NOVEMBER-DECEMBER 1997



Congress Will Consider Tobacco Program
Reforms Early in 1998

by Mike McLeod and Dale McNiel

It appears that Congress will consider a substantial revision of the tobacco price support program as a component of the overall tobacco settlement legislation that must be dealt with in the next session. As reported in the May-June issue of this publication, tobacco farmers are determined not to be left out of the $368.5 billion agreement worked out in June among tobacco companies and the State Attorney General.

In recent months, there have been several bills introduced which would amend the tobacco program. However, this article will compare the two principal bills that have been introduced, S. 1313 by Senator Richard Lugar (R-IN) and S. 1310 by Senator Wendell Ford (D-KY), with the cosponsorship of Senators Helms (R-NC), Faircloth (R-NC), McConnell (R-KY), Cleland (D-GA), Hollings (D-SC), and Thurmond (R-NC). Other bills that have been introduced incorporate the features of the two bills. In addition, it will discuss a concept that is currently being drafted as a bill by Senator Charles Robb (D-VA). All three approaches must be seriously considered because of the stature of the senators involved. Senator Lugar is the Chairman of the Senate Agriculture Committee, and Senator Ford and his bill’s cosponsors are from tobacco-producing states and are among the most influential members of the Senate. Senator Robb is an influential senior Democratic member of the Senate from an important tobacco-producing state.

Background on the Tobacco Program

Tobacco production in the United States in 1996 totaled some 1.6 billion pounds worth $2.7 billion, and it is projected to total nearly 1.7 billion pounds in 1997. U.S. production of cigarettes in 1996 is estimated at 750 billion pieces, with around 487 billion pieces consumed domestically by approximately 25 percent of the population and the remainder to be exported. Most domestic tobacco production is subject to the federal tobacco program.

The federal government’s tobacco program was initiated during the depths of the Great Depression in 1933, when Congress designated tobacco as a basic commodity and authorized the Secretary of Agriculture to make cash payments to tobacco growers who agreed to restrict tobacco production on their farms. In 1935, substantial parts of this legislation were declared unconstitutional by the U.S. Supreme Court, and there was no federal tobacco program until 1938.

That year Congress enacted the basic components of the current tobacco program, and the Supreme Court upheld it against a challenge on constitutional grounds. Congress authorized the imposition of marketing quotas, if two-thirds or more of the growers of a specific kind of tobacco voted in favor of marketing quotas for their kind of tobacco. In return for the restrictions on marketing, the tobacco growers were eligible to receive price support of up to 75 percent of parity. Growers who produce and market tobacco in excess of their marketing quotas are subject to a financial penalty.

Growers have approved marketing quotas for each crop of flue-cured, burley, and dark tobacco since 1938, except for the 1939 crops. Growers of cigar binder and Ohio filler approved marketing quotas in 1951. Marketing quotas and price supports have not applied to Maryland tobacco since 1965 or Connecticut-Massachusetts binder tobacco since 1983; marketing quotas have never applied to Pennsylvania filler tobacco.

Since 1942, Congress has authorized a tobacco price support level of up to 90 percent of parity. However, since 1960 support prices have been capped at the 1959 level or a level determined on the basis of the average parity index for the 3 previous calendar years compared with 1959 indexes and have been subject to possible reductions due to excessive supply of a grade of any kind of tobacco.

How the Price Support Program Works

The tobacco price support program is carried out through loan agreements between USDA's Commodity Credit Corporation (CCC) and producer-owned cooperative tobacco marketing associations, organized under state laws, which agree to make loan advances available to producers. The growers sell their tobacco by auction to the highest bidder, except for bids falling short of the CCC loan prices. If the tobacco does not sell at the auction barn, the cooperative pays the grower the CCC loan price, with money borrowed from the CCC and the tobacco standing as the collateral. The cooperative takes possession of the tobacco on consignment, redries, packs, and stores it, and when the tobacco eventually is sold, the CCC loan is repaid. In effect, the loan program finances storing surplus tobacco until the market needs it, thereby raising prices.

