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

    [[Page 205]]

                                16.  AGRICULTURE

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

                                Table 16-1.  Federal Resources in Support of Agriculture
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 350                   1999   -----------------------------------------------------------
                                                 Actual     2000      2001      2002      2003      2004      2005
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........     4,503     4,462     4,586     4,583     4,544     4,652     4,749
      Mandatory Outlays:
        Existing law..........................    18,447    26,100    14,259     9,824     9,725     7,598     6,635
        Proposed legislation..................  ........       710     3,384     3,290  ........  ........  ........
    Credit Activity:
      Direct loan disbursements...............    10,038    12,165    10,630       N/A       N/A       N/A       N/A
      Guaranteed loans........................     2,593     6,584     6,631       N/A       N/A       N/A       N/A
    Tax Expenditures:
      Existing law............................       885       915       960       995     1,050     1,100     1,140
    ----------------------------------------------------------------------------------------------------------------
    N/A = Not available.

      ----------------------------------------------------------------------
      The Federal Government helps to increase U.S. agricultural income by
    boosting productivity, ensuring that markets function fairly, and
    providing a safety net for farmers and ranchers who often face
    unreasonable market forces, financial risk and natural disasters.
    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, food, and its related activities
    account for 15 percent of the total U.S. personal consumption
    expenditure.

     Conditions on the Farm

       Economic conditions facing U.S. agriculture in 1999 again highlighted
    the need for a Federal role. Supplies of farm commodities continued to
    exceed demand, and some record high market prices of the mid-1990s fell
    to their lowest levels in years. While farmers and ranchers in many
    areas suffered crop production losses due to weather, disease, and pests
    in 1998 and 1999, these crop losses did not offset production increases
    in other regions of the country. Gross cash receipts fell three percent
    to $192 billion, still 11 percent above the average level for 1990-95.
    Net cash income rose $4 billion above 1998 to nearly the 1993 record of
    $59.3 billion, emergency with the Government payments. Forecasts for
    2000 put net cash income (without a Government aid package) below the
    1990-95 average of $53.6 billion. Farmers are expected to earn slightly
    less from 2000 crop sales than last year due to lower feed grain prices.
    Livestock prices in 1999 began to recover from recent lows, and receipts
    are slightly above the record level of $96.6 billion in 1997. Beef
    cattle and hog prices are expected to strengthen modestly in 2000, but
    remain low for many other commodities.
       Macro-economic agricultural conditions in 1998-99 were nearly the
    reverse of conditions that led to record farm income and prices earlier
    in the decade. Growth in crop yields and a fourth year of generally fine
    weather led to robust world-wide production of major grains, which
    flattened export demand for U.S. crops. These conditions prompted the
    Federal Government to expand spending on

    [[Page 206]]

    agriculture for a second year, including $9.1 billion in emergency
    disaster relief enacted in the 2000 Agriculture Appropriations Act and
    the 2000 Consolidated Appropriations Act. Overall, Federal Government
    farm payments reached a record $22.7 billion in 1999 (from $12.2 billion
    in 1998).
       Despite generally low commodity prices, farm assets and equity
    continue to rise. Farm sector assets increased slightly in value in
    1999, to $1.04 trillion. Farm asset values are forecast to remain at
    historic high levels in 2000, as farm real estate values increase for
    the twelfth straight year. In 1999, farmers' debt burden was only about
    40 percent of their repayment capacity, comparable to the 1997 level of
    record economic performance. Farmer loan delinquencies are at a low and
    flat level. However, a continuation of low commodity prices may cause
    increasing financial stress for many producers.
       Exports remain key to future U.S. farm income. The Nation exports 35
    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. By 1999, with export volume flat, lower world market prices
    reduced exports to $49 billion in value terms. In 2000, export growth is
    likely to be minimal. Pacific Asia, including Japan, is the most
    important region for U.S. farm exports, accounting for 36 percent of
    total U.S. export sales in 1999.

     The 1996 Farm Bill

       The 1996 Farm 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
    had gradually reduced the Federal influence in the agricultural sector,
    at the same time, however, it frayed significantly the existing farm
    net.
       Under previous laws dating to the 1930s, farmers who reduced
    plantings could get income support payments when prices were 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 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 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. The 1996 Farm Bill also provides additional
    marketing loan payments to farmers when commodity prices fall below a
    statutorily set loan rate. These reached the historic high level of
    nearly $7 billion in 1999, before being supplemented by the second
    straight year of emergency aid to producers. Nonetheless, the market
    conditions in 1998 and 1999 raised the issue of whether the Federal farm
    income safety net was sufficient, and how it should be improved.
    Specifically, many crop prices greatly decreased in 1997-1999 from
    previous years, but the farm bill's decoupled income assistance did not
    adjust upward to compensate. Because commodity prices remain low, the
    budget includes through the end of the Farm Bill an $11 billion package
    to enhance the farm income safety net. It includes counter-cyclical
    income assistance when farm revenues are low, a freeze on USDA marketing
    assistance loan rates for the 2000 crop, and major increases in new and
    existing USDA conservation programs, among other things.

