{ "id": "R43448", "type": "CRS Report", "typeId": "REPORTS", "number": "R43448", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 444831, "date": "2014-03-28", "retrieved": "2016-04-06T20:32:48.180551", "title": "Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79)", "summary": "Congressional Research Service\n7-5700\nwww.crs.gov\nR43448\nSummary\nThe farm commodity program provisions in Title I of the Agricultural Act of 2014 (P.L. 113-79, the 2014 farm bill) include three types of support for crop years 2014-2018: \nPrice Loss Coverage (PLC) payments, which are triggered when the national average farm price for a covered commodity (e.g., wheat, corn, soybeans, rice, and peanuts) is below its statutorily fixed \u201creference price\u201d;\nAgriculture Risk Coverage (ARC) payments, as an alternative to PLC, which are triggered when crop revenue is below its guaranteed level based on a multi-year moving average of historical crop revenue; and\nMarketing Assistance Loans (MALs), which offer interim financing for the loan commodities (covered crops plus several others) and, if prices fall below loan rates set in statute, additional low-price protection, sometimes paid as loan deficiency payments (LDPs). \nThe enacted 2014 farm bill eliminated \u201cdirect payments,\u201d which were provided annually to producers and landowners of covered commodities from 1996 to 2013 based on historical production and a fixed payment rate set in statute. All farm program support now consists of variable payments. The PLC and ARC programs are enhanced relative to their predecessors via higher reference prices for PLC and more \u201clocal\u201d coverage for ARC (whereby payments are triggered by county or individual losses rather than at the state level). In a major departure from previous farm bills and in response to a trade dispute with Brazil, upland cotton is no longer a covered commodity, with support for that crop now provided by a new crop insurance policy called the Stacked Income Protection Plan (STAX).\nApproximately three-fourths of the 10-year, $47 billion in savings associated with the elimination of 2008 farm bill commodity programs was used to offset the costs of revising the overall farm safety net, specifically farm programs in Title I of the 2014 farm bill, adding permanent disaster assistance (also in Title I), enhancing the permanently authorized federal crop insurance program (Title XI), and enhancing the Noninsured Crop Disaster Assistance Program or NAP (Title XII). Crop insurance is available for more than 100 crops, including fruits and vegetables, and is designed primarily to cover losses from natural disasters. Farm programs do not require a participation fee, while crop insurance requires participating farmers to pay part of program costs. \nThe enacted 2014 farm bill sets a $125,000 per person cap on the total of PLC, ARC, marketing loan gains and loan deficiency payments. The limit applies to the total from all covered commodities except peanuts, which has a separate $125,000 limit. Also, to be eligible for payments, persons must be \u201cactively engaged\u201d in farming. The 2014 farm bill instructs USDA to write regulations (beginning with the 2015 crop year) that define \u201csignificant contribution of active personal management\u201d to more clearly and objectively implement existing law. A single, total adjusted gross income (AGI) limit for payment eligibility is established at $900,000, which is less than the sum of the two separate limits (farm and non-farm) in the 2008 farm bill.\nThe Congressional Budget Office cost estimate (score) of the Title I provisions represents five-year savings of $6.3 billion and 10-year savings of $14.3 billion (both relative to baseline projections made in May 2013 assuming continuation of the 2008 farm bill). If these scores are added to the 2013 CBO baseline of budget outlays used to write the farm bill, then CBO\u2019s estimated cost of Title I is $23.6 billion for FY2014-2018 and $44.5 billion over 10 years.\nContents\nIntroduction\t1\nBackground\t1\nPolicy Rationale for Farm Subsidies\t1\nAuthorizing Legislation\t2\nEligible Commodities\t2\nDefinition of \u201cFarm\u201d\t3\nBase Acres\t3\n\u201cPartially Decoupled\u201d Payments\t4\nEligible Producers\t4\nEliminated 2008 Farm Bill Programs\t5\nFarm Commodity Program Provisions\t5\nPrice Loss Coverage (PLC)\t6\nAgriculture Risk Coverage (ARC)\t9\nCounty ARC\t9\nIndividual ARC\t9\nMarketing Assistance Loan Program\t10\nCotton Not Eligible for Either PLC or ARC\t11\nPlanting Fruits and Vegetables on Base Acres\t12\nPayment Limits\t12\n\u201cActively Engaged\u201d\t12\nAdjusted Gross Income (AGI) Limit\t13\nInteraction with Federal Crop Insurance\t13\nEstimated Cost of the Commodity