The Federal Agriculture Improvement and Reform Act of 1996: An Overview

The Federal Agriculture Improvement and Reform Act of 1996: An Overview

Order Code 97-69 ENR
The Federal Agriculture Improvement
and Reform Act of 1996: An Overview
January 6, 1997
-name redacted-, Coordinator
Food and Agriculture Section
Environment and Natural Resources Policy Division

Contributing Authors
Environment and Natural Resources Policy Division
Geoffrey Becker
Ralph Chite
Jean Yavis Jones
(name redacted)
Jean Rawson
(name redacted)
(name redacted)
Jeffrey Zinn
Government Division
(name redacted)
Office of Senior Specialists
Charles Hanrahan

The Federal Agriculture Improvement
and Reform Act of 1996: An Overview
Summary
Faced with spring planting decisions and the prospect of having to operate farm
programs under outdated, permanent agricultural statutes because of expiring
provisions in the 1990 farm law, the House and Senate passed omnibus farm
legislation in the early months of 1996. Following quick resolution of the House-
Senate bill differences, the President signed H.R. 2854, the Federal Agriculture
Improvement and Reform Act, also called the 1996 farm bill, on April 4, 1966 (P.L.
104-127).
At the core of U.S. farm policy are federal programs that support farm income
and some commodity prices. The 1996 law makes substantial policy changes to
many of these programs. It replaces the earlier target price deficiency payment
system for grains and cotton with predetermined and capped annual contract
payments to participating producers through 2002. Payments are tied to overall crop
history, rather than to individual crops, and no longer are linked to market prices.
Earlier nonrecourse commodity loan and marketing loan repayment provisions are
largely maintained; however, the new law ends annual federal acreage reduction and
strict planting requirements.
With respect to the other federally supported farm commodities, the new law:
1) reauthorizes the dairy price support program, but phases it out by the end of 1999,
and requires a consolidation of federal milk marketing orders; and 2) extends the
sugar and peanut programs for 7 years, with some modifications, but keeps largely
intact their broad program structures.
The trade title of the new law extends through FY2002 authority for the Export
Enhancement Program (EEP) and Market Access Program (MAP, formerly the
Market Promotion Program, or MPP), the dairy export incentive program (DEIP),
export credit guarantees, and P.L. 480 food aid programs.
The conservation title of the new law builds on conservation initiatives enacted
in 1985 and 1990, and, in a major departure from previous policy, converts the
majority of conservation spending to entitlements by financing them with
Commodity Credit Corporation (CCC) funds.
The new law also authorizes a new structure for the delivery of rural
development assistance that increases states' discretion over the allocation of federal
rural development funds, and authorizes an annual transfer of $100 million from the
U.S. Treasury for 3 years to establish a Fund for Rural America. Extensions of
funding authority and revisions to agricultural research programs, credit, and crop
insurance are also in the new law.
The food title of the FAIR Act extends the food stamp program through FY1998
and the commodity donation programs through FY2002, and authorizes funding for
new community-based food security projects. Major cost-reducing changes to the
food stamp program, and authority for the program through FY2002, are contained
in the 1996 welfare bill (P.L. 104-193).

Contents
Background and Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Major Provisions of the 1996 FAIR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Title I--Agricultural Market Transition Act . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dairy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Sugar and Peanuts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Crop Insurance and Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . 8
Title II--Agricultural Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Title III--Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Title IV--Nutrition Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Title V--Agricultural Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Title VI--Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Title VII--Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Title VIII--Research, Extension, and Education . . . . . . . . . . . . . . . . . . . . . 15
Title IX--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The Federal Agriculture Improvement
and Reform Act of 1996: An Overview
Background and Legislative History
Congress traditionally modifies and renews many U.S. Department of
Agriculture (USDA) programs through omnibus legislation called a "farm bill."
Federal programs that support many farmers' income and certain commodity prices
have traditionally been the core of omnibus farm bills.1 Additionally, a farm bill
typically includes modifications to programs affecting soil and water conservation,
forestry, domestic and foreign food assistance, export market development,
agricultural research and education, farm credit, and rural development. Many of the
provisions of the previous farm bill, the Food, Agriculture, Conservation, and Trade
Act of 1990 (P.L. 101-624), expired at the end of fiscal or calendar year 1995; others
were due to expire at the end of the 1995 crop or marketing year.
When the 104th Congress began consideration of a new farm bill in 1995, the
farm sector, by most measures of economic performance, was faring relatively well.
Although some farmers in some regions had suffered production disasters due to
drought or floods, or experienced low market prices, farm income and farm equity
had increased overall in the previous 5 years. Consumers were also faring well, with
modest increases in food prices, most of which were driven by higher marketing costs
rather than higher farm prices.
Nonetheless, questions pertaining to U.S. competitiveness, perceived inequities
in the distribution of program benefits, the general economic well-being of today's
farm households, and the comparatively small role of farming in the employment and
income base of many rural communities were all forces shaping the commodity
program debate. In addition, commodity price support programs are always a key
issue in the farm and budget debates, in part because so many "farm belt" producers
rely on them each year to supplement their incomes, and also because 70% or more
of harvested U.S. cropland is planted to these crops. Over the past decade, annual
outlays for the grains and cotton programs have averaged about $9.4 billion, or 70%,
of the average of $13.5 billion in total annual outlays for all farm commodity support
-- making grains and cotton prominent targets in the search for budgetary savings.
1 The federal government has provided commodity price support for producers of food
grains (wheat, rice); feed grains (corn, sorghum, barley, oats, rye); cotton; oilseeds
(soybeans, sunflower seed, canola, rapeseed, safflower, mustard seed, flaxseed); peanuts;
sugar (cane and beets); and milk. The tobacco program is authorized separately, under the
Agricultural Adjustment Act of 1938, as amended (7 U.S.C. 1311-1316 and 7 U.S.C. 1445).
The wool and mohair price support programs, previously authorized under the National
Wool Act of 1954, as amended, ended with the 1995 marketing year under the provisions
of P.L. 103-130.

