The Agriculture Improvement Act of 2018: Initial review

By: Jonathan CoppessGary SchnitkeyNick PaulsonBenjamin GramigKrista Swanson, Department of Agricultural and Consumer Economics University of Illinois and Carl Zulauf, Department of Agricultural, Environmental and Development Economics, Ohio State University

On Monday Dec. 10, 2018, the House and Senate conference committee released the conference report for the Agriculture Improvement Act of 2018; the final version of the 2018 Farm Bill. On Tuesday, Dec. 11, 2018, the Senate moved quickly to pass the conference report with a final vote in favor of the farm bill of 87 to 13. On Wednesday, Dec. 12, 2018, the House voted overwhelmingly to pass the farm by 369 to 47 (16 not voting). Given that it passed by veto-proof majorities, it is likely that the President will sign it and the Agricultural Act of 2018 will soon become law.

From the beginning of the debate, the outlook for a farm bill in 2018 was clouded by concerns about relatively lower crop prices, the restricting parameters of the Congressional Budget Office (CBO) baseline and the political landscape in Congress. Before the farm bill debate began, however, Congress relieved much of the baseline pressure by returning cotton to the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs in Title I and improving dairy assistance in Title I and crop insurance. The House Agriculture Committee moved first but stumbled; intense partisanship, particularly over the Supplemental Nutrition Assistance Program (SNAP) in Title IV, dominated the House debate.

The Senate Agriculture Committee adhered to a more traditional path, moving through a largely status quo farm bill with strong bipartisan support. Resuscitated in the House but remaining a partisan exercise, the farm bill sailed through the Senate on one of the strongest votes in history but the two versions became stuck in a conference stalemate through the mid-term elections.

The biggest issues for conference were the controversial provisions for reducing the SNAP program and for eliminating the Conservation Stewardship Program (CSP) in the House farm bill. Ultimately, the conference stalemate appears to have been broken by the results of the mid-term elections combined with the political realities for SNAP.

The CBO cost estimate (score) reinforces the view that the bill is largely status quo. CBO estimates very little net change in spending: an increase of $1.8 billion through 2023, but sustained reductions in assumed outlays from 2024-2028 result in only a $70 million increase over the entire 10-year budget window.


Commodities (Title I)

In general, the 2018 Farm Bill continues the farm programs of the 2014 Farm Bill: Agriculture Risk Coverage (ARC); the Price Loss Coverage (PLC) program; and the Marketing Assistance Loans (MAL) with Loan Deficiency Payments (LDP). One of the key changes is to the election between ARC and PLC. In the 2014 Farm Bill it was a one-time election that could not be changed over the five-years of the bill. In the 2018 Farm Bill, however, the election is for the 2019 to 2020 crop years and beginning for the 2021 crop year, the farmer can change the ARC/PLC election each year. In all elections, PLC remains the default option.

A second major change to farm programs is an option to update program yields for PLC. Owners of an FSA farm will have a one-time option to update their program yields, but the formula is somewhat complicated. It operates in two steps: (1) 90% of the average yield for the 2013 to 2017 crop years, excluding any crop year in which the yield was zero; and (2) reduced by a ratio that compares the 2013 to 2017 national average yields per planted acre to the 2008 to 2012 national average yields.

Importantly, FSA is likely to use different yields based on its calculations of national average yield per acre. The effective ratio is multiplied by 90% to estimate a single yield update factor, which will be applied to the average yields on the farm for 2013 to 2017. In short, the yield update factor is the ratio indicating how much of the initial 90% of the 2013 to 2017 county average yields a farmer can claim in the update. For crops where the national average in 2008-2012 is close to the 2013 to 2017 national average, more of the maximum yield update (90% of 2013-2017 yields) can be captured.

In addition to the PLC program yield update option, the bill also includes changes to the calculation of yields for the ARC-CO program. Specifically, the plug yield is 80% of the transitional yield and is used in the ARC calculations to replace yields in any year that are below it. The revisions also require the Secretary to calculate a trend-adjusted yield factor to use for the benchmark calculation. This would effectively use trend-adjusted yields used in crop insurance where applicable.

For PLC, the statutory reference prices for covered commodities remain the same as in the 2014 Farm Bill, as amended to add seed cotton. The new bill, however, includes an escalator known as the effective reference price. The effective reference price is a feature from the House farm bill, which permits the statutory reference price to increase up to 115% of the statutory reference price. It is calculated as 85% of the 5-year Olympic moving average of the national marketing year average prices (5YOMA).

The 2018 Farm Bill also includes modified language regarding base acres. Specifically, it prevents payments on any base acres if all the cropland on the FSA farm was planted to grass or pasture during the years 2009 through 2017. The base acres and program yields for the farms affected by this provision will remain on record with FSA, but payments will not be made on those acres and farms. This provision is likely designed to help offset the cost of the yield update.

Finally, the 2018 Farm Bill increases the loan rates for the MAL and LDP programs. This is the first across-the-board increase in loan rates since the 2002 Farm Bill.


Crop Insurance (Title XI)

There are few changes to the crop insurance program in the 2018 Farm Bill. The most notable revisions involve treatment of cover crop practices. First, the bill defines cover crop termination as a practice that historically and under reasonable circumstances results in termination. It also provides that cover crop practices are to be considered a good farming practice if terminated according to USDA guidelines (or an agricultural expert) and that termination should not impact the insurability of the insurance crop. These changes should help alleviate some of the concerns farmers have with cover crops and may improve adoption of that practice where it makes agronomic sense.


Conservation (Title II)

The biggest issue for the conservation title going into conference was elimination of the Conservation Stewardship Program (CSP) in the House farm bill. The conference committee negotiated a compromise that eliminates it as a stand-alone, acreage-based program. The existing authorities for CSP are combined with the Environmental Quality Incentives Program (EQIP). The CBO score shows a reduction in CSP of -$12.4 over 10 years and an increase for the combined CSP/EQIP of $8.5 billion. Part of this reduction appears to have been used to increase funding for the Agricultural Conservation Easement Program ($1.8 billion) and for the Regional Conservation Partnership Program ($1.7 billion).

The conference bill terminates the acreage-based provisions of CSP and converts it to a specific funding level each fiscal year, similar to the way EQIP is funded. The existing acreage-based program ends but current five-year contracts will continue and those expiring before the end of 2019 will be permitted a one-year extension for transition purposes. Overall, the general authorities for CSP are reauthorized with revisions to focus assistance on soil health and conservation planning, cover crops, grazing management, as well as simplification for aspects of application.

Buried within all of the changes for CSP is information requiring further analysis. As acreage-based CSP is terminated, program spending goes to zero after FY 2025 as existing contracts expire. Funding for EQIP and the new CSP increases over these years.

Finally, in conservation there are changes to the Conservation Reserve Program (CRP) that begin with increases in the current 24 million-acre cap on what can be enrolled. The acreage cap will increase each year, reaching to 27 million by 2023. The bill would also limit the annual rental payments to 85% of the average county rental rate for general sign-up or 90% for continuous practices. It also creates within CRP a new initiative focused on clean lakes, estuaries and rivers as a priority for the continuous enrollments, capped at 8 million of the overall acres in the program. There is also a pilot project for 30-year CRP contracts and a shorter-term CRP for soil health and income protection, using three, four or five year contracts on up to 15% of a field.

It appears that the 2018 Farm Bill goes against the trends of recent farm bills where funds and authorities shifted from reserve policies to working lands policies. Under the lower price scenarios, it appears that Congress is shifting some of the funds and authorities back to reserve programs (CRP and easements) and reducing those for working lands.



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