Farm Safety Net Provisions in a
2012 Farm Bill: S. 3240 and H.R. 6083
Dennis A. Shields
Specialist in Agricultural Policy
Randy Schnepf
Specialist in Agricultural Policy
September 28, 2012
Congressional Research Service
7-5700
www.crs.gov
R42759
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Summary
The farm commodity provisions of the Food, Conservation, and Energy Act of 2008 (P.L. 110-
246, the 2008 farm bill) expire with the 2012 crop year. Consequently, the 112th Congress has
been considering an omnibus farm bill that would establish the direction of agricultural policy for
the next five years. The Senate passed its version of the new farm bill (S. 3240) on June 21, 2012,
and the House Committee on Agriculture passed its version (H.R. 6083) on July 11, 2012.
Both bills would reshape the structure of farm commodity support, reauthorize several disaster
programs, and expand coverage under the federal crop insurance program. These three areas of
federal support for farmers are often collectively called the “farm safety net.” Commodity
programs under the 2008 farm bill cover only crops harvested in 2008 through 2012, while the
federal crop insurance program is permanently authorized under the Federal Crop Insurance Act
of 1980. Five disaster assistance programs under the 2008 farm bill expired on September 30,
2011, which has concerned some policymakers given widespread drought in 2012.
Under both the Senate-passed (S. 3240) and the House Agriculture Committee-reported (H.R.
6083) farm bills, farm support for traditional program crops is restructured by eliminating direct
payments, the existing counter-cyclical price program, and the Average Crop Revenue Election
(ACRE) program. Direct payments—made to producers and landowners based on historical
production and fixed payment rates for corn, wheat, soybeans, cotton, rice, peanuts, and other
“covered” crops—have accounted for most farm program spending in recent years. Authority is
continued for marketing assistance loans, which provide additional low-price protection at “loan
rates” specified in current law (with an adjustment made to the cotton loan rate).
In both bills, more than two-thirds of the 10-year, $50 billion in savings associated with the
proposed elimination of direct payments (as estimated by the Congressional Budget Office)
would be used to offset the costs of revising farm programs and reauthorizing four disaster
programs (Title I), and enhancing crop insurance (Title XI). The two titles account for a combined
$14.7 billion savings over 10 years in the Senate bill (of $23.1 billion in total savings across all
titles) and $14.1 billion in the House committee bill (of $35.1 billion total savings). Proponents
are attempting to address the issue of “shallow losses”—crop losses not covered currently by crop
insurance—as well as provide disaster assistance for livestock producers.
For commodity programs, H.R. 6083 retains a producer choice between two counter-cyclical
programs—the price-based Price Loss Coverage (PLC) and the revenue-based Revenue Loss
Coverage (RLC). Both programs are counter-cyclical in the sense that payments increase as
prices or revenue fall below a reference price or historical average revenue. Some producers favor
PLC because price protection is set in statute. As an alternative, RLC is considered a “shallow
loss” program based on historical revenue and designed to reimburse farmers for some of the crop
revenue losses not covered by federally subsidized crop insurance (i.e., an insured’s deductible).
In contrast to H.R. 6083, the Senate bill provides for a single, revenue-based Agriculture Risk
Coverage (ARC) program, which is similar to RLC but offers a slightly higher guarantee, plus an
option for farmers to select coverage at either the county or individual farm level. Producers
absorb the first 11% of the revenue shortfall (15% in RLC); the government pays for the next 10
percentage points of loss; remaining losses are backstopped by crop insurance. The Senate bill
does not contain a counter-cyclical price program because, according to critics, fixed parameters
can result in acreage shifting toward crops with more attractive program benefits.
Congressional Research Service
Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Contents
Introduction ...................................................................................................................................... 1
Overview .......................................................................................................................................... 1
Farm Commodity Program Revisions ............................................................................................. 3
H.R. 6083: Choice of Price Loss Coverage (PLC) or Revenue Loss Coverage (RLC) ............ 3
S. 3240: Agriculture Risk Coverage (ARC) .............................................................................. 5
Crop Insurance Enhancements ......................................................................................................... 7
Supplemental Coverage Option (SCO) ..................................................................................... 7
Stacked Income Protection Plan (STAX) .................................................................................. 8
Crop Insurance Studies .............................................................................................................. 9
Conservation Provisions for Crop Insurance ............................................................................. 9
Noninsured Crop Disaster Assistance Program (NAP) ........................................................... 10
Disaster Programs Reauthorized .................................................................................................... 10
Payment Limit Changes ................................................................................................................. 11
Dairy and Sugar ............................................................................................................................. 11
Cost Estimates ............................................................................................................................... 12
Potential Impacts of S. 3240 and H.R. 6083 .................................................................................. 14
Figures
Figure 1. 2012 Farm Bill: Selected Provisions from Title I (Commodity Programs) and
Title XI (Crop Insurance) in S. 3240 and H.R. 6083 .................................................................... 2
Figure 2. Farm Programs Under H.R. 6083 and S. 3240 ................................................................. 4
Figure 3. Agriculture Risk Coverage (ARC) ................................................................................... 6
Figure 4. ARC Payment Under County Option: Kansas Wheat Example ....................................... 6
Figure 5. An Illustration of Crop Insurance Indemnities and Farm Revenue Program
Payments Under 2012 Farm Bill Assuming Major Crop Revenue Loss ...................................... 8
Tables
Table 1. Baseline for Mandatory Farm Bill Programs, FY2013-FY2022...................................... 12
Table 2. CBO Estimated Change to Baseline: Farm Safety Net Programs, 2013-2022 ................ 13
Contacts
Author Contact Information........................................................................................................... 16
Congressional Research Service
Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Introduction
The farm commodity provisions of the Food, Conservation, and Energy Act of 2008 (P.L. 110-
246, the 2008 farm bill) expire with the 2012 crop year. Consequently, the 112th Congress has
been considering an omnibus farm bill that would establish the direction of agricultural policy for
the next five years. The Senate passed its version of the new farm bill (S. 3240) on June 21, 2012,
by a vote of 64-35. The House Committee on Agriculture passed its version (H.R. 6083) on July
11, 2012, by a vote of 35-11.
This report compares the so-called “farm safety net” provisions in the two bills. The broader
farming community uses the term farm safety net to refer to the combination of (1) farm
commodity price and income support programs in the 2008 farm bill, (2) federal crop insurance
(permanently authorized) under the Federal Crop Insurance Act of 1980, and (3) five disaster
assistance programs in the 2008 farm bill, which expired on September 30, 2011.
Title I of both versions of the farm bill contains commodity and disaster program provisions, and
Title XI modifies the current crop insurance program. Both bills would reshape the structure of
farm commodity support, reauthorize several disaster programs, and expand crop insurance
coverage. Additional background on proposals and issues that shaped the two bills appears in
CRS Report R42040, Farm Safety Net Proposals in the 112th Congress. That report also describes
current farm safety net programs authorized under the 2008 farm bill.
Overview
Under both the Senate-passed (S. 3240) and House Agriculture Committee-reported (H.R. 6083)
farm bills, farm support for traditional program crops is restructured by eliminating direct
payments, the existing counter-cyclical price program, and the Average Crop Revenue Election
(ACRE) program. Direct payments—made to producers and landowners based on historical
production and fixed payment rates for corn, wheat, soybeans, cotton, rice, peanuts, and other
“covered” crops—have accounted for most farm program spending in recent years. Authority is
continued for marketing assistance loans, which provide additional low-price protection at “loan
rates” specified in current law (with an adjustment made to the cotton loan rate).
In both bills, more than two-thirds of the 10-year, $50 billion in savings associated with the
proposed elimination of direct payments (estimated by the Congressional Budget Office) would
be used to offset the costs of revising farm programs in Title I, reauthorizing four of the five
expired disaster programs in Title I, and enhancing crop insurance in Title XI. The two titles
account for a combined $14.7 billion savings over 10 years in the Senate bill (of $23.1 billion in
total savings across all titles) and $14.1 billion in the House committee bill (of $35.1 billion).
These titles address the issue of “shallow losses” (losses incurred by crop producers that are not
covered currently by crop insurance) and provide disaster assistance for livestock producers.
Figure 1 summarizes major provisions in Titles I and XI of the two bills. A comprehensive,
section-by-section comparison is available in CRS Report R42552, The 2012 Farm Bill: A
Comparison of Senate-Passed S. 3240 and the House Agriculture Committee’s H.R. 6083 with
Current Law.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Figure 1. 2012 Farm Bill: Selected Provisions from Title I (Commodity Programs)
and Title XI (Crop Insurance) in S. 3240 and H.R. 6083
Source: CRS Report R42552, The 2012 Farm Bill: A Comparison of Senate-Passed S. 3240 and the House Agriculture
Committee’s H.R. 6083 with Current Law.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Farm Commodity Program Revisions
Both H.R. 6083 and S. 3240 would eliminate direct payments. They also borrow conceptually
from current farm commodity programs, namely the revision (and renaming) of 2008 farm bill
price and/or revenue programs designed to enhance risk protection for producers of “covered”
crops. Brief descriptions of the proposed programs are below. See Figure 2 for a detailed
program payment calculation inferred from each bill. Producers would not pay any fees for
participating, unlike the federal crop insurance program, which offers subsidized policies to
producers of a wide variety of crops.
H.R. 6083: Choice of Price Loss Coverage (PLC) or Revenue Loss
Coverage (RLC)
The House committee bill is similar to the current mix of farm programs for crop years 2013-
2017 in that it retains a producer choice between two counter-cyclical programs—the price-based
Price Loss Coverage (PLC) and the revenue-based Revenue Loss Coverage (RLC). These
programs are designed to provide subsidies to producers of covered commodities when they
suffer from declines in prices or revenue (price times yield). Both programs are counter-cyclical
in the sense that payments increase as prices or revenue fall below a reference price or historical
average revenue.
Covered commodities are wheat, oats, barley, corn, grain sorghum, long grain rice, medium grain
rice, pulse crops (dry peas, lentils, small chickpeas, and large chickpeas), soybeans, other
oilseeds, and peanuts. Cotton is not included as a program commodity; it is covered instead by a
new insurance product (see “Stacked Income Protection Plan (STAX)”).
