NACIA Washington Update
April 22, 2009

Earlier today, the Subcommittee on General Farm Commodities and Risk Management of the House Agriculture Committee held a hearing entitled “To review producers’ views on the effectiveness and operations of the Federal crop insurance program.”  
 
This hearing is the first of several the Subcommittee and full Committee will undertake to examine the crop insurance program.  As we have mentioned before, there are numerous critics of the crop insurance program both inside and outside of Congress.  Many of these do not understand the program, the importance of a complete safety net, or the inordinate amount of expertise and hard work it takes to deliver crop insurance to producers.  As a result, they view the program as a potential source of revenue for other priorities..  
 
Overall, the hearing demonstrated that many producers feel there are changes that need to be made to the program and Chairman Peterson and others feel the program needs a thorough review.  Some Members of Congress are opposed to further cuts, but others do not seem to hold that same opinion.  The hearing was rather extensive, with testimony from ten witnesses and subsequent question and answer periods.  To spare you the two plus hour time commitment, a general summary of the hearing is below.  For the witness list or copy of each witness’ testimony, visit the House Agriculture Committee’s website here.   
 
Issues that should be noted because they received considerable discussion during the hearing include the following:  

• Separation of same-commodity polices for irrigated versus dry land production;
• Actuarial soundness of the program, considering the reliance on the futures prices;
• Viability of the crop insurance program versus other components of the safety net;
• Lack of coordination between RMA and FSA;
• Techniques to combat waste, fraud, and abuse;
• Techniques to address problems caused by shallow losses and declining yields;
• Assistance after large-scale disasters; and
• Producer involvement in SRA renegotiation.  

Opening Statements

Normally Subcommittee Chairman Boswell (D-IA) would have presided over the hearing, but since he was in Iowa traveling with the President, Representative Marshall (D-GA) held the gavel for this hearing.  In his opening statement, Rep. Marshall discussed Full Committee Chairman Peterson’s (D-MN) direction to the Subcommittee to conduct a “thorough and comprehensive review” of the crop insurance program, pointing out that the program has both detractors and supporters inside and outside of Congress.  He expressed the Committee’s desire to ensure that the crop insurance program continues to serve those intended – the American farmer.  
 
Ranking Member Moran (R-KS) expressed his overall support of the program in his opening statement. He declared that producers in Kansas had repeatedly informed him of the program’s importance, avowing that it is a vital component of the producer safety net.  He stated his opposition to any further cuts to the program, calling the President’s inclusion of $350 million in cuts in the budget request “irresponsible.” Ranking Member Moran concluded by expressing his appreciation that the House Agriculture Committee Views and Estimates Letter to the Budget Committee did not contain any cuts to the crop insurance program.

Chairman Peterson expressed concerns regarding whether or not certain aspects of the program “make sense anymore.”  He specifically referenced caps on levels of coverage and the methods and formulas by which companies and agents are reimbursed.  Chairman Peterson stated that the Committee needs to examine the effects of the changes made in the 2008 Farm Bill and assess whether additional reforms are needed.
 
Testimony

Panel I
Dr. Chad E. Hart, Assistant Professor, Department of Economics, Iowa State University, Ames, Iowa
In his testimony, Dr. Hart discussed the actuarial methods used to determine premium adjustments.  He explained the five steps included in the rate making process for APH: 1) adjusting historical performance to a common coverage level; 2) computing county-level base premium rates; 3) adjusting base premium rates; 4) restricting premium rate changes to fit within limits; and 5) updating the premium factors to tailor the premium rates to each individual situation.  Dr. Hart also discussed the impact of production patterns, weather patterns, and futures prices have on rating methodology.
Mr. Bob Stallman, President, American Farm Bureau Federation, Washington, D.C.

Mr. Stallman stated that farmers held vastly differing views on the crop insurance program based on their region and commodity produced.  As a result, the American Farm Bureau Federation’s policy includes the following: support for insurance for dark tobacco in barns, support for distinguishing between dry and irrigated land, opposition to reducing APH in disaster areas, opposition to restrictions on crop insurance related to livestock grazing, and nationwide expansion of the sweet potato pilot program. In general, Mr. Stallman stated that the program is working well, but also mentioned the popularity of the revenue assurance programs with his members.. Regarding improvements to the crop insurance program, Mr. Stallman raised the issue of shallow losses and asserted that the 2005 “Combo Rule” has not yet been implemented even though it was originally scheduled for the 2008 crop year.

Mr. Roger Johnson, President, National Farmers Union, Washington, D.C.
In his testimony, Mr. Johnson declared that the crop insurance program has room for improvement, and while National Farmers Union members believe that crop insurance and revenue assurance should never replace fair market prices and adequate price support programs; risk management tools must be continued and improved for producers to be successful.  Mr. Johnson stated that crop insurance is inadequate to address major production disasters occurring year after year, skyrocketing production costs, and declining yields.  He encouraged the Committee to implement the SURE program to help address these issues.  He also discussed the fact that not all crop insurance companies are not required to serve in all states, resulting in cherry picking.  Lastly, Mr. Johnson discussed the lack of coordination between RMA and FSA, stated that GAO suggestions regarding waste, fraud and abuse need to be implemented, and that the FCIC board of directors should include more producer representation.
 
Discussion

In the question and answer period for Panel I, Subcommittee Members and witnesses discussed whether or not the futures markets were accurate in their prices; if producers should play a role in SRA renegotiation; methods to address shallow losses and declining yields; the effectiveness of crop insurance compared to other farm programs; improved communication between RMA and FSA; and combating waste, fraud, and abuse through CIMS and data mining.. In addition, Representative Herseth Sandlin (D-SD) queried the witnesses on whether the administration of crop insurance and other programs should be combined under one agency.  
 
