The USDA 2007 Farm Bill Proposal: Possible Questions

The USDA 2007 Farm Bill Proposal:
Possible Questions
March 12, 2007
Geoffrey S. Becker, Ralph M. Chite, Tadlock Cowan,
Ross W. Gorte, Remy Jurenas, Jim Monke,
Jean M. Rawson, Randy Schnepf, and Megan Stubbs
Resources, Science, and Industry Division
Joe Richardson
Domestic Social Policy Division



CRS Contributors to this Report
NamePolicy AreaTelephone
Jim Monke Commodity Programs and Credit7-9664
Megan StubbsConservation7-2425
Randy SchnepfEnergy7-4277
Remy JurenasTrade and Sugar7-7281
Joe RichardsonDomestic Nutrition7-7325
Tadlock CowanRural Development7-7600
Jean M. RawsonResearch7-7283
Ross W. GorteForestry7-7266
Geoffrey S. BeckerSection 32 (fruit and vegetable purchases)7-7287
Ralph M. ChiteDairy and Crop Insurance7-7296



The USDA 2007 Farm Bill Proposal:
Possible Questions
Summary
On January 31, 2007, the Secretary of Agriculture publicly released a set of
recommendations for a 2007 farm bill. The proposal is comprehensive and follows
largely the outline of the current 2002 farm bill, which expires this year. It includes
proposals regarding commodity support, conservation, trade, nutrition and domestic
food assistance, farm credit, rural development, agricultural research, forestry,
energy, and such miscellaneous items as crop insurance, organic programs, and
Section 32 purchases of fruits and vegetables.
The Administration delivered its report to Congress, not as a bill, but as a
possible focus for debate and a foundation for developing legislation. CRS has
received many questions about the content of and potential issues related to the
Administration proposal. Given the early stage of the debate, this report poses some
questions that may contribute to a better understanding of the proposal.
This report contains a brief description of current policy on each topic, a short
explanation of the Administration’s proposals, and then questions of a policy,
program, and/or budgetary nature. In some cases proposals are repeated in more than
one title, and where this happens the questions are duplicated.



Contents
Title I: Commodity Programs........................................1
Marketing Assistance Loans.....................................2
Posted County Prices...........................................2
Direct Payments...............................................3
Direct Payments for Beginning Farmers............................4
Revenue-Based Counter-Cyclical Payments.........................4
Value and Eligibility Limits......................................5
Section 1031 Exchanges........................................6
Dairy Counter-cyclical Payments and Price Support...................7
Sugar .......................................................8
Special Cotton Competitiveness Provisions.........................9
Planting Flexibility Limitations...................................9
Crop Base Retirement.........................................10
Conservation Enhanced Payment Option..........................11
Continuing WTO Compliance...................................11
Title II: Conservation..............................................12
Environmental Quality Incentives Program (EQIP)..................13
Conservation Security Program (CSP)............................14
Private Lands Protection Program................................14
Conservation Reserve Program (CRP)............................15
Wetlands Reserve Program (WRP)...............................15
Sod Saver...................................................16
Conservation Access for Beginning and Limited-Resource Farmers.....17
Market-Based Funding.........................................17
Emergency Landscape Restoration Program........................18
Title III: Trade...................................................19
Technical Assistance for Specialty Crops..........................19
Market Access Program........................................19
Sanitary and Phytosanitary (SPS) Issues Grant Program...............20
International Trade Standard Setting Activities......................21
Technical Assistance for Trade Disputes...........................21
Trade Capacity Building and Agricultural Extension Programs in
Strategically Important Countries............................22
Export Credit Programs and Facility Guarantee Programs.............22
EEP and Trade Strategy Report..................................24
Cash Authority for Emergency Food Aid..........................24
Title IV: Nutrition................................................27
Food Stamp Program: Working Poor and Elderly....................27
Retirement Savings.......................................27
Reimbursement for Work-Related Expenses (Pilot Project)........28
Dependent-Care Expenses..................................28
College Savings Plans.....................................29
Combat-Related Military Pay...............................30
Food Stamp Program: Streamlining and Modernizing Proposals........31
Rename the Food Stamp Program............................31



Prohibit Certain State Claims Against Recipients;
Collect Over-issuances from States.......................32
Food Stamp Program: Improve Program Integrity....................33
Limit Categorical Eligibility................................33
Imposing Fines on Retailers.................................34
Seizure of Retailers’ Food Stamp Receipts.....................34
Recipient Disqualification for Selling Food....................35
Penalties on States for High Negative Action Error Rates.........35
State Financial Liability for High Error Rates...................36
Food Stamps: Improving Health Through Nutrition Education.........37
Recognize Nutrition Education as a Component of the Program....37
Pilot Obesity Initiative.....................................37
The Emergency Food Assistance Program (TEFAP).................38
Permanent State TEFAP Plans...............................38
Selecting TEFAP Local Organizations........................38
Food Distribution Program on Indian Reservations (FDPIR)...........39
Increased Administrative Funding............................39
Food Stamp/FDPIR Disqualification Policies...................39
Senior Farmers’ Market Nutrition Program (SFMNP)................40
Disregarding SFMNP Benefits in Other Assistance Programs......40
Prohibiting Sales Taxes on SFMNP Purchases..................40
Promoting Healthful Diets in Schools.............................40
School Food Purchase Survey...............................40
New Funds for Fruit and Vegetable Purchases for Schools.........41
Section 32 Fruit and Vegetable Purchases......................41
Title V: Credit...................................................43
Title VI: Rural Development........................................45
Rural Critical Access Hospitals..................................45
Enhance Rural Infrastructure....................................45
Streamline Rural Development Programs..........................46
Multi-Department Energy Grants Platform.....................46
Business Loan and Loan Guarantee Platform...................47
Business Grants Platform...................................47
Community Programs Platform..............................48
Title VII: Research................................................49
Research, Education and Economics (REE) Mission Area
Reorganization ...........................................49
Agricultural Bioenergy and Biobased Products Research Initiative......51
Specialty Crop Research Initiative................................51
Foreign Animal Disease Research................................51
Title VIII: Forestry................................................54
Comprehensive Statewide Planning..............................54
Landscape-Scale Competitive Grant Program.......................55
Forest Wood for Energy........................................55
Community Forests Working Lands Program.......................56
Title IX: Energy..................................................57



Expand of Biobased Products Markets............................59
Consolidate Energy Business Loan Authorities Under the Biomass
Research and Development Act..............................59
Create a Multi-Department Energy Grants Program..................60
CRP Biomass Reserve.........................................60
Mandatory Funding for Competitive Grants Under the Biomass
Research and Development Act..............................61
Mandatory Funding for USDA/University Collaborative Research......61
Forest Wood for Energy........................................62
Title X: Miscellaneous.............................................63
Federal Crop Insurance........................................63
Section 32 Fruit and Vegetable Purchases for Nutrition Programs.......64
Organic Agriculture...........................................65
Appendix. Administration’s Cost Estimate............................66
List of Tables
Table A1. Administration’s 2007 Farm Bill Proposal Baseline and
Estimated Change from Baseline Budget Authority, FY2008-FY2017...66



The USDA 2007 Farm Bill Proposal:
Possible Questions
Secretary of Agriculture Mike Johanns, at a public meeting on January 31, 2007,
described the Administration’s 65 recommendations for a new farm bill. These
recommendations were published by the U.S. Department of Agriculture (USDA) in
a report subsequently transmitted to Congress titled 2007 Farm Bill Proposals. The
report and related USDA materials are available on the Department’s website at
[ h ttp://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB? navid=FAR M _ B ILL_
FORUMS]. In the following pages, Congressional Research Service analysts
summarize current policy and programs, describe the USDA recommendations, and
pose questions related to the policy, program, and/or budgetary impact of the
recommendations. The organization of this report parallels that of the USDA report.
The USDA report presumes a new five-year farm bill covering the 2008-2012 time
frame. However, consistent with U.S. government annual baseline budgeting, the
spending authority and spending outlay estimates of the Administration’s farm bill
are projected for 10 years.
Title I: Commodity Programs
The 2002 farm bill mandated support for a group of commodities (grains,
oilseeds, cotton, sugar, and milk) that long have received support, and it added six
more commodities (dry peas, lentils, small chick peas, wool, mohair, and honey) to
the list. The Commodity Credit Corporation (CCC) pays the costs of commodity
support under a $30 billion line of credit from the U.S. Treasury. Congress annually
appropriates funds to the CCC that are used to pay down its loans from the Treasury.
Commodity support expenditures are estimated to have averaged about $12.6 billion
per year over the six-year life of the current farm bill (FY2002-FY2007). The
Congressional Budget Office (CBO) forecasts that future spending for commodity
support under current law would amount to about $7 billion per year over the next
five years (FY2008-FY2012). The decline from past spending levels is due to current
and anticipated high market prices for supported crops well into the future.
USDA’s proposed 2007 farm bill outlines modifications to the commodity
programs that are claimed to save $4.494 billion from the Office of Management and
Budget (OMB) 10-year current services baseline of $74.566 billion for commodity
support. In addition to the financial savings, the modifications to current law,
according to the Secretary of Agriculture, are designed to make the programs “more
market-oriented, more predictable, less market distorting and better able to withstand
challenge” in the World Trade Organization.



Marketing Assistance Loans
Current law specifies support prices for 25 commodities, including corn and
other feed grains, wheat, cotton, rice, soybeans and other oilseeds, peanuts, dry peas,
lentils, small chickpeas, wool, mohair, honey, and milk.
The Secretary asserts that crop loan rates (one of the support price mechanisms)
are set at such high levels that they encourage overproduction and cause lower market
prices. In contrast, according to the Secretary, the USDA proposal would minimize
market distortions and encourage farmers to plant crops based on market prices
instead of subsidy prices. Loan rates for each commodity would be set at the lesser
of (a) 85% of the five-year Olympic average of market prices (i.e., the average of the
last five years excluding the high and low year), or (b) the loan rates specified in the
House-passed version of the 2002 farm bill (which are lower than current law for
feed grains, wheat, cotton, oilseeds, and peanuts). This proposal is claimed by the
Administration to save $4.5 billion over 10 years ($450 million per year) compared
to baseline spending of $8.807 billion ($880.7 million per year) on marketing
assistance loan program operations.
1. How much higher or lower would federal outlays have been if the proposal had
been in place over the past five crop years?
2. Over the past five years, which commodities have experienced season average
market prices below the levels proposed for the new loan rate formula?
3. How much of a decrease in savings would result if the loan rates specified in
current law were used in the new formula instead of loan rates in the 2002
House-passed farm bill?
4. Has the idea of replacing nonrecourse loans with recourse loans been considered
as a mechanism to eliminate commodity certificate gains or the forfeiture of
commodities to the government? How much has been paid to farmers in the
form of commodity certificate gains over the past five years? Are certificates
used in order to circumvent payment limits?
Posted County Prices
Under current law, farmers are allowed to sign up for loan deficiency payments
(LDPs) to secure the benefits of the marketing assistance loan program instead of
taking out nonrecourse loans. Farmers can capture LDP gains when posted county
prices (PCPs), which serve as proxies for county market prices, are lower than loan
rates. This opportunity is available daily.
The Secretary asserts that there are substantial difficulties and inequities in
calculating daily PCPs. Additionally, short-term market price declines create
windfall opportunities for farmers that are costly and inconsistent with the
fundamental income support objectives of the marketing loan program. The
proposed change would replace daily PCPs with monthly PCPs. Additionally,
farmers would receive LDPs based on the monthly PCPs in effect on the days



producers lose beneficial interest in the commodities. Currently, farmers can collect
LDPs and hold onto commodities and market them at a later time when market prices
are higher than the loan rates. The USDA proposal is claimed to save $250 million
over 10 years ($25 million per year) compared to an unspecified OMB baseline
spending level.
1. Over the six-year life of the current farm bill, LDPs are estimated by USDA to
cost an annual average of about $2.547 billion. How much would the new
proposal have saved had it been in place in the current farm bill?
Direct Payments
Direct payments were enacted in the 2002 farm bill as a replacement for
production flexibility contract payments, which were first enacted in the 1996 farm
bill. Direct payments are made on land with a history of production (called base
acres) of feed grains (largely corn), wheat, upland cotton, rice, oilseeds (largely
soybeans), and peanuts. The payment rate for each commodity is specified in the
law. The annual payment to a farm is its commodity base acres times program yield
times the payment rate. The direct payment program is designed to cost about $5
billion per year. The payment is made for each eligible farm based on historic
production and yield, and not on actual production or market prices. Hence, it was
envisioned as not trade-distorting and not subject to WTO spending limits on
subsidies.
The Secretary has proposed to continue the direct payments and, except for
upland cotton, to keep the current payment rates in place from 2008 through 2009,
and then increase them by about 7% in 2010 for the three-year period through 2012.
Uniquely, the upland cotton direct payment rate would immediately increase about

7% and remain at the higher level.


1. Is the increase in direct payments for program commodities a mechanism to
maintain payments to farmers that otherwise would decline under conditions of
high market prices and reduced marketing loan program payments? If market
prices do remain high, what would be the economic justification for higher
direct payments? Would these higher payments be capitalized into higher land
prices and rents?
2. A high proportion of the increase in direct payments would be for one
commodity, upland cotton. USDA’s recommendations report states that “[t]he
combination of increases in upland cotton yields per acre and declining U.S.
upland cotton textile production is expected to limit price gains and result in
substantial cotton program expenditures, compared to other commodities.”
Why would a declining domestic textile industry have a depressing impact on
prices given that in the past, increased exports have offset any decline in
domestic use? Are the loan rate and target price for cotton substantially out of
line with markets, and the cost of production? Are marketing loan and counter-
cyclical program costs likely to be high in the future compared to other
commodities?



3. Over the past five years, crop disaster payments amounted to about $1.3 billion
per year, and no payments yet have been made on disaster losses for 2005 and
2006. Would farmers be better served if the $5.5 billion proposed increase in
direct payments were instead used for crop disaster assistance (or possibly
through crop insurance) over the coming 10 years?
Direct Payments for Beginning Farmers
When it comes to eligibility and payment rates for direct payments, current law
makes no distinction among farmers with regard to age, longevity as farm operators,
or ownership status. The eligibility requirement is that a person must be actively
engaged in farming on an operation that has program commodity base acres. The
sharing of direct payments between tenants and landlords is a matter agreed to among
the parties in a manner consistent with local custom. The Secretary’s farm bill
proposal would give beginning farmers direct payments at a rate that is 20% higher
than for other farmers for the first five years. The expected cost is $250 million over

10 years.


1. How does the USDA intend to define a beginning farmer?


2. How many beginning farmers are expected to benefit from this program?


3. Is it likely that sellers of farmland will raise the asking price or the beginning
farmers will raise the offer price to acquire cropland by the amount of the
increased direct payment? In other words, could the higher direct payment be
bid into higher cropland prices and higher rental rates, as has been the case with
regular direct payments?
Revenue-Based Counter-Cyclical Payments
Counter-cyclical payments were adopted in the 2002 farm bill as a way of
providing certainty and stability to ad hoc emergency market loss payments enacted
in years following low market prices. The five-year (FY2003-FY2007) average
annual cost of counter-cyclical payments is estimated at about $2.5 billion. The
payments are made when the season average farm market price of a program crop are
below the effective target price. The counter-cyclical payments, like direct payments,
are paid on base acres without regard to what or how much of any crop is grown on
the base acres.
The Secretary has proposed that counter-cyclical payments be triggered by a
shortfall in national crop revenue rather than a shortfall in the national average
price. This change would bring crop yields and production into the equation. There
have been years when prices were high but yields were low, so farmers were in need
of support but the program made no payments. In contrast, there have been years
when the price was low but yields were high so payments were made even though
farmers did not need the support. This change is estimated to generate savings of
$3.7 billion under the OMB 10-year current services baseline of $11.245 billion.



1. Historically, commodity support programs have been designed to absorb risks
on the price side of the farm income equation, while crop insurance and disaster
assistance have addressed yield risks. Does the idea of revenue-based counter-
cyclical payments integrate the two sides of risk management in a way that
could serve as a model to integrate commodity support with disaster assistance
and crop insurance? What are the risks and benefits of integration?
2. What are the fundamental economic, business, trade agreement, or political
barriers to creating a national counter-cyclical revenue program to replace
commodity support programs, crop insurance, and disaster assistance for at least
the subsidized crops?
3. With few exceptions over the past 20 years, Congress has provided disaster
assistance to the nation’s farmers and ranchers whenever weather-related losses
have been substantial. Some would argue that the Administration’s farm bill
proposal does not appear to offer what the Secretary of Agriculture might call
an “equitable, predictable” alternative for any farmers not producing program
crops. Could the revenue-based counter-cyclical program contained in the farm
bill proposal for program crops serve as a starting point for a similar program
for unsupported crops?
Value and Eligibility Limits
In 1970, Congress first enacted annual limits on commodity support program
payments. Currently, there is a per person limit of $40,000 on direct payments,
$65,000 on counter-cyclical payments, and $75,000 on marketing loan gains/loan
deficiency payments. The combined limit of $180,000 can be doubled to $360,000
under the spouse allowance or the three-entity allowance (a person can receive
payments on three farms but at half the value on the second two). There is no limit
on commodity certificate gains or marketing loan gains from the forfeiture of
collateral under the nonrecourse loan program. Also, there is an adjusted gross
income (AGI) eligibity cap of $2.5 million.
In practice, according to the 2002 farm bill-authorized Commission on the
Application of Payment Limitations for Agriculture, most farmers pushing up against
the limits have devised ways to avoid the limits. In general, cotton and rice farmers
(because of the higher per acre value of their crops and their large size) feel
threatened by payment limits, in contrast to corn, soybean, and wheat farms,
introducing a regional factor (north vs. south) into the debate. For some proponents
of lower and more effective payment limits, it is an issue of equity and a concern that
large payments accelerate the consolidation of farms into ever larger units.
Opponents argue that the payments are fundamental to the safety net for agriculture
and that large efficient farms are equally subject to risks as smaller farms.
The Secretary has proposed eight changes that would make it difficult to evade
a $360,000 per individual payment limit and would exclude anyone with more than
$200,000 in adjusted gross income from eligibility for commodity program payments.
The proposal is expected to save $1.5 billion under the OMB current services 10-year
baseline of about $75 billion for commodity support.



