2018 Farm Bill Primer: The Farm Safety Net

2018 Farm Bill Primer: The Farm Safety Net

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April 3, 2019
2018 Farm Bill Primer: The Farm Safety Net
Overview
crop insurance for eligible commodities, which helps
The federal “farm safety net” provides risk protection and
producers manage risks associated with a loss in either
financial support to U.S. farmers. The three components of
yield or crop revenue depending on the type of policy
the farm safety net are (1) farm commodity programs, (2)
selected. Insurable perils include drought, flood, insects or
crop insurance, and (3) disaster assistance programs. The
disease outbreaks, and crop-specific revenue shortfalls.
U.S. Department of Agriculture (USDA) administers the
Producers must sign up and pay a premium for crop
farm safety net programs. The 2018 farm bill (Agricultural
insurance policies. The policies are sold and serviced by
Improvement Act of 2018, P.L. 115-334) made several
private insurance companies. Federal support includes
modifications to existing farm programs but largely left the
paying a portion (an average of 62%) of producer
farm safety net intact. See Figure 1 for projected cost
premiums, paying $1.4 billion in annual delivery costs, and
estimates and Table 1 for program details and a list of
sharing underwriting risk with the private insurance
related CRS reports.
companies.
1. Farm Commodity Programs
3. Agricultural Disaster Programs
Agricultural disaster programs cover livestock producers
Farm commodity programs provide a floor price and
and fruit tree producers, who generally do not benefit from
income support for eligible commodities and producers.
crop insurance and/or commodity programs. These
They are authorized by periodic farm bills, most recently by
programs make payments for (1) livestock deaths in excess
the 2018 farm bill for the 2019-2023 crop years.
of normal mortality; (2) forage losses related to drought; (3)
The marketing assistance loan (MAL) program provides
other losses for producers of livestock, honeybees, and
both a floor price and interim financing for so-called loan
farm-raised fish; and (4) losses in trees/bushes/vines from
commodities. A participating producer may put a harvested
which an annual crop is produced. Participation is free. No
“loan” crop under a nine-month, nonrecourse loan valued at
disaster designation is needed for program availability.
a statutory commodity loan rate. Then the producer has the
Another program, the Noninsured Disaster Assistance
option to repay the loan and reclaim the crop if market
Program (NAP), is available for a fee for crops that
conditions are favorable or select another MAL benefit
otherwise are not eligible for crop insurance or disaster
when crop market prices are below the loan rate.
assistance.
The Agriculture Risk Coverage (ARC) and Price Loss
Projected Farm Safety Net Cost
Coverage (PLC) programs provide additional income
support for certain “covered” commodities such as corn,
Farm safety net outlays are projected to average $13.7
soybeans, wheat, rice, and peanuts. Producers choose
billion per year under the 2018 farm bill (Figure 1), down
between PLC and ARC based on their preference for
slightly from the $14.2 billion average annual outlay under
protection against a decline in either (a) crop prices using a
the 2014 farm bill.
statutorily fixed PLC reference price or (b) crop revenue
using on a five-year average revenue based on county
Figure 1. Safety Net Projected Costs, $ Billions
yields and national average farm prices under ARC.
Participation is free, but sign up is necessary.
Dairy and sugar producers have separate programs, which
are outlined in Table 1.
Producers must meet eligibility requirements to participate
in farm programs and are subject to annual payment limits.
(For details, see CRS Report R44739, U.S. Farm Program
Eligibility and Payment Limits.) Also, as a member of the
World Trade Organization (WTO), the United States has
committed to abide by WTO rules and disciplines,
including those that govern domestic farm policy. (For
details, see CRS In Focus IF10192, WTO Disciplines of
Domestic Support for Agriculture.)
2. Federal Crop Insurance
Federal crop insurance is permanently authorized by the

Federal Crop Insurance Act as amended (7 U.S.C. 1501 et
Source: Compiled by CRS; data for 2014-2017 are from FSA;
seq.) but is periodically modified by new farm bill
projections for 2018 2023 are from CBO’s January 2019 USDA
legislation. It makes available subsidized “multiple peril”
baseline projections.
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2018 Farm Bill Primer: The Farm Safety Net
Table 1. Farm Safety Net Programs
Program
Commodity Coverage
Program Description
Producer Cost
Commodity Programs (Administered by USDA’s Farm Service Agency)
Price Loss
Covered commodities: wheat,
PLC payments made if national market-year
No participation fee.
Coverage (PLC)
corn, grain sorghum, oats, barley,
average farm price (MYAP) of a “covered” crop
Producers must sign up and

