What Is the Farm Bill?

Order Code RS22131 Updated October 4, 2006 CRS Report for Congress Received through the CRS WebJanuary 3, 2007 The “Farm Bill” in Brief Geoffrey S. Becker Specialist in Agricultural Policy Resources, Science, and Industry Division Summary Most provisions of the current “farm bill,” the Farm Security and Rural Investment Act (FSRIA) of 2002 (P.L. 107-171), expire in 2007. However, policy developments have brought farm bill programs into play during the 109th Congress, and the House and Senate Agriculture Committees have held hearings on them. This report will be updated if events , and the 110th Congress is expected to make decisions about the content of a new one. Commodity price and income support policy is usually the most contentious component of a farm bill. However, other food and agricultural issues, including conservation, rural development, trade, domestic food assistance, and biofuels also will be debated. This report will be updated as events warrant; for a more extensive discussion of the issues, see CRS Report RL33037, Previewing a 2007 Farm Bill, coordinated by Jasper Womach, coordinator. What Is the “Farm Bill”? Federal farm support, food assistance, agricultural trade, marketing, and rural development policies are governed by a variety of separate laws. Many of these laws periodically have been evaluated, revised, and renewed through an omnibus, multi-year farm bill. These Although many of these policies can be and sometimes are modified through free-standing freestanding authorizing legislation, or as part of other laws. However, omnibus farm bills have provided Congress, the Administration, and interest groups with a periodic opportunity , the omnibus, multi-year farm bill provides an opportunity for policymakers to address agricultural and food issues more comprehensively. The Farm Security and Rural Investment Act (FSRIA) of 2002 (P.L. 107-171) is the most most recent omnibus farm bill. Many provisions, notably farm income and commodity price price supports, expire in 2007. Without new legislation, permanent price support statutes would take effect. Most of these statutes were enacted many decades ago and are no longer compatible with current national economic objectives, global trading rules, and federal budgetary or regulatory policies. Many believe that these largely outdated permanent laws are kept on the books partly to compel a Congress with increasingly urban and suburban constituencies to pay attention to national agricultural policy. What’s in a Farm Bill? In addition to one or more titles on farm income and commodity price supports — namely the methods and levels If the next bill follows the pattern of the last six omnibus farm bills, dating back to 1977, it will contain titles on commodity price support — namely, the methods and levels of federal aid to agricultural producers — farm bills typically include other titles. This omnibus nature can create a broader coalition of support among sometimes conflicting interests for policies that, individually, might not Congressional Research Service ˜ The Library of Congress CRS-2 survive the legislative process. This same climate can also stir fierce competition for available funds. The 2002 farm bill contains ten separate titles: Title I — Commodity Programs. Specifies direct payment and production marketing loan levels for the 2002-2007 crops of wheat, feed grains, rice, cotton, and oilseeds; ends peanut poundage quotas with compensation to holders, and redesigns support to operate like that for other major row crops; continues import quotas and price support loans for sugar; nominally limits many crop payments to $360,000 per person per year; and supplements a reauthorized milk price support program (through surplus dairy purchases) with “income loss” payments. Title II — Conservation. Reauthorizes and expands several existing conservation and environmental programs and creates several new ones, including a grasslands reserve program and a conservation security program (CSP) providing incentive payments to farmers who adopt specified conservation practices on working lands. Title III — Trade. Reauthorizes through FY2007 and amends USDA’s foreign export promotion, credit, and subsidy programs and foreign food aid (P.L. 480), and authorizes the International Food for Education and Child Nutrition Program. Title IV — Nutrition Programs. Extends through FY2007 the food stamp program, expanding some eligibility and benefit provisions; the emergency food assistance program; nutrition assistance for Puerto Rico and American Samoa; the commodity supplemental food program; and nutrition assistance on reservations. Title V — Credit. Authorizes annual appropriations for USDA farm lending programs (authorized by the Consolidated Farm and Rural Development Act) through FY2007, and makes several changes in the privately owned and operated Farm Credit System. Title VI — Rural Development. Authorizes mandatory and discretionary funding for a variety of both new and existing programs, including value-added agricultural market development grants, rural broadcast and broadband services, rural and regional planning, water and sewer applications, the Rural Business Investment Program, and Rural Strategic Investment Program. Title VII — Research and Related Matters. Reauthorizes university research and state cooperative extension programs through FY2007; reauthorizes the Initiative for Future Agriculture and Food Systems (a competitive grants program on critical emerging issues and high-priority research); and places new emphasis on research to improve bioterrorism prevention, preparedness, and response. Title VIII — Forestry. Creates programs to help private forest landowners adopt sustainable forest management practices, and local governments to fight wildfires. Title IX — Energy. A new farm bill title that extends, with mandatory funding, a bioenergy program and establishes new and/or expanded programs for federal purchases of bio-based products and education, and loans and grants for farmers to purchase renewable energy systems and to improve energy efficiency. CRS-3 Title X — Miscellaneous. Covers a wide variety of programs and issues, ranging from mandatory country of origin labeling for fresh meats, produce, seafood, and peanuts, to an overhaul of virtually all USDA animal health protection laws, increased annual authorizations of appropriations for outreach for socially disadvantaged farmers, financial assistance for apple growers, a biotechnology education program, and others. What Is the Cost? Mostas well as on conservation, trade, food stamps, and research. Many past bills also included titles on agricultural credit, rural development, CRS-2 and/or marketing (e.g., promotion programs for fruits and vegetables), and similar titles are possible in the next bill. Other subjects gaining their own title in at least one past farm bill are grain inspection, crop insurance and disaster assistance, organic certification, global climate change, forestry, and energy. Finally, the last four omnibus measures have included a “miscellaneous” title encompassing a variety of farm, animal, marketing, or food-related issues of interest to Congress. This omnibus nature can create a broader coalition of support among sometimes conflicting interests for policies that, individually, might not survive the legislative process. This same climate can also stir fierce competition for available funds. The 2002 farm bill contains ten separate titles: Title I — Commodity Programs. The 2002 bill specifies direct payment and production marketing loan levels for the 2002-2007 crops of wheat, feed grains, rice, cotton, and oilseeds; ends peanut poundage quotas with compensation to holders, and redesigns support to operate like that for other major row crops; continues import quotas and price support loans for sugar; nominally limits many crop payments to $360,000 per person per year; and supplements a reauthorized milk price support program (through surplus dairy purchases) with “income loss” payments. Title II — Conservation. The 2002 bill reauthorizes and expands several existing conservation and environmental programs and creates several new ones, including a grasslands reserve program and a conservation security program providing incentive payments to farmers who adopt specified conservation practices on working lands. Title III — Trade. The 2002 bill reauthorizes through FY2007 and amends USDA’s foreign export promotion, credit, and subsidy programs and foreign food aid (P.L. 480), and authorizes the International Food for Education and Child Nutrition Program. Title IV — Nutrition Programs. The 2002 bill extends through FY2007 the food stamp program, expanding some eligibility and benefit provisions; the emergency food assistance program; nutrition assistance for Puerto Rico and American Samoa; the commodity supplemental food program; and nutrition assistance on reservations. Title V — Credit. The 2002 bill authorizes annual appropriations for USDA farm lending programs (authorized by the Consolidated Farm and Rural Development Act) through FY2007, and makes several changes in the privately owned and operated Farm Credit System. Title VI — Rural Development. The 2002 bill authorizes mandatory and discretionary funding for a variety of new and existing programs, including value-added agricultural market development grants, rural broadcast and broadband services, rural and regional planning, water and sewer applications, the Rural Business Investment Program, and Rural Strategic Investment Program. Title VII — Research and Related Matters. The 2002 bill reauthorizes university research and state cooperative extension programs through FY2007; reauthorizes the Initiative for Future Agriculture and Food Systems (a competitive grants program on critical emerging issues and high-priority research); and places new emphasis on research to improve bioterrorism prevention, preparedness, and response. CRS-3 Title VIII — Forestry. The 2002 bill creates programs to help private forest landowners adopt sustainable forest management practices, and local governments to fight wildfires. Title IX — Energy. This new title in the 2002 bill extends, with mandatory funding, a bioenergy program and establishes new and/or expanded programs for federal purchases of bio-based products and education, and loans and grants for farmers to purchase renewable energy systems and to improve energy efficiency. Title X — Miscellaneous. Covers a wide variety of programs and issues in the 2002 bill, among them mandatory country-of-origin labeling for fresh meats, produce, seafood, and peanuts, an overhaul of virtually all USDA animal health protection laws, increased annual authorizations of appropriations for outreach for socially disadvantaged farmers, financial assistance for apple growers, and a biotechnology education program. What Is the Cost? Many (though not all) programs in a farm bill are classified as mandatory spending, where the authorizing bill itself determines the total annual cost by setting eligibility conditions, benefit levels, and so forth. Most farm support and domestic food assistance programs and many conservation and trade programs are mandatory spending. Such spending can vary widely from year to year. Commodity spending depends on crop and weather conditions, program participation rates, and other economic variables. Food stamp spending varies with enrollment rates and unemployment levels. Farm bills also address many discretionary programs where the appropriators make the annual spending decisions; most of the research and many rural development