October 2008
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Farmers and Ranchers Struggle to Understand 2008 Farm Act As USDA Officials Scurry to Implement Regulations

 
   

The Food, Conservation and Energy Act of 2008 (FCEA, Farm Act) took many months to gain approval in the U.S. Congress, including extra time needed to survive two Presidential vetoes.

Now that it’s the law of the land, USDA officials are scurrying to draft a host of rules and regulations to implement the measure. And farmers and ranchers face the daunting task of determining how the legislation affects their respective operations. That job calls for understanding the additions to the alphabet soup of government programs and, in a number of instances, making decisions on whether or not to use the new or modified programs.

These and other FCEA-related issues were agenda topics at a University of Missouri seminar held in early September. The session featured analyses of Farm Act provisions by agricultural economists associated with the Food and Agricultural Policy Research Institute (FAPRI), a joint effort of that university, Iowa State University and other policy experts.

Dr. Thomas Payne, vice chancellor and dean of the University of Missouri's College of Agriculture, Food and Natural Resources, welcomed a record crowd the the Farm Act seminar.

 

The new Farm Act is larger than the 2002 Act it replaces, with a total of 672 pages — an increase of 258 pages and 15 titles – five more than the previous measure. And while the legislation often is referred to as "The Farm Bill," nearly two-thirds of its spending will be for food and nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP — the new name for the food stamp program), Emergency Food Assistance Program and the Fresh Fruit and Vegetable Program.

Commodity programs, the customary target of farm legislation critics, will account only for an estimated 14 percent of the legislation’s spending. Crop insurance and miscellaneous other provisions are projected to take nine and 11 percent, respectively.

Cost projections are based on Congressional Budget Office estimates of spending at 2008 Farm Act levels from 2008-2017.

 Following is a review of new and other key provisions in the new Farm Act:

Average Crop Revenue Election (ACRE) program

 

Jim Wiesemeyer from Informa Economics gave the political background on how the 2008 Farm Act became a reality.

   

Beginning in 2009, producers have a choice of opting for this new farm revenue safety net program for all commodities on their farm or staying with the current program. Once enrolled in ACRE, farmers must remain in it through 2012. The program also calls for participants to give up 20 percent of their direct payments and all of their counter-cyclical payments (CCPs) and take a 30 percent cut in loan rates.

With ACRE, a benchmark level of state revenue per planted acre is established for each crop. That benchmark is based on a two-year moving average of national season-average farm prices multiplied by a five-year Olympic average (an average excluding the high and low figures from the last five years) of state yields per planted acre, with the product then multiplied by 0.9.

Participating producers may be eligible for ACRE payments if the national season average price multiplied by the state average yield per planted acre is less than the benchmark. However, to receive payments, farmers also must experience a loss on their operations. Determining farm level losses is similar to the state level benchmark except farm-yields replace state-yields in the calculation, producer-paid crop insurance premiums are added to the product and there is no 0.9 factor.

   

Farm Act seminar speaker Dr. Chad Hart from Iowa State University reviewed the 2008 Farm Act’s SURE program, other disaster aid programs and crop insurance. 

 
   

The state-average payment rate under ACRE makes up the difference between the benchmark revenue and the actual revenue but cannot be more than 25 percent of the benchmark revenue. Also, ACRE payments are available on 83.3 percent of planted acres in 2009 through 2011 and 85 percent of planted acres in 2012.

A preliminary analysis by FAPRI suggests for corn, soybeans, wheat, sorghum, barley, oats and sunflowers, likely ACRE payments could exceed the traditional program payment amounts a producer would forego. On the other hand, for cotton, rice and peanuts, estimated ACRE payments are less than the payments growers must give up. Thus, ACRE seems likely to be less attractive to farmers in Southern states and more attractive to those in Northern states.

An important issue upcoming ACRE regulations from USDA must determine is which two years’ prices will go into the equation to determine the revenue guarantee. Sizable price fluctuations in recent years mean the guarantee will be higher or lower, depending on which years’ numbers are used.

Other New Commodity Provisions

The new FCEA alters a number of provisions in the 2002 Farm Act and adds new ones. Among the changes are:

• Lowering the target price for upland cotton 1.15 cents/pound.

 

At the University of Missouri’s Farm Act seminar, Dr. Gary Adams, vice president for economics and policy analysis with the National Cotton Council, stressed the importance of cotton exports to the industry’s future.

   

• Creation of a program to make payments to domestic users of cotton regardless of the cotton’s source. From Aug. 1, 2008, through July 31, 2012, the payment will be four cents/pound. Beginning Aug. 1, 2012, the amount drops to 3 cents/pound.

• Higher target prices for wheat, soybeans, barley, oats and minor oilseeds. Corn and rice targets remain the same.

• Higher loan rates for wheat, barley, oats, minor oilseeds and sugar.

• Lowering the ethanol tax credit from 51 to 45 cents/gallon but maintaining the ethanol tariff at 54 cents/gallon.

• Lowering the share of base acreage eligible for direct payments from 85 percent to 83.3 percent for the 2009-10 through the 2011-12 marketing years. The share reverts to 85 percent in 2012-13.

• Delays in making direct payments and CCPs in later Farm Act years in order to meet budget goals.

