Order Code RS20765
Updated January 29, 2001
CRS Report for Congress
Received through the CRS Web
Agriculture: Prospective Issues
for the 107th Congress
Jean Yavis Jones
Specialist, Food and Agriculture Policy
Resources, Science, and Industry Division
Summary
Persistent low farm prices and 3 years of multi-billion dollar
ad hoc additions to
federal spending for farmers are expected to put pressure on the 107th Congress for an
early review of federal farm policy. Farm policy is governed by a variety of laws, many
of which are incorporated into an omnibus, multi-year farm bill. Most of the provisions
of the current farm bill, the Federal Agricultural Improvement and Reform (FAIR) Act
of 1996, expire after the 2002 crop year. Key issues are the responsiveness of current
policy to low commodity prices and farm income, factors influencing low prices, and
options for improving prices and/or providing automatic relief to farmers when prices
fall. Increased concentration in the agriculture industry, trade, and environmental
regulations affecting agriculture are likely to be part of the debate. House and Senate
Agriculture Committee hearings on the future direction of agriculture policy are
scheduled for late January and early February. This report will be updated as needed, or
replaced as events warrant.
Background
For the last 3 years, abundant world supplies and declining export demand have kept
prices for most U.S. farm commodities and farm income quite low. Despite economic
recovery in world markets and some recent growth in export demand, the USDA projects
that current supplies, especially of major field crops, are likely to keep farm commodity
prices well below the highs of the mid-1990's. Higher input (energy and fertilizer) costs
for farmers also are expected to erode farm income. The 106th Congress approved several
multi-billion dollar emergency farm aid laws to offset farm price declines. It also expanded
crop insurance coverage and premium subsidies. Longer term changes were debated but
not enacted. These included proposals for providing automatic counter-cyclical farm
income relief and tax deferrals in the form of Farm and Ranch Risk Management
(FARRM) accounts, both of which are expected to resurface in the 107th Congress. Other
issues on the likely agenda are regulation of bio-engineered crops and the environmental
and food safety concerns it has raised with consumers here and abroad.
Congressional Research Service ˜ The Library of Congress
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The 1996 Farm Bill
Key Farm Facts
The 1996 farm law (FAIR)
! There are some 2.2 million farms
significantly revised federal farm
in the U.S. Of these, 93% classi-
support policy. Title I of this law, the
fied as small (sales under
Agriculture Market Transition Act
$100,000) produce about 20% of
(AMTA), replaced target prices and
the nation’s agricultural goods.
The remaining 7% produce 80%
deficiency payments for wheat, feed
of farm goods.
grains, cotton, and rice with annual
lump sum payments, declining in
! In calendar year 1999, direct
amount each year. These payments
Federal payments to farmers
are provided irrespective of market
totaled $20.6 billion. In rank
prices or planting choices. Previously,
order, Texas, Iowa, Illinois,
Kansas, and Nebraska received
farmers received the difference
the largest amounts (42% of the
between legislatively set target prices
total).
and lower market prices. Supply
controls in the form of specific
! In calendar year 2000, direct farm
acreage bases and cropland set-asides
payments totaled $24 billion, or
were ended by the 1996 law because,
52% of net farm income. Of this
total, $9.5 billion came from
it was argued, they distorted
emergency farm aid.
production decisions and ceded
export markets to foreign competitors
who increased production. With
federal payments “decoupled” from production, farmers were encouraged to plant for
“markets” rather than “federal programs,” and were given broad planting flexibility. Some
price protection was maintained with marketing loan assistance for AMTA commodities
and soybeans and oilseeds. Under this program, a farmer can receive a deficiency payment
when the loan rate for a crop is higher than the market price.
Enacted at a time when farm prices were rising to record highs and foreign markets
were expanding greatly, the 1996 farm law changes were widely supported. Objections,
however, were heard from some who worried about inadequate “counter-cyclical” income
support if prices fell, as began to happen late in 1997. This followed several years of
unusually good growing conditions in many parts of the world, and a financial crisis in key
growth markets for U.S. farm goods (Asia and Latin America). Falling commodity prices
substantially reduced farm income, and the Congress stepped in with several emergency
measures to increase government payments to farmers. This aid raised farm payments well
above the levels anticipated under the 1996 policy, and is expected to increase pressure
for action by the 107th Congress to make long-term policy changes.
