SUMMARY

The 1996 omnibus farm bill, the Federal Agriculture Improvement and Reform (FAIR) Act (P.L. 104-127), prescribed farm commodity support policy through 2002. Most significantly, producers of wheat, corn and other feed grains, rice, and cotton would receive annual fixed payments (contract payments) starting at $5.6 billion and declining gradually to $4 billion, for a total of about $36 billion over the 7-year life of the law. At the time of enactment, market prices for these commodities and most others were high and expected to remain high.

By the middle of 1998, prices for many commodities began a sharp decline and remain at low levels. Compounding the depressed market conditions were production disasters in some regions caused by droughts, floods, and diseases. Congress responded to the deteriorating farm revenue situation with a series emergency economic and disaster relief measures.

The 105^th Congress included nearly $5.7 billion in emergency farm aid in the omnibus FY1999 appropriation law (P.L. 105-277). The 106^th Congress provided more assistance. The FY1999 supplemental appropriation (P.L. 106-31) included $574 million in farm assistance. Another supplemental aid package, totaling about $8.7 billion, was incorporated into the FY2000 USDA appropriations bill (P.L. 106-78). An additional $576 million, largely for Hurricane Floyd farm victims, was included in H.R. 3425 and incorporated into the Consolidated Appropriations Act for FY2000 (P.L. 106-113). The Agriculture Risk Protection Act of 2000 (P.L. 106-224) included about $7 billion in farm relief, in addition to crop insurance provisions estimated to cost $7.2 billion over the coming 5 years. Finally, approximately $3.5 billion in additional assistance for farmers was included in the FY2001 USDA appropriation (P.L. 106-387, October 28, 2000).

Nationally, total direct government payments to farmers are estimated to be about $23.3 billion in calendar year 2000, providing 42% of net cash farm income. Included in the government payments figure is $8.9 billion in emergency assistance. Due largely to these government payments, the farm economy is in comparatively strong financial condition.

However, not all producers have received federal farm subsidies. Indeed, critics charge that farm income support policy as implemented by the 1996 farm bill and supplemented by recent emergency assistance has not necessarily reached farms in need, while those not in need may receive assistance. Others point out that farm support is intended to preserve the productive and competitive integrity of the sector, not be welfare for individual farms. What nearly all policy makers agree upon is the desire to end the pattern of frequent ad hoc relief with more predictable federal farm support. Numerous policy options were offered but none developed a consensus of support during the 106^th Congress.

The task of developing future farm support policy now moves to the 107^th Congress.

MOST RECENT DEVELOPMENTS

On October 28, 2000, the President signed the FY20001 USDA appropriations Act(P.L. 106-387). It includes approximately $3.5 billion in new supplemental farm aid. The law also doubles, for the 2000 crop year, the per-person annual limit on USDA marketing loan gains to $150,000.

Previously, on June 22, 2000, the President signed the Agricultural Risk Protection Act of 2000 (P.L. 106-224). Initially, it was a crop insurance reform bill, authorizing $7.219 billion in new crop insurance spending over 5 years. Subsequently, an amendment adopted by conferees added $7.113 billion in supplemental farm income and related agricultural assistance. The farm assistance provisions specify that $5.5 billion is to be used in FY2000 and most of the remainder in FY2001. This follows the $9.3 billion in emergency and disaster assistance already provided in two earlier FY2000 appropriations bills. The crop insurance title provides for higher premium subsidies to attract more farmers to the program and higher coverage for producers with multi-year losses.

BACKGROUND AND ANALYSIS

Overview

The last omnibus farm bill, the Federal Agriculture Improvement and Reform (FAIR) Act of 1996 (P.L. 104-127), prescribed farm commodity support policy through 2002. The key farm income support feature was Agricultural Market Transition Act (AMTA) payments (also called "contract payments" and "freedom to farm" payments), which total about $36 billion over seven years. The fixed annual AMTA payments gradually decline each year. As prescribed by law, about $5.5 billion in payments were made in FY1999, $5.1 billion are programmed for FY2000, and $4.1 billion are scheduled for FY2001. (See CRS Report RS20271, Support Programs for Major Crops: Description and Experience.)

