[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]


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                            16.  AGRICULTURE

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                            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.

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  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

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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.
