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Title: Food and Agriculture Issues
Subtitle:
Report No.: GAO/OCG-93-15TR Date: December 1992
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Author: United States General Accounting Office
Office of the Comptroller General
Addressee: Transition Series
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CONTENTS
Food and Agriculture Issues
Revitalizing the Department of Agriculture
- Reorganizing USDA
- Improving Financial and Information Management Systems
Transforming Programs to Meet Global Competition and Conserve Resources
- Moving Farm Policy Toward Market Responsiveness
- Facing Environmental and Resource Conservation Challenges
Reforming Farm Credit and Risk Protection
- Farm Credit
- Crop Insurance and Disaster Assistance
Reorienting Rural Development Policy
Revamping the Federal Food Safety System
- Fragmentation in the Food Safety System
- Options for Revamping the System
Related GAO Products
- Management
- Farm and Export Programs
- Conservation
- Farm Credit
- Rural Development
- Food Safety
- General
Transition Series
- Economics
- Management
- Program Areas
Figure
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Figure 1: Agricultural Export Trends--United States and Rest of the World
Office of the Comptroller General
Washington, DC 20548
December 1992
Speaker of the House of Representatives
Majority Leader of the Senate
In response to your request, this transition series report discusses major
policy, management, and program issues facing the Congress and the new
administration in the areas of food and agriculture. These issues include (1)
streamlining the U.S. Department of Agriculture, (2) transforming agricultural
programs to meet global competition and conserve resources, (3) reforming farm
credit and risk protection, (4) reorienting rural development policy, and
5) revamping the federal system for ensuring food safety.
As part of our high-risk series on federal program areas that are vulnerable
to waste, fraud, abuse, and mismanagement, we are issuing a related report,
_Farmers Home Administration's Farm Loan Programs_ (GAO/HR-93-1, Dec. 1992).
The GAO products on which this transition series report is based are listed at
the end of the report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the Secretary-designate of Agriculture.
FOOD AND AGRICULTURE ISSUES
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The U.S. Department of Agriculture (USDA), whose budget is the third largest
of any civilian agency in the federal government, affects the lives of all
Americans and of millions of people around the world. Created 130 years ago to
conduct research and disseminate information to farmers, USDA has expanded its
role greatly over time. Programs are now designed to support farm income,
develop markets, boost farm production and exports, and provide consumers with
food information and assistance. To carry out its mission in 1990, USDA spent
about $46 billion, controlled assets of about $140 billion, and employed over
110,000 full-time employees in 36 agencies in over 15,000 locations worldwide.
USDA's many programs helped to make America a world leader in agriculture. In
recent years, however, resource constraints at home and competition in
agricultural markets abroad have created pressures to modify existing
departmental structures and programs. Our recent work has emphasized the
importance of streamlining USDA's organization and programs to deliver farm
services more efficiently and economically. In addition, the importance of
orienting U.S. farm programs away from production and income support--which
currently cost about $10 billion annually--toward market development and
global competition has grown since we discussed the need to develop strategies
for exporting commodities in our 1988 transition report. The need for such a
shift is clear--between 1980 and 1990, the U.S. share of world agricultural
exports declined from about 29 percent to about 22 percent.
We also raised concerns in our 1988 report about farm finance programs and
risk protection, which expose the government to financial losses in the tens
of billions of dollars. Since 1988, fiscal pressures have enhanced the
importance of reforming farm credit and risk protection, as well as of
coordinating federal programs for ensuring food safety and quality. The
continuing decline of rural economies has drawn more attention to the need for
revising and coordinating rural development policies, and concern about the
impact of agriculture on the environment has affected and will continue to
affect federal policies on water quality and land use.
REVITALIZING THE DEPARTMENT OF AGRICULTURE
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Like a 20th-century dinosaur, USDA's cumbersome organization has survived
changes in the Department's role and mission but has not adapted to current
conditions. Today's USDA is an agglomeration of programs and structures that
have remained virtually unaltered since the 1930s, despite evolutions in
issues and advances in technology. To keep up with the times, USDA needs to
simplify and streamline its organization, becoming more accessible and
responsive to its highly diverse clients.
In September 1991, we issued a general management report on USDA calling for
restructuring to make the Department more responsive to current conditions and
more effective in managing its resources to meet domestic food and fiber
needs. In our view, USDA needs not only to refocus its programs to respond to
the challenges of global competition and environmental protection but also to
adapt its organization to take advantage of advances in communications,
computers, and transportation. At the same time, as we reported in our 1988
transition report, farm programs have become so complex that they are
virtually impossible to administer.
