U.S. Farm Income Outlook: August 2019 Forecast

Summary: This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of August 30, 2019) and agricultural trade outlook update (as of August 29, 2019) to describe the U.S. farm economic outlook. According to USDA's Economic Research Service (ERS), national net farm incomeâa key indicator of U.S. farm well-beingâis forecast at $88 billion in 2019, up $4 billion (+4.8%) from last year. However, the forecast rise in 2019 net farm income is largely the result of a 42.5% increase in government payments to the agricultural sector valued at $19.5Â billion (highest since 2005).

Summary: USDA's support outlays forecast for 2019 include nearly $11 billion in direct payments made under trade assistance programs intended to help offset foreign trade retaliation against U.S. agricultural products, as well as payments under traditional farm programs. Without this federal support, net farm income would be lower, primarily due to the outlook for continued weak prices for most major crops. Commodity prices are under pressure from large planted acreage estimates of corn and soybeans in 2019, large carry-in stocks from a record soybean and near-record corn harvest in 2018, and diminished export prospects due to the ongoing trade dispute with China. Should these conditions persist into 2020, they would signal the potential for continued dependence on federal programs to sustain the U.S. agricultural sector in 2020.

Summary: Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018, total agricultural exports were estimated up 2% at $143.4 billion. However, abundant supplies in international markets, strong competition from major foreign competitors, and the ongoing U.S.-China trade dispute are expected to shift trade patterns and lower U.S. agricultural export prospects significantly (-6%) to a projected $134.5 billion in 2019.

Summary: Farm asset value in 2019 is projected up from 2018 to $3.1 trillion (+2%). Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. U.S. farmland values are projected to rise 1.8% in 2019, similar to the increases of 1.9% in 2018 and 2.3% in 2017. Because they comprise such a large portion of the U.S. farm sector's asset base (83%), change in farmland values is a critical barometer of the farm sector's financial performance. However, another critical measure of the farm sector's well-being is aggregate farm debt, which is projected to be at a record $415.7 billion in 2019âup 3.4% from 2018. Both the debt-to-asset and the debt-to-equity ratios have risen for seven consecutive years, suggesting a weakening of the financial situation for the U.S. farm sector.

Summary: At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. Furthermore, the farm household income advantage over the average U.S. household has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2017 (the last year with comparable data), that advantage was expected to decline to 30%.

The U.S. farm sector is vast and varied. It encompasses production activities related to traditional field crops (such as corn, soybeans, wheat, and cotton) and livestock and poultry products (including meat, dairy, and eggs), as well as fruits, tree nuts, and vegetables. In addition, U.S. agricultural output includes greenhouse and nursery products, forest products, custom work, machine hire, and other farm-related activities. The intensity and economic importance of each of these activities, as well as their underlying market structure and production processes, vary regionally based on the agro-climatic setting, market conditions, and other factors. As a result, farm income and rural economic conditions may vary substantially across the United States.

Annual U.S. net farm income is the single most watched indicator of farm sector well-being, as it captures and reflects the entirety of economic activity across the range of production processes, input expenses, and marketing conditions that have prevailed during a specific time period. When national net farm income is reported together with a measure of the national farm debt-to-asset ratio, the two summary statistics provide a quick and widely referenced indicator of the economic well-being of the national farm economy.

In the second of three official U.S. farm income outlook releases scheduled for 2019 (see shaded box below), ERS projects that U.S. net farm income will rise 4.8% in 2019 to $88.0 billion, up $4.0 billion from last year. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+7.2%) to $112.6 billion. The August 2019 net farm income forecast represents an increase from USDA's preliminary February 2019 forecast of $69.4 billion.

An increase in government support in 2019, projected at $19.5 billion and up 42.5% from 2018, is the principal driver behind the rise in net farm income. Support from traditional farm programs is expected to be bolstered by large direct government payments in response to trade retaliation under the escalating trade war with China. At a projected $19.5 billion in calendar 2019, direct government payments would represent 22.2% of net farm incomeâthe largest share since 2006 when federal subsidies represented a 27.6% share.

The August forecast of $88 billion is just above (+0.9%) the 10-year average of $87.3 billion and represents continued agriculture-sector economic weakness since 2013's record high of $123.7 billion.

Both net cash income and net farm income achieved record highs in 2013 but fell to recent lows in 2016 ( Figure 1 ) before trending higher in each of the last three years 2017, 2018, and 2019. Commodity prices ( Figure A-1 to Figure A-4 ) have echoed the same pattern as farm income over the 2013-2019 period. When adjusted for inflation and represented in 2018 dollars ( Figure 2 ), the net farm income for 2019 is projected to be on par with the average of $86.8 billion for net farm income since 1940. After declining for four consecutive years, total production expenses for 2019 ( Figure 16 ), at $346.1 billion, are projected up slightly from 2018 (+0.4%), driven largely by higher costs for feed, labor, and property taxes. Global demand for U.S. agricultural exports ( Figure 20 ) is projected at $134.5 billion in 2019, down from 2018 (-6.2%), due largely to a decline in sales to China. Farm asset values and debt levels are projected to reach record levels in 2019âasset values at $3.1 trillion (+2.0%) and farm debt at $415.7 billion (+3.4%)âpushing the projected debt-to-asset ratio up to 13.5%, the highest level since 2003 ( Figure 26 ).

Substantial Uncertainties Underpin the August 2019 Outlook

Abundant domestic and international supplies of grains and oilseeds suggest a fifth straight year of relatively weak commodity prices in 2019 ( Figure A-1 through Figure A-4 , and Table A-4 ). However, considerable uncertainty remains concerning the eventual outcome of the 2019 growing season and the prospects for improved market conditions heading into 2020.

As of early September, three major factors loom over U.S. agricultural markets and contribute to current uncertainty over both supply and demand prospects, as well as market prices:

1. First, wet spring conditions led to unusual plantings delays for the corn and soybean crops. This means that crop development is behind normal across much of the major growing regions and that eventual yields will depend on beneficial fall weather to achieve full crop maturity. Also, the late crop development renders crop growth vulnerable to an early freeze in the fall. 2. Second, large domestic supplies of corn, soybeans, wheat, and cotton were carried over into 2019 ( Figure 6 ). Large corn and soybean stocks have kept pressure on commodity prices throughout the grain and feed complex in 2019. 3. Third, international trade disputes have led to declines in U.S. exports to Chinaâa major market for U.S. agricultural productsâand added to market uncertainty. In particular, the United States lost its preeminent market for soybeansâChina. It is unclear how soon, if at all, the United States will achieve a resolution to its trade dispute with China or how international demand will evolve heading into 2020.

Late-Planted Corn and Soybean Crops Are Behind Normal Development

U.S. agricultural production activity got off to a very late start in 2019 due to prolonged cool, wet conditions throughout the major growing regions, particularly in states across the eastern Corn Belt. This resulted in record large prevented planting acres ( Figure 3 ) and delays in the planting of the corn and soybean crops ( Table 1 ), especially in Illinois, Michigan, Ohio, Wisconsin, and North and South Dakota.

As of August 22, 2019, U.S. farmers have reported to USDA that, of the cropland that they intended to plant this past spring, they were unable to plant 19.8 million acres due primarily to prolonged wet conditions that prevented field work. Such acres are referred to as "prevent plant (PPL)" acres. The previous record for total PPL acres was set in 2011 at 10.2 million acres. The 19.8 million PPL acres includes 11.4 million acres of corn and 4.5 million acres of soybeansâboth establish new records by substantial margins. The previous record PPL for corn was 2.8 million acres in 2013, and for soybeans it was 2.1 million acres in 2015.

In addition, a sizeable portion of the U.S. corn and soybean crops were planted later than usual. Traditionally, 96% of the U.S. corn crop is planted by June 2, but in 2019 by that date only 67% of the crop had been planted ( Table 1 ). Similarly, the U.S. soybean crop was planted with substantial delays. By June 16, only 67% of the U.S. soybean crop was planted, whereas an average of 93% of the crop has been planted by that date during the past five years.

These planting delays have important implications for crop development as they push both crops' growing cycle into hotter, drier periods of the summer than usual and increase the risk of plant growth being shut off by an early freeze. But planting delays also increase the complexity of producer decisionmaking by pushing the planting date into the crop insurance "late planting period," when insurance coverage starts to decline with each successive day of delay ( Figure 4 ).

When the planting occurs after the crop insurance policy's "final planting date," the "late planting period" comes into play. Producers must then decide whether to opt for "prevented planting" indemnity payments (valued at 35% of their crop insurance guarantee) or try to plant the crop under reduced insurance coverage with a heightened risk of reduced yields. Producer's choices were further complicated in 2019 by the Secretary of Agriculture's announcement on May 23 that only producers with planted acres would be eligible for "trade damage" assistance payments in 2019 under the Market Facilitation Program (MFP).

