DIRECTIONS FOR FUTURE FARM POLICY:

THE ROLE OF GOVERNMENT IN SUPPORT OF PRODUCTION

AGRICULTURE

THE COMMISSION ON 21ST CENTURY

PRODUCTION AGRICULTURE

Report to the President and Congress

January 2001
Preface

The Commission on 21st Century Production Agriculture was established by the Federal

Agriculture Improvement and Reform Act of 1996 (FAIR Act). The purpose of the

Commission was to conduct a comprehensive review of changes in the condition of

production agriculture in the United States since the date of enactment of Title I of the

FAIR Act, the Agricultural Market Transition Act (AMTA). The Commission was also

charged with conducting a subsequent review with recommendations for legislation on

the future of production agriculture and the appropriate role of the federal government in

support of production agriculture. The findings and recommendations of the Commission

are of a strictly advisory nature to the President and Congress.

The Commission was composed of 11 members. Three members were appointed by the

President, four members were appointed by the Chairman of the Committee on

Agriculture of the House of Representatives, and four members were appointed by the

Chairman of the Committee on Agriculture, Nutrition, and Forestry of the Senate.

Recommendations by both committee chairs were made in consultation with their

ranking minority members.

The Commission presented the first report to the executive branch and Congress on May

1, 1999. The Commission held 14 meetings, most in Washington D.C. Field meetings,

however, were held on risk management in Kansas City, Missouri, and on small and

disadvantaged farmers in Atlanta, Georgia. In addition, the Commission held a series of

six public listening sessions in Fresno, California; Spokane, Washington; Denver,

Colorado; Chicago, Illinois; Montgomery, Alabama; and Scranton, Pennsylvania.

During the course of their meetings, the Commission solicited the views of nearly 60

experts on various issues including risk management, the future of agriculture, policy

development, trade, and small farms. At the public listening sessions the Commission

heard testimony from more than 200 farmers, ranchers, and representatives of farm

organizations and agribusiness, rural residents, and other stakeholders representing 30

states. The information provided in the meetings and the public listening sessions played

an important role in developing the Commission’s recommendations contained in this

report.
Table of Contents

Transmittals.............................................................................................i

Commission Members............................................................................v

Acknowledgements......................................................................................................xi

Executive Summary..............................................................................xiv

Introduction ......................................................................................1

I. Farm Income Support Policy*................................................................6

II. Risk Management Policy........................................................................................31

III. Conservation and the Environment.......................................................36

IV. Agricultural Trade Policy*.................................................................42

V. Individual Commodity Policies...........................................................50

VI. Small and Limited-Resource Farm Issues*.....................................................63

VII. Minority View on Antitrust and Industry Concentration....................................68

Appendix: The Status of U.S. Agriculture: An Update...................................73

Commission Participants...........................................................................................124

* Contains Minority View(s)
Commission on 21st Century Production Agriculture i

Transmittals

January 31, 2001

The Honorable George W. Bush

President of the United States

The White House

Washington, DC

Dear Mr. President,

On behalf of the Commission on 21st Century Production Agriculture, we would

like to present you with this report, Directions for Future Farm Policy: The Role of

Government in Support of Production Agriculture.

In accordance with sections 183 and 184 (a.) of the Federal Agriculture Improvement and

Reform (FAIR) Act of 1996, the Commission on 21st Century Production Agriculture has

completed its review of the appropriate role of the federal government in support of

production agriculture. This report is the result of many months of hard work and

compromise with general agreement on most of the issues, with the exception of some

respectfully dissenting views.

The Commission encourages you and your Administration to consider the

recommendations and suggestions of this report in finding long-term solutions to United

States production agriculture policy concerns. Identical letters have been sent to the

United States Senate Committee on Agriculture, Nutrition, and Forestry and to the United

States House of Representatives Committee on Agriculture.

Respectfully submitted,
Commission on 21st Century Production Agriculture ii

Barry L. Flinchbaugh

Chairman, Kansas

Bruce J. Brumfield William Northey

Mississippi Iowa

*subject to minority views

presented in section 6

John Campbell Ralph Paige

Nebraska Georgia

*subject to minority views *subject to minority views

presented in section 1 presented in sections 1 and 6

Donald J. Cook Bob Stallman

Oregon Texas

James O. DuPree Leland Swenson

Arkansas South Dakota

*subject to minority views *subject to minority views

presented in sections 1, 4, 6, and 7 presented in sections 1, 4, 6, and 7 

Charles E. Kruse Don Villwock

Missouri Indiana
Commission on 21st Century Production Agriculture iii

January 31, 2001

The Honorable Larry Combest, Chairman

United States House of Representatives

Committee on Agriculture

1301 Longworth House Office Building

Washington, DC 20515

Dear Mr. Chairman,

On behalf of the Commission on 21st Century Production Agriculture, we would

like to present to you this report, Directions for Future Farm Policy: The Role of

Government in Support of Production Agriculture.

In accordance with sections 183 and 184 (a.) of the Federal Agriculture Improvement and

Reform (FAIR) Act of 1996, the Commission on 21st Century Production Agriculture has

completed its review of the appropriate role of the federal government in support of

production agriculture. This report is the result of many months of hard work and

compromise with general agreement on most of the issue areas with the exception of

some respectfully dissenting views.

The Commission encourages you and your committee to consider the recommendations

and suggestions of this report in finding long-term solutions to U.S. production

agriculture policy concerns. Identical letters have been sent to President Bush and the

United States Senate Committee on Agriculture, Nutrition, and Forestry.

Respectfully submitted,
Commission on 21st Century Production Agriculture iv

January 30, 2001

The Honorable Richard Lugar, Chairman

United States Senate

Committee on Agriculture, Nutrition, and Forestry

328-A Russell Senate Office Building

Washington, DC 20510

Dear Mr. Chairman,

On behalf of the Commission on 21st Century Production Agriculture, we would

like to present to you this report, Directions for Future Farm Policy: The Role of

Government in Support of Production Agriculture.

In accordance with sections 183 and 184 (a.) of the Federal Agriculture Improvement and

Reform (FAIR) Act of 1996, the Commission on 21st Century Production Agriculture has

completed its review of the appropriate role of the federal government in support of

production agriculture. This report is the result of many months of hard work and

compromise with general agreement on most of the issue areas with the exception of

some respectfully dissenting views.

The Commission encourages you and your committee to consider the recommendations

and suggestions of this report in finding long-term solutions to U.S. production

agriculture policy concerns. Identical letters have been sent to President Bush and the

United States House of Representatives Committee on Agriculture.

Respectfully submitted,
Commission on 21st Century Production Agriculture v

Commission Members

BARRY L. FLINCHBAUGH, Ph.D., Chairman

Dr. Flinchbaugh is professor and extension state leader in the Department of Agricultural

Economics at Kansas State University. A native of York, Pennsylvania, he received a

B.S. in Animal Science and an M.S. in Agricultural Economics from Pennsylvania State

University and a Ph.D. in Agricultural Economics from Purdue University. Dr.

Flinchbaugh has served on the faculty at Kansas State since 1971. Besides teaching an

agricultural policy course, he has also served as special assistant to the president of

Kansas State University. He has won numerous teaching awards and recently was

awarded the prestigious Hildreth Award for career achievement in public policy

education. He is one of the nation’s leading agricultural policy specialists and is the

author of many publications, including a policy textbook. Dr. Flinchbaugh participated

in two Japanese trade missions and has led several Kansas agriculture groups on tours

throughout the world. Dr. Flinchbaugh was appointed chairman of the Commission on

21st Century Production Agriculture in 1996. He is a member of Rotary International and

Kansas Agricultural and Rural Leadership, and serves on the board of directors of First

Bank in Manhattan, Kansas, and on the board of directors of the Kansas City Board of

Trade.

BRUCE J. BRUMFIELD

Bruce Brumfield is partner in Brumfield Plantation and FTB farms, partnerships that

produce cotton, soybeans, corn, small grains, and catfish. He also serves as vice

president and board member of Duncan Gin, Inc., in Inverness, Mississippi. A native of

Mississippi, Bruce earned his B.S. in Animal Science from Mississippi State University

and has been involved in diversified farming for 37 years. Mr. Brumfield has also served

as president of the Mississippi Cattleman's Association, Delta Council, National Cotton

Council, and the Inverness Rotary Club. He was appointed to the Commission in 1997.

He is chairman of the board of the Community Bank in Indianola, Mississippi, and a

board member of Delta Western, Inc., and Delta Pride Processors, both in Indianola. Mr.

Brumfield also serves on the board of Staplecotton in Greenwood, Mississippi; Delta

Industries, Inc., of Jackson, Mississippi; and Bell, Inc., of Inverness, Mississippi.

JOHN B. CAMPBELL

John Campbell has served as vice president for corporate affairs and industrial products

at Ag Processing, Inc. (AGP) since December 1991. He works in the areas of ethanol

marketing; production and marketing of new industrial products from soybean oil such as

biodiesel and cleaning solvents; new business development; strategic planning; and

public and government affairs. A native of Nebraska, Mr. Campbell earned his

undergraduate degree from the University of Nebraska. He began his career in 1979

working for his home state representative, Congresswoman Virginia Smith. Mr.
Commission on 21st Century Production Agriculture vi

Campbell served on the Senate Agriculture Committee under the leadership of Senators

Jesse Helms and Richard Lugar. He was responsible for all commodity and commercial

export programs such as the Export Enhancement Program (EEP) during congressional

consideration of the 1985 farm bill. Mr. Campbell also served on the personal staff of

Senator Rudy Boschwitz, where he was co-author of decoupling legislation finally

approved in 1996 under the Freedom to Farm Act. While on leave of absence from the

Senate Agriculture Committee in 1986, he took advantage of a Rotary scholarship to earn

his postgraduate diploma in Agricultural Economics from the University of Sydney in

Australia. Mr. Campbell then joined the USDA and was responsible for developing and

coordinating the 1990 farm bill strategy for the Administration and supervising the

implementation of the legislation. He also assisted the Administration in developing and

implementing dairy, natural disaster, and trade policies. From May 1989 to December

1991, Mr. Campbell served as deputy undersecretary for international affairs and

commodity programs. The undersecretary's office was responsible for the operations of

the Agricultural Stabilization and Conservation Service (now the Farm Service Agency),

the Foreign Agricultural Service, and the Office of International Cooperation and

Development. Mr. Campbell was appointed to the Commission in 1996.

DONALD J. COOK

Don Cook is retired from his post as general manager of the Pendleton Grain Growers

(PGG) of Pendleton, Oregon. He is a native of Pendleton, where he was raised on a

wheat and cattle ranch. He earned his B.S. degree in Agronomy from Oregon State

University in 1950 and has worked his entire career for PGG, beginning in 1950 as a

retail salesman and power sprayer operator at the Hermiston, Oregon, branch. In 1956,

Mr. Cook was named manager of that office and during the next eight years supervised

its expansion. He became branch manager in 1964 when PGG merged with a local

company. He was responsible for all branch operations including petroleum, hardware,

feed mill, custom fertilizer, and extension and control of credit. In 1967, Mr. Cook

joined PGG's main office in Pendleton as manager of the Grain Division responsible for

trading and shipping seven million bushels annually. He also served on the company's

credit committee and union negotiation team. Mr. Cook was then named general

manager of PGG in 1971 and by his retirement in 1992, PGG's annual volume had grown

to more than $100 million. Mr. Cook has served as director and president of the Pacific

Northwest Grain Dealers, director and vice president of the Oregon Agriculture Co-op

Council, member of the U.S. Chamber of Commerce Food and Agriculture Committee,

director and president of North Pacific Grain Growers, member of the Governor's Task

Force Reviewing State Government, and board chairman of Associated Oregon

Industries. Mr. Cook was appointed to the Commission on 21st Century Production

Agriculture in 1997.
Commission on 21st Century Production Agriculture vii

JAMES O. DUPREE

Jim DuPree is the managing operator and partner of DuPree Planting Company, a general

Arkansas farming operation. A native of Newport, Arkansas, he received his B.A degree

from Hendrix College, Conway, Arkansas. He has worked as a special aide for

agricultural policy to Senator Hodge and Senator Bumpers. Mr. DuPree also helped

craft a comprehensive farm bill in 1978. In 1995, he worked closely with Senators

Daschle and Pryor on the Democratic alternative to the Freedom to Farm Bill. He was

appointed to the Commission in 1997 and also serves as president of the Farmers Electric

Cooperative and president of the Brekenridge Water Users Association.

CHARLES E. KRUSE

Charles Kruse serves as president of the Missouri Farm Bureau Federation and its five

affiliated companies. A native of Stoddard County in southeast Missouri, he received his

B.S. in Agronomy from Arkansas State University in 1967 and his M.S. in Agronomy

from the University of Missouri in 1973. Mr. Kruse has served as a technical

representative for an agricultural chemical company, on the University of Missouri Board

of Curators, and as executive vice president of the North American Equipment Dealers

Association. In 1985, Governor John Ashcroft appointed Mr. Kruse director of the

Missouri Department of Agriculture. He has served on President George H. W. Bush’s

Council on Rural America, on U.S. Trade Representative Carla Hill’s Intergovernmental

Advisory Committee, and on Governor Ashcroft’s Coordinating Board for Higher

Education. In 1994, the University of Missouri honored Mr. Kruse with both the

Faculty/Alumni Award and the College of Agriculture’s Alumnus of the Year Award.

Mr. Kruse was appointed to the Commission in 1997. In March 1998, United States

Department of Agriculture (USDA) Secretary Dan Glickman and U.S. Trade

Representative Charlene Barshefsky appointed him to the Agricultural Technical

Advisory Committee for Trade in Grains, Feeds, and Oilseeds. Mr. Kruse raises corn,

soybeans, wheat, and cotton on his farm near Dexter, Missouri.

WILLIAM NORTHEY

Mr. Northey operates Innovative Farms, an 800-acre corn and soybean farm near Spirit

Lake, Iowa.. For several years he has used global positioning systems to create yield

maps and has ridge-tilled his farm since the early 1990s. A native of Iowa, Mr. Northey

earned his undergraduate degree from Iowa State University. He has been active in his

county farm bureau and the National Corn Growers Association, where he served as

president from 1995 to 1996 and was chairman of several committees. Mr. Northey was

appointed to the Commission in 1997. He currently serves as trustee of the Iowa 4-H

Foundation, is a member of the Organizing Committee of Community Alliance for

Interdependent Agriculture, a member of the Advisory Committee for the Keystone

Foundation's Project, Trends in Agriculture, serves on the Wallace Institute Project
Commission on 21st Century Production Agriculture viii

Advisory Committee, is a member of the President's Council for Food, Land, and People,

and has also been elected to his county's Soil and Water Conservation Committee.

RALPH PAIGE

Ralph Paige has worked for the Federation of Southern Cooperatives/Land Assistance

Fund (Federation/LAF) for 26 years. For the last 13 years, he has been the executive

director of this unique cooperative development organization serving black family

farmers and low-income families across the rural South. A native of LaGrange, Georgia,

Mr. Paige received his B.A. degree in Education in 1967 from Fort Valley State College

in Fort Valley, Georgia. He did graduate studies in Education at the University of North

Carolina at Chapel Hill. After a few years of teaching and coaching in Troop County, he

joined the staff of the Federation/LAF. Mr. Paige started out working as a field organizer

developing cooperatives among family farmers and rural people in Georgia and

throughout the South, which included helping secure new public and private resources to

support cooperative development. In the mid-1970s, Mr. Paige was director of the

Federation's Business Development Office and from 1977 to 1981, he was director of the

Federation's VISTA project involving more than 100 volunteers at 60 cooperative and

credit union sites. He then became the national field director of the Federation/LAF. In

1985, Mr. Paige became the Federation/LAF executive director. Under his direction, the

Federation/LAF has received numerous awards including the Martin Luther King, Jr.,

Humanitarian Award and a United Nations award recognizing the Federation/LAF for its

"significant contribution of adequate shelter to the poorer segments of the community".

He has also received a number of awards and nominations for his work in the cooperative

movement. Mr. Paige was appointed to the Commission in 1997 and is also a member of

numerous local, state, and national boards.

BOB STALLMAN

Bob Stallman was elected the 11th President of the American Farm Bureau Federation in

January 2000. Previously, he served as Texas Farm Bureau president after being elected

in December 1993. He was elected to the American Farm Bureau Federation (AFBF)

board of directors in January 1994 and currently serves on the AFBF International Trade

Advisory Committee. A native of Colorado County, Texas, Mr. Stallman is a thirdgeneration rice farmer who began farming in 1975. He received a B.A. degree with

honors from the University of Texas in 1974. He was a member of the board of directors

of the Columbus, Texas, ISD for six years, and also served as president and vice

president. He was selected as Man of the Year in Agriculture by the Columbus Rotary

Club in 1986. In 1994, he served on the National Center for Food and Agricultural Policy

Working Group on Farm Prices and Income in Washington, D.C. In 1996, he was

appointed by Texas Governor George W. Bush to the Citizen's Committee on Property

Tax Relief. Mr. Stallman was appointed to the Commission on 21st Century Production

Agriculture in 1996. He is a member of the Texas A&M College of Agriculture

Development Council, serves on the Texas Agricultural Summit Executive Committee,

and was on the executive committee of the Texas Rice Task Force.
Commission on 21st Century Production Agriculture ix

LELAND SWENSON

Leland Swenson currently serves as president of the National Farmers Union (NFU), an

organization that represents nearly 300,000 farm and ranch family members. A corn,

wheat, and soybean farmer from South Dakota, Mr. Swenson was first elected as

president in 1988 and has served as the preeminent spokesperson for the interests of

family farm agriculture and rural communities throughout the United States and

internationally. Before his election as president of NFU, he was president of the South

Dakota Farmers Union where he was responsible for the South Dakota Farm Alliance,

which brought farm and church groups together to work for better farm and tax policies.

He also organized the largest farm rally ever held in South Dakota during the farm crisis

of the 1980s. Mr. Swenson grew up in the NFU and is the first NFU president to have

completed the organization’s youth program and earn the Torchbearer Award, the

organization’s highest educational honor. Mr. Swenson was appointed to the

Commission in 1997. He also serves on the Agricultural Policy Advisory Committee on

Trade, on the board of directors of the Consumer Federation of America, is chairman of

the board of the National Consumers League, president and chairman of the Farmers

Union Foundation, and is on the board of directors of the Farmers Union Insurance

Companies.

DON VILLWOCK

Don Villwock is a corn, soybean, wheat, and popcorn producer in southwestern Indiana.

A Purdue graduate, he has served as state director of the Agricultural Stabilization and

Conservation Service and as state agricultural liaison for Senator Richard Lugar. Mr.

Villwock was appointed to the Commission in 1997. In December 1998, he was elected

state vice president of the Indiana Farm Bureau and also serves on its board of directors.

He has held numerous other local, state, and national leadership roles including

involvement as a member of the American Farm Bureau Grain Quality Committee and

past national chairman of the Feed Grains Committee and National Young Farmer and

Rancher Committee. Mr. Villwock received Purdue’s Distinguished Agriculture Alumni

Award, the Sagamore of the Wabash Honor, and the Prairie Farmer’s Master Farmer

Award.
Commission on 21st Century Production Agriculture x

Commission Staff

MECHEL S. PAGGI, PH.D

Dr. Paggi was appointed director of the Commission in May 1999. A native of

Beaumont, Texas, he completed his undergraduate degree at the University of Texas at

Austin, his master’s degree at the University of North Texas, and received a Ph.D. in

Agricultural Economics from Texas A & M University in 1981. Dr. Paggi then served as

assistant professor and extension economist at Texas A & M, working in international

trade and transportation. In 1988, he joined the American Farm Bureau as a senior

economist in international trade. Dr. Paggi moved to Rome, Italy, in 1995 where he was

employed by the United Nations Food and Agricultural Organization. There, he was

responsible for trade and environmental policy issues related to tropical and horticultural

products, raw materials, and fibers. For the past year, Dr. Paggi has served the USDA’s

Cooperative State Research, Extension, and Education Service, Economic and

Community Systems as national program leader for natural resource economics. Dr.

Paggi has received numerous awards for his contributions to agricultural policy including

the American Agricultural Economics Association’s Distinguished Extension Group

Program Award and the Quality of Communications Award in 1983 and 1987,

respectively. In 1987, the Texas Agricultural Extension Service honored him with a

Superior Service Award.

MATTHEW A. HOWE

Mr. Howe joined the Commission staff as assistant director in May 2000. He was born

and raised outside of Manhattan, Kansas, on a wheat, sorghum, and soybean farm. His

family has farmed in the Riley County area for five generations. Mr. Howe attended

Kansas State University where he received a B.S. in Agronomy and an M.S. in

Agricultural Economics. He has previously worked as a farm laborer, a veterinary

assistant, a crop inspector, and as a graduate research assistant.

TIMOTHY M. PETERS

Mr. Peters served as assistant director of the Commission from January 1999 to March

2000. A native of Danforth, Illinois, he grew up on a corn, soybean, and hog farm that

his family still operates. He received his undergraduate degree in Agricultural Education

from the University of Illinois, then earned a second undergraduate degree in Agricultural

Economics from Kansas State University where he also completed research on the 1996

farm bill. Prior to joining the Commission, Mr. Peters worked for Congressman Jerry

Moran of Kansas as a staff assistant. Currently, he is a legislative assistant for

Congressman Robin Hayes of North Carolina.
Commission on 21st Century Production Agriculture xi

Acknowledgements

The Commission extends special thanks to United States Department of Agriculture

(USDA) Secretary Dan Glickman; Keith Kelley, administrator of the Farm Service

Agency-USDA and his staff; Chief Economist Keith Collins including his staff, Joe

Glauber, Carol Goodloe, Larry Salathe, Ginny Taylor, and Shirley Brown; and the

Congressional Research Service for their valuable assistance in support of the

Commission’s effort. The Commission would also like to thank the staff of the Food and

Agricultural Policy Research Institute at the University of Missouri, Texas A & M, and

the Economic Research Service of the USDA for their invaluable analytical economic

research. The Commission also extends its thanks to the various state departments’ of

agriculture, the many commodity groups, and countless individuals who helped to

facilitate the public listening sessions held by the Commission across the country; as well

as to the many roundtable discussion participants and open-mike speakers at the six

public listening sessions.1

In addition, the Commission thanks the following people for their active participation in

our meetings:

February 1998

Secretary Dan Glickman - United States Department of Agriculture

Keith Kelly, Administrator - Farm Service Agency, USDA

Tom Lederer, Economic Policy Analyst - Farm Service Agency

Senator Pat Roberts - Kansas

July 1998

Richard Rominger, Deputy Secretary - USDA

Ralph Chite, Specialist in Agricultural Policy - Congressional Research

Service

Charles Hanrahan, Specialist in Agricultural Policy - Congressional Research

Service

Jean Jones, Specialist in Agricultural Policy - Congressional Research

Service

Remy Jurenus, Specialist in Agricultural Policy - Congressional Research

Service

Jean Rawson, Specialist in Agricultural Policy - Congressional Research

Service

Jack Taylor, Specialist in Tax Policy - Congressional Research

Service

Jasper Womach, Specialist in Agricultural Policy - Congressional Research

Service

Jeff Zinn - Specialist in Natural Resources Policy - Congressional

Research Service

 

1. A list of the roundtable discussion participants is at the end of the Appendix to this report.
Commission on 21st Century Production Agriculture xii

May 1999

Ken Ackerman, Administrator - Risk Management Agency, USDA

Bruce Babcock, Director - Center for Agricultural and Rural Development, Iowa

State University

Art Barnaby, Agricultural Economics and Extension - Kansas State University

Carol Brookins, Chairman and CEO - World Perspectives, Inc.

Keith Coble, Agricultural Economist - Mississippi State University

Gregg Doud, World Perspectives, Inc.

Mark Drabenstott, Vice President and Director, Center for the Study of Rural

America - Federal Reserve Bank, Kansas City

Gene Gantz - Rain & Hail, L.L.C.

Ruth Gerdes, Producer, Insurance Agent - Auburn Agency

Joy Harwood, Chief - Field Crops Branch, Economic Research Service, USDA

Stephanie Mercier, Economist - Senator Tom Harkin

Bill O’Conner, Majority Staff Director - House Agriculture Committee

Bev Paul, Legislative Assistant - Senator Robert Kerrey

John Riley, Minority Consultant - Subcommittee on Risk Management, House

Agriculture Committee

Mike Seyfert, Legislative Assistant - Senator Pat Roberts

July 1999

Dr. Michael Boehlje, Professor - Purdue University

Charles Hassebrook, Program Director - Center for Rural Affairs

November 1999

Mike Barnes, Manager - Hapeville Farmers Market, Georgia

Alfonzo Drain, Acting Deputy Director for Small Farms - Office of the Chief

Economist, USDA

Dr. Fred Harrison, Professor - Fort Valley State University

Charles Hughes, Producer - Georgia

Tommy Irvin, Commissioner - Georgia Department of Agriculture

Lynmore James, State Representative - Georgia

Warren James, Producer - Georgia

Jim Shira, Producer - Georgia

Dr. Bob Taylor, Professor - Auburn University

January 2000

Lynn Daft, Executive Vice President - Promar International

Dr. Mark Edelman, Professor - Iowa State University

Randy Green, Senior Government Relations Representative - McLeod, Watkinson

& Miller Law Firm

Dr. Neil Hamilton, Professor - Drake University Law Center

Dr. David Orden, Professor - Virginia Tech University

Kathy Ozer, Executive Director - National Family Farm Coalition

Dr. Robert Paarlberg, Professor - Wellesley College and Harvard University
Commission on 21st Century Production Agriculture xiii

Darrell Ray, Director - Agricultural Policy Analysis Center, University of

Tennessee

Dr. Luther Tweeten, Professor - Ohio State University

Ann Veneman, Partner - Nossaman, Gunther, Knox & Elliot Law Firm

March 2000

Mike Gifford, Former Special Trade Policy Advisor - Canadian Ministry of

Agriculture

Virginia Grevelle, Minister Counsel for Agriculture - Australian Embassy,

Washington, D.C.

Tassos Haniotis, Agricultural Counselor - European Union, Delegation of the

European Commission

Jim Murphy, Assistant United States Trade Representative (USTR) for

 Agricultural Affairs - USTR

Dr. Andres Rosenzweig Pichardo, Director General of Agricultural Sector Studies

- Mexican Agricultural Ministry, Mexico

Dr. Bob Thompson, Director of Rural Development - World Bank

Yoichi Watanabe, First Secretary - Ministry of Agriculture, Forestry and

Fisheries, Embassy of Japan, Washington, D.C.

June 2000

Dr. James Richardson, Professor - Texas A&M University, Agricultural Food

and Policy Center

Wayne S. Smith, Senior Fellow - Center for International Policy

August 2000

Gary Adams, Research Assistant Professor - FAPRI, University of Missouri

Dr. Ed Smith, Professor - Texas A&M University, Agricultural Food and Policy

Center

Dr. Bob Young, Co-Director - FAPRI, University of Missouri
Commission on 21st Century Production Agriculture xiv

Executive Summary

The relationship between government and production agriculture has existed throughout

the history of the United States. Farm income support and conservation programs have

long been a significant part of U.S. farm policy. In recent decades, issues such as risk

management, international trade of agricultural products, and the needs of small and

limited-resource farms have become an increasingly significant part of U.S. agricultural

policy.

Broadly defined, the food and fiber sector accounts for around 15 percent of the total

annual Gross Domestic Product of the U.S. Over time, the sector has benefited from

public support in the form of federally funded programs and policies to enhance research

and education, resource conservation and market development, and to help stabilize

producer prices and incomes.

Support for U.S. agriculture has been sustained, in large part, because of the recognition

that production agriculture is an inherently volatile industry. The source of this volatility

is twofold. First, the demand for agricultural production is highly price inelastic. When

prices for agriculture commodities decline, the quantity of agricultural products

purchased does not increase greatly. In addition, the supply of agricultural products is, at

least in the short run, also highly price inelastic. As farm prices decline, producers,

faced with the relatively fixed land and machinery resources, may not be able to cut back

on overall production in the short run. Producers may, however, change the crop mix

overtime, and in the long run, gradual adjustments in quantities supplied or demanded

occur. As a result, small changes in the demand for agricultural products and/or the

supply of products lead to large swings in commodity prices and hence, farm incomes.

Estimates for 2000 put national net farm cash income at 1.1 percent above 1999. The

higher income was the result of stronger prices for livestock coupled with record

government support. Cash receipts for food, feed, and oilseed crops remained low in

2000. Overall land prices have risen steadily through 1997, and continue to edge up since

then. Low prices, fueled by large supplies and weak exports, prompted Congress to enact

emergency relief for the third consecutive year in 2000. In the absence of this assistance,

net cash income in 2000 would have declined about 11.4 percent from 1998 and 17.7

percent from 1996.

Given the importance of agriculture to the general economy, the inherent volatility of the

sector, its reliance on markets that transcend national boundaries, and the inability of

individual producers to have an impact on the overall forces of supply and demand, the

federal government will likely remain involved in activities that directly affect the

marketplace for agricultural products and the economic well-being of producers.

The Commission on 21st Century Production Agriculture was charged, in part, with

identifying the appropriate role of the federal government in support of production

agriculture after 2002. In addition, the Commission was to develop specific

recommendations for legislation to facilitate that role. To accomplish this task, the
Commission on 21st Century Production Agriculture xv

Commission benefited from input from many sources including testimony by expert

witnesses and stakeholders, public comments, and research and analysis provided by staff

members.

The Commission held public listening sessions in Fresno, California; Spokane,

Washington; Denver, Colorado; Montgomery, Alabama; Chicago, Illinois; and Scranton,

Pennsylvania. Additional input was provided by public comments submitted directly to

the commissioners and by e-mail to the Commission’s web site. Over the course of the

Commission’s tenure, 14 meetings were held with more than 60 expert witnesses

providing input on the various aspects of each major issue area. In addition, staff

developed policy briefing papers, quantitative analyses of policy options, and policy

decision matrices to provide additional reference background and tools for analysis for

the commissioners.2

The culmination of these efforts led to the recommendations contained in this report.

Several sections of this report contain minority views that represent alternative

recommendations supported by one or more of the commissioners. The minority views

are presented in the full report.

Summary of Recommendations and Suggestions

The Commission suggests the following recommendations for consideration in

constructing future agriculture policy:

I. Farm Policy Goals

The Commission provides four broad goals for the development of agricultural policy.

These goals evolved from testimony given before the Commission and from discussion

regarding previous farm policies.

• Production of an abundant supply of high-quality agricultural products at reasonable

prices

• Maintenance of a prosperous and productive economic climate for the farmer

producers

• Maintenance of the family farm organization as a dominant part of the production

system

• Realization of a high quality of life for all individuals living in rural areas.

 

2. The policy background reports and decision matrices are available in the Commission on 21st Century

Production Agriculture, Final Report, Volume II.
Commission on 21st Century Production Agriculture xvi

II. Appropriate Role for Government in Production Agriculture

The Commission defined the appropriate role of the federal government in support of

production agriculture as one that will:

• Ensure a competitive agricultural economy through monitoring of concentration,

enforcement of antitrust laws and related regulatory authority, ensuring transparency

of market behavior, including contracting.

• Develop policies and programs that enhance the competitiveness of U.S. agricultural

products, reduce trade barriers, open markets, and enhance the ability of producers to

maximize value-added opportunities.

• Base all policy on sound science and insist that foreign competitors do likewise.

• Promote and enhance food safety and a clean environment.

• Promote and enhance animal and plant health and safety.

• Provide support for agricultural research and education.

• Enhance the development and use of risk-management tools.

• Develop and fund programs that meet the special needs of small and limited-resource

farmers.

• Provide an effective and adequate income safety net for farmers with minimal market

distortion.