1. The projected savings of $1.5 billion from tightening the eligibility and payment
limits appears small compared to the roughly $75 billion 10-year baseline. How
many farms and how many individuals are expected to be affected?

2. How much of the savings would come from reduced cotton and sugar payments,


the commodities likely to be most impacted?
3. A large proportion of commercial farms are managed by operators who own
some land, but not even a majority of the acres they farm. In crop share
arrangements, absentee landlords are receiving commodity program payments.
To what extent would absentee landlords be impacted by the new $200,000 AGI
limit? Could this lead to changes in tenant-landlord lease contracts toward cash
rent? Would a further shift to cash rent be good for U.S. agriculture?
Section 1031 Exchanges
Section 1031 is a feature of the federal tax code that allows a seller of income-
producing property to acquire like-kind property and treat the transaction as a tax
deferred exchange. The capital gains on the disposed property are transferred to the
basis of the acquired property, and taxes on the gains are deferred until the acquired
property is sold at a later date. This feature of the tax code is well known and used
by owners of rental housing, but the rule applies to all income producing property,
including farmland.
The Secretary’s proposal would prohibit commodity subsidy benefits to any
farm acquired through a 1031 exchange. Justification is based on the argument that
tax-deferred farmland exchanges are contributing to the escalation of farmland prices,
making it difficult for new entrants to purchase land and small farms to expand.
1. Do farmers ever use the 1031 exchange to geographically consolidate their
holdings for efficiency purposes? If so, has the Administration considered
exempting these farmers from the proposed new policy?
2. Might there be cases where beginning farmers would use the 1031 exchange to
acquire farmland? Should an exemption be made to the proposed prohibition
in cases of beginning farmers?
3 Can the argument that Section 1031 creates economic distortions, contributing
to increased farmland prices, be applied to other parts of the economy that
utilize that feature of the tax code?
4. Several studies, including work done in the USDA, conclude that commodity
subsidies are substantially capitalized into land prices and higher rental rates.
What has a greater impact on farmland price escalation, commodity subsidies
or 1031 exchanges? Is redesigning commodity programs to eliminate their
effect on land prices something that should be considered, or not?
5. Have the Secretary of the Treasury and the Ways and Means Committee been
consulted about changing the tax code to eliminate 1031 exchanges in general
or for farmland in particular?



Dairy Counter-cyclical Payments and Price Support
The federal government long has mandated that the farm price of milk be
supported. The 2002 farm bill continued the Dairy Price Support Program at the
then-current support price of $9.90 per hundredweight (cwt.) of farm milk. Support
is achieved through a standing offer to purchase cheese, butter, and nonfat dry milk
at prices equivalent to the milk support price. The Administration proposal
recommends continuation of the program at the current support level of $9.90 per
cwt.
The 2002 farm bill authorized a new counter-cyclical dairy payment program,
called the Milk Income Loss Contract (MILC) program. Under the MILC program,
dairy farmers nationwide are paid whenever the minimum monthly market price for
farm milk used for fluid consumption in Boston falls below $16.94/cwt. As amended
by the FY2006 Budget Reconciliation Act, farmers receive 34% of the difference
between the $16.94 target price and the lower market price on up to 2.4 million lbs.
of annual production. The program expires August 31, 2007, so there is no funding
in the budget baseline. The Administration recommends renewing the MILC program
at the current 34% payment rate for FY2008, and then gradually reducing the rate
to 20% over the coming six years.
1. A July 2004 USDA study on the “Economic Effects of U.S. Dairy Policy and
Alternative Approaches to Milk Pricing” concludes that “current dairy programs
are limited in their ability to change the long-term economic viability of dairy
farms” and that the MILC program contributes to dairy surpluses and reduces
the farm milk price. Some observers would argue that the price support
program (which removes milk from the market) and the MILC program (which
encourages more production) appear to be working at cross-purposes. Why
does USDA recommend a continuation of current dairy policy?
2. Since the MILC program’s inception, large dairy farms have contended that the
2.4 million lb. payment limit (a herd size of about 125 cows) is biased against
them, given that 2.4 million lbs. represents a small portion of their production.
What is the federal government’s response to their concerns?
3. Under our current WTO trade obligations, the aggregate measure of support for
dairy is based on how much higher the domestic support price is set above a
fixed world reference price, and this imputed subsidy is applied to all domestic
milk production. Using this formula, the WTO views the aggregate measure of
support for the dairy price support program to be more than $4.5 billion
annually (even though federal outlays are well below $1 billion), and classifies
it as “amber box” (the most trade-distorting category). The current U.S.
proposal in the Doha Round is to reduce its total amber box support from the
current $19.1 billion to $7.6 billion. With dairy support contributing so much
toward the proposed new maximum, did the USDA consider proposing an
alternative to current policy that is decoupled from price and production?

4. Since the MILC program’s inception in 2002, it has provided total counter-


cyclical payments of $2.4 billion over five marketing years (2002-2006). USDA
estimates that the 10-year total cost of extending and revising the MILC



program under its proposal is $793 million (FY2008-FY2017). Why is the cost
estimate so far below historical expenditures on the program? Is it due to
projections for improved dairy market conditions, or do proposed revisions to
the program significantly reduce expenditures? Why are changes to the other
commodity support programs being proposed that would save money, but the
status quo would be maintained for dairy policy that will cost additional money
over baseline?
5. The current MILC program calculates payments based on current monthly
production levels. The Administration’s farm bill proposal would base
payments on 85% of the three-year average of milk marketed during FY2004-
FY2006, instead of on current production. The proposal states that such a
change would make the MILC program consistent with other farm bill counter-
cyclical programs. What is the rationale for making this change to the MILC
program? What are the trade implications of making this change (i.e., will it be
enough to consider the program decoupled and the payment categorized as
“green box”)?
Sugar
Support for raw cane sugar and refined beet sugar are mandatory under the 2002
farm bill at $0.18 and $0.229 per pound respectively. The prices are guaranteed by
nonrecourse loans available to cane processors and beet refiners. However, because
the United States is a net importer of sugar, market prices usually can be maintained
above the mandatory support levels by limiting supplies through import barriers.
The United States is authorized a global tariff rate quota of 1.256 million short
tons under WTO rules that is allocated among sugar exporting countries around the
world. Mexico separately is limited to shipping 276,000 short tons through calendar
year 2007, and then has open access to the U.S. market under the North American
Free Trade Agreement (NAFTA). An additional supply control feature of the law
allows for imposition of domestic marketing allotments on U.S. sugar, but only when
imports are less than 1.532 million short tons. The suspension of allotments when
imports increase was adopted in the 2002 farm bill at the urging of the domestic
sugar industry.
With no limit on Mexican sugar imports after 2007, and several bilateral free
trade agreements adopted or in process that would allow in more sugar, the United
States is faced with the likelihood of imports exceeding 1.532 million short tons.
The imports in excess of 1.532 million short tons likely will go under price support
loan and eventual forfeiture to the CCC at an estimated cost of $1.107 billion over
the next 10 years, according to USDA.
The farm bill proposal would continue the sugar support program and the
current nonrecourse loan rates, but would eliminate the provision in current law
requiring the Secretary to suspend marketing allotments when sugar imports are
projected to exceed 1.532 million short tons. This change in the law is projected to
save $1.107 billion over 10 years.



1. If current law is extended, how much sugar would the CCC likely acquire under
the loan program and what would be the disposal outlets?
2. If the government savings of $1.107 billion from the imposition of sugar
allotments were translated into reduced revenues for sugar farmers, what would
that amount to?
3. Has USDA examined a direct payments program on sugar base acres as an
alternative to current policy? What would a direct payment program likely cost
if it were designed to leave sugar producers in an equivalent net cash income
situation, assuming they have flexibility to earn revenue from other crops?
Special Cotton Competitiveness Provisions
The 2002 farm bill included three provisions to enhance cotton export
competitiveness but protect domestic textile mills from high prices. Step 1 allowed
for a downward adjustment under specific circumstances in the adjusted world price
(AWP, which is analogous to the posted county price for grains) for upland cotton,
which increases the loan deficiency payment (LDP) to producers. Step 2 mandated
offsetting payments to exporters and domestic users of cotton when U.S. prices were
higher than world prices so that the buyers were not disadvantaged by buying U.S.
cotton. The Step 2 provision for upland cotton was repealed by Congress following
a ruling that it violated the WTO Agreement on Agriculture. Step 3 allowed for a
special additional import quota for upland cotton when high world prices for U.S.
cotton and Step 2 export subsidies created tight supplies for domestic mills.
The USDA’s farm bill proposes to eliminate Step 1 because it has been used
infrequently. When it has been used the result has been increased costs for cotton
LDPs. Step 3 would be eliminated because its purpose has disappeared with the
elimination of Step 2. Additionally, Step 2 for extra long staple (ELS) cotton would
be eliminated because it is analogous to Step 2 for upland cotton, which was
eliminated after being found in violation of WTO rules.
1. How much has been spent (in total and per pound) on Step 2 for ELS cotton
under the current farm bill?
2. Would elimination of Step 1 and Step 3 have any adverse consequences for
upland cotton producers or domestic textile mills?
Planting Flexibility Limitations
Current law (first adopted in the 1996 farm bill and continued by the 2002 farm
bill) prohibits, except in certain limited circumstances, the planting of fruits,
vegetables, and wild rice on program crop base acres. Violation of this restriction
results in the loss of direct and counter-cyclical payments. With the exception of
these commodities, farmers do have planting flexibility on base acres. Practically,
this means that corn base acres can be planted to any other subsidized crop and vice
versa, but not to fruits or vegetables. The limitation was put in place because



producers of unsubsidized, but high value, specialty crops objected to likely
competition from subsidized land.
For purposes of meeting its WTO obligations, the United States has considered
direct payments on base acres to be minimally production- and trade-distorting
because they are decoupled from production decisions and market prices.
Consequently, direct payments have been reported to the WTO as “green box” and
not counted against the $19.1 billion limit on “amber box” trade-distorting subsidies.
A WTO ruling on the U.S. cotton program reasoned that the planting flexibility
restriction does not meet criteria for decoupled income support. The USDA farm bill
proposal would eliminate the restriction on planting fruits, vegetables, and wild rice
on base acres in order to make direct payments fully compliant with the WTO green
box rules.
1. What impact would elimination of the base acre planting restriction have on
fruit, vegetable, or wild rice producers? If there are impacts, where would they
be most severe?
2. Does this situation demonstrate that U.S. agriculture is an integrated sector that
cannot be divided up easily into independent components for special treatment,
or not?
3. Does this interaction between farms and commodities lend support to a policy
of whole farm revenue insurance instead of a patchwork of subsidies and rules
that generate inefficiencies and inequities?
Crop Base Retirement
Under current law, cropland that is converted to nonagricultural uses does not
retain eligibility for commodity program subsidies. However, it is possible to
convert cropland to nonagricultural uses without losing base acre benefits that were
tied to the converted cropland. USDA points out that an owner of two farms can
transfer the base acreage benefits from a farm being sold to another farm being
retained so long as the farm receiving the transferred base is sufficiently large in size
to accommodate the increased base. Another example is the retention of all of the
base even though part of the farm is sold. The USDA’s farm bill proposal would
proportionally reduce base acreage whenever all or part of a farm is sold for
nonagricultural uses.
1. Was the base acreage retirement provision made to achieve equity among
farmers or as a disincentive to convert cropland to nonagricultural uses?
2. Could it be argued that the proposal encourage farmers to sell entire farms to
developers instead of small parts of the farm and thereby accelerate the
conversion of cropland to nonagricultural uses?



Conservation Enhanced Payment Option
The currently operating Conservation Security Program (CSP) provides
technical and financial assistance to participants who address, at a minimum, water
and soil resources concerns, through conservation, protection, and improvement.
Larger payments are made to participants who address additional resource concerns
on their entire operation. All farmers are eligible to apply for the program. However,
limited funding of $502 million (between FY2004 and FY2006) has constrained the
program to 14% of the nation’s 2,119 watersheds, and many farmers have found the
administrative burden to be excessive. To date, 19,291 contracts have enrolled

15,411,134 acres into CSP in 298 watersheds.


The Secretary proposes that farms with program crop base acres be offered a
“conservation enhanced payment” equal to 10% of the commodity program direct
payment for adopting conservation and environmental practices equivalent to the
Progressive Tier requirement of the Conservation Security Program (CSP). Farmers
electing this option would forgo their counter-cyclical payments and marketing loan
benefits for the duration of the 2007 farm bill.
1. Is this Conservation Enhanced Payment Option effectively a pilot effort to
convert “amber box” commodity programs into “green box” payments?
2. Some farms with commodity base acres now have CSP contracts, plus they
receive direct and counter-cyclical payments as well as marketing loan benefits.
Would the Conservation Enhanced Payment Option create two categories of
CSP participants with substantially different benefits?
3. Some observers may ask why would a farmer give up the commodity program
safety net of potentially large counter-cyclical payments and marketing loan
benefits for the certainty of only a 10% increase in the direct payment. What is
the federal government’s response?
4. Are any farmer costs associated with achieving the Progressive Tier
requirement, and, if so, would those costs be more than covered by the 10%
“enhancement” or would there be other federal assistance for those expenses?
Continuing WTO Compliance
The 2002 farm bill includes “circuit breaker” authority for the Secretary of
Agriculture to make adjustments in domestic commodity support expenditures when
needed to comply with Uruguay Round Agreements. The U.S. annual limit on trade
distorting (amber box) subsidies is $19.1 billion. The Secretary has proposed that
the circuit breaker authority be modified to accommodate any new agreements from
the Doha round of negotiations or other agreements concluded under the auspices
of the World Trade Organization (WTO).
1. Has the circuit breaker authority ever been invoked by the Secretary in order to
avoid exceeding the $19.1 billion U.S. amber box limit?



2. Has the United States ever exceeded its amber box limit? What has been the
size of U.S. amber box subsidies each year since the Uruguay Round
Agreements were adopted?
Title II: Conservation
Before the 1985 farm bill, few conservation programs existed and only two, the
Agricultural Conservation Program and Watershed and Flood Prevention Operations,
would be considered large by today’s standards. In total, conservation programs were
funded at less than $1 billion annually. The current conservation portfolio includes
more than 20 distinct programs with annual spending of about $5.2 billion. Most are
enacted through recent farm bills with mandatory funding supplied by USDA’s
Commodity Credit Corporation (CCC). The 2002 farm bill authorized large
increases in mandatory funding for several agricultural conservation programs. The
two largest, the Conservation Reserve Program (CRP) and the Environmental Quality
Incentives Program (EQIP), make up almost 55% of the $5.2 billion in current annual
spending.
The Administration’s proposed 2007 farm bill has outlined an overall increase
in funding for agricultural conservation programs, which the Administration
estimates is $7.825 billion over the 10-year current services baseline of $48.698
billion. Much of this additional funding is attributed to an increase in the proposed
consolidated Environmental Quality Incentives Program (EQIP) and an increase in
the acreage limit for the Wetlands Reserve Program (WRP). Many of the
Administration’s proposed changes would consolidate existing programs, with the
goal of increasing administrative efficiencies and reducing participant confusion.
1. Several program consolidation changes are proposed. What level of savings can
be expected by these consolidations and are there any specific plans for using
those “savings?”
2. Given the continued growth of the conservation effort, what additional
evaluation measures, if any, are planned to keep Congress informed about
accomplishments and spending efficiencies?
3. Based on the Administration’s budget plan and the farm bill proposal, there may
appear to some to be inconsistencies within working lands conservation
programs. The Administration proposed increasing funding for CSP and EQIP
by a combined $475 million annually in the farm bill proposal. The FY2008
budget proposal, meanwhile, proposes to reduce both CSP and EQIP. EQIP is
authorized at $1.27 billion and the President’s budget requests $1.0 billion (a
$270 million reduction). CSP is estimated by the CBO at $451 million and the
President’s budget requests $316 million (a $135 million difference). Would
the proposed increases in mandatory conservation programs authorized by the
farm bill supersede the cuts in those same programs if the Administration’s
budget were adopted? How should the differences between the farm bill and the
budget proposal be interpreted?



Environmental Quality Incentives Program (EQIP)
EQIP offers agricultural producers cost-share payments, technical assistance,
and incentive payments to implement conservation practices on private working-
lands. Three sub-programs are implemented through EQIP: the Ground and Surface
Water Conservation Program (GSWC), the Klamath Basin Program, and
Conservation Innovation Grants (CIG). The GSWC program targets areas with
extensive agricultural water needs to achieve a net savings in water consumption.
While the Klamath Basin program is similar in nature, it is limited to a single basin
that straddles the California-Oregon border. CIG, a grant program, is intended to
foster the development and adaptation of innovative conservation approaches.
Other conservation programs utilize cost-sharing mechanisms similar to EQIP,
including the Wildlife Habitat Incentives Program (WHIP), which focuses on
developing and restoring wildlife habitat on all land; the Agricultural Management
Assistance (AMA) Program, which seeks to mitigate risks through diversification
and resource conservation practices; and the Forest Land Enhancement Program,
which addresses resource concerns on private forest lands.
Citing duplication in eligibility requirements, regulations, policies, applications,
and administrative actions, the Secretary recommends consolidating existing cost-
share programs (EQIP, GSWC, WHIP, AMA, Forest Land Enhancement Program,
and the Klamath Basin Program) into a newly designed EQIP program. The
proposal also would create a Regional Water Enhancement Program (RWEP) to
address water quality and quantity issues on a regional scale. The CIG program
would receive additional funding. This newly constructed program would receive
an increase of $4.25 billion over the OMB 10-year current services baseline.
1. Interest in participating in many conservation programs has been high, leading
to a large backlog of unfunded applications. EQIP alone reported 32,633
unfunded applications, worth more than $636 million, in FY2006. With such
a large application backlog in EQIP along with the other proposed programs for
consolidation, would the additional authorized funding be used primarily in
addressing the application backlog? Would USDA have the workforce capacity
to handle the workload added by this increase in funding?
2. USDA’s farm bill spending estimates show that EQIP grows modestly until it
reaches its full spending authority in 2014. This would occur after a new five-
year farm bill has expired. Is there an explanation as to why EQIP, a program
with a standing backlog of applications would require seven years to “ramp up”
to its fully authorized spending level?
3. Some of the programs proposed for consolidation have very specific
programmatic purposes and eligibility requirements targeted at specific resource
concerns on different components of the landscape (WHIP focuses on wildlife
habitat on all lands, while GSWC focuses on water quantity on only agricultural
lands). How would specific resource problems be targeted in the absence of
specialized programs? If the consolidation of these programs requires a single
definition of eligible lands, what definition would the Department prefer?



