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The Revenue Program Option in the 2008 U.S. Farm Bill: Evaluating Performance Characteristics of the ACRE Program

01 Oct 2010-Agricultural and Resource Economics Review (Northeastern Agricultural and Resource Economics Association)-Vol. 39, Iss: 3, pp 517-533

AbstractHad only a farm program like the new ACRE state revenue program existed instead of the authorized 1996-2008 programs for corn, soybeans, and wheat, farm support expenditures would have occurred earlier but totaled less. In contrast, at the higher prices forecast for the three crops over the 2009-2012 crop years, spending per acre is expected to be higher for acres enrolled in the ACRE program than for acres enrolled in the traditional programs. These results reflect the different design features of the two programs: revenue versus price assistance and assistance levels that adjust with lagged market revenue versus fixed nominal support triggers. The design issues and policy questions raised for both domestic policy considerations and WTO compliance are discussed. Key Words: farm policy, Food Conservation and Energy Act of 2008, Average Crop Revenue Election Program (ACRE), WTO domestic support commitments The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) provides farm commodity program participants with the choice of a traditional suite of fixed direct payment, marketing loan, and price counter-cyclical programs or a new Average Crop Revenue Election (ACRE) program suite. The ACRE suite, which was authorized for the 2009-2012 crop years, consists of (i) 80 percent of the traditional program's direct payments, (ii) marketing loans at 70 percent of the traditional program's loan rate, and (iii) a new state revenue program. Thus, the revenue program replaces the counter-cyclical program and substitutes for lower direct payments and loan rates. Revenue programs have been discussed for decades (Harrington and Doering 1993) but ACRE is the first such program authorized by a farm bill. Another policy innovation is that, unlike the marketing loan and counter-cyclical programs which have fixed support triggers, ACRE's revenue risk assistance level (the annual trigger for ACRE payments) adjusts to changes in market revenue over time since it is set using moving averages. This innovation implies that ACRE does not create a floor under revenue. On the other hand, the high market revenues since 2006 will translate into a high initial ACRE revenue risk assistance level, which, everything else constant, increases the likelihood of payments from the ACRE revenue program compared to the traditional programs. More specifically, prices will have to decline by a greater proportion before marketing loan and countercyclical payments occur under the 2008 Farm Bill. U.S. farm programs must meet not only domestic needs but also World Trade Organization (WTO) rules on agricultural domestic support policies. Because ACRE revenue payments are tied to current planted acres and market revenue, it is likely that the United States will classify them as product- specific measures within its Aggregate Measurement of Support (AMS). In contrast, a guiding principle during the as-yet-inconclusive Doha Round of negotiations has been to constrain expenditures on policies tied to current production and prices, while encouraging movement to policies decoupled from production decisions and market conditions. For example, the current draft Doha text implies that permitted U.S. annual support as notified in its annual Current Total AMS (CTAMS) would decrease to $7.6 billion (from the current ceiling of $19.1 billion) and new productspecific AMS caps would be imposed (WTO 2008). The ACRE program raises questions regarding compliance with these potential U.S. WTO commitments. Under the 2008 Farm Bill, farmers and landowners have a choice between the traditional farm program suite and the ACRE farm program suite. For the first year that the ACRE program suite was available, preliminary sign-up results in 2009 indicated that for the three largest-acreage eligible crops the shares of corn, soybean, and wheat base acres enrolled in ACRE was 15.6 percent, 15.3 percent, and 12.7 percent, respectively (USDA 2009a). The sign-up decisions of farmers and landowners reflect their weighing of the trade-off of reduced direct payments and lower loan rates in exchange for eligibility for the revenue risk assistance payments in the context of their farm's situation and their anticipation of future market conditions. …

Topics: Farm programs (63%), Revenue (60%), Direct Payments (53%), Loan (52%)

Summary (3 min read)

Current Programs versus ACRE Programs

  • Current farm programs provide three types of support: fixed direct payments, marketing loan payments, and counter-cyclical payments.
  • The policy objective of the marketing loan and counter-cyclical programs is to assist farmers with managing the systemic (i.e., market) risk of low prices that can last from one year to an extended period of years.
  • Expenditures in the Blue Box are exempt from the limit on CTAMS because they are associated with production-restricting programs.
  • Loan payments are based on current production and prices, and thus are coupled under WTO rules and notified as product-specific AMS.
  • A state revenue payment becomes available for a crop when actual state revenue is less than the state’s revenue risk assistance level.

ACRE Program Provisions

  • ACRE must be elected for all covered crops grown on the FSA farm; however, ACRE payments are crop-specific.
  • Specifically, an FSA farm’s actual revenue must be less than the FSA farm’s benchmark revenue for the crop.
  • (3) ACRE benchmark revenue per planted acre for FSA farm i for crop s and crop year t = {[Olympic average of FSA farm’s planted yield for 5 most recent prior crop years i,s,t] [average U.S. cash price for 2 most recent prior crop years s,t] +.
  • For each payment entity, ACRE state revenue payments cannot exceed $65,000, the limit on counter-cyclical payments, plus the amount equal to the payment entity’s 20 percent reduction in direct payments.

