WASHINGTON, Aug. 24, 2016 - Complaints
about disparities in Agriculture Risk Coverage payments continue to dog USDA’s
management of the program. But those concerns may pale in comparison to the
cost of addressing broader issues with ARC when lawmakers get down to writing
the next farm bill. Some ARC supporters fear there may even be attempts to kill
the program so the money can be used to address other demands for farm program
spending.
The
immediate concerns about the program stem from how USDA decided to determine
the county yields that are used to calculate revenue guarantees for each crop. USDA’s Farm Service Agency, which
administers the program, primarily uses average yields developed by the
National Agricultural Statistics Service (NASS) based on annual survey data. In
counties where NASS has insufficient data, USDA has been using yields compiled
by its Risk Management Agency, using data reported by farmers under their crop
insurance policies.
Because the yields reported to RMA are
often higher than the NASS yields, farmers in counties where USDA relies on RMA
data complain that they’re getting smaller ARC payments than
producers in counties with NASS data, or no payments at all.
Commodity groups argue that there is
no legal requirement for FSA to use the RMA yields when NASS data are
unavailable. The groups have variously pushed the FSA to consider using NASS
data from neighboring counties instead of RMA yields, or to use RMA data
exclusively, but FSA has so far refused.
According to the American Soybean Association, FSA officials told farm groups that
changing its policy could create “winners and losers” or increase the cost of
the program. FSA officials “also expressed concern that making a change in the
middle of the current farm bill could bring unwanted attention to differences
in yields that producers report to both NASS and RMA,” ASA said.
In a response to a query from Agri-Pulse, FSA
said it was using the “best statistically valid, producer-provided,
county-level data available” to ensure the integrity of the program.
FSA also said that it has received requests to double-check a number of county
yields for specific crops. “We continue to investigate these as they come to
us, but generally have not found errors,” the agency said.
With FSA refusing to change its
policy, farm groups are calling on producers to make sure they participate in
the NASS yield surveys this fall. They are also supporting a provision Sen.
John Hoeven, R-N.D., placed in the Senate agriculture appropriations bill that
would require FSA to test using neighboring-county NASS yields in counties that
don’t have their own data.
In North Dakota, where the problem may
be most acute, ARC payments on the 2014 corn crop would have been $15 million
higher than they were had FSA followed the procedure Hoeven proposed, said Dale
Ihry, executive director of the North Dakota Corn Utilization Council and North
Dakota Corn Growers Association. Hoeven’s proposed pilot program would be
capped at $5 million nationally for fiscal 2017.
Twenty-one of North Dakota’s
53 counties don’t have NASS soybean yields and 17 lack NASS corn data, Ihry
says. Twenty lack wheat yields.
The average RMA yield for corn in
North Dakota is typically eight to 15 bushels higher than the NASS yield in
years when there have been minimal crop losses reported to RMA, Ihry says. In
years where there are losses, the RMA yields are closer to the NASS yields.
There’s
speculation that farmers provide rosier yields to RMA in order to strengthen
their yield history, but Ihry believes the discrepancy between NASS and RMA
yields has to do with the timing of when the yields are reported. NASS surveys
are done starting in October, while insurance companies have until the
following April to provide RMA with yield data, matching sales receipts and
production to acres.
“To say the NASS yield is more
accurate than the RMA yield might be a stretch in some folks’ minds,
as RMA yields are yields calculated using all insured production and acreage in
the county,” Ihry said.
The bigger challenge for lawmakers
when they start writing the next farm bill is whether and how to address
county-to-county payment disparities that are inherent in the way ARC was
designed – and what, if anything, to do about the fact that ARC payments
nationwide will likely decline sharply in future years.
Congress could begin writing a new
farm bill next year, and John Gordley, director of ASA’s Washington office, is concerned that there
will even be attempts to eliminate ARC to free up funding for other concerns. Noting
that 96 percent of soybean base acres were enrolled in ARC, Gordley said his
group would likely want to keep the program as an option.
But cotton producers are seeking to
get cottonseed added in the Price Loss Coverage program. USDA has estimated
that would cost $1 billion a year. And the ranking Democrat on the House
Agriculture Committee, Collin Peterson, is looking to overhaul the Margin
Protection Program for dairy.
Economists say disparities in ARC payments often result from natural differences in yields from one
county to the next. Payments for the 2015 corn crop of $40 to $80 an acre will
be common across the Midwest, but there are a number of counties in Iowa,
Illinois, Kansas, Missouri and other states where farmers in some counties will
receive nothing, according to an analysis by University of Illinois economists.
The 2015 payments are scheduled to go out to producers in October.
In some cases, county payment rates
are low because of several recent years of low yields. If two or more
yields are below the long-run average yield in a county, then one of the three
yields used in calculating the county ARC revenue guarantee will be low. That
was why many southern Iowa counties didn’t collect ARC payments for 2014, said
Art Barnaby, an economist at Kansas State University.
Setting aside the county disparity issue, the total ARC payments are
expected to start declining nationwide after 2017. The revenue guarantees for individual crops are based on a
five-year moving average of annual market prices, which have fallen
dramatically since 2012 and 2013. The average price of corn has plunged from a
peak of $6.89 a bushel for 2012 to an estimated $3.15 for this year’s crop.
For the 2018 crop, no county that has
a corn yield that is equal to its five-year Olympic average (throwing out the
high and low figure) is likely get an ARC payment unless the average price for
the year falls below $3.18 a bushel, said Barnaby.
That prospect
is reflected in the Congressional Budget Office’s future cost estimates for ARC: Total ARC payments are expected
to hit $6.1 billion in fiscal 2017 but drop to $2.8 billion in 2019, $1.7
billion in 2020 and $782 million in 2022, if there are no changes in the program.
The Price Loss Coverage program, which
like ARC was created by the 2014 farm bill, triggers payments when market
prices fall below the fixed, reference price for a crop. PLC coverage may begin
to look more attractive to farmers, but it wouldn’t
offer much help for yield losses.
Jonathan Coppess, a former FSA
administrator now at the University of Illinois, and John Newton, an economist
at the American Farm Bureau Federation, recently analyzed four new approaches
to ARC aimed at addressing various concerns with the program.
One alternative
would make a relatively simple change to the benchmark revenue calculation by
allowing the higher of either a county’s 10-year average crop yield or the
five-year Olympic average yield. That change would have increased the 2014 ARC
payments for corn, soybeans and wheat by 13 percent, or $448 million, to $4.76
billion, Coppess and Newton found.
Another option would leave the yield
calculations unchanged but use state-level commodity prices instead of the
national average prices in setting revenue guarantees. That option would have
reduced payments by 1 percent for 2014.
A third option Coppess and Newton
tested would use state-level commodity prices and state-level yield
averages. The fourth alternative used national-level prices and yields.
Both those options would have reduced payments. The findings were presented at
the Agricultural and Applied Economics Association’s
annual meeting in Boston.
“We didn’t arrive at any conclusions at this point” as to which
option was best, Coppess said. “We were taking
a first crack at how you would look at different program designs at different
yields and prices, and what that might do,” Coppess said.
#30
For more news, go to: www.Agri-Pulse.com
