Order Code RS21999
Updated May 29, 2007
Farm Commodity Policy:
Programs and Issues for Congress
Jim Monke
Analyst in Agricultural Policy
Resources, Science, and Industry Division
Summary
Congress has begun writing a new farm bill that may change the farm commodity
programs. These farm income support and commodity price support provisions
represent the heart of U.S. agriculture policy. A new bill is necessary because the 2002
farm bill expires with the 2007 crop year and, without an update, an undesirable
reversion to permanent laws would occur. About 25 commodities representing a third
of gross farm sales currently qualify for support. Five crops (corn, wheat, cotton, rice,
and soybeans) account for over 85% of government commodity payments to farmers.
The Administration issued its own recommendations, and the House Agriculture
subcommittees have begun markup. Several key issues include eliminating planting
restrictions on fruits and vegetables, whether to continue direct payments, adoption of
revenue counter-cyclical payments, and tightening payment limits. The overall question
is whether to continue with the current system or reduce support in response to federal
spending constraints, economic conditions, legal challenges from international trade
agreements, and equity considerations. This report will be updated.
Since the 1930s, federal law has required the U.S. Department of Agriculture
(USDA) to offer price and income support to producers of certain farm commodities.
Authority comes from three permanent laws: the Agricultural Adjustment Act of 1938
(P.L. 75-430), the Agricultural Act of 1949 (P.L. 81-439), and the Commodity Credit
Corporation (CCC) Charter Act of 1948 (P.L. 80-806). Congress typically alters these
laws through multi-year omnibus farm bills or annual appropriations acts to address
current market conditions, federal budget constraints, or other policy concerns. Reverting
to permanent law is incompatible with current national economic objectives, global
trading rules, and federal budgetary policies; thus consensus builds at the end of one farm
bill to enact another.1
1 For more information about the history of federal farm income support programs, see CRS
Report 96-900, Farm Commodity Legislation: Chronology, 1933-2002.

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Like most farm bills, the 2002 farm bill (P.L. 107-171) temporarily suspended most
provisions of the permanent law for five to six years. Title I contains provisions for farm
income and commodity price support programs for the 2002-2007 crop years. Other titles
in the law affect conservation, trade, nutrition, credit, rural development, and research.2
Commodities Eligible for Support
This report summarizes the subsidies that are available for about 25 agricultural
commodities representing about one-third of gross farm sales. Five crops (corn, cotton,
wheat, rice, and soybeans) account for about 90% of government payments. The largest
64,000 farms (3.1% of the total) have sales over $500,000 and produce 45% of
production; they receive 27% of government payments. Table 1 lists the support prices
that Congress set by statute.
! The “covered commodities” are the primary crops eligible for support
and include wheat, corn, grain sorghum, barley, oats, upland cotton,
rice, soybeans, and other oilseeds (including sunflower seed,
rapeseed, canola, safflower, flaxseed, mustard seed, crambe, and
sesame seed). Peanuts are supported similarly. Farmers receive
constant “direct payments” that are tied to historical production, and
“counter-cyclical” and “marketing loan” payments that increase when
market prices are low. For background on the types of payments and
how they work, see CRS Report RL33271, Farm Commodity Programs:
Direct Payments, Counter-Cyclical Payments, and Marketing Loans.
! “Loan commodities” include all of the “covered commodities” plus
wool, mohair, honey, dry peas, lentils, and small chickpeas.

! Dairy prices are supported through federal purchases of nonfat dry milk,
butter, and cheese. In addition, producers also receive a counter-cyclical
“milk-income loss contract” (MILC) payment when prices fall below a
target price. See CRS Report RL33475, Dairy Policy Issues.
! Sugar support is indirect through import quotas and domestic marketing
allotments. No direct payments are made to growers and processors. See
CRS Report RL33541, Sugar Policy Issues.
Commodities Not Eligible for Support
The list of commodities that normally do not receive direct support includes meats,
poultry, fruits, vegetables, nuts, hay, and nursery products (about two-thirds of farm
sales). Producers of these commodities, however, may be affected by the support
programs because intervention in one farm sector can influence production and prices in
another. For example, program commodities such as corn are feed inputs for livestock.
Congress and the Administration often provide periodic assistance to some non-
program commodities. For example, the 2002 farm bill provided $94 million to apple
2 The scope of a farm bill is summarized in CRS Report RL33037, Previewing a 2007 Farm Bill.