The No-Net-Cost Reform

In 1982, Congress provided for producer contributions and purchaser assessments for a no-net-cost tobacco fund and marketing assessments for a no-net-cost tobacco account to reimburse the CCC for any net losses sustained under loan agreements with marketing associations. The no-net-cost assessment on 1997 crops of tobacco were established at 0.3790 cents per pound for flue-cured tobacco, and 0.2400 cents per pound for burley. Price-supported tobaccos are also subject to budget deficit reduction marketing assessments equal to 1 percent of the support price, which generated about $28 million in revenue in FY 1997. The USDA incurred about $14 million in administrative expenses in FY 1997 for tobacco price support operations, $48 million for crop insurance, $680 for extension services, and about $513 for data collection and analysis services. The USDA activities directly related to tobacco generated net revenues of about $400 million in FY 1996 and about $130 million in FY 1997.

Current Level of Support for Tobacco

Support prices for the 1997 crops of flue-cured and burley tobacco, respectively, were set at the levels of $1.62 per pound and $1.76 per pound, while world prices have ranged between 75 cents to $1.25 per pound. The marketing quota for flue-cured tobacco for 1997 was established at 973.8 million pounds, with an effective quota of about 1,020 million pounds, and the marketing quota for burley tobacco was established at 700.5 million pounds with an effective quota of about 880 million pounds. The marketing quota for flue-cured tobacco for the 1998-crop was established at 807.6 million pounds, down about 16.5 percent, with an effective quota of about 813 million pounds. The price support level was set at $1.628 per pound, up 0.7 cents from 1997.

Domestic Prices are Protected by a Tariff-Rate Quota

The domestic prices of tobacco are protected by a tariff-rate quota on imports of foreign tobacco. Congress authorized a renegotiation of tariff bindings on imports of tobacco in response to the adverse findings of a dispute settlement panel established under the provisions of the General Agreement on Tariffs and Trade on domestic content legislation for tobacco. Following negotiations with a number of countries, the tariff bindings for imported tobacco were modified to create a tariff-rate quota. Imports under the tariff-rate quota are limited to 151,200 metric tons, which is allocated among Brazil, Argentina, Malawi, Zimbabwe, the European Community, Guatemala, Thailand, the Philippines, Chile, and other countries or areas.

FDA Asserts Jurisdiction

In August, 1996, the Food and Drug Administration (FDA) asserted jurisdiction over cigarettes and smokeless tobacco under the Federal Food, Drug, and Cosmetic Act, under which the FDA regulates a diverse range of foods, drugs, medical devices, and cosmetics. The FDA found that cigarettes and smokeless tobacco deliver nicotine, a pharmacologically active and additive substance, to the bloodstreams of users with potentially dangerous effects: it causes and sustains addiction, it has sedating and stimulant effects on mood and brain activity, and affects body weight. FDA further found that manufacturers of cigarettes and smokeless tobacco intended the pharmacological effects. In fact, the FDA declared that no other products cause more death and disease. In April, a federal district court upheld the FDA’s action. Two decades earlier the FDA had addressed whether cigarettes were drugs or devices and decided against any regulation.

The National Medicaid Litigation Settlement

By the middle of 1997, the domestic tobacco companies were besieged by civil lawsuits filed in about 40 states by Attorneys General trying to recover Medicaid costs related to diseases caused by smoking tobacco as well as the efforts of the Clinton administration to increase the federal government’s regulation of the marketing and smoking of cigarettes. On June 20, 1997, a proposed settlement negotiated between the Attorneys General and the tobacco companies, valued at $368.5 billion, was concluded. The settlement mandated “industry payments” to finance enforcement and other regulatory activities and to create a settlement fund for products liability cases. Specifically, the settlement called for the following measures:

While federal legislation to carry out the settlement has not yet been enacted, proposals to reform the tobacco program have emerged as a result of the tobacco settlement. On October 23, 1997 Senator Wendell Ford (D-KY) introduced a bill to spend $28.5 billion in payments to tobacco quota holders and their communities. On October 24, 1997, Senator Richard Lugar, chairman of the Committee on Agriculture, Nutrition and Forestry, introduced a bill to phase out the tobacco price support and quota programs.

Senator Ford introduced his bill for the Longterm Economic Assistance for Farmers Act (LEAF Act) with the following explanation:

Mr. President, the program is the key to preventing fence row to fence row production. It is the key to keeping tobacco prices high. And it is the key to keeping tobacco production in the hands of small family farms and keeping rural communities alive. Without the program, look for cheap cigarettes, look for the size of farms at the very least to triple in size. Look for family farms to go out of business, and look for the rural communities they sustain, to shut down.

