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89–236 PDF 2003

S. HRG. 108–114

USDA IMPLEMENTATION OF THE AGRICULTURAL

RISK PROTECTION ACT OF 2000 AND RELATED

CROP INSURANCE ISSUES

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 12, 2003

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

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

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

THAD COCHRAN, Mississippi, Chairman 

RICHARD G. LUGAR, Indiana 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

PETER G. FITZGERALD, Illinois 

SAXBY CHAMBLISS, Georgia 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

THOMAS A. DASCHLE, South Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

ZELL MILLER, Georgia 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota

HUNT SHIPMAN, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

LANCE KOTSCHWAR, Majority General Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

USDA Implementation of the Agricultural Risk Protection Act of 2000 and 

Related Crop Insurance Issues ........................................................................... 01

Thursday, June 12, 2003

STATEMENTS PRESENTED BY SENATORS 

Cochran, Hon. Thad, a U.S. Senator from Mississippi, Chairman, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 01

Leahy, Hon. Patrick, a U.S. Senator from Vermont ............................................. 17

Roberts, Hon. Pat, a U.S. Senator from Kansas ................................................... 02

Stabenow, Hon. Debbie, a U.S. Senator from Michigan ....................................... 21

WITNESSES 

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

DC .......................................................................................................................... 06

Davidson, Ross, Administrator, Risk Management Agency, U.S. Department 

of Agriculture, Washington, DC .......................................................................... 08

Penn, J.B., Under Secretary for Farm and Foreign Agricultural Services, 

U.S. Department of Agriculture, Washington, DC ............................................ 03

APPENDIX 

PREPARED STATEMENTS: 

Harkin, Hon. Tom ............................................................................................ 30

Collins, Keith .................................................................................................... 44

Davidson, Ross .................................................................................................. 49

Leahy, Hon. Patrick ......................................................................................... 32

Penn, J.B. .......................................................................................................... 37

Stabenow, Hon. Debbie .................................................................................... 34

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Baucus, Hon. Max ............................................................................................ 64

Background Commodity Insurance Information, Risk Management

Agency ............................................................................................................ 65

Written Statements (several companies) ........................................................ 72

QUESTIONS AND ANSWERS: 

Cochran, Hon. Thad ......................................................................................... 104

Harkin, Hon. Tom ............................................................................................ 110

Baucus, Hon. Max (no answers provided) ...................................................... 126

Conrad, Hon. Kent ........................................................................................... 115

Crapo, Hon. Mike ............................................................................................. 123

Leahy, Hon. Patrick ......................................................................................... 121

Lincoln, Hon. Blanche ...................................................................................... 109

(1)

USDA IMPLEMENTATION OF THE 

AGRICULTURAL RISK PROTECTION ACT OF 

2000 AND RELATED CROP INSURANCE ISSUES 

THURSDAY, JUNE 12, 2003

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

SR–328-A, Russell Senate Office Building, Hon. Thad Cochran 

[Chairman of the Committee], presiding. 

Present or submitting a statement: Senators Cochran, Roberts, 

Chambliss, Harkin, Leahy, Stabenow and Nelson. 

STATEMENT OF HON. THAD COCHRAN, A U.S. SENATOR FROM 

MISSISSIPPI, CHAIRMAN, COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

The CHAIRMAN. The hearing will please come to order. 

Three years ago this month the Congress passed and the President signed into law the Agricultural Risk Protection Act of 2000. 

This Act significantly increased premium subsidies for Federal crop 

and revenue insurance policies. It also improved insurance coverage for farmers affected by multiple years of natural disasters, 

authorized pilot insurance programs for livestock, and placed increased emphasis on the insurance needs of specialty crops and underserved regions. 

Farmers have significantly increased their purchases of crop insurance since the enactment of this legislation. Insured acreage 

reached 79 percent of eligible acreage in crop year 2001 with 63 

percent insured at the higher levels of coverage. Insured acreage 

increased again in 2002 and will likely be up again this year. 

For crop year 2002, risk-based crop insurance premiums totaled $2.9 billion. The value of associated crop insurance protection 

reached $37.3 billion, an increase of 34 percent since 1998. 

The law also shifted responsibility for the development of new insurance products to the private sector and away from the Agriculture Department’s Risk Management Agency. It also increased 

private sector representation on the Federal Crop Insurance Corporation Board of Directors and gave the restructured board authority to approve new insurance product proposals. 

Though it is largely out of the new product development business, the Risk Management Agency continues to play a major role 

in the administration of the Crop Insurance Program. In this reVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
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gard, it should be remembered that the agency was given new tools 

to help reduce crop insurance fraud and abuse. 

It is well-known that the crop insurance industry, which delivers 

the insurance program to farmers and ranchers on the Federal 

Government’s behalf, has been dealing with significant financial 

challenges in recent months. For these reasons, we are conducting 

this hearing of the Agricultural Risk Protection Act and to assess 

its effectiveness in meeting the risk management needs of farmers 

and ranchers. 

With us today are Dr. J.B. Penn, Under Secretary of Agriculture 

for Farm and Foreign Agricultural Services; Mr. Ross Davidson, 

Risk Management Agency Administrator; and Dr. Keith Collins, 

Chief Economist of the U.S. Department of Agriculture. We appreciate very much your attendance and your assistance at this hearing. 

Senator Roberts. 

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

KANSAS 

Senator ROBERTS. Thank you Mr. Chairman, and thank you so 

much for your leadership in holding this hearing today on this very 

important topic. Some of my statement will be redundant with 

yours, but the points are well taken. 

With the third anniversary of the signing of the Agricultural 

Risk Protection Act just 10 days away, it is important we hold this 

hearing to review the implementation of what is very important 

legislation. 

I want to thank, as the distinguished Chairman has, our Under 

Secretary, Dr. J.B. Penn; our Administrator, Ross Davidson; and 

our Chief Economist, the man who is the only economist I know 

who does not say on the other hand, Keith Collins, for joining us 

as of today. 

I want to take them personally for their efforts and on behalf of 

my farmers and ranchers in Kansas, because the difference between this program and what we had before saved a lot of farmers. 

Mr. Chairman, I have more than just a little interest in this 

topic. Former Senator Bob Kerrey of Nebraska, who was in town 

just the other day—he said we ought to provide crop insurance to 

Iraq, Mr. Chairman. I am not quite sure what he meant by that. 

We really worked for nearly 2 years to make this legislation a 

reality. In Kansas, we call it the Roberts-Kerrey bill. In Nebraska, 

it is the Kerrey-Roberts bill. If you do not like it then it is the 

Kerrey bill. 

Our intention behind pushing for these reforms was to improve 

this important risk management tool for our producers. It was a bipartisan effort and I am proud of the final product. 

Our primary goals in the legislation were to make crop insurance 

more affordable, increase participation, and expand the program to 

the underserved areas. We are hopefully headed in the right direction on all of these fronts. 

The increase in subsidies greatly reduced the cost of the purchasing policies for many of our farmers. As Mr. Davidson’s testimony does point out, what the Chairman has alluded to, the inVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
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crease in participation and the coverage levels have been absolutely 

amazing. 

In 1998, only 9 percent of the eligible acreage was insured at the 

70 percent or higher level. Last year more than 50 percent of the 

eligible acreage was insured at 70 percent or higher. Quite frankly, 

the increased coverage levels and the affordability of the revenue 

policies under ARPA literally, as I said before, saved many of our 

Kansas producers during our terrible drought of last year and the 

previous year. 

Mr. Chairman, I realize that many people say that ARPA and 

crop insurance do not work because we still have a disaster bill 

again as of this year. My preference, and I think it is shared by 

the Chairman and most of us who have the privilege of serving on 

the Ag Committee, would be not to do another disaster bill, that 

circumstances would be such that we would not have to do that. 

We need to consider this fact: the total cost of our disaster bill was 

$3.1 billion, $3.1 billion, including livestock assistance and all of 

the other cats and dogs—and I do not mean that as a pejorative. 

The total crop insurance indemnities paid for 2002 crop losses are 

just over $4 billion. Let me repeat that, total indemnities paid on 

2002 losses are $4 billion. 

Now Mr. Chairman, I am first to admit that there may be areas 

where we should do and I hope will do some additional tweaking 

in the program. For the critics, I have to say that if $4 billion is 

a broken program, what more can we ask for? 

Overall, we can term the first 3 years of ARPA a success. Again, 

sir, I thank you for holding this hearing and I look forward to our 

discussion with today’s witnesses. 

