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REVIEW CROP INSURANCE FOR

SPECIALTY CROP PRODUCERS

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

GENERAL FARM COMMODITIES

AND RISK MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JULY 10, 2003

AUGUST 19, 2003 ADA, MN

SEPTEMBER 24, 2003

OCTOBER 2, 2003

DECEMBER 1, 2003 LUBBOCK, TX

Serial No. 108–13

(

Printed for the use of the Committee on Agriculture

agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

JOHN A. BOEHNER, Ohio

Vice Chairman

RICHARD W. POMBO, California

NICK SMITH, Michigan

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

DOUG OSE, California

ROBIN HAYES, North Carolina

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

DENNIS R. REHBERG, Montana

SAM GRAVES, Missouri

ADAM H. PUTNAM, Florida

WILLIAM J. JANKLOW, South Dakota

MAX BURNS, Georgia

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

CHRIS CHOCOLA, Indiana

MARILYN N. MUSGRAVE, Colorado

DEVIN NUNES, California

RANDY NEUGEBAUER,Texas

CHARLES W. STENHOLM, Texas,

Ranking Minority Member

COLLIN C. PETERSON, Minnesota

CALVIN M. DOOLEY, California

TIM HOLDEN, Pennsylvania

BENNIE G. THOMPSON, Mississippi

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

BARON P. HILL, Indiana

JOE BACA, California

RICK LARSEN, Washington

MIKE ROSS, Arkansas

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

ED CASE, Hawaii

RODNEY ALEXANDER, Louisiana

FRANK W. BALLANCE, JR., NORTH

CAROLINA

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

KEN LUCAS, Kentucky

MIKE THOMPSON, California

MARK UDALL, Colorado

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN KRAMP, Chief Counsel

STEPHEN HATERIUS, Minority Staff Director

ELYSE BAUER, Communications Director

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

JERRY MORAN, Kansas, Chairman

JOHN A. BOEHNER, Ohio,

NICK SMITH, Michigan

Vice Chairman

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

WILLIAM L. JENKINS, Tennessee

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

TIMOTHY V. JOHNSON, Illinois

MIKE PENCE, Indiana

DENNIS R. REHBERG, Montana

SAM GRAVES, Missouri

MAX BURNS, Georgia

CHRIS CHOCOLA, Indiana

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER,Texas

COLLIN C. PETERSON, Minnesota

Ranking Minority Member

BENNIE G. THOMPSON, Mississippi

RODNEY ALEXANDER, Louisiana

MIKE ROSS, Arkansas

CALVIN M. DOOLEY, California

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

BOB ETHERIDGE, North Carolina

BARON P. HILL, Indiana

ED CASE, Hawaii

DENNIS A. CARDOZA, California

JIM MARSHALL, Georgia

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

KELLI LUDLUM, Subcommittee Staff Director

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(III)

C O N T E N T S

Page

July 10, 2003

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 2

Smith, Hon. Nick, a Representative in Congress from the State of Michigan,

prepared statement .............................................................................................. 3

WITNESSES

Brim, Bill, vice president, Georgia Fruit and Vegetable Growers Association,

Tifton, GA ............................................................................................................. 3

Prepared statement .......................................................................................... 39

Carden, Bob, citrus producer and crop insurance agent, Carden & Associates,

Inc., on behalf of Florida Citrus Mutual and Florida Nurserymen and

Growers Association, Winter Haven, FL ............................................................ 5

Prepared statement .......................................................................................... 32

Redding, Russell, deputy secretary of administration, Pennsylvania Department of Agriculture, Harrisburg, PA .................................................................. 10

Prepared statement .......................................................................................... 28

Watkins, John, legislative chairman, American Nursery & Landscape Association, Midlothian, VA ............................................................................................ 7

Prepared statement .......................................................................................... 37

SUBMITTED MATERIAL

Everett, Hon. Terry, a Representative in Congress from the State of Alabama,

et al, a letter of July 9, 2003 to Keith Collins ................................................... 44

North Carolina Strawberry Association, letter of June 25 to William Rafferty,

submitted by Mr. Etheridge ................................................................................ 43

Stehly, Jerome, chairman, California Avocado Commission, submitted statement ...................................................................................................................... 35

U.S. Apple Association, submitted statement ....................................................... 30

August 19, 2003, Ada, MN

Kennedy, Hon. Mark, a Representative in Congress from the State of Minnesota, opening statement ................................................................................... 49

Larsen, Hon. Rick, a Representative in Congress from the State of Washington, opening statement ........................................................................................ 48

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 47

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 46

WITNESSES

Allebach, Rodney, district manager, Farmers Union Insurance, Manahga,

MN, on behalf of the Minnesota Farmers Union .............................................. 71

Prepared statement .......................................................................................... 102

Beedy, Mark, vice president, Minnesota Soybean Growers Association, Moorhead, MN .............................................................................................................. 61

Prepared statement .......................................................................................... 101

Page

IV

Brainard, John, district 7 director, Minnesota Farm Bureau Federation, Ada,

MN ......................................................................................................................... 72

Prepared statement .......................................................................................... 106

Duininck, James R., vice president, sales, Prinsco, Inc., Prinsburg, MN ........... 83

Prepared statement .......................................................................................... 96

Freitag, Bruce, president, North Dakota Grain Growers Association, Scranton,

ND ......................................................................................................................... 56

Prepared statement .......................................................................................... 100

Germolus, John, past president, National Association of Crop Insurance

Agents, Ada, MN .................................................................................................. 84

Prepared statement .......................................................................................... 90

Haugo, Dave, producer, Waubun, MN ................................................................... 74

Prepared statement .......................................................................................... 109

Hugoson, Gene, commissioner Minnesota Department of Agriculture, St. Paul,

MN ......................................................................................................................... 50

Prepared statement .......................................................................................... 103

Johnson, Nathan, producer, Minnesota Corn Growers Association, Lowry,

MN ......................................................................................................................... 58

Prepared statement .......................................................................................... 97

Olson, Howard J., vice president, insurance, AgCountry Farm Credit Services,

Fargo, ND ............................................................................................................. 86

Prepared statement .......................................................................................... 94

Rynning, Robert, president, National Barley Growers Association, Kennedy,

MN ......................................................................................................................... 62

Prepared statement .......................................................................................... 104

Williams, Steve, vice president, Red River Valley Sugarbeet Growers Association ........................................................................................................................ 59

SUBMITTED MATERIAL

Andringa, Donald, producer, Crookston, MN, statement ..................................... 105

Brandt, Glen A., producer, American Crystal Sugarbeet Growers, Ada, MN,

statement .............................................................................................................. 96

Ihnen, Darrin, South Dakota Corn Growers, statement ...................................... 98

Iszler, Jocie, North Dakota Corn Growers Association, statement ..................... 93

Maatz, Duane W., statement .................................................................................. 98

McMillin, Randy, former chairman, Minnesota Canola Council, Grygla, MN,

statement .............................................................................................................. 92

Morrison, Steve, president, National Association of FSA County Office Employees, statement ................................................................................................ 111

September 24, 2003

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 117

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 118

Shimkus, Hon. John M., a Representative in Congress from the State of

Illinois, submitted statement .............................................................................. 157

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 119

WITNESSES

Anderson, Woody, vice chairman, National Cotton Council, Colorado City,

TX .......................................................................................................................... 121

Prepared statement .......................................................................................... 158

Bindel, Leo, producer, Sabetha, KS, on behalf of the National Grain Sorghum

Producers Association .......................................................................................... 123

Prepared statement .......................................................................................... 153

Litterer, Ron, chairman, public policy action team, National Corn Growers

Association, Greene, IA ........................................................................................ 125

Prepared statement .......................................................................................... 149

Metz, Bob, producer, Browns Valley, MN, on behalf of the American Soybean

Association ............................................................................................................ 127

Prepared statement .......................................................................................... 148

Thaemart, John, chairman, domestic wheat policy committee, National Association of Wheat Growers, Sylvan Grove, KS .................................................... 129

Page

V

Thaemart, John, chairman, domestic wheat policy committee, National Association of Wheat Growers, Sylvan Grove, KS—Continued

Prepared statement .......................................................................................... 151

October 2, 2003

Etheridge, Hon. Bob, a Representative in Congress from the State of North

Carolina, opening statement ............................................................................... 164

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 163

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 163

WITNESSES

Barnes, Johnny, producer, Spring Hope NC, on behalf of the United States

Sweet Potato Council, Inc. ................................................................................... 165

Prepared statement .......................................................................................... 203

Bittner, Jim, producer, Burt, NY, on behalf of the U.S. Apple Association ....... 167

Prepared statement .......................................................................................... 185

Schmale, Lin, senior director, government relations, Society of American Florists, Alexandria, VA ........................................................................................... 169

Prepared statement .......................................................................................... 187

SUBMITTED MATERIAL

Anderson, Woody, National Cotton Council, statement ....................................... 200

Boman, Roger, producer, San Joaquin Valley, CA, statement ............................. 192

California Association of Winegrape Growers, WineAmerica, and the National

Association of American Wineries, statement ................................................... 193

Hunter, Vaughn, Hunter Insurance Associates, Inc., statement ......................... 206

Litterer, Ron, National Corn Growers, statement ................................................ 198

Sustainable Agriculture Coalition, statement ....................................................... 196

December 1, 2003, Lubbock, TX

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 209

Neugebauer, Hon Randy, a Representative in Congress from the State of

Texas, opening statement .................................................................................... 212

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 210

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 211

WITNESSES

Arthur, Lloyd, vice president, Texas Farm Bureau Federation, Ralls, TX ......... 234

Prepared statement .......................................................................................... 274

Brown, Joe, Joe Brown Insurance, Lubbock, TX .................................................. 249

Prepared statement .......................................................................................... 278

Gibson, Floyd, Texas Wheat Producers Association ............................................. 216

Prepared statement .......................................................................................... 267

Griffith, Curtis, chairman and chief executive officer, City Bank of Lubbock,

Lubbock, TX .......................................................................................................... 238

Prepared statement .......................................................................................... 276

Haas, John, U.S. Canola Association, Larned, KS ................................................ 213

Prepared statement .......................................................................................... 284

Higginbottom, Ted, president, Western Peanut Growers Association, Seminole, TX ................................................................................................................. 214

Prepared statement .......................................................................................... 266

Knight, Tom, professor, TX Tech University, Lubbock, TX ................................. 252

Prepared statement .......................................................................................... 281

Peter, Alan, president, Kansas Corn Growers Association, Tribune, KS ........... 236

Prepared statement .......................................................................................... 275

Rose, Kenneth, president, National Grain Sorghum Producers, Keyes, OK ...... 218

Prepared statement .......................................................................................... 268

Vaughan, Dee, president, National Corn Growers Association, Dumas, TX ...... 220

Page

VI

Vaughan, Dee, president, National Corn Growers Association, Dumas, TX—

Continued

Prepared statement .......................................................................................... 272

Williams, Mark, president, Plains Cotton Growers, Farwell, TX ........................ 222

Prepared statement .......................................................................................... 286

SUBMITTED MATERIAL

Henson, Monty, producer, Terry County, TX, submitted statement ................... 292

Turner, Larry, Crop Insurance Solutions, Dumas, TX, submitted statement .... 296

Verett, Steve, executive vice president, Plains Cotton Growers, Inc., submitted

statement .............................................................................................................. 309

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REVIEW CROP INSURANCE FOR SPECIALTY

CROP PRODUCERS

THURSDAY, JULY 10, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, DC.

The subcommittee met, pursuant to call, at 10:02 a.m., in room

1301 of the Longworth House Office Building, Hon. Jerry Moran

(chairman of the subcommittee) presiding.

Present: Representatives Smith, Jenkins, Burns, Musgrave, Peterson, Alexander, Pomeroy, Boswell, Etheridge, Marshall, Larsen

and Holden.

Also present: Representative Putnam.

Staff present: Kelli Ludlum, subcommittee staff director; Elizabeth Parker, Callista Gingrich, clerk; Kellie Rogers, Elyse Bauer,

John Riley, and Lisa Kelley.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. Good morning. The hearing of the Subcommittee on

General Farm Commodities and Risk Management to review crop

insurance for specialty crops, will now come to order. I am delighted to begin the process of discussing the topic of crop insurance, particularly as it relates to specialty crops, and I would like

to thank our witnesses for their appearance before our subcommittee.

We will get a few of the administrative things out of the way on

this hearing this morning. It is anticipated we have a 10:15 journal

vote, one vote, so we will recess here momentarily if that occurs

and come back. We have one panel today of these four witnesses,

and I think that despite the journal vote, we can proceed expeditiously. I appreciate the time that these gentlemen are devoting to

appearing before our subcommittee.

This is one in a series of hearings we will have on crop insurance

and especially as it relates to specialty crops. I would readily admit

that there are Members of Congress and members of this subcommittee who are much more familiar about crop insurance as it

affects specialty crops than I am as a Kansan, but I am very interested in gaining additional information and addressing issues that

those who participate in this very important segment of agriculture

would like to see us address as it relates to crop insurance. I know

that crop insurance is an increasingly important risk management

2

tool for many farmers, including our nurserymen, citrus growers

and fruits and vegetable producers. The Agricultural Risk Production Act of 2000 made progress in improving insurance availability

for specialty crop producers. Following the passage of the crop insurance reform bill, products were expanded and additional coverage was offered.

Today, the Risk Management Agency offers permanent insurance

programs covering 62 specialty crops. Twenty-five specialty crops

currently have programs in pilot status. Coverage for specialty

crops has doubled since 1998, increasing to approximately $8 billion last year. And despite significant progress, it is still difficult

for some producers in specific counties to obtain coverage for their

particular crops. The greatest interest I continue to hear from

farmers in my own district as well as members of this subcommittee and Members of Congress is on crop insurance availability in

providing average levels of coverage to meet our producers’ needs.

As we examine options to protect producers from natural disasters

without ad hoc emergency spending, we will seek to address issues

that can make crop insurance a more effective risk management

tool for farmers and ranchers nationwide.

After today’s hearing, I expect this subcommittee to hold additional hearings to focus on the changes needed to better serve

farmers, both program crop producers and specialty crop growers

and livestock producers. We will look at product availability, delivery of the programs and other issues that may be discovered

through the testimony of our witnesses today and during future

hearings. Again, I welcome our participants and look forward to

their testimony and I recognize now the gentleman from Minnesota, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman. I want to thank you

for calling this hearing. I, like you, don’t know as much about this

issue as we probably should, so I look forward to the witnesses’ testimony. It is clear that even though we have made tremendous

progress in terms of the numbers of acres insured, last year’s call

for disaster assistance by many producers group tell us that there

are still questions out there regarding producers’ ability to adequately cover their risks. The past few years have been difficult on

the industry as a whole, including the niche market for specialty

crops. It has become clear concerning specialty crops that we must

consider the programs for payouts from natural disaster losses, the

impacts of the slow economy, September 11 and the lower commodity prices being paid to our farmers and ranchers that have made

them even more aware of covering their bottom line. Now, we must

be certain that the companies that remain will be able to deliver

affordable risk management tools to our Nation’s producers of these

perishable crops that will allow them to cover external factors beyond their control. Again, I want to thank you, Mr. Chairman, and

I look forward to hearing from our witnesses.

Mr. MORAN. Mr. Peterson, thank you very much. Any other

statements for the record will be accepted.

3

[The prepared statement of Mr. Smith follows:]

PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

I would first like to thank the chairman, ranking member, and members of the

panel for holding this hearing to review crop insurance issues for specialty crop producers.

As a farmer, I know how vital it is to have a sound risk management strategy

in order to be successful. Many ways exist for farmers to manage risk including

storage facilities, forward pricing, off-farm income sources, Federal farm income support programs, commodity diversification, and the Federal Crop Insurance Program.

Over the years the Risk Management Agency and the crop insurance industry have

been very successful in expanding enrollment in the Federal Crop Insurance Program and in increasing the types of products offered and commodities covered. From

1979 to 2002 the number of insured acres has increased from approximately 21 to

215 million acres. Furthermore, in 1981 the Federal Crop Insurance Program offered 5,000 county-commodity-product combinations, and by 2002 the number of

county-commodity-product combinations available was greater than 38,000. Currently, Federal crop insurance products exist for about 100 agricultural commodities. Clearly, the increasing utilization and demand for crop insurance products indicate that farmers are increasingly using crop insurance as one of their risk management tools.

Being from Michigan where a wide variety (more than 120 different commodities)

of fruit and vegetable crops as well as traditional field crops are produced, I can

appreciate the fact that specialty crop producers like the typical corn-soybean farmer must manage their risk in order to be successful. Michigan’s specialty crop producers have been hit especially hard by weather the last several years. Eighty-two

of Michigan’s 83 counties were declared a disaster in 2001 due to extreme weather

conditions. In 2002, all 83 counties received a weather disaster designation. As a

result Michigan’s specialty crop yields suffered tremendously: (2001) dry bean yields

down 87 percent, grape yields down 64 percent, (2002) tart cherry yields down 95

percent, sweet cherry yields down 75 percent, grape yields down 66 percent, peach

yields down 69 percent, apple yields down 41 percent, blueberry yields down 25 percent, asparagus yields down 24 percent, plum yields down 94 percent.

These data clearly demonstrate the need that specialty crop producers have for

risk management tools such as crop insurance.

As we will hear today, however, crop insurance utilization and availability vary

significantly across commodities. Despite the wide range of commodities covered, 74

percent of total crop insurance premiums in 2002 came from corn, soybeans, cotton,

and wheat. For producers of these major commodities there is a wide-range of insurance products available as well as the traditional commodity support programs that

help farmers remain viable. Unfortunately, fewer support and risk management options are available for our specialty crop producers. With the realization that it is

both unrealistic and impractical for government to provide every option for every

commodity, it is important and timely for this committee to carefully review the

strengths and weaknesses of the current Federal Crop Insurance Program for these

various commodities.

Mr. MORAN. We will begin our testimony with Mr. Brim. Welcome very much. Mr. Brim is the vice president of the Georgia

Fruit and Vegetable Growers Association from Tifton, Georgia. Mr.

Brim, please proceed.

STATEMENT OF BILL BRIM, SECOND VICE PRESIDENT, GEORGIA FRUIT AND VEGETABLE GROWERS ASSOCIATION, AND

PRESIDENT, LEWIS TAYLOR FARMS, TIFTON, GA

Mr. BRIM. Good morning, Mr. Chairman and the members of the

subcommittee. My name is Bill Brim, and I am the president and

owner of Lewis Taylor Farms in Tifton, Georgia. I have a 750 diversified vegetable operation in packing peppers, tomatoes, eggplant, cucumber, squash, cabbage, cantaloupes and greens. We also

have a 350,000 square foot greenhouse growing area that we grow

85 million vegetable transplants and 15 million pine tree seedlings.

4

Thank you for the invitation to appear here before the committee. As vice president of the Georgia Fruit and Vegetable Growers

Association, I am here today not only to represent my farm and association, but also the growers that make up more than $750 million worth of fruit and vegetable industry in Georgia.

I will limit my comments this morning to the items which have

been identified as a concern to all of our commodities. First, crop

insurance availability. In my written testimony, I have cited examples in our pecan, blueberry and vegetable industry in which some

growers have the benefit of crop insurance and others that do not.

Pecan, blueberries and some vegetable pilots are working quite

well and need to be moved to a permanent status. We ask for your

support in encouraging FCIC to move these pilots into a permanent

program as soon as and as quickly as possible. While we support

and want to see more crop insurance programs become available to

our specialty crop growers, I would encourage that this subcommittee and RMA be cautious when new pilot programs are introduced.

When the pilot program is made available to only one or two counties in a particular commodity-producing region, the availability of

crop insurance can significantly skew market conditions and production competitiveness. Growers in the covered counties may have

the opportunity to secure better loan rates from their bankers and

more attractive purchasing items from their suppliers since they

have, now, a safety net provided by the crop insurance product. As

new product and pilot programs are developed, alternative introduction plans should be considered to keep all growers in a specific

commodity-producing region on an equal footing and a level playing

field.

Another industry concern is the issue of multi-unit field and orchards being covered under one farm serial number. Many times,

growers do not receive loss payments on crops failure because of

fields that suffer a loss, is one of several fields under the same

farm serial number. If all other fields on that farm serial number

have sufficient production, it will offset the losses and no payments

are made on the field with a crop failure. Growers compare their

crop insurance to property insurance, and if three houses on a farm

are insured and one burns, the insurance company pays for the loss

of that burned house. That same should be true with the loss of

an insured field. To provide broader crop insurance coverage, consideration should be given to allow growers the options to have

noncontiguous fields or orchard divisions within the same farm serial number. This is a not a new concept. A similar option is provided for in the walnut and apple crop insurance program.

For the past 2 years, the Georgia Fruit and Vegetable Growers

Association has been fortunate to participate as an educational

partner with RMA. During those 2 years, over 2,500 growers have

received hundreds of hours of training on risk management to help

improve their production, pest, food safety, personnel and marketing risks they face daily in their farm operations. In 2003, six different Georgia organizations received risk management education

program funds totaling over $370,000. These organizations range

in interest from organic production to nursery, shrubbery operations to fruit and vegetable growers. In the fiscal year 2004, regulations were published in the Federal Register on June 13 in order

5

to simplify RMA supervision of partnership agreements. The new

regulations allow for only one partner per State, and the allocation

form provides only $89,000 for educational program funds through

the winning Georgia organization. While we understand the need

to streamline the reporting and accountability, it is very difficult

for one organization to represent and oversee commodity programs

as diverse as flowers and shrubs to fruits and vegetables. In the

future, we hope that one partner per State will be reconsidered and

eliminated. I very much appreciate the opportunity to provide this

testimony to the committee and I will be happy to answer any

questions at the appropriate time. Thank you.

[The prepared statement of Mr. Brim appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Brim, thank you very much. Our next witness

is Mr. Bob Carden, a citrus producer and crop insurance agent,

Carden and Associates, Inc., and he is here on behalf of the Florida

Citrus Mutual and Florida Nurserymen & Growers Association of

Winter Haven, FL. Welcome, Mr. Carden.

STATEMENT OF ROBERT E. CARDEN, JR., CITRUS PRODUCER

AND CROP INSURANCE AGENT, CARDEN AND ASSOCIATES,

INC., WINTER HAVEN, FL, ON BEHALF OF FLORIDA CITRUS

MUTUAL AND FLORIDA NURSERYMEN AND GROWERS ASSOCIATION

Mr. CARDEN. Thank you, Mr. Chairman. Mr. Chairman, members of the committee, it is an honor for me to appear before you

to discuss the status of the specialty crop insurance industry.

Again, my name is Bob Carden, and I am the president of

Carden and Associates, Inc., which is an insurance agency in Winter Haven, Florida. We specialize mainly in writing specialty crop

insurance there that are grown on the Florida peninsula. Specialty

crop policies currently offer many benefits to growers, but improvements could greatly enhance their value as a risk management

tool. Industry representatives are regularly in touch with the Risk

Management Agency on these issues, and RMA’s regional staff is

always willing to listen to industry suggestions. However, many of

the needs of the specialty crop industry remain unmet, largely due

to an inability to have meaningful policy changes implemented

through the procedural process used by RMA.

One such instance involves the peril of citrus canker. This disease is devastating to citrus, and when found in a grove, it requires

the immediate destruction of all trees within a 1900 foot radius of

the infected area. RMA correctly realized the need to add this peril

as a covered cause of loss to the citrus tree insurance policy in

1999.

However, citrus canker has yet to be added to the citrus fruit insurance policy as a covered cause of loss. This makes very little

sense to us, as any fruit that is hanging on a tree when it is destroyed is obviously lost as well. We have requested that RMA add

this peril for the last 5 years and have worked with their Valdosta

regional service office to see this task accomplished. Every year, we

have expected this addition, but as of the 2004 crop year, the sales

closing date for which just ended, it has not been done, and to us,

it makes no sense to pay a grower for the loss of his trees but not

6

the loss of a fruit crop that they are producing at the time. A premium rating problem also exists in the Florida citrus fruit policy.

In 1996, RMA did a major design change in the structure of this

policy that on the surface reduced rates substantially. However,

when you take a closer look, it reveals otherwise. Prior to the

change, a grower buying a citrus fruit policy had a 10 percent deductible regardless of the level of coverage he purchased. The policy

implemented by RMA now mirrors the row crop deductibles of 15

to 50 percent, but when you do a premium calculation with a 15

percent deductible in the policy now, it is actually higher than the

same coverage was at a 10 percent deductible under the old policy.

The net result is that a grower pays more and he gets less.

Now, specialty crop policies are also very complex. A great deal

of training is required by both company and agency personnel in

order to provide the best information to growers to enable them to

make sound risk management decisions. RMA should approve materials and training in time to give companies and agents a minimum of four months to work with this material once it is in its

final form. In far too many cases, this does not happen. An insurance company must review all of the material pertinent to any

given crop for any changes to the program that were made from

the prior year. Once they have done this, they must then present

it to their agents, who in turn present it to their growers, who decide on their appropriate levels of coverage for the upcoming year.

All of this must be accomplished by a sales closing date which varies by crop and is defined in the policy. This is an inflexible date

with no exceptions made. In each crop policy, RMA also sets a

deadline for itself by which it must release this material for the upcoming year. For example, the eligible plant list and other materials for the 2004 crop year was just released for nurseries this

past July 1. Companies are currently in the process of comparing

the new list to the 2003 list to see what changes were made, and

until this is done, the renewal process cannot begin. Currently, our

agency’s training in these materials is scheduled for July 22. That

will leave us 28 working days to contact our 225 or more nursery

customers and complete the renewal process by the September 1

deadline if no gaps in their coverage is to occur.

Now, all this assumes that the material is correct when it is released, and sadly, there are times when it is not. Such was the case

of this eligible plant list last year, when some 150 varieties grown

in central Florida were inadvertently left off the list, and by the

time this was corrected, September 1 had come and gone. Now, this

points out what from an agency standpoint we consider to be a

high risk of errors and omissions exposure. In this case, we had

two choices. We either have our growers report their inventories

and choose their coverage levels based on a promise which was not

yet in writing, or report their values on the printed schedule and

then revise it after the corrected list came, but that would leave

the grower underinsured during a 30-day waiting period before the

coverage took effect after the revisions were made.

Now, to be fully fair here, I do believe that RMA tries to release

material to us in what they consider to be a timely manner. However, when they cannot meet these needs for whatever reason, they

7

need to be more flexible in giving us the time we need to adequately complete our tasks.

Finally, we in the specialty crop industry were very pleased with

section 508(h) of the Agricultural Risk Protection Act of 2000 was

included. This section allowed private entities to submit products

that they had designed to the FCI Board. We felt that we could

now move forward not only with some long-sought policy revisions,

but also would finally be able to offer coverage on commodities for

which no program currently exists. However, the procedure RMA

has written for filing a policy with the Board is so onerous that it

cannot be taken seriously and is an avenue that we can use. Exhibit 2, which is attached to my testimony, shows this very clearly.

This is a procedure that must be streamlined.

Thank you for your invitation. I hope I have provided you with

an informative snapshot of the challenges the industry faces, and

I am happy to respond to your questions.

[The prepared statement of Mr. Carden appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you very much, Mr. Carden. Our next witness is Mr. John Watkins, legislative chairman of the American

Nursery and Landscape Association of Virginia. Welcome, Senator,

thank you.

STATEMENT OF JOHN C. WATKINS, PRESIDENT, WATKINS

NURSERIES AND LEGISLATIVE CHAIRMAN, AMERICAN

NURSERY & LANDSCAPE ASSOCIATION, MIDLOTHIAN, VA, ON

BEHALF OF THE AMERICAN NURSERY & LANDSCAPE ASSOCIATION

Mr. WATKINS. Thank you, Mr. Chairman. Chairman Moran and

Ranking Member Peterson and members of the subcommittee, I am

grateful for this opportunity to present testimony today, to talk

with you with relation to the Crop Insurance Program in the

United States, and particularly as it relates to the nursery industry. My testimony represents both my views, my own personal

views, and experiences as a nurseryman, and also the views of the

American Nursery & Landscape Association. The American Nursery & Landscape Association is the national trade association for

the nursery and landscape industry. ANLA represents 2,500 production nurseries, landscape firms, retail garden centers and horticultural distribution centers, and the 16,000 additional family farm

and small business members of the State, regional nursery and

landscape associations. The association’s grower members are estimated to produce 75 percent of the nursery crops moving in domestic commerce in the United States that are destined for landscape

use. I currently serve as the Chairman of this association’s legislative policy committee.

According to the USDA’s National Agricultural Statistics Service,

the nursery and greenhouse industry remains the fastest growing

sector of agriculture in terms of cash receipts. The 1997 Census of

Agriculture shows that nursery and greenhouse floriculture crop

sales totaled $10.9 billion in 1997, up $7.6 billion from 1992. This

represents a 43 percent increase. In crop value, nursery and greenhouse crops have surpassed wheat, cotton and tobacco and are now

the third largest crop, falling only behind corn and soybeans.

8

The nursery industry very much desires an efficient and affordable and sustainable Crop Insurance Program. At present, the Crop

Insurance Program falls short on adequately addressing the extreme diversity and unique situations presented by a free market

segment of agriculture that grows literally thousands of varieties

in every State using an array of production systems and technologies. We offer the following thoughts and recommendations on

the current program and some of the suggestions for improvement.

Nursery participation in the program is not as high as it should

be. A broader participation will help to establish a program that

can more reliably be sustained. There needs to be strong, sustained

educational outreach for the program, and we are open to working

in close partnership with Risk Management Agency on grower outreach.

Second, under catastrophic disaster coverage, the 50 percent loss

requirement should be calculated based on losses of individual crop

types rather than across the array of crops in a nursery, and I have

some personal anecdotal evidence to that particular fact. Different

crops have varied susceptibility to potential perils, unlike typical

experiences in traditional row crops.

Third, in our own operation, I have production fields in three adjacent counties in Virginia. Under the current program, I must purchase three separate policies to cover these fields. There should be

some reasonable way to insure that an entire operation can fit

under one policy.

The structure of commissions paid to the agent encourages concentration on serving the needs of the largest 9 or 10 clients, but

there is insufficient incentive for agents to reach out and target a

lot of the smaller operations, which typically family operations and

particularly nursery operations wind up being.

We strongly suggest using the grower’s wholesale price list as the

basis for coverage valuation based upon proof of market. As a result, it would become much clearer to the grower, the agent and

the RMA exactly what the RMA is insuring.

Insure the container size of any plant as such is noted in the

grower’s wholesale price list without regard to the actual soil volume the container that it is capable of holding.

Include coverage of plants grown in smaller than 3-inch containers.

Treat field grown crops and containerized plants as separate

crops.

Allow year-round sales of crop insurance policies, subject to a 30-

day waiting period for coverage commencement.

The issue of injury accumulated over just one year has become

a factor in the green industry. Flood, drought and disease that we

have seen a lot of in the past couple of years is of particular note

here.

Implement crop insurance for Christmas tree growers as well.

For growers in tropical regions, restrict the peril of excess rain

to damage incurred in conjunction with a tropical cyclone or an

event that causes an area to be declared a disaster by the President or the USDA.

9

Seriously explore coverage of trees and plants that fall within

quarantine zones that are regulated by the USDA here in the

United States.

In closing, I wish to emphasize that USDA’s Risk Management

Agency has reached out to our industry, and we are confident that

a strong commitment exists on all sides to resolve many of these

problems that are inhibiting the use and long-term validity of crop

insurance for the nursery industry. We are equally grateful for the

interest and support of Congress in this matter and look forward

to your support of the Agency in making the changes necessary to

accommodate our industry. Thank you, Mr. Chairman, and members of the subcommittee, for your attention and interest in ensuring a viable Crop Insurance Program in America. Thank you.

[The prepared statement of Mr. Watkins appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Watkins, thank you very much. I apologize to

the Secretary, but I think we will recess our meeting momentarily

while we cast a vote. We will be right back. There is, as I understand it, just one vote. So we will be back in about 10 minutes. The

subcommittee will stand in recess.

[Recess]

Mr. MORAN. The subcommittee will come to order, and I would

invite the gentleman from Michigan to join us. We are joined in our

subcommittee today by the gentleman from Pennsylvania, Mr.

Holden, who is the ranking member of the Conversation, Credit,

Rural Development, and Research Subcommittee. He is not a member of this subcommittee and I would ask the subcommittee’s unanimous consent to allow Mr. Holden to join us at the dais and to

participate in questioning the witnesses. Without objection, so ordered. Welcome, Mr. Holden.

Mr. HOLDEN. Thank you, Mr. Chairman.

Mr. MORAN. And I would like to give you the opportunity to introduce our next witness, a witness from Pennsylvania. Mr.

Holden.

Mr. HOLDEN. Thank you, Mr. Chairman, and thank you for allowing me to participate in this very important hearing today, and

I thank you for inviting the executive deputy secretary of agriculture from Pennsylvania, Russell Redding, to be with us today.

Russell is almost a fixture at the Pennsylvania Department of Agriculture, and before that, he worked for Senator Wofford handling

his agriculture issues.

Mr. Chairman, as you and Mr. Peterson mentioned in your opening statements, certain parts of the country, particularly where you

come from, you are not as familiar with the problems and challenges that we face because of our diverse agriculture in Pennsylvania and throughout the Northeast, so again, I want to thank you

for having this hearing and I particularly want to thank you for allowing Deputy Secretary Redding to testify today, because we do

face many serious challenges trying to get our level of participation

up to what you all have in the Midwest and the upper Midwest,

and Russell has worked tirelessly throughout his tenure at the

Pennsylvania Department of Agriculture to try to get that participation level to moved forward. So again, I want to thank you and

10

appreciate the opportunity to introduce my friend, the Deputy Executive Secretary of Agriculture from Pennsylvania.

Mr. MORAN. Mr. Holden, thank you for joining us, and we now

recognize Mr. Redding. Please proceed.

STATEMENT OF RUSSELL C. REDDING, EXECUTIVE DEPUTY

SECRETARY, PENNSYLVANIA DEPARTMENT OF AGRICULTURE, HARRISBURG, PA

Mr. REDDING. It is good to be here. Thank you, Mr. Chairman

and members of the subcommittee. I want to thank you for the opportunity to testify, and thank Congressman Holden for his leadership, both currently in the Agriculture Committee, and his work to

promote agriculture in Pennsylvania in the past. I am pleased to

be here. A critical issue for Pennsylvania is crop insurance. We

have followed it for the last couple of years. You have the testimony before you, the official record, and I will try to frame this a

little bit just in the interest of time, but it is interesting how the

Department of Agriculture came to crop insurance. It actually took

a disaster in 1999. For those of you in the eastern part of the country understood well, we had a very serious drought in that year,

realized the importance of disaster assistance, both at the State

level and the Federal. Our State legislature and Governor at the

time provided $60 million of State revenue to underwrite the crop

losses, which was in addition to the Federal assistance, but it also

underscored the need for crop insurance.

Clearly, the State was not going to be in a position financially

to continue that. It was a unique point in history where we had the

revenues to do it. If that were to happen today, it would be a very

different discussion, but at the time, the State provided $60 million

as part of that. They provided $5.6 million for crop insurance assistance that allowed the Department of Agriculture to cover the

fees associated with producer policies and also cover 10 percent of

the premium.

In 1998, the year just prior to the disaster that sort of framed

our crop insurance initiative, we had about 20 percent of the eligible acres in the State that were covered under crop insurance. The

perception of crop insurance at the time was in general that it just

didn’t work. I mean, it was too cumbersome. Growers had concerns

about specialty crops and the diversification just didn’t fit well with

the current program availability.

The Department of Agriculture recognized the value of improving

farm level risk management at both the micro and macro levels.

The goal, of course, was to really increase participation statewide

in crop insurance, and we have tried to do that. We wanted to

make it affordable. Thanks to the work of Congress and the USDA

and the State, we believe it is affordable at this point, but there

are significant issues to deal with.

As part of the disaster legislation in 1999, the State gave the Department of Agriculture the authority to work in partnership with

the USDA on the Federal program as well as with the private carriers.

Along came the 2000 ARPA legislation, which I give a lot of credit to this subcommittee and the committee for making some significant changes to crop insurance, which made it both more affordable

11

but also user-friendly in Pennsylvania. It took us to a whole new

level in the State, and I appreciate the work of this subcommittee

in doing that.

In 2002, the Department of Agriculture developed an improved

adjusted gross revenue product called AGR-Lite as a working title.

Are you familiar with the Adjusted Gross Revenue Program? We

had it in Pennsylvania, had it expanded in Pennsylvania to 14

counties, and then the concept is you basically insure the operation. It is a whole farm approach versus a very specific crop. We

believe that this was the right approach. It has some limitations,

but under the authority of the 508(h) provision, which allows the

private sector to develop new products where they see need, the

Department of Agriculture took the leadership, we developed a new

product called AGR-Lite. We believe that it has tremendous potential both for the Department of Agriculture, Pennsylvania producers, but also all small producers across the country. It is one of the

areas that I would ask for additional consideration by the subcommittee to focus on and also by the USDA because it holds real

potential in addressing the needs of producers who are diversified,

who have specialty type products, but at this point in Pennsylvania, at least, you cannot buy certain policies in certain counties.

And that is a huge limitation, because what we are trying to do is

protect the producers against lost income to basically guarantee

them a payday, and that is what crop insurance does, but unfortunately as it stands now, it is not available to all producers in all

counties.

So we took the leadership, developed a new product. It is working well. We are back to the USDA, the Federal Crop Insurance

Corporation again, asking for their consideration on some modifications, which we hope will be addressed very soon. And I give a lot

of credit to Ross Davidson, the team at RMA for considering that,

and the Federal Crop Insurance Board.

The other point I would make is last year, for the 2003 crop insurance year, the USDA made the American Management Association funds available to the underserved States and the additional

premium available. That was a huge benefit. I mean, with relatively little notice, about three week notice at the peak of the

signup, Pennsylvania producers responded, and they responded

very strongly. About 60 percent of the producers using crop insurance bought coverage of 75 percent or greater of their historical

yields in 2003. That was an increase of 20 percent over 2002. It is

estimated that the resulting buy-up coverage will yield an increase

anywhere from $80 to $100 million in protection for Pennsylvania

producers, and that cost about $6.5 million in USDA-authorized

AMA moneys.

Furthermore, just to put it in perspective, for the 15 low-participating States, it is estimated that producers purchased about $200

to $250 million in increased protection, and again, that is about a

25 percent increase over 2002. The Department’s opinion is that

the positive producer response to this USDA initiative may well

have been the most significant one year change of producer risk

management preparedness of all time.

A couple of critical needs that we have, one in the specialty crops

we have mentioned, the tree, vine and bush, our friend from FlorVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
12

ida mentioned the citrus canker. We have a plum pox virus issue

very similar to the citrus canker.

The fruit program, again, some issues there to deal with, but

overall, I want to applaud the work of the subcommittee and the

Agriculture Committee for taking the leadership, and the USDA. It

has been a very rewarding partnership between the Federal Government, State government, producers and those in the private sector.

There are three keys to crop insurance for us. One is affordability, education, and I think we are making progress in that regard, but we need new products, and those three stools are critical

to making this stand. I think we have taken steps to make it affordable. Education has been great, working with RMA and the

State partnership, but we do need new products.

I will leave it there. You have the official testimony. I appreciate

very much the opportunity.

[The prepared statement of Mr. Redding appears at the conclusion of the hearing.]

Mr. HOLDEN. Thank you.

Mr. MORAN. Mr. Secretary, thank you for joining us. I want to

pick up on your final comment in my line of questioning, but let

me first acknowledge that Administrator Davidson is here, and we

are very grateful for that. I appreciate your interest in hearing the

witnesses’ testimony, and almost without exception, they have been

complimentary of RMA and particularly you, Mr. Davidson, and I

join in that compliment and thank you for your extra effort to join

us today for this testimony. Thank you. Need new policies, need

new product lines. That really is the crux, at least from my perspective, of this hearing, which is why is it so difficult to accomplish that? What do we need to do as a subcommittee or as a Committee on Agriculture to ensure that that occurs? Is it the nature

of the specialty crops that make it so difficult that create the hurdles? Is it just the kind of agriculture that you are involved in? Are

the impediments statutory or are they administrative? Are there

specific things that we as Members of Congress need to do in order

to change the law to give RMA additional authority, or do we just

need to work with RMA to allow them to better utilize the authority they have? And I would offer that kind of line of questioning

or series of questions to any of the panelists who would like to respond. Mr. Brim.

Mr. BRIM. Mr. Chairman, I appreciate the opportunity. I think

one of the problems with specialty crops in my particular instance

is I have so many different varieties of specialty crops, and with

RMA and the insurance industry, I don’t think they have the right

amount of people available to be able to ensure that you are going

to be able to collect on that insurance, and in some of our areas,

we don’t even have the insurance. We have some pilot programs,

and I mentioned in my testimony about the difference in pilot programs and, highly unfortunately, some of the pilot programs have

been abused, and it has hurt the growers that are in it full-time

like I am. It skews the market and it also takes away from the

market demand, so it decreases the prices that we have on our

product.

13

I think RMA does a good job with what they have, but I think

there are some areas of the specialty crop areas that they could,

on the field of identities and different varieties and different commodities, to be able to give us a better insurance program and not

do the pilot programs at such a significant area. If you are going

to do it, do it in a wider county area than, like for instance, I have

a cabbage pilot program in the county next to me. Well, everybody

in that county planted cabbage. Well, I have grown cabbage for 15

years, and all it did was reduce the price of the market down so

it made me suffer, so I think there is a lot of areas there that we

need really some work on, so that it won’t skew the market so way

out of proportion.

Mr. MORAN. Other comments? Mr. Secretary.

Mr. REDDING. Yes, several thoughts. Looking at specialty crops,

in Pennsylvania’s case, at least, you know, we have a lot of folks

who are producing for a fresh market or a metropolitan market,

and the availability of good baseline data from Agricultural Statistics or the county, as Mr. Brim had mentioned, becomes a real

issue. What we have tried to do is to say we have got those trends.

I mean, they are not going to change. You are going to have specialty crop producers. If they see a market opportunity to produce

for a direct market or metropolitan market in some way, they are

going to do that, but they are doing that at this point in a fairly

high-risk market because there is no protection.

That was part of what drove us to look at the AGR-Lite and to

step back and say, you know, in our case, we’ve got 67 counties in

the State. There are very few commodities that are covered statewide. If you look at winter squash, as an example, there is one

county you can buy that policy in. There is one county for cabbage.

There is 10 for processing beans. By the time we get to the point

of developing new products for those counties or developing the

baseline data to support or assure the underwriters that that is

going to be a reasonable investment, too much risk has already

been by and you run the opportunity, I guess, to lose some producers. We stepped into it and said, why don’t we just put a wraparound policy on the operation? Because at the end of the day,

what you are trying to protect is income. You really don’t care

about the crop. You are really trying to protect income, and to

guarantee the producer a payday, make sure they have something

in the terms of a crop if the weather and conditions are right, or

if they are not, some type of protection.

And that was the approach that the Adjusted Gross Revenue policy set out. In principle, it is a great approach. There are some systemic problems with AGR that drove us to an AGR-Lite arrangement, but we think long-term, that is probably the better way to

go. Step away from individual commodities and look really at protecting farm income at the farm level, and the way to do that is

to use income tax records to base, actually get a handle on gross

and net farm income, and then write a policy around the income

and protect that income stream, and stay out of the discussion as

to whether the beans are covered, strawberries are in, pumpkins

are out, whatever it may be. Because at the end of the day, it is

very difficult to get either private products written for those or to

14

have the USDA, with all of their demands, to prioritize those for

a particular State or a particular region.

Mr. MORAN. I discovered—we discovered in organizing this hearing and seeking witnesses that specialty crops is not a generic

term. That there is a long list of agriculturally-produced products

that I guess fit under an umbrella of specialty crops. But kind of

every time we tried to bring a general discussion about specialty

crops, another producer organization or set of producers came to us

with well, we would like to tell you our story, which is different

than the story told by somebody who produces another crop. We

are going to pursue those, but I guess it lends itself to a question,

are all the specialty crops, are they produced in a volume that is

sufficient to adequately spread risks through crop insurance, or are

there just specialty crops, are there crops that we produce in this

country that insufficient number of farmers and acres planted and

volume of production that would be very difficult to create a product to spread risks among?

Mr. WATKINS. Mr. Chairman, I will try to respond to that. I am

not certain that the answer is adequately in the affirmative to your

question, because there are a lot of people growing very, very specialized crops, and to have enough of that crop to make it worthwhile probably is very difficult. But I think what we are going to

have to do is set up categories of specialty crops that some of these

items can fit under, and try to see if there is some way to insure

them or give them at least some support in that direction.

Another point that I think I would like to bring back up is dealing with RMA. We have—the nursery industry has worked with

them and we have had a good working relationship, but they don’t

feel that their policies, as they are seeing them right now, give

them the breadth to change some of say, the pricing structure of

using wholesale prices of nursery stock, for example. And I am not

certain that we don’t need to at least direct them through Congress

to address that issue and try to find out how to adequately compensate some of these specialty crop areas by using and looking at

and doing studies on that pricing structure.

If you are not meeting that payday for that particular crop, you

are really not benefiting the industry, and you are not supporting

it.

Mr. MORAN. Thank you. My time has expired. I would only respond with two thoughts. One, the suggestion by the Secretary

about income coverage may address the issue of all the variety of

specialty crops, if we are looking at income rather than crop production, and then the point that you make, Mr. Watkins, you used

the word policies, which means something to me different than the

law. We may need to encourage, direct RMA to do some things, but

the use of the word policy suggests to me that RMA would have

the ability to change the policies that you believe are impediments

to them addressing the issues you think are important as a nurseryman.

Mr. WATKINS. Yes, sir.

Mr. MORAN. OK. I recognize the gentleman from Minnesota, Mr.

Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. I think it was in 1991

when I introduced an amendment to one of our bills to have a

15

whole farm coverage in the program crop area. We really haven’t

made that happen. To this day, there has been some attempts, but

it seems like we always get back to the crop by crop situation. I

am curious about how this pilot project system works. How do you

get into—do you have to—does the local area have to petition in

or does RMA go out and select things, or how does that work?

Could anybody explain that to me?

Mr. BRIM. I believe that RMA selects the counties that they are

going to put the pilot programs in. Mr. Davis—or the Board of Directors, he said, select the counties that——

Mr. PETERSON. Do you growers have any input into that?

Mr. BRIM. No, sir.

Mr. PETERSON. Mr. Davidson is saying that you do.

Mr. BRIM. Well, we didn’t in our county, because I have never

been selected, so the counties they have selected may have been involved in it.

Mr. PETERSON. Well, I keep hearing that part of the problem is

that these pilots are not big enough.

Mr. BRIM. Right. Yes, sir.

Mr. PETERSON. And you’ve relayed that, I assume, to the Department.

Mr. BRIM. Well, it is like in the cabbage, for instance that I

talked about, the cabbage counties. There is about 10 or 12 counties right in that area that all grow a certain amount of cabbage,

and we singled out one county right there, right close to me.

There are four counties altogether, I think, in the whole State of

Georgia that were selected, but it just needs to be in a wider range

of area so that it doesn’t skew the market for all the rest of us.

I think it is a great thing that they are trying to do, but I mean,

I think it just defeats the purpose——

Mr. PETERSON. I understand your situation, but it seems to me

if you covered all cabbage, you may get more production of cabbage

than you could sell.

Mr. BRIM. Exactly.

Mr. PETERSON. You could collapse the price anyway. That has

been one of the issues with having a whole farm situation, other

people have been concerned that we are going to give too much protection to people. We have had, up in our area, navy beans and

these kinds of things that have been——

Mr. BRIM. Well, if RMA could go in and reduce the amount of

acreage that each farmer could grow in those particular pilot programs, or whatever amount of funding that they want to spend on

that pilot program, then reduce it down and let everyone have an

opportunity to grow that X amount that they could have dollars

available, then that might stop some of the skewing of the market.

Mr. PETERSON. But another way to get away from it is if you just

have this whole farm option, then people could grow whatever they

want and you wouldn’t get into that situation so much, I would

guess.

Mr. BRIM. Yes.

Mr. PETERSON. Is that where you would like to see this thing

head?

16

Mr. BRIM. I think that AGR is a good way to go, I think there’s

some things that they need to tweak in it to make it work better,

but it definitely has a great potential for us.

Mr. PETERSON. The problems now are what, it costs too much for

what coverage you get, or what are the problems?

Mr. BRIM. Yes, sir. The cost of the insurance program.

Mr. PETERSON. Do you all agree with that?

Mr. CARDEN. In our area, we really can’t say. There are some

pilot counties that have the AGR in them in Florida, but they’re

not really the counties that are producing large amounts of agricultural volume in terms of dollars or crops or anything else. Therefore, we really don’t have that experience. Again, we are in the

same boat where we would like to see that expanded into some of

what I call the more meaningful counties, so then we could get a

better evaluation of it.

And at the same time, in some of our vegetable policies, we had

the same concern when we designed those 20 odd years ago, and

what we finally came up with was a limitation in order to keep the

market from being flooded with a crop, in that no grower for crop

insurance purposes could increase his acreage by more than I believe it is 20 percent from one year to the next without certifying

why that was happening. In other words, he bought out an existing

farming operation or something like that, but the whole idea was

to prevent them from throwing a big flood of that commodity on the

market.

Mr. PETERSON. Yes, Mr. Redding.

Mr. REDDING. Just on the AGR product, I had mentioned this

sort of in—it is the right concept, I mean at least from our perspective in the Department of Agriculture in Pennsylvania. But the

limitation on AGR for us, at least, in a State that has 40 percent

of its gross farm income is from the dairy industry, from livestock,

is that there is a cap on the percent of income that could be counted towards a gross farm income. And it is currently at 35 percent

of the income, or no more than that can be from livestock-generated income, to include milk receipts.

Mr. PETERSON. Gross income?

Mr. REDDING. Yes. And that is a real limitation. So a lot of producers like the concept, but when you start talking about what is

eligible and crossing the 35 percent threshold, that is a problem.

The other issue simply is paperwork. I will tell you that when you

get into adjusted gross revenue and you put 5 years of historical

tax records on the table, one, there is always sort of a reluctance

of producers to share tax information and to share the Schedule F

with a crop insurance agent. They normally give that to the banker, they give it to somebody else to help on the farm management

side, but historically not to a crop insurance company or an individual.

But that is one of the trade-offs. I mean, if producers want to

protect their income, you now have to bring people into the conversation maybe that previously were not part of that. That has

taken both a tremendous amount of education at the producer

level, but also the agent level, and both for cooperative extension

in this State and also the insurance agents in the State to educate

them about the value of the product, but also handling some of

17

those sensitivities and reassuring producers that the information

being requested is for purposes of establishing that baseline that

is critical before you can have somebody actually write a policy on

the operation. So it is really an income cap for livestock income and

a paperwork issue.

Mr. MORAN. Thank you. The gentleman from Michigan.

Mr. SMITH. Mr. Chairman, thank you very much for holding this

hearing. I am somewhat embarrassed, being from Michigan, we

have a lot of diversification. We have 120 different commodities

grown in Michigan. We rank second only to California, and we

have some dramatic losses in 2002. In fact, dry bean yields were

down 87 percent; grape yields down 64 percent; tart cherries, 95

percent; sweet cherries, down 75 percent; grapes, 66 percent;

peach, 69 percent; apple yields down 41 percent; blueberries, down

25; asparagus, 24; plum yields were down 94 percent. So a system

in this country where we—and the crop insurance is subsidized,

that I am assuming it is subsidized at the same—about the same

level. And I don’t know if I can ask Mr. Davidson a question, but

I am assuming that crop insurance is subsidized for the specialty

crops at about the same level as it is for the major field crops.

But we distort the marketplace a little bit by saying that we are

going to have all this crop insurance available for wheat, soybeans,

cotton, rice, and yet on the specialty crops, we are way behind, just

starting out, starting to move ahead. So we tend, I suspect, to disadvantage those specialty crop farmers, which in the long range

probably isn’t the right way to go. How many—is there a limitation—so I am just going to ask some questions to better understand

it. Is there a limitation on the number of acres that you have to

have or the amount of income that comes from your specialty crop

production to be eligible to do insurance, if it is available in your

particular area?

Mr. BRIM. No, sir, it is not. There is not a limitation on that.

Mr. SMITH. So a person that grows a quarter of an acre of pumpkins is as eligible to buy that crop insurance as somebody that has

20 acres of pumpkins?

Mr. BRIM. Instead of like a quarter of an acre, I mean, there may

be like a 20-acre limit or a 25-acre limit on crops——

Mr. CARDEN. In a lot of cases—excuse me, In a lot of cases, that

is true in terms of some of the specialty crop programs we have is

that the limitation comes in the form of a grower had to have produced a minimum amount of a crop the previous year in order to

qualify to enter into the insurance program. But generally, it is

enough to make sure that he is professionally growing, that it is

not something that he is just growing in his backyard to sell off the

front of his house.

Mr. SMITH. Is the availability of insurance for certain crops in

certain areas make financing for the farm operation and that specialty crop more available in those areas, so if you are not in an

area that can’t buy the insurance and can’t guarantee through insurance that you are going to have some income to pay back your

loans, if you borrow money to do your operation, is the importance

of having crop insurance available somewhat important, very important, extremely important, in terms of getting a loan if a farmer

18

is borrowing money to do their farm specialty crop operation?

Maybe just go down the line. I don’t know how to——

Mr. BRIM. I think it makes a lot easier to go into your banker

to ask to borrow money if you have got something to back it up

with, and I have talked with my banker right before to left to ask

him, you know, what kind of situation he felt like, and he thought

the gross revenue product was a good idea.

Mr. SMITH. Mr. Carden.

Mr. CARDEN. It has become more important over the years, very

definitely, and I don’t know that it in any case that it is the critical

decision right now, but I do know that it is a big part of it in the

case of our growers.

Mr. SMITH. And Mr. Watkins.

Mr. WATKINS. I have seen it in the nursery industries becoming

more and more important to find out if in fact the product can be

insured, or if in fact the crop can be insured. Up until the past 5

or 6 years ago, they never even asked. They probably didn’t assume

it was there.

Mr. SMITH. Help me understand a little better. The insurance

coverage in terms of quality reduction as opposed to yield reduction, whoever wants to get that.

Mr. BRIM. I think it would basically all be included in the Gross

Revenue product if that is what we could come up with.

Mr. SMITH. No, but right now, how does it work?

Mr. BRIM. I am not sure. I am not in that program, so I really

can’t answer.

Mr. CARDEN. It really varies on a crop by crop basis, and it varies even within some crops in a State by State basis. I know we

have got—for example, I have got farmers that insure tomatoes in

several different States. They will have one policy that is based on

a dollar type amount of protection in Florida, where up in the Virginia area or in California, they are dealing with a yield policy that

is based strictly on their historical yields, just like a row crop policy.

So it really does vary a lot within the policy and, you know, so

many things go into the designing of those policies; the type of

market that you are trying to approach and whether or not you can

store it, whether it is fresh market production, or it is canned or

processed or something else, all of those factors have to weighed

when you are deciding what kind of a program to put together.

Mr. SMITH. Mr. Chairman, the other question that I have some

time for somebody is what percent of the specialty crops have revenue assurance insurance available? So maybe some time Mr. Davidson or somebody could——

Mr. MORAN. Having asked the question, if anyone has an answer

on the panel, I would be glad to have you answer the question. The

gentleman from Pennsylvania, Mr. Holden.

Mr. HOLDEN. Thank you, Mr. Chairman. Mr. Chairman, I have

several questions for Mr. Redding that he has already addressed,

but I am just trying to analyze what Pennsylvania’s noninsured exposure is. Mr. Redding, I guess since 1998, we went from 7,000

policies to 15,000, but that is still less than 50 percent participation, am I right?

Mr. REDDING. It is going to be in the ballpark of 50 percent.

19

Mr. HOLDEN. And would that be about the same in New York

and New England and the mid-Atlantic States? If anyone can answer that.

Mr. REDDING. My understanding on the other sort of New England States, Northeastern States, it is going to be probably closer

to 25 percent than 50.

Mr. HOLDEN. And is that because of the AGR-Lite program?

Mr. REDDING. It is part of the interest or at least what has

spawned some of the interest in the neighbors to our north of

Pennsylvania to participate in AGR-Lite. They recognize to bring a

lot of these folks in, you are going to have to have a product, and

currently that product is not there. Either it doesn’t address the

needs, or isn’t available for one reason or another, so the way to

address that is to try to reach out and bring in the revenue side

of the operation.

Mr. HOLDEN. So the AGR-Lite program has enrolled 14 of Pennsylvania’s 67 counties, correct?

Mr. REDDING. That is correct. We started with six, we added

eight additional counties in a pilot basis. We have 14 out of 67.

Mr. HOLDEN. And out of the 67, we probably have significant production in 55, 57 counties?

Mr. REDDING. Sixty-six. If you take Philadelphia County out,

then you are left with some production——

Mr. HOLDEN. What do they grow in Allegheny County?

Mr. REDDING. Oh, they have some nice farms in Allegheny County. The southern part of the county towards the airport, if you fly

into Pittsburgh Airport, you see Allegheny County.

Mr. HOLDEN. OK. So the negotiations with RMA you said are

going along in a positive manner. I am just curious what are the

main sticking points in the negotiations. Is it the subsidy price if

you try to enroll the 66 counties, or where in the negotiations are

you having trouble?

Mr. REDDING. Well, I think there are a couple of issues. Clearly

we are into new territory, and part of the 508(h), which is the new

product development provision, part of this is you need to have

somebody take the leadership in that farm community, in the insurance community, in the State Government community somewhere. In Pennsylvania, we have done that, but part of the issue

is trying to work through that process, but also sort of reassure

those who have to make some decision about the fiscal health of

those types of policies. There just aren’t enough of them to sort of

provide that, first of all.

Two, there are issues of trying to verify income, and when you

start down this road of looking at a whole farm approach, there are

issues you immediately run into that are very separate from cropspecific income, and we spent a lot of time working with RMA, and

to their credit have looked at it, but that is a challenge. And I

would say part three is sort of getting the private companies who

are going to write the insurance, to get them to buy into it and get

them comfortable with the idea of now they have got a field staff

who has to understand both crops and revenue, and that has taken

some time.

Specifically to the proposal we have pending, we have a proposal

before the Federal Crop Insurance Corporation that looks at a 12-

20

State AGR-Lite proposal. We have brought in all of the New England States, and we are trying to work through that. I would say

the most important provision for us is going to be raising the gross

income level from where it is today at about $100,000 in liability

to $500,000. That $500,000 cap will allow a lot more producers to

come in, and particularly, specialty crop and livestock producers.

Mr. HOLDEN. Well, thank you, and I also want to thank Mr. Davidson for being here today and also for your continuing cooperation in these negotiations so we can try to get that exposure reduced. Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Holden. The gentleman from Florida, Mr. Putnam, although a member of the full Agriculture Committee, is not a member of this subcommittee, and I would ask

unanimous consent that he join us at the dais and be able to ask

the panel questions.

Mr. SMITH. I am reserving the right to object.

Mr. MORAN. Without objection——

Mr. SMITH. I relinquish that right.

Mr. MORAN. So ordered. Mr. Putnam, I appreciate you joining us.

In fact, your input to me is part of what sparked my interest in

this hearing, and I appreciate your accommodating us with the

suggestion that Mr. Carden be one of the witnesses. So we are delighted to have you and recognize you for any questions you may

have for the panel.

Mr. PUTNAM. Thank you, Mr. Chairman, and thank you so much

for your interest in this issue and particularly for indulging us in

having a local expertise on the panel. When ARPA passed, the

nursery industry, the fruit and vegetable industry generally, I

think, was pretty excited about the opportunities that it presented,

and perhaps we were guilty of unrealistic expectations, because at

least in my part of the world, we have been fairly disappointed that

a lot of what we hoped would occur has not come to pass, particularly, and Mr. Carden mentioned this in his testimony, that the

procedures that were set up to encourage outside innovation of

policies—in Mr. Carden’s words, he said the procedure they have

written for filing a policy with the Board is so onerous it cannot

be taken seriously as an avenue we can use. And that while RMA

has contracted out a large number of studies and programs as

mandated by ARPA, few have seen the light of day and none have

been to the benefit of specialty crop growers.

My first question, probably to Mr. Watkins, would be do you

share that same concern? Has it not been effective as you had

hoped?

Mr. WATKINS. Thank you, Mr. Putnam. In response, I would say

my concern is I don’t think that we have done a good enough job,

number one, educating the growers, particularly the specialty

growers, a lot of citrus growers, a lot of nursery growers, of the

availability of the product. And second, as I pointed out in my testimony, there are several changes that need to be made to make the

insurance applicable or properly applicable to that kind of crop.

And again, I point at the pricing, and the RMA has just said, you

know, we can’t do that. That is not how we do that now, so we are

not going to look at it. And I think that with the appropriate direcVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
21

tion from this subcommittee that we could at least get that part

of it studied and looked at.

I think also the looking at container crops versus crops that are

field growing, you know, there are differences and there are differences of exposure that exist there, and none of these are recognized right now. So I think there are a lot of needs to make the

program work better for the nursery industry in particular, as well

as some other specialty crops, and I thank you for the question.

Mr. PUTNAM. Mr. Carden, do you wish to further develop your

thoughts on ways that some obstacles could be removed to get new

policies into the system and yield greater participation by growers?

Mr. CARDEN. Well, I think one of the biggest problems that we

have seen, a lot of the problems that we are talking about here are

what I call time-tested problems or time-tested issues. These are

things that the industry has been bringing forward to RMA year

after year after year, asking for these changes to be put in place.

And we just—basically, in most cases, they seem to be thrown out

kind of out of hand, and that is what we had hoped we would see

here is—with the 508(h) submissions, was an avenue to make those

submissions maybe through a different route or to a different body,

and not have to have the same people telling us the same answer

over and over again, and see if we could get some relief in that

area.

Mr. PUTNAM. Mr. Brim, do you wish to comment on any of those

concerns?

Mr. BRIM. Yes. RMA has tried to do a very good job of what they

are doing. Their technology and all has changed so much in agriculture and forestry and the floral industry and the citrus industry

and all that we have there—the types of avenues that they go

about appraising what the value of the product is, particularly like

in my case, I have drip irrigation. Well, it costs a lot more money

to do drip irrigation than it does to grow a bare ground crop of

vegetables, and I think there needs to be some work done on the

political side of it to see if, with their policies, that they would be

able change some of their policies without having to go back

through the legislature to do it.

Mr. PUTNAM. Mr. Carden, you have asked for 5 years. You have

been working with RMA to try to implement a citrus canker peril

and fruit policy. Do you have any idea why there has been such resistance to that?

Mr. CARDEN. Absolutely no idea. In fact, we are generally told—

every year we bring it up with our committee at the Florida Citrus

Mutual and ask for it, and we are told that it looks fine. It should

be fine. It should be there, and then, lo and behold, when the program rolls out, it is not there. And, you know, again, we don’t know

why. We contact back with the same people, and they seem as mystified as we are. But it simply isn’t there, so I can’t tell you why.

We have never gotten what I would call a great explanation for it.

It just never shows up.

Mr. PUTNAM. The Federal and State governments have spent a

fortune both in eradication and compensation programs to growers

that certainly could be offset to a great degree through a thoughtful

risk management program. So hopefully, we will be able to either

22

get a good reason why it hasn’t occurred, or bring it about. So

thank you very much. Thank you, Mr. Chairman.

Mr. CARDEN. I certainly hope so.

Mr. PUTNAM. I see my time has expired.

Mr. MORAN. Mr. Putnam, thank you. The gentleman from North

Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you, Mr. Chairman, and thank you for

holding this hearing. Let me thank our witnesses for being here

this morning. Being from North Carolina, you may or may not

know, we are probably the third or fourth most diverse agricultural

State in the Nation, growing a lot of specialty crops out of necessity

in recent years, because we are trying to diversify our base more

and more. So we have a large number of specialty crops, as you can

appreciate, and I would tell you I am particularly interested in this

area because it is an area that not only is it difficult sometimes to

get bank loans, the insurance is critically important as farmers

start to diversify. Today, with a farmer diversifying with a small

plot, it is becoming fewer and fewer diversifying with larger and

larger acreage, and of course the exposure is tremendous. And if

you can’t get some insurance, I know you understand the problem

they face. They could be out of business very quickly in a very bad

year without some help.

Mr. Brim, I especially noted in your testimony about your difficulty in expanding pilot programs for commodities to other parts

of the State and beyond. I had in my office just in the last 10 days

a group from the sweet potato group that would affect not only

North Carolina, but Georgia and one or two other States, I think.

But by and large, large numbers are grown in eastern North Carolina, and they have been experiencing the same difficulty, so I

know what you are talking about. But my question is, and I am

very curious, what has been RMA’s answer to your complaints or

your problems or your prodding and your concerns, and is the

cause of the delay, in your opinion, a systemic problem within what

we are dealing with, a legislative problem, or is it related to a specific crop?

Mr. BRIM. No, sir. I appreciate the opportunity to respond. I

think that the problem—and I am familiar with the sweet potatoes

in North Carolina, because I have some friends, growers up there,

that they really complained about the way that the pilot programs

up there worked because it skewed their markets as well. But I

think that RMA has tried to do a good job. I think things get

bogged down out in Kansas City for some reason or another, and

I am not sure why, but we have, not in my particular area, but the

pecan area, we have had some permanent policies put in for pecans

that it has just—and it should have already been instituted in

2003. And I think it is sitting there now out in Kansas City and

they are not doing anything with it, and we just don’t know why

they continue to sit on it out there.

I think there are some areas that the pilot programs really do

work, but like I said a while ago, I think they need to be expanded

so that the acreage is a wider area of coverage so it won’t skew the

markets out of proportion.

Mr. ETHERIDGE. Mr. Chairman, I would hope in the future we

can invite someone from Kansas City and get some answers, beVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
23

cause I know a little bit about this, and what really happens is if

I am covered and you are not, and you happen to have—you are

right across the county line from me or in the next community, and

you are covered and I am not, you have an advantage over me because your insurance is covered. Mine is not. If we have a loss, the

bankers are going to look at us, and you can literally rent land and

pay more for the land than I can, so we are putting farmers at a

disadvantage, and then the marketplace pays the difference in that

price, and I think that is unfortunate in our policies. Wherever the

bottleneck is, we need to open up that neck.

Mr. BRIM. Might I respond again? I think in North Carolina in

several counties, they had a pepper pilot project as well, and I have

some good friends that are in the pepper business up there, and

it almost put them out of business because it skewed the market

so bad that acreage went up to 3 or 4,000 plus more than they normally have, and it almost put them out of business.

Mr. ETHERIDGE. And I think the pilots are great, but the problem

is, we keep having pilots and don’t expand them when we have got

good data, and I think, Mr. Chairman, that is important. Mr.

Chairman, if I may, I have a letter from the North Carolina Strawberry Association to the Risk Management Agency, and they have

got some of the same problems and I would appreciate your position to insert this letter as part of the record, if I may.

Mr. MORAN. Without objection, so ordered.

[The letter appears at the conclusion of the hearing.]

Mr. ETHERIDGE. Thank you. I yield back.

Mr. MORAN. The gentlewoman from Colorado.

Ms. MUSGRAVE. Thank you, Mr. Chairman. You know, a lot of

this doesn’t pertain to where I live and where my producers are in

the State of Colorado, but I do have one county specifically that has

some of the best agricultural land in the United States, Weld County in Colorado, and a number of specialty crops are grown. So I am

trying to just listen and figure out how this all works, but of primary concern to me is how agents are educated and how producers

are educated and kind of some of the complicated issues that might

be found with some of the crops in Colorado, where a particular

kind of squash is grown for the Japanese people. And you have one

little minor storm where they may be a blemish on the squash from

some very soft hail or whatever, and that crop suddenly becomes

worthless. And, you know, it is given to homeless shelters, and it

still—even getting it out of the field is expensive even if much of

it is done by volunteers, so the whole issue of crop insurance for

specialty crops is of great interest to me.

I don’t know if anyone on the panel can address the education

issue of agents and producers, so people, whether they are in the

east or whether they are in Colorado, they know what is available

to them and the peculiar situations that arise with some kind of

weather issue that might make the crop unsalable to anybody even

though it is still perfectly edible and good, but it is worthless to the

farmer then.

Mr. CARDEN. Yes, I will try to answer that, Ms. Musgrave. The

education issue as—and I am a crop insurance agent as well. It is

a huge issue for us. I addressed some of that in my testimony in

that because of this, every single one of these crops is different.

24

The policies and the idiosyncrasies of them make each one completely different. It requires a completely different set of knowledge

for each one of them. We need time to digest everything that comes

in there.

There are also fairly dynamic. There are things within these programs that change every single year. We need time, the companies

that have to service the policies need time to know what they are

going to be doing, educate their own people, and then pass that

knowledge down to me as an agent. I need the time to digest it and

then go out and present it to the producers in the field so that they

can know what exactly they are or are not buying when they make

that decision, and know how the policy works.

I can remember when things were expanding so much back in

the early and mid–1990’s with this program. We went from in the

citrus industry participation of probably 10, 12 percent of the acreage out there to somewhere around 80 percent in a matter of 2

years. Growers were taking losses that they didn’t even know that

they could claim an insurance indemnity on, and we were finding

out about it almost after the fact and going back and trying to help

them figure out how to prove what they lost, and you know, I think

it is critical.

This is a big issue with me personally. I know it has been a big

issue with the crop insurance industry in general, is getting this

information from RMA in a timely enough manner for us to be able

to get it out there properly so that everybody understands what is

going on, from the grower to the banker that is lending him the

money to the insurance companies that service it, everyone.

Mr. MUSGRAVE. Thank you, Mr. Chairman.

Mr. MORAN. Thank you very much, Ms. Musgrave. Just a couple

of followup questions, if I could. Mr. Brim, in your testimony, a

couple of things stood out to me about production records and your

concern about the price effect when people in a pilot county begin

growing cabbages, in your case. It seemed to me that your testimony, you have had that answered by RMA who says we have got

to have 3 years of production records before we will provide insurance coverage. And yet my impression was that you don’t think

that is the way it is working.

Mr. BRIM. Well, up until this point, and in my earlier testimony,

I didn’t realize that they had a 3-year—they had changed the law

to where it was three years, which would work. But back in 1999,

we had a watermelon issue where they had a pilot project for Georgia and Alabama, and some of the agents called and asked me

what I thought about it. I told them that they had better not do

it, because, I said, you need some history behind the growers, and

don’t insure somebody that is not growing already, and they went

ahead and did the pilot project.

And I think Mr. Davidson can tell you what it cost them to do

that pilot project. It was a disaster, and I hate to see our Government be abused as well as us trying to abuse the Government, so

I think it is just an opportunity for us to rewrite some regulations

with these pilot projects to keep them from abusing the government as well as abusing our taxes.

25

Mr. MORAN. Do you believe that that is continuing, the practice

that you are complaining about, it is still a problem today, or it has

been corrected?

Mr. BRIM. Well, we don’t have enough pilot projects now to speak

to that.

Mr. MORAN. And then I just would agree with you about this

issue of unit, which you described as field or orchard, that is a

problem for all of us in crop insurance as to what unit of the farming operation is covered, a loss on a particular field and production

that is successful on another. And we need to continue to work, I

think, on that issue, and I share Mr. Putnam’s question or frustration.

If there is an example of why there is frustration with government, the canker story, 5 years of effort is an awfully good example

or a bad example about how things should or shouldn’t work, and

again, would—hopefully, RMA listening to the testimony, maybe

they have an explanation for why this shouldn’t happen. But just

reading your testimony, Mr. Carden, it doesn’t appear to be a good

explanation, and would encourage RMA to finally resolve this

issue, as compared to what has happened in the past.

Mr. Watkins, Christmas trees, that is one I can relate to as a

Kansan. We have a few folks who raise Christmas trees. Are

Christmas trees not covered at all under crop insurance? When you

asked for a program for Christmas trees, there is no program

today?

Mr. WATKINS. I do not think that they are covered as it currently

exists.

Mr. MORAN. And any inherent problems in Christmas tree production that would make it difficult to insure?

Mr. WATKINS. I would think in terms of specialty crops, it would

probably be one of the easier ones to insure.

Mr. MORAN. That is the way my reaction would be to that. It is

a crop that you can easily define. The value is there.

Mr. WATKINS. It is pretty easy to define the value, and pretty

easy to define the market.

Mr. MORAN. One of you, and I couldn’t find it while I was sitting

here, but in reading your testimony, I remember one of you talking

about greenhouses and the inability to insure greenhouse-grown

products or crops. Would you expand upon that? I mean, I had not

thought about that, but it seems to me there is an obvious issue

about a farmer who utilizes a greenhouse as compared to one growing more fully with nature, a different kind of risks, I assume, and

I would like to know a little bit more about that.

Mr. CARDEN. Sure. Yes, and that was in my testimony, Mr.

Chairman. What you are dealing with there is, within the eligible

plant list that comes out in conjunction with the nursery policy eligibility material, they define whether or not a plant is insurable in

a given physical or geographical location. They define that by hardiness zone, and they give each county a particular zone number.

If the plant in question is not listed as hardy to that zone number,

it is not insurable on that geographical spot.

Now, it makes sense if you are leaving it outside, but again, if

you are putting a controlled structure over it, controlling the water,

controlling the temperature, hot or cold, and doing the things that

26

you need to do to ensure that it, in fact, is in an artificial environment now that is conducive to raising that plant, it doesn’t make

sense to us not to insure it.

Mr. MORAN. Are greenhouse-grown plants insurable? Today,

there is a program that exists for——

Mr. CARDEN. They are insurable, and there are different things

within a hardiness zone that will tell you in those given plants

what you have to do to protect them. In some cases, they are required to be in a greenhouse. But again, there are a large number

of plants that are not insurable in that zone. They are just not

rated for it. And that is true, as far as I know, across the whole

spectrum in the United States.

Mr. MORAN. The insurance policy is directed toward greenhousegrown, environmentally-controlled growing conditions and the policy is different and the premium is different than if you were growing it outside?

Mr. CARDEN. No, there is a difference. The only difference that

is there from an insurability standpoint, they break it into two categories. One is field-grown and one is containerized stock. It can

be inside or outside depending on the variety. Now, if you have got

a variety of, say, some type of a specimen indoor plant. That has

to be insured in a greenhouse. I mean, that has to be covered and

protected by a greenhouse so that you can’t leave it out there, so

that if you get a freeze in the area, it won’t die.

Mr. MORAN. Let me try it this way. We can grow tomatoes outside, we can grow tomatoes inside. Is the insurance policy different

for greenhouse-grown tomatoes than field-grown tomatoes?

Mr. CARDEN. No, it is not.

Mr. MORAN. Really? What is the explanation for that?

Mr. CARDEN. No explanation.

Mr. BRIM. I have a greenhouse operation and we grow pine tree

seedlings, and we can’t insure the pine tree seedlings that we grow

inside the greenhouse. We can insure them outside the greenhouse,

but we can’t insure them inside the greenhouse.

Mr. MORAN. Would you say that again? I am sorry.

Mr. BRIM. Yes, sir. I will grow pine tree seedlings, and we grow

them outside under irrigation, and we also grow them in the greenhouse. We can insure them outside, but they will not allow us to

insure them inside the greenhouse. I am not sure why, but that is

just the way it is.

Mr. MORAN. Are the risks for an insurable event less for greenhouse-grown plants?

Mr. BRIM. Yes, sir. I mean, it is easier for us to grow them in

the greenhouse. They are more protected in the greenhouses than

they are outside, so I don’t know why they won’t let us insure

them, but that is just the way the law reads it.

Mr. MORAN. OK. Let me see if anyone else has questions. Mr.

Putnam.

Mr. PUTNAM. Just very briefly, and again, I don’t want to abuse

the privilege of being allowed to speak, but notwithstanding Mr.

Smith’s objection.

Mr. MORAN. You are a Member of Congress, which would suggest

that it is abused regularly.

Mr. PUTNAM. Well, then I will move forward.

27

Mr. MORAN. Please do.

Mr. PUTNAM. I just would leave with this comment. It is not a

question, it is that the sense that I get is that nobody really wants

to mess with specialty crops because they are hard. Because it is

difficult. You hear Mr. Smith talk about asparagus and plums and

grapes and apples and cherries and we have got strawberries and

all the winter vegetables and it is just not easy to do, but I would

remind everybody on the committee, because sometimes I feel like

that is sort of my role as the redheaded stepchild of specialty crops,

which is that this is all specialty crops have. There isn’t a program,

there isn’t a target price, there aren’t any AMTA payments for

these specialty crops.

They count on some type of thoughtful risk management tool, occasionally a disaster assistance tool, which can be mitigated by a

thoughtful risk management tool, and if you approach the perils

correctly, then you can avoid the problems that OMB is about to

create by setting a 50/50 payment limit on eradication of pests and

diseases. So all of these things that we get hit by, whether it is

opening up particular markets that have infestations, whether it is

the lack of AFIS protection at the borders, whether it is the lack

of OMB’s willingness to pay the tab to clean up the mess that AFIS

allows in here, or whether it is the simple threats that have faced

agriculture since the dawn of time that are weather-related.

This is really the only opportunity that these crops have to get

a limited form of assistance or protection from the Federal Government, unlike the grains, and so while I know that it is difficult for

RMA to go about designing these policies, they need to do it, and

they need to work with the industry and develop the innovation

necessary to have a workable, worthwhile system. We take a lot of

votes in the Congress that are naming Post Offices and recognizing

heroes, and we take some votes that are balancing the budget or

working with tax policy or dealing with Medicare. Some days are

easier than others, but you still get paid for the hard votes, and

I think that RMA really needs to adjust their approach to this and

understand that they just need to move forward and work with it.

When we were trying to devise a canker policy statewide for

Florida, it took legislative action to do it in 1999, and hopefully, it

won’t require further legislative action to bring about a workable

program for the rest of the specialty crops.

I appreciate the input of the panel, Mr. Chairman.

Mr. MORAN. Mr. Putnam, thank you for those comments. Only,

perhaps, to prove that I listen to you regularly, I have heard that

argument, but I have also heard you make that argument during

discussions about funding of research, that it is the only opportunity that your farmers have for assistance for the government. So

there is at least two, crop insurance and research.

Mr. PUTNAM. I apologize for leaving that one out in this particular tirade.

Mr. MORAN. Yes, sir.

I appreciate very much the witnesses’ participation today, the

knowledge that I have gained and I hope other members of our

subcommittee have gained. My staff was telling me, Mr. Brim,

when you were answering my question, I apologize for my inattention, but they were telling me that Christmas trees now have a feaVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
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sibility study underway in 2003, so I have a number of issues that

I am interested in pursuing, and the information that I have

gained today is very useful to me, and again, thank you for being

here.

Without objection, the record of today’s hearing will remain open

for 10 days to receive any additional material or supplementary

written responses from the witnesses to any questions posed by a

Member.

This hearing of the subcommittee is now adjourned. Thank you.

[Whereupon, at 11:46 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF RUSSELL C. REDDING

Mr. Chairman and members of the subcommittee, thank you for the opportunity

to be here today. My name is Russell Redding, Executive Deputy Secretary of the

Pennsylvania Department of Agriculture. I am pleased to participate on this panel

and explain how the Department has worked over the past several years to address

the crop insurance needs of our specialty crop producers.

The drought of 1999 served as a wake-up call for Pennsylvania producers. They realized that crop disasters do happen in Pennsylvania. The State provided a $60

million disaster assistance program to producers to strengthen agriculture. This was

in addition to the USDA’s disaster program. Participation in crop insurance was low

at the time but did pay producers $22.5 million for crop losses.

In 1998, producer participation in crop insurance programs included about 20 percent of the eligible acres in Pennsylvania. The perception of crop insurance and risk

management in general was that such programs did not work well at the farm level,

unless the grower mirrored the typical mid-west operation. Producers spoke of a

lack of effective crop programs and crop quality protection that was out of sync with

eastern markets. Producers also had difficulty with the requirement that they must

have third party verifiable records (which were available only for commercial grain

producers) to qualify for actual production history coverage.

The Pennsylvania Department of Agriculture recognized the value of improving

farm level risk management at both the micro and macro levels. A producer task

force was established to formulate recommendations to improve the Crop Insurance

Program so that it would work as well for Pennsylvania farms as it did in the Midwest and Great Plains states. The goal was for the program to be available statewide to all producers and at an affordable price.

As part of the 1999 State disaster legislation, some funding was provided for crop

insurance grants as an incentive for producers to buy meaningful crop insurance

protection in future years. From a public policy standpoint, increasing producer participation in crop insurance programs would increase the financial security of producers at the farm level and reduce the need for future, costly State disaster assistance.

The 2000 ARPA crop insurance reform was a boost to the process, as it provided

additional cost share, making higher levels of coverage more meaningful and affordable, and provided authority for outside development of new or improved products

and seed money for more aggressive educational efforts in low-participation states.

In 2002, the Pennsylvania Department of Agriculture developed an improved and

streamlined version of the Adjusted Gross Revenue (AGR) program called AGR-Lite.

Although the policy size was quite limited ($100,000 of liability per policy), it provided more streamlined, whole-farm coverage that provided protection for almost all

commodities, including the production of animals and by-products such as milk. It

was based on readily-available income tax records and guaranteed a combination of

production, quality, and price, based on the producer’s actual history. About 60

AGR-Lite policies were written in the first year alone versus only seven AGR policies written after 5 years of marketing efforts.

The Pennsylvania Department of Agriculture, in cooperation with Penn State University and RMA/USDA, launched an annual, intensive producer education program

to encourage producers to make broader use of federally-sponsored risk management

programs. By 2002, producer enrollment doubled to about 14,000 policyholders with

insurance protection of $222 million for a producer paid premium of $5.7 million.

Because of the devastating drought, producers received $63.6 million in crop loss

payments. So, with about $1.5 million annually of State provided producer cost

share and considerable producer educational efforts, annual protection at the farm

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level increased about $100 million and the State avoided the need for a another

costly disaster aid program.

USDA Secretary Venneman, in 2003, authorized the use of funds from the American Management Assistance Program (AMA) of the farm bill as an additional producer premium cost share on spring planted crops in order to make the higher, more

meaningful crop insurance coverages more affordable. With only a three-week enrollment period, Pennsylvania producer response was outstanding. About 60 percent

of the producers using crop insurance bought coverage of 75 percent or greater of

their historical yields in 2003, an increase from 20 percent of producers in 2002. It

is estimated that the resulting buy-up coverage will yield an increase from $80 to

$100 million in protection for Pennsylvania producers, from about $6.5 million of

USDA-authorized AMA mandatory cost share funds, because policies are more affordable.

Furthermore, in the 15 low- participation states, it is estimated that producers

purchased about $200 to $250 million in increased protection (a 25 percent increase

from 2002) because of the increased USDA cost share of about $15 million. The positive producer response to this USDA initiative may well have been the most significant one year change of producer risk management preparedness of all time.

PENNSYLVANIA PRODUCER NEEDS

Specialty crops. These crops are taking on increased importance as more growers

are producing for local and metropolitan markets in order to survive. Most of these

crops are either currently uninsurable or coverage is limited to a few counties. Much

remains to be done in this area.

Forages—There are 2 million acres of forage crops produced without a meaningful

Crop Insurance Program in place. The program currently available does not recognize quality which is of paramount importance to Pennsylvania producers.

Tree, Vine and Bush—Pennsylvania had an outbreak of Plum Pox several years

ago. Grower losses have been partially covered by indemnification programs. It is

critical that a meaningful crop insurance coverage be provided for these producers.

Fruit Programs—While there is reasonably good participation in the apple, peach

and grape programs, there is a deficiency in the quality protection of the policies

and in the case of grapes, coverage needs to be expanded to additional counties.

AGR/AGR-Lite—These whole-farm coverage programs currently make crop insurance available on many of the otherwise uninsured commodities. However, considerable work remains to make these programs work as well as they should for producers. The twelve-state AGR-Lite proposal for 2004 currently before the FCIC Board

of Directors is a must-have proposal in order to provide meaningful protection to the

small to mid-sized producers of animals and by-products such as milk. Higher levels

of coverage in these plans also need to be explored to be consistent with the producer needs and the authorization of the 2000 ARPA. AGR should be expanded

statewide and streamlined to fit the needs of larger producers.

SUMMARY

Promoting improved farm-level risk management has been a good public policy for

the Pennsylvania Department of Agriculture and has added financial strength on

thousands of Pennsylvania farms. With repeated disasters within the last several

years, crop insurance has been the cornerstone for the survival of Pennsylvania

farms.

At the functional level, there is still much that can be done to improve crop insurance so that it better fits the needs of Pennsylvania producers. We pledge to continue this effort as evidenced through the submission of three 508h risk management proposals submitted to the USDA/RMA on behalf of 12 northeastern states.

We also ask Congress to commend the USDA for the additional premium cost

share from farm bill AMA funds for 2004 crops. The $15 million in estimated cost

share dollars that generated an estimated $200 million in farm level protection was

a public policy bargain that should be repeated.

Pennsylvania Producers— Benefit From Additional Crop Insurance Cost Share

Spring Enrollment Highlight: USDA/RMA made additional crop insurance premium cost share money available that provided up to an additional 50 percent discount to the producers’ cost of 75 percent and higher levels of coverage. Producer

response was outstanding. For 2003, many of the producers chose to use the discounts to purchase protection at 75 percent or greater levels of coverage. The chart

shows the impact of the additional cost share on Buy-Up coverage. The actions by

producers when increased protection became more affordable are a testament to

their desire for improved protection to the extent that it is affordable.

30

Pennsylvania producers enjoy $80 to $100 million of additional protection in 2003

because of the added USDA cost share.

STATEMENT OF THE U.S. APPLE ASSOCIATION

The U.S. Apple Association (USApple) appreciates this opportunity to provide the

committee with information regarding the adequacy of risk management options for

our Nation’s apple growers.

USApple is the national trade association representing all segments of the apple

industry. Members include 40 State and regional apple associations representing

growers the country, as well as individual companies. USApple’s mission is to provide the means for all industry segments to join in appropriate collective efforts to

profitably produce and market apples and apple products.

Over the past 8 months, apple growers have been working directly with the U.S.

Department of Agriculture’s Risk Management Agency (RMA) in an effort to improve the apple crop insurance policy. This joint effort is expected to generate significant policy improvements for apple growers nationwide. We are hopeful the committee’s interest in this effort will help ensure its prompt implementation and success will depend on growers using it.

At the height of apple bloom in the spring of 2002, temperatures plummeted in

Midwest and Eastern apple growing regions causing devastating apple production

and quality losses. This single event highlighted the dismal inadequacies of the

apple crop insurance policy and drove the apple industry to seek disaster relief from

Congress. In an effort to reduce the need for future disaster assistance payments,

apple growers have since partnered with RMA in a determined effort to improve the

apple crop insurance policy.

A task force of regional grower representatives was assembled under the leadership of USApple to work with RMA’s Product Development Division to identify problems and solutions that could be incorporated into a new apple crop insurance policy. This collaborative process has resulted in a proposed apple crop insurance policy

that will soon enter the rule-making process.

USApple recommends implementation of this proposed apple policy as soon as

possible, so growers will have an improved risk management tool.

APPLE CROP INSURANCE PROBLEMS

I. The current apple crop insurance policy does not cover some common weatherrelated perils that reduce grower profitability and threaten the long-term economic

viability of apple growers.

Solution: The proposed policy will cover all common weather-related damage that

growers are unable to prevent through accepted horticultural practices or common

sense management. Some damages in the current or proposed policy include hail,

frost, freezing damage and limb rubs.

Comments: The inclusion of additional weather-related perils is a significant improvement in the apple crop insurance policy. USApple is confident this improvement will be incorporated in the final apple crop insurance policy.

II. The present apple crop insurance policy stipulates that damaged apples are not

covered by the base policy as long as the damaged apples were as good or better

than juice-grade apples. Juice-grade apples are a low grade apple, and under current economic conditions have little or no market value. This feature was a disincentive for participation because apples would have to sustain tremendous damage to

grade lower than juice-grade, and they would still have little economic value.

Solution: The proposed policy establishes U.S. No. 1 Processing grade as the

standard damaged apples should meet to allow grower claims. The proposed policy

also gives growers producing apples designated for the fresh market the option to

purchase coverage for U.S. Fancy grade, which is a higher specification grade.

Comments: USApple’s Task Force recommended growers should have options to

purchase the other fresh market grades of U.S. No. 1 Fresh grade and U.S. Extra

Fancy grade. The U.S. Fancy grade falls in between the U.S. No. 1 Fresh grade and

U.S. Extra Fancy grade. RMA agreed but indicated it did not have the necessary

data to immediately provide these options. RMA has agreed to collect this data to

incorporate these options in the apple policy. We urge these additional options be

available to apple growers as soon as possible, so they can better manage weatherrelated risk.

III. The coverage period for some apple varieties ends before they are harvested.

These varieties then can become vulnerable to late season weather problems, but

are ineligible for claims because the coverage is not in effect. Under the current polVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
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icy, the insurance coverage period ends November 5, while some varieties are not

mature enough for harvest until after November 5.

Solution: The proposed policy includes provisions to expand the coverage period

for late season varieties.

Comments: RMA plans to work with its regional offices to identify apple varieties

that would qualify for a policy date extension, and then set the final coverage date

based on that variety. This effort should be a high priority for implementation in

the proposed apple crop policy.

IV. The USDA-collected State averages designating fresh and processing apple

production are a disservice for the grower and discourage grower participation.

Apple production averages used to calculate coverage should be based on county

data instead of State data because county data is more representative of actual production for growers that have not developed a production history for specific orchards.

Solution: RMA recognizes the problem and the need for revising data to be more

accurate at the State level, and revising production history by county instead of

state.

Comments: RMA indicated this data may be too expensive to revise given USDA’s

current budget. Apple growers are concerned they will not receive fair apple crop

insurance policies because of continued use of inaccurate government data. Use of

accurate county data is important to encourage and expand grower participation.

V. Average production history (APH) records are used to determine the amount

of insurable apple production when apple policies are sold. Under the current policy,

production loss years are included when constructing the APH. These weather-related loss years lower the total amount of insurable acreage even though the acreage

has a greater production potential. Apple growers need an APH calculation that

does not penalize growers for weather-related losses in such a way that discourages

future participation in the apple crop insurance program.

Solution: RMA has agreed to reduce the APH by no more than 10 percent each

year even if the five-year apple production average calculation causes the APH to

decrease by more than 10 percent.

Comments: USApple’s Task Force recommended RMA remove the lowest production year from the five-year average APH calculation to help keep APH levels more

in-line with normal production. Since removal of the lowest year would require a

change in current law, USApple recommends adoption of legislation to implement

this APH change.

VI. Under the current apple crop insurance policy, growers break acreage into

units to more accurately insure orchards, which may be distinct because of varietal

differences or its destination in fresh or processing markets. Smaller units are more

advantageous to growers because growers are more likely to meet claim thresholds

if the units are smaller. However, growers are unable to define the size of their orchard units unless they can be defined as non-contiguous. RMA’s definition of noncontiguous is ‘‘any two or more tracts of land whose boundaries do not touch at any

point, except that land separated only by a public or private right-of-way, waterway,

or an irrigation canal will be considered as contiguous’’. Growers should be able to

use right-of-ways and other obvious boundaries to break orchards into smaller units.

Solution: RMA recognizes this problem, and is considering allowing public rightof-ways to define non-contiguous units in the forth-coming policy.

Comments: USApple is concerned that RMA may not incorporate this definition

into the new apple crop insurance policy because RMA claims this change will also

have to be allowed for all other crops.

VII. RMA’s actuarial estimates indicate the proposed apple crop insurance policy

may be as much as 33 percent more expensive than the current policy. If the improved policy is too expensive, USApple is concerned that grower participation in

crop insurance programs will decrease, and apple growers will face continuing risk

management challenges.

Solution: If grower participation in crop insurance decreases, greater Federal incentives to help offset premium costs should be established for apple crop insurance

policies to make them more reasonably priced.

Comments: USDA’s annual crop insurance incentive payments are not structured

to benefit apple growers or other tree fruit growers. Although the program is intended to provide financial incentives to all growers, apple growers must sign up

for crop insurance by Nov. 20, several months before knowing how the Federal financial incentives would impact the cost of the apple policy. USApple recommends

restructuring the annual crop insurance incentive program so that apple growers

can equitably participate as intended by USDA when the program was established.

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VIII. There is widespread lack of knowledge concerning crop insurance among

growers and within the insurance industry. This is an impediment to greater participation in apple risk management programs.