The Ford bill would attempt to compensate tobacco quota holders, quota lessees, and quota tenants for any decline in tobacco they could grow due to the tobacco settlement, on a theory that the settlement could cause a substantial decrease in tobacco consumption leading to cuts in the farm marketing quotas. The bill would do so by establishing a Tobacco Community Revitalization Trust Fund to be administered by the Secretary of Agriculture. All tobacco product manufacturers and all tobacco product importers would be required to make contributions into the Trust Fund in total annual amounts of $2,100,000,000 for fiscal years 1999 through 2008, $500,000,000 for fiscal years 2009 through 2023, and, thereafter, the amount necessary to reimburse the Department of Agriculture for costs associated with tobacco production.

When Senator Lugar introduced his bill, the “Tobacco Transition Act,” he summarized the bill as follows:

My legislation would buy out tobacco marketing quotas, provide transition payments to tobacco producers, phase out the price support program, and provide economic assistance to tobacco dependent communities. The cost of these reforms would be approximately $15 billion and would be paid for with funds from the tobacco settlement. Because farmers were not considered in the negotiations that led to this settlement, this amount would be added to the current $368.5 billion.

Senator Lugar gave the rationale for his legislation in the following comments:

Mr. President, with or without a settlement, the forces to reform the tobacco program have been converging for some time now and they can no longer be ignored. High domestic price supports have hurt the competitiveness of U.S.-grown tobacco. Exports of tobacco have fallen, while imports have grown. Congress has already ended Government control over nearly every other farm commodity. And, most importantly, Congress cannot ask Americans to accept Federal support for tobacco production when we are considering legislation to settle claims that stem directly from tobacco use. Clearly, the tobacco program may not be sustainable for much longer. With that reality facing all tobacco producers, we should not pass up this opportunity to provide economic assistance to farmers and their communities.

The Lugar bill provides for funds to be appropriated or credited to a temporary Tobacco Transition Account which would be used until September 30, 2001 for providing buyout payments and transition payments for tobacco producers and quota holders. The bill mandates the Secretary of Agriculture to enter into a “tobacco transition contract” with each quota owner and producer of tobacco under which the owner or producer would agree to relinquish the value of the marketing quota in exchange for a buyout or transition payment.

The following is a comparison of the bills introduced by Senator Lugar and Senator Ford.

Comparison of S. 1313, Tobacco Transition Act, and S. 1310, Long-Term Economic Assistance to Farmers (LEAF) Act

Issue Lugar Bill (S.1313) Ford Bill (S. 1310)
Cost $15 billion in addition to the current $368.5 billion $28.5 billion taken from the current $368.5 billion
Federal support for tobacco production (quota program) Ends quota program in 1999 crop year

Continues current quota program.

Funds from the tobacco settlement would pay all crop insurance costs and all administrative costs associated with the quota and price support, extension, and other programs.

Lease and transfer within a state allowed subsequent to producer approval (within the state) in a referendum.
Federal support for tobacco production (price support program)

Phases out price support program in 2002 crop year.

(1999) reduction based on 1998 rate):
1999 - 25% decline
2000 - 10% decline
2001 - 10% decline
2002 - program terminates

Continues the current price support program and no net cost assessments for producers, purchasers, and importers.

Increases penalties on manufacturers who fail to purchase at least 90% of their purchase intentions.

Continues no net cost assessments. Repeals tobacco marketing assessment (deficit reduction assessment effective through 1998).
Payments to quota owners

Buyout of quota at $8 per pound of quota.

1) lump sum payment in 1999 for those who agree to cease production, OR

2) three equal payments from 1999-2001 for those who continue production.

Payments for reduced quota poundage (compared to ‘94-96 average).

Calculated as follows: $4 times the aver- age of the ‘94-96 quota levels times the difference between the national marketing quota and the grower’s average quota between ‘94-96.

Total limitation on payments: $8 times the number of pounds of quota held.
Payments to growers who lease quota or are tenants Forty cents times 3 year average production between ‘93-’97.

Calculated as follows: $4 times 37.5% of the average of their ‘94-96 marketings times the difference between the national marketing quota and the growers’ average marketings in 94-96.