The CHAIRMAN. Thank you very much, Senator Roberts. 

It is obvious that you are due a great deal of credit and an expression of appreciation for the hard work you did personally in developing this legislation 3 years ago and helping guide it to passage. The facts speak for themselves about the participation and 

the effectiveness of the newly designed insurance program. 

Dr. Penn, we appreciate your being here this morning. We hope 

you will proceed with any statement you would like to make. We 

have a copy of your prepared statement which we will make a part 

of the record in full. You may proceed. 

STATEMENT OF J.B. PENN, UNDER SECRETARY FOR FARM 

AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT 

OF AGRICULTURE, WASHINGTON, DC 

Mr. PENN. Thank you, Mr. Chairman. I will be brief. Senator 

Roberts. 

I am very pleased to appear before you today at this oversight 

hearing for the Federal Crop Insurance Program. You have acknowledged Dr. Collins and Mr. Davidson, and I agree with you 

that they are the two resident experts on the Crop Insurance Program. That suggests to me that you should direct most of your 

questions to them at the appropriate time. 

The Federal Crop Insurance Program was first instituted in 

1938. Crop insurance, as we have traditionally called it, and now 

more recently other types of risk management tools, have become 

an increasingly important part of the economic safety net for AmerVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
4

ican agriculture. They are an expanding component, alongside the 

several other farm programs that include marketing assistance 

loans, direct and countercyclical payments, dairy price support payments, and other specialty commodity programs. 

As the world has become more technical and interconnected, the 

risk faced by farm businesses also have increased and become more 

complex. In addition to the always present natural risk, market 

risks have expanded, new risks have emerged such as liability related to consumer safety, and now we have the threat of intentional sabotage of the food system. 

The Federal Crop Insurance Program has grown rapidly in the 

past few years in response to this changing risk environment. Insurance not only protects farms from devastating loss in times of 

extreme weather such as extensive drought or flood, but it protects 

individual farming operations from adverse impacts of more localized conditions as well. 

More and more producers have recognized that it is good business to have crop insurance and commercial lenders increasingly 

require producers to have crop insurance as a condition of obtaining a loan. Today, as you have noted, over 80 percent of the acres 

for the major program crops are covered by crop insurance, and 

more than half of those acres have coverage at the 70 percent level 

or high. 

Since passage of ARPA in 2000, RMA has placed a high priority 

on extending coverage to a wide array of products, including specialty crops, forage, rangeland, livestock, and even aquaculture. 

However, Government risk management tools are fundamentally 

different from traditional farm programs. They are unique in several respects. The Congress recognized this with the passage of 

ARPA in 2000. The vision at that time of some of the architects of 

the ARPA was for risk management, at some point in the future 

perhaps, to constitute the major component of the safety net for the 

commercial farm sector, supplanting some of the more traditional 

farm programs. 

The ARPA provided the structure for the envisioned expansion of 

risk management tools, both the development of new innovative 

tools and their widespread use across more of the farm sector. 

Risk management also is unique in that it is actuarially based. 

It is not another farm program with an often-negotiated or bureaucratically determined set of rules for providing benefits. Rather, it 

is a program providing individual producer protection with cost and 

benefits based upon historical experience and evaluations of specific risk. 

Congress has required actuarial soundness, meaning that the 

amount collected from premiums roughly equals the amount paid 

out for claims over time. Producers pay for their insurance coverage, which is provided through commercial contracts between the 

producer and the private sector insurance company. The insurance 

companies then in turn deliver the products, make indemnity payments, and bear a proportion of the commercial risk. 

This component of the farm safety net also is unique in that it 

involves this public/private partnership in masking risk management services available to American producers. It involves the participation of private companies—some dozen-and-a-half or so 

5

today—in both the development and delivery of the service to farmers. At the same time it involves the participation of a major government agency, RMA. 

ARPA placed the RMA in a unique position of being both a regulator of the agricultural insurance industry and a reinsurer of billions of dollars of incurred liability annually. The partnership involves broad representation through an oversight board, as Chairman Cochran mentioned, the Federal Crop Insurance Corporation 

Board whose composition was determined by the Congress with individual members selected by the Administration. 

We are concluding, as Chairman Roberts noted, the third year 

since enactment of ARPA, and this hearing thus we believe is very 

timely, presenting a very good opportunity to review progress and 

performance since ARPA’s passage and also to assess any technical 

or structural changes that may appear warranted. 

The challenges ahead are enormous, however. U.S. agriculture 

today counts some 2.1 billion places as farms and together they 

produce about $200 billion worth of products annually. All of this 

$200 billion comes from a highly differentiated farm structure that 

encompasses a large number of very small diversified farms, a 

small number of very large special specialized farms, and a wide 

variety of all farm types in between. It is to this very diverse group 

of farms that RMA attempts to provide risk management tools for 

improved farm management. 

As been noted today, risk management still is largely crop insurance and only about $38 billion of this $200 billion of value generated each year is insured. The demand is growing for tools that 

can provide a safety net for farms and products that receive little 

or no benefits from the traditional farm programs. 

The challenge to the insurance industry and the challenge to 

RMA is clear. More products are needed that address the differing 

risk environments of the different farm types. More products are 

needed for the rest of the crop sector and we have only begun to 

develop appropriate products for the livestock sector. 

The other challenge, as Senator Roberts mentioned, is one that 

confronts the Congress especially and that is in providing risk protection to farmers and determining the relative roles of ad hoc disaster assistance versus the risk management tools of the program, 

especially crop insurance. 

The presence of a federally administered insurance program does 

not guarantee that a disaster program will never be needed, but it 

can reduce the extent and frequency of disaster over time. 

As Senator Roberts also noted, the recent drought of 2002 demonstrates this point very vividly. Over $4 billion in claims have 

been paid to date as he noted. Most of those were paid within 30 

days of the evaluation of the loss. 

Congress also passed a substantial disaster package for that 

same period, but the $4 billion paid in crop insurance claims represents a substantial and growing portion of all disaster payments. 

Furthermore, the premiums paid by producers reduced total outlays of the Federal Government. As crop insurance is used more extensively and as more risk commodities and geographic areas are 

afforded coverage, the need for disaster assistance should decline. 

6

Finally, Mr. Chairman we are working very diligently to implement the ARPA as Congress directed. We have gained considerable 

experience in the past 3 years and we believe that that will improve in invaluable as we move forward. 

We welcome continued discussions with the insurance industry, 

with farmers and ranchers, with the committees of the Congress as 

we attempt to refine and improve this increasingly important part 

of the farm safety net. 

We look forward to working with you and the committee, and 

thank you again for the opportunity to be here today. 

[The prepared statement of Mr. Penn can be found in the appendix on page 37.] 

The CHAIRMAN. Thank you Dr. Penn. We appreciate your statement very much and your participation at this hearing. 

Dr. Collins, we have a copy of the statement you have submitted 

and we will make that a part of the record but we invite you to 

make any opening statement you would like to this time. 

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

DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Mr. COLLINS. Thank you very much, Mr. Chairman, Senator Roberts. I appreciate the opportunity to join Under Secretary Penn and 

Administrator Davidson here today. 

I would never contradict Senator Roberts, but I must say on the 

one hand I am the Chief Economist of the USDA, but on the other 

hand I currently serve as the Chairman of the Board of Directors 

of the Federal Crop Insurance Corporation. My comments are going 

to focus on the activities of the board since the passage of ARPA 

in the summer of 2000. 

As we have talked about here, ARPA has made substantial 

changes in the functions and responsibilities of the Federal Crop 

Insurance Corporation. For example, they changed the composition 

of the board. As you noted, Mr. Chairman, the private sector representation has gone from four members of the board to six members of the board. Now, out of a total of nine voting members of 

the board, six represent the private sector. 

That change, of course, symbolizes the emphasis that is placed 

on the private sector not only for guidance and management to the 

corporation, but also for the research and development of new products. 

The board has met 31 times since the enactment of ARPA, and 

our work has cut across a wide range of management issues. To 

help deal with those, for the first time ever, we have established 

a governance committee and a financial and audit committee. Most 

of our activities over this period have focused on the decision of 

whether to approve new products that have been submitted by the 

private sector for sale to producers. 

We have to make decisions on those submissions under a very 

tight timeline. We must issue a notice of intent to disapprove a 

product within 90 days after the receipt of a complete submission, 

and then either approve or disapprove within 120 days after the 

submission. The board must also contract with independent actuarial and underwriting reviewers to get independent reviews on 

each of these products. Then we are required by law to take those 

7

reviews into consideration to determine the approval or disapproval. 

