Modeling Shallow Loss Crop Revenue Programs: Issues and Implications for the 2013 Farm Bill

Purpose – The purpose of this paper is to investigate changes proposed in 2012 to commodity programs for the new Farm Bill. Both the Senate and House Agriculture Committee versions of the new Farm Bill eliminate current commodity programs including direct payments, create new revenue-based commodity program options designed to cover "shallow" revenue losses, and also introduce supplemental crop insurance coverage for shallow revenue losses. Design/methodology/approach – This paper documents the payment functions for the new revenue programs proposed in both the Senate and House Ag Committee Farm Bills, and also estimates expected payments for each using a model based on historical county yield data, farmer-level risk rates from RMA, and commodity price levels from the March 2012 CBO baseline projections. Findings – The authors find significant variation in expected per acre payment across programs, crops, and regions. In general, the Senate's bill would be expected to be preferred over the House's bill for corn and soybean producers, particularly those in the Midwest. Also, the RLC program in the House's Bill typically would be projected to pay much less than the Senate's SCO or ARC programs for most producers in the Midwest. Originality/value – This study develops an extensive nationwide model of county and farm yield and price risks for the five major US crops and employs the model to evaluate expected payment rates and the distribution of payments under the House and Senate Farm Bill proposals. These analyses are important for program evaluation and should be of great interest to producers and policymakers.