Average Crop Revenue
By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.
The farm bill approved by the Senate Agriculture Committee last week was a disappointment to those who thought this was the year for dramatic reforms.
But credit the committee for one thing. The inclusion of the Average Crop Revenue plan, even in scaled down form, was a significant event. In concept at least, the ACR is bold, even radical. It may point the way out of the current tangled farm subsidy system, toward a farm program that could win long-term public support.
In effect, the ACR is a step toward a “single payer” approach to protecting farmers from the risks of bad weather and falling prices. Over time it could lead to the dismantling of the current crazy-quilt of farm programs, sporadic disaster aid, and subsidized private crop insurance. In place of that hodge-podge would come a single government-run safety net tailored to supporting farmers in times of true economic adversity.
The modified proposal put forward by Sen. Pat Roberts (R-Kansas), and adopted by the committee, fell well short of that. But even it contains some striking philosophical breaks with the past.
For those farmers choosing to insure their incomes through ACR, there would be no more “non-recourse” loans, the basic pillar of the farm program for seven decades. ACR participants would also be ineligible for “target price” guarantees, a staple of the farm program since the 1960s. Even direct payments, the key innovation of the 1996 Freedom to Farm legislation, would begin to wither away.
That such an option could be approved by the Vatican of U.S. agriculture, the Senate Agriculture Committee, is worthy of note.
The initial proposal by Sen. Tom Harkin (D-Iowa), modeled on one supported by the National Corn Growers Association and key senators from corn states, went even further, striking not just at the philosophical roots of traditional farm programs but also encroaching on the territory of the private insurance industry.
For the first time the government would take on part of the role now played by the private insurers, paying farmers when statewide crop revenues fell below a norm for whatever reason, be it falling prices or bad weather.
Participating farmers would end up paying lower insurance premiums to private companies since the government would be taking on more of the risk. Reduced federal subsidies to the private companies would, in turn, produce savings the government could use to finance payouts to farmers with losses.
Furious lobbying by the crop insurance industry kept those provisions out of the compromise version.
Still, Sen. Saxby Chambliss (R-Ga.), the committee’s top Republican and defender of traditional programs that help southern crops, praised Harkin for “moving us in a direction that hopefully one day will lead to a change in how we do business.”
There are still plenty of reservations inside and outside the Beltway.
In the view of Tom Buis, president of the National Farmers Union, the big weakness of ACR is that payouts to farmers wouldn’t be based on local conditions, but on a formula pegged to a whole state’s crop revenues.
Because conditions can vary so widely within a state – even from town to town – farmers want risk coverage based on local conditions, Buis said. The tried and true commodity loan program fills that bill nicely and few farmers will give it up, he said.
Under ACR, he warned, a drought stricken farmer in western Kansas might get no help if high prices and bin-busting crops in the eastern half of the state pushed the state’s average returns above the floor for ACR payouts.
But what is driving ACR in the Senate now isn’t so much a desire to write good policy as budget considerations.
A decisive factor for including it was an estimate by the Congressional Budget Office that tens of thousands of farmers will sign up, saving the federal government more than $3 billion over the next five years. Senators on the Agriculture Committee were able to assign those savings to nutrition and conservation programs, buttressing support for the overall farm bill when the measure goes to the floor.
“Money drove this,” said a lobbyist who participated in some of the backroom discussions but asked not to be identified.
Buis for one is skeptical that many farmers will opt for ACR. But so far, CBO has stood by its score.
Whether ACR will survive or even be expanded when the farm bill goes to the Senate floor is anybody’s guess.
But even diehard defenders of the farm program acknowledge current policy can’t be sustained indefinitely. It is a bewildering mix of overlapping subsidies that include price support loans, price guarantees, automatic cash payments and subsidized crop insurance. The Senate farm bill will contain yet another component, a $5.1 billion disaster trust fund that Harkin says will benefit mainly a handful of low rainfall states.
Crop insurance subsidies and direct payments alone cost the government around $10 billion a year.
The thinking of those supporting ACR is that the government could use that money to fashion a simpler, less costly, common sense safety net by combining these programs, and eliminating the many loopholes. That’s a “new way of doing business” the American public might well support.
By Dan Morgan