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.
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.
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