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The President’s Proposal:
The Department's Major Challenges:

Department of Agriculture
Ann M. Veneman, Secretary     202–720–3631
Number of Employees: 114,040
2003 Spending: $72.8 billion
Major Assets:  Field Offices:  18 program agencies organized under seven mission areas, with a total of 7,400 field, state, or regional offices outside of the Washington, D.C. headquarters.

   The United States Department of Agriculture (USDA) helps meet the needs of farmers and ranchers throughout America, and provides vital nutrition assistance to those in need.  The Department promotes agricultural trade and production; works to assure food safety; protects natural resources; fosters strong rural communities; and fights hunger in America and abroad.


   Farming has changed dramatically since the early 20th Century, when the government’s involvement in agriculture began. Today, there are fewer farms (less than two million compared to almost six million a century ago).  Today’s farms are larger and increasingly utilize sophisticated production and information technologies.  Consumer demands are more complex, as are marketing and distribution systems.  Environmental standards, energy issues, and international trading rules influence production more than ever.  The farm bill President Bush signed on May 13, 2002 recognizes these trends and directs over 75 percent of all USDA funding to these areas.  The farm bill expanded the safety net for farmers and ranchers; inaugurated a new era in conservation programs on the farm; and renewed the Food Stamp program through 2007.

Performance Evaluation of Select Programs

Program Rating Explanation Recommendation
Food Safety and Inspection Service (FSIS) Adequate This program has a clear and significant role in protecting the nation's food supply.  Though FSIS has been effective in reducing incidences of foodborne illness, the program is not optimally designed to address food safety. FSIS will evaluate its risk-based food safety program to analyze the benefits and impacts of expanding the program to all plants.
National Forest Improvement and Maintenance Results Not Demonstrated The program has improved the collection of performance data.  However, a significant maintenance backlog exists and the agency needs to improve priority setting for these projects. No funding is provided for deferred maintenance until clear priorities are established.  The Forest Service will increase incentives to decommission underutilized infrastructure and develop improved performance measures.
Rural Electric Utility Loans and Guarantees Results Not Demonstrated Though this program has a clear purpose and is effectively managed, there is a disconnect between USDA's strategic goals and the program’s performance goals and measures.  New measures and goals will be specified and outcome-oriented.  For instance, the program will target loans to areas with high poverty rates.  The budget also requests an increase in funding for hardship loans that can only be used in areas that are severely depressed.

Food Production

    America’s agricultural sector is the most productive in the world.  The size of the sector relative to the rest of the economy has been shrinking over the last century, yet commodity production levels have increased.  The percent of individuals in farming has similarly declined (from 39 percent of the population in 1900, to less than two percent today), while the average farm size has grown significantly.  While farming accounts for less than one percent of U.S. gross domestic product (GDP) annually, the associated business of agriculture—from producer to processor to retailer to the food service sector—generates 16 percent of U.S. GDP, and employs 17 percent of the American workforce.  With the productivity of U.S. agriculture growing faster than domestic demand, U.S. farmers and agricultural firms rely heavily on export markets to sustain prices and revenue.  In fact, the farming sector depends on exports of U.S. commodities for between 20 percent and 30 percent of total farm income annually.  Agricultural exports totaled $53.3 billion in 2002, up from $52.7 billion in 2001, and accounted for about eight percent of all U.S. exports.

   In late summer 2002, the Administration began implementation of the 2002 farm bill.  Also during this time, a major drought in large portions of the United States took a significant toll on production.  Most farmers in the region were able to get assistance through USDA’s crop insurance and other farm bill programs.  In addition, the Administration provided over $1.5 billion in disaster assistance primarily to affected dairy farmers and cattlemen, whose losses were not covered by these programs.