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The 104th Congress began 1995 with consideration of new farm policies to
replace the expiring law high on its agenda. However, the year ended without
enactment of a major farm bill, which was caught up in congressional efforts to
balance the budget in 7 years.
The FY1996 budget resolution that Congress completed on June 29, 1995, had
assumed a $48.8 billion reduction in mandatory USDA spending over 7 years when
compared with the February 1995 Congressional Budget Office (CBO) baseline --
$13.4 billion for agricultural programs (nearly a 20% reduction), $30.4 billion for
food stamps (approximately a 10% reduction), and $4.6 billion (nearly a 6%
reduction) for child nutrition programs. In late November 1995, Congress cleared
for the President a reconciliation measure (H.R. 2491) intending to save $12.3 billion
in farm commodity and other agricultural programs, and $39.1 billion for food
stamps, child feeding, and other domestic nutrition programs. (Sweeping savings and
structural changes in domestic nutrition programs also were included in a massive
welfare reform bill, H.R. 4, that was vetoed by the President. A subsequent welfare
reform bill, which was enacted, contained somewhat moderated -- but still substantial
-- changes in domestic feeding programs.)
Shortly after the President vetoed the 7-year budget bill on December 6, 1995,
and before subsequent White House-congressional budget talks faltered, CBO
updated its baseline to December 1995, projecting USDA Commodity Credit
Corporation (CCC) spending (under "current services") at about $48.7 billion over
7 years, compared with $56.6 billion in its previous February baseline. The $8
billion lower agriculture spending number reflected economists' assumption that
higher than expected grain and cotton prices would necessitate smaller federal farm
payments, which were directly tied to market prices under the expiring law. Thus,
many agricultural interests began arguing that farm program cuts should be scaled
back to fit the lower baseline projections -- or that the higher than needed savings be
redirected to increases in such areas as conservation or rural development.
In the wake of the budget impasse, congressional farm leaders returned to work
on a freestanding "farm bill." The first action came in the House Agriculture
Committee, which reported a freestanding bill (The Agricultural Market Transition
Act; H.R. 2854) on January 30, 1996. On February 7, the full Senate -- bypassing
Agriculture Committee action -- cleared, 64-32, its own farm bill (The Agricultural
Reform and Improvement Act, S. 1541; later readopted as H.R. 2854 to satisfy
procedural requirements), which contained essentially the same commodity
provisions -- but no dairy title -- as in the House bill. Like the House bill, the Senate
legislation included major conservation, and international trade and aid titles in
addition to new commodity price support measures. However, it was more wide-
ranging than the House committee bill, with additional titles (adopted during floor
debate) covering research, agricultural credit, rural development, and food stamps,
among others.2
2 On February 27, 1996, House Agriculture Committee Chairman Pat Roberts introduced
a separate measure, the Agricultural and Regulatory Relief and Trade Act (H.R. 2973),
containing research, conservation, trade, rural development, credit, and other provisions, and
said that he only wanted to consider this bill after work on H.R. 2854/S. 1541 was finished.
Momentum to consider this legislation was lost when the conferees on H.R. 2854 acted to
(continued...)

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On February 29, 1996, the full House passed, 270-155, H.R. 2854, containing
commodity and related provisions that paralleled those in the vetoed balanced budget
act. A key, and controversial, element of the plan called for replacing farm income
support for grains and cotton with 7 years of fixed, but declining, payments
disconnected both from actual market prices for commodities and from most USDA
planting requirements. Other provisions of H.R. 2854 would have extended but
modified the sugar, peanut, and dairy programs.
Major amendments were adopted on the House floor that significantly altered
the Agriculture Committee version adopted on January 30, 1996. This included
major changes to the dairy title and expansion of the conservation and agricultural
trade and aid titles of the Committee version. Other major floor amendments were
not successful, including those to (1) phase out the peanut and sugar programs and
traditional grains and cotton programs, (2) mandate $3.5 billion in additional
spending for rural development, (3) divert $1.9 billion from commodity program
subsidies into research, and (4) substitute a farm bill similar to the Senate version.
After H.R. 2854 was reported by the House Agriculture Committee, the
Congressional Budget Office (CBO) estimated that the overall bill would achieve 7-
year savings of about $5.4 billion below the "current services" spending baseline
projected in December 1995. However, the various floor amendments -- notably
conservation -- would have reduced this savings estimate, possibly by as much as $3
billion or more. The entire Senate-passed bill would have resulted in 7-year savings
of just under $1 billion, according to CBO estimates.
Once the House approved its farm bill on February 29, 1996, efforts began
immediately to work out the differences between the two chambers' versions.
Members of Congress were under pressure from farmers facing spring planting in
only a few weeks. Furthermore, the lack of a new farm law would have placed the
USDA in the position of having to implement wheat and feed grain programs
mandated by the permanent authority of the Agricultural Act of 1949. The policy
mechanisms of the permanent law are generally considered to be inappropriate in the
current economic environment as they can cause significant budget exposure.
On March 21, 1996, conferees completed action on the substantial differences
between the Senate and House bills. Among the differences that proved most
difficult to resolve were dairy policy, rural development programs, and whether or
not to preserve the 1949 permanent mandatory support authority. The conference
agreement, which passed the Senate by a vote of 74-26 and the House by a vote of
318-89, ended up looking more like the Senate bill, but with some important
differences. The President signed the bill -- the Federal Agriculture Improvement
and Reform Act (FAIR Act, or 1996 farm bill) -- into law on April 4, 1996 (P.L. 104-
127).
The FAIR Act is projected to result in outlays of roughly $60 billion over the
next 7 years, more than $2.1 billion below baseline spending estimates under
previous law, as estimated by CBO. Approximately $44 billion of these outlays are
2 (...continued)
expand the conference bill to match the scope of the Senate-approved farm bill, S. 1541.

