[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
----------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------
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.