Congress is likely to pass a farm bill later this week, as reports indicate that the House and the Senate may finally have reached a compromise over the most contentious issues. Farmers and major food producers have been on opposite sides of several components seen in the bill. Now that many of the preliminary details are being reported, the effects on farmers, food producers, and consumers can be better projected.
The biggest point of contention in the current United States farm bill is related to the Supplemental Nutrition Assistance Program, or SNAP, also referred to as the Food Stamps Program. SNAP benefits amounted to $76.4 billion in 2013, around twice as much as only five years ago. Cuts to the program are inevitable if the farm bill is to be passed this week, but the extent of the cuts are where the House and the Senate are in disagreement. Proposed cuts have ranged from $4 billion in the original Senate bill to $40 billion requested by the House, with the most recent reports suggesting a compromise of $9 billion may have been agreed upon.
The other most controversial components of the farm bill relate to milk and chickens. In the original version of the Senate bill was the Dairy Milk Stabilization Program component within the Dairy Security Act. The program was intended to protect dairy-producer margins by limiting milk supply when milk prices drop and feed-crop prices rise. The chicken-related portion of the farm bill has been debated for inclusion in the bill as a response to California policies that will restrict the sale of eggs laid from chickens housed in humanely sized quarters. The revision to the farm bill would not allow for states to impose standards that are higher than the federal standards on farm goods purchased from other states.
Food stamp winners and losers
Debate over the Food Stamps Program seems more motivated by philosophical reasons than by the influence of lobbying. While there is some benefit to be realized by the nation's largest food producers like Kraft Foods (UNKNOWN:KRFT.DL) and General Mills (NYSE:GIS) if cuts to the Food Stamp Program are minimized, the issue is more contentious from a political standpoint than from a business standpoint. Nonetheless, one would expect Kraft Foods and General Mills to be happier taking their fair share of an $80 billion food stamp pie than a $40 billion pie.
The effects of the Food Stamps Program on farmers and their ability to receive higher compensation for their crops are indirect and not especially considered in this portion of the farm bill. Technically increases to the Food Stamps Program could increase overall food-product demand and eventually the cost for farm-based food products, but the correlation to farmer compensation is anything but direct.
The impact on consumers is obviously considerably greater for the nearly 50 million Americans receiving assistance from the program, but the topic of fiscal responsibility versus social accountability is again more a political issue than a business issue for the rest of the American population.
Winners and losers for milk and chicken provisions
The Dairy Security Act has caused a clear divide between dairy farmers and dairy food producers; food producers like Kraft Foods and Dean Foods (NYSE:DF) that are heavily vested in milk products. An increase in milk prices caused by what is essentially insurance for farmers against dropping prices could hurt food-producer margins, and they accordingly have lobbied against the dairy component that was included and passed in the original Senate version of the farm bill. Farmers and dairy co-ops, on the other hand, are the largest group of supporters for the Dairy Security Act, as they are looking for margin insurance and market stabilization.
Consumers are caught in the middle, though large food producers claim to be arguing on behalf of consumers and against raising milk prices that would likely increase the cost of milk-based food products. Again, the political issue of how best to spend taxpayer money is at hand, with the two sides basically arguing whether it should be farmers or food producers who receive what in either case could be interpreted as a subsidy.
Lastly, the chicken portion of the deal pits egg producers like Cal-Maine Foods (NASDAQ:CALM) against California and other states considering or implementing trade restrictions based on their interpretation of humane chicken handling. Enabling restrictions on the interstate trade of eggs and potentially other livestock products could cut into the market reach of non-California-based egg and livestock producers like Cal-Maine Foods should the 'egg bill' not be passed. Farmers in general support the loosened restrictions of the egg bill, while consumers are faced with a decision between low prices and humane livestock handling.
Legislation amounting to nearly $500 billion is inevitably going to have its supporters and opponents. Considering the labeling as the 'farm bill,' one would expect farmers to be the major benefactors of the bill. Consumers and large food producers, however, will also see the ramifications of the United States farm bill, though the impacts of the bill may go largely unnoticed if the status quo is largely maintained as expected.
Fool contributor Shamus Funk has no position in any stocks mentioned. The Motley Fool owns shares of Dean Foods Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.