Solution: RMA should place a greater emphasis on educating apple growers and

insurance agencies selling to apple growers. This could be accomplished through regional education meetings, World Wide Web education modules and policy information sites. Once a new apple crop insurance policy that is supported by USApple,

is finalized and implemented by RMA, we hope to partner with RMA and the crop

insurance industry to inform and educate growers about the benefits of participating

in the improved program.

USApple appreciates this opportunity to provide input on the apple industry’s risk

management challenges and opportunities to improve risk management options for

all apple growers.

STATEMENT OF BOB CARDEN

Mr. Chairman, members ofthe committee, it is an honor for me to appear before

you to discuss the status of the specialty crop insurance industry. My name is Bob

Carden. I am the president of Carden and Associates, Inc., an insurance agency in

Winter Haven, FL. I am also a member of Florida Citrus Mutual, and the Florida

Nurserymen & Growers Association. My agency specializes in writing crop insurance for the specialty crops grown on the Florida peninsula. Currently, we have over

125,000 acres of citrus and $700,000,000 in nursery inventory insured under the

Federal Crop Insurance program, as well as more than 40,000 acres of other fruit

and vegetable crops. This morning I would like to talk about the Federal Crop Insurance program as it relates to these crops specifically, and to specialty crops in

general.

1. The Crop Insurance Program for Specialty Crops Not Perfect. Because of their

perishable nature and lack of Federal price support programs, specialty crops do not

neatly fit into the standard yield/price structure used to insure traditional row

crops. As such, specialty crop policies have been developed over the years to address

crop-specific issues. While these policies do offer many benefits and protections to

growers, improvements could greatly enhance their value as a risk protection tool.

Industry representatives are regularly in touch with the Risk Management Agency

(RMA) on these issues and RMA’s regional staff is always willing to listen to industry suggestions. However, the needs of the specialty crop industry remain unmet

largely due to an inability to have meaningful policy changes implemented through

the procedural process used by RMA .

Citrus Canker. One such instance involves the Citrus Canker. This disease is devastating to citrus, and when found in a grove it requires the immediate destruction

all citrus trees within a 1900-foot radius of the infected area. RMA correctly recognized the need to add this peril as a covered cause of loss to the Citrus Tree insurance policy in 1999, and growers are now paid for trees destroyed as a result of this

disease. However, Citrus Canker has yet to be added to the Citrus Fruit insurance

policy as a covered cause of loss. This makes little sense to us, as any fruit hanging

on a tree when it is destroyed is obviously lost as well. We have requested that

RMA add this peril to the Citrus Fruit policy for the last 5 years, and have worked

with RMA’s Valdosta Regional Service Office to accomplish this task. Every year we

have expected this addition, but as of the 2004 crop year, for which the Sales Closing Date was April 30 of this year, it has not been done. The logic in this is nonexistent, as it makes no sense to pay a grower for the loss of his trees but not the

loss of the fruit crop they are producing at the time of destruction.

Nursery Stock. Coverage for Nursery Stock is another area of concern. This policy

came into existence in the mid–1980’s, and has been of great assistance to our growers through the disasters that have occurred over the years. However, the diversity

of this industry, not just in Florida but nationwide, makes it such that gaps in coverage exist under this policy. Again, in 1999, RMA revised the policy and made

many needed changes; however, it did not go far enough. Additionally, it added

some new guidelines and restrictions that have, in many ways, made the policy less

useful as a meaningful risk management tool for growers.

For example, only plants for which RMA has established an average price in an

area are insurable. In the opinion of industry, price should not be a factor in whether or not coverage is offered, as price risk is not a covered cause of loss. Industry

believes that, if a plant can be established as hearty to a given area under a specific

set of growing conditions; it should be insurable whether or not RMA has established a value for it up front.

33

Along those same lines, RMA requires that inventory be valued at the lower of

the grower’s actual selling price or the price listed in RMA’s Eligible Plant Guide.

This sounds good up front, but is a nightmare in practice, as most growers have

multiple varieties of plants in their inventory, in many different container sizes. The

container size issue here is a problem its own, as RMA prints a guide as to entire

how a container’s size is determined. While the guide is taken from an industry publication, in practice it has very little to do with how growers and buyers of plants

perceive these sizes.

As such, in order to know how much insurance they have, growers must utilize

an RMA-provided computer program that they must input each variety they grow;

in each container size it is grown (after adjusting these to meet RMA standards),

just to establish the value RMA considers their plants to have. They must then compare this list to the prices they charge for their plants, take whichever figure is

lower, and multiply their inventory numbers, on a size-by-size, variety-by-variety

basis, and then total them. All this just to know what their inventory value is for

insurance purposes.

Just from the description above, you can see the problem. Add to it the fact that

the computer program is not user-friendly for growers, to the point that in my agency we carry out this task for our growers, as they simply cannot do it themselves

in any kind of timely or accurate manner. While I consider this a huge risk to my

agency from an errors and omissions standpoint, I feel it is one that I must take

in order to see that my growers are adequately and accurately protected.

All of that being said, there is a simpler way to do this: simply use the growers’

price list as the basis of value. At the time of loss, a loss adjuster can verify that

the prices used by the grower in establishing his value are indeed what he sells his

plants for, and the inventory value can be revised at that point if in fact the growers’ prices were inflated. The potential savings from this simplification in terms of

time wasted in re-calculating inventories alone is huge and would be a benefit to

all. This has been and continues to be the nursery industry’s recommendation to

RMA for 15 years, but to date they have expressed no interest in implementing it.

The nursery industry has offered many other suggestions to RMA as well. Several

of these have been on the table for over 10 years, but never acted upon. The entire

list is attached as Exhibit 1, but I would like to touch on two of them specifically.

First, RMA currently allows growers to insure plants only if they are grown within a given Hardiness Zone. This makes perfect sense when the plants are grown outdoors, as a palm tree could not reasonably be expected to survive in Maine. However, this requirement becomes meaningless when the plants are grown in a controlled environment such as a greenhouse. In this instance, the grower has minimized if not entirely removed the risk of loss to those plants. Under current guidelines, though, the stock not listed as hardy to the area is uninsurable whether or

not it is grown in a controlled environment.

There is also a major issue in Florida with rating. Currently, a nursery grower

in my hometown of Winter Haven, which is centrally located and 90 miles from each

coast, pays the same rate for insurance coverage as a grower in Miami, almost 200

miles away. However, in our area, nurseries rarely take losses, while the MiamiDade area experiences regular and disastrous events, primarily from hurricanes and

heavy rainfall. This cannot be justified actuarially and has been pointed out to RMA

many times. We are often told that the policy will be re-rated, and while this has

been done in some instances, it has yet to take on a meaningful form. As such,

growers in the Miami-Dade area are able to purchase high levels of coverage to protect their risk, yet growers in Central Florida by and large only purchase CAT coverage since they consider the cost to be excessive when compared to their risks.

The rating problem exists in the Citrus Fruit policy as well. No meaningful reduction in rates has been implemented during my 23 years of involvement with this

crop insurance policy, although it has a very low loss ratio over that time. In 1996

RMA did a major design change in the structure of this policy that on the surface

reduced rates substantially. However, a closer look reveals otherwise.

Prior to the change, a grower buying a Citrus Fruit policy had a 10 percent deductible regardless of the level of coverage he purchased. The policy change implemented by RMA mirrored the row crop deductibles of 15–50 percent. When a premium calculation was done, the cost of a 15 percent deductible was actually higher

than the same amount of coverage available under the old policy. The net result of

all of this was that growers now had a larger deductible, and had to pay more to

maintain the lowest deductible available. In other words, they paid more and got

less.

Situations like these exist in most if not all specialty crops. While I applaud all

of the effort of RMA has made to meet the needs of our growers, and their willingVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 F:\DOCS\10813 HAGRI PsN: HAGRI
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ness to listen to our needs, more needs to be done to make these policies all that

they could and should be.

2. Inadequate Time Between Release of Information by RMA and the Sales Closing Date. As you can see from the examples I have given above, these policies are

by their very nature complex. A great deal of training is required of both company

and agency personnel. It also requires a great deal of grower education in order for

them to make the most informed risk management decisions possible. Materials and

training must be provided early enough in the process to allow all of these functions

to take place. We should be given a minimum of four months, and longer if possible,

to work with this material once it is in its final form. In far too many instances

this does not happen.

The insurance company must review all of the material pertinent to any given

crop to know whether or not there have in fact been any changes to the program.

This includes a review of the Crop Insurance Handbook for that year, both the general and crop-specific policy provisions involved, and the actuarial documents,

among others. Once they have done this, they must then present it to their agents,

who, in turn present it to their growers, who decide on their appropriate levels of

coverage for the upcoming year. All of this must be accomplished by the Sales Closing Date, which varies by crop and is defined in the policy. It is also an inflexible

date, with no exceptions made. If a grower hasn’t made his risk management decisions by a certain date, he’s out of luck for a year.

In each crop policy RMA has also set a deadline for itself by which it must release

this material for the upcoming year. However, in many cases this deadline does not

allow sufficient time for all of the activities described above to take place. In the

case of nursery stock, for example, the deadline for release of the material is June

30, and the Inventory Filing deadline for renewal policies is October 1. 90 days is

an insufficient amount of time from the perspective of private industry. In reality,

if the grower is renewing his policy, he must report any changes to his inventory

value by September 1, if he wants the changes in effect on his policy by October

1. This is true because there is a 30-day waiting period for any changes to take effect. As such, private industry actually only has a 60-day window in which to review

the material for the upcoming year, prepare the necessary inventory schedules, inform our growers, and the growers make their insurance decisions for the upcoming

year and report their inventories.

This task is virtually impossible to carry out professionally within this time

frame, yet this is exactly what we are faced with this year. The Eligible Plant List

for the 2004 crop year was released July 1. Companies are currently in the process

of comparing the new list to 2003’s to determine if there were any changes, and if

so, what they are. Once I know that, I can begin the renewal process, but I cannot

begin until that time. Currently, our training is scheduled for the 22nd of July. This

will leave 28 working days my two agents and I to contact our 225-plus+ customers

and complete the renewal process.

All this assumes that the material is correct when it is released, sadly there are

times when it is not. Such was the case of the Eligible Plant List last year, when

some 150 varieties grown in Central Florida were inadvertently left off the list. By

the time RMA was able to make the correction and release the final version, September 1 had come and gone. We as agents were thus put in the position of asking

our growers to report their inventories and make their risk management decisions

as though they were based on the corrected price list, even though the corrected list

had not yet been released. This points out our high risk of errors and omissions exposure. In this case, I had two choices: either have my growers report their inventories and choose their coverage levels based on a promise which was not yet in

writing, or report the value based on the printed but soon to be revised schedule

and revise it after the corrected list came out, thus leaving them underinsured during the 30 day waiting period after the revisions were made.

To be fully fair here, I do believe that RMA does make every effort to release material to us in what they consider to be a timely manner. I also believe they understand the time requirements of the private sector. However, when they cannot meet

these needs, for whatever reason, they must be more flexible in giving us the time

we need to adequately and professionally complete our tasks. In a nutshell, and I

don’t mean to be overly harsh here, but RMA’s release dates are written in sand

for themselves, but in concrete for the private sector. This is a situation that should

be addressed.

3. Regulations under section 508h of ARPA for Submissions of Private Designed

Insurance Products Must Be Streamlined. Section 508h of the Agricultural Risk Protection Act of 2000 (ARPA) allows for private entities to submit private products,

which they have designed to the FCIC Board of Directors. The Board then has the

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option of approving the program presented, with the submitting group then entitled

to reimbursement for the cost of developing the program.

We in the specialty crop industry were very pleased when this provision was a

part of the final bill. We felt that we could now move forward not only with some

long sought policy revisions, but also would finally be able to offer coverage on a

large number of commodities for which no program currently exists. However, the

procedure RMA has written for filing a policy with the Board is so onerous that it

cannot be taken seriously as an avenue we can use. Exhibit 2, which is attached

to this testimony, shows this very clearly. If Congress’ goal under this section of

ARPA was to allow for a simplified procedure for the improvement and addition of

specialty crop policies, this procedure must be revised.

Additionally, while RMA has contracted out a large number of studies and programs as mandated by ARPA, few of these have seen the light of day, and none

have benefited specialty crop growers. This combined with RMA’s slow pace of making changes recommended by private industry has left us in the same place we were

in before the passage of ARPA frustrated. This is a major stumbling block for us,

and we would urge that the necessary changes be made to implement the intent

of Congress in allowing us freer access to the Board with our programs.

I would like to thank RMA for its efforts in offering coverage to the specialty crop

industry in America to date. I would also like to thank in particular the Administrator of RMA, Ross Davidson, who has been extremely open and available to listen

to our needs and requests. I would also be remiss if I did not mention the ongoing

assistance of the staff of the Valdosta RSO, as well as Bob Vollmert and his team

at RMA’s Research and Development office in Kansas City. We are all working toward the same goal, to offer a sound protection to America’s specialty crop producers. The specialty crop industry is willing and available to work with Congress and

RMA to make changes to improve the program.

Thank you again for your invitation, I hope I have provided you with an informative snapshot of the challenges the industry faces and I will be happy to respond

to your questions.

STATEMENT OF JEROME STEHLY

Mr. Chairman and members of the committee:

This statement is presented on behalf of California’s 6,000 avocado growers and

the California Avocado Commission. We appreciate this opportunity to comment on

the effectiveness of the current crop insurance program for avocados and to share

our ideas on how the program can be approved to better serve the needs of the Nation’s avocado growers.

Avocado growers in California produce about 89 percent of the total U.S. avocado

crop and the other 11 percent of production is in the State of Florida. In total, U.S.

avocado growers produce about 240,000 tons of avocados on 65,000 acres annually,

with a value of approximately $350 million.

AVOCADO PRODUCTION PERIOD DIFFERS FROM OTHER CROPS

The production cycle for avocados is much longer than other crops. In some areas,

avocado trees produce fruit for as long as 11 months, with the trees bearing fruit

in various stages—from bloom to ripen multiple times during the harvest period.

Therefore, growers are more at risk to the vagaries of the weather, since the period

in which losses may occur extends throughout most of the year.

The crop year for avocados is defined by the Risk Management Agency (RMA) as

‘‘the period beginning December 1 of the calendar year prior to the year in which

the avocado trees normally bloom, extending through November of the year following such bloom, and will be designated by the calendar year following the year in

which the avocado trees normally bloom.’’

AVOCADO CROP INSURANCE PILOT PROGRAM

Avocado growers are very appreciative of the Avocado Revenue Insurance Pilot

Program, which was initiated in Ventura County, California in 1996, and extended

to five additional counties in 1999.

This pilot program insures commercially grown Hass avocados that have reached

the sixth growing season after being transplanted into the grove. The program provides coverage for a decline in prices or loss production due to a number of conditions including adverse weather, fire, wildlife and earthquakes. However, it does not

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provide coverage for damage or loss dues to disease or insect infestation or the inability to market the crop for any reason (e.g., quarantines).

The Avocado Pilot Program differs from the traditional multi-peril crop insurance

policy in that the standard actual production history (APH) rules do not apply. For

avocado coverage the grower’s yields are multiplied by the standardized season average prices and the sum of these results divided by the number of years of yields

determine the grower’s average farm revenue per acre. The standardized season average price is the average price per pound determined by dividing the value of all

Hass avocados in the State by the pounds of Hass avocados produced in the State

for the marketing year, as reported by the California Avocado Commission and announced by FCIC. The price may be adjusted by FCIC to represent prices based on

current dollar values, as defined by Federal Crop Insurance Corporation avocado

policy provisions. Therefore, the season average price is not announced by FCIC

until many months after the crop is harvested.

CONCERNS WITH THE EXISTING AVOCADO PILOT PROGRAM

Unfortunately, these differences and the length of time involved in this process

leads to unnecessary confusion and frustration among many avocado growers.

The Avocado Pilot Program is excessively complicated and should be streamlined.

Additionally, growers are often frustrated because they receive conflicting information from their insurance agents and RMA personnel. This confusion has the effect

of discouraging grower participation in the program. Many growers are so exasperated by the unnecessary complexity of the program that they only carry the catastrophic level of coverage.

RECOMMENDED IMPROVEMENTS IN CROP INSURANCE FOR AVOCADO GROWERS

We recommend the following changes to enhance the program to make it more

attractive to avocado growers:

• Revise the method of compensation so growers receive compensation for losses

when the crop year is completed. Currently, loss compensation is based on the avocado industry season ending price, which is not available until assessments are

paid. This is not until mid-January of the following year. Consequently, avocado

growers may have to wait 13 to 14 months before having their claims finalized.

Therefore, we recommend the adoption of a program similar to the crop insurance

revenue program for cherries in which a preset flat rate is established, so there is

a guaranteed price at the beginning of the year. At the end of the harvest, when

a grower has sold all of their production for the year, they would submit their receipts and be paid for any loss below the guaranteed price. This way, the avocado

growers’ claims could be settled in a matter of weeks, not months.

• Expand coverage to other Hass-like varieties (most importantly Lamb-Hass) and

also to all counties in California with commercial avocado production;

• Provide quality loss adjustments where wind or cold damage results in post-harvest price reduction and loss of fruit (for example, losses occur when there is a retail

call-back); and

Establish a crop insurance rider provision as an optional coverage feature for avocado growers who suffer revenue loss due to government-imposed quarantines and

for growers with losses due to insect pests when no quarantine has been declared.

Avocado growers would pay an additional premium to obtain this optional coverage.

Relief Needed from Huge Losses Caused by Pest Infestations

Currently, there is no Federal crop insurance product that covers economic damage due to government-imposed quarantines. Over the past 10 years, domestic quarantines on avocados have been imposed due to outbreaks of a number of different

insects most notably the Mexican fruit fly, the Mediterranean fruit fly and the Oriental fruit fly. Since quarantines are becoming increasingly common, with declarations almost on a yearly basis, avocado growers have become increasingly concerned

about the financial impact of quarantines on their ability to market avocados. Pest

infestations in California avocado groves have caused huge losses to avocado growers, and with USDA pushing to expand Mexican avocado imports, this situation will

only get worse.

CROP INSURANCE RIDER OPTION FOR QUARANTINE LOSS COVERAGE

Therefore, we strongly support the efforts of Congress to direct RMA to develop

and implement a rider option to the current Crop Insurance Program for avocados

to cover losses due to quarantines, and to do so in close cooperation with the California avocado industry. We also believe RMA can be of assistance in reporting on the

37

economic impacts of recent domestic quarantines and analyzing the options for protecting avocado growers against future losses due to such regulatory actions.

In fact, we have asked our California Congressional representatives to work with

the Appropriations Committee to direct RMA to report within six months on its

progress in developing a program for a rider option for avocado crop insurance that

will address quarantines imposed due to any injurious pest or disease, including

fruit fly infestation.

MEXICAN FRUIT FLY INFESTATION QUARANTINE IN SAN DIEGO COUNTY WAS COSTLY

Avocado growers are particularly supportive of a new quarantine crop insurance

rider option in the aftermath of the recent quarantine in the Valley Center area of

San Diego County, California. Until just recently, avocado growers in this area were

the victims of the longest government-imposed quarantine for Mexican fruit fly infestation ever experienced in the State of California.

Growers in this area were notified by the State of California that no avocados

could be moved from the Valley Center area beginning on November 21, 2002. This

action adversely affected 10,533 acres of avocados that were subjected to preventative bait treatments that were required to be applied every ten days. These mandated bait treatments that were necessary for growers to be in compliance with the

quarantine regulations amount to an unforeseen out-of-pocket cost to avocado growers estimated at $8.3 million.

Additionally, avocado growers in the quarantined area incurred market losses of $7.4 million as a result of not being allowed to sell 10 million pounds of windfall

fruit during the quarantine period. There were four windfall events on November

25, 2002; January 6, 2003; February 2, 2003; and February 20, 2003 in the quarantine area. Losses due to windfall under these circumstances were not covered by

crop insurance because the fruit could not be marketed because of the quarantine.

This particular quarantine, which cost California avocado growers an estimated

$15.7 million, followed other costly quarantines in the last few years. In fact, the

last quarantine covered 15 million pounds of avocados in Fallbrook area of California in 1999/2000. Therefore, based on the financial cost to growers due to these

losses, we urge the committee and RMA to seriously consider offering a crop insurance option to provide avocado growers the opportunity to purchased coverage for

losses due to quarantines.

We commend the committee for this review of the crop insurance available for

avocado growers. We look forward to working with you to ensure that the crop insurance products available through RMA provide sufficient coverage and flexibility

to meet the needs of a dynamic U.S. avocado industry.

STATEMENT OF JOHN C. WATKINS

Chairman Moran, Ranking Member Peterson, and members of this subcommittee,

I am grateful for the opportunity to present testimony today on the state of the Crop

Insurance Program in the U.S. as it relates to the nursery industry. My testimony

represents both my own views and experiences as a nurseryman in the Commonwealth of Virginia, and as well the views of the American Nursery & Landscape Association.

The American Nursery & Landscape Association (ANLA) is the national trade association for the nursery and landscape industry. ANLA represents 2,500 production

nurseries, landscape firms, retail garden centers and horticultural distribution centers, and the 16,000 additional family farm and small business members of the

State and regional nursery and landscape associations. The Association’s grower

members are estimated to produce about 75 percent of the nursery crops moving in

domestic commerce in the U.S. that are destined for landscape use. I currently serve

as Chairman of the Association’s legislative policy committee.

According to the USDA’s National Agricultural Statistics Service (NASS), the

nursery and greenhouse industry remains the fastest growing agricultural sector in

cash receipts. The 1997 Census of Agriculture shows that nursery, greenhouse and

floriculture crop sales totaled $10.9 billion in 1997, up from $7.6 billion in 1992.

This represents a 43 percent increase in sales over the previous 1992 Census. More

recent USDA analyses show that the industry is now valued at over $13 billion at

farmgate. Together these crops make up 11 percent of total U.S. farmgate receipts.

An estimated 33,935 farms produce nursery plants as their principal crop.

In crop value, nursery and greenhouse crops have surpassed wheat, cotton, and

tobacco and are now the third largest plant crop behind only corn and soybeans.

Nursery and greenhouse crop production now ranks among the top five agricultural

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commodities in 24 States, and among the top 10 in 40 States. Growers produce

thousands of varieties of cultivated nursery, bedding, foliage and potted flowering

plants in a wide array of forms and sizes in the open ground and under the protective cover of permanent or temporary greenhouses.

The nursery industry very much desires an efficient, affordable and sustainable

Crop Insurance Program. At present, the Crop Insurance Program falls short of adequately addressing the extreme diversity and unique situations presented by a freemarket segment of agriculture that grows thousands of varieties in every State

using an array of production systems and technologies. We offer the following

thoughts and recommendations on the current program, and some suggestions for

improvement:

• Nursery participation in the program is not as high as it should be. Broader

participation will help to establish a program that can be more reliably sustained.

There needs to be strong and sustained educational outreach. We are open to working in close partnership with the Risk Management Agency on grower outreach.

• Under the catastrophic disaster coverage, the 50 percent loss requirement

should be calculated based on losses of individual crop types rather than across the

array of crops in a nursery. Different crops have varied susceptibility to potential

perils, unlike typical experiences in traditional row crops. In my own operation, I

have production fields in three adjacent counties. Under the current program, I

must purchase three separate policies to cover these fields. There should be some

reasonable way to ensure an entire operation on one policy.

The structure for commissions paid to the agent encourages concentration on serving the needs of the largest nine or 10 clients, but there is insufficient incentive for

agents to reach out and target smaller operations.

We strongly suggest using the grower’s wholesale price list as the basis for coverage valuation based upon proof of market. As a result, it would become much

clearer to the grower, the agent and the RMA exactly what the RMA is insuring.

The use of the current arbitrary Federal Crop Insurance Corporation (FCIC)-printed

wholesale price eligibility list for valuation purposes could be eliminated, although

such a list could continue to be used for plant eligibility purposes.

• Ensure the container size of any plant as such is noted in the grower’s wholesale

price list without regard to the actual soil volume the container is capable of holding.

• Include coverage for plants grown in smaller than three-inch containers.

• Treat field grown and containerized plants as separate crops.

• Allow for year-round sales of the crop insurance policy subject to a 30-day waiting period for coverage commencement.

• Pursue continuity on how insurance rates are calculated. For example, Georgia’s

rates are .039 with a zero loss ratio while North Carolina’s rates are .033 with a

loss ratio of 7.4. Florida’s rates are substantially higher than Georgia’s.

• The issue of injury accumulated over just one year has become a factor in the

green industry. Flood, drought, disease or winter injury may occur in one year and

the loss can occur that same year and/or the following year or years. There is little

if any continuity on how adjustors process and handle these types of situations. Can

this be regimented within the program?

• Implement crop insurance coverage for Christmas trees. Historically, Christmas

trees were not intensively managed; many were harvested from the wild. However,

production practices in nurseries and Christmas tree farms are now often indistinguishable. Christmas trees as a commodity should be covered under RMA policies

and be treated like similar nursery crops.

• For growers in tropical regions, restrict the peril of excess rain to damage incurred in conjunction with a tropical cyclone or an event that causes an area to be

declared a disaster by the United States President or the USDA.

• There seems to be a great degree of variation as to how well the program is

managed across the country. There should be an agent certification program coupled

with a fraud elimination aspect.

• Seriously explore coverage for trees and plants that fall within a quarantine

zone especially if those green goods are rendered un-salable due to infestation by

a quarantine pest, or ordered destroyed. Quarantines are sometimes imposed while

study and assessment of extent of the infestation and risk of harm are being completed. Coupled with the short shelf life of our products and our condensed selling

seasons, quarantine restrictions with or without mandated crop destruction pose unanticipated hardships and losses for growers. Currently, ANLA members under current or expected Federal quarantine actions with Federal crop insurance are yet

without recourse in many parts of the country. A few examples include:

• Emerald ash borer; impacting growers in southeast Michigan;

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• Ralstonia, a bacterial disease of geraniums and other crops, affecting growers

nationwide;

• Sudden Oak Death; affecting many counties in central and northern California,

and limited areas in Oregon;

• Plum Pox in central Pennsylvania;

• Citrus canker in Florida.

In closing, I wish to emphasize that USDA’s Risk Management Agency has

reached out to our industry, and we are confident that a strong commitment exists

on all sides to resolve such problems that are inhibiting the use and long-term viability of crop insurance in the nursery industry. We are equally grateful for the interest and support of Congress in this matter. Thank you, Mr. Chairman and members of the subcommittee, for your attention and interest in ensuring a viable Crop

Insurance Program for the American nursery industry. I would be happy to respond

to any questions you may have.

STATEMENT OF BILL BRIM

Mr. Chairman, members of the subcommittee, fellow panel members and other

distinguished guests, my name is Bill Brim, president of Lewis Taylor Farms in

Tifton, GA. Our farm is a 750-A diversified vegetable operation growing and packing

peppers, tomatoes, eggplant, cucumbers, squash, cabbage, greens and cantaloupes.

We also operate over 350,000 square feet of greenhouse space growing more than

85 million vegetable transplants and over 15 million pine seedlings each year.

I serve as vice president of the Georgia Fruit and Vegetable Growers Association.

I am here today not only representing my farm and association but also Georgia’s

fruit and vegetable industry that had a farm gate value in 2002 of over $750 million

dollars.

Thank you for the opportunity to appear before this subcommittee to discuss the

Federal crop insurance products designed for our specialty crop growers. I bring

these comments to you in the spirit of cooperation and improvement. FCIC can be

a very important farm management tool for specialty crop growers if the products

are developed in which growers can utilize them and understand their intended purpose. Georgia growers look forward to working with the Risk Management Agency

to continue to improve the methods by which growers manage their crop risks. My

comments specifically address issues and concerns with the Crop Insurance Program

for pecans, blueberries, peaches, vegetables and RMA educational programs.

Pecans. In 1998, three counties in Georgia (Mitchell, Lee and Dougherty) were approved for a pilot pecan crop insurance program. The pilot was scheduled to go to

permanent status as a nationwide program three years later in 2000. It is now

2003, five years later, and the pilot is still not permanent.

For crop year 2003 the three county pilot programs was expanded to include 79

additional counties in Georgia. At the September 19, 2002 RMA Board of Directors

meeting the Board voted to convert the pecan pilot program to a permanent status

for the 2004 crop year. The proper paper work and reports were submitted to Kansas City. However, our pecan growers are now told this cannot be accomplished

until the 2005 crop year due to the regulatory process of policy conversion required

by the Office of General Counsel. Georgia growers in non-covered counties and growers throughout the U.S. desperately need the availability of this Crop Insurance

Program. Southeastern pecan growers solicit this committee’s support and encouragement for the FCIC to put this pilot program on a fast track and move it to permanent status as soon as possible.

Attached to this testimony is a letter from Hilton Segler, Crop Insurance Committee Chair for the Georgia Pecan Growers Association outlining six changes southeastern growers have requested of RMA and FCIC which would improve the current

coverage levels and better meet grower/producer needs. In March 2003 12 items of

concern or improvement to the pecan crop insurance pilot program were submitted

to the Kansas City office for review. Several of those suggestions were approved and

included in the 2003 program. We hope the additional suggestions and improvements outlined in Mr. Segler’s letter will be approved and included in the 2004 program.

One of the most critical items included in the letter is an industry concern that

crosses all crop boundaries and is not specific to any one commodity. This is the

issue of multiple units (fields or orchards) being covered under one Farm Serial

Number. Many growers have not received payments on crop losses because the field

which suffered the loss was one of several fields in the farm and all the other fields

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produced sufficiently to generate an average yield/income for the farm above the required crop lost level.

It is Georgia growers contention if production records are maintained for each

unit (field or orchard) and the crop is insured by the unit, then claim payments

should be made whether other units (field or orchard) on the farm produced higher

yields/income or not that year.

Growers compare their crop insurance to homeowners insurance. if three houses

on a farm are insured and one burns, the insurance company pays for the burned

house. The same should be true for an insured field. If that field is insured and has

a loss, then crop insurance should cover the loss, regardless of the other field’s production or yield.

In order to provide broader product coverage, consideration should be given to

allow growers the option for unit (field or orchard) division within a Farm Serial

Number, or by noncontiguous tracts. A similar option is provided to growers in the

walnut and apple crop insurance programs.

Fruit Crops. At this time the only fruit crops in Georgia with crop insurance protection are apples, blueberries and peaches. As with any new program each of these

pilots required some time to resolve all of the details and uniqueness of the different

commodities.

Blueberries. Initially the blueberry insurance program experienced pricing and

yield projection problems with Georgia’s high bush variety versus the traditional

rabbit eye variety. It appears most of those issues have been resolved; however, revenue estimates continue to be of some contention. Several members of our association recently provided yield and pricing information to the Valdosta regional office,

which we hope, will clarify some of the pricing and yield questions.

Our primary concern with the blueberry program is the lack of availability of the

crop insurance product to all Georgia and southeastern growers. The pilot program

is available in only three counties whereas we have commercial production of blueberries in 12 counties. In 2002, Georgia had over 6000 acres of commercial blueberry

production; however, less than 28 percent of Georgia’s commercial acres have crop

insurance available to the growers. The 2003 RMA crop insurance records show

1684 Georgia acres in the program, or 72 percent of the Georgia acreage that was

eligible for crop insurance protection utilized the program. This represents a very

high grower participation in the program.

For Georgia’s blueberry growers, the program needs to be expanded to cover all

12 counties with commercial production. Georgia now ranks fifth in the Nation in

blueberry production with a 5-year average in excess of 17 million pounds of blueberries grown annually.

Peaches. Product delivery, availability and grower knowledge of the product appear to be satisfactory for Georgia’s peach growers. We estimate over 80 percent of

the peach acreage in Georgia is covered under the Federal Crop Insurance Program.

Georgia and SE peach growers primary concerns have been in the area of establishing price elections. In some southeastern states, the 2002 price election decreased while the current fresh market price received by growers increased over

2001. The FCIC price decrease occurred in Georgia, South Carolina and Alabama.

It appears this decrease is due to the averaging of historical price data to create

the yield/price standard at which losses are paid. Both South Carolina and Alabama

have suffered multi-year losses in the past 5 –10 years. This has caused some grower’s insurance guarantee to be significantly lower than the market price. South

Carolina and Georgia growers currently pack peaches in half-bushel cartons while

the price election is in bushels based on NASS data. FOB prices are issued daily

by the Thomasville market on a half-bushel basis for the Southeast and reflect the

true price received by growers at the pack house door. The Thomasville market

price is also used in adjusting quality losses on peaches in the event of a loss. Prices

are also available through the Thomasville market avenue for prior years, which

would establish a more accurate average price received by growers. The prices set

by NASS is based on random surveys rather than true market conditions. The

southeastern peach growers encourage FCIC, RMA and this committee to evaluate

the use of the Thomasville market pricing mechanism instead of NASS. It appears

to be a more accurate pricing method.

The issue of allowing for optional orchard (unit) division by noncontiguous tracts

is also a major concern among peach growers. Many times a peach farm may have

3–4 orchards separately over a two-mile area. Other commodity programs, such as

walnuts and apples, allow for this division if production and income records are

maintained for each unit. Allowing for this option in the peach program would improve the quality of the FCIC product and help it to better meet the needs of the

individual growers based on their specific situation.

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Vegetables. Crop insurance coverage for most vegetable crops in Georgia is available only on a limited basis. Currently over 85 percent of the Vidalia onion acreage

is covered by crop insurance. At this time crop insurance for cabbage is available

on a pilot basis only in certain counties. Insurance for tomatoes and sweet corn is

available as a permanent program in a few counties but may be insured by written

agreement in other non-program counties. Peppers are insured only by written

agreement in Georgia.

We appreciate Congress and USDA’s efforts to increase the number of vegetable

crops for which coverage is offered. The volatility of the price returns due to weather

considerations and high cost of production makes the need for developing a safety

net for vegetable growers even more critical. The fruit and vegetable industry recognizes development of new products require time and experience to refine. Listed

below are our observations concerning the current status of crop insurance product

availability and delivery for vegetables in Georgia. • Many Federal crop insurance agents do not inform growers of the possibility of

obtaining insurance coverage by written agreement for vegetable crops. It has been

my experience that agents generally are not well informed on many issues concerning the insurance program for vegetable crops and consequently producers are not

provided the coverage they need. In preparation for this testimony I found out my

farm was eligible for pepper crop insurance under a written agreement. I am one

of the largest pepper growers in our county but no agent has ever informed me that

this coverage was available. • With some crops the yield/production cost records are not current. Many Georgia

growers now use plastic mulch that generate a much higher yield than the traditional bare ground production methods. When claims are made, some vegetable

growers have experienced inadequate payments for the high cost of input and anticipated yield. Basing claim payments on inaccurate yield models and selling prices,

many times does not reimburse the grower for even his cost of input (materials and

labor). • When new pilot programs are offered in an area, growers should not be eligible

for the program without two to three years of production records establishing their

cost and yield history for the crop. There have been pilot programs (i.e. watermelons

in 1999 and others) in which dishonest growers planted a commodity because crop

insurance was available with little or no intention of harvesting the crop. Due to

the anticipated over-production of the commodity, prices plummeted and the legitimate growers lost due to low market prices.

This was mentioned during a recent listening session with RMA Administrator

Davidson in Valdosta, GA. We were informed the current guidelines require a grower to have three years of production records before they can apply for crop insurance

for the commodity. We hope this policy will continue and be vigorously enforced. • As outlined above in the pecan and fruit sections, the issue of the unit (field)

division by Farm Serial Number is also a concern to Georgia’s vegetable industry.

If production records are maintained for the field and the crop is insured by the

field, claim payments should be made whether other fields under the same Farm

Serial Number produced higher yields/income to cover total farm revenue or not.

• When pilot programs are introduced in selected counties in a particular commodity producing area, product availability can significantly affect market prices

and production practices.

For example the cabbage pilot is offered in three or four counties in Georgia. One

of those counties, Colquitt, is a neighboring county to my farm in Tift County. However, the program is not available to our farm. When my neighbors go to the bank

to borrow money for their production, they have a definite competitive advantage

from an economic risk management standpoint. The bank is much more inclined to

offer a production loan, possibly at a better interest rate, to someone who has crop

insurance available to them.

We realize a pilot program is just that, an opportunity to see if a program will

work and if enough interest is present to generate permanent program status. However, the pilot very often skews market conditions and production competitiveness.

In Georgia many times the bulk of a commodity’s production is going to be in a 5–

15 county area (i.e. sweet corn is in a 6–7 county area in southwest Georgia; cabbage is in a 10–12 county area in south central Georgia, etc.) Possibly allowing all

growers in a commodity region to make application when a pilot crop insurance program is offered should be considered. If the demand for the pilot is too large for the

funds that are available, then only allowing a certain percentage of the applying

grower’s crop acreage to be insured could be an alternative.

With regard to product availability vegetable growers and shippers quite possibly

present the most challenging opportunity for FCIC with the diversity of commodities, production and yield/price models. Based on conversations and interviews, we

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believe the Adjusted Gross Revenue (AGR) program, now offered as a pilot program

in Florida would be utilized by many of our specialty crop growers in Georgia. We

understand the participation in the pilot program has been limited. The Georgia

Fruit and Vegetable Growers Association would certainly be happy to assist RMA

with educating growers on the program and the advantages of AGR over the traditional FCIC programs if the pilot was also offered in Georgia at a later date.

With the diversity of the vegetable crops in Georgia, having the ability to insure

the complete farm revenue should have some interest in Georgia.

RMA EDUCATIONAL PROGRAM ACTIVITIES

For the past 2 years (2002–03), the Georgia Fruit and Vegetable Growers Association has been fortunate to participate in Partnership Agreements with RMA to provide educational programs to specialty crop growers. During those two years, over

2500 growers have received hundreds of hours of training to learn to better manage

the production, pest, food safety, personnel and marketing risks they face daily in

their farm operations. This has been an excellent program and extremely beneficial

to Georgia and southeastern growers. We encourage the continuation of educational

partnerships and offer the following comments to improve this program,

The 2002 and the 2003 RMA Partnership regulations allowed for any commodity

association, educational institution or other organization to submit a funding proposal for educational programming. In 2003 six different Georgia commodity/ educational organizations received risk management education program funds totaling

over $370,000. These organizations ranged in interest from organic farmers to nursery/shrub growers to fruit and vegetable producers.

The fiscal year 2004 regulations were published in the Federal Register on June

13, 2003. In order to simplify RMA supervision of partnership agreements the new

regulations allow for only ONE partner per State and the allocation formula provides only $89,000 to a Georgia organization for educational programming funds.

While we understand the need to streamline the reporting and accountability, it will

be very difficult for one organization to represent and oversee commodity programs

as diverse as flowers and shrubs to fruit and vegetables. Our fruit and vegetable

association does have a good working relationship with other RMA partners in Georgia and we are developing a joint master application from the Georgia Fruit and

Vegetable Growers Association for all the organizations in Georgia. In the future we

hope the one partner per state will be reconsidered.

The Federal register regulations did not appear until June 13 and the RFP deadline is July 28 with the project beginning date on October 1. We would ask for earlier publication of the RFP guidelines and earlier award announcements. It is very

difficult to plan for FY04 projects when the RFP guidelines, proposal deadline and

award decisions/announcements are not made until the fourth quarter of 2003.

I very much appreciate the opportunity to provide this testimony to the committee. I hope the committee and the Risk Management Agency will accept these comments in the spirit in which they are offered as suggestions for improvement to a

very important and critical program for our fruit and vegetable growers. I look forward to continuing our work with RMA in the future for the betterment of agriculture.

David Hatch

Associate Administrator

USDA Risk Management Agency

1400 Independence Ave. S.W.

WASHINGTON, DC 20250–0801

Dear Mr. Hatch:

Thank you for taking time to address issues discussed per our telephone conversation on 6/25/03. It is my understanding that the Board of Directors approved conversion of the pecan pilot program to permanent status for the 2004 crop year on September 19, 2002. As of this date, I am informed that this will not be possible due

to the regulatory process of policy conversion to a permanent program in view of

this; I would hope we could at least implement program changes for the interim.

The Valdosta Regional Office submitted several recommendations to Kansas City

in March of this year. Some have been implemented such as the insurability of all

varieties, not just improved varieties, for the 2004 crop year. Other recommendations I respectfully request for the 2004 crop year are:

Expansion of the pilot pecan program in Alabama, Florida and South Carolina for

the 2004 crop year. Valdosta is now in the process of forwarding production data,

where available, to Kansas City. Due to limited numbers of growers in these areas,

disclosure becomes a sensitive issue.

43

Add a provision for optional unit division by Farm Serial Number or by noncontiguous tracts, as do walnuts and apples. Currently all acreage in a county is one unit.

Revision/correction of program dates. Sales closing (11/20) is entirely too early, the

billing date is September 15, before pecans are even harvested, cancellation and termination dates are August 31, and should coincide closer with sales closing.

Elimination of the 30 percent reduction in insurance guarantee if an orchard is

sequentially thinned. Pecan experts from Auburn University, Byron, Georgia and

Tifton, Georgia have provided documentation to Kansas City that discredited this

theory. No other tree policy to my knowledge (almonds/walnuts) has this ludicrous

approach.

Added land provisions for row crops are initiated at a 50 percent increase in acreage while pecans acreage begins at 12.5 percent. Pecan growers feel a threshold of

a 40 percent or 200 acres would be equitable.

The Pecan Revenue Pilot Program does not allow for Direct Marketing, this

should be corrected so that Direct Marketing will be allowed provided that the

guidelines in section 10(2) are met.

Thank you again for you prompt attention to this matter. Implementation of these

changes would greatly improve the pecan program and expedite the regulatory process for the 2005 crop year.

Sincerely,

Hilton R. Segler

44

CONGRESS OF THE UNITED STATES

July 9, 2003

Dr. Keith Collins, Chairman

Federal Crop Insurance Corporation Board of Directors

1400 Independence Avenue, S.W.

Washington, DC. 20250

Dear Dr. Collins:

We are writing to urge the serious consideration by the Federal Crop Insurance

Corporation Board of Directors to expand the pecan revenue coverage insurance program to include the top pecan producing counties. in Alabama. It is our understanding that this issue will be before the Board at its meeting August 1.

In 2001, Alabama ranked seventh nationally in pecan production, with 15 million

pounds valued at $7.6 million. The leading pecan producing counties in Alabama are

Baldwin, Bullock, Covington, Lowndes, and Mobile. While we would like to see coverage provided for all counties in the State with production, we recognize the uncertainty introduced by the lack of production and price information available for many

of the counties with small production levels.

These producers desperately need this risk management tool, especially since

there is no Federal crop program available for pecans and currently no insurance

coverage available for these producers. Specifically, we encourage the Board to approve as many of the pecan producing counties in the State as possible, particularly

the higher production counties, for inclusion in the pecan revenue coverage insurance program administered by the Risk Management Agency.

Thank you for your attention and consideration to this important matter for Alabama pecan growers. Please let us know if we need to provide further information

or if you have any questions.

Sincerely,

Terry Everett, M.C.

Jo Bonner, M.C.

Mike Rogers, M.C.

NORTH CAROLINA STRAWBERRY ASSOCIATION

June 25, 2003

William Rafferty

USDA Risk Management Agency

4407 Bland Rd., Suite 160

Raleigh, NC 27607

Dear Bill:

The North Carolina Strawberry Association, speaking for all strawberry growers

in the North Carolina, strongly requests that the strawberry crop insurance program, now operating as a pilot program in only 13 counties, be extended throughout

the State. This has been a difficult year for many growers, with multiple incidents

of devastating hail damage and widespread losses due to wet, cold weather. Many

growers who could not take advantage of the program because of the county limitations would have benefited from it.

We urge that the prohibition on ‘‘written agreements’’ that currently exists for the

pilot program be removed so that growers in North Carolina’s 87 other counties may

participate immediately. This will not only-expand the number of growers who benefit, but also greatly improve the actuarial basis of the program. Production methods

and expected yields in these counties do not differ substantially from those in nearby pilot counties, so writing the insurance would not be a difficult extrapolation.

Yet, in the North Carolina climate, conditions and circumstances vary so much from

year to year and farm to farm that expanding the sample base will allow much more

accurate information to be gathered quickly.

We also urge that the review process for the pilot program be expedited with a

goal of expanding the program state-wide as soon as possible.

If our organization can in any way help with this process, please let me know.

Sincerely,

John Vollmer

President, NCSA

(45)

REVIEW OF CROP INSURANCE AND

COMMODITY PROGRAMS

TUESDAY, AUGUST 19, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, DC.

The subcommittee met, pursuant to call, at 8:40 a.m., at the Ada/

Borup High School, Ada, MN, Hon. Jerry Moran (chairman of the

subcommittee) presiding.

Present: Representatives Peterson and Larsen.

Also present: Representative Kennedy of Minnesota.

Staff present: Kelli Ludlum, subcommittee staff director; Anne

Simmons, minority professional staff; and Chandler Goule, legislative assistant to Representative Peterson.

STATEMENT OF DONALD VELLENGA, VICE MAYOR, ADA, MN

Mr. VELLENGA. I’m Don Vellenga, and as vice mayor of the city

of Ada, I welcome the congressional representatives, their staff and

the public to Ada, MN, and the Subcommittee on General Farm

Commodities and Risk Management. Mayor Jim Ellefson asked me

to extend his personal greetings. He’s away on a fun family trip.

Ada is located in northwestern Minnesota, and is in the Wild

Rice Watershed District. Our community and region have been

plagued by spring and summer floods during the past three decades.

During the spring of 1997, Ada was totally evacuated for 11

days; had several homes and businesses destroyed. Members of the

National Guard patrolled our community for 14 days. The city operated on temporary electrical power for 14 days. The spring flood

ruined the high school, the hospital, the nursing home, and the

clinic. The Ada/Borup school operated out of temporary facilities,

church basements, fairgrounds, for over a year and a half.

Our community is extremely grateful to FEMA, the State of Minnesota, Republican Representative Collin Peterson, the late Senator Paul Wellstone, and Senator Rod Grams, for their efforts and

their assistance to rebuild our community.

Also, regional floods have been disastrous to area farmers in

2000 and 2002. The city is grateful to the farmers, business owners, residents and organizations that have rebuilt, remodeled, and

have the vision for promoting progress in our city and our region.

Our region also recognizes the fact that Federal crop insurance

has played a beneficial factor in the majority of the area farm ownVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00051 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
46

ers and landowners. The Federal Crop Insurance Program allows

farmers to continue working in agricultural activities even though,

through no fault of their own, a national disaster at the local or

regional level wipes out if not all of the farm income.The risks of

farming taken by individuals who have the will and the desire to

farm provide the majority of economic stimulus in most rural communities. The United States needs area farmers protected from financial disasters in order to have prosperous rural cities, counties

and States.

The national commitment to cheap food in the United States

must also take into consideration the fact that farmers must not

take all of the agricultural risks themselves in order to properly

nourish the strongest Nation on Earth.

I’d like to remind people, if you have not signed the registration

paper, please do so this morning. And now I would like to turn this

over to Representative Collin Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Don, and thank you and everyone

else in the Norman County/Ada area for your leadership in helping

us put this area back together.

I want to welcome Chairman Moran to the seventh district. We

appreciate him coming up here and listening to some of our problems. You should know that Jerry has been one of the people that’s

really worked with us on getting the disaster assistance through.

He was a leader, sometimes to the chagrin of his party, on pushing

this, and one of my big allies in getting this done, so he’s been a

very good friend to this area, even though he hasn’t been here before. He also is a leader in the rural healthcare area. He’s co-chairman of the rural healthcare caucus in the House, along with Earl

Pomeroy from North Dakota. Earl couldn’t be here today, wanted

to be, but he’s got other commitments, but Jerry’s really worked

with us, and in the Medicare bill this year, in the House we’ve gotten just about everything we’ve asked for in rural healthcare, and

we’re hoping that we’re going to be able to get that through when

we go back after Labor Day.

Also want to welcome Representative Mark Kennedy, who is

from the sixth district. He’s got part of my old district, and I’ve got

part of his old district, in the switch that happened in the reapportionment last year, but Mark has been a leader on farm policy, and

has worked with us as well on the disaster and the other issues

that are important to not only this area, but all of Minnesota.

We also have Representative Rick Larsen from the State of

Washington. We appreciate him being here today. Rick has got a

little bit different agriculture, he serves on the House Agriculture

Committee, and I believe on the subcommittee as well, and he’s

also a property owner here in the seventh district. He’s been up

here vacationing for a week with his family over at Bass Lake by

Nay-Tah-Waush, so we appreciate him taking his time to be with

us today.

And you can listen to me all the time, so I’m going to turn this

over to Chairman Moran and the other members, and we very

47

much appreciate them coming here. And what we’re trying to do

here, we’re looking at the possibility of making some additional

changes to crop insurance, especially folks that have multiple-year

losses that can’t get the kind of coverage that they need at a price

that they can afford. I think Jerry has similar problems in his district, and we’re going to see if there’s some possibility that we can

make some changes to improve that, so Chairman Moran, welcome

to the seventh district. I appreciate you being here.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. Mr. Peterson, thank you very much. I’ll formally call

this subcommittee meeting to order, and I’m delighted to be in this

part of Minnesota. It is my first visit to your State. It was great

to see the rich, dark soil, and green. We are in the fourth year of

a drought at home in Kansas. I represent the western three-fourths

of the State, 69 counties. It takes a lot of geography to get one

fourth of our State’s population. We have four Members of Congress.

And I am pleased to be here. This is our first field hearing of our

subcommittee. We’ve had a number of hearings on the farm bill

and disaster payments in Washington, DC, along with crop insurance issues, and we will have a series of hearings across the country in various regions, and this is our initial visit here in the upper

Midwest, the High Plains, and I’m delighted to be in Mr. Peterson’s

district. I consider him a good friend, and a very honorable Member

of Congress, someone who is a great colleague to work with on

issues that affect rural America, and so in his home district, I am

pleased to be able to say that he’s a Congressman that works very

hard on your behalf in our nation’s capital.

I’m also glad that Mr. Larsen and Mr. Kennedy can join us. This

hearing will give us the opportunity to take back to Washington

the input that you provide us today.

I have a formal opening statement that I would like to place on

the record to kind of set the stage of where we are and what we’re

doing, and then we’ll begin immediately with our witnesses.

I am thankful that our witnesses are appearing before our committee today. I think we have a lot to learn from them. And I

thank Mr. Peterson, and as well as the vice mayor, the former superintendent of this school district, and the staff of Ada/Borup High

School.

I can tell you, when I drove into Ada this morning, and I saw

the high school, I come from a town population 1,900, very similar

to Ada, and it was like, ‘‘Wow, what a school.’’ I’m sorry that you

had to go through the weather problems in order to get a school

facility like this. I’ve also questioned people, ‘‘Why are we in Ada?’’

And out of every place I’ve been, they say, ‘‘That’s the flood.’’ Any

time the word ‘‘Ada’’ is mentioned, they know that’s where the

flood was. And so I know you’ve had some unique problems that

crop insurance and farm programs we hope can better address, although we hope those problems do not return. But we’ve had great

cooperation from Mr. Peterson and his staff, as well as the folks

here in this community, and agriculture within the State of Minnesota, and we’re grateful for that.

48

I welcome the opportunity to hear from State and local agricultural leaders in Minnesota and North Dakota as the subcommittee

holds its initial field hearing. We’re glad to be in west central Minnesota, hearing firsthand from producers about how the results of

the crop insurance reforms approved 3 years ago, along with the

new farm bill, have benefitted or not benefitted their operations.

Crop insurance is an increasingly important risk management tool

for farmers in almost all growing regions of the country, and this

area is no exception. Both Minnesota and North Dakota are among

the top 10 States with the highest dollar amount of crop insurance

protection. With 97 percent of eligible acres insured, North Dakota

has the highest percentage participation of any State in the country. Similarly, both the acres and level of coverage in Minnesota

have increased over the past 10 years, from 54 percent of acres insured in 1994, to 81 percent acres enrolled last year.

In addition to hearing what is working well, we’re here also to

learn what might be improved to better serve the farmers in this

region, as well as their lenders and insurance agents. We know

that despite increased crop insurance incentives, expanded guaranteed support in the farm bill, and most recently ad hoc disaster assistance, some needs remain unmet.

In the upper Midwest, as in my own district in Kansas, multiyear losses continue be a problem which crop insurance does not

fully address. The story of premiums going up while coverage goes

down is one that I’ve heard frequently from my own constituents

as a result of four consecutive years of drought. Despite significant

progress, it’s still difficult for some producers in specific counties to

obtain coverage for their particular crops.

The greatest interest I continue to hear from farmers in my own

district, as well as members of this committee and Members of

Congress, is crop insurance’s availability, and providing adequate

levels of coverage to meet the producers’ needs.

After today’s hearing, I expect this subcommittee to hold additional field hearings to focus on the interests of farmers in different

regions. As we examine options to protect producers from national

disasters without ad hoc emergency spending, we will seek to address the issues that can make the combination of crop insurance

and other farm programs a more effective risk management tool for

farmers and ranchers nationwide.

We will also hold hearings in Washington and across the country

to look at other issues of concern that may be discovered through

the testimony of our witnesses today, and during these future hearings.

I welcome today’s participants, and look forward to their testimony.

Mr. Larsen, any comments of an opening nature?

OPENING STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. LARSEN. Just very briefly, Mr. Chairman. First, I want to

thank you for holding the hearing. I want to thank Collin Peterson

as well for hosting this, and for an opportunity to come to Ada.

And we did just finish our vacation. I spent 7 days in the backwoods, no electricity, no running water, and I didn’t bring a suit

49

with me on that trip, so I want to just address that today, and I

hope people appreciate that.

But I do want to just point out, my district is very different. We

have 180 different crops in Washington State, 120 of those are

grown in my district. Very diverse and very different from this

area, but it’s important to me to be here to learn how I can help

farmers all over the country as a member of this committee, and

that’s why I’m here today, and certainly do appreciate the opportunity to be.

Mr. MORAN. Mr. Larsen, we are grateful for you joining us, and

Mr. Larsen is a member of this subcommittee, and I think his

backwoods, wilderness approach is appropriate, and I would suggest that those who have coats on, take them off.

We’re also delighted to have Mr. Kennedy, a Congressman from

Minnesota, join our panel. He is not a member of this subcommittee, and I’d ask unanimous consent that he be allowed to join us

at the table and question the witnesses. If there’s no objection, he

has some friends at the table, you’re welcome to join us. And Mr.

Kennedy, I ask you for an opening comment.

OPENING STATEMENT OF HON. MARK KENNEDY A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. KENNEDY. Well, I’d like to thank you, Mr. Chairman, for

being here, and also Collin Peterson for inviting us. I think there’s

probably no better place for us to better understand crop insurance

than right here in Ada. I’ve appreciated the opportunity to write

the farm bill with the two of you, and with the four of us, but as

we are in between farm bill years, it’s important for us to look at

the important programs like crop insurance.

I will say that I’m very near the home of my in-laws, as Collin

well knows, with my in-laws, parents, Stanley and Ellen Miller,

right near here in Hawley, MN; my brother-in-law’s a crop consultant down in Elbow Lake; and another brother-in-law in Park Rapids; so when I go home for Christmas, it’s the agriculture in this

area that I always hear about, so I’m very interested in getting a

broader perspective, understanding the needs that we have in crop

insurance.

It’s important that we have this broad regional representation

here, because one of the main things that people don’t really understand, the challenge we have in Washington, is we need 218 votes

in order to get anything passed, whether crop insurance adjustments or anything else, and having a broad regional representation

is critical for us to accomplish that.

I thank you, Rick Larsen, and thank you, Chairman Moran, for

joining us here in Minnesota, better representing our issues.

Mr. MORAN. Great to be with you. This is my first visit to your

State, and it’s a real delight. If nothing else, we’re going to help

the economy, because my family’s also with me, and we’re going to

spend 3 days vacationing in your State.

Mr. KENNEDY. Spend lots of money.

Mr. MORAN. My family actually wanted to go to Disney World in

Florida, and I insisted that we go someplace north where the

50

weather would be cool. And we’re in Minnesota, and it’s 100 degrees just like it is at home.

We have 12 witnesses joining us today. Our witnesses will be testifying in four panels. The first witness we will hear from today is

Commissioner Gene Hugoson, the agriculture commissioner for the

State of Minnesota. Gene, if you could come up.

Our second panel will be representing the second major commodity produced in Minnesota and the Dakotas.

Our third panel consists of producers who represent general farm

interests.

And to complete our hearing this morning, we’ll focus on crop insurance, and we’ll hear from the respective companies and agents

who sell (inaudible) contracts. We welcome all of today’s witnesses,

and we look forward to their testimony.

Commissioner Hugoson, please begin when you’re ready. Welcome to our subcommittee.

STATEMENT OF GENE HUGOSON, AGRICULTURE

COMMISSIONER, STATE OF MINNESOTA

Mr. HUGOSON. Thank you, Mr. Chairman, members of the subcommittee. It is a pleasure to be here today, and on behalf of Governor Tim Pawlenty and the people of Minnesota, we want to welcome you that are from out of Minnesota to our State. Appreciate

your being here.

Chairman Moran, this isn’t, to paraphrase Dorothy, this isn’t

Kansas, but on the other hand, there’s a lot of similarities between

us besides the heat. We’ve had a good working relationship with

my counterparts in Kansas, Allie Devine, Jamie Clover-Adams, on

Karnal bunt, and issues like that. Certainly the weak economy that

is typical of your State and in this part of northern Minnesota has

resulted in us working together on a number of occasions on issues

that are certainly important, but we do appreciate your being here

to look at what’s going on. And in fact, it’s appropriate, I guess,

that you be in Ada, as you’ve mentioned, because I was here in ’97

as well, and then you had to either come by boat or come by air.

This time at least you can drive, so that part is good.

This area has suffered a lot because of what’s gone on in the

weather, so the crop insurance issue is extremely important. Agriculture certainly is the lifeblood of the rural economy here in Minnesota. If you look at what goes on in our area, if the agricultural

economy is good, so is the economy of the whole area. 17 percent

of this State’s total economic activity comes from agriculture, and

in the rural areas, one out of every three jobs really is directly tied

to what goes on in agriculture.

And some of the challenges that we’ve had in weather, particularly in this area, with rising production costs, low commodity

prices, the extremes in the weather, the crop diseases that have resulted from that, have certainly presented some challenges that

have tested people’s perseverance and their ability to survive in

this kind of situation.

We have seen a lot of benefits coming from the Federal Government, and certainly Congressman Peterson has been a champion in

terms of what needs to be done in terms of making sure that our

people are able to survive the situations that they’ve been through.

51

We look at 2003, what we’ve received from Federal payments because of the crop disasters from the previous years, and we’ve received $27.6 million into the State of Minnesota just from those

disaster payments alone. And certainly the flooding, the excessive

rainfall that’s gone on, has resulted in a lot of hardships for people

in this particular area.

The Federal Crop Insurance Program, as you’ve referenced, Mr.

Chairman, has been important to this area, and participation has

been high. In 2002, Minnesota farmers purchased 127,563 crop insurance policies from USDA’s program. We’ve seen 16.3 million

acres covered. We’re looking at 85 percent of Minnesota’s corn acreage covered, 90 percent of the soybeans and wheat acreage that’s

covered, and in sugarbeets that percentage rises to 99 percent, so

it certainly is a program that we’ve utilized a lot, but certainly

there’s some problems that still remain.

And as has been referenced, the whole issue of multiple-year disasters creates some problems for our farmers as it relates to rates,

availability, and the types of things that are important in terms of

that program staying in place. As you address this issue, we would

strongly encourage you to do whatever you can to make sure that

this type of program can be still kept in place.

You look at the issue of the disaster payments that have been

paid, and certainly the Federal Government has invested a lot of

money into disaster programs, and really, I think we need to be

looking at this idea, do we look at having both multiple disaster

payments and crop insurance, or do we, in fact, put the effort into

the crop insurance such that we put the emphasis there to encourage people to be using that, which they already are, but certainly

to be able to take care of those areas such as we’re in right now

where the multiple-year problems certainly have created some

problems.

It should be pointed out that the affordable Crop Insurance Program, with adequate coverage and high participation rates, could

reduce that need for emergency disaster payments, and one of the

options that we would encourage you to look at would be the idea

of a whole-farm policy that gives producers options in addition to

the commodity-specific Crop Insurance Program.

We have been involved with the Department of Agriculture to

help in this area, too. One of the things that we’ve been involved

with is what can we do to provide risk managers training throughout this State? And at this point we’ve trained 85 risk managers

that—sort of after the Certified Financial Planner Program, to be

able to be certified and provide that kind of counseling to people

throughout the State. It’s been a very successful program, we’re

planning on continuing it, but certainly that’s something that we

can be doing at the State level.

Beyond that, though, certainly as it relates to some of the specialty crops, some of the livestock areas, we would like to see some

coverage developed in those areas as well. Let me use an example

from the dairy industry. It’s probably the oldest and most important overall economic benefit to the whole State, and the agricultural area, and the economy as a whole. It’s an $11 billion economic engine to this State when you look at not only the production, but also the processing, the manufacturing, all of that goes

52

along with the whole industry, but because of the financial problems that dairy farmers have gone through with the fluctuating

prices, many of them have been forced out of business.

If, in fact, we can use some of the effective tools that are potentially available through some kind of a risk management effort,

certainly that can help smooth out the price fluctuations and help

them manage their risk.

We are aware of a couple programs, Adjusted Gross Revenue, the

AGR Program, also the AGR-Lite, that has been tried in certain

parts of the country. We believe that these offer some opportunities

for some of the specialty crops, also for the livestock industry. We

have talked with those people that are involved with this. RMA Administrator Ross Davidson was in the State earlier this summer.

I visited with him, and as a result of some of our discussions, Minnesota and Wisconsin have jointly put together an application asking to be included in their program. We’re awaiting a decision on

that. We hope to be in a position to see that program offered in the

State for the 2004 crop year, and we see that as a possibility that

certainly should be used.

One other thing I would just touch on that Congress has done

that has been an enormous help for our producers in this State has

to do with the growing of specialty crops, and that was the Block

Grant Program that was put together last year. And these became

an effective delivery vehicle that have allowed each State to tailor

some of our efforts because of some of the specialty crops that exist,

and Washington was a big participant in this program, and was

able to utilize it a lot, but we were able to fund 23 various projects

in marketing, research and education, many of which took place

right here in the valley, in helping people do some things that they

wouldn’t have been able to do otherwise. And as a result, we really

strongly encourage Congress to consider repeating that program, or

continuing that program, because it’s not always an easy thing to

do when budgets are tight, but it’s been an opportunity for us to

address some of the specialty crop needs that certainly do exist.

Mr. Chairman, I just made some general comments. You’re going

to hear more specifics from some of the groups that are represented

on your panels here today.

Again, we strongly thank you for your interest and your willingness to be here; Congressman Peterson for his leadership in encouraging the hearing in this area; and I’m happy to answer any

questions you might have, or certainly as we look forward to hearing from the other participants as well.

[The prepared statement of Mr. Hugoson appears at the conclusion of the hearing.]

Mr. MORAN. Commissioner, thank you very much for your testimony.

Let me pose this question, and it may become a theme of mine:

Is there a way to make crop insurance work well, be an effective

tool for farmers under the circumstances of multiyear disasters, or

is ad hoc disaster the only real route to addressing the financial

needs of farmers in those circumstances? Is there a way to make

crop insurance work?

Mr. HUGOSON. Mr. Chairman, members of the subcommittee, I

think there is, but to be very frank, it may mean investing addiVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00058 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
53

tional funds for that to happen. But I would also submit that using

funds for disaster payments is very costly as well; and perhaps

even more difficult, it’s unpredictable. I think if in fact the Federal

Government and certainly Congress needs to be applauded for

what you did in 2000 in terms of the changes that were made to

the Federal Crop Insurance Program to help in some of the subsidies that were provided for farmers to purchase the program.

Those sorts of things may be needed to extend to some of the multiple-year disaster ideas as well, so that in fact the program does

remain affordable to those folks that have suffered multiple-year

problems, and that have seen their rates increase. I think it makes

a lot more sense to put money into that portion than it does not

have that uncertainty, and people have to wonder if in fact there’s

going to be a disaster payment.

When you look at what goes on in this area, many of the lending

institutions are very nervous in terms of what’s going to be a farmer’s situation because of the risk that has been involved. I think it

would make it much more doable and beneficial for everyone.

Mr. MORAN. I think that’s a good point.

Predictability certainly is awfully important, and if you look at

our accomplishment this year on disaster assistance, it came way

late and less money than what one may have anticipated based

upon past experience.

I want to give you just a moment to expand upon your concept

of whole-farm policies. Do you want to tell us a little bit about

what you envision there, how that would work?

Mr. HUGOSON. Mr. Chairman, members, as Mr. Lewis mentioned

about the diversity that goes on in his district, this particular part

of the State has seen a lot of that as well, so we have a lot of farmers that are very diverse in the crops that they’re growing.

When you look at what’s going on in areas of some of these specialty crops, it’s very difficult to structure a Crop Insurance Program for a small number of people that might be growing a particular specialty crop. By having a whole-farm approach, and in the

sense that farmers are, in a sense, lumping all of their commodities

together, sharing the risk, a program developed around the idea

that a whole-farm income is being looked at as opposed to just specialty crop by specialty crop, would, in fact, I think, be more feasible. It would enable some of the people that are very small in

terms of the numbers that are in the specialty crops to have some

coverage, and in that way offer some certainty for them as well. So

it’s, in essence, lumping everything together from a particular farm

operation, as opposed to doing it crop by crop.

Mr. MORAN. Commissioner, thank you very much.

Mr. Peterson?

Mr. PETERSON. Thank you, Mr. Chairman.

I’ll try to not ask too many questions, the people here hear me

all the time, and give you guys more of a chance, and I forgot during my opening, we have State Representative Kennedy who represents this area, with us today, and I’d like to recognize him. He’s

a new member of the State legislature; doing a good job.

And commissioner, we welcome you. The commissioner has been

an outstanding advocate for agriculture, and he’s, I think, survived

54

three administrations in this job now, so he’s obviously doing a

good job.

I’m just kind of following up on your question. I think the thing

that’s a problem here is that, we put in a 75 percent flood for the

disaster years when we overhauled crop insurance in 2000, but it

just is not adequate, and I know it’s going to cost more money, but

if we’re going to get away from ad hoc disaster payments, I think

we’re going to have to look at that provision, and try to figure out

how to improve that. If we could get enough money to up that, I

think a lot of the pressure for the ad hoc disaster would go away.

I don’t know if we’ll ever get away from it.

In the 2000 conference committee, I was on the conference committee, we did the crop insurance, and everybody in there said

we’re not going to have any more disaster payments, and I think

we’ve had two since then. That’s been the case since I’ve been in

Congress, people have been talking about improving crop insurance

and not having ad hoc disasters, but it seems like we always end

up having to do something, and obviously it’s been a big benefit to

this area, so I hope that we can figure out some way to try to get

at that. I think you hit the nail on the head, that that’s the big

problem that we have.

And try to develop products with specialty crops. Since 1991 I

think I authored the first amendment to one of the agriculture bills

that went through to try to get the Risk Management Agency to

offer whole-farm policies, I think three different times I put language in the bills, and we just haven’t really been able to get them

to move ahead on that, but I think it makes the most sense, because you spread the risk around, but the folks in the industry

seem to want to keep going back to individual crops, and I don’t

know how we can get by that, but I think it would be a good thing

if we could get whole-farm policies.

So commissioner, again, thank you for your leadership and being

here today.

Mr. MORAN. Mr. Peterson, thank you.

Mr. Larsen?

Mr. LARSEN. Commissioner, thanks for your comments. I have a

question about the whole-farm policy, because we’re, in Washington

State, looking at that, too, and we want to hear what your experience so far has been with RMA and trying to demonstrate the

value of that, so that’s sort of the first question.

The second is: In your opinion, or perhaps you have some data

on this, what does moving to whole-farm policies for some farms do

to the entire Crop Insurance Program? Does it help alleviate the

risk throughout the entire program, or is it just going to be for

those farmers that are participating in a whole-farm policy?

Mr. HUGOSON. Mr. Chairman, Mr. Lewis, I can’t answer you specifically as to that question that you’ve raised. Dr. David Bullock

is here from the Department, and he’s a risk management specialist, and he perhaps could give some information on that.

My observation would be, though, is that it’s really going to

make a difference whether a program is offered or not, because I

think if we’re going to wait for the program to be developed for

each specialty crop, it may never happen, or certainly it’s going to

be many, many years down the road. We may have a situation

55

where we have only 25 to 50 producers producing a specialty crop

in the whole country, and in Minnesota there’s the turf grass industry, not a real large industry, but for certainly the northern

part of Minnesota, it’s a very important industry. Now, for a program to be developed specifically for turf grass, it’s probably going

to be a long ways down the road in order for that to happen, and

certainly as it relates to spreading the risk out, it’s very difficult

to do. I think it’s just a matter of the whole-farm approach offers

the difference between having it or not having it, and that alone,

for me, makes it something that needs to be considered.

Mr. LARSEN. The first part of the question was your experience

so far with RMA and the reception to your proposal.

Mr. HUGOSON. Mr. Chairman, Mr. Lewis, we have had some very

good experience with RMA in the last couple years. We’ve had, I

think, some new receptivability from us in terms of the types of

things that we’ve had numerous meetings with our office and the

folks in St. Paul. Mr. Gleason has been out here, as well as other

folks from RMA, so I think there’s a new awareness of the need on

behalf of RMA to be involved with what’s going on in the local

areas.

I’ll withhold my final answer until I see what happens on AGR

and AGR-Lite this fall, but certainly they’ve been very cooperative

and very responsive in terms of the questions we’ve had so far.

Mr. MORAN. Mr. Larsen, thank you very much.

Mr. Kennedy?

Mr. KENNEDY. Yes. Thank you, Commissioner Hugoson, for your

long service, and for your testimony here today, and all that you’ve

done for agriculture. And I really appreciate you bringing up AGR,

and talking about the need to really extend the benefits of crop insurance also to livestock, because you’ve been a strong advocate at

keeping livestock strong here in Minnesota, it’s ultimately the first

forum of value-added agriculture; consumes a lot of the corn and

beans and other commodities that we produce, and risk insurance

really hasn’t been extended to the same degree.

As you mentioned, AGR, the Adjusted Gross Revenue, policies

have been experimented with in several States, and you’re applying

for Minnesota to be one of those that can use those policies. Has

there been anything that you’ve learned from talking with your fellow commissioners in other States about AGR policies that would

require them to be modified to make them useful to livestock, like

the strong dairy industry, which I lost a lot of my corn and my

beans in my new district, but I have certainly as many cows. Is

there anything that you’ve learned that should be modified, or that

the chairman and committee should consider to be modified, to

make it even stronger?

Mr. HUGOSON. Mr. Chairman, Mr. Kennedy. Mr. Kennedy was

my Congressman, too, until redistricting, and now he’s moved, but

Mr. Kennedy, I think the one notable exception that we would have

to the current provision that Pennsylvania has been using is the

cap level, and it’s perhaps too low for the provision for most of our

farmers to benefit the way they should. I would think in what

we’ve looked at is that the cap level probably should be increased

to a higher amount for more people to be able to utilize it and benefit from that particular program. If I remember correctly, I think

56

it’s something like $200,000 I believe is the maximum right now as

it relates to gross income, and that should probably be looked at

having the opportunity to raise that for more of our people’s benefit.

Mr. KENNEDY. Well, I would certainly appreciate that, because

my guess is that our scale, even on dairy we’re much smaller than

California and other States, and we’re probably more comparable

to Pennsylvania in that scale, so if it’s a pinch in Pennsylvania, I

would guess it would probably be pinching many of our producers

here in Minnesota as well. And I also appreciate your focus on diversification, because certainly I know in our family’s experience,

economic (inaudible), having the diversification in agricultural commodities, it really helps, so I applaud your focus on that, as well

as having whole-farm policies to try to encourage diversification, as

well as to get rid of some of the administrative expenses from having to juggle so many different policies that may or may not be

there, so thanks for your testimony, and I’ll yield.

Mr. MORAN. Mr. Kennedy, thank you.

Commissioner, thank you. It’s very evident you’re very knowledgeable and dedicated to agriculture in Minnesota and the country, and we very much appreciate your testimony today.

I will tell you that the precedence for leadership, your predecessor, Jon Wefald, came to Kansas, where he’s the president of

Kansas State University, and I don’t know whether you can turn

a football program around like he did or not, but there’s some great

qualities from Minnesota’s commissioner of agriculture. Glad to

have you with us.

Mr. HUGOSON. Thank you, Mr. Chairman. Our loss in that case

was Kansas’s gain.

Mr. MORAN. We very much appreciate Dr. Wefald. Thank you.

We’ll call the next panel, which consists of Mr. Mark Beedy, who

is the vice president of the Minnesota Soybean Growers Association. He is from Moorhead; Mr. Steve Williams, vice president of

Red River Valley Sugarbeet Growers Association, of Fisher, MN;

Mr. Bruce Freitag, president of North Dakota Grain Growers Association, Scranton, North Dakota; Mr. Nathan Johnson, producer,

Minnesota Corn Growers Association, of Lowry, MN; and Mr. Robert Rynning, president, National Barley Growers Association, of

Kennedy, MN. Gentlemen, welcome.

I think the easy way to start, although I don’t know whether you

have a plan, is perhaps Mr. Freitag, since you’re on the end, we’ll

begin with your testimony, and work our way toward the committee. Thank you very much, and welcome.

STATEMENT OF BRUCE FREITAG, PRESIDENT, NORTH

DAKOTA GRAIN GROWERS ASSOCIATION

Mr. FREITAG. My name is Bruce Freitag, and I’m a small grain

and row crop producer from Scranton, North Dakota, which is in

the far southwestern corner of the State. I’m currently serving as

president of the North Dakota Grain Growers, and also serve on

the board of directors of the National Association of Wheat Growers, and on the Domestic Policy Committee of that organization,

which has crop insurance reform as a major priority.

57

Congressman Moran, first of all I’d like to thank you and the

members of your committee for coming to the upper Midwest to listen to producers’ concerns, especially on this important issue.

During the last farm bill debate, there were many good ideas

that were brought forward. Congress listened and worked through

these ideas, and came up with a farm bill that we believe is a wellbalanced approach to farm programs. It was always our goal at the

North Dakota Grain Growers and National Association of Wheat

Growers that the farm bill have a three-legged approach, and as

we learned in southwest North Dakota and much of the Wheat Belt

last year, fixed payments were an important part of that. They

gave us some security in times of complete crop failure due to

drought. Of course to go along with that, a loan rate that supports

the price on the production that we do produce. And the third leg,

that the counter-cyclical payment that supports prices when there’s

worldwide surpluses, and assists us in our financial endeavors.

This farm bill has done a good job of letting us as growers make

decisions based on world markets, but yet providing us with a certain amount of financial stability to maintain the cheapest, safest,

and most environmentally-friendly food supply in the world. For

that, Mr. Chairman, we commend you and your colleagues for

bringing the last farm bill forward.

We believe a major accomplishment of this legislation was to replace the need for ad hoc market loss assistance payments with a

mechanism for counter-cyclical payments in times of low market

prices. We believe the same approach is needed when addressing

natural disasters. Crop insurance should be improved to provide

more complete coverage for producers, thereby making emergency

disaster legislation unnecessary. We all know how difficult it was

to achieve disaster legislation this past year, and our concern is

that any future weather-related disasters will face the same fiscal

climate and resistance to emergency spending. We believe it is now

time to address this problem, before we face the next natural disaster.

Crop insurance has been a valuable tool for our producers in

North Dakota, with a participation rate of 97 percent in the past

few years, yet even at these levels of participation, there has been

a need for supplemental disaster payments because the current

crop insurance system is inadequate. The coverage levels that are

higher than 75 percent are impractical to purchase unless you plan

on having a disaster. Premium rates for coverage beyond the 75

percent level in many cases approach 50 percent. In other words,

it takes $1 in premium to buy $2 worth of additional coverage. This

results in a large gap in coverage for producers. Typical crop production margins are narrow, and it takes 90 to 95 percent of an

average crop to cover costs. With the most affordable and justifiable coverage levels of the current Crop Insurance Program at the

65 to 70 percent level, a substantial shortfall occurs whenever

there are crop problems. In other words, a farmer had better plan

on having 5 or 6 good years before having a bad one in order to

stay in business.

The North Dakota Grain Growers, along with the North Dakota

Barley Council, have begun this process by starting to do an economic analysis of what it would be like to develop a crop insurance

58

plan that combines crop insurance coverage along with a farm savings account. We believe there are ways to make crop insurance

more efficient and less vulnerable to fraud and misuse than the

current program. Certainly these savings could be used to reduce

premiums on higher levels of coverage, making for a more complete

coverage. This, coupled with the farm savings account, would provide a more complete risk management package, and be responsible to both the taxpayer and producer.

There are several possibilities for finding efficiencies in the crop

insurance system, again, all of which require more economic research to develop. Some current ideas include multiyear discounts,

no-loss discounts, and more affordable premiums for whole-farm or

enterprise units. At any rate, a solution needs to be created to

make the 80 to 85 percent levels of coverage more affordable.

multiyear losses which lead to declining APHs also are a problem

in some areas, and should be corrected to provide producers with

adequate coverage. Indexing yields may be a way to solve this

problem.

The farm savings account could be a tax-deferred, governmentmatched account, similar to an IRA, that producers could tap in

times of crop failure to fill the 15 to 20 percent gap between crop

insurance coverage and expected revenue from the crop.

When it comes to making the system more efficient, we as growers have to be willing to help in developing this plan. That is why

the North Dakota Grain Growers, along with the North Dakota

Barley Council, have begun this process, to research these ideas, to

see if they are actually sound and make economic sense.

Mr. Chairman, members of the committee, we here at the North

Dakota Grain Growers again look forward to working with you in

solving this most difficult problem facing American agriculture

today. Once again, thank you for coming to the upper Midwest.

[The prepared statement of Mr. Freitag appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Freitag, thank you very much.

We now ask Mr. Johnson for his testimony.

STATEMENT OF NATHAN JOHNSON, PRODUCER, MINNESOTA

CORN GROWERS ASSOCIATION

Mr. JOHNSON. Mr. Chairman, members of the subcommittee, I’d

like to thank you for giving me the opportunity to express my

views and share some of the information about crop insurance.

My name is Nathan Johnson. I farm in Polk County. It’s in west

central Minnesota. I grow corn and soybeans, and I serve on the

board of directors for the Minnesota Corn Growers, and I’m also on

their legislative committee.

As you heard earlier from Commissioner Hugoson, Minnesota

farmers have been active customers of Federal crop insurance. I

have purchased crop insurance since 1993, but many others have

only began using crop insurance in the last few or recent years.

This is in large part due to the welcome changes that you as committee members have helped bring about.

In the last 5 or 6 years, crop insurance has greatly improved for

farmers in central Minnesota. Because of high premiums 5 years

ago, I could not afford to take out a 60-percent coverage level on

59

my crops, but today I currently have my crops covered at the 80-

percent level. The increased premium assistance has made this

possible.

I would also encourage you to continue the trend toward a more

revenue-oriented insurance program. Ultimately, revenue shortfalls

are the events that we are trying to cover or carry insurance

against anyway.

The new premium formulas have been a real advantage for farmers. In the past, we were not given credit for all the improvements

in crop production that we have made in the last 20 years. With

the new formulas, these improvements are now taken into consideration. Again, this represents a philosophical shift in that it is

revenue that is being protected, not bushels.

Another big advantage for farmers is the increased flexibility in

combining fields in several different sections. One area of concern

that has not been addressed is the crop insurance companies do not

accumulate interest on pending claims. Producers, on the other

hand, are charged interest once a premium is due and has not been

paid. This is unfair, as producers involved in the claims dispute receive neither the insurance payment that they are expecting, nor

the interest on that claim once it is settled. Simply requiring interest to be added to a claim at the time of resolution, at the same

rate the company charges in the premiums owed, would even the

playing field. Your help in this area would be greatly appreciated.

I think it is essential for Minnesota farmers to be able to rely on

crop insurance that provides good coverage at affordable prices,

and I think it is very important that there are programs in place

to make sure farmers know about all the options that are available

in crop insurance. I would encourage greater education efforts to

help make farmers aware of the changes and how they can best

protect themselves. I’ve talked to many different farmers who are

not aware of any of the recent changes to crop insurance programs.

This puts them at a great disadvantage. While they must accept

some of the responsibility for educating themselves, it seems that

the highly-complicated nature of the programs would require a significant level of educational efforts, especially with numerous

changes.

Again, I would like to thank you for giving me the opportunity

to testify today, and I’d sure try to answer any questions that you

might have.

[The prepared statement of Mr. Johnson appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Johnson, thank you very much. Mr. Williams.

STATEMENT OF STEVE WILLIAMS, VICE PRESIDENT, RED

RIVER VALLEY SUGARBEET GROWERS ASSOCIATION

Mr. WILLIAMS. Thank you for allowing me to address the hearing

this morning. I’m Steve Williams, vice president of the Red River

Valley Sugarbeet Growers Association, and a sugarbeet, wheat and

soybean producer from Fisher, Minnesota.

I would like to thank the committee for the improvements that

have been made to the Crop Insurance Program, and I would also

like to commend RMA employees for the hard work they do to

make the program work.

60

Crop insurance has helped many growers stay in business. Nearly 100 percent of the sugarbeet growers in the Red River Valley use

Federal crop insurance as a risk management tool.

Today I’d like to mention four key issues that are of concern to

our growers in this area. First of all, revenue coverage. Approximately 90 percent of all sugarbeets grown in the United States are

processed by grower-owned cooperatives. The grower is not only responsible for his expenses, but he is also financially responsible for

the processing and marketing expenses. Under some circumstances, the current yield policy has gaps that surface with the

cooperative’s throughput reduced, and expenses are spread over

fewer tons.

We would like to have a revenue policy that allows growers to

purchase a specific dollar amount of coverage per acre. This policy

can be developed under the existing RMA legislation.

Another option that we’d like to explore is the revenue product

that provides coverage for sugarbeet storage and factory throughput. This policy cannot be developed without a legislative change

that would allow producers to cover their extended financial risk.

The American Sugarbeet Growers Association has requested that

RMA explore both of these options. If the full value coverage option

is feasible, we will request your committee’s support for legislative

change to make the policy available.

multiyear losses have been discussed quite a bit already this

morning. The amount of coverage a grower can purchase on their

sugarbeet crop is based on a 10-year average of the production of

each unit.

Severe weather-related losses that are out of the producer’s control, such as flooding caused by excessive rainfall, that occurs over

multiple years, can have a devastating effect on the grower’s production history, and it can affect the grower for up to 10 years.

This can make the level of coverage available so low that it’s not

worth the cost of carrying the insurance, and he loses a risk management tool.

The current policy has a minimum yield of 60 percent of the

county average for losses in any year. The solution to this problem

may be to use the county average yield as a minimum yield in loss

years. If this is not actuarially sound, a higher percent of the county yield should be considered as a minimum yield in any given

year.

Thirdly, rhizomania. Sugarbeet growers in the Red River Valley

are confronting a new challenge in the form of rhizomania.

Rhizomania is a disease that has only recently been detected in the

Red River Valley, and it can have serious negative effects on both

sugarbeet yield and sugar content. American Crystal Sugar Company growers and staff are actively working to minimize effects of

the disease. However, existing policies related to rhizomania and

crop insurance may have the unintended effect of undermining efforts to slow the advance of the disease. Producers may be reluctant to adopt best management practices to combat the effects of

the disease if potential for crop insurance implications are perceived as severe. There is a written agreement in the current policy, but there seems to be a lot of confusion on how this should be

handled, and the detection and deciding whether the disease is

61

present has become a very large problem between producers and

insurers.

The fourth item I just want to touch on is stage I elimination.

Currently the sugarbeet coverage pays farmers at 60 percent of

their guarantee if the damage to their crop occurred before July 1,

and 100 percent after after July 1. This July 1 cutoff does not represent the timing of the expenses of raising sugarbeets, as most

growers have committed over 80 percent of their annual crop by

June 30th.

RMA has agreed to do a pilot project in an irrigated and nonirrigated area of the U.S., and the Red River Valley Sugarbeet Growers requested that we would be included in that pilot project.

I’d like to thank the committee for taking the time and effort to

come to our area. We look forward to working with you and RMA

to provide the best possible risk management tool. Thank you.

Mr. MORAN. Mr. Williams, thank you very much. Mr. Beedy.

STATEMENT OF MARK BEEDY, VICE PRESIDENT, MINNESOTA

SOYBEAN GROWERS ASSOCIATION

Mr. BEEDY. I’m Mark Beedy. I farm near Fargo/Moorhead, and

this year I’m serving as vice president of the Minnesota Soybean

Growers Association.

I, too, would like to welcome the Chairman Moran and Congressman Peterson and members of the subcommittee and guest, Mr.

Kennedy, for visiting our region and giving the opportunity to

present the testimony.

We here in the valley have the advantage to try to increase profits by utilizing different crops through diversity, and one of the

crops that’s really grown in the last few years up here is soybeans,

and I’d just like to put a little perspective. A lot of people think

northwestern Minnesota, and they think, ‘‘You grow what?’’ So I’d

like to pass along that soybeans have really taken hold the last few

years from here to the Canadian border. Polk County, just to the

north of us, is the largest soybean acreage-producing county, or one

of, in the State of Minnesota. Cass County, North Dakota, just to

the west of us, is one of the largest soybean-producing acreage

counties in the Nation. So they’ve really became a large part of our

crop rotation, and if you’ve driven across or driven there, you’ve noticed that.

I recognize this subcommittee’s most interested in the Crop Insurance Program, particularly how it’s working in this region. Addressing the multiple-year losses when it comes to disaster and

crop insurance programs remains one of our top concerns.

Loss years are not just the large-scale drought or floods that you

see on TV and in the media. Over the last decade, we’ve experienced planting delays due to spring floods and just wet springs.

Grain-growing months, have had areas of excessive rains, hail, wet

conditions during harvest, and whenever things like this occur, you

have more weed and disease pressure, more quality problems,

which mean more expense, yield losses, and your debt load increases, you’re financing your losses from prior years, and you’ve

used up your operating capital.

Previous disaster programs were merely another AMTA payment

to all producers. They were very well received, but they were made

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to all producers whether they had a loss or not. And I commend

the work of the most recent, not the last, disaster program to try

and remedy this. It worked fine, except for those of us with multiple disaster years. We had to decide which loss year we wanted

to keep, or which was the worst.

I think to have an insurance program so that the ad hoc disaster

programs aren’t necessary except in times of the large-scale or

broad disaster regions would be the option. To have coverage that

would reflect actual costs of production and input would be vital.

If you look in my testimony, I’ve put down from my own farm,

some of the costs, some of the insurance, the percentages, and what

we have to work with and what we’re working with, and it shows

that there’s a large gap between actual production costs and what’s

insured.

Some of the negative comments you hear in the media is when

it comes to crop insurance, is that we’re trying to guarantee a profit. If you look at these numbers, it’s far from that.

And I realize I’m but one individual of a national program, but

I would be willing to assist any way I can, or provide any more details that you would need for any decision making or for the process, and I want to thank you for your time.

[The prepared statement of Mr. Beedy appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Beedy, thank you for that offer.

We look forward now to hearing from Mr. Rynning.

STATEMENT OF ROBERT RYNNING, PRESIDENT, NATIONAL

BARLEY GROWERS ASSOCIATION

Mr. RYNNING. Thank you very much. Thank you, Mr. Chairman,

for bringing the subcommittee here today. Thank you, Congressman Peterson, for hosting this testimony.

My name is Rob Rynning. I’m from Kennedy, MN, which is actually 90 miles north of here, towards the top end of Minnesota. I

farm growing barley, wheat, canola and soybeans. I am presently

the president of the National Barley Growers Association and the

Minnesota Barley Growers Association.

Before I get into my more barley-specific points, I think I want

to reemphasize the thing about the production history and the

multiyear disasters. That has hit more producers in this region

than any other single issue in crop insurance, and we also know

that many other parts of the country suffer the same way because

of drought and flood, so I do think there’s a strong emphasis there.

On more barley-related specific issues, what looks to be a bright

spot in barley and relating to crop insurance. We have a lot of

issues with quality in barley, because we have malting and feed

barley. Malting barley is very quality concerned. It’s highly quality

concerned. GIPSA, the grain inspection service that governs over

quality, dictates the quality to RMA. We’ve had a big issue in

sprout damages in many parts of the country, where if barley is

sprouted, it is not worth as much to the malters. You get kicked

into a feed quality, and you get paid much less, so there’s a strong

monetary issue there.

Crop insurance goes by GIPSA standards, which they call sprout

damage. They look at the kernel and tell us if there’s sprout damVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00068 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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age or not. The industry, however, which does the malting and

buys our barley, uses a pearling method, one much like pearled

barley you put in a soup, and they feel they can tell better whether

barley sprouted or not by looking at that sample. Because the two

issues are different, and crop insurance goes by GIPSA standards,

many times producers will fall through the cracks, and will get degraded on their barley for sprout damage, but yet RMA will not

pay them. GIPSA has agreed to work with the American Society

of Brewing Chemists to come up with a standardized process for

grading sprout damage, and they have basically agreed to come up

with a new category called ‘‘injured by sprout,’’ and that will be on

top of the sprout damage which they already have, using a visual

inspection.

National Barley Growers would like to encourage GIPSA to adopt

these standards as soon as possible, because we do have a lot of

producers that fall through the cracks on this issue, and don’t get

compensation through crop insurance, but yet have had a severe

loss.

My next issue is we have two options under crop insurance, two

buy-up options for barley. One is option A. One is option B. They

govern over malting barley. Option A allows you to take 4 years of

malting barley production history, if you’ve planted a multi variety,

they allow you to take this extra contract, but the problem is many

producers do not have 4 years’ history. If you do have a history,

they only allow you to take 125 percent of the largest year of that

production, so if you’ve grown 100 acres of barley over the last 4

years, let’s say there’s a good price out there and you want to go

500, the problem is you can’t buy this extra buy-up coverage on any

more than 125 acres because of your past history.

The other limitation on option A is they’re only going to go a $1.25 value over the barley. Well, feed barley can many times have

a much larger spread, so that limits the application of option A. So

what we would like to see is a method to make option A more flexible.

Option B is the other option which many producers carry in this

region, which allows you to take a contract with a malting company, bring that contract to RMA, they approve it, and you can

take crop insurance coverage over that, over those bushels, at a

higher rate than regular feed barley.

Option B is better in that it allows you to go up to $2 over feed

values, and that covers you a little better. What the problem is, is

that many producers do not have the ability to take option B, because they may not be close to a delivery point for a contract, they

may be out of the range of where you can deliver this stuff. So we

would like to see option A more available for those that want to

deliver—just grow barley, open market, and deliver it to an elevator, and hope that they can get malting. One way to do that would

be on top of using the history method, or in lieu of, to allow a producer to come in and show that he has made the expenditures to

make malting grade.

There are certain things you have to do to make malting-grade

barley. You have to grow a multi variety, which is already accepted

under option A, but you also have to fertilize for it. There’s other

expenses added to it. Soil testing. You buy certified seed generally,

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and the big expense is you fungicide. In the six row growing region

in the United States, we have gotten to the point where we have

to fungicide for a fungus that comes in and wipes out our barley

for use as a multi variety. We would like to see those in there.

The other thing would be protein contents in barley. Thirteen

and a half percent is accepted by industry. RMA’s is 14 percent. If

you’re in between, you can be in trouble.

Thank you very much, chairman and the members of the subcommittee. Thank you for hearing us out today.

[The prepared statement of Mr. Rynning appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Rynning, thank you very much for your testimony.

What percentage of barley is used for malting as compared to

feed?

Mr. RYNNING. Roughly 50 percent.

Mr. MORAN. And the marketing differential, the price, is significant?

Mr. RYNNING. It can be anywhere from 20 cents to a $1.50, $2.

It varies an awful lot, depending on what kind of quality is being

raised out there in any given year.

Mr. MORAN. And do you have any sense that RMA is adequately

addressing this issue of standardizing that you asked them to do?

Are they progressing in that regard?

Mr. RYNNING. They seem to be listening. I think a good sign is

this fact that they’re working with GIPSA and the American Society of Brewing Chemists to come up with something, because they

understand that this sprout damage issue is a very large issue, especially in western North Dakota, Montana, where they grow

what’s called a two-row variety. It’s a slightly different variety,

more prone to sprouting. It’s a huge issue for those farmers. And

so they seem to be looking at some of these; maybe not moving as

fast as we’d like to see them move on them, but they seem to be

open, and hear us out.

