Evaluating ARC-Individual as a Producer Safety Net Choice

Abstract

The U.S. has a history of providing a safety net to producers of agricultural commodities. Commodity safety net programs have evolved overtime and attempted to stay current with the nature and conditions of farms and commodity sectors. Currently, producers have three main program options (established by the 2014 farm bill): Price Loss Coverage (PLC), County Agricultural Risk Coverage (ARC-CO), and Individual Agricultural Risk Coverage (ARC-IC). The first is price-based; the latter two are revenue-based on county and individual levels, respectively, and are dependent upon both price and yield. The objective of this study was to develop an ARC-IC decision tool to evaluate ARC-IC under risk. The decision tool generates stochastic prices and yields and calculates the range and probabilities of potential ARC-IC payments based on individual farm information. A secondary objective was to evaluate case studies using the ARC-IC tool to identify situations for which ARC-IC is a viable option relative to PLC and ARC-CO. In the 2014-2018 commodity program election, ARC-IC was unpopular relative to PLC and ARC-CO. In 2019, the Midwest experienced major flooding, and as a result, many producers could not plant crops. A prevent plant (PP) rule included in ARC-IC caused producers affected by the flooding to consider ARC-IC as a viable option, especially with the shortened, two-year program election. The model results indicated ARC-IC is a viable option for farms with 100 percent PP in 2019, however, producers should consider whether the maximum ARC-IC payment in 2019 makes up for the risk of zero payment in 2020. Farms with yield losses in 2019 may also consider ARC-IC, but with more attention on the analysis of risk associated with potential payments. Again, the 2020 ARC-IC payment risk should factor into the decision, and producers should evaluate and compare two years of potential PLC or ARC-CO payments relative to ARC-IC. The ARC-IC decision tool was useful for commodity producers wanting to evaluate potential ARC-IC payments to inform decisions regarding their farm safety net. Producers can benefit from this evaluation of ARC-IC and use of a future updated version of the decision tool when annual program election begins for 2021.