Appropriations for FY1999: U.S. Department of Agriculture and Related Agencies II

CONTENTS FOR THIS SECTION

Farm Commodity Programs

Civil Rights Provisions
Milk Marketing Order Reform

Crop Insurance
Agricultural Credit
Agricultural Trade and Food Aid Programs

CCC Export Credit Guarantees
Agricultural Trade Sanctions
Country of Origin Labeling for Agricultural Products
Market Access Program
Export Subsidies
Public Law 480 or Food for Peace
Food for Progress
Foreign Agricultural Service

Farm Commodity Programs

Outlays for the farm commodity programs, and certain farm export programs and conservation programs are funded through USDA's Commodity Credit Corporation (CCC). The CCC is a revolving financing mechanism within USDA, through which it supports more than a dozen specified commodities, including grains, cotton, milk, sugar, peanuts, and tobacco. The formulas that determine payments under these programs are made by long-term farm legislation, and benefits have to be provided to any participating producer.

In past years, outlays of the CCC have been highly variable, and tended to fluctuate based on crop market conditions. The Federal Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, the 1996 farm bill) replaced the program of making direct payments to participating producers when market prices fall below a target level, with pre-determined and declining market transition payments to eligible producers over a 7-year period. Consequently, CCC outlays have been more predictable since 1996 than they were in previous years.

The Administration estimated earlier this year that total CCC outlays for FY1999 would be $9.0 billion for all CCC-funded programs, of which $5.5 billion would be for direct market transition payments to farmers.⁽¹⁾ (All estimates exclude the $5.6 billion in emergency FY1999 CCC spending provided by P.L. 105-277.) The $9.0 billion estimate is down from an estimated $9.3 billion in FY1998 outlays of which $5.8 billion was in market transition payments. Because these programs are funded through the CCC, they do not require annual appropriations. Instead, the CCC borrows funds from the Treasury to fund its operations. However, because CCC outstanding borrowing cannot exceed $30 billion, the annual appropriations bill usually contains funding for a "reimbursement of CCC net realized losses" so that the CCC can repay its debt to the Treasury and not exhaust its borrowing authority. This reimbursement is also categorized as a mandatory expense and is not included toward the discretionary spending allocation given to the appropriations subcommittees.

The $8.439 billion requested by the Administration, and provided as a regular (non-emergency) appropriation in P.L. 105-277, for the FY1999 reimbursement to the CCC is up significantly (+$7.7 billion) from the $783.5 million that was appropriated in FY1998. Much of the difference can be explained by a change in methodology used by USDA for determining how much to request for net realized losses, rather than a change in farm policy. (In brief, the methodology used before last year based the reimbursement request on an estimate of losses in the previous fiscal year, while the new methodology bases the request on actual losses from the second previous fiscal year.) The $783.5 million requested in FY1998 was unusually low because it was a transition year for switching to the new methodology.

Although the farm commodity programs do not require an annual appropriation, per se, opponents of these programs have in the past offered floor amendments to agriculture appropriations bills in an attempt to effect changes in farm commodity policy. Separate amendments which would have affected the peanut and sugar price support programs and crop insurance for tobacco farmers were offered and defeated on the House floor when H.R. 4101 was debated in June. An adopted Senate amendment to S. 2159 would have required tobacco growers to be assessed for the cost of USDA to administer its tobacco price support programs and related activities, but was deleted in conference.

Civil Rights Provisions. P.L. 105-277 contains provisions somewhat similar to what was in the House-passed appropriations bill (H.R. 4101) with respect to waiving the statute of limitations for certain allegations of discrimination against USDA. The Department has been under close scrutiny in recent years for its treatment of minorities, for both its personnel actions and in its administration of its farmer programs. P.L. 105-277 waives the statute of limitations on civil rights cases for eligible complaints made during the period January 1, 1981 through December 31, 1996. Eligible complaints included in the conference agreement are those pertaining to cases involving potential discrimination within USDA's farm commodity, farm credit, rural housing loan, and disaster assistance programs only. Conferees on P.L. 105-277 modified the civil rights provision in the vetoed bill (H.R. 4101) to include housing loan programs and to extend the statute of limitation back to 1981, instead of 1983 as in the vetoed bill. P.L. 105-277 also requires the Secretary of Agriculture to conduct an investigation, issue a written determination, and propose a resolution, within 180 days.