Mr. MORAN. We have with us in the audience, I believe, Mr.

Duane Voy, who is with the regional office of RMA, so RMA is also

listening to the testimony of our witnesses today.

And I was making a note to myself as you were testifying that

when we return to Washington, I think I’ll ask Mr. Davidson, the

RMA Administrator, to come over and have just a sit-down discussion with members of our subcommittee about what we’ve heard,

where they are, what progress is being made, what problems they

see in trying to accomplish the things that a number of you are

suggesting would make improvements in the Risk Management

Program, so I intend to follow-up with yours and other’s suggestions that I’ve heard this morning.

Mr. Beedy, I, too, would just only commiserate with you about

having to choose between 2001 and 2002. It wasn’t the outcome

that we desired. I actually ended up being very surprised that the

disaster assistance was accomplished at all, and choosing between

2001 and 2002 had no real basis in reality of what farmers faced.

It was a monetary financial factor of trying to get something

through Congress. So there’s no defense on my part, or I would

guess any other Member of Congress who worked on trying to get

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disaster assistance accomplished, that we can tell you why it

makes sense to force you to choose between 2001 and 2002. It just

was the financial circumstances we faced in trying to get a very

urban and suburban Congress interested in disaster at a time in

which many Members of Congress believed the farm bill had solved

all the problems of agriculture, and that $180 billion number has

floated around not only among Members of Congress, but the Wall

Street Journal, the Washington Post, the New York Times, about

how much money farmers got in the farm bill.

It’s a real shame to me that we don’t have someone out there as

a spokesman talking about the reality of the farm bill, which is

that 15, 16 percent of the money actually is in commodity payments, and the vast majority is in nutrition programs and food

stamps, but we do have that perception, and once we got through

explaining that the farm bill doesn’t do all the things that people

thought in Congress that it did, then the question was: ‘‘Why

doesn’t crop insurance solve this problem? We just put $80 billion

into crop insurance. Why are you back now asking for ad hoc disaster assistance?’’

So in part the answer to the question I raised with the commissioner about which is a necessity, the ad hoc or can we fix this with

crop insurance, I think politically we’ve got to fix this with crop insurance, because our ability to ask Members of Congress for ad hoc

disaster assistance is diminished, it diminishes every year, and the

reapportionment that you saw in Minnesota and I saw in Kansas,

even in States like ours that are rural, we rural folks, our territory

gets bigger and bigger, and it becomes a more urban Congress even

from States that are traditionally agriculturally-oriented.

Mr. Williams, RMA’s interest in your revenue coverage and your

full coverage option, any sense that they’re paying attention to you

and moving in the direction you want them to go?

Mr. WILLIAMS. Last fall, RMA did a review on the sugarbeet policy, and the first item they wanted to do is look at how it was physically working, and what the opportunities for fraud were, and they

came up with a clean bill of health on the sugarbeet program. And

we worked with them on this study, and one of the items we wanted them to look at was these two, the revenue and the basically

storage coverage, and they are looking at those items at this time.

But they can request a revenue policy be developed up until harvest, but the legislators will not allow them to go beyond that, and

the risk is still to the farmer, because as we’ve said, 90 percent of

the processors are farmers, so the grower, whatever is left, is what

he gets, and if it’s lost in storage, which is usually a weather problem, too, so we are looking at that, and I think they are looking

at that.

Mr. MORAN. Any sense that you’re in line for the pilot project

you’re requesting?

Mr. WILLIAMS. Well, the problem, the only problem I see with it

is that we have more acres than they’d like to put in the pilot

project, but we have made that request.

Mr. MORAN. One of the things we’ve heard in hearings in Washington with pilot projects is that when they last very long, then

there becomes a differential in land values, lending; you’ve got

counties that are in the pilot project and counties that are not, and

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it becomes a differential just within your own State or region as

to the consequences, so one might reach the conclusion there is a

reason to have a rather broad area covered by a pilot project so

that one farmer in one county is not qualifying and his next-door

neighbor across the county line is not. Again, this is something we

can raise with RMA and discussions in Washington.

Mr. Johnson, you talked about educational efforts. I was interested to see what more needs to be done? What really is transpiring in Minnesota and North Dakota?

Mr. JOHNSON. Well, I guess one thing that I just became aware

of this year myself, in my own operation, I’ve got land in 10 different sections, and because of that, if I combine all the sections

together I can get a 40 percent discount, or I figured out to be

roughly about 40 percent discount in the premiums. I talked to several of my neighbors that farm similar amounts, and none of them

were really aware that that program was out there.

And like he’d said earlier, sometimes the buy-up coverage, it costs you $1 to buy $2 worth of coverage, and basically going to the

80 to 85 percent level, that’s about where we’re at, but when you

take the 40 percent discount, it allowed me to step up and take 80

percent coverage when I combined everything, where otherwise I

probably would have been at 70 percent, and I guess I would like

to see that the majority of the farmers out there could realize there

were some of these programs. They are very complicated right now.

I’m not sure what a guy can set up, but there needs to be some

seminars or something out there so that we can educate the farmers on these programs.

Mr. MORAN. I’ve heard that same story in Kansas about unaware

of being able to get additional coverage by combining your acres

and covering one farm. That’s a good point. If the program’s not

utilized, I would guess we have some ways to go in information,

and perhaps you’ve accomplished that, in part, this morning by

talking about the issue.

And, Mr. Freitag, did the farm bill, from your perspective, find

the right balance between fixed payments and payments based

upon production?

Mr. FREITAG. I think the original proposals from our organization, International Association of Wheat Growers, had a higher

overall target price, slightly higher loan rates, but overall, not a lot

of difference. I guess you always like to have a little more, but I

think it’s a fair balance. And it depends on just what your situation

is. If you don’t raise a crop, a fixed payment is pretty nice. A high

loan rate doesn’t do you a whole lot of good in that case.

Mr. MORAN. The House’s position, in fact the House passed a bill

that had a higher portion of the money going toward fixed payments and less for payments based upon production, and there was

a compromise between the House and the Senate, and certainly

from a Kansas perspective, with another year of drought, we would

have fared better with more fixed payments, and that balance I’m

sure is not perfect, but a number of political decisions were made

to get a farm bill passed. I think it’s an area we need to work more

on to try to figure out economically what makes the most sense.

I don’t think you can draft a farm bill based upon the assumption that there’s going to be a disaster or a drought, but on the

67

other hand, it seems pretty common anymore, and so we do need

to, I think, in my opinion, we’re not going to readdress the farm

bill in any significant way, but after we’re 2 years into the farm

bill now, and already we’re thinking about what the next farm bill

will look like, so I’m interested in what the wheat growers think.

Thank you for that.

Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Nathan, why, on this education issue, aren’t the insurance

agents making this information available, or isn’t that part of their

job? Is there some economic reason why they want to just what is

your perception of that?

Mr. JOHNSON. Well, some of the insurance agents probably are

going out there with a lot of the programs, but I think there’s a

fair amount of insurance agents tha they’re basically insurance

agents for everything, not just crop insurance, and they probably

get spread too thin. I know several agents in our county that they

aren’t up to date on the rules for crop insurance.

Mr. PETERSON. It’s complicated.

Mr. JOHNSON. Yes. It kind of surprises me, probably because of

my work with the Corn Growers that I’ve gotten involved with crop

insurance more, and I’ll ask them questions which I kind of know

the answer, but they aren’t even aware of some of the questions.

Mr. PETERSON. So we need to maybe do some more education

with the agents themselves?

Mr. JOHNSON. It could be both the agents and the farmers.

Mr. PETERSON. Steve, the only legislation you need is on the storage issue; is that true? If you’re not able to——

Mr. WILLIAMS. Yes. If it works, that’s the only piece.

Mr. PETERSON. I would assume that this issue is what happened

in southern Minnesota, right, where they had the problem after

the——

Mr. WILLIAMS. Yes, American Crystal was——

Mr. PETERSON. You had a problem a few years ago, didn’t you?

Mr. WILLIAMS. But the risk is so much more extended than it

used to be.

Mr. PETERSON. All right.

Mr. WILLIAMS. And American Crystal has been grower-owned for

30 years. I mean it’s nothing new. We’ve got many in the same situation, especially the new western cooperative, with the drought.

When the [inaudible]—if there’s less tons, you can grow a crop that

does not have a Federal crop loss, and then throughput’s way down

in the factory, and your payment is way less than you——

Mr. PETERSON. Right. So you’re not asking that from the legislation yet?

Mr. WILLIAMS. The RMA is going to study it. RMA’s going to

study the program, and it has to be feasible.

Mr. PETERSON. OK. Let us know when you——

Mr. WILLIAMS. Yes, definitely.

Mr. PETERSON. Mark, on the soybeans, I was down yesterday in

Marshall and Willmar and Hutchinson, and they’ve got every spray

plane in America down there spraying. How far north is that problem, do you know?

68

Mr. BEEDY. Well, it sounds like you go north of here, I believe

up in the Warren area——

Mr. PETERSON. They’re having problems up there, too?

Mr. BEEDY [continuing]. And there’s quite a bit of spraying up

in that area, also.

Mr. PETERSON. And one of the farmers yesterday was saying that

they think there might be some crop insurance claims and so forth.

The crop insurance will cover this loss if there is a loss?

Mr. BEEDY. They should, from a yield loss perspective.

Mr. PETERSON. And Mr. Chairman, I think your offer to take

these objections back to Washington is very important. I think if

this committee weighs in, I think it will help put a push behind

what is trying to be done here.

One thing I want you to be aware of, in the barley area we continue to lose production, and we used to grow oats, I mean we grew

oats on our farm over south here a little bit, and there’s almost no

oats left in the United States now. And barley is headed the same

way. A lot of this malting barley is coming in from Canada, and

we really need to improve the situation so we can keep barley as

a crop, and it’s important here in northern Minnesota and North

Dakota. We don’t have all the options, because we’re so far north,

than what they have down in the southern part of my district, so

I think it would be very helpful for the committee to weigh in and

try and resolve some of these issues. I think I’m right, we’re still

losing production, aren’t we?

Mr. RYNNING. Yes, Mr. Chairman. We’ve kind of leveled off, but

it’s at a very low level, and we’ve had a lot of problems, and part

of it is this relationship in risk between growing barley and trying

to get malting grade, which is very quality specific, and not attaining that, and then getting feed barley, which is at a much lower

price, and farmers have steered away from that risk. They did not

want to take that risk.

And these options for buy-up for covering barley for malting help

take away some of that risk. They certainly don’t guarantee you a

profit, but they do help take away some of that risk, but we do

need to make them just a little bit more farmer friendly.

Mr. PETERSON. Besides all of the weather problems, we’ve had

disease problems in barley that made it so it wasn’t malting quality. They had this——

Mr. RYNNING. Fusarium.

Mr. PETERSON. Fusarium situation. It’s not as bad now as it was,

but that caused some problems.

And then the malting companies, some of them took their varieties up to Canada and created competition with us because they

didn’t have these disease problems, and so it’s been a real tough

situation for the barley industry, so whatever help you could give

us in that area would be appreciated.

Mr. MORAN. Mr. Peterson and Mr. Rynning, I’d be glad to become better acquainted with the issue of barley. That is a topic

that is relatively new to me. We used to grow sugarbeets in Kansas, but we’ve seen the demise of that. And soybeans and wheat

are pretty darn common, but barley is not, and I tell Mr. Peterson,

I’d be glad to go with you, as the national president, to make sure

that we’ll advocate for the barley growers.

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Mr. Larsen?

Mr. LARSEN. No questions.

Mr. MORAN. Mr. Kennedy?

Mr. KENNEDY. I’d like to thank everybody for their testimony. I

thought it was very thorough; covered a lot of issues.

And Mr. Beedy, I think that you said it well when you said that

with disaster assistance, it’s really hard to target those who really

have the need, and that really highlights the need for us to

strengthen and keep strong the insurance program, because that

really helps us to target that in a much better way.

Mr. Freitag, I appreciate you bringing up farm accounts as well

as a way to supplement and support what we do, because those two

things, I agree with you, are a strong step in the right direction.

And I think what we’re saying here in many ways is that the devil’s in the details, that although the broad concept of crop insurance

has done good things for American farmers, that when it gets to

the details of combining fields, as Nathan mentioned, or by the specifics of barley, as Mr. Rynning has said, we have to pay attention

to those, and that’s, Mr. Chairman, why it’s so important that

you’re here and hearing those. I have had some specific experience

having southern Minnesota in my former district with some of the

sugarbeet issues, and part of my concern is, Mr. Williams, is that

when you talk about the revenue coverage, if it only goes up to the

time of harvest, and a lot of these crops that are grown together

with cooperatives, which is something we ought to be encouraging,

we ought to be encouraging farmers to come together in a cooperative way, you don’t really know the value of it until it’s processed,

and a lot of times, when you have sort of this idea, when your crop

insurance ends when you’ve harvested it, you discourage people

from taking a risk and trying to get the value out of it for processing, and maybe crop insurance costs more because you’re getting

the suboptimal solution.

Do you really think that the proposals on the table on the beet

side are really going to address some of the peculiarities of having

a crop that’s value really isn’t known until it’s processed, or is

there other options we need to be able to consider?

Mr. WILLIAMS. I think there’s ways it can be done. We’re in the

preliminary stages of it now, but I think there’s definitely ways a

program can be worked out. The question is when it’s going to have

to follow under the area of Federal crop to probably make it affordable.

Mr. KENNEDY. Well, again, I’ll go along with Congressman Peterson and say if there’s other specific things we need to look at there,

let us know.

I would also say, Nathan, thanks for bringing up the higher

usage, and that has been part of the benefit. Insurance really

works best when everybody’s using it, and part of that is the core

issue that, chairman, you brought up, that we had in the farm bill

debate on the fixed payments versus the variable payments, which

is the same tension that we have between high usage and low

usage. Those farmers that are in parts of Illinois or Indiana where

you can throw nails in the ground and they’ll give you 200 bushels,

don’t really worry so much about crop insurance, and maybe don’t

participate in it and don’t put their premium in the pool to really

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make it more affordable for everyone, and would push more to have

everything in the farm bill on the price side of it, because they’re

not worried about yield, but clearly, when we’re in areas where

we’re hearing about today where we have multiple-year losses, having protection for yield as well, whether through the Farm Program

or through the Crop Insurance Program, is so vitally important, so

I would just encourage us to consider that as we look at adjustments of crop insurance, but also consider that tension and that

need to balance both yield and price protection as we look forward

to our other future programs as well. I yield back.

Mr. MORAN. Mr. Kennedy, thank you. It does remind me of a

conversation that occurred in the Agriculture Committee several

years ago in which a Member of Congress from one of the corngrowing States indicated that maybe we just ought not have agriculture in the Dakotas and Minnesota. And I will tell you that the

Congressman from the area rose to the defense of agriculture in

this part of the country. It was a very interesting moment in which

those who thought that production came easy made clear that

there were places that they believed agriculture and farming

should not be a way of life, where it is much more difficult to raise

a crop, and those of us who come from places in which it’s often

difficult to raise a crop very much appreciate the challenges that

you all face in trying not only to put food on your own family’s

table, but to feed the world, and we’re very grateful for what you

do, and we’re grateful for your testimony here this morning.

We’re going to take a 15-minute recess. The committee will stand

in recess. There’s coffee and cookies for all of you, and we want to

make certain that you sign in on the sign-in sheets.

[Recess.]

Mr. MORAN. The hearing will resume.

We thought it might be useful, so that in case we get cornered

by farmers after this hearing, to introduce to you the staff that is

here, and that way they can share the joy of learning from farmers

in Minnesota with Members of Congress. This was Mr. Peterson’s

idea.

And I have with me Kelli Ludlum, who is the staff director for

this subcommittee. She is a Kansas farm girl, and you’re welcome

to visit with me, but Kelli is perhaps more knowledgeable than I

am, so as we visit throughout the morning, if you’d like to catch

Kelli or me, I’d be glad to talk to you individually when our hearing is over.

And, Mr. Peterson, do you want to introduce your staff?

Mr. PETERSON. Well, yes. I have Sharon Josephson from my office in Detroit Lakes. A lot of folks know her. She’s worked a lot

up here. And Wally Sparby, who does agriculture issues, former

FSA director in Minnesota, and works for us on agriculture issues.

And Allison Myhre over here from my office in Detroit Lakes.

And Chandler Goule, who is my agriculture person in Washington.

A lot of you knew Rob Larew. We lost him to the USDA. We hated

to see him go, but Chandler’s doing a great job, and Rob’s doing

a good job over at the USDA. And Gary Wertish, who is a representative for Senator Mark Dayton, has also joined us, and we

appreciate, Gary, you being here. And we have Anne Simmons

from the committee. She’s Democratic staff person for this subVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00076 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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committee, and has been working on the committee for many years,

very knowledgeable, so we appreciate Anne being here.

Mark, do you have any staff here?

Mr. KENNEDY. Yes. I have Chris Swedenski (phonetic) with me

here. He’s from Porter, MN, outside of Marshall. Good farmer. Just

spent the weekend helping his father farming. So it’s good to have

his help as well on agricultural issues.

Mr. LARSEN. My staff didn’t make the trip down, but I’ll encourage them to do so.

Mr. MORAN. OK. All right. We’re delighted to have our third

panel. We welcome Mr. Allebach. Rodney is the district manager of

Farmers Union Insurance; Mr. John Brainard, district 7 director of

Minnesota Farm Bureau Federation, from here in Ada; and Mr.

Dave Haugo is a producer in Waubun, former State chairman of

FSA, and we’re delighted to have you three experts join us.

Mr. Allebach, let’s begin with you.

STATEMENT OF RODNEY ALLEBACH, DISTRICT MANAGER,

FARMERS UNION INSURANCE

Mr. ALLEBACH. Well, thank you, Chairman Moran, for allowing

us to speak, and other members of the subcommittee. It’s my pleasure to be here today. I serve northwestern Minnesota down to central, south central Minnesota, and have been involved in insurance

for 22 years as an agent and as a district manager.

I’d like to thank the farm producers who are here today who took

time out of their busy schedules, and many of you are trying to

wrap-up your week, so without the producers there would be no

need to have this meeting, but they have taken time to be here.

And also the agents that are attending today, I notice a lot of

agents in this group, we appreciate your attendance and being here

today, and especially my agent right here from Ada, MN, Rodney

Mathsen, he’s also attending this hearing today, so thank you for

taking time out to be here.

First we’d like to address multi-peril crop insurance. We feel it’s

imperative that the Government continue to subsidize multi-peril

crop insurance at its current levels so producers can continue to afford coverage at acceptable levels and affordable levels.

Secondly, one change agents I think would like to see, and producers would like to see, is that the MPCI reporting dates for acreage for MPCI are different than those for the FSA. The FSA office,

you have to report your acreage by July 15. For multi-peril crop insurance, you have to report those by June 30th. Sometimes they

like to come to an agent office and report their acreage first, and

then they go to FSA. By doing that, sometimes their acreage is not

the same and can be hurt in a claim situation, so we’d like to see

those dates changed to correspond either to the FSA of July 15, or

the multi-peril of 6/30 at the FSA office; so get those dates, if you

could, get those dates to correspond.

We would also like the possibility—some producers don’t know

what they’re going to plant, what crops they’re going to plant by

March 15, which is the sales closing date, and when they decide

to plant a crop, it can’t be covered if they haven’t reported it. There

are options that are available such as all-county, all-crops, that

type of situation, which has helped greatly. Some farmers choose

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not to do that. One suggestion would be that the producer be allowed to at least obtain CAT level coverage at production reporting

date, which is April 30, that’s when they have to report the production, by April 30, so if they could at least obtain CAT coverage; if

they did put it on the March 15 date, that they could update CAT

coverage at the April 30 date.

Fourth, this has been addressed, but we’re going to also emphasize it. Sugarbeets currently have 60 percent coverage in the first

stage until July 1. Many times producers have a majority of their

production costs in the crop prior to July 1. The possible solution

to this would be to have the coverage increased by 10 percent

weekly in the month of June, to have it at 70, 80, 90, and then 100

percent by July 1, or as suggested, I think the Sugarbeet Association suggested maybe an 80 percent level right up front by before

the July 1 date, because a lot of the inputs are there, and at this

point we’ve only got 60 percent up to July 1, and this area has seen

that adversely affect producers in this area in the last few years

with the losses they’ve sustained.

And then finally, we’d like to comment on the farm program and

the disaster program. With all the disasters this area has experienced, until crop insurance or other types of revenue programs can

be put in place, it is imperative that disaster programs still be part

of a Farm Program, be it ad hoc or whatever. It’s imperative. It’s

kept farmers in this area on the farms. It’s been really critical that

disaster payments have came through. They haven’t been perfect,

but it’s also been very critical.

The other part of that is our producers are more than just producing the farm commodities. They also belong to many civic organizations, church organizations, city councils, serve on their township and county boards; it’s also imperative that disaster programs

are in place for our counties, our townships, and our cities. Without

disaster for our cities and townships in this area, it would have

been very difficult, already in a difficult situation, so we thank you

for those disaster programs, and until something else can be put

in place, we felt it’s imperative that they be available to our producers and to our Government agencies. Thank you for your time.

[The prepared statement of Mr. Allebach appears at the conclusion of the hearing.]

Mr. MORAN. Thank you very much, Mr. Allebach. Mr. Brainard.

STATEMENT OF JOHN BRAINARD, DISTRICT VII DIRECTOR,

MINNESOTA FARM BUREAU FEDERATION

Mr. BRAINARD. Thank you, Mr. Chairman. Good morning. members of the committee, welcome to northwestern Minnesota. I’d especially like to thank Collin for arranging this, and getting this

here in Ada.

My name is John Brainard. I’m a farmer here in Norman County. We raise sugarbeets, soybeans and wheat, and I also serve as

a District VII board member for the Minnesota Farm Bureau Federation. Again, I appreciate the opportunity to speak with you this

morning concerning crop insurance and the possible improvements

in it.

The Red River Valley, and especially here in Norman County, is

an appropriate place to hold this hearing on crop insurance, as we

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have suffered from many weather-related crop losses. As you noted

or noticed, Chairman Moran, the Red River Valley has heavy, black

soil, and with the efficient, hard-working farmers that we have

here, they combine to make the Red River Valley one of the most

productive farming areas in the world.

In the last 10, 12 years, we have been experiencing a wet cycle

that has created crop diseases, prevented plantings, and floods that

have significantly reduced our production. We as farmers know

that farming’s a risky business, with many variables that are out

of our control. Crop insurance provides farmers with an important

tool to manage our production risks, and gives us an opportunity

to market crops before we harvest. In Norman County alone, we

have received nearly $29 million in crop loss payments since 1999.

Without crop insurance and the generous help from Congress in

the form of disaster assistance—and again, Chairman Moran,

thank you for your help in getting us disaster assistance, it is going

to have a significant and positive impact in northwestern Minnesota. Many farmers would no longer be involved in agriculture.

The participation level, according to my local agent, in crop insurance in our county is nearly 100 percent. We appreciate the 2000

ARPA legislation that made crop insurance more affordable.

Crop insurance has been available to farmers for over 50 years,

and it has not been perfect in the past, and probably will not be

perfect in the future. Nonetheless, I appreciate the opportunity to

tell you our concerns to improve crop insurance in our region.

In the Red River Valley, especially in one of our main crops,

spring wheat, we have seen declining actual production histories,

and therefore decreased coverage due to crop losses. One solution

that the committee may want to investigate is—or to look at is how

the 10-year APHs are calculated when farmers experience

multiyear losses. Currently in a loss year, a farmer receives a plug

yield of 60 percent of the county T-yield, and as Congressman Peterson said, it is also, in disaster years, a 75 percent of the county

T-yield for the plug. In Norman County, with a T-yield of 37 bushels, a farmer would use a 22-bushel plug yield for that year for

APH calculations. This is far below our normal expected yields of

55 to 60 bushels.

I would like to propose to the committee that a plug yield of 100

percent of a county T-yield be used in all loss years, so we do not

reduce APHs and penalize farmers for losses that occur due to

weather events.

The bottom line is this: Lower coverage levels due to lower

APHs, along with higher input costs, have created an increasing

gap between the crop insurance coverage that farmers can purchase and our costs of production.

I would also like the committee to look at what is called reverse

incentive, which means that the higher levels of coverages are subsidized by lower levels. Higher buy-up levels of coverage, for most

farmers, are simply too costly, and equalizing subsidies to all levels

of coverage could make the higher levels more affordable.

Again, thank you, Chairman Moran, for being here, coming to

Ada, and listening to our concerns. I’m willing to answer any questions if you have any.

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[The prepared statement of Mr. Brainard appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Brainard, thank you. Mr. Haugo.

STATEMENT OF DAVE HAUGO, PRODUCER

Mr. HAUGO. Welcome to Ada today, chairman, Mr. Peterson, Mr.

Larsen, Mr. Kennedy. Just a little information, there was a comment made about Minnesota and North Dakota producers, and

maybe we shouldn’t be producing. One of the things we found out

in serving in the State FSA committee in 1993, disaster program

payments in the State of Minnesota exceeded $500 million. The recipients of the majority of those payments were not northwestern

Minnesota, but what is called the best part of Minnesota by some

people.

There’s this ongoing battle, I’m sure you have it in eastern and

western Kansas, we have it in north and south Minnesota. That

saved an awful lot of farmers. And if you went to the States of

Iowa and Nebraska and South Dakota, it also saved a lot. Ada,

Minnesota at one time and probably still is known as the heart of

the valley. Red River Valley is known by some people as the Nile

of the North because of its fine soils.

I don’t live right in the valley proper. When my grandfather

came up here from Iowa, he drove around, and he immigrated from

Norway, he did pick a spot, but we’re out of the valley, he picked

a spot that’s been very good to us. If I’d been doing the picking,

I’d have been over here, and probably would have had more trouble, but——

And I could tell you an Ole and Lena story today, but we won’t

take that time, unless you wanted to.

My name is David Haugo, lifelong farmer from Mahnomen County, which is the western part of the county that Mr. Larsen has

been vacationing in. Looks quite different than it does around Bass

Lake, let me assure you. I have farmed the last 18 years with two

sons. The numbers that I give you today are from my part of the

operation, not their part.

We raise wheat, barley, sugarbeets, navy beans, soybeans, corn

and alfalfa. All of those crops are insured now, except alfalfa. We

have insurance varying from 65 to 75 percent, depending upon the

crop that we’re raising and the cost of that coverage.

Two really big concerns I have. One is the cost of that buyout.

When we go from 65 to 85 percent in most cases, it’s not a very

good choice, but we need the coverage of 85 percent provided us.

We have suffered some ordeals, and I’ve got some numbers down

here, and I’ll bore you with some numbers, and this is about the

average of our crop protection in our farm. Wheat, 45 bushels an

acre. Under the revenue insurance, we’re guaranteed about $106

an acre. That costs us $4.83. When we go to the 85 percent coverage, we get $139 an acre, but it costs us $15.46 an acre.

Under soybeans, we have a 36-bushel yield, $123 of coverage at

65. We can buy up to 85. It’s $160, but it costs us $15 an acre

more, just less than a $3 return for one if you have that kind of

a crop. Like somebody said earlier, you almost have to plan on a

failure in order to make that kind of an investment. And these

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numbers do not cover, even at the 85 percent, we’re getting close

to covering what it costs to raise these crops.

Another major concern that I’ve had for quite some time, and

that’s the producer that goes through a year with a poor crop might

have a claim at 65 percent, and might not have a claim. He still

has this insurance, he’s always under cost, it’s the harvesting cost,

and he’s losing money. There’s very few guys that can tell you that

they’re going to make money getting 65 percent of their insurance

coverage. Along comes the ad hoc disaster program. He doesn’t fit,

because the payments are based on insurance indemnity that he’s

collected, and he’s sitting out there really in no man’s land. The

guy with zero crop, and getting his payment based on that payment, is going to come out way ahead. The guy with 30 percent

crop comes out way ahead. And I think, personally, the way to

solve some of this is take some of that money that we spend on ad

hoc, and provide a means so that we can carry 85 percent.

If you read my written testimony, you’ll find I’ve had crop insurance for almost 50 years on wheat. When I started farming, that

was the only crop we could insure, that and flax. It was an area

of coverage. There was no APHs. We were in area one. We had a

nice, fairly decent coverage, and I will tell you that some of the

things we worked for were unit protection, APHs. We’ve gotten

those.

Where I live, the first 3 years of that quarter I got hailed—or 3

of the first 5 years we got hailed out. I didn’t collect any Federal

crop insurance, because that was one of the five quarters I farmed.

It was all one unit. The rest of them didn’t get hailed out; that one

did. If I hadn’t had hail insurance, it would have been at zero on

those acres.

I see my friend the red light has come on, too. And I will read

this last statement here. Over the years I’ve collected very few dollars from multi-peril insurance. It would be a very poor return on

the premium dollars that I’ve spent. So the question should be:

Why insure? The answer, as I see it, is the amount of investment

in each crop. It is necessary to cover some of the risk.

Again, I’d like to thank you gentlemen for being here today, and

I will try to answer any questions you have. Thank you.

[The prepared statement of Mr. Haugo appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, gentlemen, very much.

Mr. Allebach, is there any logical explanation of why July 15 and

June 30?

Mr. ALLEBACH. I guess those dates have been set in the past and

they’ve just stayed there, and nobody’s taken the initiative to get

those changed, but I think it would be very helpful. That way we

could have the same dates, and they’d go to the FSA first and bring

those same numbers to us, those same acres, and there’s no question about the acres planted, so it would make it more convenient

for both sides.

Mr. MORAN. Not a problem everywhere, but it’s a Minnesota and

North Dakota issue. And I met yesterday with your State FSA director, who indicated a real willingness to address this issue and

solve the problem. I assume that we can get RMA on the same

kind of pattern.

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Mr. ALLEBACH. Right.

Mr. MORAN. Is there any abuse of the crop insurance system that

we ought to be aware of?

Mr. ALLEBACH. Like any other program, there’s always abuse. I

think companies have become more aware of the abuse, and have

made agents at our training meetings very aware of abuse and are

reporting abuse, not only by agents, by producers, also. It’s like any

program, Government program. Again, I’d say there’s going to be

some people who are going to try to abuse it.

I would tend to say the abuse is being stopped because people

are being reported. We have seen cases, be it elevators and producers working together, of those people being convicted of that crime

of fraud, but there is, and we need to continue to work on it, that

we stop the abuse, continue to make that an emphasis, because it

does hurt all producers, and it will hurt that good agent who is

willing not to help a producer try to find a way to defraud the crop

insurance.

It’s important to use crop insurance for what it’s there for, not

to abuse it, so we need be aware of it in training to make sure

there is not abuse, to make sure that the program can stay strong,

and continue levels of support.

Mr. MORAN. And generally, that training is occurring?

Mr. ALLEBACH. That training is occurring. Fraud is part of our

training every year. Most agents, all agents have to attend at least

one session, if not two, a year on crop insurance, and part of fraud

is in our training, yes, it is.

Mr. MORAN. Do you have any response to the previous witness

who talked about lack of information? Is there something more that

needs to be taking place with agents and farmers?

Mr. ALLEBACH. Well, I do have a comment to that. I see a lot of

good multi-peril crop and crop insurance agents here today who are

very good about informing their producers of what’s available to

them. I know they hold meetings to inform them of what’s out

there. Maybe we could work closer with the FSA office on doing

this. That’s one possibility. We’re going to hit pockets wherever you

go, probably, of people that aren’t being informed, but in general,

I would say my agents are very good. They come in, the company

we use has a very wonderful program that we can show them all

their options that are available to them. It becomes overwhelming

at points because of all all the programs that are available and possibilities that are available with multi-peril. You can have many

proposals out there. You probably could have 50 proposals for one

crop, if you put it all on there. So it can get a little confusing because of all the options available. But I believe agents, in general,

have been good about educating the producers of what’s out there

and what’s available to their farmers.

Mr. MORAN. Mr. Brainard, you mentioned preventive planting,

which is certainly a Kansas phrase. It’s generally, in our State, it’s

because it’s too dry to plant, as compared to too wet. Does preventive planting work well here?

Mr. BRAINARD. I think it has, yes. When we’ve had wet springs,

and we get past the planting dates where we can no longer get our

crops planted on a timely basis, yes, it does work. Again, it’s not

perfect, but it provides farmers with some degree of income on

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those acres that are not able to be planted. It’s not as good as having a crop, obviously, but yes, it does provide us with some coverage, some risk coverage.

Mr. MORAN. You were kind enough to thank Congress, and really

it ought to be the American taxpayers, for disaster payments. Have

they been received in this area? The check’s in the mail?

Mr. BRAINARD. That’s what we’ve heard is the check is in the

mail. Randy, [inaudible] has been wondering when the checks are

going to get here, but no, we signed up for the regular commodity

disaster program, and now they’ve announced the sugarbeet disaster program is going to be starting September 15, so I would expect

that the regular disaster program checks will be here soon.

Mr. MORAN. And both you and Mr. Haugo really catch my attention with what you called, Mr. Brainard, reverse incentive, this

idea of what levels of coverage we ought to most subsidize. Is there

a justification for—is the only reason that a farmer chooses lower

levels of coverage is the cost? Is there any other reason?

Mr. BRAINARD. No, I think cost is probably one of the—it’s down

on the list. I think the reason we buy higher coverage or buy-up

coverage is to protect our risks, basically. The problem with the

higher buy-up levels is that they get cost prohibitive. We can buy

$7 worth of coverage, and it costs us $5. It just doesn’t make economic sense. So we can’t go to the 80, at least we can’t on my farm.

80, 85 percent levels of coverage do not work here. The point I was

making——

Mr. MORAN. I’m sorry. Would you say that last sentence again?

Mr. BRAINARD. On my farm, 80, 85 percent levels of coverage are

too cost prohibitive. We can only get a marginal amount of coverage, say $7 or $8 worth of coverage, and it costs us $4 or $5, so

those situations, it’s too cost prohibitive to buy though those levels.

Mr. MORAN. And therefore, you choose lower levels of coverage?

Mr. BRAINARD. That’s correct.

Mr. MORAN. But there’s no farming operation justification for

that, or rule and regulation within risk management, that lends

itself to you making that choice. The only reason that you make

that choice is because of its cost. Is that accurate?

Mr. BRAINARD. I guess you are accurate, yes.

Mr. MORAN. And so if a question for us as policymakers is, is

how much money can you take out of the lower level coverage subsidies and extend it into the higher levels of coverage, how far does

that money go?

Mr. BRAINARD. Right. The reason I brought that up is in our

area, the Red River Valley, most farmers, and I think it’s a very

high majority, are buying 65, 70 or 75 percent levels, where in

other areas of the country they buy a lot more CAT coverage, and

so we obviously here would like to see more subsidies shifted toward the higher buy-up levels, and it would make it more affordable for us to buy the coverage if we had the subsidies maybe more

equalled or slightly shifted.

Mr. MORAN. But what you’re reminding me is there may be a geographic difference of opinion as to where the subsidy ought to go,

because there are some areas in the country, due to their farming

operations, climate, weather patterns, that that lower level of coverage is what makes economic sense.

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Mr. BRAINARD. That’s fair.

Mr. MORAN. OK. Mr. Haugo, anything further to add to that discussion?

Mr. HAUGO. No, that certainly is the main reason you don’t buy

up the higher coverage, and together with what’s happened to our

APHs. In our case, at one time we had an APH on our wheat of

about 57 bushels an acre. Now we have some units down to 40, 41.

And that’s been 50, 57, and you put 65 against that, and you’ve got

pretty decent coverage. When we’re down to 40, 41 bushels, and

you put 65 percent, you’re in that 25-, 26-bushel-an-acre range.

And we farm, the way we farm, we’re pretty intensified in our

management. I think we would be one of the few producers who

don’t use fungicides for at least 20 years in our wheat and barley.

That’s an additional cost. So we’ve had some higher yields over the

years, and also, Grandpa did a good job picking out a place to farm.

Mr. MORAN. I did want to make clear that the suggestion that

there’s someplace in the country that farmers are farming that

they shouldn’t be is not my suggestion at all. I was only relaying

the story.

Mr. HAUGO. I’ve heard it before.

Mr. MORAN. Mr. Larsen?

Mr. LARSEN. Thank you, Mr. Chairman. And you got one of my

questions, and that was the question of who wins, who loses, to Mr.

Brainard’s suggestion about shifting levels from lower levels to

higher buy-up levels. Is it strictly a geographic winner and loser

proposition that we’re looking at if we went that route?

Mr. BRAINARD. I know we’d be winners. I’m not sure who would

be the losers. I know I have a farmer friend in Indiana, and they

buy strictly CAT coverage because they don’t have losses there, I

mean he hasn’t had any losses, so they don’t buy up coverage, so

I’m not sure where the losers would be. I’m sure there would be

some.

Mr. LARSEN. I’ve found that—in my short time in Congress, that

in most—in most issues, but certainly in agriculture, the politics of

agriculture don’t fall around who is a Democrat and who is a Republican, but it comes down to who lives where, and I see it happening with this suggestion as well, but I think it’s important for

us to understand that as we move forward on that. Is it Mr.

Allebach?

Mr. ALLEBACH. Yes.

Mr. LARSEN. We heard testimony earlier from the commissioner

of agriculture about whole-farm insurance and the AGR-Lite, Adjusted Gross Revenue and Adjusted Gross Revenue Lite Program.

The Lite Program’s in Pennsylvania, and the AGR’s—anyway,

Lite’s in Pennsylvania. Do you have some opinions on that, where

it might be headed——

Mr. ALLEBACH. I’m not that familiar with those programs. I

think Minnesota Farmers Union has a field rep here today from

the farm organization. I represent the insurance side, so I’m not as

familiar as he would be. Thom Peterson is here today with Minnesota Farmers Union.

But as far as the Whole-Farm Program, it depends if you’re going

to include livestock producers, dairy producers, that’s important,

that would be critical, but as many producers know, when you have

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one area that’s destroyed by hail or some other type of peril, and

not being paid for it, it’s still difficult to—I guess we’d have to see

more of the details before I’d make a comment on a Whole-Farm

Program and if it would work or not at this point. Farmers are

used to units in our area. We use a lot of units, and it’s been beneficial in some ways and detrimental in others, but mostly it has

been advantageous. Until I saw the full details of the plan, it would

be hard to comment if it would work or not for this area.

Mr. LARSEN. So far I don’t think I’ve heard anyone suggest that

whole-farm would be a replacement for necessarily a replacement

for what’s in place, but another option, as an option, but I appreciate that. And who’s the individual here?

Mr. ALLEBACH. Thom Peterson.

Mr. LARSEN. OK. Did you have a comment, Mr. Haugo?

Mr. HAUGO. On the whole-farm thing?

Mr. LARSEN. Yes.

Mr. HAUGO. I have some concern about how the—how the details

would be. With the varying crops that we have, certainly the varied

ranges of income from the different crops and how you arrive at

something, I’d hate to ever say that wheat was a minor crop, but

in the dollars per acre, until this year again it’s been low, and I’m

not sure I would stand up against folks who raise sugarbeets, a

high-dollar crop, but just for your guys’ information, you talked

about (inaudible), and I have the worksheets here from our unit.

It’ll give you an idea of how one bad year can affect it.

Section 17 in our township, just a mile east of where I live, because in 1993 we had a 13-bushel wheat acreage, or wheaT-yield

I mean, the average yield is—and it goes from 1986, we don’t raise

wheat on these units every year, and taking an average of the

years we’ve raised, all the way back to 1984, that unit is 41 bushels an acre. And by the way, we had 1990, which was the best

wheat crop we ever had, we had 82 bushels an acre on that unit.

I go over to section 18 where I live, we didn’t have wheat on that

section in 1993, so we don’t have that 13 bushels. We didn’t have

wheat in there in 1990, so we didn’t have the 82 bushels. But the

average, since 1987, of the years we’ve raised wheat, is 51 bushels.

So one lousy year more than wiped out the tremendous crop we

had. And that’s the way that happened. And when you get over

here, there are people that have had zeroes put in those places for

not 1 year, but 2 and 3 and 4 years, so those average yields do

weigh heavily.

Mr. BRAINARD. Mr. Larsen, could I comment on the whole-farm?

Mr. LARSEN. Yes, you sure can.

Mr. BRAINARD. In our area, where the farms are larger and the

acreage is spread out, we like the unit structure as we have it now.

If we had to go to, and I’m glad you said that you’re not looking

for whole-farm to be a replacement to what we have now, because

I think that would be detrimental to us here in northwestern Minnesota. We like the unit structure the way it is now. If we had all

of our crops, all of our farm in one unit, you know, the good fields

would offset the bad fields, and we would not be able to collect crop

insurance, so we like it the way it is now. We appreciate that Congress has given us the unit structure that we have now, and we

like it.

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Mr. LARSEN. Thank you. I appreciate that.

Mr. MORAN. Mr. Larsen, thank you. Appreciate the specifics.

That’s very useful for us to picture the consequences of the bad

years.

Mr. Peterson.

Mr. PETERSON. I’ll be brief. Thank you for all your excellent testimony. Thank you for that.

If you could tell me, if you could name your highest priority, and

what we ought to fix or try to address, would it be multiyear disaster yields, would it be higher premium subsidies, or other things?

What would each of you say would be the highest priority that we

ought to try to fix, from your perspective?

Mr. ALLEBACH. Number one would be multiyear disaster. Not

only they saw some this year in this area again, in some of your

area here, west of here.

And No. 2 would be higher subsidies for the 80 and 85 percent

level. The spread is huge, I think Mr. Haugo has some examples

that I see here, some documentation. He can do that to show you

the big spread. So No. 2 would be to subsidize the 80 to 85 percent

level higher.

Mr. BRAINARD. My priority, too, would be to increase coverage

levels by fixing the APH problems for multiyear disasters, and

what I suggested was using 100 percent of the county yield for

these years where we’ve had disasters, rather than 60 or 75 percent that we’re currently using.

And then number two would be to make the higher levels of coverage more affordable.

Mr. HAUGO. I guess I would actually pick the higher levels of

coverage, and I know that won’t sit well with some of my friends

that have had really bad years. It’s a tough choice, a real tough

choice, but the higher level of coverage, and being an optimist, I

don’t think we’re going to have any more bad crops.

Mr. MORAN. Thank you.

Mr. Kennedy.

Mr. KENNEDY. You’ve given some great testimony, and one of the

things that caught my interest, Mr. Haugo, is when you were talking about if there was a disaster, that those that possibly were

without the assistance of crop insurance, got more disaster payment. Do we have the right incentives with the ad hoc disaster

payments that we have had in the past to encourage everybody to

have crop insurance? Because if there’s reverse incentive to have

crop insurance because they think, ‘‘Well, I’ll just get more from an

ad hoc payment later on,’’ it’s going to drive up the cost of crop insurance for everyone, because we drive down the cost when everybody participates. Can anybody comment on how ad hoc assistance

has either encouraged or discouraged the usage of crop insurance

in the past?

Mr. HAUGO. I hope I didn’t say that the person without insurance

had more benefit out of the ad hoc disaster, because if I did, it was

a mistake. What I was trying to point out was that those of us with

insurance, until we hit 65 percent and trigger a loss, you don’t get

any ad hoc disaster. Neither does the person that’s not insured.

But the person that has the large loss has a larger base on which

to base that ad hoc disaster on.

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And when you’ve got the 65 percent level, you don’t have an insurance claim, you’re still going to have the cost of the premium,

and you have the cost of harvest. As you move into it and you start

to get insurance dollars, and from that point on it’s pretty close to

what the price of that commodity is going to bring, then you’re

going to get benefit out of ad hoc disaster.

And yes, by the way, thank you guys for the ad hoc disaster program. I think as time goes on it’s going to be more difficult, if we

look back to the example I gave of 1993, it was a tremendous

amount of dollars, to get those kinds of issues passed in Congress.

We know how few there are right now of agricultural Congressmen,

and they’re getting to be fewer. And you’ve done a good job, and

I think if you could, take those dollars and either put them into

lowering the premium costs on the higher coverage level, or some

way or another go back to the Farm Program and have a permanent disaster program.

Mr. BRAINARD. Mr. Kennedy, I’d like to comment on that. I think

the disaster program has given farmers incentive to buy crop insurance, because based on history, farmers know that unless you have

crop insurance, you’re not going to be eligible for crop disaster payments. I know this year now there is a change, there is disaster

payments available for those that have non-insured or do not have

insurance, but in the past it’s always been, in order to receive disaster assistance, you’ve had to have crop insurance, so yes, there

is an incentive.

Mr. KENNEDY. Well, we appreciate that, and I guess my next

question would deal with this education that we’ve heard so much

about, and obviously the insurance agent plays a critical role in

educating the options that are available, and obviously this is primarily RMA’s role, not FSA’s role, but Mr. Haugo, having been a

former board member of FSA, I just worry sometimes that we have

too many silos within the various departments. Is there a way that

the various different parts of the USDA offices, FSA being probably

more broadly represented in our rural communities, can they also

help play a part in helping farmers understand the risk management tools available to them, and does that make sense, or should

we keep them separate?

Mr. HAUGO. I think, and I’ll have to speak from my own experience, my crop insurance agent does a very good job of sitting down

with us and laying all the options out. We do that in the wintertime. Very good job. We don’t usually make that decision on the

spot. We go home and look the options over, and we decide what’s

the best investment, what’s the best way to cover risk, so I can’t

say that. In our case, that agent is the only thing she does is works

for Farm Credit System. She handles Federal crop insurance. She’s

a specialist. And so I can’t say that we need to be more educated.

On the other hand, certainly FSA and Risk Management have

worked hand in hand. Part of the trouble with Risk Management,

I was in the office of the director in the late 1980’s, and his devout

purpose in that job was to get rid of Federal crop insurance. That

was kind of hard to take when you’ve got the director at the national level saying, ‘‘This is just a bunch of garbage, let’s get rid

of it,’’ and we were trying to convince him otherwise.

82

They have come along, I think if anything, the 1993 disaster

pointed out the need for some kind of coverage for risk in this country, all over the country, not just in northwestern Minnesota, but

even some of the best growing corn and soybean areas in the world.

Another thing that drives people today to have Federal crop insurance or multi-peril insurance is the financial boys. The amount

of exposure that they have, most of them are going to make sure

that if they’re exposed, that some of that risk is covered.

Mr. KENNEDY. Well, we appreciate that, we appreciate testimony,

we appreciate all you do to help farmers and other users really understand the importance of risk management and tools that are

available.

Mr. HAUGO. Since you brought up St. Patrick’s Day and the

Finlander thing and you are in Norman County, that at one time

was the most Norwegian County in the United States, and——

Mr. KENNEDY. I wasn’t smart enough to be in the region, but I

was smart enough to marry one.

Mr. HAUGO. We were with some people last Saturday night, I

was in the pickup, I guess, but I listened to him. He came up with

this Ole and Lena story, and I thought it was really good, it really

added a lot. And it was about poor Ole. He was really in tough

shape. He was on his deathbed, and he could smell something just

great, and it was lefse, so he struggled and he got down to the

kitchen, and he was going to grab a piece of lefse, and Lena

slapped his hand and said, ‘‘You can’t have any.’’

‘‘Well, why not?’’ .

‘‘It’s for the funeral.’’

Poor Ole felt so bad, he went upstairs and he got the shotgun

and shot himself. So Lena calls the undertaker and she says, ‘‘Ole

shot himself. You have to come pick him up.’’

And the undertaker said, ‘‘Well, I can’t get there for an hour.’’

‘‘Well, that’s too bad,’’ she said. ‘‘I have a meeting to go to, so I’ll

drag him out and leave him on the curb.’’ She did that.

On the way to the meeting she stopped at the local newspaper.

She wanted to put something in the paper that said, ‘‘Ole died.’’

The newspaper guy says, ‘‘You can get five words for the same

price as two.’’

‘‘OK. ‘Ole died. Shotgun for sale.’ ’’

Thank you, guys.

Mr. MORAN. Mr. Haugo, it was clear to me when you offered the

joke earlier, that it was going to be told regardless.

Mr. HAUGO. We would have been happy if your grandfather had

settled in Kansas.

Mr. MORAN. Our final panel consists of three witnesses, Mr.

James R. Duininck of Prinsburg, MN; Mr. John Germolus, past

president of the National Association of Crop Insurance Agents;

and Mr. Howard J. Olson, vice president Insurance, AgCountry

Farm Credit Services of Fargo, North Dakota.

Mr. Duininck, under past practices, I guess you may commence

your testimony.

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STATEMENT OF JAMES R. DUININCK, VICE PRESIDENT, SALES,

PRINSBURG, INC.

Mr. DUININCK. Good morning. He kind of stole my thunder there.

I was going to tell a joke, but I’ll just forget it. That was pretty

good.

Mr. Chairman, Mr. Peterson, members of the subcommittee, I appreciate the opportunity to be here today and to testify. Several of

you from other regions around the country may not be aware that

much of the cropland in the upper Mississippi drainage basin is

tiled and drained from beneath the surface. Midwest farmers today

simply could not be as productive without tiles and drains underneath their fertile cropland. Today I am representing my employer,

Prinsco, Incorporated, and also many other companies that make

and distribute water management products.

I am pleased to tell you that we are in the process of forming

a coalition to support and promote landowners’ use of more effective drainage technology through the USDA’s conservation programs.

I’d like to explain what I mean when I use the word ‘‘drainage.’’

In agricultural applications, we describe drainage as the excess, the

removal of excess water from the soil surface and shallow subsurface. In agriculture applications, we define the word—excuse

me. I wanted to make clear that when I defined drainage for agricultural production, we are not talking about the drainage of wetlands.

Farmers see a direct benefit from tiling their croplands. Iowa

State University did a study that showed that corn yields increased

by 45 bushels per acre, and bean yields by 15 bushels per acre, on

ground that was drained compared to ground that was not drained.

This, on an 80-acre field, would be an increase of about $8,500 on

corn yields.

There is concerns in the Midwest to the amount of—excuse me,

to the degree of which agricultural drainage contributes to flooding.

The University of Minnesota, Dr. Gary Sands is an extension agent

there, did some studying, and he says that drainage typically reduces both volume and peak of surface runoff from agricultural

fields. Fields that have drainage tile act as a sponge, causing the

water to soak up into the field rather than allowing it to run off.

This suggests that tile drainage should decrease the incidence of

flooding.

The Red River Valley poses unique challenges due to its lack of

subsurface drainage. The primary focus of drainage in the valley

has been through surface drainage. This allows the water to run

across the surface, rather than allowing it to flow beneath the surface, and slows the water down. Subsurface drainage has long been

recognized by the NRCS as best management practice, and has not

been utilized in the valley.

Earlier in my testimony I spoke of a coalition being formed to

support landowners’ use of a more effective drainage technology

through USDA programs. This form of drainage is known as controlled drainage. If you guys have the pamphlet I handed out, on

page eight there’s a diagram of the technology that we’re talking

about when we talk about controlled drainage. Controlled drainage

controls the water table by holding back water during dry periods,

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and releasing water when necessary. Controlled drainage is a practice that will become more familiar and more common in the next

few years because of its ability to reduce nitrate levels to the Gulf

of Mexico.

Recognizing the problem that tiles and drainage pose to water

quality, the Agricultural Research Service began researching controlled drainage technology, and recently revealed its findings,

which I have attached for your review. Basically, ARS concluded

that this system can help farmers increase their crop yields and

substantially reduce nitrate loss by up to 40 to 50 percent. The

ARS believes, as we do, that this system could revolutionize water

management, and play a critical role in reducing nitrates that are

now plaguing the upper Mississippi river basin.

Subsurface drainage is used to enhance the profitability of land

that is already under agricultural production. The use of subsurface drainage in the Red River Valley would help with consistenT-yields year after year in the valley, and it would also help with

water quality.

Mr. Chairman, thank you for the opportunity. I appreciate it.

Thanks for being here today.

[The prepared statement of Mr. Duininck appears at the conclusion of the hearing.]

Mr. MORAN. You’re welcome. Mr. Germolus.

STATEMENT OF JOHN GERMOLUS, PAST PRESIDENT,

NATIONAL ASSOCIATION OF CROP INSURANCE AGENTS

Mr. GERMOLUS. Thank you, Mr. Chairman. Mr. Chairman, Mr.

Peterson, Mr. Larsen and Mr. Kennedy, thank you for bringing this

subcommittee hearing to Ada, and thank you for allowing us to testify today. We believe we have probably the best risk management

tool working for us in the world today, but of course we’ve always

got to strive to make improvements to that tool.

I think the first part of my discussion—well, first of all, I’m a

farmer in the Red River Valley. I farm 8 miles south of here. Mr.

Haugo is kind of a tough act to follow, but one thing I’ve learned

is anyone older than I am, with more experience, I listen. So what

he has to say makes a lot of sense.

I would like to first discuss the Agriculture Risk Protection Act

of 2000. I think it had four key points that I would like to cover,

the first point being the increase to the higher levels with the subsidy to the higher levels of coverage. I think it helped to sell a lot

more insurance, it helped producers buy more insurance, and that’s

the important thing. I think there’s still room for improvement to

that. We’ve already discussed that here today, possibly moving

more money to the higher levels.

I’ve provided a chart with my testimony that shows, probably

more graphic than anything, in Norman County, if you move from

the 80 to 85 percent level of coverage on spring wheat, you will buy

$7 of coverage for $6 additional premium. Any time I present that

to a farmer, I don’t feel real good about showing him those figures.

It’s not something very comfortable to do. So I believe that’s probably one of the things we can look at. And I don’t know exactly how

we can accomplish that. It would probably take more money.

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The second thing would be the 60 percent T-yield plug-ins, part

of ARPA. It helped our farmers. We certainly want to thank you

for that. But there again, I think that’s one of the key things that

we can do to increase their coverage, and that’s the two things that

sell insurance, and two things that farmers look at when they buy

insurance, is how much coverage can I get for what premium dollar

do I have to spend? Those are the two main things.

One of the third things that ARPA brought to us was a change

in the way the research and development is handled. Until that

point, it was all done through the Risk Management Agency. That

brought about a change, and we’ve seen it as an actual stumbling

block to achieve some of the improvements we need to make in the

program.

You’ve heard about the stage one, stage two problem of sugarbeets. I think it was in the fall of 2000, we met with some research

and development people in Kansas City, and they informed us that

due to ARPA, they would no longer be able to handle the problems

or correct the problems. So I think this is one issue that really

needs to be addressed in any further legislation.

Another thing that ARPA brought us was a premium discount

plan. This allows companies to offer the farmer a discount, and

from our standpoint, service is probably the only thing that can be

taken away from to make this happen.

I do believe from Mr. Haugo’s testimony that you understand

that the farmer must spend probably two or three visits with his

crop insurance agent before he actually buys a product. There’s a

whole host of products. They don’t all work for the same area. It’s

up to that agent to make sure he offers what will work, but of

course leave the decision up to the farmer. But it can be a long,

complicated process, with a short period of decision making coming

the last week, two weeks of February, first two weeks of March. I

don’t believe that the premium discount plan will work toward that

end. I also believe that it will allow for discrimination between

smaller and larger farms, and between high risk and low risk areas

of the country.

The next part of my testimony, I would like to talk about the

business climate that we are operating in. We have seen, in the

last year, one bankruptcy, one merger, and one acquisition of crop

insurance companies. I think this is critical to States such as North

Dakota, possibly Kansas, for sure Texas. The fewer companies that

operate in those States, the less options, the less service we’ll see

to the farmer, and we need to halt this problem, and we need to

do it fairly soon.

The policies themselves are getting more complicated all the

time. I don’t know if the companies are making enough money to

continue to develop the software that needs to be done. I know in

the State of Washington they have a lot of specialty crops. Gets to

be very, very time consuming and very costly for that. We just

would like to see a change so that we have a more stable climate

to work in.

I have to be very careful about the company I sell to my farmer,

because I want to make sure that claim is paid when he files that

claim, and it’s worked timely, and we just don’t want to see that

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part of the service disappear. The end result would be less service

to the producer, and he’s the one we’re here to take care of.

I want to thank the committee for all the work they did on

ARPA, and the continuation of the Crop Insurance Program. It’s

what’s been working for us here in Norman County in this part of

the country. We know there’s improvements that need to be made,

but that’s why we’re here today, so I appreciate the opportunity to

answer any questions you might have.

[The prepared statement of Mr. Germolus appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Germolus, thank you very much. Mr. Olson, our

final witness.

STATEMENT OF HOWARD J. OLSON, VICE PRESIDENT,

INSURANCE, AGCOUNTRY FARM CREDIT SERVICES

Mr. OLSON. Mr. Chairman and members of the committee, my

name is Howard Olson. I’m vice president of insurance at

AgCountry Farm Credit Services based in Fargo, North Dakota.

AgCountry serves farmers in southeast North Dakota, west central

Minnesota, including the Norman and Mahnomen counties.

I appreciate the opportunity to testify before you concerning the

effectiveness of the Crop Insurance Program. The Crop Insurance

Program is a valued risk management tool, and a necessary safety

net for agriculture producers in the northern Plains. In 1996, with

the passage of the Freedom to farm bill, farmers were encouraged

to use crop insurance and marketing tools as a safety net for farm

income. Since 1996, farmers in North Dakota and Minnesota have

done just that, spending $1.1 billion in premiums. In those same

years, $2.3 billion has been paid out in claims. The Crop Insurance

Program is working. It not only provides protection for production,

but with the introduction of Crop Revenue Coverage and Revenue

Assurance, it’s become a valued marketing tool, providing protection for changes in commodity prices. This has given producers the

opportunity to do a better job of marketing, and ultimately improving their gross income.

As an agricultural lender, AgCountry Farm Credit sees firsthand

the value that crop insurance has brought to farmers in our area.

It brings additional income security to a farm operation, and allows

many farmers to get credit that otherwise could not. It’s been estimated that 15 to 20 percent of the farmers in Norman and

Mahnomen counties would be unable to get credit without the Crop

Insurance Program.

Crop losses have a significant impact on even a farmer with a

good balance sheet. A farmer with good working capital that suffers

an uninsured loss will need 5 to 7 years of good crops to recover

from that loss. The loss of working capital has an impact on the

farmer’s ability to replace machinery, stay current with technology,

compete with other producers, and adds additional financial risk to

that operation. That risk has an impact on all of the suppliers that

the farmer purchases goods and services from throughout the crop

year, and ultimately impacts the entire community.

AgCountry continues to see how the Crop Insurance Program is

providing a stronger borrowing base for agriculture producers, and

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bringing better protection and a strong safety net for the producer

and the community.

Now, as good as the Crop Insurance Program is, there’s still

room for improvement. The Agriculture Risk Protection Act of 2000

made tremendous contributions to improving the premium subsidy,

and everyone is appreciative of that.

ARPA has brought affordability to coverage levels that provide

true protection. However, it’s still difficult for farmers to purchase

as much coverage as they need to cover their input costs. You’ve

heard many times today how repetitive years of losses will bring

down an APH, and this is not characteristic of only Kansas or Norman County, but also all of North Dakota and northern Minnesota

as well. Even at 75 percent coverage levels, it’s common to find

farmers in northern Minnesota with only $80 to $100 an acre of

coverage, while their actual costs for raising wheat are close to

$150 to $170 an acre. The coverage that is available is not enough

to make them whole.

Now, the problem arises again, as people have said, when there’s

a disaster year in that APH. Two suggestions for improvement

would be to use a yield adjustment equal to 100 percent of the

county T-yield, or No. 2, remove years in the APH where the county has been declared a disaster.

Now, another common problem in this area is the discrepancy in

the quality adjustments in the Crop Insurance Program and the

quality discounts at the local elevators. You heard one of the witnesses talk about the issues with quality in barley. This is not only

applicable to barley, but all of the crops that are graded on quality.

Just recently a local producer told me that his local elevator discounted 53-pound test weight wheat by 75 cents a bushel. Now, 75

cents on $3.50 wheat is about a 21 percent discount. The Crop Insurance Program doesn’t provide any coverage for that low test

weight until the wheat is below 50 pounds per bushel.

In comparing crop insurance quality adjustments with the Commodity Credit Corp, the CCC’s rating standards, we see a significant difference in how the two are applied. At the very least, the

Crop Insurance Program should have the same standards as the

CCC Program, and at the very best, reflect the exact discounts that

are taken at the elevator.

In summary, crop insurance can be a better safety net with some

improvements. Many of the things that you heard today, the bolstering of APHs when hit by disaster years, changes in quality adjustments, and the other issues that have been addressed, would

be very valued improvements.

U.S. producers have a good safety net in the Crop Insurance Program. The program provides valuable risk management tools for

farmers. It helps farmers eliminate the financial disaster of crop

losses. Crop insurance also allows farmers to do a better job of

marketing, reducing marketing risk and providing marketing opportunities. Crop insurance also provides the downstream effect of

more financial stability to the rural communities and the rural

economy. Farmers in North Dakota and Minnesota use crop insurance as their primary risk management tool, and a safety net to

help them mitigate production and marketing risks. Let’s work together to make it a better program for everyone.

88

Mr. MORAN. Mr. Olson, thank you.

[The prepared statement of Mr. Olson appears at the conclusion

of the hearing.]

Mr. MORAN. I think we have a couple of suggestions of improvement, it’s one of the things we can sit down with RMA and talk

about the 100 T-yield, elimination of the year in which the county’s

declared a disaster, find out how that can and could work actuarily,

so I appreciate those suggestions.

Mr. Germolus, the first hearing our subcommittee had in Washington was on the financial state of the crop insurance industry.

You mentioned the merger, the bankruptcy. Can you give us a

sense of the companies you’re dealing with, the future of the companies? How serious is that concern?

Mr. GERMOLUS. Well, I think it’s very serious, because it’s hard

to know exactly if a company is on firm financial grounds. There’s

a rating system, but I think that’s one of the things that the RMA

is probably taking more steps in that direction right now to account

for their viability, and it’s a huge concern for the farmer who puts

his trust in someone, and gives him his money, and finds out later

that his claim’s going to be settled but it’s not going to be settled

until probably six months later. It’s a huge concern for agents, because we don’t want that to happen any more than the farmer

does. So I think it’s something that it needs steady maintenance by

Congress to see that things are being done the right way. I do believe the RMA and Mr. Davidson is headed in the right direction.

I think he’s done a lot towards that since he came on board.

Mr. MORAN. Did you have Am Ag here?

Mr. GERMOLUS. I believe it was sold. I, myself, did not sell any

multi-peril policies for American Agriculture Insurance.

Mr. MORAN. Mr. Larsen.

Mr. LARSEN. No questions.

Mr. MORAN. Mr. Peterson.

Mr. PETERSON. Jamie, we haven’t tiled up here very much. When

I grew up, we were told you couldn’t tile the valley because the

land was too heavy. As I understand it, that’s not the case. My

question is: Down in the southern part where most of the land is

tiled, I assume that’s had some effect on crop insurance claims. Is

that documented at all, or——

Mr. DUININCK. Yes, I believe we have documentation on that. I

could look that up. I’m sure it is. I think what I continue to hear

today is spreading the risk, and I think what we can do through

subsurface drainage is just another way to spread your risk.

I’ve heard comments on, it’s too wet, getting in the fields early,

that type of thing is what subsurface drainage helps with, is being

able to get in earlier, which gives you a little longer growing season

and much higher yields, so what tile does is helps spread the risk.

And I’m not totally answering your question, because I don’t

know at what levels they are down there, but I think that’s something I could find out.

Mr. PETERSON. And as I understand it, the technology is coming

on board now where you can actually store quite a bit of water underground?

Mr. GERMOLUS. Well, what subsurface drainage does, even without controlled drainage, is it lowers the water table, so as you’re

89

lowering the water table, you’re taking the water out of a saturated

soil, and you’re allowing the new rains to soak into the soil rather

than run off the soil, and the Red River Valley has some of the

most efficient technology when it comes to surface drainage in the

world, and the water can run so quickly to the tributaries and rivers because of how effective those surface drainages are, and that

has helped with the current and past flooding problems that have

happened here, for subsurface drainage will reduce that.

Mr. PETERSON. So but the tile drainage would compliment the

above-ground drainage?

Mr. GERMOLUS. Correct.

Mr. PETERSON. Well, I think hopefully people will—as I understand it, there’s quite a bit of tiling going on some places now?

Mr. GERMOLUS. Yes. In the last 36 months, the valley has started to accept it, and pockets of the valley are doing significant

amounts.

Mr. PETERSON. I want to ask both Mr. Germolus and Mr. Olson,

if you had your No. 1 and 2 priorities that we’ve addressed, if any,

what would they be, multiyear losses, or additional premium subsidies, or something else?

Mr. GERMOLUS. Well, certainly the farmers in Norman County

would probably have to be the multiyear losses. When you look

back at these spring floods or pre-summer floods the last 5 years,

you look back on the 5 years prior to that, with the incidents of

scab, we have quite a number of APH databases that are half what

they used to be, and when you start taking percentages like that,

like Mr. Haugo indicated, you have no coverage left. You can’t satisfy your lending institution with that type of coverage. So I would

have to say that that would be the number one.

And number two would be increase subsidies to higher levels.

Mr. OLSON. In working with farmers throughout our 23-county

area, I agree with Mr. Germolus in that the multiyear disasters,

the multiyear losses, and specifically the disaster years, would be

the No. 1 priority.

Mr. PETERSON. Thank you.

Mr. MORAN. Mr. Peterson, thank you.

That concludes the testimony we’ll take this morning in Ada,

MN. I appreciate very much the witnesses that we’ve heard from.

I’ve participated, in the four terms I’ve been a Member of Congress,

in hundreds of agricultural hearings, a number of them across the

country, and Mr. Peterson was responsible in large part for the witnesses that testified today, and I would say this is among the best

set of panelists in the four terms I’ve been listening to farmers and

others. Your testimony was outstanding. You presented yourself

very well, made compelling cases, and I very much appreciate the

information that I and our subcommittee members have garnered

this morning.

I don’t know that Mr. Voy will appreciate this or not, but I wanted to at least let him be acknowledged. Duane Voy, who is at the

regional office in St. Paul, RMA, is here. Mr. Voy, thank you very

much for joining us. We look forward to working with you and the

folks in Washington, DC, to try to address the issues that you and

we heard this morning, and it’s very good of you to have your representation here this morning. Thank you very much.

90

Mr. VOY. Thank you.

Mr. MORAN. Anything else, Mr. Peterson?

Mr. PETERSON. No. I think we’re about out of time, so if anybody

has any written comments that they would like to submit to the

subcommittee, that will be accepted, as I understand it.

And so we were hoping today to have some open mic time, but

there are a lot of things we’ve got to do here before noon, so we’re

going to have to wrap this up, but if you could get my staff or my

office, if you have any additional comments that you want to make,

we will make that part of the record, I assume, Mr. Chairman?

Mr. MORAN. The record will remain open for 10 days to receive

additional material. Anything that our witnesses wish to supplement, you have the opportunity to take your words back if you so

choose to tell us something different, as long as you do it within

the next 10 days.

And I also want to acknowledge, I just learned that Jerry Carlson, who is an FSA district director, is present as well, so Mr. Carlson, I thank you for joining us as well.

What I’m trying to do is spread the opportunity for the audience

to corner people among a large number of cornerees.

And also, again, the school here, the school system and the hospitality in Ada, we are just delighted to be with you, and very grateful for the hospitality that you’ve shown an Irishman from Kansas.

It’s great to be in Minnesota.

And so without anything further, the hearing of this subcommittee on General Farm Commodities and Risk Management is now

adjourned. Thank you very much.

[Whereupon, at 11:40 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF JOHN GERMOLUS

Mr. Chairman and members of the subcommittee, thank you for allowing me to

testify today on behalf of the National Association of Crop Insurance Agents

(NACIA). I am a crop insurance agent for the Ada and Moorhead areas and a farmer. So my recommendations and observations are based not only my customers’ experiences, but my own.

Multi-peril crop insurance is working for the farmers of this region but we should

always be looking for ways to improve our product and our service to producers. We

need to keep striving for very good MPCI products that offer producers sufficient

coverage and obviate the need for providing disaster assistance. In the end, this will

save taxpayers money as well as keep farmers farming.

AGRICULTURE RISK PROTECTION ACT OF 2000

The Agriculture Risk Protection Act of 2000 (ARPA) improved the program in

many ways, especially the increases in premium subsidies at the higher levels of

buy-up coverage. These increases provided the single greatest incentive for our producers to increase their protection and I commend everyone that helped to achieve

this part of ARPA. This has brought many of our farmers from the lower levels of

buy up to the 70 and 75 percent levels. We still do not see many purchasing at 80

or 85 percent because premiums are still too prohibitive. Please see attached coverage and premium comparison in Exhibit A. Shifting more subsidy from lower levels to these higher levels would stimulate further buy up. If Congress wants to consider providing more incentives for farmers to buy-up, Congress should consider

raising the administration fee for the catastrophic (CAT) policies. We believe that

it will lead to even more producers, especially those who operate smaller farms, buying higher levels of coverage mainly because doing so gives them more protection

for virtually the same dollars they would have spent on CAT coverage. Another avenue that our Federal Government might consider is entering into contractual agreements with each State government. These contracts could be structured to allow

91

State subsidies for the higher levels with some money being returned to the states

in low loss years, somewhat like our standard reinsurance agreement with companies.

ARPA also brought us some relief to poor yields in the Actual Production History

(APH) database with the 60 percent T-yield option. We have seen that this option

offers some help but does not go far enough. If this could be improved substantially

it could be the biggest step towards eliminating disaster payments in the future.

Prior to the introduction of the Actual Production History (APH) program, a producer could choose between using the county yield, proving his own yield or the Individual Yield Certification (IYC). We are not advocating a return to the past, but

if we could use a larger percentage, such as 100 percent of the county T-yield when

the county is declared a disaster, producers could actually insure within 85 percent

of a normal yield. This would help any area of the country that has suffered multiple years of adverse weather. No one can predict which area of the country will

suffer the next disaster or series of disasters. In the early 1980’s we were producing

wheaT-yields as high as 90 bushels per acre, but with excessive rainfall and wheat

scab disease in the 1990’s and early 2000’s, our yields have never returned to more

than 40 to 60 bushels per acre. We hope that our series of disaster years are over,

but we can be sure that someone somewhere will have our bad luck.

ARPA also brought with it some provisions that, in our view, have negatively impacted it. The first is the way research and development (R & D) is handled. We

believe the RMA should be allowed to continue to make minor policy changes or

simple policy maintenance changes, independent of the FCIC board.

We understand the importance of including the private sector in the development

of new programs or policies, but to remove RMA’s ability to change existing policies

should be revisited. We do not think that this was the original intention of this provision, but it has created a roadblock to improving policies.

For example, we have worked for 3 years to make a change in the sugarbeet policy and it appears that it could take another 3 years before it could be implemented.

We have been told that the change is acceptable to RMA and would not cost producers additional dollars, but because of the new R & D provision in ARPA, an outside

entity must study and present its findings to RMA before its adoption. Please consider making a change to this provision to permit flexibility in expediting the process.

ARPA has also allowed a premium discount plan (PDP) that permits companies

to reduce premiums based on efficiencies in delivering crop policies. We believe that

most producers rely heavily on their agent to keep them abreast of all that they

need to know about the products and coverage that they have purchased or can purchase. Each year we meet at least three times with our producers individually. We

collect APH data and crop planning information, we analyze products that are available and explain the various ways that they work for or against a producer. We then

help them make their decision on which product will work best for them in the current crop year. This process takes time and knowledge, but with PDP, some of this

service will be eliminated. This puts our producers at more risk of not having the

right policy in place that will give them the protection they need. And, without the

proper protection, lenders could end up rejecting the policies for use as collateral,

leaving producers without operating capital.

We also see this provision as discriminatory between large and small producers

and also between high risk and low risk areas of the county. We believe that not

only premium discounts, but also premium surcharges will result from this provision. We should be constantly striving towards more service to our producers. However, PDP will promote less service and will result in less acres covered by the Crop

Insurance Program.

PRODUCT OR POLICY DUPLICATION

We currently have some policies that actually offer identical coverage if certain

options are used. These policies have different rating methods, which results in a

difference in premiums. We believe that some confusion and expense could be eliminated by not allowing policy duplication.

The example I would use is Crop Revenue Coverage (CRC) and Revenue Assurance (RA) with the fall harvest option. The differences between these two policies

are very minor except for their premiums. In any given year one might be cheaper

at the 65 percent level and just the opposite at the 70 percent level.

Elimination of one or the other will certainly reduce expenses and also make the

wide array of choices less confusing for the producer.

Future programs need closer scrutiny to prevent policy duplication.Company Viability and Expense Reimbursement

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In the last year, we have seen huge changes in our industry, from a company

going bankrupt to large mergers of others. As more products are being offered on

more crops, expenses and business risk becomes greater and greater. We don’t believe that fewer companies will lead to better service and more efficiencies. We

think that producers will start slipping through the cracks.

As an agent and a farmer, I would like to know that the company I am insured

with will be there tomorrow to service the policy that has been purchased.

We think that RMA should have greater access to every company’s financial data

to keep an eye on their ability to service customers over the long-term. We understand RMA is taking steps in this direction and look forward to learning what additional types of information they will gather.

We must also ask the question as to whether the government is giving a fair expense reimbursement rate. Each year more products on more commodities are required to be offered to our producers and yet the expense reimbursement does not

adjust accordingly. In addition, the loss adjustment reimbursement levels are simply

inadequate to cover high loss policies, such as CRC and Revenue Assurance. We

know that this is becoming a major strain on companies’ ability to stay in business.

The new Standard Reinsurance provides the government with the opportunity to

provide more money for loss adjustment. NACIA encourages you to support the government in doing so by writing Secretary Veneman a letter on this topic. It’s very

important to help the agents and the remaining companies stay in business.

In closing, NACIA and I appreciate and thank you for the opportunity to testify

and look forward to answering your questions.

STATEMENT OF RANDY MCMILLIN

Congressman Peterson, distinguished guests. As the chairman of the Minnesota

Canola Council, I’d like to thank you for being here today and appreciate your interest in trying to work with us to find ways we can improve crop insurance. I don’t

plan on taking much of your time, but I would like to share a few thoughts with

you about this issue.

Canola, in the grand scheme of things, is still a relatively young crop. Its popularity grew in the mid-nineties as an alternative to traditional small grain crops

which, at the time, were dealing with serious disease issues. To help producers manage risk, a canola pilot insurance program was established in 1995 and became permanent in 1997 and served to significantly boost canola acreage in Minnesota. Since

that time, the program has been expanded to 29 counties and has shortened its rotation requirements to two years. Furthermore, beginning with the 2004 crop year,

canola growers in Minnesota will be able to purchase the popular Revenue Assurance plan of crop insurance. As you know, this form of crop insurance helps protect

growers against declines in price, yield or a combination of both factors. All of these

factors have contributed to the popularity of canola in Minnesota.

Farming has always been a risky enterprise. It is unique, however, in that although every business faces risk, few face the degree of risk farmers do considering

we are at the mercy of both market fluctuations and weather related events such

as droughts, floods, and other natural disasters.

This has been well demonstrated over the past few years in northwestern Minnesota. Excess rain and flooding have served to a reduce canola acreage in Minnesota from a high of 197,000 acres in 1998, to a low of just 44,100 last year.

And although crop insurance has, for many, served as a life preserver during this

time, allowing producers to keep their heads above water during troubled times, improvements to the program can and should be made.

A simple example of this, as it relates to canola, is the difference in premiums

between Marshall and Roseau Counties in Minnesota. As a rule, crop insurance premiums increase as you move north. For example, in Marshall County, coverage for

a 1,500lb/acre yield at the 65 percent level costs $4.40/acre. In Roseau County, north

of Marshall County, that same level of coverage is 5 percent more expensive, when

in fact, from a risk standpoint, coverage should actually be less expensive because,

unlike traditional small grains, canola is a cool season crop which thrives in cooler

temperatures. Additionally, Roseau tends to be the largest and highesT-yielding

canola producing county in Minnesota.

Granted, a 5 percent increase in premiums from Marshall to Roseau Counties

isn’t going to be the difference in whether or not a producer can afford crop insurance coverage, but I think it clearly demonstrates how the program can be improved. Data show canola production in Roseau County is no greater risk, frankly

less, in fact, than Marshall County. Yet, producers in our largest producing county

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shrinking margins we live in, any unnecessary, added expense is a burden and

should be addressed.

Another issue that potentially stands as an impediment to increasing canola acreage is the fact that in counties not currently covered by the program, producers are

required to provide their agent with a 3-year canola cropping history before they can

enter into a written agreement for insurance coverage. This is a classic Catch–22

situation. Few, if any, producers will risk growing canola without the protection of

crop insurance, but if growers don’t establish a canola cropping history they are unable to receive coverage. We believe this problem could be addressed relatively easily in a number of ways, such as reduced coverage or higher premiums until sufficient history is established, or a review of the producer’s production practices or

past claims. This is another example of small fixes we believe could improve the current program.

Now on the other hand, we also want to make sure we give credit where credit

is due as well. In 2002, the Minnesota Canola Council applied for and subsequently

received a grant from RMA’s Targeted Commodity Partnerships for Risk Management Education Program. These grants were awarded to universities, private agribusiness organizations and grower groups to help defray the costs of Risk Management education efforts. It enabled the Council to give growers face-to-face exposure

to risk management professionals who were able to better educate them about the

coverage options which may be most useful to them. These types of programs are

useful to producers in general, but particularly in our area where our exposure to

Risk Management professionals tends to be limited.

Furthermore, we’d like to add that the Canola Council has had a good working

relationship with the St. Paul office of RMA. They have been responsive to our

needs and have always been willing to discuss issues we feel are important to the

long-term health of our industry.

And finally, although RMA must remain actuarially sound, one thing we must

continue to do is strive to make higher levels of crop insurance more affordable. This

will not only help to preserve and strengthen the safety net on which producers rely,

but is critical to the economic health of our region in bad years as well. Thank you.

STATEMENT OF JOCIE ISZLER

The North Dakota Corn Growers Association and the North Dakota Corn Utilization Council would like to thank the committee for the improvements that have

been made in the Crop Insurance Program. Coverage for non-irrigated corn was expanded into several additional counties this past year. However, there are certain

aspects of the Crop Insurance Program that need attention in order for the program

to function as a risk management tool for producers.

Currently, with the exception of Cass, Richland, Sargent and Ransom counties,

the final plant date for corn in North Dakota is May 20th. For the above mentioned

counties the date is May 25. The North Dakota Corn Growers Association, representing 1,500 corn grower members in North Dakota is requesting a 10 day extension on the preventive planting dates. These are the reasons for these requests.

First of all, improved varieties provide more choice for today’s corn grower. In the

past the assumption was that 100 day corn was necessary for adequate yields. However, as grower experience and test plot data indicate, varieties in the 85 day range

yield as well as 100 day varieties. If the proper maturity is selected, late planted,

early maturing corn has the potential to yield very well. According to the experience

of Duane Dows, Page, ND producer and Chairman of the ND Corn Utilization Council, in certain seasons, late planted, early maturing corn can yield equal to early

planted corn. Early planted, late maturing corn can have the added risk of poor

emergence due to cold soils. Producers report that losses from frost damage are of

far less concern than losses resulting from poor emergence due to cold soil temperatures.

Secondly, production practices have changed. More producers are using minimum

tillage practices. This especially true in the counties to the west and north where

there is a trend toward increasing corn production. No till or minimum tilled soils

take longer to warm up and dry out for planting in the spring. Producers who try

to plant in these soils too early in order to meet preventive planting deadlines increase their risk of loss due to poor emergence.

Another aspect of crop insurance for corn that needs to be updated is the requirement that producers submit 10 years of actual production history. A time period of

this length is excessive due to the significant and rapid improvements in varieties

over a 10 year period of time. The ND Corn Growers Association supports multiyear

APH reform that would use 100 percent of the county T-yield. The current 65 perVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00099 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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cent level results in a very negative impact on the grower’s APH in the event of

a crop failure.

In addition, the ND Corn Growers Association supports increasing government

subsidiy of the 85 percent coverage level. The current 65 percent coverage level

often leaves producers in a situation where they would have been better off with

no insurance in the event of a crop failure.

In summary, current final planting dates restrict planting options for producers.

Current crop production history requirements and lack of cost effective coverage reduce the incentive for North Dakota producers to use crop insurance as a risk management tool with corn for grain. ND corn producers support the concept of Freedom

to Farm. The crop insurance industry plays an important role in making the concept

of Freedom to Farm workable.

The ND Corn Growers Association and the ND Corn Utilization Council thank the

committee for this opportunity to submit testimony and appreciate their efforts in

improving risk management tools for our producers.

STATEMENT OF HOWARD OLSON

Mr. Chairman and members of the committee, my name is Howard Olson. I am

vice-president of insurance at AgCountry Farm Credit Services, based in Fargo, ND.

I appreciate the opportunity to testify before you concerning the effectiveness of the

Crop Insurance Program.

The Crop Insurance Program is a valued risk management tool and necessary

safety net for agriculture producers in the northern Plains. In 1996, with the passage of the Freedom to farm bill, farmers were encouraged to use crop insurance

and marketing tools as a safety net for farm income. Since 1996, in the states of

Minnesota and North Dakota, $1,153,000,000 in premiums has been paid by farmers. In those same years $2,270,000,000 was paid in claims.1 The Crop Insurance

Program not only provides protection for production, but with the introduction of

Crop Revenue Coverage and Revenue Assurance in the last eight years it has become a valued marketing tool, providing protection for changes in commodity prices.

This has given producers the opportunity to do a better job of marketing and ultimately improving their gross income.

As an agricultural lender, AgCountry Farm Credit Services sees firsthand the

value that crop insurance has brought to the farmers in our area. It brings additional income security to a farm operation and allows many farmers to get credit

that otherwise could not. It has been estimated that 15–20 percent of the farmers

in Norman and Mahnomen counties would be unable to obtain credit without the

Crop Insurance Program.

Crop losses have a significant impact on even a farmer with a strong balance

sheet. A farmer with good working capital that suffers an uninsured loss will need

five to seven years of good crops to recover from that loss. The loss of working capital has an impact on the farmer’s ability to replace equipment, stay current with

technology, compete with other producers and increases the risk of financial failure.

That risk also has an impact on all of the suppliers that the farmer purchases goods

and services from throughout the crop year, ultimately impacting the entire community. AgCountry continues to see how the Crop Insurance Program is providing a

stronger borrowing base for agriculture customers bringing better protection and a

strong safety net for the producer and the community.

As good as the Crop Insurance Program is, there is still room for improvement.

The Agriculture Risk Protection Act of 2000 made tremendous contributions to improving the premium subsidy, and everyone is very appreciative of that. ARPA

brought affordability to coverage levels that provide true protection.

However, it is still difficult for farmers to purchase as much coverage as they need

to protect their input costs. Repetitive years of losses have caused Actual Production

History (APH) to fall. Even at 75 percent coverage levels, it is common to find farmers in Northern Minnesota with only $80-$100 an acre of coverage on their wheat,

while their actual costs for raising wheat are close to $150 to $170 an acre. The

coverage that is available is not enough to make them whole.

The problem arises when there is a disaster year included in the APH. The current rules allow replacing the bad year in the APH with a yield equal to 60 percent

of the county Transition Yield (T-yield). Some suggestions for improvement would

be to use a yield adjustment equal to 100 percent of the county T-yield, or remove

years in the APH were the county has been declared a disaster.

T-yields should be examined and reviewed for accuracy. T-yields are supposed to

be based on the National Agriculture Statistical Service (NASS) yields. However

there is a discrepancy between the T-yields and the NASS yields. Another situation

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that arises is that current technology and product developments have provided for

an increasing trend line yield of all crops, especially corn and soybeans. The NASS

yields and the T-yields lag the trend line yield because they are a long-term average

and are not responsive enough to the change in the trend line yield.

Another solution is to have the yield floor at 100 percent of T-yield instead of the

current 80 percent of T-yield. New producers of a crop are eligible to receive 100

percent of the county T-yield so experienced producers of a crop should be able to

do the same.

Another common problem in this area is a discrepancy between quality adjustments in the Crop Insurance Program and the quality discounts at the local elevators. Just recently a local producer stated that the local elevator discounted 53-

pound test weight wheat by 75 cents. 75 cents on $3.50 wheat is a 21 percent discount. The Crop Insurance Program doesn’t provide coverage for low test weight

until the wheat is below 50 pounds. In the past few years, discounts for falling numbers have become common in wheat and durum. The Crop Insurance Program does

not provide any quality adjustments for falling numbers. The Commodity Credit

Corporation’s (CCC) grading standards have been recently modified to include discounts for falling numbers. In comparing crop insurance quality adjustments with

CCC grading standards we see a significant difference in how the two are applied.

In the very least the Crop Insurance Program should have the same standards as

the CCC program and at best reflect the exact discounts that are taken at the elevator.

New producers of a crop receive 100 percent of the county T-yield as their APH

yield. But if the producer raised the crop twenty years ago they are required to use

that production or they will receive a percentage of the county T-yield. This procedure penalizes a producer for having raised a crop many years ago because today’s

yield potential is much greater than it was twenty years ago.

Crop insurance coverage on sugarbeets and adjusting procedures on sugarbeets

should be reviewed for the effectiveness or lack of effectiveness of having two stage

guarantees. While it is true that sugarbeets occur significant costs throughout the

growing season, the majority of the cost has gone into the beets by planting. Having

a different guarantee before July 1 and after July 1 causes errors and frustration

in the program and differences in procedures by growers, adjusters and companies.

sugarbeets could be covered in a very similar fashion as potatoes. If potatoes are

destroyed before harvest, they are covered at 80 percent of the guarantee.

In working in both North Dakota and Minnesota there is often a disparity in coverage on crops that are only a stone’s throw across the Red River from each other.

One example of this is the sugar index factor used for adjusting sugarbeeT-yields.

The factors in North Dakota were recently raised while the factors in Minnesota

stayed at the current levels. The result is a difference in APHs on either side of

the river. There are other differences between states in how Added Land is reviewed

and approved, documentation required for Written Agreements and approval of

Written Agreements. The reason for the differences is the different RMA Regional

Offices. The process should be the same for the same crops in similar growing areas

for all RMA Regional Offices.

In summary crop insurance can be a better safety net with some improvements.

Bolstering of APHs when hit by disaster years, improvements in the quality adjustments, T-yields tracking closer to trend line yields, better yields for new producers

of a crop, one sugarbeet guarantee for the crop year and common practices and procedures between RMA Regional Offices would all be valued improvements.

U.S producers have a good safety net in the Crop Insurance Program. The program provides valuable risk management tools for farmers. It helps farmers eliminate the financial disaster of crop losses. Crop insurance also allows farmers to do

a better job of marketing, reducing marketing risk and providing marketing opportunities. Crop insurance gives agriculture lenders additional security for operating

loans, allowing them to extend credit to customers who may not otherwise be able

to get credit while improving the financial stability of the agriculture credit system.

The Crop Insurance Program provides a downstream affect of more financial stability to the rural communities and economy. Farmers in North Dakota and Minnesota

use crop insurance as their primary risk management tool to mitigate production

and marketing risks. Let’s work together to make it a better program for everyone.

STATEMENT OF GLEN BRANDT

Chairman Moran, Distinguished members of the subcommittee:

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I have farmed here in Norman County for 34 years and am here to tell you my

views on the General Farm Commodities and Crop Insurance as it pertains to my

farming operation.

The first topic I would like to address is the Farm program as it pertains to the

sugarbeet industry. This industry is vital to the economy of this region of Minnesota

and our neighbors in North Dakota. From the seed and fertilizer businesses to the

implement dealers to the processing factory workers to the part time truck driver

in the fall, this area is heavily dependent on this crop. Every dollar earned by the

farmer is turned over 7 times and this fact is very important to the economy of this

area. The farm program also allows the sugar prices to remain stable for the highest

quality sugar for the consumer. We are very regulated as to the chemicals that we

can use on sugarbeets, whereas other countries are not, allowing those countries to

produce sugar at a lower price and a lower quality.

The capital expenditure for planting, spraying, cultivating and then harvesting

this crop is huge. The ability to purchase crop insurance decreases this risk. For

an example, in 2002 Norman County farmers were flooded 3 or 4 times. The crop

insurance programs saved many farmers from having to sell out. We were able to

get enough money to at least start over in 2003. The program is not perfect, such

as the proven yields rules, but it is still a good system for us for insuring our risk.

STATEMENT OF JAMES R. DUININCK

Mr. Chairman, Mr. Peterson, and the rest of the subcommittee Members, I thank

you for holding this hearing and allowing me to testify today.

Several of you from other regions around the country may not be aware that

much of the cropland in the Upper Mississippi drainage basin is tiled and drained

from beneath the surface. Minnesota, Iowa, Illinois, Ohio, and Indiana farmers simply could not be as productive today without tiles and drains under their fertile

cropland. Today, in addition to representing my employer, Prinsco Incorporated, I’m

representing a number of other companies that specialize in making and installing

water drainage products. I am pleased to tell you that we are in the process of forming a coalition to support and promote landowners’ use of more effective drainage

management technology through USDA’s conservation programs.

I would like to explain what I mean when I use the word drainage. In agricultural

applications we define the word drainage as removal of excess water from the soil

surface and the shallow subsurface. I want to make clear that modern water management for agricultural production focuses on the management and enhancement

of existing drainage systems to benefit water quality and the profitability of agriculture not the drainage of wetlands.

Historically, drainage in the United States has occurred in two primary developmental stages, 1870–1920 and 1945–1960. By 1920, more than 53 million acres out

of a total of 956 million acres of U.S. farmland had received some form of drainage.

This figure rose to 109.7 million acres by 1985. A survey conducted by Ohio State

in 1985 showed that 20 percent or 5,515,000 acres of Minnesota’s cropland had been

drained.

Farmers see a direct benefit to tiling their cropland. A study done by Paul Brown

from Iowa State University showed thaT-yield loss per acre due to very poor to poorly drained soil cost a farmer 45 bushels per acre for corn and 15 bushels per acre

for soybeans. On an 80 acres field of corn this could cause a farmer to lose approximately $8,500. John Nieber, Professor of Biosystems & Agricultural Engineering

from the University of Minnesota shows that the benefits of drainage are extensive.

So extensive that 20 to 50 percent of all cropland in the corn/soybean belt has some

form on drainage.

There is concern in areas of the Midwest of the degree in which agricultural

drainage contributes to flooding. Presentations suggest that precipitation is the factor responsible for most of the variation in large-river flows including flows associated with Minnesota’s most extreme flooding. Dr. Gary Sands, Extension Engineer

in the Biosystems & Agricultural Engineering Department at the University of Minnesota says that tile drainage typically reduces both volume and peak of surface

runoff from agricultural fields. Fields that have drainage tile act as a sponge, causing the water to soak into the field rather than allowing it to runoff. Because tile

drainage tends to decrease peak runoff rates, this suggests that tile drainage should

decrease the incident of flooding.

The Red River Valley poses unique challenges due to its lack of subsurface drainage. The primary focus of drainage in the Red River Valley has been through surface drains; these shallow ditches can contribute to flooding problems. Subsurface

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drainage provides water storage and decreases the incidence of flooding. Subsurface

drainage has long been recognized by the NRCS and has not been utilized in the

Red River Valley.

Earlier in my testimony I spoke of a coalition being formed to support and inform

landowners of a more effective drainage technology through the USDA conservation

programs. This form of drainage is referred to as controlled drainage, which allows

the farmer to control the water table by holding water back during dry periods and

releasing water when necessary. Controlled drainage is a practice that will become

more common in the upcoming years, because of its ability to reduce the nitrate flow

to the Gulf of Mexico. Recognizing the problem that tiles and drains pose to water

quality, the Agricultural Research Service (ARS) began researching control drainage

technology and recently revealed its findings in an article that I have attached for

your review. Basically, ARS has concluded that this system can help farmers increase their crop yields while substantially reducing nitrate leaching by up to 40

to 50 percent. The ARS believes, as we do that this system could revolutionize water

management as well as play a critical and necessary part in reducing nitrates and

possibly other agricultural pollutants now plaguing the Upper Mississippi drainage

basin. I have attached for your review, a copy of the ARS article on this technology

and its research results in certain areas.

Over the next month, NRCS and ARS will finish rewriting the EQIP practice

standard to incorporate the new managed drainage research and the control drainage. We will be discussing with NRCS the cost-sharing arrangements that farmers

would expect when they sign-up for this system.

