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What do producers want/need in a safety net?

Risk exposure is a big concern to producers as congress starts work on new farm bill.

3 Min Read
Fallen Boll
There is a lot of interest in raising the reference prices that are used in both the ARC and PLC payment calculations.Farm Press

During Extension and commodity group meetings this winter, we have been asked over and over what will be in the next farm bill.  

After answering with “it depends” – based on money and interest in bi-partisanship on Capitol Hill – we then go on to give our thoughts on what we think will be in the next farm bill.  

At that point, the audience is generally happy…and ready to see if they won a door prize…until we ask them the question: what is it that you want or need in the next farm bill?

The expressions on the audiences’ faces generally remind us of the pained looks on the faces of the kids in the Scripts National Spelling Bee competition.  Google it…it’s intense.  After some reflection, below is a summary of what we tend to hear.

More risk

There is just so much more risk in farming now than there has been in the past.  Producers need as much help defraying as much of the risk as they can get.  

Title I programs like ARC and PLC have not helped much at all during the current run up in most input costs.  Neither are triggering since market prices are too high to generate payments (despite the fact that those market prices are still not high enough to cover costs in some cases).  

Overall, there is a lot of interest in raising the reference prices that are used in both the ARC and PLC payment calculations.

On the other hand, producers almost universally acknowledge that crop insurance has provided significant protection as the revenue guarantees have risen along with market prices (since they are based on futures prices for most covered commodities).  

Additionally, there are a wide variety of products for producers to choose from to tailor their coverage to their operations such as different coverage types (yield or revenue) across different units (basic, optional or enterprise).  Producers can also purchase supplemental, area-wide coverage such as the Stacked Income Protection Plan (STAX), the Supplemental Coverage Option (SCO), or the Enhanced Coverage Option (ECO).   

Policy costs

Some producers will say that the cost of the supplemental policies (and the complicated array of choices) makes them less attractive options.  At the same time, producers are not looking forward to sustained price declines (that everyone knows are coming eventually) that will lower price guarantees and reduce the effectiveness of insurance as a safety net – especially if production costs have not declined. 

A few producers will say that the safety net needs to be bankable – a term that generally refers to lenders allowing prospective safety net payments to be added to loan packages which would aid in showing their operating loan request is viable.  

While ad hoc assistance over the last several years has been vital – particularly against the backdrop of Title 1 providing less support – that assistance arrives long after the disaster has come and gone.  If the markets begin to fall, bankability of the safety net will be even more important. 

Overall, producers are quick to point out how much they appreciate the safety net support they receive; however, some are looking for Congress to be innovative in providing programs that are bankable and more aligned with the amount of risk exposure modern farms have today.

Source: Southern Ag Today.

About the Author(s)

Joe Outlaw

Co-Director, Regents Fellow, Agricultural & Food Policy Center, Texas A&M University

Bart Fischer

Co-Director, Research Assistant Professor, Agricultural & Food Policy Center, Texas A&M University

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