Title\t13\nImplementation\t15\n\nFigures\nFigure 1. Price Loss Coverage (PLC)\t8\nFigure 2. Price Loss Coverage (PLC): Low Price Scenario for Rice\t8\nFigure 3. Agriculture Risk Coverage (ARC)\u2013County Coverage\t10\nFigure 4. Agriculture Risk Coverage (ARC)\u2013Low Revenue Scenario for Corn\t10\nFigure 5. Outlays for Farm Commodity Program and Disaster Assistance\t14\n\nTables\nTable 1. Loan Rates and Reference Prices in the 2014 Farm Bill\t7\nTable 2. Cost of Provisions in the Commodity Title of the 2014 Farm Bill\t14\n\nAppendixes\nAppendix. Major Farm Commodity Provisions in the Enacted 2014 Farm Bill\t17\n\nContacts\nAuthor Contact Information\t32\nAcknowledgments\t32\n\nIntroduction\nOn February 7, 2014, President Obama signed into law a new five-year omnibus farm bill, the Agricultural Act of 2014 (H.R. 2642; P.L. 113-79, the 2014 farm bill). The House had voted, 251-166, to approve the conference report (H.Rept. 113-333) on January 29, 2014, and the Senate approved the conference report on February 4, 2014, by a vote of 68-32. The U.S. Department of Agriculture (USDA) is now implementing the provisions, most of which take effect this year.\nThis report describes the farm commodity programs in Title I of the 2014 farm bill for \u201ccovered commodities\u201d such as wheat, corn, soybeans, rice, and peanuts. Producer support is provided for the 2014-2018 crop years primarily through either statutory (\u201creference\u201d) prices or historical revenue guarantees based on the five most recent years of crop prices and yields. \nImportant policy developments in the new law are also discussed and compared to prior law. The most significant policy change for commodity programs in the 2014 farm bill was the elimination of fixed direct payments and the enhancement of variable payments to farmers and landowners when crop prices or revenue declines. \nTable A-1 provides detailed descriptions of farm commodity program provisions compared with prior law. For more on the legislative history of the 2014 farm bill and a side-by-side summary of crop insurance and all other farm bill provisions, see CRS Report R43076, The 2014 Farm Bill (P.L. 113-79): Summary and Side-by-Side.\nBackground\nPolicy Rationale for Farm Subsidies\nFederal farm support began in the 1930s through Depression-era efforts to raise farm household income when commodity prices were low because of prolonged weak consumer demand. While initially intended to be a temporary effort, the commodity support programs survived, but have been modified away from supply control and management of commodity stocks (which was designed to prop up prices) into direct income support payments. The 2014 farm bill continues traditional farm support via variable payments relative to statutory price levels or historical crop revenue. \nProponents of farm commodity programs argue that federal involvement in the sector is needed to stabilize and support farm incomes by shifting some of the risks to the federal government. These risks include short-term market price instability and longer-term capacity adjustments. Proponents see the goal of farm policy as maintaining the economic health of the nation\u2019s farm sector so that it can use its comparative advantage in feeding the nation and competing in the global market for food and fiber. Critics argue that farm commodity programs waste taxpayer dollars, distort production of certain crops, capitalize benefits to the owners of the resources, encourage concentration of production, and comparatively harm smaller domestic producers and farmers in lower-income foreign nations.\nAuthorizing Legislation\nThe authority for USDA to operate farm commodity programs comes from three permanent laws, as amended: the Agricultural Adjustment Act of 1938 (P.L. 75-430), the Agricultural Act of 1949 (P.L. 81-439), and the Commodity Credit Corporation (CCC) Charter Act of 1948 (P.L. 80-806). Congress typically alters these laws through multi-year omnibus farm bills to address current market conditions, budget constraints, or other concerns.\nIf a new farm bill is not enacted when an old one expires, farm programs would revert to the permanent laws mentioned above for most of the major program crops. Under permanent law, eligible commodities would be supported at levels much higher than they are now, and many of the currently supported commodities might not be eligible. Since reverting to permanent law is incompatible with current national economic objectives, global trading rules, and federal budgetary policies, pressure builds at the end of one farm bill to enact another.\nThe 2014 farm bill (P.L. 113-79) contains the most recent version of the farm commodity support programs. It supersedes the commodity provisions of previous farm bills, and suspends the relevant price support provisions of permanent law.