B R I E F I N G
Briefing No. 93 June 2008
Food, Conservation and Energy Act of 2008: Program
Changes and New Initiatives
George Haynes, Duane Griffith, & Vincent Smith
Agricultural Marketing Policy Center
Linfield Hall
P.O. Box 172800
Montana State University
Bozeman, MT 59717-2920
Tel: (406) 994-3511
Fax: (406) 994-4838
email: [email protected]
Web site: www.ampc.montana.edu
Objective
Analysis
for Informed
Decision Making
Contact:
George Haynes
(406) 994-5012
Duane Griffith
(406) 994-2580
Vincent Smith
(406) 994-5615
Introduction
The Food, Conservation and Energy
Act of 2008 (the Farm Bill) was
passed in late May. While most of
the changes in the new Farm Bill do
not affect 2008 production decisions,
several changes warrant discussion
now as farmers/ranchers plan for the
immediate future. This briefing
paper therefore provides an overview
of several important provisions and
initiatives addressed in the 2008
Farm Bill. These include commodity
programs, crop insurance and disaster
aid, conservation, beginning and
socially disadvantaged farmers/
ranchers and livestock.
Commodity Programs
The commodity title of the 2008
Farm Bill includes several changes
that will affect producers starting in
2009. This bill establishes new loan
rates and target prices existing for
covered commodities beginning with
Agricultural
Marketing
Policy
Center
Loan Rate
Direct
Payment
Target Price
Montana Commodities 2008 2009
2010 -
2012
2008 -
2012
2008 2009
2010 -
2012
Wheat (bu) $2.75 $2.75 $2.94 $0.52 $3.92 $3.92 $4.17
Barley (bu) $1.85 $1.85 $1.95 $0.24 $2.24 $2.24 $2.63
Oats (bu) $1.33 $1.33 $1.39 $0.02 $1.44 $1.44 $1.79
Corn (bu) $1.95 $1.95 $1.95 $0.28 $2.63 $2.63 $2.63
Other oilseeds (cwt) $9.30 $9.30 $10.09 $0.80 $10.10 $10.10 $12.68
Dry peas (cwt) $6.22 $5.40 $5.40 n/a n/a $8.32 $8.32
Lentils (cwt) $11.72 $11.28 $11.28 n/a n/a $12.81 $12.81
Small Chickpeas (cwt) $7.43 $7.43 $7.43 n/a n/a $10.36 $10.36
Large Chickpeas (cwt) n/a $11.28 $11.28 n/a n/a $12.81 $12.81
the 2010 crop year and adds program
coverage for certain pulse crops
beginning with the 2009 crop year.
Base acres established under the
Food, Security, and Rural Investment
Act of 2002 (FSRIA) are retained
with adjustments for both cropland
released from the Conservation
Reserve Program and new pulse crop
base acres, or if the total base acres
on a farm exceed the number of acres
of cropland. Direct payments will be
made on 85 percent of base acres in
2008 and 2012. In 2009, 2010, and
2011, direct payments will be made
on 83.3 percent of base acres,
resulting in a two percent reduction in
a farm’s total direct payments.
Current payment yields are retained
for direct and counter-cyclical
payments. The new Farm Bill also
establishes counter-cyclical payment
yields for pulse crops. Counter-
cyclical payments will be paid on 85
percent of base acres from 2008 to
2012.
Producers can elect to receive an
advance direct payment equal to 22
percent of the direct payment
following signup for the 2008 crop
year, and as early as December 1 of
the year prior to the year the crop is
harvested for the 2009 through 2011
crop years. The balance of the direct
payment will be made in October of
the year the crop is harvested.
Beginning with the 2012 crop year,
advance direct payments will not be
available.
A producer can receive a partial
payment of up to 40 percent of
projected counter-cyclical payments
for the covered commodity after the
first 180 days of the marketing year.
Any balance of the counter-cyclical
payments will be paid after the end of
the marketing year for the crop.
Beginning with the 2011 crop year,
partial counter-cyclical payments will
not be available.
