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Farm and Food Support Under USDA’s Section 32 Program

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Farm and Food Support Under USDA’s Section 32 Program Melissa D. Ho Analyst in Agricultural Policy Geoffrey S. Becker Specialist in Agricultural Policy January 12, 2010 Congressional Research Service 7-5700 www.crs.gov RL34081 CRS Report for Congress Prepared for Members and Committees of Congress Farm and Food Support Under USDA’s Section 32 Program Summary The U.S. Department of Agriculture’s Section 32 program is funded by a permanent appropriation of 30% of the previous year’s customs receipts, less certain mandatory transfers. Since 1935, Section 32 funds have supported the farm sector through a variety of activities. Today, most of this annual appropriation (almost $8.0 billion for FY2009) is transferred to the USDA account that funds child nutrition programs (about $6.5 billion transferred in FY2009). However, the Secretary of Agriculture has long had broad discretion in how to spend the non-transferred (unobligated and carryover) money, which amounts to approximately $1 billion to $1.5 billion annually. The Secretary historically has chosen to use much of this non-transferred money to purchase agricultural commodities like meats, poultry, fruits, vegetables, and fish, which are not typically covered by mandatory price supports. These commodities are diverted to school lunch and other domestic food and nutrition programs. Section 32 also is used to fund farm economic and disaster relief activities, among other things. In June 2008, Congress passed the most recent omnibus farm bill (P.L. 110-246). Provisions in this law spell out more explicitly how the Secretary is to use the annual Section 32 appropriation. One provision of P.L. 110-246 requires higher minimum levels of fruit, vegetable, and nut purchases (in fresh, frozen, canned, or dried forms) to support domestic nutrition programs. A separate provision requires the Department to use Section 32 to fund a fresh fruit and vegetable program for participating elementary schools, with spending to grow from $105 million in FY2009 to $150 million by FY2012. Another part of the law delineates precisely how the Secretary is to allocate the annual Section 32 appropriation (i.e., how much is to be transferred to child nutrition accounts). This delineation was included in the farm law for federal budget scoring purposes, to pay for the cost of the new fresh fruit and vegetable program without incurring significant new outlays. Separately, USDA’s FY2008 appropriation (part of the Consolidated Appropriations Act, 2008, P.L. 110-161) also limited somewhat the availability of Section 32 monies. It rescinded a total of $684 million, including $184 million that otherwise would have been available in FY2008 for surplus purchases, and $500 million in prior unobligated balances in the account. The FY2009 Omnibus Appropriations Act (P.L. 111-8) continued restrictions on Section 32 spending, primarily though a $294 million rescission of an unobligated balance carried over from FY2008. The enacted FY2010 Agriculture appropriations act, P.L. 111-80, also includes a $133 million rescission of funds carried over from FY2009. These congressional actions appear to limit the wide discretion that USDA officials long exercised with regard to program spending under this account. Meanwhile, various Members of Congress and their constituents want to ensure that a portion of Section 32 funds will continue to be available—and be used, when necessary—to help producers recover at least a portion of their losses when natural disasters or unanticipated economic setbacks arise and to help domestic nutrition programs through surplus purchases. Congressional Research Service Farm and Food Support Under USDA’s Section 32 Program Contents What Is Section 32? ....................................................................................................................1 How the Account Has Operated...................................................................................................2 Uses of Section 32 Funds ............................................................................................................3 Commodity Purchases...........................................................................................................3 Entitlement Purchases ...........................................................................................................4 Contingency Fund Purchases.................................................................................................4 Donations of Contingency Purchases.....................................................................................6 Agricultural Disaster Assistance..................................................................................................6 Other Section 32 Uses .................................................................................................................6 Provisions of the 2008 Farm Bill (P.L. 110-246) Limiting Section 32 Discretion..........................7 Appropriations Action.................................................................................................................8 Tables Table 1. Total Annual Contingency Purchases, FY1996-FY2010 .................................................4 Table 2. Section 32 Contingency Fund (Bonus) Purchases, by Commodity, FY2000FY2009....................................................................................................................................5 Table A-1. Section 32 Funding, FY2001-FY2010 ...................................................................... 10 Appendixes Appendix. Section 32 Funding, FY2001-FY2010 ...................................................................... 10 Contacts Author Contact Information ...................................................................................................... 18 Congressional Research Service Farm and Food Support Under USDA’s Section 32 Program What Is Section 32? Section 32 of the act of August 24, 1935 (P.L.74-320 as amended; 7 U.S.C. 612c), authorizes a permanent appropriation equal to 30% of annual U.S. customs receipts. The appropriation was first created to assist Depression-era producers of non-price-supported commodities. The law specifies that Section 32 funds are to be used to meet the following objectives: 1. Encourage the export of farm products through producer payments or other means. 2. Encourage the domestic consumption of farm products by diverting surpluses from normal channels or increasing their use by low-income groups. 3. Reestablish farmers’ purchasing power. The Secretary of Agriculture has always had considerable discretion in deciding how to achieve these broad objectives. Some believe this discretion has been too broad, essentially providing the Secretary with a “blank check” to spend money without enough guidance from Congress. Others believe such flexibility has been desirable because it enables the Secretary to respond to problems in unpredictable agricultural markets and to the needs of domestic food providers. In a sharp departure from past policies, the 2008 farm law (P.L. 110-246), which Congress approved in June 2008, spells out more explicitly how the Secretary is to use the annual Section 32 appropriation. This serves to limit some of the wide discretion that USDA officials previously exercised with regard to program spending under this account. Recent appropriations bills also have begun to constrain the Secretary’s options for spending Section 32 money. As in past years, most of the annual Section 32 appropriation is still simply transferred by annual appropriation laws to the U.S. Department of Agriculture (USDA) account that funds child nutrition programs. For example, in FY2009, nearly $6.5 billion of the approximately $8.0 billion Section 32 appropriation was transferred to the Food and Nutrition Service (FNS). For FY2010, nearly $7.0 billion of a total Section 32 level of nearly $8.1 billion is expected to be transferred. However, the Secretary of Agriculture, acting through the Department’s Agricultural Marketing Service (AMS), still chooses how to use a smaller but nonetheless significant portion of Section 32 funds—the portion not transferred—to purchase non-price-supported commodities like meats, poultry, fruits, vegetables, and seafood. These purchases are intended to fulfill two requirements (under other federal laws): 1. Provide commodities to the school lunch and other domestic food programs. 2. Support farm prices (by buying and diverting additional “bonus” commodities to these food programs). In addition, the Secretary has chosen to use other non-transferred funds to provide direct or diversion payments to producers for disaster or economic losses, and to provide food commodities to victims of natural disasters, among other activities. Congressional Research Service 1 Farm and Food Support Under USDA’s Section 32 Program How the Account Has Operated An accounting of a completed fiscal year (FY2008) provides a snapshot of how money has traditionally been collected and spent.1 The program’s permanent appropriation was $7.564 billion, representing 30% of prior calendar-year customs receipts. This figure was reduced by: • $684 million, a rescission mandated by Congress for budgetary savings. • $6.254 billion, transferred to the child nutrition program cash account, to help pay for federal child nutrition programs budgeted at about $13.902 billion in FY2008. (The difference, $7.648 billion, was provided directly to the child nutrition programs through the annual, i.e., FY2008, USDA appropriation.) • $85 million (the equivalent of 30% of customs revenue from fish product imports), transferred to the Commerce Department for fisheries activities. This left $541 million, to which was added $500 million in unobligated FY2007 money that was carried into FY2008. A further upward adjustment was made to account for the recovery of $54 million in money that was committed earlier but not spent, bringing the amount available for obligation to $1.095 billion. From this: • $465 million was designated for planned AMS commodity purchases to partially fill the commodity assistance entitlement set by the school lunch act. (This law mandates USDA commodity support for each meal served—in FY2008, an average of more than 20 cents—for a total of $1.022 billion. • $181 million was used to provide specialty crop commodities to child nutrition programs as mandated by the 2008 farm bill. • $3 million was included as an accounting adjustment. • $2 million went for disaster relief foods. • $48 million was used for AMS administrative expenses for direct food purchasing (including the cost of setting up a new Web-based supply management system), and for oversight of federal marketing orders. • $50 million was used for the removal of defective commodities (ground beef contaminated by E. coli bacteria). • $54 million was used for “emergency removals” of surplus commodities throughout the fiscal year (primarily fruits and vegetables). 