\nEligible Commodities\nFederal support exists for about two dozen farm commodities representing about one-third of gross farm sales. During FY2005-FY2014, five crops (corn, cotton, wheat, rice, and soybeans) accounted for about 90% of these payments. \nUnder the 2014 farm bill, the \u201ccovered commodities\u201d are the primary crops eligible for farm support: wheat, oats, and barley (including wheat, oats, and barley used for haying and grazing); corn, grain sorghum, long grain rice, medium grain rice, and pulse crops (dry peas, lentils, small chickpeas, and large chickpeas); soybeans, other oilseeds (including sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, and sesame seed), and peanuts. \nIn a major departure from all previous farm bills and in response to a trade dispute with Brazil, upland cotton is no longer a covered crop, with support for that crop now provided by a new crop insurance policy called the Stacked Income Protection Plan (STAX).\n\u201cLoan commodities\u201d include all of the \u201ccovered commodities\u201d plus upland cotton, extra long staple cotton, wool, mohair, and honey. These commodities are eligible for the marketing loan program only. \nThe 2014 farm bill replaces the dairy product price support program and Milk Income Loss Contract (MILC) payments with new dairy programs to (1) protect producer margins (milk prices minus feed costs), and (2) buy excess dairy products to boost demand when margins drop below certain levels. \nSugar support is indirect through import quotas, price guarantees, and domestic marketing allotments. No direct payments are made to growers and processors. There was no change to the sugar program in the 2014 farm bill. See CRS Report R42551, Sugar Provisions of the 2014 Farm Bill (P.L. 113-79).\nMeats, poultry, fruits, vegetables, nuts, hay, and nursery products (about two-thirds of farm sales) do not receive direct support or payments under the commodity programs of the farm bill. However, livestock and tree fruit producers receive disaster support under Title I of the 2014 farm bill. (See Table A-1 and CRS Report RS21212, Agricultural Disaster Assistance, for a description of disaster programs.) Also, under the permanently authorized federal crop insurance program, subsidized crop insurance is available for more than 100 crops, including fruits and vegetables which are not supported by farm programs. Crop insurance is designed primarily to cover losses from natural disasters and within-season price or revenue declines (see CRS Report R40532, Federal Crop Insurance: Background). \nDefinition of \u201cFarm\u201d \nThe definition of \u201cfarm\u201d used to administer the commodity programs is different from other statistical or perceived definitions of farms. Under Farm Service Agency (FSA) regulations, a \u201cfarm\u201d for program payment purposes is one or more tracts of land considered to be a separate operation. Land in a farm does not need to be contiguous; however, all tracts within a farm must have the same operator and the same owner (unless all owners agree to combine multiple tracts into a single FSA farm). Thus, one producer may be operating several \u201cfarms\u201d if he/she is renting land from several landlords, or has purchased land in several tracts. \nBase Acres\nFor the purpose of calculating program payments, the term \u201cbase acres\u201d is the historical planted acreage on each FSA farm, using a multi-year average from as far back as the 1980s. Technically, a farm\u2019s base with respect to a covered commodity is the number of acres in effect under the 2008 farm bill (7 U.S.C. 8702, 8751) as of September 30, 2013, subject to any reallocation, adjustment, or reduction under the 2014 farm bill. Base is calculated for each covered commodity and transfers to the new owner when land is sold, making the new landowner eligible for farm programs. \nBecause a farmer\u2019s actual plantings may differ from farm base acres, program payments may not necessarily align with financial losses associated with market prices or crop revenue. In order to better match program payments with farm risk, the 2014 farm bill provides farmers with a one-time opportunity to update individual crop base acres by reallocating acreage within their current base to match their actual crop mix (plantings) during 2009-2012. Farmers can also choose to not reallocate their base if they expect payments to be maximized under their current base. In the case of cotton, which is no longer a covered commodity, former cotton base acres are renamed \u201cgeneric base\u201d and added to a producer\u2019s base for potential payments if a covered crop is planted on the farm.\n\u201cPartially Decoupled\u201d Payments \nPayments under the new programs in the 2014 farm bill are made on base acres, not current plantings. This feature\u2014decoupling payments from current plantings\u2014is intended to better comply with World Trade Organization (WTO) rules on domestic support and to minimize any influence on producer behavior and prevent any subsequent market distortion. The payments are considered \u201cpartially decoupled\u201d because the payment amount remains connected to current market prices. In the 2008 farm bill, farm payments were calculated using either base or planted area, depending upon the program. \nEligible Producers\nThe 2014 farm bill defines a producer (for purposes of farm program benefits) as an owner-operator, landlord, tenant, or sharecropper that shares in the risk of producing a crop and is entitled to a share of the crop produced on the farm. For payment eligibility, a term commonly used in federal regulations is \u201cactively engaged in farming,\u201d which generally means providing significant contributions of capital (land or equipment) and labor and/or management, and receiving a share of the crop as compensation. The 2014 farm bill requires USDA to write new regulations that define \u201csignificant contribution of active personal management.\u201d See \u201cPayment Limits,\u201d below. \nProducers do not pay to participate in farm programs. However, an individual must comply with certain conservation and planting flexibility rules. Conservation rules include protecting wetlands, preventing erosion, and controlling weeds. Planting flexibility rules allow crops other than the program crop to be grown, but under the 2014 farm bill, eligible payment acreage is reduced when fruits, vegetables, or wild rice are planted in excess of 15% of base acres (or 35% depending upon a farmer\u2019s program choice discussed below). Also, a producer on a farm may not receive farm program payments if the sum of the base acres on the farm is 10 acres or less. \nA farm enterprise usually involves some combination of owned and rented land. Two types of rental arrangements are common: cash rent and share rent. Under cash rental contracts, the tenant pays a fixed cash rent to the landlord. The landlord receives the same rent, bears no risk in production, and thus is not eligible to receive program payments. The tenant bears all of the risk, takes all of the harvest, and receives all of the government subsidy.\nUnder share rental contracts, the tenant usually supplies most or all of the labor and machinery, while the landlord supplies land and perhaps some machinery or management. Both the landlord and the tenant bear risk in producing a crop and receive a portion of the harvest. Both are eligible to share in the government subsidy.\nEven though tenants might receive all of the government payments under cash rent arrangements, they might not keep all of the benefits if landlords demand higher rent. Economists widely agree that a large portion of government farm payments passes through to landlords, since government payments boost the rental value of land. The amount of total land in farms rented by farm operators has ranged between 34% and 43% of farmland during 1964-2007.\nEliminated 2008 Farm Bill Programs\nUnder the enacted 2014 farm bill (P.L. 113-79), farm support for traditional program crops is restructured by eliminating the direct payment (DP) and counter-cyclical payment (CCP) programs, and the Average Crop Revenue Election (ACRE) program. For the 1996 through 2013 crop years, direct payments were made to producers and landowners based on historical production of corn, wheat, soybeans, cotton, rice, peanuts, and other \u201ccovered\u201d crops. Direct payments lost political support in recent years because recipients did not need to suffer an income loss in order to receive a payment. Approximately three-fourths of the 10-year, $47 billion in savings associated with the elimination of current farm programs was used to offset the costs of revising farm programs in Title I of the 2014 farm bill, adding permanent disaster assistance (also in Title I), enhancing the permanently-authorized federal crop insurance program (Title XI), and enhancing the Noninsured Crop Disaster Assistance Program or NAP (Title XII). \nFarm Commodity Program Provisions\nThe farm commodity program provisions in Title I of the 2014 farm bill include three types of support for crop years 2014-2018: \nPrice Loss Coverage (PLC) payments, which are triggered when the national average farm price for a covered commodity is below its statutorily-fixed \u201creference price\u201d;\nAgriculture Risk Coverage (ARC) payments, as an alternative to PLC, which are triggered when crop revenue is below its guaranteed level based on a multi-year moving average