In the 2009 crop year, producers will
have the option of participating in a
state-level revenue protection
program, called ACRE, instead of the
counter-cyclical program. Producers
must agree to a 20 percent reduction
in direct payments and a 30 percent
reduction in loan rates on enrolled
farms. In return, for each program
crop, producers are eligible for a
state-based revenue guarantee. The
revenue guarantee is equal to 90
percent of the product of a state
average yield per acre for the
previous five years (after dropping
the highest and lowest years) and the
national average price for the
previous two years for the
commodity. If the actual state per-
acre revenue is less than the
guarantee and if a producer suffers an
estimated actual revenue loss for the
crop on the farm, then the producer
will receive an ACRE payment equal
to the difference between the state
per-acre revenue guarantee and the
state actual revenue calculation paid
on 83.3 percent (85 percent for 2012)
of the acres planted to the covered
commodity on the farm. Farmers will
be given a one time option to select
the ACRE program in early 2009 and
their choice is irrevocable for the
duration of the 2008 Farm Bill (that
is;, they will lock themselves in to the
ACRE program for the 2009 to 2012
crop years).
Payment Limitations
Commodity program payments are
subject to new limitations.
Individuals or entities not actively
involved in the farm will no longer be
eligible for direct payments, counter-
cyclical payments, ACRE payments,
marketing loan gains, loan deficiency
payments, MILC payments, and the
Noninsured Crop Disaster Assistance
program (NAP) if their Adjusted
Gross Income (as reported on their
federal 1040 tax form) exceeds
$500,000. Individuals directly
involved in farming with average
Adjusted Gross Farm incomes in
excess of $750,000 will no longer be
eligible to receive direct payments. In
addition, the three-entity rule has been
eliminated. Under the 2008 Farm
Bill, payments are directed to
individuals, although a spouse directly
involved in the farm operation is also
eligible for separate payments. The
current limits on direct payments of
$40,000 and counter-cyclical
payments of $65,000 remain for farms
that do not opt to participate in the
ACRE program but are reconfigured
for ACRE program participants.
Loan deficiency payments and
marketing loan gains are not limited,
but (as discussed above) are subject to
the new income eligibility
requirements.
Crop Insurance and Disaster Aid
The 2008 Farm Bill includes some
changes to federal crop insurance
programs (managed by the USDA
Risk Management Agency) and the
Non-Insured Crop Disaster Assistance
program (managed by the USDA
Farm Service Agency). In addition, a
set of major new standing disaster aid
programs has been introduced.
One important change in the federal
crop insurance program is the increase
in the administrative fee for
catastrophic coverage from $100 per
crop to $300 per crop. The
administrative fees for the Non-
Insured Crop Disaster Assistance
(NAP) program will also be increased
from $100 per crop to $250 per crop.
Both changes will be implemented for
the 2009 crop year. Other changes
include adjustments in the way the
area based Group Risk Plan (GRP)
and Group Risk Income Protection
(GRIP) insurance products are rated.
In addition, the new Farm Bill
requires RMA to set premiums to
meet a targeted loss ratio (the ratio of
indemnities paid to farmers to
premiums paid by farmers) of 1
instead of 1.075. This means that,
over time, RMA will be required to
raise premium rates by about 7.5
percent for most insurance products.
The 2008 Farm Bill establishes a new
Standing Disaster Aid Program, called
the Supplemental Agricultural
Disaster Relief Program. For crops,
aid is provided when a county is
designated as a disaster affected
county and is a whole farm program;
that is, a producer’s disaster payment
is based the payments the farm
receives from all of its crops, from
some other government programs (for
example, direct payments), and from
crop insurance indemnities. Each
operation establishes a farm
benchmark revenue from crops
(based on its average yields and
insurance yield and price coverage
elections). The operation receives a
payment if the farm’s estimated actual
revenues in the disaster year are lower
than its benchmark revenues (equal to
60 percent of that difference). Farms
and ranches with livestock operations
will receive payments for livestock
deaths resulting from the disaster that
exceed normal mortality rates. The
payment will equal to 75 percent of
the estimated value of each lost
animal. Livestock forage will also
now have a standing disaster program.