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for the commodity, export and other programs funded through CCC. Mandatory
spending in the bill for conservation and related programs accounts for nearly $13
billion of the estimated outlays. These outlays, along with additional spending on
rural development and several smaller items, serve to offset much of the projected
commodity program savings in the bill.
These figures exclude the cost of (and any projected savings in) the food stamp
program, which was reauthorized in the FAIR Act with virtually no changes for only
2 years, and commodity distribution programs, which the Act extended for 7 years.
Savings in the food stamp program were achieved later as part of comprehensive
welfare reform legislation (P.L. 104-193, H.R. 3734). This law is projected by the
CBO to reduce total federal spending for food programs by $26 billion over 6 years,
of which $23.3 billion will be savings in the food stamp program, achieved primarily
by placing restrictions on eligibility and by reducing benefits. Reductions in
spending for the child nutrition programs account for the balance of the projected
savings.
(For more information see CRS Reports 96-903, The U.S. Department of
Agriculture: Appropriations for FY1997, and 96-304, The 1996 Farm Bill:
Comparison of Selected Provisions with Previous Law.)
Major Provisions of the 1996 FAIR Act
Title I--Agricultural Market Transition Act
This comprehensive title makes significant changes in the mechanisms by which
the federal government provides price support to producers of wheat, feed grains,
cotton, rice, and oilseeds. Congress also made changes to the support programs for
milk, peanuts and sugar in separate subtitles of this title.
The Agricultural Market Transition Program was an idea originally contained
in House Agriculture Chairman Pat Roberts' "Freedom to Farm Act" (H.R. 2195).
Subsequently, it appeared in the 1995 budget reconciliation bill that the President
vetoed (H. 2491), and then again in the free-standing 1996 Senate and House farm
bills (S. 1541, H.R. 2854) that became the 1996 FAIR Act.
The program replaces previous target price deficiency payments with fixed
"production flexibility contract payments" for 7 years. Total funding for contract
payments is locked in for a 7-year period at about $37 billion. The proposal largely
preserves the existing design and levels of support through nonrecourse commodity
loans and marketing loan repayment provisions. Among the other significant
departures from past policy are an end to USDA-imposed annual acreage cutbacks
and to strict planting requirements.
The Act also retains the permanent authority of the Agricultural Act of 1949.
This was in concession to the minority party's concern that eliminating permanent
authority would remove the need to reconsider farm policy when the FAIR Act
expires in 2002, and could result in the disappearance of all farm supports.
Relatedly, Subtitle G of Title I establishes a Commission on 21st Century Production

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Agriculture to conduct a comprehensive review of domestic agricultural conditions,
the effects of the new market transition contracts, and other factors, and to make
recommendations for future farm policy. Initial and final reports are due in June
1998 and January 2001, respectively.
The elimination of base-acre planting constraints, the elimination of annual
acreage reduction programs, and the relatively broad planting flexibility afforded by
the Agricultural Market Transition Program are the features that will most affect
production agriculture. In the coming year, farmers are expected to make greater
efforts to increase production in response to high prices than would have been
possible under the expiring programs.
(For more information see CRS Report 96-351, Wheat, Feed Grains, Cotton,
Rice and Oilseeds: Provisions of the Enacted 1996 Farm Bill.)
Dairy
The federal government traditionally has used two major policy tools to support
milk markets: the dairy price support program and federal milk marketing orders.
USDA indirectly supports farm milk prices by its standing offer to purchase surplus
dairy products from processors. Federal milk marketing orders, also administered by
USDA, have permanent legislative authority. Federal orders regulate processors
(fluid milk bottlers or manufacturers of dairy products) that sell milk or milk prod-
ucts within an order region by requiring them to pay not less than an established
minimum price for the Grade A milk they purchase from dairy producers.
The new law reauthorizes the dairy price support program, including USDA
authority to purchase surplus cheese, butter, and nonfat dry milk through December
31, 1999. The level of support is maintained at the current level of $10.35 per
hundredweight (cwt.) for the remainder of 1996, but then drops to $10.20 in 1997,
$10.05 in 1998, and $9.90 in 1999. The program will terminate on December 31,
1999, and be replaced on January 1, 2000, with a recourse loan program for
processors of cheese, butter, and nonfat dry milk to assist them in managing their
inventories of these products. In return for the lower level of price support and the
gradual elimination of the program, the deficit reduction assessment paid by milk
producers to defray the cost of the price support program under previous law is
eliminated.
The new law also requires a reduction in the number of milk marketing orders,
to at least 10 but no more than 14 -- and gives USDA 3 years to administratively
achieve this goal. If at the end of 3 years, USDA has not completed the consolidation,
the Department will lose its current authority of assessing producers and processors
for the cost of administering milk marketing orders, and instead USDA will have to
absorb the cost in its budget. If consolidation is delayed by a legal challenge, the 3-
year deadline given to USDA would be extended by the duration of any injunction.
The structure of federal milk marketing orders has long been the subject of
policy debate. Producer groups in the Upper Midwest (Wisconsin and Minnesota)
contend that federal orders are in need of reform, while many dairy processors
contend that orders are market-distorting and should be gradually eliminated. Milk
producer groups in the Northeast and Southeast generally support the current order

