Order Code RS21212
Updated December 18, 2002January 21, 2003
CRS Report for Congress
Received through the CRS Web
Farm Disaster Assistance
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
Several regions of the nation have been affected by persistent drought this past year
which, and this
drought has had an adverse impact on crop and livestock production. The U.S. Department
Department of Agriculture (USDA) offers several permanently authorized programs to
help farmers
recover financially from a natural disaster, including federal crop
insurance, the
noninsured assistance program and emergency disaster loans. The 107th Congress
considered additional assistance for 2001 and 2002 crop and livestock losses, but final
action was not taken. In September 2002, the Senate adopted an amendment (S.Amdt.
4481) to the FY2003 Interior appropriations bill (H.R. 5093) that would have provided
an estimated $6 billion in farm disaster assistance. The issue still might be considered
by the 108th Congress. However, the 108th
Congress is considering making financial assistance available to farmers and ranchers,
in the context of the pending FY2003 omnibus appropriations measure (H.J.Res. 2). The
Administration has stated that it will not support
additional farm assistance unless it is
offset with spending reductions in other programs.
Meanwhile, USDA implemented a
new $937 million Livestock Compensation Program
making direct payments to certain
livestock producers for 2001 and 2002 forage losses,
using its administrative authority
and existing funds from other sources.
Ongoing Major USDA Disaster Programs
USDA has at its disposal three major programs designed to help crop producers
recover from the financial effects of natural disasters — federal crop insurance,
noninsured assistance program (NAP) payments, and emergency disaster loans. All three
of these programs have permanent authorization and receive regular annual funding.
Federal Crop Insurance
The federal crop insurance program is administered by USDA's Risk Management
Agency. The program is designed to protect crop producers from unavoidable risks
associated with adverse weather, and weather-related plant diseases and insect
infestations. A producer who chooses to purchase an insurance policy must do so by an
administratively determined deadline date, which varies by crop and usually coincides
with the planting season. Crop insurance is available for most major crops.
The federal crop insurance program was instituted in the 1930s and was subject to
major legislative reforms in 1980, and again in 1994 and 2000. The Agriculture Risk
Congressional Research Service ˜ The Library of Congress
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Protection Act of 2000 (P.L. 106-224) pumped $8.2 billion in new federal spending over
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a 5-year period into the program primarily through more generous premium subsidies to
help make the program more affordable to farmers and enhance farmer participation
levels, in an effort to preclude the need for ad-hoc emergency disaster payments. For
FY2001, the first full fiscal year following the 2000 legislative enhancements, total
government costs of the program were approximately $3.2 billion. For crop year 2002,
USDA estimates that total indemnity payments to farmers alone will exceedapproach $4 billion.
Under the current crop insurance program, a producer who grows an insurable crop
selects a level of crop yield and price coverage and pays a premium that increases as the
levels of yield and price coverage rises. However, all eligible producers can receive
catastrophic (CAT) coverage without paying a premium. The premium for this portion
of coverage is completely subsidized by the federal government. Under CAT coverage,
participating producers can receive a payment equal to 55% of the estimated market price
of the commodity, on crop losses in excess of 50% of normal yield, or 50/55 coverage.
Although eligible producers do not have to pay a premium for CAT coverage, they
are required to pay upon enrollment a $100 administrative fee per covered crop for each
county where they grow the crop. The fee can be waived by USDA for financial hardship
cases. Any producer who opts for CAT coverage has the opportunity to purchase
additional insurance coverage from a private crop insurance company. For an additional
premium paid by the producer, and partially subsidized by the government, a producer can
increase the 50/55 catastrophic coverage to any equivalent level of coverage between
50/100 and 85/100, (i.e, 85 percent of yield and 100 percent of the estimated market
price), in increments of 5%.
For many insurable commodities, an eligible producer can purchase revenue
insurance. Under such a policy, a farmer potentially can receive an indemnity payment
when actual farm revenue falls below the target level of revenue, regardless of whether
the shortfall in revenue was caused by poor production or low farm commodity prices.
P.L. 106-224 requires USDA to subsidize premiums for revenue insurance coverage at
the same rate as traditional crop insurance policies. P.L. 106-224 also required USDA to
conduct two or more pilot programs to evaluate the effectiveness of revenue insurance for
livestock farmers. Two new livestock pilot programs have beenwere established for 2002 for
Iowa Iowa
hog producers. (For more on the 2000 reforms, see CRS Report RL30739, Federal
Crop Crop
Insurance and the Agriculture Risk Protection Act of 2000 (P.L. 106-224).)
