Order Code RS21212
Updated October 6, 2006
CRS Report for Congress
Received through the CRS WebJanuary 23, 2007
Agricultural Disaster Assistance
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
The U.S. 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. Since
1988, Congress regularly has made supplemental financial assistance available to
farmers and ranchers, primarily in the form of crop disaster payments and emergency
livestock assistance. The 109th Congress provided about $1.6 billion in agricultural
assistance in two emergency supplemental acts (P.L. 109-148, P.L. 109-234) exclusively
for agricultural losses caused by the 2005 Gulf state hurricanes. To date, Congress has
not authorized any emergency agricultural assistance for 2005 production losses outside
of the Gulf region, or for any 2006 agricultural losses nationwide. The Senate-reported
version of the pending FY2007 agriculture appropriations bill (H.R. 5384) contains $4.0
billion in various forms of farm assistance, including payments for major crop and
livestock losses caused by any 2005 disaster, and bonus payments for recipients of direct
payments under farm support programs. Prior to the October recess, supporters of farm
disaster aid wanted Congress to consider a $6.5 billion disaster farm package that would
have covered both 2005 and 2006 production losses. However, because of the cost and
the Administration’s demand for a budgetary offset for the new spending, no action has
been taken to date on any assistance. In the final days of
the 109th Congress, Senate supporters of farm disaster aid offered a $4.8 billion package
that would have covered both 2005 and 2006 production losses. However, because of
its cost and opponents’ demand for a budgetary offset for the new spending, the
amendment was not adopted. In the 110th Congress, supporters have introduced a similar
package of assistance (S. 284). A series of severe winter storms in late 2006 and early
2007 could broaden the scope of proposed assistance to include 2007production losses.
This report will be updated as conditions warrant.
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
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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
Protection Act of 2000 (P.L. 106-224) pumped $8.2 billion in new federal spending over
a five-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. Since
2000, the federal subsidy to the crop insurance program has averaged about $3.3 billion
per year, up from an annual average of $1.1 billion in the 1990s and about $500 million
in the 1980s. Nearly two-thirds of the current federal spending is used to subsidize
producer premiums, and the balance primarily covers the government share of program
losses and reimburses participating private insurance companies for their administrative
and operating expenses.
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. New livestock insurance pilot programs were established for 2002 for
hog producers and were expanded in subsequent years. (For more information, see the
“Federal Crop Insurance” section of CRS Report RL33037, Previewing a 2007 Farm Bill,
and CRS Report RL30739, Federal Crop Insurance and the Agriculture Risk Protection
Act of 2000 (P.L. 106-224), for a summary of the issues addressed in the 2000 legislation.)
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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 crop
insurance. NAP is not subject to annual appropriations. Instead, it receives such sums
as are necessary 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 NAP include any commercial crops grown for food or fiber that
are ineligible for crop insurance, and include mushrooms, floriculture, 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 thirty 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. USDA estimates FY2006 NAP payments of $117 million.
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 eight months of the county’s disaster designation date. Loans for nonreal estate
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purposes generally must be repaid within one to seven 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. Traditionally, an appropriation was 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. Emergency
provisions in the Consolidated Appropriations Act of 2000 (P.L. 106-113) provided
funding to make $547 million in EM loans over a multi-year period. Total EM loans
made were $90 million in FY2001, $58 million in FY2002, just under $100 million in
FY2003, $30 million in FY2004, $23 million in FY2005, and approximately $51 million
in FY2006.
Recent Congressional Action
Since 1988, Congress frequently 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) crop disaster payments, (2) livestock assistance, (3) tree
assistance, and (4) emergency conservation assistance. (For a history of the congressional
response to agricultural disasters, see CRS Report RL31095, Emergency Funding for
Agriculture: A Brief History of Supplemental Appropriations, FY1989-FY2006.)
FY2006 Supplemental Acts (P.L. 109-148, P.L. 109-234)
For the 2005 crop year, agricultural production was adversely affected by drought
in portions of the Midwest and by an extremely active and severe hurricane season in the
Gulf states. To dateIn FY2006, Congress provided approximately $1.6 billion in emergency
supplemental assistance for USDA programs in two separate supplemental acts (P.L. 109148 and P.L. 109-234), all of which is restricted to the hurricane-affected states. This
includes funds for growers and processors of various farm commodities ($250 million),
livestock assistance ($140 million), farm debris cleanup ($200 million), watershed
rehabilitation ($351 million), rural development ($118 million), and a new program to
assist nonindustrial timber growers for 2005 hurricane losses ($504 million). Separately,
USDA transferred $250 million of existing funds to provide direct payments for crop,
livestock , tree, and aquaculture losses, exclusively for 2005 hurricane victims.
Pending Agricultural Disaster ProvisionsAssistance for Farm Production Losses
Many farm state members want Congress to consider additional farm disaster
assistance for 2005 production losses in regions outside of the hurricane-affected states
and for 2006 losses nationwide. The Administration and congressional leadership oppose
any additional assistance unless it is offset with reductions in other agricultural programs.
