[Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
[III. Major Functions of the Federal Government]
[7. Agriculture]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 97]]
7. AGRICULTURE
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Table 7-1. Federal Resources in Support of Agriculture
(Dollar amounts in millions)
----------------------------------------------------------------------------------------------------------------
Percent
Function 350 1993 2001 Change:
Actual Estimate 1993-2001
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Spending:
Discretionary budget authority............................................ 4,297 4,792 12%
Mandatory outlays......................................................... 16,109 20,356 26%
Credit Activity:
Direct loan disbursements................................................ 11,132 10,879 -2%
Guaranteed loans......................................................... 4,564 6,492 42%
Tax expenditures............................................................ 290 1,080 NA
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NA = Not applicable.
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The U.S. Department of Agriculture (USDA) 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. (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.
Over the past eight years, as farm income rose to a record level and
then receded, the Federal Government has helped to make U.S. farmers
more productive, ensure that markets function fairly, and provide a
safety net for farmers and ranchers. Among its other missions, USDA
disseminates economic and agronomic information, ensures the integrity
of crops, inspects the safety of meat and poultry, and helps 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
The farm economy has swung widely in the past eight years. By 1993,
the farm sector had recovered from the economic farm crisis of the
1980s. Net cash income reached a record $59.1 billion. Production losses
that year, because of widespread flooding in the Midwest, were
ameliorated by a surge of Federal Government payments. Farm equity
increased and debt ratios fell. Although commodity prices soared to
record highs in 1995 through 1997, farm cash income in 1993 remains the
record level. Following the historic tight supplies of major commodities
in the mid-1990s, repeated years of over-production caused prices to
decline beginning in 1998. Gradually prices and market income are
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recovering, aided by activities and funding by the Federal Government.
Economic conditions facing U.S. agriculture in 2000 continued to
challenge the Federal role. While supplies of farm commodities continued
to exceed demand, prices have started to recover from the lows of the
past two years. Gross cash receipts rose slightly (three percent above
the previous year) to $195 billion, well above the average level for
1990-1995. Net cash income also rose slightly, remaining above average,
due once again to Federal emergency payments. Farmers are expected to
earn slightly more from 2001 crop sales due to a larger crop 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 conditions in 2000 prompted the Federal Government to expand
spending on agriculture for a third year, including a total of $9.1
billion in emergency disaster relief enacted in both the 2001
Agriculture Appropriations Act and the Agriculture Risk Protection Act
of 2000. Overall, Federal payments to farmers from USDA's Commodity
Credit Corporation (CCC, the major farm-assistance program) reached a
record $28 billion in 2000 (from $10 billion in 1998 and $12 billion in
1993). Table 7-2 provides detail on these payments by fiscal year, while
Chart 7-1 displays on a calendar/tax year basis the share of net farm
income that was provided through USDA payments.
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Table 7-2. USDA/Commodity Credit Corporation Payments to Farmers
(Outlays, in millions of dollars)
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Actual Estimate
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1993 1999 2000 2001
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Income Assistance............... 8,607 5,476 5,049 4,056
Loan Deficiency Payments........ 352 3,360 6,387 5,259
Conservation Reserve Program and 1,579 1,754 1,770 2,058
other Conservation Programs....
Emergency Assistance............ 1,254 5,853 14,504 3,698
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Total......................... 11,792 16,443 27,710 15,071
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Despite generally low commodity prices, farm assets and equity
continue to rise. Farm sector assets increased in value in 2000, to $1.1
trillion. Farm asset values are forecast to remain at historically high
levels in 2001, as farm real estate values increase for the twelfth
straight year. Farm business debt declined slightly in 2000, from its
highest level since 1986; and the 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 may cause increasing financial stress for certain
producers, although farm income overall and in most regions is expected
to improve in 2001.
Exports hold the key to future U.S. farm income. The Nation exports 30
percent of its farm production, and agriculture produces the greatest
balance of payments surplus, for its share of national income, of any
economic sector. Agricultural exports reached a record $60 billion in
1996. Lower world market prices and bulk export volume reduced exports
to $49 billion in 1999, 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.
