I continue to think there is a higher probability that the 2012 Farm Bill will be passed before the end of this year than that the current farm bill will be extended. My reasons for this assessment include the broad agreement that currently exists in much of the two farm bill drafts, the concern over what a new budget baseline will mean for the farm safety net, and the potential use of the budget savings in the new farm bill to fund bi-partisan priorities. Of course, this assessment means that the House and Senate will need to compromise over the existing differences in the two draft bills.

I think the two most important proposed changes in the farm safety net are SCO and the Dairy Production Margin Protection Program. The latter is the first farm safety net program since the 1970s to include cost of production in its design. If adopted, it will be important to monitor how this program performs, including its costs and its impact on different farm sizes.

SCO allows a farm to buy county insurance as an add-up to its individual farm coverage. Coverage can be bought up to 90%. For example, a farm could buy coverage for losses at the county level that occur between the 75% individual insurance coverage bought by the farm and 90%. SCO has no payment limit, a 70% subsidy level, and, unlike current county products, no payment multiplier. I think many farms will look carefully at SCO, especially in areas of lower yield variability, such as the Midwest, and larger farms, whose yield variability usually more closely tracks county yield variability. I also think farms may consider enrolling in SCO and buying down individual insurance.

The search for a multiple-year program to complement insurance remains ongoing. It is unlikely this farm bill will resolve this policy issue and thus farms will be given a choice. In addition, the cost and design of crop insurance likely will become a key future policy issue. Crop insurance no longer is a small budget program. Its cost has exceeded $5 billion in three of the last four years. We as a nation look differently at large budget programs than at small budget programs. In particular, we become as interested, if not more interested, in the question, "What does the public gain from the program in exchange for the tax dollars spent on a program?" compared with the question, "What do beneficiaries of a program gain from the program?"

 

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