THE 2010, 2011, 2012, 2013, 2014 FARM BILL! Michele C. Marra, Professor Agricultural and Resource Economics October 27, 2014

THE 2010, 2011, 2012, 2013, 2014 FARM BILL!

Michele C. Marra, Professor

Agricultural and Resource Economics

October 27, 2014

Why Do We Support Farmers?

The Jeffersonian Ideal

- Something inherently good about tilling the soil

- Something inherently good about rural life

The farm lobby and the bicameral congress

Copyright @ Agri-Analytics, Inc.

Copyright Nick Piggott

Agriculture’s Share (Non-

Nutrition)

Agriculture’s Share of the U.S. Budget

79%

6%

9%5% 1%

Food Stamps & Nurtition

Conservation Programs

Crop Insurance

Commodity Programs

Everything Else (re-search, extension, etc.

Commodity and crop insrance pro-grams make up only 14.1% of total spending in the Agricultral Act of 2014.

Composition of Farm Bill Funding

BASIC GOALS OF THIS FARM BILL

Reduce overall funding Move programs toward providing a

safety net, rather than direct support

Provide choices for the safety net Tie safety net to conservation


Crop Insurance Just like car insurance or homeowners’

insurance in principle

Premiums subsidized by the Federal government – Risk Management Agency

Separate system of insurance agents and support people.


CROP INSURANCE AND COMMODITY PROGRAM CHANGES Expand crop insurance policies to new

crops/enterprises

Provide “shallow loss” protection

Require growers to have a conservation plan filed with NRCS to be eligible for coverage.

Enhance the non-insured assistance program (NAP)


Shallow Loss Programs Designed to complement, not

replace crop insurance Can insure against price

decreases or revenue decreasesVery complicated decision

process



The Sausage Being Made …




Agricultural Risk Coverage(aka ARC-CO and ARC-IC)

ARC-CO is coverage on a covered commodity by covered commodity basis

Provides revenue loss coverage at the county level

Pays if county-level revenue is less than the “benchmark” revenue, which is the product of 2009-2013 Olympic average county yield x (market year average price or 2014 loan rate)

Payment is 86% of ARC-CO benchmark



Agricultural Risk Coverage(aka ARC-CO and ARC-IC)

ARC – IC provides revenue loss coverage at an individual farm level

Provides revenue coverage when farm level revenue (across all covered crops) falls below 86% of the farm benchmark revenue.

Farm benchmark revenue is the average of the farm’s yield for each crop x (the higher of the reference price or the MYA price). Reference prices are fixed in the law.



Price Loss Coverage(aka PLC)

Provides protection against losses due to price only

Pays when the effective price of a covered commodity is less than the reference price for that commodity.

Effective price is the higher of the MYA price or the national average loan rate for the covered commodity

Payment amount is equal to 85% times the base attributable to the covered commodity x the payment rate for the covered commodity



Price Loss Coverage(aka PLC)

(cont.)

Payment rate is the (difference between the reference price and the effective price) x the program payment yield for the covered commodity.



Supplemental Coverage Option (aka SCO)

Optional program to supplement individual crop insurance coverage by insuring a portion of the individual farmer’s insurance deductible

The program provides coverage based on county average yield or revenue and will be made available beginning with the 2015 crop. The program will provide subsidies to producers of 65 percent of their premiums.

SCO coverage is not available to producers who elect to participate in either the Agriculture Risk Coverage (ARC) program.

Like regular crop insurance, not subject to payment limits.



Base and Yield Updates

All growers should update their yields for a covered commodity with FSA if 90% of their 2008-2012 average yield (excluding yrs. when the crop wasn’t planted) is greater than their current counter-cyclical yield.

The base reallocation decision is more complicated and is intertwined with the ARC/PLC choice.



Complexity of the Producer’s Decision Process

Commodity Program Enrollment

(FSA Office)

Landowner Decision to Update Base Acres

Landowner Decision to Update Payment Yields

Producer/Landowner Commodity Program

ARC PLC

Farm County

Enroll by Farm

Enroll by County by

Farm

Crop Insurance Enrollment (Agent)

Producer Option to Purchase Individual Insurance

Producer Option to Purchase SCO for 2015

Choose not to plant a program crop



Conclusions and Implications

This farm bill presents very data intensive and complex choices for each farmer.

It is evident that farmers will need to rely on decision tools for these complex choices.

Texas A&M decision tool best for our area:


The deadline for making the decisions is February 28, 2015



RESOURCES AVAILABLE AT:

RMA.USDA.GOV – FARM BILL AND RISK MANAGEMENT

FSA.USDA.GOV- FARM BILL OVERVIEW AND DECISION TOOLS

Documents

THE 2010, 2011, 2012, 2013, 2014 FARM BILL! Michele C. Marra, Professor Agricultural and Resource Economics October 27, 2014