Previewing a 2007 Farm Bill

Previewing a 2007 Farm Bill
Updated January 3, 2007
Jasper Womach, Coordinator,
Geoffrey S. Becker, Ralph M. Chite, Tadlock Cowan,
Ross W. Gorte, Charles E. Hanrahan, Remy Jurenas,
Jim Monke, Jean M. Rawson, Randy Schnepf, and Jeffrey A. Zinn
Resources, Science, and Industry Division
Joe Richardson
Domestic Social Policy Division

Previewing a 2007 Farm Bill
Federal farm support, food assistance, agricultural trade, marketing, and rural
development policies are governed by a variety of separate laws. However, many of
these laws periodically are evaluated, revised, and renewed through an omnibus,
multi-year “farm bill.” The Farm Security and Rural Investment Act of 2002 (P.L.

107-171) was the most recent omnibus farm bill, and many of its provisions expireth

in 2007, so reauthorization is expected to be addressed in the first session of the 110
The heart of every omnibus farm bill is farm income and commodity price
support policy — namely, the methods and levels of support that the federal
government provides to agricultural producers. However, farm bills typically include
titles on agricultural trade and foreign food aid, conservation and environment,
forestry, domestic food assistance (primarily food stamps), agricultural credit, rural
development, agricultural research and education, and marketing-related programs.
Often, such “miscellaneous” provisions as food safety, marketing orders, animal
health and welfare, and energy are added. This omnibus nature of the farm bill
creates a broad coalition of support among sometimes conflicting interests for
policies that, individually, might not survive the legislative process.
The scope and direction of a new farm bill may be shaped by such factors as
financial conditions in the agricultural economy, competition among various
interests, international trade obligations, and — possibly most important — a tight
limit on federal funds. Among the thorniest issues may be future farm income and
commodity price support. Questions of equity (who should get aid and how much),
program cost, conformance with WTO trade obligations, effects on U.S.
competitiveness in the global marketplace, and the unintended impacts of agricultural
activities on the environment are among the considerations.
The economic prosperity of the U.S. farm sector is heavily dependent upon
exports, so the provisions of a new bill reauthorizing farm export and foreign food
aid programs also will be of keen interest. Moreover, the agricultural credit,
research, conservation, domestic nutrition assistance, and rural development titles
bring an array of interests into the debate, and their issues and concerns could prove
equally contentious.
Several farm groups have strongly endorsed a continuation of current policies
and programs. However, agriculture and rural interests not receiving much benefit
from current programs oppose a simple extension and would like some of the
spending to be aimed at solving their problems. Furthermore, the Secretary of
Agriculture has repeatedly stated that farm programs need to be made “equitable,
predictable and beyond challenge” in the WTO.
This report will be updated as related developments transpire.

In troduction ......................................................1
What Is the “Farm Bill”?........................................1
Congressional and Administration Action...........................2
General Policy Considerations........................................4
Economic Situation............................................4
Agriculture Budget.............................................5
Budget Categories.........................................5
Mandatory vs. Discretionary Spending.........................6
The Baseline..............................................7
International Trade Agreements, Disputes, and Negotiations............8
Existing Trade Commitments................................8
Trade Litigation...........................................9
Trade Negotiations.........................................9
Farm Income and Commodity Price Support............................12
Program Design and Operation..................................13
Prospective Issues and Options..................................15
Payment Limits..........................................15
Supply Controls and Import Quotas...........................16
Green Payments..........................................17
Buyout of Commodity Programs.............................18
Devolving Commodity Programs to the States..................18
Revenue Insurance........................................19
Specialty Crops..................................................21
Program Design and Operation..................................22
Prospective Issues and Options..................................25
Animal Agriculture...............................................27
Program Design and Operation..................................27
Prospective Issues and Options..................................28
Feed Prices and Production Support..........................28
Market Competition and Packer Concentration..................28
Country-of-Origin Labeling.................................30
Animal Identification for Disease Control......................31
Animal Welfare..........................................32
Trade and Export Promotion........................................34
Program Design and Operation..................................35
Prospective Issues and Options..................................36
Crop Insurance and Disaster Assistance...............................39
Program Design and Operation..................................39
Prospective Issues and Options..................................41
Administration Proposals to Reduce Costs.....................41
Premium Reduction Plan...................................42
Insurable Yields..........................................42

Waste, Fraud, and Abuse...................................43
Permanent Disaster Payments...............................43
Revenue Insurance Expansion...............................44
Agricultural Credit................................................45
Program Design and Operation..................................46
Farm Service Agency (FSA) Loan Programs....................46
Farm Credit System (FCS) Lending..........................49
Prospective Issues and Options..................................50
Farm Service Agency Loan Program Issues....................50
Farm Credit System Issues..................................51
Conservation and Environment......................................53
Program Design and Operation..................................53
Prospective Issues and Options..................................55
Land Retirement..........................................55
Funding Levels...........................................55
Green Payments..........................................57
Measuring Conservation Accomplishments....................58
Energy .........................................................60
Crop-Based Biofuel Concerns Emerge........................61
Wind Energy Overview....................................62
Program Design and Operation..................................62
Energy Provisions in the 2002 Farm Bill.......................64
Prospective Issues and Options..................................65
Agricultural Research, Extension, and Education........................69
Program Design and Operation..................................69
Prospective Issues and Options..................................70
Funding versus Inflation...................................70
Giving Fruits and Vegetables a Higher Priority..................71
Formula Funding Versus Competitive Grants...................71
Research, Education, and Extension Are Green.................73
Rural Development...............................................74
Program Design and Operation..................................74
Prospective Issues and Options..................................76
Foreign Food Aid.................................................80
Program Design and Operation..................................80
Prospective Issues and Options..................................81
Domestic Nutrition Assistance......................................83
Food Stamps.................................................84
Program Design and Operation..............................85
Prospective Issues and Options..............................85
The Emergency Food Assistance Program (TEFAP).................87
Program Design and Operation..............................88
Prospective Issues and Options..............................88
Commodity Supplemental Food Program (CSFP)....................88

Prospective Issues and Options..............................89
Fresh Fruit and Vegetables.....................................89
Program Design and Operation..............................89
Prospective Issues and Options..............................90
Forestry ........................................................91
Program Design and Operation..................................91
Prospective Issues and Options..................................92
Funding Levels...........................................92
Wildfire Protection.......................................92
Invasive Species..........................................92
Private Forestland Preservation..............................93
Appendix A. Titles and Subtitles of the 2002 Farm Bill
(Farm Security and Rural Investment Act of 2002, P.L. 107-171).......94
Appendix B. Agriculture Committee Membership, by State................95
List of Figures
Figure 1. USDA Gross Outlays, by Budget Category, FY2006 Estimated......6
Figure 2. U.S. Agricultural Exports and Imports, FY1982-FY2007 Forecast..35
Figure 3. Crop Insurance and Disaster Payments: Total Federal Cost,
by Fiscal Year...............................................41
Figure 4. Market Shares of Farm Debt, by Lender, 2005..................46
Figure 5. Major Purpose of Federal Payments to Farms, 2003..............58
Figure 6. U.S. Wholesale Fuel Prices, 1991 to 2006.....................66
Figure 7. USDA Research Funding, in Current and Deflated Dollars,
FY1980-FY2005 .............................................71
Figure 8. Senate Agriculture Committee Membership by State.............95
Figure 9. House Agriculture Committee Membership by State..............96
List of Tables
Table 1. Commodity Credit Corporation Support Outlays, by Commodity,
FY2002-FY2005 (Actual) and FY2005-FY2007 (Estimated)...........14
Table 2. Red Meat Packer Concentration, 1985 and 2005.................29
Table 3. USDA Export Promotion Spending Levels, FY2002-FY2007 ......37
Table 4. Government Cost of Federal Crop Insurance....................40
Table 5. FSA Farm Loans: Farm Bill Authority vs.
Appropriated Loan Authority....................................48
Table 6. FSA Farm Loans: Appropriated Loan Subsidy and
Administrative Expenses.......................................49
Table 7. Major Conservation Programs and Expenditures, FY2005.........54
Table 8. USDA Funding for Conservation Activities,
FY2001-FY2005 .............................................56
Table 9. Reductions in Mandatory Rural Development Programs...........76
Table 10. U.S. Foreign Food Aid Spending Levels, FY2002-FY2007 .......81
Table 11. Forestry Assistance Funding, FY1999-FY2007.................93

Agriculture, Nutrition, and Forestry, 110th Congress..................95
Table 13. Members of the House Committee on Agriculture, 110th Congress..96

Previewing a 2007 Farm Bill
What Is the “Farm Bill”?
The first session of the 110th Congress is expected to consider major agriculture
and food legislation in an omnibus multi-year authorizing bill, commonly called the
“farm bill.”
Federal commodity support, conservation, food assistance, agricultural trade,
marketing, and rural development policies are governed by a variety of separate laws.
However, many of these laws periodically are evaluated, revised, and renewed
through an omnibus, multi-year farm bill. These policies can be, and sometimes are,
modified or overhauled as freestanding authorizing legislation, or as part of other
laws. However, periodic farm bills have provided Congress, the Administration, and
interest groups with an opportunity to reexamine agriculture and food issues more
carefully, and address them more comprehensively.
The most recent omnibus farm bill, the Farm Security and Rural Investment Act
of 2002 (P.L. 107-171), and many of its provisions expire in 2007.1 Without new
legislation, notably in the area of farm commodity and income support programs,
permanent statutes will take effect. Most of these statutes were enacted decades ago
and are no longer compatible with current national economic objectives, global
trading rules, and federal budgetary or regulatory policies. These largely outdated
permanent laws have been kept on the books by Congress in part to compel
increasingly urban and suburban future Congresses to pay attention to national
agricultural policy. For most other topics addressed in the farm bill, the authority to
appropriate funds would end, and in some cases all program authority could
The heart of every omnibus farm bill is farm income and commodity price
support policy — namely, the methods and levels of support that the federal
government provides to agricultural producers. However, farm bills typically include
titles on agricultural trade and foreign food aid, conservation and environment,
forestry, domestic food assistance (primarily food stamps), agricultural credit, rural
development, agricultural research and education, and marketing-related programs.
Often, such “miscellaneous” provisions as food safety, marketing orders, animal
health and welfare, and energy are added.
This omnibus nature of the farm bill creates a broad coalition of support among
sometimes conflicting interests for policies that, individually, might not survive the

1 See Appendix A for a table of contents of the 2002 farm law (P.L. 107-171).

legislative process. Among the groups lobbying Congress will be farm and
commodity organizations; input suppliers; commodity handlers, processors,
exporters, retailers, foreign customers, and competitors; universities and scientific
organizations; domestic consumers and food assistance advocates; environmentalists;
and rural communities. So, for example, farm state lawmakers may seek urban
legislators’ backing for commodity price supports in exchange for votes on domestic
food aid — and vice versa.
Farm bills and the programs they encompass are complex and intensely
interactive. Changes to one program often have intended and more often unintended
consequences for others. For example, a legislative change that raises corn prices is
typically examined for how it might change the planting decisions of those who grow
other crops such as soybeans, and, in turn, the cost of the support program for
soybeans. Likewise, a change in the corn program can have major implications for
producers who feed corn to dairy cows, beef cattle, and other animals; for sugar
producers and food manufacturers who can use corn syrup in place of sugar for many
products; for consumers, including those on limited food budgets; and for exporters
and foreign competitors. The level and type of support provided also can affect farm
equipment companies, agricultural investors and rural financial institutions, fertilizer
and pesticide suppliers, and farm-dependent rural communities.
Farm bill titles also are growing increasingly integrated. The conservation title,
for example, includes provisions that affect commodity programs, and some of the
commodity provisions likewise affect conservation. This integration means that one
cannot simply look in a single title for all provisions that affect the topic of the title.
Major external pressures on this farm bill, including efforts to encourage domestic
energy independence and to respond to treaty obligations concerning agricultural
trade, are likely to foster further integration of policies and topics.
Congressional and Administration Action
Although farm bills are considered only periodically, federal farm policy is an
ongoing issue for many lawmakers. The 1996 farm bill was intended to guide
agricultural support through 2002. But an unanticipated drop in commodity prices
prompted Congress to begin the “next” farm bill debate in 1998, when it considered
and passed the first of a series of ad hoc emergency assistance measures that pumped
$20 billion in supplemental payments (called market loss payments) to farmers over
three years (FY1999-FY2001), and ultimately led to the adoption of “counter-cyclical
payments” in the 2002 farm bill.
In July 2005, Secretary of Agriculture Mike Johanns began a series of “Farm
Bill Forums” held throughout the country. The public was invited to provide
comments on six specific questions:2

1. How should farm policy be designed to maximize U.S.

competitiveness and our country’s ability to effectively compete in
global markets?

2 Information about the Farm Bill Forums is available at [].

2. How should farm policy address any unintended consequences and
ensure that such consequences do not discourage new farmers and the
next generation of farmers from entering production agriculture?
3. How should farm policy be designed to effectively and fairly
distribute assistance to producers?
4. How can farm policy best achieve conservation and environmental
5. How can federal rural and farm programs provide effective assistance
in rural areas?
6. How should agricultural product development, marketing, and
research-related issues be addressed in the next farm bill?
Following the forum series, Secretary Johanns has repeatedly stated the USDA’s
goal for a new farm bill is that it be “equitable, predictable and beyond challenge”in
the WTO. Equitable relates to the distribution of benefits among farmers and
commodities. Predictable relates to dependably providing assistance, particularly
disaster assistance, which has been ad hoc over the past 20 years. Beyond challenge
relates to full compliance with the World Trade Organization (WTO) rules agreed to
by the United States and the entire 149-country membership of the organization.
On January 23, 2006, then House Agriculture Chairman Bob Goodlatte and
Ranking Minority Member Collin Peterson announced the beginning of a series of
field hearings to review the 2002 farm bill with an eye to designing the next farm bill.
With the 110th Congress, the House and Senate Agriculture Committees face the
challenge of enacting a 2007 farm bill before the year’s end. The change in partisan
control of the House and Senate has put Representative Collin Peterson of Minnesota
and Senator Tom Harkin of Iowa in charge of the House and Senate Agriculture
Committees (see Appendix B). The Democratic party leadership has talked about
adopting a pay-go budget policy, requiring any areas of increased spending to be
offset by reduced spending in other areas. Adding to the committees’ budget
challenges is the likelihood of a somewhat lower spending baseline as the
Congressional Budget Office (CBO) estimates the future cost of current commodity
programs under the scenario of current and projected high commodity prices.
Several interest groups have already taken public positions on farm bill topics,
especially related to commodity provisions and conservation. Both the American
Farm Bureau Federation and National Farmers Union have strongly endorsed a
continuation into the future of current commodity support programs. In contrast, the
National Corn Growers Association wants to replace some commodity support
provisions and crop insurance with crop revenue insurance plans. The American
Farmland Trust put itself in a high-profile position with a proposal, addressing risk
protection and conservation, endorsed by three former Secretaries of Agriculture
from both political parties. Additional proposals can be expected, and Congress
faces the need to adjudicate among interest groups competing for parts of an
increasingly tight spending package that could be less than under current law and will3

certainly be less than what the stakeholders in combination would like to receive.
3 The organizations cited here and their proposals are found at their respective websites:

General Policy Considerations4
Economic Situation
For the last four years, including the forecast for 2006, crop and livestock
marketing receipts generally have been strong, and in cases where prices have
declined, government payments have largely made up the difference. Examples
include large milk and cotton payments in FY2004, and large corn and cotton
payments in FY2005. The result has been record high levels of net farm income and
record low levels of farm debt compared to assets.5 Contributing substantially to the
strong domestic farm sector was a rapid rise in the value of agricultural exports, from
$53 billion in FY2002 to a forecast $77 billion in FY2007, a record high.6
The trade outlook is important to farmers because exports account for about
25% of the value of agricultural production, and about one-third of harvested acreage
is exported. Farm income also is affected by other factors, not least government
subsidies. USDA forecast data show 2006 net cash farm income of $66.6 billion.
Though cash receipts in 2006 from the sale of crops increase, livestock receipts
decline, and all production expenses increase. This leaves total net cash farm income
18% lower in 2006 than in 2005. Included in 2006 net cash income is $16.5 billion
in direct government payments. These payments help to undergird the value of
agricultural land and other assets, keep farm debt at favorably low levels, and
stabilize farm operator incomes. While USDA has not published a farm income
forecast for 2007, it will be influenced by expected high prices for several of the
major commodities.
Changes in farm revenues have impacts on rural communities and businesses
that depend on the agricultural sector. Similarly, rural non-farm employment is
important to the household income of many farms, particularly smaller farms. Food
stamp program spending is largely related to general employment, and competes with
agriculture programs in the allocation of funds available to the Agriculture
Committees for the farm bill. Hence, food stamps could be prominent in the next
farm bill, especially if there is a threat to commodity program spending under a tight
budget rule.

3 (...continued)
American Farm Bureau Federation, []; National Farmers Union,
[]; National Corn Growers Association, [];
American Farmland Trust, [].
4 This section is by Jasper Womach, Jim Monke, Charles Hanrahan, and Randy Schnepf.
5 Economic Research Service, USDA, Farm Income and Costs: Farm Sector Income,
[ h t t p : / / www.e r s .us da .gov/ Br i e f i n g/ Fa r mIn c o me / ] .
6 Economic Research Service, USDA, Outlook for U.S. Agricultural Trade, Nov. 22, 2006,
[ h t t p : / / www.f a c mp / out l ook/ 2006/ Nov-06/ AES-11-22-2006.pdf ] .

Agriculture Budget
As with all areas of the federal budget, agriculture faces spending constraints.
In FY2006, budget reconciliation trimmed $2.7 billion over five years
(FY2006-FY2010) from USDA mandatory programs. For the 2007 farm bill, these
constraints will begin to take shape with the start of the annual congressional budget
process, when the House and Senate Budget Committees recommend spending levels
for broad “functional” categories. Recent federal deficits have raised concern over
the ability or willingness of Congress to fund farm programs at levels being requested
by stakeholders or even at levels approved in the last farm bill. Once the limits are
approved by Congress via the annual budget resolution, program spending cannot be
increased to levels that will breach these limits, unless either (1) they are offset by
increased revenue or cuts in other programs, a tradeoff process known as “pay-go”
(short for pay-as-you-go), or (2) Congress and the President declare the extra
spending to be an “emergency,” thus precluding the need for offsets.7
Budget Categories. The USDA carries out a wide array of responsibilities
through about 30 separate internal agencies and offices staffed by some 100,000
employees. For FY2006, USDA spent about $97.8 billion for its varied mandatory
and discretionary programs. Figure 1 shows how this is divided among the major
budget categories.8
USDA is responsible for many activities outside of the agriculture budget
function. Therefore, spending by USDA is not synonymous with spending for
farmers, with the farm bill, or with agriculture appropriations bills. Most of the
major programs that assist production agriculture, including commodity price and
income supports, crop insurance, farm credit, marketing, and agricultural research,
fall within function 350, the agriculture function of the federal budget. Some other
functional areas of spending administered by USDA include food stamps (in function
600, income security); conservation programs (function 300, the natural resources
and environment category); foreign food aid (function 150, the international affairs
category); meat inspection (function 550, health); rural electric and communication
loans (function 270, energy); rural community and business grants and loans
(function 450, community and regional development); and rural housing loans
(function 370, commerce and housing credit). So, although most of these programs
are addressed by the Agriculture Committees in an omnibus farm bill, they are
scattered throughout the federal budget for scorekeeping purposes.

7 The budget resolution is a congressional blueprint for all federal spending; it does not
require a presidential signature.
8 The food stamp program accounts for about $34.8 billion of the $53.658 billion food and
nutrition category. Farm and foreign agriculture outlays amount to about $26.847 billion,
with Commodity Credit Corporation (CCC) spending totaling to $21.26 billion.

Figure 1. USDA Gross Outlays, by Budget Category,
FY2006 Estimated

Dollars in Billions
$97.813 billion total
Farm & Foreign Ag.
$26. 847
Food and Nutrition
$53. 658
Natural Resources
Marketing & $8.453
$2. 821%
Admin & Misc. 2.6%
0.7% Rural Development $2.587
$0. 7121. 9%
Food Safety $1.896
$0. 839
Mandatory vs. Discretionary Spending. Mandatory and discretionary
spending are treated differently in the budget process. Congress generally controls
spending on mandatory programs by setting rules for eligibility, benefit formulas, and
other parameters rather than approving specific dollar amounts for these programs
each year. Funding for mandatory programs is determined indirectly in the
Agriculture Committees when they write, directly into the authorizing laws, the
eligibility standards and benefits for these programs. Any individual or entity that
meets the eligibility requirements is entitled to the benefits authorized by the law.
Examples of mandatory spending are the major farm commodity price support
programs and the food stamp program. The Appropriations Committees generally
are expected to provide the necessary year-to-year funding in the annual USDA
appropriation to maintain these programs. However, for certain mandatory programs
in the 2002 farm bill, such as conservation, rural development, and research,
appropriators have limited authorized mandatory outlays. The savings achieved by
limiting mandatory programs has been used to boost discretionary programs. In
FY2006, about $1.5 billion in mandatory programs was prohibited from being spent.9
9 Limits on mandatory programs usually have been achieved by using language such as,
“None of the funds appropriated or otherwise made available by this or any other Act shall
be used to pay the salaries and expenses of personnel to carry out section [...] of Public Law

While discretionary programs also are designed and authorized in the House and
Senate Agriculture Committees, their annual funding levels are determined by the
agriculture subcommittees of the House and Senate Appropriations Committees as
part of the annual agriculture appropriations bill. Examples of discretionary spending
are agricultural research and extension, agricultural credit, animal and plant health
protection, farm marketing services, and most rural development programs. (Of
course, both mandatory and discretionary program authorizations and spending still
ultimately must be approved by the full House and Senate after they are reported by
the relevant committees.)
Before either the Agriculture Committees or the Appropriations Committees
make these decisions by drafting the appropriate measure — whether it is a new farm
bill, an annual USDA appropriation, or some other measure — the panels must know
how much spending room they have been allocated under the congressional budget
The Baseline. The opening stages of debate over a new farm bill usually
occur in the House and Senate Budget Committees. The debate focuses on whether
the multi-year “baseline” projection (which assumes the current farm bill continues
under expected economic conditions) is appropriate or whether more (or, possibly,
less) spending should be “built into the baseline.”
Each year, the Congressional Budget Office (CBO) issues a baseline budget for
all federal spending under current law over a 10-year period.10 Projected spending
in the baseline budget represents CBO’s estimate at a particular point in time of what
federal spending and revenues would likely be under current law if no policy changes
were made over the projected period.
The CBO baseline serves as a benchmark or starting point for future budget
analyses. Whenever any new legislation is introduced that affects federal mandatory
spending, such as a farm bill, its impact is measured by CBO as a difference from the
For farm commodity and income support and related programs, CBO estimated
in August 2006 that, under current law, total spending would average about $12
billion annually over the FY2006 through FY2016 period.11 Due to rapid increases
in the futures market price of corn and other commodities since the summer of 2006,
the baseline of government spending for the commodity programs is decreasing. The
CBO baseline published in early 2007, in conjunction with the FY2008 budget
resolution, largely will determine the size of the pie to be divided among

9 (...continued)
[...] in excess of $[...].”
10 The President’s Office of Management and Budget (OMB) separately presents Congress
with a budget request based on current law, adjusted for changes in program rules funding
sought by the Administration.
11 These figures refer to farm spending by the Commodity Credit Corporation (CCC), the
USDA entity created specifically to finance operations of the department’s farm price,
income support, and related programs.

commodities and competing interest groups. Policymakers may craft changes in farm
policy and score budgetary savings or costs to fit the new farm bill within its
allocated budget.
International Trade Agreements, Disputes, and Negotiations
International trade agreements, and disputes arising under them, could shape the
direction of future U.S. agricultural policy. Continuing multilateral trade
negotiations on agriculture, if they result in a new trade agreement, also could have
an influence on U.S. farm policy as expressed in the next farm bill. Although the
United States is party to a number of trade agreements, it is primarily the agricultural
agreement in the World Trade Organization (WTO), with rules governing the use of
agricultural subsidies, both domestic and export, that constrains domestic policy
choices. Membership in the WTO opens the United States to three avenues of
influence that could change the direction of future domestic agricultural policy: (1)
existing trade commitments, (2) trade disputes, and (3) trade negotiations.
Existing Trade Commitments. Under the most recently completed round
of WTO trade negotiations — the 1995 Uruguay Round — the United States agreed
to abide by a set of disciplines that govern not only export subsidies and import
tariffs and quotas for agricultural products, but also domestic farm program design
and spending.
Under the WTO, domestic farm support programs are categorized into boxes
(amber, blue, or green) according to their relative likelihood to distort trade. Amber
box policies (the most trade-distorting) are subject to total annual spending limits.
The United States, like virtually all other countries, has been reporting that its amber
box spending has been below its allowable annual level of $19.1 billion. Farm bill
programs that generally are included in the amber box include dairy and sugar price
supports, crop marketing loans, loan deficiency payments, and other direct payments
linked to per-unit levels of production; counter-cyclical payments; storage payments;
and crop insurance and loan interest subsidies, among others. In contrast, blue box
policies are narrowly defined to include only a specific subset of production-limiting
programs that have no spending limit. (The United States has not used the blue box
exemption since 1995.) Finally, green box policies — i.e., the least trade-distorting
policies — are exempt from spending limits. Green box programs include
conservation and environmental activities, such as the Conservation Reserve Program
(CRP) or the Conservation Security Program (CSP); farm disaster relief payments;
domestic food aid such as food stamps; and income supports not linked to current
production or prices, such as the direct payments enacted in the 2002 farm bill. A
final WTO agricultural subsidy category that is exempt from spending limits under
certain conditions is known as de minimis exempted outlays. De minimis exemptions
encompass domestic support outlays that do not exceed 5% of the value of
production, calculated both on a product-specific and non-product-specific basis.
Countries report to the WTO on their domestic farm spending by category for each
The WTO’s system of policy categorization has provided latitude to U.S.
policymakers in developing domestic support measures that can provide significant
aid to producers but at the same time comply with WTO obligations. For example,

on average during 1999-2001, the United States provided $50 billion in green box
payments and $16 billion in amber box or restricted spending. During that period,
U.S. amber box spending was about 85% of its permitted WTO ceiling. A narrowing
gap between the ceiling and spending could limit U.S. flexibility in choosing ways
to support farmers as a new farm bill is considered. Furthermore, because U.S.
amber box payments are geared to price variations (when prices decline, amber box
outlays rise), the United States risks exceeding its $19.1 billion amber box ceiling.
These factors could encourage a policy shift to green box programs, such as
conservation, rural development, and/or resource retirement payments, or to
payments to producers that are not linked to current production or prices.
Conversely, when commodity prices are high, as they are currently, amber box
outlays decline. Even in situations like this, some farm groups advocate a shift to
green box programs to make up for forgone subsidy payments.
Trade Litigation. In addition to trade negotiations, litigation of disputes in
the WTO Dispute Settlement Body (DSB) can be a means of achieving trade policy
objectives. The U.S.-Brazil cotton dispute, recently litigated in the WTO, illustrates
the impact that litigation could have on U.S. farm programs.
On March 3, 2005, a WTO Dispute Appeals Panel ruled against the United
States in a dispute brought by Brazil against certain aspects of the U.S. cotton
program. As a result, USDA announced that it would make a number of
administrative changes in its export credit guarantee programs to comply with the
WTO ruling, including removal of a 1% cap on fees charged under the GSM-102
(short term) export credit guarantee program and termination of the GSM-103
(intermediate term) guarantee program. In addition, Congress repealed the Step 2
cotton program (Deficit Reduction Act of 2005; P.L. 109-171). The Step 2 program
subsidized U.S. cotton users and exporters so that U.S. rather than foreign cotton
would be utilized, even when U.S. cotton was higher-priced.
Brazil’s success in challenging U.S. farm subsidies in WTO litigation could
encourage other countries to attempt similar challenges. Uruguay, for example, has
indicated that it might challenge the U.S. rice program in WTO dispute settlement.
While subsidies for many U.S. crops are vulnerable to challenge, legal, political, and
economic factors may constrain the decision of U.S. trading partners to challenge
U.S. programs in WTO dispute settlement.
Trade Negotiations. Agricultural trade negotiations in the latest so-called
Doha Round of multilateral trade negotiations has focused on the extension and
deepening of the reforms in agricultural trade rules begun in the Uruguay Round
Agreement. Negotiations have been aimed at further expanding market access for
agricultural products, making further reductions in trade-distorting domestic farm
subsidies, and ending all forms of export subsidies. If completed, a WTO trade
agreement could produce new agricultural trade rules that might further tighten U.S.
commitments to alter farm programs or limit spending. The U.S. negotiating position
in the Doha Round has been that further limits on domestic support or reduced export
subsidies depend on a substantial expansion of market access for U.S. agricultural
products around the world, including in developing countries.

