Farm Bill Issues: Overview

Food and Agriculture Section
Environment and Natural Resources Policy Division

Updated June 6, 1996

IB 95058

SUMMARY

Faced with Spring planting decisions and the prospect of having to operate farm programs under 1938 and 1949 agriculture statutes because of expiring provisions in the 1990 farm law, the House and Senate passed omnibus farm legislation in the early months of 1996. Following quick resolution of House-Senate bill differences, the President signed H.R. 2854, the Federal Agriculture Improvement and Reform Act, also called the 1996 farm bill, on April 4, 1996 (P.L.104-127).

At the core of U.S. farm policy are federal programs that support farm income and some commodity prices. The 1996 law makes substantial policy changes to many of these programs. It replaces the earlier target price deficiency payment system for grains and cotton with predetermined and capped annual contract payments to participating producers through 2002. Payments are tied to overall crop history, rather than individual crops, and no longer are linked to market prices. Earlier nonrecourse commodity loan and marketing loan repayment provisions are largely maintained; however, the new law ends annual federal acreage reduction and strict planting requirements.

With respect to the other federally supported farm commodities, the new law: 1) reauthorizes the dairy price support program, but phases it out by the end of 1999, and requires a consolidation of federal milk marketing orders; and 2) extends the sugar and peanut programs for 7 years, with some modifications, but keeps largely intact their broad program structures.

The trade title of the new law extends through FY2002 authority for the Export Enhancement Program (EEP) and Market Access Program (MAP, formerly the Market Promotion Program, or MPP), the dairy ex-port incentive program (DEIP), export credit guarantees, and P.L.480 food aid programs. Maximum funding levels for EEP are lower in the early years than those allowed by the GATT agreement, and MAP funding authority is lowered.

The conservation title of the new law builds on conservation initiatives enacted in 1985 and 1990, somewhat alters current constraints placed on producers, and converts the majority of conservation spending to entitlements by financing them with Commodity Credit Corporation funds.

The new law also contains a rural development title that, among other things, establishes a Fund for Rural America, a new community facilities grant program, and a new rural community advancement program. Extensions of funding authority and revisions to agricultural research, education and extension programs, credit, and crop insurance also are in the new law.

The food assistance title of the 1996 farm law extends the food stamp program (through FY1998) and commodity donation programs (through FY2002), without change. It also authorizes funding for new community-based food security projects. Changes to these programs are expected to be part of welfare reform proposals pending in the 104th Congress.

Finally, the new law retains the permanent 1949 statutory authority for most price-supported commodities. Much of the longstanding permanent authority contains program operating provisions that are considered by most to be outdated and unacceptable, but it does allow for the continued operation of farm programs by USDA if agreement cannot be reached on new legislation before the expiration of preceding farm bill provisions.

CONTENTS

SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Status of Omnibus Farm Legislation
Overview of U.S. Agriculture
-- Structure of the Farm Sector
Major Issue Areas of the Farm Bill
-- Commodity Programs
-- Wheat, Feed Grains, Cotton and Rice
-- Dairy
-- Sugar and Peanuts
-- Trade Policy
-- Domestic Food Assistance Policies
-- Conservation and Environment
-- Research and Extension
-- Agricultural Credit

MOST RECENT DEVELOPMENTS

On April 4, 1996, the President signed H.R. 2864, the Federal Agriculture Improvement and Reform Act (P.L.104-127), or the 1996 omnibus farm bill. This was preceded, on March 21, by conference agreement over the House-Senate differences between the two chambers' bills. On March 28, the Senate voted 74-26, and the House voted 318-89, to approve the conference report.

BACKGROUND AND ANALYSIS

Status of Omnibus Farm Legislation

Congress traditionally modifies and renews a large number of the U.S. Department of Agriculture's (USDA) programs with an omnibus piece of legislation called a "farm bill." Federal programs that support many farmers income and certain commodity prices have traditionally been the core of omnibus farm bills. Additionally, a farm bill typically includes modifications to programs affecting soil and water conservation, forestry, domestic and foreign food assistance, export market development, agricultural research and education, farm credit, and rural development.

Many of the provisions of the last farm bill, the Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 101-624), expired at the end of fiscal or calendar year 1995; others were due to expire at the end of the 1995 crop or marketing year. The 104th Congress began 1995 with consideration of new farm policies high on its agenda. However, the year ended without enactment of a major farm bill, which was caught up in congressional efforts to balance the budget in 7 years.

The FY 1996 budget resolution that Congress completed on June 29, 1995, had assumed a $48.8 billion reduction in mandatory USDA spending over 7 years, below the February 1995 Congressional Budget Office (CBO) baseline -- $13.4 billion for agricultural programs (nearly a 20% reduction), $30.4 billion for food stamps (approximately a 10% reduction), and $4.6 billion (nearly a 6% reduction) for child nutrition programs. In late November, Congress cleared for the President a largely Republican-crafted reconciliation measure (H.R. 2491) intending to save $12.3 billion in farm commodity and other agricultural programs, and $39.1 billion for food stamps, child feeding, and other domestic nutrition programs. (Sweeping savings and structural changes in domestic nutrition programs also were included in the massive welfare reform bill, H.R. 4, that was vetoed by the President.)

