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


 
                            18.  AGRICULTURE

  ----------------------------------------------------------------------

                            Table 18-1.  FEDERAL RESOURCES IN SUPPORT OF AGRICULTURE
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                               Estimate
               Function 350                   1998   -----------------------------------------------------------
                                             Actual     1999      2000      2001      2002      2003      2004
----------------------------------------------------------------------------------------------------------------
Spending:
  Discretionary Budget Authority..........     4,346     4,318     4,140     4,140     4,153     4,140     4,140
  Mandatory Outlays:
    Existing law..........................     7,879    16,445    10,942     8,757     7,342     6,032     6,198
    Proposed legislation..................  ........  ........       -20       -37       -33       -30       -38
Credit Activity:
  Direct loan disbursements...............     8,222    10,802    11,640       N/A       N/A       N/A       N/A
  Guaranteed loans........................     4,226     6,563     6,688       N/A       N/A       N/A       N/A
Tax Expenditures:
  Existing law............................       780       880       905       950       985     1,035     1,085
----------------------------------------------------------------------------------------------------------------
N/A = Not available

  ----------------------------------------------------------------------
  The Federal Government helps to increase U.S. agricultural 
productivity by ensuring that markets function fairly and predictably 
and that farmers and ranchers do not face unreasonable risk. Agriculture 
Department (USDA) programs disseminate economic and agronomic 
information, ensure the integrity of crops, inspect the safety of meat 
and poultry, and help farmers finance their operations and manage risks 
from both 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. 
Agriculture and its related activities account for 16 percent of the 
U.S. Gross Domestic Product.

Conditions on the Farm

  Economic conditions facing U.S. agriculture in 1998 challenged this 
Federal role. Demand for farm commodities and record market prices of 
recent years receded, with gross crop cash receipts falling seven 
percent from the record $112 billion in 1997. Net cash income fell $1.7 
billion short of the 1997 record of $60.8 billion. Forecasts for 1999 
put net cash income down $5 billion from the record level, but within 
the last five year's average. Producers are expected to earn slightly 
less from 1998 and 1999 crop sales due to lower feed grain prices. 
Livestock receipts in 1998 fell back to the 1996 level of $93 billion 
from 1997's record $96.6 billion. Beef cattle prices, continued to 
decline, despite reductions in the herd. Pork producers, with long-
expanding inventories experienced a severe drop in hog prices (see Chart 
18-1).
  Macro-economic agricultural conditions in 1998 were nearly the reverse 
of conditions that led to record farm income and prices of recent years. 
Last year, world-wide production of major grains was robust, which 
weakened demand for U.S. crops; the Asian financial crisis dampened a 
major source of export growth; the U.S. livestock sector experienced 
some relief in reduced feed costs. These conditions prompted the Federal 
Government to expand spending on agriculture, including $5.9 billion in 
emergency disaster relief enacted in the 1999 Omnibus Consolidated and 
Emergency Supplemental Appropriations Act.
  Despite generally lower commodity prices, farm assets and equity 
continue to rise. Farm sector business assets rose four percent in value 
in 1998, to $1.13 trillion. Farm

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asset values will remain at historic high levels in 1999, while farm 
real estate values will rise for the eleventh straight year. Farm 
business debt will rise in 1999, attaining its highest level since 1986; 
but debt-to-equity and -to-asset ratios improved in 1998 and are much 
stronger than on the eve of the financial stress in the 1980s farm 
sector. However, a continuation of low commodity prices may cause 
increasing financial stress for many producers. In 1998, an index of 
farm debt as a percentage of the maximum debt producers could pay at 
current income levels rose to 60 percent from 45 percent in the early 
1990s.
  Exports are key to future U.S. farm income. The Nation 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 reduced exports 
by an estimated $4 billion in 1998 and in 1999 export growth is likely 
to be minimal. Pacific Asia, including Japan, is the most 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 significantly affects 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 redesigned 
Federal income support and supply management programs for producers of 
wheat, corn, grain sorghum, barley, oats, rice, and cotton. It expanded 
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 
could get income support payments when prices were

