[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW THE FEDERAL CROP INSURANCE PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
GENERAL FARM COMMODITIES AND RISK MANAGEMENT
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 14, 2007
__________
Serial No. 110-22
Printed for the use of the Committee on Agriculture
agriculture.house.gov
-----
U.S. GOVERNMENT PRINTING OFFICE
48-051 PDF WASHINGTON : 2009
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, BOB GOODLATTE, Virginia,
Vice Chairman Ranking Minority Member
MIKE McINTYRE, North Carolina TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia SAM GRAVES, Missouri
JIM MARSHALL, Georgia JO BONNER, Alabama
STEPHANIE HERSETH SANDLIN, South MIKE ROGERS, Alabama
Dakota STEVE KING, Iowa
HENRY CUELLAR, Texas MARILYN N. MUSGRAVE, Colorado
JIM COSTA, California RANDY NEUGEBAUER, Texas
JOHN T. SALAZAR, Colorado CHARLES W. BOUSTANY, Jr.,
BRAD ELLSWORTH, Indiana Louisiana
NANCY E. BOYDA, Kansas JOHN R. ``RANDY'' KUHL, Jr., New
ZACHARY T. SPACE, Ohio York
TIMOTHY J. WALZ, Minnesota VIRGINIA FOXX, North Carolina
KIRSTEN E. GILLIBRAND, New York K. MICHAEL CONAWAY, Texas
STEVE KAGEN, Wisconsin JEFF FORTENBERRY, Nebraska
EARL POMEROY, North Dakota JEAN SCHMIDT, Ohio
LINCOLN DAVIS, Tennessee ADRIAN SMITH, Nebraska
JOHN BARROW, Georgia KEVIN McCARTHY, California
NICK LAMPSON, Texas TIM WALBERG, Michigan
JOE DONNELLY, Indiana
TIM MAHONEY, Florida
______
Professional Staff
Robert L. Larew, Chief of Staff
Andrew W. Baker, Chief Counsel
April Slayton, Communications Director
William E. O'Conner, Jr., Minority Staff Director
______
Subcommittee on General Farm Commodities and Risk Management
BOB ETHERIDGE, North Carolina, Chairman
DAVID SCOTT, Georgia JERRY MORAN, Kansas, Ranking
JIM MARSHALL, Georgia Minority Member
JOHN T. SALAZAR, Colorado TIMOTHY V. JOHNSON, Illinois
NANCY E. BOYDA, Kansas SAM GRAVES, Missouri
STEPHANIE HERSETH SANDLIN, South CHARLES W. BOUSTANY, Jr.,
Dakota Louisiana
BRAD ELLSWORTH, Indiana K. MICHAEL CONAWAY, Texas
ZACHARY T. SPACE, Ohio FRANK D. LUCAS, Oklahoma
TIMOTHY J. WALZ, Minnesota RANDY NEUGEBAUER, Texas
EARL POMEROY, North Dakota KEVIN McCARTHY, California
Clark Ogilvie, Subcommittee Staff Director
(ii)
C O N T E N T S
----------
Page
Boustany, Jr., Hon. Charles W., a Representative in Congress from
Louisiana...................................................... 2
Prepared statement........................................... 3
Etheridge, Hon. Bob, a Representative in Congress from North
Carolina, opening statement.................................... 1
Prepared statement........................................... 2
Moran, Hon. Jerry, a Representative in Congress from Kansas,
prepared statement............................................. 5
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 4
Witnesses
Wilcox, Caren, Executive Director and CEO, Organic Trade
Association, Washington, D.C................................... 6
Prepared statement........................................... 7
Segler, Hilton R., President, Georgia Pecan Growers Association,
Inc., Albany, GA............................................... 9
Prepared statement........................................... 10
Marlow, W. Scott, Director, Farm Sustainability Program, Rural
Advancement Foundation International--USA, Chapel Hill, NC..... 11
Prepared statement........................................... 13
Gillen, David, Farmer; Vice Chairman, Public Policy Action Team,
National Corn Growers Association; Chairman, Board of
Directors, South Dakota Corn Growers Association, White Lake,
SD............................................................. 18
Prepared statement........................................... 20
Kubecka, William H. ``Bill'', Past President, National Sorghum
Producers, Palacios, TX........................................ 32
Prepared statement........................................... 33
Iverson, Gary W., Executive Director, Great Northern Growers
Cooperative, Sunburst, MT...................................... 39
Prepared statement........................................... 41
Chapman, Steven D., President, American Sesame Growers
Association, Lorenzo, TX....................................... 42
Prepared statement........................................... 44
Watts, Tim J., President, Watts and Associates, Inc., Billings,
MT............................................................. 45
Prepared statement........................................... 47
Submitted Material
Answers to submitted questions 61
HEARING TO REVIEW THE FEDERAL CROP INSURANCE PROGRAM
----------
MONDAY, MAY 14, 2007
House of Representatives,
Subcommittee on General Farm Commodities and Risk
Management,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 2:31 p.m., in
Room 1300, Longworth House Office Building, Hon. Bob Etheridge
[Chairman of the Subcommittee] presiding.
Present: Representatives Etheridge, Marshall, Salazar,
Herseth Sandlin, Pomeroy, Boustany, and Neugebauer.
Staff Present: Tyler Jameson, Clark Ogilvie, John Riley,
Sharon Rusnak, April Slayton, Debbie Smith, Kristin Sosanie,
Bryan Dierlam, and Jamie Weyer.
OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN
CONGRESS FROM NORTH CAROLINA
Mr. Etheridge. This hearing of the Subcommittee on General
Farm Commodities and Risk Management to review the Federal Crop
Insurance Program will come to order.
I want to thank my colleagues and the witnesses for being
here today. You know that if you have a hearing on a Monday
afternoon, it puts a lot of extra pressure on witnesses as well
as my colleagues who, if they went home, it would shorten their
weekend. So I want to thank them for being here.
At the previous crop insurance hearing, we heard from those
that oversee, sell, adjust, manage and reinsure the policies
that make up our crop insurance system. Today, we will hear on
behalf of the producers who use the system as well as those who
would like to be a part of that system.
While traditionally the farm bill does not delve deeply
into crop insurance matters, it does provide an opportunity to
make some improvements to the system. The 2002 Farm Bill
contained a subtitle which included several small provisions
regarding crop insurance, and I strongly expect that at least
some minor changes to the crop insurance system will find their
way into this farm bill.
The purpose of crop insurance is to help farmers better
manage their risk. To the extent it does not accomplish this
goal, it is our task to improve the system. I am a believer in
crop insurance, and I want to ensure that farmers and taxpayers
are getting the best product for their dollars invested. It is
my hope that we will learn today ways we can improve the system
so that more producers will be able to take advantage of this
important risk management tool. I look forward to hearing
today's testimony from our witnesses.
[The prepared statement of Mr. Etheridge follows:]
Prepared Statement of Hon. Bob Etheridge, a Representative in Congress
From North Carolina
I want to thank my colleagues and the witnesses for being here
today.
At the previous crop insurance hearing, we heard from those that
oversee, sell, adjust, manage, and reinsure the policies that make up
our crop insurance system. Today, we will hear on behalf of the
producers who use the system as well as those who would like to be part
of system.
While traditionally, the farm bill does not delve deeply into crop
insurance matters, it does provide an opportunity to make some
improvements to the system. The 2002 Farm Bill contained a subtitle
which included several small provisions regarding crop insurance. And I
strongly expect that at least some minor changes to the crop insurance
system will find their way into this farm bill.
The purpose of crop insurance is to help farmers better manage
their risk. To the extent it does not accomplish this goal, it is our
task to improve in the system.
I am a believer in crop insurance, and I want to ensure that
farmers, and taxpayers, are getting the best product for their dollar.
It is my hope that we will learn today ways we can improve the system
so that more producers will be able to take advantage of this important
risk management tool.
I look forward to hearing today's testimony from our witnesses, and
I now turn to the gentleman from Louisiana, Mr. Boustany, who is
sitting in for the Ranking Member, Mr. Moran.
Mr. Etheridge. I now turn to the gentleman from Louisiana,
Mr. Boustany, who is sitting in for our Ranking Member, Mr.
Moran, who is on his way back, for any comments he may have and
his opening remarks.
OPENING STATEMENT OF HON. CHARLES W. BOUSTANY, Jr., A
REPRESENTATIVE IN CONGRESS FROM LOUISIANA
Mr. Boustany. Thank you, Mr. Chairman.
I know Congressman Moran would like to be here, but he has
got his difficulties back in his home State of Kansas that he
is dealing with, and so I am pleased to sit in for him today.
I want to thank you for calling this hearing. It is a very
important hearing. We have heard from the USDA, from crop
insurance companies, from crop insurance agents, from GAO and
other parties; and I think it is wise to hear from these
witnesses today who each have their own concerns about how the
current crop insurance programs work.
I continue to hear from producers in my district along the
Gulf Coast about the need to improve crop insurance. Nearly 2
years ago, my district was struck by Hurricane Rita. Hurricane
Rita did substantial damage to many farms in my home state, and
this was preceded by the damage caused by Hurricane Katrina
just 1 month before. I believe we have to have a strong crop
insurance program that can adequately address the inherent risk
of a normal farming operation as well as provide relief to
farmers in cases of severe disaster.
Having reviewed the testimony, I observed that we have
three different types of concerns to address today. The first
deals with crop insurance for new and smaller crops. It seems
that some of the witnesses, Sesame Growers Association, for
example, would like to expand their production, but without
crop insurance there is an unwillingness on the part of some
lenders or landlords to finance or support these crops. I want
to make sure that we can address these types of concerns, that
we don't limit the options of producers because we don't have a
crop insurance product available to them.
That being said, I want to make sure that our crop
insurance programs remain actuarially sound; and I am anxious
to hear more about this issue in ways that we can address this
problem.
Additionally, I believe it will be important to review the
impact that traditional ethanol and cellulosic ethanol
production is having on the industry and how crop insurance
could be hindering progress in this area as well. It is
important how we address the importance of certain energy
crops, while remaining grounded in the actuarial soundness of
any new crop insurance program.
Second, we have a recurring problem with declining yields
that is addressed in the testimony of the sorghum producers.
The sorghum producers have hit a common theme, and it is one
that Ranking Member Moran and Mr. Neugebauer and others,
including RMA, continue to address. I would like to hear the
ideas on how we can deal with declining yields so we don't end
up with a situation where producers have less protection but at
a higher price. At the end of the day, I believe it is
important that farmers and not bankers are making the decision
of which crops to plant.
Third, we have testimony dealing with potential changes to
the 508(h) process, and I think the 508(h) process has worked
well. Since the passage of ARPA, 70 proposals have been
submitted to RMA; and 46 have been approved. This means that
about 10 per year have been submitted to RMA since the passage
of ARPA.
I am interested to hear more about the proposals that we
will hear about today. I want to make sure that any changes to
the program would not simply result in more expenditures that
would encourage the development of a cottage industry, whereby
people submit ideas for development. While they may be a worthy
concept, they may not be subject to approval; so we need to
strike a careful balance with this.
Again, I want to thank the Chairman for calling this
hearing. I look forward to the testimonies of the witnesses,
and I hope we can address these issues as we go forward. Thank
you.
[The prepared statement of Mr. Boustany follows:]
Prepared Statement of Hon. Charles W. Boustany, Jr., a Representative
in Congress From Louisiana
Mr. Chairman,
Thank you for calling this hearing to hear from a number of
individuals who have an interest in crop insurance. We have heard from
USDA, from crop insurance companies, from crop insurance agents, from
GAO and other parties. I think it is wise to hear from these witnesses
who each have concerns with how the current crop insurance programs
work.
I continue to hear from producers in my district along the Gulf
Coast about the need to improve crop insurance. Nearly 2 years ago, my
district was struck by Hurricane Rita. Hurricane Rita did substantial
damage to many farms in my home state, and this was preceded by the
damage cause by Hurricane Katrina just 1 month before. I believe we
have to have a strong crop insurance program that can adequately
address the inherent risks associated with a normal farming operation,
as well as provide relief to farmers in cases of severe disaster.
Having reviewed the testimony, I observe that we have three
different types of concerns to address today.
The first deals with crop insurance for new or smaller crops. It
seems that some of the witnesses, sesame for example would like to
expand their production, but without crop insurance, there is an
unwillingness on the part of some lenders or landlords to finance or
support these crops. I want to make sure that we can address these
types of concerns so that we don't limit the options of producers
because we don't have crop insurance. With that being said, I want to
make sure that our crop insurance programs remain actuarially sound. I
am anxious to hear more about this issue and ways to address to
problem.
Additionally, I believe it will be important to review the impact
that traditional ethanol and cellulosic ethanol production is having on
the industry and how crop insurance could be hindering progress. It is
important that we address the importance of certain ``energy crops,''
while remaining grounded in the actuarial soundness of any new crop
insurance program.
Second, we have a recurring problem with declining yields that is
addressed in the testimony of the sorghum producers. The sorghum
producers have hit on a common theme and it is one that the Ranking
Member Mr. Moran, Mr. Neugebauer and others including RMA continue to
address. I would like to hear ideas on how we can deal with declining
yields so we don't end up with a situation where producers have less
protection but at a higher price.
At the end of the day, I believe it is important that farmers, not
bankers, are making the decision of which crops to plant.
Third, we have testimony dealing with changes to the 508(h)
process. I think the 508(h) process has worked well. Since the passage
of ARPA, 70 proposals have been submitted to RMA and 46 have been
approved. That means that about 10 per year have been submitted to RMA
since the passage of ARPA. I am interested to hear more about this
proposal. Nevertheless, I want to make sure the any changes to the
program would not simply result in more expenditures that would
encourage the development of a cottage industry whereby people submit
ideas for development, while they may be a worthy ``concept'', that
won't be subject to approval.
Again, I want thank the Chairman for calling this hearing. I look
forward to the testimony of the witnesses and I hope you address these
issues in your testimony, or in the Q&A period.
Mr. Etheridge. Thank you very much.
Let me also recognize the Chairman of the full Committee,
Mr. Peterson. Thank you for joining us and for any comments you
may have.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA
Mr. Peterson. I thank the Chairman and Ranking Member for
their leadership and for calling this hearing. I also thank the
witnesses for being with us today.
As has been said, Federal crop insurance is an important
part of our safety net. You know, most Americans don't live in
a farm or on the farm or in farming communities, have no clue
about what a risky business you guys are in and how much money
it takes to farm nowadays. So we, as has been said, want to
make sure that we maintain that safety net and make sure that
we have got the ability for people to continue to farm.
Historically, as has been said by the Chairman, crop
insurance has not been a major part of farm bills. However,
that does not mean that we cannot consider some changes to
improve this program. As was mentioned about the declining
yields, we have been trying to deal with that issue for over 10
years. Frankly, I have come to the conclusion that this cannot
be dealt with in crop insurance in any meaningful way. So we
are looking at some way to deal with the safety net that we
have and the issues that we have been unable to solve. I am
determined to somehow or other figure out how to do this, and
that will entail us looking into crop insurance to make sure
that it all fits together.
Today, we will be hearing from a number of groups that
would like to see some changes in the crop insurance system. I
think their testimony will help us move forward and make the
right kind of decisions as we mark up the farm bill starting
next week.
Again, Mr. Chairman, I want to thank you for your
leadership in holding this hearing, and we look forward to
hearing the testimony.
Mr. Etheridge. Thank you, Mr. Chairman.
The Chair would request that other Members submit their
opening statements for the record so the witnesses can begin
their testimony and ensure that we have ample time for each
Member to ask questions.
Prepared Statement of Hon. Jerry Moran, a Representative in Congress
From Kansas
Thank you, Mr. Chairman. As I have stated before, the Federal Crop
Insurance Program represents a key component of the farm safety net for
agricultural producers. It is essential to shielding agricultural
producers from localized crop losses. In addition to providing
liquidity to producers who have lost a crop, the federal crop insurance
also provides assurance to lenders and retailers that extend needed
credit to farmers and ranchers during the growing season.
Two weeks ago this Subcommittee heard from U.S. Department of
Agriculture officials and a number of crop insurance industry
representatives regarding the condition of the crop insurance industry.
The witnesses stated that the Federal Crop Insurance Program has grown
tremendously over the years and many witnesses expected the industry
would continue to experience positive growth. However, many of the
witnesses remarked that some issues remain, such as crops that continue
to be uncovered by crop insurance policies and the failure of the
system to develop a program to deal with multi-year droughts that cause
declining yields and reduce the effectiveness of the traditional crop
insurance policy.
The suggestions of the USDA officials and the crop insurance
providers were useful. This Subcommittee, however, is also interested
in obtaining the producer perspective on the Federal Crop Insurance
Program. After all, it is for the producer that the crop insurance
program was created. The program should be designed to address the
challenges faced by producers, while maintaining actuarial and
programmatic integrity.
I am pleased today to be presented with the suggestions of farmers
and ranchers across the nation and from diverse production backgrounds
on how to improve the current system. Should Congress consider
addressing the crop insurance industry in the near future, the advice
provided today will be a useful resource for this Committee.
I look forward to all the witnesses' testimony and hope that our
discussion today can yield useful information for this Committee to
utilize in the coming months.
Thank you, Mr. Chairman.
Mr. Etheridge. With that, let us go to our first panel. We
would like to welcome our first panel to the table: Ms. Caren
Wilcox, Executive Director and CEO of the Organic Trade
Association here in Washington; Mr. Hilton R. Segler, President
of the Georgia Pecan Growers Association; Mr. Scott Marlow,
Director of the Farm Sustainability Program, the Rural
Advancement Foundation International of the United States in
Pittsboro, North Carolina; Mr. David Gillen, farmer, on behalf
of the National Corn Growers Association from South Dakota.
Ms. Wilcox--let me also remind each of you, if you would,
your full statement will be included in the record; and if you
will endeavor to summarize as close to 5 minutes as you
possibly can, that would allow each one of us to have adequate
time.
Thank you, and you may begin.
STATEMENT OF CAREN WILCOX, EXECUTIVE DIRECTOR AND CEO, ORGANIC
TRADE ASSOCIATION, WASHINGTON, D.C.
Ms. Wilcox. Thank you, Mr. Chairman, and good afternoon.
Good afternoon, also, Representative Boustany and Members of
the Subcommittee.
My name is Caren Wilcox; and I am Executive Director of the
Organic Trade Association located in Greenfield, Massachusetts.
It is my honor to have the opportunity to testify today. My
comprehensive testimony regarding the entire organic community
is on record with the Subcommittee on Horticulture and Organic
Agriculture. Thank you for paying attention to this fast-
growing segment of agriculture.
As you will hear today, the organic community has not been
able to rely on USDA for the information it needs to understand
its markets or the information to create a wide range of
insurance products. So OTA does studies for the industry by
itself.
Last week, we released preliminary results of our latest
market survey and announced that the organic food and beverage
market reached 3 percent of the retail sector in the United
States in 2006. Of course, the organic community is pleased by
this growth. However, there is emerging evidence that consumer
desire for organic products is outpacing domestic production.
OTA is seeking to reduce these hurdles to farmers entering
organic production.
While organic farmers are pleased that they are no longer
considered entirely ineligible for some forms of crop
insurance, they continue to be penalized by the current system;
and OTA seeks to create fairness for them. Currently, organic
farmers are charged a 5 percent premium over the cost a
conventional farmer pays. Adding to the inequity, when organic
farmers must collect on their insurance policies they are
compensated at the price of the conventional crop, not the
higher organic price.
An inability to seek crop insurance similar to what would
be expected in conventional agriculture is one of the
impediments to more farmers seeking to convert land to organic
production. In order to remedy the situation for current and
future organic farmers, we have developed legislative language
that would amend the Federal Crop Insurance Act by adding a new
subsection entitled Contracts for Organic Production Coverage
Improvements.
We acknowledge that the national organic standard only came
into effect in late 2002 and that USDA did not originally
collect localized, separate data for organic crops versus the
same crops grown conventionally. Fortunately, the USDA is now
beginning to gather more price and data for organic agriculture
products. It should be possible for the Federal Crop Insurance
Corporation to prepare appropriate studies of risk and loss
experience.
We believe that if the Congress will ensure that the data
continues to be gathered across all segments and that there are
appropriate studies mandated as part of the ongoing reviews
conducted by the Corporation, then crop insurance products can
be created that will be actuarially sound and will be available
on an expanding basis to organic farmers. Such studies should
lead the Department to be able to eliminate arbitrary price
disparities.
As data collection continues to be more comprehensive, the
Department should review incoming data at least annually
beginning in the 2008 crop year so the FCIC can make
determinations and eliminate the surcharges; and farmers can be
paid on actual losses in a timely manner. However, the proposed
new system is very dependent on Congress and USDA creating and
supporting comprehensive data collection.
We have been very pleased by the RMA AMS interagency
agreement on price collection and support FCIC continuing and
expanding it to facilitate collection and dissemination of
segregated retail and wholesale price information for organic
production.
In addition, OTA has called for the development of an
insurance product with coverage that would protect the producer
of an organic crop against the risk of a crop becoming
contaminated through no fault of the producer and in a manner
that would cause that crop to lose its access to organic
markets and prices.
Finally, OTA's legislative proposal would require that the
FCIC report annually to the House and Senate committees on its
progress in developing and improving Federal crop insurance for
crops grown in compliance with USDA's national organic standard
and program. Our proposal is deliberately formulated not to
create a budget score, because it requires these reviews and
studies to fit within the Corporation's existing program of
research and contracts currently funded at about $25 million.
Thank you for this opportunity to speak with you today. We
look forward to working with the Subcommittee as you decide on
crop insurance authorizations in the farm bill.
[The prepared statement of Ms. Wilcox follows:]
Prepared Statement of Caren Wilcox, Executive Director and CEO, Organic
Trade Association, Washington, D.C.
Mr. Chairman, Ranking Member, and Members of the Subcommittee, I am
Caren Wilcox, Executive Director of the Organic Trade Association
(OTA), the membership-based business association for organic
agriculture and products in North America. I am here today speaking on
behalf of the Organic Trade Association (OTA).
OTA is the voice for the organic business community, and has had
this role for over twenty years, since its founding in 1985. Since that
time, OTA membership has grown more than eight-fold, and now
encompasses approximately 1,600 members across all parts of the organic
farming, processing, distribution, and retailing supply chain for food,
organic textiles, and personal care products.
