Agriculture: Previewing the 2002 Farm Bill

Order Code RL30847

CRS Report for Congress

Received through the CRS Web

Agriculture: Previewing the 2002 Farm Bill

Updated April 9, 2001

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Resources, Science, and Industry Division

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Agriculture: Previewing the 2002 Farm Bill

Summary

Federal farm support, food assistance, agricultural trade, marketing, and rural

development policies are governed by a variety of separate laws. However, many of

these laws periodically are evaluated, revised, and renewed through an omnibus,

multi-year farm bill. The Federal Agriculture Improvement and Reform (FAIR) Act

of 1996 (P.L. 104-127) was the most recent omnibus farm bill, and many of its

provisions expire in 2002, so reauthorization will be an issue for the 107th Congress.

The heart of every omnibus farm bill is farm income and commodity price

support policy – namely the methods and levels of support that the federal

government provides to agricultural producers. However, farm bills typically include

titles on agricultural trade and foreign food aid, conservation and environment,

domestic food assistance (primarily food stamps), agricultural credit, rural

development, agricultural research and education, and marketing-related programs.

Often, such “miscellaneous” provisions as global warming, food safety, and animal

health and welfare are added. This omnibus nature of the farm bill creates a broad

coalition of support among conflicting interests for policies that, individually, might

not survive the legislative process.

The scope and direction of a new farm bill will be determined by a number of

contributing factors, including financial conditions in the agricultural economy, the

federal budget, and international trade developments, among others.

Among the thorniest issues will be future farm income and commodity price

support. The Agricultural Market Transition Act (AMTA), Title I of the 1996 farm

bill, was designed to provide gradually declining fixed payments to producers of

major crops (grains and cotton), while giving them more flexibility to plant in

response to market signals, among other provisions. However, unanticipated,

persistently low commodity prices and 3 years of multi-billion dollar ad hoc

emergency farm aid packages to supplement the assistance programmed through the

1996 law have raised questions about its effectiveness. Many have expressed

preference for a more reliable method of supporting farm income than ad hoc laws,

and are pushing for a variety of changes to accomplish that in a new bill. Questions

of equity (e.g, who should get aid and how much), program cost, impacts on trade

competitiveness and the environment are among the considerations in this debate.

The economic prosperity of the U.S. farm sector is heavily dependent upon

exports, so the provisions of a new bill reauthorizing farm export and foreign food

aid programs also will be of keen interest. These provisions also might become a

venue for providing guidance regarding farm sector goals and objectives to U.S.

officials negotiating a new multilateral round of agricultural trade reforms, as well

as several new bilateral and regional agreements. Moreover, the agricultural credit,

research, conservation, domestic nutrition assistance, and rural development titles

will bring an array of interests into the debate, and their issues and concerns could

prove no less contentious.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

What Is “The Farm Bill”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Related Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Federal Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Farm Income and Commodity Price Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Developments Since 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Case for Federal Farm Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Selected Issues and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Foreign Trade and Food Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Conservation and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Food Stamps and TEFAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Farm Credit and Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Agricultural Research, Extension, and Education . . . . . . . . . . . . . . . . . . . . . . . . 24

Appendix A. Commodity Credit Corporation Net Expenditures, By Commodity/Program,

FY1996-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Appendix B. Titles & Subtitles of the 1996 Farm Bill (Federal Agriculture

Improvement and Reform Act of 1996, P.L. 104-127) . . . . . . . . . . . . . . . . 27

Agriculture: Previewing the 2002 Farm Bill

Introduction

What Is “The Farm Bill”?

The 107th Congress will consider major farm and food legislation in an omnibus

multi-year authorizing bill, commonly called the “farm bill.”

Federal farm support, food assistance, agricultural trade, marketing, and rural

development policies are governed by a variety of separate laws. However, many of

these laws periodically are evaluated, revised, and renewed through an omnibus,

multi-year farm bill. Of course, these policies can, and sometimes are, modified or

overhauled as free-standing authorizing legislation, or as part of other laws.

However, periodic “farm bills” have provided Congress, the Administration, and

interest groups with an opportunity to reexamine agricultural and food issues more

carefully, and address them more comprehensively.

The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 (P.L.

104-127) was the most recent omnibus farm bill, and many of its provisions expire

in 2002. Without new legislation, notably in the area of farm income and commodity

price support programs, permanent statutes would take effect. Most of these statutes

were enacted decades ago and are no longer compatible with current national

economic objectives, global trading rules, and federal budgetary or regulatory

policies. (In fact, these largely outdated permanent laws have been kept on the books

in part to compel an increasingly urban and suburban Congress to pay attention to

national agricultural policy.)

The heart of every omnibus farm bill is farm income and commodity price

support policy – namely the methods and levels of support that the federal

government provides to agricultural producers. However, farm bills typically include

titles on agricultural trade and foreign food aid, conservation and environment,

domestic food assistance (primarily food stamps), agricultural credit, rural

development, agricultural research and education, and marketing-related programs.

Often, such “miscellaneous” provisions as global warming, food safety, and animal

health and welfare are added.

This omnibus nature of the farm bill creates a broad coalition of support among

conflicting interests for policies that, individually, might not survive the legislative

process. Among the groups lobbying Congress will be farm and commodity

organizations; input suppliers; commodity handlers, processors, retailers, and

exporters; foreign customers and competitors; universities and scientific

organizations; domestic consumers and food assistance advocates; environmentalists,

and rural communities. So, for example, farm state lawmakers look to urban

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legislators’ support for commodity price supports in exchange for their votes on

domestic food aid – and vice versa.

The 1996 farm bill had 9 titles and some 300 pages – much shorter than the

1990 farm bill, which consisted of 25 titles and over 700 pages.1 Farm bills and the

programs they encompass are complex, tightly intertwined, and intensely interactive.

Changes to one program often have unintended consequences for others. For

example, a legislative change that raises corn prices must be examined for how it

might change the planting decisions of those who grow other crops such as soybeans,

and, in turn, the cost of the support program for soybeans. Likewise, a change in the

corn program can have major implications for producers who feed corn to dairy

cows, beef cattle, and other animals; for sugar producers and processors who can use

corn syrup in place of sugar for many products; for consumers, including those on

limited food budgets; and for exporters and foreign competitors. The level and type

of support provided also can affect farm equipment companies, agricultural investors

and rural financial institutions, fertilizer and pesticide suppliers, and farm-dependent

rural communities.

Congressional Action

The farm bill likely will not be the only legislation in the 107th Congress

affecting the farm sector. Lawmakers also are, or will be, considering welfare

legislation, tax reform, trade legislation, government-wide budget resolutions, and

various appropriations bills, all of them closely followed by farm interests.

In reality, federal farm policy is an ongoing issue for lawmakers. The 1996 law

was intended to guide agricultural support through 2002. But unanticipated

economic problems forced Congress to begin the next “farm bill debate” in 1998,

when it considered and passed the first of a series of ad hoc measures that have

pumped many billions of dollars in supplemental aid into the farm sector. (See “Farm

Income and Commodity Price Support,” on page 8.)

In 2000, the House Agriculture Committee held numerous hearings on the 2002

farm bill, most of them in various parts of the country. This year, in late January,

both the House and Senate Agriculture Committees formally resumed work by

holding separate hearings to receive the recommendations of the Commission on 21st

Century Production Agriculture, a blue-ribbon panel of experts established by the

1996 farm bill to advise Congress on future policy changes.2 Both committees are

holding additional hearings in early 2001. For example, the House committee has

focused heavily on proposed changes to commodity price and income support

programs, already taking testimony from approximately 20 separate general

agriculture and commodity organizations.

The House chairman has indicated a desire to pass at least the commodity

support titles of a farm bill this year. Efforts to do so were bolstered when the House,

1

2

See Appendix B for a table of contents of the 1996 farm law.

Commission on 21st Century Production Agriculture. Directions for Future Farm Policy:

The Role of Government in Support of Production Agriculture. January 2001.

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on March 28, 2001, passed its budget resolution, which would allow for more future

spending to be devoted to agriculture if the House Agriculture Committee reports

legislation authorizing a new commodity and farm income support title by July 11,

2001 (see “The Federal Budget,” on page 4). However, several other Members of

Congress, including leaders of the Senate Agriculture Committee, have indicated that

omnibus legislation, including the commodity section, may not pass Congress until

2002.

