Farm Safety Net Programs: Background and
Issues
Dennis A. Shields
Specialist in Agricultural Policy
February 6, 2015
Congressional Research Service
7-5700
www.crs.gov
R43758
Farm Safety Net Programs: Background and Issues
Summary
The U.S. Department of Agriculture (USDA) operates several programs that supplement the
income of farmers and ranchers in times of low farm prices and natural disasters. Federal crop
insurance, farm programs, and disaster assistance are collectively called the farm safety net.
Federal crop insurance is often referred to as the centerpiece of the farm safety net because of
its cost and broad scope for addressing natural disasters. The program is permanently authorized
and makes available subsidized insurance for more than 130 commodities (ranging from apples to
wheat) to help farmers manage risks associated with a loss in yield or revenue. Program cost is
projected by the Congressional Budget Office to total $9.1 billion per year over the next decade.
Producers pay a portion of the premium which increases as the level of coverage rises. The
federal government pays the rest of the premium—62%, on average, in 2014—and covers the
cost of selling and servicing the policies.
Farm commodity programs historically represented the heart of U.S. farm policy by virtue of
their long history (dating back to the 1930s). Price and income support is based primarily on
statutorily fixed prices and not market prices (as in crop insurance), which can be quite low in
some years. For crop years 2014-2018, the Agricultural Act of 2014 (2014 farm bill, P.L. 113-79)
established minimum prices via the marketing loan program for approximately two dozen
commodities, including corn, soybeans, wheat, rice, and peanuts. In addition, producers with
production histories for covered crops have a one-time choice between Price Loss Coverage
(PLC) payments and Agriculture Risk Coverage (ARC) payments. Costs were projected in January
2015 at about $4.7 billion per year over the next decade. Programs are free for producers.
Agricultural disaster assistance is permanently authorized for livestock and orchards. Under the
2014 farm bill, nearly all parts of the U.S. farm sector are now covered by either a disaster
program or federal crop insurance, which is expected to reduce calls for ad hoc assistance. As of
January 2015, producer payments totaled more than $4.4 billion for losses in FY2012-FY2014.
Compared with the previous farm bill, the 2014 farm bill was enacted with more crop insurance
options and higher reference prices designed to trigger payments more often than under previous
law. Funding was accomplished by eliminating direct payments that had been made annually
since 1996 but played no role in managing farm risk because they did not vary with farm prices.
Several facets of the current farm safety net might be of interest to the 114th Congress. An initial
focus could be on USDA’s implementation of the farm safety net provisions. Issues could include
(a) the ongoing program signup for farmers, who face a series of complex decisions and
deadlines; (b) a delayed payment schedule, which could expose cashflow problems; and (c) the
pending “actively engaged” rule that could affect program eligibility for some producers.
With ongoing concern for budget deficits and federal spending, Congress also might be interested
in reviewing the effectiveness of the revised safety net and actual costs, which are expected to be
higher than earlier projections due to lower farm prices. Farm safety net proponents say the
current suite of programs has been designed for such situations and is needed to adequately
protect producers and the overall agriculture sector. Critics believe that a simplified approach
might be more effective and less expensive, with funds used instead for broad societal gains, such
as investment in agricultural research or transportation infrastructure. The Administration has
proposed trimming crop insurance subsidies, arguing that the safety net could remain effective.
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Farm Safety Net Programs: Background and Issues
Contents
Overview .......................................................................................................................................... 1
Federal Crop Insurance .................................................................................................................... 2
Farm Commodity Programs............................................................................................................. 3
Agricultural Disaster Assistance ...................................................................................................... 5
USDA Discretionary Support .......................................................................................................... 6
Historical Policy Discussion ............................................................................................................ 6
Prospective Issues ............................................................................................................................ 7
Implementation .......................................................................................................................... 7
PLC/ARC Farm Program Selection by Producers .............................................................. 7
Timing of Farm Program Payments .................................................................................... 8
“Actively Engaged” Rule .................................................................................................... 8
Implementing SCO and STAX for Upland Cotton .............................................................. 9
Actual Production History (APH) for Crop Insurance ...................................................... 10
Additional Crop Insurance Provisions .............................................................................. 10
Agricultural Disaster Payments ......................................................................................... 10
Government Outlays and Policy Issues ................................................................................... 11
Potential for Higher Farm Program Outlays ..................................................................... 11
“Generic” Base Acres ........................................................................................................ 12
Crop Insurance Subsidies .................................................................................................. 12
WTO Trade Concerns .............................................................................................................. 13
Design of Overall Farm Safety Net ......................................................................................... 13
Figures
Figure A-1. Price Loss Coverage (PLC) ........................................................................................ 15
Figure A-2. Agriculture Risk Coverage (ARC)–County Coverage ............................................... 15
Figure A-3. Crop Insurance and Farm Commodity Programs ....................................................... 16
Tables
Table 1. Farm Support by Commodity ............................................................................................ 1
Table 2. Reference Prices and Loan Rates in the 2014 Farm Bill ................................................... 4
Table A-1. Hypothetical Corn/Soybean Farm in 2014 ................................................................... 16
Table A-2. Hypothetical Wheat/Lentil Farm in 2014 .................................................................... 17
Table A-3. Hypothetical Peanut/Cotton Farm in 2014 ................................................................... 18
Appendixes
Appendix. Farm Commodity Program Examples .......................................................................... 14
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Farm Safety Net Programs: Background and Issues
Contacts
Author Contact Information........................................................................................................... 19
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Farm Safety Net Programs: Background and Issues
Overview
Congress has devised a variety of programs operated by the U.S. Department of Agriculture
(USDA) to support farm income and help farmers and ranchers manage production or price risk.
The programs essentially supplement farm incomes in times of low farm prices and natural
disasters, and they are collectively called the farm safety net. The three main components are
(1) permanently authorized federal crop insurance, (2) farm commodity price and income support
programs for crop years 2014-2018, and (3) permanently authorized agricultural disaster
programs. Additional support is provided through emergency loans and USDA discretionary
assistance. The suite of programs is designed to allow for maximum farmer choice and flexibility.
Most farmers and ranchers are eligible for at least one of these federal programs. Some
commodities are supported by only one method; others receive support through a combination of
program tools (Table 1). Within the farm safety net, federal crop insurance is most extensive, as
policies are available for much of U.S. agriculture, including grains, fruits and vegetables,
pasture, nursery crops, and livestock gross margins. About two dozen of these crops (e.g., corn,
soybeans, wheat) are eligible for both crop insurance and farm commodity programs, including
minimum statutory prices. Sugar and dairy have their own programs, while disaster programs
support livestock producers. The federal cost for the farm safety net was projected in January
2015 to average about $14.1 billion per year for FY2016-FY2025 (see note in Table 1).