Maximum lifetime limit on payments: $8 times 37.5% of the average of the ‘94-96 marketings.
Economic assistance to tobacco- dependent counties Total of $100 million per year in block grants to tobacco-growing states combined for 3 years.

$8.3 billion over 25 years in grants to states for agricultural and economic development.

$1.4 billion in higher education grants to farmers and their dependents. Individual grants would be $1,700 per year (rising to $2,900 in 2019). Eligibility would not be based on need and would be in addition to other federal assistance.

$500 million to tobacco industry workers ($50 million per year for 10 years). These “tobacco readjustment allowances” would be available to tobacco manufacturing, processing, and warehouse employees affected by the tobacco settlement.
Impact of funding on other groups involved in the settlement Would retain full funding for proposed FDA regulation of tobacco, Medicaid reimburse- ments, and public health programs. Would reduce funding from either FDA regulation, Medicaid reimbursements, or public health programs by $28.5 billion.
Effect on cigarette prices Virtually none. Virtually none.
Incentives to exit tobacco program Quota buyout and transition payments would provide financial incentives to growers to exit production. Continuation of quota and price support programs would keep growers in current price support and quota programs.
Allocation of funds

Total: $15 billion

Quota buyout: $12.6 billion over 3 years.

Transition payments: $1.1 billion over 3 years.

Economic assistance: $300 million over 3 years.

Total: $28.5 billion

Program administration and crop insur- ance costs: $100 million annually (unlimited duration).

Compensation for reduced quotas and transition payments: Up to $16 billion over 25 years.

Higher education grants: $14 billion over 25 years.

Tobacco readjustment allowance: $500 million over 10 years.

On November 3, 1997, Senator Charles Robb (D-VA) addressed the Senate regarding reform of the tobacco program. He explained a planned bill, intended to be introduced next year, as being based on broad concepts similar to those underlying the Lugar and Ford proposals.

First, owners of tobacco marketing quotas should be compensated for the value of their quotas. Senator Robb explained that farmers acquire quota throughout their productive lives in order to provide for their families and then in retirement sell or lease it to others for income. Thus, the marketing quota should be viewed like any asset which can be bought, sold or leased. Senator Robb argued that “[s]ince so many have invested in this asset, many of whom rely on it for retirement, it is appropriate to compensate for the decline in value caused by a radical change in government policy.” The underlying theory is that a substantial increase in the price of tobacco products, in order to discourage smoking, would decrease demand for tobacco and reduce the amount of each farmer’s marketing quota, eroding its value as an asset. In this respect, Senator Robb’s approach would be similar to Senator Lugar’s buyout of tobacco quota holders and also to Senator Ford’s proposal to compensate quota holders for the lost value of their quotas due to a reduction in the demand for tobacco and the overall quota.

Second, the existing Federal tobacco program would be replaced with a privatized supply limiting program. Senator Robb would ensure that producers retain a means of stabilizing the supply and price of tobacco by creating a Tobacco Production Control Corporation which would govern production, marketing, importation, exportation, and consumer quality assurances. Tobacco Loan Associations, private authorities comprised of tobacco farmers, would issue licenses to all actual tobacco farmers regardless of whether they were quota holders, quota lessees, or tenant farmers. Farmers would not have to pay for the licenses and would surrender them upon quitting tobacco production. The licenses could not be sold or leased and would not acquire an asset value. Eliminating the federal role and the consequent cost of buying or leasing quota would reduce growers’ operating costs and make domestic tobacco more competitive on the world market.

Under Senator Robb’s privatization approach the federal government would get out of tobacco production, as proposed by Senator Lugar, but the supply-control features of the current program would be retained, as under the approach favored by Senator Ford. Accordingly, Senator Robb’s approach of privatization would stand as a substantial compromise to achieve the results of both sides.

Third, the Robb bill would target about $250 million annually in economic development funds to tobacco dependent communities. These funds would be used to attract new jobs in manufacturing or tourism, for job training, or for various other purposes. In this respect, the economic development approach by Senator Robb would be similar to the approach proposed by Senator Ford.

What Will Congress Do?

It is impossible to say where the Senate and House will come down on reform of the tobacco program. The buyout approach of Senator Lugar is very attractive for quota holders and farmers who are interested in being paid to get out of the program. However, it does not address the concerns of those who are interested in maintaining a viable tobacco economy in some rural areas where it is grown. Where tobacco production is highly mechanized, large U.S. farmers should be able to compete globally. However, much of burley production is not mechanized and produced by very small farms.

The Ford bill seems to have the most support among grower groups, for it would retain the current price support program, as well as paying generous subsidies. However, tobacco growers may not wish to trust their future to a program run by a federal government that grows increasingly hostile to the tobacco industry each year. Therefore, the privitization approach of Senator Robb may offer the best opportunity for a compromise.

Mr. McLeod is a partner in the firm and practices agricultural and agribusiness law. He is a former General Counsel and Staff Director for the Senate Agriculture Committee.


Dale McNiel is a partner in the firm specializing in international trade law in agriculture. McNiel was recently a senior counsel in the office of the General Counsel at the U.S. Dept. of Agriculture.




National Environmental Standards for
Handling Animal Waste?

by Richard Pasco

Sen. Tom Harkin (D-IA), ranking member on the Senate Agriculture Committee, introduced the "Animal Agriculture Reform Act" (S. 1323) on Oct. 28. This legislation could significantly impact the handling of animal waste on many farm operations across the country. New national environmental standards for management of livestock and poultry manure is a big step with broader industry structural implications beyond the farm gate.

Winners and losers under this legislation will hinge on the final detailed language of any such proposal by Congress. Some questions are: What size farm operations are effected (i.e. whose ox is gored: small, medium or large operations?); what new measures must be incorporated in each operation; what is the time frame for compliance; what financial assistance is available to construct new lagoon treatment and storage structures; what will be the costs of compliance; what are the penalties for non-compliance; will consumers face higher prices as a result of new regulations; are there new comparative advantage impacts among the competing commodities; will new regulations effect competitiveness in overseas markets; do some states benefit over others; how do you coordinate jurisdiction between federal, state and local environmental authorities; what happens to the excess manure; and what are the new trade-offs between animal fertilizer and commercial fertilizer? This is only a sampling of the many issues raised by this legislation.

Environmental concerns clearly are generating added pressures on the livestock and poultry sectors. Whether it is media perception, public perception or misguided perception, Congress is placed in a difficult position of attempting to address a complex situation.

No one really knows the origin of Pfiesteria piscicida, the microbe killing fish in Maryland and North Carolina, but run-off from livestock and poultry operations, rightly or wrongly, is perceived to be a chief culprit. It is believed that rains wash nitrogen and other nutrients (from manure applied to fields as fertilizer) into surrounding waterways. These nutrients are thought to nourish the Pfiesteria microbe. The perceived connection between the microbe and livestock and poultry production contributes to support for some solution.

The Animal Agriculture Reform Act

The legislative findings of the "Animal Agriculture Reform Act" are matter of fact in stating:

"Animal waste has been identified as a significant source of water pollution in many areas of the United States and inadequate management of animal waste continues to pose a significant threat to the environment and public health... The adoption of animal waste management plans by concentrated animal feeding operations will help to ensure that the continued success and growth of the animal agriculture industry is compatible with protection of the environment and public health..."

Animal Waste Management Plans

S. 1323 requires the submission of an "animal waste management plan" to the Secretary of Agriculture for approval. The operator of a "concentrated animal feeding operation" must detail the manner in which such operation will comply with the new legislation. S. 1323 effectively mandates a permit from USDA for a livestock and poultry operation of any significant size.

Prior to plan approval, USDA's Natural Resources Conservation Service (NRCS) is required to conduct an "on-site inspection" of the concentrated animal feeding operation "to determine whether the proposed animal waste management plan adequately takes into account the specific circumstances of the operation." In other words, livestock operators will not be able to rely on a cookie-cutter plan but will have to tailor such plan to the specific operation.

The bill provides that existing concentrated animal feeding operations will have 18 months after the date the legislation is enacted to obtain USDA approval of the animal waste management plan. Without USDA approval of the waste management plan, the livestock or poultry operation must cease operations. S. 1323 does not contain any provisions as to how and when the animals from such operations must be disposed.

USDA is allowed only to approve a particular animal waste management plan up to a maximum period of five years. An application for renewal of an animal waste management plan must be submitted to USDA at least 180 days before the date on which the approval expires.

Any construction or expansion of a concentrated animal feeding operation is prohibited without USDA approval of a waste management plan. This provision indirectly gives USDA tremendous authority to control the future expansion and growth of the U.S. livestock and poultry industry.

