Factors Influencing ACRE Program Enrollment
by Andrea Woolverton and Edwin Young
Economic Research Report No. (ERR-84) 43 pp, December 2009
Authorized by the 2008 Farm Act, the Average Crop Revenue
Election (ACRE) program is the first Federal agricultural
income-support method to be based on agricultural revenues and
planted acres. Income-support programs continued from the 2002 Farm
Act, such as direct and counter-cyclical payments, are based on
legislated rates and a farm's base acres. ACRE is a revenue
guarantee program that farmers can select as an alternative to
counter-cyclical payments. Producers had until August 14,2009, to
elect to participate in ACRE for 2009.
What Is the Issue?
U.S. farmers eligible for the ACRE program face several unknowns
because the program requires farmers to make assumptions about farm
and State yields and commodity prices before deciding whether to
participate in the program. Some may prefer payment certainty by
remaining in a program with which they feel comfortable.
What Did the Study Find?
Initial enrollment data as of October 2009 indicate that about 8
percent of farms with almost 13 percent of eligible base acres
elected to participate in ACRE, which is less than might be
expected given price- and yield-based analysis. However, enrolled
producers must incur initial learning and negotiation costs and
must forgo 20 percent of direct payments. These costs may be larger
than the expected ACRE benefits for some producers in 2009 and
beyond. As expected, ACRE enrollment is in regions that typically
grow wheat, corn, and soybeans. The three crops comprise 96 percent
of crops planted on ACRE-enrolled acreage. Remaining producers of
eligible crops who did not elect to enroll in ACRE can still enroll
in any of the next 3 years (until 2012), but those who do enroll
must remain in the program through 2012.
ERS researchers applied ACRE requirements to program-eligible
crops from 1996 to 2008 and analyzed whether farmers would have
benefited more from participating in ACRE or in the 1996 and 2002
Farm Act programs during that time. They found that total payments
under the 1996 and 2002 Farm Act programs exceeded estimated total
ACRE program payments every year except 1996 and 1997. While most
producers would have been better off participating in 1996 and 2002
Farm Act programs than in the ACRE program in 1996-2008, this may
not be the case in crop years 2009-12. The prices used to calculate
the initial ACRE revenue guarantees include the historically high
commodity prices of 2007 and 2008. Thus, Government payments are
likely to be higher for many farmers electing ACRE than for those
who retain the 2002 Farm Act set of payments.
By participating in ACRE, an agricultural producer forgoes
counter-cyclical payments and is subject to a 20-percent reduction
in direct payments and a 30-percent reduction in marketing loan
rates. Despite these tradeoffs, many U.S. farmers may find ACRE
attractive, particularly farmers who are producing crops-such as
corn, wheat, and soybeans-for which market prices are projected to
be high relative to historical levels. Producers of those crops are
unlikely to be eligible for counter-cyclical payments and marketing
loan benefits.
Agricultural producers must consider two less quantifiable costs
when deciding whether to elect to participate in ACRE:
(1) the learning costs associated with the new revenue-based
program, and (2) the negotiation costs due to the requirement that
all producers/landowners in the farm operation must agree to
participate. These factors will differ across producers and could
discourage participation in ACRE.
ACRE payments are crop-specific and are based on planted acres
of all farm-program-eligible crops on a participating farm.
Eligible crops include wheat, corn, barley, grain sorghum, oats,
upland cotton, long-grain and medium-grain rice, peanuts, pulse
crops, and soybeans and other oilseeds. Payments are based on a
"moving" 2-year average of market prices and on 5-year Olympic
averages of yields. ACRE payments are triggered when both the farm
and State revenues fall below benchmark levels. (An Olympic average
is a 5-year average that "drops" the highest and lowest
values.)
Two ACRE program generalities are evident. First, farms with
yields that are positively correlated with State yields are more
likely to receive ACRE payments given the dual-payment criterion.
Second, the revenue guarantee (called the State ACRE Guarantee, or
SAG) will follow relatively current market prices, high and low. As
prices rise (fall), the SAG will increase (decrease), although by
no more than 10 percent from one year to the next, regardless of
changes in commodity prices or yields.
Given the relatively high initial SAG and projected crop prices,
producers of wheat, corn, soybeans, and rice could qualify for
payments under ACRE if they experience even a small decline in
price or yield, which could offset most of the forgone direct
payments. However, for farms that expect to receive
counter-cyclical payments and marketing-loan benefits (upland
cotton and peanut producers, for example), ACRE payments are
unlikely to offset both the forgone payments and marketing loan
benefits.
How Was the Study Conducted?
ERS researchers applied ACRE requirements to program-eligible
crops from 1996 to 2008 and analyzed whether farmers would have
benefited more from participating in the ACRE program or in the
1996 and 2002 Farm Act programs during that time. The researchers
then projected their findings into crop years 2009-12. The
historical costs were estimated for ACRE, assuming State-level
historical production. The analysis was based on an indepth review
of the 2008 Farm Act rules and regulations for ACRE. Data on
planted acreage, production, prices, and enrollment from USDA's
National Agricultural Statistics Service and Farm Service Agency
were used to simulate farm-level and aggregate impacts of ACRE.