    [Budget of the United States Government]
    [III. Creating a Better Government]
    [7. Agriculture]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                                 7.  AGRICULTURE

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                                 Table 7-1.  Federal Resources in Support of Agriculture
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 350                   2000   -----------------------------------------------------------
                                                 Actual     2001      2002      2003      2004      2005      2006
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........     4,725     5,111     4,833     5,242     5,152     5,264     5,383
      Mandatory Outlays:
        Existing law..........................    31,990    20,437    13,162     9,819     8,759     8,789     9,099
    Credit Activity:
      Direct loan disbursements...............    11,005    10,280    10,392     8,949     8,791     8,564     8,868
      Guaranteed loans........................     5,435     6,492     6,783     6,886     6,886     6,886     6,886
    Tax Expenditures:
      Existing law............................     1,040     1,080     1,130     1,180     1,230     1,290     1,340
    ----------------------------------------------------------------------------------------------------------------

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      Through the Department of Agriculture (USDA), the Federal Government
    seeks to enhance the quality of life for the American people by
    supporting agricultural production; 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. (Many of
    these missions fall within other budget functions and are described in
    other chapters in this section.)
      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 face financial risk
    and natural disasters. Farming and ranching are risky. Federal programs
    are designed to accomplish two key economic goals: (1) provide an
    economic safety net for farmers and ranchers; and (2) open, expand, and
    maintain global market opportunities for agricultural producers.
      USDA programs disseminate economic and agronomic information, and help
    farmers finance their operations and manage risks from both weather and
    variable export conditions. Agriculture, food, and its related
    activities account for 15 percent of total annual U.S. personal
    consumption expenditures.

    Conditions on the Farm

      Farm conditions are improving. While supplies of farm commodities
    continued to exceed demand, some prices have started to recover from the
    lows of the past two years. Gross cash market receipts rose three
    percent to $195 billion in 2000, above the average level for 1990-1995.
    Net cash income also rose slightly, remaining above average due to
    Federal emergency payments. Farmers are expected to earn slightly more
    from 2001 crop sales due to a larger harvest and improving prices.
    Livestock prices in 2000 recovered from previous lows, and livestock
    receipts exceeded the record level of $96.5 billion in 1997. Crop and
    livestock prices are expected to strengthen modestly in 2001.
      Economic and weather conditions in the 2000 crop year prompted the
    Federal Government to expand spending on agriculture for a third year,
    including $11 billion in emergency disaster relief enacted in the 2001
    Agriculture Appropriations Act and Agriculture Risk Protection Act of
    2000. Overall,

    [[Page 54]]

    Federal Government farm payments and related expenditures reached a
    record $32 billion in 2000 (up significantly from the $10 billion
    provided in 1998).
      Farm assets and equity continue to rise, notwithstanding the generally
    low commodity prices. Farm sector assets increased in value in 2000, to
    $1.1 trillion. Farm asset values are forecast to remain at historic high
    levels in 2001, as farm real estate values increase for the thirteenth
    straight year. Farm business debt declined slightly in 2000, from its
    highest level since 1986; and debt-to-equity and debt-to-asset ratios
    also improved slightly in 2000, and are much stronger than on the eve of
    the financial stress in the farm sector during the 1980s. Farmer loan
    delinquencies are at a low and flat level. However, continuing low
    commodity prices and higher input costs due to increasing energy costs,
    may cause certain producers some increasing financial stress.
      Future farm income will be closely linked with exports. 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 to $49 billion in value terms, although export volume
    was steady in that period, but in 2000 exports increased to $51 billion.
    In 2001, export growth is likely to continue to improve gradually to $53
    billion, with the agricultural trade net surplus expected to reach $13
    billion.

