Policy Developments in U.S. Agriculture Since 1986

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• Policy Developments in U.S. Agriculture Since 1986

Market and Trade Economics Division, ERS/USDA
Presentation to the Sixth Mexico/Canada/US
Conference on Trade Liberalization Under
NAFTA--Report Card on Agriculture, San Diego,
California, February 17, 2000
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Overview of Changes to U.S.Policy Orientation

• Focus of government spending shifting towards
  more market orientation with reliance on non
  trade distorting green box programs
• Decoupled income support program (PFCP) replaced
  price-sensitive target price/deficiency payment
  programs
• Planting flexibility increased under 1996 Farm
  Act, with acreage reduction program (ARP)
  eliminated

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• Overview of Changes to U.S. Policy Orientation.

Price support levels have declined and capped.
Marketing loan provisions for grains and oilseeds
changed from price support to income
support. Expenditure on long-run conservation
and environmental cost-share programs have
increased US PSE declined from 1986-88 through
1998. These rose in 1999 due to emergency market
loss and disaster assistance.
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Market Price Support Programs

• Non-recourse Commodity Loans applicable to
  crops at pre-determined per-unit loan rates
• Dairy Support Program government purchases of
  dairy products at pre-determined prices, combined
  with system of classified pricing in several
  regulated Federal marketing region, or orders
• Import Restrictions tariffs and tariff rate
  quotas for field crops such as tobacco, peanuts,
  and sugar
• Export Subsidies EEP and DEIP to maintain
  domestic prices and reduce role of loans,
  acquisitions, purchases

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Changes in Market Price Support (MPS) Programs
Commodity Loan Provisions revised to reduce
extent of government stock accumulation at low
market prices. For most crops, minimum commodity
loan rates derived from a formula based on
percentage of moving average of recent past
prices Loan Deficiency Payments provisions
allow producers to repay loans at less than the
original loan rate when market prices are low,
resulting in a gain equivalent to a per-unit
direct payment. Provisions for special reserve
loans and reserve storage payments on
farmer-owned grain suspended in 1996. Loan
rates for Sugar and Peanuts reduced in 1996 and
held constant through 2002.
ERS
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Changes in Market Price Support (MPS) Programs.
Export Subsidies (EEP) EEP not used in recent
years. The 1996 Farm Act requires Secretary to
operate DEIP to maximize exports consistent with
WTO obligations Dairy Marketing Orders 1996
Farm Act called for consolidation of the dairy
marketing orders from 33 to 10-14. Market order
reform implemented on January 1, 2000 .
ERS
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Changes in Market Price Support (MPS) Programs.

• Northeast Interstate Dairy Compact Authorized in
  1996 to provide for increase in regulated price
  of Class I milk marketed in compact region.
  Authorization was to end on January 1, but
  extended to September 30, 2001
• Dairy Support Prices Reduced form 1997 through
  1999, and were scheduled to end on January 1,
  2000. But, low prices during the Fall of 1999
  and delays in reaching agreement on market order
  reform resulted in a one year extension

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Direct Payment Programs

• Decoupled Income Support Payments these are not
  related to current production, prices, or
  resource used
• Commodity Loan Payments linked with current
  prices and production
• Natural Disaster-related Payments made using
  crop insurance, revenue insurance, and ad hoc
  disaster relief programs
• Emergency Income Transfer to compensate low
  prices and lost markets

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Direct Payment Program.

• Income Tax Regulations benefits due to federal
  income tax provisions
• Input Subsidies for water, grazing land, fuel,
  advisory services, and feed
• Conservation Payments to support and encourage
  conservation and environmental-oriented practices

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Changes in Direct PaymentsPrograms

• Decoupled Payments 1996 Farm Act changed income
  support programs by replacing price sensitive
  target price/deficiency program with new program
  of predetermined income transfers. Total outlays
  for PFCP capped at 36 billion or 7 years.
• Planting Flexibility Participating producers
  permitted to plant 100 percent of contract
  acreage to any crop. ARPs eliminated
• Risk Management Objective to assist producers in
  use of risk management practices. 1994 Crop
  Insurance Reform Act provided low-cost
  catastrophic coverage. Crop and revenue
  insurance provided through private insurance
  companies

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Changes in Direct PaymentsPrograms...

• Emergency and Disaster Relief Payment 1994
  legislation eliminated ad hoc disaster
  assistance, but emergency spending legislation
  enacted in 1989 and 1999 included disaster
  assistance and market loss assistance. Total
  spending amounted to over 15 billion
• Input Subsidies 1990 and 1996 Farm Acts extended
  the Conservation Reserve Program (CRP). Higher
  environmental and conservation criteria mandate
  that new acreage must provide significant soil
  erosion, water quality, or wildlife benefits.
  Rules introduced in 1998 expanded acres to over
  two-thirds of total cropland

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Changes in Direct Payments Programs...

• Other New Programs Wetland Reserve Program to
  protect wetlands or return cropped land to wet
  land status. Environ-mental Quality Incentives
  program (EQUIP) in 1996 simplified and
  consolidated Federal conservation and
  environmental cost share program. Other programs
  include flood risk protection and farmland
  protection through purchase of easement.
• Income Tax Regulations Taxpayer Relief Act of
  1997 gave farmers several measures such as
  reduction in capital gains rates , income
  averaging, and estate tax exemptions. Tax and
  Trade Relief Extension Act of 1998 extended
  loss-carry back to 5 years, made income averaging
  permanent, and accelerated self-employment heath
  insurance deductibility

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Summary and Conclusions

• Market orientation of U.S. agriculture policy
  increased since 1986-88. Focus of government
  spending on non trade distorting programs
• Income support payments more market oriented.
  Payments based on historical production
• price support capped and reduced
• emergency legislation in 1998 and 1999 provided
  market loss payments to compensate for recent
  price declines, but payments were made after
  production decisions and based on historical
  levels
• Recent policy changes focusing on improving farm
  safety net and helping farmers manage risk
• Environmental concerns addressed through targeted
  conservation, water quality, and wildlife habitat
  programs