Conservation Security Program (CSP)
The Conservation Security Program (CSP) provides technical and financial
assistance to participants who address, at a minimum, water and soil resources
concerns, through conservation, protection, and improvement. It was widely touted
as the first conservation entitlement and the first “green payments” program when
enacted in 2002. The program operates with three conservation and funding tiers,
Tier III being the highest. Larger payments are made to participants who address
additional resource concerns on their entire operation (Tier III). There are currently
four components to CSP financial assistance payments: (1) stewardship, or base
payments for the number of acres enrolled, (2) maintenance payments for existing
conservation practices, (3) cost-share payments for new practices, and (4)
enhancement payments for conservation effort and additional activities beyond a
prescribed level. All farmers in eligible watersheds may apply for the program.
Limited funding of $502 million (between FY2004 and FY2006) has constrained the
program to 298 of the nation’s 2,119 watersheds, and many farmers state that they
have found the administrative burden to be excessive. To date, more than 19,000
contracts (averaging 800 acres) have enrolled 15.4 million acres into CSP.
The Secretary proposes the following adjustments: elimination of stewardship,
maintenance, and cost-share financial assistance payments; consolidation of three
tiers into two tiers; creation of a ranking system in place of the current watershed
approach; and expansion of funding to $8.5 billion during FY2008-FY2017.

1. How would the proposed changes alter the pattern and scale of participation?


2. Will the proposed Conservation Enhancement Option in the commodity
provisions of Title I overlap or replace CSP for producers of program crops?
3. Current law limits technical assistance spending in conjunction with CSP to
15% of the program cost. Some observers claim this level is inadequate. No
recommendation was made to repeal the 15% limitation on technical assistance
in current law. How can CSP be successfully implemented with what some
would argue is such a small level of technical assistance?
Private Lands Protection Program
The proposed Private Lands Protection Program would consolidate three
existing programs. The Farmland Protection Program (FPP) purchases conservation
easements to limit nonagricultural uses of land. The Grasslands Reserve Program
(GRP) seeks to restore and protect rangeland, pastureland, and other grassland while
continuing grazing sustainability. The Healthy Forest Reserve Program (HFRP)
addresses forest land that provides habitat for threatened and endangered species.
Citing common goals and unique eligibility requirements, regulations, policies,
applications, and administrative actions, the Secretary recommends consolidating
these three existing easement programs (FRPP, GRP, and HFRP) into a new private
lands protection program. This proposal also would increase funding by an
additional $900 million over the 10-year baseline for this new program.



1. Some consider FPP a working lands program that keeps farming viable, while
GRP is more closely related to a land restoration program. How would these
fundamental differences be resolved in a consolidated program?
Conservation Reserve Program (CRP)1
The Conservation Reserve Program (CRP) and Conservation Reserve
Enhancement Program (CREP) remove active cropland into conservation uses,
typically for 10 years, and provide annual rental payments (based on the agricultural
rental value of the land) and cost-share assistance. Conversion of the land must yield
adequate levels of environmental improvement to qualify (environmental benefits
index). CRP is the largest land retirement program, with spending of $1.828 billion
in FY2005. The total program acreage is limited to 39.2 million.
The Secretary recommends reauthorization of CRP with an enhanced focus on
lands that provide the most benefit for environmentally sensitive lands. Priority
would be given to whole-field enrollment for lands utilized for energy-related
biomass production. Biomass would be harvested after nesting season and rental
payments would be limited to income forgone or costs incurred by the participant to
meet conservation requirements in those years biomass was harvested for energy
production.
1. With cellulose conversion technology in its infancy, what is the rationale behind
subsidizing cellulose production at this time?
2. The proposal may appear to some observers to have two conflicting components
with regard to CRP. If it is desirable to focus CRP on multi-year idling of more
environmentally sensitive lands, some may inquire why the harvesting of
biomass on those lands is being imposed. Could this harvesting conflict with
the conservation purpose of the program?
3. If it is decided that high demand for commodities dictates that less land should
be in the CRP, how would priorities be set for land to be released?
Wetlands Reserve Program (WRP)
The Wetlands Reserve Program (WRP) and Wetlands Reserve Enhancement
Program (WREP) provide technical and financial assistance to private landowners
to restore and protect wetlands. WRP has a current enrollment of 1.89 million acres
with an annual authorized new enrollment cap of 250,000 acres. The 2002 farm bill
authorized a total enrollment cap of 2.275 million acres.
The Secretary recommends the consolidation of WRP with the floodplain
easement program of the Emergency Watershed Program and an increase in the
enrollment cap to 3.5 million acres. This increase in acreage would equal an


1 This proposal is repeated in the Energy title of the USDA recommendations and the
questions posed here are repeated under the CRP Biomass Reserve heading in the energy
section.

estimated $2.125 billion increase over the current services 10-year baseline of $455
million.
1. By increasing the acreage cap for WRP and proposing a continuation of the
CRP acreage cap, what consideration is given to the 25% county cropland
enrollment cap on CRP and WRP?
2. Similar to CRP, what effect would increased enrollment of wetlands have on
local economies? Would it be possible to achieve the objectives of wetlands
conservation under a working-lands program rather than a cropland retirement
program?

3. How would these changes affect the President’s no-net-loss goal?


Sod Saver
The 1985 farm bill included the first conservation compliance requirement for
farmers to participate in certain USDA programs. The conservation compliance
provision for highly erodible land, also known as Sodbuster, created disincentives to
farmers who produced annually tilled agricultural commodities on highly erodible
cropland without adequate erosion protection. Conservation compliance for wetlands,
also known as Swampbuster, created disincentives to farmers who produced annually
tilled agricultural commodities or made possible the production of agricultural
commodities on land classified as wetlands.
The Administration recommends broadening the conservation compliance
provisions to include new “Sod Saver” rules that would create a disincentive to
converting grassland (rangeland, and native grasslands, not previously in crop
production) into crop production. Sod Saver would make all newly converted
grasslands permanently ineligible for commodity support and other USDA programs
(including other conservation programs). The suggested date for this provision to
go into effect is not stated in the Administration’s proposal. The Administration
scores this proposal at zero budgetary impact.
1. What is the basis for the Sod Saver recommendation? Is Sodbuster not working
as well as anticipated? Is the concern of some conservationists that Sodbuster
has not been aggressively enforced a valid concern or not?
2. Was an alternative considered in the Sod Saver provision to allow for approved
conservation systems that could provide for a reduction in soil erosion, similar
to the conservation compliance for highly erodible land (Sodbuster) and wetland
conservation compliance (Swampbuster)?
3. Sod Saver may not prevent the conversion of grasslands to cropland when crop
prices are high. Once cultivated, there could be some off-site damages. Yet
Sod Saver will preclude any federal assistance to address these problems. What
is the rationale behind permanently prohibiting conservation assistance on this
converted land?



4. Presumably there will be monitoring and enforcement costs associated with Sod
Saver. What agency would have the administrative responsibility and what
would be the estimated costs?
Conservation Access for Beginning
and Limited-Resource Farmers
First recognized as requiring special attention in the 2002 farm bill, beginning
and limited-resource farmers are provided with additional incentives in conservation
programs through various funding mechanisms and targeted initiatives. The largest
incentive directed toward beginning and limited-resource farmers is the increase in
cost-share payments (up to 90% of the cost to implement the practice can be paid by
NRCS) in EQIP. Other programs such as the Conservation Innovation Grants and
Farm Protection Program also have initiatives directed toward beginning and limited-
resource farmers.
The Administration is recommending that 10% of farm bill conservation
financial assistance be reserved for beginning farmers and ranchers, as well as
socially disadvantaged producers. Flexibility is also recommended to allow the
Secretary to reallocate the reserve funds if the money goes unused. The
Administration states that this proposal would have no effect on the current services
baseline.
1. What portion of current conservation program participants meet the description
of beginning and limited-resource farmers?
2. How much is currently spent on beginning and limited-resource farmers, and
how does that relate to the 10% of financial assistance being proposed?
3. Would implementation of this provision mean that some commercial farmers
would then be unable to participate in conservation programs? If so, to what
extent would this occur?
Market-Based Funding
The Secretary recommends that $50 million, over a 10-year period, be available
to develop uniform standards for environmental services, establish credit registries,
and offer credit audit certification services to encourage new private sector
environmental markets to supplement existing conservation programs.
1. Are details available on how the market-based approach would work and what
the return on this public investment would be? What are some models or
examples?

2. How was $50 million determined to be an appropriate 10-year budget?



Emergency Landscape Restoration Program
Both the Emergency Watershed Protection Program (EWP) and the Emergency
Conservation Program (ECP) provide disaster assistance to private landowners
through discretionary technical and financial assistance appropriated by Congress.
The EWP, administered by the Natural Resource Conservation Service (NRCS),
focuses on impairments to watersheds caused by natural disasters. It works through
local sponsors such as neighborhood associations, cities, counties, and conservation
districts. The ECP, administered by the Farm Service Agency (FSA), focuses on
emergency water conservation measures in periods of severe drought on farmland,
and also provides assistance to rehabilitate farmland damaged by all natural disasters.
Citing confusion and frustration by citizens responding to natural disasters, the
Secretary is recommending that the EWP and ECP be consolidated into a new
Emergency Landscape Restoration Program. Funding for this new program would
be discretionary, as is the current funding stream for EWP and ECP.
1. Since the Emergency Watershed Protection (EWP) program and the Emergency
Conservation Program (ECP) are administered by two different agencies, which
agency would administer the new consolidated Emergency Landscape
Restoration Program?
2. Currently, land eligibility is very different between the two programs. Should
the consolidation of these programs include a single definition of eligible lands;
if so, what should be the definition? If different definitions of eligible land are
maintained, does this affect the goals of consolidation?



Title III: Trade
Farm bills typically authorize multi-year funding for USDA agricultural trade
programs (direct export subsidies, export credit guarantees, foreign food aid, and
export market development) and address new issues that have arisen as U.S.
agricultural exporters seek to sell their products overseas.
Technical Assistance for Specialty Crops
USDA’s Foreign Agricultural Service (FAS) is responsible for promoting U.S.
agricultural exports, including advocating on behalf of U.S. agricultural interests in
foreign capitals and in international organizations as disputes arise. Funding for
FAS staff and expenses to accomplish this and related objectives is provided through
the annual appropriations process. In addition, the 2002 farm bill authorized an
initiative — Technical Assistance for Specialty Crops Program (TASC) — to fund
projects that address sanitary and phytosanitary (SPS) and technical barriers related
to specialty crops. TASC is a mandatory program, meaning that it is funded by
tapping the Commodity Credit Corporation’s (CCC’s) borrowing authority. The

2002 farm bill authorized a funding level of $2 million each year for FY2002-


FY2007 ($12 million total).
The Administration’s farm bill proposals seek to expand funding for TASC.
Funding would be phased in at $4 million in FY2008, $6 million in FY2009, $8
million in FY2010, and $10 million in each subsequent year through FY2015 (for a
multi-year total of $68 million). USDA also proposes to increase the maximum
allowable annual project award from $250,000 to $500,000 and allow more
flexibility to allow project timeline extensions. USDA argues that additional
flexibility would allow for the acceptance of larger, multi-disciplinary projects that
result in better quality proposals from eligible participants and improved assistance
to specialty crop growers.
1. Why does USDA request that this new initiative be funded on a mandatory
basis, using CCC’s borrowing authority? Is the appropriations mechanism a
more suitable approach for funding this?
2. What evidence is there that TASC projects have resulted in the elimination of
SPS and/or technical barriers to trade in specialty crops and that they have
contributed to increased U.S. agricultural exports?
Market Access Program
The Market Access Program (MAP) assists in the creation, expansion, and
maintenance of foreign markets for primarily U.S. agriculture high-value products.
This program funds the U.S. government’s share of the cost of overseas marketing
and promotional activities with non-profit U.S. agricultural trade associations, U.S.
agricultural cooperatives, nonprofit state-regional trade groups, and small U.S.
businesses. Activities include consumer promotions, market research, trade shows,
and trade servicing. About 60% of MAP funds typically support generic promotion



activities (i.e., non-brand name commodities or products), and about 40% support
brand-name promotion (i.e., a specific company product).
The 2002 farm bill authorized MAP’s six-year funding level at $875 million
(FY2002-FY2007), rising from $100 million in FY2002 to $200 million in each of
FY2006 and FY2007. MAP is a mandatory program, funded by the CCC.
The Administration recommends increasing annual MAP funding by $25 million
each year ($250 million over 10 years). The additional funding would be used to
“address the inequity between farm bill program crops and non-program
commodities,” and represents one of several recommendations offered in USDA’s
farm bill proposal to assist specialty crop producers.
1. Why is the Administration considering an increase in MAP funding, when past
(FY2006 and FY2007) budget proposals called for cutting the authorized level
in half, from $200 million to $100 million?
2. How much of MAP’s funding already assists specialty product producers and
firms, and how much of a difference would a $25 million annual increase make?
3. How does USDA gauge the impact of MAP? What evidence is there that
discrete MAP promotion activities in particular country markets have resulted
in an increase in U.S. agricultural exports?
Sanitary and Phytosanitary (SPS) Issues Grant Program
Reportedly, developing and developed countries are increasingly using
unscientific SPS standards as non-tariff barriers to U.S. agricultural products. These
take the form of plant and animal health restrictions to protect their domestic
agricultural sectors against outside competition. Examples often cited include
biotechnology restrictions, maximum residue standards, and restrictions on U.S. beef
(such as those imposed by South Korea and Japan) due to BSE (mad cow disease).
The Administration’s farm bill proposes to establish a new grant program to
address SPS issues for all commodities (mandatorily funded by the CCC at $2
million each year, or $20 million over 10 years). This program would allow for new
or expanded focus on such issues as foreign governments’ acceptance of
antimicrobial treatments; wood packaging material; irradiation; biotechnology;
science-based maximum residue level standards; and testing procedures and controls
for mycotoxins. Grants would fund projects that address SPS barriers that threaten
U.S. agricultural exports, by reducing the need to hire technical staff on a permanent
basis, involving the private sector in assisting USDA in solving technical problems,
commissioning scientific reports on targeted issues, and making more use of outside
technical experts to address these types of barriers.
1. What are the most significant SPS barriers that currently affect U.S. agricultural
exports? What is the status of U.S. efforts to address these specific barriers?
2. How much of Foreign Agricultural Service (FAS) resources already are tapped
to address SPS issues?



3. How would an SPS Grant Program reinforce U.S. efforts to eliminate SPS
barriers in international standard setting forums or in WTO dispute settlement?
4. Why does USDA request that this new initiative be funded on a mandatory
basis, using CCC’s borrowing authority? Is the appropriations mechanism a
more suitable approach for funding this?
International Trade Standard Setting Activities
Reportedly, countries have increasingly resorted to technical trade barriers that
have no scientific basis in order to restrict imports of U.S. agricultural products. One
U.S. effort to counter this trend is to become more involved in international bodies
that establish and harmonize multilateral food, plant, and animal safety standards —
frequently referred to as sanitary and phytosanitary (SPS) rules. Such organizations
include the Food and Agriculture Organization (FAO), the Codex Alimentarius, the
International Plant Protection Convention, and the World Animal Health
Organization (known by its French acronym of OIE).
Acknowledging that the U.S. government lacks sufficient resources to ensure
that its views on SPS issues are fully heard, USDA is requesting authority and
mandatory funding of $15 million over 10 years ($1.5 million annually) to enhance
USDA staff support at international standard setting organizations. Funding would
be used to close the compensation gap for senior level U.S. staff placed in these
organizations to influence decision making (e.g., ensure that standards are properly
designed and implemented to avoid unwarranted trade barriers), and to cover the cost
of up to four professional officers who would specifically focus on supporting U.S.
SPS priorities.
1. How many USDA staff already serve to represent U.S. interests and perspective
at the FAO and these three international bodies? How long has this function
been carried out?
2. The Administration’s proposal notes that the lack of U.S. funding for staff
support has led the FAO to take a “more Eurocentric approach” in its work,
“which may be in conflict with U.S. objectives.” Can the Administration
elaborate on what this approach means, and comment on how that perspective
affects U.S. efforts to reduce or eliminate technical trade barriers?
Technical Assistance for Trade Disputes
The number of U.S. agricultural trade disputes has increased in recent years.
This has prompted commodity groups and agribusiness firms to seek recourse under
U.S. trade remedy laws to address potential unfair competition in the domestic U.S.
market, and to work with USDA and the U.S. Trade Representative (USTR) to try
to resolve cases considered under the World Trade Organization’s trade dispute
process. The process of pursuing a dispute case is usually complex, lengthy, and
costly, particularly for smaller groups and agricultural industries with limited
resources.



The Administration’s farm bill requests broad discretionary authority to provide
enhanced monitoring, technical assistance, and analytical support to agriculture
groups with limited resources, if the Secretary of Agriculture determines this would
benefit U.S. agriculture. This would enable USDA to direct available resources to
assist smaller agricultural groups and industries affected by unfair foreign trade
practices and to pursue trade dispute cases on their behalf.
1. Why is this authority needed, in light of USDA’s statement that it already helps
out in trade dispute cases by providing legal and analytical support, often
working with USTR?
2. In what instances would a program of technical assistance for trade disputes
have enabled small groups or agricultural industries to pursue a case in WTO
dispute settlement or have affected the outcome of cases that have been
pursued?
3. What criteria would USDA use in exercising such broad authority to determine
which groups should be deemed eligible for this type of assistance?
Trade Capacity Building and Agricultural Extension
Programs in Strategically Important Countries
In recent years, USDA has worked with the Departments of State and Defense,
and the National Security Council, in Afghanistan and Iraq to provide technical
assistance in support of efforts to revitalize the agriculture sectors of both countries.
Such assistance was provided through existing agricultural extension programs, but
USDA did not receive direct funding for such activities.
The Administration proposes providing $20 million in mandatory funding over
10 years ($2 million annually), through CCC’s borrowing authority, to expand
agricultural extension and food safety programs in fragile countries. This would be
part of the U.S. government’s efforts to meet future development assistance needs in
unstable areas, such as Sudan or Somalia. USDA’s role would be to engage in
agricultural reconstruction and extension efforts, targeted towards those who are
dependent upon agriculture for food and employment.

