A government-supported Farm Savings Account (FSA) could be utilized as a way to reduce the income risk farmers face and provide an addition or alternative to traditional risk management programs. The primary idea is to encourage farmers to set aside funds in high-income years. Instead of the farmer investing available cash back into the farming operation in high net-revenue years, at least some of the free cash could be deposited into the FSA. If a farmer or the government has deposited funds in the account, the funds could be withdrawn to pay farm and family living expenses in low-income years. FSAs are most attractive when farm debt levels are low. Otherwise debt repayment may be a more attractive option. One of the main problems with FSA programs is building a meaningful fund balance in the early years of the program. Also, farmers with persistent low incomes might struggle to build sufficient funds necessary to cover even lower income years.
FSAs have been discussed as an addition to current commodity and crop insurance programs and alternatively as a replacement for existing farm programs. They have also been discussed as accounts with tax benefits and those without. If the program is built with a change in the tax code in order to provide tax benefits, the program would likely be administered by the House Ways and Means Committee and the Senate Finance Committee rather than the House and Senate Ag Committees.
Contact: Theresa Sisung | (517) 323-6729
AFBF Policy #225 Risk Management/Crop Insurance
AFBF Policy #439 Taxation
AFBF Farm Savings Accounts Backgrounder