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Monday, August 15, 2011

ACRE Version 2.0:  What Changes Will Have To Be Included?



 

There is no doubt that farm policy making and the US budget deficit will collide head long in the next few months.  Both House and Senate committees have begun working on the 2012 Farm Bill, and will continue that effort as their colleagues try to remove $1.7 Trillion from the budget, and have their eyes on the USDA budget to supply some of the needed cuts.  While direct payments have their days numbered, the ACRE program may survive.  But what did USDA and the Congress learn about the failure of that program to attract many farmers to sign up?  If ACRE is continued, how will it have to change?

The ACRE program was the safety net portion of the 2008 Farm Bill, but required a sacrifice of 20% of direct payments and 30% of marketing loan benefits.  Four agricultural economists surveyed farmers in Wisconsin, Texas, North Carolina, and Mississippi to determine what motivated them to either sign up for ACRE or stay away, and retain their direct payments.  Was it the direct payments, or the requirement to stay in the program once a farm is enrolled, or was it the hassle of getting signatures from landowners who may not understand the program complexities.

Their research found that ag economists at most Land Grant Universities strongly urged farmers to enroll because it offered better risk protection than the direct payment program. “However, initial ACRE enrollment data indicated that only about 8% of farms with eligible base acreage signed up for ACRE in 2009, representing roughly 13% of eligible base acreage.”  Since major farm groups could not agree on the basis for determining what would trigger a payment, Congress had to pass a compromise.  “The final legislation was a political compromise that uses national prices and state yields and requires that a farm loss occur, but gives producers the option to remain in the traditional commodity programs or to opt into the new ACRE program.”

Their survey encompassed 1,380 farmers, which reflected the average age of all farmers and with the same size of operation.  The economists said their initial survey found that few farmers would participate in ACRE.  “At the time of the survey, only 2.8% of producers answered that they intended to switch to ACRE in 2009. A much larger 31.3% stated that they might switch to ACRE in later years, while 65.9% reported that they intended to stay in the current program for the life of the Farm Bill. Actual 2009 ACRE sign-up in Mississippi, North Carolina, Texas, and Wisconsin was 2.2%, with Wisconsin sign-up the highest among these four states at 7% of base acres.”

The survey found that only 3% of farmers perceived that ACRE would pay more than direct payments and only 8% believe ACRE would afford greater risk protection than traditional commodity support programs.  Other findings included, about half of survey respondents described themselves as much less willing to accept risk compared to other farmers, while 31% expected significant income risk from farm program changes over the next five years.

The economists also looked at other factors which may influence the attitude of the farmers toward the ACRE program, including farm organization membership in either the NFO, Farmers Union, or the Grange; along with farm size, commodities produced, and comfort with income risk.  “Only 3% of respondents reported membership in the identified farm organizations. Average farm size in the sample was 724 acres. Texas and Wisconsin producers each reflect about 30% of respondents, with North Carolina and Mississippi each providing approximately 20% of respondents. When asked to identify a primary crop, corn was identified by 29% of respondents, soybeans by 19%, and cotton by 7%.”

Averages for the farmer attitude data show consistent opinions across all three data sets for the size of ACRE payments relative to current programs, the risk protection provided by ACRE, and the importance of price variability for the next five years.  But risk aversion separated the farmers, say the researchers, “On average, well more than half of the farmers in both county enrollment data sets believed that farm program risk would be a major source of income risk over the next five years, but less than a third held the same option in the mail survey.”

Among their findings:
• initial farmer plans to switch to ACRE in 2009 were primarily driven by producer perceptions of whether or not ACRE would pay more than existing programs and whether or not it would provide more risk protection.
• Planning to stay with existing programs in 2009 and possibly switching to ACRE later was driven more by producer risk aversion and perceptions about the effect of yield and price variability on income risk in the coming years.
• Membership in organizations such as National Farmers Union, National Farmers Organization, and the Grange was consistently and strongly associated with intending to stay with existing programs in 2009.
• Consistent state and crop effects were also found. Texas and Wisconsin producers were more likely to plan to wait and possibly switch to ACRE later.
• Cotton growers consistently and strongly intended to stay with existing programs in 2009, likely due to the large “cost” of giving up the relatively larger direct payments for cotton and price expectations that made counter-cyclical payments more likely.
• The ACRE decision was clearer for farmers focused on some crops (e.g., cotton and wheat).
• the fact that many producers did not follow recommendations – to sign up for ACRE because expected returns would exceed returns from traditional programs – runs contrary to the often accepted notion that producers are simply rent seeking in farm program participation.

Summary:
If Congress includes another version of ACRE in the 2012 Farm Bill, several changes may have to be made to attract more producer participation.  Choices of programs lead farmers to stick with the direct payment program which they knew.  Farm organizations may need to be included in the sign-up process, instead of just Extension economists, and the program needs to treat all commodities equally.

Posted by Stu Ellis on 08/15 at 12:27 AM | Permalink

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