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system and maintain that any changes to the system should be handled
administratively by USDA.
The new law also gave the Secretary of Agriculture the power to grant the six
New England states the authority to enter into a regional dairy compact for a period
of time that would end at the same time as the adoption of marketing order
consolidation. (On August 9, 1996, the Secretary announced that he had found
"compelling public interest" in such a compact, thus allowing the six states to begin
implementation.) Prior to the farm bill, the legislatures of those states had already
agreed to enter into a dairy compact that would create an interstate commission with
the power to set a minimum price paid by dairy processors to dairy farmers in the six
states, at a level above the federal minimum price. However, such compacts must
first be approved by Congress, as required by the U.S. Constitution. The New
England states sought approval for the compact because dairy farm groups in the
region maintain that the minimum milk prices dictated by federal orders have not
been sufficient to cover the costs of production of family-sized farms, thus forcing
many farmers out of business. Opponents maintain that the compact will artificially
encourage the production of milk within the Northeast region at the expense of other
parts of the country that have lower production costs and can sell at lower prices.
A separate provision in the new law explicitly permits California to keep in
place its higher nonfat solids standards for fluid milk, and leaves the national
standards unchanged. The House Agriculture Committee version of the farm bill
would have increased the national minimum nonfat solids standards of fluid milk to
the California level. The provision was deleted from H.R. 2854 on the House floor.
Proponents of an increase in the national standards contend that milk fortified with
nonfat solids is a better tasting, more nutritious product that would likely increase
consumer demand for fluid milk. The opposition, led by dairy processors and some
consumer groups, counters that fortifying milk with nonfat solids would be so costly
that the higher consumer costs would more than offset any positive effects of the
higher standards.
(For more information, see CRS Issue Brief 95103, Dairy Policy Issues; and
CRS Reports 96-419, Dairy and the 1996 Farm Bill: A Legislative History, and 96-
440, Dairy Provisions of the Enacted 1996 Farm Bill.)
Sugar and Peanuts
Both the sugar and peanut programs came under attack during the 104th
Congress from opponents seeking to take advantage of a changed political climate
and broader interest in reforming farm programs. Sugar and peanut users (food
manufacturing companies) proposed outright repeal or significant changes, arguing
that market forces and not federal controls should determine the availability and price
of each commodity. Some processors (i.e, shellers that prepare peanuts for sale to
peanut product manufacturers or export, cane sugar refiners that process raw sugar
into white sugar ready for human and industrial use) proposed reforms they argued
were needed to improve their long-term competitiveness as intermediaries in the food
marketing chain. Producers and initial processors of sugar crops, and peanut
growers, acknowledged the need to tackle market orientation and program cost
issues, and proposed changes to address such concerns.

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The new law extends the sugar and peanut programs for 7 years and largely
keeps intact their broad program structure. However, some features initially
proposed by the sugar and peanut producing sectors were modified to partially
respond to the market-oriented objectives sought by users of both commodities.
Sugar. The enacted 1996 farm bill authorizes a sugar program through 2002,
repeals standby restrictions on the marketing of domestically produced sugar, freezes
price support loan rates at 1995 levels (18 cents per pound for raw sugar, 22.9
cents/lb. for refined beet sugar), and increases by 25% the budget deficit reduction
(marketing) assessment rate paid by processors. The program's "no-cost"
requirement was repealed, perhaps inadvertently in the drafting of the bill.
Two controversial provisions responded to sugar user concerns. The first
authorizes USDA to make "recourse" loans (repayable only in cash) to raw cane
sugar mills and refined beet sugar refiners whenever USDA announces a fiscal year
import quota level lower than 1.5 million short tons. If the quota announced is equal
to or not above this level, USDA will offer "non-recourse" loans (where growers can
forfeit, or hand over, sugar offered as collateral as full payment). The second
requires USDA to impose about a 1 cent/lb. penalty on any processor (having taken
out a non-recourse loan) who forfeits sugar to the CCC. The production sector
opposed this provision, which was pushed by some sugar users seeking an opening
to gain possible access to lower priced sugar.
In general, the three most affected interest groups -- growers and sugar
processors, cane refiners, and sugar users -- were somewhat dissatisfied with the final
sugar program provisions. The sugar production sector argued that it will face
considerable price uncertainty whenever a recourse loan policy would come into
effect. Sugar users contended that the proposed program offers little change from
current policy and does not lower sugar support levels. Cane sugar refiners expressed
concern that retaining current price support levels means more refineries will close
and that U.S. cane sugar refining capacity will continue to shrink.
During Senate floor debate February 7, 1996, Senator Gregg offered an
amendment that effectively would have continued the sugar program for only 2 years
instead of for 7 years as proposed for the other commodities, thereby subjecting it to
renewed and separate scrutiny. The amendment was defeated, 35-61. On the House
side, a floor amendment by Representatives Dan Miller and Charles Schumer to
phase out the sugar program over 5 years was defeated by a closer vote of 208-217.
This left the sugar program provisions in both the House and Senate farm bills nearly
identical.
Peanuts. The new law authorizes price support for peanuts through the 2002
crop, continues the quota system with some changes, and is likely to eliminate all of
the peanut program's projected budget costs. The new quota for peanuts limits the
amount that all eligible growers can sell for domestic food use. Two levels of price
support will continue to be available: a high level for quota peanuts, and a much
lower rate for peanuts produced in excess of each farm's quota (referred to as
"additionals"). Budget savings of over $400 million are achieved by eliminating the
"minimum national quota" and "undermarketings" provisions and requiring growers
to pay additional assessments if needed to cover program costs. One related change
will allow USDA to set the quota at a level equal to domestic food demand rather