Shortly after the President vetoed the 7-year budget bill on December 6, 1995, and before subsequent White-House congressional budget talks faltered, CBO updated its baseline to December 1995, projecting agriculture (function 350) spending (under "current services") at about $65 billion, compared with $70 billion in its previous February baseline. The new, lower, agriculture spending numbers reflected economists' assumption that higher than expected grain and cotton prices would necessitate fewer federal farm payments, which were directly tied to market prices under the expiring law. Thus, many agricultural interests began arguing that farm program cuts should be scaled back to fit the lower baseline projections -- or that the higher than needed savings be redirected to increases in such areas as conservation or rural development.

In the wake of the budget impasse, congressional farm leaders returned to work on a freestanding "farm bill." The first action came in the House Agriculture Committee, which reported a freestanding bill (The Agricultural Market Transition Act; H.R. 2854) on January 30, 1996. On February 7, the full Senate -- bypassing Agriculture Committee action -- cleared, 64-32, its own farm bill (The Agricultural Reform and Improvement Act; S. 1541), which contained essentially the same com-modity provisions -- but no dairy title -- as in the House bill (see below). The Senate legislation included major conservation, and international trade and aid titles. However, it was more wide-ranging than the House committee bill, with titles (adopted during floor debate) covering research, agricultural credit, rural development, and food stamps, among others (details on most of these titles are described later in this issue brief). (To satisfy procedural requirements, the Senate readopted the farm bill on March 12 as H.R. 2854.)

On February 29, 1996, the full House passed, 270-155, H.R. 2854, containing commodity and related provisions that paralleled those in the vetoed balanced budget act. A key, and controversial, element of the plan called for replacing farm income sup-port for grains and cotton with 7 years of fixed, but declining, payments disconnected both from actual market prices for commodities and from most USDA planting requirements. Other provisions of H.R. 2854 would have extended but modified the sugar, peanut, and dairy programs.

During House floor consideration, major amendments were adopted significantly altering the original dairy title of the bill as passed by the Agriculture Committee on January 30, 1996, and also expanding the conservation, and agricultural trade and aid titles of the Committee version. Other major floor amendments were not successful, including those to phase out the peanut and sugar programs, and traditional grains and cotton programs, to mandate $3.5 billion in spending for rural development, to divert $1.9 billion from commodity program subsidies into research, and to substitute a farm bill similar to the Senate's.

After H.R. 2854 was reported by the House Agriculture Committee, the Congressional Budget Office (CBO) estimated that the overall bill would achieve savings of about $5.4 billion below the "current services" spending baseline projected in December 1995. However, the various floor amendments -- notably conservation --would have reduced this savings estimate, possibly by as much as $3 billion or more. The entire Senate bill would have resulted in 7-year savings of just under $1 billion, according to CBO estimates.

House Agriculture Committee leaders earlier had expressed their desire to consider research, conservation, trade, credit, and other issues separately, possibly packaged into a so-called "Farm Bill II." Chairman Roberts introduced such a measure (H.R. 2973) on February 27, saying he wanted to consider the bill only after work on H.R. 2854/S. 1541 was finished. H.R. 2973 is entitled the "Agricultural and Regulatory Relief and Trade Act," because its many titles include provisions easing a number of environmental and related requirements of farmers.

Once the House approved its farm bill on February 29, 1996, efforts began immediately to work out the differences between the two chambers' versions. Members of Congress were under pressure from farmers facing spring planting in only a few weeks. Furthermore, the lack of a new farm law would have placed the USDA in the position of having to implement wheat and feed grain programs mandated by the permanent authority of the Agricultural Act of 1949. This permanent law is criticized by nearly all policy officials as inappropriate and damaging in the current economic environment.

On March 21, 1996, conferees completed action on the substantial differences between the Senate and House bills. Among the differences that proved most difficult to resolve were dairy policy, rural development programs, and whether or not to preserve the 1949 permanent mandatory support authority. The conference agreement, which on March 28 passed the Senate by a vote of 74-26 and the House by a vote of 318-89, ended up looking more like the Senate bill, but with some important differences.

The enacted version of the farm bill is projected to result in outlays of roughly $60 billion over the next 7 years, more than $2.1 billion below baseline spending estimates, as estimated by CBO. Approximately $45 billion of these outlays are for the commodity, export and other programs funded through USDA's Commodity Credit Corporation (CCC); this preliminary CCC figure is roughly $4.5 billion below the current services baseline. Mandatory spending in the bill for conservation and related programs accounts for nearly $13 billion of the $61 billion preliminary estimate; outlays that are approximately $2 billion above the conservation baseline, along with additional spending on rural development and several smaller items, serve to offset much of the projected commodity program savings in the bill.

These figures exclude the cost of (and any projected savings in) the food stamp program, which was reauthorized with virtually no changes for only 2 years, and commodity distribution programs, which were extended for 7 years. It was expected that additional changes to the nutrition programs would be forthcoming as part of comprehensive welfare reform legislation.

