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HEARING TO REVIEW THE FEDERAL CROP 

INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON 

GENERAL FARM COMMODITIES AND RISK 

MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 14, 2007

Serial No. 110–22

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia, 

Ranking Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘RANDY’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

APRIL SLAYTON, Communications Director 

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

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

BOB ETHERIDGE, North Carolina, Chairman 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

JOHN T. SALAZAR, Colorado 

NANCY E. BOYDA, Kansas 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

BRAD ELLSWORTH, Indiana 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

EARL POMEROY, North Dakota 

JERRY MORAN, Kansas, Ranking Minority 

Member 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

CHARLES W. BOUSTANY, JR., Louisiana 

K. MICHAEL CONAWAY, Texas 

FRANK D. LUCAS, Oklahoma 

RANDY NEUGEBAUER, Texas 

KEVIN MCCARTHY, California 

CLARK OGILVIE, Subcommittee Staff Director 

(II) 

(III)

C O N T E N T S 

Page 

Boustany, Jr., Hon. Charles W., a Representative in Congress from Louisiana 2

Prepared statement .......................................................................................... 3

Etheridge, Hon. Bob, a Representative in Congress from North Carolina, 

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

Prepared statement .......................................................................................... 2

Moran, Hon. Jerry, a Representative in Congress from Kansas, prepared 

statement .............................................................................................................. 5

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 4

WITNESSES

Wilcox, Caren, Executive Director and CEO, Organic Trade Association, 

Washington, D.C. ................................................................................................. 6

Prepared statement .......................................................................................... 7

Segler, Hilton R., President, Georgia Pecan Growers Association, Inc., Albany, 

GA .......................................................................................................................... 9

Prepared statement .......................................................................................... 10

Marlow, W. Scott, Director, Farm Sustainability Program, Rural Advancement Foundation International—USA, Chapel Hill, NC .................................. 11

Prepared statement .......................................................................................... 13

Gillen, David, Farmer; Vice Chairman, Public Policy Action Team, National 

Corn Growers Association; Chairman, Board of Directors, South Dakota 

Corn Growers Association, White Lake, SD ...................................................... 18

Prepared statement .......................................................................................... 20

Kubecka, William H. ‘‘Bill’’, Past President, National Sorghum Producers, 

Palacios, TX .......................................................................................................... 32

Prepared statement .......................................................................................... 33

Iverson, Gary W., Executive Director, Great Northern Growers Cooperative, 

Sunburst, MT ....................................................................................................... 39

Prepared statement .......................................................................................... 41

Chapman, Steven D., President, American Sesame Growers Association, 

Lorenzo, TX .......................................................................................................... 42

Prepared statement .......................................................................................... 44

Watts, Tim J., President, Watts and Associates, Inc., Billings, MT .................... 45

Prepared statement .......................................................................................... 47

SUBMITTED MATERIAL

Answers to submitted questions 61

(1)

HEARING TO REVIEW THE FEDERAL CROP 

INSURANCE PROGRAM 

MONDAY, MAY 14, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND

RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, D.C. 

The Subcommittee met, pursuant to call, at 2:31 p.m., in Room 

1300, Longworth House Office Building, Hon. Bob Etheridge 

[Chairman of the Subcommittee] presiding. 

Present: Representatives Etheridge, Marshall, Salazar, Herseth 

Sandlin, Pomeroy, Boustany, and Neugebauer. 

Staff Present: Tyler Jameson, Clark Ogilvie, John Riley, Sharon 

Rusnak, April Slayton, Debbie Smith, Kristin Sosanie, Bryan 

Dierlam, and Jamie Weyer. 

OPENING STATEMENT OF HON. BOB ETHERIDGE, A 

REPRESENTATIVE IN CONGRESS FROM NORTH CAROLINA 

Mr. ETHERIDGE. This hearing of the Subcommittee on General 

Farm Commodities and Risk Management to review the Federal 

Crop Insurance Program will come to order. 

I want to thank my colleagues and the witnesses for being here 

today. You know that if you have a hearing on a Monday afternoon, 

it puts a lot of extra pressure on witnesses as well as my colleagues 

who, if they went home, it would shorten their weekend. So I want 

to thank them for being here. 

At the previous crop insurance hearing, we heard from those that 

oversee, sell, adjust, manage and reinsure the policies that make 

up our crop insurance system. Today, we will hear on behalf of the 

producers who use the system as well as those who would like to 

be a part of that system. 

While traditionally the farm bill does not delve deeply into crop 

insurance matters, it does provide an opportunity to make some 

improvements to the system. The 2002 Farm Bill contained a subtitle which included several small provisions regarding crop insurance, and I strongly expect that at least some minor changes to the 

crop insurance system will find their way into this farm bill. 

The purpose of crop insurance is to help farmers better manage 

their risk. To the extent it does not accomplish this goal, it is our 

task to improve the system. I am a believer in crop insurance, and 

I want to ensure that farmers and taxpayers are getting the best 

product for their dollars invested. It is my hope that we will learn 

today ways we can improve the system so that more producers will 

2

be able to take advantage of this important risk management tool. 

I look forward to hearing today’s testimony from our witnesses. 

[The prepared statement of Mr. Etheridge follows:]

PREPARED STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS

FROM NORTH CAROLINA

I want to thank my colleagues and the witnesses for being here today. 

At the previous crop insurance hearing, we heard from those that oversee, sell, 

adjust, manage, and reinsure the policies that make up our crop insurance system. 

Today, we will hear on behalf of the producers who use the system as well as those 

who would like to be part of system. 

While traditionally, the farm bill does not delve deeply into crop insurance matters, it does provide an opportunity to make some improvements to the system. The 

2002 Farm Bill contained a subtitle which included several small provisions regarding crop insurance. And I strongly expect that at least some minor changes to the 

crop insurance system will find their way into this farm bill. 

The purpose of crop insurance is to help farmers better manage their risk. To the 

extent it does not accomplish this goal, it is our task to improve in the system. 

I am a believer in crop insurance, and I want to ensure that farmers, and taxpayers, are getting the best product for their dollar. It is my hope that we will learn 

today ways we can improve the system so that more producers will be able to take 

advantage of this important risk management tool. 

I look forward to hearing today’s testimony from our witnesses, and I now turn 

to the gentleman from Louisiana, Mr. Boustany, who is sitting in for the Ranking 

Member, Mr. Moran.

Mr. ETHERIDGE. I now turn to the gentleman from Louisiana, 

Mr. Boustany, who is sitting in for our Ranking Member, Mr. 

Moran, who is on his way back, for any comments he may have and 

his opening remarks. 

OPENING STATEMENT OF HON. CHARLES W. BOUSTANY, JR., A 

REPRESENTATIVE IN CONGRESS FROM LOUISIANA 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

I know Congressman Moran would like to be here, but he has got 

his difficulties back in his home State of Kansas that he is dealing 

with, and so I am pleased to sit in for him today. 

I want to thank you for calling this hearing. It is a very important hearing. We have heard from the USDA, from crop insurance 

companies, from crop insurance agents, from GAO and other parties; and I think it is wise to hear from these witnesses today who 

each have their own concerns about how the current crop insurance 

programs work. 

I continue to hear from producers in my district along the Gulf 

Coast about the need to improve crop insurance. Nearly 2 years 

ago, my district was struck by Hurricane Rita. Hurricane Rita did 

substantial damage to many farms in my home state, and this was 

preceded by the damage caused by Hurricane Katrina just 1 month 

before. I believe we have to have a strong crop insurance program 

that can adequately address the inherent risk of a normal farming 

operation as well as provide relief to farmers in cases of severe disaster. 

Having reviewed the testimony, I observed that we have three 

different types of concerns to address today. The first deals with 

crop insurance for new and smaller crops. It seems that some of 

the witnesses, Sesame Growers Association, for example, would 

like to expand their production, but without crop insurance there 

is an unwillingness on the part of some lenders or landlords to fiVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
3

nance or support these crops. I want to make sure that we can address these types of concerns, that we don’t limit the options of producers because we don’t have a crop insurance product available to 

them. 

That being said, I want to make sure that our crop insurance 

programs remain actuarially sound; and I am anxious to hear more 

about this issue in ways that we can address this problem. 

Additionally, I believe it will be important to review the impact 

that traditional ethanol and cellulosic ethanol production is having 

on the industry and how crop insurance could be hindering 

progress in this area as well. It is important how we address the 

importance of certain energy crops, while remaining grounded in 

the actuarial soundness of any new crop insurance program. 

Second, we have a recurring problem with declining yields that 

is addressed in the testimony of the sorghum producers. The sorghum producers have hit a common theme, and it is one that 

Ranking Member Moran and Mr. Neugebauer and others, including 

RMA, continue to address. I would like to hear the ideas on how 

we can deal with declining yields so we don’t end up with a situation where producers have less protection but at a higher price. At 

the end of the day, I believe it is important that farmers and not 

bankers are making the decision of which crops to plant. 

Third, we have testimony dealing with potential changes to the 

508(h) process, and I think the 508(h) process has worked well. 

Since the passage of ARPA, 70 proposals have been submitted to 

RMA; and 46 have been approved. This means that about 10 per 

year have been submitted to RMA since the passage of ARPA. 

I am interested to hear more about the proposals that we will 

hear about today. I want to make sure that any changes to the program would not simply result in more expenditures that would encourage the development of a cottage industry, whereby people submit ideas for development. While they may be a worthy concept, 

they may not be subject to approval; so we need to strike a careful 

balance with this. 

Again, I want to thank the Chairman for calling this hearing. I 

look forward to the testimonies of the witnesses, and I hope we can 

address these issues as we go forward. Thank you. 

[The prepared statement of Mr. Boustany follows:]

PREPARED STATEMENT OF HON. CHARLES W. BOUSTANY, JR., A REPRESENTATIVE IN

CONGRESS FROM LOUISIANA

Mr. Chairman,

Thank you for calling this hearing to hear from a number of individuals who have 

an interest in crop insurance. We have heard from USDA, from crop insurance companies, from crop insurance agents, from GAO and other parties. I think it is wise 

to hear from these witnesses who each have concerns with how the current crop insurance programs work. 

I continue to hear from producers in my district along the Gulf Coast about the 

need to improve crop insurance. Nearly 2 years ago, my district was struck by Hurricane Rita. Hurricane Rita did substantial damage to many farms in my home 

state, and this was preceded by the damage cause by Hurricane Katrina just 1 

month before. I believe we have to have a strong crop insurance program that can 

adequately address the inherent risks associated with a normal farming operation, 

as well as provide relief to farmers in cases of severe disaster. 

Having reviewed the testimony, I observe that we have three different types of 

concerns to address today. 

4

The first deals with crop insurance for new or smaller crops. It seems that some 

of the witnesses, sesame for example would like to expand their production, but 

without crop insurance, there is an unwillingness on the part of some lenders or 

landlords to finance or support these crops. I want to make sure that we can address these types of concerns so that we don’t limit the options of producers because 

we don’t have crop insurance. With that being said, I want to make sure that our 

crop insurance programs remain actuarially sound. I am anxious to hear more about 

this issue and ways to address to problem. 

Additionally, I believe it will be important to review the impact that traditional 

ethanol and cellulosic ethanol production is having on the industry and how crop 

insurance could be hindering progress. It is important that we address the importance of certain ‘‘energy crops,’’ while remaining grounded in the actuarial soundness of any new crop insurance program. 

Second, we have a recurring problem with declining yields that is addressed in 

the testimony of the sorghum producers. The sorghum producers have hit on a common theme and it is one that the Ranking Member Mr. Moran, Mr. Neugebauer and 

others including RMA continue to address. I would like to hear ideas on how we 

can deal with declining yields so we don’t end up with a situation where producers 

have less protection but at a higher price. 

At the end of the day, I believe it is important that farmers, not bankers, are 

making the decision of which crops to plant. 

Third, we have testimony dealing with changes to the 508(h) process. I think the 

508(h) process has worked well. Since the passage of ARPA, 70 proposals have been 

submitted to RMA and 46 have been approved. That means that about 10 per year 

have been submitted to RMA since the passage of ARPA. I am interested to hear 

more about this proposal. Nevertheless, I want to make sure the any changes to the 

program would not simply result in more expenditures that would encourage the development of a cottage industry whereby people submit ideas for development, while 

they may be a worthy ‘‘concept’’, that won’t be subject to approval. 

Again, I want thank the Chairman for calling this hearing. I look forward to the 

testimony of the witnesses and I hope you address these issues in your testimony, 

or in the Q&A period.

Mr. ETHERIDGE. Thank you very much. 

Let me also recognize the Chairman of the full Committee, Mr. 

Peterson. Thank you for joining us and for any comments you may 

have. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. I thank the Chairman and Ranking Member for 

their leadership and for calling this hearing. I also thank the witnesses for being with us today. 

As has been said, Federal crop insurance is an important part of 

our safety net. You know, most Americans don’t live in a farm or 

on the farm or in farming communities, have no clue about what 

a risky business you guys are in and how much money it takes to 

farm nowadays. So we, as has been said, want to make sure that 

we maintain that safety net and make sure that we have got the 

ability for people to continue to farm. 

Historically, as has been said by the Chairman, crop insurance 

has not been a major part of farm bills. However, that does not 

mean that we cannot consider some changes to improve this program. As was mentioned about the declining yields, we have been 

trying to deal with that issue for over 10 years. Frankly, I have 

come to the conclusion that this cannot be dealt with in crop insurance in any meaningful way. So we are looking at some way to deal 

with the safety net that we have and the issues that we have been 

unable to solve. I am determined to somehow or other figure out 

how to do this, and that will entail us looking into crop insurance 

to make sure that it all fits together. 

5

Today, we will be hearing from a number of groups that would 

like to see some changes in the crop insurance system. I think their 

testimony will help us move forward and make the right kind of 

decisions as we mark up the farm bill starting next week. 

Again, Mr. Chairman, I want to thank you for your leadership 

in holding this hearing, and we look forward to hearing the testimony. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. 

The Chair would request that other Members submit their opening statements for the record so the witnesses can begin their testimony and ensure that we have ample time for each Member to ask 

questions.

PREPARED STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS

FROM KANSAS

Thank you, Mr. Chairman. As I have stated before, the Federal Crop Insurance 

Program represents a key component of the farm safety net for agricultural producers. It is essential to shielding agricultural producers from localized crop losses. 

In addition to providing liquidity to producers who have lost a crop, the federal crop 

insurance also provides assurance to lenders and retailers that extend needed credit 

to farmers and ranchers during the growing season. 

Two weeks ago this Subcommittee heard from U.S. Department of Agriculture officials and a number of crop insurance industry representatives regarding the condition of the crop insurance industry. The witnesses stated that the Federal Crop Insurance Program has grown tremendously over the years and many witnesses expected the industry would continue to experience positive growth. However, many 

of the witnesses remarked that some issues remain, such as crops that continue to 

be uncovered by crop insurance policies and the failure of the system to develop a 

program to deal with multi-year droughts that cause declining yields and reduce the 

effectiveness of the traditional crop insurance policy. 

The suggestions of the USDA officials and the crop insurance providers were useful. This Subcommittee, however, is also interested in obtaining the producer perspective on the Federal Crop Insurance Program. After all, it is for the producer 

that the crop insurance program was created. The program should be designed to 

address the challenges faced by producers, while maintaining actuarial and programmatic integrity. 

I am pleased today to be presented with the suggestions of farmers and ranchers 

across the nation and from diverse production backgrounds on how to improve the 

current system. Should Congress consider addressing the crop insurance industry in 

the near future, the advice provided today will be a useful resource for this Committee. 

I look forward to all the witnesses’ testimony and hope that our discussion today 

can yield useful information for this Committee to utilize in the coming months. 

Thank you, Mr. Chairman.

Mr. ETHERIDGE. With that, let us go to our first panel. We would 

like to welcome our first panel to the table: Ms. Caren Wilcox, Executive Director and CEO of the Organic Trade Association here in 

Washington; Mr. Hilton R. Segler, President of the Georgia Pecan 

Growers Association; Mr. Scott Marlow, Director of the Farm Sustainability Program, the Rural Advancement Foundation International of the United States in Pittsboro, North Carolina; Mr. 

David Gillen, farmer, on behalf of the National Corn Growers Association from South Dakota. 

Ms. Wilcox—let me also remind each of you, if you would, your 

full statement will be included in the record; and if you will endeavor to summarize as close to 5 minutes as you possibly can, that 

would allow each one of us to have adequate time. 

Thank you, and you may begin. 

6

STATEMENT OF CAREN WILCOX, EXECUTIVE DIRECTOR AND 

CEO, ORGANIC TRADE ASSOCIATION, WASHINGTON, D.C. 

Ms. WILCOX. Thank you, Mr. Chairman, and good afternoon. 

Good afternoon, also, Representative Boustany and Members of the 

Subcommittee. 

My name is Caren Wilcox; and I am Executive Director of the 

Organic Trade Association located in Greenfield, Massachusetts. It 

is my honor to have the opportunity to testify today. My comprehensive testimony regarding the entire organic community is on 

record with the Subcommittee on Horticulture and Organic Agriculture. Thank you for paying attention to this fast-growing segment of agriculture. 

As you will hear today, the organic community has not been able 

to rely on USDA for the information it needs to understand its 

markets or the information to create a wide range of insurance 

products. So OTA does studies for the industry by itself. 

Last week, we released preliminary results of our latest market 

survey and announced that the organic food and beverage market 

reached 3 percent of the retail sector in the United States in 2006. 

Of course, the organic community is pleased by this growth. However, there is emerging evidence that consumer desire for organic 

products is outpacing domestic production. OTA is seeking to reduce these hurdles to farmers entering organic production. 

While organic farmers are pleased that they are no longer considered entirely ineligible for some forms of crop insurance, they continue to be penalized by the current system; and OTA seeks to create fairness for them. Currently, organic farmers are charged a 5 

percent premium over the cost a conventional farmer pays. Adding 

to the inequity, when organic farmers must collect on their insurance policies they are compensated at the price of the conventional 

crop, not the higher organic price. 

An inability to seek crop insurance similar to what would be expected in conventional agriculture is one of the impediments to 

more farmers seeking to convert land to organic production. In 

order to remedy the situation for current and future organic farmers, we have developed legislative language that would amend the 

Federal Crop Insurance Act by adding a new subsection entitled 

Contracts for Organic Production Coverage Improvements.

We acknowledge that the national organic standard only came 

into effect in late 2002 and that USDA did not originally collect localized, separate data for organic crops versus the same crops 

grown conventionally. Fortunately, the USDA is now beginning to 

gather more price and data for organic agriculture products. It 

should be possible for the Federal Crop Insurance Corporation to 

prepare appropriate studies of risk and loss experience. 

We believe that if the Congress will ensure that the data continues to be gathered across all segments and that there are appropriate studies mandated as part of the ongoing reviews conducted 

by the Corporation, then crop insurance products can be created 

that will be actuarially sound and will be available on an expanding basis to organic farmers. Such studies should lead the Department to be able to eliminate arbitrary price disparities. 

As data collection continues to be more comprehensive, the Department should review incoming data at least annually beginning 

7

in the 2008 crop year so the FCIC can make determinations and 

eliminate the surcharges; and farmers can be paid on actual losses 

in a timely manner. However, the proposed new system is very dependent on Congress and USDA creating and supporting comprehensive data collection. 

We have been very pleased by the RMA AMS interagency agreement on price collection and support FCIC continuing and expanding it to facilitate collection and dissemination of segregated retail 

and wholesale price information for organic production. 

In addition, OTA has called for the development of an insurance 

product with coverage that would protect the producer of an organic crop against the risk of a crop becoming contaminated 

through no fault of the producer and in a manner that would cause 

that crop to lose its access to organic markets and prices. 

Finally, OTA’s legislative proposal would require that the FCIC 

report annually to the House and Senate committees on its 

progress in developing and improving Federal crop insurance for 

crops grown in compliance with USDA’s national organic standard 

and program. Our proposal is deliberately formulated not to create 

a budget score, because it requires these reviews and studies to fit 

within the Corporation’s existing program of research and contracts 

currently funded at about $25 million. 

Thank you for this opportunity to speak with you today. We look 

forward to working with the Subcommittee as you decide on crop 

insurance authorizations in the farm bill. 

[The prepared statement of Ms. Wilcox follows:]

PREPARED STATEMENT OF CAREN WILCOX, EXECUTIVE DIRECTOR AND CEO, ORGANIC

TRADE ASSOCIATION, WASHINGTON, D.C. 

Mr. Chairman, Ranking Member, and Members of the Subcommittee, I am Caren 

Wilcox, Executive Director of the Organic Trade Association (OTA), the membership-based business association for organic agriculture and products in North America. I am here today speaking on behalf of the Organic Trade Association (OTA). 

OTA is the voice for the organic business community, and has had this role for 

over twenty years, since its founding in 1985. Since that time, OTA membership has 

grown more than eight-fold, and now encompasses approximately 1,600 members 

across all parts of the organic farming, processing, distribution, and retailing supply 

chain for food, organic textiles, and personal care products. 

Organic agriculture forms the basis of a fast growing part of the agricultural economy, and offers hope to farms and shoppers alike, while contributing to the improvement of our land, air, and water resources. Many farm businesses involved with organic production have started with a vision of changing agriculture for the better, 

and have grown over the years to become well-known products. 

On April 18, 2007, before the Horticulture and Organic Agriculture Subcommittee, 

I provided extensive testimony on the state of the industry and the exciting growth 

taking place in the organic marketplace. I also outlined the laws, regulations, and 

practices that underlie that success. OTA provides private monitoring of the industry’s growth, and has been involved with passage of the laws and regulations governing the industry. Also, during that testimony, I outlined OTA’s 2007 Farm Bill 

agenda—its potential remedies to the various impediments faced by organic farmers. In particular, in the case of crop insurance there is a lack of data collection by 

USDA that for other segments of agriculture is collected. Today I would like to focus 

on one particular impediment—the lack of adequate crop insurance. 

One of the major impediments to converting more farm land to certified organic 

status has been the type of crop insurance available. Originally, organic farmers 

were not considered eligible for federal crop insurance. The Agricultural Risk Protection Act of 2002 (ARPA) provides that organic farming practices be recognized as 

good farming practices. Prior to this ruling, crop insurance policies may not have 

covered production losses when organic insect, disease, and/or weed control measures were used and such measures were not effective. 

8

However, the newly available federal crop insurance was presented at a disadvantageous rate. Organic farms pay a 5% additional premium and in the event of 

a crop loss they only receive compensation at a conventional price level for their organic crop. This is attributed by crop insurers and RMA to the fact that actuarial 

data is not available to insurers. While this is changing, it is important for RMA 

to use collected data to enable an insurance product to be developed promptly to 

help organic farmers. Some price and loss data is finally being collected by USDA, 

and this should be helpful in creating valid insurance products. 