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than above it. Final provisions also include some features of the peanut growers'
proposal and a compromise between 1995's $678/ton quota loan rate and the peanut
shellers' call for a support level around $550/ton. Price support on quota peanuts will
be reduced 10% to $610/ton starting with the 1996 crop, and then be frozen at that
level through the 2002 crop. Growers opposed any support reduction; manufacturers
argued that the reduction was not deep enough to reverse the decline in domestic
peanut use.
During Senate debate in early February 1996, Senator Santorum offered an
amendment to phase down quota loan rates and, beginning in 2001, to eliminate the
quota system altogether. The amendment was tabled (defeated), 59-36, on February
7. A House floor amendment by Representative Shays to phase out the peanut
program over 7 years by making steep annual reductions in the quota loan rate also
was defeated, by a vote of 209-212 on February 28. The main features of the new
program were the same in both the House- and Senate- passed farm bills, with a few
differences. One final compromise makes producers who effectively sell their crop
to the federal government for 2 years rather than to a buyer who makes a written price
offer at the quota support level ($610/ton), ineligible for price support benefits for
one year. Conferees also (1) settled differences reflecting regional rivalries and
peanut type supply/demand imbalances on how program losses are to be shared, and
(2) agreed to allow the sale and lease of 40% (over 5 years) of a county's poundage
quota across county lines but still within the same state.
(For more information, see CRS Issue Brief 95117, Sugar Policy Issues, CRS
Report 96-606, Farm Commodity Programs: Sugar; and CRS Issue Brief 95118,
Peanuts: Policy Issues.)
Crop Insurance and Risk Management
Miscellaneous provisions in Title I of the 1996 farm bill make several changes
to the federal crop insurance program administered by USDA. Under the new farm
law, a producer no longer is required to acquire the minimum level of crop insurance
coverage, as long as the producer waives, in writing, any eligibility for future disaster
payments. It also allows USDA to continue to offer the basic level of insurance
coverage in states or regions that have an insufficient number of approved private
insurance providers, but requires USDA to shift policies to private companies when
private coverage is adequate. The new law also creates a new Office of Risk
Management within USDA with jurisdiction over the crop insurance program, and
makes seed crops and aquaculture eligible for payments under the noninsured
assistance program. Other provisions institute separate pilot programs for insect
infestation, nursery crop insurance coverage, futures and options trading, and revenue
insurance. The permanently authorized livestock assistance programs, which assist
livestock producers when they lose a significant portion of their on-farm feed to a
natural disaster, are terminated.
For more information, see CRS Report 96-477, Crop Insurance and Risk
Management: Provisions in the Enacted 1996 Farm Bill.

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Title II--Agricultural Trade
U.S. agricultural exports are important to the financial health of the farm and
agribusiness sectors. Agricultural exports reached a record $60 billion in FY1996,
up from $54.1 billion in FY1995, and surpassing the previous record of $43.8 billion
set in FY1981. Agricultural exports are projected to decline a little in FY1997, to
$58 billion.
Four types of programs assist agricultural exports: (1) export subsidy programs,
including the Export Enhancement Program (EEP); (2) market development
programs, including the Market Access Program (MAP); (3) export credit guarantee
programs (GSM-102 and -103); and (4) U.S. foreign food aid programs.
The new farm law makes a number of important changes in agricultural export
programs. It authorizes through FY2002 maximum funding levels for EEP that are
lower in early years than the maximum levels allowed by the Uruguay Round
Agreement on Agriculture. It authorizes MPP through FY2002 but at a reduced level
of $90 million annually. It includes specific authorization for the first time for the
Foreign Market Development Program (Cooperator Program), which heretofore had
been included as a line item in the budget of the Foreign Agricultural Service.
The new law authorizes the level of export credit guarantees for buyers of U.S.
agricultural products in foreign countries at $5.5 billion, the current level. It extends
authorities for P.L. 480 food aid programs (concessional sales, humanitarian
donations, and bilateral development grants) to FY2002. The agreement also
reauthorizes the Food for Progress Program and makes some changes in Section
416(b) foreign commodity donations.
Changes included in the new law appear to reinforce both the market
development and humanitarian aims of food aid programs. Private entities become
eligible for Title I sales agreements. Intergovernmental organizations, in addition to
private voluntary organizations and cooperatives, become eligible for funds to defray
project-related and administrative costs. The agreement authorizes a 4 million metric
ton Food Security Commodity Reserve of wheat, corn, sorghum, and rice to meet
unanticipated emergency humanitarian food needs in developing countries.
The agreement calls for the Secretary of Agriculture to develop a strategy for
implementing federal agricultural export programs and to establish quantitative goals
against which to measure the success or failure of the strategy.
Provisions on some of these programs are also contained in the FY1997
agriculture appropriations act (P.L. 104-180). The act limits EEP funding to $100
million, contains no restriction on the level of MAP funding, and supports the
authorized level of $5.5 billion for export credit guarantees. It provides for a total
P.L. 480 program level of $1.110 billion in FY1997 ($77.6 million less than in
FY1996), but in spite of the overall reduction, the conferees provided for an increase
in funding for Title II of P.L. 480 (humanitarian food donations overseas).
(For more information, see CRS Issue Brief 95088, Agricultural Export and
Food Aid Programs; CRS Report 95-391, Agricultural Export Programs, Food Aid
and the Farm Bill; CRS Report 95-388, Export Enhancement Program: Background

