Reference Price Disparities & Why It Matters to Farmers

The Chairman of the House Agriculture Committee recently released additional details of a farm bill proposal in advance of a markup scheduled for May 23, 2024. (House Agriculture Committee, Press Release, May 10, 2024). At the top is a 10% to 20% increase to statutory reference prices to “account for persistent inflation and rising costs of production” (House Agriculture Committee, Title-by-Title Summary, May 10, 2024). Important details are yet to be released (which crops receive what level of increase; how much it will cost), but the emphasis is clear and recent history provides guidance on what to expect. The recent proposal by the Chairwoman of the Senate Agriculture, Nutrition, and Forestry Committee is also instructive, proposing increases to statutory reference prices only for seed cotton, rice, and peanuts (Senate ANF Committee, Section-by-Section, May 1, 2024). Without a change in trajectory, any 2024 Farm Bill is likely to produce different reference price increases for different program crops. Doing so will add to the existing disparities among farmers. Increasing reference prices has important implications on the topline spending projections by CBO (see e.g., farmdoc daily, May 14, 2024). Buried beneath these projections are implications for farmers. Critical to this is an oddity unique to the farm payment programs (Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC)): base acres. The payments from these programs are decoupled from what a farmer plants and, thus, from the risks of producing the crop, as well as its costs. This article discusses some of the implications of the imbalance in reference prices and base acres.