The Elements of Animal Waste Management Plan

S. 1323 requires the Secretary of Agriculture to consult with the administrator of the Environmental Protection Agency to "establish the required elements of an animal waste management plan and establish technical standards for each element.”

The minimum required elements of the waste management plan include:


Limiting Factors for Application of Animal Waste to Land

The application of animal waste to land is prohibited if the application of animal waste would result in the application of nitrogen and phosphorus in a quantity that exceeds crop nutrient requirements and "significantly increases the risk of increased soil toxicity or the pollution of surface or ground water.”

For other nutrients, minerals, metals or other substances found in animal waste, USDA is required to consult with the EPA to establish a maximum permitted level. S. 1323 prohibits the application of animal waste to land by any person if such application would exceed the maximum level established for any substance.

The bill further requires USDA to establish minimum distances from environmentally sensitive locations (including distances from surface water, water supply wells and drainage ditches) within which animal waste shall not be applied by aerial spraying. In addition, animal waste cannot "be applied on ice, snow, frozen soil, or water saturated soil."

Containment and Treatment of Excess Waste

Any containment system must retain all animal waste produced by the livestock or poultry operation between land applications, including runoff. However, S. 1323 makes a distinction between a "dry waste operation" and a "wet waste operation.”

In a “wet waste operation”, animal waste is collected and stored in a liquid or semi-liquid form. If a wet waste operation produces more animal waste than can be applied to the land, the operation is required to treat the excess animal waste in accordance with federal, state and local laws governing the treatment of human waste. Additionally, the containment system for a wet waste operation must have fail-safe structures that will contain an amount "of animal waste equal to the maximum quantity loaded into the containment structure in any 48-hour period."

In a “dry waste operation”, animal waste is collected and stored exclusively in a dry form. If a dry waste operation produces more animal waste than can be applied to the land, such animal waste must be stored only in a covered, formed storage structure constructed in accordance with technical standards established by USDA.

Restrictions on New Structures

Effective three years after the date of enactment, the proposed legislation would deny the construction of certain containment structures. A containment system for animal waste storage could not be constructed if any portion of the system is located below the highest ground water level that occurs during the year.

Similarly, an earthen lagoon could not be located in an area with hydrology and soil composition characteristics that fail to allow construction of an earthen lagoon "without a significant risk of water pollution from animal waste." In addition, an earthen lagoon could not be located within minimum distances established by USDA from environmentally sensitive locations, such as surface water and water supply wells. Furthermore, earthen lagoons must be lined in accordance with technical standards established by USDA that use best available technology.

Concentrated Animal Feeding Operations

Concentrated animal feeding operations are defined as any livestock and poultry operation that:


The weight capacity limits effectively would include all but smaller livestock and poultry operations. For example, the 400,000 pound capacity for cattle would translate to about 500 beef cattle, and the 200,000 pound capacity for hogs would translate to approximately 1,000 hogs.

"Concentrated animal feeding operation" includes "all structures and land used for the collection, storage, treatment, or application of animal waste." This means that the animal waste management plans essentially must become whole farm nutrient management plans to gain approval from USDA.

Record-keeping Requirements

An animal owner, defined in S. 1323 as the person that has the "primary ownership, controlling, or beneficial interest in the animals of a concentrated animal feeding operation, including an employee or agent of the person," has certain record-keeping requirements. Thus, anyone with an ownership interest, employees, and agents of such animal operations would be required "to maintain a current animal waste management plan and records that are sufficient to demonstrate compliance with the plan" and the new legislation. Such animal owners would be required to maintain these records for at least three years. Role of Existing Programs in Tackling Animal Waste Runoff

The Conservation Reserve Program (CRP) was reformulated early in 1997 to provide more direct assistance in addressing agricultural runoff from both crop and livestock operations. In addition to enrollment of highly erodible lands in the CRP, this program offers financial assistance to implement buffer strips, grassed waterways, and other high-priority practices to help protect streams and waterways. In some instances, the CRP may be useful in conjunction with implementation of animal waste management plan.

Also, the Environmental Quality Incentives Program (EQIP) provides financial support for developing new animal waste management plans. S. 1323 proposes to increase the authorized appropriations for EQIP to $600 million per year for fiscal years 1999 through 2002.

