On March 11, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021 into law. Section 1005 of the act required the Secretary to make payments to socially disadvantaged farmers or ranchers “in an amount up to 120 percent of the outstanding indebtedness” of eligible producers for both direct and guaranteed loans administered by various USDA agencies.[1] While USDA immediately went to work implementing the provisions, multiple lawsuits were filed – alleging that the provision was unconstitutional because it violates the Due Process Clause of the Fifth Amendment – and 3 courts have issued injunctions prohibiting USDA from issuing any payments, loan assistance, or debt relief pursuant to Section 1005.[2] According to USDA, the injunctions “do not prohibit FSA from completing administrative actions leading up to payments, including providing payment notifications to potentially eligible borrowers.”[3] At the time of passage, the Congressional Budget Office (CBO) estimated the provision would cost $3.98 billion over the next 10 years.[4]
In the meantime, the Build Back Better Act (BBB) of 2021 – which passed the House on November 19, 2021 – sought to remedy the concerns raised about Section 1005 in the American Rescue Plan. Specifically, Section 12101 of the BBB amends Section 1005 of ARP, in part, by changing the focus of the debt relief to “economically distressed borrowers” with eligibility tied to eight (8) broad criteria ranging from debt delinquency metrics to whether the farm or ranch was headquartered in a county with a poverty rate of 20 percent or greater.[5] With the presumably expanded list of eligible borrowers, CBO estimated that the provision would cost $6.647 billion over the next 10 years.[6] Due, in part, to the price tag of the overall bill, the BBB has languished in the Senate for the last several months.
Last week, Senators Schumer and Manchin announced a joint agreement to add various provisions from the BBB – via the Inflation Reduction Act of 2022 – to the FY2022 Budget Reconciliation Bill.[7] In our review of the draft legislation posted last week, it does not appear that debt relief for farmers and ranchers was included. While Congressional leaders may have plans for including debt relief in another legislative vehicle, unless and until they do – or unless and until the courts rule on the pending cases or lift the existing injunctions – potentially eligible farmers and ranchers will have to keep waiting.
[2]SeeHolman v. Vilsack, 21-1085-STA-jay, Order Granting Motion for Preliminary Injunction (July 8, 2021); Miller v. Vilsack, 4:21-cv-00595-O, Order (July 1, 2021); Wynn v. Vilsack, 3:21-cv-00514-MMH-JRK, Order (June 23, 2021).
One of the questions policy economists get the most from farmers is how likely is it that they will get to update their base acres in the hopes of finally converting their non-base acres into base. For example, there is a significant amount of cotton produced in the Texas Panhandle that does not have seed cotton base and therefore is not eligible for ARC or PLC protection. In previous base update opportunities provided in the 2002, 2014 and 2018 (for cotton only) Farm Bills, producers always had the choice to stay with the crop bases that were established in the 1985 Farm Bill or update to align their crop bases more closely to current plantings. Given the choice, producers rarely would choose to have less total base acres even if it meant more closely aligning their bases to current plantings. This type of update has generally been scored by the Congressional Budget Office (CBO) as having a positive cost so Congress has had to find the money to update crop bases.
One of the suggestions currently making the rounds in Washington D.C. is a forced base update where producers who were planting less than their farm’s base acres during some specified time period would lose base and similarly, those that were planting more than their current base acres would gain base. Proponents see this as costing less to implement, as some farmers will most certainly gain base acres while others would lose base. While the devil is very much in the implementation details that would be determined by USDA, a quick evaluation of USDA-NASS planted acre data relative to USDA-FSA base acre data for the 13 Southern States indicates the South would lose a considerable amount of base in a forced base update situation where keeping old crop bases would not be an option.
Table 1 compares the planted acres of nine primary covered commodities (corn, grain sorghum, soybeans, rice, wheat, cotton, peanuts, barley and oats) in the South and indicates that an average of 53.6 million acres were planted in 2021 and 2022. This compares to 2021 total base acres of 62.1 million acres. Producers planted roughly 8.5 million acres less than their crop bases during that time period. Of the 13 Southern States, only Kentucky, North Carolina, Tennessee, and Virginia planted more acres than they have crop base.
