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Agriculture Issues
(Released April 1998)

 

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As an overview, we begin with Agricultural Issues in the 105th Congress (2/20/98). Implementation of the 1996 farm bill, budgeting and funding issues, and trade and taxation relating to agriculture are examined.

The next report, Agricultural Research, Education, and Extension Issues in the 105th Congress deals with the research infrastructure of American agriculture. This is composed of federal and state agricultural research laboratories and departments, land grant colleges of agriculture, colleges of forestry and veterinary medicine, and the nationwide Cooperative Extension System. These activities, as well as the provisional research programs of the U.S. Department of Agriculture are all examined.

Next are three reports on specific areas of American agriculture. The first of these, Sugar Policy Issues (3/2/98) examines raw cane and refined beet sugar price supports, the loan guarantee program and the federal government's import tariffs on sugar. A $300 million fund to reclaim outlying Florida sugar cane fields for the Everglades is also examined.

The next agricultural report is Peanuts: Policy Issues (3/5/98) dealing with the $1.1 billion peanut industry. The main issue of the report concerns the controversy pitting peanut growers in favor of continuing price supports against shellers and product manufacturers who want them reduced. Pertinent legislation from the current Congress is also discussed.

The final report is on Dairy Policy Issues (3/6/98). Federal milk marketing orders, price supports and the dairy indemnity program are the main issues in this report.

© Copyright 1998, All Rights Reserved, CSA

 

CRS Reports

Agricultural Issues in the 105th Congress

Summary

Congressional interest in agricultural issues continues in the 105th Congress as legislators monitor the impact and implementation of the 1996 farm law; act on budget and spending, agricultural research reform, and trade and tax bills; and deal with food, dairy, and tobacco issues.

A possible settlement between tobacco companies and state attorneys-general has prompted bills containing provisions to compensate tobacco farmers and their communities. Attempts to eliminate crop insurance subsidies for tobacco farmers were defeated by both chambers during FY1998 appropriations' bill debates, as were House efforts to curb federal sugar and peanut support.

Dairy price volatility, a court order striking down the current pricing system, and proposed USDA marketing order reforms are receiving close congressional scrutiny.

The implications for agriculture of continuing financial difficulties in Asian markets are the subject of congressional hearings. The President has promised to pursue "fast-track" legislation to ease congressional consideration of future trade agreement implementing bills. Farm interests will be watching closely the attempt by China, which currently imports some $1.8 billion in farm products, to gain access to the World Trade Organization.

The Administration proposes $54.3 billion in outlays for all programs within the U.S. Department of Agriculture for FY1999. This is slightly less (about $700 million) than FY1998 expected outlays for these programs. Among other things, the budget proposes new user fees for food inspection, mandatory funding for crop insurance commissions, multi-year authorization and carryover authority for the export enhancement program, and restoration of food stamp program eligibility for certain legal immigrants.

Conference deliberations are expected on House and Senate bills approved in the first session to reform the USDA's research and extension system (S. 1150 and H.R. 2534). The Senate's proposal for a 5-year research initiative, supported by mandatory funds and financed by reducing spending for food stamp administrative costs, is controversial. Other food programs will come under review if the Congress takes up reauthorization legislation for several expiring child nutrition programs.

Public concerns about E-coli outbreaks from ground beef and hepatitis incidents linked to Mexican strawberries have prompted proposals to give USDA legislative authority for mandatory meat recalls and a presidential directive to develop new safety standards for fruits and vegetables. There also are proposals for a single food agency and for country of origin labeling. Animal agriculture waste practices also are under review, in part, because of concern about the role that large concentrations of farm animals may have played in the recent fish kills associated with Pfiesteria outbreaks in Northeast waterways.

A House-passed tax bill (H.R. 2513) to encourage the sale of processing facilities to farmers' cooperatives may be considered in the Senate. This bill reportedly is in a form more acceptable to the President than a provision of the Taxpayer Relief Act of 1997 that was "line-item vetoed." On February 12, 1998, a U.S. District Court ruled that the line item law was unconstitutional.

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Agricultural Research, Education, and Extension Issues in the 105th Congress

Summary

The public agricultural research, education, and extension system is comprised of a nationwide network of federal and state agricultural research laboratories and departments, land grant Colleges of Agriculture, colleges of forestry and veterinary medicine, and the nationwide Cooperative Extension System.

Although the basic authority to conduct agricultural research and extension programs is permanent, Congress since 1977 has provided funding authority and policy guidance for USDA's in-house research programs, and for federal support for cooperative research, higher education, and extension programs in the states, through a title contained in omnibus farm legislation. The most recent omnibus act is the 1996 farm bill (P.L. 104-127).

