Evaluating commodity program choices in the new farm bill
Fourth, as noted above, revenue-based assistance through ARC requires that all producers agree to "select" the same coverage level: county or individual farm. Again, if owners of the farm choose Individual ARC that applies to all covered commodities on the farm. The calculations and payments for County ARC and Individual ARC are similar but with important differences. County ARC makes revenue-based payments on 85 percent of the covered commodity's base acres when actual county revenue is between 86 percent and 76 percent of the benchmark county revenue. The benchmark county revenue is calculated using the 5-year Olympic rolling average (drop the highest and lowest crop years) of county yields for the commodity and the 5-year Olympic rolling average of its national prices. Individual ARC calculations include all covered commodities planted on the farm with revenue-based payments made on 65 percent of the farm's total base acres. The calculations for Individual ARC must also take into consideration the individual producer's share of all farms in the same state in which the producer has an interest and for which Individual ARC has been selected. Individual ARC makes payments whenever the actual revenue for all covered commodities on the farm is between 86 percent and 76 percent of the benchmark revenue, which is calculated using a 5-year Olympic average of the sum of the revenues (prices multiplied by yields for each commodity) for all covered commodities. More specifically, each covered commodity's price and yields are multiplied for each crop year, then the 5-year Olympic average of each commodity's revenue are added together for the benchmark.
Stepping back from the program specifics, the general policy and political context for the 2014 Farm Bill's safety net may provide perspective. This farm bill was written in an era of heightened scrutiny over federal debt and deficits; it was considered politically necessary to reduce the bill's spending for passage in a budget-obsessed Congress. Fairly relentless criticism of commodity programs, particularly direct payments, in an era of high commodity prices and strong farm incomes also complicated matters. These combined to bring about the end of direct payments and altered the existing structure of commodity policy. The oft-stated principle underlying the changes in this farm bill was a focus on helping farmers manage the considerable risks they face in crop production -- a move away from existing income support. In a politically-challenging environment, the debate centered on how to make the farm safety net more defensible to the general voting and taxpaying public, as well as effective and relevant on the farm.
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