Policy Developments in U.S. Agriculture Since 1986 Market and Trade Economics Division, ERS/USDA ERS Presentation to the Sixth Mexico/Canada/US Conference on Trade Liberalization Under NAFTA--Report Card on Agriculture, San Diego, California, February 17, 2000

ERS 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

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 through These rose in 1999 due to emergency market loss and disaster assistance. ERS

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 ERS

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 Loan rates for Sugar and Peanuts: reduced in 1996 and held constant through Changes in Market Price Support (MPS) Programs ERS

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 Market order reform implemented on January 1, Changes in Market Price Support (MPS) Programs……. ERS

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, But, low prices during the Fall of 1999 and delays in reaching agreement on market order reform resulted in a one year extension ERS

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 ERS

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 ERS

Changes in Direct Payments Programs 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 Crop Insurance Reform Act provided low-cost catastrophic coverage. Crop and revenue insurance provided through private insurance companies ERS

Changes in Direct Payments Programs…... 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 ERS

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 ERS

Summary and Conclusions Market orientation of U.S. agriculture policy increased since 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 ERS