Related Policy Considerations

Economic Situation

For the last 3 years, lower demand for U.S. agricultural exports – due to the

global economic slowdown, the continuing high value of the U.S. dollar, and

abundant world supplies – have contributed to sharply lower prices for major farm

commodities. A slowly recovering world economy is expected to stimulate a rise in

the value of farm exports, to $53 billion in FY2001 – above the recent low of $49

billion in FY1999 but still short of the record high of nearly $60 billion in FY1996,

according to the U.S. Department of Agriculture (USDA). Farm export volumes for

many items are expected by USDA to continue to experience growth in the coming

years, but prices (and therefore overall value of exports) will recover more slowly

due to large production and stocks.

The trade outlook is important to farmers because exports account for 20% to

25% of the value of their production, and one-third of harvested acreage is exported.

Farm income also is affected by other factors, not the least of them government

subsidies. USDA forecast data show that 2000 net cash farm income, at $56.4

billion, has remained close to the annual average of the 1990s, due largely to record

high direct payments to farmers. This has helped to undergird the value of

agricultural land and other assets, keep farm debt at favorably low levels, and protect

farm operator incomes. Production expenses, until recently relatively low, have been

on the rise due to higher fertilizer, fuel, interest rate, and other input costs. USDA

predicts that, absent another round of “emergency” payments for farmers, (i.e., over

and above what they are programmed to receive under the 1996 farm law), U.S. farm

net cash income could drop below $51 billion in 2001.

Changes in farm income also have impacts on rural communities and businesses

that depend on the agricultural sector. Meanwhile, if the U.S. economy in general

continues to cool, unemployment could rise and non-farm household incomes

decline. That would bode higher costs for the food stamp program, where spending

is directly affected by employment and income changes. So, the food stamp as well

as the rural development titles of a new farm bill could become even more prominent

issues in the next year or two.

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The Federal Budget

Like all areas of the federal budget, agriculture and other programs in the farm

bill face spending constraints imposed by Congress. These constraints begin to take

shape with the start of the annual congressional budget process, when the House and

Senate Budget Committees recommend maximum spending levels for broad

“functional” categories. Once these limits are approved by Congress via the annual

budget resolution, program spending cannot be increased that would breach these

limits, unless either: (1) they are offset by increased revenue or cuts in other

programs, or; (2) Congress and the President declare the extra spending to be

“emergency.”3

Farm Bill Budget Categories. Most of the major programs that assist

production agriculture, including commodity price and income supports, crop

insurance, farm credit, marketing, and agricultural research, fall within so-called

function 350, the agriculture function of the federal budget. Other functional areas

of spending administered by USDA include: food stamps (under function 600,

income security); conservation programs (under function 300, the natural resources

category); foreign food aid (under function 150, the international affairs category);

and so forth. So, although most of these programs are addressed by the Agriculture

Committees in an omnibus farm bill, they are scattered throughout the federal budget

Figure 1. USDA Gross Outlays, FY2000

--- Billion $ --USDA Total=$80.783 billion

Farm & Foreign Agriculture

46.1%

$37.235

Admin & Misc

0.5%

$0.434

Rural Developm ent

2.5%

$2.053

Food & Nutrition

40.0%

$32.350

Marketing & Regulatory

1.1%

$0.861

Natural Resources

6.5%

$5.222

Food Safety

0.8%

$0.645

Research

2.5%

$1.983

Source USDA Budget Summary, FY2001.

3

The budget resolution is a congressional blueprint for all federal spending that does not

require a presidential signature, however.

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for scorekeeping purposes (see figure 1).4 In fact, spending for USDA is not

synonymous with spending for farmers, nor with the farm or appropriations bills.

Adding further complexity, some programs within each functional category are

considered “mandatory” spending, while others are “discretionary.” Examples of

mandatory spending are the major farm commodity price support programs and the

food stamp program. Funding needs for mandatory programs are determined

indirectly in the House and Senate Agriculture Committees when they write, directly

into the authorizing laws, the eligibility standards and benefit levels for these

programs (as long as this funding does not exceed levels permitted in the separate

congressional budget resolution). The appropriations committees then generally are

expected to provide the necessary year-to-year funding in the annual USDA

appropriation.

Examples of discretionary spending are agricultural research and extension, and

farm marketing services. While discretionary programs also are designed and

authorized in the House and Senate Agriculture Committees, their annual funding

levels are not set until the House and Senate Appropriations Committees decide on

them as part of the annual USDA appropriations bill. (Of course, both mandatory

and discretionary program authorizations and spending still ultimately must be

approved by the full House and Senate after they are reported by the relevant

committees.)

Before either the Agriculture Committees or Appropriations Committees make

these decisions by drafting the appropriate legislation – whether it is a new farm bill,

an annual USDA appropriation, or some other measure – the panels must know how

much “room” they have been allocated under the congressional budget resolution.

The “Baseline”. Thus, the opening stages of debate over a new farm and food

policy usually occur in the Budget Committees. Both the Administration and the

Congressional Budget Office (CBO) independently estimate what the level of USDA

spending will be in coming years based on “current policy,” generally meaning the

continuation of existing law, and on additional assumptions about likely economic

and market conditions. The debate focuses on whether these estimates – the

“baseline” – are appropriate or whether more (and, possibly, less) spending should

be “built into” the baseline.

Usually, Congress uses the CBO baseline. For the major farm income and price

support programs, CBO in December 2000 estimated that annual spending will be

about $10.2 billion in FY2002 and $9.2 billion in FY2003.5 The CBO annual

baseline generally continues to decline, from just under $9.2 billion in FY2004, to

4

The food stamp program accounted for about $18.9 billion of the $33 billion food and

nutrition category. Farm and foreign agriculture outlays likely exceeded food assistance

program outlays for FY2000, due to the $30.5 billion cost of Commodity Credit Corporation

(CCC) farm spending.

5

These figures refer to farm spending by the CCC, the USDA entity created specifically to

finance operations of the Department’s farm price, income support, and related programs.

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about $5.3 billion in FY2008, as well as in FY2009, which conceivably might be the

final years of a new omnibus farm bill.

However, CCC farm spending (including emergency aid) was about $30.5

billion in FY2000 and is projected at $17.3 billion for FY2001 (unless, as many

anticipate, Congress again provides additional emergency assistance this year).

Earlier, each congressional authorizing committee submitted to the budget

committees its recommendations for spending on programs under its jurisdiction.

Although the agriculture committees did not request specific dollar amounts for

additional farm assistance, they did ask the budget committees to provide them with

the flexibility they might need to provide ad hoc assistance this year, as well as to

make possible changes to authorized farm commodity support programs once they

expire in 2002.

The House Budget Committee completed markup of the FY2002 budget

resolution (H.Con.Res. 83) on March 21, 2001, which the full House approved by a

222-205 vote on March 28. Although the House-passed resolution does not

specifically increase allocations for farm commodity support spending, it does

support the Administration proposal for the use of a reserve fund to finance future

new farm spending needs. For the near term, Section 8 of H.Con.Res. 83, as passed

by the House, allows the chairman of the House Budget Committee to increase

allocations for farm spending in FY2001, if legislation is considered authorizing

financial assistance to crop growers. For longer term farm spending needs, Section

6 allows the Budget Committee chairman to increase agricultural spending in

FY2002 by July 25, 2001, if the House Agriculture Committee reports legislation

authorizing a new farm bill commodity title by July 11, 2001.

The full Senate completed its version of H.Con.Res. 83 on April 6, where

Senators earlier approved a floor amendment to add, to the baseline, about $63.5

billion more for mandatory agriculture spending over the next 10 years. More of the

funds would be available in the earlier, than later, years of that period. It is expected

that a House-Senate conference, after the spring recess, will resolve differences in the

two measures. (A coalition of major farm and commodity organizations have been

urging Congress to provide at least $12 billion more annually.) The final level

obtained will be a key determinant in the type of programs lawmakers design for a

new farm bill.

International Trade

U.S. international trade obligations, most notably under the multilateral Uruguay

Round Agreement on Agriculture (URAA), pose another constraint on farm program

design and spending. Generally, that agreement places countries’ domestic farm

support programs into one of several broad categories, based on their relative

likelihood to distort trade. Major agricultural trading countries are required to

“discipline” (limit) total spending (i.e., their aggregate measure of support, or AMS)

for their most trade-distorting (so-called “amber box”) policies. Countries report to

the World Trade Organization (WTO) on their domestic farm spending for each year.

The United States, like virtually all other countries, has been reporting that its

AMS has been below its allowable annual levels (the last year it reported was for

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1997). From 2000 on, the United States cannot exceed $19.1 billion in AMS

spending. U.S. amber box programs that generally might be counted toward AMS

include dairy, peanut, and sugar price supports, crop marketing loans, loan deficiency

payments, and other direct payments linked to per-unit levels of production; storage

payments; and crop insurance and loan interest subsidies, among others.6 The least

trade-distorting programs, so-called “green box,” are exempt from AMS limits.