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low, but farmers had to plant specific crops in order to receive such 
payments. Even when market signals encouraged the planting of a 
different crop, farmers had limited flexibility to do so. By contrast, 
the 1996 Farm Bill eliminated most such restrictions and, instead, 
provided fixed, but declining payments to eligible farmers through 2002, 
regardless of market prices or production volume. This law ``decoupled'' 
Federal income support from planting decisions and market prices. The 
law has brought changes in the crop acreage planted in response to 
market signals. In 1997, wheat acreage fell by six percent, or about 
five million acres, from the previous year, while soybean acreage rose 
by 10 percent, or over six million acres.
  The Farm Bill's freedom from planting restrictions on farmers meant 
greater potential volatility in crop prices and farm income. Not only 
can USDA no longer require farmers to grow less when supplies are great, 
but the size of farm income-support payments no longer varies as crop 
prices fluctuate. The previous farm bills were not perfectly counter-
cyclical: participants in USDA commodity programs whose crops were 
totally ruined when prices were high got no income-support payment then, 
but would now through fixed payments. And, the 1996 Farm Bill provides 
additional ``marketing loan'' payments to farmers when commodity prices 
fall below a statutorily set ``loan rate''. However, the 1998 conditions 
raised the issue of whether the Federal farm income safety net was 
sufficient, and how should it be improved, to a new urgency.
  However, the 1998 crop and price situation showed that the 1996 Farm 
Bill does not sufficiently protect farm income under certain conditions. 
Some crop prices significantly decreased from previous years&but the 
Farm Bill's ``decoupled'' income assistance did not adjust upward to 
compensate. If in the future commodity prices are again unacceptably 
low, the Administration will work to secure farm income assistance.
   The 1998 crop experience also highlighted problems with the crop 
insurance program, which is intended to be the foundation of the farm 
safety net. Farmers who experience multi-year losses are left with 
insufficient coverage at higher cost; there is no coverage available for 
many commodities including livestock; and, most fundamentally, coverage 
that provides adequate compensation is simply not affordable for many 
farmers. During the coming year, the Administration will work to find a 
bipartisan solution, including offsets, that will address these 
weaknesses by reforming crop insurance and strengthening the safety net 
for farmers.

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; conserving 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 are described in 
other chapters in this Section.)
  Farming and ranching are risky. Farmers and ranchers face not only the 
normal vagaries of supply and demand, but also uncontrollable risk from 
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 Federal Government mitigates risk through a variety of programs:

  Federal Farm Commodity Programs: Since most Federal income support 
payments under the 1996 Farm Bill are now fixed, farm income can 
fluctuate more from year to year due to supply and demand changes. 
Farmers must rely more on marketing alternatives, and develop strategies 
for managing financial risk and stabilizing farm income. However, in 
response to unprecedented crop/livestock price decreases and regional 
production problems, Congress included as part of the $5.9 billion in 
emergency disaster relief provided in the 1999 Omnibus Consolidated and 
Emergency Supplemental Appropriations Act an additional

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$2.8 billion in income-support payments, above the 1996 Farm Bill 
authorized level of $5.6 billion. In addition, the Federal Government 
continues to provide other safety-net protections, such as the marketing 
assistance loans that guarantee a minimum price for major commodities, 
that paid producers $1.7 in 1998 and will pay them an estimated $2 
billion in 1999.
  Insurance: USDA helps farmers manage their risks by providing 
subsidized crop insurance, delivered through the private sector, which 
shares the insurance risk with the Federal Government. Farmers pay no 
premiums for coverage against catastrophic production losses, and the 
Government subsidizes their premiums for higher levels of coverage. Over 
the past three years, an average 65 percent of eligible acres have been 
insured, with USDA targeting an average indemnity payout of $1.08 for 
every $1 in premium, down from the historical average indemnity of $1.40 
for every $1 in premium. Crop insurance costs the Federal Government 
about $1.5 billion a year, including USDA payments to private companies 
for delivery of Federal crop insurance.
  Early in 1999, as part of the $5.9 billion in emergency disaster 
relief, the President signed into law over $2 billion in supplemental 
crop insurance payments in response to severe crop losses in 1998. 
Payments also were made to uninsured farmers, but with the requirement 
that those farmers purchase insurance in the 1999 and 2000 crop years. 
Consequently, crop insurance participation, and therefore subsidy costs, 
are expected to increase in these years, with the percentage of eligible 
acres insured rising toward 70 percent. USDA also continues to develop 
crop insurance policies on new crops and expand several insurance 
products that mitigate revenue risk--price and production risk combined. 
These revenue insurance pilots have shown 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 declined by about 10 
percent in 1998 to $16.6 billion, after experiencing faster growth in 
recent decades than any other sector of the economy. USDA's 
international programs helped to shape that growth, and cushion the drop 
in foreign demand. The Foreign Agriculture Service's efforts to 
negotiate, implement, and enforce trade agreements play a large role in 
creating a strong market for exports.
  In 2000, USDA will:
   take action to overcome 700, or 15 percent, more trade 
          barriers than in 1999; and
   generate 6,000 trade leads for U.S. agricultural export 
          sales, an increase of 20 percent.
  USDA is authorized to spend over $1 billion in 2000 on export 
activities, ($3.5 billion will be spent in 1999), 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 and 
processes that often discourage the smaller, less experienced firms from 
taking advantage of export opportunities. USDA outreach and exporter 
assistance activities help U.S. companies address these problems and 
enter export markets for the first time.
  USDA programs also help U.S. firms, especially smaller-sized ones, 
export more aggressively, and high-value products now account for more 
than half of export value even as total U.S. farm exports have been 
declining recently (see Chart 18-2). By participating in the Market 
Assistance Program (MAP) or USDA-organized trade shows, firms can more 
easily export different products to new locations on their own. Small 
and medium-sized firm recipients (those with annual sales of under $1 
million) now represent 94 percent of the MAP branded-promotion spending, 
up from 70 percent in 1996, and USDA expects to raise that figure to 100 
percent in 1999.
  In 2000, USDA will:
   assist 2,000 U.S. firms to establish export activities and 
          oversee marketing distribution channels; and
   increase the percentage of new firms that the MAP supports in 
          establishing marketing and distribution channels by eight 
          percent, to 70 firms for a total of 1,700 participants.