Since the enactment of ARPA, we have had over 150 independent 

expert reviews on about two dozen products that have been submitted, new products or program modifications. The board currently has about 40 expert reviewers under contract to do that 

work. 

The board has approved several new risk management products 

over the past few years, including four livestock products, whole 

farm insurance policies such as AGR-Lite, Adjusted Gross Revenue, 

expansions of existing products such as revenue assurance into new 

areas, new specialty crop insurance programs such as one for forage seed, and the expansion of certain pilot programs such as the 

Pecan Insurance Pilot Program. 

Another board effort has been to review the rating structure of 

APH, revenue assurance, and crop revenue coverage plans of insurance. That may lead to substantial change in rates as we move 

ahead into the future. 

The board also reviewed Crop1’s premium discount plan and we 

recommended its approval subject to certain conditions being determined by the Risk Management Agency. As we look to the future, 

the board is committed to working closely with the Risk Management Agency. Our goal is, like theirs, improve risk management capacity of farmers and ranchers. 

In order to ensure the resources of the Federal Crop Insurance 

Corporation are being used in the best possible way, at the end of 

last year we authorized two studies to look at FCI’s current and 

future products. One study is looking at inconsistencies or overlaps 

between the statutes, the plans of insurance themselves, and all of 

the materials, directives, handbooks and so on that RMA puts out. 

The other study is looking at the whole portfolio of products that 

RMA offers, existing products as well as the need for new products, 

and trying to identify gaps in coverage or overlaps in coverage. 

Work will help RMA and the board deal with the large number 

of pilot projects and feasibility studies that are in the pipeline and 

that we are going to have to make a decision on either to put into 

place or to terminate at some point in the future. 

In conclusion, the FCIC board is committed to strengthening the 

Nation’s crop insurance and other risk management programs, as 

well as the regulatory functions of the Risk Management Agency. 

I can speak on behalf of all of the board members. They are very 

pleased to have the opportunity to serve American agriculture and 

they are all working very diligently and very responsibly to make 

this a continued and indispensable part of the farm safety net. 

Thank you. 

[The prepared statement of Mr. Collins found in the appendix on 

page 44.] 

The CHAIRMAN. Thank you, Dr. Collins. 

Mr. Ross Davidson is Administrator of the Risk Management 

Agency. We have a copy of the statement you have prepared for our 

hearing. It will be printed in the record in full, but we encourage 

you to make an opening statement. 

8

STATEMENT OF ROSS DAVIDSON, ADMINISTRATOR, RISK

MANAGEMENT AGENCY, U.S. DEPARTMENT OF

AGRICULTURE, WASHINGTON, DC 

Mr. DAVIDSON. Thank you very much, and let me just give you 

some highlights. I appreciate the opportunity to be with you today. 

The primary mission of the Risk Management Agency is to promote, support and regulate the delivery of sound risk management 

solutions to preserve and strengthen the economic stability of 

America’s agricultural producers. 

RMA is also, as you know, responsible for implementing Congressional directives and the decisions made by the Federal Crop Insurance Board of Directors. 

Let me just highlight a little bit about ARPA and its implementation. In response to subsidies provided by ARPA, farmers have 

increased their levels of coverage in crop insurance. As noted by 

Senator Roberts, in 2002 over 50 percent of the insurable acreage 

was insured at 70 percent coverage or higher, compared to only 9 

percent in 1998. 

This high participation rate and the higher levels of coverage 

have enabled the ability of crop insurance to become the main risk 

management tool for American producers. 

However, the traditionally underserved States and some commodities still lag in participation and coverage. RMA is working to 

promote and facilitate the development of revenue and specialty 

crop insurance to address availability questions and affordability 

concerns in the underserved areas especially. 

In February, the Department announced an effort to better serve the 15 traditionally underserved States by providing up to $18 million of additional subsidy for higher levels of coverage through the 

Targeted States Financial Assistance Program. This program, 

which is designed to help producers manage production price and 

revenue risk has been very successful. 

This additional financial assistance has encouraged many producers to purchase crop insurance for the first time and has allowed many producers to purchase the maximum coverage level 

available. 

RMA has received many positive letters from producers, producer 

groups, and insurance agents in many States on this program and 

we expect to have more definitive participation data later in the 

summer after acreage reporting dates have passed, and we will be 

pleased to share that information with you. 

With regard to products and coverage, RMA is undergoing an extensive product review, conducting listening sessions with producers across the U.S., and identifying crop insurance priorities of 

local and national producer groups, lender organizations, and State 

Departments of Agriculture to improve and fine-tune its products. 

Under guidance from Secretary Veneman and the board, RMA 

continues to support and regulate the development of new risk 

management tools, update and adapt existing tools to meet emerging market needs, technologies and risks, and expand availability 

of risk management tools for all producers. 

RMA’s work with the apple industry recently to improve apple 

insurance coverage is a good example of how producers, insurers, 

and the agencies can work together to adapt the program to adVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
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dress market changes, new risks, and local conditions. We plan to 

do everything within our authority to expedite the appropriate 

changes to the apple policy, and RMA regularly works with producers to address such emerging needs as these. 

RMA recently announced a Livestock Risk Protection Pilot Program for fed and feeder cattle which the board approved. Both 

plans protect producers from declining cattle prices. Additionally, 

RMA is entering into its second year of insuring slaughter hogs in 

Iowa under two different pilot insurance plans. Several other livestock initiatives are currently underway, including a feasibility 

study for various livestock-related insurance plans and for insuring 

against catastrophic livestock diseases. RMA is also testing a number of pasture and forage products. 

With regard to adjusted gross revenue, in accordance with the 

2002 Farm bill, RMA expanded the areas for the AGR program to 

additional counties in Pennsylvania and California. AGR is nearing 

the completion of its pilot phase and will undergo final evaluation, 

after which the Board of Directors will consider nationwide expansion. 

RMA has received interest from many States in an adaptation of 

AGR called AGR-Lite which was submitted by the Pennsylvania 

Department of Agriculture and approved by the board for use in 

Pennsylvania. Recently the Pennsylvania Department submitted 

certain changes and requested the expansion of AGR-Lite. On May 

7th, 2003 the board sent the submission out for review by external 

reviewers. 

Cost of production is a new and untested insurance concept and 

approach. Many issues, including program design, rating, delivery, 

and administration still must be addressed. RMA and the contractor on this product are currently addressing the issues raised 

during the board’s consideration process. We expect to revisit these 

issues by midsummer, when the product is resubmitted for the 

board’s additional consideration. 

Pending resolution of these issues to the board’s satisfaction, a 

policy for cotton may be available for spring crop year 2004. Any 

decision to expand to other crops would be decided by the board, 

taking into consideration the experience on this initial pilot program. 

As we all know, excessive drought has plagued and continues to 

affect many producers in the U.S. and RMA recognizes this challenge and has several programs that address the needs of drought 

stricken producers. RMA has demonstrated its continued service to 

producers during the drought stricken years by paying, for crop 

year 2002, over $4 billion in indemnities compared to $3 billion in 

2001. 

Prevented planning provisions cover producers in times of excessive multi-year drought. Recently, RMA provided supplementary 

information explaining prevented planting policies to producers and 

most producers have found that they are better covered than they 

originally thought. 

Additionally, RMA is holding a series of prevented planting forums to improve RMA’s prevented planting coverage for the future. 

We are also evaluating the possibility of requesting revisions to 

the yield substitutions that are in the APH structure to address 

10

long-term production decline such as those induced by extended 

drought. 

With regard to education and outreach, we have an extensive 

program. In 2002, RMA established 13 cooperative agreements to 

deliver crop insurance education and information to producers in 

the 15 underserved States and awarded 72 partnership agreements 

to conduct producer training and risk management with a priority 

to producers of specialty crops throughout the Nation. 

In addition, our Civil Rights and Community Outreach Division 

entered into 46 outreach partnerships covering approximately 34 

States serving women, Asians, African-Americans, Native Americans, and Hispanic farmers and ranchers. 

RMA has also participated in the 14 public educational briefings 

that USDA conducted across the country on the 2002 Farm bill and 

to explain USDA programs and services. 