Table 1. Farm Support by Commodity
Disaster
Commodity
Federal Crop Insurance
Farm Commodity Programs
Assistance
Feed grains (corn, sorghum,
Yield or revenue guarantees based
Price Loss Coverage (PLC) and Ag. Risk
—
barley, oats), peanut, pulses
on historical yields and same-year
Coverage (ARC) - price or revenue
(dry peas, lentils, chickpeas),
market prices, plus county yield or
guarantee based on historical yields and
rice, soybeans, other
revenue guarantee for some crops
minimum prices (or 5-year historical prices);
oilseeds, wheat
(Suppl. Coverage Option—SCO)
nonrecourse loans with min. prices
Upland cotton
Same as above, plus county
Transition payments in 2014 (and 2015 if
—
revenue guarantee (Stacked
STAX is not available); nonrecourse loans
Income Protection Plan—STAX)
with minimum prices
Sugar
Yield guarantees based on same-
Import quotas, nonrecourse loans with
—
year market prices
minimum prices, and marketing allotments
Fruits, vegetables, & nursery
Yield or revenue guarantees, &
—
Payment for loss
other products, incl. whole farm
of fruit trees and
vines (assets)
Livestock & poultry
Insurance for livestock prices,
—
Payment for loss
gross margins, & pasture/forage
of animals,
forage, & feed
Dairy
Insurance for livestock prices,
Margin Protection Program Payment for loss
gross margins, & pasture/forage
(milk price minus feed costs)
of animals,
forage, & feed
Projected ave. annual cost
$9.1 billion
$4.7 billion
$0.3 billion
Source: CRS Report IF00025, Overview of Farm Safety Net Programs (In Focus); costs from CBO.
Notes: Nonrecourse loans (for cash flow and low-price protection) also are available for extra-long staple
cotton, wool, mohair, and honey. Emergency loans in disaster-declared counties are not commodity-specific.
Uses CBO estimates for FY2016-FY2025 as of January 2015; projections are sensitive to market changes.
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Federal Crop Insurance1
Federal crop insurance often is referred to as the centerpiece of the farm safety net because of its
broad scope and cost. The program makes available subsidized insurance for more than 130
commodities to help farmers manage financial risks associated with a loss in yield or crop
revenue. Insurable causes of loss include adverse weather such as drought and excess rain. A
distinguishing feature is that guarantees are based on market prices and not on statutory
minimums, as provided in farm commodity programs. Program cost was projected by the
Congressional Budget Office (CBO) in January 2015 to total $9.1 billion per year during
FY2016-FY2025, about twice the level of farm commodity programs.
Insurable commodities include major field crops such as wheat, corn, soybeans, cotton, peanuts,
and rice, as well as many specialty crops (including fruit, tree nut, vegetable, and nursery crops),
pasture, rangeland, forage crops, and livestock (prices and operating margins). Policies cover
more than 250 million acres nationwide. For major crops, three-fourths or more of U.S. planted
acreage is insured under the federal crop insurance program. Producers who grow a crop not
covered by crop insurance can purchase coverage through the Noninsured Crop Disaster
Assistance Program (NAP).
The program is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C.
§1501 et seq.). The Federal Crop Insurance Corporation (FCIC) was created as a wholly owned
government corporation in 1938 to carry out the program. The program is a partnership between
U.S. Department of Agriculture’s Risk Management Agency (RMA) and private industry. RMA
approves and supports products, develops and approves the premium rates, administers premium
subsidies, reimburses private companies for their administrative and operating costs (i.e., delivery
costs for selling and servicing the policies), and reinsures company losses. Producer premium
subsidies account for three-fourths of total federal crop insurance costs.
Farmers annually purchase about 1.2 million policies, with many producers purchasing multiple
policies depending on the number of crops grown and other factors. Policies protect against
individual farm losses in yield, crop revenue, or whole farm revenue. Area-wide policies are
available for some crops, whereby an indemnity is paid when there is an overall loss over a broad
geographic area (e.g., county). For some policies, the revenue guarantee can increase if the
harvest price is higher than the expected price calculated in the springtime prior to planting,
thereby increasing the point at which indemnities are triggered.
In practice, the producer selects a coverage level and absorbs the initial loss through the
deductible. For example, a coverage level of 70% has a 30% deductible (for a total equal to 100%
of the expected value prior to planting the crop); in this case an indemnity is made for losses
exceeding 30%. The producer pays a portion of the premium, and the federal government pays
the rest of the premium—62%, on average, in 2014—plus covers the cost of selling and servicing
the policies. This differs from farm commodity programs (see “Farm Commodity Programs,”
below), which require no participation fees. Also unlike farm commodity programs, crop
insurance has no subsidy limits, and participants can be eligible regardless of income levels.
1 For more information, see CRS Report R40532, Federal Crop Insurance: Background, and CRS Report R43494,
Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
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Farm Commodity Programs2
USDA farm commodity programs historically represented the heart of U.S. farm policy, by virtue
of their long history (dating back to the 1930s) and because price and income support is based
primarily on statutorily fixed prices and not market prices (as in crop insurance), which can be
quite low in some years. Program costs were projected in January 2015 by CBO at about $4.7
billion per year over FY2016-FY2025. Funding is provided through the Commodity Credit
Corporation (CCC), USDA’s program financing mechanism. USDA’s Farm Service Agency
(FSA) delivers CCC-funded commodity program benefits through a network of local (“county”)
offices overseen by committees of elected farmers.
The statutory authority underpinning USDA-CCC programs is provided mainly by three
permanent laws: the Agricultural Adjustment Act of 1938 (P.L. 75-430), the Agricultural Act of
1949 (P.L. 81-439), and the CCC Charter Act of 1948 (P.L. 80-806). Congress frequently alters or
suspends provisions of these laws through omnibus, multi-year farm bills. The most recent
omnibus farm law is the Agricultural Act of 2014 (P.L. 113-79). This law is effective for the
2014-2018 crop years. To reduce the deficit and pay for changes to federal crop insurance and
farm commodity programs, Congress eliminated fixed decoupled or “direct” payments that had
been in place since the 1996 farm bill and were not triggered by declining prices or a farm loss.
The 2014 farm bill requires USDA to offer farm commodity support, including minimum prices,
for wheat, feed grains (corn, sorghum, barley, oats), cotton (upland and extra-long staple—ELS),
rice, soybeans, other oilseeds (sunflower seed, rapeseed, canola, safflower, flaxseed, mustard
seed, crambe, and sesame seed), peanuts, refined beet and raw cane sugar, wool, mohair, honey,
dry peas, lentils, and chickpeas. The mix of supported crops reflects historical policy goals and
compromises. The most recent additions were pulse crops (dry peas, lentils, chickpeas) in 2002.
Covered Commodities: Wheat, Feed Grains, Rice, Peanuts, Soybeans, Other Oilseeds, Dry
Peas, Lentils, and Chickpeas. For each “covered commodity” in the 2014 farm bill, eligible
producers (those with past production histories for these crops) have a one-time choice between
Price Loss Coverage (PLC) payments and Agriculture Risk Coverage (ARC) payments,
depending on their preference for protection against a decline in either (a) crop prices or (b) crop
revenue.3 PLC payments make up the difference between the crop’s average market price and its
statutory “reference price” (see Table 2), while ARC payments make up the difference between a
county revenue guarantee (based on five-year average crop prices or statutory minimums) and
actual crop revenue. Payments to a producer are paid on 85% of the farm’s acreage history (i.e.,
“base”). Rather than selecting between PLC and the county ARC guarantee for each covered
commodity, a farmer can select a farm-level “individual” ARC guarantee, which combines all
covered crops into a single, whole-farm revenue guarantee. Payment is based on 65% of acreage
history. In response to a trade dispute with Brazil, upland cotton is no longer a covered
commodity, with support now provided by a new crop insurance policy called the Stacked Income
Protection Plan (STAX) in addition to marketing assistance loans (see below).