   Natural disasters regularly threaten and affect agricultural production.  USDA’s crop insurance program is the primary risk management tool for farmers.  Program evaluations, including the Program Assessment Rating Tool (PART) analysis, indicate that crop insurance does a good job of insulating the agricultural community from the vagaries of nature.  Claims for losses incurred in the 2002 crop year are expected to be approximately $4 billion.  Although private insurance companies provide coverage, over half the cost of farmers’ insurance premiums is subsidized to encourage farmer participation.  Currently, 80 percent of eligible acres are insured by the program, which compares favorably with private sector benchmarks.  The government’s cost to deliver crop insurance is constrained in the budget by proposing to limit the reimbursement rate for administrative costs that private insurance companies receive—to better reflect the appropriate cost of administering the program and to give insurance companies an economic incentive to control administrative costs.  This proposal is expected to save the U.S. taxpayer $68 million in 2004. 

   Natural disaster assistance, of course, makes up only a fraction of the many programs the federal government runs to benefit the American farmer.  The bulk of USDA spending on production agriculture goes to farmers in the form of government payments—with multiple options to stabilize prices and income, depending upon the commodity.  This support provides the assurance of a stable domestic food supply and associated production sector.

Large Farmers Find Government Support at USDA

USDA’s Economic Research Service has found that government payments are not necessarily reaching the producers that most need them.  Just over 40 percent of all farms receive government payments, yet half of all government payments go to farms with sales of $250,000 or more; these farms produce 67.5 percent of total agricultural production.  The 76 percent of all farms that make less than $50,000 in sales, and produce 8.5 percent of total agricultural production, receive 16 percent of total government payments. 

   Commodity payments are important to agricultural producers, but sometimes they can distort the market.  For example, large producers, who are in a better position to manage risk, are also eligible for government payments.  There are supposed to be limits on the amount of USDA funding each farmer can receive (called payment limitations). However, the farm bill allows large producers to exceed these limits by using commodity certificates.  The majority of farmers who take advantage of these certificates produce cotton.  In recent years, even though the national and world price of cotton has fallen, the acreage planted to cotton has increased (see accompanying chart).  The Administration will consider the input of the Commission on Application of Payment Limitations (established in the 2002 farm bill) to address commodity certificates and other USDA payment limitation issues.

   Another example of a farm bill program causing market distortions is in the dairy sector.  USDA’s dairy price support program has resulted in huge quantities of government-owned stocks of nonfat dry milk.  Even though dairy prices have been stagnant to declining in the past few years, production levels have not adjusted, as the government is obliged to purchase dairy products.  The annual costs to run the dairy support program were well below $1 billion throughout most of the 1990s.  The current estimated spending on these programs, including income support payments, is expected to exceed $2.8 billion in 2003 and $1.4 billion in 2004.  USDA recently lowered the price the government will pay to purchase nonfat dry milk, in an effort to stem the growing inventory.  This change will be closely monitored and future action taken if government stocks continue to grow.

USDA purchases nearly half of all domestic nonfat dry milk production and currently stores 1.2 billion pounds of nonfat dry milk in caves and warehouses in Kansas City.  If each bag in storage were laid out end to end, a line of nonfat dry milk would stretch for 12,000 miles, or twice the distance from California to Vermont and back again. 

   An added challenge for USDA is found in transitioning its field infrastructure—35,000 field level staff in over 5,600 county offices nationwide—to meet the needs of the modern American farmer.  Efforts to modernize and streamline county offices have met with some success in the areas of technology and co-location.  (Co-located office sites are called USDA Service Centers.)  Restructuring information technology support and addressing administrative redundancies would further increase efficiencies, simplify customer transactions, and improve program delivery.  Evidence shows that this progress is stymied by the current agency organization structure, which has not changed significantly since the 1930s. 

   USDA scientists, as well as USDA’s research, education grants, extension, and statistical programs all contribute to American farm productivity.  Recent breakthroughs by USDA scientists include these developments: sunflower oil with half the level of saturated fat; rapid diagnostic tests for swine fever and avian influenza; and a vaccine to more quickly protect animals in the event of an outbreak of foot-and-mouth disease. The budget has increases for in-house research in the areas of counter-terrorism and biosecurity, emerging and exotic diseases, genomics, and information technology cyber security.  USDA’s expertise in these areas is critical to negotiating technical standards with our trading partners.  The Administration is committed to removing trade barriers around the world and to entering trade agreements that will benefit the U.S. agricultural sector.  Evidence suggests that USDA’s trade assistance programs are important to maintain and expand U.S. exports, and USDA food aid programs are counted on for humanitarian assistance. 

