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Tuesday, February 28, 2012

Trade Adjustment Assistance for Farmers

Remy Jurenas
Specialist in Agricultural Policy

The Trade Adjustment Assistance for Farmers (TAAF) program provides technical assistance and cash benefits to producers of agricultural commodities and fishermen who experience adverse economic impacts caused by increased imports. Congress first authorized this program in 2002, and made significant changes to it in the 2009 economic stimulus package (P.L. 111-5). The 2009 revisions were intended to make it easier for commodity producers and fishermen to qualify for program benefits. It also provided over $200 million in funding through year-end 2010. Most recently, P.L. 112-40 (enacted in October 2011) authorized $90 million in each of FY2012 and FY2013, and $22.5 million for the first quarter of FY2014. In a policy change, this law did not appropriate any funds to implement the TAAF program during this period.

The U.S. Department of Agriculture (USDA) is required to follow a two-step process in administering TAAF program benefits. First, a group of producers must be certified eligible to apply. Second, a producer in a certified group must meet specified requirements to be approved to receive technical assistance and cash payments.

To be certified, a group must show that imports were a significant cause for at least a 15% decline in one of the following factors: the price of the commodity, the quantity of the commodity produced, or the production value of the commodity.

Once a producer group is certified, an individual producer within that group must meet three requirements to be approved for program benefits. These include technical assistance with a training component, and financial assistance. A producer must show that (1) the commodity was produced in the current year and also in one recent previous year; (2) the quantity of the commodity produced decreased compared to that in a previous year, or the price received for the commodity decreased compared to a preceding three-year average price; and (3) no benefits were received under any other trade adjustment assistance program. The training component is intended to help the producer become more competitive in producing the same or another commodity. Financial assistance (capped at $12,000 over a three-year period for an approved producer) is to be used to develop and implement a business adjustment plan designed to address the impact of import competition.

Since 2009, USDA has certified 10 of the 30 petitions filed by commodity groups and fishermen (e.g., producers of shrimp, catfish, asparagus, lobster, and wild blueberries). In FY2010, USDA approved about 4,500 agricultural producers who applied for training and cash assistance under three certifications. Under the seven FY2011 certified petitions, USDA approved about 5,700 producers. Program benefits in both years will mostly flow to shrimp producers.

USDA continues, in stages, to disburse financial assistance to producers approved to receive benefits under the FY2010 and FY2011 programs as they meet certain benchmarks. Any future program activity depends on whether Congress appropriates funds to support the authority enacted in P.L. 112-40. In its FY2013 budget request submitted February 13, 2012, the Obama Administration did not request any appropriations for the TAAF program.

Date of Report: February 14, 2012
Number of Pages: 13
Order Number: R40206
Price: $29.95

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U.S. Farm Income

Randy Schnepf
Specialist in Agricultural Policy

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $91.7 billion in 2012, down $6.5 billion (6.5%) from the record total of $98.1 billion achieved in 2011. Record revenues from crop markets (forecast up 0.7%, from 2011’s record level), coupled with continued strength in livestock markets (down 0.1% from 2011’s record), are expected to be offset a 4% ($12.5 billion) increase in input costs to account for the lower forecast for overall net returns.

The major drivers behind a second year of strong farm income projections are the outlook for near-record U.S. agricultural exports of $132 billion in 2012, following record exports in 2011 (projected at a record $136.3 billion), and continued strong crop prices driven in part by sustained demand from the U.S. corn ethanol industry. Market prices for major program crops for the 2011/12 marketing year have remained near record levels, and sustain a positive earnings outlook for most commodities, but especially for corn, cotton, and soybeans. Beef and broilers are expected to see record high prices in 2012 (up 9% and 7%, respectively), while egg and milk prices are projected to decline by over 8%.

Government farm payments, although projected up 4% in 2012 at $11 billion, are expected to remain relatively small (second lowest total since 1997) as high commodity prices shut off payments under the price-contingent marketing loan and counter-cyclical payment programs.

Farm production expenses are forecast up 4% to a record $334 billion in 2012, led by a surge in operating expenses and increasing outlays for crop insurance. Livestock producers face record costs for feed and near-record costs for replacement animals, which could diminish their net return prospects. Crop producers also are expected to confront record high costs for seed, fertilizer, and fuel.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm-sector investments—are expected to rise nearly 6% in 2012 to a record $2,474 billion for a 4th consecutive year of gains. Farm land cash markets in early 2012 suggest that land values will continue to see gains related to strong crop prices in 2012. Farm debt has been nearly stagnant since 2008. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to the lowest level on record in 2012 at 10.3%.