Green box programs include income supports not coupled to current production or

prices, such as the payments going to producers who signed 7-year production

flexibility contracts under the Agricultural Market Transition Act (AMTA) in the

1996 farm bill; conservation and environmental activities, such as the Conservation

Reserve Program (CRP); farm disaster relief payments; and domestic food aid like

food stamps.

The URAA does provide latitude to U.S. policymakers in developing domestic

support measures that can both provide significant aid to producers but at the same

time comply with WTO obligations. Some analysts argue, for example, that the

United States will be able to claim that the emergency “market loss” payments

Congress has provided to AMTA contract holders for 3 consecutive years (1998,

1999, and 2000) are exempt from AMS commitments because either (1) they are not

tied to current production and prices, or (2) they are not commodity-specific, and

therefore the subsidies could be measured against total U.S. production value for all

commodities – keeping the level below the 5% de minimis exclusion.7 On the other

hand, some member nations of the WTO could argue that the payments were made

specifically in response to immediate price and supply conditions and were so large

as to affect world trading patterns, thereby undermining the objectives of the

agreement. The question could become a point of contention in the WTO

negotiations to further reform agricultural trade, which are now under way.

As Congress begins to consider a new farm bill, other countries will be

evaluating whether, in their view, future programs comply with the URAA.

Moreover, the United States is pressing the EU for further cutbacks in its own

domestic supports, and continued additions to the U.S. programs by Congress might

undermine that U.S. negotiating position, some have argued.

Meanwhile, Congress will likely be seeking support methods that it can justify

as URAA-compliant. Thus, farm policy proposals tied to conservation, rural

development, and/or resource retirement, or those providing subsidies to producers

irrespective of what they plant or of current prices, might be viewed more favorably

than others. Congress and the Administration also may seek to influence future

6

Countries, including the United States, do not have to count amber box subsidies toward

their total AMS if the total support provided by all of them is less than 5% of the value of

production – the so-called de minimis exclusion. If the subsidies apply to a specific

commodity (e.g., wheat, sugar, milk, etc.), then the 5% rule applies to the production value

of that commodity only. If the subsidies are non-commodity specific, then the 5% rule

applies to the value of the country’s total agricultural production.

7

See above footnote. However, as of early April 2001, the United States had not yet

submitted its AMS notification to the WTO for any of these 3 years, so how the payments

will be counted was still not known.

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multilateral roles in ways that are consistent with U.S. domestic support policy aims

and measures. (See CRS Report RL30612, Farm Support Programs and World

Trade Commitments, and CRS Report RS20840, Farm Program Spending: What’s

Permitted Under the Uruguay Round Agreements.)

Farm Income and Commodity Price Support

The 1996 farm law significantly revised federal farm support policy. Title I, the

Agricultural Market Transition Act (AMTA), eliminated variable deficiency

payments (which were the difference between legislated target prices and current,

usually lower, market prices) for wheat, feed grains, cotton, and rice. Producers of

these commodities instead are receiving “production flexibility contract” (PFC)

payments, which are lump sum benefits that decline each year. These are provided

irrespective of current market prices or planting choices. Supply controls in the form

of specific annual acreage bases and cropland set-asides were ended by the 1996 law

because, it was argued, they distorted production decisions and ceded export markets

to foreign competitors – who increased output whenever U.S. farmers had to cut

acreage in order to receive subsidies.

With federal payments “decoupled” from production under the 1996 law,

farmers were encouraged to plant for “market returns” rather than “federal program

benefits,” and were given broad planting flexibility. The 1996 farm law was enacted

at a time when farm prices were at high levels and foreign markets were expanding

greatly. The major crop producers (or owners of the land where these crops had

USDA-assigned bases prior to 1996) were set to receive a total of about $36 billion

in contract payments over the 7-year life of the law.

In addition, the 1996 law maintained some price protection by providing

countercyclical marketing loan assistance for AMTA commodities and for soybeans

and minor oilseeds. Under this program, farmers who take out USDA crop loans are

permitted to repay them upon maturity at market prices if these prices are less than

the original per-unit (bushel, pound) loan rate; the difference is in effect a revenue

subsidy. Moreover, those eligible for but not taking the crop loan also receive an

equivalent subsidy called a loan deficiency payment (LDP). CCC net outlays for

loan-related activities, including LDPs, were $1.6 billion in FY1998, $4.8 billion in

FY1999, $9.8 billion in FY2000, and are projected at $6.6 billion in FY2001,

according to USDA.

The 1996 law also had paved the way for elimination of the longstanding dairy

price support program, whereby the government steps in to buy surplus cheese,

butter, and nonfat dry milk whenever farm milk prices decline below a statutorily

determined level. Sugar price support, which operates primarily through CCC loans,

was continued, although without domestic marketing controls. The peanut program,

whereby domestic prices are protected through production quotas and higher price

support for quota peanuts, also was continued.

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Developments Since 1996

At the time of passage, objections to the 1996 law were heard from some who

worried about inadequate “counter-cyclical” income support in the law if prices fell.

In fact, this began to happen late in 1997. This followed several years of unusually

good growing conditions in many parts of the world, a financial crisis in key growth

markets for U.S. farm goods (Asia and Latin America), and a rise in the value of the

U.S. dollar against other currencies. Falling commodity prices substantially reduced

farm income, and the Congress stepped in with several emergency measures to

increase government payments to farmers. After 3 years of such emergency

measures, this aid (along with the rising cost of the loan programs) increased farm

subsidies well above the levels anticipated under the 1996 policy.

From 1998 to 2000, these emergency measures provided a total of

approximately $25 billion in farm and related assistance, over and above amounts

already authorized by the 1996 law. Although a substantial portion was for disaster

assistance (e.g., drought, flooding, etc.), about $17 billion of it was in response to

falling commodity prices. Nearly $14 billion of the $17 billion went to those with

AMTA production flexibility contracts. Much of the rest of the economic (nondisaster) aid was for special subsidies for producers of soybeans and other oilseeds,

peanuts, tobacco, milk, honey, wool, and mohair. In effect, Congress revived

programs for the latter three commodities which earlier it had eliminated. In

addition, the dairy price support program has been extended twice, and (though it is

now scheduled to expire at the end of calendar 2001) will likely be extended again.

Figure 2. Direct Government Payments to Farmers, 1980-2001(f)

25.0

22.1

20.6

20.0

16.7

15.0

14.5

14.1

13.4

12.2

11.8

10.9

10.0

9.3

9.2

8.4

9.2

8.2

7.7

7.9

7.3 7.3 7.5

5.0

3.5

1.9

1.3

0.0

80

82

84

86

88

90

92

94

96

98

00F 02F

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In 2000, direct government payments to farmers reached $22 billion – a figure

representing over one-half of net farm income and some 40% of net cash income for

the calendar year (figure 2, from USDA data). Of this total, $9.5 billion came from

the “emergency” farm aid; the rest was primarily from higher marketing loan

subsidies already programmed under the 1996 law. In recent years, government farm

subsidies actually have reached record-high levels, but they have helped the overall

farm economy remain in relatively strong financial condition, at least through early

2001, according to USDA.

The Case for Federal

Farm Support

Apparent inequities in the

distribution of program

benefits, the economic wellbeing of today’s farm

households, and the

comparatively small role of

farming in the employment and

income base of many rural

communities have challenged

the original justifications for the

price support programs. When

the programs were created in

the 1930s, farms were, by

today’s standards, smaller and

poorer, played a larger role in

their local economies, and

shared relatively equally in the

production of the nation’s

supplies of food and fiber.

Today, by contrast,

average farm operator

household income exceeds the

national average for all U.S.

households, rural economies

are, except in a few areas, far

more diverse, and farming is

much more segmented and

specialized. Farm payments

(including the emergency aid of

1998-2000) by design still are

effectively based on output

rather than being targeted to

farmers who are the most

economically distressed. For

these and other reasons, critics

question why non-farm

Who Farms Today?

The 1997 Census of Agriculture counted

approximately 1.9 million farms. These can be

divided into at least three distinct groups, most of

which remain family-run operations. However, a

more detailed breakdown of these Census statistics

shows that the sector is much more diverse in

production, income, and economic well-being than

indicated below.

Large commercial operations: About 157,000

commercial farms, with annual agricultural sales of

$250,000 or more (about $900,000 on average),

account for 8% of all farms but 72% of all U.S.

production value. Such farms depend primarily on

agriculture for their income, the bulk of which

comes from market sales, not government payments

(although a sizeable portion of such payments do go

to such farms).