long-grain rice, medium-grain rice,
is below its effective reference price. PLC
select either PLC or ARC, by
or
pulse crops (dry peas, lentils, small
payment rate capped by difference between
covered commodity, initially
chickpeas, and large chickpeas),
effective reference price and MAL loan rate.
for 2019 and 2020 then

soybeans, seed cotton, sunflower
ARC payments made if actual county revenue is
annually for 2021, 2022, and
Agriculture Risk
seed, rapeseed, canola, safflower,
below 86% of a historical five-year average
2023.
Coverage (ARC)
flaxseed, mustard seed, crambe,
revenue benchmark based on national MYAPs
sesame seed, and peanuts.
and county yields. ARC payments capped at 10%
of the revenue benchmark.
Marketing
Loan commodities: same crops as
Loans provide interim financing at statutory loan No participation fee.
assistance loans
for PLC/ARC plus upland cotton, ELS
rates. Optional benefits include loan deficiency
(MAL)
cotton, wool, mohair, and honey.
payments, marketing loan gains, commodity
certificate exchanges, or forfeiture.
Upland Cotton
Cotton Ginning Cost-Share Program:
Economic adjustment assistance to users of
No participation fee.
support programs
direct payments to producers to
$0.03/lb. made to domestic users of upland
offset cotton ginning costs.
cotton.
Sugar Program
Refined beet sugar and raw cane
MAL loan rates for processors, limits on
No participation fee.
sugar.
domestic sugar sales for human use, and tariff-
Generally, no net federal
rate quota protection from imports.
cost.
Dairy Margin
Milk. Producer-selected coverage of
DMC payments are made if actual average
$100 fee plus statutorily fixed
Coverage (DMC)
5% to 95% of historical farm milk
monthly margin (milk price minus feed cost) is
premium for coverage
Program
production base.
below producer-selected threshold.
selected by producer.
Additional dairy
Milk and dairy products.
Import restrictions and federal milk marketing
No participation fee.
support
orders.
Federal Crop Insurance (Administered by USDA’s Risk Management Agency)
Crop insurance
More than 100 crops, including
Indemnities triggered when actual yield or
Premium depends on
policies
program crops (see above), specialty
revenue falls short of the guarantee set at 50%-
producer-selected deductible
crops (fruits, tree nuts, vegetables,
85% of expected level (as selected by producer)
and other risk factors.
nursery crops), pasture, rangeland,
and established at prices prior to planting. Loss
Producer pays a portion of
forage crops, and livestock margins.
is at field or county level, depending on policy.
premium. No delivery cost.
Stacked Income
Upland cotton (except not eligible if
Indemnifies area-wide revenue losses >10% of
Producer pays 20% of
Protection (STAX)
seed cotton enrol ed in ARC or PLC).
guarantee, up to deductible (with max of 30%).
premium (80% subsidized).
Supplemental
Program crops enrol ed in PLC are
Supplements crop insurance, indemnifies area-
Producer pays 35% of
Coverage Option
eligible. Those enrol ed in ARC or
wide losses >14% of guarantee up to deductible. premium (65% subsidized).
STAX are ineligible.
Disaster Assistance Programs and Emergency Loans (Administered by USDA’s Farm Service Agency)
Supplemental
Beef/dairy cattle; bison; poultry;
Payment for excess livestock mortality (LIP),
No participation fee.
Agricultural
sheep; swine; horses; other livestock;
grazing losses (LFP), other losses (ELAP), and
Disaster
honeybees; farm-raised fish; and trees,
excess fruit tree or vine mortality (TAP).
Assistance
bushes, or vines producing an annual
Disaster designation not required. See notes
Programs
crop.
below for program names.
NAP
Available for crops not currently
Payments for losses in excess of 50% yield paid
Participation fee of $250 per
eligible for crop insurance.
at 55% price. Additional coverage available for
crop plus a charge for more
purchase: up to 65% yield at 100% price.
coverage.
Emergency Loans
Crops and livestock (also physical
Low-interest loans for producers in a disaster
Repay interest and principal
losses to real estate).
county and not eligible for commercial credit.
in one to seven years (longer
Requires disaster designation.
for real estate).
Source: CRS reports: R43758 (farm safety net); R43448 and R44914 (commodity programs); R45044, IF10750, and IF10833 (dairy); R43998
(sugar program); R40532 and R43494 (crop insurance); RS21212 (disaster assistance); R44739 (program eligibility and payment limits); and
R43817 (WTO rules and limits on domestic support).
Notes: ELS = extras-long staple. Disaster programs: Livestock Indemnity Payments (LIP); Livestock Forage Disaster Program (LFP); Emergency
Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP); and Tree Assistance Program (TAP)—see CRS Report R42854.

Randy Schnepf, Specialist in Agricultural Policy

IF11163
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2018 Farm Bill Primer: The Farm Safety Net

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