Deal Reached on 2014 Farm Bill
On February 7, 2014, President Obama signed the Agricultural Act of 2014. Overall, the Farm Bill extends most of the major federal farm and nutrition assistance programs through 2018. However, the bill also contains major reforms including eliminating the direct payment program, streamlining and consolidating numerous programs to improve their effectiveness and reduce duplication, and cutting down on program misuse. The bill also strengthens our nation’s commitment to support farmers and ranchers affected by natural disasters or significant economic losses, and renews a national commitment to protect land, water, and other natural resources.
The Agricultural Act of 2014 (2014 Farm Bill) is divided into 12 titles covering commodities, conservation, trade, nutrition, credit, rural development, research, forestry, energy, horticulture, crop insurance, and miscellaneous. Below is a short summary and analysis of several of the issues and changes of the 2014 Farm Bill.
COMMODITIES
Beginning with the 1996 Farm Bill, crop farmers have been provided with, in one form or another, direct payments based on historical yields and acreage. Since 1996, the average amount of direct payments to farmers has been around $5 billion a year. One of the largest changes made in the 2014 Farm Bill is the repeal of Direct Payments, Countercyclical Payments, and Average Crop Revenue Election, effective with the 2014 crop year. The 2014 Farm Bill replaces those programs with two risk management programs aimed at protecting farmers against volatility in either commodity prices or their revenues.
Under the 2014 Farm Bill, farmers are now required to make an irrevocable choice, in effect for the 2014 through 2018 crop years, between two programs for counter-cyclical price protection: Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). Both the PLC and ARC are available for all program crops except cotton. If no choice is made between ARC or PLC, the farmer is automatically enrolled in PLC. For the most part, the election can be made crop by crop.
Producers who enroll in ARC will have a one-time opportunity to select ‘Individual ARC,’ an individual whole-farm revenue guarantee program which calculates revenue on a multi-crop basis, or “County ARC,’ which calculates county revenue on a commodity-by-commodity basis. Both options guarantee a producer’s revenue between 76-86% of the average five-year revenue benchmark. Payments will be made on 85% of base acres for county ARC and 65% of base acres for individual ARC. If the producers on a farm elect to receive ARC payments based on their individual farm revenue rather than county revenue, then all covered crops are enrolled in ARC and they cannot participate in the PLC for any crop.
The PLC program operates much like the previous counter-cyclical-payment program with a fixed reference price for each covered crop. When the season average price for any covered crop falls below the reference price, farmers are paid the difference between that crop’s reference price and the higher of the national average 12-month market price or loan rate. Payments will be made on 85% of base acres at fixed program yields. Participants have a one-time opportunity to retain current base or reallocate existing base in proportion to the average planted (and prevented plant) acres in 2009-2012 not to exceed current total base. Producers also have a one-time opportunity to update the farm’s payment yields on a commodity-by-commodity basis to 90% of their average 2008-2012 yields.
CONSERVATION
Overall, the 2014 Farm Bill makes a number of changes to the conservation title. The 23 existing programs have now been consolidated into 13 programs while also reducing the total amount of acreage that may be enrolled in conservation programs. In addition, receiving payments through conservation programs does not impact eligibility for other payments.
The Conservation Reserve Program pays farmers to remove sensitive lands from production of agricultural crops in a way that should reduce nutrient loadings and prevent soil erosion. The current maximum enrollment is 32 million acres for 2013. The Farm Bill gradually reduces the number of acres that can be enrolled in CRP from 27.5 million acres in 2014 to 24 million in 2018. The Conservation Stewardship Program is expanded by this new legislation to include pasture land capable of supporting livestock production. The "sod saver" provision in the new legislation limits crop insurance subsidies for the first few years in which land is newly converted to crop land. This provision is a disincentive for farmers to convert native grass lands for crop use.
In addition, the Environmental Quality Incentives Program (EQIP) preserves conservation priorities for invasive species management, soil health and air quality by providing payments to participating farmers who otherwise forego income by participating in this program. However, the new legislation imposes payment caps for EQIP contracts of $450,000 per person for all contracts entered into from fiscal 2014 through 2018.
The new farm legislation also includes an Agricultural Conservation Easement Program which consolidates the Wetland Reserve Program, the Grassland Reserve Program and the Farmland Protection Program. The new legislation imposes a land ownership requirement of 24 months before an agricultural producer would be eligible for a conservation easement under the program. The program is designed to allow the Department of Agriculture to facilitate and provide funds for the purchase of conservation easements, which would generally be permanent or for the maximum period allowed by state law with the federal share of the cost between 50 and 100 percent.
CROP INSURANCE
The 2014 Farm Bill strengthens crop insurance, which is an essential risk management tool. With crop insurance, farmers invest in their own risk management by purchasing insurance policies so they are protected in difficult times. Within the Crop Insurance Program, the Farm Bill makes several changes of note. First, it establishes a new Supplemental Coverage Option (SCO) which allows the purchase by farmers of additional insurance to cover losses not covered by individual crop insurance policies. The SCO, available to crops enrolled in PLC beginning in 2015, provides a 65% premium subsidy and coverage is available between a producer’s bought-up individual coverage and 86%. Additionally, the bill establishes the Stacked Income Protection Plan for cotton producers because cotton is not eligible for the ARC or PLC programs. These two programs will not be available until the 2015 crop year.
The Farm Bill also includes provisions that require the implementation of specific conservation measures by farmers and ranchers in order to qualify for federal crop insurance subsidies. Beginning farmers and ranchers will also receive crop insurance premium assistance 10 percentage points higher than premium assistance that would otherwise be available.
NUTRITION
The 2014 Farm Bill makes the first reforms to the Supplemental Nutrition Assistance Program (SNAP) since the welfare reforms of 1996 while maintaining critical food assistance for families in need. The farm bill closes a loophole being used by some states to artificially inflate benefits for a small number of recipients. The new legislation prohibits USDA from engaging in SNAP recruitment activities, and advertising SNAP on TV, radio, billboards & through foreign governments. The bill also demands outcomes from existing employment and training programs and increases assistance for food banks. Additionally, the new legislation stops lottery winners from continuing to receive assistance, increases program efficiency, cracks down on trafficking, fraud and misuse, and invests in new pilot programs to help people secure employment through job training and other services.
DAIRY SUPPORT PROGRAMS
In repealing the Dairy Product Price Support Program, the Milk Income Loss Contract, and the Dairy Export Incentive Program, the 2014 Farm Bill established two new programs, the Margin Protection Program for Dairy Producers (MPP) and the Dairy Product Donation Program (DPDP). The MPP is a voluntary program aiming to provide payments when actual dairy margins (not prices) are below the margin coverage levels the producer chooses on an annual basis. The DPDP is a program that requires the Secretary of Agriculture to immediately procure and distribute certain dairy products, and thus provide support to the dairy industry, when milk income compared to feed costs falls significantly. However, the new legislation does not include the stabilization program sought by many dairy farmers and supporters. If a producer expands production higher than the national average, anything above the base would get lower indemnity payments if prices drop. Therefore, rather than a supply management program, it provides a disincentive for a producer to increase milk production.
FORESTRY
The 2014 Farm Bill makes a number of changes to the Forestry Program. It establishes a new program allowing the Forest Service to work with state officials to designate critical areas with the national forest system in order to address deteriorating forest health conditions due to insect infestation. The bill also permanently authorizes the Forest Service and the Bureau of Land Management to enter into stewardship contracting projects, which would allow the revenue gained from timber sales to fund forest restoration.
The bill also repeals five forestry programs including the Forest Land Enhancement Program, Watershed Forestry Assistance Program, Cooperative National Forest Products Marketing Program, Hispanic-Serving Institution Agricultural Land National Resources Leadership Program and the Tribal Watershed Forestry Assistance Program.