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U.S. crop insurance subsidies outpace ad-hoc disaster assistance payments

Friday, October 24, 2014

The Federal Crop Insurance (FCI) program and ad hoc crop disaster legislation both provide producer support when crop disasters occur. Participation in the Federal Crop Insurance Program (FCI) has grown steadily since the mid-1990s while outlays for ad hoc crop disaster payments have declined. Before the increase in participation in FCI, the FCI program was associated with widespread losses and poor enrollment and throughout the 1980s and into the 1990s, major crop losses were often associated with supplemental disaster legislation. FCI participation increased with the passage of the Federal Crop Insurance Reform Act in 1994, and again with enactment of the Agricultural Risk Protection Act (ARPA) in 2000. Ad hoc disaster assistance has subsequently declined with increased FCI participation. In 2012, with almost 80 percent of all cropland used for crops enrolled in the FCI program, no ad hoc disaster assistance was enacted despite the major U.S. drought and large associated crop losses. Find this chart and additional analysis in “The Importance of Federal Crop Insurance Premium Subsidies” in the October Amber Waves.

Many factors, including conservation payments, influence the adoption of conservation practices

Tuesday, July 29, 2014

The Federal Government spent more than $6 billion in fiscal 2013 on conservation payments to encourage the adoption of practices addressing environmental and resource conservation goals, but such payments lead to additional improvement in environmental quality only if those receiving them adopted conservation practices that they would not have adopted without the payment. Some farmers have adopted specific conservation practices without receiving payments because doing so reduces production costs or preserves the long-term productivity of their farmland (e.g., conservation tillage). Many other farmers have not adopted conservation practices, presumably because the cost of doing so exceeds expected onfarm benefits, the value of which can vary based on many factors—soil, climate, topography, crop/livestock mix, producer management skills, and risk aversion. Since the value of onfarm benefits can vary widely across practices and farms, identifying which farmers will adopt a conservation practice only if they receive a payment is not straightforward, but research indicates that the likelihood a payment will result in additional environmental benefits increases as the implementation cost of the conservation practice increases and its impact on farm profitability declines. This chart is found in the ERS report, Additionality in U.S. Agricultural Conservation and Regulatory Offset Programs, ERR-170, July 2014.

Coverage of Federal crop insurance programs is expanding

Thursday, July 10, 2014

Producers of corn, soybeans, and wheat—the three largest crops produced in the United States—are the largest consumers of Federal crop insurance, although producers of other crops are a growing share of program enrollment. In 1997, corn, soybeans, and wheat crops accounted for 80 percent of all acres enrolled in the program; including cotton and sorghum raised the share to nearly 90 percent of all acres enrolled. Over the last 15 years, with new types of policies being offered and more crops added to the program, the share of enrolled acres attributed to these major crops fell as participation in the Federal crop insurance program continued to rise. Pasture, forage and range land have accounted for the bulk of recent gains in enrolled acres, expanding from zero in 1997 to 48 million acres in 2012. By 2012, corn, soybeans, and wheat made up roughly 68 percent of all acres enrolled, with cotton and sorghum accounting for an additional 7 percent. The share of acres enrolled in crop insurance varies by crop and region, but these differences decreased between 1990 and 2012 as coverage rates increased. For more data and analysis, see The Effects of Premium Subsidies on Demand for Crop Insurance, released July 2014.

New Farm Act links commodity program payments to market conditions

Monday, June 2, 2014

Changes enacted in the Agricultural Act of 2014 will shift future crop commodity payments away from the repealed Direct Payments (DPs) program, in which annual producer payments were based on fixed historical acreage and yields (base) and legislated payment rates, and toward new programs where payments are linked to variable market and production conditions. Over the last 5 years, fixed DPs made up the bulk of commodity program payments, because crop prices were generally above levels needed to trigger payments through other programs, such as Countercyclical Payments (CCP) (also repealed), and marketing assistance loans (which continue). Producers with historical base acres of covered commodities (wheat, feed grains, rice, oilseeds, and pulses) now have the option to enroll in new programs—Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC). Under both programs, payments are triggered by variable current conditions: PLC payments when market prices fall below legislated reference prices (similar to the repealed CCP program); ARC payments when revenues (affected by both prices and yields) fall below revenue benchmarks based on moving average revenues. Payments under these two new programs are projected to total from 3.8 to 4 billion dollars annually. Find this chart and additional information on crop commodity programs under the new Farm Act in Agricultural Act of 2014: Highlights and Implications: Crop Commodity Programs.

