Food and 

Agricultural Policy

Taking Stock for 

the New Century

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United States Department of Agriculture

September 2001
Food and 

Agricultural Policy

Taking Stock for the 

New Century
Food and Agricultural Policy iii

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

I. The Evolving Food and Agriculture System . . . . . . . . . . . . . . . . . . . . . 16

Consumer-Driven Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Agricultural Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Forces Driving Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Where Are the Drivers Taking Us? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

II. Trade Expansion Is Critical. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Developing and Middle-Income Markets . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Growth in High-Value Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Barriers to Expanding Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

A Trade Agenda for the 21st Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Principles for Expanding Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

III. Farm Sector Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Squaring Today’s Realities With Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . 49

The Economic “Safety Net” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Diverse Farm Structure and the Government’s Role. . . . . . . . . . . . . . . . . 52

Other Policy Areas Increasingly Important. . . . . . . . . . . . . . . . . . . . . . . . . 56

Farm Policy and International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Principles for Farm Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

IV. Enhancing the Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Responding to Pest and Disease Threats . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Ensuring Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Building the Knowledge Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Data and Information Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Principles for Infrastructure Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

V. Conservation and the Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Right Track, New Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Programs Score Environmental Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Emerging Environmental Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

A Portfolio of Policy Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Next Generation in Conservation Incentives . . . . . . . . . . . . . . . . . . . . . . . 85

Principles for Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Contents
iv Food and Agricultural Policy

VI. Rural Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Rural America Today. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Opportunities in Rural America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Innovation, Investment, and Income Generation . . . . . . . . . . . . . . . . . . . 92

Education and Skills To Succeed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Protecting Rural Communities From Wildfire . . . . . . . . . . . . . . . . . . . . . . 94

Infrastructure, Public Services, and Business Assistance . . . . . . . . . . . . . 96

Rural America Tomorrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Principles for Rural Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

VII. Nutrition and Food Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Ensuring Access to Nutritious Food. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Healthy Food Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Principles for Nutrition and Food Assistance. . . . . . . . . . . . . . . . . . . . . . 105

VIII. Importance of Integrated Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Delivering Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Taking Advantage of Information Technology. . . . . . . . . . . . . . . . . . . . . 109

Principles for Program Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Appendix 1—America’s Diverse Farms:

More Detailed Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Appendix 2—Farm Resource Regions. . . . . . . . . . . . . . . . . . . . . . . . . 118
Our Nation’s farm and food

system serves the population exceedingly well. Today,

American consumers enjoy abundant and safe food presented in a

wide variety of choices. Our affordable food has enabled consumer

spending on many other goods and

services that contribute to our unrivaled standard of living.

The outstanding performance of

our food system has not come about

by happenstance. Rather, it has been

the result of far-sighted planning

and investment decisions that long

ago put policies and procedures in

place to support it. But, in recent

years the pace of change has been

unparalleled. 

Our producers now operate in a

global, technologically advanced,

rapidly diversifying, highly competitive business environment that is

relentlessly driven by increasingly

sophisticated consumers. 

Our challenge today is twofold: to

confront and manage the change

immediately before us while at the

same time modernizing our farm

and food system infrastructure to

ensure continued growth and development for the 21st century.

The stocktaking exercise

described in this report is an effort to

that end. Its purpose is to formulate

a longer term view of the Nation’s

agriculture and food system, and to

offer constructive ideas and suggestions to help guide the necessary

efforts and investments to meet

future needs. That is a tall order and

involves a wide range of considerations.

The changes are so sweeping that

we must pause to take stock of the

new operating environment, with a

view to ensuring that our system

continues to have the foundation it

needs to serve us as well in the

future as it has in the past.

Ann M. Veneman

Secretary

Food and Agricultural Policy 1

Preface
The dynamism that characterizes today’s food system

began to develop more than

two centuries ago, at the advent of

the Industrial Revolution, and continues relentlessly today. It reflects

changes in our society—globalization of markets and culture,

advances in information and biological (and other) technologies, fundamental changes in our family

structure and workforce—and

extends throughout the network of

food marketing, distribution, trade,

and consumption. These trends are

positive and unstoppable. They

reflect today’s realities and are leading to a fundamental restructuring of

the food system and a much different business environment for food

and agriculture in the future.

The implications of these trends

and the changes they imply are enormous. Our national institutions,

policies, regulations, indeed the

entire infrastructure built to support

agriculture and the food system, as

well as the underlying resource base

upon which it depends, are increasingly stressed as the system attempts

to deal with this new environment.

Modernizing our institutions and

policies to deal with these new realities is a constant challenge. 

Our system has served this nation

exceedingly well in the past, the

result of far-sighted planning and

investment—and it is our current

responsibility to reappraise and further develop that foundation to meet

the needs of the future. That is the

purpose of this stocktaking exercise—the development of important

principles that stakeholders can use

to help guide our strategic thinking

about food and agriculture in this

new century.

Entering a New Era 

It has not been so long ago in

America’s history that food was

viewed strictly in terms of commodities produced in bulk and meant to

be plentiful and affordable. But, in

the last half century’s prosperity, our

concept of and expectations from

food have changed, and taken on a

new significance. American consumers today expect a great deal

more from our food system. And,

there is no doubt that it delivers—

more nutritious food with wider

variety, improved safety, with less

environmental impacts, and greater

convenience than at any time in the

Nation’s history. 

Consumer-Driven Agriculture

Increasingly, U.S. consumers insist

on defining what is produced, how

food production takes place, and

with what effects. With more secure

supplies of food, consumer interest

has shifted to the forms in which

foods are available and the services

these products include. This consumer driven focus became increasingly important as population

growth slowed and prosperity grew,

changing the nature of demand for

food. Today, domestic food needs

grow only at the same slow pace as

the population expands. As the U.S.

food market has matured, consumption growth for one food product

increasingly comes at the expense of

another. 

As well, Americans consider environmental quality as a kind of “nonmarket” good that is extremely

important in consumer choices. The

close interactions between farming

practices and natural resources,

always important, have been in the

spotlight since the 1960s. Whether

preserving wetlands, improving

wildlife habitat, or maintaining

water quality in rivers, streams, and

lakes, American farmers’ stewardship of the environment has shown

2 Food and Agricultural Policy

Executive

Summary

Our system has served this

nation exceedingly well in

the past, the result of farsighted planning and

investment—and it is our

current responsibility to

reappraise and further

develop that foundation to

meet the needs of the future.
steady improvement. However,

these issues remain a matter of both

public and private concern and can

impact consumer decision making. 

A Global Economy

Political boundaries no longer

constrain the conduct of good business, and this includes agribusiness.

Better, faster, more reliable communications and transportation systems

facilitate businesses’ abilities to produce, source, and sell in the locations

that give them best advantage, even

if that means operating in multiple

locations around the world. This

globalization of markets pressures

firms to be more competitive and to

“shorten the supply chain” (reducing the number of business transactions and their associated costs) in

order to meet rapidly changing consumer demand.

Businesses in the food system

around the world compete against

each other to provide high-quality

products at the best price.

Globalization makes it imperative

for companies to diversify their

sources of raw materials and buy

from the farmer, wholesaler, or food

processor that provides the best

product for the lowest price at any

given time. Thus, we can no longer

think of our agriculture as being confined to what takes place within our

borders. We are part of a larger,

world-wide interconnected system.

Technological Innovation

Not only has technology facilitated the growth of global markets

by reducing the constraint of geography, so too have new technological

innovations spurred remarkable

adaptation of the U.S. food and agricultural system to new global conditions and demands. Agricultural

technology has traditionally focused

on tools and techniques to lower

farmers’ costs and increase yields. In

today’s agricultural economy, new

biological and information technologies actually expand markets for

farmers and assure better communication between producers and consumers, further increasing market

opportunities.

Biologically based technology is a

particularly promising source for

new products and new uses for

farmers. For example, agriculture is

the source of clean-burning fuel and

industrial ethanol, a variety of specialty chemicals derived from plants

rather than from mined stock, soybased inks and diesel fuel, industrial

adhesives, biopolymers, and films.

Scientists recently announced that

soybean oil can replace a significant

share of petroleum-based resin used

in manufacturing auto parts. The

possibilities are far ranging, important, and growing. They include “farmacological” products

(agriculturally grown pharmaceuticals) and crops or livestock that

embody specific traits demanded

broadly by consumers (like leaner

meat) or by niche markets (such as

organic foods). 

Information technology and computer-based marketing promise, via

“e-commerce,” far broader access to

markets than has ever been the case

before. This access extends to consumers seeking direct buying opportunities, and producers seeking

buyers of all sizes and types for

niche as well as bulk products. The

consequence is that size and distance

are diminishing in importance for

successful marketing.

The combined effect of biological

and information technologies is

potentially staggering. At the same

time that consumer demands and

producer opportunities are more

rapidly and accurately signaled

through e-commerce transactions,

advances in biotechnology permit

more rapid transformation of such

demands into new products than

ever possible before.

Technical advances are also

addressing environmental issues.

The tools of precision agriculture

permit fertilizers and other agricultural chemicals to be used in quantities that exactly meet crop nutrition

Food and Agricultural Policy 3

Today, domestic food needs

grow only at the same slow

pace as the population

expands. As the U.S. food

market has matured,

consumption growth for one

food product increasingly

comes at the expense of

another.
or protection needs, reducing the

chance of exceeding environmental

capacity. Adaptations from space,

energy, and manufacturing sectors,

such as satellite monitoring and

robotics, offer remarkable new

opportunities for agri-environmental

improvement as well as continued

increases in production efficiency.

Agricultural Diversity

The explosion of productivity

sparked by technological advance

has meant big changes for the farming sector. A concentration of

resources into fewer and larger

farms occurred throughout the 20th

century. While production doubled

over the last 50 years, farm numbers

dropped by more than two-thirds.

Today, about 150,000 American farmers produce most of our food and

fiber. While among the world’s most

competitive farms, these operations

make up just one segment of U.S.

agriculture. USDA counts another 2

million farmers who meet the criterion of selling at least $1,000 worth

of product annually, many of whom

have other occupations but enjoy

rural lifestyles. 

A vast diversity of farms emerges

out of this multitude: niche farms,

hobby farms, hunting preserves,

dude ranches, you-pick operations,

farms that sell directly to consumers

through farmer's markets, bed and

breakfasts, and more. 

Farmers produce scores of different raw commodities every year and

countless varieties of products, even

though bulk commodities—such as

cotton, corn, wheat, and other food

and feed grains that are the focus of

government programs—symbolize

agriculture for many. These program crops, grown on almost every

farm in the 1930s, are produced

today on perhaps only 30 percent of

all farms and account for just 20 percent of the total value of agricultural

sales.

In the 1930s, when price and

income support programs first were

developed, there was little need to

distinguish among farms, farmers, or

farm households. In fact, farms and

households (and farming communities, in many cases) were closely

intertwined as a way of life and were

considered inseparable. Today, fewer

farmers are full time, choosing to

merge farm and nonfarm employment opportunities. While income

from farming, as measured by net

farm cash income, was $55.7 billion

in 1999, off-farm sources contributed

$124 billion. 

The Implications of Change

We see in 2001 a highly diverse set

of farms, responding with alacrity to

apply unique technological possibilities to a new array of increasingly

well articulated consumer demands

in a globalized food system. The role

of government will also continue to

change, particularly as it relates to

trade, farm policy, infrastructure

demands, conservation and the environment, rural communities, and

nutrition and food assistance. How

we approach these issues will set the

course for the future of American

agriculture.

4 Food and Agricultural Policy
Trade Expansion Is

Critical

Trade is critically important to the

long-term economic health and prosperity of our food and agricultural

sector. We have far more capacity

than needed to meet domestic food

market requirements. To avoid

excess capacity throughout the system—our farmland, transportation,

processing, financing, and other

ancillary services—we must maintain and expand our sales to customers outside this country. Steadily

expanding foreign demand—

brought on by income gains, trade

liberalization, and changes in global

market structures—has helped U.S.

exports steadily increase over time

from $7.3 billion in 1970 to $53.5 billion for the current fiscal year.

Clearly, without the salutary effects

of an expanding export market, farm

prices and net cash incomes would

be significantly lower today.

Over 96 percent of the world’s

population lives outside the United

States. Most future growth in food

demand will be in developing and

middle- income countries, where

both population and income are

growing relatively rapidly. While we

continue to see growth in exports of

traditional commodities, exports of

consumer-oriented, high-value products (meats, poultry, fruits and vegetables, and processed grocery

products) are growing even more

rapidly. High-value products now

account for two-thirds of total sales,

compared with only half in 1990. 

Working to “level the playing

field” through worldwide reductions

in tariffs and other barriers to trade

is fundamental to expanding

exports. The average food and agricultural tariff in world trade is much

higher than tariffs on manufactured

items. The United States already has

one of the lowest food and agricultural tariffs (12 percent compared to

a global average of 62 percent), and

thus stands to gain immensely from

ambitious efforts to cut tariffs where

they are high.

Food and Agricultural Policy 5

• Recognize the critical importance of the global marketplace.

More than 96 percent of all consumers live outside the United

States. Failing to reach the

newly emerging middle-class

consumers (where demand

growth will be most rapid) will

stifle expansion of market share. 

• Expand markets through new

trade agreements. Greater

access to foreign markets

requires aggressive trade policy

to lower tariffs and eliminate

distorting subsidies. Failure to

provide strong leadership in

global trade liberalization will

result in our producers and

exporters being left behind.

Other nations are aggressively

pursuing agreements, many

right in this hemisphere which

are markets where we should

have transportation and other

advantages.

• Ensure that farm and trade policies are fully compatible.

Domestic farm support and

international trade policies must

be consistent and mutually reinforcing. It makes no sense to

have trade policies and programs promoting farm exports

at the same time domestic support programs inadvertently

reduce competitiveness. Our

domestic and export policy must

support our existing international obligations and at the

same time give us ample latitude

in pursuing ambitious goals in

ongoing and future negotiations. 

• Enforce existing trade agreements. Once new trade agreements have been concluded, the

Government must ensure that our

trading partners meet their obligations. This includes ensuring that

our trading partners use accepted

scientific principles in enacting

their regulations. The growing

number of sanitary/phytosanitary-related trade issues also

requires an enhanced regulatory

infrastructure.

• Sharpen marketing efforts.

Programs to expand exports—

export credit guarantees and

market development—have

served our food and agriculture

sector well. Continual review

and modification of these programs are required to ensure

they are cost-effective and target

high-impact growth markets and

high-value products.

Principles for Expanding Trade

Clearly, without the salutary

effects of an expanding

export market, farm prices

and net cash incomes would

be significantly lower today.
Farm Sector Policy

More than seven decades of farm

policy have provided a rich, full

experience upon which to draw as

we contemplate appropriate 21st century policies for our industry. Our

experience with policies and programs across this span of time has

proved very instructive, providing

invaluable lessons which at a very

minimum can help us avoid the

obvious mistakes of the past. History

also shows that growth in farm

household income has been due

largely to rapid improvements in

productivity supported by a strong

research base along with better

opportunities to market products—

including export markets and offfarm employment opportunities. 

Many of the program approaches

since the 1930s proved not to work

well or not at all, produced unexpected and unwanted consequences,

became far costlier than expected,

and have been continually modified

in our long succession of farm laws.

The Federal Agriculture Improvement and Reform (FAIR) Act of 1996

removed much of the decades-old

program structure, provided unparalleled farmer decision-making flexibility through “decoupled” benefits,

and set a new example throughout

the world for providing domestic

farm sector support. While that

approach still is arguably the least

market- and resource-use-distorting

approach available, its direct payments do share some unintended

effects with price support programs,

namely, the artificial inflation of farm

land prices. The effect clearly has

been exacerbated by the size of payments in recent years, some $28 billion in the last 4 years above the

amount provided in the 1996 law.

Because of their historical evolution, current program benefits still

are largely directed to specific commodity producers reaching only

about 40 percent of our farms. And,

there still is no direct relationship

between benefits received and financial status of the farm. 

Our current broad-scale, commodity-oriented approach to farm

support does not recognize existing

wide differences in production costs,

marketing approaches, or overall

management capabilities that delineate competitive and noncompetitive

operations. For example, highly efficient commercial farms benefit enormously from price supports,

enabling them to expand their operations and lower costs even more.

Other farms have not received

enough benefits to remain viable and

have been absorbed along the way. 

Another unintended consequence

of current programs stems from the

increasing disconnect between land

ownership and farm operation.

While program benefits were

intended to help farm operators,

most support eventually accrues to

landowners, in the short run through

rising rental rates and in the longer

term through capitalization into land

values. For many farm operators,

renting land is a key strategy to

expand the size of the business and

capture the size economies, as evidenced by 42 percent of farmers

renting land in 1999. Clearly, operators farming mostly rented acreage

may receive little benefit from the

programs. 

While the current policy made

large strides towards greater market

orientation, a careful evaluation in

the context of today's diverse farm

structure and increasingly consumer-driven marketplace still

reveals severe misalignment among

policy goals, program mechanisms,

and outcome. Improvements could

support more sustainable prosperity

for farmers and agriculture and rural

communities without engendering

long-term dependence on direct government support. 

6 Food and Agricultural Policy
Food and Agricultural Policy 7

• Pay heed to lessons learned.

Above all, effective farm policies

for the new century must build

upon the lessons learned from

over seven decades of rich experience with the farm programs.

Even the most carefully

designed government intervention distorts markets and

resource allocation, produces

unintended consequences, and

spreads benefits unevenly. We

cannot afford to keep relearning

the lessons of the past. 

• Recognize our new operating

environment. Our farm sector

and food system operate today

in a new and evolving business

and social environment. It is a

competitive, consumer-driven

environment, global and rapidly

changing with enormous implications for the place and role of

the farm sector in the overall

food system. It is highly interdependent, blending the efforts

of many industries to add value

to farm sector products. 

• Continually expand our commitment to open markets. The

United States is thoroughly committed to market-oriented policies, well understood to serve

the best long-term interests of all

stakeholders in the food system

and society at large. Markets

have continually demonstrated

their superiority to other alternatives in guiding allocation of

resources, investment, and production in patterns that are most

beneficial to society at large.

Still, this commitment needs to

be renewed and expanded.

• Commit even more fully to

future growth of the farm and

food system. There is a longstanding, national economic

commitment to open markets in

support of the Nation's marketoriented policies. For the agriculture industry, development of

foreign markets is essential to

support future investment,

growth, and the long-term

health of the sector. Our agricultural production capacity today

not only exceeds domestic

demand but is growing faster as

well. Thus, future asset values,

incomes, growth, and general

prosperity depend upon gaining

greater access to the global

growth markets. New and

expanded trade agreements hold

the best promise for our competitive producers to expand sales

and gain market share and generate economic activity across

rural America. 

• Ensure that farm and trade policies are fully compatible.

Domestic farm support and

international trade policies must

be consistent and mutually reinforcing. It makes no sense to

have trade policies and programs promoting farm exports

at the same time domestic support programs inadvertently

reduce competitiveness. Our

domestic and export policy must

support our existing international obligations and at the

same time give us ample latitude

in pursuing ambitious goals in

ongoing and future negotiations. 

• Strengthen U.S. global leadership. The world looks to U.S.

leadership in policy formulation

and program design for both

domestic agriculture support

and international trade. U.S.

policymakers must be cognizant

that our actions set examples

and help persuade others to our

positions. 

• Accommodate and build on the

farm sector’s wide diversity.

Effective agricultural policies

must recognize the wide diversity in the farm sector itself, in

terms of size, location, financial

status, crop and livestock products produced, managerial abilities, income sources, and goals

and aspirations. The problems

faced by these groups are widely

different and require solutions

tailored effectively to address

particular needs. Failure to do

so only exacerbates the problems

and postpones the day of reckoning. 

• Provide a market-oriented economic safety net for farmers.

The national recognition that the

farm sector is both unique and

essential is long standing and

widely held. The result is a parallel commitment to policies that

support open markets and those

that prevent precipitate downturns in the farm sector. Thus,

these programs must conform to

basic public policy principles

including effectiveness, transparency, equity, consistency, and

comprehensiveness. Current

policies now take several forms,

including countercyclical loans,

crop and revenue insurance, and

direct payments, but they could

be constructed with other programs (such as tax-deferred

income accounts) that fully comply with such principles. 

• Focus on a broader infrastructure. Provide a longer term view

of the requirements for a healthy

and prosperous farm and food

system to ensure that it continues to enjoy widespread consumer confidence and support.

This entails refocusing institutions and continuing judicious

investment for the entire system,

including refurbishing and modernizing the infrastructure that

underpins the farm, food, and

trading system.

Principles for Farm Policy
Enhancing the

Infrastructure

U.S. agriculture successfully

delivers abundant, affordable, safe,

and nutritious food to markets

worldwide. Nothing has been more

important to this success than an

extensive physical and institutional

infrastructure—in effect, the backbone of the food and agricultural

system. The recent outbreak of footand-mouth disease in Europe served

to heighten our awareness of the

infrastructure that protects the

integrity of the food and agricultural

system. Science, technology, and

intergovernmental cooperation are

key to keeping crop and animal pests

and diseases out of the United States,

and to managing the pest and disease challenges we face inside our

borders. 

America’s familiarity with health

risks from foodborne microbial hazards has increased in recent years.

Widely publicized outbreaks of foodborne illness—traceable to such

sources as E.coli 0157:H7 in hamburger, Listeria monocytogenes in hot

dogs, and Salmonella in poultry and

eggs— have raised the public’s concern. Although preliminary evidence

suggests the number of illnesses

caused by some pathogens (notably

Salmonella) may be decreasing, food

safety systems are confronting an

array of emerging pathogens such ac

Cyclospora, Cryptosporidium, and new

strains of Salmonella. 

The agricultural infrastructure

includes all of the basic services,

facilities, equipment, and institutions

needed for the economic growth and

efficient functioning of the food and

fiber markets. This requires investment in services to protect farmers,

ranchers, and consumers from the

threats of crop and animal pests and

foodborne diseases. It demands a

strong commitment to research and

the cooperative extension system

that undergird production, marketing, food safety, nutrition, natural

resource conservation, and all other

functions of USDA agencies.

This structure now is being challenged in radically changed market

and institutional contexts, calling for

very different approaches than in the

past. First, the various sectors of the

food economy—from producers to

processors to retailers—are more

interconnected than ever before, and

grow more so every day. For any

new policy to succeed, it must have

input and cooperation from every

link in the food chain. Second, crop

or animal diseases are increasingly

global and require coordinated solutions. Third, recent increases in

intellectual property protections and

advances in biological science have

prompted the private sector to more

actively invest in the knowledge

base and technological underpinnings of the food system. Stronger

private sector incentives imply more

opportunities for effective partnerships between the public sector and

industry in solving problems. 

8 Food and Agricultural Policy
Food and Agricultural Policy 9

• Focus on a broader infrastructure. Provide a longer term view

of the requirements for a healthy

and prosperous farm and food

system to ensure that it continues to enjoy widespread consumer confidence and support.

This entails refocusing institutions and continuing judicious

investment for the entire system,

including refurbishing and modernizing the infrastructure that

underpins the farm, food, and

trading system.

• Recognize our new operating

environment. Our farm sector

and food system operate today

in a new and evolving business

and social environment. It is a

competitive, consumer-driven

environment, global and rapidly

changing with enormous implications for the place and role of

the farm sector in the overall

food system. It is highly interdependent, blending the efforts of

many industries to add value to

farm sector products.

• Enhance pest and disease prevention for plants and animals.

From farmers to consumers, our

food system depends on strong

pest and disease prevention and

eradication programs. 

• Build on current success in providing safe food for all

Americans. Emerging

pathogens mean that our food

safety systems must be continually assessed and updated in

order to maintain consumer confidence in our food supply.

• Anticipate future infrastructure

needs. Building new and different capacities for accomplishing

priorities requires a long-term

view with a process for anticipating change. 

• Base decisions on science.

Regardless of good intentions,

no authorized program, no mandate, no request or emergency

need can be carried out unless

the appropriate research base,

scientists, laboratories, methods,

data and information, institutions, and technologies are available. New science is needed to

ensure that any new regulations,

in food safety, animal and plant

health, environment, or other

areas, are sound and cost-effective. 

• Capitalize on the unique public

sector role in agricultural

research and extension. The private sector is playing an everlarger role in agricultural

research and information provision. Limited public sector

research funding thus needs to be

devoted to fundamental scientific

discovery and questions that the

private sector has no incentive to

pursue, but that could lead to the

betterment of society. 

• Recognize the importance of

competition in the market for

research. Maintaining competitive research funding increases

the likelihood that the best

minds of the country will be

applying themselves to important public sector research

issues.

• Recognize the importance of

collaboration. Collaborations

involving public agencies, private companies, universities,

and consumers are an important

means for meeting the interests

of various groups while advancing the public good.

Principles for Infrastructure Policy
Conservation and

Environment

Farmers, ranchers, and private

forest landowners own and manage

two-thirds of the Nation’s land and

are the primary stewards of our soil,

air, and water. While the cost of

stewardship on that land is borne by

land managers, the benefits accrue to

society at large. Meeting society’s

demands for improved environmental quality requires a broader definition of "output" to include

environmental amenities—such as

rural landscape amenities, wildlife

habitat, wetlands, and improved

water and air quality—along with

food, fiber, and timber production.

Conservation policy evolved from

a primary focus on keeping productive topsoil in place. Reducing soil

erosion once was an overriding concern, and a primary accomplishment. We now realize that the

off-farm costs of farming include a

wide variety of environmental quality measures. Conservation policy

thus has come to include broader

measures of water quality, as well as

protection of wildlife habitat and

wetlands. Morever, emerging issues

gaining public attention include

nutrient runoff from livestock production, water conservation, energy

production, and reduced greenhouse

gas emissions.

As the scope of environmental

concerns has expanded, a wider

range of conservation policy instruments now are needed to address

them. Traditional land retirement

(the Conservation Reserve Program)

has dominated Federal spending on

conservation since 1985; 92 cents of

every dollar spent on direct conservation payments to farmers pays for

rental and easement payments for

idling environmentally sensitive

cropland and cost sharing for management practices that enhance the

environmental benefits from retired

lands. However, considerable conservation activities are carried out on

vast stretches of working lands due

to voluntary actions and to comply

with conservation compliance and

other regulatory requirements. 

The current imbalance favoring

land retirement suggests an

untapped potential for achieving

cost-effective environmental benefits

from conservation spending on

working lands. Further, many

emerging agri-environmental problems can be addressed only by

changing management practices on

working land. Similarly, improved

private forest management practices

can better protect watersheds, provide improved habitat for threatened

and endangered species, and guard

against non-native invasive species.

Conservation policy must continually balance competing concerns

and a "portfolio” approach is essential—employing coordinated land

retirement, stewardship incentives,

conservation compliance requirements, and regulatory assistance.

Use of each where most appropriate

can accomplish agri-environmental

protection most efficiently. In addition, increased cooperation with

local and State governments and

others in implementing conservation

programs will ensure funds are

spent effectively and leveraged.

10 Food and Agricultural Policy
Food and Agricultural Policy 11

• Sustain past environmental

gains. Improvements in losses

from soil erosion and wetlands

benefit farmers and all

Americans. These and other

gains resulting from existing

conservation programs should

be maintained.

• Accommodate new and emerging environmental concerns.

The need for sources of renewable energy and the potential for

reducing greenhouse gas emission are emerging environmental

issues. In addition, reducing

nutrient runoff from livestock

production, addressing conflicts

over scarce water supplies, and

protecting open space have

gained momentum as issues to

be addressed. Conservation policy should adapt to emerging

environmental and community

needs and incorporate the latest

science. 

• Design and adopt a portfolio

approach to conservation policies. Targeted technical assistance, incentives for improved

practices on working farm and

forest lands, compensation for

environmental achievements,

and limited dedication of farmland and private forest lands to

environmental use will provide

a coordinated and flexible portfolio approach to agri-environmental goals.

• Reaffirm market-oriented policies. Competition in the supply

of environmental goods and

services and targeted incentives

ensure the maximum environmental benefits for each public

dollar spent. In addition, permitting the private sector to

invest in the provision of environmental goods and services

leverages Federal resources and

facilitates a transition to a fully

functioning private market.

• Ensure compatibility of conservation and trade policies.

Producer compensation for conservation practices and environmental achievements should be

consistent with “green box” criteria under WTO obligations. 

• Coordinate conservation and

farm policies. Conflicts may

exist between farm program

incentives to increase production

and conservation programs

seeking to reduce environmental

problems from expanded production. Extending conservation

compliance will help coordinate

environmental objectives and

Federal programs. 

• Recognize the importance of

collaboration. Non-Federal

governmental agencies, including State, local, and Tribal governments, as well as private forprofit and not-for-profit organizations, are playing an everincreasing role in the delivery of

technical assistance and in incentive programs for conservation.

Encouraging these efforts and

developing public-private partnerships and joint programs

leverage Federal resources and

improves program access and

implementation.

Principles for Conservation
12 Food and Agricultural Policy

Rural Communities 

Farming no longer anchors most

rural economies as it did in the early

20th century. Seven out of eight rural

counties are now dominated by

varying mixes of manufacturing,

services, and other nonfarming

activities, and commodity-based

farm policies do not address the

complexities of rural economies and

populations. Rural America is

diverse, and the challenges facing

rural communities are wide-ranging,

varied, and defy homogeneous solutions. This diversity presents opportunities for the creative application

of programs and policies, and calls

for unique partnerships across the

spectrum of institutions serving

rural America. 

Jobs and incomes are declining in

many areas dependent on natural

resource-based industries, but other

places, often associated with rural

amenities, are thriving. Creating an

environment that will attract and

sustain private investment, job

growth, and income generation

activities in rural America, including

regional development initiatives and

creative pilot programs, is an important goal. Policies that find alternative methods to increase rural

income from the natural resource

base, such as energy production, are

also important. 

Rural areas are well situated as

sites for the development of renewable energy as well as for more traditional fossil-fuel production. Wind

and solar energy are most economically generated in rural areas due to

the openness of rural spaces.

Dedicated crops and agricultural

residues can be used to produce

fuels, such as ethanol and biodiesel,

and to power turbines to produce

electricity. While ethanol output is

growing rapidly, biodiesel and biomass electricity generation could

benefit from research and development efforts and pilot projects to

overcome barriers to expanded commercialization. 

Both urban and rural youth need

unprecedented education and technical skills to compete in the increasingly high-skill “new economy” of

the future. In the past, many rural

areas hosted industries that required

a reliable pool of low-skilled, lowcost workers. Employers are now

more attracted to concentrations of

well-educated and skilled workers.

Education and worker training are

essential in helping rural communities cultivate high-performance,

knowledge-based companies, while

human capital and earnings potential are improved by strengthening

classroom instructional quality and

facilitating school-to-work transitions. 
Food and Agricultural Policy 13

Telecommunications, electricity,

water and waste disposal systems,

and transportation infrastructure are

essential for rural development, but

many rural communities face financial challenges because of a limited

tax base and high cost associated

with their small size. Information

and communication technology –

abetted by financial and technical

assistance – can help smaller communities enjoy the same benefits that

at one time accrued solely to cities,

such as higher standards of health

care and virtually unlimited educational opportunities. Options include

Federal financial assistance for

deploying broadband access or

incentives for State, private, and

public partnerships to develop fiber

optic or wireless capabilities.

• Recognize the diversity of rural

America. The opportunities

and challenges facing rural

America are as diverse as rural

America itself, and there is no

single recipe for prosperity. 

• Recognize that rural development policy is not synonymous

with agricultural policy.