PLC provides price protection relative to “reference prices.” This program uses the same concept
as the Counter-Cyclical Program (CCP) authorized in the 2008 farm bill. The payment rate is the
difference between a “reference price” and the national midseason (five-month average) market
price or loan rate, if higher. Commodity groups representing rice and peanut producers led efforts
to retain a reference price option as part of the overall farm program because they prefer price
protection by establishing statutory minimum price support rather than revenue protection (based
on historical prices) that can decline over time and erode the safety net. Importantly, to better
protect producers in a price downturn, the price guarantees that determine payment levels are
increased from those in the current program (i.e., target prices). Also, producers may update
payment yields (average yield per planted acre during 2008-2012, excluding high and low, times
90%).
Instead of PLC, producers could select RLC, which is considered a “shallow loss” farm program
designed to reimburse farmers for some crop revenue losses not covered by federally subsidized
crop insurance (i.e., an insured’s deductible). RLC makes payments to producers for each covered
commodity when actual countywide crop revenue is below 85% of historical revenue (i.e., the
producer absorbs the first 15% of the shortfall). The government then pays for the next 10% of
the loss. Remaining losses are backstopped by crop insurance if purchased at sufficient coverage
levels by the producer. The RLC guarantee is based on county yields, possibly making local farm
losses more likely to be covered than under the current Average Crop Revenue Election (ACRE)
program under the 2008 farm bill. ACRE is state-based and can therefore trigger payments less
frequently (large losses in one area can be offset by gains in another part).
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Figure 2. Farm Programs Under H.R. 6083 and S. 3240
Source: CRS, based on diagram originally prepared by USDA.
Notes: Example is for 2013 crop year. Olympic average excludes the high and low data points. Covered commodities are wheat, corn, grain sorghum, barley, oats, long grain rice, medium
grain rice, pulse crops (dry peas, lentils, small chickpeas, and large chickpeas), soybeans, other oilseeds, and peanuts.
CRS-4
Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
A major distinction between RLC and producer-purchased crop insurance is that the price
component for the RLC guarantee is based on deviations from five-year historical crop prices
(subject to reference prices used in the PLC program, which serve as minimums), while crop
insurance is based on expected market prices for the upcoming season. Consequently, RLC can
provide a revenue guarantee that is higher than available through crop insurance if historical
prices are high relative to expected market prices.
S. 3240: Agriculture Risk Coverage (ARC)
In contrast to the House committee bill, the Senate bill provides for a single, revised revenue
program called Agriculture Risk Coverage (ARC). It is similar to RLC but offers a slightly higher
guarantee than in the House committee bill, plus an option for farmers to select coverage at either
the county or individual farm level (the House committee bill has county-level coverage). S. 3240
has no provision for a counter-cyclical “reference” price program as under current law and
provided in H.R. 6083, but the benchmark price used to calculate the ARC guarantee for rice and
peanuts cannot be less than $13 per hundredweight and $530 per ton, respectively.1
During the farm bill debate, some farmers have called for more localized coverage for the
program, and thus the option for the guarantee to be based on either county or farm yields rather
than state yields as provided by the Average Crop Revenue Election (ACRE) program. If enacted,
ARC would be available for crop years 2013-2017 for the same crops as those under the direct
payment program (except cotton). As with the House committee bill, upland cotton is not covered
under ARC but is eligible for a separate newly proposed program called the Stacked Income
Protection Plan (STAX).
ARC would make payments on a portion of planted acres when actual crop revenue ($ per acre) is
below 89% of benchmark (historical) revenue (compared with 85% in the House committee bill).
As a result, the producer absorbs the first 11% of the revenue shortfall. The government then pays
for the next 10 percentage points of loss. Remaining losses are backstopped by crop insurance if
purchased at sufficient coverage levels by the producer. See Figure 3 and Figure 4 for a
conceptual illustration and hypothetical example.
1 The benchmark price is the five-year simple average of the most recent national average market prices, excluding the
high and low prices. For rice and peanuts, the benchmark price is the higher of the national average market price or
$13.00 per hundredweight for rice and $530 per ton for peanuts.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Figure 3. Agriculture Risk Coverage (ARC)
Makes payment when actual farm or county-wide revenue drops
below 89% of historical revenue (helps pay for “shallow loss”)
Payment Calculation
Farm or County Revenue Guarantee
Farm Payment =
89%
Actual Revenue
Per-acre difference
times
times eligible planted acres
times factor
5-year
national
average
farm price
Factor depends on producer’s
national
choice of guarantee:
farm price
(1) Farm level = 65%
Benchmark
times
(2) County level = 80%
Revenue
times
actual yield
Max. payment is 10% of
5-year
benchmark revenue.
average
yield
5-year averages exclude high and low years. Minimum price of $13/cwt
for rice and $530/ton for peanuts. Yield is either farm or county.
Source: CRS.
Figure 4. ARC Payment Under County Option: Kansas Wheat Example
County Revenue Guarantee = $219.37/acre
Farm Payment =
$20.97/ac (per-acre difference)**
89%
Actual Revenue =
times 500 acres
times
$198.40/acre
times 80%
Benchmark
= $8,387
revenue* of
$246.48 =
$6.20 / bu
[$6.48/bu+$6.78/
**Max. per- acre payment is 10% of
bu+$5.70/bu ] / 3
times
benchmark revenue ($246.48/ac)
times
32 bu / ac
= $24.65/ac.
[40 bu/ac+42
bu/ac+35 bu/ac] / 3
*5-year averages exclude high and low years (designated by red “X”). National prices ($/bu): 2007= $6.48,
2008=$6.78, 2009=$4.87, 2010=$5.70, 2011=$7.25; County yields (bu/ac): 2007=33, 2008=40, 2009=42,
2010=45, 2011=35.