Nutrition Programs

   Almost half of USDA’s budget supports nutrition programs for individuals and families in need.  These programs include the National School Lunch program, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and the Food Stamp program.

USDA school lunches are part of the school day for 58 percent of all students enrolled in public schools.

   The National School Lunch program provides funds to states for meals served to children in schools.  Children from households with incomes below 130 percent of poverty are entitled to free meals. However, studies conducted by USDA and data from national surveys suggest that a significant number of children approved for free lunches are from ineligible households.  Because the information collected for school lunch eligibility is also used to allocate a wide array of federal, state, and local education dollars, errors in certifying children for school lunches can lead to a diversion of funds away from the lowest-income schools.  The Performance Assessment Rating Tool (PART) for the lunch program noted the high rate of improper payments and the lack of annual performance goals to measure the long-term goal of serving meals that meet the dietary guidelines. More information on the PART assessment is available in the Performance and Management Assessments volume.

   USDA proposes to improve the accuracy of eligibility decisions through actions under current law and as part of the reauthorization of the Child Nutrition Act.  The new system will improve access for low-income children already participating in means-tested programs by mandating the use of program records from Food Stamps or Temporary Assistance for Needy Families to directly certify children’s eligibility for lunch.  For other households, states will use a combination of third-party wage data, expanded requirements for up-front documentation, or other means to verify information reported by households. 

   The proposal will not reduce funding for the lunch program.  Any savings that result from improving payment accuracy will be reinvested in the program in support of the Administration’s principles for strengthening the program’s operation.  These are to:   

   The WIC program serves the nutritional needs of low-income pregnant and post-partum women, infants, and children.  Although WIC is often highlighted as one of the most effective federal programs, and numerous studies on aspects of WIC seem to support this conclusion, a comprehensive evaluation of the program’s effectiveness is long overdue. 

   WIC is scheduled for renewal in 2004.  The President's Budget and reauthorization proposal will provide $4.8 billion for WIC services.  This request provides funds to serve an estimated 7.8 million people monthly—all those estimated to be eligible and seeking services.  In 2003 the Administration proposed a contingency fund, which if enacted will ensure that the program can expand to serve an increasing number of eligible persons, should that be necessary.  In addition, the funds will support:

Can WIC Help Reduce Childhood Obesity?

WIC was created to combat hunger and poor nutrition among young children and their mothers.  Now, ironically, the opposite is a greater health problem for WIC’s clients.  In 1998, 17 percent of all children participating in WIC—and more than 40 percent of women participants—were overweight.  Nationwide, the prevalence of childhood obesity has doubled in the last 30 years, an epidemic that poses a serious threat to the health of Americans. The WIC program is in a unique position to address this issue among its participants.  In an average month, WIC serves about half of all infants and approximately one-quarter of all children aged one to four in the United States. 

A recent three year effort identified potential steps the WIC program could take to prevent childhood obesity, starting from pregnancy.  The budget funds a number of WIC demonstration projects that will evaluate whether WIC can combat obesity by testing approaches such as:  targeted staff training; food packages; nutrition education; and the promotion of physical activity. 

   Food stamps alleviate hunger and malnutrition among low-income individuals.  In 2004, the Food Stamp program will provide approximately $21.6 billion in benefits to 21.6 million people.  The federal government will provide an additional $3.9 billion for state administrative costs, job training programs for food stamp recipients, and the Puerto Rico Nutrition Assistance block grant.

