Fix on ‘Dairy Cliff’ Sends Farm Bill Back to Square One

The fiscal-cliff settlement, which extends the most-recent agriculture law until September, is frustrating farmer groups that spent 2012 pushing new programs and now must start again under a tougher spending outlook.

Congress’s approval of a one-year extension of the farm bill that expired Sept. 30 heads off government-mandated higher milk prices. It also preserves subsidies that even farmers call wasteful and makes plans approved by the U.S. House Agriculture Committee and full Senate last year moot. Now back to square one, lobbyists and lawmakers may have an even tougher climb as cost-cutting rules the day, said analyst Mark McMinimy.

“The dairy cliff was the moment their leverage reached its peak, and that’s passed,” McMinimy, of Guggenheim Washington Research Group in Washington, said in an interview. “They’re going to have to regroup and may come up with a little bit different strategy this year.”

Farm bills, usually passed every five years, set policy and fund U.S. Department of Agriculture programs including food stamps and crop subsidies, which benefit companies such as Archer-Daniels-Midland Co. and Bunge Ltd. by encouraging lower raw-material costs. Farmers had record profits and exports under the most recent law, approved in 2008, while food-stamp spending has more than doubled since 2007 because of the recession and now accounts for about half of the USDA budget.

Debates Postponed

The vote yesterday to raise taxes on the wealthy and postpone difficult debates on spending cuts also extended farm programs until Sept. 30, giving Congress time to craft a new farm bill this year. Without the fix, the government would be required to buy milk, driving up dairy prices to levels mandated by a 1949 law that took effect when the previous policy expired.

The International Dairy Foods Association, which represents Kroger Co., the largest U.S. grocery chain, and Nestle SA, the world’s biggest food company, said it was pleased with the deal that avoided higher milk prices. “This agreement allows Congress time to fully and openly consider future reforms to our nation’s dairy policies,” the group said.

Still, many lawmakers and farm groups were disappointed. The top Republicans and Democrats on both congressional agriculture committees had pushed for an extension that contained elements of legislation they had backed last year, including a new dairy program intended to stabilize prices for the boom-or-bust industry. That plan, which House Speaker John Boehner blasted as worse than “Soviet-style” economic management, was stripped from the fiscal-cliff deal.

Written Commitment

Representative Collin Peterson of Minnesota, the ranking Democrat on the House Agriculture Committee and author of the dairy plan rejected by Boehner, said yesterday he is so angry about the one-year extension that he wants Republican leaders to commit to a floor vote on a farm bill before he cooperates on creating one.

“I’m not going through the effort unless I actually know they’re going to let us actually do our work,” Peterson said in an interview. “We were getting screwed -- I knew it -- but there was nothing I could do about it.”

Voting Record

Peterson was one of only 16 House Democrats to vote against the fiscal-cliff agreement. House Agriculture Committee Chairman Frank Lucas, Republican of Oklahoma, supported the plan, as did Debbie Stabenow of Michigan, who heads the Senate farm panel, and Pat Roberts of Kansas, its top Republican.

The House Agriculture Committee plans to start drafting a new farm bill on Feb. 27, while the Senate panel will begin its work “soon,” Stabenow said Dec. 30.

Pam Johnson, president of the National Corn Growers Association, said the one-year patch will make long-term planning for farmers difficult.

“The system is clearly broken,” Johnson, whose group represents the country’s most-valuable U.S. crop, said in a statement. The association hopes congressional leaders this year “can place petty partisanship aside to create a bill that benefits all of America,” she said.

The National Farmers Union, the second-biggest U.S. farmer group, is also unhappy. “An extension represents a shortsighted, temporary fix that ultimately provides inadequate solutions that will leave our farmers and ranchers crippled by uncertainty,” Roger Johnson, the group’s president, said in a news release.

More Difficult

Passing a farm bill this year may be more difficult than in 2012 because of ever-increasing budget pressures, said Gary Blumenthal, chief executive of World Perspectives Inc., an agriculture consulting firm in Washington.

Having already had his way on dairy, “Speaker Boehner’s position is going to be pretty influential,” Blumenthal said in a telephone interview. Given that, the agriculture committees may need to pare their wish lists on new programs and focus on a proposal that will avoid battles with leadership the farm lobby may lose. “There will be a stronger recognition that we need to get this done and out of the way,” Blumenthal said.

The agriculture committees still have cards to play, McMinimy said. The extension means the continued existence of a $5 billion-a-year program that pays farmers regardless of crop prices, an unpopular subsidy that last year’s House and Senate plans discarded. In addition, their 2012 proposals were both deemed less expensive than current law by the Congressional Budget Office, which may make them attractive as the basis of budget cuts, McMinimy said.

“If there’s a risk going forward it’s that they lose subsidies and don’t get anything in return,” McMinimy said. “These guys have a pretty good track record of punching above their weight class politically. I wouldn’t count them out yet.”

Still, Peterson said he’s not optimistic about progress in 2013, given what happened to last year’s efforts.

In December, “we’re going to be having another big freakout about the milk prices,” he said. “That’s what’s going to happen.”

(Updates with dairy-industry comment in sixth paragraph, fiscal-cliff vote in 10th, committee plans in 11th.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE