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Statement of August
Schumacher, Jr.
Under Secretary for
Farm and Foreign Agricultural Services
United States Department of Agriculture
Before the House Subcommittee on Agriculture,
Rural Development, Food and Drug Administration,
and Related Agencies
Mr. Chairman and Members of the Committee, I am pleased to appear before you this afternoon to discuss the fiscal year 1999 budget and program proposals for the Farm and Foreign Agricultural Services (FFAS) mission area of the Department of Agriculture (USDA). With me today are the Administrators of the three agencies within our mission area:
Kenneth D. Ackerman, Administrator of the Risk Management Agency; Keith Kelly, Administrator of the Farm Service Agency; and Lon S. Hatamiya, Administrator of the Foreign Agricultural Service. I am also pleased to be accompanied by Christopher Goldthwait, the Department’s General Sales Manager, and Stephen Dewhurst from the Department’s Office of Budget and Program Analysis.
Statements by the Administrators, providing details on their agencies’ budget and program proposals for 1999, have been submitted to the Committee. My statement will summarize the proposals, after which we will be pleased to respond to your questions.
Mr. Chairman, the mission of FFAS is to secure the long-term vitality and global competitiveness of American agriculture. As American agriculture continues to adjust to new Federal policies that expose producers more directly to risks and market fluctuations, the goal of President Clinton and Secretary Glickman remains to improve farm income and provide an adequate safety net for American family farmers and ranchers. The President’s budget proposals allow us to accomplish this goal.
While we have moved away from the traditional supply management and price support farm programs, USDA still provides a crucial safety net for American producers. This safety net has several critical elements, including assistance in managing risks inherent in agricultural production, assistance in obtaining credit necessary for agricultural production, assistance for producers in times of emergency, and assistance in marketing American agricultural products in the global marketplace. The budget supports and strengthens this safety net.
Further, Secretary Glickman has placed a very high priority on providing credit to small, socially disadvantaged, and beginning farmers and ranchers. The President’s budget proposals reflect that commitment.
Farm Service Agency
The Farm Service Agency (FSA) is the agency that family farmers and ranchers interact with most frequently. Producers come to FSA to participate in farm programs, for farm ownership, operational, and commodity loans, for disaster assistance, and to participate in the Conservation Reserve Program. The FSA network is a tremendous resource. We can all be proud of the dedicated FSA staff who serve America’s family farmers and ranchers.
The consolidation of staffs and county offices, establishment of a common computing environment, and the convergence of administrative services at all levels of the county-based agencies continue to be the focus of USDA streamlining efforts. As part of the Department’s continuing reorganization, we are implementing a field office streamlining plan which co-locates the county-based agencies in one-stop USDA Service Centers. At this point, the county offices have been consolidated into about 2,700 Service Centers. An additional streamlining initiative will consolidate administrative support functions for the county-based agencies.
We are also developing a common computing environment for these agencies to optimize the use of data and equipment and improve the flow of information across the agencies. Also, the Department has entered into a contract with an independent consultant who is examining what further steps, if any, can be taken to improve the efficiency of our farm and rural program delivery system. That study is scheduled to be completed by the end of this fiscal year. Collectively, these efforts represent a substantial retooling of our service deliver system and a vital investment in rural America that is important to family farmers and ranchers.
Our budget proposals provide $976 million for salaries and expenses for FSA in 1999 for the administration of its programs. This is comprised of appropriated funding of $953 million, a proposal for the collection of user fees for the sale of information to the public of $10 million, and estimated carryover funds of $13 million. The total includes $21 million for increased pay costs and $30 million in increased funding for the common computing environment. The 1999 request represents a $13 million increase over our current estimate for 1998; however, the funding requested will support about 1,100 fewer staff years than in 1998.