However, S. 1323 amends EQIP to accord higher priority in providing technical and financial assistance to the development and implementation of animal waste management plans for livestock producers who do not have a concentrated animal feeding operation. In fact, the bill makes smaller livestock operations eligible for EQIP assistance (including cost-share payments) if their animal waste management plans meet the requirements of S. 1323.

Enforcement Provisions for Non-Compliance

S. 1323 requires USDA to "take such actions as are necessary to compel the closure of a concentrated animal feeding operation" if the animal waste management plan for the operation is not submitted for approval, not approved, or revoked. A plan that already is approved may be modified, suspended, or revoked, in whole or in part, for cause. Failure to comply with the approved plan, failure to submit any record and information requested by USDA, and a change in any condition of the operation that require a change in the containment system to maintain compliance are viewed as cause for modification, suspension or revocation of the permit.

If an administrative action or proceeding of a federal or state agency determines that a concentrated animal feeding operation has caused significant water pollution, USDA is required to review the animal waste management practices to determine if the pollution resulted from failure to comply with an approved plan and whether modifications of the plan are necessary to prevent further pollution.

NRCS Regulatory Inspections

Presumably, the NRCS would inspect only concentrated animal feeding operations during the construction or expansion of such operations and in advance of the five-year renewal of the animal waste management plan. It appears, however, that complaints about non-compliance with a waste management plan would trigger regulatory inspection by NRCS. Just how the livestock and poultry producer would deal with NRCS, state and local environmental authorities, and even the EPA, must be determined.

Non-preemption of State and Local Environmental Authority

The bill does not limit the authority of a state or local government to enforce stricter regulation of any aspect of a livestock or poultry operation. This provision is significant because livestock and poultry operations will still have to meet local requirements in addition to new federal environmental standards.

The Federal Water Pollution Act Amendments of 1972, more commonly known as the Clean Water Act, effectively delegate management and control of nonpoint source pollution to the states. In fact, the Clean Water Act provides for a system of state management of nonpoint sources of pollution subject to oversight and approval by the federal EPA.

Thus, many state environmental regulations require ground water and surface water monitoring, phosphate testing, engineering reports about the construction of waste lagoons and seepage tests on lagoons. While most state regulations require that large livestock operations comply with state water quality standards, they normally don't address odor issues.

Existing Federal Regulatory Framework

Under existing law (33 U.S.C. 1362), a "concentrated animal feeding operation" (CAFO) already is defined as a "point source" and thus subject to a significant regulatory regime. In fact, CAFOs are held to a higher environmental standard than other point sources of pollution. The National Pollution Discharge Elimination System (NPDES) permits for most point sources include allowable legal discharges of pollutants into navigable waters. In contrast, CAFOs are permitted no discharge from animal manure lagoons or other storage structures, except in the rare case of a storm event that occurs once every 25 years over a 24-hour period.

Clearly, the permit requirements of S. 1323 would need to be consistent with the NPDES permit framework of the existing Clean Water Act. A layering of one permit system over another may be unnecessarily confusing to federal, state and local environmental authorities as well as livestock and poultry producers. For example, the threshold number of animals to trigger a USDA/NRSC permit is lower than that for a NPDES permit for CAFOs under the Clean Water Act.

Conclusions

S. 1323 would have a number of impacts on the operation of livestock and poultry operations. Mandatory permits from USDA to operate the animal feeding operation is certainly a new direction in the regulation of the livestock sector. USDA's Natural Resources and Conservation Service would take on a much larger role in agriculturally-related environmental issues as it moves from a crop focus to a broader livestock and crop focus, and becomes a regulatory authority. Lastly, animal waste containment systems will change over time and become more expensive as earthen lagoons are effectively phased out.

A key to addressing environmental regulation of the livestock and poultry sectors is striking the appropriate balance between economic and environmental concerns. Many believe that the state and local environmental authorities are in a better position to address site-specific concerns than the federal government.

Unfortunately, such environmental regulation issues are especially complicated, because concerns about increased concentrations of animal waste and the subsequent affects on the environment have been wrapped into the broader issue of concentration within the livestock sector. Livestock and poultry producers will need to keep environmental issues separated from sector concentration issues to have a reasonable chance of addressing the more emotional questions about industry structure and future.