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growers for 2000 market losses, and $200 million annually to purchase fruits, vegetables,
and specialty crops for food assistance (see CRS Report RS20235, Farm and Food
Support Under USDA’s Section 32 Program). Other food assistance programs such as
food stamps and school lunches also promote fruit and vegetable consumption.
Table 1. Support Prices for Commodities in the 2002 Farm Bill
Type of payment
Direct Payment
Counter-cyclical
Marketing Loan
Payment based on
Historical base acres and yield
Actual production
Loan rate
Price used in formula
Payment rate
Target price
(national average)
“Covered commodities”
Wheat, $/bu
0.52
3.92
2.75
Corn, $/bu
0.28
2.63
1.95
Sorghum, $/bu
0.35
2.57
1.95
Barley, $/bu
0.24
2.24
1.85
Oats, $/bu
0.024
1.44
1.33
Upland Cotton, $/lb
0.0667
0.724
0.52
Rice, $/cwt
2.35
10.50
6.50
Soybeans, $/bu
0.44
5.80
5.00
Minor Oilseeds, $/lb
0.008
0.101
0.093
Other commodities
Peanuts, $/ton
36
495
355
ELS cotton, $/lb
*
*
0.7977
Wool, graded, $/lb
*
*
1.00
Wool, nongraded, $/lb
*
*
0.40
Mohair $/lb
*
*
4.20
Honey, $/lb
*
*
0.60
Peas, dry, $/cwt
*
*
6.22
Lentils, $/cwt
*
*
11.72
Chickpeas, small, $/cwt
*
*
7.43
Milk, $/cwt
*
16.94
9.90
Sugar, raw cane, $/lb
*
*
0.18
Sugar, beet, $/lb
*
*
0.229
* not applicable.
Source: CRS, compiled from the Farm Security and Rural Investment Act of 2002 (P.L. 107-171), Title
I, Sections 1103, 1104, 1202, 1303, 1304, 1307, 1401, 1501, and 1502.
Policy Background
Historical Origins. When farm programs were first authorized in the 1930s, most
of the 6 million farms in the United States were small and diversified. Imports and exports
were small. Policymakers reasoned that stabilizing farm incomes with price supports and
supply controls would help a large part of the economy (25% of the population lived on
farms) and assure the capacity to produce abundant domestic food supplies.

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In recent decades, the face of farming has changed. The United States is now a
major exporter of farm commodities, yet we import many specialty or seasonal foods
based on consumer preferences. Farmers now comprise less than 2% of the population.
Most agricultural production is concentrated in fewer, larger, and more specialized
operations. About 7% of farms account for 76% of sales; these 150,000 farms had
average sales over $1 million, yet are often “family farms.” Most of the country’s 2
million farms are part-time, and operators rely on off-farm jobs for most of their income.
Although some features of the commodity programs date to the 1930s, the programs
have evolved to respond to changes in agriculture, the economy, the federal budget, and
international trade. Congress and the Administration have sought for decades to make
farming more market-oriented. However, periods of low prices and economic pressures
on smaller “family farms” from consolidation have made that goal difficult to achieve.
Issues in Congress
Since most provisions of the 2002 farm bill expire in 2007, the 110th Congress will
be making decisions about the content of a new farm bill. Congress and the USDA both
have held field hearings and listening sessions. The Administration released its farm bill
proposal in January 2007, and the House Agriculture subcommittees began markup in
May. For general information on the status of farm bill proposals, see CRS Report
RL33934, Farm Bill Proposals and Legislative Action in the 110th Congress.
A key question for the 110th Congress will be whether to follow the lines of the 2002
farm bill or adopt different approaches in response to federal spending constraints,
prevailing economic conditions, potential challenges to U.S. farm policies from
international trade agreements, and requests from groups not currently receiving support.
For more background, see CRS Report RL33037, Previewing a 2007 Farm Bill.