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and Current Issues; and CRS Report 94-303, P.L. 480: History and Legislation,
Programs and Policy Issues.)
Title III--Conservation
The conservation provisions of the FAIR Act more fully integrate resource
conservation and environmental concerns with agricultural policies, continuing a
trend that started with the 1985 farm law and continued with the 1990 farm law.
Provisions in this title change the resource conservation effort in significant ways that
go beyond individual programs.
! Total funding for conservation is estimated to grow by about $300
million per year;
! A majority of the conservation funding will be mandatory;
! The conservation agenda is broadened by adding wildlife
considerations to many programs and by further elevating nonpoint
pollution as a program priority; and
! Some conservation programs will be targeted to priority areas, which
are to be designated in each state.
The farm bill (H.R. 2854) that the House Agriculture Committee voted out on
January 30, 1996, contained limited conservation provisions, largely adopting the
provisions that had been included in reconciliation legislation. These provisions
were limited to amendments to the Conservation Reserve and Wetlands Reserve
programs, and creation of a new cost-sharing program to assist livestock producers.

The Senate-approved omnibus farm bill (S. 1541) included a much more
substantial conservation title. It contained modified versions of provisions that had
been a part of the reconciliation package. It also included many others that surfaced
for the first time during Senate floor action. Many of these ideas had been included,
as conceptual points, in the Clinton Administration's farm bill guidance, issued in
May 1995. These provisions were largely supported by the environmental and
conservation communities.
In conference, the more far-reaching Senate-passed provisions generally
prevailed. Furthermore, provisions on highly erodible lands and wetlands
conservation that had not been in either Chamber's bill, but had been sought by
agricultural interests, were added by the conference committee. These provisions
include:
! reauthorizing the CRP and WRP, making them both entitlements,
allowing landowners who meet certain qualifications to terminate
CRP contracts early, limiting the use of permanent easements in
future WRP enrollments, and setting maximum enrollment limits;
! creating a new $200 million per year ($130 million in FY1996)
entitlement for conservation cost-sharing, called the Environmental

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Quality Incentive Program (EQIP), and dedicating half the funding
to addressing problems associated with livestock production;
! creating several new grazing measures, including a land
management program, a National Natural Resources Conservation
Foundation, a wildlife habitat program, a farmland protection
initiative, and a floodplain easements program;
! creating a pilot Conservation Program Option (with capped funding
levels each year) for producers who participate in both the CRP and
the market transition program, by providing a 10-year contract
(rather than 7 years) in returning for meeting specified resource
conservation requirements; and
! amending the highly erodible cropland and wetland conservation
provisions to provide producers with greater flexibility for meeting
conservation requirements.
(For more information, see CRS Reports 96-165, Conservation Provisions in
S. 1541 and H. R. 2854: A Comparison, and 96-330, Conservation Provisions in the
1996 Farm Bill: A Summary.
Title IV--Nutrition Assistance
Major changes to domestic food assistance programs were part of legislative
initiatives in the 104th Congress to revamp Federal farm support, balance the budget,
and reform welfare. Food stamp spending figured prominently in legislative
decisions about omnibus farm measures as the Congress confronted difficult choices
between food and farm program spending. This delayed agreement in 1995 on
omnibus farm legislation needed to reauthorize food stamp, commodity donation, and
agricultural support programs expiring at the end of FY1995. These programs,
however, were funded by FY1996 appropriation law (P.L.104-37), and food program
authorities were extended under the food title of the omnibus farm bill (P.L.104-127)
that ultimately was enacted in April 1996.
Historically, the inclusion of a food assistance title in the farm bill has helped
bring urban support for farm programs and farm support for food aid programs.
Incorporating a 7-year extension of food stamp and commodity donation programs
into the Senate farm bill was credited (along with conservation and rural
development titles) with garnering wider support for the bill this year as well. In the
House, where it was assumed that changes to food programs would be contained in
welfare reform legislation, no nutrition program provisions were contained in the
1996 farm bill that this Chamber approved. Ultimately, farm bill conferees
compromised on a 2-year extension of the food stamp program and a 7-year
extension of several pilot projects for employment and training programs for food
stamp recipients, nutrition assistance for Puerto Rico and American Samoa, and
commodity donation programs like the Emergency Food Assistance Program (EFAP)
and the Commodity Supplemental Food Program (CSFP). They also agreed to the
creation of a new community food security program, which allows the Secretary to
spend not more than $1 million in FY1997 and up to $2.7 million in each of fiscal

