House Committee on Agriculture

Briefing Book - 104th Congress, 2nd Session

TABLE OF CONTENTS

1996 FARM BILL
THE FEDERAL AGRICULTURAL IMPROVEMENT
AND REFORM ACT (FAIR)

President Clinton signed the Federal Agriculture Improvement and Reform (FAIR) Act of 1996 into law on April 4, 1996. The bill modernizes and takes recognition of the fact that since the last time Federal commodity programs were addressed in a farm bill (1990) or in reconciliation (1993), major changes in world trade policy, domestic budget policy, and commodity producer opinion required a redirection of Federal commodity policy.

The FAIR Act saves $10 billion over the next 7 years from the 1995 February Congressional Budget Office (CBO) baseline. Admittedly, reducing Federal spending by that amount will impact farmers. However, some economists predict that a balanced budget will lead to a 1.5 percent reduction in interest rates. Agriculture as a major user of credit has over $140 billion borrowed in terms of long term and short debt would benefit from such a result. If interest rates decline by 1.5 percent, a balanced budget could lead to an interest rate savings for U.S. agricultural producers exceeding $15 billion over the next 7 years. More importantly the bill puts the $44 billion projected to be spent on farm programs to use as a positive force for change and transition.

Following 19 hearings on federal farm program policy by the Subcommittee on General Farm Commodities and the full Committee on Agriculture, the call from throughout the United States was clear: agricultural producers wanted more planting flexibility, more certainty with respect to Federal assistance, and less federal regulatory burden.

The combination of these factors led to the following conclusions: (1) the U.S. production agriculture industry needed to become more market-oriented, both domestically and internationally; (2) the industry could not become more market-oriented with a continued federal involvement that simply extended the current supply-management policies of the past; and (3) the required budget cuts would not provide adequate funding levels to allow the existing federal programs to function properly in a post-GATT and NAFTA world-oriented market. Analyzing these conclusions in conjunction with a review of the current federal commodity price support and production adjustment programs resulted in several observations about agricultural policy.

First, current federal farm programs are based on the 60 year old New Deal principle of utilizing supply management in order to raise commodity prices and farm income. When the Federal farm programs were first created, the government relied on a system of quotas and allotments to control supply. However, over the last 20 years the primary justification for the programs has been that producers receive federal assistance in return for setting aside (idling productive farmland). That assistance was largely in the form of deficiency payments to compensate producers for market prices or loan levels that fell below a Congressionally mandated target price for their production. Additionally, when federal commodity programs were set up, world markets were not a major factor in determining agricultural policy. This approach, while perhaps appropriate in the 1930's, ignores the realities of a post-GATT and NAFTA world.

Second, the old programs no longer achieved their original goals and have collapsed as an effective way to deliver assistance to producers. Worldwide agricultural competition usurps foreign markets when the United States reduces production. With respect to wheat, for example, world demand, when combined with the United States' supply control approach of idling acreage (including acreage idled under the Conservation Reserve Program), has tightened U.S. supplies so much that there have been no set-asides for five years and there are not expected to be any in the foreseeable future, which eliminates the supply management policy justification for the past policy.

For the last ten years, congressional farm policy actions have been driven by budget reductions. The 1995 debate re-affirmed the federal budget as the driving force for agricultural program policy. Modifications made to the original farm programs since their inception have revolved around two main goals: further restricting supply in order to alleviate the overproduction which the programs encourage; and decreasing federal expenditures by limiting the amount of production which is covered by federal subsidies. These two factors have combined in a way which has made current federal commodity programs less effective, both as a means of increasing farm income and as a means to manage production, with each successive modification. There have been several recent situations where producers, who received an advance deficiency payment based on USDA estimated low prices, have had a poor harvest and were required to repay the advance because the nation-wide effect of the poor harvest was to drive up the market price of the commodity beyond the point at which current programs make a payment. This has placed many producers in a difficult position. Even though prices were high, their income is down because they have no crop to market and the government assistance they had previously received must be paid back.

