[Congressional Record Volume 145, Number 129 (Wednesday, September 29, 1999)]
[Senate]
[Pages S11645-S11647]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LUGAR (for himself, Mr. McConnell, Mr. Fitzgerald, and Mr. 
        Helms):
  S. 1666. A bill to provide risk education assistance to agricultural 
producers, and for other purposes; to the Committee on Agriculture, 
Nutrition, and Forestry.


                      farmers' risk management act

  Mr. LUGAR. Mr. President, I rise today to introduce legislation to 
help our nation's farmers cope with the risks inherent in production 
agriculture.
  My colleagues are familiar with the challenges facing American 
farmers. Prices are down world-wide. Exports are lower than expected, 
in large part due to the economic problems in Asia. Weather problems, 
from droughts to floods, have plagued large portions of our country.
  The Senate has passed, and a conference committee is considering, an 
agricultural appropriations bill that contains emergency provisions to 
deal with these immediate needs. For the intermediate and long term, 
the Congressional budget resolution contains $6 billion for use in 
fiscal years 2001-2004 that can be used as direct payments or to help 
farmers manage risk. Given these available funds, the question for 
policymakers is how best to help farmers manage the risks that they 
face.
  Some suggest that the entire $6 billion should be used to alter the 
subsidy structure of the federal crop insurance program. I believe that 
risk management is broader than crop insurance alone. To keep U.S. 
agriculture competitive, farmers will have to consider a variety of 
practices including: engaging in sophisticated marketing practices; 
reducing debt; considering alternative crops; and purchasing crop 
insurance. An approach to risk management that focuses on the crop 
insurance program's subsidy structure is too narrow to address the many 
risks faced by farmers.
  In crafting my own risk management bill, I was guided by four 
principles. First, the greatest possible amount of the $6 billion 
should go directly to farmers. In the crop insurance program, private 
insurers receive substantial compensation for selling and servicing 
multi-peril policies on the government's behalf. Overall, the insurance 
companies receive about one-third of the federal financial support of 
the program. Farmers get the remaining two-thirds. In my view, farmers 
should receive more of the new federal spending.
  Second, the $6 billion should be provided in such a manner so that it 
does not distort planting decisions. Leading economists believe that 
crop insurance encourages the planting of crops on marginal and 
environmentally challenged acreage. Federal risk management spending 
should not inadvertently subsidize overproduction when world-wide 
agricultural stocks are already large. Subsidizing overproduction 
postpones the day when agricultural prices will rebound.
  Third, the $6 billion should be distributed equitably among farmers 
and among regions. In terms of eligible 1998 acres insured, farmers' 
participation by state ranges from a low of 4 percent to a high of 93 
percent. Clearly, farmers in some parts of the country do not view crop 
insurance as a useful risk management tool. By spending the bulk of the 
increased federal assistance on crop insurance, we are denying farmers 
in

[[Page S11646]]

some parts of the country risk management help.
  Fourth, farmers should be encouraged to pursue a variety of risk 
management strategies, including, but not limited to, crop insurance. 
Within broad parameters, farmers should be able to choose the risk 
management strategy that best meets their needs.
  Mr. President, the bill I am introducing today complies with my four 
principles. First, of the $6 billion in available new spending, over $5 
billion is sent directly to farmers. Second, because the money is sent 
directly to farmers and is based on historical production, it is far 
less likely to distort planting decisions. Third, because it is not 
limited only to one form of risk management--crop insurance, it is more 
equitable among regions. Fourth, in order to better meet farmers' 
individual needs, it lets farmers choose risk management strategies 
from a menu of options.
  The bill directs the Secretary of Agriculture, for the 2001-2004 
crops, to offer to enter into a contract with a producer in which the 
producer receives a risk management payment if the producer performs at 
least 2 of the following risk management practices each applicable 
year:
  1. Purchase Federal or private crop insurance (e.g., private crop 
hail) that is equivalent to at least catastrophic risk protection, for 
at least one principal agricultural commodity produced on the farm for 
which federal crop insurance is available.
  2. Hedge price, revenue, or production risk by entering into at least 
one standard exchange-traded contract for a future or option on a 
principal agricultural commodity (crops or livestock) produced on the 
farm.
  3. Hedge price, revenue, or production risk on at least 10% of the 
value of a principal agricultural commodity produced on the farm by 
purchasing an agricultural trade option.
  4. Cover at least 20% of the value of a principal agricultural 
commodity (crops or livestock) produced on the farm with a cash forward 
or other type of marketing contract.
  5. Attend an agricultural marketing or risk management class. This 
includes, but is not limited to, a seminar or class conducted by a 
broker licensed by a futures exchange.
  6. Deposit at least 25% of the risk management payment into a FARRM 
account, or a similar tax deductible account.
  7. Reduce farm financial risk by reducing debt in an amount that 
reduces leverage, or by increasing liquidity.
  8. Reduce farm business risk by diversifying the farm's production by 
producing at least one new commodity on the farm, or by significantly 
increasing the diversity of enterprises on the farm.
  A producer's annual risk management payment will be based on his or 
her Federal Crop Insurance Corporation (FCIC) average actual production 
history (APH) established for the 2000 crop for each Federally 
insurable agricultural commodity grown by the producer. Under existing 
FCIC procedures, the average APH for a commodity for crop year 2000 is 
based on a producer's documented production and acreage history from at 
least 4 of the 10 immediately preceding crop years.