of historical crop revenue; and\nMarketing Assistance Loans (MALs) that offer interim financing for the loan commodities (covered crops plus several others as indicated above) and, if prices fall below loan rates set in statute, additional low-price protection, sometimes paid as loan deficiency payments (LDPs). \nFarmers with base acres of covered commodities have a one-time irrevocable decision to choose between PLC and \u201ccounty\u201d ARC (based on a county guarantee) on a commodity-by-commodity basis for each farm. Alternatively, all covered crops on a farm can be enrolled in \u201cindividual\u201d ARC, which is based on a farm-level guarantee. (See \u201cAgriculture Risk Coverage (ARC),\u201d below.) If no choice is made, the producer forfeits any payments for the 2014 crop year and the farm is enrolled automatically in PLC for the 2015-2018 crop years. The \u201coptimal\u201d decision depends in part on expected prices through 2018 relative to guarantees in each program.\nThe PLC and ARC programs are similar conceptually to the 2008 farm bill\u2019s counter-cyclical payment (CCP) program and Average Crop Revenue Election (ACRE) program, respectively. However, compared with the previous programs, they have enhanced levels of protection from low prices (i.e., higher price parameters in PLC) or revenue loss (i.e., county- or farm-level guarantees for ARC rather than state-level in ACRE). \nPLC and ARC payments are proportional to base acres, and not planted acres. Payments are made with a lag of approximately one year as annual price and yield data are compiled for USDA\u2019s calculations. USDA is to issue payments beginning October 1 after the end of each marketing year, which varies by crop. For example, the marketing year for corn harvested in fall of 2014 ends in August 2015.\nMarketing assistance loans are available for covered crops and other loan commodities. The program continues mostly unchanged from the 2008 farm bill, with loan rates set at relatively low levels compared to historical prices. \nAll three types of payments are subject to a combined payment limit of $125,000 per person. Also, the income limit for program eligibility is $900,000 for adjusted gross income (three-year average). See \u201cPayment Limits\u201d and \u201cAdjusted Gross Income (AGI) Limit,\u201d below.\nPrice Loss Coverage (PLC)\nFor each covered commodity on a farm, producers may select the Price Loss Coverage (PLC) program to receive a payment on 85% of base acres when the annual national average farm price is below the reference price set in statute. This option could be attractive if farmers expect farm prices to drop below statutory minimums.\nPayments are proportional to a farm\u2019s base acres, historical farm yield, and the difference between the reference price and the annual farm price. Hence payments are generally \u201cdecoupled\u201d from planted acreage and actual yield but not price. PLC payments operate the same as CCPs under the 2008 farm bill, which have been reported to the WTO by the United States as \u201camber box\u201d subsidies, and thus limited in size together with other amber box subsidies.\nCommodity groups successfully argued for an increase in reference prices relative to the payment trigger levels in the 2008 farm bill (i.e., target price minus direct payment rate). For example, the payment trigger level has been raised by 51% for wheat, 57% for corn, 51% for soybeans, 72% for rice (98% for temperate Japonica rice), and 17% for peanuts. Reference prices and a comparison with 2008 farm bill parameters for each covered commodity are shown in Table 1. \nThe PLC payment formula is 85% times the number of base acres times historical payment yield times the difference between the reference price and the annual farm price (or loan rate if higher). See Figure 1 for a graphical interpretation of the formula and Figure 2 for a hypothetical example for rice. The historical payment yield is equal to 90% of the 2008-2012 average yield per planted acre for the farm. As an alternative, the producer can keep the program yield used for calculating CCPs in the 2008 farm bill (generally based on 1998-2001 yields).\nTable 1. Loan Rates and Reference Prices in the 2014 Farm Bill\n\n\nPrice at which a payment is triggered:\n\n\n2008 and 2014 farm bills\nLoan Rate \n2008 farm bill \nTarget Price minus Direct Payment Rate\n2014 farm bill \nReference Price\n% change from 2008 farm bill\n\nWheat, $/bu\n2.94\n4.17 \u2013 0.52 = 3.65\n5.50\n+51%\n\nCorn, $/bu\n1.95\n2.63 \u2013 0.28 = 2.35\n3.70\n+57%\n\nSorghum, $/bu\n1.95\n2.63 \u2013 0.35 = 2.28\n3.95\n+73%\n\nBarley, $/bu\n1.95\n2.63 \u2013 0.24 = 2.39\n4.95\n+107%\n\nOats, $/bu\n1.39\n1.79 \u2013 0.024 = 1.766\n2.40\n+36%\n\nUpland Cotton, $/lb\n2008 farm bill: 0.52\n2014 farm bill: 0.45 to 0.52\n0.7125 \u2013 0.0667 = 0.6458\nn.a.