Government outlays under the 1990 Farm Bill were the highest when prices were lowest (and hence when harvests were the best). This has had the effect of encouraging production based on potential government benefits, not on market prices. This incentive, when combined with the government's authority to idle acreage (which is the only means that past programs contained for limiting budget outlays) resulted in a situation in which producers had an incentive to produce the maximum amount of commodities while the government restricted the acres planted. This encouraged the over-use of fertilizers and pesticides in order to get the most production from the acres the government allowed the farmer to plant that year. This environmentally-questionable incentive created by past programs resulted in Congress placing ever more burdensome bureaucratic controls on producers over the last ten years in order to minimize environmental damage by requiring conservation compliance plans, compliance with wetlands protection provisions, and compliance with many other land-use statutes. It would be hard to imagine a program which created more inconsistent incentives than the past commodity programs.

Added on top of the regulatory burdens which have resulted from the counter-productive environmental incentives of past programs are the additional regulatory burdens created by Congress over the past twenty years which attempt to target program benefits to small producers. These so-called payment limitation provisions have: (1) resulted in substantial paperwork requirements for producers whose operations do not actually approach the payment limit, (2) required a substantial amount of government administrative resources, which has inhibited the government-wide goal of downsizing; and (3) been largely ineffective as a means of ensuring that benefits are targeted to small producers because of the loopholes in the existing structure.

Third, preserving the old federal farm program structure with the required budget cuts would have left producers with an ineffective and counter productive agricultural policy. The resulting system would have been an emasculated remnant of an out-of-date 1930's-era program which no longer served the people it was originally intended to benefit. While further modifications of the 1990 Farm bill commodity programs might have accomplished required budget savings, ten years of budget cuts had changed the fundamental nature of past farm programs to the extent they have inhibited farm production and producer earning potential.

Retaining the 1990 farm bill policy would have been a mistake when other methods can achieve the goals of providing U.S. producers with increased planting flexibility and less regulatory burden while at the same time allowing for greater earnings from the marketplace and reducing the budgetary exposure to the federal government.

The Federal Agriculture and Improvement Reform Act of 1996 (FAIR) replaces the traditional farm programs with a program that is commonly called the Freedom to Farm ("FFA") . Freedom to Farm replaces the commodity price support and production adjustment programs with a seven-year market transition contract payment for eligible owners and operators and a nonrecourse marketing assistance loan program for eligible producers. Contract participants will receive seven annual market transition payments in exchange for maintaining compliance with their respective conservation plans and applicable wetlands protection provisions. Producers utilizing the marketing assistance loan will get the benefit of a nonrecourse marketing loan at harvest time so that they will not have to sell commodities at a time when market prices are historically low in order to maintain a positive cash flow. Additionally, contract payments are limited to $40,000 per person.

From a GATT perspective, the termination of the commodity price support programs and replacing them with transition payments will make U.S. commodities immediately more competitive on the world market by removing the distorting effect that the old programs inflicted on markets. This is significant because, at the current time, world commodity supplies are relatively tight and estimates indicate that, at best, this situation will remain for quite some time.

With respect to domestic farm policy, FFA accomplishes several goals. First, it fosters a significant deregulation by freeing producers up to farm for the market and not the government program. By removing government production controls on land use, FFA effectively eliminates the number one complaint of producers about the programs: bureaucratic red tape and government interference. Complaints about endless waits at the county office should end. Hassles over field sizes and whether the right crop was planted to the correct amount of acres should be a thing of the past. People concerned about the environment will be pleased that the government no longer forces the planting of surplus crops and monoculture agriculture. Producers who want to introduce a rotation on their farm for agronomic reasons should be free to do so without the restrictions in current programs.

Second, the Freedom to Farm Act provides U.S. producers with a guaranteed payment for the next seven years, because it establishes a contract between the federal government and the producer. When compared to the alternative of further modifying past programs, it results in the optimum producer net income over the next seven years and protects the producer from further budget cuts should there be further budget reconciliation bills in the future. The guarantee of a fixed (albeit declining) payment for seven years will provide the predictability that producers have wanted and will provide certainty to lenders as a basis for extending credit to production agriculture.

FFA insures that whatever government financial assistance is available will be delivered, regardless of the circumstances, because the producer signs a contract with the federal government for the next seven years. Just as producers will need to look to the market for planting and marketing signals, FFA will require producers to manage their finances to compensate for price swings. It may be true that when prices are high, producers will receive a full market transition payment under FFA but it is equally true that if prices decline, farmers will receive no more than the fixed market transition payment. That means the individual producer must manage all income, both market and government, to account for weather and price fluctuations.