Productivity drives agricultural output growth in most regions of the world

Monday, May 5, 2014

Productivity growth in agriculture enables farmers to produce a greater abundance of food at lower prices, using fewer resources. A broad measure of agricultural productivity performance is total factor productivity (TFP). Unlike other commonly used productivity indicators like yield per acre, TFP takes into account a much broader set of inputs—including land, labor, capital, and materials—used in agricultural production. ERS analysis finds that globally, agricultural TFP growth accelerated in recent decades, largely because of improving productivity in developing countries and the transition economies of the former Soviet Union and Eastern Europe. During 2001-2010, agricultural TFP growth in North America and the transition economies offset declining input use to keep agricultural output growing. By contrast, declining input use in Europe offset growing TFP, resulting in a slight decline in agricultural output over the decade. In most regions of the developing world, improvements in TFP are now more important than expansion of inputs as a source of growth in agricultural production. Sub-Saharan Africa is the only major region of the world where growth in agricultural inputs accounts for a higher share of output growth than growth in TFP. This chart is based on the table found in “Growth in Global Agricultural Productivity: An Update,” in the November 2013 Amber Waves online magazine, and the ERS data product on International Agricultural Productivity.

Nutrition programs projected to account for 80 percent of outlays under the Agricultural Act of 2014

Wednesday, March 12, 2014

The new U.S. farm bill, the Agricultural Act of 2014, was signed on February 7, 2014 and will remain in force through 2018. The 2014 Act makes major changes in commodity programs, adds new crop insurance options, streamlines conservation programs, modifies provisions of the Supplemental Nutrition Assistance Program (SNAP), and expands programs for specialty crops, organic farmers, bioenergy, rural development, and beginning farmers and ranchers. The Congressional Budget Office (CBO) projects that 80 percent of outlays under the 2014 Farm Act will fund nutrition programs, 8 percent will fund crop insurance programs, 6 percent will fund conservation programs, 5 percent will fund commodity programs, and the remaining 1 percent will fund all other programs, including trade, credit, rural development, research and extension, forestry, energy, horticulture, and miscellaneous programs. Find this chart and additional information on the new U.S. farm bill on the Farm Bill Resources pages.

U.S. dairy producers have faced increasing price and feed cost volatility

Wednesday, March 5, 2014

Over the last 20 years, U.S. dairy producers have faced rapidly changing milk prices and input prices, primarily for feeds. The monthly average U.S. all-milk price has been highly volatile since 1990, particularly in more recent years. Factors that account for the increasing variability in milk prices include increased U.S. involvement in (and dependence on) export markets, and weather events in both the United States and other exporters that affected production and dairy stock levels. More recently, dairy producers also faced higher feed costs. Dairy producers generally have low adoption rates of traditional price risk management tools, such as forward contracting, and the use of futures and options markets and trading. The Livestock Gross Margin for Dairy (LGM-Dairy) insurance program is a relatively small and new public risk management program overseen by USDA’s Risk Management Agency (RMA) designed to protect margins between milk prices and input (feed) costs, rather than simply supporting prices. Analysis of the LGM-Dairy program shows that it can be effective in reducing risks, but is unlikely to substantially change farmer’s production level decisions. Find this chart and more analysis in Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts.

