Detailed Information on the
Agricultural Crops Counter Cyclical Payments Assessment

Develop an independent evaluation process to be conducted once every three years.

Work to achieve its long-term performance goals.

Take measures to collect data to monitor program performance.

Measure: Counter-Cyclical payments as a percentage of market revenue

Explanation:This measure indicates the amount of income assistance from counter-cyclical payments. "2006 data is preliminary; actual will be available in February 2007.

Measure: Annual variation in total crop revenue (percent change in market revenue plus counter-cyclical payments)

Explanation:This measure is an indicator or the effectiveness of stabilizing farm income. 2006 data is preliminary; actual will be available in February 2007.

Measure: Increase in on-time payments (%).

Explanation:Timely delivery of program payments is an indicator of FSA's effectiveness in meeting customers needs and reduces prompt payment penalty costs.

Measure: Increase the percentage of program payments made electronically.

Explanation:Meets customer needs more timely, accurately, and efficiently.

Is the program purpose clear?

Explanation: Counter-cylical payments are one part of the Government's farm "safety net" for farmers that provides minimal income support without distorting trade or production. The income guarantee is a financial hedge against unexpected events (i.e., low prices or low yields) beyond the farmer's control that helps ensure farmers cash flow needs are met and ample commodity supplies are available at competitive market prices. Counter-cyclical payments are based on historical acreage and yields and payments are triggered when market prices fall below levels specified under the Farm Security and Rural Investment Act of 2002, Public Law 107-171. Payments are made to farmers who: (1) each crop year, sign a direct and counter-cyclical agreement; (2) report how they use all their farm's cropland acreage; (3) comply with conservation and wetland protection requirements on all their farms; (4) comply with the planting flexibilty requirements; (5) use their cropland for agricultural related activities; and (6) control noxious weeds and maintain land in sound condition, if the field is uncultivated.

Evidence: Farm Security and Rural Investment Act of 2002, PL 107-171. Farm Security and Rural Investment Act of 2002, PL 107-171. The following Farm Service Agency Factsheets: "Direct and Counter-cyclical Payment Program"; "Feed Grains: Summary of 2002-2007 Program"; "Oilseeds- Summary of 2002-2007 Program"; "Rice- Summary of 2002-2007 Program"; and Upland Cotton-Summary of 2002 Commodity Loan and Payment Program". These factsheets sre available at the following website address: www.fsa.usda.gov/pas/publications/facts/pubfacts.htm

Does the program address a specific and existing problem, interest or need?

Explanation: Financial commitments for planting field crops must be made at least 4 months before the commodities are harvested. Farmers and commercial agricultural creditors face large financial risks. Market returns per acre to management and labor have, historically, been perenniely low compared with other investments with similar risks. Counter-cyclical payments ensure income support in the event that market prices are below specified levels with minimal planting requirements and no acreage restrictions. The cash flow certainty provides a financial hedge against unexpected events beyond the farmer's control that helps ensure financial stability throughout the agriculture sector and ample, stable commodity supplies.

Evidence: The program has helped stabilize farm income and reduce financial risks unique to the agricultural production sector by providing financial assistance to farmers when market prices are low and improving production efficiencies by removal of planting restrictions and planting requirements. Appendix Table 1 shows the large year-to-year changes in market revenue for major commodities. Mishra, Ashok, and Sandretto, Carmen. Stability of Farm Income and the Role of Nonfarm Income in U.S. Agriculture. Review of Agricultural Economics, Volume 24, Number 1, Summer/Spring 2002, pages 208-221. Commodity Costs of Production are available at the following ERS website address: www.ers.usda.gov/data/costsandreturns/testpick.htm.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: No other state, local or private efforts exist to provide this form of support. Federal assistance includes direct payments, counter-cyclical payments, nonrecourse marketing assistance commodity loans, and crop and revenue insurance that provide farmers an income safety net. Crop and revenue insurance, jointly underwritten by the Government and private insurance companies, is available to producers through private insurance companies.