\nn.a.\n\nELS cotton, $/lb\n0.7977\nn.a.\nn.a.\nn.a.\n\nRice, $/cwt\n6.50\n10.50 \u2013 2.35 = 8.15\n14.00; 16.10 for temperate japonica \n+72%; +98% for temperate japonica\n\nSoybeans, $/bu\n5.00\n6 \u2013 0.44 = 5.56\n8.40\n+51%\n\nMinor oilseeds, $/lb\n0.1009\n0.1268 \u2013 0.008 = 0.1188\n0.2015\n+70%\n\nPeanuts, $/ton\n355\n495-36 = 459\n535\n+17%\n\nPeas, dry, $/cwt\n5.40\n8.32 \u2013 0 = 8.32\n11.00\n+32%\n\nLentils, $/cwt\n11.28\n12.81 \u2013 0 = 12.81\n19.97\n+56%\n\nSm.chickpeas, $/cwt\n7.43\n10.36 \u2013 0 = 10.36\n19.04\n+84%\n\nLg.chickpeas, $/cwt\n11.28\n12.81 \u2013 0 = 12.81\n21.54\n+68%\n\nWool, graded, $/lb\n1.15\nn.a.\nn.a.\nn.a.\n\nWool, nongraded\n0.40\nn.a.\nn.a.\nn.a.\n\nMohair $/lb\n4.20\nn.a.\nn.a.\nn.a.\n\nHoney, $/lb\n0.69\nn.a.\nn.a.\nn.a.\n\nSugar, raw cane, $/lb\n0.1875\nn.a.\nn.a.\nn.a.\n\nSugar, beet, $/lb\n0.2409\nn.a.\nn.a.\nn.a.\n\nSource: CRS.\nNote: n.a. = not applicable.\nFigure 1. Price Loss Coverage (PLC)\n(makes payment when national average farm price drops below the reference price)\n\nSource: CRS.\nNote: 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. \nFigure 2. Price Loss Coverage (PLC): Low Price Scenario for Rice\n\nSource: CRS.\nNotes: In a declining market, the per-bushel payment rate increases until the farm price drops below the loan rate ($6.50/cwt. for rice). If market prices decline further, benefits under the Marketing Assistance Loan Program may become available.\nAgriculture Risk Coverage (ARC)\nProducers more concerned about declines in crop revenue (i.e., yield times price) than just price can select the county Agriculture Risk Coverage (ARC) program as an alternative to PLC for each covered commodity. Payments are made on 85% of base acres when annual crop revenue is less than 86% of its historical level. \nIf farmers prefer individual farm level protection, they must enroll all covered crops on the farm in the ARC-individual coverage option instead of selecting between PLC and county ARC for each crop.\nCounty ARC\nFor producers choosing between ARC and PLC on each covered commodity on a farm, the county ARC program has a county revenue guarantee, and only a crop revenue loss at the county level triggers a payment. For ARC county coverage, payments are made on 85% of base acres when actual county crop revenue drops below the county revenue guarantee, which is 86% of historical or \u201cbenchmark\u201d revenue. The benchmark revenue per acre is equal to the average historical county yield for the most recent 5 crop years (excluding the years with the highest and lowest yields, or \u201cOlympic average\u201d) times the national average market price received by producers during the 12-month marketing year for the most recent 5 crop years (excluding the years with the highest and lowest prices). With the guarantee set at 86%, the producer absorbs the first 14% of the shortfall, and the government absorbs the next 10% of revenue shortfall. (The per-acre payment rate is capped at 10% of benchmark revenue.) Remaining losses are backstopped by crop insurance if purchased at sufficient coverage levels by the producer and by the marketing assistance loan program. \nThe county ARC payment formula is 85% times the number of base acres times the difference between the county revenue guarantee and the actual crop revenue. See Figure 3 for a graphical interpretation of the formula and Figure 4 for a hypothetical example for corn. \nIndividual ARC\nFarm level protection is provided if producers enroll all covered crops on the farm in the ARC-individual coverage option, which uses individual farm yields for each covered crop (which are more variable than county averages) and aggregates all crop revenue into a single, whole-farm guarantee. Individual coverage was not available for ACRE in the 2008 farm bill; farm-level coverage was provided instead by the Supplemental Revenue Assistance (SURE) disaster program (not reauthorized under the 2014 farm bill). \nThe individual ARC payment formula is 65% times the number of total base acres for the farm times the difference between the revenue guarantee and the actual crop revenue. The calculation for the guarantee and actual revenue are based on the aggregation of all covered crops on the farm using individual farm yields instead of county yields. \nFigure 3. Agriculture Risk Coverage (ARC)\u2013County Coverage\n(payment when actual county-wide revenue drops below 86% of historical revenue [\u201cshallow loss\u201d])\n\nSource: CRS.\nNotes: 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). \nFigure 4. Agriculture Risk Coverage (ARC)\u2013Low Revenue Scenario for Corn\n\nSource: CRS. \nNotes: Assumes five-year average price (excluding high and low years) is $5.27 per bushel and five-year average yield (excluding high and low years) is 100 bushels per acre.