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Executive Branch Budget: Crop Insurance; Animal Agriculture; Biofuels; and Climate Change

Executive Branch Budget: Crop Insurance

Recall that last Thursday (May 7), the Obama administration “unveiled nearly $17 billion in additional budget cuts for the coming fiscal year,” and indicated that these savings would accrue “by ending or reducing 121 federal programs” (Jackie Calmes, “Obama Unveils New Budget Cuts.” The New York Times. May 8th).

The details of the President’s budget ideas from last week were presented in a document, entitled, “Terminations, Reductions and Savings.” On page 74 of that document, the executive branch laid out some specific ideas with respect to the U.S. farm safety net and stated that, “This proposal would reduce the Federal [crop insurance] subsidy to both farmers and the insurance companies in three ways: 1) reduce premium subsidies by five percentage points on all coverage levels; 2) increase the Government’s share on underwriting gains to 20 percent from 5 percent; and 3) reduce the premium on Catastrophic Crop Insurance (CAT) by 25 percent and charge a sliding scale fee for CAT coverage from $300 up $5,000 depending on the crop value. These changes are justified because the 2008 Farm Bill created several new subsidized programs in this area, and farmers and the crop insurance companies have recognized the value of crop insurance, so such a heavy subsidy is no longer needed.”

On Wednesday of this week, Secretary of Agriculture Tom Vilsack testified before the U.S. House of Representatives’ Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Committee on Appropriations to discuss the details of the President’s 2010 budget request for the Department of Agriculture. (Note: One minute audio summary from USDA’s Daily Radio Newsline available here).

As part of his prepared testimony before the Subcommittee, Sec. Vilsack referenced the proposed cuts to the federal crop insurance program and stated that, “I want to reassure you that the President’s Budget maintains the three-legged stool of farm payments, crop insurance, and disaster assistance. However, in keeping with the President’s pledge to target farm payments to those who need them the most, the budget proposes a hard cap on all program payments of $250,000 and to reduce crop insurance subsidies to producers and companies in the delivery of crop insurance. Crop insurance costs have ballooned in recent years from $2.4 billion in 2001 to a projected $7 billion in 2009. The President’s 2010 budget would rein in these costs by saving over $5.1 billion over the next 10 years.”

In explaining the executive branch proposal to reduce premium subsidies for farmers and cut underwriting gains for crop insurance companies, Sec. Vilsack noted that it is not as difficult today as in the past to get farmers to sign up for crop insurance because of the requirement to participate to be eligible for disaster assistance and due to bankers’ requirements. He went on to say the result is that private companies have seen a huge increase in their market and are making “a tremendous amount of profit” and that there needs to be “a fairer deal for taxpayers.”

In response to this week’s statements by the administration on crop insurance, Bob Parkerson, President of National Crop Insurance Services, the industry’s research and statistical arm, indicated to FarmPolicy.com that the increased participation by producers in crop insurance is the result of many years of joint government, congressional and industry efforts. “There is no one factor that explains the rise in producer participation,” he said. “A corn grower survey indicated that the top reasons why farmers buy crop insurance include cash flow protection, protection against weather disasters, lender requirements, and risk management. The price of insurance was also identified as a key reason. Affordable insurance, combined with the sustained efforts of agents to educate producers and work with them to tailor insurance to their individual needs, have been essential factors in the long-term increase in program participation. Adequate private sector delivery infrastructure (agency force, industry computer systems, trained loss adjusters, etc.) has been required to achieve today’s level of participation, and is a result of a sustained public-private partnership investment over the course of several administrations. Producers now have a diverse portfolio of risk management tools available through the crop insurance program. We do not want to see a loss of participation because of erosion in support of a successful program.”

Regarding the profits of crop insurance companies, Mr. Parkerson, agreed that a fair deal between the taxpayers and the companies that deliver crop insurance is necessary. He said that “Payments for industry delivery costs have been reduced substantially over time and most recently as part of a 10-year $6.4 billion reduction in crop insurance funding under the 2008 Farm Bill. Adequate underwriting gains will be required to offset these reductions and to provide a rate of return on the investment of private capital in crop insurance. In recent years, company underwriting gains have been higher than expected, mainly due to generally good weather that has caused indemnities to be less than premiums.” Mr. Parkerson noted that, “In good years, companies build up reserves for the bad years that are expected to come. USDA sets premium rates so that, on average, premiums equal indemnities. Since that has not been the case in recent years, there is every expectation that we will see excessive losses in years to come. As a result, returns to companies should be judged over a long period of years, not in a few years. An independent accounting firm, Grant Thornton, reviewed crop insurance over the period 1992-2007 and concluded that the net income of crop insurance companies was less than that of property and casualty companies generally. Consequently, we are concerned that reductions in returns to companies, as the administration has proposed, would increase the risk borne by the taxpayer in crop insurance, reduce the incentive for private insurance and reinsurance companies to participate in the crop insurance program, inhibit the buildup of necessary reserves to pay future claims, and lead to a reduction in service for producers over time.”

