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NCGA unveils two revenue assurance proposals

Row crop farmers who have been struggling to get a handle on abbreviations like DP and DCP and MAL may soon have two to decipher if a National Corn Growers Association proposal begins to gain traction.

The new abbreviations are BRP, which stands for Base Revenue Protection, and RCCP, which is short for Revenue Counter-cyclical Program. BRP and RCCP, which would work in complementary fashion, would compensate growers when market revenue declines below target levels, according to NCGA leaders.

“BRP provides coverage against declines in farm-level crop net income,” said Gerald Tumbleson, NCGA president and a producer from southern Minnesota. “RCCP builds on this base and provides protection against declines in revenue at the county level, similar to Group Risk Income Protection in federal crop insurance.” Tumbleson outlined the two programs and other positions the corn growers have adopted on the next farm bill during a House Agricultural Committee farm policy review hearing in Washington Sept. 20.

Like most farm group leaders who testified at the hearing, Tumbleson said the National Corn Growers Association believes the current farm bill has worked. He said the 2002 farm bill is considered a critical component of most producers' risk management plans.

“The changes in farm support programs adopted in May of 2002 have proven to be more effective in delivering assistance to farmers when it is most needed; during periods of low commodity prices, adverse weather conditions and crop disease,” he said in the farm bill analysis paper delivered to the committee.

“The new counter-cyclical payments (DCP) combined with direct payments (DP) and the marketing assistance loan (MAL) program have enhanced producers' ability to make long-term business decisions, including investments in ethanol production and other agriculture value-added opportunities.”

Federal crop insurance also continues to be an important part of the safety net, he said, noting that following changes authorized by Congress in 2000, the program has seen a substantial increase in enrolled acreage and the average level of protection for multi-peril and revenue-based policies.

“Many of our members continue to express concern, however, that federal crop insurance remains too costly or provides insufficient protection,” he said. “Because of the diverse production conditions across the Corn Belt, NCGA urges the committee to advance policy changes to expedite the research and development of enhanced revenue-based products or innovative program options.”

Although the 2002 farm bill has performed well for most corn growers, Tumbleson said, the NCGA also believes the law has a serious flaw or “hole” in the safety net in three key areas:

  • For producers who have sustained large crop losses or repetitive years of shallow losses during the recent years of record harvests and low prices, the combination of direct payments, marketing loan deficiency payments and counter-cyclical payments have provided insufficient income protection, even with the purchase of crop insurance coverage at higher levels.

  • Growers who have found themselves in isolated areas of drought or other adverse weather conditions and unable to fully benefit from higher market prices, “cannot look to counter-cyclical payments to lessen the adverse impact of lost income and the drain on their financial assets,” Tumbleson said.

  • NCGA also remains concerned about the traditional formula of crop disaster assistance in current and past legislation, which does little to fill those gaps in the farm safety net.

“By re-directing payments for losses already covered by federal crop insurance to a portion of uninsured losses, we believe reforms proposed by Rep. Sam Graves, R-Mo., would provide a more effective, sensible delivery of aid without compromising the objectives of our federal crop insurance program,” he said.

Anticipating continued budget pressures and the timetable for writing a new farm bill, Tumbleson said, the NCGA undertook a careful review and analysis of the farm safety net in the 2002 farm law.

“Under the current structure, the distribution of support from direct payments, loan deficiency payments and counter-cyclical payments appears to be relatively balanced over time,” he said. “Looking forward, changes in the corn industry, particularly an expanding ethanol industry, suggest a significant reduction in price-based support from loan deficiency payments and counter-cyclical payments.

“Projections for corn and other commodity markets by the Food and Agriculture Policy Research Institute and other experts have underscored the need for NCGA and several affiliated state associations to investigate alternate safety net concepts for our members' consideration.”

From those investigations, NCGA and the state associations have developed a preliminary proposal for a revenue-based safety net that “our initial analysis indicates would provide more effective net farm income protection factoring in price, yield and variable production expenses.” The proposal includes the BRP and RCCP programs.

Tumbleson said the Base Revenue Protection program would guarantee that a grower's per acre, crop-specific net revenue would not fall below 70 percent of the previous five-year “Olympic” average of per-acre net revenue on a farm.

“The actual per-acre net revenue in any one year would be calculated by multiplying the actual farm level yield by a national market price and subtracting the variable costs of production estimated by USDA's Economic Research Service. A producer would then receive assistance if his net revenue falls below the guarantee.”

Revenue Counter-cyclical Program payments would be triggered whenever the actual county revenue falls below the county revenue guarantee. The county guarantee under the NCGA proposal is set at 100 percent of the product of the effective target price — the target price less the direct payment — and the expected county yield.

The actual county revenue is determined using the season average price and the USDA National Agricultural Statistics Service county yield, Tumbleson notes. Because RCCP and BRP are a package of programs, the maximum payment for RCCP is capped when the actual county revenue falls to 70 percent of the county revenue guarantee.

Coupled with the current direct payments and a recourse marketing loan program, the NCGA says, the BRP and RCCP programs would establish a more effective safety net structured to transfer considerable trade distorting support into a program exempt from WTO domestic support limits.

“In fact, BRP is designed to meet current WTO rules for income insurance and safety-net programs in the (WTO's) Green Box while the RCCP fits in the Amber Box,” said Tumbleson. “This reform, alone, could potentially offer greater flexibility for other agriculture support spending reported as Amber Box support.”

The revenue-based concept remains a work-in-progress, he said, “but NCGA is committed to reaching out to the other commodity groups to address their concerns as we further refine our proposal.”

Among those concerns? Some group leaders have said they believe the 70-percent guarantee would also become the cap for farm income support, leaving producers far short of the income protection they need during times of low prices.

Although the agriculture committees of both houses of Congress have held field hearings, the farm policy review hearing in Washington was considered the kick-off for the real work of the committees in writing a farm bill to replace the 2000 law that expires Sept. 30, 2007.

Besides testimony from the leaders of the major farm organizations, the House Agriculture Committee's General Commodities Subcommittee also heard presentations from a number of leading agricultural economists.

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