What to Expect when you’re Expecting a Farm Bill

Does Diabrotica Control Pay? On the Economic Benefits and Costs of Diabrotica Control Measures

What to Expect when youre Expecting a Farm BillPaul D. MitchellAssociate Professor of Agricultural & Applied EconomicsUniversity of Wisconsin-MadisonWisconsin Counties Association: Ag Steering CommitteeMadison, WI July 15, 2013Todays GoalOverview of existing Farm ProgramsHow we spend about $15 billion/yearOverview of likely changes in programs8-10% cut in the $15 billionMore emphasis on crop insuranceFarm Safety Net$15 bilRisk Management(field & specialty crops)$8.4 bilCommodity Programs(field crops)$6.0 bilDisaster Assistance(crops & livestock)$0.75 bilSupplemental Revenue Assistance Payments Program (SURE)Ad hoc disaster paymentsEmergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish ProgramEmergency Disaster LoansTree Assistance ProgramLivestock Forage Disaster ProgramLivestock Indemnity ProgramCrop Insurance$8.3 bilNon-insured Disaster Assistance (NAP)$0.1 bilDirect Payments (DP) $4.9 bilCounter-Cyclical Payments (CCP) $0.559 bilAverage Crop Revenue Election (ACRE) $0.311 bilMarketing Assistance Loans $0.225 bilLoan Deficiency Payments (LDP) $0.225 bilORAverage Annual Outlays Under 2008 Farm BillSource: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdfDirect Payments $/ac in 2009

MILC Payments 2009

2009 Total Payments (DCP, ACRE, LDP, SURE, MILC, CRP, Premium Subsidies)

Share of 2009 Total Payments from Crop Insurance Premium Subsidies

Average Indemnities Net of Farmer Premiums ($/ac) 2000-2009

WI Net Farm Income and Govt Pymts ($ Billion, not including premium subsidies)% Net Cash Income from Government Payments (not including premium subsidies)

Crop Insurance SubsidiesUSDA develops policies, rules, and premium ratesPays development & administration costsUSDA subsidizes the premiums ($6.9 billion in 2012)Farmers pay ~35%-40% of fair premiums on average USDA subsidizes companies for Administration and Operating ~18%-20% of premiums ($1.3 Billion in 2012)USDA reinsures the insurance companies, plus retains some of the policiesMeans USDA pays some of the indemnitiesCorn & Soy: 50% of acres, 60% of subsidies & premiums, 70% of liability, 80% of indemnities (2012)

Main PointAbout $15 billion annually given out in farm program payments and crop insurance premiums subsidies$7 billion in commodity support/disaster assistance$8 billion in crop insurance premium subsidiesWI does all right, with several counties > $10 million/year, $200-600 million per year (not including crop insurance)

Even more payments in net crop insurance indemnitiesMany WI counties $20-$40/A annual average2012 in WI: $175 million premium subsidies and $450 million indemnities = $525 million

2013? 2014? 201? Farm BillSummer 2012Senate passed a Farm BillHouse Ag Committee Passed Farm BillEventually failed, this a quick summary

Proposed Cuts ($ Billion per Year)SenateHouse AgNutrition-$0.4-$1.6Crop Insurance+$0.50+0.95Commodity Programs-$1.94-$2.36Crop Insurance + Commodity-$1.44-$1.41Conservation-$0.64-$0.61Total-$2.31-$3.51Senate and House Ag essentially the sameDebate was about how much to cut nutrition programs and how to support commodity agBoth emphasize crop insurance even more -9%~-33%Farm Safety Net: Replace Farm ProgramsProposed Farm Bill Commodity Support to cover Shallow Losses not covered by crop insuranceCreate programs to cover part of deducibleWith a 75% RP policy, farmer pays the first 25% of revenue losses below average revenueShallow Loss programs pick up part of deductibleSenate: Agriculture Risk Coverage (ARC)House Ag: Revenue Loss Coverage (RLC)Farmer pays first 11%-15% of losses, ARC/RLC cover up to 10% of additional losses

Main PointCrop insurance likely to become an even greater part of commodity supportCommodity support becoming programs layered on top of crop insurance for shallow loss coverageCurrently no crop disaster program: Buy crop insuranceOther Changes to expectReduced premium subsidiesConservation requirements for crop insurance

Conservation Reserve Program Payments 2009($1.87 billion in 2009, $1.75 billion in 2012)

% 2011 CRP acres expiring 2012-2014

Conservation ProgramsFarm Bill proposals cut CRP by about 1/3 More emphasis on crop insurance, less on farm programs, and cuts to CRP and low CRP re-enrollmentConcerns about soil erosion, wetlands, environment, etc.Conservation compliance restrictions for crop insuranceMore use of crop insurance as a policy tool for non-risk management purposesConclusionAbout $15 billion per year in government payments to US farmers ($375-$775 million to WI farmers)More than half $ for crop insurance at US levelA little less than half in WI for crop insuranceNew Farm Bill, if it ever passes, will likely cut this ~8-10% and put even more emphasis on crop insurance

Thanks for Your Attention!

Questions?Paul D. MitchellAgricultural and Applied EconomicsUniversity of Wisconsin, Madison, [email protected] 608-265-6514http://www.aae.wisc.edu/pdmitchell/extension.htmFollow me on Twitter: @mitchelluw Crop Insurance Data for 2012 (all units in Millions)CropRegionAcresLiabilityFarmerPremiumsPremium SubsidiesIndemnitiesCornWI3.041,89463.5121397USA81.153,4211,6322,67411,812SoyWI1.2749918.93637USA65.025,5698741,4672,129OtherWI0.8843910.817.916USA135.737,6061,6072,7963,439TotalWI5.192,83393.2175450USA282116,5964,1136,93717,380Premium subsidies = $6.9 billion (63%)Subsidies to companies $1.3 billionUSDA administration costs = ???, indemnities = ???Corn and Soybeans Dominate Crop Insurance(2012 Data)About 50% of the acresAbout 60% of the subsidies and premiumsAbout 70% of the liabilityAbout 80% of the indemnitiesRegionAcresLiabilityFarmerPremiumsPremium SubsidiesIndemnitiesWI5.22,83293175450USA282116,5964,1136,93717,380 Percentage of Total in Corn and SoybeansWI83%84%88%90%96%USA52%68%61%60%80%% of 2009 Crop Acres Insured

Counter-Cyclical Payments $/ac in 2009

Marketing Loan Benefits $/ac in 2009

ACRE Payments $/ac in 2009

SURE Disaster Payments $/ac 2009

% 2011 CRP acres expiring 2012

Proposed Commodity Program ChangesDirect Payments: both eliminatedCounter-Cyclical Payments: both eliminatedACRE Program: both eliminatedDisaster Programs: both eliminated SUREKeep other programs (LIP, LFP, ELAP, TAP)Marketing Assistance Loans and Loan Deficiency Payments: both kept and kept same loan ratesCreated new Farm Safety Nets