In order to address the inadequacy of available crop insurance, OTA has developed legislative language that would amend the Federal Crop Insurance Act by adding a new subsection entitled ‘‘Contracts for organic production coverage improvements.’’

If this legislation were to be enacted, within 6 months the Corporation would be 

instructed to enter into one or more contracts for the development of improvements 

in federal crop insurance policies covering crops grown in compliance with USDA’s 

own national organic standards. This development research would include:

1. A review of the underwriting, risk, and loss experience of organic crops covered by the Corporation, as compared with the same crops grown in the same 

counties and during the same crop years using non-organic methods. The review 

should be designed to allow the Corporation to determine whether significant, 

consistent, or systemic variations in loss history exist between organic and nonorganic production, and shall include the widest available range of data, including but not limited to loss history under existing crop insurance policies, collected by the National Agricultural Statistics Service, and other sources of information determined to be reliable and relevant.

Unless this review documents the existence of such significant, consistent, and 

systemic variations in loss history between organic and conventional crops, either collectively or on individual crops, the Corporation shall eliminate the 5% 

premium surcharge that it currently charges for coverage for organic crops on 

such crops. The review shall be conducted on an ongoing basis, at least annually, beginning with the 2008 crop year and for each crop year thereafter as annual data is accumulated by the Corporation, so that the Corporation may make 

the determinations and eliminate the surcharge in a timely manner as the review deems appropriate.

2. The development of a procedure, including any associated changes in policy 

terms or materials required for its implementation, to offer producers of organic 

crops (including dairy and livestock) an additional price election that would reflect the actual retail or wholesale prices, as appropriate, received by organic 

producers for their crops, as established using data collected and maintained by 

the Agricultural Marketing Service or other sources. The development of this 

procedure shall be completed in time to allow the Corporation to begin offering 

the additional price election for organic crops with sufficient data for the 2009 

crop years, and to expand it thereafter as the AMS expands its data collection 

and availability for organic crop prices.

3. The development of an insurance coverage that would protect the producer 

of an organic crop against the risk of that crop (including dairy and livestock) 

becoming contaminated, through no fault of the producer, in a manner that 

would cause that crop to lose its access to organic markets and prices.

The OTA legislative proposal also would require that the Corporation continue 

and expand its interagency agreement with AMS to facilitate the collection and dissemination of segregated retail and wholesale price information for organic production at relevant shopping points, points of entry, wholesale markets, and retail markets, including the funding of all phases of the pilot and implementation stages of 

this project until the resulting price collection facility has been established on a nationwide basis. 

Finally, OTA’s legislative proposal would require that the Corporation report annually to the House Committee on Agriculture and to the Senate Committee on Agriculture, Nutrition, and Forestry on its progress in developing and improving federal crop insurance for crops grown in compliance with standards issued by the Department of Agriculture providing for the certification of such crops under the National Organic Program, including the numbers and varieties of organic crops insured, the development of new crop insurance approaches, and the progress of the 

initiatives mandated under this proposal. The annual report will also include the 

Corporation’s recommendations on how it can continue to improve this insurance 

coverage. 

9

OTA’s most recent market survey has preliminary results that indicate that organic agriculture and production have managed to provide almost 3% of the U.S. 

retail food and beverage supply in 2006. The organic community has accomplished 

this largely by its own efforts to develop voluntary standards, support state and 

then a federal standard for organic agriculture and producers. The community also 

has developed methods, academic knowledge, and technologies that have built the 

success of organic. This has been accomplished with very little help from the federal 

government, certainly none similar in quantity and quality to that provided to other 

parts of agriculture. 

The crop insurance proposal we put before you today is drafted to avoid generating a budget score. Instead, the organic projects will share in the $25 million fund 

authorized each year for spending on contracts and partnerships by RMA under section 522(e) of the Act. We would suggest backing up this approach with Committee 

Report language that urges RMA to ensure that organic projects receive their fair 

share of the fund, particularly during the early years of the new farm bill when they 

will be the most expensive. 

We believe that this proposal, if enacted, would go a long way toward reducing 

the impediments faced by current certified organic farmers, and will act as an encouragement to farmers who wish to transition all or part of their farms to organic 

production. 

Mr. Chairman, OTA thanks you for this opportunity to testify on behalf of the organic community on this important topic and looks forward to working with you on 

solutions.

Mr. ETHERIDGE. Thank you. 

Mr. Segler? 

STATEMENT OF HILTON R. SEGLER, PRESIDENT, GEORGIA 

PECAN GROWERS ASSOCIATION, ALBANY, GA 

Mr. SEGLER. Good afternoon, Chairman Etheridge and Members 

of this Committee. I am Hilton Segler, a retired pecan grower and 

President of the Georgia Pecan Growers Association. 

Pecans grow in 20 states. Most of our improved varieties are 

grown along the Gulf Coast from New Mexico to North Carolina. 

Georgia has the most production, followed by Texas. Pecans are the 

only major crop that is native to the United States. All other major 

crops were imported to America from other countries. 

I chaired the first Committee back in 1980 to get Congress to 

pass the bill that would enable the RMA to provide Federal crop 

insurance for our pecan growers. In 2003, we were able to add 79 

counties in Georgia and in 2004 two counties in Alabama, Baldwin 

and Mobile. Only in 2005 was a national program approved 25 

years after we started. 

Crops such as peaches, peanuts, blueberries, cotton, and corn 

have a provision that in the event of a crop failure insurance coverage cannot be adjusted down more than 10 percent of the individual farm’s APH average. This is referred to by RMA as a 10 percent cup. Long-range weather forecasters predict that the Gulf 

Coast region will continue to have the same weather for the next 

15 to 20 years. If this is true, our crop insurance will be worthless 

in a few years without this 10 percent cup. 

For crop years 2004 and 2005 hurricanes were devastating to the 

pecan industry in the Southeast. Until that time, the loss experience for this crop did not even approach the premiums paid by 

growers and the need for yield protection was not even an issue. 

Since that time, the opposite has been true. Alabama and Georgia 

have suffered crop and tree loss unprecedented in this region due 

to nature’s wrath, the loss not only from the income but tree loss 

population and the significant reduction in insurance guarantee 

10

from pecan growers since the program does not enjoy the luxury of 

this 10 percent cup. 

The Valdosta regional Office of RMA submitted a request to the 

Kansas City national office for a 10 percent cup for the crop years 

2004 and 2005 with no success. The reasoning from Kansas City 

was that the pecan program is a revenue program unlike APH and 

not production-based. 

Gentlemen, this simply is not true. Production is half of the 

equation that determines the pecan growers’ guarantee, the other 

half being price received on a 2 to a 10 year average. 

As with the CRC corn and cotton insurance program, pecans also 

use a combination of yield and price to establish the revenue guarantee. The disaster incurred by peach producers in 1996 when 

growers in the Southeast averaged near five bushels an acre overall prompted the administrative office of RMA here in Washington 

to implement a 10 percent cup for the crop year 1997. This set a 

precedent that was parallel with the catastrophic weather events 

that have befallen our pecan growers not only in the State of Georgia but Alabama, Florida, Mississippi and Louisiana in the crop 

years 2004 and 2005. 

With the billions of dollars being thrown at the disaster in the 

Gulf, we can’t afford not to recognize the disaster that has befallen 

our pecan industry in the Southeast and provide them the same 

yield protection so sorely needed. To correct this, we need to implement the 10 percent cup, have RMA go back to the 2004, and readjust the pecan growers APH average up to this time. It should be 

understood that no claims will be accepted or no additional premiums paid, only a readjustment of the APH average. 

In conclusion, another change would permit the pecan grower to 

insure his pecans by farm number. By practice, growers now have 

to average every acre that they have in the county. Many of our 

growers have farms located several miles apart and you can have 

things happen on one farm that don’t happen on another. This 

would be very similar to you owning three pieces of property, three 

houses and have one be burned by fire and the insurance company 

asks you to take an estimated value of the other two because they 

have increased in value and subtract what you have and pay you 

the difference. They are not paying you what you have got insured 

on that particular farm. 

I appreciate the concerns that this Committee has, and we certainly appreciate the opportunity for the Georgia Pecan Frowers to 

be here today to address these issues, and we hope that you consider our issues in the 2007 Farm Bill. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Segler follows:]

PREPARED STATEMENT OF HILTON R. SEGLER, PRESIDENT, GEORGIA PECAN GROWERS

ASSOCIATION, INC., ALBANY, GA 

Good Afternoon Chairman Etheridge and Members of the Committee. My name 

is Hilton Segler. I am a retired pecan grower and President of the Georgia Pecan 

Growers Association, Inc. 

Pecan History 

Pecans grow in 20 states. Most of our improved varieties are grown along the Gulf 

Coast from New Mexico to North Carolina. Georgia has the most production folVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
11

lowed by Texas. Pecans are the only major crop that is native to the United States. 

All other major crops were imported to America from other countries. 

George Washington planted several young pecan seedlings at Mount Vernon in 

1774. Thomas Jefferson started growing pecan trees at Monticello in 1779. Union 

soldiers returning north in 1865 after the civil war brought pecans with them and 

helped to increase the nuts popularity. It took about 4 centuries for the pecan to 

become an important crop in the United States; it reached a commercial scale in 

1920 and has increased steadily ever since. 

Most edible tree nuts are essentially one state crops; Almonds, Pistachios, and 

Walnuts are produced in California; Filberts in Oregon and Macadamia nuts in Hawaii. The pecan on the other hand, is a multi-state crop, stretching across the country from the Southeast to the Southwest throughout some twenty states. 

Pecans are one of our National Treasures; over 40% of both houses of Congress, 

regardless of party affiliation have pecans growing in their state. I just wanted you 

to understand the importance of pecans to our nation. 

Federal Crop Insurance 

I chaired the Committee, which began in 1980, to get Congress to pass a bill that 

would enable the RMA to provide federal crop insurance for our pecan growers. Not 

until 1998 did RMA allow us to have three pilot counties (Dougherty, Lee and 

Mitchell) in Georgia. In 2003, we were able to add seventy-nine additional counties 

in Georgia and in 2004 added two additional counties in Alabama (Baldwin and Mobile). Only in 2005 was a national program approved 25 years after we started. 

It was the sense of Congress on the expansion of crop insurance that enabled us 

to move forward in the last 5 years. There are some small changes but important 

provisions that need to be made to the current policy to bring it in line with other 

crops. Crops such as Peaches, Peanuts, Blueberries, Cotton, Corn, etc. have a provision that in the event of a crop failure insurance coverage cannot be adjusted down 

more than 10% of the individual farms APH (yield average); this is referred to by 

RMA as a 10% percent cup. Long range weather forecasters predict that the Gulf 

Coast region weather patterns will continue for the next fifteen to twenty years. If 

this is true, our crop insurance would be worthless in a few years without this 10% 

cup 

Pecan growers’ insurance has decreased $300.00 per acre and premiums have increased as much as $10.00 per acre sense the devastating hurricanes of 2004. We 

experienced a severe drought in the late summer/fall of 2005, which began in August, just as the flowers for the following year’s (2006) crop were being induced. Any 

stress, especially drought, occurring at this time, will limit the return crop as it puts 

additional stress on the tree to bring its current crop to maturity. To correct this 

with our growers, RMA would need to go back to the 2004 crop and re-adjust the 

growers APH as if the 10% cup was in effect at that time. RMA should not accept 

any additional claims or premiums for this time period. 

Another change in the policy would be to permit a grower to insure his pecans 

by farm number. At the present time a grower can insure by practice (irrigated or 

non-irrigated) but has to average all his pecan groves by county. Many of our growers have farms located several miles apart. There could be a hail storm on one farm 

but not on another. It makes no sense not to let each farm be insured by farm number. This is why most all other crops have this safety protection and we don’t understand why pecans are different. A good example would be like having three houses 

all insured and one was destroyed by fire and your insurer asked you to average 

the appraised value of the other two, and only paid you the difference, regardless 

of the insurance on the one that you lost. 

I want to thank the Committee for giving our organization an opportunity to testify today. We sincerely hope the 2007 Farm Bill will address these issues of concern 

to our Pecan Producers and reflect the value of their production to the U.S. Economy, as well as the dietary needs of all Americans. Thank You.

Mr. ETHERIDGE. Thank you, sir. Mr. Marlow. 

STATEMENT OF W. SCOTT MARLOW, DIRECTOR, FARM

SUSTAINABILITY PROGRAM, RURAL ADVANCEMENT

FOUNDATION INTERNATIONAL—USA, CHAPEL HILL, NC 

Mr. MARLOW. Chairman Etheridge, Representative Boustany, 

Members of this Subcommittee, thank you for this opportunity to 

address you today about how crop insurance affects the ability of 

farmers to adjust to recent shifts in our agricultural economy. 

12

Between Hurricane Floyd in 1999 and Hurricane Katrina in 

2005, the percentage of eligible acreage in my home State of North 

Carolina participating in crop insurance increased from 56 percent 

to almost 78 percent, but an estimate of the percentage of North 

Carolina farm receipts covered by crop insurance fell from 19 percent in 1999 to around 13 percent in 2005. It is not that crop insurance changed but that crop insurance did not change to keep up 

with North Carolina’s farm economy. 

We are moving rapidly from crops with extensive risk management and disaster programs to enterprises with ineffective or no 

risk management. Today I would like to focus on three issues associated with this transition. My testimony is based on our experience in North Carolina, but we are addressing these issues with 

farmers from across the South and the rest of the Nation. 

First, there is no effective risk management for farms with production contracts where the farmer does not own the product. According to the 2002 Census of Agriculture, 69 percent of hogs and 

essentially 100 percent of broilers raised in the our state were 

raised under production contracts, and we are seeing anecdotal evidence of production contracts being adopted in non-livestock crops. 

Livestock producers are also increasingly concerned about the 

risks of the disease outbreaks, quarantine and depopulation by either state or Federal officials which are not insurable causes of loss 

in existing programs. 

We recommend that the Risk Management Agency develop or 

adapt crop insurance programs to ensure against the risks associated with production contracts and their unique ownership structure. Livestock programs should also include the peril of quarantine, depopulation by Federal or state government and bioterrorism as insurable causes of loss. 

Second, there is a lack of risk management for value-added products critical to mid-scale agriculture. 

Nationally, we are quickly losing mid-scale farms that are too 

large to access growing direct markets but are too small to compete 

in commodities markets, the agriculture of the middle that makes 

up the backbone of our agricultural economy and land stewardship. 

But we are also seeing a rapid rise in demand for high-quality, specially raised products like organic produce, heirloom vegetables and 

specialty meats. 

These emerging markets have grown beyond the ability of the 

small farmers who pioneered them to fill. The greatest hope for agriculture of the middle is the transition to production of high-value, 

specialized crops and livestock brought to niche markets in ways 

that bring a greater percentage of the food dollar back to the farm. 

In our experience, there is currently no crop insurance that provides effective risk management for value above the commodity 

price. This gap in the reduction in access to credit and Federal disaster programs that accompanies it creates a financial disincentives for farmers to make the transition and increases the risk and 

vulnerability of those that do. 

In recent years, RMA has been piloting the Adjusted Gross Revenue and Adjusted Gross Revenue-Lite crop insurance programs. 

AGR and AGR-Lite provide income insurance based on the 5 year 

average of gross farm revenue as established on Schedule F of the 

13

farmer’s taxes, which addresses added value and crop diversity. 

Since 2005, North Carolina has been fortunate enough to be one of 

the pilot states for AGR-Lite. 

While AGR-Lite is simple in concept, it has proven to be extremely complicated in implementation, requiring documentation 

not only of gross income but of all the crops and enterprises that 

make up that income. Specifics in the requirements of the program 

have made it difficult to determine eligibility of income and coverage of losses. Because of the complexity of both application and 

claims adjustment, crop insurance agents are reluctant to promote 

it and farmers are reluctant to trust it. 

These difficulties have been borne out in declining enrollment 

numbers, despite significant outreach efforts. As the only programs 

that address value-added markets, it is critical that we get AGR 

and AGR-Lite right. 

We recommend that the AGR and AGR-Lite programs be extended in this farm bill but reformed to be more accessible before 

expansion to national availability. Reform should emphasize 

streamlining the application and claims adjustment processes and 

shifting the program structure to reward diversification and innovative marketing. 

Third, crop insurance for organic producers is inadequate due to 

the increased premiums and benefits that do not recognize the 

price for organic products. Crop insurance guidelines recognize organic farming as good farming practices, and the actual production 

history of the crop insurance policies are based on and reflects the 

individual producer’s management. 

So we recommend that the 2007 Farm Bill eliminate the current 

5 percent surcharge on premiums for organic producers. We also 

suggest that this farm bill establish a deadline for providing payments that reflect organic market prices. 

In closing, access to effective crop insurance programs is essential for farmers’ transition to the emerging markets that are key 

to the health and vibrancy of our family farms. Thank you for this 

opportunity to testify today, and I welcome any questions and look 

forward to working with you in the future. 

[The prepared statement of Mr. Marlow follows:]

PREPARED STATEMENT OF W. SCOTT MARLOW, DIRECTOR, FARM SUSTAINABILITY

PROGRAM, RURAL ADVANCEMENT FOUNDATION INTERNATIONAL—USA, CHAPEL

HILL, NC 

Chairman Etheridge and Ranking Member Moran, Members of the Subcommittee, 

thank you very much for this opportunity to address the Subcommittee about crop 

insurance, and specifically about how crop insurance affects the ability of farmers 

to adjust to recent shifts in our agricultural economy. 

My name is Scott Marlow, and I am the Director of Farm Sustainability for the 

Rural Advancement Foundation International—USA. RAFI–USA is a non-profit organization based in Pittsboro, NC that addresses issues of equity, sustainability and 

diversity in agriculture and rural communities. I am also here on behalf of the thousands of farmers in North Carolina and across the country that we have worked 

with over the last 15 years to help access new markets, seek equity in production 

contracts, get reward in the marketplace for the environmental stewardship that 

they do or help find ways to keep going in the face of disasters of weather or price. 

My testimony is based on the specifics of our experience in North Carolina, but we 

are also addressing these issues with farmers from across the southeastern United 

States, and the rest of the country. 

14

While crop insurance has a long history of providing effective risk management 

for the traditional crops of North Carolina agriculture, recent changes in our farm 

economy mean that the Risk Management Agency faces a series of challenges in 

providing effective risk management for a significant percentage of North Carolina 

farm income, and we expect these challenges to increase in the years to come. 

Between Hurricane Floyd in 1999 and Hurricane Katrina in 2005, the percentage 

of eligible North Carolina acreage participating in crop insurance increased from 

56% to almost 78%, but the percentage of North Carolina farm receipts covered by 

crop insurance, based on North Carolina Department of Agriculture and Consumer 

Services and Risk Management Agency data, fell from 19% in 1999 to around 13% 

in 2005, and the percentage of farm income eligible for crop insurance fell from approximately 38% to 28%.1 It is not that crop insurance changed, but that crop insurance did not change to keep up with changes in North Carolina’s farm economy. 

The segments of the farm economy with extensive crop insurance, commodities 

such as tobacco, cotton and corn, while vitally important to many farmers in our 

state, have dropped in their percentage of North Carolina farm receipts. The fastest 

growing segments of North Carolina’s farm economy—livestock produced under production contracts, specialty crops like greenhouse, nursery and Christmas trees, and 

emerging value-added markets such as organic and specialty livestock—are all underserved, if served at all, by current crop insurance programs. We are moving rapidly from crops with extensive risk management and disaster programs to enterprises with ineffective or no risk management. Today I would like to focus on three 

issues associated with this transition. 

Issue 1. Lack of Risk Management for Operations With Production Contracts 

The greatest percentage of North Carolina farm income, almost 60%, now comes 

from broilers, turkeys and hogs. The structure of these livestock industries has significant effect on the outlook for risk management programs. According to the 2002 

Census of Agriculture, 69% of hogs and essentially 100% of broilers raised in our 

state were raised under production contracts where, according to USDA definitions, 

the producer never owns the animal.2 We are also seeing anecdotal evidence of production contracts being adopted in specialty crops and other non-livestock areas. 

In the past, the Risk Management Agency has acknowledged the gap in risk management for livestock producers,3 and in hearings before this Subcommittee last 

week, Dr. Keith Collins outlined two current pilot programs for livestock. It is important to note, however, that animal ownership is essential for eligibility in both 

of these programs and neither will provide risk management for livestock produced 

under production contracts. Livestock producers are also increasingly concerned 

about the risks of disease outbreaks, quarantine or preventative depopulation by either state or federal officials as they are currently not insurable causes of loss. 

There is precedence for benefits to producers of livestock under production contracts in ad hoc disaster programs. The 2000 Supplemental Appropriations Act passed on Nov. 29, 1999 targeted $10 million for contract growers 4 under the Livestock Indemnity Program. Following Hurricane Katrina and the other Gulf Coast 

hurricanes of 2005, Congress made some assistance available to contract growers in 

the form of Livestock Indemnity Payments and Emergency Conservation Program 

cost share assistance for cleaning up debris from poultry barns and/or costs to reconstruct or repair barns if there were uninsured losses.5 However, ad hoc programs 

that Congress may or may not pass after a specific disaster are no substitute for 

risk management that contract growers may incorporate into their farm business 

planning on an ongoing basis. 

Recommendation 

Crop insurance programs must be developed that insure against the risks associated with production contracts and the unique ownership structure that they bring, 

either by developing crop insurance programs specific to production contract income, 

or by including production contracts in currently existing programs that insure income rather than products. Livestock programs must also include the peril of quarantine, depopulation by federal or state government and bio-terrorism as insurable 

causes of loss.

