Statement of Administration Policy: H.R. 3950 - Food and Agricultural Resources Act of 1990

(House Rules)
(de la Garza (D) Texas and Madigan (R) Illinois)

If H.R. 3950 were sent to the President prior to the conclusion of the budget summit and does not achieve substantial, multi-year savings from the current (Mid-Session) estimate of program costs; and if price and income supports are not made more market-oriented than the Committee version, which is a retrogression from the 1985 Act, then the Secretary of Agriculture and the President's other senior advisers would recommend that he veto the bill.

From a budget perspective, the bill is both premature and inadequate. The Administration expects the budget summit to achieve substantial, multi-year savings from our Mid-Session Review baseline. Thus, it would be a mistake for Congress to complete action on a bill that gives producers the wrong impression by sending them inaccurate signals about likely program parameters.

From a policy perspective, H.R. 3950 includes provisions for commodity subsidies that would reverse the strides toward market orientation made in the 1985 Food Security Act.

• Raising loan rates (which act as price floors) threatens to undermine U.S. farmers' hard-won gains in recapturing a competitive position in world markets. Congress raised loan rates in the 1981 Farm bill, and the results were devastating. Our exports collapsed and so did U. S. farm income. We must not risk a repeat of that experience.
• Freezing most program crop target prices at 1990 levels and effectively raising others fails to achieve savings. Additional costs of $1 billion will be incurred by the bill's requirement that target prices be raised if the portion of land to be idled by acreage reduction programs (ARPs) is increased above the levels projected by the Mid-Session Review.
• A new marketing loan subsidy is established for soybeans and at least six other oilseeds. The program would do little to increase U. S. production and world market share and would likely cost the taxpayers about $2 billion over the next five years. Increased competitiveness could be accomplished more effectively and at less cost by the Administration's planting flexibility proposal. The creation of a substantial new subsidy for an entire category of crops is indefensible in a time of serious fiscal constraints.
• The provisions for dairy support establish a program that is much less market-oriented and more onerous to the consumer and taxpayer than the existing one. The bill prohibits the Secretary from reducing the support price below its current level, regardless of the stocks which accumulate in Federal inventories. Inflexible price supports encourage farmers to continue to generate surplus milk, which must then be purchased and stored at Federal expense, at absolutely no risk to the producers. Discriminatory two-price schemes envisioned by the bill necessitate production quotas that further insulate the dairy sector from market forces.
• Failure to enact true planting flexibility for program participants would perpetuate the market distortions that arise when government incentives, not the market, dictate production decisions. In addition, the substantial cost-effective environmental benefits of increased crop rotation would be largely foregone under the partial base protection provisions.
• The bill fails to reform the wool and mohair, peanut, and honey programs. These programs are all archaic constructions, no longer suited to modern market and budget realities.
• By maintaining the sugar price support at its current level, the bill perpetuates the inequity between the treatment of sugar and other program commodities. As a result of the current sugar program, American consumers have paid close to double the world market price for sugar for the last five years, at an annual cost of over $1.5 billion. In order to begin to relieve this burden, the Administration recommends an immediate ten percent reduction in the sugar price support. Moreover, it is doubtful that the sugar program envisioned in the bill could comply with the no-net cost provision of existing legislation. We estimate that the program would result in outlays of close to $200 million over five years. In addition, the bill necessitates a marketing control program for domestic sugar and crystalline fructose. A new sugar re-export program is a preferential program that could violate our international obligations and would induce additional production thereby depressing raw sugar prices.

The commodity provisions of H.R. 3950 would cost $55 billion over the next five years, $1 billion over current law baseline, and $19 billion over the Administration's budget proposal. Equally important is the fact that the bill would greatly increase the likelihood of budget outlays beyond $55 billion.

• This enormous potential for costs far above the current forecast arises mainly from the lack of adequate Secretarial discretion to adjust loan rates and set-asides when market conditions warrant.
• The bill is also written so that only slight, and quite plausible, changes in market prices could trigger substantial outlays. This is particularly true for the oilseed marketing loan provision. Only a slight drop in prices would trigger major Federal expenditures.

The Administration strongly opposes the nutrition title of H.R. 3950 as currently drafted. The program expansions are estimated to exceed the current law baseline by $543 million in FY 1991 and almost $5.4 billion over five years. These costs are in addition to the current law baseline growth of 16 percent or $2.5 billion, from FY 1990 to FY 1991.

Such an expansion is totally inconsistent with the deficit reduction being sought in the ongoing budget summit and is an example of the type of mandatory cost expansion that has fostered the current crisis. The bill should reauthorize nutrition programs consistent with the Administration's proposals and any subsequent bipartisan budget agreement.

The bill authorizes another $25 billion for programs in foreign food assistance, science and education, conservation, forestry, and marketing and inspection. Spending at this level would exceed the five-year current law baseline by $3 billion.

Considering these authorizations along with direct spending on commodity and food assistance programs, the bill would add $9.4 billion to the current law baseline over the next five years.

While we generally support the Agriculture Committee's actions with respect to foreign food aid programs, the Administration has concerns with a number of provisions of the trade title proposed by the Foreign Affairs Committee.

• The Administration objects to the attempt to bypass Presidential authority by dictating the Executive branch structure for implementing the program. The P. L. 480 program serves multiple legislative objectives and affects a wide variety of domestic and international interests. Therefore, it is imperative that the President maintain the authority to direct and delegate responsibilities for the program.
• The Administration strongly objects to the 15-day advance congressional notification requirement before signing agreements. This is inconsistent with efforts to expedite the food aid decision-making process, and could cause unnecessary and potentially harmful delays in providing food assistance to needy countries.
• Although the intent of the Latin America debt-for-nature swap language parallels part of the President's "Enterprise for the Americas" initiative, we believe debt reduction and the environment need to be considered in the context of a comprehensive strategy for trade, investment, and economic growth.

With respect to the export assistance program provisions of the Foreign Affairs Committee version, the Administration believes funding for the newly established Market Promotion Program should be reduced from $325 million annually to $200 million annually, the level contained in the Agriculture Committee version. The Administration also opposes reporting requirements under the Long-Term Trade Strategy Report which duplicate existing reports. Finally, the Administration opposes the Market Development Task Force because it duplicates the activities of the recently established Trade Promotion Coordination Committee (TPCC). The TPCC is an interagency working group which will coordinate and streamline trade promotion assistance for all types of goods and services, including agriculture.

The Administration also has serious objections to provisions in H.R. 3950 apart from the commodity, food assistance, and trade titles.

• In the conservation and research titles, the water quality incentive programs and integrated farm management program are not likely to achieve sufficient environmental benefits while adding at least $500 million to costs. Moreover, pollution prevention should not be financed by the taxpayer. Such costs should be spread equitably across society instead of through special treatment for one sector of the economy. This policy, endorsed by the Administration, was recently reinforced in the Senate-passed Clean Air bill.
• In the research title, the Administration objects to the provision to establish an institute providing the private sector with financial incentives for commercialization of agricultural products. As with other technologies, the appropriate Federal role is support of research and development and rapid transfer of new technology through such mechanisms as cooperative research and licensing arrangements.