Crop insurance indemnities and disaster assistance payments reflect the impact of drought on crop farms

Friday, February 28, 2014

Drought is the leading single cause of production losses to crop farms, followed by excess moisture, hail, freezes, and heat. Over the past four decades, a portion of the farm losses from all these weather-related causes have been covered by a combination of crop insurance and disaster assistance payments. Over this period, crop insurance has gradually grown in significance and is now a major component of the Federal safety net for crop farmers. The rise in total insurance indemnity payments is due to a combination of expanded enrollment in crop insurance, increased liabilities due to higher yields and commodity prices, and a series of major droughts in recent decades, capped by the 2012 drought. More than 80 percent of the acres of major field crops planted in the United States are now covered by Federal crop insurance, which can help to mitigate yield or revenue losses for covered farms. Droughts also have a major impact on livestock producers, principally through their effect on feed prices. (The accompanying chart does not include livestock-related assistance or pasture/rangeland indemnity payments.) This chart updates one found in The Role of Conservation Programs in Drought Risk Adaptation, ERR-148, April 2013.

Expected falling crop receipts lead decline in 2014 forecast for net farm income

Tuesday, February 11, 2014

USDA’s initial forecast for 2014 net farm income is $34.7 billion lower than current expectations for 2013, but is $8 billion higher than the average of the previous 10 years. Lower crop cash receipts, and, to a lesser degree, a change in the value of crop inventories and reduced government farm payments, drive the expected drop in net farm income. Crop receipts are expected to decrease more than 12 percent in 2014, led by an expected $11-billion decline in corn receipts and a $6-billion decline in soybean receipts. Elimination of direct payments under the Agricultural Act of 2014 and uncertainty about program enrollment during 2014 result in a projected $5.1 billion decline in government payments. On the other hand, total production expenses are forecast to decline $3.9 billion in 2014, which would be only the second decline in the last 10 years. Livestock receipts and value of inventory change also are expected to increase a combined $3.5 billion in 2014, largely due to higher dairy receipts and the potential for expansion of the beef cattle herd for the first time since 2007. This chart is based on the data available in Farm Income and Wealth Statistics, updated February 11, 2014.

Crop insurance subsidies provide continuing, although uneven, incentives for conservation compliance as direct payments end

Monday, February 10, 2014

Under environmental compliance, U.S. farmers who crop highly erodible land without applying an approved soil conservation system or who drain wetlands risk losing all or part of many Federal agricultural payments. The Agricultural Act of 2014 makes several changes which, on balance, continue to provide compliance incentives. Direct payments, which were paid to farmers regardless of economic conditions, were eliminated, but the act makes crop insurance premium subsidies subject to compliance, along with other continuing or new conservation and commodity programs. In some areas (those where the ratio of average insurance subsidies to direct payments for 2005-2010 exceeds 100 percent), the loss of direct payments will be more than offset by making crop insurance premium subsidies subject to compliance. In other areas, where direct payments were large relative to premium subsidies, compliance incentives will depend more heavily on new commodity programs. This map is found in the ERS report, The Future of Environmental Compliance Incentives in U.S. Agriculture, EIB-94, March 2012.

Direct government payments to producers as a share of gross cash farm income (GCFI) have fallen in recent years

Wednesday, February 5, 2014

GCFI (cash income to farm operations before accounting for expenses) comes from a number of different sources, including sales of crops and livestock, income generated through farm and equipment services to other operators, use of farmland for recreational activities, sales of forest products, crop insurance indemnities, and other farm-related income. Many producers also receive government payments from a variety of Federal farm programs. The share of government payments in total GCFI has varied widely over time, reflecting the effects of variable weather and prices, as well as changes in farm programs, on the sources of farm income. The share has been historically low in recent years, as relatively high commodity prices have reduced price-triggered payments. Government payments in this chart include only payments made directly to producers, and thus do not reflect government support of Federal crop insurance, which has played an increasing role in farm risk management Producers participate in Federal crop insurance through private crop insurance companies, with the Federal Government covering a portion of the crop insurance premiums and other costs associated with providing this insurance. For more information, see the Farm & Commodity Policy topic page.