Subsurface drainage is used to enhance the profitability of land that is already

under agricultural production. Subsurface drainage does not violate Swapbusters.

Instead, drainage systems help make agriculture more environmentally sound and

sustainable. Modern water management for agricultural production focuses on the

management and enhancement of existing drainage systems to benefit water quality

and the profitability of agriculture.

Mr. Chairman, thank you for this opportunity to testify today and I look forward

to our continued discussion about agricultural drainage. I would be pleased to answer any questions you or others may have.

STATEMENT OF NATHAN JOHNSON

Mr. Chairman and members of the committee:

Thank you for allowing me the opportunity to give you my views about crop insur- ance. My name is Nathan Johnson and I raise corn and soybeans in central Minnesota.

I have purchased crop insurance since 1993. I am a past president of the Minnesota

Corn Growers Association, and currently serve on the organization’s board of directors and legislative committee.

In the last five or six years, crop insurance has greatly improved for farmers in

central Minnesota. Because of high premiums, five years ago I could not afford to

take out 60 percent coverage on my crops, but today I have both my corn and soybeans insured at an 80 percent coverage level.

In my operation, I have to borrow money to plant the crops, so I have to take

out crop insurance to cover my risk, which is normal for the majority of farmers

in my area. When the new formulas to calculate premiums were introduced, it was

a real advantage for farmers in central Minnesota. In the past, we were not given

credit for all the improvements in crop production that we have made in the last

20 years. With the new formulas, those improvements are now taken into consideration.

Another big advantage for farmers under the new rules is that we can now save

substantially on our premiums by combining fields in several different sections.

I think it is essential for Minnesota farmers to be able to rely on crop insurance

that provides good coverage at affordable prices. And I think it’s very important

there are programs in place to make sure farmers know about all the options that

are available in crop insurance. One example would be the price break that I can

receive for combining corn and soybeans in different sections. I’ve talked to many

different farmers that are not aware of this discount. Another example is that many

farmers are not aware they have an option to buy out a year of history on their

Actual Production History. This is a very important option for many farmers, including myself.

Again, thank you for the opportunity to give testimony on crop insurance. I would

be happy to try to answer any questions you may have.

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STATEMENT OF DUANE W. MAATZ

We are requesting the opportunity for industry experts to review the northern potato policy including price election, with time to comment, prior to policy training

and implementation. (Example, errors have been made in calculating price and have

been uncorrectable by the time the policy is issued.)

Policy changes and reinterpretations have been made at or very near the signup

deadline. RMA has the ability to make changes whenever they determine it is necessary, while it takes 18 to 36 months for us to modify the policy. (Example, reinterpretation of the certified seed option, made known to us on March 13, 2002, and

then denying indemnity payments on the 2001 crop. Some indemnities were paid

while others were not. The compounded problem is that farmers had already signed

up for their 2002 coverage which was sold to them with the same understanding

of the policy coverage since 1986.

Seed Recertification Option. In the advent of the reinterpretation of the certified

seed option, we are requesting consideration of a creating an endorsement for recertification of seed potatoes.

Degradation of APH. Very little has been done to repair APH damaged by multiple year disasters. Farmers are unable to purchase cost effective coverage that

adequately manages their risk.

Frost / Freeze Date: Historically October 15; Changed to September 30; Pilot Program October 7. We have requested a frost freeze date of October 15—like other

northern states potato growing regions.

Storage Endorsement. Currently December 15. This was a good change compared

to the prior rules.

In the advent of improved storage equipment and capabilities, and more acres of

late season varieties being produced, we need an option to purchase a longer period

of time in 30 and / or 60 day increments.

Insurance by Type and Variety

Today growers need to grow different types and varieties of potatoes in different

farm units to manage risk. Each variety reacts differently to adverse conditions at

various stages of growth. Example: growers could have a loss on red norland while

their shepody crop may produce enough to keep a unit out of a loss situation if both

varieties are planted in the same unit. When farmers are planting for specific markets it makes land use choices difficult and production in regard to risk management becomes impractical.

Twenty Percent Loss of Indemnity for Un-harvested Acres. The current policy indicates a 20 percent loss of indemnity for un-harvested acres. This loss of indemnity

is too high. Our data indicates it should reasonably be 8 to 10 percent. Our organization does not support cost of production or guaranteed income insurance policies.

We are cautions of products that may cause overproduction.

We do support the construction of new products that reduce the incidence of

waste, fraud and abuse of the system.

STATEMENT OF DARRIN IHNEN

Mr. Chairman and members of the subcommittee, the South Dakota Corn Growers Association (SDCGA), a non-partisan association committed to promoting the

profitability of South Dakota corn producers is pleased to provided a written statement for the record regarding the review of crop insurance and commodity programs. Our organization works to promote corn and improve corn profitability; influence public policy and legislative efforts; and increase corn usage through livestock

feeding and new domestic products to improve the quality of life in a changing

world.

SDCGA recognizes the Federal Crop Insurance Program as the primary risk management tool for producers and urges continued efforts to increase producer participation in the program. South Dakota growers look forward to working with the Risk

Management Agency to continue to improve the methods by which growers manage

their crop risks.

On average, producers are good managers of things they control. In farming however, there are an infinite number of items beyond control as producers are exposed

to both production risks and price risks. Production levels vary depending upon cycles of demand as well as balancing those demands with adverse weather conditions

such as droughts or floods.

As you know, severe drought conditions have taken an adverse affect on farmers

and ranchers nationally during the past few years. The drought in South Dakota

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alone last year has cost an estimated $1.4 billion according to the AgBio Communications Unit at South Dakota State University (SDSU). Drought assistance made

available through the Federal Farm Service Agency (FSA) has helped offset financial losses. Although conditions have been better compared to last year’s drought,

overall conditions in western South Dakota continue to be drier than average.

Historically, to combat the adverse impact of crop and livestock production caused

by the drought, Congress has supplemented regular funded disaster assistance programs with additional emergency aid, which has generally been provided in emergency supplemental appropriations bills. Such was the case with the Agricultural

Assistant Act of 2003, which provides assistance to producers who have suffered

losses due to weather-related disasters or other emergency conditions.

As part of the Act, the Crop Disaster Program provides payment to producers for

qualifying losses to agricultural commodities due to damaging weather or related

conditions. The damage must be in excess of 35 percent for either the 2001 or 2002

crop, but not both years. From a short-term historical perspective (1988–2000), Congress has authorized emergency crop disaster payments to eligible producers affected by any type of natural disaster that caused a significant reduction to that

year’s crop yields. SDCGA strongly believes that limiting qualifying losses or damages to a single year does not adequately address producers’ needs as was provided

under the current Act. SDCGA would recommend the need for multiyear losses.

Such inclusion for producers would allow producers to receive the additional assistance and protection that would allow producers to rebuild their operations during

multiyears of drought.

Beyond the need for multiyear crop losses, SDCGA believes it is crucial to maintain a voluntary Crop Insurance Program that provides equitable aid for crop insurance participants. Under the current Crop Insurance Program, a producer who

grows an insurable crop selects a level of crop yield and price coverage and pays

a premium that increases as the levels of yield and price coverage rises. However,

all eligible producers can receive catastrophic (CAT) coverage without paying a premium. The premium for this portion of coverage is completely subsidized by the

Federal Government. Under CAT coverage, participating producers can receive a

payment equal to 55 percent of the estimated market price of the commodity, on

crop losses in excess of 50 percent of normal yield, or 50/55 coverage. Such a program should remain voluntary and incorporate involvement from private insurance

companies.

SDCGA believes premiums should be affordable and provide adequate coverage.

Affordability of coverage and adequate coverage would forestall political pressure for

expensive ad hoc disaster assistance payments each year. In addition, modifications

should be made for greater availability in light of current low commodity prices.

Producers in the Plains states and other regions that are prone to drought and other

recurring disasters will most likely make the strongest support for support of crop

insurance enhancements. The Federal Government should continue efforts so subsidize premiums to make insurance affordable to farmers.

SDCGA also believes crop insurance fraud and abuse is not a victimless crime.

For every honest prouder who buys crop insurance, there will be fraud and abuse

that increases the cost of the overall program. SDCGA encourages penalties for

those individuals who defraud, waste, and abuse the system through enforced penalties against producers, agents, loss adjusters and companies for failure to comply

with the law or for providing false information, including stiff fines. Enforcement

of penalties for those individuals or non-individuals would yield increased saving to

the Federal program and provide direct assistance to the producers who need them

the most. We applaud the efforts of the program to discourage fraud, waste, and

abuse.

Overall, SDCGA believes the following principles should govern the design and

delivery of the Crop Insurance Program that include the following key components:

• multiyear losses. Producers who suffer back-to-back years encountered by unavoidable risks associated with adverse weather, plant disease, and insect infestations. SDCGA strongly believes producers with multiyear crop losses should have

eligibility for crop assistance provided in the same manner as the 2000 crop year

disaster payment program.

• The program should remain voluntary. Crop insurance should remain voluntary

available for producers and allow flexibility for producers to participate in accordance with supplemental coverage from private insurance companies.

• Premiums should be affordable. Policies should provide producers with increased

governmental assistance on their premiums while lowering the percentage cost paid

by producers for greater improvement to the level of coverage protection purchased.

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• Improving against fraud. Producers, agents, loss adjusters, insurance providers,

or anyone willfully and intentionally providing false or inaccurate policy information

should be held highly accountable for any illegal gain or benefit.

SDCGA express our support for the insight and commitment that originated with

Title V of the Agriculture Adjustment Act of 1938 which authorized the Federal

Crop Insurance Act which establish a Federal insurance program to protect farmers

from crop losses due to natural hazards. Because of the insight to the original act,

the U.S. Department of Agriculture (USDA) offers several permanently authorized

programs to help farmers recover financially from a natural disaster, including Federal crop insurance, the noninsured assistance program and emergency disaster

loans.

Mr. Chairman and members of the subcommittee, our organization is committed

to working toward a policy that allows a more effective and equitable crop disaster

assistance program. SDCGA appreciates the work the subcommittee has undertaken

and the reforms that have been made by Congress over the years on behalf of U.S.

agricultural interests. Our organization’s members appreciate the opportunity to

offer our support for legislation that assists producers during time of distress and

the financial losses that occur.

Thank you for this opportunity and your time and attention to this issue.

STATEMENT OF BRUCE FREITAG

My name is Bruce Freitag and I’m a small grain and row crop producer from

Scranton, North Dakota, which is in the far southwest corner of the state. I’m currently serving as the president of the North Dakota Grain Growers Association. Our

association consists of wheat and barley producer of all sizes from across the State

of North Dakota.

Congressman Moran, first of all I would like to thank you and your committee

for coming to the upper Midwest to listen to our producers concerns about agriculture and more specifically crop insurance.

During the last farm bill debate there were many good ideas that came forward.

Congress listened and worked through these ideas and came up with a farm bill

that we believe is a well-balanced approach to farm programs. It was always our

goal at the North Dakota Grain Growers and the National Association of Wheat

Growers to support a bill that had a 3-legged approach. As we learned in Southwest

North Dakota last year, the fixed payments provided us with a certain amount of

security, even when we produce no crop at all due to a catastrophic disaster. The

second leg, a loan rate that is now based more accurately on a percentage of cost

of production for each commodity, provides support on the crop we do produce.. The

third leg, which is the counter-cyclical payment, assists us when we, or our competitors around the world produce a large crop that drives the prices down.

This farm bill has done a good job in letting us as growers make decisions based

on world markets but yet providing us with a certain amount of financial stability

to maintain the cheapest, safest and most environmentally friendly food supply in

the world. For that, Mr. Chairman, we commend you and your colleagues for bring

the last farm bill forward.

We believe a major accomplishment of this legislation was to replace the need for

ad hoc market loss assistance payments, with a mechanism for countercyclical payments in times of low market prices. We believe the same approach is needed when

addressing natural disasters. Crop insurance should be improved to provide more

complete coverage for producers, thereby making emergency disaster legislation unnecessary. We all know how difficult it was to achieve disaster legislation this past

year, and our concern is that any future weather related disasters will face the

same fiscal climate and resistance to emergency spending. We believe it is now time

to address this problem, before we face the next natural disaster.

Crop insurance has been a valuable tool for our producers in North Dakota, with

a participation rate of 97 percent in recent years. Yet, even at these levels of participation there has been a need for supplemental disaster payments because the current crop insurance system is inadequate. Coverage levels that are higher than 75

percent are impractical to purchase unless you plan on having a disaster. Premium

rates for coverage beyond the 75 percent level in many cases approach the 50 percent level. In other words it takes one dollar in premium to buy two dollars worth

of additional coverage. This results in a large gap in coverage for producers. Typical

crop production margins are narrow and it takes 90 to 95 percent of an average crop

to cover costs. With the most affordable and justifiable coverage levels of the current

Crop Insurance Program at the 65 to 70 percent level, a substantial shortfall occurs

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whenever there are crop problems. In other words a farmer had better plan on having 5 or 6 good years before having a bad one in order to stay in business.

The North Dakota Grain Growers along with the North Dakota Barley Council

have begun this process by starting to do an economic analysis of what it would be

like to develop a crop insurance plan that combines crop insurance coverage along

with a farm savings account. How would this be done? We believe there are ways

to make crop insurance more efficient, and less vulnerable to fraud and misuse than

the current program. Certainly these savings could be used to reduce premiums on

higher levels of coverage, making for a more complete coverage. This, coupled with

a farm savings account, would provide more complete risk management package,

and be responsible to both the taxpayer and the producer.

There are several possibilities for finding efficiencies in the crop insurance system,

all of which require more economic research to develop. Some current ideas include

multi year discounts, no loss discounts, and more affordable premiums for whole

farm or enterprise units. A way needs to be found to make the 80–85 percent levels

of coverage more affordable. Multiyear losses which lead to declining APH’s also are

a problem in some areas and should be corrected to provide producers with adequate

coverage. Indexing yields may be a solution for this problem.

The farm savings account could be a tax deferred, government matched account,

similar to and IRA, that producers could tap in times of crop failure to fill the 15–

20 percent gap between crop insurance coverage and expected revenue from the

crop.

When it comes to making the system more efficient we as growers have to be willing to help in developing this plan. That is why the North Dakota Grain Growers

and the North Dakota Barley Council have begun the process of researching these

ideas to see if they are actuarially sound and make economic sense.

Mr. Chairman and members of the committee we here at the North Dakota Grain

Growers again look forward to working with you in solving this most difficult problem facing American agriculture today.

Once again thank-you for coming to the upper Midwest.

STATEMENT OF MARK BEEDY

I wish to welcome and thank Congressman Peterson and members of the subcommittee for visiting our region and for the opportunity to present this testimony.

My name is Mark Beedy and I operate approximately 1000 acres in the Moorhead/

Fargo area. This year, I planted approximately 500 acres of wheat and 500 acres

of soybeans, of which 200 acres are for the food grade market. The core of my operation has been in my family for over a century. I am also the vice president of the

Minnesota Soybean Growers Association. Although my comments are known and

supported by ASA and MSGA, they are just that, my comments, and are not meant

to create a position for ASA or MSGA at this time.

I realize the enormous task of putting together a national farm program or risk

management program. There will be areas or situations affected differently than intended.

The process in making soybeans a program crop, I believe, is one such occurrence.

We saw our local loan rate go from $4.97 down to $4.72. The intent was to recoup

the difference in the form of a program payment. In actuality, we, for the most part,

just lost that amount. Our LDPs, if applicable, will be $0.25 less on all our bushels.

Keeping old bases and yields and adding soybeans seemed to be the popular choice,

but do not reflect current farming practices.

We have the advantage in this area to try to increase profits by producing different crops, thanks in a large part to the flexibility provision of the farm bill. However, if you raised sunflowers, hay, edible beans or sugarbeets during the years used

for calculation, you are penalized on your soybean base. Another common practice

in this area is renting ‘‘free acres’’ out for sugarbeet production, which also causes

you to be penalized.

I recognize that this subcommittee is most interested in the Crop Insurance Program and particularly how it is working in this region. Addressing multiple year

losses when it comes to disaster and crop insurance programs remains one of our

top concerns.

Loss years are not just the large-scale drought or floods covered by the media.

Over the last decade I have experienced planting delays due to spring floods, and

wet springs. During the growing months I have had areas of excessive rains, hail,

and wet conditions in the fall. Whenever things like this occur, you have more weed

and disease pressure, more quality problems, yield loss and increased expenses.

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Previous disaster programs were merely another AMTA payment to all producers.

They were very well received, but were made to all producers whether they had a

loss or not. I commend the work on the most recent disaster program to try and

remedy this. It worked fine, except again for those of us with multiple years of loss.

In 2001 there was a need for another disaster program! With farm bill negotiations underway, we were told to wait until passage of the new farm bill, as not to

jeopardize it. After adoption of the new farm bill and another loss year, we got to

decide which disaster we liked most, 2001 or 2002. In my case I opted for 2001 and

received payment in 2003. 2002 was well, just another loss to swallow. One can only

operate with losses so long. Debt load increases, due to financing losses and lack

of operating cash.

A change in the Crop Insurance Program would certainly help. With the

multiyear losses in our area, APH yields have decreased and premium rates have

increased.

We do have the option, if selected, to use 60 percent of T-yield for loss years in

APH calculations. In my case, 60 percent of 29 equals 17 bushels (still a loss). Plus

we pay extra for this option. (See attachment) While this was the fix included in

the crop insurance reform legislation, it is not enough. I need to be able to guarantee enough bushels or revenue to cover my costs and 17 bushels isn’t enough. Seed, fertilizer and chemical can easily cost $60 per acre, think about paying the landlord and your costs increase to $125-$140, to cover all overheads I’d easily be

looking at $180-$185. To achieve profitability, I need to reach my goal of $200 or

more per acre. Some of the negative comments I hear, when it comes to crop insurance, is we are able to guarantee a profit. As you can see, my coverage is far from

that.

I have attached a worksheet showing my insurance premium quotes. I currently

have APH coverage at the 75 percent level. I must lose 25 percent of my cash outlay

before the premium even gets covered! And the 75 percent is calculated on reduced

yields that won’t even be considered at the bank for cash flow purposes.

Please note the 85 percent level; it is cost prohibitive at more than $14(approximately 3 bushels or 10 percent of my guarantee) an acre for revenue

coverage. This is not a viable option.

Finally, when you have a pending loss and premiums are not paid timely, the crop

insurance company assesses late fees, which are also deducted from your indemnity.

This is a problem that has been identified by producers across the country. ASA has

taken the formal position that the program should be modified so that once a farmer

has filed a claim, while that claim is outstanding, the insurance company cannot

charge late fees or interest to the farmer’s account for any outstanding premium due

for the crop the claim has been filed on.

I realize I am but one individual in a national program, but I again want to thank

you for the opportunity to address the subcommittee.

STATEMENT OF RODNEY ALLEBACH

Good Morning. My name is Rodney Allebach. I am a District Manager for Farmers Union Insurance covering Northwest Minnesota to South Central Minnesota.

I would like to address MPCI first. It is imperative that we continue to subsidize

MPCI at its current levels so that producers can continue to buy coverage at affordable levels.

Second, it would be beneficial to agents and producers to have the acreage reporting dates the same for MPCI as those dates for reporting to the FSA office. Currently MPCI acreage reporting is June 30, and FSA dates for acreage reporting is

July 15. This would help producers to first have the FSA acres to bring to the

agents so the acres correspond the same for FSA and MPCI.

Thirdly, producers should be allowed to add a crop at the CAT level at acreage

reporting time. Sales closing is March 15. At this date producer don’t know all the

crops they are going to plant, and in which county they might be planting. This

would enable the producer to at least have some coverage on the crop at the CAT

level.

Fourth, sugarbeets have 60 percent coverage in the first stage until July 1. Many

times producers have the majority of the production costs in the crop prior to July

1. A possible solution to this would be to have the coverage increase by 10 percent

weekly in the month of June to 70 percent, 80 percent, 90 percent, and 100 percent

by July 1.

Finally I would like to comment on the Farm Program. With all the disaster this

area has experienced it is imperative that Disaster Payments continue to be paid

to producers in counties that have been declared a disaster county.

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Thank you for allowing me to testify today.

STATEMENT OF GENE HUGOSON

Good morning. On behalf of Governor Tim Pawlenty and the people of Minnesota,

I want to thank Chairman Moran and Ranking Member Peterson for holding this

hearing in northwestern Minnesota. I also want to thank the committee members

for the opportunity to share my thoughts on how farm programs and crop insurance

coverage affect Minnesota’s farmers.

Agriculture is the lifeblood of rural Minnesota’s economy. When our agriculture

sector is strong, our rural economy thrives. According to economists, agriculture accounts for nearly 17 percent of the state’s total economic activity and generates jobs

for one of every three rural Minnesota workers.

Unfortunately, Minnesota’s agriculture sector has struggled with a number of

challenges in recent years. That is particularly true here in the northwest corner

of the state, where in addition to low commodity prices and rising production costs,

producers have battled weather extremes, devastating floods and crop disease.

Minnesota farmers have made their way through these challenges thanks to hard

work and perseverance. They’ve also benefited from some strong assistance from the

Federal Government and the state. Through July 24, 2003, Minnesota had received

nearly $27.6 million in Federal payments as a part of the 2001–02 crop disaster program. This aid has helped farmers deal with the economic repercussions of events

such as the flooding that occurred after numerous heavy rains in the summer of

2002. This flooding affected millions of acres of cropland and pasture land. Unfortunately, this pattern of excessive rainfall and flooding is an experience farmers have

had to face in this region for much of the last decade.

Considering the harsh blows Mother Nature has landed in this region, it should

be no surprise that many Minnesota farmers have chosen to participate in Federal

Crop Insurance Programs. According to information from the U.S. Department of

Agriculture’s Risk Management Agency (RMA), Minnesota producers in 2002 bought

a total of 127,563 crop insurance policies under USDA’s Federal Crop Insurance

Program. The policies covered a total of 16.3 million acres, including more than 85

percent of Minnesota’s corn acreage, 90 percent of the state’s soybean and wheat

acreage, and 99 percent of our sugarbeet acreage.

Despite the boost the Federal Crop Insurance Program has provided, there remain

challenges for producers who want to use these risk-management tools. Specifically,

there are concerns about how the program will address regions that suffer losses

in multiple years. Recurring disasters are bad enough, but the economic problems

can be exacerbated when insurance premiums rise out of the range of affordability

for farmers and coverage becomes harder and harder to find.

As this committee reviews crop insurance and commodity programs, I encourage

you to look for new ways to ensure the continued availability of affordable crop insurance in regions with disasters in multiple years. After all, farmers recovering

from a series of disasters need continued access to important risk-management tools

such as crop insurance. It should also be pointed out that an affordable Crop Insurance Program with adequate coverage and high participation rates could help reduce the need for emergency assistance payments in times of disaster. One option

may be to develop whole-farm policies to give producers options in addition to commodity-specific Crop Insurance Programs.

A second point I ask the committee to consider is to look for ways to expand the

reach of crop insurance and other risk-management tools. While producers of major

program crops generally have a solid set of risk-management options, the tool box

is much smaller for those who raise livestock or specialty crops.

To help fill this gap, the Minnesota Department of Agriculture has trained a team

of certified risk managers around the state. We work with these people to provide

education to farmers about how to identify and implement risk-management tools

that might work for them. This program is modeled after the Certified Financial

Planner (CFP) program. To date, we have trained 85 risk managers. Our goal is to

reach 100 in the coming months.

But there is more that we can and should do to help make risk-management tools

available to all farmers. To illustrate my point, let me use the example of dairy producers. The dairy industry ranks among the oldest and most important economic

sectors in Minnesota. A recent economic analysis showed Minnesota’s dairy industry

(including production and processing) generates $11 billion in economic activity. It

also supports 76,000 jobs—many in economically fragile rural communities. Unfortunately, Minnesota’s dairy sector is going through a financial crisis due to persistently low milk prices. I believe part of the solution to what ails our dairy sector is

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to provide farmers with new and more effective tools for smoothing out price fluctuations and managing their risk.

I am aware of some promising pilot programs in this area, particularly two programs called Adjusted Gross Revenue (AGR) and Adjusted Gross Revenue Lite

(AGR-Lite). These programs provide protection against revenue loss due to unavoidable natural disasters or market fluctuations for farmers who meet the eligibility

criteria. The programs are designed to provide coverage for highly diversified operations and livestock and dairy operations.

Whole-farm revenue insurance products such as AGR-Lite offer long-term benefits

that can help stimulate our region’s dairy industry. In addition, such products would

also help provide coverage for several of Minnesota’s uninsured and underinsured

specialty crops. For example, AGR and AGR-Lite may provide badly needed coverage to specialty enterprise farmers like those in this part of the State who produce

turf grass seed and now have only limited access to risk-management tools through

the Non-Insured Assistance Program (NAP).

There are currently no plans to make AGR and AGR-Lite available to farmers in

Minnesota and other non-pilot states until after an evaluation is completed in 2004.

However, earlier this summer, I submitted a request to RMA Administrator Ross

Davidson asking him to consider allowing these programs to be made available in

Minnesota for the 2004 crop year. Like the areas included in the pilot programs,

Minnesota has a highly diversified agriculture sector with many small and midsized livestock operations—many of which would stand to benefit under AGR and

AGR-Lite.

Aside from livestock producers, we face another challenge in delivering risk-management tools to growers of specialty crops. Minnesota producers an amazing array

of specialty crops, from peas to sweet corn to grass seed. There are currently limited

farm program tools available to farmers growing these crops. However, Congress did

provide support for these farmers in the form of the specialty crop block grants disbursed to states in 2002. These block grants delivered to farmers through states are

effective delivery vehicles because they allow each State to tailor the aid to fit its

unique circumstances.

In Minnesota, we used the specialty crops grant to fund 23 projects involving marketing, research and education. This included: • Developing markets for potato growers in the Red River Valley;

• Researching pest and disease prevention options for growers of sweet corn, peas

and snap beans; • Helping dry bean producers research an effective crop desiccant; and producers.

To get a better idea of how each State used its portion of the specialty crops

grants, I refer you to a report prepared for lawmakers by the National Association

of State Departments of Agriculture.

Block grants are not always an easy sell when budgets are tight. However, given

the flexibility of such aid packages, I would encourage members to consider this option in delivering future aid to specialty crops producers around the country.

Thank you again for coming to Minnesota and giving us all an opportunity to

share our thoughts on these important topics. I will be happy to respond to any

questions or comments you may have on the points raised in my testimony.

STATEMENT OF ROBERT RYNNING

Thank you Congressman Peterson, for this opportunity to appear and testify before the subcommittee regarding crop insurance issues. My name is Robert Rynning.

I operate with my brother a small grains farm near Kennedy, MN where we grow

barley, canola, wheat, soybeans’ I am also the president of the National Barley

Growers Association (NBGA).

First of all, I want to inform the subcommittee about promising trials being conducted by the Grain Inspection, Packers & Stockyards Administration (GIPSA) that,

if adopted, will improve how pre-harvest sprouting is determined in malting barley.

Pre-harvest sprouting is a serious quality concern for malting barley producers as

well as a significant problem with regard to crop insurance coverage due to different

evaluation methods used by the malt industry and the Risk Management Agency

(RMA).— Industry widely uses a pearling test to determine sprout damage. However, RMA determines sprout damage under the standards used by GIPSA, including visual inspection. Sprout damage that is not apparent under a visual test is

often found when the barley is pearled.

GIPSA, by law, must use uniform evaluation methods when grading grain, and

is working with the American Society of Brewing Chemists (ASBC) to conduct a

study that will collaboratively test the accuracy of various methods used to deterVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00110 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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mine sprout damage. As a result of this study, GIPSA may adopt a new quality factor—‘‘Injured by Sprout’’—that would join Sprout Damage in their grain standards.

The difference between the two would be that Injured by Sprout would be determined by a standardized pearling test and Sprout Damage would be determined

through the current visual inspection.

The NBGA supports these efforts and urges GIPSA to adopt these standards for

determining pre-harvest spout damage as soon as possible so that the RMA will be

able to provide more adequate protection to malting barley producers.

NBGA is also concerned about the disparities of coverage for malting barley producers with regard to Option A and Option B.

Under Option A, coverage is available only if the producer can document at least

4 years of malting barley production history—including years in which an approved

malting variety was grown but was sold for feed. The malting barley yield under

Option A is determined by taking total malting barley production for that four year

period divided by the total acres planted to a malting variety—even if production

on some of those acres did not make malting grade. This obviously reduces the level

of protection. In addition, coverage can be bought for no more than 125 percent of

the acreage that was certified for malting barley production in any crop year of the

previous four years. Finally, the additional price election is limited to $1.25 per

bushel. These requirements combine to limit the usefulness of Option A.

Option B coverage requires a contract with a brewery or malting company. The

amount of coverage available is the lesser of: (1) the APH yield times the percentage

of elected coverage, or; (2) bushels per acre contracted times the percentage of the

elected coverage. The additional price election is limited to $2.00 per bushel. While

Option B provides good coverage, not all producers have access to contracts from a

brewery. Left with only Option A for protection, producers are less inclined to grow

barley.

The NBGA supports modifying the requirements to obtain Option A coverage for

malting barley. Not all producers are able to obtain the contracts required by Option

B because their farms are too far from the available delivery points. However, they

do pay for the added expense that is required to produce malting barley, including

the cost of certified seed, soil testing to ensure proper nitrogen levels, and fungicide

applications to combat fusarium head blight, the cause of high Deoxynivalenol (DON

or vomitoxin) levels. Producers often produce malting barley that is contracted or

sold to local elevators, even when they do not have Option B coverage. Therefore,

the NBGA supports as an alternative within Option A, a procedure that would allow

a producer to validate expenditures to verify the intent to grow malting barley as

a means of obtaining adequate malting barley coverage when brewing or malt company contracts are not available.

NBGA is also concerned with the disparity between the maximum protein percentage allowed by RMA’s malting barley crop insurance quality tables and industry’s maximum allowed percentage. RMA tables currently allow 14 percent protein,

while in most instances; the maximum allowed by industry is 13.5 percent. NBGA

urges RMA to harmonize the maximum protein percentage allowed, as well as all

other quality factors, with industry standards for malting barley.

In closing, I want to thank you again for allowing me to testify before the subcommittee on these matters. Thank you.

STATEMENT OF DONALD ANDRINGA

As a West Polk County, MN farmer and purchaser of Crop I’s and RMA’s pilot

project of Premium Discount Program crop insurance I feel compelled to comment.

Although they may not say, the insurance industry is against Crop I and PDP

because it lowers their commission income, without much regard for the savings

that their farmer customers would receive; $1,000 in my case.

Crop I has been a very good company to work with to this point. On my policy

they spent a fair amount of time redoing mistakes made over the last 10 years by

my previous agent. This has raised some of my yields in some instances and given

me better coverage. A friend 100 miles away had many previous mistakes also, so

it’s not just my previous agent.

As a pilot project I know Crop I has been looked at quite closely by RMA. Hopefully it’s doing good from that perspective. Please continue to support Crop I and

others to lessen our cost. Thank you.

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REVIEW OF CROP INSURANCE FOR PROGRAM

CROPS

WEDNESDAY, SEPTEMBER 24, 2003

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The subcommittee met, pursuant to call, at 9:35 a.m., in room

1300, Longworth House Office Building, Hon. Jerry Moran (chairman of the subcommittee) presiding.

Present: Representatives Lucas, Rehberg, Burns, Musgrave,

Neugebauer, Goodlatte (ex officio), Peterson, Alexander, Pomeroy,

Boswell, Etheridge, Larsen, and Stenholm (ex officio).

Staff present: Kelli Ludlum, subcommittee staff director; Dave

Ebersole, Craig Jagger, Callista Gingrich, clerk; Teresa Thompson,

John Riley, and Anne Simmons.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. The Subcommittee on General Farm Commodities

and Risk Management will now come to order.

We are here today to review crop insurance for program crops

I am delighted to be joined by my colleague from Minnesota and

I appreciate the witnesses appearing before our subcommittee this

morning. I know it takes a lot of time to prepare and effort to be

here, but we very much appreciate and welcome the opportunity

here from producers as this subcommittee continues to review Crop

Insurance Programs.

Crop insurance, as we know, is an increasingly important risk

management tool for many farmers throughout the country. And

following the passage of the Agricultural Risk Protection act of

2000, insurance products were expanded, higher levels of coverage

were supported, and many substantial changes were made to this

program administered by the USDA through insurance companies

and local agents.

Crop insurance was particularly important in 2002 as producers

in many areas dealt with weather-related difficulties. Over $4.7 billion in insurance indemnities were paid out nationwide, and crop

losses in my State of Kansas alone were $1.4 billion.

Most of the challenges last year were drought related, and in

some regions drought conditions are even worse this year. In addition, producers have faced a variety of regional disasters over the

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past few years, including flooding, hail, and, most recently, wind

damage from Hurricane Isabel.

Due partially to 2 consecutive years of severe weather conditions

and partially to improvements that have been made to make the

program work better for a large number of producers, crop insurance participation coverage levels have risen substantially. During

this subcommittee’s three previous hearings related to crop insurance, two here in Washington and one field hearing in Minnesota,

we have heard that crop insurance is critical to farming operations,

whether they be in the wheat farms of North Dakota or the citrus

groves of Florida or the mid-Atlantic nurseries.

This committee, working with my predecessor Senator Pat Roberts, made dramatic changes to crop insurance just 3 years ago. We

are here today to examine how those changes have improved Crop

Insurance Programs throughout the country and to learn what

other changes could be made to continue the progress toward making crop insurance a better risk management tool for producers.

I think all in this room understand that enhancements to crop

insurance will be difficult to achieve. Improvements can certainly

be made but we recognize we are operating under tight fiscal constraints, so as we examine options to protect producers from natural disasters without ad hoc emergency spending, we will seek to

address issues that will make crop insurance more effective for

farmers and ranchers nationwide with the least possible expense to

the Federal Treasury.

After today’s hearing, we will hold additional hearings to focus

on how crop insurance serves farmers, both program crop producers and specialty crop growers, as well as livestock producers. They

will look at product availability, delivery of the program, and other

issues that may be discovered through the testimony of our witnesses here and during our future hearings.

I will again welcome our participants of the panel and look forward to their testimony and I would recognize the gentleman from

Minnesota.

OPENING STATEMENT OF HON. COLLIN PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and I want to thank

you for calling today’s hearing and setting up this series of hearings. I think it is important.

I am pleased to add that Chairman Moran and I and others,

Messrs. Larsen and Kennedy, had a hearing in my district in August in regard to crop insurance, and the issue of the impact of the

multiyear losses that we have had up in my part of the world and

in North Dakota, other places, were brought up; and I know that

many of our distinguished guests today will address this issue in

their testimony.

I would like to extend a special welcome to Mr. Bob Metz, not

to exclude the rest of you, but he is from my district and he is here

on behalf of the American Soybean Association. The seventh district of Minnesota is one of the largest soybean producing districts

in the country and we appreciate your being here today. We look

forward to your testimony and others, and it is clear that even

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though we have made tremendous progress in terms of the number

of bankers insured, we still have people asking for disaster. We had

a disaster program last year.

Now, I have signed a letter with my colleagues in Minnesota.

The Governor has asked to declare, I think, some 50-some counties

in Minnesota a disaster, under the ag disaster declaration, and the

Senators have introduced a bill, I think, to have an ad hoc disaster

program like we had last year or like we have had in the past. So

it is obvious that even though we have made some progress with

the crop insurance, we still haven’t been able to get past this hurdle of people asking for disaster relief when something happens,

and I think that makes a case that we have to improve this a little

bit more to try to get around that, and when we do have these disaster programs, I think we ought to have a little more penalty than

we have had for people who don’t have crop insurance.

Last year I think was only a 5 percent penalty, and folks got

used to somehow or another we are going to bail them out. And

during the farm bill debate, some of us talked about having a permanent disaster program as part of the farm bill, where the Secretary could go in and designate certain counties. That didn’t fly.

I still think if we are going to keep doing these ad hoc disasters,

it might be cheaper if we had that kind of a program as opposed

to what we have been doing.

But having said all that, I appreciate again your calling these

hearings and focusing on this, and hopefully we can figure out

some way to improve the program, especially in this multiyear loss

situation, so we won’t have so many calls for disasters in the future.

Thank you Mr. Chairman.

Mr. MORAN. Mr. Peterson, thank you.

You note that you have a Minnesotan present. I have two Kansans on the panel today. I think there are more Kansans in the Agriculture Committee room today since Congressman Roberts and

Congressman Glickman were members of this committee.

We have not exceeded our quota, and I will tell the associations

and producer groups that it is not necessary to bring a Kansan to

testify in front of this subcommittee. In fact, knowing the multiplier effect of the farmers’ desire and the State’s economic conditions at home, I would just assume our farmers were in Kansas

spending their money there rather than in our Nation’s Capital.

I am interested in what you have to say, but it is not necessary

that Kansans testify before this subcommittee.

Mr. Stenholm, we are delighted to have you here, the distinguished ranking member of the full committee.

Any opening comments?

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you Mr. Chairman. I am tempted, but

having been around long enough, I would not make the comment

that 1 Texan would equal 2 Kansans.

I would not say that and strike that from the record, Mr. Chairman, because I do recognize the title in front of your name, Mr.

Chairman. But I do have the privilege of welcoming Woody AnderVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00125 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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son, a VIP from the 17th district of Texas, also testifying today,

longtime friend and producer.

But I thank you, Mr. Chairman, for holding these hearings and

for the diligence in which you continue to do your part, you and

the ranking member, regarding the question of oversight of crop insurance and how we can take an extremely important program—

Federal crop insurance is a crucial tool that has become an essential tool for the management of risk for many in production agriculture.

The Agriculture Risk Protection Act of 2000 has been effective in

encouraging producers to purchase higher levels of coverage. While

this accomplishment is significant, we still hear, as Mr. Peterson

mentioned, we still hear from our constituents for ad hoc disaster

assistance, assistance that was supposed to have been made unnecessary by the additional taxpayer funds committed to the program

by ARPA.

Mr. Chairman, ARPA had also provided the Government with

new tools designed to improve the integrity of the Crop Insurance

Program. These include the use of FSA field office forces, innovative data mining technologies.

RMA has released figures quantifying the significant benefits in

the form of cost avoidance and claims recovery that have resulted

from the use of these tools. While the progress to date is commendable, greater employment of the available resources is vitally needed to crack down on program fraud and abuse all over the country.

Mr. Chairman, as the subcommittee continues its review of the

Crop Insurance Program, our Government’s fiscal situation continues to deteriorate. CBO projected last month that the deficit for fiscal year 2004 will be a record $480 billion. Now, that is already up

by a proposed $87 billion. As the review continues, we need to keep

in mind the likelihood that this committee will be called on to contribute to deficit reduction.

In addition to commenting on our current program, I know that

our witnesses today can help us with the important task of setting

priorities for the Crop Insurance Program as well as other programs that impact the budget. In plain English, we have got to figure out a way to take the available resources and do a better job

for our producers than the current program is accomplishing.

Thank you Mr. Chairman.

Mr. MORAN. Thank you, Mr. Stenholm, and we appreciate you

joining us this morning.

We welcome again our witnesses to the table. The first witness

we will hear from today is Mr. Woody Anderson, a Texas cotton

grower.

Mr. BOSWELL. Mr. Chairman?

Mr. MORAN. Yes, sir. Mr. Boswell, the gentleman from Iowa.

Mr. BOSWELL. I just have to point out, first, I associate myself

with other remarks by all of you, but Mr. Litterer is from Iowa. I

wouldn’t want you to miss out on that.

Mr. MORAN. Mr. Boswell, you are recognized for making comments about the gentleman from Iowa at the desk.

Mr. BOSWELL. Thank you very much, and I won’t borrow the

theme from Texas but it probably applies.

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Mr. MORAN. So nice of the members of the subcommittee to demonstrate great respect for the chairman in front of my two constituents present here this morning.

Again, I think now everyone has already been introduced in this

panel. Is there anyone who has not got a member here today?

Mr. MORAN. Mr. Anderson, let’s start with you.

STATEMENT OF WOODY ANDERSON, VICE CHAIRMAN,

NATIONAL COTTON COUNCIL, COLORADO CITY, TX

Mr. ANDERSON. Thank you Mr. Chairman. I am Woody Anderson, and I am a dryland cotton and grain producer from Colorado

City, TX. And as Congressman Stenholm alluded earlier, I am a

proud constituent of the 17th district Representative. I am here

today representing the National Cotton Council and currently serve

as its vice chairman.

Mr. Chairman, as an aside—and you and I have already talked

about this—we are indeed pleased to welcome Kansas as the newest Cotton Belt State, with 125,000 acres planted to cotton this

year, and we know that most of that is located in your ‘‘Big First’’

district.

Thank you, Mr. Chairman, for holding this hearing on the implementation of the Agriculture Risk Protection Act of 2000. The

House Agriculture Committee worked diligently to craft this complex piece of legislation. The National Cotton Council strongly supported its passage and is pleased to offer its comments regarding

its implementation.

I have been farming for over 29 years and consider crop insurance as important as any other production input. West Texas producers are particularly vulnerable to Mother Nature, but all cotton

producers need a crop insurance product that provides effective

coverage at affordable prices.

One of the main attributes of ARPA was to make higher levels

of coverage more affordable. This year, 97 percent of the U.S. Cotton crop has some form of crop insurance coverage and buy-up coverage has increased significantly, largely due to ARPA.

Accurately rating coverage is critical to an affordable insurance

product. USDA’s Risk Management Agency should continually look

for ways to move toward individual experience rating. RMA should

develop a program that rewards good loss experience through lower

premiums and/or higher levels of coverage.

Four years ago, at the urging of the cotton industry and with

support from Congress, RMA commissioned and implemented a

major rate review in a number of Cotton Belt regions. Adjustments

were made to the county figures and rates, which improved the

coverage available to producers. RMA should continue to evaluate

and improve its rating methodology. Private companies and RMA

should continue to develop innovative types of coverage to reflect

regional needs.

We suggest that more emphasis be placed on the development

and delivery of group risk protection as a viable alternative to CAT

coverage. For example, some regions of the country believe that the

additional subsidized health coverage to GRP would produce a specific coverage, as well as more meaningful catastrophic loss protection than the current CAT coverage.

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NCC has consistently supported the development of another

product, a cost of production insurance product. We have been disappointed by the slow development of this product by RMA. We

recommend that the pilot be conducted on a wide geographic basis

for the 2004 crop so it can accurately be evaluated.

Current multiyear droughts are seriously impacting water supplies available to producers in Federal and State water districts in

the irrigated West, so there is a need for continued preventive

planning coverage. We urge RMA to provide timely guidance to

agents, producers, and water districts about the availability of preventive planning coverage.

Crop insurance fraud and abuse adds cost to the Government

and insurance companies and reduced effective coverage to all producers. We strongly urge support and the provision of ARPA that

calls for additional monitoring and enforcement of good farming

practices.

It is our understanding that RMA possesses new methodology to

better track and differentiate losses. We urge them to fully utilize

the new tools at their disposal to reduce fraud and abuse.

In addition, we urge maintaining a close working relationship between RMA and the Farm Service Agency. It is also critical that

the two agencies continue to use the common database for sharing

information.

A new quality adjustment provision for cotton has been under development by RMA for a number of years. We understand that the

research has been completed and urge RMA to implement a credible cotton quality loss provision on a bale-by-bale basis without a

reasonable threshold of loss.

We also do not believe that the quality should be treated as a

separate rider to a standard policy at an additional premium. We

remain concerned about RMA’s inconsistent policy regarding late

planning periods, following final planning dates. Currently, the late

planting period for cotton is 15 days, but it is been as long as 25

days.

Our concern stems mainly from the inconsistent implementation

regarding appraisals when crops fail to emerge due to insufficient

soil moisture. It is our understanding that a producer must now

wait an additional 8 days after the end of the late planting period

before appraisals can be scheduled, and we have yet not received

a clear explanation for the implementation of this new policy.

We urge the Agency to amend its current practice and return to

allowing appraisals on non-emerged cotton acreage no later than 15

days after the final planting date.

In summary, Mr. Chairman, the National Cotton Council supports a crop insurance product that provides effective coverage at

an affordable price. We urge that this subcommittee continue its

oversight of the implementation of ARPA to ensure a meaningful

risk management tool for producers. On behalf of the Council we

appreciate this opportunity to present these comments.

Thank you.

[The prepared statement of Mr. Anderson appears at the conclusion of the hearing.]

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Mr. MORAN. Mr. Anderson, thank you. Next I recognize Mr. Leo

Bindel, who is the past president of the National Grain Sorghum

Producers Association.

Mr. Bindel.

STATEMENT OF LEO BINDEL, PRODUCER, SABETHA, KS, ON

BEHALF OF THE NATIONAL GRAIN SORGHUM PRODUCERS

ASSOCIATION

Mr. BINDEL. We would like to thank the chairman and members

of the subcommittee for calling this important hearing today.

My name is Leo Bindel and I am the immediate past president

of the National Grain Sorghum Producers. I farm in a family partnership near Sabetha, KS, between Kansas City and Lincoln, NE.

Our operation includes grain sorghum, corn, soybeans and hay. I

have carried crop insurance on my farm since 1961. Our recommendations to you today are focused on specific needs of grain

sorghum producers, and we appreciate your consideration of our

input.

NGSP understands the complexity of this program, a difficult

task that is before you. We are grateful that we are invited here

to testify because we believe that grain sorghum is a risk management deal. This is because of sorghum’s ability to survive dry and

arid conditions better than any other crop. But sorghum’s crop insurance track record doesn’t always tell that story. Sorghum is a

tough crop, planted where other crops fail because of hail or

drought or on less productive acres.

Our concern today falls in two main areas: First, a level crop insurance playing field is needed so that crop insurance will stop distorting planting decisions. Some changes can be made by RMA administratively, but we also urge you to keep a level playing field

in mind as you look to future legislation.

Our other concerns that we will discuss are based on crop insurance questionnaires that we recently sent to our leadership and entire membership. NGSB believes prior selection for grain sorghum

should be equalized with corn. Price selection should better reflect

actual sorghum prices that are equal with corn today. This will

help in planting decisions that are based on crop insurance. This

change will also reflect the final mental shift in markets and cash

prices due to ethanol and other needs.

Finally, it will recognize sorghum’s water saving benefits. Ethanol plants and other end-users price sorghum equally with corn because it performs the same as corn, but today sorghum price selections are well below those for corn, causing a drop in sorghum

makers. This is true even during years when sorghum planning

has increased because of limited moisture. We haven’t seen even a

dramatic increase in planted acres this year since the sorghum

loan rate was equalized with the corn loan rate in the 2002 farm

bill.

Something else that should have encouraged farmers to plant

sorghum is a 57 percent jump in the high-value food and ethanol

markets for sorghum from 2000, 2003. This is, by the way, what

also led to higher cash prices for sorghum.

NGSB believes that crop insurance inequities discourage these

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pany that manages about a million acres in the Midwest this year

advised its renters not to plant sorghum because of the lower crop

insurance protection and admitted it in a letter to one of our State

organization. Here is an excerpt, and I quote:

Like many producers, we have simply reduced the acreage planted to grain sorghum, and even though it may make sense from an agronomic standpoint due to

the drought to plant more acres of sorghum, it simply will not be done with our operations because of crop insurance.

But these price selections and inequities also mean more Government payouts and higher risks when droughts hit. Things like this

encourage farmers to plant corn or soybeans rather than sorghum.

Even USDA’s own data runs contrary to continued inequities in

price elections. Average over the last 3 years, the price of grain sorghum was higher than that for corn. That is according to the

USDA’s Crop Values Report released in late February.

In its monthly Feed Outlook Report in August, USDA said by the

end of the marketing year prices received by farmers for sorghum

will edge out the price of corn by 3 cents. USDA also says that the

price of sorghum next year will be even with corn.

I should mention that NGSB has been told that some lenders are

being asked to document crop insurance cash assurances to bank

examiners as part of documented loan soundness, so many—so

lenders are making planting decisions for their borrowers and are

requiring their borrowers to plant some other crop besides sorghum.

Business is business, and NGSB understands the position that

lenders and examiners are in given the current farm economy. As

if the price selection issues aren’t bad enough, sorghum producers

have no excess to revenue assurance product and many of our

members tell us that they would like many other products available like for other crops. Additionally sorghum has not been included in the cost of production pilot projects. Finally, for 6 years,

NGSB has been working toward insurance coverage for sorghum silage, but today sorghum silage is not insurable and we have been

told by RMA that it is not insurable until 2005.

NGSB currently surveyed its membership regarding insurance

equalizing price selection, with corn topping its list of concerns, but

APH yield guarantees and high cost of premiums followed closely.

Throughout much of the U.S. Sorghum Belt, multiple-year

droughts on the Plains have destroyed guaranteed yields for crop

insurance purposes, unfortunately making the program ineffective.

Due to the continued threat of drought, we are concerned that in

the face of disaster, farmers are not adequately protected. We urge

the subcommittee to consider change in the way APH is calculated.

NGSB suggests this subcommittee order it, a study of different

ways to address either APH or premiums in counties that have

been declared disaster areas in multiple years.

We would like to thank this subcommittee for convening this

hearing today and would be happy to provide any further input or

information at any time.

Thank you.

[The prepared statement of Mr. Bindel appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Bindel, thank you very much.

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Mr. Ron Litterer on behalf of the National Corn Growers Association.

STATEMENT OF RON LITTERER, CHAIRMAN, PUBLIC POLICY

ACTION TEAM, NATIONAL CORN GROWERS ASSOCIATION,

GREENE, IA

Mr. LITTERER. Mr. Chairman, members of the committee, I appreciate the opportunity to appear before you this morning on behalf of the National Corn Growers Association. I am a corn, soybean, and hog producer from Greene, Iowa. I currently serve as

chairman of NCGA’s Public Policy Action team and as a member

of the Board of Directors of the Iowa Corn Growers Association.

The difficult circumstances that corn growers have faced in recent years have demonstrated the need for further improving the

farm safety net. In our view, Congress took a major step forward

with the adoption of ARPA in 2000. The commitment of resources

to higher levels of premium subsidies has not only resulted in significant increases in participation and the percentage of acreage

covered, but it has facilitated a dramatic shift toward higher levels

of coverage.

Our growers recognize the upward trends as real progress. U.S. producers received over $4 billion in lost payments just for the

2002 crop year while receiving $1.7 billion in premium subsidies. In 2001, the Federal Crop Insurance Program paid out almost $3

billion in indemnity payments. Compare these sums with the Crop

Disaster Program of $3.1 billion for the last 2 years and you can

understand why the program is so critical to American farmers.

This is not to say that our members are content with the status

quo. NCGA is looking for reasonable changes in the program’s regulations, including those that govern preventive planting provisions, quality and loss adjustments more accurately tied to real

market value, improved coverage of center-pivot dryland corners

that allow same row direction while keeping separate units for irrigated and dryland acres, and ratings of buy-up coverage that better

reflect trend yield growth and determine policy guarantees.

We are encouraged though by the Risk Management Agency’s ongoing outreach to seek input from growers on these important

issues.

For NCGA, the subsidy structure of the Federal Crop Insurance

Program should encourage producers to insure to avoid devastating

losses, but it must not artificially stipulate production. To say the

least, this requires a real balancing act to reach an optimal level

of financial incentives, actuarially sound policies, and minimize

fraud and abuse.

Briefly, I would like to summarize some of NCGA’s key areas of

concern. There is no question that the new farm bill provides a

much more reliable protection against depressed commodity prices,

but we have to recognize crop insurance participants who experience shallow but significant losses in back-to-back years can find

themselves in no man’s land. If they have lost, for example, 25 percent of the crop, they most likely cannot file a claim nor can they

qualify under today’s Crop Insurance Program, Crop Disaster Program. Two or 3 years of these kinds of losses can seriously impact

net farm income and erode producers’ equity.

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While NCGA recognizes that repetitive losses can adversely impact a grower’s average production history, the APH, and consequently the value of indemnity payments, we urge the committee

and RMA to consider innovative alternatives beyond artificial APH

adjustments. We feel that this kind of approach invites ill-advised

planting decisions and unintended consequences of higher premiums for producers where the incidence of repetitive crop losses

has a much lower probability.

NCGA is very concerned in failing to address the erosion of indemnity benefits, sustaining the increase in program participation

and reducing the need for ad hoc disaster aid will become increasingly difficult. We suggest one potential solution will be to develop

a supplemental insurance product that covers the producer’s deductible when 2 years of consecutive losses exceed a predetermined

percentage of average production.

In addition, we believe wider availability of group risk protection,

now limited to five States, will provide producers the option of

more affordable protection against widespread area losses. NCGA

intends to survey corn growers on these and other risk management proposals later this fall.

Short of creating a supplemental insurance product, NCGA supports reforms to traditional crop disaster aid. Last year, NCGA’s

Disaster Assistance Task Force went to work in developing a proposal that would deliver financial aid in more equitable and effective ways, plus encourage participation in the Crop Insurance Program. The task force first recognized that crop insurance reforms

approved 3 years ago are now part of the very different farm safety

net.

Second, NCGA observed that traditional disaster aid bills have

targeted disproportionate payments to growers with insurable large

yield losses, but growers could still lose up to 35 percent of their

expected crop and sustained substantial financial losses. The companion Disaster Assistance Program Act, introduced by Representative Graves, would complement the Federal Crop Insurance Program by covering a portion of the uninsurable deductible rather

than duplicating insurance coverage.

Disaster payments could be better targeted and delivered sooner

because most growers who collect indemnity payments on their insurance policies would be eligible to collect disaster payments.

Mr. Chairman, I would like to comment on two other immediate

concerns to the NCGA.

First is the administration’s proposal to reduce funding for the

administrative and operating expenses reimbursement to the insurance companies. While we believe there is improvements in services that can be made by the industry, we have questions regarding

any funding changes that could potentially undermine those services and financial incentives for companies to continue service in

the Federal Crop Insurance Program. NCGA urges Congress and

RMA to proceed with caution on these complex matters.

Second, NCGA wishes to express opposition to the language in

the fiscal year 2004 Senate agriculture appropriations bill that restricts the use of funds under the AMA program. The language

jeopardizes the ability of growers in States such as New York,

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Pennsylvania, and Maryland to receive an additional subsidy to

purchase higher levels of crop insurance coverage.

Participation in the Crop Insurance Program in the 15 underscored States increased by more than 25 percent in direct response

to the additional subsidy.

Last year’s action by Secretary Veneman to allocate for this purpose is an excellent example of how taxpayer dollars can be better

spent to provide a more predictable farm safety net.

Finally, Mr. Chairman, I want to thank you and members of the

committee for holding this hearing on the program that offers tremendous benefit to corn growers throughout the country. We appreciate your support and your continued efforts to further improve

upon its successes.

Thank you.

[The prepared statement of Mr. Litterer appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Litterer, thank you very much.

Mr. Metz on behalf of the American Soybean Association.

STATEMENT OF BOB METZ, PRODUCER, BROWNS VALLEY, MN,

ON BEHALF OF THE AMERICAN SOYBEAN ASSOCIATION

Mr. METZ. Thank you, Chairman Moran, and members of the

subcommittee for holding this hearing today. I appreciate the opportunity to testify on behalf of the American Soybean Association.

My name is Bob Metz. My wife Karen and I are fifth generation

farmers in northeast South Dakota. We have been involved in production agriculture for the past 28 years.

Our family farm has 2,700 tillable acres consisting of hard red

spring wheat, corn, and soybeans. We have purchased crop insurance for approximately the last 20 years. Each year we sit down

with our agent and decide the appropriate level and coverage and

type of coverage. We normally would purchase an RA, CRC, and

MPCI at the 70 to 75 percent level. Crop insurance has given our

family and our lender the peace of mind that we can survive a crop

failure and still meet our financial obligations.

Overall, soybean producers in most regions are generally satisfied with the Crop Insurance Program. A recent study completed

by the United soybean Board found, however, many soybean farmers don’t feel very knowledgeable about crop insurance. USB’s recent study showed these findings.

There continue to be disparities in crop insurance participation

among soybean farmers based on the region, farm size and age of

producer. Generally, producers in the Midwest and Plains States

are more likely to buy crop insurance, and those in the South less

likely. Younger farmers are more likely to participate in this program, as are those with larger farms.

Soybean farmers are not well informed. Those that feel the best

informed about the programs are those who buy it and those with

larger farms and those with 250 acres of soybean production. The

reason soybean production buy insurance is primarily to protect

against crop failure, because their lenders require it, or to qualify

for future disaster payments. Those soybean farmers who didn’t

buy it said they didn’t need it and can self-insure, they cost too

much, or they don’t know enough about it.

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Finally, when asked what their source of information is about

crop insurance, the soybean farmers in the study reported 47 percent received theirs from their insurance agent or company, 18 percent from periodicals, 14 percent from the Federal Government and

2 percent from the Internet.

The committee should be aware that the opinions about the success of the Crop Insurance Program remain sharply divided in our

organization. Some producers, particularly in the South, still feel

as though the crop insurance rates are inequitable and too high,

and although many farmers feel that their agents provide them

with adequate information, the study I cited earlier shows that

they still do not feel they know enough about this program.

Clearly, more work remains to be done, especially to resolve regional differences that color the way many farmers feel about buying crop insurance. A handful of issues come up again and again

when talking about crop insurance. Multiple years of disaster tops

this list. It seems that consecutive years of losses, 3 or more, plus

weather create the single biggest problem with crop insurance. The

low or zero yield result in multiple yields of losses for a farmer’s

APH to drop so far that he is unable to buy adequate insurance

when he really needs it the most. I know this is a problem of which

the committee is well aware of and which it has tried to address

in the last crop insurance legislation.

Unfortunately, the fix where farmers are allowed to substitute 60

percent of the T-yield for those loss years doesn’t go far enough to

solve this problem. There is no good answer to the question of multiple years of loss. As farmers we look for flexibility in the program

to remedy every problem.

We are also concerned about exposing the program to abuse.

Fraud costs us all money. One solution farmers often talk about is

a 10-year APA system which allows a farmer to eliminate his best

and worst year. On my farm in, for example, the 10-year APA system means that I can finally get rid of my low APH from the flooding of 1993. We found that many times the best year out of 10 isn’t

that much better than average, but the worst year is really low and

a terrible drag to the average.

Prevented planting is another perennial problem, especially in

my home region of the northern Plains. I am aware that RMA is

working on changes to prevented planting provisions and we appreciate those efforts.

One problem I can point to specifically is the requirement that

20 percent of a field or 20 acres be prevented from planting to qualify. That requirement is high enough to cause significant financial

loss for a farmer who can’t plant perhaps 15 percent of a field, and

causes farmers to do things they wouldn’t otherwise do just to

make a field eligible for crop insurance. While requiring a minimum loss is a good idea, a lower threshold would make better

sense, perhaps 5 acres or 5 percent.

The current policy forces farmers to plant in a wet area. A smaller requirement means that farmers who are prevented from planting a significant part of their field will be eligible.

Finally, let me thank the committee and Congress for the ad hoc

disaster payments of recent years. I think we have all learned that

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agement tool, there are instances where crop insurance alone isn’t

enough.

Tying disaster payments to a grower buying crop insurance in

the future is a good idea. However, the stipulation in last year’s

legislation that the combined value of disaster payment, crop insurance indemnity, and market value of the crop not exceed 95 percent of the crop’s value turned out to be a real disincentive for

those who bought the highest crop insurance coverage and spent

the money to do so. Any such efforts to limit payments in the future must be structured so that those who try to cover their own

risk be winners and not losers.

In preparing for this meeting I talked with a number of farmers

and bankers in my area and surrounding States. The consensus

was that a lot of farmers are still farming that wouldn’t be without

crop insurance. While you are not going to get rich on crop insurance, it will keep you on the farm is the commonly heard refrain.

In my family, my son is just finishing his second year of farming.

Without crop insurance he wouldn’t be able to get the loans to stay

in business. That is how important this program has become.

On behalf of the American Soybean Association, I thank the committee for improvements in the program in recent years and the

continued attention you are giving to it. Crop insurance works far

better than it used to, and our members look forward to working

with the committee and RMA on more improvements in the future.

[The prepared statement of Mr. Metz appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Metz, thank you very much. Our next witness

is Mr. John Thaemert on behalf of the National Association of

Wheat Growers.

John, before you commence your testimony on behalf of the agriculture community in Washington, DC, I want to express my condolences to the National Association of Wheat Growers in the loss

of your past president’s wife in a car accident last week. She is a

Colorado resident, a resident of Ms. Musgrave’s district, and we express our sympathies to you and the National Association of Wheat

Growers.

STATEMENT OF JOHN THAEMERT, CHAIRMAN, DOMESTIC

POLICY COMMITTEE, NATIONAL ASSOCIATION OF WHEAT

GROWERS, SYLAN GROVE, KS

Mr. THAEMERT. Thank you, Mr. Chairman.

My name is John Thaemert. I am a wheat producer from Sylvan

Grove, KS, currently serving as chairman of the Domestic Policy

Committee of the National Association of Wheat Growers, as well

as president of the Kansas Association of Wheat Growers.

Mr. Chairman, I am pleased to have this opportunity to offer our

thoughts on crop reform. We applaud Chairman Moran and the

subcommittee for their efforts to provide effective and affordable insurance for farmers. Crop insurance needs reform, a fact made evident by the need for disaster legislation last year.

The passage of the Agriculture Risk Protection Act was a major

improvement in crop insurance, and our proposals today build on

ARPA’s reforms. Nevertheless, the cost of higher levels of coverage

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affected farmers has lead NAWG to list crop insurance reform as

one of our top priorities.

We understand clearly the current budget environment. Our proposals tend to be cost effective, especially compared to disaster

funding.

NAWG has four primary goals for crop insurance reform. They

are in order of priority as follows:

No. 1, more affordable coverage at higher levels.

No. 2, prevent or slow declining APH due to consecutive disasters.

No. 3, establish farm savings accounts which become available in

the event of disaster.

No. 4, establish a minimum loss standard.

I will discuss each of these in turn, beginning with coverage levels. The higher levels of coverage currently available are not affordable. The most cost-effective coverage for producers is either 65

percent MPCI or 70 percent CRC. Therefore, these are the levels

most farmers purchase. Consequently, most farmers face a 30- to

35-percent deductible in the event of disaster.

The 5-year average net return to operate labor management for

wheat farms in the North Central Kansas Farm Management Association data base is about 18.9 percent. At 70 percent CRC, a farmer loses roughly 11⁄2 years of income before any claim is paid. An

85 percent coverage would cover some of this gap. However, higher

coverage might be affordable. To raise my farm’s coverage to 85

percent from 70 percent for 2003 would have cost $1 of premium

for each $2.45 of additional coverage. The availability of higher coverage is of little use and a farmer cannot afford the premium.

Therefore, in order to help producers reach higher coverage levels,

the cost of higher coverage must be reduced.

As for actual production history, the Nation’s wheat growers

know all too well the effects of prolonged drought. Until this year,

much of the Nation’s Wheat Belt suffered from 2 to 6 years of

drought. Even though my home State of Kansas produced a good

wheat crop this year, there were still dry areas within our member

States which were now in their seventh consecutive year of

drought. Each year of crop failure reduces the farmer’s APH, eroding the crop insurance safety net.

The minimum yield plug is an effective tool. However, the current 60 percent plug is too low. We suggest the level of coverage

purchased by the producer as an appropriate yield plug factor. Another factor to consider is that a T-yield, based on a short time

frame is impacted more drastically by consecutive disasters. It is

my understanding the current T-yield plus is based on a NASS 10-

year historical data per county. If the T-yield were based on a

longer time frame, the effect of consecutive disasters would be

minimized. Therefore, a more stable yield plug floor would help

farmers through consecutive disasters.

As for farm savings accounts, NAWG and other farm organizations have supported the creation of these accounts in previous

farm bills. Tax-deductible contributions with taxable distributions

would be fundamental principles to these accounts. A USDA match

as well as tax deferred growth would provide incentive for our account establishment. Therefore, disaster reserve accounts, held in

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local financial institutions, would provide stability to farm income

and security to rural communities.

Finally, minimum loss standard. The deduction of a salvage yield

from a disaster-affected field or crop obviously reduces crop insurance coverage. Currently a farmer with an APH of 40 bushels per

acre and 70 percent coverage assumes a 28 bushel per acre guarantee. A custom harvest cost for wheat in Kansas is around $14 an

acre. At this cost and a $3 per bushel price, a farmer with an appraised salvage yield of 4 bushel per acre couldn’t economically justify harvesting the remaining crop. This effectively drops coverage

to 24 bushel per acre, or a 60 percent guarantee instead of 70 percent.

Therefore, when the cost of harvesting a loss-affected field exceeds the appraised salvage value, that field or insured unit should

be assigned an appraisal of zero.

In conclusion, Mr. Chairman and members of this subcommittee,

we thank you for this opportunity to testify and we look forward

to working with you on this effort. I will be happy to respond to

any questions you may have, and I pledge NAWG’s assistance to

you in developing, refining, and implementing a more effective risk

management product.

[The prepared statement of Mr. Thaemert appears at the conclusion of the hearing.]

Mr. MORAN. Thank you very much, Mr. Thaemert.

There has been a theme today somewhat, as well as our subcommittee’s hearing in Minnesota, about multiyear disasters; and

we have heard a variety of suggestions for improving crop insurance to address the problems created in multiyear disaster circumstances: the plug, a higher percentage, omit a year. Ten-year

we heard about today.

Let me ask a broader question—and my follow-up is does anybody want to tell me how we fix the multiyear disaster problem—

but a broader question is: Can it be fixed, or is this an example

of where disaster assistance, disaster ad hoc assistance is required—let me ask the question this way. In kind of a broad philosophical way, are we ever going to be able to get away from ad hoc

disaster assistance? Can crop insurance policy be created that satisfies the needs of producers across the country, or do we just say

that when we try to put money into crop insurance? We tell our

colleagues in Congress that this will solve the problem and we’ll

not back asking for ad hoc disaster, and, in reality, that is unrealistic?

Mr. ANDERSON. Everybody looking at the cotton guy, Mr. Chairman. If you will allow me, I will take a stab at that.

We have looked at that issue for the last 2 or 3 years, and in

particular there is a county about 60 miles west of me. A lot of us

in west Texas over the last 7 or 8 years have had multiple losses

in all crops and short of affecting actuarials of the insurance business, I don’t see how you are going to be able to get there when

you really look at the loss history. We looked at 20 years’ worth

of data and 30 years’ worth of data. And, yes, both of those lessen

the impact of those multiple loss years, but all of those—and the

end result would have an impact on the budget for the whole program. And in these tough budget times, short of having some addiVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00137 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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tional funds to take care of that, I am not sure how you would get

there.

Mr. LITTERER. Mr. Chairman, the National Corn Growers Association has spent time studying this as well, and one of the things

we need is a more predictable plan in place to protect producers

when they have multiple-year losses. We think there can be improvements made. We think producers can probably stand to lose

a deductible for 1 year, but when you go 2, 3, 4 years, then it becomes a real drain on their equity.

We are looking at a proposal that would allow producers to buy

up coverage for that deductible, but wouldn’t be triggered until we

get into the second consecutive year of losses. So we believe a plan

can be devised, and we are working on it. Will it ever eliminate all

ad hoc disaster, the political ramifications? I don’t know that I can

say that. There are always pressures, you are well-aware of that,

but we think this can go a long way in providing a more predictable level of coverage for producers.

Mr. MORAN. I was very interested in your testimony in that regard. And how far along are the corn growers in developing a proposal? As I understand it, you’ve got an additional insurance provision.

Mr. LITTERER. Yes.

Mr. MORAN. That comes into play, what, you’ve got a multiyear

disaster that helps cover the uninsured loss?

Mr. LITTERER. Yes. We are exploring that and we haven’t got the

details worked out. We have some preliminary plans in place that

we are studying and we are hopeful by this fall and winter we can

have a real firm proposal in mind.

Mr. MORAN. Thank you very much.

Mr. Metz.

Mr. METZ. Yes, thank you, Chairman.

One discussion item that has been around in the American Soybean Association, as you know, different areas has suffered multiple years, would be the possibility of freezing your APH if your

county was declared by the Federal Government as a Federal disaster area. I think this would stop the fraud of someone planting

for crop insurance, but yet allowing that APH to remain frozen

when the Government did declare that you were in a disaster area.

Mr. THAEMERT. Mr. Chairman, in my written testimony I submitted a possibility for an APH factor adjustment. The unfortunate

thing about a plus or a T-yield plug, a good farmer gets the same

plug as a poor farmer, and we would propose some type of basis

adjustment that takes into consideration a deviation of APH, both

above and below county average.

Also we think that the T-yield plug is an effective way to counter

this. I think a T-yield plug for a longer time period would help, and

a farm savings account that would be triggered by a crop disaster

would help also.

And I agree with Mr. Litterer. I don’t know how you can ever say

that a crop insurance—total reform of crop insurance could ever

really replace ad hoc disaster assistance. I don’t know how great

the disasters would be in the future, and we don’t know how broad

an impact it could have on a national scale, but I know the wheat

producers have suffered dramatically successive years of drought.

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I know I have talked to one of my Idaho buddies yesterday. He is

on his seventh year of drought, and I can remember my grandfather telling stories of leaving Lincoln County, KS to go to Idaho

because he was tired of the successive droughts in Kansas. So

every territory, every region, will face this from one trial to the

next, so it is something that we have to consider.

Mr. MORAN. My time has expired, but I will come back with several other questions after members have had an opportunity to

question the witnesses.

Mr. PETERSON. Thank you Mr. Chairman.

I am not sure if this is politically feasible, but if we could find

a program and have the money where we could have an ad hoc program as part of the farm bill, it would be structured something

like—the Secretary, if you are declared a disaster county, the Secretary could also have benefits like FEMA does under the other

disaster program. If we could find the money to do that, would you

support such an idea?

Mr. LITTERER. Mr. Peterson, I would respond by saying the National Corn Growers, as I gave in my testimony based upon a more

predictable scenario that would be in place, so the timing issue of

getting payments out to farmers would be more predictable, but not

duplicating the current crop insurance.

Mr. PETERSON. No, this would be added on, what I would be envisioning some addition of crop insurance.

Mr. LITTERER. So I guess the answer to your question is we

would, as long as it met the parameters of not duplicating crop insurance and provided coverage for parts of the deductible.

Mr. BINDEL. I think the National Grain Sorghum Producers

would be very much in favor of this, again, as long as it didn’t distort people that not being—wouldn’t then maybe try to buy crop insurance. As long as you left that in there, that they had to buy the

crop——

Mr. PETERSON. Well, I think that would be part of the deal. You

would have to have crop insurance in order to qualify. That is what

I would prefer. But, Mr. Anderson, do you have any ideas?

Mr. ANDERSON. Yes, I would comment on that. In the old days,

back when we had the ad hoc disaster at ASCI or FSA, you had

better controls in compliance, you had more on-the-ground eyes

with other producers there that made that program work a little

more efficiently than what we are seeing today.

I think that would complement what we are seeing in policies

now. It would need to be as a complementary program for the individual loss issues that you still have out there, so the whole county

didn’t have to have a disaster to trigger any kind of a program payment. But I think we would be in full support of looking at an ad

hoc disaster program permanently in the farm bill.

Mr. METZ. Mr. Peterson, I would agree. I think it should be a

supplement to crop insurance, though. I think that has been part

of the problem. It is been a separate program. And then the farmers out there that have sent the money there over the years to buy

crop insurance are always penalized when these programs come

along. So I believe if your county were declared a disaster area, it

would be to supplement that, this possibly 70 percent that you

have already bought in crop insurance, to help with that extra.

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Mr. PETERSON. I guess, Mr. Litterer, in your testimony you indicated that you were concerned about changing the plug because

you thought people might overproduce?

I don’t know what it is like in your area, but I don’t think that

would happen in my area, given what has happened up there,

but——

Mr. LITTERER. Well, it does cost a lot of money to fix the plug,

and I think it does—maybe with grain sorghum in Kansas might

be an example, where people might be planting corn instead of

grain sorghum. So we are saying there is an alternative to the

plug, and that would be to look at all tentative coverage.

Mr. PETERSON. How would that work? Would they actually buy

a policy?

Mr. LITTERER. Yes. We are proposing an add-on policy that would

cover the deductible in a second consecutive year of loss.

Mr. PETERSON. Well, it seems to me that if you are going to make

this affordable, it is going to cost quite a bit of money to do that,

too.

Mr. LITTERER. Well, it depends on how you set the trigger; I

mean, if you set it by farm, it could cost more. If you set it by county trigger, like a group trigger, it could lower the cost.

Mr. PETERSON. But going back to what I talked about earlier, if

we could design something in that area right, we wouldn’t have to

be trying to do these other things like fixing the plug and so forth.

We would have a mechanism in place to take care of that and it

would solve—might be better to spend the money that way than to

try to jury-rig the system to make this work.

I guess I would encourage all of you to, since you have said you

were interested in this, trying to get together and work on this,

maybe work with us and see if we can come up with something,

see what it costs, see if it is feasible. And I think the more I look

at this, I am not sure that wouldn’t be a better way to try to solve

this than some of the other things I have looked at.

Thank you, Mr. Chairman.

Mr. THAEMERT. Mr. Peterson, I think the idea of a FEMA-type

plug or ongoing ad hoc FEMA-type program has tremendous merit.

One thing, it has to be predictable. It can’t vary from time to time,

and that is one thing that really frustrates lenders and producers

when they have something that oh, well, this year, it is different

than last year, or this program is different from what it was previously. So I do think that has a lot of merit and I think that is

something we will look into.

Mr. LITTERER. Mr. Peterson, could I make one other comment?

Some of our producers do have some concerns with crop insurance; and that is, if you make the guarantee, the risk, so low that

you will drive profitability out of agriculture, and that some of the

producers don’t want the guarantee to be high, because it will increase cash rents and land values, so we need to keep some risk

to producers out there, so it is a real balancing act.

Mr. PETERSON. I agree with that, but I have got an area where

they’ve lost seven crops out of eight, and 100 years before that,

they didn’t lose anything, and you can get into these cycles and it

is not your fault. We got to come out of this. This year we had a

drought. We had floods before, and so forth.

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So I guess that is why I think maybe we might be better off looking at trying to have some, like you say, predictable ad hoc thing

in place where we could supplement. But thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Peterson.

Mr. Stenholm.

Mr. STENHOLM. Mr. Metz, I believe you said the difficulty of

treating a good farmer and a poor farmer the same way is a problem. What do you mean? Talking about the plug, you stated—I believe it was you. It might have been Mr. Thaemert.

Mr. METZ. It wasn’t me, but I would certainly comment on that.

There definitely are differences in farming practices, and that is

fine. I mean, everyone has their ability to farm as they wish, but

there are farmers out there that possibly are not fertilizing, are not

using the proper herbicides or the newest technologies and to give

everybody the same when they are not producing. That APH actually works quite well, and the ability when you take on a new piece

of ground to move your farming ability or APH to that new piece

of property really has made a lot of sense in crop insurance. I think

it is one of the better issues that you have changed in the past.

Mr. STENHOLM. OK. It was you, Mr. Thaemert.

Mr. THAEMERT. Yes, Mr. Stenholm. The issue is on the yield plug

that is used. Whenever there are successive years of drought, you

use a yield plug, or successive years of disaster. A very conscientious producer that tries to do everything right, soil test, fertility,

crop rotations, what have you, gets the same T-yield plug as a guy

that tries to probably farm the Crop Insurance Program. And so we

are proposing an APH factor taken into consideration on yield

plugs, standard deviations that have yield both above and below

the average for flood.

Mr. STENHOLM. One of the big frustrations that I have had with

RMA’s nonimplementation of the ARPA—and I mean nonimplementation. Several of you mentioned the cost of the production insurance policy project proposal that we were supposed to

have had out a couple of years ago, supposed to have had out this

year, not even going to have out next year, and it is very frustrating when the very agency that we entrust with at least exploring

some different ways of doing business can’t seem to bring it about.

Mr. Anderson mentioned the—again, in the farm bill we required

that RMA and FSA work together, and unless we can bring ourselves to having meaningful oversight and using all of our Government resources, it is not going to work. You are mentioning frustrations that we have which get into the abuse category, and unless

you have a policeman on the block you are not going to do the kind

of things that will keep our producers happy, the good and the bad.

That is called abuse. In some cases it is called fraud, and it is

amazing to me how many companies continue to tolerate abuse,

and we don’t seem to be able to get the kind of oversight into this

from RMA that the law states we shall do.

Now, there is nobody at the table from RMA today. Mr. Chairman, you had them before you before. You are going to have them

back again, but we have got some problems that we are not going

to solve.

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Now, I like what Mr. Peterson and Mr. Moran, what you are

talking about and each of you have talked about, some kind of a

plug, a permanent disaster program. I really would ask each of

your associations to help look at a permanent disaster program

that would be paid for by producers, that we would buy, and if you

don’t buy it you don’t qualify, and that you have it where it does

match with buying crop insurance, and so that it is predictable.

Now, I really think we need to look at this from another perspective, Mr. Chairman, and that is from livestock. Just ask ourselves

in the livestock industry if that one mad cow had occurred in the

United States rather than Canada, what would we be looking at

with a disaster program for livestock? We had better start preparing for that, and it is not unreasonable, I think, to ask producers

to bear a reasonable cost with the Federal Government taking the

risk, because if we are going to come and ask for disaster programs

every time we have one in different parts of the country—we have

had them in the 17th district. You had them in Minnesota. Had

them in Kansas. Had them in South Dakota. You have got hurricanes that hit. You have got all kinds of things that happen. We

know it is going to happen, but we don’t seem to be able to bring

about a predictable way to deal with it, and I do think that it is

very possible and probable that we can design a plug that is permanent, that will fit, that will not overly reward producers, that

will not insure against any loss whatsoever.

It can be done. There has been so many people who are through

our Departments of Agriculture, through our Farm Credit System

and others that have been looking at this theory of cost of production, which is another way of saying it, but we don’t seem to be

able to bring the powers that be to honestly look at it for some

strange reason.

Mr. Chairman, I hope as you continue to hold these hearings

that we will seriously talk about this and ask other folks to give

us their best shot, because it is unrealistic I think to expect the

Congress to come up with additional money year after year after

year in the budget problems that we are now into, and we had better start looking at doing the kind of cooperative venture that will

provide what we need and decide what we are willing to pay for

it and how we are willing to police it, because if we keep having

a few rotten apples in the barrel it is going to get more and more

difficult for us to have any kind of support from the nonmembers

of this committee and those that do not represent agriculture.

Mr. THAEMERT. Mr. Stenholm, I would like to comment on that

if I could, please. At the National Association of Wheat Growers we

have talked about that issue. And you mentioned the ability or the

desire of RMA and FSA to work more closely together, and that is

something that we have really promoted and pushed.

At the local level you have got an FSA county board, and the

county board monitors everything from grain levels in your bins to

any number of things from acreage of crops. And they have oversight there, but why couldn’t we have an FSA, RMA county level

board that would oversight neighbors on fraud and abuse in crop

insurance? We don’t have such a thing, and I don’t think it would

be that hard to implement; but I think a county level board would

also address the fraud at the local level, too, and that is where it

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has got to be addressed. And I agree with you we have to police

ourselves better, but I think that would be one way of addressing

that issue.

Mr. STENHOLM. Mr. Thaemert, one of the reasons—and they are

very honest about this, but the companies do not want this. I

mean, they have stated so in hearing after hearing. I mean, there

is a reluctance on the part of the companies to have someone else

doing their adjusting for them other than themselves, and that has

been a problem. And I respectfully ask the companies who are listening to this to look at this as to why we continue to say that we

should not have cooperation from RMA and FSA so that we do

have that kind of cooperation that will make—it would seem to me

that it just makes so much sense, but the companies have opposed

this 110 percent since we first started talking about it.

Mr. MORAN. Mr. Stenholm, thank you. We have taken a brief

look at some issues related to fraud and abuse in this subcommittee. That will continue. I think it is important. Your reminder

about oversight is a good reminder, and also we intend to look at

the livestock issues as crop insurance relates to the livestock sector.

Mr. Neugebauer, the gentleman from Texas.

Mr. NEUGEBAUER. Thank you, Mr. Chairman. One of the things

that has been a lot of discussion in west Texas is the second crop

issue, and based on the new rules of the loss of the first crop and

options for the second crop for producers in West Texas, how is

that going to impact the cotton farmers, particularly when some of

the first losses are generally due to drought weather conditions?

Mr. ANDERSON. I suppose you are asking me that question, Mr.

Neugebauer. Our frustration with RMA is that they have not enforced that regulation. They have not put it in place, to my knowledge. If it were put in place like it were written where you would

choose which is your primary crop, which is your secondary crop

and you would only share in a portion of the secondary crop, I

think it would work quite well.

Part of the problem in our part of the State is that we have had

some frustration with loss adjustment with the time period past

the final planting date before the adjusters will come out and adjust your crop, and they have in essence tried to use that crop adjustment date in lieu of the regulation for the second planting.

As part of my testimony, I addressed the fact that those of us are

really frustrated with RMA’s reluctance to go ahead and implement

that regulation.

Mr. NEUGEBAUER. And when you ask them about that, what is

their response?

Mr. ANDERSON. Quite frankly, many times we get a bureaucratic

response, if you will pardon the expression, that really sidesteps

the issue, and there just doesn’t seem to be a desire within the

agency to implement all of the provisions of ARPA. It is very frustrating.

Mr. NEUGEBAUER. Mr. Bindel, if the insurance protection is improved by equalizing the sorghum CRC price selection with corn,

how would that impact your farming operation?

Mr. BINDEL. It is already impacting my farming operation, and

the reason I say this, my son, he has been farming with me for

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about 20 years. I have basically turned it over to him, and CRC in

my area this year for grain sorghum is $2.30, and for corn it is

$2.42. It has definitely impacted my farming operation, because he

has to borrow the money to put in the crop, and when he goes to

the local banker, the local banker said, which crop is going to give

me the most money for my buck, irregardless of what I have had,

hail, below normal crop and a drought and maybe another drought

this year; but, I mean, it has really affected my operation, because

my son, who is now running the place, he says, well, Dad, I have

got to go where I can get the most money, even though it may not

be the most economical thing to do.

And I would like to comment a little bit further. My sorghum

yields have dropped in the last 3 years, and I don’t know what is

going to happen now, but they have dropped like 8 bushel to the

acre. And, I mean, again, I have carried crop insurance all my life,

and I do proven yields rather than APH. When they say APH, I

think that is all right maybe for the average farmer, but I think

that our operation is maybe above average. We use proven yields.

I hope—have I answered your question?

Mr. NEUGEBAUER. This is a general question, and one of the

things at least during my campaign was the cost of production

issue and how to integrate that into the system today. Coming

from the real estate business, I can take the risk analysis of, say,

buildings that I might own or operations that I am involved in, and

I can determine what risks I am willing to take myself, and then

I can buy into additional risk, which is what insurance is designed

to do.

When you start talking about cost of production, that cost of production number is actually—it is a moving target depending on

where you are in the production cycle. Are there some thoughts

that you gentlemen have as to how—if you went to a cost of production program where you—let’s say you are towards the end of

your crop year where your inputs are relatively high but you had

relatively low yields and so you are really underinsured at that

point in time. Are there ways to integrate that?

Mr. ANDERSON. The problem with the cost of production insurance, we have worked with private industry as they have tried to

develop that, and I think they have struggled as we have struggled

in how you differentiate between different areas and different costs

of production and what inputs you are going to include. The last

discussion that we had with them, Mr. Neugebauer, was they

weren’t allowing as part of a cost of production coverage to include

depreciation and some of the other fixed costs that we as producers

said that we had to have.

And then second, the difficulty in trying to do a one-size-fits-all

type cost of production program is that my inputs are different

from his inputs and different regions; and so, consequently, you

have to try to reach a standard for a county or an area or a crop,

and that gets to be pretty burdensome and a little subjective.

So we hadn’t been able, with my experience, to work with those

trying to develop that program, and I suspect we won’t really know

until they put a pilot out there and we see how it can evolve over

a year or two or three and actually putting it into practice in the

country. That is what we have encouraged them to do, but we have

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some serious concerns about the allowables under the cost of production input schedule that I have seen.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Neugebauer.

The gentleman from North Dakota.

Mr. POMEROY. Thank you, Mr. Chairman. The ARPA legislation added about $8 billion into trying to plus up the coverages. As a

result, we have more affordable buy-up levels, some floor on the

minimum considered for the APH; but the problems that the panel

is raising this morning sound very familiar and very similar to

what we have experienced before we passed ARPA at all, and I do

find it difficult to try and get this coverage to where we need to

get it. I know from talking to North Dakota farmers that, well,

they think the program is a little better for the effort. They still

think it has got a long ways to go, so I appreciate your ongoing

work in this area.

One of the areas in North Dakota that has come into focus is—

the key shortfall of the program is the quality loss and the coverage when you lose bushels. You can’t get the bushels to the elevator, but if you have got the bushels but you have got no value

in the bushels because of disease, there is just really not much coverage for that.

I would be interested in whether or not the—Mr. Thaemert has

got—on behalf of the NAWG organization an evaluation of the recent quality loss assessment put out by the contractor doing the research for RMA on this question.

Mr. THAEMERT. Mr. Pomeroy, that is an issue that we have discussed. As you note, that wasn’t part of our four main topics or four

main priorities. Quality loss adjustments are definite factors, especially, well, during wet years you have sprout damage, and we had

a situation in Kansas where we had some insect damaged kernels

from head meal moth, which is kind of unusual. It turned out not

to be that much of an issue.

But I don’t know how you address that other than look at—disregard the class that is brought in and covered as a top class. I

don’t know how you address that, but you do have to make some

adjustment for that loss because that is definitely lost revenue for

the producers.

Mr. POMEROY. It absolutely is lost economic opportunity from the

crop, and that is what we want to protect, offer risk protection.

The contractor’s report seems to recommend a fairly elaborate response that frankly goes beyond the reach of RMA funding presently or in the alternative suggests, well, let’s say in the status

quo, and I am not sure that I am satisfied with those recommendations. This is an area where I want to engage in some vigorous discussion with RMA. I really appreciate the Director of RMA, Ross

Davidson, attending these hearings. I think that it is rather unusual and commendable for the agency head to come and take it

right on the chin. Often they prefer to stay downtown, and I think

it is going to help us work in concert to address these issues.

Mr. LITTERER. Could I address the quality issue? The Texas Corn

Growers have had concerns with microcosms in certain years, an

ongoing problem, and they have recommended a couple of things,

that we look at it from a regional perspective as far as the pricing

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and that we use a weighted average in determining those losses.

So just a couple of suggestions there to look at.

Mr. POMEROY. And that was developed by the Texas——

Mr. LITTERER. The Texas Corn Growers Association, yes. They

have recommended that we look at those two issues.

Mr. POMEROY. I will contact them for what they have done in

that area.

I very much like the suggestion in the NAWG testimony on minimum loss standard, the frustration of basically losing your crop

and yet not being able to get an adjustment until you spend more

to get what remains out there. Like salt in the wound, you have

got a loss and you have got to make the loss deeper before you get

covered on the first loss. Would you elaborate just briefly on that

minimum loss point?

Mr. THAEMERT. Yes. Thank you, Mr. Pomeroy. That is an issue,

and this is an issue that both insurance adjusters, agents and

farmers agree on. It is a discouraging thing. You have got a major

loss, and the adjuster comes out and says, well, there are three

bushel left out there and I am going to have to take that off your

settlement. And the producer just got beat up with a loss, and now

he is looking at this. And there is no way that you can economically

justify harvesting three bushel when it is sitting out in the field.

It just doesn’t make sense.

So when you thought you had a 28-bushel guarantee, as I said

in the example, you in effect had a 24-bushel guarantee. You had

60 percent coverage instead of 70 percent coverage. We realize that

there may be a higher cost associated with it, but it is ridiculous

to count that coverage when you know that practically speaking

you are not going to——

Mr. POMEROY. Total loss ought to in the end be considered on the

reality, the real-life situation. No one is going to spend more on a

harvest of a couple bushels that will lend you much less in terms

of return on the cost of pulling it off the field. At that point a total

loss should——

Mr. THAEMERT. It should be assigned a zero value at that point,

we think. When the cost of harvesting a salvage yield exceeds the

value of the crop remaining, it should be assigned a zero value.

Mr. POMEROY. I will be interested in seeing what RMA thinks

about that. I think it is a very constructive suggestion.

Thank you, Mr. Chairman. I will be ready for the second round.

Mr. MORAN. Thank you, Mr. Pomeroy. We will have a second

round, in part because I have some additional questions.

Let me ask this of Mr. Anderson and maybe the Soybean Association as well. It is my understanding in the South that crop insurance is less desirable, less purchased, a smaller component of a

farmer’s operation. What is the explanation for why crop insurance

is a less popular risk management tool in the Southeast of the

United States than elsewhere? And I guess—first of all, is my understanding correct?

Mr. ANDERSON. It was before ARPA, Mr. Chairman, and with the

increased subsidies for the buy-up, crop insurance in the mid-South

and the Southeast has improved considerably. Originally part of

the problem in that area was that the loss experience that we

had—or that the industry had in those areas was based on those

141

who were having multiple losses, and consequently you didn’t have

the better producers or those producers who were participating in

the program that would have allowed a bigger pool to define the

actuarials from.

But with the reduced premium and the additional subsidies on

the buy-up, we have seen significant participation improvements in

those areas. I am not sure if that answered your question, but

originally it was because of—it is kind of a chicken and an egg

deal. You didn’t have enough participation in the area to get the

price level selections down enough, and then we have seen slow improvement and, consequently, with the new reform and additional

subsidies we have seen the participation up.

Mr. MORAN. Mr. Metz, anything to add to that?

Mr. METZ. I believe in the Southeast they have had multiple

years of disastrous yields in soybean. So their APH is down so far

that they really basically can’t buy a decent insurance, and this is

part of the problem. I really like the thoughts of Mr. Peterson, that

letting agriculture know up front that if your county is declared a

disaster area, that there will be some type of a Government disaster program. But that program would not start from zero. It would

start from the 70 percent level of crop insurance. This rewards people for buying crop insurance, and they know that if their area is

declared a disaster area there will be a small amount of help to

them. And this would also stop fraud, because your county would

have to be declared a disaster. You couldn’t just go out there and

do a poor job of farming to get the crop insurance.

Thank you.

Mr. MORAN. Along those lines, do any of you have specific provisions of the Crop Insurance Program that you believe lend itself to

fraud or abuse practices in your neighborhood, in your county,

among your neighbors, the particular areas that this subcommittee

ought to be aware of in regard to fraud and abuse?

Mr. METZ. I don’t know if you would call it fraud or abuse. I did

touch on the prevent planting areas, the 20 percent, or 20 acres.

Many times up in the upper Midwest where we have had a lot of

flooding, 18, 19 acres is a pretty substantial part of a field that you

are going to get no income off and you would still have the expenses for that part. So many times they will cut that part of the

field out and make it a separate field and very late in the season

they will plant a different crop to make that acres eligible. It is

perfectly legal, but yet it isn’t really a good farming practice.

Mr. MORAN. Was the double cropping change necessary to prevent fraud and abuse, or has it created more problems than it was

designed to solve?

Mr. ANDERSON. I will respond to that, Mr. Chairman. If it were

implemented as written, I think it would have solved the fraud and

abuse problems of double cropping. There is nothing wrong in our

mind in being able to double crop. The problem is when the producer decides he is going to double or triple dip. And so if the regulation had been implemented and enforced as written, I don’t think

it would be a problem.

Mr. MORAN. One additional question. When we were in Minnesota in Mr. Peterson’s district, we heard a lot about really two

issues, about how to improve crop insurance, one being one we

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spent some time on which is multiyear disasters. The other is a belief that we need to reallocate the subsidy toward higher levels of

coverage.

Is that a uniform belief across the country and across the various

commodities that are grown, or is there regional differences in the

desire to do that?

Mr. LITTERER. Mr. Chairman, from the corn growers perspective,

I think we would support looking at that, because, for example, I

think one of the things that could be done in crop insurance is to

move toward more of a county trigger or enterprise or whole farm

type of coverage which would help with the abuse situation somewhat. But you can’t buy as high a level coverage, for example, with

a whole farm as you can with an enterprise unit.

The other thing is the subsidy levels. For example, if you use an

optional unit at 75 percent level coverage, it is subsidized at 55

percent. If you use an enterprise unit, which would probably be

very cost-effective, you are only subsidized at 38 percent. So I think

that is something the committee needs to spend some time looking

at.

