Conference Agreement on Farm Bill Emerges

The threat of the "dairy cliff" is receding. On Monday, lawmakers in the farm bill conference committee emerged with an agreement that would save $17 billion through 2023. These savings come on top of an estimated $6 billion over ten years of savings that will come from the sequester. Although CBO does not estimate it, we expect the bill would save $19 billion through 2024. Like past farm bills, this one lasts for five years so the issue will have to be revisited at the end of 2018, although we hope lawmakers will monitor programs in the meantime. The bill has already passed the House and will get a vote in the Senate next week.

Perhaps the largest roadblock—though not the only one—to a deal was deciding the amount to be spent on nutrition programs like food stamps. The nutrition provisions which passed the House last summer in a standalone bill contained much more aggressive cuts than those in the Senate's farm bill, a difference of $35 billion. The final agreement is estimated to save $8 billion over ten years from current law, double what the Senate would have saved but one-fifth of what the House would have saved. The final agreement also drops two controversial provisions to limit benefits in the House bill and instead agrees upon a policy that was in both bills that seems to be politically acceptable. This change would restrict the ability of states to increase federal food stamp benefits by giving out minimal amounts of energy assistance. Previously, states could give out just $1 a year in benefits, and recipients would receive credit for paying a standard amount for utilities, regardless of whether they actually paid that amount.  Now, instead of having to receive $1 in benefits, they would have to receive $20.

The centerpiece of the farm provisions is the elimination of direct commodity payments. They are replaced by two options to cover losses, one related to prices and one related to gross revenue of each crop. While elimination of direct payments, which made fixed payments regardless of how well farmers were doing (or even if they were farming at all), is a positive step, but the new loss programs create a risk of increased costs if farm conditions are worse than expected. The conference committee settled significant disparities in the benchmarks used to determine what level of prices or revenue would trigger payments from the federal government. Overall, the bill shifts resources away from commodity payments and more towards crop insurance. The below graph shows how much we will spend over the next decade on various types of farm subsidies under current law and under the legislation. It does not include nutrition spending, on which we are projected to spend $764 billion under current law and $756 billion under the legislation.

Below is a breakdown of the CBO scores of the House farm bill, the Senate-passed farm bill, and the conference agreement. The savings in the conference agreement are similar to the Senate's amount but more concentrated in nutrition.

2014-2023 Savings/Costs (-) in the Farm Bills

Source: CBO

It is encouraging that Congress is close to the finish line on this legislation, considering the farm bill has already technically expired. Conferees also deserve credit for ensuring their legislation will reduce deficits over the next decade, rather than spending all proposed savings on new measures. Yet legislators should have gone further. With regards to farm subsidies, the bill saves less than both the House and Senate farm bills, the President’s budget, the House budget resolution, the Domenici-Rivlin plan, the new Simpson-Bowles plan, and other deficit reduction proposals. In addition, the two new “loss” programs in the legislation have the potential to end up costing more than advertised.

Lawmakers should continue to monitor the costs and effectiveness of farm subsidies in order to identify reforms that can be made now and in the future.