  Let me give a hypothetical example of how this would work at the farm 
level. Suppose a farmer produces corn, soybeans, and apples for the 
fresh apple market on a total of 525 acres somewhere, let's say, in the 
eastern half of the country. Corn and soybeans are federally insurable 
throughout the country and apples are federally insurable in most areas 
that have significant apple production. Let's further suppose that this 
hypothetical producer has never purchased federal crop insurance 
before.
  Under my bill, this grain and apple farmer would be eligible for risk 
management payments for each of the 2001 through 2004 crops based on 
his average actual production history for corn, soybeans, and apples 
for the four crop years covering 1996, 1997, 1998, and 1999. He could 
document more than four years of production history, but FCIC 
procedures require a minimum of four consecutive years. Let's suppose 
the producer's average production is 30,000 bushels of corn based on 
250 acres; 10,000 bushels of soybeans based on 250 acres; and 11,548 
bushels of apples based on 25 acres. The producer's average APH would 
be valued at the 1997-1999 average FCIC established price level for 
each crop. This price is $2.38 per bushel for corn and $5.80 per bushel 
for soybeans. The apple price varies by region. For this example, I 
will use a fresh apple price of $4.17 per bushel (42 pounds/bushel) 
which would be the applicable price for fresh apples in one of the 
eastern region's major apple-producing states. At these prices, the 
value of the producer's average APH across all crops (rounded to the 
nearest dollar) would be $177,554.
  The amount of the producer's annual risk management payment would be 
based on a percentage payment rate determined by the Secretary of 
Agriculture based on $1.275 billion for each of the 2001 through 2004 
crops for a cumulative total of $5.1 billion. Preliminary estimates 
suggest that the payment rate will be somewhere between 1 percent and 2 
percent of production value if 100 percent of the eligible farmers sign 
up for risk management payments. Thus, a reasonable estimate is that 
the percentage payment rate will come out at 1.5 percent of production 
value. If this estimate turns out to be correct, our hypothetical grain 
and apple farmer's annual risk management payment (rounded to the 
nearest dollar) would be $2,663. The 2001 payment would be available to 
the farmer on or after October 1, 2000, approximately one year from 
today.
  In order to qualify for his risk management payment each year, the 
farmer would have to certify with the Agriculture Department that he 
had obtained or used 2 of the 8 risk management practices each year. He 
could do this in a large number of ways. For example, he could qualify 
by purchasing crop multi-peril crop insurance on his 2001 corn or 
soybean production and cash forward contract at least 20 percent of the 
2001 corn or soybean crop. Alternatively, he could qualify by entering 
into a marketing contract with a buyer for at least 20 percent of his 
2001 apple production and purchase exchange-traded options to hedge 
price risk on his 2001 corn or soybean crop.
  Mr. President, I ask unanimous consent that a section-by-section 
summary of my bill be printed in the Record. I encourage my colleagues 
to study my bill and to talk it over with farmers in their own states.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

    Farmers' Risk Management Act of 1999--Section by Section Summary


                   TITLE I--RISK MANAGEMENT PAYMENTS

     Section 101. Definitions
       Defines terms used in this title.
     Section 102. Risk management contract
       Subsection (a) Offer and Consideration. Directs the 
     Secretary of Agriculture, for the 2001-2004 crops, to offer 
     to enter into a contract with a producer in which the 
     producer receives a risk management payment if the producer 
     performs at least 2 qualifying risk management practices in 
     an applicable year. A producer's annual risk management 
     payment will based be on his or her FCIC average actual 
     production history (APH) established for the 2000 crop for 
     each Federally insurable agricultural commodity grown by the 
     producer. Under existing FCIC procedures, the APH for a 
     commodity for crop year 2000 is based on a producer's 
     documented production and acreage history from at least 4 of 
     the 10 immediately preceding years (1990-1999). A producer 
     may elect to receive a risk management payment directly or 
     have an equivalent amount credited to the premium owed by the 
     producer for Federal crop insurance coverage.
       Subsection (b) Qualifying Risk Management Practices. 
     Describes the 8 qualifying risk management practices:
       1. Purchase Federal or private crop insurance (e.g. private 
     crop hail) that is equivalent to at least catastrophic risk 
     protection, for at least one principal agricultural commodity 
     produced on the farm for which federal crop insurance is 
     available.
       2. Hedge price, revenue, or production risk by entering 
     into at least one standard exchange-traded contract for a 
     future or option on a principal agricultural commodity (crops 
     or livestock) produced on the farm.
       3. Hedge price, revenue, or production risk on at least 10% 
     of the value of a principal agricultural commodity produced 
     on the farm by purchasing an agricultural trade option.
       4. Cover at least 20% of the value of a principal 
     agricultural commodity (crops or livestock) produced on the 
     farm with a cash forward or other type of marketing contract.
       5. Attend an agricultural marketing or risk management 
     class. This includes, but is not limited to, a seminar or 
     class conducted by a broker licensed by a futures exchange.
       6. Deposit at least 25% of the risk management payment into 
     a FARRM account, or a similar tax deductible account.
       7. Reduce farm financial risk by reducing debt in an amount 
     that reduces leverage, or by increasing liquidity.