Low commodity prices coupled with natural disasters in some major growing regions (which cut many farmers' income) prompted the 105^th Congress to include about $5.7 billion in additional "emergency" farm assistance in the omnibus FY1999 appropriations law (P.L. 105-277, October 21, 1998), over and above the levels authorized under the 1996 farm bill. The 106^th Congress passed another major supplemental package of $8.7 billion in emergency farm relief in the FY2000 USDA appropriation act (P.L. 106-78, October 22, 1999). Additional farm assistance, amounting to $576 million, was included in the Consolidated Appropriations Act for FY2000 (P.L. 106-113, November 29, 1999). The $576 million were targeted primarily at eastern producers hurt by Hurricane Floyd and by drought in 1999.

Economic forecasters expected weak markets and relatively low farm prices for major crops to persist through 2000. That prospect led Congress and the President to propose more assistance to the agricultural sector. The 2000 election cycle added to the momentum. In order to avoid the requirement for an emergency designation, the congressional budget resolution (H.Con.Res. 290) reserved over$7 billion expressly for additional income assistance for farmers. Of the total, $5.5 billion was set aside for FY2000. Instead of providing this money through either the annual USDA appropriation or a supplemental spending bill, House and Senate conferees attached it to an authorizing bill, the crop insurance reform legislation (H.R. 2559) titled the Agriculture Risk Protection Act of 2000 (P.L. 106-224, June 22, 2000). More recently, approximately $3.5 billion in additional assistance for farmers was included in the FY2001 USDA appropriation (P.L. 106-387, October 28, 2000).

During calendar 2000, as with 1999, there was little debate over whether or not additional farm income assistance was needed. The disagreements revolved around the design of the assistance program (who should get it, and what should be the delivery mechanism). Only a few critics argued against additional farm assistance, claiming that the problems would self-correct through reduced production and increased domestic and export sales caused by low prices. Others maintained that U.S. taxpayers already were making large direct farm payments to farmers that may not be financially needy. Furthermore, some argued that higher farm spending would leave fewer dollars for other national priorities, such as tax relief, debt reduction, or spending on social programs.

The fact that large supplemental payments have been passed for 3 years in a row has caused a critical examination of domestic support policy. A substantial portion of the farm relief has been disaster assistance, which is not related to commodity support policy. However, about $17 billion in supplemental relief has been paid to farmers solely in response to low prices. This spending has caused the congressional agriculture committees to focus on policy alternatives long before expiration of the 1996 farm bill.

Farm Economic Situation

Overall, depressed agricultural export values and low U.S. farm prices will help to hold total farm commodity receipts to a forecast $194.5 billion in 2000, an improvement from last year's $188.6 billion but substantially below the 1997 record high of $207.6 billion. USDA data show that total livestock receipts have risen, but that prices and receipts for major crops have been relatively flat.

U.S. agriculture's prosperity is heavily dependent on exports, which account for about 20% of the value of U.S. farm production, and for an estimated 30% of all harvested crop acreage. However, export value is down, from the record of $60 billion in FY1996, to a projected $50.9 billion in FY2000 and a projected $53 billion in FY2001. Much of the decline was explained by financial crises in key overseas markets, particularly Asia (which had been the fastest growing market for U.S. farm goods), and in Russia (where U.S. imports declined by about 80% between 1997 and 1998). The high value of the U.S. dollar relative to other exporting countries' currencies adds to the competitive difficulties.

USDA forecast data show that 2000 net cash farm income will be $55.4 billion, $800 million more than in 1999 and close to the 1998 level, largely due to record high direct government payments to farmers. Also, U.S. agriculture's overall farm business balance sheet looks strong. According to USDA, the value of farm real estate and other farm assets have continued to rise, while debt stabilized in 1999 and 2000. Farm debt, measured as a percentage of farm assets (the so-called debt-to-asset ratio), is forecast by USDA to be 15.9% in 2000, generally regarded by credit experts as a highly favorable level.