Mr. THAEMERT. Mr. Chairman, the higher levels of coverage

issue is something that is very dear to NAWG’s heart. It is something that we would really like to see done.

If you look at RMA data, I have got RMA data in my written testimony for Kansas as well as national, and the focus is on the 70

percent level in CRC and 65 percent NPCI. There is a tremendous

amount of deductible there that leaves a lot of operators exposed

to, and you will also note that the CAT coverage is extremely high

as far as the net acres that are covered, and that is mainly to take

advantage of disaster programs. And it is just something that we

think that really ought to be focused on and promote the higher

levels of coverage.

Mr. MORAN. We can discuss this perhaps after the hearing, but

I am interested in knowing if there are regions of the country or

farming areas in which the weather-related difficulties, disasters

are so much more minimal than other places in the country that

they really do prefer the lower levels of coverage, and I don’t know

the answer to that question. I am interested in knowing whether

that is the case or whether kind of farmers across the country

would all desire to have higher levels of coverage based upon the

risks that they face in farming.

Mr. ANDERSON. If I could, Mr. Chairman, just briefly, the cotton

industry, particularly in the West, in California and Arizona, I

think would be interested in that that you just laid out, except for

the fact when they have a loss their loss is greater. And so I think

that in theory you are correct, but in some of those higher cost

areas, in some of the bigger yielding areas, I don’t think that would

be acceptable.

The other question that you——

Mr. MORAN. You don’t think that it would be acceptable to reallocate the subsidy because there are those who just want the lower

levels of coverage?

Mr. ANDERSON. Yes, and that is a financing issue in many areas

of the Cotton Belt. You have producers who literally cannot afford

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the buy-up policy and their lenders are at least requiring them to

have CAT policy.

Mr. MORAN. Thank you. My time is expired, and if I don’t abide

by the clock, none of my members will either.

Mr. Stenholm.

Mr. STENHOLM. Mr. Thaemert, you were a little critical of the

change in the farm bill that said that you can’t collect more in a

disaster payment or crop insurance in the value of the crop than

95 percent. The biggest criticism that I have heard in my area have

come from farmers who try, who make just enough not to qualify

for insurance, don’t qualify for a disaster program, but they are out

there trying; and then they observe what has been too often the

case, folks that didn’t try that get a zero on their production and

then they get a disaster program and they end up making more

money than if you would have made a crop and sold it at the price.

Part of this has been that our market prices are way too low, as

we all know. But that has been the problem that we have tried to

work out. Harvest incentive, we tried. We had an experimental program for a period of time. We found that—this was 10 years ago

now. This is not criticism of the current administration. But we

found in the cotton industry that we had cotton ginners that were

very upset because they were seeing cotton shredded that should

have been ginned, and so we came up with the idea let’s not make

this subjective. Let’s say that there is a harvest incentive so that,

by God, if you go out there and you harvest it, you are not going

to lose money by running, in your case, your combine over it and

in our case a cotton stripper over it. I thought it was a pretty good

idea. It was putting an incentive in there to do it. It is not so much

in grains and beans, but it was in cotton, because you know when

you have a drought it is not just the farmer. It is the gin that also

has a disaster.

And so Mr. Anderson mentioned that as we look at providing

some way for our cotton gins to buy insurance to cover against a

catastrophic—something that gets completely overlooked from a

producer’s standpoint is what about your hired hands, and I have

had many complaints over the years of folks who say we take care

of the farmer, but then we don’t end up taking care of the folks

that work for us. And that is a valid criticism that—as we start

looking at an all encompassing program that we really and truly

ought to consider if we continue to expect to have the majority of

the people in the Congress support us in the things that the chairman and the ranking member are setting out to do here today.

It shouldn’t be a no-brainer that if you are in a drought area,

that if you lose your first crop to drought, there is a pretty good

chance you are going to lose your second crop, and there is a darn

good chance you are going to lose your third crop; but yet because

we could do it we are still having three policies sold again this

year.

Now, this is meant for those that are out there listening and selling these policies. That is getting awfully close to being past abuse,

folks, awfully close to getting past abuse, but we still have that

being done.

Now, we have got the data mining project and lo and behold, I

have been very critical of RMA, but then we ran into the fact that

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FSA has been kind of very reluctant to share their information

with this data mining so that we have got a way to check on this

to help, and all of a sudden FSA is dragging their feet. And if we

are going to do what—collectively you have done an excellent job

today of outlining the problem of what we have got to do in this

high risk, low margin industry that we now call agriculture, that

if we are going to provide for that risk that we are going to have

to think outside the box and we are going to have to do things a

little bit different than what we have been accustomed to doing.

And if we are going to get taxpayer dollars more than we are putting into it today, I think we are going to have to do a better job

of administering it.

On the fraud and abuse, one last question. Would any of you care

to share your thoughts regarding RMA’s new efforts to use data

mining which I have mentioned? FSA spot checks of producers with

frequent or expensive claims? RMA’s ban on the availability of insurance for a third or fourth crop in the season? Looking ahead to

implementation of the 2004 crop year of the ARPA, the 2000 limitation on indemnities paid on two crops which is going to take effect in 2004, which is a reform; and then RMA’s efforts to detect

agents and adjusters who are involved with more than their fair

share of expensive indemnity payments? RMA and FSA cooperative

efforts to correct policy design details that lead to abuse? Any comments along any of those areas? If not here, if you would submit

it for the record.

Mr. ANDERSON. Mr. Stenholm, if you would allow me, as you are

well aware, past experience with FSA gives me some personal

knowledge on the efforts between the two agencies to better cooperate, and as one of the gentlemen stated earlier, I think for us as

an industry to address the fraud and abuse problem, we are going

to have to seriously as an agricultural industry decide we are going

to clean ourself up, and the best way to do that is through the cooperation between RMA and your FSA county committees, in my

opinion.

When we first had crop insurance in my county, which wasn’t

available until the early 1980’s, we had RMA spot checks of appraisers, and during those days you didn’t get the kind of appraisals that we have seen since then, because everybody was afraid

that their appraiser was going to be spot checked.

One of the things that we looked at when I was at FSA was that

maybe on a random basis the appraisals that are submitted to

RMA should be spot checked by a third party.

The other thing that probably is more effective than any is that

when you get into an area where the producers are cooperating

with compliance and RMA, the word of mouth indictments and the

word of mouth justice that is being served on those that are abusing the program has gone a long way to clean up fraud and abuse

that I am aware of.

So I think we are making some progress, and I wouldn’t want to

leave the perception that it is rampant. I think there are still a few

bad apples in the crate, and I think industry as a whole needs to

make the commitment that we want to work with FSA and RMA

to clean that problem up, because it is in all of our interest to do

so.

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Mr. LITTERER. Mr. Stenholm, I would like to comment also. I

can’t disagree at all with what you are saying here. We need to

work on this issue, and I do think it has improved too in the last

few years. But I think also FSA and RMA need the resources to

be able to do these things, and FSA, for example, their computer

system is outdated, hasn’t been updated for a long time, so there

are some other issues that have to be addressed along with this.

Mr. THAEMERT. Mr. Stenholm, I would like to address the data

mining issue. I think that is a good—all well and good, but you can

have a very good producer that by no fault of his own suffers from

successive droughts and probably has been—or successive disasters, probably has big claims and will set up a red flag in a database and you have got all kinds of audits and all kinds of things

for no fault of his own.

Mr. STENHOLM. Would you not agree in that case that a peer

group——

Mr. THAEMERT. That is just what I was going to say. To me that

is the best issue or the best way to address that issue, is that you

have the coordination between RMA and FSA at the local level, because just about every producer will go to the FSA office and report, and then you have the FSA board and the RMA—have certain

RMA oversight, and I think a peer review would be the most effective way to deal with that as opposed to data mining of large volumes of data at some bureaucratic level.

Mr. METZ. Mr. Stenholm, I would certainly agree with those comments. I believe at the local level is the place that you are going

to stop the fraud and abuse. I don’t see a lot of fraud and abuse

in our part of the country, but the local level, everyone usually

knows who the bad egg is in an area, and the local level is the

place to handle that.

Mr. MORAN. Mr. Pomeroy.

Mr. POMEROY. Thank you, Mr. Chairman. The reality of a budget deficit exceeding $500 billion this year alone and looking at more

of the same in future years will impact our ability to get disaster

aid for farmers, no question about it. It will impact our ability to

improve crop insurance. No question about it. And we really need

to hold those linkages in mind. The deficit hurts crop insurance

and so many other things.

One of the things that concerns me is with the prospect of the

renegotiation of the standard reinsurance agreement looming that

the Office of Management and Budget deficit for money to help offset the $87 billion we are about to send to Iraq. Well, trying to

grab a little here and grab a little there while grabbing an untenable amount under the standard reinsurance compensation of the

public-private partner has a prospect of significantly impacting capacity of coverage.

So for all the work we do on coverages, at the end of the day nobody writes it, because of no interest in the industry because the

private partner share will no longer induce business interest.

I think an evaluation—gosh, I would be the first to say I am not

a technical expert on what they ought to get, but an evaluation is

best drawn by capacity presently in the market under the present

SRA, and so I would be interested in what you are seeing in terms

of number of companies participating in the marketplace. Do you

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think there is enough capacity in the market now? Are you worried

about capacity going forward? Do you think that there is maybe

undue enrichment to the private partner and we could make some

cuts that are appropriate savings to the taxpayer? What are your

thoughts? And, Mr. Thaemert, if you don’t mind, we will start with

you and run right down the panel.

Mr. THAEMERT. Those are good points, Mr. Pomeroy. The reinsurance business has been hit hard with terrorist attacks. It has

been hit hard with multiple disasters.

One comment that you will hear from some producers is that

while these crop insurance companies are getting rich, well, crop

insurance companies are going broke and pulling out of the market.

That just isn’t the case, and I wish I could say that I agree with

them, but I cannot say that. It is getting harder and harder to find

reinsurance for crop risk, and as we all know in this room, that to

put actuarially sound and economically viable in the same sentence

as crop insurance just doesn’t make sense. It is not going to happen. We are going to need the subsidy.

And in light of those comments, I really like Mr. Peterson’s comments about ongoing ad hoc built in that we know what to expect.

Again, yeah, we have got a budget deficit. It wasn’t that long ago

we had a budget surplus. We may have a budget surplus again. We

will certainly have budget deficits again. But every one of us that

are testifying here would agree that food security is definitely a

priority for our country and maybe a fat and happy consumer

doesn’t realize that, but if we ever had a problem with a secure

food supply we would have some serious angst in this country.

But as far as addressing the reinsurance issue, I don’t know how

you can, and that is why I really like the concept of the ongoing

ad hoc built into a cooperation with——

Mr. POMEROY. On the wheat question, we are seeing in North

Dakota some beginning signs that we might have a capacity problem next year.

Mr. THAEMERT. Yes. We are seeing a capacity problem. We are

having problems with crop insurance companies supporting our

gatherings because they don’t have enough money.

Mr. METZ. Thank you, Mr. Pomeroy. In preparing for this testimony, I did visit with agents in about a four-State area, and that

was one of their concerns, that as you take the compensation away

from the agents, which is a real possibility, let’s face it, there will

be less agents out there, and it will just be poorer service to the

ag communities. So they are very concerned. That was an ongoing

comment that I heard as I prepared for this testimony.

Mr. LITTERER. As I stated in my testimony, I think we have a

concern that the financial incentives to companies not be cut and

that they be maintained, and part of the problem we see is that

the companies are no longer introducing new products. The product

development has declined dramatically, because they don’t have

the resources to do it and it cost so much to do it.

Mr. BINDEL. I am kind of beside myself here on this little deal,

because I listen to my colleagues on both sides of me talking about

what we would like to have. I mean, the insurance companies,

sure, I want them to be confiscated—I am sorry, Jerry. I want

them to be compensated for what they have to do, but I just feel

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that there must be a lot of money in that, because they said there

is—in our area it used to just be the crop insurance agent. There

was a few of them. Now the banks are into it. Now the elevators

are getting into this. So there must be still a lot of compensation

out there for the people who are selling insurance or the companies

they—the reinsurance people, I don’t know anything about that,

but I would just like to see some of the policies implemented that

we want. We don’t have revenue assurance, and I would like to see

that for grain sorghum.

Mr. ANDERSON. I would like to respond, if I could, in two different areas, Mr. Pomeroy. One I guess would be under ARPA we

saw a budget resolution that authorized the expenditure of these

funds that we are now dealing with, and we have played by those

rules of the budget resolution at that time, and I would hope that

we could still adhere to those even in increasing budget pressures.

The second response is that under the Standard Reinsurance Act,

we do have some concern about the reimbursal to the companies

for maybe CAT policies being disproportionate to those to buy-up

policies and have some concern that consequently maybe the

agents are not pushing the buy-up policies to the point that they

should. It is easier money, if you will, on the CAT policy.

So maybe they are getting complacent in the easiness of selling

those higher return policies and not doing the work and selling the

cost of production back to the companies and some of the other new

product lines that all of us think we would like to see. So I think

it is sad that the insurance companies have stopped developing

new products and have gotten complacent in taking the money on

the products that they have in place.

Mr. POMEROY. Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Pomeroy. Let me see if our hearing

just got a little longer.

Mr. Burns.

Mr. BURNS. Thank you, Mr. Chairman. I have no questions.

Mr. MORAN. Chairman Goodlatte, we are delighted for you to join

us. I certainly personally would be delighted to stay here if you

have any questions of any of these witnesses.

Mr. GOODLATTE. I apologize.

Mr. MORAN. Thank you very much. I do appreciate very much

Mr. Davidson being with us. As Mr. Pomeroy indicated earlier, it

is a good sign from my perspective that the administrator of the

agency is here time and time again, has been with us through all

our hearings, has listened to the witnesses testify, has heard the

suggestions and complaints and concerns. And one of the things

that this committee intends to do in the near future as we work

our way through this is have Mr. Davidson and his staff down and

sit around the table and see if we can talk about what we have

heard, what we have learned and what the agency’s perspective is

in trying to address the suggestions that were made here today and

by witnesses in past and future hearings.

So Mr. Davidson, we thank you once again for being with us

today, and you all I just would compliment you as an exemplary

set of witnesses. All of you seemed to have somebody here who is

from your home State. And I say this not because there are two

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Kansans on the panel, but you all are very well prepared and I appreciate the information that you have provided.

Without objection, the record will remain open for an additional

10 days to receive additional testimony, materials that supplement

written responses of any questions that have been posed to our witnesses by members of this panel, and the hearing of the Subcommittee of General Farm Commodities and Risk Management is

now adjourned.

[Whereupon, at 11:20 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF BOB METZ

Thank you, Chairman Moran and members of the subcommittee, for holding this

hearing today. I appreciate the opportunity to testify on behalf of the American Soybean Association.

My name is Bob Metz. My wife Karen and I are fifth generation farmers in northeast South Dakota. We have been involved in production agriculture for the past

28 years. Our family farm has 2,700 tillable acres consisting of hard red spring

wheat, corn, and soybeans.We have purchased crop insurance for approximately the

last 20 years. Each year we sit down with our agent and decide the appropriate

level of coverage and the type of coverage. We normally purchase RA, CRC, and

MPCI at the 70 percent to 75 percent guarantee level. Crop insurance has given our

family and our lender the peace of mind that we can survive a crop failure and still

meet our financial obligations.

Overall, soybean producers in most regions are generally satisfied with the Crop

Insurance Program, a recent study completed by the United Soybean Board (the

check-off organization) found. However, many soybean farmers don’t feel very

knowledgeable about crop insurance. USB’s recent study showed these findings:

There continue to be disparities in crop insurance participation among soybean

farmers based on region, farm size and the age of the producer. Generally, producers in the Midwest and Plains States are more likely to buy crop insurance, and

those in the South are less likely. Younger farmers are more likely to participate

in the program, as are those with larger farms.

Soybean farmers are not well informed. Those that feel best informed about the

program are those who buy it, and those with larger farms and more than 250 acres

in soybean production.

The reasons soybean farmers buy crop insurance are primarily to protect against

crop failure, because their lender requires it, or to qualify for future disaster payments.

Those soybean farmers who didn’t buy it said they don’t need it or can self-insure;

it costs too much; or they don’t know enough about it.

Finally, when asked what their source of information is about crop insurance, the

soybean farmers in the study reported:

• 47 percent from insurance agent or company

• 18 percent from periodicals

• 14 percent from the Federal Government

• 2 percent from the Internet.

The committee should be aware that opinions about the success of the Crop Insurance Program remain sharply divided in our organization. Some producers, particularly in the South, still feel as though crop insurance rates are inequitable and too

high. And although many farmers feel that their agents provide them with adequate

information, the study I cited earlier shows that many still do not feel they know

enough about this program. Clearly, more work remains to be done, especially to

resolve the regional differences that color the way many farmers feel about buying

crop insurance.

CURRENT ISSUES

A handful of issues come up again and again in talking with growers about crop

insurance. Multiple years of disaster top this list. It seems that consecutive years

of losses—three or more—due to extraordinary weather are plaguing more and more

of the country and creating the single biggest problem with crop insurance. The low

or zero yields resulting from multiple years of loss cause a farmer’s APH to drop

so far that he is unable to buy adequate insurance when he needs it most.

149

I know this is a problem of which the committee is well aware and which you

tried to address in the last crop insurance reform legislation. Unfortunately, the fix

where a farmer is allowed to substitute 60 percent of the T-yield for those loss years

doesn’t go far enough to solve the problem.

There is no good answer to the question of multiple years of loss. While as farmers we look for flexibility in the program to remedy every problem, we are also concerned about exposing the program to abuse. Fraud costs us all money.

One solution farmers often talk about is a 10-year APH system that allows a

grower to eliminate his best and worst years. On my farm, for example, the 10-year

APH system means that finally this year I will get rid of my low APH from the

flooding of 1993. We’ve found that many times the best year out of 10 isn’t much

better than the average, but the worst is really low and a terrible drag on the average.

Prevented planting is another perennial problem, especially in my home region of

the northern Plains. I am aware that RMA is working on changes to prevented

planting provisions and we appreciate those efforts.

One problem I can point to specifically is the requirement that 20 percent of a

field or 20 acres (whichever is lower) be prevented from planting to qualify. That

requirement is high enough to cause significant financial loss for a farmer who can’t

plant perhaps 15 percent of the field, and causes farmers to do things we wouldn’t

otherwise do just to make a field eligible for insurance coverage.

While requiring a minimum loss is a good idea, a lower threshold would make

better sense, perhaps five acres or 5 percent. The current policy forces farmers to

plant in a wet area. A smaller requirement means that farmers who are prevented

from planting a significant part of their field will be eligible.

Finally, let me thank the committee and Congress for the ad hoc disaster payments of recent years. I think we have all learned that while crop insurance has

to be the Government’s primary risk management tool, there are instances where

crop insurance alone isn’t enough.

Tying disaster payments to a grower buying crop insurance in the future is a good

idea. However, the stipulation in last year’s legislation that the combined value of

the disaster payment, crop insurance indemnity, and market value of the crop not

exceed 95 percent of the crop’s value turned out to be a real disincentive for those

who bought the highest crop insurance coverage—and spent the money to do so. Any

such efforts to limit payments in the future must be structured so that those who

try to cover their own risk be the winners, not the losers.

In preparing for this hearing, I talked with a number of farmers and bankers in

my area and the surrounding states. The consensus was that there are a lot of farmers still farming that wouldn’t be without the Crop Insurance Program. ‘‘While

you’re not going to get rich from crop insurance, it will keep you on the farm,’’ was

a common refrain.

In my family, my son is just finishing his second year of farming. Without crop

insurance, he wouldn’t be able to get the loans to stay in business. That’s how important this program has become.

On behalf of the American Soybean Association, I thank the committee for the improvements in the program in recent years and the continued attention you are giving it. Crop insurance works far better than it used to and our members look forward to working with the committee and RMA on more improvements in the future.

STATEMENT OF RON LITTERER

Good morning. Mr. Chairman, members of the committee, I appreciate the opportunity to appear before you this morning on behalf of the National Corn Growers

Association (NCGA) to discuss the impact of the Federal Crop Insurance Program

across the corn belt. I am Ron Litterer, a corn, soybean and hog producer from

Greene, Iowa. I currently serve as Chairman of NCGA’s Public Policy Action Team

and as a member of the Board of Directors of the Iowa Corn Growers Association.

The National Corn Growers Association was founded in 1957 and represents more

than 32,600 dues-paying corn growers from 48 States. The Association also represents the interests of more than 350,000 farmers who contribute to corn checkoff

programs in 19 States.

I do not need to belabor the point that the past few years have been very challenging years for corn growers. Many producers have faced depressed markets followed by a period of prolonged drought—conditions that have jeopardized the financial viability of their farm operations and even forced their exit from agriculture.

The transition to the new 2002 farm bill has also required considerable adjustments

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by producers and their lending institutions as the timing of program payments has

impacted cash flows.

The difficult and varied circumstances that corn growers have faced in recent

years have demonstrated the need for further improving the farm safety net. In our

view, the Congress took a major step forward with adoption of the Agriculture Risk

Protection Act of 2000. The commitment of additional resources to higher levels of

premium subsidies has not only resulted in significant increases in participation and

the percentage of acres covered, but it has facilitated a dramatic shift toward higher

levels of coverage. This positive development tells us the Federal Crop Insurance

Program has become an even more important risk management tool for corn growers and other producers as well.

Our growers, overall, look at the numbers and recognize the upward trends as

real progress. The reforms of 2000 are making a real difference. More producers

have far more protection and peace of mind to deal with crop losses and lower prices

than they did three years ago. U.S. producers received over $4 billion in loss payments just for the 2002 crop year, while receiving $1.7 billion in premium subsides.

In the previous year, the Federal Crop Insurance Program paid out almost $3 billion

in indemnity payments. Compare these sums with the crop disaster program of $3.1

billion for the last two years and you can understand why the program is so critical

to American farmers.

This is not to say our members are content with the status quo. NCGA is looking

for reasonable changes in the program’ regulations, including those that govern prevented planting provisions, quality loss adjustments that are more accurately tied

to real market value, improved coverage of center-pivot dryland corners that allows

same row direction while keeping separate units for irrigated and dryland acres,

and ratings of buy-up coverage that better reflect trend yield growth and determine

policy guarantees. We are encouraged, though, by the RMA’s ongoing outreach to

seek input from growers, particularly on reforms to prevented planting and quality

loss adjustment provisions.

For NCGA, the subsidy structure of the Federal Crop Insurance Program should

encourage producers to insure adequate revenue to avoid devastating losses, but it

must not artificially stimulate production. To say the least, this requires a real balancing act—to reach an optimal level of financial incentives, ensure actuarially

sound policies, and minimize fraud and abuse which undermines the program’s integrity and the industry’s financial health. NCGA is prepared to work with the Risk

Management Agency and the crop insurance industry to further strengthen the program.

Briefly, I would like to summarize some of NCGA’s key areas of concern. One

needs to look no further than the past year to understand there are still gaps of

vulnerability within the farm safety net. There is no question that producers have

a much more reliable farm bill in terms of protection against depressed commodity

market prices. But, we also have to recognize that many crop insurance participants

who experience shallow, but significant crop losses in back to back years can find

themselves in no man’s land. If they have lost, for example, 25 percent of their crop,

they most likely cannot file a loss claim nor would they qualify under today’s crop

disaster program. One crop year with this kind of crop loss should be sustainable.

But, two or three years of these kinds of losses even under favorable commodity

prices, can seriously impact net farm income and erode a producers’ equity.

While NCGA recognizes that repetitive losses can adversely impact a grower’s average production history, the APH, and consequently the value of indemnity payments, we urge the committee and the RMA to consider innovative alternatives beyond artificial adjustments to T-yields and the APH. We fear that this kind of approach would invite ill advised planting decisions, and the unintended consequence

of higher premiums for producers where the incidence of repetitive crop losses has

a much lower probability.

NCGA believes there are more constructive ways to address the problem of eroding indemnity benefits resulting from multiyear production losses. We are very concerned that in failing to address this situation, sustaining the increase in program

participation and reducing the need for annual ad-hoc disaster assistance legislation

will become increasingly difficult. We suggest that one potential solution would be

to develop a supplemental insurance product that would cover a producer’s deductible when two years of consecutive losses exceed a predetermined percentage of average production. In addition, we believe a wider availability of Group Risk Income

Protection (GRIP), now limited to five States; Illinois, Indiana, Iowa, Michigan, and

Ohio, would provide producers the option of more affordable protection against widespread area losses. NCGA intends to develop several concepts and survey corn growers on these and other risk management proposals later this fall.

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Short of creating an add-on or supplemental insurance product, NCGA supports

reforms to traditional crop disaster aid that is approved on an ad-hoc basis. Last

year, NCGA’s Disaster Assistance Task Force went to work on developing and proposing a new program to deliver disaster aid in a way that is more equitable and

effective and also encourages participation in the Crop Insurance Program. The

Task Force first recognized that crop insurance reforms approved three years ago

are now part of a very different farm safety net with the addition of the new counter

cyclical payment program. Secondly, NCGA observed that traditional disaster aid

programs have targeted disproportionate payments to growers with large yield

losses, but growers could still lose up to 35 percent of their expected crop and sustain substantial financial losses. Moreover, the current crop disaster program duplicates the coverage for losses already protected under subsidized Federal crop insurance policies.

Legislation introduced by Representative Sam Graves, the Companion Disaster

Assistance Program Act, would compliment the Crop Insurance Program by covering

a portion of the uninsurable deductible rather than duplicating the insurance coverage and provide payments more proportionate to the severity of actual crop losses.

We also believe that disaster payments can be delivered sooner and in a more targeted way because most growers who collect indemnity payments on their insurance

policies would be eligible to collect a disaster payment.

Mr. Chairman, I would like to comment on two other issues that are of immediate

concern to NCGA. First, is the Administration’s proposal to reduce funding for the

administrative and operating expense reimbursement to the insurance companies

and negotiation of the Standard Reinsurance Agreement. While we certainly believe

there are improvements in services that need to be made by the industry and crop

insurance agents, we have questions regarding any funding changes that can potentially undermine these services and any financial incentives for companies to continue to service the Federal Crop Insurance Program. Any savings that might be

achieved in the short term could hinder efforts to produce program refinements and

new products that producers are looking for today. NCGA urges the Congress and

the RMA to proceed with caution on these complex matters.

Second, NCGA wishes to express our opposition to language in the Senate agriculture appropriations for fiscal year 2004 that restricts the use of funds under the

Agriculture Management Assistance program. The language in section 759 jeopardizes the ability of corn growers in underserved states such as New York, Pennsylvania, and Maryland to receive an additional subsidy to purchase higher levels of

crop insurance coverage. NCGA has learned that participation in the Crop Insurance Program by producers in 15 underserved states increased by more than 25 percent in direct response to the additional subsidy. Last year’s action by Secretary

Veneman to dedicate the AMA funds for this purpose is an excellent example of how

taxpayer dollars can be better spent to provide a more predictable and reliable farm

safety net.

Finally, Mr. Chairman, I want to thank you and the members of this committee

for holding this hearing on a program that offers tremendous benefits to corn growers throughout this country. We appreciate your support and your continued efforts

to further improve upon its successes.

STATEMENT OF JOHN THAEMERT

Mr. Chairman, The National Association of Wheat Growers is pleased to have this

opportunity to offer our thoughts on crop insurance reform. We applaud Chairman

Moran and the subcommittee for their efforts to provide effective and affordable insurance for farmers.

Crop insurance needs reform, a fact made evident by the need for disaster legislation last year. The passage of the Agricultural Risk Protection Act (ARPA) was a

major improvement in crop insurance. Our proposals today build on ARPA’s reforms

and assume their continuance. Nevertheless, the cost of higher levels of coverage,

continuous drought, and the inability of crop insurance to address the needs of disaster affected farmers has led NAWG to list crop insurance reform as one of our

top priorities.

We understand clearly the current budget environment; farmers operate under

tight budgets also. Our proposals intend to be cost effective, especially compared to

disaster funding.

NAWG has four primary goals for crop insurance reform. They are, in order of

priority, as follows:

More affordable coverage at higher levels.

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Prevent or slow declining Actual Production History (APH) due to consecutive

disasters.

Establish Farm Savings Accounts, which become available in the event of disaster.

Establish a minimum loss standard.

I’ll discuss each of these in turn.

COVERAGE LEVELS

The higher levels of coverage currently available are not affordable. The most

cost-effective coverage for producers is either 65 percent MPCI (APH) or 70 percent

CRC, therefore these are the levels most farmers purchase (see Kansas and national

RMA data in Tables 1,2 and 3). Consequently, most farmers face a 30–35 percent

deductible in the event of disaster. The five year average net return to operator

labor and management for wheat farms in the north central Kansas Farm

Management Association database is about 18.9 percent (Profit Center Analysis:

5-year & 2002, table 4). At 70 percent CRC a farmer looses roughly 11⁄2 years of

income before any claim is paid. An 85 percent coverage would cover some of this

gap, however higher coverage must be affordable. To raise my farms coverage to 85

percent from 70 percent for 2003 would have cost $1 of premium for each $2.45 of

additional coverage. The availability of higher coverage is of little use if a farmer

cannot afford the premium.

In order to help producers reach higher coverage levels; the cost of higher coverage must be reduced.

ACTUAL PRODUCTION HISTORY

The Nation’s wheat growers know all too well the effects of prolonged drought.

Until this year, much of the Nation’s Wheat Belt suffered from 2 to 6 years of

drought. Even though much of the Nation’s breadbasket produced a good wheat crop

this year—particularly my home State of Kansas—there are still dry areas within

our member States which are now in their seventh consecutive year of drought.

Each year of crop failure reduces a farmer’s APH, eroding the safety net provided

by crop insurance.

The minimum yield plug is an effective tool. However, the current 60 percent plug

is to low. We suggest the level of coverage purchased by the producer as an appropriate yield plug factor. For example, if a farmer purchased 75 percent coverage,

their yield plug option would be 75 percent. This rewards the producer who buys

up coverage. Another factor to consider is that a T-yield based on a short time frame

is impacted more drastically by consecutive disasters. It is my understanding the

current T-yield plug is based on NASS 10-year historical data per county. If the Tyield were based on a longer time frame the effect of consecutive disasters would

be minimized. Also, the use of a T-yield plug as it is currently calculated puts good

farmers on the same level as average or poor farmers. We suggest an APH factor

adjustment to the T-yield that would take into account a producer’s APH deviation

from county average, both above and below the average.

Farmers need a more stable yield plug floor for support during consecutive disasters.

FARM SAVINGS ACCOUNTS

NAWG and other farm organizations have supported the creation of these accounts in previous farm bills. Tax-deductible contributions with taxable distributions would be fundamental principles of these accounts. A USDA match as well as

tax deferred growth would provide incentive for account establishment.

These Disaster Reserve Accounts held in local financial institutions would provide

stability to farm income and security in the form of deposits to rural lenders and

communities in case of disaster.

MINIMUM LOSS STANDARD

It is discouraging for a farmer to be told by a crop adjuster that a small bushel

yield will be deducted from their claim since there is some crop remaining in a disaster affected field. Currently a farmer with an APH of 40 bushel per acre and 70

percent crop insurance assumes a 28 bushel per acre guarantee. The custom harvest

cost for wheat in Kansas is around $14/acre (which does not include transportation

cost). At this cost and a $3 per bushel price (current central Kansas CCC loan rate

is around $2.85/bushel) a farmer with an appraised salvage yield of four bushel/acre

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couldn’t justify harvesting the remaining crop. This scenario effectively drops his

coverage to 24 bushel per acre or a 60 percent guarantee instead of 70 percent.

When the cost of harvesting a loss affected field exceeds the appraised salvage

value, that field or insured unit should be given an effective appraisal of zero.

Mr. Chairman and members of the subcommittee, we thank you for this opportunity to testify, and we look forward to working with you on this effort. I’ll be

happy to respond to any questions you may have, and pledge NAWG’s assistance

to you in developing, refining and implementing a more effective risk management

product.

STATEMENT OF LEO BINDEL

National Grain Sorghum Producers would like to thank Representative Moran

and members of the subcommittee for calling this important hearing today. My

name is Leo Bindel, and I am the immediate past president of the National Grain

Sorghum Producers. I farm in a family partnership near Sabetha, Kansas between

Kansas City and Lincoln, Nebraska. Our diversified operation includes grain sorghum, corn, soybeans and hay. On my operation, I have carried crop insurance since

1961.

NGSP represents U.S. grain sorghum producers nationwide. Headquartered in the

heart of the U.S. sorghum belt at Lubbock, Texas, our organization works to increase the profitability of grain sorghum production through market development,

research, education, and legislative representation. We would like to thank the committee Members for their support in equalizing the sorghum loan rate with corn in

the 2002 farm bill.

Our recommendations to you today are focused on the specific needs of grain sorghum producers, and we appreciate your consideration of them. NGSP understands

the complexity of this program and difficult task that is before you.

SORGHUM INDUSTRY OVERVIEW

The United States grain sorghum industry is comprised primarily of nine states

in the Great Plains, although grain sorghum is grown from California to New Jersey. Last year, the states of Kansas, Texas, Arkansas, Missouri and Nebraska accounted for the majority of production. Over the last 10 years grain sorghum acreage has ranged from 13 million to 9.3 million planted acres and production has

ranged from 795 million bushels to 370 million bushels. Additionally, the forage sorghum industry utilized as silage, hay and direct grazing represents another 5 million acres of production.

The U.S. is the world’s chief producer and exporter of grain sorghum, and the crop

ranks fifth in importance as a U.S. crop behind corn, cotton, soybeans and wheat.

Roughly half of the U.S. crop is exported, while the rest is used domestically for

feed and an exponentially growing amount—a 57 percent increase in the last 2

years—going to ethanol.

With no less than eight proposed ethanol plants under various stages of development in the Sorghum Belt, the ethanol industry holds tremendous promise to become the single largest user of grain sorghum in the United States if they can be

assured a reliable supply of grain. Worldwide, approximately 50 percent of grain

sorghum is consumed directly as a food grain, leaving a tremendous growth opportunity here in the United States.

Additionally, the U.S. dominates world seed production in sorghum with a billion

dollar seed industry focused on 250,000 acres primarily in the Texas Panhandle.

SORGHUM AS RISK MANAGEMENT

It is most appropriate that sorghum is represented here today, because we believe

that grain sorghum in and of itself is a risk management tool. This is primarily due

to its ability to withstand extremely dry and arid conditions better than any other

grain crop. For instance, according to a Texas A&M study, sorghum uses one-third

less water than corn. NGSP’s members believe that Federal farm programs, like

crop insurance, should be promoting the conservation of resources like water. Setting the sorghum price election equal with corn helps conserve water. More and

more farmers have been planting less drought tolerant crops in the arid areas of

the Sorghum Belt because farm programs like crop revenue coverage insurance

(CRC) have encouraged them to do so. Farmers are experiencing crop failures because of the lack of water (which also has increased crop insurance claims) or they

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have turned to irrigation to produce a crop, thereby increasing the pressure on

water usage.

However, sorghum’s crop insurance track record is deceptive at first glance because, due to its stress tolerance, it is planted in the most marginal areas or as a

catch crop during marginal planting periods after a preceding crop fails due to hail

or drought.

The Agricultural Risk Protection Act passed by Congress effectively ended double

dipping and planting a second crop when there was little hope for it. We hope that

sorghum actuarial loss numbers can be refigured to reflect these changes in the law.

In fact, later in this statement, NGSP will detail how we believe that some current crop insurance provisions affect the planting choices that producers make. Perhaps if these issues are rectified by USDA, sorghum will be the first crop of choice

more often, and its true risk-management characteristics will become more evident.

NGSP’s primary concerns that we will detail today fall into two main areas. First,

a level crop insurance playing field is needed for grain sorghum so that crop insurance will no longer distort planting intentions. We will detail needed changes—some

of which can be made administratively. However, we also would like to urge this

Sub-committee to keep the need for this level playing field in mind as it forms future crop insurance legislation. Additionally, NGSP will detail other concerns that

we urge this Sub-committee to address based on a Crop Insurance questionnaire

that our organization recently distributed to our leadership and entire membership.

LEVELING THE PLAYING FIELD

Price Elections: NGSP believes price elections for grain sorghum and corn should

be equal to help curtail government policy distortion of planting decisions. When the

CRC program was established, USDA based its price election for sorghum on a relationship to CBOT corn. This change will recognize the fundamental shift in markets

and cash prices due to ethanol and other new uses; and to recognize sorghum’s

water-saving benefits. Ethanol plants and other end users price it equally with corn

because it performs equally for them. Today, sorghum price elections are well below

those for corn, causing a significant shift out of sorghum acreage and into other

crops. Crop insurance should not drive planting intentions, nor should it artificially

distort them.

For example, USDA Sorghum Planting Intentions since 1996 (the year Crop Revenue Coverage came into being) have shown no increase in planted sorghum acreage,

even during years when planting intentions for sorghum should have risen due to

limited moisture and even this year since the sorghum loan rate was equalized with

corn in the 2002 farm bill. In the past four years, market signals should have told

farmers to plant more sorghum, given a 57 percent jump in the high value food,

seed and industrial uses from 2000 to 2003 that has led to higher cash prices for

sorghum. However, it is NGSP’s assertion (and many producers’ own admissions)

that government policy inequities discouraged these plantings.

In fact, a land management company that manages about one million acres in the

Midwest this year advised its tenant farmers not to plant sorghum due to its lower

crop insurance price elections and admitted as much in a letter to one of our State

affiliates.

Here is an excerpt of the letter:

Like many producers, we have sharply reduced the acreage planted to grain sorghum and even though it may make sense from an agronomic standpoint due to the

drought to plant more acres to sorghum, it simply will not be done on our operations

because of crop insurance.

These price election inequities mean more government payouts on higher-risk

crops that lack the drought tolerance needed to grow in the drier areas that are traditional sorghum producing areas. Sorghum farmers are penalized $10 to $30 per

acre when droughts hit, encouraging farmers to plant higher-insurance-guarantee

rather than sorghum.

However, price data collected by USDA runs contrary to continued inequities in

price election levels for sorghum. Averaged over the last 3 years, the price of grain

sorghum was just higher than that for corn, according to the annual USDA Crop

Values Report released in late February 2003. According to the USDA report, the

price for grain sorghum averaged over the last three years was $2.08 per bushel,

just above $2.06 per bushel for corn during the same period. Recent USDA-ERS

numbers released in August give further indication that a fundamental market shift

is continuing to result in sorghum prices that are on par with prices for corn, both

near and long-term, further making the case for a level crop insurance playing field.

In its monthly Feed Outlook report, the agency projected that by the end of the

2002/2003 marketing year, prices received by farmers for sorghum, forecast at $2.33

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per bushel, will edge out prices for corn by 3 cents. Additionally, USDA also predicts

that prices for sorghum in 2003/2004 will be even with corn, with both commodities

pegged to command prices ranging from $2.00 to $2.40 per bushel.

Multi-peril Crop Insurance also discriminates against sorghum. As you can see in

the above graph, MPCI coverage for sorghum is less than corn. Sorghum farmers

are confused and frustrated when they are paid a price equal to corn or a premium

at the local point of sale and then are told by USDA that the sorghum cannot be

insured at the price level they are paid.

In addition to this market shift, and to prevent the sorghum industry from complete elimination of its infrastructure; sorghum price elections should be equalized

with corn because:

• Data shows that sorghum is equivalent to corn for ethanol use. Each bushel of

sorghum produces the same amount of ethanol and Distillers Dry Grain (DDG) as

corn. DDG’s for the two commodities are typically priced the same, although sorghum’s DDG could demand a premium because of higher protein levels. More and

more sorghum is being used in ethanol.

• Sorghum is a water conserving crop. By eliminating the incentive to plant higher-water-use crops due to higher CRC price elections, water can be saved in Texas,

Nebraska, Kansas, and South Dakota. Hypothetically, by switching from irrigated

corn to irrigated sorghum in 21 Texas Panhandle counties, over 50 years enough

water could be saved annually to provide water each year for the city of Austin,

which has 294, 400 households.

But, above all, the CRC price elections for grain sorghum and corn should be

equal based on market conditions.

Failure to address this inequity will result in further insurance losses from planting decisions that are based on crop insurance guarantees. However, it should be

noted that NGSP has been told that some lenders are being asked to document crop

insurance cash assurances to bank examiners as part of documenting a loan’s

soundness. As a result, some lenders are making the planting decisions for their

borrowers and requiring their borrowers to plant some other crop besides sorghum

due to sorghum’s lower crop insurance guarantees. Business is business, and NGSP

understands the position that lenders and examiners are in, given current economic

conditions.

As an example of this, here is an excerpt of an email NGSP received from a concerned Great Plains banker who is also a farmer:

To: Mr. Tim Lust

Subject: RE: Disaster Hearing

. . .This drought could bring a lot more interest in milo. If we get some moisture,

milo will be better than corn. Milo may be better than corn on some irrigated

ground with limited water.

However I have had to tell customers that for 2002, dryland corn is better than

dryland milo. Milo has a lower ‘‘T-yield’’ on MPCI/CRC. CRC milo price [price election] is 95 percent of corn. Finally, almost all dryland corn in this area is appraising

at ‘‘0’’bpa. My milo has heads. I don’t know how it will appraise. If it appraises at

3 bushels per acre, my CRC payment will be reduced by $8 per acre (based at $2.80

Dec CBOT x 95 percent). . .What I get for planting a moisture saving crop is a lower

CRC payment. Based on my APH information (with 2 years of T-yield), Dec CBOT

of $2.80, and 3 bpa appraisal, milo will net $35 per acre less than corn.

[Corn: 68 bpa APH x 70 percent x $2.80 = $133

[Milo: 57 bpa APH x 70 percent less 3 bpa appraisal x $2.66 = $98]

This is just one of several examples that have been strongly communicated to

NGSP regarding the unintended consequences of Federal crop insurance.

PRODUCT ACCESS AND AVAILABILITY:

Currently, sorghum producers have no access to Revenue Assurance products, and

many of our members tell us that they would like this product for grain sorghum.

Sorghum farmers like this program. They use it on other crops and want Revenue

Assurance for sorghum as well. This program can be a valuable risk management

tool for farmers that are looking to protect their profits. Additionally, sorghum has

not been included in Cost of Production pilot projects. Current new-product-development efforts have largely ignored or been ineffective for this nation’s sorghum producers. NGSP has been told that RMA is reviewing a new combined revenue insurance product for 2006, but until then, sorghum remains the only program crop that

does not have Revenue Assurance. Further, we have been told that RMA will not

allow Revenue Assurance to be sold to sorghum farmers until changes are made in

2006.

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Finally, for 6 years, NGSP has been working toward insurance coverage for sorghum silage. To date, sorghum silage is not insurable, while corn silage can be insured, and we have been told by RMA that it will not be insurable until at least

the 2005 crop year. The sorghum industry continues to struggle with the ability to

insure the production of sorghum silage. According to data released from the Texas

A&M University Extension Center, Bushland, Texas, in 2001, sorghum silage outyielded corn silage in both tonnage and pounds of quality product while using approximately half the irrigation water required for corn silage. Despite all the time

and energy that the House Agriculture Committee, National Grain Sorghum Producers and Risk Management Agency have put into understanding, researching and

documenting the merits of sorghum silage insurance, farmers currently cannot insure the crop in the U.S. today. At a time of multiyear droughts when producers

need water-saving options, government crop insurance policy is dictating that farmers grow corn silage with insurance in order to get financing by their bankers. It

is unacceptable to any agricultural commodity that it should take eight years to get

new insurance products in place. Therefore, we ask that the ag committee instruct

RMA to make the sorghum silage policy a rider on the sorghum grain insurance provisions for the 2004 crop year.

Producers in the arid regions of the U.S. Sorghum Belt continue to wait for coverage that will allow them to grow a water-conserving silage crop with the assurance of an equal insurance safety net.

CROP INSURANCE YIELDS & PREMIUM SUBSIDIES:

As part of information gathering for this hearing, NGSP surveyed its membership

about concerns and improvements regarding insurance. While inequities in price

elections topped the list of concerns, APH yield guarantees and the high cost of premiums followed closely.

Throughout much of the U.S. Sorghum Belt, multiple-year droughts on the Plains

have destroyed guaranteed yields for crop insurance purposes, unfortunately making

the program largely ineffective. Due to the continued threat of drought, we are concerned that, in the face of these disasters, farmers are not adequately or realistically

protected.

We urge this subcommittee to consider changing the manner in which actual production histories (APH) are calculated. NGSP suggests this subcommittee order a

study of various alternatives such as what adjustments could be given to either

APH or premiums in counties that have been declared disaster areas. After all, it

is the widespread disasters that have the greatest impact, not only on producers,

but on the rural communities that are dependent upon a healthy farm economy.

We would like to thank this subcommittee for convening this hearing today, and

we would be happy to provide any further input or information at any time. Thank

you.

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REVIEW CROP INSURANCE FOR SPECIALTY

CROP PRODUCERS

THURSDAY, OCTOBER 2, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, DC.

The subcommittee met, pursuant to call, at 9:35 a.m., in room

1300 of the Longworth House Office Building, Hon. Jerry Moran

(chairman of the subcommittee) presiding.

Present: Representatives Smith, Jenkins, Burns, Neugebauer,

Osborne, Peterson, Alexander, Pomeroy, Etheridge, Larsen, and

Stenholm.

Staff present: Kelli Ludlum, subcommittee staff director; Dave

Ebersole, Callista Gingrich, clerk; Teresa Thompson, John Riley,

Lisa Kelley, and Howard ‘‘Chip’’ Conley.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. Good morning. The Subcommittee on General Farm

Commodities and Risk Management’s hearing on crop insurance,

especially for specialty crops, will come to order.

I would like to welcome our witnesses here today. This is another

in a series of hearings on crop insurance today for the second time

specifically devoted to specialty crops.

Our panelists are here as a result of previous hearings that we

had and their request or their commodity group’s request for the

opportunity to present testimony to our subcommittee. And we are

delighted to have the opportunity to further complete the record on

crop insurance as it relates to specialty crops.

I would recognize the gentleman from Minnesota for any opening

comments he may have.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and thank you for

calling this important hearing, which is one in a series of a hearings that we have had. And I want to thank especially the witnesses for taking their time to be here to help us understand more

about this whole area.

I think we have made tremendous progress since the past passage of the bill in 2000. We have got a lot more acres covered, and

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we are making progress. But I still think last year’s call for disaster assistance and now this year people asking for disaster assistance, we still haven’t gotten to the point where we have got this

thing completely figured out so that it takes the place of disaster.

And we have had discussions about that in the past.

So I don’t know as much about the drought area as I know about

some of the other areas, so I am looking forward to hearing from

the witnesses. And with that, let us get at it.

Mr. MORAN. I thank the gentleman.

We have had a bit of bad luck in the logistics of this hearing that

was previously scheduled on the day that the hurricane arrived in

the area. And one of our witnesses from California, who was originally scheduled for that hearing, was unable to be with us today,

but we do have three witnesses. And I would invite them to the

table.

The first witness we will hear from is Mr. Johnny Barnes. If you

would like to come forward. He Is a North Carolina grower representing the U.S. Sweet Potato Council. Mr. Barnes is ably represented in Congress by Mr. Etheridge, and I recognize the gentleman from North Carolina.

OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH

CAROLINA

Mr. ETHERIDGE. Mr. Chairman, thank you. And thank you for

calling the hearing.

I appreciate this opportunity to present to the members of the

committee a constituent of mine and a friend. And his wife, Lisa,

has joined him, also, today, so we welcome them to Washington.

For those of you who don’t know, in this subcommittee, North

Carolina is the top producer of sweet potatoes in the United States.

And for those of you who also don’t know, it is a great source of

beta-carotene. Mr. Barnes is from Nash County, which is in my district, a county which ranks second in the United States as the largest county producing sweet potatoes. Johnston County, where I

grew up, is the largest producing in the country.

In addition to growing sweet potatoes, Mr. Barnes’ family also

grows tobacco, wheat, and a variety of other specialty crops. He has

been a leader in agriculture, and I state, for a number of years.

Even though he is a young man, he has done an awful lot. He

served as president of the North Carolina Small Grain Growers Association, a board member of the National Association of Wheat

Growers, but today he is here to share with us his expertise in

sweet potatoes and the problems they face with crop insurance, a

real issue for all of the growers of sweet potatoes, large and small.

His family farm is the largest family-owned producer of sweet potatoes in the United States, so when he speaks, he speaks with

some expertise in the area. He is a board member of the North

Carolina Sweet Potato Commission Foundation and formerly on the

board of directors of the North Carolina Sweet Potato Commission

himself. I know his testimony will be listened to with intense interest by this committee, and certainly he will speak for the growers

all across North Carolina and the country.

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Thank you for being here, Mr. Barnes, and thank you, Mr. Chairman, for the opportunity to present him here today.

Mr. MORAN. Thank you, Mr. Etheridge, for those remarks in recognizing and welcoming Mr. Barnes and recognizing North Carolina and sweet potatoes. The advertisement was well made.

Mr. Barnes will be joined by Mr. Jim Bittner. If you would like

to come to the table, Mr. Bittner. Mr. Bittner’s farm is located in

Appleton, NY, and he is here as an apple grower. And our third

witness is Ms. Lin Schmale, representing the Society of American

Florists.

We welcome all three witnesses and appreciate the efforts that

you have made to be with us today. We look forward to your testimony. Mr. Barnes, we welcome you to commence with your testimony.

STATEMENT OF JOHNNY C. BARNES, PRODUCER, SPRING

HOPE, NC, UNITED STATES SWEET POTATO COUNCIL, INC.

Mr. BARNES. Thank you, Mr. Chairman and members of the subcommittee and especially Congressman Etheridge for that warm

welcome. I want to thank you for allowing me to testify before the

subcommittee on the subject of crop insurance.

Again, my name is Johnny Barnes of Spring Hope, NC. I am part

of a family-owned and operated farm located in Nash County, NC.

Our farm is a diversified operation as we grow several different

commodities. We have been growing sweet potatoes for 50 years,

and we currently grow approximately 3,600 acres.

According to the National Agricultural Statistics Service, sweet

potatoes have been commercially grown in the United States since

the 1800’s. The 1997 Census of Agriculture reports that sweet potatoes are grown in some 23 different States. The top four States in

production in 2002, ranked from one to four, were North Carolina,

California, Mississippi, and Louisiana. In 2002, NASS reported

that nationally, sweet potatoes were grown on 83,300 acres. Production was 1.2498 billion pounds with a crop value of $213 million. Sweet potato production is very important to the rural communities in which they are grown.

Sweet potatoes may be the most nutritious of all vegetables.

They are a powerhouse of nutrition. According to the USDA, they

are an excellent source of beta-carotene, a good source of vitamin

C and potassium, a non-fat source of vitamin E, and they also contain other valuable nutrients, such as vitamin B6, folate, and fiber.

Sweet potato producers need an effective risk-management tool

available to all growers, which will provide a safety net against

weather-related disasters. The variability of the weather is the

most important economic factor sweet potato farmers encounter

during a growing season. Hurricanes and tropical storms, which affect the eastern and southern gulf States, deliver torrential rains

during the time when the sweet potato crop is mature and ready

for harvest. Because sweet potatoes are a root crop, they can not

survive excessive moisture nor will they mature during prolonged

dry conditions. Crop insurance for all who choose to protect themselves against catastrophic loss is essential.

Prior to 1998, crop insurance for sweet potato production and

storage was not available. The current pilot programs started with

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the 1998 crop year. By including the current 2003 growing season

therefore, the current pilot program has been in effect for six seasons.

The pilot program currently operates in five different States and

eight different counties, as follows: Baldwin County, Alabama;

Merced County, California; Avoyellas County, Morehouse County,

and West Carroll County, Louisiana; Columbus and Johnston

County, North Carolina; and Horry County, South Carolina.

During the 6-year existence of the pilot, our growers and the

North Carolina Sweet Potato Commission have had a number of

meetings with USDA’s Risk Management Agency to talk about crop

insurance and to discuss the kind of program we wanted. Similarly,

growers from other States and their State organizations have also

had meetings with RMA.

In our meetings with RMA consultants, RMA staff, and in our

correspondence with RMA and Congressmen in Washington, sweet

potato growers and our council have always made it clear that we

want a Crop Insurance Program for sweet potatoes that is: one,

market neutral; two, honest with no fraud; three, practical; and

four, affordable.

The requirement that the program be market neutral is very,

very important. However, as much as we have tried to communicate to RMA the need for market neutrality, sweet potato growers are not convinced that RMA is hearing us.

To assure that the issue of market neutrality is included, our

North Carolina growers have always asked that three requirements

be included in any permanent Crop Insurance Program for sweet

potatoes. Number one, producers must have a 3-year history of production before obtaining coverage with acreage certified by FSA.

Number two, the producer is limited to insuring no more than 110

percent of his prior 3-year average of certified acreage. For example, if a grower’s certified acreage over the past 3 years is 100

acres, then the most acreage that he could insure for the coming

year would be 110 acres. Number three, producer must prove or

show that unharvested acreage is destroyed prior to closing the

claim.

Moreover, since the pilot program is now completing its sixth

year of existence, U.S. sweet potato growers, through the efforts of

the United States Sweet Potato Council, are now asking that the

pilot program become a permanent program and be made available

to all sweet potato growers in all counties in all States. We don’t

think it is fair for some growers to have had the program for 6

years while the rest of us have to go without the safety net against

disaster that crop insurance provides.

To give the subcommittee an example of why we think it is so

important to have market neutrality and to make it available to all

growers, may I refer the subcommittee to table 1 of my testimony.

And in that table, there is a comparison of sweet potato acreage

planted, acres harvested, and net acres insured in Columbus County, North Carolina through the time period of 1998 to 2001. In this

chart, you will see, during this 4 years, a total of 6,505 acres have

been planted, 5,455 acres have been harvested, but insured, there

has been net acreages of 13,080 acres: 6,500 acres over what was

even certified as planted. You would think that there is fraud inVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00172 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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volved in this acreage difference. That would be everyone’s first

conclusion.

To end my testimony, U.S. sweet potato growers would very

much like to have an effective risk management tool available to

them. However, if a program can not be devised that is market

neutral, honest, practical, and affordable, I would then recommend

that the Crop Insurance Program be dropped completely for sweet

potatoes. Similarly, it is not fair for some growers to have access

to the pilot program for 6 years and thereby create additional volume and competition for bona fide growers that have been growing

sweet potatoes for many, many years but do not have access to the

benefits of the pilot program. Unless it is made available to all

growers in 2004, again, I would recommend that the Crop Insurance Program be completely dropped.

[The prepared statement of Mr. Barnes appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, Mr. Barnes, very much. I appreciate

your testimony, and it does raise a couple of questions that we will

explore with you and RMA as well.

Mr. Bittner.

STATEMENT OF JAMES J. BITTNER, PRODUCER, SINGER

FARMS, APPLETON, NY, U.S. APPLE ASSOCIATION

Mr. BITTNER. Thank you very much.

My name is Jim Bittner. I am an apple grower and owner of

Singer Farms from Appleton, NY. We are located along Lake Ontario near Niagara Falls in the northwestern area of New York

State. I am also a very diversified farm. We farm about 500 acres

of various orchard crops, over 200 acres of it being apples. I am

here today on behalf of the U.S. Apple Association, which represents the apple industry from growers to retail suppliers. We

have members in over 40 States and regional apple associations

around the country.

I am also the president of the New York State Horticultural Society and the Northeast Stonefruit Growers Association, and I am

past president Niagara County Farm Bureau.

I would like at this time to summarize some of the longer more

detailed written comments that we have sent in for the committee.

And I would like both my oral and written comments included in

the process of the committee.

I can speak personally of crop devastation caused by severe

weather beyond a grower’s control. In the summer of 1997, my orchard was pretty much destroyed by a hailstorm, making my fresh

apples unmarketable. After that, we looked very closely into buying

up apple crop insurance, but it really took some arm-twisting from

my banker who said, ‘‘You either buy up on apple crop insurance

or we are probably not going to give you an operating loan for the

next year.’’ So starting in 1998, and ever since, I have been bought

up on apple coverage.

I have learned some of the benefits of it and some of the things

that crop insurance doesn’t cover, and I would like to talk about

them today. Apple crop insurance policy as it currently stands

needs to be improved in two important ways. Number one, we need

to establish an inclusive all-peril apple crop insurance policy. And

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No. 2, growers need the ability to divide orchards into insurable

units using public right-of-ways and other obvious boundaries.

I can control many aspects of apple production, such as protecting my crop against diseases using integrated pest management,

careful pruning, thinning to influence the size of the apples and the

color. I choose varieties that I can grow and market, but unfortunately I can not control weather risks. And it is unfortunate, also,

that apple crop insurance today really doesn’t protect me against

all weather-related perils.

Out of the dozens of potential disasters facing today’s apple

growers, fresh apples can only be insured against damage by hail,

wind, and freeze under current policies. For example, apples damaged by a spring frost or sunburn by midsummer heat are not covered. During the spring of 2002, apple growers in the East and the

Midwest suffered the worst spring frost damage they have had in

50 years. Apple trees were in full bloom when multiple consecutive

days of below-freezing temperatures killed many blossoms, and the

blossoms that did survive grew deformed, mutated apples, which

were not marketable. Growers suffered devastating apple production losses and, more importantly, quality losses. These damaged,

low-grade apples were not covered by the current apple crop insurance policies. Growers could not sell these apples. They were

worthless, and they were not covered by crop insurance.

This single devastating spring frost in 200 highlights the dismal

inadequacies of the apple crop insurance policy and was one of the

major reasons why the apple industry sought disaster relief from

Congress last year. I would like to thank the chairman of the

House Agriculture Committee for supporting equitable treatment of

specialty crops in that disaster bill. And it was approved by Congress earlier this year.

After working with RMA for the past year, USApple supports revising the current apple crop insurance policy to make it a complete, all-peril policy. Growers should be able to insure their crop

against all losses that they can not prevent. An all-peril apple policy would be clear and straightforward instead of growers having

to select each peril as a separate policy option. An all-peril policy

would provide fair and balanced coverage across the country and

prevent enforcement confusion.

The other problem with the current policy is the inability to divide orchards into separate units along obvious breaks. Growers

should be able to use public right-of-ways and other obvious boundaries as unit dividers just as annual crops can divide acreage into

section equivalents. Optional units are advantageous to growers,

because it is more likely to meet claim thresholds in one with

smaller units than one large unit. However, under the current program, only noncontiguous units can be made into separate units.

The current program says ‘‘land separated only by public or private

right-of-ways, waterways, or irrigation canals are considered contiguous and therefore not dividable in separate units.’’ This must

be changed.

In my attached written testimony, there is a photograph of a

public right-of-way making a discernible break between an apple

orchard and a farm. The photograph shows a public road dividing

the apple orchard. You see the grower uses the road as the discernVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00174 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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ible break, and he maintains separate records for both sections of

his orchard. The separate records include spray records, USDA

worker protection requirements, volume and quality of apples produced, planting patterns and the varieties grown. The road divides

the orchard by approximately 50 feet, is maintained by the town

that receives Federal money to maintain it, yet under the current

policy, that road, or any public right-of-way, is not a discernible

break. Therefore, the orchard is contiguous and is considered one

unit under current policy.

In summary, I urge the subcommittee to support USApple’s efforts to improve the apple crop insurance policy through an allperil policy that allows growers to create optional units, as described above. I also want to thank the RMA staff who recognizes

the shortcomings of the current apple policy and has collaborated

with us on the concerns I have discussed today. But the job isn’t

done. Apple growers throughout the Nation need a revised, all-peril

insurance policy as soon as possible. I need and want an improved

risk-management tool such as that. We want to see the job get

done right so U.S. apple growers have the workable, important

risk-management tool that they need.

I thank you very much for your time, and I would be glad to answer any questions. Thank you.

[The prepared statement of Mr. Bittner appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you very much, Mr. Bittner.

Ms. Schmale.

STATEMENT OF LIN SCHMALE, SENIOR DIRECTOR, GOVERNMENT RELATIONS, SOCIETY OF AMERICAN FLORISTS, ALEXANDRIA, VA

Ms. SCHMALE. Thank you. Chairman Moran, Ranking Member

Peterson, and members of the subcommittee, we are particularly

pleased to be here, and we really commend you on your efforts to

bring the needs of the specialty crop industry and risk management in USDA’s risk management program to the forefront, because we have been thinking that this is important for a lot of

years.

I will try to summarize my testimony and, of course, submit it

for the record.

I am here representing the Society of American Florists, which

I am the senior director of government relations, and also the

American Nursery and Landscape Association. Together, we represent the floriculture and nursery industry in the U.S., including

everything from trees, shrubs, perennials, bedding plants, foliage

plants, potted flowering plants, cut flowers, cut foliage, propagating

material, so right off the top, a very large and very diverse industry, which immediately presents a problem as far as designing a

crop insurance policy.

We are a huge and growing industry right now, $13 billion at

U.S. farmgate according to USDA statistics. We are the No. 3 crop

in farmgate value in the United States. We are only outranked by

corn and soybeans. We are among the top five crops in 24 States,

and yet despite some beginning good efforts by the Risk Management Agency, our growers still don’t have the kinds of good riskVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00175 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
170

management tools that are available to other segments of U.S. agriculture, and of course that is what we would like to seek.

I have really three major points to make as I talk today: first,

to talk about the nursery crop policy that does exist; second, to talk

about the lack of coverage for cut flowers and cut foliage; and third,

to talk about the need for quarantine protection.

The nursery policy, which is in place right now with RMA, is fundamentally a working policy, but it is extraordinarily complex, and

it requires an extraordinarily knowledgeable and talented crop insurance agent to advise a grower on what he is purchasing for the

various options available. This presents a problem for the grower,

of course, but one of the most important drawbacks of the program

is the agents and their companies are exposed to ‘‘errors and omissions’’ lawsuits. Because the program is so complex, if an agent inadvertently makes a mistake or if the grower somehow fails to understand what he is purchasing and has a big loss, the company’s

‘‘errors and omissions’’ liability insurance might or might not cover

the entire loss, and that puts the entire insurance company at risk.

This makes some of our insurance companies reluctant to get into

the game and to give our growers the kind of coverage they need.

The existing nursery crop policy was designed originally for

woody ornamentals, trees and shrubs, and was later expanded to

cover other types of plant material, including some plants grown in

greenhouses. And as a result, different kinds of growing practices

and conditions are all joined together without much distinction in

the way the policy is written. No plants are covered that are grown

in less than 3-inch containers. Propagated material is not covered.

And probably most importantly, a grower can buy coverage for a

plant in his county only if that plant is listed for that specific county. RMA has published an extremely detailed county plant coverage

list, the printout of which runs from 500 to 600 pages or more per

region, and it is very difficult for a grower or an agent to look

through and understand. And most of our growers don’t just grow

one kind of plant. A large nursery could grow 1,000 plants, so to

look through this huge list and try and decide what is covered and

at what price and what he is buying and of the various coverage

options, what he wants to purchase to manage his risk is extraordinarily complex and difficult.

For example, if you are a grower in Cheyenne County, NE, which

I picked because that is where I am from, and wanted to grow poinsettias, and I don’t think there are a lot of poinsettia growers in

Cheyenne County, NE, even in a fully heated and protected greenhouse, you would have to rely on this crop county list to tell you

whether or not you could buy a coverage and at what levels. And

the list, by the way, does not distinguish between whether you

would be growing potatoes on the edge of your wheat field or

whether you would be growing potatoes in a $1 million greenhouse,

which, of course, is a problem. So that makes determining the

value of the coverage for the grower very complex, very onerous,

and probably most growers and most agents just kind of take a

stab at making an estimate, and that exposes them either to the

risk of penalties for being over- or under-reporting.

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The pricing and county crop list system is basically based on the

heartiness zone system, which if any of you are gardeners, you are

familiar with.

And let me just give you an example of the kinds of problems

that that could solve, because it is combined with counties. Dade,

Broward, and Palm Beach County, Florida are all in Hardiness

zone 10, but Martin County, Florida, just north of Palm Beach, is

in zone 9. As the population increases in Miami, lots of nurseries

are moving northward to get out of the city. From the three counties that are in zone 10, they are moving northward into Martin

County, which is in zone 9. So a grower, which had been growing

Spathiphyllum, just as an example, in zone 10 might not be able

to insure it in zone 9 simply because he crossed that hardiness

zone line, which seems a little arbitrary.

As I mentioned before, it is a big problem for us that there is no

coverage at all available for cut flowers or cut foliage, and RMA

contracted a study on that a couple of years ago. We helped them

put together their listening sessions. And to date, we have seen no

report. We are very anxious to see that report and to work with

RMA to see what might be able to be developed for that segment

of our industry.

Finally, near and dear to my heart, is the need for quarantine

protection. And as some of you know, the geranium industry this

year went through a huge and very, very expensive quarantine.

And although some coverage, some very limited coverage, was

available to growers who had crop insurance, many of them were

not covered. We strongly believe, and we strongly urge, that USDA,

whether it be RMA, whether it be APHIS, needs to find a way of

providing quarantine coverage for specialty crop growers.

Quarantine could be listed as a named peril on Federal crop insurance policies. I know the sweet potato industry worked to do a

fund to help provide their own coverage. I think if we think out of

the box, we are going to be able to do this, but I think it absolutely

has to be done, because in this era of global trade, more and more

pests and diseases are coming in, and almost any of them can find

a home in a nursery operation. And they are causing our growers

huge damage, in addition to ralstonia, which is the disease that hit

geraniums this year, we have had emerald ash borer, sudden oak

death, plum pox, and citrus canker, all of which have, I think,

eventually come to congressional attention and from all of which

our growers have suffered. And this is not good for the American

agricultural economy.

In summary, I thank you for listening to us and I will be happy

to answer any questions.

[The prepared statement of Ms. Schmale appears at the conclusion of the hearing.]

Mr. MORAN. Ms. Schmale, thank you very much.

A couple of questions. Mr. Barnes, do you have a good explanation for why it has been so slow in expanding the coverage from

a pilot program to greater coverage?

Mr. BARNES. Yes, sir. I think that the primary reason is the loss

ratio to premiums has been so high that they have been hesitant

to expand it. And again, the loss ratio is high, we think, because

there is abuse of the program involved. When we first looked at

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having crop insurance for sweet potatoes, we were given an opportunity to make recommendations to RMA on what stipulations that

they can put into the program for sweet potatoes that we would

like to see. And we gave them this list that is in my testimony, and

they were not instituted for one reason or another. The primary

concern was that it would limit the accessibility, the access to the

program, for producers. However, we were concerned that there

would be abuse of the program and that it would destroy our market. It could possibly destroy the sweet potato market. Well, since

the loss ratios have been so high, they have been trying to figure

out and gradually instituting different parts of these stipulations.

They haven’t gone all the way. But we believe if they had taken

our recommendations to start with and put them in the program,

we would already have a nationwide program.

Mr. MORAN. What percentage of farmers in those pilot counties,

sweet potato farmers, are utilizing crop insurance? Is the number

of acres and number of farmers a significant portion to the total

number?

Mr. BARNES. Yes, sir, it is significant. I mean, it is well over a

majority of the producers in those counties. I even know of producers in adjoining counties that have never grown sweet potatoes in

the pilot program counties that have started producing sweet potatoes in the pilot program county so that they can participate in the

crop insurance.

Mr. MORAN. And you, perhaps, were asking a rhetorical question

about the fraud or abuse. You showed your chart and asked kind

of a rhetorical question about what the explanation might be. But

what you are suggesting is that it is a matter of abuse?

Mr. BARNES. Yes, it is not entirely abuse or fraud. At first glance,

you would think that is what it is all about. That is a part of it.

In our State, we also have a mandatory assessment for the State

sweet potato association of $15 per acre, so that there is an incentive for the producer to underreport his acreage to FSA so that he

doesn’t have to pay the $15 per acre assessment, which is also

wrong. So there is both of those things going on.

Mr. MORAN. Let me ask Mr. Bittner. The RMA reaction to allperil policies has been what?

Mr. BITTNER. My understanding right now is that is in the process of being instituted. It is somewhere in the process of being reviewed by counsel, I believe, at this point. RMA has had a lot of

listening meetings where they have talked to growers how they

could improve the apple program. The apple industry has really

come together and made some really good recommendations, and I

think RMA is going with the all-peril. And it sounds like that is

a real doable thing.

The division of units seems to be put on the back burner at this

point. Within RMA, apparently there is some controversy of whether that is a good idea or not. Really, to make a good, effective policy, we are going to have to have both of them together to make

a policy that really works.

Another issue there is timing. Because we grow a perennial crop,

we have to sign up for our program in November. I believe it is November 20 for the next year, so anything that comes out of RMA

from here on out, we are talking about the 2005 crop to give us a

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good, workable policy. So I know RMA needs to get going on that

in order to even make that deadline so we have something in place

for 2005. So they are working on it. We have a good relationship

back and forth with RMA about discussing it, but my understanding is the all-peril is moving forward. There is a good chance that

that could happen. The division of units is, really, I guess, on a

back burner.

Mr. MORAN. Thank you. Ms. Schmale, it seems to me that, perhaps of all of the specialty crops, although I hate to say this because others will disagree, probably rightfully so, but you may have

the most complicated circumstances with the variety of crops within nursery and flowers within your industry. And education, you

talked about the inability to describe, explain, educate your producers, your farmers. What role has RMA played in that educational

process? Have they taken any efforts in this regard?

Ms. SCHMALE. I think that traditionally that is left to the crop

insurance agents primarily. And so it varies from place to place.

We have instances where growers are pretty well educated about

the program. We have other instances where, I am sure, they think

they are buying something that they are not really buying. And I

think you are right about the complexity. We are a very complex

industry, and to try to design a crop insurance policy that is going

to cover all of the contingencies for growers ranging from oak trees

to impatiens to foliage plants in Florida and from places from

Miami to Seattle and to try to cover all of those things in one policy

is certainly going to be very difficult, if not impossible. I think

probably our best bet, for my industry, is for RMA to do as it has

done with some of the other crops and to try to design a policy that

would be more of an income-based policy rather than trying to

cover specifics.

Mr. MORAN. There is no income-based policy, no revenue insurance policy now?

Ms. SCHMALE. Right. RMA is currently offering a policy, the adjusted gross revenue policy, the AGR policy. And some of that is

being sold to some of our growers, but that is a pilot policy again,

and it is only available in certain places of the country.

Mr. MORAN. Thank you very much.

Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Barnes, getting back to this Columbus County example here,

the acres planted, where are you getting that information from?

Mr. BARNES. The county FSA office.

Mr. PETERSON. So that is the NASS, as I understand it, NASS

estimated what this——

Mr. BARNES. It is the Farm Service Agency office there in the

county. The acreage that is reported to them that is planted.

Mr. PETERSON. So this isn’t an estimate; this is an actual——

Mr. BARNES. Yes, sir.

Mr. PETERSON. Well, I don’t understand how you could insure 5

million acres if the FSA says there is only—is it 5,000 acres?

Mr. BARNES. Well, they are——

Mr. PETERSON. Whatever it is, I don’t understand how there

could be that big of a discrepancy. Why isn’t the FSA blowing the

whistle on this?

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Mr. BARNES. I don’t know. I think there is a disconnect there, obviously, that FSA doesn’t know the acreage being insured. And the

acreage being insured, the agency insuring them maybe don’t know

whether they are being reported or not.

Mr. PETERSON. So they aren’t planting these acres at all?

Mr. BARNES. No, we think that some of these acres are being

planted, but a substantial amount of it is not being planted, that

is correct.

Mr. PETERSON. Well, I mean, it is like two-thirds of the acres insured are not planted. Well, how could that happen and people not

know that? I mean, it just doesn’t seem logical. And then for you

to be able to have a problem that you are being able to cover too

much of your crop, I mean the problem I have with my area is that

we can’t get the amount of coverage we need. We are limited, when

we have loss years, to 60 percent of whatever the county average

is. Apparently you have had some losses down there in North Carolina because of the hurricanes or whatever, so you don’t have a situation like that where this drags down the amount that you can

cover like it is with wheat, corn, and soybeans and so forth?

Mr. BARNES. I think because it is a pilot program, a lot of those

situations that you are talking about that are available for general

commodities is not a part of the pilot program because of the people just starting in it. For example, we wanted to limit the number

of acreage that a person could put in it to, what they had been

planting in the last 3 years. Because it is a pilot program, that has

not been instituted. I mean, that is not being used, and so the people are going out here and insuring acreages. Farmers are insuring

acres they have never grown sweet potatoes before.

Mr. PETERSON. Right. So there is no limitation on that, so if you

plant 400 acres and you didn’t plant any before, you could insure

400 acres.

Mr. BARNES. Yes, sir.

Mr. PETERSON. And you could actually insure—well, so explain

to me then what kind of coverage do you get out of those acres.

How does that work? I mean, are you insured for 100 percent of

the value of that crop or 80 percent or 60 percent or do you know?

Mr. BARNES. I don’t know. It is some percentage of the crops. It

is not 100 percent.

Mr. PETERSON. Well, it must be good enough that people are getting——

Mr. BARNES. I think it is 65 percent, but I am not positive. But

yes, it is good enough that it is profitable to farm with crop insurance.

Mr. PETERSON. There wouldn’t be prevented planting involved in

this where the acres planted were 1.8 and the rest of them weren’t

planted because you had some kind hurricane or whatever and

they couldn’t plant it, that wouldn’t have been the situation?

Mr. BARNES. No, sir, I don’t believe so. Most of our weather problems have occurred during harvest season due to hurricanes, excess

moisture. Last fall we didn’t have a hurricane, but we had rain

every third or fourth day. So the acres would get planted, or in this

case, would get insured and not planted and certainly not reported

as being planted to the FSA office.

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Mr. PETERSON. Has anybody turned this into RMA and had them

try to go back to the agents and find out what they are up to here

and is there any effort being made to see if there is actually fraud

going on here?

Mr. BARNES. When we first became aware of these numbers, we

had an RMA consultant visit with us from Montana concerning expanding the crop insurance pilot program to the storage of sweet

potatoes while they are in storage. And we ship sweet potatoes, sell

them 12 months a year. So storage is a large part of the sweet potato cycle, marketing cycle. And they were showing us the loss ratios in these pilot counties. And it was right there on their data,

this discrepancy and the acreage being reported to FSA and what

was being insured. So I mean it is available to RMA. They should

be aware of it. Their consultants are aware of it. They are the ones

that made us aware of it. And we told them during this hearing

or meeting about concerning expanding it to storage, that ‘‘Hey,

guys. You haven’t got it worked out for in the field yet. You don’t

need to start thinking about storage. You need to get it worked out

in the field first.’’

Mr. PETERSON. Well, thank you. I see my time is up. Mr. Davidson, you have listened to all of this, I would like you to give us an

explanation in writing of what is going on here.

Thank you.

Mr. MORAN. Thank you, Mr. Peterson.

The gentleman from Michigan, Mr. Smith.

Mr. SMITH. Thank you, Mr. Chairman. And witnesses, thank you

for being here.

Of course Michigan, I think we rank second in terms of specialty

crops. It seems obvious, Mr. Barnes, that the Federal Government

shouldn’t have a program that puts some producers at a disadvantage by not having coverage while they have coverage for other producers. And so the pilot program that has the advantages of allowing us to sort of feel our way and decide what the best way to go

ends up, as you point out, as a disadvantage to the growers that

don’t have that opportunity afforded to them. So, Mr. Chairman, I

agree that something should happen, especially in sweet potatoes

where it might be more profound.

In my district of southern Michigan, we have, I think, either the

country’s largest or second largest gladiola producer that aren’t

covered now. And what happened to the operation down in

Bronson, Michigan is they bought insurance and the seller of the

insurance thought they were covered. But then they eventually had

damage and so the insurance company gave them back their premium but still, again, somewhat misleading.

So it seems to me, Mr. Chairman, that the Government can’t

come in and say, ‘‘Look, we are going to take the risk out of farming.’’ As I understand it, Mr. Davidson, we average 24 percent.

Government now pays about 24 percent of the administrative cost

and ranges some place between 30 percent and 60 percent of the

cost of the premium. So that gets as high as, if I am correct, Mr.

Chairman, Government paying up to 80 percent of the cost of this

insurance. And so I tell my farmers, ‘‘Look, you better at least look

at this, because Government is subsidizing the true cost of the insurance.’’ I mean, we all know farming is a risk.

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Expanding from that, Michigan now is undergoing a disaster of

the emerald ash borer. And so the destruction of that timber industry and the nursery industry producing those trees, because Government is coming in now and saying, ‘‘There is a quarantine. You

can’t move those trees out of your area.’’ is an extension of where

we might go as far as the kind of insurance coverage that is ultimately needed over and above just the weather coverage, or for

that matter, weather and price coverage for the commodity. Do I

understand that? You mentioned it in your testimony. Do I understand that you are suggesting that we expand coverage for such

things as quarantines and additional disasters? And in apples, of

course, if it is the hail or wind or freeze, it is covered, if it is anything else, it is not covered. How far should Government go in having an insurance policy that covers against more and more risk?

Mr. BITTNER. I will answer that. Yes, the Government puts a lot

of money into subsidizing the premiums on the policy. But it is important that the policy work and be effective. We are not necessarily asking for more money to be thrown at it, but we have got

to have a workable policy. Also, I don’t think anyone in any industry is asking for 100 percent coverage. Sixty-five percent coverage,

I have talked to farmers. If they had 100 percent wipeout of a crop

and got paid for 65 percent of it through insurance, they would still

be out of business. So I guess what you have got to look at, the

crop insurance is a management tool that helps the grower with

some of the risk in growing these crops.

Mr. SMITH. Well, if the Government is paying between 30 and 70

percent of the cost of the insurance, that is quite a lot of help.

Mr. BITTNER. Yes, but it is to ensure the first 65 percent, on average, of the crop. We are never insuring 100 percent of the crop.

Mr. SMITH. No, no. I am just saying that is the amount of the

real cost of the premium if it was a private insurance company

without Government involvement. Government is now coming in, if

I understand that correctly, and paying someplace between 30 and

70 percent of the cost of that insurance, if you include the Federal

Government’s reimbursement for 241⁄2 percent for administrative

costs.

Mr. BITTNER. That is true. I mean, the Government is paying a

lot of money for it.

Mr. SMITH. Do I understand? Are you suggesting that we expand

coverage for other nursery crops for gladiolas, for example, and for

the Government’s decision to quarantine some of these crops because of invasive species?

Ms. SCHMALE. Yes. I specifically suggested that whether it be

crop insurance or whether it be APHIS, we absolutely need some

way to compensate plant growers, specifically specialty crops, for

quarantines, because they are becoming more and more common,

and they are hugely expensive. The Ash trees are an excellent example up there. Growers are suffering huge financial losses,

through no fault of their own. And we need some way to deal with

that, whether it be through crop insurance or whether it be

through an APHIS program I think remains to be examined.

And coming back to the expansion for things like gladiolas. That

is a cut flower, not in the program at all right now. And we defiVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00182 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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nitely need some way to help growers with a risk-management tool

to put them on an even footing with the rest of agriculture.

I think that the complexity of my industry, growers are fairly diversified, and that, to some extent, helps them manage their risks.

So they don’t need the same kind of really complex problem that

is going to cover every contingency. In fact, the catastrophic policy

that is in place right now is a helpful tool, but I think we can probably do better.

Mr. SMITH. But even a cap program isn’t available to gladiolas,

for example, right?

Ms. SCHMALE. No.

Mr. SMITH. Mr. Chairman, thank you.

Ms. SCHMALE. It is only available if the plant is on the county

list.

Mr. SMITH. My time is up, but it seems to me that we really

should be looking at a situation where Government programs now,

by pilot programs and others, is sort of picking winners and losers

and sort of imposing Government into the marketplace in terms of

giving some advantages for different crops, some crops, and less advantage for other crops. And so thank you for holding this hearing.

Mr. MORAN. I think the gentleman from Michigan is right. One

of the questions we face is which crops. And the result is there is

an unfairness built in the system, and you question about the desire to expand or the appropriateness of expansion. Then the question becomes why them and not me, and farmers make decisions

based upon what crop insurance is available. As Mr. Barnes indicates, just where you grow sweet potatoes and whether you grow

them.

The gentleman from Louisiana.

Mr. ALEXANDER. Thank you, Mr. Chairman.

Mr. Barnes, I came to this meeting this morning thinking that

Louisiana was the second largest producer of sweet potatoes. You

tell us that we are fourth. Is it because of a bad vote that we got

the demotion?

Mr. BARNES. Louisiana is second in production. I apologize for

that incorrect statement.

Mr. ALEXANDER. Thank you. That makes me feel better.

Mr. MORAN. The record is corrected.

Mr. ALEXANDER. All right. I can go back home this afternoon.

How does the risk management determine the price that will

apply to potatoes as it applies to the insurance?

Mr. BARNES. They have a certain price per bushel that they put

on it, which is based upon production costs, and I am not sure

what that price is per bushel. But they put a value per acre. It

equates out to a value per acre based on the county average yield.

And basically 65 percent is designed to get back your cost of production. It is not designed to be profitable. However, it has been

manipulated so that it is being done that way in certain areas.

Mr. ALEXANDER. OK. Thank you.

Mr. MORAN. The gentleman from Georgia.

Mr. BURNS. Thank you, Mr. Chairman.

I don’t know how many sweet potatoes we have in Georgia, but

I know I remember growing them as a child, so that was just for

our enjoyment in the family. I am most interested in, first, Mr.

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Barnes’ testimony about the discrepancy in acreages for crop insurance. That is a sweet potato problem, or would you see that as a

crop insurance problem on a more widespread basis?

Mr. BARNES. I don’t think that it is a widespread problem in

other Crop Insurance Programs. I think it is part of the process of

them trying to work through a pilot program and finding out what

will work and obviously what doesn’t work. And I think that they

have been slow. When I say they, RMA has been slow to react to

it.

Mr. BURNS. Is it isolated just to the pilot program in isolated

areas then?

Mr. BARNES. Yes.

Mr. BURNS. OK. I agree with your points about what a valid

Crop Insurance Program might include. How would you propose insuring that this kind of problem does not continue?

Mr. BARNES. Well, I think we need to have aggressive investigations when there are reports of crop insurance abuse. And there

should be substantial penalties.

Mr. BURNS. Mr. Bittner, when you were talking in your testimony about the orchards and the need to be able to subdivide and

sectionalize those types of things, are we looking at an annual plan

or a multiyear plan? In other words, if you had the opportunity to

establish guidelines along those lines, how would you, again, accept

natural boundaries, roads, or perhaps some other form of division,

but my question really becomes one of how frequently would those

boundaries change or would they change?

Mr. BITTNER. Well, I think we are all only asking for roads, and,

like, irrigation ditches, natural boundaries that are there. And then

I don’t think they would change. I mean, it is not like you are going

to——

Mr. BURNS. Rivers or streams, perhaps?

Mr. BITTNER. I think you have to say—somewhere there has to

be a definition. You might want to say navigable rivers, so we are

not arguing about the stream moved or whatever.

Mr. BURNS. But if you have an irrigation ditch, that is a manmade——

Mr. BITTNER. Well, I believe what the growers were asking for

is if it was a farmer’s irrigation ditch, that doesn’t count, but if it

is a community irrigation ditch that they don’t have control over,

where they can’t go and move it tomorrow, we don’t want to be

moving units around. We want things that are there permanently.

Mr. BURNS. That is really the point of my question. I don’t have

a basic problem with establishing some reasonable boundaries, but

I might have a problem with them being so fluid that they move

around.

Mr. BITTNER. No, we can’t have that, because that is going to create opportunities for people to mess around with the policies. I

think if we just had roads, if we just had public right-of-ways as

a discernible boundary, we would take a big step in the right direction. And those are clear-cut. There are town maps. I mean, we are

not talking about farmers’ lanes. We are talking about public rightof-ways. That would be a huge improvement over what we have

today.

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Mr. BURNS. OK. Now Ms. Schmale, when you were giving your

testimony, one of the ironies of your testimony would suggest that

it is awfully hard to know what is covered and what is not.

Ms. SCHMALE. That is right.

Mr. BURNS. And if I am in the nursery business in a particular

location, there are some things that I might be able to have insurance in and certainly there are others that would not be acceptable,

but yet I could move a county boundary, is that correct, and that

list may change?

Ms. SCHMALE. That is right. You have to go back to this pretty

complex list and figure out in your county whether the plants that

you are growing are covered and at what price and then try to design your risk management needs around that.

Mr. BURNS. Then what would you suggest as a better way? Obviously—I shouldn’t say obviously. It appears that the way we are

doing it now is not very effective or efficient. But what would be

your recommendation?

Ms. SCHMALE. Well, I hate to be too critical about that, because

I know RMA has worked hard on that policy, and they have listened to growers, and they have tried to make, and in fact have

made some improvements on it. I think we need to step back and

look at what we are trying to achieve. Our industry does not need

a policy similar to the wheat policy. But what our industry needs

is a policy that recognizes that diversity and recognizes the ability

of growers to control their losses somewhat through their own diversity. And I suppose that just thinking outside the box and some

kind of insurance specialists getting together with growers and

really talking about it would be able to come up with something

that was a little simpler by either grouping things together or providing income management coverage or providing some other kinds

of alternatives. If people want to go through that kind of complex

process and get that kind of insurance, they probably should be

able to do it, but it is very complex.

Mr. BURNS. I realize my time is expired. Let me ask one more

quick question. If you group—you have a wide variety of different

products in your industry: cut flowers in one and ornamentals and

woody products and on and on and on. Is it more appropriate to

group them in classifications or name them by species?

Ms. SCHMALE. I think it would probably be more appropriate to

try to group them together. I hesitate to say that a little bit, but

it seems particularly silly that if you are growing a plant outdoors

exposed to the weather and indoors in an environmentally controlled greenhouse you are subject to the same kind of insurance

conditions because the risk, obviously, is very different.

Mr. BURNS. I agree.

Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Burns.

The gentleman from North Carolina.

Mr. ETHERIDGE. Thank you, Mr. Chairman. And let me again

thank you for holding this hearing.

Mr. Barnes, so the folks who don’t deal with a lot of specialty

crops on this committee and for a matter of record so they will understand, when you are talking about RMA, the insurance on with

a pilot like potatoes or tobacco or any number of areas where you

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have insurance that is tied to RMA versus FSA, which is the Farm

Service Agency, the Farm Service Agency does not have any authority over the RMA. They only accept the reporting because Congress in their wisdom a number of years ago took it out of USDA

and put it outside. I think the members need to understand we are

dealing with two different areas here. FSA may collect the data

and report it, but they have zero authority to act or to police if

there is any kind of manipulation of the numbers or if in fact you

have got a crop planted and not harvested is really up to RMA or

the insurance agency to deal with that, is that correct?

Mr. BARNES. Yes, sir, that is correct.

Mr. ETHERIDGE. OK. I wanted that as a matter of record, because

I think sometimes we get here and we think that it is under USDA

and it is really not, other than the fact that it is run through there.

Let me come back to that, because I think that is an important

area and an important distinction when Congress made that decision a number of years ago. I continually hear from the FSA directors that they get blamed a lot of times for these problems of people who fail to harvest. They plant, they collect insurance, and they

are blamed and they really have no authority to deal with it. Assuming the pilot were expanded nationwide, OK, let us go for an

assumption that we did that with the changes that you have suggested this morning.

My question would be what do you think the impact would be on

it regarding the amount of potatoes that, number one, might be

produced, and number two, what that might do to price for the consumer or for the farmer or packager for that matter?

Mr. BARNES. If these stipulations that we proposed were introduced, I don’t think there would be any negative impact to the

market. I think it would be a market neutral program, as best as

we can tell. And we don’t foresee all impacts, but we think it would

be market neutral. It has been a tough couple of weather years in

North Carolina and Louisiana over the past couple of years. And

you know, there are some producers this year that could not grow

sweet potatoes because they could not get financing. If they had

had a crop insurance program available, they could still be producing sweet potatoes this year. By the way, the market is really calling for sweet potatoes to be produced. The prices are quite high

right now. We have had several short years that a lot of the farmers could not afford to grow the crop this year.

Mr. ETHERIDGE. Let me follow that up, because I think that is

important, and it needs to be a part of the record, because banks

are reluctant because of the type of product you have. If there isn’t

some kind of assurance that they are going to get some of their

money back, especially with the margins of return that farmers

have, it is an additional component that happened this year I know

in North Carolina. It may have happened in Louisiana and other

States, because we had one of the wettest springs and summers we

have had on record, which created, I am sure on your farm and

many others, a very difficult time for farmers to get their crops, not

only sweet potatoes, but other crops, into the field, which would

have had an impact on production. But if you don’t have that, then,

of course, you don’t have some assurance for the bank, then you

don’t get the money to make that decision anyway.

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Mr. BARNES. That is right.

Mr. ETHERIDGE. Thank you, sir.

Ms. Schmale, let me ask you a question. Regarding your desire

for the quarantine protection you raised earlier, should a producer

who is responsible for bringing an invasive pest in, and sometimes

they may not know it, but let us say I am a producer and I bring

it in, assuming we had that, should I be able to benefit from whatever we have done as a result of bringing it in? And how do you

foresee this protection working should this be granted?

Ms. SCHMALE. Well, when we know the smoking gun that

brought a pest in, obviously, that smoking gun has to bear a part

of the responsibility. But once the pest comes into the country, the

APHIS, USDA is making certain decisions about the quarantine

that are out of that producer’s hands. And in the case of Ralstonia,

the destruction required by USDA was far beyond what would have

been the normal practice in the industry, and personally I think it

was far beyond what might have been required. So I think there

has to be some sharing of the responsibility. The practice in the industry is, for non-quarantinable diseases, if somebody imports a

disease that they have to then go back to their customers and say

we imported this and then they buy the plant back. But they don’t

have to buy back 20 acres of surrounding plants as they had to in

this case. Is that an answer to your question?

Mr. ETHERIDGE. Yes. Thank you.

Mr. SMITH. Would the gentleman yield just for interest? The emerald ash borer actually came in in the crating from China bringing

in manufactured goods in Michigan that is now hitting us with

maybe a couple billion dollars of loss.

Mr. ETHERIDGE. Thank you, Mr. Chairman. I see my time has expired. This is an important area, because this is a large industry

also in North Carolina and growing very rapidly because of our geographic location, and I think it is important to all of us. Thank

you very much.

Mr. MORAN. I thank the gentleman.

The gentleman from Texas.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

If we can kind of give each one of the panelists an opportunity

to respond to this question. We have listened to a lot of the testimony and other commodities and your testimony today. And it is

obvious with producers in my region, we keep coming back to the

aspect that, whether it is 65 percent or 75 percent, it is based on

your average yield. And there is some assumption there that producers are working off of a 35 percent margin in their crops when

you look at a 65 percent program. And many of the producers tell

me that they are not working off of that. They would like to be

working off of those kind of margins. So really, when you talk

about risk management, to me, I don’t know that the current program really is a risk management program. Because if you can’t recover your cost, to me, other than your lender requiring you covering it and some of the Government programs requiring you to carry

it, it is really not a program that is actually insuring any risk. So

I think the question—and then Ms. Schmale brought up the point

that commodities of different variations of ornamental flowers may

have different needs, and so what it looks like to me is we have

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created a very complex network of crop insurance trying to—particularly in the specialty crops, is there a better unit to work off

of annual revenues? I mean, is there a different direction that

maybe we ought to be looking at?

Mr. BITTNER. I would like to take that on first. Sixty-five percent

coverage is never going to make you whole. And I guess we are not

asking for insurance that is going to make as much profit if we

would have had a perfect crop. Sixty-five percent allows you to live

for another year to farm again. And that is all you are really asking for coverage. I don’t think this country could afford higher coverage. I don’t think we would want to spend the money. And growers, quite frankly, aren’t asking for that. It is a safety net to let

us fight another day. And I think that is a way of looking at it.

As far as other ways of insuring these complicated specialty

crops, I mean, ornamentals are probably the most complicated. I

grow 11 different crops of fruits on my farms, most of which insurance isn’t available for. The only way to really approach that without being so specific and so complicated is the adjusted gross revenue coverage. I bought up that product for the last 2 years. I am

gaining some experience with it. I don’t know how confident I am

with it, but I think that idea, some type of insuring gross revenue,

there have been ideas of insuring your expenses, that you at least

can cover your expenses. There have been lots of ideas like that,

and they are being talked about. There are pilot programs out

there that do adjusted gross revenue. AGR Light is the latest one

in New York, and Pennsylvania, I guess, started with that. Yes.

