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Wednesday, August 24, 2011

Agriculture and Related Agencies: FY2012 Appropriations


Jim Monke, Coordinator
Specialist in Agricultural Policy

The Agriculture appropriations bill provides funding for all of the U.S. Department of Agriculture (USDA) except the Forest Service, plus the Food and Drug Administration (FDA) and, in alternating years, the Commodity Futures Trading Commission (CFTC). Appropriations jurisdiction for the CFTC is split between two subcommittees—the House Agriculture Appropriations Subcommittee and the Senate Financial Services Appropriations Subcommittee.

An FY2012 Agriculture appropriations bill has been passed by the House, but the Senate has yet to mark up or report an Agriculture appropriations bill from committee.

In the House, the Agriculture appropriations subcommittee marked up its FY2012 bill by voice vote on May 24, 2011. The following week, the full appropriations committee reported the bill (H.R. 2112, H.Rept. 112-101) by voice vote, after adopting several amendments. On June 16, 2011, the House passed H.R. 2112 by a vote of 217-203 after adopting 22 amendments and removing 4 provisions by point of order.

The House-passed bill would cut discretionary Agriculture appropriations to $17.25 billion, a reduction of $2.7 billion (-14%) from FY2011 levels, and following a 15% cut in FY2011. Much of the floor debate related to funding reductions for Women, Infants and Children (WIC) feeding program (-11%), food safety (-10%), international food aid (-31%), preventing USDA payments to Brazil in relation to the U.S. loss in the WTO cotton case, and programs promoting locally produced food (USDA’s “know-your-farmer-know-your-food” initiative). Other more notable non-money amendments that were adopted would prevent funding of blender pumps for higher mixtures of ethanol, prevent funding related to the RU-486 abortion pill (proposed relative to the USDA telemedicine program, but also affecting the FDA), prevent food aid to North Korea, and prevent implementation of USDA policy on climate change adaptation. The bill also includes a 0.78% across-the-board rescission to discretionary accounts.

If H.R. 2112 were to be enacted, the 10-year change in discretionary agriculture appropriations would be nearly flat, increasing at an average annualized rate of +0.6%. The nutrition portion of discretionary appropriations would show a +2.6% average annual increase over 10 years, while the rest of the bill would have an average annual decline of -0.4% over 10 years. If these amounts are adjusted for the effect of inflation, the annual rates are each about 2% less.

The House-passed bill for FY2012 contains nearly $2 billion in rescissions and limitations on mandatory farm bill programs. These actions are used to score savings that help meet the $17.25 billion discretionary budget allocation and help avoid deeper cuts to regular discretionary accounts. The FY2012 bill has the same $2 billion level of rescissions and limitations as the FY2011 appropriation. Had the FY2012 House-passed proposal not maintained this level of reductions—which is significantly greater than in past years—even larger cuts might have been required to the regular discretionary accounts. The FY2012 House bill proposes a unusually high $1.4 billion reduction to mandatory farm bill programs, including $1 billion from conservation.

On August 2, 2011, the Budget Control Act of 2011 (P.L. 112-25) was enacted. It sets the total FY2012 discretionary limit for all 12 appropriations bills at $1.043 trillion, $23.6 billion higher (+2.3%) than the House budget resolution. Although the Agriculture appropriations bill has not yet received an allocation from this new amount, some believe that the higher amount in P.L. 112- 25 implies that the final subcommittee allocation might be higher than in the House-passed bill.



Date of Report: August 11, 2011
Number of Pages: 69
Order Number: R41964
Price: $29.95

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Wednesday, August 17, 2011

U.S.-South Korea Beef Dispute: Issues and Status

Remy Jurenas
Specialist in Agricultural Policy

Mark E. Manyin
Specialist in Asian Affairs


The Obama Administration had been pressed to resolve the terms of U.S. beef access to South Korea before the Korea-U.S. Free Trade Agreement (KORUS FTA) goes to Congress for debate. While Korea committed in the FTA to reduce its 40% tariff on imported U.S. beef over a 15-year period, its limits on such imports for human health reasons threatened to undercut this preferential benefit for U.S. exporters. In 2003, South Korea was the third-largest market for U.S. beef exports, prior to the ban its government imposed after the first U.S. cow infected with mad cow disease, or BSE (bovine spongiform encephalopathy), was discovered. U.S. efforts to regain full access became intertwined with the subsequent KORUS negotiations, but did not yield results by the time those talks concluded in April 2007. In reaction, some Members of Congress stated their consideration of, and support for, KORUS depends on South Korea fully opening its market to U.S. beef.

