Function 350 - Agriculture
Limit ARC and PLC Payment Acres to 50 Percent of Base Acres
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
|Billions of Dollars||2017||2018||2019||2020||2021||2022||2023||2024||2025||2026||2017-2021||2017-2026|
|Change in Outlays||0||0||0||-0.1||-1.9||-1.8||-1.9||-1.8||-1.8||-1.8||-2.0||-11.1|
This option would take effect in June 2019.
The Agricultural Act of 2014 provides support to producers of covered commodities through the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs:
- ARC guarantees revenue at either the county level (ARC-County, or ARC-CO—accounting for most coverage) or the individual farm level (ARC-Individual Coverage, or ARC-IC). The program pays farmers when actual crop revenue in a given crop year is below the revenue guarantee for that year.
- PLC pays farmers when the national average market price for a covered commodity in a given crop year falls below a reference price specified in the law.
Eligibility under those programs is determined from a producer’s planting history. Only producers who have established base acres (that is, a proven history of planting covered commodities on their farms) with the Department of Agriculture under statutory authority granted by previous farm bills may participate. In general, growers with base acres for covered commodities (corn base acres, for example) need not plant a crop to receive payments.
When a payment for a crop is triggered, total payments are calculated by multiplying the payment rate (on a per-acre basis) by a producer’s payment acres for that crop. For ARC-CO and PLC, the number of payment acres equals 85 percent of base acres; for ARC-IC, it is 65 percent of base acres.
Beginning with the 2019 crop year, this option would limit payment acres for ARC-CO and for PLC to 50 percent of base acres and would make a comparable cut to ARC-IC (to 42 percent of base acres). Savings would largely begin in fiscal year 2021, when ARC and PLC payments for crop year 2019 would be made. Total savings over the 2019–2026 period would be $11 billion, the Congressional Budget Office estimates.
One argument in favor of this option is that it would limit program payments to nonfarmer landowners and on land no longer used to grow crops. The economics literature suggests that nonfarmer landowners capture between 25 percent and 40 percent—and sometimes up to 60 percent—of program payments through increased land rents; to the extent that program payments raise land values, new farmers face higher costs to buy land. Also, the benefits of farm program payments tend to accrue to larger farms, which may speed consolidation and make it harder for new farmers to enter. Finally, because only covered commodities are eligible for ARC and PLC support, the availability of those payments tends to encourage farmers to plant crops they might not otherwise plant.
An argument against this option is that farming is an inherently risky enterprise. Many growers favor the income stability fostered by federal programs.