III. Income Safety Net

Many participants and observers in the agricultural community have identified the need

to provide a flexible safety net for supporting producer income in times of adverse

economic conditions. The persistence of very low commodity prices has rendered

existing farm policy instruments inadequate to address the level of distress experienced

over the last few years. As a result, the Congress has had to rely on emergency measures

to provide additional support. The Commission has established a set of policies that it

believes will prevent the need for continued reliance on emergency measures and provide

the flexibility necessary to address unforeseen changes in future market conditions while

continuing to provide a solid foundation of support for production agriculture.

• The Commission recommends the continuation of a fixed Agricultural Market

Transition Act (AMTA) payment consistent with existing baseline budget allocations

and the adoption of an additional counter-cyclical income support program.

Specifically, the Commission recommends a program referred to as a Supplemental
Commission on 21st Century Production Agriculture xvii

Income Support (SIS). As envisioned, the SIS program would provide supplemental

payments to producers when aggregate program crop gross income falls below some

percentage of the historical income level calculated over a fixed-base reference

period. SIS payments would be counter-cyclical in that no payments would be made

if aggregate income is above the fixed-base reference level. SIS payments would be

decoupled from current prices and yields for any specific commodity and, as such, the

Commission believes exempt from current commitments on World Trade

Organization (WTO) Aggregate Measure of Support (AMS) expenditures. While the

program suggested is expected to apply to major program crops (wheat, feed grains,

cotton, rice, and oilseeds), the program could be extended to encompass other

commodities.

• The Commission recommends retaining the current marketing assistance loan

program, including loan deficiency payments (LDP) and marketing loan gains, while

adjusting marketing loan rates to reflect a closer balance between the historical

market value of individual crops. The Commission also recommends removing

limitations on all government payments to producers.

IV. Risk Management

Producers have an array of tools at their disposal with which to manage risk. The

Commission considered two categories of programs to enhance producers’ ability to

manage their business risks: insurance programs and savings account programs.

• The Commission recommends that a study be conducted to examine the possibility of

movement to an actuarially sound crop/revenue insurance program with products

provided by private companies. Under this program, the government would not

underwrite a portion of the insurance companies’ risk but instead provides farmers

with a voucher to offset the cost of insurance premiums.

• The Commission recommends the establishment of a tax preferred savings account

such as the Farm and Ranch Risk Management (FARRM) account without

restrictions on how long money may be left in the account. The removal of the time

restriction on monies in the account would allow the FARRM account to serve both

as a cash reserve for low-income years and an alternative retirement fund for the

producer.

V. Conservation Programs

The Commission considered two categories of programs to enhance producers’ ability to

undertake conservation and environmentally beneficial practices in an economically

viable manner: conservation reserve programs and conservation cost-share programs.

Additionally, the Commission addressed other conservation and environmental issues

affecting production agriculture, citing the need for research in those areas.
Commission on 21st Century Production Agriculture xviii

• The Commission recommends continuation of the current Conservation Reserve

Program and advises that any possible increase in the acreage of the program be

designated towards buffer strips, filter strips, wetlands, grass waterways and partial

field enrollments.

• The Commission recommends continuation of the Environmental Quality Incentives

Program (EQIP). Further, the Commission recommends that EQIP be funded at

levels initially proposed in the Federal Agricultural Improvement and Reform Act

(FAIR Act) of 1996, with those funds dedicated to program activities and not used to

pay administrative and overhead costs; which should be funded from additional

outlays.

VI. Agricultural Trade Policy

U.S. producers face challenges and opportunities in agricultural trade. A unified

approach during international trade negotiations provides U.S. agriculture with the

strongest position to achieve increased market opportunities for producers and favorable

resolution of trade conflicts.

• The Commission endorses the comprehensive U.S. position on trade as tabled in the

WTO in June 2000.3

• In addition, the Commission stresses the need for agriculture negotiations to be part

of a comprehensive negotiation conducted in a single-undertaking approach.

• The Commission also recommends that Congress grant the President so called “fast

track” negotiating authority for the new round of trade talks.

• It is the view of the Commission that negotiations on trade reform within the WTO

are not the appropriate forum for the negotiation of environmental and labor issues.

VII. Individual Commodity Policies

Dairy, sugar, peanuts, and tobacco are commodities that have evolved into specific and

unique agricultural programs. In reviewing each of these commodities’ programs in

detail, the Commission has identified areas of concern that will have an impact on the

economic well-being of the producers of these commodities. In an effort to provide

direction for inquiry, the Commission has outlined a set of policy options for each

commodity that it believes should be reviewed, and urges participants in each industry to

work together to develop solutions that will provide a prosperous future for their

respective commodities.

 

3. Proposal for Comprehensive Long Term Agricultural Trade Reform: A Submission from the United

States to the WTO. A summary of this proposal is in the Appendix of this report.
Commission on 21st Century Production Agriculture xix

Dairy

The Commission believes that decisions regarding the course of future dairy policy must

address at least these four issues:

• Federal marketing orders

• Extension of dairy compacts

• Federal price support

• International market opportunities and challenges.

Sugar

The Commission believes that market conditions, in combination with existing

international commitments, create the need for serious consideration of alternatives to the

current sugar program. It is the view of the Commission that the following program

options, individually or in combination, should be evaluated within the context of a

continuation of our existing international commitments on sugar imports:

• A marketing loan program for sugar

• Domestic marketing controls

• Domestic production controls

• Some form of direct payment to sugar producers.

Peanuts

The Commission emphasizes that discussions regarding changes to current policy for

peanuts recognize the regional importance of peanuts to specific areas and the potential

negative impacts on small landholders. The Commission recommends examining the

following options as potential modifications to the existing peanut program:

• Phased reduction of the quota system, with compensation to existing quota holders

• Allow for movement of quota across state boundaries

• Subsidies to manufacturers to stimulate purchase of domestically grown peanuts

(similar to the Cotton Step 2 program)
Commission on 21st Century Production Agriculture xx

• Marketing loan for peanuts and a direct-payment program for producers of quota

peanuts.

Tobacco

As with peanuts, the Commission emphasizes that modifications to the current tobacco

program recognize the importance of the regional impacts of the existing tobacco

program. The options to the existing program that the Commission feels should be

examined include the following or some combination thereof:

• Increasing transferability of quota across county lines and/or state lines

• A buyout program designed to phase out the quota program

• A marketing loan for tobacco with a view to increased export competitiveness.

VIII. Small and Limited-Resource Farm Policy

The Commission recognizes the importance and value of the small family farm in

production agriculture and rural communities. The Commission further recognizes the

significant impact that government policy has on the economic condition of small family

farms.

• The Commission believes that the USDA Advisory Committee on Small Farms,

which specializes in small farms issues, is well positioned to advise lawmakers on

policy matters and should be the lead policy development group in this issue area.

• Further, the Commission recommends that the work of the Small Farms Advisory

Committee become a part of the U.S. Department of Agriculture by congressional

authority, providing appropriate staff and appropriations.

• The Commission also believes that it is the role of government to develop and fund

programs that meet the special needs of small and limited-resource farmers.

• Accordingly, the Commission recommends that several specific areas warrant

consideration by the Small Farms Advisory Committee and by legislators and

policymakers (see Small and Limited-Resource Farm Issues, page 62).
Commission on 21st Century Production Agriculture 1

Introduction

Agriculture is a major positive component in the United States economy. The net value

added to the national economy by the agricultural sector through the production of goods

and services averaged about $90 billion annually during the last five years. Jobs in

agriculture and related input and marketing industries account for about 18 percent of

U.S. civilian employment. Overall, the food and fiber sector accounts for more than 15

percent of the total Gross Domestic Product. In addition, the agricultural sector regularly

has a positive balance of trade in excess of $11 billion.

Over time, the sector has benefited from public support in the form of federally funded

programs and policies to enhance research and education, resource conservation, and

market development, and to help stabilize producer prices and incomes. In general, the

theme of these programs and policies has been to assure that the nation has an abundant

supply of safe food produced in an environmentally responsible manner and available at

reasonable prices to the public in a competitive marketplace.

Support for U.S. agriculture has been sustained, in large part, because of the recognition

that production agriculture is an inherently volatile industry. The source of this volatility

is twofold. First, the demand for agricultural production is highly price inelastic. That is

to say, when prices for agricultural commodities decline, the quantity of agricultural

products purchased does not increase greatly. In addition, the supply of agricultural

products is, at least in the short run, also highly price inelastic. As farm prices decline,

producers, faced with relatively fixed land and machinery resources, may not be able to

cut back on overall production in the short run. As a result, small changes in the demand

for agricultural products and/or the supply of products lead to large swings in commodity

prices and, hence, farm incomes. Producers, however, may change the crop mix and in

the long run gradual adjustments in quantities supplied and demanded occur.

The forces leading to changes in the demand for, and supply of, agricultural products are

for the most part out of the control of individual producers. Agriculture is a biological

production process requiring months from planting to harvest for crops and livestock to

achieve marketable weights. Over this period, producers are subject to often variable

weather patterns and outbreaks of disease that can affect their supply of products

dramatically. In an increasingly global market, economic forces such as relative exchange

rates can change dramatically between the time producers invest in the production of a

commodity and when they bring it to market. In addition, farming and ranching are

characterized by a large number of producers who can do little to influence market prices

by reducing their own supplies.

While the majority of agricultural products are sold domestically, an increasing share of

producers’ output goes to overseas markets. The production of about one out of three

acres of U.S. crops goes into export markets. The economic well-being of the producers

of food, feed grains, oilseeds, and cotton, for example, is linked directly to being able to

compete in international markets. To be competitive requires fair and open markets.

There is little that individual producers can do to control international events or fashion
Commission on 21st Century Production Agriculture 2

other nations’ trade policies. While U.S. producers benefit from export sales, their

increased reliance on international markets subjects the industry to yet another set of

uncontrollable factors that give rise to volatility.

While the basic underpinnings of the U.S. agricultural economy have not changed much

over time, the structure of the industry has been dynamic. When most farm programs

began in the early 1930s, the total number of farms in the U.S. was more than six million,

and some 25 percent of the population lived on farms. The USDA’s National

Agricultural Statistics Service (NASS) reports that farm numbers declined from 6.8

million in 1935 to 2.3 million in 1974. Since that time, however, farm numbers have

remained relatively stable, with a reported 2.2 million farms in operation today.4

 Today’s

remaining farms are much larger, averaging 435 acres in 1999, compared with only 155

acres in 1935.

The change in farm structure in the U.S. has been able to occur because the agriculture

sector is among the most productive and efficient in the world. The 2.2 million farmers

produce enough food and fiber for 283 million Americans and supply a significant

proportion of the world’s tradable agricultural commodities. Given expectations of

continuing advances in technology resulting from both private and public research, a well

developed marketing and handling infrastructure, and a superior education and outreach

system, U.S. agriculture is poised to continue to be a world leader in the new century.

Given the importance of agriculture to the general economy, the inherent volatility of the

sector, its reliance on markets that transcend national boundaries, and the inability of

individual producers to have an impact on the overall forces of supply and demand, the

federal government will likely remain involved in activities that directly affect the

marketplace for agricultural products and the economic well-being of producers. The

choices of future agricultural policies will be the most important of these activities.

Other functions of the federal government will also influence the ability of farmers and

ranchers to compete. For example, the results of U.S. negotiations with other nations on

trade and development issues, macroeconomic policies that affect interest rates and

currency exchange rates, and national energy and environmental policy will have

significant effects on the agricultural economy. In some cases, actions by the federal

government will benefit producers, in other cases they will create new challenges.

The Commission on 21st Century Production Agriculture was established, in part, to

identify those activities that define the proper role of the federal government in support of

production agriculture. To accomplish this task, the Commission developed a three-part

strategy. The first task was to establish a set of goals that federal support to the sector

should be designed to accomplish. Next, the Commission defined the role the federal

government should play in helping to achieve those goals. The final step for the

Commission was to develop a set of recommendations for federal policies and programs

that would support the overall goals for the sector and were consistent with the perceived

 

4. A farm is defined as any establishment from which $1,000 or more of agricultural products were sold or could

normally be sold during the year. USDA, National Agricultural Statistical Service, “Agricultural Statistics 2000”.
Commission on 21st Century Production Agriculture 3

role for government. Using this strategy, the Commission developed recommendations

that, if enacted, could enhance U.S. producers’ ability to continue in their role as world

leaders in agriculture and prosper in the future.

Goals of Agricultural Policy and the Role of the Government

In the United States, the idea that government has a role to play in support of production

agriculture dates back to George Washington. In his annual message to Congress in

1796, President Washington suggested that government support for agriculture was of

primary importance to the national welfare.5

 The goals of that government role have been

debated at length during the deliberations surrounding development of each farm bill in

recent memory. By and large, there has been agreement on the need for some government

involvement in agriculture and on the basic goals that involvement was meant to foster.

What has not been subject to general agreement are the appropriate government policy

interventions to achieve those goals.

The Commission reviewed numerous policy goal statements taken from testimony and

reports surrounding previous farm bills and from assorted conferences and symposia. In

most discussions, the goals for general farm policy focused on the role of the agriculture

sector in providing safe food in abundant supply, produced in a competitive marketplace,

and at reasonable prices. In this same spirit, the Commission adopted the following four

broad goals for farm policy, based on a summary provided by Willard Cochrane.6

• Production of an abundant supply of high-quality agricultural products at reasonable

prices

• Maintenance of a prosperous and productive economic climate for the farmer

producers

• Maintenance of the family farm organization as a dominant part of the production

system

• Realization of a high quality of life for all individuals living in rural areas.

The Commission also concluded that, within the context of these broad goals, farm policy

in the 21st century must be designed with a view toward the globalization of agriculture.

Programs and policies must past the litmus test of conformity with international

obligations and commitments to be creditable with the larger constituency of consumers

and workers in nonagricultural industries. Having established the basic goals that U.S.

agricultural policy should be designed to accomplish, the next step was to define the

appropriate role of the federal government in providing assistance to production

agriculture in pursuit of those goals.

 

5. Gardner, Bruce L. “The Federal Government’s Role in 21st Century Agriculture”, January 27, 2000.

6. Cochrane, Willard W. “A Food and Agricultural Policy for the 21st Century”, June 21, 1999.
Commission on 21st Century Production Agriculture 4

The Role of the Federal Government

The Commission debated the appropriate functions of the federal government in its role

of providing support to production agriculture. The focus of the discussion was to

establish those areas where a federal role was necessary because of the special

characteristics of agricultural production risks and market structure. The Commission

members agreed that the federal government’s role should be limited to activities that

involve issues that transcend state and national boarders or deal with specific problems

that were unlikely to be solved through private-sector initiatives. The Commission

concluded that the proper role of the federal government should be to pursue policies and

programs that were designed to promote the following concepts and/or accomplish the

following outcomes:

• Ensure a competitive agricultural economy through monitoring of concentration,

enforcement of antitrust laws and related regulatory authority, ensuring transparency

of market behavior, including contracting.

• Develop policies and programs that enhance the competitiveness of U.S. agricultural

products, reduce trade barriers, open markets, and enhance the ability of producers to

maximize value-added opportunities.

• Base all policy on sound science and insist that foreign competitors do likewise.

• Promote and enhance food safety and a clean environment.

• Promote and enhance animal and plant health and safety.

• Provide support for agricultural research and education.

• Enhance the development and use of risk-management tools.

• Develop and fund programs that meet the special needs of small and limited-resource

farmers.

• Provide an effective and adequate income safety net for farmers with minimal market

distortion.

Having established guidelines for the general goals of farm policy and the appropriate

functions for federal government involvement, the Commission then defined a set of

issues that needed to be addressed by future farm policy initiatives. To guide them in

identifying the areas for consideration, the commissioners relied on input provided in six

public meetings held throughout the country in August and September of 1999. Public

listening sessions were held in Fresno, California; Spokane, Washington; Denver,

Colorado; Montgomery, Alabama; Chicago, Illinois; and Scranton, Pennsylvania. The
Commission on 21st Century Production Agriculture 5

commissioners heard testimony from 200 witnesses from 30 states and comments from

speakers during the open microphone sessions.

Additional input was provided by public comments submitted directly to the

commissioners and by e-mail to the Commission’s web site. Combined with the views of

the individual commissioners and aided by their interaction with other producers, a set of

15 issues for review was established. The initial list of topics for review consisted of

trade, risk management, income safety net, tax policy, conservation, research and

education, dairy, peanuts, sugar, tobacco, regulatory policy, industry concentration, small

farms issues, animal and plant health and safety, and food safety.

To aid the commissioners in their understanding of the critical issues surrounding each

area, a series of informational meetings was held. Over the course of the Commission’s

tenure, 14 meetings were held with more than 60 expert witnesses providing input on the

various aspects of each major issue area. In addition, staff developed policy briefing

papers, quantitative analyses of policy options, and policy decision matrices to provide

additional reference background and tools for analysis for the commissioners.7

The recommendations contained in this report were the result of the process outlined

above. The decisions reached by the commissioners were based on input from many

sources and in most cases represent a compromise among different views. Within the

established guidelines, the Commission attempted to deal with as many issues as

possible. In some cases, however, certain subjects required a level of expertise that was

beyond the scope of the Commission, while in other cases, the commissioners felt that

various groups had established sufficient guidance on subjects and that the limited

resources of the Commission were better spent concentrating on different areas. Rather

than develop specific recommendations, the Commission decided to provide an outline of

those areas of concern that it felt needed to be addressed in each of those particular

subject areas.

This report presents the findings of the Commission on each subject matter area and

outlines the associated policy recommendations. It outlines the major issues of

importance in the debate surrounding areas where the Commission has not provided

specific policy recommendations. The report also provides minority views from those

commissioners who have a distinctly different recommendation for future programs or

policies in one or more issue areas. The Appendix of the report provides an update of the

status of American agriculture as of December 2000.

 

7. The policy background reports and decision matrices are available in The Commission on 21st Century

Production Agriculture, Final Report, Volume II.
Commission on 21st Century Production Agriculture 6

I. Farm Income Support Policy

Introduction

In the past, most attempts to reform existing farm policy have been dominated by

concerns related to current market conditions and short-run expectations about the

future.8 In addition, policies have been formulated in an atmosphere clouded by concerns

over the potential level of budgetary outlays resulting from their adoption. For example,

prices in 1979 were the second highest in history, exports were at an all-time high, world

food supply was tight, and the long-term prospects for price and income for U.S.

agriculture in the 1980s looked strong. The 1981 farm bill maintained or increased loan

rates and mandated rising target prices based on estimates of modest inflation. The

events of the early 1980s turned out to be exactly the opposite. A strong economy and the

value of the U.S. dollar increased by 40 percent, a global recession spread, demand

slackened, commodity prices fell, as did both the volume and value of U.S. exports.

Similar examples can be drawn from experiences in the 1960s and 1970s and most

recently following the enactment of the 1996 FAIR Act.

The passage of the 1996 FAIR Act occurred at a time of record or near-record prices for

the major commodity crops. The average market price for several major crops in 1996

was $4.30 per bushel for wheat, $2.71 per bushel for corn, $7.35 per bushel for soybeans,

$2.34 per hundredweight for sorghum, $9.96 per hundredweight for rice, and $0.69 per

pound for upland cotton. These price levels succumbed to international economic events

and began their current slide in 1998. Midway through 2000 saw most of these crops at

or near historic lows with the average market price of wheat dropping to $2.50 per

bushel, corn to $1.70 per bushel, soybeans to $4.25 per bushel, and rice to $5.75 per

hundredweight. Cotton declined to approximately $0.60 per pound.

Proposed as a transitory program to gradually lessen the role of government in supporting

production agriculture, the FAIR Act was quickly criticized for making payments to

producers when prices and incomes were at record levels in 1996 and 1997. The

inflexibility of the Agricultural Market Transition Act (AMTA) payment schedule was

also criticized beginning in 1998 when commodity prices started to approach historic

lows. Congress reacted by supplementing producer incomes with ad hoc emergency

spending in addition to scheduled payments in 1998 that by 2000 has resulted in record

direct government payments to producers. AMTA payments were increased by 50

percent in 1998 and doubled in 1999 and 2000.

Many participants and observers in the agricultural community have identified the need

to provide a flexible safety net for supporting producer income in times of adverse

economic conditions. The counter-cyclical income safety net approach provides an

alternative to ad hoc emergency spending that has prevailed in a period of budget

surpluses, while also maintaining the planting decision flexibility allowed by the 1996

FAIR Act. An increasingly important consideration of current and future agricultural

 

8. McCalla, Alex F. and Elmer W. Learn. “Public Policies for Food, Agriculture and Resources: Retrospect

and Prospect”, National Center for Food and Agricultural Policy, Annual Policy Review, 1985.
Commission on 21st Century Production Agriculture 7

policy and programs is fulfillment of the United States’ Aggregate Measure of Support

(AMS) commitments to the World Trade Organization (WTO).

Counter-Cyclical Safety Net Program

Income-Based Support Proposals

Several supplemental income-support programs were proposed during the 106th session

of Congress that would have provided flexible or counter-cyclical payments to producers.

The payments of the proposed programs are counter-cyclical in that they provide income

support to producers during depressed financial conditions. Two of these supplemental

income payment programs were the Supplemental Income Payment (SIP) plan introduced

before Congress by Rep. Stenholm and the Supplemental Income Assistance Program

(SIAP) presented by the Administration. The SIP plan would have provided eligible

producers with marketing assistance payments on a crop-by-crop basis whenever the

current year’s national gross revenue for each crop dropped below 95 percent of its

previous five-year average. Payments under SIP were to be on a per-acre basis. The

SIAP would provide payments to producers if projected gross income, including

government payments, fell below 92 percent of the preceding five-year average. SIAP

payments would have been made on a crop-by-crop basis, based on actual production,

and subject to a $30,000 limit (supplemental plus AMTA payments) per producer. Both

SIP and SIAP failed to gather sufficient congressional support.

Examination by the Commission of the SIP proposal and the modifications proposed by

the Administrations plan revealed a fundamental problem. Both approaches would tie

supplemental income support to current prices and production levels. Under the terms of

the Uruguay Round Agreement on Agriculture, such programs would likely be classified

as “amber” under WTO rules and payments under such programs would count against the

U.S. AMS commitment levels. Currently, Production Flexibility Contract (PFC)

payments made under the FAIR Act (or AMTA payments) are classified as “green” and

do not count against the U.S. AMS commitment.

Consistency with WTO obligations becomes one criterion for any future income safety

net policy. For example, total direct payments for fiscal year 2000 are an estimated

record high.9 Consequently, the U.S. AMS for 2000 is likely within several billion

dollars of its $19.1 billion limitation. If agricultural markets remain depressed, the ability

to provide support to the sector may be constrained by our international obligations if the

method for that support is not constructed in such a way as to be classified as “green”

under existing WTO rules.

 

9. Direct payments made on a fiscal year basis may contain payments for two crop years for certain

commodities.
Commission on 21st Century Production Agriculture 8

Recommendation of the Commission

In an effort to address the need to provide a flexible safety net for agricultural producers

in times of depressed market conditions and/or adverse weather events, and consistency

with U.S. international obligations, the Commission recommends the continuation of a

fixed AMTA payment consistent with existing baseline budget allocations and the

adoption of an additional counter-cyclical income support program. Specifically, the

Commission recommends a program referred to as Supplemental Income Support (SIS).

Discussion

As envisioned, the SIS program would provide supplemental payments to producers

when aggregate program crop (wheat, corn, soybeans, sorghum, rice, upland cotton, oats,

and barley) gross income falls below some percentage of the historical income level

calculated over a fixed-base reference period. SIS payments would be counter-cyclical in

that no payments would be made when aggregate income is above the fixed-base

reference level. SIS payments would be decoupled from current prices and yields for any

specific commodity. SIS payments would be distributed along the same lines as current

PFP payments, that is, paid on fixed acreage and yields, and eligibility would be based on

a recipient’s status as a producer during a fixed reference period. The Commission

believes that this construction would address the needs of the sector for flexible income

support and at the same time be consistent with the definition of a “green” payment and

therefore not subject to discipline under current or future WTO commitments.

The details of such a plan would have to be worked out in congressional debate. Like

current PFP payments, decoupled payments based on a historical reference period are not

without their shortcomings. Modifications to the basic SIS program could be worked out

to minimize these difficulties. Among the major difficult issues that must be addressed

are problems associated with localized disasters, a income shortfall in one crop but not

others, and support for producers whose commodities are not covered under the SIS

program format. Additional concerns include the choice of reference period, the level of

compensation (percentage of reference period income), and details defining the eligibility

for program payments.

Initial suggestions to consider in specifying the SIS program include an attempt to move

the reference income measure from the national level to a regional or crop area basis. In

this way the support could still be decoupled from specific crops or crop prices but would

be of direct support to specific areas if crop failure or weather-related disasters are

isolated to a particular region. In choosing a reference period it may be necessary to

consider different fixed-base periods or various forms of moving averages. In the same

way, the percentage of compensation may be determined after thorough analysis of

alternatives. Other issues, such as using gross crop income versus net cash income as a

measure of economic well-being, would be expected to be evaluated in a similar manner.
Commission on 21st Century Production Agriculture 9

Non-Recourse Marketing Loan Proposals

The use of loan programs for major commodities has been a continuing component of

U.S. farm policy since the 1930s. Currently, marketing assistance loans are in place for

wheat, feed grains, rice, cotton, and soybeans. At issue are the proper level of loan rates

for individual commodities and/or the relative level of loan rates among commodities.

Marketing assistance loans for the major crops were designed to facilitate orderly

marketing by providing short-term financing so that farmers could pay their bills right

after harvest and spread their sales over the entire marketing year. However, the

persistence of very low commodity prices transformed the loan program into a major

vehicle of counter-cyclical farm price support. Marketing loan program benefits,

primarily loan deficiency payments (LDP) to farmers amounted to about $6 billion in

fiscal year 1999, and will likely exceed $7 billion on 2000 production.10

Recommendation of the Commission

The Commission recommends retaining the marketing assistance loan program, including

LDPs and Marketing Loan Gains, while adjusting the marketing loan rates to reflect a

closer balance between the historical market value of individual crops. The Commission

also recommends removing limitations on all government payments to producers.

Discussion

Some members of Congress have proposed removal of the loan caps imposed by the

FAIR Act.11 This would be a change of sizable consequence for farmers and the federal

budget. While larger marketing loan benefits would boost farm price supports, they

would involve either additional federal spending or reductions in other federal programs.

Critics of removing loan rate caps express concerns that, in addition to increased cost, the

market-directed reforms of the FAIR Act would be undermined. A common economic

argument against raising loan rates is that farmers could base their production decisions

on loan rates rather than market conditions. Land that might shift to more profitable crops

based on market prices and relative production costs could be attracted to the most

beneficial loan programs. For example, recent ERS estimates suggest that as a result of

marketing loan benefits associated with the soybean loan rate relative to that for wheat

and corn, 2000 soybean plantings are one million acres above the level that could be

anticipated based only on expected market prices.12 Changes in acreage planted to

particular crops such as soybeans, however, have probably been more responsive to the

general planting flexibility provided in the 1996 farm bill, than to relative loan rates.

 

10. U.S. Agricultural Update. USDA/ERS, September 29, 2000.

11. Congressional action to uncap loan rates includes: HR-217, Nussle, Leach, and Latham; HR-1299,

Berry; HR-1468, Thune, Pomeroy, Minge, and Emerson; and S-30, Daschle.

12. Westcott, Paul C. and C. Edwin Young, “U.S. Farm Program Benefits: Links to Planting Decisions &

Agricultural Markets”, USDA/ERS, Agricultural Outlook, page 10-13, October, 2000.
Commission on 21st Century Production Agriculture 10

In addition, market loan payments and gains are reported as part of the U.S. AMS in the

WTO. Raising loan rates would increase the potential that U.S. payments could exceed

current AMS commitment levels should prices fall sufficiently low.

Strictly adhering to a formula based on historic market values for setting the relative

value of loan rates would be expected to minimize the amount of distortion in producer

planting decisions. Such a formula approach was mandated for determining the

minimum loan rate for corn and wheat in the 1996 farm bill. However, loan rates for

other crops, such as soybeans and rice, were subject to other provisions. The application

of a unified approach for all commodities could increase transparency in the process and

reduce ambiguity in the outcome of determining farm commodity loan support rates.

The issue of statutory limitations on the amount of government payments a producer may

receive has long been a subject of debate. The argument against removal of payment

limitations is most often centered on the belief that government payments are supposed to

be a mechanism to help farm families stay in business and not be income transfers to the

large, and presumably wealthy, farm business enterprises. Those who favor removal of

payment limitations point out that the size of an operation is no guarantee of profitability

and that government support is intended as a safety net for producers of agricultural

commodities, regardless of size. In practice, attempts to limit the amount of government

payments to individual farm enterprises are ineffective, given rules that allow for

participation in multiple entities and the ability to legally structure businesses into units

of eligible size. Removal of these constraints could further streamline existing farm

programs and eliminate the unnecessary burden of paperwork associated with compliance

for the vast majority of producers with what are effectively nonbinding regulations for a

limited few.

Conclusion

The SIS income safety net program would provide producers of program commodities

with counter-cyclical income support in periods of adverse market conditions. The SIS

program also replaces the need for annual ad hoc emergency payments while maintaining

producer flexibility in planting decisions. Further, the SIS program may comply with our

international commitments by supporting producer incomes instead of commodity prices,

in addition to being decoupled from production and planting decisions by not being based

on current production and price of a commodity and being paid on fixed acreage and

yield.

Proposals by groups that favor changes to the existing loan rate program advocate either

replacing existing programs with higher loan rates or increasing loan rates as a part of an

overall farm policy that includes direct income support payments, a farmer-owned grain

reserve, and other components.13 Maintaining the existing marketing loan program

structure with a formula based loan rates, in combination with an enhanced supplemental

 

13. DuPree, Jim. “A New Farm Bill for a New Century”, presented to the Commission on 21st Century

Production Agriculture, July 2000. North Dakota Farmers Union, “FAIR Act Modifications”, handout

included with “Federal Farm & Trade Policy, Myths & Realities 2000”, June 2000.
Commission on 21st Century Production Agriculture 11

income support program, provides an alternative policy package that reduces potential

market distortion, conforms to international commitments, and increases government

outlays only when warranted by adverse market conditions.

A marketing loan and SIS-type income safety net program would not, by itself, constitute

sufficient support for U.S. agriculture. Other programs are needed to provide assistance

to producers of other crops and livestock, to help farmers and ranchers better manage

risk, to enhance the use of conservation practices, and to facilitate the sales of agricultural

products in domestic and foreign markets.
Commission on 21st Century Production Agriculture 12

Minority View

Commission on 21st Century Production Agriculture

Farm Income Support Policy

Leland Swenson

Background

More than four years ago, Congress passed the Federal Agricultural Improvement and

Reform Act of 1996 (FAIR Act), dubbed Freedom to Farm by its proponents. The

legislation was approved during a unique period in agriculture characterized by continued

pressure on federal agricultural spending, improved commodity price levels, and

expanded export earnings. In addition, the legislation fulfilled in part the desire of some

to unilaterally reduce or curtail the public role in U.S. production agriculture with little

regard or understanding of the future consequences of such action if the conditions

present in 1996 changed.

The FAIR Act, with declining, decoupled payments as its centerpiece, represented reform

to the extent that it severed the tie between agricultural policy and commodity specific

programs. It is increasingly apparent that the legislation has neither represented an

improvement in the short- or long-term economic stability of agricultural producers and

rural communities, nor created the broad, market-based environment of opportunity for

farmers and ranchers that the bill’s advocates promised.