On April 18, 2008, U.S. and South Korean negotiators signed a protocol, or agreement, on sanitary rules that Korea will apply to beef imports from the United States. It allows for imports of all cuts of U.S. boneless and bone-in beef and certain beef products from cattle, irrespective of age, as long as specified risk materials known to transmit mad cow disease are removed and other conditions are met. Though the U.S. beef industry and U.S. policymakers welcomed this deal, Korean TV coverage and Internet-spread rumors that questioned the safety of U.S. beef resulted in escalating protests and calls for the beef agreement to be renegotiated or scrapped. U.S. officials countered that measures already in place to prevent the introduction of BSE in U.S. cattle herds meet international scientific standards. To address rising public pressure, the Korean government twice pursued talks with the United States to find ways to defuse these concerns without “renegotiating” the beef protocol. This culminated in the June 21, 2008, confirmation by both governments of a “voluntary private sector” arrangement that allows Korean firms to import U.S. beef produced from cattle only under 30 months of age. Both governments view this as a transitional step until Korean consumer confidence in the safety of U.S. beef improves.

Since the resumption of U.S. beef exports in July 2008, U.S. exporters have worked to recapture this key overseas market. Beef exports to South Korea in 2010 totaled $518 million, about twothirds of the record 2003 level. In 2011’s first five months, exports (at $331 million) were twice the level recorded in the same period the year before. Promotional efforts to rebuild consumer confidence in U.S. beef, aggressive marketing efforts by large store chains, and much lower retail prices for imported beef than for Korean beef account for the continued growth in U.S. beef sales.

Following President Obama’s mid-2010 decision to present the KORUS FTA to Congress in 2011, Administration officials worked to resolve the beef and auto issues with South Korea. By the time bilateral talks concluded on December 3, 2010, the beef issue reportedly had received little discussion as both sides focused on revising the auto provisions. Korea’s position was shaped by the memory of the size and intensity of the 2008 anti-beef agreement protests. President Obama, in discussing this outcome, stated that the United States will continue to work toward “ensuring full access for U.S. beef to the Korean market.” To address lingering congressional concerns, the Administration in early May 2011 committed to request consultations with South Korea on the “full implementation” of the protocol as soon as KORUS takes effect, and to provide additional funds for U.S. beef promotion activities in the Korean market. Beef and meat industry groups have welcomed the steps made since to submit KORUS to Congress, have expressed their support, and have urged Congress to move quickly to ratify it.



Date of Report: August 3, 2011
Number of Pages: 19
Order Number: RL34528
Price: $29.95

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U.S. Livestock and Poultry Feed Use and Availability: Background and Emerging Issues

Randy Schnepf
Specialist in Agricultural Policy

The U.S. livestock and poultry sector is presently confronting near-record high feed costs driven by the convergence of both current tight supply prospects and long-run market forces. The U.S. livestock sector, where feed costs account for 50% to 80% of cash operating expenses, has seen its profit margins steadily squeezed and its share of U.S. agricultural cash receipts decline. Since June 2010 feed cost increases have outpaced livestock price increases, squeezing the profitability of livestock and poultry producers. When profit margins turn unfavorable, producers are more likely to retain fewer breeding animals or to liquidate herds. Near-term liquidation means smaller future herds or flocks and ultimately higher retail prices for beef, pork, poultry meat, eggs, and dairy products. Persistent upward feed price movements could result in substantial and longlasting consequences for livestock product prices throughout the marketing chain.

USDA forecasts that U.S. corn stocks will approach historic low levels relative to demand by the end of summer 2011. In addition, the current crop outlook remains uncertain due to late planting in the Northern Plains and Eastern Corn Belt and a severe drought that has dried up pasture lands from the Southern Plains into the Southeast, exposing cattle producers to expensive commercial feed markets.

