Statement of Administration Policy: S. 2830 - Food, Agriculture, Conservation and Trade Act of 1990

(FINAL/sent)

(Senate)
(Leahy (D) Vermont)

If S. 2830 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, S. 2830 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 even raising some others not only fails to achieve savings but also incurs additional costs. High target prices stimulate production and lead to wasteful acreage reduction programs.
• Mandating marketing loans for wheat and feedgrains represents a vain attempt to avoid market disruptions caused by higher price supports. The Secretary is required to choose between two complicated and costly new loan programs. One would raise loan rates by 25 percent in the first year alone and, coupled with marketing loans, would increase outlays above the current law baseline over the next five years by about $1 billion. The other would allow the Secretary to adjust loan rates downwards. However, the Secretary would be compelled to compensate farmers for any reduction through increases in advance deficiency payments at a cost of about $3 billion over the life of the bill.
• A new marketing loan subsidy is established for soybeans and five other oilseeds. The program would do little to increase U.S. production and world market share, and would likely cost the taxpayer $2.4 billion over the next five years. These goals 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. This encourages farmers to continue to generate surplus milk, which must then be purchased and stored at Federal expense, at absolutely no risk to the producers. Supply controls contained in the bill 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. In addition, the bill necessitates the continued reduction in the volume of sugar imported from Caribbean Basin Initiative (CBI) and less-developed countries. 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.
• The bill would require the Secretary to give bonus payments to farmers if market prices turn out to be higher than forecast at the start of the crop year. This is an anomalous, convoluted "safety net" that could increase outlays by $1.5 billion in times of high market prices.

The commodity provisions of S. 2830 would cost $59 billion over the next five years. The bill authorizes another $25 billion for programs in science and education, conservation, forestry, marketing and inspection, and foreign food assistance. These spending levels exceed the Administration's proposal by $25 billion and the current law baseline by $8 billion. Equally important is the fact that the bill would greatly increase the likelihood of budget outlays beyond $59 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 and high-price bonus provisions. Only a slight drop in prices would trigger major Federal expenditures.

Apparently the Committee is attempting to circumvent the discipline of the budget process by not including a nutrition title, with the expectation that a package similar to the House nutrition title will be accepted in conference. The House expansions are estimated to cost $543 million in FY 91 and almost $5.4 billion over five years. This is in addition to the current baseline growth of 16 percent or $2.5 billion, from FY 90 to FY 91.

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 include a reauthorization of nutrition programs consistent with the Administration's proposals and financed within the parameters of the Senate budget resolution, and any subsequent bipartisan budget agreement.

The Administration also has concerns with a number of provisions in the trade title. With respect to food aid, we strongly object to the attempt to bypass Presidential authority by dictating the Executive branch structure for administering the program. The P.L. 480 program serves multiple legislative objectives and affects a wide variety of domestic and international interests. Therefore, we believe it is imperative that authority to direct, manage, and delegate responsibilities for food aid programs be maintained by the President. With regard to export assistance programs, the Administration opposes the provision allowing foreign agricultural commodities to be exported under Commodity Credit Corporation (CCC) guarantee programs, and the provision earmarking $50 million of CCC funds for promoting oilseed crops. The Administration also opposes the provision requiring spending levels in USDA's Long-Term Agricultural Strategy Reports to be treated as the President's annual budget submission. Finally, the Administration opposes the provision barring foreign financial institutions from receiving assignment of letters of credit issued by CCC.

The Administration also has serious objections to provisions in S. 2830 that are not related to the commodity and food assistance titles.

• In the conservation title, the water quality incentive and integrated crop management programs are not likely to achieve significant environmental benefits while adding at least $500 million to costs. Moreover, instituting new subsidies for farmers to reduce pollution would be inconsistent with the long-standing policy of allocating such costs equitably across society instead of providing special treatment for any sector of the economy. This policy 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.