Budgetary Considerations. As with all areas of the federal budget, the farm bill
faces spending constraints imposed by Congress. The joint budget resolution for FY2008
(S.Con.Res. 21) allocates funding across the government, including setting limits for the
agriculture committees to write the farm bill. The budget resolution gives the agriculture
committees the March 2007 Congressional Budget Office (CBO) “baseline” amount, plus
a $20 billion deficit-neutral reserve fund. Staying within the budget resolution amounts
provides protection from certain legislative points of order.
The CBO “baseline” contains $35.3 billion over five years (FY2008-FY2012) in
expected outlays for the farm commodity programs. The baseline assumes that the current
farm bill continues under expected economic conditions, and is the point of comparison
for whether new proposals would cost more or less than current law. Many note that the
baseline is down nearly a third since the March 2006 baseline, largely due to rapid
increases in the futures market price of corn and other commodities. However, this
“smaller pie” does not reduce the ability to continue the current mandatory programs, nor
does it set an upper limit if price forecasts change and higher outlays are needed.
For the reserve fund to become available, offsets need to be found elsewhere in the
federal budget and allocated by the leadership in the House and Senate. The farm bill
reserve fund is one of over 20 deficit-neutral reserve funds in the budget.

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The FY2007 Iraq war supplemental appropriations bill (H.R. 2206) contains a one-
month extension of the MILC program. This effectively creates a $1.2 billion baseline
over five years for MILC, which had no baseline in the March 2007 baseline. This gives
the agriculture committees the funds needed to extend MILC, if desired, without offsets.
Administration Proposal. The Administration’s proposal for the 2007 farm bill
is unusually detailed. For the commodity programs, the major points of the
Administration’s plan would reduce marketing loan rates and link benefits to the sale of
the commodity (to reduce speculative gains), raise direct payments for some crops
(especially cotton), create a revenue-based counter-cyclical program, eliminate the fruit
and vegetable planting restriction, deny payments to households with over $200,000 in
adjusted gross income (AGI), and offer extra benefits for beginning farmers.
For all areas in the farm bill, the Administration requests $5 billion more than the
10-year baseline, with commodity programs receiving $4.5 billion less than the $74
billion 10-year baseline, and conservation $7.8 billion more than the $49 billion baseline.
CBO’s score of the plan is twice as high, at $9.9 billion above the 10-year baseline, with
commodities down $65 million and conservation up $4.9 billion. For more information,
see CRS Report RL33916, The USDA 2007 Farm Bill Proposal: Possible Questions.
WTO Trade Disputes. Price support in the United States has become a focus of
developing country criticism in trade negotiations. A World Trade Organization (WTO)
dispute settlement panel released findings in summer 2004 in a case brought by Brazil
against the United States cotton subsidies. The United States lost an appeal of the case
in March 2005, and has subsequently eliminated the upland cotton step-2 program. Other
findings affect programs that the United States had considered WTO-compliant,
particularly restrictions on planting flexibility. In January 2007, Canada raised a WTO
complaint against the U.S. corn program. See CRS Report RS22522, Potential
Challenges to U.S. Farm Subsidies in the WTO: A Brief Overview.
Planting Flexibility, Fruits and Vegetables, and the WTO. Owners of
cropland with a history of growing “program crops” receive federal subsidy payments
without regard to what crops are currently being produced on these base acres. While the
direct payments program is characterized as giving producers the flexibility to make
planting choices based on actual market conditions instead of subsidy rules, there are
prohibitions on planting fruits, vegetables, and wild rice on program crop base acres.
The purpose of the fruit and vegetable planting restriction is to protect growers of
unsubsidized fruits and vegetables from competing production on subsidized cropland.
As reasonable as this may appear, problems have arisen with the policy. First, producers
of processing vegetables (canned and frozen) in the Midwest sharply curtailed production
after soybeans became a program crop in the 2002 farm bill. Second, in a high-profile
case by Brazil against the U.S. cotton program, the World Trade Organization (WTO)
determined that the prohibition on planting fruits and vegetables was not consistent with
the rules required of a minimally distorting subsidy. This determination jeopardizes the
“green box” classification of the direct payments for all the program crops.
The Administration proposes that the 2007 farm bill eliminate the fruit and vegetable
planting restriction. Companion bills have been introduced in the House and Senate that
would allow any producer to use base acres to grow fruits and vegetables for canning and