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       The 1999 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. The Administration's safety net package, therefore, includes
    funds to increase crop insurance subsidies.

     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 much 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 $9.1 billion in
    emergency disaster relief in 2000 a doubling of the 1996 Farm Bill's
    fixed $5 billion in income-support payments. 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, which paid producers $7 billion in 1999 and will pay them a
    similar amount in 2000.
       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, the highest in the program's 60-year history. USDA now targets
    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 2000, as part of the $9.1 billion in emergency disaster
    relief the President signed into law, nearly $1.4 billion in crop loss
    payments was paid to producers to compensate for natural disasters in
    1999. Payments also were made to uninsured farmers, but with the
    requirement that those farmers purchase insurance in the 2000 and 2001
    crop years. Moreover, $400 million was provided in 2000, as it was in
    1999, to help farmers pay insurance premiums. Consequently, crop
    insurance participation, and therefore subsidy costs, are expected to be
    above average in these years, due to eligible acres insured rising
    toward 70 percent and current policyholders taking advantage of reduced
    premiums to increase their coverage. Both increased participation and
    higher coverage have the effect of enhancing the farm safety net, and
    reducing the need for disaster assistance legislation. 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

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    will continue to expand their application and availability.

       Trade: The trade surplus for U.S. agriculture declined by about 30
    percent in 1999 to $11.6 billion, after experiencing faster growth in
    recent decades than any other sector of the economy. This is largely the
    result of the drop in commodity prices rather than a loss of export
    volume. 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 2001, USDA will:
       take action to overcome 650 new trade barriers, up from 400
              in 1993; and,
       generate 4,500 trade leads for U.S. agricultural export
              sales, 10 percent greater than in 1993.
       USDA is authorized to spend over $1 billion in 2001 on export
    activities (not counting funds for overseas donations of farm
    commodities), 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. Their high-value products now account for more
    than half of agricultural export value even as total U.S. farm exports
    have been declining recently. 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 all of the MAP branded-promotion spending, up
    from 60 percent in 1993.

       In 2001, USDA will:
       assist 2,000 U.S. firms to establish export activities and
              overseas marketing distribution channels, 750 more than in
              1993; and,
       increase the number of new firms that the MAP supports in
              establishing marketing and distribution channels for a total
              of 625 participants, up from 525 in 1994.

      Agricultural Research: In 2001, the Federal Government expects to
    spend $2.2 billion for agricultural research, education, economics and
    statistics programs whose goals are to make U.S. agriculture more
    productive and competitive in the global economy.
      The Agricultural Research Service (ARS) is USDA's in-house research
    agency. In 2001, ARS' $950 million proposed funding level will increase
    emphasis in high-priority areas, such as improving human nutrition, food
    safety and food quality protection; combating emerging and exotic animal
    and plant diseases and invasive species; improving the understanding of
    agriculture's role and response to climate change issues; increasing
    available genetic resources and improving the ability to identify useful
    properties of organisms; and, using biotechnology to find new products
    and energy sources from existing and converted crops, as well as to fund
    needed facility construction.
      During 1999, ARS developed new procedures to reduce crop losses due to
    post-harvest decay of stored commodities; initiated a cooperative
    project to sequence, map and analyze publicly available DNA clones for
    crop genomes; and, determined the role of various nutrients in providing
    maximum health benefits to the public, including children and the
    elderly.
      The Cooperative State Research, Education and Extension Service
    (CSREES) provides grants, mainly through open competition or legislative
    formula. The largest recipients of these grants are land grant
    universities and State agricultural experiment stations. In 2001,
    CSREES' $1.1 request billion (including $120 million for mandatory
    programs) will increase funding for competitive grants for several
    programs, mainly through the National

