[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                 HEARING TO REVIEW PRODUCERS' VIEWS ON 
        THE EFFECTIVENESS OF 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 ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             April 22, 2009

                               __________

                            Serial No. 111-9


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov

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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, 
    Vice Chairman                    Ranking Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin               DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon                BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois       GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER,              BILL CASSIDY, Louisiana
Pennsylvania                         CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho
------

                                 ______

                           Professional Staff

Robert L. Larew, Chief of Staff      Nicole Scott, Minority Staff 
Andrew W. Baker, Chief Counsel       Director
April Slayton, Communications 
Director

                                 ______

      Subcommittee on General Farm Commodities and Risk Management

                   LEONARD L. BOSWELL, Iowa, Chairman

JIM MARSHALL, Georgia                JERRY MORAN, Kansas, 
BRAD ELLSWORTH, Indiana              Ranking Minority Member
TIMOTHY J. WALZ, Minnesota           TIMOTHY V. JOHNSON, Illinois
KURT SCHRADER, Oregon                SAM GRAVES, Missouri
STEPHANIE HERSETH SANDLIN, South     STEVE KING, Iowa
Dakota                               K. MICHAEL CONAWAY, Texas
BETSY MARKEY, Colorado               ROBERT E. LATTA, Ohio
LARRY KISSELL, North Carolina        BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi

               Clark Ogilvie, Subcommittee Staff Director

                                 ______

                                  (ii)
















                             C O N T E N T S

                              ----------                              
                                                                   Page
Marshall, Hon. Jim, a Representative in Congress from Georgia, 
  opening statement..............................................     1
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  opening statement..............................................     2
    Prepared statement...........................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     4
    Prepared statement...........................................     5

                               Witnesses

Dr. Hart, Chad E., Assistant Professor of Economics, and Grain 
  Markets Specialist, Iowa State University, Ames, Iowa..........     6
    Prepared statement...........................................     8
Stallman, Bob, President, American Farm Bureau Federation, 
  Washington, D.C................................................    10
    Prepared statement...........................................    12
Johnson, Roger, President, National Farmers Union, Washington, 
  D.C............................................................    13
    Prepared statement...........................................    14
Bearden, Rickey, cotton, grain and peanut producer, and Chairman, 
  Crop Insurance Task Force, National Cotton Council, Plains, 
  Texas..........................................................    27
    Prepared statement...........................................    29
Bennett, Steve, General Manager and Partner, Riverbend Nurseries, 
  on behalf of the American Nursery and Landscape Association, 
  Thompson's Station, Tennessee..................................    32
    Prepared statement...........................................    33
Spillman, Jarrod, sorghum, wheat, corn, soybean, sunflower and 
  cow-calf producer, on behalf of the National Sorghum Producers, 
  Hoxie, Kansas..................................................    37
    Prepared statement...........................................    40
Owen, John, rice producer, and President, Northeast Louisiana 
  Rice Growers Association, on behalf of USA Rice Federation, 
  Rayville, Louisiana............................................    51
    Prepared statement...........................................    53
Robichaux, Michael, sugarcane farmer, on behalf of the American 
  Sugar Cane League and the Louisiana Farm Bureau Federation, 
  Franklin, Louisiana............................................    63
    Prepared statement...........................................    64
Von Bergen, Bing, wheat producer, President, Montana Grain 
  Growers Association, Board Member, National Association of 
  Wheat Growers, Moccasin, Montana...............................    66
    Prepared statement...........................................    68
Clemens, Mike wheat, corn, soybean, sunflower, and dry bean 
  producer, and Vice President, Public Policy Action Team, 
  National Corn Growers Association, Wimbledon, North Dakota.....    71
    Prepared statement...........................................    73

                           Submitted Material

Robichaux, Michael, sugarcane farmer, on behalf of the American 
  Sugar Cane League and the Louisiana Farm Bureau Federation, 
  Franklin, Louisiana............................................    82


HEARING TO REVIEW PRODUCERS' VIEWS ON THE EFFECTIVENESS OF THE FEDERAL 
                         CROP INSURANCE PROGRAM

                              ----------                              


                       WEDNESDAY, APRIL 22, 2009

                  House of Representatives,
                       Subcommittee on General Farm
                    Commodities and Risk Management
                                   Committee on Agriculture
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Jim 
Marshall presiding.
    Members present: Representatives Marshall presiding, 
Ellsworth, Walz, Schrader, Herseth Sandlin, Markey, Pomeroy, 
Peterson (ex officio), Moran, Conaway, Latta and Luetkemeyer.
    Staff present: Adam Durand, Craig Jagger, Tyler Jameson, 
John Konya, Scott Kuschmider, Clark Ogilvie, John Riley, April 
Slayton, Rebekah Solem, Kevin Kramp, Pelham Straughn, and Jamie 
Mitchell.

 STATEMENT OF HON. JIM MARSHALL, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF GEORGIA

    Mr. Marshall. I want to thank my colleagues for being here 
today for what I expect will be an informative hearing. To our 
witnesses, I want to offer my welcome and pass along Chairman 
Boswell's regrets for not being able to be here. President 
Obama is in his district today and he is traveling with the 
President. He asked me to chair the hearing in his absence, and 
I am pleased to lend a hand.
    Chairman Peterson has directed this Subcommittee to take a 
thorough and comprehensive review of the Federal crop insurance 
program. The program has both critics and defenders in and 
outside of Congress. It is our responsibility to separate fact 
from fiction from both sides in order to ensure that the 
program serves those for whom it was intended, the American 
farmers.
    Crop insurance is a critical risk management tool used by 
farmers to protect the investment they make in their farms, 
which provide food and fiber to our country and to the world. 
Therefore, it is only appropriate that our first hearing on 
crop insurance is focused on producers and their views 
regarding the program's effectiveness. I am pleased that we 
have here today the presidents of two leading farmer 
organizations in the country as well as representatives from 
other commodity groups. We will hear from them broad principles 
of how the crop insurance program should run as well as more 
specific suggestions for improvements. Their combined testimony 
should help us in our preparation for when we bring officials 
with USDA's risk management agency to the Committee after an 
administrator is named.
    Our first witness will be a professor and expert on crop 
insurance, who will help educate the Subcommittee on the 
actuarial method that goes into setting rates for crop 
insurance policies.
    Mr. Marshall. Before we turn to him though, I want to first 
turn to the Ranking Member, Jerry Moran, the gentleman from 
Kansas, for any opening statement he would like to make.

  STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF KANSAS

    Mr. Moran. Mr. Chairman, thank you. I think it is 
appropriate that as we approach the end of the first year of 
the 2008 Farm Bill we begin the process of reviewing how farm 
programs are working. Today we take a look at crop insurance.
    This program is of significant importance to the farmers 
that I represent in Kansas and farmers across the nation. When 
I am visiting with producers back home, I constantly hear 
Congressman, we think a safety net is important and that one 
should be in place; however, if all commodity programs were 
gone tomorrow we could probably make it as long as we had crop 
insurance. I think that speaks volumes for the value of this 
program. The reason why this program is so necessary is because 
it is a way to guarantee minimum revenue stream while the crop 
is growing. Not only do farmers rely upon this program but so 
do agricultural lenders. This allows the lenders to make 
operating loans with some assurance that the money they loan 
out will be repaid despite what may happen during the growing 
season.
    However, this program is not a substitute for other safety 
net programs. This program does not guarantee cost production. 
It is a market-based program that ensures a revenue stream 
based upon historical growing conditions on the farm and 
prevailing market prices. It provides an income stream and 
gives the producer the opportunity to be profitable but does 
not guarantee profitability.
    Despite its effectiveness, this program is not perfect. 
That is why we are here to ask various agricultural 
organizations and commodity groups to hear their opinions. We 
need to find ways to make this program more useful to the 
farmer as a risk management tool. There exist problems like 
shallow losses and declining yields due to multiple-year 
droughts. These problems represent ongoing challenges but the 
problems are not insurmountable. Some may require changes by 
Congress while others are for the Risk Management Agency. 
Although we do not have a representative from RMA here, I hope 
they are listening and will take note of the concerns raised by 
today's witnesses.
    While I am open to finding solutions to improve crop 
insurance and the manner in which it is delivered, I am 
adamantly opposed to cutting funding to this program simply 
because it represents a bank to fund other programs. If 
problems with crop insurance exist, we need to make changes in 
a very meticulous fashion that sets sound policy. In order to 
make sound policy decisions for crop insurance led me to be 
very critical of that part of the farm bill that cut funding to 
crop insurance by nearly $6 billion. These were significant 
cuts that pose a threat to the future effectiveness of the 
program. Even after the substantial cuts of the farm bill, the 
President, President Obama, in his 2010 budget proposed another 
$5.2 billion in reductions to crop insurance. Although it is 
uncertain exactly how the President's budget would find these 
savings, his budget referenced not only cutting funding to crop 
insurance companies but also cutting farmer premium subsidies. 
Such proposals are simply irresponsible and an attempt to use 
crop insurance as the piggy bank. It is an approach that I 
continue to strongly opposed.
    I am very pleased Chairman Peterson and this Committee and 
our budget views and estimate letter to the House Budget 
Committee recommended no cuts to crop insurance programs. The 
House Budget adopted this approach. The Senate, however, 
included approximately $350 million in cuts to the crop 
insurance program and I hope that the budget that is ultimately 
reported into conference Committee adopts the House approach.
    I also want to welcome all the witnesses today but 
especially Jarrod Spillman. Jarrod is a young farmer from 
Hoxie, Kansas, which is just down the road from my hometown of 
Hays. I believe he will give us a good perspective on how crop 
insurance is working not only for farmers on the high plains 
but the youngest generation of our country's farmers.
    Mr. Chairman, I thank you for conducting this hearing, Mr. 
Boswell for calling the hearing, and I look forward to hearing 
from the witnesses today about how we might make improvements 
to crop insurance to benefit farmers across the country. Thank 
you, Mr. Chairman.
    [The prepared statement of Mr. Moran follows:]

 Submitted Statement of Hon. Jerry Moran, a Representative in Congress 
                              from Kansas
    Thank you Mr. Chairman. It is appropriate, as we approach the end 
of the first year of the 2008 Farm Bill, to begin the process of 
reviewing how farm programs are working. Today we take a look at the 
crop insurance program.
    This program is of significant importance to the farmers I 
represent in Kansas and farmers across the nation. When I am visiting 
with producers back in my home State ofKansas, I constantly hear, 
``Congressman, we think that a safety net is important and one should 
be in place. However, if all the commodity programs were gone tomorrow, 
we could probably make it as long as we have crop insurance.'' I think 
that speaks volumes for the value of this program.
    The reason why this program is so necessary is because it is a way 
to guarantee a minimum revenue stream while the crop is growIng. Not 
only do farmers rely on this program, but so do agricultural lenders. 
This is allows lenders to make operating loans with some assurance that 
the money they loan out will be repaid despite what may happen during 
growing season.
    However, this program is not a substitute for other safety net 
programs. This program does not insure cost of production. It is a 
market-based program that ensures a revenue stream based on historical 
growing conditions on a farm and prevailing market prices. It provides 
an income stream and gives a producer the opportunity to be profitable, 
but it does guarantee profitability.
    Despite its effectiveness, this program is not perfect. That is why 
we have asked various agricultural organizations and commodity groups 
to testify. We need to find ways to make this program more useful to 
the farmer as a risk management tool. There exist problems like shallow 
losses and declining yields due to multiple-year drought. These 
problems represent ongoing challenges, the problems are insurmountable. 
Some may require changes by Congress, while other issues are for Risk 
Management Agency (RMA). Although we do not have a representative from 
RMA here, I know they are listening and will take note of the concerns 
raised by today's witnesses.
    While I am open to finding solutions to improve crop insurance and 
the manner in which it is delivered, I am adamantly opposed to cutting 
funding to this program simply because it represents a bank to fund 
other programs. If problems with the program exist, we need to make 
those changes in a very meticulous fashion that sets sound policy. 
Failure to make sound policy decisions for crop insurance led me to be 
very critical of the part of the 2008 Farm Bill that cut funding to 
crop insurance by nearly $6 billion. These were significant cuts that 
pose a threat to the future effectiveness of the program.
    Even after the substantial cuts of the farm bill, President Obama, 
in his 2010 budget proposed another $5.2 billion in reductions to crop 
insurance. Although it is uncertain exactly how the President would 
find these savings, his budget referenced not only cutting funding to 
crop insurance companies, but also cutting farmer premium subsidies. 
Such proposals are simply irresponsible and an attempt to use crop 
insurance as a piggy bank. It is an approach I strongly oppose.
    I was encouraged that this Committee, in our Budget Views and 
Estimates Letter to the House Budge Committee, recommended no cuts to 
the crop insurance program. The House Budget adopted this approach. The 
Senate, however, included approximately $350 million in cuts to the 
crop insurance program. I hope the budget that is reported from the 
conference Committee adopts the House approach.
    I also want to welcome all the witnesses, but especially Jarrod 
Spillman. Jarrod is a young farmer from Hoxie, Kansas, which is just 
down the road from my hometown ofHays. I believe he will give us a good 
perspective about how crop insurance is working not only for farmers on 
the High Plains, but the youngest generation of our country's farmers. 
Mr. Chairman, thank you for conducting this hearing and I look forward 
to hearing from our witnesses about how we might improve the crop 
insurance program.

    Mr. Marshall. I thank the gentleman.
    We have with us Chairman Peterson, the Chairman of the 
Agriculture Committee, and I would like to go to Chairman 
Peterson for any opening statement he might care to make.

            STATEMENT OF HON. COLLIN C. PETERSON, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

    Mr. Peterson. Thank you, Mr. Chairman, and thank you for 
agreeing to chair the hearing today, and Mr. Moran, thank you 
for your leadership.
    I have a statement that I would like to make part of the 
record. We have been asked to look, even though we went through 
the process during the farm bill to look into all of these 
programs, we have been asked to review everything that we are 
doing in the Agriculture Committee and this is part of that 
process. We made some changes in the farm bill, I think some 
good changes that still have not been implemented and we are a 
ways away from seeing what effect any of that has, but there 
are issues out there, as you all know. There are people that 
continue to criticize the program. There are reports that are 
coming out and I just think it is important that we keep a 
focus on this area and I would encourage people not to get so 
hung up on the amount of cuts or whatever. I don't think that 
is the right focus. I think we need to drill down into the 
details of this program to make sure that it is operating 
correctly.
    I have real concerns about whether the cap coverage that 
was a good idea at the time and I think helped us get 
significant involvement in the program by people, whether it 
makes sense anymore in this day and age. Also, whether the way 
we are reimbursing the companies and the agents makes sense, 
and some of that has been incorporated in the SRA and so forth 
but I think we all need to learn a lot more about this. We need 
to find out the changes that we made to the farm bill, what 
impact they had on what kind of coverage people are taking and 
just how effective the program is for people.
    So that is why it is important that we have the producers 
here today to tell us what they think in terms of whether this 
is working for producers and if it is, great, if not, what they 
think we need to improve. So I welcome all of the witnesses and 
appreciate their time and look forward to the testimony. Thank 
you.
    [The prepared statement of Mr. Peterson follows:]

  Submitted Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Thank you Mr. Marshall, for chairing today's hearing. I appreciate 
all the witnesses being here today.
    Today's hearing is to examine the effectiveness of the federal crop 
insurance program from the perspective of those who utilize the program 
as part of their overall risk management strategy: the producer groups 
that provide food and fiber to our citizens. Federal crop insurance is 
one of the central elements of the farm safety net.
    It is a risk management tool that allows farmers and ranchers to 
make sound economic decisions to protect their livelihood.
    The effectiveness of the crop insurance program is vital because of 
the price volatility and weather unpredictability farmers and ranchers 
have to deal with when making their yearly business decisions. The 
weather and market prices are two things they cannot control.
    Over the last twenty five years, there has been widespread growth 
in insured acreage, more crops have been added to coverage plans, and 
new products like revenue protection guarantees have been brought to 
market.
    As stated in witness testimony, just within the last three years, 
Federal crop insurance protection has grown 80%, from $50 billion worth 
of coverage in 2006 to nearly $90 billion worth of coverage in 2008.
    As the industry has grown, so have criticisms of the crop insurance 
program. When commodity prices were taking off less than two years ago, 
I heard from many farmers that crop insurance seemed to be driving 
planting decisions, rather than the market. The premiums, which are 
tied to commodity prices, had shot through the roof. However, the input 
costs for those producers also increased rapidly, and in many cases, 
were outpacing the increase in commodity value. Instead of being a 
backstop, crop insurance premiums have been stretching the producer's 
balance sheet even more.
    Issues have also been raised about the sizable payments in 
administrative and operating expenses that accompanied premium 
increases. In addition, annual underwriting gains have risen from the 
neighborhood of $200 to $300 million ten years ago to over $1 billion 
just two years ago. Such gains and the increased government costs to 
support crop insurance have led many outside the farm community to put 
a bullseye on the industry when it comes to identifying programs in the 
federal budget that they can slash.
    This is not to say that we are not interested in improving the 
program for the taxpayer. In fact, the opposite is true. This Committee 
held multiple hearings on crop insurance in the last Congress in order 
to improve the program's efficiency and justify its use of taxpayer 
dollars.
    The program changes that were made as a result of the farm bill 
will reduce waste, fraud and abuse by expanding a data mining program 
that searches crop insurance records for patterns that may indicate 
fraudulent practices. In addition, we adjusted A&O reimbursement and 
authorized a renegotiation of the SRA to better reflect market 
conditions.
    Despite the criticisms, most producers know that an effective crop 
insurance program is indispensable to a farmer's risk management 
strategy. As I have said in the past, most Americans do not live on or 
near a farm and really have no clue about what a risky business the 
producer is in and how much money it takes to farm nowadays.
    So we want to make sure that the crop insurance program works for 
all involved so people can continue to farm. That is why your input 
today will be helpful to this Committee.
    I thank today' s witnesses for being here and I look forward to 
their testimony. I yield back my time.

    Mr. Marshall. Thank you, Mr. Chairman. I appreciate your 
leadership of the Committee. Your statement, of course, will be 
submitted for the record as well as the opening statements of 
all other Members.
    Mr. Pomeroy. Mr. Chairman, have you been alerted that I 
want to introduce------
    Mr. Marshall. I understand, yes.
    We would like to welcome our first panel of witnesses to 
the table. Dr. Chad E. Hart, Assistant Professor, Department of 
Economics, Iowa State University, Ames, Iowa; Mr. Bob Stallman, 
President of American Frame Bureau Federation, Washington, 
D.C., and Mr. Pomeroy would like to introduce Mr. Roger 
Johnson, who is the President of National Farmers Union.
    Mr. Pomeroy. Well, Mr. Chairman, I am very proud of the 
role North Dakota is going to play in this hearing. North 
Dakota, as we all remember, played a critical role in the 
election of Mr. Stallman as head of the Farm Bureau, something 
he has always held close to his heart, and the new President of 
the National Farmers Union, Roger Johnson, is a close personal 
friend of mine, someone that I have known since college, and 
served with such great distinction prior to coming on with the 
Farmers Union as North Dakota's Agriculture Commissioner. That 
is an elected position in North Dakota and he served first 
within the department and then was elected commissioner, a 
position he held for 12 years, and in the course of that he 
served as the Chairman or President of the National Association 
of State Departments of Agriculture, holding this position 
during the creation of the last farm bill, so many of us that 
didn't know Roger got to know him well as he led the positions 
of the association of state agriculture commissioners in the 
consideration as we went through with the farm bill.
    So is this your first hearing as President of the National 
Farmers Union? So we are today seeing a star is born, Roger 
Johnson of the National Farmers Union. We are going to enjoy 
working with him. You can take this to the bank: He will tell 
you the straight story, you may agree or disagree, but he is 
going to give you the straight, unvarnished view of the 
National Farmers Union and it is a pleasure having him in town. 
Welcome aboard, Roger.
    Thank you, Mr. Chairman.
    Mr. Marshall. I thank the gentleman for his introduction, 
and with that I will call on Dr. Hart.
    We are asking that the witnesses try and keep their opening 
remarks to 5 minutes and your written remarks will all be 
submitted in the record.
    Dr. Hart.

 STATEMENT OF CHAD E. HART, ASSISTANT PROFESSOR OF ECONOMICS, 
AND GRAIN MARKETS SPECIALIST, IOWA STATE UNIVERSITY, AMES, IOWA

    Mr. Hart. Thank you, Mr. Chairman. Good morning. My name is 
Chad Hart. I am an agricultural economist with Iowa State 
University. I also work with the Food and Agricultural Policy 
Research Institute, which is known as FAPRI, on crop insurance 
issues. I also have conducted private consulting in the crop 
insurance area specifically looking at revenue assurance in the 
livestock gross margin products.
    I was asked today to talk about the actuarial methodology 
underneath the crop insurance program. Now, as crop insurance 
has grown in importance as part of the Federal agricultural 
safety net, RMA, the Risk Management Agency, has maintained 
efforts to provide crop insurance products at actuarially fair 
practices. In essence, actuarial fairness for crop intersection 
is the alignment of the risk each farmer faces with the price 
that they pay to cover that risk. If premiums are set too high 
in comparison to the risk, farmers will not buy crop insurance. 
If premiums are set too low, then payments will exceed the 
premiums that crop insurance brings in.
    In giving an array of products that RMA manages today, it 
relies upon or utilizes several actuarial methodologies to 
determine premiums. For the standard yield insurance products 
such as APH, or actual production history, the premium rates 
are determined from examination of historical crop insurance 
performance for each individual crop. The rate-making process 
for APH can be broken down into five steps. In the first step, 
all historical crop insurance information is brought down to a 
common coverage level so that we can compare across 
individuals. The second step computes a county-level base 
premium rate based on that historical data after adjustments to 
reduce the impacts of severe loss years to reflect the average 
loss experience of the county and of surrounding counties. In 
the third step, the county premium rates are adjusted to 
reflect loads for disaster years, prevented planting and the 
producer's ability to choose their insurance units. In the 
fourth step, the calculated rates are compared against what is 
currently being charged and then premium rate adjustments are 
restricted to be within certain guidelines. And finally in the 
fifth step, the premium rates are individualized to the 
producer adjusted to reflect crop types, farming practices, 
average yield differences and the coverage level choices they 
are allowed to make.
    For the revenue insurance products, the original rate-
making process was determined outside of RMA by private 
contractors who presented those products to RMA, RMA reviewed 
that methodology and also had a panel of outside reviewers do 
that as well. The prices utilized in the revenue insurance 
products are derived from commodity futures markets and rely 
upon the efficient market hypothesis. The hypothesis suggests 
that the prices represent all the known information about the 
commodity at the time. Futures information is often combined 
with data on the associated futures with those options to 
determine an expected variability of prices over the insurance 
period. For a product such as crop revenue coverage, the 
original premium rate structures combined with the yield rate 
structure created for APH, combined with factors that reflect 
price movements throughout the growing season. For revenue 
assurance or income protection, new rating strategies were 
developed that utilize statistical distributions of revenue 
that reflect historical relationships between prices and 
yields.
    Assessing the actuarial performance of the crop insurance 
program is difficult. The highly correlated nature of 
agricultural production across producers within a given year 
complicates the analysis. Accurate reflection of the underlying 
weather events requires many annual observations. During a 
gathering of such a long series of weather and insurance data, 
it is likely that production patterns, rating methodologies and 
crop insurance participation patterns will shift. RMA continues 
to monitor the actuarial performance of the various insurance 
products that it manages and has conducted detailed rate 
reviews for several crops and insurance products over the last 
few years.
    As RMA continues to towards its combo product, which is a 
revenue insurance product, or an insurance product that will 
combine its yield and revenue insurance products that it 
currently has, it is reexamining its ratings methodologies 
behind these various products. Continuing research by RMA, 
academics and the insurance industry will likely provide 
improved rating methodologies in the years to come.
    And with that, I will conclude my testimony and thank the 
Committee for allowing me this opportunity today.
    [The prepared statement of Dr. Hart follows:]