Source: CRS.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Crop Insurance Enhancements
The federal crop insurance program makes available subsidized crop insurance to producers who
purchase a policy to protect against individual farm losses in yield, crop revenue, or whole farm
revenue. The program is permanently authorized by the Federal Crop Insurance Act (7 U.S.C.
1501 et seq.) but is often modified in farm bills.
In contrast to farm programs in Title I, where spending is reduced substantially, both versions of
the bill increase funding for crop insurance (Title XI) relative to baseline levels. Crop insurance
baseline funding for 2013-2022 is estimated by CBO at $89.8 billion.2 H.R. 6083 would increase
spending by $9.5 billion over the period and S. 3240 would increase spending by $4.7 billion,
according to CBO projections. Two new insurance products—Supplemental Coverage Option
(SCO) and the Stacked Income Protection Plan (STAX) for cotton—account for most of the
additional cost. (The CBO score for each major provision appears in Table 2 below).
Many of the provisions of Title XI are very similar in both bills. A major exception is a provision
in S. 3240, which was adopted as a floor amendment, that reduces crop insurance premium
subsidies by 15 percentage points for producers with average adjusted gross income greater than
$750,000. (The average government subsidy for crop insurance premiums was 62% in 2011.) For
details on all sections, see CRS Report R42552, The 2012 Farm Bill: A Comparison of Senate-
Passed S. 3240 and the House Agriculture Committee’s H.R. 6083 with Current Law.
Supplemental Coverage Option (SCO)
Under both bills, a new crop insurance policy is authorized to address the issue of “shallow
losses,” or losses incurred by producers but not covered currently by crop insurance. The
Supplemental Coverage Option (SCO) would be available for purchase by crop producers as an
additional policy to cover part of the deductible under the producer’s underlying policy. SCO is
an area-wide (e.g., county) yield or revenue loss policy, whereby an indemnity is paid on area
losses greater than 10% and not more than the deductible level (e.g., 25%) selected by the
producer in the underlying individual policy. SCO policies are to be made available for all crops
if sufficient data are available. Premium is subsidized at 70%. Coverage would begin no later
than the 2013 crop year. If the farmer participates in ARC under Title I of the Senate bill, the 10%
loss trigger is increased to 21%. In the House committee bill, acres covered by RLC are not
eligible for SCO (i.e, producers of crops other than cotton, which would be covered by STAX,
must choose RLC or SCO) .
Figure 5 illustrates how crop insurance and farm programs would interact under each bill. The
bar on the left depicts the expected revenue (prior to planting) under a typical crop insurance
revenue policy with a 30% deductible (the farmer absorbs the first 30% of the loss). Under the
House committee bill and assuming the farmer selects the PLC option, an SCO policy can be
purchased to cover part of the deductible (see PLC column). If a loss occurs on the farm, an initial
indemnity is triggered under the farmer’s individual crop insurance policy as depicted by the
green box. A second indemnity from the SCO would be paid (depicted by the blue box) if there is
also a loss at the county level. Overall, the farmer incurs a loss of approximately 10% (white box
2 Based on CBO’s March 2012 baseline assuming an extension of current law.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
at top). A separate PLC payment would be made if the farm price is below the reference price. If a
producer selects the Revenue Loss Coverage (RLC) rather than PLC (see RLC column), the
acreage is not eligible for SCO and only an RLC payment (red box) would be made if triggered.
Under the Senate bill (see S. 3240 column), which allows a producer to participate in both the
ARC revenue program and SCO, the SCO indemnity (blue) would be smaller but would fill
(potentially) the gap between the ARC payment (red) and the individual policy indemnity (green).
Figure 5. An Illustration of Crop Insurance Indemnities and Farm Revenue Program
Payments Under 2012 Farm Bill Assuming Major Crop Revenue Loss
Actual Revenue Plus Insurance Indemnities and
Revenue Program Payments
Crop Insurance
H.R. 6083*
S. 3240
STAX**
Expected Revenue
PLC
RLC
d
Loss (10%)
Loss (15%)
Loss (11%)
Loss (10%)
iel
y
Deductible
e
SCO
STAX
g
(e.g., 30%)
ARC (10%)
Indemnity
RLC (10%)
Indemnity
ra
SCO
e
(20%)
Loss (5%)
Indemnity (9%)
(20%)
Insurance
r av
guarantee
Indiv.
Indiv.
Indiv.
Indiv.
-y
0
Indemnity
Indemnity
Indemnity
Indemnity
1
s
Example:
e
70%
actual price
actual price
actual price
actual price
tim
coverage
ice
(individual
policy)
X
X
X
X
cted pr
actual yield
actual yield
actual yield
actual yield
pe
Ex
*A separate payment under Price Loss Coverage (PLC) is made if the farm price is below the
reference price. SCO is not available if producer selects Revenue Loss Coverage.
**Stacked Income Protection Plan (STAX) is authorized for cotton only in both bills.
Source: CRS.
Note: The expected revenue for a crop insurance policy is calculated before the planting season and is based on
the expected market price for that year. Maximum revenue program payment for RLC and ARC is 10% of
benchmark revenue (red box in chart).
