Farm Safety Net Proposals in the 112th Congress
Released: 2012-06-01T00:00:00

Recent Developments

This report provides an overview of farm safety net proposals for the next farm bill, as advocated by the Administration, Members of Congress, and various interest groups. The Senate Agriculture Committee approved its version of the 2012 omnibus farm bill on April 26, 2012 (Agriculture Reform, Food, and Jobs Act of 2012), and officially filed the measure, S. 3240 , on May 24, 2012.

A brief summary of the bill's farm safety net provisions is shown in Figure 1 . For details, see CRS Report R42552, The Senate Agriculture Committee's 2012 Farm Bill (S. 3240): A Side-by-Side Comparison with Current Law .

Introduction

In advance of the expiration of the 2008 farm bill ( P.L. 110-246 ), numerous proposals have been offered to revise the "farm safety net" for producers of crops covered by farm commodity support programs. Farm safety net proposals surfaced mostly during fall 2011, when budget deliberations by the Joint Select Committee on Deficit Reduction generated concerns that a new farm bill might be "written" or severely constrained from a budgetary perspective by budget negotiators, rather than by the House and Senate Agriculture Committees. Prior to the joint committee's deadline of November 23, 2011, the Administration, Members of Congress, and several prominent commodity and agricultural interest groups released proposals for U.S. farm policy in general, and for commodity programs in particular. The proposals ranged from simply extending current farm programs at reduced funding levels to program elimination and wholesale replacement.

In October 2011, leadership of the House and Senate Agriculture Committees, drawing on various proposals that had emerged, sought to develop new farm policy that would fit within proposed budgetary guidelines. The leadership's proposal was not publically released, and ultimately the joint committee failed to reach a bipartisan consensus on deficit reduction. As a result, development of the farm bill is now following a more traditional legislative process, beginning with committee deliberations. Both the House and the Senate held hearings in early 2012 to solicit views from producers and others in advance of developing committee bills.

Report Overview

This report provides a context for understanding and comparing the farm safety net proposals against current farm programs. The first section briefly describes the current farm safety net programs designed to support farm income and manage risk. The second section identifies issues and tradeoffs that might affect various policy approaches in the development of a new farm safety net. The third section compares each of the major safety net proposals with respect to the following criteria: program type, commodity coverage, type of losses covered, program mechanics, payment limits, conservation compliance, cost to producers and taxpayers, and proposal sponsor's rationale. Finally, Appendix A compares current farm safety net programs to the same set of criteria (and reporting status for the World Trade Organization), while Appendix B contains a description of the so-called "super-committee" process which occurred in the fall of 2011 and which precipitated the public presentation of many of the farm safety net proposals.

Baseline Funding for the Farm Bill1

Funding to write the next farm bill will be based on the Congressional Budget Office's (CBO's) March 2012 baseline projection of the cost of mandatory farm bill programs, and on varying budgetary assumptions about whether programs will continue. Total budget authority for all mandatory farm bill programs under current law is $995 billion during FY2013-FY2022 ( Table 1 ). Of this amount, budget authority for farm safety net programs is $153 billion over the 10-year period, including $63 billion for Title I (including commodity programs) and $90 billion for Title XII (crop insurance). Disaster programs do not have baseline funding.

The CBO baseline projection is an estimate at a particular point in time of what federal spending on mandatory programs likely would be under current law. The March 2012 CBO baseline projection is the "scoring baseline" against which farm bill proposals would be measured for the remainder of the second session of the 112 th Congress.

From a budget perspective, programs with a continuing baseline are assumed to go on under current law. These amounts can be used to reauthorize the same programs, reallocated among these and other programs, used as savings for deficit reduction, or used as offsets to help pay for other provisions.

Current Farm Safety Net Programs2

The federal government supports farm income and helps farmers manage risks associated with variability in crop yields and prices through a collection of programs. The broader farming community often refers to the "farm safety net" as:

1. farm commodity price and income support programs under Title I of the 2008 farm bill, 2. federal crop insurance (permanently authorized) under the Federal Crop Insurance Act of 1980, and 3. disaster assistance programs under Title XII of the 2008 farm bill, which expired on September 30, 2011.

Each of these three components is covered in the sections below and summarized in Table 2 . The Congressional Budget Office (CBO) currently estimates the total cost of farm safety net programs for FY2011 at $13.8 billion. Projected budget authority for farm safety net programs averages $15.3 billion per year over FY2013-FY2022, including $6.3 billion per year for Title I (including commodity programs) and $9 billion per year for Title XII (crop insurance). Disaster programs do not have baseline funding.

Commodity Programs

The mandatory commodity provisions of Title I of the 2008 farm bill provide support for 26 farm commodities—food grains, feed grains, oilseeds, upland cotton, peanuts, and pulse crops. The major farm programs under which payments can be received include direct payments (DP), counter-cyclical payments (CCP), Average Crop Revenue Election (ACRE) payments, and special benefits (including loan deficiency payments, marketing loan gains, and certificate exchanges) under the Marketing Assistance Loan program, as described in Table 2 . Producers of other so-called "loan commodities" (including extra long staple, or ELS, cotton, wool, mohair, and honey) are eligible only for nonrecourse marketing assistance loans and marketing loan benefits. In the 2008 farm bill, benefits for producers of dry peas, lentils, and chickpeas were expanded to include CCP but not fixed direct payments.

Current farm law also mandates that raw cane and refined beet sugar prices be supported through a combination of limits on domestic output that can be sold and nonrecourse loans for domestic refined sugar, backed up by quotas that limit imports. Dairy product prices are supported by guaranteed government purchases of nonfat dry milk, cheese, and butter at set prices, and quotas that limit imports. Additionally for dairy, Milk Income Loss Contract (MILC) payments are made directly to farmers when farm-level milk prices fall below specified levels.

In contrast to producers of traditional program commodities, producers of specialty crops (e.g., fruits, vegetables, horticulture crops) and livestock generally have received little or no direct government support through commodity programs. Instead, these farms may manage risks through business diversification, purchase of federal crop insurance, and participation in federal disaster assistance programs.

Crop Insurance

The federal crop insurance program provides risk management tools to address losses in revenue or crop yield. Revenue-based policies account for about 75% of total policy premiums, and yield-based policies account for 25%. Federally subsidized policies protect producers against losses during a particular season, with price guarantee levels established immediately prior to the planting season. This is in contrast to commodity programs, where protection levels are specified in statute (e.g., counter-cyclical payments) or use average farm prices from previous years (e.g., ACRE).

Federal crop insurance has grown in importance as a risk management tool since the early 1990s, due in large part to substantial federal support. The federal government pays about 60%, on average, of the farmer's crop insurance premium, plus the administrative costs of delivering the products. Thus, as participation in crop insurance programs has grown over time, so too has the absolute level of federal premium subsidies. CBO projects that the crop insurance program in its current form would cost, on average, $9.0 billion per year ( Table 2 ) through 2022.

In 2011, crop insurance policies covered 264 million acres. Major crops such as corn, soybeans, wheat, and cotton are covered in most counties where they are grown, and policies cover at least 80% of planted acreage of each crop. Crop insurance is also available for over 80 specialty crops. In 2009, specialty crop policies covered more than 7 million acres, or up to 75% of specialty crop area. In total, policies are available for more than 100 crops, including coverage on fruit trees, nursery crops, and dairy and livestock margins, as well as pasture, rangeland, and forage.