Doha Round negotiations, launched in 2001 and plagued by delays and missed
deadlines, were suspended indefinitely in July 2006. The principal cause of the
suspension was that a core group of WTO member countries — the United States,
the European Union (EU), Brazil, India, Australia, and Japan — known as the G-6
had reached an impasse over specific methods to achieve the broad aims of the round
for agricultural trade: substantial reductions in trade-distorting domestic subsidies,
elimination of export subsidies, and substantially increased market access for
agricultural products. The United States maintained that it had made an ambitious
offer of reductions in trade distorting domestic support that had not been matched by
agricultural tariff reductions by the EU, or by market opening for agricultural and
industrial products by Brazil and India (both large developing countries). The EU
and Brazil argued that the U.S. offer on domestic support did not go far enough in
reducing trade-distorting support and would in fact leave the United States in a
position to spend more on such subsidies than under the current WTO (Uruguay
Round) Agreement on Agriculture.
Doha Round negotiators have been operating under a deadline effectively
imposed by the expiration of U.S. Trade Promotion Authority (TPA), which permits
the President to negotiate trade deals and present them to Congress for an up or down
vote without amendment. TPA legislation expires on June 30, 2007, and most trade
experts think that Congress will not renew the authority. Some, however, think that
Congress might extend TPA temporarily if a Doha Round agreement seems
imminent, as was the case in 1994 for the Uruguay Round Multilateral Trade
Agreem ent s . 12
A number of agreements, which would have entailed substantial change in some
U.S. farm bill programs, had already been reached in the Doha Round agricultural
negotiations, but they are contingent on reaching a comprehensive agreement and
now will be put on hold. Those include an agreement to eliminate all agricultural
export subsidies by the end of 2013; an agreement to eliminate food aid that displaces
commercial sales and to operate export credit guarantee programs in a manner that
covers their costs; and an agreement to classify the United States’ counter-cyclical
payments as blue box (and thus not subject to reduction commitments). An
agreement to provide early and ambitious subsidy reductions for cotton also is
dependent on a comprehensive Doha Round agreement.
Proponents of changes in U.S. domestic farm policy were looking to a Doha
Round agreement to make the most trade-distorting provisions of the subsidies more
compatible with a new set of world trade rules. As a result of the suspension of the
negotiations, however, a major source of pressure for U.S. farm policy change has
dissipated. The option of extending the current farm law, proposed by some, appears
strengthened by the indefinite suspension of the Doha talks. Legislation (H.R. 4332,
H.R. 4775, and S. 2696) was introduced in the 109th Congress to extend the 2002

12 TPA issues, options, and prospects for renewal are discussed in CRS Report RL33743,
Trade Promotion Authority (TPA): Issues, Options, and Prospects for Renewal, by J. F.
Hornbeck, William H. Cooper.

farm bill by one year, but committee leadership seems intent on a new long-term
Related CRS Reports:
CRS Report RS22086, Agriculture and FY2006 Budget Reconciliation, by
Ralph Chite.
CRS Report RL33412, Agriculture and Related Agencies: FY2007
Appropriations, coordinated by Jim Monke.
CRS Report RS20840, Agriculture in the WTO: Limits on Domestic Support,
by Randy Schnepf.
CRS Report RL30612, Agriculture in the WTO: Member Spending on
Domestic Support, by Randy Schnepf.
CRS Report RS22187, U.S. Agricultural Policy Response to WTO Cotton
Decision, by Randy Schnepf.
CRS Report RS22522, Potential Challenges to U.S. Farm Subsidies in the
WTO: A Brief Overview, by Randy Schnepf and Jasper Womach.

Farm Income and Commodity Price Support13
The economic argument for federal support of farms, in contrast to nonfarm
businesses, is that markets do not efficiently balance commodity supply with
demand. Imbalances in agricultural markets develop because consumers do not
respond to price changes by buying proportionally smaller or larger quantities
(demand is price-inelastic) and, similarly, farmers do not respond to price changes
by proportionally reducing or increasing production (supply is price inelastic). The
imbalances then often result in inadequate or exaggerated resource adjustments by
farmers. The imbalances are further exacerbated by the long time lag between crop
planting (or livestock breeding) and harvest, during which economic and yield
conditions may dramatically change.
The objectives of federal commodity programs are to stabilize and support farm
incomes by shifting some of the risks of short term market price instability and
longer-term capacity adjustments to the federal government. The goals are to
maintain the economic health of the farm sector so that it can utilize the nation’s
comparative advantages in natural, infrastructure, and technology resources to be
globally competitive.
The law mandates federal support for a specific list of commodities. For most
of these commodities, support began during 1930s Depression era efforts to generally
raise farm household income when commodity prices were low because of prolonged
weak consumer demand. While initially intended to be a temporary effort, the
commodity support programs survived, but have been modified away from supply
control and commodity stocks management to direct income support payments.
Critics of commodity programs agree on the underlying fundamental economic
conditions that make stability more difficult to achieve for agriculture than for some
other sectors. However, they argue that (1) current programs are highly distorting of
world production and trade, (2) the levels of subsidies are high and have become
capitalized into land prices and rents that raise the cost of production and make the
United States less competitive in global markets,14 and (3) the benefits are
concentrated among a comparatively small number of commodities produced on a
small number of large farms.15
Supporters of commodity subsidy programs may not contradict the critics, but
do point out that other nations have distorting subsidy programs and/or trade barriers
that should be eliminated if the United States is to make reforms. Landowners are

13 This section is by Jasper Womach.
14 Because decoupled payments are certain and known, they are efficiently capitalized into
land values and rents. Since nearly 60% of the direct payment acres are rented, the primary
beneficiaries are absentee landowners. Mary E. Burfisher and Jeffrey Hopkins, Farm
Payments, Amber Waves, Economic Research Service, USDA, February 2003.
15 James MacDonald, Robert Hoppe, David E. Banker, Growing Farm Size and the
Distribution of Commodity Program Payments, Amber Waves, Economic Research Service,
USDA, February 2005.

concerned about a loss of rents and wealth if land prices drop in response to a
reduction in the subsidies. Similarly, rural communities are concerned about any
large decline in the real estate tax base that supports local schools, roads, and other
community services. While large farms do receive most of the production-linked
subsidy payments, recipients argue that lower input costs and marketing efficiencies
make large farms efficient and small farms uneconomic in the production of bulk
commodities. Therefore, targeting subsidies to small farms, recipients say, would
encourage inefficient production.
As Congress moves increasingly closer to the 2007 expiration of current farm
support programs, policymakers face design of a new law that (1) meets the nation’s
domestic needs, (2) satisfies this country’s international trade obligations under the
World Trade Organization, and (3) fits within budgetary constraints. Secretary of
Agriculture Johanns has repeatedly stated that his objective is for commodity
assistance to be equitable across commodities, predictable in terms of design
regularity, and beyond challenge within the framework of the World Trade
Organization (WTO).
Program Design and Operation
The mandatory commodity provisions of Title I of the 2002 farm bill require
support for 25 farm commodities. Producers of so-called “covered commodities”
(food grains, feed grains, oilseeds, and upland cotton)16 are eligible for fixed “direct
payments,” “counter-cyclical payments,” and nonrecourse “marketing assistance
loans” and “loan deficiency payments.” Producers of other so-called “loan
commodities” (including extra long staple, or ELS cotton, dry peas, lentils, small
chickpeas, wool, mohair, and honey) are eligible only for nonrecourse marketing
assistance loans and loan deficiency payments.17
The law mandates that raw cane sugar prices and refined beet sugar prices be
supported through a combination of limits on domestic output that can be sold and
nonrecourse loans for domestic sugar, implemented taking into account U.S.
commitments to import sugar under trade agreements. Farm-level milk prices are
supported by guaranteed government purchases of nonfat dry milk, cheese, and butter
at set prices. Additionally for milk, Milk Income Loss Contract (MILC) payments
are made directly to farmers when farm-level milk prices fall below specified levels.
The 2002 farm bill is noteworthy for several important changes to previous
commodity policy. Counter-cyclical payments were added as a new support tool
after several years of congressionally mandated ad hoc “emergency” market loss

16 Food grains include wheat and rice, and feed grains include corn, sorghum, barley, and
oats. Oilseeds include soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed,
mustard seed, crambe, sesame seed, and peanuts.
17 There are numerous terms and phrases associated with farm support programs and
agriculture policy in general that are explained in CRS Report WP03001, Agriculture: A
Glossary of Terms, Programs, and Laws, at [

payments were made in response to low market prices.18 Soybeans, minor oilseeds,
and peanuts were brought under the support framework for “covered commodities.”
Those who lost peanut marketing quotas under this change were compensated with
“buyout” payments. The “loan commodities” category was broadened beyond only
ELS cotton to include six additional commodities (honey, wool, mohair, dry peas,
lentils, small chickpeas) that had not received support under the previous farm bill.
Sugar support was modified to include domestic production controls, in addition to
import quotas, as a price-boosting mechanism. For milk, the farm bill added direct
income support payments to the already existing practice of purchasing and disposing
of surplus stocks through nonmarket channels.
Commodity support programs are financed through the USDA’s Commodity
Credit Corporation (CCC). Table 1 shows spending by commodity and year. The
cost of commodity support programs over the six-year life of the 2002 farm bill is
expected to total about $78.8 billion, or about $13.1 billion annually. Eighty-two
percent of spending is for five crops (corn, 34%; cotton, 23%; wheat, 9%; soybeans,

10%; rice, 6%).

Table 1. Commodity Credit Corporation Support Outlays,
by Commodity, FY2002-FY2005 (Actual)
and FY2005-FY2007 (Estimated)
Commodity F Y 02 F Y 03 F Y 04 F Y 05 F Y 06Est F Y 07Est Average
(million $)
Corn2,959 1,415 2,504 6,243 8,862 4,609 4,432
Wheat1,190 1,118 1,173 1,232 1,009 1,140 1,144
Rice1,085 1,279 1,130 473 634 443 841
Upland3,307 2,889 1,372 4,245 3,627 2,551 2,999
Dairy622 2,494 549 40 604 745 842
Soybeans3,447 907 595 1,140 357 1,206 1,275
Peanuts129 1,562 259 408 447 285 515
Sugar-130-8461 -860 0 -40
Honey(3)1 3 8 7 -22
Wool &
Mohair-120 12 7 10 11 10
Commodities574 1,234 -722,618 1,074 1,244 1,112
Total, all
commodities13,179 12,835 7,586 16,328 16,630 12,234 13,132
Source: Data are obtained from Farm Service Agency, USDA, Table 35. CCC Net Outlays by Commodity and
Function, July 2006. The CCC also funds several mandatory USDA conservation and rural development
programs that are not included in the above table.

18 The 1996 farm bill eliminated a target price, deficiency payments program that was
directly connected to current marketing year prices and a farmer’s actual production. The
new counter-cyclical payments were based on current-year market prices and farmer’s
historical production base, not the current crop choice or actual production level.

Two developments have occurred since enactment of the 2002 farm bill that
could substantially reshape domestic support policy. These include (1) the
movement from a federal budget surplus to record annual deficits and the expectation
of continuing large deficits for the foreseeable future, and (2) the WTO dispute
settlement ruling against the United States in a case brought by Brazil concerning
U.S. cotton subsidies.
The federal deficit situation likely will constrain farm bill legislation more than
was the case for the 2002 farm bill. Furthermore, even if current law is extended
intact, a forecast for high commodity prices likely will result in a CBO budget
baseline for commodity support that is lower than spending levels reached over the
past five years. In addition, some Democratic leaders have stated an intention to
follow a pay-as-you-go policy with regard to new legislation.
The WTO ruled on March 3, 2005, that certain aspects of U.S. cotton support
— Step 2 marketing provisions and export credit guarantees — functioned as illegal
subsidies and must be removed. As a result of these developments, a key question
likely to be asked of virtually every new U.S. farm policy proposal is how it will
affect U.S. trade commitments to the WTO. In addition to the existing commitments,
the Doha Round negotiations, before they collapsed in July 2006, anticipated that the
domestic amber box spending ceiling would be subject to a new 20% initial cut from
its current $19.1 billion level with further cuts to follow. The entire tenor of the
Doha round, with the United States in the lead, anticipated major reduction in
production and trade-distorting subsidies as well as the elimination of import
barriers. This gave impetus to serious examination of opportunities to make U.S.
farm subsidies “greener.”19 While the Doha round has been indefinitely supsended,
the greening of farm support remains a serious consideration.
The policy trend across member countries, engendered by WTO commitments
and dispute settlement rulings, has been to shift domestic support away from
programs that are most market-distorting (i.e., amber box programs such as direct
farm income and price supports linked to production and market prices) and toward
green box programs that cause minimal market distortion and are exempted from
WTO spending limits. Exempted from amber box limits are “decoupled” farm
subsidy payments — these are payments not linked to current production decisions.
“Direct payments” for the covered commodities fit into the exempt category. The
most notable exempted programs include such activities as agricultural research and
extension, conservation and the environment, rural development, food security
stocks, domestic food aid (e.g., food stamps), farm disaster payments, and structural
adjustment programs.
Prospective Issues and Options
Payment Limits. Questions of whether there should be farm-level limits on
commodity payments and what those levels should be have been controversial for
many years. Some argue that very large farms should not receive subsidies at all, but

19 In this context, greener means making support less production and trade distorting,
thereby qualifying as green box support under WTO rules.

that if they do, at least there should be limits. Others argue that farm commodity
programs should not discriminate based on farm size or any other income or wealth
consideration because the goal is to stabilize and support the entire sector, not
particular households. In fact, limits have been imposed on direct farm payments
since the early 1970s when target price deficiency payments were first enacted.20
The debate has intensified in recent years because payment money is
increasingly going to a comparatively small number of large farms. For example, in
2005, about 55,000 farms with sales over $500,000 received $5.7 billion (6.2% of the
payment farms received 36% of the payments).21 This concentration of payments has
raised questions of equity and has been charged with contributing to the absorption
of smaller farms by large farms.
Tightening the payment limits also has been proposed as a way to reduce the
cost of the commodity programs when there are budget pressures. In the FY2006
budget request to Congress, the USDA included a proposal to save $1.2 billion over
10 years by tightening payment limits from the current level of $360,000 per person
to $250,000, as well as counting commodity forfeitures and certificate gains toward
the limits and applying the limits to dairy payments. Among commodities, rice and
cotton — two southern crops — have a greater concentration of payments than do the
other payment crops. This has created a largely regional split among some Members
of Congress on the issue, with many northerners favoring tighter limits and many
southerners opposing any change.
Supply Controls and Import Quotas. Sugar and milk are the only two
commodities currently supported by maintaining farm prices above what the market
might otherwise dictate. Sugar utilizes nonrecourse loans and a system of import
tariff rate quotas and domestic marketing allotments to limit supplies and support
prices. Farm milk prices are indirectly supported through USDA purchases of
surplus dairy products from dairy processors at specified prices. Also, dairy farms
benefit from direct payments when market prices fall below a mandated target price
under the Milk Income Loss Contract (MILC) program; from established minimum
farm prices for fluid-grade milk under federal milk marketing orders; and from dairy
export subsidies through the Dairy Export Incentives Program (DEIP).
At issue for Congress is whether to continue programs that potentially raise
market prices, which critics contend are the most market-distorting because they
encourage excess production. Periodic efforts in the past to significantly alter or
phase out these programs have not succeeded. Supporters contend that the support
mechanisms are necessary to protect farms from foreign competition. While the
import-limiting programs impose little cost on the federal budget, the producer

20 The 2002 farm bill created a Commission on the Application of Payment Limits for
Agriculture to examine the issues, and its final report is available at [
21 Data are based upon the Economic Research Service, USDA, Agricultural Resource
Management Survey (ARMS), available at [
Data/govpmt.arms 05.salesclass.xls].

subsidy reported to the WTO for 2001 (the most recent year reported by the United
States) amounted to $4.5 billion for milk and $1.1 billion for sugar.
Some consideration has been given to direct payments as an alternative to
supply controls. However, cost is a major deterring factor. Target prices and
deficiency payments were added to the milk support framework in the 2002 farm bill
with a projected cost estimate of $2 billion for FY2003 through FY2005. However,
no change was made to the support price for milk. Consequently, after its first two
years of operation, the MILC program paid out over $2 billion, and CCC dairy
acquisitions cost $600-$700 million in FY2002 and FY2003. High milk prices in

2004 and 2005 kept surplus dairy product purchases to a minimum.

Another policy option, possibly for sugar, is a buyout of the supply control
features of price support. The 2002 farm bill included a buyout of peanut marketing
quotas, the supply control feature of the peanut price support program. The peanut
quota buyout paid about $1.221 billion to about 8,600 farms (averaging $142,000 per
farm) as compensation for the loss in value associated with termination of peanut
marketing quotas. Peanut producers now receive the benefit of direct payments,
counter-cyclical payments, and marketing assistance loans and loan deficiency
payments. Tobacco marketing quotas on some 57,000 farms were terminated after
the 2004 crop, and $9.6 billion will be paid out over 10 years as buyout compensation
(the equivalent of a lump sum payment of $102,000 per farm using a 5% discount
rate). In contrast to peanuts, tobacco buyout funds come from tobacco product
manufacturers, and future tobacco production is not set to benefit from any federal
support program.
Green Payments. Some contend that commodity support programs should
be replaced with incentive payments to protect natural resources (such as land, water,
air, and/or wildlife), or possibly to enhance scenic, recreational, or open space
amenities. This concept has been tagged as a green payments policy in the United
States, while in the European Union (EU) it is called agri-environmentalism. While
the term green reflects the environmental enhancing character of these programs,
such payments also typically qualify as green box under WTO agriculture subsidy
The 2002 farm bill included a new Conservation Security Program (CSP) that
was intended to be a comprehensive green payments program because it would
encourage integrated whole-farm planning and reward producers who proactively
conserve environmental resources across their entire agricultural operation. Stringent
eligibility criteria designed by USDA to reward only the highest levels of additional
conservation, and a comparatively low spending limit of $202 million in FY2005,
have constrained participation.
In contrast to the United States, EU farm policy since 1985 has included
payments to farmers to compensate for costs incurred or income forgone for
undertaking agri-environmental measures that meet farm policy and rural
development objectives. Such measures include, among other things, reducing use
of fertilizer and chemical inputs, adopting organic production methods, maintaining
countryside and landscape, or managing land for leisure activities or public access.
Successive reforms of the EU’s Common Agricultural Policy (CAP) have placed

greater emphasis on such green payments — and increased funding for them — as
agri-environmental measures have been integrated into a broad rural development
policy. In addition to meeting desirable social goals, EU policymakers view shifting
funds from commodity support to rural development, including agri-environmental
programs, as more compatible with multilateral efforts in the WTO to curb domestic
support, while maintaining support that is not, or is at most minimally, trade-
Buyout of Commodity Programs. The buyout of peanut and tobacco
marketing quotas has stimulated thought about a buyout of all commodity support
programs. Agricultural economist David Orden launched this discussion at USDA’s
2005 Agricultural Outlook Forum. He suggested that a buyout of the 2002 farm
programs could focus on direct payments, counter-cyclical payments, and/or loan rate
price guarantees. His analysis determined that buying out farm support payments
would substantially raise short-term budget costs, but would reduce expenditures in
the long run.22 Other presenters at the forum asserted that a buyout would only be
effective if future Congresses did not re-enact support payments, especially during
the next downturn in the farm economy, when there likely would be pressure for
additional assistance.
Devolving Commodity Programs to the States. Economists at the
USDA’s Economic Research Service have examined the concept of shifting farm
program funds to states (called devolution). The argument is made that the wide
diversity of U.S. farms, commodities, land and water resources, and problems argue
for state-designed responses that meet local objectives, rather than national programs.
Would devolution undermine national farm policy goals such as income stability
for farmers and the economy or food security? Economists at ERS respond
“probably not,” given the relatively small number of U.S. farmers and the relatively
small share of farming in the national economy.
Stabilization of farmers’ incomes can be addressed through Federal programs but
also by private means, such as forward pricing, crop yield or revenue insurance,
futures, and options. And, in contrast to the 1930s when the programs were
initiated, commodity programs have little redistributive effect, as the bulk of
payments goes to farm households with incomes above the U.S. nonfarm
average. Food security for the U.S. no longer depends exclusively on domestic
production, which means that national commodity policies are not the only23
determinant of whether Americans have enough to eat.
A decision to devolve all or most of the expected $10 to $15 billion in annual
commodity payments to the states would involve difficult choices, such as how to
divide it among the states. Further, the states could not be allowed to use the funds

22 David Orden, Key Issues for the Next Farm Bill: Is a Farm Program Buyout Possible,
USDA Agricultural Outlook Forum, February 24, 2005, at [


23 Susan Offutt, Betsey Kuhn, Mitchell Morehart, Devolution of Farm Programs Could
Broaden States Role in Ag Policy, Amber Waves, November 2004, at [http://www.ers.usda.
gov/ AmberWaves/november04/feat ures/devolutionofprograms .htm] .

in ways that violate international trade agreements. However, devolution could
enable the states to change the objectives and mix of programs being delivered to
their farmers and rural communities.
A disadvantage of a devolution policy is that the current recipients of farm
subsidies likely would lose some or all of the benefits of future spending. The
expected consequence would be a decline in land values and reduction in land rental
rates. To the extent that subsidies have not been decoupled from production, there
could be some shifting of production between commodities, and the lower land prices
and lower rental rates could result in increased production if the lower costs of land
make U.S. producers more competitive in the global marketplace — an advantage for
the nation.
Revenue Insurance. Farmers now benefit from a combination of income
support payments to offset low prices and indemnity payments to offset production
losses. This suggests an implicit target revenue goal on the part of the federal
government. Supporting revenue is reasonable because farmers pay their expenses
with revenue. However, the various farm subsidy programs currently are designed
and operated independently. Consequently, the programs may fail to effectively
support farm revenue. For example, generally poor weather, such as a widespread
drought, may drive crop prices up and marketing loan and counter-cyclical payments
down. At the same time, yield losses may not be sufficiently catastrophic to trigger
crop insurance indemnity payments or to prompt congressional adoption of disaster
payments. Similarly, there are years when low prices are offset by high yields so that
farm income is adequate to cover expenses, yet on top of that there are substantial
price-linked support payments to further boost income.
For about the last decade, several federally subsidized revenue insurance
products have been offered to producers as part of the federal crop insurance
program. These policies indemnify for diminished revenue, whether from reduced
yield or from low market prices. By 2004, revenue insurance was purchased on 126
million acres, 60% of all eligible crop land in the crop insurance program. A
possible option for the next farm bill is to expand current pilot programs so that a
producer can insure the revenue of the entire farm (possibly including livestock),
rather than individual crops. Several years of recent experience with federally
subsidized revenue insurance now provide empirical information from which to
evaluate universal farm revenue insurance as a farm support alternative. Analysis at
Iowa State University indicates that modifications can be made to current revenue
insurance products that make them:
ideally suited to hit congressional revenue targets. Either low prices or low
yields can trigger a payment. But low prices by themselves will not trigger a
payment if yields are high enough to raise revenue above the 90 percent level.
And low yields will not trigger a payment if prices are strong enough. In
addition, if payments arrive when aggregate market revenue exceeds its target
level, then at least the payments would flow to those regions that experienced
inadequate revenue because of low yields .... Rationalizing commodity, disaster,
and crop insurance programs by replacing them with a single-payment program
... would increase program transparency, eliminate program duplication, reduce

administrative costs, and largely eliminate over- and under-compensation of24
Current crop and revenue insurance products are classified as nonspecific
subsidies under current WTO rules. To receive this classification, the level of
subsidy must be below 70% of the indemnity benefits paid to farmers. The National
Corn Growers Association has gone farther than any other group in specifying a
revenue insurance option as an alternative to several features of the current support
framework.25 Their proposal would insure crop-specific net revenue, in contrast to
a whole farm insurance option favored by some.
Related CRS Reports:
CRS Report RS21905, Agriculture in the WTO Doha Round: The Framework
Agreement and Next Steps, by Randy Schnepf.
CRS Report RS20840, Agriculture in the WTO: Limits on Domestic Support,
by Randy Schnepf.
CRS Report RL31095, Emergency Funding for Agriculture: A Brief History of
Supplemental Appropriations, FY1989-FY2005, by Ralph M. Chite.
CRS Report RS21999, Farm Commodity Policy: Programs and Issues for
Congress, by Jim Monke.
CRS Report RL33271, Farm Commodity Programs: Direct Payments,
Counter-Cyclical Payments, and Marketing Loans, by Jim Monke.
CRS Report RL32624, Green Payments in U.S. and European Union
Agricultural Policy, by Charles E. Hanrahan and Jeffrey Zinn.
CRS Report RS21493, Payment Limits for Farm Commodity Programs: Issues
and Proposals, by Jim Monke.
CRS Report RS22187, U.S. Agricultural Policy Response to WTO Cotton
Decision, by Randy Schnepf.

