The 2014 Farm Act repealed the Direct Payments (DP) program, ending nearly 20 years of fixed annual payments. Payments were calculated based on historical production (base) acres and yields, and were paid to producers regardless of whether their farms faced losses. The 2014 Farm Act also repealed two other programs: Countercyclical Payments (CCP), which provided payments to producers on historical base acres and yields but were triggered by movements in current prices, and the Average Crop Revenue Election (ACRE) program, which provided payments to producers when their revenues fell below benchmark levels.
Under Title I of the 2014 Farm Act, the U.S. Department of Agriculture’s Farm Service Agency (FSA) will operate two new crop commodity programs—Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC)—along with the Marketing Assistance Loan Program, which continues almost unchanged.
Under Title XI of the 2014 Farm Act, Congress established several new programs aimed at providing support for revenue or yield losses smaller than those covered by most traditional crop insurance policies. The U.S. Department of Agriculture’s Risk Management Agency (RMA) will administer two new programs—the Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX)—in addition to the traditional crop insurance program.
Title I—Crop Commodity Programs
For more detailed information on each Title I program, go to Crop Commodity Program Provisions – Title I
- Price Loss Coverage (PLC): Producers who hold base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses (covered commodities) are eligible to enroll in the PLC program on a commodity-by-commodity basis. Payments are made when market prices fall below the reference price set in the 2014 Farm Act.
- Agriculture Risk Coverage (ARC): Producers who hold base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses (covered commodities) are eligible to enroll in ARC on a county or individual farm basis. County ARC payments are made when county crop revenue for the enrolled commodity drops below 86 percent of the county benchmark revenue. Individual ARC payments are made when the actual individual crop revenues, summed across all covered commodities on the ARC farm, are less than 86 percent of the ARC individual benchmark revenue.
- Marketing Assistance Loan Program: A post-harvest nonrecourse commodity loan program with marketing loan provisions for producers of wheat, corn, grain sorghum, barley, oats, upland cotton, extra-long staple (ELS) cotton, long- and medium-grain rice, soybeans, other oilseeds, peanuts, wool, mohair, honey, dry peas, lentils, and small and large chickpeas. When market prices fall below loan rates, marketing loan provisions allow for repayment of loans at the lower price and for loan deficiency payments to producers whose commodities are not under loan.
- Eligibility requirements and payment limitations: In order to receive some types of commodity program payments, individuals must meet eligibility requirements based on the level of their participation in farming activities and on their income. Once individuals are eligible, payment limitations cap the total amount they can receive.
Title XI—Crop Insurance Programs
For more detailed information on each Title I program, go to Crop Insurance Program Provisions – Title XI
Under the 2014 Farm Act, traditional crop insurance continues and the Supplemental Coverage Option (SCO) is made available to producers for covered commodities for which they have elected to participate in PLC. Producers who elect ARC for a given crop on a given farm cannot purchase SCO for the same crop on the same farm.
Benefits under the Federal crop insurance program, including the Supplemental Coverage Option, are not subject to the eligibility and payment limitations that govern Title I crop commodity programs.
- Supplemental Coverage Option (SCO): The SCO is available starting with the 2015 crop and will offer producers the opportunity to purchase area-based insurance coverage in combination with traditional crop insurance policies.
Traditional crop insurance: Producers can purchase insurance policies at a subsidized rate under Federal crop insurance programs. These insurance policies make indemnity payments to producers based on current losses related to either below-average yields (crop yield insurance) or below-average revenue (revenue insurance). Both yield and revenue insurance options are available:
- Yield insurance plans: APH (Actual Production History) protects farmers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. Catastrophic Risk Protection Endorsement (CAT) coverage provides a lower level of coverage on yield losses at a low cost to producers. Area Risk Protection Insurance (ARPI) policies use county yields as the basis for determining a loss. Dollar Plan coverage pays for both quantity and quality yield losses and is limited to some high-value crops (e.g., fresh market tomatoes and strawberries).
- Revenue insurance plans: Revenue Protection (RP) provides protection against a farmer’s gross revenue (i.e., price times yield) falling below some guaranteed level. A version of the Area Risk Protection Insurance (ARPI) uses county yields instead of farm yields when calculating revenue coverage levels and actual revenue. Adjusted Gross Revenue (AGR) coverage insures the revenue of the entire farm rather than an individual crop by guaranteeing a percentage of average gross farm revenue, including a small amount of livestock revenue.
