What is in this article?:
- 2012 Farm Bill Debate: Multiple-Year Risk Assistance Programs
- Selected Observations on Design Issues
Most farm safety net provisions in the farm bills passed by the full Senate and the House of Representative’s Committee on Agriculture can be classified into 3 categories: 1. enhancements to crop insurance, 2. assistance against shallow losses, and 3. assistance against losses that extend across multiple crop years. This article focuses on the alternative proposals for multiple-year risk assistance.
Enhancements to crop insurance are largely the same in the Senate and House Committee farm bills (see farmdoc post, “First Draft of New House Farm Bill”). Moreover, the alternative shallow loss proposals are largely in agreement on their basic design structure, but differ on specific coverage parameters, whether the program should be at the farm or county level, and whether the program should be administered by the Farm Service Agency (FSA) or Risk Management Agency (RMA) (see farmdoc post, “Shallow Loss Programs and the 2012 Farm Bill Debate”). In the author’s opinion, the differences yet to be resolved regarding multiple-year assistance are greater than the differences yet to be resolved in the other two farm safety net policy categories.
Comparison of Multiple-Year Risk Proposals
Taking a broad perspective, three types of multiple-year programs are in the Senate Farm Bill and the House Committee farm bill.
One, which is contained in both farm bills, covers a limited, specified range of losses measured at the county level based on a target that is calculated using an Olympic moving average of prices and yield for the last five crop years. Thus, its target revenue changes with market conditions, although the target changes slower than the market due to the use of a moving average. This program covers losses that fall between 79% and 89% of target revenue in the Senate Bill and between 75% and 85% of target revenue in the House Committee bill. Payment is based on a share of current planted acres and acres prevented from being planted. This program also functions as a shallow loss program.
The second multiple-year program, which is only in the Senate farm bill, is similar in design to the county revenue program discussed in the previous paragraph, but is sited at the level of the individual farm operation.
The third multiple-year program, which is only in the House Committee farm bill, is a variation of the current target price program. The target prices are fixed by Congress for the life of the farm bill and, thus, do not adjust upward or downward with changes in the market. Payment is based on historical yield, which can be updated to the 2008-2012 crop years, and on a share of current planted acres and acres prevented from being planted. In most situations, this program will not function as a shallow loss program.
Policy Issues Framing the Debate over the Multiple-Year Program
The discussion in the preceding section and examination of the farm bill debate suggest that the debate over the design of a multiple-year risk assistance program is being framed by 6 issues:
- Should the target be stated in terms of price or revenue?
- Should the program be at the individual farm or larger area, notably the county?
- Should the multiple-year program be separate or combined with the shallow loss program?
- How much overlap should occur with crop insurance?
- Should the program be administered by FSA or RMA?
- Should the target be fixed or move with the market?
Each of these issues warrant extended discussion, but, due to space constraints and in keeping with the focus of this farmdoc post on the broader issue, the following discussion notes only selected points. Because a comparison of revenue and price programs was provided in the farmdoc post, “Price vs. Revenue Farm Safety Net,” August 9, 2012; this issue is not discussed in this post.