    Submitted Statement of Dr. Chad E. Hart, Assistant Professor of 
 Economics, and Grain Markets Specialist, Iowa State University, Ames, 
                                  Iowa
    (The views expressed in this testimony are those of the author and 
do not necessarily represent the views of Iowa State University).
    Mr. Chairman, thank you for the opportunity to appear before the 
Subcommittee. My name is Chad Hart, and I am an agricultural economist 
employed at Iowa State University. I serve as the grain markets 
specialist for the Department of Economics at Iowa State University. I 
also work with the Food and Agricultural Policy Research Institute 
(FAPRI) to model and explore crop insurance issues. FAPRI receives 
funding from annual USDA special research grants to conduct their 
research efforts. I have also conducted or been employed in several 
private consulting projects within the crop insurance industry, 
specifically with the Revenue Assurance and Livestock Gross Margin 
products.
    The federal crop insurance program has grown tremendously over the 
past three decades. In 1981, roughly 45 million acres of crop 
production was protected under the program with a total premium of $380 
million. In 2008, just over 272 million acres of crop and pasture 
production was protected under the program with a total premium of 
$9.85 billion. Many crops have been added to the program and several 
crop insurance products have been introduced, especially within the 
last 15 years. The crop insurance program covers over 100 commodities 
with over 20 crop insurance plans. These plans protect against yield 
and revenue disasters beyond the farmer's control. Just within the last 
three years, the insurance protection provided under the federal crop 
insurance program has grown from $50 billion worth of coverage in 2006 
to nearly $90 billion worth of coverage in 2008.
    As crop insurance has continued to grow in importance as part of 
the federal agricultural safety net, the Risk Management Agency (RMA), 
the USDA agency that operates and manages the Federal Crop Insurance 
Corporation and the federal crop insurance program, has maintained 
efforts to provide crop insurance products at actuarially fair prices. 
Actuarial fairness for crop insurance implies that the premiums charged 
for the crop insurance products are set at the expected level of 
payouts under the products. Unlike other types of insurance, the costs 
associated with the sale and service of the insurance product are not 
included in crop insurance premium rates as they are paid by the 
federal government. In essence, actuarial fairness for crop insurance 
is the alignment of the risk each farmer faces with the premium they 
are charged to cover that risk. Misalignment of the risk and the 
premium leads to issues in crop insurance participation and 
performance. If premiums are set too high for the risks covered, then 
farmers will not purchase the crop insurance. If premiums are set too 
low for the risk covered, then the payments from the insurance will 
exceed the premiums. Given the array of products that RMA manages, RMA 
utilizes or relies on several methodologies to determine premiums for 
the various products.
    For the standard yield insurance products, such as Actual 
Production History (APH), the premium rates are determined from an 
examination of historical crop insurance performance for each 
individual crop, aggregating the insurance experience of agricultural 
producers within a given geographic area. For most of the rate making 
process, the geographic area is defined at the county, but in certain 
steps of the process, data from surrounding counties and the state are 
utilized. The rate making process for APH can be broken into five 
steps:

    1. Adjusting the historical insurance performance to reflect a 
        common coverage level,

    2. Computing county-level base premium rates,

    3. Adjusting the base premium rates for specific issue loads,

    4. Restricting premium rate changes to fit within prescribed 
        limits, and

    5. Updating premium factors used to tailor the premium rates to the 
        individual situation.

    As APH is offered at a number of coverage levels, the first step in 
the premium rate making process is to adjust all insurance performance 
data to a common coverage level, 65 percent, so that the data can be 
aggregated. The second step computes a county-level base premium rate 
based on the historical data after adjustments to reduce the impacts of 
severe loss years (which can skew the rate computation) and to reflect 
the average loss experience of the county and surrounding counties. In 
the third step, the county premium rates are adjusted (loaded) to 
reflect the severe loss years (based on statewide data), a disaster 
reserve factor, and loads for prevented planting and insurance unit 
divisions. In the fourth step, the rates from the third step are 
compared to the currently charged rates and the premium rate changes 
are restricted. Premium rates are allowed to increase by 10 percent or 
less or are allowed to decrease by 5 percent or less, depending on the 
situation. In the fifth step, the premium rates are adjusted to reflect 
crop types (example: winter versus spring wheat), farming practices 
(example: irrigated versus non-irrigated production), average yield 
differences, and coverage level choices.
    For the revenue insurance products, such as Revenue Assurance, Crop 
Revenue Coverage, and Income Protection, the original rate making 
processes were determined mostly by private developers outside of RMA. 
The processes were submitted to RMA and reviewed by RMA and panels of 
outside reviewers (often academics who have worked on crop insurance 
related issues) to evaluate their actuarial soundness. The prices 
utilized for these products are derived from commodity futures markets 
and rely on the efficient market hypothesis. The efficient market 
hypothesis indicates that market prices, such as commodity futures 
prices, reflect all of the known information about a commodity. Thus, 
the futures prices are the best available unbiased estimate of a 
commodity's future value. The futures price information is often 
combined with data from associated options on the futures to determine 
the expected variability of the futures price over the course of the 
insurance period. For Crop Revenue Coverage, the original premium rate 
structure combined the APH base rate with factors to reflect price 
movements over the growing season. For Revenue Assurance and Income 
Protection, the computation of premium rates depends on new rating 
models that utilized statistical distributions of revenues that reflect 
historical relationships between crop prices and yields. In the case of 
Revenue Assurance, the base premium rate is determined by an equation 
relating the APH premium rate at 65% coverage, the insurance coverage 
level chosen by the producer, the insured yield, and the expected price 
variability.
    RMA continues to monitor the actuarial performance of the various 
insurance products it manages and has conducted detailed rate reviews 
for several crops and insurance products over the last few years. Also, 
as RMA continues to progress towards its "Combo" product, an insurance 
product that will combine the APH and revenue insurance products, it is 
re-examining the rating methodologies behind the various products.
    Assessing the actuarial performance of the crop insurance program 
is difficult. The highly correlated nature of agricultural production 
across producers within a given year complicates the analysis. Accurate 
reflection of underlying weather events requires many annual 
observations. But during the gathering of such a long series of weather 
and insurance data, it is likely that production patterns, rating 
methodologies, and crop insurance participation patterns will shift. So 
that historical crop insurance performance may not be an accurate guide 
to future performance. RMA has incorporated and/or accepted several 
approaches to compute actuarially fair premiums. Depending on the 
insurance product, RMA utilizes historical, current, and simulated data 
to set and/or validate premium rates. The incorporation of various 
rating techniques and larger insurance performance data sets should 
allow continued improvement in premium rate setting. Continuing 
research by RMA, academics, and the insurance industry will likely 
provide improved rating methodologies in the years to come.
    Thank you for providing me this opportunity to discuss these issues 
with you today.

    Mr. Marshall. Thank you, Dr. Hart.
    Mr. Stallman.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                  FEDERATION, WASHINGTON, D.C.

    Mr. Stallman. Thank you, Mr. Chairman. We appreciate your 
efforts to review the crop insurance program.
    Crop insurance is a difficult issue for a farm organization 
representing producers of program crops, fruits, vegetables, 
aquaculture and livestock from all 50 states and Puerto Rico. 
Producers from different regions of the country and those 
producing different commodities have vastly different views on 
the viability and benefits of the program. That is borne out by 
our policy which is one of the longest and most varied policies 
contained in our policy book. Policies as an example include 
support for insurance for dark tobacco and barns, support for 
distinguishing between dry land and irrigated land, opposition 
to reducing a producer's actual production history in areas 
under disaster declaration, opposition to the restriction on 
crop insurance related to livestock grazing and transitioning 
the sweet potato pilot program to a nationwide program.
    One of the few things all producers can agree on is the 
desire to have a viable risk management tool that would allow 
them to make sound economic decisions to protect their 
operation. In your invitation to participate in this hearing, 
you posed a question about the effectiveness of the program. In 
general, it is working well. Participation in the program, 
however, is about 80 percent of eligible acres. In addition, 
about 85 percent of the insured acreage is not covered by a 
buyout policy rather than simply a catastrophic policy. Our 
farmers and ranchers are annually provided more than $90 
billion in risk management protection, and that is up from $31 
billion in protection just 10 years ago.
    Another important change worth mentioning is revenue 
products. They are quite popular with our members. In 2008, 
revenue products were responsible for 80 percent of the total 
premium, 78 percent of total subsidies and 85 percent of 
indemnity payments.
    The crop insurance program has changed rather significantly 
since it was reformed in 2000. Prior to that time, much of our 
efforts centered on increasing the number of commodities 
eligible for the program, increasing farmer premium subsidies 
so more producers can afford the coverage, moving towards 
additional revenue insurance programs, providing for good, 
experienced premium discounts, increasing subsidy levels at the 
higher coverage levels to ensure those suffering from shallow 
losses on a fairly regular basis can still afford the premiums, 
and making alterations to the program so that it could better 
respond to multi-year disasters.
    In the past 8 years, significant progress has been made on 
the first of those priorities. That is not to say we still 
don't desire coverage for more commodities and more localities, 
especially for fruit and vegetable producers, or that we 
wouldn't like a higher premium subsidy, but significant 
progress has been made on several fronts.
    The issue of shallow losses continues to be troublesome. 
The safety net works fairly well if you have almost a total 
crop loss. In that event, a producer doesn't have harvest 
expenses and crop insurance covers the majority of the loss. In 
some instances, ad hoc disaster assistance also kicks in to 
make up much of the rest of the loss. However, it doesn't work 
as well for those producers who lose 25 to 30 percent of their 
yields for 3 or 4 years in a row. Most growers purchase 
coverage at the 65 to 75 percent coverage levels. This means 
they must lose about a third of their yield before they receive 
crop insurance indemnities. If you recover a 5 percent loss, 
you probably only paid off the crop insurance premium. To add 
insult to injury, the grower's APH will be reduced during this 
time and the premium often increases, even though the farmer 
receives less coverage.
    In late 2005, USDA published the Combo Rule, which would 
combine the existing APH, crop revenue coverage, income 
protection, indexed income protection and revenue assurance 
plans of insurance into one consolidated plan of insurance. The 
final rule was to be effective for the 2008 crop year but is 
now scheduled for 2011. It is still not in place and should be 
kept on the front burner at the Department for implementation 
as soon as possible. The crop insurance program is indeed 
complex. The products named have very similar features. If 
combined, the nearly duplicate policies reduce producer 
confusion.
    In 2006, USDA developed programs for pasture, rangeland, 
forage and hay to provide a safety net for farmers who face 
drought conditions. There are two programs, the Rainfall Index 
and the Vegetation Index Program. While the programs were 
expanded in January so the rainfall index is available in 10 
states and the vegetation index in 13 states, we are 
encouraging the Department to prioritize the programs' 
expansion into more areas around the country.
    And last, we urge Congress to continue to press the 
Department to complete the Comprehensive Information Management 
System, or the CIMS project. It is a system of computer 
programs and databases to be used in administering the Federal 
Crop Insurance Corporation and the Farm Service Agency 
programs. CIMS contains producer program and land information 
collected by FSA, RMA and approved insurance providers from 
participating customers. CIMS acts as a repository of data and 
also combines and reconciles data in such a manner so it can be 
used by FCIC and FSA. There are several reasons why producers 
are interested in seeing these agencies reconcile commonly used 
data. First, it would reduce duplicate efforts required both by 
producers and governmental office personnel. In addition, 
reconciling data between FSA and FCIC would help guard against 
fraud and abuse. Farmers feel very strongly about maintaining 
their well-deserved image of being considered good stewards 
with high integrity.
    Mr. Chairman, thank you for this opportunity.
    [The prepared statement of Dr. Stallman follows:]

 Submitted Statement of Mr. Mr. Bob Stallman, President, American Farm 
                  Bureau Federation, Washington, D.C.
    Mr. Chairman, we appreciate your efforts to review the crop 
insurance program. Crop insurance is a difficult issue for a farm 
organization representing producers of program crops, fruits, 
vegetables, aquaculture and livestock from all 50 states and Puerto 
Rico. Producers from different regions of the country and those 
producing different commodities have vastly differing views on the 
viability and benefits of the program. That is borne out by our policy 
which is one of the longest and most varied policies contained in our 
policy book. Policies include (a) support for insurance for dark 
tobacco in barns; (b) support for distinguishing between dry land and 
irrigated land; (c) opposition to reducing a producer's Actual 
Production History (APH) in areas under disaster declaration; (d) 
opposition to the restriction on crop insurance related to livestock 
grazing; and (e) transitioning the sweet potato pilot program to a 
nationwide program.
    One of the few things all producers can agree on is the desire to 
have a viable risk management tool that would allow them to make sound 
economic decisions to protect their operation.
    In your invitation to participate in this hearing, you posed the 
question about the effectiveness of the program. In general, it is 
working well. Participation in the program hovers at about 80 percent 
of eligible acres. In addition, about 85 percent of the insured acreage 
is now covered by a buy-up policy rather than simply a catastrophic 
policy. Our farmers and ranchers are annually provided more than $90 
billion in risk management protection -- up from $31 billion in 
protection just ten years ago. Another important change worth 
mentioning is revenue products. They are quite popular with our 
members. In 2008, revenue products were responsible for 80 percent of 
the total premium, 78 percent of total subsidies and 85 percent of 
indemnity payments.
    The crop insurance program has changed fairly significantly since 
it was reformed in 2000. Prior to that time, much of our efforts 
centered on (1) increasing the number of commodities eligible for the 
program; (2) increasing farmer premium subsidies so more producers 
could afford the coverage; (3) moving towards additional revenue 
insurance programs; (4) providing for "good experience" premium 
discounts; (5) increasing subsidy levels at the higher coverage levels 
to ensure those suffering from shallow losses on a fairly regular basis 
can still afford the premiums; and (6) making alterations to the 
program so that it could better respond to multi-year disasters.
    In the past eight years, significant progress has been made on the 
first of those priorities. That is not to say we don't still desire 
coverage for more commodities in more localities - especially for fruit 
and vegetable producers or that we wouldn't like a higher premium 
subsidy, but significant progress has been made on several fronts.
    The issue of shallow losses continues to be troublesome. The safety 
net works fairly well if you have almost a total crop loss. In that 
event, a producer doesn't have harvest expenses and crop insurance 
covers the majority of the loss. In some instances, ad hoc disaster 
assistance kicks in to make up much of the rest of the loss. However, 
it doesn't work as well for those producers who lose 25 to 30 percent 
of their yields for three or four years in a row. Most growers purchase 
coverage at the 65 percent to 75 percent coverage levels. This means 
they must lose about a third of their yield before they receive crop 
insurance indemnities. If you recoup a five percent loss, you have 
probably only paid off the crop insurance premium. To add insult to 
injury, the grower's APH will be reduced during this time and the 
premium often increases even though the farmer receives less coverage.
    In late 2005, USDA published the "Combo Rule" which would combine 
the existing APH, Crop Revenue Coverage (CRC), Income Protection (IP), 
Indexed Income Protection (IIP) and Revenue Assurance (RA) plans of 
insurance into one consolidated plan of insurance. The final rule was 
to be effective for the 2008 crop year, but is now scheduled for 2011. 
It still is not in place and should be kept on the front burner at the 
department for implementation as soon as possible. The crop insurance 
program is indeed complex. The products named have very similar 
features. If combined, the nearly duplicate policies would reduce 
producer confusion.
    In 2006, USDA developed programs for pasture, rangeland, forage and 
hay to provide a safety net for farmers who face drought conditions. 
There are two programs -- the Rainfall Index program and the Vegetation 
Index program. Both use indexes and grids that are smaller than 
counties to determine expected losses. The Rainfall Index program is 
based on accumulated rainfall and the Vegetation Index program relies 
on satellite images to measure departures from expected losses in a 
given grid area.
    While the programs were expanded in January so the rainfall index 
is available in 10 states and the vegetation index in 13 states, we are 
encouraging the Department to prioritize the program's expansion to 
more areas around the country. The development of a livestock program 
will help expand the viability of the crop insurance program since more 
than half of all farms are livestock farms.
    Lastly, we urge Congress to continue to push the department to 
complete the Comprehensive Information Management System (CIMS) 
project. CIMS is a system of computer programs and databases to be used 
in administering the Federal Crop Insurance Corporation, (FCIC) and the 
Farm Service Agency (FSA) programs. CIMS contains producer, program, 
and land information collected by FSA, RMA and approved insurance 
providers from participating customers. CIMS acts as a repository of 
data and also combines and reconciles data in such a manner so it can 
be used by FCIC and FSA. There are several reasons why producers are 
interested in seeing various governmental agencies reconcile commonly 
used data. First, it would reduce duplicate efforts required both by 
producers and governmental office personnel. Reducing the workload of 
federal employees by eliminating duplicate efforts would demonstrate 
efficient use of taxpayer money. In addition, reconciling data between 
FSA and FCIC would help guard against fraud and abuse. Farmers feel 
very strongly about maintaining their well-deserved image of being 
considered good stewards with high integrity.
    Mr. Chairman, we thank you for the opportunity to testify today.

    Mr. Marshall. Thank you, Mr. Stallman.
    Mr. Johnson.

STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION, 
                        WASHINGTON, D.C.

    Mr. Johnson. Thank you, Mr. Chairman. I thank you for the 
opportunity for holding this hearing. Farmers Union certainly 
appreciates the opportunity to present testimony with respect 
to crop insurance. Our members strongly support the Federal 
crop insurance program and our members believe that crop 
insurance and revenue coverage should never really be 
considered a replacement for fair market prices in an adequate 
price support program.
    In 2008, the Federal crop insurance program covered nearly 
$90 billion in value and led to record amounts in claims paid 
to producers for the year. While there is always room for 
improvement, the increasing levels of participation and upward 
shift in coverage levels demonstrates that the crop insurance 
program largely is working. The goal of Federal crop insurance 
should be to provide affordable risk management coverage to 
farmers and ranchers to allow them to continue to operate after 
having a tough year. Since 1989, Congress has approved 34 ad 
hoc disaster programs totaling more than $59 billion. These 
have been important but often came too late and were not 
tailored to meet all disaster-related losses.
    We were encouraged that in 2008 Farm Bill Congress saw fit 
to include a permanent disaster program, the SURE program, to 
try to deal with some of the shallow losses that you have heard 
about earlier. We really want this program to work and we would 
encourage you as you look at crop insurance reform to be 
mindful of the fact that the rules are not written on that and 
to make sure that they are written in concert with what is 
intended with that program. This program requires linkage. You 
have to carry crop insurance to be eligible, CAT or NAP 
coverage in order to be eligible for disaster program payments. 
We think that is the right way to do it but it is not yet 
implemented. So we need to be cognizant of the fact that there 
is still a lot of unanswered questions about it.
    In terms of issues that we have been concerned about over 
the years, multi-year losses and the nature of those declining 
yields that result from those are something that need to be 
addressed. The skyrocketing production costs that resulted in 
higher levels of coverage last year now are going to continue 
in many ways but the levels of coverage are actually going to 
go down because the market has gone down significantly as well. 
So our members support some form of cost-of-production-based 
crop insurance coverage as well.
    Prevented planting coverage is another issue that continues 
to vex us as do quality loss indemnity programs which continue 
to be inadequately addressed. These quality loss discounts are 
often inaccurate and inadequate to reflect the marketplace. 
They often show no correlation to the same discounts that are 
levied by the local grain elevators.
    Declining yields from consecutive years of disasters have, 
as I indicated, been a long-term problem. It has been 3 years 
since RMA issued separate contracts to develop solutions to 
this problem yet nothing has been brought forward.
    Currently, not all crop insurance companies are required or 
incentivized to offer insurance products in all states. As a 
result, a lot of producers feel that some crop insurance 
companies tend to cherry-pick areas based on whether they think 
the conditions are best. As a result, you end up with areas of 
the country that are not well served and so that is an issue 
that we would hope that the Committee would address.
    The lack of coordination between RMA and FSA is another 
issue that I know Congress has moved to try to begin to 
address. It continues to be an issue. Hopefully progress will 
continue to be made there. We would suggest that perhaps the 
creation of a regional advisory Committee might be helpful in 
this area. We also suggested it might be helpful to have more 
producer representation on the FCIC board.
    Not yet implemented are these changes to the SURE program. 
I have already addressed that.
    The final point that I think I want to make is the GAO 
offered a number of suggestions about 2 years ago dealing with 
waste, fraud and abuse. We stand ready to support the Committee 
in working with GAO to try to implement those. We hope that 
commonsense solutions are used in that process. One of those in 
particular is a requirement that says that any losses exceeding 
$100,000 have to be audited and no exceptions. That is an issue 
where I think there are more commonsense solutions that might 
make sense.
    Thank you, Mr. Chairman, for allowing us this opportunity 
to testify today.
    [The prepared statement of Mr. Johnson follows:]

