A new paradigm for U.S. farm programs
Tuesday, March 3, 2015
Congress has been providing financial support to crop farmers for more than 80 years in farm bills. Over that time, there has been a consistent policy feature you could always find in these farm bills. Crop farmers preferred to have a suite of policy instruments in their tool kit that could respond to disruptions in either market or crop conditions, and that tool kit was intended to be the same for every farmer.
Since the first farm bill in 1933, Congress tinkered with that tool kit, tending to add to existing programs when problems emerged rather than start from scratch. Even in the 1996 farm bill, widely regarded by policy analysts as one of the most ground-breaking pieces of farm legislation in U.S. history, Congress chose to retain the marketing assistance loan program for crop farmers while jettisoning the target price/deficiency payment/ARP portions.
Until recently, every producer of program crops had access to the same set of policies. Since 2008, that consisted of a decoupled direct payment program (DPP) paid to farmers regardless of market conditions, the marketing assistance loan program available to assist in marketing which also serves as a price support when crop prices drop to very low levels, and the federal crop insurance program providing subsidized coverage of a producer’s yield or crop revenue. Farmers also had a choice between a countercyclical payment program (CCP) that was paid out on historical base acres when crop prices fell below a fixed level, or a state-level crop revenue program (Average Crop Revenue Election, or ACRE). Most farmers stuck with CCP.
Much of that paradigm of how farmers’ preferences are manifested in farm bill programs changed in 2014. In recent years, farmers in different regions developed diverse views of what types of programs worked best for them. In the Midwest, grain and oilseed farmers had come to rely most heavily on the federal crop insurance program, and were seeking a commodity program that would complement their crop insurance by protecting against shallow yet frequent revenue losses not covered by insurance deductibles. In the South, rice and peanut producers valued programs which protected them against low crop prices, such as the marketing loan and CCP, although they wanted to see the fixed CCP target prices increased to enhance the level of protection. For Southern farmers who raise crops under irrigation, yield risk is not a major concern.
In the 2014 farm bill, the political imperative that every farmer should have access to the same set of policy instruments was discarded in favor of giving farmers a choice between programs that reflect two very different policy directions. Beginning later this year, crop farmers must decide between enrolling in a new county- or farm-level shallow loss revenue policy called Agricultural Risk Coverage (ARC), or a revamped price-based program with higher support levels, called Price Loss Coverage (PLC), for the next five years.
Although recent farm bill commodity titles have required farmers to make some choices—such as updating program bases and yields under the 2002 farm bill, or the choice between CCP and ACRE in the 2008 farm bill—the new farm bill has presented farmers with a very complex set of decisions to make with respect to their commodity program enrollment. Recognizing this complexity, Congress provided funds for Land Grant university agricultural economists to develop public web-based tools to help farmers make these decisions.
At the time of the passage of the 2014 farm bill, crop prices were high enough that it seemed unlikely that significant payments would be made to farmers under either program for the current (2014/15) crop year. It was widely expected that most Midwest farmers would select ARC since it reflected their policy preferences, and the majority of Southern farmers would choose the PLC option. However, since that time, the combination of nearly ideal weather for spring-planted crops—resulting in record U.S. production of corn and soybeans—and slowing demand for corn for ethanol has dropped season average crop prices by as much as 24%. Consequently, the expected breakdown of how farmers would view each option by region is no longer as clear-cut as it was eight months ago.
By sign-up deadline next March, the prices to determine payment levels for the 2014/15 crops (just harvested) will be largely known. More than regional preferences, a farmer’s choice between PLC and ARC will depend in large part on his/her perceptions of how crop prices will behave over the following four years. If farmers’ choices result in a heavy tilt toward the PLC option because the current price environment depresses their price expectations, it may not render as clear a test of the two approaches to farm policy as was originally envisioned.
However, what could arise instead is that neighboring farmers with similar crop mixes could see very different farm payment outcomes in a given year, if one farmer opts for ARC and the other goes for PLC. That scenario could make things uncomfortable for anyone who advised the farmers on those choices, and for the members of Congress whose support for the farm bill made those choices necessary. Avoiding the potential for political backlash was one of the reasons why those who crafted earlier farm bills embraced the “one size fits all” approach so widely disdained during the last farm bill debate. Depending on what happens, Congress may wish to revisit this issue of “farmer choicea’ for the next farm bill.