Third, FFA encourages market orientation. Producers can plant or idle all their acres at their discretion, with a significant reduction in the restrictions on what can be planted. Producers will have to make commodity planting decisions in response to commodity markets instead of decisions based on deficiency payment rates and crop acreage bases. Decoupling federal payments from production (a process which began in 1985 when payment yields were frozen) will end any pressure from the government in choosing crops to plant. Under FFA, all production incentives should come from the marketplace and not government programs. Additionally, as long as producers maintain compliance with their applicable conservation plans, they are free to choose to plant no crop at all, which will benefit soil and water quality in marginal areas, as well as benefitting wildlife.

Fourth, FFA recognizes that the benefits from current programs have, to some extent, been incorporated into the value of agricultural land. By abolishing the link between production and benefits, but doing so in a manner which provides a seven-year transition period, the economic distortions caused by past programs can be removed in a manner that causes the least amount of disruption and harm to rural America. For that reason the FFA contract payment has been aptly named as a market transition payment.

FFA is also good policy for the future of production agriculture in the United States. The most severe critics of farm programs, including the New York Times, the Washington Post, the Economist, and a host of regional newspapers, have hailed FFA as the most significant reform in agricultural policy since the New Deal in the 1930's. Congressional critics that have urged reform of the farm programs have also indicated that FFA embodies the type of reform necessary to transition agriculture into a market-oriented industry. Nearly every agricultural economist who has commented on FFA supported its structure and its probable effect on producers and the agricultural sector.

The reforms accomplished by the FAIR Act of 1996 will help transition U.S. agricultural producers into a new era of a market-oriented Federal farm policy while simultaneously providing fixed, declining payments over seven years in order to minimize the economic distortions resulting from the change away from the New Deal Era Federal farm programs.

Taken together it is the greenest farm bill ever. And we do it without new mandates, regulations, requirements and red-tape. It makes the federal government a partner with producers in addressing environmental challenges, rather than an adversary. It is voluntary and incentive-based. Most importantly, it works!

Contact: Tom Hemmer (202) 225-3329

It is essential to American agriculture to have protection from trade embargoes that have a detrimental effect on agricultural producers. Embargoes cede world market share to our competitors. For example, the 1973 United States soybean embargo shifted the soybean market and, in fact, created soybean export competition in Brazil and Argentina. These countries took the soybean market away from the United States. Also, the 1979 embargo devastated agricultural exports, and the United States was no longer considered to be a reliable supplier of commodities. Embargoes permanently shift markets.

Therefore, the 1996 Farm Bill required the Secretary of Agriculture to take specific action in the case of unilateral embargoes.

Production Flexibility Contracts

Eligible producers and owners (those who had participated or had certified acreage in the wheat, feed grains, cotton and rice programs in any one of the past five years) can enter into seven-year market transition contracts. As announced by USDA, sign-up for the new program will begin on May 20 and extend through July 12 (contract acreage coming out of a Conservation Reserve Program contract may be enrolled for the remaining seven years). A 50 percent advance payment will be available to producers within 30 days of sign-up with the remainder of the 1996 payment due by September 30, 1996. Payments in subsequent years will be made on or before September 30, with farmers having the option of receiving half of their annual payment on either December 15 or January 15.

Planting Flexibility

With the exception of fruits and vegetables, any commodity may be grown on contract acreage. Non-contract acres have no restrictions. There are three categories of exceptions to the fruit and vegetable prohibition. First, fruits and vegetables can be grown as a second crop, without any payment reduction, in any region of the country where there is a history of double-cropping fruits and vegetables with contract commodities. Second, fruits and vegetables can be grown on any farm with a history of fruit or vegetable production, provided that there is an acre-for-acre payment reduction for that year for each acre of fruit or vegetable grown. Third, any producer with a history of planting a specific fruit or vegetable can grow such fruit or vegetable on contract acreage, not to exceed the producer's 1991-95 average planting of the fruit or vegetable, provided that there is an acre-for-acre payment reduction for that year for each acre of fruit or vegetable grown. Finally, a producer, at any time, may permanently reduce the number of acres under contract to achieve greater planting flexibility.