The research title of the 1996 Act authorizes most of the research provisions only through FY1997 and then provides generic funding authority for research and extension for the following 5 years, through FY2002. It also authorizes mandatory spending on competitive agricultural research grants under a "Fund for Rural America." The House Agriculture Committee announced after passage of the 1996 Act that more thorough consideration of research and extension policy reforms would be high on its agenda in 1997.

In follow-up to that commitment, the House Agriculture Committee reported out the Agricultural Research, Extension, and Education Reauthorization Act (H.R. 2534) on October 29, 1997, and the full House passed it on November 8.

H.R. 2534 would (1) make recipients of federal research and extension funds more accountable for the relevance and merit of the programs the funds support, and (2) authorize research initiatives in plant and animal genetics, value-added agricultural products, precision agriculture, forestry, and other high priority areas, among other provisions.

On October 29, 1997, the Senate passed S. 1150, an amended version of research reauthorizing legislation that the Senate Agriculture Committee had reported out on July 30. The key feature of S. 1150 is a 5-year, 10% increase in the annual funding for research and extension programs. The additional $780 million would come from redirecting savings from reductions in mandatory Food Stamp program administrative costs. The new mandatory research money would fund a competitive grants program called the Initiative for Future Agriculture and Food Systems. The initiative would support basic and applied research in plant and animal genetics, food technology and human nutrition, and a variety other high priority research areas.

The House and Senate research reauthorization measures are expected to go to conference beginning February 25, after the House passed a procedural measure (H.Res. 365) on February 24, clearing the way.

The President's FY1999 budget request for USDA, released on February 2, would allocate $1.84 billion to support the programs of the research, education, and economics agencies. This represents about a 3% decrease from the FY1998 appropriations act (P.L. 105-86).

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Sugar Policy Issues

Summary

Authorized by the 1996 omnibus farm act (P.L. 104-127), the modified sugar program, through FY2003, continues to protect the incomes of sugarcane growers, sugar beet growers, and those firms that process each crop into sugar. To accomplish this, the U.S. Department of Agriculture (USDA) supports U.S. sugar prices by making available loans to sugar processors and restricting sugar imports.

Two changes could inject some uncertainty at times about the extent to which the price support level serves to undergird the domestic market price for sugar. First, the law requires a penalty to be paid by a processor who "forfeits," or hands over, any sugar to USDA in lieu of paying off a "non-recourse" loan. This could occur if unanticipated sugar supplies (e.g., higher than initially projected domestic output, and/or more imports allowed to enter than needed to meet U.S. food demand) result in market prices falling below the "effective" support level. A processor would then have to decide whether it makes more sense financially to sell pledged sugar at a price below the "effective" support level or hold the sugar in inventory until prices rise.

Second, the level of imports will dictate the type of price support that USDA provides processors. Imports above 1.5 million short tons (ST) require USDA to make available non-recourse loans. Under non-recourse policy, USDA is expected to continue to limit imports to the extent necessary to ensure that market prices are supported. For FY1998, the current 1.79 million ST import quota level (covering raw and refined sugar) means non-recourse policy is in effect. However, if annual imports are less than 1.5 million ST, only recourse loans are available to processors. Recourse loan policy effectively would transfer all price risk to growers and processors, because the assurance of a government-protected price would not exist. During such periods, prices could fall below support levels, and sugar processors would have no alternative but to sell at the market price.

Other provisions in current law: freeze support prices for raw cane and refined beet sugar at 1995 crop levels; increase by 25% the amount of budget deficit assessments paid by U.S. sugar processors; repeal the program's no-cost requirement; and repeal domestic sugar marketing restrictions. Another makes available up to $300 million for use to restore the Everglades environment affected in part by the Florida sugar industry.

Final congressional action and the President's signature on the omnibus farm bill did not end the ongoing debate between contending groups with a direct financial interest in future sugar policy. In February 1996, a 9-vote margin in the House had barely preserved the sugar program favored by growers and processors. That outcome has since encouraged opponents (sugar users and cane refiners) to continue their effort to reshape the program to more reflect their objectives.

Program opponents used congressional consideration of the FY1998 agriculture spending bill as a vehicle to try again to revise the enacted sugar program. On July 24, 1997, during floor debate, the House rejected on a 175-253 vote an amendment that would have required USDA to operate only a recourse loan sugar program in FY1998. The amendment would have effectively eliminated the price guarantee available to sugar crop farmers and sugar processors.

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Peanuts: Policy Issues

Summary

President Clinton on April 4, 1996, signed into law the new omnibus farm bill (P.L. 104-127). Among many provisions, it authorizes a peanut program for the 1996-2002 crops. The program continues to support the incomes of producers and aims to ensure that ample supplies of peanuts are produced for the U.S. market. To accomplish this, the U.S. Department of Agriculture (USDA) supports the farm price of peanuts primarily by limiting the amount of peanuts each eligible farm can sell for domestic food use ("quota" peanuts) at a specified "high" price level. Farmers are free to sell peanuts produced in excess of their quota (called "additionals"), primarily for export and crushing into peanut oil and meal. Two levels of price support are available: a high level for "quota" peanuts, and a much lower rate for "additionals."