Total income for the average farm operator household (taking into account off-farm as well as on-farm sources) rose from $52,562 in 1997, to $59,734 in 1998, to $64,347 in 1999, and a forecast $64,645 in 2000, according to USDA. Farm household incomes remain above the average U.S. household's income, which was $51,855 in 1998. However, on average, off-farm income now makes up over 90% of all household income received by farm operators.

According to USDA, calendar 2000 direct federal farm payments amounting to $23.3 billion -- which will exceed the previous record levels of $20.6 billion in 1999 and $16.7 billion in 1987 -- have offset income losses due to low commodity prices. Another measure of taxpayer support to the farm sector is spending by USDA's Commodity Credit Corporation (CCC), which finances price and income support programs. Analysts estimate that CCC net outlays for FY2000 exceeded $32.3 billion, eclipsing the previous record of nearly $26 billion set in FY1986.

(See the most recent monthly issue of Agricultural Outlook, published by USDA's Economic Research Service, for more detailed data on farm economic conditions.)

Farm Relief Legislation

Emergency Farm Financial Relief Act of August 12, 1998. As farm income in some sectors and regions was declining (albeit from generally record highs in 1996), Congress began to debate the adequacy and design of farm assistance under the 1996 farm bill. During the summer of 1998, for example, Democrat farm state Senators attempted several times to win increases in the loan rates for major commodities. Although these were not adopted, Congress did pass the Emergency Farm Financial Relief Act (P.L. 105-228, signed August 12, 1998), which allowed AMTA contract holders to receive all of their FY1999 payments ahead of schedule, in October 1998.

Omnibus Consolidated and Emergency Appropriations Act of October 21, 1998. The FY1999 Omnibus Consolidated and Emergency Appropriations Act (P.L. 105-277, signed October 21, 1998) contained $5.8 billion in new emergency spending for producer assistance, most of it to shore up farm income and to indemnify producers for natural disasters (see Table 1 at the end of issue brief for details). Nearly $2.9 billion were direct "market loss payments" (disbursed in late 1998) to compensate grain and cotton producers enrolled in AMTA for "regional economic dislocation, unilateral trade sanctions and the failure of the government to pursue trade opportunities aggressively." Another $200 million was made available to dairy farmers for the same purposes; USDA released the dairy funds in 1999 after milk prices declined from 1998's record highs. Another nearly $2.4 billion in the Act was for direct payments to crop farmers who experienced 1998 disaster-related losses higher than 35% of normal yields or who had losses in three of the past 5 years. The money was disbursed in spring 1999. Farmers who had not purchased crop insurance were included in the program even though they had signed agreements declining future assistance when they refused to purchase insurance. The rest of the $5.9 billion was designated for livestock disaster assistance ($200 million), commodity loans for honey and mohair ($28 million), and additional funding for farm operating loans ($31 million to support new lending of $540 million), among other smaller categories.

Supplemental Appropriations Act of May 21, 1999. More assistance was provided for calendar 1999 through the FY1999 Supplemental Appropriations Act (P.L. 106-31, May 21, 1999). Although primarily for Kosovo military operations and for Central American and Midwestern storm victims, the measure also included $574 million in new funding for USDA farm relief, including: $106 million to support $1.1 billion in farm loans; $145 million for Section 32 assistance for hog producers; $74 million for livestock disaster assistance; $43 million in USDA salary and expense money to expedite delivery of disaster aid; and $120 million for conservation programs to restore farmland and watersheds damaged by natural disasters.

Agriculture Appropriations Act of October 22, 1999. An $8.7 billion emergency farm assistance package was included as Title VIII in the FY2000 agriculture appropriations act (P.L. 106-78, H.R. 1906, H.Rept. 106-354, October 22, 1999). It is estimated that about $6 billion of the $8.7 billion reached farmers during calendar 1999, with the remainder going out in calendar year 2000 (see Table 2 at the end of the issue brief for details). Supplemental market loss payments effectively doubled the AMTA payments. Crop disaster victims received $1.2 billion. For the first time, AMTA contract holders received direct payments for soybean and minor oilseed production. The limit on marketing loan gains was doubled to $150,000 per person. Other beneficiaries included dairy, tobacco, peanut, and sugar producers, and domestic cotton buyers.

