Policy

Those who know little about production agriculture will often ask us why we have a farm safety net in the United States. While there are several justifications to choose from, one of the most notable is that farm policy is designed to help level the playing field for U.S. agricultural producers in the global marketplace. In this article, we illustrate the case of rice.

Rice is an important part of the U.S. agricultural economy, particularly in the South where a number of local communities are highly dependent on the rice industry. Despite its importance, U.S. rice production accounted for just 1.2% of global rice production over the past 5 years. Consequently, the price received by U.S. producers is very much a function of market and political dynamics originating in the rest of the world. 

In April 2015, the U.S. International Trade Commission (USITC) reported on the global competitiveness of the U.S. rice industry, concluding that the global rice market was “characterized by significant government intervention in both imports and exports.” One of the most notable serial offenders is India, deploying a cadre of input subsidies and minimum support prices that support their growers to the detriment of producers around the world.  In 2020, our own analysis concluded that U.S. rice and wheat farmers were facing almost $600 million per year in lost sales due to the trade-distorting domestic support policies that were being utilized by India (that number rose to $850 million per year in a 2022 update). In February 2024, Rep. Jason Smith, the Chairman of the House Committee on Ways and Means asked USITC to again investigate the global competitiveness of U.S. rice producers. While we won’t prejudge the outcome of their investigation, we can’t help but note that India’s rice exports more than doubled from 2015/16 (when the last USITC report was written) to 2021/22.  

The bottom line is that producers in other markets have significant, government-sponsored benefits that advantage their rice producers over U.S. rice producers. All of this helps to explain why 2022/23 marked the lowest level for U.S. rice exports since 1985/86 (Figure 1). While previous Southern Ag Today articles have explored the temporary reprieve resulting from India’s recent export ban (see here and here), the eventual return to status quo will inevitably result in lower prices for producers around the world, including in the United States. 

All of this serves as yet another reminder of the importance of the farm safety net in leveling the playing field for America’s agricultural producers. It also magnifies the importance of updating the farm safety net in the next farm bill to ensure that it is reflective of the risks currently being faced by America’s agricultural producers.  

Figure 1. U.S. Rice Exports from 1985/86 to 2022/23.

Fischer, Bart L., and Joe Outlaw. “Leveling the Playing Field for U.S. Agricultural Producers.” Southern Ag Today 4(15.4). April 11, 2024. Permalink

In a recent Southern Ag Today article we highlighted the overwhelming need to increase commodity reference prices in the next farm bill based on hearing testimony from the commodity groups.  While we continue to believe that this is the first and most important step in making meaningful changes to our country’s farm safety net, a very close second would be to increase the payment limit to account for the impact of inflation.  Actually, we would argue that payment limits should be eliminated completely because they are implemented for social engineering not economic reasons…but that is a discussion for another day.

Why do we think payment limits should be increased?  Using data from the Agricultural and Food Policy Center’s (AFPC) database of representative farms—and illustrated for crop year 2025—the 3,400-acre Iowa corn/soybean farm is projected to be facing much lower commodity prices.  In 2025, market receipts are projected to be $2.5 million with corn and soybean prices at $4.30 and $10.46/bu.  Costs in 2025 are projected to be lower at $2.7 million, resulting in a $200,000 loss without government assistance (of course, the loss could also be much larger if prices fall more than expected).  Assuming ARC and/or PLC are improved to the point that they would trigger assistance in 2025, the support would be limited to $125,000, leaving the farm with a loss of $75,000.  Even though Congress will have spent hundreds of hours conducting hearings and debating how to help farmers stay in business… payment limits will reduce the effectiveness of the improved safety net.  Said another way, the producer puts $2.7 million at risk through borrowing or self-financing, and if there is a price or production problem, the Federal government will help with up to $125,000, or 4.6% of what the producer has at risk in this example. 

How much payment limits should be raised tends to be almost as contentious as whether we should have them.  As a frame of reference, modern-day payment limits trace their roots to the 1970 Farm Bill with a $55,000 payment limit for each of the annual programs for wheat, feed grains, and cotton in crop years 1971, 1972, and 1973.  The figure below illustrates the magnitude of that payment limit ($55,000 for a single program/crop) were it in place today and indexed for inflation. That $55,000 payment limit would have been $413,247 in 2023, more than three times larger than the current combined payment limit of $125,000 applying to all covered commodities eligible for ARC and PLC.  If the limits from the 1970 Farm Bill were combined for a producer growing all three crops (i.e., $165,000), the payment limit today would be just over $1.2 million. Again, this doesn’t mean a producer is entitled to a payment of $1.2 million; it simply means that any losses up to $1.2 million could be covered. Instead, under current law, any losses beyond $125,000 are borne entirely by the producer.

Figure 1. Initial 1970 Farm Bill Limit ($55,000) Indexed for Inflation.