Noninsured Assistance Program (NAP)
Producers who grow a crop that is currently ineligible for crop insurance may be
eligible for a direct payment under USDA's noninsured assistance program (NAP). NAP
has permanent authority under the Federal Crop Insurance Reform Act of 1994 (P.L. 103354, as amended), and is administered by USDA's Farm Service Agency. The program’s
principal clientele are farmers who grow a crop that is ineligible for federal insurance.
NAP is not subject to annual appropriations. Instead, it receives mandatory funding
through USDA's Commodity Credit Corporation, which has a line of credit with the U.S.
Treasury to fund an array of farm programs.
Eligible crops under the NAP program include any commercial crops grown for food
or fiber that are ineligible for crop insurance, and include mushrooms, floriculture,
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ornamental nursery, Christmas tree crops, turfgrass sod, aquaculture, and ginseng. Trees
grown for wood paper or pulp products are not eligible.
To be eligible for a NAP payment, a producer first must apply for coverage under the
program by the application closing date, which varies by crop, but is generally about 30
days prior to the final planting date for an annual crop. Like catastrophic crop insurance,
NAP applicants must also pay a $100 per crop service fee at the time of application. In
order to receive a NAP payment, a producer must experience at least a 50% crop loss
caused by a natural disaster, or be prevented from planting more than 35% of intended
crop acreage. For any losses in excess of the minimum loss threshold, a producer can
receive 55% of the average market price for the covered commodity. Hence, NAP is
similar to catastrophic crop insurance coverage in that it pays 55% of the market price for
losses in excess of 50% of normal historic production. A producer of a noninsured crop
is subject to a payment limit of $100,000 per person and is ineligible for a payment if the
producer's qualifying gross revenues exceed $2 million. Total NAP payments were an
estimated $174 million in FY2002.
Emergency Disaster Loans
When a county has been declared a disaster area by either the President or the
Secretary of Agriculture, agricultural producers in that county may become eligible for
low-interest emergency disaster (EM) loans available through USDA's Farm Service
Agency. Producers in counties that are contiguous to a county with a disaster designation
also become eligible for an EM loan. EM loan funds may be used to help eligible
farmers, ranchers, and aquaculture producers recover from production losses (when the
producer suffers a significant loss of an annual crop) or from physical losses (such as
repairing or replacing damaged or destroyed structures or equipment, or for the replanting
of permanent crops such as orchards). A qualified applicant can then borrow up to 100%
of actual production or physical losses (not to exceed $500,000) at a below-market
interest rate (which is currently 3.75%).
Once a county is declared eligible, an individual producer within the county (or a
contiguous county) must also meet the following requirements for an EM loan. A
producer must: 1) be a family farmer and a citizen or permanent resident of the U.S.; 2)
experience a crop loss of more than 30 percent or a physical loss of livestock, livestock
products, real estate or property; and 3) be unable to obtain credit from a commercial
lender, but still show the potential to repay the loan. Applications must be received
within 8 months of the county’s disaster designation date. Loans for nonreal estate
purposes generally must be repaid within 1 to 7 years; loans for physical losses to real
estate have terms up to 20 years. Depending on the repayment ability of the producer and
other circumstances, these terms can be extended to 20 years for nonreal estate losses and
up to 40 years for real estate losses.
The EM loan program is permanently authorized by Title III of the Consolidated
Farm and Rural Development Act (P.L. 87-128), as amended, and is subject to annual
appropriations. Each year an appropriation is made for EM loans within the regular
agriculture appropriations bill. However, most of the funding for the program in recent
years has been provided through emergency supplemental appropriations. Most recently,
emergency provisions in the Consolidated Appropriations Act of 2000 (P.L. 106-113)
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provided funding to make $547 million in EM loans. Total EM loans made were $90
million in FY2001 and $58 million in FY2002.
Emergency USDA Disaster Programs
In recent years, Congress has supplemented the regularly funded disaster assistance
programs with additional emergency aid. Funding for these programs generally are
provided in emergency supplemental appropriations bills. Among these major ad-hoc
farm disaster programs are: 1) direct disaster payments, 2) livestock assistance, and 3)
emergency conservation assistance. The 107th Congress considered ad-hoc assistance for
2001 and 2002 crop and livestock losses, but no final action was taken. Such assistance
is expected to bebeing considered again in the 108th Congress. For a summary of all emergency
supplemental spending for agriculture since 1988, see CRS Report RL31095, Emergency
Spending for Agriculture: A Brief History of Congressional Action, FY1989-FY2001. For
a comparison of disaster bills offered to date in the 107th108th Congress for 2001 and 2002
farm losses,
see CRS Report RL31565, Comparison of RL31700, Farm Disaster Bills in the 108th Congress: A
Comparison.