We all have concerns about fraud, waste and abuse and managing that. As directed by ARPA, RMA instituted new provisions 

strengthening program integrity and compliance and these have 

shown positive results. To combat fraudulent claims, RMA provided 

crop insurance oversight training to 2,500 FSA personnel. This 

helps RMA and insurance providers monitor crop conditions and 

producer behavior during the growing season through onsite farm 

service agency personnel inspections. 

USDA’s 2001 compliance report to Congress noted that RMA has reduced program costs an estimated $94 million by preventing payments on potential fraudulent claims. In addition to that, our traditional investigation, criminal, civil, and administrative processes 

have generated recoveries of approximately $35 million in overpaid 

indemnities in the last year. 

ARPA also requested the use of data mining and data 

warehousing to administer and enforce crop insurance. An additional spot checklist is extracted from RMA’s data mining warehouse to identify producers who should have growing season inspections performed by FSA personnel. The indemnities of producers on the spot checklist were reduced from over $210 million 

to just over $100 million dollars in 2002, representing approximately $110 million in cost avoidance. 

In addition, RMA is upgrading its Geographical Information System, or GIS, using current mapping and imagery technology and 

infrared data to assist in making compliance determinations, and 

is integrating imagery technology into its data mining effort. These 

combined efforts provide additional help in preventing, deterring, 

and prosecuting crop insurance fraud. 

Recently, we have had to deal with the failure of a large insurance company that is a major portion of our delivery system. We 

continue to work with the Nebraska Department of Insurance, the 

rehabilitator of American Growers, in assuring the timely service 

and payment of claims. Currently, fewer than 200 open claims remain of the nearly 29,000 processed for 2002. A few new claims are 

added each week. 

All 2003 policies have now been transferred to other insurance 

companies. 

Although most of American Growers’ employees have been separated from employment at this time, a number of them were reVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
11

tained to help work these claims and we acknowledge that without 

their assistance and dedication this effort would not have been as 

successful as it was. 

We believe that this has been a very good example, also, of cooperation between Federal and State regulatory officials. We appreciate the insurance industry for picking up the additional policies 

and absorbing that business volume. 

Secretary Veneman recently charged RMA to examine its own 

authorities and processes to ensure effective oversight of the insurance industry. RMA is considering several changes in its authorities and organizational structure to increase oversight of the companies participating in the Federal Crop Insurance Program. 

RMA recently published procedures by which any reinsured company may apply to offer a premium reduction plan under strict 

standards for approval and operation. RMA has and will continue 

to exert careful regulatory oversight of these types of programs to 

ensure compliance with Federal law, particularly with respect to 

the proper use of licensed agents, producer service, and illegal rebating and tying prohibitions. 

With regard to changes in our basic provisions, RMA has incorporated the final requirements as mandated by ARPA into its common crop insurance policy for basic provisions. We recognize that 

there are a number of questions surrounding these proposed 

changes and hope to publish the basic provisions in the near future. 

The standard reinsurance agreement is the method by which we 

reinsure and provide subsidy to insurance companies that are helping us with the delivery of crop insurance. The current standard 

reinsurance agreement has been in effect since 1998. ARPA authorizes the Department to renegotiate the SRA once before 2005, and 

we plan to begin working with the insurance companies to begin 

renegotiation of that in the near future. 

As demonstrated, Mr. Chairman, by my testimony today, RMA is 

proactively striving to fulfill Congress’ and Secretary Veneman’s 

continued commitment to better serve our Nation’s producers. 

I appreciate the opportunity to visit with you at this time and 

we will be happy to respond to any questions. 

[The prepared statement of Mr. Davidson can be found in the appendix on page 49.] 

The CHAIRMAN. Thank you very much for your statements. I 

have a few questions to ask but I will yield first to my good friend 

from Kansas for any questions that he might have of this panel. 

Senator Roberts? 

Senator ROBERTS. Thank you, Mr. Chairman. Some of this may 

be repetitive to the testimony given by our three expert witnesses. 

Last fall Senator Harkin and I, Mr. Davidson, wrote you regarding several of our concerns in your proposed rule for changes to the 

basic provisions. I know you receive many comments and are now 

in the process of completing the final rule. 

As you know, June 30 is the deadline for making policy changes 

for the 2004 winter crops. Winter wheat is the top crop in our State 

and in the Great Plains. If the final rule comes out after June 30, 

but is still applied to the 2004 spring crops, it will create enormous 

confusion in the Great Plains and in Kansas. We would face a situVerDate 0ct 09 2002 08:24 Oct 08, 2003 Jkt 089315 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\89236.TXT SAG1 PsN: TOSH
12

ation where our producers would be operating under one set of 

rules on their 2004 winter wheat and another set on their 2004 

spring planted crops. This could cause some real problems especially in the area of prevented planting and double insurance. 

My question to you is if you cannot issue the regulation by June 

30, would you delay the implementation until 2005 to avoid this 

confusion in the countryside? 

Mr. DAVIDSON. There is virtually no chance that it will not implemented before June 30th. We will have it published and ready 

to go. 

Senator ROBERTS. That is the kind of answer we like to have. 

That is great. 

Your proposed rule also included significant changes to the rules 

regarding written agreements. As you know, these agreements are 

often used for producers that are moving to new crops but do not 

have a significant cropping history or where standard policies are 

simply not available in the county. 

We do not have many cropping options in the high plains but in 

recent years we have seen our producers switching or rotating to 

crops including canola and cotton. Mike, how many acres do we 

have in cotton now, 60,000? 

It has been predicted 120,000 acres of cotton. I do not think that 

the distinguished Senator from Mississippi realized that when Stephen Foster wrote the song old cotton fields back home, he was 

talking about Kansas. 

I do have some concerns with your proposal on the written agreements. One of the primary purposes of ARPA was to expand the 

coverage to the additional crops and regions. I know that we have 

to work to prevent fraud. We do not want a 60 Minutes program 

or anything like that. At the same time, we must work to ensure 

that we do not really discourage our producers from trying to get 

new crops and we must ensure that new beginning producers can 

get insured. 

Have you addressed these issues in the revised rule? 

Mr. DAVIDSON. I believe we have and we have a continuing effort 

to evaluate the written agreement procedures. In fact, our Board 

of Directors has asked us to do that to ensure that it is balanced 

with responsiveness as well as with responsibility. 

Senator ROBERTS. Thank you, sir. 

In the Farm bill, a provision was included to equalize the loan 

rates for sorghum and corn. There was also a provision in the 

Cochran-Roberts proposal that the Chairman and I put forward at 

the time. The provision was included to try to keep producers from 

deciding to plant corn simply because of the higher loan rates. 

Sorghum is also a less water intensive crop, which is very important in the high plains. I have heard from many producers concerned with lower crop insurance price elections for sorghum than 

corn. Could you please take a look at this issue and let us know 

where you stand on it? 

Mr. DAVIDSON. Yes, I am aware of that issue and we are looking 

at it. We would be happy to come back to you on that. 

Senator ROBERTS. A big-time issue, if I might, Mr. Chairman, the 

industry has seen some drastic structural changes in the last 8 

months. American Growers has gone out of business. Firemen’s 

13

Fund Insurance has been merged into RCIS. Thus, we have lost 

two of our largest crop insurance providers in the past 8 months. 

My question is are you taking steps to ensure the financial integrity of the industry? Are there any other upcoming financial problems we should be aware of? Or do you think the situation has 

begun to stabilize? 

Mr. DAVIDSON. We have increased our scrutiny of all of the companies as a result of the American Growers failure. I cannot tell 

you at this time that we are not concerned about other companies 

because we do have a couple that we are watching very carefully. 

We believe that those companies, if they have a problem, will be 

able to preempt that rather than to have an abject failure to deal 

with. I do have some concerns about a couple of smaller companies. 

Senator ROBERTS. We have come through a very difficult time, 

especially out in the high plains, Montana, Wyoming, so on and so 

forth, with the drought and forest fires, et cetera, et cetera. That 

is part of the reason, we hope that Mother Nature is a little kinder 

to us as we go into these next few years. 

In recent weeks we have heard many comments regarding a new 

company called Crop1 and their premium discount policy. The acronym for that is PDP. 

I understand the concerns some have expressed in regard to the 

use of the Internet to provide this policy. At the same time, I was 

a strong supporter, and others were as well, during the ARPA debate, of developing new policies and reduced cost to our producers. 

We also had a very lively debate during the ARPA discussions 

on something called rebating. I recall from those discussions insurance rebating is prohibited by 48 State insurance laws, the exceptions being California and Florida. 