Stacked Income Protection Plan (STAX)
Both H.R. 6083 and S. 3240 would handle cotton separately from the other major program crops
in an attempt to resolve a long-standing trade conflict with Brazil under the World Trade
Organization (WTO).3 In lieu of the farm revenue programs proposed in Title I, both versions of
the farm bill include a new cotton program comprised of a stand-alone, county-based revenue
insurance policy called the Stacked Income Protection Plan (STAX). Similar to SCO, STAX sets
a revenue guarantee based on expected county revenue (but not yield). Producers could purchase
this policy in addition to their individual crop insurance policy (as done for SCO) or as a stand-
alone policy.
3 For more information, see CRS Report RL32571, Brazil’s WTO Case Against the U.S. Cotton Program.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
As under SCO, the indemnity from STAX, if triggered by a revenue loss at the county level,
might cover all or part of the deductible under the individual policy. (See far right column of
Figure 5.) Specifically, STAX would indemnify losses in county revenue of greater than 10% of
expected revenue but not more than the deductible level (e.g., 25%) in the underlying individual
policy (or not more than 30% if used as stand-alone policy). A payment rate multiplier of 120% is
available if producers want to increase the amount of protection per acre. The farmer subsidy as a
share of the policy premium is set at 80% for STAX. In the House committee bill only, a
minimum price of $0.6861 per pound is used in the calculation of the insurance guarantee if it is
higher than the expected market price.
Under a STAX policy setting, which has been advanced by the U.S. cotton sector, producers
would forgo benefits from a revised farm program in order to comply with the WTO cotton case.
In particular, STAX participants would not be eligible for benefits available to other program
crops, such as ARC, yield updating, RLC, and counter-cyclical price payments with fixed
reference prices in PLC. Despite this program formulation, Brazil has yet to formally sign off on
STAX as a solution to the WTO cotton case, but has instead indicated that STAX does not go far
enough in resolving the dispute. Whether this signifies real intent or is simply a negotiating
strategy remains to be seen. U.S.-Brazil negotiations in this case are ongoing and will likely hinge
on the eventual farm bill treatment of cotton.
Crop Insurance Studies
Additional crop insurance changes in both bills are designed to expand or improve crop insurance
for other commodities, including specialty crops. Provisions in both bills revise the value of crop
insurance for all organic crops to reflect prices of organic (not conventional) crops. The bills also
require USDA to conduct more research on whole farm revenue insurance with higher coverage
levels than currently available. Additional studies are required on insuring (1) specialty crop
producers for food safety and contamination-related losses, (2) swine producers for a catastrophic
disease event, (3) producers of catfish against reduction in the margin between market prices and
production costs, (4) commercial poultry production against business disruptions caused by
integrator bankruptcy, and (5) poultry producers for a catastrophic event (House committee bill
only). A peanut revenue insurance product also is mandated in both bills. A provision in S. 3240
makes payments available to producers who purchase private-sector index weather insurance,
which insures against specific weather events and not actual loss.
Conservation Provisions for Crop Insurance
For conservation purposes, a “sod saver” provision in Title XI of S. 3240 reduces crop insurance
subsidies and noninsured crop disaster assistance for the first four years of planting on native sod
acreage. The same provision in the House committee bill would apply only to the Prairie Pothole
National Priority Area (portions of Iowa, Minnesota, Montana, North Dakota, and South Dakota).
In the Senate bill only, crop insurance premium subsidies are available only if producers are in
compliance with wetland conservation requirements (goes into effect immediately) and
conservation requirements for highly erodible land (within five years). For more information, see
CRS Report R42459, Conservation Compliance and U.S. Farm Policy.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Noninsured Crop Disaster Assistance Program (NAP)
Producers who grow a crop that is currently ineligible for crop insurance may be eligible for a
payment under USDA’s Noninsured Crop Disaster Assistance Program (NAP). NAP has
permanent authority under Section 196 of the Federal Agriculture Improvement and Reform Act
of 1996 (7 U.S.C. 7333). To be eligible for a NAP payment, a producer first must apply for
coverage under the program. Like catastrophic crop insurance, NAP applicants must also pay an
administrative fee ($250 per year). In order to receive a NAP payment, a producer must
experience at least a 50% crop loss caused by a natural disaster, or be prevented from planting
more than 35% of intended crop acreage. For any losses in excess of the minimum loss threshold,
a producer can receive 55% of the average market price for the covered commodity.
In order to improve coverage for crops covered under NAP, both bills provide additional coverage
at 50% to 65% of established yield and 100% of average market price. Premium for additional
coverage is 5.25% times the product of the selected coverage level and value of production
(acreage times yield times average market price). The premium for additional coverage is reduced
by 50% for limited resource, beginning, and socially disadvantaged farmers. In the Senate bill
only, for producers with fruit crop losses in 2012, payments associated with additional coverage
are made retroactively (minus premium fees) in counties declared a disaster due to freeze or frost.
Disaster Programs Reauthorized
Five disaster programs were established in the 2008 farm bill for weather-induced losses in
FY2008-FY2011. Both S. 3240 and H.R. 6083 reauthorize the four programs covering livestock
and tree assistance for FY2012-FY2017. The crop disaster program from the 2008 farm bill (i.e.,
Supplemental Revenue Assistance, or SURE) is not reauthorized in either bill, but elements of it
have been folded into the new ARC in the Senate bill by allowing producers to protect against
farm-level revenue losses (the House committee bill has only a county-based revenue program).