2 Subtracting the above spending (and adjusting for rounding) left AMS with a potential “carryout,” or unobligated balance, of $294 million at the end of the year. This amount was less than the $500 million Section 32 law permits to be carried into the subsequent fiscal year. However, Congress rescinded this amount in FY2009, returning it to the U.S. Treasury. 1 Primary sources: USDA Budget Explanatory Notes for Committee on Appropriations, FY2009 and FY2010. All figures are rounded to the nearest million dollars. 2 As noted earlier, such emergency purchases are provided as a “bonus” to schools (over and above their “entitled” amounts) and to other designated domestic food assistance programs. Congressional Research Service 2 Farm and Food Support Under USDA’s Section 32 Program The Appendix to this report contains tables that provides a more detailed accounting of Section 32 spending by type of activity for each year from FY2001 through FY2009 and estimated FY2010, followed by a narrative explanation of each activity. Uses of Section 32 Funds Commodity Purchases Commodity purchases are perhaps the best-known use of Section 32 funds. They began shortly after passage of the 1935 law and continue today. USDA seeks outlets for these purchases that do not disrupt private markets. More specifically, Section 32 pays for direct purchases of commodities that are not typically covered by agricultural price support through USDA’s Commodity Credit Corporation (CCC). Unlike CCC support, which is normally limited to pricesupported commodities (e.g., milk, grains and oilseeds, cotton, sugar), Section 32 is not constrained in the types of commodities that must be assisted, at what levels, or how (except within the three broad purposes described on page 1). Such decisions are left to the Secretary of Agriculture. Early in the program, USDA began donating Section 32 purchases to low-income families and schools, on the premise that the donations would supplement, not displace, normal food purchases by these recipients. Distribution of Section 32 commodities is credited with stimulating growth of the national school lunch program. Actually, school lunch and other domestic nutrition programs have been benefitting in two ways from Section 32 funds. First, as noted, much of the Section 32 permanent appropriation simply is transferred into USDA’s Food and Nutrition Service (FNS) child nutrition account (about $6.5 billion in FY2009). The amount transferred each year has historically been determined by congressional appropriators based on USDA’s recommendations. But, as discussed later, the 2008 farm bill limits appropriators’ latitude. This transfer is supplemented by a separate direct appropriation provided through the annual USDA appropriation law. The commingled funds are then used to provide cash and commodity subsidies to schools and other eligible program sponsors for meals served to children. Second, a smaller—but still significant—amount of Section 32 money is used to purchase commodities directly and then provide them to schools and to other domestic feeding programs. These purchases are made for FNS through USDA’s Agricultural Marketing Service (AMS). For FY2009, AMS purchased over $1.4 billion in agricultural commodities, which included $593 million for fruits and vegetables, $462 million for livestock and seafood, and $386 million for poultry. The majority of these commodities are used to fulfill a mandate in child nutrition law; for example, Sections 6 and 14 of the Richard B. Russell National School Lunch Act (P.L. 79-396) “entitle” schools and other child nutrition program sponsors to commodities worth specific dollar amounts. As noted, additional commodities frequently are provided as a “bonus” to schools and other domestic food programs; these are commodities that were obtained separately when AMS makes “emergency” commodity purchases to relieve farm surpluses that occur throughout the year Bonus purchases were valued at $319.5 million in FY2009, which is considerably higher than the $53.6 million spent in FY2008, mostly due to large purchases of pork and poultry. Congressional Research Service 3 Farm and Food Support Under USDA’s Section 32 Program Entitlement Purchases In planning the mandated, or entitlement, commodity purchases, USDA agencies consult with major commodity organizations and devise, by early spring, a tentative purchase plan for the next school year (purchases may begin in May). The plan is based on prior year purchases, likely school needs, expectations of available funds, and any anticipated surplus or other market conditions in the coming year, among other things. AMS issues the bid specifications for purchasing the products, generally in processed form, for delivery to state drop-off points. The Kansas City office of USDA’s Farm Service Agency (FSA) administers the purchase contracts and pays the vendors. Contingency Fund Purchases Over the course of the year, USDA taps the contingency reserve for so-called emergency surplus removals, which are then distributed as “bonuses” to domestic food assistance programs. The department may learn about these needs through its own commodity experts or be informed of surpluses or other economic problems by farm and industry organizations. Table 1 shows the annual value of these purchases since FY1996. Table 1.Total Annual Contingency Purchases, FY1996-FY2010 ($ millions) 1996 $56.2 2001 $200.2 2006 $81 1997 $100.9 2002 $206.9 2007 $56.9 1998 $194.8 2003 $222.1 2008 $53.6 1999 $144.5 2004 $226.5 2009 $319.5 2000 $200.2 2005 $149.5 2010 $257.5 (est) Source: USDA, Agricultural Marketing Service. As Table 2 on the following page indicates, some commodities are bought more frequently than others. AMS made contingency purchases of salmon in 7 out of the 10 years examined, at a total cost of nearly $64.7 million. Other relatively frequent purchases of considerable value were of peaches, potatoes, cherries, grapes, walnuts, apples, and orange juice. Were these contingency purchases, particularly of commodities bought in multiple years, justified? AMS maintains that each of its purchase decisions is based on an analysis of market conditions at the time, and that industry requests to buy products are rejected if conditions do not justify them. Some have questioned the decision-making process. In a 2005 assessment during the Bush Administration, the Office of Management and Budget (OMB) concluded that Section 32 had not adequately demonstrated results due to, among other things, unclear purposes, no basic criteria for surplus commodity purchases, and lack of performance measures.3 What OMB and other critics viewed as flaws, program supporters have seen as flexibility to quickly and efficiently address agricultural problems. 3 This assessment was last accessed in July 2008 at http://www.whitehouse.gov/omb/expectmore/. Congressional Research Service 4 Farm and Food Support Under USDA’s Section 32 Program Table 2. Section 32 Contingency Fund (Bonus) Purchases, by Commodity, FY2000-FY2009 Commodity Number of Years Purchased Total Value Purchased (million $) Commodity Specialty Crops Number of Years Purchased Total Value Purchased (million $) Livestock and Seafood almonds 3 29.5 beef 2 33.0 apples 6 88.8 bison 1 10.0 apricots 7 49.6 catfish 3 11.0 asparagus 7 28.3 lamb 8 28.1 beans 4 40.8 pork, ham 3 144.4 blueberries 3 35.7 salmon 7 64.7 caneberriesa 3 4.5 tuna 2 2 cherries 7 99.9 cranberries 5 80.6 dates 3 7.2 figs 4 17.0 grape products 6 95.0 chicken 5 88.3 grapefruit 2 20.1 egg products 1 10.0 mixed fruit 2 79.5 goose 2 1.8 orange juice 5 99.5 turkey 3 68.4 peaches 6 141.7 pears 5 42.0 pineapple 5 21.2 plums 4 8.2 potatoesb 6 113.2 strawberries 3 12.8 tomatoes 7 40.3 trail mix 4 78.5 walnuts 6 94.8 Specialty crops total Livestock & Seafood Total 301.2 Poultry Products Poultry Products Total 168.5 1,246.7 Source: USDA and House Appropriations Committee, various hearing reports, supplemented by AMS unpublished data. Each category represents commodities and/or any foods processed from them, purchased by AMS. Purchases for each category are cumulative for the 10-year period covered. a. Includes raspberries, blackberries, etc b. Includes sweet potato. Congressional Research Service 5 Farm and Food Support Under USDA’s Section 32 Program Donations of Contingency Purchases Besides schools and child care centers, recipients include soup kitchens, food banks, and others serving the needy. The annual total of contingency purchases—and thus the foods provided to these outlets—has varied. Recent annual totals have varied from $56 million in FY1996 to more than $226 million in FY2004. Since 2004, the totals have declined steadily to $54 million in FY2008, raising concern among some providers of domestic food assistance such as food bank operators. While food assistance providers concede that the food they have received through this Section 32 activity is a “bonus” and not an “entitlement,” many say they have come to rely on the higher levels to help meet client demand. However, in FY2009 contingency purchases are estimated to increase almost fivefold to $276 million (Table 1). Agricultural Disaster Assistance In 2002 and again in 2004, the Bush Administration decided to use Section 32 to pay for special disaster initiatives. On September 19, 2002, USDA announced a “Livestock Compensation Program” to cover 2001 and 2002 drought losses by cattle, lamb, and buffalo producers in 37 states. From late FY2002 through FY2003, total