Analytical Procedures

  • The historical, counterfactual analysis was conducted beginning with the 1996 crop year.
  • The authors contrast the estimated counterfactual payments assuming all corn for grain, soybean, and wheat acres were enrolled in the ACRE program with the actual payments made by the traditional programs during the 1996–2008 crop years.
  • For the 1991–1994 crop years, failed acres were estimated for state s and year t using the following linear regression and the data available for the 1995–2008 crop years: Failed acre s,t = f (planted acres s,t – harvested acres s,t).
  • The mean values of their forecast prices and revenue remain essentially at the levels of the USDA forecasts, but their estimates of the average level of farm support reflect the variability that would result from the applied sets of percentage deviations around the initial forecasts.

Counterfactual Historical Analysis

  • Had only the ACRE farm program suite been available for corn, soybeans, and wheat instead of the traditional program suite over the 1996–2008 crop years, total expenditures would have been 44 percent lower for the ACRE suite (Table 1).
  • In comparison, marketing loan payments, the only price program authorized by the 1996 Farm Bill, totaled $1.5 billion for corn, $1.2 billion for soybeans, and $0.5 billion for wheat.
  • ACRE state revenue payments were larger because ACRE uses a two-year moving average of prices in determining its state revenue risk assistance level and because U.S. crop year prices during the 1995, 1996, and 1997 crop years were much higher than the loan rates fixed in the 1996 Farm Bill.
  • Maximum counter-cyclical payments were estimated for corn, soybeans, and wheat for each of the 1998–2001 crop years because, for these years, the U.S. crop year average cash price was below the U.S. loan rate.

PANEL B: TOTALS FOR 2009–2012 CROP YEARS

  • $13.7 billion, less than the $14.8 billion in combined market loss and oilseed payments and less than the $19.5 billion in combined marketing loan payments.
  • These payments accounted for 44 percent of all marketing loan, counter-cyclical, and market loss payments to corn over the 1996–2008 crop years.
  • For the United States, corn yield was a then record 160 bushels Sources: Payments by the traditional suite of farm programs for crop years 1996–2008 are actual payments reported by the U.S. Department of Agriculture, Farm Service Agency (USDA 2009b).
  • In short, this policy event illustrates the important role that yield deviations play in determining payments from the ACRE revenue program.

Forecast Analysis

  • Prices forecast by USDA for crop years 2009– 2012 are substantially above the loan rates and target prices specified in the 2008 Farm Bill for corn, soybeans, and wheat.
  • Payments by the ACRE suite of farm programs for all crop years and by the traditional suite of farm programs for crop years 2009–2012 are authors’ original estimates.
  • Market loan payments were forecast only for wheat during the 2010–2012 crop years.
  • The total average forecast values for ACRE revenue payments encompass the outcomes resulting under the 11 sets of percentage deviations applied in their analysis (Table 1).
  • The traditional price-based programs include the counter-cyclical, marketing loan, market loss, and oilseed programs.

ACRE in World Trade Organization (WTO) Context

  • The ACRE state revenue program is prima facie coupled to current planting decisions and prices of specific crops.
  • While this amount exceeds the $3.3 billion in AMS actually notified for corn, soybeans, and wheat, the notified CTAMS for 1998 was only $10.5 billion.
  • Whether the United States would exceed its Uruguay Round commitment in the 2009–2012 crop years will depend on the amount of payments from the ACRE revenue program plus the other notified support.
  • A new cap on Overall Trade Distorting Support (OTDS) would constrain the sum of CTAMS, product-specific, and non–product-specific de minimis support, and a redefined Blue Box support that would include countercyclical payments.

Summary and Discussion of Policy Issues Raised by ACRE

  • The Food, Conservation, and Energy Act of 2008 provides farm commodity program participants with the choice of a traditional suite of fixed direct payment, marketing loan, and price countercyclical programs or a new Average Crop Revenue Election (ACRE) suite of programs.
  • Such a situation occurred during the 2004 and 2005 crop years when marketing loan and counter-cyclical payments to corn totaled $12.9 billion.
  • The policy objective of the ACRE revenue program is to assist farmers with managing the systemic risk of a decline in a crop’s revenue that can extend from one year to a short period of years, irrespective of the level of revenue at which the decline occurs, but to avoid creating a floor.
  • While it is clear that the relative importance of these risks depends on the balance between supply and demand, it is not clear whether farmers and policymakers prefer the match with the incidence of risk provided by the ACRE revenue program or the match with the incidence of risk provided by the traditional price support programs.
  • Whatever the WTO situation that the United States faces, ACRE’s design raises an important question about the distortion of market incentives and international trade by policy:.

