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Tuesday, March 13, 2012

ACRE Might Have Worked If The State-Based Trigger Would Have Been County-Based


ACRE was a program with promise, and offered the opportunity to shift to a risk management- based farm safety net in the 2008 Farm Bill.  But the regulations killed it.  When only 8% of farmers and 13% of eligible acres were enrolled, a collective “Oooops” could be heard from Congress and the USDA folks at 14th and Independence in Washington.  The complexity of the calculation, the necessity of explaining that complexity to land owners, and the fact that any benefits would not be paid until more than a year after the crop was harvested were too much for ACRE to succeed. So, what now?

ACRE is the acronym for Average Crop Revenue Election, words that don’t mean much, but the acronym is catchy.  Nevertheless, ACRE was a uniquely creative program that assembled numerous formulas designed to help farmers manage risk, but not get rich at it, and still be within the boundaries of international trade.  (Direct payments were there also, but have become politically incorrect.)  As the USDA tried to manage federal financial risk in the ACRE program it put in an extra hurdle that required anyone with low farm revenue to not only qualify on their farm, but also live in a state which sustained low revenue from commodity production. 

If only the state requirement had been eliminated, the program might have had greater success believe economists from USDA’s Economics Research Service and Mississippi State University.  They report that many of ACRE’s supporters want the state–level requirement to be changed to something closer to the farm level.  They looked at an “area revenue program,” which would vary across crops and regions, but found complications from market prices and tradeoffs from other programs.

The economists looked at relationships among price and yield, causes for variability among those, and confirm that if yield variability is triggered by a smaller area than a state, then higher payments might result for eligible producers.  Since revenue variability is a function of yield and price variability, it will vary least in counties that stretch across the center of the Cornbelt where yield variability is low and production is widespread.  But a burp in production that could hit a few counties and not impact the overall state would mean those farmers would not benefit from a program with a statewide trigger.  A smaller geographic area would have greater revenue variability and both expected payments and risk reduction would generally increase. 

But that would not be the case for every crop.  With wheat, sorghum, and cotton grown in varying production areas, the economists say producers would see large increases in payments with a farm or regional trigger.  Those payments would increase 28-32% if a county-level trigger were used and 13-17% if the trigger were based on multiple county crop reporting districts.  For corn and soybean producers a county-based trigger would increase payments about 16-19% and only 7-10% for a multiple-county crop reporting district.

Whether it is a misconception or general assumption, the economists say the ACRE program would not have provided revenue that was equal to market prices, but instead average market prices for the prior two years.  And the relationship between the guarantee price and the expected market price could be wide.  The ACRE price is the same across all areas, and reminiscent of the national average price of past Farm Bills when target prices and national loan rates were the same, regardless of whether it was in line with your market area.  But the economists suggest that if the expected price were greater than the guarantee, then yield variability would have more influence over the guarantee and more participation could be expected in the program.

The ACRE program as it is currently formulated will likely not be part of the 2012 Farm Bill, because of its lack of enrollment. One of the triggers for a payment was a state-based revenue factor, but that may be too large of an area for prospective participants to reasonably expect a payment.  Smaller geographic regions, such as a county or a multiple county crop reporting district would have a tendency to have a wider variation in yield-based revenue, and therefore a greater chance of generating a payment to enrolled producers. 

Posted by Stu Ellis on 03/13 at 12:06 AM | Permalink

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