1. Would funding agricultural extension efforts in fragile countries facilitate U.S.


agricultural trade with them? How would trade capacity building function in
very unstable circumstances?

2. What are USDA’s efforts in trade capacity building elsewhere in the world?


What level of existing resources does USDA already tap for such activities?
Export Credit Programs and Facility Guarantee Programs
USDA administers four export credit guarantee programs to facilitate sales of
U.S. agricultural exports. Under these programs, private U.S. financial institutions
extend financing to foreign buyers of agricultural products, with the Commodity
Credit Corporation (CCC) guaranteeing repayment in case of borrower default. The



CCC guarantee facilitates a more favorable interest rate and a longer repayment
period. Eligible countries are those that USDA determines can service the debt. Use
of guarantees for foreign aid, foreign policy, or debt rescheduling purposes is
prohibited.
The Short-Term Export Credit Guarantee Program (GSM-102) guarantees
short-term financing (up to three years). Separately, the Intermediate-Term Export
Credit Guarantee Program (GSM-103) guarantees intermediate-term financing (up
to 10 years). The Supplier Credit Guarantee Program (SCGP) guarantees deferred
payment sales (usually up to 180 days). The Facilities Guarantee Program (FGP) is
to improve or establish the handling, marketing, storage, or distribution facilities for
U.S. commodities in emerging markets.
The 2002 farm bill authorized up to $6.5 billion annually for the FY2002-
FY2007 period for these guarantee programs. Of this amount, $1.0 billion is targeted
to “emerging markets” — countries in the process of becoming commercial markets
for U.S. agricultural products. The statute gives USDA’s Foreign Agricultural
Service (FAS) the flexibility to determine the allocation between short and
intermediate term programs. The actual level of guarantees approved each year
depends on market conditions and on the demand for financing by eligible countries.
Program activity has declined over the last three years because of less demand for
guarantees and administrative steps taken in July 2005 to bring the programs into
conformity with a World Trade Organization (WTO) ruling that found them to be
prohibited export subsidies. In FY2006, USDA approved almost $1.4 billion in
guarantees, down from $2.6 billion in FY2005 and $3.7 billion in FY2004. The
budget outlay impact of guarantees ($142 million in FY2006) is small because it
reflects only administrative costs and the subsidy associated with the loans approved
each year.
The Administration proposes statutory changes to reform these guarantee
programs in light of the WTO ruling and to ensure they remain WTO-compliant.
These include (1) removing the current 1% cap on fees collected under the GSM-102
program, (2) eliminating the specific authority for the GSM-103 program, (3)
terminating the SCGP (because of the large number of loan defaults (totaling $227
million) and evidence of fraud), and (4) revising the FGP to attract additional users
who commit to purchase U.S. agricultural products. The first three proposed
changes are not expected to have any budgetary impact, according to USDA. The
cost of changes to the FGP would be minor (almost $2 million each year).
1. To what degree would higher loan guarantee fees diminish user participation in
the short-term GSM-102 program?
2. What impact on program activity is anticipated with the proposed lifting of the
current 1% fee?
3. What is the prospect for USDA collecting on the more than $200 million in
SCGP loan defaults?
4. What explains declining interest among countries in using USDA loan
guarantees to finance their agricultural imports?



5. What fundamental changes are occurring in worldwide commodity financing
that may warrant revisiting the role that credit guarantees can play in facilitating
U.S. agricultural exports?
EEP and Trade Strategy Report
USDA established the Export Enhancement Program (EEP) in 1985 to help U.S.
commodities compete with other countries, primarily the European Union, that
subsidized their exports. Used extensively through the late 1990s to challenge unfair
trade practices and maintain market share in targeted countries, EEP has been
inactive in recent years. The 2002 farm bill established an annual program level of
$478 million, the maximum allowed under the Uruguay Round export subsidy
reduction commitments.
The 2002 farm bill requires the Secretary of Agriculture to consult with
Congress every two years and to prepare a Global Market Strategy report that
identifies growth opportunities overseas for U.S. agricultural exports. The
administrative costs of preparing one report are about $250,000. USDA further notes
that this requirement duplicates its existing United Export Strategy and Country
Strategy programs, which use real-time market analysis and global intelligence, and
are more timely.
USDA proposes to repeal EEP and the Global Market Strategy report mandate,
pointing to program inactivity and the report’s redundancy. It argues that because
both no longer serve valuable purposes, the proposed changes would allow USDA
to focus staff and financial resources to priority issues. USDA notes that EEP’s
repeal would also be consistent with the U.S. objective to eliminate the use of export
subsidies worldwide.
1. How does the Administration estimate no budgetary impact from this proposal
while it justifies the change in terms of financial savings?
2. If there is not a successful conclusion this year to the Doha Round of WTO
trade negotiations, is the United States placed at a disadvantage (i.e., would it
lose a tool to assist agricultural exports in the future) if it unilaterally repeals the
law authorizing an export subsidy program?
3. What are examples of how USDA’s existing United Export Strategy and
Country Strategy programs are more useful to U.S. exporters and policymakers?
Cash Authority for Emergency Food Aid
USDA provides food aid abroad through the P.L. 480 program, also known as
Food for Peace; the Food for Progress Program; the McGovern-Dole International
Food for Education and Child Nutrition Program; and Section 416(b) of the
Agricultural Act of 1949. The 2002 farm bill authorized all of these programs
through FY2007, except for Section 416(b), which is permanently authorized by the
Agricultural Act of 1949. The 2002 farm bill also reauthorized a commodity reserve
of wheat and other commodities typically used as food aid (renamed the Bill



Emerson Humanitarian Trust), which can be used, under certain circumstances, to
provide P.L. 480 food aid; and created the McGovern-Dole program as a new food
aid program.
Funding for the P.L. 480 programs (Title I direct credits, and Title II grants) is
provided through the annual appropriations process. Title I provides for long-term,
low interest loans to developing and transition countries and private entities to
purchase U.S. agricultural commodities. The use of Title I credits has declined over
time, and totaled $123 million in FY2006. Title II provides for the donation of U.S.
agricultural commodities to meet emergency and non-emergency food needs. The
law mandates an annual minimum tonnage level of 2.5 million metric tons. In recent
years, appropriators have set the funding level between $1.6 and $1.7 billion. The
Food for Progress Program, funded directly by the CCC ($131 million in FY2006),
provides commodities to support countries that have made commitments to expand
free enterprise in their agricultural economies. The McGovern-Dole program uses
commodities and financial and technical assistance to carry out preschool and school
food for education programs and maternal, infant and child nutrition programs in
foreign countries. The 2002 farm bill mandated CCC funding of $100 million in
FY2003 and authorizes appropriations of “such sums as necessary” from FY2004 to
FY2007. The FY2006 program level was $97 million. Donations through the
Section 416(b) program are entirely dependent on the availability of commodities
acquired by the CCC in its price support operations. The Emerson Trust provides
emergency food relief when U.S. supplies are short or to meet unanticipated need.
Under current law, Title II of P.L. 480 may only be used to purchase and ship
U.S. agricultural commodities to meet food needs overseas. The Administration
points out that this stipulation has precluded the use of Title II to procure food
quickly enough, or resulted in the United States not being able to provide food or
provide it late. It argues that authority is needed to quickly meet emergency needs
in the most effective way possible, such as using cash to provide immediate relief
until U.S. commodities arrive or to fill in gaps in the food aid pipeline. It notes that
U.S.-sourced food aid typically takes four months or longer to arrive where needed,
compared to days or weeks when commodities can be purchased locally. The same
case has been made by the Administration in the FY2006 and FY2007 budget
proposals, but Congress has rejected the idea both times. The Administration’s farm
bill proposes to authorize the use of up to 25% of P.L. 480 Title II funds for the local
or regional purchase and distribution of emergency food to respond more quickly to
assist people threatened by a food security crisis. There is no direct budgetary
impact associated with this proposal.
1. Are there examples from the past where the proposed food aid authority could
have been used to more quickly provide assistance and thereby helped alleviate
tragic food emergencies?
2. Has USDA identified developing countries where food could be purchased to
help with any currently existing emergencies?
3. Are current U.S. food aid program resources sufficient to meet outstanding
needs in trouble spots around the world?



4. Has the Administration considered proposing additional funding for the
McGovern-Dole program — providing food aid to youngsters in schools,
particularly girls, in order to also meet broader objectives of fighting poverty?
5. How will the Administration’s focus on emergency food aid affect the
availability of food aid for development purposes?

6. How will using U.S. funds to purchase overseas commodities rather than U.S.


commodities affect the willingness of U.S. groups (private voluntary
organizations, farm organizations, commodity groups, maritime industry) to
support the U.S. food aid program? Could the Administration’s proposed
approach result in a lower availability of U.S. food aid to meet humanitarian
needs?



Title IV: Nutrition
Food Stamp Program: Working Poor and Elderly
Retirement Savings. Under standard federal rules, “defined benefit”
retirement plans, “401(k)” plans, and several other types of retirement savings
arrangements are now excluded as assets when determining food stamp eligibility.
But other retirement/savings plans like Individual Retirement Accounts (IRAs) and
Simplified Employer Pension (SEP) plans are not disregarded. Also under current
law, states exercising an option to conform food stamp rules to those of their
Temporary Assistance for Needy Families (TANF) program can expand the standard
federal disregard to match their TANF rules, and TANF and Supplemental Security
Income (SSI) recipients are automatically eligible for food stamps (essentially
making food stamp asset eligibility rules irrelevant for them). Effectively, current
rules governing the treatment of retirement savings/plans vary noticeably by state,
type of applicant, and type of plan.
Retirement/education savings that are counted are included, with other
countable assets, under the Food Stamp program’s general limit on assets — $2,000,
or $3,000 if the household includes an elderly or disabled member. Other countable
assets generally include liquid resources like cash or assets readily converted to cash
(but not household belongings/furnishings), some illiquid resources (e.g., real
property not producing income, but not a household’s home), and, to varying degrees
(by state and type of vehicle), the value of household-owned vehicles.
The Administration proposes to disregard all retirement savings and plans as
assets when judging food stamp eligibility. Its stated purposes are to reinforce federal
policy encouraging retirement savings and to end the penalty that counting them
imposes on those experiencing a temporary need for food assistance. Some critics
argue that the initiatives should go further toward liberalizing the treatment of assets
(e.g., raising or abolishing dollar limits on assets, standardizing the disregard for
vehicles). Others contend that the current system of state TANF-based options and
automatic food stamp eligibility for TANF/SSI recipients provides enough flexibility
to address any need to liberalize the food stamp asset eligibility test.
The Administration estimates costs for its retirement savings proposal at $548
million over five years and $1.305 billion over 10 years. The proposal also is
included in the Administration’s FY2008 budget package.
1. How many food stamp applicants does the Administration estimate its proposed
disregard for retirement savings will affect?
2. The Administration’s proposal for retirement savings appears to deal with
formal, tax-recognized situations. What about money put aside by poor
households for retirement that is not part of a formal plan?
3. In general, eligible food stamp households must have countable assets not
exceeding $2,000 (or $3,000 for the elderly or disabled). Although these dollar
limits apply to fewer types of assets than when they were established, they have



not been changed in over 20 years. Has the Administration considered raising
(or indexing) the dollar limits on countable assets?
4. Food stamp eligibility rules governing counting vehicles as assets are complex
and vary significantly by state and vehicle type (e.g., whether it is work-related),
similar to rules for retirement savings. Has the Administration considered
standardizing and simplifying these rules, as it proposes for retirement savings?
5. With fewer types of assets being counted in judging eligibility for food stamps
(and other programs) and more flexibility being given to states, is keeping a
food stamp asset test administratively cost-effective? Is it true that a number of
states already effectively eliminated asset tests for TANF benefits?
Reimbursement for Work-Related Expenses (Pilot Project). Current
food stamp rules provide federal 50% matching for state support for the work-related
expenses of food stamp recipients in work/training programs; states choose who is
covered, what expenses will be reimbursed, and generally what the reimbursement
will be. Employed recipients receive no similar support — although they may
increase their benefits by claiming a “deduction” for work-related dependent care
costs (see the separate proposal on the treatment of dependent care expenses) and a
“deduction” for 20% of any earnings to cover taxes and work expenses and can, in
some cases, get separate aid through state child care and TANF programs and income
tax provisions.
The Administration proposes to establish a three-year, three-state, $3 million
pilot project under which states would be allowed to pay (with 50% federal
matching) for work-related expenses (other than dependent care costs) of households
with earnings from employment. The stated purpose is to test an idea that might
further strengthen the Food Stamp program’s role in supporting work and moving
individuals and families to self-sufficiency. USDA would define what expenses
would be covered (child care costs would not be allowed) and could place a limit on
the time recipients could be aided in the project. Critics question whether the dollar
and covered-expense restrictions placed on the project effectively limit the usefulness
of any results.
1. How can a pilot program that pays a limited range of work expenses for
employed food stamp recipients, and is restricted to $3 million, produce
meaningful results? Does the $3 million include evaluation costs? Will there
be control groups? Is there experience from comparable TANF initiatives to
indicate whether this type of support is potentially productive?
2. Is it the Administration’s intention to propose that this type of work-expense
support for the employed be made a regular feature of the Food Stamp program
if the pilot proves a success?
Dependent-Care Expenses. Food stamp law takes dependent care costs
related to work or education into account when determining eligibility and benefits.
It does this by allowing households to “deduct” these costs from countable income
— up to certain limits. As a result, households with these costs are more likely to be
eligible, and more important, are given a larger food stamp benefit; benefits generally



increase by 30 cents for each dollar of disregarded income. Dependent care cost
deductions are “capped” at $200 a month for each child under age two and $175 a
month for all other dependents, thereby limiting the extent to which these costs affect
food stamp eligibility and benefits.
The Administration proposes to eliminate the current caps on expense
deductions for dependent care costs used when calculating food stamp eligibility and
benefits. The stated purpose is to help working families. Critics argue for the need
to go further in recognizing the effect high non-food living expenses — like shelter
costs — have in eroding the value of food stamp benefits.
The Administration estimates costs for this proposal at $20 million over five
years and $42 million over 10 years.
1. How many households does the Administration expect to be affected by its
proposal to lift the dollar caps on dependent-care expense deductions?

2. A dollar cap, albeit an indexed one, also exists for shelter-expense deductions.


Has the Administration considered lifting it to increase benefits for those with
very high shelter expenses?
College Savings Plans. Current food stamp policy allows a disregard of
college (postsecondary education) savings plans as assets to the extent that they are
determined to be “inaccessible.” It also permits states to exclude college savings
plans when conforming their food stamp rules to their TANF or Medicaid policies.
As a result, state agencies must make individual determinations as to the accessibility
of education savings in order to judge whether to disregard them — unless they have
a TANF or Medicaid rule that disregards them and have chosen to apply that rule to
food stamps.
Education savings that are counted are included, with other countable assets,
under the Food Stamp program’s general limit on assets — $2,000, or $3,000 if the
household includes an elderly or disabled member. Other countable assets generally
include liquid resources like cash or assets readily converted to cash (but not
household belongings/furnishings), some illiquid resources (e.g., real property not
producing income, but not a household’s home), and, to varying degrees (by state and
type of vehicle), the value of household-owned vehicles.
The Administration proposes to disregard Internal Revenue Service (IRS)-
approved postsecondary/college education savings plans as assets when judging
food stamp eligibility. The stated purposes are to reinforce federal policy encouraging
savings for education, to end the penalty that counting them imposes on those
experiencing a temporary need for food assistance, and to simplify program
administration. Some critics argue that the initiatives should go further toward
liberalizing the treatment of assets (e.g., raising or abolishing dollar limits on assets,
standardizing the treatment of vehicles). Others maintain that the current rule allows
for a disregard where the savings have been set aside for education and are truly
inaccessible for living expenses.



The Administration estimates costs for its education savings proposal at $8
million over five years and $18 million over 10 years. The proposal also is included
in the Administration’s FY2008 budget proposal.
1. How many food stamp applicants does the Administration estimate its proposed
disregard for education savings will affect?
2. The Administration’s proposal for education savings appears to deal with
formal, tax-recognized situations. What about money put aside by poor
households for education that is not part of a formal plan?
3. In general, eligible food stamp households must have countable assets not
exceeding $2,000 (or $3,000 for the elderly or disabled). Although these dollar
limits apply to fewer types of assets than when they were established, they have
not been changed in over 20 years. Has the Administration considered raising
(or indexing) the dollar limits on countable assets?
4. Food stamp eligibility rules governing counting vehicles as assets are complex
and difficult to administer, similar to rules for education savings. Has the
Administration considered standardizing and simplifying rules for disregarding
vehicles as assets, as it proposes for education savings?
5. With fewer types of assets being counted in judging eligibility for food stamps
(and other programs) and more flexibility being given to states, is keeping a
food stamp asset test administratively cost-effective? Is it true that a number of
states already effectively eliminated asset tests for TANF benefits?
Combat-Related Military Pay. Combat-related military pay has been
disregarded as income in the Food Stamp program through provisions of
appropriations laws since the FY2005 agriculture appropriations act. This proposal
would make the disregard part of permanent food stamp law.
For a number of years, the Defense Department has offered a Family Assistance
Supplemental Allowance to military families who might qualify for food stamps. Its
purpose is to increase their income and make participation in the Food Stamp
program unnecessary; however, very few families have chosen to take this option.
The Administration proposes to disregard, in permanent law, combat-related
military pay as income when determining food stamp eligibility and benefits. The
stated purpose is to permanently remove a potential penalty on military families.
Critics might contend that use of the Defense Department’s special allowance
program would be a better way to deal with this issue.
The Administration estimates costs for its military pay proposal at $5 million
over five years and $10 million over 10 years. This proposal also is included in the
Administration’s FY2008 budget package.
1. How many military families does the Administration estimate would be affected
by the proposed disregard of combat-related pay for food stamp purposes?



2. Should these families be participating in the Defense Department’s Family
Assistance Supplemental Allowance program instead of the Food Stamp
program? How big is the supplemental allowance program?
3. Has the Administration considered similar treatment for civilian employees
deployed in combat areas?
Food Stamp Program:
Streamlining and Modernizing Proposals
Rename the Food Stamp Program. The Food Stamp program got its
name when it was originally established in 1939. At the time, actual “stamps” were
used. Blue and orange stamps were issued to recipients — one color representing the
recipient’s dollar contribution and the other the federal government’s subsidy (which
was usable only for surplus commodities). When used, the stamps were actually
pasted into booklets by the participating grocer, and the booklets (when full) were
then redeemed by the retailer for cash. The original program was closed down in

1943, after World War II had effectively eliminated surplus food production.