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Agricultural and Resource Economics Review 39/3 (October 2010) 517–533
Copyright 2010 Northeastern Agricultural and Resource Economics Association
The Revenue Program Option in the 2008
U.S. Farm Bill: Evaluating Performance
Characteristics of the
ACRE Program
Carl Zulauf and David Orden
Had only a farm program like the new ACRE state revenue program existed instead of the au-
thorized 1996–2008 programs for corn, soybeans, and wheat, farm support expenditures
would have occurred earlier but totaled less. In contrast, at the higher prices forecast for the
three crops over the 2009–2012 crop years, spending per acre is expected to be higher for
acres enrolled in the ACRE program than for acres enrolled in the traditional programs. These
results reflect the different design features of the two programs: revenue versus price assis-
tance and assistance levels that adjust with lagged market revenue versus fixed nominal sup-
port triggers. The design issues and policy questions raised for both domestic policy consi-
derations and WTO compliance are discussed.
Key Words: farm policy, Food Conservation and Energy Act of 2008, Average Crop Revenue
Election Program (ACRE), WTO domestic support commitments
The Food, Conservation, and Energy Act of 2008
(2008 Farm Bill) provides farm commodity pro-
gram participants with the choice of a traditional
suite of fixed direct payment, marketing loan, and
price counter-cyclical programs or a new Average
Crop Revenue Election (
ACRE) program suite.
The
ACRE suite, which was authorized for the
2009–2012 crop years, consists of (i) 80 percent
of the traditional program’s direct payments, (ii)
marketing loans at 70 percent of the traditional
program’s loan rate, and (iii) a new state revenue
program. Thus, the revenue program replaces the
counter-cyclical program and substitutes for lower
direct payments and loan rates.
Revenue programs have been discussed for dec-
ades (Harrington and Doering 1993) but
ACRE is
the first such program authorized by a farm bill.
Another policy innovation is that, unlike the mar-
keting loan and counter-cyclical programs which
have fixed support triggers,
ACRE’s revenue risk
assistance level (the annual trigger for
ACRE pay-
ments) adjusts to changes in market revenue over
time since it is set using moving averages. This
innovation implies that
ACRE does not create a
floor under revenue. On the other hand, the high
market revenues since 2006 will translate into a
high initial
ACRE revenue risk assistance level,
which, everything else constant, increases the like-
lihood of payments from the
ACRE revenue pro-
gram compared to the traditional programs. More
specifically, prices will have to decline by a greater
proportion before marketing loan and counter-
cyclical payments occur under the 2008 Farm
Bill.
U.S. farm programs must meet not only domes-
tic needs but also World Trade Organization (
WTO)
rules on agricultural domestic support policies.
Because
ACRE revenue payments are tied to cur-
rent planted acres and market revenue, it is likely
that the United States will classify them as prod-
uct-specific measures within its Aggregate Mea-
surement of Support (
AMS). In contrast, a guiding
_
________________________________________
Carl Zulauf is Professor in the Department of Agricultural, Environ-
mental, and Development Economics at Ohio State University in Co-
lumbus, Ohio. David Orden is Senior Research Fellow at the Interna-
tional Food Policy Research Institute (IFPRI) in Washington, D.C., and
Professor in the Institute for Society, Culture and Environment at Vir-
ginia Tech University in Blacksburg, Virginia.
The authors thank the journal reviewers for their thoughtful and use-
ful comments and suggestions. They have also benefitted from discus-
sion of an earlier version of the paper at the December 2008 annual
meeting of the International Agricultural Trade Research Consortium.
The authors gratefully acknowledge support provided by the USDA
Cooperative State Research, Education & Extension Service, Hatch
Project No. 0198384, the Ohio Agricultural Research and Develop-
ment Center, and the Global Development Program of the William and
Flora Hewlett Foundation, through Grant No. 2008-1886 to the Inter-
national Food Polic
y
Research Institute.

