Future Safety Nets for Farmers

July 13, 2012 at 7:59 pm 2 comments

The U.S. House Agriculture Committee sent their version of the Farm Bill to the House Wednesday, July 11, 2012 entitled the Federal Agriculture Reform and Risk Management Act.  This bill is the counterpart to the Senate’s Agriculture Reform, Food and Jobs Act of 2012, which passed the full Senate in June.  One of the highly debated sections of the new bill is the safety net that the federal government provides for farmers, to protect them from volatile market prices and weather.  Both the House and the Senate repealed the existing Direct Payment, Counter-Cyclical Payment, and Average Crop Revenue Election Programs.   However, the House and Senate differ on how future safety net programs should operate.

The Senate proposed the Agriculture Risk Coverage Program.  Under this program, farmers would have to make a one-time election on whether to cover their farms on an individual basis or by a county basis.  Then, farmers will receive a payment if the actual crop revenue for that year is less than the 89% of the benchmark level.  Farmers are only able to collect if they face losses greater than 11% of expected sales.  Payment would be capped at 10% of the expected sales.

The House proposed a dual program of Price Loss Coverage and Revenue Loss Coverage.  Farmers would have to make a one-time election on what program they would like to participate in.  The Price Loss Coverage determines losses if the effective price of a crop falls below an established price.  Under this program, the farmers would receive the difference between the effective price and the established point.  On the other hand, the Revenue Loss Coverage program would cover farmers for an over 15% drop in the county revenue and the farmer’s payment would be capped at 10% of their share of the county revenue.

The Agricultural and Food Policy Center of the Texas A & M University recently published a working paper comparing the economic impacts of the Senate and House’s recommendations through modeling software.  Their findings showed that more farmers would prefer the House’s Price Loss Coverage option over the Revenue Loss Coverage and the Senate’s package under current and declining price scenarios.

It is important to remember that these programs are further supplemented through traditional crop insurance programs, which can have a great impact on a farmer’s choice and livelihood.  With all of these programs combined, farmers will often be looking at meeting their costs and would have to maintain their own safety net to ensure that they have enough to plant the next season.

Entry filed under: Agriculture Policy, Farm Lending, Farm Policy, Healthy Foods.

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