 Submitted Statement of Mr. Roger Johnson, President, National Farmers 
                        Union, Washington, D.C.
    Good morning, Mr. Chairman and Members of the Committee. I 
appreciate the opportunity to testify on behalf of the farm, ranch and 
rural Members of National Farmers Union (NFU). NFU was founded in 1902 
in Point, Texas, to help the family farmer address profitability issues 
and monopolistic practices while America was courting the Industrial 
Revolution. Today, NFU continues its original mission to protect and 
enhance the economic well-being and quality of life for family farmers, 
ranchers and their rural communities.
    The mission of the U.S. Department of Agriculture's (USDA) Risk 
Management Agency (RMA) is to promote, support and regulate sound risk 
management solutions to preserve and strengthen the economic stability 
of America's agricultural producers. As with many federal programs, the 
federal crop insurance program has room for improvements to better 
serve its mission. NFU members believe crop insurance and revenue 
coverage should never be considered a replacement for fair market 
prices and an adequate price support program; yet the continuation and 
improvement of risk management tools is necessary for producers to be 
successful in today's farming environment.
    In 2008, the federal crop insurance program covered nearly $90 
billion in value for more than 100 crops over 272 million farm and 
ranch land acres nationwide. The year's rollercoaster weather 
conditions and commodity price bubble led to record amounts in claims 
paid to producers for the year. While there is always room for 
improvement, the increasing levels of participation and upward shift in 
coverage levels demonstrates the efficacy of the Agricultural Risk 
Protection Act of 2000 (ARPA).
    The goal of federal crop insurance should be to provide affordable 
risk management coverage to farmers and ranchers to allow the 
continuation of reliable food production. While America's farmers and 
ranchers are the best in the world, they cannot control two significant 
factors that impact their ability to stay in business, the weather and 
market prices.
    Since 1989, Congress has approved 34 ad hoc disaster programs 
totaling more than $59 billion. Without this assistance tens of 
thousands of family farmers and ranchers would have gone out of 
business. The ad hoc disaster programs of the past provided a lifeline 
to many producers, but often came too late and were not tailored to 
meet all disaster-related losses. The 2008 Farm Bill presented an 
opportunity to establish a predictable and timely program for future 
disasters.For many years, NFU had been calling for the inclusion of a 
permanent disaster program to cover the shallow losses caused by 
weather-related disasters, but left uncovered by existing crop 
insurance. The Supplemental Agricultural Disaster Assistance (SURE) 
program established in the 2008 Farm Bill will allow USDA to write 
implementation rules to prevent abuses that are too often associated 
with the rush to gain necessary political support for an ad hoc 
disaster program. As changes are contemplated to existing crop 
insurance programs, it will be very important for Congress to be 
mindful of how those changes might interact with the SURE program.
    Critics of a permanent disaster program mistakenly argue that the 
weather-related disaster assistance will only help a small percentage 
of producers in a handful of disaster prone states. Nothing could be 
further from reality. Within the past few years it was common for more 
than 50-60 percent of the nation's counties to have been declared 
emergency disaster areas. From cranberry producers in Massachusetts, to 
specialty crop growers and dairy producers in California and everywhere 
in between, adverse weather does not discriminate.
    To address criticism that producers sometimes rely solely on 
disaster assistance instead of protecting themselves from losses, the 
SURE program requires crop producers to carry crop insurance, purchase 
or enroll in catastrophic crop insurance or the Noninsured Assistance 
Program in order to be eligible for disaster payments. The USDA 
Secretary is provided the discretion to waive the crop insurance 
purchase requirement for limited resource, minority and/or beginning 
farmers. NFU is very appreciative to this Committee for its support in 
establishing the SURE program and we look forward to working with USDA 
as the rules and regulations are released to ensure the program works 
as Congress intended.
    While some have already called for changes to the SURE program 
before it is even implemented, we believe that it is more prudent to 
first pay close attention to the rulemaking process. If any changes are 
contemplated, I would encourage Congress to first look at funding the 
program at a level closer to that contemplated when the proposal was 
initially introduced. As you know, during the farm bill deliberations, 
substantial cuts were needed in order to meet budget realities.
    Crop insurance, even for those crops with the broadest coverage 
options, remains inadequate to address major production disasters of a 
multi-year nature. This is due to a combination of problems associated 
with the premium cost, amount of coverage, level of deductible and 
insurable yield. A common crop insurance complaint among farmers is the 
failure of coverage to account for skyrocketing production costs. As 
with unpredictable weather and market prices, farmers have no control 
over their input costs. While much attention was placed on higher 
commodity prices during the first half of 2008, virtually no awareness 
was made of similarly high input costs. Producers have suggested 
improvements to revenue risk management products that would account for 
some degree of costs of production. An option could include having 
policies account for regional average cost of production for the 
insured commodity by utilizing data collected by the National 
Agricultural Statistics Service, which publishes the average costs of 
inputs purchased by producers on a monthly basis.
    The availability and affordability of insurance coverage for all 
commodities, including specialty crops and livestock, remains a work in 
progress from a geographic, quality loss and commodity perspective. 
Specific issues such as prevented planting, market-based quality loss 
indemnities, dry-land production on irrigated fields, setting of 
established prices and multi-year yield declines as a result of long-
term weather disasters continue to be inadequately addressed. Our 
members have long advocated for the development of new products that 
allow for protection of income during periods of low prices and/or 
quality losses. Producers face significant consequences to their income 
as a result of quality related yield and price losses. Current quality 
loss discounts are often inaccurate and inadequate in reflecting the 
marketplace. They often show no correlation to the same discounts 
levied by local grain elevators. RMA should be directed to rectify the 
quality loss adjustments, mitigate the costly delays producers face 
when commodities are sampled for quality and better incorporate the 
impact of quality losses into crop insurance products.
    Declining yields as a result of consecutive years of inadequate 
growing conditions continues to be a major concern of producers. With 
no ability to prevent yields from declining year after year, producers 
believe coverage is inadequate and cost prohibitive, which leads to 
reduced participation. It has been three years since RMA issued 
separate contracts to develop solutions to this seemingly solvable 
problem yet no solution has been brought forward. I urge the 
Subcommittee to ask RMA the reason for their lack of action, and to 
develop a strategy to solve the problem.
    The financial capacity, stability and competitiveness of the 
private crop insurance sector should be reviewed and considered as 
future budget, policy development, program delivery and oversight and 
audit responsibilities are negotiated in the forthcoming Standard 
Reinsurance Agreement. Any review should consider the impact of changes 
on underwriters, agents, private re-insurers and the Federal Crop 
Insurance Corporation and Risk Management Agency, particularly as they 
relate to the issues of administration and operations expense 
reimbursements and underwriting gains.
    Currently, not all crop insurance companies are required or 
incentivized to offer insurance products in all states. As a result, 
many producers have limited access to risk management tools that could 
benefit their operations. This practice is viewed by many as cherry-
picking low loss ratio areas and needs to be rectified. For the few 
companies that do choose to operate in all states, their profitability 
is jeopardized or impacted negatively. To remedy this inequitable 
distribution of product delivery, a financial incentive could be 
offered to companies which provide crop insurance in all states, rather 
than only in states with low loss ratios. To counter the disincentive 
to operate in high loss ratio states, underwriting gains could be 
rebalanced or a mechanism established to stabilize underwriting results 
in underserved/high loss states.
    The administration of a federal program such as crop insurance is 
difficult, complex and often mired in bureaucratic red tape. Producers 
have long had concerns with the lack of coordination between RMA and 
the Farm Service Agency (FSA). Improvements in reporting requirements, 
information technologies and harmonization of definitions would help 
alleviate red tape. Our members have further suggested the creation of 
a regional advisory Committee, composed of producers, insurance agents 
and private insurance company officials, to work with RMA regional 
staff to establish appropriate policies, procedures and educational 
activities.
    In addition, more producer representation should be provided on the 
Federal Crop Insurance Corporation (FCIC) board of directors. 
Clarifying the RMA-FCIC relationship and establishing a local appeals 
process including conflict resolution could aid in strengthening 
cooperation among producers and the agency. Enhanced outreach and 
communication with all entities in the region and system would help 
improve working relationships.
    In June 2007 the Government Accountability Office (GAO) offered 
suggestions on ways to reduce waste, fraud and abuse within federal 
crop insurance programs to this Subcommittee. Suggestions included: 1) 
reducing premium subsidies to producers that repeatedly file 
questionable claims; 2) improving FSA field inspections; 3) recovering 
payments from operations that do not disclose farmers' ownership 
structures; 4) strengthening oversight of insurers' use of quality 
controls; and 5) issuing regulations for expanded sanction authority. 
With many critics of the federal crop insurance program, and farm 
programs in general, due diligence must be done to protect the 
integrity of this program and others. In achieving this goal, it is 
important to use common-sense solutions.
    Under RMA's Standard Reinsurance Agreement Quality Control 
provisions, there is a requirement that producers who receive a claim 
indemnity exceeding $100,000 must provide the three most recent years 
of APH records for automatic review. This process is extraordinarily 
time consuming, burdensome and duplicative for producers in high loss 
ratio areas who experience multiyear losses; indemnity payments are 
often delayed due to a resulting backlog of audits. To streamline and 
expedite this oversight exercise, RMA should implement a records 
certification process for each year of audited crop records. As such, 
the Approved Insurance Providers (AIP) could avoid duplicative reviews 
of records if a producer files a claim the following production year.
    As I mentioned at the beginning of this testimony, our members do 
not see crop insurance as a replacement for fair market prices. As 
production practices change, weather patterns remain unpredictable and 
market prices fluctuate, adequate risk management tools will be vital 
to the sustainability of family farmers and ranchers across the 
country. I applaud the Subcommittee for its efforts to improve upon the 
program.
    NFU looks forward to working with this Subcommittee and Congress to 
develop viable mechanisms to enhance producer's ability to manage the 
broadest possible spectrum of production risks in an affordable and 
prudent manner. I appreciate the opportunity to testify today and look 
forward to responding to any questions Committee Members may have.

    Mr. Marshall. Thank you, Mr. Johnson. I thank the witnesses 
for their testimony.
    Dr. Hart, in your written testimony and in your oral 
remarks, you made reference to prices for these products, these 
insurance products being derived from commodity futures markets 
and they rely on efficient market hypothesis. Beginning last 
summer, this Subcommittee and the full Committee heard 
testimony from any number of individuals and organizations--a 
number of the organizations will be testifying today--that the 
futures markets were not behaving efficiently in determining 
prices and that the futures markets were being manipulated by 
investment dollars coming into the futures markets and at one 
point, for example, the basis difference for wheat grew at 
times to $2. In light of that, all this testimony that we have 
heard, I found myself wondering just how efficient the market 
is being, at least with regard to futures markets, and whether 
or not we can actually rely very much on the futures markets in 
trying to determine our prices.
    Mr. Hart. With regards to the futures market price 
maintenance that we have seen over the last couple of years, 
what we have seen is a dramatic change in the number of players 
within the futures market and that has caused some what I hope 
are temporary disruptions to the futures market as we learn to 
incorporate the new players that we have seen come into the 
agricultural markets. When we look back especially over the 
events of 2008, we did see the large price swings not only for 
agricultural commodities but basically any commodity that had a 
futures market available to it including on the energy and 
metals sectors and so it wasn't just an agriculture issue here 
when we looked at those large swings. And looking at it, 
though, in terms of the efficient market hypothesis, the 
argument is, is that market represents all the information we 
have available to us at the time to determine what the value of 
the commodity is. Even with these new investors in, that 
hypothesis still holds in terms of setting that price out there 
for us as the best signal to what the value is to each 
commodity traded within those markets.
    Mr. Marshall. Do you think that there are others that would 
different with that view that you just expressed? Are there 
others who worry that the presence of passive investment 
dollars is what is typically referred to in the market, 
particularly given the size of the passive investment dollar 
investments that are out there that these passive investment 
dollars are skewing the market and don't really have--there is 
no real reference to sort of the real factors that underlie 
typical prediction of prices in that market?
    Mr. Hart. I think there would be some that would disagree 
with that point of view as far as the efficiency of the market 
as we go forward, especially given the large volumes that we 
are talking about being traded here. For example, in corn when 
we look at the futures market trade on the total production of 
corn, the futures market trade covers eight times the actual 
production we see here in the United States, so we do see a lot 
more trade than we have tied down to production. That being 
said, I think there are arguments both for and against the 
effective utilization of these markets and it is something that 
bears watching as we go forward, especially given, like I say, 
the new players that have entered in over the past couple of 
years.
    Mr. Marshall. Mr. Stallman and Mr. Johnson, several of the 
witnesses have mentioned the standard reinsurance agreement 
negotiations where RMA and crop insurance companies get 
together to negotiate terms of compensation for delivery of the 
crop insurance program, and these witnesses have expressed 
their concern about the potential changes that could be agreed 
upon between RMA and crop insurance companies impacting 
producer participation in the program. Given this concern, how 
do your organizations, what role should your organization play 
in the negotiations, if any?
    Mr. Stallman. We have always viewed that we really don't 
have a role in those negotiations, given the structure of the 
law and the process by which the SRAs are renegotiated. That is 
really about payment for a delivery system, if you will. What 
our producers are interested in is that that delivery system be 
efficient and obviously as low a cost as possible but at the 
end of the day they want it to consist of programs, and when 
you talk about the agents, particularly well-qualified agents 
who are able to explain the very comprehensive and complex 
details of these policies. So our producers are in the mode of 
wanting that efficient and easily used delivery system but we 
have not taken a role in negotiating the SRA.
    Mr. Johnson. Mr. Chairman, I would agree with that 
conceptually. In my testimony, I reference the $100,000 issue. 
That is actually an issue that was laid out in the SRA, and 
what results there is that we have had circumstances where 
producers may have had disaster or insurance losses exceeding 
$100,000 for 2 or more years in a row and because of the 
procedures that are laid out in the SRA, they actually come in 
and audit going back those 3 years, even if they were just 
already audited the year before. And so I guess my view is 
again the degree that we can make these things less cumbersome, 
less bureaucratic, while still assuring that there aren't sort 
of cracks in the system where waste, fraud or abuse might enter 
in, we ought to do that. If folks have a number of losses 
consecutive and there is a whole bunch in the same area that 
are having them, maybe it is because there was a weather 
pattern that resulted in and maybe it wasn't the fact that 
farmers are trying to cheat the system. And so having some 
ability to recognize that would be helpful.
    Mr. Marshall. I thank the gentleman.
    The gentleman from Kansas, Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you.
    First, Mr. Johnson, let me express my concern to you as a 
North Dakotan, to your Members, the farmers and just the 
citizens of your state for the tremendous challenges that you 
are undergoing because of weather.
    Mr. Johnson. Thank you.
    Mr. Moran. Just to anyone on the panel, our witnesses that 
follow you, several of them mention problems related to shallow 
losses where producers have losses that are not sufficient to 
trigger an indemnity, and I am embarrassed to again raise this 
topic because it should have been solved years ago. It has been 
a challenge of mine, particularly as a Kansan, for a long time. 
Those witnesses also mention declining yields where repeated 
disasters reduce producers' yields to make crop insurance less 
effective. Again, particularly on the declining yields, this 
has been a topic of mine for nearly a decade and with virtually 
no success. RMA convened a meeting in Kansas City during my 
tenure as Chairman of this Subcommittee in which they brought 
in all the experts from across the country, sought proposals, 
again without much results. Is there anything concrete that you 
can tell the Committee today that we ought to do in regard to 
either the shallow losses or the declining yields? As I recall, 
the answer on the declining yields was that we have got to be--
this is not--that the crop insurance model has to be 
actuarially sound.
    Mr. Johnson. Well, in my testimony, I talked about a couple 
of these issues. The shallow-loss issue has been one that has 
vexed, I think, everyone for a long, long time. It seems like 
the way programs have historically been set up, if you end up 
in a disaster area and you are wiped out and you then can 
forego harvest expenses and perhaps some of the final 
production-related expenses, you end up financially much better 
off than if you ended up with a half a crop or two-thirds of a 
crop. That is a very, very real financial problem. It was that 
issue specifically that I think led to the creation of the SURE 
program. Now, if I had any advice for the Committee, it would 
be that during deliberation of the farm bill when the SURE 
program was contemplated and was added in, obviously budget 
concerns were enormous and as a result of those budget concerns 
when it passed out of the House, there wasn't money attached. 
When it got to the Senate, they put some money in but actually 
had to cut back from what had originally been contemplated and 
so perhaps a mechanism is there to really deal with these 
shallow losses if you can figure out a way to add some money 
into that program. That is designed specifically to pick up 
some of these shallow losses, and I hope that you all spend a 
great deal of time in oversight with respect to USDA making 
sure that the rules get implemented in a fashion that were 
contemplated by Congress.
    Mr. Stallman. Well, there certainly could be solutions 
relative to adjusting the yield when you lose yield over a 
period of low-yield years or change the indemnity payment 
structure. Unfortunately, all of those will come with an 
additional cost so it is a matter of shifting funds from one 
place to other in terms of the actuarial soundness of the 
program and therein lies the problem. And then the other issue 
could be that depending on how that was structured, it would 
encourage decision making based on those specific provisions as 
opposed to more. I don't want to say game the system but they 
would be inclined to participate at maybe lower levels than 
what producers would now, depending on the structure of that. 
But once again, it is going to add cost if you adjust those 
particular provisions.
    Mr. Hart. Let me follow up on Mr. Stallman's comments. When 
we talk about shallow losses or declining yield as we look out 
there, this brings up issues about the actuarial soundness of 
the program and especially when we look to cover those shallow 
losses, those are the hardest to capture in an actuarially 
fairness sense because it is a more likely event and where 
farmers probably have a better sense of how often that is going 
to happen than the crop insurance industry does itself, and if 
those risks are misaligned, it is easy to miss price for 
shallow losses and that is something that RMA has been 
investigating but it is a hard push. For example, looking back 
on my consulting work, I worked on the original revenue 
assurance package back in 1996, and we looked at pushing 
coverage levels up to greater levels than what RMA had 
currently offered, and what we ran into was the significant 
cost that went along with increasing to that level and concerns 
about what are called adverse selection and moral hazard within 
insurance, adverse selection meaning that the farmers have more 
information than the insured does, knowing that there are going 
to get a payment. Moral hazard is the case where a farmer would 
buy insurance and then based upon having that insurance changes 
the way that they farm and increasing the opportunity to 
receive payments under the insurance program.
    Mr. Moran. I thank the witnesses. I will follow up perhaps 
one on one, particularly in relationship to the multiple-year 
disasters. I think that is still an issue that while maybe 
there is some evidence that what ultimately may occur in the 
farm bill may be helpful in shallow losses, I am still at a 
loss to understand why we can't in an actuarially sound way 
address the issue of multiple-year disasters. Thank you, Mr. 
Chairman.
    Mr. Marshall. I thank the gentleman.
    The gentleman from Indiana, Sheriff Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman. My questions were 
about shallow losses and about the SURE program so I think they 
answered those, but I would like to follow up on something Mr. 
Moran said in his opening statement. I don't want to misquote 
you but talking to the farmers that had an adequate crop 
insurance program, then the subsides could go away, and I would 
like to--if that a correct summation of what you said in the 
opening statement, then I would like to explore that with the 
group and what you thought about that and just explore that a 
little bit.
    Mr. Moran. If the gentleman will yield?
    Mr. Ellsworth. Absolutely.
    Mr. Moran. What the conversation I had with Kansas farmers 
is often and mostly during the farm bill the importance of 
direct payments and the importance of crop insurance. But there 
is often a follow-up sentence that says, ``but if we had to 
give up something, make sure we still have crop insurance 
because our risks are so great.'' So no farmer is going to 
voluntarily say one or the other but there is a real priority 
with crop insurance and that was the point I was trying to 
make.
    Mr. Ellsworth. I thank the gentleman. Again, my original 
questions were answered. Is there any comment on that at all 
from any of the panelists?
    Mr. Stallman. Well, given the structure of our current farm 
support policies with the countercyclical payment pricing 
structure and the loan deficiency payment pricing structure and 
commodity prices where they are, those two legs are becoming 
less beneficial, if you will, just because the triggers are 
less likely to be hit. We may be at new higher price plateaus. 
I don't want to project that but we may be. So then it does get 
back to the direct payments and a way to manage risk. The 
direct payments provide a constant known source of income. That 
is very important for producers in making plans. And then the 
risk management products allow them to figure out how to manage 
the risks of their operation. We, as Congressman Moran says, 
are not advocating giving up those but the risk management 
program that a producer puts in place is becoming ever more 
important as these markets and prices change.
    Mr. Ellsworth. Mr. Johnson?
    Mr. Johnson. Well, obviously all of these issues require 
choices on your part and Farmers Union has long believed that 
the direct payments, for example, while they are very helpful 
in tough times, they also pile on in very good times and they 
make us subject to lots of questions about appropriateness for 
those dollars. We have argued that you could bring up the 
support prices that really serve as the safety net when times 
are tough, and so whether that is putting those into enhanced 
crop insurance, whether it is putting those into enhanced SURE 
program payments, whether it is moving loan rates or 
countercyclical payments to a higher level, those would all be 
appropriate because that is when we need help. We need help 
when the wheels fall off the wagon, not when everything is 
really going very well.
    Mr. Ellsworth. Thank you, all. Dr. Hart, any input?
    Mr. Hart. Well, when I look at the crop insurance program, 
it is covering risk for the farmer when you look at it as 
stylized to the individual farmer and so it provides a very 
detail-oriented way to protect that risk on the farm, which is 
essential in today's volatile environment. Also, it is set up 
where the farmer has a choice as to how much protection they 
are willing to gather and they are sharing in that partnership 
with the Federal Government in determining that risk 
arrangement.
    Mr. Ellsworth. I thank the panel.
    Mr. Chairman, I yield back.
    Mr. Marshall. I thank the gentleman.
    The gentleman from Texas, Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman.
    Dr. Hart, on actuarial techniques used by RMA and others, 
given that there is heavy Federal subsidies in this arena, I am 
not aware of like Federal subsidies in other risk management 
areas, are there actuarial techniques that are being used by 
RMA that wouldn't be used in another circumstance or are there 
techniques that should be used by RMA that they are not using 
right now as a result of the Federal subsidies in the program?
    Mr. Hart. As far as the subsidy structure impacting the 
actuarial projections that RMA utilizes, those do not enter in. 
For example, with APH, they are looking strictly at the 
overall, if you will, the total premium dollar being brought in 
by crop insurance versus the average total payouts under the 
crop insurance program. So the total premium gets incorporated 
whether it is subsidized or not. As far as the techniques being 
utilized, like I say, RMA utilizes a variety of techniques. 
Just looking at crop insurance, they look at it in terms of 
like a regular property casual line would look at it. They also 
look at innovative techniques. For example, with the revenue 
insurance products, they have been more forward looking in what 
they think those payouts might be under the crop insurance 
programs and setting premiums based upon that forward-looking 
analysis. So I think they are trying to incorporate as many 
techniques as they possibly can in order to create actuarially 
fair rates.
    Mr. Conaway. Thank you. The university right next to my 
district, Tarleton State University, has an extensive data-
mining process that goes through and tries to ferret out the 
unintentional errors within the risk management arena as well 
as the intentional fraud that is being conducted. Mr. Stallman, 
I believe you or Mr. Johnson mentioned the CIMS project or 
program. Do you guys favor or are you opposed to these kind of 
data-mining opportunities that can be used to reduce payments 
that shouldn't get made whether they are on purpose or not?
    Mr. Stallman. Sir, we are certainly supportive of the 
programs that could be implemented to limit waste, fraud and 
abuse or reduce it. I mean, that is just a given. We think that 
is necessary for the integrity of the program. The CIMS program 
is really just a compilation of the insurance projects into 
one. I mean, it is just really a compilation of data and it 
would play into being able to do the analysis which we think is 
important and that is why we are supportive of getting that put 
in place.
    Mr. Conaway. Is that addressed between RMA and FSA in terms 
of being able to adequately get the right data to mine?
    Mr. Stallman. It is supposed to.
    Mr. Conaway. Okay. One of you mentioned the combining of a 
variety of specialized products into one that was supposed to 
be done last year. It is now 2011, I think. What are the 
barriers there? Why is RMA and/or USDA not able to do this?
    Mr. Stallman. I am not sure I can answer what the barriers 
are. That would be a question for representatives from RMA.
    Mr. Conaway. Well, are they barriers that make sense to you 
so that when the RMA does come in here we can say, look the 
industry thinks you guys should have already gotten this done, 
and they are going to come with excuses. They will have reasons 
why. I just want to know, you won't be here and I won't have a 
chance to say well, Mr. Stallman doesn't believe you or Mr. 
Johnson.
    Mr. Stallman. Well, we were promised in 2008 and now we are 
talking about 2011. It just seems like an inordinate amount of 
time to get that.
    Mr. Conaway. Okay, but you are not aware of any specific 
reasons------
    Mr. Stallman. Not specifically, no, sir.
    Mr. Conaway. Dr. Hart?
    Mr. Hart. One of the reasons may be when you look at the 
products that they are combining within what they call combo or 
combination product, they are bringing different rating 
structures. For example, we are looking at APH, which is the 
yield insurance product. It is rated under one methodology. 
Crop revenue coverage is a revenue insurance product. That is 
being brought into this. It has another rating methodology. 
Income protection, revenue assurance, these are other------
    Mr. Conaway. But Dr. Hart, that was all contemplated in 
2005.
    Mr. Hart. It was all contemplated but it is also taking the 
time to figure out what is the best way to put these together 
and maintain the structure that they had where a farmer can 
come into this combo product, pick the yield insurance, provide 
a proper rate there, pick the revenue product, pick the proper 
rate.
    Mr. Conaway. Thank you, Dr. Hart.
    In the last couple of seconds, any comments on a new acres 
program and what you see its role, any of the three?
    Mr. Hart. Well, I would say that the CIMS project would 
play well into the acre product because what we are looking at, 
at least in my discussions with Iowa farmers, they are confused 
about how their data that goes from FSA or into RMA cannot be 
combined in a certain way and so they are looking at that as a 
possible way to remedy that issue as they are looking forward 
to the acre program.
    Mr. Conaway. Thank you, Mr. Chairman.
    Mr. Marshall. I thank the gentleman.
    The gentleman from Oregon, Mr. Schrader.
    Mr. Schrader. Thank you, Mr. Chairman.
    Mr. Johnson, you referenced the GAO study in 2007 and I 
guess I would like your thoughts as well as the rest of the 
panel's on some of their top five recommendations and which are 
easier or more difficult to get done and where should our 
policies be directed, frankly.
    Mr. Johnson. I am not sure which would be easier to get 
done. We feel very strongly, and I think we probably all agree 
on this point up here, that crop insurance programs need to 
maintain significant credibility. None of us like to see 
headlines about folks who have been taking advantage of 
procedural things, and I think that is what the GAO study 
really looked to do was to try and figure out what kinds of 
things should be done to reduce waste, fraud and abuse. None of 
us here would want to support continuation of waste, fraud and 
abuse, and so my only suggestion here is that we be careful in 
terms of the things that are being suggested to make these 
reductions in waste, fraud and abuse to be certain that they 
are not overly cumbersome and that they in fact add to the 
costs and the bureaucracy of the process. Certainly to the 
degree that you can get RMA and FSA working more closely 
together and working off the same sets of numbers, that seems 
to make a whole lot of sense to us.
    Mr. Schrader. Mr. Stallman, Dr. Hart?
    Mr. Stallman. I basically concur with Roger. None of us 
want to see waste, fraud and abuse. We want to do anything we 
can to reduce that. We want to be sure that the actions we take 
are actually geared toward that as opposed to maybe let us just 
say some actions that are more window dressing that do create 
more problems in terms of their implementation and management 
of the program and from the producer's standpoint more 
difficult. There is always that balance there. But we come down 
on the side of trying to be sure that this program retains a 
high level of integrity because that is the only way it is 
going to be accepted by the public.
    Mr. Schrader. Very good. Mr. Johnson, you talked about the 
$100,000 audit, just do it routinely and automatically, yet in 
some of your testimony you also talked about the difficulty 
because it is cumbersome and difficult to do over a period of 
time. Is there a better way to go about that?
    Mr. Johnson. Well, certainly there a couple of things that 
could be done. In the case of repeated losses, which is where 
we saw a number of claims that just got tied up and tied up and 
tied up because of this audit requirement, the second year the 
folks who came in and audited had to go back and reaudit the 
same records that were audited the year before. There certainly 
could be a procedure put in place that says once audited and 
confirmed and these numbers are all validated, let the next guy 
use the same numbers instead of having to go back and start all 
over again. Secondly, I would say if you have a whole bunch of 
these claims in a certain area, chances are that that was 
because of some legitimate event that occurred and all these 
losses in fact were real and so maybe some sort of a random 
sampling in those circumstances would make sense. Certainly I 
would argue that it probably makes sense to index that number 
going forward too. If you end up in a situation like we were in 
last year where you had price levels that were essentially 
double normal and now they are half of what they were last year 
so maybe getting back closer to normal, when you have those 
wild swings, this number probably ought to have some 
relationship to the pricing level as well or you are going to 
capture a whole bunch of needless efforts that have to be 
undertaken.
    Mr. Schrader. Very good. Thank you. I yield back my time, 
Mr. Chairman.
    Mr. Marshall. The gentleman from Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. I will be very 
brief here. I just have one question. I think the other Members 
of the Committee this morning asked a lot of great questions 
already.
    Dr. Hart, the risk management groups come up with their 
risk assessments on the various areas that they are insuring, I 
got some folks who have farmland in two different risk areas, 
down the line, got a farm on one side and got a farm on the 
other side, and we have two different ratings on it. Is that 
normal or is there a way we can reconcile that or should I be 
asking the insurance folks?
    DR. Hart. Well, in this case, that can happen, especially 
at the county line. For example, when I mentioned the APH 
rating structure, it is based at the county level. They do 
smooth across those counties by averaging that county's, if you 
will, unadjusted rate, with the surrounding counties but you 
can still have definite breaks in between the county lines 
determining those rate structures and oftentimes it is related 
to historical losses between the two counties. If one county 
had a significant loss in that record, the other county did 
not, you would see that reflected in the differences in rates. 
But it is something RMA does try to adjust out but not 
completely as they look forward in the rates.
    Mr. Luetkemeyer. Even though the farms are contiguous?
    DR. Hart. Even though the farms are contiguous. They have 
to draw a line somewhere and they use the county line as a 
designation.
    Mr. Luetkemeyer. Thank you very much.
    That is all I have, Mr. Chairman. Thank you very much. I 
yield back my time.
    Mr. Marshall. I thank the gentleman.
    The gentlelady from South Dakota, Ms. Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman. I thank our 
witnesses today. I appreciate the responses that you all gave 
to Mr. Conaway in his questions related to the CIMS project. I 
too am hopeful that USDA will get it online quickly to help 
maximize efficiencies and ease for both the producers and USDA 
staff. But I would like to ask a little bit different question 
as it relates to finding those efficiencies and potential for 
Department reorganization and the discussion that I have been 
having with producers and agency officials back in South 
Dakota. The issue of the redundancies and increased costs 
within USDA. Mr. Johnson, you addressed some of this in your 
opening testimony and suggested maybe a regional advisory 
committee of some kind to help ensure coordination. Hopefully 
then we will get the data sharing with the CIMS project. But I 
would like to hear each of your views on consolidating crop 
insurance and other programs into one centralized office, maybe 
FSA. The proposal has been out there. I know in some respects 
it is controversial but if you could address from the producer 
perspective and the members of your respective organizations 
the redundancies and efficiencies that they encounter when 
enrolling in farm programs and crop insurance, how effective 
you think RMA has been in administering the crop insurance 
program and whether or not you would agree with the proposal to 
central functions in one office.
    Mr. Stallman. Well, organizationally we don't have a 
position on that consolidation. Our producers, probably like 
most other U.S. citizens, want Government to work as 
efficiently as possible. There are definitely ways and the CIMS 
project is an example where without changing structure you can 
still have coordination and consolidation to make the process 
work more efficiently. So at this point we don't have a 
position on any type of structural changes in that regard. We 
do certainly encourage all efforts to work together in the 
context of delivering the program more efficiently.
    Mr. Stallman. We too don't have a policy on that. I think 
it is important to understand that these agencies behave quite 
differently administratively, and that is part of the reason, I 
think, for this kind of confusion and that was, I think, behind 
the recommendation that there be a regional advisory Committee 
of some sort. I am not sure that that in itself will do much 
more than perhaps give you some more of the information about 
how to coordinate their activities. RMA in North Dakota has an 
office in Billings, okay. FSA has an office in nearly every 
county and so that the place where producers are used to going 
is to those FSA offices where most of those records are kept. 
There is a very big structural issue between those two agencies 
that needs to be reconciled and I am not sure of the best way 
to do that. Maybe our expert here can give you that answer.
    DR. Hart. Thank you, Mr. Stallman.
    As far as the consolidation of the agencies itself, I 
cannot speak for Iowa State University or FAPRI. In my case, 
this is my personal opinion. Looking back at crop insurance 
history, it used to be that RMA was, if you will, wrapped into 
FSA and was broken out sometime I believe in the early 1980s 
and so in some ways we would be looking to go back to that. But 
when I look at FSA versus RMA, you are seeing two agencies that 
are in some ways doing two vastly different things. RMA is 
strictly, if you will, targeted towards the crop insurance 
program, working with the agents and the insurance companies to 
provide and service that product. FSA is more on the ground in 
each county, as was mentioned before, providing those sheets to 
sign up for the various farm bill programs that we have and so 
they have two different missions that don't necessarily gel 
into one cohesive unit when you would put them together. But 
there is a definite need to have their data be meshed together 
as we go forward here, maybe not necessarily meshing the 
agencies together but at least the data.
    Ms. Herseth Sandlin. I appreciate the responses and perhaps 
it is a little bit of a wait and see, let us see how CIMS works 
to see if we can find the efficiencies and then we will go from 
there as it relates to RMA, FSA, NRCS, a whole host of other 
issues that we will be delving into with our oversight 
responsibilities.
    Thank you, Mr. Chairman. I yield back.
    Mr. Marshall. I thank the gentlelady.
    Dr. Hart, since you are an academician, you are used to 
people posing hypotheticals, and if you might answer this one 
for the record, we would appreciate it if you could just get 
this back to Committee after you thought about it a little bit. 
I would like you to assume that the futures markets are not 
operating efficiently, that in fact have been skewed 
artificially, that they could be skewed high, they could be 
skewed low at the time that you go through the pricing process 
to determine what should be charged for insurance, and then 
describe the impact of that on the pricing decision, the 
producer, the Government, the private insurance company, you 
know, all the players that are involved in the process. That 
would be helpful to the Committee and it asks you to assume 
something that you don't believe to be the case, but if it is 
the case, it should have some impact in the real world. With 
that request, Dr. Hart, I assume you are willing to do that?
    DR. Hart. Yes.
    Mr. Marshall. Thank you, sir. I thank the panel. Very good 
testimony. Thank you for your responses to questions.
    Why don't we take a couple-minute break while we get the 
table organized for the next panel and we get somebody in here 
to see if can't fix the microphone. We really did not want to 
shut out the academician.
    [Recess.]
    Mr. Marshall. We welcome our second panel of witnesses to 
the table. Mr. Rickey Bearden, cotton, grain and peanut 
producer and Chairman, Crop Insurance Task Force, National 
Cotton Council, Plains, Texas; Mr. Steve Bennett, General 
Manager and Partner, Riverbend Nurseries, on behalf of the 
American Nursery and Landscape Association, Thompson's Station, 
Tennessee; Mr. Jarrod Spillman, sorghum, wheat, corn, soybean, 
sunflower and cow-calf producer on behalf of the National 
Sorghum Producers, Hoxie, Kansas; Mr. John Owen, rice producer 
and President, Northeast Louisiana Rice Growers Association on 
behalf of USA Rice Federation, Rayville, Louisiana; Mr. Michael 
Robichaux, sugarcane farmer, on behalf of the American 
Sugarcane League and Louisiana Farm Bureau Federation, 
Franklin, Louisiana; Mr. Bing Von Bergen, wheat producer, 
President, Montana Grain Growers Association, Board Member, 
National Association of Wheat Growers, Moccasin, Montana; and 
Mr. Clemens, unfortunately Mr. Pomeroy is not here to give you 
a grand introduction. That is exactly what he intended but he 
is stuck in a hearing right now. Otherwise he would be here. So 
your introduction is going to be just as brief, wheat, corn, 
soybean, sunflower and dry bean producer and Vice President of 
Public Policy Action Team, National Corn Growers Association, 
Wimbledon, North Dakota.
    Mr. Bearden, if you could begin when you are ready. All 
witnesses' statements will be included in the record, and if 
you could keep your remarks to 5 minutes, we would appreciate 
it. Thank you, sir.

