Melissa D. Ho
Specialist in Agricultural Policy
The U.S. Department of Agriculture (USDA) Research, Education, and Economics (REE) mission area has the primary federal responsibility of advancing scientific knowledge for agriculture through research, education, and extension. USDA REE responsibilities are carried out by four agencies: the Agricultural Research Service (ARS), the National Institute of Food and Agriculture (NIFA), the Economic Research Service (ERS), and the National Agricultural Statistics Service (NASS). The USDA administers extramural federal appropriations to states and local partners primarily through three funding mechanisms: formula funds, competitive grants, and non-competitive grant programs.
The FY2010 omnibus appropriations bill (P.L. 111-80) contained $2.838 billion in discretionary funds for USDA agricultural research, education, and extension programs. While inflationadjusted public spending for agricultural research grew steadily from the 1950s to the 1970s, it has remained relatively flat since the 1970s, with a few exceptions. The real annual inflationadjusted growth rate of the USDA research budget has declined over the past three decades, has surpassed inflation by less than 1%, and has lagged behind that of other national science agencies.
The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) provided $176 million to ARS for upgrading research infrastructure. The enacted 2008 farm bill (P.L. 110-246) directed USDA to reorganize the REE mission area. The farm bill created a new entity called the National Institute for Food and Agriculture (NIFA), which assumed all programs and authorities from CSREES. A new competitive grants program for basic and applied research, called the Agriculture and Food Research Initiative (AFRI), was also established by the 2008 farm bill and is administered by NIFA. The farm bill also extends and expands mandatory and discretionary funding for specialty and organic crops research, bioenergy programs, and pollinator protection programs, among others.
On September 16, 2010, the Senate confirmed Dr. Catherine Woteki as USDA’s Undersecretary for Research, Education, and Economics. Dr. Woteki succeeds Dr. Rajiv Shah, who left USDA to head the U.S. Agency for International Development. On September 24, 2009, President Obama nominated Dr. Roger Beachy, founding president of the Donald Danforth Plant Science Center in St. Louis, to serve as the first director of NIFA. Beachy joined NIFA on October 5.
Debates over the direction of public agricultural research and the nature of its funding mechanism continue. Ongoing issues include the need, if any, for new federal funding to support agricultural research, education, and extension activities, the implications of allocating federal funds via formula funds versus competitive grants, and the role of congressional earmarks. In addition, factors including the growing importance of specialty crops, international trade negotiations, and a renewed interest in international agricultural development have many groups believing that Congress needs to increase support of U.S. agriculture through expanded research, education, and extension programs, whereas others believe that the private sector, not taxpayer dollars, should be used to support these activities.
Date of Report: January 3, 2011
Number of Pages: 23
Order Number: R40819
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Kelsi Bracmort
Analyst in Agricultural Conservation and Natural Resources Policy
Randy Schnepf
Specialist in Agricultural Policy
Megan Stubbs
Analyst in Agricultural Conservation and Natural Resources Policy
Brent D. Yacobucci
Specialist in Energy and Environmental Policy
Cellulosic biofuels are produced from cellulose (fibrous material) derived from renewable biomass. They are thought by many to hold the key to increased benefits from renewable biofuels because they are made from potentially low-cost, diverse, non-food feedstocks. Cellulosic biofuels could also potentially decrease the fossil energy required to produce ethanol, resulting in lower greenhouse gas emissions.
Cellulosic biofuels are produced on a very small scale at this time—significant hurdles must be overcome before commercial-scale production can occur. The renewable fuels standard (RFS), a major federal incentive, mandates a dramatic increase in the use of renewable fuels in transportation, including the use of cellulosic biofuels—100 million and 250 million gallons per year (mgpy) for 2010 and 2011, respectively. After 2015, most of the increase in the RFS is intended to come from cellulosic biofuels, and by 2022, the mandate for cellulosic biofuels will be 16 billion gallons. Whether these targets can be met is uncertain. In March 2010, the Environmental Protection Agency issued a final rule that lowered the 2010 cellulosic biofuel mandate to 6.5 million gallons. In December 2010, EPA lowered the 2011 mandate to 6.6 million gallons. Research is ongoing, and the cellulosic biofuels industry may be on the verge of rapid expansion and technical breakthroughs. There are no large-scale commercial cellulosic biofuel plants in operation in the United States. A few small-scale plants came online in 2010.
The federal government, recognizing the risk inherent in commercializing this new technology, has provided loan guarantees, grants, and tax credits in an effort to make the industry competitive by 2012. In particular, the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110-246) supports the nascent cellulosic industry through authorized research programs, grants, and loans exceeding $1 billion. The enacted farm bill also contains a production tax credit of up to $1.01 per gallon for fuels produced from cellulosic feedstocks. Private investment, in many cases by oil companies, also plays a major role in cellulosic biofuels research and development.
Three challenges must be overcome if the RFS is to be met. First, cellulosic feedstocks must be available in large volumes when needed by refineries. Second, the cost of converting cellulose to ethanol or other biofuels must be reduced to a level to make it competitive with gasoline and corn-starch ethanol. Third, the marketing, distribution, and vehicle infrastructure must absorb the increasing volumes of renewable fuel, including cellulosic fuel mandated by the RFS.
Congress will likely continue to face questions about the appropriate level of intervention in the cellulosic industry as it debates both the risks in trying to pick the winning technology and the benefits of providing start-up incentives. The current tax credit for cellulosic biofuels is set to expire in 2012, but its extension may be considered during the 112th Congress. Congress may continue to debate the role of biofuels in food price inflation and whether cellulosic biofuels can alleviate its impacts. Recent congressional action on cellulosic biofuels has focused on the definition of renewable biomass eligible for the RFS, which is considered by some to be overly restrictive. To this end, legislation was introduced in the 111th Congress to expand the definition of renewable biomass eligible under the RFS.
