In a last-ditch effort to make a case to sustain the president’s expected veto of the 2008 Farm Bill, USDA officials are attempting to create confusion and concern over the new Average Crop Revenue Election (ACRE) program. We understand and share their desire for more reform in the Farm Bill, but resorting to misleading statements and faulty assumptions to support a veto override is wrong. Congress and the American people deserve better. They deserve honest, straightforward answers.
The ACRE program is an important element of reform that is not well understood. Current subsidy programs have been criticized for distorting the market, being linked to politically set prices, paying out when farmers don’t have losses, and receiving direct payments for doing nothing. ACRE significantly reforms how U.S. commodity programs operate addressing each of these areas. It reduces market distortions and lowers loan deficiency payment rates, cuts direct payments and saves money. ACRE is an option to replace the politically set fixed price-based support programs with a revenue-based program that links to market prices. And it requires producers to prove they have suffered a loss before receiving payments.
1) ACRE is more market oriented and results in less distortion by using a revenue target that moves with the market rather than being based on targets set by Congress. Farmers make production decisions based on actual forecasts rather than “planting for the program.”
2) ACRE pays farmers only when they face a real loss in revenue unlike current programs in which producers are not required to show that they have suffered a financial loss before they receive government commodity payments. ACRE thus helps restore the underlying notion of what a safety net should be—to provide assistance only when producers are in need and suffering a loss.
3) ACRE requires farmers to be responsible for the first portion of any revenue loss. As designed, the producer absorbs the first 10 percent of any loss.
4) ACRE cuts the Marketing Loan Program rates by 30 percent. This reduction begins to address one of our most troublesome international trade concerns, that has triggered WTO trade disputes.
5) ACRE cuts direct payments by 20 percent to pay for the new program and also generates savings used to help fund conservation, nutrition and other parts of the Farm Bill.
Further, the administration’s analysis and arguments about ACRE are flawed. Here are the facts to set the record straight:
1) USDA assumed an improbably high participation rate of 90 percent of all corn, soybean and wheat producers. The Congressional Budget Office, the independent and official budget analyst of federal government, assumed dramatically lower participation rates after investigating and talking to experts.
2) USDA focused on the worst-case scenario of a single crop year distorting the impact of the program. Because the decision to enter ACRE is irrevocable—a producer is not just deciding for 2009, but for the entire period of the Farm Bill—USDA’s analysis fails to incorporate that ACRE’s revenue target moves with the market. Thus, if prices decline, the revenue target declines and the total cost of the program declines. This has favorable trade implications. In short, the Administration is presenting one of many price scenarios, but making it appear as if it is the only one that will occur.
3) USDA incorrectly assumes a reduction in crop insurance participation. ACRE covers producers at the state level, not at the individual farm level. So farmers will still need crop insurance to cover any differences between state level yields and those on their own farms.
The administration may have its reasons to veto the Farm Bill despite the overwhelmingly bipartisan support in the House and Senate. Should there be more reforms in the Farm Bill? Yes. Does ACRE go far enough? There is no question ACRE is moving U.S. farm policy in the right direction. It represents the future of U.S. commodity policy. The choice is whether to support the new 2008 Farm Bill or extend existing policy. Without the new bill we lose all the improvements represented by ACRE, and all the gains in nutrition, conservation and renewable energy.