Mid-sized farms: About 189,000 farms with

annual sales between $100,000 and $250,000

(about $160,000 on average) account for about 10%

of all farms and 15% of U.S. production value.

Operators of these farms obtain 57% of their

household income from non-farm sources. Some

are sound and others are severely stressed

economically.

Small farms: These are the nearly 1.6 million

remaining farms with average sales of less than

$100,000 annually (and $16,000 on average). They

receive virtually all of their household income from

non-farm sources and are considered farms

primarily because of their location, character, and

the fact that Census defines a farm as any place that

sold as little as $1,000 in agricultural products.

However, some of these smallest farms are operated

by so-called limited-resource farmers who have

little or no other income.

CRS-11

taxpayers should transfer an average of $11.4 billion annually over the past 10 years

in support to farmers, and primarily those farmers growing selected commodities.

Defenders of the current system argue that federal farm programs are intended

to maintain the productive and competitive capacity of U.S. agriculture, not serve as

welfare for individually needy farms. A healthy agricultural sector is vital to the

national economy, where the net value of agricultural goods and services accounted

for $90 billion annually during the last 5 years.8 The overall food and fiber sector

accounts for more than 15% of Gross Domestic Product, and 18% of U.S. civilian

employment (however, the majority of those percentages are contributed by off-farm

industries such as inputs, processing, marketing, etc.). Agriculture deserves special

consideration because it is a highly volatile industry subject to highly price-inelastic

demand, the vagaries of biologically-based production, variable weather patterns, and

volatile world market forces, it has been argued. Government support helps to assure

an abundant supply of safe, reasonably-priced food produced in an environmentally

sound manner.9

Selected Issues and Options

Many policy makers and farm groups are pushing for policy changes that would

provide a more reliable method for supporting farm income than ad hoc laws – and

pushing for more assurance that the money will be available when needed in future

years. Meanwhile, though, the complexities and political considerations inherent in

a major reauthorization of farm policy make it likely that another supplemental ad

hoc funding package will be considered this year.

Debate over both short-term relief and long-term policy changes involve such

issues as: (1) competition for additional money with those pursuing other policy

interests, such as tax relief, deficit reduction, or Social Security and Medicare

reforms; (2) the extent to which policy changes might weaken the underlying market

orientation goal of changes made by the 1996 farm law; (3) which commodity groups

should benefit from policy changes and by how much, and (4) conformance with

trade agreement caps on domestic support for agriculture and with the U.S.

negotiating position that the European Union (EU) and other parties should reduce

trade-distorting farm support.

Agricultural interest groups have offered a variety of options for modifying

current farm policies. Except as noted, the options discussed below mainly apply to

policies for wheat, feed grains, upland cotton, rice, and oilseeds.

PFC Payments. Most (although not all) organizations that have testified to

date have called for continuation of lump sum production flexibility contract (PFC)

payments. Some have recommended increased annual funding (which will total

about $4 billion in the final year of the current program), perhaps as a more

“permanent” alternative to the annual ad hoc supplements that have been

8

Commission on 21st Century Production Agriculture.

9

These arguments are made in greater detail in the Commission’s report.

CRS-12

appropriated for PFC recipients since 1998. Some want increased PFC payments so

that eligibility can be expanded to include soybean and other oilseeds acreage. One

question is whether additional commodity groups should share in any expanded

AMTA funding – such as the tobacco, peanut, milk, wool, mohair, apple, and

cranberry producers who recently received direct payments under the emergency

funding laws. Another issue is whether the basis for awarding PFC payments ought

to be revised (e.g., by using more recent planting histories, allowing entry of farmers

who did not produce contract crops when AMTA was adopted in 1996, etc.).

Counter-cyclical Assistance. There is growing interest in the concept of

counter-cyclical assistance, where supplemental payments would be made when farm

income declines below a predetermined level, and halted when income is above that

level. The Commission on 21st Century Production Agriculture recommended such

a “Supplemental Income Support” (SIS), which would pay producers when national

aggregate program crop gross income (i.e., that for all wheat, feed grains, cotton, and

rice) falls below some percentage of the income level for those crops in an earlier

base period. Others have called for more targeted counter-cyclical aid. The

American Farm Bureau Federation (AFBF), for example, has recommended that such

payments be made when any state’s (as opposed to national) gross cash receipts for

a particular commodity (wheat, oilseeds, cotton, rice, feed grains, or oilseeds) fall

below a predetermined level. This level could be a recent 4-year average (i.e., 19961999) of receipts for the crop, AFBF has stated.

Counter-cyclical programs – versions had been proposed in 2000 by

Representative Stenholm and by the Clinton Administration – effectively might

provide compensation for lost revenue regardless of whether they were due to poor

yields or low prices. Proponents assert that because payments would not be tied

directly to current prices or production, they could be exempt from disciplines under

the URAA. Others disagree, noting that revenues are, in fact, a product of price

times production. Therefore, designing the details of any such program will pose

challenges for policymakers as they consider both trade and budgetary impacts.

Marketing Loan Assistance. So far, there appears to be widespread support

among agricultural interests for continuation of marketing loans and loan deficiency

payments. However, past proposals to alter their operation are again on the table.

Options include: revising or removing the cap on loan rates so that loan deficiency

payments rise or fall with prices or income; extending loan terms; fixing loan rates

at higher legislatively-specified levels; and/or removing the Secretary’s discretion to

lower rates. The National Farmers Union (NFU), for example, has proposed that

rates be set annually at not less than 80% of the “3-year moving average of the full

economic cost of production per unit per planted acre as calculated by the Economic

Research Service utilizing the most recently available data.”

Several groups have called for a “re-balancing” of current loan rates so that one

crop is not favored over others. Some contend, for example, that the current $5.26

per bushel rate for soybeans creates an incentive for more soybean plantings over

other loan-supported crops (although the American Soybean Association asserts that

other factors have led to higher soybean production). Farm groups who want “rebalancing” generally would increase loan rates for other crops rather than lower the

soybean rate. Another question has been whether marketing loans should be

CRS-13

extended to other commodities that either are ineligible (e.g., fruits, vegetables) or

that became temporary beneficiaries under the recent ad hoc packages (mohair and

honey).

Supply Management. Proposals to restore various supply management tools

are again being offered, although most major agricultural groups oppose them. (As

noted, the 1996 farm law ended acreage set-asides as a condition of eligibility for

other benefits.) One group, the NFU, strongly supports reinstatement of voluntary

acreage set-asides for crops, with higher loan rates offered to participating producers.

The NFU also supports what it terms “limited government owned, farm-stored

commodity reserve programs,” which could include storage payments to producers

estimated at about 30 cents per bushel annually. NFU also has recommended that

another farmer-owned reserve (FOR) program be implemented, with similar storage

payment rates.

Payment Limitations. The 1996 law limits PFC payments to $40,000 per

person annually, and marketing loan gains to an additional $75,000 per year.

However, because a person also can receive half-payments on up to two additional

farms, the effective combined annual cap is actually $230,000 per person. Single

farm operations with multiple owner-operators might receive much more than the

above amounts each year.

The special market loss payments provided under the emergency farm laws of

recent years were not subject to any payment limitations. Moreover, two of these

laws doubled, to $150,000, the basic limit on marketing loan gains for 1999 and 2000

crops (to discourage farmers from forfeiting commodities used as loan collateral to

USDA in lieu of repayment). Numerous agricultural and commodity groups oppose

any payment limits – even higher ones – and are proposing they be abolished. Some

critics counter that payment limitations should be maintained or tightened, because

taxpayers should not be providing generous subsidies to large farm businesses.

Price-Supported Commodities. Other commodities traditionally have been

supported by methods that attempt to maintain farm prices above what the market

might otherwise dictate. Nonrecourse loans and marketing quotas apply to virtually

all U.S. tobacco and to all peanuts grown for domestic edible use. Sugar utilizes

nonrecourse loans and a system of tariff rate quotas to limit less expensive imports.

Milk price support is provided through direct USDA purchases of surplus dairy

products at minimum prices, milk marketing orders (which pool and set prices for

most fluid grade milk), and, in New England, the Northeast Interstate Dairy Compact.

At issue for Congress is whether to maintain these types of programs, which critics

contend are the most market distorting because they encourage excess production.

Periodic efforts in the past to significantly alter or phase out these programs generally

have not succeeded. Supporters contend that they are necessary to keep farms, many

of them relatively smaller, family-run operations, economically viable. Some

consideration is being given to direct payments as an alternative to price support.

