Expect limited disaster support

The U.S. Department of Agriculture announced Oct. 27 the allocation of more than $3 billion to support commodity and specialty-crop producers impacted by natural disasters in 2022, through a modified continuation of its Emergency Relief Program. It was initially welcomed by farmers and ranchers recovering from exceptional drought conditions, severe hurricanes, derechos, flooding and other natural disasters. But a change in how assistance is calculated will drastically reduce the support many impacted producers receive. In particular, the program's new progressive-factoring methodology limits sufficient support to a small percentage of operations. That's a puzzling approach when natural disasters devastate operations of all types. This report discusses how the Emergency Relief Program 2022 works.

Though permanent disaster-assistance programs, crop insurance and the Noninsured Crop Disaster Assistance Program provide a substantial safety net to livestock and crop producers, the losses that occur outside the scope of an existing policy or coverage level can destroy a farm business – especially those resulting from large-scale weather disasters. Congress has historically responded to disaster situations by authorizing additional disaster funds via ad hoc disaster programs like the Wildfire and Hurricane Indemnity Program Plus and, most recently, the Emergency Livestock Relief Program and Emergency Relief Program. The first iteration of the Emergency Relief Program was included in a September 2021 continuing resolution that appropriated $10 billion to the Office of the Secretary of Agriculture to support ad hoc assistance programs.

President Joe Biden signed the Disaster Relief Supplemental Appropriations Act of 2022 into law Dec. 29, 2022, providing $3.74 billion in financial assistance for agricultural producers impacted by eligible natural disasters that occurred in calendar year 2022. Note, analyses have estimated 2022 uncovered losses of more than $10 billion for crops alone, $7.26 billion more than appropriated funds. Like the previous iteration of the Emergency Relief Program, the 2022 version covers losses to crops, trees, bushes and vines due to qualifying natural-disaster events – including wildfires, hurricanes, floods, derechos, excessive heat, tornadoes, winter storms, freeze including a polar vortex, smoke exposure, excessive moisture, qualifying drought and related conditions.

Related conditions under the Emergency Relief Program include "weather and adverse natural occurrences that occurred concurrently with and as a direct result of a specified disaster event." Examples include the excessive wind that occurred with a derecho, or silt and debris that occurred as a result of flooding. Losses due to drought are eligible if they occurred in areas rated by the U.S. drought monitor as D2-severe for eight-consecutive weeks, or D3-extreme drought or worse at any time during the applicable calendar year.

Instead of two "phases," Emergency Relief Program 2022 will have two "tracks." The tracks largely parallel the phases from Emergency Relief Program 2020-2021 in terms of how applications will be handled and processed.

Track 1 focuses on streamlining payments to producers whose crop insurance and Noninsured Crop Disaster Assistance Program data are already on file. Under Track 1, eligible crops include all crops for which federal crop insurance or Noninsured Crop Disaster Assistance Program coverage was available, and a crop-insurance indemnity or Noninsured Crop Disaster Assistance Program payment was received, except for crops intended for grazing.

Track 2 focuses on filling payment gaps to cover producers who did not participate or received payments through existing programs or with other special cases. Track 2 will provide payments for eligible crop and tree losses through a revenue-based approach using data provided by eligible producers on application forms.

Producers with losses that are eligible for Track 1 may apply for Track 1, Track 2 or both tracks; however the Track 2 payment calculation will take into account any payments the producer receives under Track 1 to ensure a producer is not receiving duplicate benefits under both tracks. Both tracks cover the same eligible crops.

Take time to apply correctly

Like the 2020-2021 Emergency Relief Program, the USDA and the USDA-Risk Management Agency will automatically generate Track 1 applications with certain items pre-filled with information already on file. Those applications were mailed to corresponding producers starting Nov. 8.

It's important to note that just because a producer received a pre-filled application doesn't mean she or he is eligible for assistance. The producer must certify crop-insurance or Noninsured Crop Disaster Assistance Program indemnities were from a qualifying disaster event. The USDA estimates that Emergency Relief Program Track 1 benefits will reach more than 206,000 producers who received indemnities for losses covered by federal crop insurance, and more than 4,500 producers who obtained Noninsured Crop Disaster Assistance Program coverage for the 2022 crop year.