Estimated Payments

As announced by USDA, the estimated contract payments under the production flexibility contracts are as follows (based on cents/bushel unless otherwise noted); multiply this by (farm program payment yield times 85 percent of contract acreage) to get estimated payment; payments for farms with more than one kind of contract commodity are simply the sum of each individual contract commodity):

Commodity	Wheat	Corn	Grain Sorghum	Barley	Oats	Upland-Cotton(›/lb)	Rice ($/cwt)
1996	87.0*	24.0	31.0	32.0*	3.0*	9.06*	2.78
1997	61.0	46.0*	50.0*	25.0	3.0	7.40	2.74
1998	65.0	36.0	42.0	26.0	3.0	7.87	2.94
1999	63.0	35.0	40.0	24.0	3.0	7.60	2.85
2000	57.0	32.0	37.0	22.0	3.0	6.96	2.61
2001	46.0	26.0	30.0	18.0	2.0	5.64	2.11
2002	45.0	25.0	29.0	17.0	2.0	5.47	2.04

* Unearned 1995 advance deficiency payments will be automatically deducted from these payments if you have not yet repaid. These unearned 1995 advance payments are: wheat: $0.35/bu.; corn: $0.20/bu.; grain sorghum: $0.195/bu.; barley: $0.20/bu.; oats: $0.05/bu.; upland cotton: 1.85 cents/lb.; Not applicable to rice. Note: these estimated payments are based on 100% participation--to the extent that not everyone participates in the production flexibility contracts, payments will be higher.

Nonrecourse Marketing Assistance Loans

The 1996 Farm Bill continues the nonrecourse loan program (now called "marketing assistance loans") with one major change: capping the loan rates. For the next seven years, the maximum loan rates are: Rice: $6.50/cwt, Upland Cotton: $0.5192/lb, Wheat: $2.58/bu, Corn: $1.89/bu, Soybeans: $5.26/bu, ELS Cotton: $0.7965/lb. The marketing loan provisions remain, which allow farmers to repay loans at the market price when it is below the loan rate. The Secretary retains authority to make downward adjustments to wheat, feed grains and oilseeds loan rates based on specified stocks-to-use criteria, but minimum rates are established for rice at $6.50/cwt, cotton at $0.50/lb and soybeans at $4.92/bu. The Farmer-Owned Reserve and the 8-month cotton loan extension are not in effect for the next seven years.

Payment Limitations

The payment limitation for production flexibility contracts is $40,000, under the same "person" rules that have been in effect in the past. The $75,000 per person limit applicable to marketing loan gains and loan deficiency payments has not been changed. With respect to the 1996 wheat, barley, oats, and cotton payments and the 1997 corn and grain sorghum payments, the $40,000 limit does not apply to the portion of these payments that are comprised of unearned 1995 advance deficiency payments (see footnote to estimated payment table, above).

Dairy Price Support Program

Federal Milk Marketing Orders

Federal Dairy Export Programs

Miscellaneous Provisions

The United States is the third largest peanut producer, after India and China, and has often been a leading world exporter to major markets in Canada, Japan and the European Union. U.S. production averages 4 billion pounds. Production for the 1995/1996 marketing year is forecast at 3.478 billion pounds. Roughly, 50% of the crop is used for food, 20% crushed for oil, 20% exported, and 10% toward seed and residual uses.

Approximately, 62% of peanut production occurs in the Southeast (Georgia, Alabama, Florida); 22% in the Southwest (Texas and Oklahoma); and 15% in the Virginia-North Carolina Region. Peanut production generates an average of $1.2 billion in cash receipts each year for the U.S. farm sector.

Loan Program

A nonrecourse loan is available to growers for quota and additional peanuts. Loan peanuts are pledged as collateral and the loan must be repaid with interest or the peanuts are forfeited as payment. The government has no recourse but to accept forfeiture as full satisfaction for the loan obligation. In cases where the government has assumed ownership of peanuts, the crop is crushed into oil at a loss to the government.

The 1995 loan rate was established at $678 per ton for quota peanuts and $132 for additional peanuts. Under a provision of previous law referred to as the price support escalator, the loan rate was able to increase based on cost of production but was never able to decrease if cost of production decreased. The 1996 farm bill eliminated the escalator provision and reduced to loan rate for the first time since 1959 to $610 per ton.

In an effort to encourage producers to market their crop commercially as opposed to selling their crop to the government, new provisions were adopted to withdraw price support for one year from any producer who sells to the government for two consecutive years if they had a written offer from a handler at quota support price.

Quota System

The National Poundage Quota (NPQ) controls U.S. peanut production by restricting the amount of peanuts that are able to be sold at the higher quota support price. Quota peanuts must be used for domestic edible use. Additional peanuts which receive the lower $132 loan rate must be exported or crushed into oil.