Outlaw, Joe, and Bart L. Fischer. “Higher Reference Prices Are Critical… But So Is Increasing Payment Limits.” Southern Ag Today 4(13.4). March 28, 2024. Permalink

The Further Continuing Appropriations and Other Extensions Act, 2024 (P.L. 118-22) was signed into law on November 16, 2023.  The bill extended various programs, including the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs, through September 30, 2024.  As a result of the extension, ARC and PLC will be in place for the 2024 crop year under the same parameters as those negotiated in the 2018 Farm Bill (i.e., the same base acres, program yields, and Reference Prices, etc).  Growers have until tomorrow (March 15, 2024) to make an election between ARC and PLC on a crop-by-crop and farm-by-farm basis and to enroll their farm(s) for the 2024 crop year. 

If you are unable to make it to your local Farm Service Agency (FSA) office by the close of business tomorrow, we highly encourage you to call the office to inquire about the possibility of getting on a register to preserve the option of signing up at a later date. Under the 2018 Farm Bill, the election and enrollment are an annual decision; as a result, even if you haven’t participated in recent years, you should be able to sign up for 2024 if you wish (assuming there aren’t other factors impacting your eligibility).

For many growers in the South, March 15^th is also the Sales Closing Date for crop insurance on several crops.  As we noted in an earlier Southern Ag Today article, we highly encourage you to consider your FSA enrollment in light of the crop insurance options available to you. In many cases, the decisions you make on one will affect the other.  For example, you cannot participate in the Supplemental Coverage Option (SCO) on a farm if the base acres for that crop have elected ARC for the crop year (and vice versa, especially for winter wheat producers who have already purchased SCO on the 2024 crop).  Similarly, cotton producers cannot purchase a Stacked Income Protection Plan (STAX) policy on any farm (FSA Farm Number) where the seed cotton base has been enrolled in ARC or PLC for that crop year.

Despite bearish prices for many commodities, ARC and PLC are still unlikely to provide any assistance in most cases.  As a result, we highly encourage you to consider all of the crop insurance options available to you – including area-wide options like STAX, SCO, and the Enhanced Coverage Option (ECO) – before making your FSA election/enrollment decisions. 

Fischer, Bart L., and Joe Outlaw. “ARC and PLC Deadline TOMORROW!” Southern Ag Today 4(11.4). March 14, 2024. Permalink

Recently we were emailed a publication regarding the lack of progress on the farm bill that really gave us pause.  As is normally the case, we agree with much of the article; however, one specific sentence (below) in the conclusions cannot go unaddressed.   

“Farm Bill reauthorization has failed to launch; it is the hidden demand for increasing reference prices, not matched by any actual proposals and shielded from public scrutiny, that blocks any potential for progress.”

There are two problems with this sentence.  First, the demand for higher reference prices isn’t really “hidden.”  Last year the House and Senate Agriculture Committees held multiple hearings and listening sessions regarding what producers want in the next farm bill.  The hearings that focused on Title I of the farm bill were on April 26^th in the House of Representatives and May 2^nd in the Senate.  

In the House hearing, of the nine witnesses representing covered commodities that receive safety net protection from ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage) for their crops, only three didn’t explicitly ask for higher statutory reference prices in the next farm bill (USA Dry Pea and Lentil Council, U.S. Canola Association and National Corn Growers Association (NCGA)).  However, the NCGA witness asked to “strengthen the Price Loss Coverage (PLC) effective reference price ‘escalator’” which would cost money and result in higher reference prices for corn.  Thus 7 out of 9 wanted higher reference prices.

In the Senate hearing, there were seven witnesses representing covered commodities that receive safety net protection from ARC and PLC.  Six of the seven explicitly asked for higher reference prices with the NCGA witness again asking to strengthen the PLC effective reference price escalator. In other words, seven out of seven witnesses from national groups asked to increase the reference price for their commodity.

The second problem with the statement is this notion that the demand for higher reference prices is “not matched by any proposals and shielded from public scrutiny.”  At this point, the agricultural committees are at the mercy of House and Senate leadership who have provided little to no additional funds for developing the next farm bill.  Committee leadership and staff have been left to “find” savings from other areas of the farm bill to fund higher reference prices.  Thus far, it appears none of the sources of funds found to fund reference price increases have been acceptable to their counterparts across the aisle.  If anything is responsible for the failure of farm bill reauthorization to launch, it is that impasse. As for higher reference prices, the demand is abundantly apparent. Once the impasse is broken, only then will the stage be set for fulsome discussions on the extent to which the reference prices can be raised.

Outlaw, Joe, Bart L. Fischer, and Katelyn Klawinsky. “Demand for Raising Reference Prices Not Hidden Very Well.” Southern Ag Today 4(9.4). February 29, 2024. Permalink