Issue 2: Lack of Risk Management for Value-Added Products Critical to 

Mid-Scale Agriculture 

Nationally, we are losing the mid-scale farms that have made up the backbone 

of our agricultural economy and land stewardship. The most rapid loss is among 

those farms that are too large to access the growing direct market economy, but too 

small to compete in the undifferentiated commodities market—the agriculture of the 

middle.6 Last year, North Carolina led the nation in the loss of farms.7

15

But we are also seeing a rapid rise in demand for high-quality, specially-raised 

products like organic produce, heirloom vegetables and specialty meats, what we 

call ‘‘food with a taste, a place and a face,’’ driven by consumer demand and an increase in spending on away-from-home food.8 According to Rick Schnieders, the 

CEO of the Sysco Corporation, the defining aspect of retail food is price, whereas 

the defining aspect of restaurants and food service is differentiation. As consumers 

shift more of their food dollar to food consumed outside the home, there will be 

greater demand for the type of differentiation of products that only mid-scale farmers can provide.9

These emerging markets for natural, organic and specialty foods have grown beyond the ability for the small farmers who pioneered them to fill, and require the 

capacity and the management capability of the mid-scale farmers that we are currently losing. The greatest hope for mid-scale farmers is the transition to production 

of high-value, specialized crops and livestock brought to niche markets in ways that 

bring a greater percentage of the food dollar back to the farm, and our greatest challenge is assisting mid-scale farmers in connecting to these markets before they go 

away.10

Crop insurance plays an important role in encouraging or discouraging that transition, both in providing risk management, and because crop insurance determines 

access to credit and access to additional disaster program benefits. In a 2004 survey 

of tobacco farmers, RAFI–USA found that 67% identified access to capital as a key 

barrier to diversifying their farm. In a yearlong study with agricultural lenders in 

North Carolina, we found that lenders based the expected value of crops for both 

collateral and budgets on assured income as determined by either conventional commodities markets or crop insurance. Because the added value of specially marketed 

crops like organic is uninsured, it is frequently not included in either collateral valuation or anticipated income. The farmers of these crops are therefore more likely 

to be required to put personal property up as collateral for operating loans in addition to the crop itself, and are less likely to have a farm plan that shows a positive 

cash flow. While lenders do not recognize the higher value of specialty crops, they 

do recognize the higher expense of producing them.11

Recent crop disaster payments have been based on benefits received under crop 

insurance or the Non-Insured Disaster Assistance Program (NAP). While this choice 

makes sense in that it rewards participation in risk management programs, it 

leaves those farmers who are not eligible for effective crop insurance programs without assistance. If proposed crop disaster payments are combined with crop insurance, conventional farmers will receive compensation for nearly 100% of their damage, whereas producers of value-added, niche and specialty crops without effective 

crop insurance will receive nothing. 

In our experience, there is currently no crop insurance that provides effective risk 

management for the value that farmers add through either specialized production 

or marketing. The lack of risk management for value-added products, and the reduction in access to credit and other disaster programs that accompanies it creates a 

financial disincentive for farmers to make the transition, and increases the risk and 

vulnerability of those that do. 

The challenge for crop insurance is that the emerging markets and differentiated 

products do not come with the uniformity and automatic data collection that provides the underpinning of conventional commodity crop insurance. The very aspects 

of these markets that make them vibrant and exciting and profitable—the ability 

to respond quickly to a wide variety of specific niches of quality and production—

are the same aspects that make it extremely difficult to program for them. The traditional product development approach of developing a crop-specific risk profile and 

then releasing a crop-specific insurance product is unable to address the diversity 

of emerging products, enterprises and markets. 

In recent years, RMA has been piloting the Adjusted Gross Revenue (AGR) and 

Adjusted Gross Revenue-Lite (AGR-Lite) crop insurance programs. AGR and AGRLite provide income insurance based on the 5 year average of gross farm revenue 

as established on Schedule F of the farmer’s taxes, including value added through 

specialty markets and addressing the complexity of many small and mid-size farms. 

Since 2005, North Carolina has been fortunate enough to be one of the pilot states 

for AGR-Lite. 

While AGR and AGR-Lite are simple in concept, they have proven to be extremely 

complicated in implementation. Because of the complexity of both application and 

claims adjustment, crop insurance agents are reluctant to promote it and farmers 

are reluctant to trust it. Specifics in the requirements of the program have made 

it difficult to determine eligibility of income and coverage of losses, and some farmers have beensurprised to discover the limitations of their coverage only when their 

claims were adjusted. In short, this program is not working. 

16

These difficulties have been borne out in declining enrollment numbers, both in 

North Carolina and nationally, despite significant outreach efforts. From a high of 

970 policies nationally in 2003, enrollment dropped steadily to 551 in 2007. As the 

only programs that address value-added markets, it is critical that we get AGR and 

AGR-Lite right. 

Recommendation 

The AGR/AGR-Lite programs should be extended, but reformed to be more accessible and affordable, and then expanded to be available nationally. Reform should 

include specific steps to address shortcomings in the program, but should emphasize 

streamlining the application and claims adjustment processes, and shifting the program structure to reward diversification and innovative marketing.12

Issue 3: Inequity for Organic Producers 

Of the rapidly growing high-value markets, organic is the best recognized and provides the clearest example for crop insurance. Many current crop insurance programs are available for organic crops, but the structure of these programs penalizes 

organic farmers and creates a financial disincentive for seeking organic certification. 

When an organic producer signs up for crop insurance, they pay an extra 5% surcharge that is assessed to offset perceived additional risk associated with organic 

production, although this perceived risk has not been quantified by research. 

When farmers receive crop insurance and other disaster program benefits, these 

benefits do not recognize the added value of organic, and payments are calculated 

based on the conventional price. For an organic farmer who receives a price for organic product that is double the conventional price, 75% crop insurance coverage 

based on the conventional price actually covers 37% of the farmer’s income. Organic 

farmers in essence pay more for less coverage. This double inequity needs to come 

to an end. 

When an organic farmer’s lawsuit to receive assistance under the Crop Disaster 

Program based upon the market price for organically grown adzuki beans was successful,13 USDA promptly changed the program regulations to allow assistance only 

at the conventional price. The courts have upheld the new regulation 14 so action 

by Congress is the only way to ensure that organic farmers receive assistance based 

on their market price, just as conventional farmers receive assistance based on the 

market price for their goods. 

Recommendation 

Organic producers should have access to insurance programs that meet their needs 

without putting them at a competitive disadvantage to conventional producers. The 

2007 Farm Bill should eliminate the current 5 percent surcharge on premiums for 

organic producers and establish a deadline for providing payments that reflect organic market prices to organic producers.15

In closing, access to effective crop insurance programs is essential for farmer’s 

transition to the emerging markets that are the key to the health and vibrancy of 

mid-scale agriculture. Thank you for the opportunity to testify today, and I welcome 

any questions from the Committee. 

Notes 

1. Percentage of coverage was determined using percentage of eligible acreage 

participating from the RMA State Crop Insurance Profile (http://

www.rma.usda.gov/pubs/state-profiles.html) and the percentage of farm receipts by 

commodity from North Carolina Department of Agriculture and Consumer Services 

Agricultural Statistics Service (http://www.ncagr.com/stats/cashrcpt/

cshcomyr.htm). Percentage of greenhouse/nursery participation was estimated using 

the percentage of total value of greenhouse/nursery products that were represented 

by crop insurance liability. 

2. ‘‘Under a production contract, the farmer provides services to the contractor, 

who usually owns the commodity under production. For example, contractors in 

poultry production usually provide chicks to the farmer along with feed and veterinary/transportation services. The farmer then raises the chicks to maturity, whereupon the contractor transfers them to processing plants. Contractors often provide 

detailed production guidelines, and farmers retain far less control over production 

decisions. The farmer’s payment resembles a fee paid for the specific services provided, instead of a payment based on the market value of the product.’’

Nigel Key and James MacDonald, ‘‘Agricultural Contracting; Trading Autonomy for 

Risk Reduction.’’ USDA Economic Research Service. Amber Waves Volume 4 Issue 

1. February 2006. Pg. 28.

17

3. Eldon Gould, Review of the Federal Crop Insurance System. Hearings before 

the Subcommittee on General Farm Commodities and Risk Management of the 

House Committee on Agriculture, March 15, 2006. 

4. P.L. No. 106–113, Appendix V, Title I, Chapter 1, 113 Stat. 1501. 

5. Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of 

Mexico, P.L. No. 109–148, Division B, Title I. (December 20, 2005) and Emergency 

Agricultural Disaster Assistance Act of 2006, which was enacted into law on June 

15, 2006 as Title III of the Emergency Supplemental Appropriations Act for Defense, 

the Global War on Terror, and Hurricane Recover Act of 2006. The formal citation 

of the Act is P.L. No. 109–234). 

6. For more information about the issues associated with agriculture of the middle, including current research and overview documents see the web site of the National Task Force to Renew Agriculture of the Middle at www.agofthemiddle.org.

7. North Carolina Department of Agriculture and Consumer Services Press Release, ‘‘North Carolina leads nation in loss of farms . . . again.’’ 2/19/07. http://

www.ncagr.com/paffairs/release/2007/2-07farmloss.htm.

8. Stewart, Hayden, Noel Blisard, Sanjib Bhuyan and Rodolfo Nayga, ‘‘The Demand for Food Away From Home, Full service or fast food.’’ United States Department of Agriculture Economic Research Service Agricultural Economic Report Number 829. January, 2004. 

9. Schnieders, Rick, ‘‘Presentation to the Georgetown University Law School.’’ 

Available at http://www.agofthemiddle.org/papers/sysco.pdf.

10. Kirschenmann, Fred, Steve Stevenson, Fred Buttel, Tom Lyson and Mike 

Duffy, ‘‘Why Worry About Agriculture of the Middle.’’ White paper prepared for the 

National Task Force to Renew Agriculture of the Middle. Available at http://

www.agofthemiddle.org/papers/whitepaper2.pdf.

11. The full report on the Farmer/Lender Project is available at http://

www.rafiusa.org/pubs/puboverview.html.

12. Draft AGR/AGR-Lite reform recommendations:

1. Streamline application process and adjustment process to increase farmer access to the program and encourage crop insurance agent participation, clarifying 

coverage and benefits.

2. Provide higher levels of coverage on AGR/AGR-Lite whole farm revenue programs. Current deductibles are too high for producers. The maximum effective 

coverage for AGR-Lite is 72% (80% coverage, 90% payment rate). In many 

cases, thin profit margins do not allow a 28% drop in revenue without severely 

impacting the viability of the farm operation. Consider an 85% coverage level 

and 100% payment rate like several of the MPCI coverages.

3. Add a ‘‘floor’’ to the 5-Year income history used to determine coverage levels. 

Low revenue can reduce the approved AGR to the point where the insurance 

will not provide adequate coverage. Example: maintain the 5 year Schedule F 

average, but allow up to 10 years if available.

4. Crop insurance payments and Noninsured Crop Disaster Assistance (NAP) 

are not considered allowable income in the 5 year history but are considered 

revenue to count for claim purposes. Adding MPCI indemnities and NAP to allowable income would provide a floor to compensate for low revenue years.

5. The animal/animal product rates need reviewed to more accurately reflect the 

risk. More analysis is needed to see which risk pool livestock commodities 

should go into versus simply putting all livestock in the highest risk pool.

6. Carryover commodities still in the production phase present some unique beginning and ending inventory challenges. The inventory rules should be reviewed to ensure the procedures provide clear directions on how to handle these 

commodities. In addition, clarity should be provided as to whether or not coverage is provided for these commodities including Christmas trees, shellfish, 

nursery, and livestock.

7. Strengthen the policy regarding establishing local market value, particularly 

for direct marketers. Currently, the policy indicates that if published prices are 

not available, then the average price offered by two commercial buyers, one 

nominated by the policyholder and one by the insurance company, should be 

used. This needs to be strengthened in two ways. First, for direct marketers it 

should be the best estimate of those involved in direct marketing, as commercial 

buyers are not involved. Second, the value for estimating the revenue for the 

producer’s intention report for the current year should be determined at the 

time the intentions report is filed, otherwise the producer loses the price fluctuation protection otherwise provided by the policy. There are reports where the 

price is either not finalized at the time the intention report is filed or that it 

18

is adjusted at claims time. Neither is acceptable because such changes can reduce the producer’s protection that was initially sold to them and adversely impacts the collateral value of the policy.

8. Definition of ‘Animals’ needs to be revised to ensure it is inclusive of production agriculture. The current definition is ‘‘living organisms other than plants 

or fungi that are produced or raised in farming operations including, but not 

limited to, aquaculture, bovine, equine, swine, sheep, goats, poultry, aquaculture species propagated or reared in a controlled environment, bees, and fur 

bearing animals, excluding animals for sport, show, or pets.’’ For shellfish farm 

eligibility it may be helpful to modify the definition by adding: Shellfish (licensed commercial producers under the local approving authority in a certified 

growing area). This will further define the controlled environment and eliminate 

recreational versus commercial operations. Another definition issue involves 

‘fryers.’ While poultry is currently listed in the definition, a fryer is not. It also 

needs to be clear that animals under contract are insurable.

9. Develop mechanisms to extend AGR and AGR-Lite to new and beginning 

farmers so they have the opportunity to utilize federal risk management programs. Strong consideration should be given to permit such producers to have 

protection and premium rates established based on information for similar 

farms that have sufficient historical information to meet the requirements of 

these insurance plans.

13. Pringle v. United States of America, 1998 U.S. Dist. LEXIS 19378 (E.D. Mich. 

1998). 

14. Partlo v. Johanns, 2006 U.S. Dist. LEXIS 43071 (D. D.C. 2006). 

15. Proposed Legislative language on organic:

Crop Insurance—Premium Surcharge

Section 508(d) (7 U.S.C. 1508) of the Federal Crop Insurance Act is amended 

by adding a new (d) as follows:

(d) SURCHARGE PROHIBITION.—The Corporation may not require producers to pay a premium surcharge for using scientifically sound sustainable and organic farming practices and systems.

Crop Insurance—Market Prices

Section 508(c) (7 U.S.C. 1508) of the Federal Crop Insurance Act is amended 

by adding a new (5)(C)(v) as follows:

(v) in the case of organic commodities, shall be, no later than October 1, 

2009, the expected or the actual organic market price of the agricultural 

commodity, as determined by the Corporation.

Mr. ETHERIDGE. Thank you, sir. 

I would now recognize Mr. Gillen for 5 minutes. 

STATEMENT OF DAVID GILLEN, FARMER; VICE CHAIRMAN, 

PUBLIC POLICY ACTION TEAM, NATIONAL CORN GROWERS

ASSOCIATION; CHAIRMAN, BOARD OF DIRECTORS, SOUTH 

DAKOTA CORN GROWERS ASSOCIATION, WHITE LAKE, SD 

Mr. GILLEN. Thank you, Mr. Chairman. 

Mr. Chairman, Members of the Subcommittee, thank you for this 

opportunity to provide you input as you review the Federal Crop 

Insurance Program. 

My name is David Gillen. Along with my wife Carol, we own and 

operate a no-till grain farm at White Lake, South Dakota. We have 

been operating our century farm for 29 years, raising corn, wheat 

and soybeans. 

Currently, I serve as Vice Chair of the National Corn Growers 

Public Policy Action Team and Chairman of the South Dakota Corn 

Growers Association Board of Directors. 

On behalf of NCGA, our 32,000 plus members from 48 states and 

more than 300,000 producers who contribute to corn check-off programs, I cannot overemphasize the importance of an effective and 

19

affordable Federal Crop Insurance Program to our member growers’ risk management planning. Assuming commodity markets remain above current farm price support levels over the next several 

years, crop insurance becomes even more critical for protecting producers’ farm revenue. 

As recently as 2005, when we experienced the second highest 

corn harvest ever, many producers were impacted by substantial 

crop losses due to severe drought, flooding and other adverse 

weather events that resulted in indemnity payments exceeding 

$697 million. In a year when growers were facing considerable 

jumps in input costs, particularly fuel and fertilizer, the income 

protection from Federal crop insurance was essential for keeping 

many farm operations out of serious financial trouble. Also, 2006 

was the worst drought in my area in 28 years of farming. 

Crop insurance has a huge impact in how we run our farm operations. In addition to removing risk and providing much stability 

to the industry, we need a crop insurance program that rewards 

good management and sound risk management practices. 

One policy change proposed by NCGA would enhance the incentive for producers to assume more risk in exchange for higher levels of revenue protection. Because the size of the unit has a significant effect on the cost of crop insurance, we believe it is very important to eliminate the disparity between subsidized premiums for 

coverage by optional or basic and the larger enterprise and whole 

farm coverage. Only 3 percent of acres are covered using enterprise 

units, compared to almost 61 percent for optional units and 36 percent for basic units. The key reason enterprise and whole farm unit 

coverage is used so little is because of the economic disincentive 

created by this continuing disparity. 

Premiums are discounted for enterprise units and whole farm 

coverage. However, the reduction in costs does not adequately reflect the declining yield variability with larger units. Under the 

current subsidy structure, optional unit coverage is a better buy for 

most producers. If the same program dollars that a producer 

spends, for example, on 75 percent optional coverage could be spent 

on 85 percent enterprise coverage, the produce would have better 

coverage on his whole farm, even though he would have to absorb 

the losses on individual units. 

Our view is that the carrot approach, rather than the stick approach, should be used to encourage more use of this type of coverage, particularly enterprise unit. NCGA’s proposed change would 

allow producers to continue use of coverage by optional or basic 

units. One considerable advantage for producers that select optional units is that a high yield on one unit does not affect the coverage on another unit. We anticipate that some growers will continue to prefer this optional unit coverage that protects against 

losses on each individual unit. 

NCGA is recommending for your consideration legislation language to authorize changes that would eliminate this flaw in the 

subsidy structure. We believe this reform would enhance program 

efficiency without adding to the budget baseline. It would likely reduce the moral hazard. 

By encouraging greater use of enterprise unit coverage, producers would be rewarded for better management, assuming more 

20

risk and directing even more attention to detail on individual units. 

Moreover, the need for disaster assistance would be lessened when 

producers buy up to higher levels of insurance. In today’s tight 

budget environment, any step we can take to reduce the administration costs, inequities and the potential for program abuse is beneficial to farmers and the taxpayer. The structure of the Federal 

Crop Insurance Program should encourage producers to insure adequate revenue to avoid devastating losses but must not artificially 

stimulate production. 

Mr. Chairman, I want to thank you again for this opportunity to 

share with this Committee NCGA’s views and policy recommendations for further improving the Federal crop insurance system for 

our member growers. We appreciate your leadership and continued 

support of the corn industry. Thank you. 

[The prepared statement of Mr. Gillen follows:]

PREPARED STATEMENT OF DAVID GILLEN, FARMER; VICE CHAIRMAN, PUBLIC POLICY

ACTION TEAM, NATIONAL CORN GROWERS ASSOCIATION; CHAIRMAN, BOARD OF

DIRECTORS, SOUTH DAKOTA CORN GROWERS ASSOCIATION, WHITE LAKE, SD 

Mr. Chairman and Members of the Subcommittee, thank you for this opportunity 

to provide you input as you review the Federal Crop Insurance Program. My name 

is David Gillen. Along with my wife Carol, we own and operate a no-till grain farm 

at White Lake, South Dakota. We have been operating our century farm for 29 

years raising corn, wheat and soybeans. 

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

Growers Association Board of Directors. 

On behalf of NCGA, our 32,000 plus members from 48 states and more than 

300,000 producers who contribute to corn check off programs, I cannot overemphasize the importance of an effective and affordable Federal Crop Insurance Program 

to our member growers’ risk management planning. Assuming commodity markets 

remain above current farm price support levels over the next several years, crop insurance becomes even more critical for protecting producers’ farm revenue against 

significant yield losses. 

In 2006, 62 million net acres of corn were insured under federal crop insurance 

for liability protection at approximately $16.7 billion. While questions have recently 

been raised on the amount of resources and delivery of the program, there should 

be no question regarding the necessity of the private-public partnership between the 

Department of Agriculture and private insurers to provide the levels of protection 

now available to farmers across the corn belt. 

As recently as 2005 when we experienced the second highest corn harvest ever, 

many producers were impacted by substantial crop losses due to severe drought, 

flooding and other adverse weather events that resulted in indemnity payments exceeding $697 million. In a year when growers were facing considerable jumps in 

input costs, particularly fuel and fertilizer, the income protection from federal crop 

insurance was essential for keeping many farm operations out of serious financial 

trouble. Also, 2006 was the worst drought in my area in my 28 years of farming. 

Over the past several years, NCGA has placed a high priority on monitoring the 

progress of the Federal Crop Insurance Program, encouraged greater participation 

to enhance risk management plans and worked to ensure that any problems that 

arise are adequately addressed by the companies and the Risk Management Agency. 

To be sure, the variety of insurance plans offered through this shared cost program 

has enabled producers to purchase policies that better match the needs of their farm 

operations. Ever since their introduction, revenue insurance plans have become a 

very important risk management tool for corn growers. For producers who use forward contracts, these popular policies allow greater flexibility to market their grain 

while reducing the risks against short or failed crops. 

An article written for the Economic Research Service in November, 2006 by Drs. 

Robert Dismukes (USDA) and Keith Coble (Mississippi State University) zeroes in 

on the key reason for the growth of these products; ‘‘As a tool based on revenue 

shortfalls rather than on yield or price shortfalls, revenue insurance can be more 

effective at stabilizing income than insurance plans or farm programs that protect 

against yield and price risks.’’ They also noted an important advantage of revenue 

21

insurance over other risk management tools or farm support; the plans ‘match the 

costs of risk protection with benefits and base coverage on the crop’s market value’. 

Every farmer knows that it is revenue that pays the bills. This is the fundamental 

reason why over 66% of policies for corn sold for the 2006 crop year were written 

for Crop Revenue Coverage (CRC), Revenue Assurance (RA) or Group Risk Income 

Protection (GRIP). These policies, alone, accounted for over $1.43 billion, over 90 

percent of the total premiums paid. Another important reason for the growth in revenue insurance policies is the increase in the share of subsidized insurance premiums from less than 30 percent to 56 percent since 1996. 

These numbers underscore the impact crop insurance can have on our farms and 

how we run our operations. In addition to removing risk and providing much stability to our industry, we need a crop insurance program that rewards good farm 

management and sound risk management practices and tools. 

One policy change proposed by NCGA would enhance the incentive for producers 

to assume more risk in exchange for higher levels of revenue protection. One unintended consequence of increased subsidies coupled to levels of protection authorized 

under the Agriculture Risk Protection Act of 2000 is a system that does not fully 

recognize the lower risk exposure of enterprise and whole unit policy coverage. Because the size of the unit has a significant effect on the cost of crop insurance, we 

believe it is very important to eliminate the disparity between subsidized premiums 

for coverage by optional (field subdivided basic units) or basic (all crop land of a single crop into one insurance unit) and the larger enterprise unit (all shares of a crop 

in the county) and whole farm (all eligible insured crops in the county) coverage. 

According to RMA, only 3 percent of acres are covered using enterprise units compared to almost 61 percent for optional units and 36 percent for basic units. The 

key reason enterprise and whole farm unit coverage is used so little is because of 

the economic disincentive created by this continuing disparity. 

Premiums are discounted for enterprise unit and whole farm coverage; however, 

the actual reduction in costs does not adequately reflect the declining variability in 

yield and/or revenue as a producer aggregates acres into the larger insurance units. 

Under the current subsidy structure, optional unit coverage is a better buy for most 

producers. If the same program dollars that a producer spends, for example, on 75% 

optional coverage could be spent on 85% enterprise coverage, the producer would 

have better coverage on his whole farm even though he absorbs the losses on individual units. 

Our view is that a carrot rather than a stick should be used to encourage more 

use of this type of coverage, particularly enterprise unit. NCGA’s proposed change 

would allow producers to continue use of coverage by optional or basic units. One 

considerable advantage for producers that select optional units is that a high yield 

on one unit does not affect the coverage on another unit. We anticipate that many 

growers will continue to prefer optional unit coverage that protects against losses 

on each individual unit. 

One solution for securing more equitable crop insurance premiums for larger unit 

coverage is to decouple per acre premium subsidies from the unit of coverage selected by the producer. With assistance provided by RMA legal counsel and Congressional staff last year, NCGA is recommending for your consideration legislative language to authorize changes that would eliminate this flaw in the subsidy structure. 

We believe this reform would enhance program efficiency without adding to the 

budget baseline. Once fully implemented, the proposed change would likely reduce 

moral hazard and the adverse selection of insurance coverage. 

By encouraging greater use of enterprise unit or whole farm coverage, producers 

would be rewarded for better management, assuming more risk and directing even 

more attention to detail on individual units. Moreover, we expect the need for disaster assistance would be lessened when producers buy up to higher levels of insurance. In today’s tight budget environment, any step we can take to reduce the administration costs, inequities and the potential for program abuse is beneficial to 

farmers and the taxpayer. 

Mr. Chairman, I want to thank you again for this opportunity to share with this 

Committee NCGA’s views and policy recommendations for further improving the 

federal crop insurance system for our member growers. We appreciate your leadership and continued support of the corn industry.

Mr. ETHERIDGE. Thank you, sir. 

The Chair would like to remind Members that they will be recognized for questions in order of seniority for Members who were 

here at the start of the hearing. After that, Members will be recogVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
22

nized in order of their arrival to the hearing. So I appreciate the 

Members understanding of that. 

I now recognize myself for 5 minutes. 

Mr. Marlow, assuming AGR and AGR-Lite could be reformed, 

would they serve as effective risk management products for contract producers or do we still need separate policies that can be 

available for contract farmers? Are there special risks to contract 

producers that require a separate type of crop insurance policy? 

Mr. MARLOW. Yes, if it was reformed. Currently there is a prohibition in AGR and AGR-Lite against its coverage of contract producers. If that was shifted and we were able to fix the program, 

it could be an effective risk management tool for contract producers. 

As I mentioned, we are seeing people being very concerned about 

risks of quarantine, of outbreaks of different diseases and also bioterrorism, which are not currently allowed or allowable coverage; 

and we would like to expand to improve those as a part of the program. 

But the answer to your question is, yes, it could be a very effective tool, but it is currently blocked by the regulations of the program. 

Mr. ETHERIDGE. Share with us a little bit more the issues related 

to quarantine. Because if they are under contract, who is the person you are hurting? Just the grower himself? 

Mr. MARLOW. Certainly, because animals are owned by the company but raised by the farmer, the impact of a quarantine or depopulation is shared between the company and the farmer. The 

challenge is that most producers have a significant mortgage on 

their operation, and even if they lose production, they don’t lose 

their mortgage payments. So they are losing that income, and so 

the segment of that income that does come to the farmer would be 

very important to cover in the case of a quarantine or any kind of 

other depopulation. 

Mr. ETHERIDGE. Or a heavy disease that creates a depopulation. 

Mr. MARLOW. Absolutely. 

Mr. ETHERIDGE. That helps them to get on the record, because 

not everyone who sits on this panel deals with that. 

Ms. Wilcox, you want to eliminate the 5 percent premium if an 

underwriter risks the review that you will rely on them to conduct. 

If they cannot document significant, consistent and the systemic 

variations in loss history between organic and conventional crops, 

in your view, how significant must the difference be to justify keeping the 5 percent premium? And can you quantify that for us so 

I will understand it? 

Or, assuming this review is completed, are you going to be faced 

with another debate between you and RMA, whether any differences a review finds in risk between organic and conventional is 

significant enough to justify the premium? 

Ms. WILCOX. Well, Mr. Chairman, we acknowledge in our testimony that both of those questions are very difficult to answer since 

we don’t have the data. We would like very much to be able to have 

the studies done. We don’t know whether there will be a difference 

found. 

23

We do know that there is sometimes in some segments of organic 

agriculture a diminution of production during the transition period, 

and normally there is a recovery in the fourth or fifth year. The 

transition is 3 years. And sometimes there is a recovery right during transition while the farmer learns about new techniques and 

new ability to farm organically. So we are open to that discussion 

with RMA. 

We are grateful for the fact that we are even going to get any 

data, because that was not going to be collected for a long time. 

But they have now begun the collection, and we are willing to live 

with the results and have those discussions with them. 

Mr. ETHERIDGE. Okay. Thank you. 

I recognize the gentleman from Louisiana. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

Ms. Wilcox, I want to follow up on the question the Chairman 

just asked. 

In looking at the organic crops one of the problems is making 

sure you have access to organic markets, and that is part of the 

reasoning for the 5 percent extra that is added in the premium. 

You want to get rid of that. But in looking at access to markets, 

I want to dig into how that is determined. Is it just simply a pricing mechanism? 

For instance, when an organic farmer has crops that they want 

to bring to market, do they make comparisons? And is it simply a 

pricing decision or are there some other factors? 

Ms. WILCOX. Well, it is a demand decision, actually, Congressman. 

As I said in my initial testimony, we are now at 3 percent of the 

retail market for food and beverages in the United States. Our 

members tell us that they could sell much more organic product if 

they could manage to produce it and deliver it to market. So the 

demand is definitely there. 

The 5 percent, as I understand it, on the premium is a number 

that the Department decided to attribute to risk for the insurance. 

They demand that the farmer pay an extra 5 percent premium for 

his insurance. If the farmer does suffer a loss the formula only 

pays him for the conventional price that his neighbor would get if 

he went to market. 

Mr. BOUSTANY. Would an AGR or AGR-Lite type of program 

work? 

Ms. WILCOX. Well, AGR-Lite has been used by some organic 

farmers, or has attempted to be used by some organic farmers. But 

they have met with a lot of the difficulties that my fellow panelists 

outlined, and it is a very complex system. 

As you probably know, with organic, you do rotate crops. So we 

are a multi-crop process. And so then they have to account for each 

crop and how much they planted, which time and which field. It 

gets very, very complicated. 

Mr. BOUSTANY. Thank you. 

Mr. Marlow, in looking at the AGR and AGR-Lite programs, in 

your testimony, you make a recommendation that the program 

should be extended but reformed to be more accessible or affordable 

and then expanded to be available nationally. And you said that reforms should include specific steps to address shortcomings in the 

24

program. And also it should emphasize streamlining the application and claims adjustment process and shifting the program’s 

structure to reward diversification and innovative marketing. 

You talk about how difficult it is to implement the program. 

Why? Give me more detail as to what are the real problems in implementing this. What are farmers faced with in this? 

Mr. MARLOW. The concept of the program is that a person should 

be able to come in with basically 5 years of their schedule left and 

use that or the gross number to basically set their crop insurance. 

Fundamentally what happens when they come in is they then 

have to put together a report on their operation which outlines 

each of the individual crops that they have produced, the amount 

produced and the price that they have received for each. They must 

also provide documentation for each of those levels. They then have 

to put together a farm plan which then documents all of the different crops that they are going to produce, what price they expect 

to get and what they expect their yields to be. 

So that instead of simply insuring that gross number, in essence 

what it does is it creates individual crop insurance plans for each 

of those individual crops and then puts them together into the 

AGR-Lite plan. The farmer then has to do quite a bit of record 

keeping, documentation, planning; and all these things have to go 

quite a long ways. 

The challenge is that agents don’t want to do this. It is very complex for an agent to sign someone up and to understand what it 

is. So we are getting a lot of resistance from crop insurance agents 

who are not trained on it and don’t want to offer it. With many 

farmers, their initial inquiries about this product are either negative or deflecting. 

Mr. BOUSTANY. If you could come back to us with some specific 

recommendations on how to simplify that, we would enjoy hearing 

those recommendations. 

Thank you. I will yield back. 

Mr. ETHERIDGE. I thank the gentleman. 

The gentle lady from South Dakota, Ms. Herseth Sandlin. 

Ms. HERSETH SANDLIN. Thank you, Mr. Chairman. 

I appreciate all the testimony today. I want to particularly commend the testimony of Mr. Gillen a leader not only in South Dakota both in agriculture and a number of different commodities, 

but in the growing biofuels industry and his leadership nationally 

as well. So I do want to pose some questions to you, Mr. Gillen. 

Since our field hearing in South Dakota last fall that we had in 

Wall, South Dakota, there have been a number of proposals to address a particular issue that came up during that field hearing. We 

heard about the concern that Federal farm programs were providing farmers with incentives to plow virgin prairie land, and I 

understand the same complaint has been made about crop insurance with its ability to move yields to new land. So among those 

proposals that have been floated since that field hearing by various 

conservation groups, outdoor groups and others, some would curtail 

or eliminate certain Federal subsidies for any land that is converted from grass or native prairie into farm ground. Some are advocating limiting farm bill benefits to LDP and counter-cyclical 

payments only. Some support allowing crop insurance on the land 

25

but deny them price support assistance. Some, of course, want to 

eliminate all Federal support for converted grass. And some even 

want to ban the practice altogether. So what are the positions of 

the South Dakota Corn Growers and the National Corn Growers 

Association on this particular issue? 

Mr. GILLEN. Thank you very much. 

That is an issue that has come to light recently because there is 

a native sod that is being broke up. Our biggest concern is why it 

is being done, and we feel that the biggest reason it is happening 

is the crop insurance. The crop insurance people are being able to 

apply the T-yield or their APH to that property. If that wasn’t taking place, a lot less of this sod would be broken up. 

But the position of the National Corn Growers is that we still 

want—if somebody wants to convert the grass to farmland, we still 

want program support. But we just do not want crop insurance be 

the reason why it is being broken up. 

So what we are proposing is there would be no insurance initially 

when that grass is brought into crop production, and there would 

be no insurance until the actual production history was developed 

over a 4 year period. So that would mean there would be no APH 

movement from the producer’s average production to that tract of 

land or there would be no T-yield there. So there wouldn’t be any 

crop insurance protection until after 4 years. 

We feel that that is a fair way to go. But we don’t feel that all 

the program force should be taken away because—it would be between the haves and have-nots. How can you have producers on 

one side of the fence having support and producers on the other 

side not, just because that sod was broken earlier. 

I think that would address the issue. 

Ms. HERSETH SANDLIN. The proposal as it relates to the crop insurance issue in particular, how do you define ineligible land for 

that first 4 years? Land that has never been cropped? Land that 

hasn’t been cropped for X number of years? And would you have 

a different treatment for CRP land? 

Mr. GILLEN. Our only recommendation is for native grass that 

has never been broken, and on the FSA maps there would be no 

record of any crop. So as long as there was ever a record of a crop 

ever being grown, that wouldn’t be a part of this. It would only be 

applied of native sod that is being grown. 

Ms. HERSETH SANDLIN. Thank you. 

On a different issue, as it relates to unit coverage, National Corn 

Growers support changing the premium structure, subsidy structure for crop insurance to encourage farmers to insure larger units. 

As you explained in your testimony that can be enterprising or 

whole farm units rather than the separate coverage, optional, or 

basic for individual fields or the particular crop. 

Now how much would the subsidy structure need to be changed 

in order to get the effect that NCGA is seeking? Because I know 

that you say there has been some increase in utilization, coverage 

with that particular product and I think 30 percent to 56 percent 

since 1996. So what are you proposing? How far do we need to go 

to bump that percentage up even further? 

26

Mr. GILLEN. I make that decision. But, right now, only 3 percent 

of the producers use enterprise unit coverage and 61 percent use 

optional. So there is a definite discrepancy there. 

At the 75 percent level, they are subsidized, I believe, at 55 percent; and at 85 percent they are subsidized at 38 percent. So the 

enterprise unit coverage at the 85 percent level would have to be 

somewhere above 38 percent but not above 55. 

In my farm, if I could take the same subsidy, and the total premium, the subsidy part of the premium and the farmer premium 

and at 75 percent option needed coverage, I could take those total 

dollars and if I could apply those total dollars to 85 percent enterprising the coverage. I would have to assume the risk of the loss 

of those individual units, but I would have 10 percent better coverage on my whole farm. It wouldn’t cost the taxpayer any money, 

and it wouldn’t be any more money out of my pocket. It is just how 

the formula is put together. It is just a method between enterprise 

units. 

So this also comes to the issue with low APHs. If producers were 

able to buy up coverage at the 85 percent level, there would be less 

of a need for disaster assistance, and they would have better coverage if they had low APH. It fixes a lot of issues; and it would 

increase the cost very little or, actually, zero if more producers 

were incentivized to move in this direction. 

Ms. HERSETH SANDLIN. Thank you very much, Mr. Chairman. 

Mr. ETHERIDGE. The gentleman from Texas, Mr. Neugebauer, for 

5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Ms. Wilcox, you pointed out the fact that today in some of the 

organic crop insurances they will pay a 5 percent premium, but 

they are reimbursed at the standard commodity rate. So if I am 

growing organic asparagus and I lose my crop, I am going to get 

paid at the same rate as just the normal asparagus crop. What is 

the price differentiation between organic and just general commodities that are not grown organically in the marketplace today? 

Ms. WILCOX. Well, that is one of the things we would like to determine officially. But I can tell you that in some cases it can be 

as much as 50 percent more. In asparagus, I couldn’t tell you the 

differential. But in corn, for instance, for organic corn, we can be 

at almost double the price. 

But we don’t have those kinds of official numbers from USDA on 

a consistent basis. They have just started to collect segregated pricing data, and we are very grateful for that. That they have started, 

but we need that to continue so that our farmers will have a base 

on which to be compensated. 

Mr. NEUGEBAUER. Do you think the appropriate resources are in 

place to continue that process; or do we need to look at that? 

Ms. WILCOX. Well, we asked in our testimony to be sure that we 

can do that on a comprehensive basis. Right now, there is a pilot 

program under way between RMA and AMS, and we need to be 

sure that that is going to cover all the commodities on an enrolled 

basis, and we need to look at that in the farm bill, yes. 

Mr. NEUGEBAUER. To the rest of the panel, and particularly in 

the organic area, are there other holes in the organic system. As 

we sit down and look at this farm bill and possibly some changes 

27

in the crop insurance program, what is brought out in the testimony? 

Mr. MARLOW. We would certainly support the policy of increasing 

the record keeping. Having really solid data on these markets, on 

prices, on volumes is very important and becomes critical for other 

programs. It is very hard to program for something that you don’t 

know how big it is or how much it is or what it looks like and can’t 

get that hand around it. 

Part of the question is going to be where the burden of proof is 

in terms of releasing the 5 percent surcharge. The OTA’s proposal 

is that the burden of proof is we need to prove that there is not 

greater risk. 

The other way to look at it is to say, and what we believe, is 

that, because organic is an accepted production practice, that the 

burden of proof should be on the Risk Management Agency to 

prove that there is additional risk. We should remove the surcharge unless the proof goes in the other direction. 

We both want a lot of data to be able to get our hands around 

it. The question is, where should the burden of proof lie in terms 

of this issue of the 5 percent surcharge? But certainly this issue of 

getting at the AGR and the income-based products are a way that 

you can get at the diversity of crops and the diversity of markets 

that people are accessing, which is really critical to organic. 

Mr. NEUGEBAUER. I guess if I am understanding correctly, you 

could make a shorter crop and an organic crop and possibly still 

have more income than a normal crop. 

Mr. MARLOW. Absolutely. I was speaking to a farmer in northeastern North Carolina last week who has moved 20 of his 1,200 

acres into organic. His corn has a lower yield, but he is making 

more money on it. He is moving, this year, 30 acres into transition. 

But the challenge is, in terms of looking at crop insurance, is 

that that risk, that lower yield is going to show up in his actual 

production history. So, therefore, as he gets crop insurance, he will 

get crop insurance based on that actual production history, so his 

yields are going to be set at that organic level. So that actual production history isn’t going to capture what he has with that. 

We are seeing this transition more and more. But it is very challenging for them to get good risk management on that. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. I thank the gentleman. 

The gentleman from North Carolina, Mr. Pomeroy. 

Mr. POMEROY. Thank you, Mr. Chairman, and thank you for 

holding this hearing. 

One of the things that I would like the Subcommittee to do is be 

cognizant of other hearings being held across the face of Congress 

on crop insurance. And as we, amongst ourselves, get into the 

weeds of the program and understand the valuable risk management, and practical essentials risk management contributes, even 

though we try to make it better. We have to be aware that some 

of our colleagues are sitting in other hearings and thinking the 

whole darn thing is a scam. We need to really get to the bottom 

of what points of fact are driving their concerns, even dispel them 

if they are erroneous or deal with them if they are factual. 

28

I think I have worked as hard on crop insurance as anybody in 

Congress. But, if there are problems with it, let’s get to the bottom 

of it. I am not defensive about it. I don’t have any pride of authorship about it. If there are problems, we want to fix them. 

On the other hand, a good deal I think of the perception out 

there is erroneous, and we need to dispel that with our own expertise about what this contributes in terms of risk management. 

In that one, I turn to our friend from the Corn Growers, my fellow Dakotan, albeit South Dakotan, Mr. Gillen. Worst drought in 

28 years. 

Mr. GILLEN. Yes, sir. 

Mr. POMEROY. Do we need a disaster bill? 

Mr. GILLEN. Permanent one or current one? 

Mr. POMEROY. Current one. 

Mr. GILLEN. There are producers out there that do. What helped 

us a lot this last time around was revenue insurance, those that 

have revenue insurance with FCIC. We got paid extra per bushel 

on corn. That extra dollar a bushel was huge. The crop insurance 

worked for us. 

But the other producers, the wheat people in my area, the people 

that didn’t have RA they didn’t get in on that. 

Mr. POMEROY. We have got a problem with some of the high-risk 

areas in the Dakotas where year after year it drives your APH 

down to where you can’t secure enough protection for the financial 

exposure that you have got. It has also been a problem at least in 

North Dakota. 

Mr. GILLEN. Yes, it is. 

To answer that, when you are insuring corn at $2.50 or $2.60 

where we have been at, there is a huge hole that producers can’t 

absorb. When the coverage like this year’s was at $4, it helps a lot 

in that area. 

Mr. POMEROY. The migration of the coverages to this CRC coverage, in your view, would that have been possible without the enhanced subsidies we committed in the ARPA legislation of 1999? 

Mr. GILLEN. That legislation was very good as far as the increase 

in the subsidy, enough to make them more affordable. 

Mr. POMEROY. You have to make it happen. 

Actually, from a cost benefit standpoint for a farmer, the extra 

risk coverage you got really wasn’t worth it in terms of what you 

had to lay out in premium, but that extra subsidy then made that 

higher coverage level a better deal and that has allowed the innovation of these revenue products which free the farmer to further 

mitigate risk by trading futures. Is that right? 

Mr. GILLEN. Yeah. It did allow producers to use the futures market as long as they had that risk management tool on the crop insurance side to use it. 

What we are proposing, what the enterprise would cover would 

take them even further yet, as far as bushels, being able to buy a 

higher level of coverage. If they are willing and producers like myself are willing to absorb those losses on those individual units, and 

if a subsidy was changed, the percentage was changed in enterprise 

units, we can get that extra 10 percent coverage, from 75 to 85 percent coverage. To me, that is huge and is going a long way for a 

producer that has a low APH. 

29

Mr. POMEROY. It is. But I will tell you why the people I represent 

use individual units or basic units is to get their coverage, nudge 

their coverage up as high as it can go because they want to maximize their risk protection. And when you indicate, well, that won’t 

be necessary if they buy subsidized premiums, can buy up at the 

higher level for the enterprise unit, I agree with you. But I don’t 

think it is an even trade from an actuarial standpoint. I think substantially more subsidies would have to be provided to get the kind 

of subsidized buy-up for the enterprise unit than for the individual 

unit, don’t you? 

Mr. GILLEN. To increase the enterprise unit would be adequate, 

I think. There are producers out there that have several different 

units and they want individual coverage on those units and they 

don’t want to give that up. This would address that. This wouldn’t 

change their coverage at all. This would just be for producers that 

want to put all their crop insurance into one unit. 

Mr. POMEROY. Right. I think conceptually what you are talking 

about there makes sense. I like moving to an enterprise unit. It 

would eliminate a lot of cheating in the program, too, in my view. 

On the other hand, I think that we are going to have to have 

substantially more subsidy if we are going to have the same kind 

of premium affordability at higher coverage levels for the enterprise unit. I believe people are deciding on the individual unit because that, right now, is the only way they can afford to get the 

higher coverage levels that they want, and the higher risk protection that they want. If you are going to switch that to an enterprise 

unit I think you are going to talk about a pretty substantial increase in subsidy, wouldn’t you? 

Mr. GILLEN. You wouldn’t have that increase in subsidy. 

Getting back to your point of affordability of insurance, the National Corn Growers have come forward on the farm bill with a revenue package revenue proposal and this is integrated with the crop 

insurance. And what that means is you would work with the crop 

insurance farm level and the accounted level support. It would be 

like a permanent disaster, and it would plug that hole. It was integrated, and you get the higher of the two, either the farm level 

support or the kind of level support. As long as it is integrated, you 

could reduce your premium by 40 to 60 percent, because the crop 

insurance wouldn’t have that risk anymore. The revenue proposal 

would cover that risk. That would be huge, long way of addressing 

the issue of premiums being too high. 

Mr. POMEROY. I know my time is up. I am just about done. Is 

that the cost of production coverage? 

Mr. GILLEN. No, sir. 

Mr. SCOTT. I would ask the gentleman to yield if he had time to 

yield. 

Mr. POMEROY. Yes, I will yield; and the gentleman can consume 

the balance of my time. 

Mr. ETHERIDGE. I thank the gentleman for his question. 

The gentleman from Colorado, Mr. Salazar. 

Mr. SALAZAR. Well, thank you, Mr. Chairman. 

I appreciate the panel’s being here today. As many of you know, 

I am a farmer, and I do raise organic seed for Gourmet Farms, orVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
30

ganic potato seed. We understand how expensive it is to raise organic seed. 

Ms. Wilcox, you mentioned in your testimony could you just give 

me an incident of how a crop could be contaminated without fault 

of the producer. 

Could you expand on that and give me an example? 

Ms. WILCOX. Well, typically, it is caused by grit from a neighbor, 

sometimes a neighbor over 100 miles away, and it can be either a 

chemical or it can be genetically modified material. 

Mr. SALAZAR. Would you then say that Federal crop insurance 

should be liable for an issue like this, or would this be more of a 

legal matter to where the farmer could pursue legal avenues to 

compensate himself if someone caused that harm or that injury? 

Ms. WILCOX. Well, we have many farmers who would like to be 

able to pursue that as a liability against not only the contaminator 

but also the company that produced the product. But we know from 

experience in other countries, namely, in Canada, that that has actually bankrupted farmers who have attempted to do that. And in 

our country, under product liability, it appears that we would have 

to have product liability reform in order to be able to do that. So 

we have been looking at whether there would be the possibility of 

coverage that would potentially help the farmer when he does have 

a contamination that is completely not his fault. 