S. 3240 also provides disaster benefits to tree fruit producers who suffered crop losses in 2012
(see above). The following four programs would be reauthorized:
1. Livestock Indemnity Program (LIP), which would compensate ranchers for a
portion of market value for livestock mortality caused by a disaster (65% in
Senate bill, 75% in H.R. 6083);
2. Livestock Forage Disaster Program (LFP), which would compensate for grazing
losses due to qualifying drought conditions or fire on rangeland managed by a
federal agency (the Senate bill increases the payment amount from the 2008 farm
bill in some cases);
3. Emergency Assistance for Livestock, Honeybees, and Farm-Raised Catfish
(ELAP), which would provide annual funding of $5 million (Senate bill) and $20
million (House committee bill) to compensate producers for disaster losses not
covered under other disaster programs; and
4. Tree Assistance Program (TAP), which would provide payments to eligible
orchardists and nursery growers to cover 65% of the cost of replanting trees or
nursery stock and 50% of the cost of pruning/removal following a natural disaster
(in excess of 15% mortality in both cases).
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
Payment Limit Changes
Farm commodity programs have certain limits that cap payments (currently $105,000 per person)
and set eligibility based on adjusted gross income (AGI, currently $500,000 per person for
nonfarm AGI and $750,000 for farm AGI). The two bills diverge from current law and each other,
with S. 3240 reducing the farm program payment limit to $50,000 per person for ARC and adding
a $75,000 limit on loan deficiency payments (LDPs). The program payment limit under H.R.
6083 is $125,000 for PLC and RLC, with no limit on LDPs. In both the House committee and
Senate bills, peanuts have a separate but identical payment limit as all the other covered
commodities combined. The Senate bill changes the threshold to be considered “actively
engaged” and to qualify for payments, by effectively requiring personal labor in the farming
operation.
Both bills also change the limits on AGI, with a combined AGI limit of $750,000 in S. 3240 and
$950,000 in H.R. 6083. Proponents of the changes to AGI assert that the new provisions represent
a tightening of the limit. However, some high-income individuals who have been disqualified
under the 2008 farm bill might be restored to eligibility under a 2012 farm bill, primarily because
the proposed combined limit in both bills is higher than the current nonfarm AGI limit.4
For disaster programs, S. 3240 retains the combined $100,000 per person payment limit for LIP,
LFP, and ELAP and retains the separate limit of $100,000 for TAP. H.R. 6083 contains a
combined payment limit of $125,000 per person for LIP, LFP, and ELAP and a separate limit of
$125,000 for TAP.
Dairy and Sugar
For dairy policy, both bills contain similar, significant changes, including elimination of the dairy
product price support program, the Milk Income Loss Contract (MILC) program, and export
subsidies. These are replaced by a new program, which makes payments to participating dairy
producers when the national margin (average farm price of milk minus average feed costs) falls
below $4.00 per hundredweight (cwt.), with coverage at higher margins available for purchase.
Another provision makes participating producers subject to a separate program, which reduces
incentives to produce milk when margins are low. Federal milk marketing orders have permanent
statutory authority and continue intact. However, S. 3240 (but not H.R. 6083) includes two
provisions that require more frequent reporting of dairy market information and studies on
potential changes to the federal milk marketing order system. For more information on dairy
policy in the two bills, see CRS Report R42736, Dairy Policy Proposals in the 2012 Farm Bill.
The sugar program is left unchanged in both bills, with an exception in the Senate bill that
advances the date (to February 1 from April 1) that USDA can increase the import quota. For
more information, see CRS Report R42551, Sugar Program Proposals for the 2012 Farm Bill.
4 CRS Congressional Distribution Memorandum, Unintended Consequences of Returning to a Single AGI Limit for
Farm Program Eligibility, September 10, 2012.
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Cost Estimates
Funding to write the next farm bill is based on the Congressional Budget Office’s (CBO’s)
baseline projection of the cost of mandatory farm bill programs, and on varying budgetary
assumptions about whether programs will continue. The CBO baseline projection is an estimate at
a particular point in time of what federal spending on mandatory programs likely would be under
current law. The March 2012 CBO baseline projection is the “scoring baseline” against which S.
3240 and H.R. 6083 have been measured.
According to the March 2012 baseline, total budget authority for all mandatory farm bill
programs under current law is $995 billion during FY2013-FY2022 (Table 1). Of this amount,
budget authority for farm safety net programs is $153 billion over the 10-year period, including
$63 billion for commodity programs and $90 billion for crop insurance. Disaster programs do not
have baseline funding, since they expired ahead of other farm support programs. From a budget
perspective, programs with a continuing baseline are assumed to go on under current law. These
amounts can be used to reauthorize the same programs, reallocated among these and other
programs, used as savings for deficit reduction, or used as offsets to help pay for other provisions.
Table 1. Baseline for Mandatory Farm Bill Programs, FY2013-FY2022
(budget authority in millions of dollars)
2008 Farm Bill Title and Program
FY2013-FY2017
FY2013-FY2022
Title I and XII – Farm Safety Net Programs
74,476
152,761
Title I – Commodity Programs
31,143
62,944
Title XII – Crop Insurance
43,333
89,817
Title II – Conservation
30,956
65,275
Title IV – Nutrition
399,567
771,773
All other titles
2,423
4,819
Total 507,422
994,628
Source: CRS analysis based on the CBO baseline (March 2012). For more information, see CRS Report R42484,
Budget Issues Shaping a 2012 Farm Bill.