Milk Marketing Order Reform. P.L. 105-277 contains a House-adopted provision that requires USDA to issue its final rule for federal milk marketing order reform between February 1, and April 4, 1999, and extend the deadline for implementation from April 4, 1999 to October 1, 1999. No comparable provision was in the Senate-passed bill. Federal milk marketing orders regulate the farm price of milk in much of the country. USDA is in the process of consolidating the number of marketing orders, as required by the 1996 farm bill, and reforming dairy pricing policy, which has been the center of controversy among dairy production regions, processors and consumers.

The conference provision to extend the deadline is supported by Northeast and Southeast dairy producer groups who support the current milk pricing system and are concerned that USDA might implement reforms that reduce minimum farm milk prices while Congress is in recess later this year. Opponents of the provision (mainly Upper Midwest milk producers) contend that the provision applies pressure on USDA to recommend the status quo, or else be faced with legislative action against a decision in favor of any reforms that would reduce minimum milk prices. The requirement that USDA release its final rule between February 1 and April 4, 1999, ensures that the rule will be released at a time when Congress is in session and can react to the ruling. An Obey amendment to H.R. 4101 would have removed this provision from the bill, but was defeated on the House floor on June 23 by voice vote.

The extension of the implementation deadline to October 1, 1999, effectively extends the life of the Northeast Dairy Compact to October 1 as well. The Northeast compact establishes higher minimum price for the farm price of beverage milk in New England, and under current law expires at the same time as implementation of order reform. A proposed Petri amendment to H.R. 4101 would have kept the sunset date for the Northeast dairy compact at April 4, 1999, but the amendment was not allowed to be considered on the House floor. The Chairman of the Rules Committee raised a point of order against the amendment on the floor stating that it was in violation of the rule (H.Res. 482) which prohibited the consideration of any amendments to H.R. 4101 that change existing law.

(For more on federal dairy policy reform, see CRS Issue Brief 97011, Dairy Policy Issues.)

Crop Insurance

The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance to producers who grow an insurable crop. Any producer who opts for this coverage has the opportunity to purchase additional insurance coverage at a subsidized rate. Most policies are sold and completely serviced through approved private insurance companies that are reinsured by USDA.

There are basically four sources of federal expenditures for the crop insurance program -- USDA absorbs a large percentage of the program losses, compensates the reinsured companies for a portion of their delivery expenses, subsidizes the premium paid by participating producers, and pays the salaries and expenses of its administering agency within USDA. The program losses and premium subsidy are mandatory expenditures funded through USDA's Federal Crop Insurance Fund. The salaries and expenses of the RMA agency are a discretionary expense, subject to annual appropriations.

The funding source for the federal reimbursement to the private insurance companies has been the subject of controversy in recent years, and was recently addressed by legislation (P.L. 105-185, S. 1150, the agriculture research bill). Prior to enactment of P.L. 105-185, one-half of the reimbursement was funded as a mandatory account and the other half was funded through discretionary funds. Beginning in FY1999, P.L. 105-185 authorizes all of the reimbursement to be funded through the crop insurance fund (as a mandatory account), thus precluding the need for a specific annual appropriation. Crop insurance supporters had feared that if the expense had remained discretionary it would become a target for cuts, which they say would lessen private sector participation in the program.

Since P.L. 105-185 created new mandatory spending of $1 billion over 5 years for this reimbursement, a comparable offset had to be made as required by budget law. To partially offset the cost of this new mandatory expenditure, P.L. 105-185 made statutory changes to the federal crop insurance program, which achieve $530 million in savings over 5 years. This includes increasing the fee charged farmers for catastrophic coverage ($205 million in 5-year savings) and reducing the reimbursement rate to the private insurance companies from 27% of collected premiums to 24.5% ($188 million in savings). The balance of $485 million comes out of administrative cost savings in the food stamp program. A provision in the FY1999 omnibus appropriations act (P.L. 105-277) overturns the increase in the fee charged farmers for catastrophic coverage, so that farmers will pay no more than $50 per crop per county for catastrophic coverage, instead of 10% of the Government-paid premium for coverage.

As is customary, the Administration requests "such sums as may be necessary" for the Federal Crop Insurance Fund, which it estimates to be $1.504 billion for FY1999. (This estimate excludes any emergency supplemental benefits provided the emergency package described in the above section.) P.L. 105-277 concurs with this estimate. The Administration also requested $66 million for the salaries and expenses of the RMA for FY1999. P.L. 105-277 freezes this account at the FY1998 level of $64 million.