Large Corn and Soybean Stocks Continue to Dominate Commodity Markets

Corn and soybeans are the two largest U.S. commercial crops in terms of both value and acreage. For the past several years, U.S. corn and soybean crops have experienced strong growth in both productivity and output, thus helping to build stockpiles at the end of the marketing year. This has been particularly true for soybean production, which has seen rapid growth in yield, acres planted, and stocks. U.S. soybean production has been expanding rapidly since 1990, largely at the expense of the wheat sector which has been steadily losing acreage over the past several decades ( Figure 5 ). This pattern reached a historic point in 2018 when, for the first time in history, U.S. soybean plantings (at 89.196 million acres) exceeded corn plantings (89.129 million acres).

The strong soybean plantings in 2018, coupled with the second-highest yields on record (51.6 bushels/acres), produced a record U.S. soybean harvest of 4.5 billion bushels and record ending stocks (1 billion bushels or a 27.2% stocks-to-use ratio) that year. However, the record soybean harvest in 2018, combined with the sudden loss of the Chinese soybean market (as discussed in the " Agricultural Trade Outlook " section of this report) discouraged many producers from planting soybeans in 2019. This contributed to a drop off (-14%) in soybean planted acres.

Most market watchers had expected to see a strong switch from soybean to corn acres in 2019 as a result of the record soybean stocks and weak prices related to the U.S.-China trade dispute. However, the wet spring made large corn plantings unlikely as corn yields tend to experience rapid deterioration when planted in June or later. Despite these indications, USDA's National Agricultural Statistics Service (NASS) released the results of its June acreage survey for corn planted acres at 91.7 million acresâwell above market expectations. However, because the wet spring had caused widespread delayed planting, USDA announced that it would re-survey the 14 major corn-producing states. The updated survey results were released on August 12 and, at 90.0 million acres, confirmed higher-than-expected corn plantings.

As a result, the outlook for the U.S. corn crop has been pressured by the large planted acreage estimate but filled with uncertainty over the eventual success of the crop considering that it is being grown under unusually delayed conditions. Corn ending stocks are projected to surpass 2 billion bushels for the fourth consecutive year. Strong domestic demand from the livestock sector coupled with a robust export outlook are expected to support the season average farm price for corn at $3.60/bushel in the 2019/20 marketing year, unchanged from the previous year.

The outlook for the U.S. soybean crop is more certain: USDA projects a 19% drop in U.S. soybean production to 3.68 billion bushels. Despite the outlook for lower production in 2019, the record carry-over stocks from 2018, and the sudden loss of China as the principal buyer of U.S. soybeans in 2018, USDA projects lower soybean farm prices (-8%) at $8.40/bushel for the 2019/20 marketing yearâthe lowest farm price since 2006 ( Figure 6 ).

Both wheat and upland cotton farm prices for 2019 are projected down slightly from 2018âprimarily due to the outlook for continued abundant stocks as indicated by the stocks-to-use ratios.

Diminished Trade Prospects Contribute to Market Uncertainty

The United States is traditionally one of the world's leading exporters of corn, soybeans, and soybean productsâvegetable oil and meal. During the recent five-year period from 2013/2014 to 2017/2018, the United States exported 49% of its soybean production and 15% of its corn crop. As a result, the export outlook for these two crops is critical to both farm sector profitability and regional economic activity across large swaths of the United States as well as in international markets. However, the tariff-related trade dispute between the United States and China (as well as several major trading partners) has resulted in lower purchases of U.S. agricultural products by China in 2018 and 2019 and has cast uncertainty over the outlook for the U.S. agricultural sector, including the corn and soybean markets.

Because the livestock sectors (particularly dairy and cattle, but hogs and poultry to a lesser degree) have longer biological lags and often require large capital investments up front, they are slower to adjust to changing market conditions than is the crop sector. As a result, USDA projects livestock and dairy production and prices an extra year into the future (compared with the crop sector) through 2020, and market participants consider this expanded outlook when deciding their market interactionsâbuy, sell, invest, etc.

Background on the U.S. Cattle-Beef Sector

During the 2007-2014 period, high feed and forage prices plus widespread drought in the Southern Plainsâthe largest U.S. cattle production regionâhad resulted in an 8% contraction of the U.S. cattle inventory. Reduced beef supplies led to higher producer and consumer prices and record profitability among cow-calf producers in 2014. This was coupled with then-improved forage conditions, all of which helped to trigger the slow rebuilding phase in the cattle cycle that started in 2014 ( Figure 7 ).

The expansion continued through 2018, despite weakening profitability, primarily due to the lag in the biological response to the strong market price signals of late 2014. The cattle expansion appears to have levelled off in 2019 with the estimated cattle and calf population unchanged from a year earlier at 103 million. Another factor working against continued expansion in cattle numbers is that producers are now producing more beef with fewer cattle.

Robust Production Growth Projected Across the Livestock Sector

Similar to the cattle sector, U.S. hog and poultry flocks have been growing in recent years and are expected to continue to expand in 2019. For 2019, USDA projects production of beef (+0.6%), pork (+5.0%), broilers (+1.7%), and eggs (+2.3%) to expand modestly heading into 2020. This growth in protein production is expected to be followed by continued positive growth rates in 2020: beef (+1.9%), pork (+2.8%), broilers (+1.1%), and eggs (+0.9%).

A key uncertainty for the meat-producing sector is whether demand will expand rapidly enough to absorb the continued growth in output or whether surplus production will begin to pressure prices lower. USDA projects that combined domestic and export demand for 2019 will continue to grow for red meat (+1.7%) and poultry (+1.5%) but at slightly slower rates than projected meat production, thus contributing to 2019's outlook for lower prices and profit margins for livestock.

Livestock-Price-to-Feed-Cost Margins Signal Profitability Outlook

The changing conditions for the U.S. livestock sector may be tracked by the evolution of the ratios of livestock output prices to feed costs ( Figure 8 ). A higher ratio suggests greater profitability for producers. The cattle-, hog-, and broiler-to-feed margins have all exhibited significant volatility during the 2017-2019 period. The hog, milk, and cattle feed ratios have trended downward during 2018 and 2019, suggesting eroding profitability. The broiler-to-feed price ratio has shown more volatility compared with the other livestock sectors but has trended upward from mid-2018 into 2019.

While this result varies widely across the United States, many small or marginally profitable cattle, hog, and milk producers face continued financial difficulties. Continued production growth of between 1% and 4% for red meat and poultry suggests that prices are vulnerable to weakness in demand. In addition, both U.S. and global milk production are projected to continue growing in 2019. As a result, milk prices could come under further pressure in 2019, although USDA is currently projecting milk prices up slightly in 2019. The lower price outlook for cattle, hogs, and poultry is expected to persist through 2019 before turning upward in 2020 ( Table A-4 ).

Projected farm-sector revenue sources in 2019 include crop revenues (46% of sector revenues), livestock receipts (42%), government payments (5%), and other farm-related income (8%), including crop insurance indemnities, machine hire, and custom work. Total farm sector gross cash income for 2019 is projected to be up (+2.2%) to $425.3 billion, driven by increases in both direct government payments (+42.5%) and other farm-related income (+19.3). Cash receipts from crop receipts (-1.7%) and livestock product (+0.5%) are down (-0.6%) in the aggregate ( Figure 9 ).

Total crop sales peaked in 2012 at $231.6 billion when a nationwide drought pushed commodity prices to record or near-record levels. In 2019, crop sales are projected at $193.7 billion, down 1.7% from 2018 ( Figure 10 ). Projections for 2019 and percentage changes from 2018 include

Feed cropsâcorn, barley, oats, sorghum, and hay: $56.3 billion (+0.4%); Oil cropsâsoybeans, peanuts, and other oilseeds: $36.3 billion (-14.0%); Fruits and nuts: $29.5 billion (+1.7%); Vegetables and melons: $19.6 billion (+6.0%); Food grainsâwheat and rice: $12.3 billion (+6.5%); Cotton: $7.5 billion (-7.4%); and Other crops including tobacco, sugar, greenhouse, and nursery: $31.2 billion (+2.8%).

The livestock sector includes cattle, hogs, sheep, poultry and eggs, dairy, and other minor activities. Cash receipts for the livestock sector grew steadily from 2009 to 2014, when it peaked at a record $212.3 billion. However, the sector turned downward in 2015 (-10.7%) and again in 2016 (-14.1%), driven largely by projected year-over-year price declines across major livestock categories ( Table A-4 and Figure 12 ).

In 2017, livestock sector cash receipts recovered with year-to-year growth of 8.1% to $175.6 billion. In 2018, cash receipts increased slightly (+0.6%). In 2019, cash receipts are projected up 0.5% for the sector at $177.4 billion as cattle, hog, and dairy sales offset declines in poultry. Projections for 2019 (and percentage changes from 2018) include

Cattle and calf sales: $67.3 billion (+0.3%); Poultry and egg sales: $38.9 billion (-15.8%); Dairy sales: valued at $39.7 billion (+12.7%); Hog sales: $24.5 billion (+16.2%); and Miscellaneous livestock: valued at $7.0 billion (+2.1%).