Commodity Credit Corporation
Before I turn to the programs administered by FSA, I would like to address the budget request for the Commodity Credit Corporation (CCC), a government entity for which FSA provides operating personnel. Domestic farm commodity price and income support programs are administered by FSA and financed through CCC. CCC is also the source of funding for a number of the conservation programs administered by USDA, and it funds a portion of the export programs administered by the Foreign Agricultural Service. Funds are borrowed by the Corporation from the Treasury to finance CCC programs. Changes over the last decade in commodity, disaster, and conservation programs have substantially modified the level, mix, and variability of CCC outlays. Since the mid-1980s, commodity program spending has declined dramatically, spending for ad hoc crop disaster programs has been virtually eliminated, and spending for conservation programs has increased and become a major portion of CCC’s outlays. A great deal of volatility associated with CCC outlays has been removed due to provisions of the 1996 Farm Bill.
The 1999 budget reflects a need for $8.4 billion to reimburse CCC for its actual fiscal year 1997 realized losses, an increase of $7.7 billion from the 1998 reimbursement of $784 million. In prior years, the request for appropriations to reimburse CCC for net realized losses has been based on an estimate of losses incurred one year earlier which have not been previously reimbursed. The estimate could exceed or fall short of the actual amount of loss. Beginning in the 1998 budget, the request for appropriations to reimburse CCC for net realized losses covered the actual amount of the unreimbursed losses incurred 2 years earlier. The appropriation request for 1999 would fully reimburse CCC for the balance of actual 1997 net realized losses of $8.4 billion. Appropriations to reimburse CCC for actual net realized losses to be incurred in 1998, currently estimated to total $8.5 billion, will be requested in the President’s budget for fiscal year 2000.
Commodity Price and Income Support Programs
Commodity price and income support program outlays account for about two-thirds of total CCC outlays in 1999. The President’s budget includes $5.94 billion in funding for commodity price and income support programs in 1999, down from the current estimate of $6.25 billion in 1998.
The commodity price and income support programs administered by FSA were changed dramatically by provisions of the 1996 Farm Bill. The 1996 Farm Bill replaced deficiency payments with fixed production flexibility contract payments that are no longer tied to market price. Nonrecourse loan programs for contract commodities and oilseeds have been retained. These programs continue to provide producers with some protection against sharp declines in market prices, but the changes in the support programs have diminished the traditional role of the farm programs as a buffer against fluctuations in production and commodity prices.
The 1996 Farm Bill also modified price support provisions for dairy, sugar, and peanuts. Dairy price supports are being phased out, and Secretary Glickman recently announced major reforms of milk marketing orders. The peanut program was made a no-net-cost program, the minimum national peanut poundage quota was eliminated, and the quota rate level was reduced. With respect to sugar, sugar loan rates were effectively reduced with the imposition of loan forfeiture fees, marketing assessments were increased, and marketing allotments were suspended.
The Administration continues to place a high priority on helping farmers to manage risk. These changes underscore the importance of crop insurance programs that help farmers manage production risk. For producers of crops for which crop insurance is unavailable, the Noninsured Crop Disaster Assistance Program, administered by FSA and funded through CCC, provides coverage against catastrophic losses where area-wide crop losses exceed 35 percent of normal yields. For the crop insurance program administered by the Risk Management Agency, legislation will be proposed with the 1999 budget to provide mandatory funding for administrative expense reimbursements to reinsured companies previously funded through the discretionary account. Offsets required for the proposal are included in the budget.
Conservation
Conservation program outlays account for almost one-fourth of the CCC expenditures in 1999. The 1996 Act authorized CCC funding for the Conservation Reserve Program (CRP) administered by FSA and several new conservation programs administered by the Natural Resources Conservation Service (NRCS). In 1998, outlays for CRP will total an estimated $1.9 billion, including $63 million in NRCS and Forest Service technical assistance costs paid for with appropriated funds and $1.8 billion from CCC for rental costs and for sharing the cost of establishing permanent cover on replacement acres. For 1999, outlays for CRP will total approximately $1.72 billion, including $24 million in appropriated funds for technical assistance and $1.7 billion from CCC.
CRP provides landowners annual payments and half the cost of establishing a conserving cover in exchange for retiring environmentally sensitive land from production for 10 to 15 years. The 1996 Act authorized the program through 2002 and set maximum enrollment in the program at 36.4 million acres. Current enrollment totaled about 28 million acres at the end of calendar year 1997. After a successful 16th CRP regular sign up, the budget assumes acreage enrollments under the CRP of about 32 million acres in 1998, 34 million acres in 1999, with an eventual enrollment of 36.4 million acres by 2001.