[[Page S11647]]

       8. Reduce farm business risk by diversifying the farm's 
     production by producing at least one new commodity on the 
     farm, or by significantly increasing the diversity of 
     enterprises on the farm.
       Subsection (c) Determination of Risk Management Payment. 
     The amount that is available for risk management payments for 
     each of the 2001 through 2004 crops is $1.275 billion (a 
     total of $5.1 billion). A producer's risk management payment 
     is calculated (for each Federally insurable commodity of a 
     producer) by multiplying:
       (1) the average APH established for the 2000 crop (meaning 
     documented production and acreage history from at least 4 of 
     the 10 immediately preceding years covering 1990-1999) for 
     each Federally insurable commodity of a producer;
       (2) the 1997-1999 average of the FCIC price level 
     established for each commodity (i.e., $2.38/bu. for corn, 
     $5.80/bu. for soybeans, $3.60/bu. for wheat, 68 cents/lb. for 
     upland cotton and $9.50/cwt. for rice); and
       (3) a payment rate determined by the Secretary in 
     accordance with the total amount available for the year.
     Section 103. Administrative provisions
       Risk management payments for each of the 2001 through 2004 
     crops will be paid in one or more amounts as of October 1 of 
     the crop year. A payment for the 2001 crop could be paid as 
     early as October 1, 2000. A producer must certify with the 
     Secretary which qualifying risk management practices were 
     used on the farm by filing a form with the local FSA office. 
     Qualifying risk management practices used for the 2001 crop 
     would have to be reported by April 15, 2002. A producer 
     choosing to receive a credit for a crop insurance premium 
     will receive the benefit at the time payment of the premium 
     is due (after harvest). Should a producer accept a risk 
     management payment but not perform at least 2 qualifying risk 
     management practices in the applicable year, the producer 
     will be required to repay the full amount of the risk 
     management payment with interest.
     Section 104. Termination of authority; funding
       Terminates the authority and funding for risk management 
     payments and qualifying risk management practices as of 
     September 30, 2004.


                        title ii--crop insurance

     Section 201. Sanctions for program compliance and fraud
       A producer who provides false or misleading information 
     about a crop insurance policy may be assessed a $10,000 civil 
     penalty for each violation, or debarred from all USDA 
     financial assistance programs for up to 5 years, depending on 
     the severity of the violation. Agents, loss adjusters, and 
     approved insurance providers who provide false or misleading 
     information about a policy or the administration of a policy 
     or claim under this Act may be subject to civil fines up to 
     $10,000 per violation, or debarred from participating in 
     insurance programs under this Act for up to 5 years, 
     depending on the severity of the violation. The same 
     penalties may apply to agents, loss adjusters, and approved 
     insurance providers who have recurrent compliance problems.
     Section 202. Oversight of loss adjustment
       Requires the Corporation to develop procedures for annual 
     reviews of loss adjusters by the approved insurance provider, 
     and to consult with the approved insurance provider about 
     each annual evaluation.
     Section 203. Revenue insurance pilot program
       Extends the authority for certain revenue insurance pilot 
     programs through the 2004 crop.
     Section 204. Reduction in CAT underwriting gains and losses
       Reduces the potential for underwriting gains or losses 
     associated with catastrophic crop insurance (CAT) policies 
     for the 2001 through 2004 reinsurance years.
     Section 205. Whole farm revenue insurance pilot program
       Establishes a pilot program for the 2001 through the 2004 
     reinsurance years that guarantees farm revenue based on the 
     average adjusted gross income of the producer for the 
     previous 5 years. Covers crops and livestock.
     Section 206. Product innovation and rate competition pilot 
         program
       Establishes a pilot program for the 2001 through 2004 
     reinsurance years that allows private insurance companies to 
     develop and market innovative insurance products, to compete 
     with other companies regarding rates of premium, and to allow 
     a company that has developed a new insurance product to 
     charge a fee to other companies that want to market the 
     product.
     Section 207. Limitation on double insurance
       Prohibits purchasing insurance for more than 1 crop for the 
     same acreage in a year, except where there is an established 
     history of double-cropping on the acreage.


                         title iii--regulations

     Section 301. Regulations
       Requires the Secretary to promulgate regulations within 180 
     days of enactment.
                                 ______