24 Bruce A. Babcock and Chad Hart, Judging the Performance of the 2002 Farm Bill, Iowa
Ag Review, Spring 2005, at [
25 National Association of Corn Growers, Forging a New Direction for Farm Policy,
October 19, 2006, at [].

Specialty Crops26
Sales of fruits, vegetables, and tree nuts account for nearly one-third of U.S.
crop cash receipts and one-fifth of U.S. agricultural exports, according to USDA’s
Economic Research Service (ERS).27 When floriculture, greenhouse, and nursery
crops are included, specialty crops account for approximately 50% of all U.S. cash
receipts of farm crops (and about one-fourth of total crop and livestock receipts).
Despite their relatively large share of crop receipts, specialty crops occupy only about

3% of U.S. harvested cropland. Although certain states and regions are predominant,

nearly every state has some commercial specialty crop production within its borders.
Although specialty crops are not eligible for support under USDA’s farm
commodity price and income support programs, their production is closely linked
with the major program crops in several ways. For example, according to a
November 2006 report by ERS, 80% of the land planted to vegetables for processing
(sweet corn, tomatoes, dry beans, and potatoes) is located on farms that likely also
receive direct and countercyclical payments because they rotate the vegetable crops28
with program crops.
On the other hand, some specialty crop producers have testified strongly in favor
of extending a 2002 farm bill provision (originating in the 1996 farm bill) that
restricts producers of the major commodities from planting fruits and vegetables on
program acreage if they do not have a history of doing so. These producers argue
that allowing program crop producers to switch even small numbers of acres to fruits
or vegetables would negatively affect existing growers’ annual income.29 The
November 2006 ERS report suggests that a number of constraints likely would
prevent large-scale switch-overs from program to specialty crops if the restriction
were lifted, but states that some individual producers could be significantly affected.
Finally, some stakeholders and policymakers are calling for specialty crop issues
to occupy a larger role in farm bill policy discussions than in the past. They assert
that the traditional farm commodity support programs are under pressure from
constraints on the federal budget, from developments related to existing trade
obligations, and from negotiations on further trade liberalization. Policies covering
both subsidized and unsubsidized crops more comprehensively — such as providing
more assistance through trade promotion, conservation, credit, marketing programs,

26 This section is by Jean M. Rawson.
27 USDA, Economic Research Service, Fruit and Vegetable Backgrounder, Outlook Report
No. VGS-31301 56pp, April 2006, at [
28 USDA, Economic Research Service, Eliminating Fruit and Vegetable Planting
Restrictions: How Would Markets Be Affected? ERS Report Number 30. November 2006.
Available online at [].
29 See House Committee on Agriculture, Subcommittee on Livestock and Horticulture,
Hearing, November 5, 2003, Serial No. 108-20, Review of Domestic Policies Affecting the
Specialty Crop Industry. Available at [].

domestic food assistance, and research — could provide a way to address those
pressures while increasing U.S. competitiveness, they argue.
Program Design and Operation
Although USDA traditionally has not subsidized specialty crops as it has bulk
commodities, over the decades Congress has authorized a wide range of programs
that facilitate the growth and benefit the economic health of the specialty crop sector,
as well as other sectors of U.S. agriculture. Among the programs of particular
importance to specialty crops are:
!Marketing orders and agreements — Marketing orders and
agreements are sets of rules intended to enhance the marketing of a
commodity. The rules apply to the handlers within a defined
geographic region and may (1) establish quality standards for the
commodity; (2) standardize packages and containers; (3) regulate the
flow of product to market; (4) establish reserve pools for storable
commodities; and (5) authorize production research, marketing
research and development, and advertising. Currently there are 30
active marketing orders and agreements covering specified fruit,
vegetable, and tree nut crops. The activities are financed by
assessment fees (commonly called “check-off” fees) collected from
handlers, usually at the time of sale. The Agriculture Marketing
Service (AMS) oversees the programs to make sure the orders and
agreements operate in the public interest and within legal bounds
authorized by the Agricultural Marketing Agreement Act of 1937 (as
amended). (Separately, USDA offers user fee grading and quality
certification services, organic standards and certification, and market
economic information and analysis that also are important to the
specialty crop sector.)
!Qualified Through Verfication program — The Food and Drug
Administration (FDA) has the authority under the Federal Food,
Drug, and Cosmetic Act to regulate the fresh and processed produce
industries to ensure that products are safe and accurately labeled.
However, since 1996, AMS has offered a voluntary, fee-for-service
pilot program to assist produce packers in adopting science-based,
preventive measures against food contamination in their plants. The
Qualified Through Verification program is similar in approach to the
preventive Hazard Analysis and Critical Control Point (HACCP)
system used since 1996 by USDA’s meat and poultry regulatory
agency, the Food Safety and Inspection Service (FSIS). The FDA
has been encouraging the fresh and processed produce industries to
adopt this preventive approach throughout the marketing chain.
!Block grants to states — The 108th Congress passed legislation that
is widely regarded as a precursor to discussion of specialty crop
issues in the 2007 farm bill. The Specialty Crops Competitiveness
Act of 2004 (P.L. 108-465) authorizes an annual appropriation of
$44.5 million in fiscal years 2005 through 2009 for block grants to

states for them to award to research and marketing projects that
promote the advancement of each state’s specialty crops. From the
annual appropriation for this program, each state receives $100,000
and the balance is distributed based on the ratio of the value of each
state’s specialty crop production to the total value of U.S. specialty
crop production. In the majority of cases, the state Department of
Agriculture administers the program and uses the funds to support
marketing, education, research, pest and disease management,
production, and food safety projects.
!Export promotion — The USDA administers several export
promotion programs that cover all commodities, but some are
particularly import to specialty crops. The Market Access Program
(MAP) shares the costs of marketing and promoting U.S.
agricultural products overseas. The Quality Samples Program (QSP)
helps create export sales of commodities, including fruits,
vegetables, and tree nuts, by providing samples to foreign importers,
thus paving the way for new partnerships between importers and
U.S. exporters. The Technical Assistance for Specialty Crops
(TASC) program funds competitive grants to eligible public and
private organizations (i.e., federal and state agencies, trade
associations, universities, cooperatives, and private companies) to
conduct projects that address trade barriers (projects have included
seminars, study tours, field surveys, and pre-export clearance
programs, among other activities).
!Crop loss assistance — As with the major field crops, specialty
crop producers receive benefits from several programs that
compensate for yield losses if they are substantial. Federally
subsidized crop insurance (administered by the Risk Management
Agency but sold and serviced by private companies) is available for
some 50 specialty crops in limited locations. When insurance is not
offered, producers of some commercial specialty crops may be
eligible for indemnification under USDA’s Noninsured Assistance
Program (NAP) for the cost of an administrative fee. In addition, for
almost every year since 1988 Congress has authorized ad hoc
disaster assistance that has covered losses of specialty crops as well
as the major field crops.
!Disease and pest protection — Although the Department of
Homeland Security conducts agricultural inspections of passengers
and cargo at U.S. ports of entry, USDA’s Animal and Plant Health
Inspection Service (APHIS) is the primary agency charged with
protecting U.S. agriculture from the introduction, establishment, and
reemergence of plant pests and diseases that could harm production
or damage export markets. Of particular importance to specialty
crop producers are APHIS emergency control and eradication
programs — supported wholly or in part with mandatory funds —
for pests and diseases that appear suddenly and threaten significant
economic damage.

!Managing trade-related pest and disease issues — APHIS
officials are heavily involved in decisions related to U.S. exports and
imports of fruits and vegetables. APHIS attachés work abroad with
host country officials to establish and oversee foreign-based
inspection programs to ensure that products designated for export
are pest-free and that inspectors at U.S. ports of entry are aware of
emerging problems. APHIS officials also participate on USDA
trade agreement negotiation teams to solve sanitary and
phytosanitary (SPS) issues so that the agreements can move
forward.30 In addition, APHIS is in charge of certifying that U.S.
specialty crop exports meet other countries’ phytosanitary
regulations before they are shipped. APHIS’s import and export
activities are based on scientific risk assessments.
!Fruit and vegetable purchases through child nutrition programs
— Federal cash assistance to schools, child care centers, and
summer food program operators (among others) represents an
important source of federal support for fruit and vegetable
purchases. Providers use this aid to buy food items for use in the
meals they serve. USDA estimates that fruit and vegetable
purchases account for about 20% of the total. A separate program
exists to give a limited number of schools funding to provide free
fresh fruit and vegetables to students (the Department of Defense
(DoD) Fresh program). This program has used supply chains for
military bases to make smaller-sized deliveries of locally produced
fresh fruit and vegetables to schools.
!Research — The large number of specialty crops and the dispersed
nature of production throughout the nation discourage private sector
research. This makes federally sponsored research critical to the
future productivity of the industry. Publicly funded research to gain
minor use pesticide approvals is a case in point. The 2004 Specialty
Crops Competitiveness Act added specialty crop research to
USDA’s list of high priority research and extension activities, and
established a permanent specialty crops subcommittee under an
existing board to study the research needs of the sector and make
recommendations. The Agriculture Research Service (ARS) is
USDA’s own research agency. The Cooperative State Research,
Education, and Extension Service (CSREES) administers funds to
the stateside components of the agricultural research network, which
include the land grant colleges of agriculture, the state agricultural
experiment stations, and the state cooperative extension services
(providing research-based information and outreach). Annual
CSREES block grants comprise only a small portion of their total

30 SPS issues concern the health of animal (sanitary) and plant (phytosanitary) imports into
the United States. Because SPS issues can be used as nontariff barriers to trade, they are a
chronic source of disputes between countries and between importers and domestic producers
and handlers.

funding (state, local, and private funds constitute the majority), but
they are important to sustaining the core, ongoing research and
extension programs at the state level.
Prospective Issues and Options
In addition to the program of block grants to states to support projects to
increase the competitiveness of each state’s specialty crops, P.L. 108-465 also
contains provisions intended to facilitate exports, protect U.S. specialty crops from
invasive pests and diseases, and increase agricultural research of importance to fruit
and vegetable crop production. All of these provisions are expected to come up for
further discussion in the context of the 2007 farm bill. In the 109th Congress, some
Members introduced several legislative proposals containing a variety of additional
approaches to supporting specialty crops (S. 2487, H.R. 3562/S. 1556, H.R. 6193).
These bills called for mandatory funding for the majority of the programs they
proposed. The following are some of the leading priorities of the specialty crop
!Expand the rules under fruit and vegetable marketing orders to
include implementation of contamination prevention programs;
!Encourage producers and processors to obtain third-party
certification for following standardized handling practices (e.g.,
Good Agricultural Practices (GAPs), Good Manufacturing Practices
(GMPs), ISO 9000) by offering partial reimbursement for
!Reauthorize the program of block grants to states and support it with
$500 million annually in mandatory funds;
!Increase funding for the Market Access Program (MAP);
!Establish a position within the Office of the U.S. Trade
Representative to help ensure that issues of importance to specialty
crops are considered during trade agreement negotiations;
!Raise the payment limitations for disaster payments and the
maximum income threshold for recipients to reflect the higher costs
of production and crop values of specialty crops;
!Establish an SPS export petitions division within APHIS to enhance
trade by expediting export certifications for specialty crops;
!Increase the mandatory funding available for emergency pest and
disease eradication programs and expand compensation to growers
affected by such programs;
!Expand the DoD Fresh program to reach 100 elementary or
secondary schools in each state;
!Provide mandatory funding to expand basic, applied, and economic
research of use to the specialty crop industry;
!Establish grant programs, supported by mandatory funds, to promote
the use of specialty crop biomass waste for energy and fuels, as well
as for other, value-added commercial products.

Related CRS Reports:
CRS Report RL32746, Fruits, Vegetables, and Other Specialty Crops: A
Primer on Government Programs, by Jean M. Rawson.
CRS Report RL33520, Specialty Crops: 2007 Farm Bill Issues, by Jean M.
CRS Report RL32951, Specialty Crop Issues in the 109th Congress, by Jean M.

Animal Agriculture31
The meat and poultry industries do look to the federal government for leadership
and support in resolving foreign trade disputes, establishing transparent, science-
based rules for importing and exporting animal products, and reassuring domestic
and foreign buyers alike that these products are safe, of high quality, and free from
pests and diseases. Omnibus farm legislation often contains policy guidance and
resources aimed at achieving these objectives.
Much is at stake economically: the farm value of animal production now
averages about $124 billion annually, more than half the total value of all U.S.
agricultural production. Approximately 1.1 million of the nation’s more than 2.1
million farms were classified by the 2002 Census of Agriculture as primarily an
animal production operation. The total included more than 664,000 classified
primarily as cattle farms and ranches, 55,000 as cattle feedlots, nearly 73,000 as dairy
operations, 34,000 as hog/pig operations, 44,000 as poultry or egg producers, nearly
44,000 involved in sheep or goat production, and more than 228,000 involved in
some other livestock activity (e.g., horses, bison, beekeeping, aquaculture).
These producers face intense pressures to become larger, more specialized, and
more cost-efficient, to better compete in the increasingly global marketplace.
Transactions today are moving away from live cash markets and toward contractual
relationships that can provide a guaranteed supply of live animals at predetermined
prices. More of these animals are being supplied by Canada (cattle, sows and pigs)
and Mexico (cattle), and U.S. dominance as a leading exporter of red meats and
poultry is being challenged by highly competitive countries like Brazil, Australia,
India, Argentina, and New Zealand.
These trends continue at a time when feed costs have begun to rise significantly
due largely to the government’s promotion of ethanol (now largely corn-based) as an
alternative fuel. In Congress, debate revolves around what, if any, role government
should play in mitigating the economic impacts of structural changes and global
challenges in the livestock, poultry, and meat processing industries. Other public
policy concerns include animal agriculture’s obligations with respect to
environmental protection, food safety, and animal welfare.
Program Design and Operation
Most of the products of animal agriculture are not eligible for the types of price
and income supports that Congress has written into farm bills for major crops such
as grains, cotton, and oilseeds.32 Nor have meat and poultry producers generally
sought such assistance, except ad hoc aid to recover losses caused by natural
disasters such as droughts and hurricanes, and on occasion for destruction of animals
for disease control.

31 This section is by Geoffrey S. Becker.
32 Milk, honey, and wool are notable exceptions. Price support programs for these
commodities are discussed elsewhere in this report.

Prospective Issues and Options
Feed Prices and Production Support. Feed is the single largest input cost
for cattle feeders and dairy, hog, and poultry producers, who are wary of government
policies that can raise feed prices. These include commodity support or conservation
programs that take cropland out of production, or ethanol incentives that bid up the
price of corn, a key feed ingredient. Such incentives, i.e., tax subsidies and fuel
standards mandates, have already helped to boost significantly the portion of the total
U.S. corn crop going to ethanol. Animal producers will be paying close attention to
a possible energy title in the 2007 farm bill or other legislation that might further
bolster feed grain demand and prices.
As noted, animal producers are not eligible for commodity price and income
support programs (except on crops they also may produce). Nor do they qualify for
the federal subsidized insurance, which covers a portion of the value of production
lost to natural disasters. Some cattle and hog producers in a limited number of states
do participate in livestock revenue insurance programs being administered by
USDA’s Risk Management Agency (RMA), which provides protection from revenue
losses whether due to natural causes or economic conditions. Also, Congress or the
Administration periodically has made animal producers in declared disaster areas
eligible for ad hoc federal payments, mainly to help defray the cost of purchasing off-
farm feed following a disaster affecting on-farm feed production, or permitted
producers to use conservation lands for haying and grazing. Whether the federal
government should assume more of livestock and poultry producers’ disaster risks,
and whether such aid ought to be written into standing farm legislation, are among
questions that may arise in the farm bill debate.
Market Competition and Packer Concentration. The past several
decades have seen rapid changes in the structure and business methods of animal
agriculture. Production and marketing have been moving toward fewer and larger
operations, although the pace of these changes has varied widely across the sector.
For example, smaller (i.e., fewer than 100-head) cow-calf operations (where beef
cows are bred and born) represent a majority of such operations and hold nearly half
of all U.S. cattle. On the other hand, larger (i.e., 1,000-head plus capacity) feedlots,
which fatten cattle to slaughter weight, represent a tiny fraction of total U.S. feedlots33
but market the vast majority of fed cattle.
Live hog production has seen sweeping changes over the past 20 years. The
number of U.S. farms with hogs declined from 667,000 in 1980 to to 67,000 in 2005;
those remaining have become much larger and less diversified. Operations with at
least 10,000 hogs now represent less than 1% of all producers but more than half of
total U.S. output, USDA reports. Farmers now are selling to fewer packers as well
(see Table 2).

33 Source: Animal Production and Marketing Issues: Questions and Answers, USDA,
Economic Research Service Briefing Rooms, accessed December 29, 2006, at
[ ht t p: / / Br i ef i ng/ Ani mal Pr oduct s / quest i m#quest i on2] .

Ownership or tight control of multiple production and marketing steps by a
single firm (known as vertical integration or coordination) also is more common.
Live animal auction barns and other open cash markets have rapidly given way to
closed contractual arrangements between producers and meat packing companies,
where sales terms including prices are set in advance.
Table 2. Red Meat Packer Concentration, 1985 and 2005
Percent Slaughtered by
TypeTop 4 Firms
Steers & Heifers50%80%
All Cattle39%71%
Source: USDA and Cattle Buyers Weekly.
Critics assert that these trends have enabled a relative handful of industry
players to take control of markets and have undermined the traditional U.S. system
of smaller-scale, independent, family-based farming. Farmers and ranchers now have
weakened negotiating power, lower prices, and no choice but to “get larger or get
out” of agriculture, they add. Others argue that structural changes in animal
agriculture, processing, and marketing are a desirable outgrowth of factors such as
technological and managerial improvements, changing consumer demand for a wider
range of low-cost, convenient products, and expanding international trade.
A number of federal laws and agencies are responsible for ensuring that
markets are open and competitive. For example, the Packers and Stockyards Act
(PSA) of 1921, as amended (7 U.S.C. §181 et seq.) prohibits meat packers and
poultry dealers from a variety of anti-competitive and antitrust practices such as
engaging in any unfair, unjustly discriminatory or deceptive marketing; or
apportioning supplies or manipulating prices to create a monopoly. USDA’s Grain
Inspection, Packers and Stockyards Administration (GIPSA) administers the PSA.
USDA’s Agricultural Marketing Service (AMS) is responsible for Livestock
Mandatory Price Reporting (LMPR, P.L. 109-296), first passed in 1999 to address
some producers’ concerns about low livestock prices, industry concentration, and the
availability of accurate market information.
The Sherman Act (15 U.S.C. §§1-8) and Clayton Act (15 U.S.C. §12 et seq.),
which cover but are not specific to agriculture, prohibit certain activities such as
mergers and acquisitions that may restrict market access or suppress competition.
The U.S. Department of Justice and Federal Trade Commission are primarily
responsible for administration of these laws. The Capper-Volstead Act (7 U.S.C.
§§291-292) confers limited exemption for antitrust liability to farmer cooperatives.

In each recent Congress, various bills have been proposed to address perceived
competition problems in the livestock sector as well as other areas of agriculture. In
2001, the Senate Agriculture Committee debated whether to include, for the first time
in an omnibus farm bill, a “competition” title. Proposed by then Committee
Chairman Harkin, the title included provisions governing the terms of contracts
between producers and the firms that buy their products, and requiring country of
origin labeling (COOL) for retail sales of red meats, among other agricultural
commodities. Supporters of the title cited statistics about the growing proportion of
cattle and hogs being slaughtered and processed by the top four firms (which they
believe limit their opportunities for selling animals), and expressed concerns about
increased livestock and meat imports. Opponents, who argued that the title would
stifle U.S. competitiveness and undermine the business relationships that producers
willingly enter, won deletion of the title during committee mark-up. However,
COOL was added through a subsequent Senate floor amendment and included in the
final bill (see below.)
Several other so-called competition provisions also were adopted in the final
2002 bill. A “livestock” subtitle of Title X (Subtitle F) contained, among other
sections, new authority for USDA’s Packers and Stockyards Administration to
oversee swine production contracts, and gave explicit permission to livestock and
poultry producers to discuss, with specified business associates, regulators, and
families, the terms of contracts they have with processors. Variations of these
provisions had been approved by the Senate during its floor debate on the farm bill.
Another amendment, which the full Senate adopted in late 2001, would have
prohibited meat packers from owning or controlling livestock for more than 14 days
before slaughter. This amendment was removed by conferees prior to passage of the
final bill in 2002, but interest in the proposal continues.
In the 109th Congress, S. 818 and S. 960 proposed to ban packer ownership of
animals for more than seven days before slaughter; S. 960 contained additional
restrictions on forward contracts for livestock. Future legislative actions, if any, on
this issue could be informed by a $4.4 million study of livestock and meat marketing
practices now being completed for USDA.
Country-of-Origin Labeling. Title X of the 2002 farm bill requires retailers
provide country-of-origin labeling for fresh beef, pork, and lamb (Section 10816 of34
Subtitle I). This highly contentious program, which has yet to take full effect, could
again be on the farm bill agenda of the 110th Congress. First adopted on the Senate
floor in late 2001, mandatory meat COOL was to be in place on September 30, 2004,
but language in the FY2004 consolidated appropriations act (P.L. 108-199) delayed
implementation for meats, produce and peanuts, but not seafood, for two years, until
September 30, 2006.

34 The mandatory COOL provision also covers seafood, fruits and vegetables, and peanuts.
USDA’s Agricultural Marketing Service is responsible for implementing the rules, and
maintains an extensive website on COOL (at []), with links
to voluntary COOL guidelines, the seafood rule, the proposed mandatory rule for the other
covered commodities, and a cost-benefit analysis.

