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22–647 PDF 2006

S. HRG. 109–509

TO REVIEW THE AGRICULTURAL RISK

PROTECTION ACT OF 2000 AND RELATED

CROP INSURANCE ISSUES

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 28, 2005

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

STEVEN MEEKS, Majority Legislative Director 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

To Review the Agricultural Risk Protection Act of 2000 and Related Crop 

Insurance Issues ................................................................................................... 01

Tuesday, June 28, 2005

STATEMENTS PRESENTED BY SENATORS 

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 24

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 10

Conrad, Hon. Kent, a U.S. Senator from North Dakota ...................................... 18

Crapo, Hon. Mike, a U.S. Senator from Idaho ...................................................... 01

Grassley, Hon. Charles, a U.S. Senator from Iowa ............................................... 13

Lugar, Hon. Richard, a U.S. Senator from Indiana .............................................. 07

Nelson, Hon. Ben, a U.S. Senator from Nebraska ................................................ 15

Roberts, Hon. Pat, a U.S. Senator from Kansas ................................................... 17

WITNESSES 

Babcock, A. Bruce, Director, Center for Agriculture and Rural Development, 

Iowa State University, Ames, Iowa .................................................................... 36

Brichler, Ron, American Association of Crop Insurers, Cincinnati, Ohio ........... 25

Buttars, Ray, Chairman, Domestic Policy Committee, National Association 

of Wheat Growers, Weston, Idaho ...................................................................... 38

Collins, Keith, Chief Economist, U.S. Department of Agriculture, Washington, 

DC .......................................................................................................................... 02

Clemens, Mike, Wimbledon, North Dakota, on behalf of the American Soybean Association National Sunflower Association and U.S. Canola Association ........................................................................................................................ 37

Davidson, Ross J. JR., Administrator, Risk Management Agency, U.S. Department of Agriculture, Washington, DC ................................................................ 04

Little, Bert, Assistant Vice President for Research and Professor of Computer 

Science and Mathmatics, Tarleton State University, Stevenville, Texas ........ 35

Nielson, Norman A., On Behalf of the Independent Insurance Agents Brokers 

of America, Preston, Iowa .................................................................................... 27

Rose, Billy, President and Chief Executive Officer Crop 1 Insurance, 

Urbandale, Iowa ................................................................................................... 28

APPENDIX 

PREPARED STATEMENTS: 

Harkin, Hon. Tom ............................................................................................ 46

Stabenow, Hon. Debbie .................................................................................... 179

Babcock, A. Bruce ............................................................................................. 166

Brichler, Ron ..................................................................................................... 76

Buttars, Ray ...................................................................................................... 175

Collins, Keith .................................................................................................... 48

Clemens, Mike .................................................................................................. 171

Page

IV

PREPARED STATEMENTS—Continued

Davidson, Ross J. Jr ......................................................................................... 57

Little, Bert ........................................................................................................ 161

Nielson, Norman A ........................................................................................... 107

Rose, Billy ......................................................................................................... 125

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Testimony of Leon Corzine, President of the National Corn Growers 

Association ..................................................................................................... 184

Tetimony of the Insurance Research Bureau, Inc ......................................... 187

Testimony of the Natonal Grain Sorghun Producers .................................... 193

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD: 

Chambliss, Hon. Saxby .................................................................................... 196

Baucus, Hon. Max ............................................................................................ 202

Conrad, Hon. Kent ........................................................................................... 210

Grassley, Hon. Charles E ................................................................................. 213

Nelsen, Hon. Ben .............................................................................................. 218

Roberts, Hon. Pat ............................................................................................. 223

(1)

TO REVIEW THE AGRICULTURAL RISK PROTECTION ACT OF 2000 AND RELATED CROP 

INSURANCE ISSUES 

TUESDAY, JUNE 28, 2005

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC. 

The committee met, pursuant to notice, at 10:10 a.m., in room 

SR–328A, Russell Senate Office Building, Hon. Saxby Chambliss, 

[Chairman of the Committee], presiding. 

Present or submitting a statement: Senators Chambliss, Lugar, 

Roberts, Crapo, Grassley, Harkin, Conrad, and Nelson. 

STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM 

IDAHO 

Senator CRAPO [presiding]. The hearing will come to order. As 

you can see, I am not Senator Chambliss, but he will be here soon 

and we wanted to get this hearing started so that we can continue 

and keep on time. It is a very busy morning. I, myself, have three 

hearings at this exact time and I suspect that is about the way it 

is with every other Senator this morning, so you will probably see 

a number of people coming in and going throughout the morning. 

It is not to indicate a lack of importance of the topic, it is just to 

indicate how things are starting to hop around here. 

This hearing is to review the Agricultural Risk Protection Act of 

2000, and I would like to welcome all of our witnesses who are here 

with us today. I especially want to welcome Ray Buttars, who traveled from Idaho to take part in this hearing. Ray, who is the father 

of four and is accompanied here by his wife, Melissa, grows wheat 

and barley and corn and alfalfa and beans while serving as the 

President of the Idaho Grain Producers Association and as the 

Chairman of the National Association of Wheat Growers Domestic 

Policy Committee. Ray, we thank you for being here with us to 

share your perspective on Federal crop insurance. 

All of the other witnesses here deserve a special introduction, 

too, but since you are not from Idaho, I don’t have your biography, 

so I will just welcome you here and tell you that we do appreciate 

the attention you give to this important issue. 

Farmers and ranchers are at the mercy of Mother Nature, and 

plant and animal diseases, fluctuating markets, and rising production costs. With all the challenges of farm families that we are 

faced with, it is essential to ensure that producers have access to 

2

the risk management tools necessary to rebound quickly when disaster strikes. 

That is why I was proud to support the enactment of the Agricultural Risk Protection Act. This law has made significant enhancements to the Federal Crop Insurance Program and I commend the 

Department of Agriculture for the variety of different programs 

that have been developed and tailored to the particular needs of 

many diverse commodities. 

More producers are utilizing Crop Insurance Programs. Idaho is 

a great illustration of this. In 1994, Idaho producers signed up for 

a total of $97 million worth of liability coverage through Risk Management Agency programs. This year is expected to be a record 

high for coverage in Idaho, with more than $600 million in coverage. This is due in large part to substantial work and dedication 

of the RMA staff toward educating producers about the availability 

of products and working with the agriculture community to ensure 

that the products fit the needs of the farms. 

As farm risk management needs change, we must continue to review and adapt our Federal Crop Insurance Programs, and today’s 

review of ARPA and the discussion will help us toward ensuring 

that farm families have the implements necessary to face whatever 

might come their way. 

Now, as other members of the committee arrive- and I will have 

to check with the chairman’s staff- will they be allowed to make 

opening statements, or do we want to pass that and get right on 

with testimony? 

All right. We are going to go ahead with testimony and I will let 

the chairman decide what to do with the statements of other members when they arrive. 

So with that, we will start with our first panel. I don’t know 

what Chairman Chambliss does on this, but we would like to restrict your testimony to 5 minutes. We do have three panels today 

and I know the Senators who are here are going to want to have 

an opportunity for dialog with you. My experience is that neither 

I nor anybody else can ever get everything that they want to say 

into 5 minutes. Your written testimony will be made a part of the 

record, but we do ask you to try to pay attention to the 5–minute 

clock, and then when it winds down, wrap up your testimony. 

With that, we will start with our first panel, which is Dr. Keith 

Collins, the Chief Economist of the U.S. Department of Agriculture, 

and Mr. Ross Davidson, who is the Administrator of the Risk Management Agency. Gentlemen, we will have you go in that order. 

Dr. Collins? 

STATEMENT OF KEITH COLLINS, CHIEF ECONOMIST, U.S. 

DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Mr. COLLINS. Thank you very much, Mr. Chairman. We thank 

you and Mr. Chambliss for inviting Mr. Davidson and me to participate in today’s hearing on the performance of crop insurance 

under ARPA. 

I will briefly discuss the role under ARPA of the Board of Directors of the Federal Crop Insurance Corporation, of which I am the 

elected Chair. The Board has general management responsibility 

for FCIC. The primary activities of the Board under ARPA include 

3

approving new products, improving and expanding existing products, establishing priorities for the Federal Crop Insurance Corporation, evaluating the FCIC’s products, improving Board operating processes, and dealing with a range of other issues, including 

premium reduction plans. 

The Federal Crop Insurance Program is growing. I think it is 

getting better every year, and I believe today it is serving the 

needs of the public well. Acreage in the program and insured liability reached record highs last year and farmers are increasingly 

turning to crop insurance as more products are being developed 

and approved for more crops in more regions of the country. 

In the 5 years under ARPA, the Board has met 46 times, compared with 28 times in the 5 years prior to enactment of ARPA. 

The increased activity reflects the submission of private products, 

as provided under Section 508(h), and the requirement that the 

Board use independent expert reviewers in its deliberations, as 

well as the need for the Board to take action with respect to numerous pilot programs and research products. 

Under ARPA, over 200 individual independent expert reviews 

have been conducted on over 40 submitted crop insurance products 

and program modifications. Examples of some of the products approved include the Livestock Risk Protection pilot plan of insurance 

for swine, fed cattle, and feeder cattle; the Livestock Gross Margin 

pilot program for hogs. After BSE and for other reasons, sales were 

suspended on these products, but changes approved by the Board 

made possible the reopening of sales last fall. We had a test of 

these new procedures with the second positive finding last week 

and the procedures appear to have worked well. 

Another Board action significantly expanded Adjusted Gross Income-Lite. First offered in 2003 in Pennsylvania, AGR-Lite has 

been expanded this year to 17 States. The Board believes AGRLite, which covers adjusted gross revenue for the whole farm, can 

potentially fill an important void by appealing to small- to mediumsized producers, particularly of livestock and specialty crops. Sales 

have been slow, and the Board is working with the submitter to 

consider potential changes to improve the product and increase 

sales. 

Some examples of other products approved by the Board during 

the past year include a silage sorghum pilot program, group risk 

income protection for grain sorghum, a new pilot group risk plan 

rangeland program, a new pilot program for sweet potatoes, and 

permanent programs for mustard, mint, wild rice, and cabbage. 

A major issue the Board and RMA continue to face is the provision for a Premium Reduction Plan for producers. Section 508(e)(3) 

of the Federal Crop Insurance Act requires the FCIC to allow approved insurance providers to offer premium reduction plans if 

they meet the legal requirements. In 2002, one company, Crop 1, 

requested Board approval to offer a PRP. In December 2002, the 

Board established certain standards that such a PRP should meet 

and directed RMA to develop additional procedures under which 

Crop 1 and other companies could operate a PRP. 

After that, six additional approved insurance providers, representing over 80 percent of the crop insurance business, requested 

approval for a PRP. Because of the diversity of the plans and the 

4

implementation issues that were raised by their submissions, the 

Board decided that all stakeholders should have an opportunity to 

present their views on PRP, so the Board asked RMA to undertake 

notice and comment rulemaking to establish the framework under 

which PRPs will be evaluated, approved, regulated, and operated. 

The Board created an ad hoc committee that reviewed the proposed rule and has worked with RMA on the development of the 

final rule. After the final rule is issued, the Board plans to review 

with the manager of FCIC all the submissions for approval of a 

PRP. 

That concludes my remarks. 

Senator CRAPO. Thank you very much, Dr. Collins. 

[The prepared statement of Mr. Collins can be found in the appendix on page 48.] 

Senator CRAPO. Mr. Davidson? 

STATEMENT OF ROSS J. DAVIDSON, JR., ADMINISTRATOR, 

RISK MANAGEMENT AGENCY, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Mr. DAVIDSON. Thank you, Mr. Chairman and members of the 

committee. I am pleased to appear before you today to report on 

the progress and challenges of the Federal Crop Insurance Program, particularly to provide an update with regard to the implementation, successes, and challenges of the Agricultural Risk Protection Act. 

In fulfillment of the mandates of ARPA and under the direction 

of the Federal Crop Insurance Board of Directors, the Risk Management Agency continues to promote an aggressive agenda to 

bring new and innovative insurance products to the agricultural 

community, to validate the utility of current insurance products, to 

ensure outreach to small and limited resource farmers, and to promote equity in risk sharing and to guard against waste, fraud, and 

abuse within the program. 

The program has experienced extraordinary growth in the last 

quarter-century, particularly after ARPA. Through the private sector delivery system in crop year 2004, RMA provided approximately 

$47 billion of risk protection to farmers on approximately 370 commodity types covering over 80 percent of planted acreage on about 

221 million acres through 22 insurance plans. Attached to my testimony are several charts that I commend to your review that provide further background and highlight the growth of the Federal 

Crop Insurance Program under ARPA. In 2004, crop insurance provided approximately $3.1 billion in indemnity payments to farmers and ranchers, including approximately $218 million for the four hurricanes in the Southeast and 

approximately $337 million for a brief freeze in the upper Midwest. 

RMA continues to improve and update the terms and conditions of 

the existing crop insurance policies to improve coverage and the efficacy of those policies as well as to clarify and define insurance 

protection and the duties and responsibilities of the policy holders 

and insurance providers, to enhance understanding, use, and integrity of the program. 

The new standard reinsurance agreement is now in place and the 

financial terms of that agreement will be implemented in 2005 and 

5

2006. The regulatory terms are in place currently and we are in 

the process of implementing those through Manager’s Bulletins and 

other means. 

We now have 16 approved insurance providers selling and servicing crop insurance, compared to 14 when the SRA was signed. 

Since the SRA was signed, three new insurance companies have 

been approved. We have also been contacted by another major organization, which has indicated it is in the process of preparing an 

application to join the program. 

The 2004 reinsurance year was exceptionally profitable for the companies and the commercial reinsurers, with an estimated $700 

million in underwriting gain and a return on retained premium of 

approximately 22 percent. This compares to $380 million and a return on premium of about 15 percent in 2003. Of course, 2002 was 

a loss year, with a loss of $46 million for the industry and a minustwo percent return on retained premium. 

The administrative and operating expense reimbursement has also risen, from $626 million in 2002 to $734 million in 2003, with 

an estimated $889 million in 2004. This represents a growth in administrative and operating reimbursement per policy of 45 percent 

over the past 3 years. At the beginning of ARPA, it was just a little 

bit over $400 per policy and slightly over $700 per policy for 2004. 

Now let me briefly highlight a couple of items. We are in the 

process of reviewing comments from the proposed rule for premium 

reduction plans under the Board’s direction and are reviewing 

those with the Office of Management and Budget currently and intend to publish a rule in the near future. The comments have been 

very helpful and we very much appreciate those comments in guiding the agency to establish a rule that will address the concerns 

on discrimination and program integrity. 

