Fact Sheet: Agricultural Shallow Loss Programs Digging Deeper

Fact Sheet: Agricultural Shallow Loss Programs Digging Deeper

Agriculture  | Research & Analysis
Apr 7, 2016  | 5 min read

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Updated Farm Program baseline numbers from the Congressional Budget Office (CBO) confirm taxpayers are unlikely to harvest the $16.6 billion in deficit reduction promised by backers of the Agricultural Act of 2014 (2014 Farm Bill). In fact many programs created by the legislation are on pace to be more expensive than the programs they replaced. These cost overruns are due mainly to greater-than-promised spending on federal commodity programs that subsidize the incomes of agricultural businesses growing certain crops.

Agricultural Income Entitlement Programs

Photo credit: Jon Bunting via Flickr

The 2014 Farm Bill created a number of programs to subsidize the incomes of agricultural businesses. These Title 1 commodity programs (named after the section of the farm bill that created them) create programs that subsidize the incomes of producers of everything from milk and sugar to cattle ranchers and growers of row crops such as corn, soybeans, wheat, cotton, and rice. The two programs covering the greatest number of farm businesses, and with the greatest expected costs, are Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC).

Businesses that choose ARC receive payments if revenue in a given year falls below a revenue guarantee (86% of the five-year Olympic average) calculated by the Farm Service Agency of the United States Department of Agriculture (USDA). Businesses enrolled in PLC receive payments if prices for an individual crop in a given year dip below a minimum price established in the 2014 Farm Bill. ARC and PLC cover 21 specific crops listed in the Farm Bill. These programs were advertised as cheaper replacements for the discredited direct payments program, which sent payments to agricultural businesses every year regardless of economic conditions. Both ARC and PLC are provided at no cost to farm businesses. Businesses electing to participate in ARC or PLC can also participate in the highly subsidized federal crop insurance program.

Agricultural Income Entitlement Program Costs Are Out of Control

The ARC and PLC programs are vastly more expensive than advertised. In fact, cost projections for ARC and PLC come in higher every single year.

Comparing 10-Year Cost Projections for ARC and PLC
($ in billions)
Date of CBO Estimate
PLC
ARC
Total
Total Cost Compared to Original
At Farm Bill Adoption
(February, 2014)
$13.12
$14.11
$27.23
n/a
March, 2015
$20.19
$14.89
$35.08
129%
March, 2016
$19.49
$23.13
$42.63
157%
January, 2017 $24.25 $21.84 $46.09 169%

If these estimates hold true, the Agriculture Risk Coverage and Price Loss Coverage programs will be 69 percent ($18.9 billion) more expensive than originally estimated, totaling more than the projected savings from the 2014 farm bill.

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Actual Costs of ARC and PLC Exceed Even Revised Estimates

Payments under ARC and PLC are dependent upon USDA’s calculation of actual prices and yields achieved in a given year. Because this information is only obtained after harvest, payments under the program lag two fiscal years. Consequently, USDA began making payments in fiscal year 2016 for crops grown in 2014. Payments made thus far in 2017 are for crops grown in 2015. The costs of each program are greater than anticipated. For crops grown in 2014, the CBO calculates $5.3 billion in payments. This is 41 percent more than expected. CBO estimates that payments in fiscal year 2017 will total $7.8 billion, equaling the amount of payments USDA reports it has made through February 2, 2017.   That $7.8 billion, furthermore, is $3.3 billion more than what would have been paid to farmers under the discredited direct payments program that these programs replaced.The president’s 2018 budget request anticipates taxpayers will spend $9.8 billion on these two programs in fiscal year 2018.

Projected Cost of ARC/PLC by Fiscal Year
($ in billions)
Date of CBO Estimate
FY2016
FY2017
FY2018
At Farm Bill Passage  (February, 2014)
$3.77
$4.08
$3.80
March 2016
$5.02
$8.17
$8.01
January 2017
(FY2016 is actual spending, not an estimate)
$5.31
$7.81
$8.48

Conclusion

Taxpayers can afford a safety net to help agricultural producers protect themselves from perils that can’t be managed. What the country cannot afford is lawmakers using accounting gimmicks and budget trickery to create programs that pay out in good times and bad and claim to save tax dollars while actually increasing costs. The Agriculture Committees need to go back to the drawing board and deliver the agricultural commodity programs savings they promised.

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