Traditional commodity support

and farming-oriented development programs play an increasingly limited role in the

improved well-being of rural

Americans. 

• Understand the importance of

the nonfarm economy in rural

policy. Farming no longer

anchors most rural communities

and economies. Instead, the

nonfarm economy anchors much

of agriculture, and rural policy

for the 21st century must recognize the increased importance of

nonfarm jobs and income as the

drivers of rural economic activity. 

• Create an environment that will

attract private investment.

Rural communities must adopt

creative strategies to diversify

the economy, attract new businesses, and sustain their successes. 

• Emphasize the need for greater

education and technical skills.

Today’s youth, regardless of

where they ultimately live and

work, will need an unprecedented level of education and

technical skills to compete and

succeed in the increasingly highskill “new economy.”

• Capitalize on the natural

resource base. Rural areas are

well suited as sites for the development of renewable energy as

well as for more traditional fossil-fuel energy production. 

• Protect lives and property in the

wildland-urban interface. Rural

citizens in rural communities

near large areas of forested land

need assurance that their lives

and property are safe from wildfires. Innovative, coordinated,

and aggressive approaches to

the reduction of fuels in forests

and rangelands are needed to

extend protection across the

greatest possible area.

• Expand infrastructure, community facilities, and technology.

Such improvements will help

rural communities connect with

the "new economy" and realize

an enhanced quality of life. New

information and communication

technologies can help smaller

communities enjoy the same

benefits that at one time accrued

solely to cities. 

• Coordinate involvement of all

stakeholders. Rural community

issues are often most effectively

addressed at the local and State

levels, but the Federal

Government can provide an

important coordinating role. A

new look at the Federal role in

rural development activities,

with the goal of streamlining

programs, targeting resources,

and improving program coordination, is needed. 

Principles for Rural Communities
Nutrition and Food

Assistance

Food and agricultural policy long

has sought to ensure that all

Americans have access to a healthy

and nutritious food supply, regardless of income. This policy has

encompassed a wide array of food

assistance and nutrition programs

that have humanitarian, investment,

and agricultural support goals.

These programs provide aid to the

needy, helping alleviate short-term

hunger and hardship; represent

pragmatic investments in human

capital that yield a better educated,

stronger, and healthier workforce

and families; and support the agricultural sector.

Core efforts include the Food

Stamp Program, child nutrition programs, the Special Supplemental

Nutrition Program for Women,

Infants, and Children (WIC), and

commodity distribution programs.

Today, these programs serve one in

every six Americans at some point

during the year. In addition to

ensuring access to adequate food,

the programs promote healthy diets

for all Americans.

Our Nation’s food assistance programs have been successful, but the

environment in which they operate

is changing. Most of these programs

were started in response to problems

of underconsumption and undernutrition among the low-income population in the 1960s and early 1970s.

While these problems remain significant, important new challenges are

emerging related to diet quality—the

proper variety and quantities of

foods and nutrients in an individual’s diet to promote health and

well-being. 

14 Food and Agricultural Policy

• Continue commitment to a

national nutrition safety net. A

well-nourished population is

healthier, more productive, and

better able to learn. No child or

needy family should be left

behind for want of food.

• Guarantee stable funding of

the nutrition safety net. The

national nutrition safety net,

including WIC, should be supported and targeted to those

most in need.

• Simplify program rules.

Program rules must strike a balance between targeting, client

access, supporting work, and

administrative burden.

• Support modern technologies.

Electronic Benefit Transfer

(EBT) and other technologies

are crucial to the improved

delivery of benefits, client

access, administrative efficiency,

and program integrity.

• Ensure a commitment to outcome-based performance

measures. Outcome-based performance measures will be crucial to deciding the future

direction of the nutrition assistance programs.

• Encourage healthy and nutritious diets. American consumers must be made aware of

the link between diets, health,

and physical activity, and motivated to make appropriate

changes.

Principles for Nutrition and Food Assistance
Food and Agricultural Policy 15

Importance of

Integrated Programs

Changing circumstances strongly

suggest the need for contemporary

reflection on the program delivery

needs of the future. USDA remains

organized as a traditional hierarchy,

with authority and responsibility

flowing directly through each

agency, from the Secretary to administrators to State and regional levels

and to field operations, where they

exist. 

The issues facing the modern food

and farm system today are so multifaceted and complex that they cannot be solved by any one program or

approach. Protecting against plant

and animal pests and diseases, or

eliminating emerging foodborne

pathogens, or overcoming the barriers to producing bioenergy efficiency, or ensuring nutritious food

for low-income households, or

encouraging cost-effective carbon

sequestration on farms and in forests

– none of these can be accomplished

by any single agency. 

Increasingly, the technology available to solve many program and policy problems also requires resources

from multiple agencies. While the

multidimensional nature of the

issues, and the technologies needed

to address them, cry out for more

integrated program delivery, customers also are demanding more

comprehensive service. A customer

today often has an interest in more

than one USDA or other Federal program, and can be thwarted in obtaining efficient service if the

organization is inflexible. 

A number of approaches can be

taken to substantially improve service, even without major, additional

restructuring. These include: onestop shopping for delivery of services; sharing data, information, and

computation environments across

agencies and programs; and new

flexibility for increased coordination

of resources. Advances in information technology may allow agencies,

at very low cost, to share key data so

that customers can be spared the

burden of providing the same information to multiple Federal offices. 

Assurance that data being collected meet contemporary decisionmaking needs across the many functions of the Department can only

come from a review that crosses all

lines of the organization. This supports a comprehensive effort to

inventory current data collection

efforts and to align them with an

assessment of future data requirements. Integration of databases

across agencies and programs then

would be easier. 

Food and Agricultural Policy 15

• Support collaboration to solve

problems. Recognize that the

complexities of many contemporary agricultural issues cross

the bounds of traditional program areas. 

• Encourage a coordinated view

of functions and services.

Institute a range of practices,

including “one-stop shopping”

for USDA services, common

electronic work environments,

consistent data convention

across agencies, data sharing,

and increased resource flexibility among agencies, that

encourage a “corporate” rather

than a fragmented view toward

program implementation. 

• Pursue partnership opportunities. Continued and increased

cooperation and partnership

opportunities need to be sought

with program beneficiaries,

Congress, consumers, industry,

NGOs, Federal and non-Federal

government agencies, universities, and others.

• Sustain capacity for integrated

responsiveness. The latest technologies are needed to support

integrated programs and “corporate” systems. A cadre of

highly trained and actively

practicing scientists, economists, and other analysts provides a necessary foundation for

rapid response across subject

areas and programs. 

Principles for Program Integration
Once food was viewed strictly

in terms of commodities produced in bulk and meant to

be plentiful and affordable. But, in

the decades of prosperity in the last

half century, the concept of food and

our expectations have changed and

taken on a new significance.

American consumers today have

come to expect a great deal more of

the food system, as well. And, there

is no doubt that it delivers—more

nutritious food with wider variety;

improved safety, with less environmental impacts; and greater convenience than at any time in the

Nation’s history. The drivers of

change in society at large—fundamental changes in our family structure and workforce, globalization of

markets and culture, booms in information and biological and other

technologies—are at work in agriculture and food markets and throughout the value chain, as well.

As food and fiber have changed,

so have farmers and their farms.

Postwar economic prosperity drew

people off farms into jobs providing

a growing array of goods and services. At the same time, agriculture

experienced an explosion in its productivity. Today, the approximately

150,000 farmers produce most of our

food and fiber are among the world’s

most competitive, able to fully meet

domestic needs and also supply

large quantities to foreign markets.

These farmers are the foundation of

the Nation’s food security and

underpin the agricultural economy.

But, these operations make up just

one segment of U.S. agriculture.

USDA counts another 2 million

farmers who meet the criterion of

selling at least $1,000 worth of product annually, many of whom have

other occupations but enjoy rural

lifestyles. A vast diversity of farms

emerges out of this multitude: niche

farms, hobby farms, hunting preserves, dude ranches, you-pick operations, farms that sell directly to

consumers through farmer’s markets, bed and breakfasts, and more.

While the American landscape is

dominated largely by agriculture,

these operations vary widely to cope

with different soils, water conditions, and markedly distinct weather

patterns. The close interactions

between farming practices and natural resources, always important,

have been in the spotlight since the

1960s. 

Environmental quality matters a

great deal to Americans today,

whether preserving wetlands,

improving wildlife habitat, or maintaining water quality in rivers,

streams, and lakes. Agriculture, vast

as it is, holds a special responsibility

for resource stewardship. How farmers address this environmental

responsibility, whether on a large

commercial corn and soybean farm

or a part-time cattle operation, has

16 Food and Agricultural Policy

I.The Evolving

Food and

Agriculture

System
shown steady improvement, but

remains a matter of both public and

private concern.

It is a particularly challenging

task to ensure that this complex and

diverse farm and food system works

to most Americans’ satisfaction.

Although farming itself employs

only about 1 percent of the workforce

and accounts for less than 1 percent

of the Nation’s gross domestic product (GDP), it is the critical component of the entire food and fiber

system—spanning farm inputs, processing, manufacturing, exporting,

and a wide range of ancillary services—that contributes $1.5 trillion (16

percent of GDP) and employs 17 percent of the labor force. Helping this

system remain efficient and competitive globally, especially as markets

shift from commodities to highvalue products, is not only critical to

the financial well-being of farmers

but also very important to the U.S.

economy.

When the Federal Government

first considered its responsibilities

with respect to agriculture, George

Washington suggested Congress

establish a National Board of

Agriculture. Around the mid-1800s,

the enduring importance of a strong

science base for farming was recognized in the creation of the U.S.

Department of Agriculture and the

federally supported State agricultural research and extension at landgrant universities.

In the 19th and 20th centuries, as

our great urban centers came to

dominate our economy, the smooth

functioning of markets was essential

to ensure the flow of food and fiber

from farm to city. The New Deal supported farmers who produced basic

commodities, and thereby helped to

ensure plentiful food supplies.

Attention was paid to how well markets worked, and the Federal

Government helped level the playing field by bolstering the flow of

information between buyers and

sellers and also monitored their commercial transactions.

Ensuring food safety, promoting

nutritious and convenient foods and

products, delivering food assistance

to low-income consumers, protecting

environmental quality, and keeping

markets functioning efficiently are

all added service requirements of the

last century. Today, a new challenge

is before us: the ongoing transformation of U.S. agriculture into the stillemerging, global, consumer-driven

food system. How do we make the

enormous shift from the largely

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 17

Today, a new challenge is

before us: the ongoing

transformation of U.S.

agriculture into the stillemerging, global, consumerdriven food system.
commodity-oriented focus of the

past 75 years to the much different

products and function focus

required for the new century? What

is the appropriate Federal role in this

task and, if one, how extensive

should it be?

Consumer-Driven

Agriculture

Historically, farmers’ main objective was to keep up with the food

demand generated by a growing

population. Over time, people

wanted not only to ensure that their

basic energy requirements were met,

but also to eat better through access

to a wider variety of nutritious

foods. Economic progress depended

on the physical well-being of a

nation’s people, and much of the

success of the Industrial Revolution

turned on having a well-fed workforce. The Industrial Revolution also

made agriculture much more efficient as it changed production

processes, tools used, and resources

needed. For example, the switch

from horses to tractors early in the

20th century, followed by the adoption of a succession of new technological practices, helped assure

Americans an adequate food supply.

At the same time, it dramatically

changed the farmers’ way of life.

With more secure supplies of

food, the consumer focus shifted to

which foods were available and the

services these products included.

This became increasingly important

as population growth slowed and

Americans prospered, changing the

nature of the demand for food.

Today, domestic food needs grow

only when the population expands,

and it is growing slowly by historical

standards. The share of income spent

on food has fallen steadily over time

(figure 1), with proportionally more

now spent on housing, automobiles,

education, and other goods and

services. As the U.S. food market has

matured, consumption growth for

one food product increasingly comes

at the expense of another. Aging

baby boomers may be more inclined

to substitute decaffeinated coffee for

regular coffee, but such shifts in preferences alter total coffee consumption very little. The number of foods

labeled “low-fat” or “health food”

I. The Evolving

Food and

Agriculture System

18 Food and Agricultural Policy

Figure 1

Food Expenditures as a Share of Disposible Income

Percent of income

25

20

15

10

5

0

1949 1959 1969 1979 1989 1999
shows how the food system has

evolved to address consumer

demand.

As our markets mature, we have

seen an explosion in new product

introductions. Over 12,000 new food

products have been introduced

annually across 14 major food categories (ranging from baby food to

soup). Retail food stores offer choices

that provide novelty, variety, and

convenience—from organic produce, exotic fruits, and marinated

meat to bottled water.

Food marketing also is changing

in other ways. Mass merchandisers,

warehouse club stores, specialty

stores, and restaurants are becoming

increasingly favored over traditional

supermarkets. The supermarket

share of grocery food sales that was

78 percent in 1992 had fallen to

70 percent by 1997 as mass merchandisers and warehouse club operators

increased their market share from 6

to 12 percent. 

Meanwhile, Americans continue

to eat away from home, reflecting the

premium on convenience (figure 2).

Some retailers have responded with

strategies emphasizing greater variety, quality, and service, while others

are offering lower prices on more

limited lines of products and

services.

The farm and food industry, of

course, is enormously affected by the

changing profile of this mature market. It is responding by better coordinating the supply chain so consumer

signals are translated swiftly and

effectively. By establishing direct ties

to growers through contracts, food

retailers can ensure that they provide

specific product qualities tailored to

consumer demand. For example, the

introduction of convenience pork

products, such as pretrimmed and

marinated tenderloins of uniform

size and quality, has emerged as the

pork industry attempts to interpret

and respond to consumer signals

(figure 3). 

Another response may focus on

niche markets, which frequently

exist side by side with mass retailing.

For example, premium vintners

thrive alongside large-volume distributors in the wine industry. And,

expanding numbers of more affluent

foreign food consumers are more

important in a mature market.

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 19

Figure 2

Away-From-Home as a Share of Total Food Spending

Percentage

50

40

30

20

10

0

1970 1975 1980 1985 1990 2000 1995

Figure 3

Share of Hogs Sold by Marketing Method

Year Contracting

2000

1999

1993

1980

1970

0 20

Vertical integration* Open market

40 60 80 100

Percent of slaughter hogs

*Vertical integration defined as packer-owned hogs that are not delivered under contract.
Biotechnology is another tool that

promises to help meet consumers’

demand for services, illustrating

how demand and technology interact to create new markets. The food

sector will further capitalize on the

growing interest in “functional

foods,” products differentiated by

nutritional (and perhaps medicinal)

content and appeal to consumers’

concerns about diet and health. This

is the promise of “second generation” biotechnology products, following the “first generation”

innovations that reduced farmers’

production costs or boosted yields

but did not otherwise change the

commodity. Designing, creating, and

monitoring these second generation

products are prominent opportunities for biotechnology research, and

increasingly offer the promise of new

and larger markets for the sector.

Larger farm size; specialized,

more efficient production methods;

and greater coordination characterize the structural change well underway in commercial agriculture. For

these farms, a decided change in

their role in the overall food system

is occurring. Farmers once purchased inputs and sold products in

arms-length transactions and largely

were price takers in both markets.

But, those lines are fast blurring,

with differentiated products, bundled systems, and greater system

coordination. Buyers and sellers of

agricultural commodities and producers rely less on cash markets and

more on dozens of kinds of contractual arrangements (see box). New

production, a variety of joint venture/marketing arrangements, and

information technology are lowering

I. The Evolving

Food and

Agriculture System

20 Food and Agricultural Policy

General Mills, a leading producer

of breakfast cereals, is using a specific variety of wheat to make its

popular “Wheaties” brand of cereal. The types of wheat used to

produce flakes can respond differently to milk and General Mills

wanted one that would make

flakes that curl, reducing sogginess in the consumer’s breakfast

bowl. General Mills forged new

business arrangements with farmers to get a specific wheat type

that both curls and retains crispness. 

General Mills contracted with

farmers to produce the specific

type of grain best suited to its

needs. This created new value for

farmers who receive premium

prices for grains with desired characteristics. Farmers also benefit by

having an assured buyer. General

Mills, in turn, benefits from

increased efficiency by using a precise variety in manufacturing.

New business relationships

between farmers and food companies mean higher revenues for

farmers, increased efficiency for

processors, and consistent product

quality for consumers.

New Business Relationships Between Farmers

and Companies Benefit All

Biotechnology is another

tool that promises to help

meet consumers’ demand for

services, illustrating how

demand and technology

interact to create new

markets.
the total costs of doing business by

introducing size economies and

reducing transaction costs.

While this structural change

clearly is advantageous for some, it

also prompts concerns about competition, market access, and the use of

market power by some participants

to the disadvantage of others.

Moreover, reduced competition

could limit society’s gain from structural change by stifling innovation or

tilting the market’s results in favor of

those with the greatest market

power.

Agricultural Diversity

Farming today consists of enormously different farms growing

numerous crop and livestock products for sale in markets that range

from their immediate neighbors to

consumers worldwide. Farms differ

in size, type and value of commodities produced, technology used,

resource endowment, financial status, and many other attributes.

Farmers differ in commitments of

time, management abilities, business

goals, and financial resources. The

result is a sector that cannot be accurately characterized by any single

measure or characteristic. Even the

notion of a “family farm” applies to

an increasingly broad range of structural configurations. However, it is

essential to recognize and understand this diversity that makes up

today’s agriculture if we are to adequately prepare for its future.

The concentration of resources

into fewer and larger farms occurred

throughout the 20th century. While

production doubled over the last 50

years, farm numbers dropped by

more than two-thirds. Farmers produce scores of raw commodities

every year and countless varieties of

products even though bulk commodities—such as cotton, corn,

wheat, and other food and feed

grains that are the focus of government programs—are taken by many

to symbolize agriculture. These program crops, which were grown on

almost every farm in the 1930s, are

produced today on about 30 percent

of all farms, and they account for a

small fraction (20 percent) of the

total value of all agricultural sales

today (figure 4).

In the 1930s, when price and

income support programs first were

developed, there was little need to

distinguish among farms, farmers, or

farm households. In fact, farms and

households (and farming communities, in many cases) were closely

intertwined as a way of life and were

considered inseparable. Farm famiI. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 21

Figure 4

Total Farm Cash Receipts 

by Category (1930-2000)

Billion dollars

200

150

100

50

0

1930 1950 1970 1990

Program crops Nonprogram crops Livestock

Program crops=food grains (rice, wheat), feed grains (corn, sorghum, barley, oats),

cotton, and soybeans. 
lies were fully engaged in the production of commodities and the relatively simple process required few

input purchases from other sectors.

The industrial revolution on the

farm, of course, has changed this

enormously, with most commercial

farms now operated as sophisticated

businesses like any other. Most hire

labor and use custom services to perform specialized tasks. Most inputs

are purchased off-farm and financing

is a standard part of their business

plans. These businesses plan rigorously, manage meticulously, and

invest carefully, with full expectations of profitable returns. Even so,

fewer farmers are full time; instead,

most choose to merge farm and nonfarm employment opportunities.

Fewer households earn all of their

income from farming or devote all of

their financial resources to the farm

business.

A place can meet the official definition of a “farm” simply by generating agricultural product sales of

$1,000 or having the potential to do

so, and some 2.2 million places are

classified as farms. They range from

places with two cows or a little more

than 500 bushels of corn to

multimillion-dollar operations. A

simple examination of farm sector

groups with common characteristics

provides a new perspective with significant implications for policy

design. 

Economic sales classes are one

way to distinguish farms, with sales

measured as the gross value of agricultural commodity and product

sales, landlord share of commodity

sales, the value of products removed

under contract, and all government

payments. Three common size

groups of farms are $250,000 or

more, $100,000-$249,999, and less

than $100,000. There are 146,000

farms with sales over $250,000,

199,000 farms with sales between

$100,000 and $249,000, and 1.8 million farms with sales of less than

$100,000. (See table A-2 in appendix

1 for more information by sales

class.)

While sales classifications are useful for communicating general

points, they mask diversity within

each group that is important to policy decisionmaking. Farmers and

farm households have different goals

and are at different stages of business development and household

life. For example, in the smallest economic sales class a relatively small

proportion (27 percent) view farming as their primary occupation, and

the rest are either retired or consider

farming a secondary occupation. 

Grouping farms into three

types—commercial, rural residence,

and intermediate—based on both

I. The Evolving

Food and

Agriculture System

22 Food and Agricultural Policy
their sales size and primary occupation reveals key differences in

income sources, commodity specialization, use of government programs, and other characteristics (see

appendix 1).

Today, there are 175,000 commercial farms. This group consists of

large family farms with sales above

$250,000 and farms that are not

organized as sole proprietorships.

This small proportion of farms (8

percent) accounts for 68 percent of

total output. These farms have business goals that include containing

costs and increasing sales, and they

are profitable.

A second group of farms, nearly

1.4 million (62 percent of all farms, 8

percent of total output), combines

nonfarm jobs with farming or are

retired people or those who view

farming as an investment opportunity and a way to enjoy rural amenities. The result is a group of

households with a rich mix of vocation and career choices, much like

their urban and suburban counterparts, and little dependence on the

farm economy for their income. Even

though most of these farms are not

profitable as stand-alone farm businesses, these rural-residence farms

typically have incomes comparable

to those of nonfarm households.

A third group of about 650,000

farmers consider farming their primary occupation and share goals

with both commercial farms and

rural-residence farms. Some emphasize economic and financial objectives much like the larger, more

commercial farms and are attempting to compete for resources with

their commercial competitors.

Others have goals that align more

closely with smaller, less commercial

operations. Those without substantial off-farm earnings rely on alternative uses of agricultural resources to

generate income. Many use their

farm equipment to provide custom

work to other farms, some rent land

to other farmers, and some provide

hunting and other outdoor recreation as a way of generating additional income. The intermediate

farms in this situation typically are

not large enough to support the farm

household yet require a substantial

labor commitment from the operator.

Stark contrasts emerge among the

three groups in terms of their numbers, shares of production, and land

holdings (figure 5). Commercial

farms, only 8 percent of the total,

accounted for 68 percent of production and 29 percent of land use. Most

farms fall in the rural-residence and

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 23

Figure 5

Commercial Farms Are Small in Number, Own Less Than 

1/3 of the Land, But Produce Most of the Output (1999)

Commercial farms

Intermediate farms

Number of Farms

Value of Production

Land Owned

Rural-residence farms

Figure 6

Low-Cost Farms Can Be Any Size, But Most Rural-Residence

and Intermediate Farms Do Not Cover Production Costs

with Farm Income (1999)

Number of Farms

Economic cost group

1,000,000

800,000

600,000

400,000

200,000

0

Low cost Mid cost High cost

Commercial Intermediate Rural-residence 
intermediate categories and occupy

71 percent of the land owned by

farmers.

The competitiveness of farms also

varies systematically across the

groups (figure 6). Some low-cost

farms are found in all three categories, but commercial farms tend to

be low-cost producers. Economies of

size enable these commercial farms

to have low unit costs. By contrast,

most intermediate and ruralresidence farms do not cover production costs from farm income.

Most rural-residence farms fall into

the high-cost category.

Off-farm income is important for

most farmers, but particularly so for

rural-residence farms, whose household income is above the national

average (figure 7). While income

from farming, as measured by farm

sector net cash income, was $55.7 billion in 1999, earnings from off-farm

sources were $124 billion. Not surprisingly, most rural-residence farms

subsidize their farming activities as

part of a rural lifestyle. Off-farm

income also is critical for intermediate farms, but contributes only a

small share to commercial farm

households. Even on many larger,

more commercial farms, family

members frequently work off-farm

at a variety of jobs, ranging from

self-employment in nonfarm businesses to positions in government

and private companies.

The widespread importance of

off-farm income illustrates that for

the majority of farm households, the

health of the general economy is far

more important to their well-being

than the level of commodity prices.

In contrast with the long-term trend

of declining farm numbers, the 1990s

saw relative stability in the number

of farms and even modest increases

since 1996. Recent prosperity in the

general economy likely boosted farm

numbers, particularly ruralresidence farm numbers.

Today, almost one-half of the total

acreage in production is rented,

reflecting the fact that many landlords are not farm operators, an

important consideration in policy

formulation. The farm operator’s

ownership of the land utilized

ranges from complete owners (owns

all the land they operate) to tenants

who rent all of the land farmed, with

various combinations in between.

The largest number of farms is operated by full owners but these tend to

be small, contributing only a third of

farm output. By contrast, only 8 percent of farms were tenant-run, but

they accounted for 14 percent of

output.

In many ways, diversity in the

farm sector is driven by diversity in

resources and climate. Weather conditions, soil types, water availability,

and access to markets vary across the

country and affect the types of commodities produced. For example,

along southern coastal areas, the

most common crops that farms grow

are fruit, vegetable, nursery, and

other high-value crops, while in the

Upper Midwest the primary crops

are wheat and other cash grains.

The concentration of farms and

production likewise varies across the

I. The Evolving

Food and

Agriculture System

24 Food and Agricultural Policy

Figure 7 

Sources of Operator Household Income (1999)

Commercial farms

Intermediate farms

Rural-residence farms

-5 0 35 115 155

Dollars per farm in thousands

75

Average income of

all U.S. households ($51,885)

Other off-farm

Wages & salaries

Farm earnings

In contrast with the

long-term trend of declining

farm numbers, the 1990s

saw relative stability in the

number of farms and

even modest increases

since 1996.
country. The highest concentration of

farms is in the middle of the country,

contributing one-quarter of output.

Farm financial circumstances also

vary a great deal from one region to

the next (see appendix 2 for more

detail on regional characteristics of

farms).

These circumstances clearly reveal

a wide divergence in the realities of

farming across the country, and just

as clearly illustrate the shortcomings

of “one size fits all” agriculture policy. The needs, concerns, and opportunities of larger, commercially

oriented farms differ from those of

smaller, intermediate farms, regardless of location. Moreover, the

requirements of commercial farms in

one region may be vastly different

from those in another. Farms in the

Corn Belt, for example, may be most

concerned about eroding competitiveness from rising land prices

directly related to farm programs,

and about gaining greater access to

global grain markets. In contrast, the

more diversified farms in southern

coastal areas producing many highvalue crops may be most concerned

about environmental constraints,

water supplies, and continued access

to specific pesticides. High land

prices are also a concern in this

region, but more likely reflect urban

development pressures and farmland preservation issues.

Farms in the Upper Midwest tend

to be more highly leveraged than

those in other regions, which

increases their concern over input

costs, commodity prices, and other

factors that affect operating margins

and their ability to repay loans. A

High Plains cotton farmer may be

worried about water availability,

energy costs, and the lack of alternative enterprises. In yet another example, more than half of all farmers in

regions spanning the southern and

eastern reaches of the country specialize in livestock production. Those

farmers are facing new pressures for

protecting water quality from animal

waste. Recognizing the different

realities faced by a diverse farm sector sets the stage for a new generation of policy approaches. As the old

saying goes, “a problem well defined

is a problem half solved.”

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 25

These circumstances clearly

reveal a wide divergence in

the realities of farming

across the country, and just

as clearly illustrate the

shortcomings of “one size

fits all” agriculture policy.
Forces Driving

Change

Today, a small number of very

powerful forces are propelling the

fast-paced change occurring in every

single component of the food system. Globalization, the growing

competitive pressure from closer

integration of business all around

the world, along with a broad range

of new technologies, from information advances to biotechnology, are

converging to fundamentally alter

the farm and food system as we

know it. Understanding the nature

of these “drivers” helps define the

needs for agriculture and the food

system, and—consequently—the

needed investments and policies to

support the system.

Globalization

Globalization of markets allows

somebody somewhere around the

globe to profit by finding and meeting consumer demand. Information

about trends and tastes spreads

almost instantly and effortlessly

now. Accounts of next-generation

biotechnology products can be

found on countless Web sites, often

only one click away from real-time

prices of commodities and products

and other information needed for

business decisions.

Today, with capital markets that

operate 24 hours a day and without

borders, existing food companies

and entrepreneurs anywhere in the

world can develop a new product or

an innovative process for almost any

application. And, while experience

shows that most of those new products or businesses fail, their cumulative impact makes the marketplace

highly competitive.

The “openness” of the world

economy resulting from economic

and political reforms has contributed

importantly to globalization. In the

past, much of global trade and

investment was strongly influenced

by government policies and actions

rather than by economic decisions

driven by the marketplace. Today,

much more agricultural trade is market driven because of the collapse of

the Soviet Union, the end of the U.S.-

European Union (EU) subsidy wars,

and China’s shift to more marketoriented agricultural policies.

International trade agreements,

reforms in domestic agricultural

policies, financial market liberalization, and a constellation of other policy changes that boost competition

have further hastened globalization.

Growth in international trade and

investment illustrates the impact of

globalization on the food system.

I. The Evolving

Food and

Agriculture System

26 Food and Agricultural Policy
From 1991 to 1998, the volume of

trade for all industries tripled and

foreign direct investment (FDI) quintupled. A similar trend is observed

for agriculture-related industries.

Sales by affiliates of multinational

companies show the broad influence

of this investment. For example,

sales by U.S. affiliates of foreign

firms in the food sector increased

threefold between 1987 and 1998,

reaching $64 billion, far outpacing

U.S. imports of $32 billion. Sales in

1998 by foreign affiliates of U.S.

multinationals were even larger at

$133 billion.

All parts of the food system participate in trade, foreign direct

investment, and other global business relationships such as licensing

or franchising. For both global trade

and U.S. exports, consumer-oriented,

high-value products (meats, poultry,

fruits and vegetables, and processed

grocery products) have been the

fastest growing and largest export

sector, accounting for over twothirds of total sales and performing

much more reliably in recent years

than have markets for commodities.

Tremendous investment growth

also has occurred in the retail food

industry (supermarkets). U.S. foodservice firms, including restaurants

and fast-food outlets, had foreign

affiliate sales of $14.5 billion in 1996.

Sales by U.S. affiliates of foreign

firms in retail trade nearly tripled

from 1987 to 1998 and U.S. companies also have invested overseas.

Foreign-owned firms had foodservice sales in the United States of $6.4

billion in 1998. McDonald’s has

become the largest overseas foodservice operator, with more than 28,000

restaurants in 121 countries.

Globalization of markets pressures firms to be more competitive,

to “shorten the supply chain,”

streamlining the system (eliminating

transactions and their associated

costs) to efficiently meet rapidly

changing consumer demand.

Businesses in the food system

around the world compete against

each other to provide high-quality

products at the best price.

Globalization makes it imperative

for companies to diversify their

sources of raw materials and buy

from the farmer, wholesaler, or food

processing company that provides

the best product for the lowest price

at any given time.

All of our experience and evidence points to increasingly fierce

competition in the agricultural system, suggesting that the innovative,

cost-effective producers will prosper.

Mergers, acquisitions, and further

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 27

The world wine industry has

undergone major demand-driven

changes in the last decade.

Preferences have shifted toward

high-quality wines, with consumers more attuned to brand

name than to country of origin.

And, wine retailers in developed

markets have a growing influence

on distribution and sales. They

prefer dealing with a few consistent suppliers that offer a broad

portfolio of wines, thus increasing

the importance of a wine producer’s ability to provide a steady

supply of consistent quality. Some

U.S. wineries with limited vineyards found they were unable to

maintain supplies of wine grapes

or ship consistently, thus forfeiting

retail shelf space to foreign competitors. To remedy this, some purchased vineyards and wineries

abroad to gain access to additional

supplies and varieties. Through

such foreign investment, U.S. wine

producers have increased domestic market share at the expense of

traditional European suppliers.