Crop Disaster Payments
For virtually every crop year from 1988 through 2000, Congress has authorized
emergency crop disaster payments to eligible producers affected by any type of natural
disaster that caused a significant reduction to that year’s crop yields. Any producer of a
commercially grown crop was potentially eligible for a direct disaster payment within
these programs regardless of whether the crop was insurable or non-insurable, and even
if a producer waived crop insurance coverage. Most recently, emergency provisions in
the FY2000 agriculture appropriations act (P.L. 106-78) provided ad-hoc payments of
$1.2 billion for 1999 crop losses, and under emergency provisions in the FY2001
agriculture appropriations act (P.L. 106-387) direct disaster payments of $1.8 billion were
made for 2000 crop year losses.
Payments for the three separate disaster payment programs for the 1998 , 1999 and
2000 crop years were implemented by USDA under similar terms. In each year, the
minimum loss requirement was 35% of a producer’s normal yield. For losses, in excess
of the 35% threshold, a producer could receive a payment. For crops that were eligible
for crop insurance, the payment rate was 65% of the estimated market price for the
commodity as determined for the crop insurance program (the crop insurance price
election). The payment rate dropped to 60% of the crop insurance price election for any
producer who could have insured their commodity but waived coverage. A grower of a
non-insurable commodity (i.e., crop insurance was unavailable to the producer for that
commodity) was compensated at 65% of the 5-year average market price for the
commodity. For those who waived an available crop insurance policy, the producer was
required to insure that crop for the two subsequent crop years, as a condition for receiving
a disaster payment. Payments from the available funding also were made to producers
who suffered a loss of crop value because of poor crop quality caused by a disaster.
Recent Congressional Action. Funding for 2001 and 2002 crop loss payments
currently was debated by Congress, but no final action was taken. On September 10,
2002, the full Senate adopted a Daschle amendment (S.Amdt. 4481) to the FY2003
Interior appropriations bill (H.R. 5093) that would have fully funded the disaster payment
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formula used in the 2000 crop year for losses in both the 2001 and 2002 production years.
A similar bill (H.R. 5383) was offered in the House. The Congressional Budget Office
(CBO) estimates the cost of making such crop disaster payments at $4.5 billion. Several
other bills were introduced that would make emergency crop assistance available for 2001
and/or 2002 losses. For a comparison of these bills, see CRS Report RL31565,
Comparison of Farm Disaster BillsNumerous farm disaster bills have been
introduced in the 108th Congress. On January 15, 2003, the full Senate adopted S.Amdt.
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1 (Stevens) to the Senate FY2003 Omnibus Appropriations Bill (H.J.Res. 2), which
provides $3.1 billion in economic assistance to agricultural producers. Just under $500
million of that amount is specifically directed to producers who experienced a natural
disaster. Most of the agricultural relief in the amendment (an estimated $2.2 billion) is
supplemental direct payments to producers of various crops, but with no distinction of
whether the producer has been affected by a natural disaster. The cost of the amendment
was offset as part of a 1.6% across-the-board reduction in all non-defense discretionary
spending.
In contrast, several other measures have been introduced to provide emergency
funding (with no offsets) and target the funds to disaster regions. For a comparison of
these bills and S.Amdt. 1, see CRS Report RL31700, Farm Disaster Bills in the 108th
Congress: A Comparison.
Some Members justify new disaster expenditures without any budget offsets because
USDA currently expects lower spending on FY2003 farm programs than was earlier
estimated. As of early September, CBO estimates that farm commodity support spending
in FY2003 likely will be $5.6 billion below its earlier projection. However, current
budget rules do not allow the re-estimate to be scored as savings. In the same way that
increased spending for farm programs above budget estimates does not require an offset,
a downward re-estimate in spending does not result in savings that can be automatically
spent elsewhere.
Livestock Assistance
Prior to 1996, USDA had the legislative authority to provide an array of livestock
assistance programs which were used primarily to help farmers purchase feed off the
farm when on-farm feed losses were significant. However, these emergency livestock
programs were suspended by the 1996 farm bill until 2002, because many policymakers
felt that some of these programs duplicated the federal assistance provided by crop
insurance and NAP. Despite the suspension of the previously authorized livestock
assistance programs by the 1996 farm bill, Congress funded an ad-hoc Livestock
Assistance Program (LAP) within various emergency supplemental acts in subsequent
years. Since 1996, emergency assistance was made available for livestock feed losses in
1998 ($270 million authorized), 1999 ($200 million) and 2000 ($430 million).
The most recent version of LAP provided direct payments to eligible livestock
producers who suffered grazing losses due to natural disasters during calendar 2000.