Soybean rust continues to be a concern and we are working diligently to make sure that farmers understand their responsibilities 

under the program and that farmers will be covered, assuming that 

they do the right thing by their land. 

Multi-year disasters and declining yields have been a concern in 

this program. We are working now with a couple of potential contractors that we will hopefully award contracts to this week and 

next week to move along in trying to address declining yields in the 

program. 

With regard to program integrity, we have used a number of innovative tools, part of which were funded by ARPA, particularly 

data mining. We are very proud of that initiative, and you have a 

data mining topic on your agenda today. I won’t spend more time 

on that. But we have saved millions of dollars in prevention of 

fraud, waste, and abuse. We do intend to issue a Manager’s Bulletin briefly in the near future on conflict of interest supplementary 

guidance. 

The program is expanding dramatically, Mr. Chairman, including 

a number of areas, like pasture, forage and rangeland and the 

nursery program. We are excited about the things that are moving 

forward and appreciate the support of this committee. 

Senator CRAPO. Thank you very much, gentlemen. 

[The prepared statement of Mr. Davidson can be found in the appendix on page 57.] 

6

Senator CRAPO. I will begin the questioning and then we will go 

to Senator Lugar, who has joined us, and Senator, you will also be 

able to make an opening statement at that time if you would like 

to. 

Dr. Collins, my first question is for you, and let me say, I have 

appreciated the USDA’s willingness to develop a wide variety of 

risk management products for producers with a wide variety of 

commodities. One of those that I am interested in is the sheep industry, the proposal for an LRP pilot project for the sheep industry. 

It is my understanding that there has been some concern about 

that proposal because of the lack of a commodities exchange upon 

which forecasts for sheep prices can be effectively evaluated. 

I am concerned about that, because I understand that a number 

of commodities have futures markets and that those markets can 

be utilized as the basis for insurance programs under the LRP pilot 

approach, but I don’t think the fact that the sheep industry does 

not have a futures market or a price risk management tool should 

preclude them from being able to have access to these kinds of programs. 

So, first of all, I urge the USDA to work with the sheep industry 

to help them manage their proposal or modify it, if necessary, so 

that it can be implemented. But I would like your comments on 

this issue. 

Mr. COLLINS. Sure, Mr. Chairman. This is a difficult issue for the 

Board. We do have effectively functioning livestock price insurance 

products for swine, for fed cattle, and for feeder cattle. We have 

gone down this road, I think, fairly deliberately and have ramped 

up the coverage over a several-year period. 

Senator CRAPO. Let me interrupt you. I have just been called 

away myself, and I am going to have to leave. My staff is here. You 

can finish your answer, but the committee is going to be taken over 

now by Senator Lugar. 

Mr. COLLINS. Just to quickly finish the response, Mr. Crapo, the 

Board of Directors of the Federal Crop Insurance Corporation sent 

a notice of its intent to disapprove an LRP proposal for sheep that 

we had received and considered and had sent out for expert review. 

The reason that we chose to do that was because the insurance 

guarantee in this product is based on projections. We do not have 

insurance guarantees in any FCIC product based on model projections. We use insurance guarantees based on projections in a marketplace where a number of buyers and sellers come together and 

establish a futures price. 

It would be quite a change, or quite a departure in our policy to 

adopt an insurance policy where the coverage is based on a projection from a model. It is on that basis that we issued our notice of 

intent to disapprove this product. The submitter of the product has 

indicated to us that they plan to come back with responses to our 

concerns by the end of calendar year 2005. 

So the LRP sheep product is not dead. It is still alive and we will 

wait and see what the submitter does to respond to the concerns 

of the Board of Directors. 

7

STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM 

INDIANA 

Senator LUGAR [presiding]. Thank you very much. I will raise a 

couple of questions while we are waiting for our chairman to arrive. 

Mention was made by you, Mr. Davidson, of the data mining and 

this has helped to prevent fraud. Precisely how? When you talk 

about the data mining situation that you have employed so extensively and successfully, what does this amount to? How do you go 

about doing this? 

Mr. DAVIDSON. Senator, RMA collects information on farming operations, as you know, as part of the insurance and the reinsurance 

activities of the agency. That information is rich with global information about the general trends in various areas of the country. 

Data mining is simply an analysis tool. As we analyze that information, we are able to identify anomalous activity, things that are 

outside the bounds of what would appear to be normal from the information that we have, such as a higher incidence of losses linked 

with agents, loss adjustors, and particular producers. Trends are 

identified as we do the analysis. 

In and of itself, those anomalous data do not represent that 

fraud is actually taking place, but they do guide our actions. We 

refer those anomalous activities over to the FSA State offices as 

well as to the county offices and there are in many instances, growing season spot checks that take place. That has been very helpful 

as we look at those trends and those anomalous activities. After 

those growing season spot checks and after other notifications to 

farmers that there seems to be something different about their results, we notice a regular decline in those anomalous activities. 

Senator LUGAR. So this mining would pick out rapidly diverging 

trends, big payments and small losses——

Mr. DAVIDSON. Absolutely. 

Senator LUGAR [continuing]. Or some agent that seems to be 

going haywire or whatever. 

Mr. DAVIDSON. Yes, and we just use that to inform our investigation process and our oversight process and it has helped dramatically. We also use data mining actually to take to court and prosecute people who have actually defrauded the government, and 

that has been very helpful. 

Senator LUGAR. I suspect during the hearing, the soybean rust 

problem will bob up in various directions, but you have touched 

upon it in your opening testimony. Just in a nutshell, what does 

a soybean farmer need to be thinking about who has not seen soybean rust in his or her State at this point but is apprehensive and 

wondering, will my crop insurance hold if and when it comes? 

What are the prudential steps, as simply as possible, so every 

farmer in America hearing this will know exactly what to do? 

Mr. DAVIDSON. Well, in the first place, soybean rust is a devastating disease and can act very rapidly. That is different from 

most diseases that affect soybeans, and as a result of that, the 

management practices of farmers, of course, need to adjust to that 

very rapidly emerging disease. 

I want to say up front that our policies cover damage from disease. The farmer is obligated to do the right thing by their crop, 

8

to raise the crop in a way that is sufficient to produce the amount 

that is guaranteed under the policy. If natural causes or other 

things preclude the farmer from being able to do that—it has to be 

a natural risk—then the farmer is covered. 

So, basically, the farmer has to pursue good farming practices 

and document what they have done. We recommend that farmers 

use consultants, because this is a new and emerging disease, that 

they document advice that they have used to guide them in caring 

for their crop. If they do that, and assuming that they take the necessary actions, then they will be covered. But the documentation is 

a very important thing. 

Senator LUGAR. Let me ask the question farmers ask me, and 

that is if there is a hint that soybean rust has come, must I apply 

chemicals immediately, in other words, take that prudential step, 

or at what point am I obligated to have applied the chemicals to 

have indicated the proper steps? 

Mr. DAVIDSON. If a farmer knows that soybean rust is in his area 

and there are preventative steps that should be taken, we will look 

at whether or not he took those preventative steps. 

Senator LUGAR. Now, who will notify the farmer? I raise this 

question carefully, because——

Mr. DAVIDSON. Of whether or not the disease is there? 

Senator LUGAR. Yes. He says that FEMA is going to have a task 

force down there at USDA and they haven’t had one for 3 weeks 

on soybean rust, but he had one after we called him because this 

is very serious, this very step I am talking about now. Who informs 

the farmer? Is there a flash point in Indiana here people say, ‘‘Soybean rust is here,’’ so be on your guard because you have got to 

begin taking the steps? 

Mr. DAVIDSON. I could answer that, but Dr. Collins can answer 

it better, if you don’t mind. 

Mr. COLLINS. Mr. Lugar, the answer to that is that there has 

been a National Soybean Rust Working Group that has developed 

a system to track soybean rust in the United States. As of the most 

recent data on that system, soybean rust is present in five counties 

in Florida on kudzu and in one county, Seminole County in Georgia, on volunteer soybeans. Any farmer in the United States can 

automatically get e-mailed, an e-mail every time that information 

is updated by the National Soybean Tracking System. They can 

find that information on USDA’s website or they can personally get 

an e-mail letting them know every time that information changes. 

So there is a system to track soybean rust. It comes from a total 

of 700 sentinel sites in the United States, 300 sites established by 

USDA and 400 sites established by the soybean industry through 

their checkoff program, and there are tens of thousands of people 

who have been trained to be able to detect soybean rust and report 

soybean rust. So there has been a tremendous effort going on to 

make producers aware of the possible progression of soybean rust. 

Senator LUGAR. It may be, and I would just say off the top of my 

head, Senators even on this committee may want in their offices to 

be issuing these advisories, because the communications system 

here appears to me to be there, but maybe not apparent to every 

soybean farmer. 

9

The second thing is if we start applying this chemical, is it going 

to be like the flu shots last fall, and that is that, suddenly, there 

is a tremendous demand but there isn’t any chemical? What is the 

situation as far as we can tell now? 

Mr. COLLINS. As far as we can tell now, the manufacturers of 

these chemicals tell us that they believe there are adequate provision of chemicals. We don’t know the actual data. It is proprietary 

information. There are questions about where it is staged in the 

country. But when we talk to the chemical suppliers, they indicate 

to us that there are adequate chemicals. There are something on 

the order of nine active ingredients that have been under expedited 

procedures approved by EPA or already registered and a total of 

something like 19 different products. In talking with the chemical 

companies, they believe that they have adequate supplies. 

Senator LUGAR. One final question, and that is that this year, 

maybe not for the first time, but conspicuously, insurance companies have asked for the ability to discount policies to various policy 

holders. The House of Representatives took action in its legislation 

to stop that, prevent that from occurring. The Senate, I gather, 

hasn’t acted yet. What are the policy implications? Is this good, 

bad, or indifferent, or what should we be thinking about discounts? 

Mr. COLLINS. That question has many answers, depending on the 

level at which you are asking it. If you are asking about the House 

action, that is one thing. If you are talking more generically about 

premium discount plans and whether they are a judicious policy or 

not, there are two——

Senator LUGAR. Try the generic side. 

Mr. COLLINS. Under the generic side, OK. I guess I would respond to that generally by saying that the crop insurance industry 

in the United States is highly regulated, as you know. The Department of Agriculture sets rates. In other lines of insurance, that 

doesn’t happen the way we set rates. The Department of Agriculture pays a reimbursement to the companies to deliver the program. We pay their delivery expenses. There is little opportunity 

for price competition or cost competition in this industry. 

In 1994, legislation was enacted which provided an authority for 

a company to come to us and ask to be able to offer a discount to 

producers on their premium if they could show a gain in efficiency 

of delivering crop insurance that would reduce their expenses 

below the expense reimbursement we give them. This is not our 

program. This is not us asking companies to do this. This is companies that come to USDA and they can do this if they want to do 

this, if they can meet the requirements of the law. 

I think the good part about this is it could mean a lower premium for producers. It could mean an increase in participation in 

crop insurance. It could mean higher levels of buy-up coverage and, 

therefore, overall coverage for crop insurance. It could mean an increase in the efficiency of delivering crop insurance to producers, 

that is, squeeze out some cost efficiencies in the delivery system. 

On the down side of this, on the other side is that this could potentially be somewhat disruptive to the industry in that it could 

mean some change. People may do business differently as a result 

of this. This may cause some dislocations. There have also been 

issues raised about whether there might be some unfair discriminaVerDate 0ct 09 2002 16:42 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\22647.TXT TOSHD PsN: LAVERN
10

tion, that is, that the small, the minority, the women, and the limited resource farmers might be neglected at the expense of large 

producers. There might be some shifting of sales away from highrisk areas to low-risk areas. 

These are things that we have been trying to deal with in the 

development of the final rule. We recognize these as potential adverse consequences of being able to provide a discount to producers 

and we are trying to mitigate those possible consequences. 

Senator LUGAR. Thank you very much for that very thoughtful 

answer, both the up sides and the down sides. Obviously, in most 

parts of American life, people are looking for discounts, including 

farmers. But I appreciate this is controversial and you have 

weighed judiciously the pros and cons and I thank you. 

Senator Harkin? 

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM 

IOWA, RANKING MEMBER, COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

Senator HARKIN. Thank you very much, Mr. Chairman. I apologize for being a little bit late with that vote, and everything. I have 

a statement, but I will just ask that it be made a part of the record. 

Senator LUGAR. We will include that in the record. 

Senator HARKIN. I appreciate that very much. 

[The prepared statement of Senator Harkin can be found in the 

appendix on page 46.] 

Senator HARKIN. I just note that we just passed the fifth anniversary of the enactment of the Agricultural Risk Protection Act last 

week. I just note again for the record, since 2000, crop insurance 

participation in terms of acres enrolled has increased by 7 percent 

and the total crop value covered has increased by more than 33 

percent. So farmers are buying more and they are covering more 

acres, which is exactly what we intended to achieve. 

However, in some of these new conflict of interest rules that have 

come out, I have heard from many of our agents, Mr. Davidson, in 

Iowa about some of the problems in this in terms of the relationships between crop insurance agents and loss adjustors. I understand under the new conflict of interest rules, a loss adjustor can’t 

even utilize the data and records that an agent has readily available. He instead has to go to an FSA office to obtain them, which 

in some rural areas in the country can mean a 100–mile trip, just 

to gather maps and records that are sitting in a file cabinet in the 

agent’s office. 

I have heard a lot about this, and my question is, is this level 

of restriction really necessary to protect against conflicts of interest? Is this in the best interest of the farmer or anyone if it causes 

a great delay in adjusting and processing their claim? Do you understand what I am talking about? 

Mr. DAVIDSON. I do understand the question, Senator, and I appreciate the question, as well. We, as we negotiated the standard 

reinsurance agreement, implemented a number of changes that 

were suggested by audits that had identified fraud, waste, and 

abuse in the program. Many of those instances of fraud, waste, and 

abuse included collusion among producers, agents, loss adjustors, 

and particularly the area of collusion between an agent and a loss 

11

adjustor was a great concern for the Office of the Inspector General 

and for others who had looked at these cases of fraud, waste, and 

abuse. A number of those cases have actually come to prosecution 

and have been widely publicized, as well. 

And so one of our mandates in negotiating the standard reinsurance agreement was to tighten up on the regulatory framework, to 

hopefully preclude some of this fraud, waste, and abuse, or at least 

create a framework in which that could be controlled and mitigated 

through internal controls. 