When a drought disaster occurs in a
county (as indicated by the United
States Drought Monitor), livestock
producers will automatically receive a
disaster payment based on the county
wide estimated average forage loss
for the types of pasture and forage it
uses.
In addition, the Farm Bill also
establishes a standing disaster
program for honey producers.
Conservation Programs
Conservation programs are generally
continued and, in several cases
expanded. However, while annually
funding for the Conservation Reserve
Program (CRP), the program in
which farms and ranches place land
in a conserving use instead of crop
production, is maintained at $2.7
billion, the nationwide maximum area
allowed to be enrolled in the program
is to be reduced from about 38
million acres to 32 million acres, with
the reduction to be achieved by 2010.
The Conservation Stewardship
Program (previously called the
Conservation Security Program) is a
working lands program in which
farms and ranches are paid to adopt
and/or practice conservation
practices. The program is to be
continued with an annual average
funding increase of about $220
million and a goal of increasing
enrollment in this program by about
1.2 million acres by 2012. Other
environmental programs will also be
expanded, including; the Wetlands
Reserve Program (with the goal of
enrolling an additional 3 million
acres); the Environmental Quality
Incentives Program (EQIP) program,
with a 27.2 percent increase in
funding; and the Grassland Reserve
Program. These programs have
special funding set-aside provisions
for beginning and socially
disadvantaged farmers/ranchers.
Beginning and Socially
Disadvantaged Farmer/Ranch
Initiatives
The 2008 Farm Bill provides several
programs and initiatives to assist
beginning and socially disadvantaged
farmers/ranchers. It makes
improvements to the down payment
loan program; establishes a contract
land sales program; and increases
conservation program and direct and
guaranteed loan fund set asides for
beginning or socially disadvantaged
farmers/ranchers. In addition, the
Farm Bill increases farm ownership
and operating loan limits.
Farm or ranch purchases combine the
financial resources of the USDA,
commercial lender and beginning or
socially disadvantaged farmer/
rancher. Adjustments to the down
payment loan program are as follows:
(1) The interest rate on the loan is the
direct farm ownership loan rate less
4% with a floor of 1.5%, rather than
the previous floor of 2%; (2) the down
payment requirement is reduced from
10% to 5%; (3) the loan term is
increased from 15 to 20 years; and,
(4) the maximum purchase price is
$500,000.
Beginning and social disadvantaged
farmers/ranchers may also participate
in a new loan and loan guarantee
programs to finance qualifying
conservation projects. The program
increases the government’s cost-share
up to 90% and allows up to 30% of
the cost-share funds to be advanced to
purchase materials. All loan
guarantees will be at the 75% level.
Five percent of the funds in the
Environmental Quality Incentives
Program (EQIP) and Conservation
Stewardship Program (CSP) have
been set aside for beginning and
social disadvantaged farmers/
ranchers.
The bill complements the EQIP and
CSP increased set-asides by reserving
a higher percentage of loan funds for
these producers to provide greater
incentives for beginning farmers/
ranchers. In the direct farm
ownership loan program, the set aside
has been increased from 70 to 75
percent. In the direct operating loan
program, the set aside has been
increased from 35 to 50 percent. In
the guaranteed operating loan
program, the set-aside has been
increased from 25 to 40 percent. And
finally, this bill increases direct
ownership and operating loan limits,
which have been unchanged for over
two decades, from $200,000 to
$300,000.
Livestock
The 2002 Farm Security and Rural
Investment Act required country of
origin labeling at the retail level for
sale for beef, lamb, pork, fish,
peanuts, fruits, and vegetables and
subsequent legislation required
implementation by September 30,
2008. The 2008 Farm Bill conference
report clarifies multiple country
commodity origination issues and
adds chicken, goat meat, macadamia
nuts, ginseng, and pecans that must be
country of origin labeled.
Copyright © 2008 MSU Extension
The U.S. Department of Agriculture (USDA), Montana State University and Montana State University Extension prohibit discrimination in all of their programs and
activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital and family status. Issued in
furtherance of cooperative extension work in agriculture and home economics, acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of
Agriculture, Douglas L. Steele, Vice Provost and Director, Montana State University Extension, Bozeman, MT 59717.