STATEMENT OF RICKEY BEARDEN, COTTON, GRAIN AND PEANUT PRODUCER, 
   AND CHAIRMAN, CROP INSURANCE TASK FORCE, NATIONAL COTTON 
                     COUNCIL, PLAINS, TEXAS

    Mr. Bearden. Thank you, sir. We are all glad to be here 
this morning and hopefully you all will all understand our 
dialects. It is a little different.
    Mr. Marshall. I certainly won't have any problem with that, 
Rickey.
    Mr. Bearden. I am a West Texas cotton, grain and peanut 
producer from Plains, which is located in Yoakum County close 
to the New Mexico border of Texas. I am here today representing 
the National Cotton Council. I have been farming for 34 years 
and consider insurance coverage an important part of my input 
cost. Cotton producers are always dependent on Mother Nature, 
just as any other crops. Since 2000, I have personally 
experienced 4 years of zeroes on my dry land production and 
three crops of over 700, just to tell you a little bit about 
the volatility. Also, other producers in cotton areas have had 
devastation from hurricanes and many other things. Crop 
insurance is something that we must have.
    Unfortunately, the majority of cotton policies are 
affordable only at the lower end of the spectrum, 60 percent to 
lower levels of coverage. The reason why is because to add on 
to that for every dollar of premium, for every dollar of 
guarantee it costs about $1 of premium so it becomes 
financially irresponsible to do this. We are still insuring 
about 35 to 40 percent of our crop and paying that cost out of 
our own pocket. In this situation, there is no worst place and 
to be just barely making enough to make your guarantee out of 
the total expenses of your crop and the cost of your insurance. 
I don't know how we fix that but it is a real problem and it 
has been addressed here today. I think that falls into the 
shallow-loss program, and we need to figure out some way to fix 
that.
    One of the main issues for cotton producers, as referenced 
earlier, is a lack of affordable high insurance levels. We hope 
that one solution might be is to have GRIP and other group 
insurance policies in addition to the buyout policies. This has 
been suggested before and has not come to fruition. GRIP has 
worked well in many areas of the Cotton Belt. We would 
encourage the agency to put additional focus on refinement of 
this policy option that allows regional differences in 
insurance to be recognized. Actuary rating coverage is also 
critical in providing insurance product. The council has always 
consistently supported a move toward individualized experience-
based rating that would not penalize good producers in bad 
county situations, much as has been talked about today, when 
there is a large area that experiences a loss. A lack of 
experience rating has reduced participation at higher levels of 
coverage for many cotton producers. Maximizing quality is a 
primary consideration of producers throughout the production 
process. Cotton is unique in the fact that our cotton is sold 
on an identity-preserved basis that cotton end users also 
purchase based on those quality characteristics. We believe 
cotton quality loss provisions should be structured in 
recognition of this unique bale identity.
    We are pleased to report that the Committee has a new 
quality adjustment provision for cotton based on the CC long, 
premium and discount schedules, and we hope this will be more 
successful than in the previous program. It has been developed 
with RMA with input from the councils. We hope this will be 
implemented in the 2010 growing season.
    Another improvement that the cotton industry has asked RMA 
to consider is allowing a producer to purchase different levels 
of coverage for irrigated and non-irrigated production. Under 
the current system, which leads the grower to a single coverage 
level for both practices, a diverse cotton operation is stuck 
with balancing the coverage level between two entirely 
different management situations. The end result is a bad 
compromise that forces growers to either underinsure high-
yielding input or overinsure low-yielding inputs. The council 
is also supportive of a new cottonseed pilot program. This 
concept was submitted to crop insurance recently. It hasn't 
been gone through an expert review. It would offer yield 
coverage for cottonseed as an optional endorsement applicable 
to buy cotton insurance. The CPE is designed to integrate 
seamlessly with Federal existing crop policies. We hope this 
will be done soon and in the 2010 growing season will be 
offered for producers.
    RMA should review all of their policies to determine how 
best to assist producers in large-scale disasters. Many farmers 
in Louisiana, Mississippi and Texas waited weeks for the agency 
to announce expedited appraisal processes to be used in 
determining losses following hurricanes last year. While we 
compliment the agency for instituting the expedited appraisals, 
we believe this should be standard and automatically triggered 
after a large-scale disaster, not to try to be done at the last 
moment. In many cases these producers not only face losses with 
their crops and livestock but also with their homes and their 
farmland. It is imperative that this be given.
    On behalf of the National Cotton Council, we appreciate the 
opportunity to present these comments. We also pledge to work 
with this Committee and the Risk Management Agency to 
accomplish our common goal of providing cotton producers with 
affordable risk management options at affordable rates. Thank 
you, sir.
    [The prepared statement of Mr. Bearden follows:]

  Submitted Statement of Mr. Rickey Bearden, cotton, grain and peanut 
  producer, and Chairman, Crop Insurance Task Force, National Cotton 
                         Council, Plains, Texas
    Good morning Mr. Chairman, I am Rickey Bearden, a West Texas 
cotton, grain and peanut producer from Plains, which is located in 
Yoakum County. I am here today representing the National Cotton Council 
as Chairman of the Council's Crop Insurance Task Force.
    NCC is the central organization of the U.S. cotton industry 
representing producers, ginners, warehousemen, merchants, cooperatives, 
textile manufacturers, and cottonseed handlers and merchandisers in 17 
states stretching from California to the Carolinas. NCC represents 
producers who cultivate between 9 and 14 million acres of cotton. In 
recent years, annual cotton production averaged approximately 20 
million 480-lb bales and is valued at approximately $5 billion at the 
farm gate. While a majority of the industry is concentrated in the 17 
cotton-producing states, the down-stream manufacturers of cotton 
apparel and home-furnishings are located in virtually every state. The 
industry and its suppliers, together with the cotton product 
manufacturers, account for approximately 200,000 jobs in the U.S. In 
addition to the cotton fiber, cottonseed products are used for 
livestock feed, and cottonseed oil is used for food products ranging 
from margarine to salad dressing. Taken collectively, the annual 
economic activity generated by cotton and its products in the U.S. 
economy is estimated to be in excess of $120 billion.
    Crop insurance is an important risk management tool for cotton 
producers. I have been farming for 34 years and consider insurance 
coverage as important as any other production input. West Texas 
producers are particularly vulnerable to Mother Nature. In any year, 
either a severe hailstorm or an extended drought can spell disaster for 
the farmer. Based on USDA data for Yoakum County since 2000, our 
average county yield per planted acre across both irrigated and dryland 
acres has been as low as 205 pounds and as high as 730 pounds. For the 
majority of Yoakum County dryland the volatility we are trying to 
insure against is even greater. Since 2000 I have personally 
experienced four years of zero production on my dryland acres, produced 
three crops that averaged over 700 pounds and had the others fall 
somewhere in between. This type of volatility serves to remind us why 
producers need access crop insurance products that provide effective 
coverage at affordable prices.
    Improving the risk management options for producers has been a top 
priority for the cotton industry for many years. The Council supported 
passage of the Agricultural Risk Protection Act (ARPA) in 2000 based 
largely on its goal to make higher levels of coverage more affordable 
to farmers. As a result of the reforms made by ARPA well over 90% of US 
cotton acres are protected by some form of crop insurance coverage. 
While commendable, this high percentage of participation is somewhat 
misleading when you consider that 18 percent of those cotton acres are 
enrolled at catastrophic (CAT)-level coverage and buy-up coverage is 
heavily skewed towards lower levels. These numbers indicate that cotton 
insurance coverage at higher levels is still not as affordable as 
higher coverage levels for other commodities.
    It is critical that the Risk Management Agency establish a 
comprehensive strategy to identify why inconsistencies continue to 
exist across crops and establish a strategic plan for addressing these 
issues.
    Crop insurance is a necessity for cotton producers. Unfortunately, 
as I noted before, the majority of cotton polices are affordable only 
at the lower end of the coverage spectrum at around the 60-65 percent 
levels. That means that cotton producers are still self-insuring on 
average a 35 to 40 percent deductible (as a percentage of their APH 
yields) and paying the cost of the underlying insurance policy. In this 
situation, there is no worse place for a producer to find themselves 
than having invested in a crop all year only to realize a yield that 
falls to a point at or near their insurance guarantee. In the current 
economic climate, a year like the one I just described can be the 
farm's undoing.
    Let me reiterate that crop insurance should be a central part of 
every grower's financial risk management plan. In many parts of the 
cotton belt, including my region, crop insurance is a non-negotiable 
prerequisite for securing production financing, even though a shallow 
loss can still do irreparable damage to these operations. RMA must find 
a way to make higher levels of coverage affordable to more producers.
    With those points in mind it is important to acknowledge that 
progress in being made and the RMA cotton program is improving. USDA's 
Risk Management Agency (RMA) recently conducted a significant review of 
the cotton program by outside sources to ensure program integrity. 
While cotton loss ratios have fluctuated in recent years, the program 
review resulted in no major changes to the cotton policy by RMA. NCC 
supports the efforts to further reduce instances of fraud and abuse. We 
also want to be part of the process to accomplish this goal and to 
ensure that future efforts do not impose unnecessary additional burdens 
on either producers or insurance providers. Further, in an effort to 
increase the usefulness of the cotton policy in all areas of the Cotton 
Belt, we are pleased to offer the following general observations and 
recommendations for administration of the crop insurance program.
Improving Access To Higher Coverage At Affordable Rates
    One of the main issues for cotton insurers, as referenced earlier, 
is the lack of affordability of higher levels of insurance coverage and 
the exposure to significant ``shallow losses'' that prevents effective 
risk management. The Council supported proposals introduced during the 
2008 farm bill debate regarding the use GRIP and other group coverage 
along side buy-up coverage to help shield growers from shallow losses. 
GRIP has worked well in many areas of the Cotton Belt, and this would 
be one more way to utilize that coverage. We would encourage the agency 
to put additional focus on the refinement of policy options that allow 
regional differences in insurance to be recognized
    Accurately rating coverage is also critical to providing an 
affordable insurance product. RMA should continually look for ways to 
move towards rate setting procedures that recognize those investments a 
grower makes that reduce their individual risk. Producers who practice 
risk-reducing cultural practices, such as planting improved varieties 
and employing good soil and water conservation practices, are actively 
working to reduce their risk and increase the productivity. These 
activities benefit the cotton insurance program immediately by reducing 
production risks. The Council has consistently supported a move toward 
individualized experience based rating that would not disadvantage good 
producers in bad county experience situations. The lack of experience 
rating has reduced participation at higher levels of coverage for many 
cotton producers. Unfortunately the current rating structure looks 
backward and lags well behind the risk reduction curve created by new 
technology. Practices that reduce risk and improve productivity should 
be rewarded with lower rates that can be translated into improved 
insurance coverage.
    Another improvement that the cotton industry has asked RMA to 
consider is allowing a producer to purchase different levels of 
coverage for irrigated and non-irrigated production. Under the current 
system, which limits a grower to a single coverage level for both 
practices, a diverse cotton operation is stuck with balancing the 
coverage level between two entirely different risk management 
situations. The end result is a bad compromise that forces growers to 
under-insure their high input, high yielding irrigated production and 
over-insure their lower input, lower yielding non-irrigated acres. RMA 
has the tools and procedures necessary to monitor this situation to 
prevent the possibility of fraud and abuse. We would also suggest that 
when allowing different levels of coverage to be selected an effective 
way to prevent potential abuse would be to prohibit a grower from 
purchasing a higher level of coverage on non-irrigated acreage than 
they select for irrigated land.
    Maximizing quality is a primary consideration of producers 
throughout the production process. Cotton is unique in the fact that 
our product is sold on an identity-preserve basis and that cotton end-
users purchase based on the quality characteristics of each individual 
bale. We believe cotton quality loss provisions should be structured in 
recognition of the unique bale identity. We are pleased to report to 
the Committee that a new quality adjustment provision for cotton, based 
on the CCC Loan Premium and Discount schedule, has been developed by 
RMA with recommendations from the Council. We have made some progress 
with RMA on implementing this provision and encourage the Agency to 
complete this process as quickly as possible to make the new procedure 
effective for the 2010 growing season. We also believe that this 
revised quality adjustment procedure should continue to be considered 
part of the basic premium and be implemented at no additional cost.
    The Council is supportive of a new Cottonseed Pilot Endorsement 
(CPE) as a pilot program. This concept was submitted to the Federal 
Crop Insurance Corporation and subsequently sent out for expert review 
by the FCIC Board. It would offer yield coverage for cottonseed as an 
optional endorsement applicable to buy-up cotton insurance policies. 
The CPE is designed to integrate seamlessly with the existing federal 
crop insurance cotton program rules and procedures, while allowing 
producers to insure their cottonseed without any additional 
administrative record-keeping burdens. The Endorsement is designed to 
apply to currently available individual buy-up coverage plans (APH, 
CRC, RA, etc) and is not offered for CAT, GRIP or GRP cotton policies. 
A broad test of the concept is proposed, including all areas where APH 
coverage is currently offered for cotton. It is our hope that after the 
expert review the FCIC Board will approve this pilot program for the 
2010-growing season.
    Legislatively the 2008 Farm Bill included a reduction of premiums 
for enterprise units. This has proven to be very popular in the 
countryside even though growers are asked to shoulder some additional 
risk through the enterprise unit structure. We believe the provision 
will encourage growers to review their current insurance program and 
may result in participation gains, lower rates and overall higher 
levels of coverage. Actions like this are needed to ensure levels of 
participation that enhances the safety net for growers. As a program 
that protects producer privacy, and allows a grower to tailor coverage 
to the unique needs of their own operation, crop insurance is a 
critical component of the agriculture safety net. The program also has 
the advantage of being fully compliant with current WTO commitments, 
while allowing a grower 100 percent protection up to the level of their 
insurance purchase. Improving the affordability of higher coverage 
levels to growers is therefore an important, non-trade distorting road 
to protecting the interests of U.S. commodity producers.
Crop Insurance and SURE
    The 2008 Farm Bill created a new permanent disaster assistance 
program for crop producers called the Supplemental Revenue Assistance 
Program (SURE). While many of the final details regarding 
implementation of the SURE program have not been announced, we believe 
that the program is at some level designed to encourage producers to 
invest in higher levels of insurance protection through the crop 
insurance program. We believe that one of the best ways for the program 
to achieve this goal is to make sure that a grower is not penalized for 
the increased investment they make when purchasing a higher, more 
expensive level of crop insurance protection. This can be done in the 
same manner that it was accomplished in past ad hoc disaster programs 
by subtracting out the amount of the insurance premiums paid by the 
producer and only counting the net insurance indemnity received as a 
result of an insurable loss as a revenue offset. This would be one more 
incentive for a grower to consider purchasing a higher level of 
insurance coverage. If the SURE program is to fulfill its purpose of 
establishing a permanent mechanism to address wide spread natural 
disasters, then it is imperative that every effort be made to allow 
crop insurance and SURE to complement each other. The Council also 
encourages the USDA to act quickly to publish a Proposed Rule for the 
SURE program and to provide adequate time for review and comment by 
commodity groups and Members of the Committee.
RMA Policy
    RMA should review their policies to determine how best to assist 
producers following large scale disasters. Many farmers in Louisiana, 
Mississippi and Texas waited weeks before the agency announced 
expedited appraisal processes could be used in determining loss 
following last years hurricanes. While we compliment the agency for 
instituting the expedited appraisals, we believe this should happen 
quickly after a large disaster. In many cases these producers are not 
only facing crop and livestock losses but widespread and lasting damage 
to their home and farm. It is imperative that they be given the 
assistance they need following these types of calamities.
Standard Reinsurance Agreement (SRA) Renegotiation
    I would like to touch on the importance of the 2008 Farm Bill's 
authorization to renegotiate the Standard Reinsurance Agreement (SRA). 
We appreciate the effort made by the Congress to ensure that the crop 
insurance program is run efficiently. The SRA is one of the key tools 
through which this process is accomplished, but can also be the source 
of potentially harmful developments that could, in fact, retard future 
progress or even reverse the gains made since passage of the 
Agricultural Risk Protection Act of 2000 by eroding producer or private 
industry participation in the program. We believe that great care must 
be exercised during the upcoming negotiations to maintain a reasonable 
balance between public and private interests. We must, at all costs, 
guard against forcing changes on approved insurance providers that 
would ultimately result in an unintended undermining of service to 
producers. The public/private delivery mechanism that we have today has 
allowed the program to make tremendous strides in both program 
accessibility and producer participation. We must work to maintain an 
environment that protects the public interest and also fosters an 
active and competitive private delivery network.
    In summary, the National Cotton Council strongly supports the 
federal crop insurance program. Crop insurance must be developed, 
delivered and administered as an effective risk management tool and 
innovative policies must be developed to make crop insurance more 
useful in various and ever-changing production conditions. We urge this 
Committee to continue its oversight of the various areas of risk 
management to ensure a meaningful tool for producers.
    On behalf of the National Cotton Council, we appreciate the 
opportunity to present these comments. We also pledge to work with this 
Committee and with the Risk Management Agency to accomplish our common 
goal of providing cotton producers with affordable risk management 
options at affordable rates.

