Revenue-based program offers protection against low prices and/or yields

For the full article, click on the headline above.

When it comes to reform, there isn't much in the recently (almost) passed 2008 Farm Bill. However, one provision sought by the Administration and included in a voluntary form is the state-based average crop revenue elections (ACRE) provisions in this year's bill.

Jon Doggett, vice president of public policy at the National Corn Growers Association, said the program encourages "good, responsible production practices" and addresses the real needs of the market while moving away from traditional subsidy programs.

The traditional program currently only protects against low prices, but not against low yields. For instance a drought devastated corn yields in Illinois but producers weren't able to cash in on loan deficiency payments because they didn't have any corn to sell. The ACRE program protects against low yields and/or low prices.

Carl Zulauf, extension economist at OhioStateUniversity, has put together a short one-page summary of the program. Find it by clicking here.  Zulauf also put together a short summary comparing traditional programs with ACRE. Find it by clicking here.

Essentially farmers choosing to participate in the revenue-based countercyclical program (ACRE) program would forego 20% of direct payments and 30% cut in marketing loan rates. The first year farmers can sign-up for the program is the 2009 crop, and once entered into the program, farmers must remain in the program for the balance of the farm bill.

Participants in ACRE will be eligible for state-based coverage with a revenue guarantee equal to 90% of the 5-year state average yield per planted acre (excluding the years with the highest and lowest yields) times the 2-year national average price for the covered commodity.

If the actual State revenue (yield per planted acre times the national price) is less than the revenue guarantee, and if the producers suffer a loss on their farm, then they will receive an ACRE payment equal to the difference between the State revenue guarantee and the actual revenue for the crop year up to 25% of the revenue guarantee. ACRE revenue payments are made on 85% of the acreage planted or considered planted to the covered commodity. For years 2009 to 2011, payments are limited to 83.3% of planted acreage.

The USDA criticized that the program was bloated and instead of being a supporter in the end, used it as ammunition behind President Bush's veto threat. The administration cited that as many as 90% of corn, soybean and wheat farmers would sign-up for the program. However, the Congressional Budget Office, the independent and official budget analyst of federal government, assumed dramatically lower participation rates after investigating and talking to experts. 

A statement from American Farmland Trust and NCGA defended the program, saying "ACRE significantly reforms how U.S. commodity programs operate addressing each of these areas. It reduces market distortions and lowers loan deficiency payment rates, cuts direct payments and saves money. ACRE is an option to replace the politically set fixed price-based support programs with a revenue-based program that links to market prices. And it requires producers to prove they have suffered a loss before receiving payments."

In future blogs, I plan to look at who benefits the most from the program and what level of participation might be expected. It will be important for farmers to understand the costs of the program since once signed-up, producers have to remain in the program for the remainder of the life of the farm bill (2012).

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