The Food, Conservation and Energy Act of 2008: Highlights of Commodity and Conservation Provisions

Farm Business Management Update, June - July 2008

By Jim Pease (peasej@vt.edu), Extension Economist, Farm Management, Department of Agricultural & Applied Economics, Virginia Tech

The Food, Conservation and Energy Act of 2008 (FCE) is a continuation of the omnibus, multi-year Farm Bills that authorize and fund most federal government programs that concern agriculture. It has been said that the camel is an animal that must have been designed by a committee, and that folk wisdom is brought to mind as one reads this legislation. Many observers consider FCE to be little more than an addendum to the 2002 Farm Security and Rural Investment Act, but the 2008 Act does fund some new programs that will affect commodity, conservation and other interests.

FCE has been “scored” by the Congressional Budget Office at $307 billion over 2008-2012. Of the total funds, $209 billion (68%) is for nutrition programs, $35 billion (11%) is for commodity programs, and $25 billion (8%) is for conservation programs. The political requirements of higher funding for nutrition programs caused the agriculture committee members from both House and Senate to proclaim, “This should be called a Food Bill, not a Farm Bill.” Nevertheless, the ability of agricultural forces to retain their current funding allocations is impressive, particularly in the face of “pay/go” provisions in the Democratic Congress, declining budget baselines, the U.S. economic slowdown, and booming commodity prices. Below, I’ll discuss some highlights of FCE Commodity and Conservation programs.

Commodity Programs

There are relatively few changes to the existing Direct Payment and Counter-cyclical Payment provisions. Direct Payment rates are unchanged throughout 2008-2012, but the budget tightrope required reduction of the percentage of payment acres in 2009-2011, so payments will be reduced in those years. Target prices for most Virginia crops except cotton remain unchanged in 2008 and 2009, but target prices are increased for wheat, barley, and soybeans beginning in 2010. Corn, cotton, and peanut target prices remain constant throughout the life of FCE. Under the marketing assistance loan program, all loan rates remain unchanged through 2012 except for wheat and barley, which are increased in 2010-2012 by 6.9% and 5.4%, respectively. The following tables provide a listing of direct payment rates, target prices, and marketing loan rates for the 2007 crop year under the 2002 Farm Bill, and rates for 2008-2012 under FCE.

The most significant innovation in the commodity title is the Average Crop Revenue Election (ACRE), which allows farm program participants (beginning in 2009) the option of counter-cyclical revenue assurance rather than the default counter-cyclical price protection. Whenever state revenue for covered crops (state actual yield times national average price or loan rate, whichever is higher) falls to less than 90% of a state benchmark revenue (ACRE average of state price over past two years and state Olympic average yield over the past five years), participating producers will receive a payment. Such payments are also made under similar procedures if individual farms do not meet the target crop revenue. The price of participation is imposed by reducing direct payments by 20% and loan rates by 30% for all program commodities (including peanuts) on the farm. Many more details will become available on this program, but this brief explanation indicates how producers can assure commodity revenue targets in a manner more comprehensive than Crop Revenue Coverage under traditional crop insurance policies.

Budget problems also make the loan rate program provisions change during 2008-2012. The loan rate for most crops remains the same in 2008 and 2009 as it was last year, but loan rates increase in 2010-2012 for wheat and barley (by 5% and 7%, respectively), while other Virginia crops remain at 2008/2009 levels.

The Milk Income Loss Contract (MILC) dairy program is continued for the 2008-2012 period, with a higher payment rate. Another major change in the dairy price support program directly establishes purchase prices for butter, powder, and cheese. It has been suggested that this element of dairy price support will decrease the contribution of dairy payments to Amber Box World Trade Organization limits.

There are tightened restrictions in some payment provisions. FCE requires direct attribution of payments to a person rather than a corporation or partnership, and eliminates the 3-entity rule. Beginning in 2009, individuals are ineligible for commodity and disaster program benefits if the individual’s nonfarm adjusted gross income (AGI) is more than $500,000. If farm AGI exceeds $750,000, direct payments may not be made.