Mr. SALAZAR. Well, thank you. 

Mr. Segler, regarding your request to insure pecan farmers by 

farm number, can you give me an example of about how expensive 

it is to raise pecans per acre? 

Mr. SEGLER. The cost of pecans runs somewhere between $1,000 to $1,200 per acre. It takes us 9 months to grow them, so it is a 

tremendous investment. And when you look at most all other crops 

that can insure by individual farms, if you had a farm on one side 

of the county and another on the other side of the county, as it 

stands now, you could have a loss on one farm and the other farm 

might make up the difference that you lost as far as insurance coverage. But, you would still have a loss, and we have to average everything in the county. That is not true with most all other crops. 

Mr. SALAZAR. Okay. 

Has RMA actually provided us an explanation for not allowing 

this option for pecan growers? 

Mr. SEGLER. Not on that part. They have on the 10 percent cup 

yield protection. They say that it is a revenue-orientated crop, and 

that is true in one aspect, but that is only half the equation. They 

do not recognize that it is the same as corn or cotton, that it takes 

both production and price to determine the guaranteed insurance 

coverage. Both equations have to be there. 

Mr. SALAZAR. Okay. Thank you very much. Oh, go ahead. Have 

you finished? Thank you. I do appreciate it. 

Thank you, Mr. Chairman. I yield back. 

Mr. ETHERIDGE. The gentleman from Georgia, Mr. Marshall, 5 

minutes. 

Mr. MARSHALL. Thank you, Mr. Chairman. I am going to continue with some questions for my fellow Georgian, Mr. Segler. 

First of all, I guess I should say Congress appreciates the work 

you have done for some 20-odd years, and I hope that pecan growVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
31

ers will appreciate it. Was it the regional office that proposed to 

RMA National that there be a modification to meet some of your 

needs? What was the proposed modification that National said no? 

Was it on the 10 percent cup? 

Mr. SEGLER. The 10 percent cup, both after the catastrophic 

forms that we had in 2004 and 2005. In both years, the regional 

office of RMA submitted to the Kansas City office the request to 

implement the 10 percent cup, paralleling the catastrophic damage 

of the 2004 and 2005 hurricanes with the same damage that we 

had in 1996 on peaches when they froze out. It is, in my opinion, 

a shame, Mr. Congressman, that we have to go to the Congress of 

the United States to get something done that RMA administratively took care of in 1996. 

Mr. MARSHALL. Yes. Let me try to draw that analogy a little bit 

more. 

So RMA’s response was that this was a revenue crop and cannot 

be done. Yet, it was done administratively for peaches. Is that what 

you are telling me? I know a number of farmers who have peaches 

and pecans, and there is different care involved. There is pruning 

involved. There is fertilizing involved. For some reason, pecans are 

labeled as revenue crop and cannot get the 10 percent cup limit, 

and then peaches are not, and you can. Can you explain that? 

Mr. SEGLER. No, sir. They probably can explain it better than I 

because it is the same as the CRC program for corn and cotton. It 

takes both yield and price to determine the ERT. RMA, the people 

that I have been involved with since 2003 in trying to get this corrected. They simply have a hard time understanding not only why 

we do not have this, but why the crop insurance was ever written 

without it. 

Mr. MARSHALL. By the way, there is a whole bunch of Georgia 

corn growers out there to make sure we get this done. 

Mr. SEGLER. I draw the analogy between peaches and pecans. I 

am real troubled by peaches and pecans. It seems to me that there 

is really, truly, no difference there at all. I am saying, Mr. Congressman, in 1996, when Georgia and the Southeast experienced a 

5-bushel-per-acre yield, RMA recognized that yield as catastrophic 

damage. They implemented administratively this 10 percent cup 

because they had it on other crops, on the peaches for 1997. After 

1997, it became a part of their policy. 

I can assure you that unless this is rectified immediately, not 2 

or 3 years from now, we will not have crop insurance on pecans. 

It will go down to zero because we are having to put some catastrophic numbers in like zero. It happened in Texas as well. This 

is something that should not be permitted. 

Mr. MARSHALL. I appreciate your being here. 

Mr. ETHERIDGE. I thank the gentleman. 

Let me thank our panelists for being here today. Thank you for 

your comments, and if you have others you would like to share 

with us, please do so very shortly because this Committee is going 

to be moving forward. 

Now let me invite our second panel if they will come to join us 

at the table. 

Let me welcome you, our full panel. 

32

On this panel is Mr. Bill Kubecka. Is it pronounced ‘‘cue-beckah’’? 

Mr. Kubecka. Yes, sir. 

Mr. ETHERIDGE. He is the past President of the National Sorghum Producers in Palacios, Texas. 

Mr. Gary Iverson is the Executive Director of the Great Northern 

Growers Cooperative in Sunburst, Montana. 

Mr. Steve Chapman is the President of the American Sesame 

Growers Association of Lorenzo, Texas. 

Mr. Tim Watts is the President of Watts and Associates, Incorporated, in Billings, Montana. 

Welcome. 

When you are ready, Mr. Kubecka, you may begin with 5 minutes. Let me remind each of you your total testimony will be included in the record, and if you would, try to summarize that within 5 minutes. Thank you. 

STATEMENT OF WILLIAM H. ‘‘BILL’’ KUBECKA, FARMER; PAST 

PRESIDENT, NATIONAL SORGHUM PRODUCERS, PALACIOS, TX 

Mr. KUBECKA. On behalf of the National Sorghum Producers, I 

would like to thank the House Committee on Agriculture and this 

Subcommittee for the opportunity to discuss the manner in which 

RMA operates the Federal Crop Insurance Program. 

My name is Bill Kubecka, and I farm in Matagorda and Jackson 

Counties in the upper coast of Texas. I raise sorghum, cotton, and 

rice in a diversified operation that also includes cow-calf pairs and 

aquaculture. I believe that sorghum is a self-insurance crop as it 

takes less water to produce a crop, but it does not get treated as 

such by RMA. 

Sorghum farmers are very, very frustrated with RMA’s operation 

of their risk management programs because their policies run contradictory to sorghum’s inherent risk management characteristics. 

RMA has based sorghum price elections on long-term, historical 

sorghum-corn price relationships. But with ethanol changing the 

market dynamics for feed-grains, this is not relevant. RMA must 

change their way of doing business when it comes to sorghum. Penalizing sorghum because it is not traded on a futures market is 

wrong. 

On my farm, I can consistently market sorghum at a 10 percent 

premium to corn, some years at a 30 percent premium. Yet RMA 

set my 2007 price election at a 6 percent discount to corn. RMA’s 

administration has resulted in an extra 16 percent deductible on 

my sorghum insurance. In effect, this makes a 65 percent deductible policy more like a 50 percent deductible policy. 

If the Committee includes changes in the farm bill to RMA’s risk 

management programs, NSP asks that, first, sorghum price elections accurately reflect local prices; second, that expected county 

yields do not have large, short-term variations; third, that a transparent system of establishing transitional yields is implemented; 

and last, that RMA expand the Pilot Forage Sorghum Program. 

According to RMA, in 2006, a USDA-sponsored risk management 

program covered 67 percent of sorghum acreage. That number is 

significantly lower than other crops. Corn had 79 percent of its 

33

acreage covered, cotton 92 percent, wheat 77 percent, and soybeans 

80 percent. 

With participation at significantly lower rates than other crops, 

this shows that the program has problems. Sorghum farmers do 

not see or receive the same benefits as other crops. We find it ironic that our crop’s risk management advantages are essentially discounted when price elections are lower than high water-use crops 

that are more risky to grow in the semi-arid sorghum belt. 

Price elections need to more accurately reflect local cash prices. 

1,000,000,000 gallons of new ethanol demand will come on line in 

2007 and early 2008 in the sorghum belt, and this will continue to 

increase the price of sorghum. 

Drought has decimated sorghum yields: During the past couple 

of years, parts of the sorghum belt have received the third lowest 

rainfall since modern record keeping began. Gross Revenue Insurance Program and Group Risk Plan, also known as GRIP and GRP, 

are supposed to use long-term yields as a basis for insurance. However, if you look at page 10 of my written testimony, you will find 

a map that shows where RMA has increased an expected yield by 

3 percent in one county and then decreased the expected yield by 

over 30 percent in an adjoining county. Producers who have had 

their yield histories destroyed by a short-term drought now have 

their long-term, area-wide coverage decreased dramatically for the 

same reason. The expected county yields should be based upon a 

function that accounts for increased yield due to technology and genetics. 

While transitional yields, better known as T-yields, really only 

affect new producers of a crop, RMA must utilize a more transparent system of assigning T-yields that does not penalize one crop 

against another. 

RMA created the Forage Sorghum Pilot Program in 2005 at the 

request of NSP. NSP has been working with RMA to make significant changes to the program for the 2007 crop year to rebalance 

T-yields across the sorghum belt. NSP wants to work with the 

Committee and RMA to make sure that this program expands and 

is actuarially sound. 

In conclusion, NSP’s Board asks that Congress solve problems 

with risk management programs before expanding crop insurance 

and before the Committee creates additional programs that will be 

based on crop insurance numbers. 

I appreciate the opportunity to submit this testimony in support 

of bettering the crop insurance safety net for sorghum producers. 

I want to end by saying that setting sorghum risk management 

programs equal with other crops is good, sound, policy for saving 

water and lessening America’s foreign energy dependence. Thank 

you. 

[The prepared statement of Mr. Kubecka follows:]

PREPARED STATEMENT OF WILLIAM H. ‘‘BILL’’ KUBECKA, PAST PRESIDENT, NATIONAL

SORGHUM PRODUCERS, PALACIOS, TX 

Introduction 

On behalf of the National Sorghum Producers, I would like to thank the House 

Committee on Agriculture and this Subcommittee for the opportunity to discuss federal crop insurance and its impact on the sorghum industry and my farm. 

34

My name is Bill Kubecka, and I farm near Palacios in Matagorda and Jackson 

Counties in the Upper Coast of Texas. I raise sorghum, cotton, and rice in a diversified operation that also includes cow-calf pairs and aquaculture. 

NSP represents U.S. sorghum producers nationwide and our mission is to increase 

the profitability of sorghum producers through market development, research, education, and legislative representation. 

NSP is committed to work with the Committee and its staff as it works to reauthorize our nation’s farm laws. The organization and industry are supportive of the 

current farm bill. However, we believe that Congress can clarify several program 

details so that USDA interpretation does not impact producers’ ability to use sorghum in a profitable cropping system. 

One program that could be improved is USDA’s risk management program. Crop 

insurance is a major component of the farm safety net for grain sorghum. It is a 

crop grown predominately in the semi-arid Great Plains, where weather volatility 

(lack of rain) is the major determinant in year-to-year yield variation. This testimony will focus on three areas of crop insurance as they relate to grain sorghum: 

price elections, expected county yields, and transitional yields. The testimony will 

also briefly discuss forage sorghum. But first, we need to examine the current situation that sorghum producers encounter. 

Industry Overview 

The Great Plains states produce the largest volume of grain sorghum, but the 

crop is grown from Georgia to California and from South Texas to South Dakota. 

According to the National Agricultural Statistics Service (NASS), last year sorghum 

was produced in many of the states that you represent. This includes Georgia, Mississippi, Kentucky, Arkansas, Kansas, South Carolina, Nebraska, Colorado, South 

Dakota, Missouri, Louisiana, Texas, Oklahoma, and California. 

Over the past ten years, grain sorghum acreage has ranged from a high of 13.1 

million acres in 1996 to a low of 6.5 million acres planted in 2006. Annual production from the last 10 years has ranged from 795 million bushels to 360 million bushels, with an approximate value of 1.2 billion dollars annually. 

The creation of the Conservation Reserve Program in the 1985 farm bill had a 

significant impact on the sorghum industry. Poor risk management programs have 

played a role also. Today’s sorghum acreage is one-third of what it was prior to the 

1985 farm bill. It is a goal of the industry to increase producers’ profitability and 

to take acres back closer to the pre-1985 farm bill level. NSP expects that returning 

acreage to that level will help ensure the infrastructure to supply the needs of the 

ethanol industry, livestock industry and export markets. The sorghum industry has 

submitted to USDA a national checkoff proposal which will allow producers the opportunity to direct research funds towards their priorities. It will also ensure research and development funding to continue to improve our crop. In addition, forage 

sorghum utilized as silage, hay and direct grazing represents approximately an additional five million acres of production. The USDA reported that in 2006, 347,000 

acres of sorghum were harvested for silage, producing approximately 4.6 million 

tons of silage. 

The U.S. is the world’s chief exporter of grain sorghum, and the crop ranks fifth 

in size in the U.S. behind corn, soybeans, wheat, and cotton. 

In the last two years, approximately 45% of the crop was exported. Further, last 

year the U.S. had almost 90% of world sorghum export market share. In 2005–2006, 

Mexico bought more than two-thirds of our exported grain. NAFTA has created a 

strong market for U.S. sorghum to Mexico and producers in my area benefit from 

historically high basis because of this market. 

Of the 55% of the crop that is not exported, 26% goes into pork, poultry, and cattle feed; 24% goes into ethanol production; 4% goes into industrial use; and 1% goes 

into the food chain. 

In fact, sorghum’s newest market is the exponentially growing ethanol industry. 

We have seen a 57 percent increase in that market over the last 2 years and expect 

it to grow even faster over the next 12 months as we have over one billion gallons 

of ethanol capacity coming on line in sorghum growing areas in the next 12 months. 

Outside of the U.S., approximately half of total production of grain sorghum is 

consumed directly as human food. In addition, the U.S. dominates world sorghum 

seed production with a billion dollar seed industry focused on 200,000 acres primarily in the Texas Panhandle. 

Sorghum is a unique, drought tolerant crop that is a vital component in cropping 

rotations for many U.S. farmers. 

35

Background on Sorghum Farmers’ Crop Insurance Use 

For 2006, 67% of sorghum acreage was covered by a USDA-sponsored risk management program. That number is significantly lower when compared to other crops. 

For example, corn had 79% of its acreage covered; cotton, 92%; wheat, 77%; and soybeans, 80%. Obviously, crop insurance for sorghum does not work as well as other 

crops. Our members have been asking a lot of questions regarding the low participation rate. We would hope that USDA would be working to promote sorghum production in the semi-arid sorghum belt, especially as the prices for starch—corn and sorghum—are being driven up by the ethanol industry. Setting sorghum risk management programs equal with corn is essential to sound water saving policy and essential to a sound energy policy. 

Part of the reason for low sorghum participation is that yields have dropped significantly because of the recent drought. Certain parts of the sorghum belt received 

the third lowest rainfall since modern record keeping started. In fact, yields are so 

low that there is almost no yield left to insure. Producers are very hesitant to utilize 

a program that has limited coverage when growing a drought tolerant crop. 

More importantly, producers plant sorghum because it is a self-insurance crop as 

it takes less water and less inputs to produce a crop. NSP’s members feel that sorghum is perfect crop for risk management, because sorghum is much more drought 

tolerant than other crops in the semi-arid sorghum belt. The plant goes dormant 

during periods of no rain, rather than die as other crops do. We find it ironic that 

our crop’s risk management policies are essentially discounted when compared to 

other crops that are more risky to grow in the semi-arid sorghum belt. 

Price Elections 

The mechanism used by USDA’s Risk Management Agency (RMA) to set price 

elections for grain sorghum provides a lower level of protection as compared to other 

crops. The most widely used RMA program for sorghum farmers is Crop Revenue 

Coverage (CRC). In 2006, 63% of the insured sorghum acres were covered by CRC 

insurance, as it allows producers to manage for both yield and price risk. Crops with 

large volumes of production have an exchange-traded futures market to determine 

the price used in their risk management programs. RMA uses an average of closing 

futures prices for a given time period to determine the CRC price election. Sorghum, 

however, does not have an exchange-traded futures market, so its price election is 

determined by RMA and is based on its price relationship with corn. We ask that 

the Agency do a better job of reflecting the sorghum price. The renewable fuels industry has significantly changed the demand for sorghum. In fact, the NSP staff has 

a hard time keeping track of all the new ethanol demand that is impacting local 

prices of sorghum. 

Prior to 2004, RMA set the price election of sorghum at a flat 95% of the corn 

price election, basing that on historical feeding value relationships. Beginning with 

the 2004 crop year, the CRC Commodity Exchange Endorsement (CEE) changed 

their policy to state that RMA will set the grain sorghum price election based on 

the ‘‘United States Department of Agriculture (USDA) January estimate of corn and 

grain sorghum prices.’’ Sorghum worked with Congress and USDA to implement the 

change in hopes that RMA’s programs would more accurately reflect local prices but 

that has not happened. 

For example, the January USDA estimates include WASDE and NASS publications. In the January 2007 WASDE report, the corn price range was $3.00–$3.40/

bu and the sorghum price range was identical at $3.00–$3.40/bu. In the January 

2007 NASS Agricultural Prices publication, USDA projected the January price for 

corn at $3.23/bu and the sorghum price at $3.60/bu. However, when RMA announced the CRC price election for sorghum, it was $3.55/bu, while the price election for corn was $3.76/bu. This is a 21l/bu deficit when WASDE had projected 

identical price ranges and NASS had published sorghum prices as 37l/bu higher 

than corn. Our producers are becoming more and more frustrated with insurance 

policies that are discounted as compared to other crops they are planting. 

36

Figure 1.

Prior to the RMA change, NSP met with RMA to present current pricing data to 

ensure that sorghums’ risk management prices accurately reflected local prices. NSP 

now believes the CRC price election is set based upon the USDA baseline that is 

published in February of each year. The baseline projects the corn and sorghum 

prices for a 10-year period. NSP believes that the ratio between sorghum and corn 

for the upcoming crop year is what is used by RMA to set the price election for sorghum per the CRC CEE. In the February 2007 baseline, the sorghum-corn ratio was 

.943. This was found by taking the sorghum price of $3.30/bu and dividing by the 

corn price of $3.50/bu. RMA then used a ratio of .944 when determining the CRC 

price election ($3.55/bu for sorghum divided by $3.76/bu for corn). Since the price 

election change in the 2004 CEE, the ratio used by RMA has never deviated more 

than 1⁄2% from the ratio in the corresponding baseline. 

Using the baseline to set the CRC price election for sorghum is wrong. The baseline is assembled by the Interagency Commodity Estimates Committee (ICEC) within the World Agricultural Outlook Board which publishes the WASDE estimates. In 

discussions with the head of the ICEC Feed Grains Committee, the baseline was 

never intended to be used as a pricing tool since the sorghum price is based on a 

long-term historical ratio to the corn price. NSP’s board believes that a crop insurance program based on a futures market, or in sorghum case, a forward 

looking policy, is a much better tool than a backwards looking, historical 

price risk management tool.

The ethanol industry is radically changing the dynamics of the sorghum market, 

and RMA must realize this. Within a couple of years, 86% of the sorghum in Kansas 

will be produced in a county within 50 miles of an ethanol plant. That new demand 

is dramatically increasing the local price of sorghum. The new demand mentioned 

above does not take into account the proposed plants, but only those that will actually be producing ethanol by the end of 2008. 

This type of radical change to the sorghum market cannot be captured by a longterm historical ratio of sorghum to corn prices. If you expand this type of analysis 

to the whole United States, 61% of the total US sorghum crop will be near an ethanol plant. RMA is penalizing sorghum producers in this dynamic market by using 

an antiquated ratio. 

In my own instance, sorghum has traded above corn for the past ten years with 

some time periods having sorghum at 135% the price of corn at the Corpus Christi 

market. Consistently, however, I trade 10% over corn in my market. I am being disVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA

11022012
37

criminated against by RMA with a price election that, for 2007, is 6% less than corn. 

This, in effect, is an extra 16% deductible on my sorghum insurance making a 65% 

deductible policy more like a 49% deductible policy compared to corn. While this testimony will not attempt to predict the effect of price elections on cropping decisions, 

it is a known fact that price elections do affect cropping decisions for farmers. As 

bankers look at insurance guarantees for producer financing, the price election difference between corn and sorghum is a critical point. In some cases, the market may 

send one signal to plant sorghum, but the insurance guarantee is better for corn 

due to a higher price election. The insurance price election is now becoming a factor 

that is included in farmers’ decisions on which crop will be planted. We would encourage this Committee to promote policy that would encourage producers to use insurance as a risk management tool. Sorghum producers deserve a level playing field 

to compete with other crops. 

While most of the price election section has dealt with CRC, the MPCI price election for sorghum must also be corrected. Although this price election is not based 

directly on the corn price, the deficiencies are still evident. In 2006, the MPCI price 

election for sorghum was 97.5% of that of corn, while in 2007, the sorghum price 

election is only 94.3% of corn. This reduction in comparison to corn is in direct opposition of the data presented in USDA publications showing sorghum equal to or 

above corn. 

If the ability to change crop insurance language does happen in the next 

Farm Bill debate, NSP would ask that language be inserted that sorghum 

price elections be set at a level no less than corn for all insurance products.

Expected County Yields 

Expected county yields are used in the area-wide insurance policies now offered 

by RMA-Group Risk Plan (GRP) and Group Risk Income Protection (GRIP). While, 

in 2006, only 3% of sorghum’s insured acres were covered by these policies, the producers using the policies find them to be the only affordable insurance they can purchase due to decimated yield histories from prolonged drought. RMA, however, is 

using short-term weather gyrations to vastly change expected county yields from 

year to year. The expected county yield is a 30-year weighted trend yield that is 

used to calculate losses for each county in determining indemnities for area-wide 

policies. While farming technology and seed genetics has improved vastly in the last 

30 years, RMA moves expected county yields based upon short-term weather patterns and not long-term trends. 

As noted in Figure 2, Rawlins County, Kansas has increasing trend yields calculated using a variety of methods except for the short-term dominated method used 

by RMA. This type of ‘‘X-pattern’’ between RMA’s expected county yields and other 

yield trend methods demonstrates that RMA is not using a true long-term trend for 

yields. This then runs counter to the whole philosophy of area-wide coverage—using 

long-term trends for insurance coverage. As permanent disaster programs are mentioned, some programs may consider using county expected yields to calculate disaster payments. This would make these yield trends very important to the success 

of such a program. 

In reference to Map 1, RMA cannot justify increasing an expected yield by 3% in 

one county and then decreasing the expected yield by over 30% in an adjoining 

county. Long-term weather patterns, farming technology, and genetics span across 

county and state lines. Producers who have had their yield histories destroyed by 

a short-term drought now have their long-term area-wide coverage decreased dramatically for the same reason. These large gyrations make the use of GRIP and 

GRP highly variable over the sorghum belt and do not reflect the true nature of the 

insurance policy. GRIP and GRP are used to insure county-wide variability. That 

variability will include weather, but that weather should not be the reason for these 

large changes in expected county yields. The expected county yields should be based 

upon a log function that accounts for increased yield due to technology and genetics. 