Section 32 monies for this program reached just over $1 billion, a level that appeared to be unprecedented under Section 32, according to longtime observers. Some other producer groups and domestic food program interests had contended at the time that diverting so much money to these payments threatened the solvency of the contingency fund needed to make the many bonus purchases throughout the year for fruit, vegetable, poultry, pork, and other commodity groups suffering surpluses and/or low prices. Also, commodity recipients, especially food banks, pointed out that they rely heavily on Section 32 bonus foods (even though such foods are not entitlements) to help supplement their resources. To help pay for the disaster program and still cover “normal” contingency purchases, officials made several adjustments in various USDA spending accounts for FY2003. Strains on the Section 32 budget also were relieved somewhat when Congress approved a provision in the omnibus FY2003 appropriation resolution (H.J.Res. 2) transferring $250 million from the CCC account to replenish the Section 32 account to carry out emergency surplus removals. The Administration turned to Section 32 in FY2004, FY2005, and FY2006, spending more than $1.3 billion over the four years in direct payments primarily to producers of fruits, vegetables, and nursery crops for hurricane and/or disease losses—for example, $100 million in FY2007 to growers whose trees were eradicated to combat citrus canker. Other notable portions went for livestock assistance for various losses. In a disaster assistance package included within the FY2005 Military Construction Appropriations Act (P.L. 108-324), Congress transferred $90 million from the CCC account to the Section 32 account to cover some of the past spending. Other Section 32 Uses USDA also uses its broad discretionary authority to spend Section 32 money on other activities. For example, in FY1999 it used $178.3 million to make direct payments to hog producers affected by low market prices. (An emergency FY1999 appropriation, P.L. 106-31, included an extra $145 million to reimburse Section 32 for a portion of these costs.) Export subsidies and related activities also have been supported in the past. In many years, a portion is used to provide food commodities to victims of hurricanes and natural disasters. Section 32 funded a pilot food Congressional Research Service 6 Farm and Food Support Under USDA’s Section 32 Program stamp program in the early 1960s, paid for production and diversion payments to other producers in past years, and supported several supplemental feeding programs. Congress itself periodically designates other uses, as noted in the next section. For example, it designated an additional $75 million for Section 32 in a 1983 jobs law (P.L. 98-8), to purchase and distribute foods to needy families in high unemployment areas. Congress earmarked $10 million of Section 32 funds for the special purchase of sunflower oil in FY1988, and $50 million for a similar program in FY1994. Provisions of the 2008 Farm Bill (P.L. 110-246) Limiting Section 32 Discretion Congress increased fruit and vegetable purchases in the 2008 farm law (P.L. 110-246). The law encompasses several provisions aimed at fulfilling the goal of increased fruit and vegetable consumption while maintaining Section 32 spending within the budget baseline. First, under the nutrition title (Title IV), § 4304 amends the Richard B. Russell National School Lunch Act to authorize a new program to provide fresh fruits and vegetables in selected elementary schools nationwide, targeting those with higher numbers of students who are eligible for free or reduced price meals. Under § 4304, funding is mandated in the following amounts, to come from Section 32: • $40 million on October 1, 2008; • $65 million on July 1, 2009; • $101 million on July 1, 2010; • $150 million on July 1, 2011; and • for each succeeding July 1, the 2011 amount is to be adjusted for inflation. Second, the bill—in § 14222, in Title XIV, the miscellaneous title—spells out explicit instructions on how each year’s Section 32 money must be allocated. These instructions are intended as a way to fund the fresh produce program without raising spending above the budget baseline, as estimated by the Congressional Budget Office (CBO). They contain a statutory formula that essentially caps Section 32 “unobligated” funds: that is, the amount the Secretary (through AMS) is permitted to spend after transfers for use in the child nutrition programs and to Commerce for fisheries activities. These annual caps rise gradually from $1.173 billion in FY2009 to $1.322 billion in FY2017 (and thereafter are tied to inflation). Under the new law, the funding for the fresh fruit and vegetable program (noted above) is required to come out of these capped, unobligated amounts. After subtracting this funding, the remainder is the maximum that the Secretary is permitted to spend for all other traditional Section 32 activities, such as surplus commodity purchases, farm economic and disaster assistance, administration of marketing orders, and so forth. For example, in FY2009, $105 million of the $1.173 billion cap had to be used for the fresh fruit and vegetable program. Thus, the apparent effect of the new farm law is to constrain policymakers’ historical discretion in Section 32 spending decisions. Congressional Research Service 7 Farm and Food Support Under USDA’s Section 32 Program A separate provision in the 2008 farm bill (§ 4404 in the nutrition title) seeks to resolve differing perceptions of a directive, in the 2002 farm bill, to spend not less than $200 million of Section 32 funds annually to buy fruits, vegetables, and other specialty crops for domestic nutrition programs. USDA has maintained that it already spends more than this level each year, when both mandatory and contingency (bonus) purchases are counted. In fact, Section 32 specialty crop purchases averaged about $308 million annually from FY2000 to FY2006, according to USDA purchase data examined by CRS. The 2002 farm bill conference report had directed that the $200 million should be in additional purchases, and Senate reports accompanying annual USDA appropriations have reminded USDA of these farm bill instructions. However, USDA officials argued that these instructions were not binding because they were in report language rather than in the law itself. To clarify this situation, § 4404 of the farm bill states that the Secretary shall purchase, “in addition to the purchases” made under the 2002 law, the following amounts of fruits, vegetables, and nuts for domestic nutrition programs: • $190 million for FY2008; • $193 million for FY2009; • $199 million for FY2010, • $203 million for FY2011; and • $206 million for FY2012 and each subsequent year. In other words, the Department was bound by law to purchase at least $390 million in fruits, vegetables and nuts in FY2008, with this minimum gradually increasing to $406 million by FY2012. (These purchases can be purchased in frozen, canned, or dried as well as fresh forms under §4404.) The additional purchases required by the 2008 farm bill match CBO projections as to what the Department is likely to spend in future years. AMS purchases of specialty crops totaled more than $593 million for FY2009. Other language in P.L. 110-246 also affects Section 32. Under § 4305 in the nutrition title, the Secretary is required to purchase whole grains and whole grain products for use in the school lunch and breakfast programs. Under § 14222 in the miscellaneous title, the Secretary must make available, in FY2009 only, $4 million in Section 32 funding for these purchases, further reducing the “unobligated” pot of Section 32 money. Appropriations Action USDA’s FY2008 appropriation was passed along with 10 other appropriations bills in the Consolidated Appropriations Act, 2008 (P.L. 110-161). This law also appears to include an effort to rein in USDA-AMS’s discretionary use—or at least the availability—of Section 32 funds. It rescinded a total of $684 million: $184 million that otherwise was projected to be available in FY2008 for surplus purchases, plus $500 million in prior unobligated balances. The appropriations committees noted, in accompanying explanatory language, that even with this rescission, $297 million was still provided for estimated future needs (i.e., the contingency fund) in FY2008. Congressional Research Service 8 Farm and Food Support Under USDA’s Section 32 Program The FY2009 Omnibus Appropriations Act (P.L. 111-8) continued to set limits to Section 32 spending options. A rescission of $294 million from the unobligated balance remaining from FY2008 further tightened the contingency fund, resulting in a maximum allowable spending authority of $1.072 billion, $101 million below the amount authorized in the farm bill. For FY2010, the enacted appropriation contains a rescission of $133 million from unobligated balances carried over from FY2009 and previous years, as set out under Title VII (General Provisions). The 2008 farm bill also requires that $199 million of Section 32 funds be used in FY2010 to purchase fruit, vegetables, and nuts for domestic food assistance programs. Congressional Research Service 9 Appendix. Section 32 Funding, FY2001-FY2010 Table A-1. Section 32 Funding, FY2001-FY2010 ($1,000) FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 5,738,449 6,139,942 5,798,093 5,927,395 6,052,036 6,481,777 7,029,269 7,563,684 7,979,335 8,061,101 -163,000 -37,601 -37,601 -684,000 -293,530 -133,352 -343,492 -76,853 -6,455,802 -6,989,899 6a. Transfer to FNS for Fresh Fruit & Vegetable Program (2008 farm bill) -105,000 -25,000 6b. Transfer to FNS for Fresh Fruit & Vegetable Study (2008 farm bill) -3,000 1. Section 32 Appropriation (30% Customs Receipts) 2. Rescission 3. Ag. Risk Protection Act (P.L. 106-224) -468 FY2009a FY2010(est)a 200,000 4. Unavailable Current Year Funds 5. Transfer from CCC or Supplemental 250,000 90,000 LESS TRANSFERS: 6. Transfer to FNS -5,127,579 -5,172,458 -4,745,663 -4,699,661 -5,152,962 -5,187,621 -5,731,073 -6,253,548 7. Transfer to Commerce (fisheries) -72,828 -79,127 -75,224 -79,724 -77,539 -79,284 -82,817 -84,595 -108,511 -113,371 8. BUDGET AUTHORITY (net of above lines) 738,042 887,889 1,227,206 1,148,010 748,535 1,177,271 