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Farm Commodity Provisions in the 2014 Farm Bill (P.L Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) Dennis A. Shields Specialist in Agricultural Policy March 28, 2014 Congressional Research Service 7-5700 www.crs.gov R43448 Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) Summary The farm commodity program provisions in Title I of the Agricultural Act of 2014 (P.L. 113-79, the 2014 farm bill) include three types of support for crop years 2014-2018: • Price Loss Coverage (PLC) payments, which are triggered when the national average farm price for a covered commodity (e.g., wheat, corn, soybeans, rice, and peanuts) is below its statutorily fixed “reference price”; • Agriculture Risk Coverage (ARC) payments, as an alternative to PLC, which are triggered when crop revenue is below its guaranteed level based on a multi- year moving average of historical crop revenue; and • Marketing Assistance Loans (MALs), which offer interim financing for the loan commodities (covered crops plus several others) and, if prices fall below loan rates set in statute, additional low-price protection, sometimes paid as loan deficiency payments (LDPs). The enacted 2014 farm bill eliminated “direct payments,” which were provided annually to producers and landowners of covered commodities from 1996 to 2013 based on historical production and a fixed payment rate set in statute. All farm program support now consists of variable payments. The PLC and ARC programs are enhanced relative to their predecessors via higher reference prices for PLC and more “local” coverage for ARC (whereby payments are triggered by county or individual losses rather than at the state level). In a major departure from previous farm bills and in response to a trade dispute with Brazil, upland cotton is no longer a covered commodity, with support for that crop now provided by a new crop insurance policy called the Stacked Income Protection Plan (STAX). Approximately three-fourths of the 10-year, $47 billion in savings associated with the elimination of 2008 farm bill commodity programs was used to offset the costs of revising the overall farm safety net, specifically farm programs in Title I of the 2014 farm bill, adding permanent disaster assistance (also in Title I), enhancing the permanently authorized federal crop insurance program (Title XI), and enhancing the Noninsured Crop Disaster Assistance Program or NAP (Title XII). Crop insurance is available for more than 100 crops, including fruits and vegetables, and is designed primarily to cover losses from natural disasters. Farm programs do not require a participation fee, while crop insurance requires participating farmers to pay part of program costs. The enacted 2014 farm bill sets a $125,000 per person cap on the total of PLC, ARC, marketing loan gains and loan deficiency payments. The limit applies to the total from all covered commodities except peanuts, which has a separate $125,000 limit. Also, to be eligible for payments, persons must be “actively engaged” in farming. The 2014 farm bill instructs USDA to write regulations (beginning with the 2015 crop year) that define “significant contribution of active personal management” to more clearly and objectively implement existing law. A single, total adjusted gross income (AGI) limit for payment eligibility is established at $900,000, which is less than the sum of the two separate limits (farm and non-farm) in the 2008 farm bill. The Congressional Budget Office cost estimate (score) of the Title I provisions represents five- year savings of $6.3 billion and 10-year savings of $14.3 billion (both relative to baseline projections made in May 2013 assuming continuation of the 2008 farm bill). If these scores are added to the 2013 CBO baseline of budget outlays used to write the farm bill, then CBO’s estimated cost of Title I is $23.6 billion for FY2014-2018 and $44.5 billion over 10 years. Congressional Research Service Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) Contents Introduction ...................................................................................................................................... 1 Background ...................................................................................................................................... 1 Policy Rationale for Farm Subsidies ......................................................................................... 1 Authorizing Legislation ............................................................................................................. 2 Eligible Commodities ................................................................................................................ 2 Definition of “Farm” ................................................................................................................. 3 Base Acres ................................................................................................................................. 3 “Partially Decoupled” Payments ............................................................................................... 4 Eligible Producers ..................................................................................................................... 4 Eliminated 2008 Farm Bill Programs ........................................................................................ 5 Farm Commodity Program Provisions ............................................................................................ 5 Price Loss Coverage (PLC) ....................................................................................................... 6 Agriculture Risk Coverage (ARC) ............................................................................................ 9 County ARC ........................................................................................................................ 9 Individual ARC ................................................................................................................... 9 Marketing Assistance Loan Program ....................................................................................... 11 Cotton Not Eligible for Either PLC or ARC ............................................................................ 11 Planting Fruits and Vegetables on Base Acres ......................................................................... 12 Payment Limits ........................................................................................................................ 12 “Actively Engaged” ................................................................................................................. 12 Adjusted Gross Income (AGI) Limit ....................................................................................... 13 Interaction with Federal Crop Insurance........................................................................................ 13 Estimated Cost of the Commodity Title ........................................................................................ 13 Implementation .............................................................................................................................. 15 Figures Figure 1. Price Loss Coverage (PLC) .............................................................................................. 8 Figure 2. Price Loss Coverage (PLC): Low Price Scenario for Rice .............................................. 8 Figure 3. Agriculture Risk Coverage (ARC)–County Coverage ................................................... 10 Figure 4. Agriculture Risk Coverage (ARC)–Low Revenue Scenario for Corn............................ 10 Figure 5. Outlays for Farm Commodity Program and Disaster Assistance ................................... 14 Tables Table 1. Loan Rates and Reference Prices in the 2014 Farm Bill ................................................... 7 Table 2. Cost of Provisions in the Commodity Title of the 2014 Farm Bill .................................. 15 Table A-1. Major Farm Commodity Provisions in the 2008 Farm Bill and 2014 Farm Bill ......... 17 Congressional Research Service Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) Appendixes Appendix. Major Farm Commodity Provisions in the Enacted 2014 Farm Bill ........................... 17 Contacts Author Contact Information........................................................................................................... 32 Congressional Research Service Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) Introduction On February 7, 2014, President Obama signed into law a new five-year omnibus farm bill, the Agricultural Act of 2014 (H.R. 2642; P.L. 113-79, the 2014 farm bill). The House had voted, 251- 166, to approve the conference report (H.Rept. 113-333) on January 29, 2014, and the Senate approved the conference report on February 4, 2014, by a vote of 68-32. The U.S. Department of Agriculture (USDA) is now implementing the provisions, most of which take effect this year. This report describes the farm commodity programs in Title I of the 2014 farm bill for “covered commodities” such as wheat, corn, soybeans, rice, and peanuts. Producer support is provided for the 2014-2018 crop years primarily through either statutory (“reference”) prices or historical revenue guarantees based on the five most recent years of crop prices and yields.1 Important policy developments in the new law are also discussed and compared to prior law. The most significant policy change for commodity programs in the 2014 farm bill was the elimination of fixed direct
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