Farm bill math

By Daniel Munch, American Farm Bureau economist

The Congressional Budget Office’s (CBO) most recent Baseline for Farm Programs, released in May, identifies expected outlays for farm program spending, assuming existing programs continue without changes, and indicates program spending available to Congress as crafting of the 2023 farm bill kicks into high gear. CBO releases these projections on expected spending for farm programs for the 10-year baseline —  the current budget year plus 10 years — up to three times a year.

Farm bill math creates a few possible scenarios. Depending on negotiations between the Budget and Agriculture committees, lawmakers crafting the next farm bill could be required to be budget neutral, meaning any increase in spending in one part of the bill would require a decrease in spending elsewhere in the bill; they could be required to have an overall net reduction; or they may be able to increase spending. Given such budget directives, scoring (estimating the additional outlays and potential savings relative to the baseline) is one of the most critical components of farm bill development. From now through the farm bill’s passage, any change in policy will require an estimate of the budgetary impact. 

In general, the May report reveals only minor housekeeping adjustments compared to February’s release. Future policy proposals that arise during 2023 farm bill discussions will most likely be scored against these values.

The May CBO release includes updates to expected outlays for the Supplemental Nutrition Assistance Program (SNAP). In the February projections CBO increased its estimate of SNAP outlays by $8 billion (6%) for 2023 and by $93 billion (8%) between 2024-2033. This increase was linked to higher estimated program utilization as a result of higher unemployment as well as upward adjustments in expected food costs under the Thrifty Food Plan (TFP), which is utilized to estimate the cost of a healthy diet, including USDA’s choice to not make their 5-year updates of the TFP composition cost-neutral.

Costs for many of the provisions of current farm programs move in the opposite direction of commodity prices. Recent periods of higher prices have resulted in lower commodity support payments. The distribution of farm program payments follows base acreage in the U.S. Corn, soybeans and wheat represent nearly 70% of all program payments, while rice, cotton and peanuts represent another 20%. Sorghum, upland cotton, dairy and other smaller field crops represent the remaining 10% or so of outlays. These outlays come in the form of PLC or ARC payments, and the margin protection program for dairy outlays through DMC. Compared to the February baseline, all analyzed crops except peanuts saw a forecasted increase in outlays. The increase was the highest for upland cotton, which moved from an expected $3.616 billion for 2024-2033 in February to $5.376 billion in May, mainly linked to increases in the PLC category.

This most recent CBO baseline on farm program outlays is an important indicator of the budget outlook and is expected to set spending boundaries during current farm bill debates. From a political standpoint, the expected increase in outlays, primarily linked to higher forecasted nutrition costs, can reduce the arguable space for expanding funding for new or existing programs. Higher payouts under existing commodity programs further constrict this budgetary “wiggle-room.” Notably, however, agriculture and nutrition programs normally authorized through the farm bill only make up about 1.85% of total federal spending. Drilled down further, farm income support and crop insurance account for less than one quarter of one percent (0.1% and 0.13%, respectively) of federal spending. Whereas Medicare, Medicaid, net interest on debt, defense spending and Social Security make up 76% of federal spending. 

Like consumers purchasing food at the grocery store, farmers and ranchers face macroeconomic pressures when they purchase inputs and services. Few pieces of legislation are more significant than the farm bill when it comes to safeguarding our domestic food supply. Ensuring that program funding is reflective of market changes is critical to maintaining the farm bill’s role in national security and the health and well-being of rural communities.