While this quick analysis only looked at planted acres over two years, it still provides a good indication of what the direction of the overall impact would be on the Southern States. A forced base update is still just one of many proposals that are floating around Washington as farm bill discussions are just getting started. Individual farmers may benefit drastically; however, it is important to understand that a forced base update will have significant negative repercussions on the South as a whole.
Table 1. Planted Acres of Nine Primary Covered Commodities for 2021 and 2022 and 2021 Base Acres.
In May 2022, the Congressional Budget Office (CBO) released its latest 10-year budget projections for a number of Federal programs, including farm-related programs and the Supplemental Nutrition Assistance Program (SNAP). While CBO typically updates its budget projections up to three times per year, the spring update following the release of the President’s budget is most closely watched as it typically is the baseline against which the cost of legislative proposals is “scored” throughout the year.
During farm bill reauthorization years, CBO typically also releases their baseline projections by farm bill title. That summary gives policymakers a clear picture of the budget for mandatory spending they have to work with in each title of the farm bill. That estimate also gives a clear picture of what CBO expects the entire farm bill to spend if existing policies were simply maintained going forward.
While we are still a year out from CBO releasing baseline projections by title, there is still plenty to be gleaned from the May 2022 baseline update. For example, if we look back to the April 2018 baseline (the scoring baseline for the 2018 Farm Bill), the spending projections for CCC Price Support and Related Activities, Conservation, SNAP, and Crop Insurance accounted for $865.9 billion (Table 1), or 99.85% of the $867.2 billion in projected total baseline outlays for the farm bill.
Applying the same methodology to the most recent May 2022 baseline update, those four categories are projected to spend approximately $1.3 trillion over the next 10 years (Table 1). The significant increase is due to a 66.4% increase in projected spending on SNAP, with SNAP now projected to account for $1.1 trillion, or 84% of the total farm bill baseline. By contrast, the income support provisions for agricultural producers that make up the largest component of Title 1 – the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs – are projected to spend $43.3 billion over the next 10 years, or just 3.3% of the total farm bill baseline.
Table 1. Congressional Budget Office (CBO) 10-Year Outlays in Million$
April 2018
May 2022
Change($)
Change (%)
CCC Price Support & Related 1/
64,305
71,092
+6,787
+10.6%
Conservation
59,689
59,216
-473
-0.8%
SNAP 2/
663,828
1,104,384
+440,556
+66.4%
Crop Insurance
78,037
79,761
+1,724
+2.2%
Total
865,859
1,314,453
+448,594
+51.8%
1/ CBO included $10 billion in “Other Administrative CCC Spending” in the May 2022 baseline update. 2/ Revised economic assumptions and administrative changes to the Thrifty Food Plan (TFP) resulted in the Office of Management and Budget (OMB) projecting an additional $254 billion in SNAP outlays from FY2022-31 (https://www.whitehouse.gov/wp-content/uploads/2021/08/msr_fy22.pdf).
Looking at unemployment rates experienced from February to December of 2020 paints a picture of the resiliency of southeastern states counties to the COVID-19 pandemic. As shutdowns took place and unemployment rates rose, telework became an important factor in recovery. Across the 1,206 counties of the 12 southeastern states, rates of telework ability – defined as the percentage of jobs that could be done remotely – ranged from 22% to 43%. As the pandemic unfolded, the resiliency of each county was determined by industry composition, unemployment rates at the beginning of the pandemic, county demographic characteristics, and – broadband adoption rates.
Household broadband subscription rates ranged from 34% to 94% across the counties in the sample, and the results demonstrate that these differences are vital. The ability to telework had no impact on unemployment rates from February to April in counties with broadband adoption rates under 50%. Although some individuals may have been employed in occupations that were telework-friendly, their home broadband situation may have prevented them from continuing work. Alternatively, telework increased resilience in counties with higher broadband adoption rates, with marginal effects of -0.21 percentage points. That is, counties with high rates of broadband adoption had more resiliency (lower increases in unemployment) during the first two months of the pandemic. During the April to December period, areas where a high percentage of workers could telework – but had low broadband adoption – saw lower rates of recovery.