Selected Issues
An Early Farm Bill or Further Ad Hoc Assistance?
One force likely to drive consideration of a new farm bill in early 2001 will be the
supply/price situation. If prices remain low, supply continues to outpace demand, and
farm income falls below the high levels created by past supplemental emergency farm
assistance, there will be pressure for additional income support for farmers. In 2000, direct
government payments to farmers ($24 billion) represented over one-half of net farm
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income and some 40% of net cash income. Of this total, $9.5 billion came from
“emergency” farm aid. Most policymakers and farm groups would prefer a more reliable
method for supporting farm income than
ad hoc laws and are pushing for policy changes
that will automatically release funding when it is needed. Getting money for such changes,
and resolving ideological differences over the best method of assisting farmers (i.e.,
through the market or federal intervention) is likely to be difficult, however. Thus, it is
possible that another supplemental funding package will be considered while longer term
decisions about farm policy are debated. Among the issues are: (1) competition for
additional money with those pursuing other policy interests, such as tax relief, deficit
reduction, or social security and medicare reforms; (2) the extent to which policy changes
might weaken the underlying market orientation goal of changes made by the 1996 farm
law; (3) which commodity groups should benefit from policy changes and by how much,
and (4) conformance with trade agreement caps on domestic support for agriculture and
with the U.S. negotiating position that the European Union (EU) and other parties should
reduce trade-distorting farm support.
A variety of options discussed in the last Congress are expected to reemerge as the
farm bill commodity provisions are debated. One option might be to revise current AMTA
law to make permanent the
ad hoc funding additions of the past year by raising the amount
available for participating farmers. One way to do this might be to simply increase the
level of AMTA payments. Another might be to revise the basis for AMTA payments (e.g.,
by using more recent planting history, or adding some form of automatic counter-cyclical
income relief when farm income declines, whether due to reduced prices or yields). There
also has been interest in extending AMTA eligibility to other crops (e.g. soybeans,
oilseeds, dairy, etc.). Past proposals calling for changes to the marketing loan assistance
program are expected to be renewed. Options might include revising or removing the cap
on loan rates so that deficiency payments rise or fall with prices or income, and/or
extending loan terms. There also may be proposals to restore features of supply
management tools, for example, by re-establishing a farmer-owned reserve and/or cropland
set-asides, or by expanding long term cropland retirement programs. (For more
information, see CRS Issue Brief IB10043
, Farm Economic Relief: Issues and Options
for Congress; CRS Report 98-744,
Agricultural Marketing Assistance Loans and Loan
Deficiency Payments;
CRS Report RL30739
, Federal Crop Insurance and the
Agricultural Risk Protection Act of 2000 (P.L.106-224); CRS Report RS20269,
Emergency Funding for Agriculture: A Brief History of Congressional Action, FY1989-
FY2001; and CRS Report RL30612
, Farm Support Programs and World Trade
Commitments.)
Other Commodity Program Issues
Dairy. Low prices prompted the 106th Congress to add some $667 million in “market
loss payments” for dairy farmers to the FY2001 agriculture appropriations law (P.L.106-
387). Separate legislation offered in the 106th Congress to increase the level of dairy price
support was not enacted. While prices have risen from previous lows nationwide, they
remain low in the cheese producing states (Midwest). The National Milk Producer
Federation has proposed the creation of a target price (and deficiency payments) for milk
used for cheese. Meanwhile, authority for the Northeast dairy Compact is scheduled to
expire at the end of this fiscal year. Demands for its extension, as well as for adding other
compacts (e.g., in the Southeast) are likely to be forthcoming. These compacts are
strongly opposed by Upper Midwest dairy farmers. Meanwhile, the USDA continues to
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implement legislative mandates for modifying federal pricing policy for farm milk under
federal milk marketing orders. (For more information, see CRS Issue Brief IB97011,
Dairy Policy Issues.)
