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Sequestration – Possible Effects on Government

Programs Affecting the Milling Industry

With only a week until a planned budget sequestration, there are many predictions of general chaos in the delivery of Federal government services.  The purpose of this paper is to gather known and speculated information on any potential impacts to NAMA and it’s members, should the full sequester go into effect on March 1.  There is much uncertainty and brinksmanship in the actual implementation, so all the predictions contained here are subject to change.

The budget sequester is an across the board $85 billion cut in the current year’s federal government budget, roughly divided between military and non-military spending.  It was a last-ditch effort amid budgeting gridlock designed to be so onerous to both parties that they would have incentive to negotiate a more permanent budget solution.  Without progress toward more normal budgeting and both parties digging in on who will be blamed for the potential chaos, it now seems very likely that the government will begin implementing the cuts on March 1.  Since the cuts amount to about a 6% cut in the annual budget, but to be implemented in the last half of the year, the impact on the remaining months of the fiscal is expected to be about twice that percentage.

The Obama Administration is saying that they have little discretion or flexibility in implementing and are suggesting they will do little to prioritize how the cuts will be spread around.  It’s difficult to see how much of that posture is to generate public pressure on Congress to avoid the sequester and how much is legitimate limits on budget flexibility.  One example that is getting a lot of press in the food and ag community is USDA Secretary Vilsack’s assertion that he has no ability to avoid furloughing FSIS inspectors in meat and poultry plants, even though the furloughs would shut those plants and cost the economy billions.  Animal agriculture and meat trade associations assert that he does have the ability to make those jobs ‘essential’ and make those cuts in other ‘non-essential’ USDA operations.

Here are some of the places we expect the sequester to touch NAMA and its members:

Food aid procurements

USAID has not shared with any stakeholders what impact sequestration will have on their Title II PL 480 purchases the rest of this year.  It appears that a lowering by 10% in each future tender would be the worst-case scenario.  We continue to inquire, but the official line is that they hope they won’t have to implement a sequester.  If AID implements a staff furlough, we don’t believe at this time it will impact food aid procurements, since most programs were approved before the beginning of the fiscal year.

Federal inspections of food aid products

Beginning at the outset of FY 2013 beginning October 1, FGIS sampling and testing has only been required on Corn Soy Blend shipments.  We contacted FGIS and they tell us they will continue to have personnel available to perform these functions.

Other NAMA food aid products do not have uniform independent surveying of products for quality, but use the vendors Certificate of Analysis for documentation of product quality.

Foreign Market Development (FMD) program

NAMA was informed late last week that the Foreign Agriculture Service has made allocations of their market development programs and that NAMA has received authorization to spend up to $60,583 in FMD funding for this matching fund program to market NAMA products into export markets.  FAS took an interesting approach to the sequester by holding back 10% of their proposed allocation as a ‘reserve’ in case the sequester is not implemented.  It is possible that a decision not to implement the sequester would provide NAMA with an additional $6,000, which is a surprising 12% increase over NAMA’s 2012 program allocation.

Food safety – It is estimated the Food and Drug Administration would lose about $65 million in funding for food programs, taking it back to roughly 2010 levels. This could result in 2,100 fewer inspections at domestic and foreign facilities. FDA estimates the rate of import inspections would decrease by 24 percent.

Nutrition assistance for women, infants and children – Approximately 600,000 women and children would be dropped from the Department of Agriculture’s Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) from March through September.

Grain inspection and weighing

Because grain inspection and weighing services are provided on a fee for service basis, no reductions in activity are expected. An off the record conversations with an FGIS manager confirmed that no curtailment of services is expected. As a practical matter, most inspections in the US non-export market are provided by state or private inspectors, under FGIS supervision.

Last updated February 26, 2013

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