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Thursday, December 27, 2012

Agricultural Disaster Assistance



Dennis A. Shields
Specialist in Agricultural Policy

In summer 2012, a major drought spread across much of the United States and adversely affected agricultural production. By October 30, 2012, the Secretary of Agriculture had designated more than 2,200 counties as disaster areas for drought and other weather events. The drought has fueled congressional interest in what programs are currently available and what more can be done to assist producers.

The U.S. Department of Agriculture (USDA) offers several permanently authorized programs to help farmers recover financially from a natural disaster, including federal crop insurance, the Noninsured Crop Disaster Assistance Program (NAP), and emergency disaster loans. The federal crop insurance program is designed to protect crop producers from unavoidable risks associated with adverse weather, and weather-related plant diseases and insect infestations. Producers who grow a crop that is currently ineligible for crop insurance may be eligible for a payment under NAP. Under the emergency disaster (EM) loan program, when a county has been declared a disaster area by either the President or the Secretary of Agriculture, agricultural producers in that county may become eligible for low-interest loans.

In order to provide a regular supplement to crop insurance and NAP payments, the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill) included authorization and funding for five new disaster programs to cover losses from weather events, beginning with 2008 crops and ending September 30, 2011. The 2008 farm bill programs were designed to address the ad hoc nature of disaster assistance provided to producers during the last two decades. The largest of the now-expired programs under the 2008 farm bill is the Supplemental Revenue Assistance Payments Program (SURE), which is designed to compensate eligible producers for a portion of crop losses that are not eligible for an indemnity payment under the crop insurance program. The 2008 farm bill also authorized three livestock assistance programs and a tree assistance program. As of December 4, 2012, cumulative payments were $4.2 billion.

The 112
th Congress is currently considering omnibus farm legislation, including extension of certain agricultural disaster programs that expired in September 2011. The Senate passed its version of the omnibus 2012 farm bill (S. 3240, the Agriculture Reform, Food, and Jobs Act of 2012) in June 2012. The Senate bill retroactively extends the livestock disaster and tree assistance programs, thereby potentially covering losses associated with the 2012 drought. These losses are generally not covered by crop insurance or other assistance. In the House, on July 11, 2012, the House Agriculture Committee passed its version of the farm bill (H.R. 6083, the Federal Agriculture Reform and Risk Management Act of 2012), which includes the same combination of disaster programs as in the Senate bill. Floor action is pending. Separately, on July 27, 2012, the House Agriculture Committee released H.R. 6228 to extend several disaster programs as part of a one-year extension of the farm bill. Subsequently, on July 31, 2012, the bill was pulled from consideration, and H.R. 6233 was introduced to provide livestock and tree assistance disaster programs for FY2012 (i.e., no farm bill extension). On August 2, 2012, the House passed H.R. 6233 by a vote of 223-197. The Senate has not yet considered the bill.

In response to the 2012 drought, USDA has taken a number of steps. For example, USDA reduced the interest rate for emergency loans from 3.75% to 2.25% and authorized emergency haying and grazing on Conservation Reserve Program acres. USDA also announced plans to purchase $170 million of meat (pork, lamb, chicken, and catfish) to mitigate downward pressure on livestock prices resulting from producers selling livestock for slaughter during the drought.



Date of Report: December 7, 2012
Number of Pages: 17
Order Number: RS21212
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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 $114 billion in 2012, down 3.3% from last year’s record, but still the second-highest total on record.

In addition to near-record farm income, farm wealth is also at record levels. Farm asset values— which reflect farm investors’ and lenders’ expectations about long-term profitability of farmsector investments—are expected to rise nearly 7% in 2012 to a record $2,540 billion for a fourth consecutive year of gains. Farm land cash markets have continued to see gains related to strong crop prices in 2012. Since 2008, farm asset values are up 26% while farm debt has risen by only 10%. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to 10.5%, its second-lowest level since 1960.

The 2012 outlook for a second year of strong farm income occurs in spite of slow growth in the domestic economy and the most severe and extensive drought in at least 25 years. The ongoing drought is expected to destroy or damage a significant portion of the U.S. corn and soybean crops, with deleterious impacts on all U.S. livestock sectors—cattle, hogs, poultry, and dairy— and with the potential to affect food prices at the retail level. Yet, drought-induced large increases in the value of this year’s crops, plus substantial crop insurance indemnity payments, are expected to more than offset rising production expenditures for both crop and livestock activities and generate record farm income.