Dr. Art Barnaby of Kansas State University has developed such a function that may 

be further simplified as research is done on trend yields. 

Transitional Yields 

While transitional yields, better known as T-yields, really only affect new producers of a crop, RMA must utilize a more transparent system of assigning T-yields 

that does not penalize one crop against another. For example, in Kay County, Oklahoma, the corn yield decreased, but RMA increased the T-yield, while holding the 

sorghum T-yield flat. RMA again is discriminating against sorghum. The actual corn 

yield has decreased from a high in 2003 of 106.8 bushels per acre to 34.5 bushels 

per acre in 2006. Based upon a history of following short-term yield patterns, RMA 

should have decreased the T-yield for Kay County. However, RMA increased the TVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
38

yield by 48% from 52 bushels per acre in 2006 to 77 bushels per acre in 2007. RMA 

did not adjust the T-yield for sorghum between 2007 and 2006, which reflects the 

flat yield trend from 2003 to 2006. 

Forage Sorghum 

This RMA pilot project is becoming more and more important to the sorghum industry as the cellulosic ethanol industry develops. Forage sorghum is high yielding 

and uses a third less water that other silages. NSP supports a forage sorghum insurance program. 

RMA created the forage sorghum pilot program in 2005 at the request of NSP. 

NSP has been working with RMA to make significant changes to the program for 

the 2007 crop year to rebalance T-yields across the sorghum belt. NSP wants to 

work with the Committee and RMA to make sure that this program expands and 

is actuarially sound. 

Conclusion 

Crop insurance is a critical part of the safety net for sorghum producers; however, 

only 67% of sorghum acreage is covered by a USDA risk management product. 

NSP’s board asks that this Committee seriously discuss why this situation exists 

and implement policy to improve coverage of sorghum. Our board believes that increasing the acreage covered by a USDA risk management product is good, sound 

water policy and good, sound energy policy. USDA’s risk management products can 

be improved for sorghum and made more equitable across crops if steps are taken 

to address the issues of price elections, expected county yields, and transitional 

yields. 

NSP asks that language be inserted in the next farm bill that will (1) assure sorghum price elections are no less than corn price elections, (2) develop expected county yields that do not have large short-term variations, and (3) implement a transparent system of establishing transitional yields. 

Also, since the crop insurance program works so poorly for sorghum, NSP’s board 

asks that Congress fix the sorghum problems before expanding crop insurance and 

creating additional programs that will be based off of crop insurance numbers. 

I appreciate the opportunity to submit this testimony and work for the betterment 

of the crop insurance safety net for sorghum producers. 

Figure 2.


11022013
39

Map 1.

Mr. ETHERIDGE. Thank you, sir. 

Mr. Iverson. 

STATEMENT OF GARY W. IVERSON, EXECUTIVE DIRECTOR, 

GREAT NORTHERN GROWERS COOPERATIVE, SUNBURST, MT 

Mr. IVERSON. Mr. Chairman and Members of the Committee, it 

is an honor to be here today to talk about an oilseed that has the 

potential to dramatically improve the rural economies of many 

western states and help our country achieve energy independence. 

That oilseed is camelina, and it can be used as a feedstock to 

produce biodiesel, just like canola, sunflower seeds, or soybeans. 


11022014
40

My name is Gary Iverson, and I am the Executive Director of the 

Great Northern Growers Cooperative in Sunburst, Montana. Our 

Cooperative is dedicated to working with agricultural producers to 

market value-added agricultural commodities which are adapted to 

Montana conditions and provide economic development to our 

state. 

My story relates to Montana, but it could equally apply to Minnesota, Washington, Oregon, Colorado, Utah, Nebraska, North or 

South Dakota, all of whom have growing conditions well suited to 

camelina. 

Camelina is a member of the mustard family. It is a summer annual oilseed crop. It is also known as False Flax or Gold of Pleasure. The Romans called it the Romans’ Pleasure. The seed was 

widely grown in Eastern Europe from ancient times until the 1940s 

when it was replaced by canola. 

Soybeans, sunflower, and canola are the main oilseed crops 

grown in temperate climates in the United States and are the principal feedstocks currently used to produce biodiesel. These oilseed 

crops are not suitable to marginal lands with low moisture, low fertility, or higher pH soils. For example, soybeans are ideally suited 

to the corn belt, but are not well adapted to arid northern and 

Rocky Mountain states. 

In recent years, farmers have shown increased interest in growing sustainable crops with reduced requirements for fertilizer, pesticides, and energy input that can be used for both food and fuel 

production. Camelina is that crop. It requires minimal inputs and 

is well suited to marginal soils, arid climates and lower soil fertility. 

Camelina can be grown as a dryland crop using minimal till. 

Camelina production can be limited by high humidity, weather that 

is virtually unknown in Montana, which causes downy mildew, the 

only significant disease of camelina. Grown in areas with high 

moisture and high fertility soil, oilseeds like canola will outyield 

camelina. However, under dryland conditions, camelina yields will 

be nearly double that of canola. 

Camelina is of particular interest to biofuel manufacturers because of the low cost of production. It may also be an effective 

biofuel for cold climates as the cold point of camelina oil is 10 to 

15 degrees lower than soybean or canola. 

Camelina production is rapidly increasing in the Northern Great 

Plains. Montana is currently the largest producer of camelina in 

the world. Last year, 10,000 acres were grown in Montana. This 

year, that number will expand to 50,000 acres. The number of 

acres grown in Montana and other states will continue to grow rapidly as the demand for biodiesel continues to increase. 

There are two roadblocks to getting farmers to move acreage into 

camelina production. The first challenge is that there are currently 

no labeled pesticides available to control weeds and pests. This barrier is being resolved as research scientists and as pesticide manufacturers move the appropriate products into the market. 

The bigger challenge is the lack of Ag Department safety-net programs. I spend my days working with agriculture producers, educating them about the potential markets for this exciting new energy crop. No matter how great the promised return on investment 

41

might be, the lack of crop insurance is a major roadblock to new 

crop acceptance. Farmers have trouble getting their banker to support loans for crops without crop insurance. Farmers are also hesitant to move away from a crop with a long track record and the 

full bundle of USDA program support to a new crop with no safety 

net whatever. 

Montana’s Governor, Brian Schweitzer, recently referred to 

camelina as his new girlfriend. As our country works to develop 

homegrown sources of clean renewable fuels, we believe states like 

Montana can substantially contribute to energy feedstock production. In fact, we project that camelina will surpass 1,000,000 acres 

in Montana in the next 2 to 3 years. In order to achieve this benchmark, Montana farmers need risk protection and support from 

Farm Services Agency and from other state and Federal agencies. 

Camelina is a new crop to North America. It does not have the 

sort of yield and price data that is required to obtain Federal crop 

insurance under the normal process, a process that may take years 

to navigate. Congress can best promote the increased production of 

renewable fuels by instituting a targeted program administered by 

the Department of Agriculture that would provide the needed safety net to growers in the short term to allow this industry to take 

root and deliver on the promise of energy independence. 

Thank you. 

[The prepared statement of Mr. Iverson follows:]

PREPARED STATEMENT OF GARY W. IVERSON, EXECUTIVE DIRECTOR, GREAT

NORTHERN GROWERS COOPERATIVE, SUNBURST, MT 

Mr. Chairman and Members of the Committee:

It is an honor to be here today to talk about an oilseed that has the potential 

to dramatically improve the rural economies of many western states and help our 

country achieve energy independence. That oilseed is camelina, and it can be used 

as a feedstock to produce biodiesel, just like canola, sunflower seeds or soybeans. 

My name is Gary Iverson and I am the Executive Director of the Great Northern 

Growers Cooperative in Sunburst, Montana. Our Cooperative is dedicated to working with agricultural producers to market value-added agricultural commodities 

which are adapted to Montana conditions and provide economic development to our 

state. My story relates to Montana, but it could equally apply to Minnesota, Washington, Oregon, Colorado, Utah, Nebraska, North Dakota or South Dakota, all of 

whom have growing conditions well suited to camelina. 

Camelina, a member of the mustard family, is a summer annual oilseed crop. It 

is also known as False Flax or Gold of Pleasure. The seed was widely grown in Eastern Europe from ancient times until the 1940’s when it was replaced by canola. 

Soybeans, sunflower, and canola are the main oilseed crops grown in temperate 

climates in the United States and are the principal feedstocks currently used to 

produce biodiesel. These oilseed crops are not suitable to marginal lands with low 

moisture, low fertility, or higher Ph soils. For example, soybeans are ideally suited 

to the Corn Belt, but are not well adapted to arid, northern and Rocky Mountain 

states. 

In recent years, farmers have shown increased interest in growing sustainable 

crops with reduced requirements for fertilizer, pesticides, and energy input that can 

be used for both food and fuel production. Camelina is that crop. It requires minimal 

inputs and is well suited to marginal soils, arid climates, and lower soil-fertility. 

Camelina can be grown as a dry-land crop using minimal till. Camelina production can be limited by high humidity—weather that is virtually unknown in Montana—which causes downy mildew, the only significant disease of camelina. Grown 

in areas with high moisture and high fertility soil, oilseeds like canola will out yield 

camelina. However, under dry land conditions, camelina yields will be nearly double 

that of canola. 

42

Camelina is of particular interest to bio-fuel manufactures because of the low cost 

of production. It may also be an effective biofuel for cold climates, as the cloud point 

of camelina oil is 10 to 15 degrees lower than soybean or canola. 

Camelina production is rapidly increasing in the northern Great Plains. Montana 

is currently the largest producer of camelina in the world. Last year 10,000 acres 

were grown in the state. This year, that number will expand to 50,000 acres. The 

number of acres grown in Montana and other states will continue to grow rapidly 

as the demand for biodiesel continues to increase. 

There are two roadblocks to getting farmers to move acreage into camelina production. 

The first challenge is that there are currently no labeled pesticides available to 

control weeds and pests. This barrier will be resolved as advances are made to selectively breed more resilient varieties of camelina and as pesticide manufacturers 

move the appropriate products into the market. 

The bigger challenge is the lack of Department of Agriculture safety net programs. I spend my days working with agriculture producers, educating them about 

the potential markets for this exciting new energy crop. No matter how great the 

promised return on investment might be, the lack of crop insurance is a major roadblock to new crop acceptance. Farmers have trouble getting their banker to support 

loans for crops without crop insurance. Farmers are also hesitant to move away 

from a crop with a long track record and the full bundle of USDA program support 

to a new crop with no safety net whatsoever. 

Montana’s Governor, Brian Schweitzer, recently referred to camelina as his new 

girlfriend. As our country works to develop home-grown sources of clean, renewable 

fuels, we believe states like Montana can substantially contribute to energy feedstock production. In fact, we project that camelina will surpass 1 million acres in 

Montana in the next few years. In order to achieve this benchmark, Montana farmers need risk protection and support from Farm Services Agency and other state 

and federal agencies. 

Camelina is a new crop. It doesn’t have the sort of yield and price data that is 

required to obtain Federal crop insurance under the normal process—a process that 

I understand takes many years to navigate. Congress can best promote the increased production of renewable fuels, by instituting a targeted program administered by the Department of Agriculture that provides the needed safety net to growers in the short term to allow this industry to take root and deliver on the promise 

of energy independence. 

Thank you.

Mr. ETHERIDGE. I thank the gentleman for his testimony. 

Mr. Chapman. 

STATEMENT OF STEVEN D. CHAPMAN, PRESIDENT, AMERICAN 

SESAME GROWERS ASSOCIATION, LORENZO, TX 

Mr. CHAPMAN. Thank you, Mr. Chairman and Members of the 

Committee. My name is Steven Chapman. I am a fourth-generation 

farmer from Lorenzo, Texas, and I grow cotton, sorghum, wheat, 

and peanuts. I am also a Member of the Board of Plains Cotton 

Growers Association. I also grow another crop that I am here today 

to talk to you about. That is sesame. 

I am the founding President of the newly formed American Sesame Growers Association, headquartered in San Antonio. 

In addition to Texas, sesame is commercially grown in Oklahoma, Kansas and Arizona, and it has huge potential. Our Association’s top priority and objective and the sole reason I got off my 

tractor in the middle of planting season, got on a plane and flew 

1,600 miles to be here today is simple. We respectfully request a 

pilot program for Actual Production History Multi-Peril Crop Insurance for sesame. 

Mr. Chairman, the irony is sesame is a very low-risk crop. Let 

me be clear. We do not need crop insurance because of sesame’s inherent production risks. We need crop insurance because of the 

commercial practicalities of securing acres and financing. 

43

The bottom line is this: Landlords and lenders demand crop insurance. Since crop insurance is unavailable to sesame, land and 

loans are given only to other crops. The lack of crop insurance 

means that accountants and actuaries, not farmers, are deciding 

what to plant on Texas farms. The sesame acreage that is produced 

to date is self-financed on owned land. 

Mr. Chairman, sesame production is an American success story 

that has yet to be told, and it will never be told if we do not get 

crop insurance and get it soon. Let me first explain the agronomics; 

second, the economics; and, third, the policy solution for crop insurance. 

It is a low-cost, low-risk crop that allows farmers to make a profit. In last summer’s drought, we saw that it was often the only crop 

that survived in some areas. It is an excellent rotation crop for cotton, corn, wheat, soybeans, and peanuts. This is one of our principal uses for sesame. It conditions the soil and reduces cotton root 

rot and root knot nematodes, which improves our subsequent cotton crop. This is why we say, ‘‘Sesame is cotton’s best friend.’’ sesame is used for bakery, confection, and is crushed for oil. Because 

it is toasted before it is crushed, it does not compete with other 

U.S.-produced vegetable oils. Almost all of the sesame consumed in 

the U.S. is imported. Quite candidly, our domestic customers have 

food safety concerns, given recent news. So do many other countries like Japan. They both want a U.S. supply. 

With crop insurance and a chance to expand, ASGA believes, 

through our conversations with commercial traders and processors 

around the world, the U.S. could be a net exporter with a 20 percent world market share within a decade. That equates to about 

750,000 acres. Right now, because ASGA farmer members believe 

that we are in a race with Brazil to capture this market, timing 

for crop insurance policies is critical. 

So let me wrap up my testimony with our proposed policy solution, Mr. Chairman. We want a pilot program for Actual Production History Multi-Peril Crop Insurance for the 2008 sesame crop 

year. Because sesame grows in the same areas, under the same 

conditions, and with similar practices as sorghum, sesame fits well 

as an addition to the Coarse Grains Crop Provisions and a modification of the Sorghum Loss Adjustment Manual. The economic 

and agronomic merits of sesame earned us a spot on the agenda 

at a Board meeting of the Federal Crop Insurance Corporation. 

Our request for a new policy was denied by the FCIC Board because they have a guideline of not granting new insurance policies 

for small-acreage crops. That decision has put us in a vicious circle. 

RMA and FCIC say sesame cannot be insured because the acreage 

is too small, but the acres are too small because sesame cannot be 

insured. We have done everything we can do administratively with 

FCIC and RMA. 

Clearly, the situation sesame growers and potential sesame 

growers find themselves in is an unintended consequence of the 

FCIC’s acreage guidelines. Thus, it is a matter of policymaking and 

a proper role for Congress to remedy the problem and to provide 

some equity to the Crop Insurance Program. 

Indeed, sesame is considered a minor oilseed under the farm bill, 

but it is the only minor oilseed without a crop insurance policy. 

44

Sesame is a program crop, and it is the only program crop without 

a crop insurance policy. 

Thank you very much for your interest, attention and consideration. 

[The prepared statement of Mr. Chapman follows:]

PREPARED STATEMENT OF STEVEN D. CHAPMAN, PRESIDENT, AMERICAN SESAME

GROWERS ASSOCIATION, LORENZO, TX 

Thank you Mr. Chairman, and Members of the Committee. 

My name is Steven Chapman. I am a fourth generation farmer from Lorenzo, 

Texas, and I grow cotton, sorghum, wheat, and peanuts. And I grow another crop 

that I am here today to talk to you about—sesame. 

I am the founding President of the newly formed American Sesame Growers’ Association, headquartered in San Antonio. 

In addition to Texas, sesame is commercially grown in Oklahoma, Kansas, and 

Arizona. 

Our Association’s top priority and objective, and the sole reason I got off my tractor in the middle of planting season, got in a plane and flew 1,600 miles to be here 

today, is simple. 

We respectfully request a pilot program for Actual Production History Multiple 

Peril Crop Insurance for sesame. 

Sesame has huge potential to bring profitability to farm balance sheets across 

Texas, Oklahoma, and elsewhere—if, and only if, we are to obtain basic crop insurance. 

Mr. Chairman, the irony is sesame is a very low risk crop. Let me be clear, we 

don’t need crop insurance because of sesame’s inherent production risks. We need 

crop insurance because of the commercial practicalities of securing acres and financing. 

The bottom-line is this: landlords and lenders demand crop insurance. Since crop 

insurance is unavailable to sesame, land and loans are given only to other crops. 

The lack of crop insurance means that accountants and actuaries—not farmers—

are deciding what to plant on Texas farms. 

The sesame acreage that is produced to date is self financed on owned land. 

Mr. Chairman, sesame production is an American success story that may never 

be told if we do not get crop insurance. And get it soon. 

Let me explain first the agronomics, second the economics, and third the policy 

solution for crop insurance. 

Sesame is a crop with huge potential—from Kansas to Oklahoma to Texas to California to Arizona. 

It is a low cost, low risk crop that allows farmers to make a profit without relying 

on program payments. 

It is drought tolerant requiring 1⁄4 the water of corn, 1⁄3 the water of sorghum and 1⁄2 the water of cotton. In last summer’s drought, we saw that it was often the only 

crop that survived in some areas. 

It is an excellent rotation crop for cotton, corn, wheat, soybeans and peanuts. This 

is our principal use for sesame. 

It conditions the soil and reduces cotton root rot and root knot nematodes, which 

improves our subsequent cotton crop. This is why we say, ‘‘Sesame is cotton’s best 

friend.’’

And, quite frankly, the issues with WTO are not going to get better for us as cotton farmers and we badly need alternatives. Sesame is an excellent one. 

The reason sesame offers this opportunity is because plant breeding by a Texas 

company, Sesaco, has yielded new varieties of sesame. These varieties can be mechanically harvested with a combine. Because these are relatively new varieties we 

have only recently had a crop that needed to be insured. 

All the traditional sesame production is harvested by hand because the sesame 

capsule opens as it dries and drops the seed on the ground. 

As for the economics . . . the current U.S. production is about 2,500 tons grown 

on 10,000 acres. All U.S. sesame is grown on contract. 

Sesame is used for bakery, confection, and is crushed for oil. Because it is toasted 

before it is crushed, it does not compete with other U.S. produced vegetable oils. 

Almost all of the sesame consumed in the U.S. is imported. 

Quite candidly, our domestic customers have food safety concerns given recent 

news. So do many other importers, like Japan. They both want a U.S. supply. 

45

With crop insurance and a chance to expand, ASGA believes, through our conversations with commercial traders and processors around the world, the U.S. could 

be a net exporter, with a 20 percent world market share within a decade. 

That equates to about 750,000 acres. 

Right now, we as ASGA farmer members believe we are in a race with Brazil to 

capture this market. Thus timing for a crop insurance policy is critical. 

So let me wrap up my testimony with our proposed policy solution, Mr. Chairman. 

We want a pilot program for actual production history multiple-peril crop insurance for the 2008 sesame crop year. 

We think the policy should be limited to mechanically harvestable sesame varieties that are already marketed under contract. 

That way there will be no coverage for revenue risks, only production risks. 

Because sesame is used in rotation it only replaces other insured crops and, therefore, will not add additional costs to RMA’s programs. Sesame could actually lower 

RMA’s liabilities in dollars per acre. Because sesame grows in the same areas, 

under the same conditions and with similar practices as sorghum, sesame fits well 

as an addition to the Coarse Grains Crop Provisions and a modification of the Sorghum Loss Adjustment Manual. 

The economic and agronomic merits of sesame earned us a spot on the agenda 

at a Board meeting of the Federal Crop Insurance Corporation. 

Our request for a new policy was denied by the FCIC Board, however, because 

they have a guideline of not granting new insurance policies for small acreage crops. 

That decision has put us in a vicious circle: RMA and FCIC say sesame cannot 

be insured because the acreage is ‘‘too small.’’ But the acres are ‘‘too small’’ because 

sesame cannot be insured. 

We have done everything we can do administratively with FCIC and RMA. 

Clearly, however, the situation sesame growers—and potential sesame growers—

find themselves in is an unintended consequence of the FCIC’s acreage guidelines. 

Thus, it is a matter of policymaking and a proper role for Congress to remedy the 

problem, and to provide some equity to the crop insurance program. 

Indeed, sesame is considered a minor oilseed under the farm bill. And it is the 

only minor oil seed without a crop insurance policy.

Sesame is a program crop. It is the only program crop without a crop insurance 

policy.

As I said earlier Mr. Chairman, sesame is a great American success story that 

could never be told unless quick action is taken now to provide an actual production 

history multiple-peril crop insurance pilot program for the 2008 sesame crop year. 

Thank you very much for your interest, attention and consideration.

Mr. ETHERIDGE. Thank you, sir. 

Mr. Watts. 

STATEMENT OF TIM J. WATTS, PRESIDENT, WATTS AND 

ASSOCIATES, INC., BILLINGS, MT 

Mr. WATTS. Thank you for the invitation, Mr. Chairman and 

Members of the Subcommittee. 

Members of the panel, thank you. 

I would submit that this might be the first time in the history 

of Congress that we have had two individuals from Montana testify 

on any witness list. 

I am Tim Watts, President of Watts and Associates. Watts and 

Associates is an economic consulting firm in Billings, Montana, focused on crop insurance development. In the U.S., we have been 

awarded approximately 40 projects from RMA and FCIC, with 

many complete and a few in progress. We have also been active in 

the international community, with efforts in Canada, India, and 

have been active with contracts with the World Bank. 

We believe the U.S. crop insurance system is one of the best systems in the world. There are frequently emerging innovative systems proposed internationally. To stay one of the best systems in 

the world, we have to constantly be vigilant of these emerging technologies and emerging new processes in order to improve our existVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
46

ing system and provide the best service that we can to our customers, mainly agricultural producers and U.S. taxpayers. 

We applauded Congress’ decision in approving ARPA legislation 

in 2000 to expand the crop insurance safety net by encouraging 

new and innovative and next-generation crop insurance plans for 

major and minor crops—with an emphasis on the word ‘‘minor’’ 

crops—and also by leveling the subsidy playing field between crops 

and among crops. We encourage Congress to renew this mandate 

in the 2007 Farm Bill. 

We have listened to the requests today, and we receive similar 

requests from producer groups every month, desiring to start, expand, or refocus crop insurance for their commodities. These requests cover such national issues as energy costs related to the 

costs of production coverage, livestock insurance, quality adjustment issues as experienced in North Dakota, Texas, and virtually 

every region in the U.S., and new generational approaches as well 

as new individual crop coverage such as sesame. 

