Order Code IB10043
CRS Issue Brief for Congress
Received through the CRS Web
Farm Economic Relief:
Issues and Options for Congress
Updated June 6, 2000
Jasper Womach and Geoffrey S. Becker
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Overview
Economic Situation
Previous Farm Relief Legislation
Policy Setting
Budgetary Considerations
Trade Considerations
Freedom to Farm and the “Farm Safety Net”
Administration Views
Recent Congressional Developments
Supplemental Farm Aid in the Crop Insurance Reform Law
Crop Insurance Provisions in the Reform Law
Supplemental Funds in Pending Appropriations Bills
Other Long Term Options

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Farm Economic Relief:
Issues and Options for Congress
SUMMARY
In 1997, after nearly 2 years of growth to
money from the aid packages, direct farm
record or near record heights, farm prices and
payments reached $22.7 billion in calendar
incomes began to fall in many sectors and
1999 — the highest ever — helping to offset
regions. These declines are attributed to
losses due to low commodity prices. Another
economic stress and weaker demand overseas,
measure of public support to the farm sector is
high worldwide production and large com-
spending by USDA’s Commodity Credit
modity inventories (although USDA’s farm
Corporation (CCC), which finances price and
economic indicators suggest that the export
income support programs. Analysts now
situation is starting to improve and that a
expect that CCC outlays for FY2000 will
general “farm crisis” has not occurred).
exceed $30 billion, eclipsing the previous
record of nearly $26 billion set in FY1986.
In response to low prices, natural disas-

ters, and other farm-related problems, Con-
Not all producers have received federal
gress has, over 3 successive years, provided a
farm subsidies. Indeed, critics charge that
total of about $23 billion in supplemental
farm income support policy as implemented by
aid–in addition to funds already programmed
the 1996 farm bill and supplemented by recent
through the 1996 farm bill (P.L. 104-127).
emergency assistance does not necessarily
The most recent aid was attached to a crop
reach farms in need, while those not in need
insurance reform bill (H.R. 2559) cleared by
may receive such assistance.
Congress on May 25, 2000, which the Presi-
dent is expected to sign. It includes $7.14
The Administration proposed changes in
billion for additional farm income and related
current farm commodity programs with the
assistance, of which $5.5 billion is to be spent
release of its FY2001 budget proposal. The
in FY2000.
centerpiece of these recommendations is the
Supplemental Income Assistance Program
Earlier, the 105th Congress included
(SIAP) budgeted at $2.464 billion in FY2001.
nearly $6 billion in additional emergency farm
The plan so far has not attracted wide support
aid in the omnibus FY1999 appropriations law
in Congress. Meanwhile, the House Agricul-
(P.L. 105-277). The 106th Congress provided
ture Committee in May completed field hear-
more assistance. The FY1999 supplemental
ings on farm programs and policies, raising at
appropriation (P.L. 106-31) included $574
least the possibility of changes in the 1996 bill
million in farm assistance. Another supple-
prior to its expiration in 2002.
mental aid package for farmers, totaling about
$8.7 billion, was incorporated into the FY2000
Farm risk management changes have
USDA appropriations bill (P.L. 106-78, Title
progressed with final adoption of crop insur-
VIII, October 22, 1999). An additional $576
ance legislation (H.R. 2559). Besides the
million in farm relief funds, largely for Hurri-
$7.14 billion in supplemental farm payments
cane Floyd victims, was included in H.R. 3425
attached to the bill, it also provides $8.2 billion
and incorporated into the Consolidated Appro-
in new federal crop insurance spending over 5
priations Act for FY2000 (P.L. 106-113,
years by, among other things, offering higher
November 29, 1999).
premium subsidies to attract more farmers to
the program.
Counting 1996 programmed funding plus

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MOST RECENT DEVELOPMENTS
On May 25, 2000, the House and Senate cleared for the President’s expected signature
crop insurance reform legislation (H.R.. 2559). The bill contains an amendment, adopted
by conferees, to provide $7.14 billion in supplemental farm income and related agricultural
assistance, of which $5.5 billion is to be used in FY2000 and $1.64 billion for FY2001
spending. This follows the $9.3 billion in emergency and disaster assistance already
provided in two earlier FY2000 appropriations bills
.
The crop insurance bill also provides $8.2 billion in new crop insurance spending over
5 years by, among other things, offering higher premium subsidies to attract more farmers
to the program, and improving coverage for producers with multi-year losses.

Meanwhile, regular FY20001 USDA appropriations bills (H.R. 4461; S. 2536) cleared
both the House and Senate Appropriations Committees the week of May 8, and are awaiting
floor action. Additional supplemental farm aid could be added to the measure prior to final
passage; for example, the Senate version contains a total of nearly more than $900 million
for dairy and livestock producers.

BACKGROUND AND ANALYSIS
Overview
In 1997, after nearly 2 years of continuing growth to record or near record heights, farm
prices and incomes began to fall in many sectors and regions. These declines are attributed
to economic stress and weaker demand overseas, high worldwide production and large
commodity inventories. According to the U.S. Department of Agriculture (USDA), low
prices will persist well into the year 2000. On the other hand, cattle and hog prices are
expected to be higher than a year ago, and several farm economic indicators suggest that an
overall farm “crisis has not materialized,” USDA stated recently.
