The new farm bill was finally passed by Congress and signed into law by President Obama on Friday. It has a number of new farm program provisions, including changes to the federal crop insurance offerings.
Even though the bill is now law, the process of finalizing the law's rules and regulations is far from complete. USDA officials are analyzing and interpreting what is in the bill, and will write the rules that determine how the new farm programs will be carried out.
Steve Johnson, an Iowa State University Extension farm management specialist, explains some of the elements in the law and answers a few frequently asked questions below.
Q: What are some of the biggest changes in the farm bill?
A: The $956 billion bill, which is a five-year farm bill, immediately eliminates direct payments for all commodities except cotton. Instead of direct payments, the new bill offers farmers an enhanced farm financial safety net that includes crop insurance revisions and higher base-price levels (the crop price at which farmers could claim payment for losses).
As part of the bill, farmers will now have the opportunity to choose between Agricultural Risk Coverage or Price Loss Coverage depending on which program best suits individual farms. Along with that decision are options for varying degrees of crop insurance coverage and other supplemental programs to protect farmers from yield and revenue loss.
One thing the new farm bill does is greatly increase the options a farmer has. Farmers will have several programs to choose and use. They'll have to make some decisions and make them for a five-year timeframe, the length of the new bill. Farmers will have to look at a lot of information about their farms and the different options and think about which farm program choices will pay the best return over the next five years.
Some of what will help farmers decide is their experience with crop insurance. Because farmers, especially in the Midwest, make complex decisions each year about crop coverage, they'll have some familiarity with the process, even with the new options. As USDA officials work through the rule writing, it's important for farmers and others affected by this new farm bill to keep a close eye on how the various components develop.
"Although we've been watching this farm bill develop for the past few years, we all need to realize this process is still on-going," says Johnson. "If you see how a regulation or a rule for a farm program may affect you adversely, you can participate and let USDA know. If you are impacted by the farm bill, you need to follow the rulemaking and try to understand what your options are and how your farm program decisions on your farm will be affected."
Q: In general, explain how a new crop insurance program and safety net tools in the new farm bill will work.
A: The backbone of the farm financial safety net is in maintaining the strength of the crop insurance program, notes Dave Miller, an economist for the Iowa Farm Bureau. With crop insurance, farmers can invest in their own risk management by buying insurance so they are protected in difficult times.
Also, to protect crop farmers from down-turns in grain prices, the new bill introduces two new programs called Agricultural Risk Loss Coverage, or ARC, and Price Loss Coverage, or PLC. Farmers will be required to choose between one of those two programs after the rules are finalized by USDA.
The ARC program is designed to make payments to farmers on a portion of their shallow losses, the amount that isn't covered by crop insurance. USDA will provide payments to farmers if revenue falls below 86% of a five-year average.
The PLC program would work more like the traditional target price programs, which were a key part of earlier farm bills. The PLC program will make payments to farmers when crop prices fall below defined thresholds, or reference prices. The 2014 Farm Bill sets the corn reference price at $3.70 per bushel and the soybean reference at $8.40 per bushel, a U.S. average price.
Which of these two new programs will be most popular: ARC or PLC? It's still too early to know how the ARC and PLC programs will work for Iowa farmers. USDA still has to set the rules and make the budget allocations, so there aren't a lot of details available yet.
Q: Are the ACRE program and Counter-Cyclical Payments program that were in the 2008 Farm Bill in the new bill? And, what is the Supplemental Coverage Option that's in the new farm bill?
A: The answer to your first question is "No." ACRE and Counter-Cyclical are both eliminated by the new 2014 Farm Bill, says John Whitaker, state executive director of USDA's Farm Service Agency in Iowa.
Regarding the Supplemental Coverage Option, or SCO, the new farm bill will supplement traditional crop insurance coverage by allowing farmers to buy additional insurance under this option to cover part of the deductible. SCO coverage would be triggered only if losses exceed 14% of normal levels.
Q: The 2014 Farm Bill stipulates that farmers who participate in either of the new safety net programs (ARC or PLC) will be required to meet soil conservation compliance provisions. And if they don't keep their soil losses below certain allowable levels, farmers will lose farm program benefits. Also, for the first time, conservation compliance will apply to crop insurance. Please explain these key parts of the new legislation.
A: The new farm bill provides some strong soil and water conservation protections, even with $4 billion in spending cuts for conservation programs over the next 10 years.
It's important that key conservation programs were retained in the new bill. The Conservation Reserve Program, or CRP, the Conservation Stewardship Program, or CSP and the Environmental Quality Incentives Program, or EQIP were all retained. "Farmers need to have these programs as they continue to install soil conservation and water quality protection practices," says Craig Hill, president of Iowa Farm Bureau. "Farmers are committed to Iowa's voluntary nutrient reduction strategy to help reduce soil erosion and improve Iowa's water quality."
Regarding conservation compliance, the new bill requires farmers to protect highly erodible land and maintain wetlands, and a regional "sod saver" provision discourages converting prairies to row crops. Farmers who choose to drain wetlands or convert prairies to crop production would lose their crop insurance support. As to exactly how conservation compliance will be carried out in regards to crop insurance, details still need to be worked out by USDA. For example, would you lose your crop insurance benefits for one year, or longer?
Also in the new farm bill, USDA conservation programs have been consolidated from 23 to 13, eliminating duplication, and making it easier for farmers to access programs. U.S. Secretary of Agriculture Tom Vilsack believes the new conservation section in the farm bill will provide regulatory certainty for farmers and landowners, encouraging long-term investment in saving soil and protecting water quality. "I think we're going to see more conservation and more public-private partnerships," he says.
Vilsack adds, "Our nation is going to get smarter about conservation. One of the things we're doing is getting more effective research into what works and what doesn't."
Q: What's in the bill for livestock producers?
A: Many livestock farmers and people in the meat industry are disappointed the 2014 Farm Bill didn't make changes to the mandatory country-of-origin meat labeling rules, known as COOL. The COOL law says animals must be born, raised and slaughtered in the U.S. to be labeled a U.S. product. The COOL law has been challenged by Canada and Mexico as illegal according to the World Trade Organization rules. COOL could lead to tariff retaliation by Canada and Mexico on U.S. meat exports to those two countries.
Livestock organizations had hoped the new farm bill would have remedied the COOL situation, but it didn't.
The new farm bill overhauls the dairy program by establishing a new program that will allow farmers to purchase insurance to protect against negative margins. The program would pay based on a farmer's milk production history, which will rise based on national average milk production. Milk produced above that U.S. average would not qualify for the margin insurance coverage.
The U.S. House-Senate conference committee did not include a provision that would have prevented individual states from regulating food and livestock raised in one state from being sold in other states. Such a provision was proposed because California has a law regulating the size of cages for laying hens. The California law imposes that regulation on egg producers in other states who want to sell eggs in California.
Q: What happened to the proposal to lower the limits on farm program payments?
A: In the 2014 Farm Bill, payments per year for commodity programs are capped at $125,000 per person and $250,000 per couple for "actively engaged" farmers. The new farm bill directs USDA to define "actively engaged." Iowa Sen. Charles Grassley had pushed for stricter requirements on payment limits, but they were not included in the final bill. He wanted a $40,000 annual limit on primary farm program payments (double that for married couples). Also, the House-Senate conference committee removed provisions to close loopholes that allow large farms to collect multiples of the normal payment limit. Grassley is disappointed.
"My efforts on putting a hard cap on payment limitations stem from a need to get the farm program back to its original intent," he says. "In recent years 10% of the wealthiest farmers have received 70% of the benefit from the farm program. This puts small- and medium-sized farms at a disadvantage. Those are the very people the farm program is supposed to help. The committee leaders negotiating the final bill struck my simple, commonsense and enforceable provisions from the final bill. And $387 million in savings for the farm program are no longer realized."