1,177,731 541,541 778,000 747,626 9. Unobligated Prior Year Balance 241,270 107,825 192,156 134,322 408,051 286,160 146,760 500,000 293,530 375,374 40,157 5,518 24,273 60,039 120 12 8,311 0 139,277 53,516 19,849 0 10. Recovery Prior Year Obligations 3,254 11. Offsetting Collections 12. AVAILABLE FOR OBLIGATION (net of above) 982,566 995,714 1,459,519 1,287,850 1,180,859 1,523,470 1,463,888 1,095,069 991,960 1,098,000 400,000 399,935 200,000 400,000 399,322 549,792 664,860 464,937 467,881 641,000 948 3 134 0 0 174 0 5,000 1,000 67 36 0 1,871 49,914 29 2,500 OBLIGATIONS: COMMODITY PROCUREMENT: 13. CN Commodity Purchases 14. State Option Contracts 15. Removal of Defective Commodities CRS-10 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 16. Fresh Fruit & Vegetable Program 16a. Fresh Fruit & Vegetable Pilot 18. Diversion Payments 200,234 21. Lamb Grading/Certification 206,898 222,090 172,867 867,000 39,700 957 592 22. Disaster Relief 23. Specialty Crop Purchases (P.L. 106-224) 108,000 101,000 180,778 119,500 199,000 226,475 149,496 81,010 56,892 53,654 319,513 257,508 8,000 218,750 278,763 700,000 101,650 103 100 500 9,200 40,597 1,901 11,317 11,900 19. Livestock Drought Relief 20. Other Direct Payments 199,991 750 1,722 180,778 5,000 119,418 24. Whole Grain Products Study (FSA) 25. TOTAL, COMMODITY PROCUREMENT FY2010(est)a 6,000 16b. Additional Fruit, Veg., & Nut purchases mandated by 2008 farm bill 17. Emergency Surplus Removals FY2009a 144,600 4,000 852,782 786,292 1,299,641 854,595 868,348 1,332,703 836,590 751,179 911,591 1,055,608 8,964 6,906 11,199 10,266 10,848 28,866 31,146 33,845 31,092 22,336 27. Marketing Agreements & Orders 12,995 10,359 14,844 14,938 15,502 15,141 15,493 16,515 17,124 20,056 28. TOTAL, ADMINISTRATIVE FUNDS 21,959 17,265 26,042 25,204 26,350 44,007 46,639 50,360 48,216 42,392 29. TOTAL OBLIGATIONS 874,741 803,557 1,325,684 879,799 894,698 1,376,710 883,229 801,539 959,807 1,098,000 30. UNOBLIGATED BALANCE 107,825 192,156 134,322 408,051 286,160 146,760 262,399 293,530 343,492 300,492 293,530 31,883 ADMINISTRATIVE FUNDS: 26. Commodity Purchase Services 31. Unobligated Balance Returned to Treasury 32. Unobligated Balance, End of Year 80,695 107,825 192,156 134,322 408,051 286,160 146,760 500,000 Source: House Appropriations Committee reports and USDA Budget Explanatory Notes, various years; AMS personal communication. Table compiled by CRS. a. CRS-11 Estimate based on S.Rept. 111-39, which accompanies S. 1406, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2010. Farm and Food Support Under USDA’s Section 32 Program Line-by-Line Explanation of Terms in Appendix Tables Unless noted, the sources for the above tables are various House Appropriations Committee and USDA budget documents. The data were confirmed and updated by the budget office of USDA’s Agricultural Marketing Service (AMS), which administers the account. Following are explanations of each of the activities, by numbered line, in the tables. 1. Section 32 Appropriation (30% of Customs Receipts) This represents the equivalent of 30% of gross U.S. customs receipts collected during the calendar year preceding the fiscal year in which the funds are to be used. These are the total funds available to Section 32 in a given year. 2. Rescission In some years, Congress has rescinded a specified portion of the funds available as unobligated balances. Rescissions, represented in these tables as negative numbers, generally are to achieve budgetary savings. For example, the FY2006 appropriations act for USDA and related agencies (P.L. 109-97) contained a Section 32 rescission of $37.6 million. As noted, much more money was rescinded under the appropriation for FY2008 (P.L. 110-161), a total of $684 million—$184 million that otherwise was projected to be available in FY2008 for surplus purchases, plus $500 million in prior unobligated balances. The appropriation for FY2009 contained a rescission of $293.5 million, and the FY2010 enacted appropriation contains a $133 million rescission. 3. Ag. Risk Protection Act (P.L. 106-224) P.L. 106-224 both amended the federal crop insurance program and also provided emergency “market loss” payments to producers of a variety of agricultural commodities. Section 203 of the act provided $200 million that the Secretary was required to use to purchase “specialty crops that have experienced low prices during the 1998 or 1999 crop years, including apples, black-eyed peas, cherries, citrus, cranberries, onions, melons, peaches, and potatoes.” The obligation of this money appears in the “Specialty Crops Purchases” line item below. 4. Unavailable Current Year Funds As discussed in the report, § 14222 in Title XIV of the 2008 farm bill effectively caps Section 32 “unobligated” funds each year, and this is considered the carryout for each year. 5. Transfer from CCC or Supplemental On several occasions, Congress has provided additional funds to the Section 32 account (i.e., over and above amounts made available by the permanent appropriation) in order to address other specific situations. This occurred for FY2005, for example, when Congress directed USDA to transfer $90 million from the Commodity Credit Corporation (CCC, the funding mechanism for the Department’s farm price and income support programs) to help cover some of the costs of Section 32-financed disaster payments to Florida producers of fruits, vegetables, and nursery crops hit by hurricane losses. A transfer also was made at Congress’s direction for FY2003, when $250 million was moved from the CCC to help recover a portion of the costs of a Section 32- Congressional Research Service 12 Farm and Food Support Under USDA’s Section 32 Program funded drought assistance program that totaled more than $1 billion (over FY2002-FY2003; see line 19 under the obligations entries.) For FY1999, Congress appropriated an extra $145 million to help cover about $178 million in direct payments to hog producers in response to historically low prices (See “Other Direct Payments” line item, below). 6. Transfer to FNS This is the amount (represented as a negative number) that is transferred each year to USDA’s Food and Nutrition Service (FNS) to cover a portion of the cost of the child nutrition programs. For example, for FY2008, the total child nutrition appropriation was $13.902 billion; this total is primarily based on the entitlement spending requirements of the National School Lunch Act (42 U.S.C. 1751 et seq.) and the Child Nutrition Act of 1966 (42 U.S.C. 1771 et seq.). To meet this total spending level, the annual appropriation provided $7.648 billion and designated that the other approximately $6.254 billion come from Section 32. These yearly determinations of how much to directly appropriate and how much to transfer from Section 32 generally have been made by congressional appropriators based on Administration recommendations, but beginning in 2009 these amounts have been constrained by provisions set out in the 2008 farm bill. 6a-6b. This transfer to FNS specifically for the Fruit and Vegetable Program and Study was mandated under § 4304 of the 2008 farm bill. In 2010, this was modified by the FY2010 appropriations bill, P.L. 111-80, General Provision 721, which stated that only $25 million of the $101 million (specified by the 2008 farm bill) would be transferred in FY2010, while the remaining $76 million would effectively be transferred in FY2011. 7. Transfer to Commerce Under the Fish and Wildlife Act of August 8, 1956 (16 U.S.C. §§742a -754j-2), an amount equivalent to 30% of the gross U.S. customs receipts collected on imported fishery products is transferred to the Department of Commerce to promote, research, and develop fishery products (also represented as a negative number). 8-12. Budget Authority, through Available for Obligation To determine how much is available to Section 32 after the required transfers, two items are added to the Budget Authority (line 8). They are the Unobligated Prior Year Balance (line 9), representing what AMS did not spend during the previous year on various Section 32 obligations; and any recoveries of obligations that were made but not spent in prior years (line 10). The Offsetting Collections (line 11) also include any recoveries of obligations not made previously; for instance, for FY2007, $139.3 million was returned to Section 32 from USDA’s Farm Services Agency as unused funds from a disaster-related direct payment event. AMS uses the money in Available for Obligation (line 12) to pay for activities that fall within two broad “obligations” categories: Commodity Procurement (lines 13-25), and Administrative Funds (lines 26-28). Congressional Research Service 13 Farm and Food Support Under USDA’s Section 32 Program 13. CN Commodity Purchases Section 6(e) of the school lunch act requires USDA-FNS to provide support in the form of commodities for each meal served—in FY2008, an average of more than 20 cents, for a total of $1.022 billion. Another school lunch act requirement has mandated that at least 12% of total assistance (cash plus commodities combined) be in the form of commodities. To buy these commodities, USDA uses some Section 32 money (the amount in this line), while the remaining balance comes from the child nutrition account funds. In past fiscal years, USDA had budgeted approximately $400 million for the Section 32 share of these costs. This number dropped to $200 million in FY2003, as funds were shifted to help cover the costs (approximately $1 billion) for a special livestock drought assistance program announced in 2002. The “lost” $200 million in child nutrition entitlement commodities were still purchased; the Department moved some unobligated balances from other child nutrition accounts and received CCC funds for these activities. In more recent years, this amount has been as high as $665 million in FY2007 and is estimated to be $641 million for FY2010. 