Budget of the United States Government

[Budget of the United States Government]
[VI. Investing in the Common Good: Program Performance in Federal Functions]
[17. Agriculture]
[From the U.S. Government Publishing Office, www.gpo.gov]

17. AGRICULTURE

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Table 17-1. FEDERAL RESOURCES IN SUPPORT OF AGRICULTURE
(In millions of dollars)
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Estimate
Function 350 1997 -----------------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
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Spending:
Discretionary Budget Authority.......... 4,225 4,310 4,074 3,949 3,883 3,862 3,780
Mandatory Outlays:
Existing law.......................... 4,960 6,391 6,973 6,765 5,440 5,425 5,649
Proposed legislation.................. ........ ........ -155 -299 -170 -161 -163
Credit Activity:
Direct loan disbursements............... 6,402 7,450 8,651 8,505 7,738 7,177 6,856
Guaranteed loans........................ 3,961 7,255 6,895 6,894 6,894 6,894 6,894
Tax Expenditures:
Existing law............................ 660 680 730 750 760 750 765
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Since early in the Nation's history, the Federal Government has helped
increase U.S. agricultural productivity. Agriculture Department (USDA)
programs focus to a large extent on ensuring that markets function
fairly and that farmers do not face unreasonable risk. Federal programs
disseminate economic and agronomic information, ensure the integrity of
crops, inspect the safety of meat and poultry, and help farmers face
risks from weather and variable export conditions. The results are found
in the public welfare that Americans enjoy from an abundant, safe, and
inexpensive food supply, free of severe commodity market dislocations.

Conditions on the Farm

Agriculture and its related activities account for 16 percent of the
Gross Domestic Product. With strong demand and record market prices for
several crops in 1996, gross crop cash receipts exceeded $109 billion in
1996, a new record, and up nearly $10 billion from 1995. Net cash income
also set a record in 1996 at $60 billion. Forecasts for 1997 put net
cash income down $5 billion from the record level, but still within the
last five year's average. Farmers will earn slightly less from 1997 crop
sales due to lower feed grain prices. Livestock receipts in 1997 will
increase from the $93 billion of 1996; higher beef cattle prices, the
result of reductions in the beef herd, will be the most important
influence. After three years of steady declines in cattle and calf
receipts, this year will mark the turnaround point.
Farm assets, debt, and equity continue to rise. Farm sector business
assets rose six percent in value in 1996, to $1 trillion. Farm asset
values will grow another five percent in 1997, while farm real estate
values will rise for the tenth straight year. Farm business debt will
rise $5 billion in 1997, the highest level since 1986, but growing debt
shows few signs of precipitating a repeat of the widespread financial
stress in the farm sector of the 1980s.
Exports are key to future farm income. The Nation now exports 30
percent of its farm production, and agriculture produces the greatest
balance of payments surplus, for its share of national income, of any
economic sector. Agricultural exports reached a record $60 billion in
1996. Lower world market prices and bulk export volume will reduce
exports by an estimated $3 billion in 1997 but, in 1998, exports will
grow by a projected $2 billion, to $59 billion. Pacific Asia, including
Japan, is the most

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important region for U.S. farm exports, accounting for 42 percent of
total U.S. export sales in 1996. Consequently, the financial turmoil in
certain Asian countries could affect U.S. exports.

The 1996 Farm Bill

Known officially as the Federal Agriculture Improvement and Reform Act
(FAIR) of 1996, the Farm Bill was a milestone in U.S. agricultural
policy. The bill, effective through 2002, fundamentally redesigns
Federal income support and supply management programs for producers of
wheat, corn, grain sorghum, barley, oats, rice, and cotton. It expands
the market-oriented policies of the previous two major farm bills, which
have gradually reduced the Federal influence in the agricultural sector.
Under previous laws dating to the 1930s, farmers who reduced plantings
when prices were low could get income support payments, but farmers had
to plant specific crops in order to receive support payments. Even when
market signals might have suggested planting a different crop, farmers
had limited flexibility to do so. By contrast, the 1996 Farm Bill
eliminated most such restrictions and, instead, provides fixed, but
declining payments to eligible farmers through 2002, regardless of
market prices or production volume. Thus, the law ``decouples'' Federal
income support from planting decisions and market prices. Not
surprisingly, the law has brought significant changes in cropped acreage
in response to market signals. In 1997, wheat acreage fell by seven
percent, or almost five million acres, from the previous year, while
soybean acreage rose by 10 percent, or almost seven million acres.