In 1995, "reform" proposals presented for congressional consideration sought to address two concerns about the program's future: mounting government costs, and the consumer cost issue. Underlying these concerns was widespread recognition of a changing U.S. peanut market and of USDA's inability to respond to market developments due to inflexible program provisions.

During farm bill debate, most peanut growers proposed making the program operate at "no-cost" and adjusting how the quota loan rate was set relative to 1995's $678/ton level. Growers argued that the program supports rural economies and that its basic structure be maintained. Peanut shellers and product manufacturers recommended significant reductions in the quota price support level (down to $550/ton and $450/ton, respectively). These two groups argued this change was critical to the long-term survival of the peanut industry, and was needed to reverse declining consumer demand for peanut products. Other manufacturers and their coalition partners favored outright repeal of the program, arguing the government should not play a role in managing supplies and dictating prices.

Each group's view that the stakes were higher than usual intensified debate. Farm programs were under greater scrutiny than before in a much changed political and ideological climate. In the end, House floor action in February 1996 retained the Agriculture Committee's proposed modifications to the existing program by only a 3-vote margin (212-209). The final law resulted in two major changes. The support level for "quota" peanuts was reduced 10% to $610 per ton and frozen at that level for the 1996-2002 crops. To achieve a no-cost program, 2 quota-related provisions that contributed to escalating program costs in recent years were eliminated.

In light of the close House vote, program opponents have continued to press for further change. Most recently, on July 24, 1997, during floor debate on the FY1998 agriculture appropriations measure, the House rejected (185 to 242) an amendment that would have lowered the 1998 crop quota loan rate to $550 per ton. Supporters argued that the 1996 law changes did not benefit consumers with lower peanut product prices and still retained strong government involvement in the peanut marketplace. Opponents countered that further reducing quota price support would devastate peanut producers and rural communities, and negate the 7-year policy commitment made to growers.

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Dairy Policy Issues

Summary

USDA administers federal milk marketing orders, which require processors to pay a minimum price for farm milk depending on how the milk is used. The pricing of milk under federal milk marketing orders has long been the subject of policy debate. Producer groups in the Upper Midwest contend that pricing policy is in need of major reforms, while many dairy processors contend that orders are market-distorting and should be gradually eliminated. Milk producer groups in the Northeast and Southeast generally support the current order system. The 1996 farm bill requires a reduction in the number of orders, to at least 10 but no more than 14. It gives USDA until April 1999 to administratively achieve this goal.

On January 23, 1998, the Secretary of Agriculture released a proposed rule for marketing order reform that consolidates orders and makes comprehensive changes to milk pricing policy. The proposed rule would consolidate the number of federal orders from the current 31 down to 11. It also offers two options for pricing fluid milk. Option 1A closely resembles the current system with some exceptions, while option 1B, which USDA prefers, would significantly reduce minimum mandated prices in many regions. Consequently, USDA would consider phasing in the lower minimum prices over a 5-year period. The proposed rule also contains a suggested replacement for the basic formula price (BFP), a market-determined price that serves as the base price for most farm milk in the nation.

The comment period on the proposed rule extends until April 30, 1998. When finalized, the rule must be approved by 2/3 of the dairy farmers within each of the proposed order regions, to become effective within that region. USDA expects a fall 1998 referendum, with the new orders becoming effective in January 1999. Rejection of the rule by a region would end milk orders in that region.

Meanwhile, a November 3, 1997 court decision required USDA to suspend its current use of Class I differentials. However, enforcement of the court order has been indefinitely postponed by an appeals court until it reaches a decision on the appeal.

Because of the recent volatility of farm milk prices, identical House and Senate resolutions have been introduced encouraging the Secretary of Agriculture to establish a temporary emergency price for dairy farmers. After initially rejecting any requests to administratively do this, the Secretary announced on January 23, 1998, that USDA will consider a temporary price floor. A national hearing on this subject was conducted by USDA during the week of February 17, 1998.

The 1996 farm bill gave the New England states authority to enter into a regional dairy compact, which allows the region to establish minimum fluid milk prices above the minimum federal level. The compact was legally challenged by a dairy processor trade group, but a lower court and an appeals court have upheld its legality.

The House passed a measure (H.R. 1789) on October 21, 1997, which would reauthorize through FY2002 the Dairy Indemnity Program. The program makes payments to milk producers who, through no fault of their own, have been forced to remove their raw milk from the market because it has been contaminated by nuclear radiation, toxic substances, or pesticides and other chemical residues. To date, no action has occurred in the Senate.

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