Government Programs & Risk
Major Risk Management Programs
The U.S. Federal Government offers a suite of programs to help agricultural producers mitigate losses from low yields or prices. These programs are largely covered under Title I and Title XI of the Agricultural Improvement Act of 2018 (Public Law 115–334, 2018).
Title I Support Programs
The Agriculture Risk Coverage (ARC) program (introduced in the Agricultural Act of 2014 and continued with the 2018 Farm Act) provides income support payments to producers with historical base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses on a commodity-by-commodity basis when county crop revenue (actual average county yield times national farm price or effective reference price, if higher) drops below 86 percent of benchmark revenue (5-year Olympic average county yield times 5-year Olympic average national price). Seed cotton (unginned cotton) was made eligible for ARC payments by the 2018 Bipartisan Budget Act, and continued in the 2018 Farm Act. Producers may also choose to participate in ARC based on individual farm revenue instead of county revenue. In this case, the payment is based on the difference between an individual benchmark and actual individual revenues. The benchmark is calculated as the sum of average revenue for each covered commodity on all farms enrolled in individual ARC in which the individual has a financial interest, divided by the average acres planted to all covered commodities on all those farms. Payments are limited to 60 percent of the farm’s historical base acres.
The Price Loss Coverage (PLC) program, (introduced in the Agricultural Act of 2014 and continued with the 2018 Farm Act) provides income support payments to producers with historical base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses on a commodity-by-commodity basis when market prices fall below a reference price. Seed cotton (unginned cotton) was made eligible for PLC payments by the 2018 Bipartisan Budget Act, and continued through the 2018 Farm Act. The payment rate is the difference between the reference price and the annual national-average market price (or marketing loan rate, if higher). The 2018 Farm Act introduced an “effective reference price” that allows the statutory reference price to increase up to 15 percent when 85 percent of the previous 5-year Olympic average (dropping the highest and lowest years) of market prices is above the statutory price. The payment amount is the payment rate multiplied by the historical acres of covered commodity up to 85 percent of the farm’s base acres for that commodity, multiplied by the payment yield. The 2018 Farm Act allows a one-time opportunity to update the farm’s historical payment yields for base acres of covered commodities. Payments are reduced on an acre-by-acre basis for producers who plant fruits, vegetables, or wild rice on base acres.
Marketing assistance loans allow farmers to obtain a short-term (usually up to 9 months) low-interest loan for their harvested commodity at the posted county loan rate, with the option of repaying at a lower rate with interest waived if the posted county market price falls below the loan rate (repayment rates for upland cotton and rice are based on international market prices). Producers also have the option to forfeit their commodities that are under loan as a full payment of their loan. Producers who choose not to take out a loan may receive the same benefit by collecting a direct loan deficiency payment (LDP) on their harvested commodity equal to the difference between the loan rate and the market price.
Noninsured Crop Disaster Assistance Program (NAP) payments are made to producers of crops for which crop insurance is unavailable in that county. NAP was created by the 1994 Federal Crop Insurance Reform Act and originally contained an area-yield-loss trigger in addition to a farm-yield-loss trigger. The area-yield-loss requirement was eliminated in the Agricultural Risk Protection Act of 2000. The Agricultural Act of 2014 expanded the program by allowing additional coverage above catastrophic levels for commodities that otherwise would not have additional coverage available to them. Producers pay a service fee for basic coverage of 50 percent of the crop at 55 percent of the price and a premium fee of 5.25 percent of the liability for up to 65 percent of the crop at 100 percent of the price. Payments under NAP cannot exceed $125,000 per individual or entity for a single crop year.
Dairy margin coverage (DMC) offers protection to dairy producers when the difference between the U.S. all-milk price and a national feed-cost value falls below a certain dollar amount selected by the dairy farmer. DMC was authorized in the 2018 Farm Bill as a replacement for the Margin Protection Program for Dairy (MPP-Dairy), which was authorized in the 2014 Farm Bill. While there is an administrative fee to participate in DMC, the program offers catastrophic coverage at no additional cost, and coverage at higher levels is offered at an additional premium based on the coverage level and the farm’s production history. In 2022, nearly 2/3 of U.S. dairy herds participated in the DMC program.
Livestock Forage Disaster Program (LFP) offers assistance to livestock producers that graze forage and incur forage losses as a result of drought. LFP was permanently authorized as part of the 2014 Farm Bill. LFP payments are calculated based on the monthly feed cost for all covered livestock and the normal capacity of the grazing land experiencing the qualifying event on a per-acre basis, and are commensurate with the length of time the county in which the livestock are grazing has been in a D2 or higher drought (as reported by the U.S. Drought Monitor) during the normal grazing period.
Livestock Indemnity Program (LIP) offers assistance to producers who experience abnormally high livestock death rates due to adverse weather, disease, and animal attack. LIP was permanently authorized as part of the 2014 Farm Bill. Through , producers who suffer losses are eligible to receive payments equal to 75 percent of the market value of the animals. Producers who sell their livestock for a reduced price are also eligible for payments.
Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program (ELAP) offers compensation to eligible producers of livestock, honeybees, and farm-raised fish for losses incurred due to diseases, most extreme weather events, and water shortages that are not covered by LFP or LIP. ELAP was permanently authorized as part of the 2014 Farm Bill. ELAP covers a variety of losses or additional costs due to: adverse events (including honey bee colony-loss payments), payments for farm-raised fish producers when excessive feed costs are incurred, assistance for livestock grazing losses, water transport costs, additional feed transport costs due to drought, and costs associated with gathering livestock to treat or inspect for cattle tick fever.
Tree Assistance Program (TAP) offers assistance to eligible commercial orchardists and nursery growers for trees, bushes, and vines that have been damaged due to natural disasters or disease. TAP was permanently authorized as part of the 2014 Farm Bill. To qualify for assistance, eligible trees, bushes, or vines must have experienced more than a 15-percent mortality loss.
Title XI Support Programs
Federal crop insurance was established in the 1930s to cover yield losses from most natural causes (multiple-peril crop insurance or MPCI). Crop insurance operated on a limited basis up through the early 1980s. Insurance availability was greatly expanded and premium subsidies were increased to raise participation in the program after the Disaster Payments Program was ended in 1981, making crop insurance the only program that was available to compensate producers for crop losses before an adverse event. Major reforms were legislated in 1994 and 2000, which included the introduction of CAT (catastrophic) coverage and large increases in premium subsidies. In the mid-1990s, revenue insurance was introduced into the Federal crop insurance program (FCIP) and has since become the most popular form of crop insurance. Whereas crop yield insurance covers only yield losses, crop revenue insurance pays when gross revenue (yield times price) falls below a specified level. As of the 2023 crop year, approximately 540 million farm acres are insured the Federal crop insurance program.
In addition to traditional crop insurance policies, a number of endorsements and special provisions are available:
- The Supplemental Coverage Option (SCO), introduced in the Agricultural Act of 2014 and continued by the Agriculture Improvement Act of 2018 (2018 Farm Act), is an insurance product that offers producers additional insurance coverage for losses that are smaller than those generally covered by standard crop insurance policies. SCO coverage offers an alternative for eligible producers who elect not to participate in the Agriculture Risk Coverage (ARC) program (available under Title I of both the 2014 and 2018 Farm Bills). The program allows producers to cover a portion of the deductible of their underlying crop insurance policy, with payments being determined on an area (generally county) basis. SCO was made available beginning with the 2015 crop year. The program provides subsidies of 65 percent of producers’ premiums. Like traditional crop insurance, SCO is not subject to payment limitations or adjusted gross income eligibility limits.
- The Enhanced Coverage Option (ECO) was added for crop year 2021. Like SCO, ECO also offers protection for smaller losses than those generally covered by standard crop insurance policies. ECO must also be combined with a companion policy which determines the coverage type (yield or revenue), and has a payment trigger based on reductions in county revenue or yield. Unlike SCO, ECO offers coverage for a different range of potential losses. ECO offers protection for losses between 86 percent and either 90 or 95 percent (depending on the level chosen by the producer) of the expected outcome. ECO cannot be combined with other area risk protection insurance, STAX, or a margin protection policy, but can be bundled with an SCO policy. Additionally, unlike SCO, a producer can simultaneously hold ECO coverage while being enrolled in ARC.
- The Stacked Income Protection Plan (STAX), introduced in the Agricultural Act of 2014 and continued under the 2018 Farm Act, provides county-based revenue insurance policies to producers of upland cotton beginning with the 2015 crop year. Unlike SCO, STAX policies can be purchased on their own or be used to supplement insurance coverage available through the Federal Crop Insurance Program, protecting against losses that fall within the range not generally covered by standard crop insurance policies---although on a county, rather than an individual, farm-revenue basis. Federal subsidies cover 80 percent of producers’ premiums. Similar to SCO, STAX is not subject to any payment or income limitations. Under provisions of the 2018 Farm Act, farms on which seed cotton base acres are enrolled in the ARC or Price Loss Coverage (PLC) programs will be ineligible to purchase STAX policies for cotton production on that farm.
- The Hurricane Insurance Protection - Wind Index (HIP-WI) policy was introduced for the 2020 crop year and offers index-based coverage for producers in eligible counties that are in proximity to the Atlantic Coast or Gulf of Mexico. Producers opting for HIP-WI coverage can add it as an endorsement to a policy defined under the FCIP basic provisions. HIP-WI provides coverage for losses between the underlying policy coverage limit and 95 percent of the expected crop value (known as the "hurricane coverage range"). Producers must also select a coverage level between 1 and 100 percent, which is multiplied by the hurricane coverage range to obtain their "hurricane protection amount". The full value of the hurricane protection amount is disbursed when sustained hurricane force winds from a named storm occur in the producer's county or an adjacent county.
Pasture, Rangeland, and Forage Insurance Plan (PRF) is an index insurance plan that provides protection for producers when a loss of forage for grazing or harvested for hay is experienced due to a single peril—lack of precipitation. PRF uses a rainfall index to determine precipitation for coverage purposes and does not measure the actual on-farm production or loss of production that the PRF protects. The index is based on National Ocean and Atmospheric Administration Climate Prediction Center (NOAA CPC) grid system data. If the final grid index falls below the policy’s “trigger grid index” level, the producer may receive a payment.