Freedom to Farm proponents assumed and were committed to the proposition that: 1)

world population and income growth would create new export demand for U.S. farm

commodities; 2) improved risk-management programs, such as crop insurance, could

replace other economic safety net programs; 3) reduced government regulation would

increase production efficiency by lowering operating costs; 4) a combination of

marketing loans set at levels well below the cost of production and fixed, decoupled

producer payments would ensure adequate farm income levels to allow the transition to a

market-oriented agriculture system; and 5) reductions in our own production-based

producer safety net would force others, primarily our export competitors, to make

market-dictated production adjustments.

Historically, as well as in the context of our most recent experience, none of these

assumptions has merit, and there is little to suggest that the future will provide new

evidence, beyond simple rhetoric, of their validity.

Since passage of the FAIR Act: 1) the optimistic forecasts for expanded agricultural trade

have been wrong; 2) risk-management programs have failed to adequately address price

and production losses; 3) less regulation has not improved production efficiency or

reduced costs; 4) the farm program has reduced economic security for producers; 5)

competition for export markets has increased because of the rational behavior of

individual producers in response to declining prices and incomes; and 6) reduced viability

of family farms.
Commission on 21st Century Production Agriculture 13

1. Optimistic Trade Forecasts Wrong

Agriculture and food production is of significant economic, social, and political

importance in both industrialized and developing nations. Food self-sufficiency

continues to be a critically important goal for most nations. Agricultural trade, therefore,

is not currently, and is unlikely to become, a model of free-trade principles regardless of

the outcome of trade negotiations that take many years to complete, implement, and

interpret.

As important as expanded agricultural trade is to U.S. producers, commercial growth in

agricultural export volume and value continues to remain more dependent on the year-toyear domestic production levels of other countries than it does on foreign population,

income growth, and commodity price levels.

The growth of U.S. imports of agricultural products that compete directly with our own

output has increased by more than $20 billion, or three-fold, since 1979, reducing our

positive agricultural trade balance by about 40 percent. Since 1996, our agricultural

export levels declined from about $60 billion to a projected $51.5 billion for 2000, while

agricultural imports will have increased from $32.6 billion to an expected $39.5 billion in

2001.

Many have suggested that the recent period of poor performance in export sales was

caused primarily by a unique event, the Asian economic crisis of the mid-1990s. During

the past thirty years, each decade has been characterized by at least one major economic

calamity somewhere in the world. There is no evidence to suggest that recovery in Asia

will spell the end to such occurrences in the future.

Historically, higher commodity prices attributable to exports generally have occurred

during periods when supplies have fallen short of real or perceived consumption needs,

and not solely as the result of increased consumer income. For example, contrary to

popular myth, U.S. domestic demand, which is little affected by per capita income,

continues to provide the largest outlet for our production and has exhibited better and

more consistent growth rates than overseas markets.

2. Risk-Management Programs Inadequate

Public and private risk-management programs such as crop insurance and various

marketing tools are a necessary component of production agriculture. However, even

with greater federal incentives that increased participation in the programs in recent

years, the need for additional economic and production loss assistance has not been

eliminated or reduced. Recently approved crop insurance legislation provides additional

funds to expand and improve these programs; however, there is no evidence to suggest

that risk-management tools can adequately replace other properly designed economic

safety net components of our agricultural policy. This is particularly true for producers in
Commission on 21st Century Production Agriculture 14

those regions of the country that suffer from multiyear weather abnormalities or for

farmers whose yields are less than average for their operations, so-called shallow losses

that do not trigger insurance indemnities or other payments.

3. Lower Standards Will Not Create Producer Prosperity

Proponents of less government intervention in production agriculture often cite the

increased production costs incurred by producers to comply with government regulations,

particularly those pertaining to environmental issues. First, there is little evidence to

quantify the impact of regulation on the cost of producing agricultural commodities.

Second, significant evidence identifies the economic and structural costs to independent

producers when regulations governing other sectors on which producers are dependent

are reduced or inadequately enforced -- the impact of reduced competition in other

agricultural sectors on both producer costs and returns, for example. Third, by its very

nature deregulation suggests that a cost in the form of increased risk or actual dollar

expenditures will be incurred by another population segment or the population as a whole

that is unlikely to receive benefits commensurate with the potential gains from reduced

regulation.

Proponents of deregulation suggest that the U.S., for commercial market purposes, should

reduce its standards to the lowest common denominator necessary to meet the

competition regardless of the practices used. This approach is neither politically

achievable, nor is it likely to significantly change the market and nonmarket forces in a

competitive global environment. Most likely it will only lead to a downward spiral in

global environmental sustainability, the general standard of living, and the efficiencies of

open, competitive markets.

4. Producer Economic Security Reduced

Since 1990, the value of farm output has increased by just over 17 percent, while

producer expenses have risen by more than 30 percent. Through 1999, net farm income,

including direct government payments, has declined each year since the passage of the

1996 farm bill. Excluding direct government payments, the average net farm income for

the 1990 to 1995 period exceeds by more than $10 billion the level achieved in 1999 and

projected for 2000. This represents nearly a 50 percent reduction in income from farm

and ranch operations in five years. During the last two years, the income received by

producers from crop and livestock sales has fallen short of covering the cost of

production by about $4 billion each year. The impact of these operating losses has been

disproportionately borne by field crop producers who generally are the most reliant on

export markets to improve their marginal returns.

For the past three years, the federal government has given economic assistance to

producers well beyond the levels provided by the 1996 farm bill. Of the nearly $31

billion in additional funds paid out for the 1998 to 2000 production years, nearly 80

percent was directed to offset producer income losses caused by reduced prices. The

balance of the assistance was used to provide compensation for weather-related
Commission on 21st Century Production Agriculture 15

production losses and to encourage greater participation in the federal crop insurance

program. For the current year, the level of market loss income assistance will exceed the

transition payments mandated by the Freedom to Farm Act by more than 125 percent.

It is apparent that the level of economic support contained in the original act is totally

inadequate. Reliance on annual legislative initiatives to provide additional assistance

based on existing program components presents additional management challenges to

producers and their creditors while exacerbating the inequities and distortions contained

in the act.

5. Trade Competition Increased

Some sources suggest that current policy has effectively insulated U.S. producers from

significant production cutbacks caused by the decline in commodity prices while

imposing an adjustment burden on other countries, particularly our major export

competitors.

Contrary to textbook economic theory and to the extent that they can be influenced by

independent producers, agricultural production levels are not very responsive to

commodity price levels. The fixed nature of production resources and the lack of viable

alternatives for their use lead individual producers to rationally seek maximum

production with little regard for commodity prices because they can neither predict nor

influence future price levels. Low prices may cause structural changes within the

production sector by forcing the exit of individual producers or encouraging the

production of other crops or livestock where such diversification is possible; however,

those adjustments do not result in significant changes in the aggregate level of resources

devoted to agricultural production.

When prices are high, it is to the producer’s advantage to seek maximum production to

achieve greater profitability. When commodity prices decline, maximum production is

required to recover fixed and variable operating costs.

Reduced prices and incomes may force farmers to review alternatives for their

operations. In the absence of some form of intervention, however, those resources are

more likely to continue in production, potentially by another farm operator, than be idled

or shifted to a nonagricultural use. Reduced producer prices and incomes cause personal

adjustments to farming operations, not to production.

During 1997/1998, when major field crop prices began to decline precipitously, to the

current season, U.S. wheat and corn area declined by 11 percent and 2 percent,

respectively, while soybean acreage increased by 4.9 percent. The production changes

can be explained fully by the shift of grain acreage to oilseed production, entry into

federal conservation reserve programs, and the loss of productive capacity caused by

extreme weather. General commodity price levels had no impact on aggregate

production, although U.S. farm program policy clearly influenced a shift to greater

oilseed production by farmers.
Commission on 21st Century Production Agriculture 16

During the same period, our major export competitors increased wheat acreage by 3.2

percent, corn acreage by 2.4 percent, and soybean acreage by 7.8 percent. Not only did

farmers in general violate the economic theory, but those who were supposed to bear the

brunt of our agricultural policy reform by reducing production actually increased their

major crop plantings.

6. Reduced Viability of Family Farms

Three years of supplemental economic assistance appear to have provided economic

stability to the production sector if market conditions recover. However, most analysts

expect any economic recovery to be a slow process. Small to average-size commercial

family farming operations are likely to continue to be vulnerable to the economic crisis as

both cash flow and financial equity positions remain marginal or deteriorate further.

It is increasingly apparent that much of the economic assistance, which is based primarily

on existing farm bill components, has encouraged planting and market distortions among

major program crops because of loan rate and decoupled payment inequities contained in

the act. In addition, by basing the assistance on historical production factors, both the

largest producers, and some that no longer produce eligible crops, have become the prime

beneficiaries of the ad hoc programs. In addition, annual modifications to benefit

targeting mechanisms further distort the distribution of available funds in favor of largescale operators.

Commodity Program Components

The primary goal of economic safety net programs is to provide stability and opportunity

to producers over time. Programs must ensure a reasonable level of cash flow and

producer income in the short term and the potential for producers to recover their full cost

of production plus reasonable profits in the long term to maintain a sustainable,

independent family farm production-agriculture structure

Commodity Marketing Loan Rate Program

The commodity marketing loan program provides a production-based, counter-cyclical

method to stabilize program crop-producer income while allowing commercial market

forces to establish commodity sales transaction values. When established at an adequate

level, the commodity marketing loan provides a short-term source of financing, enhances

marketing flexibility, and creates an effective, transparent, minimum commodity

price/income basis for individual producers. In addition, the loan program provides a

valuable level of economic assurance to agricultural financial institutions, rural

businesses, and communities.

Current loan rates based on differing derivatives of market prices and the influence of

other historical program provisions, such as target prices that are no longer operational,
Commission on 21st Century Production Agriculture 17

have distorted production and market signals and eroded the relative equity of the safety

net program.

The failure of the existing safety net provisions has resulted in ad hoc supplemental

measures to maintain economic stability in the crop production sector. The annual

emergency measures have reduced the level of financial crisis in the immediate term;

however, they have further exacerbated the level of production and market distortion

while increasing economic uncertainty within the sector.

Policy Recommendations -

• Establish marketing loan rates for each commodity using the same methodology, such

as a comparable percentage of the cost of production. A minimum percentage of the

three-year moving average of USDA’s full economic cost-of-production data based

on yield per planted acre for each crop would provide a sound and equitable basis for

loan rate determination. It would ensure equity among commodities, reduce current

cross-commodity production, market, and trade distortions, and reflect the dynamics

of productivity, regulatory compliance, and economic factors that affect domestic

production economics.

• Review marketing loan repayment rate procedures and consider basing them on a

comparable world market price format adjusted to a local price basis. Such a format

could help address distribution, competitiveness, and direct or indirect global market

factors such as currency valuations and different labor and environmental standards.

• Use cost-of-production commodity marketing loan rate procedures to establish a

federal crop insurance market price election option for program and nonprogram

commodities.

• Use a procedure based on cost of production to calculate the price support level for

dairy producers. This will further the objective of developing consistent and

equitable domestic farm programs that provide a safety net based on production

economics.

• Provide the Secretary of Agriculture with discretionary authority to establish

regulations and make adjustments to the program concerning production history,

repayment provisions, beneficial interest requirements, loan maturity extensions, and

disaster assistance.

Planting Flexibility

Planting flexibility increased moderately with the passage of the FAIR Act, although

planting many substitute field crops within the fruit and vegetable category was

discouraged by law to reduce the potential that cross-subsidization would encourage

excess production of specialty crops. The conflicting results of direct, decoupled

payments for some program crops, marketing loan rate inequities, and a variety of ad hoc

programs have distorted the price and income relationship among crops eligible for the

planting flexibility provisions, thereby damaging the credibility of the FAIR Act

provision most favored by producers.
Commission on 21st Century Production Agriculture 18

Policy Recommendations -

• Expand planting flexibility to all crops. Potential cross-subsidization by program

benefits will be eliminated if the program crop safety net is based on counter-cyclical,

commodity specific provisions.

Targeting

To ensure broad public support for a family farm production-agriculture system and

economic safety net for farmers, program benefits will need to be both reasonably limited

and targeted in the future. Current payment limitation regulations, however, are complex,

may be out of date, and are of questionable effectiveness in meeting the expectations of

many who understand the need for domestic farm programs.

Policy Recommendations –

• Develop targeting mechanisms that accommodate current and future realities of the

required economic scale of family farm operations.

• Use targeting to reduce the potential that farm programs encourage further

concentration in production agriculture than would otherwise occur.

• Develop future policy that will streamline the regulations by implementing a targeting

mechanism based on individual or single attribution of program benefits.

• Use a limitation on the level of gross benefits, such as total marketing loan receipts,

to address both effective targeting and the repercussions of unstable markets on

current payment limitation levels.

• Examine a regional approach to the targeting of benefits that would be equitable and

nondistorting while better reflecting local needs.

Inventory Management

Barring production-limiting natural disasters, there is a strong tendency for agricultural

production to exceed commercial market demand. The potential for chronic oversupply

and resulting low producer prices is caused by a combination of many factors. These

include producer response to limited market influence, public food security, productionenhancing/risk-reducing research and development, realistic limitations on demand

growth, improved commercial distribution capacity, and unstable global commodity and

currency markets.

The FAIR Act eliminated nearly all U.S. inventory and production management policy

authorities as being counterproductive to U.S. interests. Policymakers assumed that a

more market-oriented policy would force adjustments to excess production by all

countries, and expected growth in demand would limit the potential of longer-term

overproduction. In addition, many of the real or perceived excesses and inequities of the

farmer-owned reserve and acreage-reduction programs of the 1980s reinforced the

criticism of past inventory and supply management policies.
Commission on 21st Century Production Agriculture 19

Much of the opposition to the supply management programs of the 1980s was the result

of a failure to implement in a timely fashion more modest, limited, and effectively

managed programs. Experience suggests that once the problems of surplus production

become excessive, more Draconian and significantly distorting measures are required to

reduce the federal budget exposure associated with unlimited production and to stabilize

the production agriculture economy.

Policy Recommendations –

• Expand commercial market opportunities for producers that will result in improved

producer market prices.

• Promote increased humanitarian and nutrition assistance both domestically and

globally to enhance short- and long-term demand.

• Seek and encourage greater international cooperation in the development and

implementation of new foreign assistance and economic development programs such

as the proposal for an international school lunch program.

• Provide authority to establish limited, producer-stored reserve programs dedicated to

renewable energy production and humanitarian food assistance.

• Provide counter-cyclical supply reliability and operational stability to specific

programs in the event of a production shortfall or rising commodity prices.

• Remove surplus stocks from the commercial market to produce a positive price

response for producers and reduced federal program outlays.

• Create the opportunity for earned storage income by farmers.

• Restore authority to establish a limited farmer-owned reserve program.

• Provide earned storage income to participants.

• Maintain buffer stocks to protect domestic and export market share in the case of

a severe production shortfall or surge in demand.

• Ensure global customers and competitors of our long-term ability to be a reliable

supplier.

• Use as a supplemental producer risk-management component to reduce the

effective level of crop loss that must occur before private insurance begins to

cover economic losses.

• Authorize a limited, voluntary production management program for the life of the

program.

• Voluntary participation would provide increased marketing loan rates for the

balance of program crops that are produced.

• Require application of appropriate conservation measures to land idled under the

program.

• Guarantee that any reduced acreage is considered planted for future acreage

calculations.

• Require participants to comply with both offsetting and cross-compliance

regulations.
Commission on 21st Century Production Agriculture 20

• On a commodity specific basis and within established limits, provide authority to

reduce marketing loan rates for nonparticipants in the production management

program if the stocks-to-use ratio exceeds a specified level.

Conservation

U.S. family farmers and ranchers have consistently demonstrated their ability and desire

to implement and apply appropriate stewardship practices to the natural resources under

their control when adequate economic returns are available to their operations or when

they participate in a variety of conservation incentive programs. Future agriculture

policy should seek to balance publicly desired resource management goals and

regulations with incentive-based programs that further encourage the application of longterm stewardship principles.

Policy Recommendations –

• Provide broader discretion in establishing the maximum acreage entered in the

Conservation Reserve Program and the Wetlands Reserve Program.

• Ensure that eligible but prone-to-erosion farmland and acreage that can contribute to

improved water quality, wildlife habitat, etc., are not preempted from participation.

• Limit the potential for whole farm reserve contracts except in instances where all

acreage meets the conservation criteria.

• Review and enforce county limits on reserve entry.

• Ensure that compensation rates are comparable to local rental rates.

• Provide authority to create and implement a multiyear land and soil rehabilitation

program.

• Ensure that the program goal should be to assist those who have suffered losses

caused by recurring pest- or weather-related disasters, giving them the opportunity to

rebuild the productivity of their farms and ranches.

• Establish an incentive-based conservation program by providing conservation

payments and technical assistance to further encourage the application of locally

appropriate conservation practices and technologies that are consistent with crop and

livestock production activities on U.S. farms and ranches.

• Provide appropriate incentives and technical assistance to establish and compensate

producers for on-farm carbon sequestration and encourage the implementation of

locally appropriate, individual strategies consistent with crop and livestock

production activities on U.S. farms and ranches. This initiative should promote the

development of a commercial market for carbon sequestration credits that is open to

participation by producers and/or their cooperatives.

Conclusion

For approximately $2.4 billion in additional outlays, above the level spent on AMTA and

MLPs, a counter-cyclical, production-based commodity marketing loan safety net could

be established at 80 percent of the economic cost of production. This would provide
Commission on 21st Century Production Agriculture 21

greater program equity among crops, target payments to actual producers, and enhance

financial security for crop producers without other program modifications.

If proposed authority for inventory management -- voluntary set-aside and reserve

programs -- is granted and used, the outlays fall by about $3.4 billion compared to current

decoupled payment levels, while the average producer safety net on actual production

remains at the 80 percent level of the economic cost of production.

 COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

FARM INCOME SUPPORT POLICY

The undersigned members of The Commission on 21st Century Production Agriculture

concur with the findings and recommendations contained in the alternative report on the

farm income support policy.

James O. DuPree Leland Swenson

Arkansas South Dakota

Ralph Paige

Georgia
Commission on 21st Century Production Agriculture 22

Minority View

 Commission on 21st Century Production Agriculture

Farm Income Support Policy

Additional Comments - John B. Campbell*

Farm policy has been debated, legislated, and damned since 1929. Back then, around 25

percent of our population was engaged in food production. Today, only about one percent

of the population grows almost 90 percent of our food. In the 1960s, when President

Johnson initiated his War on Poverty, an estimated 31 percent of farm families were poor.

By 1990, farm poverty rates had dropped below the nonfarm population. A lot has

changed.

Today, we are on the threshold of yet another farm bill debate. However, our selection of

tools to fix the imperfections of agriculture is pretty much the same as it was 71 years

ago:

• Non-recourse loans to guarantee a politically determined value for a commodity.

• Direct income supports to compensate for the difference between what politics

determine farmers of certain crops should earn and what the market says.

• Supply controls and grain reserves to deal with the consequences of subsidizing

production or prices above what the market will bear.

• Subsidized risk-management programs such as crop insurance, disaster

payments, and low-interest loans to help farmers deal with Mother Nature.

Only about 50 percent of agriculture is affected directly by farm bill cycles. The other 50

percent, comprised mainly of livestock, fruits, and vegetables, have pretty much steered

clear of the government. Despite 71 years of market intervention, farmers have made

spectacular technological leaps. Productivity growth in agriculture has been better than

anywhere else in the world, and better than any other sector of the U.S. economy.

So what is it that we are always trying to fix in these farm bills? Intervention advocates

point to:

• Chronic oversupply leading to constantly low prices.

• High risk that comes from reliance on Mother Nature.

• Unfair markets caused by the policy decisions of other countries.

• Unfair markets caused by large businesses that sell to, and buy from, farmers.

Many people believe that those factors make agriculture unique among business

occupations. This belief has led to a plethora of programs aimed at lending a hand.

* These additional comments are submitted as personal and do not necessarily reflect the

views of the board or management of Ag Processing, Inc.
Commission on 21st Century Production Agriculture 23

The 1996 farm bill was supposed to be different. Building on the market-oriented reforms

of the 1985 and 1990 bills, Freedom to Farm (F2F) was hoped to once and for all

transition eight program crops and dairy to much more minimalist programs. For the first

time, Congress eliminated programs including those for wool, mohair, and honey. The

mood was positive in agriculture. Export demand was good and farm income had been on

the rise for almost ten years. Farm groups reluctantly supported the farm policy reform

ideas because it looked like farmers would get more government money than if the old

programs were continued. And, a seven-year budget deal was struck that saved farmers

from painful annual deficit-reduction legislation.

For two years, Freedom to Farm worked like a charm. Prices went up and farmers reaped

billions in extra government payments. With cash in hand, they immediately did what

they have always done -- reinvested in their business. Bigger, better, faster equipment

was purchased. Irrigation systems were installed or updated, computers and global

satellite farming systems were adopted. The extra money in 1996 and 1997 didn't get

saved for a rainy day. Not only did farmers make operational upgrades, they bid up their

own fixed costs by offering more for land.

Temporary windfalls got bid into nearly permanent land expenses. When the bottom

started to fall out in 1998, bankers and landowners saw their higher rents and higher

equity base potentially evaporating. Universities warned of negative cash flows and the

specter of another 1980s-style equity collapse loomed near.

The first signs of trouble appeared in 1998. Asian flu hit and global crops racked up

production records. By the time crops came out of the field, prices had dropped to the

point that LDPs had started to kick in.

The LDP safety net was not enough. Congress stepped in with special emergency funding

to supplement the previously scheduled F2F payments. 1999 and 2000 essentially have

been reruns of 1998. The only difference is that Congress approved dramatically more

money.

What can we learn from five years of supposed reform peppered with three years of

emergency intervention?

Surprisingly, we learned that gross receipts for the eight program crops were $10 billion

higher than the previous farm bill. Likewise, net cash income for those crops was $3.6

billion higher over the same period. While the average net cash income over the period

would have been the same as the previous farm bill without emergency payments, it

didn't make any difference. All of the additional income came from Congress.

Today we are poised for a new farm bill with the expectation that Congress is going to

continue defending the high-water mark created in 1996 and 1997. And why not? They

did in 1998, 1999, and 2000.
Commission on 21st Century Production Agriculture 24

We are still below our internationally agreed spending caps for domestic support

programs and a lot of farmers are nervous about low prices. There is a budget surplus and

somebody is going to get the money. Why not farmers?

My concern with this philosophy rests on the following grounds:

The Commission recommendation formalizes, through a supplemental

counter- cyclical payment, what Congress did the past three years.

The Supplemental Income Support (SIS) payment formula almost guarantees

that land rents and land prices will not give back the jumps made through

windfall F2F payments no matter what the market says.

Why is this important?

Commercial farmers must now squeeze more out of each acre at lower

variable costs than ever before. Only the biggest, fastest, and smartest will be

able to do that. The greater the amount of government support that can be

counted on, the quicker those supports get bid into land costs and the faster

big farmers gobble up small farmers. Big farmers usually don’t set out to

cannibalize their neighbors; however, the combination of new labor-saving

technology and substantial government supports not only allows more acres to

be farmed by one farmer, it virtually assures it.

Would reducing government supports lead to more farmers? Probably not, but

it would at least reduce the government incentive to grow bigger.

Two other policy options that we should consider are the following:

1. Eliminate Agricultural Market Transition Act (AMTA) payments.

The original concept of AMTA payments embodied in the 1985 version of

Senators Boschwitz (R-MN) and Boren’s (D-OK) decoupling bill was that

farmers deserved the upside of markets.

Under the old counter-cyclical deficiency payment system, the price upside

was always taken away by reduced income support. Sometimes the price

increase was caused by poor crops. This counter-cyclical system took income

support away when farmers needed it most. Likewise, when yields were

good, price-based income supports grew even though revenue from markets

was up, too.

What we have learned is that farmers like the price upside of a fixed payment,

but they will not accept the downside, even though the average income over a

multiyear period may not have declined.
Commission on 21st Century Production Agriculture 25

AMTA payments have become a lightning rod for those who cannot accept

the idea that fixed payments really are fixed. The old acreage base and yield

from which the payments were originally calculated do not reflect changes in

cropping patterns and yields. This situation has led to a belief that the

payments are not justified.

AMTA payments have also been criticized by those who claim that payments

go to people who don't deserve them. Need has never been a criterion for

farm program payments, but AMTA payments have come in for unique

criticism in this regard.

Either fixed AMTA payments are a good thing or they are not. The idea that

we should keep the loan rate/LDP system and the much-maligned AMTA

payments and pile on a counter-cyclical payment program is difficult to

rationalize. If the farm lobby truly again wants counter-cyclical payments, we

should go all the way. Why should we layer on a third safety net system

without replacing the one regarded as inadequate?

The Commission tried to balance the desire for a counter-cyclical payment

with our World Trade Organization (WTO) "amber" limits for coupled

supports. The basket of goods revenue target is an approach designed to try to

escape WTO domestic support disciplines while providing a counter-cyclical

payment. The approach will run into problems on at least two fronts: first,

farmers will no more be satisfied by a payment that reflects a basket of goods

than they are with fixed AMTA payments. For example, why would a cotton

farmer in Texas who takes a low price for cotton be happy when he doesn't get

a payment because of high corn prices? A true basket of goods approach

requires that the biggest crops (corn and soybeans) heavily weight the

outcome of the counter-cyclical revenue calculation. Producers of smaller

crops will prosper or not based on what happens to producers of the bigger

crops.

Second, our foreign trading partners will either object to our "hall pass" WTO

strategy or respond in kind. While the U.S. argues vigorously for the benefits

of freer trade and lower subsidies abroad, we appear to do everything we can

to pump up and hide our own domestic programs. We can't expect to have it

both ways.

2. Consider crop insurance as a counter-cyclical income support payment.

Crop insurance subsidies now threaten to distort planting decisions as much

any policy that we have had in the past. While the Commission heard much

criticism of the re-reformed crop insurance program, we did nothing to

recommend change.
Commission on 21st Century Production Agriculture 26

It is well documented that high-risk regions show a consistent pattern of

receiving more in insurance payments than they pay in premiums. A real

insurance program would not long tolerate a consistent and persistent transfer

of dollars from low-risk farmers to high-risk farmers. The crop insurance

program must be viewed as a subsidy to take risks embedded in a farm policy

that is supposedly designed to reduce the risks of farming. What crop

insurance does for too many producers is reduce the risks of risky farming in

risky areas.

Farmers accept a certain level of risk regardless of crop insurance. In too

many cases, the risks reduced by the program are offset by new risks taken.

When crop insurance steps in to take risk off the shoulders of producers, their

collective action is to eventually push the risk envelope back out where it was

before. The problem is that lower risk farmers who want or are forced to

purchase insurance pay the price along with taxpayers.

These philosophical issues don't even start to address the basic day-to-day

administrative issues of trying to run a program that is neither private nor

public. We heard horror stories about the consequences of nobody really being

accountable for the performance of the program.

If we are going to have a subsidized national crop insurance program, I

believe that farmers could do a better job of designing and administering an

actuarially sound crop insurance program. An elected farmer board could take

over the program along with the responsibility for making the program

regionally fair, deciding what crops to cover, deciding how to deliver the

policies, and deciding how the insurance subsidy pie should be carved.

Congress and several administrations have tried repeatedly for 20 years to

make crop insurance work. The results are that sometimes it works too well

and sometimes it doesn't work well enough. And, it has failed miserably in

the goal of preventing Congress from stepping in with ad hoc disaster

payment programs.

Perhaps no crop insurance program will dampen the appetite of Congress to

ride to the rescue whenever the weather turns bad, but if we really want to

prevent ad hoc disaster programs three things must happen:

- Federal crop insurance must be viewed as doing as good a job as

possible for farmers who want to insure reasonably risky farming

practices and crops. Only farmer control has a chance to achieve this

objective.

- An automatic disaster payment program must be legislated to

supplement crop insurance.
Commission on 21st Century Production Agriculture 27

- Congress must subject ad hoc disaster spending legislation to the same

budget rules as other new spending, that is, pay as you go.

Eventually we will have to come up with a new set of reasons to have farm

programs because farmers aren’t poor any more and farming has changed.

Farmers aren’t poor anymore – The average income of farm households in the

1990s exceeded the U.S. average household income. Noncommercial farms get

most of their income off the farm and subsidize their rural lifestyle with nonfarm

income. Further, income among the smallest one-fifth of farmers has risen faster

than the top one-fifth. Between 1950 and 1994 the real income of the smallest

one-fifth grew three-and-one-half times while the largest one-tenth of real

incomes less than doubled. The income of people on small farms has gained

relative to those on large farms. Moreover, according to USDA the average net

worth of small farms is more than $250,000 -- several times the average

household.

Surprisingly, small farms are financially stronger than the average farm.

According to USDA, only about five percent of small farms are marginally

solvent, while twice as many larger farms are on the financial edge. Further, on a

weighted basis large farms are less dependent on government payments than other

farms. The largest one percent of farms received more than five percent of the

payments, but produced 25 percent of output. Most of these operations would

have been profitable with or without government payments.

Finally, off-farm work allowed many more farmers to stay on the land than was

predicted earlier. One 1970 study estimated that there would be only about

600,000 farms today. Instead we have 2.1 million, 1.5 million of which are small.

Farming has changed -- We treat farmers as if they all sell the same crop for the

same price and get the same yield at the same cost. Our food system, however, is

becoming more specialized and so is risk management. A wheat farmer selling

premium-quality wheat gets the same treatment as a feed-quality wheat producer;

a corn farmer producing a specialty crop under contract is treated the same way as

someone who isn't; a soybean farmer who forwards contracts or uses the futures

and options markets to gain or lose relative to the average price of soybeans is

treated the same as someone who doesn't. In short, we have an industry that is

evolving away from commodities and price-taking to an industry that is more

specialized and integrated.

Consider the corn, soybean, or wheat farmers who have invested in value-added

processing plants for their crops. Their ultimate return on those bushels

committed to the plant has to do with factors far beyond the farm gate.

Commercial farming is big business run by sophisticated operators, but our policy

is not much different than when people living in poverty, without access to

education or opportunity, did most of the farming.
Commission on 21st Century Production Agriculture 28

Let's go over the basic situation.

As a group, large farmers have done well and would continue doing well even without

income support payments at the levels seen in the past few years. These farmers need

continuation of a commodity loan program generally set below market prices (as is now

the case). They also need a more reliable and responsible risk-management program to

protect against yield and/or quality loss.

Medium-size farmers appear to generate less-than-adequate returns from farm

investment, but make up for it with off-farm income. These farmers need help making a

transition. They need to become more specialized to get more return per acre, or they

need to scale up to capture the returns of the larger farms if they want to generate enough

income to support their household with farm profits alone.

Small farmers rarely make money from farming but earn incomes commensurate with

other American families because of off-farm income. It is unlikely that our smallest

farms can transition to commercial operations. If these farms are to earn profits they will

need to be more intensely managed and possibly unified through cooperative marketing

or value-added packaging and/or branding.

What is the bottom line? If we really want a new kind of program we have to agree on the

objectives.

Can we continue to use income support as an objective? Not for the largest nor the

smallest farms. Those groups don't rely on the programs to provide adequate income

anyway.

Do we need large farmers in the program to make supply controls work? Not since we

figured out that supply control programs are the same as an embargo -- they hurt us more

than anybody else.

What about risk management and income stability? We learned that our current crop

insurance program is regionally skewed, poorly administered, and completely inadequate

at stopping ad hoc disaster legislation. We also learned that farmers push out on the risk

balloon at the same rate that the government pushes in. We know from previous research

that price-oriented, counter-cyclical payments usually increase revenue instability. It is

extremely difficult to make the case that our programs have reduced risk taking or have

stabilized income.

Do our support programs address the concerns about market failure caused by

concentration? No, they weren't designed to; however, some make the case that the

programs actually lead to concentration at the farm level.

What about the unfair trade practices of other countries? Farm programs have little to do

with combating unfair trade practices. Broader issues are the battleground on trade, not
Commission on 21st Century Production Agriculture 29

domestic support programs. The rationale for a farm program often is grounded on the

global fairness argument.