Opportunities exist to simplify USDA's organizational structure, which
currently may require farmers and others to deal with different offices,
employees, and administrative procedures. We have recommended that USDA look
at the efficiencies and cost savings to the U.S. taxpayer that could result
from streamlining through consolidating and collocating the multiple farm
service agency offices that are located in almost every county across the
country. USDA and the Congress need to consider integrating the Department's
farm service agency delivery system so that multiple agencies operate as a
unit at local levels. While not advocating the closure of specific offices, we
believe that USDA needs to examine its entire field structure in the context
of its overall mission and role. To be successful in streamlining, USDA needs
to use a grass-roots process to bring together a mix of agency officials,
state agricultural panels, public interest groups, congressional staff, and
others. Such a process can generate a wealth of ideas and facilitate
acceptance of changes to follow. This process should be carried out in
conjunction with efforts to simplify farm programs.
The Congress, the Office of Management and Budget (OMB), and USDA are
reviewing ways to reorganize USDA. In 1992, several congressional hearings
were held on streamlining USDA and its field structure. Members of the Senate
and House Agriculture committees introduced bills aimed at restructuring USDA.
Although these bills were not enacted in 1992, the sponsors are expected to
reintroduce them in 1993. In addition, the Secretary of Agriculture and the
Director of OMB formed a joint task force on streamlining the Department. It
is imperative that the new administration continue efforts to restructure the
Department's organization and management and to work with the Congress to
simplify farm programs.
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IMPROVING FINANCIAL AND INFORMATION MANAGEMENT SYSTEMS
Antiquated management systems further hamper USDA's ability to make needed
structural and management changes, as well as carry out day-to-day management
functions. The Department's financial and information management systems do
not produce the timely, complete, and reliable information needed to manage
the Department.
The Department's financial systems are in poor condition. Recently, USDA's
Office of Inspector General issued an adverse opinion on the Department's
fiscal year 1991 financial statements, in part because of "incomplete,
inaccurate, or insufficient accounting records and supporting documentation."
Effective financial management within USDA will depend largely on successfully
implementing all aspects of the Chief Financial Officers Act to gain control
of USDA's finances and provide accountability and stewardship for the
Department's resources. Strong leadership from the Chief Financial Officer is
needed to solve long-standing problems and to focus on financial management
issues requiring prompt and appropriate attention.
USDA plans to spend about $4 billion over the next few years on information
systems technology to support various agricultural programs. However, USDA
could waste hundreds of millions of dollars if it does not carry out the
planning required to ensure that the new systems meet its current or future
needs. Also, USDA needs to coordinate its major information technology
investments with its pending reorganization. Strong central information
resources management leadership is essential to ensure the success of USDA's
future automation efforts. In addition, USDA must finish developing its
long-range business and strategic information resources plans.
In response to our recommendations on several management issues, the Secretary
established the Secretary's Management Agenda as an ongoing departmentwide
tracking system to monitor key departmental and agency management issues,
goals, and objectives. The new administration should maintain this initiative.
TRANSFORMING PROGRAMS TO MEET GLOBAL COMPETITION AND CONSERVE RESOURCES
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The 1985 and 1990 farm bills moved U.S. agriculture towards a greater market
orientation, helping to make U.S. farm commodities more competitive in the
world marketplace while maintaining farm income. However, budget constraints
and increased global competition are pressuring policymakers to move faster.
Decisions on how to change farm programs in response to these pressures will
be complicated by conservation and environmental considerations. Although the
commodity programs have intensified production at the expense of soil
conservation and water quality, attention to the environmental impacts of
agriculture is growing.
The agricultural commodity programs established in the 1930s tied benefits to
production. Through these programs, the government guaranteed producers a
certain return and purchased all surpluses. Then, through export programs and
policies, the government focused on disposing of surpluses generated by the
commodity programs, paying little attention to developing and expanding
markets. Today, these programs cost about $10 billion annually.
Major shifts in global markets have occurred in recent years. During the
1970s, export markets afforded a ready outlet for commodity program surpluses.
Throughout this period, the United States benefited from an agricultural trade
boom that was due in large part to expanding agricultural markets. However,
this boom ended abruptly in 1981 with the onset of a world recession. Then,
throughout the 1980s, the U.S. share of world markets declined as
international competition increased and trade barriers went up, as figure 1
shows.
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Figure 1: Agricultural Export Trends--United States and Rest of the World
The following table represents the data for this chart in the printed version
of the report. The actual figure appears in the printed report.
