Goal 1: The Agricultural Production System Is Highly Competitive in the Global Economy.

Objective: Enhanced understanding by policymakers, regulators, program managers, and those shaping public debate of economic issues involved in ensuring that the U.S. food and agriculture sector effectively adapts to changing market structure, domestic policy reforms, and post-WTO and post-NAFTA trade conditions.

Key Accomplishments:

Factors Affecting Performance of Agricultural Commodity Markets. Price determination for U.S. agricultural commodities has been influenced over time by the changing structure of commodity markets and by the changing role of agricultural commodity policies, particularly Government price support and stockholding programs. ERS continued its research on the changing nature of price determination in agricultural commodity markets. New pricing models were developed to capture the effects of factors such as policy changes, international market considerations, and cross commodity effects on price determination. These new relationships provide an enhanced analytic base for the Department's short-term market analysis and long-term outlook projections activities. The pricing relationships have additionally been shared with the Congressional Budget Office staff and are being used in their baseline projection activities. Additionally in FY-1999, ERS instituted a series of quarterly "Roundtable" discussions with representatives of key commodity and trade associations. The Roundtable meetings highlight various domestic and international issues that have implications for agricultural commodity markets. The Roundtable forum provides ERS with an opportunity for client feedback on specific topical issues and other aspects of the Agency's market analysis and outlook program.

Managing Market and Environmental Risk in Agriculture. Since the 1996 Farm Act, risk management has assumed a more central and important role in farm well being. ERS published Managing Risk in Farming: Concepts, Research, and Analysis, a comprehensive treatment of risk and risk management tools and strategies at the farm level. The report also provides never-before-published data on farmers' assessments of the risks they face and their use of alternative risk management strategies. Complementing this report, a series of articles in Agricultural Outlook magazine examines various risk management strategies. ERS provided timely reporting of the impacts of the 1999 drought on farm income and financial conditions. The drought analysis was captured in a published report, An Economic Assessment of the 1999 Drought, and on the agency website.

Global Food Security. As a follow-up to commitments made at the World Food Conference in 1996, ERS conducted research on the nature and scope of global food insecurity. A report, Food Security Assessment: Why Countries Are at Risk, evaluated the availability and distribution of food, projected long-term trends through the next decade, and examined the feasibility of achieving food security by measuring growth prospects of principal factors affecting food security. The 1999 report concluded that food insecurity in many low-income, developing countries will intensify unless steps are taken to reverse the performance trends of key contributing factors: agricultural productivity, foreign exchange earnings, and population growth. The research results, disseminated through publications and briefings for senior policymakers, were considered by the Inter-Departmental Group on Food Security in its response to the World Food Conference goals, and provided a global context for the development of a strategic research agenda for USDA's Research, Education, and Economics (REE) Mission Area.

Enhanced Understanding of Agricultural Structure. On an ongoing basis, ERS tracks and explains the structural changes being experienced in the U.S. agricultural and food system. In 1999, ERS analyzed specific structural changes in components of the agricultural sector, exemplified by release of a report, Broiler Farms' Organization, Management, and Performance. Reducing transaction costs and managing risk are important motives for contracting and vertical integration in the broiler industry, which can result in larger quantities of more uniform and higher quality products for consumers. Another major source of structural change is the growing demand for quality-differentiated products, such as high lysine corn or non-GMO soybeans. The advent of biotechnology makes the prospects for product differentiation almost limitless. ERS is consequently turning its attention to the implications of commodity differentiation for market structure, market information needs, and Government programs.

World Trade Organization Negotiations. Agriculture in the WTO analyzed the implementation of Uruguay Round commitments and thereby helped identify priorities for the Seattle Round of WTO negotiations in late 1999. The report was featured in a U.S. press packet distributed at Seattle, and was requested by the House Agriculture Committee to prepare its members for the Seattle Ministerial. An Introduction to State Trading in Agriculture provides a qualitative index of the potential for a state trading organization to restrict trade, a potentially important WTO issue. A Framework for Analyzing Technical Trade Barriers in Agricultural Markets offered a classification scheme for assessing the economic impacts of technical trade barriers, such as sanitary and phytosanitary measures. ERS provided leadership for an international research effort to develop a trade policy database that will provide valuable data for negotiators and trade analysts. During 1999, results from ERS's WTO Issues research program were used by the Congress, the United States Trade Representative (USTR), and senior trade policy staff at USDA in support of the U.S. negotiating position.