The last omnibus farm bill, the Federal Agriculture Improvement and Reform (FAIR)
Act of 1996 (P.L. 104-127), prescribed farm commodity support policy through 2002. The
key farm income support feature was Agricultural Market Transition Act (AMTA) payments
(also called “contract payments” and “freedom to farm” payments), which total about $36
billion over 7 years). The fixed annual AMTA payments gradually decline each year. As
prescribed by law, about $5.5 billion in payments were made in FY1999, and $5.1 billion are
programmed for FY2000. (See CRS Report RS20271, Support Programs for Major Crops:
Description and Experience.
)
Low grain prices coupled with natural disasters in some major growing regions (which
cut many farmers’ income) prompted the 105th Congress to include nearly $6 billion in
additional “emergency” farm assistance in the omnibus FY1999 appropriations law (P.L. 105-
277), over and above the levels authorized under the 1996 farm bill. The 106th Congress
passed another major supplemental package of $8.7 billion in emergency farm relief in the
FY2000 USDA appropriation act (P.L. 106-78, H.R. 1906; H. Rept. 106-354), enacted
October 22, 1999. Additional farm assistance, amounting to $576 million, was included in
the Consolidated Appropriation FY2000 (P.L. 106-113, November 29, 1999, see H.R. 3425).
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The $576 million were targeted primarily at eastern producers hurt by Hurricane Floyd and
by drought in 1999. (See also CRS Report RL30201, Appropriations for FY2000: U.S.
Department of Agriculture and Related Agencies
, and CRS Report RS20389, Emergency
Farm Assistance in the FY2000 Agriculture Appropriations Act (P.L. 106-78)
.)
Again in 2000, Congress is providing additional farm income support. Recognizing that
additional assistance likely would be forthcoming and avoiding the requirement for an
emergency designation, the congressional budget resolution (H.Con.Res. 290) reserved $7.14
billion expressly for additional income assistance for farmers. Of the total, $5.5 billion was
set aside for the current fiscal year (FY2000). Instead of providing this money through either
the annual USDA appropriation or a supplemental spending bill, House and Senate conferees
attached it to an authorizing bill, the crop insurance reform legislation (H.R. 2559), which was
cleared on May 25, 2000, for the President’s expected signature. Some additional assistance
also might come through the pending FY2001 USDA appropriations bill (S. 2536; H.R.
4461).

As with last year, there has been little debate over whether or not additional farm income
assistance is needed. The disagreements have revolved around the form of assistance and
who should get it. A closely related issue continues to be the adequacy and effectiveness of
the 1996 farm bill programs designed to support and stabilize producer incomes. By design,
AMTA accelerated a longer-term policy trend toward exposing U.S. farmers to the greater
opportunities, but also the higher risks, of the global marketplace.
The fact that large supplemental payments have been passed for 3 years in a row has
caused a close and critical examination of domestic support policy. From early 1998 through
May 2000 (i.e., counting the latest $7.14 billion), supplemental appropriations for agriculture
and related activities have reached a total of about $23 billion. That represents about 41%
of the total cost of the 1996 farm law when it was passed, which was about $56 billion
exclusive of nutrition programs. So, the debate about future farm policy, designed to begin
in 2002, already is underway. (See also CRS Report RL30501, Appropriations for FY2001:
U.S. Department of Agriculture and Related Agencies
.)
Economic Situation
Overall, depressed agricultural export values and low U.S. farm prices will help to hold
total crop and livestock receipts to a forecast $189.9 billion in 2000, continuing a decline
since the 1997 record high of $207.6 billion.
U.S. agriculture’s prosperity is heavily dependent on exports, which account for about
20% of the value of U.S. farm production, and for an estimated 30% of all harvested crop
acreage. However, export value is down, from the record of $60 billion in FY1996, to a
projected $50 billion in FY2000. Much of the decline can be explained by financial crises in
key overseas markets, particularly Asia (which had been the fastest growing market for U.S.
farm goods), and in Russia (where U.S. imports declined by about 80% between 1997 and
1998). The high value of the U.S. dollar relative to other exporting countries’ currencies adds
to the competitive difficulties.
On the other hand, USDA data show that 1999 net farm income was up from 1998, due
substantially to federal assistance. Also, U.S. agriculture’s overall farm business balance sheet
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looks strong. According to USDA, the value of farm real estate and other farm assets has
continued to rise, while debt stabilized in 1999. Farm debt, measured as a percentage of farm
assets (the so-called debt-to-asset ratio), is forecast by USDA to be 16.1% in 2000, generally
regarded by credit experts as a favorable level. Total income for the average farm operator
household (taking into account off-farm as well as on-farm sources) rose from $52,562 in
1997, to $59,734 in 1998, to $60,912 in 1999, and a forecast $59,350 in 2000, according to
USDA. However, on average, off-farm income now constitutes as much as 90% of all
household income received by farm operators.
According to USDA, calendar 1999 direct federal farm payments amounting to $22.7
billion — which exceeded the previous record level of $16.7 billion in 1987 — more than
offset income losses due to low commodity prices. Another measure of public support to the
farm sector is spending by USDA’s Commodity Credit Corporation (CCC), which finances
price and income support programs. Analysts now expect that CCC outlays for FY2000 will
exceed $30 billion, eclipsing the previous record of nearly $26 billion set in FY1986.