(Dollars in billions)
Rest of United
Calendar year World States
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1980 104 41
1981 111 43
1982 99 37
1983 96 36
1984 103 38
1985 100 29
1986 102 26
1987 111 29
1988 127 37
1989 140 40
1990 142 40
Note: Data for the rest of the world exclude trade within the European
Community.
Source: GAO analysis of Foreign Agricultural Service data.
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We have frequently reported on the need to orient commodity programs more to
the market. We have recommended the elimination of certain programs--such as
the honey and the wool and mohair programs--that are outdated and, in some
instances, benefit relatively few producers.
The 1985 and 1990 farm bills contained provisions to make some commodity
programs more market oriented. The bills reduced support prices and gave
producers more flexibility to plant some of their acreage in crops other than
their main program crop. These reforms lessened the government's role in
maintaining farm prices. Yet despite these changes, overall commodity program
costs have remained high. For example, although these reforms weakened the
wheat program's link between benefits and production, the program cost about
$2.5 billion in 1991, compared to an average of about $3.3 billion for the
period 1982-85.
Growing budgetary constraints on federal agricultural programs, together with
increasing global competition, will require agricultural policies and programs
to become even more flexible and responsive to market demands. Retaining
policies rooted in the 1930s emphasis on production rather than conforming
policies to today's market focus is risky. If U.S. agriculture is to succeed,
it requires new strategies to respond to changing world market conditions.
Since we issued our 1988 transition report, U.S. agricultural policy has
pursued a two-pronged approach aimed, first, at reducing trade barriers and,
second, at enhancing the competitiveness of U.S. products in world markets. In
1988, the United States was actively pursuing the current General Agreement on
Tariffs and Trade negotiations to eliminate all agricultural subsidies and
import barriers that distort trade. At the same time, certain USDA programs
subsidizing agricultural exports were designed to counteract the agricultural
subsidies of other nations. Our 1988 report raised concerns about how some of
these programs were being managed. We still have these concerns. (For more
detail, see our transition report, _International Trade Issues_,
GAO/OCG-93-11TR, Dec. 1992).
After 6 years, some progress was finally made in the multilateral, global
trade negotiations when a tentative compromise was reached in November 1992 in
a long-standing dispute between the United States and the European Community
(EC) over oilseed subsidies. Currently, this compromise, which calls for cuts
in the EC's exports of subsidized grain and production of subsidized oilseed
crops, awaits ratification.
No matter how the global trade negotiations are resolved, global competition
and budgetary restrictions will continue to exert pressure on farm programs
and policies. In our 1988 transition report, we reported that USDA did not
have a long-term agricultural trade strategy, and we urged the Department to
apply strategic marketing principles to agricultural trade. In the 1990 farm
bill, the Congress also recognized the need for a long-term agricultural trade
strategy. The bill directed USDA to develop such a strategy and to report its
progress by October 1991. USDA has yet to complete such a strategy.
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FACING ENVIRONMENTAL AND RESOURCE CONSERVATION CHALLENGES
U.S. agriculture has come under increasing attack for its contribution to
environmental degradation. Studies have indicated that the environment is
being degraded, in part, by the agricultural system it supports. Over the
years, commodity programs have encouraged the intensive production of crops
through methods that erode the soil and rely on the use of chemical
fertilizers and pesticides. As a result, sediment and chemical residues are
carried in runoff from cropland to the nation's waters. Today, polluted runoff
from agriculture affects 50 to 70 percent of the nation's monitored waters.
By the 1980s, agriculture's impact, both on and off the farm, was recognized
as a key environmental problem. As a result, the Congress, in the 1985 and
1990 farm bills, significantly changed the nation's policies for conserving
agricultural resources. For example, both farm bills created or expanded
conservation programs to transfer over 40 million acres of environmentally
fragile lands from production to conservation and wetland reserves. The bills
also required farmers to comply with USDA-approved conservation plans on 142
million acres or lose their farm support payments. The annual cost of these
programs, however, is about $2.4 billion.
Although the 1985 and 1990 farm bills created environmental and conservation
initiatives, many challenges lie ahead because these initiatives are still in
transition. As budget and other pressures influence farm policies, economic
incentives to get farmers to participate voluntarily in these conservation
programs may become too expensive and/or lose viability as a policy tool.
Thus, new approaches that combine education, research, technical assistance,
technological innovation, and regulation will be needed to sustain
agricultural and environmental goals simultaneously.
One of the many challenges facing USDA is in the area of water quality. Even
though 10 of the Department's 36 agencies have water quality responsibilities,
USDA does not have a comprehensive approach for addressing these
responsibilities. To date, USDA has not effectively coordinated dozens of
separate agency water quality programs, despite congressional direction and
our recommendations to do so.
