Shallow Loss Program Update

Shallow Loss Program Update

Feb 25, 2014  | 3 min read

On Feb. 7, the President signed a new trillion dollar farm bill, H.R. 2642, into law. TCS criticized the bill for a litany of reasons including but not limited to the fact that Congress finally repealed the outdated and wasteful direct payment program but then squandered the majority of the potential savings on three new “shallow loss” programs that will likely cost taxpayers more in the long run. These new agribusiness income entitlement programs attempt to lock in recent record farm profits, crowd out private sector risk management options, dispense unlimited subsidies, and create new special interest carve-outs. Designed to cover small dips in expected revenue, shallow loss programs prop up income and even guarantee profit margins for the already profitable agriculture sector. They are designed to sit on top of federal crop insurance, a highly subsidized program that already covers crop revenue shortfalls of as little as 15 percent.

Similar to numerous other provisions in the recently-passed farm bill, the final shallow loss programs – Agriculture Risk Coverage (ARC), Stacked Income Protection Plan (STAX), and Supplemental Coverage Option (SCO) – are worse than those passed in the 2013 House or Senate farm bills, for the following reasons (for more background on shallow loss programs, see our recent fact sheet on SCO in particular, or a table comparing the new programs):

  • Combined, ARC, STAX, and SCO will be more expensive than the Congressional Budget Office (CBO) predicted last year, but they will also cost more in the long-run because crop prices have recently dropped and future payouts will be triggered from these highly taxpayer subsidized programs;
  • If crop prices, which have set record or near-record prices in recent years, revert to historical averages, the new shallow loss programs could easily end up costing more than direct payments, which is a program that nearly everyone – including farmers – agreed should be eliminated;
  • No requirement that beneficiaries of taxpayer subsidies in two of the new shallow loss programs – STAX or SCO – will be publicly released; and
  • Thanks to backroom deals brokered by Agriculture Committee leaders, no limitations on subsidies in either SCO or STAX because the modest 15 percent reduction in premium subsidies which passed the full Senate in both 2012 and 2013 was stripped from the bill at the last minute, in addition to the overly generous subsidy limitation of $125,000 for ARC and other farm commodity subsidies being greatly increased from the original $50,000 limitation in the 2013 Senate farm bill.

In a small glimmer of hope, the final 2014 farm bill includes accountability provisions ensuring that agricultural producers conserve highly erodible and other sensitive land in exchange for taxpayer subsidies – including SCO and STAX within the crop insurance program – as long as these common sense policies do not get watered down during the upcoming implementation period.