Author: Edwin Young

The Farm Security Act of 2002, which governs Federal farm programs for 2002-07, was signed into law on May 13, 2002. This publication presents an overview of the Act and a side-by-side comparison of 1996-2001 farm legislation and the 2002 Act. For selected programs, information is provided to additional analyses of key changes, program overview, and economic implications.

A recent World Trade Organization challenge to U.S. commodity programs has created pressure to eliminate fruit and vegetable planting restrictions on farms that plant program crops. If planting restrictions were relaxed, overall market effects would likely be limited, with the greatest effects in California, the Southeast and the upper Midwest. Some producers with base acreage would likely benefit while others without base acres may find that production of fruit and vegetables would be less profitable than production of program crops.

The U.S. feed grain sector, largest of the major U.S. field crops, faces unprecedented demand conditions. The size and speed of the expanding use of corn by the ethanol industry is raising widespread issues throughout U.S. agriculture. Debate is ongoing over the use of grain for fuel instead of for food or feed and the adequacy of future grain supplies. Increased productivity (yield) and additional area from land planted to competing crops, land enrolled in conservation programs, or idled land is expected to provide an increased supply of feed grains. The outlook is for higher feed grain prices, in part, as a result of renewable energy policies and high energy prices, with feed grain prices rising above farm program support levels. During the ongoing farm policy debate, the U.S. feed grain sector faces uncertainty about the future level and type of government support.

A recent World Trade Organization challenge to U.S. commodity programs has created pressure to eliminate fruit and vegetable planting restrictions on farms that plant program crops. If planting restrictions were relaxed, overall market effects would likely be limited, with the greatest effects in California, the Southeast and the upper Midwest. Some producers with base acreage would likely benefit while others without base acres may find that production of fruit and vegetables would be less profitable than production of program crops.

Participants in U.S. farm programs are restricted from planting and harvesting wild rice, fruit, and most vegetables (nonprogram crops) on acreage historically used for program crops (known as base acreage). However, a recent World Trade Organization challenge to U.S. programs has created pressure to eliminate planting restrictions. Although eliminating restrictions would not lead to substantial market impacts for most fruit or vegetables, the effects on individual producers could be significant. Some producers who are already producing fruit and vegetables could find that it is no longer profitable, while others could profitably move into producing these crops. Producers with base acreage are the most likely to benefit because they would no longer face payment reductions.

The 2002 Farm Act provided farmland owners the opportunity to update commodity program base acres and payment yields used for calculating selected program benefits. Findings in this report suggest that farmland owners responded to economic incentives in these decisions, selecting those options for designating base acres that resulted in the greatest expected flow of program payments. Farmland owners with high-payment base acres, such as rice and cotton, held on to these base acres and, whenever possible, expanded them. Analogously, farmland owners with low-payment commodity base acres, such as oats and barley, switched to higher payment commodities whenever possible.

Countercyclical assistance is the common thread among recent agricultural policy innovations of the United States, Mexico, and Canada. In other areas, the three countries are pursuing distinct agricultural policies, reflecting differing national objectives and economic contexts.

U.S. Peanut Sector Adapts to Major Policy Changes_examines the experience of the peanut sector following the 2002 Farm Act's elimination of the marketing quota system, and identifies factors affecting the transition to a more market-oriented system. Although peanut prices and acreage declined following passage of the 2002 Farm Act, it appears that producers are taking advantage of increased planting flexibility to expand production in higher yielding areas, and the transition has been cushioned by rising demand, and additional sources of revenue from government payments and other sources of farm and off-farm income.

This report examines the experience of the peanut sector following the 2002 Farm Act's elimination of the marketing quota system, and identifies factors affecting the transition to a more market-oriented system. Although peanut prices and acreage declined following passage of the 2002 Farm Act, it appears that producers are taking advantage of increased planting flexibility to expand production in higher yielding areas. Moreover, the transition has been cushioned by rising demand, and additional sources of revenue from government payments and other sources of farm and off-farm income.