Debate over COOL carried into the 109th Congress, which (in USDA’s FY2006
appropriation, P.L. 109-97) postponed implementation for an additional two years —
until September 30, 2008 (a provision in H.R. 2744). Other measures in the 109th
Congress would have made COOL voluntary for meats (including H.R. 2068, S.
1300, and S. 1333). Still others (e.g., S. 135, S. 1331) would have expanded COOL
requirements and/or accelerated its current implementation date.
The contrasting intents of these bills reflected the continuing divergence of
opinion among lawmakers over whether a federally-mandated labeling program is
needed. Some contend that mandatory COOL will provide U.S. products with a
competitive advantage over foreign products because U.S. consumers, if offered a
clear choice, prefer fresh foods of domestic origin, thereby strengthening demand and
prices for them. Moreover, proponents argue that U.S. consumers have a right to
know the origin of their food, particularly at a time when U.S. food imports are
increasing, and whenever particular health and safety problems arise. They cite as
one prominent example concerns about the safety of some foreign beef arising from
the discoveries of bovine spongiform encephalopathy (BSE, or mad cow disease) in
a number of Canadian-born cows (and two U.S. cows) since 2003. Supporters of the
COOL law argue that it is unfair to exempt meats and produce from the longstanding
country labeling already required of almost all other imported consumer products,
from automobiles to most other foods. They also note that many foreign countries
already impose their own country-of-origin labeling.
Opponents of mandatory COOL counter that studies do not provide evidence
that consumers want such labeling. They believe COOL is a thinly disguised trade
barrier intended to increase importers’ costs and to foster the unfounded perception
that imports may be inherently less safe (or of lower quality) than U.S. products.
Food safety problems can as likely originate in domestic supplies as in imports, as
evidenced by the more than 30 recalls of U.S. meat and poultry products announced
by USDA in 2006 alone, these opponents point out. Opponents argue that all food
imports already must meet equivalent U.S. safety standards, which are enforced by
U.S. officials at the border and overseas; scientific principles, not geography, must
be the arbiter of safety. Industry implementation and recordkeeping costs, estimated
by USDA to be as high as $3.9 billion in the first year and $458 million per year after
that, would far outweigh any economic benefits, critics add. (COOL proponents
assert that these cost estimates were grossly exaggerated while some in industry
claim they were too low).
Animal Identification for Disease Control. One aspect of the COOL
debate was whether animal producers would have to keep detailed records on their
animals’ identity and whereabouts so that the government or retailers could properly
verify country of origin. Many producers do not believe that USDA’s Agricultural
Marketing Service should extend such requirements to the farm level, because they
are intrusive, costly, and unnecessary in meeting the intent of the law. At the same
time, a growing number of producers do seem to agree that some type of universal
animal identification (ID) program would be a beneficial tool in addressing animal
disease problems.
Outbreaks of animal diseases like avian influenza (AI), foot and mouth disease
(FMD), brucellosis, and tuberculosis are seen as perhaps the greatest potential threats

to animal production. Even where U.S. cases have been few (as with BSE) or
quickly contained (as with various strains of AI), the impacts can be devastating
economically, causing production losses, the closure of export markets, and a decline
in consumer confidence. Some like AI and BSE have the potential to harm humans.
Despite several years of effort on the part of USDA, industry groups, and states
— and public funding totaling an anticipated $118 million through FY2007 — a
universal U.S. system is not expected to be in place for some time, as policymakers
attempt to resolve numerous questions about its design and purpose. Should animal
ID be mandated? What types of information should be collected, on what animal
species, and who should hold it, government or private entities? To what extent
should producer records be shielded from the public and other government agencies?
Should animal ID be expanded to traceability of meat and poultry products from farm
to the consumer, or used for other purposes such as food safety or certification of
labeling claims? How much will it cost, and who should pay?
Past bills to establish differing animal ID systems for animal disease purposes
only, and those to require more extensive systems tracing products through the
marketing chain, may re-emerge in the 110th Congress, possibly as a farm bill item.
USDA’s Animal and Plant Health Inspection Service (APHIS) has lead responsibility
on matters of animal health, including animal ID. APHIS has indicated that it has the
legislative authority to implement an animal ID program under the comprehensive
Animal Health Protection Act, which was adopted as Subtitle E of Title X of the
2002 farm bill. This subtitle updated and consolidated a number of longstanding
statutes that had been used to monitor, control, and eradicate animal diseases.
Animal Welfare. Farm animals are not covered by the Animal Welfare Act
(AWA; 9 U.S.C. §2131 et seq.), which requires minimum care standards for most
types of warm-blooded animals bred for commercial sale, used in research,
transported commercially, or exhibited to the public. Farm animals are covered by
other federal laws addressing humane transport and slaughter, however. Generally,
many Members of the House and Senate Agriculture Committees have expressed a
preference for voluntary approaches to humane methods of farm animal care.
Nonetheless, animal activists periodically seek new legislation that would
further regulate on-farm or other animal activities, such as bills to prohibit the
slaughter of horses for human food (which passed the House as H.R. 503 in
September 2006); to require the federal government to purchase products derived
from animals only if they were raised according to specified care standards; and to
prohibit the slaughter for food of disabled livestock, among others. Agricultural
interests recognize that animal welfare advocacy organizations, like the Humane
Society of the United States and others, have large constituencies in many Members’
districts, and these organizations have claimed some successes in recent years in
winning animal care initiatives in some states and in the courts.
Animal welfare provisions are, on occasion, placed in farm bills. Title XVII,
Subtitle F of the 1985 farm bill (P.L. 99-198) directed the Secretary to set new
minimum standards of care for handling, housing, feeding, water, sanitation,
ventilation, and so forth; and increase penalties for AWA violations, among other
things. Section 2503 of the 1990 farm bill (P.L. 101-624) extended certain pet

protections. The amendments also increased civil and criminal penalties for AWA
violations. Title X of the 2002 farm bill: called on USDA to fully enforce the
Humane Methods of Slaughter Act (§10305); excluded birds, rats and mice, and
horses not used for research, from AWA coverage (§10301); delineated prohibitions
on interstate movement of animals for fighting (§1302); and required USDA to report
on the humane treatment of nonambulatory livestock (§10815).
The Animal Care Division of USDA’s Animal and Plant Health Inspection
Service has primary responsibility for enforcing the AWA and several other animal
welfare statutes, including the Horse Protection Act (15 U.S.C. §1821 et seq.) The
humane slaughter law is within the purview of USDA’s Food Safety and Inspection
Related CRS Reports:
CRS Report RL32012, Animal Identification and Meat Traceability, by
Geoffrey S. Becker.
CRS Report RS22493, The Animal Welfare Act: Background and Selected
Legislation, by Geoffrey S. Becker.
CRS Report 97-508, Country-of-Origin Labeling for Foods, by Geoffrey S.
CRS Report RS21978, Humane Treatment of Farm Animals: Overview and
Issues, by Geoffrey S. Becker.
CRS Report RS21842, Horse Slaughter Prevention Bills and Issues, by
Geoffrey S. Becker.
CRS Report RS21994, Livestock Price Reporting: Background, by Geoffrey S.
CRS Report RL33325, Livestock Marketing and Competition Issues, by
Geoffrey S. Becker.

Trade and Export Promotion35
The United States is the world’s largest exporter of agricultural products. The
volume of U.S. agricultural exports, as a share of production, has ranged from 21%
to 23% in recent years. The value of U.S. agricultural exports, as a share of the value
of production, has averaged about 18% recently. Total U.S. agricultural exports have
grown steadily over the past two decades, rising from around $26 billion in FY1986
to a forecast $77 billion in FY2007. (Figure 2 displays the growth of exports and
imports over time). All categories of agricultural exports have grown, but exports
of horticultural products have become the largest single component of U.S. farm
exports. Exports of pork and poultry meat also have shown rapid growth. Beef
products were among the fastest-growing components of U.S. agricultural exports
until most foreign markets banned imports of U.S. beef following the 2003 discovery
in the United States of a cow with bovine spongiform encephalopathy (BSE, or
“mad-cow disease”). The effect of BSE on U.S. beef exports illustrates the impact
that animal diseases can have on farm product trade as well as the way veterinary
restrictions can affect trade in meat products.
U.S. agricultural trade is influenced by a number of factors, especially global
income and population growth. Other important factors are global commodity
supplies and prices, exchange rates, government support policies, trade policies, and
trade agreements. While many of these factors are beyond the scope of congressional
action, agricultural trade policy and commercial export promotion programs typically
have been dealt with in the trade title of the omnibus farm bill.
Agricultural imports have grown more steadily than agricultural exports over
the past two decades, increasing from about $21 billion in 1986 to a forecasted $69
billion in 2007. With growth in imports since 1996 has come a shrinking agricultural
trade surplus. The excess of agricultural exports over imports, as high as $27 billion
in 1996, is forecast to be $8 billion in 2007. Competition from agricultural imports
raises concerns among some producers and policymakers, but farm bill trade titles
generally have not addressed import issues.36
The new round of World Trade Organization (WTO) multilateral trade
negotiations, launched in Doha, Qatar, in 2001, was suspended in July 2006. For
agriculture, the Doha negotiations aimed to strengthen existing multilateral rules and
disciplines by making further reforms in market access, export subsidies, and
domestic farm support. Most U.S. agricultural groups would support these
negotiations only if U.S. negotiators could open new markets for U.S. farm products
in exchange for reductions in U.S. trade-distorting domestic support. When U.S.
negotiators concluded that market access offers from developed and developing
countries were insufficient to convince U.S. farmers to accept reductions in trade-
distorting domestic support, the round collapsed.

35 This section is by Charles E. Hanrahan.
36 Historical agricultural trade data are from USDA, ERS [
FATUS/DATA/XMS1935fy.xls]. Forecast data are from Outlook for U.S. Agriculture
Trade, Nov. 22, 2006, at [

Figure 2. U.S. Agricultural Exports and Imports,
FY1982-FY2007 Forecast

Ex po rt s
40 Im p o rts
Trade Balance
'82 '84 '86 '88 '90 ' 92 ' 94 '96 '98 '00 '02 '04 '06
Source: USDA, Economic Research Service.
Program Design and Operation
Since the 1970s, farm bills or free-standing legislation have contained trade
provisions that authorize export promotion. Trade titles have either amended
existing programs or added new programs to promote commercial exports of U.S.
agricultural products. USDA’s Foreign Agricultural Service (FAS) administers all
the export promotion programs.
In addition to enumerating U.S. agricultural negotiating objectives for bilateral,
regional, and multilateral trade negotiations, Title III of the 2002 farm bill extended
and authorized funding through FY2007 for USDA’s export promotion programs:
!Export credit guarantees for commercial agricultural sales (the so-
called GSM programs) were extended at previously authorized
funding levels.
!The Export Enhancement Program (EEP), which subsidizes exports
of mainly grains and cotton was extended, although it has been little
used since 1995.

!The Dairy Export Incentive Program (DEIP), which subsidizes such
dairy products as cheese, butter, and skim milk powder, has been
used in each year of the current farm bill except 2005.
!The Market Access Program (MAP) and the Foreign Market
Development Program (FMDP) partially fund agricultural trade
organizations’ and other groups’ efforts to promote U.S. farm
products in overseas markets.
!Other programs authorized in the trade title of the 2002 farm bill
include programs to provide samples of U.S. farm products to
overseas buyers, to promote exports of specialty crops by addressing
phytosanitary barriers to trade, and to develop markets for U.S. farm
products in emerging markets.
In addition, Title III called for the Secretary of Agriculture to develop a global
strategy for marketing U.S. agricultural exports and authorized a program to promote
exports of bio-engineered agricultural commodities.
Prospective Issues and Options
In considering renewal of the export promotion programs, Congress will again
be confronted with questions of program direction and funding. Levels of spending
and volumes of product subsidized under EEP and DEIP already are subject to
limitations under the existing Uruguay Round Agreement on Agriculture (URAA).
The URAA also prohibits introducing new export subsidies. In practice, EEP has
been used very little in recent years, while DEIP has been used in four of the past five
years and is expected to be used during the final year of 2002 farm bill authority.
Decisions about export subsidies could be affected by outcomes of the Doha Round
agriculture negotiations. Prior to suspension of the Doha Round, preliminary
agreements had been reached to eliminate agricultural export subsidies by 2013 and
to eliminate the subsidy components of other export programs. Elimination of export
subsidies has been a longstanding aim of U.S. agricultural trade policy, but those
Doha Round preliminary agreements are now on hold.
Market promotion programs such as MAP and FMDP are not considered to be
trade distorting under the URAA, and therefore are not subject to internationally
agreed spending disciplines. Neither have these programs been targets for cuts or
elimination in the Doha Round agriculture negotiations. If multilateral negotiations
were to result in new curbs on export subsidies and export credits, the market
promotion programs could become more attractive to Congress as vehicles for
funding export promotion. Some agricultural groups, for example specialty crop
producers, have proposed substantial increases in MAP, whose current funding level
is $200 million annually. (Table 3 shows spending levels under the 2002 farm bill
for the export promotion programs.) Elimination of MAP funding altogether has
been proposed, but not adopted, in previous farm bill (and annual appropriations)
debates. It typically has been argued that MAP is a form of corporate welfare and an
expense that could be financed by the private firms and organizations that benefit
from the program.

Table 3. USDA Export Promotion Spending Levels,
FY02 FY03 FY04 FY05 FY06 FY07
(Million $)
Export Promotion3,5773,3993,8782,7993,3433,464
Enhancement 0000028
Program (EEP)
Dairy Export
Incentive Program53230235
Market Access 100110125140200200
Program (MAP)
Foreign Market
Developm ent 34 34 34 34 34 34
Program (FMDP)
CCC Export Credit
Guarantees (GSM3,3883,2233,7162,6253,1073,167
Foreign Agriculture198195197206217227
Total Programs and3,7753,5944,0753,0053,5603,691
Source: USDA, Annual Budget Summaries, various issues. CCC Export Credit Guarantee program
activity level represents the value of export loans that are guaranteed, not federal expenditures.
Maintaining export credit guarantees as a viable tool for promoting exports may
be particularly challenging in view of the decision by a WTO dispute panel in the
U.S.-Brazil cotton case that they are effectively prohibited export subsidies because
they do not fully cover their operating costs. Such programs have financed an
average of $3.3 billion per year of U.S. agricultural exports since 1999 — mainly
grains, oilseeds and products, and cotton. In response to the cotton case decision, the
United States has eliminated its program of long-term credit guarantees and instituted
a risk-based fee structure to cover the costs of providing short-term credit guarantees.
Further change could be in store if Doha Round negotiations result in further limiting
or eliminating the subsidy elements of this kind of export financing. Supporters of
guarantees also are concerned that changes required to comply with the WTO cotton
panel decision and under consideration in the Doha Round may make the credit
programs less attractive to foreign buyers of U.S. products.

Related CRS Reports:
CRS Report RL33144, The WTO Doha Round: The Agricultural Negotiations,
by Charles E. Hanrahan and Randy Schnepf.
CRS Report RS22187, U.S. Agricultural Policy Response to the WTO Cotton
Decision, by Randy Schnepf.
CRS Report RL33553, Agricultural Export and Food Aid Programs, by
Charles E. Hanrahan.

Crop Insurance and Disaster Assistance37
Agriculture is generally viewed as an inherently risky enterprise. Farm
production levels can vary significantly from year to year and by location, primarily
because farmers operate at the mercy of nature, and frequently are subjected to
weather-related and other natural disasters. Since the Great Depression,
policymakers have been persuaded that the federal government should absorb some
portion of the weather-related production losses that otherwise would depress farm
income and could alter farmer’s decisions about what to produce in some high-risk
Federal multi-peril crop insurance is the primary ongoing crop loss assistance
program. It is permanently authorized by the Federal Crop Insurance Act, as
amended (7 U.S.C. 1501 et seq.), and is administered by USDA’s Risk Management
Agency (RMA). This is complemented with the Non-Insured Assistance Program,
administered by the Farm Service Agency (FSA), which is available to producers not
offered insurance coverage. Lack of insurance availability occurs in locations where
there is insufficient production history to determine actuarial risks of a crop or in
regions where production of a specific commodity is relatively small. Following a
widespread and severe drought in 1988, Congress approved a large ad hoc disaster
assistance program to supplement the ongoing disaster programs. Such ad hoc
assistance subsequently has became routine.
Program Design and Operation
Federal crop insurance policies are marketed and serviced by private insurance
companies. In purchasing a policy, a producer growing an insurable crop may select
a level of crop yield and price coverage and pay a portion of the premium, which
increases as the levels of yield and price coverage rise. The remainder of the
premium is covered by the federal government. Coverage is made available through
various insurance products, including revenue insurance (which allows a
participating producer to insure a target level of farm revenue rather than just
production levels). According to USDA, the federal crop insurance program
provided coverage in 2006 to over 100 crops covering more than three-fourths of
planted acreage in the country. Although the list of covered commodities has grown
in recent years, 80% of total policy premiums (and federal subsidies) are accounted
for by just four commodities — corn, soybeans, wheat and cotton.
Because the program is not subject to periodic reauthorization, major changes
to the crop insurance program usually are not addressed in the context of an omnibus
farm bill. Over the past 25 years, the program has been subject to three major
legislative enhancements (1980, 1994 and 2000)38 each of which has pumped
additional federal dollars into the program in order to enhance farmer participation
levels in anticipation of precluding the demand for ad hoc disaster payments.

37 This section is by Ralph M. Chite.
38 Federal Crop Insurance Act of 1980 (P.L. 96-365), Federal Crop Insurance Reform Act
of 1994 (P.L. 103-354), Agriculture Risk Protection Act (ARPA) of 2000 (P.L. 106-224).

Since the last major modification in 2000, the federal subsidy to the crop
insurance program has averaged about $3.0 billion per year, up from an annual
average of $1.1 billion in the 1990s and about $500 million in the 1980s (Table 4).
Nearly two-thirds of the current federal spending is used to subsidize insurance
policy premiums, and the balance primarily covers the government share of program
losses and reimburses participating private insurance companies for their
administrative and operating expenses.
Table 4. Government Cost of Federal Crop Insurance
ProgramFederalPrivate CompanyOtherTotal
FiscalLosses or(Gains)aPremiumSubsidyAdmin. ExpenseReimbursementsCostsbGov’t.Cost
Million $
2000 196 1,353 540 86 2,175
2001 725 1,707 648 82 3,162
2002 1,182 1,513 656 114 3,465
2003 822 1,873 743 150 3,588
2004 -303 2,386 899 142 3,125
2005 -688 2,465 782 139 2,698
Source: Primary data are from USDA Office of Budget and Program Analysis. Totals may not add
due to rounding.
a. The difference between total premiums (farmer and government paid) and total indemnity payments
for crop losses, plus or minus any private company underwriting losses or gains.
b. Other costs primarily include federal salaries of the Risk Management Agency and beginning in
2002, various research and development initiatives mandated by the Agriculture Risk Protection
Act of 2000.
Although the scope of the program has widened significantly over the past 25
years, the anticipated goal of crop insurance replacing disaster payments has not been
achieved. Until just recently, in virtually every crop year since 1988, Congress has
provided ad hoc disaster payments to farmers with significant weather-related crop
losses. These have been made available primarily through emergency supplemental
appropriations, regardless of whether a producer had an active crop insurance policy.
The exception to the historical pattern is crop years 2005 and 2006. A persistent
effort was made during the Second Session of the 109th Congress to enact disaster
assistance, but the effort did not succeed.
Since 1988, total disaster payments have amounted to more than $20 billion.
Over the past six years (FY2000-FY2005), farmer benefits under both the federal
crop insurance program and ad hoc supplemental disaster payments have averaged

$3.3 billion per year.39 The average government cost over the same period rises to
$4.4 billion per year when other costs of crop insurance (particularly those associated
with the private insurance companies) are included (Figure 3).
Figure 3. Crop Insurance and Disaster Payments:
Total Federal Cost, by Fiscal Year

6, 00 0
5, 00 0
4, 00 0
3, 00 0
2, 00 0
1, 00 0
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Crop Disaster PaymentsCrop Insurance
Source: Primary data are from USDA’s Table 35, CCC Net Outlays by Commodity & Function for disaster
payments, and USDAs Office of Budget & Program Analysis for crop insurance.
Prospective Issues and Options
Administration Proposals to Reduce Costs. The Administration’s
budget request for FY2006 contained several crop insurance legislative proposals that
it said would encourage farmers to buy higher levels of insurance coverage, save the
government $140 million annually, and preclude the need for ad hoc disaster
payments. None of these proposals were approved by Congress, but they could
surface in debate on the next farm bill. These proposals include (1) a requirement
that farmers purchase crop insurance as a prerequisite for receiving farm commodity
payments; (2) a 2% to 5% reduction in the portion of the premium that is paid by the
government, with larger reductions at lower levels of coverage; (3) a requirement that
39 While Congress did not approve disaster assistance for the 2005 or 2006 crop years,
outlays in FY2005 were for losses related to the 2004 crop year.

producers pay 25% of the premium (up to $5,000) for catastrophic (CAT) coverage,
instead of the current requirement that a producer pay a $100 administrative fee and
no premium; and (4) a 2% reduction in the reimbursement rate to private crop
insurance companies for administrative and operating expenses.
Premium Reduction Plan. Several other crop insurance issues currently are
being monitored in Congress and could carry into the 2007 farm bill debate. For
example, some groups have expressed concern about a Premium Reduction Plan
(PRP) currently being offered by USDA. The PRP allows crop insurance companies
that can demonstrate cost savings in their delivery of insurance to sell policies to their
customers at a discount. For example, one eligible company has reduced its costs by
selling its policies directly to customers online. Independent agents, who sell
insurance on behalf of the crop insurance companies, are concerned that the PRP
reduces their total commissions and damages their profitability. Some farm groups
contend that the plan encourages cherry-picking of the best customers and might
leave smaller farmers uninsured. The FY2006 agriculture appropriations act (P.L.
109-97) prohibited RMA from using any of its funds to administer the PRP for the

2007 crop year.

Insurable Yields. An issue that was addressed in the Agriculture Risk
Protection Act (ARPA) of 2000 (P.L. 106-224), but continues to be of interest,
involves the concerns of farmers with multiple years of significant crop losses. Since
the level of insurance coverage is determined by an individual producer’s actual
production history, producers with multiple years of crop losses tend to have lower
average historical crop yields and hence are assigned insurable crop yields that are
reduced by these losses. Although P.L. 106-224 placed limits on how low a
producer’s insurable yield could fall, some producers still maintain that their assigned
yields are below their potential production. Some groups also are concerned that a
participating producers’ historical crop yields underestimate current yields being
achieved with new technologies.
Critics say that recent crop loss experience is more indicative of the current level
of risk. Hence, to assign higher yields might encourage production in high risk areas
and increase government costs. Some even argue that certain areas simply may be
unsuitable for crops that farmers have became accustomed to planting. To support
their case, critics point to USDA data showing that some 21,000 disaster payment
beneficiaries (about 1 percent of recipients) collected aid more than 11 years out of
21, amounting to $2.5 billion, or almost 10 percent of the total payments. Nearly

56% of the that money went to four states (Texas, North Dakota, South Dakota,

Oklahoma). 40
Specialty Crop and Livestock Concerns. Some specialty crop growers
(mainly fruits, nuts, and vegetables) contend that insurance products for their
commodities are not available or are developed more slowly than for the more
traditional crops. In part, this is because of the large number of specialty crops that
are grown. Furthermore, because specialty crops have unique production and risk

40 The USDA data were obtained and analyzed by the Environmental Working Group and
published on their website at [].

characteristics, individually customized insurance programs are required for the
various crops. Consequently, some specialty crop growers have expressed interest
in the expansion of whole-farm insurance programs, which allow farmers in some
regions to insure the revenue of the entire farm rather than on a crop-by -crop basis.
Others have proposed the formulation of farm savings accounts as a new risk
management tool, which would allow farmers to contribute income to an account in
a high-income year, and defer paying taxes on the contribution until its is withdrawn
in the future in a low-income year.41 Similarly, livestock growers have expressed
interest in expanding pilot programs and developing new programs to assist them in
managing their price risks.
Waste, Fraud, and Abuse. For many years, policymakers have been
concerned about waste, fraud, and abuse within the federal crop insurance program.
The Agricultural Risk Protection Act (ARPA) of 2000 (P.L. 106-224) contained
several provisions that were designed to enhance USDA’s recognition of and
response to challenges to program compliance and integrity. In response to the
ARPA requirements, USDA used “data mining” techniques to compile an annual list
of producers who either exhibit high loss ratios (i.e., high indemnity payments
relative to total premiums), high frequency and severity of losses, or who are
suspected of poor farming practices that might contribute to production losses.
USDA estimates that the use of the spot-check list has prevented between $70
million and $110 million each year in improper payments. Mandatory funding
authorized by ARPA for data mining and other ARPA-related program integrity
activities expired at the end of FY2005. The FY2006 agriculture appropriations act
(P.L. 109-97) included $3.6 million in discretionary funds for data mining and
warehousing activities, within the regular annual appropriations acts. However,
future funding for this activity remains uncertain. Some would like to see permanent
funding for program integrity activities addressed in the next farm bill.
Permanent Disaster Payments. Some policymakers, including the new
incoming chairman of the House Agriculture Committee (Collin Peterson) have
expressed interest in making permanent in the farm bill some level of disaster
payments to supplement the crop insurance program.42 Supporters say that ongoing
farm disaster programs do not adequately address emergency needs when a major
disaster strikes and that USDA should have at its disposal a permanent source of
disaster funds in the same manner as the Federal Emergency Management
Administration (FEMA). Among the questions that would have to be addressed in
the debate would be how such a program would be funded given current budget
constraints, and whether the permanent availability of disaster payments would
adversely affect participation rates in the crop insurance program.
Revenue Insurance Expansion. Historically, farm risks associated with
low commodity prices have been shared with the federal government through the

41 Such tax favored saving accounts for farmers have been introduced in past Congresses
under such names as Farm And Ranch Risk Management (FARRM) Accounts and Farm,
Fish, And Ranch Risk Management (FFARRM) Accounts.
42 Frederic J. Frommer, Peterson to push for permanent disaster aid program, Associated
Press Newswire, Nov. 27, 2006.

commodity price and income support programs. Separately, production risks
associated with weather have been shared with the federal government through
subsidized crop insurance (and supplemented by disaster payments). A proposed
concept that has gained momentum recently is to combine these programs into a
single revenue insurance program. The concept is not new and received some
consideration by Congress during the 1985 farm bill debate. At its broadest, the
concept could include whole-farm revenue coverage for possibly all farms in the
nation. At its narrowest, there currently exist revenue insurance products that allow
eligible producers to insure a target level of revenue rather than just production
(currently available on major crops as part of the existing federal crop insurance
program). 43
Most recently, the National Corn Growers Association proposed a version of
revenue insurance that potentially would replace the commodity support programs
and crop insurance programs for the so-called covered commodities (corn and other
feed grains, soybeans and other oilseeds, wheat, rice, and cotton).44 One justification
for a shift from commodity support programs to a revenue insurance system is to
reduce the production and trade distorting impacts of the federal commodity
subsidies. However, even for revenue insurance programs there are limits under
World Trade Organization (WTO) rules for what would qualify as “green box” or
non-trade distorting support. Under current WTO rules, a federally subsidized
revenue insurance program can provide benefits for a level of coverage only below

70% of revenue to qualify as non-trade distorting.

Related CRS Reports:
CRS Report RS21212, Agricultural Disaster Assistance, by Ralph M. Chite.
CRS Report RL31095, Emergency Funding for Agriculture: A Brief History of
Supplemental Appropriations, FY1989-FY2006, by Ralph M. Chite.
CRS Report RL30739, Federal Crop Insurance and the Agriculture Risk
Protection Act of 2000 (P.L. 106-224), by Ralph M. Chite.