Evidence: No other program addresses a similar problem in a similar way. No other program provides income support to farmers when market prices average between the: (1) respective commodity loan rate; and (2) direct payment rate plus the commodity loan rate. The FY05 President's Budget Estimates shows that 2002-crop counter-cyclical payments totalled $1.8 billion and 2003-crop counter-cyclical payments are estimated to total about $2.4 billion to farmers. CCC Comodity Estimates Book, FY 2005 President's Budget, February 2004.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: Limited statutory discretion for program administration reduces the program's effectiveness. The commodities available for payments are the major field crops. Producer's without acreage and yield histories of counter-cyclcial eligible commodities cannot earn payments. A compensating design feature is that counter-cyclical payments are minimally production and trade distorting, compared with other farm program assistance, because they are largely decoupled from current production.

Evidence: Farm Security and Rural Investment Act of 2002, PL 107-171. Farm Security and Rural Investment Act of 2002, PL 107-171. The following Farm Service Agency Factsheets: "Direct and Counter-cyclical Payment Program"; "Feed Grains: Summary of 2002-2007 Program"; "Oilseeds- Summary of 2002-2007 Program"; "Rice- Summary of 2002-2007 Program"; and Upland Cotton-Summary of 2002 Commodity Loan and Payment Program". These factsheets sre available at the following website address: www.fsa.usda.gov/pas/publications/facts/pubfacts.htm

Is the program effectively targeted, so that resources will reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: Counter-cyclical payment beneficiaries are farmers of major field crops with planting histories of commodities eligible for counter-cyclcical payments. Commodities eligible for counter-cyclcical payments are wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, other oilseeds, and peanuts and consistently account for nearly 80 percent of the 15 principal commodities grown. These payments help farmers meet their cash flow needs and provide farm income support for producing any crop, except for fruits, vegetables (other than lentils, mung beans, and dry peas), and wild rice. Thus, counter-cyclical payments are decoupled from current production.

Evidence: Planted acreage of counter-cyclcial payment eligible commodities averaged 78.9 percent of acreage planted to the 15 principal commodities during the 1996-2003 crop years. During this period, the percentage ranged from 78.2 to 79.4. Two years of data are used to determine the effectiveness of program. Agency, Dept. and OMB personnel participated on Farm Bill Implementation Team to review implementation options. Audits of programs over the last 5 years have not disclosed any material weaknesses in the design of the program delivery process or the related payment process.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: FSA has developed long term performance measures that directly and meaningfully support the purpose of the program and its long term goals. The only portion the Agency and its managers can control are those that concentrate on monitoring the timely and accurate delivery of programs to our customers. Counter cyclical payments provide important cash flow assurance to program participants, thereby reducing the revenue risk associated with price and production variability. Additionally, the planting flexibility provision enables producers to make production decisions based on market signals rather than in response to program benefits, which improves the efficiency of the farm sector. However, from a policymaker's perspective, it is important to assess how effective the programs are. This is why how the payments contribute to farmers' revenue is measured.

Evidence: FSA continues to develop new and meaningful performance measure that support the program's goals. New measures include: (1) reduction in late penalty payments(%) ; (2) program payments made electronically(%).; (3) counter-cyclcical payments as a percentage of market revenue; and (4) annual percentage change in revenue (market revenue plus counter-cyclical payments). FSA will continue to develop more outcome and output measures that will further provide management with the ability to analyze program performance.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The new measures are designed to promote continuous improvement and include targets through FY 2007.

Evidence: Targets are based on economic forecasts, which can vary significantly as a result of changes in market conditions. The target for "% of gross farm income from FSA sources" is based on economic forecast for the agricultural sector published by the Economic Research Service.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: Due to the nature of the counter-cylical payments, the most significant measures to the Agency and its managers are those that concentrate on monitoring the timely and accurate delivery of programs to our customers. FSA's annual performance measures are directly related to its long-term measures. For example, timeliness will be measured by the amount of prompt payment interest paid on the Direct and Counter-cyclical Program.