2 For more information, see CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79).
3 7 C.F.R. §1412; Commodity Credit Corporation and USDA Farm Service Agency, “Agriculture Risk Coverage and
Price,” 79 Federal Register 57703-57721, September 26, 2014. For program purposes, producers/landowners can
reallocate base acres and update yields between September 29, 2014, and February 27, 2015. They can make the
PLC/ARC program choice between November 17, 2014, and March 31, 2015. Decision tools are available at
http://www.fsa.usda.gov/FSA/webapp?area=home&subject=arpl&topic=landing.
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Table 2. Reference Prices and Loan Rates in the 2014 Farm Bill
Crop
Reference Price
Loan Rate
Crop
Reference Price
Loan Rate
Wheat, $/bu
5.50
2.94
Peanuts, $/ton
535
355
Corn, $/bu
3.70
1.95
Peas, dry, $/cwt
11.00
5.40
Sorghum, $/bu
3.95
1.95
Lentils, $/cwt
19.97
11.28
Barley, $/bu
4.95
1.95
Sm.chickpeas, $/cwt
19.04
7.43
Oats, $/bu
2.40
1.39
Lg.chickpeas, $/cwt
21.54
11.28
Upland Cotton, $/lb
n.a.
0.45 to 0.52
Wool, graded, $/lb
n.a.
1.15
ELS Cotton, $/lb
n.a.
0.7977
Wool, nongraded
n.a.
0.40
Rice, long grain $/cwt
14.00
6.50
Mohair $/lb
n.a.
4.20
Rice, med. grain $/cwt
14.00; 16.10 for
6.50
Honey,
$/lb
n.a.
0.69
temperate japonica
Soybeans, $/bu
8.40
5.00
Sugar, raw cane, $/lb
n.a.
0.1875
Minor oilseeds, $/lb
0.2015
0.1009
Sugar, refined beet, $/lb
n.a.
0.2409
Source: CRS from 2014 farm bill (P.L. 113-79).
Notes: n.a. = not applicable. Crops with reference prices are called “covered commodities.” Minor oilseeds
include sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, and sesame seed.
Unlike federal crop insurance, producers do not pay to participate in these programs. Payment
recipients can plant any combination of crops on their land, but conservation rules must be
followed. The Appendix contains graphical illustrations and numeric examples of PLC and ARC.
Producers, regardless of whether they receive the above payments, also are eligible for
nonrecourse marketing assistance loans and loan deficiency payments, which provide cash flow
and additional price protection at statutory minimum prices. (See Table 2 for loan rates.) To
qualify, a farmer pledges the stored crop as collateral. Nonrecourse loans generally must be repaid
with interest within nine months or else the producer forfeits the pledged commodity to the
government, which has “no recourse” other than to accept it in lieu of money. However, two
features are intended to help avert forfeitures and subsequent buildup of CCC-owned surpluses.
First, the “marketing loan” feature enables the farmer to repay the loan at a USDA-calculated rate
approximating market prices. If that repayment rate is below the loan rate, the farmer captures the
difference as a subsidy (marketing loan gain). Loan deficiency payments (equal to marketing loan
gains) also are available to eligible producers who choose not to take out a crop loan.
Upland Cotton, ELS Cotton, Wool, Mohair, Honey. These commodities are not eligible for
PLC/ARC payments, but producers can receive nonrecourse marketing assistance loans and
(except for ELS cotton) loan deficiency payments.
Payment Limits and Adjusted Gross Income Eligibility. Farm commodity program benefits
(except for “gains” from loan forfeitures) are subject to a combined payment limit of $125,000
per person, with an additional separate limit of $125,000 for peanuts. Also, the income limit per
person for program eligibility is $900,000 of adjusted gross income (three-year average). The
dollar amounts double for a married couple. Finally, persons must be “actively engaged” in
farming. With benefits from forfeited loans not counted against the payment limit, potential 2014-
crop payments for PLC/ARC have generated concerns that loans for cotton and other crops could
be forfeited, resulting in government stock build-up, if producers approach the $125,000 limit.
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Sugar. A combination of import quotas, nonrecourse loans, and marketing allotments (to limit
sales by processors) is intended to support prices at 18.75¢/lb. (raw cane) and 24.09¢/lb. (refined
beet), and at no net cost to the government. A sugar-to-ethanol (feedstock flexibility) backstop is
available if allotments and import quotas fail to keep market prices above guaranteed levels.4
Milk. Dairy producers are eligible for the Margin Protection Program (MPP), which makes
payments when the national margin (average farm price of milk minus an average feed cost
ration) falls below a producer-selected margin ranging from $4.00 per hundredweight (cwt.) to
$8.00/cwt. Participating producers pay premiums for margin coverage above $4.00/cwt. To assist
small farms, lower premiums are charged for the first 4 million pounds of annual output
(approximately 170 cows), while higher premiums are charged on amounts above 4 million lbs. A
25% discount on premiums is available for 2014 and 2015 on coverages below $8.00/cwt.5
Agricultural Disaster Assistance6
The 2014 farm bill permanently authorized three disaster programs for livestock and one for
orchards and vineyards. Nearly all parts of the U.S. farm sector now are covered by either a
disaster program or federal crop insurance, which is expected to reduce calls for ad hoc federal
assistance. CBO estimates annual outlays at $257 million per year for FY2016-FY2025. The
programs are retroactive, and producer payments as of January 2015 totaled more than $4.4
billion for losses in FY2012-FY2014. The programs are:
1. Livestock Indemnity Program (LIP), which provides payments to eligible
livestock owners and contract growers at a rate of 75% of market value for
livestock deaths in excess of normal mortality caused by adverse weather;
2. Livestock Forage Disaster Program (LFP), which makes payments to eligible
livestock producers who have suffered grazing losses on drought-affected pasture
or grazing land, or on rangeland managed by a federal agency due to fire;
3. Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish
Program (ELAP), which provides payments (capped at $20 million per year) to
producers of livestock, honey bees, and farm-raised fish as compensation for
losses due to disease, adverse weather, and feed or water shortages; and
4. Tree Assistance Program (TAP), which makes payments to orchardists/nursery
tree growers for losses in excess of 15% to replant trees, bushes, and vines
damaged by natural disasters.
The programs do not require a disaster declaration, and producers do not pay a fee to participate.
For individual producers, combined payments under all programs except TAP may not exceed
$125,000 per year. For TAP, a separate limit of $125,000 per year applies. Also, to be eligible for
a payment, a producer’s total adjusted gross income cannot exceed $900,000. Separately, for all
types of farms and ranches, when a county has been declared a disaster area by either the
President or the Secretary of Agriculture, producers in that county may become eligible for low-
4 CRS Report R42535, Sugar Program: The Basics.
5 CRS Report R43465, Dairy Provisions in the 2014 Farm Bill (P.L. 113-79).
6 CRS Report RS21212, Agricultural Disaster Assistance; and CRS Report R42854, Emergency Assistance for
Agricultural Land Rehabilitation.
