We have a new farm bill!



At least we have a partial farm bill in place that has the provisions that directly affect farms. I will leave the details of the legislative blunder to the news reporters.

For the most part the language of the new bill is very familiar. Terminology that was established in previous bills has continued and the majority of the programs are unchanged. It seems that law makers decided to take the easier road of extending provisions versus making whole sale changes on such a large bill. I take that as good news for the farming community.



One major addition is the ACRE program which most watchers of the bill have already heard rumblings about. I want to point out a few interesting things about this section of the new farm bill that might have been missed so far.



Some watchers have described ACRE as a windfall for farmers. Others point out that it is a big potential expense for the government. Many advocacy groups are describing this program as just the ticket for saving small family farms. I am not sure I advocate any of these views. What I do see is this program will change the way farms operate in the future.



To get a sense of the changes in the bill and the new language of ACRE, I went to the House of Representatives website which turned out to be a very good resource. There I found a side by side comparison of the 2002 bill, and the changes made by the House version and the Senate version of the new bill. It is very interesting to note that the language is very similar to the language used for crop insurance. Very similar.

ACRE is essentially revenue protection very similar to revenue based crop insurance like RA (revenue assurance) and CRC (crop revenue coverage.) The big difference seems to be that the ACRE program uses state average yields to determine revenue levels versus the county yields used for crop insurance. Prices are determined using the same price determination period as crop insurance plus a 2 year look back. It is not clear, at least to me, how the price look back will actually be calculated. We will likely have to wait for the USDA to determine the final rules. However, current price levels will certainly impact the program benefit in future years if the market were to turn lower.

At first glance, ACRE looks like free crop insurance. OK not free, you have to give up 20 percent of your direct payment potential to enter the program. This amounts to approximately $4 per acre and if the market were to move significantly lower 30 percent of the loan deficiency benefit as well.

BUT the ACRE program has so many properties similar to crop insurance that many operations will have to evaluate if spending $40 plus for individual insurance coverage will provide significantly better production protection.

When taking into consideration tighter cash flows and the realization that $40 was a year worth of profit potential just a few short years ago, many will need a good sales pitch or pressure from their lender to take on revenue crop insurance. I know. This is not what many crop insurance sales people and lenders want to hear. But spending $40 per acre with the hope that it will not cost you anything over time or that crop insurance will be a money maker is a very tough sell now. Today if that same money is put to use to expand a crop operation the return potential is 20%. There will be farms that will not use revenue crop insurance coverage with the advent of ACRE and they will potentially be at a $40 plus cost advantage to those who do.

My view is that ACRE will not be the saving grace that the advocacy groups hope it will be. Actually this provision is a huge detriment to the small farmer. By providing revenue coverage at next to no cost, many farms with the financial strength will drop traditional revenue crop insurance altogether in favor of ACRE. Smaller farmers that must carry revenue coverage to secure loans or protect assets will be at a cost disadvantage by the amount of the coverage. This additional risk of not having the individual coverage or the cost disadvantage will eventually push these farms out of business. The exact opposite of the desired effect.



Obviously, all the details of the new program have not yet been lined out. There are many things that can and will change as the USDA finalizes the rules of the ACRE program, but in the end extending the safety net makes taking risks easier for those that are in a position to capitalize on the benefits of this new program.

If you are interested in reviewing the Farm Bill closer, there is good information available at www.agriculture.house.gov/inside/Farmbill.html.