\nMarketing Assistance Loan Program\nThe Marketing Assistance Loan (MAL) program provides additional financial benefits to farmers in the form of a guaranteed floor price for qualifying field crops, in addition to providing short-term financing. The process begins with a government loan to participating farmers of designated crops (covered commodities, plus upland cotton, extra long staple cotton, wool, mohair, and honey). The loan is made at a specified \u201cper-unit\u201d loan rate using the crop as collateral. This loan rate, in effect, establishes a price guarantee. Prior to loan maturity, if the local market price (called the \u201cposted price\u201d) is at or above the loan rate, the farmer repays the loan principal and interest. In contrast, when the posted price is below the loan rate, the farmer may repay the loan at that price (called the \u201cloan repayment rate\u201d) and pocket the difference as a \u201cmarketing loan gain.\u201d Or, rather than taking the loan when the posted price is below the loan rate, farmers may request a \u201cloan deficiency payment,\u201d with the payment rate equal to the difference between the loan rate and the loan repayment rate. \nProgram benefits are available on the entire crop produced, which means a farmer receives no benefits in the event of a crop loss. This is in contrast to the other two programs (PLC and ARC) that make payments on historical acres and yields and therefore are not dependent on current production.\nIn the 2014 farm bill, for 2014-2018 crop years, loan rates remain the same as prior law except for upland cotton (see Table 1 for loan rates). The loan rate for upland cotton is changed from $0.52 per lb. to the simple average of the adjusted prevailing world price for the two immediately preceding marketing years, but not less than $0.45 per pound or more than $0.52 per pound.\nGiven recent relatively high price levels, the MAL program has paid only limited benefits in recent years for most crops. As a result, some farmers have criticized loan rates as being too low relative to prevailing market prices. MAL program benefits, combined with payments under PLC and ARC, are subject to a payment limit of $125,000 per person for all covered commodities (except peanuts, which has a separate limit of $125,000). Benefits derived from loan forfeitures are exempt from the limit. The 2008 farm bill did not have a payment limit for MAL. \nCotton Not Eligible for Either PLC or ARC\nBeginning with the 2014 farm bill, cotton is no longer a covered commodity and not eligible for PLC/ARC payments. Instead it is eligible for a new crop insurance policy called Stacked Income Protection or STAX. Cotton remains eligible for MAL but the loan rate was altered slightly as specified above.\nThe policy revision 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. As part of the transition, farm payments are made for upland cotton for the 2014 crop year, and for 2015 if STAX is not available. Payment acres in 2014 equal 60% of 2013 cotton base acres and 36.5% of 2013 cotton base acres in 2015.\nSeparately, the 2014 farm bill specifies that upon resolution of the trade dispute, funds paid by the U.S. government to Brazil (as part of an agreement made in 2010) may be used for research conducted collaboratively between Brazil and USDA research agencies or with a college, university, or research foundation located in the United States. Among several provisions, the agreement required annual payments of $147.3 million from the United States (via the Commodity Credit Corporation, CCC) to Brazil in order to provide technical assistance and capacity-building for Brazil\u2019s cotton sector, but it explicitly excluded funding research.\nPlanting Fruits and Vegetables on Base Acres\nAny crop may be planted without effect on base acres. However, payment acres on a farm are reduced in any crop year in which fruits, vegetables (other than mung beans and pulse crops), or wild rice have been planted on more than 15% of base acres (or 35% in the case of the individual coverage option for ARC). The reduction to payment acres is one-for-one for every", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43448", "sha1": "6d1ddad2d2ce9f96813348422442f700e9ed7d8a", "filename": "files/20140328_R43448_6d1ddad2d2ce9f96813348422442f700e9ed7d8a.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43448", "sha1": "67a1d9fe690987e9831752f10ed6e26c15c30a7a", "filename": "files/20140328_R43448_67a1d9fe690987e9831752f10ed6e26c15c30a7a.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 641, "name": "Farm Bill and Agricultural Policy" } ] } ], "topics": [ "Agricultural Policy" ] }