Conclusions

The conclusions I draw from the data and information presented to the Commission stand

in stark contrast to the pessimistic outlook presented by so many rural and farming

advocates.

As a group, program crop farms have generated positive incomes. Much income has

come from the government but technological leaps, high yields, and lower costs have

allowed the most aggressive and larger farmers to generate incomes high enough to drive

land prices and rent higher.

Does the fact that farming has changed mean that we should convert these programs to

means-tested farming welfare payments? No. What we know from our other welfare

programs is that there are always unintended adverse consequences. We also know that

we could never be happy with where the line is drawn, separating farmers we help from

those we don't. The regional differences between farms and crops are too great for a

single federal policy.

Three types of programs can be economically and socially defended in the future:

1. Safety net programs for commercial producers that protect against

catastrophic markets or weather situations. This would include

market-oriented marketing loans and a market-oriented, riskmanagement program.

2. Social and/or credit programs that help farmers on the edge transition

to larger commercial operations, smaller specialty operations, or offfarm employment.

3. Environmental stewardship programs that recognize the growing

public concern about how food is produced and how we are taking

care of our natural resources.

The Commission did not make specific recommendations along these lines but at some

point they are likely to come to the forefront of the policy debate.
Commission on 21st Century Production Agriculture 30

COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

FARM INCOME SUPPORT POLICY

The undersigned members of The Commission on 21st Century Production Agriculture

concur with the findings and recommendations contained in the alternative report on the

farm income support policy.

John Campbell

Nebraska
Commission on 21st Century Production Agriculture 31

II. Risk-Management Policy

Introduction

As pointed out in the introduction to this report, production agriculture is inherently

risky. Harwood, et al. define sources of risk as production or yield risk, price or market

risk, institutional risk (defined as changes in policies or regulations that affect

agriculture), human or personal risk, and financial risk (defined as the business’s ability

to obtain capital).14 Producers encounter these and other related risks on a daily basis and

these risks may affect returns to their business operation. This is of particular concern to

producers, given the changing role of the government following the passage of the 1996

Federal Agricultural Improvement and Reform (FAIR) Act. With the elimination of

deficiency payments coupled to price and production that were a part of previous farm

policy, producers assumed greater risk than before. This change enhanced producers’

need for a greater understanding of how to manage risk in production agriculture. For

many years, the government administered price and income support programs for

producers of major field crops. Up until 1996, these commodity support programs

provided direct payments to participating producers when market prices fell below a

target price set by the government. This fundamental change in 1996, shifted a greater

portion of risk from the government to the producer.

Producers have an array of tools at their disposal with which to manage risk. Planting

flexibility gained in the 1996 FAIR Act has been widely used as a tool for managing risk.

This provision gives producers the ability to plant their acres into any crop they choose

with the exception of fruits and vegetables. Other tools include crop and/or revenue

insurance, production contracts, marketing contracts, hedging in futures, futures options

contracts, vertical integration, enterprise diversification, outsourcing of labor, leasing

inputs such as land and machinery, cash balances, off-farm income, and production and

cultural practices. These tools, used separately or in coordination, provide producers

with a measure of protection from the uncertainty of prices and yield.

Current programs in place to help producers manage risk include the Federal Crop

Insurance Program, the Agricultural Market Transition Act payments legislated in the

1996 FAIR Act, and risk-management education programs administered by the USDA’s

Risk Management Agency and Cooperative State Research, Extension, and Education

System. In addition, the supplemental support provided by Congress in the form of ad

hoc disaster relief has provided, ex post, a measure of relief from the effects of market

and weather-related risk.

The Commission considered two categories of programs to enhance producers’ ability to

manage their business risks: insurance programs and savings account programs.

 

14. Harwood, Joy, et al. “Managing Risk in Farming: Concepts, Research and Analysis”, USDA, ERS,

AER No. 774, March 1999.
Commission on 21st Century Production Agriculture 32

Insurance Program Options

After nearly a year of debate and discussion, the Agricultural Risk Protection Act of 2000

(P.L. 106-224) was signed into law on June 22, 2000. The act is a $15.3-billion package

for fiscal years 2001 to 2005 that includes $8.2 billion in funds related to a variety of

changes in the current programs and administration of the Federal Crop Insurance

Corporation. This legislation reformed the crop/revenue insurance subsidy formula by

increasing buy-up incentives for all levels of coverage. Premium subsidies for higher

levels of protection increased from the previous range of 55 to 13 percent to 67 to 38

percent, depending on the level of coverage. Effective in the 2001 crop year, P.L. 106-

224 sets a floor under a farmer's past and future annual yields so that yields in any year

cannot fall below 60 percent of the transition yield for that commodity. This provision

ensures that even if a producer has a total crop loss in any year, the yield used for that

year to calculate the producer's actual production history will not be lower than 60

percent of the historical average production for the region.

Among other provisions, the bill increased the fee for standard catastrophic risk

protection to $100 for 50 to 55 percent coverage. The Agricultural Risk Protection Act of

2000 also provided funding for a substantial investment in risk-management education

efforts. The measure also expanded the authority for pilot programs. These pilot

programs include coverage for livestock and expansion of the dairy options pilot program

into 300 counties.

Recommendation of the Commission

The Commission recommends that a study be conducted to examine the possibility of

movement to an actuarially sound crop/revenue insurance program with products

provided by private companies. Under this program, the government would not

underwrite a portion of the insurance companies’ risk but instead only provide farmers

with a voucher to offset the cost of insurance premiums.

Discussion

The Agricultural Risk Protection Act of 2000 provided underinsured producers the

incentive, through buy-up premium subsidies to purchase additional coverage. This

legislation also provided funding for research into new insurance products, pilot

programs, and risk- management education. Several concerns with the current crop

insurance system merit attention and should be addressed in the recommended study: the

relationship between crop insurance and farm land rental rates, the loss-acceptance level

of insurance companies in areas with a high loss ratio, crop insurance working as an

incentive to keep marginal lands in production, the provisions of crop insurance’s effect

on type and amount of crops planted, and the degree and level of fiscal accountability of

the private insurance industry.

Additional issues that could be addressed in the study recommended by the Commission

include the government’s role to provide subsidies for buy-up coverage with private
Commission on 21st Century Production Agriculture 33

companies assuming the risk of providing insurance, and whether specialty crops want to

be included as part of an insurance program.

Conclusion

Passage of the Agricultural Risk Protection Act of 2000 has resulted in positive changes

such as the incentives for increased insurance coverage for producers, the commitment to

risk-management education, and support for researching new insurance products. Those

changes, however, do not entirely address the moral hazard problem and distortion of

planting decisions that currently occur under the existing crop insurance system. The

Commission believes that a comprehensive study of the loopholes and problems

associated with the current crop insurance system would help to identify areas where

modifications may be made.

Savings Account Proposals

Producers often have difficulty maintaining a reserve of cash from one year to the next.

In years of positive farm income, producers often make the choice of reducing the portion

of their income they return to the federal government in the form of taxes by placing part

of their income into a capital investment. As years of positive farm income have been

followed by years of negative income, cash flow often becomes an issue, especially if

those producers are saddled with payments on the capital items they purchased to offset

taxes in the good years.

The events of the last few years have renewed producers’ interest in an additional riskmanagement instrument that would allow them to save a portion of their income in good

years to create a reserve fund for use in tougher economic times. Several savings account

programs have been proposed that allow producers to shelter some of their income from

taxes and withdraw it when it becomes necessary. Such savings accounts could provide

an alternative for producers who might otherwise purchase capital assets solely to reduce

their tax liability.

Three savings account programs have been discussed as possible additions to the riskmanagement strategies currently available to producers. They are the Individual Risk

Management Account (IRMA), the Farm and Ranch Risk Management account

(FARRM), and the Net Income Stabilization Account (NISA).

IRMA would allow producers to deposit up to a maximum of 150 percent of their threeyear average gross income as computed from line 11 of their IRS Schedule F.

Contributions to an IRMA account would be excluded from taxation, with interest and

principal subject to tax upon withdrawal. Withdrawals from an IRMA account could be

made only in years where gross income is below 80 percent of the previous three-year

average. In lieu of receiving subsidies to purchase crop insurance, producers would

receive a government contribution to their IRMA account equal to the rate of the subsidy

on the premiums associated with the level of crop insurance they had historically

purchased. Producers participating in an IRMA would be allowed to purchase
Commission on 21st Century Production Agriculture 34

unsubsidized crop insurance and would be covered by subsidized government

catastrophic coverage on gross revenue at 50 percent of the previous three-year average

of gross income.

Several versions of FARRM-type accounts have been proposed during the last two

sessions of Congress. The development of FARRM accounts was based on individual

retirement accounts. Under most proposals, farmers could annually contribute up to 20

percent of pre-tax income into a tax-deferred, interest-bearing account. Interest earned

would be taxed annually and the principal would be taxed as ordinary income upon

withdrawal. Withdrawals from principal would be at the discretion of the producer, with

no price or income trigger. Most proposals of the FARRM-type account have limited the

period that money can remain in the account (five years on a first-in, first-out accounting

basis). In addition, to be eligible to participate in a FARRM-type account a producer

must have reported a positive net farm income and owe federal income tax.

Advocates of a proposed U.S. NISA farm savings program could pattern the system after

the Canadian NISA program developed in 1991. The elements of a NISA program vary

somewhat from other savings programs in that contributions are taxed in the year in

which they are made and tax on interest earned on the principal is deferred until

withdrawal. Similar to the IRMA program, withdrawals are allowed only in years where

current income falls below a percentage of the previous five-year average of eligible

sales. Producers would be able to contribute up to 20 percent of eligible net sales, which

are defined as sales of qualifying commodities less purchases of qualifying commodities

(seed, plants, livestock, etc.). Qualifying commodities cover most commodities except

dairy, poultry, and eggs. Under the program, the government provides a matching

contribution to the producer’s NISA account equal to the lesser of three percent of

eligible net sales or $7,500. Producers are allowed to accumulate up to 150 percent of

their previous five-year average eligible net sales in the account. In addition, the

government provides a three percent interest rate bonus above that earned on the account.

The NISA contributions are held in two separate accounts. Fund 1 holds all producer

deposits and Fund 2 holds government matching contributions and all earned interest.

Withdrawals are made first from Fund 2 and then from Fund 1. Withdrawals from Fund 2

are taxable; withdrawals from Fund 1 are not.

Recommendation of the Commission

The Commission on 21st Century Production Agriculture recommends the establishment

of a FARRM account without the restriction on how long money may be left in the

account. The removal of the time restriction would allow the FARRM account to serve

both as a cash reserve for low-income years and an alternative retirement fund for the

producer.
Commission on 21st Century Production Agriculture 35

Discussion

Any eligible crop or livestock producer can open a FARRM savings account. There is no

minimum annual contribution and no maximum account limit. The FARRM savings

account program allows a participant to withdraw any amount of money in any year, and

producers are allowed to defer taxes on income until it is used. FARRM accounts require

no major additional farm program outlays to operate the program. The FAARM savings

account is not a direct government payment to producers and it is not a trade-distorting

policy. It would presumably be categorized as a green box program consistent with the

United States’ commitments under the WTO.

Conclusion

The Commission recognizes that the FARRM savings account is not a one-size-fits-all

solution to manage every risk in production agriculture. The FARRM account is intended

to be one part of a portfolio of options and strategies that gives producers the ability to

take personal responsibility in managing a portion of their business risk. The FARRM

savings account is a voluntary program available to all producers who qualify. While not

every producer may be able to participate in such a program, the Commission believes

that it should be an available option and would be beneficial to those producers who

would be able to participate.

Income Averaging and Alternative Minimum Taxation

Long-term capital gains can cause producers to incur an AMT liability. AMTs are an

extra tax paid in addition to the normal income tax. Large capital gains can severely

reduce or even eliminate the AMT exemption amount and thereby reduce the

effectiveness of income averaging and other such risk-management tools used by

producers. The application of the AMT to income averaging dilutes the purpose of using

the income-averaging program as a risk-management tool. Therefore, the Commission

supports a viable income-averaging system for producers that is not negated by the

effects of the AMT.
Commission on 21st Century Production Agriculture 36

III. Conservation and the Environment

Introduction

Historically, the United States Department of Agriculture (USDA) has administered a

broad range of programs focused on improving and conserving soil and water

resources.15 Two themes involving farmland productivity dominated the debate from the

1930s until 1985: high levels of soil erosion and providing water to agriculture in

quantities and quality that enhance farm production.16 More recently that role has

expanded to include environmental programs designed to address other natural resources

associated with agricultural land.

As one of four major new programs enacted by Congress in the conservation title of the

1985 Food Security Act, the Conservation Reserve Program (CRP) greatly increased the

federal financial commitment to conservation and targeted federal funds at specific

problem areas. The other three, sodbuster (highly erodible land conservation),

conservation compliance, and swampbuster (wetland conservation) created a new

approach to conservation that halted access to federal farm program benefits for

producers who did not meet conservation program requirements. With the exception of

swampbuster, these provisions were designed to address excessive soil erosion.

The Food, Agriculture, Conservation, and Trade (FACT) Act of 1990 modified the

provisions of the 1985 Act and added conservation provisions to address surface water,

ground water, and wetland issues. The CRP was broadened to include cropland that

adversely affects water quality and targeted enrollment of one million acres in a Wetland

Reserve Program (WRP). The Agricultural Water Quality Protection Program was

established to enroll up to ten million acres of land in areas near wellheads, areas

inhabited by threatened or endangered species, or where agricultural production poses a

threat to the quality of ground and surface water supplies. The Act also initiated the

Integrated Farm Management Program of up to five million acres to encourage farmers to

plant conserving crops by not losing payments or crop base.

The FAIR Act of 1996 reaffirmed the traditional approaches to federal conservation

policy: technical assistance, cost sharing, and education. The provisions included in Title

III of the Act amended the conservation compliance, sodbuster, and swampbuster

provisions. The amendments provide farmers with more flexibility in meeting the

requirements and conditions of these two sets of provisions. The FAIR Act also extended

the CRP and WRP, and established several new programs including the Environmental

Quality Incentives Program (EQIP), the Wildlife Habitat Incentives Program, the Flood

Risk Reduction Program, a Farmland Protection Program, a Conservation Farm Option,

and a Conservation of Private Grazing Lands initiative.

 

15. Osborn, C. Tim, Carmen Sandretto and Dwight Gadsby. “Conservation and Environmental Programs

Overview”, AREI, 1996-97, USDA/ERS, July 1997.

16. Zinn, Jeffrey A. “Soil and Water Conservation Issues”, CRS/ Resources, Science, and Industry

Division, IB96030, January 31, 2000
Commission on 21st Century Production Agriculture 37

The most significant conservation programs of the 1996 farm bill are administered by

two agencies. The Natural Resources Conservation Service (NRCS) provides technical

assistance to producers who wish to plan, install, and maintain conservation practices. It

also administers some of the programs that provide cost-sharing assistance to producers

as an incentive to practice conservation, and the compliance and wetland protection

efforts. The Farm Service Agency (FSA) administers the largest conservation program,

the CRP.

In addition to USDA’s conservation and environmental policies, regulations from the

Environmental Protection Agency (EPA) and other federal agencies affect agriculture.

Most notably, the EPA regulates the production and use of pesticides under the Federal

Insecticide, Fungicide, Rodenticide Act, as amended by the Food Quality Protection Act,

and animal waste discharge from large confined livestock operations under the Clean

Water Act. Recently, EPA and USDA have addressed water quality issues for a broader

category of animal feeding operations. Most if not all states also regulate the use of

pesticides and land-use practices.

The Commission considered two categories of programs to enhance producers’ ability to

undertake conservation and environmentally beneficial practices in an economically

viable manner: conservation reserve programs and conservation cost-share programs.

Additionally, the Commission addressed other conservation and environmental issues

affecting production agriculture, citing the need for research in those areas.

Conservation Reserve Options

The Conservation Reserve Program was initiated as part of the 1985 Food Security Act

and was extended by the 1990 FACT Act and 1996 FAIR Act. Under the CRP,

producers bid to enroll environmentally sensitive lands in the reserve during signup

periods, retiring it from production for ten years (or longer under limited circumstances).

Successful bidders receive annual rental payments, cost-sharing, and technical assistance

to plant conserving vegetation.

Twenty signups for CRP were held between 1986 and 2000. Currently, 31.4 million

acres are enrolled out of the maximum 36.4 million acres allotted. USDA estimates that

the average erosion rates on enrolled acres are reduced from 21 to less than two tons per

acre per year. Retiring these lands also expanded wildlife habitat, enhanced water quality,

and restored soil. The annual value of these benefits is estimated to be $3.1 billion with

an annual contract cost of $1.742 billion allocated for fiscal year 2001.17 Every state

except Hawaii has land enrolled in CRP; however, the bulk of CRP land is concentrated

in the Western Plains states in a band from Texas to North Dakota and Montana.

 

17. USDA/FSA, The Conservation Reserve Program, PA-1603, Revised June 1999.
Commission on 21st Century Production Agriculture 38

Recommendation of the Commission

The Commission recommends continuation of the current Conservation Reserve Program

and advises that any possible increase in the acreage of the program be designated

towards buffer strips, filter strips, wetlands, grass waterways, and partial field

enrollments.

Discussion

Since 1986, the CRP has significantly reduced the average erosion rates on its enrolled

acres. Concern over water quality has become a focus at local and national levels. Buffer

strips, filter strips, wetlands, and grass waterways are practices that enhance conservation

along riparian areas and improve water quality. Including partial field enrollment with

these conservation practices as part of the CRP allows producers to farm productive land

near streams and rivers while benefiting the wildlife habitat and water quality of those

areas. Partial field enrollment of acres could encourage participation by producers who

do not have entire fields that qualify under the current CRP, as well as producers who

farm in riparian areas. Enhanced options for enrollment could assist the program in

reaching its statutory maximum of 36.4 million acres.

Conservation Cost-Share Options

During the past several decades, Congress has enacted cost-sharing programs that provide

financial incentives to induce farmers to participate in conservation efforts. These

programs pay a portion of the cost of installing or constructing approved conservation

practices.

The largest of these cost-sharing programs had been the Agricultural Conservation

Program (ACP). The ACP was established in 1936 as a temporary program in an

amendment to the Soil Conservation and Domestic Allotment Act of 1935 and became a

legally permanent program in 1962.18 In 1937, Congress appropriated $440 million in

assistance ($5 billion in 1999 U.S. dollars) for the ACP over a two-year period. The ACP

paid farmers up to $3,500 per year in cost-share assistance to install approved

conservation practices. The FSA administered the ACP until it was replaced in 1996.

The 1996 FAIR Act terminated the ACP and replaced it with EQIP, a mandatory

spending program that supports structural, vegetative, and land-management practices.

Some have suggested replacing the current EQIP in upcoming legislation with a modified

version of the ACP.

EQIP was established to provide a voluntary conservation program for farmers and

ranchers faced with threats to soil, water, and other natural resources. Four of USDA’s

former conservation programs were combined in EQIP: the ACP, the Water Quality

 

18. Parts of this section are based on “A Time to Choose: Summary Report on the Structure of

Agriculture”, United States Department of Agriculture. Washington, D.C., January 1981.
Commission on 21st Century Production Agriculture 39

Incentives Program, the Great Plains Conservation Program, and the Colorado River

Basin Salinity Control Program.

EQIP is designed to address serious natural resource problems in priority areas. Priority

areas are generally defined as watersheds, regions, or areas of special environmental

sensitivity or having significant soil, water, or related natural resource concerns. All

EQIP activities are carried out according to a site-specific conservation plan, with five- to

ten-year contracts that provide incentive payments and cost sharing for conservation

practices outlined in the site-specific plan. The program’s cost sharing may pay up to 75

percent of the costs of certain conservation practices such as grass waterways and filter

strips. Incentive payments may be made to encourage a producer to implement one or

more land-management practices such as nutrient management, manure management,

integrated pest management, irrigation water management, and wildlife habitat

management. These payments may be provided for up to three years to encourage

producers to carry out management practices that they may not otherwise use without the

program incentive.

EQIP eligibility is limited to persons engaged in livestock or agricultural production.

Eligible land includes cropland, rangeland, pasture, and forestland. Fifty percent of

EQIP’s funding is targeted at natural resource concerns relating to livestock. Total costshare and incentive payments are limited to $10,000 per person per year and $50,000 for

the length of the contract. The Commodity Credit Corporation provides the funds for

EQIP whose authorized annual budget is $200 million through 2002. The NRCS is the

lead agency for implementing EQIP and works with the FSA to set the program’s

policies, priorities, and guidelines.19

Recommendations of the Commission

The Commission recommends continuation of EQIP. Further, the Commission

recommends that the program be funded at levels initially authorized in the 1996 FAIR

Act, with those funds dedicated to program activities and not used to pay administrative

and overhead costs.20 The Commission also recommends assuring that there be adequate

support for NRCS staff to administer a fully funded EQIP.

Discussion

The Commission recognizes that EQIP does not allow participation on as broad a basis as

the ACP once did. However, in addition to cost-sharing programs, EQIP, unlike the ACP,

also provides producers with incentive payments over several years for adoption of

conservation practices. At present, EQIP has limited funds available to service the

demand for participation in the limited designated priority areas. While the ACP was a

broad program, its environmental benefits may not have been as great as those achieved

with current programs. For example, more than half of all ACP-assisted erosion-control

 

19. Parts are from: EQIP Fact Sheet - 1996 Farm Bill Conservation Provisions, NRCS-USDA.

20. The 1996 Act recommended funding at $200 million, the 2001 budget for EQIP is set at $174 million.
Commission on 21st Century Production Agriculture 40

practices were installed on lands with low erosion rates.21 Continuation of an enhanced

EQIP with expanded coverage provides another tool for producers in their efforts to

adopt effective natural resource-management practices.

Other Issue Options

Air and water quality issues and regulation are a controversial subject in agriculture. In

1997, the EPA revised the National Ambient Air Quality Standards for ground-level

ozone and two sizes of particulates. The response of the agricultural community as well

as the USDA was to challenge the scientific basis of these revisions. A federal court

subsequently ruled that the EPA had exceeded its authority in issuing these regulations.

Similarly, the EPA has issued regulations regarding water quality under the auspices of

the Clean Water Act. The EPA has faced additional challenges to its regulations by the

agricultural community.

In response to global negotiations on climate change and the drafting of the Kyoto

Protocol in 1997 that aims to reduce greenhouse gas emissions, agricultural producers are

interested in the possible opportunity to contribute to greenhouse gas reductions by taking

actions and receiving credits for the sequestration of carbon in the soil and/or trees. The

producers could save credits or sell them to others (for example, power companies or

manufacturing plants) who wish to offset their own greenhouse emissions. Earning

credits for carbon sequestration could provide an additional source of income for

producers.

Recommendation of the Commission

The Commission recommends conducting research that focuses on:

• Providing voluntary, incentive-based programs to enhance agriculture’s positive

contribution to air and water quality and, if necessary, structuring a regulatory

environment that allows farmers to prosper

• A means to compensate producers who establish environmentally beneficial practices,

with funding from a separate environmental program

• Establishing a baseline measure of agriculture’s positive contribution to air and water

quality

• Priority areas including, but not limited to, carbon sequestration, control of

greenhouse gases emissions, manure management, and alternative fuels.

Discussion

Promoting the conservation of natural resources is in the best interest of all citizens. The

means to achieve environmental and conservation goals are the source of the debate on

this issue. A lack of understanding and agreement on many of the scientific principles

involved complicates the effort to design appropriate programs and policies to provide

 

21. A Time to Choose: Summary Report on the Structure of Agriculture, United States Department of

Agriculture. Washington, D.C., January 1981.
Commission on 21st Century Production Agriculture 41

the desired environmental benefits. The agricultural community has an important role to

play in helping achieve many environmental goals. Thorough research is necessary to

identify new practices that will help maximize agriculture’s contribution to effective

natural resource management. In some cases it will be necessary to provide compensation

to assist producers in implementing those practices.

Conclusion

The CRP is a program beneficial to the producers who participate and to the public who

pays for it. The participating producer receives an annual rental payment and the public

benefits from reduced soil erosion, expanded wildlife habitat, and enhanced air, water,

and soil quality. Currently, the program is below its statutory maximum participation.

Provisions to enroll partial fields, buffer and filter strips, wetlands, and grass waterways

have the potential to promote maximum participation with the greatest environmental

benefit.

EQIP, fully served by government, can improve environmental quality in problem areas

while providing financial assistance to producers who implement conservation practices.

Increased participation in EQIP would benefit environmental priority areas and producers

alike.

Federal policy should be encouraged to use current conservation and environmental

programs and design new programs that provide agricultural producers with economic

incentives to adopt practices that achieve measurable environmental benefits that

minimize the need for invasive regulatory approaches.
Commission on 21st Century Production Agriculture 42

IV. Agricultural Trade Policy

Introduction

The United States is the world’s largest single-country exporter of agricultural products.

The production of approximately 30 percent of U.S. crop acreage goes into export

markets. Down from their peak value of $59.8 billion in 1996, fiscal year 2000

agricultural exports are expected to be valued at $50.5 billion. In addition to declining

exports, U.S. farmers and ranchers face increasing competition from imported

agricultural products. The U.S. is projected to have imported $38 billion in agricultural

products in fiscal year 2000. Agricultural imports in 1999 included about $7.9 billion in

noncompetitive products such as coffee, cocoa, and bananas. In contrast to the export

market opportunities for U.S. agricultural products, U.S. producers compete with about

$29.8 billion worth of imported products such as red meats, dairy products, fruits,

vegetables, wine, and malt beverages. As a result, the health of the agricultural sector is

highly dependent on developments in international markets and in the policies that

govern the trade of agricultural commodities.

The Uruguay Round of multilateral trade negotiations provided new and strengthened

rules for the conduct of agricultural trade. The success of U.S. negotiators in the next

round of agricultural trade talks and in resolving trade disputes will depend in large part

on the support or opposition they receive from domestic producers and their

representatives and organizations. Many other trade issues currently confront agricultural

interests, as well.

The United States submitted a comprehensive agricultural reform proposal for correcting

and preventing restrictions and distortions in world agricultural markets before the World

Trade Organization (WTO) in Geneva, Switzerland, in June 2000. The emphasis of the

U.S. proposal is to build on the foundation established in the Uruguay Round by

accelerating the process of reducing trade distortions while preserving the ability of

governments to address agricultural concerns in a nontrade-distorting fashion. The

specific elements of the United States' approach entail reforms of all measures that distort

agricultural trade including tariffs, tariff-rate quotas, import state trading enterprises,

products of new technology, export subsidies, export state trading enterprises, export

taxes, export credit programs, domestic supports, and special and differential treatment

for developing countries.

Trade Proposals

The Commission focused its discussion on agricultural trade policy on two broad options.

The first option was to provide support for the U.S. comprehensive agricultural reform

proposal submitted before the WTO. The second option was to support a policy that

allowed individual commodity interests to pursue trade policies that further their selfinterest in the world markets. Other issues, such as the inclusion of labor and

environmental issues in trade negotiations, also were debated.
Commission on 21st Century Production Agriculture 43

Recommendations of the Commission

The Commission on 21st Century Production Agriculture endorses the comprehensive

U.S. position on trade as tabled in the WTO in June 2000.22 In addition, the Commission

stresses the need for agriculture negotiations to be part of a comprehensive negotiation

conducted in a single-undertaking approach. The Commission also recommends that

Congress grant the President negotiating authority for the new round of trade talks. Last,

it is the view of the Commission that negotiations on trade reform within the WTO are

not the appropriate forum for negotiation of environmental and labor issues.

Discussion

By providing a unified front in support of the United States trade reform proposal, U.S.

agriculture sends a message to our competitors of a strong resolve to move toward

programs and policies that are less trade distorting. If we stand together behind one set of

trade policy options it will be more difficult for our competitors to pursue a divide-andconquer strategy that places individual commodity interests against each other to the

detriment of the common good.

The support for comprehensive negotiations is based on the belief that this framework

provides maximum flexibility for negotiators to secure a favorable outcome for U.S.

agriculture. Traditionally, trade negotiations conclude only when there is agreement on

all subjects under discussion. The final agreement at a trade round normally has been a

single undertaking covering all areas. This "nothing-is-agreed-until-everything-is-agreed"

approach requires that negotiations must be completed in even the most sensitive areas or

no agreement will be reached. Opportunities exist under this format for U.S. negotiators

to obtain concessions in agriculture in exchange for movement on other issues that would

not otherwise be possible in a single-sector negotiation. Obviously, there are concerns

that the opposite could occur but the potential for gains is believed to outweigh the risk,

especially if U.S. agriculture interests are united in their overall goals for the

negotiations.

The granting of trade negotiating authority dates back to 1934 when Congress initially

gave the President authority to negotiate mutual tariff reductions with our trading

partners. This authority was renewed repeatedly over the years and has only recently

been allowed to lapse. To negotiate effectively with our trading partners, they must know

that the deal they agree to will be the one that is voted on in Congress and not

transformed by amendment at some later date. This certainty can only come about if our

trading partners know that when the President negotiates a trade agreement it is with the

confidence that the Congress will stand behind it. As such, the granting of trade

negotiating authority should be accompanied by the understanding that negotiations are

 

22. Proposal for Comprehensive Long Term Agricultural Trade Reform: A Submission from the United

States to the WTO. A summary of this proposal is in the Appendix of this report.
Commission on 21st Century Production Agriculture 44

conducted with extensive consultation and oversight by Congress to ensure that the views

of their constituents will be reflected in any final agreement.

The WTO agricultural negotiations should first and foremost be to address concerns

related to fair competition and public safety in the trade of products between countries.

The WTO provides the arena for the discussion of rules of conduct for agricultural trade,

the expansion of markets for agricultural products, the easement of trade barriers,

reductions in export subsidies and trade-distorting domestic support, disciplines on the

operations of state trading enterprises, and science-based rules governing the trade in

genetically engineered products.

Disagreements between sovereign nations over the appropriateness of a given process or

method of production based on environmental or labor concerns should be the dealt with

in forums other than the WTO. For example, the United Nations Environment Program

(UNEP) was founded to deal with, and be an advocate of, environmental concerns within

the international system. The UNEP makes a particular effort to implement an

environmental agenda that is integrated strategically with the goals of economic

development and social well-being. The International Labor Organization has worked for

the past 75 years to deal with issues of international labor standards and the establishment

of universally accepted benchmarks by which the rights and conditions of human beings

at work are measured. It would appear that these two institutions should be in the lead in

their respective areas, not the WTO.

Conclusion

U.S. producers face challenges and opportunities in agricultural trade. A unified

approach during international trade negotiations provides U.S. agriculture with the

strongest position to achieve increased market opportunities for producers and favorable

resolution of trade conflicts. This approach should include a partnership between the

Congress and the executive branch in those negotiations. The focus of U.S. negotiators

should be to address those issues that impede the open and fair trade of agricultural

products between nations. Issues related to disputes over environment and labor issues

should be addressed within international institutions having authority for those unique

mission areas.
Commission on 21st Century Production Agriculture 45

Minority View

Commission on 21st Century Production Agriculture

Agricultural Trade Policy

Leland Swenson

Background

Agricultural trade is important to U.S. agriculture, as the world’s largest single-country

exporter. The advocates of free trade in agriculture often overstate the benefits of trade to

producers by myopically discussing only one aspect of the market -- exports. To ignore

the size and stable growth of the domestic market as well as the rapid increase in imports

of competitive agricultural products is a distortion of reality and encourages a false sense

of future opportunity that never seems to occur for farmers and ranchers. Greater indepth analysis needs to be undertaken to determine how and in what proportion each

agricultural sector shares in the gains from trade, both export and import, as well as the

level of consumer surplus achieved through agricultural trade activities.

