2018 Farm Bill Primer: ARC and PLC Support Programs

2018 Farm Bill Primer: ARC and PLC Support Programs

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April 3, 2019
2018 Farm Bill Primer: ARC and PLC Support Programs
Background
A payment is made if the product of current-year county
The Price Loss Coverage (PLC) and Agricultural Risk
yield and MYAP is below the ARC-CO revenue guarantee.
Coverage (ARC) programs provide income support to
Figure 1. PLC Payment Formula
covered commodities at levels above the price protection
offered by the marketing assistance loan (MAL) program’s
loan rates. Participation is free for both ARC and PLC.
However, a producer must sign up and elect ARC or PLC
for the farm’s historical base acres (described below).
Program Origins
ARC and PLC were first authorized under the 2014 farm
bill (P.L. 113-79). The 2018 farm bill (Agricultural
Improvement Act of 2018, P.L. 115-334) extended both
programs with several modifications intended to increase
producer flexibility in their use. See CRS Report R45525,
The 2018 Farm Bill (P.L. 115-334): Summary and Side-by-
Side Comparison.
Producer Election
Producers choose between PLC and ARC based on their
preference for protection against a decline in either (a) crop

prices (Figure 1) or (b) crop revenue (Figure 2),
Source: CRS.
Notes: MAL = marketing assistance loan program. The Olympic
respectively. Furthermore, producers can elect ARC at
average is calculated by removing the high and low years, then
either the county (ARC-CO) or individual farm (ARC-IC)
averaging across the remaining years. Program yields are historical
level. PLC and ARC-CO choices can vary across “covered”
farm-level yields used to determine per-acre payment rates.
crops (for a list of covered crops, see Figure 3), whereas
ARC-IC includes all “covered” crops on a farm under a
Figure 2. County-Level ARC-CO Payment Formula
single farm-level revenue guarantee.
Price Loss Coverage (PLC)
PLC price protection is based on a statutorily fixed
reference price. The 2018 farm bill added an escalator
provision that could potentially raise a covered
commodity’s effective reference price (used to determine
the PLC per-unit payment rate) to as much as 115% of the
statutory PLC reference price based on 85% of the five-year
Olympic average (OA) of the national market-year average
farm price (MYAP). PLC makes a payment when the
MYAP is less than the effective reference price (Figure 1).
The PLC payment rate equals the difference between the
effective PLC reference price and the higher of the MYAP
or the MAL loan rate. The PLC payment rate times the
program yield determines the per-acre payment rate. The

