**Chapter 8: Budget Concerns: 1980-1998**

In 1980, Senator Herman Talmadge of Georgia was halfway through his term as Chairman of the Committee in the 96th Congress. The 96th Congress would be the last for Senator Talmadge. At the beginning of the 97th Congress, Senator Jesse Helms, a Republican of North Carolina, would assume the Chairmanship. The Committee consisted of ten Democrats and eight Republicans. Geographic representation was divided with the Central States having seven members on the Committee, the South six, the West four, and the Eastern U.S. one, Senator Patrick Leahy of Vermont.

The 1970s and 1980s were two decades of rapid growth in staff numbers of the committee. In 1971, the committee had seven staff members who had served there most of the previous decade. By 1980, that number had increased to32, and by 1990 it stood at 44 individuals, the most ever employed by the Committee throughout its 173 year history. By 1997, the committee staff stood at 30.

Just as the Committee began to trim its staff, it also began to put constraints on spending for entitlement programs. Nutrition program expansion reached a high water mark by 1980. Substantial growth in so-called entitlement spending within the Department of Agriculture was occurring. Commodity Food Distribution, food stamps and child nutrition programs such as school lunch and breakfast and pre-natal nutrition such as the Women, Infants, and Children (WIC) program were causing USDA expenditures to rise rapidly. It was during this period that the Congress, led at times by the Agriculture Committee, began to take a series of steps to limit costs. The Omnibus Budget Reconciliation Acts of 1980, 1981 (P.L. 96-499), and 1982 (P.L. 97-35), made small but significant cutbacks in nutrition programs. Still, even by fiscal 1996, school lunches served an average of more than 26 million children daily, at a Federal cost of approximately $4.4 billion. **(United States Department of Agriculture, Office of Communications, Agriculture Fact Book 1997, p. 103.)**

In addition to the budget reconciliation acts which imposed fiscal constraints on the budgets of the standing committees, including Agriculture, the Food Stamp Act of 1980 (P.L. 96-249), and the Agriculture and Food Act of 1981 (P.L. 97-98), contained provisions to tighten food stamp benefits, restrict eligibility, and improve program operation. Nevertheless the program remains a major one at USDA, expending about $26.5 billion, to serve about 25 million recipients, in fiscal 1996. **( Agriculture Fact Book 1997, p. 104)**

Rules governing food stamps formerly prohibited dual operation of the food stamp and commodity distribution programs. This prohibition was eased in the early 1980s as the federal government sought to dispose of its growing agricultural surpluses, acquired under price support programs, by providing dairy products, such as cheese and other commodities, to needy families and institutions. Commodity distribution, although limited to public charities and seldom used in individual donations, in 1995, distributed 185 million pounds of surplus Department of Agriculture foods to local charities by State and local agencies, whose operations were funded in part by $40 million in annual Federal support. **( Agriculture Fact Book 1997, p. 116)**

Despite on-going efforts to utilize surplus farm commodities in food nutrition efforts, low farm prices led to legislative increases in commodity program benefits. And just as attempts at controlling cost were being implemented in feeding programs, the Committee moved in a different direction with the expansion of the crop insurance program. The Federal Crop Insurance Act of 1980 (P.L. 96-365) authorized a new federally-subsidized all-risk insurance program that was designed to make coverage available in all parts of the country on all crops. This subsidized insurance program was intended to replace other forms of disaster assistance. And The Farm Credit Act Amendments of 1980 (P.L. 96-592) further expanded the lending authority of this semi-private system's institutions and permitted them to improve their services to borrowers.

In addition to direct farm programs, in 1980, passage of the Rural Development Policy Act of 1980 (P.L. 96-355), gave the Department of Agriculture the primary role in coordinating a program of national rural development. Though the U.S. population as of 1996 is 80 percent urban, the number of farms have declined to just over 2 million. However, the influx of new residents into rural areas in search of new lifestyles highlights the interdependence that exists today between American farmers and their non-farm rural neighbors. With more farm families relying on off-farm income, Congress continues to be challenged by the need to encourage economic growth and new jobs though the development of farm-related and other rural enterprises, and improved coordination in Federal rural development efforts.