Green Payments. Some contend that farm income can be enhanced through

so-called green payments, which provide financial incentives based not on the

commodities they produce, but rather in exchange for practices that protect land,

CRS-14

water, air quality, and/or wildlife; or possibly offer scenic, recreational, or open space

amenities. (See “Conservation and Environment,” hereafter.)

(For more information, see CRS Issue Brief IB10043, Farm Economic Relief:

Issues and Options for Congress; CRS Report 98-744, Agricultural Marketing

Assistance Loans and Loan Deficiency Payments; CRS Report RL30739, Federal

Crop Insurance and the Agricultural Risk Protection Act of 2000 (P.L.106-224);

CRS Report RS20269, Emergency Funding for Agriculture: A Brief History of

Congressional Action, FY1989-FY2001; CRS Issue Brief IB97011, Dairy Policy

Issues, and CRS Report RS20848, Farm Commodity Programs: A Short Primer.)

Foreign Trade and Food Aid

The United States is the world’s largest exporter of agricultural products, with

the European Union (EU) a close second. Production from one-third of harvested

U.S. acreage is exported; agricultural exports account for 20% to 25% of the value

of agricultural production. Thus, the economic prosperity of the U.S. farm sector is

heavily dependent upon trade, and declining farm prices and incomes, which

characterize the current U.S. farm economy, make agricultural trade an important

congressional issue.

Although the Agriculture Committees are important arenas for addressing

agricultural trade problems, and omnibus farm bills typically include a title on trade

policy, export assistance, and foreign food aid programs, other venues are equally,

or more, important. For example, negotiations have been under way since March

2000 in the WTO to strengthen the existing multilateral rules and disciplines for

Figure 3. U.S. Agricultural Trade, FY1983-2001(f)

$60

Exports

Imports

$50

$40

$30

$20

$10

$0

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02

CRS-15

agricultural trade, for example, by making further reforms in rules for market access,

export subsidies, and domestic farm support. U.S. agricultural groups generally have

been supportive of these negotiations because of the potential to open new markets

for their products and reduce what they view as the much more trade-distorting

domestic farm and export subsidy programs of some foreign competitors, particularly

the EU.

Regional and bilateral trade negotiations also will affect conditions of

competition for U.S. agricultural products. A bilateral agreement with Chile, and a

broader Free Trade Area of the Americas (FTAA), are both high on the

Administration’s trade agenda. Meanwhile, geopolitical developments, international

monetary factors such as the value of the U.S. dollar relative to other currencies, and

many other factors – often beyond the control of producers and their advocates in

Congress – also are key determinants of U.S. farm export potential.

Provisions of the 1996 Law. A trade and food aid title likely will be

viewed as an integral component of an omnibus farm bill. Title II of the 1996 law

extended and amended the major U.S. foreign food aid and agricultural export

programs. It reauthorized through FY2002 Titles I, II, and III of P.L. 480, the Food

for Peace program, which, provide, respectively, concessional financing of U.S.

agricultural exports, commodity donations for humanitarian and development

activities, and bilateral development grants of food. Changes in the law reinforced

both the market development and humanitarian components of the programs. The

1996 law also reauthorized the Food for Progress program, and established a Food

Security Commodity Reserve, in effect expanding the Food Security Wheat Reserve

to include other grains.

Agricultural Export and Food Aid Program Levels,FY1995-2000

(millions of dollars)

Programs

1995

1996

1997

1998

1999

2000

Export Enhancement Program

$339

$5

$0

$2

$1

$2

Dairy Export Incentive Program

140

20

121

110

145

77

Market Access Program

110

90

90

90

90

90

CCC Export Credit Guarantees

2,921

3,230

3,876

4,037

3,045

3,100

P.L. 480 Food Aid

1,286

1,207

1,054

1,154

1,796

1,076

Section 416(b)

4

84

2

27

887

644

Food for Progress

146

84

91

111

101

121

Foreign Agricultural Servicea

159

167

191

209

206

200

$5,105

$4,887

4,425

5,790

6,271

5,310

Total

a

Includes funding of $28 million annually for the Foreign Market Development Program(FMDP).

Source: USDA, Annual Budget Summaries and Outlook for U.S. Agricultural Exports, various

issues.

CRS-16

The 1996 law extended to FY2002, at previously authorized funding levels,

export credit guarantees for agricultural sales (the so-called GSM programs). It also

extended the Export Enhancement Program (EEP, an export subsidy program) and

the Market Access Program (MAP, which assists agricultural trade and other groups

promote U.S. farm products in overseas markets), but at reduced authorization levels.

In addition, Title II called for the Secretary of Agriculture to develop a strategy for

implementing federal agricultural export programs, set forth U.S. agricultural trade

negotiating objectives, and prescribed new policies for monitoring other countries’

commitments under the URAA.

Selected Issues. In renewing the food aid and export assistance programs,

the 107th Congress will again be confronted with questions of program direction and

funding. Levels of spending and volumes of product subsidized under EEP and the

Dairy Export Incentive Program (DEIP), the other major U.S. export subsidy, are

subject to limitations under the URAA. In practice, EEP has been used very little in

recent years (DEIP has been used to the limits of the URAA). Market promotion

programs like MAP, the food aid programs, and export credits (GSM) are not

considered to be trade distorting under the current URAA, and therefore are not

subject to spending disciplines. However, foreign trading partners argue that the

United States has utilized food aid and export credits in ways that are trade distorting,

and will be seeking concessions on their use in the next round of reforms. So, during

the reauthorization deliberations, spending and program design will hinge not only

on domestic questions such as budget impact but also trade negotiation

considerations.

Some Members of Congress also have questioned the effectiveness of these

programs. In particular, do export subsidy and market promotion activities actually

increase overseas sales or simply displace those that would have occurred anyway?

Moreover, even if sales increase, do they translate into substantially higher farm

prices and incomes – or might direct farm subsidies be a more cost-effective

approach? Some critics claim that these programs benefit primarily large food and

export companies (who can afford to pay for such activities themselves) or foreign

buyers more than U.S. producers. Defenders cite studies claiming positive outcomes

from such spending, although both sides agree that more critical analysis is needed.

With regard to food aid, there are complaints that it is primarily a convenient

outlet for U.S. farm surpluses, and a source of aid that tends to diminish when these

surpluses decline. Such critics could be seeking some reassurance of more stability

in U.S. food aid levels (even though, they agree, the United States has been the

leading provider of food aid worldwide). Questions regarding food aid’s effects on

commercial sales and on developing countries’ farm economies also arise. Research

into these questions so far has produced mixed results, suggesting among other things

the possible need to examine food aid impacts more closely, on a case-by-case basis.

One issue that could receive closer attention is the performance of a $300

million, pilot Global Food for Education Initiative. The outgoing Clinton

Administration used CCC funds to launch this initiative, to help establish school and

pre-school food programs in 38 developing countries. Also known as “global school

lunch,” the effort is being operated mostly through the World Food Program and

private voluntary organizations. USDA claims that the projects will provide 630,000

CRS-17

metric tons of food to an estimated 9 million children. Members’ perception of its

value could help them decide whether or not to explicitly authorize a more permanent

program with stable funding.

With a variety of multilateral, regional, and bilateral trade negotiations ongoing

or planned, the farm bill could become a vehicle for further congressional guidance

on negotiating objectives and strategy. At the same time, some segments of

agriculture could view these negotiations with trepidation, particularly where the

prospect of increased imports might pose a competitive threat to their own domestic

sales. Examples might include dairy, peanuts, sugar, and horticultural products. So,

on the one hand, agricultural interests may be pushing for language in the farm bill

promoting further market reforms, while on the other, some groups might seek

protection for their own products.

(For more information, see CRS Report 98-254, Agricultural Negotiations in

the World Trade Organization; CRS Report RL30612, Farm Support Programs and

World Trade Commitments; CRS Report RS20840, Farm Program Spending:

What’s Permitted Under the Uruguay Round Agreements; CRS Issue Brief IB10077,

Agricultural Trade Issues in the 107th Congress; CRS Issue Brief IB98006,

Agricultural Export and Food Aid Programs; and CRS Report RL30753,

Agricultural Support Mechanisms in the European Union: A Comparison with the

United States.)

Conservation and Environment

A conservation title in the next farm bill is likely to both amend existing

programs and add new options to protect or restore resources on agricultural lands.

The existing portfolio of conservation includes mostly small programs, many of

which were enacted in recent farm bills. Conservation is provided through a

combination of technical assistance and cost-sharing, supported by education and

research programs. Participation is voluntary. Starting in 1985, farm bills have

greatly broadened the range of topics considered to be conservation. (See CRS

Report RL30331, Conservation Spending in Agriculture; Trends and Implications

for a tabulation of programs and review of spending, by broad categories, over the

past 20 years.)

