AGRICULTURAL OUTLOOK                                           April 24, 1997
             Approved by the World Agricultural Outlook Board
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AGRICULTURAL OUTLOOK is published monthly (except January) by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788.   AO-240.  Please note that this release contains only the text of AGRICULTURAL OUTLOOK--tables and graphics are not included.

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IN THIS ISSUE...
AGRICULTURAL ECONOMY
     Contracting--A Business Option for Many Farmers
COMMODITY BRIEFS
     Field Crops: 
       Farmers Signal Large Soybean Plantings
       USDA's Crop Reporting Schedule for 1997
     Specialty Crops:
       Slump in Potato Prices to Reduce Plantings
     Livestock, Dairy and Poultry:
       Pork Outlook Clouded by Recent Trade Issues
COMMODITY SPOTLIGHT
     U.S. Egg Production on the Sunny Side in the 1990's
WORLD AGRICULTURE AND TRADE
     The Middle East and North Africa: A Robust Ag Market
RESOURCES AND ENVIRONMENT
     Broadening the Scope of Integrated Pest Management Assessment
FARM AND RURAL COMMUNITIES
     The Risk Management Needs of Limited-Resource Farmers
SPECIAL ARTICLE
     USDA's Water Quality Program: The Lessons Learned


SUMMARY: IN THIS ISSUE...

FARMERS SIGNAL LARGEST SOYBEAN ACREAGE SINCE 1982

Soybean and Corn Planting Intentions Up

Soybeans and corn are the field crops showing the greatest jump from 1996 in
planted acreage, while wheat and sorghum show the largest decline, according
to USDA's March 1997 Prospective Plantings report.  The report, based on a
survey of farmers, provides the first indication of farmers' spring planting
intentions for major field crops.  Soybean plantings will be the largest since
1982, and corn the largest since 1985.

Soybean planting intentions in 1997 at 68.8 million acres are up 7 percent
from last year's planted acreage.  A significant increase in soybean acreage
for 1997 had been widely anticipated, given tight supplies of U.S. soybeans
and higher prices.  Corn planting intentions are bolstered by prices that
remain higher than in much of the 1990's (although down sharply from the highs
of last spring).  Total wheat planting intentions are down 8 percent; however,
the recent runup in wheat prices may push actual plantings above early-season
intentions. 

Potato Price Slump 
to Reduce Plantings

A depressed potato market is likely to force down the fall-crop planted area
by about 6 percent from last season.  Prices for sugar beets and dry edible
beans--the likely substitute crops in many principal potato-growing regions
(e.g., the Northern Plains and Lake States)--are relatively more favorable. 
Under the weight of large potato supplies, monthly grower prices have averaged
27 percent below last year's since September, with the sharpest declines in
the fresh market.  During September-February 1996/97, fresh-market prices
averaged $4.13 a cwt, down 51 percent from a year earlier. 

U.S. Egg Production Crackling

U.S. egg production has grown every year since 1989 and is expected to reach
nearly 79 billion in 1997.  Some of the growth has been driven by a 46-percent
increase in hatching eggs to supply an expanding broiler industry.  Strong
growth of egg use in processed food products has also provided an expanding
outlet for egg producers and has helped to slow the long-term decline in U.S.
table-egg use per capita.  Finally, phenomenal growth in U.S. egg
exports--shell eggs and egg products--in the past 3 years has resulted in an
ever-increasing share of domestic production destined for foreign markets. 

USDA's Water Quality Program

USDA's Water Quality Program (WQP) promotes adoption of voluntary alternative
management practices by farmers, in an effort to protect the nation's waters
from agricultural chemicals and waste products.  Established in 1990, the WQP
builds upon past programs to reduce nonpoint-source pollution.  Out of
experience with the WQP and past USDA water quality programs, several lessons
have emerged that provide important guidance for future programs.  Among the
lessons: cost-effectiveness is enhanced when program activities are targeted
to watersheds where agriculture is the primary source of water quality
impairment; and success is more likely when farmers receive education,
technical assistance, and financial assistance in a coordinated fashion. 
Assessing Integrated Pest Management

USDA's National Initiative on Integrated Pest Management calls for a broad
assessment that documents the economic, environmental, and public-health
impacts of IPM adoption.  While IPM is defined in a number of ways, there is
general agreement that it is a systems approach to pest management that
combines a wide array of crop production practices with careful monitoring of
pests.  

Analysts face a number of challenges in developing assessments of the impacts
of pesticide use and alternative pest management practices.  First, gaps exist
in the data needed to evaluate impacts in areas of potential concern.  Second,
analysts must determine which environmental and public-health impacts to
assess, how to quantify improvements, and the weights to assign to different
impacts.  In addition, a unifying framework is needed to assess tradeoffs
among economic, environmental, and public-health impacts of alternative pest
management technologies.  

Strong Market in 
Middle East & North Africa

U.S. farm exports to the Middle East and North Africa grew by over a third
from calendar year 1990 to 1996.  Rising incomes, urbanization, strong
population growth, and trade policy changes are likely to spur additional
import growth, particularly in livestock products, oilseeds, some feedstuffs,
and high-value products.  In 1996, U.S. agricultural shipments to the region
tallied $4.5 billion (7.5 percent of the U.S. ag total), just under the record
$4.6 billion of 1995.  The region is a large importer of U.S. grains and
feedstuffs, including oilmeals, as well as high-value products such as cotton,
tobacco, and hides and skins.  Egypt, Turkey, Israel, and Saudi Arabia account
for nearly 70 percent of U.S. sales to the region.

Insuring Limited-Resource Farms

Recent changes in Federal farm programs have focused attention on the need for
U.S. farmers to manage risks of crop loss and price declines and to re-examine
available risk management options.  ERS research on the risk management needs
of farmers with limited-resources indicates that these farmers tend not to
purchase crop insurance nor to participate in current insurance-type programs
operated by USDA.  The  most likely factors are the type and size of their
operations and their general reliance on off-farm sources of household income. 
Program changes and additions currently under study, especially coverage of
additional crops and expanded outreach and educational efforts by USDA's Risk
Management Agency, may prompt limited-resource farmers to make greater use of
crop insurance and other risk management strategies. 

Contracting--A Business Option 
for Many Farmers

Contracting has become a common business practice on all sizes of farms, in
all areas of the country.  In 1993, contractual arrangements accounted for $47
billion--almost one-third of the U.S. farm value of production.  Producing
under contract is an integral part of the production and marketing of
livestock commodities, especially broilers, turkeys, eggs, and milk. 
Contracts for crops, especially fruits and vegetables, peanuts, and cotton,
are also common.  For farmers, contracts increase income stability and,
depending on the arrangement, permit concentration of management efforts on a
particular part of the production process.  For processors, contracts enhance
uniformity of products to suit consumers, which also lowers costs of
processing, packing, and grading. 


AGRICULTURAL ECONOMY

Contracting--
A Business Option 
For Many Farmers

Contracting has become a common business practice on farms of all sizes,
producing a variety of commodities, and located in all areas of the country. 
In 1993, contractual arrangements accounted for $47 billion--almost one-third
of the value of U.S. farm production.  Contracting is an integral part of the
production and marketing of livestock commodities such as broilers, turkeys,
eggs, and milk.  Most sugar beets and sugarcane, as well as many fruits and
vegetables, are also produced under contract.

Agricultural contracts are arrangements under which farmers agree to deliver
products of a specified quality and quantity to a contractor for a specified
price or fee.  Contracts generally specify who owns the product, pays for
specific inputs, and holds the risk of loss, and when product ownership passes
from one party to another.  How much control a contractor has over production
decisions varies, depending on the type of contract.  As legal documents,
contracts are enforceable in a court of law.   

Farmers and contractors may use contracts for a variety of reasons.  By
bypassing open--and uncertain--markets, contracting can reduce participants'
exposure to risk.  Processors, and ultimately consumers, increasingly demand a
uniform product of standard quality.  Contracts are one vehicle that food
processors and marketers are using to respond to consumer preferences. 
Contracts provide direct feedback to farmers on market preferences, and reward
producers who respond.   

Agricultural contracts are generally classified as either marketing or
production contracts.  A marketing contract is an agreement between a farmer
and a buyer that specifies quantity, quality, price, and timing of the product
to be delivered by the farmer.  Under a production contract, a farmer receives
a predetermined fee for raising products of a specified quality and quantity,
with the contractor providing inputs and retaining ownership of the commodity
throughout the production process.  Of the total value of agricultural output
covered by contracts, USDA's 1993 Farm Costs and Returns Survey found that 37
percent was under production contracts while the balance was under marketing
contracts.  

Production contractors typically bear a large share of production and price
risk and earn most of the net income from the commodity's sale.  Views of
production contract arrangements are not all positive.  Some feel that the
loss of entrepreneurial capacity is perhaps the largest disadvantage to the
farmer.  To ensure a uniform product, production contracts specify schedules
of feeding, construction of buildings, and the types of inputs used.  Good
management is still needed, however, and many contractors reward skillful
managers with bonuses.  The farmer remains the judge of whether the tradeoff
of income stability and a confirmed market is a fair exchange for a certain
loss of independence. 

Contract Use Varies 
By Farm Type & Size

Traditionally, U.S. farmers sold independently produced livestock or crops in
an open market to the highest bidder among local marketing or processing
companies or their agents.  Over the past 40 years, farmers have become less
dependent on this system of terminal markets and spot pricing to market their
goods, and more reliant on agricultural contracts. 

Contract-type arrangements are not new.  As early as the 1920's, A&P, the
chain retailer, developed a national buying organization to purchase fresh
fruits and vegetables directly from farmers for its stores.  Safeway and
Kroger bought milk for their own processing plants directly from farmers or
cooperatives before World War II.  In the postwar period, many more chains
became large enough to buy directly from farmers.  The 1969 Census of
Agriculture showed more than 156,400 farms, about 6 percent of all farms,
using contracts for production or marketing of their agricultural commodities. 
By the 1993 FCRS, over 225,000, or nearly 11 percent of all farms, were using
contracts. 

Today, farms of all sizes and types are involved in contracting.  Among
livestock producers, poultry farms lead in use of contracts, with nearly 89
percent reporting use of contracts and about 86 percent of total production
value produced under contract in 1993.   Twenty-eight percent of dairy farms
report use of contracts, representing 43 percent of the total value of milk
production.  Dairy farmers have long had verbal contracts with their
processors or cooperatives, and most milk is produced under marketing orders,
which set milk prices based on regionally determined formulas.  Cattle and hog
producers also reported use of contracts in 1993, although to a much lesser
degree (about 11 percent of hog producers and less than 2 percent of cattle
producers).

Some farmers are themselves contractors.  For example, a farmer may contract
with another farmer to complete a stage of production in the raising of
livestock.  The farmer, as contractor, can then specialize in a different
stage of production, paying another producer to either provide young animals
or finish the production cycle.   Nearly 3,500 farms reported beef or hog
production contracted out during 1993.  These farms were predominantly
livestock operations, where 85 percent of the $623,000 average gross cash farm
income came from livestock sales.  

More than 40 percent of the 6,000 farms reporting livestock contracted out in
1993 had replacement breeding stock raised by another farm operation.  Among
the most common were dairy operations contracting for replacement heifers. 
Egg producers also often contract with other farms to raise layers.

While large commercial farms account for most of the value of products sold
under contract, almost half of the 225,000 farms with marketing or production
contracts in 1993 were small commercial farms (sales between $50,000 and
$249,999).  These smaller farms produced about 24 percent of total contract
value of farm products.

The largest contract users among crop commodity farms are fruits and vegetable
growers; 36 percent of farms specializing in the production of fruits or
vegetables used some form of contracts in 1993, producing more than half the
total value of production of fruits and vegetables.  About 30 percent of the
value of cotton production was also produced under contract.  Other crop farms
used contracts, although at much smaller rates.  The largest of these is corn
production, for which 13 percent of the total value of output was under
contract.

Larger farms are more likely than other farms to use production contracts. 
Twenty-one percent of farms with production contracts had sales of $500,000 or
more.  Large farms accounted for 69 percent of the value under production
contracts.

On the 44,000 farms with production contracts in 1993, sales averaged
$485,000, but gross cash income for these farms averaged only $149,200,
reflecting the contract fees received by operators.  Under production
contracts, while sales reflect the full value of the product, farmers receive
a predetermined fee, not a share of sales, for raising contracted products.  

Three-quarters of farms with production contracts were producing livestock
commodities, primarily poultry.  Livestock farms accounted for more than 90
percent of the total value of products sold under production contracts.  

Under marketing contracts, while the farmer receives all of the income
generated by production, expenses for the business are usually higher than
under production contracts because the farmer pays more of the expenses. 
Marketing contracts, found on 186,000 farms, were more common than production
contracts.  However, farms with marketing contracts had lower average sales
($225,700).   

Although farms of all sizes used marketing contracts, large farms (gross sales
more than $500,000) reported almost half of all marketings.  Farms with gross
sales of less than $250,000 comprised 80 percent of the farms producing under
marketing contracts, but accounted for only 33 percent of the total value of
production.  Seventy percent of farms using marketing contracts in 1993 were
classified as crop farms (fruit and vegetables, 20 percent; corn, 11 percent;
cotton, 3 percent; other crops, 36 percent).  These crop farms accounted for
56 percent of the total value of commodities marketed under contract. 

The mix of crop commodities comprising most of the value of marketing
contracts for farms with the smallest contracts (less than $100,000 marketed)
included field corn, soybeans, peanuts, almonds, and wheat.  Milk, cattle, and
turkeys were the most often reported livestock commodities for a similar
marketing contract size.  Under the largest marketing contracts (more than
$600,000 marketed), cotton, potatoes, strawberries, walnuts, grapes, onions,
and tomatoes represented more than 95 percent of the value of crop
commodities.  The large-contract livestock commodities were predominantly
milk, eggs, and cattle, with a marketed value nearly double that of crops
marketed by the large-contract crop farms.

Beyond their importance as a source of income, marketing contracts usually
provide for multiple payments, which may extend beyond one calendar year.  In
1993, 40 percent of marketing contracts were structured to carry total
compensation across calendar years.  This is often helpful to farm operators
in managing cash flow; many operations are not diversified and have only one
commodity enterprise. 

The Variety of 
Production Contracts

In most production contract, the contractors pay directly for inputs, supply
the inputs, or reimburse the producer for expenses required to grow the
commodity under contract.  The contrast between production contracts for
broilers and those for processing vegetables illustrates some of the
differences in contract terms, including the extent of production and
managerial control the contractor holds, the size of fees paid to the farmer,
the amount of inputs supplied by the contractor, and the ownership of the
commodity.

