Fact Sheet

THE CLINTON ADMINISTRATION’S PROPOSAL FOR
IMPROVING THE FARM SAFETY NET
February 2, 2000

When Congress passed the 1996 Farm Bill, the Administration noted serious reservations because the bill’s failed to provide farmers adequate protection when prices are low. The collapse in farm prices the past two years revealed serious problems with the farm income safety net, which resulted in the Federal government’s providing over $15 billion in emergency assistance.

The farm financial picture would be much different had Congress not passed emergency aid legislation in 1998 and 1999. Without the added government payments, net cash income would have likely fallen below $50 billion in 1999, the lowest level since the farm financial crisis of the mid-1980s. Rising crop surpluses, continued low prices and declining incomes will contribute to increasing farm financial stress in 2000, indicating a need for further Federal assistance. However, added assistance should not be made in the form of emergency legislation with the bulk of the payments in the form of Agricultural Market Transition Act (AMTA) payments. That approach, taken the past two years, is not in the best interests of farmers and taxpayers, as the assistance is ad hoc and ineffectively targeted.

President Clinton’s FY 2001 budget proposes a major new initiative to strengthen the farm safety net. The initiative is designed to broaden Federal support to more producers of more commodities in more areas of the country. The initiative includes four complementary proposals for new legislation that would: (1) enhance the farm income support provided by the 1996 Farm Bill with supplementary countercyclical income assistance, targeting payments to producers facing reduced revenues; (2) increase environmental benefits and farm income through expanded conservation programs; (3) improve risk management by reforming the crop insurance program to provide better protection against natural disasters; and (4) expand economic opportunities in farm and rural areas.

These legislative proposals, coupled with new initiatives to be undertaken using current authorities, will provide more than $11 billion in additional assistance to the rural economy during 2000-2002.

Enhance farm income support through the Supplementary Income Assistance Program and other actions

The 2001 budget proposes an income assistance program to provide supplemental income assistance payments for the 2000 and 2001 crop years to eligible producers of wheat, feed grains, rice, upland cotton and oilseeds. Under the program, supplemental government payments would be provided to eligible producers if projected gross income for the crop falls below 92 percent of the preceding 5-year average. Gross income would include gross market revenues for the crop plus government payments, including AMTA payments, marketing loan gains and loan deficiency payments. Payments would be based on a farmer's current production, not historical crop base acres. The program addresses a major shortcoming of the 1996 Farm Bill through providing countercyclical support that reflects a farmer's current production and market conditions. The program payment rates would be determined at the beginning of each crop year, and payments would be made to farmers when they establish production levels with the Farm Service Agency. Funding is expected to total $3.1 billion during FYs 2000 and 2001.

To target the program to smaller farmers who typically have lower farm income, payments would be subject to a separate $30,000 per person payment limitation. This payment limitation is adjusted downward to reflect the of amount of ATMA payments a person receives (e.g., a person receiving more than $30,000 in AMTA payments is not eligible for payments, while a person receiving $10,000 in AMTA payments is eligible for up to $20,000 in program payments). Based on 1998 data, only about 2 percent of those receiving AMTA payments would likely be ineligible for payments under the Supplementary Income Assistance Program.

Additional initiatives to improve the farm income safety net include:

A proposed extension of the dairy price support program to 2002 to maintain price support for milk at $9.90 per cwt, costing an estimated $150 million in 2001 and 2002.

Using existing authorities to maintain maximum marketing assistance loan rates for the 2000 crop, costing more than $500 million. Loan rates for the 2000 crop year would be as follows:

Wheat $2.58/bu.

Corn $1.89/bu. (Other feed grains set in relation to their feed value relative to corn.)

Soybeans $5.26/bu.

Rice $6.50/cwt.

Upland cotton $0.5192/lb.

Using existing authorities to implement a new on-farm storage loan program to facilitate farmers' marketing opportunities

Increase environmental benefits

An additional $1.3 billion for a Farm Conservation Programs Initiative is proposed for FY 2001 as a key component of the Administration’s Farm Safety Net Proposal to strengthen farm family income while promoting environmentally sound land management. As part of that initiative, a new $600 million Conservation Security Program (CSP) is funded, to be administered by the Natural Resources Conservation Service (NRCS). The CSP would provide annual payments to farmers and ranchers who implement such conservation practices as nutrient management, prescribed grazing, and partial-field conservation practices such as grassed waterways and windbreaks. Payment levels would be based on the comprehensiveness of farmers’ conservation plans. Within the total, funds will be made available to NRCS to provide necessary technical assistance to farmers.

