Farm Bill Primer: The Farm Safety Net

Farm Bill Primer: The Farm Safety Net

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Updated August 16, 2017
Farm Bill Primer: The Farm Safety Net
The federal “farm safety net” provides risk protection and
seq.) but is periodically modified by new farm bill
financial support to U.S. farmers. The three components of
legislation. It makes available subsidized “multiple peril”
the farm safety net are (1) farm commodity programs, (2)
crop insurance for eligible commodities, which helps
crop insurance, and (3) disaster assistance programs. The
producers manage risks associated with a loss in either
U.S. Department of Agriculture (USDA) administers the
yield or crop revenue depending on the type of policy
farm safety net programs. The 2014 farm bill (Agricultural
selected. Insurable perils include drought, flood, insects or
Act of 2014; P.L. 113-79) revised commodity programs,
disease outbreaks, and crop-specific revenue shortfalls. The
enhanced crop insurance, and retroactively authorized the
policies are sold and serviced by private insurance
four new, permanent disaster programs beginning in
companies. Federal support includes paying a portion (an
FY2012. See Table 1 for program cost estimates by crop
average of 62%) of producer premiums, paying $1.4 billion
year and Table 2 for program details and a list of related
in annual delivery costs, and sharing underwriting risk with
CRS reports. Upland cotton, dairy, and sugar producers
the private insurance companies.
have separate programs, discussed in Table 2.
3. Agricultural Disaster Programs
1. Farm Commodity Programs
Agricultural disaster programs cover livestock producers
and tree fruit producers, who generally do not benefit from
Farm commodity programs provide a floor price and
crop insurance and/or commodity programs. These
income support for eligible commodities and producers.
programs make payments for (1) livestock deaths in excess
They are authorized by periodic farm bills, most recently by
of normal mortality; (2) forage losses related to drought; (3)
the 2014 farm bill for the 2014 to 2018 crop years.
other losses for producers of livestock, honey bees, and
The Market Assistance Loan (MAL) program provides
farm-raised fish; and (4) losses in trees/bushes/vines from
both a floor price and interim financing for so-called loan
which an annual crop is produced. Participation is free. No
commodities. A participating producer may put a harvested
disaster designation is needed for program availability.
“loan” crop under a nine-month, nonrecourse loan valued at
Projected Farm Safety Net Cost
a statutory commodity loan rate. Then the producer has the
option to repay the loan and reclaim the crop if market
Farm safety net outlays are expected to average $13.6
conditions are favorable or select another MAL benefit—
billion per year for crop years 2014 through 2018.
for example, LDP or MLG (see Table 2)—when crop
market prices are below the loan rate.
Table 1. Safety Net Costs, $ Billions, Crop Year
The Agriculture Risk Coverage (ARC) and Price Loss
Program
2014
2015
2016
2017F
2018F
Coverage (PLC) programs provide additional income
MAL
0.4
0.3
0.1
0.1
0.1
support for certain “covered” commodities such as corn,
soybeans, wheat, rice, and peanuts. Producers were given a
ARC
4.5
5.9
3.8
2.9
2.0
one-time choice under the 2014 farm bill of either (1) PLC
PLC
0.8
1.9
3.8
2.9
2.5
or county-level ARC for each “covered” crop or (2)
individual ARC—which covers all crops with a single
Cottona
0.5
0.1
0.4
0.0
0.0
farm-level revenue guarantee. The choice was to last for
2014 through 2018. Participation is free. For both ARC and
MPP (net)b
(0.0)
(0.0)
(0.0)
0.1
0.1
PLC, the payments are decoupled—that is, based on
Crop Ins.
7.8
5.9
3.5
7.0
7.3
historical “base” acres rather than actual production.
Disaster
1.8
0.7
0.5
0.5
0.3
Producers must meet eligibility requirements to participate
in farm programs and are subject to annual payment limits.
Total
15.8
14.8
12.0
13.4
12.3
(For details, see CRS Report R44739, U.S. Farm Program
Source: Realized data for 2014-2016 are from USDA. The
Eligibility and Payment Limits.) Also, as a member of the
Congressional Budget Office’s (CBO) June 2017 baseline data are
World Trade Organization (WTO), the United States has
used for 2016 ARC and PLC outlays and all 2017-2018 projected
committed to abide by WTO rules and disciplines,
outlays. CBO fiscal year data are adjusted by CRS to crop year
including those that govern domestic farm policy. (For
equivalents. For details, see CRS Report R44914, Farm Safety-Net
details, see CRS In Focus IF10192, WTO Disciplines of
Payments Under the 2014 Farm Bill: Comparison by Program Crop.
Domestic Support for Agriculture.)
a. Upland cotton programs (see Table 2).
2. Federal Crop Insurance
b. MPP outlays minus producer-paid premiums.
Federal crop insurance is permanently authorized by the
Federal Crop Insurance Act as amended (7 U.S.C. 1501 et
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Farm Bill Primer: The Farm Safety Net
Table 2. Farm Safety Net Programs
Program
Commodity Coverage
Program Description
Producer Cost
Commodity Programs (Administered by USDA’s Farm Service Agency)
Price Loss Coverage
Covered commodities:
PLC payments are made if the national farm
No participation fee.
(PLC)
wheat, corn, grain sorghum,
price of a “covered” crop is below its statutory