14. State Option Contracts AMS in recent years has been budgeting $5 million annually for such contracts but has never spent the full amount. State option contracts are intended to be used to assist state commodity distribution agencies to convert bulk or raw USDA commodities into products that can be more easily used by domestic feeding programs. Net costs to Section 32 are not incurred because the states reimburse USDA. The Department asserts that this set-aside “avoids the need to have states pay USDA up-front for further processing.” Historically the states have requested such contracts for poultry products.4 15. Removal of Defective Commodities AMS also has been budgeting $1 million annually for the removal of defective commodities, but rarely spends the full amount. The money is intended to be available in case AMS must respond quickly to remove a commodity obtained by USDA for any domestic food program that is later found to pose a health risk. For example, the $36,000 spent in FY2005 was for a recall of catfish and $67,000 in FY2004 for a recall of ground beef. In FY2007, AMS replaced $1.9 million in beef stew found to have E. coli contamination. In FY2008, $50 million was spent on removals of defective ground beef. AMS has budgeted $2.5 million for removal of defective commodities for FY2010. 16. Fresh Fruit & Vegetable Program This is a transfer from Section 32 funds to provide children with free fresh fruits and vegetables through federal nutrition programs, where appropriate. This program was mandated by the 2008 farm bill, § 4404. 4 Source: Part 5, p. 411 of FY2006 appropriations hearings before the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Subcommittee of the House Appropriations Committee, 2005. Congressional Research Service 14 Farm and Food Support Under USDA’s Section 32 Program 16a. Fresh Fruit & Vegetable Pilot Section 4305 of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the 2002 farm bill) required USDA to conduct a pilot project aimed at improving student consumption of fruits and vegetables. It was operated in 107 elementary and secondary schools during the 20022003 school year and funded, as required by the 2002 farm bill, through the Section 32 program. Total spending was $6 million. This pilot project has been replaced by the Fresh Fruit and Vegetable Program (line 16, above). 16b. Additional Fresh Fruit, Veg., and Nut Purchases Mandated by 2008 Farm Bill These are additional funds required to meet the FY2008 farm bill mandate that $390 million of Section 32 funds be used to provide specialty crops for food assistance programs. 17. Emergency Surplus Removals These figures represent the value of unanticipated purchases of non-price supported commodities (i.e., commodities that do not receive mandatory support through the CCC) over the course of the year. The Department decides whether it should conduct such purchases based on requests made by agricultural or industry groups and/or the advice of its own commodity experts, who for each purchase analyze economic conditions such as farm prices and production levels. The premise is that removing products from normal marketing channels helps to limit supply and thereby increase prices. At the start of each year, the Department predicts how much it may need to spend for these socalled emergency surplus removals, and the figure usually amounts to several hundred million dollars. This figure is published in the Department’s annual budget justifications to Congress as “Estimated Future Needs.” For FY2006, the Department initially estimated its future needs at $416.3 million, but as the tables indicate, the actual spending was about $81 million. Unspent funds from this obligation item are what constitute the bulk of the unobligated balance at the end of the year (see below). Commodities acquired under this activity (sometimes referred to as the contingency fund) are usually distributed to domestic feeding programs as “bonus” foods. That is, these additional commodities are over and above the “entitlement” commodities such programs receive under other authorities. As the tables indicate, the value of emergency surplus removals has varied widely, from a recent low of $53.7 million in FY2008 to an estimated $319.5 million in FY2010. 18. Diversion Payments These have been made to producers to divert production from commercial markets, usually to counter low prices. Such payments may be in exchange for destruction of a crop, or for diversion to livestock feed and/or to use as commodities for domestic feeding programs. For example, AMS made diversion payments for potatoes in FY1997 ($9 million) and FY2001 ($11.9 million), the last year any diversion-type payments were made; some of the crop went to livestock feed and some to domestic feeding. Congressional Research Service 15 Farm and Food Support Under USDA’s Section 32 Program 19. Livestock Drought Relief On September 19, 2002, the Bush Administration announced a new “Livestock Compensation Program,” which provided payments to cattle, lamb and buffalo producers in 37 states to compensate them for drought losses in 2001 and 2002. A total of $172.9 million was used for this program in FY2002 and another $867 million in FY2003, apparently an unprecedented level for this type of activity under Section 32. At the time, the spending raised concerns among other producer groups and among domestic food program interests that there might not be sufficient funds in FY2003 and beyond to conduct emergency surplus removals (see line 17, above). In response, officials made several adjustments in other USDA spending accounts and also received $250 million from the CCC in order to replenish Section 32. 20. Other Direct Payments These have been made to agricultural producers for either economic or disaster-related reasons; usually, these payments are transferred to USDA’s Farm Service Agency (FSA) for disbursement. In FY1999, for example, Section 32 funded a total of $178.3 million in direct payments to smaller-sized hog producers, as part of a broader USDA effort to assist the industry during a time of historically low prices. In FY2001, $39.7 million in direct payments were made to lamb and sheep producers experiencing economic losses. In FY2003 and FY2004, respectively, $8 million and $18 million were used for a “ewe lamb replacement and retention program,” again for sheep producers who were dealing with economic and drought problems. The Secretary also approved a total of $422.2 million to be disbursed over two fiscal years, FY2004 and FY2005, as direct payments to fruit, vegetable, and nursery plant growers affected by Florida hurricanes. Another $700 million went for direct payments in FY2006, a portion of it to pay growers whose trees were removed by USDA’s Animal and Plant Health Inspection Service citrus canker eradication program; and other portions for hurricane relief, and for livestock grazing losses. In FY2007, another $100 million in direct payments were made for citrus canker tree losses, plus $1.65 million to hog and poultry producers whose animals likely received feed contaminated with melamine. 5 During FY2008, no payments were made under this line item. 21. Lamb Grading/Certification These funds, made available in FY2001-FY2004, were for AMS services provided to support the FSA payment program described in line 20, above. 22. Disaster Relief These funds are used to provide food commodities to victims of hurricanes and natural disasters. Spending levels have varied over the years. For example, in FY1999, $7 million was used to assist victims of a freeze in California’s Central Valley, and of Hurricane George in Puerto Rico. The highest in recent years was the $40.6 million spent in FY2005, the year of Hurricane Katrina. 5 In early 2007, pet food ingredients from China that contained the chemical melamine—apparently added to boost the ingredients’ protein levels—sickened or killed many dogs and cats in North America. The ingredients subsequently were found in some hog, chicken, and fish feed. For background see CRS Report RL34080, Food and Agricultural Imports from China, by Geoffrey S. Becker. Congressional Research Service 16 Farm and Food Support Under USDA’s Section 32 Program 23. Specialty Crop Purchases (P.L. 106-224) See Ag. Risk Protection Act (line 3), above. 24. Whole Grain Products Study (FSA) This study was mandated by the 2008 farm bill. 25. Total, Commodity Procurement This is the total of lines 13 through 24. 26. Commodity Purchase Services These are the administrative costs AMS incurs for food-buying operations and coordination with FNS and FSA. Beginning in FY2006, Congress provided additional funds for development of a “Web-Based Supply Chain Management System” to replace AMS’s older commodity procurement system. An additional $10 million is appropriated for this purpose in FY2009 and in the enacted appropriation for FY2010. 27. Marketing Agreements & Orders These funds are used to support administration and oversight of federal marketing orders and agreements for milk, fruits, vegetables, and tree nuts under the Agricultural Marketing Agreement Act of 1937 (7 U.S.C. §601 et seq.). 28. Total, Administrative Funds This is the total of lines 26 and 27. 29. Total Obligations This represents the total of lines 25 and 28 (the combined total for all commodity procurement and administrative activities). 30. Unobligated Balance The amount remaining after total obligations are subtracted from the amount available for obligation. 31. Unobligated Balance Returned to Treasury Any remaining funds at the end of a fiscal year may be carried over and spent the next fiscal year—up to a prescribed maximum. Section 10602 of the 2002 farm bill increased the maximum carryover to $500 million. In FY2007, $80.7 million of unobligated Section 32 funds were returned to the Treasury to avoid exceeding the end-of-year cap. A rescission of $684 million in FY2008 included $184 million that was over the $500 million maximum carryover and would Congressional Research Service 17 Farm and Food Support Under USDA’s Section 32 Program have been returned to the Treasury since the limit on the allowed unobligated balance carryover was exceeded. 32. Unobligated Balance, End of Year This carryover ranged from a low of $107.8 million at the end of FY2001 to a high of $500 million at the end of FY2007. This figure appears on line 9 for each subsequent fiscal year as “Unobligated Prior Year Balance.” Author Contact Information Melissa D. Ho Analyst in Agricultural Policy mho@crs.loc.gov, 7-5342 Congressional Research Service Geoffrey S. Becker Specialist in Agricultural Policy gbecker@crs.loc.gov, 7-7287 18 's Section 32 Program November 18, 2014 (RL34081) Jump to Main Text of Report

