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Commodity Policies
Agri-Environmental Programs
Food Assistance Programs
Rural Development Programs
The United States supports its agricultural sector through a variety of programs. These programs provide both direct and indirect support to producers and consumers and to the sector in general. The core programs are price and income support programs for grains, oilseeds, fiber, dairy, and sugar. These programs are intended to help farmers stabilize their incomes in the face of the many risks of farming. Other programs help producers market products more effectively and farm in ways that preserve or enhance the environment. U.S. agricultural policy also includes programs to help rural communities build better infrastructure for business development, help low-income Americans purchase food, and help provide food to programs that serve children and the elderly.
The primary legal framework for agricultural policy is set through a legislative
process that occurs approximately every 5 years. The U.S. Congress writes farm
legislation, with the participation of the President and the administration,
but many interested parties take part in the policy debate. Farmers, producer
organizations, agribusinesses, consumer and environmental organizations, rural
community leaders, and taxpayer groups share their preferences at open meetings
and through the media, so that their interests may be considered by Congress
when the new legislation is prepared (see Background
and Issues for more information). The current farm law (the Farm
Security and Rural Investment Act of 2002 (2002 Farm Act)) remains in
force through 2012, but public discussion of what programs should be included
in the next law is underway.
The basic framework of current U.S. agricultural policy dates back to the 1930s. The first farm price and income support programs were established as an emergency response to post-World War I economic distress in agriculture that had worsened with the onset of the Great Depression. These programs have been adjusted over time as policymakers have responded to agricultural productivity growth, market integration, and structural change in the farm sector, but they continue to focus on a traditional set of commodities, primarily field crops, dairy, sugar, and until recently, tobacco. (The U.S. tobacco price support program ended in 2005.) Other livestock and specialty crops, including fruits and vegetables, receive only limited direct support.
Policy initiatives beyond the traditional focus on agricultural commodities have been concerned with areas in which the public well-being is at stake: rural communities, natural resources and the environment, and food assistance and nutrition. While some of these programs were launched in the 1930s, others received their big push in the 1960s and 1970s, and still others emerged only in the last two decades.
See What Were the Estimated Costs of the 2002 Farm Act in May 2002? for details.
Commodity Policies
U.S. commodity policy includes both price and income support programs, but the balance between these two types of policies has shifted over time. Especially over the last 15-20 years, U.S. commodity policy has moved toward greater market orientation to facilitate participation by American producers in expanding global markets. As a result, the traditional reliance on price support and government intervention in markets has given way to a greater reliance on income support, with increasing production flexibility for farmers. The United States also employs trade measures that may support prices, but with the exception of a few commodities, they are a minor part of U.S. commodity policy.
Income Support Programs
Income support measures in U.S. farm policy assist in stabilizing producer
incomes by providing payments directly to farmers from the government rather
than influencing prices in the market. These programs include direct payments
and counter-cyclical payments, which are paid to producers based on their
historical production of particular commodities; milk income loss contract
payments, which provide limited support to dairy producers; and marketing
assistance loans and loan deficiency payments, which are paid on
current production when prices go below a predetermined threshold. Payments
based on historical production of commodities were introduced in 1996 to reduce
market and trade distortions created by earlier programs. Because previous
programs generally required farmers to continue planting particular commodities
to secure their right to payments, these programs interfered with farmers'
ability to make planting decisions based on anticipated market returns.
Direct payments (DP) provide income support
to producers who have historically produced wheat, feed grains (corn, sorghum,
barley, and oats), rice, upland cotton, oilseeds (including soybeans, sunflower,
canola, crambe, rape, safflower, sesame, mustard, and flax), and peanuts. Payments
are based on historical yields and area planted, and payment rates were fixed
in the 2008 Farm Act. Payments total about $5 billion annually. Farmers are
given almost complete flexibility in deciding what crops to plant on the acreage
that receives direct payments. Because these payments are not related to current
market prices or most farm-level production decisions, they do not have a direct
effect on a producer's cropping decisions (i.e., they are "decoupled").
Similar payments called production flexibility contract (PFC)
payments were available in 1996-2001 for producers with historical production
of wheat, feed grains, rice, and upland cotton. (Payments for oilseeds and
peanuts were added under the 2002 Act.)
Counter-cyclical payments (CCP) are also paid on historical yields and area planted for the same historically produced commodities as DPs. CCPs were established to provide an additional level of income support when market prices for these commodities are low. Unlike direct payments, which are paid irrespective of current market conditions, CCPs are paid only when prices for the covered commodity (wheat, feed grains, rice, upland cotton, oilseeds, and peanuts) falls below trigger levels set in the 2002 Farm Act. Like direct payments, however, CCPs are based on historical areas and yields, so producers can receive payments when prices are low for commodities they historically produced even if they are not currently producing them.
