Delegates will examine costs of systemic risk versus shallow losses

Feb 10, 2012

A risk-management proposal by the American Farm Bureau Federation (Farm Bureau) board of directors left a lot of questions by farmers attending the group’s forum on the 2012 farm bill.

Farm Bureau members got a primer on the concept on the opening day of the Farm Bureau’s annual convention. The sun was shining, the waves were rolling, and Hawaii was in its full glory as farmers sat in a convention hall trying to absorb details of the Systemic Risk Reduction Program (SRRP).

SSRP is meant to help farmers deal with heavier losses than other plans put forward by commodity groups last fall. SRRP would help prevent catastrophic losses and rely on crop insurance but reduce overall farm spending to show farm programs are fiscally responsible.

Farm Bureau’s direction was rejected in the failed supercommittee proposal last fall that showed, in return for eliminating direct payments, the House and Senate Agriculture Committee created a new crop insurance program for cotton, raised target prices on crops, and created a shallow loss plan, Ag Risk Coverage (ARC), that offered higher protection levels than Farm Bureau proposes. Farm Bureau criticized the agriculture committees’ commodity proposals for that reason.

“Agricultural programs are intended to help farmers deal with the big challenges they cannot handle alone, as opposed to providing guarantees against small reductions in annual revenue,” Farm Bureau President Bob Stallman told members in his opening session speech.

SRRP is a county-based policy similar to the Group Risk Income Plan crop insurance, or GRIP, except it would trigger based on a five-year Olympic average of county revenue, based on USDA National Agricultural Statistics Service harvest prices. Individual losses would be covered by crop insurance that producers continue to buy.

“We deliberately set these programs up so they wouldn’t overlap,” said John Anderson, a senior economist with the Farm Bureau.

Scott VanderWal, president of the South Dakota Farm Bureau, said the fine details are hard to explain, but it’s the concept that matters. Do farmers want a shallow loss program or a deeper loss program that provides a safety net? “That’s where the personal responsibility comes in, but there is still some risk in it.”

VanderWal said consumers and urban congressmen are tired of the protected income of direct payments and the perception of entitlements.

Rob Joslin, an Ohio farmer on the American Soybean Association’s farm-bill task force, said he still likes ARC program proposed by the agriculture committees, which is based on individual farm coverage instead of countywide losses. Joslin said there was little risk of payment overlap between crop insurance and the ARC program because few producers can afford the 85 percent coverage level that could kick in payments from both crop insurance and the federal government.

“I still think the ARC program makes a lot of sense,” Joslin said. “It’s tailored to the farm.”

Farmers would have an administrative fee for SRRP coverage to coincide with their current insurance policy. In order to prevent double dipping, the insurance plans would pay out on the county level first, then on the farm level to provide more effective coverage at 70-90 percent levels, depending on what a farmer buys.

In periods of deeper farm losses on a county level, such as 30 percent, SRRP would pay out more than the Agriculture Committees’ plan.

Yet, at 20 percent yield loss, there would be no SRRP payment.

SRRP would replace direct and counter-cyclical payments, as well as the Average Crop Revenue Election Program. Marketing loans would remain in place.

Beyond the safety-net function of SRRP, Farm Bureau also believes savings will help lower rates on cropinsurance premiums over time as well.

In the farm-bill forum, policy director Mary Kay Thatcher said the ARC likely won’t survive, “but some type of shallow-loss program will continue” throughout the farm-bill debate.

Farm Bureau’s leadership is looking for the delegate body to greenlight the SRRP plan as the group’s main policy objective in the 2012 farm-bill debate. Stallman told reporters in a press conference after his speech that it is harder for farm groups to protect their share of the federal budget, particularly given the overall strength of agricultural commodities compared to other sectors of the economy.

“It does bring an added dimension to the debate that agriculture is in pretty good shape in this country when you are talking about an environment where everybody is scrambling for the last dollar they can get to make it into their programs,” he said.

Major proposals for budget cuts last year ranged from $48 billion over 10 years by House Ways and Means Chairman Paul Ryan, R-WI, to the $23 billion proposed by the House and Senate agriculture committees in the failed supercommittee talks. Stallman said his sense is that the cuts to agriculture will be higher than the $23 billion figure.

“It just seems like the pressures are going to be in the direction of more budget reductions rather than fewer budget reductions,” he said.

Stallman added he hoped to get “certainty” from the Farm Bureau delegates on policy direction while he emphasized the group wants to help find solutions to reducing the federal budget deficit.

“It’s time to prioritize; it’s time to figure out in a limited budget environment what is the best policy to move forward to provide the degree of safety net and support that is going to be doable in the budget environment that we have,” Stallman said. “That’s been my message and that’s what I hope to come out, is something that is clear.”

Speaking to Iowa Farm Bureau members, Agriculture Secretary Tom Vilsack said the proposal by President Barack Obama to cut $487 billion in defense spending over the next decade would help relieve pressure on cuts needed by other agencies to meet the target of $1.5 trillion in total federal budget cuts over 10 years.

“If that number is accepted by the Congress, it makes it a little easier to move towards the overall number to get our deficit and our fiscal house in order,” Vilsack said. — Chris Clayton, DTN