The agent’s involvement in loss adjustment has long been precluded in the standard reinsurance agreement, not recently, but 

since a long time ago, for good reason. The provisions of the agreement actually say that agents should have no involvement in the 

loss adjustment process. The more recent guidance that we have 

provided has given further detail to that and has tightened up because we have found a continuing disregard in some agents’ situations of that prohibition. 

That having been said, there is a business process that has to be 

pursued and information is necessary in order for a timely adjustment of the claims. The FSA offices are one source of that information. The farmer himself is a direct source of that information. 

Agents will often use the information from FSA to help fill out applications and many of them do have that information resident in 

their files. 

At the time of a loss, it is entirely possible, and happens frequently, that something has changed since the sale of the policy. 

It is the obligation of the loss adjustor, who represents the company, to make sure that he has the most current information, and 

in some instances we have found, in fact, that the information received from an agent hasn’t kept up with that information that 

may be resident at the FSA office. 

That having been said, we have also had instances where agents 

have, in fact, altered those reports to obtain a more favorable loss 

adjustment for their producer clients. Those are troubling situations. They are not frequent, but they are troubling. 

And so our Compliance Office has felt that it is necessary to, No. 

1, give notice to agents when we have said, don’t be involved in the 

loss adjustment process, that that is something that they really do 

mean, and that the loss adjustor needs to be the one to provide 

those services and to get the most current information, either directly from the farmer, who has an obligation to maintain that, or 

from the FSA office. 

Senator HARKIN. Mr. Davidson, I appreciate that. It just seems 

to me, though, that the loss adjustor is representing the company. 

I mean, why would they then give the report to the agent to modify 

and change before they send it in? That is true collusion——

Mr. DAVIDSON. Yes, it is——

Senator HARKIN. And I don’t know how many cases of that you 

have, but that is quite adequately covered. I mean, it would seem 

to me that the loss adjustor, that anyone would do that, the company ought to fire them right away if they ever detect anything 

like that. 

Mr. DAVIDSON. I would agree. 

12

Senator HARKIN. So I think there has to be some internal market 

forces that would keep them from that kind of collusion. However, 

to have it so strict that an adjustor can’t even call up an agent and 

say, where is this field? How do I get there to look at it? That they 

have to go to the FSA office someplace and get a map, and the 

agent knows exactly where it is, I mean, that is how tight these 

conflict of interest rules get and I just wonder if that is really in 

the best interest of anyone. 

You have a few cases. You have brought them to prosecution. 

But does that mean you have to have this wholesale change which 

really, as I have come to know, can be quite onerous in some cases. 

I would just leave that. 

Mr. DAVIDSON. I appreciate those comments, and we have held 

up on the——

Senator HARKIN. Let me ask one thing. My time is running out. 

There have been a number of complaints about marketing practices 

used by one company, Crop 1——

Mr. DAVIDSON. Yes. 

Senator HARKIN [continuing]. Authorized to sell our PRP policies. 

Your written testimony indicates that these complaints were investigated and changes were made when some complaints were validated. But to my knowledge, no public report of these investigations has ever been provided. 

In order to put some of these concerns to rest, I think you should 

consider releasing at least a summary of the results of those investigations and actions taken to remedy problems when they were detected. Have you contemplated doing anything like that? 

Mr. DAVIDSON. We haven’t, but I think that is a fair request and 

we would be willing to do that. I have a full list of those complaints, and we may have to be careful to not disclose confidential 

business information, but I think we could probably do that. 

Senator HARKIN. OK. Thank you very much, Mr. Davidson. 

Just one last thing. The written testimony provided by Mr. 

Brichler and Mr. Nielsen, who will appear on the second panel, indicate that more than 90 percent of the comments submitted on the 

proposed rule on PRP were negative. Two questions. Is that fairly 

accurate, and second, if that is correct, doesn’t that suggest to you 

that it would be appropriate to circulate the revised rule for review 

outside of RMA before finalizing it? 

Mr. DAVIDSON. I very much appreciate that question, because 

that is an important one. Yes, we did receive a number of comments. In fact, we received letters from over 800 people, which represent 1,900 individual comments, or thereabouts, and the preponderance of those comments came in the form of a fairly standardized wording, repetitive, as you might guess, and so it may not be 

fair to necessarily count them one for one. 

But that having been said, there are a number of comments that 

just simply say, don’t implement this rule. We have been advised 

by our counsel that we don’t have the choice of whether or not to 

administer this law. We have to figure out how to administer it in 

an appropriate manner. If it can be administered in an appropriate 

manner without causing damage to the program, then we will do 

it. If it can’t, then we will be the first ones to indicate that we cannot do that. 

13

We have taken into consideration all of the comments. They have 

been very helpful. Many of those comments have been laced with 

positives and negatives. Some have said, don’t do this, but if you 

do it, do it this way. That has been very, very helpful. Some have 

suggested a different way of doing it, or as we had included in the 

preamble to the rule, some alternative approaches. Comments on 

those alternative approaches have been very helpful in guiding us. 

Some of the issues are that the proposed rule didn’t allow variability from State to State, for example. That has become a very 

common theme throughout the comments. We have paid attention 

to that very carefully. Some have said, don’t make this a discount 

up front where people have to guess whether or not they can provide—reach these efficiencies. Do it on the back end. That has been 

very helpful, as well. There are other comments that have been 

very helpful. 

I can’t say that we have counted all of those helpful suggestions 

as negatives because they have been linked with negatives, but we 

have a substantial number of those helpful suggestions and we 

have paid a lot of attention to those. 

Senator HARKIN. Thank you very much. 

Mr. Chairman, I may not be able to stay for all the hearing. I 

just want to thank you for making sure we have three people from 

Iowa here testifying today. I appreciate that. 

Senator LUGAR. Thank you, Senator Harkin, for that observation. 

[Laughter.] 

Senator LUGAR. Another person from Iowa, Senator Grassley, 

with the understanding of others, Senator Grassley needs to head 

off to chair another hearing, so I will recognize him at this point. 

STATEMENT OF HON. CHARLES GRASSLEY, A U.S. SENATOR 

FROM IOWA 

Senator GRASSLEY. Senator Hatch is filling in for me while I am 

gone, and I won’t ask any questions. I will submit them for the 

record and I have some documents I want to submit for the record, 

as well. 

Senator LUGAR. They will be placed in the record. 

Senator GRASSLEY. I appreciate my colleagues’ accommodation 

and I appreciate your irritation because I have been in the same 

position myself. 

I, first of all, thank you, Senator Lugar, but also Senator 

Chambliss for holding a timely hearing. When the Agricultural 

Risk Protection Act was signed into law on June 20, 2000, I was 

hopeful that by adopting the Agricultural Risk Protection Act, we 

would increase the affordability of crop insurance, make programs 

more flexible and responsible for farmers, and improve the publicprivate partnership that composes the programs’ underlying basis. 

While the Agricultural Risk Protection Act has clearly improved 

affordability and flexibility for farmers, I believe that the publicprivate relationship that we had hoped to create has been undercut 

by the Risk Management Agency’s Administrator. Administrator 

Davidson knows that I have been critical of many decisions made 

by RMA under his leadership. From the standard reinsurance 

agreement negotiation to an evolution of the Premium Reduction 

Program, from discovery of soybean rust to constituent services, I 

14

have raised numerous questions about the decisions made by the 

Administrator and his inability to work with or provide service for 

my constituents. 

So what I am going to ask now shouldn’t come as any surprise, 

because I have suggested this in the past. It is for these above reasons that I am calling on Administrator Ross Davidson to resign. 

I do not believe that there is any way at this point in his tenure 

as Administrator to improve his image or standing with the companies, agents, and most importantly, farmers that are provided the 

essential service of mitigating their own risk through participation 

in the program. 

While I could point out specific examples of my dissatisfaction 

with many issues, in the interest of time, I want to limit my comments to the Premium Reduction Program’s proposed rule. The proposed rule requires that the discount made available to farmers 

may not vary between State, crops, coverage levels, policies, and 

plans of insurance. Yet anyone involved in crop insurance knows 

it costs less to provide a crop insurance product in Iowa than it 

does in Texas because we have less risk. It is not possible, in my 

opinion, to have non-variable efficiencies in an environment full of 

variable costs. 

RMA’s attempt to arbitrarily cap the Premium Reduction Program’s benefit based on the State with the highest cost of delivery 

or risk works against the original intent of the program. Under the 

proposed rule, the only folks that lose are the ones that have the 

most to gain, those in low-risk areas like Iowa. If companies don’t 

want to be subject to caps based on States with high risk, the companies must cut the high-risk States out of the program. That 

won’t help us maintain our support in Congress for federally subsidized Crop Insurance Programs. 

There is no question that I support lower premiums for farmers 

when market and regulatory conditions warrant lower premiums. 

But due to comments made by RMA that I plan to submit for the 

record, and that is what I have asked to submit, I have no confidence RMA can recognize more major delivery efficiencies in the 

current marketplace. 

For that reason, Mr. Collins, I would call on the U.S. Department 

of Agriculture to reevaluate the timing of benefit delivery. If the 

premium reduction were to be delivered in a similar fashion to the 

USDA’s Title I loan or LDPs, that is, if the benefit were delivered 

as a loan upon purchase of the policy or provided after the crop is 

harvested when the speculative calculations currently involved in 

benefit delivery could be eliminated, I would have much more confidence in the Premium Reduction Program. 

While I know that neither Mr. Collins nor Administrator Davidson can comment on the content of the final rule, these types of 

changes could give me confidence that this issue need not be addressed through appropriations or even reconciliation. Anything 

short of that type of change will most likely result in an amendment similar to Congressman Kingston’s being offered on the Senate floor during agricultural appropriations. 

So, Mr. Chairman, I need to leave and chair the Medicaid hearing I talked about. I will submit questions. I am surely not leaving 

because of lack of interest or due to—but only due to time. So I will 

15

look forward to future hearings on this topic and I would suggest 

to the chairman that he might consider the possibility of holding 

another hearing in the near future following the release of the Premium Reduction Program final rule. 

I thank you. 

Senator LUGAR. Thank you very much, Senator Grassley. 

[The questions and documents of Senator Grassley follow:] 

Senator LUGAR. Do either of you have a comment on Senator 

Grassley’s testimony? 

Mr. DAVIDSON. I appreciate the Senator’s perspective, and we 

have had a number of exchanges and we very much appreciate his 

suggestions on the rule. He made comment on the rule. 

As to my resignation, as we all know, I serve at the pleasure of 

this administration and when I am asked to resign, I will obviously 

agree to do that. Until that time, I serve at the pleasure. 

Senator LUGAR. Thank you. 

I will recognize now the Senators in the order that they have 

come, and that would be Senator Nelson, Senator Roberts, and 

Senator Conrad. Senator Nelson? 

STATEMENT OF HON. BEN NELSON, A U.S. SENATOR FROM 

NEBRASKA 

Senator NELSON. Thank you, Mr. Chairman, Mr. Davidson, Dr. 

Collins. 

Mr. Chairman, you have raised the question of soy rust. That is 

an issue of considerable importance to the State of Nebraska and 

I appreciate the fact that you raised that. I react positively to your 

suggestions as to how we deal with this in an integrated fashion 

across the country so that farmers are aware of its existence and 

the locations of the existence as well as how to deal with mitigating 

against the damage that would otherwise be caused if they didn’t 

take action. 

From time to time, we get comments from agents in Nebraska 

raising questions about the challenges they have in representing 

companies and providing coverage to the farmers. I think that 

there has been significant improvement over the years in the 

awareness of how you go about doing some of the things, but from 

time to time, there are still fairly substantial challenges that many 

of them face. I am going to have some of those examples put together and submit them to you to respond rather than take up the 

time of the committee this morning. 

But it does seem to me that coordination and communication 

can’t be overstated when it comes to this area. It is only 5 years 

old, so it is still evolving. But there are a lot of things that come 

to light that haven’t been dealt with that I think can be dealt with 

and probably more anticipation of those problems. 

I am wondering if you have a working group of agents from 

around the country that come in and discuss with you on a timely 

basis the problems and challenges that they are experiencing out 

in the field, if you have a group that you meet with. It could be 

ad hoc or it could be formalized. Do you have one? 

Mr. DAVIDSON. Yes, we have invited agents to come in and to describe to us the challenges that we have. Occasionally, we will meet 

with an agent group. I could name names, but you are familiar 

16

with the associations. We are willing to do that. I have also offered 

to come out to meet with individual agent offices. Frankly, we are 

trying to finish this proposed rule and that is the next thing on the 

agenda. We did receive a considerable amount of input from agents 

in the negotiation of the standard reinsurance agreement, as well. 

So yes, we are very open to interact with agents specifically and 

learn what their issues are and try to address those within the context of what our responsibilities in the statute require. 

Senator NELSON. The other thing, I am puzzled by excluding 

agents from having anything to do with the loss experience. I have 

had a little experience with the insurance business over the years 

and I know the concerns about collusion and the moral hazards 

that go along with that. But I would caution against taking a total 

ban against any kind of agent involvement. Rather, I would recommend you deal with instances when they arise and you deal 

with them swiftly and painfully for those that collude and take 

care of it that way rather than push the agency system completely 

out of the loss adjustment phase when there are losses. 

I think you are identifying problems, but the solution seems to 

be extraordinary unless you are going to tell us that the problems 

in terms of numbers or amounts are extraordinary. I just don’t 

think the solution fits the problem you are trying to solve if it is 

total exclusion. I just think in some cases, if you have an agent you 

don’t trust, you don’t involve them. But I would hate to see a hard 

and fast rule that would extend or raise the cost of adjusting. 

Mr. DAVIDSON. If I might respond——

Senator NELSON. Yes. 

Mr. DAVIDSON [continuing]. The guidance that we have been intending to release and, frankly, haven’t released because we wanted to receive this kind of input, makes a number of exceptions to 

this general rule of agent involvement in loss adjustment. 

For example, we have a simplified claims process for small 

claims and for claims where there is minimal opportunity for collusion because we rely upon third party information for the claims 

adjustment. In those instances, the agent preclusion from the loss 

adjustment process is, in fact, exempted. 

We have also stated in this guidance that we understand that it 

is the agent’s responsibility to keep the policy holder advised of 

their opportunities, their benefits, including loss adjustment, and 

so we would not preclude the agent from having a continuing conversation on that. 

When it gets to the exact claim itself and the actual adjustment 

of the claim, we feel that the loss adjustor is the person to do that 

and so we have limited the agents’ involvement at the time, for example, riding along with the loss adjustor to go out and visit the 

farm as the claim is being adjusted, holding the tape as the bin is 

being measured, and things of that nature. We feel that that is—

there is too much conflict there and we haven’t allowed it. 

