FarmPolicy

Farm Bill and Policy Issues; and, Trade

Farm Bill: Crop Insurance

Georgina Gustin reported today at the St. Louis Post-Dispatch Online that, “As lawmakers prepare to hash out details of the $970 billion Farm Bill — the sprawling legislation that sets the agenda for the nation’s food and farming policy — a report issued Thursday says taxpayers are paying billions to protect profitable farms and crop insurance companies.”

“The group’s [The Washington-based Environmental Working Group (EWG), a group critical of farm subsidies] analysis was based on more than 1 million government records, obtained through the Freedom of Information Act,” the article said.

Today’s article noted that, “The group’s analysis found that agriculture’s largest policyholders get the bulk of the taxpayer-funded subsidies for crop insurance, while the bottom 80 percent get a little more than $5,000 each.”

David Rogers reported yesterday at Politico on the EWG report and pointed out that, “Corn, soybeans, wheat and cotton are among the leading beneficiaries, just as they dominate American agriculture. At the same time, fruit and vegetable growers, which account for about one-fifth of farm receipts, are disproportionately represented since their crops tend to be high priced and therefore more likely subject to higher premiums.

“Potatoes, tomatoes, apples, onions and grapes accounted for 36 percent of the high-end subsidies over $1 million, which carried some irony since environmentalists have long favored such specialty crops.”

Mr. Rogers indicated that, “…[C]rop insurance is very different from traditional cash subsidies and won’t be as easy for EWG to undercut. The premium discount is really an inside-the-government book transaction, involving no cash payment to the farmer, who must still make a hefty contribution as well.

“For example, any grower who received a $1 million discount would have had to pay $670,000 in premiums out of his wallet, assuming an average rate of the government covering 60 percent of the costs. And none of that money would come back unless the farmer experiences a loss — and even then he is subject to a deductible that could run 20 percent to 30 percent.”

The Politico article added that, “One respected voice in the debate is Keith Collins, a former chief economist for the Agriculture Department who helped oversee the development of the current program and is now a private adviser to the industry.

“‘Insurance is a program that functions more efficiently when the pool of insured producers is large and diverse,’ Collins told POLITICO. ‘A cap on premium support risks driving low-risk producers out of the program, increasing the average risk across those producers remaining in the program, leading to higher premium rates over time.’

“‘If the cuts are applied as caps on support,’ he added, it ‘would inequitably affect producers of high-value crops, such as fruits and vegetables; producers in high-risk areas; and moderate-size commercial farms, when crop prices are high.’”

The article noted that, “Moreover, unlike any other subsidy program, Collins said, the government shares in the underwriting gains that help reduce the total subsidy costs.

“‘While the adverse weather of 2011 will likely mean no government underwriting gains in 2011,’ he said, ‘the government had underwriting gains in every year from 2004 to 2010 and those gains partly offset the premium support. This is quite unlike the way farm program subsidies work.’”

In addition, Mr. Rogers stated that, “[House Agriculture Committee Chairman Frank Lucas (R-Okla.)] said he hopes to begin marking up a version of the farm bill in late June so as to be done before the July Fourth recess. Caps on crop insurance are not part of his plan.

“‘Resources need to follow production,’ Lucas said.”

Daniel Looker reported at Agriculture.com that, “Senator Chuck Grassley (R-IA), a member of the Senate Agriculture Committee who has long championed having strict limits on payments from other farm programs said Thursday that when it comes to limiting crop insurance payments, ‘It is kind of a conflict for me and I haven’t settled that conflict yet.’

“But Grassley said he expects that when there is a debate on the Senate bill, ‘the biggest problem is going to be warding off attempts to weaken crop insurance.’

“‘I’m going to plead, legitimately, that farmers are entitled to protection from natural disasters just like city people are,’ Grassley said.”

Dave DeWitte reported yesterday at The Gazette (Cedar Rapids, Iowa) Online that, “U.S. Sen. Tom Harkin, D-Iowa, former chairman and senior member of the Senate Agriculture Committee, had a mixed view of the group’s findings.

“‘It is valid and relevant to consider data showing where federal crop insurance premium subsidy benefits are going and the dollar value of those benefits. I am concerned, however, about the value or necessity of releasing individual data seemingly of a private nature for the purpose of facilitating the policy and legislative debate,’ Harkin said in a statement.

“‘The fact is that federal crop insurance is important, especially in states like Iowa. Congress must take that into consideration as we draft a new farm bill.’”

Mark Steil reported yesterday at Minnesota Public Radio Online that, “But Minnesota DFL Rep. Collin Peterson said the money is well spent.

“‘We’re spending 6 [percent] to 7 percent of our GDP on food,’ said Peterson. ‘The closest nation to us is 14 percent. The little bit of money that we’re spending here to give people an opportunity to hedge their risk is paying off for the American consumer.’

“Peterson is the most senior Democrat on the House Agriculture Committee and helped write the current crop insurance program.”

A statement yesterday by the American Association of Crop Insurers (AACI) responding to the EWG report indicated that, “The [EWG] report released today contains a number of false claims or statements that are totally misleading.