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

These data suggest a strong financial position in 2012 for the agricultural sector as a whole relative to the rest of the U.S. economy, but with 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 despite the drought. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed or eliminated profit margins despite record high wholesale and retail prices for their end products. In addition, the severe nationwide drought has 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 spill over into next year, when record-high market prices will likely motivate large feed grain and oilseed plantings. Eventual 2013 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: December 10, 2012
Number of Pages: 29
Order Number: R40152
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Wednesday, December 26, 2012

Agriculture in the WTO: Limits on Domestic Support



Randy Schnepf
Specialist in Agricultural Policy

Omnibus U.S. farm legislation—referred to as the farm bill—is renewed about every five years. Farm income and commodity price support programs have been a part of U.S. farm bills since the 1930s. Each successive farm bill usually involves some modification or replacement of existing farm programs. A key question likely to be asked of virtually every new farm proposal or program is how it will affect U.S. commitments under the World Trade Organization’s (WTO’s) Agreement on Agriculture (AA) and its Agreement on Subsidies and Countervailing Measures (ASCM).

The United States currently is committed, under the AA, to spend no more than $19.1 billion annually on those domestic farm support programs most likely to distort trade—referred to as amber box programs and measured by the aggregate measure of support (AMS). The AA spells out the rules for countries to determine whether their policies—for any given year—are potentially trade-distorting, and how to calculate the costs.

An additional consideration for WTO compliance—the ASCM rules governing adverse market effects resulting from a farm program—comes into play when a domestic farm policy effect spills over into international markets. The ASCM details rules for determining when a subsidy is “prohibited” (e.g., certain export- and import-substitution subsidies) and when it is “actionable” (e.g., certain domestic support policies that incentivize overproduction and result in significant market distortion—whether as lower market prices or altered trade patterns). Because the United States is a major producer, consumer, exporter, and/or importer of most major agricultural commodities, the ASCM is relevant for most major U.S. agricultural products. As a result, if a particular U.S. farm program is deemed to result in market distortion that adversely affects other WTO members—even if it is within agreed-upon AA spending limits—then that program may be subject to challenge under the WTO dispute settlement procedures.

Designing farm programs that comply with WTO rules can avoid potential trade disputes. Based on AA and ASCM rules, U.S. domestic agricultural support can be evaluated against five specific successive questions to determine how it is classified under the WTO rules, whether total support is within WTO limits, and whether a specific program fully complies with WTO rules.


  1. Can a program’s support outlays be excluded from the AMS total by being placed in the green box of minimally distorting programs? 
  2. Can a program’s support outlays be excluded from the AMS total by being placed in the blue box of production-limiting programs? 
  3. If amber, will support be less than 5% of production value (either productspecific or non-product-specific) thus qualifying for the de minimis exclusion? 
  4. Does the total, remaining annual AMS exceed the $19.1 billion amber box limit? 
  5. Even if a program is found to be fully compliant with the AA rules and limits, does its support result in price or trade distortion in international markets? If so, then it may be subject to challenge under ASCM rules.

Date of Report: December 4, 2012
Number of Pages: 16
Order Number: RS20840
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Tuesday, December 18, 2012

Emergency Assistance for Agricultural Land Rehabilitation



Megan Stubbs
Specialist in Agricultural Conservation and Natural Resources Policy

The U.S. Department of Agriculture (USDA) administers several permanently authorized programs to help producers recover from natural disasters. Most of these programs offer financial assistance to producers for a loss in the production of crops or livestock. In addition to the production assistance programs, USDA also has several permanent disaster assistance programs that help producers repair damaged crop and forest land following natural disasters. These programs offer financial and technical assistance to producers to repair, restore, and mitigate damage on private land. These emergency agricultural land assistance programs include the Emergency Conservation Program (ECP), the Emergency Forest Restoration Program (EFRP), and the Emergency Watershed Protection (EWP) program. In addition to these programs, USDA also has flexibility in administering other programs that allow for support and repair of damaged cropland in the event of an emergency.

Both ECP and EFRP are administered by USDA’s Farm Service Agency (FSA). ECP assists landowners in restoring agricultural production damaged by natural disaster. Participants are paid a percentage of the cost to restore the land to a productive state. ECP is available only on private land and eligibility is determined locally. EFRP was created to assist private forestland owners to address damage caused by a natural disaster on nonindustrial private forest land.

The EWP program and the EWP floodplain easement program are administered by USDA’s Natural Resources Conservation Service (NRCS) and the U.S. Forest Service (USFS). The EWP program assists sponsors, landowners, and operators in implementing emergency recovery measures for runoff retardation and erosion prevention to relieve imminent hazards to life and property created by a natural disaster. In some cases this can include state and federal land. The EWP floodplain easement program is a mitigation program that pays for permanent easements on private land meant to safeguard lives and property from future floods, drought, and the products of erosion.