    Mr. Marshall. Thank you, Mr. Bearden.
    Mr. Bennett.

   STATEMENT OF STEVE BENNETT, GENERAL MANAGER AND PARTNER, 
  RIVERBEND NURSERIES, ON BEHALF OF THE AMERICAN NURSERY AND 
      LANDSCAPE ASSOCIATION, THOMPSON'S STATION, TENNESSEE

    Mr. Bennett. Thank you, Mr. Chairman and Members this 
Committee. I appreciate the opportunity to testify on the 
Federal Nursery Crop Insurance program.
    The timing of this hearing could not be more appropriate as 
this month marks the 2 year anniversary of the perfect storm 
that hit our industry Easter of 2007. For several weeks prior 
the weather was unseasonably warm with highs reaching in the 
mid-80s for several days. This pattern had brought early spring 
with long-range forecasts indicating that average temperatures 
would fall near freezing for only a few nights. With plants 
growing aggressively in greenhouses and likewise in the field, 
many Tennessee nurseries spent those weeks preparing for an 
early spring. It was then that our worst fears were realized. 
The news began reporting the possibly of an arctic freeze 
coming through our region. Our preparation for an early spring 
came to an abrupt halt as our nurseries scrambled over the next 
3 days to push containerized plants back together. We covered 
our trees and plants with frost blankets and straw to prepare 
for temperatures that were dipping into the teens. The effect 
of the cold weather on plants was the same as putting a can of 
soda in the freeze. The resulting explosion was evidenced by 
trunks on trees literally shattering. Many plants including 
crepe myrtles, boxwood and Japanese maples revealed the damage 
almost immediately. It was not until several weeks later we 
realized the full extent of the problem as hardier varieties 
such as yews and arborvitae began to show significant damage.
    The buzz began to grow around how Federal insurance claims 
could be handled and which times would be covered by these 
policies. In early May the Tennessee Nursery and Landscape 
Association facilitated a meeting with RMA officials from 
across the country. Nearly 200 growers from the region came to 
the meetings to get answers to their questions. The answers 
provided by RMA at the time and in the months following were 
far from what we had expected. The lack of understanding that 
RMA had for nursery crops became clear. Some examples. First, 
for nurseries, a stock plant is one that we keep for many years 
to cut grafts and bud wood off of to keep our crops consistent 
year after year. However, RMA improperly defined the seedlings 
that we were grafting onto as root stocks, making them 
uninsurable. Second, nurseries normally cut a seedling off 
right above where it is budded or grafted. This plant is 
usually 2 to 4 feet tall before it cut back to the graft. This 
is done while the plant is dormant, forcing all the energy and 
nutrition of the plant to the graft or bud. After the freeze, 
several adjusters came to different farms and designated right 
off the bat that it looked like they had a total loss but 
because the plants were not tall enough, they were ineligible 
to be covered, this with the cutoff portion lying on the ground 
beside the budded plant with the insurance policy explicitly 
purchased to cover those plants.
    Please understand that producers lost 3 years worth of 
crops in this one freeze, seed that was germinating, a grafted 
bud from last year and the seed from the next year.
    The final example, in Federal crop policies there is a 
reference made to marketability of nursery crops. During our 
meetings with RMA, a grower asked how a plant would be 
considered unmarketable. One RMA official likened plants to 
sweet potatoes. He claimed that damaged sweet potatoes could be 
marketed for something whether it was a cork or something. He 
recommended that damaged trees were still marketable even if 
they could be cut up and sold as doorstops. Over a dozen 
adjusters had visited one nursery during a 14 month period. The 
nursery had millions of dollars worth of plant material with an 
original claim of over $2 million. The final settlement was 
whittled down to only a few thousand dollars. Each adjuster 
offered a different opinion, frustrating the producer to a 
point he simply wanted to settle and move on.
    Despite some progress on nursery crop insurance reform 
since 2003, more reform is desperately needed. The 
recommendations in my written testimony underscore the 
challenges of applying Federal crop insurance to the unique 
circumstances that are common to our industry. These reforms 
would enhance the benefit and marketability of crop insurance 
programs to nursery growers and participation in the program 
would definitely increase.
    Mr. Chairman, I greatly appreciate your time and attention 
and I would be happy to answer any questions.
    [The prepared statement of Mr. Bennett follows:]

Submitted Statement of Mr. Steve Bennett, General Manager and Partner, 
 Riverbend Nurseries, on behalf of the American Nursery and Landscape 
               Association, Thompson's Station, Tennessee
    Chairman Boswell, Ranking Member Moran, and Members of this 
Subcommittee, I am grateful for the opportunity to present testimony 
today on the state of the crop insurance program in the U.S. as it 
relates to the nursery industry. My testimony represents my own 
experience with federal crop insurance programs as a nursery grower in 
the State of Tennessee, as well as the views of the American Nursery & 
Landscape Association.
    Founded in 1876, ANLA is the national trade association of the 
vertically-integrated nursery and landscape, or "green" industry. ANLA 
Membership comprises nearly 2,000 firms that grow nursery and 
greenhouse plants, sell lawn and garden products, design/install/care 
for landscapes, and sell supplies to the industry. The Association's 
grower members are estimated to produce about 75% of the nursery crops 
moving in domestic commerce that are destined for landscape use. In 
terms of economic impact, according to a 2005 survey conducted by the 
University of Tennessee and the University of Florida, the vertically-
integrated green industry had an estimated impact of $147.8 billion, 
employed 1.95 million individuals, generated $64.3 billion in labor 
income and provided $6.9 billion in indirect business taxes.
    According to the USDA's National Agricultural Statistics Service 
(NASS), the nursery and greenhouse industry remains as a growing 
agricultural sector in cash receipts. The 2007 Census of Agriculture 
reports that nursery, greenhouse and floriculture crop sales totaled 
$16.6 billion in 2007, up from $14.6 billion in 2002. Nursery and 
greenhouse crop production now ranks among the top five agricultural 
commodities in 28 states, and among the top 10 in all 50 states. 
Growers produce thousands of varieties of cultivated nursery, bedding, 
foliage and potted flowering plants in a wide array of forms and sizes 
in the open ground and under the protective cover of permanent or 
temporary greenhouses. An estimated 50,784 farms produce nursery plants 
as their principal crop.
    The nursery industry very much desires an efficient, affordable and 
sustainable crop insurance program. Nurseries who are engaged in the 
production of high-value crops, that have invested multiple years of 
inputs into getting plant material to market, would benefit 
substantially from enhancing risk management programs with viable 
federal crop insurance programs. At present, the federal crop insurance 
program falls short of adequately addressing the extreme diversity and 
unique situations presented by a free-market segment of agriculture 
that grows thousands of varieties - in every state - using an array of 
production systems and technologies. Despite these challenges, federal 
crop insurance programs remain a valuable component of the nursery 
industry's risk management practices.
    The inclusion of nursery production into disaster programs in the 
2007 Farm Bill, and requirements for minimum levels of federal coverage 
in order to be eligible for participation, represent a significant step 
forward for incentivizing industry participation in federal crop 
insurance programs. The industry believes that additional modifications 
of federal nursery crop insurance programs could increase participation 
rates beyond the current trend of regional appeal for buy up coverage 
primarily in areas that are at risk for significant natural disasters. 
I would first like to offer my personal experience with federal nursery 
crop insurance programs, and then speak more broadly to the industry's 
need for a more reliable federal risk management program. In doing so, 
I thank you for the opportunity to offer thoughts on the current 
program, and some recommendations for improvement.
The Federal Nursery Crop Insurance Experience in Tennessee
    The timing of this hearing could not be more appropriate, as this 
month marks the two-year anniversary of the "perfect storm" that hit 
the Southeastern U.S. On Easter Sunday in 2007, I awoke and looked out 
of my window to see a crape myrtle that looked like it had snow on it. 
Upon further investigation, the white markings were in fact ice crystal 
ribbons oozing out of the stems up and down the plant.
    For the 3 weeks prior to April 7, 2007, the weather had been 
unseasonably warm for that time of year, with highs reaching the mid 
80's for several days throughout that stretch. This weather pattern had 
apparently brought spring early, with meteorologists making long range 
forecasts indicating that average temperatures throughout the spring 
would fall near freezing for only a few nights. So with plants growing 
aggressively in the greenhouses, and likewise in the field, many in the 
Tennessee nursery industry decided that the appropriate measures would 
need to be taken for an early spring. We began by cutting holes in 
greenhouse plastic to help vent the excessive heat, and started 
separating the containers where plant material had begun to grow 
together. It was then that our worst fears were realized.
    Meteorologists began reporting the possibility of an arctic blast 
coming through the region. The preparations that we had started making 
for an early spring came to an abrupt halt, as our nursery scrambled 
over the next three days to push containerized plants back together. We 
covered our trees and plants with frost blankets and straw to prepare 
for forecasted temperatures dipping into the 20s and teens. Over two 
nights, and with sap flowing through our trees as the mercury plummeted 
into the teens, the effect that the cold weather had on our plants was 
the same as what happens when you put a can of cola in the freezer for 
too long. The resulting ``explosion'' was evidenced by the splitting of 
the bark, and in some cases, by bark blowing completely off of several 
varieties of plants that we had in production.
    Many plants, including our crape myrtles, boxwoods and Japanese 
maples, revealed the damage that the frost had done almost immediately. 
It was not until several weeks later that our industry realized the 
full extent of the damage, as varieties that are known to be extremely 
hardy such as yews and arborvitae began to show signs of significant 
damage. Because of their tolerance to cold, these varieties had started 
to grow before the less hardy plants. This early development damaged 
them in such a way that the extent of the damage of these varieties was 
not fully understood for weeks.
    Claims were promptly submitted to insurance agents. Almost 
immediately, the buzz began to grow regarding how these claims would be 
handled and which items would be covered by federal policies. Members 
of our state association requested a meeting, which the Tennessee 
Nursery & Landscape Association facilitated with Risk Management Agency 
(RMA) officials from Washington, D.C., Valdosta, GA and Jackson, MS. 
Meetings were held on the evening of May 3rd and morning of May 4th at 
the Tennessee State University nursery research center in McMinnville, 
TN. Nearly 200 growers from the region came to the meetings to get 
answers to their questions about their federal crop insurance policies. 
The answers provided by RMA at that time, and in the subsequent months, 
were far from what any of us had expected. What transpired was a clear 
demonstration of the lack of understanding that RMA adjusters have of 
nursery stock.
    One example was an interpretation of eligibility for coverage for 
stock plants under federal nursery crop insurance policies. In our 
industry, a stock plant refers to a plant that we keep for many years 
to cut grafts or bud wood from to produce consistent crops year after 
year. However, RMA interpreted the policy pertaining to stock plants, 
deemed to be uninsurable, to include the seedlings that we were growing 
by defining them as ``root stocks.'' This had the practical effect of 
making these seedlings uninsurable.
    Next was a misunderstanding related to common nursery practices. 
Nurseries will often cut a seedling right above where it was budded or 
grafted from a seedling that could have been two to four feet tall. The 
new variety is considered established when the bud or graft breaks 
dormancy and starts growing, forming the new tree. Because of the warm 
weather pattern in the previous three weeks, many in the industry had 
begun cutting the seedlings. After the freeze, one producer, Heritage 
Farms in Tennessee, had an adjuster out to investigate their claim. The 
adjuster noted that though the operation had clearly suffered a total 
loss, because the plants were not "tall enough," they were ineligible 
for any payments. This despite the fact that Heritage had explicitly 
purchased a policy for coverage of these seedlings.
    Perhaps the most egregious interpretation was with regards to 
marketability. In federal nursery crop policies, there is reference 
made to the marketability of plants grown for market. During our 
meeting with RMA in early May 2007, a grower asked when a plant was 
considered unmarketable by the agency. One RMA official cited an 
example using sweet potatoes, claiming that a damaged sweet potato 
could be converted for use as cork and marketed as something else. And 
while the industry had suffered significant losses for tree material 
grown for commercial and residential markets during a construction and 
landscaping boom, the official recommended that the damaged trees were 
still marketable if they could be cut up and sold as door stops or 
something of the like.
    And so the stories continued, with nursery after nursery given the 
run around with dozens of adjusters over the next fourteen months. 
Those who covered millions of dollars worth of plant material, often 
buying up in the federal nursery crop insurance program, had their 
claims whittled down to only a few thousand dollars. These adjusters 
would offer a different opinion, sometimes multiple opinions on a daily 
basis, until the producer became frustrated enough to simply settle and 
attempt to move on.
    Admittedly, I did not carry federal crop insurance on our farm for 
several years. That changed in 2003 when a violent hail storm damaged 
about 70 acres of nursery stock. When we were able to salvage less than 
5 percent of the plants after that hail storm, we purchased a federal 
crop insurance policy as part of our nursery's risk management plan. 
However, after the Easter freeze of 2007 which constituted one of the 
largest natural disasters to hit our region, and after seeing firsthand 
how the insurance really worked for nursery farms, I decided not to 
renew our policy. We desperately need a nursery crop insurance policy 
that works for our industry. But it cannot be a one-size-fits-all 
policy as with other agricultural commodities because of the diversity 
in the products we produce and the uniqueness of our production 
systems.
A Continued Need for Nursery Crop Insurance Reform
    Since July 2003, when ANLA Legislative Policy Committee Chairman 
and Virginia State Senator John Watkins testified to this Subcommittee 
on the need for nursery crop insurance reform, we have seen incremental 
and meaningful progress towards making the program more workable for 
the industry. The successes have included:

      Utilizing a grower's wholesale price list as the basis 
for coverage valuation based upon proof of market. Now, a grower who 
buys up may use their own price lists, while those who purchase only a 
CAT policy are limited to RMA's price list;

      Coverage for plants grown in smaller than three-inch 
containers;

      Having field grown and containerized plants treated as 
separate crops;

      Allow for year-round sales of the crop insurance policy 
subject to a 30-day waiting period for coverage commencement.

    Though progress since 2003 has been made, a number of 
recommendations made by State Sen. Watkins remain very much needed by 
the industry. Many of these recommendations underscore the unique 
challenges of applying federal crop insurance policies designed 
primarily for applications in traditional row crop agriculture to the 
unique practices and circumstances that are common in nursery 
production. We believe the adoption of these policies would 
dramatically enhance the benefit and marketability of federal crop 
insurance programs to nursery growers. In addition, we believe 
participation in the program would greatly increase if these 
recommendations were enacted, especially given current economic 
conditions.

      Nursery participation in the federal crop insurance 
program is not as high as it should be. Broader participation will help 
to establish a program that can be more reliably sustained. There needs 
to be strong educational outreach. While the industry collaborates with 
RMA on grower outreach, a small amount of funding or the creation of a 
marketing pilot program would be helpful in supporting this effort.

      Under the catastrophic disaster coverage, the ``50% 
loss'' requirement should be calculated based on losses of individual 
crop types rather than across the array of crops in a nursery. 
Different crops have varied susceptibility to potential perils, unlike 
typical experiences in traditional row crops.

      Under the current program, growers must purchase separate 
policies to cover separate fields in adjacent counties. There should be 
some reasonable way to insure an entire nursery grower operation on one 
policy.

      Ensure the container size of any plant as such is noted 
in the grower's wholesale price list without regard to the actual soil 
volume the container is capable of holding.

      Pursue continuity on how insurance rates are calculated. 
For example, in 2003, Georgia's rates were .039 with a 0 loss ratio 
while North Carolina's rates were .033 with a loss ratio of 7.4.

      The issue of injury accumulated over just one year has 
become a factor in the green industry. Flood, drought, disease or 
winter injury may occur in one year and the loss can occur that same 
year and/or the following year or years. There is little if any 
continuity on how adjustors process and handle these types of 
situations. RMA adjusters need significant education with regards to 
nursery crops and production.

      Implement crop insurance coverage for Christmas trees. 
Historically, Christmas trees were not intensively managed; many were 
harvested from the wild. However, production practices in nurseries and 
Christmas tree farms are now often indistinguishable. Christmas trees 
as a commodity should be covered under RMA policies and be treated like 
similar nursery crops.

      For growers in tropical or subtropical regions, restrict 
the peril of excess rain to damage incurred in conjunction with a 
"named" tropical cyclone or a rain event that causes an area to be 
declared a disaster by the President of the United States or the 
Secretary of USDA.

      There is a great degree of variation as to how well the 
program is managed across the country. There should be an agent 
certification program coupled with a fraud elimination aspect.

      Seriously explore coverage for trees and plants that fall 
within a quarantine zone - especially if those green goods are rendered 
un-salable due to infestation by a quarantine pest, or ordered 
destroyed. Quarantines are sometimes imposed while study and assessment 
of extent of the infestation and risk of harm are being completed. 
Coupled with the short shelf life of our products and our condensed 
selling seasons, quarantine restrictions with or without mandated crop 
destruction pose unanticipated hardships and losses for growers. 
Currently, nursery growers under current or expected federal quarantine 
actions with federal crop insurance are yet without recourse in many 
parts of the country.

Emerging Issues for Current Program Participants
    Recently, two emerging issues have developed that have been 
problematic for nursery growers that currently participate in the 
federal crop insurance program. The first is with regards to program 
eligibility and the second regards the omission of plants from the RMA 
price list.
Program Eligibility - Interpretation of ``Wholesale Sales''
    Nursery growers, including those with landscape divisions, are 
eligible for crop insurance provided: (1) at least 50% of their gross 
sales are from wholesale (not retail) sales; (2) their plants' 
wholesale prices can be documented; and, (3) plants are provided to 
commercial users, governmental or other end-users. Presently, there is 
ongoing debate/ambiguity within RMA as to what constitutes a nursery 
grower's ``wholesale sales.'' We believe plant sales to home builders 
or developers are sales to end-users. Such needs to be recognized by 
RMA as wholesale sales, so as to fall squarely in the definition of 
``nursery grower.'' This continuing issue is causing some nursery 
growers to lose eligibility to purchase crop insurance.
    The industry recommends a clarification that plant sales to 
homebuilders or developers are fully recognized as wholesale sales and, 
as such, fall within the RMA's definition of ``nursery grower.''
Omission of Plants from RMA Price List
    Beginning with the 2008 crop year, nursery growers were penalized 
at time of claim if not all plants grown are shown on their price 
lists. Though RMA will not cover ``omitted plants'' for insurance 
purposes, RMA does include the value of these plants when calculating 
the penalty for under-reporting inventory. This is double-jeopardy. 
Frankly, we cannot cite an example of any other type of insurance in 
which such a practice is allowed.
    The industry recognizes when one size of a plant is listed in a 
grower's wholesale price list, then other sizes of the same plants may 
be covered via the Special Provisions of the crop insurance policy. We 
further recognize the policy's Special Provisions allow for use of 
supplemental lists. These lists are supposed to be provided by the 
grower when adding new plants into production. However, there are a 
variety of instances when this does not happen. For example, there are 
times when there is no intention to sell newly added plants until a 
future date once they become marketable; or, a grower may be contracted 
to grow certain plants for another individual grower. In these 
instances, such plants would never show up on the grower's wholesale 
price list because they are not for sale to the general industry.
    This issue of omitted plants is creating genuine problems for 
nursery growers who either are: (1) never advised or made aware by 
their agents of the need to submit supplemental lists; or, (2) 
inadvertently forgot or unintentionally neglect to provide supplemental 
lists. Since plants added by supplemental lists or price addenda have 
30-day wait periods before coverage kicks in, no purchase receipts 
should be required unless fraud is suspected.
    The industry recommends if a grower's plants are not found on any 
price or supplemental lists at time of claim, then RMA should allow for 
purchase receipts as proof of ownership to be presented so such plants 
are not considered "omitted plants." In addition, we recommend RMA 
remove the "omitted plants" provision from the Special Provisions, and 
that the agency not insert it into the basic policy provisions.
Conclusion
    Thank you, Mr. Chairman and Members of the Subcommittee, for your 
attention and interest in ensuring a viable crop insurance program for 
the American nursery industry. We are grateful for the interest and 
support of Congress in this matter. I would be happy to respond to any 
questions you may have.