For more on the mechanics of the crop insurance program, see CRS Report 97-572 Managing Farm Risk in a New Policy Era.

Agricultural Credit

USDA serves as a lender of last resort for family farmers unable to obtain credit from a commercial lender through its Farm Service Agency (FSA). USDA provides direct farm loans and also guarantees qualified loans from commercial lenders, which are used to finance the purchase of farm real estate, help producers meet their operating expenses, and financially recover from natural disasters.

Under budget rules adopted in 1990, federal agencies are required to estimate the cost of making a direct or guaranteed loan and record that cost as a budget outlay for the loan. The cost of making a loan is directly related to any interest rate subsidy provided by the government, as well as a projection of anticipated loan losses caused by farmer non-repayment of the loans.

The Administration requested an appropriation of $105.7 million to fund nearly $3.0 billion in total farm loans for FY1999. H.R. 4101, as passed by the House in June, recommended a somewhat smaller appropriation ($91.4 million in loan subsidy to support $2.299 billion total loans) than S. 2159 ($96.5 million in subsidy to support $2.365 billion in loans). The final amount provided in P.L. 105-277 contains a two-part appropriation for farm loans: a regular FY1999 appropriation of $89.7 million to support $2.285 billion in direct and guaranteed loans, and an emergency supplemental appropriation of $31.4 million to provide $440 million in additional direct and guaranteed operating loans. The supplemental appropriation was made to remedy the backlog of applications for operating loans, which occurred because of a shortage of FY1998 funds.

P.L. 105-277 also adopted many of the credit provisions in the Senate bill, which modify farmer eligibility for future FSA farm loans when the farmer has been forgiven outstanding debt. Under current law, a farmer borrower cannot receive a subsequent direct or guaranteed FSA farm loan if the borrower has been forgiven debt on a delinquent loan. One adopted provision would allow a borrower to have up to three debt forgivenesses and still remain eligible for a new guaranteed loan as long as the debt was forgiven before April 4, 1996. A borrower with up to one debt forgiveness that occurred before April 4, 1996, would also remain eligible for an emergency disaster loan. A separate provision requires the Secretary to use his discretion in determining whether a producer is eligible for an emergency disaster loan, and not to automatically disqualify the applicant if he lacks a certain amount of collateral.

A separate farm credit provision in P.L. 105-277 changes the individual loan limits for FSA farm loans. Current law limits a borrower to total outstanding indebtedness of no more than $300,000 for farm ownership loans and $400,000 for farm operating loans to a combined limit of $700,000 per borrower. The level of the loan limit will be allowed to rise by the annual change in the consumer price index, beginning in FY2000. Another provision reduces the statutory cashflow requirement on a restructured delinquent farm loan from 110% of the amount needed by the borrower to meet expenses to 100% of that amount.

Agricultural Trade and Food Aid Programs

The omnibus FY1999 appropriations act (P.L. 105-277) provides a program level of $5.8 billion, which entails an appropriation of $1.2 billion, for USDA's international activities. Those activities include export credit guarantees, export subsidies and market promotion programs, and foreign food aid. The final appropriation for agricultural export and food aid programs is very near the Administration's budget request, which called for a program level of $5.7 billion for USDA's agricultural trade and food aid programs. The difference between program level and outlays is attributable to the large part played by export credit guarantees ($4.6 billion proposed for FY1999) in the Department's international activities. For such credit programs, only costs represented by administrative expenses and loan subsidies, not the value of the guarantees, require an appropriation. The FY1999 appropriation is $1.1 billion lower than the FY1998 level. Proposed reductions in the value of CCC export credit guarantees and concessional food aid account for most of the decline in FY1999 requested program level and outlays. P.L. 105-277 also amend the Arms Export Control Act to allow Pakistan to regain access to USDA's agricultural export credit guarantees.

CCC Export Credit Guarantees. CCC export credit guarantees guarantee the repayment of commercial loans to finance the sale of U.S. agricultural exports to developing and middle-income countries that would otherwise have difficulty securing credit. The Administration's budget request for FY1999 differs from previous budgets in that the estimate for CCC export credit guarantees ($4.6 billion) is intended to reflect the actual level of sales expected to be registered under the programs rather than the level authorized in the 1996 farm bill ($5.5 billion). P.L. 105-277 reflects the Administration's estimate. For several years, actual program levels under CCC export credit guarantees have been less than the authorized amounts. For example, for FY1997, the Administration requested $5.5 billion for these programs, but actual guarantees were $2.876 billion. Guarantees were $4.4 billion in FY1998. The actual level of guarantees in FY1999 could differ from the budget request, and will depend on the demand for guarantees, market conditions, and USDA decisions about using the programs.