For further information, see CRS Issue Brief 95031, Agriculture and the Budget; and CRS Reports 96-304 ENR, The 1996 Farm Bill: Comparison of Selected Provisions With Previous Law; 96-206 ENR, Farm Bill Provisions Compared: H.R. 2854 and S. 1541 as Passed; 96-197 ENR, The House-Passed Farm Bill (H.R. 2854); and 96-134 ENR, The Senate Farm Bill.

Overview of U.S. Agriculture

The U.S. food and fiber system constitutes a major sector of the national economy. The production of food, fiber, and industrial raw materials from farm commodities constitutes about 16% of the GNP, and employs 22.2 million workers in jobs related to production, processing, marketing, transportation, exporting, and wholesale and retail sales. Although farm bill policies concern mainly the production sector, those policies have significant impacts on related sectors.

Structure of the Farm Sector

The farm sector is a fairly small part of the whole food and fiber system, generating $59 billion, or 6.5S, of the total $902.5 billion output of the system in 1993. Data from the 1992 U.S. Census of Agriculture show a total of 1.93 million farms in 1992, down from 2.09 million in 1987 (USDA's farm count for 1992 was 2.1 million; the discrepancy is due to differences in the definition of a farm). The decrease is attributed primarily to consolidation of smaller farms into larger operations and to greater specialization. The total amount of land dedicated to agriculture (946 million acres) continues to remain relatively constant, however. About 42% of farmland is held by persons not physically involved in farm activities; in most cases, this land is rented to others for farming.

Most economic analysts characterize the U.S. farm sector as having a dual structure. A small proportion of farms -- roughly 18% -- are responsible for more than 75'S. of all U.S. farm commodity sales. About two-thirds of the federal commodity price and income support payments go to these operations. The remainder of U.S. farms --and the majority -- are operations that gross $100,000 or less per year from farming, may actually lose money on farming in most years, and rely on off-farm sources to maintain household income. Most economic analysts expect the trend toward consolidation of farms into larger units to continue, furthering the dual structure of the farm sector and the decline in farm numbers.

By most measures of economic performance, farmers and the rest of the nation's agricultural sector have done relatively well over the 5 years since the previous (1990) farm bill was enacted. Although some farmers in some regions have suffered production disasters or experienced low market prices, farm income and equity have increased overall. Consumers also have fared well, with modest increases in food prices, most of which have been driven by higher marketing costs rather than higher farm prices.

At the present time, and for the coming year, most major crop prices are expected to remain high. The high prices are driven by low supplies worldwide and strong demand. At the same time livestock producers are struggling because of high feed costs and large supplies relative to demand.

Major Issue Areas of the Farm Bill

Commodity Programs

Commodity support programs typically have been the most controversial and complex elements of past farm bills. Under current law the USDA must provide price and income support for producers of food grains (wheat, rice), feed grains (corn, sorghum, barley, oats, rye), cotton, rice, oilseeds (soybeans, sunflower seed, canola, rapeseed, safflower, mustard seed, flaxseed), peanuts, sugar (cane and beets), milk, and tobacco. The wool and mohair programs ended with the 1995 marketing year under P.L. 103-130.

Questions pertaining to U.S. competitiveness, perceived inequities in the distribution of program benefits, the general economic well-being of today's farm households, and the comparatively small role of farming in the employment and income base of many rural communities were all forces shaping the commodity program debate. However, the deficit problem was the overriding concern and, in fact, Congress first attempted to use government-wide deficit reduction legislation rather than an omnibus 1935 farm bill as the vehicle for extending and modifying the major commodity price and income support programs in 1995. While the farm bill subsequently moved on its own track outside the budget process, interest in its final cost played a large part in the drafting, debate, and adoption of the bill's provisions.

One of the more contentious issues taken up by conferees was whether to retain the permanent authorities for most price-supported commodities, the position adopted by the Senate and rejected by the House. The final law does retain permanent law, which supporters feel will compel Congress to reconsider a major farm bill by 2002, the year the new legislation generally would expire. Free market advocates had anticipated that the termination of permanent law authority would signal clearly a date-specific end to farm commodity subsidies.

Wheat, Feed Grains, Cotton, Rice, and Oilseeds

The commodity price support programs for wheat, feed grains, cotton, rice, and oilseeds are always a key issue in the farm and budget debates, in part because so many "farm belt" producers rely on them each year to supplement their incomes, and also because 70% or more of harvested U.S. cropland is planted to these crops. Over the past decade, annual outlays for the grains and cotton programs have averaged about $9.4 billion, or 70%, of the average of $13.5 billion in total annual outlays for all farm commodity support -- making grains and cotton prominent targets in the search for budgetary savings.

Of the agricultural savings in the vetoed reconciliation bill (H.R. 2491), more than half would have come from the grains and cotton programs alone. These savings would have been achieved by replacing current target price deficiency payments with fixed "production flexibility contract payments" for 7 years, under a so-called "Agricultural Market Transition Program." The idea of converting deficiency payments to fixed contract payments originated with House Agriculture Chairman Roberts' "Freedom to Farm Act" (H.R. 2195).