The analysis suggests that subsidized crop insurance leads to relatively small increases in crop production. At the aggregate level, crop insurance subsidies lead to production to riskier regions.

The Farm Security and Rural Investment Act of 2002 (2002 Farm Act), which governs agricultural programs through 2007, was signed into law in May 2002. This report presents an initial evaluation of the new legislation's effects on agricultural commodity markets, based on sectorwide model simulations under alternative policy assumptions. The analysis shows that loan rate changes under the marketing assistance loan program of the 2002 Farm Act initially result in an increase in total planted acreage of eight major program crops. This increase in plantings, however, is relatively small (less than 1 percent), partly due to the inelasticity of acreage response in the sector. In the longer run, the simulations indicate that overall plantings of the eight program crops studied are lower under the 2002 Farm Act than under a continuation of the 1996 Farm Act. This result mostly reflects larger enrollment in the Conservation Reserve Program and increased plantings of dry peas and lentils, although planted acreage for the eight program crops is reduced by less than 0.6 percent. The effects of the 2002 Farm Act on the livestock sector and retail food prices are relatively small. Farm income is increased, mostly due to higher government payments to the sector under the new law.

Recent studies show that average diets differ considerably from Food Guide Pyramid recommendations. The gap between current consumption and recommendations is particularly large for caloric sweeteners, fats and oils, fruits, and certain vegetables, notably dark-green leafy and deep-yellow vegetables, and dry beans, peas, and lentils. The change in food consumption needed to meet Food Guide Pyramid serving recommendations will result in adjustments in U.S. agricultural production, trade, nonfood uses, and prices. The net adjustment in crop acreage is projected to be relatively small, about 2 percent of total cropland in 1991-95. However, this small net adjustment masks larger anticipated changes for some sectors, particularly sweeteners, fats and oils, and citrus fruits

The Federal Agriculture Improvement and Reform Act of 1996, a milestone in U.S. agricultural policy, provides new farm sector law for 1996-2002, fundamentally redesigning income support programs and discontinuing supply management programs for producers of many commodities. This bulletin provides a general overview of major changes related to production agriculture resulting from the commodity provisions, agricultural trade provisions, and conservation provisions of the Act.

The Conservation Reserve Program (CRP) will boost net farm income and improve environmental quality over the life of the program (1986-99). These gains will come at the cost of somewhat higher food prices and Government administrative expenses, and potential downturns in farm input industries and other local economic activity tied to farming where enrollment is heavy. The authors estimated the net economic benefits of the program to range between $3.4 billion and $11.0 billion in present value, based on the effects covered in this report. Any estimate of the net Government expense of the CRP is highly dependent upon projected commodity market conditions and assumed levels of the acreage reduction program in the absence of the CRP. Prior to the 1988 drought, the authors estimated a small net Government expense. A more recent estimate made after the 1988 drought and with higher assumed acreage reduction levels in the absence of the CRP resulted in a significantly higher net Government expense.

This report address considerations in the 1990 farm bill debate for wheat, including market conditions, policy proposals, trade agreements, and the interactions between policy and markets for selected commodities. Surplus wheat stocks declined under the 1985 Food Security Act as exports expanded due in part to the export enhancement program and reductions in the loan rate. Cutbacks in wheat production and recent droughts in key producing areas further reduced wheat stocks and increased prices. Although burdensome stocks could easily return, there is also the risk of shortage and high prices if additional production shortfalls and demand increases occur in the near future. Exports will likely be the main source of demand growth for U.S. wheat. However, world trade is not expected to match the sharp expansion of the 1970s and competition among the major exporters may intensify. Issues for 1990 farm legislation include loan rate and target price levels, the level of farm program costs, planting flexibility, and the future of the export enhancement program.

Mandatory restrictions on agricultural production continue to be advocated as an alternative policy for increasing farm income while reducing farm program costs. Although farm income might rise in the short run, such programs would be costly to consumers and possibly to the Federal Treasury. Programs that idle productive resources to maintain higher prices may lead to production inefficiencies and to capitalization of program benefits that are captured by current landowners.