43 Revenue insurance options are examined by Robert Dismukes and Keith H. Coble,
“Managing Risk With Revenue Insurance,” Amber Waves, November 2006, at
[] .
44 The proposal is explained in the National Corn Grower Association report titled Forging
a New Direction for Farm Policy, October 19, 2006, at [

Agricultural Credit45
The federal government has a long history of providing credit assistance to
farmers. USDA’s Farm Service Agency (FSA) issues direct loans and guarantees
loans made by commercial lenders.46 The direct and guaranteed loans are intended
to assist farmer borrowers who do not qualify for regular commercial loans, but only
if they are expected to eventually graduate to commercial loans. Authority for the
size of the loan programs is specified in the 2002 farm bill and expires at the end of
FY2007. At the same time that Congress examines and possibly modifies the FSA
loan programs, it may address several issues concerning the Farm Credit System
(FCS). FCS, second only to commercial banks as a holder of farm debt, is chartered
by the federal government as a cooperatively owned commercial lender only to
agriculture-related borrowers.
Other sources of credit for agriculture include commercial banks, life insurance
companies, and individuals. Figure 4 shows that commercial banks lend the largest
portion of the farm sector’s total debt (37%), followed by the Farm Credit System
(30%), individuals and others (21%), and life insurance companies (5%). The Farm
Service Agency provides 3% of the debt through direct loans, and guarantees another
4% of the market (additional loans issued by commercial banks and FCS). FCS is
the largest real estate lender; commercial banks issue the most non-real estate loans.
Credit is an important input to agriculture, with all lenders holding about $214
billion in outstanding farm loans in 2005. Yet only about 66% of farmers have any
debt (farm or nonfarm), and only 38% have farm debt. The types of farms holding
the most debt include the larger commercial farms that produce most of the output,
and medium-sized family farms.
Creditworthy farmers generally have adequate access to loans, mostly from the
largest suppliers — commercial banks, FCS, and merchants and dealers. According
to reports from lenders, credit conditions are good, and default rates have been
trending lower to levels not seen since before the credit crisis of the 1980s. Overall,
USDA data show that debt-to-asset ratios for the farm sector have been stable or
slightly declining over the past decade, indicating that the sector is not highly
leveraged with debt. Recent strength in farm income has given farmers more
capacity to repay their loans or borrow new funds. Farm equity has been rising
because increases in debt typically have been more than offset by larger gains in land
Nonetheless, despite the relatively strong farm economy in recent years, some
farmers continue to experience financial stress due to individual circumstances, and
may be unable to qualify for loans. Agriculture is also prone to business cycles that

45 This section is by Jim Monke.
46 Historically, the USDA’s lending agency was the Farmers’ Home Administration
(FmHA), initially established in 1945. Departmental reorganization in 1995 moved the farm
lending programs of FmHA into FSA, and the rural housing loans into the Rural
Development agency.

may pose financial difficulties. Thus, many interests in production agriculture
continue to see some need for federal intervention in agricultural credit markets.
Figure 4. Market Shares of Farm Debt, by Lender, 2005

Source: CRS, using USDA-ERS and FSA data.
Farm bills usually contain a credit title that makes policy changes to the
underlying permanent statutes that authorize FSA and FCS.
Program Design and Operation
Farm Service Agency (FSA) Loan Programs. FSA loan programs have
permanent authority under the Consolidated Farm and Rural Development Act (Con
Act, 7 U.S.C. 1921 et seq.), and unlike the farm commodity programs, do not require
periodic reauthorization. However, Congress typically uses the farm bill to renew the
appropriations authority and make changes to the terms, conditions, and eligibility
FSA is referred to as a lender of last resort because it makes direct loans, in
some cases at below-market interest rates, to eligible operators of family-sized farms
who are unable to obtain commercial credit. FSA also guarantees timely payment of
principal and interest on qualified loans made by commercial lenders, such as
commercial banks and the Farm Credit System. FSA supplies about 3% ($6 billion)
of the sector’s debt through direct loans, and guarantees loans made by other lenders
that account for another 4% of the market (about $9 billion).

FSA farm ownership loans can be used to purchase land, construct buildings,
or make other farm improvements. Operating loans can be used to purchase
equipment, livestock, feed, seed, fertilizer, fuel, and other supplies. The maximum
direct farm ownership and farm operating loans are $200,000 per borrower, while the
maximum guaranteed farm ownership and farm operating loans are $852,000 per
borrower (adjusted annually for inflation). Emergency loans are available for
qualifying natural or other disasters.
Since the 1980s, the emphasis within the FSA farm loan program has gradually
shifted, toward making relatively fewer direct loans and issuing more in guarantees.
This lessens farmers’ reliance on direct federal lending, and helps leverage federal
dollars, since guaranteed loans are cheaper to subsidize. In the late 1990s, about 30%
of USDA farm loan authority was for direct loans. That share dropped to about 21%
in FY2003, before rising again to about 25% in FY2004-FY2006.
Certain portions of the FSA farm loan program are reserved for beginning
farmers and ranchers (7 U.S.C. 1994 (b)(2)). For direct loans, 70% of the amount for
farm ownership loans and 35% of direct operating loans are reserved for beginning
farmers for the first 11 months of the fiscal year (until September 1). For guaranteed
loans, 25% of the amount for farm ownership loans and 40% of farm operating loans
are reserved for such farmers for the first six months of the fiscal year (until April 1).
Funds are also targeted to “socially disadvantaged” farmers based on race, gender,
and ethnicity (7 U.S.C. 2003).
Authorizations vs. Appropriations. The 2002 farm bill approved a
maximum loan authority of $3.796 billion for direct and guaranteed loans for each
of fiscal years 2003-2007 (7 U.S.C. 1994(b)(1)). Also, the law specified how this
would be divided between direct and guaranteed loans, and within each of these
categories how much could be used for ownership loans versus operating loans (see
Table 6 for the specific allocations). The farm bill further instructed that not more
than $750 million of the guaranteed operating loan amount may be used for the
interest assistance (subsidized) guaranteed loan program (7 U.S.C. 1999), which
reduces the interest rate on the loan by 4%.
Although the farm bill authorizes the multi-year “loan authority,” appropriators
control the annual appropriation to FSA that covers the federal cost of making loans
(the “loan subsidy”). This loan subsidy is directly related to any interest rate subsidy
provided by the government, as well as a projection of anticipated loan losses. The
amount of lending that actually can be made (the appropriated loan authority) is
several times larger than the appropriated loan subsidy. Table 5 shows that
appropriators have funded between 83% and 101% of the total $3.796 billion in loan
authority annually authorized in the 2002 farm bill. Direct operating loans have been
appropriated 7%-14% more than authorized, and guaranteed farm ownership loans
have been appropriated up to 39% more than authorized. These higher amounts were
requested, in part, by the Administration.

Table 5. FSA Farm Loans: Farm Bill Authority vs.
Appropriated Loan Authority
2002 FarmAppropriations Act Authority
Loan TypeBill AnnualAuthority,
F Y 02-07 FY03 FY04 FY05 FY06
Direct Loans(Million $)
Ownership loans205130128208206
Operating loans565605614645644
a: Subtotal, direct loans
auth. in 2002 farm bill770735742853850
Other (boll weevil, Indiana
land) NA 102 102 102 102
Subtotal, all direct loansNA837844955952
Guaranteed loans(Million $)
Ownership loans1,0001,0009441,3891,386
Operating, unsubsidized1,7001,1931,0911,139
2,026Operating, subsidized rate400265283272
b: Subtotal, guaranteed3,0263,1002,4022,7632,797
Total, of loans authorized in
2002 farm bill (a+b)3,7963,8353,1443,6163,647
Total farm loan authorityNA3,9373,2463,7183,749
Source: CRS, using P.L. 107-171 and tables from the House and Senate Appropriations Committees.
a. Authorized levels are not stated in the 2002 farm bill for Indian land acquisition loans, boll weevil
eradication loans, and emergency loans. Indian land acquisition loans are authorized from direct
loans in 25 U.S.C. 488. Emergency loans are authorized such sums as necessary in 7 U.S.C.
Table 6 shows the loan subsidies that were appropriated to support the loan
authority listed in Table 5. For example, for FY2006, $150 million in total loan
subsidy supported the $3.7 billion in loan authority. This results in a “multiplier” of
25 ($25 of loan authority for each $1 of loan subsidy). Guaranteed loans have higher
multipliers than direct loans, and farm ownership loans have higher multipliers than
operating loans. The highest multiplier in FY2006 is 208, for guaranteed farm
ownership loans. The lowest is eight, for subsidized guaranteed operating loans,
which have a 4% interest rate subsidy. The multiplier is inversely related to the
amount of subsidy or risk involved in making or guaranteeing a loan (i.e., the higher
the multiplier, the lower the risk and subsidy, and vise versa).

Table 6. FSA Farm Loans: Appropriated Loan Subsidy and
Administrative Expenses
Appropriated loan subsidy
Type of Loan / Expense(Million $)
FY03 FY04 FY05 FY06
Direct loan subsidy
Ownership loans15.028.411.110.5
Operating loans103.788.565.164.0
Indian land acquisition loans0.1800.110.08
Subtotal, direct loans118.9116.976.374.6
Guaranteed loan subsidy
Ownership loans7.
Operating, unsubsidized53.539.735.234.5
Operating, subsidized46.933.837.634.0
Subtotal, guaranteed loans107.978.680.275.2
Total loan subsidy226.8195.5156.5149.8
Salaries and administration285.3289.3299.4309.5
Total farm loan appropriation512.1484.8455.9459.3
Source: CRS, using tables from the House and Senate Appropriations Committees.
Loan subsidies to support the appropriated loan authorities have declined from
$226 million in FY2003 to $150 million in FY2006 (Table 6). Much of this decline
in appropriations was requested by USDA and is attributed to higher farm incomes,
better repayment ratios, and lower interest rates. This has allowed the multiplier for
the entire farm loan program to rise from 17 in FY2003 to 25 in FY2006.
Appropriations for salaries and expenses of the FSA personnel administering
the loan program have risen 8.5% from $285 million in FY2003 to $310 million in
FY2006 (Table 6), an increase that has just kept pace with inflation.
2002 Farm Bill Changes. As an example of the adjustments made to FSA
programs by a farm bill, Title V of the 2002 farm bill (P.L. 107-171) authorized a
level of loan authority for FY2003-FY2007 and expanded access to USDA farm
credit programs for beginning farmers. Among several other provisions, the 2002
farm bill increased the percentage that USDA may lend for real estate loan down
payments, and extended the duration of eligible loans. It also created a pilot program
to guarantee seller-financed land contracts, and expanded emergency loan authority
to include losses due to USDA-imposed quarantines.
Farm Credit System (FCS) Lending. The Farm Credit System (FCS) is
a network of borrower-owned lending institutions operating as a government-
sponsored enterprise (GSE). Congress established what is now FCS in 1916 to
provide a dependable and affordable source of credit to rural areas at a time when

commercial lenders avoided farm loans. FCS is not a government agency, nor is it
guaranteed by the U.S. government; and FCS is not a lender of last resort like FSA.
FCS is a for-profit lender with a statutory mandate to serve agriculture. FCS is
authorized to lend to farmers, ranchers, and harvesters of aquatic products. Loans
may also be made to finance the processing and marketing activities of these
borrowers, for home ownership in rural areas, for certain farm- or ranch-related
businesses, and for agricultural, aquatic, and public utility cooperatives.
Current statutory authority for FCS is in the Farm Credit Act of 1971, as
amended (12 U.S.C. 2001 et seq.), most notably revised by the Agricultural Credit
Act of 1987. Statute and oversight by the Agriculture Committees determine the
scope of FCS activity, and provide benefits such as tax exemptions. The system is
regulated by the Farm Credit Administration.
As of June 2006, FCS had $113 billion in loans outstanding, of which about

51% was in long-term agricultural real estate loans, 28% in short- and intermediate-

term agricultural loans, 16% in loans to cooperatives, 2% in export financing, and 3%
in rural home loans. The system holds about 30% of the farm sector’s total debt
(second to the 37% share of commercial banks) and has the largest share of farm real
estate loans (38%). Funds are raised through the sale of FCS bonds and notes on
Wall Street. Five large banks allocate these funds to 96 credit associations that, in
turn, make loans to eligible creditworthy borrowers.
Prospective Issues and Options
Farm Service Agency Loan Program Issues. The 2007 farm bill is seen
as a vehicle to set new loan authorization levels for FSA, although actual funding
would continue to be set by annual appropriations acts.
Some have expressed a desire to increase the $200,000 limit per farmer on direct
farm ownership and operating loans.47 These limits were set in 1984 for direct farm
ownership loans, and in 1986 for direct operating loans, and have not kept pace with
inflation. (Limits for guaranteed loans were raised in 1998 and indexed for inflation.)
Another potential issue is the “term limits” set in statute for farmer eligibility.
Currently farmers are limited to receiving direct operating loan eligibility for seven
years, and guaranteed operating loans for 15 years (including the seven-year period
direct loan eligibility). A provision in the 2002 farm bill suspended application of
the 15-year limit, but it again will be effective on October 1, 2007. An increasing
number of farmers are reaching their term limits, and may face financial collapse if
they are not able to “graduate” to commercial credit. Term limits are intended to
prevent chronically inefficient farms from continuing to receive federally subsidized
credit, but the political and social consequences of letting these “family farms” fail
are sometimes unpleasant. Thus, there will be pressures to again extend the
eligibility allowance.

47 Glenn Keppy (Associate Administrator, USDA-FSA), testimony before Senate
Agriculture Committee hearing, “Review USDA Farm Loan Programs,” June 13, 2006, at
[http://agr Hear ings /hearings .cfm?hearingId=1940].

Farm Credit System Issues. In recent years, FCS has, to a limited degree,
expanded its lending beyond traditional farm loans and into more rural housing and
non-farm businesses. FCS also generally desires to update the Farm Credit Act of
1971, which last was amended comprehensively in 1987. In early 2006, FCS
released a report titled Horizons, which highlights perceived needs for greater lending
authority.48 Some see Horizons as a precursor to legislative action, possibly in the49

2007 farm bill, or to regulatory changes expanding the allowed scope of lending.

Commercial banks oppose expanding FCS lending authority, saying that
commercial credit in rural areas is not constrained and that FCS’s
government-sponsored enterprise (GSE) status provides an unfair competitive
advantage. Commercial banks assert that, with financial integration throughout the
economy, there is no longer a credit shortage for agriculture and that federal benefits
for FCS are no longer necessary. FCS debates this by asserting its statutory mandate
to serve agriculture (and by extension, rural areas) through good times and bad,
unlike commercial lenders without such a mandate.
The controversy over GSE status and lending authority was highlighted in 2004
when a private bank, Netherlands-based Rabobank, tried to purchase an FCS
association. The board of directors of Omaha-based Farm Credit Services of
America (FCSA) initially voted for the sale, indicating to some that FCS may no
longer need government sponsorship. A general outcry by farmers and others led
FCSA to withdraw from the deal at a sizable cost. In 2004, FCS asked Congress to
eliminate the provision allowing institutions to leave the system (12 U.S.C. 2279d).
Commercial bankers say that institutions should be allowed to leave FCS if they want
more lending authorities than currently allowed. It is not clear whether Congress, in
1987, intended the provision to be used by outside companies to purchase parts of
The Farm Credit Administration (FCA), the federal regulator of FCS, addressed
the termination issue in July 2006 with an amended regulation. The changes allow
more time for FCA to review the request, more communication, and more
shareholder involvement (71 FR 44409, August 4, 2006).
The scope of lending authority could grow under an October 2006 proposed rule
to expand eligibility for farm processing and marketing loans (71 FR 60678, October
16, 2006). The intent appears to be to allow financing for larger value-added farm
processing firms that are being built with more outside capital and involvement than
in previous decades. Opponents fear that the proposed regulations would open the
door to more non-farm or non-agriculture financing by FCS. Congress may be asked
to weigh in on these issues through statutory changes.

48 The Horizons report is available at [].
49 Bert Ely, “The Farm Credit System: Lending Anywhere but on the Farm,” at
[ h t t p : / / NR/ r donl yr es/ E1577452-246C-11D5-AB7C-00508B95258D/4525


Related CRS Reports:
CRS Report RS21977, Agricultural Credit: Institutions and Issues, by Jim
CRS Report RS21278, Farm Credit System, by Jim Monke.

Conservation and Environment50
Federal agriculture conservation programs have largely addressed soil and water
conservation and pollution problems associated with crop and livestock production.
However, increasing attention is being paid to wetlands restoration, wildlife habitat,
farmland protection, and other objectives. While the programs are broadening and
techniques to address the problems are changing, the basic approach has remained
unchanged — voluntary farmer participation encouraged by providing land rental
payments, cost-sharing funds, technical assistance, education, and basic and applied
research. Conservation programs avoid using regulations and emphasize partnerships
with relevant public and private entities to address common concerns.
The closest the conservation effort comes to regulation is with three compliance
programs — Sodbuster, Swampbuster, and Conservation Compliance. Producers can
lose specified federal farm program benefits if they cultivate highly erodible lands
that have not been previously cropped (Sodbuster), drain wetlands (Swampbuster),
or cultivate highly erodible cropland without implementing a conservation plan
(Conservation Compliance).
With authorization of the Conservation Reserve Program (CRP) in the 1985
farm bill, Congress began a 20 plus-year expansion of programs and spending that
may not yet have ended. Before 1985, the few conservation programs that existed
were funded through annual appropriations amounting to about $1.0 billion annually.
Spending is now about $5.2 billion annually and most of it is mandatory and supplied
by the Commodity Credit Corporation (the same source that finances the commodity
support programs). As measured by spending, the conservation effort today is largely
cropland retirement. Other approaches now being emphasized include creating
buffers to protect water bodies from nearby crop production and reducing tillage to
prevent erosion (and save energy).
The 2002 farm bill altered the conservation effort in two especially significant
ways. It mandated a large increase in funding for many conservation programs, and
it created a new Conservation Security Program (CSP) to reward producers practicing
conservation on land in production. So called working lands conservation may gain
prominence over cropland retirement as agriculture becomes an increasingly large
supplier of the nation’s renewable energy and more land is needed to produce energy
crops. This likely will be one of the major debates in the 2007 farm bill.
Program Design and Operation
The current conservation portfolio includes about 20 distinct programs, many
of which were enacted in recent farm bills. Starting in 1985, each succeeding farm
bill has expanded the range of conservation problems to be addressed as well as
program tools and funding. In some cases, the programs are subsets of overarching
programs that apply to a specific place or a specific resource, but with unique
provisions and eligibility rules. A list of the larger programs follows in Table 7.

50 This section is by Jeffrey A. Zinn.

Table 7. Major Conservation Programs and Expenditures, FY2005
FY05Share of
Program and DescriptionExpenditures$5.2 Bil.
(Million $)Total
Land Retirement Programs
Conservation Reserve Program (CRP). Removes producing cropland
into conserving uses, typically for 10 years. Conversion must yield
adequate levels of environmental improvement to qualify (environmental
benefits index). Farmers receive annual rental payments, and cost-
sharing is available to establish permanent vegetative cover. Total
program acreage is limited to 36.4 mil.$1,828.035.2%
Wetlands Reserve Program (WRP). Restores and protects wetlands via
long term rental agreements (10 year) and permanent or temporary (30-
year) easements. Land owners receive technical and financial
assistance. Program acreage is limited to 250,000 annually.$276.15.3%
Grasslands Reserve Program (GRP). Restores and protects grasslands,
while maintaining grazing, via long term rental agreements and
easements. Total program limit of 2 million acres and $254 mil.$71.31.4%
Working Lands Programs
Environmental Quality Incentives Program (EQIP). Provides cost-share
payments and technical assistance to producers to plan and install
structural, vegetative, and land management practices to alleviate
conservation problems; 60% of the funds are targeted to livestock
producers. Program to be administered in an environmentally beneficial
and cost-effective manner.$1,02419.7%
Conservation Security Program (CSP). Provides technical and financial
assistance for improvements in conserving environmental resources on
farmland that meets soil and water criteria standards set by NRCS.
Participation limited to watersheds specified each year.$201.63.9%
Conservation Operations (CO), and Conservation Technical Assistance
(CTA). Funds planning and implementation assistance to apply natural
resource conservation systems, consisting of one or more practices, on
private lands. Support provided through field staff located in almost all
counties. $696.6 13.4%
Farmland Protection Program (FPP). Provides funds to state and local
governments and qualified private organizations to purchase
conservation easements from willing sellers to protect topsoil by limiting
nonagricultural uses of the land.$111.82.6%
Source: Expenditure data are from USDA. Note that with the exception of Conservation Operations, all of these major
programs receive mandatory funds rather than appropriated funds.

Prospective Issues and Options
The upcoming farm bill debate may include four broad conservation topics: land
retirement, funding levels, green payments, and measuring accomplishments. These
topics could be integrated with each other, or they could be addressed largely
independently of each other. Other topics could include invasive species eradication,
encouraging the production of energy crops on conserved land, and creating programs
that apply to a specified place, such as a designated watershed.
Land Retirement. Authorization to enter into new contracts under all of the
land retirement programs — Conservation Reserve (and its subprograms), Wetlands
Reserve, and Grasslands Reserve — will expire at the end of FY2007. Hence,
reauthorizing these programs and adjusting them to respond to changing needs may
be high priorities.
Land retirement programs have been attractive to some producers in recent years
because they have received rental payments at acceptable levels. Also,
conservationists and environmentalists have been pleased with the significant natural
resource improvements to the agricultural landscape that have appeared on these
lands. These programs currently retire almost 40 million acres, approaching 10% of
the country’s cropland, and their annual cost accounted for more than 40% of
conservation spending in FY2005. The Conservation Reserve Program is the largest,
retiring more than 35 million acres, and is currently the most expensive conservation
program as well. However, with the exploding market for ethanol driving higher
prices, especially for corn, producer interest in land retirement may be declining.
Some forecasts are that these higher commodity price levels may last for multiple
years, thus shrinking farmer interest in land retirement for some time.
In this changed setting there may be interest in retiring less land in the future,
and in giving some currently retired land the opportunity to return to production.
One proposal, for example, would allow early withdrawal of certain lands from the
CRP without penalty if the land will be used to produce energy crops. Commodity
users, including those who need corn as a feedstock for ethanol, those who use corn
for livestock feed, and those who supply foreign export markets, want to make sure
that cropland is not retired if it can be cropped and managed to protect the
environment. Some analysts currently estimate that between 5 and 10 million
additional acres of corn will need to be planted in 2007 to meet growing demand.
Production agriculture and environmental interest groups likely will take
opposing sides on some aspects of the policy debate. For example, wildlife groups
may seek the continued benefits provided by large tracts of retired lands that provide
natural habitat. There may be opportunities to satisfy multiple objectives by retiring
small acreages or parts of fields that provide more concentrated environmental
benefits (e.g., stream buffers); by creating more site-specific or resource-specific
intensive treatments, such as the current program to enroll isolated small wetlands;
or by prioritizing land retirement to achieve such goals as habitat protection for
endangered species or protection of wildlife migratory paths.
Funding Levels. Total funding for conservation has grown rapidly since
FY1990. Table 8 shows the growth sinc FY2001. The portion of funding going to

each of the five broad activity categories identified in the table has been evolving.
Rental and easement payments to retire land from production now constitute the
largest category of conservation spending (37% of total). However, the most rapidly
growing category, especially in recent years, has been cost-sharing assistance (now
21% of the total). During the same time period, funding for data collection and
research and for public works (mostly small watershed projects) are a declining
portion of the total.
Most conservation programs funded through the Commodity Credit Corporation
have grown rapidly since the 2002 farm bill, and now account for about 80% of
conservation spending. For example, the Environmental Quality Incentives Program
(EQIP), the basic cost-sharing program on land that is farmed, had been authorized
at $200 million per year under the 1996 farm bill. Under the 2002 farm bill, it was
authorized to grow almost every year, reaching $1.3 billion in FY2007. Funding for
other programs, such as the Farmland Protection Program and the Wildlife Habitat
Incentives Program, also have been growing rapidly.
Table 8. USDA Funding for Conservation Activities,
FY01FY02FY03FY04BudgetFY01 to
Activity CategoryAuthorityFY05
(Million $)
Technical assistance,a
extension, admin. 1,0461,1141,2701,3931,51945%
Cost sharing3665353839711,185224%
Public works, including
emergencies 174 135 77 179 262 51%
Rental and easementb
payments 1,6511,9742,0452,0112,09927%
Data collection and
research 465 484 508 529 546 18%
Total, all categories3,7054,2424,2835,0835,611c51%
Source: Primary data from USDA, Office of Budget and Program Analysis.
a. Activities of the four USDA agencies engaged in supporting conservation: the Natural Resources
Conservation Service (NRCS), Farm Service Agency (FSA), Forest Service, and Extension Service.
b. A large majority of these payments go to farmers through the Conservation Reserve Program.
c. Actual appropriations were close to $5.2 billion because Congress limited mandatory funding in several
programs by a total of more than $400 million below the authorized amount.
The demand to participate in some conservation programs also continues to
grow. A major justification for the large increases in funding in the 2002 farm bill
was to reduce or eliminate a large and growing backlog of applications. However,
participation and unfunded backlogs remain large. Congress has options for dealing
with the backlog by again increasing funding for these programs, or by setting higher

eligibility standards, which likely would reduce applications and approvals. It also
may consider whether the relative funding for the current mix of approaches and
programs — between the land retirement and working lands programs — remains
Green Payments. The term “green payments” refers to providing financial
rewards to producers based on the extent of their conservation activities. Aside from
any environmental benefits, a shift from commodity subsidies to green payments is
seen by some as a way to support farm income, forge a stronger link between
conservation and farm income objectives, and still comply with World Trade
Organization (WTO) obligations (by qualifying as green box if the program does not
increase production and is not trade-distorting).
The Conservation Security Program (CSP), enacted in the 2002 farm bill, is one
model for translating the concept of green payments into a program. The CSP was
enacted as the first true entitlement program for conservation, meaning that all
producers who met eligibility qualifications could receive payments. Some of its
supporters thought it might become one of the largest conservation programs, in
terms of spending, within a few years. However, implementation has moved slowly
and Congress has tightly limited the funding each year. Congress likely will debate
whether the CSP, based on what has been learned from the limited experience,
remains the preferred vehicle for providing green payments or whether other designs
might be preferred.
Some would like to use green payments as an additional way to support farmer
income by replacing or supplementing some of the traditional commodity programs.
They view green payments as a way to transfer funds to producers who provide
environmental services. Such an approach has the potential to reach many more
farms than now participate in federal conservation programs. Based on analysis by
the Economic Research Service, about 285,000 (14%)of the nation’s 2.1 million
farms received federal conservation payments in 2003. As shown in Figure 5, about
15% of farms receiving commodity program payments also receive conservation
payments, a proportion lower than some would anticipate given the availability of
CRP benefits for marginally productive cropland.