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The 1996 Farm Bill
President Clinton emphasized, when he signed the Federal Agriculture
Improvement and Reform Act of 1996 (the 1996 Farm Bill), that its income
safety net was not sufficient. Events in the agricultural economy, and
the Federal response, since then have borne out his concern. When
commodity prices dropped in 1998, statutory Federal assistance was
insufficient, prompting a series of emergency funding legislation that
has nearly doubled the 1996 Farm Bill's income assistance during 1998-
2000. In response, the Administration proposed legislation to amend the
Farm Bill to provide counter-cyclical farm income assistance that would
target payments to farmers in need when market income falls below the
five-year average level. Congress did not adopt the legislation, but the
proposal provides important recommendations for the next Farm Bill,
which will be legislated within the next two years.
In the absence of legislative reform, the Clinton-Gore Administration
moved forward under existing authorities to bolster commodity prices and
support for family farmers. These administrative actions included
purchasing surplus commodities to expand humanitarian donations at home
and abroad; freezing the commodity price-support loan rates instead of
allowing them to fall; and, expanding alternative uses of commodities
through programs such as the bioenergy initiative in which bonuses are
paid to bioenergy producers who increase their purchases of commodities.
These actions increased farm income by over $500 million for the 2000
crop year.
The 1996 Farm Bill, effective through 2002, redesigned Federal income
support and supply management programs for producers of wheat, corn,
grain sorghum, barley, oats, rice, and cotton. Under previous laws
dating to the 1930s, farmers who reduced plantings could get income
support payments when prices
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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 thus
``decoupled'' Federal income support from planting decisions and market
prices. The law has brought changes in the crop acreage planted in
response to market signals. In 1997, wheat acreage fell by six percent,
or about five million acres, from the previous year, while soybean
acreage rose by 10 percent, or over six million acres.
The 1996 Farm Bill's elimination of planting restrictions on farmers
meant greater potential volatility in crop prices and farm income. Not
only can USDA no longer require farmers to grow less when supplies are
great, but the size of farm income-support payments no longer varies as
crop prices fluctuate. The 1996 Farm Bill also provides ``marketing
loan'' payments to farmers when commodity prices fall below a
statutorily set ``loan rate''. These payments reached the historic-high
level of nearly $7 billion in calendar year 2000. Payments to farmers
were further supplemented by emergency aid: $6 billion was appropriated
in 1999 for 1998 crop-year losses, and $15 billion was legislated in
2000 to address both 1999 and 2000 crop-year losses.
Market conditions in 1998-2000 raised the issue of whether the Federal
farm income safety net was sufficient, and how it should be improved.
Some crop prices significantly decreased from previous years, but the
Farm Bill's decoupled income assistance did not sufficiently adjust
upward to compensate. The recent crop experience also highlighted
problems with the crop insurance program, which is intended to be the
foundation of the farm safety net. Farmers did not have sufficient
coverage when they experienced multi-year losses; there was no coverage
available for many commodities including livestock; and, most
fundamentally, coverage that provides adequate compensation was simply
not affordable for many farmers.
Crop 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 cost the Federal Government an average of $1.2 billion a year
over the last eight years, including USDA payments to private companies
for delivery of Federal crop insurance.
In 1998, the Secretary of Agriculture used the authority and funds
provided in an emergency farm assistance package to increase crop
insurance premium subsidies, thereby providing incentives for more
producers to enroll in the program and purchase higher coverage that
might mitigate the need for future ad hoc crop-loss legislation. The
Secretary's plan was highly successful, as farmers responded with
purchases of unprecedented insurance coverage levels. Congress has since
followed the Administration's lead and enacted further crop insurance
discounts in subsequent years, culminating in codifying the reform
through the Agriculture Risk Protection Act, enacted in June 2000. With
the new legislation, the Administration will have taken the crop
insurance program from a narrow, ineffective program in 1993 to a
comprehensive program that is the centerpiece of a more market-oriented
farm safety net. Over the same period, major enhancements and innovative
risk management products have been brought to market, including the
first Government program to subsidize the use of options contracts for
the purpose of managing price risk on milk. The recent reforms will
increase average premium subsidies to over 50 percent, and also pave the
way for the program's first livestock policy.