Broiler contracts are the most widely publicized livestock production
contracts, although contracts have covered fed cattle and hogs for many years. 
Of the more than 32,000 farms with livestock production contracts in 1993,
about 14,000 had single broiler contracts (one contract only).  Broiler
production was the primary activity of nearly all these farm businesses, with
40 percent having no additional farm enterprises.  The total value of broilers
raised on these single-contract farms varied considerably.  Nearly one-third
of the farms had contracts valued at $300,000 or less during 1993, while 20
percent had contracts valued at $600,000 or more.  

While the specific contract terms vary from company to company, most broiler
contracts designate the division of responsibility for providing inputs and
compensating growers.  The grower usually provides land and housing
facilities, utilities, labor, and other operating functions, such as repairs
and maintenance, manure disposal, and chicken-house cleaning.  The contractor
provides chicks, feed, veterinary supplies and services, management services
or field personnel, and transportation.  Either party pays for fuel and
litter, or they share expenses, depending on the nature of the contract.  In
1993, farmers provided, on average, 11 percent of the cash expenses on
single-contract broiler operations.

Contractors usually own and operate hatcheries, feed mills, and/or processing
facilities.  The contractor may pay some fixed costs, such as insurance, or
provide financing for capital purchases.  Contractors make the most
significant production decisions, including size and rotation of flocks,
genetic characteristics of birds, specific feed ingredients, and the capacity
of the chicken house.  Broiler contracts usually provide three types of
compensation for grower services:  the base payment, an incentive or
performance payment, and the disaster payment, which covers lost production
from natural disasters.

Total value of birds removed from the 14,000 single-contract broiler farms
averaged $445,400.  The average annual fee received was $53,500, or about 12
percent of the value of birds removed.  This represents the 1993 amount
received by growers for all types of compensation as stipulated in their
particular contracts.

Although most production contracts are for livestock commodities, 11,700 farms
reported at least one crop production contract in 1993, and nearly half these
farms had contracts for processing vegetables.  Processing vegetables include
snap beans, cabbage, sweet corn, cucumbers, lima beans, sweet peas, spinach,
and tomatoes and are destined for canning, freezing, heating, or drying.

Under production contracts for processing vegetables, contractors usually pay
only for seed and custom services such as harvesting or hauling.  Contractors
provided seed to nearly 80 percent of the farms with a single production
contract for processing vegetables.  Some operations received custom planting
services, which included seed.  Custom hauling (reported by 70 percent of
contract producers of processing vegetables), and fertilizer and chemical
applications (reported by 60 percent) were the other two inputs most often
supplied.  

The contractor usually stipulates the amount to be produced, along with
detailed requirements regarding production practices, grading standards, and
terms for compensating the grower.  Growers, particularly in California and
Washington, commonly negotiate through a bargaining association representing
several producers.

ERS estimates the average total value of processing vegetables removed under
contract at $103,000.  Fees received by producers during 1993 averaged
$72,400, which represented about 70 percent of the total value removed. 
Expenses provided by contractors averaged $13,000.  Most of the farms had
other enterprises, making it difficult to partition operator expenses to
vegetable production.  

A Cost-Benefit
View of Contracting

Farmers use contracts to increase their income stability.  Because most
contractual arrangements reduce risks in comparison with traditional
production or marketing channels,  a contracting farmer's resulting income
tends to be less variable over time.   Farmers benefit by having a guaranteed
market and price, as well as access to a wider range of production inputs and
technological advances.  They can also concentrate their management efforts on
a particular part of the production process.  

Processors use contracts because they need uniformity and predictability to
suit consumers, but they also benefit from lower costs in processing, packing,
and grading.  The consumer can probably buy chicken or vegetables at a few
cents per pound lower as a result of these savings from contracting
arrangements by processors.

How the benefits and costs of contracting are distributed to the larger
community has not been quantified.  Consumers may see the concentration of
control in production contracting leading to less competition and higher
prices.  Contracting may not necessarily lead to concentration of production
on fewer farms--data show that farms of all sizes use contracts.  It does,
however, lead to concentration of decision-making and to less diversity in
products and production practices.  While diversity presents problems of its
own, contracting that fosters product homogeneity makes agricultural
communities more vulnerable to decisions made outside the community.  

The trend toward contracting is part of a general shift in entrepreneurial
functions within agriculture.  Most concern about this shift centers on
resource control in agriculture and the impact of those that control resources
on producers, suppliers, price, and income at various stages of the production
and marketing process.   Contracting, on the one hand, leads to the weakening
of open-market price signals and a lessening of independence for the family
farm.  On the other hand, greater use of contracts could lead to more
efficient production, less dependence on government assistance, and greater
global competitiveness.  
Janet Perry 219-0803, jperry@econ.ag.gov; Mitch Morehart, 219-0100,
morehart@econ.ag.gov;; David Banker, 219-0004, dbanker@econ.ag.gov; Jim
Johnson, 219-0001, jimjohn@econ.ag.gov

AGRICULTURAL ECONOMY BOX--1

Marketing vs. Production Contracts

Marketing contracts refer to verbal or written agreements between a
buyer--generally a food processing and/or marketing company--and a grower that
set a
price (or pricing mechanism) and determine an outlet for a specified quantity
of a commodity before harvest or before the farmer markets the commodity. 
Most management decisions remain with the grower, who retains product
ownership during the production process.  The contractee assumes all risks of
production, but shares price risk with the contractor.  

Marketing contracts can take many forms, including: 
     forward sales of a growing crop, where the contract provides for later
     delivery and establishes a price before delivery;
     price setting after delivery based on a formula that considers grade and
     yield; and
     pre-harvest pooling arrangements, in which the amount of payment received
     is determined by the net pool receipts for the quantity sold.

Since the farmer incurs the costs of production, the farmer retains the income
generated from sale of the commodity.

Production contracts involve paying the farmer a fee for providing management,
labor, facilities, and equipment, while assigning ownership of the product to
the contractor.  The contract specifies in detail the production inputs
supplied by the contractor, which may be a processor, feed mill, or another
farm operation or business.  The contract also specifies the quality and
quantity of the particular commodity.  Because the contractor controls the
amount produced and the production practices, the contractor often dominates
the terms of the contract. 

Advantages of production contracts for farmers include the sharing of
production and marketing risks with the contractor and the availability of
financing--either directly from the contractor or indirectly through other
lenders who are more assured of loan repayment under this arrangement.  Farms
can have both marketing and production contracts. 

AGRICULTURAL ECONOMY BOX--2

Data Sources

Data for this report come from USDA's 1993 Farm Costs and Returns Survey
(FCRS), an annual survey which collects information on farm income, expenses,
and operator characteristics.   USDA administers the survey each spring in the
48 contiguous states through personal enumeration.  The sample size of the
FCRS in 1993 was approximately 12,000 farms and ranches.
  
The target population of the FCRS is operators associated with farm businesses
representing agricultural production across the U. S.  A farm is an
establishment that sold or would normally have sold at least $1,000 of
agricultural products during the year.  Farms can be legally organized as
proprietorships, partnerships, family corporations, nonfamily corporations, or
cooperatives. 

Data are collected from only one operator per farm, the one who makes most of
the day-to-day management decisions.  This one-farm/one-operator survey design
yields good financial information for the farming business.  However, it
limits information about income and equity sharing when more than one operator
is involved.  Data on other stakeholders, such as contractors and share-rent
landlords, who provide inputs to the farm and receive income from production,
are also not included in the FCRS, except as reflected in other data on the
farm business.


COMMODITY BRIEFS

Field Crops
Farmers Signal 
Large Soybean Plantings
 
Soybean growers intend to plant the largest acreage since 1982, according to
USDA's Prospective Plantings report for 1997, released on March 31, and corn
producers are planning  the largest acreage since 1985.  The report provides
the first indication of farmers' spring planting intentions for major field
crops.  

Among the field crops grown by surveyed farmers, soybean and corn show the
greatest jump from 1996 planted acreage, while wheat and sorghum show the
largest decline.  Planting is underway in many regions, but it will not be
completed nationwide for several months.  Actual plantings could vary from
planting intentions in the event of adverse weather or significant relative
changes in prices of competing crops.  For example, last year's wet spring
delayed planting and led many midwestern farmers to switch from corn to other
crops.  

This is the second year of crop plantings under the 1996 Farm Act, which gives
farmers much greater flexibility in responding to market prices.  Unlike under
earlier U.S. farm legislation, producers participating in farm programs are no
longer tied to base acreage requirements for specific program crops or
restricted by annual acreage reduction program requirements. 

The Prospective Plantings report indicates farmers intend to increase soybean
acreage in 1997 to 68.8 million acres, up 7 percent from last year's planted
acreage.  A significant increase in soybean acreage for 1997 had been widely
anticipated, given the tight supplies of U.S. soybeans--similar to the
situation for corn a year ago.   Robust demand, both domestic and foreign,
have pushed U.S. soybean prices to the highest level in almost 9 years. 
Unlike wheat and corn, which have declined from the highs of last spring,
soybean prices have remained buoyant.  Total soybean use for 1996/97 is
projected to be the highest on record, while the stocks-to-use ratio is
projected to be the lowest since the 1972/73 crop year.  

All but 3 of the 29 soybean producing states are anticipated to have greater
soybean acreage in 1997, with the largest absolute increases in South Dakota,
Nebraska, Iowa, and Minnesota.  In addition, the Delta states of Arkansas,
Mississippi, and Louisiana also showed a strong shift toward soybeans, largely
at the expense of cotton.  If these planting intentions are realized, 1997
would be the fifth straight year of rising U.S. soybean acreage.  

Corn growers intend to plant 81.4 million acres in 1997, up 2.5 percent from
1996 planted acreage.  Corn prices have declined significantly since last
spring but remain higher than in much of the 1990's, because of relatively
tight stocks.  

Most Corn Belt states show an increase in planting intentions, with the
exception of Iowa, Michigan, and Minnesota.  In the eastern Corn Belt states
of Indiana and Ohio, farmers intend to increase corn acreage after switching
to soybeans in 1996 when excessive moisture caused planting delays last
spring.  Although returns from soybeans are currently more attractive than
corn, producers in these states are shifting back to corn to maintain
agronomically sound crop rotations.  However, corn acreage in the southeastern
U.S. is expected to decrease because of intentions to double-crop wheat and
soybeans or to increase single-crop cotton and soybean plantings in 1997.

For other feed grains, decreased planting intentions for sorghum is the most
noteworthy, with intended acreage down 18 percent from last year's planted
acreage.  In 1996, sorghum acreage had risen substantially in Kansas and
Texas, taking over abandoned cotton or wheat ground or areas too dry for other
crops.  With recovery from last year's drought in the Southern Plains, much of
this acreage appears to be shifting into soybeans and corn in Kansas,
Nebraska, and Missouri, while cotton acreage is up in Texas.

Barley intentions were slightly lower than last year's planted acreage. 
Actual plantings could fall further due to the prospect of spring flooding. 
Oats planting intentions show a 13-percent rise from 1996 planted acreage, as
oat prices have been strong relative to other feed grains in recent months. 
Despite the increase, 1997 planting intentions would still be the second-
lowest acreage on record seeded to oats in the U.S.

Total wheat planting intentions for crops harvested in 1997 (winter and spring
acreage) are anticipated at 69.2 million acres, down 8 percent from 1996's
planted acreage.  Last spring's record-high wheat prices and tight exporter
stocks caused several major world wheat producing countries to expand output
during 1996/97.  As a result, world wheat production rose to the second-
highest level on record, and prices plunged.  

Earlier this year, winter wheat plantings for 1997 harvest were forecast at
48.2 million acres, the lowest since 1978.  Most states that had expanded
winter wheat acreage in response to rising wheat prices in the fall of 1995,
scaled back wheat plantings last fall.  Nevertheless, the decline in harvested
winter wheat acreage from 1996 to 1997 is not expected to be as severe as a
year earlier, as crop conditions in the winter wheat producing states,
particularly the Southern Plains, are improved from last year despite the
mid-April freeze.  In 1996, an unusually large portion of the crop was not
harvested because of drought and winterkill.  

The Prospective Plantings report shows spring wheat and durum planting
intentions also down this year, as wheat prices sharply below 1996 have
encouraged farmers to plant alternative crops such as soybeans, sunflower,
flaxseed, and oats in the Northern Plains states.  Wheat seedings may be
further reduced if the severe winter in the Northern Plains results in
flooding that excessively delays spring planting.  On the other hand, the
recent runup in prices could encourage increased plantings.

Cotton planting intentions are 14.5 million acres, 1 percent lower than last
year's planted acreage.  Intended cotton acreage in the Delta region is down,
due largely to expected increases in soybean plantings.  Texas producers
intend to seed more cotton acreage in 1997, as the abundant rainfall received
since last fall has greatly improved soil moisture conditions in most of the
state following last year's drought. 

U.S. rice producers intend to plant 2.88 million acres in 1997, up 2 percent
from 1996, with long grain plantings indicated up 4 percent and medium grain
down 4 percent.  High prices and extremely tight long grain supplies account
for the intended increase in plantings.  

Producers in Louisiana, Mississippi, and Arkansas indicated they intend to
plant more rice than last year.  Expanded long grain acreage in Louisiana and
Mississippi accounts for most of the intended growth in these three states. 
California, which grows predominantly medium grain rice, is expected to plant
4 percent less rice than in 1996.  Flood damage and declining prices for
California milled rice are behind the intended drop in California acreage.  

Producers in Texas and Missouri, which each grow almost exclusively long grain
rice, indicated area declines of 3 and 2 percent for 1997.  Too much rain has
severely delayed seeding in Texas, which accounts for about 11 percent of U.S.
rice production and is typically the first state to plant and harvest rice. 
By April 14, just 6 percent of Texas acreage had been planted, compared with
an average of 44 percent.  Late-seeded rice can adversely impact yields.  

Texas producers typically harvest a small second or "ratoon crop" from the
stubble of the first crop if planting occurs by April 10, but a second crop is
hard to produce from late-seeded rice.  The delay in planting in Texas also
means that no new-crop rice will likely be available for domestic or export
markets until after July, a critical factor given current low projections for
1996/97 long grain ending stocks. 
Mark Simone (202) 219-0823
msimone@econ.ag.gov

For further information, contact: James Barnes, domestic wheat; Ed Allen,
world wheat and feed grains; Allen Baker and Pete Riley, domestic feed grains;
Nathan Childs, rice; Scott Sanford and Mark Ash, oilseeds; Steve MacDonald,
world cotton; Bob Skinner and Les Meyer, domestic cotton.  All are at (202)
219-0840.


