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Monday, December 27, 2010

A New Farm Program Option: Average Crop Revenue Election (ACRE)

Dennis A. Shields
Specialist in Agricultural Policy

Farm commodity programs over the decades have focused on protecting farmers against declines in farm prices and not declines in revenue (price times production). Traditional programs for field crops provide benefits to producers when farm prices drop below specified levels. To help farmers manage their revenue risks, Congress included the Average Crop Revenue Election (ACRE) program in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246) as a revenuebased program option for farmers who enroll in traditional farm commodity programs. Unlike revenue protection provided by some crop insurance products, ACRE is designed to protect against losses from multi-year price declines.

The ACRE program pays a farmer when two conditions are met: (1) state-level revenue for a crop falls below a guaranteed level, and (2) the farmer experiences an individual crop revenue loss. (Payments for each crop are calculated separately.) If farmers select ACRE, they forgo 20% of their direct payments under the Direct and Counter-cyclical Payment Program (DCP), and commodity loan rates under the Marketing Assistance Loan Program are reduced by 30%. Also, ACRE participants are not eligible for counter-cyclical program payments under DCP. When deciding to participate in ACRE, producers must consider the trade-off between reduced benefits under traditional programs and the expected increase in revenue risk protection and potential payments provided by ACRE.

Once a farm is enrolled in ACRE, the program applies to all eligible crops on that farm. A farmer who operates more than one farm may elect to enroll one or all of the farms in ACRE. Importantly, once a farm is enrolled in ACRE, it must remain in the program for subsequent crop years (the program covers crop years 2009 through 2012). For the 2009 crop year, approximately 8% of the total number of farms elected to participate in ACRE, representing nearly 13% of base acres (total program acreage). In November 2010, USDA began issuing approximately $420 million in 2009 ACRE payments for wheat, corn, barley, dry peas, grain sorghum, lentils, oats, peanuts, soybeans, and upland cotton, with about 70% of the total expected to be issued to wheat producers and 23% to corn producers.

In its March 2009 baseline, the Congressional Budget Office estimated that ACRE program payments will total $4.9 billion during FY2010-FY2014, with corn, soybeans, wheat, and sorghum accounting for nearly all of the total. These five-year figures compare with $22.1 billion for direct payments, $3.6 billion for counter-cyclical payments, and $0.8 billion for marketing loan program benefits. The estimates account for reduced traditional program payments for farmers who participate in ACRE.

In the next farm bill debate, Congress will likely be interested in the effectiveness and cost of ACRE, particularly how it reduces revenue risk for producers of program crops. Program effectiveness will likely be measured in part by whether payments in fact reach farmers who experience revenue losses, and to what extent ACRE complements crop insurance and other farm commodity programs. Some have suggested a county-based ACRE program might better address local needs, while others say such an option could adversely affect crop insurance participation.

Beyond the program itself, the introduction of ACRE to U.S. farm policy provides a unique opportunity for farmers to trade benefits in one program for those in another. In the next farm bill debate, policymakers may find different trade-offs with other agricultural programs or policy objectives. This may be particularly relevant as concerns about the federal deficit mount.

Date of Report: December 10, 2010
Number of Pages: 14
Order Number: R40422
Price: $29.95

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