518 October 2010 Agricultural and Resource Economics Review
principle during the as-yet-inconclusive Doha
Round of negotiations has been to constrain ex-
penditures on policies tied to current production
and prices, while encouraging movement to pol-
icies decoupled from production decisions and
market conditions. For example, the current draft
Doha text implies that permitted U.S. annual sup-
port as notified in its annual Current Total
AMS
(
CTAMS) would decrease to $7.6 billion (from the
current ceiling of $19.1 billion) and new product-
specific
AMS caps would be imposed (WTO
2008). The
ACRE program raises questions re-
garding compliance with these potential U.S.
WTO commitments.
Under the 2008 Farm Bill, farmers and land-
owners have a choice between the traditional
farm program suite and the
ACRE farm program
suite. For the first year that the
ACRE program
suite was available, preliminary sign-up results in
2009 indicated that for the three largest-acreage
eligible crops the shares of corn, soybean, and
wheat base acres enrolled in
ACRE was 15.6 per-
cent, 15.3 percent, and 12.7 percent, respectively
(USDA 2009a). The sign-up decisions of farmers
and landowners reflect their weighing of the
trade-off of reduced direct payments and lower
loan rates in exchange for eligibility for the reve-
nue risk assistance payments in the context of
their farm’s situation and their anticipation of
future market conditions. While not large, the
initial double-digit sign-up rates for these large-
acreage crops is likely high enough that
ACRE or
similar programs will remain part of the debate
about farm policy in the coming years. For this
reason, understanding the performance character-
istics of this new program design versus the tradi-
tional programs is important.
In this article, we contrast and compare the dif-
ferences in the level and temporal flow of pay-
ments by the
ACRE and traditional program suites
as alternative policy designs for corn, soybeans,
and wheat. First, we conduct a historical, counter-
factual analysis of the payments that the
ACRE
program suite would have made had it existed in
place of the traditional programs suite during the
1996–2008 crop years. These counterfactual
ACRE
payments are compared with actual payments
made to farmers during these crop years. Second,
we forecast payments to corn, soybeans, and
wheat by the traditional and
ACRE suites over the
2009–2012 crop years.
In keeping with our objective to examine the
performance characteristics of the two farm pro-
gram suites as alternative policy designs, we as-
sume for both the historical and forecast analysis
that all acres of the three crops are either in the
traditional suite or in the
ACRE suite. Our objec-
tive is not to model the sign-up decisions of pro-
ducers. Actual expenditure on farm programs
over the 2009–2012 crop years will depend on the
sign-up decision as well as the cost of each pro-
gram option. Estimates of these expenditures can
be derived from our results by parametrically
applying the initial or other assumed future sign-
up rates.
The next two sections of this article contain a
discussion of the policy foundations of the
ACRE
program and the ACRE provisions in the 2008
Farm Bill. Parameters and procedures of the two
analyses are then presented, followed by a discus-
sion of the results for U.S. support payments and
their implications under existing and potential
U.S.
WTO commitments. A concluding section
summarizes and highlights some policy design is-
sues raised by our analysis.
Current Programs versus
ACRE Programs
Current farm programs provide three types of
support: fixed direct payments, marketing loan
payments, and counter-cyclical payments. Direct
payments are a specific dollar amount per histori-
cal base acre. The dollar amount does not change
with market prices or with the level of produc-
tion, and thus the United States notifies these pay-
ments to the
WTO under the Green Box.
1
The policy objective of the marketing loan and
counter-cyclical programs is to assist farmers with
managing the systemic (i.e., market) risk of low
prices that can last from one year to an extended
period of years. This objective is implemented
through fixed marketing loan and counter-cyclical
support rates. Payments occur if market price drops
below the support rate, which thus becomes a
floor on the per unit value of a crop. Marketing
1
Expenditures classified in the Green Box are exempt from the Uru-
guay Round limit on CTAMS if a program meets certain criteria de-
fining it to be at most minimally distorting to trade. Expenditures in the
Blue Box are exempt from the limit on CTAMS because they are
associated with production-restricting programs. In addition, the de
minimis criteria exempt support for specific commodities and for a sin-
gle non-product-specific category from the CTAMS if it is less than 5
percent of the value of production.