Evidence: Annual performance goals include: (1) Reduction in late penalty payments; (2) Reduction in erroneous program payments.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: Established baselines and clear timeframes and targets support FSA's annual measures for this program.

Evidence: Baselines and performance targets for this type of program were developed as part of the FY05 BPI and strategic plan efforts. New measures include the impact of program payments on market revenues and the variability in market revenue.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: FSA does not have any partners in this program

Evidence: FSA does not have any partners in this program.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: There are no systematic external reviews conducted. At agency level, County Office reviews are scheduled and other evaluations are done on an ad-hoc basis. Every county office is reviewed on average once every four years. The Office of Inspector General also monitors the payment system and conducts annual audits of the CCC. GAO monitors as well.

Evidence: The County Office Review Program and compliance reviews are scheduled throughout the fiscal year. As indicated in their January 2004 to Congress, in FY 2004 OIG is continuing to monitor program implementation. OIG schedules and conducts reviews and other ad-hoc reviews are conducted.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Budget outlays are inversely related to a commodity's effective price when it falls below its target price. This program is meant to support and stablize farm income when the effective price falls below the target price by issuing counter-cyclical payments to producers of selected commodities. As this is a mandatory program, budget projections take into account price changes that would affect budget outlays.

Evidence: Actual outlays are obtained from the accounting system. FSA Budget Division keeps program staff routinely informed of funding levels and outlays in daily and monthly reports.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: FSA is currently developing a new strategic plan, which emphasizes outcome oriented goals and measures. The new plan is scheduled to be completed in Sept. 2004.

Evidence: See evidence in questions 2.1 and 2.3.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The type of data collected cannot be used to measure performance. Internal audits and reviews of compliance are conducted which improve program effieciency, and minimize fraud, waste and abuse.

Evidence: The County Office Review Program produces an annual report that identifies areas in need of improvement. Based on recommendations from this report, the Agency has taken action to re-enforce instrictions and resolve problem areas.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Agency managers are responsible for implementing and monitoring program activities. Program managers are introducing electronic delivery features into the program and E-Forms to improve overall program efficiency. The number of offices used to service customers continues to be reduced further reducing the cost of delivering the program. The Agency has implemented a yearly signup for the program which should further improve performance results by reducing the number of unearned payments that are made.

Evidence: Federal Managers Financial Integrity Act

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Because this is a non-apportioned program, there are no unobligated funds remaining at the end of the FY. The obligation occurs simultaneously with the disbursement. Also, recipients (producers) must maintain their program eligibility throughout the program year and are subject to spot checks to ensure compliance with program objectives.

Evidence: Accounting procedures are defined in requirements approved by the Chief Accountant of CCC. Disbursement entries are created in an automated environment when the payment amount is calculated in the program software. FMD is currently overseeing a Risk Assessment of erroneous payments for this program under guidelines set forth by OMB as required by the Improper Payments Information Act (IPIA).

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The Agency does have procedures, particularly in terms of complicance with program rules and requirements. The Agency has procedures to measure the efficiencies of the program through the prompt payment reports and EFT versus paper checks reports. Of approximately $289 million in Counter Cyclical Program payments made in FY 2003, 67% were made by ACH rather than check.

Evidence: The Agency reports the number of prompt payment penalties paid and the ratio of Electronic Funds Transfer (EFT) payments versus payments issued via Treasury Check. To achieve further efficiencies the Agency is introducing more E-forms to improve the data collection process and reduce data imput time and errors. The Agency has implemented a yearly signup for the program to reduce unearned payments and has implemented more stringent guidelines for funds control. Monthly reports detail the number of payments made by EFT and their dollar amounts. FMD is in the process of gathering information on the costs involved for each transaction for payments made by checks vs. EFT.

Does the program collaborate and coordinate effectively with related programs?

Explanation: Counter-Cyclical payments are an integral component of the farm safety net. They work with with direct payments, marketing loans, and crop insurance, for farm producers, to help maintain stability and viability in agri-business. Direct payments, counter-cyclical payments, and marketing loan programs are monitored jointly and data will soon be cross-checked with crop insurance data to ensure compliance with all farm support programs.