The Economic Impacts of NAFTA. ERS completed a report on the effects of the North American Free Trade Agreement (NAFTA) on U.S. agriculture and the rural economy for submission to the United States Congress in accordance with the NAFTA Implementation Act. The report indicates that, as NAFTA begins its sixth year, the agreement is having an important impact on the three partner countries. These effects are most apparent in increased agricultural trade volumes and expanded investment flow in production and food processing within North America. NAFTA-induced structural changes take time to work through the economy, so the complete effects of NAFTA will not be felt until the agreement is fully implemented and markets have adjusted to the new trade environment.

Goal 2: The food production system is safe and secure.

Objective: Enhanced understanding by policymakers, regulators, program managers, and those shaping public debate of economic issues involved in improving the efficiency, efficacy, and equity of public policies and programs designed to protect consumers from unsafe food.

Key Accomplishments:

User Fees to Finance Meat Inspection. USDA's Food Safety and Inspection Service finances about 13.5 percent of its budget outlays through user fees for overtime and unscheduled meat and poultry inspections. In User-Fee Financing of USDA's Meat and Poultry Inspection, ERS surveyed the application of user fees for financing meat and poultry inspection programs in other countries; reviewed user-fee systems in other Federal agencies, particularly those with food and agricultural missions or regulatory responsibilities; and discussed the relevant economics literature on the use and design of user fees. ERS suggested several elements that should underlie the structure of user fees for meat and poultry inspection, should such a program be introduced. The study suggests that agencies can better balance revenues and expenses through time if fees are based on costs. Cost-based fees promote more efficient use of agency resources and may limit political gaming by regulated firms. Agencies need to design ways to adjust fee schedules to account for inflation, productivity growth, and changing workloads and must allow for reserve funds because revenues may not match expenditures throughout the year.

Costs of Foodborne Disease Updated. ERS used data provided by the Centers for Disease Control (CDC) from the "FoodNet" active surveillance system to update estimates of the costs of foodborne disease caused by four major microbial pathogens (estimated at $9.2 to $10.2 billion annually), and collaborated with CDC staff to refine and update the methodology for measuring the cost of foodborne disease. ERS published the new estimates of the costs associated with Salmonella-related illnesses in the May-August 1999 issue of FoodReview magazine. That issue, devoted to food safety, also contained articles discussing new food safety policies, the costs and benefits of pathogen reduction, new technologies to improve food safety, and food irradiation.

Competitive Agreements Program for Food Safety Research. The FY-1999 USDA Appropriations Act provided ERS with $453,000 to establish a competitive agreements program for food safety research. ERS announced the program nationwide, soliciting proposals for annual funding levels between $100,000 and $200,000 for 3 years. The program was open to a wide range of organizations and to individuals. Two grants were awarded, to Harvard University and the University of Wyoming, to begin a multi-year effort to apply state-of-the-art economic analysis to develop national estimates of the benefits of improving the safety of the Nation's food supply.

Goal 3: The nation's population is healthy and well-nourished.

Objective: Enhanced understanding by policymakers, regulators, program managers, and organizations shaping public debate of the factors affecting food prices and of the efficiency and effectiveness of alternative public policies and programs aimed at ensuring consumers equitable access to wide varieties of high-quality food at affordable prices.