FIELD CROP BRIEFS--BOX

USDA's Crop Reporting 
Schedule for 1997

The collection and dissemination of current statistics on U.S. agriculture is
the function of USDA's National Agricultural Statistics Service. 
Headquartered in Washington, D.C., NASS maintains a network of 45 field
offices serving the 50 states through cooperative agreements with universities
or state departments of agriculture.  An annual calendar is prepared each
December, indicating the date and hour of the coming year's data releases. 
The reports are released first in Washington, D.C. and are available
electronically shortly (usually within minutes) after release. 

USDA's crop reporting schedule encompasses forecasts made during the growing
season, and estimates made after harvest, for major field crops at the state
and national levels.  Forecasts and estimates represent two distinct concepts. 
Forecasts refer to an expected future occurrence, such as crop yields expected
prior to actual harvest of the crop.  Estimates generally refer to an
accomplished fact, such as crop yields after the crop is harvested.

State and national estimates are published in the monthly Crop Production
report for planted acreage, harvested acreage, yield, and production.  NASS
conducts four major annual acreage surveys (independent of yield and
production surveys).  The prospective plantings survey in March provides early
indications of what farmers intend to plant; the mid-year acreage survey,
conducted in early June, is used to estimate spring-planted acreages and to
forecast acreages for harvest; and two end-of-year acreage and production
surveys are conducted after most of the small grains and field crops have been
harvested.

Field crop planting intentions are assessed via survey--conducted during the
first 2 weeks of March--and released in the Prospective Plantings report
(March 31, 1997).  About 55,000 randomly selected farm operators across the
U.S. are questioned about their 1997 crop planting intentions.  The survey
results are intended to reflect grower planting intentions as of the survey
period and give the first indication of potential plantings for 1997.  

Mid-year acreage estimates will be made based on surveys conducted in June,
when field crop acreages have been established or planting intentions are
firm.  These new estimates will be published in the Acreage report scheduled
for release on June 30, 1997.  Winter wheat is an exception, since seeding
generally occurs during September-November of the preceding calendar year. 
The first forecast of winter wheat and rye planted area was released January
10, 1997, in the Winter Wheat and Rye Seedings report. 

The first forecast of harvested acreage of winter wheat will be published on
May 12, 1997, in the May Crop Production report.  Planted and harvested
acreage of winter wheat is subject to revisions in the June Acreage report. 
The first forecasts of harvested acreage for spring wheat will be published on
July 10, 1997, in the July Crop Production report. 

Mid-year estimates of harvested acreage, also published in the Acreage report,
are based on reported acreage of the earliest harvested crops, such as the
small grains.  For the later harvested crops, such as corn and soybeans,
initial forecasts make normal allowances for abandonment and for diverting
acres to other purposes.  Forecasts of acreage for harvest are subject to
monthly revision following the June survey, although they usually remain
unchanged through the season.  Current monthly acreage indications are
obtained during the growing season from NASS's objective yield measurement
program for corn, cotton, soybeans, and wheat, and from special surveys
conducted for other crops when unusual weather or economic conditions could
affect the acreage to be harvested.

Yield forecasts are adjusted to reflect changes that occur during the growing
and harvest season.  Objective yield surveys are conducted during the
principal growing season for corn, cotton, soybeans, and wheat in selected
states for each commodity.  A forecast, on a given date, of prospective yield
or production assumes that weather conditions and damage from insects,
diseases, or other causes will be about normal (or the same as the average of
previous years) during the remainder of the growing season.  If any of these
conditions change, the final estimate may differ significantly from the
earlier forecast. 

The first forecasts of yield and production will be published in the Crop
Production report on May 9 for winter wheat; on July 10 for barley, oats,
durum, and spring wheat; and on August 11 for the remaining field crops--corn,
cotton, hay, oilseeds, peanuts, rice, sorghum, sugarcane, and sugar beets. 

Yearend estimates of acreage, yield, and production for barley, durum, oats,
rye, all wheat, and durum wheat will be published in the Small Grains Annual
Summary, scheduled for release on September 30, 1997.  For all remaining field
crops, yearend estimates of acreage, yield, and production will be published
in January 1998 in the Crop Production Annual.

In addition to its regularly scheduled reports on crop production, NASS issues
two weekly reports.  Crop Progress, released each Monday during the growing
season (April-November), provides data on crop planting, selected maturity
stages, harvesting progress, and overall condition of selected crops in major
producing states.  The crop progress data, summarized by crop and by state,
are republished in Weekly Weather and Crop Bulletin, along with domestic and
international weather summaries for major field crop growing regions.

For more information concerning NASS, and NASS reports and data products,
visit the NASS home page on the World Wide Web at http://www.usda.gov/nass.

COMMODITY BRIEFS

Specialty Crops
Slump in Potato Prices
To Reduce Plantings

Low prices in the U.S. potato market are encouraging growers to plant fewer
acres for fall harvest in 1997.  Prices for sugar beets and dry edible
beans--the likely substitute crops in many principal potato-growing regions
(e.g., Northern Plains and Lake States)--are relatively more favorable. 
Prospective planted areas of sugar beets and dry beans in the U.S. are each up
6 percent from last spring, with significant increases expected in several
major potato producing states.  

In addition, spring wheat planting intentions indicate growers in the Pacific
Northwest may be shifting some potato acreage to wheat despite lower wheat
prices compared with a year ago.  Although the U.S. total is down, prospective
spring wheat acreage is up 13 percent in Washington and 18 percent in Oregon.

The U.S. fall potato crop accounts for about 90 percent of annual production. 
The marketing season for fall potatoes is September to August, with most spuds
sold from storage during November to August.  More than 80 percent of last
year's fall crop was produced in Idaho, Oregon, Washington, Colorado, North
Dakota, Minnesota, and Wisconsin. 

Brisk domestic and export demand for french fries has strengthened grower
prices for fall potatoes in recent years.  Growers responded to the sustained
bullish market by increasing plantings of fall potatoes from 1.09 million
acres in 1988 to 1.27 million in 1996.  Favorable weather brought record
yields, and in the fall of 1996 growers harvested a record crop of 452 million
cwt.  

Under the weight of large supplies, monthly grower prices have averaged 27
percent below last year's since September, with the sharpest declines in the
fresh market.  During September-February 1996/97, fresh-market prices averaged
$4.13 a cwt, down 51 percent from a year earlier.  Prices paid by processors
averaged $4.80 a cwt, down 8 percent, as contract prices with french fry
manufacturers set in early 1996 limited the price decline in potatoes for
processing.
 
The depressed market is likely to force down the upcoming fall-crop area by
about 75,000 acres, or 6 percent.  This would be similar to the 1992 decline,
which followed another plunge in prices.  The fall 1991 season-average price
for potatoes was $4.15, off nearly 25 percent from a year earlier.  The low
prices induced potato growers to cut back fall area by 4 percent in 1992.

During the 1996/97 marketing season, processors used 7 percent more potatoes
than a year earlier through March.  Nevertheless, fresh potato stocks remained
over 23 percent higher in early April than a year earlier.  On the other hand,
strong export demand has managed to keep frozen potato stocks near year-
earlier levels.  During September to February, frozen french fry exports
surged 20 percent, with the strongest growth in Asia.  Domestic demand for
frozen potatoes appears to have plateaued in 1997, after a decade and a half
in which consumption increased an average of more than 4 percent annually.

The price-depressing supply of U.S. potatoes has slowed imports of Canadian
fresh potatoes, but not of frozen product.  During September 1996 to February
1997, frozen potato imports from Canada averaged about 47 million pounds a
month, up from 31 million a year earlier.  In contrast, fresh potato imports
(including seed) were down, averaging 59 million pounds a month during the
period, compared with 92 million a year earlier.  

In response to growers' concern about imports of potatoes from Canada, the
U.S. International Trade Commission (ITC) has launched an investigation (due
for completion in July) into the factors in the recent increase.  The ITC will
examine factors in the competitive positions of the U.S. and Canada during
1992 to 1996, including production costs and changes in exchange rates.  The
ITC will investigate Canadian aid to its industry for construction of storage,
water treatment, and processing facilities. 
John Love (202) 219-1268, jlove@econ.ag.gov; and Charles Plummer (202)
219-0717, cplummer@econ.ag.gov.
For further information, contact: Linda Calvin, noncitrus fruit; Susan
Pollack, citrus fruit; Gary Lucier, vegetables; Ron Lord, sweeteners; Doyle
Johnson, tree nuts and greenhouse/nursery; Tom Capehart, tobacco; Lewrene
Glaser, industrial crops.  All are at (202) 219-0840.

COMMODITY BRIEFS

Livestock, Dairy & Poultry
Pork Outlook Clouded 
By Recent Trade Issues

Two trade issues are clouding the outlook for pork prices for the remainder of
the year: the recent outbreak of foot and mouth disease (FMD) in Taiwan, which 
resulted in several countries banning imports of Taiwanese pork, and the
dispute with the European (EU) over inspection harmonization issues, which led
to suspension of trade on April 1. 

USDA forecasts that the combined effects of the FMD outbreak in Taiwan and the
veterinary equivalence dispute with the EU will be to significantly increase
net U.S. pork exports, with shipments to Japan increasing and imports from the
EU decreasing. 

In the wake of the FMD outbreak, U.S. pork exports in 1997 are expected to
increase almost 23 percent above the March 1997 forecast.  Taiwan exports are
almost exclusively destined for Japan, the largest U.S. pork customer.  Taiwan
had a 41-percent market share in 1996 and supplies about 17 percent of
Japanese consumption.  The largest increases in shipments of U.S. pork to
Japan are likely to occur after the annual Japanese Safeguard mechanism
(minimum price for imported pork) expires on June 30. 

If the veterinary equivalency dispute with the EU continues, U.S. pork imports
could fall by almost 7 percent.  Decreases in imports from Denmark would
likely impact the domestic U.S. market in the second and third quarters of
1997.  During the second and third quarters, a large proportion of Danish
shipments are pork ribs for the U.S. barbecue season.  However, Denmark is
expected to increase shipments of single-rib bellies (bellies with ribs still
attached) to Japan during the period. 

Based on the inventories, pig crops, and farrowing intentions reported in
USDA's March Hogs and Pigs report, projected 1997 slaughter remains virtually
unchanged.  Pork production for all 1997 is projected to be up fractionally
from 1996, due to slightly heavier weights.  Hog prices are expected to
average in the mid-$50's per cwt in 1997, up about $3 from 1996. The greatest
strength is expected during the summer, when imports and increased exports are
expected to push prices above $60 per cwt.  As a result, summer retail per
capita consumption would be the lowest since 1986.

Retail composite pork prices are expected to rise 5-7 percent this year,
following a 13-percent increase in 1996.  The gap between the all-fresh retail
beef price and the composite retail pork price is very narrow and is expected
to moderate pork price gains as consumers will likely substitute beef for
pork.  Retail per capita pork consumption is expected to drop about 1.7 pounds
from 1996, but late in the year beef supplies are expected to tighten,
providing less competition for pork, and the beef-pork retail price gap will
likely widen.

For further information, contact:  Leland Southard coordinator; Ron Gustafson,
cattle; Leland Southard, hogs; Milton Madison, poultry; Jim Miller, dairy;
David Harvey, aquaculture.  All are at (202) 219-0713.


Livestock, Dairy & Poultry--BOX

Trade Constraints
On Broiler Exports 

U.S. broiler exports reached 4.4 billion pounds in 1996 and had been forecast
to rise to 5.1 billion in 1997.  So far in 1997, however, confusion over the
collection of import duties and new import regulations have slowed U.S.
exports to Russia and China, the two largest markets.  

In 1996, exports to Russia and China accounted for 60 percent of all broiler
shipments on a quantity basis.  Exports of leg quarters to Russia have been
slowed as Russian customs agents enforce collection of import duties.  In the
Chinese market, the Animal and Plant Quarantine Bureau (CAPQ) has stopped
shipments of poultry products from importers who have not complied with new
import regulations.  The problem is not a food safety issue, since much of 
the confiscated product was later sold at auction.  In addition, exports to
the EU were suspended on April 1 as a result of inspection harmonization
disputes.


COMMODITY SPOTLIGHT

U.S. Egg Production 
On the Sunny Side
In the 1990's

U.S. egg production is expected to reach 78.7 billion in 1997, having grown
each year since 1989.  Total U.S. egg production--for table use and for
hatching--had remained fairly constant from 1960 to 1991, fluctuating between
62 and 70 billion eggs.  Some of the growth has been driven by a 46-percent
increase in hatching eggs to supply the expanding number of broilers produced
each year (AO November 1996).  Growth of egg use in processed food products
has also provided an expanding outlet for egg producers and has helped to slow
the long-term decline in U.S. table-egg use per capita.

Since 1980, USDA's National Agricultural Statistics Service has reported total
U.S. egg production as two separate categories--table and hatching.  While
hatching-egg production has shown steady growth since 1983, table-egg
production has fluctuated between 59 and 63 billion eggs from 1980 through
1994.  Relatively constant table-egg production levels coupled with a steadily
rising consumer population reflects that per capita consumption of eggs in the
U.S. has been falling for most of the last 50 years.  However, as with
hatching-egg production, table-egg output has been growing since 1989,
reaching an estimated 65 billion in 1996.  Production is expected to reach
66.5 billion in 1997.

Production of eggs in the U.S. has changed dramatically over the years, both
technologically and geographically.  Formerly a minor activity on most farms,
egg production has become a specialized activity conducted on relatively few
farms.  

The number of commercial egg-producing farms--i.e., farms with 3,000 or more
egg-laying hens--has declined from more than 2,000 farms in the mid-1980's, 
to below 1,000 in the 1990's.  With the concentration has come changes in the
production environs of most table-egg-laying hens in the U.S.  Individual
nests in small brooding houses are no longer the norm; modern operations now
house cages (with 6-7 birds per cage) in buildings with more than 100,000
birds.  Such large operations often involve elaborate stacked cages with
automated feeding, egg collection, and manure-removal processes.  Production
complexes with 1-2 million birds housed on a single property is becoming
increasingly common.

