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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.