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years 1998-2002 to make grants to communities to help them meet the food needs of
low-income populations.
Both welfare reform and budget reconciliation measures approved by the House
and Senate during the 104th Congress contained provisions substantially revising the
funding and structure of federal food programs. During the first session, the House
and Senate passed welfare and reconciliation bills (H.R. 4 and H.R. 2491) that
achieved 7-year net outlay savings of $30.1 and $33.5 billion, respectively, in
projected spending for domestic food programs (85% of the reductions were from
food stamp program changes). These bills were vetoed by President Clinton. In the
second session, the Congress approved a welfare-budget measure (H.R. 3734) that
the President signed (P.L.104-193). This new law extends appropriations authority
for the Food Stamp Act through FY2002, and is projected by CBO to reduce net
federal spending under this Act by a total of $23.3 billion over 6 years, primarily
through new restrictions on eligibility for non-working recipients and non-citizens,
and reductions in benefits. Total food program reductions from this law, including
those for child nutrition programs, are projected to be about $26 billion over 6 years.
The enacted welfare measure also combines the EFAP and soup kitchen food
bank programs and requires that $100 million be used annually from food stamp
funds to buy commodities for the emergency feeding facilities distributing food to the
needy under this program.
A major source of contention between the two Chambers and between the
Administration and Congress -- namely, provisions requiring child nutrition block
grants and allowing states the option to block-grant food stamps under certain
circumstances, and placing a ceiling on food stamp spending -- were not contained
in the 1996 welfare/budget law. However, a new food stamp eligibility requirement
was included for able-bodied adults without dependents that generally limits them
to 3 months of eligibility unless working at least half-time (this had been opposed by
the Administration). The Administration also opposed the prohibition on food stamp
eligibility for most legal aliens and the reduction in benefits for those with high
shelter costs, both of which were in the enacted measure. In signing both the farm
and welfare measures, the President expressed concern that some of these laws
provisions might endanger the safety net for farmers and for poor Americans and
indicated that he would press for corrections if this occurred.
(For further information, see CRS Report 96-861, Federal Food Programs:
Legislation in the 104th Congress; CRS Report 95-475, National School Lunch Act:
Facts and Issues;CRS Report 96-987, Child Nutrition Legislation in the 104th
Congress, CRS Report 95-366, Food Stamp Reform Legislation: A Brief Summary;
CRS Report 96-642, TEFAP and Soup Kitchen-Food Bank Program: Legislation in
the 104th Congress; and CRS archived Issue Brief 95047, Child Nutrition Issues in
the 104th Congress).
Title V--Agricultural Promotion
The FAIR Act for the first time grants USDA broad-based authority to establish
national generic promotion ("check-off") programs for virtually any agricultural
commodity. Formerly, individual programs first had to be authorized expressly by

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Congress.
The new law also explicitly authorizes the establishment of new
check-off programs for rapeseed and canola, kiwifruit, and popcorn.
Section 501 of the new law also states, as "findings" of Congress, that generic
advertising programs are in the national public interest and vital to the welfare of the
agricultural economy; and that they never were designed or intended to restrict,
prohibit, or replace the advertising and promotion activities of any individuals or
groups of individuals (among other things). Congress inserted this language partly
in response to recent court decisions that have raised legal questions over the
constitutionality of the mandatory fee assessments that are the basis for the
promotion programs.
(For more information, see CRS Report 96-381, Agricultural Marketing and
Regulatory Provisions of the 1996 Farm Bill.)
Title VI--Credit
Congress frequently includes a credit title in omnibus farm legislation as a
vehicle for making policy changes to USDA credit programs, as well as addressing
issues that relate to institutional lenders, such as commercial banks and the Farm
Credit System (FCS).
The new law contains a credit title that directly affects eligibility for USDA
farm loans and the servicing of its delinquent accounts. Among its many provisions,
the credit title would eliminate a requirement that USDA provide operating loans to
certain farm borrowers even if they are delinquent on previous loans; deny new farm
loans to any borrower who had a delinquent loan on which the debt was forgiven;
reduce the mandated period USDA must wait to notify borrowers that they are
delinquent and to inform them of their loan servicing options; continue the shift in
USDA lending resources from direct loans to guaranteed loans; and expedite the sale
of acquired USDA farm property.
The agreement closely resembles the credit title in the Senate version of the
farm bill. The House version of the farm bill did not contain a credit title. However,
a separate bill, (H.R. 2590) introduced by House Agriculture Committee leadership
would have applied more stringent qualifications than the Senate bill for new USDA
farm loans and would have restricted USDA's options for servicing delinquent
borrowers.
Because consideration of the farm bill was delayed until 1996, some credit
issues had already been considered by Congress in stand-alone legislation. On Febru-
ary 10, 1996, the President signed into law the Farm Credit System Regulatory Relief
Act of 1995 (P.L. 104-105, H.R. 2029), which affects the operations of both the Farm
Credit System (FCS) and Farmer Mac. This legislation was expedited because
certain regulatory issues affecting the Farm Credit System required immediate
congressional attention. Additionally, many policymakers contended that the
worsening financial condition of Farmer Mac warranted prompt legislative action.
P.L. 104-105 expands Farmer Mac authorities, but also requires it to build up its
capital reserves within a specific timeframe or face shutdown.