Moreover, U.S. wine exports have

grown over 20 percent annually

since 1995. Countries receiving foreign direct investment have benefited as well, gaining access to new

production technologies and

increased demand for their grape

and wine production.

FDI and the U.S.Wine Industry

Today, much more

agricultural trade is market

driven because of the

collapse of the Soviet Union,

the end of the U.S.-European

Union (EU) subsidy wars,

and China’s shift to more

market-oriented agricultural

policies.
globalization of the food system can

be expected to continue. Helping

consumers eventually get what they

want can be good business, and

businesses that can do this quickly

and efficiently tend to succeed while

those who are slow to understand

key trends face rapid erosion of competitive position.

Globalization of markets clearly

underscores the need for policies

that support growth in competitiveness in the world’s inter-related food

system. These include policies that

support effective trade negotiations

and market expansion, as well as

expanded monitoring of competition

and investment to ensure the efficiency of global markets. Globalization

further calls attention to ensuring

adequate investment in our infrastructure to accommodate the changing environment—from stronger

food safety monitoring and inspection to new research underpinning

sanitary and phytosanitary regulations to new competitiveness

measures.

Technology

Americans have come to rely on

the producers of persistent technological innovation in every aspect of

our lives, importantly including

food, agriculture, and natural

resources. Technological change in

agriculture focused traditionally on

tools and techniques to lower farmer

production costs and increase yields.

Such technologies, which have

added greatly to production efficiency, increased profit margins of

early adopters, and ultimately lower

consumer prices, still have a role in

today’s agricultural economy (see

box).

Increasingly, though, the market

today is pushing technological

progress in new directions, for new

purposes, using new tools—all with

different implications for business

and policy decisionmaking.

Biobased technologies promise

opportunities never before imagined. Production and processing

technologies are opening entirely

new energy, industrial, and pharmacological markets for the Nation’s

farmers. Technology is shifting at

every level in the production and

marketing chain toward satisfying

consumer demand for quality, safety,

nutrition, and choice.

Production Technology. Recent

advances in agricultural production

technology have both reduced proI. The Evolving

Food and

Agriculture System

28 Food and Agricultural Policy
I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 29

Technology has driven the

tremendous growth in American

agriculture’s productivity. The

more than threefold increase in

corn yields and more than doubling of wheat yields in the past

50 years is indicative of the ability of our farmers to produce

more with the same or fewer

resources (figure 8). Agricultural

sector productivity grew approximately 2 percent annually,

reflecting technological advances

in plant and animal breeding,

mechanization and chemical

inputs, and an overall efficient

use of resources. These substantial productivity gains have kept

U.S. agriculture highly competitive in world markets for many

products and commodities.

Yields have grown across all

farms but have increased the

most on commercial farms (figure 9). Higher yields help

explain why most commercial

farms are profitable, i.e., they

produce more with fewer inputs,

which reduces their unit costs.

However, farms can be profitable with lower yields, but

with increased emphasis on cutting costs or producing valueenhanced or niche products that

improve revenues.

Productivity 

Growth Drives

Competitiveness

Figure 8

Growth in Yields Reflects Technological Progress

Bushels/acre

150

120

90

60

30

0

1950 1965 1980 1995

Year

Corn

Wheat

Figure 9

Highest Yields Found on Commercial Farms

Bushels/acre

1996 1997 1998 1999 1996 1997 1998 1999

Year

Wheat Corn

0

10

20

30

40

50

60

Rural-Residence Farms

Intermediate Farms

Commercial Farms

0

120

150

60

90

Bushels/acre
ducer costs and conserved natural

resources. An example is a dripirrigation technology that has

reduced water needs to support crop

growth by 20 percent, a response to

competition in water-scarce, densely

inhabited areas of the country.

Technical advances are also addressing environmental problems arising

from the concentration of animal

waste in large, confined animal operations. But, more generally, “precision agriculture” promises both

greater production efficiency and

coordination of input application

with environmental considerations.

The prospect is for an agriculture

that uses sensors, automated

responses to monitored variables,

robotics, and other high-tech means

to optimize both production efficiency and environmental quality

(see box, page 33).

In a sense, the past success of agricultural technology presented a policy dilemma. Fewer farms or farmers

were needed to produce the growing

output, giving rise to both winning

and losing producers as yieldenhancing or cost-reducing technologies were widely adopted. Those less

able to quickly adopt newer technologies often were surprised by

those who were. Future technological advances may offset losses by

opening up new markets for standard commodities (see box).

Biologically based technologies

are particularly promising as the

source of new products and new

product uses for farmers. For example, agriculture is the source of cleanburning fuel and industrial ethanol,

a variety of specialty chemicals

derived from plants rather than from

mined stock, soy-based inks and

diesel fuel, industrial adhesives,

biopolymers, and films. Agricultural

scientists recently announced that

soybean oil can replace a significant

share of petroleum-based resin used

in manufacturing auto parts. The

possibilities are far reaching, important, and growing. Not only do

biobased advances promise to save

nonrenewable resources, but they

now replace options lost to many

farmers as a result of technological

advances in food production.

Agricultural biotechnology (see

box) permits the rapid development

and production of new specialty

chemicals, pharmacological products, and commodities with

consumer-friendly traits such as

higher nutritional content, low fat, or

better flavor. This consumer-driven

I. The Evolving

Food and

Agriculture System

30 Food and Agricultural Policy

Farm profit margins can be

increased in only two ways, by

lowering unit costs or raising revenues. Today’s technology, however, enables farmers to affect

margins both ways for the first

time in history. Technology can

reduce costs by lowering the per

unit cost and increasing yields. It

also can enhance revenue by

enabling value-added products.

Past production technologies have

been heavily geared toward lowering unit costs. While beneficial to

society, the profit-enhancing aspect

of this approach fades as the adoption becomes widespread among

most farmers and is manifested in

lower prices.

Today, promising opportunities

are offered by biotechnology and

information technologies that may

allow expanding revenues by

opening new markets. Such

markets include biobased energy,

“farmacological” products (agriculturally grown pharmaceuticals), crops for industrial uses, and

crops or livestock that embody

specific traits demanded in niche

markets (such as organic foods).

Accompanying these developments, computer-based marketing

provides access to niche markets

for an array of producers, including those that cannot achieve the

size economies required for efficient bulk commodity production.

The significance of these technological developments is that they

are overturning the old dictum of

“get big or get out.”

Cost-Reducing vs. Revenue-Enhancing

Technology
I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 31

Biotechnology is a collection of

powerful tools that can be used to

increase production or cut costs,

develop product attributes desired

by consumers, or enhance environmental quality. It is a production,

processing, consumer-oriented, and

information technology that has

application in not just one, but

every segment of the food supply

chain.

Agricultural biotechnology

brings new products, markets, and

opportunities to the food and agriculture sector. New crops are being

developed to mitigate pest and disease problems, resist drought, tolerate salt, increase photosynthesis,

improve nutritional characteristics

of food and feed, enhance processing characteristics, and produce

new specialty chemicals and

human biologics. Biotechnology

has introduced new options to

farmers, increased profits, and

made farming more environmentally friendly. It promises advances

in combating hunger and malnutrition, while helping to treat and prevent some of the most debilitating

diseases affecting much of the

world.

Not all biotechnology applications involve the development of

new transgenic organisms.

Increasingly, applications in the

area of genomics will enable the

selection of genetically controlled

activities within the genetic

makeup of a given plant or animal

species, enabling more rapid

expression of traits now obtained

through conventional breeding.

Bioinformatics, the creation of data

bases from which genetic clues can

be culled, will foster such

advances.

Additionally, the tools of

biotechnology can address environmental challenges. Prospects

include pollution remediation,

increased bioenergy availability,

enhanced carbon sequestration,

and reduced fertilizer runoff. For

example, biotechnology has been

used to develop strains of corn that

resist corn rootworm. Farmers who

plant these new strains could then

use less pesticides, thereby reducing environmental hazards that

may be associated with pesticide

use.

Capitalizing on agricultural

biotechnology requires ongoing

oversight to ensure the safety of an

expanding repertoire of new products and assistance in helping the

marketplace adjust to this increased

diversity of agriculturally based

products.

Agricultural Biotechnology
product diversification and differentiation multiply opportunities for

farmers.

A diversifying agricultural system, based more on end products

and less on raw commodities, brings

new challenges along with broad

benefits. The Nation’s agricultural

infrastructure is built primarily

around the commodity-based system. Storage, distribution, and transportation systems can be strained by

the need for different products’

physical segregation or identity

preservation. Government can help

by setting standards, monitoring

compliance, or certifying agents to

define the characteristics that differentiate one commodity-based product from another.

Standard price signals also

become harder to read as specialty

products become more important.

The price of No. 2 yellow corn, for

example, could fail as a bellwether if

identity-preserved corn products

entering different market channels

for different end uses become more

important. As a result, priceinfluenced policy decisions will need

to be sensitive to a far more comprehensive set of price signals than

those from spot markets.

Consumer-Oriented Technology.

Consumers’ demands for food

safety, freshness, quality, convenience, and even attractiveness have

spawned brand new industries, each

relying on new and unique avenues

of technological advance. Examples

include food safety research focused

on reducing the threat of foodborne

disease before an animal even

becomes food. Scientists are working

on feed additives to eliminate

pathogens like Salmonella and E. coli

from hogs’ and cows’ intestinal

tracts before slaughter. Research is

developing antimicrobial food packaging materials that would kill

microorganisms in food. Rapid tests

for microbial pathogens or labels

that change color if pathogens are

present also will help contribute to

food safety.

Packaging technology is revolutionizing ways in which foods can be

marketed. An example is the development of “breathable” bags that

preserve washed and mixed, readyto-eat salad greens that gave rise to

an entirely new value-added segment of the food industry. Another is

edible food wrap—wrap in sheet

form made from 100-percent pureed

fruits and vegetables—that not only

I. The Evolving

Food and

Agriculture System

32 Food and Agricultural Policy

Consumers’ demands for

food safety, freshness,

quality, convenience, and

even attractiveness have

spawned whole new

industries, each relying on

new and unique avenues of

technological advance.
extends fresh food shelf life but also

improves overall nutritional value.

This is an example of “active packaging,” in which the packaging material in some way interacts with the

product it contains to improve its

quality, safety, shelf-life, and utility.

Technical innovation in shipping

and transportation has allowed U.S.

agriculture to deliver food products

around the globe with no substantial

loss in freshness and quality.

Perishable agricultural products,

many of which were implausible as

overseas sales just a decade ago, now

account for more than one-fifth of

U.S. food and agricultural exports,

due in large part to new transportation technologies.

The technologically based proliferation of new products and new

market possibilities is a boon to

American consumers and producers

alike. Nevertheless, these trends

magnify business decisions about

what to produce and where to market it. Competition intensifies when

new products must compete with

existing ones for grocery shelf space,

and transportation technology

allows American producers to sell in

markets where others formerly dominated. Government must support

the creativity, foresight, and entrepreneurship in America’s farmers

and agribusinesses as they respond

to new opportunities created by

new technologies.

Information Technology.

Information technology (IT) contributes to the faster flow of information among potential buyers and

sellers of food and agricultural products. It thus affects the speed at

which markets operate, and it shortens the timeframe in which purI. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 33

The advent of the “information

age” brings new possibilities and

opportunities to farmers that can

significantly increase farms’ economic performance. A host of new

technologies are available that provide timely, site-specific information to farmers that can help

increase yields, and reduce unit

costs. The Global Positioning

Systems (GPS) that use satellites to

provide precise location information can be used by farmers to

guide farm machinery. Precise navigation of farm vehicles ensures

that the machine moves exactly as

directed, thereby reducing overlap

and increasing efficiency. GPS systems can also be linked with systems that gather information on

crop yield and soil conditions,

allowing farmers to determine

which parts of their farm are most

productive, and to take steps to

improve low-yielding acreage.

Since GPS systems can operate at

any time, farmers can operate

machinery 24 hours a day, increasing the utilization of equipment.

Digital imagery offers another

tool for high-tech agriculture.

Digital images of farmers’ fields

allow them to precisely monitor

field conditions, detect plant stress,

and link to mapping software to

assist in field measurement and

pest scouting. Early detection of

pests, nutrient deficiencies, or

water stress can result in reduced

input and application costs or

increased yields. Such site-specific

information may lead to greater

emphasis on management of zones

within fields rather than whole

fields. Conserving resources, reducing agrichemical applications, or

efficiently managing nutrients from

livestock waste through the application of such technology will provide enormous environmental and

economic benefits.

Farmers have demonstrated a

willingness to adopt this type of

technology. USDA surveys indicate

that 30 percent of the corn and 25

percent of the soybean acreage was

harvested last year with combines

having a yield monitor. In addition,

farmers intend to produce yield

maps for as much as 10 percent of

all corn and soybean acres.

Research continues on adapting

information technologies for a variety of new uses. Several new sensing devices, made for use on

combines along with yield monitors, have the potential to increase

food quality and enhance crop

value by detecting specific crop

traits during harvest, such as

increased protein or oil content,

thus making it possible to preserve

identity traits during marketing,

processing, and distribution.

New Technologies Can Increase Yields, Reduce Costs
chase, inventory, and pricing decisions must be made. Adoption of

information technology by farmers,

particularly the Internet, has

occurred at the same or greater rate

than in the general population or

among small businesses. Growth in

access to and use of computers and

the Internet, as well as growth in the

range of farm-specific applications,

has been robust. In 2000, nearly 60

percent of all farm households had

access to a computer, and nearly half

of these used the Internet as part of

their business.

Farmers reported over $375 million in online business purchases in

2000, and sold nearly $300 million

worth of harvested crops and livestock online. Farmers are increasingly using the Internet to add value

to traditional commodities through

niche marketing and “branded”

commodities. Identity preservation

of commodities is another ITdependent use; the characteristics of

crop and livestock products and

their production processes can be

efficiently documented and quickly

verified online.

Where Are the

Drivers Taking Us?

The food system has entered a

consumer-driven era and diversity

within our farm sector is enormous.

New waves of technology are

sweeping through the entire food

system. And, business must now

operate in a global economic environment. This combination of forces

is resulting in an increasingly

product-based rather than

commodity-based system—in the

addition of entirely new markets for

agricultural output and continued

structural adjustment in every segment of the food system.

Producer responsiveness to clear

consumer signals, the inducement of

structural change and technological

advance by market forces, and diversification and location of production

to meet market demands are all

essential signs of a well-functioning

market. All of these rapidly emerging developments indicate that the

institutions, policies, and programs

that underpin our food and agriculture systems must be adapted to

I. The Evolving

Food and

Agriculture System

34 Food and Agricultural Policy

The food system has entered

a consumer-driven era and

diversity within our farm

sector is enormous.

New waves of new

technology are sweeping

through the entire food

system. And, business must

now operate in a global

economic environment.
meet the new challenges.

Because the new environment

promises to be so different from the

relatively insular, commodity-based

system of the not-so-distant past, old

institutions must adapt to meet the

changing needs, or new ones be

formed to provide the appropriate

functions. The heterogeneous product markets of the 21st century

require different information to function well, and the most useful information will be “real-time” and

amenable to customization by its

users. Heterogeneity in markets

(importing and exporting) also suggests the need for different facilitating services to test, monitor, certify,

or otherwise assist branding and

identity preservation processes, and

for the maintenance and advancement of sanitary and phytosanitary

standards.

The application of new technologies and increased investment to

achieve natural resource conservation and environmental goals should

be encouraged. Environmental

enhancement can be consistent with

a consumer-driven agriculture, since

this is a “good” which consumers

demand, and for which marketoriented approaches can be found.

While consumer requirements

now must factor greatly in agricultural policy, so must recognition of

the wide diversity among producers.

Particular attention must be paid to

groups that would be unable—without technical, educational, information, or infrastructure assistance—to

meet the challenges and take advantage of new opportunities provided

by globalization and technological

advance.

I. The Evolving

Food and

Agriculture System

Food and Agricultural Policy 35
Trade continues to be critically

important to the long-term

economic health and prosperity of our food and agricultural sector. We have far more capacity than

needed to meet domestic food market requirements. To avoid excess

capacity throughout the system—

our farmland, transportation, processing, financing, and other ancillary services—we must maintain

and expand our sales to customers

outside this country. In fact, our system’s capacity grows faster than the

domestic market alone can absorb.

Given the maturity of our own food

market, aggregate domestic demand

has grown more slowly than the

farm sector’s rate of productivity

growth. However, steadily expanding foreign demand—brought on by

income gains, trade liberalization,

and changes in global market structures—has helped U.S. exports

steadily increase over time from $7.3

billion in 1970 to $53.5 billion for the

current fiscal year. Clearly, without

the salutary effects of an expanding

export market, farm prices and net

cash incomes would be significantly

lower today.

The farm sector’s reliance on

exports can be further appreciated

by observing the share of production

of individual commodities exported

each year. International markets take

a large share of basic commodities

such as wheat (45 percent) and

soybeans (34 percent) as well as

high-value processed products.

Some high-value products, including

almonds (66 percent) and sunflower

oil (63 percent), rely on exports for

well over half of sales. Overall,

exports account for 25 percent of

total farm sales (figure 10), double

the percentage for the economy as a

whole.

Agricultural exports also play an

important role in the larger U.S.

economy. Every dollar of direct

export sales generates another $1.39

36 Food and Agricultural Policy

II.Trade

Expansion 

Is Critical

...steadily expanding 

foreign demand—brought 

on by income gains, trade

liberalization, and changes in

global market structures—

has helped U.S. exports

steadily increase over time

from $7.3 billion in 1970 

to $53.5 billion for the 

current fiscal year.
in supporting economic activity.

Processed products have even more

extensive economic impacts than

bulk commodities—$1.56 in supporting activity compared to $1.11.

Exports also are not only important

in providing jobs on farms, but also

in food processing and in the transportation and trade sectors. Some

790,000 jobs were generated in

2000—318,000 on farms and 472,000

in assembling, processing, and distributing products for export.

Overall, exports support jobs paying

above-average wages.

Trade provides U.S. consumers

with access to a wider variety of

foods at reasonable prices, including

those not produced domestically.

Trade brings tropical fruits, coffee,

and exotic French cheeses to

American consumers. Imports make

fresh fruits and vegetables, such as

asparagus and grapes, available at

affordable prices during winter

months. U.S. food processors rely on

global markets for many intermediate inputs, such as cocoa (combined

with domestic sugar and dairy products) for chocolate.

Increasingly, as the food industry

becomes globalized, it uses not just

trade, but a variety of innovative

business arrangements to access

products from global markets and to

sell services and products. Capital

and technology now flow freely

across national borders. U.S. producers move abroad to serve foreign

markets and, increasingly, to sell

those products here. Foreign firms

are major players in our food markets, while U.S. firms sell widely

abroad. By removing trade barriers,

goods produced in the United States

can be sold in foreign markets. But, if

trade barriers remain, U.S. capital

and technology will relocate to produce and gain access to these

markets. 

II. Trade Expansion

Is Critical

Food and Agricultural Policy 37

Figure 10

Exports Critical to Demand for Many Agricultural Products

1998-2000 average volume

Corn

Table grapes

Sweet cherries

Soybeans

Grapefruit

Cotton

Raisins

Hides

Rice

Walnuts

Wheat

Sunflower oil

Almonds

Dried plums

0 20 40 60 80 100

Percent

Exports U.S. use

Average for all agriculture=24.5% U.S. economy-wide

average=12.4%
Developing and

Middle-Income

Markets

Over 96 percent of the world’s

population lives outside the United

States—and that obviously is where

food consumption growth will take

place. Food demand in the United

States and other developed

countries—the mature markets—

can be expected to increase only

slowly, no faster than the rate of population growth. Most future growth

in food demand will be in developing and middle-income countries,

where both population and income

are growing relatively rapidly.

Almost all of the world’s projected

increase of 1.2 billion people by 2020

will be in these countries. As

incomes rise, these consumers spend

a far greater proportion of the extra

money on food than do high-income

consumers, who spend little.

Expenditures on food in developing countries still require a very

large proportion of available

incomes—47 percent on average

compared to 13 percent for developed countries (and only 11 percent

for the United States). This relationship that transforms income growth

into large increases in food demand

also makes the poor in developing

countries vulnerable to food shortages from poor weather or economic

crises and suggests a role for food

aid (see box).

At very low incomes, cereals or

grain make up most of consumers’

calorie consumption, but as incomes

rise above subsistence levels, consumers diversify their diets and

II. Trade Expansion

Is Critical

38 Food and Agricultural Policy

Food aid over the years has been

used for a wide variety of reasons

ranging from emergency situations

to alleviate food shortages to promoting economic development. 

At any given time, short-term

shortages, weather-related and/or

human-made disasters (such as

civil strife) create a need for food

aid. Food emergencies such as

assistance for refugees and displaced persons also are growing. 

The United States is pivotal in

the international food aid system,

providing a significant share of all

food assistance, and its actions

have a major influence on other

donors and the system as a whole.

U.S. international food assistance 

is provided through a variety of

programs, including PL-480,

Section 416(b), and Food for

Progress administered by USDA

and USAID. The United States also

provides food aid through the

United Nations World Food

Program, and through international

non-governmental organizations

(NGOs).

Management of food aid has

become complicated because 

of the wide range of objectives.

While all international donors cite

humanitarian relief as the basic

motivation, economic and political considerations also influence

allocation. The mix of food aid

usually reflects the export profile

of the donor country and tends 

to vary with yearly fluctuations.

Hence, while food aid clearly

helped save lives during food

emergencies in many countries

such as Sudan, Ethiopia, Somalia,

Rwanda, and Haiti, current

patterns of supply and distribution are sometimes suboptimal in

timing and benefits.

Several factors suggest this is

an opportune time to review our

food aid programs. Five years

have passed since the World Food

Summit in 1996 when the United

States and developed countries

pledged to reduce the number of

hungry people by half by 2015.

Some progress has been made, but

the current pace will not meet the

goal. Criticisms of food aid as

interfering with the functioning of

markets and reducing the incentive to local producers have been

raised. New global trade negotiations and formulation of new

domestic farm policies in several

countries could be important venues for this review. In addition, all

countries’ food aid programs have

also faced criticism that they interfere with the functioning of markets, reducing the incentive to

producers.

Food Aid
purchase more meat and dairy products along with processed products.

The growth in demand and diversification in diets by developing countries will have a dramatic impact on

food markets in the next 20 years.

The International Food Policy

Research Institute (IFPRI) suggests

that by 2020, 85 percent of the

increase in the global demand for

cereals and meat will occur in developing countries and that the demand

for meat in the developing world

could potentially double.

Across developing countries the

“middle class,” whose incomes have

reached the level where consumers

diversify diets by including livestock

and processed products, is growing

rapidly. Research in the mid-1990s

indicated that there were some 900

million middle-class consumers in 19

key developing countries (figure 11).

By 2006, that number is estimated to

reach 1.5 billion, an increase of 68

percent and equal to the current

combined population of Japan and

the European Union. Much of that

increase will be in China, India, and

Southeast Asia but there will also be

sizeable gains across Latin America.

Growth in High-Value

Exports

While we see growth in exports of

basic commodities, exports of

consumer-oriented, high-value products (meats, poultry, fruits and vegetables, and processed products) are

growing even more rapidly (figure

12). High-value products now

account for two-thirds of total sales,

compared with only half in 1990.

Of the 20 fastest growing agricultural exports during the past decade,

15 were consumer-oriented, highvalue products, with pet food leading the way. Pet food sales have

grown almost 14 percent annually

for a decade and this year are projected to reach a record 1 million tons

valued at $1 billion. Continued

expansion in these markets will

require greater cooperation across

the value chain—among farmers,

ranchers, food processors, and

others—to offer high-quality products at prices competitive with farmers and processors in other countries.

The positive outlook for highvalue-product exports clearly benefits the Nation’s bulk commodity

producers. The sharp expansion in

exports of red meats and poultry,

especially relative to domestic sales,

has increased the use of grain and

soybeans to feed livestock (see box,

page 40). We are exporting more

corn and soybeans, but in the form

of meat and poultry. In 1990, only 1.4

percent of the total value of our grain

output and 1.8 percent of the value of

our soybean output was exported as

livestock products. In 2000, those

numbers had grown to 4.3 percent

for grains and 5.4 percent for

soybeans.

II. Trade Expansion

Is Critical

Food and Agricultural Policy 39

Figure 11

Middle Classes in Key Emerging Markets To Grow by 600 Million

Transition from subsistence existence to “middle class” creates

increased demand for quantity, quality, and diversity of food.

China

India

Indonesia

Brazil

Mexico

Pakistan

Russia

Thailand

Philippines

Korea

Turkey

Egypt

0 50 100 150 200

Increase in middle-class consumers, 1996-2006

 Millions
Barriers to

Expanding Trade

Although trade has become

increasingly important for many

products, U.S. exports have not kept

pace with those of our competitors

and, as a result, our market share has

steadily eroded. Twenty years ago,

the United States led exporters with

a 24 percent share of global agricultural markets. That share has fallen

to 18 percent and the European

Union, with over 17 percent market

share, has almost surpassed the

United States. Some factors, such as

a strong dollar that increases the relative price of U.S. exports, are

beyond the scope of agricultural policy. But, U.S. exporters can benefit

from international trade agreements

to remove trade barriers and

strengthened export promotion programs to keep pace with other countries’ foreign market development

initiatives (see box, page 41).

Lowering tariffs and other barriers to trade is fundamental to

expanding exports. The average food

and agricultural tariff is 62 percent,

much higher than tariffs on manufactured items. Both developed and

developing countries have high tariffs. Exports to the large potential

markets in South Asia (including

India) and to South America must

overcome tariffs of 113 and 40 percent, respectively. The United States

has one of the lowest food and agricultural tariffs, at 12 percent (figure

13), and thus stands to gain

immensely from ambitious tariff

cuts. However, the United States still

maintains some high tariffs that protect specific commodities.

In addition to tariffs, high levels

of domestic support for agriculture

and export subsidies distort agricultural markets. In contrast to tariffs

that are applied by almost all countries, developed countries account

for virtually all domestic support

and export subsidies. The

Organization for Economic

Cooperation and Development estimates that in 2000, developed countries’ total support for agriculture

was $327 billion. In that same year,

total production supports by the

European Union were $90.2 billion,

compared to $49 billion by the

United States. The European Union

dominates use of export subsidies,

accounting for approximately 90 percent of total annual spending since

the Uruguay Round Agreement on

Agriculture (URAA) took effect.

USDA research shows that removing all forms of agricultural protection and support could raise world

prices 12 percent, over half of this

from removing tariffs alone. Our

producers and the industries they

support could see the value of U.S.

agricultural exports grow 19 percent.

Global economic welfare would

increase by $56 billion annually by

removing existing distortions.

II. Trade Expansion

Is Critical

40 Food and Agricultural Policy

Figure 12

Share of High-Value Products in U.S. Exports Growing Rapidly

Percent

1.0

0.8

0.6

0.4

0.2

0

1980 1985 1990 1995 1998

Bulk

Intermediate 

processed

Fresh 

horticultural

Processed 

consumer

In the last 15 years, U.S. export

sales of the three major meats—

beef, pork, and poultry meat—

have grown faster than our competitors’ meat exports, and the

U.S. has evolved from primarily

a meat importer to a large

exporter. United States exports

totaled $6.2 billion in 2000, compared with $3.7 billion in

imports. Export quantity also

exceeded imports (10 billion versus 4 billion pounds). On a value

basis, the United States has

become a net exporter of beef,

pork, and poultry, with the value

of beef exceeding $3 billion and

pork and poultry each exceeding

$1 billion. At the same time, we

are the world’s largest beef

importer and a major pork

importer. Expanding high-value

meat export sales in the future

benefits both processors and

livestock producers, expands

economic activity, and expands

the demand base for both grains

and oilseeds.

Trade Expands

Demand for Meat
II. Trade Expansion

Is Critical

Food and Agricultural Policy 41

Since the URAA, our competitors, notably the EU and the

Cairns Group, have increased

their market development

investments by 50 percent to $1

billion annually. In sharp contrast, our market development

spending has been virtually flat

at about $250 million. This is a

sharp reduction from the early

1990s when Market Access

Program funding fell from $200

million to the current $90 million. 

U.S. Falling Behind on

International Market

Promotion Spending

Figure 13

World Agricultural Tariff Averages, by Region

Percentage

100

40

80

20

60

120

0

Average agricultural tariff (62%) 

1

South Asia

Caribbean Islands

Sub-Saharan Africa

North Africa

Central America

Eastern Europe

Middle East

South America

Southern Africa

Asia Pacific

European Union-15

North America

Non-EU Western Europe

 Tariffs are bound MFN rates based on final URAA implementation.

1
A Trade Agenda for

the 21st Century

America should continue to be a

global agricultural leader in the 21st

century. Our farmers and food companies benefit from a wealth of natural resources, cutting-edge

technology, and a supporting infrastructure. With these assets, we can

compete with anybody in the

world—provided markets are open,

trade is not distorted by subsidies,

and our own domestic support programs do not inadvertently reduce

our competitiveness. We also can

and should employ America’s agricultural bounty to meet the world’s

growing food aid needs.

Enhancing the competitiveness of

U.S. food and agriculture in the

global marketplace should be one of

the primary objectives of our farm

policy. To achieve this goal, we need

to focus on four strategies:

• Continuing the liberalization of

trade in agriculture

• Enhancing the competitiveness of

our food and agricultural exports

• Ensuring we have the proper tools

• Pursuing an ambitious and

focused global marketing strategy.

Continuing Trade Liberalization

Agricultural trade liberalization

will expand access for U.S. food and

agricultural products in overseas

markets and reduce unfair competition in those markets from other

countries. It would also promote economic growth globally, and particularly in developing countries where

the demand for U.S. food and agricultural products has the greatest

potential to grow.

A new round of World Trade

Organization (WTO) negotiations

would advance the process of trade

liberalization. A new WTO agreement on agriculture is needed to

continue the process of agricultural

trade liberalization that was begun

with the URAA. Signed in 1994, the

URAA marked the first time that

agriculture was subject to effective

international trade rules. It establishes disciplines for the three major

types of trade-distorting agricultural

policies, frequently referred to as the

three pillars of the URAA—market

access (tariffs, quotas, and other

trade barriers), domestic support,

and export subsidies.

The URAA made substantial

progress in liberalizing agricultural

trade. However, much work remains

to be done. Further progress in

reducing and eliminating export

II. Trade Expansion

Is Critical

42 Food and Agricultural Policy

America should continue 

to be a global agricultural

leader in the 21st century.
subsidies, market access barriers,

and trade-distorting domestic support measures requires a comprehensive approach—all countries have to

put all products and all policies on

the table. There can be no exceptions.

Regional and bilateral trade

agreements create export opportunities. They can be important building blocks for trade liberalization.

The North American Free Trade

Agreement (NAFTA), the United

States’ largest effort to date to completely eliminate trade barriers, has

had promising results. Since the

implementation of NAFTA, U.S. food

and agricultural exports to Canada

and Mexico have expanded by 59

percent, while corresponding exports

to the rest of the world grew by only

10 percent. The Administration has

committed to negotiating free trade

agreements with Singapore and

Chile, and eventually a Free Trade

Area of the Americas encompassing

virtually the entire Western

Hemisphere.

Unfortunately, we have fallen

behind some of our competitors.

