The President's proposed federal budget that includes features to reduce government farm program spending would cut net income for U.S. farmers, according to a budget analysis by Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.



While the proposed budget cuts farm spending by $9.8 billion over five years, net farm income drops by $7.4 billion over the same time. FAPRI delivered the report March 24 to the Missouri Congressional delegation, which requested the study.



FAPRI economists looked primarily at two proposals: Reducing farm payments by 5 percent and restricting access to government commodity loans, said Pat Westhoff, senior policy analyst at MU FAPRI. When other provisions of the proposed budget, including extended dairy payments, are added, the total federal spending on farm programs would be cut by a slightly smaller $9.5 billion.



"The 5 percent cut in all payments to farmers is fairly straightforward analysis," Westhoff said. "After payments for a farmer are calculated, the amount is reduced by 5 percent before the check is cut.



"A 5 percent cut has only modest effects on supply, demand and prices for major commodities," Westhoff said. FAPRI shows this cuts federal outlays by $3.1 billion over five years while net farm income drops $2.2 billion.



Loan limits have larger effects on planting decisions. This leads to greater impact on agricultural markets, especially in years of large crop yields and lower prices. The limits in this budget proposal cut farm program outlays by $7.2 billion for FY 2006-2010 and reduce net farm income $5.5 billion for that period.



At the request of Congress, FAPRI studies proposed policy changes before they are enacted into law. The computer models are asked "what-if" this change is made compared to the baseline, Westhoff said. "Analysis helps prevent unintended consequences," Westhoff said.



The report, "The President's Budget: Implications of Selected Proposals for U.S. Agriculture," will be on the Internet at www.fapri.missouri.edu.



FAPRI is a think tank at MU in Columbia and at Iowa State University in Ames. Economists at other universities help with specialty crops, such as fruits and vegetables, cotton, and rice and with impact at the farm level.



Congress funds the independent study by FAPRI of proposed legislation.



Source: FAPRI Release