Agriculture is one of the first major program areas to cut the federal deficit, says U.S. Rep. Collin Peterson.
Peterson, chairman of the U.S. House Agriculture Committee, proposes in the 2012 Farm Bill to end direct payments to farmers and even out other farm programs that pay farmers on production rather than land ownership.
Also in the works is a plan to change crop insurance premium reimbursements to return money to the U.S. Treasury for deficit reduction.
"We had a good farm bill, we fixed a lot of problems," Peterson, DFL-7th District, said of the 2008 Farm Bill in a wide-ranging interview Thursday while he was in Bemidji to attend Bemidji Regional Airport groundbreaking for its Aircraft Rescue and Firefighter Facility.
"Now the issue is making this all work in 2012 within the baseline," he said. "We're not going to spend any more money. I'm not going to go ask anybody for money, I'm going to stay within, which is what I believe we should be doing in all of government."
Peterson has held 10 field hearings on the upcoming 2012 Farm Bill, the latest Wednesday near Casselton, N.D., with Rep. Earl Pomeroy, D-N.D.
"We've got just about every area of government, somebody's trying to increase spending in these programs," Peterson said. "I think that's wrong. With the deficit we have, we shouldn't have any new money in any programs.
"We should be living with what we got, or looking for it from someplace else," he added, admitting that his philosophy is tied to that of the Blue Dog Democrats, a coalition of conservative Democrats that push for deficit reduction.
The Blue Dogs also spearheaded efforts for PAYGO, the policy where any new spending must be accompanied by like cuts in spending elsewhere.
"In the commodity title, the most important thing is crop insurance," he said. "It will be good, even though we're making changes."
The first fix, he said, is in the subsidies given insurance companies and growers for crop insurance. Historically, insurance companies have been given reimbursements based on a percentage of the premiums, similarly to the way property and casualty insurance works.
"Crop insurance has some different elements, one of them is that companies are required to sell a policy that is dictated by the Risk Management Agency," the Detroit Lakes Democrat said. "So there is no difference between policies. They all have to sell the same thing."
That also means there is no competition because the government dictates the conditions.
"In 2007 and '08 we had the best prices we've had in a long time," Peterson said. "People had switched to revenue coverage from multi-peril (coverage), which gives them coverage not only on losing the crop but also gives them protection on price."
As a result, the price of polices doubled and tripled, he said, because companies were insuring against the price as the companies had more exposure to risk. The 2008 Farm Bill cut the percentage of reimbursement, but agents were still paid twice as much as they were in 2006.
"Rather than have us go in there and arbitrarily set some new percentage, we required the Risk Management Agency to do a new SRA (Standard Reinsurance Agreement), which is something that is done every five years," Peterson said. The agreement is negotiated with insurance companies.
The agreement hammered out n May is one that the companies didn't like, he said, adding there have been two revisions since. The new SRA should be signed by the companies in the next two weeks.
"The deal that they have put together will require that they take $6 billion out of the reimbursement for agents over the next 10 years - $600 million a year."
That will be in addition to the $5 billion taken out of the farm bill with percentage changes, he said.
"We recognized that there was a problem, and we set up an orderly way and it's being fixed," Peterson said. "The crop insurance agents are still opposed to this ... Some of the companies I'm supporting because they've done the right thing."
Geographic fixes were also made, he said, as agents in the most Midwest states were being overpaid and agents in risk areas such as North Dakota, Kansas and Texas were being underpaid.
Of the $6 billion, $2 billion will be used to fix problems in the Conservation Reserve Program and $4 billion will go to the Office of Management and Budget for deficit reduction.
"We're the first area in government -- the only area in government, the only program -- that has actually reduced the deficit," Peterson said. "As part of our baseline, $4 billion is a pretty good hit. But I support that, because I'm one that thinks we need to start paying down the deficit."
Congress needs to go into its programs and find places to save, he said. "We've done it, nobody else has done it. This actually puts us in a strong position for the next farm bill because we have stepped up to the plate."
Taking the percentage cut of the changes in the farm bill and applying it government-wide in all discretionary spending and mandatory programs such as Social Security and Medicaid would yield deficit reduction of $2.3 trillion, he said.
"My challenge to people is, OK we stepped up, we just made our job harder to do a farm bill, but we did the right thing," he said, "and I'll guarantee you that every one of these government programs can find the kind of savings that we found. There is no government program that doesn't have excesses."
Peterson said he is willing to look for savings in the commodity, conservation and nutrition titles of the farm bill, "because my staff and I believe that we can make those kind of reductions and not hurt the programs."
Those cuts could reach another $10 billion over 10 years of a $263 billion five-year farm bill.
Direct payments were set up in 1996 and were supposed to go away but have been continued and created horror stories. They are given to farm landowners regardless of income. As a result, stories of NBA athletes collecting farm subsidies abound, as well as other celebrities who never farmed.
A new program has a lot of potential but also has a lot of problems that can be fixed by using the direct payments for it instead of doling out to landowners, he said. The program, ACRE, for Average Crop Revenue Enhancement, has some overlap with the permanent disaster program and with crop insurance.
"We need to take that out, we don't need that overlap," he said. "I believe there is some savings to be had in coordinating all that better... and we'll end up with a better safety net at the end of the day."
Direct payments are $5.2 billion a year "that are given to farmers whether they need it or not," he said."When they were making a lot of money, we were making payments, and it caused us trouble."
But dropping them will be controversial. "The Southerners are addicted to these things," Peterson said.
Peterson said he heard from farmers in North Dakota this week that the direct payment money can be used to improve ACRE, crop insurance and permanent disaster funding. Crop insurance could be extended to crops not currently covered -- fruits and vegetables, nurseries -- and to livestock.
"The idea is having crop insurance that covers all of agriculture, not just the big crops like corn and soybeans," the Democrat said. "It makes sense to take that direct payment money and redirecting it to a better safety net that follows the need, not just paying people because they own land."
Removing direct payments would also make it easier for farmers actually producing the food to enroll in ACRE and other safety net programs, he said.
"We're starting early to get this process, to have people look at what we're doing and tell us if there is a better way to do it," Peterson said. "It's paying people that don't need to be paid and there are other people who need help who aren't get it."
Getting rid of direct payments will also allow the growing of fruits and vegetables, which is now prohibited in order to receive the payments, he said. Such crops are gaining in Minnesota, especially southern Minnesota.
"We're running out of land to grow the specialty crops because of this prohibition under direct payments," he said. "I've kind of stuck my neck out because this is somewhat controversial and the Republicans are beating me up a little bit about this, but I really think that it's the time to look at this."
Peterson said he was criticized for opening 2012 Farm Bill talks now, but since then Republicans have come on board and hearings have begun in the Senate as well.
He estimates that the House Agriculture Committee will begin next summer to publicly start putting together the 2012 Farm Bill.