The Agriculture Market Transition Program was largely retained in the farm bill (S. 1541) passed by the Senate on February 7 and the less extensive farm bill (H.R. 2854) cleared by the House on February 29. The nearly identical grain and cotton provisions in the two bills made that aspect of the conference agreement relatively easy to complete. Total funding for contract payments is locked in for a 7-year period at about $37 billion. The proposal largely preserves the existing design and levels of support through nonrecourse commodity loans and marketing loan repayment provisions. Among the other significant departures from past policy are an end to USDA-imposed annual acreage cutbacks and to strict planting requirements.

The elimination of base-acre planting constraints, the elimination of annual acreage reduction programs, and the relatively broad planting flexibility afforded by the Agricultural Market Transition Program are the features that will most affect production agriculture. In the coming year, farmers are expected to make greater efforts to increase production in response to high prices than possible under the expiring programs.

(For more information see CRS Report 96-351, Wheat, Feed Grains, Cotton, Rice and Oilseeds: Provisions of the Enacted 1996 Farm Bill, and CRS Issue Brief 96015, The U.S. Department of Agriculture Budget for FY1997.)

Dairy

The federal government currently uses two major policy tools to support milk markets: the dairy price support program and federal milk marketing orders. The dairy price support program is currently authorized through 1996, under the dairy title of the omnibus 1990 farm act, as amended. USDA indirectly supports farm milk prices by its standing offer to purchase surplus dairy products from processors. Federal milk marketing orders, also administered by USDA, have permanent legislative authority. Federal orders regulate processors (fluid milk bottlers or manufacturers of dairy products) that sell milk or milk products within an order region by requiring them to pay not less than an established minimum price for the Grade A milk they purchase from dairy producers.

The new law reauthorizes the dairy price support program, including USDA authority to purchase surplus cheese, butter, and nonfat dry milk. The level of support is maintained at the current level of $10.35 per hundredweight (cwt.) for the remainder of 1996, but then drops to $10.20 in 1997, $10.05 in 1998, and $9.90 in 1999. The program will terminate on December 31, 1999, and be replaced on January 1, 2000, with a recourse loan program for processors of cheese, butter, and nonfat dry milk to assist them in managing their inventories of these products. In return for the lower level of price support and the gradual elimination of the program, the deficit reduction assessment paid by milk producers to defray the cost of the price support program under previous law is eliminated.

The new law also requires a reduction in the number of milk marketing orders, to at least 10 but no more than 14 -- and gives USDA 3 years to administratively achieve this goal. If at the end of 3 years, USDA has not completed the consolidation, the Department will lose its current authority of assessing producers and processors for the cost of administering milk marketing orders, and instead USDA will have to absorb the cost in its budget. If consolidation is delayed by a legal challenge, the 3-year deadline given to USDA would be extended by the duration of any injunction.

The structure of federal milk marketing orders has long been the subject of policy debate. Producer groups in the Upper Midwest (Wisconsin and Minnesota) contend that federal orders are in need of reform, while many dairy processors contend that orders are market-distorting and should be gradually eliminated. Milk producer groups in the Northeast and Southeast generally support the current order system and maintain that any changes to the system should be handled administratively by USDA.

The new law also gives the Secretary of Agriculture the power to grant the New England states the authority to enter into a regional dairy compact for a period of time that would end at the same time as the adoption of marketing order consolidation. The legislatures of the six New England states have already agreed to enter into a dairy compact that would create an interstate commission with the power to set a minimum price paid by dairy processors to dairy farmers in the six states, at a level above the federal minimum price. However, any proposed interstate compact must first be approved by Congress, as required by the U.S. Constitution. The New England states are seeking approval for the compact because dairy farm groups in the region maintain that the minimum milk prices dictated by federal orders are not sufficient to cover the costs of production of family-sized farms, thus forcing many farmers out of business. Opponents maintain that the compact would artificially encourage the production of milk within the Northeast region at the expense of other parts of the country that have lower production costs and can sell at lower prices.

A separate provision in the new law explicitly permits California to keep in place its higher nonfat solids standards for fluid milk, and leaves the national standards unchanged. The House Agriculture Committee version of the farm bill would have increased the national minimum nonfat solids standards of fluid milk to the California level. The provision was deleted from H.R. 2854 on the House floor. Proponents of an increase in the national standards contend that milk fortified with nonfat solids is a better tasting, more nutritious product that would likely increase consumer demand for fluid milk. The opposition, led by dairy processors and some consumer groups, counters that fortifying milk with nonfat solids would be so costly that the higher consumer costs would more than offset any positive effects of the higher standards. (For more information, see CRS Issue Brief IB95103, Farm Bill Issues: Dairy; CRS Report 96-419 ENR, Dairy and the 1996 Farm Bill: A Legislative History; CRS Report 96-440 ENR, Dairy Provisions of the Enacted 1996 Farm Bill.)

Sugar and Peanuts

Both the sugar and peanut programs came under attack from opponents seeking to take advantage of a changed political climate and broader interest in reforming farm programs. Sugar and peanut users (food manufacturing companies) proposed outright repeal or significant changes, arguing that market forces and not federal controls should determine the availability and price of each commodity for commercial and household use. Some processors (i.e. shellers that prepare peanuts for sale to peanut product manufacturers or export, cane sugar refiners that process raw sugar into white sugar ready for human and industrial use) proposed reforms they believe were needed to improve their long-term competitiveness as intermediaries in the food marketing chain. Producers and initial processors of sugar crops, and peanut growers, acknowledged the need to tackle market orientation and program cost issues, and proposed changes to address such concerns.

