Delta Farm Press, NE
10-23-07
Average Crop Revenue attractive option, say supporters
By Forrest Laws
Farm Press Editorial Staff
It’s beginning to look like farmers will have the option of participating in a
revenue-based, counter-cyclical payment program in the next two or three years
no matter which version of the 2007 farm bill Congress passes.
The 2007 farm bill agreement that Senate Agriculture Committee Chairman Tom
Harkin unveiled Oct. 17 would give producers the choice, beginning with the
2010 crop year, of participating in a revenue protection program or remaining in a
traditional target price-based program.
Farmers could decide each year and by farm number whether they wanted to
remain in the Average Crop Revenue Program or ACR contained in the Harkin
proposal. (The farm bill the House passed in July also contains a revenue
counter-cyclical option for producers.)
“The optional ACR program better allows producers to manage their farm’s risk in
today’s uncertain and evolving farm environment,” Harkin told reporters
participating in a telephone news conference. “The program makes good fiscal
sense, too, as it can save $3 billion to $3.5 billion over five years.”
Harkin said savings from the ACR, which is similar to the revenue countercyclical legislation (S.1872) introduced by Sen. Dick Durbin, D-Ill., and Sen.
Sherrod Brown, D-Ohio, last summer, would mean more funds for conservation,
energy and rural development programs.
Acting Agriculture Secretary Chuck Conner seemed to endorse the ACR concept
during a press briefing following a speech at the World Food Prize event in Des
Moines, Iowa, although he said he hadn’t seen many details of the program.
The new ACR would provide participating producers a fixed payment of $15 an
acre on the lesser of the total crop base acres on the farm or the 2002-2007
average of acres planted to all covered commodities.
Unlike the current counter-cyclical program where payments are made when
crop prices fall below specific targets, farmers would receive average crop
revenue payments when the average per-acre revenue (price X yield) for a state
falls below the per-acre guarantee for that state.
The state-level guarantee equals 90 percent of the product of the expected state
average yield and the three-year moving average (including the current year) of
the pre-planting price used to calculate coverage for revenue insurance products
in the federal crop insurance program.
After the 2010 harvest, USDA would be required to calculate the actual state
revenue using the harvest price for the commodity under the revenue insurance
products and the actual state yield per planted acre. If the actual state revenue is
less than the state-level guarantee, producers would receive a payment equal to
90 percent of the difference adjusted for each producer’s average APH yield in
relation to the state yield.
The ACR program differs from the initial Iowa Corn Growers Association and
National Corn Growers Association counter-cyclical proposal in that the latter
would have generated payments based on county-level target revenue. USDA
officials and others have argued against the county-level revenue program
because it would be more expensive to operate.
“A revenue protection program in the 2007 farm bill offers a much-needed choice
to farmers,” said Ohio’s Brown. “Farmers can either stick with the current
programs that do little to protect against drops in revenue or switch to a forwardlooking policy that better protects against volatile crop prices, natural disasters
and rising production costs.”
In 2007, Brown noted, Ohio farmers faced devastating weather, including frost
and freeze conditions in early April that damaged fruit and vegetable production
and severe flooding in late August that ruined crops.
States in the Southeast, meanwhile, were hit by the early April “Easter” freeze,
but also have been suffering through a debilitating drought while upper Midwest
states, such as Iowa, have already received most of their annual rainfall for the
year. In either case, farmers probably would have received ACR payments.
The $3 billion to $3.5 billion in savings for the ACR would result from farmers
opting out of current program benefits to accept the revenue-based program.
Farmers who choose the ACR would no longer receive the direct payments or
loan deficiency payments contained in the 2002 farm bill or be eligible for nonrecourse loans.
“The Congressional Budget Office believes farmers will choose the ACR,” said
Harkin. “If they chose the ACR, that means we will not be spending as much on
loan deficiency payments.”
Brown said he decided to introduce legislation authorizing the revenue countercyclical program contained in the Durbin-Brown bill after hearing from
constituents who are corn farmers and members of the National Corn Growers
Association.
He said the Durbin-Brown bill’s proposals were developed by Carl Zulauf,
professor of agricultural economics at Ohio State University. (The original idea
supported by the Iowa Corn Growers Association and the National Corn Growers
Association was based on the group revenue insurance program conceived
by ag economists at Iowa State University, however.)
“The ACR program would provide a better safety net for farmers by replacing
price-support programs with a comprehensive, two-tier revenue protection
program,” he said. Under the ACR, farmers would rely on private revenue
insurance at the individual level, while the government handles widespread
losses at the state level where the private insurance market is ineffective.
According to Brown, the benefits of the approach would include:
• Better protection for farmers by protecting overall farm revenue rather than
price. Iowa State University modeling estimates that the cost will be about threefourths of today’s insurance while providing farmers with revenue protection of 90
percent.
• Less production distortions by using a revenue target that adjusts with the
market rather than target prices and loan rates set by Congress. The current
program can encourage farmers to “plant for the program” and not for market
demand. The ACR program reduces the incentive to overproduce on marginal
land and helps reduce trade distortions. All commodities are treated equally
based on market risk.
• Private crop insurance works better by integrating private revenue insurance
with federal revenue protection into a comprehensive program — making private
revenue insurance more cost effective and allowing higher coverage levels at a
lower cost for farmers.
• The program would also save money due to efficiencies by integrating crop
insurance and commodity support programs, and eliminating excessive and
duplicative payments. “No longer will payments be made when prices
momentarily fall, but a farmer’s overall revenue is up,” said Brown.
Farm-group response to the ACR proposal was luke-warm.
“We are not enamored with the proposed revenue-assurance option and have
numerous questions and concerns about how it would work and benefit those
who select it,” said National Farmers Union President Tom Buis.
“However, it is optional, not mandated, and if it helps accomplish the goal of
moving the farm bill forward, we are supportive,” he said.
e-mail: flaws@farmpress.com