Today, there are more than 130 preferential trade agreements throughout the world—and the United

States is party to only 2 of them

(NAFTA and the U.S.-Israel Free

Trade Area Agreement). The

European Union has 27 preferential

agreements with other countries and

is negotiating 15 more. Both the EU

and Japan are negotiating or exploring preferential trade deals with our

Latin American neighbors, natural

markets for U.S. food and agricultural products.

Free trade agreements should

supplement, not substitute for,

global trade liberalization. They can

accelerate the pace of liberalization

and provide momentum for global

reform, but they also have limitations. Trade distortions caused by

export subsidies and domestic supports cannot be effectively addressed

in free trade agreements. Nor should

the basic rules governing global agricultural trade established in the

WTO be altered in free trade

agreements.

Enforcement will help to maximize the benefits from trade agreements. As part of the Uruguay

Round, WTO members agreed to a

strong dispute settlement process.

The United States has been involved

in nine agriculture-related cases

brought to dispute settlement panels

and has prevailed in seven.

Nevertheless, the number of disputes in the WTO continues to grow,

creating demands on resources for

both the government and industry.

The prospective entry into the WTO

of China and Russia—countries

without strong market systems in

place—will present even greater

enforcement challenges.

While the dispute settlement

process has been an important tool,

intervention to prevent trade disputes before they reach the WTO

will be critical to protecting U.S.

agricultural trade interests in the

future. Effective prevention requires

constant monitoring of U.S. export

markets. The U.S. agricultural

attaché network, working closely

with U.S. exporters, can serve as an

early warning system for potential

trade problems.

A critical success of the Uruguay

Round was the establishment of

effective rules to prevent domestic

regulations to protect food safety

and plant/animal health from being

used as disguised trade barriers.

Under the Sanitary and

Phytosanitary (SPS) Agreement,

countries committed to using science

as the basis of domestic regulations

and to subjecting their regulations to

scrutiny through the WTO dispute

settlement process.

The United States is as rigorous as

any country in basing its regulatory

decisions on sound science.

However, our regulatory infrastructure is struggling to keep pace with

the increase in the number of technical barriers to trade. The growing

number of SPS regulations around

the world related to biotechnology

II. Trade Expansion

Is Critical

Food and Agricultural Policy 43

A critical success of the

Uruguay Round was the

establishment of effective

rules to prevent domestic

regulations to protect food

safety and plant/animal

health from being used as

disguised trade barriers.
present a particular challenge, both

for our infrastructure and for our

food and agricultural exports. To

meet these growing challenges we

will need more resources in our regulatory agencies; more research and

technology development for disease

and pathogen control; and, just as

importantly, resources to train regulatory officials in other countries to

help ensure that their regulations are

based on sound science.

Enhancing Export

Competitiveness

As agricultural trade is liberalized, the competition in the global

marketplace will become increasingly fierce. Trade liberalization

alone will not guarantee success in

export markets. We will have to sell

what our customers are demanding

and on better terms than our

competitors.

The United States has abundant

natural advantages in agriculture

that will allow us to continue to be

an agricultural superpower.

However, to remain competitive, our

domestic farm programs must be

complementary with our international trade objectives. Producers

need flexibility to adapt rapidly to

the changing demands of the marketplace. Our support policies

should provide an economic safety

net without distorting market signals. Given the rapid growth in highvalue-product exports, food processors and manufacturers need access

to their raw materials at world market prices. In short, we have to

expand our vision from supporting

farm prices to participating in the

global marketplace.

Providing the Proper Tools

We must ensure that our exporters

have the necessary tools to capture a

greater share of the benefits that are

flowing from trade reform and the

resulting global market expansion.

USDA provides support for overseas

market expansion through both

infrastructure, such as the agricultural attachés overseas, and assistance programs, such as export

credit and credit guarantee

programs.

Exporters receive assistance from

a trade infrastructure that includes

agricultural offices in 63 posts covering 130 countries. Agricultural

attachés serve on the front line of

U.S. food and agricultural trade,

working with foreign governments

to eliminate unfair trade barriers,

responding quickly to market access

problems, and monitoring compliance with trade agreements. The

attachés overseas and the staff in

Washington help exporters expand

current markets and break into new

markets through continuous reporting of trade information and by

assisting with trade promotion activities. They also help to overcome barriers posed by different cultures,

languages, and preferences for food.

Export promotion assistance

allows firms to establish footholds in

profitable markets that otherwise

might have been inaccessible. With

the Market Access Program (MAP),

USDA targets consumer-promotion

and trade-servicing activities toward

markets for value-added and

processed products. Commodity 

and agricultural trade associations

can use the Foreign Market

Development (FMD) program to

acquire market research and surmount long-term impediments 

to trade.

USDA programs to guarantee

financing for trade have expanded

exports by providing developing

and middle-income countries with

access to credit. Recent success in

using export credits to finance food

imports by countries during the

Asian financial crisis demonstrates

the ability of these programs to

maintain demand for U.S. products.

However, these programs have been

sharply criticized by some countries

as unfair subsidy practices, although

the United States is not alone in

maintaining export credit programs.

As we look to the future, we will

II. Trade Expansion

Is Critical

44 Food and Agricultural Policy

We must ensure that 

our exporters have the

necessary tools to capture 

a greater share of the

benefits that are flowing from

trade reform and the

resulting global market

expansion.
have to consider the feasibility of

developing international disciplines

on the use of government-supported

export credits.

Focusing Our 

Marketing Strategy

USDA’s export assistance activities should be focused on those markets with the greatest growth

potential. While we cannot afford to

ignore any market, neither can we

provide the same level of assistance

and attention to all markets.

Principles for

Expanding Trade

• Recognize the critical importance

of the global marketplace. More

than 96 percent of all consumers

live outside the United States.

Failing to reach the newly emerging middle-class consumers

(where demand growth will be

most rapid) will stifle expansion

of market share. 

• Expand markets through new

trade agreements. Greater access

to foreign markets requires

aggressive trade policy to lower

tariffs and eliminate distorting

subsidies. Failure to provide

strong leadership in global trade

liberalization will result in our

producers and exporters being left

behind. Other nations are aggressively pursuing agreements,

many right in this hemisphere

which are markets where we

should have transportation and

other advantages.

• Ensure that farm and trade policies are fully compatible.

Domestic farm support and international trade policies must be

consistent and mutually reinforcing. It makes no sense to have

trade policies and programs promoting farm exports at the same

time domestic support programs

inadvertently reduce competitiveness. Our domestic and export

policy must support our existing

international obligations and at

the same time give us ample latitude in pursuing ambitious goals

in ongoing and future negotiations. 

• Enforce existing trade agreements.

Once new trade agreements have

been concluded, the Government

must ensure that our trading partners meet their obligations. This

includes ensuring that our trading

partners use accepted scientific

principles in enacting their regulations. The growing number of sanitary/phytosanitary-related trade

issues also requires an enhanced

regulatory infrastructure.

• Sharpen marketing efforts.

Programs to expand exports—

export credit guarantees and market development—have served

our food and agriculture sector

well. Continual review and modification of these programs are

required to ensure they are costeffective and target high-impact

growth markets and high-value

products.

II. Trade Expansion

Is Critical

Food and Agricultural Policy 45
I

f farmers and farm families all

across the country shared the

same goals and faced the same

challenges and opportunities, fashioning farm policy today would be

straightforward. And, indeed, that’s

the way it must have seemed in the

1930s, when farm families depended

mainly on farm earnings and grew

crops and livestock on much the

same acreage as their neighbors.

Then, policy had a more focused

objective—helping to reduce the

wide income disparity between farm

families and their urban counterparts—and a “one size fits all”

approach was more appropriate.

Supporting field crop prices provided widespread assistance, since

most farmers grew some field crops,

and helped stabilize the entire sector.

The farm sector and all of agriculture

are vastly different today, as is much

of rural America. Yet, our farm policy retains vestiges of the New Deal

programs and reflects a time of

greater homogeneity across

American farms and farm

households.

Today, the farm sector is diverse

beyond the imagination of those

who framed the New Deal legislation. On average, farm family

incomes no longer lag, but rather

surpass those of other U.S. households. Most farms are run by people

whose principal occupation is not

farming. Markets have changed, too.

Domestic demand alone is no longer

sufficient to absorb what American

farmers can produce. Demand by

well-fed Americans grows slowly,

with population growth. The promise of new, much faster growing markets lies overseas, in countries where

economic prosperity is emerging for

larger numbers of people. 

As a result, the United States must

consider its farm policy in an international setting, helping farmers stay

competitive while pressing for unfettered access to global markets. At the

same time, Americans’ expectations

with respect to food have moved

well beyond assurance of adequate

quantities to include quality, safety,

convenience, and many more attributes. And, expectations now extend

to environmental preservation and

enhancement.

More than seven decades of farm

policy have provided a rich, full

experience upon which to draw as

we contemplate appropriate 21st

century policies for our industry. The

view of policies and programs across

their history has proved very

instructive, providing invaluable lessons which at a very minimum can

help us avoid the obvious mistakes

of the past. History also shows that

growth in farm household income

was largely due to rapid improvements in productivity supported by

a strong research base along with

better opportunities to market

products, including export markets

and off-farm employment

opportunities.

46 Food and Agricultural Policy

III. Farm Sector

Policy

The farm sector and all 

of agriculture are vastly

different today, as is much 

of rural America.Yet, our

farm policy retains vestiges

of the New Deal programs

and reflects a time of greater

homogeneity across

American farms and farm

households.
Many of the program approaches

since the 1930s proved not to work

well or not at all, produced unexpected and unwanted consequences,

became far costlier than expected,

and have been continually modified

over time in the long succession of

farm laws. Some major, and still

highly relevant, lessons learned

include:

• History has shown that

supporting prices is 

self-defeating. Government

attempts to hold prices above

those determined by commercial

markets have simply made matters worse time after time.

Artificially higher prices encouraged even more unneeded output

from the most efficient producers

at the same time they discouraged

utilization, consequently pushing

surpluses higher and prices lower.

Costs to taxpayers grew until the

point was reached where something more had to be done. All too

often, that turned out to be finding ways to restrict output.

• Supply controls proved

unworkable too. These usually

involved restricting the amount of

land farmed in attempts to reduce

output. But, the remaining land

was farmed more intensively, and

supply rarely was cut enough to

boost prices to politically satisfactory levels. The programs were

costly to taxpayers and consumers

and the unused resources were a

drag on overall economic performance. But, perhaps most

important of all, limiting our

acreage was a signal to our competitors in other countries to

expand theirs, and we lost market

share that is always difficult to

recapture.

• Stockholding and reserve plans

distort markets enormously.

Isolating commodity stocks from

the market when supplies are

abundant is attractive for its

short-term price stimulus. But,

because such stocks eventually

must be returned to the market,

they limit the recovery of prices in

the future. Moreover, time after

time, stocks have proved costly to

III. Farm Sector

Policy

Food and Agricultural Policy 47
maintain, distorted normal

marketing patterns, ceded

advantage to competitors, and

proved tempting targets for political tampering.

• Program benefits invariably

prove to be disparate, providing

unintended (and unwanted)

consequences. The rapidly changing farm sector structure produced a wide array of farm sizes

and efficiencies. Many farms were

low cost and the programs were

of enormous benefit, enabling

them to expand their operations.

Others did not receive enough

benefits to remain viable and thus

were absorbed along the way.

That situation still remains to

some extent today, even though

we now have far fewer farms.

The clarity of these lessons provided several emphatic turning

points in national policy. The 1985

farm law proved to be one such

point when, after long debate on

fundamental philosophy, a more

market-oriented approach was

adopted. That market orientation

was extended in the 1990 farm law,

making a less intrusive and expensive role for government in farmer

decisionmaking and in the operation

of the markets.

The Federal Agriculture

Improvement and Reform (FAIR)

Act of 1996 proved to be historic in

that it removed much of the decadesold program structure, provided

unparalleled farmer decisionmaking

flexibility through “decoupled” benefits, and set a new example

throughout the world for providing

domestic farm sector support. While

that approach still is arguably the

least distorting of markets and

resource use, its direct payments do

share some unintended effects with

price support programs, namely the

artificial inflation of farmland prices.

The effect clearly has been exacerbated by the size of payments in

recent years, some $28 billion in the

last 4 years above the amount provided in the 1996 law.

While the rise in land prices creates wealth for some, it works to the

disadvantage of others. Direct government transfers distort real estate

markets, keeping land prices artificially high when commodity prices

are low, as we are seeing today.

Higher land prices from consecutive

years of large program support make

it more difficult for beginning farmers by increasing capital requirements. This inflation also makes it

more costly for existing farms to

expand to achieve size economies,

either by purchasing or renting additional acreage (since land rents move

in tandem with prices). Higher land

values do benefit local tax authorities and the collateral base of farm

lenders, but add directly to production expenses through higher interest and rental costs. Since the land

charge is such an important component of farmers’ total cost, sustained

increases in land prices and rents

have a decidedly adverse effect on

the competitiveness of our farmers

in the marketplace compared with

those in other exporting countries, a

cause of growing concern in recent

years.

III. Farm Sector

Policy

48 Food and Agricultural Policy

Since the land charge is

such an important

component of farmers’ total

cost, sustained increases in

land prices and rents have a

decidedly adverse effect on

the competitiveness of our

farmers in the marketplace

compared with those in

other exporting countries, a

cause of growing concern in

recent years.
Squaring Today’s

Realities With

Policies

Because of their historical evolution, current program benefits still

are largely directed to specific commodity producers, resulting in only

40 percent of farms being recipients.

And, there still is no direct relationship between receiving benefits and

financial status of the farm. The most

financially disadvantaged segment

of farmers today is the low-income,

low-wealth group (see appendix 1).

This limited-resource group comprised about 6 percent of farms, had

average household income of $9,500,

but received less than 1 percent of

direct government payments in 1999.

In contrast, 47 percent of payments

went to large commercial farms,

which contributed nearly half of 

program commodity production and

had average household income of

$135,000 (figure 14).

Our current broad-scale,

commodity-oriented approach to

farm support does not recognize

existing wide differences in production costs, marketing approaches, or

overall management capabilities that

delineate competitive and noncompetitive operations. It thus is impossible to provide enough income

support for intermediate farms without overly stimulating production by

lower cost, large-scale commercial

producers (figure 15). Even though

many intermediate farms and ruralresidence farms receive some program benefits, only one in four generated enough revenue to cover

economic costs. Even more problematic is the inability of these farms to

improve their cost efficiency at the

same pace as larger commercial

operations, whose investment in

new technologies and ability to

expand are aided by program

benefits.

III. Farm Sector

Policy

Food and Agricultural Policy 49

Figure 14

Large Farms Receive the Biggest Share of 

Direct Government Payments (1999)

Commercial farms

47%

Intermediate farms

40%

Rural-residence farms

13%

Figure 15

Distribution of Direct Payments by Farm Size and

Cost Structure (1999)

High cost

Mid cost

Low cost

35%

18%

5%

35% 60% 38%

29%

36% 44%

Rural-residence farms 

received $1.9 billion 

in direct payments 

Intermediate farms 

received $6.1 billion 

in direct payments 

Commercial farms 

received $6.6 billion 

in direct payments 
Another unintended consequence

of current programs stems from the

increasing disconnect between land

ownership and farm operation.

While program benefits were

intended to help farm operators,

most support eventually accrues

mainly to landowners, in the short

run through rising rental rates and in

the longer term through capitalization into land values. Land prices in

recent years have been relatively

robust—especially in areas producing program commodities—despite

concerns about low commodity

prices and the future direction of

farm programs. For many farm operators, renting land is a key strategy

to expand the size of the business in

order to capture the size economies,

as evidenced by 42 percent of farmers renting land in 1999. Clearly,

operators farming mostly rented

acreage may receive little benefit

from the programs.

The impact of income from any

source (including program benefits)

on land values depends on whether

that income is viewed as permanent

or transitory—the degree of certainty that the income will continue

in the future. Even though production flexibility contract payments

were intended as transitory when

authorized by the 1996 Farm Bill,

subsequent emergency assistance

and a 70-year history of government

involvement in agriculture have

reaffirmed the expectation that support will continue in the future.

The 1996 FAIR Act also continued

the marketing loan program, another

evolution of the old price support

idea, but importantly modified to

avoid government stockholding

which proved so burdensome in

times past. Marketing loan payments

effectively provide a large countercyclical component to farm income,

but distort markets by limiting the

production response to falling market prices. The program guarantees a

price for traditional program commodities (food grains, feed grains,

and cotton) and oilseeds. As market

prices have fallen below this guaranteed price, total marketing loan benefits have risen from less than $200

million for the 1997 crop to $8 billion

for the 1999 and $7.3 billion to date

for the 2000 crops. Since 1996, countercyclical marketing loan benefits

have totaled about $20 billion.

While the current policy made

large strides toward greater market

orientation, a careful evaluation in

III. Farm Sector

Policy

50 Food and Agricultural Policy
the context of today’s diverse farm

structure and increasingly

consumer-driven marketplace still

reveals severe misalignment among

policy goals, program mechanisms,

and outcome. Improvements could

support more sustainable prosperity

for farmers, agriculture, and rural

communities without engendering

long-term dependence on direct 

government support.

The Economic

“Safety Net”

While strong arguments can be

made for solutions for specific problems, common principles apply to all

programs that support the diversity

of American farms. Foremost, our

strongly held view is that agricultural policy must recognize that the

marketplace is the best guide for

allocating resources and provides the

most objective reward for efficiency

and good management. But, that

does not rule out helping farmers

and ranchers when unexpected

events beyond their control occur

and cause output or income to plummet. The challenge, of course, is to

provide an adequate safety net without encouraging sustained dependence on government. Safety net

interventions should not obscure

needed adjustments in outputs and

markets that inevitably must occur,

nor should they fail to reflect that the

functioning of competitive markets

must cover the entire food system in

today’s dynamic, consumer-driven

agriculture.

The idea of a “safety net” is

becoming much more encompassing

than the traditional price and income

support. This modern view has been

dramatically emphasized in recent

years, when we have seen the entire

agriculture infrastructure placed

under great stress from food safety

concerns and the potentially devastating losses to producers (foot-andmouth disease and BSE in Europe,

for example). These and other events

have underscored the need for protection from plant and animal diseases and pests, new research on

testing, more widespread monitoring, research to maintain and

improve competitiveness in world

markets, buttressing the foundation

for sanitary and phytosanitary measures in trade agreements, and generating more attention to food safety

and the integrity of the entire food

system. Arguably, the policy focus of

the past 4 years has distracted us

from focusing on these fundamental

aspects of a safety net for the entire

food system for the benefit of not

only the farmer but the consuming

public as well.

III. Farm Sector

Policy

Food and Agricultural Policy 51

...our strongly held view 

is that agricultural policy 

must recognize that the

marketplace is the best guide

for allocating resources and

provides the most objective

reward for efficiency and

good management. But, that

does not rule out helping

farmers and ranchers when

unexpected events beyond

their control occur and cause

output or income to

plummet.
Diverse Farm

Structure and the

Government’s Role

The highly diverse, consumerdriven food system makes flexibility

imperative in matching government

program design and intent with

farm circumstances that vary with

size, organization, and geographic

location. In short, the solution

should fit the problem, and benefits

for one group should not disadvantage other groups. For example,

highly competitive commercial

farms may benefit most from trade

negotiations that expand markets for

their products while intermediate

farms also may take advantage of

newly developed market opportunities. Alternatively, investment in

rural infrastructure that helps attract

more and better jobs may be crucial

to intermediate farms and other

rural inhabitants.

Past attempts at tailoring or

directing benefits to particular

groups have not proved very successful where the basic economic

realities of farming were misunderstood. For example, legislative

efforts to ensure that farm operators

rather than landlords got the benefit

of government payments were easily

circumvented, while payment limits

to individual farmers have not

proved effective. Nevertheless,

developing policy improvements

requires a better understanding of

how the farm sector is structured

and operated and the implications

for a government role in the sector.

Government’s Role in Assisting

Commercial Farms

Commercial farms in the United

States are among the most highly

efficient producers of food and fiber

anywhere. Their cost advantage over

other farms derives largely from size

economies. The bulk of their income

is derived from farming and related

activities and their well-being

depends on the success of the farm

business—on production efficiency

and the managerial ability to

respond to weather, pests, disease,

and changes in farm input and 

marketing costs, as well as on prices.

Federal programs that expand 

market opportunities, help reduce

production and marketing costs, and

assist with risk management are

most beneficial to commercial

producers.

Expand markets. In the long run,

commercial farmers need new and

expanded markets in which to sell

their growing output to avoid suffering price declines. Government leadership in negotiating new and

expanded international trade agreements and resolving trade disputes

provides access to overseas customers. Support for research into

alternative product uses such as

renewable energy also will expand

markets.

Risk management. Commercial

farms, like other successful businesses, use a variety of tools to 

manage risks, including insurance,

diversification of markets, contracting inputs and outputs to establish

III. Farm Sector

Policy

52 Food and Agricultural Policy
prices, and using futures and options

markets. Frequent exposure to natural disasters (hail, flood, drought,

frost, and wind) sets agriculture

apart. The potential for natural disasters to affect wide areas at the

same time, as well as other factors,

makes it difficult for private insurance markets for agriculture to be

viable.

Insurance provides farmers with a

range of choices to reduce risk, given

their individual circumstances. In

contrast to other payments where

farmers respond to Governmentdetermined prices and payments,

insurance can be more market oriented. Market orientation extends to

the provision of insurance where private companies and agents sell and

service policies and the Government

provides financial incentives to companies and subsidies that lower premiums paid by farmers. While

insurance programs do not directly

interfere with market prices, they

must be expanded and managed

carefully to avoid distorting markets

through excessive subsidies for risk

or through providing guarantees

that are out of line with market

conditions.

Federal involvement in agricultural insurance has grown steadily

since the 1980s, in parallel with the

increasing market orientation of

farm policy. About three-quarters of

the acreage planted to major crops

(corn, wheat, soybeans, and cotton)

is at least minimally insured, and

insurance is available for more than

100 crops. Coverage has been

expanding through the provision of

coverage for more crops and through

the development of new types of

insurance, such as revenue coverage,

which provides more risk management choices to farmers.

Concerns that farmers were purchasing too little insurance motivated reforms by Congress in the

Agricultural Risk Protection Act

(ARPA) of 2000. High premiums

were cited as a primary cause for

low participation, and the ARPA

increased premium subsidies, lowering farmers’ premium costs for

higher coverage levels. The ARPA

also increased incentives for extending coverage by increasing the role

of the private sector in the development of new risk management tools.

ARPA provides $8.2 billion over 5

years to lower premiums and extend

coverage.

Managing conservation. Farmers

and ranchers are very aware of the

impact of their operations on the

environment. Compliance with regulations that protect resources and the

environment is consistent with

farms’ own objectives, but entails

added cost, while competitiveness

hinges on cost control. Meeting

water and air quality standards, for

example, can increase costs when

production practices are altered to

reduce nutrient loss or control erosion, just as protecting endangered

species may require costly adjustments. Regulations that recognize

the realities of farming operations

can help minimize the costs of

adopting environmentally friendly

practices, and assistance in meeting

additional costs also can help protect

U.S. producers’ competitive edge in

international markets.

III. Farm Sector

Policy

Food and Agricultural Policy 53
Needs of the Intermediate Farms

The intermediate category of

farms perhaps is best characterized

as businesses in transition. They may

be beginning farmers or farmers

nearing retirement, but a common

characteristic is that keeping the

farm going generally requires offfarm income sources. The path to

profitability for most lies in lowering

production costs—often available

only by expanding their farming

operations, especially if their focus is

crop commodities. However, these

farms increasingly have new opportunities on the demand side of the

market, by increasing their revenues

through direct marketing and by

producing value-enhanced products.

Direct markets often are specialty

markets, appropriate for farmers

able to move small amounts of product. Creating “virtual” economies of

size through joint ventures and other

value-added business enterprises

also may enhance the long-term viability of these operations. Moreover,

the importance of off-farm earnings

clearly suggests that large benefits

accrue to these farmers from efforts

to expand off-farm employment

opportunities and strengthen rural

communities.

Strengthening competitiveness.

The long-term viability of intermediate farms depends on developing

strategies to access new markets and

effectively manage costs. Earning

profits provides the resources to

adapt to all types of change, including short-term weather shocks or

continual technological advances.

Commercial farms have been able to

do this while intermediate farms still

struggle, and assistance in becoming

more astute managers of their marketing and financial operations likely

is critical.

Even so, intermediate farms’ revenue arguably now is depressed

because of the policies that encourage overproduction. These farms

currently bear the unintended consequences of payments based on output, which encourage more

production, primarily by commercial

farms. This pushes market prices

lower and makes it more difficult for

intermediate farms to break even.

While reducing or eliminating this

market distortion would benefit

these farms, it would not be sufficient to ensure their survival. That

would require greater efficiency for

those on the verge of becoming competitive, while recognizing the diversity of local conditions facing these

farmers. A national program focusing on intermediate farms may not

address all farmers’ needs. For

example, educational resources (to

improve management), information

about new markets, and natural

resource conditions all vary significantly by region. This diversity has

prompted discussion of new, innovative approaches such as block grants

to States for programs that tailor cost

efficiency to specific farms.

Risk management. Improved

management extends to the sophistication with which farmers choose

and employ risk management tools.

Commercial farms typically use a

broad range of approaches to manage adverse effects of market, financial, and natural disaster risks.

Intermediate and rural-residence

farms may have more limited experience. The ARPA also includes funding for partnerships with private and

public entities to educate producers

about risk management activities

and risk reduction strategies. Federal

and State Governments, often

through land-grant universities, provide training to help farmers acquire

or enhance risk management skills

needed to thrive in today’s

marketplace.

III. Farm Sector

Policy

54 Food and Agricultural Policy

The highly diverse,

consumer-driven food

system makes flexibility

imperative in matching

government program design

and intent with farm

circumstances that vary with

size, organization, and

geographic location.

In short, the solution should

fit the problem and benefits

for one group should not

disadvantage other groups.
Stewards of the land. Intermediate

farms also must meet environmental

mandates, and their smaller size may

mean that they face different requirements and costs of compliance.

Moreover, this group of farms controls a significant portion of the

farmland (45 percent), and supporting their compliance with environmental regulations is important to

the quality of the Nation’s resources.

Assisting Rural-Residence Farms

Most rural-residence farms lose

money on farming, subsidizing these

activities with nonfarm earnings or

retirement income. Objectives other

than farm profitability, such as enjoyment of a rural lifestyle and farm

work, keep them in agriculture.

Their off-farm income, aided by

favorable tax policies, permits them

to subsidize farming. Also, many

small farm owners may view farmland as a long-term investment that

diversifies their financial portfolios.

Not surprisingly, traditional agricultural policy has very little influence on the financial well-being of

these households. They are very little

connected to commodity prices but

much more so to wage rates, interest

rates, employment levels, and tax

policies. Their needs obviously are

more effectively addressed by rural

development and other policies that

most affect them. These farms are

small individually, and they account

for only a small proportion of total

output, but collectively they control

a large proportion (29 percent) of the

farmland, suggesting that their participation in appropriately designed

conservation and environmental

programs potentially could make

important contributions to national

objectives in those areas.

III. Farm Sector

Policy

Food and Agricultural Policy 55
Other Policy Areas

Increasingly

Important

While policy discussion still is

dominated by commodities, other

areas are increasingly important for

farmers of all groups. One such area

is tax policy. The President’s tax

reform legislation eliminated the

estate tax that was a longtime and

growing concern to family farmers

and small business owners who

make up a large part of the food system. Estate tax elimination allows

family farms and businesses to be

passed to the next generation without dissolution of the entity or the

need to sell assets in order to pay

Federal taxes. Over the long haul, tax

relief will encourage work and innovation and also allow farmers to save

more in their pension plans or individual retirement accounts.

Tax-deferred Farm and Ranch

Risk Management (FARRM)

accounts, as variously have been

proposed, would allow farmers to

reserve a substantial percentage of

their net farm income in a taxdeferred account, which could be

drawn on during downturns. These

funds could be held in the account

for several years to help farmers in

times of reduced income to offset

operating expenses and purchase

inputs for the next production cycle.

Such accounts, appropriately

designed to be countercyclical, could

be an important part of the economic

safety net.

Farm Policy and

International Trade

It has been clear for some time

that the long-term economic health

and prosperity of the farm sector,

and indeed of the entire food system,

depend upon the ability to gain

greater access to customers in foreign markets. The reasons are obvious. We have far more capacity, in

our natural resources and infrastructure investments, than needed to

meet domestic food needs and our

market is now mature. In fact, new

technology expands this capacity

faster than the growth in domestic

demand, which is at the slow pace of

our Nation’s population growth.

Assets increasingly out of place,

underutilized, and declining in value

would result without growing access

to the 96 percent of the world’s consumers who are outside the United

States.

This increased reliance on foreign

markets and trade now means that

we must pay greater attention to the

compatible development of domestic

farm support policy and our international undertakings and activities.

Today, choices made in our domestic

policy have a direct bearing upon

III. Farm Sector

Policy

56 Food and Agricultural Policy
international agreements already in

force as well as upon the latitude we

have in negotiating new agreements

to bring even more benefits.

We must ensure that we fulfill our

existing WTO commitment on

domestic support while providing

room for negotiations. The “three

pillars” of the Uruguay Round

Agreement on Agriculture (URAA)—

market access, domestic support,

and export subsidies—recognize the

interdependence between domestic

and trade policies. Reaching a consensus among WTO members on

further trade liberalization will

require reductions across all three

pillars.

Current policies, particularly

spending for marketing loan payments, approach WTO limits and

leave little room for negotiating further reductions (figure 16). Amber

box spending rose from $6.2 billion

in 1997 to $10.4 billion in 1998, largely

from increased marketing loan payments. Payments in 1999 and 2000

brought the United States closer to

its limits. Other large expenditures in

the amber box are market price supports for dairy, sugar, and peanuts

valued at $5.8 billion in 1998 and

subsidies for crop insurance at $747

million.

Noncommodity-specific payments also have increased and

potentially could exceed the ceiling

of 5 percent of the value of domestic

production. If this happens, the full

value of the expenditures then must

be included in the Aggregate

Measure of Support (AMS) and

would push us well above our WTO

commitments. Market loss assistance

payments (MLAs) of $2.9 billion,

combined with other expenditures,

used about one-half of the available

1998 “de minimus” exemption.

Increased crop insurance subsidies

in 1999 and 2000, combined with

MLAs of $5.5 billion, will push our

total much closer to the “de minimus” ceiling.

III. Farm Sector

Policy

Food and Agricultural Policy 57

The URAA differentiates domestic

support policies according to their

effects on production and trade.

“Amber box” policies that directly

subsidize production and influence the decision to produce are

included in the calculation of an

Aggregate Measure of Support

(AMS) and made subject to reductions. Amber box policies are further divided according to whether

they provide commodity-specific

or noncommodity-specific support. “Green box” policies, those

that cause only minimal trade distortions, are exempt from any

expenditure limits. “Blue box”

policies are distorting farm subsidies that are linked with supply

limitations. 

WTO members agreed to reduce

commodity-specific, tradedistorting domestic support by

20 percent (13 percent for developing countries). Noncommodityspecific support is not included

when calculating the AMS as long

as it does not exceed 5 percent of

the value of agricultural production (developing countries have a

10 percent ceiling). These amber

box payments are referred to as

“de minimus.” Our limit on

spending on amber box policies is

$19.1 billion. “Blue box” policies

are exempt from reductions

because the supply limits partially

offset the subsidies’ incentives to

overproduce and thus disrupt

global trade.