Still, these aggregate figures can mask the financial difficulties faced by many producers,
particularly in certain commodity categories and regions of the country. Cash receipts for
fruits, vegetables, nursery/greenhouse products, and most livestock products will rise in 2000,
according to USDA forecasts. But receipts for many major cash grain, other field crops, and
some livestock will drop, as will government direct payments in the absence of new
legislation. That will result in a decline in 2000 net cash income of $9.4 billion, a 16% drop.
(However, this figure does not count the payments expected to be made from the most recent
$7.1 billion supplemental). Also, not all farm operators receive federal subsidies nor are they
necessarily targeted, under current law, to those most in need. (See the most recent monthly
issue of Agricultural Outlook, published by USDA’s Economic Research Service, for more
detailed data on farm economic conditions.)
Previous Farm Relief Legislation
As farm income in some sectors and regions was declining (albeit from generally record
highs in 1996), Congress began to debate the adequacy and design of farm assistance under
the 1996 farm bill. During the summer of 1998, for example, Democrat farm state Senators
attempted several times to win increases in the loan rates for major commodities. Although
these were not adopted, Congress did pass the Emergency Farm Financial Relief Act (P.L.
105-228, signed August 12, 1998), which allowed AMTA contract holders to receive all of
their FY1999 payments ahead of schedule, in October 1998. That Act essentially “borrowed”
against future payments but provided no new money.
Subsequent passage of the FY1999 Omnibus Consolidated and Emergency
Appropriations Act (P.L. 105-277, signed October 21, 1998) contained $5.9 billion in new
emergency spending for USDA programs, most of it to shore up farm income and to
indemnify producers for natural disasters. Nearly $2.9 billion was direct “market loss
payments” (dispersed in late 1998) to compensate grain and cotton producers enrolled in
AMTA for “regional economic dislocation, unilateral trade sanctions and the failure of the
government to pursue trade opportunities aggressively.” Another $200 million was made
available to dairy farmers for the same purposes; USDA released the dairy funds in 1999 after
milk prices declined from 1998's record highs. Another nearly $2.4 billion in the Act was for
direct payments to crop farmers who experienced 1998 disaster-related losses higher than
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35% of normal yields or who had losses in 3 of the past 5 years. The money was disbursed
in spring 1999. Most of the rest of the $5.9 billion was designated for livestock disaster
assistance ($200 million), commodity loans for honey and mohair ($28 million), and additional
funding for farm operating loans ($31 million to support new lending of $540 million), among
other things.
More assistance was provided for calendar 1999 through the FY1999 Supplemental
Appropriations Act (P.L. 106-31, signed May 21, 1999). Although primarily for Kosovo
military operations and for Central American and Midwestern storm victims, the measure also
included $574 million in new funding for USDA farm programs, including $106 million to
support $1.1 billion in farm loans; $145 million for Section 32 assistance for hog producers;
$74 million for livestock disaster assistance; $43 million in USDA salary and expense money
to expedite delivery of disaster aid; and $120 million for conservation programs to restore
farmland and watersheds damaged by natural disasters.
An $8.7 billion emergency farm assistance package was included as Title VIII in the
FY2000 agriculture appropriations act (P.L. 106-78, H.R. 1906, H. Rept. 106-354), signed
into law October 22, 1999. It is estimated that about $6 billion of the $8.7 billion reached
farmers during calendar 1999, with the remainder going out this year.
Table 1. Farm Relief Provisions in Title VIII of USDA FY2000
Appropriations Act (P.L. 106-78)
Provision
Millions
Crop disaster loss payments: coverage for 1999 losses [Sec. 801]
$1,200
Crop market loss assistance: 100% increase in 1999 AMTA payment [Sec. 802]
$5,544
Peanuts: direct payments equal to 5% of the loan rate for quota or additional peanuts
$42
produced in 1999 [Sec. 803(a)]
Sugar: 2-year suspension of assessments (0.2475-cent/lb. on raw cane sugar; 0.2654-
$42
cent/lb. on refined beet sugar) [Sec. 803(b)]
Tobacco: distributions to growers based on formulas in National Tobacco Grower
$328
Settlement Trust [Sec. 803(c)]
Soybeans/oilseeds: payments to 1999 AMTA crop producers [Sec. 804]
$475
Livestock: emphasis on feed losses through grants or other in-kind assistance [Sec. 805
$200
& 825]
Dairy relief: direct assistance as determined by Secretary [Sec. 805 & 825]
$125
Cotton: replenish “Step 2" funding, which provides incentives for U.S. exporters and
$201
processors to buy U.S. cotton when U.S. prices are above world prices [Sec. 806]
Dairy price support: one-year extension of expiring price support program; (also, delay
($102)
of recourse loans results in FY2000 savings) [Sec. 807]
Advance AMTA payments: permits payment of full annual contract payment on Oct. 1
$0
each year rather than in two separate installments [Sec. 811]
Commodity certificates: permits farmers to receive loan deficiency payments as
$0
certificates in lieu of cash. Certificates can be redeemed for USDA commodities or, at
USDA’s discretion, cash; certificates are not subject to payment limits [Sec. 812]
Payment caps: doubles per-person cap on gains from 1999 crop marketing loans and
$0
loan deficiency payments to $150,000 per farm; $300,000 for up to three farms [Sec.
