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98-743: U.S. Farm Income:
|Illinois||-2.8%||Montana||-5.5%||Rhode Island||-6.0%||United States||-6.8%|
Source: Calculated from USDA preliminary data published July 17, 1998.
Comparing changes in farm income from just one year to another may not give an adequate view of economic conditions, especially since the farm sector is characterized by volatile prices and 1996 was the year of record high income. Table 2 compares annual net farm income for all regions under previous farm policy (years 1990-95) with net farm income under the first two years of the current farm bill (years 1996-97). Average annual net farm income for the entire U.S. was 19.8% higher during 1996-97 as compared to average annual net farm income over 1990-95. Again, some regions gained much more than that (i.e., Corn Belt, +88.1%; Delta, +70.9%) while three regions each had reduced net farm income during that time period (Mountain, -16.5%; Southern Plains, -6.7%; Northeast, -5.8%). Figure 2 shows the same information for individual states.
Table 2. Change in Average Annual Net Farm Income, by Region
Although comparisons have been drawn between the current farm situation and the agricultural crisis of the 1980s, there are significant differences between the two periods. The crisis during the 1980s was national and related largely to credit. Interest rates were high and farms were going bankrupt because of excessive debt loads. The current situation is more regional, and although foreign financial crises do have an influence they do not appear to threaten the national agriculture industry. The guaranteed and stable future contract payments authorized by the FAIR Act have improved the borrowing capability of farmers otherwise often viewed as marginal credit risks by banks. Credit availability does not seem to be a problem in the near future. According to some experts, the Farm Credit System, a private, government sponsored enterprise that lends primarily to farmers, appears very well capitalized and is willing to lend to creditworthy farm borrowers. Moreover, interest rates and inflation are low, and land values were increasing in 1997.
The Emergency Farm Financial Relief Act (P.L. 105-228), enacted on August 12, 1998, allows the early release of FY1999 production flexibility contract payments to wheat, feed grain, cotton, and rice farmers. Participating farmers will receive their final FY1998 contract payments ($2.9 billion) in September 1998 and will be able to get all of their FY1999 contract payments ($5.5 billion) the following month, if they choose, rather than wait until December 1998 and September 1999. Since this did not alter the amount of funds required to be spent on contract payments for FY1999, it did not need budget offsets or a determination of a fiscal emergency, both of which might have delayed passage. There is some concern about what will happen to those farmers taking all of their FY1999 contract payments at the beginning of the year if they run into financial problems later on and about the precedent this might set for subsequent accelerations of payments.
The Congress also approved a conference agreement on a $59.9 billion FY1999 agriculture appropriations measure (H.R. 4101) that included $4.2 billion in emergency payments to farmers. About $1.65 billion (or 40%) of this amount was to supplement the $5.5. billion in regularly scheduled FY1999 contract payments for farmers; $1.5 billion was for general disaster relief; $175 million for livestock feed assistance; and $650 million for farmers experiencing multiple-year disasters. The President vetoed this legislation because it did not contain the $7.3 billion farm aid package favored by Senate Democrats. The Democratic package contained a provision that would have removed for one year the cap on USDA marketing loan rates for wheat, rice, feed grains, and cotton. Costing an estimated $5 billion, the loan rate proposal was rejected twice when it was offered as a floor amendment both to Senate agriculture appropriations (S. 2159) and to an Interior Department appropriation bill. Proponents contended that this would give farmers more funding and flexibility to withstand unfavorable price conditions. Opponents were concerned that it would increase carry-in stocks next year, and thereby depress prices and further postpone recovery in farm income. There also was concern that this would signal a reversal of market-driven farm policy and a return to government supply management and uncontrollable federal spending on farm programs.
FY1999 agriculture appropriations were wrapped into a year-end omnibus appropriations measure (H.R. 4328, P.L. 105-277). This measure funded the USDA at a total of $55.9 billion for FY1999 and contained an additional $5.9 billion in emergency aid for farmers. Enacted October 21, 1998, this measure did not contain changes to the marketing loan caps that were sought by the Administration and Senate Democrats. Of the $5.9 billion in aid for farmers, $3.05 billion is for "market loss" payments ($2.85 billion for grain and cotton farmers and $200 million for dairy farmers); $1.5 billion is for 1998 crop loss payments; $875 million is for multiple year disaster relief, $200 million is for livestock feed assistance, and $31 million is to cover the cost of some $440 million in additional farm operating loans. The omnibus law also contained special tax provisions for farmers providing them some $606 million in tax relief over the next 9 years.
Another avenue to get more money to farmers was the early release of some $1.3 billion in FY1999 Conservation Reserve Program (CRP) payments in October 1998. This was done administratively by the USDA and did not require legislation similar to that enacted for the early release of farm contract payments. The CRP is designed to encourage farmers not to plant crops for 10 years on land that is highly erodible or environmentally fragile. In return farmers receive government payments. The USDA has been asked to look into expanding the CRP by enrolling acreage affected by wheat scab but has not made a decision as of this date. Advocates contend that giving CRP payments to farmers for letting land producing wheat with scab go unplanted for 10 years might help bring the scab problem under control, and the payments would help affected farmers' income. Some, however, fear that using a chronic crop disease as an eligibility factor for CRP will undermine the program's environmental and conservation emphasis.
Other related CRS products: CRS Report 98-744, Agricultural Marketing Assistance Loans and Loan Deficiency Payments, CRS Report 98-682 ENR, Farm Disaster Assistance: USDA Programs and Legislative Issues, and CRS Issue Brief 97050, Food and Agriculture Issues in the 105th Congress.
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