PLC payment rate times 85% of base acres signed up for
Source: CRS.
the respective covered commodity equals the total payment.
Note: The ARC-CO per-acre payment rate is capped at 10% of the
County-Level ARC (ARC-CO)
ARC-CO county benchmark revenue per acre.
Under the 2018 farm bill, yield data from the U.S.
The ARC-CO crop revenue guarantee equals 86% of the
Department of Agriculture’s (USDA) Risk Management
benchmark revenue (Figure 2). The benchmark revenue is
Agency (RMA) is the primary source for county average
the product of the five-year OA of county yields and the
yields for calculating the ARC-CO benchmark revenue.
five-year OA of national MYAPs. In calculating the five-
Where RMA data is not available, USDA is to determine
year OA of national MYAPs, the effective PLC reference
the data source considering data from USDA’s National
price is substituted for the MYAP in those years where it is
Agricultural Statistical Service or the yield history of
larger.
representative farms in the state, region, or crop-reporting
district. Also, ARC-CO is to use a trend-adjusted yield to
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2018 Farm Bill Primer: ARC and PLC Support Programs
calculate the benchmark revenue, as is done by RMA for
2022, and 2023. In addition, producers may now remotely
the federal crop insurance program. Finally, the five-year
and electronically sign annual or multi-year contracts for
OA county yield calculations is to include a yield floor
ARC and PLC.
(equal to 80% of the 10-year average county yield) for each
Participation Varies by Program Crop
year where actual county yield is lower.
Under the 2014 farm bill, most base acres for corn (93%),
Individual-Level ARC (ARC-IC)
soybeans (97%), and wheat (54%) signed up for the ARC-
Instead of an ARC-CO revenue guarantee on a crop-by-
CO program due to high commodity prices during the
crop basis, farmers could select a farm-level guarantee that
2012-2014 period, which factored into the ARC-CO
includes all covered crops on a farm under one revenue
revenue guarantee formula. Other covered commodities
guarantee. A single, whole-farm guarantee (and payment) is
largely favored PLC. However, because corn, soybeans,
calculated as a weighted average for all crops.
and wheat are the three largest crops grown in the United
Decoupled Payments Made on Base Acres
States (Figure 3)—accounting for 82% of eligible base
acres—together they made ARC-CO the largest revenue
ARC-CO, ARC-IC, and PLC payments are decoupled—that
program in terms of total enrolled base acres. Rice and
is, payments are made on a portion of a crop’s historical
“base” acre
peanut producers nearly unanimously selected PLC. Few
s rather than actual production (Figure 3). A
producers—1% of base acres—selected ARC-IC.
producer does not have to plant a covered commodity to be
eligible for payments. If ARC-CO or PLC program
Preference for PLC Under 2018 Farm Bill Expected
payments are triggered, then they are made on 85% of the
USDA and the Congressional Budget Office (CBO) expect
producer’s base acres that were signed up for that covered
producers to shift dramatically in favor of PLC under the
commodity irrespective of plantings. ARC-IC payments are
2018 farm bill (Figure 4), due largely to several years of
made on a reduced 65% of base acres.
weak commodity prices at or below PLC reference prices
thus triggering PLC payments. CBO projects that the corn
Figure 3. Base Acres by Covered Commodity, 2014
base-acre share enrolled in PLC will jump from 6.6% under
the 2014 farm bill to 84.6% under the 2018 farm bill.
Similarly, CBO projects the share of soybean base enrolled
in PLC to rise from 3.1% to 64.1% and wheat from 42.5%
to 76.9%. Thus, PLC is expected to replace ARC as the
dominant revenue support program under the 2018 farm
bill.
Figure 4. Commodity Program Outlays, 2014 Farm
Bill (Actual) versus 2018 Farm Bill (Projected)

Source: Compiled by CRS from USDA, Farm Service Agency, data.
Notes: Base acres are historical average acres on a farm that have
been planted to program crops defined under the 2002 farm bil (P.L.
107-171, §1101). Each base acre is associated with a particular
program crop. However, not al base acres signed up for ARC or
PLC. Other oilseeds include sunflower seed, rapeseed, canola,
safflower, flaxseed, mustard seed, crambe, and sesame seed. Pulse
crops include dry peas, lentils, and smal and large chickpeas.
**Generic base is former upland cotton base. Program participants

real ocated their generic base acres to either seed cotton or other
Source: Compiled by CRS; data for 2014-2017 are from FSA;
program crops under the Bipartisan Budget Act of 2018 (P.L. 115-
projections for 2018-2023 are from CBO’s January 2019 USDA
123). Data on this al ocation is not yet available.
baseline projections.
Note: Other includes dairy, disaster assistance, and miscellaneous
Program Sign Up
programs. Market facilitation program data are not included.
Unlike the 2014 farm bill—in which producers had a one-
Eligibility Criteria and Payment Limits
time choice between ARC and PLC on a commodity-by-
commodity basis that lasted for five years (2014-2018)—
Producers must meet eligibility requirements to participate
the 2018 farm bill allows producers to alter their program
in PLC and ARC. Combined ARC and PLC payments are
choices. In 2019 producers may select ARC or PLC
subject to annual payment limits of $125,000 per person.
coverage, on a commodity-by-commodity basis, effective
(For details, see CRS Report R44739, U.S. Farm Program
for both 2019 and 2020. If no initial choice is made, then
Eligibility and Payment Limits.)
the default is whichever program was in effect under the
Randy Schnepf, Specialist in Agricultural Policy
2014 farm bill. Then, beginning in 2021, producers again
choose between ARC and PLC annually for each of 2021,
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2018 Farm Bill Primer: ARC and PLC Support Programs

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