Academic journal article Agricultural and Resource Economics Review

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

Academic journal article Agricultural and Resource Economics Review

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

Article excerpt

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. 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. …

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