    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 it significantly altered Federal support payments.
      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.
      Since the Farm Bill eased planting restrictions, there has been
    greater potential volatility in crop prices and farm income. The size of
    farm income-support payments no longer varies as crop prices fluctuate,
    and USDA can no longer require farmers to grow less when supplies are
    great. 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 does provide some counter-
    cyclical price protection because it provides additional marketing loan
    payments to farmers when commodity prices fall below a statutorily set
    loan rate. These marketing loan payments reached the historic high level
    of nearly $7 billion in calendar year 2000. Farmers also received
    additional emergency assistance: $6 billion was appropriated in 1999 for
    1998 crop-year losses, and $14 billion was legislated in 2000 to address
    both 1999 and 2000 crop-year losses.
      The budget does not assume supplemental income assistance for farmers
    for the 2001 crop year because it appears that commodity prices are
    improving, net cash income is projected to be over 90 percent of the
    average income in the 1990s, and it is too early to know what the crop
    quality and yield situation will be. However, the 2002 Budget provides a
    reserve fund that could be used to provide emergency support. USDA will
    work to enhance the competitiveness of American agriculture and to
    expand market

    [[Page 55]]

    opportunities for agricultural products using its trade, export,
    research and education and other programs.

    Federal Programs

      Federal Farm Commodity Programs: Since the amount of Federal income
    support payments under the 1996 Farm Bill is largely 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 $14
    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
    2000 and will pay them about $6 billion in 2001. Since July 1998, USDA
    has been seeking to support U.S. crop prices by purchasing surplus
    commodities to donate overseas.
      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 of nearly 70 percent of eligible acres
    has 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 $3 billion a
    year, including USDA payments to private companies for delivery of
    Federal crop insurance. Producers pay about $1 billion in premium costs
    for this protection.
      The Agricultural Risk Protection Act (ARPA), enacted in June 2000,
    included broad crop insurance reforms. Premium subsidies were increased
    to levels that will roughly double the cost of the program (from $1.5
    billion to $3 billion) and targeted to higher levels of coverage.
    Consequently, participation is expected to increase to an estimated 84
    percent of insurable acres, and the average coverage purchased by a
    farmer is expected to reach more than 70 percent of expected revenue.
    The program is expected to provide over $36 billion in risk protection
    in 2001, up from $34 billion in 2000. Both increased participation and
    higher coverage have the effect of enhancing the farm safety net, and
    reducing the need for disaster assistance legislation. ARPA provides
    incentives for the private sector to develop crop insurance policies on
    new crops and expand several insurance products that mitigate revenue
    risk, price and production risk combined. Revenue insurance policies are
    now among the most popular crop insurance products, and USDA will
    continue to expand their application and availability.

      Trade: The trade surplus for U.S. agriculture rose to $12.0 billion in
    2000 after having declined in recent years. This is largely the result
    of the growth in high-value agricultural products rather than bulk
    commodities. USDA's Foreign Agriculture Service (FAS) negotiates,
    implements, and enforces trade agreements to strengthen the market for
    U.S. exports.
      In 2002, FAS will work to carry out the President's commitment to
    expand overseas agricultural markets by strengthening USDA's market
    intelligence capabilities in order to address more effectively
    governmental policies and issues that affect the competitiveness of U.S.
    exports. FAS, the Agricultural Marketing Service, Grain Inspection
    Packers and Stockyards Administration, and Animal and Plant Health
    Inspection Service will work to enhance the USDA's expertise in
    addressing and resolving technical trade issues with foreign trading
    partners and expand participation in the development of international
    commodity standards.
      USDA is authorized to spend more than $1 billion in 2002 on a wide
    range of trade promotion programs that expand overseas market
    opportunities and develop long-term trade relationships with foreign

    [[Page 56]]

    countries. These include subsidies to export firms that face unfairly
    subsidized overseas competitors and credit guarantees for the commercial
    financing of U.S. agricultural exports. A small, but fast growing
    component of the guarantees is made available under the Supplier Credit
    Guarantee Program. This relatively new program was developed in response
    to changing trade patterns and was tailored specifically to facilitate
    sales of high value and consumer ready products, among the fastest
    growing components of U.S. agricultural trade.
      USDA also provides outreach and exporter assistance activities that
    are designed to assist businesses identify marketing opportunities
    overseas and enter export markets for the first time. This effort
    includes assistance in addressing laws, customs, and technical
    requirements that can discourage smaller, less experienced firms from
    taking advantage of export opportunities. USDA also facilitates
    participation in international trade shows and market promotion events.
    In these activities, increased emphasis is being placed on emerging
    markets in order to assist U.S. exporters to offset the initial costs
    and risks involved in capturing new market opportunities.

