Fiscal and Farm Level Consequences of “Shallow Loss” Commodity Support

As with the 2008 Farm Act, the 2012 Farm Act is likely to have some sort of revenue-based support for producers of qualifying crops. Much debate over the negotiations on the 2012 Farm Act focuses on new programs for providing producers with support payments covering “shallow losses” in revenue. The main goal of this paper is to develop an approach to examine the sensitivity of the farmer’s downside risk protection and federal budgetary costs of marginal changes in the deductible in shallow loss program scenarios based on the Average Risk Coverage (ARC) program in the Senate’s April 26th draft of the 2012 Farm Bill. We find that average payments are elastic with respect to the revenue program’s coverage rate. In addition, using this approach, the paper compares payments and their impacts on farm revenue for county and farm level implementations of the revenue program. We find that based on expected payments and impacts on downside revenue risk, producers are likely to prefer the county level implementation of the revenue support program to the farm level version