Source: Economic Research Service, 2006, using data from the Agricultural Resources Management
Sur vey.
*Mostly disaster payments.
According to proponents, a green payments program could be designed to give
greater attention to conservation goals that are currently addressed only in a limited
fashion, if at all, including:
!reducing atmospheric CO2 through improved soil and crop
management to help alleviate global warming;
!supporting efforts to protect endangered species and their habitat;
!eradicating incompatible invasive species;
!providing better coordination for managing resources in private and
adjacent public lands;
!addressing water scarcity and use patterns in the arid West;
!reducing pollution in waterways from agricultural sources, including
addressing hypoxia in the Gulf of Mexico and other places; and
!protecting and restoring small forested areas on farms.
Measuring Conservation Accomplishments. As funding for
conservation has increased and the conservation mission has expanded, Congress has
grown more interested in learning about the accomplishments of this effort.
Questions center on how programs benefit agriculture, the environment, and the rural
landscape, and how enduring these benefits might be (especially since production
agriculture is dynamic with producers changing crops, equipment, and management
practices from year to year).

If the farm bill debate occurs in a setting where conservation proponents must
respond to significant budget constraints, any information that can identify large or
enduring accomplishments could be critical to preventing funding reductions.
USDA’s Natural Resources Conservation Service and Agricultural Research Service,
in partnership with several other agencies inside USDA and beyond, have initiated
a major program to better respond to such questions, but the lengthy study periods
may mean that few answers will be available in time to inform this farm bill debate.
This evaluation effort, the Conservation Effects Assessment Project (CEAP), is
spending about $8 million annually to document the accomplishments of
conservation. NRCS hopes to have some preliminary information about cropland to
contribute to this farm bill debate. With more time, CEAP should develop more
information and analysis to contribute to future farm bill debates.
Related CRS Reports:
CRS Report RL32940, Agriculture Conservation Programs: A Scorecard, by
Jeffrey Zinn and Tadlock Cowan.
CRS Report RL33556, Soil and Water Conservation: An Overview, by Jeffrey
A. Zinn.

Agriculture-based renewable energy production — especially biofuels and wind
power — has expanded dramatically during the past two years, with profound
implications for the U.S. agricultural sector. Most notably, the escalating demand for
corn as a feedstock in ethanol production has driven grain and oilseed prices sharply
higher since September 2006.52 Prices for oilseeds and other grains that compete
with corn for cropland also experienced similar sharp price rises during that period.
As agriculture-based energy production expanded, so has the level of support
provided under federal and state programs. Total federal and state biofuel subsidies
have been estimated in the range of $5.5 to $7 billion per year.
Prospects for continued growth in biofuel production and related strong
commodity prices have been greeted in some quarters as the long-awaited economic
breakthrough for the agricultural producers and small towns, but many market
watchers, policymakers, and producers from other agricultural sectors question the
potential consequences of continued rapid growth of U.S. biofuel production.
Biofuels are liquid fuels produced from biomass. The major U.S. biofuels are
ethanol (98% from corn), and biodiesel (90% from soybean oil). Fuel ethanol is
generally blended in gasoline to reduce emissions, increase octane, and extend
gasoline stocks. Biodiesel is used directly as an alternative diesel fuel. The potential
development of a cellulosic-based ethanol industry is presently impeded by the state
of cellulosic conversion technology, which still is expensive relative to corn-based
production. However, the enormous potential supply of low-cost cellulosic plant
material available in the United States makes it an attractive prospective feedstock.
U.S. ethanol production has been expanding rapidly, rising from about 175
million gallons in 1980 to 4.8 billion gallons per year in 2006. Ethanol now
dominates U.S. biofuel production. Biodiesel production is at a much smaller level,
but has also shown growth, rising from 0.5 million gallons in 1999 to an estimated
75 million gallons in 2005. U.S. ethanol production presently is underway or
planned in 22 states located primarily around the central and western Corn Belt,
where corn supplies are most plentiful. USDA estimates that 20% of the 2006 corn
crop (or 2.15 billion bushels) will be used by the ethanol sector to produce nearly 6
billion gallons of ethanol during the 2006-2007 crop year. Ethanol production is
projected to continue growing rapidly through at least 2010 on the strength of both
market forces as well as the extension of existing and the addition of new
government incentives. Those incentives include a per gallon tax credit of $0.51, a
mandate to use renewable vehicle fuels of 7.5 billion gallons by 2012, and a tariff on
imported ethanol of $0.54 per gallon.

51 This section is by Randy Schnepf.
52 For example, Iowa’s statewide average daily corn price rose from $1.87 per bushel on
September 14, 2006, to over $3.44 by November 30, 2006 — a rise of 84% due primarily
to rapid ethanol production capacity expansion and the expectation of substantial future
increases in corn demand.

By mid-December 2006, the pace of ethanol plant expansion was well on its
way to exceed the RFS goal (7.5 bil. gal. by 2012) with 5.3 billion gallons of annual
ethanol production capacity currently in operation and another 4.4 billion gallons of
capacity under construction and potentially on-line by early 2008.53 Based on a
conversion rate of 2.75 gallons per bushel, the rapid expansion of ethanol production
capacity suggests that the U.S. ethanol sector will need over 3 billion bushels of corn
as feedstock in 2007 and over 3.6 billion bushels in 2008 (34% of the 2006 crop).
Crop-Based Biofuel Concerns Emerge. The rapid growth in agriculture-
based biofuel production has generated a sharp runup in corn and other grain and
oilseed prices since September 2006. While higher crop prices suggest higher
incomes for crop producers, the prospect of sustained higher livestock feed costs
coupled with the likelihood of a substantial expansion in corn planting have led many
economists and market participants to question the unintended consequences of
continued large federal incentives in support of what has been a very profitable
ethanol sector in 2005. Concerns include the following:
!Dedicating an increasing share of the U.S. corn harvest to ethanol
production will lead to higher prices for all grains and oilseeds that
compete for the same land resulting in higher livestock feed costs,
potentially higher food costs, and likely lower U.S. agricultural
ex ports. 54
!A potential large expansion in U.S. corn planting (whether due to
expansion onto more marginal soil environments or alteration of
traditional corn-soybean rotation that dominates Corn Belt
agriculture) is likely to lead to increased soil tillage and the potential
for higher levels of soil erosion, increased applications of nitrogen
fertilizer, herbicides, and other chemicals and the potential for run-
off or leeching, and increased use of diminishing aquifers to irrigate
production in the Central Plains.
!In addition to the increased livestock production costs associated
with corn feeding, protein-meal markets are likely to experience
further distortions associated with expanded production of the main
ethanol by-product — distillers dried grains (DDG) — which can be
used as a relatively high (30%) protein meal. Dairy and other cattle

53 Renewable Fuels Association, “Industry Statistics: U.S. Fuel Ethanol Production
Capacity,” at [], Dec. 12, 2006. The rapid
growth in capacity is evidenced by a quickly out-of-date July 2006 estimate that by 2010,
U.S. ethanol production would reach 9.2 billion gallons and use 27.6% (3.5 billion bushels)
of the U.S. corn crop (Food and Agricultural Policy Research Institute (FAPRI) FAPRI, July

2006 Baseline Update for U.S. Agricultural Markets, FAPRI-UMC Report #12-06,

University of Missouri).
54 The Nebraska Cattlemen Association expressed this concern in a policy resolution
summarized in a press release of December 1, 2006, stating “because the availability of
affordable, high quality feedstuffs is crucial to the profitability of the beef industry; and
because the beef industry is competing with the ethanol industry for corn, that Nebraska
Cattlemen supports a transition to a market based approach for the usage and production of
ethanol. Further, it says Nebraska Cattlemen is opposed to any additional federal or state
mandates for ethanol usage and/or production.” [].

are better able to increase DDG in rations than are poultry and pork.
As a result, dairy and cattle operations located in reasonable
proximity to an ethanol plant can substitute DDG for higher cost
corn and soybean meal. Poultry and pork operations, on the other
hand, are likely to see their feed costs increase with rising corn
prices because of their limited ability to switch to the less expensive
!Expanding the national ethanol use mandate based on midwestern
ethanol production implies increased pressure on the nation’s
transportation infrastructure to assist in delivering ethanol to non-
producing regions, or to assist in delivering corn to ethanol plants in
corn-deficit regions.
!In addition, under prospects of eventual over-production of ethanol
capacity, any sudden or unexpected change in the economic balance
of ethanol, corn, and gasoline prices could quickly erode corn-based
ethanol’s profitability, leaving many small-town investors in the
lurch and small communities without the promised rural
development impact.
If realized, many of these concerns also likely imply substantial regional
variation in terms of net gainers and losers in local agricultural economies.
Wind Energy Overview. Wind-generated electricity production systems
involve a turbine or turbines built close together to form a wind farm. In contrast
with biofuel energy, wind power has no feedstock costs. Instead, electricity
production depends on the kinetic energy of wind (replenished through atmospheric
processes). As a result, its operating costs are low, but the initial capital investment
in equipment (primarily the turbine, blades and connection to the power grid) needed
to set up a utility-scale wind energy system is substantially greater than for competing
fossil or biofuels. In 2004, less than 1% of wind power capacity installed nationwide55
was owned by farmers. As of October 23, 2006, an estimated 10,492 MW of
capacity was installed and operational in the United States, with another 7,942 MW
either under construction or in planning.
Program Design and Operation
Since the late 1970s, U.S. policymakers at both the federal and state levels have
enacted a variety of incentives, regulations, and programs to encourage the
production and use of agriculture-based renewable energy. Motivations cited for
these legislative initiatives include energy security concerns, reduction in greenhouse
gas emissions, and raising domestic demand for U.S.-produced farm products.
Renewable energy production plays a key role not just in agricultural policy, but also
in energy, tax, and environmental policy. As a result, many of the federal programs
that support renewable energy production in general, and agriculture-based energy
production in particular, are outside the purview of USDA and have legislative

55 Farmers situated in optimal wind-harvest locations typically leasing their land for wind
power projects. Capital costs generally run about $1 million per megawatt (MW) of
capacity, which discourages farmer ownership.

origins outside of the farm bill. For example, the primary supply-side incentives for
biofuels and wind energy production are production tax credits in the U.S. tax code
under the domain of the Internal Revenue Service. The primary demand-side federal
biofuel policy intervention is a national Renewable Fuels Standard (RFS), which
requires an increasing volume of domestic biofuel use and has its origins in the
Energy Policy Act of 2005 (P.L. 109-58). Major federal incentives include:
!A biofuel production excise tax credit of $0.51 per gallon of ethanol,
$1.00 for every gallon of agri-biodiesel (i.e., virgin vegetable oil and
animal fat), and 50¢ for every gallon of non-agri-biodiesel (i.e.,
recycled oils such as yellow grease). The production tax credits
were extended through 2010 for ethanol and through 2008 for
biodiesel under the American Jobs Creation Act of 2004 (P.L. 109-


!A 2.5% ad valorem tariff and a most-favored-nation duty of 54¢ per
gallon of ethanol (for fuel-use) applied to U.S. imports from most
countries (ethanol imports from Caribbean Basin Initiative countries
enter duty-free).
!A wind energy production tax credit (PTC) that provides a 1.8¢
credit for each kilowatt-hour of electricity produced by qualifying
turbines built by the end of 2007 for a 10-year period. This PTC was
extended through 2007 under P.L. 109-357.
!A Renewable Fuels Standard (Energy Policy Act of 2005, P.L. 109-
58) that mandates renewable fuels blending requirements for fuel
suppliers — 4 billion gallons of renewable fuels must be blended
into gasoline in 2006; the blending requirement grows annually until
reaching 7.5 billion gallons in 2012.
!A small producer income tax credit (26 U.S.C. 40) of 10¢ per gallon
for the first 15 million gallons of production for ethanol producers
whose total output does not exceed 60 million gallons per year.
!A small producer income tax credit (26 U.S.C. 40A) of 10¢ per
gallon for the first 15 million gallons of production for biodiesel
producers whose total output does not exceed 60 million gallons per
!USDA’s Bioenergy Program (7 U.S.C. 8108), which provided
incentive payments (contingent on annual appropriations) on year-
to-year production increases of renewable energy during the
FY2001-FY2006 period.
Federal support for the development of agriculture-based renewable energy
production systems is also provided in the form of loans, grants, and loan guarantees;
research, development, and demonstration assistance; educational program
assistance; and procurement preferences. Also, several states have their own
incentives, regulations, and programs in support of renewable fuel research,
production, and consumption that supplement or exceed federal incentives.
Although no commercial cellulosic ethanol production has occurred yet in the
United States, two provisions of the 2002 farm bill (P.L. 107-171) — including
Section 2101 which allows for the use of some Conservation Reserve Program lands
for wind energy generation and biomass harvesting for energy production — and

several provisions of the Energy Policy Act of 2005 (EPACT, P.L. 109-58) have
encouraged research in this area. In particular, Section 1501 of EPACT requires that,
by 2013 and every year thereafter, at least 250,000 gallons of ethanol be derived from
cellulosic biomass.
Energy Provisions in the 2002 Farm Bill. The 2002 farm bill contained,
for the first time, a separate energy title (Title IX). In particular, the nine provisions
of Title IX were intended to support the development and expansion of agriculture-
based biofuels. Those provisions that were funded and implemented include:
!Section 9002, establishing a federal procurement preference for
biobased products.
!Section 9004, mandating CCC funding of $1 million per year for
FY2003-FY2007 for competitive grants awarded to nonprofit
organizations that engage in biodiesel fuel education programs to
facilitate greater motor fuel use of biodiesel.
!Section 9006, mandating CCC funding of $23 million per year (for
FY2003-FY2007) for a Renewable Energy Program, administered
by USDA’s Rural Development Agency, of loans, loan guarantees,
and grants for farmers, ranchers, and rural small businesses that
purchase renewable energy systems or make energy efficiency
!Section 9008, mandating CCC funding of $5 million in FY2002 and
$14 million for each of FY2003 through FY2007 for research and
development of biofuels and bio-based products under the Biomass
Research and Development Act of 2000. The program is
administered jointly by USDA and the Department of Energy
!Section 9009, extending through FY2011 the Carbon Cycle
Research Program, which providing grants to land-grant universities
for carbon-cycle research with on-farm applications.
!Section 9010, mandating CCC funding of not more than $150
million per year for FY2003-FY2006 for Bioenergy Program
payments to biofuel producers who generate year-to-year increases
in production using agricultural commodities as feedstock.
Several provisions of Title IX were never funded or implemented. These include:
!Section 9003, authorizing biorefinery development grants to
encourage expanded biofuel production capacity (subject to
appropriated funds).
!Section 9005, authorizing the Energy Audit and Renewable Energy
Development Program to assist producers in identifying their on-
farm potential for energy efficiency and renewable energy use
(subject to appropriated funds).
!Section 9007, directing that USDA and DOE jointly work to apply
hydrogen fuel cell technology to farms and rural communities under
a memorandum of understanding.

The 2002 farm bill also contains programs that encourage the research,
production, and use of renewable fuels such as ethanol, biodiesel, and wind energy
systems in two additional titles — Title II (Conservation), and Title VI (Rural
Development). In particular, Section 2101 of Title II amends the 1985 farm bill to
allow the use of some CRP lands for biomass harvesting for energy production and
wind energy generation. Title VI provides additional support for renewable energy
projects in the form of loans and grants under USDA’s Rural Development Agency
programs.56 These include:
!Loans and Loan Guarantees for Renewable Energy Systems (Section
6013), which allows loans for wind energy systems and anaerobic
!Business and Industry Direct and Guaranteed Loans (Section
6017(g)(A)), which expands eligibility to include farmer and rancher
equity ownership in wind power projects.
!Value-Added Agricultural Product Market Development Grants
(Section 6401(a)(2)), which expands eligibility to include farm- or
ranch-based renewable energy systems. Since 2003, USDA has
given priority consideration to grant applications that dedicate at
least 51% of the project costs to biomass energy.
Prospective Issues and Options
Escalating and volatile energy prices have important consequences for the U.S.
agricultural sector, which is both a consumer and an increasingly important producer
of energy. Energy costs, which have increased and become more volitile since 1999
(see Figure 6), are expected to play an important role in discussions of agricultural
policy. Energy prices surged upward in 2005 due to international events and the
devastating hurricanes Katrina and Rita, which wreaked havoc on U.S. energy
infrastructure and markets.
Agriculture’s total use of energy is low relative to other U.S. producing sectors.
In 2002, agriculture’s share of total U.S. direct energy consumption was about 1%
However, within the agriculture sector, energy is a critical and sizable input.
Agriculture uses energy directly as fuel or electricity to operate machinery and
equipment, to dry grain, to heat or cool buildings, and for lighting on the farm.
Energy is used energy indirectly in the form of nitrogen fertilizers made from natural
gas and pesticides made from petroleum.
Energy’s share of agricultural production expenses varies widely by activity,
production practice, and locality. Since the late 1970s, total agricultural use of
energy has fallen by about 28%, as a result of efficiency gains related to improved
machinery, equipment, and production practices. Despite these efficiency gains, total
energy costs of $31.1 billion in 2005 represented 14.3% (4.5% direct and 9.7%
indirect) of annual production expenses of $223.1 billion. As a result, unexpected
changes in energy prices or availability can substantially alter farm net revenues,
particularly for major field crop production.

56 For more information see [].

Figure 6. U.S. Wholesale Fuel Prices, 1991 to


Source: Prices are monthly averages: gasoline is national wholesale price natural gas is wholesale City
Gate price; Dept. of Energy, Energy Information Agency.
High natural gas prices have already contributed to a substantial reduction in
U.S. nitrogen fertilizer production capacity — over a 23% decline from 1998 through
2003. In the short run, price- or supply-related disruptions to agriculture’s energy
supplies could result in unanticipated shifts in major crop and livestock production,
with subsequent effects on farm incomes and rural economies. In the long run, a
sustained rise in energy prices may have serious consequences for agriculture,
causing shifts in cropping and production practices, and possibly driving resources
away from the sector. As a result, policymakers may be asked to help agricultural
producers find ways to become more energy-independent. Two primary ways of
facilitating on-farm energy independence are by improving efficiencies in on-farm
energy use, or by increasing agriculture’s share of renewable energy production.
Various energy market factors, including prospects for continued U.S. oil import
dependence coupled with strong petroleum prices, are likely to reinforce the interest
of policymakers in supporting domestic renewable fuel production. Issues include:
!What role should agriculture-based renewable energy production
play in meeting the nation’s energy needs?
!What is the appropriate role of government in developing
agriculture-based renewable energy production?
!Will there be long-run unintended market effects for other crops and
the livestock sector, as well as for the environment, conservation,
trade, and possibly consumers?
!Can available government programs mitigate, offset, or redirect
potential unwanted consequences?

!Is there a place for government energy policy within the farm bill or
does jurisdiction belong elsewhere?
The new Chairman of the House Agriculture Committee, Collin Peterson, has
already stated that energy will be his top priority in the 2007 farm bill and that he
plans on adding a new subcommittee on energy.57 He has also expressed strong
interest in increasing support for cellulosic ethanol production, including additional
research funding, as well as the possibility of establishing a 5-to-6-million-acre
addition to the CRP program dedicated to the production of biomass crops such as
Other policymakers have expressed interest in providing additional funds to
support activities directly related to expanding biofuel production such as increased
research on corn breeding for higher starch content or on livestock breeding to better
incorporate ethanol by-products in feed rations; increased investments in
infrastructure and transportation to help market and distribute biofuels; and more
research and development support for animal waste digesters both as a waste
management tool and as a source for energy production from the captured methane.
Additionally, some Members of Congress have proposed expanding the Renewable
Fuels Standard’s mandate beyond the 7.5 billion gallons currently required in 2012
(a provision that is outside the jurisdiction of the Agriculture Committees).
However, biofuel production is not without its shortcomings. Any proposed
increase in the mandate for ethanol and biodiesel likely will raise questions about the
fuels’ energy, environmental, and financial impacts. While ethanol proponents,
including corn farmers and ethanol producers, cite ethanol’s benefits, some question
whether its higher cost and potential environmental impacts may limit is desirability.
As the public grows more aware of these shortcomings, the potential benefits of
biofuels are likely to be more carefully weighed against their costs, perhaps
diminishing some of the euphoria that surrounded the rapid ethanol expansion of

2006 and making policymakers’ choices a bit more difficult.

57 Speech given at the Farm Foundation Farm Bill Forum, December 6, 2006.

Related CRS Reports:
CRS Report RL32712, Agriculture-Based Renewable Energy Production, by
Randy Schnepf.
CRS Report RL30758, Alternative Transportation Fuels and Vehicles: Energy,
Environment, and Development Issues, by Brent D. Yacobucci.
CRS Report RL33572, Biofuels Incentives: A Summary of Federal Programs,
by Brent D. Yacobucci.
CRS Report RL32677 Energy Use in Agriculture: Background and Issues by
Randy Schnepf.
CRS Report RS21930, Ethanol Imports and the Caribbean Basin Initiative, by
Brent Yacobucci.
CRS Report RL33290, Fuel Ethanol: Background and Public Policy Issues, by
Brent D. Yacobucci.
CRS Report RL32530, World Oil Demand and its Effect on Oil Prices, by
Robert Pirog.
CRS Report RL33714, Natural Gas Markets in 2006, by Robert Pirog.

Agricultural Research, Extension, and Education58
Several factors have emerged since 2002 that could influence the consideration
of agricultural research, education, and extension policies when Congress next visits
this USDA mission area in the context of a 2007 farm bill. The current farm bill was
debated in a time of budget surpluses; Congress will construct the next bill in an era
of large federal deficits. Funding is the first of several major factors that will affect
the upcoming debate. The other factors concern specialty crop issues, pressure to
reform long-standing methods of distributing federal funds for agricultural research,
and trade.
Program Design and Operation
The mandate to conduct research of direct benefit to U.S. agriculture was part
of the mission of the USDA when it was first established in 1862. The nationwide
agricultural research, education, and outreach (extension) system now comprises: (1)
the Agricultural Research Service (ARS), USDA’s in-house science agency, which
also has research centers at locations across the United States; (2) the Economic
Research Service (ERS), an entirely Washington, D.C.-based social science agency;
(3) the National Agricultural Statistics Service (NASS), a data-gathering agency
headquartered at USDA, with offices in most states and U.S. territories; and (4) the
Cooperative State Research, Education, and Extension Service (CSREES), which is
headquartered at USDA and administers a variety of grant programs, as well as the
federal funds that pass through to the state partners.
The state partners — also originally created by Congress in 1862 — are the
colleges of agriculture at land grant universities in 50 states and eight U.S. territories,
with their affiliated state agricultural experiment stations, schools of forestry and
veterinary medicine, and cooperative extension. There also are 18 historically black
land grant colleges of agriculture (the 1890 institutions) and 31 Native American
colleges that gained land grant status in 1994 (referred to as the tribal colleges).
Agricultural research, education, and extension have played critical roles in the
huge increase in U.S. agricultural productivity since World War II. Advances in the
basic and applied agricultural sciences are considered fundamental to increases in
farm sector profitability, to competitiveness in international agricultural trade, to
environmental protection, and to improvements in human nutrition and food-related
Recently revised calculations on the rate of return on federal investment in
agricultural research estimate it to be 6.8% per year. The federal-state research
system also supports USDA’s regulatory programs in the areas of meat, poultry, and
egg inspection, foreign pest and disease exclusion, and control and eradication of
crop and livestock threats, among other things.

58 This section is by Jean M. Rawson.

Prospective Issues and Options
Funding versus Inflation. USDA currently spends $2.4 billion on
agricultural research, education, and extension, which represents 3.1% of the total
USDA budget and about 2% of all federal research and development (R&D) funding.
The department distributes annually appropriated funds directly to the intramural
agencies: ARS, ERS, and NASS. CSREES distributes the federal appropriation for
state research, education, and extension in the form of (1) block grants (divided
among states according to formulas in authorizing legislation); (2) competitive grants
(awarded by peer review panels); and (3) congressional earmarks. A portion of
ARS’s annual funding also is earmarked for research locations and projects specified
in annual appropriations laws.
The 2002 farm bill included a number of provisions to increase the money
available for research and extension by requiring states to match a higher percentage
of federal funds than previously. The most significant and controversial provision
of the 2002 act was the reauthorization of the Initiative for Future Food and
Agriculture Systems (IFAFS), a competitive grants program supported by mandatory
funds made available by savings stemming from the 1997 reform of the food stamp
program. Appropriators have prohibited the use of mandatory funds to support the
initiative in all but two years since Congress originally authorized it in 1998.
Although in some years Congress has appropriated more money to the existing
research, education, and extension programs (supported by discretionary funds) than
either the House- or Senate-passed appropriations bills contained,59 the data show
that, when adjusted for inflation, funding for research has not increased significantly
since the 1980s (see Figure 7). Growth in funding since 1996 has brought the level
back to about where it was in the early 1990s when measured in inflation-adjusted
dollars. Scientists also point out that, as in medical science, the cost of new, high-
tech equipment for cutting-edge agricultural research traditionally exceeds the
inflation rate by a significant percentage, meaning that incremental increases often
result in only level, or even negative, effective funding rates.
The rise in nominal dollars, particularly from 1996 through 2001, was largely
due to reduced overall pressure on the federal budget and all non-defense research60
and development spending grew during that period. In addition, in FY2000 and
FY2001, USDA was able to spend $120 million in mandatory funds on IFAFS.
Funds appropriated specifically for anti-terrorism activities, not basic programs, are
a significant factor in the increases in the FY2001-FY2005 period.61

59 Conferees have sometimes raised the funding above the level specified in the bills.
60 American Association for the Advancement of Science (AAAS) R&D Budget and Policy
Program. Historical tables are available at [].
61 Funding data are compiled and calculated by CRS from the Budget of the U.S.
Government, FY1974-FY2006. Data used for generating the graph includes annual
appropriations for (1) ARS salaries, expenses, buildings and facilities; (2) CSREES research
and education programs, and integrated programs (beginning in FY2000); and (3) Forest
Service research.