From a longer-term perspective, U.S. feed grain demand has exceeded production in all but one year since 2004. This persistent trend is primarily the result of five factors: rapid growth of U.S. corn-based ethanol production (whose share of the U.S. corn crop in 2011 is forecast to exceed feed use for the first time), limited supply of available U.S. cropland to expand production, prolonged weakness of the U.S. dollar which has made U.S. agricultural exports competitive in foreign markets despite high prices, strong income growth in China and other international markets which has increased demand for livestock products and the feedstuffs (feed grains and protein meals) needed to produce them, and a substantial decline in the price responsiveness of both supply and demand in agricultural commodity markets. The convergence of these factors has resulted in falling grain and oilseed stocks, record or near-record prices for most feedstuffs— grains, oilseeds, hay, and pasture—in 2011, and increasingly volatile commodity prices. These factors are expected to persist for several more years, thus maintaining strong demand for feed grains and strong upward pressure on prices for all commodities that compete for farm land.

Issues surrounding feed use and availability are likely to be of growing interest to Congress as the House and Senate Agriculture Committees monitor the financial health and well-being of the U.S. livestock and poultry sectors, as well as any future ramifications for retail food price inflation. In addition, Congress, along with energy and agricultural market participants, will closely follow any further acceleration of unanticipated side effects on the U.S. livestock sector from continued corn use for ethanol production. Finally, feed availability and associated market price volatility are likely to play a significant role in the next farm bill debate, as the current omnibus farm bill expires in 2012.

Feed market dynamics and what they mean for the U.S. livestock sector depend on many factors. This report provides a review of the current feed market dynamic including the major emerging issues mentioned above and their implications for the U.S. livestock sector and Congress. In addition, background information on the market structure of the U.S. feed grain sector is contained in an appendix.



Date of Report: August 11, 2011
Number of Pages: 32
Order Number: R41956
Price: $29.95

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Monday, August 15, 2011

Agriculture and Related Agencies: FY2011 Appropriations


Jim Monke, Coordinator
Specialist in Agricultural Policy

The Agriculture appropriations bill provides funding for all of the U.S. Department of Agriculture (USDA) except the Forest Service, plus the Food and Drug Administration (FDA) and, in some cases, the Commodity Futures Trading Commission (CFTC). Appropriations jurisdiction for the CFTC is split between two subcommittees—the House Agriculture Appropriations Subcommittee and the Senate Financial Services Appropriations Subcommittee.

For the FY2011 Agriculture appropriations bill, no separate floor action and limited formal committee action occurred in the 111
th Congress. The full Senate Appropriations Committee reported an Agriculture appropriations bill (S. 3606, S.Rept. 111-221) on July 15, 2010. The House Agriculture Appropriations Subcommittee marked up its draft on June 30, 2010, but the bill did not see full committee action nor was it reported. None of the 12 appropriations bills was enacted in 2010.

In the 112
th Congress, the House passed H.R. 1, a full-year continuing resolution for FY2011, by a vote of 235-189 on February 19, 2011. For Agriculture, H.R. 1 would have made $5.3 billion in cuts to discretionary programs (-23%), reducing them from $23.4 billion in FY2010 to $18.1 billion for FY2011.

On March 9, 2011, the Senate voted on H.R. 1, but failed to pass it by a vote of 44-56. Later on March 9, 2011, the Senate also voted on a substitute amendment, S.Amdt. 149; it failed by a vote of 42-58. S.Amdt. 149 would have reduced discretionary Agriculture appropriations by $1.7 billion (-7%) from the FY2010 level of $23.4 billion to $21.7 billion.

On April 15, 2011, a final, full-year continuing resolution was enacted as Division B of the Department of Defense appropriation, P.L. 112-10. Seven short-term continuing resolutions (CRs) were enacted in between, some with spending reductions, to prevent a government shutdown before the final agreement was reached for the full-year continuing resolution.

P.L. 112-10 provides $19.9 billion of discretionary funding for Agriculture appropriations, a 15% reduction (-$3.4 billion) from FY2010 levels. Mandatory appropriations for farm programs and domestic nutrition increased a net 7% to $105.1 billion. Thus, the total Agriculture appropriation (mandatory plus discretionary) for FY2011 is $125.0 billion, 3% greater than FY2010.