Quota minimum - The NPQ is established each year by USDA at a level equal to domestic food, seed and farm use but not less than 1.35 million tons. The 1996 farm bill provisions eliminate this mandatory minimum quota level allowing USDA to set supply equal to demand. CBO scored this provision as the major cost savings provision of the reform package. On April 17, 1996, USDA established the 1996 quota at 1.1 million tons.

Quota Eligibility - Quota is established for peanut operations previously holding quota and that produced peanuts for sale in at least two of the three preceding crop years if a State's quota was increased. Beginning with crop year 1998, quota will not be available to municipalities, public entities, airport authorities, refuges or to out-of state quota holders who are not producers.

Undermarketings - Previously, producers who do not market all of their quota in one year were able to carry forward unused quota and apply it to their future quota allocation through the undermarketing provisions of the program. The undermarketing provisions of the program are eliminated.

Sale, Lease, Transfer - Previous law required that quota could be sold, leased or transferred only within the county. New provisions will allow a certain percentage of quota each year to be sold or leased across county lines. The aggregate amount of quota that can be sold or leased out of a county is capped at 40% over seven years. The allocations are as follows: 15% for the 1996 crop, 25% for the 1997 crop, 30% for the 1998 crop, 35% for the 1999 crop, and 40% for the 2000 and subsequent crops.

No Cost Program

Producers and processors currently pay a percentage of the loan rate for each pound of peanuts marketed in the U.S. The rate is: 1.15% for the 1996 crop and 1.2% for 1997-2002 crops. The percentage is split equally between growers and shellers for the 1994-1996 crops. Growers will contribute a higher share of the assessment (.65%) for the 1997-2002 crops. This assessment which generates approximately $12 million each year is allocated toward reduction of the federal deficit.

The peanut program has been responsible for increasing federal budget costs. Fiscal year 1995 costs were $120 million. To assure that the peanut program will operate at no cost to the government new provisions were adopted to require an increased assessment on producers to cover any program costs that are not absorbed through cross compliance measures or through the budget deficit assessment.

The United States is the 5th largest sugar producer in the world but depends on imports to meet domestic needs. U.S. sugarcane production occurs in Florida, Louisiana, Hawaii and Texas. U.S. beet production occurs in 14 states. 65% of U.S. sugarbeet production occurs in Minnesota, Idaho, California and North Dakota.

U.S. production is estimated at 7.4 million tons for fiscal year 1995/96. Of this total amount, beet production accounts for 54.7% or 4.1 million tons. Cane production accounts for 45.3% or 3.39 million tons. U.S. consumption is forecast at 9.4 million tons for fiscal year 1995/96.

U.S. sugar imports averaged 1.6 million tons between 1990-1995. The minimum required import level under GATT is 1.25 million tons. The 1996 tariff rate quota for raw cane sugar was increased in April 1996, to 2.23 million short tons.

Loan Program

A nonrecourse loan is available to growers at .18 cents for sugarcane and .23 cents for sugarbeets. In the case of default on sugar pledged as collateral, the government has no recourse but to accept the collateral as full satisfaction for the loan obligation. Forfeitures are rare but have occurred in the past three years. In the case of forfeitures, the government typically takes ownership of the sugar and attempts to sell it to cover any losses.

Under the new farm bill provisions, the nonrecourse loan is replaced with a recourse loan as long as imports are less than 1.5 million short tons. Producers and processors instead of the federal government bear the loan risk under a recourse loan system. If U.S. sugar imports exceed 1.5 million short tons nonrecourse loans are triggered and all previous recourse loans will convert to nonrecourse loans. A new penalty has been implemented on all forfeited sugar at a rate of 1 cent per pound in order to protect against forfeiture of sugar to the federal government.

Marketing Allotments

Under the 1990 Bill, marketing allotments restricted the amount of domestic sugar that could be produced in the United States. Marketing allotments were most recently implemented in fiscal years 1993 and 1995. The 1996 Farm Bill eliminates this government intrusion into the sugar industry. Full domestic sugar production will occur without government constraint.

No Cost Program

Processors currently pay 1.1% of the raw cane loan rate and 1.1794% of the refined beet sugar loan rate on each pound of sugar sold in each fiscal year. This assessment is allocated toward the federal deficit. New farm bill provisions increase the assessment to 1.35% for cane and 1.47425% for beet sugar which will contribute $8-9 million each year toward deficit reduction. The sugar program will generate a total savings of $288 million toward the deficit through the year 2002.

