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The Agricultural Improvement Act of 2018
THE AGRICULTURAL IMPROVEMENT ACT OF 2018
Highlights of the New Farm Bill
BY CRAIG COLLINS
On Dec. 20, 2018, President Donald Trump signed an $867 billion farm bill, officially known as the Agricultural Improvement Act of 2018, that reauthorized and made minor modifications to programs and funding levels authorized in the 2014 farm bill. The bill was passed by an overwhelming bipartisan majority; the 87-13 vote in the Senate was the largest Senate majority ever for a farm bill.
Earlier, in May, a vote had actually failed in the House of Representatives, amid controversiesabout work requirements for beneficiaries of the Supplemental Nutrition Assistance Program (SNAP, or “food stamps”) and immigration policy for agricultural workers, but toward the end of the year, factors converged that compelled negotiators to smooth over differences between the House and Senate versions. First, several provisions of the 2014 farm bill expired on Sept. 30, the end of the fiscal year, without replacements. Second, in November, the Economic Research Service (ERS) of the U.S. Department of Agriculture issued a grim Farm Income Forecast for 2018: The nation’s net farm income, the service projected, was set to drop 12 percent from the previous year, even after the first round of “trade aid” payments announced by the U.S. Department of Agriculture (USDA) in July were factored into the equation.
When Democrats won control of the House of Representatives in the November mid-term elections, lawmakers from both parties understood that to delay further would mean beginning negotiations from scratch when the 116th U.S. Congress was seated in January 2019. The farm bill that resulted offers very few truly new provisions, but does extend a variety of
supports for U.S. farmers, as well as greater flexibility in choosing among them.
Though the provision for stricter work requirements for SNAP – by far the largest USDA-administered program, accounting for 80 percent of farm bill spending – was eliminated from the bill signed by Trump into law, the administration immediately unveiled a plan to toughen work requirements by restricting the ability of states to waive existing requirements. According to Agriculture Secretary Sonny Perdue, the proposed changes would be entered into the Federal Register and subject to a 60-day period for publiccomment. That was subsequently delayed when most USDA activities were suspended amid the 35-day government shutdown that began on Dec. 22. However, the rule change was submitted on Feb. 1, 2019, soon after the government reopened on Jan. 25, 2019. The comment period ends April 2, 2019.
RISK MANAGEMENT TOOLS
The Trump administration’s trade war, which by the end of 2018 had widened to include conflicts with China, Mexico, Canada, Europe, and Turkey, provoked retaliatory tariffs on U.S. agricultural products, which in turn caused most prices to plunge for American producers. While trade war-associated risks aren’t addressed specifically by the farm bill (affected farmers are being supported with $12 billion in subsidy payments, much of them distributed through USDA’s Market Facilitation Program), they provide a textbook example of the unexpected pitfalls American producers confront every year.
President Donald Trump signs the $867 billion Agriculture Improvement Act of 2018 on Dec. 20, 2018, at the White House.
OFFICE OF REP. ROGER MARSHALL
Most of the tools offered by the federal government to manage these risks are contained in two farm bill titles: Title I, which covers federal commodity programs, and Title XI, which covers crop insurance. According to Art Barnaby, a professor of agricultural economics at Kansas State University who has spent his career studying and working on crop insurance and commodity programs, the 2018 farm bill offers modest changes to federal crop insurance. “What they didn’t do with the crop insurance title is probably more important than what they did do,” he said, “because what they didn’t do is put in payment limits, or limit the size of the farm in any way, at least for commodity farmers. ... If you’re willing to pay the premium, you can buy coverage.”
Barnaby thinks the commodity title, which establishes an arcane set of rules and procedures for supporting prices and farm income, was the more interesting component of the new farm bill. In their current form, farm commodity programs support farm income through the use of supply controls. The 2014 farm bill, in a sweeping change, eliminated direct payments to farmers and replaced them with two programs: Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). Each provides support under adverse price or yield conditions at levels above the application of regular crop insurance, but they’re subtly different: PLC payments are triggered when a commodity’s average marketing year price falls below a reference price (formerly “target price”) established in a farm bill. ARC payments are triggered if the actual revenue from all covered commodities falls below a guaranteed level. Generally, PLC is aimed at steep, multi-year price declines, and the 2014 farm bill offered farmers a one-time opportunity to select either ARC or PLC on a commodity-by-commodity basis – a selection that was binding for the five-year life of the farm bill.