Zulauf and Orden The Revenue Program Option in the 2008 U.S. Farm Bill 519
loan payments are based on current production
and prices, and thus are coupled under
WTO rules
and notified as product-specific
AMS. Counter-
cyclical payments are based on current prices but
historical production. The United States currently
classifies them in its non-product-specific
AMS.
The policy objective of the
ACRE revenue pro-
gram is to assist farmers with managing the sys-
temic risk of a decline in crop revenue that can
extend from one to a short period of years, but to
avoid creating a floor (Zulauf, Dicks, and Vitale
2008). Revenue is defined as the product of U.S.
crop (marketing) year season average cash price
received by farmers and the state yield per planted
acre. A state revenue payment becomes available
for a crop when actual state revenue is less than
the state’s revenue risk assistance level. Because
ACRE’s risk assistance level is calculated using
moving averages of lagged U.S. prices and state
yields, its risk assistance level increases (de-
creases) over consecutive years as market revenue
increases (decreases). Thus, no floor exists on rev-
enue. However,
ACRE can provide assistance when
revenue declines but prices remain above the
fixed marketing loan and counter-cyclical support
prices.
ACRE Program Provisions
The decision to elect
ACRE begins with covered
crops harvested in 2009 (USDA 2009a, U.S.
Congress 2008). There are 22 covered crops, in-
cluding barley, corn, upland cotton, oats, peanuts,
sorghum, soybeans, and wheat.
ACRE must be
elected for a farm unit as recorded at the Farm
Service Agency (an
FSA farm); if no choice is
made, the
FSA farm remains in the traditional
farm program suite. As long as an
FSA farm is not
in
ACRE, the election of ACRE remains open.
Once
ACRE is elected, the FSA farm is enrolled
through the 2012 crop.
ACRE must be elected for
all covered crops grown on the
FSA farm; how-
ever,
ACRE payments are crop-specific.
An
ACRE revenue payment can occur if a
state’s actual revenue per planted acre is less than
the state’s revenue risk assistance level per
planted acre for a crop for a crop year.
(1)
ACRE revenue risk assistance level
2
per
2
Separate revenue risk assistance levels exist for irrigated and non-
irrigated land if at least 25 percent of a state’s planted acres are irri-
gated and at least 25 percent are non-irrigated.
planted acre for state j, crop s, and crop
year t = {0.90 u [Olympic average yield
per planted acre for 5 most recent prior
crop years
j,s,t
] u [average U.S. cash price
for 2 most recent prior crop years
s,t
]}
(2)
ACRE actual state revenue per planted
acre for state j, crop s, and crop year t =
{[yield per planted acre
j,s,t
] u [higher of
U.S. average price
s,t
or 70 percent of U.S.
marketing loan rate
s,t
]}.
ACRE’s revenue risk assistance level cannot in-
crease more than 10 percent from the prior year’s
level (called a cap) nor can it decrease more than
10 percent from the prior year’s level (called a
cup). The 10 percent cup, along with the use of
historical moving averages, means that
ACRE
should provide farmers a longer period of time
than the market provides to adjust to large, unex-
pected declines in market revenue. But, since
there is no floor, farmers eventually have to ad-
just to lower market revenue if it persists over
several years.
An
FSA farm eligibility condition also exists.
Specifically, an
FSA farm’s actual revenue must
be less than the
FSA farm’s benchmark revenue
for the crop.
(3)
ACRE benchmark revenue per planted
acre for
FSA farm i for crop s and crop
year t = {[Olympic average of
FSA farm’s
planted yield for 5 most recent prior crop
years
i,s,t
] u [average U.S. cash price for 2
most recent prior crop years
s,t
] + [FSA
farm’s per acre insurance premium
i,s,t
]}
(4) Actual revenue per planted acre for
FSA
farm i for crop s and crop year t = {[
FSA
farm’s yield per planted acre
i,s,t
] u [U.S.
average price
s,t
]}.
An
ACRE revenue payment is made to an FSA
farm for an eligible crop when both the state pay-
ment condition is met and the
FSA farm eligibility
condition is met. A state’s
ACRE revenue pay-
ment per planted acre is capped at 25 percent of
the state’s risk assistance level.
(5)
ACRE revenue payment for eligible FSA
farm i in state j for crop s and crop year

520 October 2010 Agricultural and Resource Economics Review
t = {[83.3 percent of FSA farm’s planted
acres
i,s,t
(becomes 85 percent for 2012
crop)] u [lesser of (
ACRE state revenue
risk assistance level per planted acre
j,s,t
minus state actual revenue per planted
acre
j,s,t
) or (25 percent of ACRE state rev-
enue risk assistance level per planted
acre
j,s,t
)] u [(FSA farm’s Olympic average
yield for 5 most recent prior crop years
i,s,t
)
/ (state’s Olympic average yield for 5
most recent prior crop years
j,s,t
)]}.
While
ACRE revenue payments to an FSA farm
depend on the acres planted to each eligible crop,
an
FSA farm cannot receive ACRE revenue pay-
ments on more acres than the
FSA farm’s total
base acres. For most eligible crops, planted acres
align with the conventional definition. However,
for barley, corn, oats, sorghum, and wheat,
FSA
defined planted acres as harvested acres plus
acres reported as failed acres to
FSA. Failed acres
are acres that were intended for harvest but were
not actually harvested.
For each payment entity,
ACRE fixed direct
payments cannot exceed $32,000, or 20 percent
less than the $40,000 limit for traditional program
direct payments. For each payment entity,
ACRE
state revenue payments cannot exceed $65,000,
the limit on counter-cyclical payments, plus the
amount equal to the payment entity’s 20 percent
reduction in direct payments. The 2008 Farm Bill
removed payment limits on the marketing loan
program.
Analytical Procedures
The historical, counterfactual analysis was con-
ducted beginning with the 1996 crop year. The
Federal Agriculture Improvement and Reform
Act of 1996 (1996 Farm Bill) eliminated annual
land set-asides; gave farmers additional flexibility
to make planting decisions, except for restrictions
on planting fruits, vegetables, and wild rice on
base acreage; eliminated most public stocks pro-
grams; and instituted fixed income payments
(Nelson and Schertz 1996). These changes subs-
tantively altered the structure of farm support
programs and had implications for their impact on
production decisions and market prices (Orden,
Paarlberg, and Roe 1999, Schertz and Doering
1999). Thus, the 1996 and later crop years are
more representative of current crop production
incentives and market conditions than years prior
to 1996. The historical, counterfactual analytical
period ended with the 2008 crop year, the latest
year for which information was available on final
prices, yields, and acres, and the last year for
which
ACRE was not available as a support op-
tion.
Direct income, marketing loan,
3
counter-cyc-
lical, market loss, and oilseed programs made
payments to corn, soybeans, and wheat over the
1996–2008 crop years (USDA 2009b). The direct
income payment and marketing loan programs
were included in the 1996 and subsequent farm
bills. In response to large declines in farm prices
and incomes, Congress instituted on an ad hoc
basis market loss payments for corn and wheat
for the 1998–2001 crop years and oilseed pay-
ments for soybeans for the 1999 and 2000 crop
years. These programs became the counter-cycli-
cal program in the Farm Security and Rural In-
vestment Act of 2002 (USDA 2008).
For the counterfactual analysis,
ACRE state
revenue payments were calculated for corn for
grain,
4
soybeans, and wheat using observed U.S.
crop year cash prices, state production, state
planted acres for soybeans, and state harvested
acres plus state
FSA failed acres for corn for grain
and wheat.
5
Information was available for states
that accounted for over 99 percent of U.S. corn,
soybean, and wheat production (USDA 2009d).
Data started with the 1991 crop year in order to
construct the 5-year Olympic moving average of
state yields for 1996. We contrast the estimated
counterfactual payments assuming all corn for
grain, soybean, and wheat acres were enrolled in
the
ACRE program with the actual payments made
by the traditional programs during the 1996–2008
crop years.
3
Loan deficiency and market loan loss payments compose marketing
loan payments.
4
Corn harvested as silage is eligible for farm programs and thus for
election into ACRE. However, to simplify the calculations, the analysis
was conducted only for corn harvested for grain. Over the 1996–2008
crop years, harvested plus failed corn silage acres averaged 6.1 million
acres, while harvested plus failed corn for grain acres averaged 71.9
million acres. Corn for silage acres averaged 7.8 percent of all corn
acres over the 1996–2008 crop years.
5
Failed acres were obtained from the Farm Service Agency. The first
available crop year was 1995. For the 1991–1994 crop years, failed
acres were estimated for state s and year t using the following linear re-
gression and the data available for the 1995–2008 crop years: Failed
acre
s,t
= f (planted acres
s,t
– harvested acres
s,t
).