In 1935, Congress created an appropriation to assist Depression-era producers of agricultural commodities not supported by mandatory farm programs. The so-called "Section 32" account is funded by a permanent appropriation of 30% of the previous calendar year's customs receipts from duties on both agricultural and non-agricultural products, less certain mandatory transfers. In recent years, the total appropriation has been around $9 billion, with about $8 billion transferred, primarily to child nutrition programs administered by the U.S. Department of Agriculture's (USDA's) Food and Nutrition Service. The difference funds a variety of activities that support farmers and domestic food assistance programs. Congressional appropriators also typically rescind a portion for budgetary savings.

The origin of the name is its authorization: Section 32 of the act of August 24, 1935 (P.L.74-320 as amended; 7 U.S.C. 612c). This law specifies that the funds are to be used for (1) encouraging the export of farm products through producer payments or other means; (2) encouraging the domestic consumption of farm products by diverting surpluses from normal channels or increasing their use by low-income groups; and (3) reestablishing farmers' purchasing power.

This report first describes how the Section 32 account operates by tracing funds flowing into and out of the account. Second, a more detailed discussion is provided for each type of use, including historical policies.

How the Section 32 Account Operates An accounting of one fiscal year—FY2013, the most recent year with finalized "actual" data—provides a snapshot of how the account operates, and specifically how money is collected and spent (Figure 1). The program's permanent appropriation for FY2013 was $8.990 billion, representing 30% of prior calendar-year customs receipts.1

This figure was reduced by:

  • $7.697 billion, transferred to the Food and Nutrition Service (FNS) child nutrition program cash account, to help pay for federal child nutrition programs appropriated at $19.895 billion in FY2013.2 (The difference, $12.198 billion, was provided directly to the child nutrition programs through the annual, i.e., FY2013, USDA appropriation.)
  • $41 million, transferred to the FNS for the Fresh Fruit and Vegetable Program, plus another $133 million from previous-year funds.3
  • $131 million (the equivalent of 30% of customs revenue from fish product imports), transferred to the Commerce Department for fisheries activities.
  • $110 million, a rescission mandated by Congress for budgetary savings.
  • $40 million, a sequestered amount mandated by Congress for budgetary savings.
Figure 1. Uses of Section 32 Funding in FY2013 Source: CRS, using FY2013 data from USDA, Agricultural Market Service, Budget Explanatory Notes for Committee on Appropriations, FY2015, http://www.obpa.usda.gov/21ams2015notes.pdf.