Of the $4.6 billion proposed, $4.3 billion will be allocated to the GSM-102 program which provides short-term commercial export credit guarantees (up to 3 year repayment terms). $100 million will be allocated to the GSM-103 program which provides guarantees for intermediate-term credit (3 to 10 year repayment terms). Two other guarantee programs, the supplier credit guarantee and the facilities financing guarantee, receive $150 million and $50 million respectively in FY1999. Under the supplier credit guarantee, CCC guarantees payments due on financing extended directly by exporters to importers (due in up to 180 days) for the purchase of U.S. agricultural products. Under the facilities financing guarantee, CCC guarantees the financing of manufactured goods and services exported from the United States to improve or establish agricultural related facilities, such as port improvements, in emerging markets.

Agricultural Trade Sanctions. Farm state members voiced concerns in June 1998 that the imposition of sanctions on Pakistan and India following their nuclear weapons tests would result in lost agricultural sales, particularly of wheat to Pakistan. This led to efforts to include amendments in the FY1999 agriculture appropriations measures reported out by both the House and Senate Appropriations Committees to allow Pakistan to regain access to USDA's agricultural export credit guarantees. Pakistan, the third largest market for U.S. wheat, has used this program extensively since the early 1990s to facilitate its sizable purchases of U.S. wheat. When Pakistan announced that it would be purchasing a large quantity of wheat on July 15, 1998, Congress approved and the President signed separate legislation (P.L. 105-194, S. 2282) to exempt USDA credits, guarantees, and financial assistance from the nonproliferation sanctions mandated under the Arms Control Act. This action helped facilitate the sale of over 600,000 metric tons of white wheat to Pakistan during the remainder of 1998. (For more information, see CRS Report 98-770, U.S. Agricultural Exports and the Nuclear Nonproliferation Sanctions on India and Pakistan.)

Growing recognition of the adverse impact that U.S. trade sanctions have on U.S. agricultural exports prompted considerable debate on this issue during floor consideration of the Senate version of FY1999 agriculture appropriations (S. 2159). However, conferees dropped language adopted during Senate floor debate, offered by Dodd and amended by Torricelli, that would have exempted the sale of food, fertilizer, medicine and medical equipment from current and future U.S. unilateral sanctions, except for those imposed on countries that support terrorism or use food and medicine for coercion or punishment.

Country of Origin Labeling for Agricultural Products. P.L. 105-277 does not contain separate Senate-adopted amendments to require country of origin labeling on fresh cuts of imported meats and for imported produce. Instead, it requires further studies on these issues -- imported meat labeling issues by the Secretary of Agriculture and imported produce labeling by the General Accounting Office.

Market Access Program. The FY1999 agricultural appropriations act places no funding limitations on the Market Access Program. The FY1999 budget estimate of $90 million is unchanged from FY1998 and is the maximum authorized under the 1996 farm bill. MAP supports, on a cost-sharing basis, foreign market development and promotion efforts of non-profit agricultural trade organizations, state and regional trade groups, and private companies. The 1996 farm bill prohibits providing direct assistance to foreign firms for the promotion of foreign-produced products and to any firm that is not recognized as a small business under the Small Business Act. Popular in the agricultural community, the program is often targeted for elimination as "corporate welfare" by opponents in Congress, some consumer organizations, and fiscally conservative groups.

MAP is a mandatory program, funded through the Commodity Credit Corporation (CCC), and does not require annual appropriations. Amendments to eliminate MAP spending in FY1999 were defeated in both chambers. P.L. 105-277 does call for the Secretary to carry out a study of the economic costs and benefits of the MAP program.

Export Subsidies. P.L. 105-277 does not provide for any changes in the EEP program and places no limits on the FAIR Act authorized levels for EEP. That means that the full amount authorized for EEP for FY1999, $550 million, will be available. The FY1999 estimated program level is $170 million above the FY1998 level, which was capped at $150 in the FY1998 agricultural appropriations act. Like MAP, USDA's export subsidy programs are funded through the CCC, and are not subject to direct annual appropriations. Two programs--the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP)--offer bonuses to exporters of U.S. agricultural commodities to make them price competitive in markets that are also targets of competitors' countries subsidies. Only $5 million in EEP bonuses were awarded in FY1996 and none were awarded in FY1997. In FY1998, the availability of EEP bonuses for 20,000 tons of poultry meat and 30,000 tons of barley were announced.