Figure 7. USDA Research Funding,
in Current and Deflated Dollars, FY1980-FY2005

3,0 00
2,5 00
2,000n $
1,5 00i ll io
1,0 00M
80 85 90 95 00 05
NominalDeflated (82-84=1.00)
Source: Primary data are from the Budget of the U.S. Government deflated using the consumer price
ind e x.
Giving Fruits and Vegetables a Higher Priority. The specialty crop
industry (producers, handlers, and retailers of fruits, vegetables, tree nuts, and nursery
products) is making a coordinated effort to have its issues addressed in the 2007 farm
bill. At three separate House Agriculture Committee field hearings in 2006, the
majority of specialty crop producers on the panels argued strongly in favor of
providing greater support to the industry through expanded agricultural research and
extension spending, among several other proposals. Agriculture Secretary Mike62
Johanns also has spoken in support of this idea.
Formula Funding Versus Competitive Grants. Pressure has been
mounting for more than a decade to reform the mechanisms by which federal dollars
for agricultural research and extension are distributed among research performers.
USDA differs from other federal science agencies in allocating the majority of its
annual research appropriation to intramural research, to projects designated by
individual Members, and to block grants to the state land grant universities for their
distribution among research areas. In contrast, the National Institutes of Health and
the National Science Foundation distribute the majority of their annual funding
through competitive grants. Despite criticisms that the task of writing applications
for competitive grants is a costly use of researchers’ time, the scientific community
has used this method for decades, and maintains that peer-reviewed, competitive
grants have proven to be the best means of eliciting the most qualified proposals and63
supporting the best research. On the other hand, it also has been argued that peer
62 Testimony from field hearings on federal farm policy held February 6, 2006, in Auburn,
Alabama; February 7, 2006, in Fayetteville, North Carolina; and March 3, 2006, in Stockton,
California, is available on the House Agriculture Committee website at [http://agriculture.]. Remarks by Agriculture Secretary Mike Johanns to the Commodity
Classic, Anaheim, California, March 3, 2006, are available online at the USDA website,
[], under “Transcripts and Speeches.”
63 Since 1989, the Board on Agriculture and Natural Resources of the National Academy of
Sciences (NAS) has issued three reports containing recommendations for reforms to the
federal-state agricultural research system, including a doubling in the percentage of funds
disbursed through competitive grants. See [] for NAS

review may favor research that uses traditional approaches and focuses on more
established subjects, and may stifle more innovative proposals.
As expected, proposals to distribute a greater portion of USDA research
appropriations competitively cause concerns for both federal and state scientists.
Given the historically flat budget for research, scientists and administrators currently
receiving funds tend to perceive proposed changes in funding mechanisms as a threat.
Proposal for a National Institute for Food and Agriculture.
Policymakers and stakeholders have become increasingly interested in the idea of a
national institute for agricultural research, partly to avoid controversy over reforming
funding distribution methods within the current system, and also as a way to separate
the funding needs of the traditional research programs from those of an institute
having similar structure, standing, and purpose to the National Institutes of Health.
In the 2002 farm bill, Congress required USDA to create a task force to evaluate “the
merits of establishing National Institutes focused on disciplines important to the
progress of food and agriculture sciences” (H.Rept. 107-424).
The task force’s report, delivered to the Secretary of Agriculture in July 2004,
recommended the creation of a National Institute for Food and Agriculture (NIFA)64
as a separate and independent entity within USDA. The NIFA would support basic
research through competitively awarded, peer-reviewed grants, and be under the
direction of a distinguished scientist. The task force indicated that NIFA’s annual
budget (provided through annual appropriations) should build to $1 billion over a
five-year period, and emphasized that the institute’s mission “should supplement and
enhance, not replace, the existing research programs of USDA.” Companion billsth
introduced in the 109 Congress reflect the task force proposal, but no action was
taken on them (S. 2782/H.R. 5832).
The land grant college community65 in the states also established its own project
to evaluate how a national institute might be structured. Although it is still a draft
document, the CREATE-21 proposal of the National Association of State
Universities and Land-Grant Colleges was put before the community for a vote in
September 2006 and received a strongly favorable response. The association is now

63 (...continued)
publications on this subject.
64 National Institute for Food and Agriculture: A Proposal, report of the Research,
Education, and Economics Task Force of the U.S. Department of Agriculture, July 2004,
[]. Some Members ofth
Congress introduced legislation in the 109 Congress proposing an alternative to the
proposed National Institute for Food and Agriculture within USDA. H.R. 1563/S. 767, the
National Food and Agricultural Science Act of 2005, would have established a Division of
Food and Agricultural Science within the National Science Foundation. The Director of the
Division was to coordinate its research agenda after consultation with the Secretary of
Agriculture. All funds were to be distributed through competitive grants.
65 Land grant colleges of agriculture were initially established under a grant to each state
authorized by the Morrill Act of 1862 for the purpose of providing support for colleges of
agriculture and mechanical arts.

working on crafting a legislative proposal from the approved draft proposal.
The CREATE-21 draft proposal incorporates all the key elements of the USDA
task force recommendations, with some major changes.66 The proposal would place
all of USDA’s existing research programs within the new institute, including ARS,
ERS, Cooperative Extension, and the research functions of the Forest Service. It
would gradually increase the percentage of competitive grant funding supporting
basic and applied research, and it would designate existing funding programs (e.g.,
Hatch Act formula funds for research, Smith-Lever formula funds for Extension, and
cooperative forestry and veterinary funds) as “capacity funding” necessary to
“establish, preserve, or expand the research, teaching, and extension capacity of the
federal-state partnership.”
Although the general response to the NIFA concept has been positive, no
hearings were held on the proposals introduced in the 109th Congress and it is still too
early to determine the positions of various stakeholder groups. Not all of the voters
on the draft CREATE-21 proposal were in favor of it, although the majority were.
Many issues are likely to arise if Congress decides to make major reforms to
agricultural research, education, and extension programs and policies.
Just a few of the questions that Congress might address are: Should mandatory
funds be diverted from the major commodity support programs to support research?
What would be the impact on the federal-state partnership in research and extension
if money for NIFA is diverted from existing programs? If more research results
come from scientists outside the land grant universities who receive competitive
grants, what would be the impact on the Cooperative Extension System and its
traditional customers?
Research, Education, and Extension Are Green. A number of
policymakers and stakeholders want to make federal support to agriculture less
production and trade-distorting. They aim to make farm support “challenge-proof”
in the WTO. Consistent with this goal is a growing collection of policy analysis
showing that much of the commodity support spending has been capitalized into land
values, which then raises the costs of production. In contrast, research, extension,
and education have a long history of lowering production costs and improving both
the quantity and quality of output. It is argued that shifting resources from
commodity support to research, education, and extension is an attractive policy
option that enhances U.S. agriculture and is “green” in the context of WTO rules on
federal support.
Related CRS Reports
CRS Report RL33327, Agricultural Research, Education, and Extension:
Issues and Background, by Jean Rawson.

66 The CREATE-21 proposal and background information are available at [http://www.].

Rural Development67
Some rural areas, such as those within commuting distances of metropolitan
areas or with environmental amenities and/or affluent retirees, are thriving. Other
rural areas with sparse populations and declining economies continue to face
significant challenges. The less diversified the local economy, the more vulnerable
it is to economic downturns and the more difficult it may be to create new
competitive forces in these areas during periods of recovery.
When agricultural production and related businesses dominated rural
economies, federal policies that strengthened and improved agriculture also tended
to strengthen and improve the well-being of most of America’s small communities
and rural residents. As the power of this linkage has declined, many observers have
felt that rural policy has been left fragmented and unfocused, comprising a patchwork
of programs and initiatives rather than a coherent policy. Agriculture remains the
primary policy framework for Congress’s consideration of rural issues, and questions
have been raised about whether current rural policies and programs are helping to
create new economic capacity in rural America that will generate future competitive
Researchers and others who discuss conditions in “rural” America most often
refer to conditions in nonmetropolitan areas. Metropolitan (metro) and
nonmetropolitan (nonmetro) areas are delineated by county. In June 2003, the Office
of Management and Budget (OMB) released the Census 2000 version of metropolitan
(metro) and nonmetropolitan (nonmetro) areas, a classification system often used to
define urban and rural America. In this most recent update, nonmetro America
comprises 2,052 counties, contains 75% of the nation’s land, and is home to 17% (49
million) of the U.S. population.
In the middle of the 20th century, nearly 40% of the rural population lived on
farms, with about a third of the rural workforce laboring in production agriculture.
Currently, less than 10% of rural people live on farms and only 6.5% of the rural
workforce is directly employed in farm production. Off-farm income sources now
account for approximately 89% of farm household income. Many of the counties
where agricultural production represents 20% or more of labor and proprietor income
(predominantly in the Great Plains and upper Midwest) have seen population losses
between 2000 and 2005. Today, manufacturing accounts for over a quarter of rural
private sector earnings.
Program Design and Operation
More than 88 programs administered by 16 different federal agencies target rural
economic development. USDA administers the greatest number of rural
development programs and has the highest average of program funds going directly
to rural counties (approximately 50%). The Rural Development Policy Act of 1980
designated USDA as the lead federal agency for rural development. By authority of
the 1994 USDA reorganization act (P.L. 103-354), three agencies are responsible for

67 This section is by Tadlock Cowan.

USDA’s rural development mission area: the Rural Housing Service (RHS), the
Rural Business-Cooperative Service (RBS), and the Rural Utilities Service (RUS).
The portfolio of loan and grant programs administered by RUS, RHS, and RBS
provides much of the support for rural infrastructure, housing, and business
expansion and retention. An Office of Community Development provides further
community development support through state offices. The mission area also
administers the rural portion of the Empowerment Zones/Enterprise Communities
Initiative and the National Rural Development Partnership.
Periodic rural development legislation generally amends three major authorizing
statutes: (1) the Consolidated Farm and Rural Development Act of 1972 (P. L. 92-
419, the Con Act), (2) the Food, Agriculture, Conservation, and Trade Act of 1990
(P.L. 101-624, the 1990 farm bill), and (3) the Rural Electrification Act of 1936. The
2002 farm bill (P.L. 107-171) reauthorized long-standing loan and grant programs
through 2007.
Farm bills are designed to benefit rural America and many believe they have.
The overwhelming majority of that assistance, however, has gone to a narrow slice
of rural people — the growers of subsidized crops. The 2002 farm bill (P.L. 107-
171) bill spent approximately 82% of funds on farmers and 0.7% on non-farm rural
development efforts. According to research conducted by the Kansas City Federal
Reserve’s Center for the Study of Rural America, counties getting the most payments
have seen no growth in jobs, businesses, or population.68 The study reports that from
1992 to 2002, 21% of such counties lost jobs and 60% lost population. Farm
payments, says the study, don’t create new engines of economic growth; they create
dependency on even more payments.
Historically, rural development programs have been funded through annual
appropriations. However, the 1996 farm bill (P.L. 104-127) created the Fund for
Rural America as one of the first mandatory rural development programs.
Subsequently, the 2002 farm bill established several new mandatory rural
development programs to support innovative and alternative agricultural
development, enhanced telecommunications access, and new financial mechanisms
for rural capital development. Mandatory funding for most of these programs,
however, has been blocked either entirely or partially by appropriators. Several of
the programs have been partly funded through discretionary appropriations in
FY2004-FY2007 (e.g., Value-Added Products grants and Renewable Energy Systems
grants). These initiatives and their authorized funding levels are provided in Table


68 Mark Drabestott. “Do farm payments promote economic growth?” The Main Street
Economist, March 2005, [http://www.kc/ Center/mainstreet/MSE_0305.pdf].

Table 9. Reductions in Mandatory Rural Development Programs
Aut hor i ze d F Y 2006
Level underAppropriation
Program2002 FarmP. L. 109-97
Million $
Enhancement of Rural Access to Broadband$50$0
(§ 6103)
Rural Business Investment Program$100$0
(§ 6029)
Rural Strategic Investment Program $100$0
(§ 6030)
Value-added Product Market Development$120$20.5a
(§ 6401)
Rural Firefighters$40$0
(§ 6405)
Renewable Energy Systems$23$23a
(§ 9006)
Bioenergy Program (§9010)$150Not to exceed
Biomass R&D (§9008)$14Not to exceed
a. Funds were provided only through discretionary appropriations.
Prospective Issues and Options
Farmers, it is increasingly recognized, depend on a healthy rural economy more
than that economy depends on farmers for its vitality. The need to strengthen the
capacity of rural areas to compete in a global economy is becoming more widely
appreciated as the competitive limitations of traditional extractive industries,
commodity subsidies, and peripheral manufacturing, as mainstays of rural
development policy become more obvious.69
At issue will be whether current farm policies, which rely heavily on commodity
support payments and subsidies to a few commodity production sectors, help, hinder,

69 Drabenstott, Mark. “A New Rural Economy: A New Role for Public Policy.” Testimony
prepared for House Committee on Agriculture, Subcommittee on Conservation, Credit,
Rural Development, and Research. March 30, 2006, Washington, D.C.

or have little impact on the development of economically viable rural communities.
Rural manufacturing, which tends to be lower-skilled and lower-waged, also is
undergoing restructuring with the loss of manufacturing to foreign competition.
While growth of the service sector now dominates in rural America, service
employment in many rural areas tends to be
in lower-wage personal services rather than business and producer services.
Continuing population and economic decline in many farming and rural areas is
compelling policymakers and rural areas to consider new sources of competitive
advantage, innovative ways of providing public services to sparse populations, and
new ways of integrating agriculture into changing rural economies.
Economic development efforts in some areas have targeted entrepreneurial
strategies. These approaches attempt to capitalize on a particular area’s social,
economic, and environmental assets to build endogenously on existing strengths.
They seem to depend on development of a local entrepreneurial culture. Linking
public and private sources to build “business incubators” is a common strategy, as
is developing ties with area colleges and universities. Communities also apply
entrepreneurial energy to making their local governments, schools, and hospitals
more efficient, for example through telecommunication innovations.
Currently, a widely touted rural development strategy is the production of fuel
ethanol from corn especially, and also wheat and barley. While ethanol is the most
visible product, other by-products and co-products also may have rural development
potential. Wet milling of corn for ethanol can also produce starches, corn oil, amino
acids, high-protein animal feeds, and commercial-grade carbon dioxide. Farmer-
owned cooperatives around the country have begun such projects, and they have
gained market share in ethanol. As the technology for ethanol production improves,
feed stocks other than grain (e.g., corn stover, switchgrass) could become new
sources of ethanol, further stimulating the local and regional economies of areas
where agricultural production is still important.
Regardless of the particular rural economic development path chosen in a
particular area, four elements of economic development practice may become more
significant and require new policies or reconsideration of the effectiveness of existing
policies and practices:
!Building and Strengthening Small and Medium-Sized Businesses.
Much economic development is oriented to simple quantity growth
(increasing the number of new jobs created or retained). That may
or may not be the same as improving the quality of life for rural
citizens and strengthening the long-term potential of rural or smaller
communities. A development emphasis on quality growth, (e.g.,
income growth and higher per capita community/regional income)
can contribute to maintaining capital assets and to creating and
retaining high-wage jobs. Viable rural communities will need to
create an environment where small and medium firms can flourish.
This could also include new community-based farming enterprises
(e.g., niche farming, specialty crops). Technology-based
development could require different kinds of public support than
many rural businesses have traditionally needed.

!Improving Workplace Skills. Worker training is too often
independent of economic development initiatives. Community
employment initiatives that combine training with local business
development could assist the creation/expansion of local businesses.
An example is work-based training “ladders” where workers gain
initial skills in one area and then move on to other local businesses
in a coordinated training and employment structure.
!Improving Intergovernmental Planning. With many small
communities losing tax base because of business and population
losses, providing essential services is likely to become a major issue
throughout the country. Medical care, child and youth services,
transportation, education, and income support may diminish in
communities and regions that are ill-equipped to take on such
burdens. Greater multi-jurisdictional planning and coordination
among local and regional entities could be an effective strategy to
achieve the scale efficiencies that too many communities will find
difficult to achieve. Federal assistance may be a needed catalyst.
!Evaluation and Investment in Infrastructure. The evidence for the
importance of infrastructure in rural economies is significant: it
increases the base of public capital; it contributes to increased
productivity; and it increases direct employment (e.g., construction).
Returns on infrastructure investment can vary. In addition, different
infrastructure components can affect different economic sectors
(water supply and highway links are more critical to manufacturing
than to retail or business service providers, and business service
providers have more need for convention facilities, advanced
telecommunications, and airport service).
The trends noted above suggest a range of issues potentially affecting a rural
development title in a 2007 farm bill.70 These issues may include:
!conservation and environmental restoration as rural employment
!creating new sources of economic growth and development for rural
!stemming rural population out-migration;
!vertical integration and coordination of agriculture into agri-food
value chains and implication for rural areas;
!developing rural entrepreneurial capacity;
!rebuilding an aging rural physical infrastructure;
!bio-based energy production;
!public service delivery innovations in sparsely populated areas;

70 Legislation was introduced in the 109th Congress directed at a variety of rural needs
including strengthening the rural workforce, providing new telecommunications capacity,
creating a new regional authority, and stemming rural population loss.

!increasing suburbanization and the conflicts between agriculture and
suburban development;
!human capital deficiencies in rural areas;
!regional efforts for economic development; and
!connecting businesses and rural communities with broadband
telecommunications infrastructure.
Related CRS Reports:
CRS Report RL31837, An Overview of USDA Rural Development Programs,
by Tadlock Cowan.

Foreign Food Aid71
The United States is the world’s leading supplier of food aid for humanitarian
relief and economic development. During the period 1995-2005, the United States
contributed almost 60% of total global food aid. The European Union is the second
largest provider, with a contribution during the same period of 25%. The United
States is also the major contributor to the United Nations World Food Program
(WFP), a UN agency that provides humanitarian food relief in times of emergency
need. Over 50% of WFP’s food aid resources were provided by the United States
during 1995-2005.
Program Design and Operation
Foreign food assistance programs date from 1954, when the United States’
major food aid program (P.L. 480, subsequently known as Food for Peace) was
enacted, although surplus commodities had been donated to foreign countries under
legislation that preceded the 1954 act. Trade titles have either amended existing
programs or added new commodity food aid programs as humanitarian or
development assistance to mainly low-income foreign countries. USDA’s Foreign
Agricultural Service (FAS) administers all of the food aid programs except the
largest, P.L. 480 Title II (commodity donations), which is administered by the U.S.
Agency for International Development (USAID).
The trade title of the 2002 farm bill extended and amended the major U.S.
foreign food aid programs through 2007. Those programs include:
!Titles I, II, and III of P.L. 480, the Food for Peace program, which,
respectively, provide long-term, low-interest loans to developing and
transition countries to purchase U.S. agricultural products;
commodity donations for humanitarian relief and development
activities; and government-to-government donations of food.
Changes in the law reinforced both the market development and
economic development components of the programs.
!The Food for Progress Program (FPP), which provides commodities
to countries committed to a market economy in agriculture.
!The Bill Emerson Humanitarian Trust (BEHT) (the successor to the
Food Security Commodity Reserve in the 1996 farm bill), which
provides commodities and cash primarily to meet unanticipated
emergency food aid needs.
!Food for Education (FFE) (officially the McGovern-Dole
International Food for Education and School Feeding and Child
Nutrition Program), a new food aid program that provides
commodities, funds, and technical assistance mainly for school
lunch programs in poor countries.

71 This section is by Charles E. Hanrahan.

One other important food aid program, donations of surplus commodities under
Section 416(b), is not authorized in farm bills as it is permanently authorized in the
Agricultural Act of 1949. (See Table 10 for program spending levels.)
Table 10. U.S. Foreign Food Aid Spending Levels,
P r ogram F Y 02 F Y 03 F Y 04 F Y 05 F Y 06 F Y 07
Million $
P.L. 480 Food Aid1,2701,9601,8092,1151,4081,310
Section 416(b)7732131737600
Food for Progress (FFP)126137138122158161
Food For Education (FFE)0100 5090 103103
Tot a l 2,169 2,410 2,170 2,403 1,669 1,574
Source: USDA, Annual Budget Summaries, various issues.
Prospective Issues and Options
During the life of the current farm bill, the Administration tried, unsuccessfully,
to use the annual appropriations process to make a number of administrative and
substantive changes in the food aid programs. For example, in FY2003, the
President’s budget proposed that Congress streamline implementation responsibility
for food aid programs by reducing the number of food aid programs and giving
USAID responsibility for all development components of U.S. food aid programs.
This would have meant that USAID would use Title II funding to carry out the kinds
of development assistance provided under Food for Progress or Section 416(b),
administered by USDA. As part of its budget submission to Congress in FY2006,
the President’s budget proposed legislative language to transfer $300 million from
P.L. 480 to a famine account, administered by USAID, for use in purchasing non-
U.S. commodities for distribution in emergency food aid programs. Farmers,
agribusinesses, and private organizations that use food aid to finance development
projects opposed this proposal, which was subsequently rejected by both House and
Senate appropriators. A similar proposal in the FY2007 budget submission also was
rejected by the appropriations committees.
U.S. food aid issues raised in appropriations debates may be considered during
a farm bill debate. The idea of substituting cash for commodities for emergency
relief could re-emerge as Congress debates food aid program reauthorization. It is
argued that disaster response would be less expensive, more efficient, and more
timely if cash were used to purchase emergency food aid in countries where the
emergency is happening or in regions nearby. Emergency commodity shipments
from the United States for emergencies can take three to five months to arrive and
often are no longer needed when they do arrive. Also, transportation costs currently
account for about half the money appropriated to finance P.L. 480 commodity

donations for humanitarian response to emergencies. Opponents argue that using
cash to purchase emergency food aid would reduce U.S. food aid because the
coalition that supports commodity food aid (farm groups and private voluntary
organizations) would not support a cash program.
Another issue that frequently arises during appropriations debates concerns the
allocation of food aid commodities between humanitarian emergencies and
development projects. Although the 2002 farm bill mandates that three-fourths of
commodity donations be allocated to development projects (unless waived by the
President), rarely has that level been met as demand for emergency food aid has
burgeoned. As a result, more commodities have been allocated to emergencies than
to development activities in recent years. Organizations that use food aid to finance
development projects along with their supporters in Congress may seek ways to make
food aid a more reliable and dependable source of finance for development activities.
Committee reports accompanying appropriations bills since FY2003 have
emphasized that P.L. 480 Title II was intended primarily to support development
activities and stressed the role of the Bill Emerson Humanitarian Trust as a source
of emergency food assistance. The BEHT could become the subject of renewed
interest as a vehicle for providing emergency food assistance, leaving more scope for
P.L. 480 Title II to be used for development activities. To make the BEHT a reliable
source for meeting unanticipated emergency need, Congress would need to replenish
and reimburse the trust for the release of stocks.
Critics complain that food aid is primarily a convenient outlet for U.S. farm
surpluses, and a source of aid that tends to diminish when these surpluses decline.
These critics may seek more stability in U.S. food aid levels (even though, they agree,
the United States has been the leading provider of food aid worldwide). Questions
regarding the effects of food aid on U.S. commercial sales, and on the farm
economies of developing countries, have been raised not only by food aid critics in
multilateral negotiations but also by some major U.S. charitable organizations that
have relied extensively on food aid to finance development projects. Critics question
the effectiveness of mechanisms in the farm bill as well as the existing international
machinery designed to monitor commercial displacement and disincentive effects.
Although preliminary agreement was reached in the now-suspended Doha Round
negotiations to eliminate food aid that displaced commercial sales, that agreement is
now on hold. One of the largest U.S. private voluntary organizations, CARE, has
announced that it will phase out the sale of food aid commodities in developing
countries to finance development projects (known as monetization) by 2009.
Related CRS Reports
CRS Report RL33553, Agricultural Export and Food Aid Programs, by
Charles E. Hanrahan.
CRS Report RS21279, International Food Aid: U.S. and Other Donor
Contributions, by Charles E. Hanrahan and Carol Canada.
CRS Report RL31927, Trends in U.S. Foreign Food Aid, by Carol Canada.

Domestic Nutrition Assistance72
The nutrition title accounts for approximately 62% of all farm bill spending.
The lion’s share of this nutrition spending is for the Food Stamp program, which is
widely viewed as the federal government’s primary response to the food needs of
low-income Americans. Nutrition assistance programs (all administered by USDA)
also play a role in federal support for the agricultural sector through direct
commodity purchases and increased demand. Omnibus farm bills have become the
legislative vehicle for reauthorizing expiring authorities and appropriations,
especially for food stamps and several smaller domestic food programs; most
recently, the 2002 farm bill reauthorized expiring nutrition program authorities and
appropriations authorizations through FY2007.
Congress uses farm bills as an opportunity to review the administration,
effectiveness, eligibility and benefit rules, and funding levels of some nutrition
programs — and as a place for new initiatives. In addition, the nutrition title serves
the political objective of bringing urban Members into the farm bill process.
Occasionally, the large budget for nutrition programs also serves as a tempting target
for other Agriculture Committee priorities when spending is constrained.
The USDA oversees almost 20 domestic nutrition assistance programs, spending
some $54 billion in FY2006, over half of USDA’s outlays. Virtually all the
programs are administered by states, schools, or local grantees under federally
prescribed rules. Federal oversight of these programs (e.g., regulations governing
program operations) is the responsibility of the USDA’s Food and Nutrition Service
(FNS). In addition, the Agriculture Marketing Service (AMS), the Farm Service
Agency (FSA), and the Commodity Credit Corporation (CCC) play roles in the
procurement of commodities for some programs. The upcoming farm bill is may
cover five program areas, accounting for 65% of federal nutrition aid spending.73
They include:
!the Food Stamp program in the 50 states, the District of Columbia,
Guam, and the Virgin Islands;
!programs operating in lieu of the regular Food Stamp program —
nutrition assistance block grants for Puerto Rico, American Samoa,
and the Northern Mariana Islands, along with the Food Distribution
Program on Indian Reservations (FDPIR);
!The Emergency Food Assistance Program (TEFAP);
!the Commodity Supplemental Food Program (CSFP); and
!Community Food Projects.

72 This section is by Joe Richardson.
73 The farm bill typically does not include provisions affecting child nutrition programs (like
the school meal programs) or the Special Supplemental Food Program for Women, Infants,
and Children (the WIC program), except where levels of commodity assistance to schools
are involved. These program areas normally are dealt with through periodic child nutrition
reauthorization laws, and the next reauthorization is scheduled for 2009.