Organic agriculture forms the basis of a fast growing part of the
agricultural economy, and offers hope to farms and shoppers alike,
while contributing to the improvement of our land, air, and water
resources. Many farm businesses involved with organic production have
started with a vision of changing agriculture for the better, and have
grown over the years to become well-known products.
On April 18, 2007, before the Horticulture and Organic Agriculture
Subcommittee, I provided extensive testimony on the state of the
industry and the exciting growth taking place in the organic
marketplace. I also outlined the laws, regulations, and practices that
underlie that success. OTA provides private monitoring of the
industry's growth, and has been involved with passage of the laws and
regulations governing the industry. Also, during that testimony, I
outlined OTA's 2007 Farm Bill agenda--its potential remedies to the
various impediments faced by organic farmers. In particular, in the
case of crop insurance there is a lack of data collection by USDA that
for other segments of agriculture is collected. Today I would like to
focus on one particular impediment--the lack of adequate crop
insurance.
One of the major impediments to converting more farm land to
certified organic status has been the type of crop insurance available.
Originally, organic farmers were not considered eligible for federal
crop insurance. The Agricultural Risk Protection Act of 2002 (ARPA)
provides that organic farming practices be recognized as good farming
practices. Prior to this ruling, crop insurance policies may not have
covered production losses when organic insect, disease, and/or weed
control measures were used and such measures were not effective.
However, the newly available federal crop insurance was presented
at a disadvantageous rate. Organic farms pay a 5% additional premium
and in the event of a crop loss they only receive compensation at a
conventional price level for their organic crop. This is attributed by
crop insurers and RMA to the fact that actuarial data is not available
to insurers. While this is changing, it is important for RMA to use
collected data to enable an insurance product to be developed promptly
to help organic farmers. Some price and loss data is finally being
collected by USDA, and this should be helpful in creating valid
insurance products.
In order to address the inadequacy of available crop insurance, OTA
has developed legislative language that would amend the Federal Crop
Insurance Act by adding a new subsection entitled ``Contracts for
organic production coverage improvements.''
If this legislation were to be enacted, within 6 months the
Corporation would be instructed to enter into one or more contracts for
the development of improvements in federal crop insurance policies
covering crops grown in compliance with USDA's own national organic
standards. This development research would include:
1. A review of the underwriting, risk, and loss experience of
organic crops covered by the Corporation, as compared with the
same crops grown in the same counties and during the same crop
years using non-organic methods. The review should be designed
to allow the Corporation to determine whether significant,
consistent, or systemic variations in loss history exist
between organic and non-organic production, and shall include
the widest available range of data, including but not limited
to loss history under existing crop insurance policies,
collected by the National Agricultural Statistics Service, and
other sources of information determined to be reliable and
relevant.
Unless this review documents the existence of such significant,
consistent, and systemic variations in loss history between
organic and conventional crops, either collectively or on
individual crops, the Corporation shall eliminate the 5%
premium surcharge that it currently charges for coverage for
organic crops on such crops. The review shall be conducted on
an ongoing basis, at least annually, beginning with the 2008
crop year and for each crop year thereafter as annual data is
accumulated by the Corporation, so that the Corporation may
make the determinations and eliminate the surcharge in a timely
manner as the review deems appropriate.
2. The development of a procedure, including any associated changes
in policy terms or materials required for its implementation,
to offer producers of organic crops (including dairy and
livestock) an additional price election that would reflect the
actual retail or wholesale prices, as appropriate, received by
organic producers for their crops, as established using data
collected and maintained by the Agricultural Marketing Service
or other sources. The development of this procedure shall be
completed in time to allow the Corporation to begin offering
the additional price election for organic crops with sufficient
data for the 2009 crop years, and to expand it thereafter as
the AMS expands its data collection and availability for
organic crop prices.
3. The development of an insurance coverage that would protect the
producer of an organic crop against the risk of that crop
(including dairy and livestock) becoming contaminated, through
no fault of the producer, in a manner that would cause that
crop to lose its access to organic markets and prices.
The OTA legislative proposal also would require that the
Corporation continue and expand its interagency agreement with AMS to
facilitate the collection and dissemination of segregated retail and
wholesale price information for organic production at relevant shopping
points, points of entry, wholesale markets, and retail markets,
including the funding of all phases of the pilot and implementation
stages of this project until the resulting price collection facility
has been established on a nationwide basis.
Finally, OTA's legislative proposal would require that the
Corporation report annually to the House Committee on Agriculture and
to the Senate Committee on Agriculture, Nutrition, and Forestry on its
progress in developing and improving federal crop insurance for crops
grown in compliance with standards issued by the Department of
Agriculture providing for the certification of such crops under the
National Organic Program, including the numbers and varieties of
organic crops insured, the development of new crop insurance
approaches, and the progress of the initiatives mandated under this
proposal. The annual report will also include the Corporation's
recommendations on how it can continue to improve this insurance
coverage.
OTA's most recent market survey has preliminary results that
indicate that organic agriculture and production have managed to
provide almost 3% of the U.S. retail food and beverage supply in 2006.
The organic community has accomplished this largely by its own efforts
to develop voluntary standards, support state and then a federal
standard for organic agriculture and producers. The community also has
developed methods, academic knowledge, and technologies that have built
the success of organic. This has been accomplished with very little
help from the federal government, certainly none similar in quantity
and quality to that provided to other parts of agriculture.
The crop insurance proposal we put before you today is drafted to
avoid generating a budget score. Instead, the organic projects will
share in the $25 million fund authorized each year for spending on
contracts and partnerships by RMA under section 522(e) of the Act. We
would suggest backing up this approach with Committee Report language
that urges RMA to ensure that organic projects receive their fair share
of the fund, particularly during the early years of the new farm bill
when they will be the most expensive.
We believe that this proposal, if enacted, would go a long way
toward reducing the impediments faced by current certified organic
farmers, and will act as an encouragement to farmers who wish to
transition all or part of their farms to organic production.
Mr. Chairman, OTA thanks you for this opportunity to testify on
behalf of the organic community on this important topic and looks
forward to working with you on solutions.
Mr. Etheridge. Thank you.
Mr. Segler?
STATEMENT OF HILTON R. SEGLER, PRESIDENT, GEORGIA PECAN GROWERS
ASSOCIATION, ALBANY, GA
Mr. Segler. Good afternoon, Chairman Etheridge and Members
of this Committee. I am Hilton Segler, a retired pecan grower
and President of the Georgia Pecan Growers Association.
Pecans grow in 20 states. Most of our improved varieties
are grown along the Gulf Coast from New Mexico to North
Carolina. Georgia has the most production, followed by Texas.
Pecans are the only major crop that is native to the United
States. All other major crops were imported to America from
other countries.
I chaired the first Committee back in 1980 to get Congress
to pass the bill that would enable the RMA to provide Federal
crop insurance for our pecan growers. In 2003, we were able to
add 79 counties in Georgia and in 2004 two counties in Alabama,
Baldwin and Mobile. Only in 2005 was a national program
approved 25 years after we started.
Crops such as peaches, peanuts, blueberries, cotton, and
corn have a provision that in the event of a crop failure
insurance coverage cannot be adjusted down more than 10 percent
of the individual farm's APH average. This is referred to by
RMA as a 10 percent cup. Long-range weather forecasters predict
that the Gulf Coast region will continue to have the same
weather for the next 15 to 20 years. If this is true, our crop
insurance will be worthless in a few years without this 10
percent cup.
For crop years 2004 and 2005 hurricanes were devastating to
the pecan industry in the Southeast. Until that time, the loss
experience for this crop did not even approach the premiums
paid by growers and the need for yield protection was not even
an issue. Since that time, the opposite has been true. Alabama
and Georgia have suffered crop and tree loss unprecedented in
this region due to nature's wrath, the loss not only from the
income but tree loss population and the significant reduction
in insurance guarantee from pecan growers since the program
does not enjoy the luxury of this 10 percent cup.
The Valdosta regional Office of RMA submitted a request to
the Kansas City national office for a 10 percent cup for the
crop years 2004 and 2005 with no success. The reasoning from
Kansas City was that the pecan program is a revenue program
unlike APH and not production-based.
Gentlemen, this simply is not true. Production is half of
the equation that determines the pecan growers' guarantee, the
other half being price received on a 2 to a 10 year average.
As with the CRC corn and cotton insurance program, pecans
also use a combination of yield and price to establish the
revenue guarantee. The disaster incurred by peach producers in
1996 when growers in the Southeast averaged near five bushels
an acre overall prompted the administrative office of RMA here
in Washington to implement a 10 percent cup for the crop year
1997. This set a precedent that was parallel with the
catastrophic weather events that have befallen our pecan
growers not only in the State of Georgia but Alabama, Florida,
Mississippi and Louisiana in the crop years 2004 and 2005.
With the billions of dollars being thrown at the disaster
in the Gulf, we can't afford not to recognize the disaster that
has befallen our pecan industry in the Southeast and provide
them the same yield protection so sorely needed. To correct
this, we need to implement the 10 percent cup, have RMA go back
to the 2004, and readjust the pecan growers APH average up to
this time. It should be understood that no claims will be
accepted or no additional premiums paid, only a readjustment of
the APH average.
In conclusion, another change would permit the pecan grower
to insure his pecans by farm number. By practice, growers now
have to average every acre that they have in the county. Many
of our growers have farms located several miles apart and you
can have things happen on one farm that don't happen on
another. This would be very similar to you owning three pieces
of property, three houses and have one be burned by fire and
the insurance company asks you to take an estimated value of
the other two because they have increased in value and subtract
what you have and pay you the difference. They are not paying
you what you have got insured on that particular farm.
I appreciate the concerns that this Committee has, and we
certainly appreciate the opportunity for the Georgia Pecan
Frowers to be here today to address these issues, and we hope
that you consider our issues in the 2007 Farm Bill.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Segler follows:]
Prepared Statement of Hilton R. Segler, President, Georgia Pecan
Growers Association, Inc., Albany, GA
Good Afternoon Chairman Etheridge and Members of the Committee. My
name is Hilton Segler. I am a retired pecan grower and President of the
Georgia Pecan Growers Association, Inc.
Pecan History
Pecans grow in 20 states. Most of our improved varieties are grown
along the Gulf Coast from New Mexico to North Carolina. Georgia has the
most production followed by Texas. Pecans are the only major crop that
is native to the United States. All other major crops were imported to
America from other countries.
George Washington planted several young pecan seedlings at Mount
Vernon in 1774. Thomas Jefferson started growing pecan trees at
Monticello in 1779. Union soldiers returning north in 1865 after the
civil war brought pecans with them and helped to increase the nuts
popularity. It took about 4 centuries for the pecan to become an
important crop in the United States; it reached a commercial scale in
1920 and has increased steadily ever since.
Most edible tree nuts are essentially one state crops; Almonds,
Pistachios, and Walnuts are produced in California; Filberts in Oregon
and Macadamia nuts in Hawaii. The pecan on the other hand, is a multi-
state crop, stretching across the country from the Southeast to the
Southwest throughout some twenty states.
Pecans are one of our National Treasures; over 40% of both houses
of Congress, regardless of party affiliation have pecans growing in
their state. I just wanted you to understand the importance of pecans
to our nation.
Federal Crop Insurance
I chaired the Committee, which began in 1980, to get Congress to
pass a bill that would enable the RMA to provide federal crop insurance
for our pecan growers. Not until 1998 did RMA allow us to have three
pilot counties (Dougherty, Lee and Mitchell) in Georgia. In 2003, we
were able to add seventy-nine additional counties in Georgia and in
2004 added two additional counties in Alabama (Baldwin and Mobile).
Only in 2005 was a national program approved 25 years after we started.
It was the sense of Congress on the expansion of crop insurance
that enabled us to move forward in the last 5 years. There are some
small changes but important provisions that need to be made to the
current policy to bring it in line with other crops. Crops such as
Peaches, Peanuts, Blueberries, Cotton, Corn, etc. have a provision that
in the event of a crop failure insurance coverage cannot be adjusted
down more than 10% of the individual farms APH (yield average); this is
referred to by RMA as a 10% percent cup. Long range weather forecasters
predict that the Gulf Coast region weather patterns will continue for
the next fifteen to twenty years. If this is true, our crop insurance
would be worthless in a few years without this 10% cup
Pecan growers' insurance has decreased $300.00 per acre and
premiums have increased as much as $10.00 per acre sense the
devastating hurricanes of 2004. We experienced a severe drought in the
late summer/fall of 2005, which began in August, just as the flowers
for the following year's (2006) crop were being induced. Any stress,
especially drought, occurring at this time, will limit the return crop
as it puts additional stress on the tree to bring its current crop to
maturity. To correct this with our growers, RMA would need to go back
to the 2004 crop and re-adjust the growers APH as if the 10% cup was in
effect at that time. RMA should not accept any additional claims or
premiums for this time period.
Another change in the policy would be to permit a grower to insure
his pecans by farm number. At the present time a grower can insure by
practice (irrigated or non-irrigated) but has to average all his pecan
groves by county. Many of our growers have farms located several miles
apart. There could be a hail storm on one farm but not on another. It
makes no sense not to let each farm be insured by farm number. This is
why most all other crops have this safety protection and we don't
understand why pecans are different. A good example would be like
having three houses all insured and one was destroyed by fire and your
insurer asked you to average the appraised value of the other two, and
only paid you the difference, regardless of the insurance on the one
that you lost.
I want to thank the Committee for giving our organization an
opportunity to testify today. We sincerely hope the 2007 Farm Bill will
address these issues of concern to our Pecan Producers and reflect the
value of their production to the U.S. Economy, as well as the dietary
needs of all Americans. Thank You.
Mr. Etheridge. Thank you, sir. Mr. Marlow.
STATEMENT OF W. SCOTT MARLOW, DIRECTOR, FARM
SUSTAINABILITY PROGRAM, RURAL ADVANCEMENT
FOUNDATION INTERNATIONAL--USA, CHAPEL HILL, NC
Mr. Marlow. Chairman Etheridge, Representative Boustany,
Members of this Subcommittee, thank you for this opportunity to
address you today about how crop insurance affects the ability
of farmers to adjust to recent shifts in our agricultural
economy.
Between Hurricane Floyd in 1999 and Hurricane Katrina in
2005, the percentage of eligible acreage in my home State of
North Carolina participating in crop insurance increased from
56 percent to almost 78 percent, but an estimate of the
percentage of North Carolina farm receipts covered by crop
insurance fell from 19 percent in 1999 to around 13 percent in
2005. It is not that crop insurance changed but that crop
insurance did not change to keep up with North Carolina's farm
economy.
We are moving rapidly from crops with extensive risk
management and disaster programs to enterprises with
ineffective or no risk management. Today I would like to focus
on three issues associated with this transition. My testimony
is based on our experience in North Carolina, but we are
addressing these issues with farmers from across the South and
the rest of the Nation.
First, there is no effective risk management for farms with
production contracts where the farmer does not own the product.
According to the 2002 Census of Agriculture, 69 percent of hogs
and essentially 100 percent of broilers raised in the our state
were raised under production contracts, and we are seeing
anecdotal evidence of production contracts being adopted in
non-livestock crops.
Livestock producers are also increasingly concerned about
the risks of the disease outbreaks, quarantine and depopulation
by either state or Federal officials which are not insurable
causes of loss in existing programs.
We recommend that the Risk Management Agency develop or
adapt crop insurance programs to ensure against the risks
associated with production contracts and their unique ownership
structure. Livestock programs should also include the peril of
quarantine, depopulation by Federal or state government and
bioterrorism as insurable causes of loss.
Second, there is a lack of risk management for value-added
products critical to mid-scale agriculture.
Nationally, we are quickly losing mid-scale farms that are
too large to access growing direct markets but are too small to
compete in commodities markets, the agriculture of the middle
that makes up the backbone of our agricultural economy and land
stewardship. But we are also seeing a rapid rise in demand for
high-quality, specially raised products like organic produce,
heirloom vegetables and specialty meats.
These emerging markets have grown beyond the ability of the
small farmers who pioneered them to fill. The greatest hope for
agriculture of the middle is the transition to production of
high-value, specialized crops and livestock brought to niche
markets in ways that bring a greater percentage of the food
dollar back to the farm.
In our experience, there is currently no crop insurance
that provides effective risk management for value above the
commodity price. This gap in the reduction in access to credit
and Federal disaster programs that accompanies it creates a
financial disincentives for farmers to make the transition and
increases the risk and vulnerability of those that do.
In recent years, RMA has been piloting the Adjusted Gross
Revenue and Adjusted Gross Revenue-Lite crop insurance
programs. AGR and AGR-Lite provide income insurance based on
the 5 year average of gross farm revenue as established on
Schedule F of the farmer's taxes, which addresses added value
and crop diversity. Since 2005, North Carolina has been
fortunate enough to be one of the pilot states for AGR-Lite.
While AGR-Lite is simple in concept, it has proven to be
extremely complicated in implementation, requiring
documentation not only of gross income but of all the crops and
enterprises that make up that income. Specifics in the
requirements of the program have made it difficult to determine
eligibility of income and coverage of losses. Because of the
complexity of both application and claims adjustment, crop
insurance agents are reluctant to promote it and farmers are
reluctant to trust it.
These difficulties have been borne out in declining
enrollment numbers, despite significant outreach efforts. As
the only programs that address value-added markets, it is
critical that we get AGR and AGR-Lite right.
We recommend that the AGR and AGR-Lite programs be extended
in this farm bill but reformed to be more accessible before
expansion to national availability. Reform should emphasize
streamlining the application and claims adjustment processes
and shifting the program structure to reward diversification
and innovative marketing.
Third, crop insurance for organic producers is inadequate
due to the increased premiums and benefits that do not
recognize the price for organic products. Crop insurance
guidelines recognize organic farming as good farming practices,
and the actual production history of the crop insurance
policies are based on and reflects the individual producer's
management.
So we recommend that the 2007 Farm Bill eliminate the
current 5 percent surcharge on premiums for organic producers.
We also suggest that this farm bill establish a deadline for
providing payments that reflect organic market prices.
In closing, access to effective crop insurance programs is
essential for farmers' transition to the emerging markets that
are key to the health and vibrancy of our family farms. Thank
you for this opportunity to testify today, and I welcome any
questions and look forward to working with you in the future.
[The prepared statement of Mr. Marlow follows:]
Prepared Statement of W. Scott Marlow, Director, Farm Sustainability
Program, Rural Advancement Foundation International--USA, Chapel Hill,
NC
Chairman Etheridge and Ranking Member Moran, Members of the
Subcommittee, thank you very much for this opportunity to address the
Subcommittee about crop insurance, and specifically about how crop
insurance affects the ability of farmers to adjust to recent shifts in
our agricultural economy.
My name is Scott Marlow, and I am the Director of Farm
Sustainability for the Rural Advancement Foundation International--USA.
RAFI-USA is a non-profit organization based in Pittsboro, NC that
addresses issues of equity, sustainability and diversity in agriculture
and rural communities. I am also here on behalf of the thousands of
farmers in North Carolina and across the country that we have worked
with over the last 15 years to help access new markets, seek equity in
production contracts, get reward in the marketplace for the
environmental stewardship that they do or help find ways to keep going
in the face of disasters of weather or price. My testimony is based on
the specifics of our experience in North Carolina, but we are also
addressing these issues with farmers from across the southeastern
United States, and the rest of the country.
While crop insurance has a long history of providing effective risk
management for the traditional crops of North Carolina agriculture,
recent changes in our farm economy mean that the Risk Management Agency
faces a series of challenges in providing effective risk management for
a significant percentage of North Carolina farm income, and we expect
these challenges to increase in the years to come.
Between Hurricane Floyd in 1999 and Hurricane Katrina in 2005, the
percentage of eligible North Carolina acreage participating in crop
insurance increased from 56% to almost 78%, but the percentage of North
Carolina farm receipts covered by crop insurance, based on North
Carolina Department of Agriculture and Consumer Services and Risk
Management Agency data, fell from 19% in 1999 to around 13% in 2005,
and the percentage of farm income eligible for crop insurance fell from
approximately 38% to 28%.\1\ It is not that crop insurance changed, but
that crop insurance did not change to keep up with changes in North
Carolina's farm economy.
The segments of the farm economy with extensive crop insurance,
commodities such as tobacco, cotton and corn, while vitally important
to many farmers in our state, have dropped in their percentage of North
Carolina farm receipts. The fastest growing segments of North
Carolina's farm economy--livestock produced under production contracts,
specialty crops like greenhouse, nursery and Christmas trees, and
emerging value-added markets such as organic and specialty livestock--
are all underserved, if served at all, by current crop insurance
programs. We are moving rapidly from crops with extensive risk
management and disaster programs to enterprises with ineffective or no
risk management. Today I would like to focus on three issues associated
with this transition.
Issue 1. Lack of Risk Management for Operations With Production
Contracts
The greatest percentage of North Carolina farm income, almost 60%,
now comes from broilers, turkeys and hogs. The structure of these
livestock industries has significant effect on the outlook for risk
management programs. According to the 2002 Census of Agriculture, 69%
of hogs and essentially 100% of broilers raised in our state were
raised under production contracts where, according to USDA definitions,
the producer never owns the animal.\2\ We are also seeing anecdotal
evidence of production contracts being adopted in specialty crops and
other non-livestock areas.
In the past, the Risk Management Agency has acknowledged the gap in
risk management for livestock producers,\3\ and in hearings before this
Subcommittee last week, Dr. Keith Collins outlined two current pilot
programs for livestock. It is important to note, however, that animal
ownership is essential for eligibility in both of these programs and
neither will provide risk management for livestock produced under
production contracts. Livestock producers are also increasingly
concerned about the risks of disease outbreaks, quarantine or
preventative depopulation by either state or federal officials as they
are currently not insurable causes of loss.
