ARC and PLC as a Safety Net: How Effective are They?

Abstract

The 2014 Farm Bill allowed farmers to choose between Agriculture Risk Protection (ARC) and Price Loss Coverage (PLC). The choice between ARC and PLC was made in a high commodity price environment that did not require a safety net for farmers. The purpose of a farm safety net is to pay farmers in need but avoid making payments when payments are not needed. The study analyzes the decision made by farmers and determines if ARC and PLC provide a viable safety net. The study utilizes data collected by the Agricultural and Food Policy Center (AFPC) from representative farms across the country as well as data from farmdoc at University of Illinois. The study analyzes the economic loss seen by the representative farms and if ARC or PLC provide the support needed when facing such economic loss. The analysis is done by looking at historic data as well as a stochastic simulation of the farms going forward. ARC was described as a shallow loss program and proved to help farmers in the years of decline from the record high prices leading up to the 2014 Farm Bill. However, the analysis shows that ARC provides support at times when no loss is seen while not providing support at times when support is needed. PLC provides support to a farmer whenever the price of corn falls below $3.70 and shows to provide better long-term support.