A number of other conservation programs administered by USDA, such as the Wetlands Reserve Program, the Environmental Quality Incentives Program (EQIP), the Conservation Farm Option Pilot Program, and the Wildlife Habitat Incentives Program are also funded by CCC. These programs are administered primarily by NRCS, and funding for these programs will be discussed in detail when NRCS appears before the Committee.
Farm Loans
In order to be successful in farming, America’s family farmers and ranchers need access to adequate credit. For that reason, the budget provides almost $3 billion in funding for farm loan and loan guarantee programs for farm families who would be unable to obtain credit otherwise and is consistent with recommendations of the Department’s Civil Rights Action Team and the National Commission on Small Farms. It includes $85 million for direct farm ownership loans and $425 million for guarantees for farm ownership loans, compared to 1998 levels of $46 million and $400 million, respectively. The funding requested would allow USDA to help 3,458 beginning and small farmers to either acquire their own farm or to save an existing one, with about 1,000 of those served receiving direct loans.
The budget also includes $2.4 billion in direct and guaranteed farm operating loans, nearly the same funding level as 1998. This funding level will allow FSA to serve an estimated 28,000 beginning and small farmers, about 12,000 of whom will receive direct loans. The budget also provides $25 million in emergency loans for qualifying losses which occur in areas covered by a Presidential or Secretarial disaster declaration. In addition, the budget provides $1 million for Indian tribe land acquisition loans, $25 million for credit sales of property acquired by FSA, and $30 million for the Boll Weevil eradication program.
Credit is one element of the farm safety net which needs strengthening. For this reason, the Administration will also be proposing emergency legislation to modify the 1996 Act prohibition on loans to borrowers who received debt forgiveness. The "one-strike and you’re out" provision in current law is more restrictive than U.S. bankruptcy laws which allow individuals to reestablish credit. We believe it is unfair to deny these borrowers a second chance.
Other FSA Programs
The budget proposes to double funding for State mediation grants from $2 million in 1998 to $4 million in 1999. Mediation gives family farmers, including many low income and socially disadvantaged farmers, the opportunity to remain on the farm by resolving credit and other issues through alternative dispute resolution. The increased funding will support mediation programs in the 21 States currently certified in 1998, as well as any additional States that become certified by 1999, and will allow States to expand programs to include mediation of other agricultural issues in addition to credit disputes.
Finally, FSA administers the Emergency Conservation Program (ECP). Under this program, USDA shares the cost of rehabilitating farmland damaged by natural disasters. Supplemental appropriations provided a total of $95 million for the ECP in 1997. As of February 6, 1998, approximately $15 million of that total remains unallocated. No funds have been appropriated to date for the program in 1998, and the budget proposes no funding for the program in 1999.
Risk Management Agency
The virtual elimination of ad hoc disaster aid and subsequent passage of the 1996 Farm Bill expanded the role of the Risk Management Agency (RMA), giving it primary responsibility for providing an agricultural safety net. It is doing so in several ways. RMA administers the Federal crop insurance program on behalf of the Federal Crop Insurance Corporation (FCIC), offering farmers protection against income losses due to production failures and in some cases, market price declines. It is aggressively providing risk management education to make farmers aware of risk management strategies and actions to cover those risks. And, it is pursuing innovative tools, such as the Dairy Options Pilot Program, to give farmers more risk management alternatives.
From 1987 to 1994, disaster assistance payments averaged roughly $1.2 billion a year, while annual crop insurance outlays averaged roughly $800 million over the same period. Combined, the total Federal expenditure was roughly $2 billion annually. Since the Federal Crop Insurance Reform Act of 1994 (1994 Act), total expenditures for the crop insurance program have averaged $1.2 billion annually. For 1999, expenditures will total about $1.8 billion; the budget provides for full funding of this amount.
