AFPC Study: More Farms Would Favor House County-Based ARC vs. Senate

July 10, 2012 02:51 AM
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via a special arrangement with Informa Economics, Inc.

lUnder baseline assumptions, farmers would choose House PLC option over any Senate option

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The county based Ag Risk Coverage (ARC) option in the House version of the farm bill would be preferred by more of a group of 64 representative farms than the Senate version of ARC, according to an analysis released by the Agricultural and Food Policy Center (AFPC) at Texas A&M University. Link to study.

“A large number of the representative farms would prefer to opt out of the ARC program in favor of an SCO (supplemental coverage option) option with a wider payment band,” the analysis found. “The representative farms would prefer the House PLC (Price Loss Coverage) option over the RLC (Revenue Loss Coverage) option primarily due to the RLC not having the SCO option. Under baseline prices, all of the representative farms would prefer the House PLC option over any Senate option.”

The results were very similar for the declining-price scenario except that more farms would choose individual-based ARC over county-based ARC, the analysis said. “There was a dramatic reduction in the number of farms opting out of ARC for SCO because SCO benefits are projected to decline substantially when prices fall over time. The substantial increase in PLC benefits offset the decline in SCO benefits and results in all farms preferring the House PLC option over any Senate option under the declining price scenario.”

In reaction, House Ag Committee Chairman Frank Lucas (R-Okla.) said, “The House farm bill saves taxpayers $35 billion, with more than $14 billion in these savings achieved by reforming US farm policy.  What the AFPC study says is that the House managed to save taxpayers money and reduce the deficit while still providing a safety net that farmers can truly depend on in hard times. The biggest take-away from the study is the absolute importance of real price protection in a farm bill. When presented with the various choices, the study reveals that, wherever they farm and whatever they grow, farmers are better off under the risk management option that marries a strong crop insurance policy with a farm bill that focuses on providing real price protection against multiple year price declines. I hope producers and my colleagues in Congress will give a close look at the study’s findings.”

The following conclusions can be drawn from the analysis, according to a summary:

  • All of the Title I options provide some safety net support under current price forecasts. The House SCO alternative that has a wider payment band than the Senate SCO option (for producers in Senate ARC) provides significant support under current price forecasts much like the shallow loss plans.

  • The Senate Individual and County based ARC options and the House RLC option are very similar except for two big considerations:

o Reference prices are included in the House which provide downside protection when prices decline.

o The lower payment limit in the Senate reduces the effectiveness of these Senate options when prices decline.

  • All of these revenue plans suffer from the inability to maintain net cash farm income during declining prices. Only the House PLC option provides support at meaningful levels when prices decline.

  • SCO provides significantly less safety net support when prices are declining due to the reliance on current futures market prices in setting the benchmark.

  • STAX with a reference price provides significantly more protection than without.

  • Senate payment and AGI limits would be binding regularly enough to make the Senate options provide substantially less safety net benefits to one-fourth of the representative farms. 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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