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Farm Bill Options: What About Blending ARC and PLC Programs? – Commentary

Ernst Undesser
By Gary Schnitkey, Jonathan Coppess, Nick Paulson,University of Illinois Ag Economists; and Carl Zulauf, Ohio State University Ag Economist November 10, 2017

Farm Bill Options: What About Blending ARC and PLC Programs? – Commentary

©Debra L Ferguson Stock Photography

The 2014 farm bill required farms to choose between ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage). While overlap in payments can occur, ARC and PLC have different design components that suggest they are not substitute programs.

This suggestion is supported by an examination of payments per base acre made by these 2 programs for the 2014 through 2016 crop years. These observations and findings prompt a proposal to give farms a blended ARC-PLC election option of enrolling half of a crop’s base acres on a farm in ARC and half in PLC.

ARC vs. PLC Design

ARC is a revenue decline program, where decline is defined relative to 86% of a county or farm benchmark based on revenue from the market for the 5 prior crop years. PLC is a low national price program, where low is defined relative to 100% of a reference price set by Congress.

ARC payments are subject to a 10% per acre payment cap while PLC payments are subject to a much larger cap determined by the difference between the crop’s reference price and loan rate. Key design differences thus include decline in revenue vs. low price, market flexible vs. fixed support parameters, as well as different geographical foci, payment caps and coverage levels.

ARC-CO vs. PLC Payment

A scatter graph of ARC-CO vs. PLC payment per base acre by year for 2014 through 2016 crops of 10 covered commodities suggests payments by the 2 programs have a limited relationship (see Figure 1). A regression analysis confirms this suggestion.

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The relationship is significant and positive with 99% statistical confidence, but payments by one program explains only 32% of the variation in the other program’s payments.

Since extreme data can heavily influence a regression analysis, it was also conducted without peanuts and its large PLC payments. Explanatory power dropped to 4% (see Figure 2). The data used in the scatter graph and regression analysis are in Table 1.

ARC-CO made payments to all 10 crops in all 3 years, although some payments were small. ARC-CO almost always makes payments to at least some counties due to low yields.

In contrast, PLC made no payment in 16 of the 30 crop-year observations. Four crops received no PLC payment, including soybeans. PLC can also make large payments, as illustrated by the per acre payments for peanuts.

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Summary Observations

  • Over the 2014 through 2016 crop years, a positive relationship has existed between average per acre payment by ARC-CO and PLC, but the relationship has low explanatory power.
  • A low explanatory power is not unexpected since ARC and PLC have different designs. Key design differences include decline in revenue vs. low price, market flexible vs. fixed support parameters, as well as different geographical foci, payment caps, and coverage levels.
  • Design differences translate into different payment flows, as illustrated by the different payment flows for ARC-CO and PLC over the 2014 through 2016 crop years.
  • Consistent with past farm bills, including 2014; farms are expected to have the option of signing up for a new program starting with the 2019 crop. If current programs are reauthorized in a similar form, farms will have 2 options for a given crop on a given FSA farm: ARC or PLC.
  • The preceding discussion suggests consideration be given to adding a 3rd option: a 50-50 blended ARC – PLC option of enrolling half of a crop’s base acres on a FSA farm in ARC and half in PLC. This 3rd option would provide farms with some assistance for declines in revenue via the ARC portion of the blended option and with some assistance for low prices relative to the reference price via the PLC portion of the blended option.
  • The blended ARC-PLC option would be potentially most useful to covered commodities for which notable uncertainty exists whether ARC or PLC will make the highest payments.

Gary Schnitkey, Jonathan CoppessNick Paulson, and Carl Zulauf 


Source: : http://farmdocdaily.illinois.edu/2017/11/are-arc-co-and-plc-substitute-programs.html

Ernst Undesser
By Gary Schnitkey, Jonathan Coppess, Nick Paulson,University of Illinois Ag Economists; and Carl Zulauf, Ohio State University Ag Economist November 10, 2017