Food and Agriculture Issues in the 105th Congress II

CONTENTS FOR THIS SECTION

Agricultural Trade
Agricultural Research and Extension
Farm Issues

Grains, Cotton, and Oilseeds
Tobacco
Sugar
Peanuts
Dairy
Crop Insurance

Agricultural Trade

Fast Track and IMF. Many farm organizations regard 'fast track" authority as necessary to strengthen U.S. credibility in the next round of WTO negotiations (scheduled for December 1999). "Fast track" authority provides expedited congressional procedures for considering legislation to implement trade agreements negotiated by the President. It normally is supported by those in favor of trade agreements that open U.S. markets to the world and vice versa, and is opposed by those who believe that past trade agreements have put the United States at a competitive disadvantage because foreign companies do not have to meet the same labor and environmental standards as U.S. companies.

The Administration and congressional proponents were unable to get enough votes to pass fast track legislation in the first session. Further efforts in the 105^th Congress appeared to have been abandoned until late in the second session amid concerns about declining markets for U.S. agriculture, and falling farm prices. The Administration opposed bringing fast track legislation to another vote in 1998, fearing the divisiveness of the issue and its likely defeat as congressional elections approached. However, Republican congressional leaders and many farm legislators wanted to try again. On July 21,1998, the Senate Finance Committee approved a "fast-track" measure (as part of an omnibus trade bill). On September 25, 1998, the House approved a revised rule for floor consideration of their fast track measure (H.R. 2621). Although the rule for consideration of this bill passed the House, the actual fast-track measure was defeated (by a vote of 180-243) on the same day. Ten days later in an address before officials of the World Bank and International Monetary Fund (IMF), the President announced his plan to push for fast-track in the next Congress, and urged the 105^th Congress to approve full funding for the IMF.

As with fast track, farm legislators generally have supported actions to shore up potential markets for their products, and many regard the IMF as a vehicle to stabilize foreign economies, promote economic growth, and contribute to expanding U.S. agricultural exports. Concerns among some about how the IMF operates and its effectiveness delayed approval of IMF legislation in the House. Eventually, the full $17.9 billion requested by the Administration for IMF funding was approved as part of the omnibus FY1999 appropriation measure (P.L. 105-277) enacted in late October, 1998. [For more information, see CRS Report 97-817 Agriculture and "Fast Track" Trade Legislation; CRS Report 98-589, U.S. Agriculture and the International Monetary Fund; and CRS Report 97-965, Agriculture in the Next Round of Multilateral Trade Negotiations.]

Sanctions and Donations. Concerned about the potential loss of sales (especially of white wheat) to India and Pakistan due to sanctions imposed on those countries for conducting nuclear tests, Congress responded quickly with the passage and enactment of legislation (S. 2282, P.L. 105-194), exempting USDA export credit guarantees for the sale of U.S. farm commodities from these sanctions. This law was signed on July 14, 1998, the day before Pakistan was scheduled to issue a tender to bid for the purchase of 350,000 metric tons of wheat. FY1999 agriculture appropriations bills passed by the House and Senate (H.R. 4101) also contained provisions to exempt farm export credits from the U.S. imposed sanctions on these nations. Senate bill language that would have exempted, with some exceptions, the sale of food, fertilizer, medicine, and medical equipment from current future U.S. unilateral sanctions was deleted by the Conferees. The sanction issue renewed interest in more permanent legislation giving the President greater flexibility in the implementation of sanctions than is permitted by current arms control laws, particularly with respect to farm products. In another move intended to reduce grain surpluses and boost prices, the President announced on July 18 a plan to purchase 80 million bushels of wheat, valued at $250 million, and to make the wheat available for overseas humanitarian relief .[For more information, see CRS Report 98-770, U.S. Agricultural Exports and the Nuclear Non-proliferation Sanctions on India and Pakistan.]