WTO Domestic Support Categories

Figure 16

U.S. Aggregate Measure of Support (AMS) Approaches WTO Ceiling

86-88 1995

30

25

20

15

10

5

0

Billion dollars

1996 1997 1998 1999f* 2000f*

Years

*f indicates forecast

AMS Unused AMS ceiling
Principles for Farm

Policy

• Pay heed to lessons learned.

Above all, effective farm policies

for the new century must build

upon the lessons learned from

over seven decades of rich experience with the farm programs.

Even the most carefully designed

government intervention distorts

markets and resource allocation,

produces unintended consequences, and spreads benefits

unevenly. We cannot afford to

keep relearning the lessons of the

past. 

• Recognize our new operating

environment. Our farm sector

and food system operate today in

a new and evolving business and

social environment. It is a competitive, consumer-driven environment, global and rapidly

changing with enormous implications for the place and role of the

farm sector in the overall food

system. It is highly inter-dependent, blending the efforts of many

industries to add value to farm

sector products. 

• Continually expand our commitment to open markets. The

United States is thoroughly committed to market-oriented policies, well understood to serve the

best long-term interests of all

stakeholders in the food system

and society at large. Markets

have continually demonstrated

their superiority to other alternatives in guiding allocation of

resources, investment, and production in patterns that are most

beneficial to society at large. Still,

this commitment needs to be

renewed and expanded.

• Commit even more fully to

future growth of the farm and

food system. There is a longstanding, national economic commitment to open markets in support of the Nation's marketoriented policies. For the agriculture industry, development of foreign markets is essential to

support future investment,

growth, and the long-term health

of the sector. Our agricultural

production capacity today not

only exceeds domestic demand

but is growing faster as well.

Thus, future asset values,

incomes, growth, and general

prosperity depend upon gaining

greater access to the global

III. Farm Sector

Policy

58 Food and Agricultural Policy
growth markets. New and

expanded trade agreements hold

the best promise for our competitive producers to expand sales

and gain market share and generate economic activity across rural

America. 

• Ensure that farm and trade policies are fully compatible.

Domestic farm support and international trade policies must be

consistent and mutually reinforcing. It makes no sense to have

trade policies and programs promoting farm exports at the same

time domestic support programs

inadvertently reduce competitiveness. Our domestic and export

policy must support our existing

international obligations and at

the same time give us ample latitude in pursuing ambitious goals

in ongoing and future negotiations. 

• Strengthen U.S. global leadership. The world looks to U.S.

leadership in policy formulation

and program design for both

domestic agriculture support and

international trade. U.S. policymakers must be cognizant that

our actions set examples and help

persuade others to our positions. 

• Accommodate and build on the

farm sector’s wide diversity.

Effective agricultural policies

must recognize the wide diversity

in the farm sector itself, in terms

of size, location, financial status,

crop and livestock products produced, managerial abilities,

income sources, and goals and

aspirations. The problems faced

by these groups are widely different and require solutions tailored

effectively to address particular

needs. Failure to do so only exacerbates the problems and postpones the day of reckoning. 

• Provide a market-oriented economic safety net for farmers.

The national recognition that the

farm sector is both unique and

essential is long standing and

widely held. The result is a parallel commitment to policies that

support open markets and those

that prevent precipitate downturns in the farm sector. Thus,

these programs must conform to

basic public policy principles

including effectiveness, transparency, equity, consistency, and

comprehensiveness. Current policies now take several forms,

including countercyclical loans,

crop and revenue insurance, and

direct payments, but they could

be constructed with other programs (such as tax-deferred

income accounts) that fully comply with such principles. 

• Focus on a broader infrastructure. Provide a longer term view

of the requirements for a healthy

and prosperous farm and food

system to ensure that it continues

to enjoy widespread consumer

confidence and support. This

entails refocusing institutions and

continuing judicious investment

for the entire system, including

refurbishing and modernizing the

infrastructure that underpins the

farm, food, and trading system.

III. Farm Sector

Policy

Food and Agricultural Policy 59
U.S. agriculture is hugely

successful at delivering

abundant, affordable, safe,

and nutritious food. Nothing has

been more important to this success

than an extensive physical and institutional infrastructure—in effect, the

backbone of the food and agricultural system.

The agricultural infrastructure

includes all of the basic services,

facilities, equipment, and institutions

needed for the economic growth and

efficient functioning of the food and

fiber markets. This requires investment in services to protect farmers,

ranchers, and consumers from the

threats of crop and animal pests and

foodborne diseases. It demands a

strong commitment to the research

and cooperative extension system

that undergirds production, marketing, food safety, nutrition, natural

resource conservation, and all other

functions of USDA agencies.

Like every infrastructure, that of

the agriculture and food system

requires periodic review, ongoing

reinforcement, and appropriate

modernization just to keep pace with

continuously emerging and often

unique challenges, and rapidly

changing conditions. The system

must be prepared to meet our future

needs, which may be strikingly different than those we see today.

A responsive infrastructure

requires adequate resources in place

ahead of time, and access to cuttingedge science, technology, and information. The infrastructure cannot

function at its best if it must always

play catch-up. At the same time,

funds are not limitless. To make the

best use of our resources, we must

inventory current services and facilities and prioritize what needs to be

upgraded and enhanced.

USDA and its cooperators have

historically invested in the “bricks

and mortar” needs of the infrastructure. Maintenance and renovation of

scientific facilities, farm service centers, and testing laboratory and

inspection facilities, for example, are

ongoing needs. They are necessary

but not sufficient to face the future

and adapt to changing

circumstances.

The existing infrastructure is now

being challenged in radically

changed market and institutional

contexts, calling for very different

approaches than in the past. First,

the various sectors of the food economy—from producers to processors

to retailers—are more interconnected than ever before, and grow

more so every day. For any new policy to succeed, it must have input

and cooperation from every link in

the food chain. Second, crop or animal diseases that demand infrastructural support are increasingly global

and require coordinated solutions.

Third, recent increases in intellectual

property protections and advances

in biological science have prompted

the private sector to more actively

invest in the knowledge base and

technological underpinnings of the

food system. Stronger private sector

incentives imply more opportunities

for effective partnerships between

the public sector and industry in

solving problems.

These contextual changes mean

the United States must think differently about the agricultural and food

system infrastructure. The Federal

Government must partner with

other participants in the food chain,

including private companies and

consumers; public, university, and

60 Food and Agricultural Policy

IV. Enhancing the

Infrastructure

The recent outbreak of 

foot-and-mouth disease 

in Europe has heightened

U.S. awareness of the

infrastructure that protects

the integrity of the food and

agricultural system.
private scientists; State governments;

and international bodies that promote effective forums for global

cooperation. A cooperative approach

requires new ways of doing business, new approaches to problem

solving, and new institutional

arrangements that meet the interests

of various groups while advancing

the public good.

Major areas in which innovative

thinking about the food and agricultural infrastructure needs to take

place are: our responsiveness to pest

and disease threats; assurance of

food safety; sustaining and building

the data, information, and scientific

bases on which good decisionmaking relies; and delivering services to

rural America.

Responding to Pest

and Disease Threats

The recent outbreak of foot-andmouth disease in Europe has heightened U.S. awareness of the infrastructure that protects the integrity

of the food and agricultural system.

Science, technology, and intergovernmental cooperation are key to

keeping crop and animal pests and

diseases out of the United States, and

to managing the pest and disease

challenges we face inside our

borders.

Crop Pests and Diseases

Crop yield losses caused by

insects, weeds, and diseases are U.S.

farmers’ oldest challenge, but these

take new forms all too often. The

prevention and control of crop pest

and disease outbreaks present many

special challenges to the agricultural

infrastructure. Uncertainties about

the establishment, spread, damage,

and movement of pests and diseases

and commodities across State and

international boundaries create the

need for a flexible and responsive,

area-based infrastructure.

Invasive crop insects, weeds, and

diseases are particularly elusive in

this age of extensive international

trade. Of recent concern are Karnal

bunt wheat fungus, the glassywinged sharpshooter that transmits

Pierce’s disease to grapes, plum pox,

citrus canker, Mediterranean and

Mexican fruit flies, and leafy spurge

on grazing land. Each of these invasions has consequences for acreage,

yield, prices, trade flows, and 

costs of government compensation

programs. 

The scientific and regulatory

infrastructure are essential to ensure

the prevention or exclusion of invasive pests and diseases, early detection of pests and diseases that have

entered, and rapid control or eradication measures for pests and diseases that have become established.

International cooperation must also

be heightened to control or prevent

the spread of invasive pests and

globally spreading diseases. New

bio-science and information technologies must be enlisted to increase

the efficiency and cost-effectiveness

of these programs.

IV. Enhancing the

Infrastructure

Food and Agricultural Policy 61
Federal and State Governments

have a major role in preventing and

controlling invasive crop pests and

diseases, and Federal and State agencies work closely to support research

and technical assistance. A number

of Federal laws govern policies and

actions. The Plant Protection Act,

passed by Congress in 2000, provides one clear statute for plant

health activities, from regulating

imports to certifying exports, and

includes emergency authority to deal

with plant pest and disease outbreaks. It provides a model for the

type of modernized, flexible authorities that are needed in the animal

disease area as well.

Plant pest and disease issues also

call for innovative approaches to

industry, government, and university collaboration. One such

approach pertains to Pierce’s disease,

fatal to grapes, for which there is no

effective treatment. Pierce’s disease

poses an increasingly serious threat

to the table, wine, and raisin grape

industries, but an impressive

research and education effort is

underway in California, enlisting the

California Department of Food and

Agriculture, the University of

California, USDA, and industry

groups. The Pierce’s Disease Control

Program relies on a task force which,

through its research subcommittee,

coordinates research priorities, raises

research funds, and fosters collaborations among researchers on both

understanding and treating the disease and controlling its insect hosts.

Despite good models and spectacular successes in defending

America’s borders from invasive

pests, we must maintain vigilance in

surveillance systems.

Livestock Pests and Diseases

The outbreak of foot-and-mouth

disease (FMD) in Europe drove

home the global nature of livestock

disease. In addition to strengthening

border controls, USDA has sent

dozens of veterinarians to Europe to

study and help contain the disease.

While FMD is not a human health

risk, it is difficult to overstate its

potential harm to the U.S. livestock

sector should an outbreak occur after

a 72-year absence.

The emergence in Europe of

Bovine Spongiform Encephalopathy,

or BSE, has disrupted markets in the

European Union. Although there

have been no U.S. cases, BSE has

become the business of government

science and regulatory systems. The

agricultural research system is working hard to determine the nature and

transmission of BSE and to improve

IV. Enhancing the

Infrastructure

62 Food and Agricultural Policy
detection and diagnostic tools. Early

detection is essential, not only to

eradicate a disease disastrous for the

animals afflicted and ruinous to their

producers, but also to prevent hazardous products from entering the

food chain. Thus, our research on

BSE benefits both animal health and

food safety.

FMD and BSE, while much in the

news, are not the only or even

biggest threats to U.S. livestock production and exports. Other potentially costly livestock diseases

include Newcastle’s disease (avian),

cattle tick fever, and hog cholera. To

guard against animal disease outbreaks, we must invest in new tests,

devise new diagnostics and systems

of detection, and better ascertain

pathways of disease transmission.

Projects that modernize animal

health diagnostic, surveillance, and

research facilities must be prioritized

and, if crucial, receive adequate

funding and construction authority.

Further investigation is needed of

methods that prevent rather than

merely detect and contain animal

pest problems, animal disease, and

animals acting as carriers of human

pathogens. Among those approaches

warranting closer examination are

good animal husbandry to improve

the health and sanitary conditions of

animals, and the use of vaccination,

antibiotics, or other medicines.

Hazard Analysis and Critical Control

Points (HACCP) might also assume

a stronger role to control disease at

major checkpoints and pathways.

The international nature of animal

disease—including more than 50

diseases not known to exist in the

United States—clearly calls for vigilance in border protection and quarantine systems. An integrated,

cooperative approach to addressing

emerging animal disease issues

worldwide is needed. This means

working with other countries to use

sound science and to recognize economics as the basis for prioritizing

emerging disease issues, identifying

disease pathways, monitoring disease outbreaks, harmonizing inspections and regulations at ports before

diseases break out, and evaluating

economic and trade implications of

alternative approaches to animal disease management in a global context. The ongoing activities of the

Codex Alimentarius Commission

and the International Office of

Epizootics are good models for concerted effort.

IV. Enhancing the

Infrastructure

Food and Agricultural Policy 63
Ensuring Food Safety

The past decade has seen many

efforts by the Federal Government,

State partners, and the private sector

to promote safer food—implementation of HACCP inspection systems

for meat, poultry, seafood, and

juices; public and private partnerships to improve food safety education and knowledge among

consumers; increased efforts to promote good manufacturing practices

for fresh produce; and increased

monitoring of the safety of imported

foods. HACCP is clearly working,

reducing the incidence of Salmonella

on raw meat and poultry—by as

much as half on raw chicken. Federal

agencies are coordinating to increase

basic research on food safety, and to

intensify surveillance of foodborne

illness outbreaks. Improved animal

production systems, better pathogen

control during processing and distribution, and increased education on

food safety issues and on food handling and preparation practices for

consumers and food retailers all help

to strengthen the food safety system.

Nonetheless, America’s familiarity with health risks from foodborne

microbial hazards has increased in

recent years. Widely publicized outbreaks of foodborne illness—traceable to such sources as E. coli

O157:H7 in hamburger, Listeria monocytogenes in hot dogs, and Salmonella

in poultry and eggs—have raised

the public’s concerns about risks

from microbial pathogens in food.

Although preliminary evidence suggests the number of illnesses caused

by some pathogens (notably

Salmonella) may be decreasing, food

safety systems are confronting an

array of emerging pathogens such as

Cyclospora, Cryptosporidium, and new

strains of Salmonella. Emerging

pathogens mean that food safety and

animal health systems to protect the

food supply must be continually

reassessed and updated. New science is needed to ensure that any

new regulations are sound, and

alternatives warrant scrutiny, as

well, for their cost-effectiveness.

Continued basic research is

needed to evaluate the incidence of

current and emerging hazards, identify and quantify the chronic compliIV. Enhancing the

Infrastructure

64 Food and Agricultural Policy
cations that these acute foodborne

illnesses can cause, and identify

which foods are causing the illnesses. Over two-thirds of foodborne

disease-related deaths are caused by

pathogens of unknown origin, or by

human exposure through unknown

food sources. Better understanding

of the basic science of food safety is

therefore needed to help design

appropriate interventions and to set

priorities for further risk reduction. 

Proper design and implementation of new food safety policies must

be based on the best available science. This is especially important in

an international context. Risk assessment and risk management

approaches to define appropriate

interventions to prevent contamination require state-of-the-art science

to ensure that our risk reduction

efforts are both effective and costefficient.

While the objective of food safety

policy remains safeguarding public

health, we can never completely

eliminate foodborne health risks.

Resources devoted to improving

food safety are not unlimited and

must compete with other pressing

public health needs. More effort is

needed to rank the relative foodsafety risks from multiple sources,

including microbial, chemical, and

other food- and water-related hazards. Science-based risk assessments

can help set priorities for further risk

reductions. Economic analysis of the

benefits and costs of risk reduction

can enable the maximum net benefit

to society while minimizing the regulatory burden on the private sector.

Where possible, Federal policies

and programs must be coordinated

and integrated to reduce duplication

of effort, regulatory burden, and program cost. This is especially important in food safety, where regulatory

responsibility is divided among several Federal agencies (USDA, FDA,

EPA) and where many actors play a

role in research, development, and

implementation of food safety policies. The Federal Government

already facilitates this coordination

through such structures as the

President’s Food Safety Council, the

Joint Institute for Food Safety

Research, and the Joint Institute for

Food Safety and Nutrition. Close

coordination across agencies must

continue.

IV. Enhancing the

Infrastructure

Food and Agricultural Policy 65
More attention needs to be given

to identifying appropriate roles for

government, industry, and consumers. Where, when, and how to

intervene in private markets to promote social goals such as improved

food safety are crucial decisions.

Simply put, we cannot just regulate

our way out of problems. Private

firms, responding to consumer

demands for safe food, can voluntarily adopt management procedures to

control pathogens all along the food

chain, exert control at a key stage, or

invest in research and development

for new equipment or management

systems. Dissemination of publicly

funded research results to private

stakeholders and partners hastens

the diffusion of new food safety technologies (such as rapid tests for

microbial contamination). 

Policies that promote innovations

in new technologies and food production systems can help minimize

the regulatory burden of food safety

regulations. Public education has a

key role, too. While the public cannot be expected to become food

safety experts, they should understand the basic issues and food

safety rules. Public information campaigns can play an important role in

educating foodservice workers and

consumers about safe food handling.

In several States, quality assurance plans illustrate government,

industry, scientists, and consumers

coming together to develop voluntary agreements on guidelines for

safe food production and sound

environmental practices. In

California, plans were developed for

strawberries, eggs, produce, and

dairy—without additional government regulation.

IV. Enhancing the

Infrastructure

66 Food and Agricultural Policy
Building the

Knowledge Base

Every aspect of the infrastructure

and the food system it supports is

fed, fundamentally, with new knowledge, through research and development, data collection, and

information dissemination.

Scientific Research and

Development

Investments in agricultural

research and technology development (R&D) have driven remarkable

rates of agricultural productivity

over the last 50 years. U.S. agricultural productivity has outdistanced

most other industrial sectors of the

economy, with an estimated 40- to

60-percent return on public sector

investment. We must now ensure

that the research infrastructure is

appropriately oriented to confront

new challenges to the food system

with equal success. Determining

how public agricultural research fulfills its longstanding role as producer

of knowledge for the public good

requires more complex and strategic

decisionmaking than just a decade

ago. The science base also depends

increasingly on the effectiveness

with which public, private, and university partners collaborate, creating

synergies and mutual benefits by

combining the relative strengths and

interests of each.

Since the mid-1980s, the level of

public funding for agricultural R&D

has leveled off in real (inflationadjusted) terms (figure 17). This

trend calls out for a review in light of

the changing conditions and emerging problems that have pressing

needs for new and improved knowledge—areas including environmental quality, food safety, diets and

health, and pest and disease management. Any review should consider other government funding for

health and environmental research

that also supports agriculture. The

potential for accomplishing public

research goals has never been greater

because of developments in

genomics and gene mapping, computational and information technologies, and better understanding of

environmental systems. But misplaced priorities may undermine this

potential.

It is also important to note changing incentives for private sector

research and what they imply for the

public sector role and for publicIV. Enhancing the

Infrastructure

Food and Agricultural Policy 67

Figure 17

Agricultural Research Funding in the Public and Private Sectors

Billion 1998 dollars

5

2

4

1

3

0

1970 1975 1980 1985 1990 1995

Year

Private

Public

Public numbers based on USDA Current Research Information System, 

Inventory of Agricultural Research, various years. 
private partnerships. In contrast to

the leveling-off in public R&D funding, research expenditures by the

private food and agricultural industry tripled in real terms between 1960

and 1996, from about $1.3 billion to

$4 billion. This trend follows from

the expansion of laws providing

intellectual property protections,

which enhanced the ability of private firms to profit from agricultural

research. At the same time, advances

in biotechnology—for example, fast

and accurate “DNA fingerprinting”

to identify patented DNA

sequences—have strengthened companies’ ability to protect their intellectual property. In the last 10 years

especially, the rate of patent application and patent granting for biological inventions has exploded,

particularly for genetically engineered plants and animals as well as

for individual genes with specific

uses or “utilities.”

The expansion of private research

incentives allows public research to

refocus on areas of benefit to society

that in and of themselves are

unlikely to be a focus for private

endeavors. These needs include fundamental science and applied work

in environmental quality (such as

managing livestock waste, enhancing water quality, and mitigating soil

degradation), food safety, plant and

animal disease, and nutrition and

health. These orientations are especially needed to support the new

challenges to the regulatory systems

of USDA and other Federal environmental, health, and safety agencies.

Carving out distinctly public sector research for the public good is

now difficult because some knowledge or biological tools necessary to

the task are increasingly patented by

private firms. Public sector and university projects are often complicated by the need for researchers to

negotiate licensing agreements with

private firms. Such situations can be

mitigated through new and creative

institutional arrangements. The

IV. Enhancing the

Infrastructure

68 Food and Agricultural Policy

The successful use of buffers to

protect environmental quality is

based on an extensive history of

research and cooperation between

scientists and farmers. Buffers

restore land closest to streams,

rivers, and other vulnerable waterways with plantings of native vegetation. These natural buffers

protect stream water by capturing

much of the sediment, nitrogen,

phosphorus, and other agricultural

chemicals borne in runoff or

ground water. As a result of

research at USDA’s Agricultural

Research Service (ARS) and other

institutions, the National

Conservation Buffer Initiative program was established by the

Natural Resources Conservation

Service in 1997. The National

Conservation Buffer Team has representatives from Federal and State

Governments, farming groups,

environmental groups, and

industry.

ARS research continues to seek

ways for farmers to maximize the

returns from the investment in

buffers, whether grass hedges, filter strips, or forest buffers. Such

research includes determining the

best grasses for use in grass

hedges, measuring sediment loss

and buffer use under different

tillage systems, and helping farmers adapt buffer conservation

strategies to their regions’ specific

soils, climate, topography, and

hydrological patterns. Scientists

can even simulate the movement

of water, nutrients, sediment, and

carbon in runoff or ground water

passing through a buffer, using

software called REMM—Riparian

Ecosystem Management Model.

Environmental Quality Research
focus of any new form of collaboration, however, must increasingly

facilitate cooperative research projects with multiple, complementary

outcomes for public and private

participants.

Strengthening research partnerships also requires ongoing review

of the research portfolio in terms of

the complement of funding vehicles

to support extramural (primarily

university) research. Universities in

the land-grant system have also historically provided the State-based

partnership for the Federal agricultural research effort because of their

connections to State and local issues

and constituent needs, and their provision of a geographic base for disseminating research findings to

States’ farmers, communities, households, and consumers.

A balanced portfolio for supporting university research, including

competitive grants and formula

funds, sustains the dual university

role: conducting much-needed basic

research to support the agricultural

and food system and partnering

with Federal scientists. Competitive

grants, which have been much

slower to emerge in food and agriculture than in other areas of science

such as medicine, should increase,

but without sacrificing the partnership support that formula funds provide. Whereas formula funds

encourage recipient institutions to

undertake major mission-oriented

applied research and relieve scientists of the burden of seeking grants,

competitive grants are the best

means USDA now has to expand the

pool of topnotch scientists conducting basic research relevant to the

agricultural and food system. Our

failure to fully exploit opportunities

through competitive grants—used

widely throughout the rest of the science community—jeopardizes our

continuing ability to bring the best

and newest science to meet agriculture’s challenges and advance its

future.

Data and Information

Needs

Associated with, but distinct from

scientific R&D, is the continued need

for public sector provision of objective, consistent data and information

to level the basis for decisionmaking

among participants in the food and

agricultural system.

The Department of Agriculture

spends about $550 million each fiscal

year on statistical programs, half of

which represents the costs of direct

data collection. The Natural

Resources Conservation Service

(soil, snow, and watershed surveys)

and the National Agricultural

Statistics Service (crop and farm surveys) collect most USDA data. Over

and above the $550 million inventoried in major statistical programs,

the Agricultural Marketing Service is

involved in collecting market data.

The Grain Inspection, Packers and

Stockyards Administration also collects data to investigate allegations

of potential violations of the Packers

and Stockyards Act of 1921 in the

livestock, meatpacking, and poultry

industries and, on a more limited

IV. Enhancing the

Infrastructure

Food and Agricultural Policy 69
basis, to assess structural change in

these industries. It is important to

ensure that these historical programs

are aligned with future data and

information needs.

Structural changes in the food system suggest that new and different

types and sources of data may be

needed. For example, as less and less

data on livestock prices were

obtained through the “spot” market

(because of the prevalence of contracting), there was a move to

mandatory livestock price reporting.

Mandatory reporting calls for a large

quantity of meat product retail

prices, data that are not currently

collected by USDA or any other

Federal agency.

Concentration and vertical integration in other agricultural sectors

raises questions about the utility and

validity of traditional spot-market

price data, and may make it increasingly difficult to collect adequate

information on such variables as

production costs and farm income.

There is a growing need to collect

data and conduct research and

analysis that will help market

participants adjust to market

changes and to contribute to more

informed public policy deliberations

relating to structural change. This

will require knowing more about

supply chain linkages. However, less

public information is available about

increasingly private market transactions. This dilemma may suggest the

need for new authorities for data collection and research to identify

appropriate government roles for

monitoring and oversight.

Finally, as the nature of government services adapts to accommodate changes in the food and

agricultural system, the standards

for previously collected information

may be inadequate for future decisionmaking. This could be the case,

especially, in using “representative”

or aggregate information when

examining policies that need to be

tailored to different types of producers or environmentally specific characteristics. Data linking

environmental and natural resource

quality to information on farm practices are becoming especially critical,

though such data remain scarce.

IV. Enhancing the

Infrastructure

70 Food and Agricultural Policy

Innovative investment strategies

will be necessary to assure adequate and timely response to

needed changes in the infrastructure undergirding a rapidly

evolving food and agricultural

system. One possibility would

be the creation of an

“Agriculture Infrastructure

Investment Fund,” which could

be empowered to accept contributions from other governmental and private sources to

projects of mutual interest. The

Fund could also be empowered

to retain receipts gained from the

disposition of unneeded property in order to finance future

infrastructure investments.

An Agriculture

Infrastructure

Investment Fund
Principles for

Infrastructure Policy

• Focus on a broader infrastructure. Provide a longer term view

of the requirements for a healthy

and prosperous farm and food

system to ensure that it continues

to enjoy widespread consumer

confidence and support. This

entails refocusing institutions and

continuing judicious investment

for the entire system, including

refurbishing and modernizing the

infrastructure that underpins the

farm, food, and trading system.

• Recognize our new operating

environment. Our farm sector

and food system operate today in

a new and evolving business and

social environment. It is a competitive, consumer-driven environment, global and rapidly

changing with enormous implications for the place and role of the

farm sector in the overall food

system. It is highly interdependent, blending the efforts of many

industries to add value to farm

sector products.

• Enhance pest and disease prevention for plants and animals.

From farmers to consumers, our

food system depends on strong

pest and disease prevention and

eradication programs. 

• Build on current success in providing safe food for all

Americans. Emerging pathogens

mean that our food safety systems

must be continually assessed and

updated in order to maintain consumer confidence in our food supply.

• Anticipate future infrastructure

needs. Building new and different

capacities for accomplishing priorities requires a long-term view

with a process for anticipating

change. 

• Base decisions on science.

Regardless of good intentions, no

authorized program, no mandate,

no request or emergency need can

be carried out unless the appropriate research base, scientists,

laboratories, methods, data and

information, institutions, and

technologies are available. New

science is needed to ensure that

any new regulations, in food

safety, animal and plant health,

environment, or other areas, are

sound and cost-effective. 

• Capitalize on the unique public

sector role in agricultural

research and extension. The private sector is playing an everlarger role in agricultural research

and information provision.

Limited public sector research

funding thus needs to be devoted

to fundamental scientific discovery

and questions that the private sector has no incentive to pursue, but

that could lead to the betterment of

society. 

• Recognize the importance of

competition in the market for

research. Maintaining competitive

research funding increases the

likelihood that the best minds of

the country will be applying

themselves to important public

sector research issues.

• Recognize the importance of collaboration. Collaborations involving public agencies, private

companies, universities, and consumers are an important means

for meeting the interests of various groups while advancing the

public good.

IV. Enhancing the

Infrastructure

Food and Agricultural Policy 71
Farmers, ranchers, and private

forest landowners own and

manage two-thirds of the

Nation’s land and are the primary

stewards of our soil, air, and water.

While the cost of stewardship on

that land is borne by land managers,

the benefits serve society at large.

Meeting society’s demands for

improved environmental quality

requires that we broaden our definition of “output” to include environmental amenities—such as rural

landscape amenities, wildlife habitat, wetlands, and improved water

and air quality—along with food,

fiber, and timber production.

Conservation programs have been

part of farm policy since the 1930s.

Historically, those programs focused

largely on maintaining the productivity of food-producing natural

resources. Today, environmental

concerns extend well beyond the

farmgate and have become key considerations in policy formulation.

Right Track, New

Directions

Conservation programs can help

reduce the gap between the level of

environmental quality the public

demands and the level of environmental quality that farmers and forest landowners would otherwise

provide. Because environmental

amenities typically are not sold on a

market, managers of farm and forest

land have limited marketplace incentives for providing them. Conservation programs can provide that

incentive and compensate land managers for the amenities they produce.

Conservation policy evolved from

a primary focus on keeping productive topsoil in place. With images of

the Dust Bowl seared in the collective mindset, reducing wind- and

waterborne soil erosion became an

overriding concern, and a primary

accomplishment. Soil losses have

declined dramatically in response to

conservation policies, and productiv72 Food and Agricultural Policy

V. Conservation

and the

Environment

With images of the Dust

Bowl seared in the collective

mindset, reducing windand waterborne soil erosion

became an overriding

concern, and a primary

accomplishment. Soil losses

have declined dramatically in

response to conservation

policies, and productivity

gains have been equally

dramatic, thanks to

technological advances.
ity gains have been equally dramatic, thanks to technological

advances. We now realize that the

off-farm costs of soil erosion far

exceed on-farm costs, and that offfarm costs of agricultural production

extend beyond those associated primarily with soil erosion.

As the scope of environmental

concerns has expanded, a wider

range of conservation policy instruments are now needed to address

them. Traditional land retirement

(the Conservation Reserve Program)

has dominated Federal spending on

conservation since 1985; 92 cents of

every dollar now spent on direct

conservation payments to farmers

pays for rental and easement payments for idling environmentally

sensitive cropland and cost sharing

for management practices that

enhance the environmental benefits

from retired lands. But direct outlays

for conservation are only part of the

picture. While land retirement programs involve less than 10 percent of

total cropland, considerable conservation activities are carried out on

vast stretches of working lands, both

voluntarily and to comply with regulatory requirements.

Nevertheless, the current imbalance favoring land retirement suggests an untapped potential for

achieving cost-effective environmental benefits from conservation spending on working lands. Further, many

emerging agri-environmental problems can be addressed only by

changing management practices on

working land. In particular, reducing

nutrient runoff from fertilizer and

animal waste may require widespread changes in the management

of nutrients, as well as strategically

placed conservation buffers.

Similarly, improved private forest

management practices can better

protect watersheds, provide

improved habitat for threatened and

endangered species, and guard

against non-native invasive species.

The changes in agriculture also

provide new perspectives.

Increasingly diverse farms—ruralresidence farms, intermediate farms,

and commercial farms, including

those farms that have not been

served by traditional agricultural

programs—all play a role in conservation efforts. Most farms are small

(intermediate or rural residence),

and small farms continue to control

the majority of farmland (figure 5,

page 23). These farms account for

nearly 85 percent of all land retired

for conservation purposes, and conservation programs are an important

income source for them (figure 18).

The success of new conservation

V. Conservation

and the

Environment

Food and Agricultural Policy 73

Figure 18

Rural-Residence Farms Get Most of the Payments From

the Conservation Reserve Program, But a Small Portion

of Other Farm Program Payments

Rural-Residence Farms Intermediate Farms Commercial Farms

CRP payments by farm type

CRP payments totaled 

$1.5 billion in 1999

Commodity program and disaster 

payments by farm type

Commodity and disaster payments totaled 

$14.4 billion in 1999
tools will depend on ensuring that

intermediate and rural-residence

farms and nonindustrial private

forest landowners will have continued access to them.