Notes: Crop insurance appears in Title XI of the S. 3240 and H.R. 6083. Nutrition includes only the
Supplemental Nutrition Assistance Program (SNAP) and related programs, because both House and Senate
Agriculture committees have jurisdiction.
Compared to the March 2012 baseline, CBO estimates that S. 3240 (all titles) would reduce
spending by $23.1 billion over 10 years, a reduction of 2.3% from the 10-year baseline. H.R.
6083 would reduce spending by $35.1 billion over 10 years, a reduction of 3.5%. Table 2 shows
the CBO scores of both versions of the farm bill, with a detailed breakout for their respective
farm safety net provisions. For more information on the overall farm bill score and budget
situation, see CRS Report R42484, Budget Issues Shaping a 2012 Farm Bill.
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Table 2. CBO Estimated Change to Baseline: Farm Safety Net Programs, 2013-2022
(change in outlays in millions of dollars)
2012 Farm Bill Title
Description
S. 3240
H.R. 6083
All Titles
-23,140
-35,144
Titles I, XI, and Non-insured Crop Disaster Assistance Program (NAP)
-14,738
-14,061
Commodity Programs (Title I)
-19,428
-23,584
End Direct Payments
Fixed payments
-44,622
-44,622
End Counter-cyclical Payment
Variable payment (price)
-1,008
-1,008
End Average Crop Revenue Election
Variable payment (revenue)
-4,613
-4,615
Payments
Price/Revenue Program(s)
ARC (S. 3240); PLC/RLC (H.R. 6083)
+28,536
+24,544
Dairy Program
Margin insurance/market stabilization
-59
-38
Disaster Programs
Livestock and tree assistance
+2,212
+2,022
Other Commodity Provisions
Miscellaneous
+125
+131
Crop Insurance (Title XI)
+4,690
+9,523
Supplemental Coverage Option
Additional crop insurance policy for
+3,001 +3,998
shallow losses
Catastrophic Policy Premiums
Reduce premiums
-437
-437
Enterprise Units
Units for irrigated/nonirrigated land
+506
+506
Adjustment in APH Yields
Increase yields for guarantees
+855
+1,127
Stacked Income Protection for Cotton
New insurance policy for cotton
+3,224
+3,851
(STAX)
Peanut Revenue Crop Insurance
New insurance policy for peanuts
+239
+239
Beginning Farmer Provisions
Increase benefits to new farmers
+193
+192
Crop Production on Native Sod
No payments on converted land
-168
-102
Participation Effects of Commodity
New commodity program reduces
-2,469 -639
Programs
demand for crop insurance
Other Crop Insurance Provisions
Miscel aneous/Implementation/Livestock
+93 +324
Pilot Program
Equitable Relief for Specialty Crop
Increase delivery cost reimbursement
not applicable
+205
Producers
to insurance companies
Coverage Level by Practice
Allow coverage level to vary
not applicable
+166
Noninsured Crop Disaster Assistance
Increase coverage levels
-346a +96
Program (NAP)
Source: CRS, using CBO cost estimates of S. 3240 (July 9, 2012, at http://cbo.gov/publication/43417), and H.R.
6083 (July 26, 2012, at http://cbo.gov/publication/43486).
Notes: - = savings, + = additional costs. PLC/RLC cost is reduced by shifting some payments beyond 10-year
scoring window. Figures may not add due to rounding.
a. In the Senate bill, NAP appears in Title XII (Miscellaneous) and not Title XI (Crop Insurance).
For just the farm safety net programs, the 10-year savings amount is $14.7 billion in S. 3240 and
$14.1 billion in H.R. 6083 (Table 2). More than two-thirds of the 10-year, $50 billion in savings
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
from eliminating current commodity programs in Title I in both bills would be used to offset new
commodity programs and to enhance crop insurance in Title XI. The savings from commodity
programs in the House committee bill is about $4 billion more than in the Senate bill, in part
because outlays under the new counter-cyclical program in H.R. 6083 do not begin until FY2015,
while timing of farm payments under the Senate bill begin in FY2014. In contrast to scoring
savings under Title I, expenditures for crop insurance in both bills increase relative to baseline
levels. The increase is about $4.8 billion lower in the Senate bill, in part because the new revenue
program contains an option for a farm-level guarantee that is expected to reduce demand for crop
insurance and offset some costs associated with the crop insurance changes.
Potential Impacts of S. 3240 and H.R. 6083
A number of researchers have analyzed the proposed changes made to the farm safety net by the
House committee and Senate farm bills. The Food and Agricultural Policy Research Institute
(FAPRI) at the University of Missouri concludes in an August 2012 sector-wide study that the
economic consequences of the two bills would be similar in many respects, with reduced federal
spending and relatively small effects on commodity markets.5 Comparing the two bills, FAPRI’s
analysis indicates that the House committee bill, given its parameters and structure, would
provide substantially more support than the Senate bill to producers of wheat, rice, barley, and
peanuts, while corn and soybean producers would benefit relatively more under the Senate bill.
Actual program benefits will be sensitive to market conditions and producer participation, with
government costs depending in part on eventual enrollment in the Supplemental Coverage Option
(70% subsidy rate) and other factors. Under each bill, average net farm income and real estate
values would decline slightly as the sector would receive somewhat less federal support.