There is precedence for benefits to producers of livestock under
production contracts in ad hoc disaster programs. The 2000 Supplemental
Appropriations Act passed on Nov. 29, 1999 targeted $10 million for
contract growers \4\ under the Livestock Indemnity Program. Following
Hurricane Katrina and the other Gulf Coast hurricanes of 2005, Congress
made some assistance available to contract growers in the form of
Livestock Indemnity Payments and Emergency Conservation Program cost
share assistance for cleaning up debris from poultry barns and/or costs
to reconstruct or repair barns if there were uninsured losses.\5\
However, ad hoc programs that Congress may or may not pass after a
specific disaster are no substitute for risk management that contract
growers may incorporate into their farm business planning on an ongoing
basis.
Recommendation
Crop insurance programs must be developed that insure against the
risks associated with production contracts and the unique ownership
structure that they bring, either by developing crop insurance programs
specific to production contract income, or by including production
contracts in currently existing programs that insure income rather than
products. Livestock programs must also include the peril of quarantine,
depopulation by federal or state government and bio-terrorism as
insurable causes of loss.
Issue 2: Lack of Risk Management for Value-Added Products Critical to
Mid-Scale Agriculture
Nationally, we are losing the mid-scale farms that have made up the
backbone of our agricultural economy and land stewardship. The most
rapid loss is among those farms that are too large to access the
growing direct market economy, but too small to compete in the
undifferentiated commodities market--the agriculture of the middle.\6\
Last year, North Carolina led the nation in the loss of farms.\7\
But we are also seeing a rapid rise in demand for high-quality,
specially-raised products like organic produce, heirloom vegetables and
specialty meats, what we call ``food with a taste, a place and a
face,'' driven by consumer demand and an increase in spending on away-
from-home food.\8\ According to Rick Schnieders, the CEO of the Sysco
Corporation, the defining aspect of retail food is price, whereas the
defining aspect of restaurants and food service is differentiation. As
consumers shift more of their food dollar to food consumed outside the
home, there will be greater demand for the type of differentiation of
products that only mid-scale farmers can provide.\9\
These emerging markets for natural, organic and specialty foods
have grown beyond the ability for the small farmers who pioneered them
to fill, and require the capacity and the management capability of the
mid-scale farmers that we are currently losing. The greatest hope for
mid-scale farmers is the transition to production of high-value,
specialized crops and livestock brought to niche markets in ways that
bring a greater percentage of the food dollar back to the farm, and our
greatest challenge is assisting mid-scale farmers in connecting to
these markets before they go away.\10\
Crop insurance plays an important role in encouraging or
discouraging that transition, both in providing risk management, and
because crop insurance determines access to credit and access to
additional disaster program benefits. In a 2004 survey of tobacco
farmers, RAFI-USA found that 67% identified access to capital as a key
barrier to diversifying their farm. In a yearlong study with
agricultural lenders in North Carolina, we found that lenders based the
expected value of crops for both collateral and budgets on assured
income as determined by either conventional commodities markets or crop
insurance. Because the added value of specially marketed crops like
organic is uninsured, it is frequently not included in either
collateral valuation or anticipated income. The farmers of these crops
are therefore more likely to be required to put personal property up as
collateral for operating loans in addition to the crop itself, and are
less likely to have a farm plan that shows a positive cash flow. While
lenders do not recognize the higher value of specialty crops, they do
recognize the higher expense of producing them.\11\
Recent crop disaster payments have been based on benefits received
under crop insurance or the Non-Insured Disaster Assistance Program
(NAP). While this choice makes sense in that it rewards participation
in risk management programs, it leaves those farmers who are not
eligible for effective crop insurance programs without assistance. If
proposed crop disaster payments are combined with crop insurance,
conventional farmers will receive compensation for nearly 100% of their
damage, whereas producers of value-added, niche and specialty crops
without effective crop insurance will receive nothing.
In our experience, there is currently no crop insurance that
provides effective risk management for the value that farmers add
through either specialized production or marketing. The lack of risk
management for value-added products, and the reduction in access to
credit and other disaster programs that accompanies it creates a
financial disincentive for farmers to make the transition, and
increases the risk and vulnerability of those that do.
The challenge for crop insurance is that the emerging markets and
differentiated products do not come with the uniformity and automatic
data collection that provides the underpinning of conventional
commodity crop insurance. The very aspects of these markets that make
them vibrant and exciting and profitable--the ability to respond
quickly to a wide variety of specific niches of quality and
production--are the same aspects that make it extremely difficult to
program for them. The traditional product development approach of
developing a crop-specific risk profile and then releasing a crop-
specific insurance product is unable to address the diversity of
emerging products, enterprises and markets.
In recent years, RMA has been piloting the Adjusted Gross Revenue
(AGR) and Adjusted Gross Revenue-Lite (AGR-Lite) crop insurance
programs. AGR and AGR-Lite provide income insurance based on the 5 year
average of gross farm revenue as established on Schedule F of the
farmer's taxes, including value added through specialty markets and
addressing the complexity of many small and mid-size farms. Since 2005,
North Carolina has been fortunate enough to be one of the pilot states
for AGR-Lite.
While AGR and AGR-Lite are simple in concept, they have proven to
be extremely complicated in implementation. Because of the complexity
of both application and claims adjustment, crop insurance agents are
reluctant to promote it and farmers are reluctant to trust it.
Specifics in the requirements of the program have made it difficult to
determine eligibility of income and coverage of losses, and some
farmers have beensurprised to discover the limitations of their
coverage only when their claims were adjusted. In short, this program
is not working.
These difficulties have been borne out in declining enrollment
numbers, both in North Carolina and nationally, despite significant
outreach efforts. From a high of 970 policies nationally in 2003,
enrollment dropped steadily to 551 in 2007. As the only programs that
address value-added markets, it is critical that we get AGR and AGR-
Lite right.
Recommendation
The AGR/AGR-Lite programs should be extended, but reformed to be
more accessible and affordable, and then expanded to be available
nationally. Reform should include specific steps to address
shortcomings in the program, but should emphasize streamlining the
application and claims adjustment processes, and shifting the program
structure to reward diversification and innovative marketing.\12\
Issue 3: Inequity for Organic Producers
Of the rapidly growing high-value markets, organic is the best
recognized and provides the clearest example for crop insurance. Many
current crop insurance programs are available for organic crops, but
the structure of these programs penalizes organic farmers and creates a
financial disincentive for seeking organic certification. When an
organic producer signs up for crop insurance, they pay an extra 5%
surcharge that is assessed to offset perceived additional risk
associated with organic production, although this perceived risk has
not been quantified by research.
When farmers receive crop insurance and other disaster program
benefits, these benefits do not recognize the added value of organic,
and payments are calculated based on the conventional price. For an
organic farmer who receives a price for organic product that is double
the conventional price, 75% crop insurance coverage based on the
conventional price actually covers 37% of the farmer's income. Organic
farmers in essence pay more for less coverage. This double inequity
needs to come to an end.
When an organic farmer's lawsuit to receive assistance under the
Crop Disaster Program based upon the market price for organically grown
adzuki beans was successful,\13\ USDA promptly changed the program
regulations to allow assistance only at the conventional price. The
courts have upheld the new regulation \14\ so action by Congress is the
only way to ensure that organic farmers receive assistance based on
their market price, just as conventional farmers receive assistance
based on the market price for their goods.
Recommendation
Organic producers should have access to insurance programs that
meet their needs without putting them at a competitive disadvantage to
conventional producers. The 2007 Farm Bill should eliminate the current
5 percent surcharge on premiums for organic producers and establish a
deadline for providing payments that reflect organic market prices to
organic producers.\15\
In closing, access to effective crop insurance programs is
essential for farmer's transition to the emerging markets that are the
key to the health and vibrancy of mid-scale agriculture. Thank you for
the opportunity to testify today, and I welcome any questions from the
Committee.
Notes
1. Percentage of coverage was determined using percentage of
eligible acreage participating from the RMA State Crop Insurance
Profile (http://www.rma.usda.gov/pubs/state-profiles.html) and the
percentage of farm receipts by commodity from North Carolina Department
of Agriculture and Consumer Services Agricultural Statistics Service
(http://www.ncagr.com/stats/cashrcpt/cshcomyr.htm). Percentage of
greenhouse/nursery participation was estimated using the percentage of
total value of greenhouse/nursery products that were represented by
crop insurance liability.
2. ``Under a production contract, the farmer provides services to
the contractor, who usually owns the commodity under production. For
example, contractors in poultry production usually provide chicks to
the farmer along with feed and veterinary/transportation services. The
farmer then raises the chicks to maturity, whereupon the contractor
transfers them to processing plants. Contractors often provide detailed
production guidelines, and farmers retain far less control over
production decisions. The farmer's payment resembles a fee paid for the
specific services provided, instead of a payment based on the market
value of the product.''
Nigel Key and James MacDonald, ``Agricultural Contracting; Trading
Autonomy for Risk Reduction.'' USDA Economic Research Service. Amber
Waves Volume 4 Issue 1. February 2006. Pg. 28.
3. Eldon Gould, Review of the Federal Crop Insurance System.
Hearings before the Subcommittee on General Farm Commodities and Risk
Management of the House Committee on Agriculture, March 15, 2006.
4. P.L. No. 106-113, Appendix V, Title I, Chapter 1, 113 Stat.
1501.
5. Emergency Supplemental Appropriations to Address Hurricanes in
the Gulf of Mexico, P.L. No. 109-148, Division B, Title I. (December
20, 2005) and Emergency Agricultural Disaster Assistance Act of 2006,
which was enacted into law on June 15, 2006 as Title III of the
Emergency Supplemental Appropriations Act for Defense, the Global War
on Terror, and Hurricane Recover Act of 2006. The formal citation of
the Act is P.L. No. 109-234).
6. For more information about the issues associated with
agriculture of the middle, including current research and overview
documents see the web site of the National Task Force to Renew
Agriculture of the Middle at www.agofthemiddle.org.
7. North Carolina Department of Agriculture and Consumer Services
Press Release, ``North Carolina leads nation in loss of farms . . .
again.'' 2/19/07. http://www.ncagr.com/paffairs/release/2007/2-
07farmloss.htm.
8. Stewart, Hayden, Noel Blisard, Sanjib Bhuyan and Rodolfo Nayga,
``The Demand for Food Away From Home, Full service or fast food.''
United States Department of Agriculture Economic Research Service
Agricultural Economic Report Number 829. January, 2004.
9. Schnieders, Rick, ``Presentation to the Georgetown University
Law School.'' Available at http://www.agofthemiddle.org/papers/
sysco.pdf.
10. Kirschenmann, Fred, Steve Stevenson, Fred Buttel, Tom Lyson and
Mike Duffy, ``Why Worry About Agriculture of the Middle.'' White paper
prepared for the National Task Force to Renew Agriculture of the
Middle. Available at http://www.agofthemiddle.org/papers/
whitepaper2.pdf.
11. The full report on the Farmer/Lender Project is available at
http://www.rafiusa.org/pubs/puboverview.html.
12. Draft AGR/AGR-Lite reform recommendations:
1. Streamline application process and adjustment process to
increase farmer access to the program and encourage crop
insurance agent participation, clarifying coverage and
benefits.
2. Provide higher levels of coverage on AGR/AGR-Lite whole farm
revenue programs. Current deductibles are too high for
producers. The maximum effective coverage for AGR-Lite is 72%
(80% coverage, 90% payment rate). In many cases, thin profit
margins do not allow a 28% drop in revenue without severely
impacting the viability of the farm operation. Consider an 85%
coverage level and 100% payment rate like several of the MPCI
coverages.
3. Add a ``floor'' to the 5-Year income history used to determine
coverage levels. Low revenue can reduce the approved AGR to the
point where the insurance will not provide adequate coverage.
Example: maintain the 5 year Schedule F average, but allow up
to 10 years if available.
4. Crop insurance payments and Noninsured Crop Disaster Assistance
(NAP) are not considered allowable income in the 5 year history
but are considered revenue to count for claim purposes. Adding
MPCI indemnities and NAP to allowable income would provide a
floor to compensate for low revenue years.
5. The animal/animal product rates need reviewed to more accurately
reflect the risk. More analysis is needed to see which risk
pool livestock commodities should go into versus simply putting
all livestock in the highest risk pool.
6. Carryover commodities still in the production phase present some
unique beginning and ending inventory challenges. The inventory
rules should be reviewed to ensure the procedures provide clear
directions on how to handle these commodities. In addition,
clarity should be provided as to whether or not coverage is
provided for these commodities including Christmas trees,
shellfish, nursery, and livestock.
7. Strengthen the policy regarding establishing local market value,
particularly for direct marketers. Currently, the policy
indicates that if published prices are not available, then the
average price offered by two commercial buyers, one nominated
by the policyholder and one by the insurance company, should be
used. This needs to be strengthened in two ways. First, for
direct marketers it should be the best estimate of those
involved in direct marketing, as commercial buyers are not
involved. Second, the value for estimating the revenue for the
producer's intention report for the current year should be
determined at the time the intentions report is filed,
otherwise the producer loses the price fluctuation protection
otherwise provided by the policy. There are reports where the
price is either not finalized at the time the intention report
is filed or that it is adjusted at claims time. Neither is
acceptable because such changes can reduce the producer's
protection that was initially sold to them and adversely
impacts the collateral value of the policy.
8. Definition of `Animals' needs to be revised to ensure it is
inclusive of production agriculture. The current definition is
``living organisms other than plants or fungi that are produced
or raised in farming operations including, but not limited to,
aquaculture, bovine, equine, swine, sheep, goats, poultry,
aquaculture species propagated or reared in a controlled
environment, bees, and fur bearing animals, excluding animals
for sport, show, or pets.'' For shellfish farm eligibility it
may be helpful to modify the definition by adding: Shellfish
(licensed commercial producers under the local approving
authority in a certified growing area). This will further
define the controlled environment and eliminate recreational
versus commercial operations. Another definition issue involves
`fryers.' While poultry is currently listed in the definition,
a fryer is not. It also needs to be clear that animals under
contract are insurable.
9. Develop mechanisms to extend AGR and AGR-Lite to new and
beginning farmers so they have the opportunity to utilize
federal risk management programs. Strong consideration should
be given to permit such producers to have protection and
premium rates established based on information for similar
farms that have sufficient historical information to meet the
requirements of these insurance plans.
13. Pringle v. United States of America, 1998 U.S. Dist. LEXIS
19378 (E.D. Mich. 1998).
14. Partlo v. Johanns, 2006 U.S. Dist. LEXIS 43071 (D. D.C. 2006).
15. Proposed Legislative language on organic:
Crop Insurance--Premium Surcharge
Section 508(d) (7 U.S.C. 1508) of the Federal Crop Insurance
Act is amended by adding a new (d) as follows:
(d) Surcharge Prohibition.--The Corporation may not
require producers to pay a premium surcharge for using
scientifically sound sustainable and organic farming
practices and systems.
Crop Insurance--Market Prices
Section 508(c) (7 U.S.C. 1508) of the Federal Crop Insurance
Act is amended by adding a new (5)(C)(v) as follows:
(v) in the case of organic commodities, shall be, no
later than October 1, 2009, the expected or the actual
organic market price of the agricultural commodity, as
determined by the Corporation.
Mr. Etheridge. Thank you, sir.
I would now recognize Mr. Gillen for 5 minutes.
STATEMENT OF DAVID GILLEN, FARMER; VICE CHAIRMAN, PUBLIC POLICY
ACTION TEAM, NATIONAL CORN GROWERS
ASSOCIATION; CHAIRMAN, BOARD OF DIRECTORS, SOUTH DAKOTA CORN
GROWERS ASSOCIATION, WHITE LAKE, SD
Mr. Gillen. Thank you, Mr. Chairman.
Mr. Chairman, Members of the Subcommittee, thank you for
this opportunity to provide you input as you review the Federal
Crop Insurance Program.
My name is David Gillen. Along with my wife Carol, we own
and operate a no-till grain farm at White Lake, South Dakota.
We have been operating our century farm for 29 years, raising
corn, wheat and soybeans.
Currently, I serve as Vice Chair of the National Corn
Growers Public Policy Action Team and Chairman of the South
Dakota Corn Growers Association Board of Directors.
On behalf of NCGA, our 32,000 plus members from 48 states
and more than 300,000 producers who contribute to corn check-
off programs, I cannot overemphasize the importance of an
effective and affordable Federal Crop Insurance Program to our
member growers' risk management planning. Assuming commodity
markets remain above current farm price support levels over the
next several years, crop insurance becomes even more critical
for protecting producers' farm revenue.
As recently as 2005, when we experienced the second highest
corn harvest ever, many producers were impacted by substantial
crop losses due to severe drought, flooding and other adverse
weather events that resulted in indemnity payments exceeding
$697 million. In a year when growers were facing considerable
jumps in input costs, particularly fuel and fertilizer, the
income protection from Federal crop insurance was essential for
keeping many farm operations out of serious financial trouble.
Also, 2006 was the worst drought in my area in 28 years of
farming.
Crop insurance has a huge impact in how we run our farm
operations. In addition to removing risk and providing much
stability to the industry, we need a crop insurance program
that rewards good management and sound risk management
practices.
One policy change proposed by NCGA would enhance the
incentive for producers to assume more risk in exchange for
higher levels of revenue protection. Because the size of the
unit has a significant effect on the cost of crop insurance, we
believe it is very important to eliminate the disparity between
subsidized premiums for coverage by optional or basic and the
larger enterprise and whole farm coverage. Only 3 percent of
acres are covered using enterprise units, compared to almost 61
percent for optional units and 36 percent for basic units. The
key reason enterprise and whole farm unit coverage is used so
little is because of the economic disincentive created by this
continuing disparity.
Premiums are discounted for enterprise units and whole farm
coverage. However, the reduction in costs does not adequately
reflect the declining yield variability with larger units.
Under the current subsidy structure, optional unit coverage is
a better buy for most producers. If the same program dollars
that a producer spends, for example, on 75 percent optional
coverage could be spent on 85 percent enterprise coverage, the
produce would have better coverage on his whole farm, even
though he would have to absorb the losses on individual units.
Our view is that the carrot approach, rather than the stick
approach, should be used to encourage more use of this type of
coverage, particularly enterprise unit. NCGA's proposed change
would allow producers to continue use of coverage by optional
or basic units. One considerable advantage for producers that
select optional units is that a high yield on one unit does not
affect the coverage on another unit. We anticipate that some
growers will continue to prefer this optional unit coverage
that protects against losses on each individual unit.
NCGA is recommending for your consideration legislation
language to authorize changes that would eliminate this flaw in
the subsidy structure. We believe this reform would enhance
program efficiency without adding to the budget baseline. It
would likely reduce the moral hazard.
By encouraging greater use of enterprise unit coverage,
producers would be rewarded for better management, assuming
more risk and directing even more attention to detail on
individual units. Moreover, the need for disaster assistance
would be lessened when producers buy up to higher levels of
insurance. In today's tight budget environment, any step we can
take to reduce the administration costs, inequities and the
potential for program abuse is beneficial to farmers and the
taxpayer. The structure of the Federal Crop Insurance Program
should encourage producers to insure adequate revenue to avoid
devastating losses but must not artificially stimulate
production.
Mr. Chairman, I want to thank you again for this
opportunity to share with this Committee NCGA's views and
policy recommendations for further improving the Federal crop
insurance system for our member growers. We appreciate your
leadership and continued support of the corn industry. Thank
you.
[The prepared statement of Mr. Gillen follows:]
Prepared Statement of David Gillen, Farmer; Vice Chairman, Public
Policy Action Team, National Corn Growers Association; Chairman, Board
of
Directors, South Dakota Corn Growers Association, White Lake, SD
Mr. Chairman and Members of the Subcommittee, thank you for this
opportunity to provide you input as you review the Federal Crop
Insurance Program. My name is David Gillen. Along with my wife Carol,
we own and operate a no-till grain farm at White Lake, South Dakota. We
have been operating our century farm for 29 years raising corn, wheat
and soybeans.
Currently, I serve as the Vice Chairman of the National Corn
Growers Association's (NCGA) Public Policy Action Team and Chairman of
the South Dakota Corn Growers Association Board of Directors.
On behalf of NCGA, our 32,000 plus members from 48 states and more
than 300,000 producers who contribute to corn check off programs, I
cannot overemphasize the importance of an effective and affordable
Federal Crop Insurance Program to our member growers' risk management
planning. Assuming commodity markets remain above current farm price
support levels over the next several years, crop insurance becomes even
more critical for protecting producers' farm revenue against
significant yield losses.
In 2006, 62 million net acres of corn were insured under federal
crop insurance for liability protection at approximately $16.7 billion.
While questions have recently been raised on the amount of resources
and delivery of the program, there should be no question regarding the
necessity of the private-public partnership between the Department of
Agriculture and private insurers to provide the levels of protection
now available to farmers across the corn belt.
As recently as 2005 when we experienced the second highest corn
harvest ever, many producers were impacted by substantial crop losses
due to severe drought, flooding and other adverse weather events that
resulted in indemnity payments exceeding $697 million. In a year when
growers were facing considerable jumps in input costs, particularly
fuel and fertilizer, the income protection from federal crop insurance
was essential for keeping many farm operations out of serious financial
trouble. Also, 2006 was the worst drought in my area in my 28 years of
farming.
Over the past several years, NCGA has placed a high priority on
monitoring the progress of the Federal Crop Insurance Program,
encouraged greater participation to enhance risk management plans and
worked to ensure that any problems that arise are adequately addressed
by the companies and the Risk Management Agency. To be sure, the
variety of insurance plans offered through this shared cost program has
enabled producers to purchase policies that better match the needs of
their farm operations. Ever since their introduction, revenue insurance
plans have become a very important risk management tool for corn
growers. For producers who use forward contracts, these popular
policies allow greater flexibility to market their grain while reducing
the risks against short or failed crops.
An article written for the Economic Research Service in November,
2006 by Drs. Robert Dismukes (USDA) and Keith Coble (Mississippi State
University) zeroes in on the key reason for the growth of these
products; ``As a tool based on revenue shortfalls rather than on yield
or price shortfalls, revenue insurance can be more effective at
stabilizing income than insurance plans or farm programs that protect
against yield and price risks.'' They also noted an important advantage
of revenue insurance over other risk management tools or farm support;
the plans `match the costs of risk protection with benefits and base
coverage on the crop's market value'. Every farmer knows that it is
revenue that pays the bills. This is the fundamental reason why over
66% of policies for corn sold for the 2006 crop year were written for
Crop Revenue Coverage (CRC), Revenue Assurance (RA) or Group Risk
Income Protection (GRIP). These policies, alone, accounted for over
$1.43 billion, over 90 percent of the total premiums paid. Another
important reason for the growth in revenue insurance policies is the
increase in the share of subsidized insurance premiums from less than
30 percent to 56 percent since 1996.