Some environmental problems are

associated primarily with large, commercial farms. For example, confined

animal operations are getting larger

and more concentrated and contribute disproportionately to

nutrient-based water quality problems; just 5 percent of farms with

confined livestock account for more

than 60 percent of the excess nitrogen and phosphorus from manure

produced nationwide. These structural changes suggest a changing

and varied relationship between

farming and the environment, with

implications for policy design.

Programs Score

Environmental Gains

Since 1985, significant gains have

been made in addressing major environmental concerns (see box, page

75). In response to conservation programs and requirements, soil erosion

has declined (figure 19), wetlands

losses have declined (figure 20), and

other wetlands have been restored.

As a result, water quality has

improved, and fish and wildlife

populations are improved.

V. Conservation

and the

Environment

74 Food and Agricultural Policy

Figure 19

The Decline in Soil Erosion Is Widespread

Change in average annual soil erosion by wind and water on cropland and 

CRP land 1982-1997 

Decrease > 4

Decrease 2 to 4

Decrease 0.5 to 2

Little Change

Increase > 0.5

Tons/acre/year
V. Conservation

and the

Environment

Food and Agricultural Policy 75

• Soil erosion on cropland and

pasture declined by 1.2 billion

tons (40 percent) from 1982 to

1997, and those gains are spread

widely across all major farming

regions (figure 19). The benefits

of erosion reduction due to conservation compliance and the

Conservation Reserve Program

(CRP) are estimated to exceed

$2 billion per year.

• Wetland losses from agriculture

were down to 27,000 acres per

year in 1992-97, from 593,000

acres per year during 1954-74

(figure 20). The swampbuster

requirements are effective in

discouraging conversion of as

much as 3.3 million acres of

agricultural wetlands.

• Agriculture has become a major

engine of wetland restoration.

More than 990,000 acres of

wetlands have been restored

through the Wetlands Reserve

Program (WRP) since 1991.

• Wildlife habitat has been

restored and improved. The

hunting and recreation benefits

associated with the CRP are

estimated at over $700 million

per year.

• Land retirement and other

conservation programs are

increasing the amount of carbon

sequestered in the soil and

mitigating greenhouse gas

buildup.

Environmental Gains From 

Major Conservation Programs

Figure 20 

Annual Wetland Losses From Agriculture Slowed

Dramatically Through 1982, and Continue To Decline

1954-74

-100,000

0

Change in Wetland

Acres/year

-200,000

-300,000

-400,000

-500,000

-600,000

-700,000

-800,000

1974-82 1982-92 1992-97

Agriculture

Urban and Other
Emerging

Environmental

Challenges

Building on past environmental

gains will require renewed effort.

Although soil erosion has declined

by 40 percent over the past 15 years,

farms are still losing 1.9 billion tons

of soil every year, which impairs

water quality and fish habitat,

reduces water storage capacity in

reservoirs, imposes costs on municipal and industrial water users, and

reduces future soil productivity. The

Wetlands Reserve Program (WRP) is

an important tool for reducing the

Nation’s net loss of wetlands.

Without conservation compliance,

soil erosion and wetland losses

would both increase because,

depending on crop prices, farmers

could find it profitable to farm up to

nearly 15 million acres of the highly

erodible lands and wetlands that are

currently protected by sodbuster and

swampbuster provisions.

The array of conservation issues

has grown with changes in the structure of agriculture and in farm and

forest management practices, and

with greater public concern about a

V. Conservation

and the

Environment

76 Food and Agricultural Policy

Nationwide, agriculture accounts

for nearly 80 percent of all water

consumption. That figure is even

higher west of the Mississippi.

Three-quarters of all cropland in

the Western United States is irrigated. The 16 percent of harvested

cropland that is irrigated accounts

for nearly half of the value of all

crops sold. Nationwide, nearly 100

percent of all orchard sales and

more than 80 percent of the sales of

vegetables and potatoes are produced on irrigated cropland.

Increasingly, in all regions of the

country, demand for water is growing faster than supply. Increasing

demands—for urban, environmental, and Native American uses and

for the production of hydroelectric

power—and declining supplies—

arising in part from land use

changes including urbanization,

deforestation, and fewer

wetlands—create conflicts over

water allocations. Conflicts arising

over scarce water supplies in river

basins throughout the West may

foreshadow emerging conflicts in

Eastern States. Because it accounts

for such a large percentage of total

water use, agriculture is uniquely

positioned to be a part of the

solution. 

Incentives and technical support

for improved on-farm water management encourage farmers to do

more with less and provide some

regulatory and drought relief for

farmers who have to cut back.

Conservation programs can also

play an important role in helping to

solve water management issues on

the watershed scale. Voluntary conservation programs and risk management programs could be

parlayed, in conjunction with other

Tribal, State, and Federal agencies,

to develop market-based water

banks to help mitigate the high cost

to all water users of droughtinduced water supply reductions.

Water banks could consist of producers who would voluntarily idle

production on irrigated lands in

drought years in return for payment. Such a program would minimize the cost of disruptions

associated with droughts while

keeping resources (water, land, and

labor) in production in nondrought years. Encouraging development of more on-farm water

storage facilities (such as reservoirs

and storm water ponds) can help

alleviate local shortages. 

Emerging Challenge

Water and Agriculture: Inextricably Linked
wider range of issues. These issues

include: diminishing open space;

nutrient management; pesticide use

and runoff; greenhouse gas emissions and carbon sequestration;

water conservation and flood mitigation; air quality; energy production

and conservation; non-nutrient animal waste concerns, such as waterborne pathogens and antibioticresistant bacteria; and lack of access

to natural forestland (see boxes).

Progress has already been made in

each of these areas, but more can be

done.

Two particularly timely issues—

energy efficiency in agriculture and

conflicts over irrigation water supplies—can be addressed to some

extent by conservation efforts. Given

appropriate economic incentives,

much of the vast landscape managed

by farmers and forest landowners

could be managed to store additional

carbon or to produce biomass and

biofuels to replace fossil fuels, and

onfarm energy use can be reduced.

Similarly, improved management of

irrigation water and innovative

approaches to addressing shortages

can help mitigate, and possibly

avoid, conflicts over increasingly

scarce water resources.

V. Conservation

and the

Environment

Food and Agricultural Policy 77

The recent increases in energy

prices faced by producers throughout the country emphasize the need

to find new ways to improve the

energy efficiency of U.S. agriculture. While agricultural production

accounts for about 1 percent of the

Nation’s annual Gross Domestic

Product, it accounts for some 2 percent of total energy consumed in

the United States, in both direct

form, such as diesel fuel, and indirect forms, such as fertilizers.

Adoption of energy-saving equipment, the shift to diesel power, and

conservation practices such as conservation tillage have resulted in

significant improvements in the

energy efficiency of agriculture

during the past several decades. 

In the future, the challenge will

be to improve energy efficiency in

ways that maintain the productive

capacity of farms while benefiting

the environment. One avenue is the

adoption of advanced farming

practices, such as precision farming, which can optimize the use of

equipment, chemicals, and fertilizers, lowering production costs and

reducing chemical and fertilizer

runoff. Development of more efficient machinery and new seed varieties can improve energy efficiency.

Air quality concerns, increased

oil imports, imbalances in U.S.

energy supply and demand, and

new opportunities for farmers have

combined to intensify interest in

the production of renewable

energy. Crops, crop residues, and

forest residues could be converted

to various forms of energy. Farms

could be sites for wind and geothermal power production where

conditions are favorable. Products

from livestock and poultry operations, including animal fats,

manure, and methane, could be

harnessed to produce various

forms of energy. 

While bioenergy and bioproducts can improve air quality and

reduce greenhouse gas emissions

compared with the use of fossil

fuels, the challenge is to overcome

the barriers to economic feasibility

and ensure that the production of

energy raw materials is environmentally beneficial at the farm

level.

Emerging Challenge

Energy: Agriculture as User and Supplier
V. Conservation

and the

Environment

78 Food and Agricultural Policy

While significant uncertainties

remain over the timing and extent

of future changes in climate, there

is good evidence that warming is

occurring and that it is due in

large part to human activity. Over

the next 100 years, the implications of these changes for U.S.

agriculture are potentially significant. Agricultural systems are vulnerable to changes in growing

season, precipitation, and water

availability. Some of these effects

are likely to benefit agricultural

productivity. Higher concentrations of carbon dioxide in the

atmosphere will likely result in

higher photosynthesis rates and

potentially increase yields. While

overall changes in climate are not

expected to imperil the ability of

the United States to feed its population and to export foodstuffs,

impacts within U.S. regions are

expected to vary widely.

Agricultural activities contribute

about 9 percent of overall U.S.

greenhouse gas emissions.

Emissions are caused by activities

such as the use of nitrogen fertilizers, animal waste management,

and onfarm fuel use. Tillage practices can turn agricultural soils into

a source or a sink of carbon. During

the first half of the last century, carbon in Corn Belt soils declined by

almost 50 percent, but subsequent

adoption of reduced tillage and

reversion of marginal lands from

agriculture to native vegetation

began to improve soil carbon levels. Today, agricultural soils are offsetting almost 2 percent of U.S.

greenhouse gas emissions.

The challenge is to identify and

implement low-cost opportunities

to reduce emissions from agricultural sources and increase carbon

storage in soils. Many of these

actions provide broader conservation and environmental benefits.

Increasing the organic content of

soils can improve the soils’ waterholding capacity, reduce erosion,

and improve fertility. Improving

animal waste handling techniques

can reduce water and air pollution

as well as lowering emissions of

methane, a potent greenhouse gas.

Opportunities exist to improve the

management of the Nation’s forests

for carbon sequestration and bioenergy. U.S. forests are sequestering a

significant quantity of carbon each

year, equivalent to roughly 15 percent of overall U.S. emissions.

Realizing these opportunities

will take a number of efforts,

including an adequate system for

measuring the carbon storage and

greenhouse gas emissions from

agriculture and forests. In addition

to building carbon storage and

reductions in greenhouse gas emissions into conservation programs,

other potentially useful efforts

include improving technical assistance given to farmers, disseminating information on the nature of

potential changes in climate, identifying potential vulnerabilities and

adaptation strategies for agriculture, and devising techniques and

practices that can offset greenhouse

gas emissions.

Emerging Challenge

Climate Change and Agriculture: Risks and Opportunities
V. Conservation

and the

Environment

Food and Agricultural Policy 79

High-quality soils can help ensure

efficient and sustained agricultural productivity, mitigate

adverse effects of drought and

flooding, and promote clean

water by buffering against pollutants such as excess nutrients and

pesticides. High-quality soils

resist degradation when beset by

natural disasters such as flooding

and drought, quickly recovering

their beneficial functions. They

respond efficiently and quickly to

agronomic and energy inputs,

achieve maximum yields with

improved crop varieties, and

require less energy to work and

manage. More than 129 million

acres of U.S. cropland, about 34

percent of total U.S. cropland as of

1997, are in need of improved soil

quality.

While excess erosion has been

reduced, in part through conservation assistance, persistent and new

soil resource concerns require new

conservation efforts. The biological,

chemical, and physical processes

that occur in soils are important

drivers of agriculture’s productivity. These processes cannot be simply bypassed with other inputs.

Soil degradation is not just the loss

of soil through soil erosion.

Processes can be interrupted even

while the soil stays in place, as

through compaction, crusting,

salinization, or loss of organic matter. 

The challenge is to develop

strategies to maintain the Nation’s

soils as a means to achieve multiple

benefits, including reduced runoff

and erosion, increased carbon

sequestration, and improved productivity and sustainability.

Emerging Challenge

Soil: Managing a National Strategic Asset

A healthy rural landscape provides

critical habitat, food, and safety to a

diversity of wildlife. About 80 percent of the wildlife species in the

West use agricultural land.

Improvements to the landscape—

including wetlands, grasslands,

flood plains, and certain types of

forests—can provide ecosystems to

help support wildlife and aquatic

species and provide benefits in the

form of recreation, hunting, and

other forms of agrotourism. Habitat

restoration can also help threatened

and endangered species recover.

Pursuing environmental quality

across a diverse landscape mosaic

will better safeguard wildlife populations and healthy ecosystems

than limiting conservation to small,

specialized, and isolated tracts.

Wildlife habitat restoration has

helped significantly in the past several years, and has yielded substantial benefits. Because wildlife

species move freely across both

public and private lands, new

approaches should cover both public and private lands, farm and

nonfarm lands, and will require

cooperation among agencies, multiple levels of government, and the

public.

Emerging Challenge

Wildlife: Broadening the Support System
A Portfolio of

Policy Tools

The greatest challenge in designing the next generation of conservation programs is to simultaneously

address multiple environmental

problems, support rural communities, make efficient use of Federal

funds, and comply with international trade agreements. The challenge is made more difficult by the

diversity in agricultural resources,

crops, and farm and forest types.

Conservation policy needs to balance competing concerns. Voluntary

measures must be weighed against

compulsory actions for improving

the environmental performance of

agriculture. The benefits and costs of

removing land from crop production

must be balanced with improved

conservation and environmental performance on land that remains in

production. A carefully designed

“portfolio” approach—employing

coordinated land retirement, stewardship incentives, conservation

compliance, and regulatory assistance, each where most

appropriate—can enhance agrienvironmental protection most efficiently. A third dimension will be

striking the appropriate balance

among the roles of Federal, State,

and local governments in implementing conservation programs.

Incentives for Stewardship on

Working Farmlands

The sheer vastness of land

remaining in production suggests

that substantial improvements in

water and air quality and wildlife

habitat may be possible only with

conserving activities on working

lands. Conservation incentive programs for working lands, in combination with technical assistance, are

also a means of reducing the regulatory burden on farmers faced with

air and water quality restrictions.

Two approaches, one existing and

one suggested, form the centerpiece

of public dialogue on conservation

incentive options for working farmland. Both approaches provide

incentives to encourage private land

and wildlife conservation. The existing program is the Environmental

Quality Incentives Program (EQIP),

V. Conservation

and the

Environment

80 Food and Agricultural Policy

Large and growing areas of U.S.

agriculture and forestry are influenced by proximity to urban areas

and spreading concentrations of

population brought about by urban

development and large-lot housing.

Development at the urban fringe, in

small towns and scattered across

the rural countryside, removes land

from agriculture and forest production and changes the nature of open

space. This development can

increase costs for infrastructure like

roads and sewers; increase traffic

congestion and energy used for

transportation; impose higher costs

on local communities for services;

heighten controversy about farming and forestry activities; increase

risk of wildfire in the wildlandurban interface; cause forest fragmentation; and erode the sense of

community in formerly rural areas.

Farms in metro areas are an

increasingly important segment of

agriculture, comprising one-third

of all farms, nearly one-fifth of

farmland, and one-third of the

value of U.S. agricultural output.

However, as farmers adapt to rising

land values and increasing contact

with new residents, new challenges

arise. Strategies to help metro-area

farmers adapt may include emphasizing new and higher value products, conserving resources, and

using marketing techniques for a

more urban environment. Wildfire

protection and preventative action

are most needed in the urban wildland interface—often located in

municipal watersheds—to protect

homes, lives, and property. A challenge is to coordinate effectively

with State and local governments

and communities.

Emerging Challenge

Managing the Urban/Rural Interface
created in 1996 to combine and refocus a number of longstanding conservation cost-share/incentive

payment programs.

By most measures, EQIP is a successful program. It is targeted; statutory language requires that the

program be implemented in a manner that maximizes the environmental benefits per dollar expended. To

achieve that goal, the environmental

concerns addressed by the program

vary across the country, reflecting

the high degree of regional diversity

in priorities, resource conditions,

and opportunities for conservation.

Practices associated with management of livestock waste obtain the

lion’s share of funds in the Northern,

Eastern, and Southern States, where

these issues are an overriding concern. In the western half of the

United States, where water is scarce,

the majority of funds are allocated to

improving water management practices. In the Midwest, a large share of

the funds are used to prevent soil

erosion.

EQIP is also in high demand by

farmers. Currently, EQIP has the

largest unmet demand of all conservation programs, with a backlog of

about 197,000 applications to

improve the environmental performance on 67 million acres of agricultural land. In comparison, current

enrollment levels include 80,000 contracts covering 34 million acres.

Expanded funding could help alleviate this backlog.

The new approach is a broader,

market-based incentive program for

providing payments to farmers who

use or adopt practices that enhance

the environment. It may be the best

option for compensating farmers for

the environmental amenities they

provide, as well as recognizing the

past efforts of “good actors” who

already practice enhanced stewardship. Each approach has unique features and several in common, and

use of both would require careful

coordination.

In addition, a number of smaller

initiatives or programs can be used

to promote specific activities or to

capitalize on unique opportunities to

address more specialized problems.

However, coordination among program efforts and levels of government is essential to ensure that they

are accessible to farmers and not

duplicative with other agencies.

Protection of farmland and preservation of open space, for example, are

currently being coordinated among

USDA and State and local governments through the Farmland

Protection Program.

Incentives for Land Retirement

Land retirement is generally a

long-term (10 years or more) dedication of land to a specific environmental or resource-conserving use. As

such, it is well suited for providing

environmental benefits that increase

with the length of time land is

removed from crop production. For

example, many wetland services

(wildlife habitat, filtering runoff, and

floodwater retention) and other

wildlife habitat arise only when the

ecosystem is fully established, a

process that may take years. By

removing land from crop production, these programs also affect comV. Conservation

and the

Environment

Food and Agricultural Policy 81
modity supply, whether intentionally or not. Land retirement can be

achieved using long-term contracts

or permanent or term-specific

easements.

The Conservation Reserve

Program (CRP) is the primary example of a land retirement program. In

effect since 1985, it provides annual

rental payments and cost-sharing for

establishing a permanent cover on

environmentally sensitive land.

Acres are selected through a competitive process. Use of an

Environmental Benefits Index to

select land parcels, beginning in 1991,

substantially increased environmental benefits relative to costs.

Currently, 34 million acres are

enrolled, just under the statutory

limit of 36 million acres.

Alternative enrollment programs,

which emphasize local environmental problems and partial-field enrollment, have the greatest untapped

potential for yielding benefits from

land retirement. For example, buffer

practices (riparian buffer and filter

strips) and other partial-field enrollments can be targeted. Buffers are

extremely effective in addressing

water quality problems from sediment, nutrients, and pesticides, with

50- to 90-percent removal efficiencies. By focusing funds on only that

portion of fields that can best provide environmental benefits, results

per program dollar increase, with

minimal land retirement.

Programs such as the

Conservation Reserve Enhancement

Program, that partner Federal, State,

tribal, and private organizations to

combat priority problems in water

quality, soil erosion, and wildlife

habitat, help leverage Federal funds

and further target local environmental priorities. These partnerships provide additional resources, greater

community buy-in, and improved

program implementation.

An alternative to long-term contracts for land retirement is purchasing permanent (or very long term)

easements, as is done in the

Wetlands Reserve Program. Similar

to the CRP, WRP focuses exclusively

on restoring wetlands that had been

converted to cropland. With slightly

more than 1 million acres enrolled in

WRP, the program is a strong tool for

mitigating the loss of wetlands.

Resources not previously eligible

for land retirement programs, such

as grasslands, could also be targeted.

The Nation’s grassland and pastureland declined by 23 million acres

from 1982 to 1997. Some of these

areas offer significant environmental

benefits to the public. If land retirement is carefully used, areas of

native prairie and improved biodiversity could be established. A new

grazing land reserve program could

provide a needed economic incentive

for many producers to conserve the

agricultural productive capacities of

grasslands while providing environmental benefits for the public. Local

nonprofit organizations and grassbanks are also improving land stewardship on public grazing lands.

Education and Technical

Assistance

Farmers and forest landowners

need information to facilitate the

adoption or use of more environmentally sound practices.

Educational and technical assistance

entail providing data on soil quality,

water quality, and wildlife habitat, as

well as disseminating information

on ways to use that data and how to

V. Conservation

and the

Environment

82 Food and Agricultural Policy
apply sustainable production techniques and new technologies. 

Demand for education and technical assistance could increase substantially as land managers grapple with

regulatory or program participation

requirements, such as the development of conservation or nutrient

management plans. Targeted Federal

programs may play a critical role in

helping to mitigate the costs of such

requirements. Both for-profit and

not-for-profit groups, including agricultural extension programs, may

satisfy a portion of that demand.

Training and certification programs

for extension agents and technical

consultants could help build that

capability and provide quality assurance. The role of State and local government partners must also be

encouraged.

Incentives for Stewardship on

Non-Federal Forests

The Nation’s capacity to produce

healthy, sustainable forest resources,

while maintaining favorable watershed and habitat conditions, increasingly depends on nonindustrial

private forests. Owners of these

lands control nearly 60 percent of the

Nation’s forests and supply nearly

half of its forest products, but fall far

short of their potential for producing

wood, other forest products, or environmental benefits.

A forest stewardship incentives

program could provide non-Federal

forest land managers with technical

assistance and financial help to

improve forest conditions and help

ensure that environmentally important forest tracts are conserved.

Education and technical assistance

will be an important component of

such a program. On small ownerships, a timber sale is an unusual

event in the owner’s life, and often is

a response to a personal situation,

such as retirement. The vast majority

of timber sales occur without the

benefit of professional advice and

with no plan for maintaining or

regenerating a sustainable forest on

the site following the harvest.

Landowners who receive technical

assistance are more likely to manage

their forests for timber, wildlife, and

water quality.

Also key to forest stewardship are

State/Federal partnerships providing economic incentives for

increased provision of environmental amenities, reduced fire hazards

and protection of rural communities

from wildfires, and improved

defense against invasive species.

V. Conservation

and the

Environment

Food and Agricultural Policy 83
As with farmlands and grasslands, in some cases, purchasing

conservation easements may be the

most efficient and effective means

for helping to address social goals

for maintaining forest landscapes,

reducing fragmentation, and slowing urban sprawl.

Farmer and Forester

Responsibility and Regulatory

Requirements

While incentive-based policies can

play an important role in encouraging improved environmental performance on farms and forests, land

managers also have a responsibility

to limit environmental damages

from their activities. 

Conservation compliance.

Compliance provisions, first introduced in the 1985 Food Security Act,

require certain resource conservation

activities for farmers to remain eligible for benefits from selected Federal

agricultural programs. Specifically,

farmers can lose program benefits if

they produce crops on highly erodible land without applying an

approved conservation system or if

they convert wetlands for agricultural production.

Compliance provisions redressed

a longstanding inconsistency

between price and income support

programs, which encouraged farmers to expand production (sometimes

on environmentally sensitive land),

and conservation programs that

sought to mitigate the adverse effects

of agricultural production. The need

for compliance requirements has not

been lessened by the changing

nature of farm price and income supports. Some environmentally sensitive land is still vulnerable to

conversion for crop production

because commodity and crop insurance programs can reduce the risk of

converting this land for crops.

Applying conservation compliance

requirements to crop insurance programs would help ensure that those

programs do not encourage farmers

to bring marginal land into

production.

Animal feeding operations. The

concentration of livestock production into fewer, larger confined animal feeding operations (CAFOs) has

raised public concern over the

impact of this trend on air and water

quality. Manure nutrients can run off

to surface water and/or leach into

ground water due to accumulation

in open and unpaved feedlots, storage in holding ponds and lagoons,

uncovered stockpiles, or when

excess manure and wastewater are

applied to land. 

Forthcoming Federal and State

regulations on animal waste will

increase the demand for educational,

technical, and financial assistance for

waste management practices, and for

development of alternative uses of

waste, new storage and management

technologies, and improved feed

management strategies. Demand for

technical assistance to produce farmlevel nutrient management plans

will also increase. Longer term

research needs include technological

advances in the treatment and storage of, and alternative uses for,

manure.

V. Conservation

and the

Environment

84 Food and Agricultural Policy
Total maximum daily loads. A

TMDL specifies the maximum

amount of a pollutant that a water

body can receive and still meet water

quality standards, and allocates pollutant loading among point and nonpoint sources. Across the country,

States have committed to developing

TMDLs for nearly 22,000 impaired

water bodies by 2015, under authority provided by the Clean Water Act.

Three leading pollutants identified

by States in their 1998 water quality

assessments were sediments, nutrients, and harmful micro-organisms.

Depending on the levels of pollutants found in impaired waters and

the designated uses of the waters,

some TMDLs will indicate that certain pollutants should be significantly reduced. Such reductions

could dramatically affect U.S. agriculture and the forest products

industry.

Endangered species. Farmers and

forest landowners whose lands

include habitat for species listed as

threatened or endangered under the

Federal Endangered Species Act may

find their activities restricted.

Attempts to protect the northern

spotted owl on public and private

forests throughout the Pacific

Northwest led to reduced timber

harvests, perhaps the most wellknown example of the impact of

such restrictions. Similarly, efforts to

protect threatened and endangered

fish species have led to reduced

access to irrigation water for farmers

in many Western States. Forest and

farmland stewardship programs and

safe harbor provisions can help land

managers implement the types of

conservation practices necessary to

avoid the need for such drastic

tradeoffs in the future.

Next Generation in

Conservation

Incentives

As we look to the next generation

of conservation programs, the current portfolio of land retirement and

stewardship incentives could be

retained. Or the array of current costshare and rental payment programs

could be augmented by, or even

replaced with, a single, comprehensive system of financial incentives,

supported by appropriate research

and technical and educational assistance. This new approach could be

developed using the market-based

tools that already have been proven

to work (see box, page 86). It could

be structured to encourage the production of environmental goods and

services in a more cost-effective way.

Actions that improve environmental

performance on working land could

even be considered side-by-side with

land retirement, eliminating the bias

in current conservation programs

toward idling productive farmland.

V. Conservation

and the

Environment

Food and Agricultural Policy 85

...Encourage the production

of environmental goods and

services in the most costeffective way.
V. Conservation

and the

Environment

86 Food and Agricultural Policy

Environmental performance—the

level of environmental gain per dollar of cost—is determined largely by

program design. Two mechanisms

have already been proven to work—

environmental targeting and competitive bids. Targeting environmental objectives through the use of a

comprehensive benefits index, and

minimizing costs through the use of

competitive bids, can increase overall efficiency and provide greater

environmental benefits.

Benefits index: A comprehensive

conservation benefits index could be

used to assess the relative value of

all proposed conservation and environmental projects. The index would

provide ratings for improvements in

a set of environmental, conservation,

and rural community elements, with

scores based on the expected benefits during the time of enrollment.

The scores would then be compared

with the proposed bids to determine

acceptability. By allowing all activities, including those proposed for

producing lands, to compete for conservation resources, the current bias

toward setting lands aside from production could be eliminated. The

index could capture such benefits as

wildlife, water quality, soil erosion,

soil quality, control of invasive

species, local and regional air quality, greenhouse gas reductions and

carbon sequestration, innovative

biomass energy and biobased feedstocks, rural/community enhancements, and State and regional

priorities.

Bid system: As part of each proposal, an owner/operator would

propose a payment per acre for

implementing a set of practices or

management systems. Competitive

bids would improve the effectiveness of efforts, given limited Federal

resources. The bid would reflect the

owner/operator’s costs and forgone

opportunities. For example, converting land from conventional tillage to

conservation tillage would have

lower opportunity costs than retiring the land, so it should generate a

lower bid. At the same time, conservation tillage would likely receive a

lower benefits score than land

retirement.

Contracts would be awarded to

owner/operators with the greatest

benefit index score relative to the

bid. All land in farm production or

enrolled in a land retirement program could be eligible, including

land devoted to animal agriculture

and to forests. Myriad conservation

and environmental practices and

activities could also be eligible, provided they can be objectively scored.

This bid system adopts and

enhances the bid process already

proven to increase benefits to the

CRP. However, it differs from CRP in

that it would accept practices on

lands that remain in production. A

separate program could be developed for range, pasture lands, and

forest lands.

In selecting contracts for enrollment, the duration of the contract

would be taken into account.

Producers could propose single-year

or multiyear activities, with priority

given to offers with multiyear benefits. This flexibility would allow land

owners to specify the contract length

that works best for them. Once

enrolled, compliance could be

enforced as under existing conservation programs.

Two key features suggest this program would be categorized as a

“green box” conservation program

for purposes of meeting WTO obligations. First, the payments to producers would be determined on a

bid basis. Competition in bids is

likely to result in payment rates

reflecting costs of implementing the

practices, a WTO requirement for

“green box” programs. Second, the

index would favor neither commodity production nor land retirement,

so the program should not be

viewed as production distorting.

This program could supplement

existing programs. Moving to a single, new comprehensive program

would require a multiyear phase-in

schedule to accommodate existing

contracts and the time required to

develop the new benefits index. But

careful coordination would be necessary to minimize landowner confusion and administrative burdens,

and to ensure that the programs

complement each other. Because of

the complexity in designing a new

conservation benefits index and consolidating farm programs, it would

be appropriate to initiate such an

approach with a pilot program.

In some instances, private markets for environmental goods and

services do not develop due to a lack

of uniform standards or other mechanisms that bring buyers and sellers

together and/or assure buyers of

product quality. The comprehensive

system of incentives could facilitate

and accommodate emerging private

markets for farm- and forest-based

environmental goods and services.

Since the benefits index could be disaggregated, the proportion of the

overall incentive attributable to a

particular element could be separated. Separating out these benefits

and providing uniform standards

and assurances in quality could

remove barriers to private financing

for certain environmental goods.

One option would allow private

companies to enter into separate

contracts with landowners to support the production of certain environmental benefits—based on the

benefits index. Or, a fund could be

established to support one component of the overall program. The

fund could accept private sector

resources in return for attribution of

certain environmental services, such

as water quality improvements and

carbon sequestration.

Designing a Market-Based Stewardship Program
V. Conservation

and the

Environment

Food and Agricultural Policy 87

Principles for

Conservation

• Sustain past environmental

gains. Improvements in losses

from soil erosion and wetlands

benefit farmers and all Americans.

These and other gains resulting

from existing conservation programs should be maintained.

• Accommodate new and emerging environmental concerns. The

need for sources of renewable

energy and the potential for

reducing greenhouse gas emission

are emerging environmental

issues. In addition, reducing

nutrient runoff from livestock

production, addressing conflicts

over scarce water supplies, and

protecting open space have

gained momentum as issues to be

addressed. Conservation policy

should adapt to emerging environmental and community needs

and incorporate the latest science. 

• Design and adopt a portfolio

approach to conservation policies. Targeted technical assistance, incentives for improved

practices on working farm and

forest lands, compensation for

environmental achievements, and

limited dedication of farmland

and private forest lands to environmental use will provide a coordinated and flexible portfolio

approach to agri-environmental

goals.

• Reaffirm market-oriented policies. Competition in the supply of

environmental goods and services

and targeted incentives ensure the

maximum environmental benefits

for each public dollar spent. In

addition, permitting the private

sector to invest in the provision of

environmental goods and services

leverages Federal resources and

facilitates a transition to a fully

functioning private market.

• Ensure compatibility of conservation and trade policies.

Producer compensation for conservation practices and environmental achievements should be

consistent with “green box” criteria under WTO obligations. 

• Coordinate conservation and

farm policies. Conflicts may exist

between farm program incentives

to increase production and conservation programs seeking to

reduce environmental problems

from expanded production.

Extending conservation compliance will help coordinate environmental objectives and Federal

programs. 