Before an individual producer could be eligible, the producer’s county must have suffered
a minimum 40% loss of available grazing for at least 3 consecutive months due to a
disaster during the year. The county also must be declared a disaster area by either the
President or the Secretary of Agriculture. Once the county qualified for assistance, a
producer had to have a minimum loss of 40% in order to qualify for a payment to
compensate for a portion of the producer’s purchase of off-farm feed. Producers with
more than $2.5 million of gross revenue were ineligible. The maximum payment was
$40,000 per person. Separately, periodic authority and emergency funding have been
given to a Livestock Indemnity Program (LIP), whereby a payment is made to help
producers defray the cost of replenishing their herds when livestock are killed by a
natural disaster. The most recent appropriation LIP received was emergency funding of
$10 million for 2000 livestock losses.
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USDA has other authorities that can be activated when disasters strike livestock
growers. Producers in counties declared eligible by USDA are permitted to cut hay or
graze livestock on land idled under the Conservation Reserve Program (CRP). The CRP
is a USDA program that allows participating farmers to idle environmentally-fragile
farmland for 10 years in return for annual federal rental payments. On September 9, 2002
the Secretary authorized haying and grazing for the entire nation, giving producers until
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November 30, 2002 to apply for assistance. Emergency grazing was extended until
December 31, 2002 in Colorado, Texas, Utah and Washington. Separately, USDA
exercised its standing authority to release a portion of its inventory of nonfat dry milk
purchased under the dairy price support program, which it converted into livestock feed
and provided to certain drought-stricken states.
Recent Congressional Action. The adopted Daschle amendment (S.Amdt.
4481) to the FY2003 Interior Appropriations bill (H.R. 5093) provided such sums as are
necessary to provide livestock assistance for 2001 and 2002 using the same payment
formula as in 2000. CBO estimated the cost of this provision at $1.45 billion. Other
livestock assistance measures that were offered in the Senate included S. 2728 (Dayton),
S. 2834 (Enzi), and S. 2768 (Hagel), which would have provided between $500 million
and $1 billion in livestock assistance for 2001 and 2002 losses, with S. 2834 and S. 2768
both containing budget offsets. S. 2830 (Roberts), and H.R. 5310 (Thune) would have
provided such sums as are necessary to fully fund the formula used to make payments in
2000, but S. 2830 would have required farmers to choose between 2001 or 2002
assistance. For more information, see CRS Report RL31565, Comparison of Farm
Disaster Bills.
Livestock Compensation Program. In late 2002, USDA implemented a new
2002 Livestock Compensation Program (LCP), which was designed to compensate
livestock producers experiencing severe 2001 and 2002 feed and pasture losses. Under
the new program, direct payments were made to producers of beef, dairy, sheep and goats
in any county that was declared a disaster area by the Secretary between January 1, 2001
and September 19, 2002 (including disaster designation requests pending on September
19, 2002 that were subsequently approved.) The payment rates were $31.50 per adult
dairy cattle, $18 per adult To date, an estimated $836 million had been
disbursed to eligible recipients under the LCP, out of a total allocation of $938 million.
The payment rates under the LCP were $31.50 per adult dairy cattle, $18 per adult
beef cattle, $13.50 for certain livestock over 500 lbs, and $4.50
per sheep or goat.
Payments are limited to $40,000 per person, and are not being made
to any person with
qualifying gross revenue over $2.5 million. Funding for the program
(estimated by
USDA at $937 million) is being provided through Section 32 funds, which
originate from
a portion of customs receipts that are made available to USDA to support
the farm sector
through various activities (for more information, see CRS Report
RS20235, Farm and
Food Support Under USDA's Section 32 Program.) Measures have been introduced in
Congress to extend LCP payments beyond the September 19, 2002 disaster designation
deadline. For a comparison of livestock provisions in pending bills, see CRS Report
31700, Farm Disaster Bills in the 108th Congress: A Comparison.
Emergency Conservation Program
The emergency conservation program (ECP) provides funds to farmers and ranchers
for sharing the cost of rehabilitating farmland damaged by natural disasters, and for
carrying out water conservation measures during severe drought. It is permanently
authorized by Title IV of the Agricultural Credit Act of 1978 (P.L. 95-334), administered
by USDA's Farm Service Agency, and subject to annual appropriations. However, almost
all of its funding in recent years has come from emergency supplemental appropriations.
Cost-sharing may be offered for such measures as removing debris from farmland, releveling or grading farmland, and restoring permanent livestock fences, structures and
other installations. Funds can be used to replace or restore a conservation practice or to
restore the land to a condition similar to that existing prior to a natural disaster, and may
not be offered to address a conservation problem existing prior to the disaster. No
funding was made available for FY2002 or in FY2003, to date.