These regional and national issues are expensive to solve, historically costing between $250,000 to several million dollars for development costs. Just as an example, this would be one of the development efforts recently funded. 

The most promising avenue for addressing the need of crop insurance for individual crops is the so-called ‘‘508(h) process’’ that 

allows a private group to submit a product, which if approved by 

the FCIC Board, is then incorporated in the Federal system, and 

the submitter is reimbursed for the cost of developing and maintaining the product. If it fails, the submitter eats the development 

cost; i.e., he bears the entire financial risk. 

This process, however, has been much underused over the years, 

primarily because it places the entire financial risk on the submitter. As a result, according to the Congressional Research Service, out of about $80,000,000 made available by Congress under 

ARPA over a 6 year period, the 508(h) program utilized less than 

$9,000,000 of the allocation of the $80,000,000. 

We suggest amending the 508(h) process for two purposes. First, 

we make it more user-friendly to producer groups by having the 

FCIC Board share in the financial risk at an earlier point and provide an iterative environment for a higher chance of success. Second, we give the FCIC Board more control over its own agenda. Details of the proposed approach are in my written testimony. 

With these changes, we believe it can address national issues 

such as the adverse shifts in production costs, i.e., energy; declining 

yields; regional issues such as quality loss and highly tailored coverage for specialty crops; and new generational approaches to crop 

insurance. 

Because we have structured our proposal as a small change to 

the currently funded 508(h) process and make no changes in the 

current funding authorization level, we anticipate a zero budget 

score impact. 

Thank you very much for the invite. 

[The prepared statement of Mr. Watts follows:]

47

1 Appendix A will not be printed, but is available for viewing at http://agriculture.house.gov/

testimony/110/h70514/TimWatts.doc. 

PREPARED STATEMENT OF TIM J. WATTS, PRESIDENT, WATTS AND ASSOCIATES, INC., BILLINGS, MT 

Mr. Chairman:

Thank you for the opportunity to appear before the Subcommittee on General 

Farm Commodities and Risk Management to present the views of Watts and Associates, Inc. on the Federal Crop Insurance Program and how it can be improved. 

Watts and Associates, Inc. is a private economic research firm specializing in risk 

management-based solutions to the problems facing agricultural producers. Not only 

is Watts and Associates, Inc. one of the most active firms supporting USDA’s Risk 

Management Agency (RMA) and the Federal Crop Insurance Corporation (FCIC) by 

performing product-related research on a contract basis, but we also have completed 

significant projects in the farm risk management field for clients ranging from the 

World Bank, the Governments of Canada and India, to a variety of private sector 

groups. A list of recent projects is included as part of Appendix A.1

We believe the United States Federal crop insurance system is one of the best in 

the world. Based on our experience, we believe strongly that it remains the best option available to protect American farm producers from the uncontrollable risks 

posed by adverse weather and, increasingly, by adverse movements in commodity 

prices. As a result, we have applauded Congress’s decision, reflected in the Agricultural Risk Protection Act (ARPA) of 2000, to encourage the development and deployment of innovative new insurance products to cover an expanding universe of new 

crops, new concepts, and new approaches. We encourage you to continue this emphasis in the new farm bill. One of the mandates included in ARPA 2000 that we 

believe holds particular promise for the future is the so-called ‘‘508(h) process’’ 

under which private groups—farm organizations, insurance companies, and others—

are given the opportunity to present new insurance concepts to the FCIC Board and, 

if approved, to have them incorporated into the Federal crop insurance system, eligible for subsidy and reinsurance. The private group, in turn, can then be reimbursed 

for the costs entailed in developing the product and maintaining it. 

The 508(h) process, even under its current structure, has had successes, including 

the introduction of such new products as CRC, Livestock Risk Protection, Livestock 

Gross Margin, and AGR-Lite. Still, based on our experience working with the 508(h) 

process as an outside contractor (both as a product developer and as an outside expert reviewer of proposals pending before the FCIC Board), we believe that this program has the potential to produce benefits far beyond its current use. With structural improvements we will outline below, the 508(h) program can become a principal vehicle for producer organizations to take the initiative and the responsibility 

for resolving many of the chronic issues that have faced the Federal Crop Insurance 

Program for many years, including, for instance:

—National issues such as the impact on farmers of adverse shifts in production 

costs, particularly energy, through approaches such as Crop Margin Coverage 

(a new concept developed by Watts and Associates, Inc.);

—The problem of declining yields from repeated years of uncontrollable losses;

—Regional issues such as the unique problems of quality loss for crops in the 

Northern Plains, the need for highly-tailored coverage for specialty crops with 

smaller markets, or for highly-tailored solutions to problems or specialties affecting growers in limited areas; and

—Innovative insurance for livestock risks.

The currently-unused potential of the 508(h) process was dramatized recently in 

a review by the Congressional Research Service (attached to this testimony as Appendix B) which showed that, out of some $80 million made available for reimbursement of research, development, and maintenance costs under 508(h) during the first 

6 years of the program, only $8,977,260 were spent for that purpose. The reasons 

for this under-use of 508(h), we believe, are structural, and can be addressed with 

carefully designed structural reforms. For instance, the development of a new insurance product—including the development of actuarial rates, underwriting standards, 

policy forms, marketing plans, and the rest—can be expensive, ranging at the low 

end from a few hundred thousand dollars for addressing regional quality issues to, 

at the high end, several million dollars for a new generation approach to commodity 

crops. Currently, a producer organization undertaking to develop and present a new 

product under the 508(h) process must shoulder this entire financial burden, and 

bear the risk of losing the entire investment if the FCIC Board ultimately disVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
48

approves the product. It is an all-or-nothing proposition. If controversy arises during 

the Board’s consideration of the product, such as through new issues being raised 

by outside expert reviewers, the Board’s review can be delayed or extended by 

months or years. For the producer group sponsoring the idea, this means that any 

potential reimbursement is delayed along with it, causing financing costs to accrue 

over time. 

From the perspective of the FCIC Board, the current 508(h) process poses a host 

of management challenges. The FCIC Board has a duty to review each proposed 

new product fully and rigorously based on a number of standards including actuarial and underwriting soundness, marketability, and protection of the interests of 

producers. Adding to the time and expense of this process is the legal requirement 

that each proposed new product be submitted for analysis to a minimum number 

of outside expert reviewers. The FCIC Board itself is given little authority to control 

its agenda in order to assign scarce resources to those proposals that best fit its 

overall assessment of program needs. 

We at Watts and Associates, Inc., working with our outside counsel, former RMA 

Administrator Kenneth Ackerman, and after having worked in a producer driven 

system for product development in Canada, have developed a concept for adjusting 

the 508(h) process to address both these concerns: to make it more user-friendly to 

outside producer groups while giving the FCIC Board greater authority to control 

its agenda. Our proposal is built around the following points and steps (see draft 

legislative language, attached as Appendix C):

1. Choice: The developer would choose whether to proceed under:

a. 508(h) as it currently exists, which would remain in effect as an option, 

or

b. The new alternative process outlined below.

2. Application: Only producer groups working with developers comprised of individuals with experience in the process, including at least one who has pre-qualified for GSA contract payment rates, would be allowed to use the new process. 

As a first step, the developer would prepare a concept paper to illustrate design 

features and limitations of the new approach or tool. Using the existing pool of 

‘‘experts’’ approved by the Board for product review, the developer would choose 

two who would review the proposal and must agree that the concept has merit.

3. Initial Board Meeting: After incurring the uncompensated costs associated 

with Step 2, the producer group and developer would meet with the Board to 

seek its initial approval to pursue the product. If the Board agrees, then future 

development costs would be covered by reimbursement at the developer’s prequalified GSA rates (proving that the rates have been competitively determined).

4. Development: The developer would proceed to develop and complete a draft 

submission, consisting of all the materials needed to implement the product as 

described under the current 508(h) regulations and including (a) an opinion 

from the two expert reviewers as to the soundness of the draft submission and 

(b) an actuarial certification. The developer would be required to maintain an 

auditable record of hours billed and costs incurred. If the Board desires an intermediate feasibility step prior to the draft submission, an assessment of feasibility could be inserted at this stage.

5. Second Board Meeting: The developer would then present the submission to 

the Board and the Board would decide whether the product should proceed further. If so, it would appoint three additional experts to review the product in 

consultation with the developer and the previous experts. In addition, RMA 

would be asked to provide a formal review of the proposal at this stage. Interaction between the developer and reviewers would be encouraged to facilitate 

the sharing of ideas and addressing of concerns.

6. Third Board Meeting: The Board, based on the final input it receives from 

the developer and reviewers, would decide whether or not to offer the product 

to producers. If so, the developer would be responsible for providing materials 

and working with RMA to facilitate implementation.

7. Reimbursement: The developer would apply for reimbursement as per the existing 508(h) process, and reimbursement would be paid at GSA hourly rates 

multiplied by the lesser of a reasonable number of hours (ascertained by comparison to similar projects) or the actual hours spent by the developer on the 

product. However, if the Board ultimately deems the product incomplete under 

Step 5 and the developer fails to correct it after being given an opportunity to 

do so, development costs to date of discovery would be covered only at 75 perVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00052 Fmt 6633 Sfmt 6621 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
49

cent. If the Board ultimately declines to accept the product under Step 6 for any 

reason, the development costs to date of discovery would be covered only at 85 

percent.

8. Maintenance: The developer would be responsible for product maintenance, 

and its related costs would be reimbursable at the approved GSA rates for a 

period of 3 years. At the end of the third pilot year, the developer could either 

surrender ownership of the product to RMA or maintain it and assess a userfee structure, as under current 508(h) rules.

9. Funding: Funding for reimbursement of products under the new alternative 

process would come from two existing authorized pools: the one for contracted 

development and the other for reimbursement of private development currently 

funded at not to exceed $25 million and $15 million annually. Since the funding 

comes from existing authorized sources, we do not anticipate any budget score 

attaching to this proposal.

We believe that, with these modest adjustments, implemented under existing 

funding caps, the 508(h) process could become a prime avenue for agricultural producers, the ultimate customers of this vital government program, to take a larger 

role in assuring that Federal crop insurance addresses their needs. These changes 

would also provide the FCIC Board an additional tool for management of the direction of the crop insurance development efforts. 

Thank you for this opportunity to present our views to the Subcommittee. We appreciate your consideration, and would be pleased to answer any questions you 

might have. 

50

APPENDIX B—CONGRESSIONAL RESEARCH SERVICE MEMORANDUM


11022010
51


11022011
52

APPENDIX C—PROPOSED LEGISLATIVE LANGUAGE

Expanding the Safety Net: As Approach to Making the 508(h) Process More 

Friendly to Producer Groups and Developers 

Legislative Language 

Section 522 of the Federal Crop Insurance Act (7 U.S.C. 1522) is amended by—

(a) Striking subsection (b)(1) and replacing it as follows:

‘‘(b) Reimbursement of research, development, and maintenance costs

‘‘(1) Research and development reimbursement

‘‘The Corporation shall provide a payment to reimburse an applicant for 

research and development costs directly related to a policy that—

(A) Is submitted to the Board following the procedures of paragraph 

(7) of this subsection or

(B) Is

(i) submitted to the Board and approved by the Board under section 508(h) of this title for reinsurance; and 

(ii) if applicable, offered for sale to producers.’’

(b) Adding at the end of subsection (b) a new paragraph (7) to read as follows:

‘‘(7) Reimbursement Agreements.

‘‘(i) A person proposing to prepare for submission to the Board under 

section 508(h) of this Act a crop insurance policy, a provision of policy, 

or applicable rates of premium, may apply to the Board for a reimbursement agreement.

‘‘(ii) Applications.

‘‘(I) The application for a reimbursement agreement shall consist 

of such materials as the Board may require, including

(i) A concept paper that describes the proposal in sufficient 

detail for the Board to determine whether it satisfies the requirements of subparagraph (II) of this paragraph;

(ii) Statements of support from not less than two experts chosen from among experts approved by the Board as qualified to 

conduct independent reviews under section 505(e) of this Act, 

stating that the concept is feasible and achievable from an actuarial and underwriting perspective;

‘‘(II) The Board shall approve the application by majority vote if 

it finds that:

‘‘(i) The proposal—

a. Provides coverage to a crop, hazard, or region not traditionally or adequately served by the Federal Crop Insurance Program;

b. Provides crop insurance coverage in a significantly improved form;

c. Addresses a recognized flaw or problem in the program; or

d. Introduces a significant new concept or innovation to 

the program.

(II) The applicant demonstrates the necessary qualifications to 

complete the project successfully in a timely manner with high quality, and has pre-qualified for contract payment rates with the General Services Administration; and

(III) The proposed budget and timetable are reasonable.

‘‘(iii) Agreements.

(I) Upon approval of the application, the Board shall enter into 

an agreement with the person for the development of a formal submission meeting the requirements for a complete submission established by the Board under section 508(h) of this Act. Payment for 

work performed under the contract shall be based on rates previously approved by the General Services Administration, or a fixed 

price based upon those rates, and the limitations of paragraph (6) 

of this subsection shall not apply. The parties may terminate the 

agreement at any time by mutual consent. If the agreement is terminated at any time prior to final approval of the submission, the submitter shall be entitled to payment of all costs incurred to that 

53

point, or, in the case of a fixed rate agreement, an appropriate percentage.

‘‘(iv) The Board shall consider any product submitted to it developed 

under this paragraph under the rules it has established for products 

submitted under section 508(h) of this Act, except that—

(I) If the Board ultimately finds the submission to be incomplete 

under its standards for qualifying for outside expert review and the 

developer has not corrected the submission after being given an opportunity to do so, the payment due to the submitter under the 

agreement established under subparagraph (ii) shall be reduced by 

twenty-five percent.

(II) If the Board finds that the submission is complete, but the 

submission fails to win final Board approval, the amount due the 

submitter will be reduced by 15 percent.

(III) If the Board approves the submission, the reviewer will be 

paid 100 percent of the amount due.

(IV) Notwithstanding the limitations of section 505(e)(3) of this 

Act, the independent experts chosen to conduct reviews of the submission shall include—

(a) The Risk Management Agency; and

(b) The Office of General Counsel.’’

Mr. ETHERIDGE. I thank the gentleman for his testimony. 

I offer each Member 5 minutes of questioning, and the Chair will 

take the first 5 minutes. 

Mr. Kubecka, how does RMA’s current method of crop selection 

for sorghum compare with the previous practice of just setting it 

at 95 percent of the corn price election, and would going back to 

that system be worse or better than the current system? 

Mr. KUBECKA. I am not completely knowledgeable about exactly 

how they set it previously. Because, I live on the Gulf Coast, and 

so insurance is not that important to me directly. But as far as sorghum is concerned, my understanding is that historically it was set 

at 95 percent. 

Now what challenges us is for instance, we are getting a premium for corn, and a lot of it is because of some of the other policies that we have instituted, not necessarily in crop insurance but 

other marketing efforts and all. So this has been a challenge for 

the sorghum producers, to understand how the Kansas City office 

has come up with this percentage. Actually, it is not known. They 

will not share that knowledge with us. So to compare one against 

the other, I cannot do it because they have not shared that with 

us. It is not transparent. 

Mr. ETHERIDGE. You are saying it is not an open process? 

Mr. KUBECKA. It is not an open process. That is what my understanding is. It raises a broader question then. 

Mr. ETHERIDGE. Thank you. 

Mr. Chapman, you have heard Mr. Kubecka’s testimony about 

the problem sorghum producers are having with their price selections. In your testimony, you indicate that crop insurance policies 

for sorghum will work well for sesame. 

Given that sesame is not traded on the Exchange, how do you 

foresee RMA’s determining price election for sesame, and could 

your growers not face some of the same problems that sorghum 

growers are now facing that we have just talked about? I would be 

interested in your comments on that. 

Mr. CHAPMAN. Well, first of all, all of the sesame that we are 

growing right now is an nondescent variety, which means you can 

54

combine it. All other sesame is hand-harvested. A Texas company 

owns the patent on this on nondescent variety, so we are contracting all of our acres through them, so the price part of it is already there. I mean, we are contracting all of our sesame at a particular price, and they are basing their prices on world markets as 

far as Korea, Japan, India and here in the United States. 

Mr. ETHERIDGE. Is that the way all sesame is done? Is all sesame 

under contract or just what you do in Texas? 

Mr. CHAPMAN. As far as I know, it is all under contract. 

Mr. ETHERIDGE. So you are saying yours is the only sesame that 

is harvested by combines? 

Mr. CHAPMAN. Yes, sir. 

Mr. ETHERIDGE. All the rest of it——

Mr. CHAPMAN. Is by hand. That is correct. 

Mr. ETHERIDGE. In the United States or just in Texas? 

Mr. CHAPMAN. As far as I know, all of it in the United States 

is harvested by combine. I mean that is not a descent variety. 

Mr. ETHERIDGE. In the U.S.? 

Mr. CHAPMAN. Yes, sir. 

Mr. ETHERIDGE. Okay. Thank you. 

The gentleman from Louisiana, Mr. Boustany. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

Mr. Kubecka, do you see insurance products evolving over time 

whereby the producer and the refiner of ethanol will combine to 

create some sort of insurance product? I am just thinking out of the 

box. We are dealing with a lot of difficult insurance issues here. 

Mr. KUBECKA. Personally, I do not see anyone taking over the 

government’s offer. The government is going to offer it first. That 

is only my personal feeling on it; certainly, I think from a production standpoint, especially in our area. We have had a premium, 

and sorghum stayed pretty consistent in our area, that corn had 

moved in because we have had decent prices. We are behind on 

yield a little bit, but otherwise we are pretty much up there, and 

I do not see that they would be stepping in to take over the government program, myself. 

Mr. BOUSTANY. Mr. Iverson, do you see any potential there? 

Mr. IVERSON. Well, one, camelina is an oilseed, not an ethanol 

product. It would be a biodiesel. 

Mr. BOUSTANY. Again, it would be a local market? 

Mr. IVERSON. Yes. The ideal thing about camelina is it is a crop 

that is adapted to the area that is inbetween soybeans and canola. 

Canola basically does very well in Canada and in some of the higher rainfall areas and irrigated areas in the U.S. Soybeans have to 

have longer growing seasons than Montana and several mountain 

states have to offer, and camelina is the only oilseed that we know 

of that will thrive in a low-rainfall condition. 

So, basically, we are looking at the potential for Montana and the 

inner mountain area to provide feedstock primarily for West Coast 

markets more than anything, because there is a lot of demand and 

a lot of potential for biodiesel in Washington, Oregon and California, and we are in an ideal location to supply that market. Also, 

our feedstock has some very good potential markets in places like 

Idaho and Utah as well as for livestock in Montana, so the feedVerDate 0ct 09 2002 10:27 Mar 19, 2009 Jkt 041481 PO 00000 Frm 00058 Fmt 6633 Sfmt 6601 I:\DOCS\110-22\G11022 SOLEM PsN: REBEKA
55

stock does not have to move very far, and the oil crop is moving 

toward the West Coast. 

Does that answer your question? Is that what you are asking? 

Mr. BOUSTANY. Yes. It was kind of a theoretical question. I just 

wanted to get your perspective on it, and I guess, in your case, the 

lack of available pesticides is an issue that is hurting you. 

Mr. IVERSON. That issue is fairly well solved because we have 

identified the chemicals that we have and that we need, primarily 

grass killers because camelina is going to replace a lot of chem fallow and summer fallow and maybe extend some rotations a little 

bit, but it is going to be involved with wheat and barley. We need 

to be able to control those grassy weeds at the wheat and barley 

stands when you are inbetween crops. And we have two chemicals 

that should be approved through the IR–4 Program next year. We 

have kind of solved that. That problem is solving itself. We need 

to solve the Crop Insurance Program. 

Mr. BOUSTANY. Thank you. 

Mr. Chapman, I was impressed with your testimony on sesame. 

And obviously, as a cotton and peanut farmer, you got into this to 

seek tremendous market potential and export potential over time. 

What is the current production? 

Mr. CHAPMAN. Currently, I believe there are between, I think, 

13,000 and 20,000 acres in the United States, some of course in 

Oklahoma, Texas, Arizona, those areas. 

Mr. BOUSTANY. Is Texas the only area where it is being harvested by combine? 

Mr. CHAPMAN. Well, that is in the United States. You know, 

most of the sesame goes to this Texas company, and they bred this 

nondescent variety. It is easily able to go through a combine, and 

that is what is being produced mostly in the United States. 

Mr. BOUSTANY. I see. You went to the FCIC with a proposal, and 

it was rejected; is that correct? 

Mr. CHAPMAN. Yes. They kept telling us that we did not have 

enough acreage. 

Mr. BOUSTANY. Did you make the case about the potential future 

markets and the potential for an expansion and acreage? 

Mr. CHAPMAN. Yes, sir. 

Mr. BOUSTANY. They did not buy that? 

Mr. CHAPMAN. No. 

Mr. BOUSTANY. And that was the only reason for the rejection as 

far as you know? 

Mr. CHAPMAN. As far as I know. 

Mr. BOUSTANY. Okay. You threw into that equation also the fact 

that it would not add additional liability. 

Mr. CHAPMAN. Exactly. 

Mr. BOUSTANY. Thank you, Mr. Chairman. I have more questions 

to ask if we have one more round. 

Mr. ETHERIDGE. I thank the gentleman. 

The gentleman from North Dakota, Mr. Pomeroy. 

Mr. POMEROY. Thank you, Mr. Chairman. 

Mr. Iverson, camelina, that sounds like something North Dakota 

would be very interested in. I have not heard much about it. 

56

Mr. IVERSON. North Dakota is very interested in it. Western 

North Dakota is working out very well. Any area that is too dry 

for canola and too cool for soybeans is camelina country. 

Mr. POMEROY. How has production accelerated? Is it coming 

along? Is production exploding? Is it growing nicely? 

Mr. IVERSON. Yes. We hoped to have 100,000 acres this year. We 

only had 50,000 but it is difficult for farmers to start a new crop, 

and this is the third year of production in Montana. We started out 

in 2005 with about 500 acres. 

Mr. POMEROY. Are you getting enough product to have a biodiesel market for it? 

Mr. IVERSON. At this point so far, we are marketing all new oil 

into the cosmetic market because of the Omega 3 in it and the 

meal, of course. We are working with different feed markets. We 

are selling a product that we call Omega MealTM, which is a 

trademarked term. 

Mr. POMEROY. Is this basically a cousin of flax? 

Mr. IVERSON. Not really. It is a plant. It is a plant that is similar 

to mustard and canola, but it has a flaxlike pod, and that is why 

it is called a ‘‘false flax.’’

Mr. POMEROY. I love your Governor’s catchy way of saying 

things. He says camelina is his new girlfriend. 

Mr. IVERSON. Brian is very excited about camelina. 