Senator NELSON. I just never heard of such a thing, to be quite 

candid. It seems to me you ought to identify the things that—

where the problems are and permit them to be involved where the 

problems aren’t. I can’t imagine how holding the tape gets in the 

way or creates a conflict of interest. Perhaps deciding the level of 

damage or loss to a field, whether it is 25 percent, 30 percent, 

17

whatever it may be that way, might be a conflict. But I am just 

puzzled by it. I just hope it doesn’t add to the cost to exclude 

agents. Unless your problem is bigger than I understand it to be, 

I wouldn’t understand why——

Mr. DAVIDSON. We would be happy to spend some time with you 

and go over specific cases where——

Senator NELSON. Maybe that is the best way. I don’t want to 

take up the time of the——

Mr. DAVIDSON [continuing]. The results of the audits from the 

Office of Inspector General that have driven us to this. 

Senator NELSON. Maybe I just don’t understand the nature of the 

problem. I appreciate very much. 

Mr. DAVIDSON. We will set up a time to come see you. 

Senator NELSON. OK. Thank you. Thank you, Mr. Chairman. 

Senator LUGAR. Thank you very much, Senator Nelson. 

Senator Roberts? 

STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM 

KANSAS 

Senator ROBERTS. Senator Nelson, I think you understand the 

problem very well. Mr. Chairman, welcome back. 

Senator LUGAR. Thank you. 

[Laughter.] 

Senator ROBERTS. Temporarily. I realize we are supposed to be 

in the question and answer session, but I do want to make a quick 

statement in regard to today’s hearing. 

First, I want to thank Senator Chambliss for taking the step of 

holding this oversight hearing. I think it is very important and 

very timely. We have got an important role to play in overseeing 

all the programs under our jurisdiction and I am pleased we have 

this opportunity. 

Second, I am pleased we are holding this hearing today because 

of the advancements we undertook back in 2000 to strengthen the 

Crop Insurance Program. Chairman Lugar, thank you for your help 

in this regard, and I also want to thank Senator Chambliss, then 

Congressman Chambliss, for his role in this, and more especially 

former Senator Bob Kerrey. We led a rather difficult uphill fight 

in the Senate and the House in trying to achieve the passage of 

that Act. It took us nearly 2 years, but we finally got the job done. 

I must admit that in terms of producer participation in increased 

coverage levels, we have been successful beyond our wildest expectations. Crop insurance has become a viable risk management tool 

for a large number of our producers and I think it is due, at least 

in part, to our efforts and the good work of people on this committee in 2000. 

As most of you know, many parts of Kansas went through a severe drought in 2001 through 2004. I have had more than one producer tell me the only reason they are in business is because of our 

efforts in 2000. We should all be very proud of that fact. 

But Mr. Chairman, despite these successes, I am concerned with 

what I view as some of the overall management issues with the 

program. We have seen what I could only term as an adversarial 

relationship between the agency and the industry. That is not 

healthy. I understand the need to provide oversight and the proper 

18

use of taxpayer dollars, but I am concerned that actions over the 

last year and continued efforts to find additional savings in the 

program are the equivalent of trying to squeeze blood out of a turnip, and that turnip just isn’t there. Mr. Chairman, this program 

will only continue the success of the last few years if industry participants have a financial incentive to continue in the program. 

Finally, I remain disappointed with the agency’s continued blockage of expanded coverage to producers that want to diversify their 

operations by planting new crops in their rotations. I have a 

lengthy question in that regard. If we have a second round, I would 

like to get into that. 

And new research and technology is allowing crops to be viable 

in expanded growing areas, but the agency seems continuously 

locked in neutral on expanding coverage and it is harming our producers and their bottom lines. 

Mr. Chairman, I am not going to continue, as I intend to address 

many of these issues in my questions of Mr. Davidson. Again, I can 

say on the whole, we have been incredibly successful since 2000. 

I thank you and I thank Senator Chambliss and my colleagues for 

their continued leadership and oversight of the program. 

As to Senator Grassley’s comment, Mr. Davidson, I associate myself with his remarks and more especially with the proposed rule. 

I intend to recommend to Secretary Johanns that we need what I 

would call new producer and crop insurance-friendly leadership at 

the USDA. In terms of riding that Crop Insurance Program into a 

box canyon that I think has been full of regulatory overkill mismanagement, I don’t know if you can turn that horse around or 

not, but that is how I feel about it. So if you serve at the pleasure 

of the Secretary, it is my view that I am going to advise the Secretary that you resign, as well. 

I see that I have a minute and 15 left, but I will let that comment and the deafening silence that will occur, just let it lie there, 

and I have one more question if, in fact, there would be a second 

round. 

Senator LUGAR. Thank you very much, Senator Roberts. 

Are there any comments from the panel? 

[No response.] 

Senator LUGAR. Very well. I call now on Senator Conrad. 

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM 

NORTH DAKOTA 

Senator CONRAD. I thank the chairman and I thank Chairman 

Chambliss for holding this hearing, as well. 

I think this is a sobering hearing, and I know, Mr. Davidson, it 

must be tough for you to hear this, but I can tell you, dissatisfaction in your performance is widespread in my State, as well. I was 

just home. I have been home, I think, seven of the last 10 weekends and your agency is probably the most unpopular Federal 

agency in my State. There is a feeling that there is a rigidity there, 

that when problems are brought to the attention of the leadership, 

that nothing happens. 

I could go into a long litany. I just was with several farm group 

leaders this last trip home. They said they believe you ought to be 

19

replaced and they asked me to deliver that message at this hearing. 

To be very succinct about it, the No. 1 complaint that I hear is 

on quality loss adjustment. In fact, I have just now received a letter from the insurance agents back home, the Professional Insurance Agents Association of our State, and quality loss adjustment 

topped their list. 

I have raised this issue on numerous occasions. I mean, I don’t 

know how many letters I have sent up there, and nothing happens. 

No progress has been made in better reflecting actual market discounts for quality losses in the Crop Insurance Program. Your own 

agency commissioned Milliman USA to produce an independent actuarial review of quality adjustment that was completed in 2002. 

Milliman found existing crop insurance discount schedules to be inadequate when compared to local or regional market discounts in 

terms of the quality factors considered and discount levels applied. 

Milliman recognized that quality issues generally occur on the 

local or regional level and therefore their impact on producer returns is also concentrated at those levels. This is a fact that RMA 

continues to ignore. 

RMA’s response to their own study was to criticize the report’s 

conclusions, fail to propose alternatives, and suggest that everyone 

in the industry supports the status quo. That is just an unacceptable outcome and has engendered deep resentment in my State. 

On the Premium Reduction Program, at least part of the complaint that I heard from Senator Grassley is mirrored in my State 

and just a serious skepticism about the performance of the agency 

and about a willingness to adjust. 

Finally, also grave dissatisfaction in my State on those who 

produce both spring wheat and durham wheat in calculating their 

yields. This, too—I mean, I don’t know how many letters I have 

sent. I don’t know how many sessions we have had, and nothing 

happens. It is just—it has just led to a breakdown of confidence, 

a breakdown of support, and a growing level of anger and frustration. 

I must say, in some ways, I say this with a heavy heart. I don’t 

like to ask for people to leave. I don’t like to recommend that they 

be replaced. I honestly don’t. But I have to tell you, I am here representing my State and the people of my State, I mean, I hear this 

time after time after time, are utterly dissatisfied with the leadership of your agency. 

We have just suffered—I have 25 seconds left—we have just suffered another set of weather disasters in my State, a million acres 

affected, 385,000 acres prevented planting. I don’t know what is 

going on in my State. This is not how things were when I grew up. 

But 16 inches of rain in 2 days. I just flew over 10 days ago, just 

unbelievable. 

And the way this is all set up, a lot of these people aren’t going 

to get helped. It is perverse. Those with prevented planting are, 

385,000 acres. But I have got a million acres affected and a lot of 

those people are not going to get helped and that is just not right. 

With that, Mr. Chairman, I am supposed to be at the same hearing that Senator Grassley has left for. I will submit a series of 

questions for the record. 

20

And I must say, really, I kind of leave here with a heavy heart. 

I wish it would never have come to this, but it has. We can either 

try to avoid unpleasantness or we can face up to things. Senator 

Grassley and Senator Roberts have faced up to it and I think I 

have got an obligation to do that, as well. 

So with that, I thank the chair. 

Senator LUGAR. Thank you very much, Senator Conrad. 

[The questions of Senator Conrad follow:] 

Senator LUGAR. This is not a time for levity or humor, but I 

would suggest the energy bill we have been discussing, climate 

change, for example, global warming, may be hitting your State. As 

a result, we may sort of couple our talents with energy and agriculture. But in any event, I appreciate your coming and you have 

a responsibility, as we all have. 

Senator Roberts has one more question, and he will be back in 

a moment. Do you have another question in this round, Senator 

Harkin? If not, this is a question from Chairman Chambliss. 

Mr. Davidson, the financial failure in late 2002 of American 

Growers, Incorporated, raised questions about the financial 

strengthens of the crop insurance industry. Can you describe for us 

the current and projected financial conditions of the crop insurance 

industry in light of the new standard reinsurance agreement and 

also the steps that RMA has taken to ensure that we do not have 

a repeat of the American Growers situation? 

Mr. DAVIDSON. I would be pleased to answer that question. In 

the wake of the failure of American Growers, we spent a considerable amount of time evaluating what kind of financial standards 

existed within this agency’s regulatory structure, what kind of reports we were asking from the companies, and how we collaborated 

with State insurance departments in the oversight of the financial 

condition of the companies. 

We worked with the Nebraska State Insurance Department in 

evaluating what took place and why it took place with American 

Growers. We required within the standard reinsurance agreement 

additional disclosures and placed upon the companies the obligation to advise us in advance if there were deteriorating circumstances. 

This year, we have made continuing strides in asking the companies for additional information with regard to how they view the 

risks that face them, what they plan to do about those risks if they 

should emerge. This contingency planning will require additional 

evolution over time to make it even more effective, linking with the 

States who are also addressing these issues. There is a Risk Assessment Working Group at the National Association of Insurance 

Commissioners, for example, that is revising the standards by 

which an insurance company’s financial condition is reviewed to 

take into account future risks. 

I will say that this year, because we have had a very good year, 

that many of the companies’ financial conditions is quite strong. 

We continue to be concerned about a few companies who have 

minimal amounts of surplus. Many of those companies participate 

in substantial amounts of insurance provision under this programing with the assistance of additional reinsurance support. We 

have a ranking system for each one of those companies in terms 

21

of their financial condition and we review those as we approve 

them for their annual plans of operation. 

I think the industry is relatively strong. A small number of companies are on very close watch, though. 

Senator LUGAR. You say relatively strong, but reinsurance that 

undergirds this. 

Mr. DAVIDSON. In a number of instances, if the reinsurance 

should go away, we would have grave concerns, yes. 

Senator LUGAR. Thank you very much. 

Senator Roberts? 

Senator ROBERTS. Yes. Thank you again, Mr. Chairman. 

When we wrote the crop insurance reform bill in 2000, we took 

a large sum of funding that actually created a T-yield plug to help 

address the declining—the Acreage Production History—the acronym is APH—caused by multiple years of losses that this continues 

to be a problem, and your prepared testimony indicates that you 

are in the negotiating stage of letting a contract to look into the 

issue. 

What I would like to know is when you expect to get moving on 

this. This has been a priority for over a year. We had a meeting 

in Kansas City on the topic. I thank you for going to Kansas City. 

Yet we seem to be getting a lot more talk than action. Can we get 

a time line from you? 

Mr. DAVIDSON. Senator, you are referring to the so-called declining yield? 

Senator ROBERTS. Yes, that is correct. 

Mr. DAVIDSON. We anticipate awarding a contract at the end of 

this week and another one at the end of next week, two proposals 

that seem to have some promise. Both of those proposals, however, 

will ultimately end up in requiring additional legislative authority 

as well as funding to fully implement, as we have said in the past. 

Senator ROBERTS. We spent a large sum of funding that actually 

created the T-yield plug to help address the problem. I am not sure 

what it is in legislation that is needed, but we would sure like to 

get with you to work that out. 

When we wrote ARPA, i.e., the crop insurance reform, one of our 

priorities in addition to increasing the premium assistance for 

farmers was to expand coverage for the alternative crops and to 

make it easier for producers to increase their crop rotation opportunities under the flexibility of the 1996 bill and the 2002 farm bill. 

One example of this is expansion of sunflowers and canola in Kansas and also in other areas of the high plains, and Congress has 

pumped a lot of research dollars and investment into these crops. 

I have heard from just a lot of producers in Kansas and the 

Southern plains who would like to raise canola. It mirrors the 

growing season as winter wheat and thus it could fit well into a 

planting rotation. We also have seen a lot of data indicating it 

could provide significant opportunities for cattle grazing. But we 

have got a roadblock in halting the expansion of these crops and 

it is in the form of the Risk Management Agency. 

Earlier this year, I authored a letter signed by quite a few of my 

Senate colleagues regarding the proposed expansion of this coverage for these crops. In Kansas, we requested the expansion of 

crop insurance coverage for sunflowers in 25 counties. We get the 

22

crop insurance in the counties out West where we don’t have much 

rainfall. We asked for the counties east of that where we do get the 

rainfall. You expanded the coverage to one. Nationwide, you expanded it to 19 counties, half of those being for irrigated purposes 

only. I don’t see the sense on that. In terms of canola, you did not 

expand coverage to a single county in the United States, not one. 

The letter you send in response to our request cited several factors for denying these requests, and specifically, you mentioned the 

lack of cropping histories and the lack of the crushing facilities. I 

have a news flash on that one. Most of these producers, or most 

of the lenders won’t let them plant the crops without the insurance 

coverage, and without the crops being planted, we have been told 

that the crushing facilities will not be expanded into these areas 

even though the crushers have an interest in doing so. So it is a 

catch–22. 

Based on the criteria you have established, you are making it impossible for these crops to continue to grow, expand, and become 

part of the producers’ normal cropping rotation. It is my understanding that in the past, written agreements could be provided to 

allow producers to begin to grow an alternative crop, but the RMA 

now requires at least 3 years of growing the crop in a county before 

a written agreement will be granted. Now, how are we supposed 

to get this history if we can’t insure the crop through a written 

agreement in most of these counties? 

Additionally, I don’t know why the rule was changed to require 

the new 3–year history. I just don’t think this is acceptable myself. 

