The ink has hardly had time to dry on the finally-passed 2012 farm bill, but says John Anderson, farmers need to be spending time delving into its provisions and getting ducks in a row to comply with new, often complex rules.
“It’s still early in the game, and a lot of regulations will have to be written and a lot of work will have to be done for implementation,” he said at the annual Producer Advisory Council conference attended by farmers from across north Mississippi.
“But, you need to be familiarizing yourself with decisions that will have to be made,” says Anderson, deputy chief economist for the American Farm Bureau Federation, Washington.
That particularly applies to new rules regarding updating of bases, base relocation, and yield updating, he says. “If you’re involved in an operation with multiple landowners, maybe a lot of absentee landowners, or landowners that are widely dispersed, be thinking about how you can come together and make the decisions these new rules require, because it’s going to be the first challenge you’ll have to deal with.”
Among major points Anderson discussed in the new legislation:
Title 1 programs: “This is where commodity programs, countercyclical payments, etc., have always been. In this bill, we have a price loss coverage program, a price-based countercyclical payment, and we have updated reference prices. But in terms of how it will work and how payments will be calculated, who will be eligible, etc., it’s very similar to the countercyclical program we’ve previously had.”
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Ag Risk Coverage (ARC) at the county level “is very similar to ACRE (Average Crop Revenue Election), which wasn’t a terribly popular program in the South — essentially an area-based revenue program.
Ag Risk Coverage at the individual level, “sounds like county level ARC, but it’s not — it’s a vastly different program. I don’t think anyone in Mississippi is going to be very interested in this individual ARC program.”
Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX) are brand new programs, and, “This is where this farm bill gets a lot different from what we’ve seen in the past,” Anderson says. “These are insurance programs that will be administered by the Risk Management Agency — products that will be sold through crop insurance agents. There will be a subsidy on the premium, but they will function like insurance.
“SCO is an area trigger insurance policy that you can buy along with an individual policy. That in itself is a pretty big change in the farm bill. Before this, you could buy individual coverage or you could buy area coverage, but you couldn’t buy both at the same time. This bill specifically creates an area-based supplemental policy that’s designed to be purchased along with another individual policy.”
STAX program for cotton
STAX is a program very much like GRIP (Group Risk Income Protection), an area-based revenue program. “Essentially, STAX will be the program for cotton,” Anderson says, “and that significantly differentiates this farm bill from anything we’ve had in the past — taking the money that’s been associated with cotton support and putting it into an insurance program that is dedicated to cotton. That’s a pretty major change.”
STAX and SCO won’t be available until 2015, Anderson says, and “that’s a big difference. These programs will be administered by RMA, and RMA right now is in the process of trying to figure out insurance programs.
“What are the rates going to be for SCO and STAX, particularly for SCO, where we’ve not had a supplemental program like this before? How do you rate an insurance product that’s a supplement designed to work in conjunction with another insurance product?
“They’ve got to have some time to figure out the rating procedures, in addition to the logistics of getting this rolled out to the agency itself.
“Because cotton won’t have anything available until 2015, for 2014 there will be a transition payment that, interestingly, works out in its calculation pretty close to a direct payment.”
The Dairy Margin Protection Program “is very similar in design and intent to the Livestock Gross Margin product that’s available now,” Anderson says, “but implementation will be really different — it will be a standing FSA program.
“There were a lot of gory details in getting this program done, but suffice it to say that dairy was a hangup in the farm bill process — which has pretty much been the case for every farm bill that has ever been written.”
It is in the area of acreage bases, Anderson says, that “decision-making is going to be very important.
“There will be a one-time option to reallocate base acreage. This will be necessitated by cotton moving to the STAX program and not being paid on base acres any more. The other covered crop bases will have to be reallocated and updated to more accurately reflect what you’ve been planting in more recent years.
“You can also update yields, which I think will be very popular. Base reallocation and yield update will be decisions the landowner has to make, and this is going to be a lot of work for county FSA offices, dealing with cases where there are lots of landowners associated with a single farm serial number.
“As I read the law, this is going to require a unanimous decision among landowners, which means there will be a lot of effort spent in running down landowners to decide what to do on updating bases.”