The Congress continued the process of improving coordination and providing a focus for agricultural research and education in the Agriculture and Food Act of 1981 (P.L. 97-98), by authorizing an additional Assistant Secretary of Agriculture. This new Assistant Secretary was charged with the implementation and coordination of all research, extension, and teaching responsibilities of the U.S. Department of Agriculture. The 1981 Act also required the joint Council to conduct a "needs assessment for the Food and Agricultural Sciences." This study is intended to serve as the first step in the process of long range planning and priority setting for the very complex, decentralized agricultural research and extension system. The Agriculture and Food Act of 1981 continued, for the most part, the basic structure of the commodity programs for another four years, but with gradually increasing target price levels and loan rates for the major commodities.

It was in 1981, however that a singular event occurred that was to have a lasting impact on American agriculture. In a speech January 4, 1980, President Jimmy Carter announced a series of actions as a result of the Soviet Union's invasion of Afghanistan. Included in those actions was a grain embargo against the Soviet Union. Unrecognized in the 1980s, a variety of conditions were causing the American export position to change. Countries that had become large buyers of U.S. farm products during the 1970s made substantial reductions in their purchases and increasingly turned to other nations to supply their needs. This turn of events was due to several interrelated developments. Many developing nations that were large importers and had gone deeply into debt found themselves unable to meet repayment obligations and, without new sources of credit, were forced to reduce their purchases. A series of export control actions culminating in the 1980 Soviet embargo lessened this Nation's reputation as a reliable supplier of food and caused some importing countries, especially the Soviet Union, to diversify market sources. The dollar made substantial gains against other currencies and made American commodities expensive compared to those of other exporters. This Nation's commodity loan and reserve program served to isolate its surpluses from world markets and forced production cutbacks as the only way to moderate the Government's cost of these programs. Other nations responded to the price umbrella and supply controls by increasing production and in some cases subsidizing the export of surpluses.

Just as a number of factors had combined during the 1970s to boost foreign demand for U.S. farm products, several events during the 1980s dampened foreign demand for U.S. agricultural commodities. The embargo of grains to a major market, the Soviet Union, in conjunction with various trade suspensions during the 1970s, prompted intense congressional debate over the implications of using food exports to advance U.S. foreign policy objectives. The Senate Agricultural Subcommittee on Foreign Agricultural Policy, chaired by Senator Rudy Boschwitz, held two days of hearings in February 1982 on the economic impact of agricultural embargoes.

The Committee on Agriculture, Nutrition, and Forestry worked actively to address these factors. To protect the farm sector from potential adverse impacts of future agricultural embargoes, Congress included embargo protection provisions in the Food and Agriculture Act of 1977 (P.L. 95-113), the Agriculture and Food Act of 1981 (P.L. 97-98), and the Food Security Act of 1985 (P.L. 99-198), signed December 23. To restore confidence in America's reliability as a supplier following the 1980 grain embargo, a provision providing for the sanctity of agricultural export contracts was included in legislation reauthorizing the Commodity Futures Trading Commission in 1982.

Congress moved to promote exports in provisions in the 1985 Food Security Act, as amended. These laws provided substantial credit guarantees, and mandate a minimum value of sales. One of these programs was a three-year, $1 billion export payment-in-kind program, while another provided a minimum of $5 billion annually in short-term credit guarantees. Moreover, changes in domestic commodity programs under the 1985 law were meant to significantly improve this Nation's competitive position in world agricultural markets.

In view of these factors and the need to reduce Federal spending to reduce the budget deficits, a number of measures were enacted in 1982, 1983, and 1984 to moderate or eliminate scheduled increases in loan and target price levels. These bills affected dairy products, wheat, feed grains, upland cotton, rice, and tobacco. In the case of dairy and tobacco, farmers for the first time were required to pay assessments to the Government to offset part or all of the cost of the price support programs. Also, the Emergency Disaster Loan Program increased the interest rate charged on loans made in an attempt to cover actual losses. Further reflecting concerns about bringing growing Federal expenditures under control, this provision increased the loss a producer would have to experience by reducing the portion of actual loss covered by an emergency loan.

Despite efforts to limit Treasury exposure, a severe drought in 1983 prompted congressional consideration and enactment on April 10 of the Emergency Agricultural Credit Act of 1984 (P.L. 98-258), which actually expanded the disaster loan program. This Act also increased the limits on direct and guaranteed farm operating loans. Severe drought and flooding in 1986 led to enactment of additional disaster assistance programs, including debt relief provisions and the transfer of $400 million from FmHA's emergency loan program to fund an expanded disaster payments program.