Meanwhile, a news release issued on Wednesday by the National Corn Growers Association stated that, “The National Corn Growers Association (NCGA) earlier this year joined a coalition of national farm and agricultural groups to oppose President Obama’s proposal to phase out direct payments to farmers with gross sales over $500,000 and cuts in the federal crop insurance program. Even though the House and Senate rejected the funding reductions in the recently passed Budget Resolution, the Obama Administration’s detailed budget, released late last week, still includes the proposed cuts.”

The NCGA item explained that, “NCGA recently delivered testimony before the House Agriculture Subcommittee on General Commodities and Risk Management, noting these programs [ACRE and SURE] do not substitute for any part of federal crop insurance, but they can assist growers impacted by multiple years of shallow crop losses not covered by crop insurance.”

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Also on the topic of Sec. Vilsack’s testimony on Wednesday, Philip Brasher reported yesterday at The Des Moines Register Online that, “Agriculture Secretary Tom Vilsack defended the livestock industry against a lawmaker’s allegations that crowded conditions and antibiotic usage in modern farms are endangering human health.

“Rep. Maurice Hinchey, D-N.Y., told Vilsack at a House appropriations subcommittee hearing on Wednesday that livestock are ‘jammed together’ in ‘very, very nasty circumstances.’”

Mr. Brasher added that, “Vilsack told him the ‘vast, vast, vast majority of farmers who are raising livestock are very sensitive’ to the need to be careful about the management of their animal.

“‘First and foremost, they’re concerned for the safety of their consumers. Without consumers, they don’t have a market, and without a market they don’t have money.’”

Animal Agriculture

In related news, DTN Ag Policy Editor Chris Clayton pointed to an interesting development in Maine on the animal production-welfare issue at his Twitter page yesterday.

The item, from Drovers.com, stated that, “Maine Governor John Baldacci signed landmark legislation Wednesday that will prohibit gestation crates and veal crates in his state. LD 1021 becomes effective Jan. 1, 2011, and was sponsored by Sen. John Nutting (D-Androscoggin County), senate chair of the Agriculture, Conservation and Forestry Committee. It passed the committee and both chambers unanimously. The Humane Society of the United States strongly backed the legislation.

With the passage of this legislation, Maine becomes the sixth state to pass such legislation. Last November Californians passed The Prevention of Farm Animal Cruelty Act by a ballot initiative. Previously, Colorado, Florida, Arizona and Oregon passed similar reforms.”

And Dave Russell reported on Thursday at Brownfield that, “To influence the public dialog over the role animals play in society, the Ohio Farm Bureau Federation (OFBF) has created the Center for Food and Animal Issues.

“‘There are so many things that the animals provide to society and we want to protect people’s opportunity for choice, good common sense and very effective animal care in working with this relationship between people and animals, but our bottom line is that people come first,’ said Jack Fisher, executive vice president of OFBF.

“The Center will focus on research and development, public relations, education and information with the entire animal kingdom.”

Biofuels

A news release issued yesterday by the House Agriculture Committee stated that, “Today, House Agriculture Committee Chairman Collin Peterson (MN) and Ranking Member Frank Lucas (OK) along with a bipartisan group of 42 Members of Congress introduced a bill to correct flawed provisions in the Renewable Fuel Standard (RFS) that are limiting the potential for clean, homegrown renewable biofuels to meet our nation’s energy needs.

“‘The unreasonable restrictions placed on the biofuels industry in the 2007 Energy Bill were never debated by Congress, and I’ve spent the past two years trying to undo the damage that we’re seeing now that EPA has published the proposed regulations that will make it impossible to meet the RFS,’ Peterson said. ‘In order to ensure that a clean, homegrown biofuels industry will succeed in the United States, we need to have Federal energy policies are flexible, practical, and innovative.’”

Yesterday’s news release added that, “The bill eliminates the requirement that the Environmental Protection Agency consider indirect land use when calculating the greenhouse gas emissions associated with advanced biofuels. Currently, there is no reliable method to predict accurately how biofuel production will affect land use in the United States or internationally.”

