Potential Distortionary Effects of Relocating Generic Base Acres

The Agricultural Act of 2014 brings significant changes to U.S. farm policy, eliminating Countercyclical (CC), Fixed Direct, and Average Crop Revenue Election (ACRE) programs, and introducing new Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs, which provide payments calculated using historic (base) acreage. These payments support field crops, excluding cotton. As a result, producers with base acres associated with cotton production will be allowed to relocate these “generic base” acres annually and receive support for whatever supported crop they plant on these generic base acres. Thus, profit maximizing producers with generic base may stop planting cotton and instead plant crops supported by PLC and ARC programs. Using USDA data, this paper investigates the potential distortions associated with the reallocation of generic base acres as farmers “plant for the program.”