**Cost**

**- Benefit Assessment** 

DATE: March 21, 2014 CONTACT: Dale Leuck

Dairy and Sweeteners Analy sis Group Economic and Policy

Analy sis Staff Phone: (202) 720

- 0114

**I. Title**  Supplemental Agricultural Disaster Assistance Programs, Pay ment L imitations, and Pay ment Eligibility , as provided for in Title I , Sections 1119, 1501, 1603, 1605 , 2205, 2206, and 12305 of the Agricultural Act of 2014 (2014 Farm Bill)

**II. Executive Summary**  This final rule implements four disaster assistance programs , pay ment limitations, and pay ment eligibility changes authorized by

the 2014 Farm Bill . The four disaster assistance programs are :

 The L ivestock Indemnity Pay ments Program (LIP)

— LI P pay s live stock producers who suffer (1) livestock death losses in excess of normal mortality due to adverse weather during the calendar ye ar as determined b y the Secretary , including losses due to hurricanes, floods, blizzards, disease, wildfires, extreme heat, and extreme cold; or (2) livestock deaths in excess of normal mortalit y due to attacks b y animals reintroduced into the wild by

the Federal Government or protected by Federal law, including wolves and avian predators ;

 The L ivestock Forage Disaster Program (L FP)

— LFP pay s livestock producers who suffer grazing losses due to drought, and to livestock producers on federall y managed land that suffer grazing losses due to fire;

 The Emergency

Assistance for Livestock, Honey Bees, and Farm

- Raised Fish Program (ELAP)

— ELAP pay s producers of livestock, honey bees, and farm

- raised fish to aid in the reduction of losses due to disease, adverse weather, or other conditions such as blizzards, wildfires, or feed or water shortages, as determined b y the Secretary , that are
no t covered under LIP and LFP; and

 The Tree Assistance Program (TAP)

— TAP pay s orchardists and nursery tree growers who planted trees for commercial purposes, or who have a production history for commercial purposes, but lost the trees as a result of a natural disaster. These four program s are now permanent and funded through the Commodity Credit Corporation ( CCC ) . Previously , funding was provided by the Agricultural Disaster Relief Trust Fund established under Section 902 of the Trade Act of 1974. They are also retroactive, covering los ses that have occurred since October 1, 2011. In addition, new LFP d rought designation categories increase the number of monthly pay ment levels. P ay

ment s for the se four programs are expected to total $6.02 billion for 2012

- 202 3, averag ing $50 2 million an nually . Of that, 84 percent, or $5.06 b illion , reflect s expected LFP payments. N earl y 44 percent of those LFP pay ments are expected to cover forage losses in 2012 and 2013, 2 of the worst drought ye ars in2

recent history , with 49 percent of the LFP pay men ts covering 2012

- 201 4

. With pay ments commencing in fiscal ye ar 2014, the net present discounted values are expected to total $5.1 billion with a 7 percent discount rate or $4.5 billion with a 3 percent discount rate.

Th e final rule also implements changes to eligibility criteria and pay

ment limits mandated by

the 2014 Farm Bill for all Title I and some Title II programs. Since this is the first rulemaking following passage of the 2014 Farm Bill, it is necessary to also implement changes to eligibility criteria and pay

ment limits as mandated by the 2014 Farm Bill for all Title I and some Title II programs b y amending 7 CFR Part 1400.

The average Adjusted Gross I ncome ( AGI ) c riteri on is simplified by using a single total income threshold o f $900,000 instead of the 2008 Farm Bill’s multiple farm and nonfarm income thresholds . The p ay

ment limits for LFP, LIP, and EL AP are increased to $125,000 (across all three programs), potentially increasing outlay s when produc ers face adverse conditions. TAP has an independent pay

ment limit of $125,000. Separate from the disaster programs, Marketing Assistance Loan benefits

-- loan deficiency pay ments (L DPs) and marketing loan gains (MLGs)

-- are now included in a $125,000 pay ment limit which also cove rs benefits from the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. There is a separate $125,000 pay ment limit for peanuts. USDA is projecting modest aggregate LDPs or ML Gs over the next 10 fiscal years, so including those benefi ts in the group $125,000 limit will not result in significant outlay

reductions

. **III. Program Provisions**  **in More Detail (Focusing on Changes from the 2008 Farm Bill)**  The 2014 Farm Bill makes five important changes to the disaster assistance provisions of this rule relative to those in place under the 2008 Farm Bill and FSA is making several discretionary changes :

 They are made permanent; hence they are not dependent upon future legislation for their funding.

 Under LFP, the drought designation categories, discussed in more detail below, have been changed in such a way as to significantl y increase benefits.

 The Risk Management Purchase Requirement contained in the 2008 Farm Bill has been eliminated, possibly

i ncreasing LFP pay

ments.

 Compensation for water hauling is shifted from Emergency Conservation Program (ECP) discretionary

funding to EL AP , this is not expected to significantl y change the pay ments

. (See table 4.)

 Total EL AP pay

ments are reduced from $50 million annually to $20 million.

 Discretionary

changes to EL AP discussed below for fisheries may add an estimated $1 million per y ear to cover losses in additional states.

 In creases in pay

ment rates for hives for losses due to Colony Collapse Disorder ( CCD), may increase pay

ments by 5 percent in 2012, 10 percent in 2013, and 1 5 percent in 2014 and going forward.

 Changes to estimated LIP pay ments were made with adjustments for cattle prices (26 percent increase) and cow inventories (12 percent increase)

. (See table 4.)3

 Changes to LFP pay

ments were made with increases for the tier levels established by the 2014 Farm Bill, increases in the pay ment rates, and decreases in cow inventories. (See tables 1 and 4.)

 Decreases in the TAP pay ment rate may

decrease pay

ments approximately

$0.1 million per year and adding payments for losses due to citrus greening may add approximately $1.5 million per y ear. (See table 6.) Additional, more detailed program

- specific changes are noted below.
**Livestock Indemnity Program** 

The 2014 Farm Bill specifies the terms and provisions of LI P , and a dministration of the program is subject to little variation or flexibility from the statutory

authority

. The key

statutory change from the 2008 Farm Bill involves inclusion of add itional predators as a cause of loss. The key administrative change provides producers with greater flexibility in documenting losses that occurred in late 2011, 2012, and 2013. LIP provides disaster relief to eligible producers of eligible livestock th at have died, in excess of normal mortality , as a result of adverse weather, as determined by the Secretary , including hurricanes, floods, blizzards, disease (if exacerbated by an eligible adverse weather event), wildfires, extreme heat, and extreme cold. The 2014 Farm Bill expands eligibility to also cover livestock deaths in excess of normal mortality due to attacks by

animals reintroduced into the wild by the Federal Government or protected b y Federal law, including wolves and avian predators.

E ligibl e livestock means only adult and non

- adult beef cattle, dairy cattle, buffalo, beefalo , bison, equine, sheep, goats, deer, swine, poultry or other livestock as determined by the Secretary , that died as a direct result of an eligible adverse weather event o r from attacks by animals reintroduced into the wild by the Federal Government or protected b y Federal law, including wolves and avian predators. An eligible adverse weather event includes hurricanes, floods, blizzards, disease if exacerbated b y an eligib le adverse weather event, wildfires, extreme heat, and extreme cold. On the day they died, eligible animals must be:

 Owned b y an eligible owner or in the possession of an eligible contract grower, and

 Maintained for commercial use as part of a farming op eration. “Commercial use” means used in the operation of a business activity engaged in as a means of livelihood for profit by

the eligible producer. “Farming operation” means a business enterprise engaged in the production of agricultural products.
Ap plicants must provide verifiable documentation of livestock deaths claimed, as specified in the implementing rule. For the late 201 1 through 2013 program y ears, documentation requirements for livestock losses will be less restrictive in response to a reco mmendation in the 2014 Farm Bill Conference Report that “the Secretary take into consideration that the compilation of records b y the producer can be extremely difficult or even impossible and to exercise flexibility when determining what constitutes an ac ceptable record.”4

In eligible livestock include livestock that: (1) D ied for reasons other than as a direct result of an adverse weather event or the cause of death was not exacerbated b y the adverse weather event; (2) W ere produced or maintained for reasons other than commercial use as part of a farming operation; (3) A re wild or free roaming; or (4) W ere not owned or in the possession of an eligible owner or contract grower on the day they died.