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.interest emergency disaster (EM) loans. USDA also has several programs that help producers
repair damaged land following natural disasters.
USDA Discretionary Support
In addition to the explicitly required assistance described above, federal law has long given
USDA the discretion to offer support for virtually any farm commodity. For example, USDA
made direct payments to hog producers in 1999 during a period of historically low prices, and to
fruit, vegetable, and nursery plant growers affected by Florida hurricanes in 2004 and 2005. The
most recent emergency farm assistance extended under discretionary authority was in 2010, when
USDA made farm payments for weather-related and other losses to producers of upland cotton,
rice, soybeans, poultry, and aquaculture. Authority and funding for these various activities can
come from CCC (under the CCC Charter Act) and Section 32 (of P.L. 74-320, a 1935 law).
Section 32 permanently appropriates the equivalent of 30% of annual customs receipts to support
the farm sector through a variety of activities. Most of this appropriation (now about $8 billion
per year) is transferred directly to USDA’s child nutrition account to fund school feeding and
other programs. However, Section 32 also provides USDA with a source of discretionary funds,
which in addition to the direct payments above also pays for “emergency removals” of surplus
agricultural commodities, disaster relief, or other unanticipated needs. USDA annually purchases
hundreds of millions of dollars in meats, poultry, fruits, and vegetables under Section 32.
However, in annual appropriations acts since FY2012, Congress has prohibited the use of
appropriated funds to pay for salaries and expenses needed to operate a farm disaster program
under either funding source.7
Historical Policy Discussion
When commodity programs and the federal crop insurance program were first authorized in the
1930s, most of the country’s then 6.8 million farms were diversified and small (by today’s
standards). There was a perceived need to address the severe economic problems faced by this
large segment of rural-based society, where about 25% of the U.S. population resided. Moreover,
it was argued, stabilizing the agricultural sector—through guaranteed minimum farm prices,
income payments to producers, and/or various supply management techniques—would help to
ensure an abundant supply of food and fiber at reasonable prices in the future.
Over the last half century, while farm size and incomes have increased, the perennial challenge of
price and income variability has remained, especially as increased globalization exposed
U.S. agricultural markets to international events. As a result, policy makers have focused
increasingly on risk management rather than traditional price support and supply control. Both
Congress and the Administration sought, for many decades, to steer price and income support
programs onto a more “market-oriented” course, so that the private market rather than the
government would provide economic rewards for production agriculture. And since 1980, to
reduce the potential for ad hoc disaster assistance and provide producers with risk management
7 For more information, see CRS Report RL34081, Farm and Food Support Under USDA’s Section 32 Program.
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tools, the federal crop insurance program has been enhanced for producers multiple times by
increasing subsidy rates and broadening coverage.
Most recently, Congress passed the 2014 farm bill with additional crop insurance options and
higher farm program guarantees (reference prices) designed to trigger payments more often than
under previous law. Funding was accomplished by eliminating direct payments that had been
made annually to eligible farmland owners since 1996 but played no role in managing farm risk
because they did not vary with farm prices. Also, as part of the trend toward risk management, the
2014 farm bill’s new dairy program and Agriculture Risk Coverage have insurance-like features
that reimburse farmers when a loss is triggered.
Supporters of the farm safety net contend that the authorized programs protect against price and
market volatility, and provide needed support and/or stability to farmers who otherwise would see
plunging incomes and land values due to unfavorable and unpredictable yields. Critics have long
argued that U.S. commodity-based policies are outdated and transfer too much risk from private
businesses (farms) to the federal government, waste taxpayers’ money, and may be detrimental to
society in general, particularly if policies encourage farming on environmentally sensitive land.
Prospective Issues
Several facets of the current farm safety net might be of interest to the 114th Congress. An initial
focus could be on USDA’s implementation of the farm safety net provisions of the 2014 farm bill
and related issues. Next, potential efforts to find budgetary savings could direct attention to
government expenditures on commodity programs and subsidy levels for federal crop insurance.
Finally, as programs are activated through the five-year life of the 2014 farm bill, Congress might
have interest in the overall design of the farm safety net, including the appropriate level of federal
farm support and how to best deliver it.
Implementation
After enactment of the 2014 farm bill in February 2014, USDA immediately began implementing
the farm safety net provisions. In April 2014, the disaster programs were some of the first 2014
farm bill programs to be implemented. USDA began issuing disaster payments for 2012 and 2013
losses shortly thereafter. Later in 2014, regulations were published for new commodity programs
and crop insurance changes.8 The following issues are likely of interest to Congress.
PLC/ARC Farm Program Selection by Producers
Farm program signup involves a series of decisions and deadlines for farmers. The first is the
decision for base and program yields, with a deadline of February 27, 2015. Owners of farms
have a one-time opportunity to (1) maintain the farm’s 2013 base acres of covered commodities
through 2018 or (2) reallocate base acres among those covered commodities planted on the farm
at any time during the 2009-2012 crop years. In addition, participants can update their program
payment yields (equal to 90% of the 2008-2012 average yield for the farm). The second deadline
8 The department summarizes activities related to 2014 farm bill implementation at http://www.usda.gov/wps/portal/
usda/usdahome?contentid=progress-2014-farm-bill.html.
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(March 31, 2015) is the program choice, whereby farm owners and operators have a one-time
opportunity to select between PLC, ARC-County Coverage, and ARC-Individual. The final step
is for a producer to enroll the farm by signing a contract (expected by summer 2015).
USDA’s Farm Service Agency and its Extension Service, along with land grant universities, have
been providing farmers with information for making farm program decisions.9 Farmers can use
decisions tools (developed with funding from the 2014 farm bill) to sift through the program
choices, which requires collection of farm data and analysis including projections for farm prices
through 2018. Farmers will likely consider their options based on maximizing potential
government payments and/or protecting again low revenue or prices over the five-year period
covered by the farm bill. With a choice of several options (farmers can pick PLC for one crop and
ARC-County for another crop, or ARC-Individual for a guarantee that combines all crops),
producers can tailor the program to their individual farms. However, upfront decisions are
required, and some farmers may not be happy with their choice in the future if their program does
not activate during difficult financial times and the alternative does.
Timing of Farm Program Payments
Under the 2014 farm bill, farm program payments are delivered about one year (or more) after
farmers harvest the crop. For example, any payments associated with corn planted in spring of
2014 and harvested in fall 2014 do not arrive until October 2015 at the earliest (i.e., FY2016).
The delay in payments helped reduce the “budget score” of the farm bill by shifting one year of
payments outside the 10-year budget scoring window.
This timing of program payments is significantly later than under the 2008 farm bill when partial
payments were made available prior to planting (except for winter wheat), with the remainder
delivered shortly after harvest. The old schedule helped farmers with cashflow needs, including
paying for their production costs (e.g., seed, fertilizer). Some policy observers and lenders are
concerned that farmers might have a cashflow during low-price years. Bankers may need to fill
the gaps with additional loans and cropping decisions might be affected (e.g., farmers shift to
crops with lower input costs). As an alternative, farmers might make greater use of the marketing
assistance loan program, which was reauthorized by the 2014 farm bill and is designed to help
with farm cashflow by using crops as collateral for a loan.
