By TIM ALEXANDER

Illinois Correspondent

PEORIA, Ill. — A new report from the USDA’s Economic Research Service (ERS) documents the shift in payment distribution of government farm payments to larger farms operated by higher-income households.

Meanwhile, as talks begin for the 2018 farm bill, land-grant university economists are examining update options for the most popular risk management option available to farmers, in response to lower expected payments associated with continued low commodity prices.

The ERS report concludes that changes in the structure of U.S. agriculture have changed the distribution of commodity program payments, some conservation program payments and federal crop insurance indemnities, as agricultural production continues to consolidate.

In terms of direct financial support, commodity programs in 1999 accounted for 89 percent of the commodity and conservation program payments and crop insurance premium subsidies, according to Jonathan R. McFadden and Robert A. Hoppe of USDA-ERS.

Their report summary, The Evolving Distribution of Payments From Commodity, Conservation and Federal Crop Insurance Programs, was issued in November.

“By 2015, commodity programs amounted to just 43 percent, as the shares of spending from conservation and crop insurance support increased,” the authors found. In addition, the study confirmed that swings in commodity prices affected program payments and household incomes.

“Crop prices rose generally after 2002, with sharp fluctuations, reaching historic highs in 2008 and 2011-13. While higher prices limited commodity program outlays, they also contributed to sharp increases in household incomes for producers of field crops, including recipients of commodity program payments. Falling crop prices in 2015 led to reduced household incomes,” the study notes.

The shift in agricultural production to larger farms – along with commodity program payments and insurance indemnities – spans a timeline beginning in 1991 and continuing into 2015. During the span, large farms (those with gross cash income before expenses exceeding $1 million) increased their share of agricultural production from 23 to 41 percent.

At the same time, payments also shifted to farms with higher household incomes. This is due to the tendency for larger farms to be operated by people with higher household incomes. Conservation program payments also shifted to higher-income households, but more slowly, according to the ERS report.

McFadden and Hoppe concluded their report summary by noting that $1 in government payments does not necessarily become $1 of net benefit for farmers. “Program participation can raise farmers’ costs (e.g., some conservation programs require adoption of costly practices). Payments can also raise farmland rental rates and land values,” the researchers said.

A recent essay from agricultural economists from The Ohio State University and University of Illinois examined the impact of the decline in market prices since 2012 on the design of the ARC-CO (Agricultural Risk Coverage – County) program. Economist Carl Zulauf joined a trio of U of I colleagues – Nick Paulson, Jonathan Coppess and Gary Schnitkey – to publish their observations in an essay, Updating ARC-CO and the Next Bill: Market and Policy Design Considerations, published Nov. 30 on the U of I farmdocDAILY website.

“U.S. farm safety net policy is evolutionary. One evolutionary trait is updating reauthorized programs to reflect not only performance issues, but also changes in markets, budget constraints, the political process and policy objectives since the last farm bill,” the authors wrote.

“For example, target prices and loan rates have been routinely adjusted to reflect changes in market prices of both individual crops and all crops.”

The economists zeroed in on the impact of current market changes on the ARC-CO program, noting that because of the change in market price behavior, the popular program is expected to pay less per base acre for most crops over the new farm period than during the 2014-16 crop years.

“At present, more stable prices and revenues are expected, prompting the policy question of whether ARC-CO should be updated to reflect the change in market outlook,” they stated. “This policy question is consistent with an evolutionary trait of U.S. farm policy to adjust farm programs when market conditions change sufficiently.

“This policy question is also important because it is most common for prices and revenue to vary, but not trend up and down. Thus, unlike when the 2014 farm bill was written, it is now possible to discuss how ARC-CO should be structured to maximize its contribution to the farm safety net under ‘more normal’ market conditions.”

With an expectation of no further large downward trend in price and revenue, the economists concluded, one policy option points to raising ARC-CO’s coverage level above 86 percent. This would, in turn, reduce the revenue decline that triggers payments.

Other changes could include changing the program’s five-year calculation window to more likely include higher-price years, such as 2011-13, and increase ARC-CO’s 10 percent per-acre payment cap, according to Paulson, Schnitkey, Zulauf and Coppess.