Except for these two States, I thought Congress was very clear, 

we did not want rebating taking place in the Federal Crop Insurance Program. Can you assure me that rebating is not taking place 

under this new policy? 

Mr. DAVIDSON. Yes, I can. We have evaluated it very carefully. 

We have actually put out additional communication to all parties 

with regard to rebating. There are certain aspects of being able to 

reduce the cost of insurance to farmers that Congress has allowed 

in legislation. Those are the types of reductions that are allowed 

through this PDP program. If an insurance company can reduce its 

cost of delivery or there is another section that indicates that if you 

can reduce the risk of the product itself, that those savings can be 

passed along to farmers. That is what PDP does. It is an allowed 

reduction to benefit the farmer. 

Senator ROBERTS. I see. 

A related question, and my final question, Mr. Chairman, and 

then I have other questions I will submit for the record because I 

know time is valuable. 

I know that the company is using input suppliers, I am talking 

about the implement dealers, the seed dealers, the grain elevators, 

to promote their policy. That is fine. Do I have your assurance that 

these organizations are not operating as unlicensed agents, and 

that not servicing the policies and assisting producers in making 

their crop insurance decisions? 

14

Mr. DAVIDSON. It is against State law for them to do so. It is 

against our rules and regulations for them to do so. If they do it, 

they will have to be eliminated from the program. 

Senator ROBERTS. Thank you for answering these questions in 

such a precise manner, and thank you for the job that you are 

doing. 

I would like to submit some additional questions for the record, 

Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Roberts. 

In connection with the question about the failure of American 

Growers and the questions that were raised about the financial 

strength of some of the companies that are selling and providing 

crop insurance, do you have enough tools available to you, Mr. Davidson, to help assure those who are relying on the solvency of 

these companies to continue to participate in the program? 

I know there is a reinsurance agreement vehicle that is used. Do 

you need any additional legal authorities to obtain financial documents or other information that would enable you to help ensure 

that we do not have failures among the companies that sell and 

service federal crop insurance policies? 

Mr. DAVIDSON. We are evaluating all of the authorities that we 

have. It has been an interesting experience to deal with this American Growers failure because we have determined that we really do 

not have the authority to, for example, take over a company, supervise as a State insurance regular would, and rehabilitate that company. We have had to rely on the authorities that exist in the State 

of Nebraska to do that had to collaborate with them. 

That has worked well with regard to American Growers because 

basically we have provided the funding and the guidance and the 

insurance commissioner has provided the regulation. In another instance where a company did not have nearly 100 percent of Federal 

crop insurance, it might be difficult to sort out the relative roles 

of the Federal Government and a State insurance commissioner. 

We are working with the National Association of Insurance Commissioners to sort that out. Likely we will need additional authority for some things. 

The CHAIRMAN. I have a few more questions, but I intend to yield 

now to my friend from Iowa, Senator Harkin, for any statement or 

questions he might have. Senator Harkin? 

Senator HARKIN. Thank you very much, Mr. Chairman and I will 

just ask that my opening statement be made a part of the record. 

The CHAIRMAN. Without objection, it is so ordered. 

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

appendix on page 30.] 

Senator HARKIN. Thank you, and I just have a couple questions 

here. The bulk of my questions were basically dealing with the letter that Senator Roberts and I had sent last year, and you have 

already answered those. I appreciate that. 

I had a couple of more that I wanted to ask. The one thing that 

was in the letter that Senator Roberts did not ask about and that 

was one of your proposed changes was introduced was to eliminate 

the arbitration of crop insurance claims. I am sure you have heard 

from a number of groups, as I have, about this, and we put that 

in our letter to you. 

15

Do so still intend to eliminate arbitration? If so, do you have a 

proposal for an alternative dispute resolution process? 

Mr. DAVIDSON. That was in the proposed provisions because we 

did intend to replace it with something that is more responsive to 

producers. One of my concerns, as I first came here, many of the 

letters that I received in the first few months had to do with a producer doing something in good faith based upon the representation 

of an agent or an insurance company or a loss adjuster, and then 

at the end losing their farm because it was not really something 

that they could rely upon, and having very little ability to come 

back and to deal with that. 

We still are searching for a better way for producers to be able 

to deal with small and large complaints. The arbitration provision 

currently, as it stands, is not as responsive as I would like to see 

it. However, we are probably not going to have that arbitration provision taken out yet because we have not found the Holy Grail that 

would replace it. 

Senator HARKIN. You are going to come out with these rules before June 30th. 

Mr. DAVIDSON. The arbitration provision will not be taken away. 

Senator HARKIN. It will not be in there. Then the present——

Mr. DAVIDSON. No, the arbitration will not be taken away. 

Senator HARKIN. It will still be there? 

Mr. DAVIDSON. Yes. 

Senator HARKIN. We did not address this, so I hope that you will 

consult with us as we go along, because we did not address that 

in the legislation at all. 

Mr. DAVIDSON. Sure. 

Senator HARKIN. I sense what you are saying. 

Mr. DAVIDSON. We are just looking for something more responsive. 

Senator HARKIN. If you find it, let me know. 

Mr. DAVIDSON. We have a group working on it right now, and we 

will. 

Senator HARKIN. I have two questions. Senator Daschle, who 

could not be here, wanted me to ask this question and I will just 

ask on his behalf. Last Friday USDA was to begin sign up for the 

crop disaster program that Congress passed several months ago. 

Producers have been waiting for this assistance, many of them 

barely hanging on. 

I am told that many States are not prepared to accept applications and are being turned away and told to come back in 2 weeks. 

This week I am told that some offices are taking manual applications. 

It was USDA who announced when the sign up would occur. It 

is one thing for producers to have to wait so long, but another for 

them to adjusted their schedule during a busy time of year and go 

to an FSA office only to be told that they will have to come back 

later. 

I am told that this is a National office delay and that the software was not ready. I understand that the Department is busy but 

why do not field offices have everything in place to take the applications when the sign up date is announced? 

16

I would like to explain to the committee why there is a delay? 

Additionally, when is the deadline for producers to apply? Dr. 

Penn? 

Mr. PENN. Senator Harkin, let me try to respond to that. The information that you have just cited is not exactly consistent with the 

information that I have. 

This is a massive undertaking, as you know. New software had 

to be developed. The software was delivered to the county offices 

and sign up did begin last Friday, June 6th, as we said. 

As with all undertakings of this scope and magnitude there were 

some glitches. There were some county offices where the software 

was not received or there were some places where it did not work 

as intended. These have been relatively minor and relatively few. 

As far as I am aware, the sign up is going as intended and we 

intend for the checks to start flowing within a few days after the 

producer signs up. 

I acknowledge there have been some few glitches but these were 

relatively minor and relatively few and the sign up progresses pretty much as we had intended. 

Senator HARKIN. Again, on behalf of Senator Daschle, would you 

check on South Dakota and see how it is moving along? 

Mr. PENN. I will do that. 

Senator HARKIN. Thank you, Dr. Penn. 

One less question. Mr. Davidson, many farmers in my home 

State and others have made a lot of fixed investments in ethanol 

production facilities. As you know, these add value to corn, they reduce our dependence on foreign energy. We just about a vote on 

that in the Senate, as you know. 

However, as you may know, the profitability of these facilities depends on a lot of forces outside their control, market price for example. When corn prices are high or when energy prices are low, 

ethanol producers are put in a squeeze. These are risks associated 

with these potential losses. They have reduced some of the capital 

availability of the plants and their farmer-owners. 

My question basically is would your agency be willing to look at 

insurance coverage, some kind of risk management tools, to farmerowners that have co-ops of ethanol facilities in a manner that is 

similar to your recent efforts to guarantee the gross margins of hog 

producers, for example, on the livestock end? 

Mr. DAVIDSON. That is an interesting concept. I guess, yes, we 

are willing to look at anything. It may require additional authority 

to do something in that area, I would guess. We would be happy 

to take a look at any proposal. 

Senator HARKIN. Mr. Chairman, I will just submit to you some 

proposals that have come to me in that regard and have you take 

a look at them and see how they might fit into that and whether 

or not we need additional authority to do something like that. 

Mr. DAVIDSON. Sure. 

Senator HARKIN. Thank you, Mr. Davidson. Thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you, Senator Harkin. Senator Leahy. 

17

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM VERMONT 

Senator LEAHY. Thank you, Mr. Chairman. 

I have a whole statement that I might put in the record, but I 

would like to mention a couple of things. 