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Trade
The trade surplus for U.S. agriculture declined more than 50 percent
from its peak of $27.4 billion in 1996 to $11.9 billion in 1999, after
experiencing faster growth in recent decades than any other sector of
the economy. The trade surplus level in 1993 was $18.6 billion, and
averaged $17.9 billion per year from 1994-1999. The reduction was
largely the result of decreased commodity prices, and significantly
greater U.S. imports drawn by the strong dollar, rather than a loss of
agricultural export volume. USDA's international programs helped to
shape the growth in agricultural exports, and maintain the volume of
foreign demand. Its Foreign Agriculture Service's efforts to negotiate,
implement, and enforce trade agreements play a large role in creating a
strong market for exports.
USDA is authorized to spend over $1 billion in 2001 on agricultural
export activities, including subsidies to U.S. firms facing unfairly
subsidized overseas competitors, and loan guarantees to foreign buyers
of U.S. farm products. USDA also helps firms overcome technical
requirements, trade laws, and customs and processes that often
discourage the smaller, less experienced firms from taking advantage of
export opportunities. USDA outreach and exporter-assistance activities
help U.S. companies address these problems and enter export markets for
the first time.
USDA programs also help U.S. firms, especially smaller-sized ones,
export more aggressively, and high-value products now account for more
than half of agricultural export value. By participating in USDA's
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 nearly all of the MAP branded-promotion
spending, up from 70 percent in 1996.
Most significantly in recent years, the Administration has greatly
increased overseas donations of U.S. commodities, using current
authorities to dispose of crop surpluses. Since 1998, U.S. food aid has
tripled to nearly 10 million metric tons annually, at a total cost of
about $5 billion. The donation of U.S. commodity surpluses has
capitalized on the opportunity to boost U.S. exports of surplus crops
while feeding hungry people abroad. In 2001, USDA is also implementing a
pilot program, the Global Food for Education Initiative, to donate $300
million in commodities and associated transportation and distribution
costs to create a school lunch program in lower-income foreign
countries. Through this initiative, the Administration is expanding the
overseas donation program to strengthen the link between good nutrition
and education that has been demonstrated in the United States.
Conservation
Although the Administration had serious concerns with the 1996 Farm
Bill's commodity provisions, it strongly supported the bill's extensive
conservation provisions, which were developed with bipartisan
cooperation. These provisions made the 1996 Farm Bill the most
conservation-oriented farm bill in history, enabling USDA to help
farmers and ranchers protect the natural resource base of U.S.
agriculture while augmenting farm income. USDA's Environmental Quality
Incentives Program (EQIP) provides cost-share and incentive payments to
farmers and ranchers that implement conservation practices such as
integrated pest management or animal waste management systems. EQIP is
also designed to help farmers comply with Federal, State, and local
environmental regulations, and, by law, at least half of its funds must
be used to address conservation concerns associated with livestock
production. USDA's Conservation and Wetlands Reserve Programs are
discussed in Chapter 6, ``Natural Resources and Environment.'' Another
new 1996 Farm Bill program was the Farmland Protection Program (FPP),
which provides financial assistance to State, local, and Tribal
governments to permanently protect farmland from development and
preserve open spaces. The new Wildlife Habitat Incentives Program (WHIP)
provides financial assistance to landowners that wish to improve aquatic
or terrestrial habitat on their land. Eligible practices include stream
restoration, tree planting, and prescribed burning.
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Since the inception of these programs, USDA has:
helped approximately 1,000 communities assess the status of
their natural resource base and develop locally-led natural
resource action plans through EQIP;
worked with non-Federal partners to permanently protect
approximately 150,000 acres of prime farmland from development
through the FPP, maintaining communities' open spaces and
helping sustain agriculture-related economies; and,
entered into nearly 8,500 long-term WHIP contracts with
landowners to improve wildlife habitat on over 1.3 million
acres.
Agricultural Credit
USDA provides over $700 million a year in direct loans and over $2.6
billion a year in guaranteed loans to finance farm operating expenses
and farmland purchases. A portion of direct loans, which carry interest
rates at or below those on Treasury securities, is targeted to beginning
or socially-disadvantaged farmers who cannot secure private credit.