“Actively Engaged” Rule
To be eligible for payments, persons must be “actively engaged” in farming. Actively engaged, in
general, is defined as making a significant contribution of (i) capital, equipment or land, and (ii)
personal labor or active personal management. Also, profits are to be commensurate with the
level of contributions, and contributions must be at risk. Legal entities can be actively engaged if
members collectively contribute personal labor or active personal management. Special classes
allow landowners to be considered actively engaged if they receive income based on the farm’s
operating results, without providing labor or management. Under the 2008 farm bill, both spouses
were considered actively engaged if only one met the qualification, allowing payment limits to be
doubled.
9 For more information, see USDA/Farm Service Agency, http://www.fsa.usda.gov/FSA/webapp?area=home&subject=
arpl&topic=landing.
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Farm Safety Net Programs: Background and Issues
The 2014 farm bill instructs USDA to write regulations that define “significant contribution of
active personal management” to more clearly and objectively implement existing law. The
regulation is to apply beginning with the 2015 crop year, and entities made solely of family
members are to be exempt from the new regulation. This final provision differs from earlier
Senate-passed and House-passed versions of the 2014 farm bill, which would have deleted
“active personal management” and effectively required personal labor in the farming operation.
The final 2014 farm bill provision instructs USDA to consider different limits for varying types of
farming operations, based on considerations of size, nature, and management requirements of
different farming types; changes in the nature of active personal management due to
advancements in farming practices; and the impact of this regulation on the long-term viability of
farming operations. As of early February 2015, USDA had not yet released the preliminary rule
on the actively engaged provision.
Implementing SCO and STAX for Upland Cotton
For a typical federal crop insurance policy, an indemnity is triggered when the farm yield (or
revenue) is below the policy guarantee, and the size of the indemnity is determined in part by the
amount of coverage purchased by the producer. As provided under the 2014 farm bill, and to help
cover the deductible (out-of-pocket or “shallow” loss) absorbed by the farmer on the underlying
policy, farmers can now purchase a second policy on the same acreage, called Supplemental
Coverage Option (SCO). The SCO indemnity is triggered when there is a county-level loss in
yield or revenue (not an individual farm loss). A similar policy was made available for upland
cotton called Stacked Income Protection (STAX), which is a revenue-based, area-wide crop
insurance policy that may be purchased as a stand-alone policy for primary coverage or purchased
in tandem with an underlying policy.10 Premiums are subsidized at 65% for SCO and 80% for
STAX.
Beginning with the 2015 crop year, SCO is available in select counties for spring barley, corn,
soybeans, wheat, sorghum, cotton, and rice.11 Beginning with the 2016 crop year, USDA expects
to make greater use of crop insurance data to expand SCO coverage into more areas and more
crops as the program continues.
Farmers who normally purchase relatively low levels of coverage (which are more affordable)
might be most attracted to SCO, as it could help cover a larger portion of the farmer’s out-of-
pocket loss (deductible). Proponents argue that these farmers are usually in the higher risk areas
and need additional assistance through SCO to deal with the additional risk. Critics argue that
these policies provide an excessive amount of support for crops in risky areas or can indemnify
producers when there is no farm loss. Separately, a concern for some farm policy makers is that
because the policies are triggered by area-wide losses and not farm losses, farmers may not be
adequately covered if they suffer a loss on their farm but there was not a sufficient loss at the
county level to trigger an indemnity. These issues might capture the attention of policy makers
after producers have some experience with these policies.
10 STAX was sought by U.S. cotton producers in an attempt to resolve a long-running trade dispute with Brazil that
requires changing the U.S. cotton support program so it does not distort international markets.
11 USDA, Risk Management Agency, Supplemental Coverage Option for Federal Crop Insurance, October 2014,
http://www.rma.usda.gov/news/currentissues/farmbill/2014NationalSupplementalCoverageOption.pdf. See also CRS
Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
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Actual Production History (APH) for Crop Insurance
In recent years, a particular crop insurance concern of producers affected by prolonged drought in
the Southern Plains has been the inclusion of poor yields used to establish an individual’s
insurance guarantee, which is based on 4 to 10 years of historical farm yields and called actual
production history (APH). To address this, the 2014 farm bill allows a producer to exclude years
with low yields from his or her APH calculation when the average county yield is less than 50%
of the 10-year county average. The farm bill manager’s report directed USDA to implement the
provision for 2015 crops. Given program complexity and significant data requirements, USDA
first indicated that it would not do so until 2016, prompting some Members to press for an earlier
rollout. On October 21, 2014, USDA announced it would implement the provision for crops
planted in spring 2015 (but not wheat planted in fall 2014). Some Members had pushed for
extending benefits retroactively to wheat planted in fall 2014, which USDA declined to do.
Additional Crop Insurance Provisions
The 2014 farm bill enacted several provisions to address specific concerns for fruit and vegetable
producers, including whole farm insurance. In November 2014, USDA announced the availability
of a revised Whole-Farm Revenue Protection plan of insurance, which offers higher levels of
coverage and other features designed to enhance the safety net for fruit and vegetable producers
and others with limited availability of traditional federal crop insurance products. The 114th
Congress is expected to monitor the experiences of these producers during 2015.
Members also will likely await the results of number of studies required by the farm bill to
explore potential products for additional commodities. The 2014 farm bill directs FCIC to study a
variety of topics that could lead to additional insurance policies for animal agriculture. FCIC is
required to enter into contracts to conduct research and development on policies for the margin
between the market value of catfish and input costs and poultry business interruption insurance
for poultry growers, including losses due to bankruptcy of an integrator (owner-processor). FCIC
also is required to contract for separate studies on insuring swine producers and poultry producers
for a catastrophic event.
More information on other provisions in the 2014 farm bill is available in CRS Report R43494,
Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
Agricultural Disaster Payments
Given significant drought conditions in parts of the Great Plains in recent years, the Livestock
Forage Program (LFP), as modified in the 2014 farm bill to provide retroactive payments for
losses back to FY2012, has delivered to date the largest amount of farm safety net payments.
Program payments totaled $2.9 billion in FY2014 and are projected by CBO to total $1.4 billion
in FY2015. There is no cap on LFP payments. Smaller amounts have been delivered to other
disaster programs: the Livestock Indemnity Program ($62 million in FY2014) and Tree
Assistance Program ($7 million in FY2014). For the Emergency Assistance for Livestock, Honey
Bees, and Farm-Raised Fish Program (ELAP), annual payments are capped at $20 million, and
individual farm payments for both FY2012 and FY2013 were adjusted downward in order for the
total to fit under the cap. At the time of farm bill enactment, the CBO score for total disaster
payments expected in FY2014 and FY2015 was $1.3 billion.
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With relatively large LFP outlays under the 2014 farm bill, Congress might be interested in the
payment process for LFP. USDA’s Office of Inspector General (OIG) reviewed the program under
the 2008 farm bill, and in December 2014 found that the Farm Service Agency (FSA) had made
administrative errors when processing certain LFP applications, resulting in improper payments
for some applications.12 The OIG identified areas needing attention, including improved guidance
for local FSA offices when calculating and making payments and improved internal reviews for
producer eligibility and payment accuracy.