813]
Crop insurance: assist producers to buy more 2000 crop coverage, plus [Sec. 814]
$651
TOTAL:
$8,706
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Source: Congressional Budget Office (CBO) estimates.
In addition to the provisions shown in Table 1, the package includes “sense of Congress”
language calling on the Administration to: request “fast track” trade negotiating authority
from Congress; to use World Trade Organization (WTO) negotiations to reduce barriers to
agricultural trade; to conduct a comprehensive evaluation of current U.S. export and food aid
programs; and to use existing authority under these programs to promote the export of
additional quantities of soybeans, beef, pork, and poultry products. Also in the bill are
provisions: mandating that meat packers report, several times per day, the prices they pay for
live animals (for background see CRS Report RS20079, Livestock Price Reporting Issues);
changing operating and funding procedures for the National Sheep Industry Improvement
Center; and, authorizing USDA’s Farm Service Agency to reserve up to $56 million of the
emergency aid money for administration.
Damage from Hurricane Floyd prompted additional emergency assistance for farmers
and rural communities in the southeast. The FY2000 Consolidated Appropriations Act (P.L.
106-113), enacted on November 29, 1999, included $576 million for USDA-administered
assistance (see table 2). (For more information on emergency assistance legislation, see CRS
Report RS20269, Emergency Funding for Agriculture: A Brief History of Congressional
Action, 1988-June 1999;
and CRS Report RS20416, Emergency Farm Assistance in FY2000
Appropriations Acts
.)
Table 2. Farm and Rural Assistance Provisions in the Consolidated
Appropriations Act for FY2000 (P.L. 106-113)
Provision
Millions
Crop disaster assistance: payment to farmers for crop disaster losses
$186
Noninsured crop assistance: waiver of area loss requirement for individual farmer
$20
eligibility for Non-Insured Assistance Payments
Tobacco: farm assistance for flood losses of unsold tobacco on auction floors
$2.8
Citrus canker: replacement of canker infested citrus trees in Florida
$16
Livestock: assistance for lost feed and livestock
$10
Watershed and flood prevention: to repair damaged waterways
$80
Emergency soil conservation: to restore damaged cropland
$50
Farm loans: funds to support an additional $2.5 billion in USDA guaranteed and direct
$178.6
farm loans
Rural housing loans and grants: family and farm labor housing repairs and purchases
$25.6
Other assistance: Tillamook Railroad repairs, Oregon crop and forage losses, extension
$7.1
of pilot revenue insurance
TOTAL:
$576.1
Source: CBO estimates.
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Policy Setting
Weak markets and relatively low farm prices for many major commodities were expected
to persist in 2000. That prospect has led Congress and the President to consider more
assistance to the agricultural sector. (The 2000 election cycle, already well underway, has
added to the momentum.)
Most farm policymakers argue that the supplemental assistance, to help farmers cope
with recent price and disaster-related problems, is much needed. However, some critics take
issue with this assertion. It is argued that low prices, particularly for grains, encourage
foreign customers to purchase higher volumes of U.S. agricultural commodities. Also, lower
feed grain prices reduce costs for livestock producers as they await recovery of export
markets. Moreover, it is noted that lower prices ultimately correct the oversupply problem
by discouraging excess production — by overseas competitors as well as in this country.
Finally, opponents contend that U.S. taxpayers already are underwriting a substantial amount
of direct farm payments, which already were expected by USDA to total $17.2 billion in 2000
even without another farm relief package. (Such payments include AMTA, marketing loan
subsidies, disaster payments, and conservation assistance, among others.) Furthermore, there
is some criticism that higher farm spending leaves fewer dollars for other national priorities,
such as tax relief, debt reduction, or spending on social programs.
The emergency farm relief measures approved in 1998, 1999, and 2000 advanced the
time frame for payments to farmers and increased the size of payments by utilizing the farm
policy framework established by the 1996 farm bill. Using that framework–which primarily
benefits those who had land in the former grain and cotton programs–does not attempt to
target assistance to farmers most in need. On the other hand, those who prefer the approach
argue that it is the most efficient method for quickly channeling badly-needed funds to the
farm sector.
Still, some Members of Congress favor fundamental design changes to current support
programs to make assistance more counter cyclical to market prices and targeted to farms in
the greatest financial need. Also, among the many questions before policymakers are the
budgetary and trade impacts of additional assistance.
Budgetary Considerations
Congressional budget procedures generally prohibit any new federal spending without
either (1) cuts in other programs or revenue (e.g., tax) increases, to offset the spending
increase; or (2) an “emergency” spending designation by Congress and the President, which
they did in providing supplemental farm aid in 1998 and 1999.
The FY2001 budget resolution (H.Con.Res. 290), adopted by Congress on April 13,
2000, contains a reserve fund of $7.14 billion for additional farm income assistance, $5.5
billion of it to be used in FY2000, obviating the need for an emergency designation or offsets
this year. To claim this reserve, the House and Senate Agriculture Committees were required
to report legislation providing farm income assistance by June 29, 2000–which they did. The
resolution also permitted the spending of another $8.2 billion over 5 years for crop insurance
legislation; this is the bill to which the $7.14 billion was added (see below).