• Recognize the importance of collaboration. Non-Federal governmental agencies, including State,

local, and Tribal governments, as

well as private for- profit and notfor-profit organizations, are playing an ever- increasing role in the

delivery of technical assistance

and in incentive programs for

conservation. Encouraging these

efforts and developing public-private partnerships and joint programs leverage Federal resources

and improves program access and

implementation.
Rural America is home to onefifth of the Nation’s people,

keeper of natural amenities

and national treasures, and safeguard of a unique part of American

culture, tradition, and history. Rural

America is a collage of people and

places—an incredible diversity of

races, ethnic groups, terrain, climate,

amenities, businesses, and institutions. Rural residents and policymakers, indeed all of America, face

many decisions that will affect, if not

determine, rural America’s future.

Rural development policy is no

longer synonymous with agricultural policy, and it is time for a new

national discussion of policy for

rural communities.

Farming no longer anchors most

rural communities and economies as

it did through the mid-20th century

(figure 21). Seven out of eight rural

counties are now dominated by

varying mixes of manufacturing,

services, and other nonfarming

activities. This trend has sharply

altered the relationship between

farming and local economies, and

today most small family farms are

closely associated with diversified

rural economies that offer off-farm

income opportunities. Large farms

still enhance some local economies,

but developments in long-distance

purchasing of inputs and marketing

of products reduce the contribution.

Consequently, traditional commodity support and farming-oriented

development programs play an

increasingly limited role in improving the prosperity of rural

Americans.

Jobs and incomes are decreasing

in many areas that are dependent on

natural resource-based industries

such as agriculture, mining, and

forestry, but other places, often associated with rural amenities, are thriving. Declining areas must diversify

88 Food and Agricultural Policy

VI. Rural

Communities
and attract new businesses, while

growth areas must develop strategies to sustain their success. A prosperous rural America depends upon

many of the same things as urban

areas—good-paying jobs; access to

critical services such as education,

health care, technology, transportation, and communication; strong and

safe communities; and a sustainable

natural environment.

The challenges facing rural communities are wide-ranging and varied, and they defy homogeneous

solutions. Farming communities in

the Great Plains face different problems—with different solutions—

than do poor areas of the Mississippi

Delta or counties in California’s

Central Valley. At the same time,

rural areas offer many advantages,

including lower costs of living,

abundant scenic amenities, less congestion, and a slower paced lifestyle.

Rural America—its conditions

and its future—is a local, State, and

national concern. Its diversity presents opportunities for the creative

application of programs and policies,

and calls for unique partnerships

among the spectrum of American

institutions—different levels of government, the business community,

public advocacy groups, and local

organizations. New and innovative

Federal approaches to sustainable

community development are

required, and improved program

targeting, streamlining of programs,

and program coordination are

needed now more than ever.

VI. Rural

Communities

Food and Agricultural Policy 89

Figure 21

Farm Earnings Less Important in Local Economies Now 

Than 30 Years Ago

Farming accounted for 20 percent 

or more of earnings in 877 nonmetro 

counties in 1969.

By 1999, farming accounted for 

20 percent or more of earnings in only 

258 nonmetro counties.

A prosperous rural America

depends upon many of the

same things as urban

areas—good-paying jobs;

access to critical services

such as education, health

care, technology,

transportation, and

communication; strong and

safe communities; and a

sustainable natural

environment.
Rural America Today

At the dawn of the 21st century,

no one industry dominates the rural

landscape, no single pattern of population decline or growth exists for all

rural areas, and no statement about

improvements and gaps in wellbeing applies to all rural people.

Many rural areas are thriving, and

during the 1990s, almost 8 percent of

rural counties grew in population at

more than twice the national average. Colorado was the epicenter of

this high growth, but other clusters

were found throughout the Rocky

Mountain West, with smaller pockets

in the Texas Hill Country, the

Ozarks, the Atlantic and Gulf coasts,

and northern Georgia (figure 22).

However, these favorable trends

were not universal, and many areas

of the Great Plains and western Corn

Belt experienced significant population loss as they wrestled with

declining agricultural employment

and the lack of replacement jobs in

other industries. Population loss was

also found in some low-income areas

such as the Appalachian coal fields

and the lower Mississippi Valley.

Poverty also has a regional flavor

(figure 23). More than one-fifth of

rural America had persistently high

poverty rates (above 20 percent) in

each of the last four decades. These

chronically poor areas are heavily

concentrated in the South,

Appalachia, the Ozarks, the

Mississippi Delta, the Rio Grande

Valley, and the Native American

reservations of the Southwest and

Northern Plains. A disproportionate

number of economically at-risk people—including racial/ethnic minorities and high school dropouts—

characterize these areas, and, at the

same time, the local economies of

these areas often lag other rural

places. However, these persistently

poor counties are not synonymous

with population-loss counties, and

they experience different stresses.

Opportunities in

Rural America

The opportunities and challenges

facing rural America are as varied as

rural America itself, and local areas

differ by needs and resources.

Current commodity-based farm policies do not fully address the complexities of rural economies and

populations. Federal economic

development programs can

acknowledge rural diversity by targeting program benefits to rural

areas with high poverty rates and/or

substantial declines in population

and employment. These programs

can provide needed infrastructure

for economic development, provide

employee training for the “new

economy,” emphasize training in

entrepreneurial and leadership

skills, and encourage both business

and tourism development. Federal

efforts to encourage regional development initiatives, develop creative

pilot programs, and provide incenVI. Rural

Communities

90 Food and Agricultural Policy

Figure 22

Nonmetro Population Change, 1990-2000

U.S. average growth was 14 percent for this period.

Loss

Up to 14 percent

14 percent or more

Metro county
tives for areawide development

strategies would be consistent with a

comprehensive approach to rural

policy.

The efforts of rural communities

and counties to build longer term

regional economic development

plans are the first steps toward

viable economic growth. These plans

help local governments understand

the benefits of reallocating scarce

human and financial resources,

while simultaneously trying to make

the best use of available government

programs and expertise. Modifying

existing Empowerment Zones/

Enterprise Communities programs

to foster more effective regionalFederal efforts would enable limited

government resources to be used

over a broader range of rural areas.

Although these programs are currently of a limited scope, there is a

significant need to assist rural areas

in developing and executing plans

and strategies for new development

initiatives. Achieving economic

diversification and reducing dependence on traditional rural economic

activities will require training, support, and education. Community

leadership, traditional local governance, infrastructure analysis, and

community planning will likely

require new thinking, as old and

new institutions blend to accommodate the needs of a changing rural

America.

Historically, State and local governments have had the primary

responsibility for formulating policy

responses to rural economic shortcomings. Recently, regional initiatives have achieved some level of

success. In either case, the Federal

Government will continue to support these efforts by encouraging

communication among Federal,

State, and local agencies, all working

together to encourage and assist the

private sector in the rural regions of

our country.

VI. Rural

Communities

Food and Agricultural Policy 91

Figure 23

Nonmetro Persistent-Poverty Counties

These counties had 20 percent or more persons in poverty in 1960, 

1970, 1980, and 1990.

Nonmetro persistent poverty

Metro county
Innovation,

Investment, and

Income Generation

An environment should be created that will attract private investment to rural America. Three areas

are targets of new policy initiatives:

expanding value-added agricultural

production, finding alternative

methods to increase rural income

from the natural resource asset base,

and providing leadership in education, specifically entrepreneurial

skills.

Value-Added Agriculture

Many programs exist to promote

value-added agricultural development, including cooperative programs, business and industry loans,

Rural Business Enterprise and

Opportunity Grants, and others. It is

a priority to creatively integrate into

these programs biobased and renewable energy production and distribution; livestock operations and valueadded products, including methane

utilization and odor control; environmental beautification; and other

innovative development

opportunities.

Natural Resource Base

Capitalizing on new uses of the

Nation’s natural resource base is

essential. This resource base can provide water filtration systems, carbon

sequestration, recreation, tourism,

nontraditional energy sources, and

other activities. In addition, new

farm services, such as carbon stored

in plants and the soil through carbon

sequestration activities, can create

new income opportunities while

simultaneously addressing the public concern over greenhouse gas concentration in the atmosphere.

Energy-Related industries

Several forces are converging to

make investments in energy-related

industries profitable for rural areas.

First, domestic energy production

has not kept pace with domestic

energy use, resulting in energy price

increases over the past 2 years.

Second, rural areas are well suited as

sites for the development of renewable energy as well as more traditional fossil-fuel energy production.

Wind and solar energy are most economically generated in rural areas

due to the openness of rural spaces

and the need for large land areas for

production. 

Energy production from biomass

offers enormous potential. Dedicated

crops and agricultural residues can

be used to produce transportation

fuels, such as ethanol and biodiesel,

and to power turbines to produce

electricity. While ethanol production

is growing rapidly, biodiesel and

biomass electricity generation would

benefit from research and development efforts and pilot projects to

overcome barriers to expanded

commercialization.

On another front, slow Federal

review and approval processes have

often thwarted energy production in

rural areas. USDA is working with

other agencies to speed this process

VI. Rural

Communities

92 Food and Agricultural Policy

Several forces are

converging to make

investments in energyrelated industries profitable

for rural areas.
and accelerate development of

energy projects. Another major barrier to siting new fossil fuel plants in

the last 10 years has been proximity

to objecting communities, and rural

areas are potential candidates for

new plants because of their lower

population densities. 

Access to Capital

Equity capital is often in short

supply in rural areas, and rural

entrepreneurs must compete with

urban businesspeople for scarce

investment funds. However, some

rural residents lack the skills to

develop effective business plans and

other ingredients of a successful

business venture. Rural access to

startup capital is also hampered by

the inability of some rural residents

to develop and sell proposals. Rural

residents would benefit from assistance in developing strong business

acumen as well as business communications skills.

Education and 

Skills To Succeed

The wage gap between urban and

rural workers reflects a rural workforce with less education and training on average than urban workers

(figure 24). In the past, many rural

areas hosted industries that required

a reliable pool of low-cost workers.

Today, a labor force with low education levels poses a challenge for

many rural counties seeking economic development. Many rural jobs

historically held by workers with

limited education have been lost to

changes in production technology or

changing consumer demand.

Employers are now more attracted to

rural areas offering concentrations of

well-educated and skilled workers.

Moreover, today’s youth, regardless of where they ultimately live

and work, will need an unprecedented level of education and technical skills to compete in the

increasingly high-skill “new economy.” Programs such as 4-H clubs

are needed more than ever, particularly in areas where rural schools are

underfunded and plagued by

dropouts. Rural employers complain

less about the basic skills of local

workers than about their reliability,

interpersonal skills, and problemsolving abilities. These skills are not

generally taught in schools but are

basic to many youth programs.

These programs, adapted to fit local

needs and integrated with schools

and other training programs, may be

key to upgrading the workforce in

traditionally low-skill, high-poverty

areas. They may also help serve

another need—to alert rural youth

VI. Rural

Communities

Food and Agricultural Policy 93

Figure 24

Educational Attainment of Adults Age 25 and Older (1999) 

Less than

high school

30

25

20

35

40

45

15

10

5

0

Percent

High school

Metro

Some college

Nonmetro

College degree
to further education and training

programs available to them.

Education and worker training

will be essential in helping rural

communities cultivate highperformance, knowledge-based companies. Rural human capital would

be improved by strengthening classroom instructional quality. Technical

assistance could ensure that bestpractice models of distance learning

are available to remote schools

where the benefits from such technologies are greatest. Instructional

quality could also be improved by

promoting teacher recruitment and

retention efforts in remote and poor

rural areas. Efforts to facilitate

school-to-work transition of youth

are particularly important in isolated

and distressed rural communities.

The benefits of these strategies will

be greatest in rural communities

where existing workforce development programs (especially the

Workforce Investment Act) face special challenges due to high rates of

high school dropout or limited

demand for youth labor.

Protecting 

Rural Communities

From Wildfire

One of the most significant conservation issues facing America

today is the need to protect lives and

property in communities near large

areas of forested land, the so-called

wildland-urban interface. Rural and

volunteer fire departments provide

the front line of defense on up to 90

percent of these high-risk and costly

fires. While they have a good record

in rapidly suppressing traditional

wildland fires, these local resources

often struggle to meet the complex

demands of fighting fire in the

wildland-urban interface. Safe and

effective protection in these areas

demands close coordination among

local, State, and Federal firefighting

resources.

The Federal Government, in cooperation with landowners and State,

tribal, and local governments, can

take action to reduce the risk to

VI. Rural

Communities

94 Food and Agricultural Policy
communities and resources. Indeed,

Federal funding for wildfire preparedness, suppression, and mitigation has dramatically increased in

the last few years. A concentrated

effort will assure these resources are

used effectively. A top priority for

minimizing risk is the reduction of

fuels in forests and rangelands adjacent to and within communities.

Particular emphasis should be

placed on projects where fuel reduction can occur on adjoining State,

private, or other non-Federal land to

extend protection across the greatest

possible area. Incentives and technical assistance to communities and

private landowners to help minimize

hazardous fuels on property can

extend protection and enhance the

safety and increase the effectiveness

of firefighters.

The risk of rural fires can also be

reduced by ensuring that personnel

at the State and local level are prepared to fight wildland-urban interface fires. The USDA Forest Service’s

State and Volunteer Fire Assistance

programs provide technical and

financial assistance to local firefighting resources. In addition, Federal

agencies must back up local firefighters by conferring incident management skills and leadership. Finally,

fire education programs geared

toward homeowners and communities should emphasize planning and

zoning requirements for fire-safe

building materials, and landscaping

to reduce the loss of lives and

property.

Maintaining existing markets and

creating new markets for better use

of the small wood that is removed

from wildlands as part of the fuels

management program is essential.

Programs to more effectively use

small wood include technical assistance, training, seed funds for

selected capital investments, identification of value-added incomeproducing opportunities, and

applied research on additional uses

for small wood. Small wood can be

an ideal source of fuel for rural cogeneration plants and will increase

energy production while stimulating

rural economic growth.

VI. Rural

Communities

Food and Agricultural Policy 95
Infrastructure,

Public Services, and

Business Assistance 

Telecommunications, electricity,

water and waste disposal systems,

and transportation infrastructure

(such as highways and airports) are

essential for rural development. But

many rural communities face financial challenges because of a limited

tax base, high costs associated with

diseconomies of size, and difficulties

adjusting to population growth or

decline. Investments in needed infrastructure have increased in recent

years, but they are costly and face

challenges such as deregulation.

Many communities continue to

lack infrastructure and public services, such as advanced telecommunications and air transportation

services. Other public services

(schools, hospitals, police and fire,

libraries, and community centers, for

example) are important for community as well as economic development, particularly in areas

experiencing recent prosperity and

growth. The Rural Housing Service

provides assistance to communities

for such facilities, but more can be

done to ensure that the efforts of

USDA, other Federal agencies, and

State and local governments are

addressing the needs of rural communities. Only through a coordinated effort by all stakeholders can

the limited resources available for

infrastructure and community facilities be put to best use.

Growth in high-paying jobs is

needed to improve incomes and

education in rural areas. However,

the traditional approach for attracting firms into a region by offering

tax breaks may no longer be sufficient. New approaches, such as

efforts to provide training and technical assistance to clusters of firms

and the provision of startup and

equity capital to help new and existing firms grow, offer more potential

for success. Continued assistance to

help support rural businesses, infrastructure, and community facilities

can help rural communities connect

with the new economy and realize

an enhanced quality of life.

Information and communications

technology—aided by financial and

technical assistance—can help

smaller communities enjoy the same

benefits that at one time accrued

solely to cities, such as higher standards of health care and virtually

unlimited educational opportunities.

Options include Federal financial

assistance for deploying broadband

access or incentives for State, private,

and public partnerships to develop

fiber optic or wireless capabilities.

Rural America

Tomorrow

The diversity of rural America

and the diminished role of farming

heighten the role of institutions in

helping to create vibrant, innovative

market solutions to challenges facing

rural communities. The Federal

Government can provide a coordinating hand, but State and local

problems are often most efficiently

and effectively addressed by State

and local residents. A reexamination

of the Federal role in rural development activities is needed with the

goals of streamlining programs, targeting resources to their most effective use, and improving program

coordination at the Federal, State,

and local level.

VI. Rural

Communities

96 Food and Agricultural Policy
Principles for Rural

Communities

• Recognize the diversity of rural

America. The opportunities and

challenges facing rural America

are as diverse as rural America

itself, and there is no single recipe

for prosperity. 

• Recognize that rural development policy is not synonymous

with agricultural policy.

Traditional commodity support

and farming-oriented development programs play an increasingly limited role in the improved

well-being of rural Americans. 

• Understand the importance of

the nonfarm economy in rural

policy. Farming no longer

anchors most rural communities

and economies. Instead, the nonfarm economy anchors much of

agriculture, and rural policy for

the 21st century must recognize

the increased importance of nonfarm jobs and income as the drivers of rural economic activity. 

• Create an environment that will

attract private investment. Rural

communities must adopt creative

strategies to diversify the economy, attract new businesses, and

sustain their successes. 

• Emphasize the need for greater

education and technical skills.

Today’s youth, regardless of

where they ultimately live and

work, will need an unprecedented

level of education and technical

skills to compete and succeed in

the increasingly high-skill “new

economy.”

• Capitalize on the natural

resource base. Rural areas are

well suited as sites for the development of renewable energy as

well as for more traditional fossilfuel energy production. 

• Protect lives and property in the

wildland-urban interface. Rural

citizens in rural communities near

large areas of forested land need

assurance that their lives and

property are safe from wildfires.

Innovative, coordinated, and

aggressive approaches to the

reduction of fuels in forests and

rangelands are needed to extend

protection across the greatest possible area.

• Expand infrastructure, community facilities, and technology.

Such improvements will help

rural communities connect with

the "new economy" and realize an

enhanced quality of life. New

information and communication

technologies can help smaller

communities enjoy the same benefits that at one time accrued solely

to cities. 

• Coordinate involvement of all

stakeholders. Rural community

issues are often most effectively

addressed at the local and State

levels, but the Federal

Government can provide an

important coordinating role. A

new look at the Federal role in

rural development activities, with

the goal of streamlining programs, targeting resources, and

improving program coordination,

is needed. 

VI. Rural

Communities

Food and Agricultural Policy 97
Food and agriculture policy has

long sought to ensure that all

Americans have access to a

healthy and nutritious food supply,

regardless of income. This policy has

encompassed, and USDA has administered, an array of food assistance

and nutrition programs that operate

with humanitarian, investment, and

agricultural support goals. More

specifically, the goals include aid to

the needy that helps alleviate shortterm hunger and hardship; pragmatic investments in human capital

that yield long-term returns in a better educated, stronger, and healthier

workforce and families; and support

for the agricultural sector.

The core programs include the

Food Stamp Program, the child

nutrition programs, the Special

Supplemental Nutrition Program for

Women, Infants, and Children

(WIC), and commodity distribution

programs. Today, these programs

serve one in every six Americans at

some point during the year. In addition to providing a nutrition safety

net, the programs promote healthy

diets for all Americans.

Ensuring Access to

Nutritious Food

Our Nation’s food assistance programs have been a success, but the

environment in which they operate

is changing. Most of these programs

were started in response to documented problems of underconsumption and undernutrition among the

low-income population in the United

States in the 1960s and early 1970s.

Since then, the gap between the diets

of low-income and other families has

narrowed. Today, in both higher and

lower income groups, median nutrient intakes are well above the

Recommended Dietary Allowances

(RDAs) for most vitamins and minerals. Moreover, available informa98 Food and Agricultural Policy

VII. Nutrition and

Food Assistance

While some nutrient

deficiencies remain, the 

most pressing dietary

problem today is

overconsumption of fat,

sodium, refined

carbohydrates, and

calories.
tion indicates that food stamp recipients have a better nutrient profile

than nonrecipients with comparable

incomes.

While some nutrient deficiencies

remain, the most pressing dietary

problem today is overconsumption

of fat, sodium, refined carbohydrates, and calories. Important new

challenges are emerging related to

diet quality—the proper variety and

quantities of foods and nutrients in

an individual’s diet to promote their

health and well-being. In their current form, each of the core food assistance programs contains a direct link

to nutrition and health. Food stamp

benefits are tied to the cost of a modestly priced nutritious diet sufficient

to sustain an active, healthy life. The

key components of WIC include

food packages tailored to specific

nutrition requirements, nutrition

education, and health care referrals.

The child nutrition programs are

based on standards that ensure

school meals served to children meet

certain nutritional requirements.

Food and nutrition assistance

programs have contributed to significant improvements in the nutritional status of low-income and

vulnerable groups, as measured by

growth, low birthweight, and hematological status (anemia). In perhaps

the most striking example, nutrition

surveillance data for 1974-76 indicated that 22.8 percent of preschoolaged children were stunted (having

low height for their age); by 1992, the

prevalence of stunting in lowincome children had dropped to

8 percent.

Changes in the program environment, nutrition issues, and caseload

composition make this an opportune

time to modernize the food and

nutrition assistance programs. Of

particular urgency are ensuring

dependable funding for WIC, modernizing the national nutrition safety

net, and improving support for agricultural producers.

VII. Nutrition and

Food Assistance

Food and Agricultural Policy 99
Ensuring Funding for WIC

WIC helps safeguard the health of

low-income women, infants, and

children (up to age 5) who are at

nutritional risk. WIC achieves this 

by providing nutritious foods to

supplement diets, information on

healthy eating, and referrals to

health care. WIC provides early

intervention during critical times of

growth and development that can

help prevent future medical and

developmental problems.

Established in 1972 as a pilot program, WIC has grown rapidly and

matured into a core component of

the Nation’s nutrition safety net (figure 25). In fiscal year (FY) 2000, WIC

served an average of 7.2 million participants per month. Almost half of

all infants and about one-quarter of

all children age 1-4 participate.

Federal program costs totaled almost

$4 billion in FY 2000, making WIC

the country’s third largest food assistance program, behind the Food

Stamp Program ($17.0 billion) and

the National School Lunch Program

($6.1 billion).

Over a decade ago, when decisions were made categorizing programs into mandatory and

discretionary spending categories,

WIC was a much smaller program.

At that time, WIC became discretionary. Now a large and popular

program, it is a core component of

the national nutrition safety net.

However, since WIC has remained

classified as discretionary, adequate

year-to-year funding to support this

popular program is not guaranteed.

Although WIC has received ample

funding to serve all eligible applicants for the last several years, now

is the time to rethink the funding

approach used to sustain this vital

program.

Modernizing the National

Nutrition Safety Net

The Food Stamp Program (FSP)

has been the foundation of the

Nation’s food assistance safety net,

providing benefits to qualifying families while supporting the markets

for agricultural products. Using normal retail marketing channels, the

FSP empowers needy households

with increased food purchasing

power to acquire affordable and

nutritious foods. The FSP has been a

pioneer in the innovative delivery of

benefits to clients through the use of

Electronic Benefit Transfer (EBT).

This system not only increases program efficiency, but reduces client

stigma in grocery store checkout

lines and better enables program

VII. Nutrition and

Food Assistance

100 Food and Agricultural Policy

Figure 25

Average Number of WIC Participants per Month, FY 1974-2000

Millions

5

2

4

1

3

8

7

6

0

1974 1978 1982 1986 1990 1994 1998

Fiscal Year

Women Infants Children
administrators to detect and deter

waste, fraud, and abuse.

Although the current FSP provides a strong foundation upon

which to build, much has changed

since Congress last reauthorized this

vital program. Welfare reform transformed social policy for low-income

families, replacing an entitlement to

cash assistance with a system that

requires work in exchange for timelimited assistance. Since welfare

reform was enacted in 1996, welfare

rolls—and the proportion of food

stamp households on welfare—have

fallen sharply, while the percentage

of food stamp households with earnings has grown. Today, more working families than welfare families use

food stamps. Now, more than ever,

the Food Stamp Program plays a

critical role in facilitating the transition from welfare to work.

The national eligibility and benefit

rules of the Food Stamp Program

form a minimum public safety net

across all States. As States continue

to explore innovative welfare policies, food stamps have provided a

steady base that serves the basic

nutrition needs of low-income

households wherever they live. Yet,

there are opportunities to better support work, simplify program rules,

increase emphasis on outcome-based

performance measures, serve currently unmet needs, bolster public

confidence in the program’s

integrity, and improve support for

agriculture.

• Enhancing Work Support and

Simplifying Program Rules. Food

stamps can be a bridge from government dependence to work and selfsufficiency. But working families

often have circumstances that make

complying with the program’s procedural requirements more difficult.

Concerns have grown that the program’s administrative burden and

complexity are hampering its performance in the post-welfare reform

environment. The complexity of program requirements—often the result

of desires to target benefits more precisely—may cause errors and deter

participation among those eligible.

These burdens are particularly significant for the working families that

comprise an increasing portion of

the food stamp caseload.

We should pursue opportunities

to improve the program for working

families, facilitating their access to

benefits while minimizing burdens

for State agencies. These may

include revisiting the treatment of

assets, income, and deductions in

VII. Nutrition and

Food Assistance

Food and Agricultural Policy 101
determining benefits for working

families and others.

• Emphasizing Outcome-Based

Performance Measures. Because

food stamp benefits are entirely federally funded (unlike the other major

State-administered assistance programs for low-income families), the

FSP has maintained a rigorous payment accuracy measurement system.

The system determines fiscal sanctions and enhanced funding based

on error rates computed from annual

samples of quality control (QC) caserecord reviews. State and local

administrators believe that the QC

error rate is a poor measure of overall program performance. When

used as such, administrators are

tempted to impose more burdensome reporting and verification

requirements for working households whose fluctuating earnings

have historically made them more

error-prone. This is counterproductive to the FSP’s new need to support

work and personal responsibility. We

need to examine how the food stamp

program recognizes and rewards

performance that serves its multiple

goals.

Currently, there is no adequate

system in place to monitor and

assess the nutrition performance of

the food stamp and child nutrition

programs. With increased emphasis

on outcome-based performance

measures, there is a need to consider

implementing annual monitoring on

a national scale. An expanded collection system for program management not only would improve

assessment of program performance,

but also would provide agricultural

producers and food processors with

timely information on food choices,

food prices, and dietary practices of

Americans. 

• Serving Unmet Needs. Despite

the general effectiveness of the program’s current national standards,

significant needs remain. The number of citizen children born in the

United States to immigrants who are

participating in the program has

dropped dramatically in recent

years. Fewer than half of eligible elderly persons participate in the program. Program changes and

simplifications could help ensure

that all those at risk of hunger have

better access to the benefits they

need.

• Improving Accountability.

Waste, fraud, and abuse divert

resources from their intended use

and undermine public confidence

and support for programs. Food

stamps are intended for food. When

individuals sell their benefits for

cash, it violates the spirit and intent

of the Food Stamp Program as well

as the law. FNS estimates food stamp

trafficking—the exchange of benefits

for cash by authorized retailers—at

about $660 million per year. The

expansion of Electronic Benefit

Transfer (EBT)—which is now in

place in 41 States, Washington, DC,

and Puerto Rico—makes certain

forms of trafficking harder to conduct and large-scale trafficking easier to detect.

Some States with low coupon

issuance costs have delayed implementing an EBT system due to a cap

on Federal support for expenses

above the cost of coupon issuance.

The current cap is based on obsolete

estimates of these costs. Facilitating

prompt and full implementation of

EBT and expanding support for

increased use of EBT systems to

detect fraud would improve FSP

administration.

• Improving Support for

Agriculture. The commodity distribution programs traditionally support agriculture by distributing

products that are in ample supply.

The Department will continue to

ensure the safety and wholesomeness of the donated products. In general, these programs would benefit

from changes to improve their effectiveness.

VII. Nutrition and

Food Assistance

102 Food and Agricultural Policy
The emergency food assistance

system (EFAS) is a relatively small,

but vital component of the food

assistance safety net, as well as an

important outlet for surplus commodities. Comprised largely of private, nonprofit food banks, pantries,

emergency kitchens, and food rescue

organizations, EFAS helps ensure

adequate nutrition for low-income

people who may not be eligible for,

or who may find it difficult to participate in, other food assistance programs. While only about one-eighth

the size of USDA’s programs, EFAS’s

community-based structure and flexibility allow it to efficiently fill critical gaps in the food assistance safety

net. Policy options should seek to

improve the administration and

effectiveness of USDA support for

the EFAS.

Healthy Food

Choices

USDA food and nutrition assistance programs have made great

strides in reducing nutritional deficiencies among the low-income population. However, nutritional

deficiencies have been supplanted

by poor diets of a different hue and

with different implications: excessive

and unbalanced consumption patterns that result in obesity and

increased risk of major chronic

health problems such as cardiovascular disease and diabetes. Poor

diets are widespread. According to

USDA’s Healthy Eating Index (HEI),

nearly seven out of every eight

Americans (all but about 12 percent)

have poor diets or are in need of

improving the nutritional quality of

their diet (figure 26).

As a direct consequence of poor

diets and physical inactivity, the

number of overweight individuals

continues to increase. The implications are tremendous for future

health, health care costs, and quality

VII. Nutrition and

Food Assistance

Food and Agricultural Policy 103

Figure 26

Healthy Eating Index (HEI)*, U.S. Population (1996)

*The HEI is a dietary assessment tool that measures adherence to 10 components of 

the U.S. Dietary Guidelines. An HEI score greater than 80 (out of 100 maximum) implies a 

“good” diet; an HEI score between 51 and 80 implies a diet that “needs improvement”;

and an HEI score of less than 51 implies a “poor” diet.

Needs improvement 70.5%

17.3%

12.2%

Good

Poor
of life of Americans (figure 27). There

is also concern that as more children

and adolescents become overweight,

the chronic diseases that have typically been associated with people in

their fifties may begin to appear

earlier.

Although these problems affect

individuals at all income levels, they

are more prevalent among lowincome groups. And, specific population subgroups continue to face

specific nutrition problems. For

example, iron and calcium intakes of

children and women continue to

need improvement. Also, breastfeeding initiation and duration rates continue to fall far short of national

objectives; meeting these objectives

can result in savings of $3.6 billion in

direct and indirect costs associated

with three childhood conditions—

otitis media, gastroenteritis, and

necrotizing enterocolitis.

The challenge is how to motivate

consumers to change their dietary

patterns and physical activity levels

so as to improve the chance for a

healthier life. People choose the

foods they eat to meet a variety of

needs, and nutrition is just one factor. Income and time constraints, cultural habits, and individual tastes

and preferences play an important

role. Improving the healthfulness of

diets requires changing attitudes,

behavior, and eating practices—as

well as a long-term commitment to

those changes. This is increasingly

difficult to accomplish, as consumers

are bombarded by sophisticated

food advertising that often emphasizes other food characteristics that

appeal to them. In 1997, food manufacturers spent over $7 billion in

advertising. In contrast, USDA spent

over $300 million on nutrition education, evaluation, and demonstrations—mostly through WIC and FSP. 

The need for healthier eating patterns will require a concentrated

research effort to develop new

approaches, tools, and technologies

to motivate consumers. Potential

research advances include effective

nutrition education messages and

materials, dissemination models to

effectively and efficiently reach target audiences, and standardized,

cost-effective methods for evaluating

nutrition information outcomes. One

institutional approach that has

proven successful for conducting

human nutrition research is to provide support for a university-based

nutrition information research center

that would focus on these issues.

Such a center could provide a critical

mass of resources to conduct

research for use by programs, States,

and local agencies. Likewise, efficiencies could be gained from pooling some nutrition education funds

and activities across program lines.