When the program was revived in the 1960s, the old name also was revived —
even though stamps were not used. Instead, participants received paper “coupons”
of various denominations that were used like cash to purchase food. This lasted until
the recent switch to the use of debit-card-like electronic benefit transfer (EBT) cards
to deliver benefits.
The Administration recommends changing the program’s name to the Food and
Nutrition program in recognition of the changes in how food stamp benefits are
delivered and the program’s role in improving nutrition.
1. USDA opened up renaming of the program for public comment a few years ago
and received many ideas. Could a compendium of those ideas be provided?

2. What is the estimated cost of switching to a new name for the program?


3. How many states now use a name other than Food Stamp program to identify
their EBT-based program?
4. “Stamps” have not been used since the early 1940s, yet the program has kept the
name. Is it an option to keep the existing name and let states call the program
what they wish?
“De-Obligate” Food Stamp Coupons as Legal Tender. Food stamp
benefits are now delivered using debit-card-like electronic benefit transfer (EBT)
cards, not paper food stamp coupons. The EBT system has been in place nationwide
for two years. However, some coupons issued before the transition to EBT systems
have still not been redeemed, and the Administration would like to “get them off the
books,” saving redemption costs (both the value of the coupons themselves and the
cost of handling them). The Administration proposes to “de-obligate” food stamp
coupons still in circulation, making them no longer usable (redeemable). It estimates



net savings from this proposal at $2 million over five years and $7 million over 10
years.

1. What is the dollar value of unredeemed coupons still outstanding?


2. What time deadline for redeeming outstanding coupons does the Administration
envision?
Prohibit Certain State Claims Against Recipients; Collect Over-
Issuances from States. Current law requires states to pursue collection of over-
issued food stamp benefits from recipients and former recipients — however they are
caused. Any collections generally are turned over to the federal government (which
pays the cost of program benefits), but states may keep a portion of collections in
cases where the over-issuance was not caused by the state agency’s actions. To an
extent, states themselves also are liable to the federal government for over-issued
benefits and losses caused by cases of state agency negligence or fraud.
The Administration proposes to (1) prohibit states from pursuing claims against
recipients for over-issued food stamp benefits in the case of “widespread systemic
errors” (e.g., computer system failures/flaws) and (2) require states to pay the USDA
for over-issuances in such cases. The stated purposes for advancing its proposals are
to promote program integrity and fair treatment of recipients and to encourage
caution and careful planning when implementing new computer-related
administrative systems. However, a number of states are pursuing initiatives that
encompass the expanded use of computers and online interaction between
applicants/recipients and state agencies, and some critics are concerned over how
extensively any new authority to require state payments might be used and its
potential “chilling effect” on state efforts to improve administration.
1. How will the Administration define “widespread systemic errors” and calculate
over-issued benefits for the purpose of holding recipients harmless and
mandating that states pay the cost of the over-issuances they might cause? What
about under-issuances and improper denials caused by these “widespread
systemic errors?”
2. What type of new authority to collect from states is the Administration asking
for? Does USDA not have enough authority already to collect from states in
cases of over-issued benefits? Is this authority not being used in the Colorado
case that the Administration cites in the rationale for its proposal?
3. Will the threat of a new requirement that states pay over-issuance costs in cases
of computer system flaws and other systemic problems dampen the current trend
toward state innovation in administering food stamps by increasing the use of
computers and online interactions between applicants/recipients and state
agencies, or not?



Food Stamp Program: Improve Program Integrity
Limit Categorical Eligibility. Under current food stamp law, states may
grant categorical (automatic) food stamp eligibility to households receiving
Temporary Assistance for Needy Families (TANF) cash aid, services, or both —
effectively accepting TANF eligibility decisions as to financial eligibility for food
stamps. In some cases, particularly where only services are provided, the household
may have financial resources (income/assets) significantly above those normally
allowed for food stamps.
The Administration is concerned that states can, in effect, “game” the
categorical eligibility option and make households eligible for food stamps by simply
providing minimal services financed with TANF funds. Its proposal would restrict
categorical (automatic) eligibility for food stamps to those who receive cash benefits
under state Temporary Assistance for Needy Families (TANF) programs (on the
premise that they are subject to stricter eligibility tests than those getting TANF-
funded services).2 On the other hand, critics point out that, among those categorically
eligible, it is most often working households with relatively high non-food expenses
(for shelter, dependent care) who actually qualify for a significant food stamp benefit,
and that many of the households that would be penalized are those who have worked
their way off cash welfare and are only receiving child care services to help them
keep their job. They also note that there would be added administrative costs and
a significant side effect — some households losing their categorical food stamp
eligibility would, as a result, lose their food-stamp-participation-based categorical
eligibility for free school meals for their children.
The Administration estimates savings from this proposal at $611 million over
five years and $1.360 billion over 10 years. It also is included in the
Administration’s FY2008 budget package and was advanced as part of the FY2007
budget presentation.

1. Is it the Administration’s intent to exclude any household receiving only TANF-


funded services from categorical eligibility for food stamps? Would the
proposal exclude working households getting child care aid? Those getting job
training? What TANF-funded services do those excluded by the
Administration’s recommendation receive?
2. How many households would be affected by the categorical eligibility limitation
proposal? Is this proposal the primary source of budget savings in the
Administration’s package of farm bill proposals for nutrition assistance
programs? Without this cost-saving change, would the Administration continue
to support the recommendations it has made that have significant projected
costs?


2 The Administration also proposes applying a food stamp “cash-only” categorical eligibility
rule to recipients of Supplemental Security Income (SSI) benefits. However, it is unlikely
that a “cash-only” food stamp rule would have any effect on SSI recipients because virtually
all, if not all, SSI recipients get cash SSI payments (or are authorized to receive them).

3. In how many states is overly expansive categorical eligibility a problem? What
types of services are provided in these states to confer categorical food stamp
eligibility?
4. Could a state “get around” the Administration’s proposal by providing a
minimal cash payment instead of a service?
5. Has the Administration estimated the added administrative costs that states
(with a 50% federal match) would bear for conducting regular food stamp
eligibility determinations for those losing categorical eligibility who choose to
apply through regular program rules, particularly checking on assets held by
applicants?
Imposing Fines on Retailers. Under current policy, the use of fines as
penalties on retailers violating food stamp rules (e.g., selling non-food items for food
stamp benefits) is restricted to certain instances where the retailer can show extensive
efforts to educate employees (and the owner was unaware of the violation) or where
disqualification would cause hardship to food stamp recipients. In most cases, it is
USDA policy to impose disqualification (for varying periods), whether the violation
is minor or major. The Administration argues that it needs more flexibility to
respond to the seriousness of a retailer’s violation and would like more authority to
impose fines in lieu of disqualification for minor violations and new authority to
impose fines in addition to disqualification for major violations. Critics are
concerned that the extent of the problem (beyond anecdotal cases) is not clear, that
USDA has not aggressively used its existing authority to substitute fines in minor
cases, and that authority to impose fines in addition to disqualification in major cases
might clash with separate provisions of law that impose court-ordered monetary
penalties on retailers convicted of felonies/misdemeanors.
The Administration estimates savings from these proposals at $5 million over
five years and $10 million over 10 years.
1. How many, and what types of, cases point to the need for new authority to
impose fines instead of disqualification in cases of relatively minor retailer
violations of food stamp rules?
2. Why, specifically, are current authorities for the use of fines on retailers in cases
of minor violations not sufficient?
Seizure of Retailers’ Food Stamp Receipts. Under current law, retailers
accused of trafficking violations can continue to operate (and potentially continue any
fraudulent activities) while enforcement actions are taking place — “even if those
violations are particularly egregious.” The Administration proposes to allow the
USDA, in “certain egregious trafficking cases,” to seize retailers’ food stamp
receipts prior to settlement in cases where expedited action is warranted. The stated
purpose is to increase the effectiveness of USDA enforcement actions. As stated by
the Administration, “trafficking retailers [would be] hurt more quickly where it
matters — in their pocketbooks. This proposal increases effectiveness by
immediately stopping the flow of funds that allow retailers to continue to finance
their fraudulent activities.” Critics are worried about how this new authority would



be framed and used and whether it goes too far and possibly “pre-judges” accused
retailers.
1. How would the proposed authority to seize retailers’ food stamp receipts be
framed? What protections for accused retailers is envisioned?
2. What type of “egregious” cases would the new seizure authority be designed
and used for? In what types of cases (and how many) would it have been used
in recent years?
Recipient Disqualification for Selling Food. Food stamp law requires
disqualification for those who traffic in food stamp benefits (i.e., those who exchange
the value of benefits on their food stamp EBT card for cash or ineligible items).
However, selling/trading the actual food purchased with food stamp benefits for cash
or other consideration is not cause for disqualification. The Administration proposes
to disqualify those who exchange food purchased with food stamp benefits for cash.
1. How will the Administration enforce a rule disqualifying those who exchange
food purchased with food stamp benefits for cash? Is this proposal only
intended to deal with egregious cases? What about cases where food obtained
with food stamp benefits is exchanged for something other than cash?
2. Does the Administration envision its proposal also making the exchange of food
purchased with food stamp benefits a felony or misdemeanor subject to fines or
imprisonment — like trafficking under current law — or only cause for
disqualification?
Penalties on States for High Negative Action Error Rates. The Food
Stamp program has a “quality control” (QC) system under which state administration
of the program is measured for the extent of erroneous determinations — that is,
annual “error rates” are computed for overpayments to eligible and ineligible
recipients and underpayments to eligible recipients. For FY2005 (the most recent
year for which QC figures are available), the national overpayment rate was 4.53%
of food stamp benefit dollars, and underpayments were valued at 1.31% of food
stamp benefits paid out. States with consistently (over three consecutive years) high
error rates may be assessed fiscal sanctions. These sanctions are calculated as a
portion of the cost of improper payments and the value of proper payments not made
— above certain allowable thresholds. At present, eight states are at risk of a
sanction or have a sanction liability; current actual liabilities total $3.6 million.
States also may receive payment accuracy bonus payments for overpayment and
underpayment error rates that are very low or greatly improved; for FY2005, 10 states
received bonus payments totaling $24 million.3
In addition to overpayments and underpayments, the food stamp QC system
measures the extent to which states improperly deny, suspend, or terminate food


3 States also are eligible for a total of $18 million in bonus payments for high performance
in providing program access and processing applications in a timely manner. In FY2005,

13 states received these bonuses.



stamp applicants/recipients (i.e., annual negative action error rates are calculated for
each state). In FY2005 (the most recent year for which these figures are available),
the national average negative action error rate was 6.91%, and nine states had rates
50% or more above the national average (six of them were in their second
consecutive year). States with high negative action error rates are not subject to
fiscal sanctions. However, they may receive bonus payments for very low or greatly
improved negative action rates; for FY2005, six states received bonuses totaling $6
million.
Overpayment and underpayment error rates have been dropping in recent years;
in FY2005, they were at a historic low. On the other hand, negative action error rates
have been rising. The Administration proposes to assess states a financial penalty
if the state has a negative action error rate above the national average for two
consecutive years. It appears that the penalty would be a dollar amount equal to 5%
of the federal share (normally 50%) of a state’s food stamp administrative costs. The
Administration’s stated purposes in advancing its proposal to impose penalties for
high negative action error rates are to promote program integrity and correct
eligibility determinations for applicants. Critics are concerned that it re-opens the
extensively negotiated 2002 farm bill agreement with states and advocates that
reformed the QC system and imposes an overly large penalty for high negative action
error rates, without adequate grounds for doing so. The Administration estimates
savings from this proposal at $57 million over five years and $166 million over 10
years.
1. When compared to fiscal sanctions assessed for food stamp overpayments and
underpayments, the proposed sanction for high rates of improper negative
actions, like mistaken eligibility denials, is very large. Administration estimates
indicate they will average over $15 million a year. Is there a reason for this
substantial difference?
2. In the 2002 farm bill, the previous practice of assessing sanctions as a reduction
in the federal share of state administrative costs was abandoned in favor of
sanctions as a proportion of the dollar value of improperly paid or unpaid
benefits. Why has the Administration chosen to use this sanction method for
high rates of negative actions? Is it possible that a cut based on administrative
spending could exacerbate the problem? Does the Administration intend to
include cuts in federal matching payments for state costs like nutrition education
and work and training programs in the proposed sanction?
State Financial Liability for High Error Rates. States at risk of a fiscal
sanction for consistently high error rates as measured by the food stamp QC system
(see the discussion above of the Administration’s proposal for penalties for high
negative action error rates) may meet a portion of the sanction by investing (using
unmatched state funds) in federally approved improvements to the administration of
the Food Stamp program. Citing a need to boost program integrity and strengthen
the QC system, the Administration proposes to eliminate the option permitting states
to invest in administrative improvements as an alternative to paying part of their QC
fiscal sanction. As with the proposal for penalties for high negative action error
rates, critics contend that this recommendation unnecessarily re-opens the 2002



agreement that revamped the QC system without a sufficient rationale. The
Administration estimates minimal cost savings from this proposal.
1. Has the USDA had any problems with states’ use of the current option to invest
in administrative improvements in lieu of paying fiscal sanctions? Have states
not fulfilled their administrative improvement promises? Has administration
been significantly enhanced by these efforts?
2. How many states have taken advantage of the option to pay for administrative
improvements instead of paying the USDA? How much money was involved
and what types of enhancements were made?
Food Stamps: Improving Health Through Nutrition Education
Recognize Nutrition Education as a Component of the Program.
Current policy authorizes federal 50% matching payments for state nutrition
education efforts for food stamp recipients and the potentially eligible low-income
population — as an allowable administrative cost. USDA also funds the cost of
providing nutrition education materials and technical assistance related to nutrition
education. The Administration proposes to add specific language to the Food Stamp
Act referring to nutrition education as an approved activity under the Food Stamp
program.
1. Does the Administration’s proposal envision funding any nutrition education
activities not now supported?
Pilot Obesity Initiative. The Administration is concerned over substantial
indications that obesity among Americans is rising. At present, the USDA nutrition
programs support nutrition education activities and have a few features directed at
combating obesity. For example, the Food Stamp program pays half the cost of state
nutrition education efforts among food stamp recipients and other low-income
households; the USDA provides nutrition education materials and makes grants for
nutrition education initiatives directed at schoolchildren; school meal program meal
patterns are being revised and schools are required to design “wellness policies” that
address obesity concerns; and the WIC program includes a major, mandatory
nutrition education component.
In addition to these efforts, the Administration’s proposal calls for competitive
grants to develop and test ways of addressing obesity in the low-income population
— with evaluations of the results. This would be accomplished with a five-year, $20
million per year “USDA Initiative to Address Obesity among Low-Income
Americans.” According to the USDA, ideas that might be tested include point-of-sale
incentives for the purchase of fruit and vegetables by food stamp recipients, grants
to connect food stamp shoppers with farmers’ markets, and integrated
communication and education programs to promote healthy diets and physical
activity.
1. How would the pilot obesity initiative be coordinated with existing child
nutrition and WIC program efforts and projects supported by the Department of
Health and Human Services?



2. What are the reasons given for USDA to embark on a separate new grant
initiative?
The Emergency Food Assistance Program (TEFAP)
Permanent State TEFAP Plans. Under current law, states must submit
plans of operation and administration for USDA approval every four years; plans
may be amended at any time with USDA approval. State plans designate the state
agency responsible for distributing TEFAP commodities, set out the state’s plans for
distributing commodities, and set forth eligibility standards for participating agencies
and individual recipients. The Administration proposes to make all TEFAP state
plans effectively permanent and require that states only submit revisions that are
warranted by changes in state TEFAP operations or rules. This is very close to the
pattern for state plans in other USDA nutrition programs, and the Administration
argues that the current once-every-four-years rule is burdensome on state TEFAP
agencies. Critics, on the other hand, question whether a requirement to resubmit a
state plan once every four years is really that burdensome on states (as opposed to
USDA officials) and note that TEFAP state plans are more important than those in
other USDA nutrition programs because states have almost total control over
program rules and operations. They also point out that a complete plan review and
re-submission every four years (if done conscientiously by the state and the USDA)
can result in important program improvements and that other programs’ state plan
requirements were changed to revisions-as-warranted from previous once-a-year
requirements (not once every four years).
1. Have states called for a change in the rules governing submission of state
TEFAP plans? Is the current requirement for new state plans every four years
more of a burden on the USDA or state agencies?
2. If the problem is a burden on USDA plan reviewers, would staggering
submission of state plans be an appropriate solution?
Selecting TEFAP Local Organizations. Under current policies, states
have complete control over the selection of local organizations that receive and
distribute the TEFAP foods allocated to each state (including those groups that act
as conduits to end providers like food pantries and soup kitchens, and end providers
themselves). The Administration is concerned that this situation can lead to many
of the same organizations participating year after year with little concern over how
efficiently or effectively they are delivering services, unless significant administrative
problems occur. In order to encourage the entry of new distributing organizations
that might operate more efficiently and could charge lower fees to end providers, the
Administration proposes to require that states re-compete contracts with TEFAP
distributing organizations at least once every three years. It contends that failure to
have a periodic competitive solicitation process results in a barrier to “certain local
organizations, including faith-based organizations, that wish to participate in
TEFAP.” Critics are concerned over how a requirement for competitive selection
would work given the widely varying nature of state TEFAP programs. They also
question why all contracts need to be renewed (re-competed) so often, whether there
are potentially enough serious competitors to make the three-year competition
process worthwhile, and the cost of running competitive solicitations and changing



distributing organizations. And they point to the potential for confusion among
recipients when distribution systems change.
1. Does the Administration’s proposal for re-competing contracts for TEFAP
distributing agencies mean that all contracts will potentially be subject to
termination and reassignment at the same time every three years? Will there be
some staggering of contract renewals?

