Payments by farm production associated programs aside from farm rate and earnings assistance and crop insurance coverage to United States farms have actually been significant given that 2017. They have actually resolved trade interruptions from tariff wars; production losses from cyclones, dry spell, fire, and other natural catastrophes; and COVID pandemic interruptions. These kinds of payments nevertheless have a longer history. This post analyzes them in historic context along with their circulation throughout states. They are discovered to be countercyclical to net farm returns. Although bigger in 2020-2022, the circulation throughout states is normally comparable to that of previous years. The continuous, substantive size of these payments highlights that it is time to acknowledge them as a 3rd pillar of the United States farm safeguard. It is likewise time for conversation of what need to be the distinct, non-overlapping functions of the 3 pillars: product programs, insurance coverage, and other farm production associated help.
Data and Methods
The information in this post are from the farm earnings and wealth information set kept by USDA, ERS (United States Department of Agriculture, Economic Research Service). The most recent update of February 7, 2023 includes nationwide information through the 2022 fiscal year and state information through the 2021 fiscal year. The analysis begins with 1998. It is the very first year USDA, ERS reported a classification called, advertisement hoc and emergency situation program payments. A most likely factor for its look in 1998 is that Congress licensed big advertisement hoc payments (i.e., payments outside the farm expense) to attend to a sharp decrease in farm item need, costs, and earnings triggered in part by a global monetary crisis.
It is unclear based upon the documents accompanying the farm earnings and wealth information set what program payments are consisted of for many years in the advertisement hoc and emergency situation program classification For 2020-2022, the classification is broken out into 3 subcategories. One is “USDA COVID-19 pandemic assistance,” that includes payments from the Coronavirus Food Assistance Programs (CFAP). The 2nd is “non-USDA pandemic assistance,” that includes forgiven loan quantities from the Small Business Administration’s Paycheck Protection Program (PPP). The 3rd is “other supplemental and ad hoc disaster assistance.” It consists of payments from the Wildfire and Hurricane Indemnity Program+ (WHIP Plus), Emergency Relief Program (ERP), Quality Loss Adjustment (QLA) Program, other farm expense designated catastrophe programs, and Emergency Livestock Relief Program.
It is unclear how to jointly identify these programs. Some however not all are weather-related production catastrophe help programs. Some however not all are advertisement hoc. The most suitable description seems “farm production related payments outside price and income support programs and crop insurance.” It was for that reason chosen to consist of payments noted as various in this research study. Since 1998, they have actually been 0.7% of overall payments taken a look at in this research study. Market Facilitation Payments (MFP) are likewise consisted of in this analysis.
Farm Production Related Payments outdoors Price and Income Supports and Crop Insurance
These payments somewhat went beyond $8 billion / year in 1999, 2000, and 2001; balanced $1.7 billion / year over 2002-2017; increased to $6 billion in 2018; then went beyond $11 billion each year over 2019-2022, consisting of $35.2 billion in 2020 (see Figure 1). They amount to $143 billion over 1998-2022 and $77 billion if 2020-2022 are left out. Over 1998-2022, product program payments amount to $192 billion (USDA, ERS farm earnings and wealth information), and crop insurance coverage indemnities web of farm-paid premiums amount to $89 billion (USDA, Risk Management Agency Summary of Business). Farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage has actually been a significant part of the United States farm safeguard given that 1998 even if recent big advertisement hoc help is left out.
Countercyclical Payments
Figure 2 takes a look at the relationship in between farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage and net farm money earnings. To represent increasing worths in time, both are revealed as a ratio to gross farm money earnings. United States farm sector net money and gross money earnings are utilized rather of a subset, such as field crop or program crop earnings, due to the fact that this help has actually been offered to a broad selection of farm products, consisting of fruits, veggies, nuts, animals, and animal items.
The ratio of (farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage) to (gross farm money earnings) has actually been greatest when the ratio of (net farm money earnings omitting payments beyond rate and earnings assistance programs and crop insurance coverage) to (gross farm money earnings) has actually been least expensive. These payments have actually hence been countercyclical to adjusted net farm money earnings. Regression analysis discovers this countercyclical function to be considerable with 99% analytical self-confidence whether the big payment year of 2020 is consisted of or left out (see Data Note 1). Farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage balanced 4.6% of gross farm money earnings in 2020-2022 vs. 1.2% over 1998-2019. A concern of interest is whether such future help will follow the 2020-2022 or pre-2020 course.
State Shares
Texas (8.9%) and Iowa (7.4%) got the biggest share of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage in between 1998 and 2021 (see Figure 3, vertical axis). The next state is Illinois with a 5.9% share.
State share of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage and state share of United States net farm money earnings minus these payments (hereafter, adjusted net money earnings) are favorably associated (see Figure 3). Their connection is +0.76. State share of adjusted net money earnings hence discusses 58% (0.76 squared) of the variation in state share of these payments. For the states recognized in Figure 3, the 2 shares vary by more than one basic variance or 1.5 portion points (pp). California has without a doubt the biggest distinction: 8.8 pp (4.9% of payments vs.13.8% of United States adjusted net money earnings). North Carolina is the just other state whose share of payments is more than 1.5 pp smaller sized than its share of adjusted net money earnings, particularly 1.6 pp smaller sized. Except for Illinois, the states whose share of payments surpassed their share of United States adjusted net farm money earnings by 1.5 pp or more remain in the United States plains. This location is frequently defined as having a greater threat for crop production.
A contrast of state shares of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage for 2020-2021 vs. 1998-2019 discovers a strong relationship and 2 striking outliers (see Figure 4). California’s share in 2020-2021 is more than double its 1998-2019 share (7.6% vs. 3.1%). Texas’ share in 2020-2021 is 4.5 pp smaller sized (6.3% vs. 10.8%). If California and Texas are eliminated, state share of payments in 1998-2019 discusses 90% of state share in 2020-2021. The slope coefficient is +0.95. It does not vary statistically from +1.0. This finding indicates that, when California and Texas are left out, the circulation of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage throughout states as a group did not vary throughout the duration of COVID pandemic help from the duration prior to COVID help.
Discussion
Farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage have actually been a significant, continuous function of the United States farm safeguard given that 1998.
The circulation of these payments throughout states normally follows the circulation of United States farm production throughout states, although exceptions exist.
These payments have actually likewise been countercyclical to net farm returns, a description frequently used to Title 1 product programs.
The continued existence of these payments, that includes big advertisement hoc farm payments, is at chances with a typical farm policy story / unbiased dating to the early 1980s that crop insurance coverage would change advertisement hoc farm help. Crop insurance coverage has actually not removed advertisement hoc help. It has nevertheless most likely minimized it. Lack of a boost in advertisement hoc help throughout the serious dry spell of 2012 assistances this ramification (see Figure 1).
Historical experience recommends the main policy reaction to big expenses outside product and crop insurance coverage programs has actually been for Congress to record them by developing brand-new or revamping existing product and crop insurance coverage programs. See the farmdoc day-to-day post of July 29, 2020 for a conversation of this experience and its ramifications.
The main issues revealed about help beyond rate and earnings assistance programs and crop insurance coverage are its unpredictable timing and quantity. The issue about timing follows experience. Ad hoc help in specific normally follows the occasion triggering tension, often well after the occasion. However, the big expenses for this kind of farm help given that 1998 recommends the issue about quantity is likely less than the rhetoric recommends.
A prospective enhancing cycle of increasing help is possible. Members of Congress like to be viewed as being responsive to stress-inducing occasions. It is a natural human reaction. However, if big help beyond standing program help is developed into greater standing help, the next stress-inducing occasion will likely result in brand-new, non-standing program help, which might consequently be developed into greater standing help. And, so on. Reinforcing cycles require to be thoroughly evaluated as their result can be unsustainable, even destabilizing.
The preceding points trigger this concern: “Is it time to accept farm production related payments outside of price and income support programs and crop insurance as a third pillar of the US farm safety net, along with commodity programs and insurance?” This post recommends the response is “yes.”
If the policy procedure figures out that the response is undoubtedly “yes,” the following concern occurs: “What does good policy suggest should be the dividing lines between standing programs, such as crop insurance and commodity programs, and other farm production related assistance?” Stated additionally, “What should be their unique, non-overlapping roles and design?”
In light of the continuing, big existence of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage and offered the value of the 2 concerns positioned above, it might be suitable for the next farm expense to license a panel of farm safeguard specialists and stars to provide believed to these fundamental farm safeguard concerns.
Data Note
The regression formula for 1998-2022 is: ((ratio of farm production associated payments beyond rate and earnings assistance programs and crop insurance coverage) to gross farm money earnings) = +0.09 – 0.30 ((ratio of adjusted net farm money earnings) to (gross farm money earnings)) + 0.03 (dummy variable for 2020-2022). The regression coefficients when 2020 is left out are +0.07, – 0.23, and +.02, respectively. All coefficients and formulas are considerable with 99% analytical self-confidence other than for the dummy variable in the formula omitting 2020. It is considerable with 98% analytical self-confidence. Explanatory power was 63% for the 1998-2022 formula and 37% for the formula omitting 2020.
References and Data Sources
United States Department of Agriculture, Economic Research Service. Farm Income and Wealth Statistics. April 2023. Data: https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/; Documentation: https://data.ers.usda.gov/reports.aspx?ID=178331
United States Department of Agriculture, Risk Management Agency. March 2023. Summary of Business. https://www.rma.usda.gov/SummaryOfBusiness
Zulauf, C., G. Schnitkey, J. Coppess, N. Paulson and K. Swanson. “Ad Hoc Payments: A Leading Indicator of Farm Policy Change.” farmdoc day-to-day (10):140, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 29, 2020.