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Trade Considerations
U.S. trading partners are watching closely to assess whether the emergency farm
assistance is compatible with U.S. commitments under the Uruguay Round (UR) Agreement
on Agriculture. Generally, that agreement places countries’ domestic farm support programs
into one of several broad categories, based on their relative likelihood to distort trade. Most
major agricultural trading countries are required to “discipline,” (limit) total spending (i.e.,
their aggregate measure of support, or AMS) for their most trade-distorting (so-called “amber
box”) policies. Countries report to the World Trade Organization (WTO) on their domestic
farm spending for each year (although such reports are often submitted 2 to 3 years after the
end of the marketing year in question).
The United States, like virtually all other countries, has been below its allowable annual
levels. U.S. amber box programs have included dairy, peanut, and sugar price supports; crop
marketing loans, loan deficiency payments, and other direct crop payments linked to per-unit
levels of production; storage payments; and crop insurance and loan interest subsidies, among
others. The least trade-distorting programs, in the so-called “green box” category, are
exempt from AMS reductions. These programs include income supports not coupled to
current production, such as AMTA payments; conservation and environmental activities, such
as the Conservation Reserve Program (CRP); farm disaster relief payments; and domestic
food aid.
The UR agreement provides latitude to U.S. policymakers in developing both the
emergency farm measures and proposed changes in long-term farm policy. Many analysts
predict that this latitude will enable the United States to claim that its 1998, 1999, and 2000
supplemental farm payments are exempt from AMS commitments because they are not tied
to current production of a specified commodity. Nonetheless, some member nations of the
WTO could argue that the payments were made specifically in response to current price and
supply conditions and are so large as to affect world trading patterns, thereby undermining
the objectives of the agreement. The question could become a point of contention in the
ongoing negotiations among WTO member nations to further reform agricultural
trade–although the United States might counter that others (notably the EU) continue to
subsidize their farm sectors at much higher levels.
Freedom to Farm and the “Farm Safety Net”
Supporters of the policy changes made by the 1996 farm law saw benefits to farmers
because it released them from the planting and cropland set-aside requirements of earlier price
support and supply management policies. The new law’s transition (or contract) payments
to farmers were expected to help them while they grew accustomed to making their own
planting and selling decisions based on market supply and demand signals. Policymakers
recognized that farm prices would continue to fluctuate from year to year, as they always
have. However, there also was the expectation that farmers would use some portion of the
transition payments received during high price years as a cushion to help them during low
price periods. Additional risk protection was maintained by continuation of the marketing
assistance loan programs, revision of the crop insurance program, and adoption of pilot
revenue insurance projects, also authorized by the 1996 farm law.
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Opposition to the 1996 farm law — enacted during a period of high farm prices for most
commodities — came from those concerned about farmers if their financial situation
worsened at a time of gradually declining AMTA payments. These opponents had long
viewed the previous farm program as a counter cyclical safety net that would offset price
declines and stabilize farm incomes. Although almost all farmers and policymakers recognize
that the farm economy will always be subject to periods of weak demand and low prices, few
predicted that the recent price declines would be so steep, affect so many commodities, and
last so long.
While some accuse Freedom to Farm of not adequately protecting farmers from low
prices and incomes, few believe that the 1996 law was the cause of these problems. An
analysis by the Food and Agricultural Policy Research Institute (FAPRI) found that
continuation of farm programs in effect prior to 1996 likely would not have resulted in
significant changes to average net farm income over the entire 1996-2002 period (which the
1996 law covers). FAPRI also concluded that overall acreage and price levels would not
have been significantly different under continuation of the pre-1996 farm programs. A key
difference is that AMTA payments generally are spread, albeit at a declining level, over the
7 years, whereas payments under the former program, would have been low initially but
higher in the later years. (For details see FAPRI-UMC Report #10-99, Analysis of a
Continuation of the 1990 Farm Bill With 23% NFA
, June 1999.)
While some policy makers have argued that Washington should “stay the course” and
not change the basic, market oriented premise of the 1996 farm bill, they also have expressed
support for substantial ad hoc farm aid. Others are calling for more fundamental policy
changes, but few are seeking a return to past supply management and government inventory-
holding programs.
Administration Views
The Administration has been among those calling for changes in permanent farm policy.
Secretary Glickman presented the Administration’s proposed changes along with the FY2001
budget sent to Congress in February 2000. The Secretary criticizes the 1996 farm law for
failing to offer “counter-cyclical assistance” to offset low prices, and for not targeting
assistance to smaller farmers and producers most in need.
The “centerpiece” of the Administration’s proposals is a new Supplemental Income
Assistance Program (SIAP) that compensates farmers for current low prices based on actual
production, not on past production as with AMTA payments. It is similar in concept to the
“Supplemental Income Payment” program proposed by Representative Stenholm in H.R.
2792. SIAP would make payments to grain, cotton, and oilseed producers if projected gross
income for the crop falls below 92% of the preceding 5-year average. Gross income would
include gross market revenues plus government payments. Payments to individual farmers
would be based on current production. Annual SIAP payments would be capped at $30,000
per person. Furthermore, SIAP payments would be adjusted downward to zero as AMTA
payments reach and exceed $30,000. SIAP would only make up for the difference that
Agriculture Market Transition Act (AMTA) payments are below $30,000. Legislation also
is requested to extend the dairy price support program to 2002. Plus, the Secretary states his
intention to use his existing authority to preserve grain, cotton, and oilseed marketing
assistance loan rates in 2000 at their 1999 levels, as well as to implement a grain storage
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facility loan program for farmers. Together, these so-called farm income support proposals
would cost an estimated $3.264 billion in FY2001 and $2.695 billion in FY2002.