Key Accomplishments:

Food Assistance and Nutrition Research Program (FANRP). In FY-1999, Congress provided $10.195 million to ERS for conducting studies and evaluations of the Nation's domestic food and nutrition assistance programs. FANRP selected Food Stamp caseload decline as one of its highest research priorities, responding to the interest that policymakers expressed about the unexpectedly large drop in food stamp participation. Another major new topic was better serving the working poor, recognizing that with an increasing policy emphasis on work and personal responsibility, assistance programs of all types are evolving to provide improved support for the working poor. A nutritional and health outcomes and dietary behavior theme was also added to reflect the emerging concern about the role of behavioral influences on nutrition and health. Ongoing ERS work includes new projects on food security at the individual and community level. Program integrity and effectiveness and enhanced food assistance research data continue as major themes for the program. ERS continued its small grants program at the Southern Rural Development Center, Mississippi and Alcorn State Universities; the American Indian Studies Program, University of Arizona; Institute for Research on Poverty, University of Wisconsin; Joint Center for Poverty Research, University of Chicago and Northwestern University; and Department of Nutrition, University of California at Davis. The FY-1999 program is discussed in more detail in Food Assistance and Nutrition Research Program: Final Report of Fiscal 1999 Activities (in Adobe Acrobat PDF format).

Food Security in U.S. Households. ERS helped develop a Federal food security measure and now conducts an annual survey specifically designed to measure the prevalence of household food insecurity and hunger in the United States. In 1999, ERS released two studies examining household food security, both of which examined whether households always have access to enough food to meet basic needs. Household Food Insecurity in the United States: 1995-1998 (in Adobe Acrobat PDF format) provides evidence that most households in the U.S. are food secure, but, during the period 1996-98, some 10 million U.S. households (9.7 percent of total) were food insecure. Prevalence of Food Insecurity and Hunger, by State, 1996-98, indicated that the prevalence of food insecurity and hunger varied considerably among the States. Eleven States, located in an arc along the western and southern borders of the country, and the District of Columbia, had rates of food insecurity significantly above the national average.

Diet and Nutrition. Two ERS studies released in 1999 examine the implications of America's changing diet on health and farmers. America's Eating Habits: Changes and Consequences provides different perspectives on nutrition in the U.S. Questions posed and answered include: What are the economic costs associated with unhealthy eating?; How much do people know about nutrition?; How do national income and prices and demographic trends affect nutrient intake?; and How do Government programs and regulations influence food expenditures and consumption? Moving Toward the Food Guide Pyramid: Implications for U.S. Agriculture documents the implications for farmers if consumers followed eating recommendations provided by the USDA's Food Guide Pyramid. Specifically, the study examines what would happen to farm production, trade, and prices if consumers reduced their consumption of caloric sweeteners, fats and oils, and increased consumption of dark-green leafy and deep-yellow vegetables, and dry beans, peas, and lentils.

Family Child Care Homes. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 established a two-tier structure for meal reimbursement rates for family child care homes participating in USDA's Child and Adult Care Food Program (CACFP). The act also mandated a study of the effects of that change on program participation and state licensing of child care homes. ERS released the first report from this study, Family Child Care Homes and the CACFP: Participation After Reimbursement, prepared by Abt Associates. The report finds that participation in CACFP by child care homes dropped 6 percent and the number of sponsoring organizations that administer the participating child care homes dropped 2 percent between 1997 and 1998. In contrast, the number of licensed child care homes increased by 3 percent during the period. The strong economy, increased Federal child care funding, and new state pre-school programs, among other shifts in the child care market, made this a dynamic period of change in employment and child care options. Final results of the study will be available in early 2001.

Impact of Minimum Wage on Food Prices. ERS used an input-output model to analyze the full-cost pass-through effects of a minimum wage increase on prices of the food and kindred products and food-service industries. These sectors employ a disproportionate share of minimum wage workers. In The Impact of Minimum Wage Increases on Food and Kindred Product Prices: An Analysis of Price Pass-Through, ERS analysis suggests that a $0.50 increase in the present minimum wage would increase food prices less than 1 percent for most of the 12 food and kindred products industries and 1 percent at eating and drinking places.

Impact of Away-From-Home Foods on Diet Quality. Americans are dining out more often than ever, boosting the amount spent at eating places. In Away-From-Home Foods Increasingly Important to Quality of American Diet, ERS research showed that during the 1970-95 period, home foods significantly improved their nutritional quality, more so than away-from-home foods. Away-from-home foods typically contained more of the nutrients overconsumed (fat and saturated fat) and less of the nutrients underconsumed (calcium, fiber, and iron) by Americans. Since the trend of eating out frequently is expected to continue, strategies to improve the American diet must address consumers' food choices when eating out.