programs are examples. When the 2002 farm bill was enacted and scored against the then-currentMarch 2002 Congressional Budget Office (CBO) baseline (March 2002), the estimated total seven-year cost of the programs that most directly benefit the farm sector (farm commodity support and mandatory conservation and trade programs) was $130 billion (FY2002-FY2008). Based on more recent market conditions, anAn August 2006 re-estimate of these costs was $115 billion. , reflecting more recent market conditions. (Other farm bill programs such as food stamps, rural development, and research, , most notably food stamps, incur additional costs not reflected in this number.) As part of the nature ofWith mandatory programs, a revised spending estimate that is below the original cost estimate does not result in“free up” additional spending authority. Likewise, a revised revised estimate resulting in spending above the original estimate does not require a budgetary budgetary offset, as long as the higher spending is caused by changes in market conditions, and not changes made to the authorizing law. and not legislation. The House and Senate Agriculture Committees likely will not draft a 2007 farm bill until the panels’ spending constraints are determined through the annual congressional budget resolution. With a large current budget deficit, there is some concern over whether Congress will fund farm programs at levels sought by stakeholders. Early debate could focus on whether CBO’s “baseline” projection (which assumes the current farm bill continues under expected economic conditions) is appropriate, or whether a different level of food and agricultural spending should be “built into the baseline.” Policy Setting The scope and direction of a farm bill likely will be determined by a number of contributing factors besides federal budgetary concerns, including the domestic CRS-4 agricultural and general economy, and international trade developments, among others. According to USDA’s Economic Research Service (ERS), national net farm income — a key indicator of U.S. farm well-being — is expected to decline in 2006 following three years of robust receipts and income. Net farm income is forecast to fall by $19.4 billion (or 26%) to $54.4 billion in 2006 due to declines in cash receipts (down $3.6 billion) and government payments (down $6.1 billion) combined with a sharp rise in production expenses (up $9.5 billion). However, farmers’ overall ratio of debt compared to assets is the lowest since 1960, suggesting a strong financial position for the agricultural sector as a whole. Income forecasts can change sharply, however, depending upon domestic to $58.9 billion in 2006, beneath the record $85.4 billion in 2004 and $73.8 billion in 2005, but just above the 1996-2005 average of $57.2 billion. Though cash receipts in 2006 from the sale of crops increased, livestock receipts declined, and all production expenses increased. However, $16.5 billion in direct government payments helped to undergird the value of agricultural land and other assets, keep farm debt at favorably low levels, and stabilize farm operator incomes. Farm income in 2007 will be influenced by expected high prices for several of the nation’s major commodities. Income forecasts can change sharply, depending upon the weather, growing conditions in competing countries, agricultural disease or pest outbreaks, currency exchange and interest rates, and energy costs, for example. (See CRS Report RS21970, The U.S. Farm Economy, by Randy Schnepf.) CRS-4 The United States has been participating in the current Doha round of multilateral trade negotiations, which couldwere to succeed the 1992 Uruguay Round Agreement on Agriculture (URAA), intended to limit trade-distorting domestic farm support, export subsidies, and import tariffs. Progress on the Doha round seemed to have stalled by mid2006 (largely over farm policy reform differences), but the URAA and other World Trade Organization . Progress on the Doha round was stalled through late 2006, largely due to differences over how to limit trade-distorting domestic farm support, export subsidies, and import tariffs. However, the URAA and other World Trade Organization (WTO) rules, as well as a series of bilateral and regional free trade agreements concluded or being negotiated by U.S. officials, still , still potentially constrain the choices U.S. lawmakers may have in designing the next generation of agricultural, trade, food, and related policies. Already the United States has needed to revise some cotton support program provisions after a WTO panel ruled that portions are not in compliance with the URAA. (See also CRS Report RL33144, WTO Doha Round: The Agricultural Negotiations, by Charles Hanrahan and Randy Schnepf.) What Will a New Farm Bill Look Like? If the next bill follows the pattern of the last six omnibus farm bills, dating back to 1977, it will contain titles on commodity price support, conservation, trade, food stamps, and research. Many of the past bills also included titles on agricultural credit, rural development, and/or marketing (e.g., promotion programs for fruits and vegetables), and similar titles are possible in the next bill. Other subjects gaining their own title in at least one past farm bill are grain inspection, crop insurance and disaster assistance, organic certification, global climate change, forestry, and energy. Finally, the last four omnibus measures have included a “miscellaneous” title encompassing a variety of farm, animal, marketing, or food-related issues of interest to Congress. Following are some of the topics, options, and issues that already have arisen with an eye toward the 2007 debate — an indication of both the scope and divergence of ideas likely to be discussed. (The topics here primarily affect production agriculture; a