Evidence: Counter-cyclical payments are authorized only when the effective price for a commodity falls between the commodity's target price and its loan rate. Direct payment rates are added to the higher of the average market price or national loan rate, to determine the effective price for a commodity. When average market prices fall below loan rates producers may be eligible to earn marketing loan gains or loan deficiency payments.

Does the program use strong financial management practices?

Explanation: Disbursement data is collected and reported in the financial statements of the Commodity Credit Corporation. These statements are audited every year and for FY 2003, CCC received a clean audit opinion. Auditors have questioned the absence of obligations, but since this is a non-apportioned program whereby the obligation occurs simultaneously with disbursement, it is not an issue.

Evidence: There are no material findings on the internal controls related to the disbursement process used by CCC. FSA is currently performing an assessment of the risk of erroneous payments in this program to identify any program management deficiencies.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: This is a fairly new program and it is unclear whether Agency management has developed procedures to assess what their management deficiencies are.

Evidence: None provided.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: FSA's long-term goals for the program are: 1) reduce the financial risks if when commodity prices are low; 2) ensure ample commodity supplies are available at competitive prices; and 3) provide timely, cost-effective services.

Evidence: As previously indicated, performance measures for the Counter-cyclical Program will be tracked beginning with the FY 2006 APP.

Does the program (including program partners) achieve its annual performance goals?

Explanation: FSA has established performance goals for reducing late penalty payments(%), increasing program payments made electronically (%), providing income support of up to 15 percent of the annual aggregate market value of counter-cyclcial payment eligibile commodities, and sustaining annual revenue (counter-cyclical payments plus market revenue) changes to less than 10 percent.

Evidence: Based on experience to date we fully anticipate the program will continue to meet its performance goals. For example, the percentage of farm program payments made electronically has increased from 72.4% in 2001; to 75.9% in 2002 (increase of 3.5%); & to 76.1 in 2003 (increase from 2002 of 0.2%). The target for FY 2005 is 79%. The percentage payments made on time has increased from 97.4% in FY 2002 to 98.7% in FY 2003 (an increase of 1.3%).

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The Agency reports that for the Counter Cyclical Program, the prompt payment penalty amount increased by approximately $57,000 when comparing the first two quarters of FY 2003 to the first two quarters of FY 2004. This is .00019% of total dollars paid in this program in FY 2003. There was a 289% increase in the number of all program payments made by county offices during the 1st quarter FY 2003 compared to the 1st quarter of FY 2004. For the same period comparison there was a 288% increase in the number of payments made using EFT.

Evidence: The Agency reports the number and value of prompt payment penalties paid and the ratio of EFT payments versus payments made by paper check in regular reports to OMB. The Agency reports comparing prompt payment interest penalties paid for the first two quarters of FY 2003 and FY 2004 are used as a measurement of efficiency. The Agency reports for EFT vs Check usage for the first quarter of FY 2003 compared to the first quarter of FY 2004. Increased use of EFT over checks reduces agency costs in making disbursements.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The support provided by this program is less market distorting than that provided by marketing loans and Loan Deficiency Payments (LDP's).

Evidence: LDPs are paid based on current production. This has resulted in an increasing acreage planted to program crops and has contributed to a reduction in crop prices. USDA/ERS Agricultural Outlook, October 2002, p. 12-13.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: A number of studies by the Economic Research Service have analyzed the impact of U.S. commodity programs. Those studies indicate that relative to LDP's counter-cyclical payments are less distorting and that they effectively stabililize farm income.

Evidence: U.S. Farm Program Benefits: Links to Planting Decisions & Agricultural Markets. USDA/ERS Agricultural Outlook, October 2000. "A Safety Net for Farm Households" USDA/ERS Agricultural Economic Report No. 788. 44 pp, Dec 2000. USDA/ERS The 2002 Farm Act: Provisions and Implications for Commodity Markets; ERS Agriculture Information Bulletin No. AIB778.67pp, November 2002