These numbers underscore the impact crop insurance can have on our
farms and how we run our operations. In addition to removing risk and
providing much stability to our industry, we need a crop insurance
program that rewards good farm management and sound risk management
practices and tools.
One policy change proposed by NCGA would enhance the incentive for
producers to assume more risk in exchange for higher levels of revenue
protection. One unintended consequence of increased subsidies coupled
to levels of protection authorized under the Agriculture Risk
Protection Act of 2000 is a system that does not fully recognize the
lower risk exposure of enterprise and whole unit policy coverage.
Because the size of the unit has a significant effect on the cost of
crop insurance, we believe it is very important to eliminate the
disparity between subsidized premiums for coverage by optional (field
subdivided basic units) or basic (all crop land of a single crop into
one insurance unit) and the larger enterprise unit (all shares of a
crop in the county) and whole farm (all eligible insured crops in the
county) coverage. According to RMA, only 3 percent of acres are covered
using enterprise units compared to almost 61 percent for optional units
and 36 percent for basic units. The key reason enterprise and whole
farm unit coverage is used so little is because of the economic
disincentive created by this continuing disparity.
Premiums are discounted for enterprise unit and whole farm
coverage; however, the actual reduction in costs does not adequately
reflect the declining variability in yield and/or revenue as a producer
aggregates acres into the larger insurance units. Under the current
subsidy structure, optional unit coverage is a better buy for most
producers. If the same program dollars that a producer spends, for
example, on 75% optional coverage could be spent on 85% enterprise
coverage, the producer would have better coverage on his whole farm
even though he absorbs the losses on individual units.
Our view is that a carrot rather than a stick should be used to
encourage more use of this type of coverage, particularly enterprise
unit. NCGA's proposed change would allow producers to continue use of
coverage by optional or basic units. One considerable advantage for
producers that select optional units is that a high yield on one unit
does not affect the coverage on another unit. We anticipate that many
growers will continue to prefer optional unit coverage that protects
against losses on each individual unit.
One solution for securing more equitable crop insurance premiums
for larger unit coverage is to decouple per acre premium subsidies from
the unit of coverage selected by the producer. With assistance provided
by RMA legal counsel and Congressional staff last year, NCGA is
recommending for your consideration legislative language to authorize
changes that would eliminate this flaw in the subsidy structure. We
believe this reform would enhance program efficiency without adding to
the budget baseline. Once fully implemented, the proposed change would
likely reduce moral hazard and the adverse selection of insurance
coverage.
By encouraging greater use of enterprise unit or whole farm
coverage, producers would be rewarded for better management, assuming
more risk and directing even more attention to detail on individual
units. Moreover, we expect the need for disaster assistance would be
lessened when producers buy up to higher levels of insurance. In
today's tight budget environment, any step we can take to reduce the
administration costs, inequities and the potential for program abuse is
beneficial to farmers and the taxpayer.
Mr. Chairman, I want to thank you again for this opportunity to
share with this Committee NCGA's views and policy recommendations for
further improving the federal crop insurance system for our member
growers. We appreciate your leadership and continued support of the
corn industry.
Mr. Etheridge. Thank you, sir.
The Chair would like to remind Members that they will be
recognized for questions in order of seniority for Members who
were here at the start of the hearing. After that, Members will
be recognized in order of their arrival to the hearing. So I
appreciate the Members understanding of that.
I now recognize myself for 5 minutes.
Mr. Marlow, assuming AGR and AGR-Lite could be reformed,
would they serve as effective risk management products for
contract producers or do we still need separate policies that
can be available for contract farmers? Are there special risks
to contract producers that require a separate type of crop
insurance policy?
Mr. Marlow. Yes, if it was reformed. Currently there is a
prohibition in AGR and AGR-Lite against its coverage of
contract producers. If that was shifted and we were able to fix
the program, it could be an effective risk management tool for
contract producers.
As I mentioned, we are seeing people being very concerned
about risks of quarantine, of outbreaks of different diseases
and also bioterrorism, which are not currently allowed or
allowable coverage; and we would like to expand to improve
those as a part of the program.
But the answer to your question is, yes, it could be a very
effective tool, but it is currently blocked by the regulations
of the program.
Mr. Etheridge. Share with us a little bit more the issues
related to quarantine. Because if they are under contract, who
is the person you are hurting? Just the grower himself?
Mr. Marlow. Certainly, because animals are owned by the
company but raised by the farmer, the impact of a quarantine or
depopulation is shared between the company and the farmer. The
challenge is that most producers have a significant mortgage on
their operation, and even if they lose production, they don't
lose their mortgage payments. So they are losing that income,
and so the segment of that income that does come to the farmer
would be very important to cover in the case of a quarantine or
any kind of other depopulation.
Mr. Etheridge. Or a heavy disease that creates a
depopulation.
Mr. Marlow. Absolutely.
Mr. Etheridge. That helps them to get on the record,
because not everyone who sits on this panel deals with that.
Ms. Wilcox, you want to eliminate the 5 percent premium if
an underwriter risks the review that you will rely on them to
conduct. If they cannot document significant, consistent and
the systemic variations in loss history between organic and
conventional crops, in your view, how significant must the
difference be to justify keeping the 5 percent premium? And can
you quantify that for us so I will understand it?
Or, assuming this review is completed, are you going to be
faced with another debate between you and RMA, whether any
differences a review finds in risk between organic and
conventional is significant enough to justify the premium?
Ms. Wilcox. Well, Mr. Chairman, we acknowledge in our
testimony that both of those questions are very difficult to
answer since we don't have the data. We would like very much to
be able to have the studies done. We don't know whether there
will be a difference found.
We do know that there is sometimes in some segments of
organic agriculture a diminution of production during the
transition period, and normally there is a recovery in the
fourth or fifth year. The transition is 3 years. And sometimes
there is a recovery right during transition while the farmer
learns about new techniques and new ability to farm
organically. So we are open to that discussion with RMA.
We are grateful for the fact that we are even going to get
any data, because that was not going to be collected for a long
time. But they have now begun the collection, and we are
willing to live with the results and have those discussions
with them.
Mr. Etheridge. Okay. Thank you.
I recognize the gentleman from Louisiana.
Mr. Boustany. Thank you, Mr. Chairman.
Ms. Wilcox, I want to follow up on the question the
Chairman just asked.
In looking at the organic crops one of the problems is
making sure you have access to organic markets, and that is
part of the reasoning for the 5 percent extra that is added in
the premium. You want to get rid of that. But in looking at
access to markets, I want to dig into how that is determined.
Is it just simply a pricing mechanism?
For instance, when an organic farmer has crops that they
want to bring to market, do they make comparisons? And is it
simply a pricing decision or are there some other factors?
Ms. Wilcox. Well, it is a demand decision, actually,
Congressman.
As I said in my initial testimony, we are now at 3 percent
of the retail market for food and beverages in the United
States. Our members tell us that they could sell much more
organic product if they could manage to produce it and deliver
it to market. So the demand is definitely there.
The 5 percent, as I understand it, on the premium is a
number that the Department decided to attribute to risk for the
insurance. They demand that the farmer pay an extra 5 percent
premium for his insurance. If the farmer does suffer a loss the
formula only pays him for the conventional price that his
neighbor would get if he went to market.
Mr. Boustany. Would an AGR or AGR-Lite type of program
work?
Ms. Wilcox. Well, AGR-Lite has been used by some organic
farmers, or has attempted to be used by some organic farmers.
But they have met with a lot of the difficulties that my fellow
panelists outlined, and it is a very complex system.
As you probably know, with organic, you do rotate crops. So
we are a multi-crop process. And so then they have to account
for each crop and how much they planted, which time and which
field. It gets very, very complicated.
Mr. Boustany. Thank you.
Mr. Marlow, in looking at the AGR and AGR-Lite programs, in
your testimony, you make a recommendation that the program
should be extended but reformed to be more accessible or
affordable and then expanded to be available nationally. And
you said that reforms should include specific steps to address
shortcomings in the program. And also it should emphasize
streamlining the application and claims adjustment process and
shifting the program's structure to reward diversification and
innovative marketing.
You talk about how difficult it is to implement the
program. Why? Give me more detail as to what are the real
problems in implementing this. What are farmers faced with in
this?
Mr. Marlow. The concept of the program is that a person
should be able to come in with basically 5 years of their
schedule left and use that or the gross number to basically set
their crop insurance.
Fundamentally what happens when they come in is they then
have to put together a report on their operation which outlines
each of the individual crops that they have produced, the
amount produced and the price that they have received for each.
They must also provide documentation for each of those levels.
They then have to put together a farm plan which then documents
all of the different crops that they are going to produce, what
price they expect to get and what they expect their yields to
be.
So that instead of simply insuring that gross number, in
essence what it does is it creates individual crop insurance
plans for each of those individual crops and then puts them
together into the AGR-Lite plan. The farmer then has to do
quite a bit of record keeping, documentation, planning; and all
these things have to go quite a long ways.
The challenge is that agents don't want to do this. It is
very complex for an agent to sign someone up and to understand
what it is. So we are getting a lot of resistance from crop
insurance agents who are not trained on it and don't want to
offer it. With many farmers, their initial inquiries about this
product are either negative or deflecting.
Mr. Boustany. If you could come back to us with some
specific recommendations on how to simplify that, we would
enjoy hearing those recommendations.
Thank you. I will yield back.
Mr. Etheridge. I thank the gentleman.
The gentle lady from South Dakota, Ms. Herseth Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman.
I appreciate all the testimony today. I want to
particularly commend the testimony of Mr. Gillen a leader not
only in South Dakota both in agriculture and a number of
different commodities, but in the growing biofuels industry and
his leadership nationally as well. So I do want to pose some
questions to you, Mr. Gillen.
Since our field hearing in South Dakota last fall that we
had in Wall, South Dakota, there have been a number of
proposals to address a particular issue that came up during
that field hearing. We heard about the concern that Federal
farm programs were providing farmers with incentives to plow
virgin prairie land, and I understand the same complaint has
been made about crop insurance with its ability to move yields
to new land. So among those proposals that have been floated
since that field hearing by various conservation groups,
outdoor groups and others, some would curtail or eliminate
certain Federal subsidies for any land that is converted from
grass or native prairie into farm ground. Some are advocating
limiting farm bill benefits to LDP and counter-cyclical
payments only. Some support allowing crop insurance on the land
but deny them price support assistance. Some, of course, want
to eliminate all Federal support for converted grass. And some
even want to ban the practice altogether. So what are the
positions of the South Dakota Corn Growers and the National
Corn Growers Association on this particular issue?
Mr. Gillen. Thank you very much.
That is an issue that has come to light recently because
there is a native sod that is being broke up. Our biggest
concern is why it is being done, and we feel that the biggest
reason it is happening is the crop insurance. The crop
insurance people are being able to apply the T-yield or their
APH to that property. If that wasn't taking place, a lot less
of this sod would be broken up.
But the position of the National Corn Growers is that we
still want--if somebody wants to convert the grass to farmland,
we still want program support. But we just do not want crop
insurance be the reason why it is being broken up.
So what we are proposing is there would be no insurance
initially when that grass is brought into crop production, and
there would be no insurance until the actual production history
was developed over a 4 year period. So that would mean there
would be no APH movement from the producer's average production
to that tract of land or there would be no T-yield there. So
there wouldn't be any crop insurance protection until after 4
years.
We feel that that is a fair way to go. But we don't feel
that all the program force should be taken away because--it
would be between the haves and have-nots. How can you have
producers on one side of the fence having support and producers
on the other side not, just because that sod was broken
earlier.
I think that would address the issue.
Ms. Herseth Sandlin. The proposal as it relates to the crop
insurance issue in particular, how do you define ineligible
land for that first 4 years? Land that has never been cropped?
Land that hasn't been cropped for X number of years? And would
you have a different treatment for CRP land?
Mr. Gillen. Our only recommendation is for native grass
that has never been broken, and on the FSA maps there would be
no record of any crop. So as long as there was ever a record of
a crop ever being grown, that wouldn't be a part of this. It
would only be applied of native sod that is being grown.
Ms. Herseth Sandlin. Thank you.
On a different issue, as it relates to unit coverage,
National Corn Growers support changing the premium structure,
subsidy structure for crop insurance to encourage farmers to
insure larger units. As you explained in your testimony that
can be enterprising or whole farm units rather than the
separate coverage, optional, or basic for individual fields or
the particular crop.
Now how much would the subsidy structure need to be changed
in order to get the effect that NCGA is seeking? Because I know
that you say there has been some increase in utilization,
coverage with that particular product and I think 30 percent to
56 percent since 1996. So what are you proposing? How far do we
need to go to bump that percentage up even further?
Mr. Gillen. I make that decision. But, right now, only 3
percent of the producers use enterprise unit coverage and 61
percent use optional. So there is a definite discrepancy there.
At the 75 percent level, they are subsidized, I believe, at
55 percent; and at 85 percent they are subsidized at 38
percent. So the enterprise unit coverage at the 85 percent
level would have to be somewhere above 38 percent but not above
55.
In my farm, if I could take the same subsidy, and the total
premium, the subsidy part of the premium and the farmer premium
and at 75 percent option needed coverage, I could take those
total dollars and if I could apply those total dollars to 85
percent enterprising the coverage. I would have to assume the
risk of the loss of those individual units, but I would have 10
percent better coverage on my whole farm. It wouldn't cost the
taxpayer any money, and it wouldn't be any more money out of my
pocket. It is just how the formula is put together. It is just
a method between enterprise units.
So this also comes to the issue with low APHs. If producers
were able to buy up coverage at the 85 percent level, there
would be less of a need for disaster assistance, and they would
have better coverage if they had low APH. It fixes a lot of
issues; and it would increase the cost very little or,
actually, zero if more producers were incentivized to move in
this direction.
Ms. Herseth Sandlin. Thank you very much, Mr. Chairman.
Mr. Etheridge. The gentleman from Texas, Mr. Neugebauer,
for 5 minutes.
Mr. Neugebauer. Thank you, Mr. Chairman.
Ms. Wilcox, you pointed out the fact that today in some of
the organic crop insurances they will pay a 5 percent premium,
but they are reimbursed at the standard commodity rate. So if I
am growing organic asparagus and I lose my crop, I am going to
get paid at the same rate as just the normal asparagus crop.
What is the price differentiation between organic and just
general commodities that are not grown organically in the
marketplace today?
Ms. Wilcox. Well, that is one of the things we would like
to determine officially. But I can tell you that in some cases
it can be as much as 50 percent more. In asparagus, I couldn't
tell you the differential. But in corn, for instance, for
organic corn, we can be at almost double the price.
But we don't have those kinds of official numbers from USDA
on a consistent basis. They have just started to collect
segregated pricing data, and we are very grateful for that.
That they have started, but we need that to continue so that
our farmers will have a base on which to be compensated.
Mr. Neugebauer. Do you think the appropriate resources are
in place to continue that process; or do we need to look at
that?
Ms. Wilcox. Well, we asked in our testimony to be sure that
we can do that on a comprehensive basis. Right now, there is a
pilot program under way between RMA and AMS, and we need to be
sure that that is going to cover all the commodities on an
enrolled basis, and we need to look at that in the farm bill,
yes.
Mr. Neugebauer. To the rest of the panel, and particularly
in the organic area, are there other holes in the organic
system. As we sit down and look at this farm bill and possibly
some changes in the crop insurance program, what is brought out
in the testimony?
Mr. Marlow. We would certainly support the policy of
increasing the record keeping. Having really solid data on
these markets, on prices, on volumes is very important and
becomes critical for other programs. It is very hard to program
for something that you don't know how big it is or how much it
is or what it looks like and can't get that hand around it.
Part of the question is going to be where the burden of
proof is in terms of releasing the 5 percent surcharge. The
OTA's proposal is that the burden of proof is we need to prove
that there is not greater risk.
The other way to look at it is to say, and what we believe,
is that, because organic is an accepted production practice,
that the burden of proof should be on the Risk Management
Agency to prove that there is additional risk. We should remove
the surcharge unless the proof goes in the other direction.
We both want a lot of data to be able to get our hands
around it. The question is, where should the burden of proof
lie in terms of this issue of the 5 percent surcharge? But
certainly this issue of getting at the AGR and the income-based
products are a way that you can get at the diversity of crops
and the diversity of markets that people are accessing, which
is really critical to organic.
Mr. Neugebauer. I guess if I am understanding correctly,
you could make a shorter crop and an organic crop and possibly
still have more income than a normal crop.
Mr. Marlow. Absolutely. I was speaking to a farmer in
northeastern North Carolina last week who has moved 20 of his
1,200 acres into organic. His corn has a lower yield, but he is
making more money on it. He is moving, this year, 30 acres into
transition.
But the challenge is, in terms of looking at crop
insurance, is that that risk, that lower yield is going to show
up in his actual production history. So, therefore, as he gets
crop insurance, he will get crop insurance based on that actual
production history, so his yields are going to be set at that
organic level. So that actual production history isn't going to
capture what he has with that.
We are seeing this transition more and more. But it is very
challenging for them to get good risk management on that.
Mr. Neugebauer. Thank you, Mr. Chairman.
Mr. Etheridge. I thank the gentleman.
The gentleman from North Carolina, Mr. Pomeroy.
Mr. Pomeroy. Thank you, Mr. Chairman, and thank you for
holding this hearing.
One of the things that I would like the Subcommittee to do
is be cognizant of other hearings being held across the face of
Congress on crop insurance. And as we, amongst ourselves, get
into the weeds of the program and understand the valuable risk
management, and practical essentials risk management
contributes, even though we try to make it better. We have to
be aware that some of our colleagues are sitting in other
hearings and thinking the whole darn thing is a scam. We need
to really get to the bottom of what points of fact are driving
their concerns, even dispel them if they are erroneous or deal
with them if they are factual.
I think I have worked as hard on crop insurance as anybody
in Congress. But, if there are problems with it, let's get to
the bottom of it. I am not defensive about it. I don't have any
pride of authorship about it. If there are problems, we want to
fix them.
On the other hand, a good deal I think of the perception
out there is erroneous, and we need to dispel that with our own
expertise about what this contributes in terms of risk
management.
In that one, I turn to our friend from the Corn Growers, my
fellow Dakotan, albeit South Dakotan, Mr. Gillen. Worst drought
in 28 years.
Mr. Gillen. Yes, sir.
Mr. Pomeroy. Do we need a disaster bill?
Mr. Gillen. Permanent one or current one?
Mr. Pomeroy. Current one.
Mr. Gillen. There are producers out there that do. What
helped us a lot this last time around was revenue insurance,
those that have revenue insurance with FCIC. We got paid extra
per bushel on corn. That extra dollar a bushel was huge. The
crop insurance worked for us.
But the other producers, the wheat people in my area, the
people that didn't have RA they didn't get in on that.
Mr. Pomeroy. We have got a problem with some of the high-
risk areas in the Dakotas where year after year it drives your
APH down to where you can't secure enough protection for the
financial exposure that you have got. It has also been a
problem at least in North Dakota.
Mr. Gillen. Yes, it is.
To answer that, when you are insuring corn at $2.50 or
$2.60 where we have been at, there is a huge hole that
producers can't absorb. When the coverage like this year's was
at $4, it helps a lot in that area.
Mr. Pomeroy. The migration of the coverages to this CRC
coverage, in your view, would that have been possible without
the enhanced subsidies we committed in the ARPA legislation of
1999?
Mr. Gillen. That legislation was very good as far as the
increase in the subsidy, enough to make them more affordable.
Mr. Pomeroy. You have to make it happen.
Actually, from a cost benefit standpoint for a farmer, the
extra risk coverage you got really wasn't worth it in terms of
what you had to lay out in premium, but that extra subsidy then
made that higher coverage level a better deal and that has
allowed the innovation of these revenue products which free the
farmer to further mitigate risk by trading futures. Is that
right?
Mr. Gillen. Yeah. It did allow producers to use the futures
market as long as they had that risk management tool on the
crop insurance side to use it.
What we are proposing, what the enterprise would cover
would take them even further yet, as far as bushels, being able
to buy a higher level of coverage. If they are willing and
producers like myself are willing to absorb those losses on
those individual units, and if a subsidy was changed, the
percentage was changed in enterprise units, we can get that
extra 10 percent coverage, from 75 to 85 percent coverage. To
me, that is huge and is going a long way for a producer that
has a low APH.
Mr. Pomeroy. It is. But I will tell you why the people I
represent use individual units or basic units is to get their
coverage, nudge their coverage up as high as it can go because
they want to maximize their risk protection. And when you
indicate, well, that won't be necessary if they buy subsidized
premiums, can buy up at the higher level for the enterprise
unit, I agree with you. But I don't think it is an even trade
from an actuarial standpoint. I think substantially more
subsidies would have to be provided to get the kind of
subsidized buy-up for the enterprise unit than for the
individual unit, don't you?
Mr. Gillen. To increase the enterprise unit would be
adequate, I think. There are producers out there that have
several different units and they want individual coverage on
those units and they don't want to give that up. This would
address that. This wouldn't change their coverage at all. This
would just be for producers that want to put all their crop
insurance into one unit.
Mr. Pomeroy. Right. I think conceptually what you are
talking about there makes sense. I like moving to an enterprise
unit. It would eliminate a lot of cheating in the program, too,
in my view.
On the other hand, I think that we are going to have to
have substantially more subsidy if we are going to have the
same kind of premium affordability at higher coverage levels
for the enterprise unit. I believe people are deciding on the
individual unit because that, right now, is the only way they
can afford to get the higher coverage levels that they want,
and the higher risk protection that they want. If you are going
to switch that to an enterprise unit I think you are going to
talk about a pretty substantial increase in subsidy, wouldn't
you?
Mr. Gillen. You wouldn't have that increase in subsidy.
