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Congress finally passed a new five-year farm bill on Tuesday, Feb. 4, after three years of squabbling. It represents the first new package of comprehensive agricultural reforms since 2008 and now awaits U.S. President Barack Obama’s signature.
Passing this bill is long overdue. Special interests and regional disputes slowed the process, and a massive battle over food stamps scuttled an earlier version of the House bill in June.
This bill represents a landmark overhaul of commodity programs and subsidies. U.S. farm policy is highly complex legislation, but after reading most of the bill, here are the top five things investors need to know.
Farm Bill Fact No. 1: It Isn’t Cheap, Even with “Cuts” to Food Stamps
The new farm bill isn’t cheap – but it costs less than extending the 2008 law.
The new bill will cost $956 billion over the next 10 years, reducing the U.S. budget deficit by $16.6, according to the Congressional Budget Office.
The biggest chunk of spending is the $100 billion for SNAP (Supplemental Nutrition Assistance Program), the nation’s food stamp program.
Some in Congress are touting “cuts” to the program, but these will likely only be about 1%, or less than $800 million. With food stamp rolls still expanding, cuts were less than previously expected.
As of today, 47 million Americans – a full one in seven – remain enrolled in SNAP. The U.S. Department of Agriculture (USDA) will aim to reduce food stamp fraud by denying benefits to lottery winners and violent criminals, in addition to other reforms.
Farm Bill Fact No. 2: Gone Is the Direct Payment System
The existing direct-payment system is a deeply unpopular program that sent $4.5 billion in aid to farmers in fixed amounts per acre, regardless of net incomes or crop prices.
The reason to overhaul it is that the agricultural sector is one of the few consistent bright spots of the U.S. economy. Farm incomes are expected to surge once 2013 revenues are tallied.
President Obama’s fiscal 2014 budget proposal even proclaims that “income support payments based upon historical levels of production can no longer be justified” with current crop and livestock production values at all-time highs.
But this didn’t stop the usual flurry of goodies to certain regions. Supports are in place for sugar producers and even catfish farmers. There’s big money in crop insurance for the Midwest, subsidies for peanut and rice farmers in the South, and federal land payments for Western ranchers.
The new system will instead expand crop insurance around the country, with $5.7 billion in new funding over the next decade. Farmers will now need to suffer financial losses before they can receive payments.
Farm Bill Fact No. 3: Big Corn Remains America’s Top Cash Crop
A key purpose of the farm bill is to protect certain U.S. crops in the global market and encourage more cultivation. Congress strategically provides incentives for increased planting of these crops, which in the United States include wheat, soy, and corn.
Given that corn is such a vital part of our food chain, from animal feed to corn syrup, it typically receives the most support from Congress – and, of course, taxpayers: more than $77 billion over the last 15 years, in fact. And it will continue to receive the most support.
However, this bill will also boost the planting of other crops – such as sushi rice. Should sushi rice prices fall low, the government will provide a floor price and taxpayers will subsidize the price difference.
This will encourage more planting of the crop – and perhaps a few new sushi restaurants across town.
Farm Bill Fact No. 4: Another Step Toward Acceptance for Marijuana
In a surprising development, the farm bill allows greater planting and growing of hemp, a non-intoxicant strain of marijuana used in rope, clothing, soaps, lotions, and foods.
The provision provides 10 states with resources to engage in research and development through their college and university systems.
Federal law currently prohibits widespread cultivation of hemp in all but nine states. But with renewed interest in marijuana freedoms across the country, some speculate that federal regulations may be reduced and possibly allow legalization of the hemp crop in all 50 states.
This could also lead to more triple-digit gains for pot stocks – which are surging this year.
Farm Bill Fact No. 5: You’ll Know Exactly Where Your Meat Came From
Do you know where that hamburger meat came from? Well, you’re about to learn more about your meat than ever before.
For years, food processing and feed companies sought to avoid labeling meat with country of origin. Firms argued that labeling overburdened processors, created consumer bias against certain nations, and disrupted trade agreements.
But the USDA decided that labeling beef “from North America” doesn’t provide the level of transparency desired.
Moving forward, companies will disclose the place where food animals were born, slaughtered, and processed before ending up on grocery shelves.
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