Most of the emergency agricultural land assistance programs are funded through supplemental appropriations, rather than annual appropriations. As a result, funding for emergency agricultural land assistance varies greatly from year to year. Agricultural land assistance programs do not usually receive the level of attention that triggers a supplemental appropriation. Therefore, funding is typically provided for these land assistance programs as part of a larger supplemental appropriation that funds a number of agencies and programs beyond agriculture. This irregular funding method has left some agricultural land assistance programs without funding during times of high request.

Recent restrictions placed on supplemental appropriations for disaster assistance have changed the way the agricultural land assistance programs allocate funding, potentially assisting fewer natural disasters. Language in the Budget Control Act of 2011 (P.L. 112-25) limits emergency supplemental funding for disaster relief. Specifically, funding used for disaster relief must be used for activities carried out pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, P.L. 93-288) for FY2012 through FY2021. This means funds appropriated through emergency supplementals for disaster relief for these ten years may only apply to activities with a Stafford Act designation. Since funding for agricultural land disaster assistance programs is appropriated almost exclusively through supplementals, this requirement could limit the way agricultural land assistance programs work in the future, potentially assisting fewer natural disaster events.



Date of Report: December 11, 2012
Number of Pages: 16
Order Number: R42854
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Friday, December 14, 2012

Federal Crop Insurance: Background



Dennis A. Shields
Specialist in Agricultural Policy

As part of the ongoing farm bill debate, Congress continues to review the effectiveness and operations of the federal crop insurance program as part of the farm safety net. This report describes the current federal crop insurance program as background for crop insurance provisions in House and Senate versions of the farm bill proposed in the 112th Congress (see CRS Report R42759, Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083). 

The federal crop insurance program began in 1938 when Congress authorized the Federal Crop Insurance Corporation. The current program, which is administered by the U.S. Department of Agriculture’s Risk Management Agency (RMA), provides producers with risk management tools to address crop yield and/or revenue losses on their farms. In purchasing a policy, a producer growing an insurable crop selects a level of coverage and pays a portion of the premium—or none of it in the case of catastrophic coverage—which increases as the level of coverage rises. The federal government pays the rest of the premium (62%, on average, in 2012). Insurance policies are sold and completely serviced through 15 approved private insurance companies. The insurance companies’ losses are reinsured by USDA, and their administrative and operating costs are reimbursed by the federal government (i.e., farmers do not pay delivery costs).

In 2012, federal crop insurance policies covered 282 million acres. Major crops are covered in most counties where they are grown. Four crops—corn, cotton, soybeans, and wheat—accounted for nearly three-quarters of total acres enrolled in crop insurance. Most crop insurance policies are either yield-based or revenue-based. For yield-based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer’s “normal” (historical) yield. Revenuebased policies protect against crop revenue loss resulting from declines in yield, price, or both. Other insurance products protect against losses in whole farm revenue (rather than just for an individual crop) or gross margins for livestock enterprises.

Government costs for crop insurance have increased substantially in recent years. After ranging between $2.1 and $3.9 billion during FY2000-FY2007, costs rose to $7 billion in FY2009 as higher policy premiums from rising crop prices drove up premium subsidies to farmers and expense reimbursements (which are based on total premiums) to private insurance companies. Costs rose further to $11.3 billion in FY2011 and $14.1 billion in FY2012 when crop prices surged again and poor weather resulted in program losses.

Reimbursements and risk-sharing between USDA and private insurance companies are spelled out in a Standard Reinsurance Agreement (SRA), which plays a large role in determining program costs. In 2010, USDA renegotiated the SRA for the 2011 reinsurance year (which began July 1, 2010) to save money and make adjustments to improve program delivery.

In the coming years, outlays for crop insurance are expected to exceed commodity programs, making crop insurance a potential target for deficit reduction. Insurance companies, farm groups, and some Members of Congress are concerned that additional reductions in federal support will negatively impact the financial health of the industry and possibly jeopardize the delivery of crop insurance to farmers. A main goal is saving federal dollars without adversely affecting farmer participation, policy coverage, or industry interest in selling and servicing insurance products to farmers. From a farm policy standpoint, policymakers and observers alike remain concerned about how the crop insurance program interacts with farm commodity programs and whether together they provide a means for helping farmers deal with business risk at a cost that is acceptable to taxpayers.



Date of Report: December 6, 2012
Number of Pages: 25
Order Number: R40532
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