Now that the specter of the Super Congress has passed, and with it the cloak room deals that would have comprised the next farm bill, we can all enjoy a winter respite and the chance to learn about farm policy before the process gets underway again early next year. A month ago I would have rung in the holiday season with a more tantalizing topic–conservation programs, crop insurance boondoggles, or the role of the carrot in 17th Century Dutch revolutions–but that will simply have to wait until December. Instead, it’s time to learn about so-called “shallow loss” revenue protection programs.

Why? Because that’s what Big Ag is shoving down Congress’ throat. It’s what the Ag Committees are hearing that farmers want. And it’s bad for sustainable farmers and the American people. To prove the point, we’re going to look at the 2008 Farm Bill’s version of shallow loss protection, the ACRE program (this horrible backronym stands for “Average Crop Revenue Election”…it’s intractable name is symbolic of the program I’m about to describe).

ACRE (Somewhat) Demystified
ACRE originated in the 2008 Farm Bill as both a compliment to and a substitute for pre-exiting subsidy programs. The mechanics of the program are complicated (and, as a result, many fewer farmers have signed up than originally anticipated). The implications of the program are complex and not yet well-understood (and, as a result, many of us sustainable farmers have not taken a strong position either way).

Program Mechanics
At first glance, ACRE appears to have been devised by a madman. There are something like 36 separate calculations necessary to determine if a farmer is entitled to a payment and, if so, how much. The first thing to know is that the program, like other federal subsidies, targets producers of commodity crops. In order to qualify a producer must have the same type of base acreage (historical production of commodity crops) that is used to calculate direct subsidy payments. A farmer may choose to keep his/her current suite of subsidy programs, or may opt into ACRE, thereby sacrificing 20% of direct payments, 30% of his/her marketing loan rate, and 100% of counter-cyclical payments (all major subsidies).

In exchange a farmer is eligible for a payment that depends on the magnitude of the discrepancy between the guaranteed and actual state revenue, and on the relative productiveness of the individual farmer compared to the state average.

Program Implication
According to the Farmland Trust of America, “The Average Crop Revenue Election program is a first step towards fundamentally reforming subsidy programs to be more market oriented with fewer incentives to overproduce.” This is probably true, with special emphasis on “first step”. Price-based subsidies distort the market in particularly insidious ways for conservation. By (artificially) raising prices, producers have the incentive to produce more and converting marginal or virgin land into intensively-cultivated commodity acres.

ACRE treats one a particular type of risk very well: the risk of falling commodity prices from very high levels. Agricultural economists suggest that high prices in the 1970s led to the farm crisis in the 1980s as prices fell. ACRE is designed to prevent such a recurrence. It goes like this: high crop prices increase demand for farm inputs as farmers scramble to get more acres under production. Input prices rise in response, and thus total costs of production rise. When market prices are very high, as they have been in the past several years, the risk is that prices may tumble well below current levels but still not trigger payments that are tied to a price floor. Even if lower prices only prevail for a year or two, the ratio of revenues to costs can be enough to put many farms out of business. ACRE provides a short-term bridge to help farmers maintain their income during these declines. However, unlike price floors, the moving average nature of the revenue guarantee ensures that ACRE doesn’t become a long-term price support. If market prices remain low, farmers retain the incentive to adjust their operations and produce what the market demands (as reflected by prices).

So, why is ACRE bad news for farmers whose farms look more like the Duke Campus Farm than like the square-mile commodity corn fields? Because farms aren’t eligible if they’re not growing commodity crops. Growing vegetables? You’re outta luck. There is nothing outwardly abhorrent about a system that protects farmers from catastrophic price changes for the crops they grow. What’s disgusting is a system that has so over-commoditized food that it is traded like iron ore or treasury notes on international futures markets. When farmers grow food that people want to eat–especially when those people are their neighbors–price collapses don’t happen.

Many of us know about and love “community supported agriculture” (CSAs). In CSAs, consumers pay the farm up front and receive a share of the farm’s bounty for the season. In good seasons, the consumer gets an abundance of produce. In bad seasons, their weekly produce box looks pretty scant. This is nothing less than a local, sustainable form of shallow loss revenue insurance, one that doesn’t distort markets, incentivize unhealthy food, or bankrupt the government. This is the kind of insurance that we, and our government, should find ways to support.

Want a little more on the subject? Check out the following articles:

Dismukes, R., Arriola, C. & Coble, K.H., 2010. ACRE Program Payments and Risk Reduction An Analysis Based on Simulations of Crop Revenue Variability. USDA Economic Research Service.

Westhoff, P. & Gerlt, S., 2011. Potential Impacts of Eliminating Direct Payments. Food and Agricultural Policy Research Institute, University of Missouri.

Zulauf, C.R., Dicks, M.R. & Vitale, J.D., 2008. ACRE ( Average Crop Revenue Election ) Farm Program: Provisions, Policy Background, and Farm Decision Analysis. Choices, 23(3), pp.29-35. Available at: http://ageconsearch.umn.edu/bitstream/94670/2/23-3 ACRE.pdf.