similarly broad range of ideas is expected to arise in discussions on other farm bill titles.) Farm Bill Extension. Several major groups, including the American Farm Bureau Federation and the National Farmers Union, contend that farmers are generally satisfied with the Negotiations, by Charles Hanrahan and Randy Schnepf.) Selected Issues and Options Farm Bill Extension. Some policymakers and interest groups contend that farmers are generally satisfied with current price and income support policies and urge that they be extended, at least for one year with relatively few changes. Among other arguments is a concern that the United States should not unilaterally change its own subsidy programs ahead of a the now stalled multilateral trade agreement. Some advocates suggest that a farm bill extension could be tied to renewal of presidential trade negotiating authority (the current authority expires in July 2007). Other participants, including the Administration and various farm and environmental groups, believe that agricultural policies are ripe for more fundamental reforms, for budgetary, equity, environmental, and other reasons. Even some who call for an “extension” are at the same time calling for modifications. Revenue-Based Support. Some reformers have recommended that a “revenue insurance” or “revenue assurance” program could support U.S. farm income better than the current mix of commodity-based programs, which now provide growers of selected crops with income support payments to offset low prices and, separately, with indemnity payments to offset production losses (caused by natural disasters). Over the last decade, several federally subsidized revenue insurance products have been offered to producers as part of the crop insurance program, providing some experience for considering a more CRS-5 universal version in the next farm bill. The National Corn Growers Association in 2006 offered a preliminary began discussing a proposal to shift a portion (but not all) of current farm subsidies to a a revenue-based policy. Nonetheless, agricultural economists and Washington-based think tanks appeared in 2006 think tanks have appeared to be more interested in this approach than the broad farmbroader farm CRS-5 community. Future support by farm groups likely will hinge on anticipated benefits relative to those under current programs. “Greener” Farm Policy. “Green” has been used to describe two aspects of farm policy. The first is environmental — commodity support programs should be replaced with, or at least reoriented toward, incentives that protect natural resources such as land, water, air, and/or wildlife, and possibly that enhance scenic, recreational, or open space amenities. Green also describes the “green box” category of farm programs under the existing multilateral trade agreement that is considered to be the least trade-distorting, and therefore not prone to challenge by foreign trading partners. Conservation and environmental programs often can be classified as green box. While some farm bill interests want to expand green policies and spending in the next farm bill (and several already have proposed a farm bill alternative emphasizing conservation), others argue that the existing (2002) farm bill is the “greenest” in history, providing a variety of new conservation programs and devoting much more money to them than before. Other Commodity Program Reforms. Some farm program critics point out that price support benefits are not equitably shared across the sector, because they are directed at a limited number of commodities — mainly grains, oilseeds, cotton, milk, and sugar — and only about one in four U.S. farmers receives them. Also, subsidies are based largely on output, meaning that larger producers fare better than smaller ones. These imbalances should be addressed, they argue; one option could be to further tighten annual payment limits. Some have furthereven suggested that recipients be determined based upon individual need (i.e., means-tested)means-tested. Defenders of the current policy counter that it is designed to support U.S. agricultural productivity and competitiveness in global markets, not to serve as a welfare program. Specialty Crops. Many growers of so-called specialty crops (such as fruits, vegetables, nuts, and nursery products) want Congress to consider their priorities for the next farm bill. Although theseaddress their needs in the next farm bill. These growers state that they are not interested in direct payments, but they do want lawmakers to continue the current farm bill prohibition on planting specialty crops on subsidized farmland. A recent WTO ruling against the U.S. cotton program cited this prohibition as a trade-distorting aspect of the farm programs. However, specialty crop growers fear that opening subsidized acreage to fruits and vegetables would be unfair to them and would severely depress their prices and incomes. They also are interested in an expansion of specialty crop block grants now going to states for fruit and vegetable programs; more incentives for using fruits and vegetables at school and elderly feeding sites; and more aggressive efforts to remove foreign phytosanitary and other barriers to trade in their products. A coalition of fruit and vegetable growers has drafted a specialty crops farm bill title, which includes these types of options. Competition. The Senate Agriculture Committee debated whether to include a “competition” title in the lastPermanent Disaster Assistance. Additional money often reaches farmers suffering disasters through emergency supplemental appropriations (for nearly every crop year in the past decade). Some Members have proposed to authorize disaster assistance as a regular (i.e., “permanent”) feature of farm policy. Critics of disaster assistance, whether periodic or