Farm Programs, Budget Costs, and the WTO

    CHOICES magazine has published an article discussing farmers’ ultimate decisions between the PLC and ARC crop insurance programs, the projected government budget costs for those programs now that the decisions have been made, and potential WTO implications that might arise from the new crop insurance policy.

    According to the USDA, the majority of corn, soybean, and wheat base acres, along with oats, were enrolled in the ARC program, while sorghum, rice, peanuts, and barley were predominantly enrolled in PLC. Nearly all the farmers that chose the ARC program opted for the county option rather than the individual. This split largely followed analyst expectations for projected payments over the course of the 5 year course of the programs, however some areas chose differently based on yield history for the region or other factors.

    In many cases where the projected long-term payout was very close between the two programs, growers seem to have chosen the option with the biggest return for 2014 rather than risk the uncertainties of the upcoming years.

    Projected payments over the life of the 2014 farm bill are both programs to average $5 billion a year. However, ARC payments are expected to rise in 2015 and then decline over the subsequent years. PLC payments are expected to remain relatively stable. While PLC payments have the potential to be fairly large in some cases, ARC payments make up the greater majority of the costs between the two programs due to the large acreage difference between the enrolled crops.

    The crop insurance changes under the 2014 Farm Bill could potentially have important implications for trade disputes and negotiations as they could be seen as distorting domestic production, arguably making the U.S. more vulnerable to WTO subsidy challenges.

    To read the full CHOICES article, complete with charts and figures, click here.

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