Other upcoming legislative initiatives, such as the reauthorization of the
Clean Water Act, could directly influence agricultural practices. The Congress
is paying close attention to nonpoint source pollution and to the role of
agriculture as the main contributor to this problem.
REFORMING FARM CREDIT AND RISK PROTECTION
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Several USDA programs are aimed at helping farmers by providing loans, crop
insurance, and disaster assistance. These programs expose the federal
government to high risks of large financial losses. An extended discussion of
the risks to the federal government posed by the Farmers Home Administration's
(FmHA) farm loan programs appears in our high-risk series. Highlights of that
discussion immediately follow.
The Farmers Home Administration's (FmHA) farm loan programs are intended to
provide temporary credit for farmers who are unable to obtain funds elsewhere.
However, these loan programs continue to expose the government to large
financial losses. In recent years, FmHA reduced or forgave delinquent debt
totaling about $7.6 billion.
As part of our effort to examine government programs that are especially
vulnerable to waste, fraud, abuse and mismanagement, we reported in April 1992
on FmHA's farm loan programs. As of September 30, 1990, almost 70 percent of
the agency's $20 billion direct loan portfolio was held by borrowers who were
either delinquent or whose loans had been restructured as a result of, or to
avoid, delinquency.
FmHA has evolved into a continuous--rather than a temporary--source of
subsidized credit for nearly half of the agency's borrowers. As repeated loan
servicing has increased their debt and reduced their equity, some FmHA
borrowers have actually seen their financial condition worsen.
Despite the influence of some factors beyond their control, FmHA and the
Congress share responsibility for many of FmHA's problems. These problems stem
from (1) ineffective implementation of loan-making, loan-servicing, and
property management standards by the agency's field office lending officials
and (2) loan and property management policies, some congressionally directed,
that are in conflict with fiscal controls designed to minimize risk and
financial loss. The Congress addressed some of FmHA's problems in the 1990
farm bill. However, FmHA's losses can be expected to continue until the
Congress tells the agency how to better balance its mission of assisting
financially troubled farmers with its obligation to provide that assistance in
a businesslike and fiscally responsible manner.
Also, it is important to recognize that not all financially stressed farms can
be saved and that not all farm families can be expected to benefit from a
government assistance program intended to keep them in farming. With this in
mind, the Congress should, among other things, establish guidance on the
following: (1) the level of loan losses that the Congress is willing to
accept; (2) the length of time over which borrowers should be allowed to
receive FmHA assistance; and (3) the kind of assistance, if any, that should
be made available to unsuccessful borrowers who are ready to leave farming.
Resolving these issues is critical to demonstrating that the federal
government can manage its programs and spend taxpayers' dollars efficiently.
But correction of the problems in the high-risk areas can only be achieved
with the full and sustained support of the Congress and the administration.
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CROP INSURANCE AND DISASTER ASSISTANCE
Two other costly programs linked to commodity production and farmers'
financial needs are the federal crop insurance program and the disaster
assistance program. The Congress expanded the federal crop insurance program
in 1980 to provide a subsidized but actuarially sound nationwide crop
insurance program for farmers and to permanently replace direct disaster
assistance programs. Notwithstanding these goals, since 1981, crop insurance
payments to farmers have exceeded the subsidized premiums by more than $2
billion. The Congress has continued to provide disaster assistance through ad
hoc legislation, paying more than $9 billion for crop losses.
Although crop insurance was intended to replace disaster assistance payments,
participation in the crop insurance program has remained relatively low. Even
in years when the Congress required farmers to participate in the insurance
program as a condition for receiving disaster assistance payments,
participation did not reach the congressional goal of 50 percent. Our 1992
crop insurance report concluded that the Congress will have to make
fundamental policy decisions involving trade-offs among crop insurance
participation, actuarial soundness, and the continuing provision of ad hoc
disaster payments.
REORIENTING RURAL DEVELOPMENT POLICY
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Sources of rural America's economic vitality--such as farming and industries
based on natural resources--have undergone major restructuring. As a result,
many rural communities are no longer thriving.
Since 1969, rural per capita income has consistently been lower than urban
income while rural unemployment rates have consistently been higher. These
economic conditions may, in part, explain why so many people are leaving rural
areas. Over the past 5 decades, the nation's rural population has declined
from over 43 percent of the total population to only 22 percent.