Selected Issues. Land retirement is the main focus of conservation

programs, as measured by spending. Land retirement programs can provide

significant environmental benefits while helping to raise market prices for

commodities by reducing the acreage in production. The Conservation Reserve

Program (CRP) is the largest conservation program, using about half the conservation

budget in FY2001. It pays land owners to retire environmentally sensitive and highly

erodible cropland under multi-year contracts. About 8% of all cropland,

approximately 33 million acres, is currently enrolled. Other programs, such as the

Wetland Reserve and two more targeted programs within the CRP (the Conservation

Reserve Enhancement Program, and continuous signup), also retire land.

Reauthorizing these programs and making adjustments to respond to changing needs

are likely to be high priorities. Adjustments likely to be considered include: raising

CRS-18

the overall enrollment ceiling from 36.4 million acres; giving more emphasis to lands

that provide large environmental benefits on small acreages or parts of fields, such

as stream buffers; enrolling land under shorter term contracts; and allowing economic

uses of enrolled lands under some circumstances.

USDA Funding for Conservation Activities, FY1990-2000

(millions of dollars)

Fiscal

Year

Technical

Assistance,

Extension,

Admin. a/

Cost

Sharing

b/

Public

Works,

including

emergencies

Rental &

Easement

Payments

c/

Data &

Research

TOTAL

1990

$653.4

$353.2

$196.8

$1,406.0

$350.7

$2,960.0

1991

733.8

279.0

121.1

1,603.2

380.9

3,117.8

1992

813.4

262.8

187.5

1,629.6

400.1

3,299.0

1993

859.7

318.2

200.8

1,531.5

274.0

3,310.0

1994

882.7

293.9

267.6

1,823.0

399.7

3,680.9

1995

841.8

171.9

293.1

1,797.4

410.7

3,508.9

1996

868.8

243.4

99.1

1,783.1

392.9

3,387.3

1997

901.0

305.8

226.7

1,734.6

409.8

3,577.8

1998

941.4

322.3

132.5

1,823.9

423.3

3,643.4

1999

947.5

363.8

129.8

1,437.8

453.3

3,332.1

2000

939.0

265.5

111.8

1,641.0

456.7

3,413.9

a/ Activities of the 4 USDA agencies engaged in supporting conservation: the Natural

Resources Conservation Service (NRCS), Farm Service Agency (FSA), Forest Service, and

Extension Service.

b/ Funds passed through the NRCS to the FSA to producers to help them install

conservation practices.

c/ 90% of these payments go to farmers through the Conservation Reserve Program..

Source: USDA, Office of Budget and Program Analysis.

Most other conservation programs to improve and sustain resource conditions

on lands that continue to be farmed, often called the working landscape, have not

grown rapidly. The USDA manpower to support these programs, primarily the staff

of the Natural Resources Conservation Service, has shrunk in recent years. One of

these programs, the Environmental Quality Incentives Program (EQIP) provides cost

sharing assistance to producers to install conservation practices. Spending is

concentrated in priority areas that have been identified in each state. Issues that may

be addressed include: raising the program authorization level; the use of priority

areas; comparing conservation accomplishments under this program with the

programs it replaced in the 1996 farm bill; and distribution of funding between

livestock and crop producers. Another topic that will likely receive attention is that

some of the oldest small watershed projects built under the Watershed Operations

CRS-19

Program are reaching the end of their design life. Providing additional funding for

rehabilitation and determining whether to consider, as part of the rehabilitation

process, more recent environmental requirements affecting watershed projects, are

issues that might be raised.

One approach to conservation on working lands that received widespread

attention in the 106th Congress is embodied in the Conservation Security Act

proposal, introduced by Senator Harkin (S. 3260) and Representative Minge (H.R.

5511). The proposals would provide incentives to farmers to practice conservation

at three different levels under 3 to 5 year contracts; the payments would increase as

higher levels of conservation are applied. Widespread involvement in the drafting

of these proposals make it one likely legislative model as the farm bill progresses in

the 107th Congress.

Green Payments. The Conservation Security Act proposals have been

characterized as a form of “green payments.” This refers to providing financial

incentives to producers based on the scope of their conservation activities rather than

on the volume of commodities they produce. The green payment concept is seen by

some as attractive because it could provide a new mechanism to support farm

income, forge a stronger link between conservation and farm income objectives, and

still comply with World Trade Organization obligations. (Current WTO rules may

exempt these types of programs from discipline because they are not considered to

be trade-distorting.) The Conservation Security Act proposal is one model for

translating the concept of green payments into programs; other variations and

alternatives are reportedly being discussed. Reaching agreement on whether this is

a desirable approach and what form it should take present major challenges.

Other Options. Members also will be interested in extending or modifying

many existing programs. Among these may be legislative proposals: increasing

overall funding for technical assistance; changing funding levels for existing

programs, or using mandatory sources to fund a different portion of the conservation

effort; expanding the farmland protection program to either make more entities or

more areas eligible to participate; and revising EQIP to make more producers eligible

or to increase the effort to address water quality problems originating with

agricultural activities. Other possible changes, such as in the overall conservation

mission, whether current federal staff levels are adequate, or how to better monitor

conservation accomplishments may also be under review. (For more information on

conservation topics, see CRS Issue Brief IB96030, Soil and Water Conservation

Issues.)

Food Stamps and TEFAP

At the end of FY2002, several provisions of the Food Stamp Act and the

Emergency Food Assistance Act expire. They relate to the Food Stamp program,

Puerto Rico’s nutrition assistance block grant program (operating in lieu of food

stamps in Puerto Rico), and The Emergency Food Assistance Program (TEFAP).

Renewal of these authorities – and potential changes to policies in the underlying

laws – are scheduled to be included as part of the next farm bill. All but one of them,

CRS-20

however, were last renewed in the 1996 omnibus welfare reform law (P.L. 104-193),

although food stamp and TEFAP reauthorizations have more typically been part of

the farm bill cycle.10 Moreover, the last comprehensive food stamp policy changes

were part of the 1996 welfare act. The major components of the 1996 welfare reform

law expire with FY2002, and, as a result, food stamp amendments also may be

incorporated in welfare reauthorization legislation.

The expiring provisions include:

! authorization for food stamp appropriations (“such sums as are necessary”);

! Puerto Rico’s annual nutrition assistance block grant (an annually indexed

figure set at just under $1.3 billion for FY2001);

! a set-aside of specific dollar amounts from the annual food stamp

appropriation to be used for employment/training programs for food stamp

recipients (e.g., $165 million in FY2002);

! a requirement to reduce federal payments otherwise due states for food stamp

administration (a 50% match) by about $200 million a year;

! a set-aside of $100 million a year from the annual food stamp appropriation

to be used for purchasing food commodities specifically for TEFAP; and,

! authorization of appropriations for grants to states for TEFAP administration

and food distribution costs ($50 million a year).

Farm Bill or Welfare Reauthorization? Food stamp-linked reauthorization

and policy changes could be included in the upcoming farm bill or the scheduled

reauthorization of welfare programs covered under the 1996 welfare reform law, or

both. Incorporating them in reauthorization of Temporary Assistance for Needy

Families (TANF) and other welfare laws recognizes the significant role food stamps

play in the family welfare system, particularly for those leaving TANF for work, as

well as the overlap between food stamp and TANF rolls and administrative

structures. Placing them in the farm bill reflects the historical link between food

stamp reauthorization and the farm bill, committee jurisdictions, a desire to “decouple” food stamps from welfare and emphasize its role as a nutrition support

program, and concerns derived from the large cuts made in food stamps to help

finance welfare reform when program reauthorization was included in the 1996

reform law.

Differing Policies. States have a great deal of control over TANF assistance

and work rules for families. Depending on the rule/state, TANF policies can be

markedly more liberal or restrictive than food stamps. Federally established food

stamp standards, on the other hand, envision a relatively uniform national “safety

net” program for virtually all those in need. While states have a number of important

food stamp options, they are circumscribed by federal law and regulations.

Conflicts between TANF and food stamp policies, coupled with a partially

shared caseload and administrative structure, have created a strained relationship

10

For example, the 1996 farm bill included only a one-year extension of the authorization

for food stamp appropriations – which were then reauthorized through FY2002 by the 1996

welfare reform law.