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    Research Initiative--USDA's major source of competitive research grant
    funding--as well as integrated research, education and extension grants,
    and mandatory authority provided in 1998. CSREES also will provide
    increased support in areas such as pest management and control,
    sustainable agriculture, biotechnology, food quality protection, small
    farms programs and gleaning. It also will provide support to minority
    institutions of higher education, and a large increase has been
    requested for Native American programs.
      USDA economics and statistics programs, which are funded at $150
    million, improve U.S. agricultural competitiveness by reporting and
    analyzing information. The Economic Research Service (ERS) provides
    economic and other social sciences information and analysis for
    decision-making on agriculture, food, natural resources and rural
    development 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 2001, NASS will include over 95 percent of national
              agricultural production in its 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. The Animal and Plant
    Health Inspection Service (APHIS) inspects agricultural products that
    enter the country, searching for goods or commodities that could harbor
    potential infestations; monitors the disease status of agricultural
    plants and animals; controls and eradicates diseases and infestations;
    helps control damage to livestock and crops from animals; and uncovers
    cruel treatment of many domesticated animals. The Agricultural Marketing
    Service (AMS) and the Grain Inspection, Packers and Stockyards
    Administration (GIPSA) help market U.S. farm products, ensure fair
    trading practices, and promote a competitive, efficient market place.
      In 2001, APHIS will provide increased funding to stop the importation
    of goods and commodities that could endanger U.S. agriculture; monitor
    the potential for infestations; use discretionary funding to respond to
    ongoing emergencies such as Medfly, citrus canker and scrapie; improve
    the inspection of plants and animals; and, take actions to respond to
    the threat of invasive plant and animal species. APHIS resources also
    will significantly increase animal welfare activities (for which a $5
    million increase is requeted for 2001). The amounts requested will fund
    more inspectors to help ensure that licensed or regulated wholesalers,
    certain pet stores, zoos, circuses and other public displays and
    research facilities follow regulations for the humane treatment of
    animals. Examples of performance in 2001 are:
      APHIS expects to reduce the number of Medfly infestations in
              Chiapas, Mexico, that could threaten the U.S., from 239 in
              1998 to 50; and,
      APHIS will increase the number of animal welfare inspections
              from 10,000 in 1998 to 17,000 in 2001.
      AMS will increase funding a microbiological surveillance program on
    domestic fruits and vegetables through the President's Food Safety
    Initiative, and fund the recently authorized program to provide the
    public with daily information on livestock transactions.
      AMS will increase the number of markets covered by its market
              news program from 1,681 in 1998 to 1,831 in 2001.

       Conservation: The 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), 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 Farm Bill program was the Farmland
    Protection Program (FPP), which provides cost-share funds for
    agricultural easements to State, local, and

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    tribal governments to preserve farmland and prevent its conversion to
    other uses.
       The Administration's farm safety net proposal expands several
    conservation programs and their mandatory funding, increasing the
    financial and technical assistance available to farmers and ranchers who
    wish to implement costly but environmentally-sound land management
    practices or those who want to permanently protect their farmland from
    development. (see also, Chapter 4, ``Protecting the Environment''). The
    safety net proposal removes the Wetlands Reserve Program's (WRP)
    cumulative 975,000 acre cap to allow enrollment of 250,000 acres per
    year, as outlined in the Clean Water Action Plan, and increases the
    Conservation Reserve Program's (CRP) enrollment cap by 3.6 million
    acres, to 40 million. Both of these programs remove land from
    agricultural use and restore natural habitats. The safety net proposal
    also provides $65 million for the FPP, which remains part of the
    Administration's Lands Legacy initiative, and $50 million for the
    Wildlife Habitat Incentives Program (WHIP), which helps landowners
    establish fish and wildlife habitat on their land. The EQIP's annual
    authorized funding level is also increased by $125 million to $350
    million. Also included in the proposal is $600 million for a new
    Conservation Security program, which will provide varying levels of
    payments to producers based on the conservation practices they
    implement.
       In 2001 USDA will:
       increase the number of acres enrolled each year for riparian
              buffers and filter strips to 2.9 million, from an estimated
              2.0 million acres in 2000;
       Develop resource management systems for 12.3 million acres of
              cropland and grazing land, and,
       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 15, ``Natural Resources and
    Environment.'' USDA programs also help to maintain vital rural
    communities, as described in Chapter 19, ``Community and Regional
    Development.''

       Agricultural Credit: USDA provides about $700 million a year in
    direct loans and over $3 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 2001, USDA will:
       increase the proportion of loans targeted to beginning and
              socially-disadvantaged farmers to 18 percent, from an
              estimated 16 percent in 2000 and nine percent in 1996 when
              USDA first began measuring this activity; and,
       reduce the delinquency rate on farm loans to 14 percent, from
              an estimated 16 percent in 2000 and over 24 percent in 1994.
       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, conservation, and rural development programs
    through 2,500 county offices with over 17,000 staff. The increasing
    costs of maintaining the current delivery system and the investment in
    new information technology have prompted the Department to re-examine
    its staff-intensive field office-based infrastructure. In 2001, USDA
    will: (1) consolidate information technology staff of the Farm Service
    Agency, the Natural Resources Conservation Service, and Rural
    Development into one staff to service all three agencies under USDA's
    Chief Information Officer; (2) identify centers of investment to
    allocate limited technology invest

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    ments and reduce the number of free-standing county offices; and, (3)
    continue to streamline its collection of information from farmers and
    better disseminate information across USDA agencies.
       In 2001, USDA will utilize county-office pilot sites to test new
    management structures and program delivery options that improve customer
    service and collectively reduce operating costs. USDA will also merge
    all of the non-information technology administrative support staffs for
    its field office agencies (Farm Services Agency, Natural Resources
    Conservation Service, Rural Development), consistent with the cost-
    benefit analysis done to support the investment in modern technology by
    providing more efficient and coordinated support services. Efficiency
    savings of $21 million from sharing common administrative processes and
    staff were delayed past 2001 due to postponement of this initiative in
    2000 by Congress.