Getting back to your point of affordability of insurance,
the National Corn Growers have come forward on the farm bill
with a revenue package revenue proposal and this is integrated
with the crop insurance. And what that means is you would work
with the crop insurance farm level and the accounted level
support. It would be like a permanent disaster, and it would
plug that hole. It was integrated, and you get the higher of
the two, either the farm level support or the kind of level
support. As long as it is integrated, you could reduce your
premium by 40 to 60 percent, because the crop insurance
wouldn't have that risk anymore. The revenue proposal would
cover that risk. That would be huge, long way of addressing the
issue of premiums being too high.
Mr. Pomeroy. I know my time is up. I am just about done. Is
that the cost of production coverage?
Mr. Gillen. No, sir.
Mr. Scott. I would ask the gentleman to yield if he had
time to yield.
Mr. Pomeroy. Yes, I will yield; and the gentleman can
consume the balance of my time.
Mr. Etheridge. I thank the gentleman for his question.
The gentleman from Colorado, Mr. Salazar.
Mr. Salazar. Well, thank you, Mr. Chairman.
I appreciate the panel's being here today. As many of you
know, I am a farmer, and I do raise organic seed for Gourmet
Farms, organic potato seed. We understand how expensive it is
to raise organic seed.
Ms. Wilcox, you mentioned in your testimony could you just
give me an incident of how a crop could be contaminated without
fault of the producer.
Could you expand on that and give me an example?
Ms. Wilcox. Well, typically, it is caused by grit from a
neighbor, sometimes a neighbor over 100 miles away, and it can
be either a chemical or it can be genetically modified
material.
Mr. Salazar. Would you then say that Federal crop insurance
should be liable for an issue like this, or would this be more
of a legal matter to where the farmer could pursue legal
avenues to compensate himself if someone caused that harm or
that injury?
Ms. Wilcox. Well, we have many farmers who would like to be
able to pursue that as a liability against not only the
contaminator but also the company that produced the product.
But we know from experience in other countries, namely, in
Canada, that that has actually bankrupted farmers who have
attempted to do that. And in our country, under product
liability, it appears that we would have to have product
liability reform in order to be able to do that. So we have
been looking at whether there would be the possibility of
coverage that would potentially help the farmer when he does
have a contamination that is completely not his fault.
Mr. Salazar. Well, thank you.
Mr. Segler, regarding your request to insure pecan farmers
by farm number, can you give me an example of about how
expensive it is to raise pecans per acre?
Mr. Segler. The cost of pecans runs somewhere between
$1,000 to $1,200 per acre. It takes us 9 months to grow them,
so it is a tremendous investment. And when you look at most all
other crops that can insure by individual farms, if you had a
farm on one side of the county and another on the other side of
the county, as it stands now, you could have a loss on one farm
and the other farm might make up the difference that you lost
as far as insurance coverage. But, you would still have a loss,
and we have to average everything in the county. That is not
true with most all other crops.
Mr. Salazar. Okay.
Has RMA actually provided us an explanation for not
allowing this option for pecan growers?
Mr. Segler. Not on that part. They have on the 10 percent
cup yield protection. They say that it is a revenue-orientated
crop, and that is true in one aspect, but that is only half the
equation. They do not recognize that it is the same as corn or
cotton, that it takes both production and price to determine
the guaranteed insurance coverage. Both equations have to be
there.
Mr. Salazar. Okay. Thank you very much. Oh, go ahead. Have
you finished? Thank you. I do appreciate it.
Thank you, Mr. Chairman. I yield back.
Mr. Etheridge. The gentleman from Georgia, Mr. Marshall, 5
minutes.
Mr. Marshall. Thank you, Mr. Chairman. I am going to
continue with some questions for my fellow Georgian, Mr.
Segler.
First of all, I guess I should say Congress appreciates the
work you have done for some 20-odd years, and I hope that pecan
growers will appreciate it. Was it the regional office that
proposed to RMA National that there be a modification to meet
some of your needs? What was the proposed modification that
National said no? Was it on the 10 percent cup?
Mr. Segler. The 10 percent cup, both after the catastrophic
forms that we had in 2004 and 2005. In both years, the regional
office of RMA submitted to the Kansas City office the request
to implement the 10 percent cup, paralleling the catastrophic
damage of the 2004 and 2005 hurricanes with the same damage
that we had in 1996 on peaches when they froze out. It is, in
my opinion, a shame, Mr. Congressman, that we have to go to the
Congress of the United States to get something done that RMA
administratively took care of in 1996.
Mr. Marshall. Yes. Let me try to draw that analogy a little
bit more.
So RMA's response was that this was a revenue crop and
cannot be done. Yet, it was done administratively for peaches.
Is that what you are telling me? I know a number of farmers who
have peaches and pecans, and there is different care involved.
There is pruning involved. There is fertilizing involved. For
some reason, pecans are labeled as revenue crop and cannot get
the 10 percent cup limit, and then peaches are not, and you
can. Can you explain that?
Mr. Segler. No, sir. They probably can explain it better
than I because it is the same as the CRC program for corn and
cotton. It takes both yield and price to determine the ERT.
RMA, the people that I have been involved with since 2003 in
trying to get this corrected. They simply have a hard time
understanding not only why we do not have this, but why the
crop insurance was ever written without it.
Mr. Marshall. By the way, there is a whole bunch of Georgia
corn growers out there to make sure we get this done.
Mr. Segler. I draw the analogy between peaches and pecans.
I am real troubled by peaches and pecans. It seems to me that
there is really, truly, no difference there at all. I am
saying, Mr. Congressman, in 1996, when Georgia and the
Southeast experienced a 5-bushel-per-acre yield, RMA recognized
that yield as catastrophic damage. They implemented
administratively this 10 percent cup because they had it on
other crops, on the peaches for 1997. After 1997, it became a
part of their policy.
I can assure you that unless this is rectified immediately,
not 2 or 3 years from now, we will not have crop insurance on
pecans. It will go down to zero because we are having to put
some catastrophic numbers in like zero. It happened in Texas as
well. This is something that should not be permitted.
Mr. Marshall. I appreciate your being here.
Mr. Etheridge. I thank the gentleman.
Let me thank our panelists for being here today. Thank you
for your comments, and if you have others you would like to
share with us, please do so very shortly because this Committee
is going to be moving forward.
Now let me invite our second panel if they will come to
join us at the table.
Let me welcome you, our full panel.
On this panel is Mr. Bill Kubecka. Is it pronounced ``cue-
beck-ah''?
Mr. Kubecka. Yes, sir.
Mr. Etheridge. He is the past President of the National
Sorghum Producers in Palacios, Texas.
Mr. Gary Iverson is the Executive Director of the Great
Northern Growers Cooperative in Sunburst, Montana.
Mr. Steve Chapman is the President of the American Sesame
Growers Association of Lorenzo, Texas.
Mr. Tim Watts is the President of Watts and Associates,
Incorporated, in Billings, Montana.
Welcome.
When you are ready, Mr. Kubecka, you may begin with 5
minutes. Let me remind each of you your total testimony will be
included in the record, and if you would, try to summarize that
within 5 minutes. Thank you.
STATEMENT OF WILLIAM H. ``BILL'' KUBECKA, FARMER; PAST
PRESIDENT, NATIONAL SORGHUM PRODUCERS, PALACIOS, TX
Mr. Kubecka. On behalf of the National Sorghum Producers, I
would like to thank the House Committee on Agriculture and this
Subcommittee for the opportunity to discuss the manner in which
RMA operates the Federal Crop Insurance Program.
My name is Bill Kubecka, and I farm in Matagorda and
Jackson Counties in the upper coast of Texas. I raise sorghum,
cotton, and rice in a diversified operation that also includes
cow-calf pairs and aquaculture. I believe that sorghum is a
self-insurance crop as it takes less water to produce a crop,
but it does not get treated as such by RMA.
Sorghum farmers are very, very frustrated with RMA's
operation of their risk management programs because their
policies run contradictory to sorghum's inherent risk
management characteristics. RMA has based sorghum price
elections on long-term, historical sorghum-corn price
relationships. But with ethanol changing the market dynamics
for feed-grains, this is not relevant. RMA must change their
way of doing business when it comes to sorghum. Penalizing
sorghum because it is not traded on a futures market is wrong.
On my farm, I can consistently market sorghum at a 10
percent premium to corn, some years at a 30 percent premium.
Yet RMA set my 2007 price election at a 6 percent discount to
corn. RMA's administration has resulted in an extra 16 percent
deductible on my sorghum insurance. In effect, this makes a 65
percent deductible policy more like a 50 percent deductible
policy.
If the Committee includes changes in the farm bill to RMA's
risk management programs, NSP asks that, first, sorghum price
elections accurately reflect local prices; second, that
expected county yields do not have large, short-term
variations; third, that a transparent system of establishing
transitional yields is implemented; and last, that RMA expand
the Pilot Forage Sorghum Program.
According to RMA, in 2006, a USDA-sponsored risk management
program covered 67 percent of sorghum acreage. That number is
significantly lower than other crops. Corn had 79 percent of
its acreage covered, cotton 92 percent, wheat 77 percent, and
soybeans 80 percent.
With participation at significantly lower rates than other
crops, this shows that the program has problems. Sorghum
farmers do not see or receive the same benefits as other crops.
We find it ironic that our crop's risk management advantages
are essentially discounted when price elections are lower than
high water-use crops that are more risky to grow in the semi-
arid sorghum belt.
Price elections need to more accurately reflect local cash
prices. 1,000,000,000 gallons of new ethanol demand will come
on line in 2007 and early 2008 in the sorghum belt, and this
will continue to increase the price of sorghum.
Drought has decimated sorghum yields: During the past
couple of years, parts of the sorghum belt have received the
third lowest rainfall since modern record keeping began. Gross
Revenue Insurance Program and Group Risk Plan, also known as
GRIP and GRP, are supposed to use long-term yields as a basis
for insurance. However, if you look at page 10 of my written
testimony, you will find a map that shows where RMA has
increased an expected yield by 3 percent in one county and then
decreased the expected yield by over 30 percent in an adjoining
county. Producers who have had their yield histories destroyed
by a short-term drought now have their long-term, area-wide
coverage decreased dramatically for the same reason. The
expected county yields should be based upon a function that
accounts for increased yield due to technology and genetics.
While transitional yields, better known as T-yields, really
only affect new producers of a crop, RMA must utilize a more
transparent system of assigning T-yields that does not penalize
one crop against another.
RMA created the Forage Sorghum Pilot Program in 2005 at the
request of NSP. NSP has been working with RMA to make
significant changes to the program for the 2007 crop year to
rebalance T-yields across the sorghum belt. NSP wants to work
with the Committee and RMA to make sure that this program
expands and is actuarially sound.
In conclusion, NSP's Board asks that Congress solve
problems with risk management programs before expanding crop
insurance and before the Committee creates additional programs
that will be based on crop insurance numbers.
I appreciate the opportunity to submit this testimony in
support of bettering the crop insurance safety net for sorghum
producers. I want to end by saying that setting sorghum risk
management programs equal with other crops is good, sound,
policy for saving water and lessening America's foreign energy
dependence. Thank you.
[The prepared statement of Mr. Kubecka follows:]
Prepared Statement of William H. ``Bill'' Kubecka, Past President,
National Sorghum Producers, Palacios, TX
Introduction
On behalf of the National Sorghum Producers, I would like to thank
the House Committee on Agriculture and this Subcommittee for the
opportunity to discuss federal crop insurance and its impact on the
sorghum industry and my farm.
My name is Bill Kubecka, and I farm near Palacios in Matagorda and
Jackson Counties in the Upper Coast of Texas. I raise sorghum, cotton,
and rice in a diversified operation that also includes cow-calf pairs
and aquaculture.
NSP represents U.S. sorghum producers nationwide and our mission is
to increase the profitability of sorghum producers through market
development, research, education, and legislative representation.
NSP is committed to work with the Committee and its staff as it
works to reauthorize our nation's farm laws. The organization and
industry are supportive of the current farm bill. However, we believe
that Congress can clarify several program details so that USDA
interpretation does not impact producers' ability to use sorghum in a
profitable cropping system.
One program that could be improved is USDA's risk management
program. Crop insurance is a major component of the farm safety net for
grain sorghum. It is a crop grown predominately in the semi-arid Great
Plains, where weather volatility (lack of rain) is the major
determinant in year-to-year yield variation. This testimony will focus
on three areas of crop insurance as they relate to grain sorghum: price
elections, expected county yields, and transitional yields. The
testimony will also briefly discuss forage sorghum. But first, we need
to examine the current situation that sorghum producers encounter.
Industry Overview
The Great Plains states produce the largest volume of grain
sorghum, but the crop is grown from Georgia to California and from
South Texas to South Dakota. According to the National Agricultural
Statistics Service (NASS), last year sorghum was produced in many of
the states that you represent. This includes Georgia, Mississippi,
Kentucky, Arkansas, Kansas, South Carolina, Nebraska, Colorado, South
Dakota, Missouri, Louisiana, Texas, Oklahoma, and California.
Over the past ten years, grain sorghum acreage has ranged from a
high of 13.1 million acres in 1996 to a low of 6.5 million acres
planted in 2006. Annual production from the last 10 years has ranged
from 795 million bushels to 360 million bushels, with an approximate
value of 1.2 billion dollars annually.
The creation of the Conservation Reserve Program in the 1985 farm
bill had a significant impact on the sorghum industry. Poor risk
management programs have played a role also. Today's sorghum acreage is
one-third of what it was prior to the 1985 farm bill. It is a goal of
the industry to increase producers' profitability and to take acres
back closer to the pre-1985 farm bill level. NSP expects that returning
acreage to that level will help ensure the infrastructure to supply the
needs of the ethanol industry, livestock industry and export markets.
The sorghum industry has submitted to USDA a national checkoff proposal
which will allow producers the opportunity to direct research funds
towards their priorities. It will also ensure research and development
funding to continue to improve our crop. In addition, forage sorghum
utilized as silage, hay and direct grazing represents approximately an
additional five million acres of production. The USDA reported that in
2006, 347,000 acres of sorghum were harvested for silage, producing
approximately 4.6 million tons of silage.
The U.S. is the world's chief exporter of grain sorghum, and the
crop ranks fifth in size in the U.S. behind corn, soybeans, wheat, and
cotton.
In the last two years, approximately 45% of the crop was exported.
Further, last year the U.S. had almost 90% of world sorghum export
market share. In 2005-2006, Mexico bought more than two-thirds of our
exported grain. NAFTA has created a strong market for U.S. sorghum to
Mexico and producers in my area benefit from historically high basis
because of this market.
Of the 55% of the crop that is not exported, 26% goes into pork,
poultry, and cattle feed; 24% goes into ethanol production; 4% goes
into industrial use; and 1% goes into the food chain.
In fact, sorghum's newest market is the exponentially growing
ethanol industry. We have seen a 57 percent increase in that market
over the last 2 years and expect it to grow even faster over the next
12 months as we have over one billion gallons of ethanol capacity
coming on line in sorghum growing areas in the next 12 months.
Outside of the U.S., approximately half of total production of
grain sorghum is consumed directly as human food. In addition, the U.S.
dominates world sorghum seed production with a billion dollar seed
industry focused on 200,000 acres primarily in the Texas Panhandle.
Sorghum is a unique, drought tolerant crop that is a vital
component in cropping rotations for many U.S. farmers.
Background on Sorghum Farmers' Crop Insurance Use
For 2006, 67% of sorghum acreage was covered by a USDA-sponsored
risk management program. That number is significantly lower when
compared to other crops. For example, corn had 79% of its acreage
covered; cotton, 92%; wheat, 77%; and soybeans, 80%. Obviously, crop
insurance for sorghum does not work as well as other crops. Our members
have been asking a lot of questions regarding the low participation
rate. We would hope that USDA would be working to promote sorghum
production in the semi-arid sorghum belt, especially as the prices for
starch--corn and sorghum--are being driven up by the ethanol industry.
Setting sorghum risk management programs equal with corn is essential
to sound water saving policy and essential to a sound energy policy.
Part of the reason for low sorghum participation is that yields
have dropped significantly because of the recent drought. Certain parts
of the sorghum belt received the third lowest rainfall since modern
record keeping started. In fact, yields are so low that there is almost
no yield left to insure. Producers are very hesitant to utilize a
program that has limited coverage when growing a drought tolerant crop.
More importantly, producers plant sorghum because it is a self-
insurance crop as it takes less water and less inputs to produce a
crop. NSP's members feel that sorghum is perfect crop for risk
management, because sorghum is much more drought tolerant than other
crops in the semi-arid sorghum belt. The plant goes dormant during
periods of no rain, rather than die as other crops do. We find it
ironic that our crop's risk management policies are essentially
discounted when compared to other crops that are more risky to grow in
the semi-arid sorghum belt.
Price Elections
The mechanism used by USDA's Risk Management Agency (RMA) to set
price elections for grain sorghum provides a lower level of protection
as compared to other crops. The most widely used RMA program for
sorghum farmers is Crop Revenue Coverage (CRC). In 2006, 63% of the
insured sorghum acres were covered by CRC insurance, as it allows
producers to manage for both yield and price risk. Crops with large
volumes of production have an exchange-traded futures market to
determine the price used in their risk management programs. RMA uses an
average of closing futures prices for a given time period to determine
the CRC price election. Sorghum, however, does not have an exchange-
traded futures market, so its price election is determined by RMA and
is based on its price relationship with corn. We ask that the Agency do
a better job of reflecting the sorghum price. The renewable fuels
industry has significantly changed the demand for sorghum. In fact, the
NSP staff has a hard time keeping track of all the new ethanol demand
that is impacting local prices of sorghum.
Prior to 2004, RMA set the price election of sorghum at a flat 95%
of the corn price election, basing that on historical feeding value
relationships. Beginning with the 2004 crop year, the CRC Commodity
Exchange Endorsement (CEE) changed their policy to state that RMA will
set the grain sorghum price election based on the ``United States
Department of Agriculture (USDA) January estimate of corn and grain
sorghum prices.'' Sorghum worked with Congress and USDA to implement
the change in hopes that RMA's programs would more accurately reflect
local prices but that has not happened.
For example, the January USDA estimates include WASDE and NASS
publications. In the January 2007 WASDE report, the corn price range
was $3.00-$3.40/bu and the sorghum price range was identical at $3.00-
$3.40/bu. In the January 2007 NASS Agricultural Prices publication,
USDA projected the January price for corn at $3.23/bu and the sorghum
price at $3.60/bu. However, when RMA announced the CRC price election
for sorghum, it was $3.55/bu, while the price election for corn was
$3.76/bu. This is a 21_/bu deficit when WASDE had projected identical
price ranges and NASS had published sorghum prices as 37_/bu higher
than corn. Our producers are becoming more and more frustrated with
insurance policies that are discounted as compared to other crops they
are planting.
Figure 1.
Using the baseline to set the CRC price election for sorghum is
wrong. The baseline is assembled by the Interagency Commodity Estimates
Committee (ICEC) within the World Agricultural Outlook Board which
publishes the WASDE estimates. In discussions with the head of the ICEC
Feed Grains Committee, the baseline was never intended to be used as a
pricing tool since the sorghum price is based on a long-term historical
ratio to the corn price. NSP's board believes that a crop insurance
program based on a futures market, or in sorghum case, a forward
looking policy, is a much better tool than a backwards looking,
historical price risk management tool.
The ethanol industry is radically changing the dynamics of the
sorghum market, and RMA must realize this. Within a couple of years,
86% of the sorghum in Kansas will be produced in a county within 50
miles of an ethanol plant. That new demand is dramatically increasing
the local price of sorghum. The new demand mentioned above does not
take into account the proposed plants, but only those that will
actually be producing ethanol by the end of 2008.
This type of radical change to the sorghum market cannot be
captured by a long-term historical ratio of sorghum to corn prices. If
you expand this type of analysis to the whole United States, 61% of the
total US sorghum crop will be near an ethanol plant. RMA is penalizing
sorghum producers in this dynamic market by using an antiquated ratio.
In my own instance, sorghum has traded above corn for the past ten
years with some time periods having sorghum at 135% the price of corn
at the Corpus Christi market. Consistently, however, I trade 10% over
corn in my market. I am being discriminated against by RMA with a price
election that, for 2007, is 6% less than corn. This, in effect, is an
extra 16% deductible on my sorghum insurance making a 65% deductible
policy more like a 49% deductible policy compared to corn. While this
testimony will not attempt to predict the effect of price elections on
cropping decisions, it is a known fact that price elections do affect
cropping decisions for farmers. As bankers look at insurance guarantees
for producer financing, the price election difference between corn and
sorghum is a critical point. In some cases, the market may send one
signal to plant sorghum, but the insurance guarantee is better for corn
due to a higher price election. The insurance price election is now
becoming a factor that is included in farmers' decisions on which crop
will be planted. We would encourage this Committee to promote policy
that would encourage producers to use insurance as a risk management
tool. Sorghum producers deserve a level playing field to compete with
other crops.
While most of the price election section has dealt with CRC, the
MPCI price election for sorghum must also be corrected. Although this
price election is not based directly on the corn price, the
deficiencies are still evident. In 2006, the MPCI price election for
sorghum was 97.5% of that of corn, while in 2007, the sorghum price
election is only 94.3% of corn. This reduction in comparison to corn is
in direct opposition of the data presented in USDA publications showing
sorghum equal to or above corn.
If the ability to change crop insurance language does happen in the
next Farm Bill debate, NSP would ask that language be inserted that
sorghum price elections be set at a level no less than corn for all
insurance products.
Expected County Yields
Expected county yields are used in the area-wide insurance policies
now offered by RMA-Group Risk Plan (GRP) and Group Risk Income
Protection (GRIP). While, in 2006, only 3% of sorghum's insured acres
were covered by these policies, the producers using the policies find
them to be the only affordable insurance they can purchase due to
decimated yield histories from prolonged drought. RMA, however, is
using short-term weather gyrations to vastly change expected county
yields from year to year. The expected county yield is a 30-year
weighted trend yield that is used to calculate losses for each county
in determining indemnities for area-wide policies. While farming
technology and seed genetics has improved vastly in the last 30 years,
RMA moves expected county yields based upon short-term weather patterns
and not long-term trends.