Richard Pasco is an attorney in the firm specializing in legislative, environmental, agricultural, food safety, and trade law.


Minnesota Court Drops Bomb
on Nation's Milk Markets

by Richard Rossier

Federal District Court Judge David Doty sent shock waves through the nation’s milk markets Nov. 3 with an order that could change substantially the way milk is bought and sold in this country. However, a month later, on December 5, he granted a stay of his own order but with something of a twist: the stay ends February 15 and in effect indicates Doty’s desire to pressure USDA to quickly prosecute its appeal and to put a reformed federal milk marketing system in place sooner rather than later.

Essentially, what the federal court in Minnesota did was strike down the Class I (fluid milk) price formula used in the majority of milk marketing orders in this country. Specifically, the court held that the "Class I [minimum price formula] in all [28] surplus and balanced marketing orders and all deficit orders that do not rely on direct shipments of alternative milk supplies from the Upper Midwest or from other deficit orders which in turn rely on the Upper Midwest for replacement supplies are unlawful . . . . " For all practical purposes, then, if this order goes into effect, the Class I differentials that previously had been part of the vast majority of federal milk marketing orders will cease to be operational, and USDA no longer will have the power to require that handlers pay dairy farmers the Class I (fluid milk) minimum prices that they previously had been required to pay.

On Nov. 26, USDA filed a notice of appeal and a motion to suspend enforcement of the court's Nov. 3 order while the department appealed the decision to the U.S. Court of Appeals for the Eighth Circuit (the circuit court that has jurisdiction over appeals from the Minnesota District Court). That motion was set for oral argument, on an expedited basis, on Dec. 5, 1997. On that date, Judge Doty, after hearing about two and one-half hours of oral argument on the various motions then pending before him, granted the Secretary's motion for stay pending appeal, but only in part. He granted the stay only through Feb. 15, 1998. This he said would permit the milk marketing order system to continue to operate normally across the country for milk marketing that occurred in November, and December and January. By making the time of the stay so short, however, Judge Doty indicated that he wanted to keep the pressure on the Secretary to quickly prosecute his appeal and put in place a reformed federal milk marketing system. Assuming that the Eighth Circuit Court of Appeals agrees that a further stay is appropriate, the order may not go into effect while the Department pursues its appeal. Otherwise the pricing of February milk could be in turmoil.

Richard Rossier is a partner in the law firm of McLeod, Watkinson & Miller which represents various commodity promotion entities created by federal law. The firm filed an amici curiae brief with the Supreme Court in Glickman v. Wileman Brothers seeking reversal of the Ninth Circuit’s decision and in support of the government’s position in the case.


Senior Budget Official Joins
McLeod, Watkinson & Miller

Stephen Frerichs, senior program examiner with the Office of Management and Budget, Executive Office of the President, has joined the law firm of McLeod, Watkinson & Miller as an economist and budget consultant.

“We’re proud to have a budgetary analyst and economist of Stephen’s stature with our firm,” said senior partner Michael R. McLeod. “His distinguished career and extensive federal budgetary experience provide a dimension to our firm’s services that will benefit our clients and further strengthen our professional expertise.”

Frerichs has been senior program examiner at OMB since July 1990. He also served as deputy branch chief, supervising the branch staff in the absence of the branch chief.

Frerichs was the 1997 recipient of the OMB “Distinguished Service Award,” the highest award granted by OMB. Only two individuals within OMB receive the award annually. His OMB responsibilities have included:


He also worked on the Crop Insurance Reform Act of 1994, the Rural Electrification Restructuring Act of 1993, the Housing Act of 1992 and agricultural disaster appropriations from 1991-94.

Frerichs earned a bachelor’s degree from St. Olaf College in Minnesota in economics and German and a master’s degree in economics from the University of Minnesota.

The Agricultural Law Letter is published to highlight recent changes and developments in the law and public policy. As with any publication of this type, it is essential that before any action is taken based upon this information, competent, individualized, and professional advice should be obtained. Copyright 1997 by McLeod, Watkinson & Miller. Reproduction in part or in whole is permitted with permission from McLeod, Watkinson & Miller. Contact Suzanne Bucciarelli at (202) 842-2345, or write to One Massachusetts Avenue, NW, Suite 800, Washington, D.C. 20001. Subscriptions to the newsletter are $25 per year.