Disaster Assistance

In an attempt to avoid ad hoc disaster programs that had become almost routine, and to cover additional commodities, the 2008 farm bill included funding for five new disaster programs. However, these programs were authorized only for losses for disaster events that occur on or before September 30, 2011, and not through the entire life of the 2008 farm bill (which generally ends on September 30, 2012). As a result of this early expiration, CBO does not include program funding in future baseline estimates.

The largest of the disaster programs is the Supplemental Revenue Assistance Payments Program (SURE), which is designed to compensate eligible producers for a portion of crop losses not eligible for an indemnity payment under the crop insurance program. Unlike traditional disaster assistance and crop yield insurance, losses are calculated using total crop revenue for the entire farm (i.e., summing revenue from all crops for an individual farmer). The whole-farm feature and the use of 12-month season-average prices—while perhaps fiscally responsible—have made SURE complicated, data-dependent, and slow to respond to disasters. The 2008 farm bill also authorized three new livestock assistance programs and a tree assistance program.

Policy Issues for Farm Safety Net Programs

Issues Related to Current Programs

The current tight federal budget situation and the global economic difficulties since 2008 contrast sharply with the financial success experienced by the U.S. farm sector in recent years. The U.S. agricultural sector has been thriving financially since the mid-2000s as rising commodity prices and land values have pushed farm incomes to record levels and reduced debt-to-asset ratios to historically low levels. Over the past decade, farm household incomes have surged ahead of average U.S. household incomes. With this economic backdrop, several general policy issues have emerged in recent years that are likely to play a role in shaping the next farm bill.

Budget and Funding

A major driver in developing the next farm bill is the current federal budget situation. Deficit reduction is likely to continue, as evidenced by the mandate given to the Joint Select Committee on Deficit Reduction, and agriculture is frequently mentioned as a target for cutting government spending. From an agricultural policy perspective, many supporters as well as some critics of farm subsidies have become increasingly interested in developing a safety net that reflects, at least to some degree, the following goal as expressed by one advocate:

[M]aking the farm program safety net more effective, efficient, and defensible by reallocating baseline funding to improve risk management and complement crop insurance. Currently, marketing loan rates and target prices are too low to provide effective price and income support. The ACRE program has too many disincentives to participation. The SURE disaster program has not made timely payments and is expiring, and there is concern about how to protect against shallow losses. Direct Payments are increasingly difficult to defend as farm prices remain at historically high levels.

Effectiveness of the Current Farm Safety Net

Some producers have criticized farm safety net programs for being too slow to respond to disasters, not being well integrated, or not providing adequate risk protection. In contrast, long-time farm program critics question the need for any farm subsidies, contending that government funding could be better spent advancing environmental goals or improving productivity. Others cite economic arguments against the programs—that they distort production, capitalize benefits to the owners of the resources, encourage concentration of production, harm smaller domestic producers and farmers in lower-income foreign nations, and pay benefits when there are no losses or to high-income recipients.

Overlap in Farm Risk Programs

Farm policy observers have identified apparent overlap among farm safety net programs. For example, the ACRE program and crop insurance both address revenue variability. Also, the current farm program mix has several variations of "counter-cyclical-style" payments, including marketing loan benefits, traditional (price) counter-cyclical payments, ACRE (revenue) payments, revenue-type crop insurance, and whole-farm insurance. Some believe that a simplified approach might be more effective and less expensive.

Commodity Coverage of Farm Programs

The number and type of commodities currently covered by farm programs are primarily the result of the historical and evolving nature of farm policy. Producers of staple commodities have benefited the most from farm programs because farmers and policymakers representing those commodities shaped the programs from their inception. Since then, other commodity advocates have not had the interest or sufficient political power to add their commodities to the mix. Commodity coverage in farm programs could be increased beyond current levels by developing a whole-farm program, or by revising the current whole farm insurance product so that it would be more widely accepted by producers.

Payment Limits and Farm Size

Payment limits for the farm commodity programs, with the exception of the marketing assistance loan program, either set the maximum amount of farm program payments that a person can receive per year or set the maximum amount of income that an individual can earn and still remain eligible for program benefits (a means test). The payment limits issue is controversial because it directly addresses questions about the size of farms that should be supported, whether payments should be proportional to production or limited per individual, and who should receive payments. Some policymakers want limits to be tightened to save money, to respond to general public concerns over payments to large farms, and to reduce the possibility of encouraging expansion of large farms at the expense of small farms. Others say larger farms should not be penalized for the economies of size and efficiencies they have achieved. Crop insurance has no payment limits, a feature that to some policymakers makes crop insurance an attractive centerpiece of farm policy because it helps small and large farms alike, but to others makes it a target for payment limit application.

Farm Policy Alignment with U.S. Trade Commitments

As a World Trade Organization (WTO) member, the United States has committed to operate its domestic support programs within the parameters established by the Agreement on Agriculture as part of the Uruguay Round Agreement. The United States also faces pressure to modify certain "trade-distorting" elements of its upland cotton programs due to an unfavorable WTO dispute settlement ruling.

Issues Related to Farm Safety Net Proposals

Several broad policy issues affect potential tradeoffs for revising the farm safety net. These include

1. how price (or revenue) protection is established, 2. the geographic level at which program benefits are triggered, and 3. whether or not a proposal addresses "shallow losses" (i.e., losses not covered by federally subsidized crop insurance because of the policy deductible).

Each of these issues is discussed below and summarized in Table 3 .

Farm safety net proposals offered to date by Members of Congress and interest groups can be analyzed using these same three issues as points of comparison. A matrix in Table 4 arranges each proposal accordingly. The left column is price (revenue) protection determination; the top row is the geographic trigger; and shallow loss programs are italicized within the table. A brief description of each of the proposals is provided in the section on " Safety Net Proposal Descriptions " and summarized in Table 5 .

Fixed Price vs. Market Formula Protection

Given current relatively high price levels and agricultural market volatility, many ask how the government might best protect producers against lower prices and/or revenue. Crop insurance covers only intra-season price risk, and current program parameters for most farm programs are at levels that generally do not provide much protection at current price levels. Many producer groups are interested in protecting against multi-year price declines. However, using recent high prices as fixed references, without adjusting them downward, could increase program outlays and lead to potential World Trade Organization (WTO) disputes.

In general, fixed price guarantees, if set at a relatively high level, can provide the most market protection for farmers but at a relatively high potential cost for taxpayers, as well as at increased risk for WTO trade disputes. In contrast, more market-oriented program parameters can reduce potential for overproduction and high taxpayer costs, but may provide less support to farmers when prices decline rapidly, particularly if the guarantee is based on current prices. Price protection based on historical average prices may be more attractive for producers following a high price period because it would establish a higher protection than current prices.

Individual Farm Protection vs. Area-Wide Trigger

A program's geographic trigger determines at what level a loss must occur before producers receive a benefit: farm, county, state, or national, or a combination. Farm-level compensation is usually preferred by producers because it is specific to their loss, but it can be more expensive for taxpayers. Also, a farm-specific program would need provisions (e.g., an insurance deductible) to avoid moral hazard problems—farmers deliberately taking actions that might increase their indemnities—or adverse selection, whereby only farms with high risk of loss participate. For an area-based program (such as county or district), farms might suffer a loss but not receive payment if the program payment trigger also requires a loss at the area level. Also, some say the lack of county data might make program administration difficult. National-level programs can be easier to administer (e.g., less data and fewer calculations required) but benefits might not match individual needs if national-level payments do not correspond to local farm losses.

By design, a trigger based on individual farm loss would provide better farm-level yield protection than an area trigger. However, a lower payment rate (or limiting factor on payments) might be needed for budgetary purposes, since farm yield variability is greater than for a larger geographic area and hence the program could trigger payments more often. In contrast, an area-wide plan would provide less protection against individual yield risk while perhaps offering more price protection, depending on how the program is constructed. In any case, payment adjustment factors can be used to reduce eligible acreage so that a program fits under a predetermined cost constraint when scored by CBO.

Shallow Loss vs. Deep Loss

The issue of "shallow losses" (i.e., losses not covered by federally subsidized crop insurance but absorbed by the producer via the policy deductible) has received considerable attention in policy discussions. While shallow losses vary widely from year to year based on what can be minor deviations from normal weather or modest market price changes, some producers contend that the insurance deductible leaves them with too much out-of-pocket cost. Others say such losses do not necessarily threaten the commercial viability of a business and are part of the cost of doing business.

Some policymakers and producers are concerned about the level of deductible and the cost of purchasing additional coverage to protect against shallow losses. Several entities have proposed alternatives to address shallow losses through a new revenue program (similar to ACRE). In contrast, others advocate that federal farm programs should focus only on "deep losses" that would otherwise drive a producer out of business and let individual operators use existing risk management tools to deal with year-to-year shallow losses. They argue that a shallow loss program would remove too much risk for producers and would encourage overproduction, which could reduce crop prices and drive up federal outlays. Yet others have commented that offering inexpensive deep loss coverage might encourage production of certain crops in more risky production areas if policies are made available in those areas or the coverage level is too high.

"Recoupling"

Another choice when designing a farm program is whether to tie the benefits to current plantings or to historical plantings. Under the 1996 farm bill, payments were "de-coupled," meaning producers were no longer required to plant a specific crop in order to receive a payment (counter-cyclical program payments were added in 2002). Congress chose this method to encourage farmers to plant according to market signals and not for potential government payments. If under the next farm bill, payments are made on planted acres instead of historical base acres ("recoupling"), benefits would be more closely tied to producer loss. The tradeoff is that it could create the potential for market-distorting behavior by encouraging producers to plant for the program rather than the market, which could lead to overproduction, lower crop prices, and higher federal outlays. Also, programs using current plantings are less WTO-compliant.

Is a Loss Necessary to Trigger a Federal Farm Program Payment?

The recent surge in U.S. farm income has brought into question the need for nearly $5 billion in direct payments that are paid to agricultural land owners whether or not a loss was incurred.

Additional Issues

Besides the general issues described above, several specific policy directions, issues, and questions have emerged in recent months.

1. Apparent consensus for the elimination of direct payments would leave crop insurance to serve as the primary safety net policy. 2. Multiple commodity programs (i.e., different programs for different commodities) raise the issues of fairness and equity for payment distribution. 3. Using pre-determined target/reference prices might alter producer behavior, with implications for potential shifts in planted area and WTO obligations. 4. Should restrictions on growing fruits, vegetables, and wild rice be removed as a condition for receiving program benefits, to give producers increased planting flexibility? 5. Federal programs need to address the potential for losses following successive years of downward trending prices (multi-year price protection). 6. Should conservation compliance be maintained if direct payments are eliminated, and if so, how? Would it be attached to crop insurance or some other program? 7. The level and applicability of payment limits remain contentious. 8. Under sequestration, cuts of approximately $15 billion might be required for mandatory farm programs. Will committee leadership retain the $23 billion reduction goal previously announced? 9. How will sequestration be incorporated into the budget scoring of any new farm bill?

Safety Net Proposal Descriptions

In fall 2011, the Administration, Members of Congress, and a number of farm groups put forward a variety of proposals to reduce government expenditures on farm subsidies and revise farm programs. Selected proposals are summarized in the sections that follow and are listed in Table 5 . The proposals are grouped into four categories: (1) proposals that modify current policy, (2) new revenue programs, (3) crop insurance proposals, and (4) other. The order of proposals is based on these groupings.

Most proposals either reduce or eliminate direct and counter-cyclical payments to generate savings and provide funding to change the farm safety net so it addresses concerns pertaining to farm revenue risk for producers. Also, most either leave the marketing loan program unchanged or retain it with modest modifications.

Several proposals would reduce or eliminate direct payments and other commodity payments, and create a new crop revenue program by borrowing concepts from current programs such as ACRE or SURE. Several other proposals focus on changes to crop insurance, such as providing an area-wide, revenue-based crop insurance program that would supplement existing crop insurance products to cover shallow losses. Proposals offering the least amount of policy change include those by the Administration and others, which would essentially extend farm programs at reduced funding levels.

Administration Plan for Economic Growth and Deficit Reduction (Sponsor: the Administration)17

Program type: Modify current policy so as to reduce budget costs.

Programs eliminated: DP.

Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: No change from current programs.

Program description: Reauthorize CCP, ACRE, marketing loan program, and the suite of disaster programs, including SURE, that expired September 30, 2011; reduce crop insurance expenditures by reducing producer subsidies (by 2 percentage points) on those policies in which premiums are subsidized at above a 50% rate, reduce company average return on investments (ROI) to a 12% average, and reduce payments to companies for expenses and risk-sharing.

Price/r evenue protection: No change from current farm and crop insurance programs (NC).

Geographic loss trigger: NC.

Eligible acres: NC.

Payment calculation: NC.

Payment limit: NC.

Conservation compliance: NC.

Cost to producer: Higher crop insurance premiums.

Budget cost estimate: Administration estimates net savings of $33 billion over 10 years, including $2 billion in savings from better targeting of conservation programs; $30 billion from DP; and $8 billion from changes to the crop insurance program. Reauthorization of the suite of disaster programs, including SURE, would cost roughly $7 billion over five years.

Rationale: The Administration is concerned that both the level of federal support directed to the crop insurance industry, as well as the crop insurance industry's return on investment (ROI), are artificially inflated by the high market-price setting of recent years rather than by a change in risk. This is because both premiums and subsequent federal support levels rise with market prices. To support its argument, the Administration points to a study that found that average ROI was 14% for crop insurance companies compared to an average of 12% for other types of insurance companies. As a result, the Administration proposes lower federal support so as to help bring the ROI more into line with the insurance industry average ROI. To achieve this, the Administration proposes capping administrative expense reimbursements based on 2006 premiums rather than the recent high-priced 2010 premiums. Also, the Administration proposes to more accurately price the premium for catastrophic (CAT) coverage policies, which will slightly lower the reimbursement to crop insurance companies. Farmers would not be impacted by the change to CAT since the farmer portion of the CAT premium remains fully subsidized.

For many crop insurance policies, over half of the premium is paid by the federal government. The original rationale for high federal premium subsidies was to encourage greater producer participation. Today participation rates average near 83%. As a result, the Administration argues that the rationale for such high premium subsidy rates has weakened. The Administration proposes cutting federal premium subsidy rates by two percentage points on those policies that are subsidized in excess of 50%.

Senator Coburn's Deficit Reduction Plan (Sponsor: Senator Coburn)18

Program type: Part of broad plan to reduce government spending by eliminating most farm programs, but maintaining crop insurance programs and guaranteed farm loans.

Programs eliminated: All farm programs including DP, CCP, ACRE, and SURE. It also would end direct ownership and operating loans and not reauthorize disaster programs that expired September 30, 2011.

Commodity coverage: No change from current crop insurance program (NC).

Loss coverage: NC.

Program description: Among its many government-wide provisions, the plan would maintain crop insurance and guaranteed loans.

Price/ revenue protection: NC.

Geographic loss trigger: NC.

Eligible acres: NC.

Payment calculation: NC.

Payment limit: NC.

Conservation compliance: None.

Cost to producer: NC.

Budget cost estimate: Total safety net savings would be more than $80 billion over 10 years (sponsor estimate).

Rationale: Senator Coburn's proposal states that the farm safety net should be reformed to serve solely as a risk management tool intended to promote the capitalization of farmers; income support programs, such as direct payments, ACRE, and marketing assistance loans should be ended.

Revised Counter-Cyclical Price Program (Sponsor: Unspecified; General Interest from Rice and Peanut Producers)

Program type: Expand current CCP program.

Programs eliminated: DP, ACRE, and SURE.

Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: No change from current CCP and crop insurance programs.

Program description: Modify CCP program two ways. First , make payments on planted acreage (rather than base acres) when the national average farm price during first several months (TBD) of marketing year drops below a reference (target) price. Second , increase target prices to more closely align with current market prices (formula TBD).

Price/ revenue protection: Increases under CCP modifications relative to current CCP program.

Geographic loss trigger: National.

Eligible acres: All planted acres.

Payment calculation: Same as under current CCP program.

Payment limit: Unspecified.

Conservation compliance: Unspecified.

Cost to producer: None.

Budget cost estimate: No estimate available.

Rationale: Producer groups supporting these CCP modifications say current program parameters are no longer relevant and do not provide meaningful price protection. Switching from base acres to planted acres would align the CCP payment more closely with price risk associated with a producer's production (as provided under the current ACRE program but not the current CCP program). Using only partial-year data rather than the entire year for determining the payment would speed up payment delivery. The portion of the marketing year to be used has yet to be determined.

Aggregate Risk and Revenue Management (ARRM) (Sponsors: Senators Brown, Thune, Durbin, and Lugar)19

Program type: Shallow-loss crop revenue program.

Programs eliminated: DP, CCP, ACRE, and SURE.

Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: Covers losses from 10% to 25% of crop-reporting-district (CRD) revenue guarantee. The first 10% of losses are not covered. Losses greater than 25% are expected to be covered by crop insurance polices.

Program description: Makes crop-specific payments when two triggers are met: (1) actual farm revenue < farm guarantee, and (2) actual CRD revenue < CRD revenue guarantee. Both loss triggers use crop insurance harvest prices.

Price/ revenue protection: Multi-year: both revenue guarantees (farm and CRD) are based on five-year Olympic average of yield (APH and CRD) times crop insurance harvest price.

Geographic loss trigger: Two triggers must be met—farm level and CRD level.

Eligible acres: Planted or intended to be planted acres. ARRM eliminates restrictions on planting fruits and vegetables on program acres.

Payment calculation: Payment on 85% of planted acres with adjustment for farm yield relative to CRD yield. Per-acre payment rate equals 100% of difference between 90% of CRD revenue guarantee and actual CRD revenue (CRD yield x RMA harvest price). Payment rates capped at 15% of CRD guarantee.

Payment limit: Subject to adjusted gross income (AGI) limitation of $500,000 non-farm average income and a payment limit of $65,000.

Conservation compliance : Eligibility subject to conservation compliance rules.

Cost to producer: None.

Budget cost estimate: The elimination of several existing programs would score substantial savings, which are partially offset by the cost of the ARRM program (estimated at $28 billion over 10 years). CBO has scored $20 billion in net savings over 10 years for ARRM.

Rationale: ARRM was designed to address several criticisms that emerged regarding the 2008 farm bill's Average Crop Revenue Election (ACRE) program. ACRE was intended to help farmers manage their revenue risks (not just price risk as under other farm programs) and protect against losses from multi-year price declines. Under ACRE, payments for an eligible crop required meeting two separate revenue triggers at both the state and farm levels. While the revenue aspect has been conceptually attractive for many, some have criticized ACRE's use of state crop yields to determine guarantee and payment levels. They point out that a crop loss problem in one part of a state might be offset by better yields in another part, resulting in minimal or no risk protection at a more local level. Another criticism is that, because ACRE payments are determined with season-average prices calculated by USDA at the conclusion of the marketing year, payments arrive at least a year after harvest.

ARRM addresses these issues by using a five-year Olympic average revenue trigger based on yields in crop reporting districts (CRDs), which are multi-county areas, rather than statewide yields. This change is designed to shift the program's risk protection closer to the farm. In addition, the program uses harvest prices from the crop insurance program (which are based on current futures market prices for harvest-time contracts) for calculating actual and guarantee levels of revenue. This would speed up the payment delivery because crop insurance prices are available many months before season-average farm prices can be calculated. Like ACRE, the program has revenue triggers at both the CRD and farm levels.

Revenue Loss Assistance Program (RLAP) (Sponsors: Senators Conrad, Hoeven, and Baucus)21

Program type: Shallow-loss crop revenue program.

Programs eliminated: DP, ACRE, and SURE.

Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: At the farm level, covers commodity-specific revenue losses greater than 12% but not to exceed 25% on planted/prevented planted program crop acreage.

Program description: Makes payment when actual farm revenue for one or more program crops is less than the adjusted historic revenue guarantee for each crop (defined as 88% of historic revenue for each crop). CCP continues with 2012 target prices and payments made on 75% of base acres (down from current level of 85%). Target prices are no longer reduced by direct payment rates as under the 2008 farm bill.

Price/ revenue protection: Multi-year; for each crop, the per-acre revenue guarantee is 88% times historic revenue; historic revenue equals the higher of the five-year Olympic average farm price or 2012 target price times producer yield (higher of the farm (1) APH, (2) five-year Olympic average APH, or (3) CCP or DP yield). Losses below 75% of historic revenue are not covered.

Geographic loss trigger: Farm level.

Eligible acres: Planted or intended-to-be-planted acres. A payment factor of 65% is used for planted acreage and 45% for prevented planted acres. Total eligible acres cannot exceed historical program crop base acres. Farmers must comply with requirements for planting flexibility.

Payment calculation: Per-acre payment rate equals the difference between the revenue guarantee and the actual crop revenue per acre for the current year. For each crop, actual revenue is actual yield times national average farm price for the first four months of the marketing year plus net crop insurance indemnities and noninsured crop disaster assistance payments. (The national price could be adjusted for quality losses.)

Payment limit: Subject to a payment limit of $105,000 for payments under the Revenue Loss Assistance Program and CCP. A person is ineligible for any benefits if average adjusted gross income (AGI) exceeds $999,000.

Conservation compliance : Eligibility subject to conservation compliance rules.

Cost to producer: None.

Budget cost estimate: CBO score has been requested.

Rationale: The proposal is designed to address shallow losses by combining the ACRE and SURE programs into a single program. It would not require a disaster designation to trigger producer eligibility. The primary program is limited to current program crops. In the payment calculation, using the national farm price for the first four months of the market season would speed up payment delivery compared to the SURE, ACRE, and CCP programs, which requires using full marketing-year average prices. Inclusion of net crop insurance indemnities in the actual revenue calculation helps prevent overlap of RLAP and crop insurance payments.

Among other provisions, the proposal would reauthorize for FY2012 to FY2021 the expired livestock and fruit tree disaster programs, with slightly lower payment amounts to reduce overall costs. SURE would be authorized for FY2012 only. Additional provisions would make available a supplemental crop insurance policy based on area-wide losses.

Risk Management for America's Farmers (RMAF) (Sponsor: American Soybean Association)22

Program type: Shallow-loss crop revenue program.

Programs eliminated: DP, CCP, ACRE, and SURE.

Commodity coverage: Current program crops.

Loss coverage: Covers losses from 10% to 25% of farm revenue guarantee (5% to 20% for irrigated crops). The first 10% (5% for irrigated crops) of losses are not covered. Losses greater than 25% are expected to be covered by crop insurance polices.

Program description: Makes crop-specific payments when one trigger is met: actual farm revenue < farm guarantee.

Price/ revenue protection: Multi-year; farm revenue guarantee is 5-yr. Olympic average farm price times higher of: producer's APH, producer's 5-yr. Olympic average APH, or 80% of the county yield.

Geographic loss trigger: Farm level.

Eligible acres: Planted or intended-to-be-planted acres.

Payment calculation: Per-acre payment rate equals 85% of difference between the farm guarantee and actual farm revenue (actual yield times national farm price for the first four month of year only plus net crop insurance indemnities). Payment rates capped at 25% of guarantee.

Payment limit: Subject to adjusted gross income (AGI) limitation of $500,000 non-farm AGI and $750,000 farm AGI.

Conservation compliance : Eligibility subject to conservation compliance rules.

Cost to producer: None.

Budget cost estimate: Not available.

Rationale: The American Soybean Association (ASA) has proposed a revenue-based program that they say improves farm risk management as a complement to crop insurance and serves as a replacement for current commodity programs. It features a single, farm-level loss trigger.

Stacked Income Protection Plan (STAX) (Sponsor: National Cotton Council)23

Program type: Shallow-loss, area-wide revenue insurance (described below) and a modified marketing loan program.

Programs eliminated: DP, CCP, ACRE, and SURE as applied to cotton.

Commodity coverage: STAX is described for cotton producers only.

Loss coverage: Loss coverage to be determined but likely in the range of 10% to 20% of revenue guarantee such that the first 10% of losses are not covered, and losses greater than 20% would be covered by crop insurance polices.

Program description: Voluntary program whereby farmers could supplement existing revenue insurance with an area-wide insurance product subsidized at 80%.

Price/ r evenue protection: The revenue guarantee has "floor protection" since the standard RMA projected harvest-time price (i.e., pre-planting time price for harvest-time futures contracts) is "cupped" by a minimum fixed reference price of $0.65 per pound that acts as a floor price guarantee when the projected harvest price falls below the fixed reference price. Producer prices have floor protection from the modified marketing loan—the upland cotton marketing loan rate is determined in the fall prior to planting the crop and would be set equal to the average of the Adjusted World Price for the two most recently completed marketing years within a bounded range of $0.47 and $0.52 per pound.

Geographic loss trigger: Area-wide insurance policies are determined at the county level.

Eligible acres: No change from current crop insurance programs (NC).

Payment calculation: NC.

Payment limit: NC.

Conservation compliance: NC.

Cost to producer: Producer premiums for the supplementary shallow-loss coverage would be offset to the maximum extent possible by using the available upland cotton program spending authority under the eliminated DP, CCP, ACRE, and SURE programs.

Budget cost estimate: National Cotton Council (NCC) reports an annual cost of $400 to $500 million.

Rationale: The "stacked" feature of the program is that it would provide shallow-loss coverage that would sit on top of the producer's individual crop insurance deep-loss product. It involves using an area-wide revenue product such as a modified group risk income protection (GRIP) program where losses are determined at the county level rather than the farm level. The product would be delivered through crop insurance, providing protection against shallow losses—for example, 10% to 20% loss of average revenue—by riding on top of existing crop insurance policies. GRIP is an insurance product designed to protect farms against revenue losses that occur at the county level rather than at the individual farm level. Area-wide policies such as GRIP are generally cheaper than farm-level policies since the risk of loss is pooled at a more aggregate level.

The NCC claims that adjustments to the upland cotton marketing loan program would make the program compatible with World Trade Organization (WTO) domestic support commitments and address the long-running WTO dispute settlement case by Brazil against specific provisions of the U.S. cotton program.

Total Coverage Option or TCO (H.R. 3107) (Sponsor: Representative Neugebauer)

Program type: Shallow loss, area-wide yield insurance.

Programs eliminated: None.

Commodity coverage: Potentially all crops covered by yield insurance.

Loss coverage: Shallow losses greater than 10%.

Program description: Producers can supplement their individual farm-level yield policy with a new policy that pays an indemnity when area (e.g., county) yield is below 90% of expected level. Payment is designed to cover some or all of the deductible under an individual policy.

Price protection: Guarantee is based on current prices (pre-planting time).

Geographic loss trigger: Area level (e.g., county).

Eligible acres: Planted acreage.

Payment calculation: TCO payment made on eligible acres. Per-acre payment rate equals RMA price times the difference between area yield guarantee—90% times normal (historic) area yield—and actual area yield.

Payment limit: None.

Compliance issues: Unspecified.

Cost to producer: Crop insurance premium (subsidized at not less than 60%).

Budget cost estimate: Not available.

Rationale: A producer would purchase an individual policy under the current crop insurance program and receive an indemnity when actual production or revenue is less than the policy's guarantee. A producer who also purchases a TCO policy would receive a second indemnity that covers all or part of the deductible, depending upon the level of loss for the entire area (e.g., county). Under the TCO, the farmer would receive the full value of the individual policy deductible when the actual area yield as a percent of normal is the same or less than the individual policy guarantee coverage selected by the producer. For example, if a producer purchases 75% yield coverage for individual yield policy, the policy's entire deductible is covered by TCO if the actual area average yield is no more than 75% of normal. The TCO coverage would be triggered only if the losses in the area exceed 10% of normal levels. The federal subsidy for TCO would be not less than 60% of the premium, which is similar to average subsidy level for the current crop insurance program.

Safety Net by EWG (Sponsor: Environmental Working Group)27

Program type: Deep-loss yield insurance.

Programs eliminated: DP, CCP, ACRE, Marketing Loan Program, and SURE.

Commodity coverage: Potentially all crops covered by yield insurance.

Loss coverage: Deep yield losses of more than 30%.

Program description: Replace current farm commodity programs and all crop insurance subsidies with a free crop insurance policy that covers yield losses of more than 30%.

Price protection: Guarantee is based on current prices (planting time).

Geographic loss trigger: Farm level.

Eligible acres: Planted acreage.

Payment calculation: Payment made on eligible acres. Per-acre payment rate equals crop insurance price times the difference between a farm's yield guarantee (e.g., 70% times APH yield) and actual farm yield.

Payment limit: None.

Conservation compliance : Require producers to meet a basic standard of conservation practices.

Cost to producer: Basic policy is free. Producer could purchase additional coverage including revenue policies at full market price (i.e., no subsidies).

Budget cost estimate: The Environmental Working Group (EWG) expects a total net savings of $80 billion over 10 years.

Rationale: EWG advocates that taxpayers should not guarantee business income for anyone and the government should provide agricultural assistance only when losses are incurred due to a natural phenomenon such as bad weather, which is unique to agriculture.

Deep Loss Program, formerly known as Systemic Risk Reduction Program, or SRRP (Sponsor: American Farm Bureau Federation)28

Program type: Deep-loss revenue insurance.

Programs eliminated: DP, CCP, ACRE, SURE, and catastrophic crop insurance.

Commodity coverage: Current program crops (with potential extension to other crops also covered by crop insurance at later date).

Loss coverage: Deep losses (e.g., in excess of 20% or 30%).

Program description: Program makes a payment when crop revenue for a county (or some geographic area) is below a guarantee based on county yields and historical prices. Protects against multi-year price declines but not shallow losses (i.e., losses stemming from producer's crop insurance deductible). To protect against shallow losses or to cover individual farm yield risk, producers could purchase individual policies that would "wrap around" the core coverage.

Price protection: Guarantee based on three-year average or five-year Olympic average of crop insurance harvest prices.

Geographic loss trigger: County (if data not available, use crop reporting district or other region).

Eligible acres: Planted acreage.

Payment calculation: Payment made on eligible acres. Per-acre payment rate equals difference between area revenue guarantee (e.g., 70% or 80% times county yield x crop insurance historical average price) and actual revenue (e.g., county yield x crop insurance harvest price).

Payment limit: None.

Conservation compliance : Unspecified.

Cost to producer: Minimal fee. As currently available, producer could purchase individual (subsidized) policies for additional coverage.

Budget cost estimate: Not available. The American Farm Bureau Federation (AFBF) expects that crop insurance premiums (i.e., the cost to both producers and the government) would decline because individual polices would "wrap around" the core coverage, and hence have less liability and potential for indemnities. The level of the insurance deductible on the core policy as well as the premium subsidy rates for buy-up coverage would be determined by budget cost implications.

Rationale: AFBF argues that the federal government should provide more protection from larger downside risks while allowing producers to manage shallow losses on their own by purchasing additional (subsidized) insurance. According to the organization, the farm bill should provide strong safety net programs "that do not guarantee a profit and minimize the potential for farm programs affecting production decision." AFBF also says the proposal, unlike others, can be applied to a broader range of commodities, like fruits and vegetables.

Farmer-Owned Reserves (FOR) (Sponsor: National Farmers Union)30

Program type: Establishes a new FOR for each of the major program crops with increased loan rates, and acreage set-asides.

Programs eliminated: DP, CCP, and marketing loan benefits (i.e., loan deficiency payments and marketing loan gains).

Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: Not applicable.

Program description: Producers may place their crop in a crop-specific FOR whenever the market price falls below that crop's loan rate. Each FOR is capped, e.g., corn at 3 million bus., wheat at 800 million bus., soybeans at 400 million bus., etc. A crop placed in the FOR must remain there until its market price exceeds 160% of its loan rate (i.e., FOR release trigger), when it is released to the market. All crops placed in the FOR receive an annual storage payment of $0.40 per unit (e.g., bushel, cwt, lb.). When a crop's FOR reaches its cap and its market price remains between the loan rate and the FOR release trigger, then no further FOR placements may occur and no FOR release is triggered. When a crop's FOR reaches its cap and the market price falls below the loan rate, then a voluntary paid set-aside is triggered. The farm-level set-aside is based on whole-farm acreage, not crop-by-crop as in the past. Set-asides would be allocated at the county level. Participation in the set-aside is voluntary, but all farmers could bid on acreage they would be willing to put in the set-aside.

Price/ revenue protection: Producer prices are protected by higher loan rates.

Geographic loss trigger: Not applicable.

Eligibility: Commodity payments would only be made for quantities actually placed in the FOR, in contrast to the current marketing loan program which makes payments on every bushel produced. As a result, the level of government payments could be significantly lower.

Payment calculation: Producers are paid $0.40 per unit (e.g., bushel, cwt, lb.) per year as a storage payment for all crops placed in the FOR.

Payment limit: None.

Conservation compliance: Unspecified.

Cost to producer: None.

Budget cost estimate: No official score available.

Rationale: According to a study funded by the National Farmers Union, the proposed farmer-owned reserves program would address the lack of timely market self-correction when crop prices plummet, while permitting farmers to receive the bulk of their revenue from market receipts. The study estimates that the FOR proposal would have saved an estimated $56.4 billion over a historical 13-year period from 1998 to 2010 if it had been in place in lieu of existing programs, while the value of production for affected crops would have been $33 billion higher.

Additional Proposals

Proposed Dairy Legislation

In the 112 th Congress, several Members have introduced legislation for alternatives to current federal dairy programs, which expire in 2012. Proposed dairy legislation has the potential to eliminate some dairy programs, modify others, or replace them with a new approach to dairy farm support. For example, the Dairy Security Act of 2011 ( H.R. 3062 ) was introduced in September 2011 by Representative Peterson and others. The bill parallels a concept developed by the National Milk Producers Federation as an alternative to current dairy programs that critics say have not provided an adequate safety net for dairy producers. Alternative proposals were subsequently introduced, including S. 1714 , S. 1715 , S. 1682 , and S. 1640 . These bills are described in CRS Report R42065, Dairy Farm Support: Legislative Proposals in the 112 th Congress .

Proposals for Whole Farm Insurance

Several proposals advocate the use of whole farm insurance, which protects against declines in a farm's entire revenue and not individual crop revenues. For example, an expansion of whole-farm insurance is included in S. 1658 / H.R. 3111 , the Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011.

Currently, USDA offers whole farm revenue insurance in selected states through the Adjusted Gross Revenue (AGR) and AGR-Lite policies. A loss payment is triggered when the gross income for an entire farm (all crop and livestock revenue) is less than the approved income (based on the five-year average and the current year farm plan). Coverage is available for up to 80% of guaranteed income.

U.S. Agriculture and Nutrition Policy Statement (Chicago Council on Global Affairs)

The Chicago Council on Global Affairs, an independent international affairs organization, recommends merging all farm commodity support programs and crop insurance subsidies into a single whole-farm revenue insurance program. The council states that whole-farm revenue plans are less expensive to taxpayers than traditional support programs. Researchers, however, have pointed out the difficulty in developing whole-farm insurance products, including complexity in measuring and classifying risks that underlie the insurance contracts. The data needs can also be substantial, which can hamper farmer participation. According to the organization, the proposed changes to the safety net would save $2.5 billion per year.

Local Farms, Food, and Jobs Act (Representative Pingree and Senator Brown)

The Local Farms, Food, and Jobs Act of 2011 ( H.R. 3286 / S. 1773 ) was introduced in early November 2011 by Representative Pingree and Senator Brown. The bill would require the Federal Crop Insurance Corporation to offer nationwide a whole farm revenue risk plan that allows a producer to qualify for an indemnity if actual gross farm revenue is below 85% of the average gross farm revenue of the producer. Producers of any type of agricultural commodity would be eligible. In addition, coverage is to include the value of any packing, packaging, labeling, washing or other on-farm activities needed to facilitate sale of the commodity. The bill also would eliminate premium surcharges on insurance policies for organic crops and offer insurance at actual price levels received by growers for all organic crops produced in compliance with standards issued by USDA.

Growing Opportunities (Representative Blumenauer)

On October 26, 2011, Representative Blumenauer, supported by environmental, taxpayer, and free-enterprise advocacy groups, introduced a proposal for new farm policy entitled "Growing Opportunities: Family Farm Values for Reforming the Farm Bill." The report outlines policy changes in six specific areas: commodity programs, conservation, research and development, beginning farmer programs, crop insurance, and nutrition. With respect to commodity programs, the proposal would eliminate direct payments and peanut and cotton storage payments. It would also place two limits on combined payments under the counter-cyclical payment, marketing assistance loan benefits, and ACRE programs—first, combined payments would be limited to entities with an adjusted gross income of under $250,000 per year, and second, total payment receipts would be limited to $250,000 per entity per year. Concerning crop insurance, it would link conservation compliance to participation in federally supported crop insurance, and would cut "administrative burden" and eliminate "perverse incentives." Funding increases are proposed for conservation (which would be reoriented to a performance-based program), nutrition, and research. Several measures intended to aid beginning farmers are also recommended. Specific legislative language has not yet been produced for this proposal.

California Recommendations (Coalition of California Agricultural Interests)

In terms of value of production, California is the largest, most diversified agricultural state. As a result, California agricultural interests wanted to formally express their concern that a new farm bill should better reflect that diversity. This request for a more diversified farm bill was formally promulgated by the October 14, 2011, submission of a California farm policy proposal to the joint committee. The California proposal includes over 70 specific recommendations involving funding and new program development in the areas of (1) plant and animal health and safety, (2) specialty crop promotion, (3) environment and natural resource protection, (4) improving public health and nutrition, (5) rural development, (6) research and education, (7) international market development, (8) farm and ranch safety net, (9) organic agriculture, and (10) ensuring that all farmers and ranchers have access to farm bill programs.

Appendix A. Current Farm Safety Net Programs Evaluated by Key Criteria

Current Program: Direct Payments (DP) Program

Program type: Fixed, decoupled income support based on historic program acreage and yields.

Commodity coverage: Historic program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), and peanuts.

Loss coverage: No loss needed to trigger payment.

Program description: Per-acre payments made to participating owners of historical base acres irrespective of current planting behavior.

Revenue protection: Decoupled income support.

Geographic loss trigger: No loss needed to trigger payment.

Eligible acres: Historic base acres, no planting required to receive payment.

Payment calculation: DP payment rate times 85% of historic base acres times the direct payment yield.

Payment limit: $40,000 per person; $80,000 with spouse.

Conservation compliance: Yes, conservation compliance linked explicitly to DP.

Cost to producer: None.

Budget cost estimate: Projected cost of DP during FY2013-FY2022 is $49.6 billion or $4.96 billion per year.

WTO status: Notified as green box (i.e., exempt from inclusion under the United States' AMS limit of $19.1 billion).

Current Program: Counter-Cyclical Payments (CCP) Program

Program type: Variable, partially decoupled, commodity-specific income support.

Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: No individual farm loss required. Partially offsets crop-specific revenue losses due to price declines that occur when the national season-average farm price falls below a national price trigger (i.e., the crop's target price less its DP rate).

Program description: Payments are coupled with current-year farm prices—a payment is triggered when the national season-average farm price for a specific crop falls below its national price trigger (i.e., the crop's target price adjusted downward by its DP rate). Payments are partially decoupled since they are made on historic base acreage and program yields.

Price/ revenue protection: Provides revenue protection when national farm price falls below a national price trigger.

Geographic loss trigger: National price trigger.

Eligible acres: Historic base acres, no planting required to receive payment.

Payment calculation: Total CCP payment = CCP payment rate times 85% of historic base acres times CCP program yield. CCP payment rate equals difference between the target price and the sum of the direct payment rate and the higher of the (1) national season-average farm price or (2) national loan rate.

Payment limit: $65,000 per person; $130,000 with spouse.

Conservation compliance: Yes.

Cost to producer: None.

Budget cost estimate: Projected cost of CCP during FY2013-FY2022 is $1 billion or $0.1 billion per year.

WTO status: Notified as non-product-specific AMS (i.e., amber box) but eligible for non-product-specific de minimi s exemption.

Current Program: Marketing Loan Benefits (MLB) Program

Program type: Voluntary coupled, commodity-specific price support.

Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), and pulse crops (dry peas, lentils, chickpeas); peanuts; plus other "loan-eligible commodities": extra long staple cotton, wool, mohair, and honey.

Loss coverage: Farmer receives benefit on production when market prices fall below loan rates; no yield protection.

Program description: Voluntary price support program based on commodity-specific loan rates. Producer may claim a benefit (as either a marketing loan gain for crops already placed under a nonrecourse marketing loan, or as a loan deficiency payment for eligible crops not yet placed under loan) when the local county price for a specific commodity (or adjusted world price for cotton or rice) falls below its national loan rate. Also includes certificate exchanges.

Price protection: Each crop's statutorily fixed marketing loan rate acts as a per-unit revenue floor for producers with the government making up any difference between the loan rate and the market price. (Market price is unaffected by the program.)

Geographic loss trigger: Payment triggered at the county level when posted county prices fall below the national loan rate.

Eligible acres: All production from harvested acres is eligible for the MLB.

Payment calculation: The producer receives the difference between the national loan rate and the posted country price or adjusted world price (for cotton and rice). For crops under loan, the farmer may repay the loan at the posted county price if it is lower than the loan rate.

Payment limit: None.

Conservation compliance: Yes.

Cost to producer: None.

Budget cost estimate: Projected cost of MLB during FY2013-FY2022 is $776 million or $78 million per year.

WTO status: Notified as product-specific AMS (i.e., amber box) where payments may be eligible on a commodity-by-commodity basis for product-specific de minim i s exemption.

Current Program: Acreage Crop Revenue Election (ACRE)

Program type: Voluntary coupled, commodity-specific income support.

Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), peanuts, and pulse crops (dry peas, lentils, chickpeas).

Loss coverage: Covers a portion of commodity-specific revenue losses relative to historic average revenue.

Program description: Voluntary program; however, selection is permanent for life of 2008 farm bill. ACRE protects producers against crop-specific revenue losses regardless of the cause—price decline, yield loss, or both. ACRE payments require that two revenue triggers (farm and state) be met. ACRE applies to all eligible crops on a farm, but payments for each crop are calculated separately.

Price/ revenue protection: Multi-year: both revenue guarantees (farm and state) are based on five-year Olympic averages of yields and the two-year simple average of the national farm price.

Geographic loss trigger: Two triggers must be met—farm-level and state-level; however, the payment is based on a state-level loss formula.

Eligible acres: 85% of planted acres.

Payment calculation: Total payment = state payment rate per acre times 85% of planted acres times ratio of five-year Olympic average farm yield over the five-year Olympic average state yield (state benchmark yield). State payment rate per acre equals the lower of (1) 25% of the state guarantee or (2) difference between the state guarantee (90% of the simple average of the national average farm price times the state benchmark yield) and the product of actual state yield times the higher of (i) the national average farm price or (ii) 70% times loan rate.

Payment limit: ACRE does not have a separate payment limit. Instead, ACRE payments count toward the counter-cyclical program payment limit of $65,000 per person. The limits for both direct payments and counter-cyclical/ACRE payments are adjusted to account for the 20% reduction in direct payments under ACRE.

Conservation compliance: Yes.

Cost to producer: Participants must forgo 100% of CCP and 20% of DP for all eligible crops on a farm; marketing loan rates reduced by 30%.

Budget cost estimate: Projected cost of ACRE during FY2013-FY2022 is $5 billion or $0.5 billion per year.

WTO status: Notified as product-specific AMS (i.e., amber box) where payments may be eligible for product-specific de minim i s exemption on a crop-by-crop basis.

Expired Program: Supplemental Revenue Assistance Payments (SURE)

Program type: Coupled, whole-farm income support.

Commodity coverage: All crops.

Loss coverage: Covers a portion of whole-farm revenue losses relative to historic average revenue.

Program description: Designed to replace ad hoc disaster assistance payments with a permanent program. SURE partially compensates producers for losses (due to natural disaster or adverse weather) in whole-farm crop revenue (a producer's revenue from all crops in all counties, i.e., the entire enterprise and not just the crops affected by loss). The whole-farm revenue, including farm program payments and net insurance indemnities, is compared with a guaranteed revenue level. If the actual whole-farm revenue is less than the farm's guaranteed level, then the producer receives a payment.

Revenue protection: The SURE revenue guarantee is essentially the sum of a farm's crop insurance guarantees increased by 15%, and NAP guarantees increased by 20%. For insurable crops, the guarantee is 1.15 times higher of (APH or CCP yield) times insurance coverage level times planted acreage times price election. For non-insurable crops, the guarantee is 1.20 times 50% of higher of (adjusted NAP or CCP yield) times planted acreage times NAP price.

Geographic loss trigger: Eligible farms must be located in a secretarial-disaster-declared county (or contiguous county) or have an overall yield loss greater than 50% with at least one crop having at least a 10% yield loss due to disaster-related conditions.

Eligible acres: All planted or prevented planted acreage.

Payment calculation: 60% of (program guarantee minus total farm revenue) where total farm revenue is sum for all crops of (harvested production times national average farm price) plus government payments plus crop salvage value.

Payment limit: Payments are limited such that the guaranteed level cannot exceed 90% of expected farm income. Total payments per person may not exceed $100,000 for SURE plus the three livestock-related disaster programs of the 2008 farm bill. Since 2009, SURE payments are not available to producers if their three-year average adjusted gross income (AGI) is $500,000.

Conservation compliance: Yes.

Cost to producer: Participants must purchase crop insurance (or NAP if crop insurance is not available) on all crops in their farming operation such that SURE is supplemental, not primary, insurance.

Budget cost estimate: Due to its expiration on September 30, 2011, SURE has no baseline funding in future years.

WTO status: Notified as non-product-specific AMS (i.e., amber box) but eligible for non-product-specific de minim i s exemption.

Appendix B. Joint Select Committee on Deficit Reduction and Agriculture Policy

The Joint Select Committee on Deficit Reduction (or joint committee) established in the 112 th Congress was instructed to develop a bill to reduce the federal deficit by at least $1.2 trillion over the 10-year period ending in FY2021. The committee was established under the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Because of its authority, the joint committee's budget recommendations had potential to significantly affect the development of the next farm bill.

Legislative Process and Timeline of Joint Committee

Any legislation resulting from the joint committee recommendations was to proceed under special "fast track" procedures that would prevent amendments and limit debate. The BCA allowed both chambers of Congress to pass the original legislation reported by the joint committee with no amendments on a simple majority vote. For the proposal to be considered under the special, expedited procedures, however, it had to be approved by the joint committee by November 23, 2011. Leaders of the joint committee declared an impasse on November 21, 2011, and ended their efforts without passing a bill.

A simple majority of the 12 members would have sufficed to move the bill to both chambers for an up or down vote. Ultimately, to become law, the joint committee's bill was required to be passed by both chambers of Congress by December 23, 2011. If a joint committee proposal cutting the deficit by at least $1.2 trillion was not enacted by January 15, 2012, then an automatic spending reduction process that includes sequestration (the cancellation of budgetary resources) would ensue. Congressional committees whose jurisdiction was likely to be impacted by a joint committee proposal—for example, the House and Senate Agriculture Committees—were free to submit their own recommendations to the joint committee. However, no specific policy restrictions or requirements were placed on the joint committee. Hence, it was under no formal obligation to incorporate any recommended actions.

House and Senate Agriculture Committees' Letter to the Joint Committee

On October 17, 2011, the leadership of the House and Senate Agriculture Committees offered a letter to the joint committee recommending $23 billion in net deficit reduction from mandatory programs in the agriculture committees' jurisdiction. The unofficial consensus of those claiming to have knowledge of committee intentions was that the $23 billion would be allocated by cutting $13 billion from commodity support, $6 billion from conservation, and $4 billion from nutrition programs. The letter by the leadership of the agriculture committees also said that they were finalizing the specific farm policies that would achieve the $23 billion in deficit reduction and that a complete legislative package would be provided by November 1, 2011. However, no legislative package was forwarded by the agriculture committee leadership to the joint committee. According to news sources, regional differences over the potential "farm safety net" design appeared to be the most prominent obstacle to an agreement among agricultural policymakers. On November 21, 2011, the chairs of the House and Senate Agricultural Committees announced that they had developed a package to save $23 billion, but because the joint committee failed to reach an overall agreement, their effort on the package had ended. The agriculture committee leadership is expected to continue the process of reauthorizing the farm bill through the agriculture committees.

Concerns with the Joint Committee Fast-Track Process

Given the 10-year time frame of the joint committee's budget recommendations, many within the broader U.S. agricultural community were concerned that the joint committee's budget recommendations (whether influenced by the agriculture committee leadership's proposal or not) would have provided the framework for the next farm bill, thus precluding the full congressional debate that traditionally underlies the development of U.S. farm policy. As a result, certain agriculture-related interest groups—such as nutrition, agricultural research, renewable energy, rural development, and conservation—feared that they would be shut out of the process.

After the House and Senate Agriculture Committee leadership issued its October 17 letter to the joint committee, Members of Congress, the news media, and several issue-specific advocacy groups spoke out against the "secret nature" of the leadership's policy recommendations and the joint committee's fast-track process, which they said circumvented the traditional open debate of farm policy legislation. On November 3, 2011, Congressman Kind delivered a letter to the joint committee—co-signed by 26 other Members of Congress and endorsed by several advocacy groups—urging it to "resist any attempt to use the expedited deficit reduction process to create new farm bill programs and entitlements that have not been reviewed by the Congress."

Draft Proposal

On November 18, 2011, the press reported on a draft proposal of farm bill recommendations. The document was subsequently described in the press as a preliminary draft under discussion by some but not all members of the agriculture committees' leadership. In the absence of action by the joint committee, proposals in the draft reportedly have been considered as a starting point for farm bill deliberations in 2012.

The draft borrowed heavily from proposals by Members of Congress and others. The draft contained multiple titles, including a proposal for the farm safety net. Legislative language was not released, which precludes a detailed description of the plan.

In broad terms, the proposal would have eliminated most of the current farm programs (except marketing loans) and replaced them with the Ag Risk Coverage (ARC) program as a free supplement to subsidized crop insurance coverage. Producers of most program crops (except cotton) would select one of the following two options.

The revenue option is designed to protect against both yield and price declines at the farm level (compared with the state level under the current ACRE program). A payment would be made on 60% of planted acreage when a producer's farm revenue (yield times price) drops below 87% of the farm's five-year average (excluding the high and low years). Losses below 75% of farm revenue would not be covered (crop insurance, if purchased by producers, would cover these losses). Reportedly, the revenue option would be attractive to producers in the Midwest and Plains because it would build on what many consider favorable benefits from the crop insurance program for corn, soybeans, and wheat. The price option would make payments on planted acreage to producers when the national average price during the first five months of the marketing year drops below a reference (target) price. This option is similar to counter-cyclical payments under the 2008 farm bill, except that price protection would be higher than current levels. Reportedly, the price option is designed to be attractive to rice, peanut, and sorghum producers because crop insurance has been viewed as less attractive for these crops.

Cotton would be handled separately in an attempt to resolved a long-standing trade conflict with Brazil under the World Trade Organization. The draft described the new cotton program as a stand-alone revenue protection program. Cotton producers have been advocating a separate county-based insurance program (see " Stacked Income Protection Plan (STAX) (Sponsor: National Cotton Council) ."

For specialty crops, crop insurance coverage would be expanded. For dairy, current programs would be replaced with a new margin-based payment program, combined with provisions to reduce farm output when margins (milk price minus feed costs) decline.