Tuesday, May 18, 2010
Buckle Your Seat Belt: New Farm Program Proposals Are Getting Aired.
Very few farmers enrolled very few acres into the 2009 ACRE program, most likely because it was quite complex, payments would not be received for a year after harvest, and landowners would likely have trouble understanding the program details. But if ACRE becomes the preferred method of providing an agricultural safety net, is there a better method than keying payments to state average revenue? Would county average revenue be a better benchmark if ACRE survives into the 2013 Farm Bill?1. There will be an urban-rural debate about farm supports.
2. Farm programs will stay.
3. Taxpayers will increase their complaints about costs.
Count on those in the 2013 Farm Bill says Iowa State University economist Bruce Babcock in his Congressional farm policy testimony on May 13. He totals farm program costs in 2008 and 2009 at $10.4 billion for direct payments, $2.6 billion for the cotton counter cyclical payments, and a crop insurance program that has cost taxpayers $13 billion in the past 2 years. Babcock is not a supporter of farm program payments and crop insurance payments overlapping and the amount of funds that go to crop insurance companies. He also contends that direct payments continue to violate international trade rules and are unnecessary in the wake of the federal debt and increased farm profitability. Says Babcock, “They arrive like clockwork even when high crop prices and high yields combine to generate record income levels, leaving nothing in their wake. Surely we can accomplish more with $5 billion per year than simply depositing it in the bank accounts of land owners and renters with base acres.” Calling for a significant overhaul in farm programs, he points to the dairy industry, saying, “The milk producers seem poised to propose replacing their long-standing price support program with a new margin insurance program that would protect producers against large increases in feed costs or large decreases in milk prices.”
Within that context, Babcock wants to overhaul ACRE, making it more attractive, and merge the crop insurance program into it. He says crop problems result from either lack of moisture or excess heat, but instead of yield declines, revenue issues have resulted from lower prices. With both ACRE payments that are triggered and revenue crop insurance payments that are triggered at the same time, payments to farmers are duplicated he says. On top of those, Babcock says the SURE program, the permanent disaster program in the 2008 Farm Bill, just covers deficiencies in the crop insurance program.
Babcock levels criticism at USDA’s delivery methods, and says FSA has shown that it can administer both the ACRE and SURE programs, and not have the expense that the Risk Management Agency pays out to crop insurance companies for administering crop insurance. One of the pinch points he says is measuring a crop loss in the crop insurance program. However, the National Ag Statistics Service can track local commodity prices, it can also track yield averages for an individual county, and that replaces the effort of the Risk Management Agency in its crop insurance program.
That leads Babcock to propose changing the ACRE program from state revenue to county revenue. He says the current usefulness of the ACRE program diminished for farmers when the federal budget caused Congress to cover only 83.3% of planted acres, rather than 100%. Other problems with the current ACRE program was the need for farmers to show a farm level loss and also have a state level loss before any benefits might be received. The Iowa State economist says it would be simpler to:
1) Increase coverage to 100% of planted acres
2) Eliminate the requirement for farm level yield reporting
3) Reduce the marketing year average price to a five month average price
4) Let FSA administer the program.
In his testimony Babcock created some hypothetical payments by county based on his proposal, which can be accessed here. He says average annual per acre county ACRE payments, at a 90% coverage level would have been $22.61 for corn, $15.87 for soybeans, and $13.63 for wheat.
Babcock contends the money set aside for direct payments would pay for a county-based ACRE program. There would be cost savings from not having to pay crop insurance companies, and because farm level risks would be covered by a county ACRE program many farmers would drop out of the crop insurance program. One uncertainty is payment limits, since they exist on FSA programs, but not on crop insurance programs. He says doing away with such limits and recognizing that a large share of the nation’s food supply is produced by a decreasing number of large efficient producers, and then it makes sense to support those who are bearing those risks of investment.
Summary:
The current ACRE program of USDA was not popular because of its complexity, but what if it were simplified by keying payments to a county, instead of a state, and really using such a program to replace both crop insurance and the permanent disaster program? That proposal has been given to Congress, with the thought that money used for direct payments would be funneled through the ACRE program, and the USDA’s FSA would administer it. Such an overhaul would reduce taxpayer complaints, reduce conflict with international trading rules, and save considerable funds now going to crop insurance companies.
Posted by Stu Ellis on 05/18 at 01:19 AM | Permalink
Comments
Posted by: jay armstrong at May 18, 2010 12:12AM
On so many levels, Mr. Babcock’s views, however appropriate, seem to be inconsistent with ones that a Director of the Center for Agricultural and Rural Development at Iowa State University should be promoting.
Lorenzo K. Gantzer
Freeport, IL
Posted by: Lorenzo Gantzer at May 18, 2010 10:10PM
I would suggest to Mr Babcock that so many people seem to be trying to reinvent the wheel. The crop insurance delivery & service systems are well established, producers understand how they work, and they and their bankers trust it to provide support for their operation. With each recent farm bill the government (and others like yourself) seem to want to try to invent other tools that do the same thing, but not as good (counter cyclical, ACRE, next ?). Maybe agents made a windfall for a couple of years, but that has now passed with cheaper prices. Most producers would prefer to be able to buy 95 or 100% CRC/RA/GRIP insurance - whichever best suits their needs - and keep the government (& FSA office) out of the way. But I guess politicians and professors know better.
Posted by: Rich Morrison at May 21, 2010 5:05PM
Somebody should explain to mr. Babcock how RA insurance works. its simple, we understand it, and you can insure revenue over a marketing year before planting and after harvest.
We should all be suspect of Mr Babcock’s abilty when he says direct payments are trade distorting. Thats why they were put into place in the first place. To help get WTO compliant.
Just take all the DP, ACRE, and CC away and give me a better RA crop insurance program. Main Street understands the need for insurance so it should be politically easier than all this convoluted stuff some college prof wants to make up on a computer for his namesake.