Foreign Markets. Congressional hearings were held on the implications for U.S. agriculture of unstable economic conditions in Asian financial markets. Farm legislators were interested, as well, in China's market for U.S. agricultural products (some $1.6 billion estimated for FY1998) On July 22, 1998, a House resolution (H.J.Res. 121) that would have denied "most favored nation" (MFN) treatment to China was defeated by a vote of 166-264. There also was discussion about permanently authorizing trading status with China, to avoid the annual congressional debates over Administration renewal recommendations. Opposition to this has come primarily from those concerned about China's human rights violations.

European Union barriers to U.S. genetically engineered products have been a source of dispute, as well. The European Union has approved mandatory testing and labeling of foods containing genetically modified organisms (GMOs). U.S. food processors and some European processors are concerned that the costs of these requirements will be prohibitive. In April, 1997, the U.S. and EU agreed to recognize that each side had equivalent standards for most animal products. This agreement, however, did not cover poultry products, and poultry trade between the two sides virtually halted. The Senate approved an amendment to its FY1999 agriculture appropriations bill requiring beef and lamb sold in the U.S. to be labeled U.S. or imported, but this provision was dropped from the conference agreement.

For the past several years, programs promoting overseas markets for agricultural products have come under scrutiny as Congress moved to restrain spending and balance the budget. In 1998, however, with farm prices and overseas markets declining, there was little interest in cutting back support for these activities. In fact, these programs are among those that the Administration and farm legislators want to use to shore up declining prices for commodities (e.g., wheat and barley), and to respond to what are regarded as unfair trading practices by foreign countries. For example, in late May 1998 a dispute arose over EU barley subsidies that supported the sale of 30,000 tons of barley to a California processor. The USDA announced that it would use EEP funds to support sales of a similar amount of U.S. feed barley to Algeria, Cypress and Norway. The EEP subsidies are provided to exporters who discount the price to buyers. The USDA also plans to support other agricultural products. Its May 1998 "commodity assistance plan" proposed, among other things, to reactivate EEP sales of broilers to the Middle East, to authorize sales of some 30,000 additional tons under the dairy export incentive program (DEIP), and to use GSM export credit authorities to move 575,000 tons of wheat overseas. It also would make full use of P.L. 480 funding to ship wheat and other commodities to a number of countries. [For more information, see CRS Report 97-639, China's Most-favored-nation Status: U.S. Wheat, Corn, and Soybean Exports; CRS Report 97-573, U.S.-European Union Agricultural Trade: The Veterinary Equivalency Agreement; CRS Report 97-396, U.S. Agricultural Trade: Trends, Composition, Direction, and Policy; CRS Report 97-952, The European Union's Ban on Hormone-Treated Meat; and, CRS Issue Brief 98006, Agricultural Export and Food Aid Programs.]

Agricultural Research and Extension

USDA's mission to conduct agricultural research and extension programs has permanent legislative authority, but funding authority for its in-house research programs and federal support for cooperative research, higher education, and extension programs is provided under the Agricultural Research, Extension, and Education Reform Act of 1998 (P.L. 105-185). Between 1977 and the enactment of the 1998 law, these authorities were contained in successive omnibus farm acts, the most recent of which is the Federal Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, or 1996 farm bill).

P.L. 105-185, signed by the President on June 23, 1998, achieved some $1.9 billion in savings over 5 years from food stamp program costs. This provided for: (1) $120 million over 5 years for a competitive grants program in the areas of plant and animal genetics, food safety, alternative uses, precision agriculture and biotechnology; (2) a $100 million increase for the Fund for Rural America, and (3) authority for several research accountability measures. It also provides $800 million over five years to restore benefits to certain classes of immigrants losing food stamp benefits under the 1996 welfare reform law, and uses the remainder (some $470 million) to fund federal crop insurance. Congressional approval of this legislation (S. 1150) was delayed by opposition to the restoration of food stamp benefits to legal aliens, and by the desire of some to target the bill's savings to other congressional initiatives (e.g., a new transportation bill's costs). USDA Secretary Glickman indicated that the President would veto the research bill if it didn't contain food stamp program restorations. This threat, along with farm sector concern about further delaying (or losing) the crop insurance funding in the bill, helped achieve Senate approval of the conference agreement on May 13, 1998, over the objections of those who wanted to remove the food stamp provisions for legal aliens. The fight continued in the House where, on May 22, an attempt to excise the food stamp alien provisions from the bill was overwhelmingly defeated. On June 4, the House approved the Conference agreement, without change, and the President signed the measure.