Livestock. A variety of animal agriculture issues, including low livestock prices, the
impact of consolidation in the meat packing industry, trade, and the environmental impacts
of large feedlots, are expected to resurface in the 107thCongress. The 106th Congress
approved livestock loss payments and livestock assistance totaling $500 million, as well
as price reporting requirements for large meat packers. Hog prices have recovered from
their historic lows of December 1998, but questions about the causes have revived
concern about the impact of consolidation in the livestock industry. This may renew
proposals to ban packer ownership of livestock and impose a moratorium on large
agribusiness mergers. Other proposals mandating that meat products be labeled with their
country of origin, allowing state inspected meat to be sold interstate, and addressing food
safety issues also may resurface. On the trade front, disputes continue with the EU over
its barriers to U.S. meat and poultry imports. Chronic difficulties getting products into
countries in the increasingly important Asian market also are at issue. Both will focus
congressional interest on existing trade agreements and negotiations over new ones.
Environmental concerns about animal waste removal in large scale animal feeding
operations (AFOs) also are an issue. (For more information, see CRS Issue Brief IB10063,
Animal Agriculture: Current Issues.)
Agricultural Trade
Ag Trade Facts
The United States is the world’s
! U.S. agricultural exports were
largest exporter of agricultural
valued at of $50.9 billion in
products, with the EU a close second.
FY2000 and are expected to
Production from one-third of harvested
climb to $53 billion in FY2001.
U.S. acreage is exported and some 25%
Both are below the record of
$59.8 billion in 1996.
of the value of agricultural goods
comes from exports. Thus, the
! Agricultural imports reached a
economic prosperity of the U.S. farm
record $38.9 billion in FY2000.
sector is heavily dependent upon
exports, and declining farm prices and
! Japan, the European Union,
incomes, which characterize the current
Canada, Mexico, Korea and
Taiwan are the leading
U.S. farm economy, make agricultural
importers of U.S. farm goods.
trade liberalization an important
congressional issue.
! Farm cash receipts from U.S.
agricultural exports represented
Agricultural
trade
proposals,
about 25% of gross farm
including free trade for the Americas
income in FY2000.
and “fast track” legislation to facilitate
trade agreement legislation, reportedly
is high on the new Administration’s
agenda. Trade negotiations will be taking place as Congress considers legislation to modify
or replace the existing farm law. Thus, the Congress will be faced with designing a new
domestic farm policy that is consistent with both existing and potential multilateral farm
trade rules. Negotiations now underway in the World Trade Organization may strengthen
the existing multilateral rules and disciplines for agricultural trade, for example, by making
further changes in rules for market access, export subsidies, and domestic farm support.
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Regional trade negotiations will also affect conditions of competition for U.S. agricultural
products. Other important considerations are the extent to which other countries’
willingness to reduce export subsidies should be matched by changes in U.S. export credit
or food aid programs. (For more information, see CRS Report 98-254,
Agricultural
Negotiations in the World Trade Organization; CRS Report RL30612, Farm Support
Programs and World Trade Commitments; CRS Issue Brief IB10040,
Agricultural Trade
Issues in the 106th Congress; CRS Issue Brief IB98006
, Agricultural Export and Food Aid
Programs; and CRS Report RL30753
, Agricultural Support Mechanisms in the European
Union: A Comparison with the United States.)