   The 2002 farm bill made important improvements to the Food Stamp program, particularly for legal immigrants, individuals with disabilities, and working families. The bill enacted President Bush’s proposal to restore food stamp eligibility to legal immigrants who have lived in the country for five years, and restored eligibility with no wait to legal immigrant children and adults with disabilities.  The farm bill improved benefits for large households and made it easier for individuals with disabilities to qualify.  The farm bill also provided significant opportunities for states to simplify program rules and strengthen the Food Stamp program as a work support for low-income families.  The Administration is committed to improving integrity in the Food Stamp program with a goal of reducing the national average error rate from 8.7 percent for 2001, to 7.8 percent for 2004.  This improvement is projected to save as much as $90 million in 2004. 

Conservation of Our Natural Resources

   Farmers and ranchers own and manage half of our nation’s land.  They are stewards of much of our soil, air, water, and wildlife. In order to effectively conserve these natural resources and protect the environment, USDA provides both funding and technical expertise.  This assistance has improved resource conditions, for example, by reducing soil erosion from croplands around the country.  Between 1982 and 1997, conservation assistance helped to reduce soil erosion caused by wind and water by 38 percent, or 1.2 billion tons.

   Farming is about to become even “cleaner.” The 2002 farm bill is the most conservation-oriented in history. USDA now has unprecedented resources to address many of the nation’s environmental challenges on agricultural lands.  As the accompanying chart shows, by 2007 the farm bill authorized a 120-percent increase in funding for USDA’s conservation programs—a total of about $4.7 billion.

   The increased conservation funding offers substantial opportunity, but also presents USDA with significant challenges when delivering assistance through new and larger programs. Federal conservation must be administered as cost-effectively as possible. Every dollar saved is a dollar that can be used at another farm to help conserve and protect natural resources, fish and wildlife.  This budget proposes to improve the quality, effectiveness, and efficiency of the federal government’s investments in conservation. To achieve this end, the 2004 Budget puts forth the following principles:

Safeguarding the Nation’s Food Supply and Animal and Plant Health

   USDA inspectors work in processing plants and in fields and laboratories across the country.  Their mission:  to guard the health of America’s crops and animal herds, and enforce the rules of safe production and marketing.  USDA’s inspection programs are challenged to keep pace with scientific and technological developments and growth in the volume of trade and production. 

   Meat, poultry, and egg products are inspected by USDA before entering the retail food chain.  USDA’s Food Safety and Inspection Service (FSIS) is moving from a sensory-based system toward a science-based system designed to detect microbial contaminants and eliminate the defects of traditional inspection.  USDA has had difficulty improving the inspection system to make it more risk-based because of underlying inspection laws, originally enacted in the early 1900s.  Although the PART analysis for the agency confirmed that the current inspection system has been effective in reducing incidences of foodborne illness, it also indicated that the current system is not optimally designed to address microbiological food safety concerns.  USDA has piloted a new inspection system that should help FSIS meet its goals and improve efficiency.  The budget proposes to continue improving food safety through evaluating the pilot for the costs and benefits associated with expanding it.  In addition, funding is provided to support increased microbiological testing to ensure effective controls or elimination of pathogens in products.

The Asian long-horned beetle is a serious invasive species threat.  It has the potential to destroy millions of America’s hardwood trees, including maples, ashes, willows, and elm trees.

   USDA monitors for pests and diseases, and works with stakeholders to control or eradicate an outbreak.  These are important partnerships with state and local governments and producers and private industry, which share a role and responsibility to ensure the safety of these resources.  USDA is in the process of clarifying these roles and responsibilities to improve such partnerships.  Also, the USDA programs that inspect people and cargo coming from overseas are transferred to the Department of Homeland Security, as part of the overall program to ensure the security of our borders.

Our National Forests

   USDA manages the 189 million acres of our national forest system, and three million acres of national grasslands.  Many cherish these acres for their recreational, habitat, and resource values.   Protecting these resources against the ravages of fire is one of USDA’s greatest contemporary challenges in managing the forest system.  The fire season for 2002 was the second largest in 50 years, burning more than seven million acres, and tragically 21 firefighters were killed.  Excessive fuel buildup coupled with severe drought in the West created tinderbox conditions that left many areas vulnerable to fires that were faster, of greater intensity, and more damaging to the environment.