I know Senator Chambliss and others have really worked very 

hard in this regard, only to find that we have sort of run into a 

roadblock on this issue. This also involves many other members of 

the committee, and the House committee moved heaven and earth 

in 2000 to improve this program. 

But this decision on canola is just one more example to me of an 

agency that is saying no when they should be saying, let us work 

on it and see how we can work this out. I think, to a great extent, 

that is a lawyer decision and it has failed to serve our producers 

when it comes to expanding coverage to these alternative crops. We 

used to be known as the ‘‘Wheat State.’’ That is not true anymore 

because of the flexibility we had in the 1996 Act and the 2002 program and we would like to continue that progress. 

So if you are going to make guidelines that make no sense and 

which make it impossible to make the program work for producers, 

I just don’t understand this position. So if you would like to respond to that, why, feel perfectly free. 

Mr. DAVIDSON. I would be happy to. The challenge that we have 

in this program is that the one standard that we have to follow is 

that our programs are actuarially appropriate, that there is enough 

information to be able to provide insurance rates that are actuarially appropriate. Where there has been no production history, there 

is no information and that creates a conundrum for us. We have 

a very difficult time identifying data that can be used to determine 

actuarial appropriateness when there is no production. 

We strongly support the idea of innovation in the crop insurance, 

or in crops, and recognize that that is very important. We have 

found that the actuarial appropriate requirement is a barrier to exVerDate 0ct 09 2002 16:42 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\22647.TXT TOSHD PsN: LAVERN
23

panding in many areas. I will say that we have added over 11,000 

county crop programs since the beginning of this administration 

and have shown a willingness to expand as rapidly as can be done 

under the actuarial requirements of the program. 

We did respond in our letter that through the Noninsured Assistance Program, producers can receive coverage through FSA. In 

some instances, we did confirm that banks will accept that as collateral and that that is a way for farmers to begin to develop their 

experience. When an individual farmer has enough experience, and 

three points of data is a minimal amount of data to be able to say 

what any kind of a rate should be, then we can establish rates and 

provide a written agreement. Then when there is sufficient information in the county, when we can expand it beyond that. 

So there is kind of a continuation here that you provided in the 

statute. Where there has been no experience, NAP is available to 

farmers, and hopefully that is acceptable as collateral to bankers. 

With NAP, they can develop their experience and can progress to 

a written agreement, and we are willing to provide written agreements as well as we can within the bounds of statutory actuarial 

soundness requirements. Then beyond that, as there is adequate 

experience in a county, we are willing and have shown the willingness to expand to the county for the full program. So that is a continuation, or a continuous path that a farmer can follow to get coverage. 

Senator ROBERTS. It is the 3–year business that bothers me, because when we passed that law, we didn’t have that in there, and 

then you changed that to the 3–year history. 

But here is what I am talking about. If you look at a map here 

on the 2006 expansion and existing sunflower counties in regards 

to my State, this is where you are covered. The green area is where 

we asked and the one county here is where the coverage has been 

expanded. The thing that doesn’t make any sense to me is that 

here is—from about here on is where you have most of the moisture in terms of being actuarially sound, and I don’t understand 

why it takes 3 years to wrestle with the paperwork to get that 

done. But at any rate, we will continue to work with the agency 

to see if we can’t make some progress. 

I am way over time and I appreciate the patience of the chairman. Welcome back, Mr. Chairman. 

Mr. DAVIDSON. Senator, if I might, it might be useful for us to 

have a further conversation about the kind of flexibility that we 

would need statutorily to give us the ability to both meet the actuarial sound standard as well as expand. 

Senator ROBERTS. Well, I am—it took us 2 years to pass that Act. 

We had to go uphill and downhill and around Grandmother’s house 

and in about six different pastures to get it done, and many strong 

differences of opinion. Out in the West part of my State, we used 

to have five or 6 percent of people sign up for crop insurance, and 

as the former chairman can testify, they would indicate why on 

earth would you want to sign up for crop insurance when you get 

a disaster payment every year? So the whole design was to address 

the disaster payment situation. 

We tried to give a lot of flexibility in that Act, and now all I am 

hearing now is that we have to go back and do more legislation. 

24

If we do more legislation on crop insurance, you open up Pandora’s 

box, and it wouldn’t be Pandora’s. If you need it, we will try to get 

it. Mr. Chairman, that would be called a technical correction as opposed to ‘‘son of ARPA.’’ But as you can see, I am not very happy 

about this whole situation. 

Anyway, thank you very much for coming, and that is about it. 

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR 

FROM GEORGIA, CHAIRMAN, COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

The CHAIRMAN [presiding]. First of all, let me apologize to our 

witnesses for running behind here. We have had some other crisis 

we have been trying to address. To my colleagues, thank you all 

for pinch-hitting for me here. 

Without being here, though, Mr. Davidson, Dr. Collins, it is apparent to me just from talking to my colleagues over the last several months that there is a lot of frustration relative to what is 

going on in the Crop Insurance Program. We passed the bill that 

Senator Roberts referred to back in 2000 that we thought was 

going to solve a lot of problems, and apparently the more we get 

into it, the more problems we are observing. I hope we can resolve 

this and make this a smoother program without additional legislation. If we need to, we have got to. 

I just have a couple of questions. Dr. Collins, in November 2004, 

the FCIC Board of Directors adopted a resolution directing FCIC 

to publish a proposed and final rule regarding Premium Reduction 

Plans of Insurance. What led the Board to adopt this resolution 

and why had the rulemaking process not been fully exercised prior 

to the initial availability of PRP? 

Mr. COLLINS. Mr. Chairman, the Board first considered PRP in 

the fall of 2002. At that time, the Board considered rulemaking, 

but only briefly. We spoke with the Department’s General Counsel. 

At that time, the General Counsel advised us that PRP was provided for in the standard reinsurance agreement and that PRP 

could be implemented without rulemaking. It could be implemented 

under procedures—it could be implemented straightforward under 

the SRA, or it could be implemented with additional procedures developed by the Board or RMA. 

In December of 2002, the Board adopted a resolution that authorized the approval of PRP subject to, I think it was nine different conditions. There was one company that was approved under 

those conditions, and those conditions were later expanded by a 

Manager’s Bulletin issued by Mr. Davidson. One company was approved under those procedures for two successive years. 

It, however, was in the late summer or early fall of 2004 when 

we received six additional applications for PRP that we first became more troubled by the procedures that were in place. The six 

additional applications raised many new issues that hadn’t been 

contemplated by the Board or by RMA. There was a diversity of approaches submitted by the six companies on how a PRP should be 

operated. 

So in October of 2004, the Board passed a resolution seeking an 

Advance Notice of Proposed Rulemaking, an ANPR, to find out 

what the public thought, find out what additional analysis we could 

25

get together to evaluate a PRP. We knew it was becoming controversial at that point. We were hearing from agents. We were 

hearing from companies. We were hearing from the public. We 

were hearing from producers. We felt that it would be important 

to get in a formalized way that input. 

So at that point, we were only contemplating receiving comments 

and revising our existing procedures. We also sent out PRP to five 

independent expert reviewers under contract to get their evaluation. 

Come November, the next month, the month that you started 

with, we had thought about it some more and thought, well, just 

going out and asking for public comment is probably not going to 

be enough. We ought to follow APA, the Administrative Procedures 

Act, and do a formalized approach to this because of the possible 

repercussions of this to the industry. So it was at that point that 

the Board of Directors adopted the resolution that you just mentioned and indicated that FCIC would proceed with notice and comment rulemaking, and that is the process we are in right now. 

The CHAIRMAN. Mr. Davidson, when do you expect that final rule 

on PRP to be published? 

Mr. DAVIDSON. When the Board passed its resolution, it directed 

us to have something available so that companies could apply for 

the 2006 reinsurance year that begins July 1. We anticipate publishing a rule in the very near future. 

The CHAIRMAN. On the next panel we are going to hear in greater detail from the industry about PRP. Can Crop 1 operate in 2006 

without premium discounts if it so chooses? 

Mr. DAVIDSON. They haven’t applied to us to do so. 

The CHAIRMAN. They haven’t applied for what exactly? 

Mr. DAVIDSON. They have applied to do business this next year 

under PRP. That is the mode of business that they have done. Any 

company that applies will have to adhere to the new rule as it 

comes out. That will probably require some adjustment on anybody’s part, but particularly, I would say, on Crop 1’s part. 

The CHAIRMAN. Senator Lugar, do you have any other questions? 

Senator LUGAR. No, Mr. Chairman. 

The CHAIRMAN. All right, gentlemen. There will be some additional questions that will be submitted to you in writing and we 

would ask that you respond to those as quickly as possible, if you 

will, please. 

The CHAIRMAN. We will move now to our next panel. We have 

Ron Brichler, the Chairman of the American Association of Crop 

Insurers; Mr. Norm Nielsen, Independent Insurance Agents and 

Brokers of America, and Mr. Billy Rose, CEO of Crop 1. 

Gentlemen, welcome. Thank you. I have been advised by staff 

that we will certainly take any statement you want to submit for 

the record, but if you will please limit your opening comments to 

3 minutes, it will just allow us to move a little bit quicker. 

Mr. Brichler, we will start with you. 

STATEMENT OF RON BRICHLER, AMERICAN ASSOCIATION OF 

CROP INSURERS, CINCINNATI, OHIO 

Mr. BRICHLER. Thank you, Mr. Chairman. Members of the committee, in spite of all the progress that we have made in recent 

26

years, and despite the tremendous boost the program was given by 

the passage of ARPA in 2000, the Crop Insurance Program is now 

at great risk. Three initiatives taken by RMA could destroy in a 

few years the progress we have made over the last 25. 

These RMA initiatives are as follows: Pursuing a premium reduction plan that will discriminate against small and limited resource 

farmers and create chaos in the marketplace; two, promulgating 

regulations that make the Crop Insurance Program more costly 

and nearly impossible for the traditional companies and agencies 

to deliver; three, misusing data of a taxpayer-funded industry analysis to force cuts in the delivery system that will, if allowed to continue, adversely impact the delivery system that took 25 years to 

build. 

On the first threat, RMA asserts that the law requires they implement a PRP rule this year. We disagree. If they cannot devise 

a rule that prevents discrimination against small farmers that 

meets all of RMA’s other requirements, limitations, and procedures, RMA should not issue a final rule. Strangely, RMA has chosen to ignore the mandatory provisions of the 2000 ARPA law and 

instead are forcing implementation of the outdated provisions of 

the 1994 law, which is not mandatory. 

RMA verbally stated that they are going forward with a PRP 

program even prior to closure of the comment period. They are 

choosing to ignore 93 percent of the 805 comments which are opposed to the PRP rule and program. We have supplied our own 

analysis of these comments as our Appendix A. 

We predict the following outcomes will be the inevitable result of 

a PRP program authorized by RMA’s proposed rule. Companies and 

agents will be forced to neglect the small family farmers and concentrate on competing for the largest and most profitable accounts. 

Companies will be forced to withdraw from States because it will 

not be profitable to compete in those States. Service to farmers, 

both through risk management counseling and claims adjusting, 

will rapidly decline. 

RMA continues to increase the regulatory burden of the program 

in an attempt to limit fraud. No one in the crop insurance industry 

condones fraud, and fraud identification and control is improving. 

However, currently, the greatest threat to the integrity of the program is the attempt of RMA to force down reimbursements to companies and their agency force to a level that makes it impossible 

to properly service the business. 

By its very nature and purpose, the Federal Crop Insurance Program is complex. The photograph before you represents roughly 

about half of the pages of notices and guidelines and regulations 

that companies and agents must understand and adhere to. Doing 

the job right requires true public-private partnership and one that 

is not resource-starved. 

The third threat concerns RMA’s deceptive and misuse of certain 

data. In an unsigned briefing paper delivered by the RMA to the 

House Appropriations Committee on May 13, RMA stated, quote, 

‘‘The allegation that PRP is being offered only to large farmers and 

not small farmers is untrue. In 2004, approximately two-thirds of 

the policies sold by Crop 1 were for 250 acres or less,’’ close quote. 

This is a deceptive use of statistics. 

27

RMA’s definition of a crop policy is one crop in one county. With 

this definition, very few farmers would have only one policy. A 

farmer frequently has multiple county crop policies for the same 

crop, and most farmers have more than one crop. In any event, our 

research shows that other companies report that, on average, the 

size of policies being transferred from their companies to the premium discounter company is twice as large as their average policy. 

Another instance of misuse of data involves a study produced 

under contract with RMA by Milliman USA. Although the study is 

a highly technical analysis of rates of return involving several scenarios and economic assumptions about the crop insurance industry, RMA has publicly referenced certain statements in the study 

without making the complete study available for independent review. RMA skewed the study by picking a period in which crop insurance had a loss in only one of 13 years rather than a more representative period of 1988 to 2002, when crop insurance experienced a loss in three of 15 years. Both the private industry and 

Congress have tried unsuccessfully to obtain the complete study. 

I am sorry for going over, Mr. Chairman. There is a lot to say 

in 5 minutes. Thank you for your time. 

The CHAIRMAN. Thank you. 

[The prepared statement of Mr. Brichler can be found in the appendix on page 76.] 

The CHAIRMAN. Mr. Nielsen? 

STATEMENT OF NORMAN A. NIELSEN, ON BEHALF OF THE 

INDEPENDENT INSURANCE AGENTS AND BROKERS OF 

AMERICA, PRESTON, IOWA 

Mr. NIELSEN. Good morning and thank you, Mr. Chairman, for 

holding this important hearing. My name is Norm Nielsen from 

Eastern Iowa. In the interest of time, I am going to let the record 

stand as for my formal introduction. 

I have been a Main Street agent for 20–plus years, through the 

good years and bad while RMA has slowly evolved through seven 

administrations. However, I have never seen it in the state it is in 

now. I am particularly bothered by the persistent undermining of 

the agent’s role, which adds value to this program. 

Recently, through an unfair and arbitrarily drafted conflict of interest provision, RMA designed rules severely reducing the agent’s 

involvement in loss adjustment. It is unrealistic to expect the agent 

to remain silent while their client faces a loss. There are always 

questions that only the agent can answer, but RMA’s policy levies 

a $10,000 fine against us. 

Not as Senators, but as policy holders, I ask you, does this really 

make sense? Agents have built this program into the successful 

story it is today, and to be treated like second-class citizens is unconscionable. 

The Big I opposes PRPs. This does not mean that we are against 

competition. In fact, we embrace competition as an important check 

and balance to the industry. Competition drives the agent network. 

We compete against each other, which makes us strive to offer better service. However, PRPs actually undermine the competitive 

playing field by putting cost of service over quality of service. 