By 1985, when as the 1980 farm bill was expiring, the farm sector was suffering a serious economic recession. Commodity prices and farm incomes were down, and carryover inventories (almost all under Government loan) were reaching record levels. Farmers and agricultural lenders were in the midst of a debt crisis brought about by a significant decline in land values. At the heart of the problem was a dramatic drop in America's agricultural exports. The lag in exports was caused by a number of international as well as domestic factors. Among the causes, high nonrecourse loan levels were making U.S. commodities uncompetitive, and were also encouraging other nations to increase production.

With passage of the Food Security Act of 1985 (P.L. 99-198), enacted on December 23, 1985, the Department began a three-year shift from reliance on direct loans to primary reliance on loan guarantees. This law also instituted a three-year, $490 million interest rate buy-down program in conjunction with the change to loan guarantees to alleviate the financial pressures on many debt-stricken farmers. Additionally, legislation to help reduce the severe financial pressures on the Farm Credit System was enacted in 1987. These laws were designed to help the entire system share the losses of its weaker institutions, to deal with the worst problem loans, and also to loosen accounting requirements for System banks.

The Committee also played a key role in enacting the Conservation Reserve Program (CRP), conservation compliance, and "swamp buster" laws in the Food Security Act of 1985. The Conservation Reserve was designed to pay farmers to retire highly erodible land from production for at least 10 years. "Swamp buster" was designed to conserve wetlands on farms. The CRP, with a beginning goal of retiring 45 million acres, was to provide the dual benefit of a reduction in soil erosion as well as a reduction in Federal commodity program payments by limiting production of surplus crops. Conservation compliance and swamp buster make any producer who cultivates highly -erodible land or converts wetlands to cropland ineligible for most Federal farm program benefits, thus making Federal policies more consistent.

The Act permitted sharp reductions in most 1986 commodity loan rates to make the United States price competitive again in world markets. The new provisions were designed to reduce loan rates eventually to 85 percent of average market prices. Farmers were to be protected from the anticipated drop in revenue through large deficiency payments. Target prices were to remain initially at their 1985 levels and then be gradually reduced.

The new commodity price support authority included several departures from tradition. The legislation encouraged the Secretary of Agriculture to make required payments to farmers in certificates redeemable in Government-owned surplus commodities rather than cash. This use of so-called "generic certificates," called the Payment-in-Kind or "PIK Program," was intended to move surplus commodity stocks into the market at competitive prices.

The legislation built on an Administration initiative announced in 1983, which combined with a drought in the corn belt to reduce supplies sharply that year. Provisions for the repayment of rice and cotton nonrecourse loans were modified to discourage any forfeiture of commodities to the Government. These new "marketing loan" provisions allowed farmers to fully satisfy repayment of the loan principal at the going lower market price. To help balance the Nation's milk supply with demand, dairy farmers were offered the opportunity to receive compensation from the Federal Government in return for selling their entire herd and committing not to return to dairy farming for at least five years. This effort, highly controversial among beef cattle producers, was known as the whole-herd buy out program.

The Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 101-624), signed November 28, 1990, **(H. Rept. 101-916)** was to be the last of the more traditional farm bills that provided temporary continuing authority for the 1938 and 1949 Acts. The Act contained price supports for milk, wool and mohair, wheat, feed grains, upland cotton, rice, oilseeds, peanuts, sugar beets and sugarcane, and honey. The bill also set acreage base and yield, payment limitation provisions for 1991 through 1995. It also provided for deficiency and land diversion payments; supplemental set-aside and acreage limitations; disaster payments for peanuts, soybeans, sugar beets, and sugarcane; price support adjustments; Commodity Credit Corporation (CCC) sales prices; and provisions for producer appeals. The bill also directed the Secretary of Agriculture to conduct a pilot program for corn, wheat, and soybeans to determine whether regulated agricultural commodity options trading could be used to protect against market price fluctuations. Finally, the bill established an organic certification program for producers and handlers of organically grown agricultural products.

In addition to efforts to restrict the growth of federal spending for agriculture, the Committee was increasingly involved in efforts to reduce the size of the Department of Agriculture. Senator Patrick Leahy, a Democrat of Vermont and Committee Chairman from 1987 to 1995, along with Senator Richard Lugar, a Republican from Indiana, and Committee Chairman beginning in 1995, led bipartisan efforts to streamline the Department of Agriculture by highlighting duplication in the field office structure and waste in USDA programs. The 1994 Leahy-Lugar effort reorganized the U.S. Department of Agriculture by closing 1100 offices and saving more than $2 billion.