No action was taken on the President's proposal to set EEP spending at $1.2 billion over FY1999 through FY2003 with an allocation of up to $320 million as a first installment of a "flexible, multi-year program authorization for EEP." Under the Administration proposal, any funding not used in one fiscal year would remain available for use in a subsequent year, but annual program levels would remain subject to export subsidy reduction commitments made in the Uruguay Round Agreement on Agriculture. Savings from the proposed multi-year EEP program were estimated at approximately $1.4 billion, the difference between the proposed program levels and the amounts authorized in the 1996 farm bill. Authorizing this multi-year program would have required new authorizing legislation.

For DEIP, the President's budget anticipated a lower level of program activity in FY1999 because of a tighter domestic market for dairy products. The $82 million proposed is $17 million less than the estimated $99 million for FY1998. Actual levels of DEIP will be determined by market conditions, subject to reduction commitments in the Uruguay Round Agricultural Agreement.

Public Law 480 or Food for Peace. The FY1999 appropriations act essentially maintains spending for P.L. 480 at the level of last year's appropriation, approximately $1.1 billion. P.L. 480 is the U.S. Government's primary means of providing food assistance to foreign countries. Title I of P.L. 480 funds long-term concessional sales of U.S. agricultural products, primarily to develop markets in low-income countries. Title II is a program of humanitarian food donations for both emergencies and non-emergency feeding programs. Title III provides grant food aid for development projects in low-income developing countries. USDA administers Title I; the Agency for International Development (AID) administers Titles II and III.

For FY1999, the Administration proposed a total budget authority of $967 million for P.L. 480, estimated to provide 2.8 million metric tons of commodities. The FY1998 appropriation was $1.063 billion which will provide 3.2 million metric tons of commodity assistance. The new budget request thus represents a reduction of $96 million in budget authority and 700,000 metric tons of commodities, all of it coming from Title I. Agricultural appropriators rejected efforts by the Administration in FY1997 and FY1998 to cut Title I spending. Similarly, previous Administration efforts to reduce or eliminate Title III were rebuffed. Commodity groups whose products figure prominently in the Title I program (wheat, wheat flour, vegetable oil, rice, among others) have opposed any reductions in Title I; supporters in Congress of using food for development assistance oppose reducing further or eliminating Title III.

Food for Progress. FFP provides commodities to governments, private voluntary organizations, cooperatives or intergovernmental organizations for use in developing countries and emerging democracies committed to free enterprise in their agricultural economies. FFP can use Title I funds to procure commodities and pay transport costs. It can use commodities, if any, in CCC inventories under Section 416(b) of the Agricultural Act of 1949; or it can use CCC funds to procure and ship commodities when Section 416(b) commodities are unavailable. Annual programming is limited to not more than 500,000 metric tons and not more that $30 million for non-commodity costs of the program. The Administration budget assumes that $109 million of CCC funds will be used to support FFP in FY1999--$79 million for the purchase of commodities by CCC and $30 million for transportation and other non-commodity costs. P.L. 105-277 provides an emergency appropriation to allow an additional $25 million in spending for FFP.

Foreign Agricultural Service. FAS administers the agricultural export and food aid programs. It is also responsible for other market development and export promotion efforts, formulating agricultural trade policy, conducting agricultural trade negotiations, gathering foreign market information, and carrying out programs of international cooperation. The FY1999 budget requested $141 million in appropriated funds for FAS, but P.L. 105-277 provides for an appropriation of $136.2 million which includes funds ($4.4 million) for international cooperative administrative support to cover costs of FAS' overseas operations. Included in FAS's appropriated funding is around $60 million for market development, which includes funding to support the Foreign Market Development (or Cooperator) Program (FMDP).

For more information on agricultural trade and food aid programs, see CRS Issue Brief 98006, Agricultural Export and Food Aid Programs.

Footnotes

1. ^(back) In addition to the farm commodity programs, the CCC also serves as a funding mechanism for several USDA export subsidy programs, including the export enhancement program, export credit guarantees, and the market assistance program, and for an array of conservation programs, including the conservation reserve program, the wetlands reserve program, and the environmental qualities incentive program. (See "Agricultural Trade and Food Aid" and "Conservation" below for more details on these programs.)

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