28

Speaking of competition, RMA’s decision to allow one company to 

continue to offer PRPs after the FCIC Board suspended the program pending rulemaking created a government-sponsored monopoly for the 2005 year. This is RMA’s idea of promoting competition 

in the industry? 

The Big I believes that PRPs have no role in the industry that 

relies so heavily on agents. We believe that PRPs promote discrimination against limited resource and high-risk farmers, contrary to 

the Federal Crop Insurance Act. In order to understand why PRPs 

are bad for the program, we need to understand what the agent 

does. 

Unlike property-casualty, a crop agent has to gather data, compute APH, determine optional units, review plans of insurance, 

quote 247 options, do risk management, enter data into the company’s computer, and most of this done by March 15. I charge RMA 

to show me a delivery system that reduces the agent’s role without 

reducing the quality of service to our farmers. 

PRPs require the provider to demonstrate that a true efficiency 

will be achieved, not merely cost savings. Mr. Chairman, agents 

are the efficiencies. RMA can admonish all forms of discrimination, 

but condemning it and actually preventing it are mutually exclusive. RMA can neither enforce—does not have an enforcement 

mechanism to prevent such abuse nor the resources to create one. 

There are also forms of covert discrimination. For example, an 

agent’s book of business full of lucrative accounts, they will want 

you. If it is full of small and high-risk accounts, they will pass over 

you. There is a term that we call this and that is called cherrypicking. If only the profitable customers are skimmed off the top, 

who will service the small farmers? 

Mr. Chairman, companies have realized significant reductions in 

the Federal reimbursement over the last 11 years and the quality 

of service to the nation’s agriculture producers has remained static. 

Unfortunately, that will not be the case under PRPs. 

In conclusion, Mr. Chairman, there are too many unanswered 

questions to allow the program to go forward. The most pragmatic 

solution is to suspend PRPs until a third party, preferably the 

GAO, can conduct a comprehensive oversight investigation. I implore the Congress to have the USDA suspend this program and 

initiate one immediately. 

Thank you for the opportunity to testify and I would be pleased 

to entertain any questions you may have. 

The CHAIRMAN. Thank you, Mr. Nielsen. 

[The prepared statement of Mr. Nielsen can be found in the appendix on page 107.] 

The CHAIRMAN. Mr. Rose? 

STATEMENT OF BILLY ROSE, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, CROP 1 INSURANCE, URBANDALE, IOWA 

Mr. ROSE. Chairman Chambliss, Senator Lugar, and members of 

the committee, my name is Billy Rose. I am the President of Crop 

1 Insurance out of Des Moines, Iowa. We are the first company approved by USDA’s Risk Management Agency to offer farmers a savings of up to 10 percent of their Federal Crop Insurance premiums. 

29

Since I only have a few minutes, let us cut to the chase. The 

issue comes down to priorities for you and for the crop insurance 

industry. Is it more important to offer farmers a price break on 

crop insurance and help them control their costs, or is it more important to maintain the status quo of an industry undermining its 

own stability through bidding wars over agent commissions? 

Here is how a PRP works. If an insurance company meets certain operating expense criteria, a premium savings can be passed 

on to the farmer. But some companies and agents want to kill PRP. 

This is bad Federal policy and very bad for the American farmer. 

To kill PRP sends a simple message: Insurance company profits 

and agent commission checks are more important than helping 

farmers save money. 

Occidental Fire and Casualty Insurance of North Carolina and 

its managing general agent, Crop 1, in order to make PRP broadly 

available, have appointed over 400 independent agents in 15 States 

and we have written over 16,000 crop policies. Since the inception 

and approval of our program, we have saved the American farmer 

out of our pocket over $4 million, no cost to the American taxpayer. 

Farmers embrace PRP. They want to save money. They want to 

reduce risk by purchasing higher levels of coverage. Our book of 

business shows just the opposite of these allegations. Our farmers 

are taking the savings and buying higher levels of coverage, and 

we service all farmers. 

Attacks on PRP and its provider are really about competition 

amongst crop insurance companies. If PRP disappears, reduced 

competition allows large insurance companies and agents to retain 

the higher profits and market share. 

This industry is controlled by two insurance companies that have 

over 50 percent market share. Don’t forget, crop insurance companies don’t set the premium price. They recruit other firms’ agents 

by offering higher commissions, leading to the loss of companies 

that can’t afford the bidding war. This is one of the factors that led 

to the collapse of American Growers, a $40 million bill to the American taxpayer. 

Crop 1 now has evidence that other companies today are offering 

our agents in excess of 20 percent commission if they will move 

their farmers away from Crop 1. To date, our agents have resisted 

this predatory attempt to undermine the PRP agent delivery force. 

We feel it is time to stop talking to the insurance companies and 

agents and begin talking to farmers, the beneficiaries of reduced 

premium crop insurance. Occidental, Crop 1, and our agents are 

eager to support any legitimate effort to make PRP, with the obvious farmer benefits, a better program. 

I would like to, Mr. Chairman, set the record straight on some 

of the distortion and attacks that I have heard here today against 

Crop 1. First, it is a government-sponsored monopoly. The fact is, 

Crop 1 is simply the first company to sell PRP as approved by 

RMA. Six other companies have applied and weren’t approved. 

Fact—or, excuse me, myth is that we are cherry-picking and we 

only operate in the most profitable States and we only service large 

farmers. As I mentioned before, we are in 15 States. Our plan of 

operations for 2006 goes to 21 States. We include States like Texas, 

North Dakota, South Dakota, some of the highest-risk States. 

30

In fact, when you break down our book of business and you look 

at the facts, not the rumors, 60 percent of our policy holders are 

comprised of 500 acres or less. In fact, one of those Iowa farmers 

is with us today, Christine Ferguson. She comes from a century 

farm in Iowa, a couple hundred acres. Any farmer that wants a 

savings who can contact us through our agent or through our direct 

800 number, we make sure that we get them hooked up with a 

local agent and they get the savings. 

Another myth is that farmers’ service will suffer with PRP. Approximately 94 percent of PRP policy holders renewed their policy 

last year. Over 95 percent of PRP policy holders who had a claim 

renewed their policy. I contend you go to a good restaurant, you 

have a good meal, you go back and you tell your friends. If you 

have a bad meal, you don’t go back and you tell your friends that, 

too. Well, our service record shows that the farmers want to go 

back. They want the savings and they are telling their friends 

about it. 

One of the last myths is that Crop 1 is operating without proper 

RMA oversight. USDA’s Chief Economist that was here today, Dr. 

Keith Collins, calls Crop 1 the most scrutinized crop insurance 

company in his memory. Crop 1 has been audited, reviewed, reaudited throughout its 3 years of operation. I ask, could other firms 

selling crop insurance at government-set rates withstand the same 

scrutiny? 

Thank you, Mr. Chairman. I look forward to your questions. 

The CHAIRMAN. Thank you, Mr. Rose. 

[The prepared statement of Mr. Rose can be found in the appendix on page 125.] 

The CHAIRMAN. Mr. Rose, I do disagree with your written statement and testimony that says, and I quote, ‘‘to accept such an 

amendment regarding PRP in the appropriations process tells 

farmers Congress cares more about insurance company profits and 

agent commission checks than about helping farmers save money,’’ 

close quote. 

Just like everybody on this committee, I am a staunch supporter 

of the American farmer and I worked with others in the industry 

to modify the appropriations amendment so that producers’ outstanding PRP policies will be honored and your company will be 

able to continue servicing these policies. I have been very clear that 

my position on this PRP amendment is not anti-Crop 1, and I will 

be clear today that my position is not anti-farmer. It is my firm belief that based on the proposed rule, USDA needs to thoroughly 

and carefully consider all issues as it moves forward in drafting the 

final rule. 

Mr. BRICHLER AND MR. Nielsen, some may view your pursuit of 

the moratorium on the PRP rule in the appropriations process as 

an attempt to put Crop 1 out of business. Is that what you seek 

to achieve? 

Mr. NIELSEN. Mr. Chairman, that is furthest from the truth. All 

we are asking for is an independent GAO audit. Let us get all the 

facts on the table. 

Mr. Rose was in the Insurance Department in Iowa 2 years ago 

with a marketing plan that stated, I am going after the $5,000 acVerDate 0ct 09 2002 16:42 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 C:\DOCS\22647.TXT TOSHD PsN: LAVERN
31

count. Let us just get it to the public. RMA has not given this to 

us. 

Mr. BRICHLER. Mr. Chairman, we are not trying to put Crop 1 

out of business. They can continue to provide crop insurance without a premium discount program. All they have to do is file under 

that method. So what Mr. Davidson refused to answer before is 

they may file under a PRP, but they aren’t required to file PRP, 

so they can remain in business if they like. 

Second, many of the insurance companies have always asked for 

just an even playing field in administrating the PRP rules. Many 

of us met with Mr. Davidson in his office and asked questions relating to what type of expenses qualify under the PRP rules, what 

happens to startup costs. All these types of questions were asked 

and we didn’t get any action from the administration on making 

sure that the playing field remained even. 

There are different business models from different companies. 

Some companies rely on underwriting gain. Some rely only on the 

administrative and operating expense reimbursement. I don’t think 

the elimination of PRP eliminates either one of those two business 

models. 

The CHAIRMAN. Mr. Rose, I understand your company is currently approved to sell PRP policies only. If a moratorium in the 

appropriations process is achieved or PRP policies are not approved 

to be sold in the 2006 reinsurance year, will your company request 

approval to sell non-PRP policies? 

Mr. ROSE. We have already filed our 2006 plan that includes 

PRP. The 2006 crop year starts in a matter of days. Texas, the 

Southern crops, will be kicking off, and then we roll right up into 

Kansas and the winter wheat crops. 

To change midstream would create havoc, confusion, and great expense. We spent over $3 million creating an IT system of which 

we are able to analyze the farmers’ options and we provide it to 

our agents so they can do it quicker, say within an hour, which 

used to take us 10 hours to do a complete analysis. All our systems 

would have to be overhauled. It would be a serious setback, sir. 

The CHAIRMAN. So I am not sure what your answer is, though. 

Mr. ROSE. We feel this is a good program and the program 

should continue forward. We want the facts to come out. We support any further investigations. We are very proud. We play by the 

rules. We think it would just be a tragedy if this program were to 

be overturned and we could no longer offer it. We have not gone 

to that stage of saying, we can’t offer the program anymore, so I 

don’t have a concise answer for you, sir. 

The CHAIRMAN. OK. Mr. Brichler, Mr. Nielsen, if Crop 1 sought 

approval to sell non-PRP policies, would you support having competition on a level playing field in the industry? 

Mr. NIELSEN. We always support. I represent 22 companies in 

my shop and I have two Crop companies, so I can’t say anything 

but support it. 

The CHAIRMAN. OK. Mr. Nielsen, your written statement directs 

pretty harsh criticism at RMA. Do you have any recommendations 

for improvement? 

Mr. NIELSEN. Well, I kind of think Senator Grassley said it all 

early on. But I think what we really need is communications. When 

32

the SRA was being negotiated, we were not there. We weren’t 

asked. We were never given any kind of input into what will the 

agents and the farmers really buy? We need to be at that table to 

give the input because we are on the first line of communicating 

with the producer and that information needs to be fed back up to 

the RMA. 

The CHAIRMAN. Senator Lugar? 

Senator LUGAR. Thank you, Mr. Chairman. 

The issues this morning are extremely complex and it is difficult 

in this short hearing, and you have done a yeoman’s job in short 

statements to sort of make it concise. But let me just ask this question from the standpoint—I suppose perhaps Senator Grassley and 

I may be the only two customers for crop insurance on this committee. So in terms of conflict of interest, we have indicated earlier 

on, and certainly I am. I buy crop insurance every year. 

We have 604 acres, just 200 acres in soybeans, 200–and-some 

acres in corn, so we would qualify in one of the classifications of 

either the small people under 250 or 500 or whatever this involved. 

We are in Indiana. 

One of the questions that Senator Grassley raised this morning, 

if I heard him correctly, was that Iowa is a low-risk State. He suggested there were other States that have higher risk, without categorizing all of them. There are some farming situations even within Iowa, I suppose, or in Indiana that are lower-risk than others. 

So philosophically, there is a problem here. I suppose, depending 

on how you sort of look at economics generally, if, in fact, the purpose of the Risk Management Agency, the crop insurance, is to try 

to take a look at every State, every farmer with the thought that 

the most efficient situations in the lowest-cost States get a better 

deal and those that are higher-risk get much worse terms, this 

might fit the normal circumstances, or at least one set of circumstances. 

On the other hand, the argument that I think is being made inferentially is that if we get down that road, essentially, before long, 

the higher-risk States will be forgotten or their situations will be 

less cared for. Ditto for the smaller farmers in the higher-risk 

States almost beyond the pale at this point. Therefore, perhaps in 

a democracy, you say you can’t cherry-pick. You can’t pick and 

choose among these people. Essentially, if you are going to have 

one crop insurance system, it is one crop insurance system, and 

therefore you cover everybody, same premiums, and you are mandated if you are a company to cover a State and every one of these 

situations unless somebody is in fraud and abuse. 

I suppose there have been arguments this may state too broadly 

the parameters, the question, but along these arguments, not only 

in crop insurance and agriculture but in other kinds of social policy 

insurance or other general situations, nondiscriminatory. So it is 

an interesting issue. 

If, for example, to take the Lugar farm, and we have just, say, 

200 acres in soybeans for the sake of an argument this morning, 

and we appear to be a pretty low-risk State in Indiana. I don’t 

know where we rank along with Iowa and so forth in terms of lowrisk situations. We are probably not among the most risky. Senator 

Conrad has mentioned this morning his State, and I have heard 

33

Senator Conrad, I think for the last 15 years describe weather disasters that hit almost every month, not just every year. So it is a 

tough situation, we understand. 

But what I am trying to fathom is, and I would ask you, Mr. 

Brichler, to begin with, as the industry takes a look at this, as you 

are reading this, what is all of this to be about? If we are philosophically trying to design a crop insurance program for America, 

should it deal with the efficient and the inefficient the same, States 

likewise, or what is the marketing aspect as you look at it? 

Mr. BRICHLER. Well, I think, Senator, that maybe this body actually addresses the type of concern that you are posing to me better 

than most in that you build coalitions every day in order to get one 

common piece of legislation passed. 