Recent farm bills that cover multiple years, actually suspend 1949 permanent law that dealt with farm policy. The 1949 Act established commodity price supports based upon the concept of parity which is a period of farm prosperity 1910-1914, when farmers enjoyed a period of high prices and relatively prosperous times.

However, the 1949 Act relied upon a system of strict supply controls such as quotas and marketing allotments, which over time have not been updated by USDA and no longer reflect current yields and farms. And some commodities voted out their supply control mechanisms in producer referendums.

Farm groups have long argued that the mere thought of returning to the 1949 Act is so onerous in terms of policy and cost that this has driven Congress to adopt past "temporary" farm bills suspending the 1949 Act. As the budget has become more important in farm policy, the Congressional Budget Office has refused to project the cost of returning to permanent law.

This year retaining authority for permanent farm law, took on a higher priority for some in Congress, because the Freedom to Farm bill, was a transition bill. The question quickly became a transition to what in the year 2003? Some policy makers felt that the retention of the permanent law was necessary to force Congress to write a new farm bill in the year 2003.

However, the strength of this pressure on Congress was called into question this year after a farm group brought suit in an attempt to force the Secretary to implement the 1949 Act. The courts refused to force the Secretary to implement the 1949 Act even though it was March and the winter wheat planting was already completed and spring planting was underway!

During the past year, many questions have been raised about the appropriate role of the federal government with respect to agricultural policy. America's farmers have heard all kinds of rhetoric coming from Washington about the future implications of the Federal Agriculture Improvement and Reform ("FAIR") Act (commonly referred to as "Freedom to Farm"): some people complained that it would "remove the safety net"; others complained that an AMTA payment would be welfare; many people wanted to keep the old farm program structure with its target prices and deficiency payments, but many of these same people were in favor of forgiving 1995 advance deficiency payments. However, everyone agreed that farmers needed more flexibility so they could better utilize the growing global marketplace as the appropriate place to get most of their revenue. One thing is clear: the old commodity programs have outlived their usefulness, and America's farmers deserve federal agricultural policy that reflects the realities of today's world, where research and global trade are more important than ever before.

Title I of the 1996 FAIR Act creates a Commission on 21st Century Production Agriculture to advise Congress: generally on the situation faced by American farmers at home and abroad; and specifically on what type of Federal involvement in American agriculture is appropriate after the 7-year FAIR Act is completed.

The Commission is designed to give Congress the information it needs in order to determine the overall effectiveness of the FAIR Act and to determine what specific federal legislation is appropriate afterwards. It will be made up of 11 people: 4 appointed by the House; 4 by the Senate; and 3 by the President. Three Commission members must be directly involved in production agriculture, and the rest must have knowledge or experience in agricultural production, marketing, finance, or trade.

By June 1, 1998, the Commission will make a comprehensive "look back" report to Congress. This report will: (1) gauge the initial effectiveness of the FAIR Act; (2) assess the food security situation in the U.S. with respect to trade, consumer prices, international competitiveness, and adequate supplies; (3) assess the changes in agricultural land values and producers' incomes; (4) assess the amount of regulatory relief provided to farmers, focusing on cost/benefit analysis; (5) assess farmers' taxation, focusing on capital gains, estate taxes, and average tax loads; and (6) assess the effects of trade embargoes and trade agreements on agricultural producers. This report will give Congress a good summary of the real world situation faced by farmers, as well as an indication of how well the FAIR Act is working.

By January 1, 2001, the Commission will make a "look forward" report to Congress. This report will outline the changes in the U.S. farming sector since the first report was made, and it will make specific legislative recommendations regarding the appropriate role of the federal government in American farming's future.

The Commission will provide future Congresses with the information based on the real factors being faced by America's farmers, rather than political rhetoric from Washington. This will allow future Congresses to make good decisions about effective federal agricultural policy--policy that will ensure America's farmers continue to lead the world in agricultural productivity and competitiveness, and that Americans remain the best-fed people in the world.

The 1996 Farm Bill, for the first time in the 66-year history of the U.S. Department of Agriculture's ("USDA") Commodity Credit Corporation ("CCC"), put some limitations on USDA's ability to use CCC funds for additional discretionary spending.