2. What federal rules for competitive solicitations are envisioned?


3. Have local organizations that are not now part of the TEFAP distribution
network asked for competitive solicitations?
Food Distribution Program on Indian Reservations (FDPIR)
Increased Administrative Funding. The Administration, in consultation
with participating Indian tribal organizations, is in the process of substantially
revising the method for allocating federal payments for administrative costs for
FDPIR. The new method would be more closely tied to participants served. The
dollar amount to be spent on administrative costs and the allocation of federal
payments for them are not specified in the underlying law governing the FDPIR.
To speed and support implementation of a revised allocation (i.e., ease the
negative effects for tribal organizations that would lose money under a new
allocation), the Administration is asking for increased FDPIR administrative funding
of $26-$27 million over 10 years. Critics question whether this initiative belongs in
the farm bill and how it would be crafted given that it deals with matters not now
covered in FDPIR law.
1. Has a decision on a new method for allocating FDPIR administrative payments
been made? If not, does the Administration know the amount of new funding
needed (and the years in which it will be needed)?
2. The new funding the Administration is asking for is described as ensuring that
there would be sufficient money so that any change in the current allocation
method would allow all tribal organizations to “continue to receive their current
allotments or a modest increase depending on their level of participation.”
What would it cost to ensure that, under the new allocations, all tribal
organizations are held harmless (including inflation increases)? Will the
Administration’s proposal include the details of the new allocation method?
Should this be placed into law?
3. Could the Administration’s goal be achieved through the regular appropriations
process?
Food Stamp/FDPIR Disqualification Policies. The FDPIR is a program
distributing federally donated foods that is operated in lieu of food stamps on Indian
reservations where the tribal organization opts for it. Individuals cannot participate
in both food stamps and the FDPIR at the same time. Under current policy, those
disqualified (e.g., for fraud) from the Food Stamp program are automatically



disqualified from participation in the FDPIR (following the food stamp
disqualification rules). On the other hand, those disqualified from the FDPIR are not
similarly disqualified from food stamps.
The Administration proposes to change food stamp law to specifically disqualify
from food stamps those disqualified from the FDPIR in order to promote program
integrity and consistent eligibility/disqualification rules. Critics question whether
new provisions of law are needed to accomplish this.
1. Why can’t food stamp disqualification of those disqualified from the FDPIR be
accomplished by a change in food stamp regulations using the disqualification
authorities provided in Section 6(b) and Section 6(h) of the Food Stamp Act?
Senior Farmers’ Market Nutrition Program (SFMNP)
Disregarding SFMNP Benefits in Other Assistance Programs. The
SFMNP provides once-a-year vouchers (typically worth $20-$30) to low-income
seniors; these vouchers are used at participating farmers’ markets and roadside stands
to buy fresh produce. The Administration proposes to require that the value of
SFMNP vouchers be disregarded in federal and state means-tested public assistance
programs. This change is intended to make treatment of SFMNP vouchers consistent
with the treatment of other nutrition assistance benefits (e.g., the WIC Farmers’
Market Nutrition program, child nutrition program benefits, food stamps).
1. Do any public assistance programs now count the value of SFMNP vouchers as
income or financial resources — specifically, other nutrition assistance
programs like food stamps?
Prohibiting Sales Taxes on SFMNP Purchases. The Administration
proposes to prohibit states from participating in the SFMNP if state or local sales
taxes are charged on food purchased with SFMNP vouchers. This recommendation
is intended to make treatment of SFMNP vouchers consistent with the treatment
accorded other nutrition assistance benefits (e.g., the WIC Farmers’ Market Nutrition
program, food stamps).
1. Do any states or localities now charge sales taxes on SFMNP voucher
purchases? Does the Administration expect any state to pull out of (or not apply
for) the program if sales taxes on vouchers are barred?
Promoting Healthful Diets in Schools
School Food Purchase Survey. The most recent data on school food
purchases are a decade old. The Administration proposes to require a $6 million
survey of foods purchased by schools for their meal services, once every five years.
It maintains that, in addition to getting information on fruit and vegetable purchases,
its proposed periodic surveys would help USDA efforts to (1) provide guidance to
schools in implementation of upcoming new rules intended to conform school meal
patterns to the most recent Dietary Guidelines for Americans, (2) better manage the
commodities procured by the USDA for distribution to schools, and (3) assess the



economic effect of school food purchases on various commodity sectors. Critics ask
whether this belongs in the farm bill.
1. Could the Administration’s goal be achieved through the regular appropriations
process?
New Funds for Fruit and Vegetable Purchases for Schools. In recent
years, USDA has acquired an average of over $300 million a year in fruit and
vegetables for schools. About $50 million is purchased and distributed through the
“Department of Defense Fresh Program,” which supplies fresh fruit and vegetables
to schools under contract with the USDA. In response to calls for an increase in the
quality of USDA-provided commodities, the Administration proposes to provide an
additional $50 million a year for the purchase of fruit and vegetables specifically for
the School Lunch program — above acquisitions under any other authority. Some
of this new spending could be through added dollars for the Defense Department
Fresh Program. Critics are concerned that the Administration may not be asking for
a large enough increase in fruit and vegetable purchases and that its farm bill
proposals are silent on potential expansion of a small ($15 million) existing fresh
fruit and vegetable program operating in some 400 schools located in 14 states and
on 3 Indian reservations.
1. What is the Administration’s position on expansion of the fresh fruit and
vegetable program initiated in the 2002 farm bill and later expanded?
2. How would the $50 million a year in new fruit and vegetable purchases
requested by the Administration be distributed among schools?
3. Will the proposed $50 million for fruit and vegetable purchases be mandatory
funding? Could the Administration’s goal be reached through the regular
appropriations process?
Section 32 Fruit and Vegetable Purchases.4 “Section 32” is a permanent
appropriation that since 1935 has earmarked the equivalent of 30% of annual customs
receipts to support the farm sector through a variety of activities. Today, most of this
appropriation (now approximately $7 billion yearly) is transferred to the U.S.
Department of Agriculture (USDA) account that funds child nutrition programs.
However, a smaller — but still significant — amount of Section 32 money is set
aside each year to purchase non-price-supported commodities directly and provide
them to schools and other feeding sites. Some of these purchases are “entitlement”
commodities that are required to be made under school lunch law. Others are
“bonus” commodities, acquired by USDA through emergency surplus removal
activities. The total value of both types of commodities now exceeds $900 million
per year. The purchases are made by USDA’s Agricultural Marketing Service
(AMS). Included within these combined (“mandated” and “bonus”) Section 32


4 This Section 32 farm bill recommendation is listed in the USDA report in the Nutrition
title and in the Miscellaneous title. The questions posed here are duplicated again in the
Miscellaneous title.

totals, fruit and vegetable purchases over the last five years have averaged $308
million per year, according to USDA.
In order to promote healthy diets, USDA proposes to increase purchases of
fruits and vegetables using Section 32 authority by at least $200 million per year,
and $2.75 billion over 10 years. However, critics are concerned over actual extent
of any new fruit and vegetable purchases and their effect on Section 32 support for
other commodities.
1. Documents detailing the budget effect of the Administration’s farm bill
proposals indicate no score (no new spending) for its Section 32
recommendation. How does the Administration propose to cover the cost of
these increased fruit and vegetable purchases?
2. If new spending would not be created, which activities or food purchases would
be reduced to pay for these increases? For example, Section 32 is now also used
to purchase animal products including meats, poultry, and seafood. Would the
Administration’s proposal result in fewer purchases of these products? If not,
why?
3. USDA routinely has funds remaining in the Section 32 account at the end of
each fiscal year, which are “carried over” into the next fiscal year to be used in
Section 32. What is this level of unobligated funds, on average, and is there any
intent to reduce the size of this carryover to pay for new fruit and vegetable
purchases? If so, could that leave less carryover in future years?
4. Does this proposal call for any new legislative authority, and if not, how can
Congress be assured that the initiative would be carried out by future
Administrations?
5. How does USDA currently determine what proportions of its Section 32
commodity acquisitions go to various domestic nutrition programs, and how
would it do so for the proposed increases?
6. How does this proposal differ from the separate Administration initiative
providing for $50 million yearly in other new fruit and vegetable purchases for
domestic nutrition programs? How would it be funded?
7. Does the Department need broad legislative authority to administer Section 32
programs, particularly “bonus” surplus removals?



Title V: Credit
The Administration proposes three revisions to the permanently authorized farm
loan programs of the USDA’s Farm Service Agency (FSA). FSA is a lender of last
resort, providing direct and guaranteed loans to farmers unable to secure credit
elsewhere. The general intention of the farm bill proposal is to enhance loan
availability for beginning and socially disadvantaged classes of farmers and ranchers,
and to increase the maximum size of individual direct loans, which effectively have
been reduced by inflation. The cost of these changes against the budget baseline is
zero because the programs are funded by annual discretionary appropriations. The
statutory changes in eligibility and loan size may affect the distribution of program
benefits and how far a dollar of appropriation goes, but appropriators will continue
to control the actual level of spending.
First, the Administration proposes to target more of the FSA direct loan
portfolio to beginning and socially disadvantaged farmers. Currently, the law
requires a certain percentage of the loan authority to be reserved for beginning
farmers and ranchers for a specific length of the fiscal year, and funds are disbursed
across states by expected need. After the targeting period ends, any remaining funds
are pooled across states and allocated to other qualified farmers. The Administration
proposes to double the targeting percentage for direct operating loans from 35% to

70%, and increase the targeting of direct farm ownership loans from 70% to 100%.


New re-pooling procedures at the end of the targeting period would redistribute
funds first to targeted groups of farmers in other states before other farmers.
Second, the Administration proposes to enhance the beginning farmer down
payment program to make it easier for beginning and socially disadvantaged farmers
to buy property. It would (a) lower the interest rate charged from 4% to 2%, (b)
eliminate the $250,000 cap on the value of property that may be acquired, (c)
decrease the producer contribution from 10% to 5%, (d) defer payments for the first
year, and (e) add socially disadvantaged farmers to the list of eligible applicants.
Third, the Administration proposes to raise the current $200,000 borrower limit
on direct farm ownership loans and $200,000 limit on direct farm operating loans
to a combined $500,000 limit on both types of loans. The current limits were
established in 1984 and 1978, respectively, and have been eroded in terms of
purchasing power by inflation in the price of land and inputs. Limits on guaranteed
loans were increased in 1998, indexed for inflation, and combined across ownership
and operating loans.
1. The proposed $500,000 combined limit on direct farm operating and farm
ownership loans is not indexed for inflation. However, the limit on guaranteed
loans dating from 1998 is indexed for inflation. What is the rationale for
indexing guaranteed loans and not direct loans?
2. Farmers may have more flexibility with the combined $500,000 cap, but the
total is nonetheless only slightly higher than the current $400,000 total across
the two types of loans. Given the increase in land prices and input costs since
the mid 1980’s, is a 25% increase in the combined loan cap sufficient?



3. The 2002 farm bill required a study of the effectiveness of the delivery of
USDA’s direct and guaranteed loan program. The issue was whether the direct
loan program was still needed, given shifts in many different government loan
programs toward guaranteed loans, including at FSA. The Administration’s
FY2008 budget for rural development calls for cutting direct loans in the rural
housing program. Why does the USDA believe direct farm loans are still
necessary but not direct rural housing loans?
4. What has been USDA’s experience with the pilot program to guarantee contract
land sales as established under the 2002 farm bill (7 U.S.C. 1936)? The
program was authorized as a pilot through FY2007, and was to guarantee loans
made by a private seller of a farm to a qualified beginning farmer on a contract
land sale basis. How would USDA rate the success of this program? Why is
USDA not requesting its reauthorization?
5. Does the Administration have a position on expanding the lending authority of
the Farm Credit System (FCS), a policy FCS supports but commercial bankers
oppose?



Title VI: Rural Development
Three agencies established by the Agricultural Reorganization Act of 1994 (P.L.
103-354) are responsible for USDA’s Rural Development mission area: the Rural
Housing Service (RHS), the Rural Business-Cooperative Service (RBS), and the
Rural Utilities Service (RUS). An Office of Community Development provides
community development support through Rural Development’s field offices. The
mission area also administers the rural portion of the Empowerment Zones and
Enterprise Communities Initiative, the Rural Economic Partnership Zones, and the
National Rural Development Partnership.
Rural Critical Access Hospitals
The Critical Access Hospital Program was created by the 1997 Balanced Budget
Act (P. L. 105-33) as a safety net device, to assure Medicare beneficiaries access to
health care services in rural areas, and to create incentives to develop local integrated
health delivery systems, including acute, primary, emergency and long-term care.
Assistance for medical care facilities and other essential community facilities has
been provided under USDA Rural Development’s Community Facilities program.
The Administration proposes mandatory funding of $1.6 billion in guaranteed loans
and $5 million in grants to complete reconstruction and rehabilitation of all 1,283
currently certified Rural Critical Access Hospitals. The budgetary impact amounts
to $80 million to support the loan guarantees and $5 million for the grants over 10
years. In contrast, since FY2004, USDA has supported 53 critical access hospitals
with $260 million in loans and guarantees.
1. In FY2007, total loan guarantee budget authority for the entire Community
Facilities program amounts to $208 million. Is the staff of the Community
Facilities program prepared to handle as many as 1,283 new loan and grant
projects?
2. Will this level of targeted funding for critical access hospitals avoid leaving
loan applications for other essential community facilities at a disadvantage?
Enhance Rural Infrastructure
In the 2002 farm bill, $360 million was authorized for a backlog of applications
for rural development loans and grants. This funding was used exclusively for waste
and waste water treatment. The Administration is proposing $500 million in the 2007
farm bill for backlogged loan and grant applications to further the development of
sound infrastructure and “provide the basic services required to ensure a good
quality of life or encourage sustainable economic development.”
1. Will the proposed $500 million eliminate the entire backlog of infrastructure
projects? If not, how will the funds be allocated among communities and
projects?
2. The Administration’s 2008 budget proposes terminating the Community
Facilities Grant program and “Community Connect” Broadband Grants. In the



explanation of its farm bill proposals, the Administration notes that the unmet
need for the kinds of services provided by the Community Facilities program
is substantial. Also, farm bill reauthorization is proposed for broadband access,
distance learning, and telemedicine programs. If the next farm bill does indeed
reauthorize these programs, what level of funding will the Administration put
in future budget requests? Are the farm bill proposal for an additional $500
million for the infrastructure backlog and the FY2008 budget proposal to
terminate the programs consistent with one another?
Streamline Rural Development Programs
Loans and grants for business development and expansion are long-standing
programs to assist rural areas with economic diversification and new opportunities
for rural residents. The programs are targeted to existing rural businesses and start-
ups, public bodies, nonprofit corporations and cooperatives, and they offer assistance
in business planning, labor training, and technical assistance. Similarly, loans and
grants for infrastructure (e.g., water treatment, technical assistance, broadband
development) are also major foci of USDA Rural Development. The
Administration’s farm bill proposes creating a new “Business Grants Platform,” a
new “Community Programs Platform,” and a “Multi-Departmental Energy Grants
Platform” that would consolidate the authorities for many of these programs into
single entities.
Multi-Department Energy Grants Platform.5 The Administration
proposes to consolidate USDA energy grant and research program authorities under
the Biomass Research and Development Act of 2000. The key Renewable Energy
Systems and Energy Efficiency Improvements grant programs would be consolidated
under this act with proposed mandatory funding of $500 million over 10 years. In
addition, competitive grants under the consolidated authority would be increased to
$150 million over 10 years.
1. In the past, Renewable Energy System funds have assisted a range of renewable
energy activities including anaerobic digesters and wind energy systems from
across diverse of geographic areas. Will the expanded funding continue to be
broadly targeted across different renewable energy types and geographic
locations, or will it focus more directly on establishing a viable, self-sustaining
cellulosic ethanol industry?

2. The Department of Energy (DOE) recently announced it would be investing6


$385 million in six biorefinery projects using cellulosic feedstocks. Is there a
need for additional USDA energy grants funding? How will the requested
funding in the Administration’s energy grants proposal be coordinated with the
DOE effort?


5 This proposal is repeated in the Energy title of the USDA recommendations and the
questions posed here are repeated under the heading “Create a Multi-Department Energy
Grants Program” in the energy section.
6 Department of Energy, Office of Public Affairs, DOE Selects Six Cellulosic Ethanol Plants
for Up to $385 Million in Federal Funding, press release dated February 28, 2007.

3. What kinds of quality employment and economic development potential for
rural America would a multi-department energy grants platform provide?
Business Loan and Loan Guarantee Platform.7 The Administration
proposes to consolidate into existing Business and Industry Loan Program authority
several other loan program authorities, prioritize funding for biorefinery
construction, and raise the loan guarantee limit on cellulosic plants to $100 million.
The Renewable Energy Systems and Energy Efficiency Improvements Loan
Guarantee Program would be consolidated under this platform. Proposed increased
funding to $210 million would support $2.17 billion of guaranteed loans over 10
years. For cellulosic ethanol projects, the Administration would raise the loan cap
to $100 million and eliminate the cap on loan guarantee fees. Finally, the
Administration proposes prioritizing funding for the construction of biorefinery
projects.
1. This platform would emphasize energy development in rural areas, particularly
cellulosic ethanol production. Although this may be a promising technology,
it has yet to be developed commercially, and there remain significant technical
obstacles. Based on current technology, and the government’s best-educated
projections, corn based ethanol will have to account for 34 billion of the
Administration’s proposed 35 billion gallons of renewable and alternative fuels
target for 2017. What is the rationale for the proposed level of funding for such
a primitive technology?
2. What support will be given to other renewable energy technologies (e.g., wind
power, solar power)? Is there any concern about crowding out the development
of other potentially viable long-run energy solutions by intensifying federal
funds on cellulosic ethanol?
3. While building cellulosic ethanol facilities over the next five years will create
some local construction employment, how likely are cellulosic facilities to
create new rural competitive advantage for the long term?
Business Grants Platform. The Administration proposes to consolidate the
separate legal authorities for five rural grants programs into a single law.