Geographical shifts in egg production have been just as dramatic.  In 1939
Iowa, Ohio, Texas, Pennsylvania, and Illinois were the top five egg producing
states, with California ranking 10th and producing less than half the number
of eggs as Iowa.  By 1960, California had become the leading egg producing
state, with Iowa number two.  Minnesota had moved up to third, with
Pennsylvania and Texas still in the top five.  

By 1970, southern states had become more important in egg production, driven
partly by increased production of hatching eggs for the region's broiler
industry.  California still led in egg production, but Georgia, Arkansas, and
North Carolina had entered the top five, with Texas falling to 8th, Iowa to
11th, Minnesota to 13th, and Ohio to 14th.  In 1990, California was still the
leading state for egg production, Indiana had risen to second (from seventh in
1970), and Pennsylvania and Georgia remained in the top five while Ohio
regained its top-five spot.  

The geographic dynamics of egg production have continued in the 1990's as
producers, in an effort to lower-costs, are perpetually confronted with the
choice of locating closer to feed sources--e.g.,, Midwestern corn--or nearer
to markets--e.g., California and the urban Northeast.  In 1996, California and
Ohio shared leadership--each producing about 6.5 billion eggs--and Indiana and
Pennsylvania remained in the top five.  Iowa regained its top-five status on
the strength of new production facilities coming on-line to supply the
egg-products industry, and thanks in part to investment by California egg
marketers seeking additional sources of eggs for California consumers.  

Egg Consumption 
Patterns Changing

Egg consumption has two components: shell eggs and egg products.  Shell eggs
are the eggs that can be purchased in cartons in the grocery store.  Egg
products are eggs that have been processed by egg breakers and are sold
primarily to other food manufacturers in liquid or dried form.  These eggs
reach consumers as ingredients of processed foods--e.g., pasta, candy, baked
goods, and cake mixes--or directly as liquid eggs in some grocery stores.

Between 1960 and 1979, total consumption of eggs and egg products declined
from 321 eggs per capita to 278.  The decline accelerated during the 1980's as
egg consumption per capita dropped to 239 by 1989.  During the 1990's, total
egg consumption has fluctuated between 235 and 239 eggs per person, but has
shown an upward trend since 1991.  Increases in egg production are expected to
continue, and per capita egg consumption is projected to surpass 240 in 1997.

A decline in per capita egg consumption over the last few decades reflects two
very different and somewhat counterbalancing trends: a dominating, nearly
constant decline in consumption of shell eggs, and a partially offsetting
growth in consumption of egg products during the 1980's and 1990's.

Shell-egg consumption per capita was 292 eggs in 1960, declining to 175 by
1995.  During the 1980's, per capita shell-egg consumption was declining an
average of 5 eggs per year.  Much of the decline was due to changing
lifestyles (e.g., less time for breakfast preparation in the morning) and the
perceived ill effects of the cholesterol intake associated with egg
consumption.

In the early 1990's the rate of per-capita-consumption decline for shell eggs
had slowed to about 2 eggs per year and is expected to slow even more.  Last
year saw a leveling off of the decline, as shell-egg consumption held steady
at 175 and is projected to continue at that level in 1997 and to hold
relatively constant in the next few years.  

Consumption of egg products has been growing consistently since 1983, reaching
61 eggs per person by 1994.  The growth period followed more than two decades
of relatively constant consumption, remaining between 28 and 36 eggs per
person from 1960 to 1983.  

Egg-product consumption will continue to increase as consumers opt for more
convenience foods and as any perception of potentially negative dietary
attributes of eggs is lessened in processed products.  However, stronger
export sales and higher shell-egg prices since mid-1995 have slowed the growth
in egg-product consumption in the last 2 years.  Stronger growth in
consumption is projected for 1997, with 65 eggs per capita expected to be
consumed in product form.

Exports Grow
As Share of Use

In the poultry export market, attention has focused mainly on the rapid growth
in broiler exports.  As a result, the phenomenal export growth experienced by
the egg industry has been somewhat overlooked.  Between 1990 and 1996, exports
of shell eggs and egg products rose from 101 million dozen to 253 million
dozen.  This 150-percent increase would be considered remarkable in most other
industries.  As a result, egg exports' share of domestic production rose from
2 percent in 1990 to 5 percent in 1996.  The value of these exports also
increased, but at a slightly slower rate, rising from $99 million to $206
million over the same period. 

U.S. egg exports are divided into two main categories with a number of
subcategories.  The largest groupings are shell eggs and egg products. 
Shell-egg exports are divided further into eggs for hatching purposes and those
for
human consumption.  Eggs exported for hatching in other countries are used to
supply replacement birds for either laying or broiler flocks.  From 1990 to
1996, the quantity of U.S. shell-egg exports for hatching fell 11 percent,
while the value of these exports rose 6 percent.  In 1996, over three-quarters
of shell-egg exports for hatching went to countries in the Western Hemisphere,
with Canada and Mexico accounting for almost 50 percent of the total.

The quantity of shell eggs exported for table consumption has expanded by over
50 percent in the 1990's, with most of the expansion occurring in 1993 and
1994.  Much of this expansion was due to increases in funding of the Export
Enhancement Program (EEP) for eggs, and most of this EEP funding was used to
support egg exports to Middle Eastern markets.  

Exports of shell eggs for consumption fell in 1995 when EEP funding declined. 
Then in 1996, exports rose as strong demand from Mexico, the European Union
(EU), and Hong Kong more than offset lower exports to the Middle East.  Hong
Kong is by far the dominant U.S. market for shell eggs, accounting for over 60
percent of U.S. exports (quantity basis) in 1996.

The 1997 forecast is for continued growth of shell-egg exports, with increases
in table-egg exports more than offsetting any declines in hatching-egg
exports.  The extent of export increases will depend on steady growth in
exports to Canada, continued expansion in the Mexican economy, and the
competitiveness of U.S. table eggs in the Hong Kong market.

Egg-Product 
Exports Boom

While exports of both shell eggs and egg products have grown, export of egg
products has been the fastest growing component of egg shipments.  Between
1990 and 1996, exports of egg products rose 190 percent from the equivalent of
48 million dozen eggs to 139 million dozen.  Growth in these exports has been
especially strong the past 2 years, increasing 80 percent.

Most egg-product exports are utilized in bakery products and in further
processed foods.  Egg-product exports are reported in shell-egg equivalents to
facilitate combining with shell-egg export figures, and to include the impact
of all egg exports in domestic supply and utilization estimates.  The
conversion process takes the actual export quantity and estimates the number
of eggs it takes to make one pound of each of the four major egg-product
export categories--dried egg albumin, non-dried egg albumin, other dried egg
products, and other non-dried egg products. 

The egg-product export market is very concentrated, with the top four
exporters--the U.S., the EU, China, and Canada--accounting for 95 percent of
sales volume in 1996.  Japan, Mexico, and Canada were the three largest import
markets for U.S. eggs in 1996 and have been for some time.  However, in 1996
strong demand caused exports to the EU to jump by over 70 percent to 10
million dozen, making it the fourth-largest U.S. market.  The export forecast
for U.S. egg products is for continued growth in 1997, but at a much slower
rate than in 1995 and 1996, as a fall in exports to the EU will likely offset
much of  the growth expected in exports to Japan and Mexico.
Milton Madison (202) 219-0046, mmadison@econ.ag.gov; and David Harvey (202)
219-0839, djharvey@econ.ag.gov

COMMODITY SPOTLIGHT BOX

U.S.-EU Meat Flap--
Cracks in U.S. Egg Exports?

As of April 1, 1997, the U.S. has stopped issuing export certificates for all
raw and further processed poultry products, processed egg products, and table
eggs destined for the European Union (EU).   The halt in trade is due to the
failure of the U.S. and the EU to reach an agreement on mutual meat and
poultry inspection methods as applied to trade between the two.  Both sides
are deadlocked on how to achieve veterinary equivalency with inspection
systems and processing standards that are sometimes contradictory.

In 1996, the U.S. exported approximately $69 million of poultry products to
the EU.  In terms of market share, the $17 million in shell eggs and egg
products exported to the EU represented 8 percent of total U.S. egg and
egg-product exports.


WORLD AGRICULTURE & TRADE

The Middle East & North Africa--
A Robust Ag Market

U.S. farm exports to the Middle East and North Africa grew by over a third
from calendar year 1990 to 1996.  The region imports an estimated $30 billion
annually in agricultural products, with the U.S. share around 15 percent.  In
1996, U.S. agricultural shipments to the region tallied $4.5 billion (7.5
percent of the U.S. ag total), just under the record $4.6 billion of 1995.

The region continues to be a large importer of U.S. grains and feedstuffs,
including oilmeals, as well as high-value products such as cotton, tobacco,
and hides and skins.  Rising incomes, urbanization, strong population growth,
and trade policy changes are likely to spur import growth, particularly in
livestock products, oilseeds, some feedstuffs, and high-value products.

The major U.S. markets in the region are Egypt ($1.3 billion in 1996), Turkey
($637 million), Israel ($617 million), and Saudi Arabia ($551 million). 
Together they account for $3.1 billion, or nearly 70 percent of U.S. sales to
the region.  In 1996, U.S. exports were between $100 million and $322 million
to Algeria, Morocco, Jordan, Lebanon, United Arab Emirates, Yemen,  and
Tunisia.  Exports were less than $100 million each to Syria, Kuwait, Cyprus,
Bahrain, Oman, and Qatar.

Current U.S. trade sanctions preclude commercial sales to Iran--a market of
about $3 billion for agricultural products. U.S. sales to Iraq have resumed
under the United Nations' food-for-oil plan.  As of early April, Iraq has
purchased 100,000 tons of U.S. wheat.  Prior to 1990, Iraq's food imports were
at the $2.5-billion level, with the U.S. a major supplier.  In addition, the
U.S. and some of the region's countries face a number of trade issues such as
market access and compliance with WTO, which continue under discussion.

The Middle East and North Africa is the major grain importing region in the
world and will remain so for the foreseeable future.  Coarse grain imports are
the second largest in the world after Japan's, at about 17 million tons, and
the region imports over one-fourth of the world's rice and wheat.  Total grain
imports approach 46 million tons. With the exception of Morocco, Turkey, and
Iran all of the region's countries import over half of their food supplies.

The U.S. is a major supplier of bulk commodities (e.g., coarse grains and
wheat)  to the region, accounting for 40 percent of its imports.  While U.S.
corn exports declined in 1996, sales have trended upward in the 1990's,
primarily a result of increasing demand by the region's expanding poultry and
livestock industries.  Corn shipments rose to 7.7 million tons in 1995, after
averaging 4.1 million tons from 1984 to 1989.  The demand for soybean meal has
also risen, particularly in Turkey and Saudi Arabia. 

Strong population and economic growth rates underpin relatively strong
prospects for U.S. agricultural exports to the region. The Middle East and
North African population--at 360 million--is growing at a rate of 2-3 percent
per year.  Annual growth in Gross Domestic Product (GDP) for the region is
forecast at 3-4 percent in real terms to the year 2000, a result of somewhat
higher oil prices, increasing capital flows, growing world trade, and
continued progress in economic adjustment programs (e.g., privatizing
state-owned industries, including agriculture). 

Exports to Egypt 
At Record Levels

In 1996, Egypt was the tenth-largest national market for U.S. agricultural
products, at $1.32 billion--down 9 percent from the 1995 record--by far the
largest U.S. market in the region.   U.S. agricultural exports to Egypt in
1995 marked the greatest expansion ever, from $872 million in 1994 to $1.45
billion.  

The recent trade boom with Egypt reflects continued trade liberalization and
privatization of its agricultural sector, partly related to Egypt's accession
to the World Trade Organization (WTO) in mid-1995.  The 1995 rise represented
a major jump in the U.S. market share of Egypt's agricultural imports from 30
percent in 1994 to 44 percent in 1995. 

Egypt is primarily a bulk commodity market for the U.S., which has been
Egypt's principal supplier of wheat for the last decade.  From 1994 to 1996,
imports of U.S. wheat averaged 5 million tons, about 80 percent of Egypt's
import market and 16 percent of U.S. wheat exports.   Simultaneously, the U.S.
has dominated the corn market, and holds a major share of Egypt's soybean and
soybean meal markets.  

With the globalization of food technology and advertising, the Egyptian market
for consumer-ready food products is growing rapidly.  The percentage of
two-income households is also rising, which should improve market prospects for
high-value food products.  The demand for consumer-ready products in this
market of 64 million people could parallel the improvement in incomes that is
expected to accompany the privatization process. 

U.S. exports of consumer-ready agricultural products were about $11.4 million
in 1996.  Top consumer-ready products include juice, prepared sauces and
dressings, nuts, milk powder, corn chips and breakfast cereals, and butter. 
The U.S. market share for each of these is at least 19 percent.  Exports of
processed meat, cheese, and prepared or preserved fruits amount to about 2
percent of market share.  U.S. competitors in this market include European
countries such as France, Germany, Italy, Switzerland, Greece, Holland, and
Denmark, as well as South Africa.   
Besides foreign competition, several obstacles constrain U.S. exports of other
processed food products to Egypt.  First, many high-value processed products
are produced domestically (e.g., macaroni, french fries, chips, ketchup,
biscuits, confections, juice, beer, and wine).  Production of these products
has increased significantly in recent years.  Second, Egyptian consumers lack
familiarity with many U.S. products.

In addition, although the government has abolished most import bans, it
continues to protect producers in certain sectors.  For example, Egypt has
banned poultry imports since 1988 to protect and stimulate the domestic
industry (AO March 1997).  The ban--maintained in violation of WTO
commitments--is scheduled to be lifted by 2000.  Import bans on textiles will
be lifted over an 8-year transition period in accordance with WTO provisions.

Early in 1996, the Egyptian government allowed cotton imports for the first
time in many years from sources other than California and Arizona, the only
producers that meet Egypt's phytosanitary requirements.  While the amount was
small (from Syria), it signals a shift in policy toward easing quarantine
restrictions on imported cotton and acquiring low-cost substitutes for
California-Arizona cotton. 

The U.S. has been a principal cotton supplier to Egypt.  In response to
changes in Egyptian output, U.S. exports have fluctuated widely from a record
66,660 tons in 1992 to 4,125 tons in 1994 and 10,327 tons in 1996.  If the
market is opened completely, lower priced cotton could be imported.  However,
lower prices alone would not be a serious threat to U.S. market share--quality
and reliability of supply are important motives for continuing interest in
U.S. cotton. 