Since its creation in 1933, CCC has been USDA's primary tool to administer farm programs. Regardless of whether the particular activity has been deficiency payments, acreage quotas, supply management, commodity purchases, acreage idling, building storage facilities, or getting rid of government-owned surpluses, USDA has consistently been directed by Congress to utilize the CCC to carry out federal farm legislation.

The main benefit of having CCC to administer previous farm programs has been the authority of CCC to borrow money: CCC has authority to borrow up to $30 billion dollars in order to cover farm program costs, and Congress appropriates the money afterwards. Under the 1996 Farm Bill, the amount of money to be spent on commodity programs is fixed.

However, CCC also has authority to purchase personal property which, when combined with the authority to borrow money, has led both USDA and previous Congresses to use CCC over the years to make literally hundreds of millions of dollars worth of purchases for computers and other administrative equipment, mainly without any Congressional oversight regarding how well the money is being spent. It has also allowed USDA to shift a variety of personnel costs into the category of "program administration" in order to use CCC funds for costs that should properly be part of USDA's annual appropriation for its salaries and expenses.

The 1996 Farm Bill changed all this. From now on, CCC has no independent authority to purchase personal property. Over the next seven years, there is a cap on the amount of CCC money that can be spent on things (like computers and other information technology) that are not specifically authorized by Congress. Finally, USDA is required to issue quarterly reports to Congress that detail the use of CCC funds for things other than farm programs. These changes make good fiscal sense: since farmers are being told by Congress that they will have to settle for fixed, declining payments, it is only appropriate that USDA be treated the same way.

The greatest uproar caused by Congress's reform of the Federal Crop Insurance Act came when producers found out they were required to pay a fee for crop insurance they did not want or did not need. This administrative fee required to be paid by all parties with an interest -- no matter how small -- in an insurable crop could add up to substantial sums. Many of these cases came to the attention of Members. The FAIR Act changed this unworkable and burdensome feature of crop insurance reform as well as emphasizing crop insurance should be sold everywhere possible by the private insurance industry.

But Congress also realized that farmers needed more sound assistance in managing the risks of farming and ranching. An independent Office of Risk Management also was established to provide more coordination at the federal level for multi-peril crop insurance, including underwriting new crop revenue insurance as well as giving timely and usable answers to farmers concerning the use of futures, options and risk management savings accounts.

In addition, the Secretary is required to carry out the NAP using the Farm Service Agency. Changes to NAP should make the program more beneficial to producers whose crops are not insured by FCIC under a multi-peril insurance policy.

Congress maintains its commitment to providing international food aid by extending authority for Food for Peace agreements through FY 2002. Modifications are made to allow private entities to carry out programs and allow administrative funding for intergovernmental organizations. In addition to wheat, the Food Security Commodity Reserve allows rice, corn, and sorghum -- grains which may be better suited to local diets -- to be held in reserve.

A stronger emphasis is placed on high value and value-added exports in the GSM-102 and GSM-103 Export Credit Guarantee programs. By allowing goods with up to 10% foreign content to be eligible for guarantees, processed products with spices and other components that are sometimes of foreign origin may be exported. "Supplier credits" allow guarantees to be made directly to buyers, as well as through commercial banks and governments. This will better accommodate the privatization of food importing in many developing countries.

In order to meet budget requirements, EEP expenditures are capped at $350 million in 1996; $250 million in 1997; $500 million in 1998; $550 million in 1999; $579 million in 2000 and $478 million in 2001 and 2002. For the years 2000-2002, when world price uncertainties are highest, funding levels for EEP represent the maximum allowable expenditures under GATT.

The conservation items in the 1996 Farm Bill are a mixture of incentives and regulatory relief items designed to give producers relief from unnecessary regulation and to provide tools to assist them in protecting the environment. Because of this the FAIR Act can be considered the most environmentally sensitive Farm Bill ever to pass the Congress.

Perhaps the most important conservation portion of the '96 Act are the market transition payments. The transition payments allow producers full flexibility on their land for the first time in decades. Producers will no longer be forced to continue to plant the same crop on the same land year after year. Instead flexibility will allow new rotations that should stop the practice of using the same chemicals on the land which had adverse consequences on the environment.