Zulauf and Orden The Revenue Program Option in the 2008 U.S. Farm Bill 521
The second part of our analysis is a forecast
comparison for the 2009–2012 crop years. As
with the counterfactual analysis, the primary ob-
jective is to compare payments for the traditional
suite of farm programs and the
ACRE suite of
farm programs assuming only one suite or the
other is available. The forecast analysis is cen-
tered on the USDA forecasts of national U.S.
acres, prices, and yields for the 2009–2012 crops
(USDA 2009c). Payments are estimated for both
the traditional suite of programs and the
ACRE
suite of programs.
In our analysis, U.S. yield per planted acre for
soybeans for crop year t was calculated as [(fore-
cast U.S. production
t
) / forecast U.S. planted
acres
t
)]. For corn and wheat, U.S. yield per
planted acre for crop year t was calculated as
{[forecast U.S. production
t
] / [forecast U.S. har-
vested acres
t
u (U.S. failed plus harvested acres
in 2004–2008 / U.S. harvested acres in 2004–
2008)]}. The U.S. forecasts for acres, prices, and
yields for crop year t were turned into forecasts
for individual states as follows: {U.S. forecast
acres
t
(or prices
t
or yields
t
) u [(average state
acres (or price or yield) for 2004–2008) /
(average U.S. acres (or price or yield) for 2004–
2008)]}. These forecasts are the baseline values
for each crop year. The forecast U.S. prices, state
acres, and state yields are used to estimate
ACRE
state revenue payments. The forecast U.S. prices
and forecast state prices are used to estimate
counter-cyclical and marketing loan payments,
respectively.
For the 2009 crop year, the
ACRE state revenue
risk assistance levels announced by the FSA (USDA
2009a) are used. The risk assistance levels are
then updated for the 2010 through 2012 crop
years, using the USDA forecast of U.S. price and
the state yield forecasts derived from the USDA
forecasts of U.S. yield.
Figure 1 presents the U.S. average crop year
prices of corn, soybean, and wheat for the 1991–
2008 crop years as well as the prices forecast by
USDA for the 2009–2012 crop years. Also shown
in Figure 1 is the gross revenue per acre obtained
by multiplying the U.S. average crop year price
by the U.S. average yield per planted acre for
each crop. Over the 2009–2012 forecast period,
there is a slight downward trend in corn price and
revenue. After a one-year decline from 2008 to
2009, soybean and wheat prices and revenue
decline slightly or are stable. Thus, the USDA
forecasts reflect a continuation of the increased
levels of prices and revenue that occurred during
2007 and 2008. However, prices and revenue are
unlikely to remain as smooth as forecast by USDA.
We incorporate this uncertainty about prices
and revenue for 2009–2102 into our analysis as
follows. Percentage deviations of state planted
acres, state yield per planted acre, and U.S. crop
year price are calculated for each crop year from
1996 through 2006 relative to the moving average
for the prior five years (e.g., the difference of the
U.S. average price for crop year t from the aver-
age of the U.S. prices for crop years t –1 to t – 5
is expressed as a percentage, and likewise for
yields and acreage). These calculations result in
11 sets of percentage deviations which are ap-
plied to the USDA forecast of U.S. prices and the
forecasts derived for state acres and yields for
each crop year from 2009 through 2012.
ACRE
state revenue payments, as well as marketing loan
and counter-cyclical payments, are estimated for
each set of percentage deviations.
The averages of the 11 estimates of payments
are the forecasted mean expenditures on the farm
program for the given crop year in our analysis,
assuming the benchmark USDA forecasts for the
crop year, the historically observed percentage
deviations for crop years 1996 through 2006, and
that all acreage is enrolled in the specific pro-
gram. The mean values of our forecast prices and
revenue remain essentially at the levels of the
USDA forecasts, but our estimates of the average
level of farm support reflect the variability that
would result from the applied sets of percentage
deviations around the initial forecasts.
The percentage deviations for the 2007 and
2008 crop years are not included in the sets of
deviations affecting the forecasts. The prices of
corn, soybeans, and wheat were substantially
higher during these two crop years than during
the 1996–2006 period (Figure 1). Including the
large percentage increase in prices for the 2007
and 2008 crop years would have increased the
average percentage deviation (taking upward and
downward price movements into account) of U.S.
price from the one to two percent range for the
1996–2006 period to the nine to twelve percent
range for the 1996–2008 period. Thus, including
the percentage increases for 2007 and 2008
would have resulted in a mean price forecast
across the sets of percentage deviations that would

