Senate leadership has placed the farm bill second on its to-do list when the body returns from recess this week. By the time the proposed legislation is taken up, there is a great chance that the lawmakers will have read the latest analysis of it from the Food and Agriculture Policy Institute (FAPRI).
According to FAPRI, the report examines the “possible consequences of several key provisions” of the bill. Among them:
• The elimination of the current Direct and Countercyclical Payment (DCP) and Average Crop Revenue Election (ACRE) programs.
• The establishment of the Agriculture Risk Coverage (ARC) program and the Stacked Income Protection Plan (STAX).
• The reduction in the acreage cap for the Conservation Reserve Program (CRP) from the current 32 million acres to 25 million acres by 2017.
(See the full FAPRI report here).
Pat Westhoff, co-director of the University of Missouri-based institute, spoke with Farm Press following the report’s release. Among Westhoff’s comments on specific findings:
• Relative to a scenario that only eliminates DCP and ACRE, introducing ARC and STAX results in a little more land used for crop production and slightly lower crop prices.
“If you just eliminate direct payments, ACRE and counter-cyclical payments that is about $5 billion to $6 billion per year that people will lose. Most of that, of course, is in direct payments and those aren’t tied to what is produced in a given year but to base acreage over time.
“We estimate that while that has some impact on production it probably won’t be a big impact. It does mean less money in farmers’ pockets, lower land values – but likely not a big impact on the price of corn and soybeans. That doesn’t go against common wisdom.
“Obviously, it will have a larger impact on some commodities than others. If you have a corn and soybean farm in the Midwest, you’re getting about $23 per base acre in direct payments for corn and about $11 for soybeans. Rice farmers are getting, roughly, $96 per base acre.”
• Average payments to producers under ARC and STAX would be lower than payments under DCP and ACRE, so the net effect of these changes is to reduce federal farm program spending by an estimated $18 billion over the next 10 years.
“This is kind of interesting because we’re putting less money back in, on average, than we took out in the first scenario. Spending under ARC and STAX we estimate to be about two billion dollars a year less than what it would have been under the DCP and ACRE programs.
“Yet, we get about the same level of total acreage. That’s happening because these payments are tied to what you plant now. We think that means we’ll see a bit more production per dollar of subsidy from (ARC and STAX) than from direct payments.
“You will see slightly more acreage for corn and cotton and less acreage for most other crops. Per-acre benefits under ARC for corn and STAX for cotton are at least a little higher than for other crops.
“In terms of income, it’s less income to crop producers than they’d have under current programs. On average, it’s a lot less in the cases of rice and peanut farmers and a modest drop if you’re a corn or cotton farmer.
“These payments will now be a lot more sensitive to market conditions. If there’s a year with low prices and/or bad yields on your farm or in your county there could be very large payments under (the new) programs.
“On the other hand, if you have rising prices and a good crop year, farmers may see no payment at all. That’s a big contrast to the current situation where you know there will be a direct payment coming every year.”
• Reducing the CRP acreage cap would result in increased crop production and lower crop prices.
“The CRP cap would go from the current 32 million acres down to 25 (million). One question is: how much CRP acres would you get otherwise?
We’ve observed that we don’t meet the current cap and there’s a good chance we won’t meet it in the future, either. So, actual CRP enrollment probably wouldn’t have started at 32 million, anyway -- more like 30 million acres.
“On average, impacts are fairly mild. We’re talking about only increasing crop production by another one million or two million acres.”
2 percent ARC average, STAX, questions
• Estimated payments under ARC average approximately 2 percent of the market value of eligible crops. ARC payments are proportionally larger for corn and wheat than for rice and peanuts.
“The way the program works, the most you can ever get in a given year is 8 percent of the benchmark value of the crop. The program pays for losses between 11 and 21 percent. So, no matter how bad things are, the most you’ll get is 10 percent of the benchmark on eligible acres. And even if you choose the county option, you only get paid on 80 percent of your planted acres.
“So, it isn’t surprising that the average payment is about 2 or 3 percent of most crops’ value. That percentage is a bit higher for corn and wheat than it is for crops like rice and peanuts. The differences are related to our projections for future prices and the fact that yields and revenues are more variable for some crops than for others.”
• STAX net indemnities average about 5 percent of the market value of cotton production.
“In some ways ARC and STAX are similar. (However), they are different in several important respects.
“The main reason for the difference in the average benefits under STAX compared to ARC is the range of losses covered under STAX is a 20 percent band. So, ARC covers the range from 11 to 21 percent loss. In STAX, it’s from a 10 percent loss to a 30 percent loss.
“There are some offsets. If you want to be in STAX you must pay a premium. That reduces the net benefit to producers.
“On the other hand, you also have the ability to buy up to a higher payment rate. That can be up to 20 percent.”
• Budgetary outlays under ARC and STAX will vary greatly, but because both programs cover only a certain band of revenue losses, the budgetary exposure does have limits.
“Again, in years with rising prices and decent yields, there will be hardly any expenses in the programs. However, in a year when prices drop, say, 20 percent with average yields it could mean spending several billion dollars more than we’d have spent under current programs.”
Anything jump off the page when you crunched the numbers?
“It was a surprise that there were no huge average acreage impacts due to the policy changes. There may be circumstances where ARC will keep land in a particular crop, but that will depend on future prices and yields for particular crops.
On Supplemental Coverage Option…
“We haven’t looked at SCO. It’s very important and we’ll get to it.
“When the Senate bill was first being put together, CBO’s initial estimates showed small impacts from SCO. When we saw that we decided to focus on the big things and worry about things like SCO later.
“Well, now it’s clear that SCO is a much bigger deal than we thought. And it may be attractive to a lot of producers. So, we’ll revisit that and look at it carefully.”
“The fairness and equity concerns about the Senate bill largely depend on your perspective.
“If your point of reference is current law then you can argue that rice and peanut producers aren’t treated fairly under the Senate farm bill, as they see a larger proportional cut in benefits than other producers. On the other hand, if your point of reference is a world with no farm programs, then you could claim the Senate bill is more equitable than current programs because it reduces differences across crops in terms of average payment rates.”