1. How would this proposed streamlining effort enhance assistance to rural areas?


What current obstacles exist within the USDA Rural Development’s mission
agencies that impede efficient and effective business assistance to rural areas?
2. The Administration’s 2008 budget request calls for terminating two of the
programs that might have been included in the business grants platform (e.g.,
Rural Business Enterprise Grants, Rural Business Opportunity Grants). These
programs target smaller rural businesses and are important sources of funding


7 This proposal is repeated in the Energy title of the USDA recommendations and the
questions posed here are repeated under the heading “Consolidate Energy Business Loan
Authorities” under the Biomass Research and Development Act in the energy section.

for entrepreneurial business activities in rural areas. What is the rationale for
eliminating these grants? Will their termination limit the capacity to support
more entrepreneurial efforts in rural areas? How would elimination of these
programs enhance the efficiency and effectiveness of the remaining programs
proposed for consolidation?
3. Many rural development programs were created in part because rural areas
tended to be underserved by the economic development programs administered
by other federal agencies (e.g., Department of Commerce, Department of
Housing and Urban Development). The Administration’s FY2008 budget
request considers the Rural Business Enterprise Grants Program and Rural
Business Opportunity Grants Program as duplicating programs administered by
other federal agencies and proposes their termination. What assurances can be
given that rural areas will not be neglected by these other federal agencies?
Will funding for similar programs administered by these other federal agencies
be increased, or not, to target rural areas for economic development assistance?
Community Programs Platform. This platform would consolidate
authorities for water and waste water loans, guarantees, and grants into a single
entity. Assorted supplemental authorities would also be consolidated under this
platform.
1. The proposed community programs platform consolidates approximately nine
community programs, one of which targets rural areas with high unemployment
and/or significant outmigration. Yet, the FY2008 budget proposes terminating
two programs, the Economic Impact Grants and Community Facility Grants,
stating that they are duplicative of programs in other federal agencies. Will
funding be increased in these other federal agencies to target rural areas with
high unemployment and/or out-migration? Will essential rural community
facilities assisted by the Community Facility Grant Program be supported by
other federal agencies?



Title VII: Research
The 2002 farm bill reauthorized ongoing USDA programs in agricultural
research, education, extension, and agricultural economics through FY2007, and
extended reforms in this mission area that were enacted in 1998 as part of the
Agricultural Research, Extension, and Education Reform Act (P.L. 105-185). The
agencies that comprise USDA’s Research, Extension, and Economics (REE) mission
area are the Agricultural Research Service (ARS), the Cooperative State Research,
Education, and Extension Service (CSREES), the Economic Research Service (ERS),
and the National Agricultural Statistics Service (NASS). ARS is USDA’s intramural
research agency, comprising more than 100 laboratories nationwide. CSREES
distributes annual appropriations to support extramural agricultural research and
extension at the land grant colleges of agriculture in the states and U.S. territories.
ERS conducts economic research, and NASS is the primary USDA statistical agency.
Research, Education and Economics (REE)
Mission Area Reorganization
The Administration proposes the consolidation of ARS and CSREES into a
single agency to be called the Research, Education, and Extension Service (REES).
The head of the new agency would hold the title of Chief Scientist. The current
Research, Extension, and Education mission area would be renamed the Office of
Science, with leadership to continue through the Under Secretary and Deputy
Undersecretary.
The land grant universities also have put forward a proposal to reorganize
USDA’s research mission area. Their proposal (referred to as “CREATE-21”) would
combine ARS and CSREES into one agency, would keep ERS and NASS in the
research mission area, and would bring the research function of the Forest Service
under the same administrative umbrella as ARS and CSREES research. In addition,
CREATE-21 proposes the establishment of a national institute for research on food
and agriculture that would support both intra- and extramural science through
competitively awarded grants.
In the mid-1970s, the Carter Administration merged ARS, the Cooperative State
Research Service (CSRS), and the Extension Service into what was then called the
Science and Education Administration (SEA). The same rationales in favor of such
a move were cited then as now: that there was costly redundancy at the administrative
level, that combining intramural and extramural research programs would result in
better coordination, and that more resources should go directly into performing
research. SEA was separated back into its three distinct agencies at the beginning of
the Reagan Administration. Although the 1994 USDA reorganization combined
CSRS and the Extension Service to form CSREES (and brought ERS and NASS into
the research mission area), the intramural and extramural research programs have
remained separate for more than 25 years. It is widely held that the merger in the
1970s never functioned as intended because little attempt was made to work within
and between the previously separate agencies to create a new, combined structure and
culture.



1. What are some of the steps anticipated for the proposed Chief Scientist to take
in order to create a well-coordinated single agency that is united behind its
mission?
2. What is the Administration’s proposal concerning ERS and NASS? Would they
remain under the proposed Office of Science? If not, where would they be
placed?
The Forest Service receives roughly $250 million annually through the
Department of Interior budget to conduct research related to public and private forest
lands. The laboratories where this research is conducted are largely located at land
grant institutions, which also receive funds for forestry research through CSREES.
The land grant universities’ CREATE-21 document proposes bringing Forest Service
research under the same administrative umbrella as ARS and CSREES.
1. What are the Department’s reasons for keeping Forest Service research separate
in its 2007 farm bill proposal?
ARS receives direct funding through the annual USDA appropriations acts. The
states receive federal funds, administered by CSREES, through a variety of block
grants (or formula funds) and competitive grants. For the past several years, the
Administration has proposed in its annual budget request to cut formula funds to
states, while the proposed ARS appropriation remains the same or increases.
1. Under the proposed merger of ARS and CSREES, how would these different
funding mechanisms be treated?
2. What changes, if any, is the Administration considering to the decades-old
formula funding mechanism?
3. Is the intent of the Administration’s proposal to increase the amount of research
funding that would be distributed through competitive grants, and decrease the
amount distributed through the formula programs? If so, why?
The land grant universities’ CREATE-21 proposal contains specific suggestions
for how a new, combined funding system could be managed. The stated intent of that
proposal is to not disadvantage either ARS or the state research institutions
financially as the agencies merge. Key to the CREATE-21 proposal is doubling the
current amount of funding for agricultural research and extension over the next seven
years.
1. Does the Administration foresee using mandatory funds to support a significant
increase in the total amount of funding available for agricultural research and
extension?
2. How would such funding fit into the Administration’s larger proposal for farm
program reforms?



Agricultural Bioenergy and Biobased Products
Research Initiative8
The Administration proposes to create an Agricultural Bioenergy and Biobased
Products Research Initiative with mandatory annual funding of $50 million for 10
years. The initiative would use existing Agriculture Research Service facilities and
scientists and provide competitive grants to universities. These USDA-funded
activities would be coordinated with Department of Energy activities. The objectives
would be to make agricultural biomass a viable alternative to petroleum and to
develop industrial products from the byproducts of bioenergy production.
1. Will current and pending ARS work be displaced when facilities and scientists
shift to the high priority bioenergy topics?
2. Will the Department of Energy have management control over any of this
research funding?
3. Does the proposal envision any collaboration between public and private
research in this area?
Specialty Crop Research Initiative
The Administration proposes to create a new Specialty Crops Research
Initiative with annual mandatory funding of $100 million.
1. The initiative is said to include both intramural (ARS) and extramural
(CSREES) programs. How would the Administration propose to divide the
funding between these two categories. With regard to intramural research, how
many new scientists might be added to ARS, or would the current staff shift
priorities to specialty crops and away from current activities?
2. There has been a history of mandated research programs going unfunded. What
reassurance can USDA give the specialty crop producers that this new initiative
will be implemented?
Foreign Animal Disease Research
The premier U.S. facility for research on foreign animal diseases is the Plum
Island Animal Disease Center, located on an island off the northeastern tip of Long
Island, NY. The property of Plum Island was transferred from USDA to DHS in the
Homeland Security Act of 2002, although personnel from both USDA’s Agricultural
Research Service (ARS) and Animal and Plant Health Inspection Service (APHIS)
still conduct research there alongside DHS personnel. Many experts agree that the
50-year old Plum Island facility, built in the 1950s, is nearing the end of its useful life
and unable to provide the necessary capacity for current biosecurity research.


8 This proposal is repeated in the Energy title of the USDA recommendations and the
questions posed here are repeated under the “Mandatory Funding for USDA/University
Collaborative Research” in the energy section.

The Department of Homeland Security is proceeding with plans to replace the
aging Plum Island Animal Disease Center with a new “National Bio and
Agro-Defense Facility” (NBAF) for research on high consequence foreign animal
diseases. Congress already has appropriated $46 million over FY2006-FY2007 for
planning and site selection, and the estimated design and construction cost is $451
million. DHS has begun the design process, and already has reviewed submissions
from universities and other locations interested in hosting the new facility. In August
2006, it selected a long list of 18 sites in 11 states for further consideration. A final
location will be chosen early in 2008, and the current time line calls for construction
to be completed in 2013.
Plum Island is the only facility in the United States that is currently approved
to study high-consequence foreign livestock diseases, such as foot-and-mouth disease
(FMD), because its laboratory has been equipped with a specially designed BSL-3
bio-containment area for large animals that meets specific safety measures. The U.S.
Code stipulates that live FMD virus may be used only at coastal islands such as Plum
Island, unless the Secretary of Agriculture specifically authorizes the use of the virus
on the U.S. mainland (21U.S.C. 113a). The Administration proposes to change the
law to allow research and diagnostics for highly infectious foreign animal diseases
on mainland locations in the United States.
The Plum Island Animal Disease Center and the USDA National Veterinary
Services Laboratories (NVSL) in Ames, IA, are the only BSL-3 agriculture facilities
in the United States. The United States has no BSL-4 agriculture facilities (the
highest biosecurity level); such facilities are located in Canada and Australia. The
intended NBAF is likely to be another BSL-3 facility, although a BSL-4 facility has
not necessarily been ruled out.
1. DHS is understood to be already proceeding to build this new laboratory prior
to any change the law about FMD research on the mainland. If Congress does
not change the law and DHS builds the facility on the mainland, will the
Secretary of Agriculture use his regulatory authority to allow such research so
that the presumed new facility can be used? Which action should come first,
statutory authority or building the facility?
2. Was USDA consulted about the DHS decision to build a new lab? Does USDA
have a preference for location, relative to Plum Island and the USDA personnel
who work there?

3. Does USDA have a seat on the DHS site selection committee?


4. Critics are concerned that locating the facility in regions where cattle or other
livestock are raised may pose an unnecessary risk if security features are
breached by terrorism, which is an unpredictable risk compared to accidental or
unintentional risks. GAO found security concerns at Plum Island a few years
ago. What is the advantage of building such a facility in Kansas, for example,
where the consequences of a biosecurity breach could be much more devastating
to domestic cattle production than if the facility remained at a coastal site such
as Plum Island? How do these risk factors enter the cost-benefit analysis of site
selection?



5. How do the risks compare between animal and human diseases, regarding
operating the Centers for Disease Control (CDC) BSL-4 lab in Athens, Georgia,
a mainland location, compared to the Plum Island location for agriculture?
Which diseases are more likely to spread among a population if released?



Title VIII: Forestry
The USDA’s Forest Service manages the National Forest System, funds and
conducts forestry research, and provides forestry assistance. Most federal forestry
programs are permanently authorized. Past farm bills have generally addressed
cooperative assistance programs administered by the Forest Service’s State & Private
Forestry (S&PF) branch.
The Administration’s 2007 farm bill proposes four new programs: (1)
comprehensive statewide forest planning; (2) competitive landscape-scale forestry
grants; (3) a 10-year, $150 million forest wood-to-energy technology development
program; and (4) financial and technical assistance to communities for acquiring,
planning for, and conserving community forests. The Administration has not
proposed reauthorizing the Forest Land Enhancement Program (FLEP). FLEP (a
combination of two previously existing landowner assistance programs) was enacted
in the 2002 farm bill with mandatory funding of $100 million over the six-year life
of the law. Subsequently, at the request of the Administration, funding authority was
reduced to $49.5 million.
Comprehensive Statewide Planning
The Administration is proposing a new program of financial and technical
assistance to state forestry agencies to develop and implement Statewide Forest
Resource Assessments and Plans to address the increasing public demand for forest
products and amenities, pressure on landowners to convert forests to other uses, and
risk from wildfire.
1. Would the proposed statewide planning, technology development, and
community forests be more effective at providing for the growth in demand for
forest products and amenities than a direct landowner assistance program, such
as FLEP?
2. Does the lack of private landowner assistance in the 2007 proposal constitute
a conclusion that the programs have been ineffective? How many private
landowners have been assisted annually over the past decade by the existing
cost-share assistance programs, and what are the results of these efforts?
3. How can national direction for statewide forest planning best provide the
flexibility to address such diverse forests as those in Iowa and those in Florida?
Are the various state forestry organizations unable or unwilling to undertake
statewide forest planning without federal direction and oversight? How is this
new planning effort to be funded, given the Administration proposal to cut
FY2008 forest stewardship funding (for financial and technical assistance to
states) by 41%? How would statewide forestry planning address the identified
growth in demand for forest products and amenities and in low-value biomass
that degrades forests and increases wildfire risk?



Landscape-Scale Competitive Grant Program
The Administration’s farm bill proposal includes a new landscape-scale forestry
competitive grant program “to develop innovative solutions that address local forest
management issues; develop local nontraditional forest product markets; and
stimulate local economies through creation of value-added forest product
industries.” The Administration identifies as significant problems the aging of
family forest landowners and the potential fragmentation of forests over the next two
decades.
1. How would “landscapes” be defined for the grants? Would competitive
landscape-scale grants require cooperative involvement of all or most
landowners within the landscape? If the grants are to foster nontraditional
markets and value-added industries, would they even be related to the landscape
and the landowners?

2. The proposal states that the program “would ensure a comprehensive,


coordinated approach to forest management and would ensure collaboration
across ownership and jurisdictional boundaries.” What proportion of the
landowners or of the lands need to be involved for a landscape to be eligible for
a grant? How can landowners, including the federal government, be enocuraged
to cooperate? How would the landscape grant proposals be assessed and
compared; that is, what criteria would be used to make the grants competitive?
Does the Forest Service have the needed expertise to implement a competitive
landscape-scale grant program? Do landscape-scale grants and community
forests move away from private, individual forestland ownership, and promote
communal forest ownership?
Forest Wood for Energy9
The Administration is proposing a new 10-year, $150 million wood-to-energy
program to accelerate development and use of new technologies to use the
substantial amounts of low-grade woody biomass that degrade forest health and
exacerbate wildfire risks and are of little commercial value.
1. What are the program goals for this proposal? How will progress and
effectiveness be measured?
2. What is the potential to convert woody biomass to cellulosic ethanol, and how
does this compare with the potential to burn woody biomass to produce
electricity? What are the costs and the biomass conversion factors for ethanol
conversion and for electricity production? What other factors — capital costs,
infrastructure, collection and hauling opportunities, etc. — might be critical for
improved utilization of low-value woody biomass for energy? Might any of


9 This proposal is repeated in the Energy title of the “USDA recommendations” and the
questions posed here are repeated under the “Forest Wood for Energy” heading in the
forestry section.

these factors be more limiting than technology development and deployment?
What programs exist to address these other factors?
Community Forests Working Lands Program
The Administration’s 2007 farm bill proposes a community forests working
lands program to provide communities with the financial assistance to acquire and
conserve forests and the technical assistance to plan for the use and conservation of
those forests. This program would particularly address the problem of producing
goods and services from forest at the urban fringe.
1. How does the proposed community forests program differ from the existing
Forest Legacy program?
2. What is the federal role and federal responsibility in funding and otherwise
assisting communities in acquiring and conserving local forestlands?



Title IX: Energy
Title IX of the 2002 farm bill (P.L. 107-171) represented the first-ever energy
title in a farm bill and included nine provisions addressing agriculture-based
renewable energy systems. USDA’s proposed 2007 farm bill outlines modifications
to programs that expand federal research on renewable fuels and bioenergy; and re-
authorizes, revises, and expands programs intended to provide assistance for the
advancement of renewable energy production and commercialization. However,
several expiring provisions from the 2002 farm bill are not mentioned. These include
the Biorefinery grants (Section 9003), the Biodiesel Fuel Education Program (Section
9004), the Energy Audit and Renewable Energy Development Program (Section
9005), the Memorandum of Understanding between the Secretary of Agriculture and
the Secretary of Energy concerning hydrogen and fuel cell technologies (Section
9007), and Cooperative Research and Development on Carbon Sequestration
(Section 9009). It is also noteworthy that several of these same provisions went
unfunded during the life of the 2002 farm bill.
1. Is it USDA’s intention that expiring provisions in the 2002 farm bill be dropped
from future legislation? These provisions were never funded or implemented
during the past five years. Would the USDA support funding these expiring
provisions if they are reauthorized by Congress?
2. What progress has been made to improve coordination between USDA and the
Department of Energy? Is there still room for major improvements or are the
two departments already fairly efficient in coordinating energy development
activities?
Cellulosic Bioenergy Program
USDA’s energy proposal calls for a substantial increase in funding under the
loan guarantee and grants program of the Renewable Energy Systems and Energy
Efficiency Improvements program (otherwise referred to as the Renewable Energy
Program). In addition, these programs are to be managed to provide preference to
projects that focus on cellulosic ethanol.
1. What accomplishments can be claimed by the Renewable Energy Program in
furthering the development of renewable energy in general and biofuels in
particular?
Current thinking is that, once the technology is developed, cellulosic ethanol
will expand rapidly to take advantage of cheap feedstocks, such as switchgrass, that
can be produced on marginal lands. The farm bill proposal includes some incentives
to encourage development of a cellulosic-based ethanol industry. However, there are
still many questions surrounding the potential of cellulosic ethanol and the likely
economic implications associated with a major expansion of cellulosic ethanol
production.



1. Biomass material is bulky and poses serious challenges for harvesting,


transportation, and storage. How much of USDA’s research funding would be
targeted to these types of issues?
2. If cellulosic feedstocks are produced on marginal lands, would they compete
directly with cattle forage?
3. Many conservation and wildlife proponents are concerned about the possibility
of degrading Conservation Reserve Program (CRP) acreage for cellulosic
feedstock production. What assurances might be offered in this regard?