The application period for Track 2 opened Oct. 31. Producers applying for Track 2 must submit FSA–524, the Emergency Relief Program 2022 Track 2 Application, certifying their benchmark-year revenue and disaster-year revenue. In addition all producers applying for Track 2 must submit FSA–525, which is the producer's commitment to obtain crop insurance and-or Noninsured Crop Disaster Assistance Program coverage for the next two crop years – and must be completed by the application deadline to have a complete application on file. The deadline has not yet been announced by USDA-Farm Service Agency.

In addition, the USDA is requiring the following forms – which should already be on file for those with prior Farm Service Agency-program participation – for Emergency Relief Program eligibility.

Form AD-2047, Customer Data Worksheet

Form CCC-902, Farm Operating Plan for an individual or legal entity

Form CCC-901, Member Information for Legal Entities, if applicable

Form FSA-510, Request for an Exception to the $125,000 Payment Limitation for Certain Programs, if applicable

Form CCC-860, Socially Disadvantaged, Limited Resource, Beginning and Veteran Farmer or Rancher Certification, if applicable, for the 2021 program year.

Form AD-1026 Highly Erodible Land Conservation and Wetland Conservation Certification for the Emergency Relief Program producer and applicable affiliates

There are several aspects of Emergency Relief Program 2022 payment calculation that remain the same compared to its predecessor.

For Track 1, Emergency Relief Program base calculations for a crop will be based on the existing coverage obtained by a producer. Calculations will parallel the formula of the existing coverage but use an Emergency Relief Program factor in place of the producer-selected coverage level. For example a producer with at least 55 percent coverage on their 2022 crop insurance plan will have a corresponding Emergency Relief Program factor of 82.5 percent. Emergency Relief Program factor tables for crop insurance and Noninsured Crop Disaster Assistance Program are provided.

Like its predecessor, base Emergency Relief Program 2022 assistance will subtract the calculated indemnity at the greater Emergency Relief Program factor from the previously paid indemnities received for a producer's existing crop insurance or Noninsured Crop Disaster Assistance Program coverage.

This is where the program similarities end. In Emergency Relief Program 2020-2021, producers were indirectly reimbursed for premium and fee costs for 2020 and 2021 program years during this step. This does not occur in Emergency Relief Program 2022. The next step, instead, is a new "progressive factoring" approach in which income-tax-like downward adjustments are made to the base calculation for those who had crop insurance. The adjustments will follow these specifications.

Base calculation of up to $2,000 multiplied by 100 percent, no change

Base calculation between $2,001 and $4,000 multiplied by 80 percent, -20 percent

Base calculation between $4,001 and $6,000 multiplied by 60 percent, -40 percent

Base calculation between $6,001 and $8,000 multiplied by 40 percent, -60 percent

Base calculation between $8,001 and $10,000 multiplied by 20 percent, -80 percent

Base calculation of more than $10,000 multiplied by 10 percent, -90 percent

That means any base-calculated payment of more than $10,000 will be reduced by 90 percent. In other words the calculated loss a farmer faces is being massively devalued. Progressive factoring doesn't apply to those with Noninsured Crop Disaster Assistance Program coverage. But once progressive factoring is applied, if and only if the producer qualifies as an underserved producer will the FSA reimburse for premiums and fees paid in 2022.

An underserved farmer is defined as a

beginning farmer or rancher,

limited-resource farmer or rancher,

socially disadvantaged farmer or rancher, or

veteran farmer or rancher.

Socially disadvantaged farmers include American Indians or Alaskan Natives, Asians or Asian-Americans, Blacks or African Americans, Hispanics or Hispanic Americans, and Native Hawaiians or other Pacific Islanders and women.

Limited resource is defined as a farmer or rancher who is both

a person whose direct or indirect gross farm sales did not exceed $189,200 in each of 2019 and 2020 calendar years and

a person whose total household income was at or less than the national poverty level for a family of four during the same years.