Moreover, the 2002 farm bill added statutory authority and mandatory funding
for a new Seniors Farmers’ Market Nutrition Program (SFMNP) and established a
pilot program to distribute free fruit and vegetables in schools (later expanded and
made permanent).
All farm bill domestic nutrition assistance programs, except for the CSFP and
the administrative/distribution-cost component of TEFAP, are treated as mandatory
entitlements for budget purposes. Taken together they represent about one-third of
USDA spending (outlays) and are estimated at $35 billion or more for FY2006.
A number of issues for the 2007 farm bill have emerged. However, as with the

2002 bill, action on most of them will depend heavily on budgetary considerations.

Major programs and issue areas are outlined below.
Food Stamps74
The Food Stamp program is the largest of all the nutrition assistance programs
and accounts for 95% of the spending in the nutrition title of the farm bill. It is the
foundation for the federal effort to give low-income households the chance to obtain
at least a minimally adequate diet, and is a major factor in overall federal policy of
support for the poor.
The purpose (and structure) of the program has evolved over time. It is meant
to play a role in three areas of federal public policy:
!First, food stamps originated as a way of providing an outlet for
surplus agricultural production, with the notable side benefit of
supporting poor families. However, its goals and role in the
country’s support system for the low-income population have shifted
and expanded greatly. It continues to pay for significant new food
purchasing power, thereby helping the agriculture sector.
!Second, it now also is seen as the government’s primary response to
important concerns about the overall “food security” status of the
low-income population, although only an estimated 60% of eligible
individuals choose to participate by the most recent count (2004).
A 2006 USDA Economic Research Service (ERS) study reports that,
in 2005, 11% of U.S. households were “food insecure,” and that the
prevalence of “very low food security” (previously denominated as
“food insecure with hunger”) was 3.9%.
!Third, the Food Stamp program has become an integral part of the
overall “safety net” for the needy. It now ranks as the fourth largest
needs-tested program and is the only nationally standard program
aiding low-income households. According to ERS, when its benefits
are added to other income, food stamps are estimated to move
almost 10% of recipients out of poverty, and, for a typical low-
income recipient family with children, food stamps can provide
some 25% of their purchasing power.

74 Authorized under the Food Stamp Act; 7 U.S.C. 2011 et seq.

Program Design and Operation. The regular Food Stamp program
provides inflation-indexed monthly benefits to low-income households that
supplement their own spending on food; benefits vary by income, household
expenses (like shelter costs), and household size, but generally not by state or region.
They are delivered through electronic benefit transfer (EBT) cards that are used like
debit cards. Eligibility for food stamps is primarily based on a household’s financial
status. Monthly gross income must be below 130% of the inflation-indexed federal
poverty income guideline for the household’s size (e.g., $1,800 for a three-person
household), and liquid assets must be under $2,000 ($3,000 for those households
with elderly/disabled members). However, some households can be “categorically
eligible” if they participate in another income-tested program like cash welfare. And
certain categories are barred irrespective of their financial need (e.g., many
noncitizens, able-bodied adults without dependents not meeting a work test).
Program costs are shared with the states, which administer the program under
generally uniform federal rules. The federal government pays the full cost of benefits
and about half the cost of administration, operating work/training programs for
recipients, and outreach and nutrition education efforts. States pay the remainder.
The level of food stamp spending varies with participation, which is closely
linked to economic conditions and eligibility rules, and benefit levels, which are
indexed to food costs and also reflect recipients’ income and non-food expenses.
Since the 2002 farm bill, participation has increased substantially, from some 19
million persons per month in FY2002 to 26.1 million (August 2006), and the average
monthly benefit level has jumped from $80 a person in FY2002 to $94 in August
2005.75 Costs have grown from $20.6 billion in FY2002 to more than $33 billion
estimated for FY2006.
Finally, the Food Stamp program has a “quality control” system that measures
the degree to which eligibility and benefit decisions are erroneously made. The most
recent national quality control statistics (for 2005) show historically low error rates
(e.g., 4.5% of benefits over-issued). States with persistently high error rates can be
assessed financial sanctions; those with very low rates can receive bonus payments.
Prospective Issues and Options. The 2002 farm bill greatly expanded
eligibility for noncitizens, raised benefits modestly for larger households (by counting
less of their income), and allowed states to provide “transitional” food stamps for
families leaving the Temporary Assistance for Needy Families (TANF) program. In
addition, the 2002 bill set up a number of state options to ease access to the program
and administrative burdens on applicants/recipients and program operators and
revamped the quality control system to reduce the number of states subject to
financial sanctions and grant bonus payments to states demonstrating exemplary
administrative performance. Virtually no program cuts were made.

75 To put these participation figures into perspective, it should be noted that the all-time high
in food stamp participation was reached shortly before enactment of the 1996 welfare reform
law — 27.5 million persons a month in FY1994. The all-time low for the modern program
was in FY2000 — 17.2 million persons a month.

A preliminary list of major potential issue areas that have emerged at this time
includes the following.
!Eligibility. Proposals to both loosen and tighten current rules
governing the eligibility of noncitizens are likely. The House
version of the bill implementing spending reductions to comply with
the FY2006 budget reconciliation measure would have further
limited eligibility for noncitizens. Moreover, any changes made in
immigration law may call for revision of food stamp eligibility rules.
Currently, states may make households participating in states’
Temporary Assistance for Needy Families (TANF) programs
categorically eligible (automatically eligible) for food stamps. The
Administration contends that states have taken advantage of this rule
to make those with financial resources well above normal food
stamp standards eligible, simply by providing some minimal TANF-
linked services. Various limits on categorical eligibility have been
advanced. Opponents of the current restrictions on participation by
able-bodied adults without children (ABAWDs), which bar
eligibility after three months unless the individual meets a work-
related test, contend that they should either be abolished as too
punitive (and administratively complex) or eased. These restrictions
were put in place in the 1996 welfare reform law.
!Assets. Current policy excludes most, but not all, retirement savings
from consideration as assets when testing for food stamp eligibility.
The Administration and others have supported disregarding all
retirement savings to avoid penalizing those who have saved for
retirement, but are temporarily in need. The Food Stamp program’s
dollar asset limits have not been significantly changed in over 25
years. A number of critics argue that they should be raised, or
abolished, to encourage saving and simplify administration.
!Use of Benefits. Food stamp benefits can be used for virtually any
food purchase; they cannot be used for alcohol, tobacco, hot
prepared food, or dietary supplements. Food choice has been a
recurring theme in food stamp policy debates. Critics argue that
nutrition-related limits should be placed on the types of food that can
be bought with food stamps or that incentives be provided to
purchase nutritional food items. In addition, another group of critics
has proposed an expansion to allow food stamps to be used for
dietary supplements, as in the Senate version of the 2002 farm bill.
!Benefit Levels. Food stamp benefits are increased for those with
high shelter costs in relation to their income, but there are significant
limits to this rule. As in earlier farm bill debates, program advocates
would like to see these limits removed. Again, as in earlier farm
bills, there are long-standing calls to increase or index the minimum
benefit; it has not been changed since the 1970s and is seen as so
low that it discourages participation. Arguing that the value of food
stamp benefits has been eroded, some advocates would ask that

either the maximum benefit be raised or that the standard amount of
income disregarded for all households be increased — effectively
providing an across-the-board benefit increase.
!Administration. A number of states have taken, or are taking,
major steps to revamp the way they administer food stamps,
Medicaid, and the TANF program. While food stamp law requires
that final eligibility/benefit decisions be made by government
employees, these initiatives can involve privatizing (contracting out)
many back-office administrative tasks and modernizing/streamlining
administration through efforts like performing program intake by
computer application — in both cases resulting in cost savings from
fewer staff and offices and, it is hoped, better client service. There
are no federal standards for these types of initiatives (e.g., with
respect to client service/access, pilot testing), and many of those
watching the current initiatives argue that some minimum standards
should be set legislatively. As the result of experiences related to
Hurricane Katrina, some have proposed allowing or requiring the
federal government to increase its share of food stamp
administrative costs (above the normal 50%) in the case of major
!Program Access. Although the participation rate among food stamp
eligibles has increased noticeably since 2002 (when a number of
changes were put in place to encourage this), it still is only 60%, and
program advocates argue that further steps need to be taken.
Procedural rules governing how applicants and recipients are treated,
as well as rules relating to eligibility for applicants participating in
other public assistance programs, could be changed to ease access to
food stamp benefits for eligible households.
The Emergency Food Assistance Program (TEFAP)76
TEFAP was begun in 1981-1982 as a temporary expedient designed, at least
initially, to dispose of huge stocks of government-held food commodities and to
address legislatively mandated reductions in food assistance programs, an economic
recession, and concern over “hunger” and homelessness among the needy. The 1983
Emergency Food Assistance Act gave the program official status and authorized
funding for administrative and distribution costs.
In the early years (through FY1988), the only significant federal expenditures
involved were appropriations for administrative/distribution costs. The commodities
provided were so-called “bonus” commodities, those acquired for farm-support
reasons and held in excess of what was needed to fulfill other federal commitments
(e.g., to school meal programs). The establishment of TEFAP helped reduce federal
commodity stocks (and storage costs associated with them), provided an alternative

76 Authorized under (1) Section 27 of the Food Stamp Act (7 U.S.C. 2036) and (2) the
Emergency Food Assistance Act (7 U.S.C. 7501-7516).

source of food assistance for the needy, and was instrumental in supporting and
expanding a network of emergency food aid providers.
In 1988, responding to the lack of bonus commodity inventories, Congress
began the practice of mandating funding for TEFAP commodities, thereby creating
a minimum “entitlement” to a certain level of commodity assistance. This
entitlement component was written into in permanent law by the 1996 welfare reform
act (P.L. 104-193), which guaranteed the program $100 million a year (increased to
$140 million in the 2002 farm bill). Additional bonus commodities continued to be
made available — differing each year according to USDA acquisitions.
Program Design and Operation. Under TEFAP, the federal government
provides food commodities to states along with grants for administrative and
distribution costs. This assistance supplements other sources of food aid for needy
persons and often is provided in concert with food bank and homeless shelter
projects. Eligibility decisions for TEFAP — as both to recipients and participating
emergency food providers — are made by states.
In addition to their allocation of the $140 million in entitlement commodities,
each state receives a share of the $50 million a year appropriated as discretionary
money to fund expenses associated with administration and distribution (storage,
transportation) of the commodities. States’ entitlements to TEFAP commodities are
supplemented with bonus commodities (about $150 million in FY2005) that the
USDA has acquired in its agriculture support programs.
Prospective Issues and Options. The 2002 farm bill increased the level
of entitlement commodities to $140 million a year. Since the 2002 farm bill, bonus
commodity donations from USDA stocks to TEFAP have dropped dramatically —
from over $240 million in FY2003 to about $150 million in FY2005, with estimates
of less than $100 million for FY2006. Because USDA commodities provide an
important underpinning to emergency food assistance providers’ activities and they
have come to rely on them, there are calls from providers and others for the 2007
farm bill to substantially increase the level of entitlement commodity assistance
above the current $140 million a year.
Commodity Supplemental Food Program (CSFP)77
The CSFP was originally established in the late 1960s, under the authority of a
series of appropriations laws, to provide aid to low-income women (pregnant and
postpartum), infants, and children, who at that time had no other food assistance
program to turn to for aid specific to their needs. Since then, the Special
Supplemental Nutrition Program for Women, Infants, and Children (the WIC
program) has largely taken over this role. However, the CSFP continues to operate
and now serves mostly elderly low-income individuals who either need extra help
beyond food stamp benefits or are reluctant to apply for food stamps.

77 Authorized under Sections 4 and 5 of the Agriculture and Consumer Protection Act of

1973; 7 U.S.C. 612c note.

Program Design and Operation. The CSFP provides supplemental foods
to low-income elderly persons (and some low-income pregnant, postpartum, and
breastfeeding women, infants, and children) through over 140 projects in 32 states,
the District of Columbia, and on two Indian reservations. Eligibility is limited to
those with income below 130% of the federal poverty income guidelines (about
$13,000 a year for one person). The foods are purchased by the USDA and
distributed through local grantees, and food packages received and distributed by
CSFP projects are designed with the nutritional needs of recipients in mind. CSFP
grantees also receive significant funding for administrative costs. The program is a
discretionary program depending on annual appropriations decisions, and
commodities and administrative funding generally are apportioned by the number of
persons served in the prior year; if new money is appropriated or allocated “slots” are
not used, new projects can be added. The commodities provided by USDA are of
two types: (1) “entitlement” commodities bought with annually appropriated funds
and included in the food packages and (2) “bonus” commodities donated from USDA
stocks and provided in addition to, or as part of, food packages.
In FY2005, the CSFP served over 500,000 persons a month, 90% of whom were
elderly. Some $82 million in entitlement commodities and $38 million worth of
bonus commodities were distributed; food packages were valued at between $18 and
$21 per person per month. Administrative cost support was $29 million.
Prospective Issues and Options. The 2002 farm bill increased the
proportion of appropriations earmarked for administrative costs. In its FY2007
appropriations request, the Administration proposed terminating the CSFP, as
duplicative of other programs (the WIC program and food stamps). However, neither
the House nor the Senate FY2007 agriculture appropriations measures adopted this
position. CSFP advocates have, for a number of years, called for a change in rules
that would boost the income eligibility limit from 130% of the federal poverty
guidelines to 185% and are likely to raise the issue again in the 2007 farm bill.
Fresh Fruit and Vegetables
The 2002 farm bill addressed, for the first time, the availability of fresh fruit and
vegetables in schools — because of growing concerns over childhood obesity and the
types of foods offered through school meal programs. It also provided support for
a Seniors Farmers’ Market Nutrition Program (SFMNP).
Program Design and Operation. A pilot project was established under
which a small number of schools in a limited number of states and Indian
reservations received funding to offer free fresh fruit and vegetables to students. The
project was expanded, given mandatory annual funding, and made permanent through
the 2004 child nutrition reauthorization law (P.L. 108-265) and further expanded and
given added money in P.L. 109-97. In FY2006, about 400 schools in 14 states and
three Indian reservations received support for this project, with funding of $15
The 2002 law also required that a minimum of $50 million a year be spent on
fresh fruit and vegetables to be acquired for school meal programs through the
Department of Defense “Fresh Program” (“DOD Fresh”).

Finally, the 2002 bill provided statutory authority and mandatory funding for
the SFMNP, under which low-income seniors receive vouchers that they may redeem
at farmers’ markets and roadside stands for fresh fruit and vegetables, like a similar
program for WIC recipients.
Prospective Issues and Options. The fresh fruit and vegetable program
set up by the 2002 farm bill has proved popular, and both the House and Senate
appropriations bills for FY2007 included a significant expansion in funding and the
number of states covered. It is possible that various proposals for further growth in
the program would be advanced for the 2007 farm bill. Recommendations for
continuation of and added support for the DOD Fresh set-aside or similar initiatives
also can be expected.
A proposed change in the SFMNP is likely to be a provision barring the use of
SFMNP funds to pay sales taxes, coupled with a rule disregarding the value of
SFMNP benefits as financial resources for tax and public assistance purposes. This
has been proposed by the Administration, was included in the House and Senate
FY2007 appropriations measures, and mirrors what is now done for the WIC
farmers’ market program.

Forestlands in the United States total nearly 747 million acres, about a third of
all land in the country. These lands provide wood for lumber, plywood, paper, and
other materials, as well as a host of environmental and ecological services, including
recreation, clean water, wildlife habitat, and more. Ownership of forestlands is
divided among (1) non-industrial private forest landowners (private owners who do
not own wood processing facilities), with nearly 363 million acres (49% of the total);
(2) the federal government, with 247 million acres (33% of the total); (3) state and
local governments, with 70 million acres (9% of the total); and (4) industrial private
owners (private owners who also operate sawmills and/or wood pulp/paper plants),
with 68 million acres (9% of the total). Federal forestlands are administered largely
by the Department of the Interior’s Bureau of Land Management (with 48 million
acres) and the USDA’s Forest Service (with nearly 147 million acres). In addition
to administering 155 national forests and various other designations, the Forest
Service provides technical and financial assistance to non-industrial private
landowners, directly and through state forestry agencies.
Three of the past four farm bills have contained separate forestry titles.
Traditionally, farm bills address forestry assistance programs, but federal forest
management and protection also is within the Agriculture Committees’ jurisdiction.
The next farm bill may include a forestry title to modify existing programs and
possibly establish new options for forest land management and protection.
Program Design and Operation
Forestry assistance programs are managed primarily by the State and Private
Forestry (S&PF) branch of the Forest Service. Funding is enacted in the annual
Interior, Environment, and Related Agencies appropriations acts. There are three
groups of forestry assistance programs. Forest health management includes
programs to survey and control forest pests and pathogens (including invasive
species) on federal and nonfederal (cooperative) lands. Cooperative fire assistance
includes equipment, financial, and technical assistance to states and volunteer fire
departments. Cooperative forestry assistance programs include:
!forest stewardship — financial and technical assistance to states for
forestry programs;
!forest legacy — federal or state acquisition of lands or easements on
lands threatened with conversion to non-forestry uses;
!urban and community forestry — financial and technical assistance
for forestry activities in urban and community settings;
!economic assistance — financial and technical assistance for
diversifying forest-dependent rural communities (Economic Action
Program and Pacific Northwest Assistance); and
!forest land enhancement — cost-share assistance for forestry
practices on private forests (Forest Land Enhancement Program
(FLEP), enacted in the 2002 farm bill to replace the Forestry

78 This section is by Ross W. Gorte.

Incentives Program (FIP), and Stewardship Incentives Program
Two smaller programs include International forestry and Forest inventory activities.
Prospective Issues and Options
Funding Levels. Appropriations for many forestry assistance programs rose
in FY2001 in response to the National Forest Plan. This plan was prepared in
September 2000 at President Clinton’s request in response to the severe summer
2000 fire season. Funding for forest health management and cooperative fire
assistance have persisted at relatively high levels compared to those before FY2001.
Also, funding for forest legacy has grown substantially, from less than $3 million
annually for most of the 1990s to an average of more than $60 million annually over
the past five years. In contrast to these programs, technical and financial aid to rural,
forest-dependent communities — to help businesses and workers adjust to a more
diverse, less traditional forest product based local economy — has declined. The
Bush Administration proposed terminating funds for economic assistance in each of
the past four budget requests; appropriations have declined from the FY2001 peak
of $63.6 million to $9.5 million in FY2006. Such assistance has been popular
locally, and is seen in part as a way to help use the excess biomass fuels that need to
be removed from forests to reduce the risk from wildfires. Consequently, approaches
to expand and fund FS economic assistance programs might be examined in the next
farm bill.
Funding for the Forest Land Enhancement Program may attract attention in the
upcoming farm bill. FLEP was enacted in the 2002 farm bill with mandatory funding
of $100 million through FY2007. However, actual funding has totaled $50 million,
and Congress, at the request of the Administration, has cancelled the remaining
funding. This perceived “failure” to fulfill the “promised” funding likely will be a
major part of the forestry debate in the next farm bill. Funding for forestry assistance
programs is shown below, in Table 11.
Wildfire Protection. The threat of wildfires to forests and to communities
and homes in the wildland-urban interface seems to have grown. The 2002 farm bill
authorized a new community wildfire protection program, but the program has been
funded only as part of state fire assistance, with no separate funds for community
protection. As the threat from wildfire persists, wildfire protection options may be
considered in the next farm bill.
Invasive Species. Invasive species, typically exotic plants and animals, are
increasingly displacing or harming native plants and animals in the United States and
worldwide. FS Chief Dale Bosworth described invasive species as one of the four
major threats to the nation’s forests and rangelands.79 Options and opportunities to
prevent and control the spread of invasive species, especially forest pests and
especially on private forestlands, might be a farm bill issue.

79 The four threats noted are fire and fuels, invasive species, loss of open space, and
unmanaged recreation [].

Table 11. Forestry Assistance Funding, FY1999-FY2007
FY02 FY03 FY04 FY05 FY06 FY07
P r ogram Ac t u al Ac t u al Ac t u al Ac t u al Enacted Request
(Million $)
Forest Health
Mgmt. 80.3 97.7 123.3 126.6 124.8 95.8
Coop. Fire
Assistance 95.0 104.9 122.5 86.9 92.4 69.7
Coop. Forestry201.6187.6166.5155.4133.5122.2
Stewardship 33.2 32.0 31.9 32.3 34.1 33.9
Forest Legacy65.068.464.157.156.561.5
Urban &36.0
Com m unity 36.0 34.9 32.0 28.4 26.8
Assistance 57.6 31.2 25.6 19.0 9.5 0.0
Forest Land
Enhancem ent 9.8 20.0 10.0 15.0 5.0 0.0
F orestry 5.3 5.7 5.9 6.4 6.9 4.9
Forest Inventory5.
Total 387.1 400.9 423.1 380.3 362.2 292.6
Source: USDA Forest Service, Budget Justifications for Committees on Appropriations, annual series.
Amounts may differ from those shown in other documents because of the inclusion of State and Private Forestry
funds, Wildfire Management funds, and supplemental and emergency appropriations. Through FY2002, Forest
Land Enhancement data were appropriations for the Stewardship Incentives Program and the Forestry
Incentives Program. As of November 24, 2006, the FY2007 Interior, Environment, and Related Agencies
Appropriations Act had not been enacted.
Private Forestland Preservation. The environmental losses associated with
conversion of forestlands to other, non-forest uses (e.g., agriculture and residential
development) have generated concern. The substantial expansion of the forest legacy
program reflects this growing concern. However, some stakeholders have suggested that
non-market services from private forestlands (water quality, open space, carbon storage,
wildlife habitat, biological diversity, etc.) might be compensated. The idea of federal support
for developing markets for these traditionally non-market services has generated broad
interest, and may be discussed as a possible forestry program in the upcoming farm bill.
Related CRS Reports:
CRS Report RL31065, Forestry Assistance Programs, by Ross W. Gorte.

Appendix A. Titles and Subtitles of the
2002 Farm Bill (Farm Security and
Rural Investment Act of 2002, P.L. 107-171)
I. Commodity Programs
A. Direct Payments and Counter-Cyclical Payments
B. Marketing Assistance Loans and Loan Deficiency Payments
C. Peanuts
D. Sugar
E. Dairy
F. Administration
II. Conservation
A. Conservation Security
B. Conservation Reserve
C. Wetlands Reserve Program
D. Environmental Quality Incentives
E. Grassland Reserve
F. Other Conservation Programs
G. Conservation Corridor Demonstration Program
H. Funding and Administration
III. Trade
A. Agricultural Trade Development and Assistance Act of 1954 and Related Statutes
B. Agricultural Trade Act of 1978
C. Miscellaneous
IV. Nutrition Programs
A. Food Stamp Program
B. Commodity Distribution
C. Child Nutrition and Related Programs
D. Miscellaneous
V. Credit
A. Farm Ownership Loans
B. Operating Loans
C. Emergency Loans
D. Administrative Provisions
E. Farm Credit
F. General Provisions
VI. Rural Development
A. Consolidated Farm and Rural Development Act
B. Rural Electrification Act of 1936
C. Food, Agriculture, Conservation, and Trade Act of 1990
D. SEARCH Grants for Small Communities
E. Miscellaneous
VII. Research and Related Matters
A. Extensions
B. Modifications
C. Repeal of Certain Activities and Authorities
D. New Authorities
E. Miscellaneous
VIII. Forestry
A. Cooperative Forestry Assistance Act of 1978
B. Amendments to Other Laws
C. Miscellaneous Provisions
IX. Energy
X. Miscellaneous
A. Crop Insurance
B. Disaster Assistance
C. Tree Assistance Program
D. Animal Welfare
E. Animal Health Protection
F. Livestock
G. Specialty Crops
H. Administration
I. General Provisions
J. Miscellaneous Studies and Reports

Appendix B. Agriculture Committee Membership,
by State
Figure 8. Senate Agriculture Committee Membership by State

Table 12. Members of the Senate Committee on
Agriculture, Nutrition, and Forestry, 110th Congress
Majority Minority
M emb er S t at e M emb er S t at e
Tom Harkin, ChairmanIASaxby ChamblissGA
Patrick LeahyVTDick LugarIN
Kent ConradNDThad CochranMS
Max BaucusMTMitch McConnellKY
Blanche LincolnARPat RobertsKS
Debbie StabenowMINorm ColemanMN
Ben NelsonNEMike CrapoID
Ken SalazarCOChuck GrassleyIA
Sherrod Brown *OHJohn Thune *SD
Bob Casey *PALindsay Graham *SC
Amy Klobuchar *MN
* New on Committee

Figure 9. House Agriculture Committee Membership by State

Table 13. Members of the House Committee on Agriculture,
110th Congress
Majority Minority
M emb er S t at e D i s t . M emb er S t at e D i s t .
Collin Peterson, ChairmanMN7Bob GoodlatteVA6
Tim HoldenPA17Terry EverettAL2
Mike McIntyreNC7 Frank LucasOK3
Bob EtheridgeNC2Jerry MoranKS1
Leonard BoswellIA3Robin HayesNC8
Joe BacaCA43Timothy JohnsonIL15
Dennis CardozaCA18Sam GravesMO6
David ScottGA13Jo BonnerAL1
Jim Marshall GA8Mike RogersAL3
Stephanie HersethSD1Steve KingIA5
Henry CuellarTX28Marilyn MusgraveCO4
Jim CostaCA20Randy NeugebauerTX19
John SalazarCO3Charles BoustanyLA7
Brad Ellsworth*IN8Randy KuhlNY29
Nancy Boyda*KS2Virginia FoxxNC5
Zack Space*OH18Michael ConawayTX11
Tim Walz*MN1Jeff FortenberryNE1
Kirsten Gillibrand*NY20Jean SchmidtOH2
Steve Kagen*WI8Adrian Smith*NE3
Earl PomeroyND1Kevin McCarthy*CA22
Lincoln DavisTN4Timothy Walberg*MI7
John Barrow*GA12
Nick Lampson*TX22
Joe Donnelly*IN2
Tim Mahoney*FL16* New on Committee