Conservation Programs

Conservation programs will receive a funding increase of $7.9 billion in FCE, for a total of $25 billion over 2008-2012. All major programs were reauthorized and most received funding increases or expanded authorizations. Provisions are included in several programs requiring consideration of organic, socially disadvantaged, and beginning farmers, and payment limitations are instituted for some conservation programs.

The Environmental Quality Incentives Program (EQIP) offers financial and technical assistance to farmers implementing conservation structures or practices on their land. In FY2007, Virginia was allocated approximately $14 million out of the national EQIP allocation of approximately $1 billion. Under FCE, EQIP receives $7.3 billion over FY2008-2012, an additional $2.7 billion over that originally allocated in the 2002 Farm Bill.

The Conservation Reserve Program (CRP) is the principal federal land retirement program. In exchange for removing environmentally sensitive land from production, owners receive annual rental payments for duration of the contract. Congress reduced the acreage authorization for CRP to 32 million acres over 2010-2012, down from the 39.2 million authorization of the 2002 Farm Bill.

The Conservation Security Program was initiated in the 2002 Farm Bill, largely through the influence of Senator Harkin (D-IA). The program is now re-named the Conservation Stewardship Program (CSP), and the program will establish contracts between USDA and the participating producer who proves eligibility through satisfying a minimum stewardship threshold (usually including a nutrient management plan and a soil conservation plan). Non-industrial private forest land is also eligible up to 10% of total enrollment acres. Incentive payments are made over the 5-year contract period to the producer who implements conservation activities beyond the threshold that address resource concerns identified at the state level. Over FY2009 – FY2017, the program is authorized to enroll an additional 12.8 million acres per year, with projected cost of approximately $230 million per year.

The Wetlands Reserve Program (WRP) authorizes long-term, easements, permanent easements, and cost-share agreements to restore wetlands on farmland. The program is not large in Virginia, the state received $837 thousand (0.3% of the national total) allocation for WRP in FY2007. Funding is increased to $1.3 billion in FCE, sufficient to enroll 1.22 million wetland acres.
The Wildlife Habitat Incentives Program (WHIP) provides cost-share agreements to develop and improve wildlife habitat. Both technical assistance and up to 75% cost-share assistance are provided to establish/improve fish and wildlife habitat, with agreements lasting from 5-10 years. Virginia was allocated $473 thousand under this program for FY2007 (1% of the national total). The WHIP program is allocated $85 million per fiscal year in FY2008-2014.

The Grassland Reserve Program (GRP) provides technical assistance and pays landowners to establish long-term contracts or easements to restore or conserve grasslands. FCE authorizes enrollment of up to 1.22 million grassland acres. This program is relatively new to Virginia, which was allocated $105 thousand (4.5% of the national total) in FY2007. The newly re-named Farmland Protection Program (FPP) provides partial funding to state, local, and tribal governments, and to nonprofit organizations for purchase of easements on agricultural lands that protect against land development. Virginia received about $1 million (1.5% of the national total) under FPP in FY2007. Funding for FPP is increased in FY2008-2012 to $773 million under FCE.

A provision of the Conservation Title generating considerable interest in this region is Section 1240Q, which provides assistance to agricultural producers in the Chesapeake Bay watershed for the purposes of improving water quality and quantity and restoring/enhancing/preserving soil, air, and related resources. Section 1240Q represents a victory for the Bay states, which have pushed for Farm Bill consideration of the Chesapeake Bay programs since 2005 (http://www.chesbay.state.va.us/farmbill.html). The Farm Bill allocates $188 million during FY 2009-2012 to assist producers through existing programs to implement conservation activities on agricultural lands in the watershed, with particular consideration to producers in the Susquehanna, Shenandoah, Potomac, and Patuxent river basins. Conservation activities on farms that will be supported include controlling soil and nutrient losses to surface and ground water, and habitat conservation, restoration, and enhancement measures of lands with significant ecological value.

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