In addition to the provisions shown in Table 2, the package included "sense of Congress" language calling on the Administration to: request "fast track" trade negotiating authority from Congress; to use World Trade Organization (WTO) negotiations to reduce barriers to agricultural trade; to conduct a comprehensive evaluation of current U.S. export and food aid programs; and to use existing authority under these programs to promote the export of additional quantities of soybeans, beef, pork, and poultry products. Also, in the bill were provisions: mandating that meat packers report, several times per day, the prices they pay for live animals (see CRS Report RS20079, Livestock Price Reporting Issues); changing operating and funding procedures for the National Sheep Industry Improvement Center; and, authorizing USDA's Farm Service Agency to reserve up to $56 million of the emergency aid money for administration.

Consolidated Appropriations Act of November 29, 1999. Damage from Hurricane Floyd prompted additional emergency assistance for farmers and rural communities in the southeast. The FY2000 Consolidated Appropriations Act (P.L. 106-113, November 29, 1999), included $576 million for USDA-administered assistance largely to repair and replace storm-caused damage to crops, buildings, and land.

Agricultural Risk Protection Act of June 20, 2000. Early in the 2^nd session of the 106^th Congress, supplemental farm assistance, totaling $7.113 billion, was provided not through appropriations legislation but rather through an amendment - added during conference - to a crop insurance reform bill (H.R. 2559). The details of this supplemental farm spending were not reviewed by the full House and Senate, until they reached the floor as part of the crop insurance conference report. The Agricultural Risk Protection Act of 2000 was signed into law as P.L. 106-224 on June 20, 2000. The funds were made possible with passage of the FY2001 budget resolution (H.Con.Res. 290).

As typical with such measures, some of the spending was earmarked for purposes other than farm price and income support, such as: grants for research and for marketing assistance, conservation, nutrition; new biomass research and development (Title III), enhanced USDA authority to regulate plant health (Title IV).

Table 3 (at the end of the issue brief) highlights the major supplemental spending provisions contained in Title II of P.L. 106-224. Market loss payments were disbursed in September 2000 to AMTA contract holders ($5.466 billion) and soybean and minor oilseed producers ($500 million). The balance of the $7.113 billion is to be spent in later years, most of it in FY2001, according to CBO estimates.

H.R. 2559 initially was designed as crop insurance "reform" legislation. Early in 1999, many Members of the House and Senate Agriculture Committees indicated that improvements in crop insurance would be a legislative priority. An important objective was to alter the program to raise participation and eliminate the need for virtually annual ad hoc emergency disaster assistance. CBO estimates the crop insurance provisions (Title I), will cost $7.219 billion over the FY2001-05 period. The law increases the premium subsidy for all levels of crop insurance above the basic (catastrophic) coverage level; subsidizes some of the additional cost of revenue insurance products; improves coverage for farmers affected by disasters in multiple years; authorizes pilot insurance programs for livestock producers; and eases eligibility requirements for permanent disaster aid for noninsurable farmers. (See CRS Issue Brief IB10033, Federal Crop Insurance: Reform Issues in the 106^th Congress.)

Agriculture Appropriations Act of October 28, 2000. Approval of the Agricultural Risk Protection Act was not the end to farm relief from the 106^th Congress. The FY2001 agriculture appropriations act (P.L. 106-387, H.R. 4461, H.Rept. 106-948, October 28, 2000) included Emergency and Market Loss Assistance as Title VIII. About $1.7 billion was for crop disaster losses during crop year 2000. Livestock producers suffering disaster losses received about $500 million. Milk and specialty crop producers received more than $900 million in income support due to low prices. Total supplemental farm relief in this law amounted to about $3.474 billion (see Table 4). The per person limit on marketing loan gains was doubled to $150,000 for only the 2000 crop year.