The Administration acted to increase farm loan programs in response to
the downturn in the farm economy. USDA's Farm Service Agency's direct
and guaranteed farm loans, which totaled $2.1 billion in 1993, will
reach over $3 billion in 2001--and close to $5 billion including funds
that will carry over from 2000 emergency appropriations. As the farm
crisis became apparent in 1999, USDA understood farmers could not wait
for the Congress to enact additional funding. The Administration's
timely response channeled funds to farm loan programs through
administrative transfer authorities. Moreover, USDA monitoring of loan
program activity allowed for strategic reprogramming of funds across
loan programs to meet producers' greatest financing needs. In addition,
the Secretary of Agriculture made it a priority to increase the amount
of USDA lending to beginning and socially-disadvantaged farmers to 18
percent, while simultaneously reducing delinquencies through the
underwriting skills of staff and the hands-on loan servicing provided
all borrowers. Consistent with the goals of the Vice President's
Reinventing Government initiative, this improvement has come at a time
of staff reductions, partially as a result of the Administration's
efforts to streamline loan underwriting procedures.
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) 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, the Congress gave the
institution authority to pool loans as well as more years to attain
required capital standards, which Farmer Mac achieved.
Agricultural Research, Education and Extension Programs
The Federal Government underwrites agricultural research, education,
economics and statistics programs whose goals are to make U.S.
agriculture more productive and competitive in the global economy. These
programs, currently funded at approximately $2.3 billion ($1.8 billion
in 1993), provide for in-house research by USDA scientists at over 100
Federal facilities; grants for research, education and extension work at
eligible institutions, such as land grant colleges and universities;
and, economic and statistical support for USDA programs and the
agricultural sector.
Through its in-house research program, USDA continued to support
increases for high-priority initiatives of national importance in human
nutrition, food safety, the environment, invasive species, genetics and
genomics, and biobased products. In addition, USDA continued to
emphasize the importance of competitive peer-reviewed grants for both
research and education and extension grants programs, and saw funding
specifically for these grants more than double during the last eight
years, in large part due to new authorities in the 1998 Agricultural
Research, Extension, and Education Reform Act, which includes $120
million in annual mandatory
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agricultural research funding. In addition, USDA's Cooperative State
Research, Education and Extension Service increased its support to
minority institutions of higher education by 47 percent since 1993, as
well as to areas such as integrated pest management and alternative
control technologies (an increase of 53 percent), sustainable
agriculture (an increase of 94 percent), and also initiated programs for
food safety.
USDA economics and statistics programs improve U.S. agricultural
competitiveness by reporting and analyzing information. The Economic
Research Service provides economic and other social sciences information
and analysis of agriculture, food, natural resources and rural
development policy issues. The National Agricultural Statistics Service
provides estimates of commodity production, supply, price and other
aspects of the farm economy, to help ensure efficient markets through
informed participants.
Marketing and Inspection Programs
USDA's Animal and Plant Health Inspection Service is responsible for
protecting America's productive land from foreign and domestic plant and
animal infestations. As the international movement of people and goods
increases, the threat of infestations becomes even more serious, as
shown in recent years by the outbreaks of citrus canker, plum pox,
Pierce's Disease, Medfly, and the Asian Longhorned Beetle. The
Administration responded to these and other outbreaks by seeking
appropriations and using existing emergency authority to provide funding
for invasive species detection and eradication, as well as compensation
for lost income where appropriate. During 1999 and 2000, the
Administration provided an annual average of $180 million to combat
infestations and compensate losses from them--eight times the annual
amount made available during the previous six years of the
Administration, and 11 times the annual amount provided during 1989
through 1992. In addition, in July 2000, USDA and OMB submitted proposed
guidelines to the Congress on the Federal role in responding to pest and
disease infestations.
The Administration also increased funding to improve border checks at
airports, seaports, and land border crossings, to intercept dangerous
goods. In 2001, almost $240 million will be available for this purpose.
In addition, in order to comply with World Trade Organization
requirements that trade decisions be based upon scientific, risk-based
criteria, the Administration implemented a policy that requires
countries seeking to import goods to the United States from regions
where there may be a disease threat to American agriculture, to undergo
a rigorous risk analysis and be subject to risk mitigation requirements
to reduce the risk to a ``negligible level.'' These regulatory actions
are open to public scrutiny and comment.
Another growing concern to which the Administration responded is the
increasing concentration in the livestock marketing industry, both
horizontally across the entire industry, and vertically through
agreements between packers and sellers that can limit competition. The
Administration took action to create a more open market place, by
providing additional funds to investigate anti-competitive actions in
the industry, as well as to implement mandatory livestock reporting
requirements that provide up-to-date information on contractual
arrangements to better ensure a level playing field, particularly for
smaller livestock producers.