Date of Report: January 13, 2011
Number of Pages: 27
Order Number: RL34738
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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 $81.6 billion in 2010, up 31% from the previous year’s total of $62.2 billion and second only to the 2004 record of $87.4 billion. Higher revenues from strong livestock markets, coupled with modest gains in crop revenues, are expected to offset a slight increase in input costs to account for the forecast higher net returns.
The major drivers behind strong farm income projections are the outlook for strong U.S. agricultural exports in 2010 (forecast up 13% to $108.7 billion) followed by record exports in 2011 (projected up another 16% to $126.5 billion), and continued growth (mandated by federal usage requirements) in the U.S. corn ethanol industry. A recovering global economy (bolstered by particularly strong economic growth in China) is expected to support strong demand for cotton, feed grain, oilseeds, and livestock products. Severe drought in Russia, Kazakhstan, and the Ukraine during their 2010 growing seasons lowered export supplies from those traditional feed grain export markets and helped shift market interest to U.S. feed grains. Meanwhile, continued growth in U.S. corn-based ethanol production and strong livestock prices are expected to push corn and other crop prices steadily higher as they compete for a fixed amount of cropland. As a result, market prices for major program crops have firmed up and improved the earnings outlook for most agricultural commodities, but especially for livestock and cotton producers.
Government farm payments are projected up slightly in 2010 at $12.4 billion but remain a small share (3.6%) of projected gross cash income of $346.4 billion. Most of the increase is from a jump in ad hoc and emergency disaster assistance, projected at $2.8 billion, compared with $0.6 billion in 2009. In particular, eligible recipients under the Supplemental Revenue Assistance Payments (SURE) Program are expected to receive $1.93 billion in payments in calendar year 2010, while Crop Assistance Program payments are expected to total $420 million. Strong cotton, grain, and oilseed prices are expected to sharply reduce payments under the marketing loan and counter-cyclical payment programs (down a combined $2 billion).
Farm production expenses are forecast up a modest 2% to $286.6 billion in 2010, led by higher livestock replacement and fuel costs, and increasing outlays for crop insurance. Fertilizer, seed, and pesticides costs declined modestly in 2010 after rising steadily from 2002 through 2008.
Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rise 3.1% in 2010 to $2,120 billion following a 1.7% rise in 2009. Farm land cash markets in late 2010 suggest that land values will continue to see gains related to strong crop prices in 2011.
The farm debt-to-asset ratio had been steadily declining since 1998’s value of 16% to a recent low of 10.4% in 2007, before rising to 12% in 2008 and 2009. The ratio is expected to fall in 2010 to about 11.3%.
These data suggest a strong financial position heading into 2011 for the agriculture sector as a whole relative to the rest of the U.S. economy. An improving global economic outlook for 2011 is expected to reinvigorate international consumer demand while the U.S. economy remains sluggish. Signs of this can already be seen as strong demand-led growth, primarily from export markets, has pushed most commodity prices to near record highs in the second half of 2010, and is expected to sustain those high levels well into the 2011 planting season.
Date of Report: December 27, 2010
Number of Pages: 27
Order Number: R40152
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Renée Johnson
Specialist in Agricultural Policy
Jim Monke
Specialist in Agricultural Policy
The 112th Congress likely will consider reauthorization of the 2008 farm bill (P.L. 110-246, Food, Conservation, and Energy Act of 2008) because much of the current law expires in 2012. Both chambers held hearings in 2010 to hear how the 2008 law is working and what changes farmers and other interest groups want in the next bill. The Administration and other deficit reduction task forces have submitted budget proposals to reduce farm supports, and these approaches are at odds with those of many farm sector advocates, who support the status quo.
The 2008 farm bill contained 15 titles covering support for commodity crops, horticulture and livestock, conservation, nutrition, trade and food aid, agricultural research, farm credit, rural development, energy, forestry, and other related programs. It also included tax-related provisions to offset some new spending initiatives in the rest of the bill. The bill succeeds the 2002 farm bill (P.L. 107-171) and guides most federal farm and food policies through FY2012. The farm bill undergoes review and reauthorization roughly every five years.
Date of Report: January 3, 2011
Number of Pages: 15
Order Number: RS22131
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Renée Johnson
Specialist in Agricultural Policy
The Generalized System of Preferences (GSP) provides duty-free tariff treatment for certain products from designated developing countries. Agricultural imports under the GSP totaled $2.2 billion in 2009, about 11% of all U.S. GSP imports. Leading agricultural imports include processed foods and food processing inputs, sugar and sugar confectionery, cocoa, processed and fresh fruits and vegetables, beverages and drinking waters, olive oil, processed meats, and miscellaneous food preparations and inputs for further processing. The majority of these imports are from Thailand, Brazil, Argentina, India, and the Philippines. Some in Congress have continued to call for changes to the program that could limit GSP benefits to certain countries, among other changes. Opinion within the U.S. agriculture industry is mixed, reflecting both support for and opposition to the current program. Congress made changes to the program in 2006, tightening its requirements on imports under certain circumstances.
In the past few years, Congress has extended GSP through a series of short-term extensions. However, the 111th Congress did not extend the GSP in 2010, and it was set to expire December 31, 2010 (P.L. 111-124). The expiration of the GSP will likely become a legislative issue in the 112th Congress. In addition, leaders of the House Ways and Means Committee and the Senate Finance Committee have continued to express an interest in evaluating the effectiveness of U.S. trade preference programs, including the GSP, and broader reform of these programs might be possible.
Date of Report: January 3, 2011
Number of Pages: 9
Order Number: RS22541
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