During the initial months of the pandemic, a high ability to telework and a high broadband adoption rate helped dampen increases in unemployment rates. However, the longer-term effects of broadband on unemployment recovery were diminished. Counties with a high ability to telework but low broadband adoption rates were held back in recovering from April to December. This is a striking finding that local broadband adoption rates are crucial for the potential impact of telework. In particular, federal programs put in place to subsidize household broadband access (the Emergency Broadband Benefit and Affordable Connectivity Programs) likely came too late to influence resiliency during the initial phase of the pandemic.
To read more about these findings and other correlations corresponding to counties resiliency, check out the full journal article: Carvalho, Mckenzie, Amy D. Hagerman, and Brian Whitacre. 2022. “Telework and COVID-19 Resiliency in the Southeastern United States.” Journal of Regional Analysis & Policy, https://jrap.scholasticahq.com/article/36123-telework-and-covid-19-resiliency-in-the-southeastern-united-states
This morning I testified before the U.S. House Agriculture Committee Subcommittee on General Farm Commodities and Risk Management at a hearing titled “A 2022 Review of the Farm Bill: Economic Perspectives in Title I Commodities and Title XI Crop Insurance”.
At the Agricultural and Food Policy Center (AFPC) at Texas A&M University, our work with 675 commercial producers located across the United States has provided our group with a unique perspective on agricultural policy. Currently, we maintain the information to describe and simulate 94 representative crop and livestock operations in 30 states.
In order to provide perspective on Titles I and XI, I wanted to briefly summarize a recent AFPC report that looks at farm profitability in 2022 relative to 2021 for our 64 representative crop farms in the face of higher input and output prices[1]. For this report, we asked our panel members to provide their costs per acre for 2022 versus 2021 for the major input categories. The average for each category across all respondents is presented in Table 1. Updated commodity prices for the 2021/22 and 2022/23 marketing years and policy variables were obtained from the FAPRI-MU Bulletin #01-22 entitled U.S. Agricultural Market Snapshot, April 2022 (Table 2). While some producers were able to benefit by locking in input prices early in 2021 for this year’s crop, most indicated very little ability to lock in these prices even when using their normal tax management strategy of prepaying inputs. Simply, the input suppliers would not lock in a price until the producers agreed to take delivery. Almost every respondent stated they were going to do their best to reduce input usage in the face of the highest costs of production they had ever experienced.
Table 1. Average Percentage Change in Representative Farm Input Costs/Acre from 2021 to 2022.
Seed
Nitrogen Fertilizer
Phosphorus & Potassium Fertilizer
Herbicide
Insecticide
Fungicide
Fuel & Lube
Percentage Change 2021 to 2022
16.58%
133.62%
92.75%
64.23%
40.25%
36.02%
86.63%
Table 2. Projected Commodity Prices Reported in FAPRI April 2022 Update, Marketing Years 2021/22 and 2022/23.
2021/22
2022/23
Percentage Change
Corn ($/bu)
$5.78
$6.06
4.84%
Wheat ($/bu)
$7.60
$8.08
6.32%
Soybean ($/bu)
$13.27
$14.22
7.16%
Grain Sorghum ($/bu)
$5.87
$6.14
4.60%
Barley ($/bu)
$5.27
$5.60
6.26%
Oats ($/bu)
$4.30
$4.00
-6.98%
Upland Cotton ($/lb)
$0.910
$0.871
-4.29%
Seed Cotton ($/lb)
$0.464
$0.443
-4.53%
Peanuts ($/lb)
$0.238
$0.240
0.84%
Sunflower Seed ($/lb)
$0.318
$0.324
1.89%
Canola ($/lb)
$0.318
$0.295
-7.23%
All Rice ($/cwt)
$15.80
$15.84
0.25%
Long Grain Rice ($/cwt)
$13.75
$14.03
2.04%
The news is full of stories about inflation that is averaging 8.5 percent so far this year for the average American. The lowest year-over-year inflation farmers are seeing is twice that on seed with most categories many times higher. Commodity prices, while generally higher in 2022, are up less than 8 percent. If not for the incredible productivity of the U.S. farmer, there would be a major financial crisis in agriculture. Following are the key highlights of our report:
Net cash farm income in 2021 included a significant amount of ad hoc assistance. Absent another infusion of assistance in 2022, we estimate that significant increases in input prices will result in a huge decline in net cash farm income in 2022 (compared to 2021).
