Under fire from taxpayer groups, corn and soybean growers have developed a new revenue-based farm program to take the place of their current—and controversial—direct payments.
Unlike direct payments, which are categorized as an income-enhancing tool, the proposed revenue-based program would only payout if a farm’s revenue were to drop below a predetermined level based on the most recent five-year price history. These payments, in effect, would act more like a safety net, similar to the way the ACRE program does now. Details of the proposed program remain somewhat sketchy and the cost to taxpayers has yet to be determined.
From 1995 to 2010, crop growers—primarily corn, soybean, cotton, and wheat farmers—collectively received more than $167 billion in direct payments. Those payments will likely be cut—at least for corn and soybean producers—when the 2012 farm bill is hammered out next year.
More accurate average yields
Rather than using statewide average yields like the ACRE program does, the proposed revenue-based program would likely measure yield losses closer to the farm level. Corn and soybean producers support calculating average yields at the crop district level or even the county level, which would more accurately reflect farm-level yield variability. Doing so would increase payments when losses are sustained, according to agricultural economists.
Under a revenue-based program, compensation for losses that exceed a certain level would only be made as they are incurred. Payments would be based on a formula that uses average prices and yields for three out of the past five years, with both the high and low years thrown out. For corn, the proposal recommends that payments be triggered when revenue losses exceed 10 percent for non-irrigated crops and 5 percent for irrigated crops. The trigger would be somewhat lower for soybeans.
"In some years there will be no payments," says Chad Hart, agricultural economist at Iowa State University. "In other years, there could be very large payments." Average payments would also increase over time if corn and soybean prices rise or decrease over time if prices ratchet down. "It’s an okay deal for producers," says Hart. "It is a way to structure a program that reacts to conditions near the farm and provides payments when revenues are low." The Congressional Budget Office (CBO) has yet to score the proposed program and the industry is unlikely to see a CBO analysis until this spring.
No changes to crop insurance
Both the corn and soybean trade groups support keeping the crop insurance program intact. The crop insurance program in recent years was trimmed by $6 billion. "The industry is arguing that insurance has already taken its lumps, so lawmakers will need to look elsewhere to take cuts," says Dwight Aakre, farm management specialist with North Dakota State University. "Most commodity groups have said that crop insurance is probably the best safety net we have."
The proposed revenue-based program is designed to work hand-in-hand with crop insurance, which today is administered through 15 private companies but subsidized through public money. The government reimburses these insurance companies up to $1.3 billion a year, which equates to about 75 percent of operating costs. The government also covers an average of 57 percent of producers’ premium costs, says Aakre.
"The last CBO baseline for the next farm bill includes $64 billion for the next 10 years (for crop insurance)," says Aakre. "So based on recent history, CBO expects the crop insurance program to cost about $6 billion a year." Actual outlays for crop insurance under the 2002 farm bill were $16.6 million, about 2.76 million over the six-year life of the bill. Outlays under the 2008 farm bill, covering the 2008-12 period, are projected to be 28.5 million, or $5.7 million a year, over the five-year life of the bill.
Bipartisan leaders of both the House and Senate Agriculture Committees have already agreed to recommend $23 billion in spending cuts with $15 billion coming from title one programs and the rest from other crop programs and the Conservation Reserve Program.