Landowner decisions vs. farmer decisions
Program signup, Anderson says, “is going to be at the discretion of the farmer, whoever is farming the land — not the landowner. So, that’s something to keep straight in implementing farm bill provisions — decisions the landowner makes versus decisions the farmer makes.
“There will be a one-time signup: You’ll sign up for Price Loss Coverage (PLC), County ARC, or Individual ARC one time for the life of the farm bill, and it is an irrevocable decision.
“We’re told that PLC and ARC are going to be available in 2014, but we’re already two months into 2014, and there’s a lot to be done on this.
“I think the individual ARC program makes every other FSA program that’s ever existed look really, really simple in comparison. Individual ARC is a whole farm program, and revenue benchmarks and calculation of payments are going to be based on all of the commodities on all the farms you have in the state.
“This is going to be a very difficult program to administer,” Anderson says. “Think about what FSA is going to have to do just to calculate your revenue benchmark — they’re going to have to aggregate information across all of your crops and, for a lot of producers, across multiple counties.
“How much precedent do we have for sharing of information between county offices? They’re going to have to get software written, put in place, training done, and ready to go for 2014 — that’s what the law says. Whether they can actually do this is anyone’s guess.”
Price Loss Coverage: One thing to keep in mind, Anderson says, as Mississippi State University Extension and other agencies roll out educational programs on the farm bill, is that “PLC and County ARC are going to be offered on a commodity-by-commodity basis. So, if you have a rice or peanut base, you can sign up for PLC. If you’ve got a corn, soybean, or wheat base, you could sign those up for County ARC.
“I think this will be the decision that will be difficult for many to evaluate on a commodity-by-commodity basis — to decide, in which direction do I go? Do I go PLC or County ARC? In Mississippi, you’re fortunate to have some really strong resources through MSU and various farm agencies to guide you with these decisions.”
Individual ARC covers all commodities, Anderson notes, “So if you take that signup, all your commodities go into that program. That’s a feature that’s going to make this program very unattractive to Mississippi producers, who have very diverse production.”
Insurance for deductible
Supplemental Coverage Option (SCO) is an area-based program, he says, “that essentially allows you to insure your revenue protection coverage insurance deductible.
“If you’re buying 65 percent revenue protection coverage, that leaves you with a 35 percent deductible. SCO will allow you to cover part of that deductible, so you’ll have a higher level of coverage.
“You’re not covering that deductible with individual insurance based on your individual farm experience — rather, it’s going to be an area-based policy. So whether you get an indemnity or not will depend what happens at the county level. But it should provide some additional measure of support.
“It won’t be available until 2015, and the premium will be subsidized at 65 percent. I think there’s going to be a lot of interest in this program and that there will be a big effort by RMA to get this program out and try and have a good experience with it.”
SCO won’t be available to those who enroll in ARC or STAX, Anderson points out. “STAX will be available only for cotton, and will be a closely watched program in Mississippi. It’s also an area-based program that will cover between 70 percent and 90 percent of expected county revenue.
“You can buy it like SCO, in conjunction with an underlying individual policy, or as a standalone policy. This is new — we don’t have any experience with it — and we’ll have a lot to learn over the next couple of years.”
A fairly immediate priority for USDA, Anderson says, is reauthorization of the Livestock Forage Disaster Program and the Tree Assistance Program, which were outgrowths of the old SURE (Supplemental Revenue Assistance Payments) program, which was part of a suite of disaster programs “mostly centered on livestock, forage, and nursery-type crops (not for tree farms, but things like cherries, apples, other fruit trees, and ornamentals, like nursery stock).
“These have been reauthorized and as I understand it, will be retroactive. They will be the first programs USDA implements, with an announcement of rollout expected soon.
“These programs may not be that big a deal in this part of the country, but in South Dakota and other areas where they’ve had thousands of cattle deaths this winter, a lot of livestock producers are in dire circumstances, and I can assure you it’s a huge deal for them. I think it will be a real priority for USDA.”
Changes in crop insurance
Crop insurance: The new legislation makes permanent the Enterprise Unit subsidy, which was a pilot program for several years, Anderson says.