Goal 4: Agriculture and the environment are in harmony.

Objective: Enhanced understanding by policymakers, regulators, program managers, and those shaping public debate of the economic issues involved in balancing long-term sustainability goals with improved agricultural competitiveness and economic growth and of the effects of Federal farm, natural resource, and rural policies and programs on that balance.

Key Accomplishments:

Adopting Genetically Engineered Crops. Jointly with the National Agricultural Statistics Service (NASS), ERS is responsible for the Agricultural Resource Management Study (ARMS), which is USDA's primary vehicle for collection of information on a broad range of issues about agricultural resource use and costs, and farm sector financial conditions, including adoption of new technologies, such as genetically engineered seed. ERS was the first USDA agency to provide Government survey data on the extent of adoption of genetically engineered soybeans, cotton, and corn. Timely release of these data on the ERS website provided key information on adoption and interpretation of impacts on pesticide use, crop yields, and net returns to counter largely anecdotal assertions from both sides that dominated the media on this issue. ERS followed up on these information releases with more complete published reports, such as Pest Management in U.S. Agriculture, which provides information on both chemical and biological pest management practices.

Natural Resource Conservation Policies. ERS published three major reports in 1999 that analyzed aspects of USDA and other policies affecting agricultural resource conservation. These analyses summarize changes in implementing earlier legislation, and will contribute to debate of conservation and environmental policies in future legislation. Wetlands and Agriculture: Private Interests and Public Benefits comprehensively reviewed Federal and State policies affecting agricultural use of wetlands in the context of the Nation's "no net loss" goal. Economic Valuation of Environmental Benefits and the Targeting of Conservation Programs: The Case of the CRP examined changes in procedures for accepting land into the Conservation Reserve Program and estimated economic benefits from the improved targeting. Green Technologies for a More Sustainable Agriculture summarized the case for improving agricultural sustainability and examined the potential and limitations of "green" technologies in meeting that goal.

Implementing USDA Conservation Programs. In FY-99, ERS served as a member of an inter-agency USDA working group responsible for assessing producer offers to bid land into the Conservation Reserve Program (CRP). ERS analyses helped USDA improve the environmental performance of the CRP and related programs, while lowering their cost to U.S. taxpayers. ERS researchers are members of the interagency Conservation Reserve Enhancement Program (CREP) Team, which received the Hammer Award of the National Partnership for Reinventing Government.

Water Quality and Manure Management Issues. In June, ERS organized a workshop, "Agriculture and Coastal Resources: Issues in Measuring the Economic Dimensions of Problems and Policies," in cooperation with the Farm Foundation, to increase understanding of agricultural waste management and water quality issues through interactions with other Government agencies, scientists, and stakeholders.

U.S. Trade and Environment Initiatives. ERS participated in meetings supporting USTR preparations for the WTO ministerial meetings in Geneva and Seattle. ERS presented analyses of potential environmental indicators of soil quality and biodiversity at meetings of the OECD Joint Working Party in York, UK, and Paris, France, and presented an analysis of trade impacts from U.S. soil conservation policies. ERS organized a workshop with university and governmental economists in October 1998 to discuss collaborative research on land degradation, its effects on agricultural productivity, the ways in which productivity estimates might be incorporated in analyses of global food production and food security, and possible impacts on other global resource and environmental issues.

Analysis of Inputs for Crop Production. In support of USDA and EPA implementation of the Montreal Protocol and the U.S. Clean Air Act, ERS coordinated analyses of the economic impacts from using alternatives to methyl bromide as use of that pesticide is phased out. ERS published a synthesis of the economic studies as an Agricultural Outlook article, Facing the Phaseout of Methyl Bromide (in Adobe Acrobat PDF format). In addition, ERS published a report on Pest Management in U.S. Agriculture. ERS coordinated studies of pesticide price differentials between the U.S. and Canada under cooperative agreements developed with North Carolina State University and Ridgetown College, University of Guelph. The final report was presented in simultaneous U.S. and Canadian conferences for Congressional staffs, Northern tier Governors' staffs, and other Federal agencies including EPA, USTR, and GAO.