The new law extends the sugar and peanut programs for 7 years and largely keeps intact their broad program structure. However, some features initially proposed by the sugar and peanut producing sectors were modified to partially respond to the market-oriented objectives sought by users of both commodities.

Sugar. The enacted 1996 farm bill authorizes a sugar program through 2002, retains the program's "no-cost" requirement, repeals standby restrictions on the marketing of domestically produced sugar, freezes price support loan rates at 1995 levels (18 cents per pound for raw sugar, 22.9 cents/lb. for refined beet sugar), and increases by 25% the budget deficit reduction (marketing) assessment rate paid by processors. Two controversial provisions respond to sugar user concerns. The first authorizes USDA to make "recourse" loans (repayable only in cash ) to raw cane sugar mills and refined beet sugar refiners whenever USDA announces a fiscal year import quota level lower than 1.5 million short tons. If the quota announced is above this level, USDA will offer "non-recourse" loans (where growers can forfeit, or hand over, sugar offered as collateral as full payment). The second requires USDA to impose a 1 cent/lb. penalty on any processor (having taken out a non-recourse loan) who forfeits sugar to the CCC. The production sector opposed this provision, but some sugar users pushed it, seeking an opening to gain possible access to lower priced sugar.

In general, the three most affected interest groups -- growers and sugar processors, cane refiners, and sugar users -- expressed dissatisfaction with the sugar program provisions. The sugar production sector argued that it would face considerable price uncertainty when a "recourse" loan policy is in effect. Sugar users contended that the proposed program offers little change from current policy and does not lower sugar support levels. Cane sugar refiners feared that retaining current price support levels means more refineries will close and that U.S. cane sugar refining capacity will continue to shrink.

During Senate floor debate February 7, 1996, Senator Gregg offered an amendment that effectively would have continued the sugar program in its present form for only 2 years -- thereby subjecting it to renewed scrutiny and potential changes 5 years before the rest of the pending farm bill would expire. The amendment was defeated, 35-61. On the House side, a floor amendment by Representative Dan Miller and Charles Schumer to phase out the sugar program over 5 years was defeated by a closer vote of 208-217. With the sugar program provisions in both the House and Senate farm bills nearly identical, the one minor difference was settled by staff before conferees met.

Peanuts. The new law authorizes price support for peanuts through the 2002 crop, continues the quota system with some changes, and eliminates most of the peanut program's projected budget costs. Budget savings of over $400 million are achieved by eliminating the "minimum national quota" and "undermarketings" provisions and requiring growers to pay additional assessments if needed to cover program costs. One related change will allow USDA to set the quota equal at domestic food demand rather than above it. Final provisions also included some features of the peanut growers' proposal and a split-the-difference compromise between 1995's $678/ton quota loan rate and the peanut shellers' call for a support level around $550/ton. Price support on quota peanuts will be reduced 10% to $610/ton starting with the 1996 crop, and then be frozen at that level through the 2002 crop. While growers opposed any support reduction, manufacturers argued that the reduction was not deep enough to reverse the decline in domestic peanut use.

During Senate debate, Senator Santorum on February 6, 1996, offered an amendment to phase down quota loan rates and, beginning in 2001, to eliminate the quota system altogether. The amendment was tabled (defeated), 59-36. A House floor amendment by Representative Shays to phase out the peanut program over 7 years, to include steep annual reductions in the quota loan rate, also was defeated, by a much narrower vote of 209-212 on February 28. Though the main features of the new program were the same in both the House and Senate passed farm bills, the few differences took some time for conferees to resolve. One final compromise makes producers who effectively sell their crop to the federal government for 2 years rather than to a buyer who makes a written price offer at the quota support level ($610/ton), ineligible for price support benefits for one year. Conferees also (1) settled differences reflecting regional rivalries and peanut type supply/demand imbalances on how program losses are to be shared, and (2) agreed to allow the sale and lease of 40X (over 5 years) of a county's poundage quota across county lines but still within the same state. (For more information, see CRS Issue Brief 95117, Farm Bill Issues: Sugar; and CRS Issue Brief 95118, Farm Bill Issues: Peanuts.)

Trade Policy

U.S. agricultural exports are important to the financial health of the farm and agribusiness sectors. Agricultural exports reached a record $54.1 billion in FY1995, up from $43.5 billion in FY1994, and surpassing the previous record of $43.8 billion set in FY1981. Agricultural exports are projected to grow even more in FY1996 to a new high of $60 billion. Agricultural trade consistently registers a large surplus; for FY1995, this surplus was $23.7 billion and is forecast to reach $29 billion in FY1996. The demand for higher value products, such as fruits, nuts, meats, and processed products, has been growing rapidly. In FY1995, these exports constituted 59% of all agricultural exports.