Biotechnology and Agriculture
Roughly half of all soybeans and cotton and one third of the corn in the United States
is grown from seeds that have been genetically engineered (GE) to resist insects or
withstand herbicides applied for weed control. Proponents of this technology contend
that it has helped producers lower input costs, reduced the need for chemicals, and
increased yields. They also contend that this technology produces items that are not
substantially different from conventionally produced counterparts. Recently, however,
evidence of unintended environmental impacts (e.g., possible damage to monarch
butterflies), genetic contamination of food supplies (e.g., StarLinkTM corn controversy),
and rejection of U.S. GE commodities in foreign markets (e.g., the EU’s
de facto
moratorium on biotech crop approvals), have begun to erode confidence in crop
biotechnology. Government agencies are struggling under their existing authorities to
ensure consumer safety while maintaining public confidence in the technology. Key trade
partners such as Japan, Korea, and the EU are in the process of establishing stringent
standards for GE material in imported commodities that threaten to force U.S. exporters
to meet costly segregation and identity preservation requirements. Domestically, the
Environmental Protection Agency is being asked to reexamine its zero tolerance rule with
respect to human consumption of a genetically modified variety of StarLink corn, and the
Food and Drug Administration is reviewing the content of voluntary labels being used by
some companies.(For more information, see CRS Report RS20732
, StarLink Corn
Controversy: Background; CRS Report RS20507,
Labeling of Genetically Modified
Foods; CRS Report RL30594,
Biosafety Protocol for Genetically Modified Organisms:
Overview; CRS Report 98-861 ENR,
U.S.-European Agricultural Trade: Food Safety and
Biotechnology Issues.)
Concentration and Market Power in Agriculture
Recent low farm prices also have generated renewed congressional interest in the
structure and business methods of agriculture, which are undergoing increasingly rapid
change. Farming, food processing, and food retailing are concentrating into fewer and
larger operations. Ownership or tight control of more than one phase of production and
marketing by a single firm (known as vertical integration or coordination) is becoming
common. Agricultural support industries such as seed, chemical, transportation, and
biotechnology companies are rapidly consolidating, too. Debate revolves around the
impacts – both negative or positive – of such changes on farm prices; on the traditional
system of smaller-sized, independent, family-based agriculture; and on rural communities.
Also at issue are implications for consumers and for trade in a global economy. Inherent
in these questions is the role government should play in monitoring and regulating
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agricultural markets. Policy makers are examining whether current laws for ensuring
competition and antitrust are still appropriate – and are properly enforced – as well as
whether new policy approaches might be considered. Among the proposals debated in the
106th Congress were: giving the USDA more authority to review and challenge agricultural
mergers; prohibiting certain business practices deemed to be anti-competitive; imposing
a moratorium on large mergers between agribusiness firms; and banning large meat
companies from owning the animals they slaughter. Although no major legislation was
passed, several lawmakers have signaled their intention to revisit the issue in the 107th
Congress – when an anticipated farm bill to replace the expiring 1996 law is expected to
be considered. (For more information, see CRS Report RS20562,
Merger and Antitrust
Issues in Agriculture; CRS Report 95-116A,
General Overview of United States Antitrust
Law; and CRS Report RS20241,
Monopoly and Monopolization – Fundamental but
Separate Concepts in U.S. Antitrust Law.)
Environmental Challenges for Agriculture
Agricultural activities have been associated with adverse environmental impacts both
on the farm and across the landscape. Among these are soil erosion and sedimentation,
destruction of habitat and wetlands, water supply decline and increased water pollution
(especially phosphorous and nitrogen build-up from fertilizer and animal wastes), and air
pollution. Although agriculture has been largely exempt from major environmental laws,
pressure is growing to include it. Members of the farm community claim that they are
good stewards of the land and that problems are not significant enough to demand greater
regulation or mandates on agriculture. Environmentalists, however, believe that greater
regulation and intervention is warranted. In particular, they contend that changes in the
structure of agriculture, with increasingly large farm operations (including livestock) and
growing concentration
, are expanding the scale of environmental problems. The House and
Senate agriculture committees tend to reflect farm interests and to defend existing policies,
which rely heavily on production friendly practices, such as land protection, incentives for
conservation, and voluntary environmental safeguards. These policies are expected to be
part of debates when the Congress reviews the conservation provisions of the 1996 farm
law, which, along with most other provisions in this law, are scheduled to expire in 2002.
Other House and Senate committees deal with broad environmental issues and legislation.
Some members of these Committees and those in the environmental advocacy community
advocate broader application of existing environmental protection laws to cover
agriculture. (For more information, see CRS Issue Brief IB96030,
Soil and Water
Conservation Issues; CRS Report RL30331,
Conservation Spending in Agriculture:
Trends and Implications; and CRS Report RL30437,
Water Quality Initiatives and
Agriculture.)