After the adjustment is made for underserved producers, all Emergency Relief Program payments for all producers, are then prorated at 75 percent – meaning the payment is reduced by another 25 percent. As a reminder, Track 1 Noninsured Crop Disaster Assistance Program applicants are not subject to progressive factoring but are subject to the 75 percent prorate. Note that this final 75 percent proration of the payment is identified in the formal notice in the Federal Register, but not in the program factsheet as of this writing.

Track 1 indemnity examples detailed

The following examples provide a general framework for how Track 1 Emergency Relief Program 2022 is expected to compensate qualifying producers.

To start, providing an example of how progressive factoring works is valuable. Consider a base Emergency Relief Program calculation – after losses are reduced by the Emergency Relief Program factor calculation and crop-insurance indemnities have been subtracted – of $430,000 in disaster losses.

FSA would multiply:

the first $2,000 by a factor of 100 percent – $2,000×100 percent = $2,000,

the second $2,000 by a factor of 80 percent – $2,000×80 percent = $1,600,

the third $2,000 by a factor of 60 percent – $2,000×60 percent = $1,200,

the fourth $2,000 by a factor of 40 percent – $2,000×40 percent = $800,

the fifth $2,000 by a factor of 20 percent – $2,000×20 percent = $400,

and the remaining $420,000 by a factor of 10 percent – $420,000×10 percent = $42,000.

The sum of those calculations is $48,000. For underserved producers, premiums and fees would be reimbursed after progressive factoring. And then the $48,000 would be multiplied by 75 percent for a final indemnity of $36,000. A disaster-induced crop loss of at least $430,000 would receive disaster assistance of $36,000 – covering, at most, 8 percent of the producer's total disaster-related loss.

In a second more-specific example we use a 350-acre corn producer who had an "active revenue protection or revenue protection with the harvest-price exclusion" policy during the corresponding Emergency Relief Program year when the harvest price was more than the February reference price. But yields decreased due to a qualifying weather disaster. The "Before Emergency Relief Program" columns display the variables and elections of the plan without Emergency Relief Program assistance. Note the comparison of Emergency Relief Program 2020-2021 and Emergency Relief Program 2022 columns.

The producer purchased an 80 percent coverage level, which resulted in a total farm indemnity of $96,040 under the revenue-protection example and $49,000 indemnity under revenue protection with the harvest-price exclusion. With the Emergency Relief Program in place, the coverage level is swapped with the associated Emergency Relief Program factor – in this case 80 percent is increased to 95 percent – and the total resulting base Emergency Relief Program support becomes $159,066 under the revenue-protection example and $103,206 under the "revenue protection with the harvest-price exclusion" example.

For Emergency Relief Program 2020-2021, service fees and premiums are subtracted from the base revenue protection or the "revenue protection with the harvest-price exclusion" indemnity to equal $81,508 and $40,243, respectively. Those values are then subtracted from the base Emergency Relief Program payments to become $77,558 for revenue protection and $62,963 for "revenue protection with the harvest-price exclusion," which is what a producer should expect to receive.

Underserved producers, as defined by the USDA, under Emergency Relief Program 2020-2021 received an additional 15 percent in addition to the base Emergency Relief Program 2020-2021 payment, resulting in a payment of $69,802 under the revenue-protection example and $56,666 under "revenue protection with the harvest-price exclusion."

For Emergency Relief Program 2022 Track 1 for crop insurance, no reimbursement of premiums and indemnities takes place before original indemnities are subtracted. Instead, once those indemnities are subtracted, resulting in $63,026 for revenue protection and $54,206 for "revenue protection with the harvest-price exclusion," they are adjusted using the progressive-factoring sequence described earlier. That adjusts the Emergency Relief Program 2022 values to just $11,302 for revenue protection and $10,420 for "revenue protection with the harvest-price exclusion."

For all producers, that value is then prorated by another 75 percent, resulting in loss assistance of $8,476 – compared to $58,168 previously, and $7,815 – compared to $47,222 previously.