4. If the cellulosic ethanol industry takes off, will there still be room for the corn-


based ethanol industry? Would a cellulose-based ethanol industry shift its
geographic location towards the cheaper lands and feedstocks of the prairies and
forests of America, leaving behind corn-based plants of the Corn Belt? If some
version of this were to develop, what would be the outlook for corn-based
ethanol plants? What would happen to those individuals, many from small
towns across America, that have poured their savings into ethanol plants?
American ethanol blenders receive at least partial protection from foreign
competition by a $0.54 per gallon tariff on imported ethanol. Although the
Caribbean Basin Initiative allows for modest entry of ethanol from several Caribbean
countries, the tariff clearly works against ethanol from Brazil. This tariff was
recently extended through 2008 (by P.L. 109-432). Some ethanol supporters argue
that this tariff prevents the development of a national distribution network by limiting
access to adequate ethanol supplies by ethanol blenders in the major coastal regions
of the United States such as New York, Florida, and California.
1. Does the tariff on ethanol imports create a supply problem for major
metropolitan areas distant from the Corn Belt? If the import tariff can be
justified as providing essential protection for the ethanol industry, why is there
no similar tariff on either biodiesel or palm oil to protect the more nascent U.S.
biodiesel industry?
In addition to import protection, the U.S. ethanol sector receives substantial
support from (1) a tax credit of $0.51 to fuel blenders for every gallon of ethanol
blended with gasoline, and (2) a Renewable Fuels Standard (RFS) that mandates a
renewable fuels blending requirement for fuel suppliers that grows annually from 4
billion gallons in 2006 to 7.5 billion gallons in 2012. A recent survey of both federal
and state subsidies in support of ethanol production reported that total annual federal
support is somewhere in the range of $5.1 to $6.8 billion.10 USDA’s energy proposal
continues the trend of strong support to the biofuels sector.


10 Doug Koplow, Biofuels — At What Cost? Government Support for Ethanol and Biodiesel
in the United States, Global Subsidies Initiative of the International Institute for Sustainable
Development, Geneva, Switzerland, October 2006; available at [http://www.globalsubsidies.
org].

1. Is there concern that these subsidies for a single technology, in this case the
combustion engine and biofuels, may deter or limit the development of new or
as-yet unknown future technologies that might otherwise provide more
sustainable long-run solutions to the United States’ energy situation?
Expand of Biobased Products Markets
The Administration recommends that the law authorizing the Federal
Procurement of Biobased Products program (section 9002 of the 2002 farm bill) be
changed to improve the effectiveness and administration of the program. Also,
additional mandatory funding of $2 million per year is recommended.
1. Federal law mandates the use of a sizeable amount of renewable fuel and it
appears future growth will not need the help of federal agency procurement. If
renewable fuel is not the focus of the federal procurement program, what will
be the focus?
Consolidate Energy Business Loan Authorities Under the
Biomass Research and Development Act11
The Administration proposes to consolidate into existing Business and Industry
Loan Program authority several other loan program authorities, prioritize funding
for biorefinery construction, and raise the loan guarantee limit on cellulosic plants
to $100 million. The Renewable Energy Systems and Energy Efficiency
Improvements Loan Guarantee Program would be consolidated under this platform.
Proposed increased funding to $210 million would support $2.17 billion of
guaranteed loans over 10 years. For cellulosic ethanol projects, the Administration
would raise the loan cap to $100 million and eliminate the cap on loan guarantee
fees. Finally, the Administration proposes prioritizing funding for the construction
of biorefinery projects.
1. This platform would emphasize energy development in rural areas, particularly
cellulosic ethanol production. Although this may be a promising technology,
it has yet to be developed commercially, and there remain significant technical
obstacles. Based on current technology, and the government’s best-educated
projections, corn based ethanol will have to account for 34 billion of the
Administration’s proposed 35 billion gallons of renewable and alternative fuels
target for 2017. What is the rationale for the proposed level of funding for such
a primitive technology?
2. What support will be given to other renewable energy technologies (e.g., wind
power, solar power)? Is there any concern about crowding out the development
of other potentially viable long-run energy solutions by intensifying federal
funds so narrowly on cellulosic ethanol?


11 This proposal and the questions are repeated from the Rural Development title.

3. While building cellulosic ethanol facilities over the next five years will create
some local construction employment, how likely are cellulosic facilities to
create new rural competitive advantage for the long term?
Create a Multi-Department Energy Grants Program12
The Administration proposes to consolidate USDA energy grant and research
program authorities under the Biomass Research and Development Act of 2000. The
key Renewable Energy Systems and Energy Efficiency Improvements grant programs
would be consolidated under this act with proposed mandatory funding of $500
million over 10 years. In addition, competitive grants under the consolidated
authority would be increased to $150 million over 10 years.
1. In the past, Renewable Energy System funds have assisted a range of renewable
energy activities including anaerobic digesters and wind energy systems from
across diverse of geographic areas. Will the expanded funding continue to be
broadly targeted across different renewable energy types and geographic
locations, or will it focus more directly on establishing a viable, self-sustaining
cellulosic ethanol industry?
2. The DOE recently announced it would be investing $385 million in six
biorefinery projects using cellulosic feedstocks.13 Is there a need for additional
USDA energy grants funding? How will the requested funding in the
Administration’s energy grants proposal be coordinated with the DOE effort?
3. What kinds of quality employment and economic development potential for
rural America would a multi-department energy grants platform provide?
CRP Biomass Reserve14
The Conservation Reserve Program (CRP) and Conservation Reserve
Enhancement Program (CREP) remove active cropland into conservation uses,
typically for 10 years, and provide annual rental payments based on the agricultural
rental value of the land and cost-share assistance. Conversion of the land must yield
adequate levels of environmental improvement to qualify (environmental benefits
index). CRP is the largest land retirement program with spending of $1.828 billion
in FY2005. The total program acreage is limited to 39.2 million.
The Secretary is recommending reauthorization of this program with an
enhanced focus on lands that provide the most benefit for environmentally sensitive
lands. Priority would be given to whole-field enrollment for lands utilized for


12 This proposal and the questions are repeated from the Rural Development title.
13 Department of Energy, Office of Public Affairs, DOE Selects Six Cellulosic Ethanol
Plants for Up to $385 Million in Federal Funding, press release dated February 28, 2007.
14 This biomass reserve recommendation also is listed in the “Conservation” title as part of
the “Conservation Reserve Program” recommendation and this entry is a duplicate of the
questions posed in that section.

energy-related biomass production. Biomass would be harvested after nesting
season and rental payments would be limited to income foregone or costs incurred
by the participant to meet conservation requirements in those years biomass was
harvested for energy production.
1. The proposal may appear to some to have two conflicting components with
regard to CRP. If it is desirable to focus CRP on multi-year idling of more
environmentally sensitive lands, what is the rationale for proposing the
harvesting of biomass on those lands? Could this harvesting conflict with the
purpose of the program?
2. If it is decided that high demand for commodities dictates that less land should
be in the CRP, how would priorities be set for land to be released?
Mandatory Funding for Competitive Grants Under the
Biomass Research and Development Act15
The Administration proposes to consolidate USDA energy grant and research
program authorities under the Biomass Research and Development Act of 2000. The
key Renewable Energy Systems and Energy Efficiency Improvements grant programs
would be consolidated under this act with proposed mandatory funding of $500
million over 10 years. In addition, competitive grants under the consolidated
authority would be increased to $150 million over 10 years.
See the questions under the previous heading in this chapter titled “Create a
Multi-Department Energy Grants Program.”
Mandatory Funding for
USDA/University Collaborative Research16
The Administration proposes to create an Agricultural Bioenergy and Biobased
Products Research Initiative with mandatory annual funding of $50 million for 10
years. The initiative would use existing Agriculture Research Service facilities and
scientists and provide competitive grants to universities. These USDA-funded
activities would be coordinated with Department of Energy activities. The objectives
would be to make agricultural biomass a viable alternative to petroleum and to
develop industrial products from the byproducts of bioenergy production.
1. Will current and pending ARS work be displaced when facilities and scientists
shift to the high priority bioenergy topics?
2. Will the Department of Energy have management control over any of this
research funding?


15 This proposal and the questions are repeated from the Rural Development title.
16 This biomass reserve recommendation also is listed in the “Research” title as the
“Agriculture Bioenergy and Biobased Products Research Initiative” and this entry is a
duplicate of the questions posed in that section.

3. Does the proposal envision any collaboration between public and private
research in this area?
Forest Wood for Energy17
The Administration is proposing a new 10-year, $150 million wood-to-energy
program to accelerate development and use of new technologies to use the
substantial amounts of low-grade woody biomass that degrade forest health and
exacerbate wildfire risks and are of little commercial value.

1. What are the program goals for this proposal?


2. What is the potential to convert woody biomass to cellulosic ethanol, and how
does this compare with the potential to burn woody biomass to produce
electricity? What are the costs and the biomass conversion factors for ethanol
conversion and for electricity production? What other factors — capital costs,
infrastructure, collection and hauling opportunities, etc. — might be critical for
improved utilization of low-value woody biomass for energy? Might any of
these factors be more limiting than technology development and deployment?
What programs exist to address these other factors?


17 This forest wood recommendation also is listed in the “Forestry” title and this entry is a
duplicate of the questions posed in that section.

Title X: Miscellaneous
Federal Crop Insurance
The federal crop insurance program is permanently authorized so it does not
require renewal in the 2007 farm bill. Major enhancements to the program have been
authorized in legislation on several occasions since 1980 (usually outside of the farm
bill process). Most recently, the Agriculture Risk Protection Act of 2000 (P.L.
106-224) put $8.2 billion in new federal spending measures over a five-year period
into the program primarily through more generous premium subsidies to help make
the program more affordable to farmers and increase farmer participation. Since
2000, the federal subsidy to the crop insurance program has averaged about $3.3
billion per year.
Although the scope of crop insurance has widened significantly over the past 25
years and premium subsidies have increased, the stated goal of eliminating disaster
payments has not been achieved. Until the 2005 crop, Congress provided ad hoc
disaster payments to farmers in virtually every year since 1988 that witnessed
substantial weather-related crop losses. The disaster assistance has been made
available regardless of whether a producer had an active crop insurance policy.
The Administration’s farm bill proposal contains several crop insurance
recommendations intended to enhance participation; address issues of waste, fraud
and abuse; reduce costs; and reduce the need for emergency supplemental disaster
payments. One of the more significant proposed changes to the program would be
to allow participating farmers to purchase insurance for the portion of their
production that is part of their deductible, and not currently covered by crop
insurance. Under this supplemental deductible coverage, a producer could purchase
an additional policy, and a payment would be made when losses in the producer’s
county exceed a certain threshold. The Administration also recommends several
cost-saving measures to the program including reducing premium subsidies by 2 to
5 percentage points, charging premiums for the catastrophic level of coverage
(which currently is premium-free), and requiring the private insurance companies
(which now sell and service the policies) to absorb more of the cost of the program.
Finally, farmers would be required to purchase crop insurance as a prerequisite for
participating in the farm commodity support programs.
1. The estimated annual average cost of the supplemental deductible coverage that
the Administration proposes is $35 million. Over the last twenty years,
Congress has provided an average of about $2 billion per year in supplemental
disaster payments. How would this proposed program preclude the pressure for
Congress to enact multi-billion dollar disaster payment programs each year?
2. What effect would the Administration proposals to reduce the federal cost of the
crop insurance program by increasing farmer-paid premiums have on farmer
participation in the program?
3. A 1994 crop insurance act required the purchase of a crop insurance policy as
a prerequisite for participating in the farm commodity programs. Farm groups



were strongly opposed to this provision and fought successfully to have it
eliminated in the 1996 farm bill. What reaction might be expected from farm
groups to the current proposal for mandatory linkage?
Section 32 Fruit and Vegetable Purchases
for Nutrition Programs
“Section 32” is a permanent appropriation that since 1935 has earmarked the
equivalent of 30% of annual customs receipts to support the farm sector through a
variety of activities. Today, most of this appropriation (now approximately $7 billion
yearly) is transferred to the U.S. Department of Agriculture (USDA) account that
funds child nutrition programs. However, a smaller — but still significant — amount
of Section 32 money is set aside each year to purchase non-price-supported
commodities directly and provide them to schools and other feeding sites. Some of
these purchases are “entitlement” commodities that are required to be made under the
school lunch act. Others are “bonus” commodities, acquired through emergency
surplus removal activities. The total value of both types of commodities now
exceeds $900 million per year. The purchases are made by USDA’s Agricultural
Marketing Service (AMS). Included within these combined (“mandated” and
“bonus”) Section 32 totals, fruit and vegetable purchases over the last five years have
averaged $308 million per year, according to USDA.
1. USDA proposes to increase purchases of fruits and vegetables using Section 32
authority by at least $200 million per year, but the farm bill budget indicates
no score above the OMB baseline. Why is this proposal not reflected in the
Administration’s FY2008 budget? In other words, how does the Administration
propose to cover the cost of these increased fruit and vegetable purchases?
2. If new spending would not be created, which activities or food purchases would
be reduced to pay for these increases? For example, Section 32 is now also used
to purchase animal products including meats, poultry, and seafood. Would the
Administration proposal result in fewer purchases of these products? If not,
why?
3. The Department routinely has funds remaining in the Section 32 account at the
end of each fiscal year, which are “carried over” into the next fiscal year to be
used in Section 32. What is this level of unobligated funds, on average, and
does USDA intend to reduce the size of this carryover to pay for new fruit and
vegetable purchases? If so, won’t that leave even less carryover in future years?
4. Does this proposal call for any new legislative authority, and if not, how can
Congress be assured that the initiative would be carried out by future
Administrations?
5. How does the Department currently determine what proportions of its Section
32 commodity acquisitions go to various domestic nutrition programs, and how
would it do so for the proposed increases?



6. How does this proposal differ from the separate Administration initiative
providing for $50 million yearly in other new fruit and vegetable purchases for
domestic nutrition programs? How would it be funded?
7. Why does the Department need, and use, such broad legislative authority to
administer Section 32 programs, particularly “bonus” surplus removals?
Organic Agriculture
The Administration’s 2007 farm bill proposal recommends considerably more
funding for research and marketing programs, to support the continuing growth of
the organic farming sector.

1. How is the Department proposing to provide this new mandatory funding?


2. USDA’s farm bill initiative states that gaps in the organic regulations may need
to be addressed in order to better support enforcement activity. But more
enforcement would also require more personnel and resources. How would the
Department provide funding for the increased program oversight and
enforcement that could be necessary as the number of certified operations
increases?



Appendix. Administration’s Cost Estimate
Table A1. Administration’s 2007 Farm Bill Proposal
Baseline and Estimated Change from
Baseline Budget Authority, FY2008-FY2017
(dollars in millions)
Current P r oposedChange
Title and ProposalsServicesfrom
Baseline Baseline
Title I — Commodities
Marketing Assistance Loans8,807-4,500
Posted County Price and Loan Repayment Changesna-250
Direct Payment Program52,4915,500
Direct Payment Bonus for Beginning Farmersna250
Revenue-based Counter-Cyclical Payment Program11,245-3,700
Payment Limits and Eligibiltyna-1,500
Section 1031 Farmland 1031 Exchangesna-30
Dairy613793
Sugar Program1,410-1,107
Special Cotton Competitiveness Programnana
Planting Flexibility Limitationsnana
Retire Crop Bases in Nonagricultural Usenana
Conservation Enhancement Payment Optionna50
Sodsavernana
Continuing WTO Compliancenana
Total 74,566 -4,494
Title II — Conservation
Revised Environmental Quality Incentives Prog. (EQIP) 13,6404,250
Regional Water Enhancementna1,750
Wildlife Habitat Incentives0na
Ground and Sruface Water Conservation600na
Agri Management Assistance100na
Conservation Innovation Grants2001,000
Klamath00
Conservation Security Program (CSP)7,977500
Private Lands Protection Program970900
Grasslands Reserve0na
Farm and Ranch Land Protection970na
Healthy Forest Reserveana
Conservation Reserve Prog. (CRP)25,6560
Wetlands Reserve Program4552,125
Conservation Access for Beginning/Limited Resource Producersna0
Market-based Conservationna50



Merit-based Fundingna0
Emergency Landscape Restoration Programaa
Total 48,698 7,825
Title III — Trade
Technical Assistance for Specialty Crops (TASC)068
Market Access Program (MAP)2,000250
SPS Issues Grant Programna20
Support International Trade Standard Setting Activitiesna15
Trade Disputes Technical Assistancea0
Trade Capacity Building and Post-Conflict Ag. Extension na20
Export Credit Gurarantee Reformsna0
Facility Guarantee Program016
Repeal of EEP and Trade Strategy Report00
Cash Authority for Emergency Food Aidna0
Total2,000389
Title IV — Nutrition
Food Stamp Program436,145-66
Working Poor and Elderlyna1,378
Streamlining, Modernization & Program Integrityna-1,544
Nutrition Educationna100
The Emergency Food Assistance Program (TEFAP)1,4000
(FDPIR)91327
Promoting Healthful Dietsna506
School Lunch - Fruit and Vegetable Purchasesna500
School Purchase Studyna6
Senior Farmers’ Market Program1500
Total438,608467
Title V — Credit
Loans to Beginning and Socially Disadvantaged Farmersa0
Beginning farmer and Rancher Downpayment Loan Programa0
FSA Direct Loan Limitsa0
Totala0
Title VI — Rural Development
Rural Critical Access Hospitalsa85
Enhancing Rural Infrastructurea500
Streamlining Rural Development Programsna0
Totala585
Title VII — Research
REE Mission Area Reorganizationna0
Bio-Energy and Bio-Based Products Research Initiativena500
Specialty Crop Research Initiativena1,000
Foreign Animal Disease Research on U.S. Mainlandna0
Totalna1,500
Title VIII — Forestry



Comprehesive Statewide Forest Planningna0
Landscape Scale Forestry Competitive Grant Programna0
Forest Wood to Energyna150
Community Forests Working Lands Programna0
Totalna150
Title IX — Energy
Biomass Research and Development Act Initiative0150
Renewable Energy Systems and Energy Efficiency — Grantsa500
Renewable Energy Systems and Energy Efficiency — Loansa210
Commodity Credit Corporation Bioenergy Programna100
Federal Biobased Product Procurement Program018
Total0978
Title X — Miscellaneous
Crop Insurance Program 54,641-2,511
Supplemental Deductible Coveragena350
Expected Loss Rationa-1,071
Data Mining Information Sharingna0
Program Compliancena0
Research and Developmentna0
Renegotiation of Standard Reinsurance Agreementna0
Increase Participation While Controlling Costsna-1,790
Dairy Research and Promotion Assessment Fairnessna0
Organic Farming Initiativesna61
Increase Section 32 Purchases of Fruits and Vegetablesna0
Total 54,641 -2,450
Grand Total618,5134,950
Source: USDA, 2007 Farm Bill Proposals, Washington, DC, pp. 181-183.
Notes: na = not applicable (proposal not in baseline or included in other base or proposed programs);
a = discretionary account; 0 = no mandatory spending.