(For more information, see CRS Report 97-325, Agricultural Research, Education, Extension and Economics Programs: A Primer; and CRS Issue Brief 97032, Agricultural Research, Education, and Extension Issues in the 105^th Congress, and CRS Report 98-201, Appropriations for FY 1999: U.S. Department of Agriculture and Related Agencies.)

Farm Issues

Grains, Cotton, and Oilseeds. In 1997, farm income and prices for several major commodities (especially wheat) began to decline substantially from the previous year highs.

This decline has continued and is the result of a variety of factors, including last year's unusually favorable world growing conditions (and consequent large supplies), less demand, particularly in previously rapid growth markets of Asia, and poor weather conditions and crop diseases in several regions of the U.S. Price and income declines followed a year of record high prices when farmers also received so-called "AMTA" payments, named for the Agricultural Market Transition Act, which is title I of the 1996 Farm Law. Annual fixed but declining contract payments made without regard to market prices or individual crops replaced deficiency payments to farmers which, under earlier law, were provided when market prices fell below a specific target for individual crops. Contract payments under the new law are limited in total to no more than $35.7 billion over the 7-year contract period, and are allocated among their recipients in proportion to the distribution of deficiency payments made under the previous law. Previous law planting restrictions are largely eliminated. Farmers continue to be eligible for nonrecourse marketing loans if market prices are lower than commodity loan rates, but these are limited to a term of 9 months and the rates generally are capped at 1995 levels.

Supporters of the major policy changes made by the 1996 farm law contended that the gradually declining contract payments would serve as a transition for farmers to an unsubsidized "free" market after 2002, and would give farmers the flexibility in planting and other risk management decisions they need to adjust to market-based agriculture. Critics of the new law came from opposing camps. One side objected to any payments for farmers, regardless of market conditions, and particularly when prices are good, as was true in 1996 and part of 1997. They see this as a form of "corporate welfare," and favor efforts (like H.R. 502) that propose to eliminate farm income subsidies. The other side feared that delinking farm payments from actual crop prices deprived farmers of income stability and eliminated a safety net if prices fell, as they began to do in 1997.

Several proposals were made to address the farm income situation. Both the House and Senate approved the Emergency Farm Financial Relief Act, (S. 2344) which permitted the early release of FY1999 contract payments to farmers (P.L. 105-228). It allowed contract farmers to take FY1999 AMTA payments in advance of the initial and final dates specified for payment release. After receiving some $2.9 billion in final FY1998 AMTA payments in September 1998, farmers were able to get their FY1999 AMTA payments ($5.5 billion) as early as October 1998, instead of waiting until December 15,1998 for the initial AMTA payment, and then until September 30, 1999 for the final payment. The budget neutrality of the early AMTA payment release made it less susceptible to the budget obstacles faced by other proposals that would have extended the term, and/or removed the caps that were established by the 1996 farm bill for nonrecourse marketing loans and loan deficiency payments. Amendments to accomplish this were offered (and rejected) during Senate floor debate over FY1999 agriculture appropriations legislation (S. 2159), and over Interior appropriations.

House and Senate Republicans unveiled a $ 3.9 billion farm relief program in mid-September 1998 that would have added $1.65 billion to FY1999 AMTA payments for farmers (regardless of their financial situation) and provided multi-year disaster relief, emergency livestock feed assistance, and general disaster aid. The Administration and Senate Democratic farm aid package, released September 24, 1998, proposed raising farm spending by some $7.3 billion ($6.8 billion after repayment of operating loans). Most of the new spending in the Democratic package would have come from a one-time removal of the farm bill cap on marketing loans ($5.05 billion). The House and Senate approved a conference agreement on FY1999 agriculture appropriations (H.R. 4101) that contained $4.2 billion in farm aid. The President vetoed this legislation, reportedly because it did not contain the more generous funding provided by the Senate Democratic package.

