House and Senate Ag Committee leaders are considering increasing statutory reference prices for major farm program crops as part of a budget reconciliation measure. This would apply to both Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs, raising the “maximum effective reference price” and potentially increasing the safety net for farmers facing low commodity prices. The draft legislation from 2024 also proposes raising the ARC guarantee from 86% to 90% of benchmark revenue and increasing the maximum payment rate from 10% to 12.5%.
Some analysts argue that if reference prices are increased, payment caps should also be raised. The rationale is that higher reference prices will likely trigger larger payments to farmers in years when market prices are low. If payment caps remain unchanged, some farmers — especially those with larger operations — could hit the cap more quickly and not receive the full benefit of the intended safety net increase. This could undermine the effectiveness of the policy change for the largest and most vulnerable producers.
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Of note: If reference prices are increased, farm-state lawmakers would likely make them retroactive for 2025 crops. If so, farmers would likely be given the chance to reselect either the PLC or ARC program, with some analysts suggesting farmers should be allowed to receive whatever program would provide the most safety net outcome. Potential impacts and policy considerations
- Budgetary impact: Raising both reference prices and payment caps would increase federal outlays for farm programs. The proposed reference price increases alone were estimated to cost between $50 billion and $53 billion over 10 years, but some efforts are being made to boost reference prices above the levels in 2024 GOP farm bill proposals and thus would cost more.
- Equity and targeting: Raising payment caps is often controversial. Critics argue it disproportionately benefits larger farms, while supporters contend it is necessary to ensure the safety net functions as intended for all producers, regardless of size.
- Political dynamics: The decision to raise payment caps alongside reference prices is ultimately a political one, balancing budget constraints, farm sector needs and public perceptions of fairness.
- Senate Byrd rule. The Byrd rule restricts what can be included in budget reconciliation bills, which are special pieces of legislation that can be passed with a simple majority and cannot be filibustered. The rule prohibits “extraneous” provisions — those that do not have a direct impact on federal spending or revenues, or whose budgetary effects are merely incidental to their policy impact. It also bars provisions that would increase the deficit beyond the budget window (usually 10 years), make changes to Social Security or fall outside the jurisdiction of the relevant committee. If a senator believes a provision violates the Byrd rule, they can raise a point of order. If sustained, the provision is removed from the bill unless 60 senators vote to waive the rule. The Byrd rule applies only in the Senate and is intended to keep reconciliation focused strictly on budgetary matters, preventing it from being used for unrelated policy changes.
Of note: While boosting reference prices is widely considered to be permissible under budget reconciliation, sources are unclear whether increasing payment caps would be allowed under reconciliation. Bottom line: If Congress moves to increase reference prices for farm program crops via budget reconciliation, there is a strong policy argument supported by some analysts and reflected in draft legislation-for also raising payment caps. This ensures that the intended benefits of a stronger farm safety net are fully realized by producers, especially those most at risk from market downturns. However, such changes would increase program costs and may face scrutiny over their distributional effects.
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