James Matheny and his wife operate Stonewall Angus LLC, in Fairplay, Maryland, where he markets his grass-fed beef directly to the public from his 60-acre farm. Matheny also grows grain crops and makes hay on several rented farms. He participates in several USDA programs that are funded by the farm bill, such as Agricultural Risk Coverage and Price Loss Coverage and the Conservation Reserve Program.
USDA PHOTO BY PRESTON KERES
The 2018 farm bill offers farmers more flexibility: the chance to choose either program for the 2019 and 2020 crop years, and then, in 2021, to make annual choices between PLC and ARC on a crop-by-crop basis. Barnaby said the new bill also makes subtle but significant improvements to the ARC’s revenue protections: To calculate benchmarks and yields, the program will switch from using data gathered by the National Agricultural Statistics Service (NASS) and derived from individual farmers’ survey responses to data and trend-adjusted yield factors supplied by Risk Management Agency (RMA) of USDA’s federal crop insurance program.
“In areas where you’ve got 80 percent of the acres insured under a particular crop practice,” Barnaby said, “you’re pretty close to capturing the entire population with RMA data. You should come up with a very accurate county yield. When you have to revert to representative farms, that’s when data gets really thin and some judgment calls will have to be made.”
Federal marketing loans, an indirect means of supporting farm income, are also covered under the commodity title of the farm bill. The 2018 bill increases loan rates for most commodities and eliminates the payment limit. Loan rates provide a “floor” under commodity prices, since producers can, when the market price is lower, claim a payment for the difference between the price and the loan rate.
Title I also offers enhanced support for dairy producers, creating a Dairy Margin Coverage (DMC) program that reduces premiums on the first 5 million pounds of production, raises top margin coverage levels, and offers discounts and refunds to those who participated in the DMC’s predecessor, the Margin Protection Program (MPP).
Direct farm loans for farm ownership and operation, administered under Title V of the farm bill by the Farm Service Agency (FSA), were expanded by the 2018 legislation: The limit on direct ownership loans was raised from $300,000 to $600,000, and the limit on direct operation loans is raised to $400,000. The limit on guaranteed loans was raised from $1.25 million to $1.75 million.
Dairy cattle at Reinford Farms. The 2018 farm bill includes enhanced support for dairy producers through the new Dairy Margin Coverage program.
USDA PHOTO BY PRESTON KERES
Dairy cattle at Reinford Farms. The 2018 farm bill includes enhanced support for dairy producers through the new Dairy Margin Coverage program.
CONSERVATION PROGRAMS
Conservation programs, covered in Title II of the farm bill, are risk management tools as well; they offer producers support for preserving the integrity of natural resources that help determine the long-term prosperity of a farm or ranch.
Title II changes in the 2018 farm bill were subtle as well. The Conservation Reserve Program (CRP), USDA’s flagship conservation program, was established in 1985 to provide incentives for farmers to take marginal lands out of production for at least a decade and instead convert them into vegetative cover – windbreaks, riparian buffers, or grasslands, for example. The 2018 bill increased the maximum enrollment in CRP from 24 million acres to 27 million acres. To offset the cost of that increase, legislators capped program payments at 85 percent of local rental rates (90 percent, if farmers enroll through continuous sign-up).
The Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP) were also funded as stand-alone programs by the farm bill, though an earlier House version of the bill proposed folding CSP into EQIP. Both programs were developed to promote production and improve environmental quality by providing payments and technical and educational assistance, but according to Jim Moseley, a longtime USDA policymaker who helped to craft both programs, they’re structured differently: EQIP offers grant funds to farmers who commit to making environmental improvements such as planting cover crops, while CSP rewards them, in the form of annual payments, for the results of comprehensive steps taken to conserve resources such as water, soil, and air.
CSP’s longer-term focus makes it a more effective tool for preserving environmental integrity, but the 2018 farm bill, while keeping CSP alive, siphons about $800 million from it annually, to be spent on EQIP and other programs. Why? “Because EQIP is far more politically popular than CSP,” Moseley said.
“Think about it: If you’ve never done anything [to conserve natural resources], and you decide you need to change your farm in some way, you can get some cost-share money up front through EQIP. That’s better than having to make the investment and the effort, moving forward with a plan, and finally producing the result – and then signing up for a program that says, ‘OK, I’ll give you a reward for having done that.’”