Congressional and Administration officials reached a compromise farm aid package providing some $5.9 billion in assistance to farmers in FY1999, plus tax breaks for farmers estimated to save them some $606 million over the next 9 years. This package, along with FY1999 agriculture appropriations, was contained in the omnibus spending law (P.L. 105-277) signed by the President on October 21, 1998. Removal of the loan caps, the most controversial of the differences between the Administration and Senate Democrats and the House and Senate Republican leadership, was not included in the final legislation. None of the new spending for farmers required offsetting spending reductions because it was ruled "emergency funding." (For more information, see CRS Report 98-743, U.S. Farm Income: Recent National and Regional Changes and the Federal Response: CRS Report 96-606, Wheat, Feed Grains, Cotton, Rice and Oilseeds Provisions of the Enacted 1996 Farm Bill.)

Tobacco. The tobacco price support program functions through a dual system of farm marketing quotas (which keep prices high by limiting the amount of tobacco farms can sell) and loans (which guarantee farmers higher prices by balancing supply with demand at the auction markets). The loan program is under legal mandate to operate at no net cost to taxpayers. This no-net-cost mandate is being achieved. However, tobacco opponents point out that tobacco farmers receive significant federal subsidy dollars through the federal crop insurance program. An amendment to eliminate this subsidy was unsuccessful during House floor consideration of its FY1999 agriculture appropriation bill (H.R. 4101). However, a similar amendment was adopted during Senate floor consideration of its FY1999 agriculture appropriation measure (S. 2159). It would increase tobacco grower assessments to cover all tobacco-related expenses of the USDA, including crop insurance costs.

Congressional interest in the tobacco program was heightened by the intense scrutiny surrounding legislation intended, originally, to implement a tobacco settlement reached by state attorneys-general and the tobacco industry. On April 6, 1998 tobacco companies withdrew from congressional and Administration negotiations over the implementing legislation because of concern that federal lawmakers were going well beyond their agreements with states. Though not addressed by those who designed the original settlement proposal, farmer concerns received a sympathetic response from Members of Congress and the President. Consequently, various implementing bills introduced in the 105^th Congress contained compensatory assistance for tobacco farmers and economic development assistance for tobacco-dependent communities. These ranged from a buyout and termination of the federal tobacco quotas and loan programs to modifications in the existing system with payments to tobacco farmers and communities to help them with anticipated losses and economic dislocation. The projected expenditures for farmer and community assistance in these bills ranged from about $13 billion to $28.5 billion.

In the Senate, S. 1415, a comprehensive tobacco settlement bill was debated for several weeks in May-June of 1998, but was recommitted to the Commerce Committee. As debated, the bill contained two competing farmer compensation proposals. The Ford/Robb proposal would have preserved price supports and compensated farmers for losses at a cost of $16.5 million over 10 years. It also would have provided $11.1 billion over 25 years for tobacco communities and $2 billion for displaced workers. The Lugar/McConnell proposal would have phased out the program and reimbursed farmers a total of $17 billion over 3 years and provided modest community assistance. In the House, the Republican leadership created a tobacco task force to develop a more modest tobacco proposal, but no legislation was presented. [For more information, see: the CRS Electronic Briefing Book on Tobacco http://thomas.loc.gov/brbk/ html/ebtobtop.html and CRS Reports 98-133, Compensating Farmers for the Tobacco Settlement; 97-1042, Summary and Comparison of Major Agricultural Provisions of the Tobacco Settlement Policy Proposals; 98-48, Tobacco Production and Consumption Trends; and 97-417, Tobacco-Related Programs and Activities of the U.S. Department of Agriculture: Operation and Cost.]

