by Adam Rabinowitz
There have been some comments from policymakers regarding the upcoming farm bill and the debate between planted acres and base acres. Here is an explanation as to why base acres have been used and the potential impact of using planted acres.
The 2014 Farm Bill contains provisions for Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) commodity programs that are tied to a “base acreage” for which to compute payments. Base acres for a particular Farm Service Agency (FSA) farm depend on the past decisions by the farm to reflect either 1991-1995, 1998-2001, or 2009-2012 planted acres. Regardless of the specific base acreage determination, the common point among the commodity programs and farms is that base acreage is determined on historical planted acreage and not current year planted acreage. There are two main concerns over computing safety net program payments on current planted acres.
- Payments made on current planted acres means that newly planted acres are eligible for payments. This has the potential to distort market prices because planting decisions will be directly impacted by the eligibility for program payments. As planted acres increase, the market price will decrease, resulting in increased program payments, which may continue to perpetuate into a further increase in acreage, payments, etc.
- World Trade Organization (WTO) agreements contain limits on trade-distorting domestic support. When government safety net payments are tied to planted acres they would likely be reported as product specific crop commodity program payments. Product specific payments are viewed as potentially trade-distorting and thus subject to WTO limits.
Historical base acres have thus been used to mitigate the potential negative market distortion from government programs and potential violation of trade agreements. By determining safety net program payments on historical acreage, there is little (if any) incentive to make planting decisions based on the ability to receive government payments. With current safety net payments being issued in October of the following year after harvest, there is an even greater disconnect between planting decisions and government payments. Furthermore, ensuring that agricultural commodities maintain compliance with trade agreements is critical for continued expansion of demand and access to foreign markets for U.S. farmers.