If you look at corn in Iowa, for instance, and its likeliness of loss 

versus that same corn plant in North Dakota or cotton in the 

Southeast, each one of those particular crops are going to have a 

different set of loss factors, some better, some worse. What we are 

trying to do is build a program that brings all crops, all people that 

want insurance into the process. In some cases, we are going to 

have to insure crops that don’t make an APH each year on an actuarially sound basis in order to maintain 50 State support for this 

program, which I think is important. I don’t think our lending institutions would provide operating loans to our farmers without the 

Crop Insurance Program as a backstop. 

Senator LUGAR. Well, that is an honest answer. Coalition building does happen all the time. It is an interesting insurance concept 

as well as a political one, I suspect. But what is your take on this, 

Mr. Nielsen? 

Mr. NIELSEN. Coming from Iowa, we can say that we have some 

of the best loss ratios historically over a number of years. But coming from where I live along the Mississippi corridor, we have claims 

when nobody else has. When the Mississippi comes out of its 

banks, we have claims. We need a program that is there always for 

all farmers. Our Southern Iowa farmers get droughted out at 

times. We need it to be available. 

So to say that we have a program out here that fits everyone’s 

needs, yes, we do presently. Everybody can get insurance. That is 

all we are asking. Provide the protection for the producer. 

You start cherry-picking this and then companies—I mean, it is 

not a dirty word. They are supposed to make money, OK. With 

that, they are going to have to make some tough decisions of where 

they are going to be involved in the marketplace. We just cannot 

have that for the producers. 

Senator LUGAR. Let me just mention parenthetically, and the 

chairman has already testified or others have, ideally, crop insurance would then cover 50 States and all the marginal situations. 

But as some of us could point out, almost each year, there are hues 

and cries for additional disaster insurance. We had the program, 

but folks come then and say, well, the weather was especially bad 

here, or in five States, we just simply were blown out of the water, 

crop insurance or not, and if you pressed them, they would say, 

well, not all of our farmers can buy crop insurance at this point. 

They haven’t discovered it yet. They found it too expensive. 

34

It was less expensive to come to the Federal Government and coalition build for another $4 or $5, $10 billion of disaster insurance 

on top of the crop insurance. Now, that is not your fault, the insurance situation. It is our fault, I suppose in whatever the political 

rallies may be in here. But this is just my observation, sort of year 

after year of this. 

There is another second cut for those that somehow or other felt 

that they either didn’t want to buy the crop insurance and the Lord 

will provide, namely the Congress if you didn’t have it. 

What is your answer to all of this, Mr. Rose? You are obviously 

offering differentials, 10 percent discount. You mentioned some 

farmers in Iowa for this type of thing. What is your take on the 

philosophy? 

Mr. ROSE. Very good questions. I think it is important that we 

are aware that the current industry is operating anywhere from 

five to 15 percent above their expense reimbursement, looking at 

it from the insurance company. So we are speculating on an underwriting game. So Indiana is a very good State. If I am going to be 

eight points underwater as an insurance company, I want to operate in the highly profitable States. 

The beauty about PRP is you must operate within the expense 

reimbursement, the 22 percent, which has allowed us to be in 

North Dakota since day one, to go down to Texas and write 4,000 

policies, because in a worst-case situation, when farmers need the 

savings and they have drought, you know, now they can get the 

benefit of the savings, good for the farmer, now is it good for the 

American taxpayer? We are operating within the budget, so if we 

have a complete wipe-out in one State or all States, and our plans 

are to go nationwide, that we would—we are at break even. That 

just makes practical business sense. 

And that is why I look at the PRP model and I go, sure, it can 

be refined. There is no perfect program. But this is good for the 

farmer, it is good for the taxpayer, and it is good for the program. 

Senator LUGAR. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Gentlemen, thank you very much for being here 

today. We appreciate your testimony and response to our questions. 

The CHAIRMAN. Our last panel today is composed of Dr. Bert Little, Associate Vice President for Research, Tarleton State University in Stevenville, Texas; Dr. Bruce Babcock, Director, Center for 

Agricultural and Rural Development, Iowa State University in 

Ames, Iowa; Mr. Mike Clemens, Wimbledon, North Dakota, on behalf of the American Soybean Association, the National Sunflower 

Association, and U.S. Canola Association; and Mr. Ray Buttars, 

National Association of Wheat Growers, Weston, Idaho. 

Gentlemen, thank you for being here today. Thank you for your 

patience. Dr. Little, we will start with you and we will come right 

down the row. Again, we will take your full statement for the 

record. If you could limit your opening comments to 3 minutes, it 

would be very much appreciated. 

Dr. Little? 

35

STATEMENT OF BERT LITTLE, ASSOCIATE VICE PRESIDENT 

FOR RESEARCH, AND PROFESSOR OF COMPUTER SCIENCE 

AND MATHEMATICS, TARLETON STATE UNIVERSITY, 

STEVENVILLE, TEXAS 

Mr. LITTLE. Thank you, Senator Chambliss. My name is Bert Little. I am Associate Vice President for Research at Tarleton State 

University, which is a member of the Texas A&M University System. I am a professor of computer science and of mathematics. I 

have been doing research for over 27 years on the Federal dime 

and the Fed has always been happy with my research, which I am 

glad to report. 

I am here to bring to you the results of another program of research that w conducted at the Center for Agribusiness Excellence. 

It was sponsored under Subtitle B, Section 515(j) of ARPA, basically to establish an information management system under which 

we could do data mining which would improve the integrity of the 

crop insurance system and effect savings and reduce fraud, waste, 

and abuse. 

I am bringing to you three messages today. The first message is 

that this program has been a success. The second one is, if this program goes away, the savings that we have been able to achieve will 

ultimately go away. Then third, I would like to raise a yellow flag, 

and that yellow flag is that the House gave us money to continue 

on for one more year and the Senate Appropriations Committee did 

not put money in there. 

Basically, what we have been able to do under my point one is 

to be able to effect savings that are on the average of $100 million 

a year. Over the past 4 years, we have effected savings in excess 

of $350 million. 

No. 2, if the program does not continue, such savings will disappear and anything that we have been able to do to increase the 

integrity of the program will go away. 

No. 3, we do have 1 year of funding on the House side, not on 

the Senate side, and the interesting quagmire that the Risk Management Agency finds itself in is that although the authorization 

for the funding ends this year, the requirement for this kind of research to reduce fraud, waste, and abuse does not disappear. 

I have tried to keep my statement brief and I will yield my 57 

seconds. 

The CHAIRMAN. It is well received, I assure you, Dr. Little——

[Laughter.] 

The CHAIRMAN [continuing]. The appropriations process is not 

over, so that will be duly noted, that you yielded back a minute as 

we move into that process. 

[Laughter.] 

The CHAIRMAN. I also note that you have as your Washington 

representative Mr. Ken Ackerman, who is former RMA administrator under the previous administration, a gentleman that I had 

the privilege of working with on many, many difficult issues, and 

Ken, it is good to see you. 

[The prepared statement of Mr. Little can be found in the appendix on page 161.] 

The CHAIRMAN. Dr. Babcock? 

36

STATEMENT OF BRUCE A. BABCOCK, DIRECTOR, CENTER FOR 

AGRICULTURAL AND RURAL DEVELOPMENT, IOWA STATE 

UNIVERSITY, AMES, IOWA 

Mr. BABCOCK. Thank you, Mr. Chairman, for the opportunity to 

participate in today’s hearing and to review ARPA’s livestock insurance provisions. ARPA authorized the RMA to insure livestock and 

it set up a mechanism to induce the private sector to create new 

insurance products. 

My view of the rationale for expanded Federal involvement in 

the livestock sector is to increase the economic viability of independent livestock producers by providing them with efficient risk 

management tools that allow them to manage their risk independently of packers. 

Producers of hogs, fed cattle, and feeder cattle in 19 States can 

now insure against unexpected declines in the price of their production with Livestock Risk Protection, or LRP. Hog producers in Iowa 

can insure against unexpected declines in the average margin over 

feed costs with LGM, or Livestock Gross Margin. 

Now, the extent to which small to medium-sized livestock producers will actually use these new insurance products remains to 

be seen, however. This year, no State has more than 3 percent of 

its livestock insured under either product. 

There are a number of reasons for this low participation. History 

has shown that it takes time for farmers, their agents, and the 

companies to become knowledgeable about and comfortable with 

new products. In addition, both LGM and LRP were pulled from 

the market in December of 2003 following discovery of BSE in the 

U.S. Following substantial program modifications, sales of both resumed in October of 2004. This withdrawal hurt sales momentum 

for both products, but this type of learning by doing is what pilot 

insurance programs are really all about. 

Market research showed that livestock producers list risk management as a top concern. However, recent experience with crop insurance shows that most crop farmers will not buy high levels of 

insurance without large premium subsidies. But extending these 

large premium subsidies to the livestock sector to encourage participation would be counterproductive because livestock supplies 

are much more responsive to subsidies than are crop supplies. 

Large premium subsidies would lead to supply expansion and a resulting drop in market prices, exactly the event that the insurance 

products are designed to protect against. 

Over the next three to 5 years, we should learn whether independent livestock producers find that Federal livestock products 

are important to their operations. By then a large proportion of the 

nation’s producers will have access to Federal insurance and agents 

and companies will have had time to learn how to sell the products 

and manage their risk. 

If it turns out that a significant number of producers want to 

purchase this kind of insurance, Congress will need to revisit the 

$20 million limitation on annual expenditures that is included in 

ARPA. 

In summary, ARPA is a success with regards to livestock insurance. It set up a successful mechanism to encourage the private 

sector to develop innovative products and it gave RMA authority 

37

and the financial means to offer reinsurance and support for the 

products. 

As an aside, I must say that in my experience, RMA has done 

a very good job working with the private companies in making, implementing this part of ARPA. 

So that is it. 

The CHAIRMAN. It is noted you didn’t yield back any time——

[Laughter.] 

Mr. BABCOCK. But I was only 9 seconds over. 

The CHAIRMAN. We won’t charge you for that, I promise you. 

[The prepared statement of Mr. Babcock can be found in the appendix on page 166.] 

The CHAIRMAN. Mr. Clemens? 

STATEMENT OF MIKE CLEMENS, WIMBLEDON, NORTH DAKOTA, ON BEHALF OF THE AMERICAN SOYBEAN ASSOCIATION, NATIONAL SUNFLOWER ASSOCIATION, AND U.S. 

CANOLA ASSOCIATION 

Mr. CLEMENS. Mr. Chairman and members of the committee, I 

am a producer from Wimbledon, North Dakota. I am Mike 

Clemens. I grow wheat, corn, sunflowers, and soybeans, and I am 

also Chairman of the National Sunflower Association. 

While the immediate concern for each oilseed and association 

varies, as farmers, we support a strong National Crop Insurance 

Program that ensures all producers can obtain affordable coverage. 

I will briefly discuss the major issues for each oilseed commodity 

that I represent here today. 

First, under soybeans, finding effective policies to address soybean rust is a top priority for the American Soybean Association. 

Soybean producers are significant customers of the Crop Insurance 

Program. Last year, 77 percent of the total soybean acres were insured, or 58 million acres out of the 75 million acres. However, 

while participation numbers for soybeans are impressive, there are 

a wide range and regional variations in the type of policies farmers 

buy toward this program. 

For example, consider the different position of a soybean farmer 

from Iowa and a soybean farmer from Arkansas is likely to find 

himself in if both suffer a 40 percent yield loss from soybean rust. 

In Iowa, the State with the most soybean acres, 94 percent of the 

acres in 2004 were covered with buy-up policies at the level of 75 

percent. In Arkansas, the Southern State with the most soybean 

acres, only 46 percent of the acres were covered with a buy-up policy. In fact, only about two-thirds of Arkansas growers bought crop 

insurance at all, and of these, more than half bought CAT policies. 

For those growers, a 40 percent yield loss would not even be covered if soybean rust were to happen. 

In Georgia, soybean farmers are in a similar situation. Only 71 

percent of the soybean acres are insured at all, and fully 38 percent 

of all policies are at the CAT level. 

Soybean farmers have real concerns that despite our best efforts 

to protect ourselves through the Crop Insurance Program, losses 

due to soybean rust will not be adequately covered and disaster assistance will be necessary. The criteria for paying indemnities due 

to soybean rust seem terribly subjective to farmers. There is no cerVerDate 0ct 09 2002 16:42 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\DOCS\22647.TXT TOSHD PsN: LAVERN
38

tainty as to when to spray, how many times to spray, whether it 

is too early, too late, and the list just constantly goes on with the 

producer to identify that. 

The Soybean Growers Association strongly believes losses due to 

soybean rust should be covered through the Crop Insurance Program. 

And moving quickly into sunflowers and canola, the major concern is the inability to expand crop insurance coverage availability 

in a timely manner. Historically, farmers have used written agreements designed to offer coverage in a county where the crop insurance is not in place for a certain crop to help make the transition 

into growing a new crop. This also helped RMA compile enough experience to extend crop insurance policies into that county. 

However, under current RMA rules, 3 years of production history 

are now required before a producer can get a written agreement. 

In most cases, this prohibits producers from even trying an alternative crop, since lenders routinely require their borrowers to buy 

insurance every year, and to let a producer go along without crop 

insurance for 3 years can be devastating. 

We understand the need for actuarial soundness. However, we 

believe the cropping history of a producer’s similar insurable crops 

could gauge his or her ability to grow these new crops. Therefore, 

we ask the committee to consider amending the crop insurance 

statute to allow the use of similar commodities to establish cropping history for written agreements. 

For instance, FDA’s mandated trans fat labeling becomes effective January 1 of 2006 and consumers are searching for this 

healthy oil that is not available to the market at the levels we 

would like to see now. Producers need the flexibility to plant for 

these markets to capitalize on markets that are in front of us right 

now. 

Everybody likes baseball, but just think of confection sunflower 

seeds. You won’t be able to eat the seeds at the ballgame because 

the producers in Kansas can’t grow enough sunflowers. 

Thank you. 

The CHAIRMAN. Thank you, Mr. Clemens. 

[The prepared statement of Mr. Clemens can be found in the appendix on page 171.] 

The CHAIRMAN. Mr. Buttars? 

STATEMENT OF RAY BUTTARS, CHAIRMAN, DOMESTIC POLICY 

COMMITTEE, NATIONAL ASSOCIATION OF WHEAT GROWERS, 

WESTON, IDAHO 

Mr. BUTTARS. Thank you, Mr. Chairman, Senator Lugar, and in 

absentia, the rest of the members of the committee. My name is 

Ray Buttars and I grow wheat in the great State of Idaho. I am 

pleased to be here on behalf of the National Association of Wheat 

Growers and offer our thoughts on the Federal Crop Insurance Program. 

