Identifying Overlap in the Farm Safety Net
by
Erik O'Donoghue,
Anne Effland,
Joseph Cooper, and
Chengxia YouEconomic Information Bulletin No. (EIB-87) 38 pp, November 2011
What Is the Issue?
Recent public discussion of Federal farm programs has suggested
that the current array of programs, constructed over time through
successive farm acts and other legislation, has created the
potential for overlap among programs. While the Government
Accountability Office (GAO) has explored overlap with respect to
fraud, it found little systematic evidence of such abuse. However,
farmers often receive payments from multiple, similar programs,
which suggests to some observers that overall payments from these
multiple programs could exceed actual losses. Identifying and
measuring overlap could help to trim Federal spending while
maintaining a farm safety net capable of meeting the needs of
farmers and the broader society.
What Does the Study Propose?
Because many U.S. farm programs are designed to prevent actual
duplication of coverage, assessing overlap in programs depends
largely on how overlap is def ned. This report offers a conceptual
framework for identifying program overlap in the farm safety net
and an exploration of how to measure that overlap. We propose a
typology of overlap as the basis for identifying program overlap
and, within that framework, explore the interactions between the
new Average Crop Revenue Election (ACRE) and Supplemental Revenue
Assistance Payments (SURE) programs and crop revenue insurance, as
well as avenues for further research into other forms of
overlap.
• To identify the potential overlap of farm safety net programs,
we classified overlap as falling into two broad categories:
o Type I-Multiple types of support that
together provide coverage above levels intended by any of the
individual programs, including cases of actual duplication where,
for example, multiple payments compensate for the same loss;
and
o Type II-Patterns of participation in multiple
programs that may offer coverage of the same commodity and/or risk
so that, even though coverage does not exceed intended levels for
any individual program, total support still exceeds levels
necessary to meet farm safety net goals of maintaining farm
business viability.
• This report focuses on Type I overlap. To examine and measure
Type I overlap, ERS researchers adopted the concept of considering
Government program benefits as farm income, based on the model
incorporated in the new SURE program. ERS researchers identified
specific overlap of risk coverage among the ACRE, SURE, and crop
insurance programs. For example, if the ACRE payment was integrated
into a revenue-based crop insurance program to eliminate overlap
between the two programs, premiums could decrease between 20 and 38
percent for a State-level ACRE program, depending on the farm/crop
combination explored.
• Many risk management programs are designed to preclude overt
duplication. However, overlap among them may occur because
different programs may protect producers from similar risks at
different points in time or under several different risk scenarios.
For example, a crop yield insurance policy covers potential
production losses for an individual crop on a farm without
reference to prices, covering a pre-harvest risk. Meanwhile, SURE
covers post-harvest whole-farm revenue losses that reflect gains
and losses for multiple commodities and for production and/ or
price-based losses. The combination of risk management programs
with income support programs may provide a more overt form of
overlap, since precautions to prevent such duplication have not
been incorporated into policy design.
How Was the Study Conducted?
The study is intended to provide a conceptual framework for
considering the question of overlap in the U.S. farm safety net.
The conceptual framework was developed from exploration of the
economic literature and public debate on the U.S. farm safety net
and potential overlap/ duplication among programs, culminating in
the proposed typology of farm program overlap to guide further
research. The typology is explored through a review of recent and
ongoing work that explores the operation of the new programs under
the 2008 Farm Act-ACRE and SURE- and their interactions with
Federal crop insurance and ad hoc disaster assistance programs.
Additionally, we use Farm Service Agency (FSA) program
administrative data, county-level Risk Management Agency (RMA)
data, and individual payment data reported by FSA to the Internal
Revenue Service (IRS) to illustrate the patterns of farmer
participation in various programs.