**Testimony**

**of**

**David Gillen**

**Vice-Chairman, Public Policy Action Team**

**National Corn Growers Association**

**Before the U.S. House Agriculture Subcommittee**

**on**

**General Farm Commodities and Risk Management**

**Longworth House Office Building**

**Room 1300**

**Washington, DC**

**May 14, 2007**

Mr. Chairman and members of the Subcommittee, thank you for this
opportunity to provide you input as you review the federal crop
insurance program. My name is David Gillen. Along with my wife Carol, we
own and operate a no-till grain farm at White Lake, South Dakota. We
have been operating our century farm for 29 years raising corn, wheat
and soybeans.

Currently, I serve as the Vice-Chairman of the National Corn Growers
Association's (NCGA) Public Policy Action Team and Chairman of the South
Dakota Corn Growers Association Board of Directors.

On behalf of NCGA, our 32,000 plus members from 48 states and more than
300,000 producers who contribute to corn check off programs, I cannot
overemphasize the importance of an effective and affordable federal crop
insurance program to our member growers' risk management planning.
Assuming commodity markets remain above current farm price support
levels over the next several years, crop insurance becomes even more
critical for protecting producers' farm revenue against significant
yield losses.

In 2006, 62 million net acres of corn were insured under federal crop
insurance for liability protection at approximately \$16.7 billion.
While questions have recently been raised on the amount of resources and
delivery of the program, there should be no question regarding the
necessity of the private-public partnership between the Department of
Agriculture and private insurers to provide the levels of protection now
available to farmers across the corn belt.

As recently as 2005 when we experienced the second highest corn harvest
ever, many producers were impacted by substantial crop losses due to
severe drought, flooding and other adverse weather events that resulted
in indemnity payments exceeding \$697 million. In a year when growers
were facing considerable jumps in input costs, particularly fuel and
fertilizer, the income protection from federal crop insurance was
essential for keeping many farm operations out of serious financial
trouble. Also, 2006 was the worst drought in my area in my 28 years of
farming.

Over the past several years, NCGA has placed a high priority on
monitoring the progress of the federal crop insurance program,
encouraged greater participation to enhance risk management plans and
worked to ensure that any problems that arise are adequately addressed
by the companies and the Risk Management Agency. To be sure, the variety
of insurance plans offered through this shared cost program has enabled
producers to purchase policies that better match the needs of their farm
operations. Ever since their introduction, revenue insurance plans have
become a very important risk management tool for corn growers. For
producers who use forward contracts, these popular policies allow
greater flexibility to market their grain while reducing the risks
against short or failed crops.

An article written for the Economic Research Service in November, 2006
by Drs. Robert Dismukes (USDA) and Keith Coble (Mississippi State
University) zeroes in on the key reason for the growth of these
products; "As a tool based on revenue shortfalls rather than on yield or
price shortfalls, revenue insurance can be more effective at stabilizing
income than insurance plans or farm programs that protect against yield
and price risks.."

They also noted an important advantage of revenue insurance over other
risk management tools or farm support; the plans 'match the costs of
risk protection with benefits and base coverage on the crop's market
value'. Every farmer knows that it is revenue that pays the bills. This
is the fundamental reason why over 66 % of policies for corn sold for
the 2006 crop year were written for Crop Revenue Coverage (CRC), Revenue
Assurance (RA) or Group Risk Income Protection (GRIP). These policies,
alone, accounted for over \$1.43 billion, over 90 percent of the total
premiums paid. Another important reason for the growth in revenue
insurance policies is the increase in the share of subsidized insurance
premiums from less than 30 percent to 56 percent since 1996.

These numbers underscore the impact crop insurance can have on our farms
and how we run our operations. In addition to removing risk and
providing much stability to our industry, we need a crop insurance
program that rewards good farm management and sound risk management
practices and tools.

One policy change proposed by NCGA would enhance the incentive for
producers to assume more risk in exchange for higher levels of revenue
protection. One unintended consequence of increased subsidies coupled to
levels of protection authorized under the Agriculture Risk Protection
Act of 2000 is a system that does not fully recognize the lower risk
exposure of enterprise and whole unit policy coverage. Because the size
of the unit has a significant effect on the cost of crop insurance, we
believe it is very important to eliminate the disparity between
subsidized premiums for coverage by optional (field -- subdivided basic
units) or basic (all crop land of a single crop into one insurance unit)
and the larger enterprise unit (all shares of a crop in the county) and
whole farm (all eligible insured crops in the county) coverage.
According to RMA, only 3 percent of acres are covered using enterprise
units compared to almost 61 percent for optional units and 36 percent
for basic units. The key reason enterprise and whole farm unit coverage
is used so little is because of the economic disincentive created by
this continuing disparity.

Premiums are discounted for enterprise unit and whole farm coverage;
however, the actual reduction in costs does not adequately reflect the
declining variability in yield and/or revenue as a producer aggregates
acres into the larger insurance units. Under the current subsidy
structure, optional unit coverage is a better buy for most producers. If
the same program dollars that a producer spends, for example, on 75%
optional coverage could be spent on 85% enterprise coverage, the
producer would have better coverage on his whole farm even though he
absorbs the losses on individual units.

Our view is that a carrot rather than a stick should be used to
encourage more use of this type of coverage, particularly enterprise
unit. NCGA's proposed change would allow producers to continue use of
coverage by optional or basic units. One considerable advantage for
producers that select optional units is that a high yield on one unit
does not affect the coverage on another unit. We anticipate that many
growers will continue to prefer optional unit coverage that protects
against losses on each individual unit.

One solution for securing more equitable crop insurance premiums for
larger unit coverage is to decouple per acre premium subsidies from the
unit of coverage selected by the producer. With assistance provided by
RMA legal counsel and congressional staff last year, NCGA is
recommending for your consideration legislative language to authorize
changes that would eliminate this flaw in the subsidy structure. We
believe this reform would enhance program efficiency without adding to
the budget baseline. Once fully implemented, the proposed change would
likely reduce moral hazard and the adverse selection of insurance
coverage.

By encouraging greater use of enterprise unit or whole farm coverage,
producers would be rewarded for better management, assuming more risk
and directing even more attention to detail on individual units.
Moreover, we expect the need for disaster assistance would be lessened
when producers buy up to higher levels of insurance. In today's tight
budget environment, any step we can take to reduce the administration
costs, inequities and the potential for program abuse is beneficial to
farmers and the taxpayer.

Mr. Chairman, I want to thank you again for this opportunity to share
with this committee NCGA's views and policy recommendations for further
improving the federal crop insurance system for our member growers. We
appreciate your leadership and continued support of the corn industry.