Historically, government payments have included

Direct payments (decoupled payments based on historical planted acres), Price-contingent payments (program outlays linked to market conditions), Conservation payments (including the Conservation Reserve Program and other environmental-based outlays), Ad hoc and emergency disaster assistance payments (including emergency supplemental crop and livestock disaster payments and market loss assistance payments for relief of low commodity prices), and Other miscellaneous outlays (including market facilitation payments, cotton ginning cost-share, biomass crop assistance program, peanut quota buyout, milk income loss, tobacco transition, and other miscellaneous payments).

Projected government payments of $19.5 billion in 2019 would be up 42.5% from 2018 and would be the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005 ( Figure 14 and Table A-4 ). The surge in federal subsidies is driven by large "trade-damage" payments made under the MFP initiated by USDA in response to the U.S.-China trade dispute. MFP payments (reported to be $10.7 billion) in 2019 include outlays from the 2018 MFP program that were not received by producers until 2019, as well as expected payments under the first and second tranches of the 2019 MFP program.

USDA ad hoc disaster assistance is projected higher year-over-year at $1.7 billion (+87.1%). Payments under the Agricultural Risk Coverage and Price Loss Coverage programs are projected lower (-12.4%) in 2019 at a combined $2.8 billion compared with an estimated $3.2 billion in 2018 (see "Price Contingent" in Figure 14 ).

Conservation programs include all conservation programs operated by USDA's Farm Service Agency and the Natural Resources Conservation Service that provide direct payments to producers. Estimated conservation payments of $3.7 billion are forecast for 2019, down slightly (-8.4%) from $4.0 billion in 2018.

Total government payments of $19.5 billion represents a 5% share of projected gross cash income of $425.3 billion in 2019. In contrast, government payments are expected to represent 22% of the projected net farm income of $88.0 billion. The importance of government payments as a percentage of net farm income varies nationally by crop and livestock sector and by region.

The 2018 farm bill ( P.L. 115-334 ) made several changes to the previous Margin Protection Program (MPP), including a new nameâthe Dairy Margin Coverage (DMC) programâand expanded margin coverage choices from the original range of $4.00-$8.00 per hundredweight (cwt.). Under the 2018 farm bill, milk producers have the option of covering the milk-to-feed margin at a $9.50/cwt. threshold on the first 5 million pounds of milk coverage under the program.

The DMC margin differs from the USDA-reported milk-to-feed ratio shown in Figure 8 but reflects the same market forces. As of August 2019, the formula-based milk-to-feed margin used to determine government payments was at $9.45/cwt., just below the newly instituted $9.50/cwt. payment threshold ( Figure 15 ), thus increasing the likelihood that DMC payments may be less available in the second half of 2019. In total, the DMC program is expected to make $600 million in payments in 2019, up from $250 million under the previous milk MPP in 2018.

Total production expenses for 2019 for the U.S. agricultural sector are projected to be up slightly (+0.4%) from 2018 in nominal dollars at $346.1 billion ( Figure 16 ). Production expenses peaked in both nominal and inflation-adjusted dollars in 2014, then declined for five consecutive years in inflation-adjusted dollars. However, in nominal dollars production expenses are projected to turn upward in 2019âthe first upward turn since 2014.

Production expenses affect crop and livestock farms differently. The principal expenses for livestock farms are feed costs, purchases of feeder animals and poultry, and hired labor. Feed costs, labor expenses, and property taxes are all projected up in 2019 ( Figure 17 ). In contrast, fuel, land rent, interest costs, and fertilizer costsâall major crop production expensesâare projected lower.

But how have production expenses moved relative to revenues? A comparison of the indexes of prices paid (an indicator of expenses) versus prices received (an indicator of revenues) reveals that the prices received index generally declined from 2014 through 2016, rebounded in 2017, then declined again in 2018 ( Figure 18 ). Farm input prices (as reflected by the prices paid index) showed a similar pattern but with a smaller decline from their 2014 peak and have climbed steadily since mid-2016, suggesting that farm sector profit margins have been squeezed since 2016.

Renting or leasing land is a way for young or beginning farmers to enter agriculture without incurring debt associated with land purchases. It is also a means for existing farm operations to adjust production more quickly in response to changing market and production conditions while avoiding risks associated with land ownership. The share of rented farmland varies widely by region and production activity. However, for some farms it constitutes an important component of farm operating expenses. Since 2002, about 39% of agricultural land used in U.S. farming operations has been rented.

The majority of rented land in farms is rented from non-operating landlords. Nationally in 2017, 29% of all land in farms was rented from someone other than a farm operator. Some farmland is rented from other farm operationsânationally about 8% of all land in farms in 2017 (the most recent year for which data are available)âand thus constitutes a source of income for some operator landlords. Total net rent to non-operator landlords is projected to be down (-2.1%) to $12.5 billion in 2019.

Average cash rental rates for 2019 were up (+1.4%) year-over-year ($140 per acre versus $138 in 2018). National average rental ratesâwhich for 2019 were set the preceding fall of 2018 or in early spring of 2019âdipped in 2016 but still reflect the high crop prices and large net returns of the preceding several years, especially the 2011-2014 period ( Figure 19 ). The national rental rate for cropland peaked at $144 per acre in 2015.

U.S. agricultural exports have been a major contributor to farm income, especially since 2005. As a result, the financial success of the U.S. agricultural sector is strongly linked to international demand for U.S. products. Because of this strong linkage, the downturn in U.S. agricultural exports that started in 2015 ( Figure 20 ) deepened the downturn in farm income that ran from 2013 through 2016 ( Figure 1 ). Since 2018, the U.S. agricultural sector's trade outlook has been vulnerable to several international trade disputes, particularly the ongoing dispute between the United States and China. A return to market-based farm income growth for the U.S. agricultural sector will likely necessitate improved international trade prospects.

USDA projects U.S. agricultural exports at $134.5 billion in FY2019, down (-6.2%) from $143.4 billion in FY2018. Export data include processed and unprocessed agricultural products. This downturn masks larger country-level changes that have occurred as a result of ongoing trade disputes (as discussed below). In FY2019, U.S. agricultural imports are projected up at $129.3 billion (1.4%), and the resultant agricultural trade surplus of $5.2 billion would be the lowest since 2006.

A substantial portion of the surge in U.S. agricultural exports that occurred between 2010 and 2014 was due to higher-priced grain and feed shipments, including record oilseed exports to China and growing animal product exports to East Asia. As commodity prices have leveled off, so too have export values (see the commodity price indexes in Figure A-1 and Figure A-2 ). In FY2017, the top three markets for U.S. agricultural exports were China, Canada, and Mexico, in that order. Together, these three countries accounted for 46% of total U.S. agricultural exports during the five-year period FY2014-FY2018 ( Figure 21 ). However, in FY2019 the combined share of U.S. exports taken by China, Canada, and Mexico is projected down to 38% largely due to lower exports to China. The ordering of the top markets in 2019 is projected to be Canada, Mexico, the European Union (EU), Japan, and China, as China is projected to decline as a destination for U.S. agricultural exports. From FY2014 through FY2017, China imported an average of $26.2 billion of U.S. agricultural products. However, USDA forecasts China's imports of U.S. agricultural products to decline to $20.5 billion in FY2018 and to $10.9 billion in FY2019 as a result of the U.S.-China trade dispute. The fourth- and fifth-largest U.S. export markets have traditionally been the EU and Japan, which accounted for a combined 17% of U.S. agricultural exports during the FY2014-FY2018 period. These two markets have shown limited growth in recent years when compared with the rest of the world. However, their combined share is projected to grow to 19% in FY2019 ( Figure 21 ).

The "Rest of World" (ROW) component of U.S. agricultural tradeâSouth and Central America, the Middle East, Africa, and Southeast Asiaâhas shown strong import growth in recent years. ROW is expected to account for 43% of U.S. agricultural exports in FY2019. ROW import growth is being driven in part by both population and GDP growth but also from shifting trade patterns as some U.S. products previously targeting China have been diverted to new markets. Over the past four decades, U.S. agricultural exports have experienced fairly steady growth in shipments of high-value productsâincluding horticultural products, livestock, poultry, and dairy. High-valued exports are forecast at $94.0 billion for a 69.9% share of U.S. agricultural exports in FY2019 ( Figure 22 ). In contrast, bulk commodity shipments (primarily wheat, rice, feed grains, soybeans, cotton, and unmanufactured tobacco) are forecast at a record low 30.1% share of total U.S. agricultural exports in FY2019 at $40.5 billion. This compares with an average share of over 60% during the 1970s and into the 1980s. As grain and oilseed prices decline, so will the bulk value share of U.S. exports.

U.S. Farm and Manufactured Agricultural Product Export Shares

The share of agricultural production (based on value) sold outside the country indicates the level of U.S. agriculture's dependence on foreign markets, as well as the overall market for U.S. agricultural products.

As a share of total farm and manufactured agricultural production, U.S. exports were estimated to account for 19.8% of the overall market for agricultural products from 2008 through 2016âthe most recent data year for this calculation ( Figure 23 ). The export share of agricultural production varies by product category:

At the upper end of the range for export shares, the bulk food grain export share has varied between 50% and 80% since 2008, while the oilseed export share has ranged between 47% and 58%. The mid-spectrum range of export shares includes the export share for fruit and tree nuts, which has ranged from 37% to 45%, while meat products have ranged from 27% to 41%. At the low end of the spectrum, the export share of vegetable and melon sales has ranged from 15% to 18%, the dairy products export share from 9% to 24%, and the agricultural-based beverage export share between 7% and 13%.