Sugar. The sugar program (modified by the 1996 farm bill) continues to protect the incomes of sugar crop producers and those firms that process sugar beets and sugar cane, by making available price support loans at specified levels and by placing limits on sugar imports. Dissatisfied with the outcome of the 1996 farm bill, industrial sugar users and cane refiners have pressed during the 105th Congress for changes that would lead toward lower sugar prices -- their main objective. These, and other program opponents, have continued to press for more changes, often using agricultural appropriations bills as vehicles. They contend that the 1996 farm bill did not "reform" the sugar program as it did the other commodity programs, and thus, did not lessen growers' reliance on government intervention in the sugar market. Critics also claim that the program benefits a few wealthy growers, keeps the cost of sugar unjustifiably high, and supports sugar cane production with adverse environmental consequences for the Everglades. Program supporters counter that further change would expose producers and processors to unreasonable risk because they had made planting and investment decisions based on the expectation that sugar policy would remain unchanged through 2002. They further contend that the amendment would harm farmer-owned cooperatives that process sugar beets and cane, while "padding" the profits of multinational food companies. Most recently, the House rejected by a vote of 167 to 258 a floor amendment to FY1999 agriculture appropriations (H.R. 4101) that would have reduced sugar price support levels by one sent per pound. (For more information, see CRS Issue Brief 95117, Sugar Policy Issues.)

Peanuts. The current peanut program supports the incomes of producers and aims to ensure that ample supplies of peanuts are produced for the U.S. market. To accomplish this, USDA supports the farm price of peanuts primarily by limiting the amount each eligible farm can sell for domestic food use ("quota" peanuts) at a specified price level. Farmers are free to sell peanuts produced in excess of their quota (called "additionals"), primarily for export and crushing into peanut oil and meal. There are two levels of price support: a high level for "quota" peanuts, and a much lower rate for "additionals." In two major changes, the 1996-enacted program reduced the "quota" support level by 10% to $610 per ton, and eliminated two quota-related provisions that had contributed to escalating program costs. There have been three efforts to further revise the program since the February 1996 farm bill debate in the House, when the program survived by a close margin (3 votes). Advocates of lowering the crop quota loan rate contend that the 1996 farm bill changes did not benefit consumers with lower peanut product prices, and retained strong government involvement in the peanut market. They also claim that the program benefits an "elite few"--those who own 68% of the quota nationwide, but who do not farm peanuts themselves. Program supporters counter that the 1996 changes ended direct taxpayer support of the peanut program (saving $434 million over 7 years) and made it more market oriented. To further reduce the quota price support level, they argue, would devastate peanut producers who already had to adjust to the 10% reduction in the guaranteed price, and would harm rural communities dependent on peanut farming and marketing. A House floor amendment to FY1999 agriculture appro-priations proposing to lower the 1998 crop quota loan rate for peanuts was defeated by a vote of 181 -244. (For more information, see CRS Issue Brief 95118, Peanuts: Policy Issues.)

Dairy. The 1996 farm law required the USDA to reduce the number of milk marketing orders (which establish minimum farm milk prices in certain regions) by April 1999, or risk losing its authority to make assessments for the cost of administering milk marketing orders.

On November 3, 1997, a U.S. district court in Minnesota ordered USDA to immediately discontinue use of the current Class I differentials in most regions of the country. The court case was initiated by Upper Midwest milk producers who have long charged that the current pricing system discriminates against their region. This system generally requires processors to pay a minimum price for milk in a region that rises in accordance with that region's distance from Wisconsin (at one time, the only surplus region in the nation). The USDA appealed the decision and was granted an indefinite postponement.

On January 23, 1998, the USDA released its proposed changes to the 60-year old federal milk marketing order program. The proposal would lower the number of milk marketing order regions from 32 to 11. It also presents two options for a new formula price for establishing minimum prices for farm milk used for fluid consumption. One option (1A) maintains minimum prices at close to the current level, and is generally favored by Northeast and Southeast milk producers. The other option (1B) generally establishes lower minimum fluid milk prices, and is favored by the Administration and Upper Midwest producers. FY1999 Agriculture Appropriations (H.R. 4061) passed by the House include language that would require issuance of a final rule between February and April, 1999, and extend the deadline for implementation from April 4 to October 1, 1999. This effectively amends the 1996 farm bill to ensure that when final regulations are issued Congress will be in session.