• EWG said, “…farming operations have received federal crop insurance premium subsidies…” The fact is farmers do not “receive” subsidies. There are no premium subsidy payments to farmers. There are no government checks cut and made payable to farmers.

• EWG said, “Some 26 farming operations received subsidies of $1 million or more last year.” Again, the fact is no policyholder “received” any dollars in premium subsidies.

• EWG said, “U.S. taxpayers pick up … crop insurance premiums…” Once again, the fact is there are no premium subsidies “paid” by taxpayers.

• EWG said, “…the industry’s powerful lobbyists prevailed on Congress to bar the U.S. Department of Agriculture from disclosing identities of individual policyholders…” The fact is the industry has never lobbied for non-disclosure.”

The AACI statement added that, “Toward the objective of helping establish program facts, the following is a list of key operational characteristics that all policymakers should be keenly aware of:

Premium support (subsidy) is not like commodity program subsidies. Producers do not receive a premium subsidy check.

Premium support is made available to producers in the form of an adjusted or discounted premium amount that is a required annual payment by producers.

Premium support is not a budget outlay. Premium support is accounted for in the federal budget as an accounting transaction. The premium support accounting transaction becomes part of the calculation of program underwriting gains.

Premium support is partially offset by any resulting program underwriting gains because the government receives a contracted share of any program underwriting gains.

Producers annually pay the premium expense whether they suffer a loss or not and receive a benefit only when they suffer a loss. The benefit is less than the loss.”

“The crop insurance program works and is actuarially sound and economically viable by including large as well as small farmers. If EWG were ever successful in driving the large famers out of the program, it would undermine the entire program, and make it unavailable to small farmers,” the AACI statement noted.

A statement yesterday from National Crop Insurance Services, Crop Insurance and Reinsurance Bureau and American Association of Crop Insurers indicated that, “The [EWG] has an unprecedented track record of promoting and funding misleading and flawed analysis, as well as mischaracterizing data to generate news headlines. Its latest attack on farmers’ most important risk management tool is no different. For example:

• EWG seems to be criticizing government support of crop insurance. Yet, EWG fails to mention that it is promoting a plan on Capitol Hill to provide farmers with 100 percent subsidized crop insurance coverage administered by the government instead of efficient private insurers.

• The same fruit and vegetable growers EWG supposedly champions are likely some of the largest crop insurance benefit recipients on its list of ‘offenders.’”

Yesterday’s statement noted that, “Crop insurance is extremely popular with lawmakers from both sides of the aisle, as well as with farmers, their lenders, and nearly everyone with a stake in rural America. That is because crop insurance gives producers a fighting chance after disaster strikes or markets collapse. After recent reductions in farm policies, it is the single most important risk management tool remaining for U.S. farmers and ranchers.”

Farm Bill: Timing

Linda Vanderwerf reported yesterday at the West Central Tribune (Willmar, Minn.) Online that, “U.S. Sen. Amy Klobuchar is the second member of Minnesota’s congressional delegation to express confidence that a new farm bill will be passed this summer.”

The article added that, “The bipartisan support in the Agriculture Committee should lead to bipartisan support on the Senate floor, too, she said.

“Once it’s through the Senate, ‘there’s a lot of pressure on the House to get it done,’ Klobuchar said.

“U.S. Rep. Collin Peterson, D-Minn., said last week that he was optimistic that the farm bill could be passed before Congress’ August recess.”

Calvin Men reported earlier this week at the Aberdeen News Online that, “The new Farm Bill stands a good chance of passing before a Sept. 30 deadline instead of the current bill being extended, U.S. Rep. Kristi Noem, R-S.D., said in a meeting with farmers, agribusiness people and community members Tuesday in Aberdeen.

“‘I think we have a better chance at getting a good farm bill with solidly funded programs this year than we do putting an extension in place for a year and doing it next year because this is an election,’ she said in response to a question about passing the bill.”

“Sodsaver” Legislation Introduced in the House

A news release yesterday from Rep. Kristi Noem (R., S.D.) stated that, “[Rep. Noem] and Rep. Tim Walz (D-MN) today introduced common sense legislation to encourage good land stewardship practices and preserve habitats for pheasants, ducks and other wildlife on native sod and on grasslands that haven’t been farmed in the past.

“This legislation would reduce crop insurance assistance for the first four years for crops grown on native sod and certain grasslands converted to cropland. By reducing crop insurance assistance so that it is proportionate with the production capability of this land, rather than insuring it at the same rate as land that has been farmed for years, this legislation could save taxpayers nearly $200 million over 10 years, according to the Congressional Budget Office.”

A news release yesterday from the National Association of Conservation Districts (NACD) stated that, “The [NACD] supports the work of Reps. Kristi Noem (R-SD) and Tim Walz (D-MN) on their recent sodsaver legislation to address crop insurance inequities and preserve habitats for game species on native sod and on grasslands producers cannot certify have ever been cropped. NACD is also supportive of an identical provision included in the Farm Bill passed by the Senate Agriculture Committee.