For underserved producers, premiums and fees would be reimbursed before proration of 75 percent, leading to finals of $19,376 – compared to $69,802 previously – for revenue protection and $14,383 – compared to $56,666 previously – for "revenue protection with the harvest-price exclusion."

Non-underserved producers would experience a decrease in assistance of 85 percent under the new methodology and underserved producers a decrease of 72 percent from Emergency Relief Program 2020-2021. Figure 1 displays the differences between Emergency Relief Program 2020-2021 and Emergency Relief Program 2022 for underserved and all other producers for this example, and two mostly identical examples except for increased acreage of 600 acres and 1,500 acres.

The larger the farm, the larger the decline in comparative support between Emergency Relief Program 2020-2021 and Emergency Relief Program 2022. That seems to imply operations with more revenue – not to be confused with profit – are less susceptible to the impact of natural disasters, a confusing and misguided implication.

In a third example we use a specialty-crop producer in Oregon who had active Noninsured Crop Disaster Assistance Program coverage during the corresponding Emergency Relief Program year when a loss in their spinach crop – 50 percent of their volume – took place because of a qualifying disaster. They had chosen the direct-market option.

Before Emergency Relief Program their chosen Noninsured Crop Disaster Assistance Program coverage level was 55 percent, which resulted in a payment of $802.40 for their lost spinach crop under the market per-pound price.

With Emergency Relief Program 2020-2021, the 55 percent level is swapped for the Emergency Relief Program factor of 85 percent and the resulting base indemnity becomes $5,616.80. After service fees and premiums are subtracted from the base Emergency Relief Program 2020-2021 Noninsured Crop Disaster Assistance Program indemnity payment, that value is then subtracted from the base Emergency Relief Program payment to become $5,602.79. Emergency Relief Program 2020-2021 payments for those with Noninsured Crop Disaster Assistance Program coverage were not prorated at 75 percent. Underserved producers, as defined by the USDA, received an additional 15 percent in addition to the base Emergency Relief Program 2020-2021 payment, resulting in a payment of $6,443.21.

For Emergency Relief Program 2022, premiums and fees are not deducted before subtracting already-paid Noninsured Crop Disaster Assistance Program indemnities, resulting in a base of $4,814 – $5,616 minus $802. For all other producers, this Emergency Relief Program 2022 value is then prorated by 75 percent to equal $3,610 – compared to $5,602 previously. For underserved producers, the premiums and fees of $788 are reimbursed, and that value is prorated by 75 percent to equal $4,202 – compared to $6,433 previously.

Compared to Emergency Relief Program 2020-2021, in this example, an underserved producer sees a decline of 35 percent and all others, 36 percent. The lack of progressive factoring for producers with Noninsured Crop Disaster Assistance Program plans results in a less-severe difference than those with traditional crop insurance, resulting in a fairer level of compensation across operations.

Track 2 indemnity calculations detailed

Track 2 provides two options for determining a revenue benchmark and the disaster-year revenue to which the revenue benchmark is compared.

The first is a tax-year option that allows producers to use tax records from 2018 or 2019 to apply.

The second is an expected-revenue option designed to better assist producers who have had a change in operation capacity during a disaster year, as compared to the 2018 or 2019 tax year. A producer's expected revenue includes all revenue from all eligible crops that could have been affected by a qualifying disaster event in 2022. Expected revenue must be based on "realistic projections that can be supported by acceptable documentation of expected inventory, acres, yield and unit price" including documents such as sales contracts, purchase agreements, lease agreements, etc.

The Track 2 Emergency Relief Program calculation will start by multiplying the producer's benchmark-year revenue by an Emergency Relief Program factor of

90 percent if all acres of all eligible crops were covered by crop insurance or Noninsured Crop Disaster Assistance Program, or

70 percent if not all acres of all eligible crops were covered.

Next, both the producer's disaster-year revenue and any Track 1 payments will be subtracted from that adjusted value. After performing those steps, the same progressive factoring used in Track 1 will be applied – where values of more than $10,000 are reduced by 90 percent. For underserved producers, the sum of the results will be multiplied by 115 percent and the semifinal assistance value will be the lesser of the final value before progressive factoring or after the 115 percent adjustment after progressive factoring. A final payment factor of 75 percent will be applied to all calculated indemnities, including to underserved producers, further reducing assistance by 25 percent. The FSA will also keep track of the percentage of revenue from specialty crops for certain payment limitations.