    Mr. Marshall. Thank you, Mr. Bennett.
    Mr. Spillman.

 STATEMENT OF JARROD SPILLMAN, SORGHUM, WHEAT, CORN, SOYBEAN, 
  SUNFLOWER AND COW-CALF PRODUCER, ON BEHALF OF THE NATIONAL 
                SORGHUM PRODUCERS, HOXIE, KANSAS

    Mr. Spillman. On behalf of the National Sorghum Producers, 
I would like to thank the Subcommittee for the opportunity to 
discuss Federal crop insurance and its impact on the grain 
sorghum industry and my farm.
    My name is Jarrod Spillman and I farm near Hoxie in 
Sheridan County, Kansas. I raise wheat, sorghum, corn, 
sunflowers and soybeans in a diversified operation that also 
includes cow-calf pairs. I want to talk about some specific 
concerns that sorghum producers have about the crop insurance 
programs for grain sorghum. Sorghum is the least insured of the 
five major row crops. For 2008, grain sorghum was only insured 
59 percent of its planted acres compared to 74 percent for corn 
and 76 percent for cotton. Price elections are a major 
influence on whether or not producers plant it. Because of how 
the Risk Management Agency sets our sorghum CRC price for the 
upcoming planting season, sorghum tends to be an afterthought 
to producers when it comes time to choose a crop mix. For the 
2009 crop season, the corn RA price was set at $4.04, soybeans 
at $8.80, wheat at $8.77 and sorghum set at $3.56 per bushel 
for CRC. This sends a signal to farmers to plant anything but 
sorghum. Don't we want farmers to have an equal choice of 
coverage so that they can fairly choose which crops to grow? It 
is especially important to the drought-tolerant crops that are 
to be grown in semi-arid regions to have a fair shot at making 
it into the field.
    It seems to me that we would want sorghum to be competitive 
with other crops. Choosing sorghum in environments like mine 
would prove to be much more beneficial considering our lack of 
rainfall. Unfortunately, many farmers will instead choose 
whichever crop offers the most gross profit potential offered 
by the insurance companies and possibly end up planting a crop 
that will not have the best chance at making it to harvest.
    Sorghum is a water-sipping crop that provides excellent 
mulch and protection against soil erosion. This particular crop 
grows quite well in my region and provides a good overall 
bushels to the acre return. But instead of planting sorghum, 
farmers will continue to plant higher insured crops to protect 
themselves from a possible drought.
    A good example of the insurance farming that goes on is in 
wheat. Wheat insurance price for the 2009 year is $8.77 per 
bushel. This caused many in my area to drill this crop directly 
after dry land corn or even after the previous wheat crop. This 
is not a good environmental choice for farmers. Why do it? It 
is simple. They get a guaranteed profit but not a guarantee 
that their crop will be raised to harvest.
    If we can get RMA to come up with a price election 
methodology that can make sorghum price competitive to 
producers such as myself, then we may see a shift in acreage 
back to sorghum. This shift needs to occur, especially in the 
semi-arid parts of the country. Doing so will ultimately 
conserve our water table, provide more grain because we are 
planting a viable crop and provide the mulch needed in the 
plains states to keep our precious soil where it belongs.
    I also want to take just a minute to talk about 
transitional yields. T-yields are used in lieu of actual yield 
history when producers are new to a crop. RMA needs a more 
transparent system of assigning T-yields. A new system should 
not penalize one crop against another. T-yields are influencing 
the planting of higher water use crops when data doesn't 
support such a decision.
    I would like to thank the Subcommittee for the chance to 
testify and I would be happy to answer any questions you have.
    [The prepared statement of Mr. Spillman follows:]
   Submitted Statement of Mr. Jarrod Spillman, sorghum, wheat, corn, 
  soybean, sunflower and cow-calf producer, on behalf of the National 
                    Sorghum Producers, Hoxie, Kansas

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    Marshall. Thank you, Mr. Spillman.Mr. Owen.

    STATEMENT OF JOHN OWEN, RICE PRODUCER, AND PRESIDENT, NORTHEAST 
 LOUISIANA RICE GROWERS ASSOCIATION, ON BEHALF OF USA RICE FEDERATION, 
                          RAYVILLE, LOUISIANA

    Mr. Owen. Chairman Marshall, Congressman Moran, Members of the 
Subcommittee, thank you for holding this hearing. My name is John Owen 
and I am a rice farmer from Rayville, Louisiana. I am producer member 
of the USA Rice Federation and also serve as President of the Northeast 
Louisiana Rice Growers Association. I farm a 2,000-acre rice farm in 
partnership with my wife, Ann, and 2009 will mark my 27th crop.
    On behalf of the USA Rice Federation, I appreciate the opportunity 
to testify before this panel concerning the Federal crop insurance 
program. The USA rice industry contributes substantially to the U.S. 
economy, jobs creation and the nutritional well-being of consumers both 
at home and abroad while also yielding significant environmental 
benefits including critical habitat for migratory waterfowl. Because 
American rice farmers confront many serious price and production risks, 
the USA Rice Federation strongly supports access to meaningful risk 
management tools for rice farmers under the Federal crop insurance 
program.
    Unfortunately, to date, the vast majority of U.S. rice farmers are 
left either uninsured or underinsured under the Federal crop insurance 
program with insured producers largely locked into catastrophic risk 
protection coverage or the lowest level of buyout coverage. Moreover, 
since the level of benefit provided under the new standing disaster 
program directly corresponds to the level of benefit provided under 
crop insurance, rice farmers are penalized twice. The first four charts 
of my written testimony illustrate how rice has fared under the crop 
insurance program. The fifth chart demonstrates how this will impact 
rice producer benefits under the new standing disaster program. Yet low 
participation and low coverage levels of rice farmers are due not to 
imprudence on the part of rice farmers but to the price and production 
risks that are unique to rice production. Existing policies that are 
designed and work well for other crops simply have not worked well for 
rice.
    The good news is, I am not here today to lay this problem at your 
doorstep for you to try and fix. Rather, I am pleased to report that 
the USA Rice Federation is in the process of working to develop a 
complement of risk management tools designed specifically for the rice 
farmer under the policy development procedures established by the 
Federal Crop Insurance Act. Because we are only in the early stages of 
this process and bound by confidentiality requirements, I cannot go 
into details concerning what the policies might look like if we are 
successful in our efforts but I can say we are working to provide at 
least some short-term options for the 2010 crop year and more long-term 
solutions beginning with the 2011 crop year.
    The Federation is exploring this avenue for a number of important 
reasons. First, the traditional safety net program of marketing 
assistance loan and loan deficiency payments and countercyclical 
payments provide little protection in the wake of last year's run-up in 
production costs. Second, the acre program has not offered a viable 
alternative for rice farmers, and third, direct payments were reduced 
in the 2008 Farm Bill and were under siege again this year in the 
budget process. Rice farmers need a reliable safety net, so adding 
another tool for rice farmers to manage risk makes sense. The USA Rice 
Federation also appreciates the Federal crop insurance program can 
afford producers the opportunity to tailor risk management tools to 
their actual risks on the individual farm and to fully address losses 
under the terms of the policy while doing so in a manner that protects 
producer privacy, is understandable to the taxpayer and is in full 
compliance with our commitments under WTO.
    Two more points I would like to make. First, given the broad 
statutory authority and expertise the Risk Management Agency has, we 
believe that Congress and the Administration should encourage the 
agency to evaluate how the Federal crop insurance program is working 
crop by crop and region by region, establish goals how we want these 
crops and regions to be better served and then establish a strategic 
plan to aggressively meet the goals set within 5 years. Having a strong 
crop insurance program that works for producers of all crops and all 
regions is important.
    Second, I want to thank this panel for standing firm against more 
budget cuts to the farm safety net including crop insurance. As pie 
charts in my written testimony illustrate, the farm safety net 
comprises just one-quarter of 1 percent of the Federal budget and only 
16 percent of the farm bill itself. We sustained cuts in the 2008 Farm 
Bill and we cannot afford more.
    On a related note, as we work to develop policies that work for 
rice farmers, we would urge the Administration to exercise caution in 
the renegotiatation of the standard reinsurance agreement so as not to 
undermine either producer or provider participation in the program. We 
need to move forward, not backwards.
    In sum, Federal crop insurance is an important tool for many 
farmers. For a good many lenders, it is the collateral that allows them 
to make agricultural production loans. We are working to make crop 
insurance an invaluable tool for rice growers as well.
    Thank you again for the opportunity to offer testimony here today. 
I would welcome any questions that the Committee might have.
    [The prepared statement of Mr. Owen appears at the conclusion of 
the hearing:]
  Submitted Statement of Mr. John Owen, rice producer, and President, 
  Northeast Louisiana Rice Growers Association, on behalf of USA Rice 
                    Federation, Rayville, Louisiana

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    Marshall. Thank you, Mr. Owen.Mr. Robichaux.

  STATEMENT OF MICHAEL ROBICHAUX, SUGARCANE FARMER, ON BEHALF OF THE 
 AMERICAN SUGAR CANE LEAGUE AND THE LOUISIANA FARM BUREAU FEDERATION, 
                          FRANKLIN, LOUISIANA

    Mr. Robichaux. Mr. Chairman, Committee Members, thank you for 
allowing me to testify today. My name is Michael Robichaux. I am a 
fourth-generation sugarcane farmer from Franklin, Louisiana. My partner 
and I farm 2,800 acres of sugarcane, and I appear before you today to 
discuss the effectiveness of crop insurance for sugarcane farmers in 
Louisiana. I am representing the American Sugar Cane League, the 
Louisiana Farm Bureau Federation, and my testimony reflects the views 
of sugarcane farmers in my state.
    Sugarcane differs from other annual crops. It has a 3 to 5 year 
growth cycle, and our plantings are staggered so that we plant about 25 
percent of our acreage every year. Our crop insurance purchases are 
made in September after planting and before commercial harvest season 
begins. We certify our insured acres in the spring and we do not have 
replant coverage. About 80 percent of our Louisiana sugarcane acres are 
insured but mostly only with catastrophic (CAT) coverage. Few farmers 
purchase buy-up levels because APH premiums are too high for the 
coverage and 75 percent is the highest coverage you can purchase. CAT 
is not a viable coverage level and farmers buy CAT solely to maintain 
eligibility for ad hoc disaster assistance programs. We try to increase 
buy-up purchases by developing a GRP policy through the 508(h) process. 
It was released in 2008 and offers a maximum coverage level of 90 
percent and premiums no higher than $17 per acre. It does not ensure 
against individual crop losses but covers us for regional events like 
killing freezes that can destroy our crops. Our GRP effort showed that 
an APH rate reduction was warranted and RMA responded by providing a 45 
to 75 percent rate reduction on our APH policy.
    However, despite a new GRP policy and rate reduction, it has become 
apparent that we have a problem with our APH history that is tied to 
the rise and fall of a single sugarcane variety over the past years. 
Variety LCP 85-384 was first released in 1993, and with a yield 
potential of more than 30 percent better than existing varieties, 
quickly 90 percent of Louisiana's sugarcane acres were planted to this 
variety. Yields increased from 25.7 tons per acre in 1993 to 37 tons 
per acre in 1999. From 1993 to 2001, Louisiana's average yield 
increased to 32.1 tons per acre. In the year 2000, brown rust infected 
the variety LCP 85-384 and rust quickly spread across 90 percent of 
Louisiana's sugarcane acreage planted this variety. Our state yields 
plummeted by 16.5 percent to 26.8 tons per acre during the 2002-2007 
period. New varieties were developed and released but replanting was 
delayed when the improved seedlings were destroyed in the nurseries by 
Hurricane Katrina and Hurricane Rita in 2005. Louisiana still has about 
10 percent of our acreage planted in the 384 variety and it should be 
completely removed from production by next year.
    Replanting new, improved sugarcane varieties to replace the LCP 85-
384 has resulted in yield increases from 26.2 tons per acre in 2005 to 
31.2 tons per acre in 2006 to 34.5 tons per acre in 2007. These yield 
increases came despite hurricane damage during this period. The problem 
is that the yield decline from LCP 85-384 makes up most of our entire 
actual production history. This gives us an artificially low crop 
insurance yield guarantee for our APH and GRP policies. The depressed 
APH causes farmers to insure yield that is over 20 percent below our 
current yields. The low APH creates a low crop insurance yield 
guarantee and that is why no one is buying crop insurance now.
    Utilizing a transitional yield that reflects current yield trends 
to replace its obsolete yield history would fix the problem. The 384 
depression our APH also depresses our revenue guarantee under the SURE 
Permanent Disaster Program. After Hurricane Gustav, producers with 
substantial losses like my friend Rodney Flore here today were unable 
to receive assistance because their revenue guarantee is set too low 
based on their obsolete APH.
    Mr. Chairman, Members of the Committee, we need to be able to 
ensure a more realistic percentage of our crops' value. We should not 
have to absorb a 20 percent loss of our crop insurance guarantee due to 
an obsolete APH. We humbly ask the Committee to direct RMA to 
substitute transitional yield figures into our sugarcane APH history to 
better reflect current yield trends.
    I thank you for your kind attention and welcome your questions.
    [The prepared statement of Dr. Robichaux follows:]

  Submitted Statement of Mr. Michael Robichaux, sugarcane farmer, on 
behalf of the American Sugar Cane League and the Louisiana Farm Bureau 
                    Federation, Franklin, Louisiana
    Mr. Chairman and Committee Members: My name is Michael Robichaux. I 
am a fourth generation sugarcane farmer from Franklin, Louisiana where 
my partner and I own Frank Martin Farms. We farm about 2,800 acres of 
sugarcane and I appear before you today to discuss the effectiveness of 
crop insurance for sugarcane farmers in Louisiana. I am representing 
the American Sugar Cane League and the Louisiana Farm Bureau Federation 
and my testimony reflects the views of sugarcane farmers in my state.
    In Louisiana, sugarcane is a vital cog in our state's economy. It 
is one of our largest row-crops generating $1.75 - 2 billion in 
statewide economic activity every year. Sugarcane also produces more 
employment than any other agronomic crop in our state with some 27,000 
jobs dependent on the Louisiana sugarcane industry. Sugarcane differs 
from most annual crops in that it has a 3-5 year growth cycle. About 
25% of our acreage is planted every year from July to September. 
Harvest is 7 days a week from September until early January.
    Sugarcane crop insurance operates differently from other annual 
crops in that we purchase our crop insurance in September, the year 
before we harvest our crop and certify insured acres in the spring. We 
also do not have crop insurance coverage for replanting.
    In our climate, sugarcane is a hearty and resilient crop that is 
very tolerant to drought, pests, diseases as well as the occasional 
hurricane. Much credit goes to the efforts of scientists at the USDA-
ARS, LSU Ag Center and Audubon Sugar Institute who have consistently 
adapted our sugarcane varieties over the years to perform against 
disease and pests pressure.
    Sugarcane is popular in climate change discussions because it is a 
C4 plant that is an excellent converter of CO2-and its long growth 
cycle enables it to sequester large quantities of carbon for years at a 
time. The large amounts of biomass produced from sugarcane also make it 
a key crop for cellulosic ethanol production.
    Sugarcane farmers recognize the need for risk management and 
support crop insurance. The majority of Louisiana sugarcane producers 
purchase crop insurance and 80% of Louisiana sugarcane acres are 
insured. However, the vast majority of producers only purchase 
Catastrophic (CAT) levels of crop insurance because until 2008, APH 
multi-peril was the only policy available, 75% was the highest coverage 
level and the cost of buy-up coverage was too expensive for the 
coverage provided. CAT is not a viable coverage level since it only 
insures crop losses above 50% at 55% of the market price. Farmers 
purchase CAT solely to maintain eligibility for Ad-hoc disaster 
assistance programs as required by Congress.
    In 2006, we began development of a more affordable sugarcane crop 
insurance policy with higher buy-up levels. The American Sugar Cane 
League and the Louisiana Farm Bureau Federation contracted Crop 
Insurance Systems, Inc. and successfully developed a Sugarcane Group 
Risk (GRP) Plan Crop Insurance Program through the 508(h) process. The 
GRP Policy became available in 2008 with a maximum coverage level of 
90% and no premiums higher than $17 per acre. It is not an ideal policy 
because it doesn't insure individual crop losses, only parish wide crop 
losses. However, it gives us an option to insure against regional 
events, like a killing freeze that can destroy the majority of our 
crop. I would like to mention that the Risk Management Agency 
acknowledged that our complaints regarding high rates on our APH Policy 
were correct and on the day FCIC considered our GRP Policy, they 
implemented a 45-75% rate reduction on our APH Policy.
    However, despite the addition of a new GRP Policy and lowering 
rates on our APH Policy, participation has not improved. It has become 
apparent that our state's tie to the rise and fall of a single 
sugarcane variety over the past 15 years is reflected in every 
Louisiana sugarcane producers APH and is the reason why we have 
insufficient coverage when we purchase sugarcane crop insuranceVariety 
LCP85-384 was first released in 1993 and within a couple of years, it's 
superior yield potential caused farmers to quickly plant Variety LCP 
85-384 on the majority of Louisiana sugarcane acres. From 1993 when LCP 
85-384 was released, yields increased from 25.7 tons of sugar/ acre to 
a high of 37 tons/acre in 1999. In 3 years, over 90% of Louisiana's 
sugarcane acreage was planted to Variety LCP 85-384.
    As a result of Variety LCP 85-384, from 1993 - 2001, Louisiana's 
average sugar yield was 32.1 tons/acre. In 2000, brown rust was found 
in LCP 85-384 and brown rust quickly spread across Louisiana's 
sugarcane acreage. As it infected over 90% of Louisiana's sugarcane 
acres that were planted to Variety LCP 85-384, statewide yields 
plummeted by 16.5% to 26.8 tons/acre during the 2002-2007 period. In 
the latter part of this period, improved rust-resistant varieties were 
developed and released, but removing Variety LCP384 from Louisiana 
sugarcane acres was delayed when many of the improved seedlings were 
destroyed in research plots by Hurricanes Katrina and Rita in 2005. 
Currently we estimate that LCP 85-384 remains in about 10% of Louisiana 
sugarcane acreage and the variety should be completely removed from 
production by next year.
    As a result of replacing LCP 85-384 with new improved sugarcane 
varieties on Louisiana sugarcane acres, yields have increased each year 
from 26.2 tons/acre in 2005, 31.2 tons/acre in 2006 and 34.5 tons per 
acre 2007. It is important to note that these yield increases have 
occurred despite direct and lingering hurricane damage to the fields 
and sugarcane plants, raising our expectations for better yields in the 
future.
    The crux is that the yield declines from LCP 85-384 make up almost 
our entire Actual Production History (APH) base period and creates an 
artificially low yield guarantee that is used in our traditional APH 
policy and new GRP policy. The net effect is that when Louisiana 
sugarcane producers purchase crop insurance, they are insuring an APH 
yield history that reflects the negative trend line of Variety LCP 85-
384. This means Louisiana sugarcane producers are forced to insure a 
yield that is more than 20% below our current yields and even less of 
the yield of our new varieties. Unless some sort of transitional yield 
number can be utilized in place of this obsolete rust-affected yield 
history, buy-up coverage levels will continue to insure an insufficient 
amount of our actual sugarcane production.
    Louisiana sugarcane producers recognize the correlation between 
their crop insurance buy-up levels and their sugarcane APH which is 
used to determine our revenue guarantee under the new SURE Permanent 
Disaster Program. After we were hit by Hurricanes Gustav and Ike in 
2008, we worked on disaster assistance through the SURE Program. We 
quickly discovered first-hand how our APH yield collapse due to Variety 
LCP 85-384 left our hardest hit farmers, including my friend Rodney 
Foret who is with me here today, unable to receive assistance through 
the SURE program because our APH history is comprised mostly of yields 
from the decline of Variety LCP 85-384.
    Louisiana sugarcane growers appreciate that Congress has recognized 
the multi-year nature of our crop by providing us with simultaneous 
planting and harvesting seasons in the SURE box and for providing 
language in the recent disaster package to address losses for multi-
year crops. We are not sure whether the disaster provision for multi-
year losses can offset our problem of depressed APH yield histories but 
we sincerely appreciate the efforts of this Committee and this Congress 
in trying to help our producers.
    Mr. Chairman and Members of the Committee, fixing the APH problem 
would go a long way toward improving the performance of the crop 
insurance program and the SURE program. As producers, we need to be 
able to insure a more realistic percentage of the value of our crop, 
instead of insuring a value where our farmers absorb a 20% loss of our 
sugarcane crop insurance guarantee from the onset. Our financial 
institutions have also stressed that they want us to be able to insure 
more realistic yields as a means of providing greater security toward 
our crop loans. In the current financial climate, with input costs 
continuing to rise, we simply cannot do it without a realistic APH 
yield.
    We humbly ask the Committee to direct RMA to substitute 
transitional yield figures into our APH yield history to better reflect 
current yield trends. I thank you for your kind attention and your 
dedicated efforts on behalf of US farmers.
    I welcome your questions.

    Mr. Marshall. Thank you, Mr. Robichaux.
    Mr. Von Bergen.