Crop insurance indemnities rise with drought

Friday, November 22, 2013

Federal crop insurance has become a key component of producer risk management in the United States. Producers participate by purchasing policies from private insurance companies to cover possible losses on the commodities they expect to harvest in a particular crop year, with premium rates set by the Federal Government. Most producers choose revenue loss policies, which cover potential losses to both their average yield and the expected price of the commodity at harvest. The Federal Government pays a share of the producer’s premium. In most years, total premiums (including both the producer and government shares) have been above indemnities (outlays for losses). Severe drought and other weather losses in 2011 and 2012 caused indemnities to rise above premiums in those years. In any given year, individual producers may pay more for their premium than they receive in indemnities, but even in years of low losses, total indemnities have been higher than the premiums paid by producers. For additional information, see the Risk Management topic pages.

Total Farm Bill commodity program payments vary with weather and markets

Tuesday, November 12, 2013

The U.S. Farm Bill authorizes a number of distinct commodity programs, providing a range of program types that support crop, dairy, and livestock producers in different ways. Since 2002, the primary programs have been Direct Payments, Counter-Cyclical Payments, Marketing Assistance Loans, and Milk Income Loss Contracts. The 2008 Farm Bill added the Average Crop Revenue Election (ACRE) program and replaced nearly all annual ad hoc disaster programs with a set of permanent disaster programs for crop, livestock, orchard and nursery tree, aquaculture, and honeybee operations. While Direct Payments provide historically based fixed payments that do not change from year to year, other program payments depend upon variable conditions like prices and weather, causing total commodity program support to fluctuate widely from year to year. This chart and additional explanation can be found on the Farm and Commodity Policy topic page.

Emergency haying and grazing on land in the CRP peaked in 2012

Friday, August 23, 2013

USDA’s Conservation Reserve Program (CRP) engages farmers in long-term (10- to 15-year) contracts to establish conservation covers on environmentally sensitive land. As of June 2013, about 27 million acres of farmland were enrolled in the program. An important provision within CRP is that under certain circumstances, farmers can utilize their CRP lands for managed or emergency haying and grazing. The haying and grazing of CRP land can provide important benefits to farmers, particularly during major droughts when other sources of livestock feed are scarce, and, if done correctly, can also improve the environmental value of the conservation covers. During the 2012 drought, farmers conducted emergency haying and grazing on almost 2.8 million acres and managed haying and grazing on another 700,000 acres. This chart is found in the Amber Waves article, “The Role of Conservation Program Design in Drought-Risk Adaptation,” July 2013.

Simulating the interactions between climate adaptation and conservation program design

Monday, May 20, 2013

Farmers can adapt to their local climate in many ways, including through participation in USDA programs. In regions of the country that face higher levels of drought risk, farmers are more likely to offer eligible land for enrollment in the Conservation Reserve Program (CRP). As a consequence, CRP is both more competitive in these regions and drought-prone counties are more likely to face a binding CRP acreage enrollment cap. When counties are near their enrollment cap, farms are less likely to offer eligible land for CRP because those offers are less likely to be accepted for enrollment. In simulations of offer rates based on observed historical data, a national increase in the county CRP acreage enrollment cap to 35 percent of cropland in each county (from the current level of 25 percent), results in more offers from eligible farmers in drought prone regions of the Great Plains and the Intermountain West. This map is found in the ERS report, The Role of Conservation Programs in Drought Risk Adaptation, ERR-148, April 2013.

U.S. trade-distorting agricultural support declines with higher world commodity prices

Monday, May 13, 2013

The current Agreement on Agriculture of the World Trade Organization (WTO) limits how much members can spend on trade-distorting support. Members notify this spending as the aggregate measurement of support (AMS), commonly called the “amber box.” The U.S. limit, or ceiling, is currently $19.1 billion, reduced from a starting point of $23 billion in 1995. For developed countries, the AMS includes support for specific commodities (product-specific support) that totals more than 5 percent of the value of production of that commodity, and support generally available to producers (non-product specific support) that totals more than 5 percent of the country’s total value of agricultural production. For the United States, only a small number of commodities have been supported above the 5-percent minimum (or de minimis) level, and general support has never risen above that level. Even so, during several years of low commodity prices, U.S. program support led to AMS totals close to the WTO ceiling. In recent years, however, high commodity prices have reduced program spending, and an AMS has been notified to the WTO for only a few commodities. This chart is based on data found on the U.S. WTO Domestic Support Reduction Commitments and Notifications topic page on the ERS website.