(For more information on emergency assistance legislation, see CRS Report RS20269, Emergency Funding for Agriculture: A Brief History of Congressional Action, 1988-June 1999; and CRS Report RS20416, Emergency Farm Assistance in FY2000 Appropriations Acts.)

Trade Considerations

U.S. trading partners are watching closely to assess whether the emergency farm assistance is compatible with U.S. commitments under the Uruguay Round (UR) Agreement on Agriculture. Generally, that agreement places countries' domestic farm support programs into one of several broad categories, based on their relative likelihood to distort trade. Most major agricultural trading countries are required to "discipline," (limit) total spending (i.e., their aggregate measure of support, or AMS) for their most trade-distorting (so-called "amber box") policies. Countries report to the World Trade Organization (WTO) on their domestic farm spending for each year (although such reports are often submitted 2 to 3 years after the end of the marketing year in question).

The United States, like virtually all other countries, has been below its allowable annual levels. U.S. amber box programs have included dairy, peanut, and sugar price supports; crop marketing loans, loan deficiency payments, and other direct crop payments linked to per-unit levels of production; storage payments; and crop insurance and loan interest subsidies, among others. The least trade-distorting programs, in the so-called "green box" category, are exempt from AMS reductions. These programs include income supports not coupled to current production, such as AMTA payments; conservation and environmental activities, such as the Conservation Reserve Program (CRP); farm disaster relief payments; and domestic food aid.

The UR agreement provides latitude to U.S. policymakers in developing both the emergency farm measures and proposed changes in long-term farm policy. Many analysts predict that this latitude will enable the United States to claim that its 1998, 1999, and 2000 supplemental farm relief payments are exempt from AMS commitments because they were not tied to current production of a specified commodity. Nonetheless, some member nations of the WTO could argue that the payments were made specifically in response to immediate price and supply conditions and were so large as to affect world trading patterns, thereby undermining the objectives of the agreement. The question could become a point of contention in the ongoing negotiations among WTO member nations to further reform agricultural trade - although the United States might counter that others (notably the EU) continue to subsidize their farm sectors at substantially higher levels. (See CRS Report RL30612, Farm Support Programs and World Trade Commitments, July 26, 2000.)

Other Policy Proposals

Supporters of the policy changes made by the 1996 farm law saw benefits to farmers because it released them from the planting and cropland set-aside requirements of earlier price support and supply management policies. The new law's transition (or contract) payments to farmers were expected to provide a stable and known amount of income support while farmers would make their planting and selling decisions based on market price signals. Policymakers recognized that commodity prices would continue to fluctuate from year to year, as they always have. However, there also was the expectation that farmers would use some portion of the transition payment received during high price years as a cushion to help them during low price periods. Additional risk protection was maintained by continuation of the marketing assistance loan programs, revision of the crop insurance program, and adoption of pilot revenue insurance projects, also authorized by the 1996 farm law.

Opposition to the 1996 farm law -- enacted during a period of high farm prices for most commodities -- came from those concerned that AMTA contract payments would not increase but would continue to decline when market prices fell. Although almost all farmers and policymakers recognize that the farm economy will always be subject to periods of low prices caused by excess production or weak demand, few predicted that the recent price declines would be so steep, affect so many commodities, and last so long.

While some accuse Freedom to Farm of not adequately protecting farmer incomes, few believe that the 1996 law was the cause of these problems. While some policy makers have argued that Washington should "stay the course" and not change the basic, market-oriented premise of the 1996 farm bill, they also have expressed support for substantial ad hoc farm aid. Others are calling for more fundamental policy changes, but few are seeking a return to past supply management and government inventory-holding programs.

