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Friday, October 28, 2011

Farm Bill Proposals:  Compare The Pluses And Minuses



 

In another four weeks when the Select Congressional Deficit Reduction Committee makes its report, there may not be any money left to provide a safety net in the Farm Bill.  However, many farm organizations and other interested groups have submitted a bushel of candidates for a farm program.  Since some of the plans were submitted, their sponsors have shifted to other concepts, so it is fair to say the structure of a farm safety net is a moving target.  And the House and Senate Agriculture Committees have held numerous hearings to consider what should and should not be included in the 2012 Farm Bill.  To no one’s surprise agriculture policy is quite dynamic.

The challenge for many farmers who are interested in the Farm Bill debate is to be able to evaluate the various farm policy alternatives and express their preferences during visits with Members of Congress when they are in their home districts.  Nearly all of the proposals are less complex as the ACRE program, which repelled many farmers because of its complexity.  And many of the proposals are designed to be supplements to crop insurance.

Several ag economists have offered their evaluations of proposals by comparing them to each other.  The American Farmland Trust retained Ohio State University’s Carl Zulauf to evaluate a group of 10 programs.  Zulauf said 9 of 10 would require a loss before government assistance is available.  9 of 10 plug a current hole in crop insurance created by multi-year revenue declines.  And he said 8 of 10 would end fixed prices or revenue benchmarks.  Zulauf also said concerns were raised that a farm safety net should cover systemic risk across many farms and not cover losses by individual farms.

One program that might be considered having a better chance than others is the Aggregate Risk and Revenue Management (ARRM) program.  It is being pushed by a bipartisan group of senators who submitted the ACRE program in the 2008 Farm Bill.  The plan is closely related to a proposal of the National Corn Growers.  The ARRM program is compared to the Systemic Risk Reduction Program (SRRP) submitted by the American Farm Bureau Federation, by Gary Schnitkey, University of Illinois ag economist.  Schnitkey’s evaluation ARRM and SRRP are two different type programs. ARRM will provide more, smaller payments than SRRP, and provide more support during periods of multiple year revenue declines. SRRP will make infrequent but large payments, and is essentially a disaster program.

The ARRM program also forms the basis of a multiple farm program comparison by Kansas State University ag economist Art Barnaby.  He says many of the proposals are a risk management tool to cover shallow losses.  He compares four proposals that have a price and yield function, which he says use derivatives of put options and crop insurance to provide payments.

On the ARRM program, Barnaby says losses exceeding $65,000 are not covered.  In the crop revenue guarantee program, Barnaby says losses greater than $100,000 are not covered.  The total coverage option does not have a payment limit, and the 5% added crop insurance coverage program is also without a payment limit.

Summary:
As Congress works toward a Farm Bill for 2012, there is uncertainty about the shape and depth of a farm safety net that would protect farms from uncontrolled yield and price drops.  However, there is no shortage of proposals, many of which are built around crop insurance.  However many of them will protect from shallow losses, others only in times of deep losses, and some have limits on payment. The key to which one makes it into the legislation may depend on the budget available after the Deficit Reduction Committee finishes its work later this fall.

Posted by Stu Ellis on 10/28 at 12:00 AM | Permalink

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