The U.S. farm income and asset-value situation and outlook suggest a relatively stable financial position heading into 2019 for the agriculture sector as a wholeâbut with considerable uncertainty regarding the downward outlook for prices and market conditions for the sector and an increasing dependency on international markets to absorb domestic surpluses and on federal support to offset lost trade opportunities due to ongoing trade disputes.

Farm asset valuesâwhich reflect farm investors' and lenders' expectations about long-term profitability of farm sector investmentsâare projected to be up 2.0% in 2019 to a nominal $3.1 trillion ( Table A-3 ). In inflation-adjusted terms (using 2018 dollars), farm asset values peaked in 2014 ( Figure 24 ).

Nominally higher farm asset values are expected in 2019 due to increases in both real estate values (+2.0%) and nonreal-estate values (+2.1%). Real estate is projected to account for 83% of total farm sector asset value. Crop land values are closely linked to commodity prices. The leveling off of crop land values since 2015 reflects stagnant commodity prices ( Figure 25 ). For 2019, USDA forecasts that prices for most major commodities will decline from 2018âwheat, barley, soybeans, cotton, choice steers, broilers, and eggs lower; sorghum, oats, rice, and pork products higher ( Table A-4 ). However, these projections are subject to substantial uncertainty associated with international commodity markets. Total farm debt is forecast to rise to a record $415.7 billion in 2019 (+3.4%) ( Table A-3 ). Farm equityâor net worth, defined as asset value minus debtâis projected to be up slightly (+1.8%) at $2.7 trillion in 2019 ( Table A-3 ). The farm debt-to-asset ratio is forecast up in 2019 at 13.5%, the highest level since 2003 but still relatively low by historical standards ( Figure 26 ).

A farm can have both an on-farm and an off-farm component to its income statement and balance sheet of assets and debt. Thus, the well-being of farm operator households is not equivalent to the financial performance of the farm sector or of farm businesses because of the inclusion of nonfarm investments, jobs, and other links to the nonfarm economy.

Average farm household income (sum of on- and off-farm income) is projected at $116,060 in 2019 ( Table A-2 ), up 4.7% from 2018 but 13.5% below the record of $134,165 in 2014. About 17% ($20,075) of total farm household income is from farm production activities, and the remaining 83% ($95,985) is earned off the farm (including financial investments). The share of farm income derived from off-farm sources had increased steadily for decades but peaked at about 95% in 2000 ( Figure 27 ). Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations.

Since the late 1990s, farm household incomes have surged ahead of average U.S. household incomes ( Figure 28 ). In 2017 (the last year for which comparable data were available), the average farm household income of $111,744 was about 30% higher than the average U.S. household income of $86,220 ( Table A-2 ).

Figure A-1 to Figure A-4 present USDA data on monthly farm prices received for several major farm commoditiesâcorn, soybeans, wheat, upland cotton, rice, milk, cattle, hogs, and chickens. The data are presented in an indexed format where monthly price data for year 2010 = 100 to facilitate comparisons.

Table A-1 to Table A-3 present aggregate farm income variables that summarize the financial situation of U.S. agriculture. In addition, Table A-4 presents the annual average farm price received for several major commodities, including the USDA forecast for the 2018-2019 marketing year.


Flood Risk Reduction from Natural and Nature-Based Features: Army Corps of Engineers Authorities

Summary: The U.S. Army Corps of Engineers (USACE) is the primary federal agency involved in federal construction to help reduce community flood risk. Congressional direction on USACE flood risk reduction activities has evolved from primarily supporting levees, dams, and engineered dunes and beaches. Since 1974, Congress has required that USACE evaluate nonstructural alternatives, such as elevation of structures and acquisition of floodplain lands, during its planning of projects. Since the mid-2010s, Congress also has directed the consideration of natural and nature-based features (NNBFs). Examples of potential NNBFs for reducing flood risk include wetlands; oyster, mussel, and coral reefs; and the combination of these natural features with hard components, such as rock and concrete. Various factors are shaping how USACE is incorporating NNBFs into its flood risk reduction projects and post-flood repair activities.

Summary: NNBFs in Flood Risk Reduction Projects

Summary: Congress specifically included NNBFs as a planning requirement for USACE flood risk reduction projects in 2016. In 2018, Congress required that USACE feasibility reports for flood risk reduction projects consider using traditional and natural infrastructure, alone or in conjunction with each other. In recent feasibility reports, USACE primarily has proposed using NNBFs (other than engineered dunes and beaches) in combination with traditional structural measures rather than having the NNBFs as the primary means for reducing flood risk. To be recommended for congressional construction authorization, a USACE flood risk reduction project generally must have national flood risk reduction benefits that exceed the project's costs. Under current Administration guidance, USACE's evaluation of NNBFs is tailored to each project (i.e., it is case-by-case rather than standardized).

Summary: NNBFs in Program to Repair Damaged Nonfederal Flood Control Works

Summary: In 1996, Congress amended USACE's program to repair damage to certain nonfederal flood control works. Congress allowed for the program to fund nonstructural alternatives in lieu of USACE making repairs if a nonfederal entity requests and assumes responsibility for the nonstructural alternative. In 2016, Congress defined the program's nonstructural alternatives to include restoring and protecting natural resources (e.g., floodplains, wetlands, and coasts), if those alternatives reduce flood risk. In practice, the program continues to predominantly repair the damaged flood control works. That is, there remain a limited number of nonfederal entities pursuing nonstructural alternatives under this program.

Summary: Identifying Challenges and Opportunities for NNBFs as Flood Risk Reduction Measures

Summary: Quantifying the effectiveness and reliability of NNBFs as flood risk reduction measures in different environmental conditions and for different floods and storms is an area of ongoing research. In some circumstances, NNBFs may provide flood risk reduction and a suite of environmental and social benefits. In other applications, NNBFs may be unable to replicate the level of flood risk reduction provided by traditional structural and nonstructural measures. Congress may consider the following issues for NNBFs in USACE flood risk reduction activities: knowledge gaps in measuring the benefits and limitations of NNBFs and the research to fill these gaps; how USACE processes account for NNBFs' benefits, costs, and performance; and effects of agency practice, Administration guidance, and statutory authority on the consideration and adoption of NNBFs for flood risk reduction. Congress has requested two reports related to NNBFs from USACE. These reports, when available, may inform congressional deliberations on whetherâand, if so, howâto support the use of NNBFs as part of USACE flood risk reduction efforts.

Significant recent coastal and riverine flood events, as well as concerns about changing hydrologic conditions, have prompted interest in using a suite of approaches to reduce flood risk and improve flood resilience , which is the ability to adapt to, withstand, and rapidly recover from floods. Traditional options to reduce flood risk include constructing levees and dams. Some stakeholders and Members of Congress support protecting, restoring, and enhancing natural features and processes to reduce flood and storm damages. Examples include floodplains that can store excess water and coastal wetlands that may attenuate storm surge.

Congress has directed the U.S. Army Corps of Engineers (USACE)âthe primary federal agency constructing projects to reduce flood risksâto evaluate the use of natural and nature-based features (NNBFs) when conducting its flood risk reduction activities along the nation's rivers and coasts. As part of a USACE authority, Congress defined a nature-based feature as "a feature that is created by human design, engineering, and construction to provide risk reduction by acting in concert with natural processes." It defined a natural feature as a feature "created through the action of physical, geological, biological, and chemical processes over time."

Although NNBFs may provide flood risk reduction and resilience benefits in some circumstances, they may be unable to replicate the risk reduction provided by traditional structural and nonstructural measures for some communities. How to effectively incorporate natural features and processes into planning of and investments in reliable flood risk management is an area of evolving policy and research. Part of the challenge is to identify where to use NNBFs and to determine how much flood risk reduction NNBFs can provided either on their own or in combination with structural and nonstructural measures.

Whether to adjustâand, if so, howâUSACE's consideration and use of NNBFs for flood risk reduction is an ongoing policy issue. Although Congress has authorized consideration of NNBFs, examples of USACE using NNBFs in its flood risk reduction activities remain limited. In November 2019, the Subcommittee on Water Resources and Environment of the House Transportation and Infrastructure (T&I) Committee held a hearing as part of preparations for developing water resource authorization legislation. At the hearing, multiple witnesses referenced interest in facilitating the use of NNBFs for managing flood risks and improving resilience. Congress has requested various reports related to NNBFs, but the reports have not been delivered to the authorizing committees. When available, these reports may inform congressional deliberations on NNBFs as part of authorization and appropriations legislation.