Recent Congressional Developments
So far, the Administration’s proposal has not gained much momentum in Congress. Nor
have other proposals for major changes in the 1996 farm law. However, federal farm policies,
including the 1996 law and possible alternatives to its basic structure, have been the subject
of extended debate. For example, on August 3, 4, and 5, 1999, Senate Agriculture
Committee Chairman Lugar held 3 days of comprehensive hearings on the farm income
situation. Secretary Glickman was the lead witness at these hearings. The House Agriculture
Committee conducted a lengthy series of farm policy hearings that began on September 14,
1999, and concluded on May 13, 2000. The Chairman of the House Committee has indicated
that no consensus on how to change farm policy emerged from these hearings. Meanwhile,
Congress has continued to make available significant levels of ad hoc aid to the agricultural
sector, as described in the following section. This section also describes a number of other
selected proposals for changing longer-term farm policy.
Supplemental Farm Aid in the Crop Insurance Reform Law
The most recent infusion of supplemental farm assistance, totaling $7.14 billion, was
provided not through appropriations legislation but rather through an amendment–added
during conference–to crop insurance reform, an authorizing bill (H.R. 2559) now awaiting
the President’s expected signature. The funds were made possible with passage of the
FY2001 budget resolution (see “Budgetary Considerations,” above). However, the details
of this supplemental farm spending were not reviewed by the full House and Senate, until they
reached the floor as part of the crop insurance conference report.
As is typical with such measures, some of the spending is earmarked for purposes other
than farm price and income supports, such as grants for research and for marketing assistance,
and conservation and nutrition programs. Other titles of the crop insurance bill also authorize
a new Biomass Research and Development Act (Title III) and enhance USDA’s authorities
to regulate plant health (Title IV), among other things.
Table 3 highlights the major supplemental spending provisions, which are contained in
Title II of H.R. 2559. Of the total in Table 3, most will be spent in FY2000, including the
nearly $5.5 billion in market loss payments to AMTA contract holders that are required to be
distributed in September 2000, plus $34 million in USDA commodity purchases for the school
lunch program. The balance of the $7.14 billion will be spent in later years, most of it in
FY2001, according to preliminary CBO estimates.
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Table 3. Selected Farm Relief Provisions in Agricultural Risk Protection Act
Provision
Millions
Market loss assistance (grains/cotton): increase payments to AMTA contract holders
$5,466
[Sec. 201(a)]
Soybeans/oilseeds: payments to producers of 2000 crops [Sec. 202]
$500
Fruits/vegetables: $71 million for the Perishable Agricultural Commodities Act reserve
$276
fund and for licensing costs and inspection services so that fees charged to industry
participants do not have to be increased; plus $200 million to purchase various fruits and
vegetables from producers experiencing low prices in 1998 and 1999; plus $5 million in
low interest loans for apple growers [Sec. 203(a-f)]
Peanuts: direct payments of $30.50/ton for quota and $16/ton for additional peanuts
$47
produced in 2000 [Sec. 204(a)]
Tobacco: payments via states to tobacco quota owners, lessees, & growers [Sec. 204(b)]
$340
Honey: recourse loans at 85% of recent market prices [Sec. 204(c)]
$7
Wool & mohair: payments for 1999 marketings at 20 cts./lb. for wool and 40 cts./lb. for
$10
mohair [Sec. 204(d)]
Cottonseed: 2000 crop year assistance (likely direct payments) to producers & first
$100
handlers [Sec. 204(e)]
Loan deficiency payments (LDP): wheat, oat and barley LDP benefits permitted if
$43
eligible acreage is grazed rather than harvested in 2000 and 2001; also, expansion of
LDPs to those growing grains and cotton but not on AMTA land [Secs. 205 & 206]
Conservation: $10 million for the Farmland Protection Program; $40 million in cost-
$50
share or incentive payments to farmers for water & other conservation activities [Sec.
211]
Research: funding for various earmarked projects, such as construction of a corn-based
$51
ethanol research pilot plant, and carbon cycle research [Subtitle C]
Marketing: competitive grants to producers for value-added marketing [Sec. 231]
$15
Plant & animal diseases: compensation for fruit and wine growers for certain disease
$43
losses ($25 million); a Texas boll weevil eradication loan ($5 million); and $13 million
for pseudorabies and for Michigan bovine TB control [Secs. 203(e), 251, 252]
Domestic nutrition programs: additional purchases of school lunch commodities and
$114
changes in other programs [Subtitle E]
Flood compensation: payments (capped at $40,000 per person) for 2000 losses due to
$24
floods on certain crop and pasture lands [Sec. 257]
TOTAL: (may include items not described above)
$7,135
Source: preliminary estimates by CBO and other congressional sources
Crop Insurance Provisions in the Reform Law
H.R. 2559 initially was passed as crop insurance “reform” legislation. Early in 1999,
many Members of the House and Senate Agriculture Committees indicated that improvements
in crop insurance would be a legislative priority. An important objective was to alter the
program to raise participation and eliminate the need for virtually annual ad hoc emergency
disaster assistance.