The Conservation Reserve Program is reauthorized at 36.4 million acres targeted at the most the environmentally sensitive land. Because USDA had been slow in issuing regulations to protect CRP the program was shrinking dramatically. The Conference Committee preserved CRP and better targeted eligible land to protect only the most environmentally sensitive acres. These changes will ensure the continued protection of millions of acres of topsoil and will enhance water quality in rural America. Additional flexibility was also added to the CRP. A producer can now take an early-out from the program on less environmentally sensitive acres to meet market conditions. A producer who takes the early-out option will be able to return to the program without prejudice in the future.

The FAIR Act also established a new program to protect water and soil resources. The Environmental Quality Incentives Program was established to provide cost-share and technical assistance to producers for water quality and soil protection. This program guarantees that approximately $1.2 billion will be spent over the next seven years to protect these resources. This money will be available to producers for a variety of practices, including animal waste facilities and other structural practices necessary to protect the environment. Producers can also receive technical assistance through this program to help them meet the goals of EQIP. This new program will replace several different programs currently providing benefits to producers (Agricultural Conservation Program, Colorado River Basin Salinity Control Program, The Great Plains Program, and the Water Quality Incentives Program).

Regulatory Relief

The FAIR Act also provides much needed regulatory relief to producers from unnecessary requirements under Swampbuster and Sodbuster. Producers now have more flexibility under Sodbuster to experiment with new practices that reduce soil erosion but are more cost effective. It also requires that any conservation system USDA requires be economically and technically feasible. Finally, Sodbuster changes also expedited the procedure for granting variance requests. Under the FAIR Act USDA must respond to a variance request within 30 days or that request is automatically granted. The Conference Committee also made changes to Swampbuster that will bring more certainty to the program. The changes in the law exempt producers from Swampbuster if they had manipulated the land prior to 1986 and the Secretary determines wetland characteristics had returned due to lack of maintenance or lack of management. The Conference Report also expands mitigation opportunities for producers.

New Options

Producers will also have several new options available to them to protect the environment while maintaining their productivity. The Farmland Protection Program will allow producers to sell the development rights on their land to protect green space threatened by urban sprawl. This program has guaranteed funding of $35 million. The Wildlife Habitat Incentives Program will provide $50 million to private landowners to create or enhance wildlife habitat on their land. A new program is also established to provide technical assistance on private rangeland. This program will be run through NRCS and should put more trained professionals into the field to assist livestock producers manage their land. Finally, the FAIR Act also provides $200 million for restoration of the Everglades Ecosystem and authorizes another $100 million through the sale or swap of federal land for further restoration activities.

The Conference Committee also made the Wetland Reserve Program more flexible to allow producers to choose among a range of options to protect and restore wetlands. A producer no longer has to sell a permanent easement on his property to protect the environment. Instead he could choose to enter into a 30 year easement or merely accept cost-share money for restoration of a wetland with no easement attached. These options will make an already popular program more acceptable to producers.

The Emergency Timber Salvage Program

The emergency timber salvage program was an attempt by Congress to improve the health of national forests and provide jobs to rural communities that have been suffering because of layer upon layer of environmental laws. The salvage amendment created a process to expedite sales of dead and dying trees, it did not eliminate environmental laws. Because there are ten times more dead and dying trees on public land than are harvested, the salvage amendment was an attempt to clear out these trees which are nothing more than fuel loads which contribute to forest fires. If the Clinton Administration had implemented the law correctly more of the $1 billion the federal government spends annually to fight forest fires could have been saved and taxpayers would have received even more revenue from federal assets that now rot and burn.

Despite the clarity in the law that Congress provided to the Clinton Administration, the timber salvage amendment to the recessions bill has not worked as well as anticipated. The salvage amendment was intended to streamline the process of removing dead and dying trees from our national forest lands. Instead of implementing the law in the expedited manner anticipated, the Clinton Administration took the opportunity to add a new layer of bureaucracy to continue business as usual.

By not implementing the salvage amendment correctly, some in the timber industry charge the Clinton Administration has put our national forests at risk. The Forest Service indicates that there are more than 18 billion board feet of dead and dying timber in our national forests and that 9.3 billion board feet are salvageable. However, in FY95 the Forest Service sold only 1.3 billion board feet of dead and dying timber, leaving the rest to burn in future fires or become infested with pests. Despite the economic and environmental gains to be made by selling this timber, the Administration's FY96 budget request indicates they only plan to sell 1.5 billion board feet of salvage this year.

The Welfare Reform package vetoed by President Clinton contained the following provisions: