In the Agricultural Act of 2014 (2014 farm bill), Congress clearly embraced the notion that risk management should be the core component of the U.S. farm safety net going forward. Gone is the Direct Payment program, which crop farmers had relied on for stable income support since the 1996 farm bill, a victim of federal budget pressures and an inability of the agricultural community to explain to the broader U.S. population why a program that made fixed payments to farmers regardless of market conditions was a good idea. In its place, Congress has bolstered the Federal Crop Insurance Program (FCIP) and other risk management policies available to crop and livestock farmers, because most Americans are familiar with the concept of risk-sharing through insurance. State laws require drivers to have some form of auto insurance and the majority of home owners have insurance of some kind on their dwellings and belongings within.
As a result, the 2014 farm bill saw a significant shift in federal resources for agriculture from the traditional commodity programs (Title I) to fund new and improved aspects of the FCIP (Title XI). Over the next 10 years, Title I spending is projected by the Congressional Budget Office (CBO) to decrease by $14.3 billion, while Title XI spending would increase by $5.7 billion. The remaining savings were credited as the farm sector’s contribution to federal deficit reduction.
The increases in federal spending on crop insurance were dominated by four provisions, which will take effect in 2015, beginning with spring-planted crops. They include (1) STAX coverage for producers of upland cotton, a shallow-loss revenue policy designed to replace price- or revenue-based programs from the commodity title, (2) Supplemental Coverage Option (SCO) in select counties, intended to provide area-based shallow loss coverage to complement revenue or yield coverage for individual crops (producer of crops other than upland cotton retain access to price-based commodity support programs), (3) a provision clarifying access to enterprise unit discounts for producers of irrigated crops, and (4) a provision allowing farmers to exclude extremely low yields due to bad weather from calculation of their Actual Production History (APH) for the purpose of determining insurable yield under the FCIP. Farmers choosing the revenue-based Agricultural Risk Coverage (ARC) option in the commodity title are not eligible to purchase an SCO policy.
As with individual insurance policies that the new shallow loss products are intended to complement, farmers must sign up with their crop insurance agents for SCO or STAX by the sales closing date for their region of the country, February 28th in most of the South and March 15 for the rest of the country. If farmers wish to avail themselves of the APH yield fix, that decision must be made affirmatively under the same deadlines. The new coverage options remain under the jurisdiction of USDA’s Risk Management Agency.
The 2014 farm bill also provides producers with diversified crop operations a new and improved whole farm insurance policy, called Whole Farm Revenue Protection (WFRP), also available for spring-planted crops by the sales closing date. WFRP addresses many of the perceived shortcomings in the previously available products, AGR and AGR-Lite, including a level playing field on premium subsidies as compared to conventional single crop policies, coverage for market readying activities, incentives for diversification, and wider availability around the country.
Finally, the 2014 farm bill provides dairy producers with a new insurance program called the Margin Protection program. Sign-up for 2015 eligibility ended last month in December, but will resume for 2016 dairy production on July 1, 2015. About half of all U.S. dairy farms enrolled in the program for 2015. Unlike the policies available under the crop insurance program described above, the Margin Protection program is operated by USDA’s Farm Service Agency.
It appears that the risk management approach to farm policy is catching on all around U.S. agriculture. Only time will tell if this approach will meet the needs of crop and dairy farmers around the country in the future as well as it has Midwest corn and soybean farmers in recent years.
Source - http://www.agweb.com