As noted, the U.S. is a large agricultural exporter. Although the volume and value of

U.S. farm exports has exhibited great variability from year to year, the trend has been

about an average 2.5 percent increase in nominal export value per year since 1989. Over

the same period, however, the level of competitive imports has increased at an average

rate of nearly ten percent per year. In 1979, competitive agricultural imports amounted to

about 28 percent of U.S. exports. By 1999, the percentage had increased to nearly 60

percent. Interestingly, the large increase in competitive imports occurred during a period

when food transportation and handling technology had reduced the seasonal variation in

the supply of most U.S. products to the retail consumer market.

By comparing nominal export sales to the value of U.S. crop and livestock output, trade

advocates lead the agricultural community to believe that one acre out of every four, or

25 percent of U.S. agricultural production, currently is shipped overseas. This analysis

obviously ignores the value added by other sectors engaged in processing, merchandising, and handling. In addition, it further overstates the importance of exports to

farmers by failing to net out the impact of competitive imports that substitute for about 17

percent of total farm and ranch output, reducing the demand and price for domestically

produced commodities.

Many suggest that improved export opportunities for U.S. agriculture will occur if and

when further agricultural policy reform is approved within the context of multilateral

(that is, the WTO) and/or regional trade (that is, NAFTA, FTAA) negotiations that are

limited to specific commercial trade interests and issues.

These negotiations are important to producers in establishing more equitable rules to

govern international trade in agricultural products. However, the resulting U.S. farm-gate

benefits of trade talks are likely to be mixed or inconsequential relative to other issues

that affect agricultural trade but are not resolved through the negotiation process.
Commission on 21st Century Production Agriculture 46

The Commission focused its discussion on providing recommendations for a

comprehensive U.S. negotiating framework that seeks to address the current rules

governing agricultural trade.

The alternative framework for trade discussions presented below recognizes that some of

the proposals ultimately may be deemed to be outside the scope of multilateral trade

negotiations. However, the Commissioners signing the alternative report believe the

issues are of such great importance to improving the trade environment that nations must

consider these issues within the established negotiating process.

Trade Negotiations

The U.S. position in international agricultural trade negotiations must reflect more than

the needs of commercial, multinational processors and merchandisers whose trade

objectives may be different or counter to the needs of domestic agricultural producers and

consumers. The objective of the U.S. should be to achieve comprehensive trade rule

reforms and enhanced international cooperation to accommodate the unique economic,

social, and political characteristics of production agriculture.

In contrast to seeking free trade in a world where the conditions necessary to achieve a

fair and equitable distribution of the gains from trade are unlikely to exist, the U.S.

should pursue a set of enforceable trade rules that will reduce the most blatant tradedistorting practices.

Policy Recommendations

• Currency valuation and fluctuations: Exchange rates and currency values have a

significant impact on agricultural trade. If the U.S. and others who tie their currency

to the dollar are to continue providing leadership ensuring global economic security

and stability, the negative results from that responsibility as manifested in policies

consciously designed to maintain a relatively high-valued currency must be

addressed, as must the results of actions by others to create a competitive trade

advantage through exchange rate adjustments. Excessive adjustments of foreign

currency values relative to the U.S. dollar, through transparent or less obvious means,

result in an implicit export tax on U.S. producers and a nontariff import barrier and

effective export subsidy by the nation whose exchange rate is adjusted downward.

Nations and international institutions such as the International Monetary Fund should

seek to minimize the level and impact of exchange rate fluctuations. Beyond specified

adjustment parameters, a nation whose agricultural producers suffer injury due to

changes in relative currency values should retain the ability to implement measures to

offset the effects of exchange rates through border and export measures and domestic

programs.

• Export subsidies: Eliminate the use of direct and indirect export subsidies with the

exception of bona fide humanitarian and/or economic development assistance. The
Commission on 21st Century Production Agriculture 47

use of export subsidies tends to reduce the producer price level of the subsidized

commodities and the alternative or substitute products. Export subsidies may also

reduce aggregate trade volumes as purchasers take a wait-and-see attitude toward

purchase decisions. A reduction in demand, even in the short term, will further

reduce producer prices. The primary beneficiaries of export subsidies are

merchandisers and processors who receive the subsidies and can then use discounted

commodities in conjunction with their market power to drive down prices for other

producers, creating a downward price spiral that ultimately affects all producers.

• Regulatory considerations: Various regulations applied by sovereign nations have a

significant competitive impact on production agriculture. An acknowledged goal of

enhanced international trade should be to achieve improved living standards and

resource sustainability on a global basis. Trade negotiations should address differing

national regulatory regimes and provide an appropriate means by which such

regulations can be accounted for within the context of trade agreements or by other

mechanisms that are internationally enforceable to all WTO signatories. To the

maximum extent possible, environmental, labor, intellectual property, and

competition policies and regulations should be harmonized and internationally

enforced. Nations should be allowed to provide higher levels of protection,

commensurate with the additional costs associated with the regulatory framework, to

those who are challenged by the inherent competitive advantage of others with lower

production, marketing, and product standards.

• Market access and trade barriers: Eliminate nontariff trade barriers such as sanitary

and phytosanitary standards not based on scientific principles and risk assessment or

to accommodate reasonable consumer nutrition, health, and safety interests, or to

address unique situations. To accomplish this, an agreed-on set of scientific

principles and risk-assessment procedures must be developed, along with the

establishment of an appropriate body to implement, test, and deliver findings based

on those principles and procedures. Further, we must maintain national treatment

obligations, seek tariff and tariff-rate quota equalization before agreeing to further

reductions in U.S. tariffs and access commitments, and allow flexibility to unilaterally

address unique situations that potentially cause long-term harm to individual

producers or to the industry such as weather conditions or import surges.

• Transparency: Nearly all nations engage in some form of direct or indirect support

for their agricultural systems. Current international procedures to identify and

quantify those measures, such as various subsidy equivalency calculations, in many

instances fail to fully account for and attribute agricultural support levels that are used

to determine compliance with trade agreement commitments. In addition, the level of

concentration within other sectors of agriculture continues to reduce the domestic and

international level of competition and price discovery and the ability of producers,

consumers, and public policymakers to make sound production, market, and public

issue decisions. New efforts, therefore, should be initiated to identify and account for

all direct and indirect forms of agricultural support on a global basis. To the

maximum achievable, all support programs should be converted to the most
Commission on 21st Century Production Agriculture 48

transparent form possible, and the WTO and member nations should be notified of all

such forms of support. Finally, nations should implement complementary regulatory

approaches that increase commodity market price transparency within both the

private and public sectors for agricultural commodities and production inputs.

• International cooperation: Many current issues resulting in trade disputes or charges

of unfair trade practices can be reconciled through greater international cooperation

directed to addressing the supply, demand, and price problems experienced by all

producers. Global economic development and improved living standards can be

achieved, along with increased short- and long-term demand for agricultural products,

if the U.S. and other industrialized nations engaged in a cooperative effort to increase

the resources available for such activities rather than criticize and condemn current

actions undertaken unilaterally. Further, inventory management programs could

effectively help ensure global food security and resource sustainability and improve

the returns to all producers while providing long-term consumer benefits if the

responsibility for these activities was shared among nations in a spirit of cooperation.

• Dispute resolution: The process should be streamlined and expedited and should

ensure that any relief would provide benefits to the producers and/or agricultural

sectors that were harmed by an unfair trade practice. Procedures should be

established to provide immediate relief or compensation after a preliminary ruling

pending final action. Nations should be allowed to take unilateral action

commensurate with the full costs associated with a violation through both traderelated actions as well as domestic adjustment/assistance programs.
Commission on 21st Century Production Agriculture 49

 COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

AGRICULTURAL TRADE POLICY

The undersigned members of the Commission on 21st Century Production Agriculture

concur with the findings and recommendations contained in the alternative report on

agricultural trade policy.

James O. DuPree Leland Swenson

Arkansas South Dakota
Commission on 21st Century Production Agriculture 50

V. Individual Commodity Policies

Introduction

The Commission identified four commodities as sufficiently unique to warrant separate

consideration in examining their existing programs and policies and determining what, if

any, recommendations for modification might be appropriate: dairy, peanuts, sugar, and

tobacco. Over the years, the producers of these commodities have operated in a marketplace governed by specific price and marketing provisions. In addition, the production of

these commodities tends to be concentrated in a limited number of areas across the

country. Changes in policy that affect the profitability of these commodities will have

substantially different regional effects. The Commission concluded that the producers of

these commodities and their representatives are better able to address the issues facing

these industries and determine how current policy may be adapted to assist them in light

of expectations for their future markets.

In reviewing current conditions and trends, however, the Commission has identified areas

of concern for the future that will have an impact on the economic well-being of the

producers of these commodities. In an effort to provide direction for inquiry, the

Commission has outlined a set of policy options for each commodity that should be

reviewed and urges the industry to work together to develop solutions that will provide

for a prosperous future.

Dairy

The dairy industry in the United States is among the most complex of all agricultural

enterprises. The matrix of participants involved in getting milk from the cow to the

consumer include milk producers, dairy cooperatives, processors and manufacturers, and

the firms that market dairy products. Unlike many commodities, the dairy production

process is continuous -- producers harvest their product every day. Milk is extremely

perishable and needs sanitary handling and rapid delivery for further processing.

Government policy has played a major role in the pricing and marketing of milk, initially

in an attempt to assure consumers a safe and adequate supply of milk and dairy products.

Over the years, the variation in regional milk production costs, regional population shifts,

changes in technology, and other factors have changed greatly. Dairy policy, however,

has remained aligned closely with the programs established in the Agricultural

Adjustment Act of 1949. While the 1996 farm bill and subsequent changes in federal

policy have altered the structure of support to the dairy industry, additional challenges

remain.

Decisions regarding the course of future dairy policy must address at least four issues:

federal marketing orders, dairy compacts, federal price support, and international market

opportunities and challenges.
Commission on 21st Century Production Agriculture 51

The minimum farm price of approximately three-fourths of the nation's fluid milk is

regulated under federal milk marketing orders administered by the USDA. Federal milk

marketing orders require processors to pay a minimum price for farm milk, depending on

how the milk is used. Despite recent changes in pricing differentials and consolidation of

the number of marketing order regions from 31 to 11 as required by the 1996 farm bill,

the federal milk marketing order system remains a labyrinth. To all but those who make

their living in the industry, trying to understand how the price of milk is determined is a

challenge. Even given an appreciation that milk has many end uses that result from

various levels of processing that produce products with different values, the current

system of milk pricing cries out for simplification and increased transparency. Attempts

at using the marketing order system to balance supply and demand in various regions is

ineffective at best.

California, the largest milk-producing region, has its own milk marketing regulations.

The New England States have a temporary authority for a regional dairy compact that

allows the region to establish minimum fluid milk prices above the minimum federal

level. Other states are considering either joining the Northeast Compact or forming a

separate one in the southern regions. Congressional approval is required. The Northeast

Compact was scheduled to expire at the same time that federal order reform was

implemented. Subsequent legislation, however, extended authority for the Northeast

Compact through September 30, 2001.

The dairy price-support program, which authorizes USDA to purchase surplus dairy

products in order to support farm milk prices and had been scheduled by the 1996 farm

bill for elimination at the end of 1999, was extended for one year in the fiscal years 2000

and 2001 agriculture appropriations bills. Each of these appropriations bills also provided

emergency payments to dairy producers in compensation for low farm prices.

Exports of U.S. dairy products also have some federal support. The Dairy Export

Incentive Program (DEIP), first authorized by the Food Security Act of 1985 to help U.S.

exporters counter subsidized sales by foreign competitors, was extended through fiscal

year 2002 for the purpose of market development. Since its inception, the DEIP has

awarded exporters more than $800 million in bonuses to subsidize the sale of more than

one million tons of various types of dairy products.

Controls on dairy imports also assist U.S. dairy producers by limiting the amount of

foreign competition. Under the provisions of the Uruguay Round Agreement, the U.S.

replaced import quotas with tariff rate quotas that apply low tariff rates to the imports of

specific dairy products up to a certain quantity and higher tariff rates on any amount

above quota imports. High-tier tariff rates have been reduced by 15 percent over the six

years of the Uruguay Round Agreement (1995 to 2000), while quantities subject to lowtier rates have been increased gradually.

At the present time, the state of the dairy industry calls into question the sustainability of

the current system of policies. Productivity in the dairy industry continues to outpace
Commission on 21st Century Production Agriculture 52

demand. Dairy output in the U.S. has grown as much in the last two years as during the

preceding seven years and further expansion is possible.23 Advancements in the

technology of storing and handling milk have the potential to erode the justification for

maintaining regional market advantages for local producers. Combined with an uncertain

future regarding continuation of government support programs and the level of export

assistance and import restrictions, dairy producers face a challenging future.

Several options have been suggested as alternatives to the current dairy policies. It will

be necessary to examine many of these proposals in detail during the upcoming farm bill

debate. It is the opinion of the Commission that the following policy options should be

among those analyzed: alternative price support mechanisms for dairy including a

marketing loan for dairy products; a direct-payment-type program for dairy producers;

mandatory supply controls; forward contracting options for dairy producers; extension of

dairy compacts beyond the existing regional authority; and insurance options for revenue

and gross margin protection.

Peanuts

Peanuts are a regional crop, with most production occurring in three areas. In 1999, the

Southeast (Georgia, Alabama, Florida, and South Carolina) accounted for 55 percent of

U.S. peanut output; the Southwest (Texas, Oklahoma, and New Mexico), 32 percent; and

the Virginia/North Carolina region, 13 percent. The largest producer was Georgia, which

accounted for 37 percent of total peanut output, followed by Texas with 25 percent. Due

to the geographic concentration in each state, peanuts account for a large share of farm

and related agribusiness income earned in a number of peanut-producing counties.24

The current U.S. peanut program is a two-tier price support program that has a high

support rate for peanuts for food use (quota peanuts) and a much lower rate for peanuts

grown for export or crushing into oil and meal (additional peanuts). Non-recourse loans

are available to all peanut producers and are administered by three area-wide marketing

associations. The program relies on domestic marketing quotas and tariff rate quotas on

imports.

Any farmer may grow peanuts; however, only those producers who hold or lease a peanut

quota may market their production for food use, and then only in an amount equal to the

individual quota assigned to the acreage they farm. A national quota established and

distributed among eligible states is based on each state's share of the previous year's

quota, and then distributed by "farm" to quota holders based largely on past production

history.25

The FAIR Act of 1966 changed the way the USDA arrives at the annual national

poundage quota. Up until 1996, the USDA was required to set the national quota,

 

23. USDA/ERS, “Livestock, Dairy and Poultry Situation and Outlook”, September 28, 2000.

24. Jurenas, Remy. “Peanut Policy Issues”, CRS Issue Brief for Congress, August, 18, 2000.

25. Sanford, Scott. “U.S. Peanut Consumption Rebounds”, USDA/ERS, Agricultural Outlook, December,

1998.
Commission on 21st Century Production Agriculture 53

including seed use, at not less than a specified statutory minimum (1.35 million tons for

1991 to 1995), regardless of projections regarding expected use. Today, the USDA

establishes a national poundage quota equal to projected U.S. peanut consumption for

food and related uses (excluding seed). The national poundage quota for 2000 is 1.18

million tons, the same as set for 1999, and 12.6 percent below the previous statutory

minimum level. The current quota level is based on the USDA’s assessment that

domestic peanut consumption for food has leveled off and the belief that peanut imports

allowed to enter under trade agreements will continue to displace domestically produced

peanuts in U.S. food uses.

Under the terms of the current program, the owner of a farm or the operator of a farm

with the owner’s permission may sell or lease part or all of the poundage quota for that

farm to the owner or operator of another farm in that state. In most cases, the transfer of

quota is limited to 40 percent of the total quota for an individual county.

The FAIR Act also froze the quota loan rate for 1996 through 2002 crops at $610 per ton

(30.5 cents per pound), effectively reducing quota support by 10.1 percent from 1995's

$678.36 per ton (33.92 cents per pound.) level. The 1996 Act retained the requirement

that USDA set the loan rate for additionals at a level that ensures that the Commodity

Credit Corporation does not incur losses from their sale and disposal, taking into account

demand for peanut oil and meal, expected prices of other vegetable oils and protein

meals, and export demand for peanuts. For 2000, the USDA set the loan rate for

additionals at $132 per ton (6.6 cents per pound), $43 less than the level of $175 per ton

set for additionals marketed from the 1998/1999 crops.

For the 1999 crop, producers became eligible to receive a payment equal to five percent

of the quota or additional loan rate. For quota peanuts marketed, this results in a payment

of $30.50 per ton (1.525 cents per pound); for additional peanuts, this provision means a

payment of $8.75 per ton (just over four-tenths of one cent per pound). Under fiscal year

2000 agriculture appropriations authority, USDA disbursed $55 million to eligible peanut

growers by late May 2000 for the 1999 crop. The 2000 farm aid package makes available

similar payments for the 2000 crop. USDA estimates that $47 million will be made

available to eligible growers in 2001. These payments are intended to partially

compensate growers for continuing low commodity prices and the increasing costs of

production.

Imports in the 2000/2001 marketing year are expected to account for seven percent of

domestic food use, compared with negligible amounts before 1993/1994. Increased

imports reflect the market access commitments made by the United States under various

trade agreements.

The United States imposes tariff-rate quotas (TRQ) on imported peanuts under the

provisions of multilateral and bilateral trade agreements. The TRQ, based on General

Agreement on Tariffs and Trade (GATT) market access rules, permits imports up to a

specified level (the in-quota amount) to enter at a bound, or fixed, tariff. Imports above

the in-quota amount in each TRQ can also enter, but are subject to a very high tariff.
Commission on 21st Century Production Agriculture 54

Most peanuts imported within quota under the provisions of the GATT are subject to a

duty of 9.35 cents per pound. Under the agreement, Argentina is allocated more than an

80 percent share of the TRQ. Under the terms of separate agreements between the U.S.

and Israel, Canada, and member nations of the Caribbean Basin Initiative and Andean

Pact Trade Area, within-quota peanuts from these countries may enter duty free. Most

over-quota peanut imports are subject to an ad valorem tariff of 163.8 percent.26 The

protection afforded by the high above-quota tariff effectively eliminates the price

competitiveness of over-quota imports at the present time.

Although the over-quota tariff gives domestic producers some element of protection

against imports, the U.S. market access commitments greatly increase the amount of

peanut imports relative to earlier years. Until 1995, peanut imports were controlled by

Section 22 import quota provisions with a quota of 2.3 million pounds, in–shell basis.

Peanut imports in 2001 are forecast to reach 169 million pounds.

Under the terms of the North American Free Trade Agreement (NAFTA), Mexico has

duty-free access to the U.S. market for Mexican-produced peanuts under a quota that

gradually rises through 2007. The base quota for Mexican peanut imports to the U.S. was

set at 3,377 tons, increasing by three percent annually to 4,495 tons in 2007. Beginning in

2008, Mexican-origin peanuts will be allowed to enter in unlimited quantities.

A separate GATT-based import quota also caps U.S. imports of peanut butter and paste.

The in-quota volume of peanut butter and paste is set at 20,000 metric tons, with specific

allocations to Canada and Argentina. Imports of peanut butter and paste from Mexico

under NAFTA are exempt from this quota as long as peanuts used in these products are

grown in Mexico. As with peanuts, the above-quota tariff is effectively prohibitive, set at

131.8 percent ad valorem.

Supporters of the current peanut program express concern that further changes to the

domestic peanut program and/or international agreements relating to the import of

peanuts and peanut products may threaten the economic viability of peanut producers,

especially those small and socially disadvantaged dry-land producers who currently farm

on rented land and rent quota.

Critics of the peanut program argue that keeping the U.S. domestic price higher than

world prices results in substantial production and consumption inefficiencies.27 Higher

domestic prices are linked to sluggish growth in the demand for peanut products. In

addition, the high cost of domestic peanuts is suggested as an incentive for competing

peanut-producing countries to expand their production, processing, and manufacturing

infrastructure. Opponents point to the appearance of peanut butter and paste imports

from Mexico as an example. Further, critics of the U.S. two-tier peanut pricing system

 

26. Skully, David. “U.S. Tariff-Rate Quotas for Peanuts”, USDA/ERS, Oil Crops Situation and Outlook,

Special Article, October, 1999.

27. Speakman, David. American Peanut Coalition. Testimony to the Commission on 21st Century

Production Agriculture, Scranton Pennsylvania, September 25, 1999.
Commission on 21st Century Production Agriculture 55

charge that it is inconsistent with U.S. objections in the WTO to similar plans in other

countries, such as the U.S. challenge to the Canadian dairy program.

The health of the peanut industry, or any agricultural industry for that matter, is

dependent on consumer demand. Everything else being equal, an expanding demand will

generate an expanding industry. In the five years up to the 1996 FAIR Act, food use of

peanuts fell 16 percent. Food use has since increased by about six percent through 1999.

Forecasts of the long-term trend for domestic peanut consumption call for slow but

steady growth through the decade. The role of the domestic peanut industry in supplying

that demand will be dependent in large part on the course of future agricultural trade

policy and domestic farm policy.

To better understand the potential effects of changes in the U.S. peanut program, the

Commission recommends that the following options be examined: a phased reduction of

the quota system with compensation to existing quota holders, allowing for movement of

quota across state boundaries; subsidies to manufacturers to stimulate purchase of

domestically grown peanuts (similar to the Cotton Step 2 program); a marketing loan for

peanuts; a direct-payment-type program for producers of quota peanuts; and greater

incentives for increased industry competition to reduce concentration.

Sugar

The United States is the world’s largest single-country market for sugar and corn

sweeteners, the fourth-largest sugar producer in the world, and the number one producer

of corn sweeteners. In the 1990s, U.S. sugar beet and sugar cane production has

accounted for about 80 percent of domestic sugar use. The balance is imported from

more than 40 countries. The U.S. industry has been supported and regulated by

government programs since 1934, except during brief lapses in 1975, 1976, and 1980.

Over this period, domestic sugar producers and processors have operated under a

combination of price supports, import quotas and, when necessary, marketing controls to

limit available supply.

Sugar is part of the larger caloric sweetener industry that includes corn sweetener, honey,

and edible syrups. Corn sweetener is the major product of the industry, accounting for 56

percent of total caloric sweeteners. Sugar accounts for 43 percent of caloric sweeteners,

while honey and edible syrup account for around one percent of total use.

Sugar is produced in 18 states. Sugar beets, which account for about 55 percent of

domestic production, are grown in 14 states. Production in Minnesota, North Dakota,

Idaho, and Michigan account for about 74 percent of the total harvested acreage. Sugar

cane, which accounts for about 45 percent of domestic sugar production, is grown in

Florida, Louisiana, Texas, and Hawaii.

The production of sugar cane increased in the 1990s primarily because of acreage

expansion and improved yields in Florida and Louisiana. Sugar beet production also
Commission on 21st Century Production Agriculture 56

increased, with production growth in Minnesota, North Dakota, and Idaho more than

offsetting declines in California and Texas.

Sugar beets are processed directly into refined sugar, while sugar cane is processed

initially into raw sugar that is refined before final sale. Both sugar cane and sugar beets

deteriorate rapidly after harvest and must be processed immediately; hence, beet and

sugar cane processing facilities are located in close proximity to major production

regions. The geographic concentration of both production and processing of sugar cane

and sugar beets has had significant effects on adjacent rural communities.

The American sweetener industry is estimated to involve directly and indirectly some

420,000 jobs in 42 states is associated with $26.2 billion annually in economic activity.28

Sugar beets are processed in 33 factories across the country, creating 88,200 full-time

direct and indirect jobs. Thirty-four mills process sugar cane and 12 sugar cane refineries

create 71,900 full-time direct and indirect jobs. Unlike mills located near the cane fields

to minimize transportation costs and post-harvest losses, all but two sugar cane refineries

are located on or near the east and gulf coasts.

The current federal farm program covers sugar beet and sugar cane production for the

crop years 1996 through 2002. The program maintains a loan rate of 18 cents per pound

for raw cane sugar for processors of domestically grown sugar cane. A loan rate of 22.9

cents per pound for refined beet sugar is provided for processors of domestically grown

sugar beets. Loans are made for a nine-month period, but must be repaid no later than the

end of the fiscal year.

The terms of sugar loans have been tied to the level of anticipated imports of sugar.

Loans were provided as non-recourse if anticipated imports of sugar under the TRQs are

announced at a level above 1.5 million short tons, raw value (STRV) regardless of

whether subsequent imports reach the announced level. The FAIR Act converted loans to

a recourse basis if announced import expectations fell below 1.5 million STRV. In this

case, the loan rate would not provide a floor under market prices. The fiscal year 2001

agricultural appropriations bill eliminated the link between anticipated import volumes

and made sugar loans non-recourse.

Processors must provide payments to producers that are proportional to the value of the

loan received by the processor for sugar beets and sugar cane delivered by producers.

Processors are charged a penalty on the forfeiture of any sugar pledged as collateral for a

non-recourse loan. The penalty rate is one cent per pound for raw cane sugar and 1.072

cents per pound for refined beet sugar.

The 1996 FAIR Act also eliminated an earlier provision that the sugar program operate at

no net cost to the government and extended budget-deficit-related charges on cane sugar

processors of 1.375 percent of the raw sugar loan rate per pound on all marketings of raw

 

28. “The Importance of the Sugar and Sweetener Industry to the U.S. Economy”, Landell Mills

Commodities Studies Inc., August 1994.
Commission on 21st Century Production Agriculture 57

cane sugar, and on beet sugar processors of 1.47425 percent of the refined beet sugar loan

rate. These charges were suspended in 1999.

Under the provisions of the Uruguay Round Agreement, the U.S. established a minimum

annual level of low-duty TRQ sugar imports of 1,117,195 metric tons, raw value

(MTRV), of which 22,000 metric tons are reserved for refined sugar. A duty of 0.625

cents per pound applies to within-quota imports. Imports in excess of the minimum TRQ

level may be subject to a duty of 15.36 cents per pound. The U.S. trade representative is

responsible for allocating the TRQ among importing countries. Most countries exporting

sugar to the U.S. also have the low duty waived under either the General System of

Preferences or the Caribbean Basin Initiative.

The over-quota tariff level of 15.36 cents per pound is expected to be prohibitive, making

additional imports unprofitable. This assumption is based on a transport cost of about 1.5

cents per pound and on world sugar prices above five cents per pound, thereby supporting

a domestic raw sugar market price of about 22 cents per pound.

Under the provisions of NAFTA, market access for Mexican net surplus sugar (excess of

production over consumption including high-fructose corn sweetener) is subject to certain

constraints. In 2000, Mexico had duty-free access for sugar exports to the U.S. in the

amount of its net surplus production up to a maximum of 25,000 MTRW. During 2001

through 2007, the amount of Mexico’s duty-free access for sugar exports to the U.S. is

subject to debate. The USDA established a TRQ allocation for Mexico in fiscal year

2001 of 116,000 MTRV. Under the terms of the NAFTA side letter, however, Mexico is

entitled to access of an amount of net surplus production up to a maximum of 250,000

metric tons. This maximum allocation is a ten-fold increase from Mexico’s allocation of

25,000 MTRV in fiscal year 2000. In 2008 and beyond, Mexico will have unrestricted

duty-free access for sugar exports to the U.S. of its production of sugar.

Through 1999, the provisions of the FAIR Act and related commitments regarding sugar

in the Uruguay Round Agreement and NAFTA did not significantly undermine the

support provided by the existing program for the U.S. sugar industry. Prices for raw

sugar and refined beet sugar in 1999 averaged 22.07 cents per pound and 27.02 cents per

pound, respectively. The level of the TRQ has been sufficiently high to retain the nonrecourse loans for sugar, and no sugar was forfeited to the Commodity Credit

Corporation.

At the beginning of 2000, the U.S. sugar industry came under great stress. The USDA

announced the year 2000 raw sugar TRQ at 1,501,348 short tons, thereby retaining the

non-recourse loans. Market prices, however, fell below the loan rate and resulted in

producer forfeitures and related government costs.

The potential consequences of domestic production and consumption trends, combined

with existing commitments under international agreements, will lead to further potential

stress for the sugar program in the future. The February 2000 USDA baseline projects
Commission on 21st Century Production Agriculture 58

that the stocks of U.S. sugar will continue to increase to 2010.29 Mexican sugar exports

are projected to begin entering the U.S. market in quantities equal to their NAFTA

maximum duty-free access in 2001. In 2008, Mexican sugar exports to the U.S. are

projected to increase to more than one million STRV. At that point, the U.S. is projected

to reduce the TRQ to the Uruguay Round Agreement minimum of 1.256 million STRV.

At these levels of imports, the stocks-to-use ratio is projected to climb from 16.0 percent

in 1999, to 32.8 percent by 2010.

Falling domestic sugar prices are projected to accompany the increase in the stocks-touse ratio. Prices trend downward over the forecast period from 22.07 cents per pound in

1999 to 15.37 cents per pound in 2010. A decline in grower prices is projected to follow

from falling domestic sugar prices. When stocks-to-use ratios reach 25 percent and

higher, USDA projects that sugar beet prices will decline to $34.55 a ton down from

$35.50 a ton in 1999, while sugar cane prices will fall to $25.91 a ton from $28.20 a

ton.30

In the out years, a combination of anticipated Mexican imports and the Uruguay Round

Agreement minimum-access TRQ level are assumed to count toward the trigger import

level required to achieve the non-recourse loan threshold. As a result, if these projections

are realized, sugar forfeitures will occur and government stocks will accumulate under

the provisions of the current program. Beyond 2010, without some adjustments in

current policies, U.S. government sugar inventories are likely to continue to grow and

domestic sugar prices will continue to decline. While projections such as these are likely

to change, they illustrate the underlying forces that seem likely to push the domestic

sugar market toward imbalance in future years.

Recent policy developments provide a glimpse of what may be become a more regular

occurrence without modification to the existing sugar program. In May 2000, the USDA

announced that it was going to purchase sugar in an effort to reduce the cost of expected

sugar program loan forfeitures, support sugar growers, and help stabilize low market

prices. In August 2000, the USDA announced a new effort to help sugar producers by

allowing them to enter into competitive bids to divert acreage in return for sugar held by

the USDA. At the same time, a continuing dispute remains with Mexico regarding the

amount of market access it is eligible for under the terms of the NAFTA. Efforts are also

underway to prevent U.S. companies from importing some sugar-containing products that

are used for the purposes of extracting sugar for further processing (for example, stuffed

molasses). In the absence of some change in current production patterns in the U.S.,

shortfall in world sugar markets, or an unforeseen spike in sugar demand, conditions in

the domestic sugar industry will continue to be challenging.

The Commission believes that serious consideration must be given to developing an

alternative to the current sugar program. The following program options, individually or

 

29. USDA Baseline Projections, February 2000.

30. For market prices to decline below loan rate levels, the government must be assumed to release

accumulated stocks into the market, while producers would be assumed to receive the statutory loan rate

payment for forfeited sugar placed in collateral for loans.
Commission on 21st Century Production Agriculture 59

in combination, should be evaluated within the context of a commitment to a continuation

of our existing international commitments on sugar imports: a marketing loan for sugar,

domestic marketing controls, domestic production controls, and some form of direct

payment to sugar producers.

Tobacco

In 1999, the U.S. produced 1.293 million pounds of tobacco harvested from 647,000

acres on 90,000 farms. The estimated farm value of the 1999 crop was $2.3 billion. Major

U.S. tobaccos are flue-cured (produced primarily in North Carolina) and burley

(produced primarily in Kentucky). Both are cigarette tobaccos and account for more than

90 percent of the tobacco grown in the U.S. Other types of tobacco are used for cigars,

chewing, and snuff.31

Tobacco is grown in 16 states. North Carolina and Kentucky account for 65 percent of

total production. Four other states (Tennessee, Virginia, South Carolina, and Georgia)

produce another 26 percent. The high per-acre value of tobacco sales makes it critical to

the income of the growers and important to the economies of the major producing states.