There are other ways of doing it. And I think it was mentioned

with the ornamentals. That may be a way of looking at it. Let us

insure our income, because that is really what we are talking

about, then it takes—and another advantage to that is we are not

only then insuring the crop, the grower is insuring price or income,

which we might have crop insurance, but that doesn’t help us with

the value of the crop just going down the tubes.

Whereas if we had a workable AGR policy, that might be the answer. And I think we are working that way. RMA has been receptive to that idea. And as I said, I am personally trying it right now

to see how that works. But that is the only way I think we are

going to cover all of these minor crops that are very diversified,

very complicated, and not widely grown.

Mr. BARNES. I agree, Mr. Bittner. Sixty-five percent is not going

to make anybody any money if they don’t manipulate the program.

It is going to just allow you to fight another day. In sweet potatoes,

for example, around 40 to 45 percent of our cost of production is

in harvesting, so if you have a loss where you don’t harvest your

acreage, you will get reimbursed for at one level and another level

after harvest because of the additional expense. And you just want

to be able to get a good portion of your costs back. That is all that

the programs are designed for. That is all we want. Risk is a great

motivational factor. If you take all of the risk out of the crop, there

are a lot of things that may not get done. So there needs to be a

certain amount of risk maintained with any Crop Insurance Program. We are just trying to get enough of the risk covered so that

you don’t lose everything with one bad crop.

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Mr. NEUGEBAUER. Just as a follow-up to that, because we have

had people come in and talk about that sometimes the crop insurance programs sometimes maybe reward the farmer that is farming

the least instead of the farmer that is, maybe, a better farmer. And

I kind of like that gross number, so if you have not been farming

efficiently—I mean, I think we have got to look at ways to improve

that so that the people that are serious about this business, that

are doing it to be in business on a sustainable long-term basis, and

you can’t be in business for a sustainable long-term basis just living to play another day. And so I want to listen to some additional

dialog as to maybe some ways to improve it before we can make

it more of a risk-based program.

Mr. Chairman, I thank you for your time.

Mr. MORAN. I thank the gentleman.

The gentleman from Washington, Mr. Larsen.

Mr. LARSEN. Mr. Chairman, thank you for holding this hearing

today. I appreciate that. And the first two questions I have are for

Mr. Bittner. One is having to do with, obviously, apple growers, but

not only just apple growers in the East and Northeast but in the

West. Well, several west coast growers raised concerns over the different disasters that are afflicted upon orchards in the East versus

the West, how can RMA help us create a program that defends

against all types of crop loss faced by apple growers nationwide, or

is that a direction we should take? Should it be an eastern, western, northeastern, northwestern policy?

Mr. BITTNER. That is exactly why the apple growers are asking

for an all-peril policy so we don’t get into those problems. The West

has got different problems than the East. The West is more concerned about sunburn. We are more concerned about frost. It is

still weather-related. It is still not in the control of the grower, so

that is why we are asking for all-peril so we don’t get into those

arguments about, well, this thing is going to be covered but not

this other thing.

Mr. LARSEN. Yes.

Mr. BITTNER. And that is why we want all-peril policies so all

growers across the country are created the same. The worst thing

you can do, in example with the sweet potatoes, have growers in

one area that benefit from a program and not another. And they

are competing in the same market. You can’t have that. And that

is why the Apple Association has brought the apple growers from

the whole country together to come up with one idea that is going

to benefit everybody and be fair and equitable across the board.

Mr. LARSEN. You said you are involved. Are you involved in AGR

or AGR Light?

Mr. BITTNER. AGR.

Mr. LARSEN. You are in AGR? Could you help me to understand

how that is working for you? What is positive and what is negative

about it?

Mr. BITTNER. This is my second year, and I haven’t filed a claim,

and don’t expect to this year, so that is the good news.

Mr. LARSEN. Yes.

Mr. BITTNER. What it does is it covers me for crops that I can’t

buy insurance for. We farm 500 acres: 200 acres of apples, which

I can buy insurance for and cover quality; 100 acres is peaches.

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We do have a peach policy offered in our area, but quite frankly,

it is of no value to me, because there is no quality component to

it. Our area has never suffered 100 percent wipeout on peaches in

history. We are located up on Lake Ontario. That is why we are

there. We can grow peaches year after year after year. So the insurance—and so I know I am going to have peaches out there, but

the question is if they get hit by hail or something, they are not

salable. Well, the current peach policy wouldn’t cover me.

So then I grow sweet cherries, tart cherries, plums, apricots, nectarines, things like that, that are not covered. There is no insurance available. So the only way for me to get some risk protection

was through AGR. It appears to be a decent policy. I am fairly comfortable with it. I am still learning. I would like to get to know

someone who has actually filed a claim and see how that process

worked, because I sort of envision it is going to be quite a hassle

to make a claim because you have got to go back a number of years

in records and things. AGR Light seems to be something that

would make it less complicated. But I think the beauty of AGR is

now I can insure crops that don’t have policies offered for. I am

also insuring against price drops, because I am insuring revenue,

not the physical bushels out there.

Mr. LARSEN. Are you insuring your 300 acres under AGR separate from the apples or is it the entire farm?

Mr. BITTNER. No, AGR is the entire farm. Basically, you are insuring your Schedule F.

Mr. LARSEN. So you are combining your policy, your apple policy

within your AGR policy?

Mr. BITTNER. They are two separate policies, but because I am

buying AGR, the insurance companies in RMA realized that they

have less exposure on one, because we have two policies, so there

is a discount in the premium on the apple, I believe, because I do

have AGR. Because they know you can’t be double covered. You

can’t be covered on something twice.

Mr. LARSEN. Yes. Right. OK.

Now Ms. Schmale, in your testimony on page 6, you say one possibility, although you would not recommend it without seeing what

other kinds of coverage paradigms might also be worked out would

be AGR type policies. Could you expand on your comments within

your testimony? You didn’t in your verbal. I would like you to do

that now.

Ms. SCHMALE. Right. Just like Mr. Bittner said, it seems that

AGR might be one workable way to go. They are using it a little

bit, or at least I talked with one agent who is selling it to some

flower growers in the Northeast. I am not sure. Again, I think we

need to step back and look at what we are trying to achieve with

coverage from our industry, and it is live to fight another day. It

is risk-management. There is some risk management through diversification promotes growers in any event. Other growers have a

lot of risk management through growing things in greenhouses.

But what we need is probably coverage geared more to what happens when a real catastrophe occurs that you can’t deal with otherwise, but it needs to be more than just the current cap policy. And

even as somebody said, the current cap policy is listed to specific

crops grown in specific areas.

185

Mr. LARSEN. Right.

Ms. SCHMALE. And I think there may be others. I would like to

look at it a little bit more, and I think there may be other things.

But right now, AGR, I am told, looks the best with what is out

there.

Mr. LARSEN. All right. When would you expect that SAF might

have a more definitive statement on it?

Ms. SCHMALE. Well, on the cut flower side, RMA did do a report,

or they commissioned a report, and they haven’t released that report. And I am hopeful that that might be released and that we

could sit down and talk with them and see what is going on with

that. I think on the nursery crop side, there are others. The Florida

Nursery Growers have been working with them. It is suggestions

get made from the field, and when the percolate up to the top, it

might be time to have just another industry meeting with RMA in

Kansas City to see what their thoughts are on that.

Mr. MORAN. I believe that concludes our questions. I was giving

the gentleman from North Dakota a moment. Do you want to check

and see? OK. That does conclude the questionings by our members.

We very much appreciate the testimony that you have provided,

the responses to our questions. And our committee’s next step is to

request, and no doubt our request will be honored, a meeting with

Mr. Davidson, who is, again, present with us today. And I commend him for his diligence in following our subcommittee’s proceedings. But our subcommittee, my goal next, members, is to see if we

can schedule time for Mr. Davidson to come over and sit around

the table so that we all can work with him to digest what we have

heard in these series of hearings, seek his input and direction as

to where we go from here, but importantly to follow-up on the complaints, suggestions, and concerns raised by the panel here today

but others as well and to find out RMA’s reaction and response to

those concerns, complaints, and suggestions. So that is next on our

agenda. And I would welcome that opportunity as we try to address

the things that you have raised today.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from the witnesses to any question posed by a member of the panel. The hearing on the Subcommittee on General

Farm Commodities and Risk Management is adjourned.

[Whereupon, at 10:51 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF JAMES BITTNER

Good morning, Mr. Chairman, distinguished members of the committee and

guests. My name is Jim Bittner, apple grower and owner of Singer Farms in Appleton, NY. Singer Farms is a 500-acre orchard, with over 200-acres of apples. I appreciate the opportunity to testify on apple crop insurance before the committee on behalf of the U.S. Apple Association (USApple).

USApple is the national trade association representing all segments of the apple

industry. Members include 40 State and regional apple associations representing

growers across the country, as well as individual companies. USApple’s mission is

to provide the means for all industry segments to join in appropriate, collective efforts to profitably produce and market apples and apple products. Total U.S. apple

farm-gate revenue was $1.6 billion in 2002, according to the U.S. Department of Agriculture.

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An improved apple crop insurance program is critical for U.S. apple growers. A

workable program would provide a valuable risk management tool and help reduce

financial disaster from weather-related crop loss. It would also allow growers to further improve marketing, while reducing market risk and providing additional market opportunities. The financial stability of agricultural lenders would be enhanced

for the benefit of growers, who would have access to otherwise unavailable credit.I

can speak personally to crop devastation caused by severe weather beyond a grower’s control. In the summer of 1997, my orchard suffered horrific hail damage, causing my apples to be rendered unmarketable for the fresh market. I did not have crop

insurance for my apples and endured tremendous financial loss. The following year,

my bank strongly encouraged me to purchase apple crop insurance if I wanted to

continue to work with them.

Since 1998, I have purchased crop insurance for my apples and have experienced

the benefits and the shortcomings of the current apple policy. I would like to discuss

with you two areas of dire importance to improve crop insurance for all U.S. apple

growers. Those two areas are the need for a complete, all-peril apple crop insurance

policy based on current apple market standards, and the utilization of public rightof-ways to formulate optional units in apple orchards for crop insurance protection

purposes.

As an apple grower, I can protect my crop against disease using integrated pest

management techniques. As an apple grower, I can influence the size and color of

my apples through thinning and pruning each tree. As an apple grower, I choose

what variety of apples to grow and how to market my crop. Unfortunately, as an

apple grower, I cannot control the weather. This is a fact that my fellow growers

and I accept as part of the job. However, along with this acceptance comes the

knowledge that there is insurance intended to help us manage our weather-related

risk. Unfortunately, current Federal apple crop insurance falls far short of protecting my investment in my crop against all weather-related perils.

Currently, apple growers can protect their fresh apples against hail, wind and frozen apple damage. These are the only three covered weather-related perils out of

dozens of potential disasters facing today’s apple growers. For example, apples damaged by a spring frost or sunburned by a midsummer heat wave are not covered

in the current policy.

During the spring of 2002, apple growers throughout New York, New England,

Pennsylvania, Virginia, the Southeast, Michigan and other parts of the Midwest experienced the worst spring frost damage in fifty years. Growers suffered devastatingly low apple production and quality losses as a result. Apple trees were in full

bloom when multiple, consecutive days of below freezing temperatures killed many

blossoms and left the surviving blossoms to produce disfigured and mutated apples.

Unfortunately, these damaged, low-grade apples were not covered by the current

apple crop insurance policy even though the growers had provided the best care possible for their crop and their trees. Growers could not sell the apples and did not

receive a crop insurance indemnity for them. Due to this dramatic loss of income,

many apple growers were on the brink of bankruptcy, if not completely forced out

of business.

This single devastating spring frost in 2002 highlighted the dismal inadequacies

of the apple crop insurance policy and was one of the major reasons the apple industry sought disaster relief from Congress. On behalf of USApple, I want to especially

thank the House Agriculture Committee, notably its leaders and staff, for their successful work in support of equitable treatment for specialty growers in the disaster

bill approved by Congress earlier this year. We appreciate your efforts and thank

you.

In an effort to reduce the need for future disaster assistance payments, apple

growers partnered with USDA’s Risk Management Agency (RMA) in a determined

effort to improve the apple crop insurance policy. USApple’s Risk Management Task

Force, comprised of grower and State representatives, worked closely with RMA to

craft the outlines of a workable policy. However, several issues appear to remain

unresolved.

As apple growers, we are asking RMA to revise the current apple crop insurance

policy to make it a complete, all-peril policy based on current apple market standards. An all-peril policy would not break out each peril as a separate coverage option for growers to select, but instead insure the grower for any and all losses that

could not be prevented.

An all-peril apple policy would provide fair and balanced coverage for all growers

and prevent discrepancies that may arise in enforcing separate options. For example, under the current policy, the grower has the option to purchase coverage

against apples being frozen. However, frost damage is not a covered peril. Many

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damaged apples were the same, however, when a claim was filed, clarification was

given on the differences. To create even more confusion, some growers received an

indemnity for the frost-damaged apples, while others did not. An all-peril policy

would be clear and straightforward, alleviating confusion and inconsistencies. Growers and insurance agents would know that all unpreventable perils are covered.

Another area of major concern is the grower’s inability to divide their orchards

into separate, optional units using discernible breaks. Optional units are advantageous in an orchard because growers are more likely to meet claim thresholds if

the units are smaller. However, under the current policy, growers are unable to define the size of their orchard units, unless a unit can be defined as noncontiguous.

The current apple crop insurance policy definition of noncontiguous is ‘‘any two or

more tracts of land whose boundaries do not touch at any point, except that land

separated only by a public or private right-of-way, waterway, or an irrigation canal

will be considered as contiguous.’’ Growers should be able to use public right-of-ways

and other obvious boundaries as unit dividers.

I have attached a photograph to show how a public right-of-way acts as a discernible break. The following photograph shows a public road dividing an apple orchard.

This grower uses the road as a discernible break and maintains separate records

for both sections of his orchard. Separate records include spray records, USDA worker protection requirements, volume and quality of apples produced, planting patterns, and varieties grown. The road divides the orchard by approximately fifty feet,

and is maintained by the town with Federal money. The grower cannot plant trees

or remove the road. Yet, under the current policy, the road, a public right-of-way,

is not a discernible break (a divider). Therefore, the orchard is contiguous, and it

is considered one unit.

We are asking that this public right-of-way and similar public right-of-ways be

used to create separate, optional units for apple orchards. As an aside, for annual

crops, a grower may divide his acreage into section equivalents. These section

equivalents are created using public roads. Apples and other perennial crops are not

grown in sections, but growers do have public roads dividing their orchards. In summary, we strongly urge that a revised apple crop insurance policy allows apple growers to divide their orchards into separate units, using public rights-of-way and other

discernible breaks.

In late August, USApple’s Board of Trustees approved adoption of a revised Federal apple crop insurance policy, as recommended by USApple’s Risk Management

Task Force. This revised apple policy is a complete, all-peril policy, and allows apple

growers to create optional units using public right-of-ways and public irrigation canals. We are asking RMA to adopt our recommended revised apple crop insurance

policy in its entirety.

On behalf of U.S. apple growers, I ask the subcommittee to lend its support to

this effort.

Before concluding, I would also like to thank USDA’s RMA staff who have recognized the shortcomings of the current apple policy, and collaborated with USApple

in an effort to address the concerns I have touched on today, plus many more. While

I thank RMA for their work, the job is not yet complete. Apple growers throughout

the Nation need this revised all-peril crop insurance policy based on current apple

market standards. I need and want this improved risk management tool. Let’s get

the job done right, so U.S. apple growers will have the workable risk management

tool they need to survive.

Thank you for the opportunity to explain some of the issues facing apple growers

concerning crop insurance. I would be glad to answer any questions you have.

STATEMENT OF LIN SCHMALE

Chairman Moran, Ranking Member Peterson, and members of this subcommittee,

we are grateful for the opportunity to present testimony today on the U.S. Department of Agriculture’s Crop Insurance Program as it relates to the floriculture and

nursery industry.

The Society of American Florists (SAF) is the national trade association representing the entire floriculture industry, a nearly $19 billion (at retail) component of the

U.S. economy. Floriculture is more than cut flowers and cut foliage—it also includes

foliage plants, potted flowering plants, bedding plants, perennials, annuals and

bulbs, and seeds and other propagative material. SAF is a vertically integrated organization, representing all segments of the industry: growers, wholesalers, retailers, importers, manufacturers, suppliers, educators, and related organizations. Our

membership includes some 13,000 small businesses, located in communities

throughout the United States.

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The American Nursery & Landscape Association (ANLA) is the national trade association for the nursery and landscape industry—producers, retailers and

landscapers focusing primarily on trees, shrubs and other woody ornamentals, perennial plants, and bedding plants. ANLA represents 2,500 production nurseries,

landscape firms, retail garden centers and horticultural distribution centers, and the

16,000 additional family farm and small business members of the State and regional

nursery and landscape association. ANLA’s grower members are estimated to

produce about 75 percent of the nursery crops moving in domestic commerce in the

U.S. that are destined for landscape use.

SAF and ANLA are the national trade associations representing the floral and

nursery industry, sometimes collectively known as ‘‘environmental horticulture.’’ Because of the very closely related interests of our members, the two organizations

work closely together on many issues. My testimony today recognizes and incorporates and endorses the testimony presented by ANLA at the July 10 hearing held

by this subcommittee.

According to the USDA’s National Agricultural Statistics Service (NASS), the

nursery and greenhouse industry remains the fastest growing agricultural sector in

cash receipts. The 1997 Census of Agriculture shows that nursery, greenhouse and

floriculture crop sales totaled $10.9 billion in 1997, up from $7.6 billion in 1992.

This represents a 43 percent increase in sales over the previous 1992 Census. More

recent USDA analyses show that the industry is now valued at over $13 billion at

farmgate. Together these crops make up 11 percent of total U.S. farmgate receipts,

up from 10 percent. Some 33,935 farms produced nursery plants as their principal

crop; floriculture farms numbered 21,824.

In crop value, nursery and greenhouse crops have surpassed wheat, cotton, and

tobacco and are now the third largest plant crop—behind only corn and soybeans.

Nursery and greenhouse crop production now ranks among the top five agricultural

commodities in 24 States, and among the top 10 in 40 States. Growers produce

thousands of varieties of cultivated nursery, bedding, foliage and potted flowering

plants in a wide array of different forms and sizes on 1,305,052 acres of open ground

and 1,799 million square feet under the protective cover of permanent or temporary

greenhouses.

Yet despite the strong (and growing) economic importance of the floriculture and

nursery industry as a part of U.S. agriculture, our growers are still without all of

the good risk management tools which are available to other segments of U.S. agriculture. USDA’s Risk Management Agency (RMA) has been working, with some success, for several years to address the risk management needs of floral and nursery

growers. In the 1980’s, RMA issued its nursery stock policy, which was revised

again in 1999. Although the policy and coverage provided are by no means ideal,

it has been an important safeguard for some growers affected by disasters in recent

years. However, the policy needs many improvements in order to meet the needs

of growers in the industry.

In January of 2001, RMA identified development of a risk management program

for cut flowers and cut foliage as one of its highest priority projects. A contractor

(National Crop Insurance Services, NCIS) was awarded the initial study contract to

gather information from various sources, including academics, private insurance

specialists, growers, and other sources. A series of regional ‘‘listening sessions’’ was

held in various parts of the country. SAF, along with one of the Nation’s primary

private insurers of horticultural crops, Hortica Insurance, cooperated with the contractor. Hortica, in particular, as an insurer also writing policies under the nursery

crop program and an expert in the diverse growing practices of the industry, was

closely involved in the study. It is our understanding that a report with recommendations was completed in May of 2002 and presented to the Risk Management Agency. However, since then, no action has been forthcoming, and we remain

uncertain as to the outcome of this effort.

The floral and nursery industry is very diverse—literally hundreds of different

kinds of flowers and plants are grown, in various climates, in glasshouses, in polycovered greenhouses, in ‘‘shade’’ houses, and in open fields, in containers of various

sizes, and in climates and ‘‘hardiness’’ zones ranging from Miami to Seattle and everything in between. A ‘‘one size fits all’’ policy would be very difficult to write—

and administer—in the traditional multi-peril crop insurance policy mold. Yet RMA

has begun to break out of that mold in recent years, in designing more diverse policies to meet diverse grower needs in other segments of agriculture. We are hopeful

that, similarly, a policy or policies can be designed which will meet the very important risk management needs of floral and nursery growers. A need exists for workable crop insurance in the floral and nursery industry, and we will be happy to work

with RMA toward meeting that need.

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The remainder of this testimony will focus separately on the existing nursery crop

policy and the need for a risk management tool which will meet the needs of growers currently excluded from coverage under the nursery crop policy, in particular,

cut flower and foliage producers. Finally, I will briefly touch on the need to provide

quarantine protection for U.S. growers, including growers of floral and nursery

crops.

I. THE NURSERY CROP POLICY

The current nursery crop policy is, fundamentally, a workable policy—but it is extraordinarily complex and requires an extraordinarily knowledgeable and talented

crop insurance agent to advise the grower on what, exactly, he is purchasing for the

various options available.

Following are some of the aspects of the policy which are particularly problematic,

the complexity of which is probably discouraging growers from participating.

One of the most important drawbacks of the complexity of this program is that

agents (and their companies) are exposed to ‘‘errors and omissions’’ lawsuits, if a

grower feels that he did not adequately understand what was covered (or not covered) by the policy he purchased, or if an agent makes an error or is inexperienced

in the policy complexities. If the agent makes an error, then the very large dollar

value of one of these policies could easily exceed the agent’s and/or the company’s

‘‘errors and omissions’’ coverage, with a severe adverse impact upon the financial

health of the insurance company itself. Lawsuits are submitted to binding arbitration, rather than being appealable to Federal court. This is a serious defect in the

program, and should be remedied. Insurers will, logically, be unwilling to put their

companies at risk to administer a policy which is so complex that misunderstandings are almost certain to result, with negative financial consequences for the company, the agent, and the grower.

• The existing nursery crop policy was designed originally for woody ornamentals

(trees and shrubs) and was subsequently expanded to cover different types of plant

material, including some plants grown in greenhouses. As a result, different kinds

of growing practices and conditions are all joined together without regard to important differences among them (e.g., is the plant grown in the ground? Or in a container? Is it grown in a greenhouse? or a poly-covered structure? Or outside? Is it

an annual? Or a tree, requiring many years to get to a saleable size?)

• No plants are covered that are grown in less than 3’’ containers. This requirement means that many bedding plants are excluded—those grown in ‘‘cell packs’’

for example.

• Propagative material (such as cuttings or plugs) is not covered. Coverage for

propagative material should be considered, although not necessarily as part of the

nursery policy.

• No cut flowers or cut foliage are covered. NO ‘‘stock plants’’ are covered. This

limitation is more thoroughly discussed in the next section. However, it is a serious

drawback, for example, for cut rose growers that they cannot purchase crop insurance either for the cut roses which are taken from their stock plants—OR for the

stock plants themselves. Rose bushes are insurable only if sold as a ‘‘container, garden rose’’ or if dug up and sold as a garden rose bush.

• Coverage: A grower can buy coverage for a plant in his county ONLY if that

plant is LISTED for that specific county. RMA contracted for the development of a

very detailed county-plant coverage list—which is downloadable from the Internet

or available on CD-ROM. The printout of that list runs from 500–600 pages or more,

per region—and it is very difficult for a grower, or even an agent, to look through

and understand. For a large nursery or greenhouse, growing a thousand different

plants, the process becomes extremely onerous. For example, if you are a grower in

Cheyenne County, Nebraska, and want to grow poinsettias—even in a fully heated

and protected greenhouse—you cannot buy coverage for those poinsettias unless

they are a listed, and priced, crop for that particular county. The further north in

the U.S., the more difficult it becomes to purchase coverage for certain kinds of

plants (for example, tropical plants), even when they are going to be grown in a

fully heated and environmentally controlled greenhouse.

• Pricing. Pricing of plants, also set by the Government’s list, is neither diverse

enough nor adequate to reflect regional differences and ‘‘real-world’’ pricing. A grower receives coverage based upon the LOWER of his ACTUAL sales price or the Government-listed price. For example, a grower might have a huge, 100-gallon palm

tree, designed for high-end interiorscaping. However, the maximum size covered by

the Government’s price list 65 gallons, so that is the maximum coverage the grower

can buy—even though his actual plant is worth much more.

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• Determining the value of his coverage—and, of course, the grower should do

that to use the policy as a good financial risk management tool—is a very, very complex process. It requires checking back and forth with the official price and availability CD-ROM list. In addition, many growers will turn over three or four, at a

minimum, crops in any given year. A grower might start out with geraniums, then

move on to impatiens or a mix of summer crops, then grow and sell chrysanthemums, and finally end up with a poinsettia crop. Some of those could be overlapping in the greenhouses at various times of the year. This process is all complicated

by having to refer to the ‘‘Government’s price’’ rather than just using the grower’s

actual prices. A grower can purchase an endorsement, which allows him to select

two ‘‘high value’’ peaks during the year—perhaps at the spring season and in the

fall, for his anticipated busiest times of year—but this still does not solve the problem of using the policy as a good risk management tool. • In the alternative, of course, the grower could take a ‘‘stab in the dark’’ at guessing the value of his inventory and deciding what coverage he wants to buy. However, this could lead either to being underinsured or overinsured—and there can be

penalties for either. At the time of loss, the grower might be asked to provide a detailed inventory of what was in his nursery just prior to the loss. If he has $2 million of inventory but estimated $5 million, he could enter the realm of ‘‘fraud, waste

and abuse.’’ If he under-reported by 20 percent, then rather than being paid at a

100 percent price level, he would get only 80 cents on the dollar. • There is no distinction, as mentioned several times above, between plants grown

indoors or outdoors. It would seem more logical for the rates and coverage to reflect

the different levels of risk posed by those situations. • Various coverage levels are available: For a $100 administrative fee, a grower

can buy a ‘‘catastrophic’’ policy—which would give him 50 percent coverage level and

pay 55 cents on the dollar—or, calculated out, 27–1/2 percent coverage. Every grower in the United States should probably, at a minimum, have this policy—because

for very little money, it does provide some level of coverage, so long as the plants

are ‘‘on the list.’’ Various buy-up levels of coverage are available, as well, which an

agent and grower can analyze and compare, with a considerable amount of effort,

to form a reasonable risk management tool for the grower. However, as discussed

above, determining an accurate value is extremely laborious, and the help of a wellqualified, experienced and knowledgeable agent is absolutely essential. Various combinations of buy-up coverage (ranging from 55 percent coverage/100 percent price to

almost any other combination) are available. As an example, with a 75/100 policy

on a $1 million crop, would mean that you had $750,000 of inventory covered at

100 percent of the price (remember—the lower of the federally established price or

the actual price—or, in other words, a $250,000 deductible). That deductible is an

annual aggregate, so if you had one $250,000 loss in October and then another in

January, the policy would pay on the second loss.

• The pricing and county-crop-list system appears to be based upon the ‘‘Hardiness Zone’’ system, with, in some cases, ‘‘heating requirements’’ added. However, it

does NOT reflect whether a crop is actually grown in a fully protected, greenhouse

environment. While a crop like ‘‘petunias’’ or ‘‘ferns’’ may be on the list for counties

in the southern U.S. the same crop may NOT be on the list for a county in the

northern part of the United States even if it were grown in a fully heated glass

greenhouse in that northern State. A grower can petition to add plants to the list

if he purchases a buy-up (not a catastrophic) policy—but it takes at least two to

three months to get it approved. And RMA will not accept a request if it involves

changing a ‘‘hardiness zone’’—even if the request is to grow the plant indoors in an

environmentally controlled greenhouse.

Let me give an example. Dade, Broward, and Palm Beach Counties, Florida, are

all in Hardiness zone 10. However, Martin County, Florida, just north of Palm

Beach, is located in Hardiness zone 9. Lots of nurseries are moving north in Florida,

as the population in the Miami area expands, and the growers, of course, are growing exactly the same plants. But if a grower has moved his nursery from Palm

Beach County (in zone 10) to adjoining Martin County (in zone 9), he can no longer

insure those same plants—even by submitting a special request to have them approved, because the ‘‘Hardiness zone Line’’ has been crossed. So a Spathiphyllum

grower who moved his nursery from Palm Beach to Martin County would not be

able to insure that plant any more—even by special request.

• Rates are based upon the county—e.g., they are the same, whether the crop is

grown in a million dollar, computerized greenhouse or outside in an open field, All

plants of one type in a given county (if they are insurable in that county) are insured at the same rate—be they grown indoors, outdoors, or somewhere in between.

In summary, the unwieldy complexity of the nursery crops policy makes it very

difficult for growers to use as a true risk management tool. RMA has made a comVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00196 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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mendable effort to address the needs of a very complex industry. However, many

improvements are needed. We will be happy to work with RMA and the insurance

industry to address the points we have mentioned above.

We would also encourage the creation of alternative types of policies, which are

not designed on the traditional ‘‘multi-peril crop insurance’’ paradigm, but which, in

fact, could be used by our industry as a true risk management tool.

I would now like to return to the second major point of this testimony, which is

that no coverage is available to cut flower and foliage producers—a significant portion of the floriculture and nursery industry.

II. NO COVERAGE AVAILABLE TO CUT FLOWER AND CUT FOLIAGE PRODUCERS

From the point of view of producers clearly not covered under the Nursery Crop

Policy, the most serious gap in coverage for our industry is the lack of coverage for

cut flowers and cut foliage. Cut flowers and cut foliage make up a significant part

of the floriculture industry, at about $520 million per year farmgate value (USDANASS).

Because some cut flowers are produced in greenhouses, private insurance is available for certain perils, for growers of these crops. However, a more comprehensive

program, which could easily be designed not to compete with any privately available

insurance, since the perils covered by private insurance are limited, could be useful

to growers.

Field growers of cut flowers and foliage, another significant portion of the industry, are totally excluded both from Federal and from private coverage.

As noted above, we are extremely concerned that, despite a promising beginning,

the study initiated by RMA for a cut-flower and foliage program appears to have

stalled.

One possibility, although we would not recommend it without seeing what other

kinds of coverage paradigms might also be worked out, would be the ‘‘Adjusted

Gross Revenue ‘‘AGR’’-type policy. The benefits of the AGR, both from the administrative and the grower point of view, are that it is an income-based program. As

such, it relies upon tax return information provided by the grower. It does not attempt to substitute Government pricing criteria for market-driven prices, which are

changeable and diverse. It simply provides a minimum guarantee for growers, in

case of some defined level of loss, which will help them stay in business. On its face,

it would seem to accommodate the vast variety of crops and growing situations and

climates which exist within the cut flower and foliage industry. However, as noted

above, we would be happy to work with RMA and the insurance industry to see

what other kinds of workable programs might be developed.

Finally, the third major point of this testimony addresses the lack of quarantine

protection for U.S. growers, including floral and nursery growers.

III. QUARINTINE PROTECTION

The environmental horticulture industry is uniquely vulnerable to the ravages of

invasive plant pests introduced from abroad. Virtually every introduced pest may

find a home and suitable plant hosts somewhere in the U.S. and among the literally

thousands of species and varieties grown commercially in nurseries and greenhouses. Once established, such pests disrupt the industry by causing direct crop

damage, and spurring imposition of quarantines, inspection and certification requirements to slow further pest spread. For the purposes of clarity, references to

plant pests in this testimony are intended to include all types of pests such as insects, pathogens, and weeds.

This year, the geranium industry suffered severe losses due to a quarantine imposed by the USDA. These grower losses were incurred due to no fault of their own.

Some of them were, in fact, covered by the Federal crop policy—but only because

the disease involved is one for which ‘‘no control or cure is available’’—and coverage

was available only to a limited extent.

We believe that ‘‘quarantine’’ should be listed as a named peril on Federal crop

insurance policies. There is a great need to explore coverage for crops that fall within a quarantine zone—particularly if those goods are rendered unsalable or ordered

destroyed, but also even when sales value is reduced due to the quarantine restrictions. Quarantines are sometimes imposed while the study and assessment of infestation and risk are being completed. The short shelf-life of floral and nursery products, and the short sales seasons, pose unanticipated hardships when coupled with

these kinds of quarantine situations. Those hardships are outside the control of the

growers—just as are rain and hail for growers of corn, wheat and soybeans. Yet

growers in our industry are without recourse, to respond to situations in which they

are caught through no fault of their own.

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A few examples include:

Ralstonia, a bacterial disease of geraniums and other crops, affecting growers nationwide; emerald ash borer, impacting growers in southeast Michigan and in Ohio;

Sudden Oak Death, affecting growers of many crops, in counties in central and

northern California, and limited areas in Oregon—to date. Plum Pox, in central

Pennsylvania; Citrus Canker, in Florida

It is imperative that USDA, whether it be APHIS, RMA, or some not-yet-devised

effort, reach out to help protect growers against these unforeseen and unforeseeable,

yet economically devastating, losses. Again, we are willing, and in fact eager, to

work with USDA on this problem.

In closing, we very much appreciate the opportunity to represent our industry before this important hearing. The floral and nursery is a huge, and growing, segment

of U.S. agriculture—yet our needs are diverse and divergent from those of traditional row-crop producers, in many ways. We look forward to the opportunity to continue working with Congress, and with the Administration, on this very important

issue.

STATEMENT OF ROGER BOMAN

Mr. Chairman, members of the committee. I am Roger Boman and I am a citrus

grower in the San Joaquin Valley of California with 700 acres of lemons, navel oranges and Valencia oranges grown in Fresno and Tulare counties. Additionally, I

grow plums, cherries and grapes.

I have been involved in farming since 1979. I market my citrus through the

Sunkist Growers marketing cooperative. Recognizing the need to vertically integrate, I recently acquired a packinghouse and will be packing and shipping citrus

for Sunkist.

Additionally, I have been in the insurance industry since 1972 and am owner and

operator of Smith-Boman & Associates and owner, president and CEO of

Transwestern Insurance Company. I am also a member of the National Association

of Crop Insurance Agents as well as the Society of Professional Benefit Administrators.

First I would like to commend you Mr. Chairman and the members of the General

Farm Commodities and Risk Management Subcommittee for undertaking this hearing and for your efforts to remedy the longstanding deficiencies of the USDA’s risk

management program applicable to specialty crops.

During the most recent reauthorization of the farm bill, Sunkist Growers, along

with a number of other California specialty crop organizations including Blue Diamond Growers, the California Association of Winegrape Growers, the California

Grape and Tree Fruit League and the California Kiwifruit Commission, supported

the expansion of an RMA pilot called the Adjusted Gross Revenue program to California.

Due to the present financial distress of specialty crop agriculture in California as

well as in other States, and our desire to avoid future costly demands for subsidies

that other agricultural commodities receive, these organizations found AGR to potentially be an excellent alternative.

This unique USDA risk management tool was designed with significant input

from specialty crops, though it covers all agricultural commodities and crops. It provides producers with the self-help option of insuring a portion of their farm income,

based upon an average of their last five tax returns. Given the Administration’s initiatives to enable foreign fruit and vegetable producers to secure expanded and more

favorable access to the U.S. consumer marketplace, AGR will be a critical trade adjustment assistance tool for American producers impacted negatively by these imports.

We are extremely pleased that the committee approved expansion of AGR into

eight counties in California on a test basis. However, the need for expansion of this

program statewide still exists, and the opportunity to benefit from its introduction

into the most agriculturally-diverse State in the country would yield significant data

to benefit RMA as it considers refining and making permanent this valuable crop

insurance tool.

In my opinion, AGR should be greatly expanded and could eventually replace both

the citrus dollar program and the production guarantee program. However, while

the pilot program certainly is more meaningful and offers greater prospects for efficiency and success in addressing the risk management needs of producers of specialty crops—particularly when built upon a multi-peril policy foundation, it does,

nevertheless, suffer some real deficiencies as presently devised.

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• Notably, growers can participate in AGR only after 5 years of actual production

activity. New producers, who are in greatest need of insurance, are precluded from

the program. Provision must be made for newer producers to be included in the program, perhaps by indexing expenses using the county averages for that commodity.

• Additionally, from an underwriting perspective, it doesn’t allow any farm operation to expand and must provide upward trending in operations and indexing.

• Conversely, AGR doesn’t, as presently designed, allow for downsizing of farming

operations and consequently forces over-coverage.

• A problem exists in what records are considered acceptable as evidence of gross

revenue and there is clear need for consistency in accounting expenses and revenue.

• In the event of shock loss in any of the base years or subsequent years used

for AGR participation, and given the limited five-year data base utilized, the subsequent coverage will be inadequate to provide for grower needs. Therefore, there is

a need for underwriting adjustment to exempt any shock year losses or expand the

data base years.

In general, we have often seen other insurance products generated by RMA that

were clearly retreads from programs designed to serve the more traditional program

crops. These products often did not take into account the realities that a perennial

grower, such as citrus, pears, apples, etc. must deal with.

For example, specialty crop growers have far higher risks than commodity crop

growers—and pay much higher premiums. Therefore, there is a real need to offer

improved underwriting subsidies designed especially for these specialty crop risks.

Additionally, there is a real need for RMA to train people to understand the accounting that compliments perennial producers, as opposed to more traditional row

crop producers.

In conclusion, for RMA to develop truly beneficial programs for specialty crop producers, they must engage in a collaborative effort with industry that makes the rollout of these products the end-result, rather than the beginning of the process.

Launching programs at the 11th hour and expecting participation by producers is

unrealistic and puts RMA and the industry in a game of catch-up in trying to refine

flawed programs, rather than constructing beneficial ones from the ground up.

In the short-term, the needed expansion of the Adjusted Gross Revenue program

to all of California’s counties would provide both specialty crop producers and RMA

with significant benefits. This expansion should take place without delay.

STATEMENT OF CALIFORNIA ASSOCIATION OF WINEGRAPE GROWERS

& WINEAMERICA, THE NATIONAL ASSOCIATION OF AMERICAN

WINERIES

This statement includes two sections—both of which examine the crop insurance

environment for winegrapes. The first section, provided by the California Association of Winegrape Growers, covers the situation in California. The second section,

from WineAmerica, examines States other than California. For additional information regarding the California portion of this statement, please contact Karen Ross,

president, California Association of Winegrape Growers at 800-241-1800. For further

information regarding crop insurance for winegrapes in other States, please contact

Bill Nelson, Vice president, Government Affairs, WineAmerica, at (202) 783-2756

x213.

CALIFORNIA

The California Association of Winegrape Growers appreciates the opportunity to

make comments. The California Association of Winegrape Growers (CAWG) was created in 1974 to be an advocate for California winegrape growers on State, national

and international issues. CAWG represents the growers of more than 60 percent of

the State’s annual tonnage of grapes crushed for wine and concentrate. The 2002

crush totaled 3.89 million tons, up 12 percent from the 2001 crush. The value of

the 2002 crush is estimated to be $1.75 billion. Total winegrape acreage is estimated

to be 556,000 acres, including 70,000 non-bearing acres.

Winegrapes are the ultimate value-added agricultural crop. According to a report

commissioned early in 2000 (currently in revision) by Wine Institute and CAWG,

wine is California’s No. 1 finished agricultural product. The report by MKF Research established the full economic impact of the wine industry on the State of

California at a total of $33 billion, including direct, indirect, and induced economic

benefits. The winegrape and wine industry contributes to the California economy in

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diverse ways. It generates jobs, exports, tax revenues, tourism and, of course, outstanding wines!

According to the report, 847 wineries and 4,400 grape growers create 145,000 full- time equivalent jobs for $4.3 billion in wages. The retail value of California wine

is $12.3 billion. Tourism expenditures are $1.2 billion with 10.7 million visitors. In

California, the wine community pays $1 billion in taxes and makes charitable contributions estimated at $62 million annually.

California enjoys an environment ideally suited for the production of high quality

grapes in terms of climate, soil and weather. Vineyards represent a long-term commitment with a significant statewide investment by families and family-owned corporations. Winegrapes are a particularly important tool for California’s coastal

growing regions as they promote the retention of agricultural operations rather than

conversion to more urban land uses. Given the lower fertility of the soils in this region, there are few profitable agricultural crops.

THE IMPORTANCE OF CROP INSURANCE

Competitive global markets, falling commodity prices and higher U.S. production

costs are driving changes in the rural landscape. More and more States are looking

to high-value specialty crops to keep agricultural land in production. Federal crop

insurance that provides adequate coverage for permanent, high-value vineyards has

become an important risk-management tool for winegrape growers in California. In

our State we are fortunate to have a program that works fairly well for winegrapes.

This is in part because the underwriters have available to them detailed data on

winegrape production compiled by the California Agricultural Statistics Service, and

because of the leadership of the California Office of USDA’s Risk Management

Agency and the staff’s understanding of permanent specialty crops like winegrapes.

CAWG has aggressively promoted participation in the program as a critical element in growers’ risk management plans for the past seven years. During that time,

the number of policies sold has more than doubled. Approximately 65 percent of the

acreage is covered by catastrophic crop insurance (CAT) with approximately onethird of the acreage covered at higher levels. The program is providing about $211

million in liability protection to California winegrape growers. There is still a significant need to reach out to small and mid-size acreage growers to educate them

about the importance of crop insurance as a risk management tool in their business

plan. Entering the program at the CAT level is the first step towards a better understanding of crop insurance and subsequent investments in additional or more

adequate levels of coverage above the CAT level.

We have several concerns to bring to the attention of policy makers with regard

to the program for California winegrapes:

Winegrape pricing: We appreciate the difficult challenge of establishing winegrape

pricing so far in advance of the crop season and we applaud efforts of the California

office to develop a methodology that takes into account market trends, previous

year’s actual market prices (per the annual California Grape Crush Report), and

production costs. However, as the market becomes more segmented with specific

quality requirements for various bottle price points, the variance between contract

prices and spot market prices is significant. There is little incentive for a grower

to manage risk by purchasing more adequate coverage when the winegrape pricing

established by RMA is considerably less than the contract price.

Vine and tree replacement coverage: The Agricultural Risk Protection Act of 2000

provided specific language for the development of a feasibility study on the creation

of vine and tree replacement coverage. At this time, there has been no report on

the study and the process reflects the inability of the program to respond quickly

to changing agricultural needs while balancing the public’s interest in maintaining

a program with fiscal integrity. We hope there will be a recommendation for a pilot

vine and tree replacement program for the 2005 crop year and that CAWG and

other interested specialty crop representatives will have the opportunity to provide

input for the counties in which the pilot program will be conducted.

Adjusted Gross Revenue (AGR): AGR was introduced in California as a pilot program in eight counties for the 2003 crop year. Unfortunately, the program details

were released late in the season, which limited the ability to provide growers detailed information about the program and its potential benefits as another risk management tool. However, there has been increasing interest in learning more about

the AGR program. There is also a very high interest in AGR and concern from growers in counties neighboring pilot counties about their inability to participate in the

program. In particular, we have had numerous requests from Sacramento and

Madera counties. We urge expansion of AGR coverage to additional California counties as quickly as possible. We also request that the definition of ‘‘diversified farmer’’

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be adjusted to accommodate treatment of each winegrape varietal as an individual

crop (as in the MPCI program). The purpose for doing so is to allow multiple-varietal growers with different quality cultural practices for each varietal.

On behalf of California’s winegrape growers, we appreciate the commitment of

Congress to maintain and expand crop insurance as a sound risk management tool

for specialty crops. This is an important program that will only grow in importance

to America’s farmers who must adapt to changing, intensely competitive international markets in addition to the vagaries of Mother Nature.

CROP INSURANCE AROUND THE COUNTRY

WineAmerica applauds the subcommittee’s leadership and initiative in examining

the crop insurance problems confronting specialty crop producers. WineAmerica, the

National Association of American Wineries, has more than 700 members in 48

States. Most are small family-owned and operated farm enterprises, producing less

than 10,000 cases per year.

Regrettably, the crop insurance picture for winegrape growers in other parts of

the country is not nearly as reassuring as the one in California. As the primary

State for growing winegrapes, California produces approximately 90 percent of the

crop nationwide. Nevertheless winegrapes are an economically important crop in at

least two dozen other States (including AR, AZ, CO, CT, GA, ID, IL, IN, MA, MD,

MI, MO, NJ, NC, NM, NY, OH, OR, PA, RI, TX, VA & WA) and a secondary, but

valuable crop in virtually all other States.

There are about 950 thousand acres of grapes grown in the United States, some

86 percent of which are grown in California. Winegrapes make up about 60 percent

of total acreage, but about two-thirds of the value of the crop because winegrapes

are typically more valuable than other grapes, such as juice grapes. For example,

in 2002, winegrapes in Washington State averaged $878/ton while juice grapes averaged $155/ton—a ratio greater than 5 to 1. This disparity is even larger in other

States like New York, Pennsylvania and Michigan where the ratio of value is closer

to 10 times. In California, winegrapes overall are about the same price as table

grapes on average but some winegrapes—those grown in the most prestigious wine

growing districts—maybe 3 to 10 times more valuable than the average table

grapes.

Research and interviews with growers and trade association personnel in a number of States other than California revealed the following problems with crop insurance:

No coverage. According to the risk management website of USDA, crop insurance

for grapes is only available in 14 States.

Low percentage of coverage. While about 80 percent of California winegrape acreage is signed up for crop insurance, most of the other States have very low participation rates such as 22 percent for Oregon, 19 percent for Missouri, 19 percent for

Ohio, 29 percent for Idaho, 38 percent for Texas, and 10 percent for Arkansas. Even

in some of the key grape growing States with higher levels of participation—such

as New York (56 percent), Washington (69 percent) and Pennsylvania (68 percent)—

these numbers reflect high participation of juice grape growers, and not winegrape

growers (2002 Risk Management Agency Statistics).

Insurance agents lack incentive. Far more money can be made selling insurance

to farmers with much greater acreage and more traditional crops, and with considerably less hassle. There is very little incentive for agents to take the time to learn

the grape insurance program, explain it to and sign up growers with typical plantings of only 5 to 50 acres.

Need to consider separate varieties as separate crops. Crop values and yields vary

greatly depending on the variety of grapes planted. So does the potential for losses.

An early budding variety such as Chardonnay might be much more susceptible to

crop loss due to an early spring frost than Riesling. Successful fruit set in cooler

climates is dependent upon temperature during bloom. A week to ten-day period of

cool rain during bloom might affect one variety while a variety that bloomed either

before or after that period might be unaffected. When all varieties are considered

the same crop, significant losses in one variety do not guarantee eligibility for compensation because those losses will be averaged with the performance of all grape

varieties. In addition, there are wide disparities between the per ton value of

grapes, even within a particular region, depending on variety. While this is especially true when comparing juice grapes to wine grapes, where the ratio may be

higher than 10 fold, it is also true for different varieties of wine grapes. For example, in 2002 a ton of Pinot Noir in Oregon averaged over $1,900 while Riesling and

Muller-Thurgau went for $840 and $800 respectively (Oregon Agricultural Statistical Service (www.nass.usda.gov/or/vinewine02.pdf). A similar pattern occurs in

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Washington State where in 2002 the red varieties of Syrah and Cabernet Sauvignon

were priced between $1,100 and $1,200 per ton while Chenin Blanc and White Riesling went for $441 and $654 per ton (Washington Agricultural Statistical Service

http://www.nass.usda.gov/wa/grape03.pdf). While there are few published statistics for other States, however, New York prices for vinifera varieties were around

$1,500 per ton compared to about $200 per ton for Concord and $425 for hybrids.

These wide disparities make it very difficult for growers of higher priced winegrapes

to be adequately compensated when county or region average grape prices are used

to calculate losses.

Inability to properly price insurance because actuarial data is insufficient. In most

States the relatively small acreages of grapes used for wine production makes pricing crop insurance very difficult. The great variance between pricing and loss history for different varieties severely exacerbates this problem.

RECOMMENDATIONS FOR IMPROVING WINEGRAPE CROP INSURANCE

Catastrophic coverage. Routinely providing CAT coverage at $100 per variety is

probably a fair and workable system. It avoids the need for developing complex

products and can be based on each grower’s historical records and documents. Some

customization of pricing history will need to be developed for growers who have

wineries and thus do not have to sell their grapes on an open market, but county

or State average prices ‘‘by variety’’ could be used to develop their statistical history.

But to be a useful product for growers, coverage by grape variety must be implemented.

Pilot programs. It might be a good idea to experiment with revenue-based programs such as the program being tested for cherries in Michigan. That type of program can provide compensation for a combination of loss of yield and loss of quality.

However, the applicability of such programs to wine grapes is probably limited since

pricing is typically based on ‘‘sound’’ grapes and poor quality grapes are more likely

to be totally rejected without being harvested.

WineAmerica appreciates the opportunity to submit this statement, and looks forward to working with the subcommittee to improve and strengthen Crop Insurance

Programs for winegrapes. Thank you.

STATEMENT OF SUSTAINABLE AGRICULTURE COALITION

We welcome this opportunity to outline briefly some of our views on crop insurance. The Sustainable Agriculture Coalition represents thousands of farmers

through its member organizations: Agriculture and Land Based Training Association, C.A.S.A. del Llano (Communities Assuring a Sustainable Agriculture), Center

for Rural Affairs, Dakota Rural Action, Delta Land and Community, Future Harvest/CASA (Chesapeake Alliance for Sustainable Agriculture), Illinois Stewardship

Alliance, Innovative Farmers of Ohio, Institute for Agriculture and Trade Policy,

Iowa Environmental Council, Iowa Natural Heritage Foundation, Kansas Rural

Center, Kerr Center for Sustainable Agriculture, Land Stewardship Project, Michael

Fields Agricultural Institute, Michigan Agricultural Stewardship Association, Midwest Organic and Sustainable Education Service (MOSES), The Minnesota Project,

National Catholic Rural Life Conference, National Center for Appropriate Technology, Northern Plains Sustainable Agriculture Society, Ohio Ecological Food and

Farm Association, Organic Farming Research Foundation, and Sierra Club Agriculture Committee.

Our statement addresses four concerns—a nondiscrimination with respect to sustainable and organic farming, adjusted gross revenue coverage, continuing problems

with organic crop insurance policies, and the special crop insurance concerns of beginning farmers.

1. Implement Principle of Nondiscrimination

This committee addressed a serious crop insurance problem for sustainable and

organic producers in the Agricultural Risk Protection Act of 2000 (ARPA). In response to an outpouring of instances in which the then current definition of good

farming practices for crop insurance purposes discriminated against producers using

sustainable and organic farming systems and practices, and at the urging of the Coalition, an important change was made. Specifically, Congress adopted the committee’s amendment to section 508(a) of the Federal Crop Insurance Act to include scientifically sound sustainable and organic farming practices in the definition of good

farming practices. The new language changes the general exclusion of losses due to

failure of the producer to follow good farming practices to the failure of the producer

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to follow good farming practices, including scientifically sound sustainable and organic farming practices. (ARPA, section 123).

The House Committee Report (106–300) with respect to this provision directed

FCIC to establish specific guidelines defining what constitutes good farming practices relative to producers engaged in scientifically sound sustainable and organic

farming practices. (page 34). The Senate Committee Report (106–247) further clarified the intent of Congress:

The committee is aware of anecdotal reports from producers utilizing sustainable

or organic farming systems that describe discriminatory treatment resulting from

narrow definitions of good farming practices that fail to adequately recognize nonconventional farming methods. By clarifying that good farming practices includes

scientifically sound sustainable and organic farming practices, the committee intends for the Department to develop guidelines that will minimize any such future

discrimination. The committee also encourages the Department to continue and increase efforts to involve crop insurers, lenders, and other farming-related businesses

in educational and training activities exploring alternative farming systems and opportunities. (page17)

The final rule for the changes to the basic crop insurance provisions issued last

June revised the regulatory definition of good farming practices as follows:

Good farming practices. The production methods utilized to produce the insured

crop and allow it to make normal progress toward maturity and produce at least

the yield used to determine the production guarantee or amount of insurance, including any adjustments for late planted acreage, which are: (1) For conventional

or sustainable farming practices, those generally recognized by agricultural experts

for the area; or (2) for organic farming practices, those generally recognized by the

organic agricultural industry for the area or contained in the organic plan. We may,

or you may request us to, contact FCIC to determine whether or not production

methods will be considered to be good farming practices.

For this purpose, the rules reference sustainable and organic as follows:

Organic agricultural industry. Persons who are employed by the following organizations: Appropriate Technology Transfer for Rural Areas, Sustainable Agriculture

Research and Education or the Cooperative State Research, Education and Extension Service, the agricultural departments of universities, or other persons approved

by FCIC, whose research or occupation is related to the specific organic crop or practice for which such expertise is sought.

Sustainable farming practice. A system or process for producing an agricultural

commodity, excluding organic farming practices, that is necessary to produce the

crop and is generally recognized by agricultural experts for the area to conserve or

enhance natural resources and the environment.

While in our view there are still shortcomings to this revised regulatory language,

it nonetheless represents a very significant improvement. We encourage the committee, as the originator of this change in law, to continue to provide oversight and follow its implementation closely. One key factor will be the ability of private insurers

and ultimately of the FCIC to make valid judgments about good farming practices.

We are glad of the intent in the final rule for questions to be referred to experts

from the SARE and ATTRA programs and we trust the Corporation will make good

use of the considerable expertise lodged in these and other USDA programs and in

private sector organizations that work directly with sustainable and organic farm

practitioners. Insufficient knowledge and training in sustainable and organic farming systems resulted in the problems that were addressed in ARPA. That problem

can now be corrected so that the agency and the crop insurance industry may better

serve the steadily growing alternative agriculture sector.

m revenue protection package that can be used as a stand-alone coverage or in

addition to other individual crop insurance policies. Most farm-raised crops, animals, and animal products are eligible for protection. As with AGR, the program is

based on the 5-year average revenue reported on IRS Form 1040, Schedule F; therefore, minimal additional recordkeeping is required. The key advantage to AGR-Lite

is that it can be used in conjunction with other Federal crop insurance plans (multiperil, CRC, etc.), coordinating the insurance protection and benefits with other

plans. This provides an additional degree of flexibility for the producer and may aid

in extending the AGR concept to more areas of the country and making it relevant

to a greater number of producers.

The recent expansion of AGR-Lite into the other 11 northeastern States in addition to its original site in Pennsylvania is to be applauded. We are encouraging the

agency, however, to work with all the States in getting AGR-Lite or adaptations of

AGR-Lite available everywhere so that more farmers will benefit from this innovative approach. Historically, Federal farm programs and crop insurance programs

have penalized diversified farmers and ranchers even though a diversified income

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stream makes economic sense and is a sound form of risk management in its own

right. With the introduction of AGR and AGR-Lite, RMA is now trying to offer a

Crop Insurance Program that attempts to meet the needs of these types of producers. We hope that for the 2005 crop year RMA will be offering AGR on a nationwide basis and AGR-Lite in States in all regions of the country. We look forward

to working with USDA and the House Agriculture Committee in the fine-tuning and

expansion of this important risk management program.

3. Address Continuing Organic Crop Insurance Problems

Two fundamental problems remain for organic producers who are looking for or

are required to obtain crop insurance coverage. The first is the organic premium

surcharge based on a perception of increased risk not backed by sound scientific evidence. The second is the refusal or inability to account for the organic price premium in the event that indemnity payments are triggered. The net result of this

double whammy is that organic producers are placed at an unfair competitive disadvantage relative to conventional producers. The problem is magnified for 2004

since until now many organic farmers simply applied under conventional coverage,

to avoid the unfair and unsubstantiated premium surcharge, but will no longer be

able to do so. The choice will be between an economically disadvantageous organic

coverage written agreement and no coverage. This situation must be addressed and

corrected on an urgent basis.

To its credit, RMA, ERS and others are working to begin to address these problems, particularly the organic price premium issue. We would urge the subcommittee to support this effort and to encourage an accelerated timetable for completion.

One immediate action that would help alleviate the problem is support for the

$500,000 appropriation for the organic production and market data initiative (an

initiative authorized by section 7407 of the 2002 farm bill) in the FY 04 appropriations bill, and support for a significant increase in FY 05. It is our hope that organic

insurance based on actuarial information will be available in the near future so producers are not left with the unenviable choice of insuring under discriminatory and

economically disadvantageous written agreements or doing without insurance.

4. Improve Beginning Farmer/New Producers Access to Insurance

Beginning farmers have special needs with respect to insurance. The wide variety

of regulations related to production history and records make it difficult for the new

producer to choose appropriate risk management tools. Consistent with widespread

public support for addressing the crisis of an aging farm population, declining economic opportunity in agriculture, and depopulation of farming communities, the

agency should not only make insurance more accessible to beginning farmers

through clearer rules related to history and records, but should also offer special incentives to new producers of limited means. While this can be accomplished administratively through development of a new section of the basic provisions to deal specifically with the unique needs of beginning farmers, we would encourage the subcommittee to also review this situation and consider whether enhanced oversight or

additional legislation might be warranted.

Thank you for the opportunity to submit this statement for the hearing record.

Please direct any questions you may have to Ferd Hoefner, Washington Representative for the Sustainable Agriculture Coalition.

STATEMENT OF RON LITTERER

Good morning. Mr. Chairman, members of the committee, I appreciate the opportunity to appear before you this morning on behalf of the National Corn Growers

Association (NCGA) to discuss the impact of the Federal Crop Insurance Program

across the corn belt. I am Ron Litterer, a corn, soybean and hog producer from

Greene, Iowa. I currently serve as Chairman of NCGA’s Public Policy Action Team

and as a member of the Board of Directors of the Iowa Corn Growers Association.

The National Corn Growers Association was founded in 1957 and represents more

than 32,600 dues-paying corn growers from 48 States. The Association also represents the interests of more than 350,000 farmers who contribute to corn checkoff

programs in 19 States.

I do not need to belabor the point that the past few years have been very challenging years for corn growers. Many producers have faced depressed markets followed by a period of prolonged drought—conditions that have jeopardized the financial viability of their farm operations and even forced their exit from agriculture.

The transition to the new 2002 farm bill has also required considerable adjustments

by producers and their lending institutions as the timing of program payments has

impacted cash flows.

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The difficult and varied circumstances that corn growers have faced in recent

years have demonstrated the need for further improving the farm safety net. In our

view, the Congress took a major step forward with adoption of the Agriculture Risk

Protection Act of 2000. The commitment of additional resources to higher levels of

premium subsidies has not only resulted in significant increases in participation and

the percentage of acres covered, but it has facilitated a dramatic shift toward higher

levels of coverage. This positive development tells us the Federal Crop Insurance

Program has become an even more important risk management tool for corn growers and other producers as well.

Our growers, overall, look at the numbers and recognize the upward trends as

real progress. The reforms of 2000 are making a real difference. More producers

have far more protection and peace of mind to deal with crop losses and lower prices

than they did three years ago. U.S. producers received over $4 billion dollars in loss

payments just for the 2002 crop year, while receiving $1.7 billion in premium subsides. In the previous year, the Federal Crop Insurance Program paid out almost

$3 billion in indemnity payments. Compare these sums with the crop disaster program of $3.1 billion for the last two years and you can understand why the program

is so critical to American farmers.

This is not to say our members are content with the status quo. NCGA is looking

for reasonable changes in the program’ regulations, including those that govern prevented planting provisions, quality loss adjustments that are more accurately tied

to real market value, improved coverage of center- pivot dryland corners that allows

same row direction while keeping separate units for irrigated and dryland acres,

and ratings of buy-up coverage that better reflect trend yield growth and determine

policy guarantees. We are encouraged, though, by the RMA’s ongoing outreach to

seek input from growers, particularly on reforms to prevented planting and quality

loss adjustment provisions.

For NCGA, the subsidy structure of the Federal Crop Insurance Program should

encourage producers to insure adequate revenue to avoid devastating losses, but it

must not artificially stimulate production. To say the least, this requires a real balancing act—to reach an optimal level of financial incentives, ensure actuarially

sound policies, and minimize fraud and abuse which undermines the program’s integrity and the industry’s financial health. NCGA is prepared to work with the Risk

Management Agency and the crop insurance industry to further strengthen the program.

Briefly, I would like to summarize some of NCGA’s key areas of concern. One

needs to look no further than the past year to understand there are still gaps of

vulnerability within the farm safety net. There is no question that producers have

a much more reliable farm bill in terms of protection against depressed commodity

market prices. But, we also have to recognize that many crop insurance participants

who experience shallow, but significant crop losses in back to back years can find

themselves in no man’s land. If they have lost, for example, 25 percent of their crop,

they most likely cannot file a loss claim nor would they qualify under today’s crop

disaster program. One crop year with this kind of crop loss should be sustainable.

But, two or three years of these kinds of losses even under favorable commodity

prices, can seriously impact net farm income and erode a producers’ equity.

While NCGA recognizes that repetitive losses can adversely impact a grower’s average production history, the APH, and consequently the value of indemnity payments, we urge the committee and the RMA to consider innovative alternatives beyond artificial adjustments to T-yields and the APH. We fear that this kind of approach would invite ill advised planting decisions, and the unintended consequence

of higher premiums for producers where the incidence of repetitive crop losses has

a much lower probability.

NCGA believes there are more constructive ways to address the problem of eroding indemnity benefits resulting from multiyear production losses. We are very concerned that in failing to address this situation, sustaining the increase in program

participation and reducing the need for annual ad-hoc disaster assistance legislation

will become increasingly difficult. We suggest that one potential solution would be

to develop a supplemental insurance product that would cover a producer’s deductible when two years of consecutive losses exceed a predetermined percentage of average production. In addition, we believe a wider availability of Group Risk Income

Protection (GRIP), now limited to five States; Illinois, Indiana, Iowa, Michigan, and

Ohio, would provide producers the option of more affordable protection against widespread area losses. NCGA intends to develop several concepts and survey corn growers on these and other risk management proposals later this fall.

Short of creating an add-on or supplemental insurance product, NCGA supports

reforms to traditional crop disaster aid that is approved on an ad-hoc basis. Last

year, NCGA’s Disaster Assistance Task Force went to work on developing and proVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00205 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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posing a new program to deliver disaster aid in a way that is more equitable and

effective and also encourages participation in the Crop Insurance Program. The

Task Force first recognized that crop insurance reforms approved three years ago

are now part of a very different farm safety net with the addition of the new counter

cyclical payment program. Secondly, NCGA observed that traditional disaster aid

programs have targeted disproportionate payments to growers with large yield

losses, but growers could still lose up to 35 percent of their expected crop and sustain substantial financial losses. Moreover, the current crop disaster program duplicates the coverage for losses already protected under subsidized Federal crop insurance policies.

Legislation introduced by Rep. Sam Graves, the Companion Disaster Assistance

Program Act, would compliment the Crop Insurance Program by covering a portion

of the uninsurable deductible rather than duplicating the insurance coverage and

provide payments more proportionate to the severity of actual crop losses. We also

believe that disaster payments can be delivered sooner and in a more targeted way

because most growers who collect indemnity payments on their insurance policies

would be eligible to collect a disaster payment.

Mr. Chairman, I would like to comment on two other issues that are of immediate

concern to NCGA. First, is the Administration’s proposal to reduce funding for the

administrative and operating expense reimbursement to the insurance companies

and negotiation of the Standard Reinsurance Agreement. While we certainly believe

there are improvements in services that need to be made by the industry and crop

insurance agents, we have questions regarding any funding changes that can potentially undermine these services and any financial incentives for companies to continue to service the Federal Crop Insurance Program. Any savings that might be

achieved in the short term could hinder efforts to produce program refinements and

new products that producers are looking for today. NCGA urges the Congress and

the RMA to proceed with caution on these complex matters.

Second, NCGA wishes to express our opposition to language in the Senate agriculture appropriations for fiscal year 2004 that restricts the use of funds under the

Agriculture Management Assistance program. The language in section 759 jeopardizes the ability of corn growers in underserved States such as New York, Pennsylvania, and Maryland to receive an additional subsidy to purchase higher levels of

crop insurance coverage. NCGA has learned that participation in the Crop Insurance Program by producers in 15 underserved States increased by more than 25

percent in direct response to the additional subsidy. Last year’s action by Secretary

Veneman to dedicate the AMA funds for this purpose is an excellent example of how

taxpayer dollars can be better spent to provide a more predictable and reliable farm

safety net.

Finally, Mr. Chairman, I want to thank you and the members of this committee

for holding this hearing on a program that offers tremendous benefits to corn growers throughout this country. We appreciate your support and your continued efforts

to further improve upon its successes.

STATEMENT OF WOODY ANDERSON

Good morning, Mr. Chairman, I am Woody Anderson, a dryland cotton and grain

producer from Colorado City, Texas. Colorado City is located in the Rolling Plains

of Texas near Abilene. I am a proud constituent of Congressman Charlie Stenholm.

I am here today representing the National Cotton Council and serve as its Vice

Chairman.

Mr. Chairman, as an aside, we are pleased to welcome Kansas as the newest Cotton Belt State with 125,000 acres planted to cotton this year. We recognize that a

considerable portion of the Kansas acreage is located in your 69-county ‘‘Big First’’

district.

The National Cotton Council is the central organization of the United States cotton industry. Its members include producers, ginners, oilseed crushers, merchants,

cooperatives, warehousemen, and textile manufacturers. While a majority of the industry is concentrated in 17 cotton producing States, stretching from the Carolinas

to California, the downstream manufacturers of cotton apparel and home-furnishings are located in virtually every State.

Annual cotton production is valued at more than $5 billion at the farm gate. In

addition to the fiber, cottonseed products are used for livestock feed, and cottonseed

oil is used for food products ranging from margarine to salad dressing. While cotton’s farm gate value is significant, a more meaningful measure of cotton’s value to

the U.S. economy is its retail value. Taken collectively, the business revenue generated by cotton and its products in the U.S. economy is estimated to be in excess

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of $120 billion annually. Cotton stands above all other crops in its creation of jobs

and its contribution to the U.S. economy.

Mr. Chairman, thank you for holding this hearing on the implementation of the

Agricultural Risk Protection Act (ARPA) of 2000. The House Agriculture Committee

worked diligently to craft this complex piece of legislation. The Council strongly supported its passage and is pleased to offer these comments regarding its implementation.

Crop insurance is an important risk management tool for cotton producers. I have

been farming for 29 years and consider insurance coverage as important as any

other production input. West Texas producers are particularly vulnerable to Mother

Nature. For example, in the High Plains of Texas, just to the west of my farm, two

separate hail storms destroyed close to 100,000 acres of cotton near Lubbock. Over

1 million acres of the Texas Northern High Plains was hailed-out earlier in the year.

Last week, Hurricane Isabel has recently damaged the Carolina and Virginia cotton

and peanut crops. This serves to remind us that all cotton producers need a crop

insurance product that provides effective coverage at affordable prices.

The Council supported passage of ARPA and has closely monitored its implementation. One of the main attributes of the reform legislation was to make higher levels of coverage more affordable. This year well over 90 percent of the U.S. cotton

crop has some form of crop insurance coverage. ARPA helped to increase this usage.

We are pleased to offer the following general observations and recommendations for

administration of the Crop Insurance Program.

Accurately rating coverage is critical to an affordable insurance product. USDA’s

Risk Management Agency (RMA) should continually look for ways to move towards

individualized experience rating. RMA should develop a program that rewards

‘‘good’’ loss experience through lower premiums and/or higher levels of coverage.

Producers who practice risk-reducing cultural practices, such as planting improved

varieties and employing good soil and water conservation practices, should be able

to benefit from improved insurance coverage. Producers are not able to benefit from

their advanced practices with a county-based ratings system.

Four years ago, at the urging of our industry and with help from Congress, RMA

commissioned and implemented a major rate review in a number of Cotton Belt regions that resulted in significant adjustments. This review determined that the actual county experience did not reflect the latest trend yields due to overall low participation by producers and those who did participate had abnormally poor yields.

Adjustments were made to the county figures and rates, and in some cases there

were significant adjustments. We want RMA to continue to evaluate and improve

its rating methodology.

Private companies and RMA should continue to develop innovative types of coverage to reflect special regional needs. We suggest more emphasis be placed on development and delivery of Group Risk Protection (GRP) as a viable alternative to

CAT coverage. Some regions of the country believe that the addition of subsidized

hail coverage to GRP would be extremely valuable. This would provide a degree of

producer-specific coverage as well as more meaningful catastrophic loss protection

than current CAT coverage.

We would encourage RMA and private companies to develop insurance products

for processing segments of production agriculture to cushion them when there are

catastrophic production losses. It is unclear the procedure or the availability of assistance from the Small Business Administration for these processing segments.

When a cotton crop is destroyed by natural disasters, ginners, warehousemen and

other parts of the processing chain are impacted. This is particularly true for cotton

gins, a majority of which are owned by producers.

NCC supported the development of a cost of production insurance product. We

have been disappointed by the slow development of this product by RMA. We understand that research has been completed and a pilot program is being developed. We

recommend the pilot be conducted on a wide geographic basis for the 2004 crop so

that it can be accurately evaluated. Only after such evaluation will our industry

know if it will be a useful product.

With current multiyear droughts seriously impacting water supplies to producers

in Federal and State water districts in the irrigated West, we want to emphasize

the need for continued prevented planting coverage. Currently, Federal multi-peril

policies provide for prevented planted coverage in cases where water districts can

certify that producers would have received historical allocations given normal rainfall or snow pack. We expect these districts will face even tighter water supplies

next year based on drought conditions and urge RMA to provide timely guidance

to agents, producers and water districts about the availability of preventive plating

coverage.

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Crop insurance fraud and abuse by producers, agents and adjusters add costs to

the Government and insurance companies and reduces effective coverage to all producers. Some method of differential rating for producers who have continuous losses

that are inconsistent with area experience would benefit other insured growers by

lowering their rates. ARPA calls for additional monitoring and tighter enforcement

of good farming practices. It is our understanding that RMA possesses new methodology to better track and differentiates losses. We urge them to fully implement

the new tools at their disposal to reduce fraud and abuse. In addition, we urge continuation of a close working relationship between RMA and the Farm Service Agency (FSA). We believe that FSA cab serve a meaningful role in monitoring compliance

with good farming practices for insurance purposes. It is also critical that the two

agencies continue the use common databases for sharing information.

A new quality adjustment provision for cotton has been under development by

RMA for a number of years. We understand the research has been completed and

urge RMA to implement a credible cotton quality loss provision on a bale-by-bale

basis with a reasonable threshold of loss. Cotton has the unique ability to preserve

identity on a bale-by-bale basis. We believe cotton quality loss provisions should be

structured in recognition of the unique bale identity. We also do not believe that

it should not be treated as a separate rider to a standard policy at an additional

premium.

We remained concerned about RMA’s inconsistent policy regarding late planting

periods following final planting dates. It has always been RMA’s policy to allow producers to plant cotton after the final planting date in exchange for reduced coverage.

Currently, the late planting period for cotton is 15 days, but has been as long as

25 days. Our concern stems mainly from the inconsistent implementation of rules

regarding appraisals when crops fail to emerge due to insufficient soil moisture. In

recent years our industry and several Members of Congress have worked closely

with RMA to insure that fair and consistent policies dealing with non-emerged seed

are in place. We understand that RMA must allow adequate time after the final

planting date to determine if seed planted into dry soil will receive adequate moisture to achieve a viable stand. We also believe that there is a responsibility to the

producer to provide a timely adjustment on non-emerged acres so that alternative

management plans can be initiated. It is our understanding that a producer must

now wait an additional 8 days after the end of the late planting period before appraisals can be scheduled and loss settlements finalized. This additional waiting period was added in just the past few years in place of policy that allowed appraisals

on non-emerged acreage after the end of the applicable late planting period. We

have not received a clear explanation for implementation of the new policy, nor any

favorable response to our request for changes. This appears to be another case

where the agency is attempting to somehow thwart what they suspect is manipulation of multiple crop coverage at the expense of legitimate loss determination. We

urge the agency to amend its current practice and return to allowing appraisals on

non-emerged cotton acreage no later than 15 days following the final planting date.

In summary, the National Cotton Council supports a crop insurance product that

provides effective coverage at an affordable cost. Crop insurance must be developed,

delivered and administered as an effective risk management tool and innovative

policies must be developed to make crop insurance more useful in various and everchanging production conditions. We urge this subcommittee to continue its oversight

of the implementation of ARPA to ensure a meaningful risk management tool for

producers. On behalf of the Council, we appreciate the opportunity to present these

comments.

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(209)

REVIEW OF CROP INSURANCE AND

COMMODITY PROGRAMS

MONDAY, DECEMBER 1, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Lubbock, TX.

The subcommittee met, pursuant to call, at 1:00 p.m., in the Memorial Civic Center, Lubbock, TX, Hon. Jerry Moran (chairman of

the subcommittee) presiding.

Present: Representatives Neugebauer, Peterson, Ross, and Stenholm [ex officio].

Staff present: David Ebersole, Kelli Ludlum, Alan Mackey, and

John Riley.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. The hearing on the Subcommittee on General Farm

Commodities and Risk Management to review crop insurance and

commodity programs will now come to order.

I very much want to thank the witnesses that we have today

that are appearing before our subcommittee. I appreciate their willingness to devote their time and attention to some awfully important issues for themselves, their members and area producers. I especially want to thank our host today, Congressman Neugebauer,

and the staff here at the Civic Center, whose cooperation and assistance have made this hearing possible. So, Randy, thank you

very much for allowing us to come to Lubbock. This is my first visit

to Lubbock and I will tell you it looks a lot like the southwest part

of Kansas where I come from. Although it seems like you have all

had a lot more rain than we have had.

I welcome that opportunity today to hear from your State and

local agricultural leaders. We have witnesses from Texas, from

Oklahoma and from Kansas. This is our second field hearing. The

other was held in Mr. Peterson’s district in Ada, MN in August. We

are glad to be on the High Plains of Texas and hear first hand from

producers about the results of crop insurance reforms that took

place several years ago, along with the new farm bill and how they

have benefitted our farmers’ operations.

Crop insurance, from my own experience, is an increasingly important risk management tool for farmers in almost all growing regions, and this area is no exception. Both Kansas and Texas are

among the top 10 States in the percentage of eligible acres insured.

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Texas producers lead the Nation with the highest dollar amount of

crop insurance protection in force. Similarly, both the acres and

level of coverage in Oklahoma have increased over the past 10

years, doubling from 31 percent of acres insured in 1994 to 62 percent of acres enrolled last year. In my own congressional district

in Kansas we received the most crop insurance payments of any

congressional district in the country—a title that is very discouraging. It is a distinction that we would prefer not to have, since even

that significant amount of indemnity represented only a partial

compensation for the $1.4 billion that we lost last year from

drought related problems for our farmers and ranchers.

In addition to hearing what is working well, we are here also to

learn what might be improved to better serve the farmers of this

region, as well as their lenders and insurance agents. We know

that despite increased crop insurance incentives, expanded guaranteed support in the farm bill, and most recently, ad hoc disaster assistance, some needs remain unmet.

In the High Plains, multiyear losses continue to be a problem

which crop insurance does not fully address. The story of premiums

going up, while coverage goes down, is one that I’ve heard frequently from my own constituents as a result of four consecutive

years of drought. And despite progress, it is still difficult for some

producers in specific counties to obtain coverage for their particular

crop. The greatest interest I continue to hear from farmers in my

own district, as well as from members of this subcommittee and

other Members of Congress is on crop insurance availability and

providing adequate levels of coverage to meet our producers’ needs.

After today’s hearing, I expect this subcommittee to continue

working with producer groups and the U.S. Department of Agriculture to addresses the issues of national concern that have been

raised at our first six hearings, as well as topics of regional interest

that may be discovered through the testimony of our witnesses

today. Specific to the Crop Insurance Program in the current climate of budget limitations, we must examine options to protect

producers from natural disaster without ad hoc emergency spending. So we will seek to address issues that can make the combination of crop insurance and other farm programs more effective risk

management tools for farmers and ranchers nationwide.

I welcome our participants today and I would yield time to the

gentleman from Minnesota, the ranking member of our subcommittee, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman.

I look forward to the testimony here, learning more about crop

insurance in other parts of the country. We have the same kind of

problems in my district, multiyear losses. We have had some pretty

high indemnities the last few years, too. This year we had a pretty

good crop.

I appreciate, Mr. Chairman, your leadership in really delving

into the crop insurance issue so we can continue to improve it.

With that, I will yield the remainder of my time to our esteemed

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ranking member of the full committee. He knows more about Texas

agriculture than I will ever learn as long as I try to do it. So I yield

to Mr. Stenholm.

OPENING STATEMENT OF HON. CHARLES STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you. I would say that I am learning about

Minnesota agriculture as, Mr. Peterson, you are learning about

Texas agriculture, and we appreciate that. We appreciate you being

here and we appreciate Mr. Neugebauer hosting us here today. Mr.

Ross, from Arkansas, we are glad to have you with us today.

Mr. Chairman, I very much appreciate the manner in which you

have been conducting this subcommittee regarding the question of

risk management. As you said in your opening remarks, and we

will hear from witnesses today, the bill that was passed 4 years ago

is in need of improvement and the more that we have an opportunity to hear from those who benefit from this risk management,

the crop insurance, the better that risk management will be able

to address the problems and certainly where it takes legislative

correction, this is where it starts. So, Mr. Moran, I very much appreciate you being here.

I noticed, though, that the witnesses from Kansas, one will be

talking about canola, the other will be talking about corn, but you

did not see fit to bring a cotton farmer from Kansas. It is my understanding that there were 604 Kansas cotton acres insured in

1996, there were 70,000 in 2002. I have not seen the 2003 numbers, but just to put it in perspective, there were 250,000 acres insured here in Lubbock County alone. So I know every time I have

the pleasure of being in the audience of Mr. Moran, he talks about

how big his district is and how much wheat he grows in his district, more than any other State. That all began with another

chairman, a full committee chairman, Mr. Pat Roberts, now Senator Roberts. He kept reminding us. And that is one of the things

you do not do when you come to Texas, is talk about how much bigger you are in anything. But Jerry is learning on this.

I do not know if it is true or not, but there are some stories now

that have been reported that Kansas cotton farmers doing what

they know best, harvesting their cotton with combines, trucking it

to the elevator, and they say that much of the bread coming out

of Kansas today is very high in fiber. [Laughter.]

Mr. MORAN. The gentleman’s time has expired. [Laughter.]

Mr. Stenholm, thank you very much for your very instructive

comments. I will conduct myself accordingly to avoid any further

outrage by you. [Laughter.]

Mr. MORAN. I am delighted to be here in Lubbock, TX. We now

have cotton planted on about 125,000 acres, which I know is a

small cotton crop compared to Texas, but we are becoming a cotton

State as well. If we get any rain, we may start growing rice as well.

I am delighted, as I said earlier, to be with our friend Mr.

Neugebauer. We are in his district here in Lubbock, and I would

yield to the gentleman from Texas, Mr. Neugebauer, for any comments you would like to make.

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OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. NEUGEBAUER. Mr. Chairman, first of all, 125,000 acres is a

small farm in Texas. [Laughter.]

Mr. MORAN. The gentleman’s time has expired. [Laughter.]

Mr. NEUGEBAUER. I want to thank Chairman Moran for bringing

the subcommittee to my hometown of Lubbock for this afternoon’s

hearing. I appreciate the subcommittee members also making the

trip to west Texas after last week’s Thanksgiving holiday to hear

firsthand from this area’s producers.

As many of the witnesses will tell us, farming in this part of the

country carries high risk of drought, damaging storms and other

adverse growing conditions and effective crop insurance is essential

to the producers to manage these risks. Without crop insurance

and Federal commodity programs producers would not be able to

obtain sufficient financing to keep these farms in operation.

In the past several months Chairman Moran has held several

hearings to review crop insurance and to listen to suggestions for

improvements to those programs. Producers who buy the insurance

policies and agents who sell them are in the best position to recommend to the subcommittee how we can make crop insurance a

more effective program. I hope the subcommittee can continue to

facilitate an ongoing dialog between farmers who rely on these programs and the risk management agency that implements and administers the crop insurance insurance programs.

I appreciate RMA being here this afternoon and the Agency’s

willingness to respond to the concerns raised today. Thank you to

the witnesses for taking time out of your very schedules, especially

those from the 19th district. West Texas is one of the most productive agricultural areas of the country and your testimony will help

the subcommittee better understand the needs of the producers in

this region.

It is also great to see many of the folks from the region and the

community here today. I think your presence demonstrates how important and effective Crop Insurance Program is to west Texas.

Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Neugebauer.

We have 11 witnesses with us this afternoon. Our witnesses will

be testifying in three panels. The first witnesses we will hear from

today are representatives of seven of the major commodities produced in Texas, Kansas and Oklahoma.

Our second panel consists of producers and lenders who represent general farm interests and have had firsthand experience

with the economic consequences of farm programs and risk management strategies.

To complete our hearing today we will focus on crop insurance

and we will here from an academic perspective, as well as the

views of companies and agents who sell and service insurance contracts. We welcome all of our witnesses today and we look forward

to all of their testimony.

Our first panel consists of Mr. John Haas of the U.S. Canola Association; Mr. Ted Higginbottom of the Western Peanut Growers

Association; Mr. David Moore of the Texas Wheat Producers Association; Mr. Kenneth Rose of the National Grain Sorghum ProducVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00218 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
213

ers; Mr. Dee Vaughan of the National Corn Growers Association

and Mr. Mark Williams of the Plains Cotton Growers here in

Texas.

The chairman’s prerogative would be to recognize the Kansan

first. Mr. Haas, you may begin.

STATEMENT OF JOHN HAAS, VICE PRESIDENT, U.S. CANOLA

ASSOCIATION, LARNED, KS

Mr. HAAS. Thank you, Mr. Chairman and distinguished members

of the subcommittee. I thank you for this opportunity to come and

visit with you for a moment. My name is John Haas and I farm

in Pawnee County, which is about 60 miles from Jerry’s hometown.

I raise grain sorghum, soybeans, alfalfa and canola. Today, I am

also a member of the U.S. Canola Association Board of Directors

and presently I serve as vice president.

I would like to visit with you a little bit about the crop of canola

which is an emerging crop, particularly in the Plains States. The

canola that we have in America today is mostly grown in North

Dakota and Minnesota. That is a spring planted crop. Today, I

would like to talk about the winter canola that has been developed

by Kansas State University under a research grant that the Federal Government has given to us to explore those possibilities.

Charlie Rife, our researcher at Kansas State, has spent the last 10

years in developing winter varieties and we are just at the breakthrough time period. Last year there were about 300 acres of

canola planted in the State of Kansas and this year it has increased 10 fold to a little over 3,000.

USCA held a growers’ meeting in Hutchinson in August and we

had 35 new growers participate that got excited about the crop of

canola. It is planted similarly to wheat. It is planted in the fall just

before when we would normally plant wheat in our area, and it is

harvested in the early summer just before we would harvest wheat.

You can plant it with the equipment that we have that we plant

wheat with, and you can also harvest it with a combine just as you

would wheat.

Canola is an important crop to the United States, and we import

about 70 percent of the canola that is used. Importing this from

Canada and Europe. There is a market here. There is a crop that

has a demand for it in America and we would like to see the American farmers take advantage of this. Canola is also the healthiest

of all vegetable oils, as it only contains about six percent saturated

fat, but it is rich in the beneficial oleic acid. And so as we are very

diet conscious today, we see the fact that there is a greater demand

for canola. And as economics dictate to those of us as producers,

this is a crop that would have a good economic return.

We have a slight problem in the fact that crop insurance covers

canola in only 147 counties in the United States. Those counties

are in North Dakota and Minnesota. Crop insurance is not available to those of us in the Great Plains area. In 2003 crop insurance—at that time to get a written agreement to be covered, you

had to have 3 years of records of your production, and they are proposing that in 2004 the 3 years go to 4 years. Well with a new

emerging crop that is very difficult to do. So what we would like

to ask is that you could use either similar crops to establish the

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yield that needs to be or we could see those rules changed to include the canola crop. We think that canola can not only increase

like it has from last year to this year, but we think that it has the

possibilities—if we can get crop insurance to encourage producers

to grow this, it would increase to as high as in excess of a million

acres in the Great Plains area.

I visited with one producer on the way down here, I had an opportunity to stop by and visit with and look at his canola, and it

looked beautiful, in northern Oklahoma. In that area the rotation

seems to be wheat, cattle, wheat, cattle and canola fits that well

because of the fact that canola can be pastured by livestock. In fact,

it is twice as digestible as wheat is. We have had some fellows in

Kansas that have been very successful in pasturing canola and

then harvesting a seed crop at the end of that.

These are all good things, but to really get the producers to buy

into a new crop, we need to have something in the area of risk

management. Today we cannot afford very many hiccups as producers. I think crop insurance has done a good job in areas, but in

the area of canola we are falling a little bit short and we would encourage you to look at this.

This fellow that I talked to on the way down here thought that

in the northern Oklahoma area where they do a lot of pasturing

of wheat that if they have any success this year—because we have

got a large group of producers that this in their first year trying

it—that it would increase to 600,000 acres in that area alone. That

would be a significant area.

Canola is a broad leaf plant, and in the areas that continuous

crop wheat, we start getting grass problems. We can clean up those

grass problems by putting a broad leaf plant in there and herbicides and clean up that ground.

We have also found that there is an additional kick. We cannot

understand what it is, but in planting wheat following canola we

can an increase in yields of as much as 10 percent.

So there is just a lot of good things in the crop of canola, and

we have got producers that are willing to try this new crop, but

without crop insurance, without having something to fall back on,

it is pretty difficult to risk very much. They will try a little bit. And

so I would like to encourage the subcommittee to recommend that

the crop insurance corporation look at the canola issue. USCA

would be very happy to work with them in any size, shape or form

to be able to draw up something that would work.

And so with that, I think I will conclude my oral testimony.

[The prepared statement of Mr. Haas appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you very much, Mr. Haas.

Mr. Higginbottom.

STATEMENT OF TED HIGGINBOTTOM, PRESIDENT, WESTERN

PEANUT GROWERS ASSOCIATION, SEMINOLE, TX

Mr. HIGGINBOTTOM. Mr. Chairman, members of the committee, it

is an honor for me to appear before you today. My name is Ted

Higginbottom. I am president of the Western Peanut Growers Association. The Western Peanut Growers Association has more than

1,000 members in Texas who produce 75 percent of the peanuts

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grown in the State. Peanut production in the U.S. generates an annual crop value of over a billion dollars.

The peanut industry appreciates the committee’s diligent work

on the 2002 farm bill to provide legislation to convert peanuts from

a production quota system to a regular commodity program.

The 2003 Peanut Program significantly changed under the farm

bill. The changes to the Crop Insurance Program have lagged behind. Producers of other program commodities have the ability to

insure actual production history on acreage by sections. Peanuts

are still under a crop insurance policy that was written back in

1999 under the old program.

Under the peanut policy the producer can only have separate

units if the acreage is given a separate FSA farm serial number.

Therefore, without a change in policy, producers are not permitted

to utilize optional farm units. The entire peanut acres are covered

under one policy requiring a higher loss percentage in order to obtain any indemnity payment.

The Western Peanut Growers brought this issue to RMA’s attention in March of this year during a meeting with RMA Administrator Ross Davidson. During this meeting, RMA promised the optional unit structure would be changed for the 2004 crop year. The

contract change date for peanuts was November 30. RMA did not

release the new policy for the 2004 crop year with this modification

included.

The Western Peanut Growers urges to committee to prompt RMA

to expedite the necessary policy changes to allow peanut producers

to establish optional units, which would provide better insurance

coverage, as the APH would be recorded for the individual acreage

sections. This small change in the policy would make the policy

more equitable in comparison to other program crops.

The second issue I would like to address today was the change

that was incorporated in the Agriculture Risk Protection Act of

2000, which RMA will be implementing for the 2004 crop year, the

double insurance provision. This stipulation on coverage will have

many unintended consequences; beginning with producers and

lenders not having a clear understanding of the amount of insurance that will be available to the producer during the crop year.

Under these restrictions, if a producer has a loss on his first

crop, he can receive 100 percent of the insurance loss for the crop

and not insure his second crop. The other choice for the producer

is to calculate the loss for the first crop, receive 35 percent of the

eligible indemnity, plant and insure the second crop. If there is a

loss to the second crop he can receive full indemnity for the second

crop, but he has to forgo any additional indemnity for his first. If

the producer is fortunate and has no loss to his second crop planted, he can obtain the balance of the indemnity for the first crop

after he has harvested the second one. At the end of the year, a

premium for the two crops will be adjusted according to percentage

of indemnity received for these crops.

When crops are hit with natural disasters such as hail or

drought, we want to be able to plant another crop because we

would like to earn our living from the marketplace. It is very possible for a Texas cotton farmer to have his crop hailed out just after

the final planting date for cotton and still have time to go in and

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plant a crop of Spanish peanuts. He also could have a wheat crop

that would be destroyed and still have time to plant a full season

peanut.

We understand the reason this provision is in the legislation, to

cut down on abusive practices. However, this provision will harm

all producers who double crop. We urge the committee to modify

this provision with legislation that would provide 100 percent coverage for two crops planted in a calendar year.

The Western Peanut Growers would greatly appreciate the committee’s attention to these two very important issues. Thank you.

The prepared statement of Mr. Higginbottom appears at the conclusion of the hearing.]

Mr. MORAN. Thank you very much for your testimony.

In the absence of Mr. Moore, we have with us representing the

Texas Wheat Producers Association, Mr. Floyd Gibson.

STATEMENT OF FLOYD GIBSON, TEXAS WHEAT PRODUCERS

ASSOCIATION

Mr. GIBSON. Thank you, Mr. Chairman. The Texas Wheat Producers Association is pleased to have this opportunity to offer you

our thoughts on crop insurance reform. I am Floyd Gibson and I

farm down in central Texas, about 100 miles northwest of Austin

and halfway between San Angelo and Waco. We are quite a bit different from the High Plains and we still suffer from drought. I

have been in the farming business—you can look and see how old

I am. I growed up in trouble greasing my daddy’s planter and my

mamma was always whupping my britches for getting greasy.

It is still a difficult organization of crops to figure out what you

are going to do with crop insurance, because there are so many deductions and so much other things that enters in, that by the time

you have a disaster and you get paid, the interest on the money

you borrowed eats up what you got. But we applaud you, Chairman

Moran and the subcommittee members for your diligent effort to

provide effective and affordable insurance for farmers.

Crop insurance needs reform. Of course, that is a broken record,

we hear that all the time. The fact was made evident by the need

for disaster assistance legislation last year. The passage of the Agriculture Risk Protection Act was a major improvement in crop insurance, and our proposals today build up on ARPA’s reform. Nevertheless, the cost of higher levels of coverage and the inability of

crop insurance to address the needs of disaster affected farmers

has led the Texas Wheat Producers Association to list crop insurance reform as one of our top priorities.

We understand clearly the current budget environment. Our proposals intend to be cost effective, especially compared to disaster

funding.

TWPA has four primary goals for crop insurance reform. They

are, in order of priority, as follows:

More affordable coverage at higher levels.

Prevent or slow declining APH due to consecutive disasters.

Establish farm savings accounts, which become available in the

event of disaster.

Establish a minimum loss standard.

I would like to go into detail on these primary goals in turn.

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Coverage levels. The higher levels of coverage currently available

are not affordable. The most cost-effective coverage for producers is

either 65 percent MPCI (APH) or 70 percent CRC, therefore these

are the levels most farmers purchase. Why? Because they are

cheaper. But when you get to it, you do not get anything after everything is gone. A farmer loses roughly 11⁄2 years of income before

any claim is paid. An 85 percent coverage would cover some of the

gap; however, higher coverage must be affordable. The availability

of higher coverage is of little use if a farmer cannot afford the premium. Therefore, in order to help producers reach higher coverage

levels, the cost of the higher coverage must be reduced.

Actual production history. The Nation’s wheat growers know all

too well the effects of prolonged drought. Until this year, much of

the Nation’s wheat belt suffered from 2 to 6 years of drought. Here

in Texas, some areas have had below average rainfall for many

consecutive years. Each year of crop failure reduces a farmer’s

APH, eroding the crop insurance safety net.

The minimum yield plug is an effective tool; however, the current

60 percent plug is too low. We suggest the level of coverage purchased by the producer as an appropriate yield plug factor. For example, if a farmer purchases a 75 percent coverage, their yield plug

would be 75 percent. This rewards the producer who buys up coverage. Another factor to consider is that a T-yield based on a short

time frame is based on NASS 10-year historical data per county.

If the T-yield was based on a longer time frame, then the effect of

consecutive disasters would be minimized. Therefore, a more stable

yield plug floor would help farmers through consecutive disasters.