Citations
More filters

01 Jan 2015
Abstract: The Agricultural Act of 2014, signed February 7, 2014, introduces a new era of federal support in the production of major agricultural commodities in the United States for the 2014 through 2018 crop years. The ultimate result of the Act was a 954-page piece of legislation that represented market-oriented policies such as the creation of an area-wide shallow loss revenue support program for covered commodities and a greater reliance on crop insurance products offered as a suite of risk management tools available to producers. The impact that this law has on agricultural producers in the Mississippi River delta region of the Mid-south is not yet fully known. Moving forward, the elimination of the direct payment program is likely to have an impact on farm income, as these payments were made annually and were decoupled from actual market prices. Various combinations of federal farm programs, chosen irrevocable, paired with multiple crop insurance products, that are purchased annually, will act to mitigate the risks of production. Simulation analysis provides a basis for evaluating the variability associated with production systems in the Mississippi River delta region. Three representative rice and soybean farms and six corn, cotton, and soybean farms were modeled as to determine the five year net returns resulting from price and yield risk as well as to evaluate alternative farm program and crop insurance selection. Financial performance of these farms is measured for varying levels of risk using a stochastic efficiency criteria. Results are presented for multiple combinations of the agriculture risk coverage and price loss coverage programs of the commodity title and revenue protection, supplemental coverage option endorsement, and the stacked income protection plan for producers of upland cotton contained in crop insurance title of the current farm law. For each farm at each location, an estimate to the net present value of the cumulative net returns above variable costs to the producer for the five year life of the farm bill is provided. Results from xi different farming operations suggest the preferred pairing of farm programs and crop insurance policies does vary across locale and crops.

5 citations


Cites background from "The Revenue Program Option in the 2..."

  • ...Zulauf and Orden, 2010, state that the policy objective of the ACRE revenue program is to assist farmers with managing the systemic risk of a decline in crop revenue that can extend from one to a short period of years, but to avoid creating a floor....

    [...]

  • ...A comparison of current to previous DP and CCP farm programs to that of the ACRE program are contained in Zulauf and Orden, 2010....

    [...]


Posted ContentDOI
01 Feb 2013
Abstract: Movement toward the objective of undistorted world agricultural markets has been set back by the lapse since 2008 of the WTO Doha Round negotiations. In the absence of a new agreement, constraints on distortionary agricultural domestic support remain lax. One might have expected policies of subsidizing farmers to have faded in the high-price environment since 2008. But that is not the case. In both the US and EU, agricultural support policy is under review and new options are being devised. Likewise, support for agriculture has increased in key emerging economies. In the US, in particular, the next farm bill likely will contain support measures that would have been harder to enact if a Doha Round agreement were coming into effect. This paper reviews these developments and their implications for trade and future trade negotiations. The WTO commitments of the BRIC countries (Brazil, Russia, India and China) and their levels of agricultural support are examined, including the domestic support commitments of Russia under its accession to the WTO in 2012.

3 citations


Cites background from "The Revenue Program Option in the 2..."

  • ...ACRE was the first such program of revenue insurance based on a moving average of past revenue authorized by a farm bill (Zulauf and Orden, 2010)....

    [...]


Posted Content
01 Jan 2011
Abstract: The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) provides farm commodity program participants with the choice of a traditional suite of fixed direct payment, marketing loan, and price counter-cyclical programs or a new Average Crop Revenue Election (ACRE) program suite. The ACRE suite consists of (1) 80 percent of the traditional program‟s direct payments, (2) marketing loans at 70 percent of the traditional program‟s loan rate, (3) and a new state revenue program. In a departure from the traditional farm programs, the ACRE state revenue program explicitly contains a differentiation by production practice. Specifically, separate ACRE state revenue benchmarks are established for dryland and irrigated acres if total acres planted to a crop in a state are at least 25% dryland and 25% irrigated.