It was, however, passage of the Federal Agriculture Improvement and Reform Act of 1996, called the FAIR Act (P.L. 104-127), that signaled the most dramatic shift in how the Agriculture Committee viewed agricultural policy. The FAIR Act was signed April 4, 1996. The law implemented new fixed, "market transition payments," that replaced long-standing "deficiency payments." It contained plans for federal milk marketing order reforms, and continued to support acreage enrolled under the conservation reserve program with an emphasis on highly erodible lands. Title I of this law, named the Agricultural Market Transition Act (AMTA) and popularly called "freedom to farm," extends support through 2002 for grain, cotton, and oilseed producers, but completely redesigns the support system. Crop-specific target prices and deficiency payments linked to the difference between those targets and market prices have been replaced with fixed annual payments that decline over the law's lifetime. Almost all planting constraints on farmers participating in these programs are eliminated. Total contract payments are limited to no more than $35.7 billion over the 7-year contract period, and are allocated among the commodities in proportion to the anticipated distribution of deficiency payments under the previous law .

The contract payments, when enacted, were estimated to achieve budgetary savings over the spending levels anticipated under then-existing law. Supporters of the major policy change made by the 1996 law contended that the gradually declining payments would serve as a transition for farmers to an unsubsidized free market after 2002. They argued that the new law would give farmers the flexibility in planting and other decisions that they need to adjust to market-based agriculture.

Some critics of the new law say de-linking farm payments from actual market prices and target levels deprives farmers of price stability. They worry about the absence of a so-called "safety net" for farmers if prices fall at the same time that payments decline. They also worry that the fixed contract payments may convey the appearance of undeserved welfare payments because they are unrelated to current production and economic conditions. On the other side, it is argued that transition payments to farmers, even during times of relatively high prices, permit them to invest for the future when prices might drop.

Some farmers and policymakers argue that there is a justifiable need for a stronger price support safety net under an inherently unstable marketplace. Others object to any payments for farmers, regardless of market conditions, and particularly when prices are good. They see this as a form of "corporate welfare."

From a budgetary standpoint, farm program costs have now been largely fixed for the next seven years. Elimination of acreage reduction programs and increased flexibility were expected to pave the way for more exports, improving our nation's balance of trade. More planting flexibility permits fewer applications of fertilizer and pesticides that can make their way to streams and lakes as farmers adopt the most sensible crop rotations. The new Environmental Quality Incentives Program will combat water pollution from animal manure a major contributor to agriculturally-sourced water degradation.

Despite the significant changes in agriculture policy brought about by the FAIR Act, there remain a number of difficult issues before the Committee. Particularly difficult are ongoing trade issues with our overseas partners, especially proposals that would restrict trade because of a non-trade issue such as the granting of Most Favored Nation Status (MFN). Perennially, there are efforts to deny continued MFN status to mainland China, where U.S. farm imports now total some $1 billion annually. Human rights activists and other China watchers are expected to closely monitor China's action in reasserting sovereignty over Hong Kong, and agricultural groups are interested in the outcome of China's negotiations for accession into the World Trade Organization (WTO).

Additionally, the Clinton Administration now lacks "fast-track" authority to ease procedures for congressional consideration of legislation implementing future trade agreements. On September 16, 1997, the Administration submitted its proposal for fast track legislation to streamline procedures for congressional consideration of future trade agreements negotiated by the Administration. Fast-track procedures effectively require Congress to vote on implementing legislation for any agreement within a fixed period of time, with no amendments permitted. The President's proposal lists fair and more open conditions of trade in agricultural commodities as a "principal negotiation objective," and stresses that negotiations should tackle such issues as trade-distorting activities of state trading enterprises, unjustified restrictions on biotechnology products, and unjustified sanitary and phytosanitary barriers. The alternative fast-track bill approved on September 30, 1997, by the Finance Committee with strong bipartisan support also sets as a principal negotiating objective the achievement of more open and fair conditions for agricultural trade. The legislation stalled in the House of Representatives, however, and was still an uncertain prospect in the late summer of 1998.

As the fast track debate plays out, the Agriculture Committee continues to be interested in how both NAFTA and the Uruguay Round Agreement (or GATT) are affecting U.S. agriculture. There is general agreement favoring the opening of foreign markets to U.S. agriculture, but differences about the degree of flexibility in future agreements to force changes when domestic markets are negatively affected by them, and about whether or not more stringent environmental and labor standards should be set in future agreements. Certain trade disputes have been subjects of congressional oversight as well. These include grain, dairy, poultry, and egg disputes with Canada, as well as cattle, and fruit and vegetable conflicts with Mexico. Additionally, the resumption of agricultural export subsidies for wheat and feed grains by the European Union (EU) has generated Congressional interest as U.S. producers and shippers complain about what they view as U.S. reluctance to counter EU moves. Possible European barriers to U.S. genetically engineered products, based on sanitary and phytosanitary claims, have been a source of dispute, as well.

