Figuring out risk insurance under the 2014 Farm Bill

The 2014 Farm Bill presented AFRE farm management economists with a major challenge and a tight deadline.

January 11, 2016

David Schweikhardt

The 2014 Farm Bill presented AFRE farm management economists with a major challenge and a tight deadline. 


Farm bills are not new to U.S. agricultural economists.  Every five years or so, Congress passes a bundle of legislation that defines agricultural, nutrition, conservation and forestry policy for years ahead. The resulting farm bill covers programs that can help farmers maintain profitability while also helping provide low-income consumers access to food.


The 2014 Farm Bill (officially the Agricultural Act of 2014) broke new ground. It dramatically changed the types of risk management programs available to farmers. It gave crop farmers the choice between two commodity programs: the Price Loss Coverage (PLC) and the Agricultural Risk Coverage (ARC) programs. These are much more focused on revenue risk than previous Farm Bill programs.


The Farm Bill also included two other risk management programs.  The Dairy Margin Protection program focuses on margin risk and has insurancelike features. The Noninsured Crop Disaster Assistance Program (NAP), which provides protection against low yields associated with weather events, was restructured to allow farmers to buy coverage on yields of crops for which federally subsidized crop insurance is not available. Deductibles from 35 percent to 50 percent at the full USDA/FSA market price can now be purchased as “buy-up” coverage.


The PLC program compensates farmers when prices on their crops fall beneath a certain level; the ARC provides payments when crop revenue falls below a benchmark level. These programs were free to enroll in. Dairy Margin protection, on the other hand, pays farmers when the margin falls below a level chosen by the farmer. There is a charge for higher levels of protection. Likewise, there is a premium associated with NAP buy-up.


How should a farmer pick the best options for his or her risk profile?  That was the question facing a team of four AFRE department professors and five MSU extension educators as farmers faced important choices on program participation in the winter of 2014-15.


Working together, members of the Farm Information Resource Management (FIRM) team created decision-support tools, publications and web resources to help farmers understand the new bill. The FIRM team focused on three main commodity programs: the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs and the Dairy Margin Protection Program; and one crop insurance program, the Noninsured Crop Disaster Assistance Program.


Farmers had to decide between ARC and PLC for the entire five-year Farm Bill period -- through 2018. The decision was irrevocable, and the deadline was April 7, 2015. With commodity prices dropping in early 2015, farmers had to make smart decisions to protect their farms. The Dairy Margin Protection Program and Noninsured Crop Disaster Assistance programs allow choice for coverage annually over the course of the Farm Bill, so their deadlines were less urgent.


The FIRM team responded by building comprehensive software and helpful documentation to guide farmers’ decisions.  The team created a website through MSU Extension with access to the tools and information.


“Translating those rules into a useful decision-making tool was probably the biggest challenge,” said David Schweikhardt, AFRE professor.


To assist with the choice between the Agricultural Risk Coverage and the Price Loss Coverage programs, the FIRM team, under the leadership of MSUE educator Roger Betz, offered an Excel spreadsheet that predicts alternative outcomes.  A farmer enters into the spreadsheet historic information about the farm along with expected yields and crop prices.  The spreadsheet ties that information into Farm Bill rules to predict costs and potential outcomes from alternative decisions.


For the Noninsured Crop Disaster Assistance Program and Dairy Margin Protection Program, professors J. Roy Black and Chris Wolf helped to create web-based decision aids.


To familiarize Michigan farmers with the 2014 Farm Bill decision tools, the FIRM team hosted 110 presentations throughout the state. Many of the workshops were conducted jointly with the USDA Farm Services Agency.  The corn, soybean and wheat grower organizations, Michigan Farm Bureau and Greenstone Farm Credit provided additional support. For Schweikhardt and the FIRM team, the presentations were the most engaging part of the program because they gave the team an opportunity to hear the concerns of farmers directly.


 “The team was really engaged, and they clearly did a good job,” Black said. “The group really did pull it off.”

The FIRM team’s timely effort was recognized by the 2015 Institute Team Award from MSU Extension, which is presented to teams of MSU Extension staff members who “possess the highest standards of integrity and character to positively reflect and enhance the reputation of MSU Extension.”


The FIRM team will continue providing educational programming for the Dairy Margin Protection and Noninsured Crop Disaster Assistance programs throughout the life of the Farm Bill.


--Marie Orttenburger

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