CRS-21

between the two at the state level. This is exacerbated by states’ desire to apply their

TANF policies to food stamps, penalties assessed them for erroneous

benefit/eligibility decisions under the food stamp “quality control” (QC) system,

what they see as overly complex food stamp rules, and limits on waivers from federal

policies. Many state human services administrators hold that food stamps and TANF

are “on a collision course” and have called for simplification of food stamp rules and

consolidating TANF and food stamp work/training efforts. They also want much

greater control over food stamp policies (to reinforce TANF goals), revision of the

QC system, and a more open waiver policy – or, for some, conversion of food stamps

to state block grants. But advocates resist vesting much more decision-making power

in states, particularly where funding is almost totally federal. Additionally, they

contend that TANF-based policies are not necessarily transferrable to the rest of the

food stamp rolls (e.g., elderly/disabled persons, low-income working adults) and fear

that needy people may be discouraged from or denied participation in food stamps.

In their view, the food stamp safety net should not be tampered with.

Noncitizens. The 1996 welfare reform law ended food stamp eligibility for

most noncitizens. Amendments in the 1998 Agricultural Research law (P.L. 105185) restored eligibility to some (primarily to children and the elderly/disabled

resident in the U.S. prior to welfare reform). Proposals to remove the remaining bars

against legally resident noncitizens were seriously considered in the 106th Congress

and are likely to be taken up again; estimates indicate this could affect over 400,000

persons at a 5-year cost of more than $900 million.

Administrative Payments. Normal federal payments to states for food

stamp administrative costs (a 50% share) are reduced by about $200 million a year.

This (expiring) reduction was enacted to correct a “windfall” states could receive in

the interaction of TANF and food stamp funding rules. The Congressional Budget

Office will “score” a cost to food stamps if the reduction is not renewed.

Access. Food stamp enrollment has fallen continuously and dramatically from

its spring 1994 peak of 28 million people; November 2000 rolls show 17.1 million

persons. This has been accompanied by a large drop in the rate at which those

eligible participate: the participation rate went down from 71% in 1994 to 59% in

1998 (most recent estimate). Only a portion of the decline in recipients can be

closely associated with better economic conditions and reformed food stamp

eligibility rules. While the estimated number of eligible individuals fell by 17%, the

number participating dropped by almost double (31%). Other cited reasons include

administrative practices, the difficulty of applying for and keeping benefits, and a

lack of understanding that losing benefits from (or being discouraged from applying

for) TANF does not apply to food stamp eligibility or benefits.

Advocates and state administrators are worried that access to food stamp aid is

being undermined and that those leaving TANF are not getting necessary help from

food stamps. The Clinton Administration made several efforts to change food stamp

administrative practices and regulations to support increased participation,

culminating with controversial November 21, 2000, regulations. Food stamp

amendments in the FY2001 Agriculture Department appropriations law encouraged

participation with increased benefits for those with high shelter costs and eased

eligibility for low-income households with cars. Advocates and state administrators

CRS-22

are expected to follow up with their own additional initiatives for better food stamp

access and benefits.

Funding for TEFAP. In the view of state and local emergency food assistance

providers, TEFAP has served as a cushion for those losing welfare or food stamp

benefits under the 1996 welfare reforms. Many also contend that federal support for

TEFAP has not kept pace with growing demand and is well below what would be

required if there is an economic downturn. Renewal of the appropriations

authorization for TEFAP administrative/distribution costs and the set-aside of food

stamp money for TEFAP food purchases will bring the adequacy of current support

levels into the farm bill debate. There also may be calls for increasing the $100

million food stamp funding set-aside to buy more commodities for the program.

Farm Credit and Finance

Omnibus farm bills commonly contain a credit title that makes policy changes

to USDA agricultural credit programs and addresses issues that relate to commercial

lenders such as the Farm Credit System (FCS) and commercial banks. Credit is an

important production input for many farmers, with all lenders holding approximately

$180 billion in outstanding farm loans. Farmers depend on long-term credit to

finance their purchases of real estate, and shorter-term loans to finance production

expenses such as for machinery and equipment, livestock, seed, feed and fertilizer.

USDA Farm Credit. USDA’s Farm Service Agency (FSA) serves as a lender

of last resort to eligible family-sized farmers whose financial condition is too weak

to permit them to obtain commercial credit. FSA provides direct loans to farmers

and also guarantees the timely repayment of principal and interest on certain eligible

loans made by commercial lenders. (As of January 1, 2001, the FSA farm loan

portfolio contained $7 billion in direct loans outstanding, plus another $7 billion in

commercial loans outstanding that carried an FSA repayment guarantee.) FSA makes

and guarantees real estate and operating loans and also makes direct emergency

disaster loans. These loan programs have permanent authority under the

Consolidated Farm and Rural Development Act, and unlike the farm commodity

programs, do not require periodic reauthorization. However, Congress frequently

uses omnibus farm bills to make changes to the terms, conditions and eligibility

requirements for federal farm credit programs.

Among other provisions, the credit title (Title VI) of the omnibus 1996 farm bill

tightened qualifications for FSA loans, by limiting the number of years a borrower

could remain a customer of FSA before being required to “graduate” to a commercial

lender. The 1996 farm bill also continued a policy begun in the 1980s of shifting

FSA’s financial resources from direct lending to guaranteed loans in an effort to

wean farmers from federal credit programs and to reduce federal credit costs.

Congress does not have to wait for the next farm bill to make policy changes to FSA

farm loan programs, and commonly does make adjustments to the programs in

intervening years. For example, as the farm economy began its downturn in the late

1990s, Congress loosened some qualifications for loans, including a suspension of

the graduation requirement until the end of 2002.

CRS-23

Although commodity prices have been weak in recent years, a repeat of the

severe credit crisis of the mid-1980s (with widespread borrower loan defaults and/or

bankruptcies) so far has been avoided for two reasons: supplemental government

payments have provided adequate income to help most farmers meet their debt

servicing requirements, plus farmers now are not as highly debt leveraged as they

were in the 1980s. Nonetheless, the direction of the farm economy over the next year

or two could be a major determining factor on what credit issues might be considered

in the 2002 farm bill. If commodity prices remain low and farm cash receipts weak,

Congress might consider an extension of the postponement of borrower graduation

requirements beyond 2002, as well as other forms of forbearance for FSA loan

customers.

Farm Credit System Issues. Separately, issues relating to the Farm Credit

System also could be an issue in the farm bill debate. The FCS is a confederation of

cooperatively owned banks and associations. It has a federal charter and is classified

as a “government sponsored enterprise,” but is privately owned and operated by the

member-borrowers. The Farm Credit Administration, the federal regulator of the

System, has sought to modify the lending authorities of the System through

regulatory changes. However, commercial banks, which are the primary competitors

with the System, are strongly opposed to these changes and contend that any major

modifications should be addressed legislatively rather than through regulations.

Rural Development

A variety of federal laws and programs deal with rural policy. They have been

crafted by numerous congressional committees, and the programs are administered

by several federal agencies, including USDA (designated as the lead federal agency

for coordinating rural development by the 1980 Rural Policy Act). USDA

administers rural development programs that, for the most part, are authorized under

omnibus farm laws. Title VII of the 1996 farm law (FAIR) is the rural development

title. Its provisions, along with those of most other titles of the FAIR Act, expire in

2002.

Changes to farm commodity

programs (Title I of the current

law) will be closely examined in

terms of their impact on rural

communities. While federal farm

payments and policies have

directly helped many farmers and

financial institutions in many rural

areas, most experts agree that rural

communities across the nation

cannot depend on agriculture alone

for their economic well-being.

First, the number of farmdependent counties has declined

dramatically (down from over

For FY2001, the Congress appropriated $2.5 billion

for rural development programs operated by the

USDA in support of $8.8 billion in direct and

guaranteed loan authority. This assistance funded:

! The Rural Community Advancement

Program ($962.5 million);

! Rural Housing programs ($1.45 billion in

loan and grant assistance, supporting $5.1

billion in loan authority; $1.1 billion in direct

loans;

! $674 million in rental assistance, and $13.8

million for empowerment zones);

! Rural Business Cooperative Program ($33.5

million); and

! Rural Utilities Service ($107.7 million).

CRS-24

2000 in 1950 to 556 in 1990). Moreover, changes in farm structure (larger farms,

greater concentration in manufacturing) and global competition have lessened the

role of production agriculture in farm-dependent rural economies. At the same time,

economic, environmental, and demographic changes in rural farm communities have

lessened their role as facilitators of agricultural production.

The rural development title of past farm bills generally has supported the

infrastructure of rural areas, with traditional support for housing, electricity,

community development, and so on. More recently, policymakers have pushed for

programs that support innovative and alternative industry development, and

mechanisms to finance it. Pressure for such alternative approaches is expected to

continue as policymakers recognize the changing structure of agriculture and the

diversity of rural communities, with some growing and prospering, and others falling

further behind as their primary industries (including agriculture) either decline or

adapt to a global marketplace and economy that often means fewer employment

opportunities and lost population.