As noted in Figure 2, Rawlins County, Kansas has increasing trend
yields calculated using a variety of methods except for the short-term
dominated method used by RMA. This type of ``X-pattern'' between RMA's
expected county yields and other yield trend methods demonstrates that
RMA is not using a true long-term trend for yields. This then runs
counter to the whole philosophy of area-wide coverage--using long-term
trends for insurance coverage. As permanent disaster programs are
mentioned, some programs may consider using county expected yields to
calculate disaster payments. This would make these yield trends very
important to the success of such a program.
In reference to Map 1, RMA cannot justify increasing an expected
yield by 3% in one county and then decreasing the expected yield by
over 30% in an adjoining county. Long-term weather patterns, farming
technology, and genetics span across county and state lines. Producers
who have had their yield histories destroyed by a short-term drought
now have their long-term area-wide coverage decreased dramatically for
the same reason. These large gyrations make the use of GRIP and GRP
highly variable over the sorghum belt and do not reflect the true
nature of the insurance policy. GRIP and GRP are used to insure county-
wide variability. That variability will include weather, but that
weather should not be the reason for these large changes in expected
county yields. The expected county yields should be based upon a log
function that accounts for increased yield due to technology and
genetics. Dr. Art Barnaby of Kansas State University has developed such
a function that may be further simplified as research is done on trend
yields.
Transitional Yields
While transitional yields, better known as T-yields, really only
affect new producers of a crop, RMA must utilize a more transparent
system of assigning T-yields that does not penalize one crop against
another. For example, in Kay County, Oklahoma, the corn yield
decreased, but RMA increased the T-yield, while holding the sorghum T-
yield flat. RMA again is discriminating against sorghum. The actual
corn yield has decreased from a high in 2003 of 106.8 bushels per acre
to 34.5 bushels per acre in 2006. Based upon a history of following
short-term yield patterns, RMA should have decreased the T-yield for
Kay County. However, RMA increased the T-yield by 48% from 52 bushels
per acre in 2006 to 77 bushels per acre in 2007. RMA did not adjust the
T-yield for sorghum between 2007 and 2006, which reflects the flat
yield trend from 2003 to 2006.
Forage Sorghum
This RMA pilot project is becoming more and more important to the
sorghum industry as the cellulosic ethanol industry develops. Forage
sorghum is high yielding and uses a third less water that other
silages. NSP supports a forage sorghum insurance program.
RMA created the forage sorghum pilot program in 2005 at the request
of NSP. NSP has been working with RMA to make significant changes to
the program for the 2007 crop year to rebalance T-yields across the
sorghum belt. NSP wants to work with the Committee and RMA to make sure
that this program expands and is actuarially sound.
Conclusion
Crop insurance is a critical part of the safety net for sorghum
producers; however, only 67% of sorghum acreage is covered by a USDA
risk management product. NSP's board asks that this Committee seriously
discuss why this situation exists and implement policy to improve
coverage of sorghum. Our board believes that increasing the acreage
covered by a USDA risk management product is good, sound water policy
and good, sound energy policy. USDA's risk management products can be
improved for sorghum and made more equitable across crops if steps are
taken to address the issues of price elections, expected county yields,
and transitional yields.
NSP asks that language be inserted in the next farm bill that will
(1) assure sorghum price elections are no less than corn price
elections, (2) develop expected county yields that do not have large
short-term variations, and (3) implement a transparent system of
establishing transitional yields.
Also, since the crop insurance program works so poorly for sorghum,
NSP's board asks that Congress fix the sorghum problems before
expanding crop insurance and creating additional programs that will be
based off of crop insurance numbers.
I appreciate the opportunity to submit this testimony and work for
the betterment of the crop insurance safety net for sorghum producers.
Figure 2.
Etheridge. Thank you, sir.Mr. Iverson.
STATEMENT OF GARY W. IVERSON, EXECUTIVE DIRECTOR, GREAT NORTHERN
GROWERS COOPERATIVE, SUNBURST, MT
Mr. Iverson. Mr. Chairman and Members of the Committee, it is an
honor to be here today to talk about an oilseed that has the potential
to dramatically improve the rural economies of many western states and
help our country achieve energy independence. That oilseed is camelina,
and it can be used as a feedstock to produce biodiesel, just like
canola, sunflower seeds, or soybeans.
My name is Gary Iverson, and I am the Executive Director of the
Great Northern Growers Cooperative in Sunburst, Montana. Our
Cooperative is dedicated to working with agricultural producers to
market value-added agricultural commodities which are adapted to
Montana conditions and provide economic development to our state.
My story relates to Montana, but it could equally apply to
Minnesota, Washington, Oregon, Colorado, Utah, Nebraska, North or South
Dakota, all of whom have growing conditions well suited to camelina.
Camelina is a member of the mustard family. It is a summer annual
oilseed crop. It is also known as False Flax or Gold of Pleasure. The
Romans called it the Romans' Pleasure. The seed was widely grown in
Eastern Europe from ancient times until the 1940s when it was replaced
by canola.
Soybeans, sunflower, and canola are the main oilseed crops grown in
temperate climates in the United States and are the principal
feedstocks currently used to produce biodiesel. These oilseed crops are
not suitable to marginal lands with low moisture, low fertility, or
higher pH soils. For example, soybeans are ideally suited to the corn
belt, but are not well adapted to arid northern and Rocky Mountain
states.
In recent years, farmers have shown increased interest in growing
sustainable crops with reduced requirements for fertilizer, pesticides,
and energy input that can be used for both food and fuel production.
Camelina is that crop. It requires minimal inputs and is well suited to
marginal soils, arid climates and lower soil fertility.
Camelina can be grown as a dryland crop using minimal till.
Camelina production can be limited by high humidity, weather that is
virtually unknown in Montana, which causes downy mildew, the only
significant disease of camelina. Grown in areas with high moisture and
high fertility soil, oilseeds like canola will outyield camelina.
However, under dryland conditions, camelina yields will be nearly
double that of canola.
Camelina is of particular interest to biofuel manufacturers because
of the low cost of production. It may also be an effective biofuel for
cold climates as the cold point of camelina oil is 10 to 15 degrees
lower than soybean or canola.
Camelina production is rapidly increasing in the Northern Great
Plains. Montana is currently the largest producer of camelina in the
world. Last year, 10,000 acres were grown in Montana. This year, that
number will expand to 50,000 acres. The number of acres grown in
Montana and other states will continue to grow rapidly as the demand
for biodiesel continues to increase.
There are two roadblocks to getting farmers to move acreage into
camelina production. The first challenge is that there are currently no
labeled pesticides available to control weeds and pests. This barrier
is being resolved as research scientists and as pesticide manufacturers
move the appropriate products into the market.
The bigger challenge is the lack of Ag Department safety-net
programs. I spend my days working with agriculture producers, educating
them about the potential markets for this exciting new energy crop. No
matter how great the promised return on investment might be, the lack
of crop insurance is a major roadblock to new crop acceptance. Farmers
have trouble getting their banker to support loans for crops without
crop insurance. Farmers are also hesitant to move away from a crop with
a long track record and the full bundle of USDA program support to a
new crop with no safety net whatever.
Montana's Governor, Brian Schweitzer, recently referred to camelina
as his new girlfriend. As our country works to develop homegrown
sources of clean renewable fuels, we believe states like Montana can
substantially contribute to energy feedstock production. In fact, we
project that camelina will surpass 1,000,000 acres in Montana in the
next 2 to 3 years. In order to achieve this benchmark, Montana farmers
need risk protection and support from Farm Services Agency and from
other state and Federal agencies.
Camelina is a new crop to North America. It does not have the sort
of yield and price data that is required to obtain Federal crop
insurance under the normal process, a process that may take years to
navigate. Congress can best promote the increased production of
renewable fuels by instituting a targeted program administered by the
Department of Agriculture that would provide the needed safety net to
growers in the short term to allow this industry to take root and
deliver on the promise of energy independence.
Thank you.
[The prepared statement of Mr. Iverson follows:]
Prepared Statement of Gary W. Iverson, Executive Director, Great
Northern Growers Cooperative, Sunburst, MT
Mr. Chairman and Members of the Committee:
It is an honor to be here today to talk about an oilseed that has
the potential to dramatically improve the rural economies of many
western states and help our country achieve energy independence. That
oilseed is camelina, and it can be used as a feedstock to produce
biodiesel, just like canola, sunflower seeds or soybeans.
My name is Gary Iverson and I am the Executive Director of the
Great Northern Growers Cooperative in Sunburst, Montana. Our
Cooperative is dedicated to working with agricultural producers to
market value-added agricultural commodities which are adapted to
Montana conditions and provide economic development to our state. My
story relates to Montana, but it could equally apply to Minnesota,
Washington, Oregon, Colorado, Utah, Nebraska, North Dakota or South
Dakota, all of whom have growing conditions well suited to camelina.
Camelina, a member of the mustard family, is a summer annual
oilseed crop. It is also known as False Flax or Gold of Pleasure. The
seed was widely grown in Eastern Europe from ancient times until the
1940's when it was replaced by canola.
Soybeans, sunflower, and canola are the main oilseed crops grown in
temperate climates in the United States and are the principal
feedstocks currently used to produce biodiesel. These oilseed crops are
not suitable to marginal lands with low moisture, low fertility, or
higher Ph soils. For example, soybeans are ideally suited to the Corn
Belt, but are not well adapted to arid, northern and Rocky Mountain
states.
In recent years, farmers have shown increased interest in growing
sustainable crops with reduced requirements for fertilizer, pesticides,
and energy input that can be used for both food and fuel production.
Camelina is that crop. It requires minimal inputs and is well suited to
marginal soils, arid climates, and lower soil-fertility.
Camelina can be grown as a dry-land crop using minimal till.
Camelina production can be limited by high humidity--weather that is
virtually unknown in Montana--which causes downy mildew, the only
significant disease of camelina. Grown in areas with high moisture and
high fertility soil, oilseeds like canola will out yield camelina.
However, under dry land conditions, camelina yields will be nearly
double that of canola.
Camelina is of particular interest to bio-fuel manufactures because
of the low cost of production. It may also be an effective biofuel for
cold climates, as the cloud point of camelina oil is 10 to 15 degrees
lower than soybean or canola.
Camelina production is rapidly increasing in the northern Great
Plains. Montana is currently the largest producer of camelina in the
world. Last year 10,000 acres were grown in the state. This year, that
number will expand to 50,000 acres. The number of acres grown in
Montana and other states will continue to grow rapidly as the demand
for biodiesel continues to increase.
There are two roadblocks to getting farmers to move acreage into
camelina production.
The first challenge is that there are currently no labeled
pesticides available to control weeds and pests. This barrier will be
resolved as advances are made to selectively breed more resilient
varieties of camelina and as pesticide manufacturers move the
appropriate products into the market.
The bigger challenge is the lack of Department of Agriculture
safety net programs. I spend my days working with agriculture
producers, educating them about the potential markets for this exciting
new energy crop. No matter how great the promised return on investment
might be, the lack of crop insurance is a major roadblock to new crop
acceptance. Farmers have trouble getting their banker to support loans
for crops without crop insurance. Farmers are also hesitant to move
away from a crop with a long track record and the full bundle of USDA
program support to a new crop with no safety net whatsoever.
Montana's Governor, Brian Schweitzer, recently referred to camelina
as his new girlfriend. As our country works to develop home-grown
sources of clean, renewable fuels, we believe states like Montana can
substantially contribute to energy feedstock production. In fact, we
project that camelina will surpass 1 million acres in Montana in the
next few years. In order to achieve this benchmark, Montana farmers
need risk protection and support from Farm Services Agency and other
state and federal agencies.
Camelina is a new crop. It doesn't have the sort of yield and price
data that is required to obtain Federal crop insurance under the normal
process--a process that I understand takes many years to navigate.
Congress can best promote the increased production of renewable fuels,
by instituting a targeted program administered by the Department of
Agriculture that provides the needed safety net to growers in the short
term to allow this industry to take root and deliver on the promise of
energy independence.
Thank you.
Mr. Etheridge. I thank the gentleman for his testimony.
Mr. Chapman.
STATEMENT OF STEVEN D. CHAPMAN, PRESIDENT, AMERICAN SESAME
GROWERS ASSOCIATION, LORENZO, TX
Mr. Chapman. Thank you, Mr. Chairman and Members of the
Committee. My name is Steven Chapman. I am a fourth-generation
farmer from Lorenzo, Texas, and I grow cotton, sorghum, wheat,
and peanuts. I am also a Member of the Board of Plains Cotton
Growers Association. I also grow another crop that I am here
today to talk to you about. That is sesame.
I am the founding President of the newly formed American
Sesame Growers Association, headquartered in San Antonio.
In addition to Texas, sesame is commercially grown in
Oklahoma, Kansas and Arizona, and it has huge potential. Our
Association's top priority and objective and the sole reason I
got off my tractor in the middle of planting season, got on a
plane and flew 1,600 miles to be here today is simple. We
respectfully request a pilot program for Actual Production
History Multi-Peril Crop Insurance for sesame.
Mr. Chairman, the irony is sesame is a very low-risk crop.
Let me be clear. We do not need crop insurance because of
sesame's inherent production risks. We need crop insurance
because of the commercial practicalities of securing acres and
financing.
The bottom line is this: Landlords and lenders demand crop
insurance. Since crop insurance is unavailable to sesame, land
and loans are given only to other crops. The lack of crop
insurance means that accountants and actuaries, not farmers,
are deciding what to plant on Texas farms. The sesame acreage
that is produced to date is self-financed on owned land.
Mr. Chairman, sesame production is an American success
story that has yet to be told, and it will never be told if we
do not get crop insurance and get it soon. Let me first explain
the agronomics; second, the economics; and, third, the policy
solution for crop insurance.
It is a low-cost, low-risk crop that allows farmers to make
a profit. In last summer's drought, we saw that it was often
the only crop that survived in some areas. It is an excellent
rotation crop for cotton, corn, wheat, soybeans, and peanuts.
This is one of our principal uses for sesame. It conditions the
soil and reduces cotton root rot and root knot nematodes, which
improves our subsequent cotton crop. This is why we say,
``Sesame is cotton's best friend.'' sesame is used for bakery,
confection, and is crushed for oil. Because it is toasted
before it is crushed, it does not compete with other U.S.-
produced vegetable oils. Almost all of the sesame consumed in
the U.S. is imported. Quite candidly, our domestic customers
have food safety concerns, given recent news. So do many other
countries like Japan. They both want a U.S. supply.
With crop insurance and a chance to expand, ASGA believes,
through our conversations with commercial traders and
processors around the world, the U.S. could be a net exporter
with a 20 percent world market share within a decade. That
equates to about 750,000 acres. Right now, because ASGA farmer
members believe that we are in a race with Brazil to capture
this market, timing for crop insurance policies is critical.
So let me wrap up my testimony with our proposed policy
solution, Mr. Chairman. We want a pilot program for Actual
Production History Multi-Peril Crop Insurance for the 2008
sesame crop year. Because sesame grows in the same areas, under
the same conditions, and with similar practices as sorghum,
sesame fits well as an addition to the Coarse Grains Crop
Provisions and a modification of the Sorghum Loss Adjustment
Manual. The economic and agronomic merits of sesame earned us a
spot on the agenda at a Board meeting of the Federal Crop
Insurance Corporation.
Our request for a new policy was denied by the FCIC Board
because they have a guideline of not granting new insurance
policies for small-acreage crops. That decision has put us in a
vicious circle. RMA and FCIC say sesame cannot be insured
because the acreage is too small, but the acres are too small
because sesame cannot be insured. We have done everything we
can do administratively with FCIC and RMA.
Clearly, the situation sesame growers and potential sesame
growers find themselves in is an unintended consequence of the
FCIC's acreage guidelines. Thus, it is a matter of policymaking
and a proper role for Congress to remedy the problem and to
provide some equity to the Crop Insurance Program.
Indeed, sesame is considered a minor oilseed under the farm
bill, but it is the only minor oilseed without a crop insurance
policy. Sesame is a program crop, and it is the only program
crop without a crop insurance policy.
Thank you very much for your interest, attention and
consideration.
[The prepared statement of Mr. Chapman follows:]
Prepared Statement of Steven D. Chapman, President, American Sesame
Growers Association, Lorenzo, TX
Thank you Mr. Chairman, and Members of the Committee.
My name is Steven Chapman. I am a fourth generation farmer from
Lorenzo, Texas, and I grow cotton, sorghum, wheat, and peanuts. And I
grow another crop that I am here today to talk to you about--sesame.
I am the founding President of the newly formed American Sesame
Growers' Association, headquartered in San Antonio.
In addition to Texas, sesame is commercially grown in Oklahoma,
Kansas, and Arizona.
Our Association's top priority and objective, and the sole reason I
got off my tractor in the middle of planting season, got in a plane and
flew 1,600 miles to be here today, is simple.
We respectfully request a pilot program for Actual Production
History Multiple Peril Crop Insurance for sesame.
Sesame has huge potential to bring profitability to farm balance
sheets across Texas, Oklahoma, and elsewhere--if, and only if, we are
to obtain basic crop insurance.
Mr. Chairman, the irony is sesame is a very low risk crop. Let me
be clear, we don't need crop insurance because of sesame's inherent
production risks. We need crop insurance because of the commercial
practicalities of securing acres and financing.
The bottom-line is this: landlords and lenders demand crop
insurance. Since crop insurance is unavailable to sesame, land and
loans are given only to other crops.
The lack of crop insurance means that accountants and actuaries--
not farmers--are deciding what to plant on Texas farms.
The sesame acreage that is produced to date is self financed on
owned land.
Mr. Chairman, sesame production is an American success story that
may never be told if we do not get crop insurance. And get it soon.
Let me explain first the agronomics, second the economics, and
third the policy solution for crop insurance.
Sesame is a crop with huge potential--from Kansas to Oklahoma to
Texas to California to Arizona.
It is a low cost, low risk crop that allows farmers to make a
profit without relying on program payments.
It is drought tolerant requiring \1/4\ the water of corn, \1/3\ the
water of sorghum and \1/2\ the water of cotton. In last summer's
drought, we saw that it was often the only crop that survived in some
areas.
It is an excellent rotation crop for cotton, corn, wheat, soybeans
and peanuts. This is our principal use for sesame.
It conditions the soil and reduces cotton root rot and root knot
nematodes, which improves our subsequent cotton crop. This is why we
say, ``Sesame is cotton's best friend.''
And, quite frankly, the issues with WTO are not going to get better
for us as cotton farmers and we badly need alternatives. Sesame is an
excellent one.
The reason sesame offers this opportunity is because plant breeding
by a Texas company, Sesaco, has yielded new varieties of sesame. These
varieties can be mechanically harvested with a combine. Because these
are relatively new varieties we have only recently had a crop that
needed to be insured.
All the traditional sesame production is harvested by hand because
the sesame capsule opens as it dries and drops the seed on the ground.
As for the economics . . . the current U.S. production is about
2,500 tons grown on 10,000 acres. All U.S. sesame is grown on contract.
Sesame is used for bakery, confection, and is crushed for oil.
Because it is toasted before it is crushed, it does not compete with
other U.S. produced vegetable oils.
Almost all of the sesame consumed in the U.S. is imported.
Quite candidly, our domestic customers have food safety concerns
given recent news. So do many other importers, like Japan. They both
want a U.S. supply.
With crop insurance and a chance to expand, ASGA believes, through
our conversations with commercial traders and processors around the
world, the U.S. could be a net exporter, with a 20 percent world market
share within a decade.
That equates to about 750,000 acres.
Right now, we as ASGA farmer members believe we are in a race with
Brazil to capture this market. Thus timing for a crop insurance policy
is critical.
So let me wrap up my testimony with our proposed policy solution,
Mr. Chairman.
We want a pilot program for actual production history multiple-
peril crop insurance for the 2008 sesame crop year.
We think the policy should be limited to mechanically harvestable
sesame varieties that are already marketed under contract.
That way there will be no coverage for revenue risks, only
production risks.
Because sesame is used in rotation it only replaces other insured
crops and, therefore, will not add additional costs to RMA's programs.
Sesame could actually lower RMA's liabilities in dollars per acre.
Because sesame grows in the same areas, under the same conditions and
with similar practices as sorghum, sesame fits well as an addition to
the Coarse Grains Crop Provisions and a modification of the Sorghum
Loss Adjustment Manual.
The economic and agronomic merits of sesame earned us a spot on the
agenda at a Board meeting of the Federal Crop Insurance Corporation.
Our request for a new policy was denied by the FCIC Board, however,
because they have a guideline of not granting new insurance policies
for small acreage crops.
That decision has put us in a vicious circle: RMA and FCIC say
sesame cannot be insured because the acreage is ``too small.'' But the
acres are ``too small'' because sesame cannot be insured.
We have done everything we can do administratively with FCIC and
RMA.
Clearly, however, the situation sesame growers--and potential
sesame growers--find themselves in is an unintended consequence of the
FCIC's acreage guidelines.
Thus, it is a matter of policymaking and a proper role for Congress
to remedy the problem, and to provide some equity to the crop insurance
program.
Indeed, sesame is considered a minor oilseed under the farm bill.
And it is the only minor oil seed without a crop insurance policy.
Sesame is a program crop. It is the only program crop without a
crop insurance policy.
As I said earlier Mr. Chairman, sesame is a great American success
story that could never be told unless quick action is taken now to
provide an actual production history multiple-peril crop insurance
pilot program for the 2008 sesame crop year.
Thank you very much for your interest, attention and consideration.
Mr. Etheridge. Thank you, sir.
Mr. Watts.
STATEMENT OF TIM J. WATTS, PRESIDENT, WATTS AND ASSOCIATES,
INC., BILLINGS, MT
Mr. Watts. Thank you for the invitation, Mr. Chairman and
Members of the Subcommittee.
Members of the panel, thank you.
I would submit that this might be the first time in the
history of Congress that we have had two individuals from
Montana testify on any witness list.
I am Tim Watts, President of Watts and Associates. Watts
and Associates is an economic consulting firm in Billings,
Montana, focused on crop insurance development. In the U.S., we
have been awarded approximately 40 projects from RMA and FCIC,
with many complete and a few in progress. We have also been
active in the international community, with efforts in Canada,
India, and have been active with contracts with the World Bank.
We believe the U.S. crop insurance system is one of the
best systems in the world. There are frequently emerging
innovative systems proposed internationally. To stay one of the
best systems in the world, we have to constantly be vigilant of
these emerging technologies and emerging new processes in order
to improve our existing system and provide the best service
that we can to our customers, mainly agricultural producers and
U.S. taxpayers.