We made changes in ARPA in the 2002 Farm bill and was actually beginning to help farmers in the Northeast enroll in crop insurance, help them manage risk in other innovative ways such as 

using conservation practices which, in our part of the country, can 

help very much to manage risk. Better financial management, farm 

diversification. 

The Department deserves credit for developing new crop insurance products to cover the crops in the Northeast, such as whole 

farm insurance policies. I just now would like to see them become 

available. There is only about 1 percent or so of our farmers can 

even use the programs that all of us worked to put in the Farm 

bill. 

There is a perfect storm of events occurring this year to stop past 

progress in helping these underserved States. I mention this because all 50 States contributed with their taxes, both to the salaries of the people at USDA, and I notice that there is a humongous 

number of people from USDA here, but also for the programs in 

the Farm bill. A great deal of those taxes come from the Northeast. 

I am not sure this is realized. 

The Department decided to make a 180 degree change in the 

AMA program. Second, the Department did not implement the regional equity language, guaranteeing the Northeast conservation 

funding, even though a bipartisan majority of the House and Senate wanted that. 

Third, and this is most inexplicable, the Department decided to 

cut the conservation programs that we know worked very well in 

the Northeast, to fund technical assistance for other programs that 

do not work. 

This leaves a lot of the farmers in my part of the world, especially in Vermont, feeling that they have been left behind again by 

farm policy. That is the same feeling I hear throughout a number 

of the far more populated States of the Northeast. 

Let us solve at least one of these problems. The Agriculture Management Assistance Program was flexible, it was locally driven, it 

was directly responding to risk management needs in each of the 

participating States. Those needs changed. it was not one size fits 

all. 

It was so successful that in the Farm bill we—and by we I mean 

all the Republicans and the Democrats in the Senate, all the Republicans and Democrats in the House—expanded its mandate and 

we doubled the funding. 

USDA does not seem to see the benefits it provided farmers and 

given them a variety of risk management choices. 

Earlier this year the Department transferred the vast majority 

of funds for the Agricultural Management Assistance, the AMA, 

from the Natural Resources Conservation Service to the Risk Management Agency. RMA has just used these funds for traditional 

crop insurance subsidies. 

18

If we had wanted to put more money in these traditional crop 

subsidies, we would have done it. Instead we were trying to point 

out another area. The funding would not have been put in there 

at all, had it not been for the fact that we assumed USDA would 

actually follow the law and the funding as we in the Congress 

wrote it. 

We can sometimes be a stumbling block to USDA doing whatever 

they want to do, but after all the money does come from up here. 

These new subsidies would make crop insurance more affordable 

for those who are eligible to purchase it. I understand that. By diverting the funds you in the Department killed an innovative program which had funded conservation, market development, farm 

viability efforts. That is why 24 of the senators from these AMA 

States, Republicans and Democrats, wrote to the Secretary to urge 

you to restore the AMA program to its original purpose. A number 

of these senators, I would note, are on the Appropriations Committees. 

AMA had offered farmers in my State a new way to diversify into 

other markets and help improve their bottom line. It was working 

and it is almost—I see so much money going into programs that 

have not worked for decades and they just keep getting added two. 

Now we have one that is working, so it is almost like if it is 

working it is going to get punished. 

We went through all of this debate when ARPA was authorized. 

We decided we did not want to put all of our eggs in one basket. 

Risk management is more than just crop insurance. I hope the Department will recognize that. 

What I want to know is why did the Department invested AMA 

funds in traditional risk management programs instead of building 

upon past successes? What did the Department ignore the broader 

authorization of AMA, and instead use the AMA funds to only pursue one risk management tool, crop insurance, a tool that is really 

not available to any meaningful fashion to us, throughout much of 

the Northeast? 

Anyone of all the USDA folks here want to take a try at that? 

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

appendix on page 32.] 

Mr. DAVIDSON. Let me take a stab at it. 

Senator LEAHY. I know you came up here, Mr. Davidson, and 

met with the staff yesterday. 

Mr. DAVIDSON. Yes, and it was very informative and very helpful. 

Senator LEAHY. They have probably given you a little bit of a 

heads up that I am somewhat concerned. 

Mr. DAVIDSON. I understand that you have some feelings about 

this. 

Senator LEAHY. I have been here 29 years. I have been very supportive of the Department in a lot of things. I am just so frustrated 

I am about to lose what little bit of hair I have left. That frustration, I have to tell you, is going to carry over into my senior position on the Appropriations Committee. 

Mr. DAVIDSON. Let me first say that personally, and as an agency, we support development of broad risk management tools. We 

have a commitment to that. We also support the idea that there 

are many other things that can be done other than insurance, in 

19

fact, many other things that should be done other than insurance 

to deal with risks on the farm. 

We do have a commitment to that, and we demonstrated that 

commitment last year by providing over $8 million in funding for 

development of other risk management tools. Again this year, tomorrow, in the Federal Register, will appear another request for 

applications to development risk management tools for producers 

that are not insurance related. 

We have been given the mandate to try to increase—— Senator LEAHY. Looking for more things, I mean there is outstanding AMA contracts with Vermont farmers that are probably 

not going to be met because of the Department’s program change. 

Before you go out looking for even more, why do you change and 

cut these people out? 

Mr. DAVIDSON. We are actually hoping to receive several applications from Vermont producers for those. 

Senator LEAHY. You have some in there already that, because of 

your change, are not being met. I am told the State and local officials were not even consulted or informed about a lot of these 

changes. You have a Republican Governor up there, a Republican 

Commissioner of agriculture. If you do not want to talk to me, at 

least talk to them. 

Mr. DAVIDSON. We actually, in implementing this program, did 

talk to the State Departments of Agriculture. They assisted us in 

communicating the program to all farmers in every State. 

Senator LEAHY. They do not believe that up in Vermont. They 

are uncomfortable with this. Go ahead, answer the question. 

Mr. DAVIDSON. I just wanted to respond to you. We have a commitment to that, and it is our understanding that NRCS has a 

commitment to continued funding of all the conservation measures. 

I know there has been issues with regard to implementation in 

that. We have had—— Senator LEAHY. Even though we increased substantially the 

money for conservation in this bill, something I supported, also at 

the request of a lot of you in the Department of Agriculture, I supported that increase in funding. I am told now actually that even 

though we increased it, the money available for conservation programs in my State is actually going down. 

Mr. COLLINS. Mr. Leahy, can I respond to this conversation? I do 

not want to comment too much on the funding that has been directed toward increasing the subsidization on insurance in the 

Northeast. That was well motivated by the very low participation 

and low coverage rates in the Northeast. 

The question that you are getting at is the tradeoff between the 

conservation aspect of it and the risk management or the crop insurance aspect of it. 

When this decision was made, as this process unfolded, we 

looked at exactly what you pointed out. There was about an 80 percent increase in conservation spending. We had every reason to believe that there was going to be an increase in conservation spending in 2003. NRCS, in fact, indicated that to us, as well. That was 

part of the reason we went to this decision. 

Well then, as it turned out, the appropriation for the conservation programs, because of the debate over technical assistance 

20

funding, was not made until after April 1st and NRCS did not—

I do not know what they told you in the briefings on the Hill this 

week—but they did not implement the regional equity provisions in 

2003. Your concerns on that are well justified and well motivated. 

One of the things think NRCS has done, however, is they have 

held back a certain amount of funds in reserve for the conservation 

programs for 2003. I can tell you, in discussions I have had with 

Under Secretary Ray and Chief Knight, that they have every intention of making a priority in allocating those unallocated funds over 

the rest of this year, making the Northeastern States a priority for 

the distribution of those remaining funds. 

Now that is not going to solve all of the issues that you have 

raised, but we recognize what has happened here. We did not get 

the conservation increase that we expected to get when we made 

these AMA decisions, and hopefully we can try and address it, 

maybe not fully, but try and address it in some way over the course 

of this year. 

Senator LEAHY. As I said, I am not trying to point fingers of 

blame. I am trying to fix what is a real problem. It appears to me, 

as a related thing, that the vast majority of agriculture income that 

is generated in Vermont, because it comes from dairy and livestock 

farms, is not even going to have a chance of being protected under 

the changes that have been made to AMA. 

That is one thing. You couple that with decrease in conservation 

funds, we kind—we are in a situation like—and this is not dissimilar to a lot of the other Northeastern States—we have been 

sawed-off and let float out to sea, as far as the Farm bill is concerned. We are paying one heck of a lot of the bill for that farm 

bill. 