The Administration maintains that crop insurance and other ongoing USDA support
programs adequately assist farmers affected by natural disasters and adverse market
conditions.
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The pending FY2006 agriculture appropriations bill (H.R. 5384), as reported by the
Senate in June 2006, contains an emergency supplemental title (Title VIII) that would
provide a Congressional Budget Office-estimated $4.0 billion in various forms of farm
disaster and economic assistance for 2005 losses only. To date, no further action has been
taken on the funding measure. As the Midwest and Great Plains drought worsened over
the summer of 2006, farm groups pressured Congress to consider adding assistance for
2006 production losses to any disaster measure. Prior to the October 2006 recess,
supporters wanted Congress to consider legislation that would provide assistance for both
2005 and 2006 losses, at an estimated cost of $6.5 billion. However, the combination of
the higher cost and leadership insistence for a budgetary offset prevented any action.
Included in the Senate-reported appropriations bill is an estimated $1 billion in crop
disaster assistance and $1 billion in livestock disaster assistance, as well as direct
economic assistance (unrelated to natural disasters) of $1.6 billion for traditional growers
of grains, cotton, peanuts, and oilseeds, $147 million for dairy farmers, and $100 million
for growers of specialty crops (fruits, nuts, and vegetables) and livestock.
Crop Disaster Payments
Congress has provided ad-hoc crop disaster payments in various emergency
supplemental acts for nearly every crop year since 1988. H.R. 5384, as reported by the
Senate, would require USDA to provide crop disaster payments in a similar fashion as
past disaster supplementals. Under the Senate provision, a crop producer in any region
of the country would be potentially eligible for assistance if individual losses to a 2005
crop were in excess of 35%, caused by any type of disaster, regardless of whether the
farmer was in a declared disaster area. For losses in excess of the 35% threshold, an
eligible producer could then receive a payment equal to 50% of the established price for
the commodity (or 35% of the price if the producer waived crop insurance coverage.)
Maximum payments would be $80,000 per person, as in the past. Payments in the Senate
measure for 2006 losses are limited to flooding in California, Hawaii, and Vermont. If
Congress opted to include 2006 crop losses in the final version, that would add
approximately $1.5 billion to the estimated cost, according to CBO estimates. All
commercially grown crops would be eligible for a payment under this formula except for
sugar cane and sugar beets, which have separate disaster payment programs. Payments
would not be permitted to duplicate any already made to the Gulf region following the
hurricanes.
Livestock Assistance
The Senate-reported agriculture appropriations bill (H.R. 5384) contains funding for
an array of emergency livestock programs that have been implemented on an ad-hoc basis
in past years. Such sums as necessary (estimated at $1.0 billion) would be provided for
a Livestock Compensation Program (LCP), which compensates livestock growers for the
additional cost of having to procure livestock feed in the marketplace following a disaster.
It would provide payments to all producers of beef, dairy, sheep, goats, and catfish in any
county that was declared a disaster area by the Secretary between January 1, 2005, and the
date of enactment, regardless of the individual producer’s loss experience. USDA would
be required to use the same payment mechanism it used in 2002, but the Senate provision
limits payments to 75% of the 2002 payment rates. The Senate bill also would authorize
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necessary funds (estimated at $20 million) for a Livestock Indemnity Program (LIP) to
compensate producers for livestock killed by a natural disaster in 2005 or in 2006 (up to
the enactment date). The payment rate would be left to the discretion of the Secretary of
Agriculture, but the rate could not be set less than 30% percent of the market value of the
applicable livestock at the time of the disaster. The bill also would provide $13 million
to help producers replace and retain ewe lamb breeding stock. Funding in the Senate bill
is in addition to the estimated $95 million in LCP funds and $45 million in LIP funds
provided by P.L. 109-148, exclusively to the Gulf states. Because the livestock provisions
cover 2006 losses up until the date of enactment, and drought conditions worsened in the
summer months in many growing regions, the actual cost of the program will likely be
greater than the original CBO cost estimate. Meanwhile, the Administration hasPrior to the October 2006 recess, supporters wanted
Congress to consider legislation that would provide assistance for both 2005 and 2006
losses, at an estimated cost of $6.5 billion. However, the combination of the high cost
and leadership insistence on a budgetary offset prevented any action. On December 5,
2006, a version of the proposal (estimated at $4.95 billion) was offered as an amendment
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(S.Amdt. 5205) to the FY2007 agriculture appropriations bill (H.R. 5384). The
amendment was not adopted, falling four votes short of the required 60 to overrule a
budgetary point of order. Included in S.Amdt. 5205 was an estimated $3 billion in crop
disaster assistance and $1.75 billion in livestock disaster assistance, as well as $182
million for various conservation programs and $100 million in grants to small businesses
that suffered economic losses as a direct result of a disaster affecting 2005 and 2006 crop
and livestock production. In the 110th Congress, a variation of S.Amdt. 5205 has been
introduced (S. 284), which sponsors might offer as an amendment to floor legislation in
the early months of the Congress. A series of 2006-2007 winter storms affecting fruit and
vegetable and livestock production could expand the scope of any legislation to include
2007 production losses. Separately, S. 165 and H.R. 185 would aid producers who
suffered livestock losses as a result of the recent blizzards.