Turkey's Trade Reform
Pulls Up Ag Imports

Turkey is one of the few countries in this region that was historically viewed
as self-sufficient in agriculture (although at a high cost), with exportable
surpluses.  Agricultural imports have been historically small, with the
exception of wheat--the result of an import substitution policy and strong
border measures protecting the country's producers.  

But recently Turkey has been importing significant quantities of basic
agricultural products, including wheat, corn, sugar, rice, tallow, beef, hides
and skins, as well as cattle for breeding and slaughter.  The change is a
result of a continued trade liberalization policy, a move towards
privatization of the economy, including agriculture, and an increasing focus
on development of the livestock sector.

Driven by rapid expansion of the textile sector and development of the
country's poultry and livestock sector, U.S. agricultural exports to Turkey
have moved up sharply from $226 million in 1990 to a record $637 million in
1996, 11 percent higher than 1995.  The forecast of U.S. sales continues to be
positive, with a strong showing early in 1997.  

Turkey's textile industry continues to expand, and with a reduced cotton
harvest in 1996, demand for certain types of imported cotton remains strong. 
Imports are projected at a record 250,000 tons in 1997, up 5 percent from last
year.  Up to the early 1980's, Turkey was a large net exporter of raw cotton,
but sharply higher demand from domestic textile mills has made it a large net
importer.   

Like other countries in the region, Turkey does not produce enough feedstuffs
to meet rising demand in its poultry and livestock sectors.  Corn output has
remained near the 2-million-ton level over the last decade, while consumption
has been at the 2.4-million-ton level during most of the period, rising to 2.7
million in 1996.  Rising imports, primarily from the U.S., have filled the
gap.  U.S. corn exports to turkey have risen sevenfold over the last 5 years
to a record 525,000 tons in 1996; value was up 79 percent to $86 million. 
Turkey's total corn imports in 1996 were estimated at 739,000 tons.   

Demand for soymeal and soybeans has also risen sharply, reflected in U.S. meal
sales of 139,000 tons in 1996 (a nearly 10-fold increase over 1995), valued at
$38 million (a 15-fold increase).  Turkey's soymeal imports are estimated at
250,000 tons, with the U.S. share about 56 percent in 1996.  Soymeal
production, imports, and consumption have all tripled in the last decade. 
Increased production is almost entirely from imported beans, nearly 70 percent
from the U.S.  In 1996, U.S. soybean exports were 147,000 tons ($41 million),
up 31 percent from 1995.

In addition, demand is increasing for several other agricultural commodities,
including hides and skins for Turkey's expanding leather industry, tallow for
its soap industry, tobacco for its expanding cigarette output, and seeds to
upgrade the genetic quality of a number of its crops.  U.S. tobacco exports to
Turkey have quadrupled in value and quintupled in volume over the last 6 years
to nearly 16,000 tons at $77 million in 1996. 

In food consumption and marketing, Turkey is showing similarities with western
nations--more health- and quality-consciousness, with increased use of modern
processing and storage techniques.  The expansion of large supermarkets and
distribution centers, combined with trade liberalization, has continued to
diversify the Turkish diet, shifting it from grains to high-value commodities
such as meat, fruits, and vegetables.  Overall incomes have risen and the
number of working women is growing rapidly, which implies increased demand for
prepared foods.  A large influx of tourists, numbering about 8.5 million in
1996, has created large demand and sophisticated tastes for higher quality
food products. 

The U.S. has made progress in exports of consumer-oriented agricultural
products, which increased from $1.5 million in 1991 to $6.8 million in 1995
(they slipped to $5.2 million in 1996).  Dairy products, processed fruits and
vegetables, fish, and poultry are among the leading items.  Despite the
relatively large increase, U.S. exports of consumer-oriented products remain
minor in comparison with competitors' exports and with U.S. bulk  exports. 
The European Union (EU), with the advantage of proximity and consumer
familiarity with its products, is by far the leading supplier of
consumer-ready food products to Turkey.

However, the consumer-ready food market holds bright prospects for the U.S. in
the medium- to long term, for several reasons: 1) young Turkish consumers have
a preference for western food products, particularly from the U.S.; 2) Turkey
is a large market with growing purchasing power; 3) an increasing portion of
the demand for imported consumer-ready products is generated by the growing
tourist industry and hotel and restaurant trade; and, 4) Turkey is rapidly
becoming an important trade conduit to regional markets in the Middle East and
central Asia.           

Israeli Ag Sector Shrinks
While Food Demand Rises

U.S. agricultural exports to Israel continue to rise strongly, reflecting
unprecedented sustained economic growth (GDP growth averaged 5-6 percent a
year from 1990 to 1996).  The Peace Process has opened new markets to Israel
not only in the region, but also with countries who had previously shunned the
country.  Tourism has also increased.   

In addition, the country's population--now 5.6 million--has grown dramatically
in recent years with an influx of  700,000 Russian and Ethiopian immigrants. 
Combined with almost 2 million Palestinians in the Palestinian Authority, the
Israel-Palestinian market has more than 7 million consumers.  (However, there
is a significant difference in buying power between the two populations. 
Israeli per capita income in 1996 was about $15,000 annually, compared with
about $1,500 for Palestinians living in the West Bank and Gaza.)  

To keep pace with demand, imports of all goods and services rose from $24
billion in 1990 to over $42 billion in 1996.  Israel's agricultural imports
rose to a record $2 billion in 1995, up 14 percent from 1994 and continuing an
upward trend of recent years. 

While food demand grows, Israel's agricultural sector continues to shrink.  In
1995, agriculture declined as a share of the nation's GDP, employment, and
productive assets (investment goods).  While agricultural employment has
actually grown, the sector has become increasingly dependent on foreign
laborers.  Also, agriculture's share of total exports continues to decline--
agricultural exports once offset imports, but now imports exceed
exports by 50 percent.   

The U.S. has been Israel's principal supplier of agricultural products for
many years, due in part to long-standing commitments to buy 1.6 million tons
of U.S. grains and oilseeds each year.  U.S. exports have been primarily bulk
items, which still comprise three-fourths of agricultural exports to Israel. 
In 1996, U.S. agricultural exports were a record $617 million, up 28 percent
from 1995.   Wheat, corn, barley, sorghum, and other feeds and products
accounted for over half of the total value.  In terms of volume, 1996 was a
record year for U.S. bulk ag exports to Israel at 1.75 million tons, up only 2
percent from 1995 but 30 percent above 1990. 

Until September 1995, the government required millers to source milling-quality
wheat exclusively from the U.S., but trade liberalization under the
GATT-Uruguay Round agreement means that possibly half of Israel's imports of
milling wheat may come from non-U.S. sources.  However, U.S. wheat exports in
1996 were a record 663,000 tons, up 11 percent from 1995, due to strong
demand.  Israel produces less than 200,000 tons of its annual milling wheat
requirements (750,000 tons). 

Before January 1996, soybeans were the only bulk product that had to be
imported from the U.S. under a long-term commitment.  However, with
implementation of the Uruguay Round agreement, soybeans were freed from source
limitations.  Nevertheless, U.S. sales of oilseeds and other seeds to Israel
reached a record $158 million in 1996 (80 percent were soybeans), as higher
prices for fish meal--a key ingredient in poultry diets--boosted demand for
soybeans.
 
Other commodities registering large gains in 1996 were fruits and
preparations, with U.S. sales rising 20 percent to over $16 million.  Volume
grew 44 percent to 15,020 tons, a six-fold increase since 1990.  The U.S.
export value of nuts and preparations increased five-fold in the 1990's.   The
most spectacular rise has occurred in exports to Israel of vegetables and
preparations, whose value has jumped 13-fold since 1990 to $51 million in
1996.  

With neither the water nor the land to grow grains and oilseeds sufficient to
meet rising food demand, Israel is a stable export market for U.S. exporters,
and exports to the country will continue to be heavily bulk-product driven,
with increased sales of high-value products.

Higher Feedstuff Exports 
To Saudi Arabia

Saudi Arabia vies with Egypt as the largest single market for agriculture in
the Middle East/North African region, with annual agricultural imports of more
than $4 billion.  Over the past decade, the U.S. share of Saudi ag imports has
consistently been around 10 percent. 

With an annual growth rate of 3.5 percent, the population is forecast to reach
25 million by the turn of the century and double over the next 20 years.  More
than half of Saudi Arabia's population is under the age of 17.  With a young
population, increased influence of satellite TV, and rising education levels,
food consumption patterns are ultimately expected to resemble more closely
those of the West.  Customers are demanding more variety in their diets, and
the supply is coming from domestic production as well as imports.

In 1996, U.S. agricultural sales to Saudi Arabia continued strong at $551
million, only 2 percent below the 1990 record.  Significant increases have
occurred in feedstuffs, particularly oil meal and corn as the country's dairy
and meat sector has expanded.  U.S. oil meal exports were a record $100
million in 1996, up 84 percent from 1995; volume rose 33 percent to just under
357,000 tons.  Since 1990, U.S. soybean meal exports have more than doubled
and the value has risen by a factor of two and a half.  U.S. sales of corn to
Saudi Arabia also continue to trend upward.  In 1996, while volume fell by 12
percent from the previous year, value rose by 18 percent to a record $136
million.  

Overall demand for barley has risen, with imports estimated at 5 million tons
in 1996 after a low of 2.9 million in 1995 when higher output reduced imports. 
However, the U.S. share has declined.  A decade ago, U.S. barley sales were
2.4 million tons, but dropped to one-tenth that level last year as EU
restitution payments made purchases from that source more attractive.   

Saudi Arabia's general agricultural policy, according to its 6th Development
Plan, is to achieve self-sufficiency while promoting agricultural production
that does not require heavy reliance on water resources to achieve growth
targets.  For example, wheat output far exceeded domestic needs until the
early 1990's, when producer subsidies were cut sharply to reduce budgetary
outlays and to slow the depletion of groundwater.  Production dropped from 4.1
million tons in 1992 to 1.2 in 1996.  Saudi policy is now to target production
levels to meet domestic needs.

Saudi Arabia has achieved self-sufficiency in many other agricultural goods
such as dates, eggs, fresh dairy products, and most vegetables.  But the
country is a significant importer of processed dairy products--powered milk,
butter, cheese, ghee, and other milk products.   U.S. exports of dairy
products to Saudi Arabia were valued at $11 million in 1996 and have grown
nine-fold since 1990.      

The Saudi market for consumer-ready food products is increasing and becoming
more diverse.  Fifteen years ago there were few supermarkets and the number of
fast food restaurants was minimal.  Today, there are about 230 large modern
western-style supermarkets, hundreds of corner grocery stores, and most major
American fast-food chains are well represented.  The number of cold storage
warehouses and food processing plants has increased significantly over the
past 3 years, boosting the country's capacity to import larger quantities of
high-value food products.  

The U.S. is a leading supplier of consumer-ready products to Saudi Arabia,
exporting $118 million in 1995.  U.S. exports of poultry meat reached a record
$22.6 million in 1995 but declined somewhat in 1996 as domestic output rose. 
This trend is likely to continue as Saudi Arabia expands its poultry capacity. 
U.S. sales of nuts continue to rise, as well as sales of dried lentils,
coffee, chocolate, beverages, and sugar and tropical products.  
 
Competition for the Saudi market has increased.  Many exporters, including the
EU, Egypt, Thailand, China, India, Australia, and New Zealand, offer different
forms of promotional assistance to importers such as subsidies and easy
payment terms.  But the U.S. share of consumer-ready food products has
remained fairly steady at about 4 percent over the past 4 years, despite
strong foreign competition and a significant increase in local  production of
food products.
       
Favorable Outlook 
For U.S. Trade

The large scale of the region's participation in the world grain market (25
percent of wheat and 19 percent each of coarse grain and rice imports) means
that it will continue to be a pivotal force in global trade.  Solid but not
spectacular export gains are expected in 1997 for U.S. exports, as the
region's expanding livestock and poultry sectors boost demand for feedstuffs,
and as high-value products meet demand by a more affluent, urbanized society. 
Most countries in the region expect moderately strong economic growth in 1997. 

In the coming years, the agricultural sectors in many countries are likely to
shrink and to change in composition as trade liberalization and privatization
continue to reduce government's role in agriculture.  More sustainable use of
scarce resources, especially water, will also force fundamental changes in the
agricultural sectors in the region.  Crop substitution--away from such
water-intensive crops as rice and sugarcane and toward less water-demanding,
higher-priced crops such as fruits and vegetables--is a likely trend.

Weather continues to play a major role in the region's agricultural well-being. 
The region is heir to devastating droughts which have caused wide
swings in grain production and therefore, imports.  Limited arable area,
continuing depletion of water resources, young and more urbanized populations
with higher incomes, and growing tourism in many countries all forecast rising
food demand which cannot be met with available local resources.  Under such a
scenario, and given the growth in the region's population and economies, U.S.
agricultural exports will reflect continued strong demand for basic
commodities and an increasingly sophisticated high-value market.  
Michael E. Kurtzig (202) 219-0636, mkurtzig@econ.ag.gov.


RESOURCES & ENVIRONMENT

Broadening the Scope
Of Integrated Pest
Management Assessment

The USDA National Initiative on Integrated Pest Management calls for a broader
assessment of IPM practices than has occurred in the past.  Past efforts to
evaluate IPM program impacts had generally focused on the cost and efficacy of
IPM practices, and assessment of environmental impacts have often been limited
to measuring changes in pesticide use.  Broadening the  assessment to document
the economic, environmental, and public-health impacts adds further
complexity.

The IPM Initiative, in operation since December 1994, aims at implementing the
Administration's goal of applying IPM methods and technologies on 75 percent
of the nation's cropland by the year 2000.  This goal involves identifying,
developing, and encouraging adoption of ecologically based pest management
approaches that reduce dependence on synthetic pesticides and are more
environmentally sustainable, but which are also economically viable for
farmers and are compatible with producing an economical, safe, and plentiful
food supply.  

USDA's IPM Initiative is aimed at developing and implementing a strategic plan
to achieve a two-pronged goal: IPM adoption and ecological risk reduction.  A
major focus of the IPM Initiative has been to redirect new and existing
resources toward IPM research and implementation priorities that are
identified through stakeholder involvement.  Incorporating the input of IPM
food and fiber producers, landscape managers, consumers, agribusiness, and
environmental groups--to name a few stakeholders--helps ensure that IPM
programs are consistent with the values and concerns of farmers, farm-
related businesses, and the public.