“I think this is a good thing. Enterprise units allow you to do some aggregation and get a little lower premium and a little more attractive subsidy on crop insurance. You will be able to develop separate irrigated and non-irrigated enterprise units, whereas in the past they were separate, and in lot of cases this was not terribly attractive.
“I think this change will make it more attractive to a lot of farmers; it should make guarantees and indemnities more closely match actual insurance, and make everyone feel better about how the crop insurance program is working.”
“Some clarification is needed, I think, in the Title XI crop insurance section, which prioritizes a peanut revenue protection insurance program and rice gross margin insurance for 2015.
“The language basically says USDA is going to do everything it can to make sure we have a functioning revenue protection program for peanuts and a gross margin program for rice by 2015. This has been a huge deal for the peanut industry.
“I’m not sure what USDA means by saying they’re going to make these a priority and do everything they can to get them done. But I think they will be putting some resources into trying to make these new products available.”
During discussions in Congress about moving the new farm bill more toward an insurance basis, Anderson says, “There was a lot of apprehension across the South, where we’ve not had as much experience — perhaps more bad experience — with crop insurance. But the reality is that farm programs are moving toward crop insurance, and we need to be taking a hard look at this and see how we can make it work for us.”
Payment limits: There is now a $145,000 limit on all Title 1 program payments, Anderson notes, which can be doubled for couples, as under current law.
“In practical terms, I think it’s a less restrictive payment limit than what we’ve had to this point. There was some dissatisfaction with this by some in Congress who wanted more restrictive payment limits. There is a $900,000 adjusted gross income limit, which as I read it, is a hard cap.”
Farm program costs: “We’ve all heard, and seen in the media, that the Congressional Budget Office has put the cost of this legislation at almost $1 trillion,” Anderson says.
“But keep in mind, that’s over 10 years, about $95.5 billion per year on average.
“That’s a savings over the 10-year baseline of about $17 billion, $14 billion of which essentially comes out of commodity programs, with a lot of the savings from repeal of direct payment and ACRE programs.
Agriculture's contribution to budget savings
“If we look at all the programs under USDA control, agriculture has made a significant contribution to deficit reduction — a lot more than they get credit for, and a lot more than a lot of other government agencies. A good portion of that savings will come back in the form of PLC, ARC, and the dairy program. Title XI, which is crop insurance, is getting a $5 billion to $6 billion increase, with new programs for STAX and SCO.
“But substantial savings is coming out of Title 1 nutrition programs. A lot of people would say nothing has ever been more controversial in farm bill debates than dairy programs, but this time around, nutrition programs were the overriding controversy, with Congress finally settling on $8 billion in cuts. That was a lot less than the $40 billion some were pushing for.”
Nutrition programs have been linked to commodity programs since the 1973 farm bill, Anderson notes.
“This formal, tight link existed because there have been a lot more legislators that care about urban issues than rural issues. Today there are only about 50 districts in the U.S. House that are predominantly agricultural. That’s not a lot of votes.
“This link between nutrition programs and farm programs has been instrumental in the past in getting enough votes to get farm programs passed. There was a lot of talk about separating the nutrition and commodity programs, but I think it remains to be seen whether we could get a farm bill passed without nutrition programs — it would be a tough road to go.”
Nutrition programs account for about 80 percent of farm bill spending, Anderson says, with 20 percent for commodity programs. “Nutrition is a huge part of USDA’s budget, and that’s probably not going to change. To think that we’d ever cut them to the point that there would be parity between commodity programs and nutrition programs is, I think, unrealistic. These programs have grown to meet a need and because there has been political support for them. To this point we’ve been able to harvest that political support and translate it into additional support for agriculture, and I think that strategy will continue to be used going forward.”
Much still remains to be done on formulating implementation rules and regs for the new farm legislation, Anderson says. “But, the more you can do to familiarize yourself with the changes, and what you will need to do going forward, will be to your advantage.
“I can honestly say I think Mississippi State University has one of the best teams I know of to go out and do educational outreach on these programs. They have a fantastic agricultural economics group, with a very engaged research component that can do very high level analysis on these programs, and an outstanding Extension Service to disseminate the information. You certainly will be well-served to avail yourself of this expertise.”