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The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) provides
rice producers access to direct payments, counter-cyclical payments, and
marketing loan benefits. In addition, producers have access to subsidized
crop and revenue insurance available under previous legislation. Trade
policy and programs that increase rice use through government-assisted
trade promotion and food aid also impact the rice market.
Farmers are given almost complete flexibility in deciding which crops
to plant. Participating producers are permitted to plant all cropland
acreage on the farm to any crop, except for some limitations on planting
fruits and vegetables. The land must be kept in agricultural use (which
includes fallow); and farmers must comply with certain conservation and
wetland provisions.
Below is general information on government programs affecting rice producers'
management decisions and incomes. For further information, visit the program
provisions section in the Farm and Commodity Policy briefing room.
Direct and Counter-Cyclical Payments
Under the 2002 Farm Act, owners of farms had a one-time opportunity
to select a method—based on historic production—for determining
base acreage for both direct and counter-cyclical payments. The 2002
Farm Act set payment acreage at 85 percent of base acreage. Payment
yields for direct payments remained at the levels specified by the
1996 Farm Act. For counter-cyclical payments, farmers could update
their payment yields at the same time they initially enrolled. To receive
payments, owners have to enroll annually. Farmers will receive their
direct and counter-cyclical rice payments each year regardless of the
crop planted on their cropland that year.
Direct decoupled payments are available for eligible landowners
and producers of rice who enter into an annual agreement. The amount of
the direct payment is equal to the product of the payment rate, payment
acres, and payment yield. The 2002 Farm Act sets the payment rate for
rice at $2.35 per hundredweight (cwt) for crop years 2002-07.
Counter-cyclical payments are available to contract holders
whenever the effective price is less than the target price. Target prices
for program crops are specified in the 2002 Farm Act. The target price
for rice is $10.50 per cwt. The effective price is equal to the sum of
1) the higher of the national average farm price for the marketing year,
or the national loan rate for the commodity, and 2) the direct payment
rate for the commodity. The minimum effective price is $8.85 per cwt (the
sum of the $6.50 per cwt loan rate and the $2.35 per cwt direct payment).
The maximum payment rate is $1.65 per cwt (the $10.50 target price minus
$8.85). The payment amount equals the product of the payment rate, payment
acres, and the counter-cyclical payment yield.
For further information on acreage base, payment acres, and payment yield
for calculating direct and counter-cyclical payments, as well as conservation
requirements, visit the Program
Provisions section in the Farm and Commodity Policy briefing room.
Marketing Assistance Loans and Loan Deficiency Payments
The marketing assistance loan program is designed to assist producers
when market prices are low. The program allows producers to repay nonrecourse
commodity loans at a rate less than the original loan rate plus accrued
interest, when the adjusted world price (AWP) for rough rice (as calculated
by USDA) is below the loan rate. The payment rate under the program
is
the difference between the AWP and the national average loan rate for
rough rice. Loan rates are fixed in legislation. The rough rice loan
rate
is $6.50 per cwt. To achieve the national average loan rate, separate
loan rates are calculated for each class of rice—long, medium, and
short—based on historic average milling yields and production.
The 2002 Farm Act extends nonrecourse commodity loans with marketing
loan provisions, but eliminates the requirement that rice producers enter
into an agreement for direct payments in order to be eligible for loan
program benefits. All current rice production is eligible. Farmers can
receive government payments in two ways: marketing loan gains (MLG) or
loan deficiency payments (LDP). A MLG occurs when producers repay their
nonrecourse commodity loans to USDA's Commodity Credit Corporation (CCC)
at a rate less than the loan rate. The difference between the loan rate
and the repayment rate is the MLG. Alternatively, producers can opt to
receive a payment when the AWP is below the loan rates in lieu of taking
out commodity loans. These payments are referred to as LDPs.
For details on marketing assistance loans, MLGs, and LDPs, visit the
Program Provisions
section in the Farm and Commodity Policy briefing room.
Payment Limits and Commodity Certificates
The 2002 Act sets the payment limit for direct payments at $40,000 per
person and for counter-cyclical payments at $65,000. Marketing loan benefits
(MLGs and LDPs) are limited to $75,000 per person. Producers with an adjusted
gross income of more than $2.5 million (averaged over 3 years) are not
eligible for payments unless more than 75 percent of the adjusted gross
income is from agriculture.
The three-entity rule is maintained. Under the rule, an individual farmer
could receive up to twice the payment limit per year applicable for direct
payments, counter-cyclical payments, and marketing loan gains on three
separate farming operations (a full payment on the first operation and
up to a half payment for each of the two additional entities).
Authority for commodity certificates is retained. Commodity certificates
can be purchased at the prevailing AWP. The certificates are available
for producers to use immediately in acquiring crop collateral pledged
to CCC for a commodity loan. For producers facing program payment limits,
this provides an opportunity to benefit from the lower loan repayment
rates.
Crop and Revenue Insurance
Adverse weather and insect infestations can reduce a farmer's yields and
result in below-normal revenue in any year. Low prices can also reduce
revenue. Rice farmers can purchase crop insurance to guard against yield
risk, and can buy revenue insurance for protection against yield and revenue
losses. USDA's Risk Management Agency pays a portion of producers' premium
costs for insurance policies and also pays some of the delivery and administrative
costs of private insurance companies that handle policy sales.
Export Programs and Policies
A number of export programs administered by USDA and the U.S. Agency for
International Development (USAID) promote U.S. rice exports. Export credit
guarantees are designed to help foreign importers facing foreign exchange
constraints and needing credit to purchase commodities. The CCC operates
the Export
Credit Guarantee Program (GSM-102) and the Intermediate
Export Credit Guarantee Program (GSM-103). GSM-102 covers private
credit extended for up to 3 years, while GSM-103 covers private credit
extended for 3-10 years. In essence, the credit programs assure U.S. exporters
that they will be paid.
The Supplier Credit Guarantee Program (SCGP) insures short-term, open-account
financing. Under SCGP, CCC guarantees a portion of payments due from importers
under short-term financing (up to 180 days) that exporters have extended
directly to importers for the purchase of U.S. agricultural products.
The U.S. Government provides food aid overseas through the P.L. 480 program,
the Section 416 program, and the Food for Progress (FFP) Program. Under
P.L. 480 Title I, USDA makes concessional sales that provide low-interest
loans to qualified developing countries purchasing U.S. agricultural commodities.
Rice shipped under Title I is typically purchased on the open market by
the recipient country. Under the Title II program, administered by USAID,
the United States donates rice to least developed countries.
The Section 416(b) program provides for donations of CCC-owned surplus
commodities to developing countries. It also allows surplus CCC commodities
to be used for the purpose of P.L. 480 Title II programs and for the FFP
program. The Foreign
Market Development Program, also known as the Cooperator Program,
is administered by USDA's Foreign Agricultural Service (FAS). The goal
of the program is to develop, maintain, and expand long-term export markets
for U.S. agricultural products.
For export program details, visit the Program
Provisions section in the Farm and Commodity Policy briefing room.
The FAS website also
provides Export Program
Information.
Environment and Conservation Programs
The 2002 Farm Act expands funding for all conservation programs and
significantly increases support for conservation practices on both
cropped and fallowed
land. Programs such as the Environmental Quality Incentives Program
and the new Conservation Security Program provide assistance on lands
in production.
Land retirement programs—including the Conservation Reserve Program,
the Conservation Reserve Enhancement Program, the Wetland Pilot Program,
and the Wetlands Reserve Program—remove land from production.
For details on environmental and conservation programs, visit the Conservation
Policy briefing room.
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