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Tuesday, March 29, 2011

2012 Farm Bill:  Are You Ready To Loosen Your Grip On Direct Payments?


Mark your calendar for the first Congressional hearing on the 2012 Farm Bill, which has been set for April 9th in East Lansing, MI, by Sen. Debbie Stabenow, Chair of the Senate Agriculture Committee.  Attendees, at this hearing, and all future ones will likely be asked for their ideas, particularly how to reduce what the government spends on agricultural programs.  While that declined from $25 billion last year to $17 billion this year, it will likely go down further, and farm groups wanting specific programs will have to show how thrifty they are.

Carl Zulauf could see it coming.  He is an agricultural economist and farm policy specialist at Ohio State University, and has just proposed a number of revisions in current farm programs, all designed at increasing efficiency, reducing cost, and in many cases, simplifying the rather complex programs established in the 2008 Farm Bill.  Zulauf’s proposals touch on direct payments, crop insurance, and multi-year programs such as ACRE and SURE.  He says the purpose is to make direct payments part of a risk management program, enhance ACRE while reducing its integration with crop insurance, and create a new enterprise crop insurance program that crosses county lines to reduce its risk and cost.

Direct payments have been a lightning rod for critics of farm programs, since they are automatic payments without the need to “earn” them in any way.  Many farm policy specialists within the agricultural fraternity have indicated the difficulty of keeping them in the next Farm Bill.  Zulauf suggests that the formula used in ACRE for payments be retained, and used as the basis for receiving a direct payment.  Selecting Illinois and Kansas, and looking at crop production and price results from 1996 through 2009, Zulauf said payments would be received about one year out of two.  And he says, “Imposing a loss condition for farm program payments is consistent with a risk management oriented farm safety net because payment is tied to the occurrence of a financial loss.”

Direct payments total about $5 billion per year and cutting payments by half would mean a $2.5 billion savings for the government, if that is the objective being sought.  He also says that a loss provision in a farm program would require yield records for individual farms, and the same data could be used for crop insurance claims, as well as direct payments.

The ACRE program was designed as a state-based safety net program, but the complex calculation was too much for many operators and land owners to understand and it has not been widely accepted.  Zulauf suggests several changes that are designed to reduce its cost to the government, but which he says will result in a greater likelihood for more frequent payments.  Those changes would be reduce the cap on state revenue payments from 25% down to 10%; increase the coverage level for ACRE from 90% to 95%, and reduce the limit on how much the state revenue can decline from 10% to only 5%.  To save money, Zulauf suggests replacing the 20% sacrifice in direct payments when enrolling in ACRE with a program that pays only when there is a loss on the farm.

The SURE program is the permanent disaster assistance program that does not require special Congressional appropriation, but it also ends with the current fiscal year and does not continue into the next Farm Bill.  This whole farm program provides compensation, but is keyed to ACRE and crop insurance.  Zulauf suggests substitute SURE for the direct payment program that pays when there is a crop loss situation.  Continue the SURE program, but instead of making the payment a year after harvest when ACRE is also paid, make the SURE payment at harvest which indicates it is a disaster payment.  Additionally, Zulauf suggests reducing the amount that crop insurance is subsidized and providing a continuation for SURE for future years.

Crop insurance will not be going away, but Congress will look for ways to reduce the outlay for the program.  Zulauf suggests adding a new enterprise unit to the program, which would cross county lines and not require farmers to buy different enterprise policies for each county.  He says that spreads the risk and reduces the cost for all involved.  He would also eliminate the subsidy for optional units when insurance is purchased for individual fields.  Zulauf says such changes could also provide funds for updating crop insurance data to the current year, and not be keyed on production history.

Proposals are beginning to surface for reworking the farm safety net in the 2012 Farm Bill.  The newest plan makes changes to the direct payments, crop insurance, and the ACRE and SURE programs.  All of the changes are designed to save money, which will be one of the requirements of the Congressional committees writing the legislation.

Posted by Stu Ellis on 03/29 at 12:00 AM | Permalink

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