Government Payments and the Farm Sector: Who Benefits and How Much?
Government payments encompass all payments to the farm sector. Under the provisions of the 2002 and 2008 Farm Acts, direct government payments include payments for commodity programs such as direct payments, counter-cyclical payments, and marketing loan benefits (marketing loan gains, loan deficiency payments, and certificate gains). Also included are other payments such as emergency and disaster payments, tobacco transition payments, and conservation program payments. The 2008 Farm Act introduced Average Crop Revenue Election (ACRE) program payments for the first time.
Based on USDA's annual Agricultural Resource Management Survey (ARMS), receipt of direct government payments is concentrated:
- About 37 percent of all farms received government payments in calendar year 2009.
- Payments averaged $11,549 for those operations receiving payments, accounting for 5.5 percent of gross cash income and 23.6 percent of net cash income in 2009 for those farms.
- The largest 12.4 percent of farms in terms of gross receipts received 62.2 percent of all government payments in 2009.
See glossary for agricultural policy terms and definitions. For additional information on government payment programs, see program provisions.
The direct government costs of commodity support do not include the costs to consumers of programs that restrict supplies and raise food costs, such as the sugar and dairy programs. Also excluded are certain USDA, Natural Resource Conservation Service conservation payments that are not paid through USDA, Commodity Credit Corporation.
- Since the introduction of the 2002 Farm Act, farm program payments have averaged about $14 billion per fiscal year.
- Fiscal year 2000 expenditures reached record highs due to low crop prices and payment of market-loss assistance payments for the 1999 and 2000 crops.
- CCC expenditures rose to over $20 billion in fiscal years 2005-06 in response to low commodity prices and a jump in disaster and emergency assistance.
Beginning in 1995, World Trade Organization (WTO) constraints added a new dimension to domestic farm policy. The United States agreed to limit farm-sector support that is considered trade-distorting—referred to as "amber box" or the Aggregate Measurement of Support (AMS). The U.S. amber box limit started at $23.1 billion in 1995 and declined to $19.1 billion beginning in 2000. Actual U.S. amber box support declined in 1995-97, but by 1999 it had risen to within 15 percent of its limit. The rise stemmed from an increase in price-sensitive loan deficiency payments (LDPs) and marketing loan gains (MLGs) as market prices sagged in 1998-2001. See U.S. WTO Domestic Support Reduction Commitments and Notifications for more information.
The 2008 Farm Act continues the WTO "circuit breaker" provision that gives the Secretary of Agriculture the authority to, "to the maximum extent practicable," adjust expenditures to avoid exceeding WTO allowable limits for amber box levels. However, this circuit breaker provision has never been invoked.
Under WTO rules, certain programs are considered nontrade-distorting green box policies and are unlimited. U.S. green box expenditures increased from $46.1 billion in 1995 to $76.2 billion in 2007. The majority of green box payments are for food and nutrition assistance programs, not for payments to farmers.
Government program payments for commodity and conservation programs to the farm sector have increased since 1997, averaging $16.2 billion over 1998-2010. Direct government payments are forecast to shrink to about $10.6 billion in calendar year 2011 due to a decrease in disaster payments, and in price-sensitive counter-cyclical payments, marketing loans and loan deficiency payments.
- The 2002 Farm Act replaced PFC payments with fixed direct payments. These payments are based on historic acreage and yields and are considered "decoupled," that is, not based on current production or prices. Direct payments are forecast at $4.66 billion for 2011.
- Under the 1996 Act, PFC payments decreased according to a payment schedule for major field crops, from a high of $6.4 billion in calendar year 1997 to $4 billion in calendar year 2001.
- Low commodity prices led to significant increases in LDPs and MLGs in 1998-2001 and again in 2005. The marketing assistance loan program, reauthorized in the 2002 and 2008 Farm Acts, prevents the buildup of publicly owned stocks (major field crops) by providing alternatives to defaulting on commodity loans. LDPs and MLGs provide farmers with per unit revenue insulation when prices are low.
- Counter-cyclical payments authorized in the 2002 Farm Act help stabilize farm revenues. Counter-cyclical payments rose in 2005-06, reflecting lower commodity prices.
- Marketing loan benefits and counter-cyclical payments are projected to decrease in 2011 due to higher commodity prices.
- Ad hoc emergency assistance has played a prominent role in U.S. agricultural policy. Payments to producers have partially offset financial losses due to severe weather and other natural disasters (e.g., hurricane, drought, flood), or stressful economic conditions (e.g., low commodity prices, events such as condemnation of milk or animals, or bankruptcy).
- Conservation Reserve Program payments have remained fairly constant since the early 1990s. Payments are tied to environmentally sensitive land retired from production for 10-15 years; about 31 million acres are enrolled in the program.
- Conservation payments tied to working agricultural lands increased under the 2002 Farm Act, with expansion of programs such as the Environmental Quality Incentives Program and Wetlands Reserve Program. The 2008 Farm Act replaced the Conservation Security Program with the Conservation Stewardship Program.
Average commodity payments per cropland acre over 2004-07 were less than $25 per acre in most parts of the country but sometimes exceeded $100 per acre. Commodity payments were concentrated in major production areas: Corn Belt (corn and soybeans), Southeastern Coastal Plains (cotton and peanuts), California (cotton and rice), Arizona (cotton), and the lower Mississippi River (cotton and rice).
Average conservation payments per cropland acre over 2004-07 were less than $5 per acre in most parts of the country but sometimes exceeded $11 per acre. Conservation payments, per acre of cropland, tend to be largest in the High Plains where soils are susceptible to wind erosion, parts of the Intermountain West, and where land is hilly and prone to rainfall erosion.