This left $838 million, to which was added $219 million in unobligated FY2012 money that was carried into FY2013. A further upward adjustment was made to account for recoveries of $4 million and an additional $20 million that was committed earlier but not spent (called "offsetting collections"), bringing the amount available for obligation to $1.081 billion. From this:

  • $465 million was designated for planned AMS commodity purchases to fulfill the commodity assistance entitlement set by the National School Lunch Act (23.25 cents per meal in the 2014 school year beginning July 1, 2013).
  • $53 million was used to purchase specialty crop commodities for child nutrition programs as mandated by the 2008 farm bill (and reauthorized by the 2014 farm bill).
  • $200 million was used for contingency fund "emergency removals" of surplus commodities (primarily turkey, fruits and vegetables, and chicken products), and provided as a "bonus" to schools (over and above their "entitled" amounts) and to other designated domestic food assistance programs.
  • $0.1 million was used for the removal of defective commodities.
  • $4 million went for disaster relief foods.
  • $45 million was used for AMS administrative expenses for direct food purchasing ($27.6 million) and oversight of federal marketing orders ($17.9 million).

Subtracting the above spending (equal to $767 million) left AMS with a "carryout," or unobligated balance, of $314 million at the end of the year. This amount was less than the $500 million Section 32 law permits to be carried into the subsequent fiscal year.

Uses of Section 32 Funds

The National School Lunch Program and other domestic food assistance programs are the primary beneficiaries of Section 32 funds.4 The programs receive assistance from Section 32 in two ways.

First, much of the Section 32 permanent appropriation simply is transferred into USDA's Food and Nutrition Service (FNS) child nutrition account (approximately $7.7 billion in FY2013) to help meet the entitlement spending requirements of the National School Lunch Act (42 U.S.C. 1715 et seq.) and the Child Nutrition Act of 1966 (42 U.S.C. 1771 et seq.). This transfer is supplemented by a separate mandatory appropriation provided through the annual USDA appropriation law. The commingled funds are then used to provide cash and commodity subsidies to schools and other eligible program sponsors for meals served to children. The yearly determinations of how much to directly appropriate and how much to transfer from Section 32 generally have been made by appropriators based on Administration recommendations, but beginning in 2009 the amount transferred has been affected by provisions set out in the 2008 farm bill (P.L. 110-246) that permanently capped funds available for other spending after mandatory transfers.

Second, a smaller—but still significant—amount of Section 32 money is used to purchase commodities directly and then provide them to schools and to other domestic food assistance programs. These purchases are intended to fulfill two requirements (under other federal laws): (1) provide commodities to the National School Lunch Program and other domestic food assistance programs; and (2) support farm prices (by buying and diverting additional "bonus" commodities to these food programs). In addition, the Secretary has chosen to provide food commodities to victims of natural disasters, among other activities.

Historically, USDA has had considerable discretionary authority to spend Section 32 funds to help the farm sector via commodity purchases, direct payments, and other activities. Over time, though, Congress has reduced USDA's discretionary authority, in authorizing legislation and through appropriations. Most significantly, the 2008 farm bill capped the amount USDA is permitted to spend after transfers for use in the child nutrition programs and to Commerce for fisheries activities.5 It also required minimum levels of fruit, vegetable, and nut purchases to support domestic nutrition programs and required USDA to use Section 32 to fund the Fresh Fruit and Vegetable Program for participating elementary schools. Finally, congressional appropriators have prohibited the use of Section 32 for emergency disaster payments to farmers in each annual appropriation act since FY2012.

Commodity Purchases

Federal commodity purchases began shortly after passage of the 1935 law and continue today. Early in the program, USDA began donating its Section 32 purchases to low-income families and schools, on the premise that the donations would supplement, not displace, normal food purchases by these recipients.

In general, Section 32 pays for direct federal purchases of commodities such as meats, poultry, fruits, vegetables, and seafood that are not covered by mandatory farm programs through USDA's Commodity Credit Corporation (CCC).6 Unlike CCC support, which is normally limited to price-supported commodities (such as milk, grains and oilseeds, cotton, sugar), Section 32 is not constrained in the types of commodities that may be assisted, the levels of support, or how they may be supported (except within the three broad purposes described in statute). Such decisions are left to the Secretary of Agriculture, acting through USDA's Agricultural Marketing Service (AMS). However, in an effort to boost specialty crop purchases and limit USDA's discretion, the 2008 farm bill (P.L. 110-246) requires annual specialty crop purchases of at least $406 million under Section 32 (including $200 million required by the 2002 farm bill). For FY2013, specialty crops purchases under Section 32 were $417 million.

Section 32 commodity purchases are categorized as either "entitlement" or "contingency" (also known as "bonus commodities") and are made for FNS through USDA's Agricultural Marketing Service (AMS) using "post-transfer" funds.

Entitlement Purchases. In planning the mandated, or entitlement, commodity purchases, USDA agencies consult with commodity organizations and devise, by early spring, a tentative purchase plan for the next school year (purchases may begin in May). The plan is based on prior year purchases, likely school needs, expectations of available funds, and any anticipated surplus or other market conditions in the coming year, among other things. AMS issues the bid specifications for purchasing the products, generally in processed form, for delivery to state drop-off points. USDA's Farm Service Agency (FSA) administers the purchase contracts and pays the vendors. For FY2013 under Section 32, AMS purchased $518 million in agricultural commodities (including farm bill specialty crop purchases), primarily to fulfill a mandate in child nutrition law. Sections 6 and 14 of the Richard B. Russell National School Lunch Act (42 U.S.C. 1755 and 42 U.S.C. 1762a) "entitle" schools and other child nutrition program sponsors to commodities worth specific dollar amounts.

Contingency Fund Purchases of "Bonus Commodities." Over the course of the year, USDA taps the contingency reserve for so-called emergency surplus removals, which are then distributed as "bonuses" to domestic food assistance programs. For example, USDA announced on September 2, 2014, plans to purchase Concord grape juice for surplus removal.7 The premise is that removing products from normal marketing channels helps to limit supply and thereby increase prices. USDA may learn about these needs through its own commodity experts or be informed of surpluses or other economic problems by farm and industry organizations. Besides schools and child care centers, recipients include soup kitchens, food banks, and others serving the needy. The annual total of contingency purchases—and thus the foods provided to these outlets—has varied from a low of $54 million in FY2008 to a high of $320 million in FY2009 (Table 1). In FY2013, bonus purchases, including turkey and chicken products, totaled $200 million (Table 2). Table 1. Total Annual Contingency Purchases, FY1996-FY2013

($ millions)

1996

$56.2

2002

$206.9

2008

$53.6

1997

$100.9

2003

$222.1

2009

$319.5

1998

$194.8

2004

$226.5

2010

$300.9

1999

$144.5

2005

$149.5

2011

$60.4

2000

$200.2

2006

$81

2012

$171.7

2001

$200.2

2007

$56.9

2013

$200.0

Source: USDA, Agricultural Marketing Service.

