Draft Senate Farm Bill: Commodity Programs & Crop Insurance
June 10, 2018
Feed corn, ready to harvest. Photo credit: USDA, Lance Cheung.
This is the sixth and final post in a multi-part blog series analyzing the draft farm bill released on June 7, 2018 by the Senate Agriculture Committee. Previous posts focused on: conservation, local/regional food systems and rural development, research and seed breeding, beginning and socially disadvantaged farmers, and organic agriculture. The bill is expected to be considered and “marked-up” (aka amended) by the full Agriculture Committee next Wednesday, June 13, and on the Senate floor later this month. We expect a major showdown on an amendment to target the distribution of farm subsidies during mark-up and again on the Senate floor and will report on those developments through updated and future posts.
Many politicians and interest groups have been repeating the following mantra for months: Given low commodity prices and a seemingly impending trade war, farmers need some certainty in the form of a new farm bill. Despite this cry for certainty, however, neither the House’s nor the recently introduced draft farm bill by Senate Agriculture Committee leadership does much to reform or improve the farm safety net (aka commodity programs and federal crop insurance programs). In fact, both bills go one step further toward decreasing certainty for farmers by cutting working lands conservation programs, through which farmers also receive payments – the failed House bill would have cut working lands conservation payments to farmers by $5 billion, the Senate draft by roughly $2.5 billion.
Even though neither chamber has thus far taken any decisive actions toward modernizing federal commodity subsidy or crop insurance programs, there will still be considerable debate around the safety net programs as mark-up and floor action proceed. Before getting to our breakdown of how the Senate draft bill performs on farm safety net programs, we will provide key background information that will help to frame our analysis of this bill, as well as upcoming farm bill debates.
Framing the Debate
As part of the budget deal struck by Congress earlier this year, both the cotton and dairy commodity subsidy programs received major upgrades (program changes that cost roughly $1 billion for dairy and $3 billion for cotton). Resolving the major issues in the cotton and dairy subsidy programs were widely considered the two most pressing farm bill problems coming into 2018. Dealing with them in the budget deal meant that there would be no pressure to cut other programs in order to pay for the upgrades, and therefore relieved Congress from having to negotiate these huge costs in the farm bill.
The second key thing to understand is that Committee leadership made only a few relatively minor changes to the Agricultural Risk Coverage (ARC) commodity program and no changes to the Price Loss Coverage (PLC) commodity program. Neither did they include any changes to the sugar program. Several members of the Senate Agriculture Committee would like to make more serious changes to these programs, however, which could set the stage for some interesting action when the bill is debated. Look for Committee members to push for further upgrades to ARC, as well as added assurances that the government-set assistance prices in PLC are equitable across different commodities and not above long term market averages. Committee Chairman Pat Roberts (R-KS) previously rejected that option when putting the draft bill together, but it could yet come before the Committee in the form of an amendment.
Finally, the draft bill makes only one change to the commodity programs affecting eligibility or targeting. The bill would reduce the so-called Adjusted Gross Revenue (AGR) threshold for program eligibility from $900,000 to $700,000. AGR is a measure of net non-farm income plus net farm income with all the costs associated with farming subtracted out. For married couples, the effective AGR threshold can be two or more times higher than that nominal level. This is a welcome, but very limited change. It does, nonetheless, produce over $250 million in projected savings over 10 years that the bill drafters used to make welcome premium discounts for small and medium-sized dairy producers as well as ARC improvements.
The bill makes no changes at all to per farm subsidy limits, or to rules that supposedly limit subsidies to working farmers. Recently, the U.S. General Accounting Office issued yet another in a long series of reports demonstrating that current law with respect to payment limits and “actively engaged in farming” rules are so weak and full of loopholes that some mega farms regularly receive over $1 million a year in taxpayer subsidies. Where the Senate draft bill does nothing to resolve these loopholes in eligibility, the House bill (which is slated to go up for a re-vote soon) went a step further by adding even more loopholes – so many that they would have effectively nullified payment limits altogether. We expect that the payment limit and actively engaged issues will be front and center as the Senate proceedings continue, and that Senator Chuck Grassley (R-IA) will offer an amendment during Committee markup to close the loopholes and reduce the limits. If introduced, the National Sustainable Agriculture Coalition (NSAC) will strongly support the amendment.
With that framing under our belt, we can now better analyze how draft Senate bill performed on farm safety net programs with respect to NSAC priorities.