Environment and Conservation Programs
The 2008 Farm Act expands support for conservation practices on all cultivated land (including fallow). To remain eligible for specified program benefits, farmers cropping highly erodible land are required to implement an approved conservation plan (highly erodible land conservation provisions or sodbuster) and to be in compliance with wetland conservation provisions (Swampbuster).
Programs, such as the Environmental Quality Incentives Program and the new Conservation Stewardship Program, provide assistance on lands in production. Land retirement programs—including the Conservation Reserve Program, the Conservation Reserve Enhancement Program, and the Wetlands Reserve Program—remove environmentally sensitive land from production and establish long-term, resource-conserving cover. The acreage cap for the Conservation Reserve Program is scheduled to decline from 32 million acres to 27.5 million acres beginning in fiscal year 2014 and 24 million acres in 2017 under the 2014 Farm Act.
Export and Food Aid Programs
Export programs administered by USDA's Foreign Agricultural Service (FAS) and the U.S. Agency for International Development (USAID) help promote and facilitate purchase of U.S. feed grains in foreign markets. These programs include the Export Credit Guarantee Program, the Market Access Program, and the Foreign Market Development Program.
Export credit guarantees are designed to help foreign importers facing foreign exchange constraints and needing credit to purchase commodities. The Export Credit Guarantee Program (GSM-102) underwrites commercial financing of U.S. agricultural exports by guaranteeing repayment of private, short-term credit for up to 3 years. The CCC does not provide financing but guarantees payments due from foreign banks, which allows U.S. financial institutions to offer competitive credit terms to foreign banks.
The Market Access Program (MAP) aids in the creation, expansion, and maintenance of foreign markets for U.S. agricultural products. MAP forms partnerships between USDA's CCC and nonprofit trade associations, cooperatives, trade groups, or small businesses to share the cost of overseas marketing and promotional activities. MAP partially reimburses program participants for these activities, which include consumer promotions, market research, trade shows, and trade servicing.
The Foreign Market Development Program, also known as the Cooperator Program, aids in the creation, expansion, and maintenance of long-term export markets for U.S. agricultural products. The program enlists private sector involvement and resources in coordinated efforts to promote U.S. products to foreign importers and consumers around the world. CCC funds are used to partially reimburse cooperators conducting approved overseas promotion activities.
In addition, as part of U.S. food-aid programs, USDA and USAID provide food aid overseas through the P.L. 480 program, the Section 416 program, and the Food for Progress (FFP) program. Food-aid sales, however, account for a very small portion of U.S. feed grain exports.
Fuel ethanol (ethyl alcohol denatured with gasoline) can be used as a gasoline additive to reduce the carbon monoxide content of engine exhaust and to increase gasoline's octane rating, which reduces engine knock. Ethanol is made by fermenting and distilling simple sugars. Corn is the primary feedstuff used to produce ethanol; however, other grains (especially sorghum) are also important.
Policy incentives underlie the interest in ethanol. The Energy Policy Act of 2005 (P.L. 109-58) established a renewable fuels standard (RFS), which mandated the use of renewable fuels in gasoline. The U.S. Government blender tax credit, various State production subsidies, and some States' required use of fuel alcohol, as well as the cost and availability of substitute fuel additives, affect the amount of ethanol used.
The Energy Independence and Security Act of 2007 (P.L. 110-140) required the use of 9.0 billion gallons of renewable fuels in 2008, increasing each year until use reaches 36 billion gallons in 2022. In addition, the Act requires that an increasing share of the mandate be met with advanced biofuels, which are biofuels produced from feedstocks other than corn starch (and with 50 percent lower-lifecycle greenhouse gas emissions than petroleum fuels). Potential advanced biofuels include ethanol from cellulosic material (such as perennial grasses and municipal solid waste), ethanol from sugarcane, and diesel fuel substitutes produced from a variety of feedstocks.
Corn used for fuel alcohol production increased from less than 1 percent of total U.S. domestic corn use in 1980/81 to about 40 percent of total U.S. domestic corn use beginning in 2011/12. This large and rapid expansion of U.S. ethanol production affects virtually every aspect of the field crops sector, ranging from domestic demand and exports to prices and the allocation of acreage among crops. Many aspects of the livestock sector are affected too. As a consequence of these commodity market impacts, farm income, government payments, and food prices also change. Adjustments in the agricultural sector will continue for many years as interest grows in renewable sources of energy to lessen dependence on foreign oil.