Fact Sheet: Agricultural Shallow Loss Programs Digging Deeper

Fact SheetFact Sheet: Agricultural Shallow Loss Programs Digging Deeper

Agriculture,  | Analysis
Apr 26, 2018  | 7 min read | Print Article

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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).[1] 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

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 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).[2] 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.[3] 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, FY2014-FY2023)

Date of CBO Estimate PLC ARC Total Total Cost Compared to Original
At Farm Bill Adoption
(February, 2014)[4]
$13.12 $14.11 $27.23 n/a
March, 2015[5] $20.19 $14.89 $35.08 128.80%
March, 2016[6] $19.49 $23.13 $42.62 156.50%
June, 2017[7] $24.61 $20.59 $45.2 165.99%
April 2018[8] $27.46 $20.55 $48.01 176.31%

 

If these estimates hold true, the Agriculture Risk Coverage and Price Loss Coverage programs will be 76.3% ($20.8 billion) more expensive than originally estimated, wiping out all projected savings from the 2014 farm bill.

Projected Savings at Farm Bill Passage

The Agricultural Act of 2014

Projected Impact on Deficits

(Feb 2014)

Title 1 – Commodity Programs -$14.3 billion
Title 2 – Conservation -$4 billion
Title 4 – Nutrition -$8 billion
All other Titles +$10 billion
Total -$16.6 billion


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, and by law any payments start after October 1st –the beginning of the government’s fiscal year, payments under the program lag two fiscal years from when the calculated “loss” occurred. So for crops grown in 2014, the first year ARC and PLC were operating, USDA began making payments in Fiscal Year 2016. Payments for 2015 crops were sent in Fiscal Year 2017. And so on.  A look at costs incurred thus far is disheartening. Congressional Budget Office reports indicate the ARC and PLC programs cost nearly $13.5 billion in Fiscal Years 2016 and 2017. As of April 5, 2018, the USDA reports making an additional $7 billion in payments for crops grown in 2016. The president’s Fiscal Year 2019 Budget Request indicates the administration expects to spend more than $7.5 billion on the programs in Fiscal Year 2018, with costs finally dipping below $5.0 billion in Fiscal Year 2019 (at $4.965 billion). [9] Agricultural businesses were on pace to be paid merely $4.5 billion under the discredited direct payments program that these programs replaced.[10]

RELATED ARTICLE
Statement on the Passage of H.R.2 - The Agricultural Improvement Act of 2018

Projected Cost of ARC/PLC by Fiscal Year
($ in billions)

Date of CBO Estimate

FY2016

FY2017

At Farm Bill Passage (February, 2014)[11] $3.77 $4.08
March 2016[12] $5.02 $8.17
June 2017 – FY2016 Actual Outlays[13] $5.31 $8.06
April 2018 – FY2017 Estimated[14] $5.31 $8.12

 

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.


[1] Agricultural Act of 2014 (H.R. 2642; P.L. 113-79; 128 STAT. 649)

[2] P.L. 113-79 § 1117(c)(1)

[3] P.L. 113-79 § 1111. Eligible commodities include: wheat, oats, and barley (including wheat, oats, and barley used for haying and grazing), corn, grain sorghum, long grain rice, medium grain rice, dry peas, pulse crops (lentils, small chickpeas, large chickpeas), soybeans, other oilseeds (sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, sesame seed), and peanuts. Upland cotton is not eligible for ARC or PLC, but is subsidized through a separate Risk Management Agency (RMA) “shallow loss” program the Stacked Income Protection Plan (STAX).

[4] CBO. Cost Estimate of H.R. 2642, Agricultural Act of 2014. 28 January 2014.

[5] CBO. March 2015 Baseline for Farm Programs. 9 March 2015

[6] CBO. March 2016 Baseline for Farm Programs. 24 March 2016.

[7] CBO. June 2017 Baseline for Farm Programs. 29 June 2017.

[8] CBO. April 2018 Baseline for Farm Programs. 9 April 2018

[9] USDA. FY 2019 Budget Summary. p. 17

[10] Ibid, Note 4; Table 4

[11] Ibid, Note 4; Table 4

[12] Ibid, Note 6

[13] Ibid, Note 7

[14] Ibid, Note 8

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