In December 2000, the Administration issued final regulations
providing the first national standards for the production, handling, and
processing of organically-grown crops and livestock. These standards
provide consumers with confidence in the integrity of products
advertised as organic, and provide farmers with clear guidelines on how
to gain organic certification for their commodities in order to take
advantage of the rapidly increasing consumer demand for organic
products.
USDA was also a leader in the Administration's initiative to improve
food safety, particularly the safety of meat and poultry products. This
initiative is discussed in Chapter 12, ``Health.''
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Improved Customer Service
USDA has three agencies with a nationwide system of field offices, the
Farm Service Agency, the Natural Resources Conservation Service, and
Rural Development. These county offices deliver a diverse menu of
programs including commodity price support, emergency disaster, and
conservation programs, as well as farm real estate, operating and rural
housing loan programs. The field operations' structure and operating
procedures of these agencies had been essentially unchanged in decades.
Their dispersed field office locations, with their high and increasing
costs of maintaining the current delivery system including separate
information technology systems, prompted significant reform. In 1993,
the Vice President's National Performance Review called for creating
``one-stop shopping'' service centers from USDA county offices, to
significantly improve customer service and achieve operating
efficiencies. The streamlining devised by USDA included three key
components: co-location of county offices, integration of their
information systems, and modernization of their business processes in
keeping with the new tools provided by enhanced information technology.
Throughout the 1990s, with the support of both the Administration and
the Congress, the field offices were largely co-located and work began
on integrating business processes and information systems. Consolidating
and relocating the field offices reduced their number over the last
eight years from over 7,500 offices in 3,700 locations to approximately
5,500 offices in 2,500 service centers.
The USDA systems integration initiative, known as the Common Computing
Environment (CCE), is scheduled to be complete in 2002. The CCE was
planned as a common architecture and shared information system to
replace outdated ``stove-pipe'' (single agency) systems currently
supported by USDA agencies. The CCE's goal is to enable new technology
and methods to be easily shared and implemented by all USDA agencies, to
reduce the burden of data collection on its customers as well as the
costs to the Government. The business process reenginering component of
this initiative is still under way and, while dependent on the CCE for
completion, will bring USDA agencies into compliance with the Freedom to
E-file Act of 2000. These new procedures and information systems will
allow electronic filing that will reduce the paperwork burden on those
who participate in multiple USDA programs and reduce the county-office
workload. Many of the forms used by USDA customers are now available on
line, though e-filing is not available in most instances. E-filing
capability is targeted for completion in the next two years.
While true one-stop shopping and significantly improved customer
service will not be available until these reforms are complete and USDA
processes and administrative functions are harmonized, USDA made great
strides over the last eight years to modernize its county-office program
delivery.
Civil Rights
Since 1993, USDA's leadership made improvement of the Department's
civil rights record one of its top priorities. The Agriculture Secretary
re-established a USDA Office of Civil Rights, which was closed in the
1980s, to provide a focal point for USDA's civil rights functions and
oversight. The Office is responsible for policy development, analysis,
coordination, and compliance activities. Comprehensive training in civil
rights has been provided to USDA employees, and the accountability of
managers has been clarified and increased. Even with downsizing,
representation of minorities and women in USDA's work force improved. In
addition, the Farm Service Agency increased its lending to African-
American farmers by 67 percent over the last five years. USDA also
worked to improve its civil rights complaint processing to reduce the
time it takes to resolve cases. In the late 1990s, African American
farmers filed a class-action discrimination law suit against USDA,
primarily based on charges of past discriminatory treatment by USDA loan
officers in the county offices. The suit exposed widespread
discriminatory practices, and USDA settled the suit in 1999. That
settlement, known as the Pigford Consent Decree, provides payments of
$50,000 from the Department of the Treasury's Claims, Judgements, and
Relief Acts Fund that is administered by the Department of Justice, and
forgiveness of USDA debt to thousands
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of African American farmers. As of mid-December 2000, over 9,500 claims
have been paid, totaling about $480 million.
Tax Expenditures
Tax expenditures for agriculture are estimated to be just over $1
billion in 2001. Expenditures due to the treatment of certain
agricultural income as capital gains rather than ordinary income
increased by over $650 million, or over 500 percent, since 1993. In
addition, 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, due to
the higher commodity prices that result from the increased demand for
their commodities.