Table 2. Contingency Purchases, FY2013, by Commodity

($ millions)

Commodity

Amount

 

Commodity

Amount

Turkey

$65.0

 

Cranberries

$5.0

Chicken products

$50.0

 

Lamb products

$5.0

Potatoes

$25.0

 

Grapefruit juice

$3.8

Blueberries, wild

$15.7

 

Tomatoes

$3.6

Blueberries, cultivated

$15.0

 

Strawberries

$2.0

Catfish products

$9.9

 

Total

$200

Source: USDA, Agricultural Marketing Service.

Farm Disaster Payments (Currently Prohibited)

Historically, USDA also has had broad discretionary authority to spend Section 32 money on direct farm assistance. This type of assistance includes payments to producers to divert production from commercial markets, usually to counter low prices. Such payments may be in exchange for destruction of a crop, or for diversion to livestock feed and/or to use as commodities for domestic feeding programs. Diversion payments were last made in FY2001 for potatoes.

Other direct payments also have been made to agricultural producers for either economic or disaster-related reasons; usually, these payments are transferred to USDA's Farm Service Agency (FSA) for disbursement. In FY1999, for example, Section 32 funded a total of $178.3 million in direct payments to smaller-sized hog producers, as part of a broader USDA effort to assist the industry during a time of historically low prices. Similar assistance continued in the 2000s as the Administration used Section 32 to pay for special disaster initiatives, including livestock drought losses in 2001-2003 and fruit trees and other specialty crop losses in 2005 caused by hurricanes.

Some producer groups and domestic food program interests had contended at the time that diverting money to these payments threatened the availability of funds needed to make bonus purchases throughout the year for fruit, vegetable, poultry, pork, and other commodity groups suffering surpluses and/or low prices. These ad hoc disaster programs led to calls for and the eventual passage of disaster programs with dedicated funding. The 2008 farm bill authorized and funded agricultural disaster programs (for both crops and livestock) for four years. The 2014 farm bill permanently funded livestock and tree fruit disaster programs.

The development of permanent farm disaster programs and enhancements to the federal crop insurance program have reduced the pressure for funding ad hoc disaster programs through Section 32. In fact, USDA is currently prohibited from distributing emergency payments to farmers under "Section 32" authority (as well as with Commodity Credit Corporation (CCC) funds). In annual appropriations acts since FY2012 (most recently, Section 719 of FY2014 Agriculture appropriations, P.L. 113-76), Congress has prohibited the use of appropriated funds to pay for salaries and expenses needed to operate a farm disaster program under either of these two funding sources. For more information on disasters programs, see CRS Report RS21212, Agricultural Disaster Assistance.

Removal of Defective Commodities

To assist domestic food assistance programs, AMS budgets several million dollars annually from Section 32 funds for the removal of defective commodities, but rarely spends the full amount. The money is intended to be available in case AMS must respond quickly to remove a commodity obtained by USDA for any domestic food program that is later found to pose a health risk. For example, $50 million was spent in FY2008 for removal of defective ground beef.

Donation of Disaster Relief Foods

In many years, a portion is used to provide food commodities to victims of hurricanes and natural disasters. Section 32 funds are available each fiscal year as needed under authority of the Stafford Act. In FY2013, funded activities totaled $4 million for assistance related to Hurricane Sandy, severe weather and tornadoes in Oklahoma, and drought in the Republic of the Marshall Islands. Congress itself periodically designates other uses. For example, it provided an additional $75 million for Section 32 in a 1983 jobs law (P.L. 98-8), to purchase and distribute foods to needy families in high unemployment areas.

Administrative Expenses

A portion of Section 32 funds are used to cover two types of AMS administrative expenses. The first is the cost of food-buying operations and coordination with FNS and FSA ($27 million in FY2013). The second is for administration and oversight at the national level of federal marketing orders and agreements for milk, fruits, vegetables, and tree nuts under the Agricultural Marketing Agreement Act of 1937 (7 U.S.C. §601 et seq.), which totaled $18 million in FY2013. Program activities and administration at the local level are financed through handler assessments.

Budgetary Savings

In recent years, USDA's enacted appropriations have limited the availability of Section 32 funds and provided budgetary savings. Rescissions were $110 million in FY2013 and $140 million in FY2012. An additional amount of $40 million was sequestered in FY2013. Any remaining Section 32 funds at the end of a fiscal year may be carried over and spent the next fiscal year—up to a prescribed maximum. Section 10602 of the 2002 farm bill increased the maximum carryover to $500 million.

Author Contact Information

[author name scrubbed], Coordinator, Specialist in Agricultural Policy ([email address scrubbed], [phone number scrubbed])

Acknowledgments

This report had been written by Dennis Shields, who left CRS in August 2015. Parts of this report were written originally by former CRS specialist [author name scrubbed].

Footnotes

1.

Data for FY2013 are from USDA, Agricultural Market Service, Budget Explanatory Notes for Committee on Appropriations, FY2015, http://www.obpa.usda.gov/21ams2015notes.pdf.
2.

USDA, Food and Nutrition Service, Budget Explanatory Notes for Committee on Appropriations, FY2015, p. 32-7, http://www.obpa.usda.gov/32fns2015notes.pdf.
3.

The result of a scorekeeping adjustment in an appropriations act that delayed the availability of funds until the beginning of the fiscal year (October 1) rather than the school year (July 1) as authorized. As indicated on p. 19-64 of USDA, Agricultural Market Service, Budget Explanatory Notes for Committee on Appropriations, FY2014, the USDA appropriations act for FY2012, P.L. 112-55, General Provision Section 726, directs the transfer on October 1, 2012, of 2012 funds made available under subsection (c) of Section 14222 of P.L. 110-246 to carry out section 19(i)(1)(c) of the Richard B. Russell National School Lunch Act.
4.

For an overview of the domestic food assistance programs, see CRS Report R42353, Domestic Food Assistance: Summary of Programs, by [author name scrubbed] and [author name scrubbed]. For more details on the child nutrition programs (the primary beneficiary of Section 32 funds), see CRS Report R43783, School Meals Programs and Other USDA Child Nutrition Programs: A Primer, by [author name scrubbed].
5.

Section 14222 of P.L. 110-246 specifies a maximum of $1.248 billion in FY2013, $1.266 billion in FY2014, $1.284 billion in FY2015, $1.303 in FY2016, $1.322 billion in FY2017; subsequent amounts are adjusted for inflation.

6.

Purchases for FNS domestic food programs are also made under CCC authority by USDA's Farm Service Agency. These include nonperishable commodities such as grain products, peanut products, dairy products (e.g., evaporated milk), and oils. U.S. Government Accountability Office, Observations on U.S. Department of Agriculture's Food Assistance Procurement Process, GAO-13-395R, February 5, 2013, http://www.gao.gov/assets/660/652819.pdf. A separate Dairy Product Donation Program is authorized by section 1431 of the 2014 farm bill (P.L. 113-79) for the purchase (and distribution) of dairy products to dairy farmers when the milk margin (farm milk price minus feed cost) is low.

7.

USDA Agricultural Marketing Service, "USDA Concord Grape Juice Purchase Program Announced," purchase announcement, September 2, 2014, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5108874.