Milk income loss contract (MILC) payments provide price-based support for dairy producers. A monthly direct payment is made to dairy farm operators if the monthly price of milk for certain uses falls below a set price. Payments are limited to the first 2.4 million pounds of milk per year per operation (about the level of production of 135 cows). U.S. dairy farms producing fewer than 2.4 million pounds of milk per year account for less than 30 percent of total milk production.
Marketing assistance loans and loan deficiency payments are
available for producers of wheat, rice, corn, grain sorghum, barley, oats,
upland cotton, soybeans, sunflower seed, canola, rapeseed, safflower, mustard
seed, flaxseed, peanuts, mohair, wool, honey, small chickpeas, lentils, and
dry peas. Commodity loan programs allow producers of specified crops to receive
a 9-month nonrecourse loan from the government by pledging production as loan
collateral. These loans provide marketing options by allowing producers to
avoid having to sell their crops at harvest when prices tend to be lowest.
Nonrecourse loans also can support prices by allowing producers to forfeit
their crop to the government without penalty if the market price at repayment
is below the loan rate plus interest. Producers are essentially paid the government
loan rate for their crops, and government-held stocks can be kept off the market,
reducing supplies until prices rise. Beginning with programs for cotton and
rice in the mid-1980s, however, most commodity loans now incorporate "marketing
assistance loan provisions" that discourage forfeiture and allow loan programs
to operate as income support rather than price support programs.
Marketing assistance loan provisions allow repayment of commodity loans at
less than the original loan rate plus accrued interest when the market price
is below that level, producing a benefit termed a "marketing loan gain." Providing
the marketing loan gain discourages forfeitures and thereby reduces the potential
effect of supporting market prices through removal of supplies into government-controlled
stocks. Alternatively, producers may elect to receive a direct payment equivalent
to the marketing loan gain, called a loan deficiency payment (LDP), in lieu
of participating in the loan program.
Price Support Programs
Price support programs, although declining in importance in U.S. commodity policy, remain an important feature of programs for dairy and sugar.
Dairy price support is operated through the milk support purchase program. The Commodity Credit Corporation will buy at support purchase prices any butter, cheddar cheese, or nonfat dry milk that is offered to it and meets specifications. The support purchase prices are set to ensure that the price of manufacturing milk averages at least the milk support price of $9.90 per hundredweight. The Secretary of Agriculture has authority to adjust the product purchase price if deemed necessary.
Sugar price support policy includes three main elements: a tariff-rate quota (TRQ) system (see discussion of tariffs and tariff-rate quotas in following section), a domestic marketing allotment program, and a price support loan program. The TRQ and the domestic marketing allotments control domestic supply to support market prices; the price support loan is a nonrecourse commodity loan that allows producers to forfeit their commodity under loan if the price falls below the loan rate (18 cents per pound) plus interest. Unlike most commodity programs, sugar loans are made to processors and not to producers, since sugar requires processing before it can be stored. To qualify for loans, sugarcane and sugar beet processors must agree to make a minimum payment to producers.
Commodity-Related Trade Measures
Some producers also receive higher market prices through trade measures like tariffs and tariff-rate quotas and export subsidies that affect commodity prices at U.S. borders.
Tariffs and tariff-rate quotas support commodity prices by limiting imports of lower priced products. The United States has among the lowest average tariffs on agricultural products of all World Trade Organization (WTO) members, with average bound tariffs on agricultural goods of 12 percent. Exceptions to these low tariffs include products like dairy, sweeteners, and tobacco. The United States has only a few agricultural tariffs in excess of 100 percent, and a relatively small number of TRQs, which apply primarily to imports of peanuts, tobacco, beef, dairy, sugar, cotton, and some of their related products.
The United States makes limited use of export subsidies through two programs, the Dairy Export Incentive Program (DEIP) and the Export Enhancement Program (EEP). Under these programs, exporters are awarded cash payments or commodity certificates redeemable for government-owned commodities, enabling an exporter to sell these commodities to specified countries at prices below those of the U.S. market. Since 1996, EEP has been used in only 3 years for small amounts of poultry exports. DEIP was used regularly at the WTO-negotiated ceiling for skim milk powder, cheese, and, to a lesser extent, butter but has not been used since 2004.
Other Commodity-Based Programs
Producers may also receive support through subsidized crop and revenue insurance and ad hoc disaster and market loss assistance programs, which provide payments to producers in the event of weather or market-related losses, and trade adjustment assistance for farmers, which provides assistance to producers who can show they have suffered losses through competition from lower priced imports.