USACE considers NNBFs to include wetlands, such as salt marshes and certain submerged aquatic vegetation; oyster, mussel, and coral reefs; maritime forests/shrubs; and the combination of these natural features with engineered components, such as rock gabions (i.e., a basket or other container filled with rocks or other hard materials), stone toes (i.e., stones placed on the lower portion of an eroding streambank), and concrete reef balls (which are shown in Figure 1 along with other NNBFs). In some contexts, NNBFs that stabilize banks and shores also may be referred to as living shorelines . Efforts to enhance natural management of floodwaters often include attempts to restore disturbed natural features. For example, the ability of coastal mangroves, wetlands, and reefs to function as buffers of erosion or storm surge may be reduced if these features are degraded or improved if they are protected or restored.

This report introduces NNBFs in the context of USACE flood risk reduction activities. It first discusses how NNBFs relate to USACE authorities for structural and nonstructural measures. It next discusses the primary flood-related activities for which USACE has NNBF-related authority: (1) federal flood risk reduction projects and (2) a program for the repair of damaged nonfederal flood control works. The report then addresses challenges and opportunities for use and incorporation of NNBFs within USACE's flood risk reduction and resilience efforts. It concludes with questions pertinent to the future of use of NNBFs as part of USACE's flood risk reduction activities.

Natural and Nature-Based Features (NNBFs) in the USACE Flood Risk Reduction Context

USACE has been involved in efforts to reduce the nation's flood risk for over a century. The agency's early efforts involved building dams and levees along rivers. In the mid-20 th century, Congress began directing USACE involvement in coastal storm risk reduction projects, which have primarily consisted of engineered dunes and beaches, and in some instances, storm surge gates and levees. Congressional direction on USACE flood risk reduction activities has evolved to include authorities to use other means to reduce flood risk. Congress expanded USACE authorities related to nonstructural alternatives; then, starting in the mid-2010s, it directed the consideration of NNBFs.

Since 1974, Congress has required that USACE evaluate nonstructural alternatives, such as elevation of structures and acquisition of floodplain lands, during its planning of flood risk reduction projects. Following widespread flooding in the Midwest in 1993, many experts encouraged USACE, other agencies, and policy decisionmakers to support greater use of nonstructural approaches to mitigate flooding. In 1996, Congress amended USACE's authority to repair damage to certain nonfederal flood control works to allow use of nonstructural alternatives in lieu of repairs. In 2016, in the Water Infrastructure Improvements for the Nation Act (WIIN Act; P.L. 114-322 ), Congress defined such nonstructural alternatives to the repair of nonfederal flood control works to include restoring and protecting natural resources (e.g., floodplains, wetlands, and coasts), if those alternatives reduce flood risk.

Although nonstructural measures (including natural features as part of nonstructural measures) have been part of the discussion of and authorities for USACE flood risk reduction for decades, the focus on natural processes and use of terms such as NNBF or natural infrastructure are more recent developments. USACE began its Engineering With Nature initiative in 2010 to explore ways to align natural and engineering processes in USACE project planning. In 2015, USACE incorporated NNBF concepts into its North Atlantic Coast Comprehensive Study , which Congress required as part of the agency's response to Hurricane Sandy. In 2016 in the WIIN Act, Congress altered USACE authorities to specifically direct the agency to consider NNBFs in its planning of water resource projects. This was Congress's first use of the terms natural feature and nature-based featu res in USACE authorities.

In the WIIN Act, Congress directed USACE to evaluate NNBFs as part of the agency's planning of flood risk reduction and ecosystem restoration projects. Congress required that USACE consider each of the following: natural features; nature-based features; nonstructural measures; and structural measures. In 2018, Congress also required that USACE feasibility reports for flood risk reduction projects "consider the use of both traditional and natural infrastructure alternatives, alone or in conjunction with each other, if those alternatives are practicable."

NNBFs in the Context of Nonstructural and Structural Authorities

Congress has included references to nonstructural alternatives and measures in USACE authorities since at least 1974. Nonstructural measures generally are those that alter the human exposure or vulnerability to flooding with little effect on the characteristics of the flood (e.g., elevating a structure, floodproofing the lowest floor of a structure, or purchasing a structure for purposes of removing it which is referred to as a buyout ). S tructural measures are those that alter a flood's characteristics and reduce the probability of flooding at the location (e.g., a levee or berm that diverts flood water away from a community).

Congress has not identified NNBFs as structural or nonstructural features for purposes of USACE planning of federal water resources projects and federal and nonfederal sharing of project costs. Current USACE practice considers measures that change the character of the flood as structural measures, which may include most NNBFs. However, in the agency's role in repairing nonfederally operated flood control works damaged by floods, Congress has included the following definition:

Nonstructural alternatives defined. - In this subsection, the term 'nonstructural alternatives' includes efforts to restore or protect natural resources, including streams, rivers, floodplains, wetlands, or coasts, if those efforts will reduce flood risk.

Therefore, some NNBFs may fall within Congress's definition of nonstructural alternatives for the repair program.

It is unclear if the classifications of NNBFs as structural or nonstructural are consistent across the two sets of USACE activities that may use NNBFs for flood risk reductionâthe USACE repair program and USACE's planning of projects. For purposes of planning a USACE flood risk reduction project, an NNBF may be structural or nonstructural, depending on whether the NNBF affects the character of the flood. USACE considers most NNBFs to be structural measures because the NNBFs alter the flood hazard and are cost shared as structural measures (see " Cost Sharing of USACE Flood Risk Reduction Measures "). Nonstructural NNBFs could include the restoration or expansion of a floodplain through acquisition of structures and lands, especially when combined with an aquatic ecosystem restoration project.

Engineered dunes and beaches also have a role in NNBF discussions. USACE considers engineered dunes and beaches as NNBFs. However, traditional engineered dunes and beaches and other types of NNBFs may not face the same challenges when it comes to being incorporated into USACE planning and construction as more novel NNBFs, such as living shorelines. USACE has more than half a century of involvement in constructing engineered dunes and beaches (sometimes referred to as dune-and-berm beach nourishment systems ) as components of coastal storm risk reduction projects. The agency has long-standing approaches for calculating the flood risk reduction benefits of engineered dunes and beaches, which is not the case for other NNBFs (see section entitled " Evaluation of NNBFs' Benefits "). In addition, unlike other NNBFs, engineered dunes and beaches often are not designed to rely primarily on natural processes (e.g., engineered dunes and beaches often require regular renourishment of sand to maintain storm damage reduction benefits). Additionally, while engineered dunes and beaches may support habitat for certain species, some researchers and stakeholders have raised concerns about the potential for environmental harm associated with some engineered dune and beach projects (see " Incorporating More Natural Processes in Engineered Dunes and Beaches " for further discussion). Where appropriate, this report differentiates between the more novel applications of NNBFs and the more traditional engineered dunes and beaches.

Levee setbacks are an example of combining a structural elementâthe leveeâwith natural featuresâa wider floodplainâto reduce flood risk. USACE considers levee setbacks as structural alternatives for purposes of its projects and its repairs to certain damaged nonfederal levees because levees alter the extent of the flood hazard. The extent to which USACE would classify some levee setbacks as NNBFs (e.g., levee setbacks that augment natural storage and reduce peak flows) is unclear. Where appropriate, this report discusses levee setbacks activities that would include natural features and processes to reduce flood risks.

Through the Engineering With Nature initiative and comprehensive studies such as the post-Hurricane Sandy North Atlantic Coast Comprehensive Study , USACE has identified ways in which NNBFs could be incorporated into flood risk reduction and resilience efforts. Incorporating NNBFs into USACE feasibility reports and their recommended plans for flood risk reduction is a step that would move NNBFs from concepts into potential USACE project features. Statutory direction in 2016 and 2018 requires that NNBFs be considered as part of feasibility studies and their reports. The discussion below provides examples of how USACE has incorporated NNBFs into completed feasibility reports and how NNBFs are evaluated and cost shared as part of USACE flood risk reduction projects.

Evaluation of NNBFs in USACE Project Planning

USACE has an extensive planning process for its flood risk reduction projects; part of the process consists of an evaluation of whether the project is economically justified as a federal investment. Generally, federal involvement in flood risk reduction projects is limited to projects that are determined to have national economic benefits exceeding their costs or to projects that address a public safety concern. As previously noted, Congress has required the evaluation of NNBFs as part of USACE flood risk reduction project planning. Under current Administration guidance, USACE's evaluation of NNBFs as part of a feasibility study is tailored to each project (i.e., it is not standardized but case-by-case).

Economic Justification for Flood Risk Reduction Investments

The Principles and Guidelines (P&G) broadly guide the planning process and the decision criteria for identifying the recommended plan in a USACE feasibility report. The P&G indicate that USACE is to select the plan with the greatest net economic benefit consistent with protecting the environment (referred to as the national economic development plan , or NED plan), unless the Assistant Secretary of the Army for Civil Works (ASACW) grants an exception. The P&G have been in effect for USACE since 1983. For a discussion of the status of the P&G and a set of guidelines developed to replace the P&G, see the box titled "Planning Guidance for Federal Water Resource Studies and Investments."

According to the U.S. Government Accountability Office (GAO), the flood damage reduction of structures continues to dominate the evaluation of economics and the NED plan remains the main means for identifying the recommended plan for flood risk reduction alternatives. The effect is that most flood risk reduction projects are subject to a benefit-cost analysis. This means that for an NNBF to be found economically justified as a stand-alone flood risk reduction feature, the NNBF's effect on economic benefits (which for flood risk reduction projects is principally quantified as reduced flood damages to structures) would have to be quantified and found to exceed the cost of the NNBF.

