USA farm subsidy law of 2008
In the USA, there is a patchwork quilt of agricultural subsidies, including a layer of crop support programs intended to subsidize farms, which have experienced economic losses due to weather or other disaster related events. The Food, Conservation and Energy Act of 2008 added another layer of complexity and federal intervention into an already elaborate bureaucratic administrative structure.
There may be unintended consequences of the 2008 Act, including:
1. Incentives for farmers to break up their farming units into smaller entities, in order to evade averaging provisions of the new law.
2. As in all farm disaster support programs, farmers are incentivized to cultivate marginal lands that would otherwise not be converted from a natural environment habitat, thereby harming biodiversity.
Contents
Summary
In an effort to modify the ad-hoc nature of emergency crop disaster assistance to farmers, Congress authorized a new Supplemental Revenue Assistance Payments Program (SURE) in the Food, Conservation, and Energy Act of 2008. The program provides payments to producers for crop revenue losses due to natural disaster or adverse weather incurred on or before September 30, 2011. It essentially compensates eligible producers for a portion of losses that are not eligible for an indemnity payment under a crop insurance policy. The program departs from both traditional disaster assistance and crop yield insurance by calculating and reimbursing losses using total crop revenue for the entire farm (i.e., summing revenue from all crops for an individual farmer).
Under SURE, a farmer’s revenue from all crops in all counties is compared with a guaranteed level that is computed mostly from expected or average yields and prices. As a result, the program considers the disaster’s impact on a farmer’s entire enterprise and not on just the crop(s) that were adversely affected. If the actual farm revenue (including farm program payments and insurance indemnities) is less than the farm’s guaranteed level, the producer receives a payment, calculated as 60% of the difference between the two amounts. In contrast, if actual whole farm revenue does not fall below the guarantee, whereby losses for one crop are offset by revenue gains for another, no disaster payment is made. Payments are limited so that the guaranteed level cannot exceed 90% of expected farm income in the absence of a natural disaster. In 2010, the U.S. Department of Agriculture (USDA) issued more than $2.0 billion for 2008 crop losses under the SURE program, with the level of payments by state generally proportional to indemnities.
USDA officials say that SURE is the most complex program USDA’s Farm Service Agency has undertaken. It has faced a number of implementation challenges in terms of program administration, such as collecting and tabulating a significant amount of data for individual farmers, as well as crop price data that are not readily available. Another issue has been accounting for various insurance products when determining the farmer’s guarantee level.
Part of the motivation behind SURE was to provide a pre-designed program that farmers could incorporate in their risk management planning. Also, payments would be presumably more timely because legislation would already be in place when disaster strikes. However, disaster payments under SURE arrive well after the crop loss because some of the data needed to compute payment rates become available more than one year after harvest. Computing actual farm revenue requires season-average prices, which USDA publishes after the market year ends. Also, government commodity payments, which are also needed for the revenue calculation, can occur 1½ years after the crop is harvested. Thus, SURE program payments have not been as timely as some farmers and policymakers would like. In fact, legislation was introduced in late 2009 in both chambers (S. 2810 and H.R. 4177) that would have made emergency payments for losses in calendar 2009. The legislation did not pass Congress, but the Administration implemented an ad hoc program in fall 2010 that paralleled the legislation.
In the next farm bill debate, Congress will likely be interested in the effectiveness of SURE, and, if the program is continued, how it will be funded. SURE is one of 37 programs that does not have budgetary baseline. Major policy questions are likely to be (1) whether the SURE program can be modified to eliminate the need for ad-hoc crop disaster payments, and (2) how well this whole-farm approach helps manage farm-level risk. Some farmers have already complained that the whole-farm approach typically does not result in disaster payments for diversified operations. In contrast, where farmers have qualified for payments, the reaction has been generally favorable.
Note
This summary was taken from the Congressional Research Service Report R40452 by Dennis Shields.