Farm savings accounts. TWPA and other farm organizations

have supported the creation of these accounts in previous farm

bills. Tax deductible contributions with taxable distributions would

be fundamental principles of these accounts. A USDA match, as

well as tax deferred growth, would provide incentive for account establishment. Therefore, disaster reserve accounts held in local financial institutions would provide stability to farm income and security to rural communities.

Minimum loss standards. The deduction of a salvage yield from

a disaster affected crop obviously reduces crop insurance coverage;

therefore, a farmer with an APH of 40 bushels per acre and a 70

percent coverage assumes a 28-bushel per acre guarantee. The custom harvest cost for wheat in Texas is around $14 an acre. At this

cost and a $3 per bushel price, a farmer with an appraised salvage

yield of four bushels to an acre could not economically justify harvesting the remaining crop. This effectively drops his coverage to

24 bushels per acre or a 60 percent guarantee instead of the 70

percent guarantee. Therefore, when the cost of harvesting a lossaffected field exceeds the appraised salvage value, that field or insured unit should be assigned an appraisal of zero.

Conclusion. Mr. Chairman and members of the subcommittee, we

thank you for this opportunity to testify, and we look forward to

working with you on this effort. I am happy to respond to any questions you may have, and pledge the Texas Wheat Producers Association’s assistance to you in developing, refining and implementing

a more effective risk management product. I would like to reiterate

that we would like to cover a lot more besides wheat.

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[The prepared statement of Mr. Gibson appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Gibson, thank you for your testimony.

Mr. Rose from the National Grain Sorghum Producers.

STATEMENT OF KENNETH ROSE, PRESIDENT, NATIONAL

GRAIN SORGHUM PRODUCERS, KEYES, OK

Mr. ROSE. Thank you, Chairman Moran and thank you members

of the subcommittee for this opportunity to testify at this field

hearing. We welcome all of you to Lubbock, which is also home office of the National Grain Sorghum Producers. My name is Kenneth Rose and I serve as president of the National Grain Sorghum

Producers. I farm near Keyes, OK in the Oklahoma panhandle and

our operation includes grain sorghum, wheat and cattle.

It is appropriate that the subcommittee is convening here today

because Lubbock has been in a drought disaster for at least the

last 5 years and are currently 8 inches below normal rainfall. That

is a critical shortage in an area that only gets 15 to 18 inches annually.

Additionally, Lubbock, north through the Texas panhandle is

home to a billion dollar sorghum seed industry that accounts for

nearly 70 percent of the world’s hybrid sorghum seed production.

NGSP’s primary concerns that we will detail today fall into two

main areas. First, a level crop insurance playing field is needed for

grain sorghum so that crop insurance will no longer distort planting intentions. Additionally, NGSP will detail other concerns that

we urge this subcommittee to address.

We would like to thank the subcommittee members for their support in our efforts to realign sorghum insurance price selections

with current market trends. We are encouraged by a recent Federal Crop Insurance Corporation Board resolution that recommends

a new formula for determining price selections for sorghum. When

the CRC program was established, USDA set the price selection for

sorghum at 95 percent of the Chicago Board of Trade December

corn futures. Beginning with the 2004 crop NGSP has been informed that the sorghum price selection will be based on a price

relationship between sorghum and corn and the January 2004

USDA price outlook factored with the USDA baseline projections

and the December corn futures contract. Hopefully, this change will

recognize the fundamental shifts in markets and cash prices due to

ethanol and other new uses in the United States.

We appreciate USDA and RMA’s willingness to revise this formula, and we thank members of this committee and many of your

colleagues in the House and Senate for their assistance in this

area. However, we are concerned that the use of the USDA baseline projections in this equation may put us back to square one because the track record for USDA sorghum baseline projections is

inaccurate compared with what actually happened in terms of the

ratio of sorghum farm price to corn. This is in part because the

USDA baseline was originally intended as a budget guideline tool

rather than to determine the value of the crops. NGSP will continue to ensure that the data is accurately reflecting market conditions.

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Grain sorghum itself is a risk management tool due to its ability

to withstand extremely dry and arid conditions better than any

other grain crop, but more and more farmers have been planting

less drought-tolerant crops in arid areas of the sorghum belt because farm programs like crop revenue coverage insurance have encouraged them to do so.

For example, sorghum acreage since 1996, the year CRC came

into being, has shown no increase, even during years when sorghum acres should have risen due to limited moisture and the sorghum loan rate being increased. In fact, a land management company that manages about one million acres in the Great Plains this

year advised its tenant farmers not to plant sorghum due to the

lower crop insurance price selections and admitted as much in a

letter to one of our State affiliates.

Finally, for 6 years NGSB has been working toward insurance

coverage for sorghum silage. To date, sorghum silage is not insurable, while silage for other crops can be insured, and we have been

told by RMA that it will be insurable not until at least the 2005

crop year. According to data released from the Texas A&M University Extension Center in Bushland, TX in 2001, sorghum out-yielded corn silage in both tonnage and pounds of quality product while

using approximately half the irrigation water required for corn silage. Despite all the time and effort, farmers still cannot insure the

crop in the U.S. today. It is unacceptable to any agriculture commodity that it should take 8 years to get new insurance products

in place. Therefore, we ask that the Agriculture Committee instruct

RMA to make the sorghum silage policy a rider on the sorghum

grain insurance provisions for the 2004 crop year.

As part of information gathering for this hearing, NGSP surveyed its membership about other concerns and improvements regarding insurance. While inequities in price elections topped the

list of concerns, APH yield guarantees and the high cost of premiums followed closely.

Throughout much of the U.S. Sorghum Belt, multiple-year

droughts on the Plains have destroyed guaranteed yields for crop

insurance purposes, unfortunately making the program largely ineffective.

In conclusion, we urge this subcommittee to consider changing

the manner in which actual production histories are calculated.

NGSP suggests the subcommittee order a study of various alternatives such as adjustments that could be given to either APH or

premiums in counties that have been declared disaster areas. After

all, it is these widespread disasters that have the greatest impact

not only on producers, but also on our rural communities that are

dependent upon a healthy farm economy.

Again, I want to thank you for this opportunity and we will be

glad to provide any further input or information at any time.

[The prepared statement of Mr. Rose appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Rose, thank you very much.

Our next witness is Mr. Dee Vaughan of the National Corn

Growers Association. Mr. Vaughan.

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STATEMENT OF DEE VAUGHAN, NATIONAL CORN GROWERS

ASSOCIATION, DUMAS, TX

Mr. VAUGHAN. Good afternoon, Mr. Chairman and members of

the committee. I first want to thank you for traveling to Texas to

conduct this important field hearing today. I appreciate the opportunity to appear before you on behalf of the Corn Producers Association of Texas and the National Corn Growers Association. I am

a corn, soybean, sorghum and wheat producer from Dumas, TX and

I am currently serving as president of the NCGA.

One of the most difficult tasks for any farmer is risk management. The kinds and amount of risk farmers face can differ greatly

between commodities and regions. I understand the different risk

management needs across the Corn Belt from east to west and

north to south. I want to assure you that I recognize the enormous

difficulty of crafting farm policy that meets the needs of U.S. farmers and the needs and interest of taxpayers.

Congress has listened to U.S. producers and taken positive action

in recent years to address some of our needs. One major step to improve the farm safety net was the passage of the Agriculture Risk

Protection Act of 2000. By committing greater financial resources

to premium subsidies, we have seen increases in producer participation, percentage of acres covered and higher levels of buy-up coverage.

Another example of what additional premiums subsidies can do

for Federal crop insurance participation is in the Agriculture Management Assistance Section of the Risk Protection Act of 2000. A

decision earlier this year by the Secretary of Agriculture to make

available supplemental subsidies to 15 under-served States for buyup coverage resulted in a remarkable increase in liability protection. NCGA is disappointed that the 2004 agriculture appropriations bill has taken away part of the Secretary’s authority to use

this discretionary funding.

Over the past few years Federal crop insurance has enabled

many producers to continue farming who otherwise would not have

been able to withstand the financial losses resulting from weather

disasters. Indemnity payments in excess of $7 billion for the crop

years of 2001 and 2002 have made a real difference to growers who

were already coping with low crop prices.

We appreciate the progress that has been made but we also recognize that even with recent reforms too many growers who have

exited farming often point to the lack of effective insurance as a

contributing factor.

A primary concern for farmers is adequate protection against

multiyear crop losses. We have recognized for some time now that

many crop insurance participants who experience shallow but significant crop losses in back-to-back years can find themselves in

trouble. For example, growers with typical insurance coverage who

lose up to 35 percent of their crop most likely cannot file an insurance claim, nor do they qualify for traditional crop disaster payments. In Texas, our normally high variable cost of production has

increased dramatically in recent years due to the rising price of

natural gas. The margins are so thin that any weather related

yield problem has terrible consequences. Multiple years of poor

yields can seriously impact a grower’s equity base.

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We have also noted that multiyear crop losses adversely impact

a growers average production history, or APH, and in turn the

value of future crop insurance to that grower. However, we strongly encourage the consideration of innovative solutions that go beyond artificial adjustments to T-yields and the APH.

The failure to address erosion of benefits caused by multiyear

losses undermines the growth of crop insurance participation as

well as the long-term goal of reducing the need for ad-hoc disaster

assistance.

One potential solution would be a supplemental insurance product that covers a producer’s deductible when 2 years of consecutive

losses exceed a predetermined level of his APH. Another recommendation is expansion of the Group Risk Income Protection

plan, or GRIP, that until recently was limited to five Midwest

States. We are very pleased that growers in some counties of Wisconsin and Texas will now be able to purchase GRIP. The Federal

Crop Insurance Corporation Board has also improved the GRIP

plan. By adding the Harvest Revenue Option by offering more producers more affordable protection against area-wide losses, the

FCIC has taken a step in the right direction. NCGA intends to look

at a number of new concepts to enhance crop insurance and will

be conducting a national survey of our growers in the very near future.

Realizing that the changes we advocate may be difficult to

achieve in the short term, we urge this subcommittee to consider

major reforms to traditional crop disaster assistance. NCGA first

addressed this issue in response to last year’s drought, 2002, by

proposing a new program that would deliver aid more effectively

and without penalizing participants in Federal crop insurance. We

observed that traditional disaster programs have targeted assistance to growers with insurable crop losses. Farmers can lose up to

35 percent of their crop, suffer significant financial loss and still

not qualify for any assistance by way of either the disaster programs or insurance.

We applaud Representative Graves for introducing the Companion Disaster Assistance Act, or CDAP, as a means of reforming disaster programs. CDAP would compliment Federal crop insurance

by providing payments to cover a portion of the uninsurable deductible rather than duplicating the portion covered by insurance.

CDAP payments can be delivered sooner and in a more targeted

manner.

Mr. Chairman, I began my remarks by acknowledging the positive impacts of the crop insurance reforms of 2000. We also want

to recognize the work of Congress and the commitment it made to

U.S. agriculture in passing the 2002 farm bill. This legislation provides farmers with a far more reliable and predictable safety net.

We cannot over-emphasize enough the importance of staying the

course and the need for Congress to refrain from reopening the

farm bill. The 2000 farm bill is a carefully balanced policy that addresses many pressing needs and we ask for your continued support of that farm bill.

In closing, I want to thank you and members of the subcommittee once again for visiting our great State and taking the time to

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listen to the issues that we have been able to bring before you

today. Thank you.

[The prepared statement of Mr. Vaughan appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Vaughan, thank you very much.

Our final witness on this panel is Mr. Mark Williams of the

Plains Cotton Growers.

STATEMENT OF MARK WILLIAMS, PRESIDENT, PLAINS

COTTON GROWERS, FARWELL, TX

Mr. WILLIAMS. Good afternoon, Mr. Chairman. My name is Mark

Williams and I am a cotton producer from Palmer County, TX. I

would like to welcome you and the other committee members

present to Lubbock. I am presenting testimony here today on behalf of Plains Cotton Growers, Incorporated, a certified producer organization representing the 25 county production regions surrounding Lubbock. This region produces, on average, 60 percent of the

cotton grown in Texas and 15 percent of the cotton grown in the

United States.

For the most part Plains Cotton Growers supports crop insurance

in its present form; however, producers in west Texas still have

major problems in making crop insurance an adequate risk management tool. The first issue concerns the severe erosion in APHs

that our dryland producers have experienced over the last few

years. As you are aware, each time a producer has a crop failure

due to drought or lack of timely rainfall his APH drops accordingly.

This reduces the amount of coverage these producers can afford to

buy.

One suggestion for assisting these growers is through the use of

GRP type products. The positives of the GRP policy are that coverage is based on county yields instead of the grower’s APH, which

allows them to purchase more dollars of coverage per acre at an affordable price. That affordability, however, is derived from the fact

that they give up protection against individual loss events. We believe that improvements could be made to the GRP program to increase individual protection.

Our first suggestion is to include with the GRP plan an additional subsidy amount, either in the form of a voucher or some

other mechanism, that can be applied towards purchase of privately offered hail insurance. PCG believes that the overall cost to

the Government would not be increased. We envision a program

that would essentially provide subsidies equal to what the grower

would receive if they selected an APH based insurance program.

This option would give GRP participants the ability to have some

individual risk protection in addition to the lower cost coverage

provided by GRP.

The second suggestion is a GRP/CAT, or catastrophic risk protection combination policy. Currently the Government provides a 100

percent premium subsidy on CAT insurance. Bundling the GRP

plan with a CAT policy would allow the grower to purchase more

dollars of coverage to protect against a widespread loss event, such

as protected by GRP, and still provide a small amount of individualized protection against a random, localized loss event through

the CAT policy.

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A third area where changes could be made to the program to

make it more responsive to producer needs is to allow our producer

to insure at different levels according to his production practice.

The current requirements that everything be insured at the same

level keeps many growers from purchasing higher coverage for irrigated units. Allowing producers to purchase higher coverage levels

on irrigated units and less coverage on dryland units is one way

the program could help producers tailor insurance coverage to reflect specific needs.

The other major issue with crop insurance in west Texas concerns the cost of the policies. Despite the generous subsidies built

into the current crop insurance policies, most cotton producers in

this area can only afford to buy coverage between 55 and 65 percent.

Two ways to make the purchase of higher coverage levels more

affordable are to implement a good experience rating system or

simply provide premium discounts for those producers who maintain good production year after year. Analysis has shown that rates

for producers who consistently produce at levels greater than the

county average could see premiums drop by half if they were rated

correctly. This would allow those producers to increase their coverage to levels of 75 or 80 percent. This would lessen the need for

disaster assistance when catastrophic events do occur.

Next I would like to discuss RMA’s requirements for obtaining

coverage on crops through written agreements. In 2002 RMA

changed the rules for written agreements to require producers to

have a minimum of 3 years of growing experience on a crop in the

county before a written agreement could be considered. This is a

problem for producers in the northern Texas Panhandle that are

turning to cotton as a new crop. The problem is that as they seek

to expand cotton acreage lenders are becoming increasingly uneasy

about approving production loans without adequate crop insurance

protection. Additional testimony concerning acres and yields in the

counties of concern will be submitted, and we encourage the committee to look further into this issue so that an equitable solution

can be developed.

PCG would also like to encourage Congress and RMA to investigate ways that insurance coverage could be extended to key industry infrastructure such as cotton gins. When widespread crop

destruction occurs, these critical industries are left no protection.

We encourage the Congress and RMA to determine what level of

Government support could be made available and to develop insurance for key industry infrastructure.

PCG has worked very hard on a number of other implementation

issues concerning various rules and regulations within RMA. These

include secondary crop coverage, the fertile appraisal periods on

non-emerged seed and an updated appraisal using a more accurate

bowl count methodology. These items are very important to producers in this area and are covered in detail in our written testimony.

The last topic I would like to cover today is disaster assistance.

We have had a difficult growing season across the area, and Plains

Cotton Growers strongly supports delivery of a 2003 crop loss assistance program. Any assistance you can provide in this regard

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will be greatly appreciated. Plains Cotton Growers stands ready to

provide any help or information necessary to further this effort.

That concludes my testimony this afternoon. In closing, I would

like to thank each of you for taking the time to come to Lubbock

to discuss this very important topic and for the opportunity to

present these comments on behalf of the cotton producers of west

Texas. I would be pleased to answer any questions you may have.

Thank you.

[The prepared statement of Mr. Williams appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Williams, thank you. I thank all of our witnesses.

For purposes of questioning, I recognize the gentleman for Texas,

Mr. Neugebauer.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

Mr. Higginbottom, how would having the option of insuring separate units of peanuts establish production histories for separate

farm units, how would that benefit the producers in west Texas?

Mr. HIGGINBOTTOM. West Texas has sort of a unique situation

from some other parts of the Peanut Belt in as that we operate

usually a lot of large acreage farms, and even though they might

be scattered over several miles all of them right now are under one

unit. If you had hail damage or early freeze or whatever on one

portion of your land, you would have to really have a loss on all

of it before you would receive any indemnity. If it was like cotton—

that is really what we would like to see, the Peanut Program be

made just like the cotton program, where you would have separate

units by section. That way if one field made a normal crop but the

other one didn’t, it would stand on its own.

Mr. NEUGEBAUER. Is there a flip side to that? Is there instances

where it could hurt the producer to partition into units?

Mr. HIGGINBOTTOM. I am not aware of any downside whatsoever.

Mr. NEUGEBAUER. You also noted that many producers in the

area that are double cropping sometimes find it difficult to plant

that second crop because they do not know exactly what their coverage might be for that second crop, and that second crop could be

possibly peanuts if the growing season is still long enough. Do you

feel like that the current program is hurting or discouraging farmers from planting peanuts as a second crop?

Mr. HIGGINBOTTOM. Really the double cropping that I am speaking of is something that the farmer at the first of the year does not

plan on doing. The double cropping I am referring to is one that

he is forced into. A good bit of it was done this year where the producers had two or three hails and they planted cotton and planted

cotton and finally after their county cutoff date they could not

plant cotton anymore, and some of them went in and planted a

Spanish peanut which did have time to produce. A scenario such

as this is what we would like to see addressed.

Mr. NEUGEBAUER. And so do you feel like if we changed that that

more farmers would consider peanuts for that second crop in the

event of a failure on the first crop?

Mr. HIGGINBOTTOM. Yes, sir. At least the ones that did do that

would have some protection.

Mr. NEUGEBAUER. Thank you.

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Mr. Rose, you mentioned in your testimony that there are concerns with the accuracy of the USDA baseline forecast. If this formula had been in effect this year, would that have been a better

price selection for sorghum producers than the previous year’s price

selection?

Mr. ROSE. Yes, sir, it certainly would be. In three of the last 4

years sorghum prices have been equal to or higher than corn, and

that fourth year it was, I think, 98 percent of corn. So certainly

yes. I think one year it was like maybe 102 percent. So yes, it

would be a benefit.

Mr. NEUGEBAUER. Thank you.

Mr. ROSE. That is the national national average sorghum price

compared to corn.

Mr. NEUGEBAUER. The quality loss provisions for corn are hard

to define. What are some of the concerns in Texas?

Mr. ROSE. Quality loss, principally test weight, moisture in areas

where rainfall comes in the fall and the crop does not have a

chance to dry down. There is not really a whole lot of quality issues

with sorghum.

Mr. NEUGEBAUER. Thank you, sir.

Mr. Williams, what feedback has Plains Cotton Growers received

from RMA with regard to the proposal that the deferral period be

limited to the late planting period for crops put in before the final

planting date and a set number of days for crops planted during

the late planting period?

Mr. WILLIAMS. Well they have increased the number of days that

you have to wait, which has caused a number of problems to our

producers. It prevents you from going back with a second crop that

is planted timely. We tried working with them to come with a more

reasonable alternative to their way of doing it. We think the best

way to do it is to give a producer seven days from the day he planted it rather than an artificial measure of so many days after the

final plant date. We think that would be much more workable than

their current way of doing it.

Mr. NEUGEBAUER. And that would give you an opportunity to get

your second planting back in on a more timely basis and have a

better success ratio on that crop?

Mr. WILLIAMS. That is right. That is exactly our point in the

matter.

Mr. NEUGEBAUER. Thank you. In terms of quality loss adjustment, how would a bale-by-bale quality loss procedure benefit cotton producers?

Mr. WILLIAMS. Well, in many situations you have a situation

where maybe part of a field has suffered from excess moisture or

maybe it had a partial hailstorm and those bales have experienced

a loss in quality. Under current procedure it is not recognized, but

if you went to a bale-by-bale each bale would stand on its own.

There has been a precedent for doing this. Such was done in the

last disaster program. Each bale stood on its own, and we think

that is a much better way of doing it than the way RMA currently

does that.

Mr. NEUGEBAUER. Has RMA responded back to you about the

feasibility of going to a program like that?

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Mr. WILLIAMS. I am not aware of any feedback from RMA on

that particular issue.

Mr. NEUGEBAUER. Mr. Chairman, I yield the balance of my time.

Mr. MORAN. Thank you very much.

The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Higginbottom, this request here that you made to RMA to

have them respond by November 30 on this issue. Have they given

you a reason why they have not done that?

Mr. HIGGINBOTTOM. No, sir. I really was not aware of it until last

week that we realized a lot of the new rules had been written and

this was not included in them.

Mr. PETERSON. So you have not had time to talk to them?

Mr. HIGGINBOTTOM. No, I have not.

Mr. PETERSON. Well we, Mr. Chairman, should probably follow

up on that and see what is going on with that.

Mr. Haas, this requirement that you provide 3 years of records,

and now, as I understand it, they have extended that to 4 years?

Mr. HAAS. Yes, that is the proposal for 2004, that it would be 4

years of records, which we think really is unreasonable.

Mr. PETERSON. Has anybody actually been able to buy insurance?

Mr. HAAS. Not outside the 147 counties.

We do not have it. We are sitting naked as far as crop insurance

goes in our area.

Mr. PETERSON. Have they explained to you why they went from

3 years to 4?

Mr. HAAS. Well, I think part of it has to do with the fact that

we have seen losses in the last 2 years and those losses have been

of course with the drought situation, and that is what they are saying we need to see some production. But not only has canola had

losses in the last 2 years, we have seen all the other crops have

losses. So it is really a weather-related thing in that area. But we

would like to see that—being able to have a written agreement

without having 4 years of history.

Mr. PETERSON. But, I mean, RMA did not lose any money, because you could not buy insurance anyway.

Mr. HAAS. Right.

Mr. PETERSON. So before they even——

Mr. HAAS. They would just deny the insurance.

Mr. PETERSON. Basically they are telling you they do not really

want to write the policies.

Mr. HAAS. That is our understanding. They only write them in

147 counties.

Mr. PETERSON. Yes. So next year do you think they are going to

go to 5 years or what?

Mr. HAAS. I am not sure. I really do not want to go that way

again.

Mr. PETERSON. But they did not give you any real——

Mr. HAAS. No, they did not.

Mr. PETERSON. Just that they are concerned that this is going to

be a high risk product, I suppose.

Mr. HAAS. Well, it is a new crop that we are trying to——

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Mr. PETERSON. Have you tried to do a pilot program? We have

done that in some other places I think where they have just taken

a couple of counties.

Mr. HAAS. I am not aware of that. Four years ago, I worked with

a crop insurance gentleman out of Topeka—well it was 5 years ago,

I guess—and he came out. At that time, we could not buy insurance, and they were developing the program. They only had it for

1 year before they discontinued it. Of course, we did not have the

opportunity to buy into it. So it has been there, but they have

taken it away because of the drought and the losses involved in

that.

Mr. PETERSON. Well, thank you.

Mr. HAAS. Thank you.

Mr. MORAN. The gentleman from Arkansas, Mr. Ross.

Mr. ROSS. Thank you, Mr. Chairman. I want to thank the panel

for coming and being with us today. One comment and then one

question. One, I am Mike Ross from Arkansas, and, of course, agriculture is a big part of our economy. We are No. in rice, No. 4 in

cotton, No. 10 in soybeans. It is good to be in our new Member,

Congressman Neugebauer’s district. Randy, it is good to be here in

your district with you today. Let me just say to the folks who are

from this area, Larry Combest did a wonderful job as chairman of

the House Agriculture Committee. We miss him. He is a Republican and I am a Democrat. That is one of the things I enjoy about

the Agriculture Committee, most battles fall on geographical lines

rather than party lines. I do not know about you folks, but I am

sick and tired of all the partisan bickering that goes on in our Nation’s Capital.

[Applause.]

Mr. ROSS. I just want to make the point that without Mr. Combest’s leadership on the Republican side and without Mr. Stenholm’s leadership on the Democratic side as ranking member of the

full House Agriculture Committee we would not have a new farm

bill today. Mr. Combest is not here. I do want to thank Mr. Stenholm, the ranking member. You all have got the best of both

worlds. I mean you had—the two leaders of the Agriculture Committee lived about 30 minutes to an hour apart, or at least their

districts were that close together.

As a tribute to my ranking member and his leadership in helping

write a new farm bill, rather than ask questions, I am going to

yield my time to Mr. Stenholm, Mr. Chairman.

Mr. MORAN. The gentleman from Texas, Mr. Stenholm.

Mr. STENHOLM. Thank you, Mr. Chairman.

Mr. Haas, you mentioned on the canola the need—and following

up on Mr. Peterson’s question somewhat, of using comparison—I

am assuming comparison with wheat. What would be a comparable

yield, canola to wheat, in the area that you are talking about?

Mr. HAAS. We would not use wheat, we would probably use sunflowers. That would be a comparable oil crop with canola, and a

comparable yield would be—we look at sunflowers yielding 1,500 to

2,500 pounds in our area, and canola would be about in that same

poundage per acre. We have had canola in research plots yield as

high as 3,900 pounds. I think sunflowers would be the one that we

compare with, not wheat.

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Mr. STENHOLM. Sunflowers would be insured in the areas you

are talking about?

Mr. HAAS. Yes, sir.

Mr. STENHOLM. OK, you were comparing grazing value of canola.

That is where I was wondering if there was some possibility of

comparing canola and wheat for the same purposes where you may

not be raising sunflowers.

Mr. HAAS. Grazing wise, we can compare it. One fellow that I am

familiar with, he took 235 pounds of beef off of canola in a 90-day

period and then harvested a little over 1,200 pounds of seed afterwards. The canola is about double in the nutritional value of

wheat. So it does have an effect there. The thing that we see with

canola in the grazing program is that we can go back in and we

can control the grassy weeds that you cannot control in wheat but

you could control in canola.

Mr. STENHOLM. Mr. Higginbottom, I think your request for the

single unit comparison for peanuts, as with cotton or other commodities, is a very reasonable request and one which I would hope

that RMA would eventually treat peanuts like cotton, like every

other commodity. It makes eminent good sense. I have to believe

that is an oversight to this point.

Mr. Williams, you mentioned the cost of production. I, too, am

not ready yet to give up on the theory of having cost of production

insurance. I still believe that that is not only a theory, but eventually could be a practice which would make real good sense as far

as an insurance program in which you basically take care of a lot

of different problems with that. But as we all know now, the committee that had that under advisement, under instructions from

the ARPA have said we cannot do it, it is not practical at this

point. So we will continue to join with you in encouraging folks to

stay at the drawing board to see if it cannot be someday done.

Many of you are talking about the APH. We will hear a little

more suggestions along the lines of what might be done in that

area from witnesses to follow. But clearly, where you have multiple

years of disaster—and Mr. Peterson stepped out just now, but Minnesota, I know he has probably had as much—even as west Texas

has had—of multiple-year disasters. The APH problem is one that

we need to continue to look for a solution to.

Mr. Vaughan, not so much a question, but you mentioned the importance of not reopening the 2002 farm bill. As the chairman is

probably one of the most consistent Members of the entire Congress regarding fiscal matters today knows the pressures that we

are going to be under. Everything that costs money—and much of

which you have asked for today will cost additional money in order

to do that which you have asked us to do, for the very real purposes of which you have asked us to do it. I would be remiss here

in this audience if I did not make the same observation that we

make in every audience of this nature. With the fiscal pressures

that we are now under with a $374 billion deficit last year, over

$500 billion this year and deficits of over $400 billion as far as the

eye can see, and now people over the weekend beginning to talk

about the run-away Congress, the spending, all of the problems, we

in agriculture have got to be on our toes and be prepared to make

constructive changes to the farm bill to accomplish more benefit for

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our producers with less taxpayer dollars. That is going to be a challenge that we are going to have, and none of you, as none of the

five of us up here, look forward to that. But I think we would be

remiss, and you in your role of leaders would be remiss in not

spending some time over the winter months to be prepared to assist us with some perhaps very difficult decisions that are going to

have to be made next year.

My question that I will conclude with, Mr. Chairman, I understand the concern that all of you have expressed regarding the double insurance, insuring two crops. And as we will hear from a succeeding witness also on this endeavor—and you have each stated

in your own way you understand why we did it. Give me some examples of double cropping on the High Plains that are routinely

done every year. Is there any example of a routine double cropping

in which a farmer goes to his banker and begins the year by saying

we are going to plant two crops?

Mr. VAUGHAN. Mr. Stenholm.

Mr. STENHOLM. Yes, sir.

Mr. VAUGHAN. In our area, we do plant green beans behind

wheat as a double crop.

Mr. STENHOLM. Mr. Higginbottom, you stated that it is not normal that we follow cotton with peanuts. That is a given. But is

there any other—green beans—are there any other crops?

Mr. HIGGINBOTTOM. At the present time it is not widespread in

our area because of the water situation. So really, the thing I was

looking at is when you are put in that position by mother nature.

Mr. STENHOLM. As one of the authors of ARPA, one of the problems we were getting into is folks that were insuring not just two,

but three and four crops and collecting on all four. So many times

when we correct a problem legislatively we have unintended consequences. Instead of taking a surgeon’s scalpel we take a meat ax

approach to it. But here, unless you can help me with the basic

thought process, why I lead by saying cost of production, what I

want to see out of crop insurance is to where if you lose a crop for

whatever, whether it is quality, yield, whatever reason that you

lose the crop, that you as an individual farmer can come back and

have another year. That is what it is all about. It was never intended to make money. It was never intended to make a profit out

of insurance. It was intended to do as basically all insurance was.

And so, as much as I would like to offer some encouragement about

the elimination of the two crop, I would much rather make certain

that where you plant your cotton, lose the crop, you recover the

cost of what went into that, plant a second crop and hope you make

the crop, which most farmers do. Hope you make the second crop.

And if your total revenue from the second crop, plus what you collect from insurance on the first crop, should equal what you expect

to make if you had made the basic crop that you and your banker

set out to make that year. That has been the theory behind the insurance program that we have tried to do. Now we are not there,

and your testimony today, and so many excellent suggestions of

some of what I call the nuts and bolts of farm policy. You folks are

experts. I am one that has benefitted from the knowledge of you

and your associations now for 25 years, and we really appreciate

it. I know I speak for all of my colleagues. Those that spend the

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time in helping, and then lobbying, educating, and then seeing that

policy passed in the form of legislation, but then ultimately administered in a way in which it was intended. And so for that I thank

you for your testimony.

On the double cropping, be careful what we ask for because we

might get it. We have got some very serious other questions regarding double cropping, with hurricane insurance, earthquake insurance, et cetera, right now. I want to see that this insurance carries

on in the way in which everyone of you have testified you want to

see, but doing it within the confines of what is going to be possible

with the budget restraints that we are going to have upon us.

Mr. MORAN. Mr. Stenholm, thank you.

Mr. Vaughan, you and Mr. Williams, I think, both mentioned disaster assistance. The Corn Growers in particular have been very

active. I know that you have a task force developing a plan, a suggestion for Congress. Can you bring us up to date on where that

process is?

Mr. VAUGHAN. Well in the 2002 crop year we did have the tremendous drought across all of the Great Plains that affected a

great number of corn growers. We commissioned a task force to

work on some type of disaster relief, maybe looking beyond the way

we traditionally have done it in the past. As I stated, a lot of times

disaster payments also cover the same portion of the crop that is

covered by crop insurance, and we felt like—a lot of times the producer that gets in trouble is the guy that does not have that coverage on the top end, that 35 or 30 percent that is not insured. So

we commissioned this and we came up with our companion disaster

assistance. Representative Graves brought that forward last year.

Right now for the 2003 crop year we did not choose to pursue

any kind of disaster legislation. There was weather problems in

various parts of the country, but when you look at a 10.3 billion

bushel crop, we have to acknowledge that by and large we had a

good crop this year. So right now, we are not actively working on—

other than pursuing—we think CDAP is a—would be a good longterm fix maybe for ad hoc disaster.

Mr. MORAN. Do you have some specific complaints or suggestions

about the way the ad hoc disaster was implemented this time,

2002?

Mr. VAUGHAN. No, our main concern is just the fact that we feel

like it is kind of double coverage of the bushels and we would like

to see maybe broader coverage.

Mr. MORAN. Mr. Rose, you talked about a topic that I am very

familiar with. RMA has attempted to address the issue between

corn and sorghum. I was just wanting to flesh out a little bit more

your satisfaction with their solution. Is this a wait and see how it

is going to work or are you satisfied with what RMA has concluded

as far as attempting to address your issue?

Mr. ROSE. I think the issue would be more clearly addressed if

it was based on USDA’s cash price data that we have seen over the

last several years. We are confident that sorghum prices have been

on a national average basis at or equal to corn. Their formula, like

you say, may be a wait and see and see what they come up with.

But we think it is maybe a step in the right direction.

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Mr. MORAN. Did RMA give you a reason why they addressed—

I just wonder why they chose not to follow the Grain Sorghum Association producers’ suggestion.

Mr. ROSE. We visited with them in Kansas City and I cannot tell

you exactly what they told us as far as really understanding it.

Mr. MORAN. We can find that out from RMA ourselves, but I was

interested in knowing your reaction as to what they are about. I

was pleased that they recognized there was a problem, it seems to

me they are moving in the right direction, but there may be a few

more steps we would like to see them take.

Mr. ROSE. Yes.

Mr. MORAN. And I would like to follow up just a bit on this issue

of second crop. It is certainly a common complaint for my constituents and farmers in Kansas.

A broader topic than that, however, is do you all see abusive

practices occurring by farmers who you know, who are your neighbors? Are there things that are occurring that we ought to be

aware of?

As Mr. Stenholm indicated, we sometimes in trying to solve problems create new ones. Have we adequately addressed the issue of

abuse occurring in the Crop Insurance Program?

Mr. ROSE. Many times, grain sorghum is viewed as a catch crop

or a second crop in case a primary crop fails. And unfortunately we

have seen much better success with grain sorghum producers

where they treat grain sorghum as an intentional crop and farm

that as a primary crop.

I know particularly in Oklahoma, you get about 40 miles west of

I–35 and there virtually is no double cropping as a standard practice. In the higher rainfall areas of Oklahoma; yes, it is and it is

a very productive practice. We have seen some very good double

crop sorghum yields as an intended practice, but to more specifically address your question of practices that would not be necessarily good farming practices, after a wheat crop droughts out in

the spring, there is not much soil moisture profile left and unless

significant rainfall occurs to replenish that profile it is difficult to

follow up with a summer crop.

Mr. MORAN. Let me just expand that to other members of the

panel. Does anybody have some suggestions of issues we should be

addressing with regard to abuse that occurs within the crop insurance system?

Mr. WILLIAMS. Well, Mr. Chairman, I see very little follow up by

RMA or FSA on known instances of abuse. I mean, it does not

seem like anyone—I know of some instances where guys have been

turned in but nothing ever seems to happen. So I believe that does

occur.

Mr. GIBSON. Mr. Chairman, coming up through the rolling Plains

and back down through the central part of the State in the principal cotton area and wheat area, I see a lot of grazed out wheat

and then I see them go back and plant cotton in there as a catch

crop for the insurance on it. And we—it is not real prevalent, but

as I go through there, I see it, and I know what they are doing because they get up and they get a bowl or two on it and then they

draw their disaster insurance and that is the reason they planted

it, was the disaster insurance, but that is about all that you can

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see on that. And any other crop, that would be just a catch crop

and I do not expect that they could expect it to be insured. I know

I have double cropped peanuts behind wheat and oats for 30 years,

but I never did expect any insurance on either one of them. And

that was just a common practice.

Mr. MORAN. Thank you very much. Let me ask just one more

broad question of any or all of you. A theme that we have heard

not only today but in past hearings is the desire for higher levels

of coverage. And one of the suggestions is that we take the subsidy

that occurs at lower levels of production and move it to the higher

levels so that it becomes more affordable at higher levels. Is there

anyone in Kansas, Texas or Oklahoma that would not find higher

levels of coverage the economical way to go? If you actually moved

the assistance, the additional subsidy, from low levels of coverage

to high levels of coverage, is that a good thing for farmers in your

association, your colleagues?

Mr. HAAS. Mr. Chairman, I think as we look—as we go into the

office to look at the coverage that we are going to take over our

crop—any way, in my own particular case I am going to speak

about that because that is the one I am more familiar with—you

look at where those breaks come and what you can afford and I

have bought buy-up insurance up to a point, but to a point then

it gets to where it is—the benefits is uneconomical because of the

tremendous increase in the premium.

And I believe that producers would increase the percentage of

coverage if it was logic financially. And I think farmers—really in

our area, I have to think that farmers are doing a good job using

the crop insurance that is out there. Many of them are buying up,

going from 65 to 70, 75 percent. When you get over 75 percent, the

economics of it do not work quite as well. And I think if we could

make the economics work better, I think we would see buy up into

the 80 to 85 percent, I really do. I think farmers are—they sharpen

the pencil today very well and there are computer models out there

that you can put these things into and make them work. That is

what I see in Kansas.

Mr. MORAN. Thank you, John, very much.

For the final question of this panel, Mr. Peterson has a follow up

question.

Mr. PETERSON. Thank you, Mr. Chairman. I should have probably asked this before. This is a question I asked at the hearing

we had in Minnesota. I have introduced a bill to establish a permanent disaster program. One of the complaints I get, and I assume

it is the same problem here, is that farmers do not know what we

are going to do and they have got to wait around for a couple of

years for us to move on a disaster ad hoc deal. And I am not sure

we are going to be able to pass any of them in the future anyway,

given what has happened.

So what my bill does is sets up an account kind of like FEMA,

where the Secretary would have the authority to, if he or she declares a county a disaster county, they would have the resources

like FEMA does to make the payments without having to have a

bill go through Congress and so forth. Now obviously that is going

to cost money and that is an issue. But one of the provisions I have

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in there I would like reaction to is that you would have to have

some buy up coverage or you would not get this.

In my area, we have got 98 percent crop insurance coverage. We

have some other areas where there is hardly any coverage and that

becomes problematic in trying to use this to offset the pressure to

get rid of it so we do not have these ad hoc bills and have pressure

to build them, but maybe if we flipped this thing around, we can

get those areas that do not have crop insurance to buy up crop insurance, knowing that they will not have disaster coverage if they

do not.

In the hearing that I had in Minnesota, I think the corn growers,

wheat growers, sugarbeet growers, there was five or six commodity

groups there that all thought that this was a good idea. So I guess

I would wonder, like to sorghum producers and cotton growers,

peanut growers, are you guys interested in some kind of concept

like that or have you talked about it at all?

Mr. HIGGINBOTTOM. Sir, how would this be funded?

Mr. PETERSON. Well, right now, it is funded out of the emergency

the way I have got the bill drafted. So it would be—it is not out

of the budget, it would be an emergency—the way we have been

funding the ad hoc, those have all been funded on an emergency

basis so they do not come out of the budget. Whether we could ever

pass a bill with that provision, I am not sure, but that is the way

I have got it crafted right now.

Mr. HIGGINBOTTOM. I cannot really see how any farmer would be

against that.

Mr. PETERSON. What about the provision that they have to have

insurance?

Mr. HIGGINBOTTOM. Personally, I feel like you need to have that.

Mr. PETERSON. How about the rest of you? Let me see you nod

your heads.

What about if we had to take the money out of the higher buy

up coverage and use that to fund a disaster?

Mr. HAAS. Personally, I think that you put the burden to the producer if you have the higher buy up insurance available. And I

think that becomes a management decision and I like that personally much better than I do disaster programs, because then you

have something—when you are planting a crop that you have

taken say the 85 percent buy up insurance, where that is at. A disaster program, like you are talking, would be an after-the-fact type

of thing. I think our financial institutions would be more interested

in seeing it in front and personally I think the burden of management decisions like that need to be made by the producer. I will

catch a lot of flack for that in places, but I really, honestly do. I

think the producers have to get smarter and accept that responsibility or maybe they need to find something else to do.

Mr. WILLIAMS. Mr. Chairman, may I say something on that? On

cotton, when you get to 75 percent, that coverage costs you—one

dollar’s worth of coverage costs you 1 dollar.

Mr. PETERSON. Right.

Mr. WILLIAMS. I cannot go to 75 or 80 percent at all. The only

way I possibly could is if it was re-rated, as I mentioned in my testimony. Maybe the rates are not exactly right, I would encourage

you to look at rates.

234

But as far as disaster payment goes, I think you need to have

buy up insurance, but I also think you might look at something like

the current catastrophic insurance policy to serve as the ad hoc—

it would not be ad hoc in that case, but to serve as disaster assistance.

Now under my idea, you would pay for that catastrophic policy

rather than have them give it to you like it is today. But when you

do have an area-wide or even an individual loss, let a catastrophic

policy come in on the top of your crop insurance to cover you. And

I think you could do that at a much cheaper price than you could

try to insure us up at that 75 or 80 where it cost a dollar for a

dollar.

Mr. MORAN. Thank you very much, panel, we appreciate the information that you have provided us. We will take into account everything that we have heard today and we, again, value your input.

We are now ready to call the second panel to the floor and I

would recognize the gentleman from Texas, Mr. Neugebauer.

Mr. NEUGEBAUER [presiding]. Thank you, Mr. Chairman.

If the second panel would come forward, please.

It is my pleasure at this time to introduce our second panel. Mr.

Lloyd Arthur, vice president, Texas Farm Bureau Federation,

Ralls, TX; Mr. Alan Peter, president, Kansas Corn Growers Association, Tribune, KS; and Mr. Curtis Griffith, chairman and CEO

of City Bank of Lubbock, Lubbock, TX.

Gentlemen, thank you for being here today and we will begin

with Mr. Arthur.

STATEMENT OF LLOYD ARTHUR, VICE PRESIDENT, TEXAS

FARM BUREAU FEDERATION, RALLS, TX

Mr. ARTHUR. Thank you. Mr. Chairman, and members of the

committee, I appreciate the opportunity to testify before your committee regarding the needs for adjustment in the Federal Crop Insurance Program. My name is Lloyd Arthur and I am the vice

president of the Texas Farm Bureau and I am a cotton farmer at

Ralls, TX.

We recognize that Texas, and specifically this area of the State,

is a high risk crop producing area. Return on premium dollar in

Texas is significantly higher than the national average. Texas,

however, is also a high production area, particularly for cotton. We

lead the Nation in production of cotton and are also significant producers of wheat, corn and sorghum.

The Texas Farm Bureau supported to Agricultural Risk Protection Act of 2000 in its efforts to make crop insurance more affordable for producers. That legislation has been successful in increasing participation in the program. The Risk Management Agency

has been successful in providing an increase in the number of insurance products for Texas producers, to meet various needs. The

Crop Revenue Assurance Programs that have been piloted in Texas

have benefitted producers during years of significant drought as

well as the extended periods of low prices. Fortunately our price

situation has improved this year.

We are here today to request that the committee consider several

modifications to the current program to benefit producers from

across the State. The RMA has had rules for some time that reVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00240 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
235

quire producers to plant and harvest a crop one of every 3 years

on a specific piece of ground to be eligible to produce crop insurance. While this works in many regions, the rice producing area of

Texas commonly will plant rice only every 4 to 5 years on a particular piece of property. Your consideration of making a change to

resolve this problem would be appreciated. The farm bill gives the

producer flexibility to grow different crops, allow that producer the

opportunity to insure that investment.

In 2001, five counties in Texas were severely affected due to

karnal bunt in wheat. The detection was found only after the

wheat had been commingled at the elevator. A provision allowing

for a loss of value due to a quarantined disease similar to the Quality Loss Provision would have provided growers protection. Under

current regulations, producers are ineligible for any insurance benefits.

In Texas, we continue to have problems with final planting dates.

For some reason, the dates established with RMA do not seem to

be applicable here in the State. We have tried many times to make

adjustments in this area, but have been unsuccessful. Producers

fail to understand why farms in adjacent counties, literally across

the county line, will have different planting dates. A possible reduction in the size of area covered by each date and the inclusion

of recommendations from local FSA committees and the State extension service would make these dates more germane to the area.

Furthermore, changes are needed to address the release date of

crops that have failed prior to final planting date established by

RMA. This policy forces producers to be liable for boll weevil eradication assessments on production that has already been designated

as failed.

In the south Plains area, we have a combination of both irrigated

and dry land farms. Producers switch from dry land to irrigated

production based on available rainfall as well as product prices.

Current RMA rules discriminate against a producer’s choice to

make those decisions. At this time, a producer is required to use

a particular farm method for 1 year before being eligible to purchase the insurance provided on the following year. There is also

a significant variance in the kind of irrigation facilities. Drip or

trickle irrigation is far more efficient and conservation oriented and

should be recognized as such. We would urge the committee to

make adjustments to allow different irrigation practices to use separate units for insurance purposes. Farmers’ APHs are also being

capped under these efficient irrigation practices because RMA

states the yield is higher than the county’s potential. Also allow

producers to produce different levels of coverage for different types

of production practices—examples, dry land versus irrigation.

I have stated previously we recognize that Texas is a high risk

State. We seem to experience natural disaster declarations more

frequently than many other areas of the country. We would respectfully request that the committee consider exempting productions in any year in which the area is designated as a natural disaster. Under the current program, any zero yield years will result

in a reduction of the producer’s production history.

Finally, we would urge the committee to initiate an additional

type of insurance program for livestock producers. In Texas, we are

236

in need of additional insurance products for sheep and goat producers as well as lamb producers. Also, not directly related, but hay

producers are also in need of insurance coverage.

Mr. Chairman, we appreciate the opportunity to provide testimony today and will be happy to respond to any questions at this

time. And once again, I would like to thank the committee for coming to Lubbock, TX.

[The prepared statement of Mr. Arthur appears at the conclusion

of the hearing.]

Mr. NEUGEBAUER. Thank you, Mr. Arthur.

The next panelist is Mr. Alan Peter.

STATEMENT OF ALAN PETER, PRESIDENT, KANSAS CORN

GROWERS ASSOCIATION, TRIBUNE, KS

Mr. PETER. First of all, I would like to thank Mr. Moran and the

rest of the subcommittee for having this opportunity to speak

today. As some of you know—Jerry Moran has stepped out, but I

am from his district and unfortunately I have received some of this

disaster that he has talked about, on insurance.

I am Alan Peter and I am the Kansas Corn Growers Association

president. When I complete this year’s fall harvest, I do also compete my career as an irrigated farmer. More than 3 years of

drought with little relief in sight helped me come to the conclusion

my chosen career could not support my family at an acceptable

level. After this, my final harvest, I begin a new career at our local

bank. I hope my comments from the perspective of a farmer as well

as a main street businessman will give you some insight into many

issues facing growers today.

The big question is why did I leave farming. For me, it came

down to high input costs, declining water table and higher natural

gas prices made it cost more and more to pump less water on fewer

acres. In other words, the cost of farming went up and continues

to go up and the net income returns went down. When that happens, with no prospect of change in sight, it is time to get out. I

have three sons, none of them who I have encouraged to come

home to the farm. I am also completing my final term as the president of the Kansas Corn Growers Association, and last year I

served on the National Corn Association’s Disaster Task Force that

was mentioned earlier. We pushed and received some disaster

package from Congress last year that provided help to many farmers. Although my farm suffered as much as most from the drought

last year, I received little disaster assistance. Following the crop insurance guidelines, I continued to irrigate my crops. Even though

the input costs were very high, I was successful in harvesting

enough to make me ineligible for disaster assistance. However, my

crop insurance payments did little to offset the amount of money

that I put into irrigating my crops throughout the historical dry

summer.

I think a grower would be better off if he could buy insurance

for irrigated crops at a level that would work at his needed rate

of return. Input costs are often simply too high in relation to the

insurance payments you get back. Crop insurance does not consider

how much money an irrigated grower has to put into a crop, it only

looks at the end results.

237

The farm programs and crop insurance programs the Federal

Government offers are vital to not only farmers, but for our rural

communities whose economy is built around agriculture. Without

programs, especially the crop insurance, main street businesses in

our rural communities would really be suffering. As a person involved in the banking business, I can say that if it was not for crop

insurance, many more farmers in my area would be forced to make

the decision to quit farming. Insurance has really helped dry land

growers in my area this year. But in an ironic contrast, in neighboring counties where growers were able to harvest little, those

people are actually in worse shape financially.

But even with crop insurance, our local businesses are still suffering. When times get tough, producers tighten their belt as much

as possible. They are not buying parts to repair the equipment and

because it is so dry, they are certainly not buying new equipment.

They are also not buying new vehicles, new clothes, they are not

eating out or going to many movies either. Whether you are a merchant who sells tractor parts or toys, you are being hurt by the

farm economy.

On another issue, a proposed program that is aimed at helping

farmers and conserving the water aquifer is Senator Sam

Brownback’s Irrigation Retirement Program. I have mixed feelings

about this program.

From a grower’s viewpoint, farmers with small wells in my area

could benefit. They could recoup some of their investments and

help their bottom lines by entering into this program that would

let them retire their irrigation on farmland.

From a main street viewpoint, taking irrigation out of the community will definitely hurt our local businesses. There is a lot of

money spent in the communities that have businesses built around

irrigation and farming. They say every dollar spent turns over

seven times in a community and if you take those dollars away, it

will hurt our rural communities. This is why I have mixed emotions about it. I can see it benefitting a grower and also hurting

now in the business that I have decided on as a new career.

Until now, you could find me on a tractor working in a field or

in my pickup driving from field to field checking my crops, my irrigation wells. My tools were my pliers and a grease gun. Now you

can find me behind a desk at my local bank with a pen and a calculator, hoping to help my neighbors patch together a combination

of finances, insurance, farm programs, to help them survive another year.

When you work on a broken down combine, you have to decide

if it just needs some adjustments or a complete overhaul. If you

know what you are doing and understand what the problem is, you

can probably fix it with a few adjustments and a couple of new

parts. I think that is the case with our farm programs and crop insurance. That is why I appreciate the opportunity to give testimony

at this subcommittee hearing. I hope I have helped you understand

what is broke and hope we can come up with some adjustments to

fix it.

I do appreciate you for having the hearing today and thank you

very much.

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[The prepared statement of Mr. Peter appears at the conclusion

of the hearing.]

Mr. MORAN [presiding]. Alan, thank you very much for being

here and for your testimony. You may have come further than

many of us. I think that is the case.

The final witness on this panel is Mr. Curtis Griffith, chairman

and CEO of the City Bank of Lubbock. We are delighted to be in

your community, Mr. Griffith. Please proceed.

STATEMENT OF CURTIS GRIFFITH, CHAIRMAN AND CEO, CITY

BANK OF LUBBOCK, TX

Mr. GRIFFITH. Thank you, Mr. Chairman, members of the committee. I appreciate the opportunity to testify today before the committee and I especially appreciate the members taking time to travel here to better understand the challenging situation facing producers in our area. My written testimony contains comments about

both commodity programs and crop insurance programs, but I will

concentrate my oral presentation on the crop insurance issues, and

appreciate the rest of it simply being included in the record.

City Bank is one of the largest lenders for crop production in

Texas. The success of our institution has been driven largely by the

ability of producers to repay each year’s operating loans. The uncertainty of our weather, the increasing volatility of the market

price of our major crops and the continuing squeeze of producers’

profit margins has made this lending more challenging each year.

In addition to my duties at the bank, I am an active farmer and

know first hand how hard it is to make ends meet in today’s agricultural economy. First, I want to commend the members and staff

of this committee that helped craft the Farm Security and Rural

Investment Act of 2002. The provisions of this program do provide

a good safety net for producers in times of ruinously low prices

while significantly reducing the cost to taxpayers in times of better

prices. As a lender, we can better predict the amount of revenue

that will be available for loan repayment and be in a position to

adequately fund good production practices for most borrowers.

The Crop Insurance Program is a very important component of

farm policy for our area. Today’s production practices require the

producer to invest a substantial part of his operating budget in fertilizer, herbicides, irrigation and seed prior to his crop even emerging from the ground. If harsh weather causes the loss of that crop

during the first few weeks of its existence, the producer will have

a major financial loss with little or no opportunity to recoup it with

a secondary crop.

As a lender, we calculate each year how much net proceeds a

producer will receive in the event of a total crop loss, and rely very

heavily on that number plus the producer’s expected program payments when deciding how much we are willing to lend. Without

this insurance, I assure you that we would greatly reduce the total

amount of our farm lending at City Bank.

I would like to address three issues regarding crop insurance

that are important to those of us who farm in west Texas.

First, we need some mechanism to allow a producer to insure

based upon his cost of production. Several non-irrigated producers

have been trapped in a downward spiral after several years of

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drought or other weather-related losses. They can only insure their

crop at such low dollar amounts that we as a lender will not loan

them enough money to make their best attempt at producing a

crop. Therefore, even when they have good weather, their crops will

noT-yield enough to bring up the production average enough to materially improve the amount of insurance they could obtain the following year. I am not asking for the ability to insure a profit for

a producer, but I believe that many producers would purchase insurance, even at greater cost that would allow them to obtain

enough financing to at least try to make a crop.

Second, there is concern about how RMA will treat insurance of

crops planted after the loss of the primary crop. The Agricultural

Risk Protection Act of 2000 requires that the loss payment on a

first crop be limited to 35 percent of the total indemnity when

there is a loss on the second crop on the same acreage. The producer may be required to purchase insurance on the second crop

either by his lending institution or because of agreements with

FSA related to receipt of prior disaster payments. RMA has stated

that if the producer is not paid an indemnity on the second crop,

there is no reduction of coverage on the first crop loss and that the

producer can choose to forego an indemnity payment or withdraw

a claim for second crop acreage. This statement is based on their

interpretation of the intent of ARPA and as I understand it, not on

any specific language in the statute itself. I would encourage the

committee to support this interpretation and to incorporate it into

any new legislation that may be developed in the course of revising

or amending crop insurance programs. Otherwise, the attempt to

prevent the receipt of full indemnity for two or more crops on the

same acreage in the same year could have the unintended consequence of so drastically reducing the indemnity actually received

that the producer is left in a worse position than if he had never

insured the crop at all.

Finally, I urge this committee to maintain and strengthen the

current system of private delivery of crop insurance with USDA

oversight and support. If commissions paid to private companies

are substantially reduced in the next standard reinsurance agreement, we face the risk of additional financial failures among those

companies and a weakening of their efforts to reduce fraud and

abuse by unscrupulous producers. We should all be working to increase the number of producers nationwide who participate in crop

insurance. The perception that some providers are financially troubled and the perception that a small group of producers regularly

abuse the system are both serious negatives in that effort.

Thank you again for your time and attention and I look forward

to your questions.

[The prepared statement of Mr. Griffith appears at the conclusion of the hearing.]

Mr. MORAN. Thank you very much.

Mr. Neugebauer.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

Curtis, I think you bring a unique perspective to our discussion

today because you are a producer and a lender and also operate

gins and so you are in some of the support functions of agriculture.

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The new farm bill for 2002 has, from all reports we have got,

changed agriculture in our area for the better. But we now hear

more and more every day that our risk management program is

less flexible in a lot of ways. With the farm bill, we tried to make

agricultural production more flexible, giving farmers the ability to

choose the crops that they felt like they could most economically

produce.

So with the new farm bill, do we have an adequate risk management program in place today, or do we need to modify it or do we

need to start over? What is your perspective on that?

Mr. GRIFFITH. Congressman, my perspective—and it does come

from both being a producer and as a lender, as Mr. Peter is an example up here, I guess I can also say I subsidize my farming operations with salary from a bank. We certainly would not be able to

survive, given what we have been through the last few years.

I am not in favor of scrapping things. I think we can do some

modifications. In our area—and strictly in our perspective of

things, I am not covering the rest of the country, I am not sure this

applies everywhere—but we see two significant situations that current risk management programs do not properly address. They are

kind of at opposite ends of the spectrum and Mark Williams did a

good job of bringing up both of them up here.

But to reiterate, we have dry land producers who simply have

been hammered year after year to the point that their APH numbers simply do not support enough coverage to allow them to farm

decently. And I hate to say it, but I think that is where some of

our instances of abuse of the programs, and at least allegations of

fraud, may be coming in. You are putting people in a position that

starting the year, they know they cannot borrow enough money to

make a fair crop. They have got to figure out how to survive by

some other mechanism. And we need to address that in having

some way, even at additional cost, maybe it is through cost of production, maybe it is through some other mechanism like GRP, but

give them a chance to have enough coverage to have decent protection for what they need to spend to make a crop.

At the opposite end of the spectrum, we are seeing some of our

best irrigated growers who are adopting new production practices

such as drip, perhaps they are moving into new crop production

such as some of our northern areas that are switching to cotton

that are not historical cotton producers, that need a method to

cover substantially greater per acre input costs than they have had

to address previously. The current system does neither of those. It

works reasonably well for our middle-of-the-road situation, it has

certainly been of great benefit in west Texas and we could not be

here without it.

So please do not scrap things, but we do need to do some adjustment I think at each end of the spectrum.

Mr. NEUGEBAUER. Yes, in fact, I think we had some classic examples of what you are talking about this growing year. We had people that got weather-related disaster early on and then we had people just weeks, in some cases days prior to harvest that were completely hailed out or lost their crops. And yet we have a very large

margin of difference in cost of producing some of those crops. A dry

land farmer that gets hailed out on a day prior to harvesting his

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crop is much different input cost than the irrigated farmer that

gets hailed out the day before he harvests his crop.

We have a lot of resistance from the policy people on the cost of

production, implementing it. What are some of your suggestions on

how that program might work?

Mr. GRIFFITH. I am sure that Congressman Stenholm could probably give you a much better proposal than anything that I could

dream up on it. I understand that there has been a lot of resistance

to it because it is an attempt to tailor insurance on what amounts

to nearly an individual basis. And nearly any insurance person, actuary or otherwise, will tell you that is not how insurance works,

cannot do that.

I think we simply need to look at some generic classifications of

what kind of production practices in what area of the country are

you wanting to pursue. And if you do that and do it to the best of

your ability, I think we can get a reasonable projection on what you

are going to spend to try to make that crop. Some percentage of

that is the amount of coverage that we should be trying to put in

place.

I do not think you need to have a situation in which myself as a producer simply comes in and says I think I need $350 an acre

worth of production cost coverage. I think that is an open invitation

to problems. But I do think that RMA can develop numbers that

make sense for given production practices for specific crops in specific parts of the country.

Mr. NEUGEBAUER. In fact, the insurance industry does that in

other areas. They can tell you from different parts of the country

what it costs to build a house because they track those costs and

they track those costs of repairing automobiles. So tracking the cost

of certain type of practices does not seem to be an unrealistic thing.

Mr. Arthur, one of the things that has been brought up as another alternative to cost of production is going to a gross receipts

program where you are not insuring a production, but your gross

receipts calculated over a period of time. Some say that rewards

the better farmers because they are producing the higher returns,

the higher receipts. Does Farm Bureau have a position on that and

do you have one personally?

Mr. ARTHUR. Well, there again, that is an avenue that I guess

could be looked at. Texas is so diverse from one region to the

other—cotton grown in the south versus what is up here on the

High Plains, there are different practices as far as irrigation, as far

as different land use, different soil types. I know it is not going to

be a one fit all approach to that scenario on finding some kind of

coverage to fit everyone. You would have to go back to some other

regional planning I guess within a State like your property and

casualty insurance is, that has different regions within the State,

and fix something on a regional basis because, there again, even

in Texas, even in Kansas or what-not, each State’s production and

techniques is going to be different and costs are going to be different. So one size fits all is not, but it would be something that

would be highly recommended to look at.

As Mr. Griffith says, when I go into my banker, we are looking

at different avenues on best case scenario and worst case scenario

on revenue at the end of the year and we are trying to cover our

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bases on all aspects when we go in after that loan. There are too

many things that can happen between day one of getting that loan

to when the note is due. Mother nature just throws a kink in everything, so one size approach does not fit all, but I think we could

do something like that on a regional basis.

Mr. NEUGEBAUER. Thank you, Mr. Chairman, I yield.

Mr. MORAN. Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Arthur, in your testimony you stated that the participation

in Texas is about 80 percent, is that——

Mr. ARTHUR. At one time, yes, and I think that has increased.

That is why I omitted it today, I was not sure. We were trying to

look up the numbers, but it has increased over the last 4 or 5

years. Most of my area is either required to our most farmers do

carry insurance coverage of some kind.

Mr. PETERSON. That is what I figured. I was surprised it would

be that low..

Mr. ARTHUR. I think it has increased. I think that was a number

from a year ago. We were trying to update it and just were not able

to get that updated number before testimony.

Mr. PETERSON. Most producers, the banker makes them have insurance.

Mr. ARTHUR. Yes.

Mr. PETERSON. Bankers, is that the case, that most of your producers——

Mr. GRIFFITH. Yes, sir. I certainly cannot speak for all lenders,

but in the case of City Bank, it would be a very, very rare situation

that we would not require a producer to have at a minimum, multiperil. We even have only a tiny percentage of our borrowers that

utilize CAT and that is only in unusual situations and normally

not on their major crop.

Mr. PETERSON. Is that the case in Kansas too?

Mr. PETER. Yes. I can tell you in our First National Bank, it is

probably 95 percent that has insurance. Without it, we would not

be surviving in our community. We have been hit just as bad as

Texas.

Mr. PETERSON. There are some areas of the country, where the

crop insurance utilization is really low. Are the bankers different

in that part of the world than they are in Minnesota and Texas?

Mr. GRIFFITH. I certainly cannot speak with any authority, but

just listening to comments from other bankers around the area,

around the Nation, in some areas they simply do not perceive a

risk of loss to a crop as an event that is going to occur often enough

that they need to buy insurance. Some areas in the Midwest lose

a corn crop on such an infrequent occasion that even at very, very

minimal cost per acre, that banker simply argues that he cannot

go to that borrower and insist that he spend the money because the

borrower is going to say I have not lost a crop in 30 years, why

should I expect to lose one now.

Mr. PETERSON. I had mentioned before having a permanent disaster program. Is that something you think would be useful? The

Farm Bureau in my area thinks it would be.

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Mr. ARTHUR. Yes, sir, I think it would. That would give another

tool for that producer to go in with his lender in making those financial risk management tools.

We know that it is also harder to go back and ask Congress each

year for an ad hoc. This would give one more tool to a producer on

an individual basis to protect his investment at the levels that he

would require or his banker would require.

Mr. PETERSON. With the bankers, is that part of exposure. Does

that come into the equation when you are making loans to people,

that they have got a certain amount of their production that is not

covered?

Mr. GRIFFITH. Oh, absolutely. As an illustration, we began trying

to make decisions back last year on what a disaster program would

look like and what kind of revenue producers who had suffered

major percentage crop loss might be looking for in some kind of

Federal help, if there was any. It was a long, drawn out process,

as we all know. So if the funding mechanism can be established

without negatively impacting other parts of the program, I certainly think most folks in this area are going to be very much in

favor of getting a permanent program in place. And I especially

like the concept of being able to apply it on a county-by-county

basis, because all other disasters tend to be designated by county.

Why could we not have one for agricultural production losses on

the same basis?

Mr. PETER. And I would have to concur. I would just like to add

one thing to it. As in my area under irrigation, when you put 100

percent of what you own on the line to raise a crop every year, if

you can insure it up to that 95 to 100 percent, coming from a lending institution, I would say that that would be excellent, as far as

being able to come in and guarantee a note at that extreme level.

The irrigation side of it is very costly and you do put almost everything you own on the line to raise that crop every year.

Mr. PETERSON. One last quick question. It has been suggested

that maybe we should make people pay for this and given our experience in trying to get people to sign up for crop insurance, I have

kind of wondered about that. But if we had a program that was

there and we knew how it worked and it could be implemented,

would the bankers help us? I would assume that you would be

pushing your people to get into that if it was available at some reasonable cost.

Mr. GRIFFITH. Well, yes, sir, but without seeing exact numbers,

it would be hard to make the decision, but if we are talking a relatively small portion of their overall operating budget; yes, I think

you would see most of us encourage them to build that in just as

we now encourage them to spend money on NPCI or in some cases

GRP.

Mr. PETERSON. Thank you. Thank you, Mr. Chairman.

Mr. MORAN. Mr. Ross.

Mr. ROSS. A question more related to agriculture than crop insurance, and for Mr. Griffith. I am also on the House Financial

Services Committee in addition to serving on the House Agriculture

Committee, so it is interesting to hear your testimony today from

the perspective of someone who loans money.

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Everywhere I go across the country, I ask this question, and you

do not have to be totally accurate but just an estimate. What percent of your farms in this area are large corporations versus family

farms?

Mr. GRIFFITH. Perhaps I ought to ask for a definition of large corporation, just so we are on the same page.

Mr. ROSS. More than one family, extended family. What percentage of the farmers in this area are an extended family as opposed

to a corporation with numerous owners?

Mr. GRIFFITH. In crop production—and I am going to have to exclude what may or may not be taking place in cattle feeding operations, because we frankly do very little lending in that area—I

would say that your definition of large corporate farming would

amount to somewhere less than one half of 1 percent and that is

probably high.

Mr. ROSS. Good. And I did not present that as a pro or a con,

I am just trying to get a feel as I travel the country how many

farm families do we have left.

The follow-up question to that would be are you seeing farms

continue to pass on down from one generation to the next in this

area or are you seeing, as this gentleman testified, a lot of young

folks that are now being forced off the farm?

Mr. GRIFFITH. We are obviously having trouble keeping young

producers here. What we are seeing generally with land is it is

more often than not staying in the family, but the heirs simply become landlords and where their dad or granddad may have been

the operator out there, economies of scale have forced them into the

situation of simply deriving a share rent or cash rent off of that

property and they will no longer be out there trying to make a living themselves. That land is generally being rented by the extended family arm operations that have been able to achieve that

operational efficiencies and are surviving through the tough times,

but the way they are doing it is spreading out costs of machinery

and management across more and more acres.

Mr. ROSS. I guess my point is that either through crop insurance

or other commodity programs, I think we as a country have a duty

and obligation to try and help our farm families. I have not met

a farm family yet that wants to be an insurance farmer, they do

not want to be a welfare farmer, they pretty much just want a good

letting alone and be able to do their deal. Unfortunately, market

prices and weather do not always allow them to do that and I just

think that it is important, as members of the Agriculture Committee, that we consider these things because if we lose our farm families, sooner or later we are going to become dependent on other

countries for our food and fiber, just as we have done for our energy. And I think that would be a critical mistake for our Nation’s

security.

Thank you for answering that.

Mr. MORAN. Mr. Stenholm.

Mr. STENHOLM. If I could follow on with Mr. Ross’ commentary

here, Mr. Peter, your statement why you left farming came down

to high input cost and that is basically what we have heard talked

about all day today and it is a given fact in agriculture that the

cost of producing that which we produce and our ability to consistVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00250 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
245

ently get a price comparable with that is very difficult to do. And

then when you operate in a high weather related area, as most of

agriculture does, even—I found it interesting this last year that the

biggest calls for a disaster program came from areas that traditionally have had no disaster. Had one disaster and it became a disaster, which again, anyone in banking that deals with financing

farming knows what we are talking about. Even in areas where

you have made good crops, prices, et cetera, have made the margins very difficult to get as rich as some think that farmers do

today.

Mr. Arthur, you talked about two significant point. No specific

question, but just to emphasize for the record, karnal bunt, and the

resulting economic damage that occurred not only to wheat producers, but to grain elevators when we had a situation of karnal bunt.

And then you mentioned sheep and goat raisers need coverage.

I would submit that beef producers are going to need coverage. As

we continue to deal daily with the war on terrorism and we continue to have, as we had in one Senate subcommittee a couple of

weeks ago, emphasis on bioterrorism and the potential threat to

our Nation’s food supply, we are going to find more and more interest among financial institutions in seeing that producers of all

shapes and forms have some way of insuring against catastrophic

risk. I shudder to think the answer to my own question, but if that

one cow had been found in one State in the United States instead

of Canada, where would the beef industry in the United States be

today.

And so as we deal with this, I think Mr. Peterson has got a very

intriguing idea of what he calls a permanent disaster program. I

think that we are going to look very seriously at this concept that

he has already put forward and introduced in bill form today. But

the question that keeps being asked that I think should be a given

is will producers pay for it. Absolutely producers will pay for something that you and your banker will agree is a good part of your

overall financing operation for the year. Agree or disagree?

Mr. ARTHUR. Yes, sir, I agree to that.

Mr. STENHOLM. The bankers have already agreed to that. I mean

that is a given. You look at every input cost and you decide is it

worth it. Sometimes this is heresy to farmers to suggest that we

might not ought to go for the 4 bales to the acre, we might ought

to stop at 2, because of input costs. Well, that is a ridiculous comparison right there, but adding that 10 percent additional poundage that loses you money on the other 90 percent does not make

sense. And that is a challenge that we have every year.

Mr. Griffith, your analysis of the double insurance is in my quick

reading exactly what we intended when we passed the law, and I

am glad to see that RMA is thinking of administering it that way,

because that is the way we intended it. You plant your first crop,

if something happens to the first crop, you go in and you plant a

second crop. If you do not collect an indemnity on the second crop,

you can collect the full indemnity on the first crop, but you should

not expect to collect a full indemnity on the first crop and the second crop and the third crop and the fourth crop, unless a bird nest

on the ground if you can do it, but that was causing us some problems.

246

But I think that is exactly what we intended. And to me, that

gives the proper incentive to all of us. And if we can couple that

with this when you destroy a crop, when do you consider a crop destroyed instead of forcing a cotton farmer to leave it out there another eight or ten days and then lose the opportunity for a peanut

crop just does not make sense.

So when you have got that clearly delineated so you and your

banker make a decision, I am going to plow it up, take my chances,

insure the second crop and then you determine ultimately at the

end, do you collect the second insurance or the first insurance, 35

percent of the first—you collect nothing or you collect all of it. That

does not seem to be too complicated to me.

Mr. Griffith, you are both a producer and a banker.

Mr. GRIFFITH. Congressman, I certainly agree with you and I am

just proud to see that that is going to be the interpretation of it

because we certainly had concerns.

I guess the only clarification I would like to make, if it was possible for the producer to make the decision prior to planting that

second crop that I am not going to insure it, I am not going to

spend the premium dollars to insure it, and I have got the ability

to go ahead and collect 100 percent of my indemnity on the first

crop at that time, not wait nine more months to find out maybe I

am not going to turn in a loss on that second crop, that is a big

cash flow issue for a lot of our producers. And right now, we may

find ourselves in a situation of telling that producer well, he has

got to go insure that crop even though looking at the loss potential

out there, there is no conceivable way he is going to ever claim the

loss on it because it would not pay him enough to even think about

giving up any portion of his available coverage on the first crop,

that he could go ahead and get that full payment in hand and not

be waiting until after harvest of the second crop to do it.

Mr. STENHOLM. Again, I think that is worthy of consideration.

The only problem with that concept that occurs to me is folks that

deliberately miss the first crop, collect the full insurance, plant a

second crop and do better than their neighbor that did not miss the

first crop, harvested the crop and did not do it. That is the problem

that we constantly have to work to administer. And if somehow,

some way, RMA, the private insurance industry and FSA could

have gotten together 4 years ago and worked this out, we would

not be having the problems we are having today.

Mr. MORAN. Mr. Stenholm, thank you very much.

Just a couple of follow-up questions. Mr. Arthur, Mr. Stenholm

gave you the opportunity to highlight the karnal bunt problem in

Texas. It is a problem also in Oklahoma and Kansas. And I would

guess that if we thought about crop insurance, that is one of the

kinds of things we would expect crop insurance to take care of, to

address. Is there a distinction between post-harvest—if the karnal

bunt was discovered prior to harvest, is it then covered by insurance?

Mr. ARTHUR. I do not think so because there is not a quality loss

provision in there for wheat, and especially once it was harvested

and commingled with the grain in the elevator. Those folks that did

not have a karnal bunt problem, theirs too is also contaminated;

247

therefore, they did not have a loss either because it is not covered

under the provisions.

Mr. MORAN. This subcommittee has heard this story because we

also spent a lot of time in addition to the commodities that we

produce here in this part of the country, with specialty crop producers who are looking exactly for this kind of coverage for diseaserelated problems. And it does seem to me that that is an area that

one would expect crop insurance to provide some assistance.

And then the issue of livestock coverage and the potential damage that could occur in that industry with, in our case even in Kansas, a rumor of disease. This subcommittee is going to spend some

time looking at livestock coverage. We have a number of States

that are pilot programs in the livestock insurance side and we intend to kind of pursue how it is working and not working. You all

in Texas have a dairy pilot program. Any suggestions any thoughts

about how it has worked? Are you familiar with the dairy pilot program?

Mr. GRIFFITH. We have had no direct dealing with it, so I really

cannot speak to it.

Mr. MORAN. Mr. Peter, you talked about—one of the issues that

I tried to get a better understanding from the first panel is how

drought assistance has and has not worked, and in my time in

Congress, kind of our normal response has been to double the

AMPTA payment. This time we did something different, we created

a different disaster program. Your testimony was that it was of little benefit to you as a farmer and I just wanted to give you the

opportunity to explain why that was, why disaster assistance was

not working and my guess is it is related to irrigation.

Mr. PETER. Yes, Mr. Moran, it is related to irrigation. Any

irrigator that I had spoke to in my area especially is we pumped

the wells harder than we have ever pumped them in our entire

lives and we tried to—some of them, I was one of the fortunate

ones, I still had a crop—some of us tried to call the insurance company and we found out when it did not pollinate, we wanted to

shut the wells off the save—the first part of August. We could not

get adjusters out to look at it until the end of August and we were

informed if we shut the wells off, that there would be no insurance

payment. Scenarios like that really hurt.

In my area, I am in that top percent that we were talking about

with the bill that is now being talked about. All that return on investment is that top 30 percent, that is where all the profit is, basically the top 15. So if you take a hickey at 70 percent, I have already lost my investment, I have already lost money at my current

CRC revenue coverage and that is all I was able to attain, because

by the conflicts of the disaster it was tied to, my insurance, which

if I did not collect insurance, I could not collect on my disaster aid.

I had higher input costs but I had no revenue coming back from

the disaster through the drought. Even though I was able to

produce a crop I lost money.

Mr. MORAN. You were able to produce a crop but it had I assume

some loss, but not a sufficient enough loss, because you were irrigating it at a level that allowed you to produce, but you costs were

higher.

Mr. PETER. Yes.

248

Mr. MORAN. Then let me just explore with all three of you your

satisfaction with—just general satisfaction or dissatisfaction with

the current farm bill. Are you satisfied generally with what we did

in 2002?

Mr. PETER. Yes, since the mic is in front of me, I feel like for our

community, I have no complaints on the current farm bill. I did

like the past one a little better, but I was also involved with you

and your office on drafting this farm bill and I feel like it was the

best we could get for the economical time that we were through.

So as far as main street in my small community, we would really

be suffering if we did not have this current farm program. I am

very satisfied with it.

Mr. MORAN. Any Texans have a different opinion?

Mr. ARTHUR. No, sir, I think we are real appreciative here in

west Texas with the farm bill. I myself probably would not be here

today if the passage would not be here because of the production

cost. There is a lot of different things lurking around the corners

that if we did not have this farm bill that folks would not be able

to continue farming and our livelihood—it also trickles down to our

rural communities. Our town is 2,000, we are so close to a larger

Lubbock here that those folks are coming to Lubbock. If we are

going to keep those rural communities as much as our farming

communities, it was very needed. The risk management tool has

been tremendous over what we have had before and very needed,

so we are appreciative of it.

Mr. GRIFFITH. Mr. Chairman, I will just reiterate those comments. It has been certainly the best we could hope for, for what

it does for our area. Everybody always wants more, more, more but

in the political realities, I think it is great that we achieved what

we did. As both a producer and as a banker, it gives us a reasonable amount of certainty out there when we try to forecast revenue

for what we are doing. And in this day and time without some hope

of that forecast, farming is just too uncertain to go out and spend

the amount of money we have to spend today to make a crop.

Mr. MORAN. I thank you very much for your comments and testimony. We are very grateful for the time and effort that you made

to be here and our subcommittee will take this information back

to Washington.

Mr. Stenholm.

Mr. STENHOLM. Mr. Chairman, just one additional comment. I

want to under line Mr. Arthur’s comments regarding rice, the

unique problem of Texas rice in regard to the 3-year rule. I think

that is another area that falls within the common sense type of interpretation that I hope RMA will in fact, for this year’s crop, recognize that. And I thank you for bringing that up.

Mr. MORAN. Thank you very much.

I will ask the final panel to come forward. The panel consists of

Mr. Joe Brown of Joe Brown Insurance here in Lubbock and Dr.

Thomas O. Knight, who is a professor at Texas Tech University.

While we are changing panels I also wanted to recognize a couple

of folks who are in the audience today. Nancy Sharp, who is the

West Texas Regional Director with Senator John Cornyn, has been

with us today. And also perhaps of significant importance is Mr.

Ronald Berryhill. Mr Berryhill is the Regional Administrator for

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the Risk Management Agency, Regional Director in Oklahoma City,

and he is here on behalf of RMA and we are very grateful for it.

RMA has participated in every hearing we have had and has, it

seems to me, paid a lot of attention to the suggestion that our witnesses have made through a long series of hearings and we appreciate Mr. Berryhill of Oklahoma City joining us today on behalf of

RMA.

Mr. Brown, I met you a few moments ago, nice to have you here

as a witness and I would ask you to commence your testimony.

STATEMENT OF JOE BROWN, JOE BROWN INSURANCE,

LUBBOCK, TX

Mr. JOE BROWN. Well, thank you very much, appreciate you folks

coming.

Mr. Chairman, members of the committee, it is an honor for me

to appear before you to provide my perspective on the Crop Insurance Program. Again, my name is Joe Brown and I have been a

crop insurance agent here in Lubbock since the early 1980’s, just

after the program was delivered to be privatized in 1980.

I sell crop insurance to producers in New Mexico, Oklahoma and

Texas, crops of cotton, corn, grain sorghum, soybeans, peanuts,

wheat, grapes and sunflowers.

Like many farmers, my agency is family-owned and operated and

my sons who are here today, and I would like to have the opportunity if there are any questions later, have them help me answer

the questions, they will probably know the answers. They joined

me in the 1990’s.

For the last several years, I have seen the difference crop insurance has made for producers. Mainly, they have been able to continue farming after their crops were destroyed by natural disasters.

The Crop Insurance Program is a very successful Government program delivered professionally by the private industry. It provides

timely financial assistance to farmers who have experienced crop

losses. And I want to emphasize, gentlemen, the program is working.

However, I wish to bring to the subcommittee’s attention a few

items regarding the Crop Insurance Program that concerns the producers and their lenders, crop insurance companies and many

other agents like myself. First of all, lack of uniform guidance from

RMA which frustrates all stakeholders. Threats to economic viability of industry. It threatens service to southwestern producers.

RMA should use its current authority to counter fraud. Limitation

on coverage of two crops puts producers at risk.

Concerning the uniform guidance, the most frustrating thing to

my insured producers and me is the fact that RMA does not provide uniform guidance on policy interpretations or compliance requirements. RMA is quick to criticize that agents are not doing

their job to properly deliver the program. I take exception to that,

when RMA does not step up to provide clear directives. Many times

agents and companies are caught in the middle of trying to understand how RMA will construe a term or policy provision when RMA

will not provide uniform guidance. It is not unusual for different

companies to explain the same provision to agents differently, leaving us agents confused and frustrated as we try to explain the

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rules to our insured producers who become bitter with the many

rule changes and confusing interpretations.

As an agent, I have seen my errors and omissions, E&O, coverage soar due to the complexity of the program and the lack of upfront guidance from RMA to assure that all parties are on track—

companies and agents. Sadly, usually the only time agents get any

directive from RMA is when compliance comes down after the fact,

usually several years later.

In order to maintain customer satisfaction, it is imperative that

companies and agents be able to obtain timely uniform guidance

from RMA headquarters and regional offices.

And then economic viability. Last November, as everybody

knows, we lost the largest writer of crop insurance, American

Growers, which wrote nearly $600 million in crop insurance premiums. In addition, Rural Community Insurance Services has

taken over the crop insurance business of Fireman’s Fund. So in

less than 6 months, the industry has lost two of the top four companies servicing the program. Other companies are not lining up

to jump in the business. They are certainly not moving into the

southwest United States. In many areas, agents and producers

have few choices for crop insurance companies. I am concerned, as

the threat to the companies’ economic viability continues, there will

be even fewer choices. If there are fewer choices, service to farmers

is going to decline.

In my opinion, the greatest reason for the loss of companies in

the crop insurance industry is the uncertainty of dealing with government.

These reasons include: annual threats from the executive branch

and Congress to cut the A&O expense reimbursement to companies

or to cap the potential underwriting gains.

Two, the increasing complexity of the program. There are additional last-minute regulatory changes each year which are difficult

to implement.

And No. 3, uncertainty each year as to whether the Government

will attempt to change the terms of the SRA, in particular the profit/loss sharing parameters.

Annually, these factors bring financial uncertainty to companies

and their reinsurers. These financial pressures are only passed on

to the agents.

RMA has indicated it will renegotiate the SRA with the companies for the 2005 reinsurance year. Most of us in the industry are

concerned that it is taking so long for the proposal to come from

RMA. We fear that delay will face more financial pressures and uncertainties on the companies—making them rethink where they are

going to do business.

As companies must purchase more than 50 percent of the reinsurance on the open market, it is imperative that terms of the proposed SRA contain terms that will provide financial stability to the

industry. In addition, the SRA should include terms to encourage

new companies to enter the program and provide terms which

makes it attractive for companies to operate in high risk areas.

I also understand that there have been some signs that RMA is

interested in capping agents’ commissions and implementing a national certification for agents in the SRA. Since 1996, I have been

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performing increasing policy scrutiny and delivery and work for

less money each year due to reductions in commissions, reduced

premiums due to lower crop prices and higher costs to service the

products. Crop insurance agents must meet the certification requirements of the States in which they operate. In addition, they

are trained by the companies that they sell crop insurance. Another

certification requirement is not going to enhance the program, if

RMA continues to fail to provide agents and companies with

straight-forward guidance to deliver the program. I recognize the

SRA is the agreement with RMA and the companies, but I am very

concerned if RMA starts making changes which directly impact the

agents without input from all stakeholders impacted by the

changes, not only we agents, but the producers and their lenders

must be included in that as well. RMA has not informed the agents

if we will have a voice in this negotiation process.

The crop insurance industry is not immune to fraudulent

schemes by persons wishing to abuse the program. Fraud costs everybody. Companies, agents and loss adjusters work hard to crack

down on those who wish to take advantage. The companies are actively training agents and loss adjusters on fraud detection. Furthermore, there is ample Federal authority to combat any fraud

and abuse problems under current law. The Agricultural Risk Protection Act of 2000 increased sanctions that can be imposed on producers, agents and loss adjusters for program abuses. Not only can

producers be barred from the program, but also RMA has the authority to disqualify agents and loss adjusters for up to five years

from participating in the program. Unfortunately, I think there are

a few bad apples that are giving the entire pool of agents a bad

reputation. If RMA would utilize their enforcement tools and bar

the abusive agents and loss adjusters, it would prevent them from

transferring to unsuspecting companies every few years, thus perpetuating the problem.

The last issue I want to address is a change that is incorporated

in the ARP, which RMA will be implementing for the 2004 crop

year, the double insurance provision. I am not going into all that,

that has been covered here already. Just let me say this ARPA provision makes a sound risk management tool riskier even to the best

producers as it weakens their financial safety net.

This limitation on coverage will discourage many producers, as

they will not know until the end of the crop year what their crop

insurance coverage will be, or the cost of their premium.

And skipping down further, I recognize the reason behind the

provision in the ARPA legislation was to curtail abuse of the program when three or four crops were insured. However, this provision will harm all producers who double crop. I strongly encourage

the committee to modify this provision with legislation that would

provide 100 percent coverage for two crops planted in one crop

year. This would be an equitable solution, as it would provide the

producer with some financial certainty regarding his crop insurance coverage while limiting the coverage to two crops.

And finally, crop insurance is a very successful program delivered by private industry. It is a very important risk management

tool for farmers, but in order to provide them with financial certainty, the industry needs to be provided some level of financial

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stability to maintain service to all areas of the country. Just as important as financial strength, we need a strong RMA, an agency

that will provide clear directives to assist with delivery of the program and will utilize its authority to enforce the rules against

those who abuse the program.

Thank you very much, gentlemen, for the invitation to be here

and if there is a question later, again, I would like to have my sons

with me.

[The prepared statement of Mr. Brown appears at the conclusion

of the hearing.]

Mr. MORAN. I do not think that is an unreasonable request, be

glad to honor it.

Professor Knight.

STATEMENT OF THOMAS O. KNIGHT, DEPARTMENT OF AGRICULTURAL AND APPLIED ECONOMICS, TEXAS TECH UNIVERSITY

Mr. KNIGHT. Mr. Chairman and members of the committee, I

would like to express my appreciation for the opportunity to appear

before you today. As a university faculty member whose research

is concentrated on crop insurance, I will focus my comments on

issues relating to the Federal Crop Insurance Program, almost the

exclusive issue that has been talked about today.

When I began conducting crop insurance research in mid–1980’s,

there was considerable frustration with the program. Two primary

concerns were low program participation and high loss ratios.

These concerns and other crop insurance issues were addressed by

Congress several times between 1988 and 2000. The results have

been generally positive. We have seen a substantial increase in

participation rates, a marked improvement in loss ratios, a significant increase in products available on previously insured commodities and significant program expansion to additional crop and livestock products.

While I believe the program is now performing well in many

areas and for most covered crops, there will always be new issues

to be addressed. The problem of severe, multiyear disasters is what

I will focus on today.

Before proceeding, there was a handout distributed and I would

like to refer to the handout just to give you a notion of the extent

of the current disaster that we are confronted with in the southern

High Plains today. The first page of the handout shows Dawson

County, TX, non-irrigated cotton yields for the period 1972 through

2002. In red, we have the 24-year average yield from 1972 through

1995. That average yield was 278 pounds per acre. In green, we

have the 7-year average for the subsequent years between 1996

and 2002. That average yield is 143 pounds per acre, very substantial, incredible drop in average yields in this recent time period. If

you will notice, 4 years between 1996 and 2002, we had yields

below 100 pounds per acre. In a fifth year, we had a yield of 200

pounds per acre in Dawson County. In a sixth year, the yield was

approximately equal to the 278 pound per acre average for the

prior 24 years and in only one year in that 7-year period was the

yield above the 7-year average for the preceding 24 years.

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The second figure shows Lubbock County, TX non-irrigated cotton yields for the same time period. For 1972 through 1995, average yield was 271 pounds per acre, that again is in the red-dashed

line. The 7-year period from 1996 to 2002, the average yield was

203 pounds per acre. Again, we have a cluster of yields very low,

close to or below 100 pounds per acre and only one yield—actually

two yields—in Lubbock County that were above the 24-year average for the preceding time period, during the last 7 years.

The third figure is for Martin County, TX. Again, non-irrigated

cotton-yields. The average yield in a 24-year time period from 1972

through 1995 was 303 pounds per acre. The average yield for the

7-year time period from 1996 through 2002 is 120 pounds per acre.

If you look at that cluster, we have five yields during the last seven

years that were below 100 pounds per acre.

So that gives a notion of the severity of the disaster that we are

currently confronted with.

And I might mention one thing. Someone looked at this figure

and mentioned to me, could part of this be the result of crop insurance? With increased crop insurance participation, could crop insurance be leading to changes in behavior on the part of producers

that would lead to these kinds of drops in yields. And my initial

gut response to that was if that were the case, if you were going

to sort of farm the Crop Insurance Program in a way that would

drive county yields down to that extent, would you insure at the

5100 level? It just does not make sense to me. It would be like

sneaking into the barn and coming out with the runt pig under

your arm. The risks are the same and there is not much payoff

there. I think this is truly a disaster. I do not think that crop insurance contributed much to this disaster.

While crop insurance indemnity payments have mitigated the effects of the current disaster, the effectiveness of the program during and after such a period is affected by the influence of the disaster on producers’ APH yields. That has been repeated over and over

today.

In my written testimony, I illustrate the steep APH yield decline

that most non-irrigated crop producers in this region have experienced. In the remainder of my comments today, I will suggest some

approaches that might be used to mitigate this problem.

Two approaches that I believe are worthy of consideration as

ways to deal with multiyear disasters are yield indexing and disaster triggered premium subsidy enhancements.

First, I will discuss full yield indexing. Full indexing would involve calculating the relationship between historical yields for an

insured unit and county average yields in the same years. A predicted county yield for the insurance year based on a longer county

yield time series would then be adjusted to the unit level based on

the relationship between the unit and county level yields.

When a county has experienced a multiyear disaster, the index

could give the recent years less weight in determining next year’s

insurance yield.

An advantage of full indexing is that it is a systematic and comprehensive approach. Some disadvantages are its relative complexity, that producers would likely react negatively to the fact that

their APH yields would be reduced in periods of above-average

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yields, and that incorporating such a change would require significant re-rating of the insurance products.

A second alternative indexing approach is a simpler disaster

index. Such an index could trigger adjustments to current APH

yields only when multiyear disasters occur. A long time series of

county yields could be used to identify periods satisfying criteria for

multiyear disaster treatment. The same data could be used in determining the adjustment factor to be applied to all producers’ APH

yields.

Some advantages of a disaster index are its relative simplicity,

that it would not result in an APH yield reduction in periods of

above-average yield experience and that it would be less likely to

require comprehensive re-rating of the insurance products.

The final approach I will discuss is premium subsidy enhancements. The idea behind this is that the fundamental problem created by multiyear disasters is APH yields that are too low. This

means insurance coverage offerings that are likewise lower than

appropriate for the producer.

Premium subsidy enhancement could be structured to allow producers to purchase higher coverage levels at reduced costs in

multiyear disaster periods. This could mitigate the effects of declining APH yields on the coverage producers could obtain at a given

cost.

The primary strength of a disaster triggered premium subsidy

enhancement is that it would require no change in APH yield calculation procedures or in insurance program rate structures. Thus

it could provide a way to deal with relatively rare multiyear disasters while not affecting the functioning of the insurance program

in periods of normal yields or in regions where such disasters almost never occur.

Again, Mr. Chairman, I appreciate the opportunity to appear before the committee. I will be glad to attempt to answer any questions about my comments or related issues. Thank you very much.

[The prepared statement of Mr. Knight appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you very much. I appreciate very much the

specific attention on multiyear disasters because it has been a

theme for this subcommittee, as you heard today, but also in almost every other hearing as well.

I recognize the gentleman from Texas, Mr. Neugebauer.

Mr. NEUGEBAUER. Mr. Brown, one of the things that I have

heard you saying is that the RMA-relationship maybe with the people out selling the product is somewhat strained. Is it just the complexity of the products that RMA has developing that makes it

hard for them to get that information out on a timely basis? What

are some fixes that you could recommend to this committee could

forward to RMA that would at least begin to help that process?

Mr. JOE BROWN. That is a real good question, Congressman. I

really do not know that I have the answer except that when you

have a provision or a concept that is in the program and one company is saying it is done this way and they sell it that way and

then I am told by my company no, it means this and so I tell my

customers it means this. And then sometime down the line, my

customers find out what the other guys are doing or the other

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agents, vice versa, all of this becomes complex and it becomes frustrating to find out that RMA has not given a concise answer to this

particular program that they have given us.

I can give you probably several instances, but the premise is very

simply that it is complicated and there is nothing concise about it.

You can interpret it the way you want to almost and then when

you do, 2 or 3 years later compliance comes in and says this guy

owes that $50,000 indemnity that you paid him in 1998 because

you did not do it right. And we find out 3 years later. That is the

frustrating thing.

Mr. NEUGEBAUER. So better codification of the program so that

everybody understand what——

Mr. JOE BROWN. Yes, it would be real nice if everybody understood the program.

Mr. NEUGEBAUER. You also pointed out something that concerns

me and I think concerns others, and that is that we have lost two

major providers of crop insurance in the last few years. How is that

impacting your ability to provide adequate risk management policies for producers in west Texas?

Mr. JOE BROWN. Well, in my case, I was able to place my business with another company. Now I know of several agents that

were not able to do that very thing. They could not go somewhere

else because no other company wanted them as their agent, for

some various reasons. But the point is I was able to do that, so it

did not impact me personally that much. I just continued what I

was doing.