The emergency farm relief measures approved in 1998, 1999, and 2000 advanced the time frame and increased the size of payments to farmers primarily by utilizing the policy framework established by the 1996 farm bill. That framework benefits farms that had land in the former grain and cotton programs. Critics argue that AMTA does not attempt to target assistance to farmers most in need. Farm bill supporters note that market loss assistance payments are the most efficient method for quickly channeling badly needed funds to the farm sector. Furthermore, supporters argue, federal farm programs are intended to maintain the productive and competitive capacity of U.S. agriculture, not serve as welfare for individually needy farms.

Still, some Members of Congress favor fundamental design changes to current support programs to make assistance counter cyclical to market prices, and/or targeted to farms in the greatest financial need. Also, among the many questions before policymakers are the budgetary and trade impacts of additional assistance.

Administration Views. The Clinton Administration was among those calling for changes in permanent farm policy. Secretary Glickman criticized the 1996 farm law for failing to offer "counter cyclical assistance," and for not targeting assistance to smaller farmers and those producers most in need. However, not until the Administration sent its FY2001 budget to Congress in February 2000 did the Secretary make any specific proposals for change.

The "centerpiece" of the Administration's proposals was a new Supplemental Income Assistance Program (SIAP) that compensates farmers for current low prices based on actual production, not on past production as with AMTA payments. It was similar in concept to the "Supplemental Income Payment" program proposed by Representative Stenholm in H.R. 2792. SIAP would make payments to grain, cotton, and oilseed producers if projected gross income for the crop falls below 92% of the preceding 5-year average. Gross income would include gross market revenues plus government payments. Payments to individual farmers would be based on current production. Annual SIAP payments would be capped at $30,000 per person. Furthermore, SIAP payments would be adjusted downward to zero as AMTA payments reached and exceeded $30,000. SIAP would only make up for the difference that Agriculture Market Transition Act (AMTA) payments were below $30,000. Legislation also was requested to extend the dairy price support program to 2002. In addition, the Secretary stated his intention to use his existing authority to preserve grain, cotton, and oilseed marketing assistance loan rates in 2000 at their 1999 levels, as well as to implement a grain storage facility loan program for farmers. Together, these so-called farm income support proposals were estimated to cost $3.264 billion in FY2001 and $2.695 billion in FY2002.

The Administration's proposal did not gain much momentum in Congress. Nor did any other proposals for major changes in the 1996 farm law. However, federal farm policies, including the 1996 law and possible alternatives to its basic structure, did become the subject of extended debate. For example, on August 3, 4, and 5, 1999, Senate Agriculture Committee Chairman Lugar held three days of comprehensive hearings on the farm income situation. Secretary Glickman was the lead witness at these hearings. The House Agriculture Committee conducted a lengthy series of farm policy hearings that began in September 1999. The Chairman of the House Committee indicated that no consensus on how to change farm policy emerged from these hearings.

Crop Loan Program Changes. The 1996 farm bill continued marketing assistance loans for major crops, which are designed to facilitate marketing by providing short-term financing to farmers. When market prices fall below the commodity loan rates (now capped at 1995 levels), repayment may be made at the lower market price, instead of the higher loan rate. The marketing loan gain is an income subsidy to the farmer-borrower. Farmers eligible for, but who forego, the loans can receive loan deficiency payments (LDPs), equal to the marketing loan gains. (See CRS Report 98-744, Agricultural Marketing Assistance Loans and Loan Deficiency Payments.)

Several bills (S. 30, H.R. 1299, H.R. 1468, H.R. 4979) would remove or raise the farm bill cap on loan rates for grains, cotton, and oilseeds. Also, S. 30, H.R. 1299, and H.R. 4979 would permit the Secretary of Agriculture to extend the term of a loan (now nine months) for additional periods. H.R. 2704 would restore the farmer-owned reserve (FOR) for grain, which was suspended by the 1996 farm bill. The FOR effectively functions as a 3-year extension of the marketing loan, during which time farmers might not accrue interest on the loan, and also could receive storage payments under certain conditions.