   Wildfires historically have played a vital ecological role, promoting natural plant succession and increasing forest resistance to fires, disease, and drought.  However, this situation has evolved for the worse as a result of a century-long practice of suppressing wildland fires.  Today, 38 percent (73 million acres) of national forest system lands are rated at a moderate or high risk of catastrophic fire.  All the while, more people move into traditional wildlands areas.   

The Healthy Forests Initiative

The Hayman fire, which burned more than 137,000 acres in Colorado in 2002, illustrates the importance of the President’s Healthy Forests Initiative.  Prior to the Hayman fire, the Forest Service thinned more than 8,000 acres in the Pike National Forest.  On these acres, trees survived the Hayman fire unharmed, which helped halt the fire’s sweep toward homes.  The less intense fire also reduced the need for aircraft, firefighters, and other expensive wildfire suppression tools. In untreated areas, the Hayman fire burned at higher temperatures and reached the tops of trees, resulting in greater losses and accelerated soil erosion.  A similar forest health project based on two years of planning and analysis would have treated 4,000 acres within the burned area.  Unfortunately, red tape and endless litigation delayed it.  The goal of the Healthy Forests Initiative is to promote timely decisions, greater efficiency, and better results.  By moving towards common-sense, active forest management, the initiative aims to treat more acres with high fuel loads and reduce the risk of catastrophic wildfire losses.

   Fire suppression costs have risen over the past few years.  In 2002, USDA's Forest Service spent nearly $1.3 billion, an increase of 68 percent over the average fire suppression costs of the past five years.  These costs were spent on suppressing wildfires on over 2.4 million acres of forest, or an average of $529 per acre.  In comparison, the Department of the Interior (DOI), spent on average $177 per acre suppressing fires on 2.2 million acres, part of which were grasslands that can burn less intensely.  During the past two fire seasons anecdotal news reports have pointed to incidences of excessive expenditures, including too much firefighter downtime.  The Forest Service has also encountered problems keeping timely reports of firefighting costs as they accumulate.  A PART evaluation looked at the firefighting program and found weaknesses with how funds are targeted.  To address these concerns, the budget proposes that the Forest Service and DOI:  review the cost-effectiveness of large fire aviation resources; form a review team to evaluate and develop cost containment strategies; improve the timeliness of tracking fire suppression spending; assess state cost-share agreements to ensure that the federal government is not paying a disproportionately high share of suppression costs; and increase state and local incentives to reduce their risks of catastrophic fire.

An airtanker drops fire retardant on a wildland fire. On average, it costs the Forest Service $4,000 per drop of fire retardant, or slurry, to slow the advance of fire.

   Within the Forest Service’s overall budget of over $4 billion, $230 million is for the Hazardous Fuels Treatments program to reduce the amount of brush and small trees that exacerbate the risk of catastrophic fire.  This is a 90-percent funding increase over the last three years.  Within this amount, over 70 percent of funds will go to the “wildland-urban interface,” or forested areas next to communities that face a high risk from fires. The budget also provides a realistic estimation of the cost of fighting fires in a typical year. Accordingly, wildfire suppression is funded at a 10-year average of $605 million.  The budget also emphasizes improvements to fire management planning and program performance.  In addition to comparing costs per acre, common performance measures have been established at USDA and DOI.  These measures evaluate the degree to which funds are targeted at priority areas, such as the protection of communities, and compare performance across agencies.  This year the Administration will create baselines and targets to measure agency progress, and increase accountability for containing the costs of controlling wildfires.

Rural Economies

   The nation’s population has gradually shifted toward urban and suburban centers, with about 20 percent now living in rural surroundings compared with 36 percent just 50 years ago.  This population shift provides another challenge for USDA—how best to utilize rural development resources to meet the diversity of needs of those who remain in rural America.  USDA’s rural development programs provide loans and grants to rural communities to address infrastructure, housing, and economic development needs.  On average, USDA provides over $10 billion in such assistance annually.