Increases are also proposed for five ongoing conservation programs:

Wetland Reserve Program (WRP). The initiative would remove the current cumulative acreage cap of 975,000 acres and enroll an additional 210,000 acres in the WRP in FY 2001 and an additional 250,000 acres in each subsequent year.

Conservation Reserve Program (CRP). The President’s Conservation Program Initiative would increase the enrollment cap by 3.6 million acres to 40 million acres. Incentives totaling up to $100 million in FY 2000 and up to $125 million each year in FY 2001 and FY 2002 would also be offered to farmers who enroll land in the CRP through continuous sign up provisions. These incentives are expected to encourage enrollment of acreage with high environmental benefits.

Farmland Protection Program (FPP). Under the Farm Conservation Program Initiative, the FPP would be funded at $65 million annually. This program, a key part of the President’s Lands Legacy initiative, provides matching funds to state, local, and Tribal governments to purchase permanent easements and thereby protect farmland that may otherwise be threatened by urban and suburban sprawl.

Wildlife Habitat Incentives Program (WHIP). The Initiative proposes $50 million annually for WHIP, which offers cost-share and technical assistance to farmers and landowners for habitat restoration.

Environmental Quality Incentives Program (EQIP). Under the proposed Initiative, the annual authorized funding level for EQIP would be increased from $200 million to $325 million. This program, part of the President’s Clean Water Action Plan, provides financial, technical and educational assistance to farmers and ranchers who wish to implement practices such as animal waste facilities, integrated pest management or habitat restoration.

Improve risk management

The 2001 budget would extend the premium discount available in 1999 and 2000 for farmers who purchase buy-up coverage for crop insurance. Farmers have expressed concerns over the high cost of higher levels of insurance coverage. Premium discounts made available in 1999 resulted in an increase in acreage enrolled in buy-up coverage of almost 20 percent over the previous year's levels. Early data for the 2000 crop year suggest similar levels of participation. It is anticipated that the extension of this discount to the 2001 crop year would result in higher participation levels at higher levels of coverage. The premium discount and the costs associated with higher participation are expected to total $640 million. The budget also requests $100 million annually to develop a policy that covers multi-year losses.

The Administration proposes to establish a pilot program for insuring livestock. Currently, there is no livestock coverage under the crop insurance program; yet almost half of all farm receipts come from the sale of livestock or livestock products. The proposed program would offer $100 million annually to provide livestock producers with price protection.

The risk management proposal also includes a request for funds to undertake comprehensive risk management education and to increase funds for research and product development activities.

The Administration also proposes to replace the area-wide loss trigger on the non-insured assistance program with a disaster declaration. This change, funded at $110 million per year, would give farmers of crops that are currently not covered under the crop insurance program individual yield coverage in the event of catastrophic crop losses.

Expand economic opportunities for farms and rural areas

The Administration proposes using $130 million during FYs 2001 and 2002 to establish a new cooperative development program to provide equity capital for new livestock and other processing cooperatives. The proposal would address concerns about market concentration by encouraging new entrants into the livestock processing market. It could also provide an additional source of income for farmers through the ownership of value-added processing.

The Administration would also use existing authorities to develop a new bioenergy program to encourage greater use of farm products for production of biofuels. The program would increase energy security by decreasing America’s dependency on foreign fossil fuels. It would provide payments on a portion of a processor’s increased use of bioenergy feedstocks, with higher proportional payments for smaller bioenergy processors. By increasing the demand for corn and other feedstocks, much of the direct costs of this program are expected to be offset by lower costs of the marketing assistance loan program.

The budget proposal also includes $15 million funding for the five rural Empowerment Zones (EZ) and 20 rural Enterprise Communities (EC) designated in January 1999. Unlike the initial round of Empowerment Zones/Enterprise Communities that received 10 years’ funding in one grant, the second round communities have been dependent on annual appropriations.