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Office of the Press Secretary

For Immediate Release July 18, 1998

                             July 18, 1998

Today, President Clinton is announcing a new initiative responding to the crisis afflicting certain sectors of the farm economy. This new initiative will enable the Department of Agriculture (USDA) to buy surplus agricultural commodities, beginning next week. The commodities will be used to assist needy people around the world.

President Clinton's New Initiative:

The President will direct the USDA's Commodity Credit Corporation (CCC) to purchase surplus commodities from the market and, in cooperation with the Agency for International Development (AID), donate the commodities to countries, such as Indonesia and Sudan, that are suffering humanitarian needs. USDA will negotiate donation agreements with the recipient countries, based on an initial assessment of need and to ensure the donations will benefit the most needy populations. Specific recipients and the amounts they will receive will be determined through negotiations.

The initiative will target wheat, currently facing the largest surplus as measured by stocks-to-use over the previous decade. Under this initiative, USDA will purchase up to 80 million bushels of wheat worth approximately $250 million (including transport costs).

President Clinton's New Initiative Helps Farmers:

By removing surplus commodities from the domestic market, the new initiative will strengthen prices under pressure from lax export demand. For example, the wheat stocks-to-use ratio, a key measure of the amount of surplus, is far in excess of the 10-year average, depressing prices. The President's action is designed to help remedy this market weakness and could raise prices as much as 13 cents a bushel.

The new initiative builds upon the President's action to boost farm exports by signing legislation on Tuesday, July 14, 1998, to reopen the Pakistani and Indian markets to American farmers. This legislation allowed US wheat exporters to sell 300,000 tons of wheat to Pakistan the following day.

The President's announcement also builds on his call this week for the Senate to adopt emergency assistance for the regional problems hurting farmers and ranchers. Under this initiative, if enacted, USDA will provide supplemental crop insurance benefits to farmers who have successive crop losses, provide assistance to farmers and ranchers whose crop and pasture land has been hit with long-term flooding, and replenish its disaster reserve program to assistance livestock producers. The Senate has now approved that legislation, and the President has urged the conference to move swiftly to enact this emergency assistance for farmers.

How the New Initiative Operates:

The new initiative is based on the authority of the Commodity Credit Corporation (CCC) Charter Act and section 416(b) of the Agricultural Act of 1949. These authorities provide the CCC broad authority to buy, sell, lend, and donate surplus agricultural commodities, products thereof, and related facilities. These charter powers enable the corporation to engage in extensive operations for the purpose of increasing production, stabilizing prices, assuring adequate supplies, and facilitating the efficient distribution of agricultural commodities, foods, feeds, and fibers. The section 416(b) legislation authorizes overseas donations to needy people.

The initiative will be funded through the CCC, and the Administration is notifying Congress of the change this program will have on estimate's of CCC expenditures. USDA intends to issue the first tender for wheat within days.


After two years of record or near record farm prices, farm-gate prices for key commodities have dropped precipitously. US exports have slackened in part because global production has reached record levels and because of the Asian financial crisis. USDA projects that net farm income for key sectors will fall to or below the average for the 1990's because of the dramatic decline in the value of production.

Increased supplies and reduced overseas demand have sharply lowered prices, particularly for wheat, feed grains and soybeans. USDA forecasts that crop receipts will be down $3.4 billion from 1997, led by a $2.3 billion drop in sales of feed crops, mainly corn. Farmers will receive $2.3 billion less for crops in 1998 than they did in 1996. In one month, from May to June, the prices farmers receive for wheat, corn, and soybeans dropped 11%, 6%, and 4% respectively. At the same time, domestic supplies for those commodities are 63%, 22%, and 20%, respectively, over 1997 levels, just as farmers prepare to harvest the second largest corn crop in more than a decade and the largest soybean crop ever -- portending continued weak prices.

The Asian economic problems combined with large global crop production have reduced U.S. agricultural exports from nearly $60 billion in FY96 to $55 billion for FY98. Coupled with large domestic harvests, USDA estimates that net cash farm income for 1998 will be $54.6 billion, down $5.9 billion from 1997's record high and down $5.3 billion from 1996. At the same time, farm production expenses have been rising and USDA expects them to be $4.3 billion higher in 1998 compared with 1996.

Much of the income drop is concentrated in grains. Wheat net cash income is forecast to be 48 percent below 1996 levels, while net cash income levels for corn and soybeans are expected to decline 37 percent and 44 percent from 1996 levels. Farmers are now taking on more debt relative to their repayment capacity; this year, utilization is expected to be up to about 60 percent.

Low prices coupled with several consecutive years of below average crops have greatly increased the financial vulnerability of certain areas, particularly the Northern Plains. Several consecutive years of poor weather and crop disease along with the decline in wheat prices has hit the Northern Plains States particularly hard. The combination of low production and prices is projected to reduce net farm income to about $5,000 per producer this year, compared with over $37,500 in 1996 and $14,500 in 1997. The percentage of farms with repayment difficulty is projected to increase from less than one-fifth 2 years ago to over one-third in 1998.

Farm receipts in the Northern Plains fell in 1997 10% from 1996 levels and USDA projects they will fall another 14% this year, due to generally lower prices, disease problems, and weak exports -- of all regions of the country, farmers in this are among the most export dependent, deriving 45% to 60% of their income from exports and thus exposed to commensurate losses as exports fall, as they are this year.


Consistent with the President's commitment to restore the farm safety net, the Administration has already proposed and taken several legislative and administrative actions to deal with stresses in the farm economy:

Farm Credit Improvements: The Administration has proposed that Congress give farm borrowers who have received debt forgiveness a second chance to become eligible for both direct and guaranteed loans; borrowers should be able to use guaranteed operating loans to pay the principal of real estate loans; and reduce the burden on borrowers who remain subject to shared appreciation agreements by shortening the length of the agreements and the recapture terms.

Commodity Program Improvements: The Administration has proposed that Congress allow the Secretary to extend marketing loans by 6 months when prices are low and transportation problems prevent orderly marketing; increase flexibility for farmers to plant fruits and vegetables, especially when their primary crops fail; and provide farmers more flexibility to determine when they want to receive farm payments.

Trade: The President has urged Congress to replenish the International Monetary Fund (IMF) to help reinvigorate exports to Asia and extend normal trading status for China. And the President signed into law a bill that will reopen the wheat markets in India and Pakistan to American exports. The Administration is also challenging specific barriers to US exports around the world and is insisting that agriculture be included in all bilateral and multilateral trade negotiations. The Administration has proposed that Congress provide multi-year funding for the Export Enhancement Program (EEP), providing the Secretary the ability to carry forward any unused EEP funds and has asked for the authority to allow the secretary to transfer unused EEP funds to PL 480's Title I or Food for Progress programs and to support other market development programs.

Administrative Actions of USDA: USDA has made changes to the crop insurance program to help farmers deal with repeated crop losses; provided livestock disaster assistance to weather-troubled producers; doubled the export credit program from last year's level; purchased commodities to send abroad for food aid; utilized fully the Dairy Export Incentive Program; and bought surplus commodities for school lunch and other food programs.