Four types of programs assist agricultural exports: (1) export subsidy programs, including the Export Enhancement Program (EEP); (2) market development programs, including the Market Access Program (MAP); (3) USDA's export credit guarantee programs (GSM-102 and -103); and (4) U.S. foreign food aid programs (P.L. 480).

The new farm law makes a number of important changes in agricultural export programs. It authorizes through FY2002 maximum funding levels for EEP that are lower in early years than the maximum levels allowed by the Uruguay Round Agreement on Agriculture. It authorizes MPP through FY2002 but at a reduced level of $90 million annually. It includes specific authorization for the first time for the Foreign Market Development Program (Cooperator Program), which heretofore had been included as a line item in the budget of the Foreign Agricultural Service.

The new law authorizes the level of export credit guarantees for buyers of U.S. agricultural products in foreign countries at $5.5 billion, the current level. It extends authorities for P.L. 480 food aid programs (confessional sales, humanitarian donations, and bilateral development grants) to FY2002. The agreement also reauthorizes the Food for Progress Program and makes some changes in Section 416(b) foreign commodity donations.

Changes included in the new law appear to reinforce both the market development and humanitarian aims of food aid programs. Private entities become eligible for Title I sales agreements. Intergovernmental organizations, in addition to private voluntary organizations and cooperatives, become eligible for funds to defray project-related and administrative costs. The agreement authorizes a 4 million metric ton Food Security Commodity Reserve of wheat, corn, sorghum, and rice to meet unanticipated emergency humanitarian food needs in developing countries.

The agreement calls for the Secretary of Agriculture to develop a strategy for implementing federal agricultural export programs and establish quantitative goals against which to measure the success or failure of the strategy.

Provisions on some of these programs are also contained in appropriations legislation. The House agriculture appropriations bill for FY1997 as reported by the House Appropriations Committee effectively limits EEP funding in FY1997 to $100 million. The enacted 1996 farm bill authorized not more than $250 million for FY1997. The appropriations bill prohibits using MAP to assist mink exports, a provision adopted in the FY1996 appropriations act. It provides $5.5 billion for export credit guarantees, which is the maximum level authorized in the farm law. It funds all P.L. 480 programs at a total level of $1.1 billion, which is $90.6 million less than in FY1996, with the decrease due principally to large cuts in concessional sales (Title I) and grant food aid (Title III). Funding for Title II of P.L. 480 actually increases.

(For further information, see CRS Issue Brief 95088, Farm Bill Issues: Agricultural Exports and Food Aid; CRS Report 95-391, Agricultural Export Programs, Food Aid and the Farm Bill; CRS Issue Brief 89027, Agriculture in the GATT; CRS Report 92-958, Agriculture in a North American Free Trade Agreement; CRS Report 95-388, Export Enhancement Program: Background and Current Issues; and CRS Report 94-303, P.L. 480: History and Legislation, Programs and Policy Issues.)

Domestic Food Assistance Programs

For FY1996, Congress appropriated over $40 billion for some 20 domestic food assistance programs reaching nearly 40 million Americans. These programs include food stamps and commodity donation programs (which are authorized under the food titles of farm bill) as well as child and elderly nutrition programs, which are authorized under separate laws. Funding for domestic food programs represents over 60% of all spending by USDA. Most food program spending ($26.5 billion) is expected to be used for the food stamp program, which reaches nearly one in ten Americans and is the largest of the federal food programs.

Historically, the inclusion of a food assistance title in the farm bill has helped bring urban support for farm programs and farm support for food aid programs. Incorporating a 7-year extension of food stamp and commodity donation programs into the Senate farm bill was credited (along with conservation and rural development titles) with garnering wider support for the bill this year as well.

On the House side, the farm bill had no provisions on domestic nutrition programs. However, farm bill conferees compromised on a 2-year extension of the food stamp program and a 7-year extension of commodity donation programs like the Emergency Food Assistance Program (TEFAP) and the Commodity Supplemental Food Program (CSFP).

The 1990 farm law had authorized the food stamp and commodity donation programs through FY1995. Last year, however, reauthorization of these programs was delayed, along with the so-called 1995 farm bill, by congressional disagreements over farm program reforms and the Presidential veto of welfare reform and deficit reduction (reconciliation) legislation. Nevertheless, the programs are being funded under FY1996 appropriations approved by the Congress (P.L.104-37). Although child nutrition programs are not part of the farm bill, they became entwined with food stamps in debates over deficit reduction and welfare reform.

Both welfare reform (H.R. 4) and budget reconciliation (H.R. 2491) measures approved by the House and Senate contained provisions substantially revising the funding and structure of federal food programs. Major differences between the two Chambers concerned the amount of funding reductions and block grants. Using different approaches drawn from their respective Chambers' welfare reform bills, the House and Senate-passed welfare and reconciliation bills achieved between $30 and $32 billion ($26.4 billion from food stamps) in 7-year reductions in projected budget authority for domestic food programs.

Major differences between the House and Senate delayed agreement over child nutrition block grants, which were in both the House welfare and reconciliation bills but neither Senate-approved measure. Child nutrition block grants were not included in the final reconciliation agreement, but the welfare conference agreement would have permitted the operation of optional block grants as a pilot in not more than seven states. The welfare reform bill was vetoed by the President.

