Monday, January 04, 2010
ACRE: We Know Why You Did Not Sign Up!
Some of you signed up to participate in the USDA’s Average Crop Revenue Election (ACRE) program. Some of you did not. And there were many more of the latter than the former. The relatively small percentage of farmers who opted for ACRE caused a lot of head scratching in the Halls of Congress, at the USDA complex at 14th and Independence, and up and down K Street in Washington where farm lobbyists pushed hard for various elements of the program. What went wrong?The ACRE program was authorized in the 2008 Farm Bill to help farmers manage revenue risk and take the burden away from Direct and Counter-cyclical Payments as a means of income transfer. (Those payments were lightning bolts to everyone from international trade policy negotiators to the Environmental Working Group that publicizes what every farmer receives from USDA.) ACRE was seen as means of insulating farmers from simultaneous weather and market problems on a state by state basis. The program only drew 8% of eligible farms and 13% of eligible acres, but had been questioned because of its complexity and other issues.
Those issues turned out to be the cause of the relatively low enrollment say USDA economists, whose recent report analyzed the lack of interest in ACRE. One of their initial findings was the income history for farm programs. As farm income grew from 2002 to 2008 the reason was stronger commodity prices, combined with commodity program payments, marketing loan program benefits, and loan deficiency payments. But many of the beneficiaries of farm program payments were cotton and peanut farmers. Then as farm program payments declined, production costs were simultaneously rising, and the safety net was not working well. With a hard push from the National Corn Growers Association, Congress shifted the basis for farm program payments away from marketing loans and counter cyclical payments to payments based on revenue changes. Another goal was to convert farm program supports toward more acceptance by the international trading community.
Participants in the ACRE program were required to sacrifice 20% of their income from Direct Payments, and for a rice producer receiving $100 per acre in Direct Payments, the ACRE program was not attractive. And a peanut producer who would receive about $180 from Direct and Counter-cyclical payments, a 20% cut as not of any interest. For a corn grower with a projected marketing year price of $3.50, the USDA economists say a guaranteed ACRE payment of $4.13 was attractive, and the same with a guaranteed price of $10.05 for soybeans, which carry a $9.40 marketing year average price. The USDA economists reiterate that farms with yields that are positively correlated with State yields are more likely to receive ACRE payments. However, few farmers are aware of that correlation for their farm. They calculate that the high market prices of 2007 and 2008 for corn and soybeans, which were used for ACRE guarantees, would make ACRE an attractive alternative to Direct payments. But for cotton and peanut farmers anticipating large Direct and Counter-cyclical payments, the need to sacrifice part of that will not be offset by ACRE.
The economists admit that actual enrollment is somewhat lower than what might have been expected based on the revenue benefits, but they found other factors that limited farmer interest in ACRE.
• ACRE is a new and complicated program. Some producers may lack a full understanding of the program details needed to assess the variables that cause both State- and farm-level triggers for a farm to be eligible for a payment.
• It takes time to learn how the new ACRE program will affect individual farm operations relative to State-level triggers. Many farmers are not accustomed to thinking about how their revenue per planted acre compares to State-level revenue per planted acre. They are more familiar with actual revenue and national-level prices and harvested yields.
• All landowners and operators must agree to participate. If one landowner or operator associated with a farm operation was unwilling to elect ACRE, the farm was not eligible.
• Detailed records are needed to verify production of all ACRE-eligible crops on the farm for the previous 5 years or an ACRE county yield may be used. The ACRE county yield is 95 percent of the county average yield, which may have been significantly lower than the average yield for the farm.
• Electing to participate in ACRE is an irreversible decision. Once a farm is enrolled in ACRE, it must remain in the program through 2012.
• ACRE may be attractive for some crops, but not for all crops.
• Direct payments on ACRE farms are reduced 20 percent and the marketing assistance loan rates for crops produced on ACRE farms are reduced 30 percent. They are no longer eligible for counter-cyclical payments, a fact that likely limited participation by upland cotton producers.
• ACRE payments are not paid until the end of the marketing year. This timing of the receipt of payments could affect cash flow and producers’ ability to pay bills in the short run.
• Producers may not have valued the risk management benefits of ACRE highly.
• Finally, producers who have not yet enrolled in ACRE will have an option to elect ACRE in a subsequent year. Some may have decided to see how the program performs this year before committing.
Summary:
Although Congress, USDA, and others worked hard to create the ACRE program, its acceptance by farmers was lukewarm as indicated by the relatively small number of farmers and acres that were signed into the program. Economists indicate that corn and soybean farmers would have been expected to participate, but cotton, rice, and peanut farmers would not because of having to sacrifice lucrative Direct payments. But even for those farmers who should have participated, numerous factors dampened their interest. Some of those included the complexity of the calculations that prevented easy estimates of payment levels, the need for both owners and operators to agree on program participation, and the payment would not be received until a year after the crop was harvested.
Posted by Stu Ellis on 01/04 at 01:41 AM | Permalink