Relative decline in rural populations may be a telling measure of the limited
success that federal rural development assistance programs have had. In fact,
according to experts in our June 1992 symposium, current federal programs are
not meeting the needs of rural America. Many of the federal assistance
programs target the agricultural sector even though farming is no longer a
major economic base for many rural communities: In 1990, about 22 percent of
the nation's approximately 2,400 rural counties relied on agriculture as an
economic base, and only about 6 percent of the rural population lived on
farms.
The symposium experts also noted that even nonagricultural federal programs
may not effectively serve rural areas. Such programs often (1) assume that
"one size fits all," ignoring the diverse conditions of rural areas; (2)
require coordination and expertise that are unavailable in some rural
communities; and (3) focus on process rather than results.
USDA is the lead federal agency in rural development. Ultimately, the
challenge is for the Congress and USDA, as the lead agency, along with other
federal and state partners, to revise its policies for rural America to better
reflect changes that have taken place over the last 50 years. This effort
would include examining whether the federal funds that are already being spent
in these areas are targeted as effectively as possible to ensure rural
America's revitalization.
REVAMPING THE FEDERAL FOOD SAFETY SYSTEM
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A high-quality, safe, and nutritious food supply sustains public health in
America. Yet our reports, as well as work by congressional committees, blue
ribbon panels, and others, have consistently documented structural flaws in
the federal government's food safety system. These flaws can affect public
health, erode consumers' confidence in the federal government's ability to
ensure food safety and quality, and damage the competitiveness of U.S.
agricultural trade.
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FRAGMENTATION IN THE FOOD SAFETY SYSTEM
Currently, 12 federal agencies spend about $1 billion annually to administer
about 35 laws governing food safety and quality. Fundamental differences in
agencies' missions, responsibilities, and authorities have led to inconsistent
oversight, inefficient use of resources, and poor interagency coordination.
The greatest problems lie in the division of responsibility between USDA,
which oversees meat and poultry, and the Food and Drug Administration (FDA),
which oversees most other food products. Because these two agencies operate
under different mandates, food products that pose similar health risks may
undergo different levels of scrutiny. For example, USDA carries out a massive
"continuous inspection" program at slaughterhouses, which by law may operate
only when one of the Department's 7,350 field inspectors is on duty. In
contrast, FDA and state inspectors cover less than one-third of the 53,000
food manufacturers each year.
Overlapping responsibilities, together with resource constraints, lead in some
cases to duplication and in other cases to gaps in coverage. Food
establishments are sometimes inspected by both USDA and FDA because they
process foods, such as soups and frozen dinners, that are regulated under
different laws or because they participate in voluntary grading service
programs. Federal inspections also overlap some state inspections of food
companies. Meanwhile, fish--including shellfish, which is often linked with
food-borne illness--is subject to voluntary inspection.
USDA and FDA have different enforcement authorities. Whereas USDA can require
food processors to register for inspection, FDA cannot. Consequently, FDA is
not aware of and does not inspect some food processors. For example, even
though consumers are drinking billions of gallons of bottled water every year,
FDA does not have a complete list of domestic bottled water plants and
therefore inspects only those plants that it does know about.
To overcome the fragmentation of responsibility for food safety and quality
and to make more economical use of limited resources, federal agencies have
reached over 50 cooperative agreements. However, jurisdictional disputes and
disagreements between agencies have stymied these efforts. For example, USDA
and FDA--both of which have authority to regulate egg products--did not
develop a unified approach for reducing bacterial contamination in eggs until
1992.
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OPTIONS FOR REVAMPING THE SYSTEM
Past efforts to correct deficiencies in the federal food safety inspection
system have fallen short because the responsible agencies have continued to
operate under different food safety statutes and appropriation acts. The
structure of the federal regulatory system for food, which has evolved over
the past century and will continue to evolve as food safety concerns emerge,
may now be due for a review. It is time to examine the number of laws and
agencies involved and the priorities that have governed their regulatory
approaches. Without such changes, structural problems can be expected to make
major, long-overdue improvements highly unlikely.
To develop a uniform, risk-based inspection system, we recommended that the
Congress hold oversight hearings to evaluate options for revamping the federal
food safety and quality system, including (1) creating a single food safety
agency responsible for administering a uniform set of food safety laws, (2)
creating a uniform set of food safety laws that are administered by the
current federal food safety agencies, or (3) establishing a blue ribbon panel
to develop a model for inspection and food safety enforcement based on the
public health risks posed by the products and processes. While creating a
single food safety agency may be the most effective way to resolve
long-standing problems, obstacles stand in the way of such a major structural
change. Therefore, it may be more realistic to create a blue ribbon panel as a
mechanism for developing broad-based agreement on organizational and
legislative changes for modernizing the food safety system.