It took a lot of Northeastern Senator’s votes to pass the Farm 

bill. I would hate like heck to be on the floor trying to get those 

votes this year. I just could not do it. 

Is that not true, that with these changes, the vast majority of agricultural income generated in Vermont would not have the chance 

of being protected under AMA? 

Mr. DAVIDSON. I do have to say that the program has been very 

successful in the way it was directed this year. We have had significant increase in participation. 

Senator LEAHY. In the Northeast? 

Mr. DAVIDSON. In the Northeast, in crop insurance. Nearly 100 

percent increase in buy-up coverage in those areas, based on policy 

count. 

Senator LEAHY. Let me ask you this. 100 percent increase. What 

percentage of that reflects the actual income being produced up 

there? For example, in my State they might have had 100 percent 

increase in sign up, but you are talking about 1 percent, or less 

than 2 percent certainly, under the way this program is designed 

of the farm income producing areas. 

You can say 100 percent increase, but if it is not really covering 

much, it is like saying here if we have one person in this room has 

health insurance and we say two more have signed up, we have a 

300 percent increase but we have an awful lot of people not covered 

with health insurance. 

21

Mr. DAVIDSON. It is true that a large increase off of a small base 

is still a small result. We have seen a significant amount of increase in various States. It has ranged—the main thing that we are 

concerned about is making sure that we have tools that Vermont 

and other farmers can use. I am really encouraged by the development of Adjusted Gross Revenue and Adjusted Gross Revenue Lite 

to meet the dairy farmer interest in Vermont. That program hopefully will be available in Vermont in the near future. 

I tend to agree with you that we need to do more with regard 

to the tools available to farmers, not just insurance but also all risk 

management tools. 

Senator LEAHY. Thank you, Mr. Chairman. As you can imagine, 

my staff and I will probably do some followup on this. Thank you. 

The CHAIRMAN. Thank you, Senator. Senator Stabenow. 

STATEMENT OF HON. DEBBIE A. STABENOW, A U.S. SENATOR 

FROM MICHIGAN 

Senator STABENOW. Thank you, Mr. Chairman, Senator Harkin, 

for convening this very important meeting. I do have a full statement and some questions to enter into the record, but I would like 

to address a couple of those concerns today, as well as talk about 

some things that are positive that are happening in Michigan. 

I was a member of the House when we debated and signed the 

bill to increase crop insurance and to broaden the scope as a risk 

management tool. I was especially pleased of provisions that we 

were able to add at that time to expand opportunities for specialty 

crops to begin to focus on options for specialty crops. I appreciate 

the fact that we have begun to do that and that it is challenging 

to do that, I know. Practically in a State like Michigan, with great 

diversity in terms of fruits and vegetables. 

My concern continues to be that when we pass disaster packages, 

and Michigan has needed emergency assistance because of our crop 

losses in the last couple of years, very severe losses. For many of 

our growers right now that is the only risk management tool that 

they have, is a disaster relief package. We want very much to be 

able to provide them greater options, affordable options under crop 

insurance. 

We have seen some improvements in Michigan since 1999, processed cucumbers and sweet cherries and cabbage has been added 

to pilots. I would encourage you to add additional crops and additional pilots and expand them to more counties. One of the biggest 

concerns that I hear is that the pilots operate in only a few counties, and that more growers want to be able to use them. 

The other concern that I here, and probably the greatest complaint, is that coverage is still too expensive and that most producers can only afford catastrophic coverage. Even though we 

added dollars, we took major steps toward addressing this in 

ARPA, to increase the Federal subsidy, but some growers still find 

the highest level of coverage out of their reach, and complain about 

variations from county to county that still need to be addressed. 

There are specific issues, and I will not go through them in detail, I would like a followup with information I have received in 

talking to growers, but I would say first of all that I know that 

there was a comprehensive review of crop insurance for sugar 

22

beets. I know that was just completed in March and that there is 

a meeting this coming Monday with growers to address issues that 

they have raised. I hope that a copy of the report is going to be 

available soon for us to be able to look at that in detail, and I am 

anxious to see that the growers are able to work with you to resolve a number of outstanding issues as it relates to sugar beets. 

The response to the sweet cherry crop in Michigan has been very 

positive. In fact, it is only available in two counties but there has 

been an 80 percent sign up rate. That is positive. 

The concern is that with tart cherries that we do not have right 

now a pilot for them. In the beginning there was some question of 

whether it would be for tart cherries or sweet cherries. We need 

it for both, and I would like to know when that tart cherry crop 

insurance will be available, even on a pilot project in Michigan. If 

any of you are aware of what is happening, I would like to know, 

from your perspective. There is a great concern about having this 

happen as soon as possible. 

[The prepared statement of Senator Stabenow can be found in 

the appendix on page 34.] 

Mr. DAVIDSON. I understand that a number of years ago we had 

a tart cherry pilot that did not work very well, and so it was 

pulled. When the decision was made as to which variety to go with 

on a pilot, it was decided this time to start with sweet cherries and 

then see how that went and then look at tart part cherries later, 

not only from Michigan but from other states. I have also had the 

request to have a tart cherry program looked at carefully, and we 

will start doing that. 

Senator STABENOW. As I mentioned, even though it is limited in 

Michigan, the sweet cherry pilot has gone very well. It has been 

very successful. 

Mr. DAVIDSON. It seems to be very successful. Successful in 

terms of participation. It remains to be seen how well it will meet 

the needs of producers. 

Senator STABENOW. The message, I guess, that I would leave you 

with is that there is great need and great interest. We continue to 

have fluctuations in weather that has caused great damage in 

Michigan. We do not want our growers to be in a situation where 

the only option they have is for us to come back again and talk 

about another disaster relief package. They are very anxious to figure out a way to be able to make sure that there is affordable crop 

insurance for them. 

The other issue, and I will not go into it in detail, but apple crop 

insurance has been available in the State for some time. There are 

a number of issues right now that relate to that that I would appreciate your attention to. I will followup in writing, and would like 

to work with you and encourage you to look at those issues so that 

we can resolve them. 

Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. Senator Nelson? 

Senator NELSON. Thank you very much, Mr. Chairman. 

Before I arrived, I understand that Senator Roberts raised a 

question which we have raised with Mr. Davidson earlier. It is our 

concern about the crop insurance rates for the planting of water 

conserving crops. 

23

We remain interested, very much interested in that because of 

the necessity for conserving water in general, but in particular because of the drought conditions that Nebraska has experienced over 

the last several years. It only makes good sense. 

We appreciate very much your interest in that. We would like to 

continue to follow through and make sure that that is administered 

in a way that will get the greatest amount of impact for the program, not only in Nebraska but elsewhere, but particularly in our 

State. 

It is also good to see you again after a few years and we appreciate the work that you are doing to make this essential risk management program work for our Nation’s farmers. 

One of the questions that has been raised to us, and we corresponded back and forth, and we are getting ready to respond to 

your recent letter, is the development of the premium discount 

plan. The agents, the independent agents who have been working 

with this program and implementing it with their accounts have 

raised a number of questions about how it was developed. 

There are always reasons to do things at times on an actuarial 

basis and there are times to do it on an non-actuarial basis. If you 

do it on an actuarial basis, you will have people raise questions 

about the actuarial assumptions. If do not do it on an actuarial 

basis, of course, the question is why did you not. 

We need to continue to work through this to get the producers 

satisfied that the discount is appropriate under all of the circumstances, and that it does not have to be done a single way to 

be appropriate. 

I appreciate the fact that you have responded back and we will 

try not to become pen pals on this, but I do think it is important 

to get some satisfaction out there and perhaps a better understanding and acceptance, if possible, of the basis for determining 

this discount. 

Mr. DAVIDSON. We would be happy to work with you on that. 

Senator NELSON. You have been, and we appreciate that, and we 

will continue to have some dialog and correspondence back and 

forth. If we can be of any help in this area or any other area of 

the risk management program, as you know, it is an area that I 

have more than a passing interest in. I may not be good at it, but 

I have had some experience with it. We like to be a party to any 

kind of development of rates and/or other programs that you might 

be working on. 

Mr. DAVIDSON. Thank you. 

Senator NELSON. I appreciate it, and I thank the other gentlemen for being here. It is good to see you both again. Thank you, 

Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Nelson. Senator Chambliss. 

Senator CHAMBLISS. Thank you, Mr. Chairman. Gentlemen, it is 

good to see all of you here this morning. 

