Government Payments & the Farm Sector
Note: This topic page may contain material that has not yet been updated to reflect the new Farm Act, signed into law on February 7. ERS has published highlights and some implications of the Act’s new programs and provisions. Sign up for the ERS Farm Bill e-newsletter to receive notices of topic page updates and other new Farm Bill-related materials on the ERS website.
The U.S. Farm Bill authorizes a number of distinct commodity programs, providing a range of program types that support crop, dairy, and livestock producers in different ways. Many provide payments or other financial benefits to producers. The following text and charts offers some details and characteristics of payments provided by some of these programs.
Government payments as described here encompass only payments that are made directly to farmers. Under the provisions of the 2002 and 2008 Farm Acts, direct Government payments include payments for commodity programs such as direct payments (DPs), counter-cyclical payments (CCPs), marketing loan benefits, made up of marketing loan gains (MLGs), loan deficiency payments (LDPs), and certificate exchange gains (ended in 2009). Also included are payments such as emergency and disaster payments, peanut quota buyout and tobacco transition payments, and some conservation program payments. The 2008 Farm Act introduced Average Crop Revenue Election (ACRE) program payments.
Government support to farmers through the Federal crop insurance program is not provided as direct payments. Farmers participate in Federal crop insurance through private crop insurance companies, with the Federal Government covering a portion of farmers’ crop insurance premiums and some of the companies’ costs associated with providing the insurance.
Sugar and dairy producers also receive support through price support programs that restrict supplies and raise market prices.
The 2008 Farm Act was written to remain in force through 2012. The American Taxpayer Relief Act of 2012 (ATRA) extended most of the provisions of the 2008 Act without change through the end of 2013. See Farm Bill Resources for more detail.
For detailed information on these Government payment programs, see program provisions. For definitions and meanings of various agricultural policy terms, see the glossary.
Most Government payments fluctuate from year to year, responding to variable conditions like prices and weather. As a result, total Government payments for commodity and conservation programs reached a high of $26 billion in 2005, dropped to $12 billion in 2007, and have averaged $10 billion annually since then due to a decrease in ad hoc disaster payments and in price-sensitive counter-cyclical payments and marketing loan benefits.
- Low commodity prices led to significant increases in LDPs and MLGs in 1998-2001 and again after 2005. The Marketing Assistance Loan Program, reauthorized in the 2002 and 2008 Farm Acts, prevents the buildup of publicly owned stocks (major field crops) by providing alternatives to defaulting on commodity loans. LDPs and MLGs provide farmers with per unit revenue insulation when prices are low.
- CCPs authorized in the 2002 Farm Act help stabilize farm revenues. CCPs rose in 2005-06, reflecting lower commodity prices, but have virtually disappeared since 2008 as commodity prices rose and remained high.
- Since the 2002 Farm Act, dairy producers have benefited from the Milk Income Loss Contract (MILC) program, which provides payments to dairy operations during months when milk prices fall below a target price. Operations can receive payments on up to 3 million pounds (2.985) of milk per year.
- Until 2008, ad hoc emergency assistance played a prominent role in U.S. agricultural policy. These payments to producers have partially offset financial losses due to severe weather and other natural disasters (e.g., hurricane, drought, flood), or stressful economic conditions (e.g., low commodity prices). The 2008 Farm Act established standing disaster programs that provided emergency support, especially for livestock producers, through 2012. For crop producers, crop insurance has replaced ad hoc assistance as the primary risk management program.
- The 2002 Farm Act ended the peanut quota system, and special legislation ended the tobacco marketing allotment program in 2004. Quota holders under both programs received buyout payments over a number of years.
- Conservation Reserve Program payments have remained fairly constant since the early 1990s. Payments are tied to environmentally sensitive land retired from production for 10 to 15 years; on average, about 31 million acres are enrolled in the program, although that number has been falling in recent years.
- Conservation payments tied to working agricultural lands increased under the 2002 Farm Act, with expansion of programs such as the Environmental Quality Incentives Program and Wetlands Reserve Program. The 2008 Farm Act replaced the Conservation Security Program with the Conservation Stewardship Program.
Direct Payments (DPs) are paid on a fixed-acreage base with fixed payment yields based on historical production of feed grains (corn, grain sorghum, barley, and oats), wheat, upland cotton, rice, soybeans, minor oilseeds, and peanuts. Payment rates are set in the Farm Act and remain the same from year-to-year.
DPs are not linked to current production. Producers are free to plant any crop on base acres, with some limitations on planting fruits and vegetables. Producers can also elect to leave the land idle. Thus, these payments are considered to be minimally production- and trade-distorting.
The value of DPs varies by commodity and location. The legislated payment rates differ by commodity, and program yields reflect historic production levels associated with specific base acreage.
- DPs for oats average about $1 per acre, while corn averages about $20 per acre, upland cotton about $30 per acre, and rice close to $100 per acre.
- Payments are concentrated in major producing areas. They are highest in California, where rice and cotton are important; in the Southeastern Coastal Plain, where cotton and peanuts are produced; and along the lower Mississippi River, where cotton and rice are produced. Payments per acre are also high in the Corn Belt, where corn and soybeans are the predominant crops.
Across all farm types, Government payments represent a small portion of gross cash farm income (GCFI), reflecting that the marketplace is the primary source of farm earnings.
GCFI includes cash income from farm receipts and Government payments; expenses are subtracted from GCFI to calculate net cash farm income. Off-farm sources of income are not included in this measure.
Beginning in 1995, World Trade Organization (WTO) constraints added a new dimension to domestic farm policy. The United States agreed to limit farm-sector support that was considered trade-distorting—referred to as the Aggregate Measurement of Support (AMS) or “ amber box.” The U.S. amber box limit was set at $23.1 billion in 1995, declining to $19.1 billion by 2000. Actual U.S. amber box support declined in 1995-97, but by 1999 it had risen to within 15 percent of its limit. The rise stemmed from an increase in price-sensitive marketing loan benefits as market prices sagged in 1998-2001. Since then, changes in commodity programs and higher commodity prices have kept support well below limits. See U.S. WTO Domestic Support Reduction Commitments & Notifications for more information.
Download larger size chart (481 pixels by 452 pixels, 96 dpi)
The 2008 Farm Act continues the WTO "circuit breaker" provision that gives the Secretary of Agriculture the authority to adjust expenditures "to the maximum extent practicable" to avoid exceeding WTO allowable limits for amber box levels. However, this circuit breaker provision has never been invoked.
Under WTO rules, certain programs are considered non-trade-distorting and are unlimited. U.S. expenditures in this category (known as the “ green box”) increased from $46.1 billion in 1995 to $125.1 billion in 2011. The majority of green box payments are for food and nutrition assistance programs, not for payments to farmers.
Download larger size chart (481 pixels by 452 pixels, 96 dpi)