The 2018 farm bill also creates a new pilot program, the Soil Health and Income Protection Program (SHIPP), to evaluate the feasibility of allowing farmers to take land out of production for shorter periods than allowed by CRP. SHIPP, introduced by Sen. John Thune, R-S.D., is a voluntary program, limited to 50,000 acres in the Upper Midwestern “prairie pothole” states. Another new initiative within CRP, the Clean Lakes, Estuaries and Rivers (CLEAR) program, is aimed at improving water quality by protecting waterways from pesticide and fertilizer runoff.
Kale grown through aquaponics at Mayim Farm in Opp, Alabama. In 2016, Mayim Farm’s owners received funds through the Environmental Quality Incentives Program (EQIP) to construct a hoop house that has enabled them to extend the growing season on some crops and start growing earlier on others. They have also been approved for financial assistance in completing a written transition plan from traditional to organic production. The farm bill authorizes funding for various conservation programs, including EQIP, as well as support for farmers who want to become certified organic producers.
USDA PHOTO BY PRESTON KERES
BEYOND THE STATUS QUO
Legislators, journalists, and observers throughout the agriculture industry – including Moseley, who retired to his farm in Indiana after serving as USDA’s deputy secretary in the George W. Bush administration – have called the 2018 farm bill a “status quo” law that generally sustains existing farm and nutrition policies. The new farm bill, Moseley said, “was literally a matter of balancing out interests and moving around money. We didn’t change very much in this farm bill, compared to others. There was nothing that was extremely new or innovative.”
The USDA’s Economic Research Service’s projection that 2018 net farm income was set to drop 12 percent from the previous year spurred legislators to smooth out differences between House and Senate versions of the new farm bill in order to get it passed.
USDA ECONOMIC RESEARCH SERVICE
Whether you agree with Moseley may depend on your definition of “extremely.” The Agriculture Improvement Act of 2018 did contain some new wrinkles that got some people excited:
• The bill legalized the production of industrial hemp and allowed for its regulation by states and tribes under USDA-approved plans. Specifically, the bill eliminates hemp from the definition of “marijuana” under the Controlled Substances Act and creates an exemption for the small amount of THC (marijuana’s psychoactive compound) in hemp, which is grown primarily for fibers used to make rope and textiles – but which may be increasingly valued for another compound, cannabidiol (CBD), a non-psychoactive substance used in health and wellness products. Industry estimates for the future value of the hemp-derived CBD market range from $1.3 billion to more than $22 billion annually. The new farm bill also makes hemp eligible for crop insurance.
• A number of provisions in the bill encourage an increase in the amount of organic food grown in the United States. It establishes permanent funding for organic research – to $50 million a year by 2023, up from the current $20 million. The bill also relieves some of the costs incurred by farmers who want to become certified organic, and allows for stricter scrutiny of organic imports. The Organic Trade Association hailed the 2018 farm bill as “an historic milestone.”
• The bill provides unprecedented support to new and socially disadvantaged farmers. It combines two existing programs, the Beginning Farmer and Rancher Development Program and the Outreach and Assistance for Socially Disadvantaged Farmers and Ranchers and Veteran Farmers and Ranchers Program, into the Farming Opportunities Training and Outreach (FOTO) Program, a grant program funded at $435 million over 10 years. It also creates a national beginning farmer coordinator position at USDA, as well as designated coordinators in each state to help with outreach efforts. “The new farm bill,” wrote the Sustainable Agriculture Coalition in a Dec. 12 press release, “includes an ambitious new farmer agenda and makes historic investments in training and outreach initiatives.”
A field of industrial hemp at the University of Kentucky College of Agriculture, Food and Environment’s Spindletop Research Farm in 2015. The Agriculture Improvement Act of 2018 legalizes the production of industrial hemp and makes it eligible for crop insurance.
UNIVERSITY OF KENTUCKY AGRICULTURAL COMMUNICATIONS SPECIALIST/PHOTOGRAPHER STEVE PATTON
It’s understandable that Jim Moseley, who grows commodity crops in Indiana, isn’t as passionate about these new provisions as others. “There were nuanced changes, of course, all the way through the new farm bill,” he said. “The effect it had on me as a farmer is that now I get to evaluate whether I want to use PLC or ARC as my Title I mechanism. I do have choices now that I didn’t have before. Those are small things. But they’re good things.”
