NCIS Statement Regarding Professor Bruce Babcock’s ACRE Plan

May 14, 2010

Testimony of Professor Bruce Babcock released in advance of the House Committee on Agriculture hearing scheduled for May 14, 2010, on the 2012 Farm Bill, raised the idea of providing protection to farmers from systemic risk by using an area-based revenue plan. The plan would presumably cover all producers, be 100% subsidized and make a payment when actual county revenue fell below a target county revenue, similar to ACRE. Farmers would use crop insurance to insure their individual risks beyond the risks covered by the area plan.

Professor Babcock’s idea for a county-level ACRE plan has been around for several years and still leaves many conceptual and operational questions unanswered. One question is how to pay for the substantial additional delivery costs involved in simply giving this program to every producer. Farmers consciously make a decision to manage their risks when they choose to participate financially in crop insurance, which is in great contrast to the Professor’s suggestion. Other major issues with area plans are that they don’t protect farmers from individual losses nor do they work well particularly for farmers who do not grow conventional field crops. Certainly, most lenders wouldn’t accept this program as adequate collateral when providing operating loans to farmers. It is also important to recognize that county-based revenue insurance (GRIP) is already available to many producers through the Federal crop insurance program. Whether an existing program, delivered through the private sector and cost-shared with producers, should become a fully subsidized farm program run by the government is very questionable. It is early in the 2012 Farm Bill process and this idea, like some others now surfacing, needs much more evaluation.