ACRE VS. ARC: A FARM PROGRAM ANALYSIS

Lindsay Mitchell

Mar, 25, 2014  |  Today's News

Many Illinois farmers are concerned about farm program election – with good reason.  Rulemaking has started, farm program sign up is delayed, and you are being asked to purchase inputs and plant a crop without any idea of the safety net underneath you.

The University of Illinois’ Farm Doc Daily can be a good resource for your questions as rulemaking and program implementation gets underway.

Below is a short comparison of the ACRE program vs. the new ARC program that might help you decipher some of what’s coming down the line.  To read the entire article by Carl Zulauf and Gary Schnitkey, click here.

  • The 2008 farm bill reduced direct payment by 20% if a farm chose ACRE. Farms that elected ACRE were thus required to give up a known payment for an uncertain payment. The 2014 farm bill has no similar requirement since direct payments have been eliminated.
  • The 2008 farm bill had no floor on the ACRE price component. It could thus decline as low as the market price declined. In contrast, the 2014 farm bill has a floor exists for the ARC price component. The ARC price component can never be less than the PLC reference price, but it can be higher.
  • The 2008 farm bill used yield for the state in which the farm was located to determine the ACRE revenue target. The 2014 farm bill uses yield for the county in which the farm is located or the farm's yield itself to determine the ARC revenue target. ARC thus provides more protection against low yield (individual farm yields are more closely related to its county yield than its state yield).
  • The 2008 farm bill reduced a crop's loan rate by 30% for farms that elected ACRE. This reduction was a significant consideration for farms, especially large farms, which use nonrecourse loans to cash flow post-harvest expense payments or manage taxes. The 2014 farm bill has no similar provision, meaning farms electing ARC will have the same loan rates as farms electing PLC.
  • Under the 2008 farm bill, an asymmetric decision existed. Once a farm elected ACRE, the decision was irrevocable through the 2012 crop year. However, if ACRE was not elected, the decision could be revisited the next crop year. The net result was an incentive to not choose ACRE unless a payment by ACRE was highly likely. No similar asymmetric decision exists under the 2014 farm bill. Farms must choose between ARC and PLC for all crop years from 2014 through 2018. Once made, the ARC or PLC election is irrevocable for both programs through the 2018 crop year.
  • ACRE had to be elected for all covered crops on the farm. In contrast, ARC at the county level and PLC is elected by individual covered crop, unless ARC-Individual is selected, in which case the option applies to all crops. Thus, a farm may choose ARC for some covered crops on the farm and PLC for other covered crops on the farm.
  • Under the 2008 farm bill, the traditional direct and countercyclical program (DCP) was the default option. Thus, ACRE had to be elected. In other words, if a farm did not report a decision to the Farm Service Agency, it was deemed to have elected DCP. The 2014 farm bill does not contain a default program option. It does say that, if all producers on a farm do not have the same election, no payment is made for the 2014 crop year and the farm is defaulted to PLC for all covered crops for the 2015 through 2018 crop years.
  • ACRE's revenue target could not increase by more than 10% or decrease by more than 10% from the ACRE revenue target for the previous crop year. No cup and cap exist on the annual change in the ARC revenue target, although as noted above the ARC price component can never be less than the PLC reference price.