   STATEMENT OF BING VON BERGEN, WHEAT PRODUCER, PRESIDENT, 
   MONTANA GRAIN GROWERS ASSOCIATION, BOARD MEMBER, NATIONAL 
        ASSOCIATION OF WHEAT GROWERS, MOCCASIN, MONTANA

    Mr. Von Bergen. Mr. Chairman and Members of the 
Subcommittee, my name is Bing Von Bergen and I am a wheat 
producer from Moccasin, Montana. I am the President of the 
Montana Grain Growers Association and I serve on the board of 
the National Association of Wheat Growers.
    First let me thank you for holding this hearing. We 
appreciate the work of this Subcommittee and your ongoing 
efforts to provide effective and affordable crop insurance for 
our nation's farmers. I appreciate this opportunity to offer 
NAWG's thoughts on the Federal crop insurance program.
    Crop insurance is a critical risk management tool for wheat 
producers. In 2008, 77 percent of the country's total wheat 
acres were covered by one of the various available forms of 
Federal crop insurance. In relation to the other farm safety 
net programs, crop insurance is one of the most reliable and 
imperative for wheat producers. As the marketing loan encounter 
cyclical programs currently provide little utility to our 
members and the direct payment is under increasing fire for 
reductions, it is clear why Federal crop insurance remains a 
high priority for our industry.
    Crop insurance has traditionally played a key role in 
protecting against losses related to disasters such as drought 
and flooding. Beyond that, it provides a stable income 
environment for farming families and it provides economic 
stability for rural communities. It also provides the risk 
management protection that producers must have to obtain 
operating credit. We are concerned about recent proposals that 
advocate cutting funding for the Federal crop insurance 
program. Additional cuts beyond those that were already made in 
the 2008 are not necessary and may jeopardize the effective 
delivery of risk protection to our members. Increased premiums 
resulting from additional cuts may affect producer 
participation in a program as well as crop insurance already 
makes up a significant percentage of a producer's input costs.
    In light of these budget concerns, we were pleased to see 
the Committee's views and estimates letter presented to the 
House Budget Committee this year in which you defended the 
budget for agriculture including crop insurance, and we thank 
you for your continued commitment to these programs. The 
Federal crop insurance program has been enhanced substantially 
over the years to meet the evolving needs of producers. 
Congress in partnership with RMA and the private industry has 
done a laudable job in improving the program and the tools 
available to producers since passage of the Federal Crop 
Insurance Act of 1980. However, like other important tools on 
the farm, farm programs also need periodic maintenance and 
sharpening to extend their useful life, utility and 
effectiveness. I ask the Subcommittee to consider the following 
areas for improvement.
    Number one, the erosion of actual production history, or 
APH. The nation's wheat growers know all too well the effects 
of prolonged drought or other disaster conditions. Each year 
crop failure reduces a farmer's APH, eroding the safety net 
provided by crop insurance. In years of disaster we recommend 
allowing the producer to plug in a percentage of its previous 
APH or the county yield, whichever is higher. The percentage 
used should be the percentage of the coverage level purchased 
by the insurer, thus encouraging a producer to insure at a 
higher level.
    Number two, RMA audit procedures. NAWG has a number of 
concerns with the way in which RMA audits are triggered. We 
support equitable and timely adjustments in these procedures 
including raising the $100,000 automatic trigger and limiting 
audits to the year in question.
    Number three, the need for RMA to revise quality loss 
adjustment factors in wheat. RMA compensation for discounts in 
many cases is not commensurate with the actual discounts taken 
at the elevator. We would like to see RMA adopt a method to 
adjust discounts for quality factors such as test weight, 
falling numbers and DON that are not adequately covered by 
RMA's discount factor charts but that are typical in the 
marketplace.
    Number four is separation of crop practices. Wheat 
producers are required to use the same insurance product for 
different cropping practices. Whether these differences are 
irrigated and non-irrigated wheat or spring wheat and winter 
wheat, the risks faced by growers utilizing these different 
crop practices are very different. We believe there should be a 
way to recognize the different risks associated with different 
cropping practices and allow producers to tailor the tools 
available to their respective risks.
    In conclusion, we will continue to work with Congress, RMA 
and the private industry to seek improvement to this vital 
program. We greatly appreciate the role you play in defending 
the viability and funding for crop insurance.
    Mr. Chairman and Members of the Subcommittee, we thank you 
for this opportunity to testify and I would be happy to respond 
to any questions you might have.
    [The prepared statement of Dr. Von Bergen follows:]

Submitted Statement of Mr. Bing Von Bergen, wheat producer, President, 
 Montana Grain Growers Association, Board Member, National Association 
                  of Wheat Growers, Moccasin, Montana
    Chairman Boswell, Congressman Moran and Members of the 
Subcommittee, my name is Bing Von Bergen, and I am a wheat producer 
from the great State of Montana. I am the President of Montana Grain 
Growers Association and serve on the Board of the National Association 
of Wheat Growers (NAWG), a federation of 20 state wheat grower 
associations.
    First let me thank you for holding this hearing. We very much 
appreciate the work of this Subcommittee and your ongoing efforts to 
provide effective and affordable crop insurance for our nation's 
farmers. I appreciate this opportunity to offer NAWG's thoughts on 
behalf of wheat growers on the effectiveness and operations of the 
federal crop insurance program.
Importance of Crop Insurance to the Wheat Industry
    Crop insurance is a critical risk management tool for wheat 
producers. According to the Risk Management Agency (RMA), in 2008 
nearly 49 million acres - or 77 percent of the country's total wheat 
acres - were covered by one of the various available forms of federal 
crop insurance.
    In Montana, 89 percent of wheat acres were insured in 2008 
according to RMA statistics. In Kansas, 87 percent of wheat acres were 
insured and in North Dakota, 95 percent. These high percentages 
illustrate the breadth of use of this vital program and speak to the 
importance of the largest single part of the federal safety net for 
agriculture.
    In the diverse basket of federal farm safety net programs, crop 
insurance is one of the most reliable and imperative for wheat 
producers. The marketing loan and counter-cyclical programs provide 
little utility to our members as loan rates and target prices are well 
below the current costs of production. The direct payment is the most 
dependable and World Trade Organization (WTO) compliant of the three 
traditional Title I programs and it is the only one of the three 
currently providing support to our producers. However, it is under 
increasing fire for reductions. In this context, it is clear why 
federal crop insurance remains a high priority for our industry due to 
its dependability and effectiveness as a risk management tool.
    Federal crop insurance plays a critical role in the lives of our 
producers and in rural America. But, because of its complexity, few 
understand the program well. Consequently, it is necessary to demystify 
what crop insurance actually accomplishes and defend its critical 
importance.
    Crop insurance has traditionally played a key role in protecting 
against losses related to disasters such as drought or flooding. Beyond 
that, it provides a stable income environment for producers and 
families willing to face the challenge of production perils to feed our 
nation and the world. Stable farm income equates to stability for rural 
communities-dollars earned in farming are spent and re-spent throughout 
the economy. Another critical role of crop insurance is to provide the 
risk management protection that producers must have to obtain operating 
credit. This is particularly critical in this recession-threatened 
banking industry climate since many producers find it impossible to get 
a farm operating loan if they cannot demonstrate adequate coverage to 
their lender.
Budget and Standard Reinsurance Agreement Considerations
    Considering the many producer and societal benefits of crop 
insurance, we are concerned about recent proposals that advocate 
cutting funding for the federal crop insurance program. The cuts 
outlined in the President's fiscal year 2010 budget proposal are 
particularly disconcerting as they could harm or inhibit producer 
participation in the program. Additional cuts beyond those that were 
already made in the 2008 Farm Bill are not necessary and may jeopardize 
the capability of the partnership between the federal government and 
the private insurance industry to effectively deliver risk protection 
to our members.
    If producers are forced to pay higher premiums for the same 
coverage due to additional cuts in subsidies, producers may rethink 
buying crop insurance. Particularly in parts of the country facing 
higher levels of risk, such as Kansas, Montana and North Dakota, the 
cost of crop insurance is already extremely high. For example, my 
federal crop insurance premium represents 10 to 15 percent of my total 
crop input cost and, with hail insurance, my premiums rise to 20 to 30 
percent of my input costs. For wheat growers already facing 
increasingly narrow profit margins in this climate of lower commodity 
prices and continued high input costs, any increase in crop insurance 
expenses resulting from a reduction in the crop insurance subsidy would 
have a dramatic impact on funds available for family living costs.
    For these reasons, we were very pleased to see the House 
Agriculture Committee state opposition to reconciliation instructions 
or assumed savings from agriculture in the FY2010 Budget Resolution, 
including crop insurance, in your Views and Estimates letter presented 
to the House Budget Committee this year.
    We also recognize that the 2008 Farm Bill authorized the 
renegotiation of the Standard Reinsurance Agreement (SRA), the 
contractual agreement between RMA and approved insurance providers. 
Though we recognize the need to maximize the efficiency of this 
program, we also caution the Administration from making changes for 
purposes of cost savings that would jeopardize either producer or 
private industry participation in the program as both are vital to its 
effectiveness as a risk management tool for producers.
Crop Insurance Improvements
    The federal crop insurance program has been enhanced substantially 
over the years to meet the evolving needs of producers. Congress, in 
partnership with RMA and private industry, has done a laudable job in 
improving the program and tools available to producers since passage of 
the Federal Crop Insurance Act of 1980. For example, in 1997 Congress 
and the Administration worked together to equip the program with the 
nation's first farm revenue protection feature, offering our wheat 
growers the first ever revenue component in crop insurance. The revenue 
protection component has been a great asset to wheat producers and more 
and more producers are using it as a safety net.
    Like other important tools on the farm, farm programs also need 
periodic maintenance and "sharpening" to extend their useful life, 
utility and effectiveness. I ask the Subcommittee to consider five 
additional areas that the wheat industry has identified for further 
improvement, listed in no particular priority order:

      Erosion of Actual Production History (APH)

      RMA audit procedure adjustments

      Revision of quality loss adjustment factors

      Separation of crop practices and classes of wheat

      Acreage reporting requirements

Erosion of Actual Production History (APH)
    The nation's wheat growers know all too well the effects of 
prolonged drought or other disaster conditions. Each year of crop 
failure reduces a farmer's APH, eroding the safety net provided by crop 
insurance. NAWG has continued to explore remedies to this and urges a 
prompt solution.
    One solution may be to allow the producer to use either his or her 
previous APH or the current county yield, whichever is higher. We would 
also recommend replacing the 60 percent factor with the coverage 
percentage purchased by the insured. For example, a producer with 70 
percent coverage would use a yield plug of 70 percent times the higher 
of his or her APH or county T-yield.
    Another APH-related issue we would like to see addressed is to 
allow loss protection and production history adjustments for mechanical 
fire losses. Currently, if a producer experiences a mechanical fire he 
or she will get paid nothing for the crop and production will be 
recorded as zero for that year, becoming a part of the production 
record. This situation distorts actual production history and double-
penalizes producers already injured financially by a mechanical fire. A 
solution would be to use a T-yield or APH yield for purposes of the 
production record in the event of a mechanical fire loss.
    Lastly, we support the option of a new landowner or operator using 
the APH yield from the previous operator regardless of acreage in that 
county. The size of a grower's operation or the size of an expansion 
should have no bearing on what makes sense to use for a proven yield.
RMA audit procedure adjustments
    NAWG has a number of concerns with the way in which RMA audits are 
triggered. NAWG supports equitable and timely adjustments in RMA audit 
procedures including those outlined below.

      Raise the $100,000 automatic indemnity audit trigger to a 
more realistic number to account for high national average commodity 
prices. The $100,000 automatic indemnity audit trigger was put into 
place when the price of wheat was between $3 and $4 per bushel. It is 
unrealistic to keep the trigger at $100,000 when the price guarantee 
has increased to $8 per bushel, for example. We believe the audit 
trigger should increase proportionately with the guarantee.

      Limit audits to the year in question. Currently, crop 
insurance audits cover a three-year period. Limiting audits to the year 
in question would provide a more accurate reflection of the audit need. 
Additional years may be scrutinized in the event that irregularities 
occur.

Revision of quality loss adjustment factors
    RMA currently relies on a set of Discount Factor Charts to 
determine appropriate production adjustments for quality losses out of 
the control of the farmer, including charts for test weight, grades of 
No. 5 or sample grade, defects, smutty and vomitoxin. However, RMA 
compensation for discounts in many cases is not commensurate with the 
actual discounts taken at the elevator. For example, in years of 
excessive moisture farmers may take heavy discounts at the elevator for 
low falling numbers - a quality loss that is not accounted for in RMA 
discount factor charts.
    NAWG would like to see RMA adopt a method to adjust discounts for 
quality factors such as test weight, falling numbers and deoxynivalenol 
(DON) that are not adequately covered by the Discount Factor Charts but 
are typical in the marketplace on a periodic basis. NAWG has begun to 
work with RMA to seek a solution and we would hope that Congress would 
support these efforts.
Separation of crop practices and classes of wheat
    Wheat growers are required to use the same insurance product 
(Revenue Assurance, Crop Revenue Coverage, etc.) for both irrigated and 
non-irrigated crops in the same farm. However, the risks faced by 
growers utilizing these different crop practices are very different. 
NAWG believes there should be a way to recognize the different risks 
associated with different cropping practices and allow producers to 
tailor the tools available to their respective risks. In other words, 
irrigated and dryland production acres should be allowed to carry 
different insurance products on the same farm or unit.
    Farmers may plant continuous crop winter wheat in the same unit as 
summer fallow wheat. In that instance, this farmer should be allowed to 
claim a loss on the continuous crop in the event of a loss, regardless 
of the production on the summer fallow.
    In addition, producers should be allowed to insure winter wheat and 
spring wheat as separate crops. Producers may have a different 
production guarantee for spring wheat versus winter wheat, but they are 
bound by the same coverage type and level for both.
Acreage reporting requirements
    The Farm Service Agency (FSA) and RMA have agreed to use the same 
acreage reporting date (varying only by region) but this has not yet 
been implemented. We hope that the Subcommittee would join us in 
encouraging RMA and FSA to implement this in a timely fashion, enabling 
producers to report to the agencies more accurately, thereby 
eliminating acreage reporting errors and discrepancies between the two 
agencies.
    In addition, FSA and RMA should work together to share acreage and 
production data to alleviate duplicate reporting requirements on the 
part of producers. A unified network programming system such as a 
Comprehensive Information Management System (CIMS) or a hardcopy paper 
filing system between the two offices would alleviate potential errors 
related to double paper acreage filing systems and would reduce the 
duplicate reporting burden on producers.
Other issues

      Use of NASS data for indemnity calculations: Wheat 
producers have experienced frustration with regard to the use of data 
from the National Agricultural Statistics Service (NASS) for 
calculation of producer indemnity payments under GRP or GRIP policies. 
Data gathered by NASS through phone interviews and mailed surveys is 
not credible data for the purpose of calculating insurance payments. In 
some counties, the use of NASS data as compared to actual FSA data can 
end up resulting in significant losses of indemnity payments due to 
data discrepancies.

      Continuous crop winter wheat coverage on expiring 
Conservation Reserve Program (CRP) acres: A large number of CRP acres 
are set to expire in the next few years. In order to seed these acres 
to winter wheat in the year that they are released dictates that the 
winter wheat acres be classified by RMA as continuous crop winter 
wheat. However, many of these expiring CRP acres are located in areas 
that do not have continuous crop winter wheat coverage. We urge RMA to 
allow growers in these areas to receive a percentage of their summer 
fallow winter wheat guarantee so that these acres can be insured.

Conclusion
    NAWG continues to work with Congress, RMA and private industry to 
seek further improvement to this vital program. We greatly appreciate 
the role you play in defending the viability of and funding for crop 
insurance.
    Mr. Chairman and Members of the Subcommittee, our wheat producers 
thank you for this opportunity to testify on the effectiveness and 
operations of the federal crop insurance program. The NAWG leaders, 
staff and I stand ready to respond to any questions you have.

    Mr. Marshall. Thank you, Mr. Von Bergen.
    Mr. Clemens.

STATEMENT OF MIKE CLEMENS, WHEAT, CORN, SOYBEAN, SUNFLOWER AND 
  DRY BEAN PRODUCER, AND VICE PRESIDENT, PUBLIC POLICY ACTION 
   TEAM, NATIONAL CORN GROWERS ASSOCIATION, WIMBLEDON, NORTH 
                             DAKOTA

    Mr. Clemens. Mr. Chairman and Member of the Subcommittee, 
thank you for the opportunity to provide you input on the 
effectiveness of the Federal crop insurance program. For the 
record, I am Mike Clemens from Wimbledon, North Dakota, where I 
farm with my wife, Pam. She is a partner in the operation. And 
we are also bringing our daughter and her husband back into the 
family operation for this coming year.
    As important as farm program supports are to our members, 
Federal crop insurance remains the most important risk 
management tool. Because of premium subsidy reform and the 
action of new products, producers have more policy choices for 
protection against falling commodity prices and yield losses. 
The dramatic increase in market volatility over the past year 
underscores the value of crop insurance to sound risk 
management. Improvements such as more-affordable premiums with 
new revenue products would not have been possible without a 
very significant increase in resources. NCGA is therefore very 
concerned with the proposed funding cuts that put at risk the 
progress made increasing overall levels of participation and 
protection. We believe further budget cuts will diminish RMA's 
ability to address program deficiencies.
    Despite our concerns we may have on certain aspects of 
Federal crop insurance, NCGA appreciates this Committee's 
attention to the positive recommendations and suggestions for 
strengthening the program, the action taken, for example, to 
advance the pilot program in the 2008 Farm Bill to eliminate 
premium subsidy disparities between enterprise units and 
optional units. These policies offer real options to purchase 
higher coverage levels with premium subsidies more accurately 
reflecting the reduced risk exposure to the Federal Government 
and private insurers. Early reports indicate more growers 
shifting to enterprise unit policies to take advantage of 
considerable premium savings and better coverage. On my farm, 
that is about 40 percent savings in the premiums going to an 
enterprise unit structure. As input costs have risen sharply, 
enterprise units and whole farm policy coverage may be a very 
effective risk management alternative for protection against a 
greater market volatility that has been experienced throughout 
the Corn Belt. I feel more confident pricing more crops knowing 
that my insurance will cover my losses due to reduced yields 
and/or fluctuating prices that my lender relies on for 
repayment of my operating loan.
    As stated earlier, Federal crop insurance is critically 
important to the financial stability of corn growers' farm 
operations. My written testimony shows from 2001 to 2008 a 
dramatic increase in acres covered and buy-up coverage. It is 
NCGA's view the enhanced cost sharing initiatives are primarily 
responsible for the increases in participation and levels of 
coverage. Given the millions of acres not enrolled in Federal 
crop insurance, there are several areas that require additional 
attention to help sustain the program's progress. Four items I 
will cover as quickly as possible.
    First, the rating methodology. There is increased concern 
that Federal crop insurance products throughout much of the 
Corn Belt had experienced target payout rates well below the 
target loss ratio of one. One analysis by the University of 
Illinois's economists showed that from 1995 to 2007, corn 
performed at an average loss ratio of .58 compared to the 
program's total average loss ratio of .83. If indemnity 
payments for corn growers are considerably less than the 
premiums being paid, our growers are asking why premiums are 
not being reduced to reflect the actual loss experience. 
Without changes in the rating methodology, loss ratios for corn 
will become lower and more widespread because of escalating 
yield increases and continuing advances in seed technologies 
such as drought-resistant corn. While the biotechnology 
endorsement is a positive step, an independent study of RMA's 
rating methodology will ensure a comprehensive examination of 
the data and alternative rating methods to address these 
concerns.
    Another issue is the lost adjustment process for quality 
loss. For an insured unit to be adjusted for quality loss 
(Aflatoxin), for one example, one test represents the whole 
insured unit while the insured is subject to what can vary on a 
load-by-load basis. No provision exists to protect the insured 
for changes in Aflatoxin levels during the storage while 
producers are waiting for a better market. With all quality 
loss general production area has a large percentage of the crop 
affected by quality loss, it is important to understands that 
the commodity has a lower value due to the lack of unaffected 
commodity to help absorb those bushels.
    NCGA also wants to bring to your attention the issue raised 
by growers in Colorado regarding the RMA to combine the skip-
row APH databases with solid-plant APH databases. Combining the 
converted databases with solid-row APH databases has created an 
unreasonable reduction in coverage because most of their solid-
plant history suffered a significant reduction due to drought 
from 1997 to 2004. As a result, higher skip-row yields get 
pulled down by the lower solid-row yields. One solution is 
allowing an insured grower to maintain separate databases for 
each planting practice. A similar approach is available now and 
permitted by RMA for summer fallow and continuous crop wheat.
    Finally, I would like to address the problem that NCGA 
acknowledges difficult challenges with the private insurers the 
eligibility of acres for prevent planting. As an example the 
program limited preventing planting to 3 years on a parcel 
land, and even though the same land has been farmed for several 
years. The land should be able to qualify for payment based on 
the land preparation the fall before. For a grower who is 
unable to drain his ground and plant because of swamp buster 
limitations, the denial of a claim has a significant impact on 
farm operation which must continue to pay taxes, cash rent and 
other fixed costs. We request that this restriction be 
reconsidered so that the producers can remain eligible for 
prevent planting claims indemnities.
    Once again, Mr. Chairman, I thank you for this opportunity 
and will yield to questions.
    [The prepared statement of Mr. Clemens follows:]