Part of the attraction of NNBFs is that they may provide some risk reduction benefits without some of the costs of traditional structures. NNBFs, compared with structures such as storm surge gates, levees, or dams, may not require as much investment in long-term maintenance in order to continue their flood risk reduction functions. In addition, NNBFs generally would not require replacement or removal at the end of their use. The consistency with which USACE is incorporating these reduced costs into the comparison of NNBFs with other alternatives in feasibility reports is unclear.

Environmental and Social Benefits of NNBFs

Another attraction of NNBFs is that they may support species habitat, water quality, or recreation, among other environmental and social benefits. Statute requires and the P&G and USACE planning guidance allow the agency's feasibility reports for flood risk reduction projects to include information on the environmental and other social benefits of NNBFs. Nonetheless, under the P&G, unless an exception is granted by the ASACW, USACE is directed to select the plan with the greatest net economic benefit consistent with protecting the environment (the NED plan) in its feasibility reports for flood risk reduction projects. For a discussion of how this approach to identifying recommended plans and evaluating the benefits of alternatives may be shaping the adoption of NNBFs, see the discussion under " Evaluation of NNBFs' Benefits ."

The P&G have been the primary document guiding USACE planning and plan recommendations since 1983. In April 2020, the Administration described its plans to replace USACE's use of the P&G with new planning guidance. The new guidance is referred to as the Principles, Requirements, and Guidelines (PR&G) for federal water resource investments. Under the PR&G, USACE would strive to maximize public benefits relative to public costs. Public benefits encompass environmental, economic, and social goals, with no hierarchy among the three goals. In the interim, USACE continues to implement the P&G. For more details on the evolution of water resource planning guidance, see the text box titled "Planning Guidance for Federal Water Resource Studies and Investments."

Examples of NNBFs in USACE Flood Risk Reduction Projects

USACE is proposing using NNBFs (other than engineered dunes and beaches) often in combination with traditional structural measures. For example, the following USACE projects incorporate NNBFs as elements of broader flood risk reduction projects using structural elements.

New York's East Rockaway Inlet to Rockaway Inlet and Jamaica Bay Reformulation Project . The recommended plan includes NNBFs consisting of stones and larger rocks with associated vegetative planting to attenuate wave action and reduce erosion ( Figure 2 ) as part of traditional structural measures. The feasibility report indicates that the NNBF was evaluated based on its cost effectiveness, rather than a benefit-cost analysis. That is, the cost of the NNBF per linear foot was compared to the cost per linear foot of a floodwall. The entire recommended plan, which consists of various components in addition to the NNBFs, was subject to a benefit-cost analysis and was found to be economically justified. Virginia's Norfolk Coastal Storm Risk Management Project . The feasibility report recommends NNBFs in combination with traditional structural measures, such as storm surge barriers and pump stations, and nonstructural features, such as elevation, floodproofing, and buyout of structures ( Figure 3 ). The NNBFs include "living shorelines to increase resiliency." According to the feasibility report, the recommended NNBFs are "economically justified by their ability to reduce maintenance costs associated with structural features of the [recommended plan]," as well as other benefits, such as recreation and education identified. A benefit-cost analysis was performed on the combined NNBFs and structural features, and the investment was found to be economically justified.

The above projects use NNBFs as support for traditional structural features or in combination with traditional structural features. USACE has proposed several projects where the key components are traditional engineered dunes and beaches, which USACE considers to be NNBFs. The Congressional Research Service (CRS) has not identified a final USACE feasibility report in which NNBFs other than engineered dunes and beaches are the dominant means to reduce flood risk.

Cost Sharing of USACE Flood Risk Reduction Measures

Congress has established that USACE involvement in a flood risk reduction project generally requires both congressional study authorization and congressional construction authorization. Congress also has established that the planning and construction costs for most USACE projects are shared with a nonfederal sponsor, such as a municipality or levee district for flood risk reduction projects. Table 1 provides information on the nonfederal cost shares for USACE flood risk reduction, coastal storm damage reduction, and ecosystem restoration projects. Information about ecosystem restoration projects is included in Table 1 because some USACE projects may have dual purposes of flood risk reduction and ecosystem restoration.

Nonfederal project sponsors are generally required to provide all real estate interests needed for a flood risk reduction project, such as the land, easements, rights-of-way, relocations, and disposal (LERRD). The value of the LERRDs are applied toward the nonfederal cost share. At times, these real estate costs may exceed the standard minimum nonfederal cost share established by Congress for the USACE project type. As shown in Table 1 , Congress has established different means for addressing LERRD costs that exceed the required nonfederal contribution for structural features and for nonstructural features.

For some types of projects, Congress also has required that part of the nonfederal cost share must include a cash contribution, as shown in Table 1 . That is, the nonfederal share must consist of more than LERRDs and in-kind contributions.

For structural measures, Congress has generally established that the maximum nonfederal construction cost share is 50% if the nonfederal LEERDs exceed the 35% minimum. For nonstructural projects, if the nonfederal costs exceed 35%, the remainder of the costs are federal. Although Congress has established how costs of structural and nonstructural measures are to be shared, Congress has not enacted cost sharing that applies specifically to NNBFs. USACE considers most NNBFs to alter the flood hazard and treats those features as structural measures in its planning processes. Therefore, the cost-sharing requirements for structural measures apply to the use of most NNBFs, like those in the coastal storm risk reduction projects in Norfolk, VA, and East Rockaway Inlet to Rockaway Inlet and Jamaica Bay. Some stakeholders have expressed interest in having NNBFs be eligible for nonstructural cost sharing.

Congress has authorized numerous coastal storm damage reduction projects that use engineered dunes and beaches and the periodic renourishment of these features, which consists of multiple cycles of sand placement on beaches, dunes, or both. Statute allows for periodic nourishment over 50 years, with possibilities for extension, to be cost shared as shown in Table 1 .

NNBFs in Program to Repair Damaged Nonfederal Flood Control Works

USACE is authorized to fund the repair of certain nonfederal flood control works (e.g., levees, dams) and federally constructed hurricane or shore protection projects that are damaged by factors other than ordinary water, wind, or wave action (e.g., storm surge rather than high tide). To receive this assistance, damaged flood control works must be eligible for and active in the agency's Rehabilitation and Inspection Program (often referred to as the USACE P.L. 84-99 program or RIP) and have been in an acceptable condition at the time of damage, as determined by regular USACE inspections. The P.L. 84-99 program does not fund repairs associated with regular operation, maintenance, repair, and rehabilitation. As of 2018, around 1,200 nonfederal entities operating roughly 2,000 levee systems participate in the P.L. 84-99 program, and the nonfederal levees in the P.L. 84-99 program cumulatively span nearly 10,000 miles. Congress funds the P.L. 84-99 program and USACE's flood-fighting efforts through the agency's Flood Control and Coastal Emergencies (FCCE) account.

In 1996, Congress amended the P.L. 84-99 program to authorize USACE to implement nonstructural alternatives for reducing flood riskâpreviously the authority was limited to the repair or restoration of the flood control structures. Congress made the nonstructural alternative authority available only if a nonfederal entity requests the nonstructural alternative. That is, USACE does not include nonstructural alternatives in its evaluation of repair alternatives unless requested to do so by the nonfederal sponsor.

In 2014, Congress extended the nonstructural alternative option to authorized coastal storm damage reduction projects. In 2016, Congress defined the nonstructural alternative for the P.L. 84-99 program authority as including "efforts to restore or protect natural resources, including streams, rivers, floodplains, wetlands, or coasts, if those efforts will reduce flood risk." Congress also required USACE to notify and consult with the nonfederal sponsor about "the opportunity to request implementation of nonstructural alternatives to the repair or restoration of a flood control work" under P.L. 84-99 program. Table 2 provides information on how USACE shares the costs for the program. Under the P.L. 84-99 program, the costs for all LERRDs are 100% nonfederal. Most repairs would require few or no new LERRDs. Nonstructural alternatives may require significant new LERRD acquisition by the nonfederal sponsor. Also, if a nonstructural alternative is pursued, USACE will provide no further flood-related assistance anywhere within the formerly protected area, except for rescue operations, with some exceptions.

For repairs under the P.L. 84-99 program, USACE primarily follows Engineer Regulation (ER) 500-1-1 from 2001, and updated agency policies for how to return coastal storm damage reduction projects to design levels of protection (e.g., how to reconstruct and renourish with sand and engineered dune and beach to the design level of protection). ER 500-1-1 includes nonstructural alternatives to repair, pursuant to the 1996 amendment to the repair authority, but, in practice, the P.L. 84-99 program appears to remain a "repair-in-place" program or for minor adjustments in levee alignments to avoid repeated erosive damage to a levee segment often referred to as scour . Repair-in-place planning often is more expeditious for USACE than the planning required for a nonstructural alternative. USACE does not appear to track the use of the nonstructural alternative authority within the P.L. 84-99 program. Selected uses of the nonstructural alternative authority include examples following the 1997 floods in California and the 2008 floods in the upper portion of the Mississippi River.