The bill cleared the House on September 29, 1999. A similar Senate bill (S. 2251) was
adopted March 23, 2000. Besides the farmer relief subsidies described above, the final
conference version contains provisions to: increase the premium subsidy for all levels of crop
insurance above the basic (catastrophic) coverage level; subsidize some of the additional cost
of revenue insurance products; improve coverage for farmers affected by disasters in multiple
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years; authorize pilot insurance programs for livestock producers; and ease eligibility
requirements for permanent disaster aid for noninsurable farmers. The conference version of
H.R. 2559, the Agricultural Risk Protection Act of 2000, was cleared for the President by the
House and Senate on May 25, 2000. (For details see CRS Issue Brief IB10033, Federal
Crop Insurance: Reform Issues in the 106th Congress
.)
Supplemental Funds in Pending Appropriations Bills
Final approval of the $7.14 billion farm relief measure does not preclude the possibility
that Congress might provide additional emergency assistance to the agricultural sector this
year, particularly if natural disasters severely affect crop production or if farm income
prospects worsen. Possible vehicles include various pending appropriations bills. The Senate
and House versions of the FY2001 USDA appropriation bill (S. 2536 and H.R. 4461) were
reported by their respective committees in May, and both were awaiting floor action as of
June 6, 2000. The Senate version already contains supplemental farm spending for FY2000
including approximately $443 million for dairy market loss payments, $450 million for disaster
feed assistance for livestock producers, and a one-year extension of the dairy price support
program now scheduled to expire at the end of calendar 2000. The House version, which also
extends the dairy program for one year, contains $100 million for 1999 market loss payments
for apple growers. Whether these provisions will be retained – or other supplemental
assistance added – as the bill advances remains to be seen.
Other possible vehicles include a House-passed FY2000 supplemental funding bill (H.R.
3908), not taken up by the Senate, that contains some agricultural disaster aid, and an end-of-
the-session omnibus appropriations bill for FY2001, if needed because Congress has not
passed all regular appropriations bills by adjournment.
Other Long Term Options
Crop Loan Program Changes. The 1996 farm bill continued marketing assistance
loans for major crops, which are designed to facilitate marketing by providing short-term
financing to farmers. When market prices fall below the commodity loan rates (now capped
at 1995 levels), repayment may be made at the lower market price, instead of the higher loan
rate. The marketing loan gain is an income subsidy to the farmer-borrower. Farmers eligible
for, but who forego, the loans can receive loan deficiency payments (LDPs), equal to the
marketing loan gains. (See CRS Report 98-744, Agricultural Marketing Assistance Loans
and Loan Deficiency Payments.
)
Several bills (S. 30, H.R. 1299, and H.R. 1468) would remove the caps imposed by the
1996 farm bill on loan rates for grains, cotton, and oilseeds. Also, S. 30 and H.R. 1299
would permit the Secretary of Agriculture to extend the term of a loan (now 9 months) for
an additional 6 months. H.R. 2704 (Minge), would restore the farmer-owned reserve (FOR)
for grain, which was suspended by the 1996 farm bill. The FOR effectively functions as a 3-
year extension of the marketing loan, during which time farmers might not accrue interest on
the loan, and also could receive storage payments under certain conditions.
Such loan proposals appeal to those who want more of a link between commodity prices
and government payments than is the case under Freedom to Farm. Eliminating the cap on
marketing loan rates was proposed but not adopted at the end of the 105th Congress, largely
because of the cost (then estimated at about $5 billion), its potential for reversing the
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decoupled design of farm policy and, in some views, possibly exacerbating the oversupply/low
price problem — i.e., longer loan periods can lead to the build-up of more surplus stocks,
further lengthening the duration of depressed prices.
Payment Limitation. The 1996 farm bill imposes a per person limit on marketing
loan/LDP gains at $75,000 per year. This counts against all crops, not each one. (A separate
limit of $40,000 is in place for AMTA payments.) Low prices (below established crop loan
rates) mean large marketing loan/LDP gains for more farmers, many of whom will reach their
annual payment limit for the 1998/99 and 1999/00 crop years. Moreover, some farmers
facing both the payment limit and low market prices might decide to forfeit a portion of their
crop to USDA in lieu of repaying the loan, thereby removing commodities from market “free
stocks” and putting them into government inventory.
The enacted farm relief provisions of Title VIII doubles the per-person limit on loan
gains to $150,000 per farm, for 1999 crop year loans only. H.R. 2743 would remove entirely
the caps for both the 1999 and 2000 crop years. Proponents contend that farm prices are so
low that even many medium-sized family farms will be reaching the payment limitations at the
time they most need assistance. Those who want to retain lower caps note that the
combination of marketing loan and AMTA payment caps already are effectively doubled by
the “three-entity rule,” which allows for the full limit on the first farm plus half on each of two
additional farming operations. This, they argue, is already a generous government subsidy
— particularly when it is available regardless of a farmer’s financial situation. In February
2000, the Secretary approved the sale of commodity certificates to farmers for their use to
repay marketing assistance. This effectively eliminates the per person payment limitation on
marketing loan gains.