Such loan proposals appeal to those who want more of a link between commodity prices and government payments than is the case under Freedom to Farm. Eliminating the cap on marketing loan rates was proposed but not adopted at the end of the 105th Congress, largely because of the cost (then estimated at about $5 billion), its potential for reversing the decoupled design of farm policy and, in some views, possibly exacerbating the oversupply/low price problem -- i.e., longer loan periods can lead to the build-up of more surplus stocks, further lengthening the duration of depressed prices.

Raising Payment Limitation. The 1996 farm bill imposed a per person limit on marketing loan/LDP gains at $75,000 per year. This counts against all crops, not each one. (A separate limit of $40,000 is in place for AMTA payments.) Low prices (below established crop loan rates) have meant large marketing loan/LDP gains for farmers, many of whom reach this annual payment limit. In contrast to limits on payments, there is no maximum on the quantity of commodities that a farmer can place under loan and then forfeit to settle the loan obligation and thereby circumvent the payment limitation. However, few policy officials want to see the CCC acquiring forfeited grains, cotton, or oilseeds.

The farm relief provisions of last year's P.L. 106-78 doubled the per-person limit on loan gains to $150,000 for the 1999 crop year only. Then, in February 2000, the Secretary approved the sale of commodity certificates to farmers for use in repaying nonrecourse commodity loans. This was done to avoid forfeiture of commodities to CCC. The action effectively eliminated the per person payment limitation on loan gains. However, certificates have their own constraints and administrative requirements that make them unworkable in some situations and burdensome in others. Legislation (such as H.R. 4895 and S. 3049) was introduced to continue the higher cap, and the FY2001 USDA money bill (P.L. 106-387, Sec 837) again doubles it to $150,000, but only for the 2000 crop year.

Those who want to retain lower payment limitations note that the combination of marketing loan and AMTA payment limits already effectively double the "three-entity rule," which allows for the full limit on the first farm plus half on each of two additional farming operations. This, they argue, is already a generous government subsidy -- particularly when it is available regardless of a farmer's financial situation.

Supplemental Income Payment Program. Representative Stenholm introduced, on August 5, 1999, a bill (H.R. 2792) to establish a new system of supplemental income payments for producers of crops eligible for marketing assistance loans -- wheat, feed grains, cotton, rice, and oilseeds. The payments would be made whenever the current year's national gross revenue for a crop falls below 95% of its previous 5-year average. A per-acre payment rate would be calculated, based on the difference between 95% of that 5-year average and the current year's revenue per acre. This calculation would be used to set a per-unit payment for each producer's harvested production; in addition, the bill attempts to ensure that farms with weather-reduced yields receive the same level of assistance as other participants. Representative Stenholm unsuccessfully offered a version of his bill as an amendment to the crop insurance legislation (H.R. 2259) marked up prior to the August 1999 recess by the House Agriculture Committee. This proposal served as the conceptual framework for the Secretary's SIAP proposal.

Farm Income and Trade Equity Act. Senator Conrad on July 26, 1999, introduced the Farm Income and Trade Equity Act (S. 1436), aimed at altering the basic long-term provisions of the 1996 farm bill. This bill would permit farmers to forgo their AMTA contract payments in exchange for a new, two-tiered system of subsidies. The first tier would provide marketing loans for grains, cotton, and soybeans set at 100% of past market prices. A second tier of "transitional international marketing equity" (TIME) payments would be based on the USDA-calculated difference between the new loan rate and the level of support received by European Union (EU) producers for the same crops. The payments would be designed as a direct challenge to EU domestic farm subsidies, which have been much higher than those in the United States. The Senator in 1999 tentatively estimated the annual cost of the plan at $7 billion more than the scheduled AMTA payments.

Risk Management. Crop insurance is one way farmers can manage their financial risk. Other examples include participating in the federal farm income and price support programs, utilizing the private futures market to cushion themselves against future price declines, and entering into production or marketing contracts with food processors or other buyers of their commodities. Early in the crop insurance debate, Senate Agriculture Chairman Lugar had promoted his bill (S. 1666) that would have made a direct payment to any producer who adopts at least two of a variety of risk management strategies. However, his committee opted instead to focus on crop insurance program improvements as contained in S. 2251. Ultimately, the Agriculture Risk Protection Act of 2000 (P.L. 106-224) was adopted.