In the P.L. 84-99 program, USACE may setback a damaged levee segment; USACE considers the setback a structural realignment of the levee to restore the damaged levee system. USACE does not consider levee setbacks as nonstructural alternatives. Because levee setbacks are considered as structural realignments for the repair of the damaged levee, the levee setbacks as part of the P.L. 84-99 program are designed for purposes of the levee's functioning and integrity (e.g., to decrease scour) rather than to enhance floodplain capacity or reduce peak flows. If a nonfederal entity pursues a nonstructural alternative, such as the acquisition of floodplain lands, the nonfederal sponsor also may choose to setback the levee. It appears that USACE would consider the setback of the levee not as part of the nonstructural alternative but as a complementary investment by the nonfederal entity.

USACE and other federal agencies also may own and operate levees and other flood control projects. USACE is responsible for rebuilding flood-damaged levees that it operates. USACE has no authority to evaluate and implement nonstructural alternatives (or NNBFs) for congressionally authorized USACE-operated infrastructure.

Challenges and Opportunities for NNBFs as Flood Risk Reduction Measures

Some contend that traditional structural measures are institutionally easier for USACE to implement, which disadvantages use of NNBFs, especially in situations and contexts that favor expediency or are time-constrained. Although USACE has decades of experience planning and constructing structural levees and dams, and the authorities and policies to guide those measures, the agency's guidance and experience with NNBFs are less well-developed. For example, implementing NNBFs may require USACE to work with more federal and nonfederal agencies, landowners, and other stakeholders than the agency would with structural measures. Two factors that may shape the further adoption of NNBFs as part of USACE flood risk reduction activities are (1) the availability of information and evaluation procedures for using NNBFs as flood risk reduction measures and (2) the classification of some NNBFs as structural measures for flood risk management. Identifying whether and, if so, how to incorporate NNBF concepts more fully into USACE's engineered dunes and beaches presents another challenge.

USACE's actions pursuant to congressional modifications to its NNBF authorities since the mid-2000s have led to the development of new procedures to evaluate the flood risk reduction benefits of NNBFs and to questions about what USACE is able to count as benefits. An attraction of NNBFs as flood risk reduction measures is that by using natural processes, NNBFs also may support species habitat, water quality, or pubic enjoyment, among other environmental and social benefits. Whetherâand if so, howâto incorporate the environmental and social benefits of NNBFs into USACE decisionmaking remains an ongoing question. The discussion below first reviews the challenges related to evaluating the flood risk reduction benefits and then discusses the role of environmental and other social benefits in evaluating investments in NNBFs as flood risk reduction measures under the P&G.

Under the P&G, which USACE has followed since 1983, flood risk reduction projectsâwhether they use traditional structural measures, nonstructural measures, or NNBFsâare to be economically justified based on the NED benefits from the reduced flood risk. The P&G requires the selection of the NED plan for USACE flood risk reduction projects, unless a waiver is provided by the ASACW. The P&G allows for USACE to document the environmental and social benefits; however, these benefits are not explicitly included in the agency's identification of the recommended plan for a project. In April 2020, the Administration indicated that during 2020 it plans to develop documents required for USACE to replace its use of the P&G with the PR&G. Unlike the NED-focused decision criteria of the P&G, the PR&G would direct USACE to strive to maximize public benefits toward environmental, economic, and social goals relative to public costs.

Economic Benefits of NNBFs' Flood Risk Reduction

In some circumstances, NNBFs may not be effective as flood risk reduction measures or provide the level of protection sought by a community. In circumstances where NNBFs may be able to reduce flood risk, NNBFs may be effective alone or in combination with traditional flood risk reduction measures. They also may assist with adjustments to changing hydrologic conditions (e.g., coastal wetlands adjustment to sea level rise) and provide a suite of environmental and social benefits (e.g., additional species habitat, water quality improvements, and recreation opportunities).

Stakeholders and others have noted that knowledge gaps may affect USACE's ability to support federal NNBF investments. For example, in 2019, GAO found

The Corps faces challenges in developing cost and benefit information for some types of natural infrastructure and has initiated some steps to address this. For example, a 2015 Corps report identified knowledge gaps in understanding how natural coastal infrastructure, such as wetlands may perform during coastal storms. These knowledge gaps make it challenging for the Corps to develop cost and benefit information for some natural infrastructure alternatives and compare them to other alternatives, such as those that use hard infrastructure.

For USACE, the procedures to evaluate the potential benefits, limitations, and economic costs of traditional flood risk reduction structures are developed and standardized through various procedures and models. As GAO identified, this is not the case for NNBFs. GAO's report indicated that USACE was developing a research strategy to address some of the knowledge gaps. Although USACE has not finalized the strategic research plan referenced by GAO, USACE has research activities directed toward improving understanding of NNBF performance, directly or indirectly. Several of these research programs are developing numerical and analytical tools that can estimate performance (e.g., reduced erosion, wave impacts, and flood/storm surge inundation) for NNBF so trade-offs can be estimated in the planning, design, and maintenance process in the future. In addition to USACE, other researchers are attempting to document NNBFs' flood risk reduction benefits, limitations, and costs.

Under the Administration's current guidance for the NNBF authority, the identification, evaluation, and justification of NNBF alternatives (other than engineered dunes and beaches) appears to remain a case-by-case process. Part of the challenge is how a feature's location may affect an NNBF's performance, which consequently may influence the NNBF's benefits and costs. Congress may consider how USACE's case-by-case approach to evaluating NNBFs may shape consideration and adoption of the features (e.g., adapting the NNBFs to local conditions) in a planning process that is constrained by time and funding.

Another challenge to valuing the flood risk reduction benefits of NNBFs may be NNBFs' dynamic nature as the result of their use of natural processes, as compared to traditional flood control structures. For example, NNBFs consisting of mangroves or other wetlands may shift their extent and location in response to changing conditions. Other NNBFs may change over time as the living componentsâsuch as vegetation or oyster reefsâmature or their area expands or contracts. Floods or storms may temporarily or permanently damage some NNBFs and lessen their role in reducing flood risks.

USACE is participating in interagency and international efforts aiming to fill knowledge gaps and develop best practices and concepts for NNBFs and to understand their benefits and limitations. For example, USACE is leading an international effort to develop and publish international guidelines on NNBFs, as discussed in the box titled "International and Interagency Efforts on Natural and Nature-Based Features." The extent to which the agency may be able to incorporate into its own planning some of the international guidance remains to be seen and may depend on the extent to which the guidance helps address questions of performance and economic benefits in various environmental and flood/storm conditions.

As previously noted, USACE may document environmental and social benefits of NNBFs, but its decision criteria under the P&G for flood risk reduction project remains the NED plan. The PR&G-based planning process may require greater consideration of environmental and social benefits; the impact of those additional considerations on USACE's development and selection of plans that use NNBFs is unknown. The question of whether to incorporate, in the planning process and related decisions, certain environmental and social benefits and costs of flood risk reduction measures is a recent development in a long-standing debate on federal water resource investments.

USACE has adapted its project planning process before to meet changes in the agency's authorities. In the late 1990s, following Congress's enactment of various authorities for USACE ecosystem restoration projects, the agency developed procedures to evaluate ecosystem restoration investments (see box titled "Evaluation of an Ecosystem Restoration Project"). Whether and to what extent consideration of environmental and social benefits and costs of NNBFs, or for flood risk reduction projects more broadly, may be considered in the USACE planning and decision process is unclear.

In addition to the use of NNBFs as part of USACE flood risk reduction activities, the agency, through its regulatory program, has authorized a general permit for the use of one NNBF typeâcoastal living shorelines. The permitted activities are not performed or funded by USACE; they are performed by the entities that apply for the permit, such as a town or a landowner. As more nonfederal entities use NNBFs such as living shorelines, USACE may draw additional knowledge, data, and experience from these nonfederal and non-USACE projects. For information on the living shoreline general permit, see the box titled "Facilitating Approval of Natural and Nature-Based Features: Living Shoreline Nationwide Permit."

NNBFs as Structural Measures in USACE Planning

As previously noted, current USACE practice in the planning of flood risk reduction projects is to consider measures that change the character of the flood as structural measures, which may include most NNBFs. NNBFs classified as structural measures are cost shared differently than those classified as nonstructural measures. Some stakeholders have proposed that legislation require NNBFs to be cost shared as nonstructural measures regardless of the NNBFs' effect on the flood hazard. This would cap the nonfederal construction costs at 35% rather than up to 50% for structural measures, thereby shifting more of the NNBF costs to the federal government.

Levee setbacks, although not generally categorized as NNBFs by USACE, illustrate some of the challenges for NNBFs that are classified as structural measures. Examples of USACE's use of setback levees as part of the agency's flood risk reduction projects remain limited. Many potential levee setback projects do not have a sufficient benefit-cost ratio to be an economically justified investment as a structural measure for flood risk reduction, in part because of the costs associated with the additional land and other real estate interests that would need to be acquired. Nonfederal project sponsors generally would be responsible for 100% of these LERRD costs.

