Department of Agricultural Economics- purdue University




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NC1030 April 2007

Concept Paper: U.S. Agricultural Disaster Payments


Maria I. Marshall

Department of Agricultural Economics- Purdue University


Disaster relief in the United States has commonly taken one of three forms - emergency loans, crop insurance, and direct disaster payments (U.S. GAO). The emergency loan program was started in 1949 through the Farmers Home Administration. Under this program, producers who experience losses from natural disasters are able to obtain low interest loans. Emergency loans averaged nearly $1 billion annually throughout the 1990s (U.S. GAO).

The 1938 Crop Insurance Act provided farmers federal protection against certain crop losses (wheat and cotton) from multiple risks. The Act was amended in 1980 to cover all crops and extend crop insurance through private insurance companies and give producers a choice in the level of coverage. Premiums are based on geography, and the program is subsidized in part by the federal government.

Although, government assistance to producers has been around for one hundred years, direct disaster payments are a recent phenomenon of the last thirty years. Only within the last thirty years has disaster relief been directed toward crop losses and not the replacement of damaged public infrastructure. Direct disaster relief payments have played an increasingly important role in protecting producers against crop losses, even though the Risk Management Agency in its various forms has instituted several crop insurance programs.

Disaster payment programs began with the introduction of the Agriculture and Consumer Protection Act of 1973. The purpose of the first omnibus farm bill was to assure consumers of plentiful supplies of food at reasonable prices. The act not only authorized federal farm programs but also disaster payments and disaster reserve inventories. It established disaster payment programs for wheat, upland cotton and feed-grains. Farmers were required to have participated in federal farm programs run by the Commodity Credit Corporation and received payments when plantings were prevented or crop yields were abnormally low because of drought, flood or other adverse weather or related conditions. The Agriculture and Consumer Protection Act of 1973 also established the target price system that served to establish the disaster payment rate if a farmer’s yield fell below 67%.

Adverse weather conditions from 1974 through 1977 caused an outpouring of disaster relief payments. In fiscal year disaster payments for 1975, 1976, and 1977 exceeded $555 million, $286 million, and $82 million, respectively (ASCS 1994). In 1977, the Food and Agriculture Act of 1977, a four year omnibus farm bill, increased price and income supports, established a farmer-owned reserve of grain, and renewed the mandatory disaster payment program. Disaster payments continued although there were some expressed concerns over the cost of the program. Under the 1977 Act, payments were triggered if the yield loss exceeded 60% for wheat and feed grains and 75% for cotton and rice.

The Agriculture and Food Act of 1981, the next omnibus farm bill, continued and modified commodity programs and set specific target prices through 1985 that included programs run by the Farm Service Agency. Disaster payments exceeded $2.6 billion between fiscal year 1978 and 1981. However, disaster relief lessened from 1982 until after the Food Security Act of 1985, which was a five year omnibus farm bill.

In 1987, producers received disaster relief through two different bills. First, the agriculture appropriations bill for fiscal year 1987 modified the Food Security Act of 1985 by limiting program payments and allocating $400 million in disaster relief for farmers primarily in the Southeast. Then, the Farmer Disaster Assistance Act of 1987 provided assistance to producers who suffered crop losses from natural disasters in 1986. Mainly, it provided $135 million for farmers in the Midwest who were unable to plant in the fall because flooding.

In 1988, widespread drought caused Congress to pass the Disaster Assistance Act of 1988 which gave direct assistance to producers for 1988 crop losses and permanently authorized the livestock feed assistance program. Outlays by the Commodity Credit Corporation for crop and livestock producers exceeded $3.4 billion. As the drought continued in 1989, Congress allocated $1.46 billion in Disaster Assistance Act of 1989 which provided assistance to producers hurt by drought or other natural disasters in 1988 and 1989. To get financial assistance crop producers who had crop insurance needed to have suffered at least 35% crop loss. Those producers who did not participate in farm programs including the federal crop insurance program and those who had non-program crops had a higher crop loss requirement. Participation in crop insurance programs became mandatory during this 1988-1989 drought period. The Food, Agriculture, Conservation, and Trade Act of 1990 continued to move agriculture in a market oriented direction and to authorize disaster payments for weather-related losses.

In 1991, the dire emergency supplemental appropriations for natural disasters and incremental costs of Operation Desert Shield/Desert Storm passed authorizing $1.75 billion in direct disaster payments for crop losses suffered from 1990 to 1992. In 1992, an appropriation bill authorized $382 million for farm disaster payments caused by Hurricane Andrew and other natural disasters and another $100 later requested by President Clinton in 1993. A supplemental appropriation act was passed in 1993, which allowed the USDA to use $300 million in unused funds for disaster payments due to crop losses caused by natural disasters affecting the 1990 through 1995 crop years.

The Midwest suffered from widespread flooding in 1993 which led to the Emergency Supplemental Appropriations for Relief from the Major Widespread Flooding in the Midwest Act of 1993. This appropriations bill provided $2.5 billion in total farm disaster payments and authorized the use of other CCC funds if the bill’s appropriations were insufficient to make full disaster payments to farmers. Another appropriations act provided additional funding for crop losses caused by drought in the Southeast. The total amount spent between these two appropriation bills was $3.25 billion. Another Emergency Supplemental Appropriations Act was passed in 1994 to compensate farmers for crop losses caused by the 1993 California earthquake. This appropriations act provided the CCC with funds for the Tree Assistance Program and allowed nursery crop producers to receive disaster payments.

The Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 instituted new catastrophic coverage levels that were minimum levels at which producers had to purchase crop insurance in order to participate in federal programs and receive federal assistance. It also created the Noninsured Assistance Program (NAP) that is a permanent aid program for crops not covered by crop insurance.

In 1996, the Omnibus Consolidated Rescissions and Appropriations Act provided funding for crop losses caused by Hurricane Bertha and other natural disasters. It authorized $81 million for watershed and flood prevention operations and $30 million for the Emergency Conservation Program. In 1997, two more hurricanes (Fran and Hortense) swept through the U.S. leading to the Omnibus Consolidated Appropriations Act of 1997 which provide $88 million in USDA flood assistance programs. In 1997, another appropriations bill, the Emergency Supplemental Appropriations Act for Recovery from Natural Disasters and for Overseas Peace-keeping Efforts, provided $313 million in emergency farm assistance.

In 1998, El Nino driven storms led to the Supplemental Appropriations Act. This appropriations act provided $160 million in emergency farm spending. Emergency farm spending continued in 1999 with the Omnibus Appropriations Act that provided $6 billion in emergency supplemental appropriations to the USDA to assist farmers who suffered losses due to natural disasters and low farm commodity prices. Of the $6 billions, $1.5 billion was for farm disaster payments for 1998 crop losses, $875 million were for disaster payments for multi-year crop losses, and $200 million went to the livestock assistance program. Yet another emergency supplemental appropriation act was passed in 1999 providing $574 million for various farm spending programs. Between 1988 and 1999, $12.2 billion was spent on direct disaster payments for crop losses and $3.06 billion in market loss payments.

The Commodity Credit Corporation estimated that in 2000, the outlays from Agricultural Disaster and Market Assistance program would total approximately $616.5 million, of which approximately $604 million will be direct payments to producers. The fiscal year 2000 Agricultural, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act provided $1.2 billion for crop losses in 1999 and the livestock assistance program provided $400 million for livestock feed losses in 2000. The Consolidated Appropriations Act included $186 million in farm disaster payments for losses suffered from Hurricane Floyd and other natural disasters. The act also included $22 million for disaster assistance to Oregon and Florida.

In fiscal year 2001, the agriculture appropriations act provided $1.8 billion in direct disaster payments for crop losses suffered in 2000. The 2001 supplemental appropriations act included $300 million for natural disaster assistance, including relief to communities that were impacted by recent floods and ice storms in Illinois, Iowa, Minnesota, Wisconsin, New Mexico, Oklahoma, Texas, and the Seattle earthquake, and for other natural disasters. The Livestock Assistance Program received $500 million for disaster assistance. The Livestock Indemnity Program authorized $10 million in emergency funding to help producers whose herds were depleted by natural disasters in 2000.

In 2002, Congress passed a six year omnibus farm bill that included $45 billion in new funds of which $31 billion would be for commodity support programs. The Agriculture Assistance Act of 2003 authorizes total disaster aid estimated at $3.1 billion for producers suffering from natural disasters and related conditions. The Act provides assistance through the crop disaster program that reimburses producers for qualifying crop losses in either 2001 or 2002 due to damaging weather or related conditions; $250 million for the Livestock Assistance Program to reimburse producers for grazing losses; $60 million for sugarcane producers; $60 million for sugar beet producers; and $50 million for the cottonseed industry.

Since 1973, disaster assistance for agricultural producers has become institutionalized as Congress continues to introduce and pass appropriation acts for disaster payments due any perceived natural disaster. In the last decade, over $38 billion have been spent in ad hoc disaster relief programs, despite the fact that stricter crop insurance requirements have also been in place since 1994.


References

Becker, G., 1983. A Theory of Competition Among Pressure Groups for Political Influence. Quarterly Journal of Economics 98, 371-400.


Becker, Geoffrey S. and Jasper Womach. The 2002 Farm Bill: Overview and Status. Congressional Research Service Report, May 3, 2002.


Chite, Ralph M. RS20269: Emergency Funding for Agriculture: A Brief History of Congressional Action, 1988-June 1999. Congressional Research Service Report, July 19, 1999.

Farm Disaster Assistance. Congressional Research Service Report, January 21, 2003.


Gardner, B., 1987. Causes of Farm Commodity Programs. Journal of Political Economy 95, 290-310.


Garrett, T.A., T.L. Marsh, and M.I. Marshall. 2006. “Political Allocations of Agricultural Disaster Payments in the 1990s.” International Review of Law and Economics 26(2):143-161.


Lipton, Kathryn L., and Susan L. Pollack. “Major Agricultural and Trade Legislation, 1933-1996.” Provisions of the Federal Agricultural Improvement and Reform Act of 1996. AIB-729. Economic Research Service/USDA.


U.S. Department of Agriculture. February 2003. Agricultural Assistance Act of 2003. Fact Sheet, Farm Service Agency, Washington, D.C.


U.S. General Accounting Office. 1989. Disaster Assistance: Crop Insurance Can Provide Assistance More Effectively Than Other Programs. Report to the Chairman, Committee on Agriculture, House of Representatives. GAO/RCED-89-211, Washington, D.C.






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