In 1997, crop insurance provided $24.3 billion in protection to more than 600,000 producers, holding slightly more than 1.3 million policies on 181.4 million acres. For 1998 and 1999, we expect to maintain approximately the same level of participation and that producers will select higher levels of coverage. Further, Crop Revenue Coverage (CRC) is now available on almost 90 percent of the corn, wheat, cotton, soybean, and grain sorghum acres in the United States. CRC helps protect producers from losses in yield, price, or combinations of both factors.
By 1999, RMA expects that roughly 63 percent of the country’s insurable acres will be covered by the crop insurance program. Twenty-two percent of insurable acreage is expected to be covered at the catastrophic coverage level (50 percent of the approved yield covered at 55 percent of the expected market price) with the Federal government subsidizing 100 percent of the premium, and 41 percent of the insurable acreage is expected to be covered at higher levels of coverage (up to 75 percent of the approved yield covered at 100 percent of the expected market price) for which producers pay a premium, a portion of which is also subsidized by the Federal government.
With our private sector partners, including farmer organizations, crop insurance agents, trade associations, and educational institutions, we are continuing to work with agricultural leaders nationwide to increase producers’ awareness of risk management strategies and impress upon them the importance of taking active steps to protect their investments from fluctuating prices and weather-related disasters. Our budget proposals include $5 million to carry out these educational initiatives.
We are also exploring new programs that will allow us to offer coverage that better meets the needs of family-sized farm operations. We intend to launch a Dairy Options Pilot program this year, and our budget proposal includes $10 million for this program in both 1998 and 1999.
The budget includes a proposal to shift all reimbursements for delivery expenses incurred by reinsured companies from discretionary to mandatory spending. This shift would consolidate all spending for the program other than salary related and operating costs into a single account and eliminate the possibility of the program being restricted by a limited appropriation of discretionary funds.
The proposal results in an increase of $185 million in mandatory outlays in 1999, associated with $205 million in budget authority for administrative expenses reimbursements. This will require corresponding mandatory offsets. Of the $1.1 billion in offsets needed through 2002, USDA will propose that about half come from the crop insurance program, with producers and insurance providers sharing the reductions. Beginning in 2000, savings within the crop insurance program are achieved by: limiting payment eligibility under the catastrophic risk protection (CAT) insurance program to $100,000 per person; reducing administrative subsidies for insurance providers from 27 percent to 25 percent of premiums for the standard plans of insurance; reducing premium subsidies for higher levels of coverage; and reducing the statutory loss ratio target from 1.075 to 1.060 beginning in 2000.
For 1999, necessary offsets have been identified, including savings from the Cotton Step 2 Payments and from the Export Enhancement Program.
Foreign Agricultural Service
One of USDA’s primary goals is to expand economic and trade opportunities for agricultural producers and other rural residents. The opening and expansion of foreign agricultural markets has never been more important. Recent changes in Federal farm policy, including those adopted in the 1996 Farm Bill, have made it clear that new and growing markets are critical to future income growth for our farmers and ranchers.
We have made some notable progress in achieving our export expansion goal in recent years. U.S. agricultural exports reached $57.3 billion in fiscal year 1997, the second highest level on record. Last year also marked the third consecutive year that exports topped $54 billion. The agricultural trade surplus ended the year at $21.5 billion. Four of 1997's top 10 markets for U.S. agricultural exports rose to new highs. Records were set to both U.S. neighbors, Canada and Mexico. Together, our NAFTA partners accounted for $11.7 billion in U.S. exports this past year, 20 percent of our total agricultural exports worldwide and greater than our sales to Japan. Records were also set to Hong Kong and Russia. However, we also experienced declines in other top markets with value declines to three key Asian markets --Japan, Taiwan, South Korea -- ranging from 10 to 12 percent.
The Foreign Agricultural Service (FAS) plays a critical role in our efforts to achieve the Department’s goal of expanding overseas markets. Working with the Office of the United States Trade Representative, FAS is involved in agricultural trade policy, monitoring and enforcing trade agreements, and working to reduce trade barriers and increase market access for U.S. agricultural products. Through its network of 81 Counselor/Attache offices and Agricultural Trade Offices, FAS provides market intelligence information to U.S. producers and exporters, enabling them to compete for market opportunities abroad. FAS also administers a variety of foreign food assistance, market development and export promotion programs which are designed to bolster U.S. competitiveness in international markets and build long-term trading relationships with other countries. FAS also carries out exporter outreach and assistance programs which are designed to increase domestic awareness of export opportunities, help companies become export ready, and link export-ready and new-to-export companies to foreign buyers overseas. And, FAS coordinates international activities throughout USDA, bringing to bear the all of the resources of the Department to address issues as they arise.