The designation of an NNBF as a structural measure could require the nonfederal sponsor to pay a greater share of the cost than if the NNBF were considered nonstructural (as shown in Table 1 ). Classification of an NNBF as a structural measure also results in a difference between the cost sharing for the NNBF and the cost sharing for nonstructural measures (e.g., elevating structure in the floodplain).

Incorporating More Natural Processes in Engineered Dunes and Beaches

As discussed above, USACE has long-standing approaches for calculating the flood risk reduction benefits of engineered dunes and beaches. Traditional USACE engineered dunes and beaches may not face the same challenges of being incorporated into USACE planning and construction as other features that USACE classifies as NNBFs. Although traditional engineered dunes and beaches may have social benefits and provide habitats for some species, engineered dunes and beaches have been shown in some circumstances to have some negative effects. For example, the construction and replenishment of these features can disrupt existing biological communities, such as benthic, fish, and shorebird communities, at the project site and where the sand is sourced. The cumulative effect of the projects and resulting environmental changes remains poorly understood. USACE has taken some steps to address these effects (e.g., the agency considers the compatibility of some sand characteristics, and for some projects, it avoids nourishing during ecologically significant periods), but some suggest that engineered dunes and beaches could incorporate natural processes or elements with more environmental benefits. For example, some researchers have suggested leaving gaps in sand placement or nourishing smaller areas at a time to allow species to recolonize from the edges of the nourishment area.

Efforts to integrate resilience into approaches to flood risk reduction can raise questions about the role of traditional engineered dunes and beaches that rely heavily on regular renourishment through the engineered placement of sand on the beaches and dunes. NNBFs generally are intended to be developed by or to use natural processes. NNBFs are meant to be as self-sustaining as possible; that is, they are expected to recover, often without or with minimal human intervention, following a flood event. For example, natural dune and beach systems may experience large waves during storm events, which move sediment from the front of the beach (the foreshore) to the back of the beach system, effectively maintaining or raising the elevation behind the dune over time. The foreshore is built up by normal wave activity over time, thereby maintaining through natural processes the dune system, including its potential flood risk reduction benefits. Some dune and beach systems may recover quickly after a damaging storm; however, others may take decades to rebuild to previous heights and widths through natural processes. Conversely, engineered dunes are often built to not be overtopped and moved. Some engineered dunes also have cores or components that provide stability (e.g., synthetic membranes or clay) and may not allow for dune migration. To allow this natural movement to continue, some stakeholders have suggested that USACE consider constructing lower dunes and providing space behind dunes to accommodate sand movement. Other options may include designing dunes to be naturally shaped by the wind while decreasing overall sand loss by using features such as vegetation, screens made of natural materials, and variations in terrain elevation. Furthermore, dunes could be designed to specifically include habitat features, such as those that enable wetland development.

Some stakeholders argue that USACE and its nonfederal partners could consider other ways to promote natural processes and their benefits into USACE coastal storm risk reduction projects, such as by allowing dune systems to spread out, limiting the raking or grading of incipient dunes, and restricting driving on the beach. These measures would allow dunes to widen or for additional dunes to form in front or behind the primary dune, providing some environmental and social benefits (e.g., greater protection for structures behind dunes and greater variety in available habitats) but could limit other social benefits (e.g., space for beach recreation).

Although USACE has long-standing approaches for calculating the flood risk reduction benefits of engineered dunes and beaches, the agency's procedures for incorporating more natural processes and features (e.g., vegetation) into engineered dunes and beaches are being reconsidered in the context of the additional NNBF considerations. Incorporating more natural processes into engineered dunes and beaches may require additional efforts to secure the LERRDs for a dune that shifts.

Statute not only allows for federally cost-shared periodic nourishment of USACE-constructed dunes and beaches over 50 years but also provides for the possibility of extending renourishment for an additional 15 years. It is unclear if USACE's evaluations for extending a project's federally cost-shared renourishment timeframe consider the role of more natural processes and elements (e.g., vegetation) in future renourishments. It also remains unknown whether more natural processes would be considered a reformulation, requiring congressional authorization, rather than an administrative extension. Similarly, the extent to which P.L. 84-99 program-funded repairs of coastal storm protection projects have been used to incorporate more natural processes into the designs of engineered dunes and beaches remains unknown.

Congressionally Directed Reports Related to NNBFs

Congress has directed that the Administration produce two reports that may provide information on NNBFs to decisionmakers and planners. One report relates to how USACE complies with the WIIN Act requirement to evaluate NNBFs as part of USACE flood risk reduction projects. The other report focuses on USACE's authorities related to repair of nonfederal flood control works, including the use of the authority to support a nonstructural alternative in lieu of repairing the damage.

In 2016, Congress directed the Secretary of the Army to evaluate NNBFs, nonstructural features, and structural features in its planning of flood risk reduction projects and ecosystem restoration projects. At that time, Congress also required the Secretary of the Army to report on the statute's implementation to the House T&I Committee and Senate Committee on Environment and Public Works (Senate EPW) by February 1, 2020 (and 5 and 10 years thereafter). At a minimum, the report was to include

a description of the guidance or instructions issued, and other measures taken, by the Secretary and the Chief of Engineers to implement the requirement to evaluate NNBFs, nonstructural features, and structural features in the planning of flood risk reduction and ecosystem restoration projects; an assessment of the costs, benefits, impacts, and trade-offs associated with measures recommended by the Secretary for coastal risk reduction and the effectiveness of those measures; and a description of any statutory, fiscal, or regulatory barriers to the appropriate consideration and use of a full array of measures for coastal risk reduction.

The committees have not received the report as of April 2020; however, USACE indicates that it has initiated development of the report. USACE implementation guidance from 2017 and 2018 indicates that the agency was making efforts at that time to collect data for the report.

Report on NNBFs in Program to Repair Nonfederal Flood ControlÂ Works

In June 2014, Congress required that the Secretary of the Army review the use and performance of the emergency authority for repairs of nonfederal flood control works. Congress required that a report on the findings of the review be delivered within 18 months to the House T&I Committee and Senate EPW Committee and for the report to be publicly available. USACE implementation guidance for the provision indicates that the agency would undertake the review when Congress provided funding for it. Congress has not yet funded the review. The Secretary is to, among other actions,

review and evaluate the historic and potential uses, and economic feasibility for the life of the project, of nonstructural alternatives, including natural features such as dunes, coastal wetlands, floodplains, marshes, and mangroves, to reduce the damage caused by floods, storm surges, winds, and other aspects of extreme weather events, and to increase the resiliency and long-term cost-effectiveness of water resources development projects.

In 2010, USACE ramped up its efforts to identify opportunities to incorporate natural processes into its flood risk reduction activities with its Engineering With Nature initiative. Starting in the mid-2010s, Congress has authorized the consideration of NNBF alternatives in circumstances where NNBFs can reduce flood risk. The reliance on natural processes in NNBFs may provide flood resilience advantages compared with traditional structural measures or when used in combination with traditional structural measures. However, various challenges to the adoption of NNBFs as part of USACE projects remain.

Among recently completed feasibility reports, USACE has recommended a few flood risk reduction projects that use NNBFs. Typically, the recommendation is to use the NNBFs in combination with structural measures if the combined alternative can be economically justified.

The limited use of NNBFs in USACE flood risk reduction activities to date is shaped by various factors ranging from what is known about NNBF performance to how NNBFs are evaluated. In some circumstances, NNBFs may not be able to provide levels of flood risk reduction similar to traditional structural and nonstructural measures. In other circumstances, NNBFs may be able to reduce flood risks, but the ability to quantify the effectiveness and reliability of NNBFs as flood risk reduction measures in different environmental conditions and for different flood and storm conditions remains limited. In circumstances where NNBFs may be effective alone or in combination with traditional flood risk reduction measures, they can provide a suite of environmental and social benefits. The extent to which USACE considers NNBFs' environmental and social benefits, as well as their flood risk reduction potential, in agency feasibility reports and their recommendations and in decisions on repairing damaged flood control works remains unclear. USACE's evaluations and recent applications of NNBFs have raised questions about how environmental and social benefits are considered in USACE planning and the potential opportunities and limitations for USACE's use of NNBFs.

Some questions related to NNBFs relevant to decisions about USACE authorities and policies include the following:

What are the remaining knowledge gaps regarding the benefits and limitations of NNBFs in flood risk reduction? What are the options for decisionmakers to direct USACE or other federal agencies to address these gaps or otherwise support research that addresses these gaps? What is the impact of current decisionmaking processes on the accounting of NNBFs' benefits, costs, and performance over time? How do statutes, Administration guidance, and agency practice create disincentives and incentives for NNBF adoption for USACE and nonfederal project sponsors?

The congressionally directed reports discussed in the previous section may inform USACE decisionmakers' and planners' understanding of the circumstances in which use of NNBFs may be beneficial. They also may inform congressional deliberations on whetherâand, if so, howâto support use of NNBFs as part of USACE flood risk reduction and resilience efforts.