DTN Ag Policy Editor Chris Clayton reported on this development yesterday (link requires subscription) and noted in part that, “Lawmakers in agricultural and biofuels-producing states from both parties and from both chambers of Congress have expressed anger over a proposed rule by the EPA that attempts to calculate how the growth of feedstocks for biofuels affects land use decisions by farmers even in other countries [Note: See related DTN Ethanol Blog update from yesterday]. When the so-called indirect land use changes are factored in, the greenhouse-gas emissions for biofuels appear to be higher.”

Last week, Peterson publicly lashed out at the EPA for the proposed rules on indirect land use and accused the agency of helping the oil industry. Because of the rule, Peterson said he could not support climate-change legislation now being drafted in the House Energy and Commerce Committee,” the yesterday’s DTN article said.

And Philip Brasher noted yesterday at the Green Fields Blog (The Des Moines Register) that, “It’s safe to say this bill is mostly about sending a message. There has been little sign Congress is going to reopen the biofuel provisions of the energy bill, and Peterson’s committee doesn’t have jurisdiction over EPA or energy legislation. However, he and his fellow farm-state Democrats will be important to passing a climate bill now being developed in the House.”

In related news regarding the EPA RFS proposal and indirect land use, an idea that is being “peer reviewed,” a Dow Jones News article from yesterday (posted at DTN, link requires subscription) reported that, “USDA Secretary Tom Vilsack said Wednesday he is pleased there will be an independent review of an Environmental Protection Agency conclusion that U.S. corn- and soy-based biofuels do not reduce green house gasses as much as previously believed.

“‘I think it’s very, very important and it’s something that we urged from USDA,’ Vilsack said about the review.”

Yesterday’s Dow Jones article stated that, “Vilsack said the EPA, with its indirect land use calculations, is ‘plowing new ground here.’ He said he wanted to be sure the calculations were done ‘properly’ and make certain the EPA does not ‘damage this industry irreparably.’

“Meanwhile, the 10 percent cap limiting the amount of ethanol that can be blended into gasoline should be raised and there are promising signs that might just happen soon, Vilsack said Wednesday.

“It’s up to the Environmental Protection Agency to allow for an increase — not the USDA — but it’s a move that Vilsack said he has been advocating.”

Climate Change

Bloomberg writers Daniel Whitten and Simon Lomax reported yesterday that, “Democrats on a U.S. House panel said they reached an agreement that will let legislation to limit greenhouse-gas emissions win committee backing next week.

“Democrats control the House Energy and Commerce Committee by 36-23, so an agreement among party members would allow them to approve the measure over Republican opposition.

“President Barack Obama has backed a market-based cap, while business groups such as the U.S. Chamber of Commerce said such a plan would raise energy costs and harm the economy.”

Reuters writer Richard Cowan reported yesterday that, “Democrats in the U.S. House of Representatives on Thursday said they were working out final details of a climate change bill, as they announced new breaks for industry that they said would also minimize the potential impact on consumers’ energy bills.”

Mr. Cowan explained that, “For months, Democrats on the Energy and Commerce Committee have been in negotiations with themselves as Republicans refused to consider any ‘cap and trade’ program to reduce emissions of carbon dioxide and other greenhouse gases.

“The result is a bill that tries to dampen the short-term impact on companies and thus energy prices. For example, the retooled legislation would lower the price of future pollution permits that industry would have to buy, give more rewards for companies that take added steps to corral carbon emissions and give some firms a couple decades to fully transition into the program.

The chairman of the committee, Representative Henry Waxman, said his panel will debate and pass the bill by the end of next week. That would clear it for other House panels to consider before a debate by the full House, probably by August.

The legislation faces more uncertainty in the Senate.”

A news release issued yesterday by the House Energy and Commerce Committee Republicans noted that the public knowledge regarding “cap and trade” is low.

Citing a Rasmussen report from Monday, yesterday’s release stated that, “The gap between Capitol Hill and Main Street is huge when it comes to the so-called ‘cap-and-trade’ legislation being considered in Congress. So wide, in fact, that few voters even know what the proposed legislation is all about.

“Given a choice of three options, just 24% of voters can correctly identify the cap-and-trade proposal as something that deals with environmental issues. A slightly higher number (29%) believe the proposal has something to do with regulating Wall Street while 17% think the term applies to health care reform. A plurality (30%) have no idea.”

And, in an opinion item published in today’s Wall Street Journal by Indiana Governor Mitch Daniels, he stated that, “The Waxman-Markey legislation would more than double electricity bills in Indiana.”

Keith Good