Government Programs & Risk
Major Risk Management 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, when insurance availability was greatly expanded and premium subsidies were increased in the hope of replacing the disaster payment program. Major reforms were legislated in 1994 and 2000. These 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 and has since become the most popular form of insurance. Whereas crop yield insurance covers only yield losses, crop revenue insurance pays when gross revenue (yield times price) falls below a specified level. More than 290 million acres are insured under the Federal crop insurance program, including more than 80 percent of the acres of major field crops planted in the United States.
Crop disaster payments are payments that were made in the past directly to farmers on an emergency basis when crop yields were abnormally low due to adverse growing conditions. During the 1970s, there was a standing disaster payments program, with payments made without declaration of a disaster area. Regular payments ceased after 1981, but since then ad hoc disaster payments have been specially approved by Congress on a number of occasions. A standing crop disaster program, the Supplemental Revenue Assurance Program (SURE) was established under the 2008 Farm Act but was not renewed in 2014.
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 fall under the levels 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 under Title I of the Agricultural Act of 2014. The program will allow 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 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. 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 will 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 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, which continue in 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 the previous 5-year average 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 will be reduced on an acre-by-acre basis for producers who plant fruits, vegetables, or wild rice on base acres.
The Agricultural 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, which continues 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.
Actively engaged producers on a farm (a category defined by the Secretary of Agriculture as part of the 2014 Farm Act’s implementation) make a one-time decision for the farm’s base acres on whether to elect PLC or county-based ARC coverage. The 2018 Farm Act requires a unanimous election to obtain PLC or ARC-CO on a covered commodity-by-commodity basis, which may remain in effect for the 2019 through 2023 crop years. An election of ARC-IC will apply to all covered commodities on the farm. Starting with the 2021 crop year and each crop year thereafter through 2023, the producers on a farm may change the election of PLC or ARC on a year-to-year basis.
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.
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. Producers also have the option to forfeit their commodities under loan as 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.