House Passes the Farm, Nutrition and Bioenergy Act of 2007

(H.R. 2419, The Farm Bill)

Update | Specific Provisions | Reaction/Next Steps

Update

It was a long and complicated process, but on Friday, July 27, 2007, the House passed its version of Farm Bill legislation, H.R. 2419, “The Farm, Nutrition, and Bioenergy Act of 2007,” by a vote of 231-191. Two days of floor consideration, three days of Committee mark up, and many press releases and partisan exchanges were part of the bill’s journey to passage in the House. Writing the Farm Bill was complicated from the beginning by the fact that the budget baseline for writing the bill was $60 billion below the level for 2002 for the commodities title. Balancing the interest of farmers who receive payments and the pressure to find new money for nutrition, conservation, energy and rural development was a difficult task. The bill that emerged preserves the existing system of subsidies for commercial farmers and adds billions of dollars for conservation, nutrition and new agricultural sectors in a total package of $286 billion over five years.

To find new funding above the baseline, Democrats found an offset in the tax code, but that action cost the bill Republican support—177 Republican House members voted against the bill. The measure would tax royalties, interest and other payments U.S. foreign-owned companies make to foreign affiliates, taxing such payments as if they were made to the foreign parent corporation even when the payments are made to an affiliate in a third tax jurisdiction, where taxes may be lower. Democrats said the provision merely closes a loophole that allows a limited number of U.S. subsidiaries of foreign companies to avoid taxes. Republicans countered that they had been assured that new spending in the bill would not be paid for by any kind of a tax increase and that the offset had been revealed at the last minute.

Discussion of farm subsidies was also prominent in the floor debate. A critical juncture in the debate was the defeat of the Kind amendment, which would have virtually ended farm subsidies and reallocated that funding to nutrition and conservation programs. That amendment was defeated 301 to 117.

NCSL had sent a letter to the House Agriculture Committee Chairman Collin Peterson (Minnesota) asking that improvements be made to the Food Stamp and other nutrition programs. These improvements are all part of the final bill, and NCSL sent a letter in support of final passage. NCSL also weighed in on certain amendments that would have restricted state flexibility in the Food Stamp program and would have imposed restrictions on the ability of legal immigrants to access the Food Stamp program, reversing the course set in the 2002 Farm Bill. Additionally, H.R. 2419 includes provisions that allow interstate meat sales. Specifically, the new Farm Bill includes the Pomeroy-Blunt interstate meat bill (H.R. 2315). NCSL has policy supporting interstate sales of state inspected meat. As the bill progressed, NCSL voiced concerns about a subcommittee provision that would preempt state authority to regulate food safety, protect public health, ensure humane treatment of animals, and establish agricultural policies beneficial to the environment. This language was not included in the full Committee bill, or in the bill as it passed the House.

Specific Provisions

Farm Programs

The bill sets the income cap for subsidy eligibility at $1 million. According to Chairman Peterson, the cap is “hard cap,” and applies to crop and land stewardship. The current limit is $2.5 million. H.R. 2419 restricts those with incomes between $500,000 and $1 million from being eligible for farm payment programs unless more than 67% of their income is agriculturally related. The bill strikes the “three entity” rule which currently allows producers to receive farm program payments from up to two additional entities in which they have an ownership stake. It requires direct attribution of payments to a natural person.

Pressure on Congress to do more about farm subsidies could increase after a recent ruling by the World Trade Organization in Geneva. A WTO panel held that the U.S. cotton industry has not adequately responded to a 2005 ruling that certain subsidies violate international trade agreements. The panel said Brazil has the right to retaliate.

Specialty crops (fruits and vegetables) were a big winner in H.R. 2419, receiving more than $1.6 billion to support research, pest management, and trade promotion programs and increase fruits and vegetables in nutrition programs.

Lawmakers from farm states united to defeat an amendment by Minority Leader John A. Boehner (Ohio) aimed at preventing farmers from reaping unintended windfalls from a key subsidy, the loan deficiency payment. In 2005, the subsidy cost nearly $5 billion. The Congressional Black Caucus successfully made the case for funding (at least $100 million) to help to help the USDA settle discrimination lawsuits filed by minority farmers.

The bill implements mandatory country-of-origin labeling (the COOL program) for red meat sold in grocery stores, setting the program back on track to take effect September 30, 2008. The implementation date for the program, part of the 2002 Farm Bill, has been pushed back several times. The provision includes three categories of labeling, one that indicates “product of the U.S.” and means the animal was born, raised, and slaughtered in the United States; one that indicates a “mixed product” that was not exclusively born, raised, and slaughtered in the United States; and one that includes products entirely from other countries.

Nutrition Programs

The nutrition title received $11 billion over 10 years, making possible the following:

increasing the minimum benefit for the first time in 30 years;
improving food stamp allotment levels and eligibility by increasing the standard and child care deductions, raising the minimum monthly benefit, and disregarding military combat pay;
improving food stamp resource rules (by exempting retirement and education savings accounts from affecting food stamp eligibility and indexing for inflation the $2000 and $3000 asset limits);
raising mandatory spending for TEFAP commodity purchases; and
expanding the USDA Snack Program, which helps schools provide healthy snacks to students during after-school activities to all 50 states, providing $350 million a year in funding, and continues the DOD Fresh Fruit and Vegetable Program, which provides a variety of fresh produce to schools.

