the last five years (FY2003FY2007). This lower estimate is driven primarily by projections for sustained high commodity prices for the foreseeable future. The $16.4 billion reduction consists of about $22.7 billion in reduced commodity spending, but about $5.7 billion in increased conservation spending, and $482 million in increased export spending. In contrast, spending for food stamps under current law is expected to increase by about $30 billion over the five-year period. The FY2008 budget resolution (S.Con.Res. 21), adopted by Congress in 2007, established the fiscal parameters for spending on the next farm bill. The resolution allowed the agriculture committees to formulate legislation at the same projected cost level as current law. Any change made to current law (both new spending and reductions) is scored by CBO against the baseline to determine whether the new farm bill is budgetneutral. A separate provision in the FY2008 budget resolution allocated a deficit-neutral reserve fund of up to $20 billion over five years (FY2008-FY2012) to the agriculture committees for the next farm bill. However, any spending from this fund would have to be offset with comparable spending reductions elsewhere or by revenue increases. Table 3. CBO’s March 2007 Baseline Estimates for Major Farm Bill Programs, FY2008-FY2012, Compared with FY2003-FY2007 Actual Spending (outlays in million $) Farm Conservation Exports Subtotal, Food Grand Total, Commodity Farm Stamps Farm Support Programs Support and Food Stamps FY2008 7,454 3,988 334 11,776 36,108 47,884 FY2009 7,560 4,159 334 12,053 36,641 48,694 FY2010 7,238 4,196 335 11,769 36,898 48,667 FY2011 7,095 4,439 334 11,868 37,635 49,503 FY2012 7,191 4,774 334 12,299 38,722 51,021 5-year total, FY08-FY12 36,538 21,556 1,671 59,765 186,004 245,769 Previous 5-year actual, FY03-FY07 59,196 15,825 1,189 76,210 156,089 232,299 Difference between (22,658) 5,731 482 (16,445) 29,915 13,470 FY08-FY12 baseline and FY03-FY07 actual Source: Compiled by CRS using CBO’s March 2007 baseline budget estimates (FY2008-FY2012) and actual spending data from USDA for FY2003-FY2007. CRS-5 Projected Cost of the Next Farm Bill The House and the Senate have passed their respective versions of the next farm bill (H.R. 2419). Over the five-year time frame (FY2008-FY2012) of the proposed farm bill, total spending is estimated by CBO to be $286.0 billion in the House-passed bill and $285.6 billion in the Senate-passed version. Table 4 provides a breakdown of spending in each bill by major program area. Each bill has as its basis the March 2007 CBO baseline budget, which contains $280.3 billion in projected spending for all farm billrelated programs. CBO estimates new authorized spending (above the baseline) of $5.7 billion in the House-passed bill and $5.3 billion in the Senate-passed version. As required by the FY2008 budget resolution, this new spending must be offset by comparable reductions in spending or increases in revenue. The House bill contains $6.0 billion and the Senate version $5.0 billion in revenue offsets that in effect make both versions close to being budget-neutral. These offsets are outside the jurisdiction of the agriculture committees, but were provided by actions taken in the House Ways and Means and Senate Finance Committees. Table 4. CBO Estimated Costs for the House and Senate 2007 Farm Bills (FY2008-FY2012) Commodity Support Conservation Energy Trade/ Aid Nutrition Crop Insur. Othera Total (Outlays in Billion $) House Farm Bill March 2007 Baseline CBO Score:House Bill Total Est. Spending Offsets/Revenueb Estimated Cost after Offsets/Rev. Senate Farm Bill March 2007 Baseline CBO Score: Senate Bill Total Est. Spending Offsets/Revenueb Estimated Cost after Offsets/Rev. 5-Year Total (FY2008-FY2012) 0.0 1.7 192.2 25.7 2.4 0.6 4.2 (4.0) 36.5 (1.1) 21.6 3.0 35.4 — 24.6 — 2.4 — 2.3 — 196.4 — — — — — — 36.5 (4.0) 33.0 — 21.6 4.7 26.0 — — — 2.6 0.6 280.3 5.7 21.7 — 3.5 — 286.0 (6.0) — — 280.0 5-Year Total (FY2008-FY2012) 0.0 1.7 192.2 25.7 1.0 0.1 5.3 (3.7) 1.0 1.8 197.5 22.0 — — — — 2.6 1.9 4.5 — 280.3 5.3 285.6 (5.0) — 280.6 — — — — Source: Compiled by CRS using the Congressional Budget Office (CBO) March 2007 baseline and the CBO scores of the Housepassed farm bill (H.R. 2419) and the Senate-passed substitute amendment to H.R. 2419, as of late January 2008. Both the House and Senate scores reflect enactment of the energy act and the Consolidated Appropriations Act, 2008. a. In the March 2007 baseline, the “other’ category includes agricultural research, rural development, and forestry, among other areas of spending. “Other” in the House 2007 farm bill is primarily for new specialty crop assistance, and minority and beginning farmer assistance. “Other” in the Senate farm bill includes new spending for a permanent disaster payment program, specialty crop assistance, and rural development. b. “Offsets/revenue” represents offsetting receipts and increases in revenue that are included in the House and Senate farm bills, but are outside the jurisdiction of the agriculture committees. These are included in the bill to offset the cost of new spending in the House and Senate bills that is in excess of the budget baseline.