Goal 5: Enhanced economic opportunity and quality of life for rural Americans.

Objective: Enhanced understanding by policymakers, regulators, program managers, and organizations shaping public debate of economic issues affecting rural development and performance of all sizes of American farms.

Key Accomplishments:

Rural Development. ERS's program in rural development reinforces the Department's interests in promoting economic opportunity and well being in rural communities. ERS published a series of studies, including: Will Increased Highway Funding Help Rural Areas?, Rural Competitiveness: Results of the 1996 Manufacturing Survey, and How Would Fundamental Tax Reform Affect Farmers? Each study addresses the considerable challenges faced by rural communities related to profitable businesses, skilled workers, and infrastructure to support economic activity.

Impact of Natural Amenities in Rural Areas. Population change in rural counties over the last 25 years has been strongly related to their attractiveness as places to live. In Natural Amenities Drive Population Change, ERS presented a new natural amenities index which captures the attractiveness of mild climate, varied topography, and proximity to surface water. High-scoring counties tended to double their population, while the average gain for low-scoring counties was only 1 percent, and over half lost population. Population growth is typically associated with employment growth and increased local economic activity. The rural West has led the amenity-based rebound in population growth. In Rural Development Perspectives, April 1999 issue, demographers pointed out that the rural West added over 1 million people during 1990-97, a 15-percent gain, compared with just over 5 percent for other rural areas. Yet, this is an environmentally sensitive region and some resources, such as water, are limited. Newcomers compete with traditional users for access to these resources. Environmental concerns heighten the demand for cooperative public and private initiatives as small communities across the region struggle to maintain a high quality of life in the face of rapid demographic change.

Additionally, in cooperation with the Farm Foundation, ERS organized a workshop entitled "Rural Land Use: Public Preferences for Open Space and Implications for Policy Design," on the visual, aesthetic, recreational, and environmental amenities provided by agricultural land. The workshop led to successful collaboration with university researchers for National Research Initiative funding to identify and value amenities and draw out implications for policy design.

Farm Structure and Small Farms. ERS developed and widely disseminated a new farm typology that links sales, occupation, and lifestyle characteristics, as well as a new geographic characterization for agriculture that supports analyses of small or disadvantaged farms, minority farmers, and the impacts of market and natural events. ERS published the 20th Annual Family Farm Report to Congress and highlighted the work of the Secretary's National Commission on Small Farms in a major ERS-organized conference on What Makes a Small Farm Successful.

Socioeconomic Status of Rural Minorities. As the decade of the 1990's closed, nearly all of the main economic indicators used to examine differences in socioeconomic status and well-being continued to show wide gaps in the levels of poverty, unemployment, earnings, and income sources between rural minorities and whites. In Rural Conditions and Trends, February 1999 issue, ERS identified 333 rural counties where minorities constitute at least one-third of the population. While these counties contain only 12 percent of the total nonmetro population, they account for 45 percent of rural minorities. As part of the overall rural rebound during the 1990's, minority counties shared in higher rates of population growth and net inmigration. However, the economic benefits usually associated with population growth were less evident. Unemployment levels remain higher in minority counties and per capita income remains below the nonmetro average. This economic disadvantage tends to be more pronounced in counties where the minority group constitutes a majority of the population. And their economic future is uncertain. For example, predominantly Black counties in which manufacturing has been an important source of jobs are now finding it difficult to compete in the face of new technology and the demand for more highly skilled workers.

Survey of Participants in the USDA Housing Program. ERS conducted the first nationally representative sample survey of participants in USDA's Section 502 housing program and published a report, Meeting the Needs of Rural Residents: Results of the 1998 Survey of USDA's Single Family Direct Loan Housing Program. The survey found that, compared to other groups of low-income rural borrowers, those served by Section 502 include larger than proportionate shares of borrowers under age 40, single-parent households, and young married couples with children. It also found that disproportionate shares of Hispanics and Blacks participate in the program. Responses also indicated that, without the Section 502 program, 90 percent of borrowers thought it would have taken longer than 2 years for them to be able to buy a comparable home, if they ever could have done so.