Government Outlays and Policy Issues
With ongoing congressional concern for budget deficits and federal spending, the combined cost
of farm programs, crop insurance, and disaster programs is expected to garner the attention of
policy makers who want to reduce federal spending in the 114th Congress. Several additional
aspects of the farm safety net might be examined, including “generic” base acres and crop
insurance subsidies.
Potential for Higher Farm Program Outlays
Record corn and soybean yields in 2014 has put downward pressure on farm prices, pushing
government outlays for the farm commodity programs for 2014 crops above earlier expectations.
In January 2015, CBO estimated the cost of PLC/ARC for FY2016 (associated with crops
harvested in 2014) at $4.4 billion, up from $3.8 billion that was calculated in January 2014 based
on stronger market assumptions. USDA expects even higher FY2016 outlays, estimated at $6.7
billion. The five-year program costs could rise substantially as well, if the price of corn remains
below $4 per bushel through 2018, as expected by CBO, USDA, and others. Corn generates the
greatest outlays among program crops, and its price correlates with other crop prices. To offset
the projected higher farm program costs, the Administration proposed in its FY2016 budget a
reduction in crop insurance subsidies (see “Crop Insurance Subsidies” below).
Lower expected farm prices are significant for program outlays because the 2014 farm bill
increased program payment triggers (reference prices) for covered commodities (see list in Table
2). The additional price protection will trigger payments (generating outlays) more quickly than
under the 2008 farm bill, but farm programs were designed to provide financial cover for
producers until crop prices rebound and incomes rise. Proponents of farm spending also point out
that weak prices likely will have the opposite effect for federal crop insurance (i.e., reducing
prospective outlays) because policy premiums (and the premium subsidy) typically decline in
tandem with falling farm prices (lower prices means lower liability and premiums).
A broader policy concern is that prospective payments could help maintain overall crop
production when low prices would otherwise discourage farmers from planting or applying
additional inputs. Larger supplies could intensify the price pressure and further increase
government costs. Several program features, however, are designed to minimize any adverse
production effect. The first is that farm payments are made only on historical base acreage and
not current year plantings (except for generic base—see below). In other words, farmers would
receive the payment, if triggered by low prices or revenue, regardless of how much acreage is
12 USDA Office of Inspector General, Farm Service Agency Livestock Forage Program, Audit Report 03702-0001-32,
December 2014, http://www.usda.gov/oig/webdocs/03702-0001-32.pdf.
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planted. Moreover, payment is made only on a portion of base (85% in the case of PLC and ARC-
County and 65% for ARC-Individual). Finally, the ARC formula limits the potential production
effects if farm prices were to remain low for several years. That is, the ARC guarantee declines as
older, higher prices (from recent years) fall out of the five-year moving average guarantee, at least
until farm prices decline to the reference price, which serves as the minimum price in the ARC
guarantee. In contrast, the PLC guarantee is the reference price, which remains fixed in statute.
The fixed nature of the reference prices has potential to lock in farm payments for an extended
period of time if, for particular crops, the average farm price remains below the reference price.
For example, the average farm price for peanuts is projected by CBO to average between $0.2039
per pound and $0.2150 per pound for crop years 2014-2018, compared with a reference price of
$0.2675 per pound. Farm program outlays for peanuts are expected to be triggered each year of
the farm bill, with outlays projected by CBO to exceed $190 million per year.
“Generic” Base Acres
As mentioned above, to reduce the potential for excess production and subsequent market
distortions, the 2014 farm bill continues to “decouple” farm payments from actual plantings by
instead making PLC/ARC payments on a farm’s historical “base acres.” Each farm has crop-
specific bases equal to historical planted acreage on that farm. Also, as part of a package to
address a long-term trade dispute, the 2014 farm bill excluded upland cotton from PLC/ARC and
renamed upland cotton base (totaling 17.5 million acres) as “generic” base. Generic base becomes
eligible for program payments if a covered crop is planted on the farm. Thus, generic base is an
exception to the broad decoupling of plantings and farm program payments. (The precursor to
ARC, called “ACRE,” also tied government payments to same-year plantings.) The domestic and
trade policy concern is that farmers with generic base might pursue potential farm program
payments by planting certain covered crops in low-price years (see “WTO Trade Concerns”
below). For example, producers with generic base might have an economic incentive to plant
additional peanuts if the combination of expected payments and market returns is greater for
peanuts than for alternative crops (see Table A-3).
Crop Insurance Subsidies
To offset higher farm program outlays given lower expected farm prices, the Administration’s
FY2016 budget proposes two changes to the federal crop insurance program, which would reduce
outlays by a combined $16 billion over 10 years.13 The first proposal would reduce premium
subsidies by 10 percentage points for policies providing revenue protection with “harvest price
coverage” (crops include wheat, corn, soybeans and others with guarantees set by USDA using
the futures market). The current subsidy ranges between 38% and 80%, depending upon the
coverage (deductible) purchased by the producer. The guarantee for this type of coverage
increases if harvest-time price is higher than the initial guarantee established prior to planting.
The Administration and others argue that such “up-side” price protection does not need to be
subsidized by the government. The second proposal would change “prevented planting
coverage,” which indemnifies producers when crops cannot be planted for weather reasons. The
changes include adjusted payment rates and lower yield guarantees.
13 USDA, FY2016 Budget Summary and Annual Performance Plan, February 2015, http://www.obpa.usda.gov/
budsum/fy16budsum.pdf.
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Leaders of the House and Senate Agriculture Committees criticized the Administration’s
proposal. House Agriculture Committee Chairman Mike Conaway said the cuts “would
jeopardize the ability of producers to insure their crops in a climate of collapsing crop prices,
major crop losses, and falling farm income.”14 Senate Agriculture Committee Chairman Pat
Roberts said the proposal “ignores the concerns of the nation’s farmers and ranchers.”15
WTO Trade Concerns
The enacted 2014 farm bill (P.L. 113-79) could result in potential compliance issues for U.S. farm
policy with the rules and spending limits for domestic support programs that the United States
agreed to as part of the World Trade Organization’s (WTO's) Uruguay Round Agreement on
Agriculture (AoA). In general, the act’s new farm safety net shifts support away from
classification under the WTO’s green/amber boxes and toward the blue/amber boxes, indicating a
potentially more market-distorting U.S. farm policy regime. The most notable safety net change is
the elimination of the $5-billion-per-year direct payment program, which was decoupled from
producer planting decisions and was notified as a minimally trade-distorting green box outlay.
Direct payments were replaced by programs that are partially coupled (PLC and ARC) or fully
coupled (SCO and STAX), meaning that they could potentially have a significant impact on
producer planting decisions, depending on market conditions. Because the United States plays
such a prominent role in most international markets for agricultural products, any distortion
resulting from U.S. policy would be both visible and vulnerable to challenge under WTO rules.
For more, see CRS Report R43817, 2014 Farm Bill Provisions and WTO Compliance.