VII. Nutrition and

Food Assistance

104 Food and Agricultural Policy

Figure 27

Proportion of Overweight Population Has Risen

Percent

40

80

20

60

0

1963-70 1971-74 1976-80 1988-94 1999

Year

Adults 20-74 years old

Children and youth 6-19 years old
Principles for

Nutrition and Food

Assistance

• Continue commitment to a

national nutrition safety net. A

well-nourished population is

healthier, more productive, and

better able to learn. No child or

needy family should be left

behind for want of food.

• Guarantee stable funding of the

nutrition safety net. The national

nutrition safety net, including

WIC, should be supported and

targeted to those most in need.

• Simplify program rules.

Program rules must strike a balance between targeting, client

access, supporting work, and

administrative burden.

• Support modern technologies.

Electronic Benefit Transfer (EBT)

and other technologies are crucial

to the improved delivery of benefits, client access, administrative

efficiency, and program integrity.

• Ensure a commitment to outcome-based performance measures. Outcome-based

performance measures will be

crucial to deciding the future

direction of the nutrition assistance programs.

• Encourage healthy and nutritious diets. American consumers

must be made aware of the link

between diets, health, and physical activity, and motivated to

make appropriate changes.

VII. Nutrition and

Food Assistance

Food and Agricultural Policy 105
All of the major agencies of

today’s USDA were in existence by the 1930s. For example, the Department’s field

operations, a national network of

county offices, arose out of the New

Deal imperative to establish a

Federal presence in local areas, as a

matter of politics but also to facilitate

program delivery for farm, conservation, and rural infrastructure services. Some of the research, economic,

and statistical agencies trace their

roots to the 1800s.

Just because agencies are old

doesn’t mean they have outlived

their original purposes. Indeed, the

missions of these agencies—to

secure the well-being of American

consumers, farmers, and rural residents—are as meaningful today as

in 1930. But changing circumstances

strongly suggest the need for contemporary reflection on the program

delivery needs of the future.

USDA remains organized as a traditional hierarchy, with authority

and responsibility flowing directly

through each agency, from the

Secretary to administrators to State

and regional levels and to field operations, where they exist. This configuration creates “stovepipes,” in

which all goals, policies, resources,

and administrative functions are

contained within the confines of

individual parallel organizational

structures. As PricewaterhouseCoopers observed in a recent report

to the Department, “...the stovepipe

structure poses problems for contemporary management approaches

because it runs counter to an organization’s core business processes,

which are usually aligned horizontally and cross-functionally. In a traditional hierarchy, processes and

people are trapped inside their functional stovepipes—those tall, thin

structures with physical or theoretical walls that prevent full cooperation and communication.” These

stovepipes can be a big impediment

to better integration of program

management and improved service

delivery.

The issues facing the modern food

and farm system today are so multifaceted and complex that they cannot be solved by any one program or

approach. Protecting against plant

and animal pests and diseases, or

eliminating emerging foodborne

pathogens, or overcoming the barriers to producing bioenergy efficiency, or ensuring nutritious food

for low-income households, or

encouraging cost-effective carbon

sequestration on farms and in

forests—none of these can be accomplished by any single agency.

Solutions require many agencies

working together, sharing their

diverse human and physical

resources.

106 Food and Agricultural Policy

VIII. Importance

of Integrated

Programs
VIII. Importance 

of Integrated

Programs

Food and Agricultural Policy 107

From firefighting to farm program

compliance to food safety, the use

of GIS technology has dramatically

improved the ability of program

staff to make good decisions and

provide better customer service. In

the strictest sense, a GIS is a computer system capable of assembling, storing, manipulating, and

displaying geographically referenced information, i.e., data identified according to their locations.

Images produced with a GIS—

including maps and animations—

allow policymakers, land managers

and others to view their subjects in

ways that literally never have been

possible before. GIS technology

can be used for scientific investigations, resource management, and

development planning. For example, a GIS might allow emergency

planners to calculate emergency

response times in the event of a natural disaster, or a GIS might be

used to find wetlands that need

protection from pollution. The

changes in crop growth through a

growing season can be animated to

determine when drought was most

extensive in a particular region.

Working with two factors that vary

by location and over time allows

researchers to detect regional differences in the lag between a

decline in rainfall and its effect on

vegetation. These analyses are

made possible both by GIS technology and by the availability of digital data on local, regional, and

global scales. The volume of data

with spatial associations has

expanded dramatically over the

past decade, and more will follow,

generating ever greater amounts of

data. GIS and related technology

will help greatly in the management and analysis of these large

volumes of data, allowing for better

understanding of climatic, terrestrial, and aquatic processes, and the

linkages in those processes. 

The use of GIS can be an important tool in efforts to:

• Improve agricultural productivity. Precision agriculture and

crop anomaly detection depend

critically on field-level information. The usefulness of information on agricultural status and

trends is enhanced with spatial

variation. 

• Improve environmental stewardship. Environmental analysis, pattern and population

density analysis, natural

resource management, ecosystem restoration (especially for

migratory species), resource

inventory and assessment,

watershed and water quality

assessment, conservation planning, recreation planning and

management, and compliance

implementation all benefit from

the use of spatially referenced

data and the use of a GIS to illuminate relationships between

environmental quality and

resource conditions and the

management practices that affect

them. 

• Protect food safety and reduce

animal diseases. For example,

surveillance of spatially based

diseases, regionally based health

surveys, epidemiological surveillance of foodborne diseases

and microbial risk assessment

support for food safety are all

enhanced with the use of a GIS.

• Improve rural community planning. Community planning and

development are enhanced with

the use of spatial information on

changes in demographics and

infrastructure.

• Improve emergency response.

Improved fire response and

recovery, protection of firefighters, natural disaster response

and recovery, disaster assessment, risk assessment, and risk

education are among the early

uses of GIS and have tremendous potential for further

advances. Early warning systems can reduce damages from

disasters and improve agricultural disaster response programs. 

• Improve record keeping for

improved program implementation. Geographic/demographic

allocation of resources and program and policy evaluation

depend critically on good

records and can be enhanced

with a better integrated and spatially explicit data set including

information such as land ownership surveys, recordation and

administration, and land and

farm practice records management. 

Emerging Technologies: Geographic Information Systems (GIS):

Better integration for better decisions 
As this cooperation continues to

improve, we must also ensure that

resources are coordinated to enhance

the technology and technical knowledge of agency personnel. The information technology revolution has

created possibilities that we have

only begun to imagine. One example involves geographic information

systems (GIS), which have tremendous potential to improve the quality of information available to guide

decision making by farm and forest

managers, agency personnel, and

policymakers, and to improve public

health and safety and protect the

environment (see box). 

Increasingly, the technology available to solve many program and policy problems also requires resources

from multiple agencies. To use GIS

to its best advantage requires the

systems to be constructed with many

diverse data sets—or data layers—

which are maintained by a variety of

agencies. Unfortunately, agencies

often develop and maintain these

data sets using their own definitions

and conventions, which can make

them inconsistent with one another

and costly, or even impossible, to use

in GIS. For example, trying to merge

data sets on soil characteristics, farm

program participants, crop insurance

participation, and crop production

levels, runs afoul of different farm

and field definitions and boundaries.

While the multidimensional

nature of the issues, and the technologies needed to address them, cry

out for more integrated program

delivery, customers also are demanding more comprehensive service. A

customer today often has an interest

in more than one USDA or other

Federal program, and can be

thwarted in obtaining efficient service if the “stovepipes” of the organization are inflexible. Fortunately, a

number of approaches can be taken

to substantially reduce the negative

effects of a stovepipe organization,

even without major, additional

restructuring. These include: onestop shopping for delivery of services to rural America; sharing and

integration of data bases and information, and computation environments across agencies and programs;

and new flexibility for increased

coordination of resources. 

Delivering Services

Attention must be paid to the

overall structure used by USDA and

its Federal and State partners to

deliver services to its customers, particularly in rural America. In recent

years, USDA has made progress in

streamlining its rural office structure

while maintaining or improving customer service. Field offices of the

Farm Service Agency, Natural

Resources Conservation Service, and

Rural Development mission area

have been colocated. Staffing levels

have been reduced, over 1,000 offices

have been closed, and investments in

new technology have improved local

office efficiency.

Further actions are necessary to

ensure that the USDA farm service

structure is appropriately sized, configured, and located for efficient provision of the new services demanded

by a rapidly evolving food and agriculture system. Interagency cooperation will be especially critical in

moving from simple colocation of

agency personnel to actual “one-stop

shopping” for rural American customers of the Federal Government.

And there is still much to be done to

advance the information technologies that link service operations

among agencies.

The concept of “one-stop shopping” has arisen as a notion that is as

applicable to the farmer seeking

information on farm loans and on

conservation practice cost-shares as

it is to the single mother inquiring

about her eligibility for food stamps

and for income support. Advances in

information technology may allow

agencies to break through stovepipes

at a very low cost, sharing key data

so that customers are spared the burVIII. Importance 

of Integrated

Programs

108 Food and Agricultural Policy

Further actions are

necessary to ensure that the

USDA farm service structure

is appropriately sized,

configured, and located for

efficient provision of the new

services demanded by a

rapidly evolving food and

agriculture system.
den of providing the same information to multiple Federal offices.

Notwithstanding any other organizational reforms, these informationsharing initiatives should accelerate

the integration of program management and delivery.

Taking Advantage of

Information

Technology

Key to the success of service center modernization is the replacement

of the aging business and technology

systems of partner agencies with a

common computing environment

that will allow sharing of data and

implementation of streamlined business processes. Information shared

among agencies will reduce the

redundant requests made of customers participating in multiple programs, as well as customer office

visits and paperwork burden, and

allow agencies to operate efficiently

at lower staffing levels. This effort

will provide the infrastructure

needed to meet the legislative

requirement in the Freedom to E-File

Act that customers be able to do

business electronically with the service center agencies by June 2002.

Innovation in electronic government can improve the quality of

service provided directly to citizens,

and it can also support improvements in agency planning and decisionmaking. Gains may arise when

agencies are able to acquire data relevant to policy formulation and program delivery. However, the need

for the Nation’s food and fiber system to respond to the new consumer

demands—ranging from environmental quality to food safety to

energy—raises questions, not just

about the relevance of the data to

public and private sector decisionmakers, but also about whether

information technologies are able to

manipulate data from diverse

sources into useful formats that can

be shared across agencies.

The new information needs that

are arising with change in the food

sector clearly call for better integration of data collection, storage, and

use. For example, advances in molecular biology have created the need

for data bases to store sequencing,

mapping, and functional genomics

data for plants, animals, and

microbes. Public research agencies

can help make “bio-information”

available broadly, but doing so

requires a new effort in data base

and information analysis tools.

Assurance that data being collected by USDA meet contemporary

decisionmaking needs across the

many functions of the Department

can only come from a review that

crosses all lines of the Department’s

organization. USDA needs to commission a comprehensive effort to

inventory current data collection

efforts and to align them with an

assessment of future data requirements. Integration of data bases

across agencies and programs would

then be easier.

Recently, seven USDA agencies

(the World Agricultural Outlook

Board, Economic Research Service,

Agricultural Marketing Service,

Farm Service Agency, Foreign

Agricultural Service, National

Agricultural Statistics Service, and

Cooperative State Research,

Education, and Extension Service)

engaged an outside consultant to

help streamline the interagency collaboration that produces monthly

estimates and forecasts of key commodity market prices, production,

stocks, and use. The review

prompted a commitment to boost

agency analysts’ problem solving

abilities through capturing knowledge in systems and software.

Electronic discussion forums, data

bases, and document management

systems can improve access to information across agencies.

Commensurate opportunities

likely exist in other parts of the

VIII. Importance 

of Integrated

Programs

Food and Agricultural Policy 109
Department, and need to be identified. Although the payoff to such

efforts is potentially very large,

agency funds for supporting such

studies are scarce. It might be appropriate to provide the authority to

pool funds across agencies for the

express purpose of conducting such

studies and implementing

recommendations.

Increasingly, regulatory agencies,

working with business firms, other

countries, and government colleagues, require the use and knowledge of advanced technologies and

new science. For assistance, they

must draw on the expertise of

researchers in USDA science agencies and also at federally supported

land-grant universities. Better

understanding of the science of food

safety, of environmental protection,

and of human nutrition, to name but

a few areas of advance, can be

applied directly to the management

and delivery of key Federal services.

Increasingly, researchers are called

upon to ensure that sound science

undergirds the decisions of public

officials, a departure perhaps from

the days when the main role of science in agriculture was to underpin

advances in farm productivity.

Clearly, that contribution is as

important as ever, but the expanded

use of science in farm and food policy and program management multiplies the demands on researchers.

In business parlance, research

would be called a “back room” function, one that supports the delivery

of many services and activities. A

major factor in the success of Walmart was the integration of such

functions for its stores across the

country. Instead of each store having

its own separate accounting system,

for example, all use one central

accounting resource, thereby saving

money but also allowing a better

flow of financial information

through the store network. In the

same way, a single focus for research

in the Department can effectively

serve multiple agency needs. The

1994 reorganization recognized the

value of this approach in creating the

Research, Education, and Economics

mission area (comprised of the

Agricultural Research Service;

Cooperative State Research,

Education, and Extension Service;

Economic Research Service; and

National Agricultural Statistics

Service).

VIII. Importance 

of Integrated

Programs

110 Food and Agricultural Policy

The new information needs

that are arising with change

in the food sector clearly call

for better integration of data

collection, storage, and use.
Principles for

Program Integration

• Support collaboration to solve

problems. Recognize that the

complexities of many contemporary agricultural issues cross the

bounds of traditional program

areas. 

• Encourage a coordinated view of

functions and services. Institute a

range of practices, including “onestop shopping” for USDA services, common electronic work

environments, consistent data

convention across agencies, data

sharing, and increased resource

flexibility among agencies, that

encourage a “corporate” rather

than a fragmented view toward

program implementation. 

• Pursue partnership opportunities. Continued and increased

cooperation and partnership

opportunities need to be sought

with program beneficiaries,

Congress, consumers, industry,

NGOs, Federal and non-Federal

government agencies, universities, and others.

• Sustain capacity for integrated

responsiveness. The latest technologies are needed to support

integrated programs and “corporate” systems. A cadre of highly

trained and actively practicing scientists, economists, and other analysts provides a necessary

foundation for rapid response

across subject areas and programs. 

VIII. Importance 

of Integrated

Programs

Food and Agricultural Policy 111
Farms vary widely in size and

other characteristics, ranging

from very small retirement and

residential farms to businesses with

sales in the millions. Three distinct

groups of farms have been

identified—commercial, rural residence, and intermediate—to demonstrate the wide range of

characteristics and financial circumstances that exist today. Even within

these groups, there are important

differences that further demonstrate

the diversity of America’s farms.

Commercial farms consist of

large family farms with sales above

$250,000 and some nonfamily enterprises that are organized as cooperatives or nonfamily corporations or

have a hired manager. A large share

(44 percent) of commercial farms are

considered large family farms with

gross sales between $250,000 and

$500,000. Another 33 percent are

very large family farms, with gross

sales exceeding $500,000, while the

remaining 23 percent are nonfamily

farms.

• Large family farms are most

likely to specialize in cash grains,

with 39 percent obtaining over 50

percent of revenue from those crops.

In addition, other farms produce

grain without specializing in it. Since

cash grains have traditionally been

supported by commodity programs,2

large family farms receive a large

share of government payments from

commodity programs (22 percent),

and 80 percent of large family farms

receive payments from government

programs.

• Households operating large

family farms depend on the farm 

for about 60 percent of their total

income, and about two-thirds of

these households rely on farming 

for at least half of their income.

Nevertheless, these households

receive an average of $35,000 from

off-farm sources, largely from earned

sources. Average household income

in 1999 was $77,300, or 56 percent

higher than the average for all U.S.

households.

• Very large family farms specialize in a broader array of commodities than large family farms. About

23 percent of very large family farms

specialize in poultry, compared with

only 8 percent of large farms and 2

percent for all U.S. farms. Very large

farms account for high shares of the

production of poultry (68 percent),

hogs (60 percent), high-value crops

(48 percent), and milk (45 percent).

The share of very large farms receivAppendix1—

America’s Diverse

Farms: More Detailed

Information1

1 Data are from the Agricultural Resource

Management Study (ARMS) an annual survey conducted by USDA’s Economic

Research Service and National Agricultural

Statistics Service.

2 Commodity programs include transition

payments, loan deficiency payments, and

agricultural disaster payments. Conservation

programs include the Conservation Reserve

Program, the Wetlands Reserve Program,

and the Environmental Quality Incentive

Program.
ing commodity program payments is

67 percent, much lower than the 80

percent estimate for large family

farms. Nevertheless, in 1999 large

and very large farms received similar shares of all commodity program

payments.

• Average household income for

households with very large farms is

$201,200, or about four times the

average for all U.S. households and

substantially higher than the average

for any other group of farm households. Most (83 percent) of the

income of these farm households

comes from farming.

• Nonfamily farms are a diverse

group including large corporate

farms as well as sole proprietorships

with a hired manager. About 24 percent of nonfamily farms specialize in

high-value crops, about three times

the comparable percentage for all

U.S. farms. Nonfamily farms produce about 25 percent of fruits, vegetables, and nursery crops.

Intermediate farms have sales

below $250,000 and the operator

reports farming as his or her major

occupation. Intermediate farms can

be divided into two groups: those

with sales under $100,000 (73 percent

of intermediate farms) and those

with high sales between $100,000

and $250,000 (27 percent).

• Operators of low-sales intermediate farms have a fairly high average age—59 years—and 39 percent

of them are at least 65 years old.

Some of them have already scaled

back their operations in preparation

for retirement. Most of their income

comes from off-farm, about half

earned and half unearned. Their

most common specialization is beef

(40 percent of low-sales farms).

Average household income is just

under $40,000, or three-fourths of the

average for all U.S. households.

Low-sales farms receive about 21

percent of conservation program

payments.

Appendix 1

Figure A-1

Distribution of Government Payments by Typology Group (1999)

30

25

20

15

10

5

0

Rural-residence farms Intermediate 

farms

Limitedresource

RetirementResidential/

lifestyle

Lowsales

Highsales

Large Nonfamily

Very

Large

Percent of total payments

Conservation programs are the Conservation Reserve Program, the Wetlands Reserve

Program, and the Environmental Quality Incentive Program. Other programs include 

agricultural disaster payments, loan deficiency payments, and transition payments. 

Conservation programs Commodity programs

Commercial farms
• The most important specializations for high-sales intermediate

farms are cash grains (38 percent of

the group) and dairy (22 percent).

About 81 percent of farms in the

group receive commodity program

payments, and high-sales farms receive about 26 percent of the payments from these programs, the

largest percentage received by any

group. Unlike other small farms,

high-sales farms receive a substantial

share (50 percent) of their income

from farming, and 58 percent receive

at least half of their income from

farming. In 1999 average household

income was $53,300, about the same

as the average for all U.S. households. With respect to their specialization, program participation, and reliance on farming for income, highsales farms are more like large family

farms than low-sales intermediate

farms.

Rural-residence farms have gross

sales below $250,000 where farming

is considered a secondary activity

both in terms of resources invested

in the farm and the amount of

income it contributes to the farm

household. Rural-residence farms

can be divided into three groups.

The first is limited-resource farms (10

percent of total rural-residence

farms), with sales less than $100,000,

farm assets less than $150,000, and

total household income less than

$20,000. The second group is made

up of farms whose operators report

that they are retired (20 percent of

the total), and the third group is

made up of residential/lifestyle

farms whose operators report a nonfarm occupation (70 percent of the

total). Two characteristics that these

groups share is reliance on off-farm

income and heavy specialization in

beef cattle. At least 40 percent of each

of these groups specializes in beef

cattle. Beef production, particularly

cow-calf enterprises, has relatively

flexible and low labor requirements

that mesh well with off-farm work or retirement.

• Operators of limited-resource

farms, as a group, are fairly old.

Their average age is 59 and 47 percent are at least 65 years old. This

group also has the highest percentage of operators with less than a

high school education. Average

household income for the group

($9,500) is 17 percent of the average

for all U.S. households. Considering

their needs, limited resources, education levels, and age, operators in this

group are the most difficult for the

USDA and other agencies to serve.

• As one would expect, operators

of retirement farms have the highest

average age (69 years) and 71 percent

were at least 65 years old. Average

household income was $40,600,

about the same as for low-sales

households. Most of their income

came from off-farm, largely from

unearned sources, such as Social

Security and investments. Not only

have these farmers retired, but so has

some of their land. Retirement farms receive about 21 percent of their payments from conservation programs,

made up largely of the Conservation

Reserve Program.

• Households operating residential/lifestyle farms participate more

heavily in the off-farm labor market

than households operating other

types of farms. In addition to the

operators working off farm, 63 percent of households also had a spouse

working off-farm. Households operating residential/lifestyle farms had

an average household income of

$83,800. They were the only small

farm households to earn an income

above the average for all U.S.

households.

Appendix 1
Appendix 1

Table A-1

Farm and Household Characteristics by 3 Farm Groups, 1999

Farm typology grouping

Item Rural-residence farms Intermediate farms Commercial farms 48-State total

Number of farms 1,356,047 655,812 175,091 2,186,950

Share of farms (percent) 62.01 29.99 8.01 100.00

Total value of production ($ billion) 13.7 42.0 120.3 176.0

Average value of production ($) 10,074 64,117 687,065 80,481

Share of value of production (percent) 7.76 23.89 68.35 100.00

Total number of acres owned (million) 149 230 134 513

Average number of acres owned 110 351 767 235

Share of acres owned (percent) 28.98 44.86 26.16 100.00

Total number of acres operated (million) 204 390 277 871

Average number of acres operated 150 595 1,581 398

Share of acres operated (percent) 23.39 44.82 31.78 100.00

Gross cash farm income ($/farm) 11,718 68,044 589,470 74,865

Gross farm income ($/farm) 17,952 76,237 609,810 82,815

Net farm income ($/farm) 2,310 12,998 115,832 14,603

Government payments ($/farm) 1,437 9,254 41,218 6,966

Share of government payments (percent) 12.79 39.84 47.37 100.00

Household earnings ($/household)1 67,371 43,390 135,397 64,347

Farm earnings ($/household)1 –3,384 7,046 100,380 6,359

Off-farm earnings ($/household)1 70,754 36,343 35,017 57,988

Wages and salaries ($/household)1 43,229 16,825 17,513 33,541

Other off-farm earnings ($/household)1 27,526 19,518 17,504 24,447

Distribution of farms by size

Less than $100,000 98.66 73.26 13.44 84.22

$100,000–$250,000 1.34 26.74 *3.24 9.11

$250,000 or more na na 83.32 6.67

Distribution of farms by cost

Low cost (percent) 19.28 20.91 54.29 22.58

Mid cost (percent) 10.66 29.05 30.22 17.74

High cost (percent) 70.06 50.04 15.49 59.68

1 Excludes nonfamily farms

*The relative standard error exceeds 25 percent but is no more than 50 percent.
Appendix 1

Table A-2

Farm and Household Characteristics by Sales Class, 1999

Sales class

Item Less than $100,000 $100,000 - $250,000 $250,000 or more 48-State total

Number of farms 1,841,901 199,163 145,886 2,186,950

Share of farms (percent) 84.22 9.11 6.67 100.00

Total value of production ($ billion) 26.1 31.0 118.9 176.0

Average value of production ($) 14,184 155,668 814,878 80,481

Share of value of production (percent) 14.84 17.61 67.54 100.00

Total number of acres owned (million) 289 105 119 513

Average number of acres owned 157 529 815 235

Share of acres owned (percent) 56.33 20.51 23.15 100.00

Total number of acres operated (million) 408 203 259 871

Average number of acres operated 221 1,021 1,779 398

Share of acres operated (percent) 46.85 23.35 29.80 100.00

Distribution of farms by type

Rural residence farms (percent) 72.64 9.10 na 62.01

Intermediate farms (percent) 26.08 88.05 na 29.99

Commercial farms (percent) 1.28 *2.85 100.00 8.01

*The relative standard error exceeds 25 percent but is no more than 50 percent.
Appendix 1

Table A-3Characteristics of Farms, by Farm Typology Group, 1999

Rural-residence farms Intermediate farms Commercial farms

Limited- Retirement Residential Farming Farming Large family Very large Nonfamily All U.S.

Item resource /lifestyle Low-sales High sales farms family farms farms farms

Number

Farms 126,920 297,566 931,561 480,441 175,370 77,314 58,403 39,374 2,186,950

Acres

Land operated per farm 128 145 155 435 1,033 1,444 2,093 1,089 398

Percent of farms

Sales less than $10,000 78.7 80.8 74.3 36.6 0.0 0.0 0.0 33.1 55.9

Dollars per farm

Mean gross cash farm income 7,838 9,456 12,969 34,252 160,621 321,084 989,377 523,292 74,865

Percent of farms

Farms by specialization:

Cash grain 7.6 6.0 9.3 20.8 37.8 36.9 17.8 20.0 14.9Other field crops 22.2 30.4 22.0 16.5 11.3 13.1 12.3 22.6 20.5High value crops1 *8.8 6.5 5.8 7.6 7.1 7.1 12.3 24.4 7.1

Beef 41.1 45.1 41.4 40.5 12.2 9.2 9.9 16.0 36.9Hogs d d d d 2.3 5.7 9.1 d 1.4Dairy d d d 5.3 22.4 16.7 14.3 *2.1 4.2Other livestock 17.1 11.6 20.2 8.5 6.8 11.3 24.4 12.9 14.9

d = Data suppressed due to insufficient observations. *The relative standard error exceeds 25 percent but is no more than 50 percent.1 Vegetables, fruits, tree nuts, and horticultural specialties.
Groupings that follow political boundaries, primarily

State or multi-State areas, are

typically used to capture regional

variation in production and other

farm characteristics. Such groupings,

while convenient, provide little

insight into the inherent physical

and environmental production capability of different land areas. A more

effective grouping merges information about characteristics of land

areas with information about types

of commodities produced. This

results in geographic areas that,

while cutting across State boundaries, are more homogeneous with

regard to both resource and production activities. These regions provide

a snapshot of the regional diversity

in farms, farmers, and farm households by combining “like” counties,

based on commodities produced and

underlying climate, soil, water, and

topography (table A-4). Several variables—including the proportion of

farms and the value of production,

farm income and the portion of that

income derived from farming, and a

rough cataloging of the types of

farms in terms of size, income

source, and type of farming

activity—illustrate the variation in

economic factors across regions

(figure A-2).

One in five U.S. farms is located in

the Heartland region, which

accounts for one-quarter of cropland

and a similar share of total production. This region, which has a mix of

commercial farms, rural-residence

farms, and intermediate farms, has

the highest concentration of corn and

soybean production. Hog farm operations are also more common in this

region than elsewhere in the country.

The Eastern Uplands contains

16 percent of farms—mostly ruralresidence farms—contributing only

7 percent of total farm output. Beef

cattle, tobacco, and other field crops

are the major commodities. This

region had the highest percentage of

farm households with incomes

below the U.S. average for all households, at 68 percent.

Appendix 2

Appendix 2—

Farm Resource

Regions

Figure A-2

Geographic Areas Based on Land Resources and

Commodity Concentration
The Fruitful Rim has 12 percent of

farms, but contains a large proportion of commercial farms. The topography and climate are extremely

diverse in this region, but are generally favorable to the production of

fruits, vegetables, and other highvalue crops. In many areas of the West and Southwest, production is

possible only with irrigation. Freezefree growing seasons are long, ranging generally from 200 to 365 days,

and more than 60 percent of cropland is irrigated. Household incomes

in the Fruitful Rim are the highest of

any region.

The Northern Great Plainsregion

of the country is characterized by the

Nation’s largest farms, as measured

by the number of acres operated per

farm. Almost half the farms in this region are considered intermediate

farms, with the remaining farms predominantly commercial operations.

Farmers in this region reported

working about 500 hours more per

year than the average. Operator

household incomes were well below

the national average and the lowest

of any region. Farmers here are most

dependent of any region on farm

earnings, which make up 26 percent

of total earnings. Wheat, oats, and

barley are the most common crops.

The Northern Crescent accounts

for 14 percent of farms and a similar

share of farm output. The region has

a high share of rural-residence and

intermediate farms. Dairy farms rep- resent 17 percent of the region’s

farms, compared with 4 percent

nationally. Other major farm types

include general field crop (24 percent) and high-value crop (13 percent) farms. Reflecting the region’s

focus on dairy and specialty crop

production, farmers reported working an average of 1,710 hours on their

farms, the second highest among

regions and more than 200 hours

above the national average. This region is also the most urbanized

and, along with portions of the other

coastal regions (Southern Seaboard

and Fruitful Rim), faces the greatest

pressures from urban sprawl and,

conversely, the greatest demand for

farmland preservation.

The Southern Seaboard accounts

for 11 percent of farms, but only 9

percent of farm output. This region

has a dichotomy of farms, with a

large concentration of rural- residence farms and a similarly large

occurrence of commercial farms.

More than two-thirds of farms in this region specialize in livestock production (beef cattle, poultry, and hogs).

The Prairie Gateway’s mix of

commercial farms, rural-residence

farms, and intermediate farms mir- rors the Nation’s. Although this region accounts for the second

largest share of cropland, beef cattle

and other types of livestock are the

primary farm commodities.

The Mississippi Portal is comprised largely of the flood plains and

low terraces of the Mississippi River

south of its confluence with the Ohio

River. The climate and soils are favorable for crop production, although

many soils require drainage for successful crop production. Much like

the Southern Seaboard region, there

is a dichotomy of farms between rural-residence farms and those that

are more commercially engaged. This region has a large concentration of

commercial cotton, rice, soybean, and

poultry operations. Most of the rural- residence farms raise beef cattle.

Rugged mountain ranges, high

valleys, plateaus, plains, and large

basins characterize the Basin and

Rangeregion. In terms of land in

farms, operations here are the second largest on average. Beef cattle

and other livestock farms are prevalent, accounting for 63 percent of

farms. Farms producing field crops

are the second most common type

(24 percent). This region contains

only 5 percent of total cropland and

includes large areas of Federal land

holdings.

Appendix 2
Appendix 2 Table A-4 Farm and Household Characteristics, 1999, by ERS Land Resource Regions ERS Land Resource Regions

Northern Northern Prairie Eastern Southern Fruitful Basin and Mississippi 48-State

Item Heartland Crescent Great Plains Gateway Uplands Seaboard Rim Range Portal totalTotal farms (% of total) 21 14 4 14 16 11 12 4 4 100Value of production (% of total) 24 13 5 14 7 9 21 5 3 100Household earnings ($/household) 62,743 55,962 58,707 67,148 59,174 59,446 90,936 59,345 59,874 64,347Farm earnings (% of total) 17 10 26 9 1 1 13 9 8 10

Households with lower than

US average income (% of total) 57 62 63 62 68 61 57 61 64 61

Typology

Rural-residence farms 54 57 38 65 72 70 61 62 72 62Intermediate farms 35 35 52 28 24 23 29 30 18 30Commercial farms 11 8 10 7 4 7 10 8 10 8

Specialization

Cash grains 42 11 29 14 na 4 2 6 13 15

Other field crops 17 24 25 18 22 21 17 24 25 21High-value crops 2 13 na 2 3 6 28 7 na 7Livestock 40 52 46 67 74 68 53 63 60 57

Note: U.S. average income in 1999 was $54,842 as measured by the CPS.