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What to Expect when you’re Expecting a Farm Bill

What to Expect when you’re Expecting a Farm Bill. Paul D. Mitchell Associate Professor of Agricultural & Applied Economics University of Wisconsin-Madison Wisconsin Counties Association: Ag Steering Committee Madison, WI July 15, 2013. Today’s Goal. O verview of existing Farm Programs

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What to Expect when you’re Expecting a Farm Bill

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  1. What to Expect when you’re Expecting a Farm Bill Paul D. Mitchell Associate Professor of Agricultural & Applied Economics University of Wisconsin-Madison Wisconsin Counties Association: Ag Steering Committee Madison, WI July 15, 2013

  2. Today’s Goal • Overview of existing Farm Programs • How we spend about $15 billion/year • Overview of likely changes in programs • 8-10% cut in the $15 billion • More emphasis on crop insurance

  3. Average Annual Outlays Under 2008 Farm Bill Direct Payments (DP) $4.9 bil Crop Insurance $8.3 bil Counter-Cyclical Payments (CCP) $0.559 bil Risk Management (field & specialty crops) $8.4 bil Commodity Programs (field crops) $6.0 bil OR Average Crop Revenue Election (ACRE) $0.311 bil Farm Safety Net $15 bil Non-insured Disaster Assistance (NAP) $0.1 bil Marketing Assistance Loans $0.225 bil Loan Deficiency Payments (LDP) $0.225 bil Supplemental Revenue Assistance Payments Program (SURE) Livestock Indemnity Program Ad hoc disaster payments Livestock Forage Disaster Program Disaster Assistance (crops & livestock) $0.75 bil Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program Tree Assistance Program Emergency Disaster Loans Source: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdf

  4. Direct Payments $/ac in 2009

  5. MILC Payments 2009

  6. 2009 Total Payments (DCP, ACRE, LDP, SURE, MILC, CRP, Premium Subsidies)

  7. Share of 2009 Total Payments from Crop Insurance Premium Subsidies

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

  9. WI Net Farm Income and GovtPymts($ Billion, not including premium subsidies)

  10. % Net Cash Income from Government Payments (not including premium subsidies)

  11. Crop Insurance Subsidies • USDA develops policies, rules, and premium rates • Pays development & administration costs • USDA 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 policies • Means USDA pays some of the indemnities • Corn & Soy: 50% of acres, 60% of subsidies & premiums, 70% of liability, 80% of indemnities (2012)

  12. Main Point • About $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 subsidies • WI 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 indemnities • Many WI counties $20-$40/A annual average • 2012 in WI: $175 million premium subsidies and $450 million indemnities = $525 million

  13. 2013? 2014? 201? Farm Bill • Summer 2012 • Senate passed a Farm Bill • House Ag Committee Passed Farm Bill • Eventually failed, this a quick summary

  14. Proposed Cuts ($ Billion per Year) -9% ~-33% • Senate and House Ag essentially the same • Debate was about how muchto cut nutrition programs and how to support commodity ag • Both emphasize crop insurance even more

  15. Farm Safety Net: Replace Farm Programs • Proposed Farm Bill Commodity Support to cover “Shallow Losses” not covered by crop insurance • Create programs to cover part of “deducible” • With a 75% RP policy, farmer “pays” the first 25% of revenue losses below average revenue • Shallow Loss programs pick up part of deductible • Senate: 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

  16. Main Point • Crop insurance likely to become an even greater part of commodity support • Commodity support becoming programs layered on top of crop insurance for shallow loss coverage • Currently no crop disaster program: Buy crop insurance • Other Changes to expect • Reduced premium subsidies • Conservation requirements for crop insurance

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

  18. % 2011 CRP acres expiring 2012-2014

  19. Conservation Programs • Farm 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-enrollment • Concerns about soil erosion, wetlands, environment, etc. • Conservation compliance restrictions for crop insurance • More use of crop insurance as a policy tool for non-risk management purposes

  20. Conclusion • About $15 billion per year in government payments to US farmers ($375-$775 million to WI farmers) • More than half $ for crop insurance at US level • A little less than half in WI for crop insurance • New Farm Bill, if it ever passes, will likely cut this ~8-10% and put even more emphasis on crop insurance

  21. Thanks for Your Attention!Questions? Paul D. Mitchell Agricultural and Applied Economics University of Wisconsin, Madison, WI pdmitchell@wisc.edu 608-265-6514 http://www.aae.wisc.edu/pdmitchell/extension.htm Follow me on Twitter: @mitchelluw

  22. Crop Insurance Data for 2012 (all units in Millions) • Premium subsidies = $6.9 billion (63%) • Subsidies to companies $1.3 billion • USDA administration costs = ???, indemnities = ???

  23. Corn and Soybeans Dominate Crop Insurance(2012 Data) • About 50% of the acres • About 60% of the subsidies and premiums • About 70% of the liability • About 80% of the indemnities

  24. % of 2009 Crop Acres Insured

  25. Counter-Cyclical Payments $/ac in 2009

  26. Marketing Loan Benefits $/ac in 2009

  27. ACRE Payments $/ac in 2009

  28. SURE Disaster Payments $/ac 2009

  29. % 2011 CRP acres expiring 2012

  30. Proposed Commodity Program Changes • Direct Payments: both eliminated • Counter-Cyclical Payments: both eliminated • ACRE Program: both eliminated • Disaster Programs: both eliminated SURE • Keep other programs (LIP, LFP, ELAP, TAP) • Marketing Assistance Loans and Loan Deficiency Payments: both kept and kept same loan rates • Created new Farm Safety Nets

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