We applauded Congress' decision in approving ARPA
legislation in 2000 to expand the crop insurance safety net by
encouraging new and innovative and next-generation crop
insurance plans for major and minor crops--with an emphasis on
the word ``minor'' crops--and also by leveling the subsidy
playing field between crops and among crops. We encourage
Congress to renew this mandate in the 2007 Farm Bill.
We have listened to the requests today, and we receive
similar requests from producer groups every month, desiring to
start, expand, or refocus crop insurance for their commodities.
These requests cover such national issues as energy costs
related to the costs of production coverage, livestock
insurance, quality adjustment issues as experienced in North
Dakota, Texas, and virtually every region in the U.S., and new
generational approaches as well as new individual crop coverage
such as sesame.
These regional and national issues are expensive to solve,
historically costing between $250,000 to several million
dollars for development costs. Just as an example, this would
be one of the development efforts recently funded.
The most promising avenue for addressing the need of crop
insurance for individual crops is the so-called ``508(h)
process'' that allows a private group to submit a product,
which if approved by the FCIC Board, is then incorporated in
the Federal system, and the submitter is reimbursed for the
cost of developing and maintaining the product. If it fails,
the submitter eats the development cost; i.e., he bears the
entire financial risk.
This process, however, has been much underused over the
years, primarily because it places the entire financial risk on
the submitter. As a result, according to the Congressional
Research Service, out of about $80,000,000 made available by
Congress under ARPA over a 6 year period, the 508(h) program
utilized less than $9,000,000 of the allocation of the
$80,000,000.
We suggest amending the 508(h) process for two purposes.
First, we make it more user-friendly to producer groups by
having the FCIC Board share in the financial risk at an earlier
point and provide an iterative environment for a higher chance
of success. Second, we give the FCIC Board more control over
its own agenda. Details of the proposed approach are in my
written testimony.
With these changes, we believe it can address national
issues such as the adverse shifts in production costs, i.e.,
energy; declining yields; regional issues such as quality loss
and highly tailored coverage for specialty crops; and new
generational approaches to crop insurance.
Because we have structured our proposal as a small change
to the currently funded 508(h) process and make no changes in
the current funding authorization level, we anticipate a zero
budget score impact.
Thank you very much for the invite.
[The prepared statement of Mr. Watts follows:]
Prepared Statement of Tim J. Watts, President, Watts and Associates,
Inc., Billings, MT
Mr. Chairman:
Thank you for the opportunity to appear before the Subcommittee on
General Farm Commodities and Risk Management to present the views of
Watts and Associates, Inc. on the Federal Crop Insurance Program and
how it can be improved. Watts and Associates, Inc. is a private
economic research firm specializing in risk management-based solutions
to the problems facing agricultural producers. Not only is Watts and
Associates, Inc. one of the most active firms supporting USDA's Risk
Management Agency (RMA) and the Federal Crop Insurance Corporation
(FCIC) by performing product-related research on a contract basis, but
we also have completed significant projects in the farm risk management
field for clients ranging from the World Bank, the Governments of
Canada and India, to a variety of private sector groups. A list of
recent projects is included as part of Appendix A.\1\
---------------------------------------------------------------------------
\1\ Appendix A will not be printed, but is available for viewing at
http://agriculture.house.gov/testimony/110/h70514/TimWatts.doc.
---------------------------------------------------------------------------
We believe the United States Federal crop insurance system is one
of the best in the world. Based on our experience, we believe strongly
that it remains the best option available to protect American farm
producers from the uncontrollable risks posed by adverse weather and,
increasingly, by adverse movements in commodity prices. As a result, we
have applauded Congress's decision, reflected in the Agricultural Risk
Protection Act (ARPA) of 2000, to encourage the development and
deployment of innovative new insurance products to cover an expanding
universe of new crops, new concepts, and new approaches. We encourage
you to continue this emphasis in the new farm bill. One of the mandates
included in ARPA 2000 that we believe holds particular promise for the
future is the so-called ``508(h) process'' under which private groups--
farm organizations, insurance companies, and others--are given the
opportunity to present new insurance concepts to the FCIC Board and, if
approved, to have them incorporated into the Federal crop insurance
system, eligible for subsidy and reinsurance. The private group, in
turn, can then be reimbursed for the costs entailed in developing the
product and maintaining it.
The 508(h) process, even under its current structure, has had
successes, including the introduction of such new products as CRC,
Livestock Risk Protection, Livestock Gross Margin, and AGR-Lite. Still,
based on our experience working with the 508(h) process as an outside
contractor (both as a product developer and as an outside expert
reviewer of proposals pending before the FCIC Board), we believe that
this program has the potential to produce benefits far beyond its
current use. With structural improvements we will outline below, the
508(h) program can become a principal vehicle for producer
organizations to take the initiative and the responsibility for
resolving many of the chronic issues that have faced the Federal Crop
Insurance Program for many years, including, for instance:
--National issues such as the impact on farmers of adverse shifts in
production costs, particularly energy, through approaches such
as Crop Margin Coverage (a new concept developed by Watts and
Associates, Inc.);
--The problem of declining yields from repeated years of
uncontrollable losses;
--Regional issues such as the unique problems of quality loss for
crops in the Northern Plains, the need for highly-tailored
coverage for specialty crops with smaller markets, or for
highly-tailored solutions to problems or specialties affecting
growers in limited areas; and
--Innovative insurance for livestock risks.
The currently-unused potential of the 508(h) process was dramatized
recently in a review by the Congressional Research Service (attached to
this testimony as Appendix B) which showed that, out of some $80
million made available for reimbursement of research, development, and
maintenance costs under 508(h) during the first 6 years of the program,
only $8,977,260 were spent for that purpose. The reasons for this
under-use of 508(h), we believe, are structural, and can be addressed
with carefully designed structural reforms. For instance, the
development of a new insurance product--including the development of
actuarial rates, underwriting standards, policy forms, marketing plans,
and the rest--can be expensive, ranging at the low end from a few
hundred thousand dollars for addressing regional quality issues to, at
the high end, several million dollars for a new generation approach to
commodity crops. Currently, a producer organization undertaking to
develop and present a new product under the 508(h) process must
shoulder this entire financial burden, and bear the risk of losing the
entire investment if the FCIC Board ultimately disapproves the product.
It is an all-or-nothing proposition. If controversy arises during the
Board's consideration of the product, such as through new issues being
raised by outside expert reviewers, the Board's review can be delayed
or extended by months or years. For the producer group sponsoring the
idea, this means that any potential reimbursement is delayed along with
it, causing financing costs to accrue over time.
From the perspective of the FCIC Board, the current 508(h) process
poses a host of management challenges. The FCIC Board has a duty to
review each proposed new product fully and rigorously based on a number
of standards including actuarial and underwriting soundness,
marketability, and protection of the interests of producers. Adding to
the time and expense of this process is the legal requirement that each
proposed new product be submitted for analysis to a minimum number of
outside expert reviewers. The FCIC Board itself is given little
authority to control its agenda in order to assign scarce resources to
those proposals that best fit its overall assessment of program needs.
We at Watts and Associates, Inc., working with our outside counsel,
former RMA Administrator Kenneth Ackerman, and after having worked in a
producer driven system for product development in Canada, have
developed a concept for adjusting the 508(h) process to address both
these concerns: to make it more user-friendly to outside producer
groups while giving the FCIC Board greater authority to control its
agenda. Our proposal is built around the following points and steps
(see draft legislative language, attached as Appendix C):
1. Choice: The developer would choose whether to proceed under:
a. 508(h) as it currently exists, which would remain in effect as
an option, or
b. The new alternative process outlined below.
2. Application: Only producer groups working with developers
comprised of individuals with experience in the process,
including at least one who has pre-qualified for GSA contract
payment rates, would be allowed to use the new process. As a
first step, the developer would prepare a concept paper to
illustrate design features and limitations of the new approach
or tool. Using the existing pool of ``experts'' approved by the
Board for product review, the developer would choose two who
would review the proposal and must agree that the concept has
merit.
3. Initial Board Meeting: After incurring the uncompensated costs
associated with Step 2, the producer group and developer would
meet with the Board to seek its initial approval to pursue the
product. If the Board agrees, then future development costs
would be covered by reimbursement at the developer's pre-
qualified GSA rates (proving that the rates have been
competitively determined).
4. Development: The developer would proceed to develop and complete
a draft submission, consisting of all the materials needed to
implement the product as described under the current 508(h)
regulations and including (a) an opinion from the two expert
reviewers as to the soundness of the draft submission and (b)
an actuarial certification. The developer would be required to
maintain an auditable record of hours billed and costs
incurred. If the Board desires an intermediate feasibility step
prior to the draft submission, an assessment of feasibility
could be inserted at this stage.
5. Second Board Meeting: The developer would then present the
submission to the Board and the Board would decide whether the
product should proceed further. If so, it would appoint three
additional experts to review the product in consultation with
the developer and the previous experts. In addition, RMA would
be asked to provide a formal review of the proposal at this
stage. Interaction between the developer and reviewers would be
encouraged to facilitate the sharing of ideas and addressing of
concerns.
6. Third Board Meeting: The Board, based on the final input it
receives from the developer and reviewers, would decide whether
or not to offer the product to producers. If so, the developer
would be responsible for providing materials and working with
RMA to facilitate implementation.
7. Reimbursement: The developer would apply for reimbursement as
per the existing 508(h) process, and reimbursement would be
paid at GSA hourly rates multiplied by the lesser of a
reasonable number of hours (ascertained by comparison to
similar projects) or the actual hours spent by the developer on
the product. However, if the Board ultimately deems the product
incomplete under Step 5 and the developer fails to correct it
after being given an opportunity to do so, development costs to
date of discovery would be covered only at 75 percent. If the
Board ultimately declines to accept the product under Step 6
for any reason, the development costs to date of discovery
would be covered only at 85 percent.
8. Maintenance: The developer would be responsible for product
maintenance, and its related costs would be reimbursable at the
approved GSA rates for a period of 3 years. At the end of the
third pilot year, the developer could either surrender
ownership of the product to RMA or maintain it and assess a
user-fee structure, as under current 508(h) rules.
9. Funding: Funding for reimbursement of products under the new
alternative process would come from two existing authorized
pools: the one for contracted development and the other for
reimbursement of private development currently funded at not to
exceed $25 million and $15 million annually. Since the funding
comes from existing authorized sources, we do not anticipate
any budget score attaching to this proposal.
We believe that, with these modest adjustments, implemented under
existing funding caps, the 508(h) process could become a prime avenue
for agricultural producers, the ultimate customers of this vital
government program, to take a larger role in assuring that Federal crop
insurance addresses their needs. These changes would also provide the
FCIC Board an additional tool for management of the direction of the
crop insurance development efforts.
Thank you for this opportunity to present our views to the
Subcommittee. We appreciate your consideration, and would be pleased to
answer any questions you might have.
Appendix B--Congressional Research Service Memorandum
(a) Striking subsection (b)(1) and replacing it as follows:
``(b) Reimbursement of research, development, and maintenance
costs
``(1) Research and development reimbursement
``The Corporation shall provide a payment to
reimburse an applicant for research and development
costs directly related to a policy that--
(A) Is submitted to the Board following the
procedures of paragraph (7) of this subsection
or
(B) Is
(i) submitted to the Board and
approved by the Board under section
508(h) of this title for reinsurance;
and
(ii) if applicable, offered for sale
to producers.''
(b) Adding at the end of subsection (b) a new paragraph (7) to read
as follows:
``(7) Reimbursement Agreements.
``(i) A person proposing to prepare for
submission to the Board under section 508(h) of
this Act a crop insurance policy, a provision
of policy, or applicable rates of premium, may
apply to the Board for a reimbursement
agreement.
``(ii) Applications.
``(I) The application for a
reimbursement agreement shall consist
of such materials as the Board may
require, including
(i) A concept paper that
describes the proposal in
sufficient detail for the Board
to determine whether it
satisfies the requirements of
subparagraph (II) of this
paragraph;
(ii) Statements of support
from not less than two experts
chosen from among experts
approved by the Board as
qualified to conduct
independent reviews under
section 505(e) of this Act,
stating that the concept is
feasible and achievable from an
actuarial and underwriting
perspective;
``(II) The Board shall approve the
application by majority vote if it
finds that:
``(i) The proposal--
a. Provides coverage
to a crop, hazard, or
region not
traditionally or
adequately served by
the Federal Crop
Insurance Program;
b. Provides crop
insurance coverage in a
significantly improved
form;
c. Addresses a
recognized flaw or
problem in the program;
or
d. Introduces a
significant new concept
or innovation to the
program.
(II) The applicant demonstrates the
necessary qualifications to complete
the project successfully in a timely
manner with high quality, and has pre-
qualified for contract payment rates
with the General Services
Administration; and
(III) The proposed budget and
timetable are reasonable.
``(iii) Agreements.
(I) Upon approval of the application,
the Board shall enter into an agreement
with the person for the development of
a formal submission meeting the
requirements for a complete submission
established by the Board under section
508(h) of this Act. Payment for work
performed under the contract shall be
based on rates previously approved by
the General Services Administration, or
a fixed price based upon those rates,
and the limitations of paragraph (6) of
this subsection shall not apply. The
parties may terminate the agreement at
any time by mutual consent. If the
agreement is terminated at any time
prior to final approval of the
submission, the submitter shall be
entitled to payment of all costs
incurred to that point, or, in the case
of a fixed rate agreement, an
appropriate percentage.
``(iv) The Board shall consider any product
submitted to it developed under this paragraph
under the rules it has established for products
submitted under section 508(h) of this Act,
except that--
(I) If the Board ultimately finds the
submission to be incomplete under its
standards for qualifying for outside
expert review and the developer has not
corrected the submission after being
given an opportunity to do so, the
payment due to the submitter under the
agreement established under
subparagraph (ii) shall be reduced by
twenty-five percent.
(II) If the Board finds that the
submission is complete, but the
submission fails to win final Board
approval, the amount due the submitter
will be reduced by 15 percent.
(III) If the Board approves the
submission, the reviewer will be paid
100 percent of the amount due.
(IV) Notwithstanding the limitations
of section 505(e)(3) of this Act, the
independent experts chosen to conduct
reviews of the submission shall
include--
(a) The Risk Management
Agency; and
(b) The Office of General
Counsel.''
Mr. Etheridge. I thank the gentleman for his testimony.
I offer each Member 5 minutes of questioning, and the Chair
will take the first 5 minutes.
Mr. Kubecka, how does RMA's current method of crop
selection for sorghum compare with the previous practice of
just setting it at 95 percent of the corn price election, and
would going back to that system be worse or better than the
current system?
Mr. Kubecka. I am not completely knowledgeable about
exactly how they set it previously. Because, I live on the Gulf
Coast, and so insurance is not that important to me directly.
But as far as sorghum is concerned, my understanding is that
historically it was set at 95 percent.
Now what challenges us is for instance, we are getting a
premium for corn, and a lot of it is because of some of the
other policies that we have instituted, not necessarily in crop
insurance but other marketing efforts and all. So this has been
a challenge for the sorghum producers, to understand how the
Kansas City office has come up with this percentage. Actually,
it is not known. They will not share that knowledge with us. So
to compare one against the other, I cannot do it because they
have not shared that with us. It is not transparent.
Mr. Etheridge. You are saying it is not an open process?
Mr. Kubecka. It is not an open process. That is what my
understanding is. It raises a broader question then.
Mr. Etheridge. Thank you.
Mr. Chapman, you have heard Mr. Kubecka's testimony about
the problem sorghum producers are having with their price
selections. In your testimony, you indicate that crop insurance
policies for sorghum will work well for sesame.
Given that sesame is not traded on the Exchange, how do you
foresee RMA's determining price election for sesame, and could
your growers not face some of the same problems that sorghum
growers are now facing that we have just talked about? I would
be interested in your comments on that.
Mr. Chapman. Well, first of all, all of the sesame that we
are growing right now is an nondescent variety, which means you
can combine it. All other sesame is hand-harvested. A Texas
company owns the patent on this on nondescent variety, so we
are contracting all of our acres through them, so the price
part of it is already there. I mean, we are contracting all of
our sesame at a particular price, and they are basing their
prices on world markets as far as Korea, Japan, India and here
in the United States.
Mr. Etheridge. Is that the way all sesame is done? Is all
sesame under contract or just what you do in Texas?
Mr. Chapman. As far as I know, it is all under contract.
Mr. Etheridge. So you are saying yours is the only sesame
that is harvested by combines?
Mr. Chapman. Yes, sir.
Mr. Etheridge. All the rest of it----
Mr. Chapman. Is by hand. That is correct.
Mr. Etheridge. In the United States or just in Texas?
Mr. Chapman. As far as I know, all of it in the United
States is harvested by combine. I mean that is not a descent
variety.
Mr. Etheridge. In the U.S.?
Mr. Chapman. Yes, sir.
Mr. Etheridge. Okay. Thank you.
The gentleman from Louisiana, Mr. Boustany.
Mr. Boustany. Thank you, Mr. Chairman.
Mr. Kubecka, do you see insurance products evolving over
time whereby the producer and the refiner of ethanol will
combine to create some sort of insurance product? I am just
thinking out of the box. We are dealing with a lot of difficult
insurance issues here.
Mr. Kubecka. Personally, I do not see anyone taking over
the government's offer. The government is going to offer it
first. That is only my personal feeling on it; certainly, I
think from a production standpoint, especially in our area. We
have had a premium, and sorghum stayed pretty consistent in our
area, that corn had moved in because we have had decent prices.
We are behind on yield a little bit, but otherwise we are
pretty much up there, and I do not see that they would be
stepping in to take over the government program, myself.
Mr. Boustany. Mr. Iverson, do you see any potential there?
Mr. Iverson. Well, one, camelina is an oilseed, not an
ethanol product. It would be a biodiesel.
Mr. Boustany. Again, it would be a local market?
Mr. Iverson. Yes. The ideal thing about camelina is it is a
crop that is adapted to the area that is inbetween soybeans and
canola. Canola basically does very well in Canada and in some
of the higher rainfall areas and irrigated areas in the U.S.
Soybeans have to have longer growing seasons than Montana and
several mountain states have to offer, and camelina is the only
oilseed that we know of that will thrive in a low-rainfall
condition.
So, basically, we are looking at the potential for Montana
and the inner mountain area to provide feedstock primarily for
West Coast markets more than anything, because there is a lot
of demand and a lot of potential for biodiesel in Washington,
Oregon and California, and we are in an ideal location to
supply that market. Also, our feedstock has some very good
potential markets in places like Idaho and Utah as well as for
livestock in Montana, so the feedstock does not have to move
very far, and the oil crop is moving toward the West Coast.
Does that answer your question? Is that what you are
asking?
Mr. Boustany. Yes. It was kind of a theoretical question. I
just wanted to get your perspective on it, and I guess, in your
case, the lack of available pesticides is an issue that is
hurting you.
Mr. Iverson. That issue is fairly well solved because we
have identified the chemicals that we have and that we need,
primarily grass killers because camelina is going to replace a
lot of chem fallow and summer fallow and maybe extend some
rotations a little bit, but it is going to be involved with
wheat and barley. We need to be able to control those grassy
weeds at the wheat and barley stands when you are inbetween
crops. And we have two chemicals that should be approved
through the IR-4 Program next year. We have kind of solved
that. That problem is solving itself. We need to solve the Crop
Insurance Program.
Mr. Boustany. Thank you.
Mr. Chapman, I was impressed with your testimony on sesame.
And obviously, as a cotton and peanut farmer, you got into this
to seek tremendous market potential and export potential over
time. What is the current production?
Mr. Chapman. Currently, I believe there are between, I
think, 13,000 and 20,000 acres in the United States, some of
course in Oklahoma, Texas, Arizona, those areas.
Mr. Boustany. Is Texas the only area where it is being
harvested by combine?
Mr. Chapman. Well, that is in the United States. You know,
most of the sesame goes to this Texas company, and they bred
this nondescent variety. It is easily able to go through a
combine, and that is what is being produced mostly in the
United States.
Mr. Boustany. I see. You went to the FCIC with a proposal,
and it was rejected; is that correct?
Mr. Chapman. Yes. They kept telling us that we did not have
enough acreage.
Mr. Boustany. Did you make the case about the potential
future markets and the potential for an expansion and acreage?
Mr. Chapman. Yes, sir.
Mr. Boustany. They did not buy that?
Mr. Chapman. No.
Mr. Boustany. And that was the only reason for the
rejection as far as you know?
Mr. Chapman. As far as I know.
Mr. Boustany. Okay. You threw into that equation also the
fact that it would not add additional liability.
Mr. Chapman. Exactly.
Mr. Boustany. Thank you, Mr. Chairman. I have more
questions to ask if we have one more round.
Mr. Etheridge. I thank the gentleman.
The gentleman from North Dakota, Mr. Pomeroy.
Mr. Pomeroy. Thank you, Mr. Chairman.
Mr. Iverson, camelina, that sounds like something North
Dakota would be very interested in. I have not heard much about
it.
Mr. Iverson. North Dakota is very interested in it. Western
North Dakota is working out very well. Any area that is too dry
for canola and too cool for soybeans is camelina country.
Mr. Pomeroy. How has production accelerated? Is it coming
along? Is production exploding? Is it growing nicely?
Mr. Iverson. Yes. We hoped to have 100,000 acres this year.
We only had 50,000 but it is difficult for farmers to start a
new crop, and this is the third year of production in Montana.
We started out in 2005 with about 500 acres.
Mr. Pomeroy. Are you getting enough product to have a
biodiesel market for it?
Mr. Iverson. At this point so far, we are marketing all new
oil into the cosmetic market because of the Omega 3 in it and
the meal, of course. We are working with different feed
markets. We are selling a product that we call Omega
MealTM, which is a trademarked term.
Mr. Pomeroy. Is this basically a cousin of flax?
Mr. Iverson. Not really. It is a plant. It is a plant that
is similar to mustard and canola, but it has a flaxlike pod,
and that is why it is called a ``false flax.''
Mr. Pomeroy. I love your Governor's catchy way of saying
things. He says camelina is his new girlfriend.
