U.S. Farm Bill: 6 More Years of Injury
by Brian Doidge, OCPA Economist & Market Analyst

Final installment in a series. The following article deals with other aspects of the U.S. Farm Security and Rural Investment Act of 2002 (FSRIA). Title 1 - Commodity Programs, Title 2 - Conservation Programs and Title 9 - Energy Programs were covered in previous issues.

The Farm Security and Rural Investment Act of 2002 (FSRIA) was signed into law by President Bush on May 13, 2002, and consists of 470 pages covering 10 Titles.

Title 3 - Trade continues and enhances almost all existing credit guarantee programs. GSM-102, the Export Credit Guarantee program, provides U.S. government guarantees for private credit extended for up to 3 years for the purchase of U.S. agricultural exports. The Intermediate Export Credit Guarantee Program provides U.S. government guarantees for private credit extended for up to 7 years. FSRIA builds on provisions for credit contained in the 1995/96 Farm Bill (Freedom To Farm, FTF) which mandated annual program levels at $5.5 billion through 2002. FSRIA requires that at least 35% of export credit guarantees be used for processed or high-value agricultural products, a percentage that was not achieved under FTF until 2000. Because other nations have targeted U.S. credit programs as trade-distorting, and the U.S. has lost several disputes before the World Trade Organization (WTO), the FSRIA also specifically requires both the Secretary of Agriculture and the U.S. Trade Representative to consult regularly with House and Senate committees on negotiations at WTO and the Organization for Economic Cooperation and Development (OECD).

Title 3 - Trade also re-authorizes and in many cases slightly increases funding for many trade enhancement programs including:

• Market Access Program (MAP): develops, maintains and expands markets for U.S. agricultural products. Funding is increased from $90m/year under FTF to $200m/year by 2006 under FSRIA. Participants include non-profit agricultural trade organizations, regional trade groups and private companies. (At one time, Macdonald’s of hamburger fame was the largest user of this program.)
• Foreign Market Development Program (FMD): emphasizes funding to assist trade associations exporting value-added products to emerging markets. Funding escalates from levels under FTF.
• Emerging Markets Program: targets $1 billion in direct credit or credit guarantees through 2007 for U.S. agricultural exports to emerging markets offering growth potential. Funding is used to establish or provide facilities, services or products to enhance market penetration for U.S. agricultural products. (At one time, the U.S. built feed mills in South Korea under this program so that exports of U.S. corn could penetrate the Korean poultry and pig feed marketplace more easily.)
• Export Enhancement Program (EEP): provides funding to U.S. exporters to help compete against subsidized prices in specific export markets. FSRIA extends the current level of $478 million per year through 2007. However, FSRIA expands the definition of unfair trade practices to include “practices of state trading enterprises” (such as the Canadian Wheat Board), subsidies that “decrease market opportunities for U.S. exports”, subsidies that “unfairly distort agricultural markets to the detriment of the U.S.”, “unjustified trade restrictions or commercial requirements, such as labeling, that affect new technologies, including biotechnology”, and “unjustified sanitary or phytosanitary restrictions”. The scope for use of EEP funding has obviously been dramatically widened.
• Dairy Export Incentive Program (DEIP): subsidizes exports of dairy products to the maximum volume allowable under GATT/WTO. Subsidy payments are made directly to the entity selling U.S. dairy products for export.

Title 6 - Rural Development provides at least $1 billion annually in funding for rural areas to undertake strategic planning, feasibility assessments and coordination activities with other local, State and Federal officials. Funding is aimed especially at water and wastewater treatment programs, broadband Internet services for rural areas, value-added agricultural programs, rural business investments and training for rural emergency personnel. Of particular interest:

• Value-Added Agricultural Product Marketing Development Grants: program funding was doubled to $40 million annually under liberalized criteria to increase participation. Competitive grants are awarded to individual producers, agricultural producer groups, farmer cooperatives and majority-controlled, producer-based business ventures.
• A new Agriculture Innovation Centre Demonstration Program will be created to provide technical assistance, business and marketing planning and other non-financial assistance to value-added businesses. $6m/year through 2004 will be provided to entities to establish the centres; USDA will provide research and technical services.
• Rules were liberalized to allow value-added producers, firms and cooperatives greater participation in the Rural Business and Industry Loan and Loan Guarantee Program. Loans and guarantees will be allowed for more types of renewable energy systems, such as wind energy systems and anaerobic digesters.
• Value-added agricultural businesses will also be allowed to receive Rural Business Enterprise Grants.

Title 10 - Miscellaneous modifies crop insurance and organic agriculture programs, and includes new provisions on country-of-origin labeling, animal health and welfare, and other items.

• Crop Insurance basic program was not altered. Premiums continue to be 100% federally subsidized at ‘disaster’ coverage levels (generally up to 50% of loss). Private insurance is available for higher coverage levels.
• An Adjusted Gross Revenue Pilot Crop Insurance Program will be extended through at least 2004. This is an attempt to meld crop insurance and revenue insurance.
• FSRIA requires that voluntary ‘country-of-origin’ labeling guidelines issued September 30, 2002 become mandatory September 30, 2004. Covered commodities include muscle cuts of beef, lamb and pork; ground beef, ground lamb and ground pork; farm-raised fish and shellfish; wild fish and shellfish; perishable fresh fruits and vegetables; and peanuts. Covered commodities may only be labeled as ‘Product of the United States’ if the product is from an animal that was exclusively born, raised and slaughtered in the U.S. Fresh fruits and vegetables must be exclusively produced in the U.S. “Retailers may use a label, stamp, mark, placard or other clear and visible sign on the covered commodity, or on the package, display, holding unit or bin containing the commodity at the final point of consumption. Food-service establishments - such as restaurants, bars, food stands, and similar facilities - are exempt.” The Secretary of Agriculture may require “any person who prepares, stores, handles or distributes a covered commodity for retail sale to maintain a verifiable record-keeping audit trail. Suppliers are required to provide information to retailers indicating the country of origin of the covered commodity.” Fines of up to $10,000 per retailer per event will be levied for failure to comply.

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