Federal Programs

USDA seeks to enhance the quality of life for the American people by
supporting production agriculture; ensuring a safe, affordable,
nutritious, and accessible food supply; caring for agricultural, forest,
and range lands; supporting sound development of rural communities;
providing economic opportunities for farm and rural residents; expanding
global markets for agricultural and forest products and services; and
working to reduce hunger in America and throughout the world. (Some of
these missions fall within other budget functions and, thus, are
described in other chapters.)
Farming is a risky business. Farmers not only face the normal vagaries
of supply and demand, but also uncontrollable risk from Mother Nature.
Federal programs are designed to accomplish two key economic goals: (1)
enhance the economic safety net for farmers and ranchers; and (2) open,
expand, and maintain global market opportunities for agricultural
producers.
The Government mitigates risk through a variety of programs:

Farm Commodity Programs: Since Federal payments are now fixed, farm
income could fluctuate more from year to year due to supply and demand
changes. Farmers will need to rely more on marketing alternatives. To
better use Federal assistance to protect against risk and stabilize farm
income, producers should set aside funds from, or otherwise develop
strategies to utilize, the income-support payments, allocating savings
from years of high income for use when income falls. (See Chart 17-1 for
the estimated increased Federal income-support payments due to the 1996
Farm Bill.) The Federal Government, however, continues to provide other
safety-net protections, such as the marketing assistance loans that
guarantee a minimum price for major commodities.
Insurance: USDA helps farmers manage their risks by providing
subsidized crop insurance, delivered through the private sector. Farmers
pay no premiums for coverage against catastrophic production losses, and
the Government subsidizes their premiums for additional coverage. Over
the past three years, an average 80 percent of eligible acres have been
insured, with an average gain of $0.10 for every $1 in insurance
premiums--down from the historical average of $0.40 loss for every $1 in
premium. Crop insurance costs the Federal Government about $1.4 billion
a year, including USDA payments to private companies for costs tied to
administering Federal crop insurance. Since the Farm Bill ended major
elements of USDA's traditional price and income support programs,
producers now bear most of the price risk. In 1997, USDA expanded
several insurance products that mitigate ``reve-

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nue risk''--price and production risk combined. These ``revenue
insurance pilots'' showed that farmers generally want these types of
products, and USDA will continue to expand their application and
availability.

Trade: The trade surplus for U.S. agriculture has grown faster in
recent decades than for any other civilian sector of the economy, and
USDA's international programs helped to shape that growth. The Foreign
Agriculture Service's efforts to negotiate, implement, and enforce trade
agreements have played a large role in creating a strong market for
exports.
In 1999, USDA will:
take action to overcome 660, or 17 percent, more trade
barriers than in 1998;
help 5,000, or 25 percent, more U.S. companies in U.S.
agricultural export sales; and
help in 1,545, or 13 percent, more projects to build U.S.
export markets in developing countries.
USDA spends about $750 million a year on export activities, including
subsidies to U.S. firms facing unfairly-subsidized overseas competitors,
and loan guarantees to foreign buyers of U.S. farm products. USDA also
helps firms overcome technical requirements, trade laws, and customs
that often discourage the smaller, less experienced ones from taking
advantage of export opportunities. USDA will help less experienced firms
develop their export capacity by increasing the number of outreach
events.
In 1999, USDA will:
increase the number of its trade shows by 13 percent, to 400;
and
increase the number of firms that the Market Assistance
Program (MAP) supports in establishing marketing and
distribution channels by eight percent, to 1,700 firms.
In addition, USDA shares some of the risk when firms or trade
organizations experiment in the export market. USDA helps educate firms
about the requirements and

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process of developing an overseas market. By participating in the MAP or
USDA-organized trade shows, firms can more easily export different
products to new locations on their own.
The programs have helped U.S. firms, especially smaller-sized ones,
export more aggressively, and high-value products now make up a growing
share of export value (see Chart 17-2). Small and medium-sized firm
recipients (those with annual sales of under $1 million) now represent
84 percent of the MAP-branded promotion spending, up from 70 percent in
1996, and USDA expects to raise that figure to 100 percent by 1999.

Agricultural Research: The Federal Government spends over $1.5 billion
a year to support agricultural research and enhance U.S. and global
agricultural productivity. The average annual return to publicly-funded
agricultural research exceeds 35 percent, according to recent academic
estimates.
The Agricultural Research Service (ARS) is USDA's in-house research
agency, addressing a broad range of food, farm, and environmental
issues. It puts a high priority on transferring its research findings to
the private sector.
In 1999, ARS expects to submit 60 new patent applications,
participate in 85 new Cooperative Research and Development
Agreements, license 25 new products, and develop 70 new plant
varieties to release to industry for further development and
marketing.
The Cooperative State Research, Education, and Extension Service
provides grants for agricultural, food, and environmental research;
higher education; and extension activities. The National Research
Initiative competitive research grant program, launched in 1990 on the
recommendation of the National Research Council, works to improve the
quality and increase the quantity of USDA's and the private sector's
farm, food, and environmental research.

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Economic Research and Statistics: The Federal Government spends about
$160 million to improve U.S. agricultural competitiveness by reporting
and analyzing economic information. The Economic Research Service
provides economic and other social science information and analysis for
decision-making on agriculture, food, natural resources, and rural
America. The National Agricultural Statistics Service (NASS) develops
estimates of production, supply, price, and other aspects of the farm
economy.
In 1999, NASS will include over 95 percent of national
agricultural production in its annual commodities program, up
from 92 percent in 1997.