      Agricultural Research: In 2002, the Federal Government expects to
    spend $2.1 billion for agricultural research, education, economics and
    statistics programs 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 2002, ARS' $946 million proposed funding level will increase
    emphasis in high-priority areas, such as combating emerging and exotic
    diseases, controlling weeds and arthropods, as well as for
    biotechnology, and genomics. Working towards the ultimate goal of having
    a method to rapidly detect the presence of Bovine Spongeform
    Encephalopathy (BSE) disease agents in live animals, USDA will develop
    one or more BSE tests that will be ready for field evaluation in 2002.
    To accommodate these high priority items, funding for some lower-
    priority earmarked projects will be discontinued and funding for
    facility modernization will be limited to the most urgent needs.
      Another important ARS initiative is to develop technologies that will
    enhance the range of uses for agricultural commodities and byproducts.
    This work would result in competitively priced value-added products and
    spur jobs and business activity, especially in rural areas. Of
    particular promise is a new USDA research program carried out in
    collaboration with the Department of Energy. This effort focuses on
    developing biobased products and biofuels products made from renewable
    resources that can meet environmental needs, reduce dependence on
    petroleum-based products, and expand market opportunities for U.S.
    agriculture. In addition to developing new products, the USDA also will
    create new ways to ensure their efficient mass-production and
    processing. In 2002, USDA will:
      Expand transfer of research results to industry in order to
              increase the number of high quality and economically
              competitive bio-based products for sale.
      The Cooperative State Research, Education and Extension Service
    (CSREES) provides grants, through open competition, statutory formula,
    or, less desirably, direct earmark. Most of these grants are provided to
    land grant universities and State agricultural experiment stations. In
    2002, CSREES' $991 million request (including $120 million for the
    Initiative for Future Agriculture and Food Systems) will maintain
    funding for all programs except those that were funded with
    congressional earmarks in 2001.
      USDA economics and statistics programs, which are funded at $181
    million, improve U.S. agricultural competitiveness by reporting and
    analyzing information. The Economic Research Service 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) conducts the Census
    of Agriculture and provides estimates of production, supply, price and
    other aspects of the farm economy, providing information that helps
    ensure efficient markets. In 2002, NASS will:

    [[Page 57]]

      Provide timely information needed to support orderly marketing
              of agricultural products by meeting scheduled report release
              dates 100 percent of the time.

      Inspection and Market Regulation: The Federal Government will spend
    approximately $825 million 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 2002, APHIS will provide increased funding to stop the importation
    of goods and commodities that could endanger U.S. agriculture; use
    appropriated discretionary funding to respond to ongoing emergencies
    such as Medfly, citrus canker and Asian Longhorned Beetle; and improve
    trade issues and management. Reductions of unneeded funding will be made
    in boll weevil and brucellosis activities. An example of a performance
    goal in 2002 is:
      APHIS will continue to ensure that at least 95 percent of air
              travelers comply with restrictions to prevent entry of pests
              and diseases despite growing passenger traffic.
      For AMS and GIPSA, more funding will be devoted towards active
    participation in the development and resolution of international
    commodity standards. Examples of performance goals in 2002 are:
      AMS will establish accredited procedures and methods for
              testing bio-engineered fruits and vegetables similar to those
              already established for grains by GIPSA; and
      GIPSA will become the International Standardization
              Organization certifier to promote the marketing of value-added
              products through internationally recognized quality assurance
              systems, thus opening new market opportunities and avoiding
              costly trade disputes.

      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. The
    bill created several new conservation programs and extended and expanded
    other ongoing programs. The largest new program is the Environmental
    Quality Incentives Program, which provides cost-share and incentive
    payments to encourage farmers to adopt improved farming practices, and
    reduce the environmental impact of livestock operations. In a typical
    year, USDA, through the Natural Resources Conservation Service, provides
    technical assistance to 650,000 landowners, farmers and ranchers.
      In 2002, USDA will:
      increase the number of acres enrolled in riparian buffers and
              filter strips to 2.5 million, from an estimated 1.6 million
              acres in 2001;
      develop conservation systems on 18 million acres of cropland
              and grazing land to control erosion;
      help landowners apply integrated pest management systems on
              four million acres;
      help landowners apply conservation measures to reduce nutrient
              runoff on five million acres; and
      improve fish and wildlife habitat on five million acres of
              private land.
      For more information on conservation, and USDA's investments in public
    land management, see Chapter 6, ``Natural Resources and Environment.''
    USDA programs also help to maintain vital rural communities, as
    described in Chapter 10, ``Community and Regional Development.''