Regional dairy compacts have been an issue, as well, since the USDA gave authority (under the 1996 farm law) to the New England states to enter into a regional dairy compact. A legal challenge to the compact by dairy processors was denied in late June 1997, as was the appeal, in mid-January 1998, so the $16.94 price floor became effective on July 1, 1997. The 1996 law requires that the NE dairy compact terminate at the same time that federal marketing orders are consolidated. Thus far, legislative efforts by Midwestern farmers to repeal the compact authority have been unsuccessful. House-passed FY1999 agriculture appropriations (H.R. 4041) contain an extension (or delay) in the implementation date until October 1999 for milk marketing order reform, which effectively extends the dairy compact authority. This was in the Conference agreement on FY1999 agriculture appropriations passed by the House and Senate (and vetoed by the President), and in the finally enacted omnibus appropriation law. Meanwhile, several state legislatures in the Mid-Atlantic and Southeast approved membership in a state dairy compact.

Substantial price volatility prompted some dairy farm groups and legislators to recommend that USDA put a floor under the basic formula price (BFP), a market-determined price that is used as the base price for all farm milk sold under federal milk marketing orders (H.R. 2388, H.Res. 224, and S.Res. 119). The USDA held hearings on a petition for a temporary price floor for milk used for fluid consumption and for manufactured products other than cheese, butter and nonfat dry milk, during the week of February 17, 1998. In June, 1998, the USDA denied this petition, contending that it would not have helped dairy farmers most in need and would have distributed benefits unevenly. The same week, the USDA announced an $11 million six-month pilot program that supports dairy farmers in using options to manage price risks, and it purchased about 86 million pounds of nonfat dry milk to remove excess supplies from the market to stabilize prices. $200 million in emergency aid for dairy farmers is contained in the final omnibus appropriations bill signed by the President on October 21, 1998 (P.L. 105-277) (For more information, see CRS Issue Brief 97011, Dairy Policy Issues; and CRS Report 97-322, Federal Milk Marketing Orders: Background and Current Issues.)

Crop Insurance. The federal crop insurance program, administered by USDA's Risk Management Agency, provides federally subsidized insurance on certain eligible crops to protect against crop losses caused by natural disasters. Although crop insurance is sold by private companies, the federal government subsidizes the program by covering most of the program losses, paying a portion of the farmer premium, and reimbursing private companies for a portion of their delivery expenses. One-half of the federal reimbursement to the insurance companies for their delivery expenses comes from mandatory accounts and the other half from discretionary accounts. Criticism of the amount of this reimbursement led appropriators to reduce the requested amount for discretionary spending ($202.5 million) to $188.5 million in FY1998. This has raised concern that the uncertainty of funding for these reimbursements will endanger the program by lessening private sector participation, and this has prompted proposals to make all of this funding mandatory. The new agricultural research law (P.L. 105-185) converts the reimbursement to a mandatory expense beginning in FY1999. This requires $1.015 billion in new mandatory spending over a 5-year period to be offset by an equivalent amount of savings. Offsetting savings of $530 million would come from research bill provisions that make statutory changes to the federal crop insurance program. Among other things, these would increase farmer fees for catastrophic coverage and reduce the reimbursement rate to private insurance companies. The balance of new costs ($485 million) would come from savings associated with a provision in the bill that reduces payments for food stamp administrative costs. The Administration included a proposal in its FY1999 budget request and in its May 7, 1998 commodity assistance plan to allow all of the reimbursement to be funded through the crop insurance fund (as a mandatory account). (For more information see CRS Report 97-572 Managing Farm Risk in a New Policy Era; and CRS Report 98-201, Appropriations for FY1999: U.S. Department of Agriculture and Related Agencies.)

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