Despite Difficult Farm Economy, Farm Program Payments Decline Sharply | Michigan Farm News

Despite Difficult Farm Economy, Farm Program Payments Decline Sharply

Category: Politics

by Brent Gloy, Agricultural Economic Insights

Generic Farm Shot_MFN_2017

Government farm program payments have frequently provided a cushion during tough economic times. With the development of a new farm bill right around the corner, government farm programs will again capture the attention of farmers and agribusinesses.

The USDA’s Economic Research Service (ERS) recently released a new forecast of 2017 farm income and estimated that farm program payments would decline slightly in 2017. They estimate the government will provide payments of $11.2 billion in 2017. In real dollars this represents a 15% decline from 2016. This decline is rather substantial given that the value of agricultural production only increased by 0.3% in 2017.

This represents a continuing trend in which government farm program payments have represented a declining proportion of the value of farm production over time. Figure 1 shows how the magnitude of real (2017 USD) direct farm program payments have evolved over time. Today, direct farm program payments are on par with those seen in the mid-1990’s. The payment levels received in 2017 are actually less than those received from 2007 to 2010, a time of relatively strong farm profitability. They are substantially down from levels seen from the late 1990’s to the early 2000’s.

Chart 1_MFN_Dec_2017

One-Fifth of Net Farm Income

Although the absolute level of farm program payments has declined in recent years, they have recently accounted for a relatively large share of net farm income. Figure 2 shows the percentage of net farm income accounted for by direct farm program payments. In 2017 direct program payments accounted for 18% of the agricultural sectors net farm income. This level was last seen in the late 2010’s. The lowest levels seen were in the early 2010’s when they bottomed at around 9%. So today, payments are roughly double the proportion seen in that time.

Chart 2_MFN_DEC_2017

While high by recent standards, direct payment had often accounted for a much higher proportion of net farm income. For instance, from the late 1980’s to the early 1990’s government program payments regularly accounted for more than 20% of net farm income. In 2000, payments accounted for 46% of net farm income. In real dollars, those payments amounted to $32 billion dollars.

Declines Driven by Reduced ARC Spending

We have been discussing the expected decline in ARC-CO payments for some time. This projected decline started to become reality in 2017. Figure 3 shows how spending on the ARC, PLC, and conservation programs has changed from 2015-2017. After increasing in 2016, spending on ARC programs declined sharply in 2017. ERS estimates that the 2017 payments from ARC will be the lowest yet. This contrasts with PLC expenditures which have steadily increased over the life of the bill. Compared to last year, ARC spending is forecast to decline by 40% and PLC is set to increase by 57%. On the other hand, conservation program spending has remained relatively flat.

Chart 3_MFN_DEC_2017

Given the structure of the ARC program with its declining price guarantee and reports of strong yields in 2017, one can likely expect that this trend toward lower ARC program payments will continue for payments received in 2018. On the other hand, PLC payments which only depend on price levels will likely continue to be strong in 2018. (Read More)