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Wednesday, October 16, 2013

Farm Bill Alternatives:  What is on the table?


With a resolution to the nation’s financial issues, Congress can return to other business, with conclusion of the Farm Bill at the top of the agenda for 2 million farmers and 18% of the US GDP.  Early indications are that the House and Senate members appointed to the Conference Committee will meet next week to begin reconciliation of the two separate proposals.  Their staff members have been trying to familiarize themselves and their Members with the details, in preparation for the debate over farm policy, structure of the safety net, payment limitations, crop insurance conservation funding, and nutrition funding, which is the major part of the Farm Bill budget.  If you want the details, they follow.


Following is a summary of the provisions taken from the analysis created by the Food and Agriculture Policy Research Institute (FAPRI) at the University of Missouri.


The Safety Net combinations:

With the demise of ACRE and the direct payment programs, the 2013 Farm Bill returns to a pair of programs in each of the two versions:

Senate: Adverse Market Payments (AMPs), the Agriculture Risk Coverage (ARC)

program, and the Supplemental Coverage Option (SCO).

House:  Price Loss Coverage (PLC), Revenue Loss Coverage (RLC) programs, as well as a slightly different version of SCO, in the House bill.


The Senate programs.

Adverse Market Payment establishes a reference price that is 55 percent of the 5-year Olympic average U.S. farm price.  AMP payment yields are adjusted for 2009 to 2012 per planted acre.  The program pays on 85% of those base acres.  The payment is made about 12 months after the crop is harvested.

The Agriculture Risk Coverage program would make payments when per-acre revenues for a particular crop fall below a trigger level. Producers must choose between two options. One would make payments based on calculations that use county-level yields and the other would use farm-level yields. Those who choose the county-based option can receive payments on 80 percent of planted acres, while those who choose the farm-based option can receive payments on 65 percent of planted acres. Under either option, 45 percent of prevented planted acres are eligible for payment. Total acres are used, based on 2009 to 2012 acres on a farm. A benchmark payment rate of revenue is determined by multiplying a 5-year Olympic average of U.S. season-average market prices by a 5-year Olympic average of yields per planted acre. Payments are made a year after the harvest and cover losses between 12% and 22% of the benchmark. A producer can only get a maximum $50,000 revenue from the 2 payments, if they have an Adjusted Gross Income under $750,000.


The House Programs.

Producers can enroll crops in the Revenue Loss Coverage program which is similar to the Senate’s ARC program.  RLC is similar to the county-based option under ARC, except payments are available on up to 85% of planted acres and 30% of prevented planted acres, and producers can make participation choices on a crop-by-crop basis. Total payment acres on a farm generally cannot exceed the sum of historical base acreage on the farm. Payments are made when actual revenues fall at least 15 percent below the benchmark. Thus the program covers losses of between 15% and 25% of the benchmark, and payments are made a year after the harvest.  There is a $50,000 payment limitation and all recipients must be under a $950,000 Adjusted Gross Income.

The Price Loss Coverage program provides payments that occur when market prices fall below a trigger level, and payments depend on fixed program yields instead of actual harvested yields in a given year. PLC payments are made on 85 percent of planted acreage and 30 percent of prevented planted area rather than on fixed base acreage. As with RLCs, total payment acreage is limited to historical base acreage on a farm. Producers are given the option of updating payment yields to 90 percent of the 2008-2012 average yield per planted acre. If any of the yields are below 75 percent of the 2008 through 2012 average county yield, 75 percent of the average county yield may be substituted for those farm yields.


The Supplemental Coverage Option

The SCO appears in both versions, but has many differences.  The SCO is an area-based crop insurance product that a producer can purchase in addition to a traditional policy with individual coverage.  In both bills, SCO coverage is based upon the county benchmark and revenues, similar to Group Risk Insurance Protection (GRIP) plans. The program covers losses between the SCO deductible and the individual insurance policy coverage level multiplied by the expected county revenue. In the Senate bill, SCO policies must have at least a 22 percent deductible if the producer is enrolled in ARC, and at least a 10 percent deductible in the case of a producer not enrolled in ARC.  In the House Committee bill, SCO policies must have at least a 10 percent deductible for a producer enrolled in PLC.


Now that you are confused…

Agriculture policy economist Brad Lubben from the University of Nebraska and several colleagues attempted to analyze the decision making further for farmers trying to select their choice of safety net options.  Lubben writes:  “The numerous differences in calculations, guarantee levels, and payment/subsidy rates make it complex to directly analyze risk management strategies that integrate multiple programs and thus, difficult to implement an effective risk management portfolio and make optimal risk management decisions.

"For example, producers could face the option of participating in the ARC program and purchasing a reduced level of SCO coverage or staying out of ARC and purchasing full SCO coverage. In a year when the current price is above the 5-year Olympic average, the full SCO strategy may dominate whereas ARC plus a reduced SCO could be optimal when the current price is below the 5-year Olympic average.

"Similarly, the ARC or RLC revenue safety nets would look more attractive after consecutive years of good yield results going into the 5-year Olympic average as opposed to multiple years of bad yields, such as could happen in parts of the country due to lingering drought conditions. While the revenue safety net might be very relevant during the bad yield years, it would also provide less protection relative to expected yield and revenue levels in following years.”


Lobbying groups also weighed in on the various elements of the Farm Bill alternatives.  The American Farm Bureau wrote a letter  to all of the conferees from the House and Senate.  AFBF did not pick either the House or Senate proposals for a safety net, but urged the members of the conference committee to pick and choose a variety of elements. 

Specifically the group wanted: 

1. Requires that if a three-year AGI for either on-farm or off-farm income exceeds $950,000, program benefits are not allowed. The Senate has the same provision but sets the cut-off level at $750,000. We oppose means testing completely, but prefer the House to the Senate provisions.

2. Makes Price Loss Coverage (PLC) payments on planted rather than historical acreage. The Senate bill makes similar payments (Adverse Market Payments) on historical plantings or base acres. We support payments being made on planted acres, but note it is imperative rates not be set too high as to encourage planting for government programs.  We recognize this is a potential issue in tying a program to planted versus base acres.


The group opposes certain elements in the Senate version of the Farm Bill:

1) Reduces crop insurance premium subsidies for any person with an average Adjusted Gross Income in excess of $750,000 by 15 percentage points. In essence, this provision raises the cost of the premium for farmers by almost 40 percent.

2)The Agriculture Risk Coverage (ARC) and Adverse Market Payments (AMP) combined payment limit for all commodities except peanuts is $50,000 per person and the ARC and AMP combined payments for peanuts is $50,000 per person. Loan Deficiency Payments (LDPs) are limited to $75,000 per person and a separate $75,000 LDP is applied to peanuts. We oppose payment limits.


In addition to AFBF, the National Farmers Union also praised the leaders of the House and Senate Agriculture committees who will be leading the Conference committee, and sent them a letter.  The NFU did not pick and choose among the House and Senate Farm Bill elements, but put a high priority on the retention of the 1938 and 1949 permanent farm laws, which have been removed by the House.  Their loss would allow Congress to ignore any request for farm policy or farm spending.  The presence of the older laws which bring parity prices into effect essentially force the Congress to rewrite farm policy every 5 years.


 If you have any preferences for farm policy, speak up now (with a letter to your member of Congress) or keep quiet for the next 5 years.

Posted by Stu Ellis on 10/16 at 09:52 PM | Permalink

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