Crop insurance is a critical risk management tool, and like any 

other important tool on the farm, it needs periodic maintenance 

and sharpening. The sharpening we recommend is identified in the 

following four improvements. 

39

First, coverage levels. The higher levels of coverage currently 

available are not affordable. Even with the existing premium support, most farmers can afford only 65 or 70 percent coverage. With 

fuel and fertilizer costs being double of just a crop or two ago, it 

is easy to understand that production costs usually exceed 90 percent of the average crop value. At 70 percent coverage, a farmer 

loses 3 years of potential profit before any claim is paid. 

Higher coverage is critical. However, it must also be affordable. 

NAWG has requested that group risk plans be made available to 

wheat growers. These policies are more affordable, but will work 

only for a portion of farmers because counties in the wheat belt 

tend to be large and have multiple climates. Greater premium support for 75 to 85 percent levels appear to be the only real solution 

for making these higher levels affordable. 

Second, risk management accounts. We have developed a concept 

we call risk management accounts. These accounts would provide 

a mechanism for Federal and private partnership to address the 

most glaring hole in the Crop Insurance Program, which is the uninsurable portion of a farmer’s crop. Presently, this initial deductible is far greater than the slim margins we work with. Recent ad 

hoc programs have tried to address this. We believe the time is 

right for a proactive solution. 

These accounts would be available to farmers who buy crop insurance policies and would be linked to the value of the crops insured. Further details are attached to my testimony. 

Third, APH, or Actual Production History. The nation’s wheat 

growers know all too well the effects of prolonged drought. Over 

the last several years, much of the nation’s wheat belt has suffered 

from extensive drought and, therefore, loss of crop. Each year of 

crop failure reduces a farmer’s APH, eroding the safety net provided by crop insurance. In my written testimony, you will find two 

suggestions to offset this erosion. 

Finally, minimum harvestable value. Many times, the residual 

value of a damaged crop is less than the cost of gathering or harvesting the remaining crop. Determining the point at which a crop 

is not worth harvesting and the actuarial cost of this option should 

be very simple. We suggest that farmers be allowed to purchase optional coverage to insure the unharvestable residual and recommend that this option be assignable to a custom harvester. 

Mr. Chairman, members of the committee, Senator Lugar, we 

sincerely thank you for this opportunity. I would be glad to respond 

to any questions you have and the NAWG leaders, staff, and I look 

forward to working with you to sharpen the risk management tools 

available to the American farmer. Thank you. 

The CHAIRMAN. Thank you very much. 

[The prepared statement of Mr. Buttars can be found in the appendix on page 175.] 

The CHAIRMAN. Dr. Little, you answered part of this, but I want 

to go a little bit further. As you know, mandatory funding for data 

mining expires after fiscal year 2005, as you stated. Also in your 

testimony, you state that your data is currently protected by an 

RMA firewall. What happens to this data if funding expires and is 

unavailable after October 1, 2005? 

40

Mr. LITTLE. The hardware and software are property of USDA 

and we would pack it up and take it to Kansas City. 

The CHAIRMAN. Mr. Clemens, your testimony highlights regional 

differences in levels of insurance coverage. Do you have any 

thoughts about how to encourage producers to purchase higher levels of insurance coverage? 

Mr. CLEMENS. It seems in where I am from, North Dakota, that 

the agents do an excellent job of providing information to the growers to outline all the options that are to them out there as far as 

different levels of coverage and what policy they have. Just more 

of an educational thing, possibly, could be more in place. 

And also, there are certain areas that don’t think that they ever 

have a crop less. Well, they may never have a crop less—North Dakota, it seems like you have heard in the room here several times 

today that North Dakota has a crop loss every minute of the day, 

it seems like, and these other States, with soybean rust coming in 

now, it might not be as often, but it is going to be as huge loss to 

the producers. So maybe they just get complacent to think that 

they never have a loss and that is why they buy that lower coverage. 

The CHAIRMAN. Are we far enough into the season yet to know 

what percentage of our soybean growers are going to experience a 

problem with rust? 

Mr. CLEMENS. Earlier testimony, I believe there was only one 

county in Florida that is identified. It is really pretty early in the 

season. You know, a spray will only last 2 weeks and it costs $15 

per application, so a farmer could go broke just blindly applying a 

fungicide to his crop every 2 weeks to prevent the rust, and when 

you see it, it is going to be too late. Really, we are just starting 

to get into the timeframe when it is really getting crucial. 

The CHAIRMAN. Mr. Clemens, Mr. Buttars, do you as producer organizations have any views to share on the data mining? 

Mr. CLEMENS. We just support whatever RMA has already put 

in place, the firewalls that are in there to see what is going on in 

local communities. Other than that, really none. 

Mr. BUTTARS. Mr. Chairman, the Association of Wheat Growers 

has not taken a formal position on this. We support the absolute 

need for the preservation of the integrity of the Crop Insurance 

Program, as one of you has expressed. We also, though, nonetheless 

would want to assure that availability was always maintained and 

that profiling was not a pursuit of the program. 

The CHAIRMAN. Mr. Buttars, I appreciate your thinking about 

ways to improve the Crop Insurance Program, but as you probably 

know, statutory improvements to the Crop Insurance Program cost 

money. Do you have any cost estimates on the proposals that you 

have mentioned in your testimony? 

Mr. BUTTARS. We have simple estimates, but they are only simple. We would look forward to the opportunity to working with your 

committee, with FAPRI or whoever else we need to. The staff at 

NAWG and the rest of our group are eager to get an actuarially 

sound and FAPRI or OMB-supported estimate of these suggestions. 

The CHAIRMAN. Mr. Babcock, your written testimony suggests, on 

the one hand, that there may be a public policy rationale for Federal livestock insurance, but on the other hand warns that large 

41

premium subsidies could lead to a significant expansion in livestock supply and a resulting drop in market prices for livestock. 

Could you explain or elaborate a little bit on this, please, sir? 

Mr. BABCOCK. Sure. The public policy rationale, in my view, is 

that small to medium livestock producers can’t really go to the Chicago Board of Trade and Chicago Mercantile Exchange and efficiently buy futures and options because the contract sizes are so 

large that they do not, what should I say, aren’t customizable to 

an individual producer’s operation and that the LRP and LGM insurance plans basically take those futures and options and customize them to make them work for small to medium livestock producers. 

The large producers can go to the commodity exchanges and use 

those for their price insurance. The only alternative for small to 

medium producers is to go to—and they have done it over the last 

10 years—is go to the packing houses and the packers and processors in the big companies that will offer them different risk management tools like window contracts or forward contracts on their 

production, but then that raises a question about how independent 

those producers are relative to the packers, and so that the LRP 

and LGM give them an alternative to packers for their risk management purposes. 

So that, to me, is a public policy reason why maybe the Federal 

Government should support the insurance products. But on the 

other hand, that support needs to be a bit limited because the livestock sector, especially hogs and poultry and things that have a 

shorter biological cycle can take a price subsidy or a subsidy for 

their insurance and what that will do is encourage them to expand, 

because if you pay for the risk reduction, they will take more risk 

and they will expand their markets. Our experience with the livestock commodity groups is that they don’t want that kind of intervention because they are afraid of what it will do to market price. 

So on the one hand, there is a reason for being involved, but on 

the other hand, I think we need to make sure we limit the large 

premium subsidies on—be careful that we don’t take all the risk 

out of producing livestock. 

The CHAIRMAN. Senator Lugar? 

Senator LUGAR. Thank you, Mr. Chairman. 

Mr. Clemens, I was interested in your analysis of the soybean 

situation in these ways. I think you mentioned that there could be 

a very great difference in what happens with soybean rust in the 

South, and you cited Arkansas, which is pretty Southern as opposed to Iowa or Indiana, where the spores might take a while 

longer to get there, but a very different set of circumstances under 

the crop insurance coverage. 

That is, as I understand you are saying in Arkansas, maybe 40–

some percent had greater coverage of 75 percent to 85 percent levels, whereas maybe in Iowa, it was 77 percent or thereabouts. So 

this is totally disproportionate in this particular crisis to what is 

likely to be the problem. 

As I understand, the spores thrive in the South, could even exist 

in the South even if they die in the North during winter and so 

forth, and yet we sort of know as this situation is being set up 

there is a real problem here because the losses may not be to the 

42

point where you even get any coverage at all and you sort of miss 

out altogether. 

So then there will clearly be a hue and cry in the event that the 

rust problem really is a big one this year that the program didn’t 

work, that the coverage is inadequate. In essence, you can almost 

see it coming just by definition unless we have no problem at all, 

in which case, why, this was a false alarm. 

I raised questions with the first panel to start out with this 

morning because I am alarmed about this. I have a feeling that 

this could be a very bad surprise. I am assured, for example, in my 

State that there are 20 plots somewhere that are going to detect 

the first spore that gets there. In other words, this will be an alert. 

I hope that is right. I am not sure I know where the 20 plots are 

and who will report what happens on those 20 plots. 

And as you have pointed out, if you apply the chemicals then at 

that point, the efficacy of the chemicals may have a duration of a 

week, two, three, how many times you do this to qualify for the 

crop insurance payments at the end of the trail, which I am still 

trying to pin down with those over at USDA to give us more definition. I am not satisfied that we sort of know if in a conventional 

way you plant the crop and nature moves on, you are OK. 

You are representing the soybean people. Let me just ask, have 

you encouraged soybean farmers generally because of this rust to 

go for the 85 percent coverage? In other words, this would appear 

to be the most prudent thing they could do. Or do you take Mr. 

Buttars’ testimony on wheat? He has said so many wheat farmers 

have such a small margin with regard to the total expenses and 

with other things rising that although they might like to have the 

85, the best they can do is the minimum situation, but then they 

may misfire altogether. So he is calling for a new program that offers some possibility to people moving up into this. 

What is your overall comment, given all of these sort of nondescript points that I have made? 

Mr. CLEMENS. First off, the data I supplied to you was 2004 and 

it was the history——

Senator LUGAR. Two-thousand-and-four, OK. 

Mr. CLEMENS. Two-thousand-and-four data. We don’t have the 

data for 2005. 

Senator LUGAR. OK. 

Mr. CLEMENS. There hasn’t been any effort by the Soybean Association to really get growers involved and know what could be coming down the road. I am not really sure, because I represent the 

National Sunflower Association, I am not on the American Soybean 

Board, but as a producer, I grow soybeans on my farm and I have 

had notices sent to me, not necessarily about buying up coverage, 

but how to look for the rust. A nice pamphlet was sent out to me. 

Unfortunately, everything in that pamphlet once I read it, it was 

already too late for me to spray my crop. 

There is going to be a real problem as far as if this rust does 

show up and we say one of these 20 fields shows it. There isn’t 

enough airplanes, sprayers, and chemical in the country probably 

to treat all these acres and it is going to be just a panic. 

I think back to back in the 1980’s when they had wheat midge 

predicted in North Dakota coming in. There were traps set out and 

43

everything to monitor it and the big scare was put in. A lot of producers couldn’t forward-price their crops because they didn’t know 

if they were going to have a crop and it never materialized. 

So this rust is really going to—it is a new thing, new kid on the 

block, so we are going to have to see how it is going to work out 

for us. We know the history in South America is very devastating. 

Senator LUGAR. Well, I appreciate what you are saying. I am concerned about it because, as I have already pointed out, I have a parochial interest, 200 acres of beans out there. I am watching them. 

But I don’t have any confidence at all in what is occurring as I 

watch either USDA’s crop insurance or what have you on this. 

There is almost a wistful hope that somehow, we are going to miss 

what happened. But as you are suggesting, if we don’t, then there 

will really be hell to pay. Everybody will be flying in every direction as to why there was no foresight, no vision, and so forth. 

At least, Mr. Chairman, on this committee, there was vision. We 

kept raising the alarm every time we had a hearing, hoping somebody understands that. I appreciate all the thoughts about clear 

signals and communications and what have you, but, you know, I 

am in a position to hear all these things and I don’t hear very 

much of it. So I am worried about the average farmer in Indiana 

who isn’t sitting in a Senate office, going to hearings, talking to 

USDA, visiting with my friend, Chuck Connor. You know, where do 

you gain some confidence in all this? 

Let me just ask a question of you, Mr. Buttars. Even if a wheat 

farmers pressed in terms of margin, wouldn’t your advice still be 

to go to the 85 percent? In other words, I can’t imagine—our margin is not that great in Indiana on corn or beans, for that matter, 

but I can’t imagine starting off a crop year without the highest 

amount of insurance anybody is going to provide, and particularly 

given the fact there is a large Federal support to it. This is not the 

actuarial cost of all of this. 

Mr. BUTTARS. You ask a very good question and that question, 

while I don’t know the answer for soybeans, I do know from personal experience that as I pursue the higher levels of coverage, the 

premium cost is just about dollar for dollar for the insured benefit. 

In explaining crop insurance to an intern that works for our Association yesterday, we discussed the concept, well, now if her car 

payment is $300 a year, or, excuse me, a month, and her insurance 

were $300 a month, she said, why not just buy a second car, because she doesn’t need the coverage because she can bear that risk 

already. If the cost of that additional coverage is equal to the premium, or to the benefit, why buy the coverage? 

Senator LUGAR. So here, I would guess that maybe our calculations are different. At least, my own calculation is why I buy this, 

actually pay the premiums, or theoretically discussing it this morning is that there is real value in doing that. One year, why, White 

River came up in September and came across 150 acres of bottom 

land. There was no predictability about that situation whatsoever, 

but I was awfully glad we had the insurance and it saved our situation, even granted a 5–year average. It doesn’t precisely cover 

that crop. 

But in any event, this is why the value of people like Dr. Little 

and Dr. Babcock are very important, some economists in here to 

44

advise some of the rest of us as to whether there is value or not. 

Now, if there isn’t, why, we need to hear that, likewise, from the 

academic community who are non-imbibers, non-soybean farmers, 

insurance premium payers. 

I think there is substance in what you are advocating, Mr. 

Buttars. What I am trying to get at is, before we get into that, to 

try to gauge the value of what additional appropriations might be 

involved and what benefits come from that, which I hope the adequate research will support before we bite into that. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Gentlemen, thank you all very much for your 

participation. This has been a very informative hearing with testimony and the answering of questions by all of our panelists. 

The record will remain open for 5 days, if anyone has any additional comments or statements to insert. 

Thank you, and this hearing is concluded. 

[Whereupon, at 12:36 p.m., the committee was adjourned.] 

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A P P E N D I X

JUNE 28, 2005

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QUESTIONS AND ANSWERS

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