Why no-one wants Bush’s deep cuts

LIKE A TRAVELLING salesman, President George W Bush spent February hither and yon promoting a radical shift in domestic policy and defending an already radical shift in foreign policy.

The effort produced slim results, especially in the US where the President’s 2006 budget proposal – a whopping 2500-page document that outlines $2.6 trillion (£1.3 trillion) in federal spending to begin on Oct 1 – included deep cuts in American farm programme spending.

American farmers, staunch Bush-backers in his recent re-election, were not happy. “It’s kind of a slap in the face,” said an Ohio farmer who organised his local farm community for Bush.

It is kind of a slap in the face. After winning the hearts and votes of rural America by a nearly 2:1 margin in November, the President proposed to clip the farm programme spending by billions of dollars in February.

The two big farm spending cut proposals are straightforward. But, like many of President Bush”s ideas, the devil is in the detail.

First, the President wants an across-the-board 5% cut imposed on every cheque issued to farmers on every programme managed by the US Department of Agriculture.

The savings? Maybe $1bn (£520m) a year; a tiny drop in a federal budget bucket expected to hold $420bn (£220bn) of red ink in 2006.

The second cut is deeper and farmers are now focusing on it like lasers. Currently farmers can claim marketing loan gains, called Loan Deficiency Payments or LDPs, on every bushel or pound of production when market prices dip below levels prescribed in the 2002 Farm Bill.

Under the Bush 2006 proposals, however, farmers would be able to claim LDPs on only 85% of their historical production. That change would have an enormous impact on grain and cotton producers’ incomes and government payments.

For example, if the President’s two proposals are adopted and market prices remain low, a typical Illinois farmer with 300ha (750 acres) of maize and 300ha (750 acres) of soyabeans would see his average 1998-2004 government LDP payments plunge from $47,925 (£24,920) a year to $30,196 (£15,700) in 2006.

If the same maths is done across the Farm Bill’s principal programme crops (maize, soyabeans, wheat, cotton, rice, barley, sorghum, sunflowers and canola), years of low market prices would cut LDPs nationwide by about $2.9bn (£1.5bn).

across the board

The 5% across-the-board cut would then bleed another $425m (£220m) from farm payments in 2006.

That $3.3bn (£1.7bn) hit – estimated by Washington lobbyists fighting the Bush plan – is more than seven times the cut the White House said its plan would nip farmers in 2006.

But wait, the White House maths is even worse. That one-year, $3.3bn hit is more than three times the $1.05bn (£550m) the President suggests all his ag cuts would cost American farmers in the next 10 years.

Need it be said that the President”s farm programme spending proposals have a short shelf-life in Congress?

On Feb 15, Robert Goodlatte, the chairman of the House Agriculture Committee and a staunch Bush supporter, warned Congress not to touch farm programme spending.

Until Congress writes a new Farm Bill in 2007, said Goodlatte in a letter, “We should let programmes operate as designed.” And, he added in a comment directed at the White House, “Midstream is not a good place for changing horses or farm income safety nets.”

Mid-Farm Bill is not a good place either, especially since 2005 is shaping up to be a mediocre farm income year for crop producers. According to University of Illinois forecasts, 2005 farm returns will be “near 1998, 1999 and 2000 levels.”

USDA records show that farm programme payments for those years totalled $12.4bn (£6.5bn), $21.5bn (£11.2bn) and $22.9bn (£11.9bn) respectively, as market prices slid lower and lower because of higher and higher production.

USDA itself concedes that 2005 will be a tough year for American food, feed and fibre producers, guessing that total government payments to farmers will hit $24.1bn (£12.5bn), or $8.4bn (£4.4bn) more than in 2004. (The difference is mostly LDPs.)

And, despite the high support payments, USDA still sees net farm income nationwide dropping from $73.6bn (£38.3bn) in 2004 to $64.4bn (£33.5bn) in 2005.

Given those estimates – and the wrath shown by farmers after Bush announced his cuts on Feb 7 – Congress has little interest and absolutely no stomach to cut farm programmes in 2005.

In blunt terms, the President can sell his farm programme cuts night and day, hither and yon, but no one is buying them.