Design of Overall Farm Safety Net
Challenges for farm policy makers over the years have included the complexity of the farm safety
net, the development of programs with similar but not identical objectives and payment
mechanisms, and the potential for different programs to make payments for the same loss.16 For
example, the current farm safety net for “covered” commodities has several variations of
“counter-cyclical-style” payments, including marketing loan benefits, traditional price payments
(PLC), and revenue payments (ARC-County Coverage). All three focus to some extent on price
declines. Farmers can also add “revenue protection” crop insurance for individual farm yield (and
revenue) risk, but without minimum prices used in farm programs. (See Figure A-3 for the
interaction of crop insurance and farm programs.) Proponents say the options are necessary
because “one program doesn’t fit all producers and regions,” while others believe that a
simplified approach might be more effective and less expensive, with savings used for purposes
that generate broad societal gains, such as investment in agricultural research or transportation
infrastructure.
14 Mike Conaway, “Chairman Conaway Responds to President Obama’s FY2016 Budget Proposal,” press release,
February 2, 2015, http://agriculture.house.gov/press-release/chairman-conaway-responds-president-
obama%E2%80%99s-FY2016-budget-proposal.
15 Senator Pat Roberts, “Senate Ag Committee Chairman Roberts Responds to President’s Budget Proposal,” press
release, February 2, 2015, http://www.ag.senate.gov/newsroom/press/release/senate-ag-committee-chairman-roberts-
responds-to-presidents-budget-proposal.
16 For background and analysis on program overlap, see Erik J. O'Donoghue et al., Identifying Overlap in the Farm
Safety Net, USDA Economic Research Service, Economic Information Bulletin Number 87, November 2011,
http://www.ers.usda.gov/media/149262/eib87_1_.pdf.
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Appendix. Farm Commodity Program Examples
The 2014 farm bill (P.L. 113-79) established commodity programs that make farm payments
when either annual crop prices or revenues are below statutory reference prices or historical
revenue guarantees. Producers have a one-time choice:
• For each covered crop on each farm,
• Price Loss Coverage (PLC), or
• Agriculture Risk Coverage-County (ARC-CO)
• Or, for all covered crops on each farm,
• Agriculture Risk Coverage-Individual (ARC-Individual)
PLC is illustrated in Figure A-1 and ARC-CO is illustrated in Figure A-2.
Hypothetical numeric examples in the following tables illustrate several types of farms and how
farm commodity programs might trigger payments given 2014 farm bill parameters.
• Table A-1: Corn/Soybean farmer selects PLC for corn and ARC for soybeans
• Table A-2: Wheat/Lentil farmer selects ARC-Individual for the entire farm
• Table A-3: Peanut/Cotton farmer selects PLC for peanuts, with generic base
(formerly upland cotton base) attributed to same-year peanut planted acreage
In addition to farm commodity programs, producers who purchase federally subsidized crop
insurance may also be eligible for an indemnity if price and yield conditions specified in the
policy are triggered. The 2014 farm bill made available a second federal crop insurance policy
called the Supplemental Coverage Option (SCO) to cover part of the deductible on the underlying
policy. (Note: SCO cannot be purchased for commodities enrolled in ARC.) For farm examples of
crop insurance, see CRS Report R40532, Federal Crop Insurance: Background.
Figure A-3 illustrates the interaction between crop insurance and farm programs. 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). If the farmer selects PLC, an
SCO policy can be purchased to cover part of the deductible (see PLC column). If a farm loss
occurs, an initial indemnity is triggered under the farmer’s individual crop insurance policy
(depicted by the green box). A second indemnity from SCO would be paid (blue box) if there is
also a loss at the county level. Overall, the farmer incurs a loss of approximately 14% (white box
at top). A separate PLC payment (not shown) is made if the farm price is below the reference
price. In contrast, if ARC is selected rather than PLC (see ARC column), the farm is not eligible
for SCO and only an ARC payment (red box) and insurance indemnity (green box) would be
made if triggered.
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Figure A-1. Price Loss Coverage (PLC)
(makes payment when national average farm price drops below the reference price)
Payment Calculation
Reference Price
Farm Payment =
Per-bushel difference
Actual Price
times base acres
times 85%
Price set in
times farm program yield
statute
national
average
farm price
Source: CRS.
Notes: In a declining market, the per-bushel payment rate increases until the farm price drops below the loan
rate. At this point, benefits under the Marketing Assistance Loan Program may become available.
Figure A-2. Agriculture Risk Coverage (ARC)–County Coverage
(payment when actual county-wide revenue drops below 86% of historical revenue [“shallow loss”])
Payment Calculation
County Revenue Guarantee
Farm Payment =
5-year
average
Per-acre difference
Actual Revenue
national farm
times base acres
price
times 85%
Benchmark
national
Revenue
times
farm price
Max. per-acre payment is 10%
of benchmark revenue.
5-year
county
times
average yield
actual yield
times
86%
Source: CRS.
Notes: Five-year averages exclude high and low years. Instead of an ARC county guarantee on a crop-by-crop
basis, farmers can select a farm-level guarantee for all covered crops on a farm. Payment acreage is reduced to
65% of base acres, and a single, whole farm guarantee (and payment) is calculated as a weighted average for all
crops (i.e., not on a crop-by-crop basis).
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Figure A-3. Crop Insurance and Farm Commodity Programs
Source: CRS.
Notes: Does not show PLC payment, which is made when the average farm price is less than the reference
prices set in the farm bill. Program selection deadline: March 31, 2015.
Table A-1. Hypothetical Corn/Soybean Farm in 2014
(farmer selects Price Loss Coverage (PLC) for corn and Ag. Risk Coverage (ARC) for soybeans)
Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
Price Loss Coverage (PLC) for corn: payment occurs when actual farm price ($3.40/bu.) is below reference price ($3.70/bu.)
Corn
Payment =
Payment =
Corn
payment =
Reference Price = $3.70/bu.
(Reference Price - Actual Price)
($3.70/bu. - $3.40/bu.)
$12,750
2014 Actual Price = $3.40/bu.
x Base Acres
x 500 acres x 85%
Farm Base = 500 acres
x 85% acreage factor
x 100 bushels/acre
Farm Program Yield =
x Program Yield
= $12,750
100 bu./acre
Agriculture Risk Coverage – County (ARC) for soybeans: payment occurs when actual county revenue ($/acre) is below guarantee
Soybeans
Benchmark Revenue =
Average yield and price calculations
County
Nat’l
5-year “Olympic” average county yield
Average yield =
yield
price
x
(38 + 40 + 42 ) / 3
bu./acre
per bu.
2009
36
$9.59
5-year “Olympic” average national
= 40 bu./acre
price
Average price =
2010 38 $11.30
($11.30 + $12.50 +$13.00) / 3
2011 40 $12.50
The “Olympic” averages exclude the
= $12.27/bu.
2012 42 $14.40
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Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
2013
44
$13.00
high and the low years (in italics at
Benchmark Revenue =
left).
Data in italics are not used in
$40 bu./acre
calculation.
x
$12.27/bu. =
$491/acre
Revenue Guarantee =
Revenue Guarantee =
Benchmark Revenue x 86% guarantee
$491/acre x 86%
factor
= $422/acre
2014 county yield = 40 bu./ac
2014 Actual Revenue =
2014 Actual Revenue =
2014 nat’l price = $10.00 /bu.
county yield x national price
40 bu./acre x $10.00/bu.
