County Agricultural Revenue Coverage (ARC) Payment Disparities: What Are the Issues?

County Agricultural Revenue Coverage (ARC) Payment Disparities: What Are the Issues?

In October 2015, the U.S. Department of Agriculture (USDA) made the first payments for 2014 crops under the new revenue programs provided by the 2014 farm bill (Agricultural Act of 2014, P.L. 113-79). At that time, significant discrepancies in county-level payments were discovered under the Agricultural Revenue Coverage (ARC) program. These significant discrepancies—which appear to be due, in part, to average county yield calculations—have generated considerable concern about whether the new revenue program is working as intended and whether USDA is implementing it with sufficient flexibility. USDA argues that it is using the best data available and that it would be impractical to alter how program payments are calculated before the next farm bill.

Background

Under the 2014 farm bill, producers were given a choice between two types of revenue support programs—ARC and Price Loss Coverage. Furthermore, producers could elect the ARC program at either the county (ARC-CO) or the individual farm level. This was a one-time choice that would last for the five-year duration of the 2014 farm bill (i.e., 2014-2018 crop years). Producer elections varied widely across eligible programs. However, producers with 97% of soybean base acres and 93% of corn base acres elected to participate in ARC-CO, making it the largest revenue program in terms of program base area covered. Base acres are the historical acres for each program crop that have participated in USDA farm programs as defined by the 2014 farm bill (Section 1111).

The ARC-CO revenue guarantee for a crop is based on the five-year Olympic (removing the high and low data years) moving averages of both county yields and national market-year average (MYA) prices. The revenue guarantee for ARC-CO equals 86% of the product of average county yields and national prices. A payment is made if the product of the current-year county yield and MYA price is below the revenue guarantee.

The crop payment calculation has a substantial lag, because the entire 12-month market year must be finished before all the MYA price data are available. Thus, it was in October 2015 that the initial ARC-CO payments were announced for the 2014 crops. Significant discrepancies were discovered across counties in the calculated payments under ARC-CO, especially for corn. For example, both Lamoure and Logan Counties in North Dakota received $0 in ARC-CO corn payments, while payments in neighboring counties ranged from $20 to $85 per acre, and nearby Foster and Nelson Counties had ARC-CO corn payments of $111 and $115 per acre, respectively. Other states found similar ARC-CO payment discrepancies between neighboring counties. Part of the ARC-CO payment discrepancies appears to be due to how the county yield averages were being calculated.

Cascading Yield Data Strategy

Significant differences in yields between neighboring counties are not uncommon and can occur due to weather and agronomic factors. USDA argues that it is using the "best statistically valid, producer-provided, county-level data available" to ensure the integrity of the program (as reported by Agri-Pulse, vol. 12, no. 32, August 4, 2016).

USDA's National Agricultural Statistics Service (NASS) surveys producers in counties with production of major program crops to obtain estimates of planted and harvested area, yields, and production. With respect to ARC-CO revenue calculations, USDA currently requires that the NASS survey yield estimate be used if there are at least 30 producer survey responses or when survey responses represent at least 25% of a county's harvested acreage. If neither of these conditions is met, then the county yield is based on crop insurance data held by USDA's Risk Management Agency (RMA). A comparison of the two estimates suggests that RMA yields are frequently higher than NASS yields. As a result, payments to producers in counties where RMA yields are used can be substantially lower than payments in counties using NASS yields.

USDA is under no legislative requirement or guidance for this cascade policy. Regarding the choice of county yield data used in calculating the farm year's actual crop revenue, the 2014 farm bill conveys implementation authority to the Secretary of Agriculture in Section 1117(b)(A), where the formula is to use "the actual average county yield per planted acre for the covered commodity, as determined by the Secretary."

USDA contends that changing the payment calculation now, in middle of the 2014 farm bill, would create winners and losers. Concerned parties argue that USDA should consider either exclusively using RMA data or, when insufficient NASS survey responses are available for a particular county, using average NASS yields from neighboring counties. In the interim, some commodity groups are encouraging their members to increase their response rates to NASS surveys.

Conclusion

With no short-term fix in sight, the issue of substantial disparities in payment rates may re-emerge for ARC-CO crop payments in future years. Barring any near-term fix by USDA, lawmakers may have to address county-to-county payment disparities in the context of the next farm bill.