Forging a Consensus
On Assessment Methods

The goal of implementing IPM practices on 75 percent of crop acres has thrown
the spotlight on defining and measuring the extent of IPM adoption in the U.S. 
 The concomitant goal of reducing reliance on high-risk pesticides to garner
environmental and public-health benefits demands new methods of measuring
pesticide impacts.  Ensuring that IPM practices and technologies are
profitable for producers, and that they contribute to keeping American
agriculture competitive in world markets, requires careful evaluation of
economic impacts at both the farm and national level.

Developing the methods for measuring progress towards the IPM adoption and
risk reduction goals is the challenge facing agricultural interest groups that
include, among others, IPM practitioners; social, physical, and biological
scientists; and environmentalists.  While there is agreement on the need to
better document the economic, environmental, and public health impacts of IPM
adoption, a consensus has not yet been forged on the appropriate assessment
method(s). 

The sheer diversity of IPM systems used in the U.S. precludes adoption of a
single  approach to defining and assessing economic, environmental, and
public-health impacts.  However, several key elements must be addressed in any
approach in order to measure progress toward achieving IPM adoption and risk
reduction goals: developing site- and crop-specific definitions of IPM;
selecting appropriate environmental and public-health indicators; and
integrating the different indicators into a common framework for comparing
tradeoffs among IPM program objectives.

While IPM is defined in a number of ways, there is general agreement that it
is a systems approach to pest management that combines a wide array of crop
production practices with careful monitoring of pests and their natural
enemies.  IPM practices include use of resistant varieties, timing of
planting, techniques of cultivation, biological controls, and judicious use of
pesticides.  IPM systems are designed to anticipate pests and prevent them
from reaching economically damaging levels.

Developing a commodity- and location-specific definition of IPM is the first
step in measuring the extent and degree of IPM adoption.  The diversity of IPM
systems is difficult to capture in a single standardized definition or list of
practices.  Regional variation in geophysical characteristics, ecosystem
function, and climate results in many unique agricultural areas.  The
variation in cropping systems (crop mix and practices) and institutions
supporting agricultural production (e.g., research and extension, finance,
agribusiness, transportation) adds to the complexity.  Annual variation in
weather and pest infestation levels can also influence the set of recommended
IPM practices.

Ecosystem-specific IPM programs could contain recommended practices that
differ significantly by crop, region, and pest problem.  For example, IPM
systems recommended for apple production in the Yakima Valley in Washington
State are different from those in New York's Hudson Valley.  IPM practices for
insect control in vegetable crop production in Florida differ from the
practices for weed control in Iowa corn.  

There may be some overlap in recommended IPM practices--for instance the use
of scouting (systematic monitoring of pest infestation levels) and economic
thresholds (levels of pest infestation above which economic damage takes
place).  But the core similarity across all IPM systems is a decision-making
process that relies on the use of sound biological, physical, and economic
data to make pest management decisions.

The adoption of IPM is not a discrete yes-no choice.  Producers incorporate
into their production practices, to varying degrees, some number of the
potential IPM practices available.  Thus, measuring IPM adoption is a matter
of locating a producer's position along a continuum from none or basic, to
advanced or intensive use of IPM practices specific to a particular ecosystem. 
    
Creating an Integrated 
Assessment

Traditional crop production using agricultural chemicals has many economic,
environmental, and public-health consequences--direct and indirect, harmful
and beneficial.  Potential beneficial consequences of the use of agricultural
chemicals in crop production include higher yields, reduced production risks,
and increased crop options.  Potentially harmful consequences include water
quality impairment, loss of biodiversity, reduced populations of beneficial
organisms, and health risks to farm workers.  Assessing the economic,
environmental, and public-health impacts of alternative pest management
practices requires examining tradeoffs across a range of potential effects.  

Economists use a set of well-established methods to assess the impacts of IPM
adoption on producer profitability. The primary method of estimating farm-
level profitability is through calculating partial or enterprise budgets, which
capture changes in prices and quantities of inputs and output resulting from
the adoption of IPM methods. Farm budgets also are important inputs in more
aggregate assessments of IPM impacts.  For example, if the sample of farm
budgets is large enough, estimates of changes in aggregate crop production
levels and input demand can be calculated for a given region or for the
country as a whole.  This information in turn is used to analyze the
distribution of benefits and costs of IPM adoption among producers and
consumers, regions, and socio-economic groups.

More difficult is the assessment of actual or potential environmental and
public-health impacts associated with different levels of IPM adoption.  Many
impacts of pesticide use occur off-farm and over time, making it difficult to
link specific farm practices directly with environmental impacts.  Thus,
directly assessing the physical or biological impacts of changes in pesticide
use is complex.

In developing comparative risk estimation and ranking methods for the
environmental and public-health impacts of pesticide use and alternative pest
management approaches, analysts face two challenges.  First, gaps exist in the
data needed to evaluate pesticide impacts in areas of potential concern to
society.  For example, much of the ecological effects data on pesticides come
from single-species toxicity tests, but species or groups of species vary in
their sensitivity to different pesticides.  In addition, information on other
important factors--persistence, pesticide formulation, weather, application
methods, and use of safety precautions--all of which can be site- and time-
specific, is often not available.    

Second, analysts must determine which environmental and public-health impacts
to assess, how to quantify or measure changes in impacts, and the weights to
be assigned to different impacts (depending, for example, on the perceived
relative importance of various impacts).  Potential areas to examine include
impacts on water quality, worker safety, and the welfare of aquatic, avian,
and other beneficial organisms.  Indicators of the effects of IPM efforts
might be reduced pesticide runoff, decreased pesticide-related illness,
increase in populations of beneficial organisms, and/or a shift to biological
pesticides.  The appropriate combination of impacts and weights may depend on
the nature of the IPM system under evaluation and the priorities and interests
of the stakeholders.  

A unifying framework is needed to assess tradeoffs among economic,
environmental, and public-health impacts of alternative pest management
technologies.  No one technology will be superior in all areas of assessment. 
A particular technology or practice may reduce damage potential in one
assessment category (e.g., water quality) but increase damage potential in
another category (e.g., worker health).  An additional concern is how benefits
and costs of IPM adoption are distributed between producers and consumers, as
well as among regions and socio-economic groups.

Translating all impacts into a common unit makes comparison of tradeoffs
between objectives easier.  Using monetary values is convenient because the
economic impacts of alternative production technologies on producers and
consumers can be measured using market prices and well-established economic
techniques.   

Meaningful monetary values do not exist, however, for such environmental and
public-health impacts as decreased biodiversity, impaired water quality, or
diminished human reproductive capability.  But resource economists have
developed a set of techniques for estimating monetary values of nonmarket
impacts which have been used to estimate a value for environmental and
public-health impacts.  If appropriate values can be determined for the
nonmarket impacts, a benefit-cost framework can be used to assess tradeoffs
between different objectives.  

Achieving the Administration's goals of implementing IPM on 75 percent of U.S.
cropland by the year 2000 and reducing environmental and public-health risks

from pesticides will require a concerted effort by all IPM stakeholders.  The
returns on that effort have the potential to produce widely shared benefits
for all sectors of society.  

Given the diversity of agroecosystems, stakeholder priorities, and IPM systems
in the U.S., finding an appropriate method to assess those shared benefits
will be a challenge.  But careful documentation of IPM's economic and
environmental goals, including continued profitability for farmers and reduced
risks to human health and the environment associated with pesticide use, is an
essential step in enlisting producer and public support for IPM. 
Sarah Lynch (202) 219-0456, sglynch@econ.ag.gov


RESOURCES & ENVIRONMENT BOX--1

This article highlights some of the major issues discussed during the Third
National Integrated Pest Management (IPM) Symposium/Workshop held in
Washington, D. C. from February 27 to March 1, 1996.  Attending the workshop
were more than 600 participants from around the country, reflecting a wide
array of disciplinary and professional backgrounds.  The Symposium/Workshop
was co-sponsored by USDA's Cooperative State Research, Education, and
Extension Service and Economic Research Service, along with the Extension and
Experiment Station Committees on Organization and Policy and their IPM
subcommittees.  In addition to the assessment of  IPM impacts, the topics
addressed included:  involving IPM customers (farmers, agribusiness,
consumers) in the design, implementation, and evaluation of IPM programs;
analytical and data needs for pest management programs; working with customers
to identify research and implementation priorities; and policies for promoting
biological and reduced-risk alternatives.


RESOURCES & ENVIRONMENT BOX--2

An IPM Tool Box

Biological pest management includes the use of pheromones, plant regulators,
and microbial organisms (such as Bacillus thuringensis (Bt)), beneficial
organisms, and genetic resistance to insects, disease, and other pests.

Cultural pest management includes crop rotations, tillage, alternations in
planting and harvesting dates, trap crops, sanitation procedures, irrigation
techniques, fertilization, physical barriers, border sprays, cold air
treatments, and habitat provision for natural enemies of crop pests.

Areawide pest management systems combine primarily biological and cultural
methods of pest management to contain or suppress insect pest populations over
large definable areas.  This is in contrast to traditional IPM systems which
are implemented on individual farms and ranches.  Area wide pest management is
implemented through partnerships with growers, commodity groups, and
government agencies.

Pesticide efficiency tools include scouting and economic thresholds, expert
systems, precision farming, and bioengineered herbicide tolerance.


RESOURCES & ENVIRONMENT BOX--3

Comparing Pesticide Risks

To facilitate comparing pesticide risks, several different research teams have
developed multiple-attribute classification tools to help growers in making
pesticide choices.  Approaches range from relatively uncomplicated pesticide
classification lists to more sophisticated software-based whole-farm planning
systems.  Following are three examples of such tools, presented at the recent
IPM symposium/workshop.

Red/Yellow/Green pesticide classification schemes divide all pesticides
registered for a particular crop into three categories.  The use of pesticides
coded "red" is prohibited for management systems designated as IPM, with some
exceptions; pesticides coded as "yellow" can be used with caution and in
association with other preventive measures; and pesticides labeled "green" can
be used without restrictions.

National Agricultural Pesticide Risk Analysis (NAPRA), developed by USDA's
Natural Resources Conservation Service, is a field-level planning tool that
allows growers to compare water quality risks resulting from various
pesticides in different crop and tillage scenarios.  Based on an environmental
fate model, NAPRA quantifies relative environmental risks associated with
pesticides in percolation, solution runoff, and erosion by generating
climate-specific probabilities of off-site pesticide loadings and
concentrations. 

This information, when coupled with pesticide toxicity data, provides a
quantitative evaluation of the relative risks associated with different
managment options.

PLANETOR 2, developed by the Center for Farm Financial Management at the
University of Minnesota, is a comprehensive environmental and economic
farm-planning software program.  Different modules evaluate impacts of reducing
or changing pesticide, nitrogen, phosphorus, and manure applications; tillage
systems; and crop rotations.  Different management options are compared for
impacts on soil erosion, nitrate leaching, phosphorus runoff, pesticide
movement, as well as economic profitability.


FARM & RURAL COMMUNITIES

The Risk Management Needs 
Of Limited-Resource Farmers 

The risks of crop loss and price declines have long been facts of life in
agricultural production.  Recent changes in Federal programs have focused
attention on the need for U.S. farmers to manage these risks and to examine
available risk management options more closely.  

USDA's Economic Research Service (ERS) has been working with the Department's
Risk Management Agency (RMA) to improve RMA's products and expand its outreach
efforts aimed at limited-resource farmers.  One RMA product, multi-peril crop
insurance (MPCI), has been commonly used by farmers as a risk management tool. 
While MPCI is sold to farmers primarily by private insurance agents, RMA
develops the policies and the underwriting terms, and provides subsidization
and reinsurance.  As a result, RMA has an interest in knowing how MPCI has
been serving the needs of limited-resource farmers.

Using data from USDA's Farm Costs and Returns Survey (FCRS) and from the
Census of Agriculture, which provide information on individual farms and on
the principal operator of each farm, ERS identified characteristics of
socially disadvantaged, small, and limited-opportunity farm operators.  The
two agencies also examined such farmers' interest in and use of various risk
management programs, particularly Federal crop insurance.  In both the Census
and FCRS, the principal operator of a farm may be the owner, a tenant, or a
hired manager.  

Results of the research indicate that socially disadvantaged, small, and
limited-opportunity operators tend not to purchase crop insurance nor to
participate in insurance-type programs operated by USDA.  This article traces
the reasons behind lack of use of these risk management tools by limited-
resource farmers.

Who Are the 
Limited-Resource Farmers?

Limited-resource farmers are defined by RMA as farm operators having less than
$20,000 in income from all sources in the previous 2 years. While not all
socially disadvantaged and small farms fall into this income category, the
term "limited resource" loosely refers to these types of farms as well as to
limited-opportunity farm households.

A socially disadvantaged group is defined by the 1987 Equal Credit Opportunity
Act as one whose members have been subjected to racial, ethnic, or other forms
of prejudice because of their membership in the group.  USDA defines women,
African Americans, American Indians and Alaskan Natives (Native Americans),
Asians and Pacific Islanders, and Hispanics as socially disadvantaged groups. 
Data presented on these groups were obtained from the 1992 Census of
Agriculture.  

Except for women, socially disadvantaged farmers tend to be concentrated in
particular regions of the U.S.  Approximately 90 percent of the 18,800 African
American-operated farms are in the South.  In two southern states--Mississippi
and South Carolina--African American-operated farms account for 8-9 percent of
all farms, compared with 1 percent of all farms nationwide.  Most (81 percent)
of the 8,300 American Indian-operated farms identified in the Census of
Agriculture are west of the Mississippi River.  North Carolina, however, has
600 American Indian operators, many of whom specialize in tobacco.  

Of the 8,100 Asian/Pacific Islander-operated farms, most (79 percent) are in
California and Hawaii, and most of the 21,000 Hispanic-operated farms (72
percent) are in California, Colorado, Florida, New Mexico, and Texas.  The
1992 Census of Agriculture identifies about 145,000 farms (8 percent of all
U.S. farms) with women as their principal operators, and these are distributed
throughout the U.S.

Older operators are more common among farmers in certain socially
disadvantaged groups than among the U.S. farm population in general.  African
American and female operators tend to be older, with at least 36 percent of
each of these groups at least 65 years old, compared with 25 percent of all
farm operators.  

Small, full-time farms were also identified using 1992 Census of Agriculture
data.  The small, full-time farm designation is based on three criteria: sales
of agricultural products were less than $20,000; principal occupation of the
operator was farmer or rancher; and the operator worked less than 50 days of
the year off the farm.  About 350,000 farms fit this definition.  Financial
data other than sales (e.g., off-farm income) cannot be used as a definitional
criteria in the Census.