In 1996, North Carolina’s tobacco constituted 14 percent of the value of all farm

commodities (crops and livestock); in Kentucky, tobacco accounted for 22 percent of the

value of all commodities.

The federal tobacco program provides for marketing quotas and price support in the form

of non-recourse loans. A grower referendum held every three years determines whether

producers accept federal price supports. National marketing poundage quotas and acreage

allotments are announced once a year.32 Currently, growers of fire-cured, dark air-cured,

and Wisconsin binder tobaccos have approved marketing quotas applicable to the 2001

crops. The growers of flue-cured, burley, Virginia sun-cured, Maryland, and

Pennsylvania filler will vote in January 2001 on whether to have quotas on the 2001,

2002, and 2003 crops. Growers of fire-cured tobacco and dark air-cured tobacco voted in

separate referenda held in March 2000 to continue marketing quotas for the years 2000,

2001, and 2002.

In the past, growers of some types of tobacco have chosen not to have national marketing

quotas. The producers of Maryland, Pennsylvania filler, and Connecticut binder tobacco

turned down marketing quotas in their last referenda (1998). Producers of Pennsylvania

filler tobacco have never had marketing quotas, while Maryland tobacco quotas last

applied to the 1965 crop and Connecticut binder quotas last applied to the 1983 crop. The

production of shade-grown wrapper tobacco is not covered by marketing quota

legislation.

The quota law provides that the annual flue-cured and burley quotas equal the sum of

buying intentions of domestic cigarette manufacturers, the three-year average of

 

31. Womach, Jasper. “Tobacco Price Support: An Overview of the Program”, Congressional Research

Service, 95-129 ENR, updated August 29, 2000. NASS data updated September 1, 2000.

32. USDA/ERS. “Tobacco Situation and Outlook”, TBS-247, September, 2000.
Commission on 21st Century Production Agriculture 60

unmanufactured tobacco exports, and adjustments of loan association inventories needed

to reach a desired reserve stock level. The Secretary of Agriculture then has the option to

adjust this three-part total either up or down by a maximum of three percent. Conditions

in the tobacco market have resulted in substantial declines in annual quota levels. In

1996, the flue-cured tobacco national marketing quota was 874 million pounds; for 2000,

the quota was set at 543 million pounds. The national marketing quota for burly tobacco

declined by 45 percent from 1999 to 247 million pounds in contrast to the 1996 quota of

631 million pounds.

National marketing quotas for flue-cured and burley tobacco are assigned to the land. The

current system places a number of restrictions on the use of quota. To produce and

market tobacco under the federal program, a producer must either own land with tobacco

quota, purchase or rent land with quota, or lease quota under existing restrictions. Lease

and transfer of flue-cured tobacco quota was permitted from 1962 to 1986. Flue-cured

quota leasing and transfer was abolished in 1987, but reinstated in cases of disaster

beginning in 1998. Lease and transfer of quotas became effective for burley in 1971.

In 1990, the Farm Poundage Quota Revisions Act provided for greater use of burly quota.

The Act permitted the sales of burley tobacco quota within counties beginning with the

1991 crop. The sales were restricted to other burley growers and to poundage limitations.

Sales of flue-cured tobacco have been permitted since 1982. Under the 1990 Act, quota

holders were required to lease or attempt to grow their quota in two out of three years or

forfeit the quota. Previously, the rules had required leasing or attempting to grow in one

out of five years. Lease and transfer of quota across county lines was approved by burley

producers in Tennessee in January 1991.

The federal government also provides a price guarantee in the form of non-recourse loans

for producers of quota tobacco. Support levels for 2000 average $1.640 per pound for

flue-cured and $1.805 per pound for burley. Grade loan rates range from $1.20 to $1.85

per pound for flue-cured and $1.14 to $2.07 per pound for burley. Price supports for other

supported types range from $1.238 per pound to $1.716 per pound. For 2001, the fluecured and burley price support will be the level for 2000 adjusted by changes in the fiveyear moving average of prices (two-thirds weight) and changes in a cost-of-production

index (one-third weight). Costs include general variable expenditures but exclude costs of

land, quota, risk, overhead, management, marketing contributions, and other costs not

directly related to tobacco production. The Secretary of Agriculture can set the price

support at the previous year’s level adjusted by between 65 and 100 percent of the

calculated increase or decrease. For other kinds of tobacco, changes in price support are

based on the average of the parity index during the three previous years compared with

1959. However, loan associations can request lower support levels if market conditions

warrant.

If the auction price offered for tobacco is below the government loan price, the producer

is paid the loan price by a producer-owned stabilization cooperative with money

borrowed from the Commodity Credit Corporation. The cooperative holds the tobacco as

collateral for the Commodity Credit Corporation and subsequently sells the tobacco to
Commission on 21st Century Production Agriculture 61

cover the cost of the loan plus interest. Under the provisions of the No-Net Cost Tobacco

Program Act of 1982, growers and buyers pay an assessment on each pound of tobacco

marketed. This money is held in escrow to reimburse the government should the sale of

collateral tobacco fail to cover the cost of the Commodity Credit Corporation’s loans plus

interest.

Largely in response to decreases in marketing quotas, tobacco producers received

additional government assistance in the form of market loss payments in fiscal year 2000.

The Commodity Credit Corporation was allocated $328 million for distribution directly

to growers based on the amount that their quotas were reduced in 1999. An additional

$2.8 million was approved for flood damage that occurred on warehouse auction floors.

Further support was also awarded to tobacco growers in the amount of an additional $340

million in market loss assistance as part of the Agricultural Risk Protection Act of 2000.

In addition, the fiscal year 2001 Agricultural Appropriations Act allowed for the

forfeiture of burley tobacco without charge to the no-net-cost account.

U.S. tobacco producers are also greatly affected by events in world markets. The U.S. is

the largest exporter of manufactured tobacco products and is the third-leading exporter of

tobacco leaf behind Brazil and Zimbabwe. As described earlier, the level of domestic

market quota is determined in part on expectations for export marketings. Exports

account for more than 30 percent of the annual disappearance of burly and flue-cured leaf

tobacco. At the same time, tobacco imports, controlled by tariff rate quotas, as a share of

domestic use have increased from 31.6 to 37.5 percent from 1996 to 1999. With

domestic consumption on the decline, export markets will become even more important

to the health of the industry. For example, the recent opening of the China market

provides increased opportunities, but U.S. tobacco and tobacco products may be not be

competitively priced at current support levels.

In addition to traditional market forces, an agreement between the tobacco industry and

states’ attorneys general in 1998 required manufacturers of tobacco products to reimburse

the states for tobacco-related illnesses and provide for measures that would reduce

underage tobacco consumption. The Master Settlement Agreement (MSA) was a result of

lawsuits filed against the tobacco industry in more than 40 states, resulting in a total

payout of $206 billion to be paid annually from 1998 to 2023, including $300 million per

year for research in antismoking campaigns.33 If states commit a substantial portion of the

annual payments to comprehensive tobacco control programs, and if those efforts are tied

to a national strategy, then public health officials are confident that the agreement will

lead to significant reductions in tobacco use. The settlement, along with forecasted

declines in domestic consumption, is expected to have long-term impacts on tobacco

growers.

Tobacco producers also receive some compensation as a result of the MSA. The four

cigarette manufacturers that signed the MSA negotiated with the tobacco-growing states

to establish the National Tobacco Growers' Settlement Trust Fund. The fund will

compensate tobacco farmers and quota holders for financial losses resulting from the

 

33. Capehart, Tom. “The Tobacco Settlement”, USDA-ERS, October 1, 1999.
Commission on 21st Century Production Agriculture 62

anticipated MSA-driven decline in cigarette consumption. Under the agreement, the four

companies will pay into the trust fund a total of $5.15 billion over 12 years. Only those

states that grow flue-cured, burley, and Maryland-type tobacco for the manufacture

cigarettes are eligible to receive payments from the trust fund. The fourteen eligible states

are Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, Missouri, North Carolina,

Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia.

Funds are allocated to the states according to their 1998 tobacco quota marketings or

production. To receive funds, each state is required to establish a certification board to

develop a spending plan and submit it to the trustee for approval. Board membership

must include the state governor and attorney general, state legislators, members of the

state's congressional delegation, and representatives of the tobacco growers and quota

holders. The five leading tobacco-growing states, which account for 89 percent of total

production, will receive approximately the following amounts: North Carolina, $1.97

billion; Kentucky, $1.5 billion; Tennessee, $394 million; South Carolina, $361 million;

and Virginia, $342 million.

The future for U.S. tobacco producers is one of continued challenges. Expected

continued declines in domestic demand for tobacco and tobacco products and increased

competition from imports and foreign production will erode the market for U.S.-grown

tobacco. Public pressure will likely combine with market forces to make the current

tobacco program difficult to sustain. Evidence of this trend is illustrated by the actions of

the President in establishing the “Commission on Improving the Economic Opportunity

in Communities Dependent on Tobacco Production while Protecting Public Health” to

address the uncertainties associated with the current tobacco program and public health

concerns. This commission will provide recommendations on ways to improve economic

opportunity and development in tobacco-dependent communities. Increased marketings

of tobacco outside the federal program may foreshadow enhanced efforts by

manufacturers to contract directly with producers for quality standards and other product

characteristics that will erode the effectiveness of the current program.

Given the current situation and other ongoing efforts to explore options to the current

tobacco program, the Commission on 21st Century Production Agriculture feels that its

role in the debate should be limited to providing an outline of possible program changes

or modifications for consideration. The options to the existing program that the

Commission believes should be examined include the following or some combination

thereof: increasing transferability of quota across county lines and/or state lines, a buyout

program designed to phase out the quota program, and a marketing loan for tobacco with

a view to increased export competitiveness.
Commission on 21st Century Production Agriculture 63

VI. Small and Limited-Resource Farm Issues

Introduction

Small and limited-resource family farms are defined as farms on which the day-to-day

labor and management are provided by the farmer and/or the farm family who own the

production or own or lease the productive assets. Further, small and limited-resource

farms are those that earn a gross income from farming operations of more than $1,000 but

less than $250,000 annually.34

Small and limited-resource farms face challenges similar to those of all production

agriculture operations. At issue is the availability of government assistance to these

farms. Currently, they mainly receive assistance from the government for conservation

cost-sharing and technical assistance, risk management, federal loan programs,

commodity programs, and loans for beginning farmers.

Participation by small and limited-resource farms in the general farm programs described

earlier in this report is constrained by several factors. The conditions and provisions of

many of the federal farm programs require basing payments to producers on a historical

acreage of traditional commodity crops. Many small and limited-resource farms grow

nonprogram crops, so their participation is limited. For example, a farmer who has no

history of producing program crops is not eligible under the 1996 FAIR Act to receive

direct government assistance in the form of production flexibility contract payments.

Also, provisions in some legislation prohibit farmers who have had debt forgiveness from

receiving future USDA loans and/or credit assistance. In addition, conservation costsharing programs such as the Environmental Quality Incentives Program (EQIP) specify

that participants enter into a five-year contract to receive assistance. Many small and

limited-resource farmers are excluded from effectively participating in potentially

beneficial programs such as EQIP because they rent their land on an annual basis.

Recommendation of the Commission

The Commission on 21st Century Production Agriculture recognizes the importance and

value of the small family farm in production agriculture and rural communities. The

Commission further recognizes the significant impact that government policy has on the

economic condition of small family farms.

The Commission acknowledges the work of the National Commission on Small Farms.

The National Commission on Small Farms was created in 1997 by order of USDA

regulation to “gather and analyze information regarding small U.S. farms and ranches and

recommend to the Secretary of Agriculture a national strategy to ensure their continued

viability in U.S. agriculture, including specific measures which could be adopted by the

public, non-profit and private sectors to enhance the economic livelihood of small

 

34. National Commission on Small Farms
Commission on 21st Century Production Agriculture 64

farms.”35 Its work continues in the activities of USDA’s Advisory Committee on Small

Farms.

The Commission believes that the USDA Advisory Committee on Small Farms is well

positioned to advise lawmakers on policy matters and should be the lead group in this

issue area. The Commission also believes that it is the role of government to develop and

fund programs that meet the special needs of small and limited-resource farmers.

Accordingly, the Commission recommends that several specific areas warrant

consideration by the Small Farms Advisory Committee as well as by legislators and

policymakers.

The Commission recommends formalizing by congressional authority the work of the

Small Farms Advisory Committee as part of the U.S. Department of Agriculture,

providing appropriate staff and appropriations.

Areas for Consideration

Assistance for Beginning Farmers

Currently, the Farm Service Agency (FSA) offers several loans for beginning farmers and

ranchers. FSA provides guaranteed and direct farm ownership loans as well as

guaranteed and direct farm operating loans. FSA also provides a joint financing plan to

beginning farmers that lends 50 percent of the amount financed at a reduced interest rate

with the other 50 percent or more provided by another lender. FSA also offers acquired

farm property first to eligible beginning producers at the appraised market value. In

addition, FSA has a Down Payment Farm Ownership Payment Loan Program to assist

farmers and ranchers in purchasing a farm. This program also provides retiring farmers

with a means of transferring land to a future generation of farmers and ranchers.36 The

Commission recommends examining existing state programs and the development of

nationwide programs that facilitate established farmers in assisting beginning farmers.

To aid future generations of American farmers, a matching grant program could allow

beginning farmers to build equity rather than debt. The matching funds may provide less

incentive for beginning farmers to choose a debt-laden, capital-intensive approach to

financing their farming operation.

Minority Small and/or Limited-Resource Farms Registry

The development of a voluntary directory of farms and ranches with cooperation from

local agricultural agencies could help identify minority small and/or limited-resource

farms in need of specific assistance.37

 

35. USDA Regulation No. 1043-43.

36. USDA-FSA.

37. Parts from “A Time to Act.” A Report of the USDA National Commission on Small Farms. January

1998.
Commission on 21st Century Production Agriculture 65

Conservation Programs as Part of a Safety Net for Small Farms

The Natural Resource Conservation Service’s (NRCS) Outreach Division currently offers

outreach and technical assistance for traditionally under-served farmers. The overall goal

of the program is to increase the number of small or limited-resource and minority

producers and directly improve their farm income. Objectives are to make grants and

enter into agreements with community-based organizations and educational institutions to

provide outreach and technical assistance.

38

To facilitate the needs of under-served farmers, a portion of funding could be allocated

within each conservation program for special outreach assistance to limited-resource

farmers and ranchers. The special outreach assistance would aid farmers and ranchers in

soil erosion and sediment control practices, comprehensive nutrient management

planning, wetlands conservation, water conservation and management, plant materials,

soil survey, snow survey/water supply, emergency watershed protection, flood control,

wildlife habitat, ground water protection, natural resource information, air quality, and in

improving grazing land quality.

Timely reimbursement of producers and ranchers who participate in conservation costshare programs will especially aid small and limited-resources farmers who depend on a

consistent cash flow to function.

The NRCS’s Conservation Technical Assistance program could be extended to include

assistance for compliance with environmental regulatory requirements. Small farmers

and ranchers may be disproportionately affected by environmental regulations because

they may not have the financial resources to install structures or buy equipment to meet

government regulations. To compensate, small producers could receive a higher

percentage cost share under federal cost-share programs. An alternative option would be

to target small farms for participation in programs that maintain green space, view sheds,

Conservation Reserve, Wetland Reserve, and other programs.39

Risk Management

Many small and limited-resource farms do not produce traditional commodity crops,

instead relying on the production of fruits and vegetables for their income. The Risk

Management Agency (RMA) currently offers crop insurance pilot programs for several

fruits and vegetable crops. Some of the crops that are insured under a common crop

insurance policy are avocados, blueberries, cherries, chile peppers, cucumbers, fresh

market beans, mint, strawberries, watermelon, and winter squash. These crop insurance

pilot programs are for growers in selected regions and not necessarily targeted to small

and limited-resource farmers.40

 

38. USDA-NRCS.

39. American Farm Bureau Federation. Ideas for the 2002 Farm Policy Debate, June 2000.

40. USDA-RMA.
Commission on 21st Century Production Agriculture 66

Initiating future crop insurance pilot programs (insuring fruits, vegetables, etc.) targeting

small and limited-resource farms could measure the feasibility of insuring nontraditional

crops. These crop insurance pilot programs may help to establish proven yields of fruits

and vegetables.

Risk-management educational efforts directed to small and limited-resource farms could

address sustainable agricultural practices as a means of managing risk. Risk-management

education programs could enhance participation of small and limited-resource farms in

risk-management programs.

Small-Farm Competitiveness

Funding programs such as the Outreach and Technical Assistance Program for Socially

Disadvantaged and Minority Farmers (Sec. 2501) program, the Farm Ownership Direct

Loan program, and the Farm Operating Direct Loan program, at their maximum

authorized levels may aid the competitiveness of the nation’s small and limited-resource

farms. The appropriations for the Sustainable Agriculture Research and Education

program as well as the Rural Technology and Cooperative Development Center Grant

program could be increased to serve additional under-served farms.

Financial assistance could be provided to help develop small-producer cooperatives that

could allow smaller producers to pool capital and expertise to add value to their

production and ultimately improve their income.41

Conclusion

The dynamics of production agriculture in the 21st century may provide unique

opportunities for small and limited-resource farms. The ability of smaller farms to

locally market their crops directly to consumers may provide them with a more consistent

income than they could otherwise receive in the large, volatile commodity markets. The

opportunity for small and limited-resource farms to participate in government assistance

programs may help these producers establish themselves in both niche and local markets.

 

41. American Farm Bureau Federation. Ideas for the 2002 Farm Policy Debate, June 2000.
Commission on 21st Century Production Agriculture 67

Minority View

Commission on 21st Century Production Agriculture

Small and Limited-Resource Farms – Addendum

Ralph Paige

Background

The final report of the Commission on 21st Century Production Agriculture acknowledged the

contribution of the USDA National Commission on Small Farms in identifying and analyzing

the many issues unique to this segment of U.S. agriculture. Through its work, embodied in the

January 1998 report, “A Time To Act”, the National Commission on Small Farms presented a

broad range of policy goals and recommendations designed to address the challenges faced by

small and limited-resource family farms. Activities concerning this important sector of

agriculture have been continued through USDA’s Advisory Committee on Small Farms.

Policy Recommendations

• Support for the areas of consideration identified by the Commission on 21st Century

Production Agriculture.

• Expeditious implementation of all the recommendations of the USDA National

Commission on Small Farms.

COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

SMALL AND LIMITED-RESOURCE FARM ISSUES

The undersigned members of the Commission on 21st Century Production Agriculture concur

with the findings and recommendations contained in the statement on small and limitedresource farm issues, and in addition support the policy recommendations listed above.

Bruce J. Brumfield James O. DuPree

Mississippi Arkansas

Ralph Paige Leland Swenson

Georgia South Dakota
Commission on 21st Century Production Agriculture 68

Minority View

Commission on 21ST Century Production Agriculture

Antitrust and Industry Concentration

Leland Swenson

Background

The economic, social, and political consequences of industry consolidation on U.S.

consumers have resulted in varying levels of public intervention in commercial markets

and industrial organizational structure since adoption of the Sherman and Clayton

Antitrust Acts of 1890 and 1914, respectively.

In the case of agriculture, however, little in the way of regulatory antitrust enforcement

has occurred. The lack of concern over vertical and horizontal integration within the

agriculture sector is the result of a number reasons, but primarily founded on the general

decline in the level of consumer disposable income spent on food over the last century.

The consumer benefit of lower cost food has generally suggested the presence of

adequate competition in the marketplace and the assumption that mergers were resulting

in new levels of efficiency in the sector, the economic benefits of which were passed on

to the consumer. This view may in fact be very misleading when the increases in

consumer food costs are considered in relation to the changes in margins or price spreads

among various agricultural sectors over time.

American agriculture was generally assumed to be the closest fit to the free enterprise,

free market textbook theory, and compared to other systems, appeared to be working in

an exemplary fashion. This view was even more plausible if one ignored or rationalized

the level of public policy intervention in agriculture.

Little analysis was conducted to determine if the consumer was receiving a better food

bargain because of competition-induced efficiency in the system or as the result of

disproportionate levels and use of market power among industry participants.

Furthermore, the relationship of integration among the input supply, merchandising,

processing, retailing, and infrastructure sectors to transactional markets, consolidation of

farms, and the historically poor economic performance of producers were greatly

ignored.

The deregulation of the 1980s, particularly in the rail transportation sector, and lax

enforcement of antitrust laws relating to agriculture, was based on industry claims that

greater efficiency caused by increased operational scale would occur, improving U.S.

agriculture’s global competitiveness and ensuring continued reductions in consumer food

expenditures. Again, little consideration was given to the impact of the emerging round

of domestic and multinational mergers, consolidations, and strategic alliances on both

producers and consumers.
Commission on 21st Century Production Agriculture 69

Integration and contract production in the poultry industry have, for all practical

purposes, eliminated both the independent producer and transparency in the intermediate

market for the whole sector.

In agricultural processing, the top four firms control 81 percent of all steer and heifer

slaughter, 57 percent of the hog slaughter, and 62 percent of flour milling. If currently

proposed mergers are allowed to take place, concentration ratios will increase

significantly once again.

Competition in the input supply industry for grain producers also has been substantially

reduced through mergers and alliances among seed companies, crop-protection

manufacturers, and grain merchandisers on a multinational basis. The remaining handful

of integrated companies control both crop genetics and much of the new production

technology. On an increasingly global basis, these firms are able to further exploit their

market advantage and reduce potential competition through the use of patents and other

intellectual property rights as well as discriminatory marketing practices.

The level of competition in the major transportation sector, railroads, has declined

significantly. In 1980, more than 40 large railroads competed, within a regulatory

framework, to transport the majority of the nation’s grain supply. After 20 years of

deregulation only two Class-1 railroads operate in the West and two in the East.

Increased freight rates, reduced service levels, and an effective allocation of the existing

market among the remaining players who are also able to limit the entry of new

competition are the rule.

Increased concentration and increased market power of the food-retailing sector have

further undermined the competitive agricultural market system. The capacity for large

retailers to contract with larger processor/merchandisers for slotting fees or to create

other noncompetitive arrangements further distorts the marketplace and precludes

innovation and entry by new firms, resulting in an even greater spread between producer

returns and retail consumer costs.

Lessons learned at great expense in the early 20th century concerning the direct

relationship between the level of concentration in an industry or sector and noncompetitive pricing strategies imposed on both buyers and sellers appear to have been

forgotten as we enter the 21st century. The current structure and conduct of large market

participants who control production inputs, processing, merchandising and infrastructure

capacity, and retail selling impose substantial economic, political, and social costs on

both agricultural producers and consumers.

Antitrust Components

The Department of Justice and the Federal Trade Commission enforce U.S. antitrust

laws. In addition, authority over specific sectors or activity has been provided to other

federal agencies, such as the United States Department of Agriculture under the Packers
Commission on 21st Century Production Agriculture 70

and Stockyards Administration Act for the consideration and remediation of anticompetitive behavior within the livestock industry.

The traditional antitrust approach to monopolistic practices seeks to provide relief to

downstream consumers who have experienced or are likely to experience economic

injury as a result of the action(s) of one or more firms. Under these laws, the

government, as regulator, may invoke penalties for certain anticompetitive practices,

enjoin companies from a specific activity such as price fixing or merging, or establish

conditions under which such a merger may be approved, such as partial divestiture of

facilities or operations.

Increasingly, the costs associated with excessive vertical or horizontal integration within

an agricultural sector is experienced and more readily identifiable by examining the

impact on those upstream participants with the least amount of market power –

agricultural producers.

The U.S. should revitalize its antitrust policies and enforcement capacity to ensure and

maintain that the level of market and sector concentration promotes open, competitive

efficiency throughout the system and encourages market and transactional transparency.

Policy Recommendations

• Increase the review and enforcement capacity of agencies charged with antitrust

responsibility so that effective challenges can be mounted against activities that

increase market or sector concentration, reduce competition, or impose restrictive

agreements.

• Broaden the role of other government agencies, such as the Department of

Agriculture, in the review and enforcement process.

• Establish a concentration ratio threshold that initiates antitrust action in a market,

industry, or sector, and identify the issues for consideration in a review/enforcement

action. These should include, but not be limited to, concentration ratio, expected

efficiency gains, and market and transactional transparency.

• Expand authority to include the anticompetitive effects of other organizational

arrangements and practices such as joint ventures, strategic business alliances,

slotting fees, etc.

• Shift the burden of proof concerning the effects of greater concentration in a market,

industry, or sector to those seeking greater concentration or integration.

• Require firms to identify the distribution of any benefits of increased concentration

among other industry participants and consumers.

• Ensure the rights of all upstream and downstream industry participants to recover

damages for injury associated with the anticompetitive behavior of others.

• Expand public access to the review and enforcement process.

• Seek international harmonization of competition policies and greater cooperation in

establishing multilateral review and enforcement activities to address anticompetitive

behavior on a global basis.
Commission on 21st Century Production Agriculture 71

• Provide for an ongoing review process of both past and present mergers.

• Ensure full compliance with the merger approval process.

• Measure the actual results against the projections used to justify the merger.

• Create additional opportunities to provide relief, and enhance competition if the

results deviate from the projections.

Market Competition

Many companies engage in activities that may serve to limit market competition,

transparency, or choice among other industry participants and/or consumers that fall

outside current or traditional antitrust regulations and enforcement. Additional authority

should be approved to ensure that the market-distorting or anti-competitive results of

these practices are continuously reviewed and appropriate avenues for redress provided.

• Review and establish a regulatory framework to address market-distorting activities.

• Expand and strengthen mandatory price-reporting regulations.

• Establish limitations on the level of vertical integration allowed in a sector, including

the ownership and/or production of captive supplies.

• Implement regulations to establish labeling requirements to identify product origin.

• Develop enforceable guidelines for production and marketing contracts to limit the

potential for discrimination or abuse of market power against certain market

participants and ensure transparency of contract terms.

• Review the anti-competitive domestic and global implications of patent and

intellectual property protections.

• Expand the public role in enhancing competitive markets.

• Target economic development grants to projects that increase the level of market

participants and competition.

• Ensure that the results of publicly funded research and development activities remain

in the public domain and are compatible with the goal of market decentralization.
Commission on 21st Century Production Agriculture 72

THE COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

ANTITRUST AND INDUSTRY CONCENTRATION

The undersigned members of the Commission on 21st Century Production Agriculture

concur with the findings and recommendations contained in the alternative report on

antitrust and industry concentration.

James O. DuPree Leland Swenson

Arkansas South Dakota
Commission on 21st Century Production Agriculture 73

Appendix

The Status of U.S. Agriculture

An Update
Commission on 21st Century Production Agriculture 74

Summary

American agriculture is important to both the domestic economy and to the world. It

supplies most of the nation's domestic food and fiber consumption and is the world's

largest agricultural export industry. Maintaining and improving the productive capacity

and competitive efficiency of U.S. agriculture remains a national priority. Farming’s

structural characteristics also are important to the strength and security of the nation.

Federal policies and programs play an important role in shaping the farm economy. This

report describes the structure and economic condition of production agriculture and some

of the federal programs that have a direct impact on farming.

The financial condition of farmers is one measure of the sector's economic health and its

ability to meet future demands. Estimates for 2000 put national farm cash income 1.1

percent above 1999. The higher income was the result of stronger prices for livestock

caused primarily by an increase in demand. Cash receipts for food, feed, and oilseed

crops remained low for 2000 because low prices fueled by large supplies and weak

exports prompted Congress to enact emergency relief for the third year in a row. In the

absence of this assistance, net cash income in 2000 would have declined about 11.4

percent from 1998 and 17.7 percent from 1996. Land prices had shown a steady rise

through 1997, but have leveled off in response to the lower farm income. Farmers’ ratio

of debt to assets, however, is about 15.4 percent -- the lowest level since 1964 -- putting

farmers in a strong equity position.

Farming, like other sizable and important sectors of the economy, benefits from a

combination of federal programs that are often described as a safety net. Historically, the

federal government has intervened to try to stabilize market supplies of major

commodities -- in particular, food and feed grains, cotton, sugar, peanuts, milk, and

tobacco -- to reduce price volatility and to support farm incomes. Intervention typically

included some combination of limits on production, storage of excess inventories, and

price and income support payments. The Federal Agricultural Improvement and Reform

(FAIR) Act of 1996 eliminated the annual supply management programs for program

crops. In addition, the new farm law created fixed but declining agricultural market

transition payments (contract payments) to replace price-sensitive and production-linked

“target price-deficiency payments." It also gave producers the freedom to plant any crop

on contracted acres with the exception of fruits and vegetables. The new law is

characterized as a transition to the market environment with farmers becoming more

responsible for their own choice of risk-management tools. In the current and future

market environment, risk management is becoming a fundamental aspect of farming.

There are several sources of risk to farmers and a variety of methods for managing the

risks, some of which are subsidized by the government.

While the United States is the world’s largest exporter of agricultural products, exporting

113.7 million metric tons valued at nearly $49.5 billion for fiscal year 2000, the

instability of export demand is a major source of financial risk to farmers and

agribusinesses. A strong dollar relative to the currencies of several large importers and

large global supplies of most commodities contributed to a 10.6 percent decline in U.S.

agricultural exports from 1995 to 2000.
Commission on 21st Century Production Agriculture 75

The export value of high-value agricultural products now exceeds that of bulk

commodities. Oilseed and oilseed products, however, remain the single largest value

component of agricultural exports. Wheat and rice depend on export markets to take in

excess of 40 percent of production, compared with 36 percent for soybeans.

Production agriculture is a natural-resource-based industry. Farming depends on land

and water whose proper stewardship is critical to the future productivity of agriculture.

The use and condition of the nation's land and water resources also are important to the

nonfarm economy and population. Farmers have a direct interest in soil conservation,

which provides long-term returns, although short-term market forces may encourage soil

depletion over conservation. Federal assistance and incentive programs have been

implemented to encourage conservation. Farmland preservation is largely a state and

local government and private sector initiative. Increasingly, irrigated agriculture's large

use of water, especially consumptive use, is becoming a constraint on competing water

uses. Agriculture is challenged to avoid being a source of water pollution from both crop

chemicals and livestock waste. Water quality improvement efforts use both incentive

programs and regulatory constraints.

Most data in this report is from agencies of the U.S. Department of Agriculture, including

the Economic Research Service, the National Agricultural Statistics Service, the Foreign

Agricultural Service, the Farm Service Agency, the Natural Resources Conservation

Service, the Risk Management Agency, and the Food and Nutrition Service.
Commission on 21st Century Production Agriculture 76

Farm Numbers and Size

• The National Agricultural Statistics Service (NASS) estimated that there were about

947.3 million acres of land divided among the nation's 2.19 million farms in 1999.

Since 1995, the number of farms has increased from 2.07 million and the amount of

farmland has decreased from 972.2 million acres. The increase in the number of

farms since 1995 is attributable to a continued rise in the number of small farms. In

1999, states west of the Mississippi River accounted for 66 percent of the land in

farms, but only 36 percent of the nation's farms in 1999. The regions of the eastern

United States accounted for 11 percent of the farmland, but 28 percent of the farms.

Acreage (1,000) in Farms by State, Regional Shares (%), and Change since 1995 of

Total U.S. Farmland, 1999

(Data from USDA-NASS, Farms and Land in Farms, February 2000)
Commission on 21st Century Production Agriculture 77

• In 1999, NASS counted about 2.19 million farms (up from 2.07 million in 1995),

where a farm is defined as selling $1,000 or more in agricultural products per year.

Among farms, there is a wide diversity in size, commodity specialization, geographic

location, and financial status. Nationally, farm size averages 432 acres, a decrease

from 469 acres in 1995.