According to the study, impacts on food prices for consumers would be very small.
A separate analysis by the Agricultural and Food Policy Center (AFPC) at Texas A&M University
concludes that all 64 of the representative farms that it models would receive greater financial
benefits (i.e., higher average net cash farm income) under the House committee bill relative to the
Senate bill over the life of the farm bill.6 The study reports that under a baseline price scenario,
the average difference in net cash farm income as a result of policy parameters would be $44,200
per farm, in favor of the House committee bill. Under a declining price scenario, the average
difference widens to $125,800 per farm (ranging from $98,700 for wheat to $175,500 for rice). A
major driver is the attractive combination of reference prices (increased from 2008 farm bill
levels) in the House committee bill—which provide support when farm prices decline through the
Price Loss Coverage program—combined with the Supplemental Coverage Option (SCO) to
address shallow losses beyond a 10% deductible. In the Senate bill, the SCO deductible is
expanded from 10% to 21% if the farmer also participates in Agriculture Risk Coverage (ARC).
Other researchers have concluded that the SCO approach combined with the new revenue
programs (ARC in the Senate bill and RLC in the House committee bill) could create situations of
5 Pat Westhoff and Scott Gerlt, Impacts of Selected Provisions of the House Agriculture Committee and Senate Farm
Bills, Food and Agricultural Policy Research Institute (FAPRI), FAPRI-MU Report #05-12 (revised), Columbia, MO,
August 2012, http://www.fapri.missouri.edu/outreach/publications/2012/FAPRI_MU_Report_05_12_Rev.pdf.
6 Joe L. Outlaw et al., Economic Impacts of the Safety Net Provisions in the 2012 Senate and House Farm Bills on
AFPC’s Representative Crop Farms, Agricultural and Food Policy Center, Texas A&M University, AFPC Working
Paper 12-2, College Station, TX, July 2012, http://afpc.tamu.edu/pubs/0/573/WP%2012-2.pdf.
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Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
overcompensation for shallow losses (out-of-pocket cost absorbed by producers), while SCO
alone is likely to result in fewer such concerns because it is integrated more closely with existing
crop insurance coverage.7 Multi-year price declines are another major policy concern. The
researchers point out that in the Senate bill, the ARC program guarantees will decline over time if
market prices drop, which lengthens the adjustment period for producers. This is in contrast to the
House committee bill, which sets fixed minimum prices in PLC (and RLC). The House
committee bill increases these parameters differently for each crop relative to their respective
(and recent) market values, which the authors say could create planting incentives that differ from
market signals, thereby shifting acreage toward crops that have more attractive program benefits.
Some have expressed concern that costs of farm programs could be sharply higher than CBO
estimates. An analysis by university researchers, sponsored by the American Enterprise Institute,
estimates that the cost of H.R. 6083 will be relatively modest if farm prices remain historically
high.8 However, it also concludes that the annual cost could exceed $18 billion if farm prices drop
to a 15-year average level. Others have criticized the analysis, calling it “an improbable price
scenario,” and citing CBO’s use of stochastic scoring, which considers the probability of various
price scenarios that result in either very high or low costs.9
Additional Resources
Agriculture Reform, Food and Jobs Act (S. 3240)
U.S. Congress, Senate Committee on Agriculture, Nutrition, and Forestry, report to accompany S.
3240, S.Rept. 112-203, 112th Cong., 2nd sess., August 28, 2012. http://www.ag.senate.gov/download/?
id=5d91a4e4-d805-4623-ae71-8402bd6b912e
Committee summary information: http://www.ag.senate.gov/issues/farm-bill
Federal Agricultural Reform and Risk Management Act of 2012 (H.R. 6083)
U.S. Congress, House Committee on Agriculture, report to accompany H.R. 6083, H.Rept. 112-669,
112th Cong., 2nd sess., September 13, 2012, http://www.congress.gov/cgi-lis/cpquery/R?
cp112:FLD010:@1(hr669)
Committee summary information: http://agriculture.house.gov/farmbill
7 Carl Zulauf and David Orden, US Farm Policy and Risk Assistance, International Centre for Trade and Sustainable
Development (ICTSD), Issue Paper No. 44, Geneva, Switzerland, September 2012, http://ictsd.org/downloads/2012/09/
us-farm-policy-and-risk-assistance.pdf. Additional analysis is available at http://farmdocdaily.illinois.edu/areas/policy/.
8 Vincent H. Smith, Bruce A. Babcock, and Barry K. Goodwin, Field of Schemes Mark II: The Taxpayer and
Economic Welfare Costs of Price Loss Coverage and Supplementary Insurance Coverage Programs, American
Enterprise Institute, Draft working paper (#2012-03), September 2012, http://www.aei.org/papers/economics/field-of-
schemes-mark-ii-price-loss-coverage-and-supplementary-insurance-coverage-programs/.
9 National Crop Insurance Services, Response to American Enterprise Institute Claims, September 13, 2012,
http://www.cropinsuranceinamerica.org/wp-content/uploads/AEI-Response-to-Claims-9-13-12.pdf.
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Author Contact Information
Dennis A. Shields
Randy Schnepf
Specialist in Agricultural Policy
Specialist in Agricultural Policy
dshields@crs.loc.gov, 7-9051
rschnepf@crs.loc.gov, 7-4277
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