Marketing loans are available for 18 commodities. Loan rates are specified in the 2008 Farm Act.
- Marketing loan benefits (marketing loan gains and loan deficiency payments) accrue to farmers when commodity prices are at or below loan rates.
- An MLG occurs when a producer who has taken out a marketing assistance loan repays the loan at a lower rate. This is permitted when the prevailing market price or posted county price falls below the original loan rate.
- LDPs allow eligible farmers to receive direct payments in lieu of obtaining loans. The LDP rate is the difference between the prevailing market price or posted county price, and the commodity loan rate.
Comparing marketing loan benefits across commodities on a per-harvested-acre basis adjusts for the large differences in the amount of land devoted to individual commodities.
- Marketing loan benefits are not necessarily paid in every year.
- On a per acre basis, cotton has had the largest marketing loan benefits for the past several years.
Direct payments are paid on a fixed-acreage base with fixed payment yields. Payment rates are fixed in the 2008 Farm Act. Coverage includes:
- Feed grains (corn, grain sorghum, barley and oats),
- Wheat,
- Upland cotton,
- Rice,
- Soybeans,
- Minor oilseeds, and
- Peanuts.
Direct payments are not linked to current production. Producers are free to plant most crops on base acreage, with some limitations on planting fruit and vegetables. Producers can even elect to leave the land idle. Thus, these payments are considered to be minimally production- and trade-distorting.
The value of direct payments varies by commodity and location. The legislated payment rates are commodity dependent. In addition, program yields reflect historic production levels associated with base acreage.
- Direct payments for oats average about $1 per acre, while payments for rice average close to $100 per acre.
- Payments are concentrated in major producing areas. They are highest in California, where rice and cotton are important, in the Southeastern Coastal Plain, where cotton and peanuts are produced, and along the lower Mississippi River, where cotton and rice are produced. Payments per acre are also high in the Corn Belt, where corn and soybeans are the predominant crops.
Counter-cyclical payments (CCPs) are paid on a fixed acreage base—the same as for direct payments. Target prices are specified in the 2008 Farm Act. CCPs are also available for pulse crops.
- The payment rate for CCPs equals a so-called "target price," minus the direct payment rate, minus the higher of the market price or the loan rate. Thus, when market prices fall, the payments increase.
- Since crop year 2006/07, payments have been made only for cotton and peanuts. Prices for the other commodities have been above the target price less the direct payment rate, so no payments have been made.
- Because CCPs are linked to market prices, the payments may indirectly affect production by reducing revenue risk. Further research is necessary to fully understand how farmers react to CCPs.
As is the case with direct payments, farmers do not have to produce a crop to get the payment.
- Beginning with crop year 2009, producers can elect to participate in the ACRE program in any year from 2009-12 for all covered commodities and peanut acreage on the farm.
- Producers who elect to participate in ACRE must remain in the program for the duration of the 2008 Farm Act.
- For ACRE participants, direct payments are reduced by 20 percent and marketing assistance loan rates are reduced by 30 percent on enrolled farms.
- In 2009/10, the majority of ACRE payments went to wheat farmers.
Gross cash income includes cash income from farm receipts and government payments; expenses are subtracted from gross cash income to calculate net cash income. Off-farm sources of income are not included in this measure.
Across all farm types, government payments represent a small portion of gross cash income (3.5 percent in 2010, down from 3.9 percent in 2009), indicating that the marketplace is the primary source of farm earnings.
ERS's farm typology distinguishes between farm types based on level of sales and the occupations of operators.
- Commercial farms have annual sales of $250,000 or more.
- Farms with annual sales below $250,000 are divided into:
- Intermediate farms, whose operators report agriculture as a full-time occupation, and
- Rural residence farms, which include retirement and residential/lifestyle farms.
Data used for analysis by farm type are from USDA's Agricultural Resource Management Survey (ARMS). The most current year of available data is 2009.
- Many farms across the various types receive some level of government payments; however, the distribution of payments does not reflect the number of farms within each farm type.
- Large commercial farms make up 12.4 percent of all farms, yet they received 62.2 percent of government payments in 2009. This is a direct result of commodity programs targeting certain types of commodities, which are often grown on large farms and in large volumes.
- While almost 29 percent of rural-residence farms received government payments in 2009, about 15 percent of gross cash income for these farms came from government payments.
- About 69 percent of commercial farms received government payments, but payments represented only 4 percent of their gross cash income.
- Commercial, intermediate, and rural residence farms all experienced increases in government payments from 2008 to 2009.
- In 2009, direct payments were the largest payment category for commercial and intermediate farms, while conservation payments were the largest payment type for rural residence farms.
- The average payment for commercial farms in 2009 was $31,657, which was 4.2 percent of average gross cash income in that category.
- The average payment for rural residence farms in 2009 was $4,533. Government payments account for a higher share of farm income for this group than for other groups.
- The "Other" category includes emergency and disaster payments, milk income loss payments, peanut buyout payments, and tobacco transition payments.
- Commercial farms obtained about 70 percent of their total household income in 2009 from farming activities.
- Households operating family farms (intermediate farms) on average had very small negative earnings from farming in 2009. Intermediate farms produced 13 percent of U.S. agriculture's value.
- In 2009, rural residential farmers produced 6.9 percent of U.S. agriculture's value. Average income from farming activities was negative $6,790 for this group, although some farms within the group had positive income. Average off-farm income for this group was the highest of the farm typology groups.
- Average total income for commercial farms and rural residence farms exceeded the average household income of all U.S. households.
- See Farm Income and Costs: Farms Receiving Government Payments for additional information.
- See Farm Income and Costs: Farms Receiving Government Payments for additional information.
|