Since then, negotiations over welfare reform continue between the National Governors Association, the White House, and Congress, on food program and related block grants to states. (For further information, see Issue Brief 95047, Child Nutrition Issues in the 104th Congress; CRS Report 95-1096, Domestic Food Programs: Reconciliation and Welfare Reform Proposals; CRS Report 95-366, Food Stamp Reform Legislation: A Brief Summary; CRS Report 95-475, National School Lunch Act: Facts and Issues; CRS Report 96-100, Farm Bill Issues: The Emergency Food Assistance Program (TEFAP).)

Conservation and Environment

Growing concerns about the environmental effects of agricultural activities brought about a merging of commodity support policy and resource conservation policy in the 1985 farm law, in which Congress enacted a conservation title with several significant new programs. One of these -- the Conservation Reserve Program (CRP) --initiated a large, long-term land-retirement effort. Three other programs -- together known as the compliance approach -- eliminated federal farm program eligibility for producers who modify wetlands and for those who cultivate highly erodible land without an approved plan. These programs were supported and amended in the 1990 farm bill. As enacted, the 1990 law also contained numerous new provisions centered on addressing water quality concerns and on new approaches to conservation.

The 1996 farm law builds on initiatives enacted in 1985 and 1990, expands the conservation effort, and addresses producer concerns about the intrusive nature of conservation requirements. Beyond individual programs, the biggest change enacted in 1996 is making a majority of conservation funding entitlements.

Congress agreed to reauthorize the CRP and resolved four questions. Which lands should be eligible for the reserve? How many acres should be enrolled? What incentives should be included to keep land out of production after the contracts expire? And, how can dependable funding be secured at a time when Congress is focusing on deficit reduction and reducing the federal role in farm business management?

Policy debates over the three compliance programs -- sodbuster, conservation compliance, and swampbuster -- centered around implementation, monitoring, and enforcement. Commodity interests maintained that these programs need to be administered in a flexible manner because their primary purpose was to have farmers incorporate environmental considerations into their operations, not to put farmers out of business. This has been one component of broader debates over regulatory reform and wetland protection.

The 104th Congress initially had addressed conservation issues in reconciliation legislation. Reconciliation, as vetoed by the President, would have extended authoriza-tion of the CRP and Wetlands Reserve Program (WRP) through 2002 and created a new voluntary cost-sharing program, the Livestock Environmental Assistance Program (LEAP). Enrollment in the CRP would have been capped at 36.4 million acres and new signups would have been prohibited in FY1997. Participants could have terminated contracts at any time by giving 60 days notice. The WRP would have been amended to prohibit permanent easements and cap overall enrollment at 975,000 acres. LEAP would have authorized the installation of structural and land management practices to reduce natural resource degradation on land used for confined livestock production. LEAP would have been an entitlement of $100 million annually, funded through the CCC. Overall savings would have totaled $342 million over 7 years.

The Senate moved first to pass an omnibus farm bill. The bill it passed on February 7 contains numerous conservation provisions. Some of these provisions were the subject of extensive discussions during the first session, while others surfaced for the first time during Senate floor action. Most of these provisions were contained in a substitute bill introduced by Senator Leahy. Several proposals had been included in the Clinton Administration's farm bill guidance, issued in May 1995. These provisions were largely supported by the environmental and conservation communities.

The House Agriculture Committee incorporated the conservation provisions that had been a part of the reconciliation proposal into H.R. 2854, the farm bill voted out of the House Agriculture Committee on January 30 (minus the CRP participant termination provisions, deleted during markup). During floor action on H.R. 2854, these conservation proposals were replaced by two amendments which addressed the same topics, but were supported by the environmental and conservation communities.

In conference, the more far-reaching Senate-passed provisions generally prevailed. Provisions on highly erodible lands and wetlands conservation that were not in either bill, as passed, were added by the conference committee. These provisions include:.

• reauthorizing the CRP and WRP, making them both entitlements, allowing landowners who meet certain qualifications to terminate CRP contracts early, limiting the use of permanent easements in future WRP enrollments, and setting maximum enrollment limits;
• creating a new $200 million per year ($130 million in FY1996) entitlement for conservation cost-sharing, called the Environmental Quality Incentive Program (EQIP), and dedicating half the funding to addressing problems associated with livestock production;
• creating a new grazing land management program, a National Natural Resources Conservation Foundation, a new wildlife habitat program, a new farmland protection initiative, and a new flood plain easements program;
• creating a pilot Conservation Program Option (with capped funding levels each year) for producers who participate in both the CRP and the market transition program, by providing a 10-year contract (rather than 7 years) in returning for meeting specified resource conservation requirements;
• amending the highly erodible cropland and wetland conservation provisions to provide producers with greater flexibility for meeting conservation requirements; and
• authorizing a $200 million appropriation to the Secretary of the Interior to buy land as part of the effort to restore the Everglades ecosystem, with an additional $100 million to be raised from disposal of surplus federal properties in Florida.