Mr. Iverson. Brian is very excited about camelina.
Mr. Pomeroy. He is. It has got much more of a ring than
saying, ``I am nutty about dry beans and lentils.''
Mr. Iverson. The other comment he made is, if he had
another daughter, he would name her ``Camelina.''
Mr. Pomeroy. I will look forward to learning more about
camelina.
Mr. Watts, essentially, you are saying in your testimony
that ARPA has launched substantial innovation, and even more
innovation will be launched if inventors or developers do not
have to bear all of the cost and all of the risk of getting RMA
approval.
Mr. Watts. Mr. Congressman, yes. We are currently trying to
think through the camelina issue along with somewhere in the
neighborhood of another 20 specialty crops. At the end of the
day, the current system asks either the producer association or
the developer or the insurance company that is interested and
that is shouldering all of the financial risk. It is the intent
to service the needs of public policy and the requests such as
organic pecans.
Mr. Pomeroy. Are these new areas that need the coverage,
that we are hearing from in the prior panel, that you could
potentially create things for if you are given an opportunity
to by the RMA Board?
Mr. Watts. That is correct. Our concept provides financial
hurdles so we do not create the cottage industry and try to get
fleshed-out ideas in front of the Board.
Mr. Pomeroy. You have done some very good work in North
Dakota in working with North Dakota commodity groups. I
appreciated the positive statements you had about crop
insurance in your testimony. Are you paying attention to those
who are very highly critical of this program as to the
industry's bearing no risk and the other criticisms coming at
it?
Mr. Watts. Yes, we have heard some of those criticisms.
Mr. Pomeroy. I would really like you to pay a lot of
attention to those criticisms and help us put it in
perspective. My own thought is that some of these criticisms
are based on some favorable loss history of recent years that
does not take note of the horrible loss history just a few
years earlier. I do not have my hands around the full thrust of
the critique. Yet we are going to have to really understand
them to make the case back in terms of continuing support for
the Crop Insurance Program.
I see my time is up, but I will look forward to working
with you on that, Mr. Watts.
I yield back.
Mr. Etheridge. I thank the gentleman.
Mr. Watts, if you have data to share with this Committee as
it relates to the question the gentleman from North Dakota
asked, the Chair and others would really appreciate a document
or something on that because it would be helpful as we move
forward.
Mr. Watts. Thank you, Mr. Chairman.
Mr. Etheridge. If you would do that, I would appreciate it.
The gentleman from Texas, Mr. Neugebauer.
Mr. Neugebauer. Thank you, Mr. Chairman.
A couple of points going back to the panel dialogue with
Mr. Watts.
You have heard two panelists here talking about the need to
get some kind of Crop Insurance Program so they can expand that
program. I have some other commodities that people are thinking
about growing. You said that $80,000,000 was authorized for
this program, and only $9,000,000 was used. Is that the number?
Was that over the 5 year period or what period of time was
that?
Mr. Watts. It was over a 6 year period.
Mr. Neugebauer. So does it make sense then to come up with
some kind of a cooperative program where, say, a new producer
group just getting started would bring some resources to the
table and begin that process? Is there a way along the process
where you do not have to go to the very end to say, ``we have
probably headed in a direction we are not going to be able to
get to,'' and so you can at that point in time cut your losses.
Or say this is doing a staging in these studies? Does that make
sense to you?
Mr. Watts. Yes, that makes a lot of sense. In fact, as we
thought through this, we were trying to figure out basically if
you were going to fail, let us fail early in the process versus
getting a producer association's hopes up. A lot of investment
which somewhat draws the lines between the current
administration and the producer association. Maybe the idea has
merit, and maybe there are some suggestions along the way that
can turn it towards the successful effort versus something that
has a lot of investment and becomes a failure. We are
suggesting more of an iterative process. So the Board has an
ability to look at this early on, along with a couple of expert
reviewers, to sanction the effort moving forward and to try to,
I guess, shut off at the pass the ideas that are never going to
make it through the process. Versus getting several hundred
thousand to a few million invested in it over time and having a
lot of emotional investment in that process also. So we have
attempted to do exactly what you have suggested.
Mr. Neugebauer. You know, one of the things that is
frustrating to me is that, because of the nature of crop
insurance, but even with a pilot program as has been requested
by Mr. Chapman, we still will be--what--5, or 6 years at the
earliest from actually getting any program that would offer
crop insurance for sesame.
Mr. Watts. Yes. Current discussions that I have had places
the number somewhere between 5 and 8 years to put the pilot out
if it goes through the current contracting process. The 508(h)
approach is substantially quicker, and we have attempted to
provide some shortcuts, not to integrity, but shortcuts to the
process in order to more quickly get to the bottom line of
whether it makes sense to move forward or not.
Mr. Neugebauer. If you had the resources and you could take
on these two commodities through that program, what would be
the earliest date that you would be able to offer crop
insurance under that?
Mr. Watts. Even if you looked at an expedited process you
would have to publish, basically, the guidelines in mid-2008,
2009. That is as quickly as you would get a pilot program on
the ground even in an expedited system.
Mr. Neugebauer. Has there ever been any thought about
looking at a way to come up with a fast-tracking system that
would have a more generic policy where some of these
commodities line up parallel with other commodities and would
be able to get to the market quicker?
I guess the point I am making is, in the world that we live
in today, if you have got a company that takes you 4 or 5 years
to change your product, you are not going to be around. I mean
the only place that works is the government, and obviously it
is not working all that well.
So are there some things that we need to look at outside
the box of being able to be more reactive to a changing and
cultural market in this country as producers are trying to make
decisions based on economics and not on programs? I think that
is what I heard these two gentlemen talk about. They are trying
to figure out how to make money, which is a good thing. How can
we get there?
Mr. Watts. Well, I think there is probably no answer to
your question, but I will try to answer it in two parts.
The first one is we hope that we have provided an expedited
process, but in moving at the speed of business and handling
the tension between the putting out a Congressionally-mandated,
actuarially sound product and covering new emerging crops such
as camelina and sesame that provides this natural tension.
There are some methods out there such as insuring with a proxy
crop. In sesame, that could be sorghum. That could be wheat.
You could do it at a county level. With camelina, there is
potential there, even though it does not have as many similar
characteristics as maybe sesame does to sorghum and wheat.
So as we move through those processes, are there ways to
level the substantive playing field and not provide an APH-type
coverage? Yes. Some of the international community is moving
towards that. Does it provide as good a coverage as APH? No.
Does it have more basis risk? Yes. So are there some trade-offs
that we could make between extremely effective coverage, such
as the APH, and getting something covered quicker? I think the
answer is yes. We have actually been working on a product that
goes across 200 crops.
Mr. Neugebauer. I will finish, but I would think those two
gentlemen sitting to your right would tell you, if you would
just get them something so they could leverage that financially
by being able to go to a lender and expanding the ability to do
that in the interim, it would be a step in the right direction.
I yield back.
Mr. Etheridge. I thank the gentleman.
Before we adjourn, Mr. Watts, you mentioned earlier that
there is a slight adjustment. Do you feel comfortable today in
telling me what you meant when you said ``slight adjustment''
or would you rather address that in your written testimony and
share it with us a little later?
Mr. Watts. The ``slight adjustment'' is that we do not
believe that it is appropriate to reduce the effectiveness of
the expert review process or to back away from an actuarial
sound system. We do believe that there is a way to reduce the
timeline associated with new product development and to provide
an iterative process between the Board, the developer, and the
producer group that has a higher chance of success. We think
that is simply a refocus of the construct. If you look at the
legislative language, it is not long.
Mr. Etheridge. I hope you will share that with us in the
document you are going to send to us what Congressman Pomeroy
was talking about.
Before we adjourn, I am going to recognize the gentleman
from Louisiana, Mr. Boustany, for closing comments.
Mr. Boustany. Thank you.
Mr. Watts, before we close out, I just wanted to ask. You
know, we have to strike a balance with the 508(h) program, and
I agree with you that the programs are too high right now, and
it is certainly putting a damper on the expansion of the crop
insurance safety net, but it is striking a balance.
What do we do to prevent a swing in the other direction
whereby you end up spending tax dollars on a bunch of ideas
that do not pan out? I read through the information you sent to
us in your written testimony, and I have some concern in that
regard that we could be spending money on a lot of ideas that
do not go anywhere. So do you have other ideas of where you
might strike that balance?
Mr. Watts. Thank you for the question.
I cannot tell you how deeply concerned we are about that
particular issue. It would be a shame to, quote, as you said in
your opening statement, ``to use this to create a new cottage
industry.'' We have seen, as all Members on the Subcommittee
have, from time to time ideas that have been put forward that
do not have a lot of substance, unfortunately. Is there a
process or is there a way to separate the chaff, so to speak.
Is there a process? Is there a way to separate the chaff,
so to speak? The process that we have proposed, which we would
be glad to have the thoughts of changes, is to create a concept
paper. And that concept paper, in order to even be accepted,
has to be fleshed out to the point that the concept is
understandable. And, second, the two experts out of the
existing pool have signed on that this has the potential to
make it through the process, not to change the rigor of the
process, which we would be vehemently against that, but to
provide a financial and intellectual hurdle.
This is tough stuff to do, to provide a hurdle so we do not
put a lot of the chaff in front of the Board, and we believe
that that financial hurdle to be shouldered is somewhere
between $50,000 and $75,000. We would spend more money than
that before we took even a concept to the Board, and shoulder
those two extra views that are somewhere between $5,000 and
$10,000 apiece and working with the expert reviewers. We are
one, and the only thing you have in that business is your
reputation. I think the process that we proposed has a hurdle
in it to attempt to not have your concern realized.
Mr. Boustany. One quick follow-up. How many competitors do
you have to your business in terms of working with producer
groups to develop products like this?
Mr. Watts. It is a very small pool and it is a very small
pool internationally within the U.S.
Mr. Boustany. Within the U.S., I mean how many, five? Less
than five?
Mr. Watts. Probably less than five.
Mr. Boustany. Okay. Thank you. Thank you, Mr. Chairman,
that is all I have. This was a very good hearing. I want to
thank both panels for their testimony and their answers to the
various questions we have asked.
Mr. Etheridge. I thank the gentleman.
Let me thank this panel and the previous panel for your
time and the work you have put in in getting the testimony
ready, for submitting it promptly, and for your testimony
today.
Under the rules of the Committee, the record of today's
hearing will remain open for 10 days to receive additional
material and written responses from witnesses to any questions
posed by a member of the panel.
This hearing of the Subcommittee on General Farm
Commodities and Risk Management is adjourned.
[Whereupon, at 4:40 p.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Responses to Questions by Members of the House Agriculture Committee
Subcommittee on General Farm Commodities and Risk Management
During the May 14 Hearing on Crop Insurance
W. Scott Marlow,
Director, Farm Sustainability Programs,
Rural Advancement Foundation International--USA,
Pittsboro, N.C.
Question. In response to the following question posed by Mr.
Etheridge: ``Assuming AGR and AGR-Lite could be reformed, could they
serve as an effective risk management product for contract producers or
do we still need separate policies that can be available for contract
farmers?''
Answer. As an income-based product, Adjusted Gross Revenue-Lite
(AGR-Lite) could become an effective risk management tool for producers
of contract livestock, or other products produced under production
contracts. Other than issues of access and simplification that are
common to all farmers who apply for AGR-Lite, the Risk Management
Agency (RMA) must address issues of eligibility before this program can
be used by farmers with production contracts. RMA policies currently
require all farmers to possess an ownership share in the livestock or
products they are seeking to insure against loss. This determination is
an agency regulation, and is not required by statute.
Today most farmers engaged in production contracts cannot claim an
ownership share of the products they produce, preventing their
participation in the AGR-Lite program. To remedy this result, changes
must be made to the program's authorizing language clarifying Congress'
intention that income insurance be made available to farmers
participating in production contracts not granting them an ownership
share of the product.
AGR-Lite could also address potential farmer losses stemming from
disasters, including severe weather events, quarantine, disease
outbreak or depopulation due to a severe disease outbreak.
Historically, agricultural disaster legislation addressing contract
livestock losses has been enacted on several occasions. In the
aftermath of Hurricane Katrina and the other Gulf Coast hurricanes of
2005, Congress approved P.L. No. 109-148, to address hurricanes in the
Gulf of Mexico. P.L. No 109-234, the Emergency Agricultural Disaster
Assistance Act of 2006, was enacted into law on June 15, 2006 as Title
III of the Emergency Supplemental Appropriations Act for Defense, the
Global War on Terror, and Hurricane Recover Act of 2006. The 2006
legislation provided some assistance to contract growers in the form of
Livestock Indemnity Payments as well as Emergency Conservation Program
cost share assistance for cleaning up debris from poultry barns and/or
costs to reconstruct or repair barns if there were uninsured losses.
However, assistance from ad hoc disaster programs that may or may not
be passed by Congress is no substitute for risk management programs
that contract farmers can incorporate in their farm planning on an
ongoing basis.
In addition to the risk posed by weather-related disasters,
farmers face several levels of risk associated with disease, including
the possibility of a disease outbreak on their own farms, and the
depopulation that would accompany it. Without an ownership share in the
livestock in these events, farmers would not be compensated for that
loss without support through subsequent disaster legislation.
Another risk faced by contract livestock producers is the
possibility of a disease outbreak occurring on a farm in their region,
but not on their farm. In this situation, a farmer could be required to
depopulate their farm by state or federal officials, with the
accompanying loss of income, but the loss would not be a direct result
of a disease outbreak. Once again, without access to AGR-Lite, or other
forms of indemnity, the farmers loss would potentially be financially
devastating
A third risk is that a disease outbreak, and accompanying loss of
market would precipitate a reduction in industry or region-wide
production, and that a farmer's production would be reduced, either
through company cutbacks or through delays in receiving additional
livestock, resulting in loss of income. While income-based crop
insurance coverage like AGR-Lite is designed to insure against market
losses, there is question as to whether such a cutback in contract
production would be regarded as an insurable loss or a change in
production capacity, and therefore not insurable. Mortgages for
livestock facilities are based on a certain number of flocks or animals
per year, and production delays can cause the inability to maintain the
flock or livestock numbers required under the mortgage. Although such a
shortfall would be directly traceable to the disease outbreak, the
shortfall might be classified as a ``business decision'' on the part of
the contracting company, potentially eliminating the possibility of the
farmer receiving reimbursement for the loss.
All of the scenarios described above could be effectively addressed
through clarification of the definition of insurable loss to include
risks associated with disease or bioterrorism, including depopulation
by state or local officials and loss of production or market associated
with disease or bio-terrorism.
Question. In response to the following request made by Mr.
Boustany: ``If you could come back to us with some specific
recommendations on how to simplify (AGR and AGR-Lite) we would enjoy
hearing those recommendations.''
Answer. In our experience with farmers who have evaluated AGR-Lite
crop insurance for their farms, and in the experience of officials that
we have consulted with who have assisted farmers in North Carolina and
several other states with this program, there are several aspects of
AGR and AGR-Lite that cause difficulty for farmers.
The threshold concern is the inherent complexity in the program.
The program requires significant documentation. As a part of the
application, the farmer must submit 5 years of form 1040 Schedule F.
The farm plan and farm reports can wait until the adjustment process,
but this may cause problems, and insurance agents who sell the program
often request this documentation at the time of application.
There may be ways to simplify the forms, but the requirement that
the farmer demonstrate both historical gross income and the capacity to
produce that income during the insurance year cannot be escaped. This
issue should be addressed by significant outreach and education,
including clear information about required documentation and program
specifics.
But outreach and education alone will not solve the difficulties.
The number of program participants is declining, suggesting that
farmers have used the program and it did not meet their needs. There
are several aspects of the program itself and the manner in which the
program is being implemented that can be simplified and shifted to
correct this problem.
1. Assure access to trained Crop Insurance Agents or provide
alternative access to the program. Many farmers seeking information
and assistance on AGR-Lite have reported finding it difficult to
identify trained insurance agents to assist them in the application
process. Many of the farmers with whom my organization has worked
received delayed, discouraging or erroneous information as a result of
their initial contact. Other areas of the country have also had
challenges with identifying trained insurance agents that were both
knowledgeable and willing to assist farmers with the application
process.
Because AGR and AGR-Lite are critically important programs, and the
only programs available to insure a significant percentage of farm
income, we believe that in the absence of trained insurance agents
within a given county who market this program effectively, the Farm
Services Agency (FSA) office of that county should be allowed to
provide access to the program, much in the same way that they currently
provide access to the Non-insured Disaster Assistance Program (NAP).
The FSA administrates NAP in order to assure access to risk management
products by farms that are not served by crop insurance, and we believe
that they should have the opportunity, determined on a county-by-county
basis, to provide AGR and AGR-Lite for the same reason and in the same
way.
2. Clarification of insurable income and inclusion of on-farm
processing as insurable income. A second source of confusion for
farmers is the delineation between the value of the crop as it comes
out of the field which determines insurable income, and income
attributed to post-harvest processing, which is considered uninsurable.
To illustrate, under the current policy standards, if a farmer puts
their cabbage in a box for market, the value of that box is not
insurable and must be subtracted from the farmer's insurable gross
income even if the cabbage is not marketable without the box. To truly
work as an effective risk mitigation tool for farmers, income insurance
must include the minimal processing such as washing, bagging or boxing
that is required to access given markets.
The more complex processing that takes place on-farm, usually by
small-scale producers selling to direct markets such as roadside stands
or farmers markets, should also be taken into consideration for income
determination purposes under the program. Income produced through
value-added activities such as turning fruit into jam, vegetables into
pickles, or milk into cheese is currently not eligible for
consideration under the program. For small-scale producers, this on-
farm processing is integral to farm income, and is not a an aspect of
production that can be readily removed from income estimates. Farmers
should therefore have the opportunity to include this income in their
AGR-Lite policy.
3. Require set level of coverage at time of application. An
additional complaint we have heard from farmers concerns contracting
for a set amount of coverage, only to find during claims adjustment
that specific requirements of the program not made clear during
application makes them eligible only for a lower level of coverage. The
result is a reduction of payment after the loss to an amount much less
than that on which the farmer had relied.
We believe that once the underwriter agrees to a level of coverage
during the application process, that level of coverage should not be
changed for reasons other than fraud or failure to abide by the farm
plan, as long as the farmer has made a good-faith effort to produce the
income and has informed the crop insurance agent of necessary changes
in a timely manner. The creation of this level of certainty in the
contracting process would greatly increase farmer confidence in the
program, and would significantly simplify the claims adjustment
process.
4. Increase level of coverage. Gross income coverage under AGR-
Lite is currently capped at 80 percent coverage (75 percent for
producers of a single crop) with 90 percent payment rate, or
effectively 72 percent. In an individual crop policy, a 20 or 30
percent loss frequently equals a far smaller reduction in gross income
because the farmer will take steps to replace lost income from other
crops or enterprises. Therefore individual crop losses addressed by
crop specific crop insurance are often less dangerous to the overall
financial solvency of the farm. Gross income losses of 20 percent, on
the other hand, include all loss mitigation and are frequently
devastating. It is therefore necessary for AGR and AGR-Lite to provide
higher rates of coverage, preferably as high as 95 percentage coverage
with a 100 percentage payment rate, in order to assure farm survival.
5. Include crop insurance and Non-insured Disaster Assistance
Program payments in 5 year income average. One of the benefits of the
AGR-Lite program is that it can be combined with crop insurance
products for specific crops. For instance, a farmer with corn and mixed
vegetables that are sold at a farm stand can get APH or income-based
crop insurance for his corn, and combine it with AGR-Lite to provide
risk management for the rest of his income. However, under current
regulations, crop insurance and NAP payments are counted when
determining AGR-Lite benefits, but are not used to determine the
farmer's 5 year income average. Failure to include insurance and NAP
payments significantly reduces the farmer's average gross income, and
therefore the farmer's coverage. Crop insurance and NAP payments should
either count for both payment and average income determinations, or
should count for neither.
6. Strengthen the policy regarding establishing local market value,
particularly for direct marketers. Currently, AGR-Lite policies aver
that if published prices are not available, then the average price
offered by two commercial buyers, one nominated by the policyholder and
one by the insurance company, should be used. This should be refined in
two ways. First, when local market values are being determined for
producers engaged in direct marketing, other local markets and not
commercial buyers should be supplying average price estimates. Second,
the product value used to estimate the revenue in the producer's
intentions report for the current year should be decided at the time
the intentions report is filed, otherwise the producer loses the price
fluctuation protection afforded by the policy.
7. Definition of `Animals' needs to be revised to ensure it is
inclusive of production agriculture. The current programmatic
definition of ``animal'' is ``living organisms other than plants or
fungi that are produced or raised in farming operations including, but
not limited to, aquaculture, bovine, equine, swine, sheep, goats,
poultry, aquaculture species propagated or reared in a controlled
environment, bees, and fur bearing animals, excluding animals for
sport, show, or pets.'' The definition should be clarified to ensure
that livestock engaged in contract production agriculture falls within
the meaning of the term ``animals'' and is eligible for loss indemnity
under the AGR-Lite program.
8. Develop mechanisms to extend AGR and AGR-Lite to new and
beginning farmers so they have the opportunity to utilize federal risk
management programs. Access to risk management programs is especially
important to beginning farmers. USDA already has provisions to support
beginning farmers in their lending programs, and risk management is
very important for access to credit. Strong consideration should be
given to permitting beginning farmers and ranchers to have protection
and premium rates established based on information for similar farms
that have sufficient historical information to meet the requirements of
these insurance plans.
9. Clarify and simplify procedures for documentation of carryover
inventory documentation. Carryover commodities still in the production
phase present some unique beginning and ending inventory challenges.
The inventory rules should be reviewed to ensure the procedures provide
clear directions on how to handle these commodities. In addition,
clarity should be provided as to whether or not coverage is provided
for these commodities including Christmas trees, shellfish, nursery,
and livestock.
10. Add a ``floor'' to the 5-Year income history used to determine
coverage levels. Low revenue can reduce the approved AGR to the point
where the insurance will not provide adequate coverage. This is
especially important in areas of the country that have seen multiple
disasters in the past 5 years. One possibility to address this issue is
to maintain the 5 year Schedule F average, but allow up to 10 years if
available to decrease the effect of individual disaster years.