Number of Farms by State, Average Farm Acreage by State and Region, and

Regional Share of Farms (%), 1999

(Data from USDA-NASS, Farms and Land in Farms, February 2000)
Commission on 21st Century Production Agriculture 78

• Nationally, about 1.85 million farms (84.5 percent of all farms) had sales below

$100,000 in 1999. The average size of farms in this sales category was 228 acres. In

contrast, 1.7 million farms (84 percent), with an average size of 265 acres, had sales

below $100,000 in 1995.

Average Size of Farms with Annual Sales below $100,000

(Data not available for all states)
Commission on 21st Century Production Agriculture 79

• In 1999, 358,100 farms (16 percent) had sales of $100,000 and above. The average

size of these farms was 1,469 acres, more than 6.4 times larger than farms with sales

below $100,000. In 1995, 333,700 farms (16 percent) averaging 1,566 acres had

sales of at least $100,000.

Average Farm Size with Annual Sales of $100,000 and Above

(Data not available for all states)
Commission on 21st Century Production Agriculture 80

Net Cash Farm Income and Expenses

• In September 2000, USDA’s Economic Research Service (ERS) estimated net cash

farm income for 2000 at $55.4 billion. This is down $2.2 billion from 1996, a

decrease of 3.8 percent. Without the added emergency payments enacted in June

2000, farm cash income would have been an estimated $48.3 billion, a decline of 16.1

percent from the 1996 level and lower than the 1990-1995 average of $53.6 billion.

Cash expenses increased primarily as a result of increased fuel and oil prices. Net

cash income was supplemented with emergency payments for the third consecutive

year in 2000.











































































































































































































































































































































134.1 134.0 133.3 140.1

147.1 153.2 159.8

168.6 167.2 170.4

178.3

52.8 50.4 55.2

59.3 51.1

52.6

57.6

58.5 55.4 54.6

55.4

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999P 2000F

0.0

50.0

100.0

150.0

200.0

250.0

Net Cash Income 

 Cash Expenses

Farm Net Cash Income and Expenses, 1990-2000

Net Cash Income + Expenses = Gross Income

P/preliminary, F/forecast
Commission on 21st Century Production Agriculture 81

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

Crops

Livestock

Crop and Livestock Receipts, 1980-2000

Based on data from U SD A-ERS, as of Dec. 1999. F/ forecast

• The sources of farm cash income typically are divided into four categories: receipts

from crop sales, receipts from livestock sales, income from other farm-related

enterprises, and direct government payments.

• Both crop and livestock receipts reached record high levels in 1997. Crop receipts

had shown five years of increase, reaching $111 billion in 1997. Dramatically lower

prices for feed grains, wheat, and soybeans (caused by a sharp drop in export demand

in Asia, combined with globally large supplies) caused crop receipts to drop by $16

billion to a forecast level of $93.3 billion in 2000 (a decline of 16 percent from 1997

to 2000). Livestock receipts reached nearly $97 billion in 1997, dropped to $95

billion in 1998, rose back to an estimated $97 billion in 1999, and are forecast to

remain at $97 billion in 2000.

• Besides selling crops and livestock, farms generate income from other activities.

Examples of farm-related income include custom work, machine hire, recreational

activities, and forest product sales. Farm-related income was estimated to reach

$14.4 billion in 1999, but is forecast to decline to $14.1 billion in 2000.

• Direct government payments consist of income support payments (now called

contract payments and marketing loan deficiency payments) to producers of feed

grains, wheat, cotton, and rice; payments made on cropland enrolled in the long-term

Conservation Reserve Program; cost-share assistance for soil and water protection

measures; crop insurance subsidies; emergency payments; and payments from other

programs. With enactment of the 1996 farm bill, "production flexibility contract
Commission on 21st Century Production Agriculture 82

payments" replaced "target price deficiency payments" as the income support

program for producers of the major grain crops and cotton. The emergency assistance

legislation of October 1999, along with loan deficiency payments, raised direct

government payments to an estimated $20.6 billion in 1999 (a 68 percent increase

over 1998). Direct government payments are forecast at $23.3 billion in 2000, an

increase over 1999 caused by emergency assistance legislated in June 2000.

• Farm cash production expenses are forecast by ERS at $178.3 billion for 2000. This

is nearly a $20 billion increase since 1996.

• NASS data on 1999 farm production expenditures characterize the various inputs that

go into crop and livestock production. On average, total expenses were $100,166 on

crop farms, and $71,688 on livestock farms. Rent’s share of production expenses

declined from 15 percent in 1997 to 13 percent in 1999. The remaining expense

categories remained relatively unchanged.

• The composition of expenditures differs substantially between crop and livestock

farms. Crop farms pay a substantial amount for chemicals and fertilizer

(approximately16 percent) and rent (approximately 13 percent). Large proportions of

the expenses on livestock farms are for the purchase of feed (26 percent) and

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

5

10

15

20

25

Government Payments

Farm-Related Income

Farm Cash Receipts from Government Payments

Based on data from USDA-ERS. F/forecast
Commission on 21st Century Production Agriculture 83

livestock (17 percent). The large purchases of feed grains from crop producers often

puts crop and livestock farms in contrasting income situations. When the price of

feed from crop farms is high (raising crop farm revenues), production costs for

livestock increase. Feed expenses declined by three percent from 1997, a reflection

of lower feed grain prices, while expenses for livestock increased by more than one

percent.



 2.3%



 3.2%

 3.9%



 3.9%





4.5%



 5.7%

 5.8%



 6.5%



 6.7%



 12.0%



 17.1%

 26.2%

F u e ls

Taxes

Rent

C hem icals

Im provem en ts

S u p p lie s

Intere st

Labor

M a ch in ery

Se rvices

Live sto ck

Feed

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

L ive stoc k F a rm P ro du ction E xpe n se s, 1 9 99

B ased on data from U SD A -N A SS, Farm Production E xpenditures, 1999



3.3%

3.3%



3.6%





4.1%



5.8%



6.4%



7.1%



 7.9%



13.0%



14.5%

14.9%



 15.6%

Live sto ck & Feed

Im provem en ts

Fu els

Ta xe s (P ro perty)

Intere st

Seeds & Plants

M achin ery

Su pplies & R e pairs

Rent

Labor

Fa rm S ervice s

C hem icals & F ert

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

C rop F arm Production Expenses, 1999

Based on data from U SD A-NA SS, Farm Production Expenditures, 1999
Commission on 21st Century Production Agriculture 84

Government Payments

• Including direct government payments, gross cash income increased an estimated

$11.3 billion from 1999 to 2000. Gross cash income of $233.6 billion in 2000, as

estimated by ERS, is higher than any previous year, a result of $23.3 billion in direct

government payments. Direct government payments are not distributed evenly among

all farms. They go predominately to farms producing feed grains, wheat, rice, and

cotton.















































168.3 168.0 170.4 173.4

182.5 190.9

210.1

219.6

210.4 204.4 210.3

9.3 8.2 9.2

13.4 7.9

7.3

7.3

7.5 12.2 20.6

23.3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999P 2000F

0.0

46.0

92.0

138.0

184.0

230.0



 Government Payments

Farm Related Income + Cash Receipts

Gross Cash Income and Government Payments, 1990-2000F

Based on data from USDA-ERS, Sept. 2000. P/preliminary, F/forecast
Commission on 21st Century Production Agriculture 85

Farm Solvency and Profitability Ratios

• The debt-to-asset ratio is a measure of solvency. It compares the total debt to all farm

business assets against which it is pledged. ERS forecasts the 2000 value of all farm

assets, real estate, and non-real estate at $1,134.8 billion compared to farm debt of

$176.4 billion. A debt-to-asset ratio of 15.5 percent would be lower than any year

since the early 1960s and reflects a farm sector in a comparatively good position to

make investments or to weather low commodity prices.

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000F

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

Farm Debt-to-Asset Ratio, 1960-2000F

Based on data from U SD A-ERS, Decem ber, 1999. F/forecast
Commission on 21st Century Production Agriculture 86

• The rate return on assets from current income (including government payments) is a

common measure of farm profitability. ERS forecasts returns in 2000 as 2.1 percent,

down from 3.7 percent in 1999 and lower than the average of 3.4 percent from 1990

to 1999.

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000F

0%

1%

2%

3%

4%

5%

6%

7%

8%

Farm Profitability Measured by Return on Assets, 1960-2000

Based on data from USDA-ERS, December 1999. F/forecast
Commission on 21st Century Production Agriculture 87

Farmland Values and Rental Rates

• When farming is profitable, the gains typically are capitalized into land and other

fixed assets. Farm real estate values have risen steadily since 1987 although

commodity prices have fluctuated dramatically, nearing historic lows in 1999 and

2000. The value of U.S. farm real estate (including land and buildings) rose 2.9

percent during 1999, reaching $1,050 per acre on January 1, 2000, according to the

USDA. The Lake States region showed the largest rise, increasing 7.2 percent to

$1,490 per acre. U.S. farmland values were, on average, higher in 1999 ($1,050 per

acre) than in 1997 ($1,000 per acre), but the Appalachian, Northeast, and Corn Belt

regions experienced a decline in farmland value during that period.

Farmland Values, January 2000 (Dollars Per Acre, % Increase/Decrease, 1999 to

2000)

(Data from USDA-NASS, Agriculture Land Values, March 2000)
Commission on 21st Century Production Agriculture 88

• The USDA 2000 survey of cash rent shows increases from the previous year in most,

but not all, surveyed states. The rental rates are also generally higher than when

surveyed in 1997. Annual rental rates for nonirrigated cropland show a wide range

among states, reflective of the differing crops and productivity of the land.

Nonirrigated Cropland Cash Rent, January 2000

Dollars per Acre, % Increase/Decrease, 1999 to 2000 (Data not available for all

states)

(Data from USDA-NASS, Agriculture Cash Rents, July 2000)
Commission on 21st Century Production Agriculture 89

• Irrigated cropland cash rent levels in 2000 varied widely compared with 1999;

however, cash rental rates for all states reported are above 1997 levels.

Irrigated Cropland Cash Rent, 2000

Dollars per Acre, % Increase/Decrease, 1999 to 2000 (Data not available for all

states)

(Data from USDA-NASS, Agricultural Cash Rents, July 2000)
Commission on 21st Century Production Agriculture 90

• National farm cash income accounts maintained by ERS include net rent to nonoperator landlords. Net rent reached a peak of $13.2 billion in 1996 and is forecast to

reach a new high of $13.3 billion in 2000.

































$11.5































$11.3











































$12.6









































$12.4

















































$13.2 















































$13.2















































$12.9













































$12.8 











































$12.7















































$12.9

















































$13.3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999P 2000F

$8.0

$9.0

$10.0

$11.0

$12.0

$13.0

$14.0

Net Rent to Non Operator Landlords

Based on data from USDA, ERS, as of July 2000. P/preliminary, F/forecast
Commission on 21st Century Production Agriculture 91

Planting Flexibility

• The 1996 farm bill eliminated short-term acreage reduction programs (the

Conservation Reserve Program remains a long-term land retirement program). This

provision allows producers the freedom to plant any crop on contract acreage, with

the exception of fruits and vegetables. Many factors contribute to producer planting

decisions but the freedom to plant any crop on contract acreage gives the producer

more options from which to choose than did previous legislation.

Wheat

58,000 

60,000 

62,000 

64,000 

66,000 

68,000 

70,000 

72,000 

74,000 

76,000 

78,000 

1,000 Acres

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

U.S.

Wheat, Area Planted, 1988-2000

Based on USDA-ERS data
Commission on 21st Century Production Agriculture 92

• National planted acreage of wheat has declined 12.2 million acres, or 16.2 percent

from 1996 to 2000. North Dakota, Kansas, Oklahoma, Texas, and Montana

accounted for 49.6 percent of all planted acres in 2000.

Wheat, Area Planted

State* 1996 Area

Planted

(000 acres)

1997 Area

Planted

(000 acres)

1998 Area

Planted

(000 acres)

1999 Area

Planted

(000 acres)

2000 Area

Planted

(000 acres)

1. North Dakota 12,680 11,625 9,770 9,410 10,410

2. Kansas 11,800 11,400 10,700 10,000 9,800

3. Oklahoma 6,800 6,700 6,600 6,400 6,100

4. Texas 6,000 6,300 6,100 6,200 6,000

5. Montana 6,640 6,150 5,650 5,560 5,250

All Other 31,185 28,237 26,961 25,244 25,386

TOTAL 75,105 70,412 65,871 62,814 62,946

*Rank based on 2000 plantings

• The largest decline for wheat acres has been in Kansas where acreage has fallen by 2

million acres, and in North Dakota where acres have dropped by 2.3 million acres.

Kansas planted wheat acreage is at the lowest level since 1971. Corn and soybeans

each picked up portions of the idled wheat acres; Kansas has increased both corn and

soybean acres by 900,000 acres each while North Dakota has increased soybean

plantings by nearly 1.3 million acres.
Commission on 21st Century Production Agriculture 93

Corn

• From 1996 to 2000, national corn acreage has increased by 350,000 acres, or 0.4

percent. For 2000, Iowa, Illinois, Nebraska, Minnesota, and Indiana account for

about 56 percent of national acres planted to corn. Iowa, Minnesota, and Nebraska

have dropped a total of 900,000 acres, Indiana has gained 100,000 acres, and Illinois

gained 200,000 acres. The largest gain in corn acres comes from Kansas, picking up

900,000 acres from 1996 to 2000.

Corn, Area Planted

State* 1996 Area

Planted

(000 acres)

1997 Area

Planted

(000 acres)

1998 Area

Planted

(000 acres)

1999 Area

Planted

(000 acres)

2000 Area

Planted

(000 acres)

1. Iowa 12,700 12,200 12,500 12,100 12,300

2. Illinois 11,000 11,200 10,600 10,800 11,200

3. Nebraska 8,500 8,900 8,800 8,600 8,400

4. Minnesota 7,500 7,000 7,300 7,100 7,100

5. Indiana 5,600 5,900 5,800 5,670 5,800

All Other 33,929 34,337 35,165 33,000 34,779

TOTAL 79,229 79,537 80,165 77,431 79,579

*Rank based on 2000 plantings

66,000 

68,000 

70,000 

72,000 

74,000 

76,000 

78,000 

80,000 

82,000 

1,000 Acres

1988 1990 1992 1994 1996 1998 2000 

US

Corn, Area Planted, 1988-2000

Based on USDA-NASS data
Commission on 21st Century Production Agriculture 94

Soybeans

• Soybeans have shown the most change in planted acres from 1996 to 2000. National

plantings have increased by 10.4 million acres, or 14 percent. Eleven states

experienced a decline in acreage from 1996 to 2000 amounting to less than a million

acres or approximately one percent of the total. New York and West Virginia had no

reported planted acreage in 1996 but a combined total of 200,000 acres in 2000. The

largest increase in plantings occurred in Iowa, Minnesota, and Missouri, each up by

more than one million acres from 1996 to 2000.

Soybeans, Area Planted

State* 1996 Area

Planted

(000 acres)

1997 Area

Planted

(000 acres)

1998 Area

Planted

(000 acres)

1999 Area

Planted

(000 acres)

2000 Area

Planted

(000 acres)

1. Iowa 9,500 10,500 10,400 10,800 10,600

2. Illinois 9,900 10,000 10,600 10,600 10,300

3. Minnesota 6,000 6,600 6,900 7,000 7,200

4. Indiana 5,400 5,350 5,600 5,600 5,700

5. Missouri 4,100 4,900 5,100 5,400 5,150

All Other 29,295 32,655 33,425 34,380 35,551

TOTAL 64,195 70,005 72,025 73,780 74,501

 *Rank based on 2000 plantings

55,000 

60,000 

65,000 

70,000 

75,000 

1,000 Acres

1988 1990 1992 1994 1996 1998 2000 

US

Soybeans, Area Planted, 1988-2000

Based on USDA-NASS data
Commission on 21st Century Production Agriculture 95

Upland Cotton

• National cotton acres have increased by nearly one million acres, or six percent, since

1996. Texas alone accounts for 600,000 acres of this increase, while acreage in

Georgia, Mississippi, and North Carolina also have increased. Some states (included

in the All Other category) such as Kansas, Minnesota, and South Carolina are

increasing cotton production, as well. Arkansas and California both experienced a

decrease in planted acreage from 1996 to 2000.

Cotton, Area Planted

State* 1996 Area

Planted

(000 acres)

1997 Area

Planted

(000 acres)

1998 Area

Planted

(000 acres)

1999 Area

Planted

(000 acres)

2000 Area

Planted

(000 acres)

1. Texas 5,700 5,500 5,650 6,150 6,300

2. Georgia 1,340 1,440 1,370 1,470 1,450

3. Mississippi 1,120 985 950 1,200 1,360

4. North Carolina 740 690 710 880 940

5. Arkansas 1,000 980 920 970 930

6. California 1,000 880 650 610 770

All Other 3,494.5 3,173.0 2,814.3 3,304.0 3,600.0

TOTAL 14,394.5 13,648.0 13,064.3 14,584.0 15,350.0

*Rank based on 2000 plantings

10,000 

11,000 

12,000 

13,000 

14,000 

15,000 

16,000 

17,000 

1,000 Acres

1988 1990 1992 1994 1996 1998 2000 

US

Upland Cotton, Area Planted, 1988-2000

Based on USDA-NASS data
Commission on 21st Century Production Agriculture 96

Rice

• National rice acres have increased by a half million acres since 1996. Six states

account for 100 percent of rice acreage, with Arkansas accounting for nearly half.

Arkansas increased rice acreage by 270,000 acres, a 19 percent gain since 1996.

California, Mississippi, and Missouri together have increased rice acres by 211,000

acres. Texas and Louisiana decreased rice acreage by 75,000 acres since 1996.

Rice, Area Planted

State*

1996 Area

Planted

(000 acres)

1997 Area

Planted

(000 acres)

1998 Area

Planted

(000 acres)

1999 Area

Planted

(000 acres)

2000 Area

Planted

(000 acres)

1. Arkansas 1,180 1,400 1,540 1,650 1,450

2. California 502 518 480 540 550

3. Louisiana 535 585 625 620 500

4. Mississippi 210 240 270 325 280

5. Texas 300 260 285 260 260

6. Missouri 97 122 145 186 190

TOTAL 2,824 3,125 3,345 3,581 3,230

*Rank based on 2000 plantings

2,600 

2,800 

3,000 

3,200 

3,400 

3,600 

1,000 Acres

1988 1990 1992 1994 1996 1998 2000 

US

Rice, Area Planted, 1988-2000

Based on USDA-NASS data
Commission on 21st Century Production Agriculture 97

Production Flexibility Contracts

• Feed grain, wheat, rice, and cotton farm income support consists of production

flexibility contract payments and non-recourse marketing loans. In 1996, according

to the USDA, 99 percent of the eligible acreage was enrolled in production flexibility

contracts. Under the contracts, participating farms receive fixed annual payments for

crop years 1996 through 2002, if they comply with conservation requirements to

protect highly erodible land. The size of payments for each farm is linked to

individual commodity production requirements in place under previous law.

Generally, however, farms are not now constrained in their crop-planting decisions.

Production Flexibility Contract Payments,

Fiscal Years 1996-1997, Actual; Fiscal Years 2000-2002, Forecast

1996 1997 1998 1999 2000 2001 2002 Total,

1996-2002

Billion

Dollars

 Corn $1.7 $3.4 $2.6 $2.5 $2.3 $1.9 $1.8 $16.2

 Sorghum $0.2 $0.3 $0.3 $0.3 $0.3 $0.2 $0.2 $1.8

 Barley $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.8

 Oats $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.1

Total Feed

Grains

$2.0 $3.8 $3.0 $2.9 $2.7 $2.2 $2.1 $18.9

Wheat $1.9 $1.4 $1.5 $1.4 $1.3 $1.1 $1.0 $9.6

Cotton $0.7 $0.6 $0.6 $0.6 $0.6 $0.5 $0.4 $4.0

Rice $0.5 $0.5 $0.5 $0.5 $0.4 $0.3 $0.3 $3.0

Total $5.1 $6.3 $5.6 $5.4 $5.0 $4.1 $3.8 $35.5

Data are from USDA-FSA 2000.
Commission on 21st Century Production Agriculture 98

• Since 1996, income support payments to feed grain, wheat, cotton, and rice producers

have on average amounted to 22 percent of total revenue for the contract

commodities, reaching a peak of 32 percent in 2000. By commodity, average

government support payments as a percent of total revenue from 1996 to 2000 are:

feed grains, 20 percent; wheat, 26 percent; rice, 34 percent; and cotton, 16 percent.

The following graph illustrates the cash receipts, target or contract payments, and

market loss payments made for contract crops from the 1990 to 2000 calendar years.

28.3 29.1

30.6 30.0

32.9

38.5

41.0

38.8

33.8

28.4 28.6

5.92 5.77 5.17

8.63

3.77

4.42

5.97

6.29

6.00

5.04 4.85

2.84

7.8 8.87

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999P 2000F

0.0

10.0

20.0

30.0

40.0

50.0

Market Loss Payments

Target or Contract Payments

Cash Receipts

Contract Crops

Datafrom USDA. P/preliminary, F/forecast
Commission on 21st Century Production Agriculture 99

• The linkage between support payments and production of a particular crop was

eliminated by the adoption of production flexibility contract payments in the 1996

farm bill. By commodity, therefore, the sum of cash receipts and contract payments is

an indicator, but not necessarily an accurate measure, of farm receipts by commodity

specialization. In other words, a farmer receiving cotton payments may be producing

a different crop as allowed under the planting flexibility provisions of the law. Cash

receipts for wheat have declined from $8.4 billion to $5.6 billion, with direct

government payments increasing from $1.6 billion to $3.6 billion from 1996 to 2000.

Direct government payments in 2000 accounted for approximately 39 percent of

gross receipts for wheat producers.















































































































































 



 



 































































































































































6.4 6.3

7.2 7.5

7.9

9.1 9.1

8.4

7.1

5.7 5.6

2.3 2.2 1.4

1.9

1.2

0.6

1.6

1.6

1.6

1.3 1.3

0.7

2.0 2.3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000P

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Market Loss Payments

 Target or Contract Payments

 Cash Receipts

Wheat

Data from USDA. P/preliminary
Commission on 21st Century Production Agriculture 100

• Feed grains (corn, sorghum, barley, and oats) cash receipts declined from $223.30 per

acre to $167.10 per acre from 1996 to 2000. Direct government payments increased

from $37.50 per acre to $74.60 per acre over the same period. Direct government

support accounted for approximately 31 percent of gross receipts per acre for feed

grains in 2000.

149.0

158.2 156.9

168.3 161.9

227.3 223.0 224.6

195.7

187.8

167.1

26.1

25.3 23.1

49.0

14.1

32.3

16.3

37.5

30.4 33.7

26.4

15.1

47.9

48.2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000P

0.0

50.0

100.0

150.0

200.0

250.0

300.0

Market Loss Payments

Target or Contract Payments

Cash Receipts

Feed Grains: Cash Receipts per Acre

Data from USDA. P/preliminary
Commission on 21st Century Production Agriculture 101

• Cotton cash receipts declined 26 percent per acre from 1996 to 2000. Direct

government payments increased by 39 percent per acre during the period, accounting

for approximately 23 percent of gross receipts in 2000.

444.5

372.6

392.2 390.7

491.1

404.6

477.2 471.8 456.2

322.3

351.8

35.7

29.0

56.7

91.2

60.2

40.6 43.3 49.9

42.2

36.8

25.7

62.2

67.2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Market Loss Payments Target or Contract Payments

Cash Receipts

Cotton Cash Receipts and Government Payments per Acre

Data from USDA.
Commission on 21st Century Production Agriculture 102

• Rice cash receipts averaged $1.5 billion from 1996 to 2000, varying from a high of

$1.73 billion in 1997 to a low of $1.2 billion in 2000. Direct government payments

increased from $0.68 billion in 1996 to $1.16 billion in 2000. An increase in

government payments, accounting for 30 percent of gross receipts to nearly 50

percent of gross receipts, occurred during the period.

1.05 1.03

1.26

0.70

1.67

1.28

1.58

1.73

1.60 1.6

1.2

0.47 0.55

0.51

0.65

0.34 0.78

0.63 0.45

0.48 0.43

0.41

0.24

0.66

0.75

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000F

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Market Loss Payments

Target or Contract Payments

Cash Receipts

Rice

Data from USDA-ERS. F/forecast
Commission on 21st Century Production Agriculture 103

• Wheat cash receipts per acre declined 39 percent from 1996 to 2000. Direct

government payments for wheat per acre increased nearly 41 percent over the same

period.

91.6

107.7

113.4

119.0

127.2

149.5 146.2

140.0

121.8

90.7 89.0

33.0

37.1

22.1

30.4 18.7

9.6

23.3

22.0

25.4

21.1 20.2

12.7

32.6 37.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000P

0.0

50.0

100.0

150.0

200.0

Market Loss Payments

Target or Contract Payments

Cash Receipts

Wheat Cash Receipts and Government Payments per Acre

Data from USDA-ERS. P/preliminary
Commission on 21st Century Production Agriculture 104

• The sum of cash receipts, commodity support payments, and market loss payments in

1999 and 2000 resulted in total per-acre gross receipts nearly as high as the peaks

reached in 1996 and 1997.

149.0

158.2 156.9

168.3 161.9

227.3 223.0 224.6

195.7

187.8

167.1

26.1

25.3 23.1

49.0

14.1

32.3

16.3

37.5

30.4

31.0

26.4

15.1

47.9

48.2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000F

0.0

50.0

100.0

150.0

200.0

250.0

300.0

Market Loss Payments

Target or Contract Payments

Cash Receipts

Feed Grain Cash Receipts and Government Payments per Acre

Data from USDA-ERS, F/forecast
Commission on 21st Century Production Agriculture 105

• Cash receipts for rice declined by approximately 34 percent per acre from 1996 to

2000, while direct government payments increased approximately 61 percent during

the period.

363.2 356.2

395.4

239.2

496.6

410.9

558.7 565.8

497.7

446.8

371.5

160.5

190.7 161.2

222.6

100.4

251.2

223.5

146.6

150.9

119.2

127.2

75.3

184.6 232.2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000F

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

Market Loss Payments

Target or Contract Payments

Cash Receipts

Rice Cash Receipts and Government Payments per Acre

Data from USDA-ERS, F/forecast
Commission on 21st Century Production Agriculture 106

Agricultural Trade

• The United States is the world's largest exporter of agricultural products, with sales of

$50.5 billion in fiscal year 2000. Production from an estimated 30 percent of U.S.

crop acreage is exported. Agricultural exports represent around 25 percent of gross

farm income.

• U.S. agricultural trade consistently registers a surplus. The agricultural trade surplus

in 1999 was $11.6 billion, in contrast to a nonagricultural trade deficit of around $352

billion.

• Export volume rose from 1986 to 1996, but declined from 1997 to 1999. In 1999,

export volume was 113.7 million metric tons (mmt), down from 119.3 mmt in 1996.

• After growing rapidly in the 1970s, U.S. agricultural exports reached a high of $43.8

billion in fiscal year 1981, then declined 40 percent to $26.3 billion by fiscal year

1986. By fiscal year 1995, agricultural exports had recovered and reached a new

peak of $54.6 billion, and continued to nearly $60 billion in fiscal year 1996. The

value of U.S. agricultural exports declined to $50.5 billion in fiscal year 2000. The

value of exports is forecast to increase by $1 billion (to $51.5 billion) in fiscal year

2001.

1982 1986 1990 1994 1998

10

20

30

40

50

60

Exports

Imports

Agricultural Exports and Imports, Fiscal Year 1982-2000
Commission on 21st Century Production Agriculture 107

• Nearly every state exports agricultural commodities, thereby sharing in exportgenerated income and employment. In 1999, California had the greatest share of U.S.

agricultural exports (by value), followed by Iowa, Nebraska, Kansas, Illinois, Texas,

and Minnesota. In addition, Washington, Indiana, Wisconsin, Arkansas, North

Carolina, Ohio, Florida, Missouri, and South Dakota each exported more than $1

billion worth of commodities. (This allocation is by formula and not a measure of

actual exports.) In 1997, California and Iowa had the most exports followed by

Illinois, Nebraska, Texas, Kansas, Minnesota, and Arkansas. In 1997, 19 states had

exports of more than $1 billion, compared with only 16 states in 1999.

1.0

1.1

1.1

1.1

1.2

1.2

1.3

1.4

1.8

2.2

2.5

2.8

2.8

2.9

3.2

6.9

Billion Dollars

South Dakota

Missouri

Florida

Ohio

North Carolina

Arkansas

W isconsin

Indiana

Washington

Minnesota

Texas

Illinois

Kansas

Nebraska

Iowa

California 

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

(States W ith Exports of More Than $1 Billion)

Agricultural Exports by State, 1999
Commission on 21st Century Production Agriculture 108

• The United States exports a wide range of agricultural products, including both bulk

commodities and high-value products (HVP).

• Oilseeds (mainly soybeans) and oilseed products were the leading commodity

components of U.S. agricultural exports in 1999, but significant amounts of feed

grains, red meats, wheat, and fruits and nuts were also exported. Vegetables, poultry,

cotton, and tobacco are significant HVP exports, as well.

$1.3

$1.8

$2.3

$2.9

$3.3

$3.5

$5.0

$5.2

$8.7

$ Billions

Tobacco

C otton

Poultry

Vegetables

Fruits, Nuts, Preps.

W heat

Red Meats

Feed Grains

O ilseeds & Products

$0.0 $2.0 $4.0 $6.0 $8.0 $10.0

Export Value of Major Com m odities, Fiscal Year 1999 

Source: U .S. Departm ent of Agriculture, E conom ic R esearch Service.
Commission on 21st Century Production Agriculture 109

• Many agricultural commodities depend on the export market. In fiscal year 1999,

wheat exports (by volume) accounted for around 47 percent of total production, up

from 43 percent in 1997. Export markets are important also for rice, cotton, and

soybeans, accounting for 42 percent, 39 percent, and 37 percent, respectively, of total

use. The share of corn exports in total use was 20 percent in 1999.

• Beef exports have grown rapidly in the past ten years, tripling in value since 1988,

although only a small percentage of total use (six percent) is exported. Similarly,

pork exports have been growing, yet only around five percent of total use is exported.

Conversely, exports of poultry accounted for more than 18 percent of total use in

1999.

47%

42% 39% 37%

20% 18%

6% 5%

53%

58% 61%

67%

80% 82%

94% 95%

W heat Rice Cotton Soybeans Corn Poultry Beef Pork

0%

20%

40%

60%

80%

100%

Exports Dom estic Use

Com m odity T otal U se, Fiscal Year 1999

Export and Dom estic Shares of
Commission on 21st Century Production Agriculture 110

• Imports provide consumers with food variety and enable them to consume more fresh

produce throughout the winter months. USDA classifies about one-third of

agricultural imports as "non-competitive" (that is, products like coffee, tea, chocolate,

and tropical fruit) which are crops that generally are not produced in the United

States. The remaining two-thirds USDA designates as "competitive" (that is,

products similar to those that are produced in the United States such as meats, sugar,

tobacco, grain, oilseeds, and temperate-zone fruits and vegetables).

5.8

4.6

3.6

2.4

1.9

1.6

0.6

0.6

Billion Dollars

Fruits and Nuts

Vegetables and Preps

Meats

Feed

Oilseeds

Sugar

Tobacco

Grains

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Major Agricultural Imports by Commodity, Fiscal Year 1999

Source: USDA-ERS.
Commission on 21st Century Production Agriculture 111

U.S. Share of World Export Markets

• The United States exports a wide range of commodities that have widely divergent

shares in world markets. Market shares are often used as measures of export

performance in world markets and as an indicator of competitiveness. U.S. export

market shares have tended to decline over time. Nevertheless, the United States

remains the world's dominant supplier of soybeans, corn, and wheat, and accounts for

significant shares of the world rice and cotton markets.

