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The Role of Risk Management Education in the 2018 Farm Bill

Silver grain elevators in Gilbert, Arizona, USA with pink setting sun

Shannon Neibergs – Director, Western Extension Risk Management Education Center
Jo Ann Warner – Associate Director, Western Extension Risk Management Education Center

Financial risk in agriculture is broadly increasing in response to market threats posed by tariffs and reduced international trade. This in turn results in an increase in carryover stocks, depressing market prices. Production uncertainty due to recent and ongoing climate events poses further financial challenges. Recent news reports and agricultural data highlight increasing financial risk indicators such as loan delinquencies, bankruptcy filings and farm liquidation sales.  Financial security whether real or perceived, can limit producers’ decision-making capacity.

In the face of economic uncertainty, the 2018 Farm Bill, known as the Agriculture Improvement Act of 2018, is one major tool that provides a range of programs which help farmers and ranchers mitigate agricultural risks. With this legislation now passed by Congress and signed into law by the President, agencies are required to publish rules in the Federal Register that explain how the legislation will be administered and implemented by each respective agency. Outlays for the Farm Bill Budget are approximately 23% for crop insurance, commodities, conservation and other programs; while nutrition comprises the remaining 77%.

The sign-up opening date for commodity programs began on September 3, 2019 and has an enrollment deadline of March 15, 2020 for the 2019 program and June 30, 2020 for the 2020 program. Updated farm program decision tools developed by the University of Illinois and Texas A&M are now available. Two decisions, on yield update and Agriculture Risk Coverage (ARC) versus Price Loss Coverage (PLC) program sign-up can be evaluated after entering Farm Service Agency (FSA) farm information into the decision tools. Both tools use price and yield probability functions and can be accessed from the following FSA webpage.  Links to the web tools can be found by clicking on the “Resources” box on this page.

The new Dairy Margin Coverage program (which revised MPP-Dairy), was updated with modified rules prior to the enactment of the current bill.  The insurance-like program introduced in the 2014 Farm Bill did not perform to its design expectations so was modified to better support dairy farmers in times of financial stress.  Producers feel it is an improvement over the original MPP, given that many paid more in premiums than they received in indemnity payments. Many parameters of the program were modified to make it more beneficial to the farmer. For instance, a producer can elect coverage each year at signup or he/she can elect coverage once for the entire five years of the Farm Bill and receive a 25% discount on premiums.

The Farm Bill provides an overall 2% increase in funding for conservation programs. The Conservation Reserve Program (CRP) acreage cap increased from 24 to 27 million acres and there will be expanded opportunities for CRP land management. However; the CRP rental rates are restricted to no more than 85 percent of the county rental rate for general sign-up and no more than 90 percent of the county rental rate for CRP continuous sign-up. This change was designed to better align CRP rental rates with market rental rates to improve farmland availability for farmers and ranchers seeking to rent farm ground. There is both opportunity and complexity involved with the varied conservation programs so it will be important to investigate which programs best serve producers’ goals.

In addition to commodity and conservation programs – there are targeted producer programs that benefit beginning, small, Veteran, socially disadvantaged/limited-resource (SDFR) and urban farmers. Data from the 2017 Census of Agriculture shows that the average age of new farmers is 46.3 years, nearly a decade lower than the age of more experienced farmers; whereas the age of Veteran farmers is 67.9, which is over a decade older than the average. Many of these groups include farm families with low or limited financial resources. The Farm Bill improves the Noninsured Crop Assistance (NAP) Program to include better risk management coverage options for beginning and underserved farmers and ranchers.  Further provisions in the Credit Title allow emergency loans to farmers, raise loan limits on Direct Operating Loans to $400,000 and Direct Farm Ownership Loans to $600,000.   The Conservation, Rural Development and Miscellaneous Titles ensure options for minimizing loss and provide training and technical assistance for underserved producers – specifically, the Beginning Farmer and Rancher Development Program (BFRDP) and the Outreach and Assistance to Socially Disadvantaged and Veteran Farmers and Ranchers Program.

The Farm Bill has reallocated resources and programs to target underserved producers. We encourage our agricultural educators to utilize these resources and tools to help producers – especially underserved producers that may have limited awareness of RMA and FSA risk management programs. Presentations from the ERME National Farm Bill Conference held in May 2019 are available; as well as presentations from the Southern ERME region’s Farm Bill training for socially disadvantaged farmers and ranchers. Both provide information on decision aids and targeted producer programs.   The Farm Bill provides excellent opportunities for building collaboration with qualified partners within and between states that can strengthen outreach to producers and ensure their solid participation in training and education that can lead to more effective risk management; as well as the confidence to make sign-up decisions for Farm Bill programs.

Expected on-going low farm profitability will increase the importance for risk management education and training to help producers manage through their current situations and the constraints imposed by weather, trade and competitive market factors. As the complexity increases around the program options, coverage types, crop insurance products and varied programs – so do the challenges for producers. Their ability to make sound production, marketing, financial, legal and human risk decisions can be compromised without adequate training and education to bolster their knowledge and skills necessary to implement these programs.  The Extension Risk Management Education (ERME) Grant Program has helped to train hundreds of thousands of farmers and ranchers; and it is through our extended network of agricultural educator professionals that we will continue to help producers change their practices for sustained economic viability in their farm and ranch operations.