Despite the significant reduction from 2021, higher commodity prices for most crops will likely still result in positive net cash farm income for most of AFPC’s representative crop farms. The noticeable outlier is rice – two-thirds of the rice farms are facing losses in 2022.
The analysis hinges on producers receiving the higher commodity prices forecasted by FAPRI with average yields. With drought being experienced across a significant portion of the country and many other areas facing excess moisture, this assumption may be overly optimistic.
Having worked with farmers located across the U.S over the last 30 years, I want to make sure you understand we are talking about historic amounts of capital that farmers are putting at risk
Throughout my career, I have referred to the programs in Title I and Title XI as the three-legged stool that serves as the safety net for U.S. producers. The current programs, agriculture risk coverage (ARC) and price loss coverage (PLC) and the nonrecourse commodity loan program, serve as two of the legs while the federal crop insurance program serves as the third leg. The following are what I believe to be the most significant shortcomings of all three legs of the stool. Most of my suggestions require additional resources that may be difficult to secure but are necessary.
Price loss coverage (PLC) reference prices worked fine while inflation was fairly low; however, the reference prices set in the 2014 Farm Bill and continued in the 2018 Farm Bill are in dire need of increases to remain relevant. Producers’ costs have increased substantially, and the current reference prices are not providing a relevant amount of protection.
Agriculture risk coverage (ARC) was also established in the 2014 Farm Bill as a second attempt at providing producers a revenue-based safety net program to replace the overly complicated and not widely used average crop revenue election (ACRE) program first used in the 2008 Farm Bill. While good when coming off of relatively high prices, ARC proved worthless when prices declined and remained relatively flat, providing little protection to producers. This is why that while widely chosen over PLC early in the 2014 Farm Bill, ARC was largely abandoned as a choice of safety net program in recent years. Since ARC has the reference price embedded in the calculations, raising reference prices will make ARC more attractive as a revenue protection safety net alternative.
Assuming these two alternatives are used going forward, instead of forcing producers to pick the tool (ARC or PLC) they want, I would suggest allowing them to receive the benefits of whichever is higher in a given year. This would cost nothing more than if the producers have chosen wisely and selected the appropriate tool and would take a major decision away that only serves as a major distraction to their work in trying to grow a crop.
The nonrecourse marketing loan program works as it was designed more than four decades ago; however, despite modest increases for some commodities in the 2018 Farm Bill, the rates have largely remained unchanged over the past 30 years, losing ground to inflation. Providing producers the ability to take out a storage loan or receive a loan deficiency payment on a crop is a very useful marketing tool. The rates need to be raised to increase the amount of the crop that is being protected which will cost money but is significantly less expensive to do at current price levels.
Federal crop insurance is an enormously successful public-private partnership that today stands as the primary safety net tool for U.S. producers. This is due to the program largely using futures prices to annually adjust the amount of protection producers can select. While crop insurance is popular with producers, the little-known secret in the farming community is that bankers “encourage” producers to purchase buy-up levels of crop insurance as a means of protecting the producer and the operating loan banks make to producers. As I have said many times in front of Congress… do no harm to crop insurance and stop outside interest groups from tying provisions of their pet projects to crop insurance – for example, linking climate change practice adoption to insurance program subsidy levels. This runs the risk of creating an unlevel playing field for producers by distorting protection levels and leaving some producers with less protection due to their lack of feasible climate change mitigation alternatives.
While this morning’s hearing focused on Title 1 and crop insurance, I believe the upcoming farm bill provides a clear opportunity to help address some of the shortcomings ad hoc assistance was designed to address as well. In the case of WHIP, WHIP+, and ERP, they all essentially are designed to help cover the large deductibles producers face in their crop insurance policies. While the ad hoc assistance over the last 5 years has been vital, it comes LONG after the disaster has come and gone and has been limited to specific causes of loss. Perhaps most important, ad hoc assistance is, by definition, not guaranteed. Farmers already face enough risks and uncertainty – ideally, they wouldn’t have to guess at what the safety net might look like as they struggle to put a crop in the ground.