ERS revises its farm typology

Friday, April 26, 2013

Nearly 15 years have passed since ERS first released its farm typology to classify farms into relatively homogeneous groups based on their gross farm sales, the primary occupation of their operators, and family farm status. A recent update to the ERS farm typology reflects commodity price inflation and structural changes in production that have occurred over time. In response to these changes, ERS recalibrated the size thresholds used in its farm typology, reduced aggregation among large farms, and changed its sales measure to reflect the growth in production contracts. To better reflect income earned by farm operators, we now measure farm size by gross cash farm income (GCFI)—the total revenue received by a farm business in a given year; after adjusting inflation, the new size thresholds for small, midsize, and large farms are as specified in the graph. Using the updated typology, 91 percent of U.S. farms were classified as small in 2010, and accounted for about 29 percent of the value of U.S. farm production. Large-scale family farms under the new typology—less than 2 percent of all farms—accounted for a disproportionately large 34-percent share of the value of production. This chart is based on table 9 in the ERS report, Updating the ERS Farm Typology, EIB-110, April 2013.

Relatively few farms receive both conservation and commodity payments

Monday, April 22, 2013

Existing conservation and farm commodity programs serve multiple purposes. Commodity-based income programs are intended to support farm families historically involved in the production of targeted “program” crops. Conservation payments, on the other hand, are designed to promote environmentally beneficial changes in farmland use or production practices. Conservation payments are available to a much wider range of producers, with nearly all crop and livestock producers eligible for at least one conservation program. In 2011, roughly 31 percent of all U.S. farms received commodity payments, conservation payments, or both. Only 6 percent of farms, however, received both commodity and conservation payments. Fifty-five percent of conservation payments went to farms that did not receive commodity payments, while 63 percent of commodity payments went to farms that did not receive conservation payments. Since 2004, the proportion of farms receiving both conservation and commodity payments has remained fairly constant. This chart updates one found in the March 2012 Amber Waves finding, Green Payments: Can Conservation and Commodity Programs Be Combined?

Agricultural productivity improving in Sub-Saharan Africa, but very slowly

Monday, February 25, 2013

Agricultural productivity growth is a critical factor in controlling the economic and environmental costs of feeding the world’s growing population. New ERS research finds that agricultural productivity in Sub-Saharan Africa has been growing by about one percent per year since the 1980s. A major driver has been adoption of new agricultural technologies developed through agricultural research. Investment by the CGAIR Consortium of international agricultural research centers has been particularly important, providing about $6 in productivity impacts for every $1 spent by these centers on research. However, rates of new technology adoption and agricultural productivity in Sub-Saharan Africa are still low relative to other developing countries. Resource degradation, policies that reduce economic incentives to farmers, the spread of HIV/AIDS, armed conflicts, and low national research and extension capacity have hindered agricultural productivity improvement in the region. This chart is based on the ERS report, Resources, Policies and Agricultural Productivity in Sub-Saharan Africa, ERR-145, released February 2013.

U.S. cash receipts for livestock products forecast up in 2012

Thursday, January 17, 2013

Gains are predicted in all livestock categories except hogs and dairy. Receipts for cattle and calves are predicted to increase in 2012 reflecting large anticipated price increases for cattle and veal in 2012. The slight decline predicted in hog receipts reflects a forecast decline in the hog annual price. Cash receipts for dairy are expected to decline despite USDA expectations of more milk cows producing more milk per cow in 2012. The average annual price of milk, despite recent gains, is expected to remain lower than in 2011. Increased broiler cash receipts reflect USDA expectations of price increases. Turkey receipts are also expected to benefit from higher prices in 2012. Chicken egg receipts are forecast to increase reflecting more eggs sold at a higher annual average price. This chart appeared in the Farm Sector Income & Finances topic page on the ERS website, updated November 2012.

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