Farm Progress

Policy Report: Topics included crop insurance, discrepancies in payment rates with ARC system, and the Dairy Margin Protection Program.

March 8, 2017

5 Min Read
PROMISE OF PROTECTION: As one producer noted, crop insurance doesn't guarantee a good year, but it does offer the promise of another year. That is, it isn't the promise of a return, but the protection from a disaster that encourages overwhelming producer participation in the federal crop insurance program.

By Brad Lubben

A Senate Agriculture Committee field hearing in Manhattan, Kan., in February kicked off the formal 2018 Farm Bill debate. Only the start, more hearings from both the Senate and House agriculture committees will continue in the coming weeks and months. There will also be time for questions about whether the farm bill gets done in time before the current legislation expires in September 2018. Regardless of the questions ahead, the initial field hearing did provide some insight on key issues and a potential framework for the debate ahead.

Senate Ag Committee Chairman Pat Roberts of Kansas and Ranking Member Debbie Stabenow of Michigan provided statements and asked questions of a large group of producers and other individuals representing major agricultural commodities and rural interests. The topics and the discussion didn't particularly surprise anyone in the hearing, but did reinforce key points addressed in previous Policy Report columns.

Crop insurance is still viewed as the most significant and important part of the safety net. As discussed in a previous column, crop insurance is the largest farm bill expenditure other than the nutrition title (primarily SNAP). The federal investment includes premium supports (subsidies), crop insurance company administration and operating expenses, and reinsurance provisions. But crop insurance also includes the buy-in of producers in terms of premium due for a policy that may or not pay in a given year. It is not the promise of a return, but the protection from a crop disaster that encourages overwhelming producer participation across the region. As one producer described it, crop insurance does not guarantee a good year, but it does offer the promise of another year.

Safety net needed
A second message is that commodity programs have widespread support as a necessary safety net for market conditions, such as agriculture is currently facing. But, there are also various ideas and proposals for making adjustments to the commodity programs in place.

Importantly, the current portfolio of Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) is expected to remain largely in place, but with a new decision for producers in 2019, whether through reauthorization in a new farm bill or an extension of the current legislation. With continued lower price and revenue projections through 2019 and beyond, the widespread support and participation for the revenue-based ARC program could disappear in favor of the PLC program, if the current programs remain largely intact. In its 10-year budget projections used as a baseline for farm bill development, the Congressional Budget Office assumes exactly that and projects a substantial shift to PLC in 2019.

Beyond future price and revenue projections, one of the lingering issues with ARC raised at the hearing is the discrepancy in payment rates across county lines. As discussed before, this is a function of exactly what ARC is designed to do in responding to local (farm or county) revenue results. Given the single national price used in the formula, the payment differences are always due to local yield levels and guarantees. There are some legitimate concerns with county yield data availability for ARC-CO and the relatively short historical yield period used to establish an ARC guarantee, but debating the fundamental design of the ARC safety net is likely not an option. ARC replaced the state-level ACRE (Average Crop Revenue Election) program from the previous farm bill in large part because producers argued for a more representative guarantee at the farm or county level than ACRE provided. The other reality of ARC is that as a moving average safety net, it will help producers adjust to downturns in prices, but will not permanently protect them from lower prices.

Dairy Margin Protection Program
Beyond ARC and PLC, the hearing addressed two other commodity program challenges for the farm bill. Dairy producers pushed for the Dairy Margin Protection Program (DMPP) in the 2014 Farm Bill, but have since lamented that the milk-price-minus-feed-cost-margin coverage available in the program is not sufficient. In the upcoming debate, we are certain to see a push for increased margin support, but like several proposals, funding will be an issue. Similarly, cotton producers pushed for an enhanced county-level supplemental insurance program as a substitute for existing commodity programs in the wake of a trade dispute with Brazil. But now that the new insurance program has attracted limited participation, cotton producers are asking for a return to commodity program support for cotton or cottonseed.

There were several additional issues raised during the hearing, from conservation programs to bioenergy, credit, and rural development programs. Like crop insurance, conservation programs enjoy widespread support, with calls for sustaining or strengthening working lands programs like Environmental Quality Incentives Program (EQIP) and Conservation Security Program (CSP), as well as the Conservation Reserve Program (CRP). And bioenergy programs and rural broadband are both championed as important elements of a strong and growing rural economy.

These programs and issues will be important parts of the farm bill debate now officially underway. There will be ample time for discussion and development ahead. There will also likely be several challenges to the status quo and current policy environment, including another battle over the food and farm coalition underlying farm bill development. Understanding the programs, keeping abreast of the issues and engaging in the policy process will be important for producers and for ag policy stakeholders in the months ahead.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.

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