The budget provides a total program level of $190 million for FAS for 1999. This includes $146 million of appropriated funding, an increase of $6 million over the 1998 enacted level.
The budget proposal includes $4 million for overseas administrative services provided by the Department of State in support of the International Cooperative Administrative Support Services (ICASS) program, and includes $2 million to establish a buying power maintenance fund to assist FAS in managing unanticipated changes in the costs of its overseas operations which can result from exchange rate losses or gains. This proposal responds to a request of the Conference Committee on the 1998 Agriculture Appropriations Bill.
The budget also includes an increase of $500,000 for FAS to re-engineer its program performance measurement and evaluation tools, which are a critical element in meeting requirements of the Government Performance and Results Act.
The budget proposes to shift funding for FAS information technology infrastructure and related expenses to the FAS appropriated account. At present, these costs are funded through a reimbursable agreement with CCC. FAS will meet these costs, which are estimated to be $12 million in 1999, through staff-year and associated cost reductions and through increased cost-share contributions to the Foreign Market Development Program.
Export Credit Guarantee Programs
Under the export credit guarantee programs, CCC provides payment guarantees for the commercial financing of U.S. agricultural exports. These programs facilitate exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without CCC guarantees.
The budget proposes a new approach to presenting the estimates for export credit guarantee programs. Program levels, budget authority and outlays will reflect the level of sales expected to be registered rather than the authorized level. This provides more realistic estimates of the costs of the guarantee programs and improves the accuracy of CCC budget estimates. This change will not restrict program use; the authorized levels remain available for use as determined by program demand and changing market conditions.
Following this new approach, the budget projects an aggregate program level of $5.0 billion for export credit guarantees in 1998 and $4.6 billion in 1999. These program levels are significantly higher than in recent years, reflecting large increases in programming in Southeast Asia and South Korea this year that are expected to continue into 1999. The 1999 program level includes $4.3 billion for GSM-102 short-term export guarantees and $100 million for GSM-103 intermediate-term guarantees. Additionally, the budget includes $150 million for supplier credit guarantees and $50 million for facilities financing guarantees.
Export Subsidies
The budget proposes a flexible, multi-year program level authorization for the Export Enhancement Program (EEP), which is one of two export subsidy programs administered by FAS. The proposal provides total funding level of just under $1.2 billion for EEP during the 1999 to 2003 period and provides administrative discretion to the Department to determine the level of funding for individual years. The proposal will generate approximately $1.4 billion in savings during this period, which will help offset increased funding included in the budget for crop insurance and other mandatory spending proposals. There has been limited activity under EEP during the past two years due to world supply and demand conditions. However, the program remains in place and USDA is prepared to resume awarding EEP bonuses should market conditions warrant. Annual program levels will continue to be subject to the export subsidy reduction commitments established in conjunction with the Uruguay Round Agreement on Agriculture.
FAS also administers the Dairy Export Incentive Program (DEIP), which helps exporters of U.S. dairy products become price competitive and thereby make sales in targeted overseas markets where competitor countries are making subsidized sales. For DEIP, the budget assumes a somewhat lower level of program activity in 1999 due primarily to a projected tighter domestic market situation. However, the actual level of DEIP programming will be determined by market conditions in 1999, subject only to the Uruguay Round Agreement subsidy reduction commitments. Thus, the actual level of DEIP programming could exceed what is assumed in the budget should supply and demand conditions not be as tight as currently projected.
P.L. 480
Public Law 480 programs are the primary means by which the United States provides foreign food assistance. FAS administers Title I of P.L. 480, which provides for sales of U.S. agricultural commodities to developing countries and private entities through concessional financing. Titles II and III of P.L. 480 are administered by the Agency for International Development. Under Title II, the United States provides humanitarian food assistance to needy people in foreign countries in response to malnutrition, famine, and other extraordinary relief requirements. Title III provides food assistance on a grant basis to least developed countries to support programs of economic development.
