Publication Date

8-21-2015

Abstract

The U.S. Department of Agriculture (USDA) operates several programs that supplement the income of farmers and ranchers in times of low farm prices and natural disasters. Federal crop insurance, farm programs, and disaster assistance are collectively called the farm safety net.

Federal crop insurance is often referred to as the centerpiece of the farm safety net because of its cost and broad scope for addressing natural disasters. The program is permanently authorized and makes available subsidized insurance for more than 130 commodities (ranging from apples to wheat) to help farmers manage risks associated with a loss in yield or revenue. Program cost is projected by the Congressional Budget Office to total $8.8 billion per year over the next decade. Producers pay a portion of the premium which increases as the level of coverage rises. The federal government pays the rest of the premium—62%, on average, in 2014—and covers the cost of selling and servicing the policies.

Farm commodity programs historically represented the heart of U.S. farm policy by virtue of their long history (dating back to the 1930s). Price and income support is based primarily on statutorily fixed prices and not market prices (as in crop insurance), which can be quite low in some years. For crop years 2014-2018, the Agricultural Act of 2014 (2014 farm bill, P.L. 113-79) established minimum prices via the marketing loan program for approximately two dozen commodities, including corn, soybeans, wheat, rice, and peanuts. In addition, producers with production histories for covered crops have a one-time choice between Price Loss Coverage (PLC) payments and Agriculture Risk Coverage (ARC) payments. Costs were projected in March 2015 at about $4 billion per year over the next decade. Programs are free for producers.

Agricultural disaster assistance is permanently authorized for livestock and orchards. Under the 2014 farm bill, nearly all parts of the U.S. farm sector are now covered by either a disaster program or federal crop insurance, which is expected to reduce calls for ad hoc assistance. As of May 2015, producer payments had totaled more than $5 billion for losses in FY2012-FY2015.

Compared with the previous farm bill, the 2014 farm bill was enacted with more crop insurance options and higher reference prices designed to trigger payments more often than under previous law. Funding was accomplished by eliminating direct payments that had been made annually since 1996 but played no role in managing farm risk because they did not vary with farm prices.

Several facets of the current farm safety net might be of interest to the 114th Congress. An initial focus could be on USDA’s implementation of the farm safety net provisions. Issues could include the delayed payment schedule, which could expose cashflow problems, and the pending “actively engaged” rule that could affect program eligibility for some producers.

With ongoing concern for budget deficits and federal spending, Congress also might be interested in reviewing the effectiveness of the revised safety net and actual costs, which are expected to be higher than earlier projections due to lower farm prices. Farm safety net proponents say the current suite of programs has been designed for such situations and is needed to adequately protect producers and the overall agriculture sector. Critics believe that a simplified approach might be more effective and less expensive, with funds used instead for broad societal gains, such as investment in agricultural research or transportation infrastructure. The Administration has proposed trimming crop insurance subsidies, arguing that the safety net could remain effective.

Comments

Suggested Citation
Shields, D. A. (2015). Farm safety net programs: Background and issues (CRS Report R43758). Washington, DC: Congressional Research Service.

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