These data suggest a strong financial position heading into 2012 for the agriculture sector as a whole relative to the rest of the U.S. economy. However, there is substantial regional variation. In general, the increase in expenses will affect livestock producers more harshly than crop producers. Cash grain farmers in the Corn Belt and Northern Plains are expected to experience a second year of record revenues. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed profit margins despite record high wholesale and retail prices for their end products. In addition, a severe drought in 2011 in the Southwest that extended into the Central Plains and the Southeast limited grazing opportunities and hay production for cattle ranchers in the affected regions and led to substantial herd liquidation. The lingering effects of the drought are expected to depress sales of many crops in 2012 through their negative impact on production. Eventual 2012 agricultural economic well-being will hinge greatly on spring crop planting and summer growing weather, as well as both domestic and international macroeconomic factors including economic growth and consumer demand.

Date of Report: February 15, 2012
Number of Pages: 29
Order Number: R40152
Price: $29.95

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Friday, February 24, 2012

Previewing the Next Farm Bill

Ralph M. Chite, Coordinator
Section Research Manager

Congress periodically establishes agricultural and food policy in an omnibus farm bill. The 112th Congress faces reauthorization of the current five-year farm bill (the Food, Conservation, and Energy Act of 2008, P.L. 110-246) because many of its provisions expire in 2012. The 2008 farm bill contained 15 titles covering farm commodity support, horticulture, livestock, conservation, nutrition assistance, international food aid, trade, agricultural research, farm credit, rural development, bioenergy, and forestry, among others. The breadth of farm bills has steadily grown in recent decades to include new and expanding food and agricultural interests. The omnibus nature of the bill can create broad coalitions of support among sometimes conflicting interests for policies that individually might not survive the legislative process. This breadth also can stir fierce competition for available funds, particularly among producers of different commodities, or between those who have differing priorities for farm subsidies, conservation, nutrition, or other programs.

One of the principal drivers of the farm bill debate will be the federal budget, which is more uncertain and difficult to predict than for past farm bills because of the congressional attention to deficit reduction. According to Congressional Budget Office estimates, if ongoing farm bill programs were to continue under current law, mandatory farm bill spending would be $994 billion over 10 years, with domestic nutrition assistance accounting for more than three-fourths of the total and the rest primarily for the farm safety net (commodity support and crop insurance) and conservation. How much of this baseline can be used to write a farm bill is unknown, given the uncertainty about deficit reduction that is beyond the control of the authorizing committees and may not be resolved for months. Several high-profile congressional and Administration proposals for deficit reduction are specifically targeting agricultural programs with mandatory funding, and the possibility of budget sequestration early next year further clouds the budget picture. Also, disaster assistance, most bioenergy programs, and some conservation programs expire without any baseline beyond their expiration date.

Traditionally, the primary focus of omnibus farm bills has been farm commodity price and income support policy—namely, the methods and levels of support that the federal government provides to agricultural producers. The 2008 farm bill combined counter-cyclical support with direct payments available primarily to growers of grains, cotton, and peanuts, regardless of farm commodity market prices. Proponents of the current approach to farm commodity support want a stronger safety net, with many focusing on enhancements to risk management tools such as crop insurance as a substitute for direct payments. Some opponents of the status quo cite the thriving farm economy as a reason for reducing federal support. Others point to competing policy priorities, including equitability concerns across the farm sector, and call for enhanced support for small and medium-sized farms, specialty crops, organic agriculture, local and regional food systems, healthy and nutritious foods, research, conservation, and rural development, among others.

Leaders of the House and Senate Agriculture Committees anticipate having a new farm bill completed before the end of this session. If the current farm bill expires without a new authorization or a temporary extension, it automatically would be replaced with permanent statutes for farm commodity support, which are not fully compatible with current national economic objectives, global trading rules, and federal budgetary or regulatory policies.

Date of Report: February 15, 2012
Number of Pages: 58
Order Number: R42357
Price: $29.95

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Thursday, February 23, 2012

The Role of Local Food Systems in U.S. Farm Policy

Renée Johnson
Specialist in Agricultural Policy

Tadlock Cowan
Analyst in Natural Resources and Rural Development

Randy Alison Aussenberg
Analyst in Social Policy

Sales of locally produced foods comprise a small but growing part of U.S. agricultural sales. USDA estimates that farm-level value of local food sales totaled about $4.8 billion in 2008, or about 1.6% of the U.S. market for agricultural products. An estimated total of 107,000 farms are engaged in local food systems, or about 5% of all U.S. farms.

There is no established definition of what constitutes a “local food.” Local and regional food systems generally refer to agricultural production and marketing that occurs within a certain geographic proximity (between farmer and consumer) or that involves certain social or supply chain characteristics in producing food (such as small family farms, urban gardens, or farms using sustainable agriculture practices). Some perceive locally sourced foods as fresher and higher in quality compared to some other readily available foods, and also believe that purchasing local foods helps support local farm economies and/or farmers that use certain production practices that are perceived to be more environmentally sustainable.