• Replacing the support price for milk with specific supports for cheese, butter and nonfat dry milk. The support prices can be reduced, however, during periods of large removals.

• Increasing the amount of a farmer’s milk production eligible for payments under the Milk Income Loss Contract (MILC) program from 2.4 to 2.985 million pounds. The higher level applies for the period from January 2008 through August 2012, after which the maximum reverts to the earlier level.

• Allowing the current MILC payment trigger price of $16.94/hundredweight to increase each month if the USDA-reported dairy ration cost tops $7.35/hundredweight. After August 2012, the dairy feed ration cost adjustment increases to $9.50.

Crop Insurance, Disaster Programs

The 2008 Farm Act contains a package of five programs representing a first-time effort by Congress to offer a permanent disaster aid program. Known collectively as Supplemental Agriculture Disaster Assistance (SADA), the individual segments are:

• Supplemental Revenue Assistance Payments (SURE): calls for payments in disaster counties and all contiguous counties and applies to farms with crop losses greater than 50 percent of normal production. Based on grower participation in a crop insurance program for all eligible crops and, if applicable, in a non-insured crop assistance program, SURE provides whole-farm revenue protection, rather than being commodity specific. The only way for producers to qualify for SURE for 2008 crops was if they had paid for the appropriate coverage by Sept. 16.

• Livestock Forage Disaster Program (LFP): producers receive payments, based on monthly feed costs, when drought or fire (on public land) causes grazing losses.

• Livestock Indemnity Program (LIP): in cases of adverse weather, farmers can receive indemnity payments equal to 75 percent of market-value for death of covered livestock in excess of normal mortality rates.

• Tree Assistance Program: nursery growers and eligible orchardists can receive aid when natural disasters cause tree losses.

• Emergency Assistance for Livestock, Honey Bees and Farm-Raised Fish: designed to assist eligible producers who incur losses due to disease, bad weather or conditions not covered by other programs.

FCEA also calls for a number of crop insurance program changes, including a repeal of premium reduction plans, cuts in administrative and operating expense reimbursements, and increased fees for catastrophic coverage. In addition, studies of crop insurance for organic production, energy crops, aquaculture, poultry and bees are required.

Payment Limitations

The $40,000 limit on direct payments and the $65,000 cap on CCPs continue under the 2008 Act, except when a grower’s participation in ACRE reduces direct payments and eliminates CCPs.

In addition, the new law eliminates the three-entity rule and tightens other provisions determining how payments are attributed.

If the sum of a farm’s base-acres is less than 10 acres, all payments are prohibited in most cases.

The new Act also replaces the $2.5 million adjusted gross income limitation to receive commodity, disaster or conservation benefits with other income limits, including:

• A person with more than $500,000 in average adjusted nonfarm income will not be eligible for direct payments, CCPs, ACRE payments, marketing loan gains, MILC payments, loan deficiency payments and the noninsured assistance program.

• A person with more than $750,000 average adjusted gross farm income will not be eligible for direct payments.

• Anyone with more than $1 million in adjusted gross non-farm income will not be eligible for conservation program payments unless more than two-thirds of their income is from farming or related activities.

Country-of-Origin Labeling (COOL)

Called for in the 2002 Farm Act but delayed due to controversy over compliance costs and procedures, FCEA calls for full implementation of COOL regulations to be effective Sept. 30 of this year.

Covered under the new regulations are muscle cuts of beef, lamb, pork, chicken and goat, as well as ground products from those animals, fresh and frozen fruits and vegetables, peanuts, pecans, macadamia nuts and ginseng. Wild and farm-raised fish and shellfish also are included but rules on those products went into effect several years ago.

Food service establishments and retailers with annual invoiced sales less than $230,000 are excluded from labeling rules.

Producers must provide definitive origin information to slaughter facilities. Producer affidavits may be used and backgrounder/feeder operations may use previous producer affidavits for their documentation. Participation in the voluntary National Animal Identification System (NAIS) is believed to provide producers a suitable tool for COOL compliance.

COOL remains a controversial issue. USDA has projected overall first-year costs of $2.52 billion but has provided no estimates of benefits due to difficulties in quantifying the advantages. Critics said costs will be even higher than government projections and argued that consumers are more interested in a product’s price rather than its origin.

Conservation Programs

Conservation programs have received an overall boost in authorized funding in FCEA, although specific appropriation bills will determine final amounts.

While there are no revolutionary changes in the various reserve programs, shorter term agreements are more often allowed than in earlier acts and provisions for more local control, as opposed to state block grants, are called for. In general, farmers also have greater flexibility under new program provisions.

At a time of higher commodity prices, working lands programs like the Environmental Quality Incentives Program (EQIP) and the Conservation Security Program (CSP) tend to receive more producer attention. Reserve and preserve programs like the Conservation Reserve Program (CRP), the Wetland Reserve Program (WRP) and others are more popular when commodity prices are low.

Payments to producers for various conservation practices also are viewed favorably under World Trade Organization guidelines than commodity price support programs.

Producer Follow-up

Due to the scope of changes and new programs in the 2008 Act, producers will need to monitor closely the forthcoming USDA regulations for implementing the measure’s provisions. Farmers with more complex operations or unusual situations also may want to seek legal or accounting expertise to help in their decision-making.