Proposals are being circulated that promote technologies to help farmers with

planting decisions and local investments in industries that will add value to their

products, among others. Research is increasingly focused on improvements in

agricultural waste management and environmental protections. Traditional strategies,

notably value-added agriculture – e.g., regional food processing plants, cooperatives,

organic farming – are being promoted by many in the farm sector. While holding

promise for agriculture and surrounding communities, there are limits on how many

yogurt plants, small dairy processors, or value-added food processors can be

supported by these local economies, especially with increasingly global competition

in these sectors.

Thus, rural entrepreneurship of the past (e.g. in the value-added enterprises such

as dairy processing facilities, and processing of timber and mining resources) may

give way to future forms of rural entrepreneurship that build around new, or

previously ignored resources. Among the options are investment innovation in

agriculture from the perspective of environmental entrepreneurship or environmental

capital, for example, public-private development of carbon emission markets and

sustainable land management innovations tied to national (clean water) and

international agreements (carbon emissions), and environmentally sensitive land use

for non-agricultural purposes (e.g. recreation). What roles, if any, the federal

government might play in encouraging these or other types of activities are among

the issues that Congress may address in considering a new rural development title.

Agricultural Research, Extension, and Education

The 1996 farm bill included a title authorizing USDA’s agricultural research,

extension, and education programs and reforming public agricultural research policy.

Specifically, Title VIII of the 1996 law established: (1) a new advisory board to

advise the Secretary on research- and extension-related matters, replacing two boards

that had been in existence since 1977; (2) a competitive grants program to improve

CRS-25

agricultural education programs at Hispanic-serving institutions; and (3) a task force

charged with developing a 10-year strategic plan for research facility construction,

modernization, consolidation and closure. In addition, the rural development title of

the 1996 act gave the authority for a competitive grants program (the Fund for Rural

America) to support rural development projects and rural-focus research projects.

The Fund marked a significant change in funding authority for agricultural research

in that federal money for the Fund ($100 million annually for 3 years, of which

roughly one-third was for research grants) was to be transferred directly to USDA

from the U.S. Treasury.

1998 Research Legislation. In 1998 Congress passed separate legislation

superseding Title VIII of the 1996 farm bill, making several significant reforms and

reauthorizing USDA’s research, extension, and education programs through 2002.

The Agricultural Research, Extension, and Education Reform Act of 1998 (P.L. 105185) extended the new provisions contained in the 1996 farm bill (including the Fund

for Rural America) and adopted additional policy changes to: (1) require greater

accountability for program relevance and merit on the part of institutions receiving

federal funds; (2) increase the funding authority for multi-state research projects; (3)

phase in a matching funds requirement for the 1890 (historically black) institutions;

and, (4) authorize several new research programs. Of the latter, the most significant

is a 5-year, $600 million Initiative for Future Agriculture and Food Systems, a

competitive grants program intended to promote cutting-edge research in the areas

of genomics, biotechnology, food safety, new uses for agricultural products, natural

resource management, and farm profitability. Congress authorized funding for the

program – $120 million annually – to come directly from savings in mandatory

spending stemming from reforms made in the food stamp program in 1997.

Selected Issues. Despite the innovative funding mechanisms authorized for

the Fund for Rural America and the Initiative for Future Agriculture and Food

Systems, neither program has been consistently funded since its inception.

Provisions in annual agricultural appropriations acts have blocked USDA from

implementing the Fund for Rural America for 4 of the 6 years that the program has

been authorized; funding for the Initiative was blocked in 1999, but permitted in

2000 and 2001 after intense negotiations between the Department and lawmakers.

Garnering additional resources to support public agricultural research,

extension, and education programs is likely to be the primary issue in this policy area

in the upcoming farm bill debate. Past research titles have focused on increasing

funding authority for competitive grants programs, but the record shows that

appropriations levels have not risen commensurately. The Fund for Rural America

and the Initiative for Future Agriculture and Food Systems represented efforts to find

additional resources from non-discretionary sources, but these also have proven

problematic. Issues related to international agricultural research, food safety

research, biosafety, and resource conservation also are likely to be included in the

farm bill research title debate.

CRS-26

Appendix A. Commodity Credit Corporation Net

Expenditures, By Commodity/Program,

FY1996-2002

Commodity/Program

FY96

FY97

Corn

Grain Sorghum

Barley

Oats

Corn and Oat Products

Feed Grains

Wheat and Products

Rice

Upland Cotton

AMTA Crops Support

Tobacco

Dairy

Soybeans

Peanuts

Sugar

Honey

Wool & Mohair

All Commodities Support

2,021

261

114

8

0

2,404

1,491

499

685

5,079

(496)

(98)

(65)

100

(63)

(14)

55

4,498

2,587

284

109

8

0

2,988

1,332

459

561

5,340

(156)

67

5

6

(34)

(2)

0

5,226

Export Programs

Disaster/Tree/Livestock Assistance

-422

95

125

130

212

3

2

7

9

1,671

105

1,776

6

140

320

4,646

Conservation Reserve Program

Other Conservation Programs

All Conservation Programs

Operating Expense

Interest Expenditure

Other Expenses

Total CCC

FY98

FY99

(Million $)

2,873

5,402

296

502

168

224

17

41

0

0

3,354

6,169

2,187

3,435

491

911

1,132

1,882

7,164 12,397

376

113

291

480

139

1,289

(11)

21

(30)

(51)

0

2

0

10

7,929 14,261

FY00 FY01Est FY02Est

10,203

983

399

61

5

11,651

5,365

1,894

4,015

22,925

634

684

2,864

35

465

7

(2)

27,612

4,169

329

149

59

0

4,706

2,128

923

969

8,726

148

1,209

3,001

62

(36)

26

35

13,171

2,945

282

112

27

1

3,367

1,120

856

713

6,056

(97)

157

2,859

0

(28)

(10)

(13)

8,924

165

2,241

216

1,452

588

2,576

593

0

1,693

197

1,890

1,462

292

1,754

1,511

263

1,774

1,693

367

2,060

1,788

281

2,069

6

-111

104

5

76

28

4

210

588

60

736

415

5

366

1,675

5

592

884

7,256

10,143

19,223

32,265

20,441

13,067

Data are from the USDA, Farm Service Agency, January 16, 2001.

CRS-27

Appendix B. Titles & Subtitles of the 1996 Farm Bill (Federal

Agriculture Improvement and Reform Act of 1996, P.L. 104-127)

I.

Agricultural Market Transition Act

A. Short Title, Purpose, and Definitions

B. Production Flexibility Contracts

C. Nonrecourse Marketing Assistance Loans and Loan Deficiency Payments

D. Other Commodities

E. Administration

F. Permanent Price Support Authority

G. Commission on 21st Century Production Agriculture

H. Miscellaneous Commodity Provisions

II. Agricultural Trade

A. Amendments to Agricultural Trade Development and Assistance Act of 1954 and

Related Statutes

B. Amendments to Agricultural Trade Act of 1978

C. Miscellaneous Agricultural Trade Provisions

III. Conservation

A. Definitions

B. Highly Erodible Land Conservation

C. Wetland Conservation

D. Environmental Conservation Acreage Reserve Program

E. Conservation Funding and Administration

F. National Natural Resources Conservation Foundation

G. Forestry

H. Miscellaneous conservation Provisions

IV. Nutrition Assistance

V. Agricultural Promotion

A. Commodity Promotion and Evaluation

B. Issuance of Orders for Promotion, Research, and Information Activities Regarding

Agricultural Commodities

C. Canola and Rapeseed

D. Kiwifruit

E. Popcorn

F. Miscellaneous

VI. Credit

A. Farm Ownership Loans

B. Operating Loans

C. Emergency Loans

D. Administrative Provisions

E. General Provisions

VII. Rural Development

A. Amendments to the Food, Agriculture, Conservation, and trade Act of 1990

B. Amendments to the Consolidated Farm and Rural Development Act

C. Amendments to the Rural Electrification Act of 1936

D. Miscellaneous Rural Development Provisions

VIII. Research, Extension, and Education

A. Modification and Extension of Activities Under 1977 Act

B. Modification and Extension of Activities Under 1990 Act

C. Repeal of Certain Activities and Authorities

D. Miscellaneous Research Provisions

E. Research Authority After Fiscal Year 1997

IX. Miscellaneous

A. Commercial Transportation of Equine for Slaughter

B. General Provisions

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