Agricultural Risk Coverage (ARC) is a government program designed to protect farmers from declines in revenue caused by low prices, low yields, or a combination of both. Unlike programs that focus solely on price or yield, ARC provides financial assistance when a farmer’s actual revenue for a covered crop falls below a guaranteed benchmark revenue. This helps stabilize farm income in the face of unpredictable market and weather conditions.
Crops Covered by ARC
ARC covers many of the same staple crops as Price Loss Coverage (PLC), including corn, soybeans, wheat, cotton, and rice. The program offers two types of coverage: ARC-County, which calculates revenue based on average county yields and prices, and ARC-Individual, which bases payments on the individual producer’s actual yields and prices. ARC-County is the more commonly used option due to its simplicity.
How Agricultural Risk Coverage Works: A Real-World Example
To illustrate how ARC works, let’s examine a soybean farmer in Illinois during the 2020 marketing year. ARC sets a revenue guarantee based on historical county yields and prices averaged over five years. Suppose the benchmark revenue guarantee for soybeans in the county was $600 per acre.
That year, the actual county average yield and market price combined to produce revenue of only $550 per acre, below the guaranteed $600. Because the actual revenue was 8.3% below the benchmark (and above the 14% trigger threshold for payment), the farmer qualified for ARC payments.
If the farmer had 120 base acres enrolled in ARC, the payment would be calculated as a percentage of the difference between the guaranteed revenue and actual revenue, multiplied by 85% of base acres.
Here is a simplified calculation:
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Revenue shortfall per acre: $600 - $550 = $50
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Payment acres: 120 acres × 85% = 102 acres
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Total payment: 102 acres × $50 = $5,100
This payment helped offset the revenue loss the farmer experienced due to lower soybean prices and yields in the county.
Key Features of ARC
One of the defining characteristics of ARC is its focus on revenue rather than price or yield alone, providing a broader safety net. The program’s use of county-level data (for ARC-County) allows payments to be triggered by regional conditions, which can help producers in areas affected by localized issues.
ARC payments are based on base acres established under prior Farm Bills and historical yields, so actual current-year planting decisions do not affect eligibility. Producers must choose between ARC and PLC for their enrolled acres, as they cannot receive payments from both programs on the same acreage.
Enrollment and Risk Management
Farmers must enroll in ARC during designated signup periods and comply with USDA program rules. Many producers consider ARC alongside PLC and crop insurance, tailoring their choices to best match their risk exposure and production environment.
Conclusion
Agricultural Risk Coverage offers farmers a valuable revenue safety net by providing payments when actual income from covered crops falls below a set benchmark. The 2020 Illinois soybean example demonstrates how ARC can provide substantial financial support when prices and yields dip together. As part of a broader risk management strategy, ARC helps farmers maintain financial stability amid the uncertainties of agriculture.