In a Track 2 example, a farm has established its benchmark revenue of $850,000 using tax records from 2019. All the farm's acreage was enrolled in crop insurance and the owners received no Track 1 payments. Their 2022 disaster-year revenue was $375,000. Because all their acreage was enrolled in crop insurance, the first step is to multiply their benchmark revenue by 90 percent, equaling $765,000. Next, the disaster-year revenue is subtracted – $375,000 – and any Track 1 payments, equaling $390,000. Progressive factoring as described in Track 1 is then applied, resulting in a base value of $44,000.

For underserved producers, the base value is multiplied by 115 percent and then prorated by 75 percent to equal $37,950 in disaster assistance.

For all other producers, that value is then prorated by 75 percent, further reducing the support to $33,000.

In this example, the operation's $390,000 disaster-related loss was supported with $37,950 for an underserved producer and $33,000 for all other producers – meaning only 10 percent and 8 percent of losses were compensated for, respectively.

Payment limitations detailed

Payment limitations for Emergency Relief Program are dependent on farm-related adjusted gross income. Payment limitations are addressed by the USDA as follows.

A person or legal entity, other than a joint venture or general partnership, cannot receive, directly or indirectly, more than $125,000 in payments for specialty crops and $125,000 in payment for all other crops under Emergency Relief Program 2022 – for tracks 1 and 2 combined – for a program year if their average adjusted-gross-income farm income is less than 75 percent of their average adjusted gross income the three taxable years preceding the most immediately preceding complete tax year.

If at least 75 percent of the person or legal entity's average adjusted gross income is derived from farming, ranching or forestry-related activities, and the participant provides the required certification and documentation, the person or legal entity, other than a joint venture or general partnership, is eligible to receive, directly or indirectly, as much as

$900,000 for each program year for specialty crops, and

$250,000 for each program year for all other crops.

The relevant tax years for establishing a producer's adjusted gross income and percentage derived from farming, ranching or forestry-related activities are 2018, 2019 and 2020.

To receive more than $125,000 in Emergency Relief Program 2022 payments, producers must submit form FSA–510, including certification from a certified public accountant or attorney that the person or legal entity has met the requirements to be eligible for the increased payment limitation.

Program requirements detailed

Like Emergency Relief Program 2020-2021, Emergency Relief Program 2022 requires future insurance coverage by participating producers. All producers who receive payments are required to purchase crop insurance or Noninsured Crop Disaster Assistance Program coverage where crop insurance is not available for the next two available crop years. Insurable crops must be covered at greater than or equal to 60 percent, or at the catastrophic level for Noninsured Crop Disaster Assistance Program crops.

Conclusion

With 2024 around the corner, the Emergency Relief Program 2022 announcement presents an opportunity for producers to receive some assistance for crop losses from major weather disasters in 2022. The program, similar to Emergency Relief Program 2020-2021, will provide an expected $3 billion in funds to producers with prior crop insurance or Noninsured Crop Disaster Assistance Program coverage under Track 1 – and address remaining producers under Track 2. Previous analyses have estimated farmers faced more than $10 billion in crop losses in 2022 due to severe disasters, demonstrating the provided appropriation from Congress is limited. Combining those funding constraints with drastic changes to how Emergency Relief Program assistance will be calculated, Emergency Relief Program 2022 is unlikely to provide producers with the buffer needed to absorb recovery costs and lost income. Severe drought does not select which farms in a region to affect, nor do hurricanes pick and choose which operations to aim for and flatten in their path. The progressive-factoring approach used in Emergency Relief Program 2022 creates winners and losers in ad hoc disaster assistance when a wide diversity of operations and crop types have experienced devastation. Ensuring disaster-assistance programs provide adequate support to all farm types is vital – not only for farm-level stability but for a safe and secure domestic food supply – and Emergency Relief Program 2022 falls short.

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