As with socially disadvantaged farmers, small farms are often associated with
age. According to the Census, nearly 60 percent of the operators of small
full-time farms were 65 years old or older in 1992.  

Limited-opportunity farm households are defined by economic criteria, which
include off-farm income and other related financial information.  The data
source for this definition is USDA's 1992 FCRS.  Limited-opportunity farm
households exhibit three characteristics: gross household income of less than
$20,000; farm sales of less than $100,000; and farm asset value of less than
$150,000.  In 1992, there were about 185,000 limited-opportunity farm
households in the U.S. (out of 2.1 million total farms).  Although these farms
were less geographically concentrated than the farms of socially disadvantaged
groups, 60 percent were in the South.

Livestock, Specialty Crops  
Dominate Production

Farms operated by members of socially disadvantaged groups and  limited-
opportunity households are more likely than farms in general to depend on
livestock production.  Although most socially disadvantaged farm operators
harvest cropland, crops generally provide a smaller share of their farm income
than livestock, a sector that government-sponsored insurance programs do not
cover. Livestock for these operators frequently means beef cattle, which often
have relatively flexible labor requirements that can combine well with an
off-farm job or provide a supplement to retirement income.  

More than 70 percent of farms operated by Native Americans obtained half or
more of their total sales from livestock, as did more than 60 percent of farms
operated by women and more than 50 percent of farms operated by both African
Americans and Hispanics. Among  limited-opportunity farms, crop sales
accounted for only 30 percent of the gross farm income, compared with more
than 40 percent for all farms.

An exception to the livestock "rule" are farms operated by Asians/Pacific
Islanders.  More than 80 percent of Asian/Pacific Islander farms derived at
least half of total sales from crops.  In addition, many of these farmers, as
well as other socially disadvantaged groups who raise crops, concentrate on
specialty crops such as fruits and vegetables.  Although Federal insurance is
available for most fruit and nut crops in selected areas, many vegetables, as
well as livestock, are not yet covered by Federal insurance programs.

The types of crops harvested by socially disadvantaged farmers, and therefore
the extent to which these farmers may be covered by crop insurance, depends to
a great extent on where socially disadvantaged groups are geographically
concentrated.  Tobacco, for example, is grown primarily  in the upper South,
where many African American-operated farms are concentrated.  Since tobacco is
eligible for crop insurance, these socially disadvantaged farmers may be
covered.  According to the 1992 Census of Agriculture, tobacco accounts for
half or more of total farm sales on nearly one-third of African American-
operated farms in the RMA Raleigh service region (the East Coast states from
North Carolina to Maine).

Hay, on the other hand, associated with livestock farming, is the most
commonly harvested crop on farms operated by Native Americans and Hispanics. 
Almost all land farmed by Native Americans, most of which is used for grazing,
is in RMA's Oklahoma City (Southern Plains) and Billings (Northern Plains)
regions, where many large reservations are located.  Almost half of all
Hispanic-operated farms are also located in the Oklahoma City (Southern
Plains) region, which includes traditional Hispanic farming and ranching areas
in New Mexico and Texas.

RMA's Group Risk Plan (GRP) crop insurance for forage has so far been
available only in selected counties in the Lake States and Northern Plains. 
RMA plans a significant expansion of GRP crop insurance for forage in 1998. 
GRP benefits are based on variations in county-level yields.  An individual-
yield forage policy is also widely available under the Federal crop
insurance program.  The RMA regional service offices have considerable
discretion in deciding the types of forage covered under the individual-yield
and GRP policies, although alfalfa and alfalfa mixes are the primary types
covered in many areas.

Most Asian/Pacific Islander farms are in California and Hawaii, areas where
significant acreage is planted to fruits and vegetables.  According to the
1992 Census of Agriculture, nearly 60 percent of the Asian/Pacific Islander-
operated farms in RMA's Sacramento region (California, Hawaii, Arizona, 
Nevada, and Utah) grew fruits, nuts, or berries. 

The Sacramento region also contains about 20 percent of all Hispanic-operated
farms, and slightly more than half of these farms grew fruits, nuts, or berries.  
Nearly half (48 percent) of these Hispanic farmers obtained most of their sales 
from fruit and tree nuts. 

While farms operated by women are geographically distributed much like all
U.S. farms, they obtained a smaller portion of their income from crop
production than all farms.  Just 63 percent of farms operated by women
harvested cropland, compared with 78 percent of all farms, and only 38 percent
of female-operated farms obtained half or more of their sales from crops,
compared with 45 percent of all farms.

While crop production varies by region, the pattern of crops harvested on
farms operated by socially disadvantaged operators often does not match the
farms typical to a region.  Cotton, for example, is more commonly harvested on
African American-operated farms in RMA's Jackson region (Arkansas, Louisiana,
Mississippi, Tennessee, and Kentucky) than on all farms in that region. 

In addition, African American-operated farms in this region were twice as
likely as all farms to harvest vegetables.  In the Sacramento region, fruits
and tree nuts account for more than half of sales on over 50 percent of the
Asian/Pacific Islander farms, but on less than 40 percent of all farms.

Although crop insurance is not currently available for many specialty crops
(particularly vegetables), risk protection is available through the Non-insured
Assistance Program.  RMA is expanding the crop insurance program,
adding new crops each year.  At the request of RMA, ERS has completed
feasibility studies on expanding crop insurance to 45 additional specialty
crops (the program currently covers about 35 fruit, vegetable, nut, and
specialty tree crops).  In 1998, for example, RMA plans to begin offering
coverage for pecans and sweet potatoes.  So while some socially disadvantaged
and limited opportunity farmers may currently be unable to obtain crop
insurance coverage for their operations, the situation is changing.  

Farm Size, Income 
Can Affect Insurance Needs

Farm size can be a factor in assessing the need for agricultural insurance. 
For many operators of small farms, farm income contributes little to the
household's income.  Off-farm income, such as wages and salaries earned from
off-farm jobs held by farm household members, can sometimes offset low farm
income and provide protection against agricultural risks.  A lack of insurance
for the farm enterprise may be less important to such households than for
those more reliant on farm income.

Most U.S. farms--both full- and part-time enterprises--are small.  More than
60 percent of the 1.9 million U.S. farms had annual sales of less than
$25,000, according to the 1992 Census of Agriculture.  Farms operated by the
socially disadvantaged, however, are even more likely to be small--70 percent
or more of the farms operated by African Americans, Native Americans,
Hispanics, and women sold less than $25,000 in agricultural products in 1992.  

Asian/Pacific Islander-operated farms were an exception.  More than 50 percent
of these farms had at least $25,000 in sales, and more than 10 percent had
$500,000 or more in sales.  Just 2.4 percent of all U.S. farms had sales of
$500,000 or more.

Limited-opportunity farm households obtain, on average, virtually all their
income from off-farm sources, according to the FCRS.  For households with
younger operators, the source is often off-farm work; for older operators,
Social Security and other retirement income may be more important.  Operators
of these limited-opportunity farms may have taken off-farm work because their
farms were too small to support the household, or they may be forced to farm
on a small-scale because of the requirements of off-farm employment.  In
either case, farm income usually provides only a small portion of overall
income.  

Many households with small farms actually lose money farming.  It may be that
some operators of small farms could be interested in agricultural insurance to
protect their off-farm resources from farm losses.  On the other hand, income
from farming may be too limited for many of these operators to justify
increased expenditures for crop insurance.

What Limited-Opportunity
Farmers Want

RMA's marketing plans for limited-resource farmers, developed through its
regional service offices, have focused on outreach tailored to individual
areas and groups of producers.  These marketing plans are aimed at increasing
the number of minority insurance agents and companies and ensuring inclusion
of minority farmers in the activities of farm associations, the farm media,
and extension agents.  RMA has also conducted educational programs in
partnership with established minority farmer organizations like the Federation
of Southern Cooperatives, a grassroots organization in rural communities.

These educational efforts included about 60 Federation workshops on crop
insurance reform for minority and low-income farmers during a 6-month period
in early 1995.  At the conclusion of each workshop, participants were given a
questionnaire on their interest in alternative crop insurance products and
their suggestions for improving the program's effectiveness.  The 268
respondents, mainly African Americans, were asked to indicate changes in RMA
programs that would be of most help to them.  A small number of Native
Americans and Hispanics farming in the Southeast and Texas were also among the
respondents.

Several questions focused on the levels of subsidization and coverage
preferred by respondents.  Twenty-six percent of the respondents indicated
that they would like to see the basic catastrophic (CAT) coverage available at
a higher level than the current 50-percent yield/60-percent price coverage. 
Essentially, these respondents would like to see greater catastrophic
protection offered at minimal (or no) charge.  

In contrast, relatively few of the respondents indicated they would like to
see changes in the "buy-up" coverage levels.  Only 8 percent indicated a
desire for "buy-up" coverage above the 75-percent yield guarantee level, and
only 6 percent favored a higher premium subsidy at the buy-up coverage levels. 


Respondents across all ethnic groups requested that RMA offer coverage for
additional crops, as well as for livestock.  African American respondents were
most likely to indicate they would like to see crop insurance for vegetables,
while Native Americans most often favored insurance for timber, and Hispanics
most frequently indicated a need for insurance for such crops as pecans, hay,
and watermelons.  Several respondents indicated they would like to see
protection from higher feed costs, which suggests they might be interested in
revenue insurance coverage. 

A number of respondents designated continued outreach and education efforts as
a preferred policy change, particularly one-on-one assistance.  Nine percent
indicated they would like regular group update workshops and information
sessions, while 16 percent noted the need for personal assistance in
understanding sign-up procedures and program changes.  The high percentage
indicating a desire for individual assistance parallels findings by other USDA
agencies--in particular, the Natural Resources Conservation Service--that
personal assistance is helpful in reaching socially disadvantaged and
limited-opportunity farmers. 

Results of this survey, as well as ERS's identification of the characteristics
of socially disadvantaged, small, and limited-opportunity farm operators,
suggest that certain types of insurance products and outreach may be of
particular assistance to these farmers.  Program changes and additions
currently under study, especially coverage of additional crops, may be most
useful.  At the same time, expanded outreach and educational efforts already
underway at RMA may encourage socially disadvantaged and limited-opportunity
farmers to make greater use of programs for which they are eligible.
Robert Dismukes (202) 219-0716, dismukes@econ.ag.gov; Joy L. Harwood (202)
219-0770, jharwood@econ.ag.gov; and Robert A. Hoppe (202) 501-8308, 
rhoppe@econ.ag.gov

FARM & RURAL COMMUNITIES BOX--1

The Menu of Crop
Insurance Programs

Since the early 1980's, USDA has moved to make multiple-peril crop insurance
(MPCI) the primary form of disaster assistance for farmers.  Crop insurance
coverage has grown since then, despite the availability of ad hoc disaster
assistance for specific emergencies legislated after crop losses from 1988-94. 
Following major reform in 1994, participation in the Federal crop insurance
program has dramatically increased, covering about 70 percent of eligible
acres.  

Currently, coverage is available for all major field crops (corn, wheat, and
soybeans, for example) and some fruit, vegetable, and nut crops.  Crop
insurance is available for about 60 crops, though in some locations coverage
is not available for all these crops, since climate and other factors dictate
feasible production areas.  RMA does not insure citrus in Alaska, for example,
because citrus is not a viable crop in that area.  MPCI is sold primarily by
private insurance agents, with USDA setting premium rates, subsidizing
producer premiums, paying administrative costs, and providing reinsurance.

MPCI covers crop losses that result from natural perils such as drought,
floods, hail, and high wind.  The most popular form of MPCI is actual
production-history insurance, under which coverage level is based on a farm's
historical average yield.  The farmer can purchase coverage at up to 75
percent of the farm's historical yield and up to 100 percent of the projected
season-average price.  For example, if a farmer has a 100-bushel average yield
for corn and chooses a 65-percent coverage level, the yield guarantee would be
65 bushels per acre.  If an insurable peril causes the farm's actual yield to
drop below 65 bushels, MPCI will pay the difference between 65 bushels and the
actual yield.  If the actual yield is 50 bushels, the payment would be 15
bushels multiplied by the price election. 

Another form of MPCI, which has been offered on a limited basis beginning in
1993, is the Group Risk Plan (GRP), with coverage based on the average county
yield rather than the individual farm yield.  A producer can purchase a
guarantee based on the county yield, and if the county yield falls below the
insured level, then the producer will receive a payment regardless of his or
her individual farm yield.

A major change in MPCI occurred in October 1994 with enactment of the Federal
Crop Insurance Reform Act, which made future outlays of ad hoc disaster
assistance more difficult to approve and introduced an additional form of
MPCI, the catastrophic (CAT) level of crop insurance.  CAT provides the option
of a low-cost, basic level of yield protection (50 percent of average yield is
covered at 60 percent of the expected price), with producers paying a
processing fee instead of an insurance premium.  The processing fee is $50 per
crop per county, and a producer's total cost cannot exceed $600.  The fee is
waived for limited-resource farmers, defined as having less than $20,000 in
income from all sources in the previous 2 years.

In addition to CAT coverage, producers can purchase "buy-up" coverage, which
is available at up to the 75-percent yield guarantee (based on the individual
farm's historical yields) and 100 percent of the expected season-average
price.  "Buy-up" coverage requires a processing fee, plus a premium payment
based on the yield risk associated with the policy.  Farms in areas with
greater annual yield fluctuations pay a higher premium than farms in areas
where yields are more uniform.

A Non-insured Assistance Program (NAP) is provided at no cost for crops for
which insurance is not offered.  NAP coverage is similar to CAT coverage, but
requires a 35-percent area loss to be met before individual payments can be
made.  An area can be defined as a county, a geographic parcel of at least
320,000 acres, or a parcel accounting for a crop value of at least $80
million.  Unlike MPCI, NAP is administered by USDA's Farm Service Agency.  For
producers to be eligible for NAP, they are required to sign up (reporting
their acreage and past yields) before the beginning of the season.  

In the spring of 1996, RMA introduced two new risk management products
offering revenue insurance on a pilot basis for selected crops, adding a third
product in spring 1997.  These revenue insurance policies provide farmers with
protection against low yields, low prices, or both.  

