BASE REVENUE PROTECTION AND REVENUE COUNTERCYCLICAL PROGRAMS Dwight Aakre, Ron Haugen, Andrew Swenson North Dakota State University Extension Service Fargo, ND April, 2007

Major Points Maintain current calculation methods for direct payments. Change non-recourse loans to recourse loans. Create new Base Revenue Protection (BRP) program. Modify current countercyclical payment program into a Revenue Countercyclical Program (RCCP).

Overall Objective of BRP-RCCP To better stabilize farm income for producers of all program crops

Calculations Calculations where made using the BRP- RCCP Calculator developed by the National Corn Growers Association. Historical comparison to the current farm program was completed for 2002 to Projected comparison to the current farm program was completed for 2006 to 2010.

North Dakota Corn Farms Analyzed

North Dakota Soybean Farms Analyzed

North Dakota Wheat Farms Analyzed

BRP Per-Acre Net Revenue farm yield xnational price (NASS) -regional variable costs (ERS)

BRP payments would be triggered when: – Net farm corn revenue falls more than 30 percent below 5-year Olympic average of per- acre net corn revenue –Each program crop would stand alone

Table 7. Calculated BRP Revenues, Guarantees and Payments for Example Farms YearRichlandBarnesFoster County BRP Revenue($ per acre) BRP Guarantee (70% of 5-Year Olympic Average of past BRP Revenues) BRP Payment (BRP Guarantee minus BRP Revenue)

RCCP replaces the price trigger with a revenue trigger –Payments would be made when actual per-acre county revenue falls below county revenue trigger

Actual per-acre county revenue –NASS season average price times NASS county average yield County revenue trigger –Current effective target price times the county trend yield –Effective target price is the target price minus the direct payment

Maximum RCCP payment would equal 30 percent of the county trigger revenue level BRP coverage is designed to cover losses in excess of this 30 percent level

Table 8. RCCP Trigger Revenue, Actual County Revenue, and RCCP Payments YearRichlandBarnesFoster County RCCP Trigger Revenue ($ per acre) RCCP Actual Revenue RCCP Payment (RCCP trigger revenue minus RCCP actual revenue) Numbers in bold indicate maximum RCCP payment

Corn Results (2002 to 2005) Barnes County farm would have received $24.14/acre more for the 4 year period with BRP-RCCP. Foster County farm would have received $10.05/acre less for the 4 year period with BRP-RCCP. Richland County farm would have received $78.03/acre less for the 4 year period with BRP- RCCP.

Table 10. Payment Comparison by Year and Total for Example Farms YearRichlandBarnesFoster County LDP + CCP + CI ($ per acre) Total RCCP + BRP Total

Soybean Results (2002 to 2005) Benson County farm would have received $58.56/acre more for the 4 year period with BRP-RCCP. Cass County farm would have received $33.35/acre more for the 4 year period with BRP-RCCP. Stutsman County farm would have received $16.20/acre more for the 4 year period with BRP-RCCP.

Wheat Results (2002 to 2005) Ward County farm would have received approximately the same for the 4 year period with BRP-RCCP. Hettinger County farm would have received $37.88/acre more for the 4 year period with BRP-RCCP. Cavalier County farm would have received $7.56/acre more for the 4 year period with BRP-RCCP.

Limitations Economic Research Service (ERS) cost of production value is a regional number and may not be reflective of North Dakota. NASS prices are critical to program calculations. Two years in a row with low revenue would dramatically lower the BRP coverage guarantee.

Issues Would BRP-RCCP replace crop insurance or enhance it? Would producers have double coverage or only buy up coverage over the BRP-RCCP protection? Would the current relatively high commodity prices affect the coverage? Would volatile prices make this program an adequate safety net?

Conclusions BRP-RCCP is innovative in that it targets both yield and price. National study needed to examine all program crops to evaluate the BRP-RCCP program further.