Tax and Regulatory Proposals. The comprehensive tax relief bill (H.R. 2488, adopted by Congress on August 5, 2000, but vetoed by the President on September 23) contained several provisions of interest to farmers. Farm, Fishing, and Ranch Risk Management Accounts (FFARRM), introduced in the 106^th Congress as S. 642 (Grassley) and H.R. 957 (Hulshof), would have modified federal tax law by permitting farmers to set aside money in higher income years without having to pay taxes on it until the money is withdrawn -- presumably in years when taxable income is lower. Also in the tax bill was the acceleration to 2000 of full deductibility of health insurance premiums (now set to take effect by 2003). Farm organizations supported H.R. 8, a measure to end estate taxes that they contend make it difficult for farmers to pass their businesses to their children. On July 19, 2000, Chairman Lugar introduced S. 2894, a wide-ranging bill to provide tax and regulatory relief to farmers.

Producer interests such as the American Farm Bureau Federation also believe that long-term improvements in farm income could be achieved if the federal government relaxed a variety of regulatory requirements affecting producers' costs. Overly stringent application of the federal pesticide, endangered species, and water quality laws are often cited (although supporters of these laws argue that changes proposed by agricultural groups would jeopardize the health of consumers, natural resources, and the environment).

Competition Policy. Agricultural businesses, like other sectors of the economy, have long been subject to organizational changes, including consolidation of processing and production into fewer and larger operations; more vertical control of the various stages of production, processing, and marketing; and the shift from open cash markets to closed systems involving contractual arrangements between buyers and sellers. Many economists, and many within the industry itself, believe that such changes create a more efficient resource allocation, make U.S. agricultural exports more competitive on world markets, and benefit consumers by providing a wider variety of lower-priced, and higher-quality foods.

However, many producers believe that such changes stifle competition, cause lower farm prices and farm incomes, and force families out of agriculture. Concern about structural change, and its potential to adversely affect many farmers, intensifies during periods of low farm prices. Many farm groups have called on government to strengthen enforcement of existing antitrust and competitiveness authorities, and/or to adopt new laws if necessary.

Both the House and Senate Agriculture Committees have held a number of hearings in the 106^th Congress on concentration and competition problems and policies, and several bills have been introduced. For example, S. 2252 and S. 2411 both would provide USDA with expanded authority to address business mergers in agriculture. S. 2252, along with H.R. 2829, would extend to poultry the same types of oversight USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) now has over livestock markets. H.R. 3159 would impose a 18-month moratorium on large agricultural mergers and acquisitions; S. 1738 and H.R. 3324 would ban the ownership of slaughter animals by meat packers. S. 3091 would implement General Accounting Office recommendations aimed at improving GIPSA's ability to address livestock market competition issues. S. 3243 addresses agricultural contracts, strengthens bargaining associations, and brings poultry under USDA's enforcement authority. (See CRS Report RS20562, Merger and Antitrust Issues in Agriculture.)

Table 1. Selected Farm Relief Provisions in the FY1999 Omnibus Consolidated and Emergency Appropriations Act (P.L. 105-277, October 21, 1998)

Source: Congressional Budget Office (CBO) estimates.

Table 2. Selected Farm Relief Provisions in the FY2000 Agriculture Appropriations Act (P.L. 106-78, Title VIII, October 22, 1999)

Source: Congressional Budget Office (CBO) estimates.

Table 3. Selected Farm Relief Provisions in Agricultural Risk Protection Act (P.L. 106-224, Title II, June 20, 2000)

Source: Estimates by CBO as published in June 20, 2000, transmittal to Congress.

Table 4. Selected Farm Relief Provisions in the FY2001 Agriculture Appropriations Act (P.L. 106-387, Title VIII, October 28, 2000)

Source: Estimates by CBO as published in the October 10, 2000, transmittal to Congress.

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