1 citations


01 Jan 2012

1 citations


Cites background from "The Revenue Program Option in the 2..."

  • ...Zulauf and Orden (2010) took a historical 15 perspective in evaluating national ACRE program costs in lieu of CCPs and a reduction in DPs during the 1996 to 2008 period and forecasts for 2008 to 2012....

    [...]



References
More filters

Posted Content
Abstract: This report provides an item-by-item description and explanation of the new Act, which will guide agricultural programs from 1996-2000. Signed into law in April, the act makes significant changes in long-standing U.S. agricultural policies. Major changes in U.S. commodity programs are included in the Act's Title I, known as the Agricultural Market Transition Act.

57 citations


Book
01 Jan 1999
Abstract: Despite substantial transformations in American agriculture, farm program spending remains a closely guarded prerogative of United States agricultural policy. Policy Reform in American Agriculture examines both the history of farm subsidies and the contemporary relevance of traditional farm programs to today's agricultural industries. This work analyzes the mixed performance of past agricultural support programs, reviews the current debate concerning farm policies, and critically assesses the often staunch political resistance to much-needed policy reforms. Casting a keen eye toward the most recent developments on both national and international fronts, the authors consider the ramifications of the 1996 Federal Agriculture Improvement and Reform (FAIR) Act as well as multilateral efforts to gain agricultural reform during the Uruguay Round of GATT. Their prognosis hinges upon both the continued growth and competitiveness of the world market and, perhaps more importantly, the ongoing commitment of congressional reform advocates.

41 citations


Book
18 Jan 2000

32 citations


"The Revenue Program Option in the 2..." refers background in this paper

  • ...These changes substantively altered the structure of farm support programs and had implications for their impact on production decisions and market prices (Orden, Paarlberg, and Roe 1999, Schertz and Doering 1999)....

    [...]


Posted Content
01 Jan 1999
Abstract: Despite substantial transformations in American agriculture, farm program spending remains a closely guarded prerogative of United States agricultural policy. Policy Reform in American Agriculture examines both the history of farm subsidies and the contemporary relevance of traditional farm programs to today's agricultural industries. This work analyzes the mixed performance of past agricultural support programs, reviews the current debate concerning farm policies, and critically assesses the often staunch political resistance to much-needed policy reforms. Casting a keen eye toward the most recent developments on both national and international fronts, the authors consider the ramifications of the 1996 Federal Agriculture Improvement and Reform (FAIR) Act as well as multilateral efforts to gain agricultural reform during the Uruguay Round of GATT. Their prognosis hinges upon both the continued growth and competitiveness of the world market and, perhaps more importantly, the ongoing commitment of congressional reform advocates.

29 citations


Posted Content
Abstract: Farm support programs based on price have been an integral part of farm policy since the 1930s. However, two concerns have emerged with existing price–based programs. One is that the current marketing loan and counter–cyclical programs provide little protection when yields are low. Widespread reduction in yields raises prices and reduces or eliminates payments from these two programs while localized reduction in yields reduce marketing loan payments for affected individual farms because marketing loan payments are based on production. The second concern is that farmers can receive marketing loan and counter–cyclical payments even when revenue is above average because high yields more than offset low prices. After decades of debate, a revenue assurance program finally became a reality in the new Food, Conservation and Energy Act of 2008. Specifically, farmers are offered the choice of the following program options:

18 citations


"The Revenue Program Option in the 2..." refers background in this paper

  • ...The policy objective of the ACRE revenue program is to assist farmers with managing the systemic risk of a decline in crop revenue that can extend from one to a short period of years, but to avoid creating a floor (Zulauf, Dicks, and Vitale 2008)....

    [...]


Frequently Asked Questions (2)
Q1. What contributions have the authors mentioned in the paper "The revenue program option in the 2008 u.s. farm bill: evaluating performance characteristics of the acre program" ?

Had only a farm program like the new ACRE state revenue program existed instead of the authorized 1996–2008 programs for corn, soybeans, and wheat, farm support expenditures would have occurred earlier but totaled less. The design issues and policy questions raised for both domestic policy considerations and WTO compliance are discussed. 

While this question has received little attention, the answer to it within the context of the market conditions that will prevail in future years has significant implications both for the design of domestic policy instruments as well as for the development of compliance rules within WTO. Both the current rules of the Uruguay Round and the potential rules of the Doha Round will continue to allow expenditures on programs that are tied to current production and/or prices. The answers are not obvious but provide a rich opportunity for economists to contribute to this debate, ranging from more robust estimates of core economic parameters, such as intertemporal and spatial price and revenue correlations, to empirical assessments of alternative policy designs as conducted herein, to further assessments of the political economy of farm policy options, to the development of new theoretical constructs with which to frame the economic and policy discussion.