“‘It’s just common sense to reduce crop insurance assistance for less productive land,’ said NACD President Gene Schmidt.”

Farm Bill: Policy Considerations

An update posted yesterday at the farmdoc daily blog by Ohio State University Agricultural Economist Carl Zulauf (“Olympic Moving Average and Potential Price Protection”) stated that, “Recent discussions over the farm safety net have focused on the need for price protection. This article examines the price protection provided by a 5-year Olympic moving average of price. A specific focus is its performance during the price decline of the late 1990s, the last multiple-year period of low prices experienced by the U.S. crop sector.”

After a detailed analysis, yesterday’s update pointed out that, “A 5-year Olympic moving average with an 89% coverage rate would have provided sizable price protection to U.S. crop producers during the low price period of the late 1990s, the last multiple-year low price period for U.S. crop producers. In particular, price protection payments averaged over 15% of the Olympic average price for cotton and rice over the 1997-2001 crop years. Moreover, since 1978, a 5-year Olympic average with an 89% coverage level would have provided more protection for rice than the other 5 crops examined in this article, and would have provided approximately the same level of price protection for the 5 other crops. The 5-year moving average does move lower over time to reflect lower prices, so it provides assistance only for a limited period of time. But, the size of this assistance can be notable, providing a meaningful cushion to make adjustments needed to survive over the long term.”

Troy Krause reported earlier this week at the Redwood Gazette (Redwood Falls, Minn.) Online that, “Rather than using direct payments as a support for production of commodities, such as corn and soybeans, the proposal [House Ag Committee Ranking Member Collin Peterson (D., Minn.)] believes the House is going to offer would provide two options – giving producers a choice between what are known as target price payments or revenue protection.

“Under the target price proposal, a price would be set for commodities, such as corn and soybeans and any time prices fell below those marks payments would be provided to producers. Peterson said the proposal for corn is $3.64 and for beans is $8.31.

“Under the revenue protection proposal, producers would receive payments over and above insurance for yields that fall below 6-7 percent of an operation’s gross revenue.”

The article added that, “Peterson said part of the reason why the revenue protection program seems more attractive is because of the philosophy that commodity prices are on an upward trend and it does not appear that is going to change.

“However, Peterson, who has been part of this process for a number of years said he has heard that before and the outcome was major price drops.”

Policy Issue: Soda

Michael Howard Saul and Andrew Grossman reported in today’s Wall Street Journal that, “As public-health officials praised New York City Mayor Michael Bloomberg’s proposal to ban the sale of large-size drinks in restaurants and other locations Thursday, some academics and business groups called the plan an ineffective way to handle the obesity crisis and criticized it as government overreach.”

And, The New York Times editorial board noted today that, “Mayor Michael Bloomberg has done a lot to help improve the health of New York City residents. Smoking is outlawed in workplaces, restaurants and bars. Trans fat is banned in restaurants. Chain restaurants are required to post calorie counts, allowing customers to make informed choices.

“Mr. Bloomberg, however, is overreaching with his new plan to ban the sale of sugary drinks larger than 16 ounces. He argues that prohibiting big drinks at restaurants, movie theaters, stadiums and other food sellers can help combat obesity. But as he admits, customers can get around the ban by purchasing two drinks.”

The Times added that, “Promoting healthy lifestyles is important. In the case of sugary drinks, a regular reminder that a 64-ounce cola has 780 calories should help. But too much nannying with a ban might well cause people to tune out.”

Animal Agriculture

Bill Tomson reported yesterday at The Wall Street Journal Online that, “McDonald’s Corp. said Thursday that by 2022 it will no longer buy any pork from suppliers that use small pens known as gestation stalls to confine pregnant sows.

“The fast-food heavyweight, in an effort to address concerns of animal-welfare groups, announced in February that it would begin demanding that suppliers phase out the use of the narrow two-feet-wide stalls that groups like the Humane Society of the U.S. have called inhumane.

“Within five years, the company said Thursday, it will only buy pork from ‘producers who share its commitment to phase out gestation stalls’ and then those suppliers will have another five years to make good on the commitments.”

Trade

The U.S. Department of Agriculture’s Economic Research Service and Foreign Agricultural Service indicated in a report yesterday (“Outlook for U.S. Agricultural Trade”) that, “Fiscal 2012 agricultural exports are forecast at $134.5 billion, up $3.5 billion from the February forecast, but $2.9 billion below final fiscal 2011 exports. Grain exports are forecast up from February indications, with increased values for wheat, rice, and feed and fodders more than offsetting a reduction for coarse grains.”

The report noted that, “U.S. import demand continues strong, lifting estimated import value by $1 billion to $107.5 billion from the $106.5 billion projected in February. Increases are forecast for vegetable oils, oilseeds, oilmeal, bulk grains, and beef and veal imports.”

“Given that the forecast for exports is up $3.5 billion, compared with the February forecast, while imports are rising only $1 billion, the trade balance for 2012 is a surplus of $27 billion, still lower than the record $43 billion in 2011,” yesterday’s report said.

Keith Good

Posted by Keith Good • June, 1, 2012 • 4:56 am