In addition to exports, the House and Senate Agriculture Committees devoted much time to considering substantive reforms to USDA's research and extension system as detailed in the next chapter. The Committee also payed close attention to rules developed by the USDA to implement the conservation title of the FAIR Act and to how much acreage is being enrolled in programs. Major revisions to the Conservation Reserve Program (CRP) and the expiration of existing contracts covering 21.4 million acres of land in FY1997 generated legislative interest in this program early in the 105th Congress. While environmental benefits are expected to be greater for newly enrolled land than for land already enrolled, concern continues about changes in the distribution of enrolled acres and the effect that may have on farm incomes and local economies.

Attention is also focused on decisions about how the new Environmental Quality Incentive Program (EQIP) is being implemented. Mandated to spend $200 million annually through FY2002, the Commodity Credit Corporation issued final rules for this program on May 22, 1997. Questions revolve around how closely funding patterns for this program will mirror the four programs that were terminated when this program was enacted, and which environmental benefits will actually be purchased through this program.

In addition to the FAIR Act which was under the jurisdiction of the Agriculture Committee, other new laws outside the Committees' jurisdiction substantially affected farmers' bottom line. The Taxpayer Relief Act of 1997 (P.L. 105-34), signed by the President on August 5, 1997, contains capital gains tax cuts, estate and gift tax relief, expanded health insurance deductions for the self-employed, income averaging, and several other provisions of interest to farmers. The new law cuts the top capital gains tax rate from 28 percent to 20 percent and the lower rate from 15 percent to ten percent for investments held at least 18 months (since changed to 12 months). The new law raises the estate and gift tax exemption gradually from 1997 to 2006. It allows an additional exclusion for the value of conservation easements. The Act raises the rate of allowable deductions for health insurance premiums for the self-employed gradually from 40 percent in 1997 to 100 percent in 2007, extends the "drought sale" of livestock provision to any sale forced by weather, and permits three-year income averaging for tax purposes (beginning January 1, 1998). It repeals the Alternative Minimum Tax for businesses with receipts of less than $5 million and exempts deferred payment contracts by farmers from the tax.

It was the Balanced Budget Act of 1997 (P.L. 105-33), enacted on August 5, 1997, and coupled with a strong economy and low unemployment, that allowed President Clinton to submit the first balanced budget in nearly 30 years to Congress in February 1998. **( Historical Tables, Budget of the United States Government, Fiscal Year 1998, Washington, D.C., Government Printing Office, 1997, Table 1.1, Summary of Receipts, Outlays, and Surpluses or Deficits, 1789-2002)** The 1997 Act did not reduce spending for USDA programs, but did contain provisions moderating some of the eligibility and benefit restrictions enacted last year for the food stamp program. The Act contains an additional $1.5 billion in funding for food stamps over the next 5 years, intended to moderate the impact of some $23.3 billion in net reductions in spending enacted under last year's welfare reform law.

* * * *

In 1980 the farm population stood at six million and had declined to 4.5 million by 1991. However, net farm income, which in 1979 was $27.5 billion, nearly doubled to an estimated $55 billion in 1996. **( Economic Report of the President, Washington, D.C., Government Printing Office, 1997, p. 408)** Agriculture was becoming increasingly bimodal: large scale operations were dominating the upper scales of farm income. And small hobby farms, run by individuals with off farm income, were increasing. Many believed in the early 1980's that the middle-sized farms were being squeezed.

Outlays for agricultural programs during this period ranged from $8.8 billion in 1980, to $31 billion in fiscal 1986. However, since 1986, outlays have been trending down and for 1996 were slightly over $9 billion. **( Historical Tables, Budget of the United States Government, Fiscal Year 1998, Washington, D.C., Government Printing Office, 1997, Table 3.1, Outlays by Superfunction and Function, 1940-2002, pp. 42-49.) **Estimates out to the year 2002 show a slight increase in the short term followed by a decline to lower levels. With the FAIR Act, reliable exports, a strong economy, and low inflation, the agricultural community seems posed to move away from over 60 years of federal price and income supports toward a market based much more on supply and demand.