Crop Disaster Payments. Congress has provided ad-hoc crop disaster payments
in various emergency supplemental acts for nearly every crop year from 1988 through
2004. S. 284 would require USDA to provide crop disaster payments in a similar fashion
as past disaster supplemental acts, but with a somewhat lower payment rate. Under S.
284, a crop producer in any region of the country would be potentially eligible for
assistance if individual losses to a 2005 or 2006 crop (or both) were in excess of 35%,
caused by any type of disaster, regardless of whether the farmer was in a declared disaster
area. For losses in excess of the 35% threshold, an eligible producer could then receive
a payment equal to 45% of the established price for the commodity (or 20% of the price
if the producer waived crop insurance coverage.) Maximum payments would be $80,000
per person, as in the past. All commercially grown crops would be eligible for a payment
under this formula except for sugar cane and sugar beets, which have separate disaster
payment programs in the bill. Payments would not be permitted to duplicate any already
made to the Gulf region following the hurricanes.
Livestock Assistance. S. 284 contains funding for an array of emergency
livestock programs that have been implemented on an ad-hoc basis in past years. Funding
would be provided for a Livestock Compensation Program (LCP), which compensates
livestock growers for the additional cost of having to procure livestock feed in the
marketplace following a disaster. It would provide payments to all producers of beef,
dairy, sheep, goats, and catfish in any county that was declared a disaster area by the
Secretary between January 1, 2005, and the date of enactment, regardless of the individual
producer’s loss experience. USDA would be required to use the same payment
mechanism it used for the 2002 LCP, but S. 284 limits payments to 70% of the 2002
payment rates.
S. 284 also would authorize necessary funds for a Livestock Indemnity Program
(LIP) to compensate producers for livestock killed by a natural disaster in 2005 or in
2006. The payment rate would be left to the discretion of the Secretary of Agriculture,
but the rate could not be set less than 30% of the market value of the applicable livestock
at the time of the disaster. The bill also would provide $95 million for dairy producers
in disaster counties, and $13 million to help producers replace and retain ewe lamb
breeding stock.
Funding in the Senate bill is in addition to the estimated $95 million in LCP funds
and $45 million in LIP funds provided by P.L. 109-148, exclusively to the Gulf states
following Hurricanes Katrina and Rita in 2005. Meanwhile, the Administration
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implemented a new Livestock Grant Assistance Program which provides a total $50
million in state block grants to help livestock producers partially recover from forage
losses. Any state with a county that experienced either severe or extreme drought
conditions at any point during the 2006 growing season is eligible.
Conservation Assistance
. 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, subject to annual appropriations. However,
almost all of its funding in recent
years has come from emergency supplemental
appropriations. The Senate-reported bill
S. 284 would provide $1735 million to the ECP for all regions, in addition
to the $200 million
provided exclusively to the Gulf states by an earlier FY2006
supplemental act (P.L. 109148109-148). The Senate bill would also provide $5470 million in
Emergency Watershed Protection
funding to supplement the $300 million already provided by P.L. 109-148.
Economic Loss Payments
The Senate-reported bill also provides an estimated $1.8 billion in bonus payments
to growers of grains, cotton, peanuts, and oilseeds who receive direct payments under the
farm commodity income support programs, and to participating dairy farmers who receive
payments under the Milk Income Loss Contract (MILC) program. These payments would
be available to eligible producers nationwide, regardless of whether they were subject to
crop losses. Under the Senate language, an eligible crop producer would receive an
additional payment of 30% of the direct payment received on a 2005 crop. Dairy farmers
would receive up to $147 million in bonus MILC payments. Similar market loss
payments were made in FY1999-FY2001 in various supplementals to compensate
producers for then-prevailing low commodity prices. For fruit, vegetable, and livestock
producers, the Senate bill provides a combined total of $100 million to the states, with the
condition that the funds be used in some manner to support these commodities. For more
information on the FY2007 agriculture appropriations bill, see CRS Report RL33412,
Agriculture and Related Agencies: FY2007 Appropriations
provided by P.L. 109-148, and $75 million in additional funds for the Environmental
Quality Incentives Program.
Small Business Economic Loss Payments. S. 284 also would provide an
estimated $100 million in payments to small businesses that “suffered material economic
losses” during the 2005 or 2006 crop year as a result of crop or livestock losses associated
with a natural disaster. The grant money would be allocated to states that had at least 50%
of their counties declared disaster areas during 2005 or 2006. Each state department of
agriculture in an eligible state would provide direct payments to eligible businesses using
the available funds.