      Agricultural Credit: USDA provides about $800 million a year in direct
    loans and nearly $3 billion in guaranteed loans to finance farm
    operating expenses and farmland purchases. A portion of direct loans,
    which carry interest

    [[Page 58]]

    rates at or below those on Treasury securities, are targeted to
    beginning or socially disadvantaged farmers. Both direct and guaranteed
    loans are limited to family farmers who cannot obtain adequate credit
    from other sources.
      In 2002, USDA will:
      Increase the proportion of loan amounts targeted to beginning
              and socially-disadvantaged farmers to 30 percent, from an
              estimated 28 percent in 2001 and nine percent in 1996 when
              USDA first began measuring this activity; and
      Reduce the delinquency rate on farm loans to 18 percent, from
              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.

      Management Reform: USDA administers its many farm, conservation, and
    rural development programs through 2,500 county-level service centers
    with over 25,000 staff. During the prior Bush Administration, an effort
    was begun to streamline USDA's county office structure to improve
    service and reduce costs. The increasing costs of maintaining the
    current delivery system and the investment in new information technology
    have prompted the USDA to continue to examine its staff-intensive field
    office-based infrastructure. USDA will merge information technology
    staff of the Farm Service Agency, the Natural Resources Conservation
    Service, and Rural Development into one staff to service all three
    agencies, and review the field office structure to identify additional
    opportunities to improve efficiency, realize savings, and recognize the
    growth in farm business transacted via computers and fax machines. With
    requested resources, USDA will complete implementing its systems
    integration initiative, known as the Common Computing Environment (CCE).
    The CCE will reduce the paperwork burden by allowing for electronic
    filing of information from farmers and other USDA customers.
      USDA will also review streamlining and efficiency-enhancing measures
    for the Forest Service's field structure, work force, and administrative
    operations to provide more resources for ``on-the-ground'' activities.
    Program modifications and reforms will also be considered for USDA's
    food aid, trade, and marketing programs. These will ensure that Section
    416(b) food aid donations, in particular, significantly benefit U.S.
    farmers, target necessary humanitarian feeding, and avoid adverse
    commercial impacts consistent with Administration policy. The USDA will
    look for ways to reduce layers of management where doing so will
    increase program responsiveness without sacrificing needed oversight and
    accountability.
      Improving management and financial accountability is also a key
    priority for the Department. USDA will develop centralized and
    integrated management information systems to provide timely and reliable
    information on USDA's finances, people, and purchases. Such systems will
    help USDA resolve major management challenges, including improving
    computer security.
      USDA will continue working towards the goal of an unqualified audit
    opinion on USDA's consolidated financial statements. To assist in this
    goal USDA is implementing a corporate administrative accounting system
    (estimated completion by 2003). Last year, three stand alone component
    agency statements received unqualified audit opinions, two received
    qualified opinions and one received a disclaimer.

    Tax Expenditures

      Tax expenditures for agriculture are estimated to be $1.1 billion in
    2002, and $6 billion between 2003 and 2006. Legislation in 1999 made
    permanent the ability for farmers and ranchers to lower their tax
    liability by averaging their taxable income over the prior three-year
    period. Producers of certain crops, such as corn, also receive indirect
    benefits from the ethanol tax credit,

    [[Page 59]]

    due to the higher commodity prices that result from the increased demand
    for their commodities.
      The Administration proposes to establish Farm, Fish, and Ranch Risk
    Management (FFARRM) savings accounts for owners of farming, fishing, and
    ranging businesses. Each year, up to 20 percent of taxable income
    attributable to an eligible farming, fishing, or ranching business could
    be contributed to a FFARRM account and deducted from income. The income
    earned on the account would be taxable as earned. Distributions from the
    account (except those attributable to income from the account) would be
    included in gross income. Any amount not distributed within five years
    of deposit would be deemed to have been distributed and included in
    gross income, plus subject to a 10 percent surtax. This proposal would
    be effective for taxable years beginning after December 31, 2001.