Panel II
Mr. Rickey Bearden, cotton, grain and peanut producer, and Chairman, Crop Insurance Task Force, National Cotton Council, Plains, Texas
Mr. Bearden asserted that crop insurance is a very important risk management tool for cotton producers, but the majority of the policies are only affordable at the lower end of the coverage spectrum.  He stated that for crop insurance to be viable, RMA must find a way to make higher levels of coverage affordable to producers.  Mr. Bearden also recommended that RMA focus on refinement of policy options to recognize regional differences, moving toward individualized experience-based rating, structuring quality loss provisions recognizing unique bale identities, and developing separate products for irrigated versus dry land, developing yield coverage for cottonseed, and determining how to help producers after large scale disasters.  

Mr. Steve Bennett, General Manager and Partner, Riverbend Nurseries, on behalf of the American Nursery and Landscape Association, Thompson's Station, Tennessee

Mr. Bennett discussed the difficulties that nursery industry faces with the crop insurance program, particularly evidenced in the spring of 2007 after a late frost in Tennessee severely damaged the nursery crop.  Many of the difficulties came form a lack of understanding of the nursery industry by RMA adjusters, specifically regarding stock plants, common nursery practices, and marketability.  Mr. Bennett offered the following reforms to make crop insurance viable to nurseries:  using the wholesale price list as basis for coverage, instituting coverage for plants grown in containers less than three-inch containers, separation of field grown and containerized plants, and allowing year-round sales of crop insurance policies with a 30 day waiting period.  
Mr. Jarrod Spillman, sorghum, wheat, corn, soybean, sunflower and cow-calf producer, on behalf of the National Sorghum Producers, Hoxie, Kansas

In his testimony, Mr. Spillman stated that due to method by which RMA determines the crop insurance price election for sorghum, it has become the least insured of the five main row crops.  He feels that the way the process is currently structured, RMA is sending a message to producers, telling them not to plant sorghum.  Mr. Spillman stated that to address this, RMA needs to develop a usable product, especially for semi-arid geographic regions. He also recommended that RMA use a more transparent method for assigning transitional yields, so as to not pit one crop against another.  

Mr. John Owen, rice producer, and President, Northeast Louisiana Rice Growers Association, on behalf of USA Rice Federation, Rayville, Louisiana

According to Mr. Owen, the existing crop insurance policies do not work well for rice producers, resulting in low participation in the program.  In addition, high input costs have contributed to the fact that the loan programs and the ACRE program are not viable risk management alternatives.  As a result, the USA Rice Federation has been working on developing policies that better suit the needs of rice producers. Mr. Owen discussed advantages of the crop insurance program, including WTO compliance and serving as collateral for lending.  He also urged the Subcommittee to stand firm in opposition to any further cuts in the safety-net and to ensure that the outcome of the SRA renegotiation does not undermine producer participation.  

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

Mr. Robichaux discussed the sugarcane crop and the difficulties that producers have had with crop insurance due to a lack of availability of sufficient coverage.  He explained that a brown rust epidemic in 2000 decreased subsequent yields and resulted in an artificially low yield guarantee.  Mr. Robichaux urged the Subcommittee to fix the APH problem and to direct RMA to use transitional yield figures into the APH yield history.  

Mr. Bing Von Bergen, wheat producer, President, Montana Grain Growers Association, Board Member, National Association of Wheat Growers, Moccasin, Montana

Mr. Von Bergen declared the crop insurance program to be a critical risk management tool for wheat producers, protecting assets against drought and flooding, providing a stable income environment, and providing coverage needed to obtain credit.  He stated that wheat growers are concerned about proposals to cut the program, and pleased to see that the House Agriculture Committee did not support any cuts, as evidenced in its Views and Estimates Letter to the Budget Committee. To improve the crop insurance program, Mr. Von Bergen suggested that the following issues be considered:  erosion of actual production history, RMA audit procedure adjustments, revision of quality loss adjustment factors, separation of crop practices and classes of wheat, and acreage reporting requirements.  

Mr. Mike Clemens, wheat, corn, soybean, sunflower, and dry bean producer, and Vice Chair, Public Policy Action Team, National Corn Growers Association, Wimbledon, North Dakota

Mr. Clemens expressed the NCGA’s concern that proposed funding cuts would put at risk producer participation in crop insurance, as well as negatively impact RMA’s ability to adequately address areas in which the crop insurance program can be improved.  He discussed changes already made in the program that have made policies more effective for corn growers, and mentioned other action they believe should encourage additional innovation and expansion of the program, such as approval of the new 508 H-Concept proposal submission procedures.   Lastly, Mr. Clemens stated that a comprehensive review of data and alternative rating methods needs to be done, a review of administration of the quality loss adjustment process should be considered, and improvements need to be made regarding the handling of claims for prevented planting.  
 
Discussion

In the question and answer period for Panel II, Subcommittee Members and witnesses discussed separation of irrigation and dry land policies, the effects of higher input costs and the resulting higher yields, proposals submitted to RMA by the National Sorghum Producers, the need for crop insurance to qualify for credit, the possibility of a Subcommittee letter to RMA regarding implementation of Farm Bill directives, and producer involvement in SRA renegotiations.
 
If you have any questions regarding the hearing or anything else, please contact us.  
Brent W. Gattis
NACIA Washington Representative
www.nacia.org