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(For additional information, see CRS report 96-431, Credit Provisions of the
Enacted 1996 Farm Bill.)
Title VII--Rural Development
The House originally did not include a rural development section in its version
of the farm bill, intending, at some later date, to authorize rural development,
agricultural research, conservation, and other USDA discretionary programs under
separate legislation (see footnote 2). However, during conference consideration of
farm legislation, the House accepted the rural development provisions included in the
Senate version of H.R. 2854. The provisions encompassed in Title VII of the FAIR
Act substantially restructure the delivery of rural development assistance to
communities with populations of 50,000 or less by:
! creating a state-administered rural development block grant program
-- the Rural Community Advancement Program (RCAP) -- patterned
after the Clinton Administration's Rural Performance Partnership
Initiative outlined in its FY1996 budget;
! inaugurating an economic development initiative labelled the Fund
for Rural America;
! greatly expanding federal assistance for distance learning and
telemedicine; and
! repealing authority for a number of unused rural development
programs.
Under the RCAP provisions of Title VII of the FAIR Act:
! three distinct rural development-related funding pools are
established dedicated to rural community facilities, rural utilities,
and rural business and cooperative development;
! USDA's State Rural Development Offices may transfer up to 25%
of the funds among the three accounts provided that no more than
10% of the funds are transferred from any one of the three accounts
nationally;
! assistance may be provided in any combination of loans, grants, or
loan guarantees at the discretion of USDA's State Rural
Development Offices; and
! a state may control up to 10% of its RCAP allocation through the
creation of a RCAP-funded, state-administered block grant.
Under provisions of Title VII, the Fund for Rural America will receive $100
million annually in unappropriated U.S. Treasury funds for each of the fiscal years
1997, 1998, and 1999. Funding is to be allocated equally among the three program
areas: rural development, research, and a discretionary fund. Rural development may
include business enterprise grants, loans, loan guarantees, water and waste water

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projects, housing assistance, and distance learning and telemedicine grants and loans.
Research grants are to be awarded competitively to eligible federal research agencies,
national laboratories, colleges, universities, research foundations, or private research
organizations with at least 15% of such grants awarded to institutions that rank in
the bottom one-third of other grant funds received. The remaining one-third of funds
are to be allocated among research and rural development activities at the discretion
of the Secretary of USDA.
Title VII authorizes a 5-year (FY1997 to 2002) annual appropriation of $100
million to carry out provisions of the Distance Learning and Telemedicine Program.
This new initiative is based on the modestly funded Distance Learning and Medical
Link program first authorized by the Food, Agriculture, Conservation, and Trade Act
of 1990. As of April 1996, the program has awarded $27.5 million in grants to 90
projects designed to expand educational opportunities to rural students and provide
timely and modern health care to rural residents. The new program will provide
loans as well as grants to eligible entities for the construction of facilities.
In addition to the significant changes mentioned above, Title VII of the FAIR
Act also alters rural development programs to target water and waste facility loans
and grants to smaller communities, to limit the size of grants under the Business
Opportunity Grants program, and to continue the Emergency Community Water
Assistance Grant program, among other things.
Title VII converts the independent USDA agency, the Alternative Agricultural
Research and Commercialization Center, into a wholly-owned government
corporation. The Corporation is charged with expediting the development and
commercialization of alternative, nontraditional, nonfood, nonfeed products derived
from agricultural products and forestry materials through grants, loans, loan
guarantees and other mechanisms. Title VII authorizes an appropriation of $75
million for each of FY1996 to 2002 to be used to establish a revolving fund to
finance the Corporation's activities.
Title VIII--Research, Extension, and Education
Omnibus farm bills traditionally include extensive titles covering agricultural
research and extension programs. These titles reauthorize an array of programs, and
set, redirect, and/or reaffirm research priorities, among other things. A vast network
of federal agricultural laboratories, state land-grant universities and their agricultural
experiment stations, and federal, state, and county Extension offices comprise the
public agricultural research and education system. This system, along with the
teaching programs of the agricultural schools, is largely credited with developing and
disseminating the production technologies that have helped to make U.S. agriculture
so highly productive and globally competitive.
In 1996, farm bill conferees largely agreed to the Senate provisions on research,
extension, and education, while acceding to the House's desire to limit portions of the
reauthorization to 2 years. The enacted 1996 farm bill authorizes a new research and
extension policy advisory board to replace three existing ones, and it continues
funding through FY2002 for public agricultural research, education, and extension
programs. Annual funding authority is set at $850 million for Agricultural Research
Service programs, $310 million in Hatch Act formula funds for state agricultural

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experiment stations, $460 million for the Cooperative Extension System, and $500
million for the National Research Initiative Competitive Grants program. Other
policy changes include: establishing a merit-review process for proposals to build
new university research facilities; requiring a 10-year strategic plan for the
construction, consolidation, modernization and closure of public agricultural research
facilities; and requiring development of a new system for tracking and evaluating the
outcomes of research and extension activities.
The House wanted the 2-year limit on the Senate research provisions because
House Agriculture Committee leaders have embarked on a more extensive review of
agricultural research and extension policy. A series of hearings took place in the
spring of 1996; separate legislation is expected to be introduced sometime near the
start of the 105th Congress in 1997.
(For further information, see CRS Report 96-596, Research Provisions in the
Enacted 1996 Farm Bill and Issues for Further Consideration.)
Title IX--Miscellaneous
Title IX contains miscellaneous provisions relating to certain USDA marketing
and regulatory programs. Among other measures, Section 918 of the title requires
the establishment of a new Safe Meat and Poultry Inspection Panel; Sections 901 to
905 of the new law permit USDA (subject to the availability of appropriations) to
issue guidelines for the regulation of the commercial transportation of horses and
other equines destined for slaughter; and Section 917 allows the Animal and Plant
Health Inspection Service (APHIS) to access user fee revenues sufficient to meet the
demand for inspection of incoming luggage and cargo for agricultural pests and
diseases.

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