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Changes in ACRE Could Boost Revenue and Participation

October 3, 2011
By: Ed Clark, Top Producer Business and Issues Editor
 
 

Enrollment in the Average Crop Revenue Election (ACRE) program has been low, but changing the trigger from a state level to one closer to the farm level could boost expected benefits and, perhaps, participation levels, according to a study by the USDA Economic Research Service (ERS). Last year was the second year in which ACRE was available, and few additional acres were enrolled. In 2009, only 8% of farms with about 13% of eligible acres were enrolled.

Moving from ACRE’s state level to one closer to the farm level would generally increase payments and reduce risk, ERS says. Here’s what the study found:

  • If expected market prices equal revenue program guaranteed prices, the increase in payments and risk reduction would be greatest for crops such as wheat, cotton and grain sorghum—crops with widely varying yield across regions and, thus, large differences in revenue variability across levels of aggregation. The average expected payments for these crops would increase 28% to 32% if the revenue program trigger were changed from state to county. Corn and soybean production is more concentrated geographically with less varied yields, so the increase in expected payments would be less, 16% to 19%.

     

  • The relationship between expected market price in the covered year and the revenue program guarantee price affects the changes in expected payments under alternative levels of revenue aggregation. If the expected market price increases relative to the guarantee, the difference in expected payments across levels of aggregation would increase as yield variability becomes a stronger factor in determining revenue variability and payments. If the expected market price decreases relative to the guarantee, expected payments would increase but differences in payments across levels of aggregation would decrease.

     

  • Because revenue benchmarks or guarantees used in the revenue programs are designed to change over time, it is important to consider the different crop guarantee price scenarios in evaluating the benefits of a revenue program relative to price-based programs. If crop prices continue to increase, guarantees and expected payments under ACRE or a similar program would increase, while expected payments under programs that are based on legislatively fixed targets would decrease. As the crop’s price increases, the size of the direct payment for that crop decreases relative to the expected payment from the revenue program. Changes in prices, and thus revenue program guarantees, appear to be much more important than level of aggregation/trigger to producers weighing the revenue election.

     

  • Risk reduction from a program that uses an aggregate revenue trigger depends greatly on the correlation between the aggregate measure of revenue and actual farm revenue. While risk reduction increases as the level of aggregation used in the revenue program diminishes, farm-level revenue is largely uncorrelated with revenue at even the smallest level of aggregation, the county. In addition, expected payments and risk reduction are limited by the cap of revenue program payments at 25% of the guarantee.

ERS researchers say that while a county-level revenue program would generally produce larger expected payments and risk reduction for participants than a state-level program, it would increase government administrative costs, as program benchmarks and guarantees would need to be determined for a greater number of aggregate units.

 

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RELATED TOPICS: USDA, Crop Insurance

 
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