Supplemental Income Payment Program. Representative Stenholm introduced, on
August 5, 1999, a bill (H.R. 2792) to establish a new system of supplemental income
payments for producers of crops eligible for marketing assistance loans — wheat, feed grains,
cotton, rice, and oilseeds. The payments would be made whenever the current year’s national
gross revenue for a crop falls below 95% of its previous 5-year average. A per-acre payment
rate would be calculated, based on the difference between 95% of that 5-year average and the
current year’s revenue per acre. This calculation would be used to set a per-unit payment for
each producer’s harvested production; in addition, the bill attempts to ensure that farms with
weather-reduced yields receive the same level of assistance as other participants.
Representative Stenholm unsuccessfully offered a version of his bill as an amendment to the
crop insurance legislation (H.R. 2259) marked up prior to the August 1999 recess by the
House Agriculture Committee. This proposal served as the conceptual framework for the
Secretary’s SIAP proposal.
Farm Income and Trade Equity Act. Senator Conrad on July 26, 1999, introduced
the Farm Income and Trade Equity Act (S. 1436), aimed at altering the basic long-term
provisions of the 1996 farm bill. This bill would permit farmers to forgo their AMTA
contract payments in exchange for a new, two-tiered system of subsidies. The first tier would
provide marketing loans for grains, cotton, and soybeans set at 100% of past market prices.
A second tier of “transitional international marketing equity” (TIME) payments would be
based on the USDA-calculated difference between the new loan rate and the level of support
received by European Union (EU) producers for the same crops. The payments would be
designed as a direct challenge to EU domestic farm subsidies, which in recent years have been
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three to five times higher than the those in the United States. The Senator in 1999 tentatively
estimated the annual cost of the plan at $7 billion more than the current program.
Risk Management. Crop insurance (see above) is one method farmers can use to
manage their financial risk. Other examples include participating in the federal farm income
and price support programs, utilizing the private futures market to cushion themselves against
lower future prices, and entering into production or marketing contracts with food processors
or other buyers of their commodities. Earlier in the crop insurance debate, Senate Agriculture
Chairman Lugar had promoted his bill (S. 1666) that would have made a direct payment to
any producer who adopts at least two of a variety of risk management strategies. However,
his committee opted instead to focus on crop insurance program improvements as contained
in S. 2251.
Another risk management approach is the so-called Farm, Fishing, and Ranch Risk
Management (FFARRM) account, as proposed by Senator Grassley, included in the tax bill
adopted by Congress on August 5, 1999, but subsequently vetoed by the President (H.R.
2488). (See also H.R. 957, Hulshof, and S. 642, Grassley, and refer below to “Regulatory
and Tax Provisions”).
Tax and Regulatory Proposals. The comprehensive tax relief bill H.R. 2488 (adopted
by Congress on August 5 but vetoed by the President on September 23) contained several
provisions of interest to farmers. Farm, Fishing, and Ranch Risk Management Accounts
(FFARRM), initially introduced in the 106th Congress as S. 642 (Grassley) and H.R. 957
(Hulshof), would have modified federal tax law by permitting farmers to set aside money in
higher income years without having to pay taxes on it until the money is withdrawn —
presumably in years when taxable income is lower. Also, in the tax bill was the acceleration
to 2000 of full deductibility of health insurance premiums (now set to take effect by 2003).
Farm organizations are supportive of H.R. 8, a pending measure to end estate taxes that, they
contend, make it difficult for farmers to pass their businesses to their children.
Producer interests such as the American Farm Bureau Federation also believe that long-
term improvements in farm income could be achieved if the federal government relaxed a
variety of regulatory requirements affecting producers’ costs. Overly stringent application
of the federal pesticide, endangered species, and water quality laws are often cited (although
supporters of these laws argue that changes proposed by agricultural groups would jeopardize
the health of consumers, natural resources, and the environment).
Competition Policy. Agricultural businesses, like other sectors of the economy, have
long been subject to organizational changes, including consolidation of processing and
production into fewer and larger operations; more vertical control of the various stages of
production, processing, and marketing; and the shift from open cash markets to closed
systems involving contractual arrangements between buyers and sellers. Many economists,
and many within the industry itself, believe that such changes effect more efficient resource
allocation, make U.S. agricultural exports more competitive on world markets, and benefit
consumers by providing a wider variety of lower-priced, and higher-quality foods.
However, many producers believe that these types of changes stifle competition, cause
lower farm prices and farm incomes, and force families out of agriculture. Concern about
structural change, and its potential to adversely affect many farmers, intensifies during
periods of low farm prices. Many farm groups have called on government to strengthen
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enforcement of existing antitrust and competitiveness authorities, and/or to adopt new laws
if necessary.
Both the House and Senate Agriculture Committees have held a number of hearings in
the 106th Congress on concentration and competition problems and policies, and several bills
have been introduced. For example, S. 2252 and S. 2411 both would provide USDA with
expanded authority to address business mergers in agriculture. S. 2252, along with H.R.
2829, would extend to poultry the same types of oversight USDA’s Grain Inspection, Packers
and Stockyards Administration now has over livestock markets. H.R. 3159 would impose
an 18-month moratorium on large agricultural mergers and acquisitions; S. 1738 and H.R.
3324 would ban the ownership of slaughter animals by meat packers. (See CRS Report
RS20562, Merger and Antitrust Issues in Agriculture.)
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