Mr. Davidson, I just have a couple of quick questions that I want 

to make sure that we get on the record. I know that my staff has 

talked to you about expansion of the Blueberry Pilot Program. We 

are pretty anxious to make sure that we get it expanded for the 

2004 crop season, particularly in Georgia. 

24

I understand that is underway but I wanted to make sure that 

we have your comments on the record relative to that. 

Mr. DAVIDSON. We are also anxious. We would like to get it expanded to as many areas as possible. In some areas, the challenge 

is just not enough information to be able to establish appropriate 

premium rates, and we are working to try to obtain that information. It is our goal to get it established as broadly as possible. 

Senator CHAMBLISS. Is that information that has not been forthcoming from the farmer level, or is it just you are not able to get 

the information that you are looking for? 

Mr. DAVIDSON. Both. 

Senator CHAMBLISS. We will certainly push our folks and encourage them to get that to you. 

The other thing I would just comment on, the Pecan Program is 

working well. Our farmers are really excited about that. That is 

one pilot program that I know was very difficult to get initiated, 

but it really has worked well. It is an area where I am glad to see 

us expand the Crop Insurance Program into. I commend you, your 

staff, and everybody else at USDA that got this off the ground and 

got us moving and has made it work. I commend you on that. 

Mr. DAVIDSON. Thank you. Georgia is the envy of all other States 

that want to see that expanded as rapidly as possible. 

Senator CHAMBLISS. Let us use all the money we have right now, 

and then we will talk about that. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Chambliss. 

Let me ask each of you about some specific suggestions that we 

have heard from farmers. There are a good many Southern farmers 

that think crop insurance is too expensive, that there is room for 

improvement in the program. There may be too much opportunity 

for fraud. Some producers feel like they are left out. 

The Alabama Farmers Federation specifically has come up with 

a suggestion called an individual risk management account. Under 

this proposal, a producer would put money that he would normally 

pay for crop insurance into a tax-deferred interest-bearing account. 

USDA would add to the account the same amount of funding that 

would usually go to subsidize the producer’s crop insurance premium. Then the farmer could make withdrawals when his income 

from farming fell below a certain level. 

I do not know whether you have had an opportunity to look at 

this or whether you have heard about it, but my purpose is to ask 

you to look at it and let us know what your thoughts are. 

I guess the board would have to approve something like that and 

maybe there is no authority to approve a scheme like that. What 

do you think, Dr. Collins? 

Mr. COLLINS. Mr. Chairman, this type of concept has had some 

history, as you know. I have supported them in the past. There was 

similar proposals in the 2002 Farm bill debate for individual risk 

management accounts, not ones that would substitute for crop insurance premium subsidies but ones in which producers would put 

money into an account, matched or not matched by the Federal 

Government, with an interest rate paid, subsidized or not subsidized by the Federal Government. Then the funds could be pulled 

out if there is a drop in income or a disaster. 

25

I would say that the Risk Management Agency has a contract 

right now, I believe with the Economic Research Service, to look at 

these kinds of tools. We are looking at that. I cannot say that this 

specific version is part of the mix that they are looking at, but we 

will take that information and pass that on to the research staff 

at RMA and to ERS and see if that could be incorporated into it. 

As a general statement about these programs, the Department 

was very supportive of these during the run up to 2002 Farm bill. 

We view those programs not as a substitute for crop insurance, I 

would be worried about this being a substitute for crop insurance, 

but as something that would work in parallel with crop insurance, 

perhaps as a way to remedy some of the shortfalls that crop insurance has in certain parts of the country. 

You mentioned some of the views that people have in the South, 

for example, about crop insurance. We think crop insurance is 

working. 

Even so there are concerns that people have about having a deductibility, for example, in crop insurance. There are concerns 

raised by the existence of disaster assistance programs which are 

premised on the fact that maybe crop insurance is not working for 

everyone. 

Well, this kind of a program, running alongside crop insurance, 

a risk management account running alongside crop insurance, 

might in fact, lessen the need for a disaster assistance program, 

might deal with this question of the deductibility or the low APH 

or whatever problems that producers face across the country with 

crop insurance. 

In concept, the idea sounds good. In practice, the problems are 

trying to get it workable and trying to pay for it. 

The CHAIRMAN. A similar suggestion that we have heard is that 

cotton farmers thought that premiums for crop revenue coverage 

were too high. I wonder whether or not there has been an opportunity to review crop revenue coverage rates to see whether or not 

they are too high? 

Mr. COLLINS. We will give you a two-part answer on this. Let me 

start, and then maybe Mr. Davidson would like to add to this. 

When I became Chairman of the Board of FCIS in 2001, it was 

shortly thereafter that I started getting calls from around the country from farmers, as well as from crop insurance companies, presidents of companies, raising questions about CRS rates, rates for 

revenue products, crop revenue coverage and revenue insurance. 

As a result of that, we did contract for a study to look at the 

rates of revenue products. We contracted with four of the most preeminent analysts in the world. They came back to us with some 

concerns about the CRS rates, also some concerns about the RA 

rates. 

For the 2003 year, we were able to work with the companies, 

make some rate changes. We did not go far down that road. 

One of the reasons is this is very complicated. These rating 

methods are very difficult. They are very different for these different insurance products. We wanted to make sure that what we 

were doing is sound. 

26

We took this study that these four preeminent expert did and we 

put it out for extra review, including we had the insurance industry represented in the expert review team. 

We have those results back. We got those back in December or 

so. We are satisfied that there are some things that we can continue to do that would result in rate changes across the board, not 

just for the revenue products but for the underlying multiple peril 

products as well. 

The Board of Directors has accepted that study and has recommended to the Risk Management Agency that they proceed to 

begin prudently, slowly implementing those rate changes. 

With that, I will turn it to Mr. Davidson to followup for more details. 

Mr. DAVIDSON. You have done a wonderful job. 

The CHAIRMAN. Senator Chambliss has a question. 

Senator CHAMBLISS. I just had one question to Dr. Penn. It is not 

directly related to crop insurance, but I am already starting to get 

calls from our farmers about the disaster program. I know our sign 

up started on June 6th. I wonder if you could tell us what your projected timeline is on that, please? 

Mr. PENN. This question was raised by Senator Harkin a little 

earlier. 

As you know, the sign up started last Friday, and the software 

was delivered to the county offices. We understand that the sign 

up is well under way. We expect that to run for several weeks. 

Having the software available, we can issue the checks to producers within a few days after they sign up. 

There is a termination date, but I do not know the exact date for 

this sign up. This should be done within the next few weeks. 

Senator CHAMBLISS. Thank you. 

The CHAIRMAN. There is some question about whether or not it 

has been appropriate for Congress to make available disaster payments to farmers for weather-related disasters at a time when we 

have this Crop Insurance Program in place. It is apparently working much better than a lot of the critics said it would. 

What do you say to those who complain that we may have gone 

overboard in providing too much relief to farmers? 

Mr. PENN. Let me just say a couple things, Senator. I noted in 

my statement that there is a constant tension there between operating a Crop Insurance Program and providing ad hoc disaster assistance. 

If the producer community begins to think that this ad hoc disaster assistance is going to be available every time there is a disaster of any consequence, then that tends to undermine the Crop 

Insurance Program. It tends to reduce the incentive for people to 

purchase crop insurance. 

On the other hand, as we have noted here this morning several 

times, most of the protection is available only to the producers of 

certain crops. There is very little protection available to the livestock sector, for example. That was one of the big concerns in the 

past 2 years, is as we have had this extended drought, more and 

more livestock producers who depend on forage have been adversely affected and they have not had an opportunity for crop insurance. 

27

It seems to be that there is an ongoing tension here in trying to 

not undermine the program for crops where we have insurance 

available. At the same time we need to be operating as quickly as 

we can. As Mr. Davidson has noted, that is what we are trying to 

do, to develop new products and to expand those products, especially in the livestock sector. 

The CHAIRMAN. I appreciate very much your response and I 

thank you all for your attendance at the hearing and cooperation 

with our committee. 

We may have additional questions to submit to you in writing 

and we hope you will be able to respond to those within a reasonable time. 

The hearing is adjourned. 

[Whereupon, at 11:29 a.m., the Committee was adjourned.] 

(29)

A P P E N D I X

JUNE 12, 2003

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DOCUMENTS SUBMITTED FOR THE RECORD

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QUESTIONS AND ANSWERS

JUNE 12, 2003

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Æ


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