A wide range of farm businesses may be considered to be engaged in local foods. These include direct-to-consumer marketing, farmers’ markets, farm-to-school programs, community-supported agriculture, community gardens, school gardens, food hubs and market aggregators, and kitchen incubators and mobile slaughter units. Other types of operations include on-farm sales/stores, internet marketing, food cooperatives and buying clubs, pick-your-own or “U-Pick” operations, roadside farm stands, urban farms (and rooftop farms and gardens), community kitchens, smallscale food processing and decentralized root cellars, and some agritourism or other types of onfarm recreational activities.

The 2008 farm bill (P.L. 110-246, Food, Conservation, and Energy Act of 2008) contained a few program provisions that directly support local and regional food systems. However, many farm bill-related programs benefiting agricultural producers may provide support and assistance for such food systems. These include federal farm support and grant programs administered by the U.S. Department of Agriculture (USDA), which may be grouped into several broad program categories: marketing and promotion; business assistance; rural and community development; nutrition and education; agricultural research and cooperative extension; and farmland conservation. Examples include USDA’s farmers’ market programs, rural cooperative grants, and selected child nutrition programs, among myriad other grant and loan programs, as well as USDA’s research and cooperative extension service.

Although the farm bill currently contains few specific programs that directly support local and regional food systems, many community and farm advocacy groups have been arguing that such food systems should play a larger policy role within the next farm bill, and that laws should be modified to reflect broader, more equitable policies across a range of production systems, including local food systems. The 112th Congress will likely consider reauthorization of the 2008 farm bill, and may debate options for providing additional support for local and regional producers. To date, a number of bills have been introduced, including comprehensive marker bills, that would expand the benefits for local and regional food systems.

Date of Report: January 24, 2012
Number of Pages: 54
Order Number: R42155
Price: $29.95

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Wednesday, February 22, 2012

USDA’s “GIPSA Rule” on Livestock and Poultry Marketing Practices

Joel L. Greene
Analyst in Agricultural Policy

On June 22, 2010, the U.S. Department of Agriculture’s (USDA’s) Grain Inspection, Packers and Stockyards Administration (GIPSA) published a proposed rule to implement regulations on livestock and poultry marketing practices as mandated by the 2008 farm bill (P.L. 110-246). The proposed rule, commonly referred to as the “GIPSA rule,” added new regulations to clarify conduct that violates the Packers and Stockyards Act of 1921 (P&S Act). The P&S Act regulations are used by USDA to ensure fair competition in livestock and poultry markets.

In what some see as a major change from current practice, GIPSA proposed that a violation of the P&S Act does not require a finding of “harm or likely harm to competition.” The proposed rule set criteria for “unfair, discriminatory, and deceptive practices”, and “undue or unreasonable preference or advantages” that violate the P&S Act. The proposed rule also included arbitration provisions to ensure that contract growers have a meaningful opportunity to participate in arbitration and the right to decline arbitration.

During congressional debate on the 2008 farm bill, some advocates proposed that a competition title be added to the farm bill to address perceived anticompetitive market behavior by large meat and poultry companies. Then and now, advocates for stronger anticompetitive measures contend that substantial market consolidation over the past several decades has given meat packers and poultry processors considerable market power over individual producers when negotiating contracts. Others argue that consolidation occurred in previous decades and has stabilized in recent years, bringing with it efficiencies that benefit producers and consumers alike.

The enacted farm bill included new provisions that amend the P&S Act to give poultry and swine growers the right to cancel contracts, require the clear disclosure by poultry processors to growers of additional required capital investments, set the choice of law and venue in contract disputes, and give poultry and swine growers the right to decline an arbitration clause that requires arbitration to resolve contract disputes. The farm bill required USDA to propose rules to implement the farm bill provisions.

According to proponents of the proposed rule implementing the farm bill provisions, the rule would bring fairness to contracts and reshape interactions between producers and large meat packers and poultry processors. Opponents argue that the proposed rule went far beyond the intent of Congress in the 2008 farm bill, and that the rule would alter business practices to the detriment of producers, consumers, and the industries.

On November 3, 2011, USDA started to finalize the proposed rule by sending it to the Office of Management and Budget (OMB) for review. However, Members of Congress used the appropriations process to curtail what USDA could do to finalize the proposed rule. Section 721 of the FY2012 Agriculture Appropriations Act (P.L. 112-55), signed November 18, 2011, included conditions and prohibited USDA from finalizing certain parts of the proposed rule.

USDA issued the final rule on December 9, 2011, and it went into effect on February 7, 2012. The final rule, a significant modification of the proposed rule, includes four provisions that address, respectively, suspension of the delivery of birds, additional capital investments, remedy of breach of contract, and arbitration. The final rule does not include many of the most contentious provisions of the proposed rule. It is possible that some of the competition provisions could reemerge in the next farm bill debate.

Date of Report:
February 8, 2012
Number of Pages:
Order Number: R41
Price: $29.95

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