Mr. POMEROY. He is. It has got much more of a ring than saying, 

‘‘I am nutty about dry beans and lentils.’’

Mr. IVERSON. The other comment he made is, if he had another 

daughter, he would name her ‘‘Camelina.’’

Mr. POMEROY. I will look forward to learning more about 

camelina. 

Mr. Watts, essentially, you are saying in your testimony that 

ARPA has launched substantial innovation, and even more innovation will be launched if inventors or developers do not have to bear 

all of the cost and all of the risk of getting RMA approval. 

Mr. WATTS. Mr. Congressman, yes. We are currently trying to 

think through the camelina issue along with somewhere in the 

neighborhood of another 20 specialty crops. At the end of the day, 

the current system asks either the producer association or the developer or the insurance company that is interested and that is 

shouldering all of the financial risk. It is the intent to service the 

needs of public policy and the requests such as organic pecans. 

Mr. POMEROY. Are these new areas that need the coverage, that 

we are hearing from in the prior panel, that you could potentially 

create things for if you are given an opportunity to by the RMA 

Board? 

Mr. WATTS. That is correct. Our concept provides financial hurdles so we do not create the cottage industry and try to get fleshedout ideas in front of the Board. 

Mr. POMEROY. You have done some very good work in North Dakota in working with North Dakota commodity groups. I appreciated the positive statements you had about crop insurance in 

your testimony. Are you paying attention to those who are very 

highly critical of this program as to the industry’s bearing no risk 

and the other criticisms coming at it? 

Mr. WATTS. Yes, we have heard some of those criticisms. 

57

Mr. POMEROY. I would really like you to pay a lot of attention 

to those criticisms and help us put it in perspective. My own 

thought is that some of these criticisms are based on some favorable loss history of recent years that does not take note of the horrible loss history just a few years earlier. I do not have my hands 

around the full thrust of the critique. Yet we are going to have to 

really understand them to make the case back in terms of continuing support for the Crop Insurance Program. 

I see my time is up, but I will look forward to working with you 

on that, Mr. Watts. 

I yield back. 

Mr. ETHERIDGE. I thank the gentleman. 

Mr. Watts, if you have data to share with this Committee as it 

relates to the question the gentleman from North Dakota asked, 

the Chair and others would really appreciate a document or something on that because it would be helpful as we move forward. 

Mr. WATTS. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. If you would do that, I would appreciate it. 

The gentleman from Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

A couple of points going back to the panel dialogue with Mr. 

Watts. 

You have heard two panelists here talking about the need to get 

some kind of Crop Insurance Program so they can expand that program. I have some other commodities that people are thinking 

about growing. You said that $80,000,000 was authorized for this 

program, and only $9,000,000 was used. Is that the number? Was 

that over the 5 year period or what period of time was that? 

Mr. WATTS. It was over a 6 year period. 

Mr. NEUGEBAUER. So does it make sense then to come up with 

some kind of a cooperative program where, say, a new producer 

group just getting started would bring some resources to the table 

and begin that process? Is there a way along the process where you 

do not have to go to the very end to say, ‘‘we have probably headed 

in a direction we are not going to be able to get to,’’ and so you 

can at that point in time cut your losses. Or say this is doing a 

staging in these studies? Does that make sense to you? 

Mr. WATTS. Yes, that makes a lot of sense. In fact, as we thought 

through this, we were trying to figure out basically if you were 

going to fail, let us fail early in the process versus getting a producer association’s hopes up. A lot of investment which somewhat 

draws the lines between the current administration and the producer association. Maybe the idea has merit, and maybe there are 

some suggestions along the way that can turn it towards the successful effort versus something that has a lot of investment and becomes a failure. We are suggesting more of an iterative process. So 

the Board has an ability to look at this early on, along with a couple of expert reviewers, to sanction the effort moving forward and 

to try to, I guess, shut off at the pass the ideas that are never 

going to make it through the process. Versus getting several hundred thousand to a few million invested in it over time and having 

a lot of emotional investment in that process also. So we have attempted to do exactly what you have suggested. 

58

Mr. NEUGEBAUER. You know, one of the things that is frustrating 

to me is that, because of the nature of crop insurance, but even 

with a pilot program as has been requested by Mr. Chapman, we 

still will be—what—5, or 6 years at the earliest from actually getting any program that would offer crop insurance for sesame. 

Mr. WATTS. Yes. Current discussions that I have had places the 

number somewhere between 5 and 8 years to put the pilot out if 

it goes through the current contracting process. The 508(h) approach is substantially quicker, and we have attempted to provide 

some shortcuts, not to integrity, but shortcuts to the process in 

order to more quickly get to the bottom line of whether it makes 

sense to move forward or not. 

Mr. NEUGEBAUER. If you had the resources and you could take 

on these two commodities through that program, what would be 

the earliest date that you would be able to offer crop insurance 

under that? 

Mr. WATTS. Even if you looked at an expedited process you would 

have to publish, basically, the guidelines in mid-2008, 2009. That 

is as quickly as you would get a pilot program on the ground even 

in an expedited system. 

Mr. NEUGEBAUER. Has there ever been any thought about looking at a way to come up with a fast-tracking system that would 

have a more generic policy where some of these commodities line 

up parallel with other commodities and would be able to get to the 

market quicker? 

I guess the point I am making is, in the world that we live in 

today, if you have got a company that takes you 4 or 5 years to 

change your product, you are not going to be around. I mean the 

only place that works is the government, and obviously it is not 

working all that well. 

So are there some things that we need to look at outside the box 

of being able to be more reactive to a changing and cultural market 

in this country as producers are trying to make decisions based on 

economics and not on programs? I think that is what I heard these 

two gentlemen talk about. They are trying to figure out how to 

make money, which is a good thing. How can we get there? 

Mr. WATTS. Well, I think there is probably no answer to your 

question, but I will try to answer it in two parts. 

The first one is we hope that we have provided an expedited 

process, but in moving at the speed of business and handling the 

tension between the putting out a Congressionally-mandated, actuarially sound product and covering new emerging crops such as 

camelina and sesame that provides this natural tension. There are 

some methods out there such as insuring with a proxy crop. In sesame, that could be sorghum. That could be wheat. You could do it 

at a county level. With camelina, there is potential there, even 

though it does not have as many similar characteristics as maybe 

sesame does to sorghum and wheat. 

So as we move through those processes, are there ways to level 

the substantive playing field and not provide an APH-type coverage? Yes. Some of the international community is moving towards that. Does it provide as good a coverage as APH? No. Does 

it have more basis risk? Yes. So are there some trade-offs that we 

could make between extremely effective coverage, such as the APH, 

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and getting something covered quicker? I think the answer is yes. 

We have actually been working on a product that goes across 200 

crops. 

Mr. NEUGEBAUER. I will finish, but I would think those two gentlemen sitting to your right would tell you, if you would just get 

them something so they could leverage that financially by being 

able to go to a lender and expanding the ability to do that in the 

interim, it would be a step in the right direction. 

I yield back. 

Mr. ETHERIDGE. I thank the gentleman. 

Before we adjourn, Mr. Watts, you mentioned earlier that there 

is a slight adjustment. Do you feel comfortable today in telling me 

what you meant when you said ‘‘slight adjustment’’ or would you 

rather address that in your written testimony and share it with us 

a little later? 

Mr. WATTS. The ‘‘slight adjustment’’ is that we do not believe 

that it is appropriate to reduce the effectiveness of the expert review process or to back away from an actuarial sound system. We 

do believe that there is a way to reduce the timeline associated 

with new product development and to provide an iterative process 

between the Board, the developer, and the producer group that has 

a higher chance of success. We think that is simply a refocus of the 

construct. If you look at the legislative language, it is not long. 

Mr. ETHERIDGE. I hope you will share that with us in the document you are going to send to us what Congressman Pomeroy was 

talking about. 

Before we adjourn, I am going to recognize the gentleman from 

Louisiana, Mr. Boustany, for closing comments. 

Mr. BOUSTANY. Thank you. 

Mr. Watts, before we close out, I just wanted to ask. You know, 

we have to strike a balance with the 508(h) program, and I agree 

with you that the programs are too high right now, and it is certainly putting a damper on the expansion of the crop insurance 

safety net, but it is striking a balance. 

What do we do to prevent a swing in the other direction whereby 

you end up spending tax dollars on a bunch of ideas that do not 

pan out? I read through the information you sent to us in your 

written testimony, and I have some concern in that regard that we 

could be spending money on a lot of ideas that do not go anywhere. 

So do you have other ideas of where you might strike that balance? 

Mr. WATTS. Thank you for the question. 

I cannot tell you how deeply concerned we are about that particular issue. It would be a shame to, quote, as you said in your 

opening statement, ‘‘to use this to create a new cottage industry.’’ 

We have seen, as all Members on the Subcommittee have, from 

time to time ideas that have been put forward that do not have a 

lot of substance, unfortunately. Is there a process or is there a way 

to separate the chaff, so to speak. 

Is there a process? Is there a way to separate the chaff, so to 

speak? The process that we have proposed, which we would be glad 

to have the thoughts of changes, is to create a concept paper. And 

that concept paper, in order to even be accepted, has to be fleshed 

out to the point that the concept is understandable. And, second, 

the two experts out of the existing pool have signed on that this 

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has the potential to make it through the process, not to change the 

rigor of the process, which we would be vehemently against that, 

but to provide a financial and intellectual hurdle. 

This is tough stuff to do, to provide a hurdle so we do not put 

a lot of the chaff in front of the Board, and we believe that that 

financial hurdle to be shouldered is somewhere between $50,000 

and $75,000. We would spend more money than that before we 

took even a concept to the Board, and shoulder those two extra 

views that are somewhere between $5,000 and $10,000 apiece and 

working with the expert reviewers. We are one, and the only thing 

you have in that business is your reputation. I think the process 

that we proposed has a hurdle in it to attempt to not have your 

concern realized. 

Mr. BOUSTANY. One quick follow-up. How many competitors do 

you have to your business in terms of working with producer 

groups to develop products like this? 

Mr. WATTS. It is a very small pool and it is a very small pool 

internationally within the U.S. 

Mr. BOUSTANY. Within the U.S., I mean how many, five? Less 

than five? 

Mr. WATTS. Probably less than five. 

Mr. BOUSTANY. Okay. Thank you. Thank you, Mr. Chairman, 

that is all I have. This was a very good hearing. I want to thank 

both panels for their testimony and their answers to the various 

questions we have asked. 

Mr. ETHERIDGE. I thank the gentleman. 

Let me thank this panel and the previous panel for your time 

and the work you have put in in getting the testimony ready, for 

submitting it promptly, and for your testimony today. 

Under the rules of the Committee, the record of today’s hearing 

will remain open for 10 days to receive additional material and 

written responses from witnesses to any questions posed by a member of the panel. 

This hearing of the Subcommittee on General Farm Commodities 

and Risk Management is adjourned. 

[Whereupon, at 4:40 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

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Responses to Questions by Members of the House Agriculture Committee 

Subcommittee on General Farm Commodities and Risk Management 

During the May 14 Hearing on Crop Insurance 

W. Scott Marlow, 

Director, Farm Sustainability Programs, 

Rural Advancement Foundation International—USA, 

Pittsboro, N.C.

Question. In response to the following question posed by Mr. Etheridge: ‘‘Assuming AGR and AGR-Lite could be reformed, could they serve as an effective risk management product for contract producers or do we still need separate policies that can 

be available for contract farmers?’’

Answer. As an income-based product, Adjusted Gross Revenue-Lite (AGR-Lite) 

could become an effective risk management tool for producers of contract livestock, 

or other products produced under production contracts. Other than issues of access 

and simplification that are common to all farmers who apply for AGR-Lite, the Risk 

Management Agency (RMA) must address issues of eligibility before this program 

can be used by farmers with production contracts. RMA policies currently require 

all farmers to possess an ownership share in the livestock or products they are seeking to insure against loss. This determination is an agency regulation, and is not 

required by statute. 

Today most farmers engaged in production contracts cannot claim an ownership 

share of the products they produce, preventing their participation in the AGR-Lite 

program. To remedy this result, changes must be made to the program’s authorizing 

language clarifying Congress’ intention that income insurance be made available to 

farmers participating in production contracts not granting them an ownership share 

of the product. 

AGR-Lite could also address potential farmer losses stemming from disasters, including severe weather events, quarantine, disease outbreak or depopulation due to 

a severe disease outbreak. Historically, agricultural disaster legislation addressing 

contract livestock losses has been enacted on several occasions. In the aftermath of 

Hurricane Katrina and the other Gulf Coast hurricanes of 2005, Congress approved 

P.L. No. 109–148, to address hurricanes in the Gulf of Mexico. P.L. No 109–234, the 

Emergency Agricultural Disaster Assistance Act of 2006, was enacted into law on 

June 15, 2006 as Title III of the Emergency Supplemental Appropriations Act for 

Defense, the Global War on Terror, and Hurricane Recover Act of 2006. The 2006 

legislation provided some assistance to contract growers in the form of Livestock Indemnity Payments as well as Emergency Conservation Program cost share assistance for cleaning up debris from poultry barns and/or costs to reconstruct or repair 

barns if there were uninsured losses. However, assistance from ad hoc disaster programs that may or may not be passed by Congress is no substitute for risk management programs that contract farmers can incorporate in their farm planning on an 

ongoing basis. 

In addition to the risk posed by weather-related disasters, farmers face several 

levels of risk associated with disease, including the possibility of a disease outbreak 

on their own farms, and the depopulation that would accompany it. Without an 

ownership share in the livestock in these events, farmers would not be compensated 

for that loss without support through subsequent disaster legislation. 

Another risk faced by contract livestock producers is the possibility of a disease 

outbreak occurring on a farm in their region, but not on their farm. In this situation, a farmer could be required to depopulate their farm by state or federal officials, 

with the accompanying loss of income, but the loss would not be a direct result of 

a disease outbreak. Once again, without access to AGR-Lite, or other forms of indemnity, the farmers loss would potentially be financially devastating 

A third risk is that a disease outbreak, and accompanying loss of market would 

precipitate a reduction in industry or region-wide production, and that a farmer’s 

production would be reduced, either through company cutbacks or through delays 

in receiving additional livestock, resulting in loss of income. While income-based 

crop insurance coverage like AGR-Lite is designed to insure against market losses, 

there is question as to whether such a cutback in contract production would be regarded as an insurable loss or a change in production capacity, and therefore not 

insurable. Mortgages for livestock facilities are based on a certain number of flocks 

or animals per year, and production delays can cause the inability to maintain the 

flock or livestock numbers required under the mortgage. Although such a shortfall 

would be directly traceable to the disease outbreak, the shortfall might be classified 

as a ‘‘business decision’’ on the part of the contracting company, potentially eliminating the possibility of the farmer receiving reimbursement for the loss. 

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All of the scenarios described above could be effectively addressed through clarification of the definition of insurable loss to include risks associated with disease 

or bioterrorism, including depopulation by state or local officials and loss of production or market associated with disease or bio-terrorism. 

Question. In response to the following request made by Mr. Boustany: ‘‘If you 

could come back to us with some specific recommendations on how to simplify (AGR 

and AGR-Lite) we would enjoy hearing those recommendations.’’

Answer. In our experience with farmers who have evaluated AGR-Lite crop insurance for their farms, and in the experience of officials that we have consulted with 

who have assisted farmers in North Carolina and several other states with this program, there are several aspects of AGR and AGR-Lite that cause difficulty for farmers. The threshold concern is the inherent complexity in the program. The program 

requires significant documentation. As a part of the application, the farmer must 

submit 5 years of form 1040 Schedule F. The farm plan and farm reports can wait 

until the adjustment process, but this may cause problems, and insurance agents 

who sell the program often request this documentation at the time of application. 

There may be ways to simplify the forms, but the requirement that the farmer 

demonstrate both historical gross income and the capacity to produce that income 

during the insurance year cannot be escaped. This issue should be addressed by significant outreach and education, including clear information about required documentation and program specifics. 

But outreach and education alone will not solve the difficulties. The number of 

program participants is declining, suggesting that farmers have used the program 

and it did not meet their needs. There are several aspects of the program itself and 

the manner in which the program is being implemented that can be simplified and 

shifted to correct this problem. 

1. Assure access to trained Crop Insurance Agents or provide alternative access to 

the program. Many farmers seeking information and assistance on AGR-Lite have 

reported finding it difficult to identify trained insurance agents to assist them in 

the application process. Many of the farmers with whom my organization has 

worked received delayed, discouraging or erroneous information as a result of their 

initial contact. Other areas of the country have also had challenges with identifying 

trained insurance agents that were both knowledgeable and willing to assist farmers with the application process. 

Because AGR and AGR-Lite are critically important programs, and the only programs available to insure a significant percentage of farm income, we believe that 

in the absence of trained insurance agents within a given county who market this 

program effectively, the Farm Services Agency (FSA) office of that county should be 

allowed to provide access to the program, much in the same way that they currently 

provide access to the Non-insured Disaster Assistance Program (NAP). The FSA administrates NAP in order to assure access to risk management products by farms 

that are not served by crop insurance, and we believe that they should have the 

opportunity, determined on a county-by-county basis, to provide AGR and AGR-Lite 

for the same reason and in the same way. 

2. Clarification of insurable income and inclusion of on-farm processing as insurable income. A second source of confusion for farmers is the delineation between the 

value of the crop as it comes out of the field which determines insurable income, 

and income attributed to post-harvest processing, which is considered uninsurable. 

To illustrate, under the current policy standards, if a farmer puts their cabbage in 

a box for market, the value of that box is not insurable and must be subtracted from 

the farmer’s insurable gross income even if the cabbage is not marketable without 

the box. To truly work as an effective risk mitigation tool for farmers, income insurance must include the minimal processing such as washing, bagging or boxing that 

is required to access given markets. 

The more complex processing that takes place on-farm, usually by small-scale producers selling to direct markets such as roadside stands or farmers markets, should 

also be taken into consideration for income determination purposes under the program. Income produced through value-added activities such as turning fruit into 

jam, vegetables into pickles, or milk into cheese is currently not eligible for consideration under the program. For small-scale producers, this on-farm processing is integral to farm income, and is not a an aspect of production that can be readily removed from income estimates. Farmers should therefore have the opportunity to include this income in their AGR-Lite policy. 

3. Require set level of coverage at time of application. An additional complaint we 

have heard from farmers concerns contracting for a set amount of coverage, only to 

find during claims adjustment that specific requirements of the program not made 

clear during application makes them eligible only for a lower level of coverage. The 

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result is a reduction of payment after the loss to an amount much less than that 

on which the farmer had relied. 

We believe that once the underwriter agrees to a level of coverage during the application process, that level of coverage should not be changed for reasons other 

than fraud or failure to abide by the farm plan, as long as the farmer has made 

a good-faith effort to produce the income and has informed the crop insurance agent 

of necessary changes in a timely manner. The creation of this level of certainty in 

the contracting process would greatly increase farmer confidence in the program, 

and would significantly simplify the claims adjustment process. 

4. Increase level of coverage. Gross income coverage under AGR-Lite is currently 

capped at 80 percent coverage (75 percent for producers of a single crop) with 90 

percent payment rate, or effectively 72 percent. In an individual crop policy, a 20 

or 30 percent loss frequently equals a far smaller reduction in gross income because 

the farmer will take steps to replace lost income from other crops or enterprises. 

Therefore individual crop losses addressed by crop specific crop insurance are often 

less dangerous to the overall financial solvency of the farm. Gross income losses of 

20 percent, on the other hand, include all loss mitigation and are frequently devastating. It is therefore necessary for AGR and AGR-Lite to provide higher rates of 

coverage, preferably as high as 95 percentage coverage with a 100 percentage payment rate, in order to assure farm survival. 

5. Include crop insurance and Non-insured Disaster Assistance Program payments 

in 5 year income average. One of the benefits of the AGR-Lite program is that it 

can be combined with crop insurance products for specific crops. For instance, a 

farmer with corn and mixed vegetables that are sold at a farm stand can get APH 

or income-based crop insurance for his corn, and combine it with AGR-Lite to provide risk management for the rest of his income. However, under current regulations, crop insurance and NAP payments are counted when determining AGR-Lite 

benefits, but are not used to determine the farmer’s 5 year income average. Failure 

to include insurance and NAP payments significantly reduces the farmer’s average 

gross income, and therefore the farmer’s coverage. Crop insurance and NAP payments should either count for both payment and average income determinations, or 

should count for neither. 

6. Strengthen the policy regarding establishing local market value, particularly for 

direct marketers. Currently, AGR-Lite policies aver that if published prices are not 

available, then the average price offered by two commercial buyers, one nominated 

by the policyholder and one by the insurance company, should be used. This should 

be refined in two ways. First, when local market values are being determined for 

producers engaged in direct marketing, other local markets and not commercial buyers should be supplying average price estimates. Second, the product value used to 

estimate the revenue in the producer’s intentions report for the current year should 

be decided at the time the intentions report is filed, otherwise the producer loses 

the price fluctuation protection afforded by the policy. 

7. Definition of ‘Animals’ needs to be revised to ensure it is inclusive of production 

agriculture. The current programmatic definition of ‘‘animal’’ is ‘‘living organisms 

other than plants or fungi that are produced or raised in farming operations including, but not limited to, aquaculture, bovine, equine, swine, sheep, goats, poultry, 

aquaculture species propagated or reared in a controlled environment, bees, and fur 

bearing animals, excluding animals for sport, show, or pets.’’ The definition should 

be clarified to ensure that livestock engaged in contract production agriculture falls 

within the meaning of the term ‘‘animals’’ and is eligible for loss indemnity under 

the AGR-Lite program. 

8. Develop mechanisms to extend AGR and AGR-Lite to new and beginning farmers so they have the opportunity to utilize federal risk management programs. Access 

to risk management programs is especially important to beginning farmers. USDA 

already has provisions to support beginning farmers in their lending programs, and 

risk management is very important for access to credit. Strong consideration should 

be given to permitting beginning farmers and ranchers to have protection and premium rates established based on information for similar farms that have sufficient 

historical information to meet the requirements of these insurance plans. 

9. Clarify and simplify procedures for documentation of carryover inventory documentation. Carryover commodities still in the production phase present some unique 

beginning and ending inventory challenges. The inventory rules should be reviewed 

to ensure the procedures provide clear directions on how to handle these commodities. In addition, clarity should be provided as to whether or not coverage is provided for these commodities including Christmas trees, shellfish, nursery, and livestock. 

10. Add a ‘‘floor’’ to the 5-Year income history used to determine coverage levels. 

Low revenue can reduce the approved AGR to the point where the insurance will 

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not provide adequate coverage. This is especially important in areas of the country 

that have seen multiple disasters in the past 5 years. One possibility to address this 

issue is to maintain the 5 year Schedule F average, but allow up to 10 years if available to decrease the effect of individual disaster years.

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