permanent, suggest that it should be unnecessary given the availability of heavily subsidized crop insurance. Rural Development. The 2002 farm bill authorizes an array of rural development activities, but critics say that rural policy remains unfocused and under-funded. They argue that the farm bill’s emphasis on commodity program spending ignores the fact that CRS-6 most farmers earn a majority of their incomes from nonfarm sources and that commodity spending may go to landlords in non-rural areas. Rural development supporters call for shifting resources into programs that expand the nonfarm economic base and support new sources of competitive advantage in rural areas. Proponents of commodity programs argue that farm payments are a primary contributor to rural economic activity. Competition. Some lawmakers are expressing renewed interest in a proposed “competition” title in a new farm bill. The Senate Agriculture Committee debated whether to such a title in the 2002 farm bill. The title, among other things, would have imposed new marketing restrictions on segments of animal agriculture. Supporters cited statistics about the growing proportion of cattle and hogs being slaughtered and processed by the top four firms (a situation they believe limits theirproducer opportunities for selling animals CRS-6 animals and makes them “price-takers”), and. They expressed concernsconcern about increasing livestock and meat imports, among other perceived problems. Opponents argued that the title would stifle have stifled U.S. competitiveness and undermine theundermined business relationships that producers producers willingly enter. The title was deleted during committee markup in late 2001. Some lawmakers are expressing renewed interest in a proposed competition title in a new farm bill. Agriculture-Based Energy Policy. Recently, the U.S. agricultural sector has been developing its capacity to produce energy, primarily as renewable biofuels and wind power. The farm sector has been encouraged to do so because of the national interest in energy security, greenhouse gas reductions, and raisingmore domestic demand for U.S.-produced farm products. Under the Energy Policy Act of 2005 (P.L. 109-58, H.R. 6), Congress is requiring the use of 7.5 billion gallons of renewable fuel by 2012. This requirement is being met primarily through the use of ethanol. Many view the next farm bill as a vehicle for offering further encouragement and incentives for farm-based energy production. On the other hand However, some have cautioned that growth to date of farm-based energy production has relied heavily on federal and state programs and incentives, and that its competitiveness hinges on relatively high fossil fuel prices and/or on muchimprovedmuch-improved biofuels technology. Some also have expressed concern, and that, by itself, expanded use of bioenergy is unlikely to reduce the nation’s dependence on petroleum imports, and could adversely impact other uses such as food and animal feed and conservation cover. Congressional Action Throughout the 109th Congress, the House and Senate Agriculture Committees have held 2006 hearings on the next farm bill, taking testimony from producers, their organizations, former Secretaries of Agriculture, and leading agricultural economists, among others. (The Administration held public “Farm Bill Forums” in most states in 2005 and has since issued several discussion papers on farm bill issues.) Early in the 109th Congress, in response to reconciliation instructions in the FY2006 budget resolution (H.Con.Res. 95), which passed Congress in April 2005, the subsequent Deficit Reduction Act of 2005 (P.L. 109-171, S. 1932) altered mandatory commodity, conservation, rural development, and research programs to achieve five-year net savings of approximately $2.7 billion. (See CRS Report RS22086, Agriculture and FY2006 Budget Reconciliation, by Ralph M. Chite.) Additional money often reaches farmers through emergency disaster appropriations (recently for nearly every crop year). In addition, spending on farm subsidies and other USDA programs inevitably is discussed when Congress considers the regular annual appropriation for USDA. Thus aspects of farm policy are examined much more frequently than just in “farm bill season” — which is expected to open again in 2007 when the 110th Congress convenes expanded use of bioenergy is unlikely to reduce the nation’s dependence on petroleum imports. Some worry that diverting crops to ethanol will drive up the cost of animal feed (i.e., corn), and possibly come at the expense of planting cover for conservation. Domestic Nutrition Programs. Food stamps constitute a substantial portion of annual farm bill spending. The benefit levels and eligibility requirements that determine this spending will, as always, be the subject of vigorous debate. Discussion also is anticipated on several smaller programs, including The Emergency Food Assistance Program (TEFAP), including the need, if any, for a higher guaranteed level of commodity assistance through the food bank network; and on whether federal nutrition policies could do more to address diet-related problems such as obesity. Congressional Action In the 109th Congress, the House and Senate Agriculture Committees and the Bush Administration held hearings on the next farm bill, taking testimony from producers, their organizations, former Secretaries of Agriculture, and leading agricultural economists, among others. The incoming committee chairmen have indicated that they will seek to pass a new bill in their respective chambers prior to the August recess, and to resolve any differences and gain final passage prior to September 30, 2007. Some view this as an ambitious agenda, particularly given the huge scope of the bill, and wide divergence of viewpoints on the issues it encompasses.