The House of Representatives passed the 2014 farm bill (Agricultural Act of 2014) at the end of January and the Senate passed the bill earlier this week.
“This legislation makes many changes from the previous legislation, but the single biggest change is the elimination of direct payments to farmers,” says Dwight Aakre, North Dakota State University Extension Service farm management specialist.
Direct payments originated with the 1995 Farm Bill but were called transition payments at that time. The expectation at the time was that the transition payments would decline through a five-year period and would be the end of government farm programs. Instead, the payments became part of the 2002 and 2008 farm bills and the name was changed to direct payments.
“Part of the reason for making direct payments a part of the farm program was to provide a mechanism to support farmers without impacting planting decisions,” Aakre says. “Therefore, the payments were considered nontrade distorting and easier to defend in negotiations with the World Trade Organization. Through time, critics of farm program payments saw these payments as a direct handout without regard to need. If the farm program was intended to be a safety net in times of need, these payments did not meet that test.”
The direct payments were part of the direct and counter-cyclical program (DCP). DCP has been repealed entirely in the new farm bill. Also eliminated is the Average Crop Revenue Program (ACRE), which was an alternative to DCP. ACRE support payments were based on crop revenue (yield times price) rather than price alone, as with DCP.
In place of DCP and ACRE will be two new programs. The Agricultural Risk Coverage (ARC) program will be one option farmers will have.
“This program will work much like the ACRE program because payments will be made based on a revenue shortfall relative to the benchmark revenue,” Aakre says.
“Unlike the ACRE program, where the entire state had to experience a revenue shortfall in the current year, the ARC program will use the county or the individual farm as the benchmark. This results in support payments when the revenue is less than the benchmark for either the county or the farm, which more closely reflects the actual condition an individual producer experiences.”
Producers will have to elect either the county or farm option. The county option pays up to 85 percent of the base acres, while the farm option is limited to a maximum of 65 percent of base acres.
The other major option is the Price Loss Coverage (PLC) program. This option will work much like the counter-cyclical payment under DCP.
“When the marketing year price for a covered commodity falls below the reference price, the difference is the PLC payment,” Aakre says. “Actual yields and acres planted do not factor into this calculation because payment acres are 85 percent of the base acres and payment yield is the base yield.”