The US Senate is expected to conclude its debate this week on the Farm Bill amidst a flurry of amendments, before a select group of Members of the House and Senate will meet to reconcile the differences. One of the amendments may be the proposal by Senators Durbin of Illinois and Brown of Ohio to use state-based yield and price calculations to define the financial safety net for farmers, and then integrate it with the crop insurance program. How will that work for you?

Considerably more complex than a national market loan rate, and even more complex than the calculation of Posted County Prices, the Durbin/Brown plan contains a revenue counter-cyclical program which may pay farmers in one state, but not the next, since it is based on localized factors. Ag economists Richard Taylor and Won Koo at North Dakota State University analyzed the proposal, which came close to adoption by the Senate Agriculture Committee, and comes from a concept proposed by the National Corn Growers Association. Since there is very little correlation between a producer’s yield and the national yield, the proposal compares a producer’s yield with the closer state average to determine if a support payment is made. Those correlations are 68% for wheat, 81% for corn, and 79% for beans.

Under the plan, any crop insurance indemnity payment would be reduced by the amount of the Revenue Counter Cyclical Payment (RCCP). For example, multiply the state yield by the state average price to get a revenue target. If your farm’s revenue did not reach 90% of that state target, then you may qualify for an RCCP payment, but not both the payment and a crop insurance indemnity payment. If you carried crop insurance, your revenue shortfall would be covered by an indemnity check, adjusted downward by the amount of the RCCP payment you had received. Farmers would be unable to collect twice for the same production shortfall. Revenue insurance programs could be bought has high as 95% of expected revenue.

The North Dakota researchers developed scenarios based on the House-passed Farm Bill, the Harkin plan to be debated in the Senate this week, a status quo based on current farm safety net calculations, plus a trio with 75%, 85%, and 95% crop insurance guarantees with the RCCP payment program. For the period of 2008 to 2012, all of the proposals return more money to average profit farms than would the current farm program payment mechanism. Taylor and Koo say, “The state-level RCCP proposals provide slightly greater support than the House scenario, but, in most cases, lower than Harkin’s scenario. The main reason for the greater support is that the RCCP proposals utilize Harkin’s higher target revenue levels, but at the state level.” Farms in a higher profit category would benefit the most from the Harkin plan, then the House, then the base plan, but the 95% RCCP plan would eclipse the Harkin plan for revenue. Taylor and Koo say there is only a 2% difference between the 75% and 95% plans when they are averaged over a 5 year period.

While the Durbin/Brown plan is novel, the integration with crop insurance results in a safety net that is quite close to the Harkin and House plans for commodity price supports. The state-level revenue targets do lower income variations since the counter-cyclical program is based on state statistics, and not a national average. Taylor and Koo expect crop insurance costs to decline, “The integration of federal crop insurance with the RCCP will reduce crop insurance premiums in the states. Payments will occur less frequently and at lower levels, but in the long-run, it will not change net farm income levels because insurance premiums will decline.”

To evaluate the Durbin-Brown proposal for your farm, use the Farm Bill Scenario Analyzer.

Summary:
Within a day or two, the Senate will determine whether the Revenue Counter Cyclical Payment program will be part of the Senate Farm Bill, and if so, it will then be discussed by the Conference Committee to reconcile the House and Senate versions. The program is the first to integrate crop insurance and farm price supports, and the first to use state-based yield and price statistics to establish a revenue target as the basis for any safety net payments.