(For further information, see CRS Issue Brief 95027, Soil and Water Conservation Issues in the 104th Congress; CRS Report 96-165, Conservation Provisions in S. 1541 and H. R. 2854: A Comparison; Issue Brief 95028, Wetlands Issues in the 104th Congress; CRS Report 95-6, Conservation Compliance: Policy Issues for the 1995 Farm Bill; CRS Report 96-35, Agricultural Wetlands: Current Programs and Legislative Proposals; and CRS Report 96-330, Conservation Provisions in the 1996 Farm Bill: A Summary.)

Rural Development

Although the federal government has been involved in rural policy for decades, the Rural Development Act of 1972 specifically added rural development as a USDA mission, directing the Secretary to coordinate rural policies and programs government-wide. Farm and related bills since then have included rural development titles variously providing new authorizations, adding or redirecting rural development priorities, and reorganizing the Department's functions in this area. This year, the conference adopted a Senate-passed provision to create a Fund for Rural America. The Fund will receive $100 million annually in unappropriated U.S. Treasury funds in FY1997 through FY1999. At least one-third of the funds each year are to go to specified rural development activities and at least one-third are to go to specified research activities. Funding priorities and other terms of program operation are specified.

Research and Extension

Omnibus farm bills traditionally include extensive titles covering agricultural research and extension programs. These titles reauthorize an array of programs, and set, redirect, and/or reaffirm research priorities, among other things. A vast network of federal agricultural laboratories, state land-grant universities and their agricultural experiment stations, and federal, state, and county Extension offices comprise the public agricultural research and education system. This system, along with the teaching programs of the agricultural schools, is largely credited with developing and disseminating the production technologies that have helped to make U.S. agriculture so highly productive and globally competitive.

This year, farm bill conferees largely agreed to the Senate provisions on research, extension, and education, while acceding to the House's desire to limit portions of the reauthorization to 2 years. The enacted 1996 farm bill authorizes a new research and extension policy advisory board to replace three existing ones, and it continues funding through FY2002 for public agricultural research, education, and extension programs. Annual funding authority is set at $850 million for Agricultural Research Service programs, $310 million in Hatch Act formula funds for state agricultural experiment stations, $460 million for the Cooperative Extension System, and $500 million for the National Research Initiative Competitive Grants program. The policy changes that expire at the end of FY1997 include: establishing a merit-review process for proposals to build new university research facilities; requiring a 10-year strategic plan for the construction, consolidation, modernization and closure of public agricultural research facilities; and requiring development of a new system for tracking and evaluating the outcomes of research and extension activities.

The House wanted the 2-year limit on the Senate research provisions because House Agriculture Committee leaders have embarked on a more extensive review of agricultural research and extension policy. A series of hearings commenced this spring; separate legislation is expected to be marked up in fall 1996. (For further information, see CRS Issue Brief 95101, Farm Bill Issues: Research, Education, and Extension Issues.)

Agricultural Credit

Congress frequently includes a credit title in omnibus farm legislation as a vehicle for making policy changes to USDA credit programs, as well as addressing issues that relate to institutional lenders, such as commercial banks and the Farm Credit System (FCS).

The new law contains a credit title that directly affects eligibility for USDA farm loans and the servicing of its delinquent accounts. Among its many provisions, the credit title would eliminate a requirement that USDA provide operating loans to certain farm borrowers even if they are delinquent on previous loans; deny new farm loans to any borrower who had a delinquent loan on which the debt was forgiven; reduce the mandated period USDA must wait to notify borrowers that they are delinquent and to inform them of their loan servicing options; continue the shift in USDA lending resources from direct loans to guaranteed loans; and expedite the sale of acquired USDA farm property.

The agreement closely resembles the credit title in the Senate version of the farm bill. The House version of the farm bill did not contain a credit title. However, a sepa-rate bill, (H.R.2590) introduced by House Agriculture Committee leadership would have applied more stringent qualifications than the Senate bill for new USDA farm loans and would have restricted USDA's options for servicing delinquent borrowers.

Because consideration of the farm bill was delayed until this year, some credit issues have already been considered by Congress in stand-alone legislation. On February 10, 1996, the President signed into law the Farm Credit System Regulatory Relief Act of 1995 (P.L. 104-105, H.R. 2029), which affects the operations of both the Farm Credit System (FCS) and Farmer Mac. This legislation was expedited because certain regulatory issues affecting the Farm Credit System required immediate congressional attention. Additionally, many policymakers have contended that the worsening financial condition of Farmer Mac warranted prompt legislative action. P.L. 104-105 expands Farmer Mac authorities, but also requires it to build up its capital reserves within a specific timeframe or face shutdown.

The two largest institutional agricultural lenders, the FCS and commercial banks, have offered separate and competing recommendations addressing the issue of how to direct additional capital into rural areas. The FCS has proposed that Congress amend its charter to allow it to expand its lending authorities into agribusiness and rural areas. In contrast, representatives of commercial banks recommend that the FCS be reconfigured and made a wholesale provider of funds to rural commercial banks, which would in turn channel these funds to rural economic development loans. To date, neither the House nor the Senate has considered legislation addressing these proposals. (For additional information, see CRS report 96-431, Credit Provisions of the Enacted 1996 Farm Bill.)