By Scott Gerlt • ASA Chief Economist 

The Congressional Budget Office is the referee of the farm bill process. The nonpartisan office within the legislative branch is tasked with estimating the costs of legislation for Congress. Under congressional rules, it is difficult to pass a farm bill or other legislation that would increase the deficit. CBO’s analysis estimates the fiscal outcomes from proposals, which is a factor in determining whether they are allowed under the rules. As part of this process, CBO generates 10-year baselines that serve as the starting point for the analysis.

The baseline development is an important step in the farm bill process. It generally assumes current policy is extended throughout the projection period and estimates the costs of the current law dependent upon projected farm prices, yields, risk and other important factors. As changes to programs are considered, CBO uses the baseline as a starting point to evaluate the proposals. Unless the farm bill budget is increased, the ability to pass a bill becomes more complicated when the cost of the proposal exceeds the baseline.

Several important issues are worth mentioning regarding the baseline and scoring. First, in general, if the farm bill were renewed without any changes, the score (the difference in cost between the proposal and the baseline) would be equal to zero for most programs, as current policy was assumed to be extended in the baseline[1]. Second, if a bill is scored less than the baseline and becomes law, the baseline is effectively reduced going forward. The savings are not eligible to be used later. In other words, unless new funding is added to the farm bill or the rules are suspended, the legislative process can only shrink or maintain the baseline, not increase it[2]. Last of all, what programs actually spend in the future does not matter for baseline or scoring purposes; it only matters what the CBO projects at the time the legislation is scored. For instance, if CBO overestimates the cost of a program, the difference isn’t eligible for other purposes. It cannot be added to future baselines nor used as an offset to fund other programs. The corollary occurs if CBO underestimates the costs: The larger payments than were expected do not need any additional approval from Congress but will automatically occur.

Given the importance of the baseline to the process, the ag policy world closely watches CBO’s agriculture baselines, particularly during the farm bill renewal periods. CBO typically releases two per year and just released a new version in March 2023. While CBO will likely release another baseline that will be used for much of the farm bill work, this current one offers important information about how the office is scoring the programs. It also provides a glimpse at how the baseline going into this farm bill compares to the one going into the 2018 Farm Bill.

Figure 1 shows the estimated 10-year farm bill outlays heading into the 2018 Farm Bill compared to the most recent numbers. The total farm bill cost has increased from $867 billion to $1.426 trillion. This increase is mostly concentrated in a few programs[3]. The principal increase is in the Supplemental Nutrition Assistance Program, or SNAP—also known as food stamps. The 10-year budgetary size of the program has almost doubled from $664 billion to $1.205 trillion over the past five years. This was largely due to a reevaluation of benefits under the program in October 2021 by USDA and not to any changes made in the 2018 Farm Bill.

Figure 1

^[1] According to the Congressional Research Service, 19 programs from the 2018 farm bill do not have a budget baseline beyond 2023. Extending these programs would result in a cost.
[2] Subsequent baselines can increase in reality due to different projections about prices, yields, etc.
[3] The “Others” category was negative in the April 2018 baseline due to receipts to the Farm Credit System Insurance fund (https://crsreports.congress.gov/product/pdf/R/R45425).

Crop insurance outlays are also projected to increase from $78 billion to $97 billion. This is due to higher crop prices and different participation rates and policy offerings. As crop prices increase, the crop insurance premium goes up, which also increases outlays. This is because outlays are largely determined by premiums. Trade program outlays increased in the baseline through higher outlays for Food for Progress and permanent funding for Foreign Market Development in the 2018 Farm Bill.

The baseline between the two periods for commodity programs remains almost unchanged at $57 billion now versus $61 billion before the 2018 Farm Bill. Given the variability of the underlying factors for the programs, these numbers are quite close. Most of commodity program outlays are for Price Loss Coverage (PLC) followed by Agriculture Risk Coverage at the county level (ARC-CO) in the current baseline (Figure 2). CBO generally assumes a price decline in later years that makes benefits more likely for both programs in those years. PLC outlays are expected to ARC outlays due to higher participation rates in the PLC program and a 10% cap on ARC payments that limits its benefits. The “Other” category includes marketing loan benefits, individual ARC and dairy programs, among others.

Figure 2

Assumptions about prices in the future drive much of the forecasted outlays. As aforementioned, CBO generally assumes decreasing prices in the current baseline (Figure 3). The April 2018 baseline had flat prices for soybeans. The actual 2018 and 2019 prices ended up being below CBO’s projections due to the trade war with China. On the other hand, the 2021 and 2022 actual prices were much higher due to multiple factors, such as renewed Chinese demand and a short South American crop. While the February 2023 baseline is close to the actuals for those two years, the actual price for 2021 is known at this point, and 2022 is based on USDA’s estimate. Importantly, CBO projects that soybean prices will again fall to under $10 per bushel, which puts it close to the same numbers in the “out,” or later, years it had in the 2018 baseline. This makes increasing the reference prices set in legislation costly in those years, as expected program benefits go up as the farm price decreases. A failure to fully return to the price levels before 2021 would decrease outlays.

Figure 3

A couple of budget items are not part of permanent farm bill funding (and don’t show up in Figure 1) but are part of CBO’s USDA baseline. The first is $1 billion per year in administrative CCC spending. CBO increased its assumption on this level from $100 million per year starting with the May 2022 baseline. The other budget item is conservation outlays under the Inflation Reduction Act (Figure 4). The overall outlays for conservation programs specified in the farm bill are largely unchanged. This funding is “permanent,” as it is assumed by CBO to not expire in the baseline. The Inflation Reduction Act (IRA) contained additional funding for some of the conservation programs. The extra funding totaled over $15 billion in outlays through 2031. However, this funding is not permanent in the farm bill baseline. Due to the rules under which IRA was passed, the funding must be spent within the 10 years following the bill’s passage. As a result, under current law, the IRA funds cannot be spent after fiscal year 2031.

Figure 4

While several areas of the farm bill have higher baseline funding heading into the 2023 Farm Bill than they did going into the 2018 Farm Bill, the increases are either generally unrelated to agricultural production or result from accounting changes. Crop insurance is taking a more significant role in the baseline due to higher prices and other factors. However, while crop insurance provides protection within a growing season, it is not designed to deal with long-term issues like the commodity programs are. Those programs have been experiencing a decrease in actual outlays over the past 20 years. Relatively fixed safety net levels have not kept pace with inflation.

Given congressional rules, increasing funding to stop that trend under the current rules requires increased farm bill funding from the budget committee or finding offsets from other programs. The baseline determines the starting point against which costs for changes will be measured. CBO’s update, likely in May, will provide a final measuring stick against which farm bill ideas in 2023 will be scored[4].

[4] For additional information on the baseline comparison, see CRS report IF12047.