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  Agricultural Research: The Federal Government spends approximately 
$1.8 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 2000, ARS expects to:
   submit 70 new patent applications;
   participate in 90 new Cooperative Research and Development 
          Agreements;
   license 30 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 and private sector farm, food, 
and environmental research. In addition, the Agricultural Research, 
Extension, and Education Reform Act of 1998 authorized $120 million 
annually in mandatory funds for certain priority research, although 
appropriations action blocked these funds for 1999.

  Economic Research and Statistics: The Federal Government spends about 
$155 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 de

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velopment policy. The National Agricultural Statistics Service (NASS) 
provides estimates of production, supply, price, and other aspects of 
the farm economy, providing information that helps ensure efficient 
markets.
   In 2000, NASS will include over 95 percent of national 
          agricultural production in its annual commodities reports, up 
          from 92 percent in 1997.

  Inspection and Market Regulation: The Federal 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 reduces the risk that U.S. meat and 
poultry products will threaten consumers' health (see Chapter 23, 
``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 2000, APHIS will:
   make about 83 million inspections of incoming passengers 
          (mainly from airlines) to prevent the entry of illegal plants 
          and animals that could endanger U.S. agriculture, a slight 
          increase over estimated 1999 levels;
   make about 72,000 interceptions of pests (an interception may 
          involve more than one pest specimen) that could endanger U.S. 
          agriculture, about the same as 1999;
   clear most international air passengers through its 
          inspection process in 30 minutes or less, a 20-percent 
          improvement over 1997 rates; and
   clear 65 percent of 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 2000, AMS will:
   contine a microbiological surveillance program on domestic 
          and imported fruits and vegetables as part of the President's 
          Food Safety Initiative; and
   perform about 55,000 analyses on 13 different commodities, 
          collecting 9,000 samples to measure pesticide residues, an 
          increase from the estimated 1999 activities of about 50,000 
          analyses, 13 commodities, about 8,200 samples.

  Conservation: The 1996 Farm Bill was the most conservation-oriented 
farm bill in history, enabling USDA to provide incentives to farmers and 
ranchers 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 2000) provides 
cost-share and incentive payments to encourage farmers to adopt new and 
improved farming practices or technology, and reduce 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. Another new 1996 Farm Bill 
program was the Farmland Protection Program (FPP). The U.S. loses more 
than two acres of farmland to development every minute. The FPP provides 
cost-share funds for agricultural easements to State, local, and tribal 
governments to preserve farmland and prevent its conversion to other 
uses.
  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 2000, USDA will:
   increase the number of acres enrolled each year for riparian 
          buffers and filter strips to 3.5 million, from an estimated 
          2.4 million acres in 1999;
   increase the number of locally led resource plans developed 
          through EQIP to 400 in 2000, up from 200 in 1999, and

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   protect approximately 130,000 productive farmland acres 
          through the FPP from being permanently lost to development.
  For more information on conservation, and USDA's investments in public 
land management, see Chapter 17, ``Natural Resources and Environment.'' 
USDA programs also help to maintain vital rural communities, as 
described in Chapter 21, ``Community and Regional Development.''

  Agricultural Credit: USDA provides about $600 million a year in direct 
loans and over $2.5 billion in guaranteed loans to finance farm 
operating expenses and farmland purchases. Direct loans, which carry 
interest rates at or below those on Treasury securities, are targeted to 
beginning or socially disadvantaged farmers who cannot secure private 
credit.
  In 2000, USDA will:
   increase the proportion of loans targeted to beginning and 
          socially-disadvantaged farmers to 16 percent, from an 
          estimated 14 percent in 1999 and 11 percent in 1997; and
   reduce the delinquency rate on farm loans to 15 percent, from 
          an estimated 17 percent in 1999 and 18 percent in 1998.
  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 for resale as bundled securities. In 1996, Congress 
gave the institution authority to pool loans as well as more years to 
attain required capital standards, which Farmer Mac has now achieved.

  Personnel, Infrastructure, and the Regulatory Burden: USDA administers 
its many farm programs through 2,500 county offices with over 17,000 
staff. The 1996 Farm Bill significantly cut USDA's workload, prompting 
the Department to re-examine its staff-intensive field office-based 
infrastructure. In 1999, USDA will: (1) plan to implement 
recommendations of a study to find ways to operate more efficiently; (2) 
continue an Administration initiative to scrap duplicative and 
unnecessary regulations and paperwork; and (3) continue to upgrade its 
computer systems to streamline its collection of information from 
farmers and better disseminate information across USDA agencies.
  In 2000, 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), consistent with the recommendations of the 1998 
          consultant's report, to reorganize by business process instead 
          of by agency, to provide more efficient and coordinated 
          support services. Administrative support functions of the 
          county-based agencies will be merged into a single account 
          under the Executive Director of the new Support Services 
          Bureau.