The budget provides a total program level for P.L. 480 food assistance of $979 million. This is expected to provide approximately 2.8 million metric tons of commodity assistance, approximately 700,000 metric tons less than the current estimate for 1998. The budget reduces funding for Title I from $245 million in 1998 to $112 million in 1999. Funding for Titles II and III remains the same for 1998 and 1999 at $837 million and $30 million, respectively.
In addition, the budget assumes that approximately $109 million of CCC funds will be used to support the Food for Progress program. Under Food for Progress, U.S. agricultural commodities are provided to developing countries and emerging democracies which have made commitments to introduce and expand free enterprise in their agricultural economies. Commodities are provided on either long-term credit or grant terms to foreign governments, private voluntary agencies, nonprofit agricultural organizations, cooperatives, or intergovernmental organizations.
Market Access Program
The President’s budget fully funds the Market Access Program (MAP) at $90 million. FAS administers MAP to support the development, maintenance, and expansion of commercial export markets for U.S. agricultural commodities and products. Under the program, CCC funds are used to provide cost-share assistance to participating organizations including nonprofit agricultural trade organizations, State regional trade groups, and private companies, for carrying out foreign market development activities in designated countries. Only small businesses are permitted to receive direct assistance under MAP.
Year 2000 Compliance
Finally, I would like to provide an update on Year 2000 Compliance efforts. FAS, FSA, and RMA are on target for meeting required conversions and retrofitting computer hardware, software, and other systems to ensure Year 2000 compliance.
FSA is the lead agency providing information technology support for the agencies within our mission area. In August 1996, FSA established a target of September 30, 1998, for completion for conversion, well ahead of OMB’s recently announced target of March 1999. FSA has reported and tracked the status of all Year 2000 efforts since October 1996. All FSA systems that have not been canceled or replaced are regarded as mission critical systems. As of January 28, 1998, FSA has completed 42 percent of its Information Technology (software application) systems. For all Year 2000 projects, both application and non-application projects, FSA has completed over 27 percent. Within the next 3 to 6 months, the percentage of completion will increase significantly as ongoing field office projects are completed.
FAS has also established September 30, 1998, as the target date for completion of all conversion projects. From the beginning, FAS took the approach that Year 2000 compliance would be incorporated into the overall re-engineering efforts for the FAS applications systems. The process to re-engineer all of FAS’s mission critical applications into a client/server environment began in 1994. FAS identified 14 applications as being mission-critical. Eight of those 14 applications are Year 2000 compliant; the remaining 6 systems will be compliant by September of this year.
RMA is also making steady progress to meet Year 2000 compliance. The Agency has identified 48 mission-critical application systems which must be Year 2000 compliant. Of these, 19 are compliant, 10 will be replaced, one is being repaired, and 18 will be retired. All of RMA’s transaction data is compliant now. Historical data is still being migrated into Year 2000 compliant systems. Most of the work will be done by September 1998, and RMA is on track to have all systems Year 2000 compliant by the March 1999 deadline.
The planned early completion date for FSA and FAS will allow those agencies to use the remaining time for actual production processing with the systems to ensure compliance and will provide time to eliminate any errors.
In closing, I would like to add that I believe the Department of Agriculture has an important role to play in helping American farmers and ranchers succeed. The FFAS mission area plays a crucial role in the Department’s efforts to improve farm income and provide an adequate safety net for America’s family farmers and ranchers. Our programs don’t operate in a vacuum, but in partnership with State and local governments, commodity organizations, colleges and universities, and most importantly, with individual producers. These are our customers, and these are the people we are all here to serve. Although many challenges are ahead of us, FSA, FAS, and RMA are committed to the prospect of using all the tools available to us to serve our customers in a farmer-friendly way. With the continued support of this Committee, we will continue to do so.
This concludes my statement, Mr. Chairman. We will be pleased to answer any questions you and other Members of the Committee may have.
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