   USDA provides loans and loan guarantees for utilities.  Based on the PART analysis, the 2004 Budget proposes to increase funding for those electric and telecommunications loans which are targeted to severely depressed areas.  In addition, USDA will target electric loan funds to areas of high poverty and will require utilities receiving assistance to recertify that they are serving rural, not urban or suburban, areas.  These changes will increase the availability of utility service in needy areas, improving the quality of life while maintaining and attracting businesses.

   A PART analysis confirmed that water and wastewater grant and loan programs have effectively increased the number of small rural communities with safe drinking water and modern sewer systems.  However, it also identified the need for better long-term and annual measures to evaluate management and funding decisions.   

Update on the President’s Management Agenda

  Human Capital Competitive Sourcing Financial Performance E-Government Budget and Performance Integration
USDA has demonstrated significant management progress over the last two quarters, but still lags behind other Cabinet Departments on the management agenda.  By addressing skill gaps in its top 21 mission-critical positions, USDA moved ahead in the human capital initiative.  USDA will implement a department-wide human capital plan that addresses strategic management and the actions needed to respond to their human capital challenges.  USDA converted a number of positions to the private sector, and allowed the private sector to bid for certain jobs.  However, USDA has yet to demonstrate progress in allowing the private sector to deliver a significant share of conservation technical assistance.  USDA has updated its strategic plan showing significant progress in budget and performance integration.  To improve further, USDA needs to link the Department’s overarching purposes with program performance data and funding decisions.  USDA’s attention to financial management has resulted in a clean consolidated audit report for the first time; however, compliance with government-wide spending restrictions remains a challenge.

Department of Agriculture
(In millions of dollars)
2003 2004
   Discretionary Budget Authority:      
      Commodities and International 2,623 3,105 3,120
      Rural Development 2,535 2,538 2,265
      Forest Service 4,393 3,948 4,060
      Conservation 1,054 1,195 1,241
      Food and Nutrition Service 4,917 5,033 5,110
      Research 2,284 2,202 2,226
      Marketing and Regulatory Programs 1,661 1,581 1,616
      Central Administration 557 645 664
         Subtotal, excluding user fees and mandatory changes 20,024 20,247 20,302
            New user fees -34 -159
            Mandatory savings proposals -668 -640
   Total, Discretionary budget authority 20,024 19,545 19,503
   Mandatory Outlays:      
      Food and Nutrition Service 32,314 36,490 37,065
      Commodity Credit Corporation 15,413 15,444 14,961
      Farm Loan Programs 436 -656 -767
      Crop Insurance 2,946 3,241 2,771
      Forest Service 1,043 694 685
      Animal Plant and Health Inspection Service 42 170 124
      International Programs -422 -525 -501
      Rural Development -2,893 -2,742 -2,489
      Natural Resources Conservation Service 227 678 1,244
      All other programs 137 -531 832
   Total, Mandatory outlays 49,243 52,263 53,925
Credit activity      
   Direct Loan Disbursements:      
      Farm Loans 1,029 1,023 952
      Commodity Credit Corporation 10,131 8,652 8,934
      Rural Utilities Service 2,531 3,170 2,902
      Water and Wastewater 643 864 889
      Rural Housing 1,175 1,203 1,408
      Rural Community and Economic Development 253 351 325
      Rural Business and Industry 44 4 2
      P.L. 480 130 130 132
   Total, Direct loan disbursements 15,936 15,397 15,544
   Guaranteed Loans:      
      Farm Loans 2,553 3,000 2,666
      Commodity Credit Corporation 3,926 4,225 4,155
      Rural Utilities Service 55 235 580
      Water and Wastewater 9 11 37
      Rural Housing 2,444 2,016 2,516
      Rural Community and Economic Development 59 211 262
      Rural Business and Industry 839 817 1,206
   Total, Guaranteed loans 9,885 10,515 11,422

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