oats, barley, long grain rice,
fixed reference price. PLC payment rate is
or
medium grain rice, pulse crops
capped by difference between reference price
(dry peas, lentils, small
and MAL loan rate. ARC payments are made if

chickpeas, and large
actual revenue is below 86% of a historical five-
Agriculture Risk
chickpeas), soybeans,
year moving average revenue guarantee based
Coverage (ARC )
sunflower seed, rapeseed,
on national prices and county yields. ARC
canola, safflower, flaxseed,
payments are capped at 10% of the revenue
mustard seed, crambe, sesame
guarantee.
seed, and peanuts.
Marketing Assistance Loan commodities: same
Loans provide interim financing at statutory
No participation fee.
Loans (MAL)
crops as for PLC/ARC plus
loan rates. Optional benefits include loan
upland cotton, extra-long
deficiency payments (LDP), marketing loan gains
staple cotton, wool, mohair,
(MLGs), commodity certificate exchanges, or
and honey.
forfeiture.
CTAP, CGCS, and
Upland cotton.
Cotton Transition Assistance Payments
No participation fee.
EAAU
(CTAP), Cotton Ginning Cost-Share Program
(CGCS), and Economic Adjustment Assistance
to Users (EAAU).
Nonrecourse loans,
Refined beet sugar and raw
Minimum price guarantee for processors, limits
No participation fee.
import quotas, and
cane sugar.
on domestic sugar sales for human use, and
Generally, no net federal
marketing
tariff-rate quota protection from imports.
cost.
allotments
Margin Protection
Milk.
MPP payments are made if actual two-month
$100 fee plus statutorily
Program (MPP) and
average margin (milk price minus feed cost) is
fixed premium for
Dairy Product
below producer-selected threshold. Under
coverage selected by
Donation Program
DPDP, USDA buys dairy products for donation
producer.
(DPDP)
to low-income persons when margin is low.
Federal Crop Insurance (Administered by USDA’s Risk Management Agency)
Crop insurance
More than 100 crops,
Indemnities triggered when actual yield or
Premium depends on
policies
including commodity program
revenue falls short of the guarantee set at 50%-
producer-selected
crops (see above), specialty
85% of expected level (as selected by producer) deductible and other risk
crops (fruits, tree nuts,
and established at prices prior to planting. Loss
factors. Producer pays a
vegetables, nursery crops),
is at field or county level, depending on policy.
portion of premium; no
pasture, rangeland, forage
delivery cost.
crops, and livestock margins.
Stacked Income
Upland cotton.
Indemnifies area-wide revenue losses >10% of
Producer pays 20% of
Protection (STAX)
guarantee, up to deductible (with max of 30%).
premium (80% subsidized).
Supplemental
Program crops enrolled in
Supplements crop insurance, indemnifies area-
Producer pays 35% of
Coverage Option
PLC.
wide losses >14% of guarantee up to
premium (65% subsidized).
deductible.
Disaster Assistance, Noninsured Crop Disaster Assistance Program, & Emergency Loans (Administered by USDA’s Farm
Service Agency)
Supplemental
Beef/dairy cattle, bison,
Payment for excess livestock mortality (LIP),
No participation fee.
Agricultural Disaster
poultry, sheep, swine, horses,
grazing losses (LFP), other losses (ELAP), and
Assistance Programs
other livestock, honeybees,
excess fruit tree/vine mortality (TAP). Disaster
farm-raised fish, and
designation not required. See notes below for
trees/bushes/vines producing
program names.
an annual crop.
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Farm Bill Primer: The Farm Safety Net
Noninsured Crop
Available for crops not
Payments for losses in excess of 50%.
Participation fee of $250
Disaster Assistance
currently eligible for crop
Additional coverage is available for purchase.
per crop plus a charge for
Program (NAP)
insurance.
more coverage.
Emergency Loans
Crops and livestock (also
Low-interest loans for producers in a disaster
Producers repay interest
(EM)
physical losses to real estate).
county and not eligible for commercial credit.
and principal in one to
Requires disaster designation.
seven years (longer for
real estate).
Source: CRS reports: R43758 (farm safety net), R43448 and R44914 (commodity programs), R40532 and R43494 (crop insurance), RS21212
(disaster assistance), R44739 (program eligibility and payment limits), and RS20840 and R43817 (WTO rules and limits on domestic support).
Notes: Additional support for dairy via import restrictions and federal milk marketing orders (CRS Report R43465); sugar via a sugar-to-ethanol
program (CRS Report R43998). Disaster programs: Livestock Indemnity Payments (LIP); Livestock Forage Disaster Program (LFP); Emergency
Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program (ELAP); and Tree Assistance Program (TAP)—see CRS Report R42854.
Randy Schnepf, Specialist in Agricultural Policy
IF10638

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