Conditional risk

Jun 7, 2013

It looks like the farm bill is just about complete. The bill will be known as the Agriculture Reform, Food and Jobs Act of 2013.

This farm bill will cost nearly a trillion dollars over 10 years, according to the Office of Management and Budget, and will save somewhere between 24 billion over the 10-year span. I honestly don’t understand how Congress got into this 10-year budget idea. I suppose it’s because they’ve never passed budgets anyway. They need some kind of benchmark to work from.

It’s still kind of hard to see why they call it a farm bill when roughly 80 percent of the spending in the bill is for food assistance and nutrition programs. Some congressmen feel the same way. We should have a separate bill for food stamps and then another for agriculture, which would allow for real reform, and talk about real risk management and its cost and benefit.

We all knew that we were going to see some change in the way the feds support agriculture. The old system of Direct Farm payments, Counter-cyclical payments, Supplemental Revenue Assistance payments, and the Average Crop Revenue Election Program for commodities are gone. The Democratic Senate farm bill makes a point of making sure that farmers that have gross adjusted revenue of more than $750,000 won’t get any kind of payments from Title 1 farm bill programs which are capped at $50,000 per outfit. Again, they are continuing their class warfare agenda.

It seems to me that what most in agriculture want is a good insurance program and a good disaster program—something to help defer some of the risk in agriculture. The farm bill says that farmers will have access to risk management tools that will complement crop insurance and protect both price and yield losses.

What they’ve come up with is the Agriculture Risk Coverage Program, which allows farmers to choose between coverage at the individual farm level or at the county level. Payments to farmers will be made when actual losses are experienced off of a marketbased historic benchmark; this leaves a lot of questions. Also, they will have the Adverse Market Payment program that will make payments to farmers only when prices drop below a reference price. These payments are to be made on historic base acres, decoupled from production. So the farmer makes the decisions on what and where to plant. But the catch is they must agree to comply with conservation and wetlands requirements.

The authors of the bill say they will provide the Supplemental Coverage option, which would allow producers to purchase additional coverage on an area basis. The coverage option triggers exceed 22 percent for producers enrolled in the Agricultural Risk Coverage program. For producers not enrolled, they get 10 percent coverage. So they will give something extra to comply with the conservation and wetland requirements. Sounds like farmers will be giving up some control and property rights in this deal.

Crop insurance is a vital component of the bill and to agriculture, but some congressmen are wishing to cut the subsidy on premium payments. Currently, farmers who purchase the traditional crop insurance receive up to a 62 percent premium support from the feds and there is no limit to how much a farmer can receive in the premium subsidy; most other programs have a maximum payment. The Government Accountability Office says that if premium subsidies were capped at $40,000, it would have saved taxpayers a billion dollars in 2011. Also, if the premium subsidy was limited to 52 percent, it would have saved $1.2 billion dollars.

The way I see it, the government must have a simple, stable and stout insurance program, especially if agriculture is to lose direct payments and counter-cyclical payments to farmers. Crop insurance is not an area that the government can afford to go cheap on.

There is one other addition to the risk management portion of the farm bill called Shallow Loss Program. Farmers would be able to have a revenue guarantee to cover minor losses.

It will be interesting how all these new risk proposals make it through conference and how the agency will do the rulemaking process. It looks like they are making the safety net for agriculture as complicated as it can be. I guess simple just isn’t in a bureaucrat or a politicians vocabulary. — PETE CROW