Tobacco farmers escape sequester – but who’s going to pay?

By Aarian Marshall

© Copyright Agri-Pulse Communications, Inc.



Tobacco farmers will not lose out on their annual Tobacco Transition Payment Program (TTPP) due to sequestration, USDA confirmed Tuesday. But that leaves a question not even the department seems to be able to answer: Which stakeholders will pay for the estimated 7.2 percent cut in mandatory funds the department is required to make under sequestration?

In fiscal 2013 (which ended in October 2012), USDA was able to take required sequestration cuts out of the direct payments program. Given the enormity of the Farm Service Agency (FSA) subsidy program, the decision made a limited dent in producers' bottom lines, and the department received little flak for that decision.

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But direct payments ended with the expiration of the farm bill on Sept. 30, meaning USDA had a more complicated and time-consuming task: implementing the 2011 Budget Control Act (which created sequestration) across most of its mandatory funded portfolio.

Another complication? The uncertainty created by the farm bill. Though USDA began implementing sequestration in October, its cost-cutting structure could change dramatically if and when Congress passes a farm bill. The department is “trying to help farmers and ranchers prepare for this growing season,” said a USDA spokesman, but it is grappling with the uncertainty that comes with not having a farm bill and not knowing where sequestration-mandated cuts to that farm bill will have to be implemented.

“The farmer needs to know what he needs to work with to plan his planting, his purchase of livestock for this growing year,” the spokesman explained.

But for now, at least, some tobacco farmers appear to have escaped a cut to their payments. TTPP provides annual transitional payments for 10 years to eligible tobacco quota holders and producers. Those payments began in 2005, when tobacco manufacturers and importers were forced to pool about $10 million after USDA announced it would no longer heavily subsidize the tobacco industry.

While every contract varies, USDA's Economic Research Service reports that, under the buyout program, tobacco quota owners received $7 per pound while tobacco growers received $3 per pound.

Tobacco farmers who had already factored the payments into their fiscal 2014 bottom lines balked at the idea of USDA backing out of its payment. Some had (legally) sold their contracts to lenders, who were expecting a payout. The producers argued sequestration payments could not apply to TTPP because its funding had been provided by the tobacco industry -- not the taxpayer.

“It's like having a contract for your land and then having the buyer decide he didn't want to pay you as much as originally promised,” Scotty Whitford, a tobacco grower from Grantsboro, N.C., told Agri-Pulse in November.

Now, producers like Whitford have less to worry about. USDA eventually rejected the argument that non-taxpayer funds are unable to be cut in the sequester, but said it and the Office of Management and Budget (OMB) would use authority in another statute to complete the payments.

The Budget Control Act allows USDA to sequester funding for most mandatory programs, according to a Congressional Research Service (CRS) report. But that leaves many other farmers uncertain how sequestration could be implemented under a new farm bill.

A USDA source said the department is waiting on Congress for more instruction, adding that lawmakers should help the department determine where it needs to make those sequester cuts.

A Congressional Research Service (CRS) report provides some hints as to what programs see sequestration cuts. “[S]equestration applies to many [Commodity Credit Corporation]-funded programs, including the direct payment program, disaster payments, the Milk Income Loss Contract (MILC) program, and conservation programs (except the Conservation Reserve Program), as well as other farm bill programs that use CCC funds,” the report said.

The sequester does not apply to the Supplemental Nutrition Assistance Program (SNAP), which provides Food Stamp funds.

There's at least a little clarity out of Capitol Hill: the Bipartisan Budget Act, passed last month, included some sequester relief. That includes $45 billion in fiscal 2014 and $18 billion in FY 2015, split evenly between defense and non-defense, according to the Committee for a Responsible Federal Budget.

The bill also includes a two-year extension of sequestration for mandatory programs, from 2021 to 2023. 

But beyond that, there are few details on what sequestration could mean in 2014. There's a reason the Hill (and the OMB, which did not respond for comment) is so reticent: Congress is currently working through an appropriations bill, due Jan. 15. And the often intransigent body will also have to lift the ever-contentious debt ceiling (the one that shut down the government last year) three weeks later.

“Anything could happen in the next week as they put together the overall spending package,” Bob Young, chief economist at the American Farm Bureau Federation, wrote in an e-mail. “But I would point out that that package is really designed to deal with discretionary - appropriated - programs, not mandatory. So direct payments, commodity loan programs etc., would all still be subject to (the) sequester. It would be the appropriated programs like research…that will have a set spending [levels] available.”

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