farmgate: ACRE May Be A Farm Program, But It Is Also An Ag Policy Experiment.
A commenter about Monday’s posting on the SURE disaster aid program expressed exasperation about the complexity of SURE as well as the ACRE program that Congress designed to replace conventional direct and counter-cyclical payment programs. Probably many farmers have felt the same way after staring at the formulas and trying to determine whether it would be advantageous to sign up or not. Recently an agricultural policy analyst for the Congressional Research Service also looked at the ACRE program in an effort to explain to Members of Congress what they had done in creating it.
So far in the short life of the ACRE program, and even before sign-up has begun, there have been wide spread opinions on whether it will or will not benefit farmers. Many thoughts have come from farm organization and from agricultural economists who study Cornbelt farm programs. While most have advocated ACRE, a few have urged a wait and see attitude. But what about someone who is looking at ACRE from a totally different perspective, and not having any suggestion about whether farmers should sign-up or whether it will be a beneficial program or not?
Dennis Shields, an agricultural policy analyst for the Congressional Research Service, in his March 4th assessment offered several thoughts about ACRE that have not been heard frequently, and has not yet been posted on CRS websites. The main purpose of Shields is not to criticize the ACRE program or promote it, but to educate the typical Member of Congress about its purpose and impact on the federal budget.
Shields reviews the purpose of ACRE, which he says was designed to provide benefits to producers when farm revenues drop, not just yield or prices, but their combination. He also works through an explanation of state revenue trigger calculation, the farm revenue trigger calculation, and how the two are merged with other calculations. That is where the interests of farmers and the interests of the Members of Congress diverge. While farmers try to determine if ACRE would be of an economic benefit to their farm, the CRS analyst turns his focus on political and fiscal issues.
1) Shields says the World Trade Organization, which determines global trade rules, would not look kindly on ACRE and may penalize the US because it may spend more on farmers than allowed.
2) He notes that ACRE calculations are moving averages, determining benefits to farmers based on the prior year crops and prices, but with a 10% limitation on how much change is allowed.
3) Payment limits from ACRE are outlined in the report, which puts a $65,000 maximum per person, but raises total payment limits to $105,000 when the direct payments are added, and further raises it to $210,000 to allow for couples operating a farm.
4) Shields tells Congress that the key to the ACRE decision is a farmer’s expectation of prices over the next few years, “If prices are expected to remain high enough so that ACRE payments are not triggered, farmers may stay with traditional programs because they would not give up any direct payments.”
5) He says farmers whose plantings and base acres vary substantially may see an appeal to ACRE because he may not get as much money from counter-cyclical prices that are determined by his base acres. He also tells Congress that ACRE will have more appeal to dryland wheat farmers with high yield variability than to Midwestern corn farmers with sufficient rainfall and steady yields.
6) The CRS analyst also says budgetary outlays for ACRE on only estimated at $4.9 billion from Fiscal Year 2010 to Fiscal Year 2014, and that payments will not be made on the 2009 crop until 2011 after the marketing year ends.
7) He says the outlay estimate is based on declining prices of commodities, but that price levels will remain high enough not to trigger any load deficiency payments and marketing loan benefits.
8) Shields says since an ACRE payment must be triggered by both state and farm revenue deficiencies, farmers would probably chose revenue-based crop insurance to protect against the scenario of one being triggered, but not the other.
9) The ag policy analyst says the test of success will come when it is time for farmers to sign up for ACRE, and when 2009 harvest prices are determined which will give a hint about the effectiveness of the program and whether it will be called into question. He suggests that the time of the payments, which would be in early 2011 for the 2009 crop, would create issues.
10) Finally, he suggests that since farmers have to trade in some of the benefits from Direct and counter-cyclical payments and the loan rate, and that process may set a precedent for future years of trading benefits from one program in exchange for another, which may include: farm programs, crop insurance, and disaster programs or with environmental programs that include carbon sequestration and emissions of greenhouse gases.
Summary:
While the ACRE program is a new generation of risk management programs offered by USDA to reduce revenue risk, the outcome of the experiment is far from being determined, and it may prove to be insufficient. However, ACRE may also prove to be a precedent that allows farmers and USDA to trade for various economic and environmental benefits.
(The ACRE Report has yet to be posted on the CRS website.)
Posted by Stu Ellis on March 17, 2009 12:31 AM to farmgate