In contrast with simply a yield guarantee, as with MPCI, a producer's
guarantee is for a level of revenue, which is the product of the farmer's
historical yield and the expected harvest-time price.  Indemnities are paid
when the producer's actual yield, multiplied by the actual harvest-time price,
falls below the guarantee.  These new programs expand the types of risk
protection available to producers, and allow producers additional options for
helping them best manage the risk associated with their operation.  (AO
October 1996.) 

FARM & RURAL COMMUNITIES BOX--2

Current RMA 
Efforts to Assist 
Limited-Resource Farmers

RMA continues to develop new insurance products, many of which will help meet
the needs of socially disadvantaged, small, and limited opportunity farmers. 
In 1998, RMA plans to make new pecan and sweet potato programs available. 
Further, a significant expansion of Group Risk Plan crop insurance for hay and
forage production is anticipated.  Research continues on insuring cabbage,
cucumbers, melons, and other direct market crops.  Other options mentioned by
participants in crop insurance workshops--increasing the guarantee level of
catastrophic crop insurance and offering insurance on livestock
production--would require legislative changes and have major budgetary impacts.

Efforts to reach socially disadvantaged, small, and limited opportunity
farmers need to include the private insurance companies and agents that sell
crop insurance to farmers.  RMA has proposed changes to its Standard
Reinsurance Agreement with insurance companies that would increase incentives
for selling crop insurance to small-scale farmers.  RMA has also proposed that
the companies collect and report data on participation in the crop insurance
program by socially disadvantaged farmers.

RMA is also working with the Federation of Southern Cooperatives and the
Intertribal Agriculture Council to identify minority insurance agents and
companies that may be interested in marketing crop insurance.  RMA's Valdosta
regional service office will provide loss adjustment training for minorities
identified by the Federation of Southern Cooperatives.

RMA's educational outreach programs continue to target minority farm
operators.  For example, RMA distributes information about risk management
programs through the North American Precis Syndicate, a media placement
service that provides access to rural Hispanic and African American audiences. 
Messages have covered crop insurance reform, sales closing dates, and NAP
sign-up dates.


SPECIAL ARTICLE

USDA's Water Quality 
Program: The Lessons Learned

USDA's Water Quality Program (WQP) promotes adoption of alternative management
practices by farmers, in an effort to protect the nation's waters from
agricultural chemicals and waste products.  Established in 1990 under a
Presidential initiative, the WQP builds upon past programs--such as the Model
Implementation Program of the 1970's and the Rural Clean Water Program and
Water Quality Special Projects of the 1980's--to reduce nonpoint-source
pollution (pollution that enters waterways over a dispersed area).  Farmers
who voluntarily participate are provided education, technical assistance, and
financial assistance for adopting alternative management practices.  

Agricultural production often emits pollutants that affect the quality of
water resources and impose costs on water users.  In 1994 the Environmental
Protection Agency reported that agriculture is the leading source of
impairment in surveyed U.S. rivers and lakes, and a major source of impairment
to estuaries.  Agriculture is also an important source of contaminants in some
aquifers.  Major agricultural pollutants that have been found in water
resources include sediment, nutrients, pesticides, salts (from irrigation) and
pathogens (from animal waste).

The WQP has strived to: 1) determine the precise nature of the relationship
between agricultural activities and water quality; and 2) develop and induce
voluntary adoption of technically and economically effective agrichemical
management and agricultural production strategies that protect ground and
surface water quality.  Out of experience with these programs, 10 lessons have
emerged for enhancing the probability that water quality programs will achieve
their goals in a cost-effective manner.

Lesson 1: Cost-effectiveness is enhanced when program activities are targeted
to watersheds where agriculture is the primary source of a water quality
impairment, and to critical areas within watersheds.  

Maximizing program benefits depends on identifying those watersheds where
changing farm management strategies will improve water quality, and where
demand for water quality is highest.  Watersheds with water quality problems
differ greatly in the improvements that can be achieved through changes in
agricultural management practices and in the economic benefits of these
improvements.  When agriculture is not the primary source of pollutants in an
impaired watershed, the degree to which agricultural nonpoint-source pollution
programs can improve water quality is limited.  Point sources (e.g.,
factories), urban runoff, and even natural sources may predominate.  

In some watersheds, the demand for water quality may be very low, due to small
population, low economic activity, or an abundance of alternative, high-quality
water resources.  While water quality may be degraded from the
standpoint of aquatic life, scarce program dollars are better spent by first
concentrating on those watersheds where economic benefits from improvements
are greatest.

Program cost-effectiveness is also enhanced when critical areas for priority
treatment within watersheds are identified.  Not all farms are the same,
differing in topography, soils, management practices, and proximity to water
resources.  Identifying those critical areas that are likely to contribute
disproportionately to a water quality problem greatly increases the
effectiveness of  assistance. 

Identifying critical areas for treatment may be difficult because of the
diffuse nature of nonpoint-source pollution.  However, local personnel may be
able to identify such areas based on knowledge of local production practices
and resources.  Models can also be used to identify critical areas based on
the potential for contributing pollutants to water resources.

Lesson 2: Voluntary programs are likely to be most successful when farmers
recognize that agriculture contributes to severe local or on-farm pollution
problems such as ground water impairment.  

One of the most important tasks of staff involved in WQP is to convince
farmers that the water quality problems in the project are real, and that
farmers are part of the solution.  If farmers are motivated to alter
production practices for reasons other than enhanced profits, the set of
practices they might be willing to adopt is increased.  Farmers who display
some degree of stewardship or altruism toward the environment may even be
willing to adopt practices that increase risk or decrease profits, as long as
the local environment will benefit and the farm remains financially viable.  

Lesson 3: Voluntary programs are likely to be successful when the programs'
alternative practices generate higher long-term returns.  

The success of voluntary programs depends on whether farmers continue to use
new practices after assistance ends--USDA assistance for new practices has
typically extended only 1 to 5 years.  The condition that remedial practices
increase net returns as well as protect the environment limits the set of
practices available to address a problem in any project area, and on any farm. 
The set of practices that fulfills this condition for any particular farmer is
frequently unknown by program managers.  Among the practices that protect
water quality and have been shown to be economically attractive are
conservation tillage, nutrient management, irrigation water management, and
integrated pest management. 

Lesson 4: Programs with flexible financial assistance are more efficient than
those with fixed rates and limited lists of supported practices.  

The availability of financial assistance is an important part of a successful
voluntary program.  Even when alternative management practices are profitable,
constraints may prevent a farmer from adopting them.  Such constraints include
increased risk and inexperience with a particular practice, as well as other
management factors.  Financial assistance in the form of short-term incentive
payments covers at least part of the risk of economic losses over the
adjustment period, but as offered, does not extend over the long term. 

A financial assistance program should be flexible in incentive levels and in
the practices eligible for assistance.  Ideally, the level of assistance for a
practice should reflect the expected environmental benefits.  This information
is often lacking.  An alternative strategy is to set rates at levels
sufficient to ensure the adoption of practices believed necessary to meet
project goals.  This rate would vary among farmers.  Cost-effectiveness is
enhanced when differences in the financial and risk characteristics of farmers
are considered when offering financial assistance.  Determination of eligible
practices needs to be made at the project level, with an oversight role at the
national program level. 

Lesson 5: Project success is enhanced when education, technical assistance,
and financial assistance are offered in a coordinated fashion.  

Projects that offer education, technical assistance, and financial assistance
have the best chance of promoting alternative production practices.  There are
a number of constraints to the adoption of alternative management practices,
and not all can be addressed by one type of assistance.  

Education and technical assistance can inform producers about new and
innovative practices, reduce the cost of obtaining information about
practices, and clarify what may be inconsistent and conflicting information
about a new practice.  Technical assistance also helps provide managerial
skill that may be lacking, and enables the producer to handle increasingly
complex practices.  Financial assistance helps overcome a short planning
horizon, allows the farmer to accept greater risk over the short run (during
the learning phase), and provides an incentive to try a nontraditional
practice. 

Not all farmers require the full spectrum of assistance, but it should be made
available since project staff cannot determine a priori what types of
assistance will be needed.  Even when regulations provide the impetus for
adopting alternative management practices, education and technical assistance
are needed to ensure proper use of the new practices. 

Lesson 6: Local research on the economic and physical performance of
recommended practices can improve practice adoption.  

Farmers are often skeptical of practices that do not have a local history of
use.  This becomes a problem when new and innovative practices are promoted to
address a local water quality problem.  Where local experience is lacking,
field testing and demonstrations of new practices should be implemented to
investigate the local economic, environmental, and agronomic features of
promoted practices.

Lesson 7: Interaction with non-USDA agencies and with organizations and local
businesses within a watershed is important.  

Involving local stakeholders has been a particular strength of WQP projects. 
Local environmental and resource entities such as soil and water conservation
districts, drainage districts, irrigation districts, and natural resource
districts may be operating in project areas.  These special districts, as well
as local business and environmental groups, may have some interest in water
quality issues.  Involving these stakeholders early in project planning can
minimize future conflicts, and may bring in additional resources and
expertise. 

Lesson 8: More attention to water quality monitoring and project evaluation
can help determine the cost-effectiveness of alternative practices and assist
in the development of  targeting strategies. 

Ongoing performance evaluations should be an integral part of every project. 
Progress assessment can identify problem areas in time for corrective action,
and improve targeting criteria for future projects.  Water quality monitoring
is the most defensible means for evaluating whether a water quality project
achieves its goal.  An effective monitoring program must establish a baseline
of water quality conditions and be maintained long enough to account for lags
in the movement of agricultural pollutants and natural fluctuations in
weather.

An acceptable alternative to monitoring may be water quality modeling.  A
number of models have become available that can predict pollutant loadings at
the watershed level.  Models are useful when prolonged lags in observable
water quality improvements are expected.  In addition, models can be used to
identify critical areas within watersheds and to establish project
implementation goals.  A drawback is that models must be carefully calibrated
to local conditions. 

In addition to water quality monitoring, an effective mechanism must be
implemented for tracking changes in crop management in the project area.  Such
information enables interim assessments of whether program goals are being
achieved, and where and what types of additional assistance might be needed. 
As with water quality, a land management baseline must be established.  In
order to properly evaluate what is happening in a watershed, it is also
necessary to track management changes on those fields not receiving
assistance. 

Lesson 9: Water quality programs need a long-term focus.  

Adequate resources must be made available for an extended period of time to
ensure successful completion of a project.  The physical processes that
connect on-field management changes to downstream changes in water quality
also may take years, and even decades.  The adoption process, from first
learning about a practice through implementation, can take years; while
assistance is designed to speed up this process, overall progress can still be
slow.  

Water quality monitoring should be maintained beyond the time assistance ends,
and realistic expectations should be set as to when observed improvements in
water quality are likely to be seen.  Adequate time must also be set aside for
pre-implementation planning, including establishment of baselines and
conducting field research on the performance characteristics of alternative
practices.  WQP projects were set up as 5-year projects.  This period was
found to be inadequate, and most projects have been extended for an additional
3 years.

Lesson 10: Voluntary programs are enhanced if backed by firm but flexible
regulations.   

While regulations may be considered onerous by many in the farm community,
regulations can play an important role in promoting alternative production
practices without placing overly burdensome costs on farmers.  Voluntary
approaches supported by regulatory authority may be the most effective means
of reducing pollution from agricultural sources.  Regulations clarify goals,
and provide impetus for farmers to search for alternatives that may in fact
maintain or even enhance net returns.  Farmers may even favor regulations that
recognize the efforts of conscientious producers and punish "bad actors."  

Future Programs
Build on Past Lessons

The lessons of the WQP and past USDA water quality programs provide important
guidance for future programs.  The new Environmental Quality Incentive Program
(EQIP) that was established in the Federal Agriculture Improvement and Reform
Act of 1996 (Farm Act) will continue the course set by USDA's Water Quality
Program.  The 1996 Farm Act authorizes a multi-year USDA commitment to provide
education and technical and financial assistance in targeted watersheds to
address water quality and other resource concerns.  Many of the
recommendations outlined above were incorporated in the enabling legislation,
including targeting; increased and flexible financial assistance; a full range
of education and technical and financial assistance; and an emphasis on
evaluation and cost-effectiveness.  

The experience and knowledge from the WQP will improve the performance of
projects based on voluntary adoption of alternative management practices such
as EQIP.  While the voluntary approach probably cannot by itself achieve all
national water quality objectives, it can be a valuable tool to state and
Federal water quality protection programs.
Marc O. Ribaudo (202) 501-8387, mribaudo@econ.ag.gov

SPECIAL ARTICLE BOX

USDA Water Quality 
Program Components

Demonstration projects--multi-county educational and technical assistance
efforts located in regions where agriculture is believed to affect water
quality.  Sixteen Demonstration Projects, started in 1990 and 1991, exist
under WQP. 

Hydrologic Unit Area Projects--projects in small watersheds with identified
nonpoint-source water quality problems that provide education, technical
assistance, and financial assistance to local landowners for applying
alternative management and structural practices. Seventy-four HUA's, started
in 1990 and 1991, exist under WQP.

Water Quality Special Projects--extended cost-share assistance under WQP to
farmers and ranchers for installing approved water quality practices in small
watersheds with identified agricultural nonpoint-source problems.  WQSP's,
started in 1990 and 1991, number 110.

Water Quality Incentive Projects--projects designed to achieve source
reductions of nonpoint-source agricultural pollutants in small watersheds with
identified water quality problems.  Financial assistance is provided for the
adoption of alternative management practices.  WQIP projects, started in
1993-95, number 242.

Priority Components Research--grants award program supporting research on the
scientific principles of good natural resource management.  USDA's
Agricultural Research Service has funded 62 research projects at 26 locations,
while USDA's  Cooperative State Research, Education, and Extension Service has
awarded 245 competitively selected projects.  Research grants have been
awarded for studies involving the fate and transport of contaminants within
surface and ground water systems, sampling and testing methods, management and
remediation practices, and the economics of adoption.

Management Systems Evaluation Areas--farm-, field-, and watershed-level test
sites for studying the environmental and economic performance of alternative
management practices.  The MSEA's have installed state-of-the-art field
equipment to determine the effects of various crop management systems on water
quality.  Modified cropping systems specifically suited to soil, geology,
climate, irrigation, nitrogen, and pesticide needs are being tested.  Soil and
water tests are providing valuable data concerning the fate and transport of
agricultural chemicals within the environment.  Five initial MSEA projects--in
Iowa, Minnesota, Missouri, Nebraska, and Ohio--were established to study
corn-soybean agriculture in the Midwest.  Two additional projects--in
Mississippi and North Carolina--have been started to study cotton and animal
agriculture.

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