    Submitted Statement of Mr. Mike Clemens, wheat, corn, soybean, 
  sunflower, and dry bean producer, and Vice President, Public Policy 
Action Team, National Corn Growers Association, Wimbledon, North Dakota
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to provide you input for your review of the effectiveness 
of the federal crop insurance program. I am Mike Clemens from 
Wimbledon, North Dakota where my wife and I operate our family farm and 
raise spring wheat, corn, soybeans, sunflowers and dry beans. I 
currently serve as the Vice-Chair of the Public Policy Action Team for 
the National Corn Growers Association.
    The National Corn Growers Association (NCGA) is a national 
organization founded in 1957 and represents more than 36,000 members in 
48 states, 47 affiliated state organizations and more than 300,000 corn 
farmers who contribute to state check-off programs for the purpose of 
creating new opportunities and markets for corn growers.
    I come hear today to share with you how critical federal crop 
insurance is to the long term viability of corn growers' farm 
operations. As important as the farm bill's safety net programs are to 
our grower members, federal crop insurance remains their single most 
important risk management tool. Because of restructuring in premium 
subsidies and the addition of new products, particularly revenue-based 
insurance policies, producers have more choices available to them that 
better match the levels of risk they confront against the effects of 
sharp declines in yields and falling commodity prices. The sharp 
increase in market volatility experienced over the past year and the 
impact of adverse weather conditions underscore the value of crop 
insurance as a key component of sound risk management.
    Substantial improvements to federal crop insurance through the 
Agriculture Risk Protection Act of 2000 (ARPA), including more 
affordable premiums and new product approvals would not have been 
possible without a significant increase in resources. NCGA is therefore 
very concerned with proposed funding cuts that put at risk the progress 
made increasing overall producer participation and levels of coverage 
that have reduced the need for disaster assistance. While recognizing 
the continuing need to press for more cost efficient administrative 
practices and program delivery, NCGA believes further budget cuts will 
adversely impact the Risk Management Agency's (RMA) ability to 
adequately address the program's deficiencies that have yet to be 
resolved.
    Despite some ongoing concerns our growers may have on certain 
aspects of the crop insurance program, NCGA appreciates this 
Committee's consideration of our policy recommendations and suggestions 
for further improving the program. The action taken, for example, to 
include a pilot program in the new farm bill to eliminate the disparity 
in premium subsidies between enterprise unit and optional unit based 
policies has given a real option to purchase higher levels for 
protection. In exchange for accepting greater production risk of larger 
areas, producers are now able to access an equivalent amount of 
subsidized premium of smaller optional units that has not been 
previously available in larger enterprise unit for whole farm polices. 
With both the premium discount and subsidies set by RMA more accurately 
reflecting the reduced risk exposure to the federal government and 
private insurers, early reports indicate more growers shifting to 
enterprise unit polices to take advantage of the opportunity for 
considerable premium savings and better coverage. As input costs have 
risen over the last few years, enterprise unit and whole farm policy 
coverage can be a very effective risk management alternative for 
protection against the greater market volatility and severe weather 
that has been experienced throughout the Corn Belt.
    In addition to eliminating the economic disincentive to purchase 
enterprise unit and whole farm coverage, the restructured subsidies are 
likely to reduce the work load for the crop insurance companies due to 
a fewer number of claims. The primary reason is that a claim is only 
paid where there is a whole crop loss and not because one field may 
have been damaged. Another advantage of more equitable unit subsidies 
is a reduced potential for fraud and abuse as producers will have 
little reason to move production from one optional unit to the next 
because production from all units are averaged together to determine if 
an indemnity claim is warranted.
    As I stated earlier, federal crop insurance is critically important 
to the financially stability of corn growers' farm operations. For the 
2008 crop year, over 69.3 million net acres of corn were enrolled for a 
total liability of $37.6 billion. In 2001, the net acres of corn 
enrolled in the program totaled 55.8 million net acres with a liability 
of $10.7 billion. Even with factoring in the increased demand for corn 
and higher commodity prices, these numbers indicate that the program 
has made significant progress with producer participation and the 
levels of coverage being purchased. Further, the percentage of acres 
covered by Revenue Assurance (RA) and Crop Revenue Coverage (CRC) 
policies has jumped from approximately 59.6 percent to over 72 percent. 
Overall, the percentage of acres insured by revenue based policies, CRC 
and RA, at the 70 to 80 percent buy up coverage levels has risen from 
an estimated 42 percent to 54 percent over the same period. While a 
number of factors influence producers' participation and levels of 
coverage they purchase, NCGA believes enhanced cost share incentives 
are primarily responsible for the increases. Approvals of the Pilot 
Biotechnology Endorsement and the new 508 H-Concept proposal submission 
procedures for insurance plans are recent actions that should encourage 
additional innovation and expansion of the program.
    Given the millions of acres not enrolled in federal crop insurance, 
there are several areas in the program's administration that require 
additional attention to help sustain the program's progress in 
strengthening producers' risk management planning and the overall farm 
safety net. For corn growers, there is an increasing concern that the 
products offered by the federal crop insurance program throughout much 
of the Corn Belt have experienced target payout rates for several years 
well below the targeted loss ratio of 1.00. One analysis by economists 
from the University of Illinois shows that for the period, 1995 to 
2007, corn performed at an average loss ratio of .58 compared to the 
program's total average loss ratio of .83. If indemnity payments for 
corn are in fact considerably less than the premiums being paid over 
time, our members are asking the question why premiums are not being 
reduced to reflect the actual loss experience.
    In light of the fact that corn accounted for $3.1 billion of the 
premiums paid in 2007, 47 percent of the total, NCGA recognizes that 
this issue raises questions of equity as well as potential implications 
for the program's overall administration. Some possible explanations 
for the current disparity between the loss ratio experience and policy 
premiums for corn are 1) RMA's loss cost methodology that gives equal 
weights to each year in its experience, including the 1980s when 
participation was low and higher quality farmland was not enrolled in 
the crop insurance program and 2) Yield trends that cause Average 
Production History (APH) yields to lag. Without some correction or 
modification in the program's rating methodology, NCGA has reason to 
expect that the loss ratios for corn will become lower and more 
widespread because of escalating yield increases and further advances 
in seed technology such as drought resistant corn. Given the 
seriousness of this issue, we are pleased that the Federal Crop 
Insurance Corporation Board (FCIC) has authorized RMA to secure an 
outside independent review of the agency's product rating methodology. 
We are hopeful the study will ensure a comprehensive examination of the 
data and alternative rating methods as appropriate to address these 
concerns.
    Another area of concern for our growers is administration of the 
loss adjustment process for quality losses, particularly in the more 
southern regions of the Corn Belt. For an insured unit to be adjusted 
for quality loss (Aflatoxin), one official test represents the whole 
insured unit where as the insured is subjected to what can be varying 
discounts on a load by load basis. Aflatoxin is not equally distributed 
in any given unit whether it is an entire insured unit or one of 
multiple truck loads delivered from the insured unit.
    Discrepancies that exist between a receiving facilities test and an 
``official test'' are most likely attributed to erratic distribution of 
Aflatoxin in a given quantity rather than a lack of adherence to 
accepted sampling and testing protocols.When a general production area 
has a large percentage of the crop affected with Aflatoxin 
contamination, it is important to understand that the commodity has a 
lower value due to the lack of unaffected commodity to help absorb 
those affected bushels (blending). I must also emphasize that insurance 
coverage ceases at harvest. There is no provision to protect an insured 
for changes in Aflatoxin levels during storage while producers are 
waiting for a better marketing opportunity that may or may not present 
itself.
    The procedure for appeals by a producer is long, cumbersome and 
costly. NCGA is ready to work with the Committee and RMA to develop a 
more simplified procedure so claims can be settled in an efficient and 
timely manner. The changes by RMA to pay on a flat scale for aflatoxin 
losses, produces winners and losers. During years of low Aflatoxin, 
producers may be overpaid, but when aflatoxin levels are high and 
markets are more adversely affected, producers cannot receive adequate 
payments. Unfortunately, producers in Texas are still dealing with 
these very issues from claims in 2005. In fact, some producers just 
received a notice from a company that did not agree with how the claims 
were settled.
    NCGA also wants to bring to your attention a concern raised by 
growers in Colorado regarding an informational memorandum (PM-09-02) 
issued by RMA on skip-row planted corn. The purpose of the 
communication is to convert skip-row corn APH databases to solid plant; 
combine converted APH data bases with existing solid plant APH data 
bases, if applicable and determine, report and record the number of 
skip-row planted acres. Combining the converted databases with existing 
solid row APH databases has created an unreasonable reduction in 
coverage for many growers there because most of their solid plant 
history suffered a significant reduction due to drought in the period 
from 1997 to 2004. As a result, higher skip-row yields get pulled down 
by the lower solid row yields.
    One solution to address this unwarranted reduction is to allow an 
insured grower to maintain separate databases for each planting 
practice (skip-row vs. solid row). A similar approach is now permitted 
by RMA for summer fallow vs. continuous crop wheat. There is no need to 
rate the practices differently as is done with wheat. Allowing separate 
databases using the same rates would be the most equitable way to 
address this situation.
    Finally, I would like to address another problem area that NCGA 
acknowledges presents a difficult challenge for the RMA and the private 
companies almost every year, the handling of claims for prevented 
planting. Even though improvements have been introduced to clarify the 
options available to growers, there are still situations that arise 
that call for a more equitable handling of claims. As one example, the 
program limits prevented planting payments to three years on any one 
parcel of land even though the same land has been farmed for many 
years. For a grower who is unable to drain his ground and plant because 
of ``swamp buster'' limitations, the denial of a prevented planting 
claim has a significant impact on the farm operation which must 
continue to pay the taxes and cash rent on these acres. One answer for 
some producers is to simply change the listed operator for the affected 
parcels of land which restarts the crop insurance eligibility window 
and allows continued payout on the prevented planted acres. The end 
result is more paperwork, increased administrative expenses for the 
private insurers and no savings for the program. It is a provision that 
we request be considered for removal from the regulations that govern 
the prevented planting claims process.
    Once again, Mr. Chairman, I want thank you for this opportunity to 
share with this Committee NCGA's views on the federal crop insurance 
system and what we consider to be opportunities to build on the 
progress of the program. We appreciate your leadership and continued 
support of this very valuable risk management tool.

    Mr. Marshall. Thank you, Mr. Clemens. I thank all the 
witnesses for their testimony. This is helpful to us as we go 
through this process of taking a look at crop insurance 
programs and how we can improve those programs for the benefit 
of producers and at the same time save taxpayer dollars. This 
will be the first of a number of hearings that we will be 
holding on this subject. We wanted to hear for producers first.
    Mr. Bearden and Mr. Von Bergen, both of you mentioned your 
interest in seeking policies that reflect the differences 
between irrigated lands and dry lands. Could you explain how 
the risks associated with these practices actually differ and 
what RMA's response has been to your request that RMA do 
distinguish between the two more appropriately? Mr. Bearden, I 
will start with you. You have had the longest time to rest and 
relax and recuperate from your testimony.
    Mr. Bearden. The difference in our area, I am from west 
Texas on the high plains, is our irrigated, we can have a much 
higher yield and a much higher input cost, and when we have to 
insure it, I will just use my own experiences, at 50 percent we 
are underinsuring it. As a percentage--and I am going to use a 
percentage of my budget of inputs. But it runs about 10 percent 
of the budget where if I do 60 percent on my dry land, it will 
be about 20 percent of my budget of input costs. What we would 
like to be able to do is be able to cover those costs to more 
accurately reflect what we are putting in that crop to manage 
our risk.
    Mr. Marshall. And when you make a proposal like that, you 
offered that explanation, you make a proposal to RMA, the 
response you get is------
    Mr. Bearden. RMA had several years ago in their defense had 
said that that you couldn't take one or the other. Their 
thinking was that you would load up on the dry land and try to 
take advantage of the system and underinsure the irrigated. 
What we want to be able to do is actually insure for closer to 
what you actually have in the crop. Another part of our 
recommendation is probably that you need to make it where you 
can't insure the dry land for more than you can the irrigated 
but it is basically two completely different sets and has 
different sets of risk. The irrigation, we take the drought out 
of it. In my area, drought is the main problem that we have. 
And so it is a way of being able to take that risk and apply--
----
    Mr. Marshall. Have you suggested to RMA that------
    Mr. Bearden. Yes, sir.
    Mr. Marshall. --it consider an enterprise approach and it 
come up with a way of analyzing how much irrigated, how much 
dry, blend the two together? You haven't suggested something 
like that?
    Mr. Bearden. No. Enterprise unit in my area doesn't work. I 
am spread out over such an area and it doesn't work in my area, 
especially on irrigated, because you have the thunderstorms 
that come through that have hail. You may get completely hailed 
out in one place and get absolutely no hail in another. So 
enterprise unit is not very attractive to a west Texas cotton 
producer but we have suggested to RMA to try to do this because 
of what they have talked about. We hope to bring--we 
continually try to bring up things that we would like to see 
changed and hopefully this will work this way.
    Mr. Marshall. Mr. Von Bergen?
    Mr. Von Bergen. Mr. Chairman, I wish I had some irrigated 
ground but I do not, but for the wheat producers of the nation 
that do, it is an issue with them. They would like to be able 
to insure--there are different crops. I mean, there are 
different risks, as the previous gentleman said. There are 
different risks associated with them, and as your risks 
increase or decrease, what would be wished is that we could 
insure them separately no different than the spring wheat or 
winter wheat that I also alluded to in my separation of crop 
practices. If they are distinctly different crops or different 
farming practices, they should stand alone and should not have 
to carry the same insurance. Also in the State of Montana, 
enterprise units would not work for the same reason. We are so 
spread out with large acreage and a lot of the wheat states are 
that way, that enterprise doesn't work in some areas. It is 
specific to some areas it does work but not in a lot of areas.
    Mr. Marshall. I have got an additional question, perhaps 
more than that, and what I will do is stop and go to my 
colleague, Mr. Moran from Kansas.
    Mr. Moran. Mr. Chairman, thank you very much. I think this 
is a very insightful panel. I appreciate very much the 
testimony of each of you. Unfortunately, some of the testimony 
is testimony that we have heard in previous years and it is 
discouraging to me that we are back in some instances having to 
say the same thing again, that we need to see greater progress 
and solution to these problems. In the short time I have I want 
to focus my questions to my constituent, Jarrod.
    Mr. Spillman, you indicate that, as you know, there is a 
provision in the 2008 Farm Bill related to crop insurance and 
grain sorghum. Section 12009 requires the Risk Management 
Agency to determine a new pricing methodology that is 
transparent and that can be replicated. You mentioned that 
there are problems with implementing this provision and I want 
to give you an opportunity to explain to me, explain to the 
Committee what the challenges are that the sorghum producers 
have encountered with RMA in the attempts to implement what I 
thought was a provision that would be beneficial in addressing 
the issue that you describe about grain sorghum producers 
making other choices for the crops that they plant.
    Mr. Spillman. Well, on behalf of the sorghum industry, I 
would like to thank you for your efforts, the Congressmen for 
their efforts on the issue here. First of all, this is a big 
problem for me in my area with sorghum being underinsured. But 
right now the national association tells me that they submitted 
a proposal by the deadline of April 5 and the two universities 
and two economists have also submitted proposals. So far the 
RMA has been moving forward in a timely manner. We will work 
with you to make sure that the timely cooperation continues and 
more importantly new methodology to determine price election 
for sorghum is available for the 2010 crop year.
    I also need to mention that the national trade association 
is running into significant problems with ERS leading up to the 
transparency theme of the law. Sorghum staff tells me that ERS 
is not made available any pricing methodology and data used to 
determine price elections.
    Mr. Moran. That is discouraging because the farm bill law 
requires that FCIC not later than 60 days after the date of 
enactment of that law make available all methods and data 
including the data from Economic Research Service used by FCIC 
to develop the expected market prices for grain sorghum under 
the production and revenue plans of FCIC. We need to make 
certain we get RMA's attention today and in the future that 
Congress has told them to act and they need to respond. So I 
appreciate knowing--I am disappointed to know that is the case 
but I appreciate knowing it so that perhaps we can do something 
about it.
    Mr. Spillman, you also indicated that participation in crop 
insurance is poor, 59 percent nationally by sorghum producers. 
Where does that number come from, that 59 percent, and how does 
that relate to you specifically on your farm? Do you cover your 
grain sorghum with crop insurance?
    Mr. Spillman. Yes, I do. I cover all my production with 
crop insurance but as a young producer and somebody that hasn't 
been in it near as long as the other farmers in my county, it 
is bad business not for me to insure all my crops, especially 
for the lenders that I have. But if you look at it to where the 
rest of the country or the averages at 59 percent which is 
poor, that tells you that everybody else is not insuring their 
products due to the production costs being so high in the area 
and it is just trading dollars for dollars. But the other 
states I wanted to mention that are on the Subcommittee like 
Georgia and North Carolina are at 13 percent, South Dakota 47 
percent, Colorado at 72 percent, Missouri 28 percent and Texas 
55 percent. And so there are other states in the Sorghum Belt 
as well that are sorghum producers who aren't choosing the 
products to insure their crop.
    Mr. Moran. I appreciate your testimony, and what Mr. 
Spillman was indicating is that most farmers in his 
neighborhood and in Kansas are older than he is, and we are 
glad to see that there is a young farmer making it work in 
Sheridan County, Kansas. Mr. Chairman, thank you very much.
    Mr. Marshall. Mr. Moran, I appreciate your line of 
questioning and Mr. Spillman's response combined with your 
questions make me wonder whether or not it wouldn't be 
appropriate for the Subcommittee to make a formal inquiry of 
RMA concerning whether it has complied with the directive that 
we gave it in the farm bill and if it has not, why not.
    Mr. Moran. Mr. Chairman, if you would yield, I appreciate 
that suggestion. I would be happy to join with you, Mr. Boswell 
or anybody else on the Subcommittee in a letter to RMA asking 
them to respond specifically to that fact and learn what the 
facts are as compared to a hearing down the road in which we 
would ask them that question. I think the sooner we can 
encourage them to respond, the better we will be.
    Mr. Marshall. And I would be delighted to work with the 
gentleman in preparing such a letter. I am sure Chairman 
Boswell will as well. I would like to get the information. I 
would like our staff, frankly, to get together with the 
appropriate staff at RMA and try and sort through this so we 
can get this thing done without any further delay.
    The gentleman from Texas, Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. I apologize to the 
witnesses in the middle. I had to go somewhere else real 
quickly and come back. Rickey and Mr. Von Bergen, if you did in 
fact split irrigated versus dry land in the case of cotton, 
would you expect a different premium since those are two 
different risk profiles?
    Mr. Bearden. Well, to give you an example, my dry land 
area, 60 percent yields a guarantee of about $60 and a premium 
of about $15 an acre. In my irrigated at 60 percent is about 
500 pounds and the premium is about $12 an acre. So my guess is 
that you would see an increase in irrigated up to 70, 75 
percent because the premium becomes, just say 10 percent of 
your operating budget. You can raise that up and be able to 
take more insurance on your irrigated and better cover your 
risk. Right now I can't go up because I am mostly dry land and 
I can't afford to go up because as was mentioned a while ago, I 
am just swapping dollars. For every dollar of premium, every 
dollar of guarantee that I get, I just go another dollar of 
premium and if you have a zero and you get all that back, it is 
fine, but I am not in the business of trying to make zeroes, I 
am in the business of trying to make production work. So if you 
make your production work, then at the end of the year that is 
just another set of expenses that didn't pan out. It had no 
value because you were just swapping dollars. There is no net 
gain to the producer. What I think would happen would be you 
would see a tremendous increase in the overall percentage 
coverage of irrigated producers.
    And you asked another question a while ago about the 
enterprise unit that I would like to add a little bit to. If 
you could divide up where you could take enterprise on dry land 
and APH products that are actually where you can put it on 
units might have some attraction also because hailstorms are 
the biggest obstacle for irrigated in my area that are highly 
individualized. On dry land, the main thing that you have is 
drought and that is usually a lot wider spread than the other 
and then we can buy products, other products through crop hail 
insurance to cover those other losses. But the main thing is, 
we need to look at being able to regionalize and to make fit 
the things that we need to make risk management really and 
truly work for us to manage our risk. We live in such a time 
that insurance at 60 percent just doesn't get it done. We don't 
have that kind of margins in cotton and any other crop that I 
grow. We don't have that type and I am pretty sure none of the 
rest of these guys do either. I think that is something that 
would really help us.
    Mr. Conaway. Mr. Von Bergen, any comments?
    Mr. Von Bergen. Just a statement that producers, if the 
coverage level is there and we get better coverage, producers 
are very well ready to step up to the plate and pay more 
premium. That is not the issue. We want the coverage to be 
there. If it is adequate, we will gladly pay more. As far as 
there is a flip side to the irrigated. Sometimes a producer 
because they irrigated, he has less risk. He might not want to 
put as much coverage on that but the way the system is set up, 
for example, wheat is wheat. You have to carry the same 
coverage level whether if you choose CRC or RA. You are bound 
by that to all your wheat crop. The same applies to spring 
wheat versus winter wheat. If I choose CRC coverage for my 
winter wheat in a dual county where I can raise both spring 
wheat and winter wheat, I am bound by that same coverage and 
the same level of my spring wheat crop. There are two entirely 
different crops. In South Dakota, it is a terrible issue. 
Sometimes we are bound by the coverage we choose in the fall 
for our spring wheat crop. So what we are asking for is every 
commodity or every practice stand on its own by the risks and 
let the producer choose the level he wants and the insurance he 
wants.
    Mr. Conaway. Thank you, Mr. Chairman. I yield back.
    Mr. Marshall. I think we have few enough questioners at 
this point that we can have a number of different rounds, so if 
you want to stick around, Mr. Conaway.
    Mr. Von Bergen, I am trying to figure out why anybody would 
voluntary want to live in Moccasin, Montana. Did you pick the 
name in order to keep outsiders from coming in? Is that the 
idea?
    Mr. Von Bergen. Actually, Mr. Chairman, it is a beautiful 
country that the Indians settled so it is between mountain 
ranges and a very good place to grow a family.
    Mr. Marshall. All of the witnesses heard my question to the 
first panel, probably not very articulately phrased, but having 
to do with the process that RMA and the industry goes through 
in trying to figure out what this year's crop insurance program 
is going to look like. The question was whether or not 
different organizations, more entities should be involved in 
those negotiations and the response from the first panel was 
``we are not involved right now.'' Mr. Clemens, I actually 
thought one of the points that you made was that you thought 
there needed to be a little more input in that process of 
designing the product that is being delivered to you all, 
offered to you all, and so maybe I will start with you. Others 
might have some thoughts on that subject as well.
    Mr. Clemens. Mr. Chairman, with the National Corn Growers, 
and I am also on the National Sunflower Board, we have gone to 
RMA and we have taken our list in there to see what we can 
improve in both the commodities I grow on my farm. We were able 
to on the sunflower side change the RMA formula for sunflowers 
which made it very beneficial for producers to work with that 
program and to implement it on their farm as a risk management 
tool. On the corn growers, we have done several things with 
corn acreage expanding in North Dakota the way it is really 
ramping up, moving from a lot of wheat production and barley 
production to corn and soybeans in our state. We have gone 
through a pilot program in our state of having a yield that is 
good for your farm that you can take it to new production areas 
in your farm and you can--it is more than just a county T-
yield. It is your personal T-yield, so if you have experience 
growing corn, you can------
    Mr. Marshall. You are referencing speaking with RMA about 
things it should take into account, I guess, in the negotiation 
process with the industry concerning the product that is going 
to be offered. The question is, should you all be involved in 
those negotiations?
    Mr. Clemens. Mr. Chairman, the answer would be yes. It is 
good to have a seat at the table and make sure that we can 
visit with them to find out what we need and what their needs 
are so we can come to a solution instead of everybody working 
behind the scenes thinking this is what you really needed and 
it wasn't what you needed. So I think it really should be a 
part of the program.
    Mr. Marshall. Other witnesses? Mr. Robichaux?
    Mr. Robichaux. Yes, Mr. Chairman, I think that we should be 
part of the process. We have an intimate knowledge of our own 
problems and we can share that with RMA and they could adjust 
their methodology and policies that fit our problems. I think 
it would be best all the way around to have a place at the 
table, so to speak.
    Mr. Marshall. Other witnesses?
    Mr. Bearden. I think we should have greater involvement. As 
producers, we are the ones that ultimately are going to have to 
pay for the thing. I want to interject something else is that I 
think we can offer a lot as producers from the moral hazard 
side of it. I don't know many producers that are in this game 
that have survived very long to try to just survive on 
insurance. They use it as a tool to help themselves and to 
protect themselves, not to just play the system, and we have 
had instances in the past and we will continue to have where 
someone doesn't think all the way through the policy and I 
think producers on these representations would greatly help 
that because there are some things that have put out that 
people didn't think all the way through before they implemented 
it.
    Mr. Marshall. Maybe not just moral hazard but you could 
also assist, perhaps assist with concerns that the industry has 
over fraud.
    Mr. Bearden. Fraud is something that when somebody does it, 
we all suffer, just like it has been mentioned here the 
$100,000. Well, they had to come up with some number. In my 
particular area last year we had a big wipeout and, you know, 
nearly every producer triggered that. Well, that really didn't 
accomplish anything as far as fraud and abuse but I think there 
are some things that could be done that producers have a lot to 
offer in that regard.
    Mr. Marshall. The gentleman from Kansas, Mr. Moran.
    Mr. Moran. Nothing further, Mr. Chairman.
    Mr. Marshall. The gentleman from Texas, Mr. Conaway.
    Mr. Conaway. Nothing further.
    Mr. Marshall. Well, I thank the witnesses for their 
testimony. This is very helpful to the Committee. If you have 
additional thoughts that you have not already shared with us, 
we will leave the record open for 10 days and if you could 
provide those thoughts in writing, we would appreciate it.
    With that, this hearing is adjourned.
    [Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
  Submitted Statement of Mr. Michael Robichaux, sugarcane farmer, on 
behalf of the American Sugar Cane League and the Louisiana Farm Bureau 
                    Federation, Franklin, Louisiana
Additional Testimony
    The fact that only 25% of Louisiana's sugarcane acres are planted 
every year means that it takes at least 4 -8 years longer for a 
Louisiana sugarcane farmer to modify their Actual Production History 
(APH) on their sugarcane acres when compared to an annually planted 
crop. At a minimum, it takes 4 years for a sugarcane farmer to replant 
their sugarcane acres from a poor performing variety into a better 
performing variety. However, when shifting varieties, it may take 
additional years to enable a sugarcane farmer to grow enough sugarcane 
of selected varieties for seed to replant their entire sugarcane 
acreage. This is important when you compare sugarcane with an annually 
planted crop where poor performing or disease susceptible varieties can 
simply be replanted to a different variety the very next year. The APH 
of annually planted crops do not reflect the longer period of variety 
transition that is found within the APH of crops like sugarcane.
    The current method of calculating a producer's APH has been 
developed over the years for annually planted crops like corn, wheat 
and soybeans but is used without modification to determine the APH for 
multi-year crops like sugarcane. We believe that sugarcane's 4-8 year 
replanting cycle to transition sugarcane acreage into different 
varieties justifies the use of transitional yields within a sugarcane 
producer's APH. At issue is that under the current APH system, 
Louisiana sugarcane farmers are currently insuring a yield of a crop 
variety (LDCP 85-384) they no longer produce. Since older yields are 
excluded as new yields are included into a sugarcane producers 10 year 
APH, the worst yields from Variety LCP 85-384 in 2002 - 2006 will not 
be removed until yields from the years 2013 - 2017 are added into the 
10 year yield history. This means it will take 8 years before APH 
yields can start to reflect current yields. However, during the 
upcoming 8 year period, Louisiana sugarcane farmers' multi-peril and 
group risk plan crop insurance program yield guarantee and the SURE 
Permanent Disaster Program revenue guarantee will grossly undervalue 
Louisiana sugarcane crops in the field.
    We have excellent yield data from the new varieties that are now in 
Louisiana sugarcane fields such as HoCP 96-540, L 99-226, L 99-233 and 
L 97-128. Well proven yields from these current varieties could be used 
to substitute at least the worst 4 years of yield decline for Variety 
LCP 85-384. The use of these transitional yields within a Louisiana 
sugarcane producer's 10 year APH would better re-establish their true 
yields and provide them with risk protection until they have 10 years 
of APH history in current varieties.
    Our recommendation would be to direct the Risk Management Agency to 
utilize transitional yields derived from current commercial sugarcane 
varieties in at least 4 years of Louisiana sugarcane producers' lowest 
recorded APH yields to permit risk protection programs to operate 
properly until producers can establish a 10 year APH yield based on 
current varieties.

                                  
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