• Several factors influence the competitiveness of U.S. agricultural products in world

markets. Macroeconomic factors such as exchange and interest rates affect

competitiveness, as do growth in productivity and efficiency. Natural resource

endowments and climate, cost-reducing technologies, and such infrastructure as

transportation and communication are important determinants, especially the

competitiveness of commodity exports. Supply conditions around the world also

affect competitiveness.

• Other factors that affect competitiveness may be more significant in determining the

market share of HVPs. More important for HVPs, especially processed foods, may

be product characteristics, quality enhancing technologies, product innovations, the

regulatory environment, and trade policies.

• Foreign direct investment by U.S. food and agriculture processing firms also affects

export market share. USDA's ERS reports that sales of processed foods by U.S.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0.0

20.0

40.0

60.0

80.0

100.0

W heat Rice Corn

Soybeans Cotton

(Percent Share by Volum e, Million Metric Tons)

U.S. Share of W orld Exports of W heat, Rice, Corn, Soybeans, & Cotton, 1980-2000

D ata from U SDA -FAS, F/forecas t
Commission on 21st Century Production Agriculture 112

manufacturing firms that have invested abroad exceed U.S. exports of processed

foods by a factor of four. Foreign direct investment, according to the ERS, has

become the leading means for U.S. processed food companies to participate in

international markets. ERS finds that foreign direct investment and trade in

processed foods are complementary, not competitive, in that income growth in most

countries has supported growth both in U.S. affiliates’ sales and U.S. exports.

• Crops. The United States is the major supplier of corn, soybeans, wheat, and cotton

to the world market, with market shares of 68 percent, 57 percent, 28 percent, and 25

percent, respectively, in 2000. The U.S. market share for corn, soybeans, and cotton

declined by two percent, eleven percent, and one percent, respectively, from 1997

levels. The European Union (EU), Canada, Australia, and Argentina are major

competitors in the world wheat market. Brazil and Argentina together held 32

percent of the world soybean market in 2000, up from 23 percent in 1997. Thailand

is the world's dominant supplier of rice (30 percent) and Vietnam, with a share of 18

percent in 2000, has reestablished itself as a major supplier. The United States’ share

of the world rice market remained at 13 percent in 2000, unchanged since 1997.

Uzbekistan accounted for 15 percent of world cotton exports in 2000.

• Meat and Poultry. The U.S. share of world beef exports was 18 percent in 2000, up

one percent from 1997. Australia (21 percent) and Brazil (11 percent) are the other

major beef exporters. The U.S. share of world pork markets was 17.8 percent in 2000

(down from 20 percent in 1997), while the EU’s share has risen from 33 percent in

1997 to 41 percent in 2000. Canada, with a share of 20 percent in 2000, up from 16

percent in 1997, is the third major supplier of pork. The United States is the world's

leading supplier of poultry meat (40 percent in 2000 compared with 43 percent in

1997). Its share is more than two times that of Hong Kong, which holds the second

largest share with 15 percent.

• Dairy Products. Australia (20 percent) and New Zealand (49 percent) held more than

two-thirds of the world market for butter in 2000, while the United States had a less

than one percent share. The EU holds the lion's share of world cheese exports (40

percent), and New Zealand and Australia hold 24 percent and 18 percent,

respectively. The U.S. accounts for only four percent of the cheese export market.

Only in the nonfat dry milk export market does the United States have a significant

share, around 14 percent. The EU, New Zealand, and Australia hold shares of 28

percent, 21 percent, and 19 percent, respectively, in the world nonfat dry milk market.
Commission on 21st Century Production Agriculture 113

U.S. and World Stocks of Major Commodities

• Wheat. The ratio of U.S. wheat stocks to use (stocks as a percentage of total

domestic and export use, the S/U ratio) has varied considerably over time. During

most of the 1980s, wheat stocks far exceeded annual consumption, reaching a high of

182 percent of use in 1986. Among other factors, farm bills in 1985 and 1990

established or expanded mechanisms to move stocks into domestic and world

markets. As a result, stocks declined in relation to use through most of the late 1980s

and 1990s. More recently, factors such as the Asian financial crisis, slower world

economic growth, and abundant wheat supplies in competitor countries have

contributed to a rebuilding of U.S. wheat stocks.

• World wheat stocks have shown considerably less variation. During the 1980s, world

stocks averaged around 24 percent of total consumption; in the 1990s the average was

only slightly lower, around 23 percent. U.S. wheat stocks averaged just over onethird of world stocks during most of the 1980s. As a result of policies and economic

factors, however, the U.S. share in world wheat stocks declined during the 1990s to

an average of around 12 percent. In 1997, the U.S. share of world wheat stocks began

an upward trend.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

50

100

150

200

U .S . S to cks-To -U se

W orld S tocks-T o-U se

U .S . S to cks as Pe rc ent of W orld S tocks

W orld and U .S. W heat Stocks in R elation to U se, 1980-2000

D ata from U SDA -E R S , F/forec ast
Commission on 21st Century Production Agriculture 114

• Rice. The ratio of U.S. stocks of rice to use was large during the 1980s, reaching

highs of nearly 120 percent of consumption. During the 1990s, because of the same

factors as for wheat, rice stocks declined. The average U.S. rice S/U ratio in the

1990s had been around 30 percent. In general, world rice stocks represent a smaller

percentage of consumption than do wheat stocks. For the past 20 years, the world's

S/U ratio for rice has averaged around 12 percent. The U.S. share in world rice

stocks has been relatively small, around six percent in the 1980s and just under two

percent in the 1990s.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

20

40

60

80

100

120

U.S. Stocks-To-Use

W orld S tocks-To-Use

U.S. Stocks as P ercent of W orld Stocks

W orld and U.S . Rice S tocks in Relation to Use, 1980-2000

Data from USD A-ER S, F/forecast
Commission on 21st Century Production Agriculture 115

• Corn. Trends in the S/U ratio for corn are similar to those of wheat. U.S. stocks of

corn were large relative to use during the 1980s, although not as large as for wheat.

During the 1990s, the U.S. corn S/U ratio has declined. Reflecting its position as the

major supplier of corn to world markets, the U.S. share of world stocks has remained

large since 1980, although it declined from an average of around 67 percent in the

1980s to around 39 percent in the 1990s.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

20

40

60

80

100

U.S. Stocks-To-Use

W orld Stocks-To-Use

U.S. Stocks as Percent of W orld Stocks

W orld and U.S. Corn Stocks in Relation to Use, 1980-2000

Data from USDA-ERS, F/forecast
Commission on 21st Century Production Agriculture 116

• Soybeans. The U.S. soybean S/U ratio also has declined over time. U.S. stocks

averaged around 30 percent of consumption during the 1980s; in the 1990s, they

averaged below 20 percent. The world S/U ratio has trended down as well over the

past two decades.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

10

20

30

40

50

60

70 U.S . Stocks-To-Use

W orld S tocks-To-Use

U.S . Stocks as Pe rcent of W orld Stocks

W orld and U.S. Soybean Stocks in Relation to Use, 1980-2000

Data from USDA-ERS, F/forecast
Commission on 21st Century Production Agriculture 117

• Cotton. U.S. cotton stocks in relation to cotton use were especially volatile in the

1980s. World cotton stocks as a percentage of use have been much more stable. The

U.S. share of world cotton stocks has remained small over the past two decades.

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000F

0

20

40

60

80

100

120

140

160

U.S. Stocks-To-Use

W orld Stocks-To-Use

U.S. Stocks as Percent of W orld Stocks

W orld and U.S. Cotton Stocks in Relation to Use, 1980-2000

Data from USDA-ERS, F/forecast
Commission on 21st Century Production Agriculture 118

PROPOSAL FOR COMPREHENSIVE

LONG-TERM AGRICULTURAL TRADE REFORM

Submission by the United States

In accordance with the long-term objective of establishing a fairer, more market-oriented

agricultural trading system and the procedures agreed on at the March meeting of the

Committee on Agriculture, the United States hereby submits a comprehensive

agricultural reform proposal for correcting and preventing restrictions and distortions in

world agricultural markets.

By defining, quantifying, and reducing trade-distorting market access, export

competition, and domestic support measures, the Agreement on Agriculture established

the necessary conditions for long-term reform. The major challenge facing members in

this negotiation is to build on that foundation by accelerating the process of reducing

trade distortions while preserving the appropriate role for governments to address

agricultural concerns in a non-trade-distorting fashion.

Several factors add urgency to this challenge, including internal pressures on members to

conduct serious reform, efforts to reduce budgetary expenditures on agriculture, the

development of new technologies, the challenge of promoting sustainable development,

and the increasing challenge to the world’s farmers and ranchers to feed an expanding

population on a shrinking resource base. Coupled with the built-in time schedule in the

Agreement on Agriculture, the United States proposes that members reach an overall

agreement by the end of 2002 and reach agreement on basic modalities at the midterm of

the negotiations in 2001.

The specific elements of the United States’ approach entail reforms across all measures

that distort agricultural trade and that, once adopted, will reduce levels of protection,

close loopholes that allow for trade-distorting practices, clarify and strengthen rules

governing implementation of commitments, foster growth, and promote global food

security and sustainable development.

The United States believes that there are compelling arguments for further reform. Too

often and in too many countries, the production and marketing decisions that farmers

make are still driven by government programs and protections from market-access

barriers, rather than market conditions. As a result, competitive farmers, ranchers, and

processors are denied sufficient access to markets and face subsidized products and the

trade-distorting policies of foreign governments, leaving the world with an agricultural

market still far from the World Trade Organization’s (WTO) objective of a fair and

market-oriented system.

Many costs are associated with trade distortions. Distorting subsidy schemes are a

wasteful drain on budgets. Along with import restrictions, they misallocate limited

resources. Rigid government programs and unscientific regulatory restrictions discourage

innovation in production and marketing, threaten the future viability of agriculture, and

undermine producers’ ability to meet growing food and fiber needs. Barriers to trade

foreclose consumer choices and can reduce consumer access to adequate food. Distorting
Commission on 21st Century Production Agriculture 119

subsidies frequently lead to environmentally destructive practices, threatening as well

farmers’ and ranchers’ ability to develop efficiently and in a sustainable manner. All of

these distortions are especially burdensome for developing countries, and particularly

least developed countries, many of whom depend on agriculture for income and

employment, look to trade opportunities to generate economic growth, and depend on the

free flow of agricultural products for food security.

While the United States is committed to working through the WTO to eliminate tradedistorting measures, the United States is likewise committed to and supports policies that

address nontrade concerns, including food security, resource conservation, rural

development, and environmental protection. The United States maintains that these

objectives are best met through nontrade-distorting means, with programs targeted to the

particular concern without creating new economic distortions, thereby avoiding passing

the cost of achieving these objectives to other countries by closing markets, or

introducing unfair competition, or both. The United States recognizes that trade measures

may be used to address legitimate health and safety concerns and does not support

opening the Agreement on Sanitary and Phytosanitary Measures to negotiation. The

United States also recognizes the special circumstances and challenges that developing

countries face and therefore will supply proposals to help better integrate them into the

world trading system.

The U.S. proposal will increase the market-orientation of world agriculture, providing

producers in all countries with more opportunities to compete in world markets, on fairer

terms, with more access to expanding markets. Not only will domestic policies structured

in conformity with the U.S. proposal remove a major source of trade distortion, they will

release producers from restrictive government policies that prescribe what and how much

to produce, freeing farmers to follow their judgement and the natural carrying capacity of

their land. Such an environment will result in expanding economic opportunities for

farmers and ranchers and put farm economies on a more sound basis. At the same time,

members’ adherence to the reforms will alleviate food security concerns by providing

greater access to food and enhanced purchasing power. Consumers will benefit from

wider choice, access to new products with new benefits, and more competitive prices.

U.S. Proposal: Market Access

The U.S. objective for these WTO negotiations on agricultural market access is to

maximize market access opportunities for all countries and to make more uniform the

level and structure of tariff bindings for all countries in all products.

The United States proposes:

Tariffs

• To reduce substantially or eliminate disparities in tariff levels among countries, to

reduce substantially or eliminate tariff escalation, and ensure effective market

access opportunities for all products in all markets
Commission on 21st Century Production Agriculture 120

• to reduce substantially or eliminate all tariffs, including in-quota duties, by

reducing them from applied rates through progressive implementation of annual

reduction commitments over a fixed period

• To denominate bindings and applied rates on a specific or ad valorem basis

without the use of complex tariffs or combinations of tariffs

• To eliminate the transitional special agricultural safeguard as defined in Article 5

of the Agreement on Agriculture.

Tariff-Rate Quotas

• To subject all tariff-rate quotas to substantial increases through progressive

implementation of annual commitments over a fixed period

• To establish disciplines to improve functioning of tariff-rate quotas, including

specific mechanisms that trigger when tariff rate quota fill remains below a fixed

level.

Import State Trading Enterprises

• To end exclusive import rights to ensure private sector competition in markets

controlled by single-desk importers

• To establish WTO requirements that increase transparency in the operation of

single-desk importers, including their decisions on quality and source of imports.

Products of New Technologies

• To focus disciplines to ensure that processes covering trade in products developed

through new technologies are transparent, predictable, and timely.

U.S. Proposal: Export Competition

The U.S. objective for the WTO negotiations on agricultural export competition is to

eliminate export subsidies and variable export taxes and to discipline export state trading

enterprises.

The United States proposes:

Export Subsidies

 To reduce to zero the levels of scheduled budgetary outlays and quantity

commitments through progressive implementation of annual reduction

commitments over a fixed period.

Export State Trading Enterprises

• To end exclusive export rights to ensure private-sector competition in

markets controlled by single-desk exporters
Commission on 21st Century Production Agriculture 121

• To establish WTO requirements for notifying acquisition costs, export

pricing, and other sales information for single-desk exporters

• To eliminate the use of government funds or guarantees to support or

ensure the financial viability of single-desk exporters.

Export Taxes

• To prohibit the use of export taxes, including differential export taxes, for

competitive advantage or supply management purposes.

Export Credit Programs

• To conduct negotiations for export credit programs in the Organization for

Economic Cooperation and Development in fulfillment of Article 10.2 of

the Agreement on Agriculture, and apply disciplines to all users.

U.S. Proposal: Domestic Support

The U.S. objective for these WTO negotiations on agricultural domestic support is to

reduce substantially trade-distorting domestic support in a manner that corrects the

disproportionate levels of support members’ use, while simplifying the way in which

domestic support is disciplined. The United States proposes building on the key elements

of the Agreement on Agriculture, including the de minimis principle, and making

progress through a fairer and simpler approach to capping, binding, and reducing tradedistorting support. This approach recognizes the legitimate role of government in

agriculture. In particular, the U.S. proposal allows for support that is delivered in a

manner that is, at most, minimally trade distorting. This could include, among others,

income safety-net and risk-management tools, domestic food aid, environmental and

natural resource protection, rural development, new technologies, and structural

adjustment that promote economically sustainable agricultural and rural communities.

The United States proposes:

• To simplify the domestic support disciplines into two categories: exempt support,

as defined by criteria-based measures that have no, or at most, minimal tradedistorting effects or effects on production; and nonexempt support, which would

be subject to a reduction commitment

• That all members with a final bound Aggregate Measurement of Support in their

schedules commit to reduce the level of nonexempt support as follows:

• reductions start from the final bound Aggregate Measurement of Support

• reduce the Aggregate Measurement of Support to a final bound level equal to a

fixed percentage of the members’ value of total agricultural production in a fixed

base period

• the fixed percentage will be the same for all members

• reductions would be implemented through progressive annual reduction

commitments over a fixed period
Commission on 21st Century Production Agriculture 122

• To enhance further, by building on experience, the criteria for exempt support

measures while ensuring that all exempt measures are targeted, transparent, and,

at most, minimally trade-distorting

• To give special consideration to exempt support measures essential to the

development objectives of developing countries as noted under the section on

special and ifferential treatment.

U.S. Proposal: Special and Differential Treatment

The U.S. objective for these negotiations is to better integrate developing countries into

the WTO system through technical assistance, by improving market access opportunities,

in particular for least developed countries, and by affording flexibility for exempt support

measures essential to development objectives.

The United States recognizes the need for capacity building in developing countries to

enhance their integration into, and their ability to benefit from, the international trading

system. In this regard, the United States will work with developing countries to take

advantage of the broad range of programs offered by international organizations, bilateral

aid agencies, and other entities including programs under the Integrated Framework for

least developed countries. In addition, the United States encourages all members to build

on and expand current activities and improve technical assistance coordination.

The United States proposes:

Market Access

• That all WTO members consider products of interest to developing

countries, in particular least developed countries, when making tariff

reductions

• To give special consideration to least developed countries when they

implement tariff reduction commitments.

Domestic Support

• To create additional criteria for exempt support measures deemed essential

to the development and food security objectives of developing countries,

to facilitate the development of targeted programs to increase investment

and improve infrastructure, enhance domestic marketing systems, help

farmers manage risk, provide access to new technologies promoting

sustainability and resource conservation, and increase productivity of

subsistence producers.

Technical Assistance

• That WTO members intensify ongoing technical assistance through

governmental and nongovernmental entities in parallel with these

negotiations.
Commission on 21st Century Production Agriculture 123

U.S. Proposal: Food Security

The U.S. proposal is a food security proposal. The United States believes, in addition to

the non-trade distorting domestic support measures countries take to enhance their food

security, that further liberalization of trade in agricultural products and promotion of

legitimate assistance programs are important elements in strengthening food security.

Trade liberalization will enhance important efforts on food security underway in several

venues, including the Food Aid Convention, the United Nations Food and Agriculture

Organization, and the World Food Program. In addition to specific disciplines that

expand sources of supply and encourage efficiencies in agricultural production, trade

reform will result in economic growth and spur innovation, expanding global food

security. It is important to recognize that liberalization alone will not address food

security needs in all developed and least developed countries. As a consequence, the

negotiations need to take into account the continuing role of international food aid and

credit programs in providing for food import needs.

The United States proposes:

• To renew the commitment to food aid as expressed in the Uruguay Round’s

"Decision on Measures Concerning the Possible Negative Effects of the Reform

Program on Least Developed and Net Food-Importing Developing Countries"

• To continue the WTO disciplines on food aid contained in Article 10.4 of the

Uruguay Round Agreement on Agriculture that have proven to be appropriate

• That the disciplines to be developed at the Organization of Economic Cooperation

and Development for agricultural export credits and credit guarantees should not

prevent WTO members from using such programs to improve the food security

status of other members

• To establish export reporting systems in all members to increase information on

the level and direction of international grain and oilseed transactions

• To strengthen substantially WTO disciplines on export restrictions to increase the

reliability of global food supply.

U.S. Proposal: Sectoral Initiatives

The United States proposes that WTO members engage in sector-specific negotiations to

agree on reform commitments beyond those generally applicable in the areas of market

access, export competition, and domestic support, including, but not limited to, zero-forzero and harmonization initiatives.
Commission on 21st Century Production Agriculture 124

Commission Participants

Public Listening Sessions (by State)

Alabama

Charles Bishop, Commissioner - Alabama Department of Agriculture and Industries

Thomas Dozier, Producer

Steve Cawthon, Executive Director - State Soil and Water Conservation Committee

Stuart Frazer, Cotton Merchant - Production Marketing Corporation

Sam Givhan, Producer

Curtis Grissom, President - National Association of County Agricultural Agents

George Hall, Producer, President - Black Farmers Association

Walter Hill, Dean, Director - Tuskegee University

Hollis Isbell, Producer, Chairman of the Board of Directors - Southern Cotton Growers

Arthur Jackson, Producer

Stephen Jones, Extension Director - Alabama Cooperative Extension System

Ted Kretschmann, Producer, Board Member - Alabama Beekeepers Association

Jerry Newby, Producer, President - Alabama Farmers Federation

Dickie Odom, Producer, Chairman - Alabama Catfish Producers

Tommy Paulk, CEO - Alabama Farmers Cooperative

Hal Pepper, Extension Economist - Auburn University

William E. Powell, III., Executive Vice President - Alabama Cattleman’s Association

George Robertson, Producer

Miles Robinson, Director - Small Farm Center, Tuskegee University

Clara Spivey, President – Women Involved in Farm Economics

Luther Waters, Dean of the College of Agriculture - Auburn University

Ricky Wiggins, Vice President - Alabama Farmers Federation

John Zippert, Director of Program Operations - Federation of Southern Cooperatives

Arizona

Ron Rayner, Producer, President - National Cotton Council

Nicole Waldron, Legislative Liaison - Arizona Department of Agriculture

California

Shirley Batchman, Director of Industry Relations - California Citrus Mutual

Jane Logoluso Bautista, Vice President, Field Relations - Logoluso Farms

Claire Hope, Journalist and Lawyer

Manuel Cunha, Jr., President - Nisei Farmers League

Clay Daulton, Producer

Gerald Davidson, Grower - Sunkist

John Deiner, Grower

Frank Faria, Producer

Rudy Flatizcan, Director - Valley Vision Project

Ben Goodwin, Executive Manager - California Beet Growers Association

David Hart - University of California-Davis

Bob Herkert, Communications Manager - California Rice Commission
Commission on 21st Century Production Agriculture 125

Adin Hester, President - Olive Growers Council

Manuel Jimenez, Farm Advisor, California Cooperative Extension Service

Nick Kuminoff, Graduate Student/Research Assistant - University of California-Davis

Phil Larson, Producer

Michele Lasgoity, Producer

Loren Lopes, Dairy Producer

Linda Macedo, Producer, President - California Women for Agriculture

Scott Magneson, Producer

Morris Martin, Manager - Westside Resource Conservation District

Richard Matoian, President - California Grape and Tree Fruit League

Guy Morrison, President - I.B.A. West

Bob Munyon, Poultry Producer

Gloria Palacios, President, Multi-ethnic Small Farm and Community Development

Jack Pandol, Producer

Craig Pedersen, Chairman - California Wheat Commission

Joanne Powell, Producer

W. K. Quarles, Vice President of Corporate Relations and Counsel - Sunkist Growers

Inc.

Jose Quezada, Entomologist

Justin Ruben, Pesticide Watch

Gary Schulz, General Manager - International Agri-Center Inc.

Nadine Scott, Attorney at Law

Will Scott, Jr., Producer

Jerome Seibert, Economist - University of California-Berkeley

Alvin Sokolow, Public Policy Specialist - University of California-Davis

Dan Sumner, Director of the Agricultural Issues Center - University of California-Davis

Donna Thomas, President - California Association of Resource Conservation Districts

Jim Tillison, Dairy Industry Representative

Paul Wenger-Walnut Grower, Second Vice-President - California Farm Bureau

Terrence Witzel, Field Director - American Farmland Trust

Colorado

Don Ament, Commissioner - Colorado Department of Agriculture

Craig Anderson, Producer - Colorado Sugarbeet Growers

Dave Carter, President - Rocky Mountain Farmers Union

Jeanne Davies,Vice President - National Grange

Bob Eisenrach, State Executive Director - Colorado Farm Service Agency

Harley Ernst, Producer

Jennifer Felzein, Producer

Tim Hume, Producer

Kirvin Knox - Colorado State University

Roger Mitchell, President - Colorado Farm Bureau

Milan Rewerts, Director - Cooperative Extension Service, Colorado State University

Vernon Sharp - Colorado Cattleman's Association

Leon Silkman, Chairman of the Board - High Plains Project

Lee Sommers, Director - Agricultural Experiment Station, Colorado State University
Commission on 21st Century Production Agriculture 126

Dusty Tallman, President - Colorado Wheat Growers

Connecticut

Thomas Coyle, Grain Merchant, Representative - National Grain and Feed Association

Florida

Jeff Crawford, Jr., Executive Director - Florida Peanut Producers Association

Georgia

Richey Seaton, Executive Director - Georgia Cotton Commission

Jim Shirah, Producer

Jerry Usry, Executive Director - Georgia Peanut Producers Association

Chris Waylor - Georgia Poultry Federation

Idaho

Keith Kinzer, President - Idaho Grain Producers Association

Steve Martineau, Producer, Idaho Sugarbeet Growers

Timothy McGreevy, President, CEO - USA Dry Pea and Lentil Council

Patrick A. Takasugi, Director - Idaho Department of Agriculture

Illinois

Carl Baumann, Dairy Producer

David Chicoine, Dean - College of Agriculture, Consumer, and Environmental

Sciences, University of Illinois

Brad Glenn, Producer, President - Illinois Soybean Association

Trenna Grabowski, Accountant, Producer

Gregory Guenther, Past President - Illinois Corn Growers

Joseph Hampton, Director - Illinois Department of Agriculture

Donald Holt, Senior Associate Dean - College of Agriculture, Consumer, and

Environmental Sciences, University of Illinois

Carol Keiser, Board of Directors - Illinois Council on Food and Agriculture Research (CFAR)

Pam Kerpec, Chairperson - Lake County Soil and Water Conservation District

Richard Klossner, Dairy Producer

David Lehman, Group Manager - Commodity Products, Chicago Board of Trade

William Lemon, Director - Government and Regulatory Affairs, Illinois Grain and Feed

Association

Pat McCullough, Producer

Larry Quandt, Producer, President - Illinois Farmers Union

Jim Sutter, Director - Oilseeds/Futures, Cargill, Inc.

Ron Warfield, President - Illinois Farm Bureau

Doug Wilson, Producer, President - Illinois Corn Growers

Indiana

Mike Aylesworth, Producer, President - Indiana Corn Growers Association
Commission on 21st Century Production Agriculture 127

Jennifer Campbell, Producer

Iowa

Charles Norris, Producer - Iowa Farm Bureau

Kansas

Steve Baccus, President - Kansas Farm Bureau

Lowell Burchett, Retired Director - Kansas Crop Improvement Association

Vance Ehmke, Producer

Mark Meisinger, Producer

Alan States, Producer, Banker

Dean Stuskopf, Producer, Vice President - Kansas Association of Wheat Growers

Louisiana

John Denison, Producer, Chairman of the Board - USA Rice Federation

Ron Gonsoulin, Producer, Member - Louisiana Farm Bureau

Minnesota

Allen Anderson, Vice President of Governmental Affairs - Cenex Harvest States

Mississippi

Coley Bailey, Producer, Vice President - Delta Council

David Waide, President - Mississippi Farm Bureau

Montana

Kenneth L. Maki, Producer, President - Montana Farmers Union

Nebraska

Merlyn Carlson, Director - Nebraska Department of Agriculture

Ronald Maas, Executive Director - Nebraska Wheat Board

North Dakota

Robert Carlson, President - North Dakota Farmers Union

Roger Johnson, Commissioner of Agriculture - North Dakota Department of Agriculture

Nick Sinner, President - Red River Valley Sugarbeet Growers

Oklahoma

Scott Blubaugh, Producer

Terry Detrick, Producer, Vice President - National Association of Wheat Growers

Phillip Klutts, Producer, President - Oklahoma Farmers Union

Phillip McDaniel, Producer

Paul Muegge, State Senator

Ohio

Charlie Nash, President - Ohio Farmers Union
Commission on 21st Century Production Agriculture 128

Oregon

Judy Rea-President - Oregon Wheat Growers League

Brent Searle, Special Assistant to the Director - Oregon Department of Agriculture

Jonathon Schlueter, Executive Vice President - Pacific Northwest Grain and Feed

Association

Pennsylvania

Dr. Theodore Alter, Dean - College of Agriculture, Penn State University

Marion Long Bowlan, Producer, Executive Director - Pennsylvania Farm Link

Larry Breech, Producer

Vivian Brubaker, Dairy Producer

Harold Curtis, Dairy Producer

Barry Denk, Director - Center for Rural Pennsylvania

Guy Donaldson, Producer, President - Pennsylvania Farm Bureau

Keith Eckel, Producer

Dr. John Enck, Director - Bureau of Animal Health and Diagnostic Services

Louis Hawley, Dairy Producer

Samuel Hayes, Secretary - Pennsylvania Department of Agriculture

Robert C. Junk, Producer, President - Pennsylvania Farmers Union

Christine Kellett, Director - Agricultural Law Center, Dickinson Law School, Penn State

University

Richard Kriebel, Producer - Agriculture Choice Farm Credit of Pennsylvania

Paul W. McPherson, Producer - Agriculture Choice Farm Credit of Pennsylvania

Ernest O. Miller, Producer

Richard Pallman, Producer

Marlin Rothermel, Producer

Kenneth L. Schlegel, Producer

Don Sherwood, Congressman - 10th District of Pennsylvania

David Speakman, Senior Vice President - Gertrude Hawk Chocolates, Inc.

Feryl Treichler, Producer

William Voegtlen, Producer

Barbara Wiand, Producer

South Carolina

David Winkles, Producer, President - South Carolina Farm Bureau

Texas

Vernie Glasson, Executive Director, Texas Farm Bureau

Washington

William Brookreson, Deputy Director - Washington Department of Agriculture

Jim Davis, Producer, Chairman - Central Washington Grain Growers Cooperative

Fred J. Fleming, Producer

Ron Gamache - Grower, Firstt Vice President - Washington Farm Bureau

Jim Haase, Director of Legislative Affairs - National Grange

Edward Hereford, Producer, Board Member - Cenex/Harvest States
Commission on 21st Century Production Agriculture 129

Chris Hesse, CPA, Director of Taxation - LeMaster & Daniels

Phil Iaask, Producer, Chairman - Washington Wheat Commission

James Kile, Producer, Board Member - Cenex/Harvest States

Linda T. Marler, Producer

Walter Neff, Producer, President- Washington Wheat Growers

Alice Parker, Past President - Women Involved in Farm Economics

Tom Platt, Area Extension Agent - Washington State University

Jerry Snyder, Producer

James Zahand, Certified Crop Advisor, Vice President - Far West Fertilizer and

Agrochemical

Association

Washington, D.C.

John Gilliland, Government Relations - American Sugar Cane League

Wisconsin

Robert Bass, Producer, Board Member - Cenex Harvest States

John Bobbe, Agricultural Economist - National Farmers Organization

Commission Meeting Attendees

Sam Funk, Illinois Farm Bureau

David Lindsay, National Grain and Feed Association

Jim Miller, National Farmers Union

Dr. Ron Knutson, Texas A&M University

Fred Woods, Texas A&M University

Dr. Ed Smith, Texas A&M University

Sonja Hillgren, Farm Journal Magazine

LeRoy Stoltenberg, AgState Group

Dan Delano, Rain and Hail L.L.C.

Keith Coble, Mississippi State University

Mark Nelson, Kansas Farm Bureau

Terry Francl, American Farm Bureau Federation

Fred Delano, Kansas State University Research and Extension

John Riley, House Agriculture Committee

Kristin Mitchell, Federal Reserve Bank of Kansas City

Randy Gordon, National Grain and Feed Association

Todd Kemp, National Grain and Feed Association

James C. Webster, The Webster Agricultural Letter

Mary Kay Thatcher, American Farm Bureau Federation

Jay Baumgartner, National Farmers Union

Doug Palmer, Reuters

David Lehman, Chicago Board of Trade

Brad Lubben, Kansas State University

Dan Cassidy, Missouri Farm Bureau
Commission on 21st Century Production Agriculture 130

Grayson Daniels, Sparks Companies, Inc.

Dana McGilton, Representative Marion Berry

John McKissick, University of Georgia

Bobby L. Tyson, Assistant Dean for Extension - University of Georgia

Debbie Cannor, Representative Saxby Chambliss

Mark Edelman, Iowa State University

Chuck Abbot, Reuters

Randy Green, McLeon, Watkinson & Miller

Greg Kosarin, General Accounting Office

Kathey Ozer, NFFC

Kendra Asselin, Food Marketing Institute

Roger Runninger, Bloomberg News

Patricia Klintberg, Farm Journal