= $400/acre
Farm Base (soybeans) = 500
Payment =
Payment =
Soybean
acres
payment =
(Revenue Guarantee - Actual
($422/acre - $400/acre)
Revenue)
$9,350
x 500 acres x 85%
x Base Acres x 85% acreage factor
= $9,350
Total farm payment = PLC for corn + ARC for soybeans
$22,100
Source: CRS, based on statutory provisions of P.L. 113-79, hypothetical data (county yields, farm program
yields, and farm bases), and USDA crop prices (2014 “actual” prices are forecast as of October 10, 2014).
Notes: Statutory parameters include the reference price, the payment acreage factor (85%), and the guarantee
factor for “shal ow losses” (86%). Payments do not depend which crop is actual y planted and are scheduled to
be made in October 2015 after final 2014-crop price and yield data become available. In ARC, reference prices
serve as minimums; maximum payment is 10% of the benchmark revenue. In both PLC and ARC, the loan rate is
used if higher than actual price. Higher prices or yields might not trigger a farm payment for 2014 crops.
Table A-2. Hypothetical Wheat/Lentil Farm in 2014
(farmer selects Agriculture Risk Coverage-Individual for entire farm—wheat and lentils)
Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
Agriculture Risk Coverage – Individual (ARC): payment occurs when actual whole-farm revenue ($/acre) is below whole-farm guarantee
2014 total plantings = 600 acres
2014 Planting Shares:
2014 Planting Shares:
Wheat = 500 acres
Wheat: (2014 wheat plantings /
Wheat: 500 ac. / (500 ac. + 100 ac.)
2014 total plantings)
= 83%
Lentils = 100 acres
Lentils: (2014 lentil plantings /
Lentils: 100 ac. / (500 ac. + 100 ac.)
2014 total plantings)
= 17%
Wheat
Average Revenue Calculations:
Average Revenue Calculations:
Farm
yield
x Nat’l price = Rev.
The “Olympic” averages exclude
Wheat:
bu./acre
per bu.
$/ac. the high and the low revenue years
($217/ac. + $290/ac. + $302/ac.) / 3
(in italics at left)
2009
36
x
$5.50* = $198
= $270/ac.
2010
38
x
$5.70 = $217
2011
40
x
$7.24 = $290
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Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
2012
42
x
$7.77 = $326 Lentils:
2013
44
x
$6.87 = $302
($334/ac. + $275/ac. + $312/ac.) / 3
= $307/ac.
Lentils
Benchmark Revenue =
Benchmark Revenue =
Farm
yield
x Nat’l price = Rev. 5-year “Olympic” average revenue
Wheat: $270/ac. x 83% = $224/ac.
cwt./acre
per cwt.
$/ac.
for wheat
2009
14
x
$26.80 = $375
x wheat 2014 planting share
Lentils: $307/ac. x 17% = $52/ac.
2010
13
x
$25.70 = $334
+
5-year “Olympic” average revenue
Total Benchmark revenue =
2011
11
x
$25.00 = $275
for lentils
$224/ac. + $52/ac.= $276/ac.
2012
12
x
$20.70 = $248
x lentil 2014 planting share
2013
15
x
$20.80 = $312
Data in italics are not used in
Revenue Guarantee =
Revenue Guarantee =
calculation; *reference price of $5.50
Benchmark Revenue x 86%
$276 / acre x 86% = $ 237 / acre
serves as a minimum price for wheat.
guarantee factor
2014 Actual Crop Revenue Data
2014 Actual Revenue =
2014 Actual Revenue =
Farm prod. x Nat’l price = Revenue
Sum of crop revenues divided by
($106,200 + $26,600) / 600 acres
total 2014 planted area
Wheat:18,000 bu. x $5.90 = $106,200
= $221/ac.
Lentils: 1,400 cwt. x $19.00 = $26,600
Total Farm Base = 600 acres
Payment =
Payment =
Farm
payment =
In this case, base acres = total planted
(Revenue Guar. - Actual Revenue)
($237/acre - $221/acre)
$6,240
acres
x Base Acres x 65% acreage factor
x 600 acres x 65% = $6,240
Total farm payment
$6,240
Source: CRS, based on statutory provisions of P.L. 113-79, hypothetical data (acreage and yields), and USDA
crop prices (2014 “actual” prices are forecast as of October 10, 2014).
Notes: Statutory parameters include the reference price, the guarantee (“shallow loss”) factor (86%), and the
payment acreage factor (65%). Payments are scheduled to be made in October 2015 after final 2014-crop price
and yield data become available. Reference prices serve as minimums; maximum payment is 10% of benchmark
revenue. Higher actual prices or yields might not trigger farm payment for 2014 crops.
Table A-3. Hypothetical Peanut/Cotton Farm in 2014
(farmer selects Price Loss Coverage (PLC) for peanuts, with Generic Base attributed to peanuts)
Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
Price Loss Coverage (PLC) for peanuts: payment occurs when actual farm price ($400/ton) is below reference price ($535/ton)
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Farm Safety Net Programs: Background and Issues
Step 1.
Step 2.
Step 3.
Step 4.
Data
Payment Formula
Calculation
Payment
Reference Price = $535/ton
Payment =
Peanut Payment =
Peanut payment =
2014 Actual Price = $400/ton
(Reference Price – Actual Price)
($535/ton - $400/ton)
$34,425
Peanut Base = 200 acres
x Base Acres
x 200 acres
Farm Program Yield = 1.5
x 85% acreage factor
x 85%
tons/acre
x Program Yield
x 1.5 ton/acre
2014 Total Plantings = 300
acres of peanuts
= $34,425
Note: payments do not
depend on same-year
plantings.
Generic Base = 100 acres
For plantings on Generic Base:
Payment on Generic Base =
Payment on Generic Base =
(formerly Upland Cotton
Base)
Payment = same formula as
($535/ton - $400/ton)
$17,213
above but Generic Base acres
Note: payments on Generic
are attributed to a particular
x 100 acres x 85%
Base depend on same-year
covered commodity in
x 1.5 ton/acre
plantings of covered crops.
proportion to actual plantings
for that crop year.
= $17,213
In this case, all Generic Base
(100 acres) are attributed to
peanuts because no other
covered commodity was
planted in 2014.
Total farm payment = PLC for peanuts + PLC for Generic Base (planted/attributed
$51,638
to peanuts)
Source: CRS, based on statutory provisions of P.L. 113-79, hypothetical data (acreage and yields), and USDA
crop prices (2014 “actual” prices are forecast as of October 10, 2014).
Notes: Statutory parameters include the reference price and the payment acreage factor (85%). For each crop
year, generic base acres are attributed to (i.e., temporarily designated as) base acres to a particular covered
commodity base in proportion to that covered crop’s share of total plantings of all covered commodities in that
year. The loan rate is used in the payment calculation if it is higher than the actual price.
Upland cotton is no longer a covered commodity and not eligible for PLC/ARC payments (marketing assistance
loans remain available). Instead it is eligible for a new crop insurance policy called Stacked Income Protection or
STAX (see CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79)). Transition payments
are made for upland cotton for the 2014 crop year, and for 2015 if STAX is not available.
Author Contact Information
Dennis A. Shields
Specialist in Agricultural Policy
dshields@crs.loc.gov, 7-9051
Congressional Research Service
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