I would like to say something here. I like what I am doing, I

would like to continue doing what I like doing. And I think the program is good, I think it will work if we had, again, concise answers

to questions.

Mr. NEUGEBAUER. And just a follow up to what you are saying,

with the consolidation, did you notice any reduction in the kinds

of products that were being offered or is everybody offering about

the same products in the marketplace?

Mr. JOE BROWN. Yes, there were several things that were offered

by the company that we had before that they produced themselves

and RMA says we will take it over if we can let all the companies

sell the same product and CRC was one of them.

Our company came up several years ago with what they called

TLC, total loss coverage, and that is something that I would like

to pass along to you and just put a little bird in your ear if you

want to. Take another look at TLC and see how that might work

as an extra coverage tool that goes beyond—for instance if I have

got 65 percent coverage, it will help cover that other 35 percent.

and depending on the amount of loss that I have, if I have got a

70 percent loss, then a percentage of that TLC will kick in. Do you

hear what I am saying?

Mr. NEUGEBAUER. I do.

Mr. JOE BROWN. It is a tool that possibly RMA could look at.

Now I probably have said too much, but for what it is worth.

Mr. NEUGEBAUER. Thank you, sir.

Professor Knight, one question for you. Of these three alternatives that you have presented to us today, can you kind of just

256

one by one give me an impact on the premium structure of current

products?

Mr. KNIGHT. Sure. Full indexing would essentially mean a different insurance product. It would mean a differenT-yield insurance product and that would carry over probably to the revenue insurance products also. So it would be a very substantial change in

the primary insurance programs for the major crops.

A disaster index would probably require some adjustment to premium rates, but that adjustment would be something that could be

incorporated into the current rate structure. The amount of the adjustment would depend on exactly what triggered the disaster, how

often you are going to have disasters trigger, what criteria you are

going to use for the triggering of a disaster.

That same triggering mechanism would probably be used, or a

very similar triggering mechanism would probably be used for the

third alternative, the subsidy enhancement.

So I think when it comes to the premium structure, the second

two alternatives would probably require some modification to the

premium structure, but a modest one. The first is just a comprehensive change in the insurance program.

Mr. NEUGEBAUER. And one of the things you mentioned about

the premium subsidy enhancement was that it gave that producer

the opportunity that had these four or five bad years, but felt optimistic about the following year, that he could in fact—and I think

Mr. Griffith brought up the point that a lot of his farmers had low

history for the last 3 or 4 years do not have any ability to farm

to really enhance their yield because they are not going to have a

sufficient amount of resources and they cannot get a sufficient

amount of insurance for them to be able to get the loan proceeds

to do that.

So what you are saying under your premium subsidy enhancement is that that would give that producer the ability to insure up

a yield of up to 300 pounds or whatever the historical average of

years other than disaster years.

Mr. KNIGHT. Right, within the limits of the range of coverage levels available, you could—for example, you might have 75 percent

coverage essentially costing the producer the same as 65 percent

coverage would cost in normal times or maybe 80 percent coverage

costing the producer the same as 65 percent coverage in normal

times.

Mr. NEUGEBAUER. And is the trigger mechanism on that that you

propose is that that county was declared a disaster area or just a

substandard yield?

Mr. KNIGHT. I think you would use a pre-determined set of criteria, probably based on a moving average, maybe a 5-year moving

average, of yields and the decline in a 5-year moving average of

yields.

In my written testimony, I talk abouT-yield cups. Yield cups

place a maximum from year to year on the amount a producer’s

APH yield can decline. In this case, this is somewhat akin to a

county level determined yield cup and you would use county data

to determine—let us say you wanted to place a maximum decline

over a 5-year period of 20 percent or 25 percent in the county moving average yield. If the actual moving average declined by 40 perVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00262 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
257

cent, then it is a fairly easy calculation to come up with the

amount of the multiplicative factor you would use to multiply a

producer’s APH yield by to correct it upward to account for that

disaster. So it is a pretty easy calculation process with the triggering mechanism being off of county yields, probably a moving average of county yields, perhaps leading to a single adjustment for all

producers in a county or maybe, depending on the number of years

of actual yields in their APH history. But that is essentially how

I would envision it working.

Mr. NEUGEBAUER. Thank you, Professor.

Mr. Chairman, I yield.

Mr. MORAN. Professor, Mr. Neugebauer asked you about premiums. Would you anticipate that the additional exposure to RMA,

to the program, would be paid for by additional premiums? And is

there then a consequence to the subsidy?

Mr. KNIGHT. OK, I have heard some discussion about moving

subsidy around across the coverage levels. This would be akin to

the possibility or might be, if this were going to be done at zero

additional cost to the Government, it might be done also through

a moving of subsidy—this time moving the subsidy or some of the

subsidy to this disaster, the treatment of the disaster situation.

Mr. MORAN. Moving it from?

Mr. KNIGHT. Moving it from one of the coverage levels or some

of the coverage levels. That is a mechanism through which the offsets could sort of be moved inside the Crop Insurance Program,

would be to modestly change—and I think it would, in the case of

the second two alternatives, be a very modest change in the subsidy at either lower or higher coverage levels, to provide the funds

necessary to cover disaster periods.

Mr. MORAN. So one of the stories, one of the requests that have

been made to us is to move the subsidy to higher levels of coverage,

to encourage or at least make more available higher levels of coverage, moving that subsidy away from lower levels of coverage. We

have not had hearings in Indiana or Illinois, I am not sure whether

they would reach the same conclusion that you would in west

Texas. So there may be political difficulties in doing that.

But one of your at least potential suggestions to us is that if we

are going to shift the subsidy levels, that rather than necessarily

shifting it to encourage higher levels of coverage, we may want to

put those subsidy dollars into this kind of program that assists this

multiyear disaster circumstance.

Mr. KNIGHT. Right. And in fact those subsidy changes would only

occur when disasters are triggered. And in it would be the case also

that the effect would be that subsidies would move to higher levels

of coverage in those periods of disaster.

Mr. MORAN. And you believe it would take a modest change in

those subsidy levels to fund a program—I guess you have given us

some alternatives, but to fund at least two of those alternatives?

Mr. KNIGHT. Two of those alternatives would take a modest

change depending on where the trigger was set. If the trigger was

set at only a 10 percent decline in the county yield, then you would

often be paying—well, you would often be figuring a disaster and

the cost would be higher. But if it were set at a level of say allowing only a 20 or 25 percent decline over a 5-year period, that would

258

not trigger very often, and there are regions of the country where

it would almost never trigger.

Mr. MORAN. Is that information, that data is available?

Mr. KNIGHT. No. The analysis would need to be done. I have

done enough analysis to have a feel for it, but there would need

to be an analysis of that.

Mr. MORAN. Mr. Brown, your testimony was very interesting to

me. I do not have a lot of questions, I thought it was well laid out.

You gave us a good story and kind of outlined the problems that

you as an agent have in providing service to your customers, to

your farmers.

I was interested in learning whether you have detected any

change in the way RMA operates. Is your complaint about RMA a

lack of certainty? Would that have been true 5 years ago, last

month, last year, 10 years ago? And what I am getting at here, do

you detect that it matters who manages RMA?

Mr. JOE BROWN. No, sir. Let me say it this way. When I first

started there was not an RMA. I did not even know who the top

fellow was. It did not make any difference for 5 years, 6 years and

so on. As the program started changing and getting more complicated we began to see more difficulty in finding answers as to

what exactly does this mean. So I am saying it has been probably

in the last 5, 6 or 7 years that it has been getting more frustrating.

Mr. MORAN. And the trend is not in your favor. You do not see

anything that you particularly like?

Mr. JOE BROWN. We do what we have to do with what we have

got. That is my personal philosophy and Joey, my son over there,

he is our policy guru, and he says it is what it is. We deal with

it. We take it, run with it and if we get caught, we get caught. We

will pay the consequences.

Mr. MORAN. Thank you very much for your testimony. Let me

ask the professor one more question. You have heard us discuss the

desirability of ad hoc disaster. Some of my questions have been

how did it work, right criteria kind of thing. What is your opinion

as to the effect of ad hoc disaster upon the Crop Insurance Program? My question, I guess more specifically, is, can we fashion a

crop insurance policy that meets the needs of farmers without ad

hoc disaster or is it always going to be necessary for Congress and

the American taxpayer to step in in certain circumstances, whether

it is ad hoc or it is a defined program as Mr. Peterson describes?

Mr. KNIGHT. That is a difficult question. The reason that is a difficult question is because as some of you are aware, since 1980—

beginning at least in 1980, a stated objective of the Federal Crop

Insurance Program has been to eliminate the need for ad hoc disaster programs. I cannot remember the exact years, but, of course,

we had a string of years in the late 1980’s when we had consecutive ad hoc disaster programs and then we had a period, if I am

thinking correctly, in the early 1990’s when we did not. But in the

late 1990’s, and in recent years, we have had ad hoc disaster assistance. So I would have great difficulty sitting here saying that

we will structure a Crop Insurance Program that would eliminate

the possibility of an ad hoc disaster program at some point. Certainly the crop insurance programs are reducing the need for ad

hoc disaster programs. The higher coverage levels that producers

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are choosing are reducing the need for ad hoc disaster assistance,

but I would have difficulty asserting that we could eliminate ad hoc

disaster assistance with the Crop Insurance Program.

Mr. MORAN. Thank you very much for your answers.

Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Brown, I am a CPA. I used to do taxes for a living, and if

you want to talk about being put in limbo, try to interpret the Tax

Code because the IRS does not know the answer to half of their

own regulations. We have simplified it now three or four times and

every time we have a tax simplification it makes it about 100 times

worse. So you might be careful of what you ask for.

Mr. JOE BROWN. I know it.

Mr. PETERSON. If we try to simplify this it could go like the IRS.

Mr. JOE BROWN. I am a firm believer that if it is not broke, you

do not need to fix the durned thing. But still there may be some

twists here and there we can use.

Mr. PETERSON. Yes, I understand. We get frustrated, too. We

pass bills and by the time the bureaucrats get done with them they

do not look like we thought they did sometimes. So we just take

it under advisement.

This double cropping issue. We do not do that in Minnesota. I am

just wondering if we had a deal where you could get covered 100

percent on two crops, we might have everybody in Minnesota double cropping.

Mr. JOE BROWN. Yes, it is not bad.

Mr. PETERSON. I doubt if we would get much of a crop the second

crop.

Mr. JOE BROWN. It works for us.

Mr. PETERSON. Does anybody know what the rules—is there

some requirement that you have to at least have the possibility of

making a crop before you can qualify for that, or how would that

work?

Mr. JOE BROWN. Most of the time what happens is you get hammered with hail, OK. You lose your crop.

Mr. PETERSON. Right. Now we get hailed on.

Mr. JOE BROWN. And your primary crop. Well by that time, if

that happens, it depends on if it is in early June or late June. If

it is early June, there is not quite as much input, but probably

about half of your input is in the crop. By late June it is threequarters.

Mr. PETERSON. Do they have a time—that after a certain time

you cannot plant a crop?

Mr. JOE BROWN. That is right.

Mr. PETERSON. After a certain time.

Mr. JOE BROWN. That is right.

Mr. PETERSON. So with the double crops, is that time later then

or what?

Mr. JOE BROWN. No. What I am saying is——

Mr. PETERSON. How do they get this coverage? Do they not

get——

Mr. JOE BROWN. Well they have to have the crop in at a certain

point. By the end of June, for instance, the second crop of grain

sorghum, and then there is a late planting period after that. So in

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order to get that second crop insured, they have to have it on their

policy, of course, to start with.

Now then, there is another angle here, if this goes in, FSA is

going to have to give us a little grace I guess because if it is on

the policy and you plant the crop and it is not insured because of

this difficulty or whatever, then there may be some consequences

for FSA to come up with. So there is a lot more to this than just

a simple yes or no type answer.

Joey, come up here and sit by me for a second because I think

I am getting over my head a little bit. The point is—this is my son

Joey. He wrote something here about double cropping and what we

have experienced. I would like for you to explain that briefly.

Mr. JOEY BROWN. Congressman, thank you for the opportunity——

Mr. MORAN. Joey, for the record, you ought to identify yourself

so that we can get it down.

Mr. JOEY BROWN. All right, sir. I actually have the same name

as my father. I go by Joey in order to get the phone messages right.

Joey Brown, and I have worked with Dad since 1996 in the crop

insurance agency.

My point was when I heard Congressman Stenholm’s question,

double cropping is not a reality here. That is true. It is not an intended practice. What happens is, when we have our first crop in—

in our area, our first crop—our primary crop is our higher economic

value crop. If it is lost early enough in the season for a secondary

crop to be possible then the full crop insurance indemnity on that

first crop basically recoups the expenses in it. So the landowner—

the producer is merely able to have an opportunity now to then

pursue a second crop in order to make land payments, property

taxes and rents and what not. That second crop is not going to

produce the profit. We do not want to insure that we produce a

profit. We simply want to be able to plant a second crop in order

to make a crop this year. We have merely recovered expenses so

far. And if we are not able to insure that second crop, we will not

be able to plant it because lenders will not advance the money in

order to plant it.

Mr. PETERSON. I understand. It does not sound like we are going

to be double cropping in Minnesota.

Dr. Knight, this chart here, I have had the same thing happen

up in Minnesota, but it was the opposite. It was too much water.

We had 100 years of tremendous crops and then the last 10 years

we have been wiped out 8 of the 10. Probably the chart would look

very similar. My first question is, what happened to the acreage

during this time? When the yields were 300 pounds an acre and

then they went down to—in Martin County they went down to 100

pounds an acre, that is a pretty dramatic difference. What happened to the acreage during that time? Have you got those numbers?

Mr. KNIGHT. I do not have the acreage numbers. That was the

next thing I thought should be pursued, and I did not get to looking at acreage numbers. They have not changed dramatically. So

I cannot tell you precisely, but it has not changed dramatically.

Mr. PETERSON. Well, up in my district when we had the hearing

all we heard about was the multiple crop problem. One of the

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things that we get lectured about by some of our colleagues in

other parts of the country, Mr. Lugar and others, is that if this is

the situation, we got 8 years losses out of 10, then we should not

be farming. We should turn it back into the Buffalo Commons up

in our area—I do not know what you would do down here—so the

tourists from Minneapolis could drive through the countryside and

view the buffalo or whatever. But there has been reluctance on

their part to go along with us on this because they think we are

farming land that maybe should not be farmed or we are going to

encourage people to farm in circumstances that are too risky and

whatever. In our part of the country—I mean, I think for a while

there because of the crop insurance, we brought land into production that probably should not have been in production, and we have

had a lot of problems with that. Now that is back in CRP, so some

of that problem has gone away. That is what I was kind of getting

at. Have you had a similar kind of thing go on here where—I mean

if you get a two-thirds drop in production, that has got—you would

think that would have some impact on how much cotton was being

produced in that county, I do not know.

Mr. KNIGHT. Right. But when you look at the—now Martin

County has been very variable over the whole history, but yet this

recent period is just an unusual period, and certainly in the other

two counties, certainly in Dawson County. A string of 4 years like

we see in that figure is remarkable. So I guess I think that producers are rationally believing that this disaster will end at some point

in time. It just has not ended so far.

Mr. PETERSON. Well, I would imagine the crop insurance for a

while kept these people in business, but as they lose their APH history eventually they are going to be put out of business. The bankers are not going to loan them the money. Are you going to do some

work on that, the acreage?

Mr. KNIGHT. I think there is much work that could be done on

that. One of the things that could be done on it is various—I mean

there have been several ideas thrown out today aside from the

three that I did about dealing with this multiyear loss situation.

I think it needs to be studied, but it needs to be studied quickly.

Mr. PETERSON. Right.

Mr. KNIGHT. There is not 3 years for a study. I think it is something that needs to be investigated because I have heard ideas

thrown out, several of which might be viable. But I do think we do

need a mechanism to deal with this so that producers not only who

have already suffered the injury of the losses during those time periods—even though they were insured, still there is a loss that they

incur due to their deductible—effective deductible from the coverage levels they choose. Producers have suffered those losses and

then that is followed by a period thereafter when the insurance offering to them is not very attractive. And that has ramifications in

an area—we are talking about here sort of systemic risks. We are

looking at a systemic problem where we have whole counties with

these low levels of yields for this period. But the sort of idiosyncratic risks, the risk that is the risk of the hail storm that gets

your farm but not someone else’s farm is not countywide. That risk

still exists, and if things return to normal in 2004, producers in

this area would still be offered a very low level of coverage for

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those individual farm risks that are just as important as the systemic kind of risks that they have been dealing with. So there is

an effect on out there in the future of——

Mr. PETERSON. My only point was, if you could get us some—I

mean we are doing some work in our area. This is going to be a

very uphill battle for us to get this fixed. You have got good formulas there, but the question is where are we going to get the

money. We have got people against us because they think, they

question whether this land should be farmed at all. And the more

information that we can have about what is actually going on there

in terms of the land and so forth will help us sell that. So if you

come up with any information——

Mr. KNIGHT. We would love to do the study, and we will be looking at it some independently of that plug.

Mr. MORAN. Message receive, Professor.

[Laughter.]

Mr. MORAN. Mr. Stenholm.

Mr. STENHOLM. Thank you, Dr. Knight for helping us think outside the box. I just say ditto to Mr. Peterson’s comments there and

the chairman’s.

Mr. Brown, on the double cropping question again. If, as a previous witness suggested, that we could have a decision made

early—in other words, once a decision is made that your first crop

is zeroed, then you come in with a second crop, not insured, but

collect your premium immediately at that time. What would be

wrong with that?

Mr. KNIGHT. I do not see anything wrong with that. To be truthful, at the level at which I deal with, I am very familiar with those

provisions, but I was not aware of—if you elected not to insure the

second crop, my assumption was that the indemnity on the first

crop would be paid immediately. I do not believe——

Mr. STENHOLM. There seems to be some question in that. I was

referring mainly to Mr. Brown. You all are more dealing with this

question on a daily basis.

Mr. JOEY BROWN. That is our current understanding of the way

it is written. In the basic provisions you have the option at the

time of loss. One of the loss adjustment procedures will be that you

will say I want to collect 100 percent of my indemnity on this first

crop, and I will either not plant a second crop or I will plant and

not insure a second crop. But I do have that option. According to

the basic provisions right now that is our understanding. That is

another one of those things that there is the potential out there

that other companies are communicating that differently, so we are

hoping that RMA will clear that up for us and make sure we all

get the same message out. But we can take our first crop. Now that

does raise the question of, well, if I plant a second crop, wildcat it,

no insurance, I may be running afoul of some provision of the FSA

office from a prior disaster payment that requires me to carry coverage, and here I am planting a crop and not because this other

rule says I cannot. So that is some of the complexity of the——

Mr. STENHOLM. That is why it is so critical and so frustrating to

me that over the last 4 years we have seemingly been incapable of

having two agencies of the USDA talk to each other and have this

question resolved in a way that would be clear to every agent and

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every farmer in the State of Texas, Kansas, Minnesota, et cetera.

But we have been unable to do that and that is extremely frustrating.

Mr. JOE BROWN. Include crop insurance agents in that.

Mr. STENHOLM. I believe I said agent, but I did not leave crop

in front of it.

You also pointed out the concern that you have, and you rightfully pointed out that we have lost a couple of companies and, how

many more can we lose before we do not have anybody willing to

write the coverage that you sell. That is a legitimate concern. And

in doing so, you point out the—and again, the annual threats from

the executive branch and Congress to cut the administrative and

operating expense reimbursement to companies. Now that by law

is 24.5 percent. According to my arithmetic, of the $3.4 billion that

was total subsidies, $1.2 billion in premiums and $2.2 billion in

subsidies, 24.5 percent is roughly $800 million that goes to the

companies. What does the agent receive back from the company on

a $5,000 policy that you sell, roughly? A $5,000, $10,000, $25,000,

$50,000 policy that you sell to your customer, what do you receive

from the company, roughly?

Mr. JOEY BROWN. Our commission varies on the type of policy

that is written. A CRC policy will pay a different commission than

a multi-peril and a CAT policy. CRC rates, the companies that we

have talked to, we just deal with one company. Our current rate

of commission from the one company is 14 percent commission on

the base premium for a CRC policy. It is 15 percent on a multiperil policy. On a CAT policy it is four percent of what they call

the imputed premium. What the premium would have been if a

premium had been charged. There is merely a fee that is charged.

So it is 4 percent.

On a CAT policy—to give an example, we have a 10,000-acre entity insured in Hockley County upon which we make less than

what it costs us to do the policy, but that is their choice of coverage. On a larger policy that we may gain 14 percent commission

on, we will be compensated on it. When it goes into the whole mix,

it levels out.

Mr. STENHOLM. If you write a $25,000 policy, not CAT. Let us

forget the CAT. You write one of the other two policies that you

mentioned, you are going to get 14 or 15 percent of the total premium paid by the producer?

Mr. JOEY BROWN. Actually no, of the total base premium.

Mr. JOE BROWN. Base premium.

Mr. STENHOLM. So it is the total. So if the producer pays

$10,000, the subsidy is roughly twice that. So the payment would

be?

Mr. JOEY BROWN. It depends on the level of coverage, but on a

50 percent level that would be about 1.5 times that. At the 65 percent level the subsidy is pretty close to what the premium is,

maybe 55 percent. So if his premium was 5, the total premium

would be 11.

Now in return for that, a point that was made was that since

1996 we have been doing more inspections of the farm. We have

been increasing the amount of work that we have been doing on

the APHs via the Internet as opposed to just handwritten records.

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It simplifies communication speed, but it is a complex process that

has required us to increase our investment in our business to be

able to accommodate that, more work, while those percentages

which used to be quite a bit higher have dropped down to what

they are currently. At the same time the base premium upon which

they are calculated has decreased due to just lower commodity

prices and other factors in the farm economy. So it is less compensation. But the commission rate is, as we discussed, 14 and 15.

Mr. STENHOLM. And you are doing more today in checking the

adjustments, spending more time out in the field than you used to?

Mr. JOEY BROWN. Yes, sir.

Mr. JOE BROWN. And we are getting less—I mean we are being—

I am not griping about it. I like what we are doing, OK, but the

point is it is happening.

Mr. STENHOLM. Well you are the exception to the rule in the

State of Texas, and I believe I am safe to say in most of the United

States if that is in fact happening today, based on the information

that we have available to this committee. I commend you for it. I

bring this up from the standpoint of there will be pressures to reduce it to the companies, there will be pressures to reduce it to

you. Your producers are dealing on short margins and therefore it

is important for you and other agents to furnish this committee

with the information which you believe is necessary in order to continue to maintain the program, with substantiating evidence to us.

If you can do that for the record, we would be very appreciative.

Mr. JOE BROWN. We appreciate the invitation.

Mr. MORAN. I appreciate very much this panel’s testimony. I

have been pleased and impressed with the information that our

subcommittee has garnered here in west Texas. We are pleased by

the hospitality that has been extended to all of us. A number of

farm organizations and commodity groups were kind enough to

host us at lunch. Your association I think has provided the soft

drinks that has required me to leave the room more than once

today. But we do very much appreciate the hospitality that we

would expect to find in Texas. We have found it and we are grateful for that.

I would recognize our host, Mr. Neugebauer, for any concluding

comments he would like to make.

Mr. NEUGEBAUER. Well thank you, Mr. Chairman, and thank you

for having this hearing so that the people in west Texas can express their concerns about risk management. I want to say that the

chairman originally scheduled this to be in his own district and I

came to him and asked if there was an opportunity to have another

hearing in my district and he said why do you not just take my

slot. I really appreciated that. I also thank other Members for coming.

I think what we have heard today from the Members of Congress, I think it is pretty clear that ad hoc disaster programs are

on the endangered species list. It is going to be more and more difficult in the future to get those kinds of programs approved in Congress, particular where we are moving into very tight budgetary

constraints. What we have also heard is that the 2002 farm bill has

provided some valuable tools and is a program that allows farmers

to go out and to compete in a marketplace, but also to have a safeVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00270 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
265

ty net should those market forces go the other direction. But I

think the most important thing we heard today was that without

an adequate risk management program many of our farmers are

not going to be able to take advantage of the 2002 farm bill. And

so I think it is incumbent upon this committee and on this Congress to work with the producers and work with RMA and come up

with some solutions for some of these issues that have been

brought forward today. One of the things that I think I noticed,

and I know other Members did, is there is a repeating message

here in several areas. So when there is a repeating message it

means there generally is a problem out there that we need to address.

So I really appreciate the panel that testified today and the people that participated. I think you have given us some very valuable

information. I know the chairman’s commitment to move forward

with this initiative and to come up with some solutions. I look forward to working with him in that respect.

Mr. MORAN. Mr. Neugebauer, thank you again very much for allowing us to be here. This is a subcommittee that I think takes its

work very seriously. We will work hard as we try to improve crop

insurance and also look at the commodity programs that we have

in place. Our work is cut out for us. As I hope you have seen, we

work well together. We would not be here but for the cooperation

of Mr. Peterson, the ranking Democrat of this subcommittee. I appreciate very much the lack of partisanship that that Agriculture

Committee in general and our subcommittee in particular exhibits

throughout the year.

I do want to recognize a couple of members of our staff who have

been with us today. Cathy Redding of Mr. Neugebauer’s staff has

been of great value to us in organizing this hearing today. John

Riley is here as the minority staff member. My staff director, Kelli

Ludlum, and we have two members of the full Agriculture Committee staff here, Dave Ebersole and Alan Mackey. Because of Mr.

Combest’s role in agricultural policy, many of our committee staff

are Texans. So I wondered if they all came home for Thanksgiving

and stayed an extra day. If that was the case, we are delighted to

have them either way.

Also there is a sign-up sheet that is going around. If you have

missed the opportunity of signing it, we would like to know who

is here. That is now at the back table.

I also want to point out that Jerry Harris who is the chairman

of the State FSA Committee has joined us today. I know in Kansas

that is an awfully important person. I am sure it is especially true

here in Texas. We appreciate all of the folks who have come here

today to not only provide input but to listen and learn as we have

today.

With that, let me make the formal remarks I need to make to

conclude this hearing, which are these. Without objection, the

record of today’s hearing will remain open for 10 days to receive

additional material and supplementary written responses from the

witnesses to any question posed by a member of the panel.

With that, the hearing of this Subcommittee on General Farm

Commodities and Risk Management is adjourned.

[Whereupon, at 4:20 p.m., the subcommittee was adjourned.]

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[Material submitted for inclusion in the record follows:]

STATEMENT OF TED HIGGINBOTTOM

Mr. Chairman, members of the committee, it is an honor for me to appear before

you to discuss the status of the peanut industry. My name is Ted Higginbottom. I

am President of the Western Peanut Grower Association of Seminole, Texas. The

Western Peanut Grower Association has more than 1000 members in Texas who

produce 75 percent of the peanuts grown in Texas. Peanut production, concentrated

in the southeastern and southwestern regions of the United States, generates an annual crop value of about $1 billion. This afternoon I would like to talk about two

concerns the producers of my association have regarding the Crop Insurance Program as it relates to peanuts: • Crop insurance coverage is not equal for peanuts

• Reduced coverage for second crop provides uncertainty

FARM BILL CHANGED PROGRAM—CROP INSURANCE HAS NOT CHANGED

The peanut industry appreciates the committee’s diligent work on the 2002 farm

bill to provide legislation to convert peanuts from a production quota system to a

regular program commodity. This was an important change for our commodity, to

allow peanuts to be more competitive in the world market while providing financial

assistance in times of low markets.

Under the 2002 farm bill, peanut producers are now entitled to the same safety

net provisions enjoyed by other commodity producers such as marketing assistance

loans, fixed decoupled payments and counter-cyclical payments. However, the loan

provisions only assist farmers who have a crop. Crop insurance is the safety net

that is important to our lenders. Without a sound Crop Insurance Program, many

of our growers would find it difficult to obtain financing for their yearly inputs.

The 2003 peanut program significantly changed under the farm bill, but changes

to the Crop Insurance Program have lagged behind. Producers of other program

commodities have the ability to insure actual production history (APH) on acreage

by section, based on irrigated and non-irrigated practices. Peanuts are still under

a crop insurance policy that was written in 1999, which is more restrictive than the

current crop insurance Basic Provisions.

Under the peanut policy, the producer can only have a separate unit if the acreage is given a separate FSA farm serial number. The peanut quota system established the producer’s peanut acreage under a single FSA serial number. Therefore,

without a change in the policy, producers are not permitted to utilize optional farm

units—the entire peanut acres are covered under one policy, requiring a higher loss

percentage in order to obtain any indemnity payment. This restriction also prevents

the producer who has irrigated and non-irrigated land under the same FSA serial

number from establishing actual production history for each section.

The Western Peanut Growers brought this issue to RMA’s attention in March of

this year during a meeting with RMA Administrator Ross Davidson and representatives from the RMA Oklahoma Regional Office. During this meeting RMA promised

the optional unit structure would be changed for the 2004 crop year. The contract

change date for peanuts was November 30. RMA did not release a new policy for

the 2004 crop year with this modification—in fact we are still under the policy written in 1999.

The Western Peanut Growers urges the committee to prompt RMA to expedite the

necessary policy changes to allow peanut producers to establish optional units,

which would provide better insurance coverage, as the APH would be recorded for

the individual acreage sections. This small change in the policy would make the policy more equitable in comparison to other program crops and it would make a vast

difference to the peanut producers who want a meaningful risk management tool.

ARPA PROVISION CREATES PRODUCERS CERTAINTY

The second issue I want to address today was a change that was incorporated in

the Agricultural Risk Protection Act of 2000 (ARPA), which RMA will be implementing for the 2004 crop year, the double insurance provision. This stipulation on coverage will have many unintended consequences; beginning with producers and lenders not having a clear understanding of the amount of insurance will be available

to the producer during the crop year. This will cause cash flow problems for producers as they try to obtain operating loans for the entire crop year, when only 135

percent of two crops can be insured. This provision will force producers to decide

which crop he will fully insure.

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Under this ARPA restriction, if the producer has a loss on the first crop, he can

receive 100 percent of the insured loss for the crop and not insure the second crop.

The other choice for the producer is to calculate the loss for the first crop, receive

35 percent of the eligible indemnity, plant and insure the second crop. If there is

a loss to the second crop he can receive a full indemnity for the second crop, but

he has to forgo any additional indemnity for the first crop. If the producer is fortunate and has no loss to second crop, he can obtain the balance of the indemnity payment for the first crop, after he has harvested the second crop. At the end of the

year, the premiums for the two crops will be adjusted according to percentage indemnity received for the crop.

This restriction will not harm producers who only farm one crop a year, but most

producers here in Texas try to produce at least two crops in one crop year. When

crops are hit with a natural disaster such as hail or drought, and if conditions permit, we want to plant another crop because we want to earn our living in the market place. It is very possible for a Texas cotton farmer to have his crop hailed out

just after the final planting date for cotton and there would be able time left in the

year for Spanish peanuts to mature if planted after the cotton. Furthermore, a producer’s wheat crop could be destroyed by hail and a full growing season would be

available for peanuts.

This ARPA provision will severely jeopardize our producers’ financial security, as

they will not know with any level of certainly what their income will be until the

last peanut is marketed. Nor will he know what his crop insurance premium bill

for the year will be until the second crop is completed, because the premium will

be adjusted depending on the percentage election for first crop loss.

In addition, this provision will cause a great deal of problems for the insurance

companies and agents, as they will have difficulty tracking and booking the appropriate premium as well as the additional costs to adjust the losses once the producer

makes the election regarding the indemnity for the first or second crop.

We understand the reason behind this provision in the ARPA legislation was to

cut down on abusive practices when three or four crops were insured. However, this

provision will harm all producers who double crop. We urge the committee to modify

this provision with legislation that would provide 100 percent coverage for two crops

planted in one calendar year. This would be an equitable solution, as it would provide the producer with some financial certainly regarding his crop insurance coverage while limiting the coverage to two crops.

The Western Peanut Growers would greatly appreciate the committee’s attention

to these very important issues, which gravely impact our financial stability. We urge

the committee to take action to change these provisions to make crop insurance a

more viable risk management tool for peanut producers.

Thank you again for your invitation, I hope I have provided you with an informative snapshot of the challenges the industry faces and I will be happy to respond

to your questions.

STATEMENT FLOYD GIBSON ON BEHALF OF DAVID L. MOORE

Mr. Chairman, the Texas Wheat Producers Association is pleased to have this opportunity to offer our thoughts on crop insurance reform. We applaud you, Chairman Moran, and the subcommittee members, for your diligent efforts to provide effective and affordable insurance for farmers.

Crop insurance needs reform. This fact was made evident by the need for disaster

assistance legislation last year. The passage of the Agricultural Risk Protection Act

was a major improvement in crop insurance and our proposals today build on

ARPA’s reforms. Nevertheless, the cost of higher levels of coverage and the inability

of crop insurance to address the needs of disaster affected farmers has led the Texas

Wheat Producers Association to list crop insurance reform as one of our top priorities.

We understand clearly the current budget environment. Our proposals intend to

be cost effective, especially compared to disaster funding.

TWPA has four primary goals for crop insurance reform. They are, in order of priority, as follows:

1. More affordable coverage at higher levels.

2. Prevent or slow declining APH due to consecutive disasters.

3. Establish Farm Savings Accounts, which become available in the event of disaster.

4. Establish a minimum loss standard.

I would like to discuss each of these primary goals in turn.

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COVERAGE LEVELS

The higher levels of coverage currently available are not affordable. The most

cost-effective coverage for producers is either 65 percent MPCI (APH) or 70 percent

CRC, therefore these are the levels most farmers purchase. Consequently, most

farmers face a 30–35 percent deductible in the event of disaster. At 70 percent CRC,

a farmer looses roughly 1 1/2 years of income before any claim is paid. An 85 percent coverage would cover some of this gap; however, higher coverage must be affordable. The availability of higher coverage is of little use if a farmer cannot afford

the premium.

Therefore, in order to help producers reach higher coverage levels; the cost of

higher coverage must be reduced.

ACTUAL PRODUCTION HISTORY

The Nation’s wheat growers know all too well the effects of prolonged drought.

Until this year, much of the Nation’s Wheat Belt suffered from two to six years of

drought. Here in Texas some areas have had below average rainfall for many consecutive years. Each year of crop failure reduces a farmer’s APH, eroding the crop

insurance safety net.

The minimum yield plug is an effective tool; however, the current 60 percent plug

is too low. We suggest the level of coverage purchased by the producer as an appropriate yield plug factor. For example, if a farmer purchased 75 percent coverage,

their yield plug would be 75 percent. This rewards the producer who buys up coverage. Another factor to consider is that a T-yield based on a short time frame is

impacted more drastically by consecutive disasters. It is my understanding the current T-yield plug is based on NASS 10-year historical data per county. If the T-yield

were based on a longer time frame, then the effect of consecutive disasters would

be minimized.

Therefore, a more stable yield ‘‘plug’’ floor would help farmers through consecutive

disasters.

FARM SAVINGS ACCOUNTS

TWPA and other farm organizations have supported the creation of these accounts

in previous farm bills. Tax-deductible contributions with taxable distributions would

be fundamental principles of these accounts. A USDA match, as well as tax deferred

growth, would provide incentive for account establishment.

Therefore, Disaster Reserve Accounts held in local financial institutions would

provide stability to farm income and security to rural communities.

MINIMUM LOSS STANDARD

The deduction of a salvage yield from a disaster affected crop obviously reduces

crop insurance coverage. Currently a farmer with an APH of 40 bushels per acre

and 70 percent coverage assumes a 28-bushel per acre guarantee. The custom harvest cost for wheat in Texas is around $14/acre. At this cost and a $3.00 per bushel

price, a farmer with an appraised salvage yield of 4 bushel/acre couldn’t economically justify harvesting the remaining crop. This effectively drops his coverage to 24

bushel per acre or a 60 percent guarantee instead of 70 percent.

Therefore, when the cost of harvesting a loss affected field exceeds the appraised

salvage value, that field or insured unit should be assigned an appraisal of zero.

Mr. Chairman and members of the subcommittee, we thank you for this opportunity to testify, and we look forward to working with you on this effort. I’ll be

happy to respond to any questions you may have, and pledge the Texas Wheat Producers Association’s assistance to you in developing, refining and implementing a

more effective risk management product.

STATEMENT OF KENNETH ROSE

National Grain Sorghum Producers would like to thank Representative Moran

and members of the subcommittee for calling this important hearing today. We welcome all of you to Lubbock, which also serves as headquarters for National Grain

Sorghum Producers. My name is Kenneth Rose, and I am serve as president of the

National Grain Sorghum Producers. I farm in a family operation near Keyes, Oklahoma in the Oklahoma Panhandle. Our diversified operation includes grain sorghum, wheat and cattle.

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NGSP represents U.S. grain sorghum producers nationwide. Headquartered in the

heart of the U.S. sorghum belt at Lubbock, Texas, our organization works to increase the profitability of grain sorghum production through market development,

research, education, and legislative representation.

We would like to thank the committee members for their support in our efforts

to have crop insurance price elections more accurately reflect the market shift that

has occurred in recent years which has brought sorghum prices on equal footing

with corn We are encouraged by a recent Federal Crop Insurance Corporation board

resolution that recommends a new formula for determining price elections for sorghum.

Our recommendations to you today are focused on the specific needs of grain sorghum producers, and we appreciate your consideration of them. But, I would like

the committee to be aware that Lubbock is at the South end of an area that has

been in a disaster situation for at least the last five years. At this point, we are

at least 8 inches below normal rainfall—a critical shortage in area that only gets

12 to 18 inches of rainfall per year. The indications are that it would take from

twelve to 60 inches of moisture in the next six months to bring our moisture levels

to back to normal.

SORGHUM INDUSTRY OVERVIEW

The United States grain sorghum industry is comprised primarily of nine states

in the Great Plains, although grain sorghum is grown from California to New Jersey. Last year, the states of Kansas, Texas, Arkansas, Missouri and Nebraska accounted for the majority of production. Over the last 10 years grain sorghum acreage has ranged from 13 million to 9.3 million planted acres and production has

ranged from 795 million bushels to 370 million bushels. Additionally, the forage sorghum industry utilized as silage, hay and direct grazing represents another 5 million acres of production.

The U.S. is the world’s chief producer and exporter of grain sorghum, and the crop

ranks fifth in importance as a U.S. crop behind corn, cotton, soybeans and wheat.

Roughly half of the U.S. crop is exported, while the rest is used domestically for

feed and an exponentially growing amount—a 57 percent increase in the last 2

years—going to ethanol.

With no less than 8 proposed ethanol plants under various stages of development

in the sorghum belt, the ethanol industry holds tremendous promise to become the

single largest user of grain sorghum in the United States if they can be assured

a reliable supply of grain. Worldwide, approximately 50 percent of grain sorghum

is consumed directly as a food grain, leaving a tremendous growth opportunity here

in the U.S.

Additionally, the U.S. dominates world seed production in sorghum with a billion

dollar seed industry focused on 250,000 acres primarily in the Texas Panhandle.

SORGHUM AS RISK MANAGEMENT

It is most appropriate that sorghum is represented here today, because we believe

that grain sorghum in and of itself is a risk management tool. This is primarily due

to its ability to withstand extremely dry and arid conditions better than any other

grain crop. For instance, according to a Texas A&M study, sorghum uses one-third

less water than corn. NGSP’s members believe that Federal farm programs, like

crop insurance, should be promoting the conservation of resources like water. Setting the sorghum price election equal with corn helps conserve water. More and

more farmers have been planting less drought tolerant crops in the arid areas of

the Sorghum Belt because farm programs like crop revenue coverage insurance

(CRC) have encouraged them to do so. Farmers are experiencing crop failures because of the lack of water (which also has increased crop insurance claims) or they

have turned to irrigation to produce a crop, thereby increasing the pressure on

water usage.

However, sorghum’s crop insurance track record is deceptive at first glance because, due to its stress tolerance, it is planted in the most marginal areas or as a

catch crop during marginal planting periods after a preceding crop fails due to hail

or drought.

The Agricultural Risk Protection Act passed by Congress effectively ended double

dipping and planting a second crop when there was little hope for it. We hope that

sorghum actuarial loss numbers can be refigured to reflect these changes in the law.

In fact, later in this statement, NGSP will detail how we believe that some current crop insurance provisions affect the planting choices that producers make. Perhaps if these issues are rectified by USDA, sorghum will be the first crop of choice

more often, and its true risk-management characteristics will become more evident.

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NGSP’s primary concerns that we will detail today fall into two main areas. First,

a level crop insurance playing field is needed for grain sorghum so that crop insurance will no longer distort planting intentions. We will detail needed changes—some

of which can be made administratively. However, we also would like to urge this

Sub-committee to keep the need for this level playing field in mind as it forms future crop insurance legislation. Additionally, NGSP will detail other concerns that

we urge this Sub-committee to address based on a Crop Insurance questionnaire

that our organization recently distributed to our leadership and entire membership.

LEVELING THE PLAYING FIELD

Price Elections: NGSP’s efforts to change the manner in which price elections are

determined are based on our belief that grain sorghum and corn should have equal

treatment in government policy to help curtail government policy distortion of planting decisions, particularly on the heels of equal value and equal market prices for

both commodities in recent years. When the CRC program was established, USDA

based its price election for sorghum on a relationship to CBOT corn Beginning with

the 2004 crop, NGSP has been informed that the sorghum price election will be

based on the price relationship between sorghum and corn in the January 2004

WASDE price outlook factored with the USDA baseline projections and the December CBOT contract. Hopefully, this change will recognize the fundamental shift in

markets and cash prices due to ethanol and other new uses.

We appreciate USDA and RMA’s willingness to revise this formula, and we thank

them for their work in this area. We also would like to thank members of this committee and many of your colleagues in the House and Senate for their assistance

in this area.

However, we are concerned that the use of the USDA baseline projections in this

equation may put us back to square one, because the track record for the USDA

sorghum baseline projection is inaccurate compared with what actually happened—

in terms of supply variables, demand variables, price variables, and (most importantly for insurance purposes) the ratio of sorghum farm price to corn. This is, in

part, because the USDA baseline was originally intended as a budget guideline tool

rather than to determine the value of a crop.

Ethanol plants and other end users price sorghum equally with corn because it

performs equally for them. Crop insurance should not drive planting intentions, nor

should it artificially distort them, and we are encouraged that this new manner of

calculating price elections will help end these planting distortions.

However, NGSP will continue to monitor government data that will determine

these price elections to ensure that the data is accurately reflecting market conditions and not further contributing to these market distortions that have resulted in

a near collapse of industry infrastructure and the ability to provide a reliable supply

of sorghum to meet market demands.

For example, USDA Sorghum Planting Intentions since 1996 (the year Crop Revenue Coverage came into being) have shown no increase in planted sorghum acreage,

even during years when planting intentions for sorghum should have risen due to

limited moisture and even this year since the sorghum loan rate was equalized with

corn in the 2002 farm bill. In the past four years, market signals should have told

farmers to plant more sorghum, given around a 50 percent jump in the high value

food, seed and industrial uses from 2000 to 2003 that has led to higher cash prices

for sorghum. However, it is NGSP’s assertion (and many producers’ own admissions)

that government policy inequities discouraged these plantings.

In fact, a land management company that manages about one million acres in the

Midwest this year advised its tenant farmers not to plant sorghum due to its lower

crop insurance price elections and admitted as much in a letter to one of our State

affiliates.

Here is an excerpt of the letter:

Like many producers, we have sharply reduced the acreage planted to grain sorghum and even though it may make sense from an agronomic standpoint due to the

drought to plant more acres to sorghum, it simply will not be done on our operations

because of crop insurance.

These price election inequities mean more government payouts on higher-risk

crops that lack the drought tolerance needed to grow in the drier areas that are traditional sorghum producing areas. Sorghum farmers are penalized $10 to $30 per

acre when droughts hit, encouraging farmers to plant higher-insurance-guarantee

rather than sorghum.

However, price data collected by USDA runs contrary to continued inequities in

price election levels for sorghum. Averaged over the last 3 years, the price of grain

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sorghum was just higher than that for corn, according to the annual USDA Crop

Values Report released in late February 2003. According to the USDA report, the

price for grain sorghum averaged over the last three years was $2.08 per bushel,

just above $2.06 per bushel for corn during the same period. Recent USDA-ERS

numbers give further indication that a fundamental market shift is continuing to

result in sorghum prices that are on par with prices for corn, both near and longterm, further making the case for a level crop insurance playing field. In its most

recent monthly Feed Outlook report, the agency projected that by the end of the

2002/2003 marketing year, prices received by farmers for sorghum, forecast at $2.32

per bushel, would be equal with corn. Additionally, USDA also predicts that prices

for sorghum in 2003/2004 will be even with corn.

Multi-peril Crop Insurance has also discriminated against sorghum. As you can

see in the above graph, MPCI coverage for sorghum is less than corn. Sorghum

farmers are confused and frustrated when they are paid a price equal to corn or

a premium at the local point of sale and then are told by USDA that the sorghum

cannot be insured at the price level they are paid.

In addition to this market shift, and to prevent the sorghum industry from complete elimination of its infrastructure; sorghum price elections should be equalized

with corn because: • Data shows that sorghum is equivalent to corn for ethanol use. Each bushel of

sorghum produces the same amount of ethanol and Distillers Dry Grain (DDG) as

corn. DDG’s for the two commodities are typically priced the same, although sorghum’s DDG could demand a premium because of higher protein levels. More and

more sorghum is being used in ethanol.

• Sorghum is a water conserving crop. By eliminating the incentive to plant higher-water-use crops due to higher CRC price elections, water can be saved in Texas,

Nebraska, Kansas, and South Dakota. Hypothetically, by switching from irrigated

corn to irrigated sorghum in 21 Texas Panhandle counties, over 50 years enough

water could be saved annually to provide water each year for the city of Austin,

which has 294, 400 households.

It should be noted that NGSP has been told that some lenders are being asked

to document crop insurance cash assurances to bank examiners as part of documenting a loan’s soundness. As a result, some lenders are making the planting decisions

for their borrowers and requiring their borrowers to plant some other crop besides

sorghum due to sorghum’s lower crop insurance guarantees. Business is business,

and NGSP understands the position that lenders and examiners are in, given current economic conditions.

As an example of this, here is an excerpt of an e-mail NGSP received from a concerned Great Plains banker who is also a farmer:

To: Mr. Tim Lust

Subject: RE: Disaster Hearing

. . .This drought could bring a lot more interest in milo. If we get some moisture,

milo will be better than corn. Milo may be better than corn on some irrigated

ground with limited water.

However I have had to tell customers that for 2002, dryland corn is better than

dryland milo. Milo has a lower ‘‘T-yield’’ on MPCI/CRC. CRC milo price [price election] is 95 percent of corn. Finally, almost all dryland corn in this area is appraising

at zero bpa. My milo has heads. I don’t know how it will appraise. If it appraises

at 3 bushels per acre, my CRC payment will be reduced by $8 per acre (based at

$2.80 Dec CBOT x 95 percent). . .What I get for planting a moisture saving crop

is a lower CRC payment. Based on my APH information (with 2 years of T-yield),

Dec CBOT of $2.80, and 3 bpa appraisal, milo will net $35 per acre less than corn.

[Corn: 68 bpa APH x 70 percent x $2.80 = $133

[Milo: 57 bpa APH x 70 percent less 3 bpa appraisal x $2.66 = $98]

This is just one of several examples that have been strongly communicated to

NGSP regarding the unintended consequences of Federal crop insurance.

Product Access and Availability: Currently, sorghum producers have no access to

Revenue Assurance products, and many of our members tell us that they would like

this product for grain sorghum. Sorghum farmers like this program. They use it on

other crops and want Revenue Assurance for sorghum as well. This program can

be a valuable risk management tool for farmers that are looking to protect their

profits. Additionally, sorghum has not been included in Cost of Production pilot

projects. Current new-product-development efforts have largely ignored or been ineffective for this Nation’s sorghum producers. NGSP has been told that RMA is reviewing a new combined revenue insurance product for 2006, but until then, sorghum remains the only program crop that does not have Revenue Assurance. FurVerDate 11-SEP-98 11:27 Feb 03, 2004 Jkt 000000 PO 00000 Frm 00277 Fmt 6601 Sfmt 6601 F:\DOCS\10813 HAGRI PsN: HAGRI
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ther, we have been told that RMA will not allow Revenue Assurance to be sold to

sorghum farmers until changes are made in 2006.

Finally, for six years, NGSP has been working toward insurance coverage for sorghum silage. To date, sorghum silage is not insurable, while corn silage can be insured, and we have been told by RMA that it will not be insurable until at least

the 2005 crop year. The sorghum industry continues to struggle with the ability to

insure the production of sorghum silage. According to data released from the Texas

A&M University Extension Center, Bushland, Texas, in 2001, sorghum silage outyielded corn silage in both tonnage and pounds of quality product while using approximately half the irrigation water required for corn silage. Despite all the time

and energy that the House Agriculture Committee, National Grain Sorghum Producers and Risk Management Agency have put into understanding, researching and

documenting the merits of sorghum silage insurance, farmers currently cannot insure the crop in the U.S. today. At a time of multiyear droughts when producers

need water-saving options, government crop insurance policy is dictating that farmers grow corn silage with insurance in order to get financing by their bankers. It

is unacceptable to any agricultural commodity that it should take eight years to get

new insurance products in place. Therefore, we ask that the ag committee instruct

RMA to make the sorghum silage policy a rider on the sorghum grain insurance provisions for the 2004 crop year.

Producers in the arid regions of the U.S. Sorghum Belt continue to wait for coverage that will allow them to grow a water-conserving silage crop with the assurance of an equal insurance safety net.

CROP INSURANCE YIELDS & PREMIUM SUBSIDIES

As part of information gathering for this hearing, NGSP surveyed its membership

about concerns and improvements regarding insurance. While inequities in price

elections topped the list of concerns, APH yield guarantees and the high cost of premiums followed closely.

Throughout much of the U.S. Sorghum Belt, multiple-year droughts on the Plains

have destroyed guaranteed yields for crop insurance purposes, unfortunately making

the program largely ineffective. Due to the continued threat of drought, we are concerned that, in the face of these disasters, farmers are not adequately or realistically

protected.

We urge this subcommittee to consider changing the manner in which actual production histories (APH) are calculated. NGSP suggests this subcommittee order a

study of various alternatives such as what adjustments could be given to either

APH or premiums in counties that have been declared disaster areas. After all, it

is the widespread disasters that have the greatest impact, not only on producers,

but on the rural communities that are dependent upon a healthy farm economy.

We would like to thank this subcommittee for convening this hearing today, and

we would be happy to provide any further input or information at any time. Thank

you.

STATEMENT OF DEE VAUGHAN

Good afternoon. Mr. Chairman, members of the committee, I first want to thank

you for traveling to Texas and conducting this important field hearing. I also appreciate the opportunity to appear before you on behalf of the Corn Producers Association of Texas and the National Corn Growers Association (NCGA). I am Dee

Vaughan, a corn, soybean, sorghum, and wheat producer from Dumas, Texas and

am currently serving as president of NCGA.

One of the most difficult tasks for any corn grower is management of the risks

that confront a farm operation day in and day out. The kinds and levels of risks

farmers face can vary considerably between commodities and regions. As President

of NCGA, I understand well the uniquely different risk management needs across

the corn belt from east to west. What might be a critical program or insurance policy to our grower members in Iowa or Minnesota may not the case for another grower member here in Texas or hundreds of miles away in Maryland. So, I want to assure you that I recognize and appreciate the enormous difficulty of crafting farm

policy and legislation that can adequately meet the diverse needs of U.S. farmers

and ranchers and ensure that the interests of the American taxpayers are well

served.

In our view, the Congress has listened to U.S. producers and taken positive action

in recent years to address some of our more pressing needs. One of the first major

steps to improve the farm safety net was the adoption of reforms to the Federal

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Crop Insurance Program with the passage and enactment of the Agriculture Risk

Protection Act of 2000 (ARPA). By committing significantly greater financial resources to premium subsidies, we have seen increases in producer participation, percentage of acres covered, and purchases of higher levels of buy-up coverage.

Another example of what additional premium subsidies can do for Federal crop

insurance participation can be found in the Agriculture Management Assistance section of ARPA. A decision earlier this year by the Secretary of Agriculture to change

the program’s direction and make available $15 million in supplemental subsidies

to 15 underserved states for buy up coverage resulted in a remarkable increase of

$131 million in liability protection. Following consecutive years of drought, this financial assistance was welcome relief to producers hurt by severe, repetitive crop

losses. NCGA is extremely disappointed that the Fiscal Year 2004 Agriculture Appropriations Conferees have taken away the Secretary’s authority and flexibility to

provide this kind of help when producers most need it. We believe allocating $17

million of the authorized funding of $20 million exclusively for risk management

conservation projects and organic certification is neither prudent nor fair.

Over the past few years, the Federal Crop Insurance Program has enabled many

producers to continue farming who otherwise would not have been able to withstand

the financial losses that have resulted from ongoing drought conditions and other

weather related disasters. Indemnity payments in excess of $7 billion for the 2001

and 2002 crop years have made a real difference to growers who are already operating with slim profit margins. Add the $3.5 billion in premium support that enables

growers to purchase this protection and you can understand why Federal crop insurance has become such an important component of the farm safety net.

The Texas Corn Producers and NCGA appreciate the progress of Federal crop insurance, but we also recognize that even with recent reforms, too many growers who

have exited farming often point to the lack of effective insurance coverage as a contributing factor. It is a reminder that we need to continue our efforts to build on

the successes and focus on how we can further refine the program to address its

shortcomings.

Among the primary concerns for Texas Corn Producers and NCGA is adequate

protection against repetitive years of crop losses. We have recognized for some time

now that many crop insurance participants who experience shallow, but significant

crop losses in back to back years can find themselves in no man’s land. For example,

growers with typical buy-up coverage who have lost 15 to 25 percent of their crop

most likely cannot file a loss claim nor would they qualify under today’s traditional

crop disaster program. In Texas, our high variable costs of production have been

particularly acute in recent years due to rising natural gas prices. The margins are

thin that any weather problem impacting yield has dramatic consequences. Although a grower would normally be able to sustain a shallow crop loss for one year,

two or three consecutive years with similar yield results can seriously erode net

farm income and equity.

NCGA has also noted along with other farm groups, that repetitive and multiyear

crop losses adversely impact a grower’s average production history, and consequently the value of liability coverage. However, we want to strongly encourage

the consideration of innovative solutions that go beyond artificial adjustments to Tyields and the APH. We believe that addressing this chronic problem in such a limited manner is short sighted, risks ill-advised planting decisions, and invites the unintended consequences of higher premiums for producers where the incidence of crop

losses has a much lower probability.

The failure to address erosion of indemnity benefits caused by multiyear losses

undermines the growth in crop insurance participation as well as the long term goal

of reducing the need for ad-hoc disaster assistance. One potential solution would be

a supplemental insurance product that covers a producer’s deductible when two

years of consecutive years of crop losses exceed a predetermined percentage of average production history. Another recommendation is expansion of the Group Risk Income Protection (GRIP) that until recently, was limited to five states; Illinois, Indiana, Iowa, Michigan, and Ohio. The Texas Corn Producers and NCGA are very

pleased that corn growers in those counties in Texas and Wisconsin where Group

Risk Protection is currently available will now be able to purchase GRIP. The Federal Crop Insurance Corporation Board has also improved the GRIP plan by approving the Harvest Revenue Option (HRO). GRIP-HRO provides ‘‘upside’’ price protection by valuing crop losses at the harvest price in addition to the GRIP plan’s coverage. By offering more producers the option of more affordable protection against

widespread area losses, the Board’s actions represent a real step in the right direction. NCGA intends to look at a number of new concepts to enhance Federal crop

insurance and will be conducting a national survey of corn growers on these ideas

and other risk management topics later this year.

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Realizing that the changes to Federal crop insurance we advocate may be difficult

to achieve in the near term, the Texas Corn Producers and NCGA urge the members of this subcommittee to consider major reforms to traditional crop disaster assistance that address widespread catastrophic crop losses. NCGA first addressed

this issue last year in response to last year’s drought by proposing a new program

that would deliver aid more effectively and equitably without penalizing participants in the Federal Crop Insurance Program. Our Disaster Task Force recognized

that the Agriculture Risk Protection Act approved three years ago is now part of

a comprehensive, but very different farm safety net because of the new counter cyclical payment program. Secondly, the Task Force observed that traditional disaster

aid programs have targeted disproportionate payments to growers with large, insurable yield losses, but growers could still lose up to 35 percent of their expected crop,

sustain significant financial losses, and not qualify for any assistance.

NCGA applauds Rep. Sam Graves for introducing legislation earlier this year to

reform ad hoc crop disaster aid. The Companion Disaster Assistance Program Act

(CDAP) would compliment Federal crop insurance by providing payments more proportionate to the severity of crop losses and covering a portion of the uninsurable

deductible rather than duplicating insurance coverage. Under the CDAP plan, disaster payments can be delivered sooner and in a more targeted way because most

growers who collect indemnity payments on their insurance policies would be eligible to collect a disaster payment.

Mr. Chairman, I began my remarks by acknowledging the positive impact of Congress’ support for Federal crop insurance reforms in 2000 and what it means for the

farm safety net. The Texas Corn Producers and NCGA again want to recognize the

work of Congress and the commitment it made to U.S. agriculture in passing the

2002 farm bill. This landmark legislation provides farmers a far more reliable and

predictable safety net for farmers with the adoption of the counter cyclical payment

program, greater investments in value added opportunities, and even a new energy

title. We cannot overemphasize the importance of staying the course and the need

for Congress to refrain from reopening the farm bill. The 2002 farm bill is a carefully balanced policy that addresses a myriad of pressing needs from adequately

funding nutrition programs to expanding conservation efforts. We ask you for your

continued support and commitment to this legislation.

Finally, I want to thank you and the members of this subcommittee again for visiting our great State and taking the time to listen to the issues and concerns that

I raised on behalf of the Texas Corn Producers and the National Corn Growers Association.

STATEMENT OF LLOYD ARTHUR

Mr. Chairman and members of the committee, I appreciate the opportunity to testify before your committee, regarding the need for adjustments in the Federal Crop

Insurance Program. My name is Lloyd Arthur; I am vice president of the Texas

Farm Bureau, and am a cotton farmer from Ralls.

We recognize that Texas, and specifically this area of the state, is a high risk crop

producing area. The return on premium dollars in Texas is significantly higher than

the national average. Texas however, is also a high production area, particularly for

cotton. We lead the Nation in the production of cotton, and are also significant producers of wheat, corn and sorghum.

The Texas Farm Bureau supported the Agriculture Risk Protection Act of 2000,

and its efforts to make crop insurance more affordable for producers. That legislation has been successful in increasing participation in the program, with now more

than 80 per cent participation from Texas producers. The Risk Management Agency

has been successful in providing an increase in the number of insurance products

for Texas producers to meet various needs. The Crop Revenue Assurance programs

that have been piloted in Texas have benefited producers during years of significant

drought as well as the extended periods of low prices. Fortunately, our price situation has improved significantly this year.

We are here today to request that the committee consider several modifications

to the current program to benefit producers from across the state.

The RMA has had rules for some time that require producers to plant and harvest

a crop one out of every three years on a specific piece of ground to be eligible to

purchase crop insurance. While this works in many regions, the rice producing area

of Texas commonly will plant rice only every 4 or 5 years on a particular piece of

property. Your consideration of making a change to resolve this problem would be

appreciated. The farm bill gives the producer flexibility to grow different crops,

allow producers the opportunity to insure the investment.

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In 2001, five counties in Texas were severely affected due to Karnal Bunt in

wheat. The detection was found only after the wheat had been commingled at the

elevator. A provision allowing for a loss of value due to a quarantined disease, similar to the Quality Loss Provision would have would have provided growers protection. Under current regulations, producers were ineligible for any insurance benefits.

In Texas we continue to have problems with final planting dates. For some reason, the dates established with RMA don’t seem to be applicable here in the state.

We have tried many times to make adjustments in this area, but have been unsuccessful. Producers fail to understand why farms in adjacent counties, literally across

the county line, will have different final planting dates. A possible reduction in the

size of areas covered by each date and the inclusion of recommendations from local

FSA Committees, and the State extension service could make these dates more germane to their area. Furthermore, changes are needed to address the Release date

of a crop that has failed prior to the final planting date, established by RMA. This

policy forces producers to be liable for Boll Weevil Eradication assessments on production that has already been designated as failed.

In the South Plains area, we have a combination of both irrigated and dryland

farms. Producers switch from dryland to irrigated production based on available

rainfall as well as product prices. Current RMA rules discriminate against a producer’s choice to make those decisions. At this time, a producer is required to use a

particular farm method for one year before being eligible to purchase the insurance

product the following year. There is also a significant variance in the kind of irrigation facilities. Drip or trickle irrigation is far more efficient and conservation oriented, and should be recognized as such. We would urge the committee to make adjustments to allow different irrigation practices to use separate units for insurance

purposes. Farmer’s APH are being capped under these efficient irrigation practices

because RMA states the yield is higher than the county’s potential. Also allow producers to purchase different levels of coverage for the differing types of production

practices, example dryland vs. irrigation.

I have stated previously, we recognize that Texas is a high risk state; we seem

to experience natural disaster declarations more frequently than many other areas

of the country. We would respectfully request that the committee consider exempting production in any year in which the area is designated as a Natural Disaster.

Under the current program, any zero yield years will result in a reduction of a producer’s production history.

Finally, we would urge the committee to initiate an additional type of insurance

program for livestock producers. In Texas, we are in need of additional insurance

products for sheep and goat producers, as well as lamb producers. Although not directly related, hay producers are also in need of insurance coverage.

Mr. Chairman, we appreciate the opportunity to provide testimony today, and I

will be happy to respond to your questions at this time.

STATEMENT OF ALAN PETER

My name is Alan Peter. When I completed this year’s fall harvest, I also completed my career as a farmer. More than three years of drought, with little relief

in sight, helped me come to a conclusion—my chosen career could not support my

family at an acceptable level. After this, my final harvest, I began a new career at

our local bank. I hope my comments from the perspective of the farmer as well as

a main street businessman will give you some insight into many of the issues facing

growers today.

Why did I leave farming? For me, it came down to high input costs. A declining

water table and higher natural gas prices made it cost more and more to pump less

water on fewer acres. In other words, the cost of farming went up and continues

to go up and the net economic returns went down. When that happens with no prospect of a change in sight, it’s time to get out. I have three sons, none of whom I

have encouraged to stay on the farm.

I am completing my final term as President of the Kansas Corn Growers Association, and last year I served on the National Corn Growers Association Disaster Task

Force. We pushed for and received a Disaster Assistance package from Congress last

year that provided help to many farmers. Although my farm suffered as much as

most from the drought last year, I received little disaster assistance. Following crop

insurance guidelines, I continued to irrigate my crops, even though input costs were

very high. I was successful in harvesting enough to make me ineligible for disaster

assistance. However, my crop insurance payments did little to offset the amount of

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money I put into trying to irrigate my crops throughout that historically dry summer.

I think a grower would be better off if he could buy insurance for irrigated crops

at a level that would work at his needed rate of return. Input costs are often simply

too high in relationship to the insurance payments you get back. Crop insurance

doesn’t consider how much money an irrigated grower has to put into a crop. It only

looks at the end result.

The farm programs and crop insurance programs the Federal Government offers

are vital to not only farmers, but for our rural communities whose economies are

built around agriculture. Without farm programs, especially crop insurance, Main

Street businesses in our rural communities would really be suffering. As a person

involved in the banking business, I can say that if it wasn’t for crop insurance,

many more farmers in my area would be forced to make the decision to quit farming. Insurance has really helped growers in my area this year. But in ironic contrast, in a neighboring county where growers were able to harvest a little, those people are actually in worse shape financially.

But even with crop insurance, our local businesses are suffering. When times get

tough, producers tighten the belt as much as possible. They’re not buying parts to

repair their equipment, and because it’s so dry they’re certainly not buying new

equipment. They’re also not buying new vehicles, new clothes and they’re not eating

out or going to as many movies either. Whether you’re a merchant who sells tractor

parts or toys, you’re being hurt by the farm economy.

A proposed program that is aimed at helping farmers and conserving water in the

aquifer is Senator Sam Brownback’s Irrigation Retirement program. I have mixed

feelings about the program.

From a grower’s viewpoint, farmers with the small wells in my area could benefit

because they could recoup some of their investments and help their bottom lines by

entering into a program that would pay them to retire irrigation on farmland.

From a Main Street viewpoint, taking irrigation out of a community will definitely

hurt local businesses. There is a lot of money spent in communities that have business built around irrigated farming. They say that every dollar spent turns over

seven times in a community, and if you take those dollars away, it will hurt our

rural communities.

Until now, you could find me on a tractor working in a field, or in my pickup,

driving from field to field checking my crops and my irrigation wells. My tools were

pliers and a grease gun. Now you can find me behind a desk at my local bank, with

a pen and calculator, hoping to help my neighbors patch together a combination of

financing, insurance and farm programs to help them survive another year.

When you work on a broken down combine, you have to decide if it just needs

some adjustments, or a complete overhaul. If you know what you’re doing and understand what the problem is, you can probably fix it with a few adjustments and

a couple of new parts. I think that is the case with our farm programs and crop

insurance. That’s why I appreciate the opportunity to give testimony at this subcommittee hearing. I hope I’ve helped you understand what’s broke. I hope we can

come up with some adjustments and a few new parts to fix it.

STATEMENT OF CURTIS GRIFFITH

I appreciate the opportunity to testify today before the committee and I especially

appreciate the members taking time to travel here to better understand the challenging situation facing producers in our area.

City Bank is one of the largest lenders for crop production in Texas. The success

of our institution has been driven largely by the ability of producers to repay each

year’s operating loans. The uncertainty of our weather, the increasing volatility of

the market price of our major crops and the continuing squeeze of producers’ profit

margins has made this lending more challenging each year. In addition to my duties

at the bank, I am an active farmer and know first-hand how hard it is to make ends

meet in today’s agricultural economy.

Today, I will direct my comments to both the commodity programs and the Crop

Insurance Program. First, I want to commend the members and staff of this committee that helped to craft the Farm Security and Rural Investment Act of 2002.

The provisions of this program do provide a good safety net for producers in times

of ruinously low prices while significantly reducing the costs to taxpayers in times

of better prices. As a lender, we can better predict the amount of revenue that will

be available for loan repayment and be in position to adequately fund good production practices.

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I know that the current program is under attack from those who believe that payment limits are set too high. As a banker and a producer of irrigated cotton in West

Texas, I can assure you that if more stringent limits are imposed, the program will

be unworkable for a significant portion of producers in this area. Cotton is an expensive crop to produce and the necessary equipment costs from ten to even fifty times

what it cost when I began farming. Because of these costs, a workable farm program

for cotton must offer much higher per acre support levels than for some other crops.

Several of our bank customers are impacted by the current limits and these are not

corporate-owned mega-farms depicted by some program critics. They are familyowned farms that have been well-managed in prior years and grew by both adding

land and, more importantly, improving production practices on the land for better

yields and better conservation of land and water. Even with the best management,

these producers are not ‘‘getting rich.’’ In many if not most cases, the wife is working at a non-farm job and often the husband is also working at some part-time or

seasonal job to bring in extra income. I cannot emphasize enough that a significant

restructuring of payment limitations will not just reduce the profitability of these

family farms, it will probably put them out of business.

I also know that the entire U.S. farm program is under attack by foreign interests

and others who believe that it is morally wrong for our government to subsidize crop

production in this country while low commodity prices in developing countries make

life difficult for their farmers. The cotton program has recently been a favorite target for some in the media. Those who hold this view are seeking an overly-simplistic

solution to a very complex problem. They believe that without subsidies, U.S. producers would significantly reduce the amount produced in this country, other major

producing countries would not increase production in response to the hoped-for price

increase and the state-controlled marketing organizations in the poorer nations

would pass the price increase on to their producers. History indicates that none of

these are likely outcomes. Perhaps in a perfect world no government would pay subsidies to producers of any product or restrict in any manner the importation of any

product from any other country. We obviously do not live in a perfect world. I believe that a strong farm economy is necessary for both the economic well-being of

this country and for its long-term security. We must not be apologetic for our efforts

to maintain that strength.

The Crop Insurance Program is a very important component of farm policy for our

area. Today’s production practices require the producer to invest a substantial part

of his operating budget in fertilizer, herbicides, irrigation and seed prior to his crop

even emerging from the ground. If harsh weather causes the loss of that crop during

the first few weeks of its existence, the producer will have a major financial loss

with little or no opportunity to recoup it with a secondary crop. As a lender, we calculate each year how much net proceeds a producer will receive in the event of a

total crop loss and rely very heavily on that number plus the producer’s expected

program payments when deciding how much we are willing to lend. Without this

insurance, I assure you that we would greatly reduce the total amount of our farm

lending at City Bank.

I would like to address three issues regarding crop insurance that are important

to those of us who farm in West Texas. First, we need some mechanism to allow

a producer to insure based upon cost of production. Several of our non-irrigated producers have been trapped in a downward spiral after several years of drought or

other weather-related losses. They can only insure their crop at such a low dollar

amount that we, as a lender, will not loan them enough money to make their best

attempt at producing a crop and therefore, even when they have good weather, their

crops will noT-yield enough to bring up their production average enough to materially improve the amount of insurance they can obtain the following year. I am not

asking for the ability to insure a profit for a producer, but I believe that many producers would purchase insurance, even at a greater cost, that would allow them to

obtain enough financing to at least try to make a crop.

Second, there is concern about how RMA will treat insurance of crops planted

after the loss of the primary crop. The Agricultural Risk Protection Act of 2000 requires that the loss payment on a first crop be limited to 35 percent of the total

indemnity when there is a loss on a second crop on the same acreage. In most cases,

the producer will be required to purchase insurance on the second crop, either by

his lending institution or because of agreements with FSA related to receipt of prior

disaster payments. RMA has stated that if the producer is not ‘‘paid an indemnity’’

on the second crop, there is no reduction of coverage on the first crop loss and that

the producer can choose to forgo an indemnity payment or withdraw a claim for second crop acreage. This statement is based on RMA’s interpretation of the intent of

ARPA, and I would encourage the committee to support this interpretation and to

incorporate it into any new legislation that may develop. Otherwise, the attempt to

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prevent the receipt of full indemnity for two crops on the same acreage in the same

year could have the unintended consequence of so drastically reducing the indemnity actually received that the producer is left in a worse position than if he had

never insured his crops at all.

Finally, I urge the committee to work to maintain and strengthen the current system of private delivery of crop insurance with USDA oversight and support. If commissions paid to the private companies are substantially reduced in the next Standard Reinsurance Agreement, we face the risk of additional financial failures among

those companies and a weakening of their efforts to reduce fraud and abuse by unscrupulous producers. We should all be working to increase the number of producers

nationwide who participate in crop insurance. The perception that some providers

are financially-troubled and the perception that a small group of producers regularly

abuse the system are both serious negatives in that effort.

Thank you again for your time and attention.

STATEMENT OF JOE BROWN

Mr. Chairman, members of the committee, it is an honor for me to appear before

you to provide my perspective on the Crop Insurance Program. I am Joe Brown. I

have been a crop insurance agent here in Lubbock, Texas since 1980, when delivery

of the program was privatized. I sell crop insurance to producers in New Mexico,

Oklahoma and Texas for the crops of cotton, corn, grain sorghum, soybeans, peanuts

and wheat. Like many farmers, my agency is family owned and operated; my son

joined my business in 1996.

Over the last several years I have seen the difference crop insurance has made

for producers. Mainly, they have been able to continue farming after their crops

were destroyed by a natural disaster. The Crop Insurance Program is a very successful government program delivered professionally by the private industry. It provides timely financial assistance to farmers who have experienced crop losses. I

want to emphasize the program is working. However, I wish to bring to the subcommittee’s attention a few items regarding the Crop Insurance Program that concerns the producers and their lenders, the crop insurance companies and many

other agents, like myself:

• Lack of uniform guidance from RMA frustrates all stakeholders;

• Threats to economic viability of industry threatens service to Southwestern producers;

• RMA should use its current authority to counter fraud;

• Limitation on coverage of two crops puts producers at risk.

LACK OF UNIFORM GUIDANCE FROM RMA FRUSTRATES ALL STAKEHOLDERS

The most frustrating thing to my insured producers and me is the fact that RMA

does not provide uniform guidance on policy interpretations or compliance requirements. RMA is quick to criticize that agents are not doing their job to properly deliver the program; I take exception to that position when RMA does not step up to

provide clear directives. Many times agents and companies are caught in the middle

of trying to understand how RMA will construe a term or policy provision, when

RMA will not provide uniform guidance. It is not unusual for different companies

to explain the same provision to agents differently, leaving us agents, confused and

frustrated, as we try to explain the rules to our insured producers who become bitter with the many rule changes and confusing interpretations.

As an agent, I have seen my errors and omissions (E&O) coverage soar due to

the complexity of the program and the lack of upfront guidance from RMA to assure

that all parties are on track, companies and agents. Sadly, usually the only time

agents get any directives from RMA is when Compliance comes down on them after

the fact possibly a few years later.

In order to maintain customer satisfaction it is imperative that companies and

agents be able to obtain timely uniform guidance from RMA headquarters and the

regional offices.

THREATS TO ECONOMIC VIABILITY OF INDUSTRY THREATENS SERVICE TO

SOUTHWESTERN PRODUCERS

Last November we lost the largest writer of crop insurance, American Growers

Insurance Company, which wrote nearly $600 million in crop insurance premiums.

In addition, Rural Community Insurance Services has taken over the crop insurance

business of Fireman’s Fund. So, in less than six months, the industry has lost two

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of the top four companies servicing the program. Other companies are not lining up

to jump into this business they are certainly not moving into the Southwestern U.S.

In many areas, agents and producers have few choices for crop insurance companies.

I am concerned as the threats to the companies’ economic viability continues, there

will be even fewer choices. If there are fewer choices, service to farmers will suffer.

In my opinion, the greatest reason for the loss of companies in the crop insurance

industry is the uncertainty of dealing with the government. These reasons include:

(1) annual threats from the Executive Branch and Congress to cut the administrative and operating (A&O) expense reimbursement to companies or to cap the potential underwriting gains, (2) the increasing complexity of the program—there are additional last minute regulatory changes each year which are difficult to implement

and (3) uncertainty each year as to whether the government will attempt to change

the terms of the Standard Reinsurance Agreement, in particular the profit/loss sharing parameters. Annually, these factors bring financial uncertainty to companies

and their reinsurers. These financial pressures are only passed on to the agents.

RMA has indicated it will renegotiate the SRA with the companies for the 2005

reinsurance year. Most of us in the industry are concerned that it taking so long

for the proposal to come from RMA. We fear that delay will place more financial

pressures and uncertainties on the companies making them rethink where they

want to do business.

As companies must purchase more than 50 percent of the reinsurance from the

open market it is imperative the terms of the proposed SRA contains terms that will

provide financial stability to the industry. In addition, the SRA should include terms

to encourage new companies to enter the program and provide terms, which makes

it attractive for companies to operate in high-risk areas.

I also understand there have been some signs that RMA is interested in capping

agents’ commissions and implementing a national certification for the agents in the

SRA. Since 1996, I have been working for less money each year, due to reductions

in commissions, reduced premiums due to lower crop prices, and higher costs to

service the products. Crop insurance agents must meet the certification requirements of the States in which they operate; in addition they are trained by the companies they sell crop insurance. Another certification requirement is not going to enhance the program, if RMA continues to fail to provide agents and companies with

straightforward guidance to deliver the program. I recognize the SRA is the agreement between RMA and the companies, but I am very concerned if RMA starts

making changes which directly impact the agents, without input from all stakeholders impacted by the changes, not only we agents, but the producers and their lenders. RMA has not informed the agents if we will have a voice in this negotiation

process.

RMA HAS SUFFICIENT AUTHORITY TO COUNTER FRAUD

The crop insurance industry is not immune to fraudulent schemes by persons

wishing to abuse the system. Fraud costs everyone. Companies, agents and loss adjusters work hard to crack down on those who wish to take advantage of the system.

The companies are actively training agents and loss adjusters on fraud detection.

Furthermore, there is ample Federal authority to combat any fraud and abuse problems under current law. The Agriculture Risk Protection Act of 2000 (ARPA) increased sanctions that can be imposed on producers, agents and loss adjusters for

program abuses. Not only can producers be barred from the program, but also RMA

has the authority to disqualify agents and loss adjusters for up to five years from

participating in the program. Unfortunately, I think there are a few bad apples that

are giving the entire pool of agents a bad reputation. If RMA would utilize their

enforcement tools and bar the abusive agents and loss adjusters, it would prevent

them from transferring to unsuspecting companies every few years, thus perpetuating the problem.

LIMITATION ON COVERAGE OF TWO CROPS PUTS PRODUCERS AT RISK

The last issue I want to address today was a change that was incorporated in the

Agricultural Risk Protection Act of 2000 (ARPA), which RMA will be implementing

for the 2004 crop year, the double insurance provision. Under this ARPA restriction,

if the producer has a loss on the first crop, he can receive 100 percent of the insured

loss for the crop and not insure the second crop. The other choice for the producer

is to calculate the loss for the first crop, receive 35 percent of the eligible indemnity,

plant and insure the second crop. If there is a loss to the second crop he can receive

a full indemnity for the second crop, but he has to forgo any additional indemnity

for the first crop. If the producer is fortunate and has no loss to the second crop,

he can obtain the balance of the indemnity payment for the first crop, after he has

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harvested the second crop. At the end of the year, the premiums for the two crops

will be adjusted according to percentage indemnity received for the crop. This ARPA

provision makes a sound risk management tool risky even to the best producers as

it weakens their financial safety net.

This limitation on coverage will discourage many producers, as they will not know

until the end of the crop year what their crop insurance coverage will be, or the

cost of their premium. In addition, the producers lenders will be disturbed; they will

not have a clear picture of what their security interest will be when providing the

producer with operating loans, as they also will not know if the crops will be fully

insured. This will cause cash flow problems for producers as they try to obtain operating loans for the entire crop year, when only 135 percent of two crops can be insured. Producers who have a loss on their first crop will likely find it difficult to

plant the second crop, without funds from harvesting the first crop, a reduced indemnity payment and uncertainty if the lender will back a second crop with out full

insurance.

Furthermore, this provision will be a nightmare to administer I’m not just talking

about explaining it to the producer, but also the difficulty it is going to cause for

the insurance companies and agents, as we will have to track and book the fluctuating premiums. It will create an enormous accounting complexity for companies and

agents as we try to properly classify the premiums. I anticipate there will be additional costs to service this provision, as the producer determines after the second

crop which crop will receive the full indemnity.

I recognize the reason behind this provision in the ARPA legislation was curtail

abuse of the program when three or four crops were insured. However, this provision will harm all producers who double crop. I strongly encourage the committee

to modify this provision with legislation that would provide 100 percent coverage for

two crops planted in one calendar year. This would be an equitable solution, as it

would provide the producer with some financial certainly regarding his crop insurance coverage while limiting the coverage to two crops.

Crop insurance is a very successful program delivered by private industry. It is

a very important risk management tool for farmers, but in order to provide them

with financial certainly the industry needs to be provided some level of financial stability to maintain service to all areas of the country. Just as important as financial

strength, we need a strong RMA—an agency that will provide clear directives to assist with delivery of the program and will utilize its authority to enforce the rules

against those who abuse the program.

Thank you again for your invitation, I hope my perspective has been informative

and I will be happy to respond to your questions.

This written statement is offered as additional testimony for submission to the subcommittee for further consideration of my position on crop insurance.

It is my understanding that testimony is accepted 10 days after the hearing date.

The positions discussed here concern (1) second crop insurance, (2) A & O disbursement, (3) crop insurance agent’s compensation and other matters of importance for

consideration:

The current rule indicating that second crops, planted after the primary crop is

lost, should not be insured is further eroding the farmer’s ability to stay alive. Both

crops should be fully insured. This will help the farmer have a better cash flow situation with his lender. Primary crop expenses are generally all that is being recovered by its indemnity. In some parts of the country double cropping is standard procedure such as wheat and soybeans or wheat and peanuts. Insuring the second crop

will allow a farmer to obtain loans in an attempt to make his one and only crop

for the year. A suggestion here would be to pay losses on only two crops per year

on the same ground. This it seems to me would alleviate a great deal of angst by

those who feel there has been misuse of second crop insurance.

I don’t intend to cover the same ground as my oral testimony but if the intentions

of government are followed as indicated in 1980 to turn delivery of crop insurance

over to private industry, then compensation to companies should be adequate to assure successful delivery. It seems that more competition, not less, would be better.

Because congress decided that private industry was the way to go, it should be

noted producer participation has brought tremendous success to the program. Further reductions to A&O expense will only drive more companies out of this program,

further weakening it and reducing creativity of new products for the producers.

It seems there has been considerable hue and cry about crop insurance agent’s

compensation around the halls of congress. I’m sure every Congressman has been

fed considerable fodder indicating agents are getting rich. The average size policy

is approximately $3,100 in gross premium here in the Southwest. There are many

of my colleagues receiving only single digit commission on their policies. Each policy

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has three stages of data collection at different times of the year, plus field inspections, mapping at agent’s expense and other services to support FSA office requests

for information on each insured. In addition we make virtually nothing on a CAT

policy for all the same work. The accuracy of the data collected is so paramount that

one mistake can result in denials of claims and other punitive actions. As a consequence our E&O premiums have greatly escalated. Also, the expense in keeping

up with regulatory burdens is another facet of business in which we are involved

just to make sure we deliver the best service to producers. Whereas, standard insurance mistakes for houses or cars simply result in corrections to the coverage. When

the agent is charged to deliver a product that is ambiguous at times and explain

to the farmer what he can or cannot do, it can be arduous and expensive. When

underwriting gains for companies are more flush then agents commissions may rise

in areas where loss ratios are low. Conversely, where loss ratios are high the agent

may be paid less because the gains are less. Nationwide, agents are not being overpaid to deliver the product congress gives us and to make sure the producer is in

compliance in case of a claim.

Fraud is the byword used for rule changes and laws passed to make the product

‘‘better’’. RMA has the tools to take care of fraud. Protecting the honest agent and

farmer from the dishonest ones should be done with the surgeon’s scalpel and not

a meat cleaver. There have been some successes in getting rid of some bad apples.

But agents in general get painted with the broad brush and lumped in with the bad

ones. There have been instances where wrongdoing has been reported but has not

been investigated. Again, let the system work. It may need tweaking but not a complete overhaul. If you have any questions please give me a call.

STATEMENT OF THOMAS O. KNIGHT

Mr. Chairman and members of the committee, I would like to express my appreciation for the opportunity to appear before you today to address a set of issues that

are important to agricultural producers in the Western Plains and other regions of

the U.S. As a university faculty member whose research over the past fifteen years

has concentrated almost exclusively on crop insurance, I will focus my comments on

issues relating to the Federal Crop Insurance Program.

When I began conducting crop insurance research in the late 1980s there was considerable frustration with the program. Two primary concerns were participation

rates far below anticipated levels and excessively high program loss ratios. These

concerns and other crop insurance issues were addressed by Congress in the Federal

Crop Insurance Commission Act of 1988; the Food Agriculture, Conservation, and

Trade Act of 1990; the Crop Insurance Reform Act of 1994; and the Agricultural

Risk Protection Act (ARPA) of 2000. The results of this legislation and related administrative actions have been a substantial increase in participation rates, marked

improvement in program loss ratios, and a significant expansion of the range of

product offerings for major commodities, specialty crops, and livestock. The Risk

Management Agency is currently pursuing the implementation of sections of ARPA

directed toward further expansion to more specialty crops, better tailoring of products to meet the needs of producers in underserved states, and providing effective

risk management educational programs for producers throughout the country.

While I strongly believe the Federal Crop Insurance Program has achieved its intended mission of serving as the cornerstone of federal risk management programs

for the Nation’s farmers and ranchers, there will always be new issues to be addressed. The problem of severe, multiple-year disasters is the one I will focus on

today. Before moving to a discussion of possible program modifications to more effectively mitigate the effects of such disasters, I think it is important to provide some

perspective on the magnitude of the regional disaster with which we are currently

confronted. In doing so, I will use non-irrigated cotton yields in three Texas Southern High Plains counties for illustrative purposes.

The counties I examined are Dawson, Martin, and Lubbock. All are major cotton

producing counties. Roughly 80 percent of total cotton acreage in Dawson county is

non-irrigated, compared with 90 percent for Martin county and about one-third for

Lubbock county. In Dawson county, the average non-irrigated cotton yield during

the 24 year period from 1972-1995 was 278 pounds per acre. The average yield during the seven-year period from 1996-2002 was 143 pounds per acre. In Martin county the 1972-1995 average yield was 303 pounds per acre, compared with a 1996-

2002 yield of 120 pounds per acre. Non-irrigated yields in Lubbock county were 271

pounds per acre for the 1972-1995 period and 203 pounds per acre from 1996-2002.

What these average county yields illustrate is that the multiyear disaster we are

confronting in this region is of long duration and truly catastrophic magnitude.

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I think it is important to recognize that the Federal Crop Insurance Program has

helped mitigate the financial consequences of the current multiyear disaster in the

Southern High Plains. One measure of the Program’s effect is net crop insurance

payments (indemnities-producer premiums) on all crops during the period 1996-

2002. The net cash inflow from crop insurance into the sixteen Southern High

Plains counties was $80 million in 1996, $152 million in 1998, $61 million in 1999,

$121 million in 2000, $198 million in 2001, and $50 million in 2002. In one year,

1997, producer premiums exceeded indemnity payments by $3 million. Over the

seven year period these net payments total $659 million, with producers receiving

$3.12 in indemnity payments per dollar of premium paid.

While crop insurance indemnity payments clearly can and have reduced the effects of a multiyear disaster, the effectiveness of the program during and after the

disaster period is affected by the influence of the disaster on producers’ APH yields

(i.e., the yields upon which their insurance coverage offerings are based). I will use

Dawson County, Texas average NASS yields for non-irrigated cotton to illustrate

this effect. A producer insuring in Dawson County in 1996, who provided yield

records based on 10 years of actual yield history equal to the county yields for the

period, would have had an APH yield of 281 pounds per acre. By 2003, the same

producer’s APH yield (again assumed to be equal to the county average) would have

declined to 193 pounds per acre. This represents a 31 percent decrease in the yield

upon which the producer’s insurance coverage offerings would be based. Clearly,

such a reduction in insurance coverage offered to the producer at any coverage level

significantly diminishes the effectiveness of crop insurance as a risk management

tool. In the remainder of my comments I will address the strengths and weaknesses

of mechanisms already in place to dampen the effects of such yield declines, and

some additional approaches that might be incorporated into crop insurance programs to further reduce these effects.

The primary mechanisms currently in place to mitigate the effects of catastrophic

years on producers’ approved APH yields are yield cups, yield floors, and yield substitution. A yield cup places a maximum on the amount by which a producer’s approved APH yield can decline from one year to the next. The current cup limits that

decline to 10 percent. A yield floor places a minimum on a producer’s approved APH

yield. The currenT-yield floor depends on the number of years of actual yields in

a producer’s APH records. In most regions the floor is 70 percent of the county Tyield for producers with one year of actual yield records, 75 percent of the county

T-yield for producers with 2-4 years of records, and 80 percent of the county T-yield

for producers with five or more years of records. Yield substitution procedures were

established in the ARPA. This provision allows substitution of a yield equal to 60

percent of the county T-yield for any year when a producer’s actual yield is below

that level. Clearly, yield cups, yield floors, and yield substitution all reduce the effect of catastrophic years; however, the relevant questions are whether changes to

any of these mechanisms would afford significant additional protection against

multiyear disasters and whether the protection offered would provide reasonably equitable treatment to all producers.

In my opinion, the primary advantage of yield cups, yield floors, and yield substitution is simplicity. The procedures for implementing these provisions are fairly

straightforward and easily understood by all involved in the program. However, I

believe all three have significant weaknesses as tools for addressing the problem of

multiyear disasters of long duration. Analysis I have done indicates thaT-yield cups

are most useful in reducing the effects of crop disasters of two or three year duration. When a disaster is of longer duration the current 10 percent cup has little effect on the long-term APH yield decline. Further, my analysis suggests that raising

the cup to a maximum 5 percent annual decline would have modest additional benefit. In an extended disaster, the effectiveness of both yield floors and yield substitution would be undermined by declines in county T-yields. Also, I believe there are

important equity considerations relating to yield floors and yield substitution. It is

clear that the benefits of both of these mechanisms are greatest for producers whose

normal or expected yields are low, and that the benefits may be very limited for

high-yield producers in the same county. For example, an 80 percenT-yield floor has

great benefit for a producer whose expected yield is 60 percent of the county T-yield,

but likely very little benefit for a producer whose expected yield is 50 percent above

the county T-yield. Similarly, the protection offered by yield substitution, at the current 60 percent level or some alternative higher level, is greatest for low-yield producers and least for producers with high normal yields. Therefore, I believe other

mechanisms for dealing with multiyear disasters are worthy of consideration.

Two alternative approaches that I believe are worthy of consideration as alternative mechanisms to deal with multiyear losses are yield indexing and premium

subsidy enhancements. These approaches are related in that the premium subsidy

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enhancements would be structured off of a yield index. In discussing these issues,

I will first treat what I will refer to as full indexing. Then I will discuss a disaster

index that could be used in either of two ways—to support corrections to APH yields

in periods of multiyear disaster or to support premium subsidy enhancements in

those periods.

Full indexing would constitute a significant change to the APH yield insurance

program. It would involve calculating the relationship, in absolute difference or proportionate form, between historical yields for the insured unit and county average

yields in the same years. A predicted county yield for the insurance year, based on

a longer county yield time series, would then be adjusted to the unit level based

on the relationship between the unit and county level yields. If the county has truly

experienced a string of bad luck, the index should give the recent disaster years less

weight in predicting next year’s expected yield. Several approaches could be taken

in constructing such an index, and it would appear inappropriate to institute such

a change without first carefully examining which method would provide the most

accurate measure of a unit’s expected yield. Further, it would be critical to determine the extent to which such an approach would mitigate the effects of extended

multiyear disasters. While this approach has considerable appeal, there would be

significant disadvantages. First, the approach is relatively complex and difficult to

understand. Second, producers would likely react negatively to the fact that this approach would actually reduce their approved APH yields in periods of above average

yield experience. Finally, incorporating such a change into the APH yield insurance

rates, or into the revenue product rates, would likely necessitate significant adjustments to the product rates.

A simpler indexing approach could be formulated to trigger adjustments to current APH yields only in multiyear disaster periods. A long time series of county

yields could be used to identify periods satisfying predetermined criteria for

multiyear disaster treatment and to determine the appropriate adjustment factor to

be applied to producers’ APH yields. It might be possible to use the rate of decline

in GRP program county yields to formulate an appropriate index. An advantage to

this approach is that it would be simpler and more easily understood than full indexing. Further, it would not result in a reduction in approved APH yields in periods of above average yield experience. Finally, though some rate adjustments would

be appropriate, it is less likely that this type of index would require a comprehensive re-rating of the APH yield product or of the revenue products. Thus, it should

be possible to implement such an indexing procedure more quickly than would be

feasible for full indexing.

The final approach I will discuss for dealing with multiyear disasters is premium

subsidy enhancements. The idea behind this is that the fundamental problem created by multiyear disasters is that producers’ APH yields are driven down such that

the yield coverage obtained at any given coverage level is much lower than before.

A premium subsidy enhancement could be structured to allow producers to purchase

higher coverage levels, at reduced cost, in multiyear disaster periods. This could

mitigate the effects of declining APH yields on the coverage a producer could obtain

at a given cost. Predetermined criteria could be established for the triggering of a

subsidy enhancement and determination of the amount of additional subsidy on the

basis of a county-yield based disaster index as described above. A strength of this

approach would be that it would require no change in APH yield calculation procedures or in insurance program rate structures. Thus, it could provide a mechanism

for dealing with relatively rare multiyear disasters of long duration that would not

affect the functioning of the insurance program in periods of normal yields and in

regions where such disasters almost never occur. Clearly, such a mechanism would

involve increased government cost when subsidy enhancements are triggered. The

amount of those costs would depend on the exact design and approach taken.

Again, Mr. Chairman, I appreciate the opportunity to testify before the committee.

I will gladly attempt to answer any questions about my comments or related issues.

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