Discretionary agriculture-related programs fell to $6.89 billion, 6% below FY2010; discretionary conservation programs fell to $889 million, 12% below FY2010; rural development fell to $2.64 billion, 11% below FY2010; discretionary nutrition assistance fell to $7.13 billion, 7% below FY2010; and foreign assistance fell to $1.89 billion, 9% below FY2010. FDA increased to $2.46 billion, 4% above FY2010, and CFTC increased to $202 million, 20% above FY2010.

Cuts to individual agricultural agencies’ operating budgets would have been even bigger had it not been for usually large amounts of rescissions of unobligated prior-year balances and limitations on mandatory farm bill programs. Of the $3.4 billion total reduction in discretionary appropriations from FY2010, about half of the cut was the increase in the amount of rescissions and farm bill limitations.



Date of Report: July 29, 2011
Number of Pages: 36
Order Number: R41475
Price: $29.95

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Tuesday, August 9, 2011

Agriculture in Pending U.S. Free Trade Agreements with Colombia, Panama, and South Korea


Remy Jurenas
Specialist in Agricultural Policy

The 112th Congress is expected to consider separate free trade agreements (FTAs) signed by the Bush Administration with South Korea, Panama, and Colombia. If and when submitted, these trade agreements will be debated under trade promotion authority, or fast-track rules, designed to expedite congressional consideration. Liberalizing trade in agricultural products, particularly the pace of expanding market access for the more sensitive agricultural commodities, was one of the more challenging areas that trade negotiators faced in concluding each of these FTAs. In each instance, issues dealing with food safety and animal/plant health matters (technically not part of the FTA negotiating agenda) were not resolved until later.

Of these three pending agreements, the U.S.-South Korea (KORUS) FTA would be the most commercially significant for U.S. agriculture since the North American Free Trade Agreement (NAFTA) took effect with Mexico in 1994. Because Colombia, one of the largest markets in South America, imposes a high level of border protection on agricultural imports, the Colombia FTA has the potential to noticeably increase U.S. agricultural exports. Though Panama is a relatively small market, U.S. exporters would have opportunities to make additional sales.

Many U.S. commodity groups, some general farm organizations, and many agribusiness and food firms support these three trade agreements. They argue for quick approval to secure the benefits of additional agricultural exports (estimated to range from $2 billion to $4 billion) once all three FTAs are fully implemented. They contend that the timely approval of these FTAs will protect or enhance the U.S. competitive position in these three markets. Their focus has shifted to include not simply securing the gains already negotiated, but also ensuring that the United States does not lose market share to other major agricultural exporting countries. They point to the European Union-Korea FTA, implemented on July 1, 2011, and to the Colombia-Canada FTA, which will take effect on August 15.

Analyses suggest that the market openings could result in U.S. agricultural exports from $2.3 billion to $3.1 billion higher than they would be without these trade agreements. These changes would be concentrated in a few commodity/product sectors. In value terms, U.S. exports of beef, processed food products, poultry, pork, and wheat would be noticeably higher.

The major agricultural issue remaining after these FTAs were signed was the terms of U.S. beef access to South Korea. The Obama Administration and some Members of Congress sought a full opening of South Korea’s market to U.S. beef (i.e., slaughtered from all cattle, irrespective of age). In the last round of supplemental negotiations in late 2010, Korean negotiators succeeded in deflecting this issue. The Administration’s commitment to request consultations on this matter as soon as the KORUS FTA takes effect was welcomed by Members, and cleared another obstacle to moving that agreement forward.

Under the process laid out in trade promotion authority, Congress has taken preliminary action on the draft bills that the Administration plans to submit to secure approval for these three agreements. The timing of each bill’s submission now appears to depend largely on how the Administration and some Members of Congress resolve the contentious issue of whether or not to include the renewal of U.S. domestic trade adjustment assistance programs in one of the FTA implementing bills.



Date of Report: July 15, 2011
Number of Pages: 28
Order Number: R40622
Price: $29.95

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