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freezing as long as they give up program payments on those acres for one year, but
without additional penalties (“Farm Flex” — H.R. 1371, Baldwin, and S. 1188, Lugar).
The partial approach of farm flex likely would not satisfy WTO concerns. Other options
include the status quo, and eliminating the underlying direct payment. Most fresh fruit
and vegetable growers oppose eliminating the restriction without some type of
compensation. For more information, see CRS Report RL34019, Eliminating the
Planting Restrictions on Fruit and Vegetables in the Farm Commodity Programs.
More Equitable Distribution of Payments. Farm program critics and some in
the Administration point out that income and price support benefits are not equitably
shared across the sector. Subsidies are directed at a limited number of commodities and
are based largely on output, meaning that larger producers fare better than smaller ones.
They argue that these imbalances should be addressed. One option could be to further
tighten annual payment limits. Some have further suggested that payments be denied to
people with high income (i.e., means-tested). Defenders of the current policy counter that
payments are designed to support U.S. agricultural productivity and competitiveness,
regardless of farm size or household income.
Current payment limits set the maximum amount of farm program payments a person
can receive at $360,000 per year. In addition, an income test denies payments to
households with adjusted gross income (AGI) over $2.5 million. The Administration’s
farm bill proposal would deny payments to households with more than $200,000 AGI, but
preserve the $360,000 payment limit. A proposal by Senator Lugar and Representative
Kind also would tighten the AGI limit to $200,000. Tighter limits were part of the
Senate-passed 2002 farm bill, but were dropped in conference committee. Bills in the
108th and 109th Congress, including a Senate amendment during budget reconciliation,
would have tightened payment limits to a total of $250,000 from the current limit of
$360,000, but were not enacted. For more information, see CRS Report RS21493,
Payment Limits for Farm Commodity Programs: Issues and Proposals.
Counter-Cyclical Support. Historically, farm commodity programs have
focused on price, while crop insurance programs have focused on yield. Some reformers
recommend a revision of the counter-cyclical price support program into a revenue-based
program. Producers cite insufficient support during drought years when yields are low
and prices are high because they have little to sell and receive no counter-cyclical price
support. The National Corn Growers Association, among others, has proposed shifting
a portion of current farm subsidies to a revenue-based policy. The Administration also
proposes a revenue-based counter-cyclical program. Questions remain about whether to
tie payments to national or regional yield levels, the effectiveness of such a safety net in
areas where most of a commodity is grown versus outlying areas, and whether to include
costs of production in the revenue calculation.
Counter-cyclical and risk management support also have been proposed in the form
of “farmer saving accounts.” These risk management savings accounts would encourage
farmers to set aside income during good years that would be available for withdrawal
during lower-income years. Withdrawals could be used to cover shortfalls that are not
fully compensated by crop insurance or other types of counter-cyclical support. The
government could encourage savings by allowing tax deductions or making matching
contributions. H.R. 1882 (Everett) and S. 1422 (Lugar) would create such accounts.
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