Crop and revenue insurance, made available to producers of a variety of crops and some livestock at subsidized rates, makes indemnity payments to producers based on current losses from weather- or market-related causes. Unlike other commodity programs, crop insurance is operated through private companies, which sell crop insurance directly to farmers. The government subsidizes a portion of the insurance premiums paid by producers and of the operating costs of the private insurance companies.
Ad hoc disaster and market loss assistance programs provide direct payments to producers to partially offset financial losses due to severe weather and other natural disasters or stressful economic conditions, such as low commodity prices or pest and animal disease outbreaks. Future purchase of crop insurance has sometimes been required of producers who receive ad hoc disaster assistance benefits.
Trade adjustment assistance
for farmers, first available in 2004, provides technical assistance and
cash benefits to farmers, ranchers, fish farmers, and fishermen who have
been adversely affected by competition from imports. To become eligible,
a group of producers must demonstrate that producer prices during the most
recent marketing year have been not more than 80 percent of the national
average price during the previous 5 marketing years. USDA’s Foreign Agricultural
Service also must certify that increased imports of like or competitive products "contributed
importantly" to the decline in prices. In addition, applicants must show
that their net income for the crop year is less than their net income for
a prior comparison year. The net income requirement has been the major reason
why program outlays have remained well below authorized levels.
Agri-Environmental Programs
Government conservation programs over the last seven decades have been responsible for the widespread reduction of soil erosion. More recently established environmental programs address new challenges arising from the changing structure of agricultural production. These challenges include demands for improved water and air quality, enhanced wildlife populations, water conservation, open space, carbon sequestration, and energy production and conservation. The two largest agri-environmental programs are the Conservation Reserve Program (CRP) and the Environmental Quality Incentives Program (EQIP), both established within the last two decades. The newest agri-environmental program is the Conservation Security Program (CSP), established under the 2002 Farm Act.
The Conservation Reserve Program (CRP) is a voluntary program through which farmland owners bid to retire highly erodible and other environmentally sensitive cropland from production for 10-15 years. Farmers receive payments for retiring the land, which also cover the costs of establishing the required permanent cover crop and maintaining specified conservation practices.
The Environmental Quality Incentives Program (EQIP) offers financial and technical assistance to help livestock and crop producers implement soil, water, and related natural resource conservation practices on working lands. EQIP contracts provide incentive payments and cost-shares for a maximum term of 10 years.
The Conservation Security
Program (CSP) provides payments to farmers to reward good conservation
performance and encourage the implementation and maintenance of conservation
practices on working lands. To participate, producers must develop a conservation
plan identifying the resources and practices to be covered under the program. CSP
contracts provide a "stewardship" payment based on the level of existing
conservation effort and an "enhancement" payment for implementing additional
practices designated in the conservation plan.
For more information, see the Conservation
Policy Briefing Room.
Food Assistance Programs
USDA administers three core programs that provide nutrition assistance to low-income Americans: the Food Stamp Program, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and child nutrition programs. The oldest of these—the National School Lunch Program—was established more than 60 years ago.
The Food Stamp Program is the Nation's largest nutrition program for low-income Americans and a source of demand for the products of American farmers and food industries. The program provides monthly benefits that participants may use to buy approved food items from authorized foodstores. The program serves over 25 million low-income Americans on average each month.
The Special Supplemental Nutrition Program for Women, Infants, and Children provides nutritious foods to supplement diets, nutrition education, and referrals to health care and other social services for low-income women, infants, and children up to age 5 who are at nutritional risk. The program serves over 8 million participants per month, including almost half of all infants born in the United States.
USDA administers four major domestic food assistance programs intended to provide access to adequate nutrition for low-income children and seniors. The National School Lunch Program, the School Breakfast Program, the Child and Adult Care Food Program, and the Summer Food Service Program together account for almost a quarter of USDA's domestic food assistance outlays.
For more information, see the Food Assistance and Nutrition Programs Briefing Room.
Rural Development Programs
Since the 1930s, USDA rural development programs have focused primarily on upgrading the Nation's rural infrastructure—housing, electricity, and telecommunications; education; transportation; and water and sewage treatment utilities. More recently, policy initiatives have encouraged development of renewable energy sources and bringing innovations in information network technology to rural areas. Although agriculture remains a core industry in rural America, industrial restructuring has increasingly shaped the needs of rural communities. Hence, nonfarm economic and community development have also become a concern of rural policymakers and practitioners.
For more information, see the Rural Development Strategies Briefing Room.
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