What is in this article?:
- 7 Questions About the Farm Bill
- Question 2: Will the programs focus on across-year or on within-year protection?
- Question 3: Will the across-year programs focus on price or revenue protection?
- Question 4: Will the support levels for across-year programs react to changes in market conditions?
- Question 5: Will the program use historical or planted acres to indemnify producers?
- Question 6: How much overlap will be allowed between farm bill programs and crop insurance?
- Question 7: Does a farm have to have a loss to trigger payments?
Designs of the farm bill programs will largely answer the following seven questions. In some cases, these are contentious issues across regions and across crops. For example, some may want a revenue program while others desire a target price program. Hence, resolution of these issues likely will require compromise, perhaps leading to unclear answers. It is highly unlikely that any party to the farm bill negotiations will receive all their desired answers to the above questions and will therefore have to choose which of these questions are more important to them.
Question 5: Will the program use historical or planted acres to indemnify producers?
Last year's revenue program largely was based on planted acres while last year's target price program made payments on historical base acres. Generally, risk management is enhanced by basing payments on planted acres.
To some extent, the answer to this question is related to whether the program will react to market conditions. If a program reacts to market conditions, it can more easily be based on planted acres. Fixed target prices raise concerns when a fixed target price is set high relative to the market price. This will cause producers to plant more of the crops with higher fixed target prices, especially if payments are based on planted acres or if planted acres are significantly smaller than base acres. Hence, historical bases, especially historical bases that are updated close to the time that fixed target prices are set, have to be used when the program does not react to the market, or else production distortions become potentially more important.