- Improves the Whole Farm Revenue Protection (WFRP), an important new crop insurance option for diversified farms that NSAC championed in the 2014 Farm Bill, by:
- Increasing the compensation for insurance agents writing WFRP policies;
- Requiring meetings to get feedback from farmers and instituting a review process to decrease paperwork burdens and increase flexibility;
- Directing the U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) to consider removing caps on livestock and nursery production coverage, reducing paperwork and simplifying record keeping, and finding better options for moderating the impact of disaster years on coverage; and
- Directing RMA to increase agent training and outreach in underserved regions of the country and to underserved farmers and farming sectors.
- Adds Local Food and Greenhouse Policies to the list of new policies that RMA should develop. The local food policy would be oriented livestock, poultry, and specialty crops in urban, suburban and rural settings, including marketing through direct-to-consumer, farm-to-institution, community supported agriculture as well as greenhouse, rooftop, and hydroponic production. The greenhouse policy would consider a wide range of controlled environment systems and consider causes of loss that maybe unique to controlled environments.
- Improves the Noninsured Crop Assistance Program (NAP), which provides insurance coverage through the Farm Service Agency (FSA) to producers and crops not otherwise eligible under federal crop insurance, in several ways:
- The “buy-up” coverage added by the 2014 Farm Bill is made permanent, with an payout limit increased to $300,000, a $325 service fee (waived for beginning and socially disadvantaged farmers, who also receive a 50 percent premium discount), and inclusion of local, organic, contract, or other premium prices.
- A streamlined policy is created for diversified operations as well as for farms with less than $100,000 in liability, as well as an easier process for submitting farm records and acreage reports.
- FSA and RMA are directed to collect and share data so that RMA can develop policies for NAP users. The bill also requires a coordination effort between the two agencies to provide better coverage options for beginning and socially disadvantaged farmers.
- FSA and RMA are directed to work together to help the transition of crops and counties from NAP to crop insurance, including to assist beginning and veteran farmers.
- Mandates that RMA produce an Underserved Producer Report every three years, which must include recommendations for improving participation by beginning, socially disadvantaged, and veteran producers. The report must also include plans for administrative reforms and recommendations for congressional action.
- Modifies Good Farming Practices rules, the process used in the federal crop insurance program to decide whether or not a farm is eligible for indemnity payments, to include conservation activities and enhancements (including cover cropping but all other conservation practices and enhancements as well). NSAC has been pushing for the inclusion of all conservation activities as Good Farming Practices for many years and we are pleased to see this finally codified.
- Clarifies the definition of cover crop termination in a way that will reduce farmers’ fears that cover cropping could risk their crop insurance coverage.
- Requires continuing education for loss adjusters and insurance agents to ensure familiarity with conservation activities and organic and sustainable practices.
- Directs RMA to consider on an annual basis the demonstrated risk reduction from cover cropping, crop rotation, precision farming, or other conservation practices, and then decide whether or not to offer premium discounts. This could potentially pave the way for Performance-Based Premium Discounts beginning in 2020 and the years following.
- Establishes a new Conservation Data initiative including a conservation and farm productivity data warehouse at a university with a wide range of USDA data from multiple agencies. This data warehouse would include yield data and conservation data that could be accessed by researchers to explore the risk reducing potential of advanced conservation practices and systems.
- Reduces the Adjusted Gross Income (AGI) income threshold to qualify for commodity program benefits from $900,000 to $700,000. The AGI test is useful, but quite limited. Its primary purpose is to make it more difficult for millionaires to receive commodity subsidies. Taking the simple step of applying the AGI test to a married couple rather than only to individuals would at least stop the doubling or tripling of the nominal limit, but such a provision is not included in the draft bill.
- Fails to include any reforms to payment limitations or actively engaged in farming requirements, despite widespread abuse of the system. The House and Senate both voted to plug the loopholes and reduce the limits in the farm bills they both passed back in 2013, but those efforts were overturned by Committee leadership just prior to final passage of the 2014 Farm Bill. Senator Grassley’s pending amendment would restart the process of reducing the limits and plugging the loopholes, this time we hope with a very different final result than in 2014.
- Fails to make any structural reform of the federal crop insurance program. The bill includes no income test, no per farm premium subsidy limits, and no reining in of crop insurance company taxpayer-backed profit margins. While we do not expect these issues to come up during mark-up, we do expect them to be front and center during Senate floor debate.
Commodity, Crop Insurance & Credit Programs, Farm Bill