L ost or reduced production, as in the case of milk or eggs, is not an eligible loss. LIP does not require a county to have been named in a Secretarial or Presidential disaster declaration for a producer to be eligible for benefits, and specifies an indemnity rate of 75 percent of the market value of the a pplicable livestock on the day before the date of their death, as determined b y t he Secretary

. Both of these provisions are unchanged from the 2008 Farm Bill. Eligible LIP recipients

— as well as other disaster program recipients

— were, in the past, requir ed to obtain crop insurance or Non

- insured Crop Disaster Assistance Program (NAP) coverage. Under the 2014 Farm Bill, they are no longer required to do so under an y of the four disaster assistance programs. The elimination of this Risk Management Purchas e Requirement is expected to encourage somewhat higher disaster program participation.
**Livestock Forage Disaster Program**
LFP pay ments are issued to eligible livestock producers who suffer grazing losses in counties due to qualify ing drought (rated by t he U.S. Drought Monitor as severe, extreme, or exceptional), or fire. For LFP, the 2014 Farm Bill retains program language contained in the 2008 Farm Bill. I n certain cases, the pay ment amount is increased compared with LFP established in the 2008 Farm B ill. For example, an eligible livestock producer that owns or leases grazing land or pastureland that is phy sically located in a count y that is rated as having at least a D3 (extreme drought) intensit y in an y area of the count y at an y time during the norm al grazing period for the county is eligible to receive assistance equal to 3 monthly pay ments compared with 2 monthly pay ments under the 2008 F arm B ill. As in the 2008 Farm Bill, LFP pay ments for grazing losses due to drought will be issued based on 60 p ercent of the smaller of: ( 1) T he monthly

feed cost for the total number of covered livestock, or ( 2) T he monthly

feed cost calculated by

using the normal carry ing capacity of the eligible grazing land.

Feed costs are calculated based on the cost of cor n needed to sustain 1 animal unit, defined as 1 adult beef animal, for 30 day s based on 15.7 pounds of corn per day . Payments for other livestock (of different weights or ages) are based on their conversion into livestock units.5

An eligible livestock p roducer may receive assistance under LFP for drought

- induced grazing losses that occur on land that is native or improved pastureland with permanent vegetative cover or that is planted to a crop planted specifically for the purpose of providing grazing for covered livestock. An eligible livestock producer may not receive assistance for losses occurring on land used for hay ing or grazing under the Conservation Reserve Program (CRP). Covered livestock are livestock of an eligible producer (including contr act growers) that, during the 60 day s prior to the beginning date of a qualify ing drought or fire condition, the eligible producer: owned; leased; purchased; entered into a contract to purchase; or sold or otherwise disposed of due to qualify ing drought co nditions. Covered livestock does not include those that were, or would have been, in a feedlot on the beginning date of the qualify ing drought or fire condition as a part of the normal business operation of the eligible livestock producer, as determined b y the Secretary

.
LFP specifies the number of monthly feed compensation pay

ments that producers are eligible to receive according to the severit y of the drought, as designated b y the U.S. Drought Monitor. Producers may

receive 1 , 3 , 4 , or 5 monthly pay men ts depending upon the severit y of drought conditions during the calendar ye ar. The 2014 Farm Bill makes changes to the pay ment amount that an eligible producer may receive, as described in the table below. Drought intensity Drought length (during normal

grazing period) 2008 Farm Bill

— amount equal to 2014 Farm Bill

— amount equal to D2 8 consecutive weeks 1 monthly pay ment 1 monthly

pay ment D3 at an y time 2 monthly pay ments 3 monthly

pay ments D3 4 consecutive weeks 3 monthly pay ments 4 monthly

pay ments D4 at an y time 3 monthly pay ments 4 monthly

pay ments D4 4 consecutive weeks n/a 5 monthly pay ments Total LFP pay

ments to an eligible livestock producer in a calendar y ear for grazing losses because of a qualify ing drought can not exceed 5 monthly pay ments for the same livestock, increased from 3 monthly pay ments under the 2008 Farm Bill. Since the monthly pay ment is based on 60 percent of feed costs (except as noted below), the maximum payment a producer can receive under LFP in a calendar ye ar ca nnot exceed 5 times the covered livestock’s monthly feed cost times 60 percent. LFP also contains a provision for grazing losses due to fire on publicl y managed lands with a pay ment rate of 50 percent of the monthly feed cost and a time limit of 180 day s. Elimination of the Risk Management Purchase Requirement contained in the 2008 Farm Bill

-- which required that producers obtain a policy or plan of insurance on pasture or cropland in order to receive pay

ments from disaster programs

-- has its most significa nt implication for LFP pay ments, since they

are directly

related to forage losses. (Programs prior to the 2008 Farm Bill did not include insurance or NAP purchase requirements in order for livestock producers to receive feed assistance.) The elimination of the 2008 Farm Bill requirement could encourage greater LFP participation. However, the 2014 Farm Bill does not contain language allowing producers to receive both LFP and benefits from NAP or c rop i nsurance, a provision that had6

been in the 2008 Farm B ill. Hence, a producer must elect to receive one benefit or the other, but not both, which could limit LFP participation.
**Emergency Assistance for Livestock, Honey Bees, and Farm**

**- Raised Fish** 

EL AP is designed to provide emergency assistance to producers of livestock, honey bees, and farm

- raised fish to aid in the reduction of losses due to disease, adverse weather, or other conditions, such as blizzards and wildfires, as determined by the Secretary

including CCD for honey bee producers. ELAP provides up t o $20 million per y ear, a reduction from the 2008 Farm Bill funding level of $50 million per y ear, for such emergency assistance and allows funds that are not used in an y particular year to be carried over into subsequent years for the same disaster for wh ich funding became available. Funds made available under ELAP for losses in the y ear during which the losses were incurred are available until expended . While losses due to disease were covered under the regulations implementing the 2008 Farm Bill provis ions, the 2014 Farm Bill explicitly

provides that “disease” includes cattle tick fever. In addition, FSA is making discretionary changes to EL AP in response to adjustments in the other disaster programs, given ELAP’s role of covering losses not covered by these other disaster programs (for example, covering up to 150 day s of feed cost to be consistent with L FP or covering species or t ypes of loss not covered b y other programs). Additionally, certain changes to improve processes, be consistent with other F SA program policies, or improve program integrit y are included in the rule (for example, adjusting farm

- raised fish losses due to normal mortality ). As authorized by

the 2014 Farm Bill, ELAP is to provide emergency relief, among other things, to eligible producers of livestock to aid in the reduction for losses due to adverse weather

. F unds are to be used, among other things, to reduce losses caused b y water shortages. Therefore, beginning with the 2014 program ye ar, FSA will provide ELAP benefits to liv estock producers with losses resulting from the additional cost of transporting water to livestock due to extreme drought. This is a discretionary change; FSA will require that to be eligible for benefits, livestock must be located in a county designated on the Drought Monitor as a D3 in any area of the county

at any time during the normal grazing period for the county

. Two other discretionary changes are: increasing the pay ment rate to honeybee producers who have suffered CCD from 60 percent to 75 perce nt; and and increasing the value of hives and feed on which these pay ments are based by

15 percent in three equal yearl y increments, after which they remain stable at 2014 levels. Although in the past some participants who have incurred expenses for water hauling have received compensation via the Emergency Conservation Program (ECP), USDA believes ELAP is better suited to compensate for these ty pes of losses. Expenses incurred for unplanned but necessary water hauling to eligible livestock are more associated with expenses incurred during a livestock emergency

than those associated with rebuilding conservation structures or debris removal. ELAP is not a “conservation” program and is not predicated on there being struct ural damage or debris removal. I t is intended to help mitigate financial losses associated with a livestock emergency

.7

**Tree Assistance Program**

TAP c ompensat es orchardists and nursery tree growers for eligible tree, bush, and vine losses and the program is now permanent and funded through the CCC

. Compensation include s pay ments for the cost of replanting or rehabilitating trees, bushes, or vines lost due to a natural disaster, in excess of natural mortality

. After losses exceed 15 percent of normal mort ality , TAP pay s 65 percent of the cost of planting seedlings or cuttings ( to replace lost trees, bushes, or vines ), and 50 percent of the cost of pruning, removal, and other activities incurred to salvag e damaged trees, bushes, or vines or , in the case of mortality , to prepare the land to replant trees, bushes, or vines. The 65 percent pay ment for planting and replacing lost trees is a reduction from the 70 percent payment rate specified in the 2008 Farm Bill.

TAP covers losses caused by natural disasters occurring on or after October 1, 2011

— the same time frame as the other disaster programs

. Eligible natural disasters include plant disease, insect infestation, drought, fire, freeze, flood, earthquake, lightning, or other natural occurrence of such magnitude or severit y s o as to be considered a disaster , as determined b y the Deput y Administrator for Fa rm Programs

. Producers may

not receive pay

ment for losses on more than 500 acres per y ear, which is a change from the 2008 Farm Bill, when 500 acres were eligible for the duration of TAP as authorized by the 2008 Farm Bill. This change was made because t he program is now permanent, and it is impossible to spread losses over an infinite horizon. Producers may not receive TAP pay

ments exceeding $125,000 annually

. **AGI and Payment Limit Changes** Since this is the first rulemaking following passage of the 2014 Farm Bill, it is necessary to also implement changes to eligibility criteria and pay

ment limits as mandated by the 2014 Farm Bill for all Title I and Title II programs b y amending 7 CFR Part 1400. Regarding average AGI , the
e ligibility c riteri on is s implified by using a single total income threshold of $900,000 instead of the multiple farm and nonfarm income thresholds mandated b y the 2008 Farm Bill. Additionally , t he $900,000 eligibility limit is higher than most of the previous limits and would not be expected to be binding for m ost producers. The single income limit

— set at a relatively high level

—

will likely

increase outlay s modestly

. Producers made ineligible for conservation programs because of high AGIs could obtain waivers under the 2008 Farm Bill: those waivers are not available under the 2014 Farm Bill. The p ay ment limits for LFP, LI P, and ELAP are increased to $125,000 (in total, across all three programs), potentiall y increasing outlay s when produc ers face adverse conditions. TAP has a pay ment limit of $125,000, which is independent of the $125,000 combined limit for L FP, LIP, and ELAP. Separate from the disaster programs, Marketing Assistance Loan benefits

-- LDPs and ML Gs

-- are now included in a $125,000 payment limit , whi ch also covers benefits from the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. There is a separate $125,000 pay

ment limit for peanuts. USDA is projecting modest aggregate LDPs or ML Gs over the next 10 fiscal y ears, so including LDPs and MLGs in the group $125,000 limit will not result in significant outlay

reductions . Upland cotton is ineligible for the ARC and PL C programs.8

**I V** 

**. Need for Action**  The rule is needed to implement the disaster assistance program s authorized by t he 2014 Farm Bill. Further, t he general pay ment limitation and pay

ment eligibility

requirements from the 2014 Farm Bill must be implemented through rulemaking before an y program payments can be made. Therefore, the provisions for the disaster programs, p ay ment limitations, and pay ment eligibility are combined into one rulemaking , as the first payments under the 2014 Farm Bill are associated with the disaster assistance programs

. Most program changes in the rule are required b y t he 2014 Farm Bill. CCC is also making some minor discretionary

changes, such as providing flexible documentation requirements for losses that occurred before the 2014 Farm Bill was enacted. Natural disasters have recently had a major impact on livelihoods

-- including the unprecedented cattle losses in South Dakota due to winter storm Atlas, and the extreme drought in the Great Plains in 2012 and in California in 2014. Due to the correlated na ture of losses over broad areas, adequate private sources of insurance are often not available or very expensive. As a result, government assistance through these programs is important. The changes required b y the 2014 Farm Bill are largel y mandatory wit h little room for discretionary decisions in the way

in which they are implemented , as described above.
In addition, the 2014 Farm Bill expands LIP eligibility to also cover livestock deaths in excess of normal mortality

due to attacks by

animals reintrod

uced into the wild by

the Federal Government or protected b y Federal law, including wolves and avian predators. T he Endangered Species Act of 1973 addresses the problem that various species of fish, wildlife, and plants in the United States have been rend ered extinct as a consequence of economic growth and development untempered b y adequate concern and conservation. As such, the United States has pledged itself to conserve to the extent practicable the various wildlife species facing extinction. Correcti ng for that market failure ( that is , species extinction) has however created the unintended consequence (or negative externality ) that some of those protected species are predatory animals that sometimes kill domestic livestock. Normal practices to preven t predation by predators are not allowed under the Endangered Species Act. Therefore, covering eligible losses, LI P will help mitigate the unintended consequences that negative externality , which resulted from the public benefit of protecting those specie s of wildlife

. **V. Costs**  **, Benefits**  **, and Transfers**  The costs to USDA of each of the four permanent disaster provisions of the 2014 Farm Bill are quantified as annual average expected pay ments. USDA baseline data, released in Feb 13, 2014 ( http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentI D=1192 ) was used in projections. With the exception of water

- hauling and higher prices for hon ey bee hives under EL AP, discretionary

changes were not specifically quantified because they are believed to not materially a ffect outlay s. **Livestock Indemnity Program**9

The annual average expected pay ments for LI P from 2012 to 2023 are calculated by first adjusting actual historical LIP pay ments for the period 2008 to 2011 for the cattle prices that prevailed in 2011. The purpose of this adjustment is to put LI P pay ments for this period on the same 2011 base. The average of these 4

- year adjusted LIP pay m ents were then projected forward, adjusting for USDA baseline projections for beef cattle prices and beef cattle herd size, relative to their values in the 2011 base ye ar. For example, the 2011 base year payments were increased b y X percent to account for X percent higher cattle prices, and then increased b y Y percent to account for Y percent more cattle, for each corresponding ye ar in the projection period. Because the large majority of LIP pay

ments are known to go to beef cattle producers, other eligibl e species were not considered. LIP pay ments varied from a high of $63.7 million in 2009 to a low of $17.8 million in 2010 (Table 1), despite cattle prices 15 percent higher in 2010.

While nominal LI P pay

ments averaged $37 million over 2008

- 2011, adjust ing to 2011 cattle prices for purposes of comparability increased that average 4

- ye ar estimate to $46 million. That $46 million 4

- year adjusted LI P pay ment was then projected forward from 2012 through 2023 b y further adjusting for beef cow inventories and the 5

- City Choice Steer price, from the USDA baseline ( http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentI D=1192 )

. The 5

- cit y price forecast increase s 26 percent from 2012 to 2023, while the cattle herd is projected to increase b y 12 percent, in a long overdue expansion phase of the cattle cy cle that has been delay ed for several y ears by drought. The average annual LIP pay ment is projected to be $60.7 million over this 12

- ye ar period.
**Livestock Forage Disaster Program** Annual average expected LFP pay ments are calculated b y also projecting annual pay ments forward, b ut from a 7

- ye ar Ol ym pic average (a n average during a 7

- ye ar period, dropping the highest and lowest values ) of 2008

- 201 4 pay ments, with each y ear first adjusted to the 2014 tier levels, pay

ment rates, and 2014 cow inventory

. While no actual pay ments y et exist for 2012 to 2014 because the application process has not yet opened for those years , complete county

- level drought designations exist for 2012 and 2013, and for 2014 through mid

- February , allowing pay ment forecasts for these y ears. The monthly pay me nt rate for grazing losses due to drought is: ( 1) 60 percent of the lesser of: the monthly feed costs for all covered livestock, or ( 2) the monthly

feed cost calculated using the normal carry ing capacity of the eligible grazing land for the producer.

Feed costs are based on the larger of the value of corn for either the 12 months prior to March 1 of the disaster ye ar, or the average of the previous 24 months prior to March 1 of the disaster ye ar.
2008

- 2011 Actual Payments Adjusted to 2014 Farm Bill Tier Levels, 2014 Payment Rates and

2014 Cow Numbers, For Purposes of Comparability Three important adjustments were made to actual 2008

- 2011 pay ments and two adjustments to the forecast pay

ments for 2012

- 14, in order to provide a comparable basis from which to project10

pay ments into 2015

- 2023. The first was to adjust 2008

- 2011 actual pay ments **as if** they

had been made using the tier levels provided in the 2014 Farm Bill. I n the past, producers received a one

month pay

ment (tier 1) if a D2 drought designation existed for 8 weeks or more. This condition remains. However, the old tier 2 level

-- which provided for a two

- month pay ment if a D3 designation were made at any time in the county

-- becomes tier 3 in the 2014 Farm Bill and provides a 3

- month payment. Simi larly , the old tier 3 is transformed into a tier 4, which is defined as a count y where D3 exists for 4 weeks or longer or D4 exists at any time. Additionally , a tier 5 payment is introduced, whereby a 5

- month pay

ment is made when a D4 designation has exis ted for 4 weeks or longer.

The tier

- level adjustments were made by first calculating what LFP pay ments to counties with beef cow inventories, as documented b y NASS ( http://nass.usda.gov/Quick_Stats/ ), would have been under the old tier s ystem, with expected payments under the new tier system. Rather than simply adjusting the actual county level pay ments, this method was chosen because operators often reside in a diff

erent county

than the one affected by

drought. Hence, it is possible for an operator residing in a severel y affected drought county to receive zero LFP payments if the subject cattle are in an unaffected count y. Moreover, not all count y - level beef cow in ventories are publicl y available from NASS because of disclosure issues. In an y event, those hy pothetical county

- level pay

ments under the old and new tier sy stems were summed over all counties where available, and the actual state pay ments were then multi plied by the percentage difference between these h ypothetical old

- and new

- tier payments. As a simple example of the above, suppose that actual pay ments to a particular state were X and that all counties with NASS cow data had been in tier 3 status under the former program, but all shifted to tier 4 under the criteria in the 2014 Farm Bill (and none shifted into tier 5). In that case, the tier

- level adjustment factor would have been 1.333 (4 monthly pay ments divided by

3 monthly pay ments), and tier

- adjust ed pay ments would have been 1.333 multiplied by the X pay ments actuall y received by the state. The adjustment of historical LFP expenditures to the new tier levels in the 2014 Farm Bill substantially

increases expected pay

ment levels. Actual LFP pay ments over 2008

- 201 1 of $142 million would have been $208 million had the new tier structure been used, nearl y 50 percent higher (Table 1). These 2014 tier

- adjusted pay ments were then further adjusted to 2014 LFP pay ment rates, adding an additional 55 percent to pay ments, bringing the 2008

- 11 average to $322 million. Finally , adjusting cow inventory to the 2014 level reduced the final adjusted average 2008

- 201 1 LFP pay ments to $297 million, still well over twice the actual average.

This image cannot currently be displayed.11

2012

- 2014 LFP Payment Fo recasts and Adjustment to 2014 Base: Assumptions and Considerations After the above adjustment of actual 2008

- 201 1 pay ments to a 2014 basis, pay ment rates for 2012

- 2014 were forecast based on cow numbers and tier

- level pay ment designations. Forecasts for 2012

- 201 4 are necessary because signup has not y et commenced. The beginning inventory of beef cows was assumed to have an 88 percent calving rate, the U.S. average, so that pay ments could be aggregated over both adult and non

- adult animals. While comple te count y - level tier data exist for both 2012 and 2013, data only through mid

- February

are available for 2014. Based on the current drought status of U.S. regions, all California counties are assumed eligible for tier

5 pay ments for 2014 and counties in a ll other states are assumed eligible only for the tier

- status available in mid

- February

. Finally , 1

- month pay

ment rates, equivalent to 60 percent of the feeding costs of maintaining 1 adult cow for 1 month, were calculated from NASS corn prices accordin g to the formula in the 2014 Farm Bill, and were $31.09, $34.36 and $31.54, respectivel y, for 2012, 2013, and 2014. Non

- adult pay

ment rates were 75 percent of the adult rates. Calculation of LFP pay

ments in this manner represents the upper bound on possi ble pay ments, in the sense that pay

ments are calculated, as of the first of the y ear, for every cow in inventory

and a normal calving rate. Actual pay ments are expected to be substantially less for several reasons. First, pay ments are limited to $125,000 , equivalent to a 484

- cow beef herd in 2012 receiving tier

- 5 pay ments. According to NASS, nearly 17 percent of beef cows were located on operations exceeding 500 cows in 2012 (Table 2), with these operations receiving only the $125,000 maximum. However, if the NASS data are adjusted by subtracting out the approximately 13 percent of cows that are not located in states that often suffer drought (Table 3), over 19 percent of beef cows in the major drought

- prone states were located on operations exceeding 50 0 cows. Thus, a significant percentage of cows in drought

- prone states are located on operations where pay

ment limitations are likel y to occur. The 4.028 million cows residing in the non

drought

- prone states (Table 3) are assumed to be proportionatel y lo cated on the three smallest

size category

of operations.

**Ta bl**  **e 2.**  **B eef** 

**C ow**  **s by**  **Size o**  **f Ope**  **ra ti**  **on, 2**  **012, O**  **ri gi**  **na l a**  **nd ad**  **ju st**  **ed f**  **or No**  **ndrought**

**St at**  **es In**  **ve nt**  **ory Actu**  **al Ori**  **gi na**  **l Ad**  **ju st**  **ed Ad**  **ju st**  **ed Size**  **o f**  **Ope ra**  **ti on**  **Per ce**  **nt Nu**  **mb er**  **Nu mb**  **er Per**  **ce nt**  1-49 27. 7 8, 354 7, 014 26. 8% 50-99 17. 4 5, 247 4, 406 16. 9% 100-499 38. 2 11, 520 9, 673 37. 0% 500-999 9. 1 2, 744 2, 744 10. 5% 1, 000-1, 999 4. 3 1, 297 1, 297 5. 0% 2, 000-4, 999 2. 1 633 633 2. 4% 5, 000-pl us 1. 2 362 362 1. 4% 30, 158 26, 130 100% So urc e: N ASS Fa rm s, L and in F arm s, a nd Liv es to ck O perat io ns 2 012 Su mma ry ( Feb. 2 013)12

A second important factor reducing actual pay ments well below the maximum calculated involves the number of beef cow operators who do not sign up for LFP because they may be part time, hobby

- ty

pe operations, or have outside income that pushes them past the average adjusted gross income limitation of $900,000, or those who simply may not have the time or desire to go through the application process for what may be a relativel y small pay

me nt. These are difficult numbers to estimate, but a sense of the magnitude by which actual pay

ments could fall short of the maximum possible pay ments for such groups can be inferred b y noting that an adjusted 26.8 percent of beef cows in 2012 were located on the smallest size operation of 1

- 49 cows in the drought

- prone states. A third factor reducing actual pay ments below the maximum calculated is the requirement that a producer must elect to receive payments from either insurance coverage or LFP, but not both. The availability

of Pasture, Rangeland, and Forage (PRF) insurance, administered b y the Risk Management Agency , provides cattle operators a means of protecting themselves against rainfall shortages that do not materialize into a drought classificati on. Election for this program is required in the fall preceding the grazing y ear. Somewhat offsetting these three factors is the elimination of the Risk Management Purchase Requirement, which may encourage some who have not participated in LFP previously to do so. LFP had previousl y required insurance or, at a minimum, NAP coverage (with an associated $250 administration fee). Such an incentive is likely modest, however, as the $250 administration fee would be recouped with tier

- 5 LFP pay ment rates from only

9 cows (and implied calves). That suggests that larger operators would have had, historically, significant incentive to participate in NAP. Elimination of the Risk Management Purchase Requirement could encourage smaller producers to participate in LFP, but some may face other disincentives, as discussed above. These are behavioral factors that are not possible to reliably quantify.

Forecast 2012

- 201 4 LFP Payments: Uses 30 Percent of Maximum Possible 2011 Payments13

In 2011, drought was relatively w idespread and provided sufficient county

- level pay ment data, cow numbers, and tier levels such that actual county pay ments could be compared to the calculated maximum possible pay ments. The percentages varied quite widely , from 0 to over 100 percent, wher e actual pay ments represent payments for cattle located in counties other than that of the recipient. Actual LFP pay ments averaged over all counties where data were available in 2011 were 30 percent of calculated maximum possible pay ments.
As a mean esti mate, we assume that future pay ments will be 30 percent of the calculated maximum possible based on the 2011 experience. (Arguments could be made that it should be either above or below this number.) The upper bound would be 100 percent of the maximum po ssible. A lower bound would be given b y an assumption that all operations of less than 49 head would not find it worthwhile to participate, while maintaining the 30 percent assumption for the remaining operations. With widespread publicity about elimin ation of the Risk Management Requirement making participation costless, participation could be high. Hence, the 30 percent might best be viewed as a mean expectation of actual pay ments relative to the calculated maximum potential pay ments, but with the di stribution around that mean having a long tail on the high side (e.g. payments could be a lot higher). An example would be a small cattle rancher who has not participated in LFP in the past because the rancher viewed the $250 fee for a NAP grazing policy too high in comparison to an y expected benefits, and did not purchase a NAP grazing policy . Without that requirement, the rancher might in the future participate in LFP. These are expected to be quite small producers with relatively few animals.

LFP For ecast Payments: 2012 to 2023

Forecasts for 2012

- 2014 are made based on NASS cow numbers, count y - level tier ratings, and program ye ar pay

ment rates (adjusted to 60 percent of feed value). The forecasts are calculated based on 30 percent of the maximum pos sible payments, as discussed above. Forecast pay ments are $1.28 billion for 2012, $0.934 billion for 2013, and $0.245 billion for 2014, assuming normal weather for all the country

-- except California

-- from mid

- February forward (Table 4).
Forecast pay

ment rates for 2012 and 2013, as well as the tier

- adjusted payment rates for 2008

- 2011, are adjusted to 2014 pay ment rate levels and 2014 cow levels, in order to provide 7 y ears of comparable LFP pay

ments. The Ol ym pic average pay ment from these 7 y ears is calc ulated, that, in turn is used to provide a base from which to project LFP pay ments over 2015

- 2023. Average LFP pay

ments for the 2008

- 201 4 base period, using 2014 tier levels are $471 million and increase to $527 million at 2014 pay ment rates and then fall to $505 million when adjusted for lower cow numbers in 2014 (table 4). The 7

- ye ar Ol ym pic average is $443 million, and excludes the record

- high 2012 y ear and the record low 2010 y ear. In contrast, the straight 7

- ye ar average ($505 million) is about 14 p ercent higher than the Oly mpic average.

LFP forecasts for 2015 to 2023 are made b y adjusting the $443 million base y ear Ol ym pic average b y the size of the USDA baseline cattle herd size, and projections of LFP pay ment rates as calculated from projections of corn prices provided in the USDA President’s Budget baseline.14

The 12

- ye ar forecast annual pay ments for LFP is $5.061 billion, of which $2.463 billion is from just the three years 2012

- 2014 (Table 4). Two of these years
-- 2012 and 2013

-- were two of the worst drought y ears in recent history , and unlikel y to be repeated. The annual average payment for LFP over each of the 12 years is $421.8 million (shown in Table 1 above).

**Emergency Assistance for Livestock, Honey Bees, and Farm**

**- Raised Fish**  **Program** Annual ELAP pay

ments are forecast to average $12.8 million, significantly less than the $20 million authorized, but significantl y more than the 2008

- 201 1 average $10.05 million spent on the program under the 2008 Farm Bill, which made available up to $50 million per y ear. The average $10.05 million in program pay ments represent s pay

ments for the ty

pes of losses that have been covered in the past. As approximately one
- half of pay

ments to date have been made to compensate honey

- bee producers for lo sses incurred as a result of CCD, the $10.05 million outlay estimate was adjusted upward to account for increases in pay ment rates for hives. In comparison to their 2008

- 2011 values, pay ments for hives were increased by 5 percent for 2012; 10 percent for 2013; and 15 percent for 2014 onward. Since CCD accounted for about one

- half of ELAP outlay s, the $10.05 million in base period outlay s was increased by 2.5 percent for 2012; 5 percent for 2012; and 7.5 percent for 2014 onward, to account for higher hive costs. To these resulting outlay

projections, an additional $2 million annually for 2015 to 2023 is added to cover the costs of hauling water that have been shifted from ECP discretionary funding to permanent ELAP funding. The $2 million in annual outl ay s for 2015

- 2023 is based on program pay ments for 2002

- 201 3, which averaged $1.6 million annually for water hauling and were rounded to $2 million for this analy sis. In addition, due to the serious drought prevailing in California in 2014, ELAP outlay s a re increased to $7 million for that one year. An upper bound estimate for average annual ELAP outlay s would be the entire authorized $20 million per y ear (see discussion below). This is because ELAP: **Tabl e 4. Livestock Disaster Programs:**  **2012 to**  **2014, and Baseli**  **ne Forecast Payment Level**  **s, As Accrued on a P rogram**  **Ye ar B**  **asis, Millio**  **n Dol lars**  **2012 2013**  **2014 2008-2014**  **2015 2016**  **2017 2018**  **2019 2020**  **2021 2022**  **2023 2012-2014**  **2015-2023 2012-2023**  **Ave ra**  **ge ELAP**  10. 3 10. 6 17. 8 11. 3 12. 8 12. 8 12.8 12.8 12.8 12. 8 12. 8 12. 8 12. 8 39 115 154 **LIP** 48. 7 49. 7 52. 0 42. 9 56. 2 58. 8 60.7 62.7 64.6 66. 4 67. 9 69. 5 71. 1 150 578 728 **LFP: 2**  **014 ti er** 

**le ve**  **ls** 1, 284 934 245 471 **2 014 Pa**  **ym ent** 

**rat e**  1, 303 857 245 527 **C ow**  **A djus** 

**te d**  1, 255 850 245 505 **7 -Ye**  **ar**

**O ly**  **mpic avera ge**  443 **LFP Forecas**

**t:** 1, 284 934 245 NA 292 252 246 266 281 296 308 321 337 2, 463 2, 598 5,061 **Tota l Forecas** 

**ts** 1, 343 994 315 NA 361 323 319 341 358 375 388 403 421 2, 652 3, 291 5,943

**Tota l Forecas** 

**ts Wi**  **thout: H**  **igher B ee**  **Hi ve**  **Prices** 1, 343 994 314 NA 360 323 319 341 358 374 388 403 420 2, 651 3, 284 5,935 **Wat er** 

**H au**  **ling** 1, 343 994 307 NA 358 321 317 339 356 372 386 401 418 2, 644 3, 266 5,910 **Tier Level C hange**  935 697 229 NA 266 241 238 254 266 278 288 299 311 1, 861 2, 441 4,303 **Selec te**  **d Da ta**  **( 2008-2023**  **2008 2009**  **2010 2011**  **2012 2013**  **2014 2015**  **2016 2017**  **2018 2019**  **2020 2021**  **2022 2023**  **Price s:**  Beef c attle (5-c ity pric e/c wt) 92.27 83. 25 95. 35 114. 73 121. 75 124. 18 129. 93 138.97 143.97 143.38 144. 3 146. 9 149. 19 150.65 151. 49 153. 45
co rn (farm price/bu) 4. 20 4.06 3.55 5.18 6. 22 6. 89 4. 50 3. 65 3. 30 3. 25 3.45 3.60 3.75 3. 85 3. 95 4.10 **Beef Cow**

**he rd (thou)**  32, 435 31, 712 31, 371 30,864 30,158 29, 295 29, 050 29, 349 29, 678 30, 734 31, 558 31, 953 32,300 32, 739 33, 293 33,668 **LFP Pay me**  **nt rate (adult)** A dult beef c ow ($/month) 17.97 24. 02 21. 22 20. 74 31. 09 34. 36 31. 54 20.56 17.54 16.53 17. 41 18. 17 18. 92 19.43 19. 93 20. 69 Source: http://usda.mannl ib.corne ll.edu/M annUsda/vi ewD oc ume ntInfo.do?doc umentID=1 19215

( 1) M akes permanent what had formerly been ad hoc d isaster programs covering producers of aquaculture commodities; ( 2) C overs losses bey ond the forage

- related losses caused specificall y b y drought or fire on Federall y managed lands under LFP; ( 3) C ontinues to provide disaster assistance to honey bee keep ers, who have been suffering from colon y collapse disorder since the fall of 2006 that continues to have unpredictable consequences; and ( 4) N ow covers water hauling costs. For perspective on pay

ments to fisheries, the 2005 Aquaculture Grant Program (A GP) disbursed $25 million to six states to compensate for aquaculture (catfish and alligator) losses from 2005 hurricanes ( http://www.usda.gov/oig/rptsauditsfsa.htm ). I t seems reasonable to conclud e that the $25 million distributed because of the 2005 hurricanes might occur every 5 y ears. That would put expected pay

ments for assistance to southern fisheries at $5 million per y ear. There are aquaculture producers in other states, however, that coul d perhaps account for another $1 million annually . Thus, aquaculture could reasonabl y account for as much as $6 million in annual pay ments.

Potential pay

ments to fisheries can be inferred from the $25 million disbursed (USDA, OIG: Audit Report, 5/30/200 7; http://www.usda.gov/oig/rptsauditsfsa.htm ) to compensate for aquaculture (catfish and alligator) losses from the 2005 hurricanes (Katrina, Wilma, and Rita) under the 2005 Aquaculture Grant Progra m (AGP). In 2005, the ye ar of Hurricane Katrina, the U.S. economy

experienced the second largest loss due to hurricanes since 1900, based on normalization of total economic damage b y Pielke and others ( http://www.nhc.noaa.gov/pdf/NormalizedHurricane2008.pdf ), and therefore such inferences need historical perspective. Pielke and others calculate that the three 2005 hurricanes together accounted for approximately 11 percent of total $98 9 billion costs from the 50 E ast C oast and Gulf C oast hurricanes that made landfall in the 106 y ears from 1900 to 2005 (Pielke, and others, table 2, PL O5 damage). Moreover, out of these 50, the 5 worst accounted for 44 percent of all damage. The five wer e: Great Miami in 1926

- $157 billion; Katrina in 2005

- $81 billion; Galveston 1 in 1900

- $78 billion; Galveston 2 in 1915

- $61.7 billion; and Andrew in 1992

- $57.7 billion). It is difficult to know the threshold of total economic damage at which damage to aqua culture would trigger ELAP payments, but each of the five worst hurricanes might appear to meet such criteria as the economic impact of the next highest Gulf Coast hurricane in 1944 was about 50 percent lower, at $39 billion, than H urricane Andrew in 1992. Therefore, one could conclude that five such hurricanes have occurred over the 114 y ears 1900 to 2013, including the 8 y ears after the Pielke anal ys is, in which none occurred, imply ing that one such threshold hurricane might occur every

22.8 years (114/5 ). This would suggest that over the next ten hurricane seasons, 2014 to 2023, that such a threshold hurricane would have a 44 percent probability of occurring. Such a high probability raises a significant possibility , albeit one that many would not consi der a high probability , that ELAP pay ments to compensate for aquaculture losses in some particular but unknown year could reach the maximum $20 million. With such uncertainty , this possibility

is not quantified into expected pay ments.16

EL AP also provides coverage for losses that are not covered b y LFP. LFP only covers grazing losses that occur due to drought that is quantifiable by the U.S. Drought Monitor’s drought severit y index or grazing losses due to fire on federally managed lands. Past ad hoc disa ster programs have covered feeding losses from disasters other than drought, such as blizzards and flooding, and have included feed losses other than grazed forage. ELAP is sufficiently general that it could allow coverage of non

- forage or even non

- feed

- r elated losses. Disaster aid to honey

bee keepers is potentiall y the most expensive part of ELAP. Honeybee keepers began to notice above normal depopulation in their hives in the fall of 2006, which was subsequently

ascribed to a not

- ye t

- completely under stood phenomenon that has become known as CCD. According to the House subcommittee testimony of Agricultural Research Service Administrator Knipling ( http://agriculture.house.gov/hearin gs/statements.html ), bee colon y losses to CCD were reported to be 31 percent in 2007, with survey s in 2008 indicating losses of about 36 percent, with the latter being about twice the percentage of losses sustained during a ty pical winter. In other words, hives suffer about 18 percent depopulation in a normal winter, but losses of twice that percentage have occurred since CCD was identified. A North Carolina cucumber producer, testify ing in the same House subcommittee hearing, noted that he was pay ing approximately $22 more per hive than three ye ars prior to pollinate his crop, and that producers in California are pay ing a much greater premium. A February 2007 New York Times article quoted a California bee broker, who indicated that the rental price to pollinate almond trees had risen from $55 per hive in 2004 to $135 in 2007, an increase of $80 ( http://www.ny

times.com/2007/02/27/business/27bees.html?pagewanted=2&ei=5088&en=3aaa0 148837b8977&ex=13302324000 ). The December 18, 2013 edition of the National Honey Report (USDA, AMS) indicates an average expected rental price of $170 per hive for almond tree pollination, while the sale price of a standard hive by Dadant, a major a

p iary supplier, has increased $40 from their catalogue price in 2009, according to recent posting on their website ( http://www.dadant.com/catalog/product_info.php?products_id=938 ). According to the most recent Census of Agriculture, there were 2.442 million honey

- producing colonies in the United States in 2007, producing $153.2 million worth of honey

. (In comparison, there were 2.393 million colonies in 2006, producing $160.5 million worth of honey .) Appl yi ng an additional cost of $115 per hive ($170 minus $55) to the approximately 2.4 million hives in the United States in 2007 to compensate for the costs potentially caused b y CCD under a worst case scenario between 2004 and 2014 would be on the order of $276 million. Were only 5 percent of hives to be effected b y CCD, costs could amount to $13.8 million ($276 million multiplied by

5 percent).

In summary , there are many good reasons why

ELAP expenditures might exhaust the entire $20 million provided. However, these reasons have existed since 2008 and actual ELAP expenditures only

averaged $10.1 million, with CCD accounting for about one half of
ex penditures. This apparent decline in outlay s is observable over the limited 4 ye ar data (table 1, 2008

- 2011), suggesting possible decline in CCD incidence. Moreover, it is worth noting that various issues of The National Honey Report suggest that CCD may not be as significant or widespread as earlier feared. Using the adjustments noted in the first paragraph in this section,17

out

- ye ar estimated outlays are $12.8 million annually

. The Effect of Mandatory

and Discretionary

L ivestock Program Changes on Pay m ent Forecasts While all programs are subject to uncertaint y, its most important influence is on the livestock programs because they

are expected to comprise the largest outlay s. Therefore , the three disaster assistance program pay

ment forecasts were comp ared to what would have been had: the honey bee hive value adjustment and pay ment rate increases not have been made in EL AP; water hauling costs not transferred to ELAP from the conservation program; and LFP pay ments made under the 2008 Farm Bill tier lev els instead of the higher tier levels mandated by the 2014 Farm Bill. Only

the first two adjustments are discretionary and they would have reduced the 12

- ye ar total pay ments onl y minimally, to $5.935 and $5.91 million, respectively, from the actual foreca st $5.943 billion. Pay ments under the 2008 Farm Bill tier levels would have reduced LFP pay ments roughly

32 percent, and would have reduced total pay ments under the three programs an additional $1.61 billion. However, the tier payment levels are mandator y. The effect of other discretionary

changes is not quantifiable. The effects of one mandatory and the remaining discretionary changes cannot be quantified, and so are not projected explicitly , but are accounted for at the end of the CBA, where sensitivi ty anal ys is is done by

projecting potentiall y higher or lower estimates. The mandatory change that could bring about higher rather than lower outlay s is elimination of the NAP grazing requirement, and the effect it might have on LFP. The main discretiona ry change that could affect all three programs is the potential for ELAP payments to be increased to the 8 0 percent level if the entire $20 million is not exhausted, a discretionary change provided for but which has not been put into effect, as has water h auling and higher honey bee hive prices and pay

ment rates. Other discretionary

changes may

increase outlay s are not considered to be significant

. Discretionary

outlay s that may

add insignificantly

to outlay s are the following : Reduced documentation for l osses from 2012 through 2014 may not have significant effect because documentation is still required and spot check s to reduce fraud are made, with false certifications hav ing serious consequences, such as being eliminated from receiving current and future pay ments. Pay

ments for the costs of gathering cattle to treat for cattle tick fever is added, but these are expected to occur only in a limited number of south Texas countie s, and are pay ments only for gathering but not treating. Other aquatic species may also be eligible under ELAP, in addition to bait and game fish provided for pay ments under the 2008 Farm Bill. A final reason for asy

mmetry and uncertaint y in pay ments is that weather events themselves tend to be distributed asy

mmetrically , as indicated by the 2012 and 2013 droughts and the 2005 hurricanes. As ym metry

for all programs is accounted for by reviewing historical pay

ment levels that suggest outlay s could be 15 percent lower than expected, and doubling that percentage on the high side.
**Tree Assistance Program** TAP pay ments are triggered by

regionally

regular but locally

unpredictable disaster events such
as plant disease, insect infestation, drought, fire, freez e, flood, earthquake, lightning, or other18

natural occurrence s that damage crop

- producing trees, bushes, and vines. Past pay ments under TAP are a reasonable first indicator of future TAP payments. To estimate future pay ments, adjustments need to be made f or changes in the program and any new or emerging conditions that change the likelihood of TAP pay ments. TAP pay ments made for fiscal y ears 2008 to 2011 (Table 5), ranging from $3.4 million to $6.6 million, were used to estimate future pay ments. Average annual pay ments over this period were $5.1 million; Florida accounted for 50 percent of the total and California accounted for 17 percent. Five states

-- Florida, California, Washington, Oregon, and Michigan

— account ed for 84 percent of TAP pay

ments.

**Tabl e**  **5 . T**  **AP Payments, 2008** 

**- 20**  **11 : Total, and top**  **5 States Year**  **Total Paid CA**  **FL OR**  **WA MI**  2008 6,614,664 3,248,107 1,861,012 8,326 238,606 203,605 2009 3,428,460 48,971 2,262,096 106,710 13,083 366,811 2010 5,979,534 23,330 4,949,864 77,974 84,903 172,445 2011 4,523,514 96,068 1,179,188 1,150,360 1,116,824 60,640 Total 20,546,172 3,416,476 10,252,160 1,343,370 1,453,416 803,501 Average 5,136,543 854,119 2,563,040 335,843 363,354 200,875 17% 50% 7% 7% 4% Natural disasters can be quite variable. Ninet y - five percent of pay ments for California losses between 2008 and 2011 were due to the 2007

- 2009 drought. In Washington and Oregon, pay ments made for damages from a deep earl y frost in 2011 accounted for 77 a nd 85 percent of the total pay

ments during this period. Florida has a large orchard and nursery sector, and damage to that state’s crops can vary widel y from year to ye ar due to intermittent freezes, hurricanes, and insect and disease outbreaks. The prim ar y statutory

change in TAP from the 2014 Farm Bill is the pay ment calculation for producers who replac e lost trees . Orchard and nursery tree growers will now be paid at a rate of 65 percent of the cost of lost trees rather than the 70 percent pay ment rat e authorized under the 2008 Farm Bill. Base estimates for TAP pay ments for fiscal y ears 2012 to 2023 were calculated by reducing the 2008

- 2011 mean annual pay ment to reflect the reduced pay ment for planting and replacing lost trees. To make this adjustme nt, TAP pay ments were partitioned between the cost of planting and replacing trees (25 percent) and the cost of removing and preparing the site for planting (75 percent). The pay ments were then adjusted by reducing payments for planting and replacing tree s by

7.6 percent (65/70). These adjustments reduce the mean annual pay ment from $5.1 million to $5.0 million. Estimates of future TAP pay ments also need to account for ongoing changes that will affect the likelihood of tree mortality

. There are two on going phenomena that need to be integrated into estimates of future TAP outlay s: an extreme drought now a ffecting California and citrus greening d isease ( also known as Huanglongbing)

.19

In creased TAP pay

ments expected as a result of t he California drought are estimated by
assum ing that the California TAP pay ment amount in 2008 (approximately $3.2 million)

— a severe ye ar for California, which accounted for 95 percent of total U.S. TAP pay ments in that ye ar

— will be the amount paid to California producers in 2015 ( the ye ar in which pay ments for the current California drought will be paid). T he 2013

- 2014 drought is more severe than in 2008; however, the extensive California irrigation sy stem and the resistance of almond and p istachio trees to drought mortalit y makes this approach reasonable. Thus, the expected TAP pay ment amount for 2015 is the $5 million (from above), plus $3.2 million for the California drought , plus the $1.3 million for citrus greening (see below), for a total of $9.5 million in that ye ar (see Table 6). Adjusting future TAP pay ments for the damage from c itrus g reening disease is more difficult. Citrus g r eening d isease has spread throughout Florida and has recently been detected in California and Texas. Damage to citrus production is high , no reliable control for the disease has been developed, and tree mortality can result ( http://www.ny times.com/2013/05/10/us/disease

thr eatens

- floridas

- citrus

- industry .html?pagewanted=1&_r=0 , http://en.wikipedia.org/wiki/Huanglongbing ). Orchard management practices are evolving , but the cumulative damage to infected trees is likel y t o elevate tree mortalit y. Further, the costs associated with combating c itrus g reening disease are likel y to reduce the economic productivity of infected orchards. P redicting the ex tent to which c itrus g reening d isease will affect California and Texas is uncertain at best. To incorporate uncertainty associated with citrus greening, this anal ys is uses scenarios where TAP pay ments in Florida increase by 0, 50, 100, and 2 00 percent. The baseline uses the 0 percent for no change due to citrus greening disease. The 50 percent increase in Florida TAP pay ments is considered the best estimate , as it allows for both increased mortality and the development of more effective disease management sy stems. The 50 percent estimate integrates information provided by

APHI S in 2008

—

which documents citrus greening disease as rapidly spreading, that hosts have no resistance, that management activities are largel y ineffective, and that there is little likelihood of eradication ( http://www.aphis.usda.gov/plant_health/plant_pest_info/citrus_greening/downloads/pdf_files/t wg/HLB%20TWG%20Report%20Final%20NOLA%20080808.p df)

— and a report two ye ars later b y the National Academy of Science documenting a series of cost reducing strategies for addressing Greening disease ( http://www.cdfa.ca.gov/citruscommittee/docs/12880_StrategicPlanning

- Florida

CitrusGreening.pdf

). These documents demonstrate that citrus greening disease is imposing costs on the industry , that strategies to limit damages involve culling diseased trees, and indicate that the rapid concerted response is effectivel y reducing the cost of citrus greening disease. They contain a widel y var yi ng range of loss estimates; the 50 percent estimate used here is a mid

point, and results in an additional annual outlay of $1.3 million. (The base of $5 million, plus the $1.3 million derived for citrus greening, results in $6.3 million in outlay s for 2016

- 202 3

— see Table 6.) After all adjustments, the estimated annual average TAP pay ment for FY 2012 to 2023 is $6. 4 million (Table 6) , and total expected outlay s could be $7 6 .5 million. Without th o se pay ments , orchardists and nursery

tree growers would face disaster s that could reduce operation viability

.20

**Table 6: Esti mated Tree Assistance Program Payments: Fiscal Years 2012** 

**- 2023** 

**C itrus**  **Greening 2012**  **2013 2014**  **2015 2016** 

**- 2023**  **Total Mean** 

**Annual Cost**  Million Dollars Estimated TAP Payments 50% 5.045 5

. 045 6 .326 9 .523 6 .326 7 6. 5 49 6 .379

Alternative Scenarios no increase 0% 5.045 5

. 045 5.045 8,241 5

. 045 6 3.734 5.311 damages double 100% 5.045 5

. 045 10 .1 7 1 13.367 10.171 114.995 9.583 damages triple 200% 5.045 5

. 045 1 2. 7 34 1 5.930 1 2.734 14 0.625 1 1.719
**Program Impacts** This regulatory

action is being taken to implement a major budgetary program required b y the 2014 Farm Bill. Consistent with OMB guidance, this ty pe of action is considered a budgetary transfer representing a payment from taxpay ers to program beneficiarie s unrelated to the provision of an y goods or services in exchange for the pay ment. In other words, the benefits to those who receive such a transfer are matched b y t he costs borne b y those who pay for it. Although these transfers create incentives that v ery likel y cause changes in the way societ y uses its resources, we lack data with which to estimate the resulting social costs or benefits.

T he estimated 12

- ye ar average annual outlay s of LIP ($60.7 million), LFP ($ 42 1.8 million), EL AP ($12. 8 million) and TAP ($6.4 million) sum to $ 50 2 million (Table 7) and can be viewed as targeted benefits to livestock producers who suffer losses from a disaster. These outlay s are presented, b y program ye ar (or b y ye ar of pay ment for 2012 and 2013 eligibility ) , in nomi nal and real terms in Table 8, for the 10 y ears beginning in Fiscal Year 2014 , when pay ments are expected to commence. 1 Real values of the pay ments are calculated using the GDP deflator projections in the table for each ye ar and presented in the far right of the table, using discount rates of 7 percent and 3 percent, resulting in present values of $5.127 billion and $4.533 billion, respectivel y. The corresponding annualized monetary values are $645 million and $601 million, respectivel y. A low estimate 15 percent below the mean expected outlays and a high estimate 30 percent above the mean expected outlay s are presented to account for the greater uncertainty that outlay s could be higher than lower. This uncertainty relates mainl y to the potential for greater participation in LFP as a result of removal of the risk purchase requirement and less so for the potential that various discretionary provisions might increase applications and/or pay out amount s. The 15

- percent lower uncertaint y level is consistent with variation on the low side of the mean, observed from limited recent year comparable data.

1 The large majority

of pay ments is expected to actually be made in the corresponding fiscal year, with small amount in the following year, related to when applications are filed and processing speed of the applications.21

As an example, the average adjusted LFP pay ments for the 2008

- 2011 base period was $297 million, while the average of the 2 ye ars having the next lowest outlay s

— 2008 and 2009

— was $266 million, which is 11.4 percent smaller than the 4 ye ar average of $297 million. A value of 15% was chosen as the lower estimate parameter to account for the third lowest y ear , 2010 as not being entirel y an outlier. Hence, subjectivity is involved in the choice of 15 percent, lower estimate parameter, given few observations, as is the choice of the upper estimate parameter of 30 percent. These parameters are not to be thought of as end points of a range, but rather as inflection points of an asy mmetric probability

distribution having a relatively long tail

. **Tabl e**  **7. An**  **nual a**  **ver age**  **12- Ye**  **ar Paym**  **ent**

**L evel**  **s For**  **S uppl**  **em ent**  **al Ag**  **ric ul**  **tu ra**  **l P rogr**  **am s** 

**Pr ogr**  **am Costs**  **$M illion**  EL AP 12.8 LI P 60.7 LFP 421.8 TA P 6.4 **To ta**  **l Pr ogr**  **am**

**costs** 501.722

Animal deaths or feed losses resulting from a disaster are generall y not spread uniforml y among livestock produc ers but are concentrated in specific areas experiencing disasters. Thus, market prices do not respond in a manner that compensates those specific producers who have experienced losses. Without financial assistance, such disasters adversel y affect the pro fitability , or even the viabilit y, of farms and ranches located in disaster areas.

**VI. Alternatives Considered**

D isaster assistance programs are authorized by the 2014 Farm Bill and hence rulemaking is required

. The 2014 Farm Bill prescribes eligib ility , pay ment levels, and criteria for pay ments, and does not provide the discretion to alter programs in a material way for LIP, LFP, and TAP. Due to the proscriptive nature of the statute, onl y t wo alternatives were analy zed

— both for EL AP

— as discussed below. **Tabl e**  **8. Federal Transfer Payments, Nominal and D**  **is counted**  **2014 Pr**  **esent Value: All P**  **rograms Prim**  **ary Es**  **tim ate**  **Low**

**Estim ate**  **High**

**Es tim**  **ate Ye**  **ar**

**Dollars Disc**  **Period**

**Cov er**  **ed Fe**  **de ral T**  **ransfe rs (Fiscal 2014 Dollar**  **s)**

645.4 548.6 839.0 2014 7% FY 2012- 2023
601.0 510.9 781.3 2014 3% FY 2012- 2023

**Nu mb**  **er of y**  **ea rs**  1 **2014 2015**  **2016 2017**  **2018 2019**  **2020 2021**  **2022 2023**  3% 7% **Tr ansfe**  **rs** - - M illion Dollars per Y ear - - Mi llion Do llars **--Fede ra**  **l** Fis cal 2014

No mi nal 2,668.6 370.5 329.7 325.6 347.6 364.6 381.3 394.8 409.7 427.3 Re al 2,668.6 362.9 316.3 305.9 319.9 328.6 336.6 341.3 352.4 360.7 5,127.0 4,532.9 No mi nal 2,268.3 314.9 280.2 276.8 295.5 309.9 324.1 335.6 348.2 363.2 Re al 2,268.3 308.4 268.8 260.0 271.9 279.3 286.1 290.1 299.6 306.6 4,357.9 3,853.0 No mi nal 3,469.2 481.7 428.6 423.3 451.9 474.0 495.7 513.2 532.6 555.5 Re al 3,469.2 471.7 411.2 397.7 415.8 427.2 437.6 443.8 458.2 468.9 6,665.1 5,892.8 GD P deflator 1.00000 1.02100 1.04244 1.06433 1.08668 1.10950 1.13280 1.15659 1.16250 1.18459 **Inputs GDP De**  **flator:** Yr s 1 - 5 2.10% (OM B )

Yr s 6 - 12 1.90% (A verage Growth s inc e 1993) Total Annualized **ELA P**  Nom inal 38.7 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 153.9 $15.4

Re al 38.7 12.5 12.3 12.0 11.8 11.5 11.3 11.1 11.0 10.8 143.0 PV @ 3% 37.6 11.8 11.2 10.7 10.2 9.7 9.2 8.7 8.4 8.0 125.5 $14.7 PV @ 7% 36.2 11.0 10.0 9.2 8.4 7.7 7.0 6.4 6.0 5.5 107.4 $15.3 **LIP** Nom inal 150.4 56.2 58.8 60.7 62.7 64.6 66.4 67.9 69.5 71.1 728.3 $72.8

Re al 150.4 55.0 56.4 57.0 57.7 58.2 58.6 58.7 59.8 60.0 671.9 PV @ 3% 146.0 51.9 51.6 50.7 49.8 48.8 47.7 46.3 45.8 44.7 583.2 $68.4 PV @ 7% 140.6 48.1 46.0 43.5 41.1 38.8 36.5 34.2 32.5 30.5 491.8 $70.0 **LFP** Nom inal 2,463.2 292.0 251.8 245.8 265.8 280.9 295.8 307.8 321.1 337.1 5,061.3 $506.1

Re al 2,463.2 286.0 241.5 230.9 244.6 253.2 261.1 266.1 276.2 284.6 4,807.5 PV @ 3% 2,391.5 269.6 221.1 205.2 211.0 212.0 212.3 210.1 211.7 211.7 4,356.1 $510.7 PV @ 7% 2,302.1 249.8 197.2 176.2 174.4 168.7 162.6 154.9 150.2 144.7 3,880.7 $552.5 **TA P**  Nom inal 16.3 9.5 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 76.2 $7.6

Re al 16.3 9.3 6.0 5.9 5.8 5.7 5.6 5.4 5.4 5.3 70.8 PV @ 3% 15.8 8.8 5.5 5.3 5.0 4.8 4.5 4.3 4.2 4.0 62.1 $7.3 PV @ 7% 15.2 8.1 4.9 4.5 4.1 3.8 3.5 3.2 2.9 2.7 53.0 $7.5 **To tal**  Nom inal 2,668.6 370.5 329.7 325.6 347.6 364.6 381.3 394.8 409.7 427.3 6,019.7 $602.0

Re al 2,668.6 362.9 316.3 305.9 319.9 328.6 336.6 341.3 352.4 360.7 5,693.3 PV @ 3% 2,590.9 342.0 289.4 271.8 275.9 275.2 273.7 269.5 270.1 268.4 5,127.0 $601.0 PV @ 7% 2,494.0 317.0 258.2 233.4 228.1 219.0 209.6 198.7 191.7 183.4 4,532.9 $645.4 Low Total Real 4,839.3 PV @ 3% 4,357.9 PV @ 7% 3,853.0 Hi gh Total Real 7,401.2 PV @ 3% 6,665.1 PV @ 7% 5,892.8 **Cate gory** 

**Ye ar**  **s** Present V alues (See note below) Annualiz ed Mo netiz ed ($m illions /year)

Prim ary

Low

Hi gh23

The two ELAP alternatives considered would reduce average outlay s from the expected $12.8 million to the 2008

- 2011 average of $10.1 million. These two alternatives are: ( 1) R educing project honey bee hive pay

ment levels to the levels used under t he 2008 F arm B ill, and ( 2) E liminating water hauling costs from ELAP (in other words, still covering these costs under ECP). While these actions would provide a significant reduction in expected ELAP outlay s, overall nominal program outlay s of $502 million might only decline to $499 million, a reduction of onl y 0.6 percent. Meanwhile, solid evidence suggests higher pay ment rates for honey

bee hives and colonies are appropriate, and failure to provide such higher pay ments cou ld adversel y affect honey bee operators in material way s.