A new "conservation fee" on some offshore oil and gas leases will help pay for mandatory new spending on food for children abroad. Democratic leaders said the proposal would recoup billions of dollars in royalties lost because of faulty federal leases with companies operating in deep waters of the Gulf of Mexico.

Biogenergy

Biofuels programs received $2.5 billion, money found by repealing some tax breaks for oil companies. This money would fund development, construction, and retrofitting of biorefineries and biofuel production plants. Half of the money would go to loans of less than $100 million for smaller plants and the other half for loans up to $250 million for larger plants. The bill also authorizes $1 billion for feasibility studies for the construction of a dedicated ethanol pipeline.

The current bioenergy program is continued. This program provides production incentives for farmers to increase the volumes of ethanol and biodiesel made from agricultural and forestry crops and associated waste materials, including animal manure and livestock and food processing waste. The bill would also create a new program to develop the next generation of feedstocks for renewable energy, the biomass energy reserve program. The program would encourage farmers to grow, harvest, and transport various cellulosic feedstocks such as wheat straw, switchgrass, sweet sorghum, woody biomass and other plants.

Rural

Existing rural programs are reauthorized, including Water or Waste Disposal Grants, the Rural Water and Wastewater Circuit Program and Rural Cooperative Development Grants. Four new programs were established:

The Rural Entrepreneur and Microenterprise Assistance Program, grants and loans to provide training and capital to startup or expanding to rural small business (authorization: $20 million annually);
Rural Medical Facilities Program, $30 million annually to promote technical infrastructure in rural medical facilities;
Rural Firefighters and Emergency Medical Service Assistance Program, $30 million annually to local governments, Indian tribes, and others to train rural firefighters and emergency medical personnel in firefighting, emergency medical practices, and hazardous material and bioagent response; and
Community Connect Grant Program to provide $25 million annually in grants to provide broadband transmission service.

There are also changes in two existing programs, the Rural Broadband Program and the Value Added Producer Grant Program. In the Rural Broadband Program, loans and loan guarantees would be given in priority according to the number of incumbent service providers, and no loans or guarantees would be given to communities with three or more service providers, and a National Center for Rural Telecommunications would be established. In the Value-Added Producer Grant Program, 10% of the funding is reserved for beginning or socially disadvantaged farmers and ranchers, and the funding ($40 million) is switched from mandatory to authorized.

While $461 million is authorized for rural development programs (plus such sums as may be necessary for some programs), it is worth noting that all rural development funding is at the annual discretion of the appropriations committees. In other words, it may never materialize.

Conservation

H.R. 2419 establishes a National Agriculture Research Program Office to coordinate the programs and activities of Department of Agriculture research agencies in an effort to minimize duplication and maximize coordination, and sets up a competitive grant program.

There were some changes made to the version of the conservation title from the version approved by the Subcommittee on Conservation, Credit, Energy and Research. In H.R. 2419 as passed by the House, the Wetlands Reserve Program would decrease by 170,000 acres and the area in the Wetlands Reserve Program would increase by 1 million acres. The bill also increases money in EQUIP for conservation innovation grants. The bill delays further sign ups for the Conservation Security Program until 2012, and transfers the savings to the EQUIP program. Conservation Innovation grants are extending and funding is expanded to $20 million annually.

H.R. 2419 includes a Bush Administration proposal to establish an environmental services standards board charged with developing uniform standards to quantify environmental services, such as wetlands banking, water quality trading, and carbon trading, among others.

Organic Agriculture

A number of provisions related to encouraging organic farming are part of the bill, including the elimination or reduction of the 5% premium for crop insurance and some funding for the Organic Research and Extension Initiative.

Reaction/Next Steps

The Administration issued a Statement of Administration Position (SAP) as the Rules Committee established the procedures governing debate on the bill on the floor, saying that the provisions in the bill relating to commodity payments and crop insurance did not go far enough in the direction of reform. The Administration supports setting the AGI limit at $200,000. The SAP specifically opposed the tax provision being used as an offset and the inclusion of Davis-Bacon Act requirements in ethanol plant construction, and the lack of a change in current categorical eligibility for the Food Stamp program. According the SAP: “…if the bill were presented to the President in its current form, the President’s senior advisors would recommend that he veto the bill.”

The bill heads to the Senate next, where Senate Agriculture Committee Chairman Tom Harkin (Iowa) will begin his Committee’s work in September when Congress returns after its August break. He has indicated that the Senate bill will be tougher than the House bill in terms of payment limitation rule. He has appeared to back away recently from earlier statements about reducing direct payments and transferring the funds to conservation programs, but remains adamant about increasing the funding for the Conservation Security Program, and continuing sign ups for that program.

Senate Committee passage, Senate floor passage and conferencing of any House and Senate differences must take place before authorization for farm programs expires October 1, 2007, an ambitious schedule. It is very likely that an extension or several extensions, will be necessary before that date.

Prepared by Lee Posey, Committee Director for Human Services and Welfare and Agriculture, Environment and Energy.

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