Inspection and Market Regulation: The Government spends a half-billion
dollars a year to secure U.S. cropland from pests and diseases and make
U.S. crops more marketable. In addition, USDA's Food Safety and
Inspection Service ensures that U.S. meat and poultry do not threaten
consumers' health. The Animal and Plant Health Inspection Service
(APHIS) inspects agricultural products that enter the country; controls
and eradicates diseases and infestations; helps control damage to
livestock and crops from animals; and monitors plant and animal health
and welfare. The Agricultural Marketing Service (AMS) and the Grain
Inspection, Packers, and Stockyards Administration help market U.S. farm
products in domestic and global markets, ensure fair trading practices,
and promote a competitive, efficient marketplace.
In 1999, APHIS will:
make about 48 million inspections of airline passengers,
aircraft, commercial vessels, trucks, and rail cars to prevent
the entry of illegal plants and animals that could endanger
U.S. agriculture, a slight increase over estimated 1998
levels.
clear most international air passengers through its
inspection process in 30 minutes or less, an estimated 20-
percent improvement over 1997 rates.
clear most passengers crossing U.S. land borders in non-peak
traffic periods in 20 minutes or less on the northern border,
and 30 minutes or less on the southern border.
In 1999, the AMS Pesticide Data Program will:
initiate a microbiological surveillance program on domestic
and imported fruits and vegetables as part of the President's
Food Safety Initiative.
perform about 55,000 analyses on 14 different commodities,
collecting 9,200 samples to measure pesticide residues, an
increase from the estimated 1998 activities of 51,000
analyses, 13 commodities, and 8,900 samples.

Conservation: The 1996 Farm Bill is the most conservation-oriented
farm bill in history, enabling USDA to provide incentives to farmers to
protect the natural resource base of U.S. agriculture. Farmers can now
use crop rotations, which earlier price support programs had severely
limited. Also, the bill created several new programs. The Environmental
Quality Incentives Program (EQIP), with $200 million in annual spending
(and another $100 million proposed for 1999) provides cost-share and
incentive payments to encourage farmers to adopt new and improved
farming practices or technology, and it reduces the environmental impact
of livestock operations. Farmers may use different nutrient management
or pest protection approaches, with USDA offering financial assistance
to offset some of the risk. The Conservation Farm Option program helps
landowners adopt innovative approaches to improving environmental
quality; groups of farmers may submit proposals to create comprehensive
conservation farm plans, with a host of different land use and funding
alternatives.
USDA's conservation programs give technical and financial help to
farmers and communities. They include the Conservation and Wetlands
Reserve Programs, which remove land from farm uses; and the Conservation
Operations program, which provides technical assistance.
In 1999, USDA will:
increase the number of acres enrolled each year for riparian
buffers and filter strips to 3.76 million, from an estimated
3.36 million acres in 1998; and

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increase the acreage of restored wetlands to 1.34 million
acres, from an estimated 1.2 million acres in 1998.
For more information on conservation, and USDA's investments in public
land management, see Chapter 16, ``Natural Resources and Environment.''
USDA programs also help to maintain vital rural communities, as
described in Chapter 20, ``Community and Regional Development.''

Agricultural Credit: USDA provides about $600 million a year in direct
loans and over $2.5 billion in guaranteed loans for farm operating and
ownership. Direct loans, which carry interest rates at or below those on
Treasury securities, generally go to beginning or socially disadvantaged
farmers who cannot secure private credit.
In 1999, USDA will:
increase the proportion of loans made to beginning and
socially-disadvantaged farmers to 14.4 percent, from an
estimated 12.6 percent in 1998 and nine percent in 1996; and
reduce the delinquency rate on farm loans to 17 percent, from
an estimated 18 percent in 1998 and 20 percent in 1996.
The Farm Credit System and ``Farmer Mac''--both Government-Sponsored
Enterprises--enhance the supply of farm credit through ties to national
and global credit markets. The Farm Credit System (which lends directly
to farmers) has recovered strongly from its financial problems of the
1980s, in part through Federal help. Farmer Mac increases the liquidity
of commercial banks and the Farm Credit System by purchasing
agricultural loans. In 1996, Congress gave the institution authority to
pool loans as well as more years to attain required capital standards,
which it has largely achieved already.

Personnel, Infrastructure, and the Regulatory Burden: USDA administers
its many farm programs through 2,500 county offices with over 17,000
staff. The Farm Bill significantly cut USDA's workload, prompting the
department to re-examine its staff-intensive field office-based
infrastructure. In 1998, USDA will: (1) conduct a study to find ways to
operate more efficiently; (2) continue an Administration initiative to
scrap duplicative and unnecessary regulations and paperwork; and (3)
review and upgrade its computer systems to streamline its collection of
information from farmers and better disseminate information across USDA
agencies.
In 1999, USDA will:
merge the headquarters and State office administrative
support staffs for its field office agencies (Farm Services
Agency, Natural Resources Conservation Service, Rural
Development) to provide more efficient and coordinated support
services.